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PURCHASE AGREEMENT
by and between
THE MARQUEE GROUP, INC.,
on the one hand,
And
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ AND
▇▇▇▇▇ ▇▇▇▇▇▇▇
on the other
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Dated September 18, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE; CLOSING..............................................................................2
1.1 Purchase and Sale of the Shares and LLC Interests........................................................2
1.2 The Closing..............................................................................................2
ARTICLE II PURCHASE PRICE; BUSINESS AND ACCOUNTING.................................................................3
2.1 Purchase Price...........................................................................................3
2.2 Contingent Purchase Price................................................................................4
2.3 Payment of Purchase Price...............................................................................11
2.4 Business and Accounting Practices and Procedures........................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................12
3.1 Ownership of Shares and LLC Interests; Equity Capital Structure.........................................12
3.2 Organization and Qualification..........................................................................13
3.3 Due Authorization.......................................................................................13
3.4 No Violation............................................................................................14
3.5 Financial Statements....................................................................................14
3.6 No Undisclosed Liabilities..............................................................................15
3.7 Absence of Certain Changes..............................................................................15
3.8 Tax Matters.............................................................................................17
3.9 Title to Properties; Encumbrances; Condition............................................................18
3.10 Subsidiaries............................................................................................19
3.11 Receivables.............................................................................................19
3.12 Proprietary Rights......................................................................................19
3.13 Litigation..............................................................................................20
3.14 Insurance...............................................................................................20
3.15 Employee Benefit Plans..................................................................................20
3.16 Employees...............................................................................................21
3.17 Contracts and Commitments...............................................................................22
3.18 No Breach...............................................................................................22
3.19 Labor Relations.........................................................................................23
3.20 Compliance with Law.....................................................................................23
3.21 Interest in Competing Business..........................................................................23
3.22 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.......................................................................................23
3.23 Environmental Matters...................................................................................24
3.24 Business Prospects......................................................................................24
3.25 Affiliate Transactions..................................................................................24
3.26 Disclosure..............................................................................................24
3.27 Intentionally deleted...................................................................................25
3.28 Brokers.................................................................................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................25
4.1 Organization............................................................................................25
4.2 Authorization...........................................................................................25
4.3 Valid and Binding Agreement.............................................................................25
4.4 No Violation............................................................................................25
4.5 Consents................................................................................................26
4.6 Disclosure..............................................................................................26
4.7 Purchase for Investment.................................................................................26
4.8 Issuance of Option Shares...............................................................................26
4.9 Brokers.................................................................................................26
4.10 Buyer's SEC Filings.....................................................................................27
4.11 Material Change of Buyer................................................................................27
ARTICLE V COVENANTS AND OTHER AGREEMENTS...........................................................................27
5.1 Public Announcements....................................................................................27
5.2 Consents and Best Efforts...............................................................................27
5.3 Trade Name..............................................................................................27
5.4 Tax Matters.............................................................................................28
5.5 Insurance...............................................................................................29
5.6 Confidentiality.........................................................................................29
5.7 Performance and Satisfaction of Obligations.............................................................29
ARTICLE VI DELIVERIES AT CLOSING.................................................................................29
6.1 Deliveries by Seller....................................................................................29
6.2 Deliveries by Buyer.....................................................................................30
ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..........................................................30
7.1 Survival of Representations.............................................................................30
7.2 Agreement to Indemnify..................................................................................31
7.3 Limitation of Liability.................................................................................34
7.4 Conditions of Indemnification...........................................................................34
ARTICLE VIII MISCELLANEOUS.........................................................................................36
8.1 Expenses; Taxes.........................................................................................36
8.2 Governing Law; Arbitration..............................................................................36
8.3 Assignment..............................................................................................38
8.4 Entire Agreement........................................................................................38
8.5 Table of Contents; Headings; Interpretive Matters.......................................................38
8.6 Notices.................................................................................................38
8.7 Counterparts............................................................................................39
8.8 Specific Performance....................................................................................39
8.9 Severability............................................................................................39
8.10 Resale..................................................................................................40
8.11 Certain Definitions.....................................................................................40
PURCHASE AGREEMENT
PURCHASE AGREEMENT dated September 18, 1998 by and between
The Marquee Group, Inc., a Delaware Corporation (the "Buyer"), and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (each a "Seller" and together, the "Sellers") with
respect to the purchase by Buyer of all of Sellers' right, title and interest
in and to Halcyon Days Productions, Inc., a California Corporation ("Halcyon
Days"), ▇▇▇▇▇▇▇ Entertainment Group, Inc., a California corporation
("▇▇▇▇▇▇▇"), ▇▇▇▇▇▇/▇▇▇▇▇▇▇ Productions ("Productions"), a California general
partnership (whose sole partners are Halcyon Days and ▇▇▇▇▇▇▇) and
▇▇▇▇▇▇/▇▇▇▇▇▇▇ Management, LLC a California limited liability company ("TRM").
Halcyon Days, ▇▇▇▇▇▇▇, Productions and TRM are collectively referred to as the
"Companies".
WHEREAS, the Sellers are the sole shareholders in ▇▇▇▇▇▇▇ and
Halcyon Days and the sole members of TRM;
WHEREAS, the Buyer desires to acquire from Sellers (i)
Productions through the acquisition of all of the issued and outstanding stock
of Halcyon Days and ▇▇▇▇▇▇▇ (the "Shares") and (ii) TRM through the acquisition
of all of the issued and outstanding membership interests (the "LLC
Interests"); and
WHEREAS, each of the Sellers has agreed to sell the Shares
and the LLC Interests owned by him (as set forth on Exhibit A attached hereto)
to the Buyer pursuant to the provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE; CLOSING
1.1 Purchase and Sale of the Shares and LLC Interests.
Subject to the terms and conditions of this Agreement, at the Closing, each of
the Sellers shall sell, assign, transfer and deliver to Buyer the Shares and
the LLC Interests owned by him, and Buyer shall purchase, receive, accept
delivery of, and pay each of the Sellers for the Shares and the LLC Interests
as provided herein.
1.2 The Closing. The sale and purchase of the LLC Interests
and the Shares and the other transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at the offices of Del, ▇▇▇▇,
▇▇▇▇ & Moonves, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, on September 18, 1998 (or on such earlier date and/or at such other
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location as Buyer and Sellers may mutually agree upon in writing) at 10:00 a.m.
local time contemporaneously with the execution of this Agreement by the
parties hereto. The date of the Closing is referred to herein as the "Closing
Date." If the Closing (including without limitation full execution and delivery
of this Agreement) or any deliveries required to be made thereat pursuant to
Article VI below does not occur on or before September 18, 1998, (a) this
Agreement, the Employment Agreements (as defined) and any related documents
shall immediately and automatically be of no further force or effect (and any
negotiations relating thereto shall terminate unless the parties in their sole
discretion mutually agree otherwise), and (b) Buyer shall (on September 21,
1998) pay to Sellers as liquidated damages a non-refundable sum of $500,000 (in
addition to the non-refundable sums totaling $1,530,000 previously paid to
Sellers) by wire transfer of immediately available funds to accounts designated
by Sellers and Buyer shall indemnify Sellers for any legal fees and expenses
incurred in collecting such liquidated damage sum (provided such liquidated
damage sum shall not be payable if the Closing [including without limitation
full execution of this Agreement] or any deliveries required to be made thereat
pursuant to Article VI below does not occur by September 18, 1998 due to a
breach by Sellers of their representations and warranties having a Material
Adverse Effect or due to Sellers' bad ▇▇▇▇▇ ▇▇▇▇▇ in finalizing this Agreement
or the Employment Agreements [as defined]).
ARTICLE II
PURCHASE PRICE; BUSINESS AND ACCOUNTING
2.1 Purchase Price.
(a) The purchase price for the LLC Interests shall be
$75,000, or an aggregate payable to both Sellers of $150,000 (the "TRM Purchase
Price") and shall be paid in full at Closing in immediately available funds to
accounts designated by Sellers (the "Sellers' Accounts").
(b) The purchase price for the Shares to be purchased from
each Seller shall be (i) $9,925,000, or an aggregate of $19,850,000 (together
with the TRM Purchase Price, the "Closing Purchase Price"), as adjusted
pursuant to Section 2.1(c), payable in full at Closing as set forth in Section
2.3(a) in immediately available funds to the Sellers' Accounts, (ii) $1,000,000
to each Seller, or an aggregate of $2,000,000, payable as set forth in Section
2.3(b) (the "Deferred Purchase Price") and (iii) a contingent purchase price
(the "Contingent Purchase Price") calculated as set forth in Section 2.2 and
payable as set forth in Section 2.3(c).
(c) The Closing Purchase Price shall be increased by an
amount equal to the excess of accrued but uncollected revenue over the accrued
but unpaid expenses of the Companies as of the Closing Date. Similarly, the
Closing Purchase Price shall be reduced by an amount equal to the excess of
accrued but unpaid expenses over accrued but uncollected revenue of the
Companies as of the Closing Date. To the extent that a final adjustment cannot
be determined on the Closing Date, the Buyer and the Sellers shall make the
adjustment to the extent possible on the Closing Date and
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shall thereafter conduct a final accounting and make any further payments as
required on a date mutually agreed upon, but in any event within ninety (90)
days after the Closing. In the event of any dispute between the parties as to
any such adjustments, the amounts not in dispute shall nonetheless be paid
within such ninety (90) day period and such remaining disputes shall be
determined by an independent certified public accountant mutually acceptable to
the parties. Such accountant shall be selected within ten (10) days following
the expiration of such ninety (90) day period by the Sellers' and the Buyer's
regular accountants, and the fees and expenses of such accountant shall be paid
one-half by the Sellers and one-half by the Buyer.
2.2 Contingent Purchase Price. The Contingent Purchase
Price, if any, shall be calculated as follows:
(a) If the EBITDA of the Subsidiary (as defined) for the
period commencing on the Closing Date and continuing through and including
September 30, 1999 (it being understood that this period will for all purposes
under this Agreement be deemed the first "year") is at least:
(i) $3,000,000 but less than $4,000,000, the Buyer
shall pay the Sellers an aggregate of six (6) times
the amount of EBITDA above $3,000,000;
(ii) $4,000,000 but less than $5,000,000, the Buyer
shall pay the Sellers an aggregate of seven (7)
times the amount of EBITDA above $3,000,000; or
(iii) $5,000,000, the Buyer shall pay the Sellers an
aggregate of eight (8) times the amount of EBITDA
above $3,000,000.
(b) If the EBITDA of the Subsidiary for the year commencing
on October 1, 1999 and continuing through and including September 30, 2000 is
at least:
(i) $3,500,000 but less than $4,500,000, the Buyer
shall pay the Sellers an aggregate of six (6) times
the amount of EBITDA above $3,500,000;
(ii) $4,500,000 but less than $5,500,000, the Buyer
shall pay the Sellers an aggregate of seven (7)
times the amount of EBITDA above $3,500,000; or
(iii) $5,500,000, the Buyer shall pay the Sellers an
aggregate of eight (8) times the amount of EBITDA
above $3,500,000;
provided, however, that any amount of Contingent Purchase Price earned and paid
to the Sellers
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pursuant to Section 2.2(a) shall offset any amounts earned pursuant to Section
2.2(b).
(c) If the EBITDA of the Subsidiary for the year commencing
on October 1, 2000 and continuing through and including September 30, 2001 is
at least:
(i) $4,000,000 but less than $5,000,000, Buyer shall
pay the Sellers an aggregate of six (6) times the
amount of EBITDA above $4,000,000;
(ii) $5,000,000 but less than $6,000,000, Buyer shall
pay the Sellers an aggregate of seven (7) times the
amount of EBITDA above $4,000,000; or
(iii) $6,000,000, Buyer shall pay the Sellers an
aggregate of eight (8) times the amount of EBITDA
above $4,000,000;
provided, however, that any amount of Contingent Purchase Price earned and paid
to the Sellers pursuant to Sections 2.2(a) and (b) shall offset any amounts
earned pursuant to Section 2.2(c).
(d) In addition to those amounts set forth under Sections
2.2(a), (b) and (c), if the cumulative EBITDA of the Subsidiary for the five
years commencing on the Closing Date and continuing through and including
September 30, 2003 (the first such "year" being the period from September 18,
1998 through and including September 30, 1999 as set forth above) is at least:
(i) $35,000,000 but less than $50,000,000, Buyer shall
pay the Sellers in the aggregate an additional
$10,000,000; or
(ii) $50,000,000, Buyer shall pay the Sellers in the
aggregate an additional $15,000,000 (in lieu of the
amount payable under Section 2(d)(i).
