EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of April 10, 2003 (this
"Agreement"), by and among FILM LIBRARY ACQUISITION CORP., a Delaware
corporation ("Purchaser"), SUNLAND ENTERTAINMENT CO., INC., a Delaware
corporation ("Sunland"), and ▇▇▇▇▇/▇▇▇▇▇ ENTERTAINMENT GROUP, INC., a California
corporation ("PM" and together with "Sunland", the "Sellers").
WHEREAS, the Sellers are engaged in the business of creating, owning,
using, marketing, producing, distributing, licensing and otherwise exploiting on
a worldwide basis a library of television and motion picture products (the
"Business");
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Sellers desire to sell to Purchaser, and Purchaser desires to
purchase from Sellers, the Assets of the Sellers comprising the Business, as
more particularly described herein, in consideration for the payments from the
Purchaser and the assumption of certain liabilities of the Business each as
specified herein; and
WHEREAS, the Board of Directors of each of the Sellers has approved
this Agreement and has determined that the transactions contemplated hereby are
advisable and in the best interests of each Seller and its shareholders. The
shareholder of PM has approved this Agreement and the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
SECTION 1.01 PURCHASE AND SALE OF ASSETS. Except as set forth in
Section 1.02, upon the terms and subject to the conditions set forth herein, at
the Closing, Sellers shall sell, convey, transfer, assign and deliver to the
Purchaser, and the Purchaser shall purchase, acquire and accept from the
Sellers, free and clear of Encumbrances (other than the Permitted Encumbrances),
all of the Sellers' right, title and interest in and to the following
properties, assets, Contracts, rights and choses in action, whether tangible or
intangible, whether real, personal or mixed, whether accrued, contingent or
otherwise, and wherever located, that are used or held for use in connection
with the Business, as the same existed on the Cut-Off Date but subject to
adjustments for the operation of the Business during the period between the
Cut-Off Date and the Closing Date as provided in this Agreement (collectively,
the "Assets"):
(a) all right, title and interest of the Sellers in and to the
Sellers' programming library as it exists on the Cut-Off Date, including,
without limitation, the programs and films set forth on SCHEDULE 3.09, which
consists of one hundred and thirty (130) film titles and two (2) television
series with seventy-four (74) episodes (collectively and individually as to each
film or program, the "Film Library");
(b) all right, title and interest of the Sellers in and to the
Film Assets associated with the Film Library, including all inventories of
films, videos, DVDs and other similar products, availability schedules,
historical information, and film elements;
(c) all accounts receivable (on and off balance sheet), notes,
prepaid items and expenses (other than pre-paid Taxes), deferred charges, rights
of offset, claims for refund (other than claims for a refund of pre-paid Taxes),
and other receivables or right to payment of any nature whatsoever (other than
advance payments) relating to the Business (collectively, "Receivables")
existing on the Cut-Off Date, (other than amounts in excess of $30,000 that are
on deposit and classified as a Receivable currently due and payable from the ▇▇▇
▇▇▇▇▇▇▇▇ Organization to Sunland as more fully identified on Schedule 3.04) and
all such items arising thereafter, a true, correct and complete list of which,
as they existed on the Cut-Off Date. is set forth hereto as SCHEDULE 3.04;
(d) cash and cash equivalents of Sellers received from the
Business on and after the Cut-Off Date;
(e) the I-Rights Management System and related accounting
systems (subject to the restrictions, terms or conditions identified in the
documents identified on SCHEDULE 1.01(e) which are the documents that govern the
use thereof);
(f) all right, title and interest of the Sellers in and to all
Film Asset Acquisition Agreements, Film Asset Exploitation Agreements, for the
distribution by Sellers of products or services of the Business, all other
Contracts, agreements, arrangements, instruments and documents specified on
SCHEDULE 3.10, and all Unlisted Assumed Contracts (as defined in Section 3.10(a)
below), including all rights to indemnification under that certain Stock
Purchase Agreement dated as of February 29, 2000, by and among The ▇▇▇▇▇▇
Entertainment Company, on the one hand, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, on the other hand (the "Assumed Contracts");
(g) (i) all trademarks and service marks, and any
registrations, registration certificates and applications for registration
therefor, and the goodwill associated therewith (the "Trademarks"), (ii) trade
names, assumed and fictitious names and registered user names, and registrations
and any applications for registration therefor, and the goodwill associated
therewith and related internet domain names (the "Trade Names"), and (iii)
copyrights and registrations and any applications for registration therefor (the
"Copyrights"), including, without limitation, those items which are specified on
SCHEDULE 3.09(c)(i);
(h) all goodwill of the Sellers in the Business;
(i) all books, records, files, manuals and other similar
materials, including, advertising materials, marketing materials, brochures,
business and marketing plans and proposals, production data, sales and
promotional materials and records, purchasing materials and records, files for
past, existing and contemplated projects, media materials, accounting, financial
and fiscal records (copies), sales order files, customer lists and customer
records in any form (and all software related to any such customer records, to
the extent transferable), whether of past or present customers or potential
future customers, related to or arising from the Business, advertiser lists,
receipts and computer records relating to the Assets, standard operating
procedures, correspondence, customer relations information, and any other trade
secrets, confidential or proprietary information pertaining to the Business (the
"Business Records");
(j) all claims, choses in action, causes of action and
judgments relating to the Business, the Film Library or other Assets, including
those listed on Schedule 1.01(j), other than claims for pre-paid Taxes related
to periods ending on or before the Closing Date;
(k) all certifications, franchises, approvals, permits
licenses, orders, registrations, certificates, variances and other similar
permits or rights obtained from any Governmental Entity or professional or trade
organization utilized in operating the Business and all pending applications
therefor;
(l) all third party warranties and guarantees with respect to
any of the Assets; and
(m) all rights to receive insurance proceeds relating to the
damage, destruction or impairment of any of the Assets on or subsequent
to the Cut-Off Date.
SECTION 1.02 EXCLUDED ASSETS. Notwithstanding anything else contained
herein, neither Seller shall sell, transfer, convey or assign to the Purchaser
the following (the "Excluded Assets"):
(a) all cash and cash equivalents of the Sellers arising from
the Business received prior to the Cut-Off Date and the sum of $107,000 received
from ConExpress after the Cut Off Date;
(b) all original versions of accounting, financial and fiscal
records;
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(c) all rights to recover any pre-paid Taxes relating to
periods following the Closing Date and to receive any refunds of pre-paid Taxes
relating to periods ending on or before the Closing Date;
(d) assets of Sellers that are not used or held for use by
Sellers in connection with the Business;
(e) any pension or profit sharing plans, and the assets
thereof, and all other employee benefit plans or arrangements and the assets
thereof;
(f) any real property and leases of, and other interests in,
real property of Sellers, including, without limitation, deposits relating
thereto;
(g) any capital stock or other equity interests of Sellers or
any of their Affiliates;
(h) all securities and equipment of Sunland and its various
subsidiaries (other than those items identified in Section 1.01);
(i) any rights with respect to Sellers' employees or any
employee benefit plans of Sellers; and
(j) all rights to receive insurance proceeds relating to the
damage, destruction or impairment of any of the Assets prior to the Cut-Off
Date.
SECTION 1.03 ASSUMED LIABILITIES. Subject to the terms and conditions
contained in this Agreement, at the Closing, the Purchaser agrees to assume, pay
and perform when due the following liabilities and obligations of the Sellers as
of the Cut-Off Date and for all periods thereafter all as described on Schedule
1.03 (the "Assumed Liabilities") and notwithstanding the foregoing, Sellers
shall use cash collected by them for the benefit of Purchaser following the
Cut-Off Date to pay Assumed Liabilities that come due during the period from the
Cut-Off Date through the Closing Date:
(a) the accounts payable and open Purchase Orders set forth on
SCHEDULE 1.03;
(b) all Commissions, Residuals, Participations, Guild Payments
and other third party payments arising in the generation of Receivables for
which payment is not yet due as of the Cut-Off Date (including, without
limitation, participations that become due after the Cut-Off Date by virtue of
receipts exceeding a contractual threshold), as set forth on SCHEDULE 1.03,
other than as provided in Sections 1.04, 1.07(c), and 1.03(e);
(c) the direct costs and expenses of marketing and delivering
the Film Library, in the ordinary course of business, estimated on SCHEDULE
1.03, plus a fixed amount for corporate overhead, as set forth on SCHEDULE 1.03;
(d) all obligations arising or coming due under the Assumed
Contracts in accordance with their terms with respect to acts or services to be
performed under such Assumed Contracts after the Cut-Off Date, except for any
obligation (a) that relates to any breach or default (or an event which might,
with the passing of time or the giving of notice, or both, constitute a default)
under any such Assumed Contract arising out of or relating to periods on or
prior to the Closing Date, (b) for which the Business owes any amounts to its
Affiliates, other than for specific services, materials or works in progress as
set forth on SCHEDULE 1.03, or (c) that relates to any indemnity, defense or
hold harmless provision or agreement for occurrences prior to the Cut-Off Date,
provided that if any such obligation relates to actions or the failure to act on
the part of the Sellers, such obligation shall remain the Sellers'
responsibility and shall not become an Assumed Liability;
(e) all obligations arising or coming due in respect of the
feature film, "The Tunnel";
(f) all reimbursable deposits that become due as a result of
Purchaser's failure to agree to allow Seller to close those pending license
agreements set forth on Schedule 1.03(f), or Purchaser's failure to close such
pending transactions following the Closing Date;
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(g) the costs and expenses of maintaining or preserving the
intellectual property included in the Film Assets; and
(h) all costs and expenses of the February 2003 American Film
Market, regardless of when such expenses were actually paid (including such
expenses paid prior to the Cut-Off Date); and
(i) all obligations to any guilds or similar organizations,
including without limitation, the Screen Actors Guild, the Writers Guild of
America and the Directors Guild of America, in connection with the exploitation
of the Film Library from and after the Cut-Off Date.
Notwithstanding the foregoing or anything to the contrary contained
herein, (i) the monthly expenditures with respect to the Assumed Liabilities
during the period from the Cut-Off Date through the Closing Date shall not
exceed the amount set forth in footnote 8 to SCHEDULE 1.03; and (ii) in the
event the Purchaser chooses to release the Film Asset "Can't Stop Dancin'", the
Purchaser shall be responsible for all music licensing and other production
costs related to such Film Asset.
SECTION 1.04 EXCLUDED LIABILITIES. Except for the Assumed
Liabilities, Purchaser shall not assume or be bound by any Liabilities of
Sellers or the Business of any kind or nature, known, unknown, accrued,
absolute, contingent, recorded or unrecorded or otherwise, whether now existing
or hereafter arising (the "Excluded Liabilities"). The Excluded Liabilities
shall include, without limitation, the following: (i) any Liability for Taxes of
Sellers, or in the case of the Business any Taxes relating to periods ending on
or prior to the Closing Date, (ii) any Liability of either Seller or the
Business for the Taxes of any Person (other than the Sellers) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise, (iii) Liabilities
or obligations incurred on behalf of or owed to any Employee or Retiree as of
the Closing Date or incurred in connection with any Company Employee Plan, (iv)
claims of any employee for wrongful discharge, sexual or other harassment,
discrimination, equal opportunity, unfair labor practice or a violation of any
agreement in connection with or on the basis of events, acts, omissions,
conditions, or any other state of facts occurring or existing prior to or on the
Closing Date (including, in each case, without limitation, any Liabilities
relating to or associated with any failure to comply with applicable laws and/or
permitting or licensing requirements and personal injury matters), (v) any
responsibility or liability for any Contribution due, the maintenance or
administration of, or any other matter pertaining to any Company Employee Plan,
(vi) any claims to severance pay, or claims to any amount due to the
acceleration of the time of payment or vesting, or the increase in the amount,
of compensation due to any individual, and claims to, or responsibility for the
tax consequences relating to, any payment made or contemplated under any Company
Employee Plan which constitutes an "excess parachute payment" within the meaning
of Section 280G of the Code, resulting from the Transactions contemplated by
this Agreement, (vii) Liabilities for fees and expenses of Sellers or the
Business with respect to this Agreement and the Transactions contemplated
herein; (viii) any Liabilities of Sellers with respect to unpaid laboratory
costs, tape duplication costs or unpaid advances, guaranties or deferments in
connection with any Film Contract including, without limitation with respect to
the Film Asset "Can't Stop Dancin'" unless Purchaser releases such Film Asset;
(ix) any Liability of Sellers with respect to unpaid synchronization or music
license fees or other materials used in the Film Library prior to the Closing
Date including, without limitation with respect to the Film Asset "Can't Stop
Dancin'" unless Purchaser releases such Film Asset; (x) any Liability of Sellers
with respect to unpaid production costs arising prior to the Closing Date ; (xi)
Liabilities for any actions, judgments, fines, losses, claims, damages or
amounts in settlement arising from or in connection with or on the basis of
events, acts, omissions, conditions, or any other state of facts occurring or
existing prior to or on the Closing Date, (xii) any Indebtedness of either
Seller or the Business, and (xiii) any other Liabilities or obligations that are
not Assumed Liabilities. All responsibility for the Excluded Liabilities shall
remain with the Sellers.
SECTION 1.05 PURCHASE PRICE. The purchase price for the Assets shall
be an amount equal to Six Million Dollars ($6,000,000) (the "Purchase Price"),
subject to adjustment as contemplated by Section 5.14.
SECTION 1.06 PAYMENT OF PURCHASE PRICE. Subject to the conditions,
representations and warranties and covenants hereof at the Closing, the
Purchaser shall pay the Purchase Price as follows, each by federal funds wire
transfers of immediately available funds:
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(a) On the date hereof, Seven Hundred and Fifty Thousand
Dollars ($750,000) (the "▇▇▇▇▇▇▇ Money Escrow Amount") to ▇▇▇▇▇▇▇ Berlin Shereff
▇▇▇▇▇▇▇▇, as escrow agent, to be held in an escrow account pursuant to the
provisions of the ▇▇▇▇▇▇▇ Money Escrow Agreement as described in Section 1.07
(a) hereof;
(b) On the Closing Date, the ▇▇▇▇▇▇▇ Money Escrow Amount to
the Sellers;
(c) On the Closing Date, Four Million Five Hundred Thousand
Dollars ($4,500,000) to the Sellers, subject to adjustment as contemplated by
Section 5.14;
(d) On the Closing Date, Six Hundred Thousand Dollars
($600,000) (the "Indemnity Escrow Amount") to the Escrow Agent to be held in an
indemnity escrow account pursuant to the provisions of the Indemnity Escrow
Agreement as described in Section 1.07 (b) hereof.
