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Contribution Agreement
By and Among
Liberty Digital, Inc., DMX Music, Inc.,
AEI Music Network, Inc., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and
Maxide Acquisition, Inc.
Dated as of May 17, 2001
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TABLE OF CONTENTS
SECTION 1. DEFINITIONS....................................................... 1
SECTION 2. TRANSACTION STEPS................................................. 10
2.1 Obligation to Consummate Transactions............................. 10
2.2 The Contribution and LDIG Share Issuance.......................... 10
2.3 The Share Exchange................................................ 11
2.4 Cancellation of AEI Stock Options................................. 12
2.5 Alliance and ▇▇▇▇▇▇▇▇ Redemptions; DuKane Contribution............ 12
2.6 Contribution to AEI............................................... 12
2.7 Effective Time.................................................... 12
2.8 AEI Shareholder Representative; Power of Attorney................. 13
SECTION 3. REPRESENTATIONS AND WARRANTIES.................................... 15
3.1 Representations and Warranties of LDIG............................ 15
3.1.1 Organization of LDIG and Maxide........................... 15
3.1.2 Authorization of Transaction.............................. 15
3.1.3 Noncontravention.......................................... 15
3.1.4 Brokers' Fees............................................. 16
3.1.5 Ownership of Maxide; No Prior Activities; Assets of Maxide 16
3.2 Representations and Warranties of AEI............................. 16
3.2.1 Organization, Qualification and Corporate Power........... 17
3.2.2 AEI Shares and AEI Shareholders........................... 17
3.2.3 Authorization of Transaction.............................. 18
3.2.4 Noncontravention.......................................... 19
3.2.5 Title to Assets........................................... 19
3.2.6 Subsidiaries.............................................. 19
3.2.7 Financial Statements...................................... 19
3.2.8 Events Subsequent to Most Recent Fiscal Month End......... 20
3.2.9 Undisclosed Liabilities................................... 22
3.2.10 Legal Compliance.......................................... 22
3.2.11 Taxes..................................................... 22
3.2.12 Real Property............................................. 25
3.2.13 Intellectual Property..................................... 26
3.2.14 Tangible Assets........................................... 26
3.2.15 Contracts................................................. 27
3.2.16 Powers of Attorney........................................ 28
3.2.17 Insurance................................................. 28
3.2.18 Litigation................................................ 28
3.2.19 Licenses and Permits...................................... 29
3.2.20 Consents.................................................. 29
3.2.21 Employees................................................. 29
3.2.22 Employee Benefits......................................... 30
3.2.23 Guaranties................................................ 31
3.2.24 Environment, Health and Safety............................ 31
3.2.25 Customers................................................. 32
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3.2.26 Relationships with Customers and Suppliers................ 32
3.2.27 Employee and Shareholder Indebtedness..................... 33
3.2.28 Product Liability......................................... 33
3.2.29 Change in Control......................................... 33
3.2.30 Brokers' Fees............................................. 33
3.3 Representations and Warranties Concerning DMX..................... 33
3.3.1 Organization, Qualification and Corporate Power........... 33
3.3.2 Capitalization............................................ 34
3.3.3 Authorization of Transaction.............................. 34
3.3.4 Noncontravention.......................................... 34
3.3.5 Title of Assets........................................... 35
3.3.6 Subsidiaries.............................................. 35
3.3.7 Financial Statements...................................... 35
3.3.8 Events Subsequent to Most Recent Fiscal Month End......... 35
3.3.9 Undisclosed Liabilities................................... 38
3.3.10 Legal Compliance.......................................... 38
3.3.11 Taxes..................................................... 38
3.3.12 Real Property............................................. 41
3.3.13 Intellectual Property..................................... 42
3.3.14 Tangible Assets........................................... 42
3.3.15 Contracts................................................. 42
3.3.16 Powers of Attorney........................................ 44
3.3.17 Insurance................................................. 44
3.3.18 Litigation. .............................................. 44
3.3.19 Licenses and Permits...................................... 44
3.3.20 Consents.................................................. 45
3.3.21 Employees................................................. 45
3.3.22 Employee Benefits......................................... 45
3.3.23 Guaranties................................................ 47
3.3.24 Environment, Health and Safety............................ 47
3.3.25 Customers................................................. 47
3.3.26 Relationships with Customers and Suppliers................ 48
3.3.27 Employee and Shareholder Indebtedness..................... 48
3.3.28 Product Liability......................................... 48
3.3.29 Change in Control......................................... 48