If for each of any two years (whether or not consecutive)
during the period of five years commencing on the Closing Date (the first such
"year" being the period from September 18, 1998 through and including September
30, 1999 as set forth above), the EBITDA is at least $7,000,000, Buyer shall
pay the Sellers in the aggregate an additional $10,000,000, provided, however,
that such payment shall be credited against any amounts which become payable by
Buyer to Sellers pursuant to Sections 2.2(d)(i) or (ii).
(e) Determination of EBITDA.
(i) "EBITDA" of the Subsidiary shall mean its earnings
before interest, taxes, depreciation and
amortization as determined in accordance with
generally accepted accounting principles ("GAAP").
For purposes of the EBITDA calculation, no charges,
costs or expenses shall be
5
charged against the earnings of the Subsidiary
which are not presently being charged against the
earnings of the Companies, provided that, the
salaries paid to Sellers pursuant to Section
2(b)(i) of the Employment Agreements executed in
connection herewith (but no other amounts to be
paid to Sellers thereunder and no amounts provided
to be paid to Sellers hereunder) shall constitute
charges against the earnings of the Subsidiary; and
provided further, that only direct charges, costs
and expenses of the operation of the Subsidiary
which are shown upon and expended pursuant to the
Budget (as defined) and are otherwise permitted to
be charged pursuant to this Section shall
constitute charges against the earnings of the
Subsidiary. The Buyer shall not allocate or charge
general and administrative, financing or other
costs or other overhead items to the Subsidiary in
the calculation of the Subsidiary's EBITDA. EBITDA
for the Subsidiary shall be computed on the accrual
method of accounting in accordance with GAAP.
Notwithstanding anything to the contrary contained
herein, for purposes of the EBITDA calculation, the
following shall apply: (A) any bonus (other than a
so-called signing or commencement bonus which is
dealt with in Section 2.2[e][i][D]), royalty,
backend advance and/or guarantee under a term deal
or any other deal, and any guild-mandated
residuals, will be deemed to be earned in full
(i.e., will be recognized as revenue in the
calculation of the Subsidiary's EBITDA) on the date
upon which any such sum becomes due and payable,
(B) any executive producer, producer, director,
writer or consultant fee (and any other fee for
services) on any television project or theatrical
motion picture project which fee is not recouped
against a guarantee under a term deal will be
deemed to to be earned in full on the date upon
which installments of such fee become due and
payable pursuant to the negotiated pay schedule on
the given project, (C) overhead payable pursuant to
the existing Nickelodeon/MTV Networks Term Deal
dated as of April 23, 1996 will be deemed to be
earned in full on commencement of photography or
taping of the applicable television episode, and
(D) any so-called signing or commencement bonus
("signing bonus") paid under a term deal or
otherwise will be recognized as revenue per GAAP,
provided, however, that the following formula, if
more favorable to Sellers (i.e., if it will
accelerate the recognition of a signing bonus
relative to how such signing bonus would be
recognized per GAAP), will be used: In the EBITDA
year (i.e., the period from October 1 [or in the
case of 1998, September 18] of each year through
and including September 30 of the following
calendar year) in which the signing bonus is
received,
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the amount that will be recognized (in that EBITDA
year) will be the sum of (a) the amount that would
be recognized over the entire first 12 month period
of the applicable studio contract if the signing
bonus were recognized rateably over the guaranteed
(not optional) term of such studio contract (even
if such first year of the applicable studio
contract extends beyond the given EBITDA year), or
one-half of such amount if the signing bonus is
received in the final six months of the given
EBITDA year in which the signing bonus is received,
plus (b) one-half of the remainder of the full
signing bonus that is not recognized per "(a)". The
other half of the remainder of the signing bonus
(i.e., the remaining half that is not recognized
per "[b]") will be recognized rateably over the
remaining guaranteed term of the applicable studio
contract commencing on day one of the EBITDA year
following the EBITDA year in which the signing
bonus is received. By way of example, if in
February 1999, a new three-year firm studio
contract is entered into (whether or not an
additional optional term is provided for) and a
$4.5 million signing bonus is concurrently paid,
and if under GAAP said signing bonus may only be
recognized as revenue over the guaranteed term of
the studio contract (as opposed to, for instance,
the entire signing bonus being recognized on
receipt), $3 million of said signing bonus will be
recognized in the EBITDA year that runs from
September 18, 1998 to September 30, 1999 (i.e., the
$1.5 million that would otherwise be recognized
rateably over the first 12 months of the three-year
studio contract and another $1.5 million which
represents 50% of the remaining $3 million of said
signing bonus), and the remaining $1.5 million of
said signing bonus (bringing it to the total of
$4.5 million) would be recognized rateably over the
remaining guaranteed term of the applicable studio
contract (i.e., through January 31, 2002)
commencing on October 1, 1999, the first day of the
following EBITDA year. By way of further example,
if the facts were the same as in the immediately
preceding sentence but the signing bonus is not
paid until April 1, 1999, which falls in the final
six months of that EBITDA year, the amount of the
signing bonus recognized in that EBITDA year will
be $2,625,000 (which is one-half of the signing
bonus that would be recognized rateably over the
first 12 months of the studio contract and one-half
of the remaining portion of the signing bonus), and
the remaining $1,875,000 of said signing bonus
would be recognized rateably over the remaining
guaranteed term of the applicable studio contract
(i.e., through January 31, 2002) commencing on
October 1, 1999, the first day of the following
7
EBITDA year. In addition to the foregoing, in the
event that the guaranteed term of the applicable
studio contract extends beyond September 30, 2003,
any portion of the signing bonus that has not yet
been recognized as of September 30, 2003 pursuant
to the foregoing formula will be recognized in full
on that date.
(ii) Buyer shall furnish (or cause the Subsidiary to
furnish) to the Sellers financial statements of the
Subsidiary for each of the five years following the
Closing Date (the first such "year" being the
period from September 18, 1998 through and
including September 30, 1999 as set forth above) as
promptly as they are available but in no event
later than 75 (with Buyer to use reasonable good
faith efforts to make it 60) days following the
last day (i.e., September 30) of each such year.
The financial statements shall consist of a balance
sheet and income and expense statement prepared in
accordance with Section 2.4 showing in reasonable
detail and specifically identifying (with reference
to the applicable contract, and if applicable,
project) all individual items of income and expense
and shall be accompanied by a detailed calculation
of the Subsidiary's EBITDA for such year. If the
calculation of the Subsidiary's EBITDA indicates
any Contingent Purchase Price was earned pursuant
to Section 2.2 for that period, the financial
statements for that period shall be accompanied by
an "Election Notice" in substantially the form of
Exhibit B (with such modifications contemplated by
Section 2.2(g)).
Each Seller shall have 60 days from receipt of the
financial statements and the accompanying
calculation of the Subsidiary's EBITDA to object to
the calculation of the Subsidiary's EBITDA by
providing written notice to Buyer of his objection
to such calculation (during which 60 days Buyer
will provide in writing whatever detailed
explanations, information and substantiating
documentation that any Seller reasonably requests
relating to the financial statements, EBITDA
calculation and Buyer's specific methodology and
positions with respect thereto). If a Seller does
not object within 60 days, then Buyer's calculation
of EBITDA shall be conclusive and final with
respect to such Seller.
(iii) If either Seller delivers a written objection,
Buyer and such objecting Seller will, for a period
of two weeks following delivery of such written
objection (the "Two Week Period"), use reasonable
good faith efforts to resolve the dispute and Buyer
will, at the objecting Seller's
8
request, engage in a good faith and candid dialogue
with (and will provide any reasonably requested
additional information and substantiating
documentation to) the objecting Seller in
connection therewith. If Buyer and the objecting
Seller are unable to resolve the dispute during the
Two Week Period, Buyer's calculation of the
Subsidiary's EBITDA shall be promptly submitted to
a Big Five Firm mutually agreed on by Buyer and the
objecting Seller for review and recalculation, or
if Buyer and the objecting Seller cannot agree on
such Big Five Firm within five days after the
expiration of the Two Week Period, Buyer and the
objecting Seller shall each select a Big Five Firm
and such two Big Five Firms shall select a third
Big Five Firm (which shall not in any event be a
Big Five Firm regularly employed by Buyer) and such
dispute shall be submitted to such third Big Five
Firm as aforesaid for review and recalculation, or
if such third Big Five Firm shall not for any
reason have been designated within such five-day
period, then a Big Five Firm (which shall not in
any event be a Big Five Firm regularly employed by
Buyer) shall be designated as promptly as is
practicable by the American Arbitration Association
(the "AAA") in accordance with its rules then
obtaining, and such dispute shall be submitted to
such Big Five Firm so designated for review and
recalculation, or if the AAA is unable for any
reason to identify a Big Five Firm meeting all of
the qualifications hereunder, then the AAA will
designate a certified public accounting firm that
has an employee roster of one hundred or more (the
"Other Firm") (which shall not in any event be a
certified public accounting firm regularly employed
by Buyer). The Big Five Firm or Other Firm
ultimately undertaking such review and
recalculation is hereinafter referred to as the
"Accountants." Any such review and recalculation by
the Accountants shall be made in accordance with
the definition of EBITDA and other guidelines
contained in Section 2.2(e)(i) and the
recalculation shall be completed and delivered by
the Accountants within thirty days of submission to
the Accountants of Buyer's original calculation.
Buyer agrees to reasonably cooperate with the
Accountants and to provide all such information as
is reasonably necessary to the Accountants in
performance of their review and recalculation.
Concurrently with Buyer's delivery to the
Accountants of any documents or information of any
kind, the Buyer shall provide to the objecting
Seller a copy of all such documents and
information. The objecting Seller may also provide
to the Accountants (and will concurrently provide
to Buyer) any information and statement of
positions that it wishes the Accountants to
consider in connection with
9
their review and recalculation. The accountant fees
actually charged by the Accountants for such review
and recalculation will be paid equally by the Buyer
and the objecting Seller; provided that if the
Accountants' recalculation of EBITDA exceeds
Buyer's original calculation by 7 1/2% or more,
then Buyer shall pay all such fees. The
determination of the Accountants as to the
Subsidiary's EBITDA for the given year shall be
final and binding upon the parties. Buyer shall
provide a new Election Notice to the objecting
Seller within two business days after receipt of
the Accountants' recalculation (which recalculation
shall be delivered to both Buyer and the objecting
Seller in writing and shall contain a reasonably
detailed explanation of the bases for the
Accountants' findings as reflected in the
recalculation). The objecting Seller may at any
time designate an accountant, auditor or other
financial representative to communicate with Buyer
on his behalf for purposes of this Section
2.2(e)(iii).
(f) Buyer Shares Option. Subject to the securities laws and
conditions set forth in this section and in Section 2.2(g), 80% of any
Contingent Purchase Price earned shall be paid in cash and the remaining 20% of
any Contingent Purchase Price earned shall be paid in Buyer Common Stock;
provided that each Seller may elect to receive up to 50% of his portion of the
Contingent Purchase Price earned in Buyer Common Stock in his Election Notice.
Each Seller shall execute and deliver to Buyer the Election Notice within 60
days following receipt of the financial statements and EBITDA calculation
pursuant to Section 2.2(e)(ii), unless the given Seller disputes the
calculation of the Subsidiary's EBITDA, in which case the Election Notice shall
not be required to be executed and delivered by that Seller until 20 days after
the resolution of such dispute. Upon receipt of the Election Notice, Buyer
shall reserve and issue (subject to Section 2.2(g)) to the electing Seller that
number of shares obtained by dividing the Option Price into the amount of the
Contingent Purchase Price payment otherwise due the Seller which it shall have
elected to receive in Buyer Common Stock, rounded downward to the nearest whole
share (the "Option Shares"). No fractional shares will be issued and Buyer
shall pay the Seller for any resulting fraction on the basis of the Option
Price by check within 5 business days following Buyers receipt of the given
Seller's Election Notice. Notwithstanding anything in this section to the
contrary, if a Seller fails to execute and deliver the Election Notice as set
forth herein, such Seller shall receive 80% of the Contingent Purchase Price in
cash and 20% in Buyer Common Stock. Furthermore, if the Buyer Common Stock
proposed to be issued to Sellers pursuant to this Section 2.2(f) would not upon
issuance to Sellers be immediately freely tradeable by Sellers on NASDAQ or a
recognized national or regional stock exchange, Buyer will so notify Sellers in
writing concurrently with Buyer's delivery of the Election Notice, and each
Seller may in such event elect in his Election Notice to receive his entire
portion of the Contingent Purchase Price in cash only (such payment to be made
within 5 business days following Buyer's receipt of the given Seller's Election
Notice).