(e) On the Closing Date, One Hundred and Fifty Thousand
Dollars ($150,000) ("The Tunnel Escrow Amount") to the Escrow Agent to be held
in an escrow account pursuant to the provisions of The Indemnity Escrow
Agreement as described in Section 1.07 (c) hereof.
SECTION 1.07 ESCROW AGREEMENTS.
(a) On the date hereof, the Sellers and Purchaser shall enter
into an escrow agreement, in the form attached hereto as EXHIBIT A (the "▇▇▇▇▇▇▇
Money Escrow Agreement") with ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP, as escrow
agent (the "▇▇▇▇▇▇▇ Money Escrow Agent"), and Purchaser shall deposit the
▇▇▇▇▇▇▇ Money Escrow Amount in cash upon execution of this Agreement with the
Escrow Agent pursuant to the ▇▇▇▇▇▇▇ Money Escrow Agreement. Interest earned on
the ▇▇▇▇▇▇▇ Money Escrow Amount shall be paid to the Purchaser.
(b) On the Closing Date, the Sellers and Purchaser shall enter
into an indemnity escrow agreement, in the form attached hereto as EXHIBIT B
(the "Indemnity Escrow Agreement"), with SunTrust Bank, as escrow agent (the
"Escrow Agent"), and Purchaser shall deposit the Indemnity Escrow Amount (and
together with interest, if any, accrued from time to time on such amount, the
"Indemnity Escrow Funds") in cash at Closing with the Escrow Agent pursuant to
the Indemnity Escrow Agreement. Such Indemnity Escrow Agreement shall provide
that, subject to any claims which are actually noticed or pending pursuant to
Section 9.04, on the second anniversary of the Closing Date (the "Indemnity
Release Date") the Escrow Agent shall release to the Sellers all Indemnity
Escrow Funds, together with interest, if any, accrued on such amount, minus the
sum of (A) any portion of the Indemnity Escrow Amount actually paid with respect
to claims for indemnity made by Purchaser prior to the second anniversary of the
Closing Date, and (B) the amount of claims, if any, which are actually pending
pursuant to Section 9.04 on the second anniversary of the Closing Date.
(c) On the Closing Date, Purchaser shall deposit The Tunnel
Escrow Amount (and together with interest, if any, accrued from time to time on
such amount, "The Tunnel Escrow Funds") in cash at Closing with the Escrow Agent
pursuant to The Indemnity Escrow Agreement. The Indemnity Escrow Agreement shall
provide that The Tunnel Escrow Funds shall be used to pay all Residuals,
Participations, Guild Payments and other third party payments arising out of or
relating to proceeds paid to or for the benefit of Sellers prior to the Cut-Off
Date and related to the feature film "The Tunnel" and which are identified on
Schedule 1.07 ( c). Upon presentation to the Escrow Agent of a certificate from
Purchaser, setting forth in reasonable detail the obligations to be paid, the
Escrow Agent shall immediately release such funds for payment. On the second
anniversary of the Closing, the Escrow Agent shall release fifty percent (50%)
of any remaining The Tunnel Escrow Funds, together with interest, if any,
accrued on such amounts, to the Purchaser and the remaining 50% to the Sellers.
SECTION 1.08 TRANSFER TAXES. Purchaser shall be responsible for, and
shall pay on or prior to their due date, all municipal, county, state and
federal sales, use and transfer taxes incurred and the related costs of
preparing or documenting the same, if any, in connection with the Transactions
contemplated by the Agreement. Sellers shall cooperate with Purchaser in the
preparation of and in a timely manner sign and swear to any return, certificate,
questionnaire or affidavit as to matters required in connection with the payment
of any such tax. Seller represents and warrants that it has not made more than
one sale of computer software or a film library in the past twelve months.
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SECTION 1.09 ALLOCATION OF PURCHASE PRICE. The consideration provided
for herein has been allocated among the Assets in the manner required by
Treasury Regulation ss.1.1060-1 as set forth in more detail on SCHEDULE 1.09
(the "Allocation"). The parties hereto agree that, except as otherwise required
by law (i) the Allocation shall be binding on the parties for all federal,
state, local and foreign tax purposes and (ii) the parties shall file with their
respective federal income tax returns consistent Internal Revenue Service Forms
8594 - Asset Acquisition Statements under Section 1060, including any required
Internal Revenue Service forms, schedules or amendments thereto which shall
reflect the allocation set forth in the Allocation.
ARTICLE II.
THE CLOSING
SECTION 2.01 CLOSING DATE. Unless this Agreement shall have been
terminated and the Transactions shall have been abandoned pursuant to Article X,
and subject to the satisfaction or waiver of the conditions set forth in
Articles VI, VII and VIII, the closing of the Transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇ Berlin
Shereff ▇▇▇▇▇▇▇▇, LLP, The Chrysler Building, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., on the fifth business day following the
receipt of shareholder approval in accordance with Section 5.13 hereof, or on
the twenty first day following the filing of Seller's definitive Information
Statement, or such other place, date and time as the parties shall mutually
agree (such date and time of the Closing is referred to herein as the "Closing
Date").
SECTION 2.02 DELIVERIES AT CLOSING.
(a) At the Closing, the Purchaser shall deliver or cause to be
delivered the following:
(i) to the Sellers, the amount set forth in
Sections 1.06(b) and (c);
(ii) to the Escrow Agent, the amounts set forth
in Sections 1.06(d) and (e);
(iii) a certificate of Purchaser, duly executed by
an appropriate officer thereof, certifying to compliance with
the covenants set forth in Article VI, and satisfaction (or,
as specified, waiver) of each of the conditions set forth in
Article VIII;
(iv) true, correct and complete copies of (1) the
certificate of incorporation, as amended to date, of the
Purchaser, certified as of a recent date by the Secretary of
State of the State of Delaware, (2) the by-laws of Purchaser,
and (3) resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing the authorization of the
execution and delivery of this Agreement, the other
Transaction Documents to which it is a party and the
consummation of the Transactions contemplated hereby and
thereby, in each case, accompanied by a certificate of the
Secretary or Assistant Secretary of the Purchaser, dated as of
the Closing Date, stating that no amendments have been made
thereto from the date thereof through the Closing Date;
(v) to the Sellers, a duly executed Assignment,
▇▇▇▇ of Sale and Assumption Agreement in the form attached
hereto as EXHIBIT C;
(vi) an opinion, dated the Closing Date, of
▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP, counsel to the
Purchaser, addressed to the Sellers, in substantially the form
attached hereto as EXHIBIT D; and
(vii) to the Sellers, agreements of assumption of
the agreements with the Screen Actors Guild, Writers Guild of
America and the Directors Guild of America.
(b) At the Closing, the Sellers shall deliver to the
Purchaser:
(i) the Physical Properties;
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(ii) certificates from the appropriate
governmental official(s) as to the good standing of and the
payment of Taxes by the Sellers as of a date within ten (10)
days of the Closing;
(iii) a duly executed Assignment, ▇▇▇▇ of Sale and
Assumption Agreement in the form attached hereto as EXHIBIT C,
executed by Sellers and all such other instruments of
assignment, transfer or conveyance as shall, in the reasonable
opinion of Purchaser and its counsel, be necessary to vest in
Purchaser, good, valid and marketable title to the Assets,
subject to no Encumbrances (other than Permitted Encumbrances)
and to put Purchaser in actual possession or control of the
Assets;
(iv) a certificate of each Seller, duly executed
by an appropriate officer thereof, certifying to compliance
with the covenants set forth in Article V, and satisfaction
(or, as specified, waiver) of each of the conditions set forth
in Article VII;
(v) true, correct and complete copies of (1) the
certificate of incorporation, as amended to date, of each of
the Sellers, certified as of a recent date by the Secretary of
State of the State of Delaware, (2) the by-laws of each of the
Sellers, (3) resolutions duly and validly adopted by (a) the
Board of Directors and (b) the majority of the Shareholders of
each of the Sellers evidencing the authorization of the
execution and delivery of this Agreement, the other
Transaction Documents to which it is a party and the
consummation of the Transactions contemplated hereby and
thereby, in with respect to the resolutions of the Board of
Directors, accompanied by a certificate of the Secretary or
Assistant Secretary of each of the Sellers, dated as of the
Closing Date, stating that no amendments have been made
thereto from the date thereof through the Closing Date;
(vi) an executed letter addressed to City
National Bank on behalf of each Seller directing such bank to
deliver all amounts in each Seller's bank accounts to an
account designated in writing by Purchaser as of the Closing
Date and thereafter.
(vii) executed letters to each of Seller's
customers, on behalf of each Seller directing such customers
to directly pay Purchaser as of the Closing Date. Such
payments to be made to an account designated in writing by
Purchaser.
(viii) an opinion, dated the Closing Date, of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Markiles, LLP, counsel to the Sellers,
addressed to the Purchaser, in substantially the form attached
hereto as EXHIBIT F;
(ix) all Consents, waivers and estoppels from
third parties as required to consummate the Transactions
contemplated by this Agreement, all as set forth on SCHEDULE
3.02(c);
(x) Lien searches, a clearance certificate or
similar document(s) that may be required by any state, local
or foreign Governmental Entity in order to relieve Purchaser
of any obligation to withhold any portion of the Purchase
Price and such other instruments showing that there were no
financing statements, judgments, Taxes or other Liens
outstanding against the Sellers with respect to the Business
or any of the Assets;
(xi) to the extent applicable, payoff letters,
UCC-3 termination statements and other documentation relating
to the release of all security interests as necessary, all as
set forth on SCHEDULE 3.02(c); and,
(xii) such other instruments and certificates of
transfer as may be reasonably requested by the Purchaser.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS
The Sellers, jointly and severally, represent and warrant to and for
the benefit of the Purchaser, as of the date hereof and as of the Closing Date,
except with respect to any particular subsection of this Article III to the
extent specifically described in the corresponding subsection or any other
subsection, if it is reasonably apparent on its face from the disclosure that
such other subsection applies, of that certain schedule (the "Sellers'
Disclosure Schedule"), dated as of the date of this Agreement, delivered to the
Purchaser on behalf of the Sellers, a copy of which is attached hereto and
incorporated herein by this reference, as follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION. Each of the Sellers is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of the Sellers has all corporate or other
power and authority, and is duly authorized by all necessary regulatory
approvals and orders, to own, lease and operate the Assets and properties and to
carry on the Business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of the
Business or the ownership or leasing of its Assets and properties makes such
qualification necessary. A true, correct and complete list of such jurisdictions
(as well as the jurisdiction of incorporation of each of the Sellers) is set
forth on SCHEDULE 3.01. The copies of the certificate of incorporation and
bylaws of each of the Sellers, as heretofore made available to Purchaser, are
correct and complete in all respects.
SECTION 3.02 AUTHORITY.
(a) AUTHORITY.
(i) The Board of Directors of each of the
Sellers has taken all action to authorize and approve the
Transaction Documents and the Transactions. Each of the
Sellers has all requisite power and authority to enter into
the Transaction Documents to which it is a party and to
consummate the Transactions contemplated hereby and thereby.
(ii) The execution, delivery and performance by
each of the Sellers of each Transaction Document to which it
is a party and the consummation by each of the Sellers of the
Transactions contemplated hereby and thereby have been duly
authorized by all corporate action on the part of each of the
Sellers, subject only, in the case of Sunland, to the receipt
of shareholder approval as described in the first sentence of
Section 3.02(iii), such shareholder approval to become
effective in accordance with Section 5.13, and no other
corporate proceedings on the part of the Sellers are necessary
to authorize each Transaction Document.
(iii) The affirmative vote or written consents of
(a) the holders of at least a majority of the outstanding
shares of the (i) the Series A Preferred Stock, (ii) the
Series B Preferred Stock and (iii) the Common Stock of Sunland
voting together as a single class and (b) Sunland, as the sole
shareholder of PM, are the only votes of the holders of any
class or series of either Seller's securities necessary to
approve this Agreement, the Transaction and the other
Transaction Documents contemplated hereby on behalf of the
Sellers.
(iv) Each Transaction Document to which a Seller
is a party has been duly and validly executed and delivered by
such Seller and, assuming the due authorization, execution and
delivery hereof by the other parties hereto, constitutes the
valid and binding obligation of such Seller, enforceable
against it in accordance with its respective terms, except as
may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including
specific performance, may be subject to the discretion of any
court before which any proceeding therefor may be brought.
8
(b) NON-CONTRAVENTION. Neither the execution and delivery by
either Seller of any Transaction Document to which it is a party nor the
consummation or performance by either Seller of any of the Transactions
contemplated hereby and thereby will contravene, conflict with or result in any
violation by such Seller under any provisions of or result in acceleration,
termination, cancellation or modification of, or constitute a default under:
(i) the certificate or articles of
incorporation, bylaws or similar governing documents of such
Seller;
(ii) any Requirements of Law;
(iii) any order of any Governmental Entity; or
(iv) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, Contract, lease
or other instrument, obligation or agreement of any kind
relating to the Business to which either Seller is now a party
or by which the Business or the Assets may be bound or
affected.
Neither the execution nor the delivery by either Seller of any Transaction
Document will result in the creation or imposition of any Encumbrance (other
than Permitted Encumbrances) of any nature whatsoever upon the Business or
Assets.
(c) APPROVALS. Except as set forth on SCHEDULE 3.02(c) and as
otherwise provided for in Section 3.10 below, no declaration, filing or
registration with, or notice to or Consent of, any Governmental Entity or any
other Person is necessary for the execution and delivery by either Seller of any
Transaction Document to which it is a party or the consummation by either Seller
of the Transactions contemplated hereby and thereby.