3.3.30 Brokers' Fees............................................. 49
SECTION 4. COVENANTS......................................................... 49
4.1 Pre-Closing Covenants............................................. 49
4.1.1 AEI Shareholders Meeting.................................. 49
4.1.2 Notices and Consents...................................... 49
4.1.3 Equity Interests and Ownership Interests.................. 49
4.1.4 Continuity and Maintenance of Operations.................. 49
4.1.5 No Violations of Representations and Warranties........... 50
4.1.6 ▇▇▇▇▇▇ Covenants. ........................................ 50
4.1.7 Maxide Debt............................................... 50
4.1.8 Pre-Closing Debt Levels of AEI, Maxide and DMX............ 51
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4.2 Post-Closing Covenants............................................ 51
4.2.1 Tax Matters............................................... 51
4.2.2 Payments to Former Stockholders of Xtra Music Limited..... 52
4.2.3 Post-Closing Dissenters' Payments......................... 52
4.3 Accounting Treatment.............................................. 52
4.4 Post-Closing Payment.............................................. 52
SECTION 5. CONDITIONS TO OBLIGATIONS OF THE CONTRIBUTING PARTIES............. 53
5.1 Joint Conditions to Closing....................................... 53
5.1.1 HSR Waiting Period; Government Approvals. ................ 53
5.1.2 Debt Facility............................................. 53
5.1.3 European and Middle East Business Operations.............. 53
5.1.4 Xtra Music Limited Funding................................ 53
5.1.5 Absence of Injunctions.................................... 53
5.1.6 Dissenters' Rights........................................ 53
5.1.7 Special Power of Attorney................................. 53
5.2 Conditions to the Obligations of AEI.............................. 53
5.2.1 Truth of Representations and Warranties................... 54
5.2.2 Performance of Agreements................................. 54
5.2.3 Notices and Consents...................................... 54
5.2.4 No Material Adverse Change................................ 54
5.2.5 Voting Agreement.......................................... 54
5.2.6 Stockholders Agreement.................................... 54
5.2.7 Employment Agreement...................................... 54
5.2.8 Board of Directors........................................ 54
5.2.9 Opinion Letter............................................ 54
5.2.10 DMX Officer's Certificate................................. 54
5.2.11 Maxide Officer's Certificate.............................. 55
5.2.12 LDIG Officer's Certificate................................ 55
5.2.13 Maxide's Secretary's Certificate.......................... 56
5.2.14 DMX's Secretary's Certificate............................. 56
5.2.15 LDIG's Secretary's Certificate............................ 57
5.2.16 Put Rights................................................ 57
5.2.17 Contribution of Xtra Music................................ 57
5.2.18 Registration Rights....................................... 57
5.2.19 LDIG Subordinated Loan.................................... 57
5.2.20 Conversion of Intercompany Debt........................... 57
5.3 Conditions to the Obligations of Maxide, LDIG and DMX............. 57
5.3.1 Truth of Representations and Warranties................... 58
5.3.2 Performance of Agreements................................. 58
5.3.3 Notices and Consents. .................................... 58
5.3.4 No Material Adverse Change................................ 58
5.3.5 Voting Agreement.......................................... 58
5.3.6 Stockholders Agreement.................................... 58
5.3.7 Employment Agreement...................................... 58
5.3.8 Board of Directors........................................ 58
5.3.9 Opinion Letter............................................ 58
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5.3.10 AEI Officer's Certificate................................. 58
5.3.11 AEI's Secretary's Certificate............................. 59
5.3.12 Call Rights............................................... 59
5.3.13 Cancellation or Exercise of Existing AEI Stock Options.... 59
5.3.14 Registration Rights....................................... 60
5.3.15 AEI Shareholder Approval.................................. 60
5.3.16 AEI Brokers Release....................................... 60
5.3.17 Tax Sharing Agreement..................................... 60
SECTION 6. CLOSING........................................................... 60
6.1 Closing........................................................... 60
6.2 Items to be Delivered by the Contributing Parties. .............. 60
6.3 Items to be Delivered by Maxide. ................................. 60
6.4 Other Items to be Delivered at Closing............................ 61
SECTION 7. TERMINATION....................................................... 61
7.1 Termination and Abandonment....................................... 61
7.2 Effect of Termination............................................. 62
7.3 Break-up Fee...................................................... 62
SECTION 8. SURVIVAL AND INDEMNIFICATION...................................... 62
8.1 Survival.......................................................... 62
8.2 Indemnification................................................... 63
8.3 Threshold and Limitations. ....................................... 64
8.4 Claim Settlements................................................. 65
8.5 Procedure for Indemnification..................................... 67
8.6 Remedies; Specific Performance.................................... 69