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(g) Securities Laws Conditions. Buyer shall not be obligated
to reserve or issue the Option Shares to any Seller unless it can do so in
reliance on an exemption from the registration requirements of the Securities
▇▇▇ ▇▇▇▇, as amended, and the regulations promulgated thereunder (the "1933
Act") and any applicable state securities law. It is currently contemplated
that exemptions will exist such as those presently provided for by Regulation D
of the 1933 Act. If reservation or issuance of the Option Shares is prohibited
by the 1933 Act or any other applicable law, Sellers shall receive their entire
portion of the Contingent Purchase Price in cash only, such payment to be made
within the time frame set forth for payment of the cash portion of the
Contingent Purchase Price pursuant to Section 2.3(c). Each Seller electing in
his sole discretion to receive unregistered Buyer Common Stock (as opposed to
electing in his sole discretion to receive his entire portion of the Contingent
Purchase Price in cash only pursuant to the final sentence of Section 2.2[f])
will be required to represent and warrant to Buyer that the Option Shares are
being acquired for investment and not with a view to distribution or resale and
with respect to other factual matters which may be necessary to satisfy the
applicable securities laws exemption from registration. Any and all shares of
unregistered Buyer Common Stock issued to the Sellers will be subject to
holding periods as prescribed by the 1933 Act and shall bear appropriate
restrictive legends as provided in the Election Notice.
2.3 Payment of Purchase Price. The aggregate purchase price
for the Shares and the LLC Interests shall be payable fifty percent (50%) to
each Seller and shall be paid by Buyer in the following manner:
(a) Closing Purchase Price. The Closing Purchase Price, as
adjusted pursuant to Section 2.1(c) (less $1,430,000 previously received by
Sellers as a non-refundable but creditable deposit) shall be paid at Closing by
wire transfer of immediately available funds to the Sellers' Accounts.
(b) Deferred Purchase Price. The Deferred Purchase Price
shall be paid by wire transfer of immediately available funds to the Sellers'
Accounts in installments of $200,000 to each Seller at Closing and $200,000 to
each Seller on September 15 of each of 1999, 2000, 2001, and 2002, provided
that if Sellers terminate their Employment Agreements (as defined) for Good
Reason (as defined in Section 3(c) of the Employment Agreements), all remaining
installments of the Deferred Purchase Price that have not theretofore been paid
will be accelerated and paid in a lump sum by wire transfer of immediately
available funds to the Sellers' Accounts within 10 days following such
termination of the Employment Agreements by Sellers.
(c) Contingent Purchase Price. If any Contingent Purchase
Price is earned it shall be paid by wire transfer of immediately available
funds to the Sellers' Accounts, or issued to each Seller in the case of the
Option Shares, within 5 business days following Buyer's receipt of the given
Seller's Election Notice with respect to the cash portion and 7 business days
following Buyer's receipt of the given Seller's Election Notice with respect to
the Option Shares.
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2.4 Business and Accounting Practices and Procedures.
Beginning on the Closing Date and continuing through and including September
30, 2003, Buyer covenants and agrees, for itself, the Subsidiary and their
respective successors and assigns, as follows:
(a) Maintenance of Subsidiary; Name. Buyer shall maintain and
account for the Companies, as a separate business entity (the "Subsidiary")
(whether as a subsidiary corporation or operated as a division), and shall
maintain separate, complete and accurate books and records of the Subsidiary's
business, properties and transactions (and Sellers shall at all times be
afforded complete access to all such books and records). Subject to Section
5.3, the Subsidiary shall operate under the name "Marquee.▇▇▇▇▇▇/▇▇▇▇▇▇▇".
(b) Working Capital. Buyer shall provide working capital to
the Subsidiary in amounts as may be reasonably necessary to permit its
operation and sustained growth. Such amounts shall be determined as part of a
mutually agreed (between Buyer and Sellers) annual budget (the "Budget"),
subject however to mutually agreed revisions on an ongoing basis to meet
mutually agreed operating and growth requirements. Without limiting the
foregoing, the Budget shall include all amounts necessary to pay any agency
commissions, legal fees and other amounts becoming due to any third party on
account of the contracts of the Companies or the Subsidiary. Notwithstanding
the foregoing, if Buyer and Sellers fail to agree on the Budget, the Budget
shall be the larger of (i) the Budget for the prior year, plus 5% or (ii) the
amount reasonably determined by Buyer in accordance with the first sentence of
this Section 2.4(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers hereby represent and warrant to Buyer as of the
date hereof, provided, however, that as to matters pertaining to Halcyon Days
or its status or securities, such representations are made only by ▇▇▇▇▇▇▇
▇▇▇▇▇▇, who shall have the sole responsibility therefor, and as to matters
pertaining to ▇▇▇▇▇▇▇ or its status or securities, such representations are
made solely by ▇▇▇▇▇ ▇▇▇▇▇▇▇, who shall have sole responsibility therefor.
3.1 Ownership of Shares and LLC Interests; Equity Capital
Structure.
(a) The authorized capital stock of Halcyon Days consists
solely of 1,000 shares of common stock, of which all 1,000 shares are issued
and outstanding (the "Halcyon Days Shares"). The Halcyon Days Shares constitute
all of the issued and outstanding shares of capital stock of Halcyon Days and
are owned by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇. All of the Halcyon Days Shares were duly
authorized for issuance and are validly issued, fully paid and non-assessable,
and none of the Halcyon Days Shares were issued in violation of any preemptive
or similar rights. At Closing, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ will convey marketable title to
the Halcyon Days Shares to Buyer free and clear of
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any liens, claims or encumbrances.
(b) The authorized capital stock of ▇▇▇▇▇▇▇ consists solely
of 3,000 shares of common stock, of which all 3,000 shares are issued and
outstanding (the "▇▇▇▇▇▇▇ Shares"). The ▇▇▇▇▇▇▇ Shares constitute all of the
issued and outstanding shares of capital stock of ▇▇▇▇▇▇▇ and are owned by
▇▇▇▇▇ ▇▇▇▇▇▇▇. All of the ▇▇▇▇▇▇▇ Shares were duly authorized for issuance and
are validly issued, fully paid and non-assessable, and none of the ▇▇▇▇▇▇▇
Shares were issued in violation of any preemptive or similar rights. At
Closing, ▇▇▇▇▇ ▇▇▇▇▇▇▇ will convey marketable title to the ▇▇▇▇▇▇▇ Shares to
Buyer free and clear of any liens, claims or encumbrances.
(c) The LLC Interests constitute all of the membership
interests of TRM and are owned equally by the Sellers. No person holds any
membership interest or any right to receive any income, profits, distributions
or assets of TRM, other than the Sellers, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Del, ▇▇▇▇, ▇▇▇▇ &
Moonves (formerly known as Del, Rubel, Shaw, ▇▇▇▇▇ & Derin), the latter two as
described in Schedule 3.17. None of the LLC Interests were issued in violation
of any preemptive or similar rights. At the Closing, each of the Sellers will
convey to Buyer marketable title to the portion of the LLC Interests held by
him free and clear of all liens, claims or encumbrances.
(d) Halcyon Days and ▇▇▇▇▇▇▇ are the sole partners of
Productions. No person owns any partnership interest or right to receive any
income, profits, distributions or assets of Productions (the "Partnership
Interests"), other than Halcyon Days and ▇▇▇▇▇▇▇ and any other individual or
entity as described in Schedule 3.17.
(e) There are not (i) any shares of capital stock of Halcyon
Days or ▇▇▇▇▇▇▇ issued or outstanding other than the Halcyon Days Shares and
the ▇▇▇▇▇▇▇ Shares, (ii) any membership interests of TRM issued and outstanding
other than the LLC Interests, (iii) any Partnership Interests in Productions
other than those conveyed to Buyer or (iv) any subscriptions, options,
warrants, calls, rights, convertible securities or other rights or other
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock or other securities of Halcyon Days or ▇▇▇▇▇▇▇, the
issued or unissued Partnership Interest or other securities in Productions or
the issued or unissued membership interests or other securities of TRM, or
otherwise obligating Halcyon Days, ▇▇▇▇▇▇▇, Productions or TRM to issue,
transfer or sell any of their respective securities or other instruments
convertible into or exchangeable or exercisable for any securities of Halcyon
Days, ▇▇▇▇▇▇▇, Productions or TRM.
(f) There are not any (i) outstanding contractual or other
obligations of any of Halcyon Days, ▇▇▇▇▇▇▇, Productions or TRM to repurchase,
redeem or otherwise acquire the Halcyon Days Shares, ▇▇▇▇▇▇▇ Shares,
Partnership Interests or LLC Interests or any securities of Halcyon Days,
▇▇▇▇▇▇▇, Productions or TRM, respectively or (ii) any voting trust, arrangement
or contract concerning the securities of Halcyon Days, ▇▇▇▇▇▇▇, Productions or
TRM to which either the Sellers or Halcyon Days, ▇▇▇▇▇▇▇, Productions or TRM is
a party or bound.
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3.2 Organization and Qualification. TRM is a limited
liability company and Halcyon Days and ▇▇▇▇▇▇▇ are corporations each duly
organized, validly existing and in good standing under the laws of California,
and each has the requisite power and authority to carry on its business as it
is now being conducted. None of Halcyon Days, ▇▇▇▇▇▇▇, Productions or TRM is
qualified to do business as a foreign limited liability company, partnership or
corporation in any other state.
3.3 Due Authorization. Each Seller represents as to itself
that he has the full power and authority to enter into and perform this
Agreement and all other agreements and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and the other
agreements contemplated hereby, when executed, will be, duly executed and
delivered by each Seller, and assuming the due authorization, execution and
delivery hereof and thereof by the other parties hereto or thereto, this
Agreement constitutes and, when executed, each of the other agreements
contemplated hereby will constitute, a valid and binding obligation of each
Seller enforceable against each Seller in accordance with its terms and subject
to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar laws affecting creditors rights generally from time to
time and to general principles of equity.
3.4 No Violation. To the best of Sellers' knowledge, except
as set forth in Schedule 3.4 neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate or conflict with any statute, law, ordinance, rule, regulation,
order, writ, injunction, judgment or decree applicable to any of the Sellers or
the Companies or by which any of their respective properties may be bound or
affected, (b) violate or conflict with any provisions of the Articles of
Incorporation or Bylaws of Halcyon Days or ▇▇▇▇▇▇▇ or the Operating Agreement
of TRM, (c) constitute a violation of or a default or breach (or an event
which, with notice or lapse of time, or both, would constitute a default) under
or result in the termination of, accelerate the performance required by, or
give rise to any right of termination, acceleration, cancellation, buy out, or
amendment under, or result in the creation of any Liens upon any of the
Companies or any of their assets or have any other adverse effect under, any
term or provision of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which any of the Companies
is a party or by which any of their assets or properties may be bound, subject
or affected, or cause, or give any person grounds to cause (with or without
notice, the passage of time, or both), the maturity of any debt, liability or
obligation of any of the Companies to be accelerated or increase any such
liability or obligation of any of the Companies. To the best of Sellers'
knowledge, except as set forth in Schedule 3.4, no filing with, notification
to, and no permit, consent, approval, authorization or action by any
Governmental Agency is required in connection with the execution, delivery and
performance by the Sellers and the Companies of this Agreement, or the
consummation by the Sellers and the Companies of the transactions contemplated
hereby. Schedule 3.4 lists and describes all consents, approvals,
authorizations or orders of any Governmental Agency or other third party known
to Sellers to be necessary for the authorization, execution and delivery by the
Sellers of this Agreement and the
14
consummation of the transactions contemplated hereby.
3.5 Financial Statements. Attached hereto as Schedule 3.5 are
(i) the audited combined balance sheets as of December 31, 1996 and 1997 of the
Companies (the "Balance Sheets"), (ii) the related combined statements of
operations, cash flows, and stockholder's equity for each of the two years
ended December 31, 1997, (iii) the unaudited combined balance sheet of the
Companies as of June 30, 1998 (the "Interim Balance Sheets") and (iv) the
combined profit and loss statements related to the Interim Balance Sheets. The
financial statements referred to in the preceding clauses (i) and (ii) are
collectively referred to as the "Audited Financial Statements". The financial
statements referred to in the preceding clauses (iii) and (iv) are collectively
referred to as the "Unaudited Financial Statements". To the best of Sellers'
knowledge, all such Audited Financial Statements (and the footnotes and
schedules thereto) which have been audited by Ernst & Young LLP and the
Unaudited Financial Statements which have been reviewed by Ernst & Young LLP
(i) fairly present the financial position of each of the Companies as of the
dates thereof and (ii) have been prepared in accordance with GAAP applied on a
consistent basis, except in the case of the Unaudited Financial Statements for
the omission of all footnote disclosures and for normal year end adjustments.