(d) COMPLIANCE.
(i) With regards to the Business and the Assets,
neither of the Sellers nor their respective employees or
agents is, or has been in the last 3 years, in violation in
any material respect of, or has been given notice or been
charged with any material violation of, any law, order,
regulation, ordinance or judgment of any Governmental Entity.
(ii) Each of the Sellers has all permits,
licenses and franchises from Governmental Entities material to
the conduct of the Business as currently conducted and is in
compliance in all material respects with the terms thereof. No
violations have been reported in writing in respect of such
permits, licenses and franchises. SCHEDULE 3.02(d)(ii) lists
each permit, license and franchise of each Seller material to
the Business. A true and complete copy of each such material
permit, license and franchise of each Seller relating to the
Business has been provided to Purchaser and as of the date of
the Closing each such permit, license and franchise shall be
assigned to Purchaser and be in full force and effect upon
such assignment.
SECTION 3.03 TITLE TO PROPERTIES; LIENS; CONDITION OF ASSETS. Each of
the Sellers has good, valid and marketable title to all of the Assets, free and
clear of any Encumbrances, other than the Permitted Encumbrances. At the
Closing, the Sellers will convey to the Purchaser good title to the Assets, free
and clear of any Encumbrances, other than the Permitted Encumbrances. All of the
Physical Properties are in good operating condition and repair, subject to
normal wear and tear, none of such Physical Properties are in need of
maintenance or repairs except for ordinary, routine maintenance and such
Physical Properties are suitable for and operating according to their intended
use.
SECTION 3.04 RECEIVABLES AND ASSUMED LIABILITIES.
(a) SCHEDULE 3.04 sets forth a true, correct and complete aged
list of the Receivables of the Sellers as of the Cut-Off Date, showing
separately those Receivables that, as of such date, had been invoiced or billed
by each Seller and are outstanding (a) 30 days or less, (b) 31 to 60 days, (c)
61 to 90 days, (d) 91 to 120 days, and (e)
9
more than 120 days. The Sellers shall as of the 15th and the last day of each
month and on or before the fifth business day thereafter from the date hereof
through the Closing Date deliver to Purchaser a schedule listing the Receivables
collected on and after the Cut-Off Date. At Closing, Seller shall deliver a
true, correct and complete updated list of such Receivables as of the Closing
Date. Except as set forth on SCHEDULE 3.04, all Receivables outstanding as of
the Cut-Off Date, and as of the Closing Date (i) are bona fide, or will have
been bona fide, and arose, or will have arisen, from the sale of inventory or
services to Persons not affiliated with either Seller and in the ordinary course
of business consistent with past practice and (ii) are supported by a valid and
enforceable Assumed Contract.
(b) SCHEDULE 3.04(b) sets forth a true, correct and complete
list of the Assumed Liabilities as such items exist as of the Cut-Off Date. At
Closing, Seller shall deliver a true, correct and complete updated list of such
Assumed Liabilities as of the Closing Date. The Sellers shall as of the 15th and
the last day of each month and on or before the fifth business day thereafter
from the date hereof through the Closing Date deliver to Purchaser an updated
schedule listing the Assumed Liabilities incurred, or any Assumed Liabilities
paid, by Sellers after the Cut-Off Date. Each Assumed Liability (i) has arisen,
or will have arisen, from the operation of the Business in the ordinary course
of business consistent with past practice and (ii) is properly, or will be,
properly and accurately reflected in the Business Records of the Sellers.
Notwithstanding the foregoing, in no event shall the Sellers incur or pay, any
Assumed Liability in excess of $10,000, without the express prior written
consent of Purchaser.
SECTION 3.05 ABSENCE OF CERTAIN EVENTS.
(a) From September 30, 2002 ("9/30/02") through the Cut-Off
Date, each of the Sellers has conducted the Business only in the ordinary course
of business consistent with past practice and there has not been any of the
following, but solely insofar as they relate to the Business or the Assets:
(i) any material damage, destruction or loss,
whether or not covered by insurance;
(ii) any mortgage or pledge of any of the
Business' property or Assets, tangible or intangible;
(iii) any sale, transfer, lease or disposal of
Assets or incurrence, assumption, cancellation or compromise
of any Indebtedness or claim (other than accounts receivable
compromised in the ordinary course of business consistent with
its past practice), or waiver or release of any right;
(iv) receipt of any notice or threat of
termination of any Assumed Contract;
(v) any settlement or dismissal of any action,
claim, demand or lawsuit by or before any Governmental Entity
for an amount, in any individual case; or
(vi) execution of any Contract or letter of
intent with respect to, or otherwise committed or agreed to do
any of the foregoing.
(b) Since 9/30/02, there has not been an adverse change,
whether direct or indirect, in the business, operations, condition, prospects,
liabilities or assets of the Business, whether or not insured, and no fact,
circumstance or event exists or has occurred which in any case could result in a
Material Adverse Effect.
(c) Sellers further covenant and agree that from the Cut-Off
Date through Closing they shall not take any action or enter into any Contract,
agreement or letter of intent with respect to, or otherwise involving any item
listed in Section 3.05(a)(i) through (vi), without Purchaser's prior written
consent.
SECTION 3.06 LITIGATION; INVESTIGATIONS. Except as specifically set
forth on SCHEDULE 3.06, there are: (i) no claims, actions, suits, investigations
or proceedings pending or, to the knowledge of the Sellers, threatened against,
relating to, or affecting either of the Sellers (in connection with the Business
or the Assets), the Business or the Assets, or to the knowledge of the Sellers,
any employee, agent, officer or director of either of the Sellers relating to
the Business, and (ii) no orders of any Governmental Entity or arbitrator
outstanding against either of the Sellers
10
(in connection with the Business or the Assets), the Business or the Assets, or
to the knowledge of the Sellers, any employee, agent, officer or director of
either of the Sellers relating to the Business, or that could prevent or enjoin
or delay in any respect, consummation of the Transactions contemplated hereby.
SECTION 3.07 TAXES.
(a) Sellers have duly and timely filed all federal, state,
local and foreign Tax Returns and other Tax reports required to be filed by each
of them, and have timely paid all Taxes that have become due and payable,
whether or not so shown on any such return or report, except such amounts as are
being contested diligently and in good faith. Sellers have received no notice
of, nor do Sellers have any knowledge of, any deficiency, assessment or audit,
or proposed deficiency, assessment or audit from any Governmental Entity that
could affect or result in the imposition of a Lien upon the Assets or create any
transferee or other liability upon Purchaser.
(b) The Assets are not subject to any joint venture,
partnership or other arrangement or contract that is treated as a partnership
for federal income tax purposes.
(c) Within the past five (5) years, no claim has been made by
a Governmental Entity of any jurisdiction in which the Sellers do not file Tax
Returns that Sellers are or may be subject to taxation by that jurisdiction in
respect of the Assets or the Business, nor is either Seller aware that any such
assertion of jurisdiction is threatened.
(d) The unpaid Taxes of each of the Sellers (A) did not, as of
the most recent fiscal month, exceed the reserve for tax liability (other than
any reserve for deferred Taxes to reflect timing difference between book and Tax
income set forth on the Seller's books and records) and (B) do not exceed that
reserve as adjusted for the purpose of time through the Closing Date in
accordance with past practice of each Seller in filing their respective Tax
Returns.
SECTION 3.08 ABSENCE OF LIABILITIES. Neither Seller has Liabilities,
which are or may become Liabilities of the Business, whether accrued, absolute,
contingent, matured or otherwise, whether due or to become due and whether or
not the amount thereof is readily ascertainable, that are not reflected as a
Liability in the Financial Statements except for Liabilities of no more than
$5,000 individually and $10,000 in the aggregate which have been incurred by the
Sellers in the ordinary course of conducting the Business consistent with past
practices since 9/30/02 which are not otherwise prohibited by, in violation of
or which will result in a breach of the representations, warranties and
covenants of the Sellers contained in this Agreement.
SECTION 3.09 MATTERS REGARDING THE FILM LIBRARY
(a) SCHEDULE 3.09(a) sets forth, on a title-by-title basis, a
true, correct and complete list of the principal films and programs which
constitute the Film Library, specifying for each such film and program in the
Library the number of episodes produced.
(b) Except with respect to the Permitted Encumbrances, the
Sellers own good and marketable title to, hold fully valid, enforceable and
exclusive licenses of or are otherwise duly authorized to use substantially all
rights under all copyrights, trademarks, service marks, trade secrets and other
Intellectual Property used or otherwise exploited by Sellers in connection with
the Business or the Assets, including, without limitation, the Film Assets and
the Film Library, and the rights to use, duplicate, distribute, merchandise,
create derivative works based upon, publicly perform, and publicly display the
Film Assets, other than as limited by the underlying acquisition agreements and
production agreements of the titles listed on Schedule 3.09(a).
(c) SCHEDULE 3.09(c)(i) sets forth a true, correct and
complete list of all copyright registrations, registration numbers and serial
numbers by the issuing authority related to the Film Library. SCHEDULE
3.09(c)(ii) sets forth a true, correct and complete list of all trademarks,
service marks, trade names, domain names and logos, and all registrations,
registration numbers and serial numbers by the issuing authority thereof,
included in the Film Library. SCHEDULE 3.09(c)(iii) sets forth a true, correct
and complete list (the "Physical Properties Schedule") of each location at which
the Physical Properties are held or stored and a general description of the
nature or type of
11
Physical Properties held or stored thereat and, at the Closing, Purchaser shall
have exclusive ownership of such Physical Properties, subject to any Permitted
Encumbrances.
(d) The ownership, use or exploitation of the Film Library by
any means in connection with the Business and operations of Sellers or their
Affiliates with respect to the Business or the Assets prior to the Closing does
not and will not infringe or misappropriate the rights of any other Person,
including, without limitation, any rights relating to defamation, contract,
trademark, unfair competition, copyright, trade secret, privacy or publicity.
Neither Seller nor any Affiliate of Sellers has received any notice of
infringement or misappropriation or other notice of claim relating to the Film
Library including, without limitation, oppositions filed in respect to Sellers'
trademark applications, if any. Further, no presently existing assignment,
license or other transfer to Sellers of any portion of the Film Library or of
any rights thereunder is now or, to the knowledge of the Sellers, will in the
future become subject to rescission, cancellation or termination (except as may
occur by operation of statute pursuant to Section 304 of the Copyright Act of
1976, as amended, or any equivalent foreign statutes to which the Film Assets
may be subject, or, with respect to any Assumed Contract, as expressly set forth
by its terms).
(e) All advances, guarantees, Guild Payments, Residuals and
Participations, laboratory payments, open purchase orders, costs and fees
charged by agents and sub-agents, and other amounts or obligations owed, due,
invoiced or payable prior to or on the Closing Date by any Seller, any of its
Affiliates or any of its predecessors-in-interest pursuant to or under the
Assumed Contracts or otherwise in respect of the Film Library have been, or at
the Closing will have been, fully and accurately accounted for, and if due, paid
and discharged, except where challenged by Sellers in good faith by appropriate
proceedings.
(f) Except pursuant to the Assumed Contracts, there are no
Persons that have (or will have) any rights to participate in the development,
production, distribution or financing of any portion of the Film Library.
(g) There has been, and through the Closing there will be, no
lapse in coverage with respect to any errors and omissions and/or general
liability insurance policies carried by Sellers and their Affiliates with
respect to the Business or the Assets.
(h) None of the licensors under any Film Asset Acquisition
Agreement to which either Seller is a party has exercised any right to buy back
any rights granted to Sellers in the Film Library nor have any such rights
reverted to any licensor nor has any such licensor purported to terminate or
rescind any such rights.
(i) All of the artwork, packaging, publicity, promotional
materials and advertising prepared by Sellers relating to the Film Library has
been prepared in accordance with and is in compliance in all material respects
with all of the requirements of the applicable Film Contracts and requirements
of applicable laws which are customarily applicable to transactions of the type
contemplated herein.
(j) The transfer of the Assets pursuant to this Agreement will
vest in Purchaser all rights with respect to musical compositions and sound
recordings licensed from third parties and contained in the Assets necessary for
the lawful distribution, exhibition and exploitation of the Film Library without
infringing or violating any laws or rights of third parties; and the performance
rights of all non-dramatic music contained in the Film Library (whether in
connection with musical compositions or sound recordings) are: (i) controlled by
a performing rights organization such as the American Society for Composers
Authors and Publishers ("ASCAP"), Broadcast Music Inc. ("BMI"), SESAC, Inc.,
PRS, and/or SOCAN, (ii) available for license from the party(ies) controlling
such rights, (iii) in the public domain, or (iv) controlled by Sellers directly
or through license(s), and if so, then such rights are granted herewith.
SECTION 3.10 CONTRACTS.
(a) SCHEDULE 3.10 sets forth a complete and accurate list of
all (i) agreements pursuant to which Sellers have licensed any of its rights
under any copyright, trademark, service ▇▇▇▇, trade secret or other Intellectual
Property used or otherwise exploited by Sellers in connection with the Business
or the Assets and (ii) certain miscellaneous agreements related to the Business.