8.7 Issuance of Additional Shares of Maxide Common Stock.............. 69
SECTION 9. MISCELLANEOUS..................................................... 70
9.1 Notices. ......................................................... 70
9.2 Expenses.......................................................... 71
9.3 Modification; Waiver.............................................. 71
9.4 Headings.......................................................... 71
9.5 Assignment........................................................ 71
9.6 Counterparts...................................................... 71
9.7 Additional Documents.............................................. 71
9.8 Other. ........................................................... 71
9.9 Governing Law..................................................... 72
9.10 Interpretation.................................................... 72
9.11 Confidentiality................................................... 72
9.12 Severability...................................................... 72
9.13 ▇▇▇▇▇▇'▇ Execution Agreement...................................... 72
9.14 Deliveries to LDIG................................................ 72
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EXHIBITS
EXHIBIT A FORM OF PROMISSORY NOTE..................................... A-1
EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT....................... B-1
EXHIBIT C FORM OF VOTING AGREEMENT.................................... C-1
EXHIBIT D FORM OF STOCKHOLDERS' AGREEMENT............................. D-1
EXHIBIT E FORM OF PUT AND CALL AGREEMENT.............................. E-1
EXHIBIT F FORM OF ▇▇▇▇▇▇ EMPLOYMENT AGREEMENT......................... F-1
EXHIBIT G FORM OF ▇▇▇▇▇▇ EMPLOYMENT AGREEMENT......................... ▇-▇
▇▇▇▇▇▇▇ ▇ ▇▇▇▇ ▇▇ ▇▇▇ STOCK OPTION CANCELLATION AGREEMENT............. H-1
EXHIBIT I FORM OF LDIG PROMISSORY NOTE................................ I-1
EXHIBIT J LIST OF BOARD MEMBERS OF MAXIDE ACQUISITION, INC.,
DMX MUSIC, INC. AND AEI MUSIC NETWORK, INC.................. J-1
EXHIBIT K XTRA MUSIC LIMITED BUSINESS PLAN............................ K-1
EXHIBIT L MAXIDE ACQUISITION, INC. ORGANIZATIONAL DOCUMENTS........... L-1
EXHIBIT M FORM OF LETTER AGREEMENT REGARDING OPTIONS
GRANTED TO LIBERTY DIGITAL, INC............................. M-1
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AEI DISCLOSURE SCHEDULE
3.2.1(a) Foreign Qualifications
3.2.1(b) AEI Directors and Officers
3.2.2(a) Outstanding Capital Stock
3.2.2(b) Shareholders to be Redeemed
3.2.2(c) Options, Warrants and Purchase Rights
3.2.2(d) Shareholders
3.2.2(e) Shareholder Agreements
3.2.3 Required Filings or Notices with Governmental Authorities
3.2.4 Violations of Law and Defaults
3.2.5 Liens; Assets Not Owned
3.2.6 Subsidiaries
3.2.8 Events Outside the Ordinary Course of AEI's Business Since June 30, 2000
3.2.9 Undisclosed Liabilities
3.2.11(a) Tax Issues
3.2.11(b) Audited Tax Returns
3.2.11(c) Notices Regarding Tax Returns
3.2.11(d) Tax Sharing or Indemnification Agreements
3.2.11(e) Affiliated Group Membership
3.2.11(f) Excess Parachute Payments
3.2.11(g) Partnerships and Joint Ventures for Tax Purpose
3.2.11(h) Foreign Person Shareholders
3.2.11(i) Accounting Method Changes
3.2.11(j) Tax Exempt or Limited Use Property
3.2.12 Real Property Owned, Leased or Subleased
3.2.13(a) Missing Intellectual Property Rights/Protection of Rights
3.2.13(b) Material Infringement of Third Party Intellectual Property Rights
3.2.13(c) AEI Patents
3.2.14 Problems with Tangible Assets
3.2.15 Material Contracts
3.2.16 Powers of Attorney
3.2.17 AEI Insurance Policies
3.2.18 Litigation
3.2.19 Missing Licenses and Permits
3.2.20 Required Consents
3.2.21 Terminating Employees and Other Labor Matters
3.2.22 Employee Benefit Plans
3.2.22(a) AEI Employee Benefit Plans Not in Compliance
3.2.22(b) Unqualified AEI Employee Benefit Plans
3.2.23 AEI Guaranties
3.2.26 Difficulties with Material Customers or Suppliers
3.2.27 Shareholder, Director and Employee Indebtedness to AEI
3.2.29 Change in Control Payments Due
3.2.30 Broker's Fees
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DMX DISCLOSURE SCHEDULE
3.3.1(a) Foreign Qualifications
3.3.1(b) DMX Directors and Officers
3.3.3 Required Filings or Notices with Governmental Authorities
3.3.4 Violations of Law and Defaults
3.3.5 Liens; Assets Not Owned
3.3.6 Subsidiaries
3.3.8 Events Outside the Ordinary Course of DMX's Business Since June 30, 2000
3.3.9 Undisclosed Liabilities
3.3.11(a) Overdue Tax Returns and Tax Payments
3.3.11(b) Audited Tax Returns
3.3.11(c) Notices Regarding Tax Returns
3.3.11(d) Tax Sharing or Indemnification Agreements
3.3.11(e) Affiliated Group Membership
3.3.11(f) Partnerships for Tax Purposes
3.3.11(g) Accounting Method Changes
3.3.11(h) Tax Exempt or Limited Use Property
3.3.12 Real Property Owned, Leased or Subleased
3.3.13(a) Missing Intellectual Property Rights/Protection of Rights
3.3.13(b) Material Infringement of Third Party Intellectual Property Rights
3.3.13(c) DMX Patents
3.3.14 Problems with Tangible Assets
3.3.15 Contracts
3.3.17 DMX Insurance Policies
3.3.18 Litigation
3.3.19 Missing Licenses and Permits
3.3.20 Required Consents
3.3.22 Employee Benefit Plans
3.3.23 DMX Guaranties
3.3.26 Difficulties with Material Customers or Suppliers
3.3.27 Shareholder, Director and Employee Indebtedness to DMX
3.3.29 Change in Control
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CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is made as of
May 17, 2001 by and among Liberty Digital, Inc., a Delaware corporation
("LDIG"), DMX Music, Inc., a Delaware corporation ("DMX"), AEI Music Network
Inc., a Washington corporation ("AEI"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") and Maxide
Acquisition, Inc., a Delaware corporation ("Maxide").