3.6 No Undisclosed Liabilities. To the best of Sellers'
knowledge, the Companies do not have any liabilities or obligations, except (i)
as and to the extent of the amounts reflected or reserved against in the
Balance Sheets or in the Interim Balance Sheets, (ii) as set forth in Schedules
3.6 or 3.17, or (iii) liabilities and obligations incurred in the ordinary
course of business and consistent with past practice, none of which is material
to the business, operations, prospects or financial condition of the Companies
on a combined basis since the date of the Audited Financial Statements. Except
as provided in the preceding sentence, Sellers know of no reasonable basis for
the assertion against any of the Companies of any liability or obligation not
fully reflected or reserved against in the Balance Sheets, or in the Interim
Balance Sheets or incurred in the ordinary course of business and consistent
with past practice since the date thereof.
3.7 Absence of Certain Changes. Except as set forth in
Schedule 3.7, since December 31, 1997 the respective businesses of the
Companies have been operated in the usual and ordinary course, consistent with
past practice. Since December 31, 1997, there has not been, to the best of
Sellers' knowledge:
(a) any material adverse change in the business, operations
or financial condition of any of the Companies from that reflected in the
Audited Financial Statements or the Unaudited Financial Statements, as
applicable;
(b) any amendment, modification or termination of any
existing, or entry into any new, contract, agreement, plan, lease, license,
permit or franchise which is, either individually or in the aggregate, material
to the business, operations, prospects or financial condition of any of the
15
Companies other than as reflected on Schedule 3.17;
(c) any material increase granted, promised or announced in
the wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable by any of the Companies to any of their employees;
(d) any dispositions of any assets of any of the Companies
not in the ordinary course of business which had a fair market or net book
value at the time of disposition in the aggregate of $100,000 or any material
damage, destruction or loss (not covered by insurance) of any asset of any of
the Companies involving loss or cost of $100,000;
(e) any labor dispute material to the business, operations,
prospects or financial condition of any of the Companies;
(f) any incurrence of any liabilities or obligations (whether
absolute, accrued, contingent or otherwise and whether due or to become due) by
any of the Companies except to the extent incurred in the ordinary course of
business and consistent with past practice and not in excess of $100,000
individually or in the aggregate; or any increase of, or any experience of any
change in any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves;
(g) any payment, discharge or satisfaction of any material
claims, liabilities or obligations (whether absolute, accrued, contingent or
otherwise and whether due or to become due) of any of the Companies other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(h) any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, except for liens for current
taxes not yet due or other statutory lien for obligations not yet due, placed,
permitted or, if not in existence on December 31, 1997, allowed to exist on any
property or assets of any of the Companies;
(i) any capital expenditure or commitment for capital
expenditures by any of the Companies which in the aggregate exceeds $100,000;
(j) any payment, loan or advance of any amount by any of the
Companies, to, or sale, transfer or lease of any properties or assets by any of
the Companies to, or any agreement or arrangement by any of the Companies with,
Sellers or any of their affiliates or associates except in the usual and
ordinary course of business and consistent with past practice;
(k) any failure to pay any creditor any amount owed to such
creditor when due, other than in the ordinary course of business consistent
with past practice or except for matters being contested in good faith;
16
(l) Intentionally deleted;
(m) any material agreement, arrangement or transaction with
any directors, officers, members, managers, employees or equity holders of any
of the Companies (or with any relative, beneficiary, spouse or affiliate of
such person) excluding distributions of salary, income, reimbursements or
employee benefits in the ordinary course of the past business practice of the
Companies or the payment of consideration under the lease for the building
owned by Sellers at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ in North Hollywood at which the
Companies are based;
(n) any material change in any method of accounting or
accounting practice or policy used by any of the Companies, other than such
changes required by GAAP or discussed with Buyer, Ernst & Young LLP and/or as
implemented in the Financial Statements or Interim Financial Statements;
(o) any failure to maintain any of the material assets of the
Companies in accordance with past business practice;
(p) any lapse or termination of any material Permit that was
issued or relates to any of the Companies or otherwise relates to any asset of
any of the Companies or any failure to renew such Permit or any insurance
policy that is scheduled to terminate or expire within 45 calendar days after
the Closing Date;
(q) any express or deemed election or settlement or
compromise of any liability with respect to the Taxes of any of the Companies
except the filing of the consent by each of Halcyon Days and ▇▇▇▇▇▇▇ pursuant
to Section 341(f) of the Internal Revenue Code (the "Code"); or
(r) any agreement, whether in writing or otherwise, to take
or refrain from taking any action which, if taken or omitted to be taken
subsequent to December 31, 1997, would render any of the representations or
warranties set forth in this Section 3.7 untrue or incorrect.
3.8 Tax Matters. To the best of Seller's knowledge:
(a) The Companies have each properly prepared and filed with
the appropriate governmental or taxing agency or authority ("Taxing
Authority"), all Tax Returns which are or were required to be filed by each of
the Companies, respectively prior to Closing with respect to all taxable years
or the taxable periods ending prior to January 1, 1998 and all such Tax Returns
are or were correct and complete in all respects. Except as set forth in
Schedule 3.8(a), the Companies have paid, or shall cause to be paid, when due
and payable, all Taxes with respect to such tax periods whether or not such
Taxes are shown to be due and payable by the Companies on the Tax Returns
described above in this Section 3.8(a). Except as set forth on Schedule
3.8(a)(1), the Companies have paid or shall cause to be paid when due and
payable with respect to all tax periods prior to the date preceding the Closing
Date, all withholdings, social security (or similar tax) business and/or
17
occupation, personal property, real property, payroll and sales taxes.
(b) Except as set forth on Schedule 3.8(b): (i) no adjustment
or deficiency relating to any Tax Return described in Section 3.8(a) has been
or is expected to be proposed by any Taxing Authority; (ii) there are no
pending or, to the knowledge of Sellers, threatened actions or proceedings for
the assessment or collection of Taxes against any of the Companies; and (iii)
each of the Sellers is a "United States person" as defined in Code ss.
7701(a)(30).
(c) Schedule 3.8(c) lists and describes: (i) all Tax Returns
described in Section 3.8(a), indicating (A) the jurisdictions to which the Tax
Returns relate, including all agreements, consents, elections and waivers filed
or made with the Internal Revenue Service ("IRS") or other taxing authorities;
(ii) the basis of Companies in their respective assets, the basis of the
Sellers in their Shares and their LLC Interests and the basis of Halcyon Days
and ▇▇▇▇▇▇▇ in their partnership interest in Productions; (iii) the amount of
any unused net operating loss, net capital loss, foreign tax credit, other tax
credits, or excess charitable contribution allocable to any of the Companies
and the tax periods to which those losses, credits, and contributions relate,
in each case as shown on any Tax Return; and (iv) any partnership or joint
venture (other than Productions) of which any of the Companies has been a
member during any tax period for which the statute of limitations for
assessment of Taxes has not expired prior to the Closing.
(d) For taxable years or periods commencing January 1, 1998
and ending on the date prior to the Closing Date, Sellers shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for the
Companies on a basis consistent with prior years (except for changes required
by changes in law). Sellers shall permit the Buyer and its representatives to
review and comment on each such Tax Return of the Companies prior to filing.
The Companies have paid, or shall cause to be paid, when due and payable, all
Taxes whether or not such Taxes are shown to be due and payable by the
Companies on such Tax Returns. Notwithstanding the foregoing, neither Companies
nor Sellers shall be responsible for nor indemnify Buyer for Taxes on account
of such Tax Returns for which Buyer has indemnified the Companies and Sellers
pursuant to Section 7.2(c) hereof. Subject to the receipt by Sellers of the
applicable Actual Indemnity Amount (as defined herein), Sellers shall timely
pay all Taxes of the Companies as shown due on such Tax Return(s) with respect
to such periods.
(e) Except as set forth in Schedule 3.8, none of the
Companies (i) currently is the beneficiary of any extension of time within
which to file any Tax Return described in Section 3.8(a); (ii) has waived any
statute of limitations in respect of Taxes; or (iii) agreed to any extension of
time with respect to a Tax assessment or deficiency. No deficiency for Taxes
has been assessed against any of the Companies which has not been paid in full.
(f) There are no liens for Taxes upon the assets of the
Companies except for liens for Taxes not yet due.
18
(g) None of the Companies (i) has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code ss. 280G; or (ii) is a party to any tax allocation or
sharing agreement with respect to any Taxes. Each of the Companies has
disclosed on its federal income Tax Returns described in Section 3.8(a) all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code ss. 6662.
(h) The term "Tax Return," as used in this Agreement, shall
include any report, return, rendition or other document or information required
to be supplied to a federal, state, local or foreign Taxing Authority in
connection with Taxes.
(i) The term "Taxes," as used in this Agreement, shall mean
all income taxes imposed by the United States or any state, local or foreign
government or subdivision or agency thereof whether computed on a separate,
consolidated, unitary, combined or any other basis.
3.9 Title to Properties; Encumbrances; Condition. To the
best of Sellers' knowledge:
(a) The Companies have good, valid and marketable title to
(i) all the assets reflected in the Balance Sheets and (ii) all tangible and
intangible assets, agreements, leases, licenses, and permits used by the
Companies which exist or are in effect as of the date hereof or at any time
through the Closing, free and clear of all Liens, except (x) as set forth in
Schedule 3.9, (y) Liens for current Taxes not yet delinquent, Taxes for which
adequate provision is made in the Balance Sheets, and statutory liens for
obligations not yet due and (z) minor imperfections of title and encumbrances,
if any, the total of which is not substantial in amount and which do not
materially detract from the value of the property subject thereto and do not
impair the use of such properties and assets or the business and operations of
the Companies (such Liens referred to in clauses (x) and (y) of this sentence
are hereinafter referred to as "Permitted Liens").
(b) Schedule 3.9 contains a list of all real property leases
and subleases to which one of the Companies is a party all of which are in full
force and effect and are not in default and to the knowledge of Sellers, or the
Companies no event has occurred such that with the giving of notice or the
passage of time, or both, would give rise to an event of default.
(c) The assets of the Companies, whether real or personal,
presently owned, rented or leased by the Companies, are all of the assets used
for the operation of business of the Companies, as presently conducted.
3.10 Subsidiaries. Except for the Partnership Interests owned
by Halcyon Days and ▇▇▇▇▇▇▇ in Productions, none of the Companies own, directly
or indirectly, legally or beneficially any interest in any other entities,
partnerships or joint ventures.
19
3.11 Receivables. To the best of Sellers' knowledge, Schedule
3.11 sets forth the receivables of each of the Companies and constitute or will
constitute, as the case may be, valid receivables, and are not subject to valid
claims of set-off or other defenses or counterclaims other than normal cash
discounts accrued in the ordinary course of business consistent with past
practice. To the best of Sellers' knowledge, all receivables reflected on the
Balance Sheets or arising from the date thereof until the Closing are or will
be good and have been collected or are or will be collectible through the
utilization of collection efforts in the ordinary course of business consistent
with past practice.
3.12 Proprietary Rights. To the best of Sellers' knowledge,
the Companies do not own or use under licenses from others any trademarks,
trade names, assumed names, service marks, logos, patents, patent applications,
copyrights and copyright registrations, or applications therefor, except as
listed on Schedule 3.12 (collectively, the "Proprietary Rights"); and to the
best of Sellers' knowledge, at the time of Closing no other Proprietary Rights
are used in or are necessary for the conduct of the Companies' business as
presently conducted, it being understood, however, that the Companies are
involved in numerous entertainment projects that are owned and/or distributed
by third parties who themselves use and need Proprietary Rights in order to
produce and exploit such projects.
3.13 Litigation. Except as listed on Schedule 3.13, there is
no action, claim, suit, proceeding pending or, to the knowledge of the Sellers
threatened against any of the Companies at law or in equity, or before any
federal, state, municipal or other governmental court, department, commission,
board, bureau, agency or instrumentality. To the best of Sellers' knowledge,
none of the Companies is subject to any order, judgment, decree or obligation
which would limit the ability of any of the Companies to operate their business
in the ordinary course or perform their obligations hereunder.