Other than those agreements set forth on Schedule 3.10, the Assumed Contracts
consists only of production contracts associated with the programs and films
constituting the
12
Film Library. Each of the Assumed Contracts is in full force and effect and
enforceable in accordance with its terms. Neither Seller has received notice of
cancellation of or intent to cancel, or notice to make a modification or intent
to make a modification in, any of the Assumed Contracts. The consummation of the
Transactions hereunder will not result in the early termination of any of the
Assumed Contracts or have a material adverse effect on the relationships between
the Business and its customers. There exists no event of default or occurrence,
condition or act on the part of either Seller or, to the best knowledge of the
Sellers, on the part of the other parties to such Assumed Contracts which
constitutes or would constitute (with notice or lapse of time or both) a breach
under, or cause or permit acceleration of, any obligation of the Sellers and/or
the Business. Except as specifically set forth on SCHEDULE 3.02(c) no Consent of
any other party to any of the Assumed Contracts is required in connection with
the execution, delivery and performance of this Agreement by the Sellers, which
Consents shall be obtained prior to Closing; provided however, that Assumed
Contracts that require the Consent of a party in connection with the execution,
delivery and performance of this Agreement by Sellers and that (i) involve
amounts less than $100,000 and (ii) do not call for any current, deferred or
other payment to Sellers or any action by the parties thereto other than Sellers
need not be listed on SCHEDULE 3.02(c) (such Assumed Contracts are referred to
as the "Unlisted Assumed Contracts"). If a consent of a third party that is
required in order to assign an Unlisted Assumed Contract is not obtained prior
to the Closing Date, or if an attempted assignment of such Unlisted Assumed
Contract would be ineffective or would adversely affect Seller's ability to
convey its interest to Purchaser, Sellers shall cooperate with Purchaser in any
lawful arrangement to provide that Purchaser shall receive Sellers' entire
interest in the benefits under any such Unlisted Assumed Contract including,
without limitation, enforcement for the benefit of Purchaser of any and all
rights of Sellers against any other party thereto arising out of the breach or
cancellation thereof by such party or otherwise; provided, however, that the
failure to obtain such Consent shall not constitute a breach of any obligation
of Sellers pursuant to this Agreement. The Sellers have delivered or made
available to Purchaser true and complete copies of each Assumed Contract listed
in SCHEDULE 3.10.
(b) Neither Seller is a party to or bound by any agreement
containing noncompetition, confidentiality, standstill or similar restriction,
"change of control" or other limitations restricting the conduct of the
Business.
(c) Neither Seller is a party to or bound by any of the
following types of contractual obligations relating to the Business or the
Assets:
(i) any mortgage, indenture, note, installment
obligation or other instrument, agreement or arrangement for
or relating to any borrowing of money granting or evidencing a
Lien on the Business and/or Assets or any other Indebtedness;
(ii) any guaranty, direct or indirect, of any
obligation for borrowings or otherwise relating to the
Business and/or the Assets, excluding endorsements made for
collection in the ordinary course of business;
(iii) any obligation of the Business to make
payments, contingent or otherwise, arising out of any prior
acquisition of the business, assets or stock of other persons;
(iv) any shareholders or joint venture agreement,
or partnership, joint venture, joint development,
co-marketing, co-promotion, co-packaging, or similar
agreement;
(v) any Contracts involving any material
resolution or settlement of any actual or threatened
litigation, arbitration, claim or other dispute; or
(vi) other than the production contracts
associated with the programs and films constituting the Film
Library, any other Contracts that are material to the Business
taken as a whole.
SECTION 3.11 EMPLOYEE BENEFIT PLANS.
13
(a) "Employee Benefit Plan" means any Employee Program which
is maintained, administered, sponsored or contributed to by either Seller or an
ERISA Affiliate, which covers any Employee or Retiree or with respect to which
an obligation of either Seller or an ERISA Affiliate to make any contribution
exists is referred to herein as a "Company Employee Plan."
(b) None of the Sellers or ERISA Affiliates has any
unsatisfied material liability, or any unpaid material fine, penalty or tax,
with respect to any Company Employee Plan or any other Employee Program. There
has been no "prohibited transaction" (within the meaning of Section 406 of ERISA
or Section 4975 of the Code), with respect to any Company Employee Plan. Each
Seller and ERISA Affiliate has made full and timely payment of all contributions
required to be made by it to each Company Employee Plan by the terms of such
plan or under the applicable law, except that all contributions which are so
required to be made by each Seller or ERISA Affiliate to each Company Employee
Plan for any period ending prior to the Closing, but which are not due by the
date of the Closing, shall be properly reserved or accrued in the appropriate
financial statements.
(c) Sellers and their ERISA Affiliates will not, in connection
with the Transactions contemplated by this Agreement, cease to provide any group
health plan coverage to their employees in a manner that would cause Purchaser
to be deemed a successor employer of such Seller or its ERISA Affiliates within
the meaning of Treasury Regulations Section 54.4980B-9 Q&A8(c).
SECTION 3.12 MAJOR CUSTOMERS. SCHEDULE 3.12 lists the names of the
twenty largest customers (by revenues generated) for the Business during the
twelve months ended December 31, 2002. Except as set forth in SCHEDULE 3.12,
there have been no adverse changes in the relationships between the Sellers and
the customers listed on SCHEDULE 3.12, since December 31, 2001.
SECTION 3.13 RESERVED.
SECTION 3.14 INSURANCE.
(a) SCHEDULE 3.14 contains a complete and accurate list of all
insurance policies the premiums of which are being paid by PM or Sunland
currently providing and that for the past three years have been providing
coverage in favor of either Seller (or any predecessor thereto) related to the
Business specifying the insurer and type of insurance under each, other than any
insurance policy related to a specific film title that are no longer in effect.
The Sellers have heretofore delivered to the Purchaser true, correct and
complete copies of all such policies. Each current policy is in full force and
effect, all premiums are currently paid, no notice of cancellation or
termination has been received with respect to any such policy and, to the
knowledge of each of the Sellers, there is no threatened increase in premiums or
cancellation or termination of any such policy. Neither of the Sellers (or any
predecessor thereto) has been refused any insurance, including, but not limited
to, errors and omissions insurance, with respect to the Assets or Business, nor
has its coverage been limited by any insurance carrier to which it has applied
for any such insurance or with which it has carried insurance during the last
three years. The insurance specified on SCHEDULE 3.14 has been effective, in
full force and effect, without interruption since the date specified on SCHEDULE
3.14 as the initial date of coverage.
(b) There is no claim by either Seller under any insurance
policy listed on SCHEDULE 3.14. Neither the Business nor the Assets has had any
casualty loss or occurrence which may give rise to any claim of any kind not
covered by insurance and to the Sellers knowledge, there are no occurrences
which may give rise to any claim not covered by insurance.
SECTION 3.15 TRANSACTIONS WITH AFFILIATES. None of the Sellers or
the officers, directors, Affiliates, employees or stockholders of either Seller
(a) has borrowed money from, or loaned money to, either Seller, (b) is a party
to any Assumed Contract with either Seller, (c) has asserted or threatened to
assert any claim against either Seller, (d) is engaged in any transaction with
either Seller relating to the Business or the Assets, (e) has any direct or
indirect financial interest in any competitor, supplier, customer, or
distributor of either Seller as it relates to the Business, or (f) owns,
directly or indirectly, in whole or in part, or has any other interest in, any
tangible or intangible property or other Assets which either Seller uses or has
used or proposes to use in the conduct of the Business.
14
SECTION 3.16 BULK SALES. The bulk sales laws of the jurisdictions
in which the Business is conducted are not applicable to the Transactions
contemplated hereby.
SECTION 3.17 DISCLOSURE. No representation, warranty or statement
made by either Seller in (i) this Agreement or (ii) the Schedules attached
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
SECTION 3.18 BROKERS AND FINDERS. Neither of the Sellers nor any of
their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any investment banking fees, brokerage
fees, commissions or finder's fees in connection with the Transactions
contemplated by this Agreement
SECTION 3.19 SOLVENCY. Effective as of the date hereof and
immediately following the Closing, each Seller's assets, at a fair valuation,
shall exceed the amount of such Seller's debts, at a fair valuation. Both prior
to and after the consummation of the Transactions, Sellers were able to and
shall be able to discharge their debts as they became due or become due, as the
case may be.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to and for the benefit of the Seller,
as of the date hereof and as of the Closing Date, except with respect to any
particular subsection of this Article IV to the extent specifically described in
the corresponding subsection, or any other subsection, if it is reasonably
apparent on its face from the disclosure that such other subsection applies, of
that certain schedule (the "Purchaser's Disclosure Schedule"), dated as of the
date of this Agreement, delivered to the Sellers on behalf of the Purchaser, a
copy of which is attached hereto and incorporated herein by this reference, as
follows:
SECTION 4.01 ORGANIZATION AND QUALIFICATION. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The copies of the certificate of incorporation and
bylaws of the Purchaser, as heretofore made available to Sellers, are correct
and complete in all respects.
SECTION 4.02 AUTHORITY.
(a) AUTHORITY.
(i) The Board of Directors of the Purchaser has
taken all action to authorize and approve the Transaction
Documents and the Transactions. The Purchaser has all
requisite power and authority to enter into the Transaction
Documents to which it is a party and to consummate the
Transactions contemplated hereby and thereby.
(ii) The execution, delivery and performance by
the Purchaser of each Transaction Document to which it is a
party and the consummation by the Purchaser of the
Transactions contemplated hereby and thereby have been duly
authorized by all corporate action on the part of the
Purchaser and no other corporate proceedings on the part of
the Purchaser are necessary to authorize each Transaction
Document.
(iii) Each Transaction Document to which Purchaser
is a party has been duly and validly executed and delivered by
Purchaser and, assuming the due authorization, execution and
delivery hereof by the other parties hereto, constitutes the
valid and binding obligation of Purchaser, enforceable against
it in accordance with its respective terms, except as would be
limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally and except that the
availability
15
of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any
proceeding therefor may be brought.
(b) NON-CONTRAVENTION. Neither the execution and delivery by
Purchaser of any Transaction Document to which it is a party nor the
consummation or performance by Purchaser of any of the Transactions contemplated
hereby and thereby will contravene, conflict with or result in any violation by
Purchaser under any provisions of or result in acceleration, termination,
cancellation or modification of, or constitute a default under:
(i) the certificate or articles of
incorporation, bylaws or similar governing documents of
Purchaser;
(ii) any Requirements of Law;
(iii) any order of any Governmental Entity; or
(iv) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, Contract, lease
or other instrument, obligation or agreement of any kind to
which Purchaser is now a party.
(c) APPROVALS. Except as set forth on SCHEDULE 4.02(c), no
declaration, filing or registration with, or notice to or Consent of, any
Governmental Entity or any other Person is necessary for the execution and
delivery by Purchaser of any Transaction Document to which it is a party or the
consummation by Purchaser of the Transactions contemplated hereby and thereby.
SECTION 4.03 FINANCING. The Purchaser has commitments for the
financing necessary to consummate the Transactions contemplated by this
Agreement and the other Transaction Documents.
SECTION 4.04 DISCLOSURE. No representation, warranty or statement
made by Purchaser in (i) this Agreement or (ii) the Schedules attached hereto,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.05 BROKERS AND FINDERS. Neither Purchaser nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any investment banking fees, brokerage fees, commissions or
finder's fees in connection with the Transactions contemplated by this
Agreement.
ARTICLE V.
PRE-CLOSING COVENANTS OF SELLER
Except as set forth in SCHEDULE V or with the prior written consent of
the Purchaser, the Sellers shall comply with the provisions of this Article V
after the date hereof and prior to the Closing Date or earlier termination of
this Agreement.
SECTION 5.01 ORDINARY COURSE OF BUSINESS. Each of the Sellers shall
conduct the Business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and use best efforts to preserve the
Assets and the Business, preserve relationships with customers, suppliers,
franchisors, distributors and others having business dealings with it and keep
available the services of their present officers and employees, in each case in
the ordinary course of business consistent with past practice. Neither Seller
will take any action with the purpose of causing any of the conditions to the
Purchaser's obligations set forth in Article VII hereof to not be satisfied.
Except as expressly contemplated by this Agreement, neither Seller shall without
the prior written consent of the Purchaser:
(a) enter into any commitment or transaction relating to the
Business not in the ordinary course of business;
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(b) acquire or agree to acquire by merging or consolidating
the Business with, or by purchasing any assets or equity securities of, or by
any other manner, any Person (other than purchases of marketable securities in
the ordinary course of business consistent with past practice);
(c) liquidate, dissolve or otherwise reorganize if such action
would have any effect whatsoever on the Business or the Assets;
(d) enter into, modify, amend or waive any terms of any
Assumed Contract;
(e) take any action or engage in any transaction which would
cause any representation or warranty of the Sellers hereunder to be untrue as of
the Closing Date;
(f) accelerate the receipt of payment with respect to
receivables or slow down the payment of payables relating to the Business,
except in the ordinary course of business consistent with past practice;
(g) revalue any of the Assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable,
except as required under GAAP and in the ordinary course of business;
(h) enter into any agreement with any of its Affiliates
relating to the Business; or
(i) agree in writing to take any of the actions described in
subsections (a)-(h) above.
SECTION 5.02 CAPITAL COMMITMENTS. Except for those expenditures
specifically set forth in SCHEDULE 5.02, neither Seller shall make any capital
commitments relating to the Business.
SECTION 5.03 CERTAIN ACTIONS. Neither Seller shall sell, lease,
transfer, license, pledge, encumber or otherwise dispose of any Assets or incur
any Liabilities or obligations of any nature whatsoever relating to the Assets
or the Business (whether absolute, accrued, contingent or otherwise and whether
due or to become due), except for Liabilities or obligations incurred in the
ordinary course of business in substantially the same manner as heretofore
conducted. The Sellers shall cause all Indebtedness and other Liabilities (other
than the Assumed Liabilities) relating to the Assets and the Business, including
fees, costs and expenses of the Sellers in connection with the Transactions, to
be paid in full on or prior to the Closing.
SECTION 5.04 LOANS AND ADVANCES. Neither Seller shall make loans or
advances, capital contributions to, or investments in, any Person which relates
to the Business except for the payment of salary and benefits to or for advances
for travel and other normal business expenses to, the officers or employees of
the Sellers.
SECTION 5.05 ACCOUNTING. Neither Seller shall make any changes in its
accounting methods relating to the Assets or the Business, except as required by
law, rule, regulation or GAAP.
SECTION 5.06 INSURANCE. The Sellers shall maintain with financially
responsible insurance companies (or through self-insurance not inconsistent with
such party's past practice) insurance in such amounts and against such risks and
losses with respect to the Assets and the Business as is currently maintained by
the Sellers.
SECTION 5.07 PERMITS. Each of the Sellers shall use its best efforts
to maintain in effect all existing material permits pursuant to which each
Sellers operates the Business.