RECITALS
A. LDIG directly owns 1,000 shares of DMX (the "DMX
Equity Interest"), which constitutes, and at the Closing will constitute, 100%
of the outstanding capital stock of DMX.
B. The Remaining AEI Shareholders (as defined below)
will, at the Closing, own all of the outstanding capital stock of AEI (the "AEI
Equity Interest").
C. LDIG desires to contribute the DMX Equity Interest to
Maxide in exchange for capital stock of Maxide (the "Contribution"), and AEI
desires to effect a share exchange pursuant to which the AEI Equity Interest
will be exchanged for the consideration specified in Section 2.3 hereof (the
"Share Exchange") each in accordance with the terms set forth in this Agreement.
The Parties intend that the Contribution, the Share Exchange and the Subsequent
Contribution qualify as exchanges governed by Section 351 of the Code.
D. Maxide desires to accept the Contribution and Share
Exchange, and, in consideration thereof, Maxide desires to issue shares of
Maxide Common Stock, par value $0.001 per share (the "Maxide Common Stock"), to
LDIG and, together with the AEI Cash Consideration and the Promissory Notes, to
the Remaining AEI Shareholders in accordance with the terms of this Agreement.
AGREEMENTS
In consideration of the mutual covenants set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, terms with initial capital letters
that are not otherwise defined will have the meanings ascribed to them below,
unless the context clearly requires otherwise:
AAA Rules has the meaning set forth in Section 8.5(ii).
AEI Cash Consideration means (x) $42.4 million plus an amount
equal to any amounts received by AEI, from the date hereof through the Closing
Date, upon exercise of any outstanding warrants or stock options issued by AEI,
less (y) the sum of (i) the cash payments that
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are required to be made to Alliance, DuKane and SSB at the Closing, pursuant to
the terms of the Alliance Stock Redemption Agreement, the DuKane Contribution
Agreement and the ▇▇▇▇▇▇▇▇ Warrant Redemption Agreement, respectively; (ii) all
amounts payable at Closing to AEI Stock Optionholders pursuant to the Stock
Option Cancellation Agreements executed by AEI prior to the Closing; (iii) the
amount established by AEI and Maxide, pursuant to the terms of Section 2.3, as
the fair value per each share of AEI Common Stock, immediately prior to the
consummation of the Share Exchange, multiplied by the number of AEI Shareholders
who exercise and perfect their dissenters' rights under Chapter 23B.13 of the
Washington Business Corporation Act and (iv) the amount of any brokerage fee in
excess of $1,700,000 paid or payable by AEI in connection with the consummation
of the transactions contemplated by this Agreement.
AEI Common Stock means the Class A Common Stock, no par value,
of AEI.
AEI Disclosure Schedule has the meaning set forth in Section
3.2.
AEI Dissenting Shareholders means those AEI shareholders that
elect to perfect their dissenters' rights under Chapter 23B.13 of the Revised
Code of Washington by, among other procedures, providing to AEI notice of intent
to demand payment for the shares and not voting in favor of the Share Exchange.
AEI Employee Benefit Plan has the meaning set forth in Section
3.2.22(i).
AEI ERISA Affiliate has the meaning set forth in Section
3.2.22(iii).
AEI Equity Interest has the meaning set forth in Recital B.
AEI Financial Statements has the meaning set forth in Section
3.2.7.
AEI Indemnified Parties has the meaning set forth in Section
8.2(i).
AEI Indemnifying Parties has the meaning set forth in Section
8.2(ii).
AEI Maxide Stock Consideration means those shares of Maxide
Common Stock to be issued to the Remaining AEI Shareholders at the Closing
pursuant to Section 2.3, together with the additional shares of Maxide Common
Stock, if any, issuable to them pursuant to Section 8.4(iv).
AEI Required Consents has the meaning set forth in Section
3.2.20.
AEI Residual Claim has the meaning set forth in Section
8.4(iii).
AEI Shareholder Representative has the meaning set forth in
Section 2.8.
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AEI Shareholders means all of the Persons holding outstanding
capital stock of AEI as of the date of this Agreement, as set forth in Section
3.2.2 of the AEI Disclosure Schedule.
AEI Stock Consideration means 261,360 shares of Maxide Common
Stock less those number of shares of the Maxide Common Stock to be issued by
Maxide under the DuKane Contribution Agreement.
AEI Stock Option Plan means the AEI Music Network Inc. Stock
Option Plan, as in effect on the date hereof.
AEI Stock Options means all of the stock options to purchase
AEI Common Stock that have been issued, and as of the date hereof are
outstanding, under the AEI Stock Option Plan.
AEI Stock Optionholders means all of the Persons who, as of
the date hereof, have options to purchase AEI Common Stock.
Affiliate means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with, such first Person.
Alliance means Equitable Capital Private Income and Equity
Partnership II L.P.