3.14 Insurance.
(a) Schedule 3.14 sets forth a description by name of the
insurer, policy number, premium and type of insurance) with respect to each
material policy of fire, liability, worker's compensation, health, property,
casualty and bond and surety arrangements and other forms of insurance
presently in effect with respect to the Companies under which the Companies
have been an insured, a named insured or otherwise the principal beneficiary of
coverage at any time within the past three years. It is understood that the
Companies may be listed as additional insured parties on various production
and/or exploitation-related insurance policies held and paid for by studios or
other production entities that are producing and/or exploiting entertainment
projects with which the Companies are involved and that such policies are not
listed thereon and no representation is made with respect thereto.
(b) To the best of Sellers' knowledge, with respect to each
insurance policy: (i)
20
the policy is legal, valid, binding and enforceable in accordance with its
terms and, except for policies that have expired under their terms in the
ordinary course, is in full force and effect; (ii) the Companies have not
received notice of breach or default (including any breach or default with
respect to the payment of premiums or the giving of notice), and no event has
occurred which, with notice or the lapse of time, would constitute such a
breach or default or permit termination or modification, under the policy; and
(iii) no party to the policy has repudiated, or given notice of an intent to
repudiate, any provision thereof.
(c) To the best of Sellers' knowledge, no insurance policy
listed on Schedule 3.14 will cease to be legal, valid, binding, enforceable in
accordance with its terms and in full force and effect on terms identical to
those in effect as of the date hereof as a result of the consummation of the
transactions contemplated by this Agreement.
3.15 Employee Benefit Plans. To the best of Sellers'
knowledge, Schedule 3.15 contains a true and complete list of the Benefit Plans
(as defined) and each management, employment, severance, consulting,
non-compete, confidentiality, or similar agreement or contract between any of
the Companies and any employee of the Companies has or may have any, and
pursuant to which any of the Companies has or may have any, liability
(contingent or otherwise) ("Employee Agreement"). None of the Companies has any
plan or commitment, whether legally binding or not, to establish any new
Benefit Plan, to enter into any Employee Agreement or to modify or to terminate
any Benefit Plan or Employee Agreement (except to the extent required by law or
to conform any such Benefit Plan or Employee Agreement to the requirements of
any applicable law, in each case as previously disclosed to Buyer, or as
required by this Agreement), nor has any intention to do any of the foregoing
been communicated to the employees of the Companies. With respect to each
Benefit Plan and Employment Agreement, (i) each of the Companies, respectively,
has performed all obligations required to be performed by it under each Benefit
Plan and Employee Agreement, (ii) each Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department of Labor; (iii) each Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Plan is so qualified and that each trust forming a part of any such Plan is
exempt from tax pursuant to Section 501(a) of the Code and no circumstances
exist which would adversely affect this qualification or exemption; (iv) there
are no actions, proceedings, arbitrations, suits or claims pending, or to the
knowledge of any Seller threatened or anticipated (other than routine claims
for benefits) against any of the Companies or any administrator, trustee or
other fiduciary of any Benefit Plan with respect to any Benefit Plan or
Employee Agreement, or against any Benefit Plan or against the assets of any
Plan and (v) no Plan is under audit or investigation by the IRS, the Department
of Labor or the Pension Benefit Guaranty Corporation, and to the knowledge of
the Sellers, no such audit or investigation is pending or threatened. With
respect to each Benefit Plan which is
21
"multiemployer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA ("Multi-Employer Plan"), (i) at no time since September 25, 1980 has any
of the Companies been required to contribute to, or incurred any withdrawal
liability (within the meaning of Section 4201 of ERISA) from any Multi-Employer
Plan, which liability has not been fully paid as of the date hereof; and (ii)
as of the Closing Date, none of the Companies have completely or partially
withdrawn from any Multi-Employer Plan and will not be subject to any
withdrawal liability as described in Section 4201 of ERISA for withdrawals that
have occurred on or prior to the Closing Date (including, without limitation,
any withdrawal deemed to have occurred as a result of the transactions
contemplated by this Agreement). Notwithstanding anything to the contrary
contained herein, the parties acknowledge that Halcyon Days has in the past
been a signatory to various collective bargaining agreements and has as a
result been subject to an obligation to make contributions to various pension,
health, welfare and other benefit plans for the benefit of guild members.
Sellers make no representation or warranty with respect to any of the
activities of Halcyon Days in connection with any such required contributions.
3.16 Employees. To the best of Sellers' knowledge, Schedule
3.16 sets forth a true and complete list of all employees of each of the
Companies, their positions, salaries or hourly wages and severance
arrangements. To the best of Sellers' knowledge, except as set forth on
Schedule 3.16, there is no liability for unpaid salary or wages, bonuses,
vacation time or other employee benefits due or accrued, nor liability for
withheld or deducted amounts from employees earnings for the period ending on
the Closing Date.
3.17 Contracts and Commitments. To the best of Sellers'
knowledge, except as set forth on schedule 3.17, and except for employee
benefit plans set forth in Schedule 3.15 hereto, none of the Companies is a
party to any written or oral:
(a) commitment, contract, letter of credit or agreement,
other than as described in subsections (b) or (c) below, involving any
obligation or liability on the part of none of the Companies in excess of
$10,000 and not cancelable (without liability) within 60 days;
(b) lease of personal property involving an annual expense in
excess of $10,000 which lease is not cancelable (without liability) within 60
days;
(c) contracts with any of the Companies as a party relating
to the production of entertainment including broadcast media shows or events,
motion pictures, cable, theater, music productions, music performance, book
publishing, and computer on-line programming or the provision of management or
agent services;
(d) contracts which limit the matters or extent of the
business which may be conducted by the Companies;
(e) licensing, royalty, confidentiality, consulting,
administrative service or similar
22
agreement;
(f) contracts and commitments not in the ordinary course of
business not otherwise described above or listed or relating to the business of
the Companies and materially affecting any of the Companies' business;
(g) agreements under which the consequences of a default or
termination would have a Material Adverse Effect; and
The contracts, commitments, agreements, arrangements and
understandings referred to in this Section 3.17, and listed on Schedule 3.17
are herein referred to as the "Contracts". Sellers have caused the Companies to
deliver copies of the Contracts to Buyer and such copies are true, correct and
complete.
3.18 No Breach. To the best of Sellers' knowledge, except as
specified in Schedule 3.18 there are no outstanding disputes under the
Contracts, or, to the knowledge of Sellers or the Companies, modifications,
failures to renew, lapses in any renewal options, or threatened cancellations
of the Contracts and none of the Companies have not breached any provision of,
nor does there exist any default in any material respect of, or event
(including the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby) which with the giving of notice or the
passage of time or both would become a breach or default in any material
respect of, the terms of any Contract by any of the Companies. To the best
knowledge of Sellers, no other party is in material breach or violation of, or
default under, any of the Contracts.
3.19 Labor Relations.
(a) Although Halcyon Days has in the past been a party to
certain collective bargaining agreements, none of the Companies is to the best
of Sellers' knowledge (it being understood that Sellers have not contacted any
guilds directly to confirm this) currently a party to any collective bargaining
agreements or other labor contracts. No attempt to organize any group or all of
the employees of any of the Companies has been made or proposed and is
currently outstanding.
(b) To the best of Sellers' knowledge, the Companies are in
compliance with all applicable laws relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by the appropriate
governmental authorities and except for amounts distributable or payable to the
Sellers or employees of the Companies, have withheld and paid to the
appropriate Governmental Authorities or are holding for payment not yet due to
such Governmental Authorities all amounts required to be withheld from
employees of the Companies and are not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing.
23
3.20 Compliance with Law. To the best of Sellers' knowledge,
the Companies are in compliance with all applicable laws, statutes, ordinances
and regulations, whether federal, state or local, except where the failure to
comply would not have a Material Adverse Effect. To the best of Sellers'
knowledge, none of the Companies have received any written notice to the effect
that, or otherwise been advised that, the Companies are not in compliance with
any of such statutes, regulations and orders, ordinances or other laws where
the failure to comply would have a Material Adverse Effect, and the Sellers
have no reason to anticipate that any presently existing circumstances are
likely to result in violations of any such regulations which would,
individually or in the aggregate, have a Material Adverse Effect.
3.21 Interest in Competing Business. Excluding the interests
that the Sellers have in the Companies and other than ▇▇▇▇▇▇▇ ▇▇▇▇▇▇'▇ passive
interest in Halcyon Days Productions (New York) or any stock that the Sellers
may own in publicly traded companies not in excess of 5%, the Sellers do not
have any interest of any type, directly or indirectly, in any business engaged
in entertainer management or entertainment productions or which is in any other
manner directly competitive with the business of the Companies.
3.21A Interest in Other Business. As of the date hereof, each
Seller has sold all of his stock in RoCart, a production services entity for
certain Nickelodeon television projects with which the Companies have been and
continue to be involved, to ▇▇▇▇▇▇▇ ▇▇▇▇, spouse of Seller ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as
her sole and separate property, and each Seller has resigned as an officer and
director of RoCart.
3.22 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Within the meaning of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, and the
regulations thereunder, 16 C.F.R. Parts 801-803, prior to the Closing, no
person within which any of the Sellers or the Companies is included has either
annual net sales or total assets of at least $100 million.
3.23 Environmental Matters. Except as set forth in Schedule
3.23, to the best of Sellers' knowledge:
(a) all properties used by the Companies have been operated
in compliance with all federal, state and local environmental laws, rules and
regulations; and
(b) the Companies have not received written notification from
any Governmental Authority with respect to existing violations or liabilities
relating to the Companies of any of the laws referred to in Section 3.23(a)
above, or pursuant to any of the respective implementing regulations to such
laws, rules or regulations.
3.24 Business Prospects. To the best of Sellers' knowledge,
since December 31, 1997 there has not occurred any event which has had (or
would reasonably be expected to have) a Material Adverse Effect.
24
3.25 Affiliate Transactions. Except as set forth on Schedule
3.25 hereof, none of the officers, directors, managers, stockholders, members
or their affiliates, or individuals related to any of them by blood or
marriage, or, to the knowledge of the Sellers, any of the other employees of
any of the Companies, is currently a party (either directly or through any
ownership, beneficial, contingent or other interest in an entity, business or
enterprise of any kind) to any transaction with or involving any of the
Companies or any assets used in the operation of the Companies including,
without limitation, any arrangement (other than for services in the ordinary
course of business as officers, directors, manager or employees of the
Companies) and in the case of the shareholders, advances by shareholders in
connection with tax planning, providing for (a) the furnishing of services by
or to, (b) the rental of the sites on which the real property is located, (c)
any loan or other indebtedness from or to, (d) the grant of any mortgage,
security interest, pledge or other encumbrance from or to, or (e) otherwise
requiring payments or other consideration (including a promise of forbearance)
from or to, any such person. As set forth in Section 3.21A, as of the date
hereof, each Seller has sold all of his stock in RoCart, Inc. ("RoCart"), a
production services entity for certain Nickelodeon television projects with
which the Companies have been and continue to be involved, to ▇▇▇▇▇▇▇ ▇▇▇▇,
spouse of Seller ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as her sole and separate property, and each
Seller has resigned as an officer and director of RoCart.
3.26 Disclosure. To the best of Sellers' knowledge, no
representation or warranty made to Buyer contained in this Agreement and no
statement contained in any of the Schedules or any certificate, document or
instrument delivered by Sellers or the Companies pursuant hereto contains any
untrue statement of a material fact or omits to state a material fact,
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading.
3.27 Intentionally deleted.
3.28 Brokers. None of the Sellers nor any affiliate of any of
the Sellers, including the Companies, have entered into or will enter into any
agreement, arrangement or understanding with any person or firm which will
result in the obligation of the Companies or the Buyer or any of its
subsidiaries to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
3.29 Redemption. Notwithstanding anything to the contrary
contained in this Agreement, it is acknowledged that Productions has redeemed a
portion of the Partnership Interest held by Halcyon Days such that Halcyon Days
holds a 49 1/2% Partnership Interest.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
25
4.1 Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware.
Buyer has the corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
4.2 Authorization. Buyer has duly authorized the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. No further corporate actions on the part of Buyer or its
designee are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.