SECTION 5.08 ACTIONS. Neither Seller shall institute, settle or
dismiss any action, claim, demand, lawsuit, proceeding, arbitration or grievance
by or before any Governmental Entity threatened against, relating to or
involving the Assets or the Business of the Sellers other than in the ordinary
course of business consistent with past practices.
SECTION 5.09 MAINTENANCE OF ASSETS. Each of the Sellers shall
maintain all the Assets in good repair and condition, except to the extent of
wear or use in the ordinary course of business and consistent with past practice
or damage by fire or other unavoidable casualty.
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SECTION 5.10 TAX MATTERS. Without the prior written consent of the
Purchaser, neither Seller shall, in so far as the following are conducted in
connection with, or related to or affecting, the Business or the Assets, (i)
make or change any election, (ii) change an annual accounting period, (iii)
adopt or change any accounting method, (iv) file any amended Tax Return, (v)
enter into any closing agreement, (vi) settle any Tax claim or assessment, (vii)
surrender any right to claim a refund of Taxes, (viii) consent to any extension
or waiver of the limitation period applicable to any Tax claim or assessment, or
(ix) take any other action relating to the filing of any Tax Return or the
payment of any Tax.
SECTION 5.11 ACCESS AND INVESTIGATION. Each of the Sellers shall use
its commercially reasonable efforts to ensure that at all times from the date
hereof through the Closing Date:
(a) each of the Sellers and their respective representatives
shall provide the Purchaser and its representatives with free and complete
access at reasonable times and upon reasonable notice, to the Assets, and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to the Business;
(b) each of the Sellers and their respective representatives
shall provide the Purchaser and its representatives with such copies of existing
books, records, Tax Returns, work papers and other documents and information
relating to the Business as the Purchaser may reasonably request in good faith;
and
(c) each of the Sellers and their respective representatives
shall compile and provide the Purchaser and its representatives with such
additional financial, operating and other data and information regarding the
Business as the Purchaser may reasonably request in good faith.
SECTION 5.12 NO NEGOTIATION.
(a) Each of the Sellers shall ensure that neither of the
Sellers nor any of their respective subsidiaries, officer, directors, employees,
shareholders, Affiliates, investment bankers, attorneys, accountants, agents or
other advisor or representative of such Sellers, directly or indirectly:
(i) solicit, initiate or knowingly facilitate or
encourage the submission of any proposal regarding an
Acquisition of the Assets or the Business;
(ii) participate in any discussions or
negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that
constitutes an Acquisition of the Assets or the Business, or
enter into any agreement with respect to any Acquisition of
the Assets or the Business, other than with Purchaser.
(b) Subject to the provisions of Section 10.02 below, nothing
contained in this Section 5.12 shall prevent the Board of Directors of Sunland
from considering, negotiating, discussing, approving and recommending to the
shareholders of Sunland a bona fide Acquisition of the Assets or the Business
not solicited in violation of this Agreement, provided that (i) the Board of
Directors of Sunland determines in good faith, upon advice of outside counsel,
that it is required to do so in order to discharge properly its fiduciary duties
and (ii) Sunland immediately shall provide Purchaser with written notice of such
determination. Nothing contained in this Section 5.12 shall prohibit the Board
of Directors of Sunland from complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer; provided, however, that
Sunland immediately shall provide Purchaser with written notice of such offer.
If the Board of Directors of Sunland receives a request for information by a
Person who makes, or indicates that it is considering making, an offer of a bona
fide Acquisition of the Assets or the Business, and the Board of Directors
determines in good faith and upon the advice of outside counsel that it is
required to cause Sunland to act as provided in this Section 5.12(b) in order to
discharge properly the directors' fiduciary duties, then, provided (i) such
Person has executed a confidentiality agreement substantially similar to the one
then in effect between Sunland and Purchaser and (ii) Sunland has notified
Purchaser in writing of such request, Sunland may provide such Person with
access to information regarding Sunland, the Business or the Assets.
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(c) Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 5.12 by any officer,
director, employee, affiliate, shareholder, investment banker, attorney,
accountant, agent or other advisor or representative of either Seller, whether
or not such individual is purporting to act on behalf of such Seller, or
otherwise, shall be deemed to be a breach of the Section by the Sellers. Sellers
shall notify the Purchaser promptly of the receipt of any notice, discussions or
requests for information relating to an Acquisition of the Assets or the
Business.
SECTION 5.13 SHAREHOLDER APPROVAL.
(a) As soon as practicable after the date of this Agreement,
and in no event later than fifteen (15) business days after the date hereof,
Sellers shall prepare and cause to be filed with the SEC a proxy statement
pursuant to Rule 14a-3 promulgated under Section 14A of the Exchange Act
(together with any amendments or supplements thereto, the "Proxy Statement") in
connection with the approval and adoption of this Agreement, the Transaction and
the other Transaction Documents. The Proxy Statement shall include a statement
that Sunland's Board of Directors has approved this Agreement, determined that
this Agreement, the Transaction and the other Transaction Documents are in the
best interests of Sunland's shareholders and recommends that Sunland's
shareholders vote in favor thereof, and Sunland shall use its commercially
reasonable efforts to solicit such votes from its shareholders. The Proxy
Statement shall comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations promulgated thereunder.
Sellers shall immediately advise Purchaser if the Proxy Statement, including any
amendments or supplements thereto, at the time filed with the SEC, as of the
date of mailing to the shareholders of Sunland or at any other time, contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statement
therein, in light of the circumstances under which they are made, not
misleading. Sunland shall respond promptly to any comments of the SEC or its
staff with respect thereto and use its best efforts to have the Proxy Statement
cleared by the SEC as soon as practicable after its filing. Sunland shall also
promptly furnish to Purchaser and its counsel copies of any correspondence
received from the SEC, and shall permit representatives of the Purchaser to
attend any telephone calls with the SEC that discuss comments made by its staff.
As soon as practicable after clearance by the SEC of the Proxy Statement,
Sunland shall mail the Proxy Statement to its shareholders. In addition, Sunland
shall take all action necessary in accordance with applicable Laws and its
charter to duly call, give notice of, convene and hold a meeting of its
shareholders as soon as practicable solely to consider and approve this
Agreement, the Transaction and the Transaction Documents.
(b) In the event that prior to the Sellers' filing of the
Proxy Statement, Sunland receives authorization by written consent from that
number of holders of its capital stock necessary to approve this Agreement, the
Transaction and the other Transaction Documents, then notwithstanding the
provisions of this Section 5.13 to the contrary, as soon as practicable after
the date of this Agreement, and in no event later than fifteen (15) business
days after the date hereof, Sellers shall prepare and cause to be filed with the
SEC an information statement pursuant to Rule 14(c) promulgated under Section
14A of the Exchange Act (together with any amendments or supplements thereto,
the "Information Statement") in connection with the approval and adoption of
this Agreement, the Transaction and the other Transaction Documents, and shall
take all other actions necessary and consistent with the provisions of this
Section 5.13, with respect to the Information Statement.
(c) As promptly as practicable, Sellers shall properly prepare
and file any other filings required under the Securities Act, the Exchange Act
or any other Laws (including, without limitation, state securities and "blue
sky" laws) relating to the Transactions contemplated by this Agreement and the
other Transaction Documents (collectively, "Other Filings").
(d) Sellers shall provide copies of drafts of the Proxy
Statement or the Information Statement, as the case may be, to Purchaser and its
counsel at least two (2) business days prior to the date of filing of such
document with the SEC (including with respect to each amendment or supplement
thereto) so as to allow Purchaser to review and comment on such documents. Such
review shall not be deemed a review by Purchaser or its counsel as to whether
the Sellers have properly complied with SEC rules or regulations. Prior to the
filing of the Proxy Statement or the Information Statement, as the case may be,
with the SEC, the Sellers shall consider in good faith any comments made by, or
changes requested by, Purchaser or its counsel.
SECTION 5.14 ADJUSTMENT RELATED TO PERIOD BETWEEN CUT OFF AND CLOSING
DATES.
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(a) It is agreed and acknowledged by Sellers and Purchaser
that, pursuant hereto, Sellers shall collect the proceeds of all Receivables
received on or after the Cut-Off Date, but prior to Closing, and Purchaser is
entitled to the proceeds of all such Receivables, less any amounts required to
satisfy obligations arising under the Assumed Liabilities identified in Section
1.03 on or after the Cut-Off Date and prior to the Closing Date. In the event
that any such proceeds remain after the payment of any obligations arising under
the Assumed Liabilities identified in Section 1.03 on or after the Cut-Off Date
but prior to the Closing Date, then Sellers shall retain such remaining proceeds
and the Purchase Price shall be decreased, on a dollar for dollar basis, by the
amount by which the proceeds from such Receivables exceed the Assumed
Liabilities. In the event that the payment of any obligations arising under the
Assumed Liabilities identified in Section 1.03 on or after the Cut-Off Date but
prior to the Closing Date exceeds the proceeds received by Sellers from the
Receivables on or after the Cut-Off Date and prior to the Closing Date, the
Purchase Price shall be increased, on a dollar for dollar basis, by the amount
by which such Assumed Liabilities exceeds the proceeds from such Receivables.
(b) Approximately three business days prior to Closing,
Purchaser and Sellers shall agree to an estimate of the proceeds received by
Sellers from the Receivables on or after the Cut-Off Date and prior to the
Closing Date and the amount of payment of any obligations arising under the
Assumed Liabilities identified in Section 1.03 on or after the Cut-Off Date but
prior to the Closing Date and the estimated adjustment to the Purchase Price
(the "Estimated Adjustment") using the most recent financial information
available. Within 60 days after the Closing Date, Purchaser will prepare and
deliver to the Sellers a statement of proceeds received by Sellers from the
Receivables on or after the Cut-Off Date and prior to the Closing Date and the
amount of payment of any obligations arising under the Assumed Liabilities
identified in Section 1.03 on or after the Cut-Off Date but prior to the Closing
Date and the amount of the adjustment to the Purchase Price (the "Post-Closing
Adjustment Statement"). The Post-Closing Adjustment Statement as appropriate to
reflect the resolution of any objections thereto in accordance with Section
5.14(c), and the amount of adjustment on the Post-Closing Adjustment Statement,
after resolution of all such objections, is referred to herein as the "Final
Adjustment." If the Final Adjustment results in an increase in the Purchase
Price ,as adjusted by the Estimated Adjustment, Purchaser will pay to the
Sellers the amount of such increase. If the Final Adjustment results in a
decrease in the Purchase Price ,as adjusted by the Estimated Adjustment, the
Sellers will direct the Escrow Agent to pay to the Purchaser out of the
Indemnity Escrow Funds the amount of such decrease. Any such payment shall be
made by wire transfer or delivery of other immediately available funds within
three business days after the date on which the Final Adjustment is ultimately
determined.
(c) If the Sellers do not give notice of dispute within 15
days of receiving the Post-Closing Adjustment Statement, such statement shall be
deemed accepted by the Sellers and shall become the Final Adjustment. If Sellers
have objections to the statement, they shall deliver a detailed statement
describing their objections to Purchaser within 15 days after receiving the
statement. Purchaser and the Sellers will use reasonable efforts to resolve any
such objections themselves. If the parties do not obtain a final resolution
within 10 days after receipt of a statement of objections, Purchaser and the
Sellers will select within three business days an accounting firm mutually
acceptable to them to resolve any remaining objections. Such accounting firm
will render a determination of the applicable dispute within 45 days after
referral of such matter to the accounting firm. The determination of any
accounting firm so selected will be set forth in writing, and must be limited to
the position of either Purchaser or the Sellers, and must set forth in
reasonable detail the basis therefor, and will be conclusive and binding upon
the parties. In the event the parties submit any unresolved objections to an
accounting firm for resolution as provided in this Section 4.1(d), Purchaser and
the Sellers will pay the fees and expenses of the accounting firm based upon the
degree to which the accounting firm accepts the position of the individual
parties.
ARTICLE VI.
PRE-CLOSING COVENANTS OF EACH PARTY
SECTION 6.01 NOTIFICATION OF CERTAIN MATTERS. During the pre-Closing
period, each party hereto shall promptly notify the other in writing of:
20
(a) the discovery by it of any event, condition, fact or
circumstance that occurred, arose or existed on or prior to the date of this
Agreement or occurs, arises or exists after the date of this Agreement and that
caused or constitutes or could cause or constitute a breach of any
representation or warranty made by such party in this Agreement;
(b) any breach of any covenant or obligation made by it; and
(c) any event, condition, fact or circumstance that may make
the timely satisfaction of any of the conditions set forth in Article VII or
Article VIII impossible or unlikely.
SECTION 6.02 CONSENTS. Each party hereto shall use its commercially
reasonable efforts to ensure that:
(a) each filing, notice or certificate required to be made or
given (pursuant to any applicable Legal Requirement, order or Contract, or
otherwise) by it in connection with the execution and delivery of this Agreement
or in connection with the consummation or performance of any of the Transactions
is made or given as soon as practicable after the date of this Agreement;
(b) each Consent set forth on SCHEDULE 3.02(c) and SCHEDULE
4.02(c) required to be obtained (pursuant to any applicable legal requirement,
order or Contract, or otherwise) by it in connection with the execution and
delivery of this Agreement or in connection with the consummation or performance
of any of the Transactions is obtained as soon as practicable after the date of
this Agreement and remains in full force and effect through the Closing Date;
(c) it shall promptly deliver to the other parties, a copy of
each filing made, each notice given and each Consent obtained by it during the
pre-Closing period; and
(d) during the pre-Closing period, it and its respective
representatives cooperate with the other parties and with the other parties'
representatives, and prepare and make available such documents and take such
other actions as the other parties may reasonably request in good faith, in
connection with any filing, notice or Consent that it is required or elects to
make, give or obtain.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE
PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Business and the Assets
is subject to the satisfaction, at or before the Closing, of the conditions set
out below. The benefit of these conditions are for the benefit of the Purchaser
only and may only be waived in a writing signed by the Purchaser at any time in
its sole discretion.