Alliance Stock Redemption Agreement means that certain Stock
Redemption Agreement dated as of December 7, 2000 between Alliance and AEI.
Articles of Share Exchange has the meaning set forth in
Section 2.3.
Business Day means any day other than a Saturday or Sunday or
a day on which banks in Seattle, Washington or Denver, Colorado are authorized
to be closed.
Claim Notice has the meaning set forth in Section 8.5(i).
Claims has the meaning set forth in Section 8.3(i).
Closing means the consummation of the Contribution, the Share
Exchange and the other transactions that are to be consummated on the Closing
Date, as set forth in this Agreement.
Closing Date has the meaning set forth in Section 6.1.
Code has the meaning set forth in Section 3.2.11(iii).
Confidential Information means any information concerning the
businesses and affairs of Maxide, LDIG, AEI, DMX or any of their Subsidiaries
that is not generally available to the public.
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Consenting AEI Shareholders means those Remaining AEI
Shareholders who vote in favor of the Share Exchange.
Contest Notice has the meaning set forth in Section 8.5(ii).
Contributing Parties means, collectively, LDIG and AEI.
Contribution means LDIG's contribution of the DMX Equity
Interest to Maxide as required by Section 2.2.
Control means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether by the ownership of voting
securities, by contract or otherwise.
DMX Disclosure Schedule has the meaning set forth in Section
3.3.
DMX Employee Benefit Plan has the meaning set forth in Section
3.3.22(i).
DMX ERISA Affiliate has the meaning set forth in Section
3.3.22(iii).
DMX Equity Interest has the meaning set forth in Recital A.
DMX Financial Statements has the meaning set forth in Section
3.3.7.
DMX Required Consents has the meaning set forth in Section
3.3.20.
DMX Shares means the common stock, no par value, of DMX.
DuKane means ▇▇▇▇▇▇▇ DuKane and ▇▇▇▇ DuKane, husband and wife.
DuKane Contribution Agreement means that certain Stock
Contribution and Settlement Agreement dated as of May 17, 2001 between AEI,
Maxide and DuKane.
ERISA means the Employee Retirement Income Security Act of
1974, as amended.
Effective Time has the meaning set forth in Section 2.7.
Employee Benefit Plan means any (a) Employee Pension Benefit
Plan (including any Multiemployer Plan), (b) Employee Welfare Benefit Plan or
(c) other material fringe benefit plan or program.
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
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Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Environmental, Health and Safety Laws means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976 and the Occupational Safety and Health Act
of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety or employee health and safety, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or chemical, industrial, hazardous or toxic materials or wastes
into ambient air, surface water, ground water or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or chemical, industrial,
hazardous or toxic materials or wastes.
Extremely Hazardous Substances has the meaning set forth in
Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986,
as amended.
Fiduciary has the meaning set forth in ERISA Section 3(21).
GAAP means generally accepted accounting principles as in
effect from time to time in the United States of America.
Governmental Authority means (a) the United States of America,
(b) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (c) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof or (d) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
HSR means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended.
Indemnified Parties has the meaning set forth in Section
8.3(i).
Intellectual Property means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b) all
trademarks, service marks, trade dress, logos, trade names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (c) all copyrightable works,
all copyrights and all applications, registrations and renewals in connection
therewith, (d) all mask works and all applications, registrations and renewals
in connection therewith, (e) all trade secrets and Confidential Information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and
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production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights and
(h) all copies and tangible embodiments thereof (in whatever form or medium).
IRS means the United States Internal Revenue Service.
Knowledge of LDIG, AEI or DMX means matters actually known by
the officers of LDIG, AEI or DMX and matters that an individual in the position
of any of the officers of LDIG, AEI or DMX, in light of all of the relevant
circumstances, reasonably would be expected to know after due inquiry.
LDIG Indemnified Parties has the meaning set forth in Section
8.2(ii).
LDIG Indemnifying Parties has the meaning set forth in Section
8.2(i).
LDIG Residual Claim has the meaning set forth in Section
8.4(iv).
LDIG Share Issuance has the meaning set forth in Section 2.2.
Letter Agreement means that certain Letter Agreement
(including the accompanying Summary of Terms) dated September 22, 2000 between
AEI, ▇▇▇▇▇▇, DMX and LDIG, as amended.
Liability means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated and whether due or to become
due), including any liability for Taxes.
Licenses and Permits has the meaning set forth in Section
3.2.19.
Losses has the meaning set forth in Section 8.2(i).
▇▇▇▇▇▇ Employment Agreement means the employment agreement
between Maxide and ▇▇▇▇▇▇, substantially in the form of Exhibit F.
Material Adverse Effect means, with respect to any Person, any
event, change or effect that (individually or when aggregated with other such
events, changes or effects affecting such Person) is materially adverse to the
business, properties, operations or condition (financial or otherwise) of such
Person, other than any such event, change or effect arising out of or resulting
from general business or economic conditions or from changes in or affecting the
subscription music industry generally.
Maxide Common Stock has the meaning set forth in Recital D.
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Maxide Indemnified Parties has the meaning set forth in
Section 8.2.