4.3 Valid and Binding Agreement. This Agreement, and each
document to be executed and delivered pursuant hereto, will, when executed by
Buyer, and assuming the due authorization, execution and delivery hereof and
thereof by the other parties hereto or thereto, constitute the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms subject to applicable bankruptcy, reorganization, insolvency, moratorium,
and similar laws affecting creditors, rights generally from time to time in
effect and to general principles of equity.
4.4 No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein will
(with or without notice or the passage of time, or both) (a) violate any
provision of the Certificate of Incorporation or Bylaws of the Buyer; (b)
violate, conflict with, constitute a default under, permit the termination of,
cause the acceleration of the maturity of, or result in the creation or
imposition of any lien upon the properties or assets of the Buyer pursuant to
the provisions of, any agreement, lease, document, instrument, debt, or
obligation to which the Buyer is bound; or (c) violate any statute or law or
any judgment, decree, order, regulation, or rule of any court or governmental
agency or body by which the Buyer is bound or to which the Buyer is subject.
The Buyer has not received notice that it is in violation of any statute, law,
judgment, decree, order, regulation, or rule relating to or affecting the
operation, conduct, or ownership of the properties of business of the Buyer.
4.5 Consents. No consent, approval, authorization, or order
of (or registration or filing with) any court or governmental agency or body or
other third party is required to be made or obtained by the Buyer in connection
with the execution, delivery, or performance by the Buyer of this Agreement or
in connection with the transactions contemplated herein, which the failure to
obtain or make could reasonably be expected to prevent the Buyer from
consummating the transactions contemplated herein or performing any of the
obligations hereunder.
4.6 Disclosure. No representation or warranty made to Sellers
contained in this Agreement, and no statement contained in any certificate,
document or instrument delivered by Buyer, pursuant hereto contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
26
4.7 Purchase for Investment. Buyer understands that neither
the sale of the Shares nor the sale of the LLC Interests has been registered
under the 1933 Act or applicable state law, and Buyer and Seller are relying
upon the exemption of such sales from registration under federal and state law.
Accordingly, Buyer represents and warrants to Sellers that Buyer is purchasing
the Shares and LLC Interest for investment purposes and not with a view toward
distribution, except in compliance with applicable federal and securities laws,
including the rules and regulations promulgated pursuant thereto.
4.8 Issuance of Option Shares. When issued, if issued, the
Option Shares will be duly authorized for issuance and the Sellers will acquire
good, valid and marketable title to the Option Shares, free and clear of all
liens, claims, options, pledges, security interests, charges, encumbrances,
equities, agreements and restrictions whatsoever. In the event of a merger,
consolidation, liquidation, acquisition or the like of the Buyer pursuant to
which all holders of the Buyer Common Stock are to receive consideration, then,
notwithstanding the restrictions contained in this Agreement, any holder of
Option Shares shall be entitled to receive consideration on a pro rata basis
with all other holders of the Buyer Common Stock, free and clear of any
restrictions regarding the sale or disposition of the Option Shares and/or the
proceeds so received. In the event that any shareholder of the Buyer Common
Stock unrelated to the holder of the Option Shares shall invite the tender of
all or a portion of the Buyer Common Stock, and the holders of a majority of
such shares shall tender such shares in response thereto, then, notwithstanding
any restrictions contained in this Agreement, any holder of the Option Shares
may tender his/her shares in accordance with the tender offer and shall be
entitled to receive consideration from such tender offer on a pro rata basis
with all other tendering shareholders of the Buyer Common Stock, free and clear
of any restrictions regarding the sale or disposition of the Option Shares
and/or such consideration.
4.9 Brokers. Neither Buyer nor any affiliate of Buyer has
entered into or will enter into any agreement, arrangement or understanding
with any person or firm which will result in-the obligation of Sellers or any
affiliate of Sellers to pay any finder's fee, brokerage commission or similar
payment in connection with the transactions contemplated hereby.
4.10 Buyer's SEC Filings. The Buyer's SEC filings (i) conform
in all material respects with the applicable requirements of the Securities
Act, the Exchange Act, and the rules and regulations thereunder; (ii) do 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 statement therein
not misleading, in light of the circumstances under which they were made; and
(iii) will be made in such a fashion as to permit the use of Rule 144.
4.11 Material Change of Buyer. There has been no material
adverse change to the Buyer since the Buyer's most recent filing on Form 10-Q
that would require the filing of a report on Form 8-K or an amendment to any
prior filing of the Buyer.
27
ARTICLE V
COVENANTS AND OTHER AGREEMENTS
5.1 Public Announcements. So long as neither party is in
breach hereof, Buyer and Sellers agree that they will consult with each other
before issuing any press releases or otherwise making any public statements
with respect to this Agreement or the transactions contemplated hereby and
shall not issue any press release or make any public statement with respect to
this Agreement until obtaining the written consent of the other party upon
reasonable advance notice as to the timing and content thereof (which consent
shall not be unreasonably withheld), except as may be required by law or any
listing agreements with a national securities exchange or as may be issued or
made in connection with disputes hereunder or under the Employment Agreements
(as defined).
5.2 Consents and Best Efforts. Subject to the terms and
conditions herein provided, the parties hereto agree to use their respective
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each party
to this Agreement shall, at the expense of the requesting party, take all such
necessary action and will execute any additional instruments necessary to
consummate the transactions contemplated hereby.
5.3 Trade Name. Notwithstanding anything to the contrary
contained herein or in any document signed in connection herewith, the trade
names "▇▇▇▇▇▇", "▇▇▇▇▇▇▇", "▇▇▇▇▇▇/▇▇▇▇▇▇▇ Productions" and "▇▇▇▇▇▇/▇▇▇▇▇▇▇
Management" will, as between Sellers and Buyer, at all times be and forever
remain the sole and exclusive property of Sellers. Buyer's and the Subsidiary's
right to use the name "Marquee.▇▇▇▇▇▇/▇▇▇▇▇▇▇" will be governed by Section
2(a)(i) of the Employment Agreements (as defined).
5.4 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain Tax
matters after the Closing Date.
(a) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ agrees, if so directed by the Buyer, to
join with Buyer in making an election under ss. 338(h)(10) of the Code (and any
corresponding elections under state, local, or foreign tax law) (collectively,
a "ss. 338(h)(10) Election") with respect to the purchase and sale of the
Shares of Halcyon Days. Notwithstanding the foregoing, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall not
be under any obligation nor shall he be required to join Buyer in making a
Section 338(h)(10) Election unless prior to the making of such election the
Buyer has paid ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ an amount equal to the Actual Indemnity Amount
(as defined herein) arising because of such Section 338(h)(10) Election.
(b) Intentionally deleted.
28
(c) Buyer shall prepare or cause to be prepared and file or
cause to be filed all other Tax Returns of the Companies. Buyer shall timely
pay all Taxes as shown due on such Tax Returns.
(d) Buyer, the Companies and Sellers shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns pursuant to this section 5.4 and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Companies and Sellers agree (i) to retain all
books and records with respect to Tax matters pertinent to the Companies
relating to any taxable year or taxable period ending on or before the Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by Buyer, any extensions thereof) of the respective taxable year or
taxable periods, and to abide by all record retention agreements entered into
with any Taxing Authority, and (ii) to give the Buyer reasonable written notice
prior to destroying any such books and records and, if the Buyer so requests,
the Companies or Sellers, as the case may be, shall allow the Buyer to take
possession of such books and records. The party requesting such information
shall pay the reasonable external costs of the party providing the requested
information.
(e) Intentionally deleted.
(f) Buyer and Sellers further agree, upon request, to provide
the other party with all information that either party may be required to
report pursuant to ss.6043 of the Code and all Treasury Regulations promulgated
thereunder.
(g) Except as otherwise provided herein, Buyers shall be
responsible for and shall have the right to control any audit concerning any
matters relating to Taxes of the Companies for all periods ("Tax Audit")
commencing after the Closing Date and with respect to any items for which Buyer
has indemnified Seller(s) or Companies as provided herein. Seller(s) shall be
responsible for and shall have the right to control any audit concerning any
matter(s) relating to Taxes of the Companies for the periods for which the
Seller(s) is responsible for the preparation and filing of Tax Returns per
Section 5.4(b) and for any item for any Tax Return which may create a
deficiency for Taxes for which Seller(s) are not indemnified by Buyer. Buyer
and Sellers shall promptly notify one another in writing of the commencement of
any audit or proposed adjustment to the Taxes of the Companies for any period.
Except as otherwise provided in Section 7.2(c) herein, Sections 7.2 through 7.4
of this Agreement shall apply with respect to Sellers' indemnification of such
Taxes.
(h) Intentionally deleted.
5.5 Insurance. The Buyer may maintain such insurance on the lives of
each Seller as it deems appropriate, and each Seller hereby agrees to submit to
all reasonable requested medical
29
examinations required in connection therewith (provided that Sellers' personal
physicians may be present at all such medical examinations).
5.6 Confidentiality. Buyer will not use or disseminate any
information in violation of any confidentiality provision contained in any of
the Contracts or in any agreements into which Subsidiary hereafter enters. If
Buyer or its affiliates or representatives should breach or fail to comply with
the terms of this Section 5.6, Sellers will be entitled to an injunction
restraining Buyer, its affiliates and representatives from any such breach or
failure. Resort to the remedy specified herein will not preclude or bar the
concurrent or subsequent seeking of recovery pursuant to Article VII.
5.7 Performance and Satisfaction of Obligations. Upon and at all
times after the Closing, Buyer shall cause the Companies and the Subsidiary to
fully and timely perform and satisfy all executory obligations of the Companies
and the Subsidiary to any and all third parties and to fully comply with all
terms of all of the Contracts and of all agreements into which the Subsidiary
hereafter enters (and Buyer agrees to indemnify, defend and hold harmless the
Seller Group [as defined] from and against all Damages [as defined] asserted
against, resulting to, imposed upon, or incurred by any member of the Seller
Group by reason of or resulting from any failure by the Subsidiary to so timely
and fully perform, satisfy and/or comply).
ARTICLE VI
DELIVERIES AT CLOSING
6.1 Deliveries by Seller. At the Closing, Sellers shall
deliver to Buyer:
(a) Copies of all consents, approvals, authorizations and
orders necessary to consummate the transactions contemplated hereby, including
those listed in Schedule 3.4, all of which shall be in form and substance
satisfactory to Buyer;
(b) An opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇, LLP, counsel
to Sellers, in form and substance reasonably satisfactory to Buyer,
substantially in the form of Exhibit C;
(c) The Employment Agreements substantially in the form of
Exhibit D (the "Employment Agreements");
(d) The Summary of Basic Lease Terms substantially in the
form of Exhibit E;
(e) Certificates representing the Shares duly executed and
assigned to Buyer and assignments duly executed assigning the LLC Interests to
Buyer; and
(f) All other documents reasonably required to be delivered
by Sellers to Buyer at the Closing, each of which shall be in form and
substance reasonably satisfactory to Buyer.
30
6.2 Deliveries by Buyer. At the Closing, Buyer shall deliver
to Sellers:
(a) The Employment Agreements substantially in the form of
Exhibit D duly executed by the Subsidiary and the initial grant to each Seller
of 30,000 Stock Options (as defined in Section 2[b][ii] of the Employment
Agreements) as required pursuant to Section 2(b)(ii) of each of the Employment
Agreements;
(b) The Summary of Basic Lease Terms substantially in the
form of Exhibit E;
(c) An opinion of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., counsel to Buyer,
substantially in the form of Exhibit F;
(d) All other documents reasonably required to be delivered
by Buyer to Sellers at the Closing, each of which shall be in form and
substance reasonably satisfactory to Sellers;
(e) The Closing Purchase Price in accordance with Section
2.1; and
(f) The Guaranty in the form of Exhibit G duly executed by
SFX Entertainment, Inc.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 Survival of Representations. The representations and
warranties of Sellers and Buyer contained in this Agreement which have not been
fully executed or waived at or prior to the Closing shall survive the Closing,
provided, however, that subject to Section 7.3 hereof, the representations,
warranties, covenants and agreements made by Sellers contained in this
Agreement (unless fully executed or waived at or prior to the Closing) shall
survive the Closing only for a period of one year from the Closing Date (at
which time all such representations, warranties, covenants and agreements of
Sellers shall automatically lapse and have no further force or effect),
provided, however, that all matters relating to Section 3.8 shall survive until
the statute of limitations for the particular tax matter involved has expired,
unless tax fraud is alleged, in which case it shall survive indefinitely, and
all matters relating to Sections 3.1 shall survive indefinitely.
