EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
Among
CABLEVISION SYSTEMS CORPORATION,
CCG HOLDINGS INC.
and
CLEARVIEW CINEMA GROUP, INC.
Dated as of August 12, 1998
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of August 12, 1998, among Cablevision Systems Corporation, a Delaware
corporation ("Parent"), CCG Holdings Inc, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Clearview Cinema Group,
Inc., a Delaware corporation (the "Company" the Company and Merger Sub sometimes
being hereinafter collectively referred to as the "Constituent Corporations")
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger
Sub and the Company have approved the merger of the Company with Merger Sub (the
"Merger") and approved and declared advisable the Merger upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, provided that the Average Parent Share Price (as defined in
Section 4.1(a)) is greater than or equal to the Floor Price (as defined in
Section 1.1), it is intended that, for federal income tax purposes, the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, certain stockholders of the Company
(the "Selling Stockholders") who own or control the right to vote Shares and
other Company Securities (each as defined in Section 4.1(a)) representing a
majority of the outstanding Shares on a fully diluted basis are entering into
one or more voting and option agreements with Parent (the "Stockholder
Agreements"), pursuant to which each of the Selling Stockholders has agreed to
vote all of the Shares and other Company Securities currently beneficially owned
and hereinafter acquired by him, her or it in favor of the Merger (and has
agreed, if so requested by Parent, to exercise any warrants to purchase Shares
so that he, she or it may vote such Shares together with other holders of
Shares at the Stockholders Meeting);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, Midmark Capital, L.P. (the
"Warrantholder"), the holder of a warrant (the "Class A Warrant") to purchase
282,600 Shares, is entering into an agreement with the Company and Parent (the
"Warrantholder Agreement"), pursuant to which the Warrantholder and the Company
have agreed that immediately prior to the Effective Time (as defined in Section
1.3) the Warrantholder shall surrender its Class A Warrant to the Company for
cancellation in exchange for payment by the Company of $1.00; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time, the Company shall be merged with
and into Merger Sub and the separate corporate existence of the Company shall
thereupon cease. Merger Sub shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"), and the
separate corporate existence of Merger Sub with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in the Delaware General Corporation Law,
as amended (the "DGCL"); provided, however, that if the Average Parent Share
Price is less than $72.00 (the "Floor Price"), at Parent's sole option and
discretion, at the Effective Time (as defined in Section 1.3), Merger Sub will
be merged with and into the Company, the separate corporate existence of Merger
Sub shall cease, the Company shall be the Surviving
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Corporation and the separate corporate existence of the Company shall continue
unaffected by the Merger.
1.2. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Xxxxxxxx & Xxxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx at 9:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
1.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause a Certificate of Merger (the "Delaware Certificate
of Merger") to be executed, acknowledged and filed with the Secretary of State
of Delaware as provided in Section 251 of the DGCL. The Merger shall become
effective at the time when the Delaware Certificate of Merger has been duly
filed with the Secretary of State of Delaware (the "Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Certificate of Incorporation. The certificate of
incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall be the certificate of incorporation of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law;
provided, however, that if the Average Parent Share Price is less than the Floor
Price and Parent shall elect that Merger Sub merge with and into the Company at
the Effective Time, the Charter shall be amended and restated to be identical to
the certificate of incorporation of Merger Sub until duly amended as provided
therein or by applicable law.
2.2. The By-Laws. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter
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amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of Merger Sub at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2. Officers. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a result of
the Merger and without any action on the part of the holder of any capital stock
of the Company:
(a) Merger Consideration. Subject to Section 4.1(b) and Section 4.2,
(i) each share of the Common Stock, par value $.01 per share, of the
Company (the "Shares") issued and outstanding at the Effective Time (other
than (A) Shares owned by Parent, Merger Sub or any other direct or indirect
subsidiary of Parent (collectively, the "Parent Companies") or by the
Company or any direct or indirect subsidiary of the Company (collectively,
the "Company Entities") and in each case not held on behalf of third
parties and (B) Shares ("Dissenting Shares") that are held by stockholders
("Dissenting Common Stockholders") exercising appraisal rights pursuant to
Section 262 of the DGCL (collectively, "Excluded
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Shares")) shall be converted into, and become exchangeable for, at the
option of the holder thereof (the "Share Merger Consideration"), (A) $24.25
in cash (the "Share Cash Consideration") or (B) that number of shares of
Class A Common Stock, par value $.01 per share, of Parent ("Parent Common
Stock") (the "Share Stock Consideration") equal to the amount (rounded to
four decimal places)(the "Share Conversion Number") derived by dividing
$24.25 by the average (rounded to four decimal places) of the average of
the daily per share high and low sales prices, regular way (the "Average
Parent Share Price") of Parent Common Stock as reported on the American
Stock Exchange, Inc. (the "ASE") composite transactions reporting system
(as reported in the New York City edition of The Wall Street Journal or, if
not reported therein, another authoritative source) on each of the ten (10)
trading days (the "Averaging Period") ending on and including the third
trading day prior to the Closing Date; provided, however, that, if the
Average Parent Share Price is less than the Floor Price, the Share Merger
Consideration shall be the Share Cash Consideration and no holder of Shares
shall have the option or right to elect to receive (and Parent shall have
no obligation to issue) Share Stock Consideration;
(ii) each share of the Class A Convertible Preferred Stock, par value
$.01 per share, of the Company (the "Class A Preferred Shares") issued and
outstanding at the Effective Time (other than (A) Class A Preferred Shares
owned by the Parent Companies or by the Company Entities and in each case
not held on behalf of third parties and (B) Class A Preferred Shares
("Dissenting Class A Preferred Shares") that are held by stockholders
("Dissenting Class A Preferred Stockholders") exercising appraisal rights
pursuant to Section 262 of the DGCL (collectively, "Excluded Class A
Preferred Shares") shall be converted into, and become exchangeable for, at
the option of the holder thereof (the "Class A Preferred Share Merger
Consideration"),(A) the amount, in cash (the "Class A Preferred Share Cash
Consideration"), derived by multiplying (x) the number of Shares issuable
upon conversion of a Class A Preferred Share immediately prior to the
Effective Time (the "Class A Conversion Number") by (y) the Share Cash
Consideration or (B) the
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number of shares of Parent Common Stock (the "Class A Preferred Share Stock
Consideration") equal to the amount (rounded to four decimal places)
derived by multiplying the Class A Conversion Number and the Share
Conversion Number; provided, however, that, if the Average Parent Share
Price is less than the Floor Price, the Class A Preferred Share Merger
Consideration shall be the Class A Preferred Share Cash Consideration and
no holder of Class A Preferred Shares shall have the right or option to
elect to receive (and Parent shall have no obligation to issue) Class A
Preferred Share Stock Consideration;
(iii) each share of the Class B Nonvoting Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Company (the "Class B
Preferred Shares") issued and outstanding at the Effective Time (other than
(A) Class B Preferred Shares owned by the Parent Companies or by the
Company Entities and in each case not held on behalf of third parties and
(B) Class B Preferred Shares ("Dissenting Class B Preferred Shares") that
are held by stockholders ("Dissenting Class B Preferred Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL
(collectively, "Excluded Class B Preferred Shares") shall be converted
into, and become exchangeable for (the "Class B Preferred Share Merger
Consideration"), the amount, in cash (the "Class B Preferred Share Cash
Consideration"), equal to the redemption price per Class B Preferred Share
that would be payable by the Company in accordance with the Certificate of
Designation of the Class B Preferred Shares if the Company were to redeem
the Class B Preferred Shares immediately prior to the Effective Time; and
(iv) each share of the Class C Convertible Preferred Stock, par value
$.01 per share, of the Company (the "Class C Preferred Shares" and,
together with the Class A Preferred Shares and the Class B Preferred
Shares, the "Preferred Shares" and, the Preferred Shares together with the
Shares, the "Company Securities") issued and outstanding at the Effective
Time (other than (A) Class C Preferred Shares owned by the Parent Companies
or by the Company Entities and in each case not held on behalf of third
parties and (B) Class C Preferred Shares ("Dissenting Class C Preferred
Shares" and, together with the Dissenting Shares, the
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Dissenting Class A Preferred Shares and the Dissenting Class B Preferred
Shares, the "Dissenting Securities") that are held by stockholders
("Dissenting Class C Preferred Stockholders" and, together with the
Dissenting Common Stockholders, the Dissenting Class A Preferred
Stockholders and the Dissenting Class B Preferred Stockholders, the
"Dissenting Securityholders") exercising appraisal rights pursuant to
Section 262 of the DGCL (collectively, "Excluded Class C Preferred Shares"
and, together with the Excluded Shares, the Excluded Class A Preferred
Shares and the Excluded Class B Preferred Shares, the "Excluded
Securities") shall be converted into, and become exchangeable for, at the
option of the holder thereof (the "Class C Preferred Share Merger
Consideration" and, together with the Share Merger Consideration, the Class
A Preferred Share Merger Consideration and the Class B Preferred Stock
Merger Consideration, the "Merger Consideration") (A) the amount, in cash
(the "Class C Preferred Share Cash Consideration" and, together with the
Share Cash Consideration, the Class A Preferred Share Cash Consideration
and the Class B Preferred Share Cash Consideration, the "Security Cash
Consideration"), derived by multiplying (x) the number of Shares issuable
upon conversion of a Class C Preferred Share based on an exchange ratio of
51 Shares per Class C Preferred Share (the "Class C Conversion Number" and,
together with the Conversion Number and the Class A Conversion Number, the
"Security Conversion Number") by (y) the Share Cash Consideration and
adding to such amount the accrued but unpaid dividends on a Class C
Preferred Share through the Effective Time or (B) the number of shares of
Parent Common Stock (the "Class C Preferred Share Stock Consideration" and,
together with the Share Stock Consideration and the Class A Preferred Share
Stock Consideration, the "Security Stock Consideration") equal to the
amount (rounded to four decimal places) derived by multiplying the Class C
Conversion Number and the Share Conversion Number and adding to such number
of shares of Parent Common Stock, the number of shares of Parent Common
Stock derived by dividing the amount of accrued but unpaid dividends on a
Class C Preferred Share through the Effective Time by the Average Parent
Share Price; provided, however, that, if the Average Parent Share Price is
less than
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the Floor Price, the Class C Preferred Share Merger Consideration shall be
the Class C Preferred Share Cash Consideration and no holder of Class C
Preferred Shares shall have the right or option to elect to receive (and
Parent shall have no obligation to issue) Class C Preferred Share Stock
Consideration.
(b) Cancellation of Company Securities. Each Excluded Security 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, cease to be
outstanding, shall be cancelled and retired without payment of any consideration
therefor and shall cease to exist subject to the rights of the holder thereof,
if such holder is a Dissenting Securityholder, under Section 262 of the DGCL. At
the Effective Time, all Company Securities shall no longer be outstanding and
shall be cancelled and retired and shall cease to exist, and each certificate
formerly representing any of such Company Securities (other than Excluded
Securities) (a "Certificate") shall, subject to the terms and upon the
conditions of this Agreement, thereafter represent only the right to receive the
applicable Merger Consideration and the right, if any, to receive pursuant to
Section 4.2(e) cash in lieu of any fractional shares into which such Company
Securities otherwise would have been converted pursuant to Section 4.1(a) and
any distribution or dividend pursuant to Section 4.2(c).
(c) Merger Sub. At the Effective Time, each share of Common Stock, par
value $.01 per share (the "Merger Sub Shares"), of Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain outstanding and
certificates evidencing any such shares of Merger Sub shall continue to evidence
shares of Common Stock of the Surviving Corporation; provided, however, that if
the Average Parent Share Price is less than the Floor Price and Parent shall
elect that Merger Sub be merged with and into the Company at the Effective Time,
each Merger Sub Share outstanding immediately prior to the Effective Time shall
be converted into one share of common stock of the Surviving Corporation.
4.2. Allocation of Merger Consideration; Election Procedures. For
purposes of this Agreement "Share Equivalents" shall mean (i) with respect to
Shares, the number of outstanding Shares, (ii) with respect to Class B
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Preferred Shares, the amount derived by multiplying (A) the number of
outstanding Class B Preferred Shares by (B) the amount derived by dividing the
Class B Preferred Share Cash Consideration by the Share Cash Consideration, and
(iii) with respect to the Class A Preferred Shares and the Class C Preferred
Shares (the "Convertible Preferred Shares"), the number of Shares into which
such outstanding Convertible Preferred Shares could be converted immediately
prior to the Effective Time.
(a) Allocation.(i) If the holders of Shares and Convertible Preferred
Shares have the option to elect Security Cash Consideration or Security Stock
Consideration, the number of Shares and Convertible Preferred Shares to be
converted into the right to receive the applicable Security Stock Consideration
and the applicable Security Cash Consideration in the Merger shall be determined
as follows:
(ii) Subject to Section 4.2(a)(iv), notwithstanding anything in this
Agreement to the contrary, the aggregate number of Share Equivalents (the
"Stock Election Number") represented by the Shares and Convertible
Preferred Shares to be converted into the right to receive the applicable
Security Stock Consideration shall be equal, as closely as practicable, to
forty-five percent (45%) of the sum of (A) the aggregate number of Share
Equivalents represented by outstanding Company Securities (treating any
Company Securities to be cancelled pursuant to Section 4.1(b) as not being
outstanding for this purpose) immediately prior to the Effective Time and
(B) the aggregate number of Share Equivalents represented by any Class B
Preferred Shares redeemed by the Company prior to the Effective Time.