Most Recent AEI Balance Sheet means the balance sheet
contained within the Most Recent AEI Financial Statements.
Most Recent AEI Financial Statements has the meaning set forth
in Section 3.2.7.
Most Recent DMX Balance Sheet means the balance sheet
contained within the Most Recent DMX Financial Statements.
Most Recent DMX Financial Statements has the meaning set forth
in Section 3.3.7.
Most Recent Fiscal Month End has the meaning set forth in
Section 3.2.7.
Multiemployer Plan has the meaning set forth in ERISA Section
3(37).
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
Organizational Documents means, with respect to each specified
entity, such entity's articles of incorporation and bylaws (or to the extent
that such entity is not organized as a corporation, similar charter documents).
PBGC means the Pension Benefit Guaranty Corporation.
Parties means, collectively, LDIG, DMX, AEI, ▇▇▇▇▇▇ and
Maxide.
Person means a human being or a corporation, general or
limited partnership, limited or unlimited liability company, trust, association,
unincorporated organization, Governmental Authority or other entity.
Pixel Claims has the meaning set forth in Section 8.2.
Pro Rata Share means, with respect to each Remaining AEI
Shareholder, a fraction whose numerator is the total number of shares of AEI
Common Stock owned by such Remaining AEI Shareholder immediately prior to the
Effective Time and whose denominator is the aggregate number of shares of AEI
Common Stock owned by all Remaining AEI Shareholders immediately prior to the
Effective Time.
Prohibited Transactions has the meaning set forth in ERISA
Section 406 and Code Section 4975.
Promissory Notes means the promissory notes to be issued to
each of the Remaining AEI Shareholders, as provided in Section 2.3, as
additional consideration for contributing their AEI
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Common Stock to Maxide in connection with the Share Exchange. Each note is to be
in the form attached hereto as Exhibit A.
Put and Call Agreement means the agreement for put and call
rights between LDIG, Maxide and the Remaining AEI Shareholders, substantially in
the form of Exhibit E.
Registration Rights Agreement means that certain Registration
Rights Agreement between Maxide, the Remaining AEI Shareholders and LDIG,
substantially in the form attached hereto as Exhibit B.
Related Corporation means, in relation to a given entity, a
corporation that owns with respect to such entity, or such entity owns with
respect to such corporation, directly or indirectly, at least 50% of the total
combined voting power of all classes of stock entitled to vote or at least 50%
of the total value of shares of stock. For this purpose:
(i) a corporation will be treated as owning any stock
owned, directly or indirectly, by a person or entity that
directly or indirectly owns 5% or more of its stock;
(ii) a corporation will be treated as owning stock owned,
directly or indirectly, by (A) a non-corporate entity in which
such corporation owns, directly or indirectly, an interest and
(B) any corporation in which such corporation owns, directly
or indirectly, a 5% or greater interest and
(iii) except as described in (i) or (ii) above, the
indirect ownership of stock by a person or entity includes (1)
any stock that is owned directly or indirectly by a subsidiary
entity, (2) any stock that may be acquired pursuant to the
exercise of options, (3) in the case of an individual, stock
owned directly or indirectly by members of such individual's
family and (4) in the case of an entity, any stock owned
directly or indirectly by an owner of such entity.
Remaining AEI Shareholders means all Persons who own capital
stock of AEI immediately prior to consummating the Share Exchange, other than
those AEI Shareholders whose shares are being redeemed in conjunction with
Closing and those AEI Shareholders exercising dissenters' rights with respect to
their shares.
▇▇▇▇▇▇▇▇ Warrant Redemption Agreement means that agreement,
dated as of April 2, 2001, among AEI, Wertheim ▇▇▇▇▇▇▇▇ & Co., Inc. ("▇▇▇▇▇▇▇▇")
and ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, Inc. ("SSB"), providing for the transfer to SSB of
that certain Warrant issued by AEI to ▇▇▇▇▇▇▇▇ on September 3, 1993 and the
subsequent redemption of the Warrant held by SSB.
SEC means the Securities and Exchange Commission.
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Securities Act means the Securities Act of 1933, as amended.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge or other security interest, other than (a) mechanic's,
materialman's and similar liens, (b) liens for Taxes not yet due and payable or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of money.
Settlement Date has the meaning set forth in Section 8.4(i).
Share Exchange means the exchange of AEI capital stock by the
Remaining AEI Shareholders for the consideration itemized in Section 2.3 to be
granted by Maxide. Such Share Exchange is to be effectuated pursuant to the
terms of this Agreement and to be accomplished in accordance with the provisions
of Chapter 23B.11 of the Washington Business Corporation Act.
Stockholders Agreement means the agreement between Maxide,
LDIG and certain of the AEI Shareholders, substantially in the form of Exhibit
D.
Stock Option Cancellation Agreement means each of the Stock
Option Cancellation Agreements (substantially in the form attached hereto as
Exhibit H), that AEI enters into with the AEI Stock Optionholders prior to the
Closing.