SECTION 7.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Sellers shall be true and correct in all
material respects (except for representations and warranties that contain
qualifications as to materiality, which shall be true and correct in all
respects and except for representations and warranties that are subject to items
set forth on a Schedule hereto, which shall be true subject to such items) at
and as of the date when made and as of the Closing Date as though made at that
time, and the Purchaser shall have received a certificate attesting thereto from
the Sellers signed by a duly authorized officer of each of the Sellers.
SECTION 7.02 PERFORMANCE BY THE SELLERS. Each of the Sellers shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Purchaser shall have received a certificate signed by a duly authorized officer
of each of the Sellers attesting to that effect.
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SECTION 7.03 OPINION OF SELLERS' COUNSEL. The Purchaser shall have
received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Markiles, LLP, counsel to the Sellers, an
opinion of counsel, dated as of the Closing Date and addressed to the Purchaser
in the form attached hereto as EXHIBIT D.
SECTION 7.04 MATERIAL ADVERSE CHANGE. There shall not have been any
changes or events which have resulted or could result in a Material Adverse
Effect.
SECTION 7.05 NO LITIGATION. There shall not have been issued and be
in effect any order of any court or tribunal of competent jurisdiction which (i)
prohibits or makes illegal the purchase by the Purchaser of the Assets, (ii)
would require the divestiture by the Purchaser of all or any portion of the
Assets or the Business as a result of the Transactions contemplated hereby, or
(iii) would impose limitations on the ability of the Purchaser to effectively
exercise full rights of ownership of the Assets or of all or any portion of the
Business as a result of the Transactions contemplated hereby.
SECTION 7.06 NO INJUNCTION. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
Transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the Transactions
contemplated hereby.
SECTION 7.07 ESCROW AGREEMENTS. The Escrow Agent and Sellers shall
have executed and delivered to Purchaser the Escrow Agreements.
SECTION 7.08 NO ENCUMBRANCES. At the Closing, Sellers shall deliver
the Assets free and clear of any Encumbrances whatsoever (other than the
Permitted Encumbrances).
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS TO CLOSE
The obligation of the Sellers to sell the Business and the Assets is
subject to the satisfaction, at or before the Closing, of the conditions set out
below. The benefit of these conditions are for the Sellers only and may be
waived by the Sellers in writing at any time in their sole discretion.
SECTION 8.01 PURCHASE PRICE. Sellers shall have received the amounts
set forth (i) in Section 1.06(b) pursuant to the terms of the ▇▇▇▇▇▇▇ Money
Escrow Agreement and (ii) in Section 1.06(c), and the Escrow Agent shall have
received the amounts set forth in Sections 1.06(d) and (e).
SECTION 8.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Purchaser shall be true and correct in all
material respects (except for representations and warranties that contain
qualifications as to materiality, which shall be true and correct in all
respects and except for representations and warranties that are subject to items
set forth on a Schedule hereto, which shall be true subject to such items) at
and as of the date when made and as of the Closing Date, as though made at that
time, and the Seller shall have received a certificate attesting thereto signed
by a duly authorized officer of the Purchaser.
SECTION 8.03 PERFORMANCE BY PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Sellers shall have
received a certificate of a duly authorized officer of the Purchaser to such
effect.
SECTION 8.04 NO LITIGATION. There shall not have been issued and be
in effect any order of any court or tribunal of competent jurisdiction which (i)
prohibits or makes illegal the sale by the Sellers of the Assets or the Purchase
by the Purchaser of the Assets or (ii) would impose limitations on the ability
of the Sellers to effectively transfer full rights of ownership of the Assets or
of all or any portion of the Business as a result of the Transactions
contemplated hereby.
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SECTION 8.05 NO INJUNCTION. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
Transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the Transactions
contemplated hereby.
SECTION 8.06 ESCROW AGREEMENTS. The Escrow Agent and Purchaser shall
have executed and delivered to Sellers the Escrow Agreements.
SECTION 8.07 SHAREHOLDER APPROVAL. This Agreement, the Transaction
and the other Transaction Documents shall have been duly and validly approved by
the requisite vote or consent of Sunland's shareholders in accordance with
Section 5.13.
SECTION 8.08 OPINION OF PURCHASER'S COUNSEL. The Sellers shall have
received from ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP, counsel to the Purchaser, an
opinion of counsel, dated as of the Closing Date and addressed to the Purchaser
in the form attached hereto as EXHIBIT E.
SECTION 8.09 GUILD ASSUMPTION AGREEMENTS. The Sellers shall have
received from Purchaser agreements of assumption of the agreements with the
Screen Actors Guild, Writers Guild of America and the Directors Guild of
America.
ARTICLE IX.
INDEMNIFICATION
SECTION 9.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Articles III and IV hereof shall survive for a period of
thirty-six months following the Closing Date; PROVIDED, HOWEVER, that the
representations and warranties contained in Sections 3.01, 3.02, 3.07, 3.11,
3.20, 3.21, 4.01 and 4.02 shall survive the Closing until thirty days after the
expiration of the applicable statute of limitations period and the
representations and warranties set forth in Section 3.03 shall survive
indefinitely.
SECTION 9.02 INDEMNIFICATION BY THE SELLERS.
(a) Other than with respect to Taxes, the indemnification of
which will be subject to Section 9.02(b), the Sellers shall jointly and
severally indemnify, defend and hold Purchaser and its officers, directors,
employees, Affiliates, representatives, agents and the successors and assigns of
all of them (each, a "Purchaser Indemnitee") harmless in respect of any
Liabilities, costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages and amounts paid in settlement
(collectively, "Damages") arising from or in connection with (i) the failure or
breach of any representation or warranty of the Sellers under this Agreement, in
the Sellers' Disclosure Schedule, in any certificate delivered pursuant hereto
to be true and correct as of the date hereof and as of the Closing Date or any
other Transaction Document, (ii) the failure of the Sellers to duly perform or
observe any term, provision, covenant or agreement to be performed or observed
by the Sellers pursuant to this Agreement or any other Transaction Document or
in the schedules, exhibits, certificates or documents delivered by Sellers
pursuant hereto or thereto, (iii) all Liabilities, other than the Assumed
Liabilities, (iv) any Employee Benefit Plan, or to any other Employee Program
ever sponsored, maintained or contributed to by (or with respect to which any
obligation to make a contribution ever existed on the part of) either Seller or
any ERISA Affiliate; and (v) the operations of the Business prior to the
Closing.
(b) The Sellers, jointly and severally, shall be liable for,
and shall indemnify and hold harmless the Purchaser Indemnitees from and
against: (i) any and all liability for Taxes (and that portion of the
Purchaser's costs for the preparation of each relevant Tax Return and the
defense of each relevant audit, investigation or claim with respect to Taxes) of
either Seller; (ii) any and all liability for Taxes of any member of an
affiliated, consolidated, combined or unitary group of which either of the
Sellers or any of their subsidiaries (or any predecessors thereto) is or was a
member, including pursuant to Treasury Regulation Section 1.1502-6 or any
analogous or similar state, local or foreign Law or regulation; (iii) any and
all liability for Taxes of any Person (other than either of the Sellers) imposed
on either of the Sellers as a transferee, successor, by contract, or pursuant to
any
23
Law, rule or regulation; (iv) any and all liability resulting from the breach of
any representation or warranty contained in Section 3.07; and (v) any and all
liability for reasonable legal fees and expenses attributable to any item in the
foregoing clauses.
SECTION 9.03 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall
indemnify and hold harmless the Sellers and their respective officers,
directors, employees, Affiliates, representatives, agents and the successors and
assigns of all of them (each a "Seller Indemnitee") harmless in respect of any
Damages arising from or in connection with (i) the failure or breach of any
representation or warranty of the Purchaser, under this Agreement or in any
certificate delivered pursuant hereto to be true and correct as of the date
hereof and as of the Closing Date or (ii) the failure of Purchaser to duly
perform or observe any term, provision, covenant or agreement to be performed or
observed by the Purchaser pursuant to this Agreement. In addition, from and
after the Closing Date, the Purchaser shall indemnify and hold harmless the
Seller Indemnitees in respect of any Damages arising from or in connection with
(iii) (a) the Assumed Liabilities set forth on Schedule 1.03 for the period from
the Cut-Off Date through the Closing Date and (b) all Assumed Liabilities after
the Closing Date, and (iv) the operations of the Business after the Closing
(other than Damages in respect of which indemnification may be sought by
Purchaser hereunder).
SECTION 9.04 CLAIMS FOR INDEMNIFICATION. Upon receipt by a party of a
written notice of any action, suit, proceedings, claim, demand or assessment
against it which might give rise to a claim for Damages, such party (the
"Indemnitee") shall give written notice thereof to the other party (the
"Indemnitor") indicating the nature of such claim and the basis therefor;
provided, however, that failure to give such notice shall not affect the
Indemnitee's rights provided hereunder except to the extent the Indemnitor shall
have been actually prejudiced as a result of such failure. The Indemnitor shall
have the right, at its option, exercisable within 10 days after receipt of such
notice to assume the defense of, at its own expense and by its own counsel, any
such matter involving the asserted liability of the Indemnitee as to which the
Indemnitor shall have acknowledged the right of the Indemnitee to payment by the
Indemnitor, subject to the next sentence. If the Indemnitor shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
Indemnitee of its intention to do so, and the Indemnitee agrees to cooperate
fully with the Indemnitor and its counsel in the compromise of, or defense
against, any such asserted liability; provided, however, that the Indemnitor
shall not settle any such asserted liability without the written consent of the
Indemnitee. Notwithstanding an election to assume the defense of such action or
proceeding, the Indemnitee shall have the right to employ separate counsel and
to participate in the defense of such action or proceeding, and the reasonable
fees, costs and expenses of such separate counsel shall be payable by the
Indemnitor, if (A) the Indemnitor shall not have employed counsel reasonably
satisfactory to the Indemnitee to represent the Indemnitor within 20 days after
notice of the institution of such action or proceeding or (B) the Indemnitor
shall have authorized the Indemnitee to employ separate counsel at the
Indemnitor's expense and the Indemnitor shall promptly assume and hold the
Indemnitee harmless from and against the full amount of any Damage resulting
therefrom. Notwithstanding anything herein to the contrary, the Indemnitor shall
not be entitled to assume control of such defense but shall pay for the
reasonable fees, costs and expenses of Indemnitee's legal counsel if (i) the
claim for indemnification relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation; (ii) Indemnitee has
been advised by counsel that a reasonable likelihood exists of a conflict of
interest between the Indemnitor, on the one hand, and Indemnitee on the other;
(iii) the Indemnitor failed or is failing to vigorously prosecute or defend such
claim; (iv) the claim seeks an injunction or equitable relief against
Indemnitee; or (v) Indemnitee reasonably believes an adverse determination with
respect to the action, lawsuit, investigation, proceeding or other claim giving
rise to such claim for indemnification would be detrimental to or injure the
reputation or future business prospects of Indemnitee. In any event, the
Indemnitee and its counsel shall cooperate with the Indemnitor and its counsel.
The Indemnitee shall have the right at its own expense to participate in the
defense of such asserted liability.
SECTION 9.05 LIMITATIONS ON AMOUNT OF RECOVERY. Notwithstanding
anything herein to the contrary (absent fraud, willful misconduct or bad faith),
no claims pursuant to Section 9.02 or Section 9.03 shall be asserted (other than
claims relating to Taxes, or the representations and warranties set forth in
Sections 3.01, 3.02, 3.03, 3.07, 3.11, 3.18 and 3.19) against either Seller by
the Purchaser Indemnitees, or against the Purchaser by the Seller Indemnitees,
until such aggregate claims of the Purchaser Indemnitees against both Sellers,
or of the Sellers Indemnitees against the Purchaser (as applicable), exceed
$25,000 (in each case the "Deductible Amount"), it being understood and agreed
that, to the extent such Damages exceed the Deductible Amount, the Sellers or
the Purchaser (as applicable), shall be obligated to pay the entire amount of
such Damages, including the Deductible Amount. Absent fraud, willful misconduct
or bad faith and other than with respect to claims relating to Taxes, or the
24
representations and warranties set forth in Sections 3.01, 3.02, 3.03, 3.07,
3.11, 3.18 and 3.19, the aggregate liability of Sellers for indemnification
under this Agreement shall not exceed the Escrow Funds.
SECTION 9.06 ADJUSTMENTS TO PURCHASE PRICE. All indemnity and other
payments made under this Agreement shall be treated for Tax purposes as
adjustments to the Purchase Price.
SECTION 9.07 EXCLUSIVE REMEDY. Absent fraud or willful misconduct,
the provisions of this Article IX shall constitute the sole and exclusive remedy
of each party with respect to any claims resulting from or arising out of the
provisions of this Agreement or the Transactions contemplated hereby, whether
based on tort, contract statute, or otherwise, which may be asserted after the
Closing Date.
ARTICLE X.
TERMINATION
SECTION 10.01 TERMINATION EVENTS. This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Closing:
(a) by mutual written consent of the Sellers and Purchaser;
(b) by the Sellers or Purchaser so long as neither the
Sellers, on the one hand or Purchaser, on the other, is not then in material
breach of their respective obligations hereunder, if
(i) the Closing shall not have occurred on or
before September 30, 2003; provided, however, that the right
to terminate this Agreement under this Section 10.01 shall not
be available to the Sellers or Purchaser, as the case may be,
if such party's failure to fulfill any obligation under this
Agreement has been a cause of or resulted in the failure of
the Transactions to occur on or before such date; or
(ii) Sellers fail to receive shareholder approval
in accordance with Section 5.13; or
(iii) Sellers approve or recommend to the
shareholders of Sunland a bona fide Acquisition of the Assets
or the Business to a Person other than the Purchaser solely in
accordance with Section 5.12(b).
(c) by the Sellers so long as neither Seller is then in
material breach of their respective obligations hereunder, if any of the
Conditions to Closing set forth in Article VIII shall not have been satisfied
and are incapable of being satisfied by September 30, 2003;
(d) by Purchaser so long as Purchaser is not then in material
breach of its obligations hereunder, if
(i) any of the Conditions to Closing set forth
in Article VII shall not have been satisfied and are incapable
of being satisfied by September 30, 2003; or
(ii) Sellers approve or recommend to the
shareholders of Sunland a bona fide Acquisition of the Assets
or the Business to a Person other than the Purchaser solely in
accordance with Section 5.12(b).