(iii) Subject to Section 4.2(a)(iv), notwithstanding anything in this
Agreement to the contrary, the aggregate number of Share Equivalents (the
"Cash Election Number") represented by the Shares and Convertible Preferred
Shares to be converted into the right to receive the applicable Security
Cash Consideration shall equal, as closely as practicable, the number of
Share Equivalents represented by the difference between (A) the aggregate
number of Share Equivalents represented by outstanding Company Securities
immediately prior to the Effective Time and
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(B) the Stock Election Number.
(iv) Notwithstanding anything in this Agreement to the contrary,
unless the Average Parent Share Price is less than the Floor Price, if,
absent this Section 4.2(a)(iv), as of the Effective Time the aggregate
value of the Security Stock Consideration (calculated using the most recent
available price for Parent Common Stock on the ASE) would be less than 45%
of the sum of (x) the aggregate value of the Security Cash Consideration
and (y) the aggregate value of the Security Stock Consideration (calculated
using the most recent available price for Parent Common Stock on the ASE),
then the Stock Election Number and the Cash Election Number (but not the
Security Conversion Numbers) shall be adjusted as necessary so that, as of
the Effective Time, the aggregate value of the Security Stock Consideration
(calculated using the most recent available price for Parent Common Stock
on the ASE) shall equal, as closely as possible, 45% of the sum of (x) the
aggregate value of the Security Cash Consideration and (y) the aggregate
value of the Security Stock Consideration (calculated using the most recent
available price for Parent Common Stock on the ASE); provided, however,
that if the Stock Election Number resulting from such adjustment would be
greater than the Stock Election Number that would have resulted pursuant to
Section 4.2(a)(ii) (without regard to this Section 4.2(a)(iv)) if the
Average Parent Share Price had been equal to the Floor Price, then Parent,
at its sole discretion, shall have the option of either (i) adjusting the
Stock Election Number and the Cash Election Number as set forth above in
this Section 4.2(a)(iv) or (ii) treating the Average Parent Share Price as
being less than the Floor Price for all purposes of this Agreement,
including the availability of the election set forth in Section 1.1 and the
concomitant change in the form of the Merger Consideration to all cash as
set forth in the provisos to Sections 4.1(a)(i), (ii) and (iv).
(b) Election and Proration Procedures.
(i) As of the Effective Time, Parent shall deposit, or shall cause to
be deposited, with an exchange agent selected by Parent, with the Company's
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prior approval, which shall not be unreasonably withheld or delayed (the
"Exchange Agent"), for the benefit of the holders of Certificates
representing Company Securities issued and outstanding immediately prior to
the Effective Time, the shares of Parent Common Stock, cash and any
dividends or other distributions with respect to the Parent Common Stock to
be issued or paid pursuant to Section 4.1 and this Section 4.2 in exchange
for such Company Securities upon due surrender of such Certificates
pursuant to the provisions of this Article IV (such cash and certificates
representing shares of Parent Common Stock, together with any dividends or
other distributions payable with respect thereto, being hereinafter
referred to as the "Exchange Fund").
(ii) Provided the Average Parent Share Price is greater than or equal
to the Floor Price, and subject to allocation and proration in accordance
with the provisions of this Section 4.2, each record holder of Shares and
Convertible Preferred Shares (other than Excluded Securities) issued and
outstanding immediately prior to the Election Deadline (as defined below)
shall be entitled (A) to elect to receive in respect of each such Company
Security (x) the applicable Security Cash Consideration (a "Cash Election")
or (y) the applicable Security Stock Consideration (a "Stock Election") or
(B) to indicate that such record holder has no preference as to the receipt
of the applicable Security Cash Consideration or the applicable Security
Stock Consideration for such Shares or Convertible Preferred Shares (a
"Non-Election"). Shares and Convertible Preferred Shares in respect of
which a Non-Election is made (including Shares and Convertible Preferred
Shares in respect of which such a Non-Election is deemed to have been made
pursuant to this Section 4.2 and Section 4.3 (collectively, "Non-Election
Securities") shall be deemed by Parent, in its sole and absolute
discretion, subject to Sections 4.2(b)(v)-(vii), to be, in whole or in
part, Shares and Convertible Preferred Shares in respect of which Cash
Elections or Stock Elections have been made.
(iii) Elections pursuant to Section 4.2(b)(ii) shall be made on a form
with such provisions as may be reasonably agreed upon by the Company and
Parent (a
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"Form of Election") to be provided by the Exchange Agent for that purpose
to record holders of Shares and Convertible Preferred Shares (other than
holders of Excluded Securities), together with appropriate transmittal
materials, at the time of mailing to holders of record of Company
Securities of the Prospectus/Proxy Statement (as defined in Section 6.3) in
connection with the Stockholders Meeting referred to in Section 6.4.
Elections shall be made by mailing to the Exchange Agent a duly completed
Form of Election. To be effective, a Form of Election must be (x) properly
completed, signed and submitted to the Exchange Agent at its designated
office by 5:00 p.m. on the business day that is two trading days prior to
the Closing Date (which date shall be publicly announced by Parent as soon
as practicable but in no event less than ten trading days prior to the
Closing Date) (the "Election Deadline") and (y) accompanied by the
Certificate(s) representing the Shares and Convertible Preferred Shares as
to which the election is being made (or by an appropriate guarantee of
delivery of such Certificate(s) by a commercial bank or trust company in
the United States or a member of a registered national security exchange or
of the National Association of Securities Dealers, Inc., provided that such
Certificates are in fact delivered to the Exchange Agent within five
trading days after the date of execution of such guarantee of delivery).
The Company shall use its best efforts to make a Form of Election available
to all Persons who become holders of record of Shares or Convertible
Preferred Shares (other than Excluded Securities) between the date of
mailing described in the first sentence of this Section 4.2(b)(iii) and the
Election Deadline. Parent shall determine, in its sole and absolute
discretion, which authority it may delegate in whole or in part to the
Exchange Agent, whether Forms of Election have been properly completed,
signed and submitted or revoked. The decision of Parent (or the Exchange
Agent, as the case may be) in such matters shall be conclusive and binding.
Neither Parent nor the Exchange Agent will be under any obligation to
notify any Person of any defect in a Form of Election submitted to the
Exchange Agent. A holder of Shares or Convertible Preferred Shares that
does not submit an effective Form of Election prior to the Election
Deadline shall be deemed to have made a
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Non-Election.
(iv) An election pursuant to Section 4.2(b)(ii) may be revoked, but
only by written notice received by the Exchange Agent prior to the Election
Deadline. Any Certificate(s) representing Company Securities that have been
submitted to the Exchange Agent in connection with an election shall be
returned without charge to the holder thereof in the event such election is
revoked as aforesaid and such holder requests in writing the return of such
Certificate(s). Upon any such revocation, unless a duly completed Form of
Election is thereafter submitted prior to the Election Deadline in
accordance with paragraph (b)(iii), such Shares and Convertible Preferred
Shares shall be deemed Non-Election Securities. In the event that this
Agreement is terminated pursuant to the provisions hereof and any Company
Securities have been transmitted to the Exchange Agent pursuant to the
provisions hereof, such Company Securities shall promptly be returned
without charge to the Person (as defined below) submitting the same.
(v) In the event that the aggregate number of Share Equivalents
represented by the outstanding Shares and Convertible Preferred Shares in
respect of which Cash Elections have been made exceeds the Cash Election
Number, (a) all Shares and Convertible Preferred Shares in respect of which
Stock Elections have been made or are deemed to have been made (the "Stock
Election Securities") shall be converted into the right to receive the
applicable Securities Stock Consideration, and (b) all Non-Election
Securities and Shares and Convertible Preferred Shares in respect of which
Cash Elections have been made shall be converted into the right to receive
the respective applicable Security Stock Consideration or Security Cash
Consideration in the following order and manner:
(A) first, all Non-Election Securities shall be deemed to be
Shares and Convertible Preferred Shares in respect of which Stock
Elections have been made and treated as Stock Election Securities;
(B) second, if necessary, an aggregate number of shares and
Convertible Preferred Shares
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in respect of which Cash Elections have been made shall be deemed
converted into and treated as Stock Election Securities, (such
aggregate number to be apportioned pro-rata among record holders of
such Shares and Convertible Preferred Shares, based on the number of
Share Equivalents represented thereby), so that the number of Share
Equivalents represented by the Shares and Convertible Preferred Shares
so converted, when added to the Share Equivalents represented by all
other Stock Election Securities (including Non-Election Securities
deemed to be Stock Election Securities), shall equal as closely as
practicable, the Stock Election Number; and
(C) third, any remaining Shares and Convertible Preferred Shares
in respect of which Cash Elections have been made and all Class B
Preferred Shares shall be converted into the right to receive the
applicable Security Cash Consideration.
(vi) In the event that the aggregate number of Share Equivalents
represented by the outstanding Shares and Convertible Preferred Shares in
respect of which Stock Elections have been made exceeds the Stock Election
Number, (a) all Shares and Convertible Preferred Shares in respect of which
Cash Elections have been made or are deemed to have been made (the "Cash
Election Securities") and all Class B Preferred Shares shall be converted
into the right to receive the applicable Securities Cash Consideration, and
(b) all Non-Election Securities and Shares and Convertible Preferred Shares
in respect of which Stock Elections have been made shall be converted into
the right to receive the respective applicable Security Cash Consideration
and Security Stock Consideration in the following order and manner:
(A) first, all Non-Election Securities shall be deemed to be
Shares and Convertible Preferred Shares in respect of which Cash
Elections have been made and treated as Cash Election Securities;
(B) second, if necessary, an aggregate
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number of shares and Convertible Preferred Shares in respect of which
Stock Elections have been made shall be deemed converted into and
treated as Cash Election Securities, such aggregate number to be
apportioned pro-rata among record holders of such Shares and
Convertible Preferred Shares, based on the number of Share Equivalents
represented thereby), so that the number of Share Equivalents
represented by the Shares and Convertible Preferred Shares so
converted, when added to the Share Equivalents represented by all
Class B Preferred Shares and all other Cash Election Securities
(including Non-Election Securities to be deemed Cash Election
Securities), shall equal as closely as practicable the Cash Election
Number; and
(C) third, any remaining Shares and Convertible Preferred Shares
in respect of which Stock Elections have been made shall be converted
into the right to receive the applicable Security Stock Consideration.
(vii) In the event that clauses (v) and (vi) of this Section 4.2(b)
are not applicable, all Non-Election Securities shall be deemed by Parent,
in its sole and absolute discretion, subject to Section 4.2(a), to be, in
whole or in part, Shares and Convertible Preferred Shares in respect of
which Cash Elections or Stock Elections have been made, as applicable.
(viii) The Exchange Agent, in consultation with Parent and the
Company, shall make all computations to give effect to this Section 4.2.
(ix) Subject to this Section 4.2(b) and Section 4.2(h), upon surrender
of a Certificate representing Stock Election Securities for cancellation to
the Exchange Agent together with a duly completed Form of Election, the
holder of such Certificate shall be entitled to receive (a) a certificate
representing that number of whole shares of Parent Common Stock that such
holder is entitled to receive pursuant to this Article IV, (b) a check in
the amount (after giving effect to any required tax withholdings) of (x)
any cash in lieu of fractional shares plus (y) any unpaid
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non-stock dividends and any other dividends or other distributions that
such holder has the right to receive pursuant to the provisions of this
Article IV, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any amount payable upon
due surrender of the Certificates representing Stock Election Securities.
In the event of a transfer of ownership of Company Securities that is not
registered in the transfer records of the Company, the applicable Stock
Merger Consideration payable in respect of such Company Securities may be
issued and/or paid to such a transferee if the Certificate formerly
representing such Company Securities is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid. If
any certificate for shares of Parent Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Person (as
defined below) requesting such exchange shall pay any transfer or other
taxes required by reason of the issuance of certificates for shares of
Parent Common Stock in a name other than that of the registered holder of
the Certificate surrendered, or shall establish to the satisfaction of
Parent or the Exchange Agent that such tax has been paid or is not
applicable.
(x) Subject to this Section 4.2(b) and Section 4.2(h), upon surrender
of a Certificate representing Cash Election Securities (or, if the Average
Parent Share Price is less than (or pursuant to Section 4.2(a)(iv), is, at
Parent's option, treated as being less than) the Floor Price, any Company
Securities) for cancellation to the Exchange Agent together with a duly
completed Form of Election, the holder of such Certificate shall be
entitled to receive a check in the amount such holder is entitled to
receive pursuant to this Article IV, and the Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of
Company Securities that is not registered in the transfer records of the
Company, the applicable Cash Merger Consideration payable in respect of
such Company Securities may be issued and/or paid to such a
17
transferee if the Certificate formerly representing such Company Securities
is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and to evidence that any applicable
stock transfer taxes have been paid.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit entity), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d) or
other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Company Securities;
Voting.(i) All shares of Parent Common Stock to be issued pursuant to the Merger
shall be deemed issued and outstanding as of the Effective Time and whenever a
dividend or other distribution is declared by Parent in respect of the Parent
Common Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable pursuant to this Agreement. No dividends or other distributions
in respect of Parent Common Stock shall be paid to any holder of any
unsurrendered Certificate representing Stock Election Securities until such
Certificate is surrendered for exchange in accordance with this Article IV.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be issued and/or paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (A) at the time of such surrender, the dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such whole shares of Parent Common Stock and not paid and (B) at
the appropriate payment date, the dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date after the
Effective Time but with a payment date subsequent to such surrender.