Subsidiary means, with respect to any Person, any other Person
that such Person Controls and in which a majority of the outstanding common
stock, in the case of a corporation, or, in the case of a Person that is not a
corporation, a majority of the ownership interests, are owned, directly, or
indirectly, by such Person, including with respect to such Person, any other
Person that pursuant to the preceding clause would be a Subsidiary of any other
Subsidiary.
Subsequent Contribution has the meaning set forth in Section
2.6.
Survival Period has the meaning set forth in Section 8.1.
Tax or Taxes shall mean (A) all foreign, federal, state,
county or local taxes, charges, fees, levies, imposts, duties and other
assessments, including any income, alternative minimum or add-on, estimated,
gross income, gross receipts, sales, use, transfer, transactions, intangibles,
ad valorem, value-added, franchise, registration, title, license, capital,
paid-up capital, profits, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, real property, recording, personal property, federal
highway use, commercial rent, environmental (including taxes under Section 59A
of the Code) or windfall profit tax, custom, duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest, penalties or additions to tax; (B) any liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group
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for any period, or otherwise through operation of law and (C) any liability for
the payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person.
Tax Return means any return, declaration, report, claim for
refund, separate election, information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
Tax Survival Period has the meaning set forth in Section 8.1.
Third Party Claim has the meaning set forth in Section 8.5(i).
Threshold has the meaning set forth in Section 8.3(i)
Transaction Documents means the Registration Rights Agreement,
the Promissory Notes, the Voting Agreement, the Stockholders Agreement, the
▇▇▇▇▇▇ Employment Agreement, the ▇▇▇▇▇▇ Employment Agreement, the Put and Call
Agreement and any and all other documents, instruments and agreements to be
executed and delivered pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement.
▇▇▇▇▇▇ Employment Agreement means the employment agreement
between Maxide and ▇▇▇ ▇. ▇▇▇▇▇▇, substantially in the form of Exhibit G.
Voting Agreement means the agreement between LDIG, certain of
the AEI Shareholders and Maxide, substantially in the form of Exhibit C.
SECTION 2. TRANSACTION STEPS
Subject to the terms and conditions set forth in this
Agreement, the Parties agree as follows:
2.1 OBLIGATION TO CONSUMMATE TRANSACTIONS. The obligation
of the Parties to consummate each of the transfers, contributions and exchanges
set forth in this Section 2 is subject to the consummation of each other
transfer, contribution and exchange and the consummation of the Contribution and
Share Exchange at the Closing.
2.2 THE CONTRIBUTION AND LDIG SHARE ISSUANCE. Subject to
the terms and conditions of this Agreement, at the Effective Time, LDIG will
contribute, free and clear of all liens, encumbrances and adverse claims, the
DMX Equity Interest to Maxide in exchange for the issuance by Maxide of 337,640
shares of Maxide Common Stock to LDIG (the "LDIG Share Issuance"). Subsequent to
the Closing, the number of shares of Maxide Common Stock issuable to LDIG may be
increased as provided in Section 8.4(iv)(B).
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2.3 THE SHARE EXCHANGE. Subject to the terms and
conditions of this Agreement, at the Effective Time, Maxide and AEI will
effectuate the Share Exchange, pursuant to which all the issued and outstanding
shares of AEI Common Stock held of record by the Remaining AEI Shareholders,
immediately prior to the Closing shall be automatically exchanged for the right
of each of the Remaining AEI Shareholders to receive from Maxide:
(i) its Pro Rata Share of the AEI Cash
Consideration;
(ii) its Pro Rata Share of the AEI Stock
Consideration; provided, however, that notwithstanding the foregoing, Maxide
will not issue any fractional shares of Maxide Common Stock to the Remaining AEI
Shareholders, and any fractional shares otherwise issuable to such Remaining AEI
Shareholders pursuant to the preceding sentence will be rounded upward or
downward to the nearest round number; and
(iii) a Promissory Note substantially in the form
of Exhibit A attached hereto dated as of the Closing Date with a maximum
principal balance equal to $10 million multiplied by its Pro Rata Share.
The Share Exchange is to be effectuated by Maxide and AEI
pursuant to and in accordance with the terms of Chapter 23B.11, and other
applicable provisions, of the Washington Business Corporation Act. Upon the
effectiveness of the Share Exchange, Maxide shall be deemed, for all purposes,
to be the holder of record of all the issued and outstanding shares of AEI
Common Stock, and the delivery of certificates executed in blank or certificates
accompanied by assignments separate from certificates executed by such Remaining
AEI Shareholders, representing all of the AEI Common Stock, shall not be
necessary to vest in Maxide all right, title and interest in the AEI Common
Stock.
AEI Shareholders who disapprove of the Share Exchange and who
properly perfect their right to dissent under Chapter 23B.13 of the Washington
Business Corporation Act are entitled to receive in cash an amount equal to the
fair value of such dissenting Shareholders' shares. No later than ten (10) days
prior to the Closing, AEI will advise Maxide as to the AEI Board of Directors'
estimate of the fair value for each share of outstanding AEI Common Stock,
together with an explanation of how AEI estimated such fair value. Such fair
value means, as required by applicable Washington law, the value of the shares
of the AEI Common Stock immediately before the effective date of the Share
Exchange, excluding any appreciation or depreciation in anticipation of the
corporate action, unless exclusion would be inequitable. Such fair value
determination will, for all purposes, be determinative, unless Maxide objects
thereto, in which event AEI and Maxide will confer to determine jointly such
fair value.