7.2 Agreement to Indemnify.
(a) Sellers' Indemnification. Subject to the terms and
conditions of this Article VII, each of the Sellers, jointly and severally
(except with respect to representations provided to be made individually
herein, in which case such obligation shall extend only to the Seller making
such representation) hereby agrees to indemnify, defend and hold harmless Buyer
and its subsidiaries and each officer and director and affiliate of Buyer, and
their successors and assigns (collectively, the "Buyer Group"), from and
against all claims, actions or causes of action, assessments, demands,
31
losses, damages, judgments, settlements, liabilities, costs, and expenses,
including, without limitation, interest, penalties, and reasonable outside
attorneys', accountants', and consultants' fees (collectively, "Damages")
imposed upon or incurred by any member of the Buyer Group which result directly
from a breach by Sellers in any material respect of any of their
representations, warranties, covenants or agreements contained in this
Agreement, provided that (i) written notice of the given claim is delivered to
Sellers prior to the first anniversary of the Closing Date (or the second
anniversary of the Closing Date solely with respect to any breach of Section
3.8), and (ii) no Damages will be payable by Sellers unless and until an
authorized arbitrator or arbitrators render a final and binding non-appealable
judgment that Sellers so breached a representation, warranty, covenant or
agreement contained in this Agreement (collectively, the "Buyer Claims"). For
purposes of this indemnification, any Damages to the Subsidiary shall be deemed
Damages to the Buyer Group.
(b) Buyer's Indemnification. Subject to the terms and
conditions of this Article VII, and except as otherwise provided in Section
7.2(c), Buyer agrees to indemnify, defend and hold harmless Sellers and each of
them and their representatives, successors and assigns (collectively, the
"Seller Group"), from and against all Damages, asserted against, resulting to,
imposed upon, or incurred by any member of the Seller Group, by reason of or
resulting from a breach by Buyer of its representations, warranties, agreements
or covenants or any claim, action, event, proceeding, or investigation other
than to the extent to which Sellers are obligated to indemnify, defend and hold
harmless Buyer with respect to such claim, action, event, proceeding, or
investigation pursuant to Section 7.2(a) (collectively, the "Seller Claims").
(c) Tax Indemnity. Buyer and Sellers agree that if a Seller's
Actual Tax Liability for any taxable year is greater than such Seller's Agreed
Tax Liability for such taxable year, the Buyer shall pay such Seller a Tax
Indemnity Payment in accordance with the following provisions.
(aa) Seller's Agreed Tax Liability For a Taxable Year
shall consist of the following:
(i) "Agreed Stock Sale Tax Liability" shall mean, for
a taxable year, the aggregate amount of federal and state income tax liability
that would have been incurred as long term capital gain for such taxable year
had such Seller sold the Shares of Halcyon Days or ▇▇▇▇▇▇▇ as the case may be
for the purchase price specified in 2.1(b) with the purchase price being paid
as and when payments are actually made to such Seller. This federal and state
income tax liability shall be computed on the basis that (a) a timely and valid
Section 341(f) consent had been filed for Halcyon Days and ▇▇▇▇▇▇▇,(b) the gain
is reportable on the installment basis under Section 453, and (c) no Section
338(h)(10) election has been made for either Halcyon Days or ▇▇▇▇▇▇▇; and
(ii) "Agreed S Income Tax Liability" for 1998 shall
mean, the aggregate federal and state income tax liability that would have been
incurred by such Seller on the
32
taxable income of Halcyon Days or ▇▇▇▇▇▇▇ as the case may be for the period
commencing on January 1, 1998 and ending on the day immediately preceding the
Closing Date calculated in the following manner. The taxable income of the
Productions partnership that is includible in the income of Halcyon Days and
▇▇▇▇▇▇▇ for the taxable period ending on the date immediately preceding the
Closing Date shall be the actual taxable income of the Productions partnership
for the period commencing on January 1, 1998 and ending on the day immediately
preceding the Closing Date computed on an actual interim closing of the books
basis and shall be based on the tax principles utilized by the Productions
partnership in prior taxable years. Tax items with respect to Halcyon Days and
▇▇▇▇▇▇▇ for the taxable period commencing January 1, 1998 and ending on the
date immediately preceding the Closing Date also shall be allocated based on an
interim closing of the books based on tax principles utilized by Halcyon Days
and ▇▇▇▇▇▇▇ in prior taxable years. The parties agree to make the election
provided in Section 1362(e)(3) of the Code, if necessary as determined by
Sellers, to avoid the application of Section 1362(e)(2) of the Code. The
computation of Agreed S Income Tax Liability shall be made on the basis that no
Section 338(h)(10) Election has been made.
(iii) The Seller's Agreed Tax Liability shall be
computed for the year 1998, and each year thereafter in which the Sellers
receive payments pursuant to this Agreement.
(bb) The Seller's Actual Tax Liability for a taxable year
shall be the actual aggregate federal and state income tax liability incurred
by such Seller (and his respective Companies as a result of the built-in gain
provisions of Code Section 1374) attributable to (a) his sale of Shares of
Halcyon Days or ▇▇▇▇▇▇▇ hereunder as the case may be, including all of the
effects of the Section 338(h)(10) elections, to the extent made, and (b) for
1998, only, the taxable income of Halcyon Days or ▇▇▇▇▇▇▇ as the case may be
properly reportable by such Seller in his 1998 federal and state income tax
returns.
(cc) The Net Tax Indemnity Amount for any year shall be an
amount equal to the excess of (a) such Seller's Actual Tax Liability for such
year over (b) the amount of such Seller's Agreed Tax Liability for such year.
The Adjusted Net Tax Indemnity for any year shall equal the sum of (a) the Net
Tax Indemnity Amount and (b) the amount of interest and penalties incurred and
attributable to such year and which relate to the Net Tax Indemnity Amount.
(dd) The Actual Indemnity Amount shall be an amount, which
after paying the federal and state income tax thereon, equals the Adjusted Net
Tax Indemnity Amount for an applicable taxable year ("Actual Indemnity
Amount"). The Seller(s) shall deliver to Buyer after the end of any taxable
year in which an indemnity payment is owed, a schedule ("Computation Schedule")
computing the amount of the Actual Indemnity Amount for the preceding taxable
year. Buyer shall pay such Seller the Actual Indemnity Amount shown on the
Computation Schedule within ten (10) days of Buyer's receipt of such
Computation Schedule. In the event of an audit by a Taxing Authority of any
taxable year for which an indemnity payment is owed by Buyer pursuant to this
33
Section 7.2(c), Buyer shall pay Seller(s), within 5 days of Seller's delivery
of the Computation Schedule, the Actual Indemnity Amount for the tax year based
upon the tax assessment resulting from such audit.
(ee) Buyer shall have sole responsibility for preparing
all forms, schedules and other information required to effect any Section
338(h)(10) Election, including IRS Form 8023- A, and including all
corresponding state and local forms, schedules and information (collectively,
the "Forms"), and shall be responsible for submitting, no later than thirty
days after the Closing Date, such Forms to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ for his review.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ agrees to cooperate in the review and, if reasonably acceptable,
execution of such Forms, and, upon the direction of Buyer, shall cooperate in
the filing of such Forms. Buyer shall have sole responsibility for the timely
filing of such Forms on behalf of Buyer and the Company in such places as may
be required, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have no obligation with respect to such
filings, other than to include such Forms with timely filed Tax Returns, as
directed by Buyer.
(ff) It is the intention of the Buyer and Sellers that the
following while not exhaustive are examples of such matters not to be included
in the calculation of Agreed Tax Liability nor for which Sellers shall have any
responsibility for Tax arising out of or on account of: an election pursuant to
Code Section 338, including an election under Section 338(h)(10), a deemed or
actual termination of Productions, a deemed or actual transfer of Section
341(f) assets, an accounting method change or other adjustment under Section
481, the application of Section 1374, the deemed or actual transfer, sale or
exchange of any assets of Productions, ▇▇▇▇▇▇▇ or Halcyon.
(gg) The parties shall attempt in good faith to resolve
any dispute regarding the indemnification herein provided, and, failing that
the dispute shall be resolved by the Accountants as selected pursuant to
Section 2.2(e)(iii) who in making their determination shall do so in accordance
with the provisions of Section 8.2.
(hh) The costs of any Accountants shall be borne by the
party losing such arbitration. The Accountants shall determine which party has
lost such arbitration.
(ii) Buyer agrees that their obligations to provide a tax
indemnification pursuant to this Section are irrevocable, absolute, independent
and unconditional and shall not be affected by any circumstance which
constitutes a legal or equitable discharge of Buyer other than a payment in
full of their obligations pursuant to this Section. In furtherance of the
foregoing and without limiting the generality thereof, Buyer agrees that
Sellers may enforce such obligations notwithstanding the existence of any
dispute among the parties hereunder and such obligations of Buyer shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of such obligations), including by reason of the assertion of any defense,
set-off or counterclaim.
(jj) Seller(s) shall be entitled to any credits or refunds
of Taxes of any of
34
the Companies relating to any period prior to the Closing Date. The amount of
any credit or refund to which Seller(s) are entitled hereunder but which are
any time subsequent to the Closing Date received by or credited to Buyer, or
any affiliate of Buyer, shall be promptly paid over to Sellers following such
receipt or the utilization by Buyer or affiliate of such credit, as the case
may be.
(kk) Buyer shall pay to Seller(s) all reasonable expenses
and costs including attorney's fees relating to or arising out of the tax
indemnification given by Buyer and/or relating to or arising out of the making
of any Section 338(h)(10) Election including but not limited to the filing of
Tax Returns reporting such election.
(ll) Buyer shall indemnify Sellers and Companies for any
and all Tax plus penalties and interest due on account of the redemption by
Productions of a portion of the Partnership Interest held by Halcyon Days.
7.3 Limitation of Liability. The obligations and liabilities
of Sellers with respect to Buyer Claims under Section 7.2(a) hereof to the
Buyer Group shall be subject to the following limitations: No indemnification
shall be required to be made by Sellers under this Article VII with respect to
any Buyer Claims, except (a) where Buyer was unaware of the matter giving rise
to such breach prior to Sellers' execution and delivery of this Agreement, and
(b) where and only to the extent that the aggregate amount of Damages with
respect to all of such claims incurred by the Buyer Group exceeds $200,000. In
no event shall the aggregate liability of Sellers hereunder exceed $4,000,000.
7.4 Conditions of Indemnification. The obligations and
liabilities of Sellers to indemnify the Buyer Group and Buyer to indemnify the
Seller Group under Sections 7.2 and 7.3 hereof with respect to Buyer Claims and
Seller Claims, respectively, resulting from the assertion of liability by third
parties shall be subject to the following term and conditions:
(a) The indemnified party shall give the indemnifying party
prompt notice of any such claim, and subject to Section 7.4(b)(i) and 7.2(c),
Buyer shall undertake the defense, compromise or settlement thereof by
representatives selected by Buyer provided that failure to provide such notice
by Seller (if Buyer is the indemnifying party) will not relieve Buyer of its
obligations hereunder. If Buyer, within ten (10) business days after notice of
any such claim, fails to commence the defense of such claim, Sellers will (upon
further notice to Buyer) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of Buyer;
provided that the defense of any such claim by Buyer (or pursuant to Section
7.4[b][i], Sellers) shall not be deemed an admission that such party has an
obligation to indemnify the indemnified party pursuant to Section 7.2 or 7.3,
and further provided that Sellers shall not settle any such claim as to which
Buyer has failed to undertake the defense thereof without the consent of Buyer,
which consent shall not be unreasonably withheld or delayed, unless Sellers
waive their rights under Section 7.2 or 7.3 with respect to such claim. Buyer
will not settle any claim with respect to
35
which Sellers (or either of them) may owe an indemnification obligation without
the consent of the given Seller(s), which consent shall not be unreasonably
withheld or delayed;
(b) Anything in this Section 7.4 to the contrary
notwithstanding, (i) Sellers shall have the right, at their own cost and
expense, to participate in (and if Sellers may owe an indemnification
obligation with respect to the given claim, to at their election control) the
defense, compromise or settlement of such claim; (ii) the indemnifying party
shall not, without the written consent of the indemnified party, settle or
compromise any claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the indemnified party a release from all liability in respect of
such claim or as a result of which injunctive or other equitable relief would
be imposed against the indemnified party; and (iii) the indemnified party shall
have the right, at its own cost and expense, to control the defense or
settlement of that portion of any claim which seeks an order, injunction or
other equitable relief against the indemnified party which, if successful,
could materially interfere with the business, operations, assets, financial
condition, or prospects of the indemnified party; provided, however, that in
connection with the defense or settlement of the portion of such claim which
seeks equitable relief, the indemnified party shall cooperate with the
indemnifying party and use its reasonable best efforts to limit any liability
that may arise from the damages portion of such claim.