(ii) Holders of unsurrendered Certificates representing Stock Election
Securities shall be entitled to vote after the Effective Time at any
meeting of Parent stockholders the number of whole shares of Parent Common
Stock represented by such Certificates, regardless of whether such holders
have
18
exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers
on the stock transfer books of the Company of the Company Securities that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Company Securities entitled to receive a fractional share of Parent
Common Stock but for this Section 4.2(e) shall be entitled to receive a cash
payment in lieu thereof, which payment shall represent such holder's
proportionate interest in a share of Parent Common Stock based on the Average
Parent Share Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this Article IV shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and/or any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to Section 4.1 and this Section 4.2 upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Company Securities for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and/or any cash payable and any unpaid dividends or other distributions in
respect thereof pursuant
19
to Sections 4.1 and this 4.2 deliverable in respect of the Company Securities
represented by such Certificate pursuant to this Agreement.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined pursuant
to Section 6.8) of the Company shall not be exchanged until Parent has received
a written agreement from such Person as provided in Section 6.8.
4.3. Dissenters' Rights. No Dissenting Securityholder shall be
entitled to any Merger Consideration pursuant to this Article IV unless and
until such Person thereof shall have failed to perfect or shall have effectively
withdrawn or lost such Person's right to dissent from the Merger under the DGCL,
and any Dissenting Securityholder shall be entitled to receive only the payment
provided by Section 262 of the DGCL with respect to Company Securities owned by
such Dissenting Securityholder. If any Person who otherwise would be deemed a
Dissenting Securityholder shall have failed to perfect or shall have effectively
withdrawn or lost the right to dissent with respect to any Company Securities,
such Company Securities shall immediately become Non-Election Shares. The
Company shall give Parent (i) prompt notice of any written demands for
appraisal, attempted withdrawals of such demands, and any other instruments
served pursuant to applicable law received by the Company relating to
stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal of
Dissenting Securities, offer to settle or settle any such demands or approve any
withdrawal of any such demands.
4.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Company Securities or securities convertible or
exchangeable into or exercisable for Company Securities, or Parent changes the
number of shares of Parent Common Stock or securities convertible or
exchangeable into or exercisable for shares of Parent Common Stock, issued and
outstanding prior to the Effective Time as a result of a reclassification, stock
split (including, without limitation, the Parent's publicly
20
announced two-for-one stock split or any reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer or other similar transaction, the Merger Consideration and the Floor Price
shall be equitably adjusted.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set
forth in the corresponding sections or subsections of the disclosure letter
delivered to Parent by the Company on or prior to entering into this Agreement
(the "Company Disclosure Letter"), the Company hereby represents and warrants to
Parent and Merger Sub that:
(a) Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and operate
its properties and assets and to carry on its business as presently conducted
and is qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the ownership or operation of its properties or
conduct of its business requires such qualification, except where the failure to
be so qualified or in good standing, when taken together with all other such
failures, is not reasonably likely to have a Company Material Adverse Effect (as
defined below). The Company has made available to Parent a complete and correct
copy of the Company's and its Subsidiaries' certificates of incorporation and
by-laws, each as amended to date. The Company's and its Subsidiaries'
certificates of incorporation and by-laws as so made available are in full force
and effect. Section 5.1(a) of the Company Disclosure Letter contains a correct
and complete list of each jurisdiction where the Company and each of its
Subsidiaries is organized and qualified to do business.
As used in this Agreement, the term (i) "Subsidiary" means, with
respect to the Company, Parent or Merger Sub, as the case may be, any entity,
whether incorporated or unincorporated, of which at least a majority
21
of the securities or ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions is directly or indirectly owned or controlled by such party or
by one or more of its respective Subsidiaries or by such party and any one or
more of its respective Subsidiaries and (ii) "Company Material Adverse Effect"
means a material adverse effect on the financial condition, properties, business
or results of operations of the Company and its Subsidiaries taken as a whole or
a material condition, restriction or other limitation on Parent's ability to
own, operate or otherwise control the Company and its Subsidiaries or their
respective assets and businesses, taken as a whole; provided, however, that a
Company Material Adverse Effect shall not include any effect upon the financial
condition, properties, business or results of operations of the Company, or any
of its Subsidiaries, resulting or arising from (A) changes in national economic
or business conditions generally or affecting the movie theater industry
specifically, or (B) the public announcement of the execution of the Merger
Agreement and the transactions contemplated thereby.
(b) Capital Structure. The authorized capital stock of the Company
consists of 12,500,000 shares consisting of 10,000,000 Shares, of which
2,304,802 Shares were outstanding as of the close of business on August 11,
1998, and 2,500,000 shares of Preferred Stock, par value $.01 per share, of
which 779 Class A Preferred Shares, 750 Class B Preferred Shares and 3,000 Class
C Preferred Shares were outstanding as of the close of business on August 11,
1998. All of the outstanding Shares and Preferred Shares have been duly
authorized and are validly issued, fully paid and nonassessable. Other than
467,400 Shares reserved for issuance upon conversion of the outstanding Shares
of Class A Preferred Shares and 367,347 Shares reserved for issuance upon
conversion of the outstanding Shares of Class C Preferred Shares, the Company
has no Shares or Preferred Shares reserved for issuance, except for 450,000
Shares reserved for issuance pursuant to options outstanding under the Company's
1997 Stock Incentive Plan, as amended and restated on April 28, 1998 (the "Stock
Plan"), 100,000 Shares reserved for issuance pursuant to warrants (the "IPO
Warrants") held by Prime Charter Ltd. and 282,600 Shares reserved for issuance
pursuant to the Class A Warrant. The Company Disclosure Letter contains a
correct and complete
22
list of each outstanding option to purchase Shares under the Stock Plan (each a
"Company Option"), including the holder, date of grant, exercise price and
number of Shares subject thereto. Each of the outstanding shares of capital
stock or other securities of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by a direct
or indirect wholly-owned subsidiary of the Company, free and clear of any lien,
pledge, security interest, claim or other encumbrance ("Liens"). Except as set
forth above, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, agreements, arrangements
or commitments to issue or sell any shares of capital stock or other securities
of the Company or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter ("Voting
Debt"). The Securities (as defined in the Stockholders Agreement) represent a
majority of the outstanding Shares on a fully diluted basis, excluding Options
not scheduled to vest and become exercisable before June 30, 1999.
(c) Corporate Authority; Approval and Opinion of Financial Advisor.
(i) The Company has all requisite corporate power and authority and has taken
all corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and to consummate the Merger, subject only to
approval of this Agreement by the holders of a majority of the outstanding
Shares and Class A Preferred Shares, voting together as a single class (the
"Company Requisite Vote"). This Agreement is a valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(ii) The Board of Directors of the Company
23
(A) has unanimously approved and declared advisable this Agreement and the
Merger and the other transactions contemplated hereby and (B) has received
the opinion of its financial advisors, Credit Suisse First Boston
Corporation ("CSFB"), to the effect that, as of the date of this Agreement,
the Share Merger Consideration to be received by the holders of Shares in
the Merger is fair to such holders from a financial point of view, a copy
of the written opinion of which will be delivered to Parent promptly after
receipt thereof by the Company. It is agreed and understood that such
opinion is for the benefit of the Company's Board of Directors and may not
be relied on by Parent or Merger Sub.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 1.3, (B) under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act
and the Securities Act of 1933, as amended (the "Securities Act"), (C) to comply
with state securities or "blue-sky" laws, and (D) required to be made with the
ASE, no notices, reports or other filings are required to be made by the Company
or any of its Subsidiaries with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the Company or any of its
Subsidiaries from, any governmental or regulatory authority, agency, commission,
body or other governmental entity ("Governmental Entity"), in connection with
the execution and delivery of this Agreement by the Company and the consummation
by the Company of the Merger and the other transactions contemplated hereby,
except those that the failure to make or obtain are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement.
(ii) The execution, delivery and performance of (A) this Agreement by
the Company and (B) the Stockholders Agreements by the Selling Stockholders
do not, and the consummation (x) by the Company of the Merger and the other
transactions contemplated hereby and (y) the Selling Stockholders of the
transactions contemplated thereby, will not, constitute or result in (A) a
breach or violation of, or a default under, the certificate of
incorporation or by-laws of the Company
24
or the comparable governing instruments of any of its Subsidiaries, (B) a
breach or violation of, a default under, or the acceleration of any
obligations or the creation of a Lien on the assets of the Company or any
of its Subsidiaries (with or without notice, lapse of time or both)
pursuant to, any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation ("Contracts") binding upon the Company or
any of its Subsidiaries or any Law (as defined in Section 5.1(i) or
governmental or non-governmental permit or license to which the Company or
any of its Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case of
clause (B) or (C) above, for any breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect or prevent the
Company from consummating the transactions contemplated by this Agreement
and the Stockholders Agreements.
(e) Company Reports; Financial Statements. The Company has delivered
to Parent and Merger Sub each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1997 (the "Audit Date"),
including the Company's Annual Report on Form 10-KSB for the year ended December
31, 1997, and the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date hereof
and as amended, the "Company Reports"). As of their respective dates, (or, if
amended, as of the date of the latest of such amendments) the Company Reports
did not, and any Company Reports filed with the SEC subsequent to the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents, or will fairly present, the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of income and of changes in
25
financial position included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the results of operations, retained earnings and changes in
financial position, as the case may be, of the Company and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
(f) Absence of Certain Changes. Except as disclosed in the Company
Reports filed prior to the date hereof, since the Audit Date the Company and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses (other than the capital expenditures and
transactions listed in and permitted by Section 6.1(c)(iii) of the Company
Disclosure Letter) and there has not been (i) any change in the financial
condition, properties, business or results of operations of the Company and its
Subsidiaries taken as a whole or any development or combination of developments
that, individually or in the aggregate, has had or is reasonably likely to have
a Company Material Adverse Effect; (ii) any damage, destruction or other
casualty loss with respect to any asset or property owned, leased or otherwise
used by the Company or any of its Subsidiaries, whether or not covered by
insurance other than any such damage, destruction or casualty loss that,
individually or in the aggregate has not had or is not reasonably likely to have
a Company Material Adverse Effect; (iii) any declaration, setting aside or
payment of any dividend or other distribution in respect of the capital stock of
the Company; or (iv) any change by the Company in accounting principles,
practices or methods. Section 5.1(f) of the Company Disclosure Letter contains a
list of the executive officers of the Company and the annual compensation
payable to each.
(g) Litigation and Liabilities. Except as disclosed in the Company
Reports filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the executive
26
officers of the Company, threatened against the Company or any of its
Subsidiaries or (ii) liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which the executive officers of the Company have knowledge that
could result in any claims against, or liabilities of, the Company or any of its
Affiliates, except for those that, would not, individually or in the aggregate,
be reasonably likely to have a Company Material Adverse Effect or prevent the
Company from consummating the transactions contemplated by this Agreement. For
purposes of this Agreement "knowledge" shall mean actual knowledge without
investigation.
(h) Employee Benefits.
------------------
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, employment, termination,
severance, compensation, medical, health or other plan, agreement, policy
or arrangement that covers employees, directors, consultants, former
employees, former directors or former consultants of the Company and its
Subsidiaries and under which the Company and its Subsidiaries may have
liability (the "Compensation and Benefit Plans") and any trust agreement or
insurance contract forming a part of such Compensation and Benefit Plans
has been made available to Parent prior to the date hereof. The
Compensation and Benefit Plans are listed in Section 5.1(h) of the Company
Disclosure Letter and any "change of control" or similar provisions therein
are specifically identified in Section 5.1(h) of the Company Disclosure
Letter.
(ii) All Compensation and Benefit Plans comply in all material
respects with all applicable law, including but not limited to the Code and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Each Compensation and Benefit Plan that is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter (including a determination that
the related trust under such Compensation and Benefit Plan is exempt from
tax
27
under Code Section 501(a) from the Internal Revenue Service (the "IRS") for
"TRA" (as defined in Rev. Proc. 93-39), and the Company is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the
executive officers of the Company, threatened litigation relating to the
Compensation and Benefit Plans other than routine claims for benefits.
Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any Compensation and Benefit Plan that,
assuming the taxable period of such transaction expired as of the date
hereof, would subject the Company or any of its Subsidiaries to a material
tax or penalty imposed by either Section 4975 of the Code or Section 502 of
ERISA.
(iii) Neither the Company nor any Subsidiary or any entity (an "ERISA
Affiliate") which is considered one employer with the Company under Section
4001(b) of ERISA or Section 414 of the Code (an "ERISA Affiliate Plan")
currently maintains a "single employer plan" within the meaning of Section
4001(a)(15) of ERISA. Except as scheduled in the list under Section
5.1(h)(iii) of the Company Disclosure Letter, none of the Company, any of
its Subsidiaries or any ERISA Affiliate has contributed, or been obligated
to contribute, to a multiemployer plan (within the meaning of Section 3(37)
of ERISA) under Subtitle E of Title IV of ERISA at any time since September
26, 1980. There is no pending investigation or enforcement action by the
Department of Labor or IRS or any other governmental agency with respect to
any Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan, including any multiemployer plan (within the
meaning of Section 3(37) of ERISA), as of the date hereof have been timely
made or have been reflected on the Company's financial statements.
(v) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan,
other than benefits mandated by Section 4980 B of the Code
28
except as set forth in the Company Disclosure Letter. The Company or its
Subsidiaries may amend or terminate any such plan under the terms of such
plan at any time without incurring any material liability thereunder.