SECTION 10.02 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either
the Seller or Purchaser as provided in Section 10.01, this Agreement shall
forthwith become null and void and there shall be no liability or obligations on
the part of Purchaser, on the one hand, or the Sellers, on the other, or any of
their respective Affiliates, officers, or shareholders except (i) with respect
to the provisions of Section 10.02 hereof, as applicable, and (ii) that no such
25
termination shall relieve any party from liability for any breach of the
respective representations, covenants and other obligations hereunder prior to
the date of termination.
(b) If this Agreement is terminated (i) by Purchaser as a
result of any breach by Sellers of their obligations hereunder, (ii) by either
party as a result of Sellers failing to receive shareholder approval in
accordance with Section 5.13, or (iii) by either party as a result of Sellers
considering, negotiating, discussing, approving or recommending to the
shareholders of Sunland any alternate acquisition, tender or exchange offer in
accordance with Section 5.12 (including any offer pursuant to the terms of
Section 5.12(b)), then as Purchaser's sole and exclusive remedy and as
liquidated damages, Sellers shall (i) reimburse Purchaser for all documented
reasonable out-of-pocket costs and expenses incurred by Purchaser in connection
with the Transactions contemplated hereunder in an amount not to exceed $250,000
and (ii) pay to Purchaser a break-up fee of $300,000.
(c) If this Agreement is terminated by Sellers as a result of
any breach by Purchaser of its obligations hereunder, then as Sellers sole and
exclusive remedy and as liquidated damages, Seller shall receive the ▇▇▇▇▇▇▇
Money Escrow Amount.
(d) If this Agreement is terminated as provided herein:
(i) each party will redeliver, and will cause
its agents (including, without limitation, attorneys and
accountants) to redeliver, all documents, work papers and
other material of the other party relating to the Transactions
contemplated hereby, whether obtained before or after the
execution hereof; and
(ii) all information received by each party with
respect to the business, operations, assets or financial
condition of the other party shall remain subject to the
Confidentiality Agreement.
ARTICLE XI.
OBLIGATIONS AFTER THE CLOSING
SECTION 11.01 FURTHER ASSURANCES.
(a) Sellers will, at any time, when called upon to do so by
the Purchaser, its successors, legal representatives, or assigns, sign all
lawful papers, make all rightful oaths, execute and deliver all documents, and
do all lawful acts required for the filing of such papers as are reasonable and
necessary to aid the Purchaser, its successors, legal representatives and
assigns, to (i) effectively vest in the Purchaser good title to the Assets, (ii)
consummate the Transactions contemplated hereby, and (ii) record, obtain,
enforce and renew proper copyright, trademark, patent and other intellectual
property rights in the Film Library in all countries, all without further
compensation but at the expense of the Purchaser, its successors, legal
representatives and assigns.
(b) On and after the Closing Date, the Purchaser shall have
the sole right and authority to collect, for its own account and sole benefit,
all monies payable in respect of the Assets (with respect to Transactions or
events occurring after the Closing Date), but not to collect monies payable in
respect of Excluded Assets, and the Sellers shall have the sole right and
authority to collect, for their own account and sole benefit, all monies payable
in respect of such Excluded Assets. If either party shall receive any such
monies of the other, it shall hold all such monies in trust for the sole benefit
of the other party. Within five business days after receipt thereof, the Sellers
shall cause the transfer and delivery to the Purchaser of any monies or other
property which the Sellers may receive after the Closing Date in payment of
monies payable in respect of the Assets and the Purchaser shall (within five
business days after receipt thereof) cause the transfer and delivery to the
Sellers of any monies which the Purchaser may receive after the Closing Date in
payment of Excluded Assets.
26
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01 PUBLICITY. Except as required by law, none of the
parties hereto may make any press release or other public announcement regarding
this transaction or its terms without the consent of the other parties hereto,
which consent shall not be unreasonably withheld or delayed.
SECTION 12.02 COSTS. Except as set forth in Section 10.02(b), the
Purchaser, on the one hand, and the Sellers on the other, shall each pay its own
costs and expenses incurred by it in negotiating and preparing this Agreement
and in closing and carrying out the Transactions contemplated by this Agreement.
SECTION 12.03 HEADINGS. Subject headings are included for convenience
only and shall not affect the interpretation of any provision of this Agreement.
SECTION 12.04 NOTICES. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
facsimile transmission, on the business day after notice is delivered to a
courier or mailed by express mail if sent by courier delivery service or express
mail for next day delivery and on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows (or to such other
address of which any such party shall give notice pursuant to this Section
12.04):
If to the Sellers to:
Sunland Entertainment
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (310)
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & Markiles, LLP
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser, to:
Film Library Acquisition Corp.
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Berlin Shereff, Friedman, LLP
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 12.05 ASSIGNMENT AND SUCCESSORS. Prior to Closing, neither the
Purchaser, on the one hand, or the Sellers, on the other, shall assign any
rights or delegate any duties hereunder without the prior written
27
consent of the other except that Purchaser may assign this Agreement to an
affiliate of Purchaser without obtaining Seller's consent.
SECTION 12.06 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
SECTION 12.07 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of New York as applied
to contracts made and to be performed entirely in the State of New York without
regard to principles of conflicts of law.
SECTION 12.08 ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, sets forth the entire understanding and agreement
and supersedes any and all other understandings, negotiations or agreements
between the Purchaser and the Sellers relating to the sale and purchase of the
Business and the Assets.
SECTION 12.09 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement. This Agreement may be evidenced by
facsimile signatures.
SECTION 12.10 SEVERABILITY. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION 12.11 NO PREJUDICE. This Agreement has been jointly prepared
by the parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
SECTION 12.12 WORDS IN SINGULAR AND PLURAL FORM. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
SECTION 12.13 PARTIES IN INTEREST. Nothing expressed or implied in
this Agreement is intended or shall be construed to confer upon or give to any
person, firm or corporation other than the parties hereto any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
SECTION 12.14 AMENDMENT AND MODIFICATION. This Agreement may be
amended or modified only by written agreement executed by all parties hereto.
SECTION 12.15 WAIVER. At any time prior to the Closing, the Purchaser
or the Sellers may (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties of the other contained herein or in any document
delivered pursuant hereto, and (iii) waive compliance with any of the agreements
or conditions of the other contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed by the party granting such waiver but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or future failure.
ARTICLE XIII.
DEFINITIONS
(a) AFFILIATE. "Affiliate" shall mean, when used with respect
to any Person, (i) if such Person is a corporation, any officer or director
thereof and any Person which is, directly or indirectly, the beneficial owner of
more than ten percent (10%) of any class of any equity security (as defined in
the Securities Act) thereof, and any officer, director, partner or Affiliate of
such beneficial owner, (ii) if such Person is a partnership, any partner
thereof, (iii) if such Person is a limited liability company or other
unincorporated association, any member or managing agent thereof, and (iv) any
other Person (other than the Purchaser) which, directly or indirectly, controls
or is
28
controlled by or is under common control with such Person. For purposes of this
definition, "control" (including the correlative terms "controlling,"
"controlled by" and "under common control with"), with respect to any Person,
shall mean possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, the ability to exercise voting power, or by
Contract or otherwise.
(b) ALLOCATION. "Allocation" shall have the meaning set forth
in Section 1.10.
(c) ACQUISITION. "Acquisition" shall mean any offer or
proposal for or indication of interest in the purchase of or the acquisition of
(whether by operation of law or otherwise) any of the Assets constituting the
Business or of a substantial (more than 5%) equity interest in PM or any Person
that controls the Assets or the Business.
(d) ASCAP. "ASCAP" shall have the meaning set forth in Section
3.09(j).
(e) ASSETS. "Assets" shall have the meaning set forth in
Section 1.01.
(f) ASSUMED CONTRACTS. "Assumed Contracts" shall have the
meaning set forth in Section 1.01(f).
(g) ASSUMED LIABILITIES. "Assumed Liabilities" shall have the
meaning set forth in Section 1.03.
(h) BMI. "BMI" shall have the meaning set forth in Section
3.09(j).
(i) BUSINESS. "Business" shall have the meaning set forth in
the Preamble.
(j) BUSINESS RECORDS. "Business Records" shall have the
meaning set forth in Section 1.01(j).
(k) CLOSING. "Closing" shall have the meaning set forth in
Section 2.01.
(l) CLOSING ALLOCATION. "Closing Allocation" shall have the
meaning set forth in Section 1.10.
(m) CLOSING DATE. "Closing Date" shall have the meaning set
forth in Section 2.01.
(n) CODE. "Code" shall mean the Internal Revenue Code of 1986,
as amended, and the regulations promulgated thereunder, as in effect from time
to time.
(o) COMPANY EMPLOYEE PLAN. "Company Employee Plan" shall have
the meaning set forth in Section 3.11.
(p) CONSENTS. "Consents" shall mean all governmental and third
party consents, permits, approvals, orders, authorizations, qualifications, and
waivers necessary to be received by a Person for the consummation of the
Transactions contemplated by this Agreement.
(q) CONTRACTS. "Contracts" shall mean all contracts,
commitments, agreements, arrangements and other instruments, whether written or
oral.
(r) CUSTOMER FILES. "Customer Files" shall have the meaning
set forth in Section 3.13.
(s) CUT-OFF DATE. "Cut-Off Date" shall mean February 1, 2003.
(t) EMPLOYEE. "Employee" shall mean any employee, officer,
director or independent contractor of either Seller.
(u) EMPLOYEE PROGRAM. "Employee Program" shall mean (a) any
"employee benefit plan", within the meaning of Section 3(3) of ERISA, whether or
not it is subject to ERISA, or (b) any other employee
29
benefit arrangement which is (i) the portion of any employment or consulting
agreement which provides employee benefits, (ii) an arrangement providing for
insurance coverage (including split life, health, disability and retirement
insurance) or workers' compensation benefits, (iii) an incentive bonus or
deferred bonus arrangement, (iv) a stock purchase arrangement, a stock award,
stock appreciation rights or a stock option arrangement, (v) a cafeteria plan
under Code Section 125, (vi) a death benefit arrangement, (vii) an arrangement
providing termination allowance, salary continuation, severance, retention
compensation, supplemental unemployment benefits or similar benefits, (viii) an
equity compensation or profit-sharing plan, (ix) a deferred compensation plan,
(x) an employee relocation, a tuition reimbursement, dependent care assistance,
or a legal assistance plan or arrangement, (xi) a fringe benefit arrangement
(cash or noncash), (xii) a holiday or vacation plan or policy or (xiii) any
other compensation policy or practice.
(v) ENCUMBRANCE. "Encumbrance" shall mean any option, pledge,
security interest, Lien, charge, encumbrance, restriction (whether on voting,
sale, transfer or disposition or otherwise) whether imposed by agreement,
understanding, law or otherwise, except those arising under applicable federal
or state securities laws.
(w) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(x) ERISA AFFILIATE. "ERISA Affiliate" shall mean any entity
which has ever been considered a single employer with any Seller under Section
4001(b) of ERISA or Section 414(b), (c), (m) or (o) of the Code..
(y) ▇▇▇▇▇▇▇ MONEY ESCROW AGREEMENT. "▇▇▇▇▇▇▇ Money Escrow
Agreement" shall have the meaning set forth in Section 1.07.
(z) ESCROW AGENT. "Escrow Agent" shall have the meaning set
forth in Section 1.07.
(aa) ESCROW AMOUNT. "Escrow Amount" shall have the meaning set
forth in Section 1.07.
(bb) ESCROW AGREEMENTS. "Escrow Agreements" shall mean the
▇▇▇▇▇▇▇ Money Escrow Agreement and the Indemnity Escrow Agreement.
(cc) ESCROW FUNDS. "Escrow Funds" shall have the meaning set
forth in Section 1.07.
(dd) EXCLUDED ASSETS. "Excluded Assets" shall have the meaning
set forth in Section 1.02.
(ee) EXCLUDED LIABILITIES. "Excluded Liabilities" shall have
the meaning set forth in Section 1.04.
(ff) FILM ASSET ACQUISITION AGREEMENTS. "Film Asset
Acquisition Agreement" shall mean, with respect to any Person, a Contract
pursuant to which that Person has acquired from another Person, or must acquire
from another Person, all or any of such other Person's rights in the Film
Library or any Film Asset.
(gg) FILM ASSET EXPLOITATION AGREEMENTS. "Film Asset
Exploitation Agreements" shall mean, with respect to any Person, a Contract
pursuant to which that Person has granted to another Person, or must grant to
another Person, all or any of that Person's rights to exploit the Film Library
or any Film Asset.