(c) For avoidance of doubt, except as provided in Section
7.2(c), Buyer shall defend all claims and actions (unless Sellers elect
otherwise as to a claim or action with respect to which one or both of them may
owe an indemnification obligation to Buyer hereunder), and Sellers'
indemnification pursuant to Section 7.2(a) will only apply if and when all
conditions contained in said Section 7.2(a) are met.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses; Taxes. Buyer, on the one hand, and the Sellers,
on the other hand, will pay all fees and expenses incurred by them in
connection with this Agreement. All sales and transfer taxes and fees
(including all sales, transfers, stamp, real estate transfer and recording
fees, if any), incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by Buyer.
8.2 Governing Law; Arbitration.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
the principles of conflicts of laws thereunder which would specify the
application of the laws of another jurisdiction.
(b) (i) Except as provided in Sections 2(e)(iii) and 7.2(c),
any controversy arising out of or relating to this Agreement, or the making,
performance or interpretation thereof,
36
including without limitation the interpretation and scope of this arbitration
provision, claims arising thereunder or relating thereto, and any claims
involving statements, agreements or representations made during the negotiation
of this Agreement, shall be settled by final and binding arbitration. The
arbitrators shall determine their own jurisdiction. To commence arbitration,
the initiating party shall deliver written notice to the other party demanding
arbitration and selecting an arbitrator. The other party shall have the right
to select an additional arbitrator by delivering notice on the first party
within ten (10) business days of the date of delivery of the original demand.
If the other party selects an arbitrator, the two arbitrators so selected
shall, within ten (10) days of their selection if at all possible, select a
third arbitrator. If a second arbitrator is not selected, the first arbitrator
shall conduct the arbitration as the sole arbitrator, except that a court of
appropriate jurisdiction may relieve a party, upon a showing of good cause,
from his failure to select timely an arbitrator. If the two arbitrators fail to
select a third arbitrator within ten (10) business days of the date the second
arbitrator was selected, either party may petition the Superior Court of the
State of California for the County of Los Angeles or the United States District
Court for the Central District of California sitting in Los Angeles to select
the third arbitrator, provided, however, the filing of such petition shall not
affect the ability of the two arbitrators to select a third at any time prior
to selection by a court. If proper notice of any hearing has been given, the
arbitrator(s) will have full power to proceed and take evidence, to perform any
other acts necessary to arbitrate the matter and to conduct the arbitration and
render a decision in the absence of any party who fails to appear.
(ii) All arbitration and judicial proceedings authorized
or permitted by this Section 8.2(b) shall be held in Los Angeles County,
California. All questions of procedure in connection with the arbitration not
set forth in this provision shall be settled by reference to the Commercial
Arbitration Rules of the American Arbitration Association then in effect,
although this arbitration shall not be subject in any way to the jurisdiction
of the American Arbitration Association. Discovery shall be allowed as set
forth in Section 1283.05 of the California Code of Civil Procedure but only to
the extent the arbitration shall not be unreasonably delayed.
(iii) Any arbitration hearing shall commence, if at all
possible, within fifteen (15) business days after selection of the
arbitrator(s) (or as quickly thereafter as possible) and shall, to the extent
possible, continue from day to day thereafter until concluded with the
objective being to conduct and conclude the arbitration as expeditiously as
possible.
(iv) Subject to the control of the arbitrator(s), each
party agrees to furnish to the other upon request all books, records and
documents in his possession reasonably necessary to a proper determination of
the controversy. The arbitrator(s) shall have jurisdiction to allocate their
own fees and expenses as between the parties.
(v) All arbitrators must be attorneys, each having had at
least ten (10) years of experience in the entertainment industry. No arbitrator
shall be related to any party, nor shall any arbitrator have at any time in the
past received or supplied any goods or services to any party to such
37
arbitration.
(vi) Any petition or notice in connection with any
arbitration proceeding hereunder or its confirmation in a court of law may be
served in accordance with the provisions of the notice clause contained in this
Agreement.
(vii) Judgment on the arbitration award may be entered in
any state or federal court of competent jurisdiction. Nothing contained herein
shall, however, (A) prevent any party from seeking and obtaining extraordinary
or provisional relief, including, but not limited to, prohibitory or mandatory
injunctions or extraordinary writs in the Superior Court of the State of
California for the County of Los Angeles or the United States District Court
for the Central District of California sitting in Los Angeles, (B) prevent any
party from joining any other party as defendant in any action brought by or
against a third party, or (C) prevent any party from filing a legal action
hereunder to effectuate any attachment or garnishment, provided that such party
stipulates in such action, at any other party's request, to arbitration of the
merits of said case in accordance with this provision.
(viii) NOTICE: THE PARTIES ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THIS SECTION 8.2(b) DECIDED BY
NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND ARE GIVING UP ANY RIGHTS
THEY MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. THE
PARTIES ARE GIVING UP THEIR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH
RIGHTS ARE SPECIFICALLY INCLUDED IN THIS SECTION 8.2(b). THE PARTIES' AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY.
8.3 Assignment. This Agreement and all the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other party, except that Buyer may assign this
Agreement to any of its subsidiaries or affiliates, provided that such assignee
expressly assumes all obligations hereunder in writing (a copy of which writing
will be promptly provided to Sellers) and, provided further, that Buyer shall
not be released thereby from any of the obligations, warranties or covenants
herein contained with respect to all of which it shall be and remain personally
and jointly and severally liable.
8.4 Entire Agreement. This Agreement and the schedules and
the other agreements, instruments and writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties with respect to
its subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
8.5 Table of Contents; Headings; Interpretive Matters. The
Article and Section
38
headings contained in this Agreement are for reference purposes only and will
not affect in any way the meaning or interpretation of this Agreement. No
provision of this Agreement will be interpreted in favor of, or against, any of
the parties hereto by reason of the extent to which any such party or its
counsel participated in the drafting thereof or by reason of the extent to
which any such provision is inconsistent with any prior draft hereof or
thereof.
8.6 Notices. All notices, claims, certificates, requests,
demands and other communications hereunder will be in writing (whether by
letter, telecopy, telex or other commercially reasonable means of written
communication) and will be deemed to have been duly given upon receipt as
follows:
(a) If to Buyer:
The Marquee Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Sellers:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
39
with a copy to:
Del, ▇▇▇▇, ▇▇▇▇ & Moonves
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
And
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is to
be given may have previously furnished to the other in writing in the manner
set forth above.
8.7 Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same instrument.
8.8 Specific Performance. Sellers and Buyer each acknowledge
that Buyer and Sellers would not have an adequate remedy at law for money
damages in the event that this Agreement is not performed in accordance with
its terms, and therefore agree that Buyer and Sellers each shall be entitled to
specific enforcement of the terms hereof (but not of the Employment Agreements)
in addition to any other remedy to which it may be entitled, at law or in
equity.
8.9 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
8.10 Resale. Upon expiration or earlier termination (by
either party for any reason) of the Employment Agreements, Sellers will have
the option to repurchase any and all fixed assets (e.g., furniture, phone, fax
and computer equipment, editing machines, etc.) located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ that are then owned by Buyer or the
Subsidiary and that Sellers wish to repurchase, for a purchase price equivalent
to 75% of the lesser of the market value or the depreciated value of the given
fixed asset.
40
8.11 Certain Definitions. As used in this Agreement:
"Agreement" shall mean this Purchase Agreement by and among
Buyer, and Sellers and the Companies, including any exhibits, schedules and
amendments hereto.
"Benefit Plan" means each plan, program, policy, payroll
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, stock or stock related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded, written or oral and whether or not legally
binding, including, without limitation, each "employee benefit plan," within
the meaning of Section 3(3) of ERISA and each "multiemployer plan" within the
meaning of Sections 3(37) or 4001(a)(3) of ERISA.
"Buyer Common Stock" shall mean the voting common stock, par
value $.01, of the Buyer presently listed on the American Stock Exchange, or
any other stock for which it is exchanged whether by merger, consolidation or
otherwise or any other stock of a company that acquires 100% of such voting
common stock of the Buyer.
"ERISA" shall mean the Employer Retirement Income Security
Act of 1974, as amended.
"Governmental Agency" shall mean any federal, state, local,
foreign or other governmental agency, instrumentality, commission, authority,
board or body.
"IRS" shall mean the Internal Revenue Service.
"Liens" shall mean any mortgages, pledges, liens, security
interests, conditional sale agreements, encumbrances, restrictions, charges or
claims of any kind (whether absolute, accrued, contingent or otherwise).
"knowledge" shall mean the actual knowledge of the person in
question without any duty of inquiry.
"Material Adverse Effect" shall mean any material adverse
effect upon the business, assets, operations, or financial condition of the
Companies, taken as a whole, in excess of $1,000,000.
"Option Price" shall mean the average trading price of the
Buyer Common Stock for the 20 day period prior to Buyer's receipt of the Notice
of Election.
"Permit" shall mean all permits, licenses, authorizations,
certificates, exemptions and approvals of Governmental Authorities necessary or
proper for the current use and operation of the
41
Companies and each of their material assets.
In addition, the following terms shall have the respective
meanings set forth in the Section noted.
TERM SECTION
"1933 Act"...............................................................2.2(g)
"AAA"....................................................................2.2(c)
"Accountants"............................................................2.2(e)
"Actual Indemnity Amount"............................................7.2(c)(dd)
"Agreed S Income Tax Liability"..................................7.2(c)(aa)(ii)
"Agreed Stock Sale Tax Liability".................................7.2(c)(aa)(i)
"Audited Financial Statements"..............................................3.5
"Balance Sheets"............................................................3.5
"Budget".................................................................2.4(b)
"Buyer"............................................................Introduction
"Buyer Claims"...........................................................7.2(a)
"Buyer Group"............................................................7.2(a)
"Closing"...................................................................1.2
"Closing Date"..............................................................1.2
"Closing Purchase Price".................................................2.1(b)
"Code".....................................................................7(q)
"Companies"........................................................Introduction
"Computation Schedule"...............................................7.2(c)(dd)
"Contingent Purchase Price"..............................................2.1(b)
"Contracts"................................................................3.17
"Damages"................................................................7.2(a)
"Deferred Purchase Price"................................................2.1(b)
"Election Notice"....................................................2.2(e)(ii)
"Employee Agreements"......................................................3.15
"Employment Agreements......................................................6.1
"EBITDA"..............................................................2.2(e)(i)
"Forms"..............................................................7.2(c)(ee)
"GAAP"................................................................2.2(e)(i)
"Halcyon Days".....................................................Introduction
"Halcyon Days Shares"....................................................3.1(a)
"Interim Balance Sheets"....................................................3.5
"IRS"....................................................................3.8(c)
"LLC Interests"........................................................Recitals
"Multi-employer Plan"......................................................3.15
42
"Option Shares"..........................................................2.2(f)
"Other Firm"........................................................2.2(e)(iii)
"Permitted Liens"........................................................3.9(a)
"Partnership Interests"..................................................3.1(d)
"Productions"......................................................Introduction
"Proprietary Rights".......................................................3.12
"▇▇▇▇▇▇▇"..........................................................Introduction
"▇▇▇▇▇▇▇ Shares".........................................................3.1(b)
"RoCart"..................................................................3.21A
"Section 338(h)(10) Election"............................................5.4(a)
"Sellers"..........................................................Introduction
"Sellers' Accounts"......................................................2.1(a)
"Seller Claims"..........................................................7.2(b)
"Seller Group"...........................................................7.2(b)
"Seller's Cushion".......................................................7.3(a)
"Shares"...............................................................Recitals
"signing bonus".......................................................2.2(e)(i)
"Subsidiary".............................................................2.4(a)
"TRM"..............................................................Introduction
"TRM Purchase Price".....................................................2.1(a)
"Tax Audit"..............................................................3.8(g)
"Tax Return".............................................................3.8(h)
"Taxes"..................................................................3.8(i)
"Taxing Authority".......................................................3.8(a)
"Two Week Period"...................................................2.2(e)(iii)
"Unaudited Financial Statements"............................................3.5
"United States person"......................................................3.8
"year"......................................................................2.2
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by Sellers and the duly authorized officer of Buyer as of the date
first above written.
"BUYER" THE MARQUEE GROUP, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Financial officer
"SELLERS"
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
44