(vi) The consummation of the Merger and the other transactions
contemplated by this Agreement and the Stockholders Agreements will not,
directly or indirectly (including, without limitation, as a result of any
termination of employment following the Effective Time) (x) entitle any
employees, consultants or directors of the Company or its Subsidiaries to
any payment (including severance pay or similar compensation) or any
increase in compensation, (y) accelerate the time of payment or vesting or
trigger any payment of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans other than the Stock Plan or (z) result in
any breach or violation of, or a default under, any of the Compensation and
Benefit Plans.
(vii) The Company and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign Employees.
(viii) With respect to each Compensation and Benefit Plan, if
applicable, the Company has provided, made available, or will make
available upon request, to Purchaser, true and complete copies of existing:
(A) two most recent Forms 5500 filed with the IRS; (B) most recent
actuarial report and financial statement; (C) the most recent summary plan
description; (D) most recent determination letter issued by the IRS; (E)
any Form 5310 or Form 5330 filed with the IRS; and (F) most recent
nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests).
(ix) Neither the Company nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would
not reasonably be expected to be deductible as a result of the limitations
under Section 162(m) of the Code and the regulations issued thereunder.
(x) With respect to the Company's Deferred Compensation Plan listed as
item #2 of the Compensation and Benefit Plans listed in Section 5.1(h)(i)
of the Company Disclosure Letter, there is no liability,
29
vested or unvested, to any individual under said plan of deferred
compensation.
(i) Compliance with Laws; Permits. Except as set forth in the Company
Reports filed prior to the date hereof, the businesses of each of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any federal, state, local or foreign law, statute, ordinance, rule, regulation,
judgment, order, injunction, decree, arbitration award, agency requirement,
license or permit (other than "Environmental Laws" as defined in Section 5.1(k))
of any Governmental Entity (collectively, "Laws"), except for violations that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect or prevent the Company from consummating the
transactions contemplated by this Agreement. Except as set forth in the Company
Reports filed prior to the date hereof, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the executive officers of the Company,
threatened except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement. No material change is required in the Company's or any of its
Subsidiaries' processes, properties or procedures in connection with any such
Laws except for such changes the failure to make, individually or in the
aggregate, would not be reasonably be likely to have a Company Material Adverse
Effect; and the Company has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the date
hereof. The Company and its Subsidiaries each has all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as presently conducted
other than those the absence of which has not had and is not reasonably likely
to have a Company Material Adverse Effect.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (including
Section 203 of the DGCL) (each a "Takeover Statute") or any anti-takeover
provision in the Company's certificate of incorporation and by-laws is, or at
the Effective Time will
30
be, applicable to the Company, the Company Securities, the Merger or the other
transactions contemplated by this Agreement and the Stockholders Agreements.
Assuming the accuracy of Parent's representations and warranties contained in
Section 5.2(j) (Ownership of Shares), the Board of Directors of the Company has
taken all action so that Parent will not be prohibited from entering into a
"business combination" with the Company as an "interested stockholder" (in each
case as such term is used in Section 203 of the DGCL) as a result of the
execution of this Agreement, the Stockholders Agreements or the consummation of
the transactions contemplated hereby or thereby.
(k) Environmental Matters. Except as disclosed in the Company Reports
prior to the date hereof and except for such matters that, alone or in the
aggregate, are not reasonably likely to have Company Material Adverse Effect;
(i) the Company and its Subsidiaries are in compliance with, and to the
knowledge of the executive officers of the Company have at all times been in
compliance with, all applicable Environmental Laws; (ii) the Company and its
Subsidiaries are not responsible or liable for the release or threatened release
of any Regulated Substance into the environment (including indoor and outdoor
air, soil, subsurface strata, surface water or groundwater) at any property
currently or formerly owned or operated by the Company or any of its
Subsidiaries, where such release may reasonably be expected to give rise to
claims, costs or requirements under applicable Environmental Laws for the
investigation, removal, or remediation of such Regulated Substances by the
Company or any of its Subsidiaries, or claims for personal injury or property
damage; (iii) neither the Company nor any of its Subsidiaries has received any
notice, demand, letter, claim or request for information alleging that the
Company or any of its Subsidiaries are in violation of any applicable
Environmental Law, or are subject to liability under any Environmental Law for
the release or threatened release of, or exposure to, any Regulated Substance
at, or for the investigation, removal or remediation of any Regulated Substance
at, any property currently or formerly owned or operated by the Company or its
Subsidiaries or at any facility owned or operated by a third party; (iv) to the
knowledge of the executive officers of the Company, neither the Company nor any
of its Subsidiaries are liable under any Environmental Law for the release or
threatened release of any Regulated Substance at any property currently or
formerly owned or operated by the
31
Company or any of its Subsidiaries or at any facility owned or operated by a
third party; (v) neither the Company nor any of its Subsidiaries is subject to
any order, decree, injunction, consent order or agreement with any Governmental
Entity relating to liability under any Environmental Law; (vi) neither the
Company nor any of its Subsidiaries has entered into any agreement with a third
party under which the Company or any of its Subsidiaries is obligated to
indemnify such third party for liabilities arising under applicable
Environmental Laws or relating to the investigation, removal or remediation of
Regulated Substances; (vii) to the knowledge of the executive officers of the
Company, none of the properties currently owned or leased by the Company or any
of its Subsidiaries contains any underground storage tanks or friable
asbestos-containing materials requiring abatement, and none of such properties
contain any equipment containing polychlorinated biphenyls for which the Company
or any of its Subsidiaries are responsible; (viii) to the knowledge of the
executive officers of the Company, there are no other circumstances or
conditions involving the Company or any of its Subsidiaries that could
reasonably be expected to result in any claim, liability, investigation, cost or
restriction on the ownership, use, or transfer of any property currently owned
or lease by the Company or any of its Subsidiaries pursuant to any Environmental
Law; and (ix) the Company has delivered to Parent copies of all environmental
reports, studies, assessments, sampling data, permits and other governmental
approvals in its possession relating to environmental conditions at the
properties currently or formerly owned or leased by the Company or any of its
Subsidiaries, or to the compliance of the operations of the Company and its
Subsidiaries with applicable Environmental Laws.
As used herein, the term "Environmental Law" means any applicable
federal, state, local or foreign statute, law, ordinance, regulation, order,
common law or published policy having the force of law relating to: (A) the
protection, investigation or restoration of the environment, health, safety, or
natural resources or (B) the generation, use, storage, treatment, processing,
disposal, release or threatened release of any Regulated Substance.
As used herein, the term "Regulated Substance" means (A) any
substance, hazardous material, pollutant, contaminant, toxic substance, toxic
pollutant, solid waste,
32
municipal waste, industrial waste or hazardous waste that is regulated or
defined as such or otherwise regulated pursuant to any applicable Environmental
Law; and (B) any petroleum product or by-product, asbestos-containing material,
polychlorinated biphenyls, or radioactive material.
(l) Tax Matters. As of the date hereof, neither the Company nor any of
its Affiliates has taken or agreed to take any action, nor do the executive
officers of the Company have any knowledge of any fact or circumstance, that
would prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code.
(m) Taxes. Except as provided in Section 5.1(m) the Company Disclosure
Letter:
(i) the Company and each of its Subsidiaries have filed all Tax
Returns (as defined below) which are required by all applicable laws to be
filed by them and such Tax Returns were complete and correct in all
material respects, and have paid, or made adequate provision for the
payment of, all material Taxes (as defined below) which have or may become
due and payable pursuant to said Tax Returns and all other Taxes imposed to
date other than those Taxes being contested in good faith and for which
adequate provision has been made on the most recent balance sheet included
in the Company Reports;
(ii) all Taxes which the Company and its Subsidiaries are required by
law to withhold and collect have been duly withheld and collected, and have
been paid over, in a timely manner, to the proper Taxing Authorities (as
defined below) to the extent due and payable;
(iii) neither the Company nor any of its Subsidiaries has executed any
waiver to extend, or otherwise taken or failed to take any action that
would have the effect of extending, the applicable statute of limitations
in respect of any Tax liabilities of the Company or its Subsidiaries for
the fiscal years prior to and including the most recent fiscal year;
33
(iv) the Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Code. The Company has at all times been taxable as
a Subchapter C corporation under the Code;
(v) the Company has never been a member of any consolidated group
(other than with its Subsidiaries) for Tax purposes. The Company is not a
party to any tax sharing agreement or arrangement, other than with its
Subsidiaries;
(vi) no material liens for Taxes exist with respect to any of the
assets or properties of the Company or its Subsidiaries, except for
statutory liens for Taxes not yet due or payable or that are being
contested in good faith;
(vii) all of the U.S. federal income Tax Returns filed by or on behalf
of each of the Company and its Subsidiaries have been examined by and
settled with the Internal Revenue Service, or the statute of limitations
with respect to the relevant Tax liability has expired, for all taxable
periods through and including the period ending on the date on which the
Effective Time occurs;
(viii) all Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any Taxing Authority have been
paid in full;
(ix) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes;
(x) the Company is not bound by any currently effective private
ruling, closing agreement or similar agreement with any Taxing Authority
with respect to any material amount of Tax;
(xi) the Company shall not be required to include in a taxable period
ending after the Effective Time any taxable income attributable to income
that economically accrued in a prior taxable period as a result of Section
481 of the Code, the installment
34
method of accounting or any comparable provision of state or local Tax law;
(xii) immediately following the Merger, the Company will not have any
material amount of income or gain that has been deferred under Treasury
Regulation Section 1.1502-13, or any material excess loss account in a
Subsidiary under Treasury Regulation Section 1.1502-19.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") shall mean, with respect
to any Person, (a) all taxes, domestic or foreign, including without limitation
any income (net, gross or other, including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer,
recording, franchise, profits, property (real or personal, tangible or
intangible), fuel, license, withholding on amounts paid to or by such Person,
payroll, employment, unemployment, social security, excise, severance, stamp,
occupation, premium, environmental or windfall profit tax, custom, duty or other
tax, or other like assessment or charge of any kind whatsoever, together with
any interest, levies, assessments, charges, penalties, additions to tax or
additional amounts imposed by any Taxing Authority, (b) any joint or several
liability of such Person with any other Person for the payment of any amounts of
the type described in (a) of this definition and (c) any liability of such
Person for the payment of any amounts of the type described in (a) as a result
of any express or implied obligation to indemnify any other Person; (ii) the
term "Tax Return(s)" shall mean all returns, consolidated or otherwise
(including without limitation informational returns), required to be filed with
any Taxing Authority; and (iii) the term "Taxing Authority" shall mean any
authority responsible for the imposition or collection of any Tax.
(n) Labor Matters. Neither the Company nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor union or labor organization,
nor, as of the date hereof, is the Company or any of its Subsidiaries the
subject of any material proceeding asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel
35
it to bargain with any labor union or labor organization nor is there pending
or, to the knowledge of the executive officers of the Company, threatened, nor
has there been for the past five years, any labor strike, dispute, walk-out,
work stoppage, slow-down or lockout involving the Company or any of its
Subsidiaries.
(o) Insurance. All material fire and casualty, director and officer,
general liability, and business interruption, and sprinkler and water damage
insurance policies maintained by the Company or any of its Subsidiaries have
been issued by companies reasonably believed by the executive officers of the
Company to be reputable. Such policies insure the Company or such Subsidiary and
the directors and officers of the Company and its Subsidiaries (as the case may
be) for losses customarily insured against by other Persons engaged in similar
lines of business and are reasonable in both scope and amount, in light of the
risks attendant to the businesses conducted by the Company and its Subsidiaries
and except as would not, individually or in the aggregate, be reasonably likely
to have a Company Material Adverse Effect or prevent the Company from
consummating the transactions contemplated by this Agreement, are in compliance
with all requirements under any leases, mortgages or other contractual
obligations of the Company and its Subsidiaries pertaining to insurance matters.
(p) Intellectual Property.
(i) The Company and/or each of its Subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications,
and tangible or intangible proprietary information or materials that are
used in the business of the Company and its Subsidiaries, except for any
such failures to own, be licensed or possess that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(ii) Except as disclosed in Company Reports filed prior to the date
hereof or as is not reasonably likely to have a Company Material Adverse
Effect:
36
(A) the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to
which the Company is authorized to use any third-party patents,
trademarks, service marks, copyrights, trade secrets or computer
software (collectively, "Third-Party Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and
material unregistered trademarks and service marks, registered
copyrights, trade names, and any applications therefor, trade secrets
or computer software owned by the Company or any of its Subsidiaries
(collectively, the "Company Intellectual Property Rights"); or (II)
Third-Party Intellectual Property Rights are currently pending or, to
the knowledge of the executive officers of the Company, are threatened
by any Person;
(C) the executive officers of the Company do not know of any
valid grounds for any bona fide claims (I) to the effect that the
sale, licensing or use of any product as now used, sold or licensed or
proposed for use, sale or license by the Company or any of its
Subsidiaries, infringes on any copyright, patent, trademark, service
xxxx or trade secret of any Person; (II) against the use by the
Company or any of its Subsidiaries of any Company Intellectual
Property Right or Third-Party Intellectual Property Right used in the
business of the Company or any of its Subsidiaries as currently
conducted or as proposed to be conducted; (III) challenging the
ownership, validity or enforceability of any of the Company
Intellectual Property Rights; or (IV) challenging the license or
legally enforceable right to use of the Third-Party Intellectual
Rights by the Company or any of its Subsidiaries; and
(D) to the knowledge of the executive officers of the Company,
there is no unauthorized
37
use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
(q) Rights Plan. The Company has not adopted or otherwise implemented
a stockholder rights plan or other similar agreement or instrument.