(hh) FILM ASSETS. "Film Assets" shall mean, with respect to
the Film Library, all rights and interests therein or pertaining thereto,
including, all rights and interests of every kind and nature of whatever
description, present and future, direct and indirect, whether now owned or
hereafter acquired (including, without limitation, any rights or interests that
revert), throughout the universe in perpetuity in all media, whether now or
hereafter created or devised, and by all means, whether now known or hereafter
created or devised, in and to the following:
(i) the underlying Literary Property;
30
(ii) all copyrights, rights and interests in
copyrights, renewals and extensions of copyrights, domestic
and foreign, obtained upon the Film Library or the underlying
Literary Property or any part thereof, the right (but not the
obligation) to make publication thereof for copyright purposes
and to register claims under copyright, the right (but not the
obligation) to renew and extend such copyright and the right
(but not the obligation) to ▇▇▇ in the name of any Person for
past, present and future infringements of copyright and to
receive all damages, judgments, recoveries or proceeds
therefrom;
(iii) all music, musical compositions and master
recordings created for, used in or to be used in connection
with the Film Library, including, without limitation, all
copyrights therein and all rights to perform, copy, record,
re-record, produce, publish, reproduce or synchronize any or
all of said music, musical compositions and master recordings
throughout the universe as well as all other rights to exploit
such music including recording, soundtrack recording and music
publishing rights;
(iv) all collateral, allied, ancillary and
subsidiary rights of every kind and nature whatsoever derived
from, appurtenant to or related to the Film Library or the
underlying Literary Property, including, without limitation,
all production, exploitation, reissue, remake, sequel,
prequel, adaptations, serial or series production rights, by
any means and in any medium now known or hereafter devised,
whether based upon, derived from or inspired by the Film
Library, the underlying Literary Property or any part thereof;
all rights to use, exploit and license others to use or
exploit any and all music, novelization, publishing,
commercial tie-ups and merchandising rights of every kind and
nature whatsoever, including, without limitation, those
arising out of or connected with or inspired by the Film
Library or the underlying Literary Property, the title or
titles of the Film Library or the underlying Literary
Property, the characters appearing in the Film Library or the
underlying Literary Property and/or the names or
characteristics of said characters, and including further,
without limitation, any and all commercial exploitation in
connection with or related to the Film Library, all remakes,
sequels, prequels or other adaptations and/or derivative works
thereof and/or said Literary Property (collectively the
"Ancillary Rights");
(v) all rights to develop, produce, acquire,
reacquire, finance, release, sell, distribute, subdistribute,
lease, sublease, market, license, sublicense, exhibit,
broadcast, transmit, reproduce, publicize or otherwise exploit
the Film Library, the underlying Literary Property and the
Ancillary Rights in perpetuity, without limitation, in any
manner and in any media whatsoever throughout the universe,
whether now known or hereafter developed, including, without
limitation, by projection, radio, all forms of television
(including, without limitation, free, pay, toll, cable,
sustaining subscription, sponsored and direct satellite
broadcast), in theatres, non-theatrically, all airline and
ship board exploitation, on cassettes, cartridges, DVD, other
discs and other similar and dissimilar video devices, all
forms of computer assisted or interactive media (including,
without limitation, CD-ROM, CD-I and similar disc systems),
all so-called video-on-demand and/or near video-on-demand
systems however devised, interactive cable and by any and all
other means, methods, processes or devices now known or
hereafter conceived, devised or created;
(vi) all underlying Literary Properties and all
Ancillary Rights relating to the Film Library, including,
without limitation, (i) all rights to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to the
Film Library or any Film Asset relating thereto and all
applicable Film Contracts, (ii) all claims for damages arising
out of or for breach of or default under all applicable Film
Contracts or otherwise, and (iii) the right to terminate all
applicable Film Contracts, to perform thereunder and to compel
performance and otherwise to exercise all remedies thereunder;
(vii) all agreements with respect to the Film
Library or any Film Asset relating thereto, including, without
limitation, all Film Contracts relating to the Film Library
and all agreements for (i) acquisition of rights in the Film
Library or any Literary Property and all rights under
distribution and license agreements and (ii) personal and/or
professional services, including
31
the services of writers, directors, performers, producers,
special effects personnel, production personnel, animators,
cameramen and other creative, artistic or technical staff and
other persons providing services with respect to the Film
Library, to the extent applicable;
(viii) all Physical Properties relating to the Film
Library, including ownership and all access rights and rights
to use the same, all pledgeholder, laboratory, access or film
warehousing documents or agreements relating to the Film
Library or any Physical Properties thereof;
(ix) all insurance of whatever description placed
upon or relating to the Film Library or the insurable
properties thereof and/or any Person or Persons engaged in the
development, acquisition, production, completion, delivery or
exploitation of the Film Library, and all rights of any kind
or nature whatsoever in and to all completion guarantees and
all other agreements and documents relating to production,
completion, delivery and exploitation of the Film Library and
the proceeds thereof;
(x) the title or titles of the Film Library
including rights protected pursuant to trademark, service
▇▇▇▇, unfair competition and/or other laws, rules or
principles of law or equity and all inventions, processes,
formulae, licenses, copyrights, patents, patent rights,
trademarks, trademarks rights, service marks, service ▇▇▇▇
rights, trade names, trade name rights, logos, indicia,
corporate and company names, business source or business
identifiers and renewals and extensions thereof, domestic and
foreign, and the accompanying goodwill relating to the Film
Library, the right (but not the obligation) to register claims
under trademark, patent or copyright and to renew and extend
such trademarks, patents or copyrights and the right (but not
the obligation) to ▇▇▇ in the name of any Person for past,
present or future infringement of trademark, copyright or
patents; and
(xi) all key art, transparencies, photographs,
slides and promotional materials of whatever nature.
(ii) FILM CONTRACTS. "Film Contracts" shall mean, with respect
to any Person, all Contracts to which that Person is a party relating to the
Film Library or any Film Asset, including, without limitation, all Film Asset
Acquisition Agreements, Film Asset Exploitation Agreements, sales agency
agreements, financing arrangements, copyright mortgages, collective bargaining
agreements, performance bonds, or other agreements of any nature whatsoever
relating to the acquisition, production, financing, distribution, exhibition, or
exploitation of the Film Library or Film Asset.
(jj) FILM LIBRARY. "Film Library shall have the meaning set
forth in Section 1.01(a).
(kk) GAAP. "GAAP" shall mean U.S. generally accepted
accounting principles, applied on a consistent basis.
(ll) GOVERNMENTAL ENTITY. "Governmental Entity" shall mean the
government of the United States of America, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
(mm) GUILD PAYMENTS. "Guild Payments" shall mean the
obligations payable by either Seller or any of its Affiliates pursuant to guild
agreements or collective bargaining agreement in connection with the
distribution and exploitation of the Film Assets.
(nn) INDEMNITY ESCROW AGREEMENT. "Indemnity Escrow Agreement"
shall have the meaning set forth in Section 1.07.
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(oo) I-RIGHTS MANAGEMENT SYSTEM. "I-Rights Management System"
shall mean that certain Non-Exclusive Paid Up Software License by and between
▇▇▇▇ Matter, LLC and The ▇▇▇▇▇▇-Entertainment Company, dated March 21, 2001.
(pp) INDEBTEDNESS. "Indebtedness" shall mean as to the
Business and the Assets and whether recourse is secured by or is otherwise
available against all or only a portion of the Business or Assets and whether or
not contingent, but without duplication: (i) every obligation relating to the
Business for money borrowed, including the current portion of all long-term
indebtedness; (ii) every obligation relating to the Business evidenced by bonds,
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses; (iii)
every reimbursement obligation relating to the Business with respect to letters
of credit, bankers' acceptances or similar facilities issued for the account of
the Business; (iv) every obligation of the Business issued or assumed as the
deferred purchase price of property or services; (v) obligations or commitments
of the Business to repay deposits or other amounts advanced by and owing to
third parties; (vi) obligations of the Business under any interest rate,
currency or other hedging agreement; (vii) indebtedness secured by a Lien on the
Assets or properties of the Business; (vii) payments which become due as a
result of the execution of this Agreement, or the consummation of the
Transactions; and (viii) guarantees of Indebtedness.
(qq) INDEMNITEE. "Indemnitee" shall have the meaning set forth
in Section 9.04. (RR) INDEMNITOR. "Indemnitor" shall have the meaning set forth
in Section 9.04.
(ss) INFORMATION STATEMENT. "Information Statement" shall have
the meaning set forth in Section 5.13.
(tt) LIABILITIES. "Liabilities" shall mean any debt,
obligation, duty or liability of any nature including Indebtedness and any
undisclosed, unmatured, unaccrued, unasserted, contingent, indirect,
conditional, implied, vicarious, derivative, joint, several or secondary
liability, regardless of whether such debt, obligation, duty or liability would
be required to be disclosed on a balance sheet prepared in accordance with GAAP
and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
(uu) LIEN. "Lien" shall mean any security agreement, financing
statement (whether or not filed), security or other like interest, conditional
sale or other title retention agreement, lease or consignment or bailment given
for security purposes, lien, mortgage, deed of trust, indenture, pledge,
constructive or other trust or attachment.
(vv) LITERARY PROPERTIES. "Literary Properties" shall mean any
and all underlying literary, dramatic or other works (whether published or
unpublished), screenplays, teleplays, stories, adaptations, scripts, treatments,
scenarios and any and all other literary or dramatic materials of any kind on
which the Film Assets are based or which were written for or included in the
Film Assets.
(ww) MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall
mean a material adverse effect on (i) the Business or the Assets, liabilities,
operation, property, condition (financial or otherwise) or prospects of the
Business or (ii) the validity or enforceability of (A) this Agreement or (B) the
rights or remedies of the Purchaser hereunder.
(xx) OTHER FILINGS. "Other Filings" shall have the meaning set
forth in Section 5.13(b).
(yy) PARTICIPATIONS. "Participations" shall mean the amounts
(other than Residuals) payable by any Person pursuant to Contracts with any
other Person or pursuant to Contracts under which any Person assumed the
obligations or is otherwise obligated to pay such amounts, in connection with
the acquisition, production, financing, distribution, exhibition or exploitation
of a Film Asset, the payment of which is: (a) contingent upon and payable only
to the extent of the receipt by such Person of revenues from the exploitation of
such Film Asset; or (b) due based upon the passage of time or the occurrence of
an identified event; or (c) an advance or guarantee of payments of the kind
described in (a) or (b) above, and which are held by (i) actors, writers,
directors, producers, other film
33
industry professionals, or any of their respective loan out companies, (ii)
production companies or licensors or transferors of rights, or (iii) any of
their respective successors or assigns.
(zz) PERMITTED ENCUMBRANCES. "Permitted Encumbrances" shall
mean (i) Liens on properties and assets securing Taxes, assessments,
governmental charges or levies, in each case, which are not yet due and payable,
(ii) Liens specifically identified on SCHEDULE 13(xx) hereto, and (iii) Liens
held by SAG, WGA or the DGA which arose in the ordinary course of business
consistent with industry standards and which did not arise from any action or
inaction of Sellers.
(aaa) PERSON. "Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
limited liability company, association, corporation, institution, entity, party,
or Governmental Entity or any other juridical entity of any kind or nature
whatsoever.
(bbb) PHYSICAL PROPERTIES. "Physical Properties" shall mean
all physical properties of every kind or nature of or relating to any film or
program in the Film Library and all versions thereof and all teasers, trailers,
music videos, featurettes, television spots, "making of" films or programs,
including, without limitation, exposed film, developed film, positives,
negatives, prints, answer prints, special effects, preparing materials
(including interpositives, negatives, duplicate negatives, internegatives, color
reversals, intermediates, lavenders, fine grain master prints and matrices,
title overlays, textless backgrounds and all other forms of pre-print elements
which may be necessary or useful to produce prints or other copies or additional
pre-print elements, whether now known or hereafter devised), soundtracks,
recordings, audio and video tapes and discs of all types and gauges, cutouts,
trims and any and all other physical properties of every kind and nature
relating to the Film Library in whatever state of completion, and all
duplicates, drafts, versions and copies of each thereof.
(ccc) PROXY STATEMENT. "Proxy Statement" shall have the
meaning set forth in Section 5.13.
(ddd) PURCHASE PRICE. "Purchase Price" shall have the meaning
set forth in Section 1.05.
(eee) PURCHASER. "Purchaser" shall have the meaning set forth
in the Preamble.
(fff) PURCHASER INDEMNITEE. "Purchaser Indemnitee" shall have
the meaning set forth in Section 9.02.
(ggg) RECEIVABLES. "Receivables" shall mean all of the
accounts receivable of Sellers arising from the Business.
(hhh) REQUIREMENTS OF LAW. "Requirements of Law" shall mean as
to any Person, provisions of the Articles or Certificate of Incorporation and
By-laws or regulations or other organizational or governing documents of such
Person, or any law, treaty, code, rule, regulation, right, privilege,
qualification, license or franchise or determination of any Governmental Entity,
in each case applicable or binding upon such Person or any of such Person's
property or to which such Person or any of such Person's property is subject or
pertaining to any or all of the Transactions contemplated or referred to herein.
(iii) RESIDUALS. "Residuals" shall mean all amounts (other
than Participations) payable by any Person pursuant to guild agreements or
collective bargaining agreements, or pursuant to Contracts under which any such
Person assumed the obligations or is otherwise obligated to pay such amounts, in
connection with the development, acquisition, production, distribution or
exploitation of a Film Asset.
(jjj) RETIREE. "Retiree" shall mean (i) any retired or former
employee, director or officer of any Seller or (ii) any former independent
contractor of any Seller.
(kkk) SEC. "SEC" shall mean the Securities and Exchange
Commission.
(lll) SELLER INDEMNITEE. "Seller Indemnitee" shall have the
meaning set forth in Section 9.03.
34
(mmm) SELLERS. "Sellers" shall have the meaning set forth in
the Preamble;
(nnn) SELLERS' DISCLOSURE SCHEDULE. "Sellers' Disclosure
Schedule" shall have the meaning set forth in Article III.
(ooo) TAXES. "Taxes" shall mean all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, use, license, withholding, payroll,
estimated, stamp, unemployment insurance, ad valorem, disability, severance,
social security and franchise taxes, occupation or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state or local or domestic or foreign.
(ppp) TAX RETURN. "Tax Return" shall mean a report, return or
other information required to be supplied to a Governmental Entity in connection
with Taxes including, where permitted or required, combined or consolidated
returns for any group of entities that includes the Seller and relates to the
Business.
(qqq) TRANSACTION DOCUMENTS. "Transaction Documents" shall
mean this Agreement, the Escrow Agreements and each document delivered pursuant
to each of the foregoing.
(rrr) TRANSACTIONS. "Transactions" shall mean the asset
purchase and other transactions contemplated by the Transaction Documents.
SECTION 13.02 KNOWLEDGE OF A PERSON. All references to knowledge of
the Seller(s) shall mean to the best of the knowledge of each of the Sellers,
and, after due inquiry and consultation, of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇. Laychek and ▇▇▇
▇▇▇▇▇.
35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
FILM LIBRARY ACQUISITION CORP. SUNLAND ENTERTAINMENT CO., INC.
By: /s/ By: /s/
--------------------------- ---------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
▇▇▇▇▇/▇▇▇▇▇ ENTERTAINMENT GROUP, INC.
By: /s/
---------------------------
Name:
-------------------------
Title:
------------------------
36