(r) Brokers and Finders. Neither the Company nor any of its officers,
directors (with respect to officers and directors, in such capacity as officers
or directors) or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated in this Agreement except
that the Company has engaged CSFB as its financial advisor, the arrangements
with which have been disclosed to Parent prior to the date hereof.
(s) Interested Transactions. To the knowledge of the executive
officers of the Company and except as set forth in the Company Reports prior to
the date hereof, no director or officer of the Company or any Subsidiary, (a)
owns, directly or indirectly, any 5% or greater interest in, or is a director,
officer, substantial stockholder or employee of, or consultant to, any
competitor or supplier of the Company or any Subsidiary, or is in any way
associated with or involved in the business conducted by the Company other than
in such capacity as a director or officer of the Company or a Subsidiary or a
stockholder of the Company, or (b) owns, directly or indirectly, in whole or in
part, any property, asset or right, tangible or intangible, which is associated
with any property, asset or right owned by the Company or a Subsidiary or which
the Company or a Subsidiary is presently operating.
(t) Contracts. Except as set forth in Section 5.1(t) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has or is
bound by:
(i) except for Compensation and Benefit Plans and leases covering the
Company Leased Real Property (as defined in Section 5.1(u), any agreement,
contract or commitment that involves the payment of an amount or value in
excess of $50,000 annually, unless terminable
38
by the Company or its relevant Subsidiary on not more than 90 days notice;
(ii) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution
in respect of its capital stock;
(iii) any agreement, contract or commitment to be performed relating
to capital expenditures in excess of $50,000 individually or $500,000 in
the aggregate;
(iv) any agreement, indenture or instrument relating to indebtedness
for borrowed money or the deferred purchase price of property;
(v) any loan or advance to (other than advances to employees in the
ordinary course of business in amounts of $20,000 or less to any individual
and $50,000 in the aggregate), or investment in (other than investments in
subsidiaries), any Person, or any agreement, contract or commitment
relating to the making of any such loan, advance or investment or any
agreement, contract or commitment involving a sharing of profits (except
for bonus arrangements with employees entered into in the ordinary course
of business consistent with past practice);
(vi) except for guarantees of Subsidiary obligations by the Company,
any guarantee or other contingent liability in respect of any indebtedness
or obligation of any Person;
(vii) any management service, consulting or any other similar type of
contract, involving payments of more than $25,000 annually, unless
terminable by the Company on not more than 90 days notice,
(viii) any agreement, contract or commitment limiting the ability of
the Company or any of its subsidiaries to engage in any line of business or
to compete with any Person;
(ix) any warranty, guaranty or other similar undertaking with respect
to a contractual performance extended by the Company or any of its
subsidiaries
39
other than in the ordinary course of business; or
(x) any material amendment, modification or supplement in respect of
any of the foregoing.
Except as otherwise set forth in Section 5.1(t) of the Company
Disclosure Letter, each contract or agreement set forth in Section 5.1(t) of the
Company Disclosure Letter is in full force and effect and (A) there exists no
default or event of default or event, occurrence, condition or act (including
consummation of the Merger) on the part of the Company or any Subsidiary which,
with the giving of notice, the lapse of time or both, would become a default or
event of default thereunder and (B) no approval or consent of, or notice to, any
person is needed in order that each such contract or agreement shall continue in
full force and effect in accordance with its terms without penalty, acceleration
or rights of early termination by reason of the consummation of the Merger and
the other transactions contemplated by this Agreement, except, in the case of
each of (A) and (B), such defaults or required approvals or consents (i) as to
which requisite waivers, consents or approvals have been obtained or (ii) which
are curable and are cured within the applicable period for cure permitted under
such contracts or agreements.
(u) Real Property. (i) Section 5.1(u)(i) of the Company Disclosure
Letter lists all real property leased, licensed or occupied under other
occupancy agreements or concession agreements by the Company or any of its
Subsidiaries (the "Company Leased Real Properties") and all real property owned
by the Company or any of its Subsidiaries (the "Company Owned Real Properties,"
and together with the Company Leased Real Properties, the "Company Real
Properties"). For each Company Leased Real Property, Section 5.1(u)(i) of the
Company Disclosure Letter sets forth the following information: (A) the address
of the property; (B) the name of the landlord, manager or payee, as appropriate;
(C) the name of the tenant; (D) the date of the lease and all amendments
thereto; (E) the current expiration date of such lease; (F) any options to
extend the term of such lease; (G) if a theater site, the number of screens at
such theater; (H) whether the theaters on such site are operating or
non-operating; (I) whether the landlord's consent is required as a result of the
Merger; (J) any landlord right to terminate the lease (other than arising from a
default, casualty, or condemnation); (K) any tenant
40
radius restrictions set forth in such lease; (L) whether the landlord or the
tenant has sent to the other party under such lease a notice of default or a
notice of termination of such lease which remains uncured and, if so, specifying
the alleged default; (M) whether the tenant under such lease is obligated to
purchase such property; (N) whether such lease is required to be accounted for
under GAAP as a capitalized lease; (O) whether there are any leasehold mortgages
secured by such lease and whether the consent of the mortgagee is required in
connection with the Merger; and (P) whether the rent, common area charges, taxes
or other payments due under such lease are in arrears in excess of 30 days; (Q)
the amount of any security deposit posted with the landlord; (R) any existing
guarantees given by the Company in connection with such lease or any leasehold
mortgage; (S) whether the showing of movies is a permitted use under the lease;
(T) any expansion obligations of the tenant under the lease; (U) the amount of
any brokerage commissions owed by the tenant in connection with such lease; (V)
any obligations of the tenants under the leases to construct, remodel or expand
theaters; or (W) any material construction expected or budgeted to be undertaken
by the Company or any Subsidiary with respect to any Company Leased Property
within the next twelve months (for purposes of this item, Parent and Merger Sub
are referred to Sections 5.1(u)(i) and 6.1(c)(iii)(B) of the Company Disclosure
Letter); (X) material violations of law known to the executive officers of the
Company after inquiry of District Managers (exclusive of Environmental Laws
whare are exclusively addressed in Section 5.1(k) hereof) which the tenant is
obligated to cure; and (Z) any permits required for use or occupancy of the
leased premises which are not in full force and effect. For each Company Owned
Real Property, Section 5.1(u)(i) of the Company Disclosure Letter lists: (a) the
address for each such property and (b) whether the consent of any mortgage or
lien holder of such property is required as a result of the Merger. Except for
such exceptions as would not have a Company Material Adverse Effect and except
for (I) the items set forth in Section 5.1(u)(i) of the Company Disclosure
Letter; (II) zoning and planning restrictions, easements, permits and other
restrictions or limitations of public record affecting the use of such
properties; provided, that individually and in the aggregate, such restrictions,
easements and permits do not materially impair the use of such properties as
motion picture theaters or for such other purposes as such properties are
currently being used; (III) mechanic's liens or other similar encumbrances
arising in
41
the ordinary course of business and securing obligations of the Company or its
Subsidiaries not yet due and payable; and (IV) other encumbrances on the assets
of the Company or its Subsidiaries that individually and in the aggregate do not
materially impair the ability of the owner to obtain financing by using such
assets as collateral, (x) the Company or one of its Subsidiaries has good,
marketable and insurable title to the Company Owned Real Properties, (y) the
Company Owned Real Properties are free and clear of all mortgages, liens,
leases, tenancies, security interests, options to purchase or lease or rights of
first refusal and material violations of law (exclusive of Environmental Laws
whare are exclusively addressed in Section 5.1(k) hereof) and reasonably
expected by the Company to require the expenditure of in excess of $25,000 per
matter to resolve and (z) except for any matter of public record affecting the
use of such properties, such properties are free and clear of all covenants,
conditions, encumbrances, restrictions, rights-of-way, easements, servitudes,
judgments or other imperfections of title. The items listed in subsections (I)
through (IV) above are hereinafter collectively referred to as the "Company
Permitted Encumbrances." With respect to the Company Leased Real Properties, to
the knowledge of the executive officers of the Company as at the date hereof,
all such leases are in full force and effect. Except for such exceptions as
would not have a Company Material Adverse Effect, (a) all such leases are the
result of bona fide arm's-length negotiations between the parties and (b)
Company and the Company Subsidiaries are not in arrears in the payment of rents,
common area charges, real estate taxes or other amounts due under any such
leases in excess of 10 days. As at the date hereof, except for such exceptions
as would not have a Company Material Adverse Effect, with respect to each
Company Leased Real Property or as otherwise disclosed in the Company Disclosure
Letter, so long as the tenant performs all of its obligations under such lease
within applicable notice and grace periods, (a) the rights of Company or any
Company Subsidiary under such lease cannot be legally terminated by the landlord
thereof and (b) Company's or such Subsidiary's possession of such Company Leased
Real Property and the use and enjoyment thereof cannot be legally disturbed by
any landlord. Except for such exceptions as would not have a Company Material
Adverse Effect, the Company is not obligated to purchase any Company Leased Real
Property, and no Company Leased Real Property is required to be accounted for
under GAAP as a capitalized lease. To the knowledge of the executive officers of
the
42
Company, except for such exceptions as would not have a Company Material Adverse
Effect, there are no intended public improvements that will result in any
material charge being levied against, or in the creation of any encumbrances
upon the Company Owned Real Properties or any portion thereof, and there are no
options, rights of first refusal, rights of first offer or other similar rights
with respect to the Company Owned Real Properties. Section 5.1(u)(i) of the
Company Disclosure Letter lists all mortgages affecting the Company Owned Real
Properties, indicates whether the transaction hereunder would be an event of
default or result in any acceleration of indebtedness thereunder, and sets forth
any uncured events of default thereunder or events or conditions which may
become events of default thereunder with the giving of notice, lapse of time or
both.
(ii) Except for such exceptions as would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect:
(A) the Company or a Company Subsidiary is the owner of, and no
other person, firm or corporation has any interest as owner in or to,
or any right to occupancy in, any Company Owned Real Property;
(B) the Company or a Company Subsidiary is the tenant or lessee
with respect to, and no other person, firm or corporation has any
interest as tenant or lessee in or to, or any right to occupancy in,
any Company Leased Real Property;
(C) there are no Persons currently in possession of the Company
Real Properties other than Company and its Subsidiaries, nor are there
any leases, subleases, licenses, concessions or other agreements
permitting anyone other than Company and its Subsidiaries, to use,
manage, occupy or possess any Company Real Property or any part
thereof other than as disclosed in Section 5.1(u)(ii) which lists all
the leases affecting the Company Owned Real Properties, and (I) all
rent and additional rent payable thereunder, (II) all security
deposits held by the Company or any of its Subsidiaries thereunder,
and (III) any notices of default given or received by the landlord
thereunder which remain uncured;
43
(D) (I) neither Company nor any of its Subsidiaries has received
any written notices or notices of violation of law or local or
municipal ordinances or orders, or regulations, presently noted in or
issued by federal, state, local or municipal departments having
jurisdiction against or affecting any of the Company Real Properties
that remain uncured and (II) to the knowledge of the executive
officers of the Company the current maintenance, operation, use and
occupancy of the Company Real Properties does not violate any
building, zoning, health, environmental, fire or similar law,
ordinance, order or regulation (including the Americans with
Disabilities Act of 1990, 42 U.S.C. (S)12183, as amended (the "ADA")
and comparable state and municipal legislation), or the terms and
conditions of any of the applicable leases;
(E) (I) neither Company nor any of its Subsidiaries has received
written notice of its failure to obtain any necessary certificate of
occupancy (or similar permit) for use of each of the theaters located
on the Company Real Properties as a motion picture theater, (II) to
the knowledge of the executive officers of the Company, either Company
or one of its Subsidiaries possesses the certificate of occupancy and
all other certificates, approvals, permits and licenses from any
Governmental Entity having jurisdiction over such theaters that are
necessary to permit the lawful use and operation of such theaters as
motion picture theaters (the "Company Permits"), and all of the same
are valid and in full force and effect, and (III) to the knowledge of
executive officers of the Company, there exists no threatened
revocation of any certificate of occupancy or any of the Company
Permits;
(F) neither Company nor any of its Subsidiaries has received any
written notice that it has failed to obtain any necessary sign
permits, illuminated sign permits, and marquee permits from the
appropriate Governmental Entity
44
having jurisdiction over existing signs and marquees at the Company
Real Properties, and, to the knowledge of the executive officers of
the Company, such permits are valid and in full force and effect and
there exists no threatened revocation of any such permits;
(G) to the knowledge of the executive officers of the Company
there are no actions pending or threatened to change the zoning or
building ordinances affecting any of the Company Real Properties, or
of any pending or threatened condemnation of any of the Company Real
Properties nor has there been any material casualty damage to any of
the Company Real Properties which remains unrestored;
(H) neither the Company nor any of its Subsidiaries has received
any written notice from any insurance carrier of any work required to
be performed at any theater located on the Company Real Properties or
the Company Leased Properties (each, a "Company Theater") that has not
been performed as of the date hereof or of any defects or inadequacies
in any such theater that have not been corrected as of the date hereof
and which if not corrected could result in termination of insurance
coverage or a material increase in the cost thereof;
(I) with respect to all Company Theaters, all water, sewer, gas,
electricity, telephone and other utilities required for the operation
of each such theater are installed and operating and all installations
and connection charges charged to Company or any of its Subsidiaries
pursuant to applicable invoices that are not the subject of a good
faith dispute have been paid in full and any installation and
connection charges that are properly charges to Company or its
Subsidiaries after the date hereof and prior to the Closing Date shall
be paid in full, except, in each case, for payments that are current
and will be paid in the ordinary course of business;
(J) Section 5.1(u)(iii) of the Company Disclosure Letter lists
all radius restrictions or
45
other non-competition agreements to which the Company or any of its
Subsidiaries is subject.
(v) Operating Assets. Except for such exceptions as would not have a
Company Material Adverse Effect, (i) Company has good and marketable title or
leasehold title or a valid license to all of the personal property used, or held
for use, in connection with the theaters operated on the Company Real Properties
(other than gaming and vending machines used in the ordinary course of
business), subject to no encumbrance other than the Company Permitted
Encumbrances; (ii) no financing statement under the Uniform Commercial Code or
under the personal property securities laws and regulations of any province or
territory of Canada or any similar applicable statute has been filed in any
jurisdiction, and neither Company nor any of its Subsidiaries has signed any
such financing statement or any security agreement authorizing any secured party
thereunder to file any such financing statement, except in connection with the
Company Permitted Encumbrances; (iii) each theater located on a Company Real
Property and each of the items of personal property used or held for use in, or
in connection with, each such theater, including without limitation, seating,
projection equipment and screens, are in good operating condition, subject to
normal wear and tear, and are fit for the use for which they are intended and to
which they are presently devoted; (iv) each theater located on a Company Real
Property, together with the related items of personal property located therein,
constitutes a fully operable motion picture theater and is sufficient to permit
Company to operate the business as currently being conducted therein; and (v)
except as contemplated by this Agreement, since the Audit Date, neither the
Company nor any of its Subsidiaries has sold, removed or transferred any
equipment or property from any theater located on a Company Real Property,
except in the ordinary course of business and so long as such equipment or
property has been replaced prior to the date hereof.
5.2. Representations and Warranties of Parent and Merger Sub. Except
as set forth in the corresponding sections or subsections of the disclosure
letter delivered to the Company by Parent on or prior to entering into this
Agreement (the "Parent Disclosure Letter"), Parent and Merger Sub each hereby
represent and warrant to the Company that:
46
(a) Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1000 shares of Common Stock, par value $.01 per share,
all of which are outstanding and are validly issued, fully paid and
unassessable. All of the issued and outstanding capital stock of Merger Sub is,
and at the Effective Time will be, owned by Parent, and there are (i) no other
shares of capital stock or voting securities of Merger Sub, (ii) no securities
of Merger Sub convertible into or exchangeable for shares of capital stock or
voting securities of Merger Sub and (iii) no options, warrants or other rights
to acquire from Merger Sub, and no obligations of Merger Sub to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Merger Sub. Merger Sub has not
conducted any business prior to the date hereof and has no, and prior to the
Effective Time will have no, assets, liabilities or obligations of any nature
other than those incident to its formation and pursuant to this Agreement and
the Merger and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
its "Significant Subsidiaries" (as defined in Rule 1.02(w) of Regulation S-X
promulgated pursuant to the Exchange Act) is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of organization and has all requisite corporate or similar power
and authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not reasonably
likely to have a Parent Material Adverse Effect (as defined below).
As used in this Agreement, the term "Parent Material Adverse Effect"
means a material adverse effect on the financial condition, properties, business
or results of operations of the Parent and its Subsidiaries taken as a whole
provided, however, that a Parent Material Adverse Effect shall not include any
effect upon the financial condition, properties, business or results of
operations of the Company, or any of its Subsidiaries resulting from
47
national economic or business conditions, generally or the public announcement
of the execution of the Merger Agreement and the transactions contemplated
thereby.
(c) Capital Structure. The authorized capital stock of Parent consists
of 200,000,000 shares of Parent Common Stock, of which 53,694,331 shares were
outstanding as of the close of business on August 10, 1998, 80,000,000 shares of
Class B Common Stock , par value $.01 per share (the "Parent Class B Common
Stock") of which 21,613,418 shares were outstanding as of the close of business
on August 10,1998, and 10,000,000 shares of Preferred Stock par value $.01 per
share (the "Parent Preferred Shares", and collectively with the Parent Common
Stock, the Parent Class B Common Stock, the "Parent Securities"), none of which
were outstanding as of the close of business on August 10,1998. All of the
outstanding Parent Securities have been duly authorized and are validly issued,
fully paid and nonassessable. Parent has no Parent Securities reserved for
issuance, except that, as of August 10, 1998, there were 6,045,940 shares of
Parent Common Stock reserved for issuance pursuant to the CSC 1998 Employee
Stock Plan, 453,150 shares of Parent Common Stock reserved for issuance pursuant
to the CSC Amended and Restated Employee Stock Plan and 120,000 shares of Parent
Common Stock reserved for issuance pursuant to the CSC 1996 Non-Employee
Director Stock Option Plan (collectively, the "Parent Stock Plans"), the
21,613,418 shares of Parent Common Stock subject to issuance upon conversion of
the outstanding shares of Parent Class B Common Stock, 10,231,320 shares of
Parent Common Stock subject to issuance upon conversion of the 8 1/2% Series I
Cumulative Convertible Exchangeable Preferred Stock of CSC Holdings, Inc., a
wholly owned subsidiary of Parent. In addition, in connection with a pending
two-for-one stock split of Parent Common Stock and Parent Class B Common Stock,
payable on August 21, 1998 to holders of record as of August 10,1998, Parent
has, as of the date hereof, reserved for issuance an additional 92,158,160
shares of Parent Common Stock and 21,613,418 shares of Parent Class B Common
Stock. Parent does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter ("Parent Voting Debt").
48
(d) Corporate Authority.
(i) No vote of holders of capital stock of Parent is necessary to
approve this Agreement and the Merger and the other transactions
contemplated hereby. Each of the Parent and Merger Sub has all requisite
corporate power and authority and has taken all corporate action necessary
in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger. This Agreement is a valid and
binding agreement of Parent and Merger Sub, enforceable against each of
Parent and Merger Sub in accordance with its terms, subject to the
Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article IV. The Parent Common Stock, when
issued, will be validly issued, fully paid and nonassessable, and no
stockholder of Parent will have any preemptive right of subscription or
purchase in respect thereof. The Parent Common Stock, when issued, will be
registered under the Securities Act and Exchange Act and registered or
exempt from registration under any applicable state securities or "blue
sky" laws.
(e) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 1.3, (B) under the HSR Act, the
Securities Act and the Exchange Act, (C) to comply with state securities or
"blue sky" laws, and (D) required to be made with the ASE, no notices, reports
or other filings are required to be made by Parent or Merger Sub with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by Parent or Merger Sub from, any Governmental Entity, in connection
with the execution and delivery of this Agreement by Parent and Merger Sub and
the consummation by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby, except those that the failure to make or
obtain are not, individually or in the aggregate, reasonably likely to have a
Parent Material Adverse Effect or prevent Parent or Merger Sub from consummating
the transactions contemplated by this Agreement.
49
(ii) The execution, delivery and performance of this Agreement by
Parent and Merger Sub do not, and the consummation by Parent and Merger Sub
of the Merger and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a default under,
the certificate or by-laws of Parent or Merger Sub or the comparable
governing instruments of any of its Significant Subsidiaries, (B) a breach
or violation of, or a default under, or the acceleration of any obligations
or the creation of a Lien on the assets of Parent or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to,
any Contracts binding upon Parent or any of its Subsidiaries or any Law or
governmental or non-governmental permit or license to which Parent or any
of its Significant Subsidiaries is subject or (C) any change in the rights
or obligations of any party under any of the Contracts, except, in the case
of clause (B) or (C) above, for breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not
reasonably likely to have a Parent Material Adverse Effect or prevent
Parent or Merger Sub from consummating the transactions contemplated by
this Agreement.
(f) Parent Reports; Financial Statements. Parent has made available to
the Company each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1997 (the "Parent Audit Date"),
including (i) Parent's Annual Report on Form 10-K for the year ended December
31, 1997 and (ii) Parent's Quarterly Report on Form 10-Q for the period ended
March 31, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the SEC (collectively, including any such reports filed
subsequent to the date hereof, the "Parent Reports"). As of their respective
dates, (or, if amended, as of the date of the latest such amendments) the Parent
Reports did not, and any Parent Reports filed with the SEC subsequent to the
date hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly
50
presents, or will fairly present, the consolidated financial position of Parent
and its Subsidiaries as of its date and each of the consolidated statements of
income and of changes in financial position included in or incorporated by
reference into the Parent Reports (including any related notes and schedules)
fairly presents, or will fairly present, the results of operations, retained
earnings and changes in financial position, as the case may be, of Parent and
its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
(g) Absence of Certain Changes. Except as disclosed in the Parent
Reports filed prior to the date hereof, since the Parent Audit Date Parent and
its Subsidiaries have conducted their respective businesses only in, and have
not engaged in any material transaction other than according to, the ordinary
and usual course of such businesses and there has not been (i) any change in the
financial condition, properties, business or results of operations of Parent and
its Subsidiaries taken as a whole or any development or combination of
developments, individually or in the aggregate, has had or is reasonably likely
to result in a Parent Material Adverse Effect; (ii) any damage, destruction or
other casualty loss with respect to any asset or property owned, leased or
otherwise used by Parent or any of its Subsidiaries, whether or not covered by
insurance other than any such damage, destruction or casualty loss that,
individually or in the aggregate has not had or is not reasonably likely to have
a Parent Material Adverse Effect; or (iii) any change by Parent in accounting
principles, practices or methods. Since the Parent Audit Date, except as
provided for herein or as disclosed in the Parent Reports filed prior to the
date hereof, there has not been any increase in the compensation payable or that
could become payable by the Parent or any of its Subsidiaries to officers or key
employees or any amendment of any of the Parent Compensation and Benefit Plans
other than increases or amendments in the ordinary course.
(h) Litigation and Liabilities. Except as disclosed in the Parent
Reports filed prior to the date hereof, there are no (i) civil, criminal or
administrative
51
actions, suits, claims, hearings, investigations or proceedings pending or, to
the knowledge of the executive officers of Parent, threatened against Parent or
any of its Affiliates or (ii) liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, including those relating
to environmental and occupational safety and health matters, or any other facts
or circumstances of which the executive officers of Parent has knowledge that
could result in any claims against, or obligations or liabilities of, Parent or
any of its Affiliates, except for those that, if adversely determined, would not
be reasonably likely to have a Parent Material Adverse Effect or prevent Parent
or Merger Sub from consummating the transactions contemplated by this Agreement.
(i) Compliance with Laws. Except as set forth in the Parent Reports
filed prior to the date hereof, the businesses of each of Parent and its
Subsidiaries have not been, and are not being, conducted in violation of any
Laws, except for violations that, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect or prevent Parent or
Merger Sub from consummating the transactions contemplated by this Agreement.
Except as set forth in the Parent Reports filed prior to the date hereof, no
investigation or review by any Governmental Entity with respect to Parent or any
of its Subsidiaries is pending or, to the knowledge of the executive officers of
Parent, threatened, except for those the outcome of which are not, individually
or in the aggregate, reasonably likely to have a Company Material Adverse Effect
or prevent Parent or Merger Sub from consummating the transactions contemplated
by this Agreement.
(j) Ownership of Shares. Except as to Company Securities deemed
beneficially owned by Parent pursuant to the Stockholders Agreement, neither
Parent nor any of its Subsidiaries beneficially owns (within the meaning of such
term under Rule 13d-3 of the Exchange Act) any Company Securities.
(k) Brokers and Finders. Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the
52
Merger or the other transactions contemplated by this Agreement, except that
Parent has engaged Gemini Associates Inc. ("Gemini") as its financial advisor.
(l) Available Funds. Parent has or will have available to it all funds
necessary to satisfy all of its obligations hereunder and in connection with the
Merger and the other transactions contemplated by this Agreement.
ARTICLE VI
Covenants
6.1. Interim Operations. The Company covenants and agrees as to itself
and its Subsidiaries that, after the date hereof and prior to the earlier of the
termination of this Agreement in accordance with its terms and the Effective
Time (unless Parent shall otherwise approve in writing, and except as otherwise
expressly contemplated by this Agreement):
(a) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries shall use their respective best efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and business
associates;
(b) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its certificate
of incorporation or by-laws; (iii) split, combine or reclassify its outstanding
shares of capital stock; (iv) declare, set aside or pay any dividend payable in
cash, stock or property in respect of any capital stock other than dividends
from its direct or indirect wholly-owned Subsidiaries; or (v) except for the
repurchase of the Class A Warrant contemplated by the Warrantholder Agreement
and the repurchase of outstanding Class B Preferred Shares, repurchase, redeem
or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock;
(c) except as set forth in Section 6.1(c) of the
53
Company Disclosure Letter, neither it nor any of its Subsidiaries shall (i)
issue, sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any other property or assets (other than Shares issuable
pursuant to options outstanding on the date hereof under the Stock Plan or upon
conversion of the Class A Preferred Shares and Class C Preferred Shares); (ii)
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or
encumber any material property or assets (including capital stock of any of its
Subsidiaries) or incur or modify any material indebtedness or other liability;
or (iii) except as set forth in Section 6.1(c)(iii) of the Company Disclosure
Letter, make or authorize or commit for any capital expenditures other than in
amounts less than $25,000 individually and $100,000 in the aggregate or, by any
means, make any acquisition of, or investment in, assets or stock of any other
Person or entity in excess of $25,000;
(d) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans or increase the salary, wage, bonus
or other compensation of any employees except increases for non-executive
employees occurring in the ordinary and usual course of business (which shall
include normal periodic performance reviews and related compensation and benefit
increases);
(e) neither it nor any of its Subsidiaries shall settle or compromise
any material claims or litigation or, except in the ordinary and usual course of
business, modify, amend or terminate any of its material Contracts or waive,
release or assign any material rights or claims;
(f) neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable payee
to be cancelled or terminated except in the ordinary and usual course of
business; and
(g) neither it nor any of its Subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
54
6.2. Acquisition Proposals. The Company agrees that after the date
hereof and prior to the earlier of the termination of this Agreement in
accordance with its terms and the Effective Time, neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate or solicit, encourage or otherwise
knowingly facilitate any inquiries or the making of any proposal or offer with
respect to a merger, reorganization, share exchange, consolidation or similar
transaction involving, or any purchase of all or 15% or more of the assets or
any equity securities of, it or any of its Subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"). The Company
further agrees that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that it shall direct
and use its best efforts to cause its and its Subsidiaries' employees, agents
and representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any Person other than Parent or Merger
Sub relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent the Company or its Board of
Directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal; (B) providing information in response to
a request therefor by a Person who has made an unsolicited bona fide written
Acquisition Proposal if the Board of Directors receives from the Person so
requesting such information an executed a customary form of confidentiality
agreement; (C) engaging in any negotiations or discussions with any Person who
has made an unsolicited bona fide written Acquisition Proposal; or (D)
withdrawing, modifying or changing, in a manner adverse to Parent, its
recommendation to the stockholders of the Company with respect to this Agreement
or the Merger, if and only to the extent that, (i) in each such case referred to
in clause (B), (C) or (D)
55
above, the Board of Directors of the Company determines in good faith by a
majority vote after consultation with outside legal counsel that failing to take
such action would be reasonably likely to result in a breach of their fiduciary
duties under applicable law and (ii) in each case referred to in clause (C) or
(D) above, the Board of Directors of the Company determines in good faith (after
consultation with its financial advisor) that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the Person making the
proposal and would, if consummated, result in a transaction more favorable to
the Company's stockholders from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition Proposal
being referred to in this Agreement as a "Superior Proposal"). The Company
agrees that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties other than Parent or
Merger Sub conducted heretofore with respect to any Acquisitions Proposal. The
Company agrees that it will take the necessary steps to promptly inform any
individuals or entities referred to in the preceding sentence hereof of the
obligations undertaken in this Section 6.2. The Company agrees that it will
notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such discussions or
negotiations. The Company also agrees that it will promptly request any Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return all
confidential information heretofore furnished to such Person by or on behalf of
it or any of its Subsidiaries.
6.3. Information Supplied. The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Registration Statement on Form S-4 to be filed
56
with the SEC by Parent in connection with the issuance of shares of Parent
Common Stock in the Merger (including the proxy statement and prospectus (the
"Prospectus/Proxy Statement") constituting a part thereof) (the "S-4
Registration Statement") will, at the time the S-4 Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Prospectus/Proxy Statement
and any amendment or supplement thereto will, at the date of mailing to
stockholders and at the times of the meetings of stockholders of the Company to
be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6.4. Stockholders Meeting. Subject to their fiduciary obligations
under applicable law, the Company's Board of Directors shall recommend the
adoption of the Merger Agreement by holders of Shares and Class A Preferred
Shares at the meeting of such stockholders called to consider and vote upon
adoption of the Merger Agreement (the "Stockholders Meeting") and shall take all
lawful action to solicit such adoption. Whether or not the Board of Directors of
the Company determines at any time after the date hereof that this Agreement is
no longer advisable and recommends that the holders of Shares and Class A
Preferred Shares reject it, the Company is required to, and will take, in
accordance with applicable law and its certificate and by-laws, all action
necessary to convene the Stockholders Meeting as promptly as practicable after
the S-4 Registration Statement is declared effective to consider and vote upon
the adoption of this Agreement.
6.5. Filings; Other Actions; Notification. (a) The Company shall
promptly prepare and file with the SEC the Prospectus/Proxy Statement, and
Parent shall prepare and file with the SEC the S-4 Registration Statement as
promptly as practicable. Parent and the Company each shall use all reasonable
efforts to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and promptly
57
thereafter mail the Prospectus/Proxy Statement to the stockholders of the
Company. Parent shall also use all reasonable efforts to obtain prior to the
effective date of the S-4 Registration Statement all necessary state securities
law or "blue sky" permits and approvals required in connection with the Merger
and to consummate the other transactions contemplated by this Agreement and will
pay all expenses incident thereto.
(b) The Company and Parent shall cooperate with each other and use
(and shall cause their respective Subsidiaries to use) all reasonable efforts to
take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including preparing and
filing as promptly as practicable all documentation to effect all necessary
notices, reports and other filings and to obtain as promptly as practicable all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the Merger or any of the other transactions contemplated by
this Agreement; provided, however, that nothing in this Section 6.5 shall
require, or be construed to require, Parent to proffer to, or agree to, sell or
hold separate and agree to sell, before or after the Effective Time, any assets,
businesses, or interest in any assets or businesses of Parent, the Company or
any of their respective Affiliates (or to consent to any sale, or agreement to
sell, by the Company of any of its assets or businesses) or to agree to any
material changes or restriction in the operations of any such assets or
businesses. Subject to applicable laws relating to the exchange of information,
Parent and the Company shall have the right to review in advance, and to the
extent practicable each will consult the other on, all the information relating
to Parent or the Company, as the case may be, and any of their respective
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Company and Parent shall act
reasonably and as promptly as practicable.
(c) The Company and Parent each shall, upon
58
request by the other, furnish the other with all information concerning itself,
its Subsidiaries, directors, officers and stockholders and such other matters as
may be reasonably necessary or advisable in connection with the Prospectus/Proxy
Statement, the S-4 Registration Statement or any other statement, filing, notice
or application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger and the transactions contemplated by this Agreement.
(d) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement.
6.6. Taxation. Subject to Section 6.2, neither Parent nor the Company
shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Code if the Average Parent Share Price is
greater than or equal to the Floor Price.
6.7. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its Subsidiaries
to) afford the Parent's officers, employees, counsel, accountants and other
authorized representatives ("Representatives") reasonable access, during normal
business hours throughout the period prior to the earlier of termination of this
Agreement in accordance with its terms and the Effective Time, to its
properties, books, contracts and records and, during such period, each shall
(and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, and provided, further, that the foregoing shall not require the Company
to permit any inspection, or to disclose any information, that would result in
the disclosure of any
59
trade secrets of third parties or violate any of its obligations with respect to
confidentiality if the Company shall have used its reasonable efforts to obtain
the consent of such third party to such inspection or disclosure. All requests
for information made pursuant to this Section shall be directed to an executive
officer of the Company, or such Person as may be designated by its executive
officers. All such information shall be governed by the terms of the
Confidentiality Agreement.
6.8. Affiliates. At least 30 days prior to the Stockholders Meeting,
the Company shall deliver to Parent a list of names and addresses of those
Persons who will be, in the opinion of the Company, as of the time of the
Stockholders Meeting, "affiliates" of the Company within the meaning of Rule 145
under the Securities Act. There shall be added to such list the names and
addresses of any other Person subsequently identified by either Parent or the
Company as a Person who may be deemed to be such an affiliate of the Company at
such time; provided, however, that no such Person identified by Parent shall be
added to the list of affiliates of the Company if Parent shall receive from the
Company, on or before the date of the Stockholders Meeting, an opinion of
counsel reasonably satisfactory to Parent to the effect that such Person is not
such an affiliate. The Company shall exercise its best efforts to deliver or
cause to be delivered to Parent, prior to the date of the Stockholders Meeting,
from each affiliate of the Company who makes a Stock Election identified in the
foregoing list (as the same may be supplemented as aforesaid), a letter dated as
of the Closing Date substantially in the form attached as Exhibit A-1 (the
"Affiliates Letter"). Parent shall not be required to maintain the effectiveness
of the S-4 Registration Statement or any other registration statement under the
Securities Act for the purposes of resale of Parent Common Stock by such
affiliates received in the Merger and the certificates representing Parent
Common Stock received by such affiliates shall bear a customary legend regarding
applicable Securities Act restrictions and the provisions of this Section.
6.9. Stock Exchange Listing and De-listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the Merger to
be approved for listing on the ASE subject to official notice of issuance, prior
to the Closing Date. The Surviving
60
Corporation shall use its best efforts to cause the Shares to be de-listed from
the ASE and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
6.10. Publicity. The initial press release shall be a joint press
release and thereafter the Company and Parent each shall consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to the Merger and the other transactions contemplated by this
Agreement and prior to making any filings with any third party and/or any
Governmental Entity (including any national securities exchange) with respect
thereto, except as may be required by law or by obligations pursuant to any
listing agreement with or rules of any national securities exchange.
6.11. Benefits.
(a) Stock Options. At the Effective Time, each then outstanding option
to purchase Shares ("Option") under the Stock Plan, whether vested or unvested,
shall be cancelled and the holder thereof shall be entitled to receive an amount
of cash equal to the product of (x) the amount, if any, by which the Share Cash
Merger Consideration exceeds the exercise price per Share under such Option and
(y) the number of Shares issuable pursuant to the unexercised portion of such
Option, less any required withholding of taxes (such amount being hereinafter
referred to as the "Option Consideration"). The Option Consideration shall be
paid as soon as practicable following the Effective Time. Prior to the Effective
Time, the Company shall take such actions as may be necessary to effectuate the
foregoing, including without limitation obtaining all applicable consents. The
cancellation of an Option in exchange for the Option Consideration shall be
deemed a release of any and all rights the holder had or may have had in respect
of such Option, and any required consents received from Option holders shall so
provide.
(b) Employee Benefits.
(i) Each of Parent and Merger Sub agrees that, during the period
commencing at the Effective Time and ending on the first anniversary
thereof, the employees of the Surviving Corporation and its Subsidiaries
will continue to be provided with benefits under employee
61
benefit plans (other than plans involving the issuance of Shares) that are
substantially similar in the aggregate to those currently provided by the
Company and its Subsidiaries to such employees. Parent shall, and shall
cause the Surviving Corporation to, honor all employee benefit obligations
to current and former employees under the Compensation and Benefit Plans
and all employee severance plans (or policies) in existence on the date
hereof and all employment or severance agreements entered into by the
Company or adopted by the board of directors of the Company prior to the
date hereof. Parent agrees to offer or cause Merger Sub to offer employment
contracts with the persons and on the terms set forth on Schedule I to this
Agreement immediately prior to the Effective Time. Nothing herein shall
prevent Parent from terminating any Compensation and Benefit Plan.
(ii) Each of Parent and Merger Sub agrees that the employees of the
Surviving Corporation shall receive full credit for purposes of eligibility
and vesting under the employee benefit plans or arrangements maintained by
the Surviving Corporation for such employees' service with the Company or
any of its Subsidiaries to the same extent recognized by the Company
immediately prior to the Effective Time.
6.12. Expenses. The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article IV, and Parent shall reimburse the
Surviving Corporation for such charges and expenses. Except as otherwise
provided in Section 8.5(b), whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the Merger and the
other transactions contemplated by this Agreement shall be paid by the party
incurring such expense, except that expenses incurred in connection with the
filing fee for the S-4 Registration Statement and printing and mailing the
Prospectus/Proxy Statement and the S-4 Registration Statement shall be shared
equally by Parent and the Company.
6.13. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Parent and the Surviving Corporation shall
indemnify and hold harmless each present and former director and officer of the
Company, (when acting in such capacity or when serving at
62
the request of the Company as a director or officer of a Subsidiary or a
fiduciary of a Compensation and Benefits Plan) determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, resulting from matters existing or occurring at
or prior to the Effective Time (including, without limitation, any claim,
action, suit, proceeding or investigation resulting from the transactions
contemplated by this Agreement), whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware law and its certificate of incorporation or by-laws in
effect on the date hereof to indemnify such Person (and Parent or the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided, the Person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Person is not entitled to indemnification), and provided,
further, that any determination required to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under
Delaware law and the Company's certificate of incorporation and by-laws shall be
made by independent counsel selected by the Surviving Corporation.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent and the
Surviving Corporation thereof, but the failure to so notify shall not relieve
Parent or the Surviving Corporation of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Parent or the
Surviving Corporation shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, (ii) Parent, the Surviving
Corporation and the Indemnified Parties will
63
cooperate in the defense of any such matter and (iii) Parent and the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent (which consent will not be unreasonably withheld); and provided,
further, that Parent and the Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party if and when a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final, that
the indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law.
(c) Parent shall and shall cause the Surviving Corporation to maintain
the Company's existing officers' and directors' liability insurance ("D&O
Insurance") for a period of six years after the Effective Time so long as the
annual premium therefor is not in excess of 200% of the last annual premium paid
prior to the date hereof (the "Current Premium"); provided, however, that if the
existing D&O Insurance expires, is terminated or cancelled during such six-year
period, Parent shall and shall cause the Surviving Corporation to use all
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
200% of the Current Premium. The Company will use all reasonable efforts to
obtain officers and directors liability insurance to become effective at the
Effective Time with coverage amounts and a term reasonably satisfactory to
Parent.
(d) If Parent or the Surviving Corporation or any of their respective
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provisions shall be made so
that the successors and assigns of Parent or the Surviving Corporation, as the
case may be, shall assume all of the obligations set forth in this Section.
(e) The provisions of this Section 6.13 shall survive the closing of
the transactions contemplated hereby, and are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
64
6.14. Other Actions by the Company; Takeover Statutes; Change of
Control Offer. The Company shall repurchase the outstanding Class A Warrant
immediately prior to the Effective Time for $1.00. The Company shall use all
reasonable efforts to obtain such waivers, consents and estoppel certificates as
Parent shall reasonably request, upon terms and conditions and in a form
reasonably satisfactory to Parent with respect to any material Contracts of the
Company or its Subsidiaries, it being understood and agreed that the Company
shall not amend or agree to amend such Contracts or make any additional payments
or incur any additional obligations or grant any additional rights in order to
obtain such waivers, consents and certificates without Parent's prior written
consent. If any Takeover Statute is or may become applicable to the Merger or
the other transactions contemplated by this Agreement or the Stockholders
Agreements, the Company and its Board of Directors shall grant such approvals
and take such actions as are necessary so that such transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and the Stockholders Agreements or by the Merger and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions. The Company agrees that it will mail a notice with respect to a
Change of Control Offer (as defined in the Indenture, dated as of June 12, 1998
(the "Indenture"), between the Company and The Bank of New York, as Trustee,
relating to the Company's outstanding 10 7/8% Senior Notes due June 12, 2008
(the "Notes")) pursuant to Section 4.19 of the Indenture, within five business
days of the date hereof and shall provide that the Change of Control Payment
Date (as defined in the Indenture) with respect to such Change of Control Offer
shall not, without Parent's written consent, be more than thirty days from the
date such notice is mailed. If the Company complies with preceding sentence and,
prior to the Change of Control Payment Date, there has been no public disclosure
of any events, conditions, circumstances or other matters relating to the
Company or its Subsidiaries the subject matter of which represents, individually
or in the aggregate (and without giving effect to any qualifications as to
"Company Material Adverse Effect," "material" or other similar qualifications),
a breach of the representations and warranties of the Company contained in this
Agreement as of the date hereof, which breaches have had or are reasonably
likely to have, a Company Material Adverse Effect or are
65
reasonably likely to prevent the Company from consummating the transactions
contemplated by this Agreement, on the Change of Control Payment Date, Parent
will purchase any Notes required to be purchased by the Company pursuant to such
Change of Control Offer.
6.15. Parent Vote. Parent shall vote (or consent with respect to) or
cause to be voted (or a consent to be given with respect to) any Company
Securities entitled to vote and any shares of common stock of Merger Sub
beneficially owned by it or any of its Affiliates or with respect to which it or
any of its Affiliates has the power (by agreement, proxy or otherwise) to cause
to be voted (or to provide a consent), in favor of the adoption and approval of
this Agreement at any meeting of stockholders of the Company or Merger Sub,
respectively, at which this Agreement shall be submitted for adoption and
approval and at all adjournments or postponements thereof (or, if applicable, by
any action of stockholders of either the Company or Merger Sub by consent in
lieu of a meeting), and shall cause a meeting of stockholders of Merger Sub to
be called for such purpose unless such action is taken by consent in lieu
thereof.
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
by holders of Company Securities constituting the Company Requisite Vote and
shall have been duly adopted by the sole stockholder of Merger Sub in accordance
with applicable law and the certificate and by-laws of each such corporation.
(b) ASE Listing. The shares of Parent Common Stock issuable to the
Company stockholders pursuant to this Agreement shall have been authorized for
listing on the ASE upon official notice of issuance.
(c) Regulatory Consents. The waiting period
66
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated and, other than the filing provided for in Section
1.3, all notices, reports and other filings required to be made prior to the
Effective Time by the Company or Parent or any of their respective Subsidiaries
with, and all consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by the Company or Parent or
any of their respective Subsidiaries from, any Governmental Entity
(collectively, "Governmental Consents") in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby by the Company, Parent and Merger Sub shall
have been made or obtained (as the case may be).
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, law, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by this Agreement (collectively, an "Order"),
and no Governmental Entity shall have instituted any proceeding or threatened to
institute any proceeding seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened, by the SEC.
7.2. Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (except to the extent any such
67
representation or warranty expressly speaks as of an earlier date), and Parent
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer of the Company to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 7.2(a) shall be
deemed to have been satisfied even if such representations or warranties
(without giving effect to any qualifications as to "Company Material Adverse
Effect," "material" or similar qualifications) are not so true and correct
unless the failure of such representations or warranties (without giving effect
to any qualifications as to "Company Material Adverse Effect," "material" or
similar qualifications) to be so true and correct, individually or in the
aggregate, has had, or is reasonably likely to have, a Company Material Adverse
Effect or is reasonably likely to prevent the Company from consummating the
transactions contemplated by this Agreement.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive of
the Company to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be required
under the Contracts listed in Section 7.2(c) of the Parent Disclosure Letter and
all other consents or approvals from each Person whose consent or approval is
required under any Contract except for such consents or approvals the failure to
obtain would not, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect or be reasonably likely to prevent the Company
from consummating the transactions contemplated by this Agreement.
(d) Tax Opinion. If, and only if, the Average Parent Share Price is
greater than or equal to the Floor Price (and treated as being greater than or
equal to the Floor Price after giving effect to Section 4.2(a)(iv)), Parent
shall have received the opinion of Xxxxxxxx & Xxxxxxxx, counsel to Parent, dated
the Closing Date, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, and that each of Parent, Merger Sub and the Company will be a party to
that reorganization
68
within the meaning of Section 368(b) of the Code.
(e) Resignations. Parent shall have received the resignations of each
director of the Company.
(f) Employment Agreements. Parent and/or Merger Sub shall have entered
into an Employment Agreement with A. Xxxx Xxxx, in the form attached hereto as
Schedule II.
(g) Affiliates Letters. Parent shall have received an Affiliates
Letter from each Person identified as an affiliate of the Company pursuant to
Section 6.8.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date (except that the
representations and warranties of Parent and Merger Sub contained in Sections
5.2(c), (g), (h) and (i) shall not be required to be so true and correct as of
such dates if the Average Parent Price is less than the Floor Price, and in
which event neither Parent nor Merger Sub shall have any obligation or liability
(and the Company shall have no rights) in respect of a breach of such
representations and warranties) as though made on and as of the Closing Date,
(except to the extent any such representation and warranty expressly speaks as
of an earlier date) and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent and an executive officer of
Merger Sub to such effect; provided, however, that notwithstanding anything
herein to the contrary, this Section 7.3(a) shall be deemed to have been
satisfied even if such representations or warranties (without giving effect to
any qualifications as to "Parent Material Adverse Effect," "material" or similar
qualifications) are not so true and correct unless the failure of such
representations or warranties (without giving effect to any qualifications as to
"Parent Material Adverse Effect," "material" or similar qualifications) to be so
true and correct, individually or in the aggregate, has had, or is
69
reasonably likely to have, a Parent Material Adverse Effect or is reasonably
likely to prevent Parent from consummating the transactions contemplated by this
Agreement.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent and Merger Sub by an executive officer of Parent and an
executive officer of Merger Sub to such effect.
(c) Tax Opinion. If, and only if, the Average Parent Share Price is
greater than or equal to Floor Price (and treated as being greater than or equal
to the Floor Price after giving effect to Section 4.2(a)(iv)), the Company shall
have received the opinion of Xxxxxxxxxxx & Xxxxxxxx, counsel to the Company,
dated the Closing Date, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that each of Parent, Merger Sub and the Company will be
a party to that reorganization within the meaning of Section 368(b) of the Code.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company and Parent referred
to in Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective Boards of Directors.
8.2. Termination by Either Parent or the Company. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if (i)
the Merger shall not have been consummated by February 28, 1999, whether such
date is before or after the date of approval by the stockholders of the Company;
provided, however, that if Parent determines that additional time is necessary
in order to forestall any action to
70
restrain, enjoin or prohibit the Merger by any Government Entity, the
Termination Date may be extended by Parent to a date not beyond April 30, 1999
(the "Termination Date"), (ii) the adoption of this Agreement by Company's
stockholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof, or
(iii) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval by the stockholders of the Company; provided, that the
right to terminate this Agreement pursuant to clause (i) above shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately caused the event
that would otherwise give rise to a right to terminate this Agreement.
8.3. Termination by the Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of the Company if there has
been a material breach by Parent or Merger Sub of any representation, warranty,
covenant or agreement contained in this Agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to the party committing such breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent if (i) the Board of Directors of the Company shall
have withdrawn or adversely modified its approval or recommendation of this
Agreement or approved or recommended a Superior Proposal or (ii) there has been
a material breach by the Company of any representation, warranty, covenant or
agreement contained in this Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent to
the party committing such breach.
8.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII,
71
this Agreement (other than as set forth in Section 9.1) shall become void and of
no effect with no liability on the part of any party hereto (or of any of its
directors, officers, employees, agents, legal and financial advisors or other
representatives); provided, however, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any breach of this Agreement.
(b) In the event that (i) an Acquisition Proposal shall have been made
to the Company or any of its Subsidiaries or any of its stockholders or any
Person shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal with respect to the Company or any of its
Subsidiaries and thereafter this Agreement is terminated by either Parent or the
Company pursuant to Section 8.2(ii)or (ii) this Agreement is terminated by
Parent pursuant to Section 8.4(i), then the Company shall promptly, but in no
event later than two days after the date of such termination, pay Parent a
termination fee of $1,600,000 and shall promptly, but in no event later than two
days after being notified of such by Parent, pay all of the charges and
expenses, including those of the Exchange Agent, incurred by Parent or Merger
Sub in connection with this Agreement and the transactions contemplated by this
Agreement up to a maximum amount of $400,000, in each case payable by wire
transfer of same day funds. The Company acknowledges that the agreements
contained in this Section 8.5(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent and
Merger Sub would not enter into this Agreement; accordingly, if the Company
fails to promptly pay the amount due pursuant to this Section 8.5(b), and, in
order to obtain such payment, Parent or Merger Sub commences a suit which
results in a judgment against the Company for the fee set forth in this
paragraph (b), the Company shall pay to Parent or Merger Sub its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the prime rate of The Chase Manhattan Bank,
N.A. in effect on the date such payment was required to be made.
72
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company,
Parent and Merger Sub contained in Sections 6.6 (Taxation), 6.9 (Stock Exchange
Listing and De-listing), 6.11 (Benefits), 6.12 (Expenses) and 6.13
(Indemnification; Directors' and Officers' Insurance) shall survive the
consummation of the Merger. This Article IX, the agreements of the Company,
Parent and Merger Sub contained in Section 6.12 (Expenses), Section 8.5 (Effect
of Termination and Abandonment) shall survive the termination of this Agreement.
All other representations, warranties, covenants and agreements in this
Agreement shall not survive the consummation of the Merger or the termination of
this Agreement.
9.2. Modification or Amendment. Subject to the provisions of
applicable law, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated
73
hereby, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a Delaware State or Federal court. The parties hereby consent
to and grant any such court jurisdiction over the person of such parties and
over the subject matter of such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in Section 9.6 or in such other manner as may be permitted by law shall
be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Sub:
---------------------------
Cablevision Systems Corporation,
Xxx Xxxxx Xxxxxxxxx,
00
Xxxxxxxx, Xxx Xxxx 00000.
Attention: General Counsel
fax: (000) 000-0000.
(with copies to:
Xxxx X. Xxxx, Esq.
Xxxxxx X. XxXxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx,
000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000
fax: (000) 000-0000.)
if to the Company:
------------------
Clearview Cinema Group, Inc.
00 Xxxx Xxxxxx,
Xxxxxxx, Xxx Xxxxxx 00000.
Attention: Chief Executive Officer
fax: (000) 000-0000
(with a copies to:
Xxxxxx Xxxxxxxx, Esq.,
Xxxxxx X. Xxxxxxx, Esq.
Xxxxxxxxxxx & Xxxxxxxx,
0000 Xxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000
fax: (000) 000-0000.)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits hereto),
the Company Disclosure Letter, the Parent Disclosure Letter constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Sections 6.13
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any
75
rights or remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Transfer Taxes. Any liability arising out of the New York City
Real Property Gains Tax, if applicable and due with respect to the Merger, shall
be borne by the Company, as well as real property transfer taxes, if any,
payable in any other jurisdiction where any of the Company Real Properties is
situated. The parties shall cooperate in the allocation of the purchase price in
a fair and reasonable manner so as to determine what, if any value is being paid
for each of the Company Real Properties which may be subject to such a real
estate transfer tax, and the parties shall complete and file all required real
property transfer tax forms. All other transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including penalties and interest)
incurred in connection with the Merger shall be paid by Parent and Merger Sub
when due, and Parent and Merger Sub will indemnify the Company against liability
for any such taxes.
9.11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other
76
jurisdiction.
9.12. Interpretation. The table of contents and headings herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.13. Assignment. This Agreement shall not be assignable by operation
of law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly-owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other subsidiary, except
that all representations and warranties made herein with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other subsidiary as of the date of such designation.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
CABLEVISION SYSTEMS CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Executive Vice President
CCG HOLDINGS INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Executive Vice President
CLEARVIEW CINEMA GROUP, INC.
By: /s/ A. Xxxx Xxxx
-----------------------
Name: A. Xxxx Xxxx
Title: President