The Parties agree that the Share Exchange contemplated by this
Section 2.3 shall be effectuated, at the Effective Time, pursuant to a plan of
share exchange and accompanying articles of share exchange (together, the
"Articles of Share Exchange") consistent with the terms of this Agreement and
approved by counsel for AEI and LDIG, which are in accordance with applicable
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provisions of the Washington Business Corporation Act. Such Articles of Share
Exchange shall be filed with the Secretary of State of the State of Washington
together with any other filings and recordings required by Washington law in
connection with the Share Exchange.
2.4 CANCELLATION OF AEI STOCK OPTIONS. As of the date
hereof, AEI has outstanding stock options permitting, under the terms of the
outstanding options, the AEI Stock Optionholders to purchase 684,085 shares of
AEI Common Stock. From and after the date hereof through the Closing Date (or
the termination of this Agreement, if applicable) AEI will not issue any
additional AEI Stock Options. In anticipation of the Closing, AEI will extend to
each AEI Stock Optionholder the right to have such AEI Stock Options cancelled,
in exchange for a cash payment at closing and an unfunded, unsecured contractual
right to an additional deferred payment, as set forth in the AEI Stock Option
Cancellation Agreement in substantially the form attached hereto as Exhibit H.
AEI will, and Maxide will cause AEI to, pay any and all amounts due under the
AEI Stock Option Cancellation Agreements that AEI executes prior to the Closing,
such payments to be made when and as due under such agreements.
2.5 ALLIANCE AND ▇▇▇▇▇▇▇▇ REDEMPTIONS; DUKANE
CONTRIBUTION. Prior to the Closing, AEI may agree to redeem some or all of the
AEI capital stock held by Alliance and warrants originally issued to ▇▇▇▇▇▇▇▇
pursuant to the terms of the Alliance Stock Redemption Agreement and the
▇▇▇▇▇▇▇▇ Warrant Redemption Agreement, respectively. AEI and Maxide may agree
with DuKane prior to the Closing regarding the contribution to Maxide of
DuKane's AEI Common Stock pursuant to the DuKane Contribution Agreement. Subject
to the terms and conditions of this Agreement, at the Effective Time, AEI will,
and Maxide will cause AEI to, satisfy all of AEI's obligations to:
(i) Redeem all of the AEI capital stock held by
Alliance pursuant to the Alliance Stock Redemption Agreement, if such agreement
has been executed;
(ii) Permit the contribution of, and subsequent
cancellation of, all of the AEI Common Stock held by DuKane (other than DuKane's
AEI Stock Options) pursuant to the DuKane Contribution Agreement, if such
agreement has been executed; and
(iii) Redeem all of the ▇▇▇▇▇▇▇▇ Warrant
transferred to SSB to be redeemed pursuant to the ▇▇▇▇▇▇▇▇ Warrant Redemption
Agreement, if such agreement has been executed.
2.6 CONTRIBUTION TO AEI. Subject to the terms and
conditions of this Agreement, at the Effective Time, Maxide will contribute the
DMX Equity Interest to AEI in exchange for the issuance by AEI of 2,495,354
shares of AEI Common Stock to Maxide (the "Subsequent Contribution").
2.7 EFFECTIVE TIME. The Parties have entered into this
Agreement as a means for consolidating the businesses of AEI and DMX, and this
objective is to be accomplished, as outlined in this Section 2, through a series
of related steps. While these steps are to be separate and will occur
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in the following order, the Parties intend for all of the following steps to
occur concurrently or substantially concurrently at the Closing:
(i) The Contribution as required by Section 2.2;
(ii) The Share Exchange required by Section 2.3;
(iii) The cancellation of all unexercised AEI
Stock Options;
(iv) The redemption or contribution of certain
AEI securities held by Alliance, DuKane and SSB that are to be redeemed or
contributed under the Alliance Stock Redemption Agreement, the DuKane
Contribution Agreement and the ▇▇▇▇▇▇▇▇ Warrant Redemption Agreement,
respectively, as required by Section 2.5; and
(v) The Subsequent Contribution as required by
Section 2.6.
The Parties will not proceed with the Closing until such date
as all such steps can be consummated on the same day. Moreover, when Maxide and
AEI execute and file Articles of Share Exchange with the Secretary of State of
the State of Washington, they will provide that such Articles of Share Exchange
become effective on the date designated in the Articles of Share Exchange which
will be the date corresponding to the date upon which the other steps necessary
to consummate the transactions contemplated by this Agreement are completed.
The "Effective Time" means 12:01 a.m. pacific time on the date
on which all of the steps outlined in this Section 2 are consummated.
2.8 AEI SHAREHOLDER REPRESENTATIVE; POWER OF ATTORNEY.
(i) Subject to the terms and conditions of this
Agreement at the Effective Time, each of the Remaining AEI Shareholders has, by
executing a Proxy and Special Power of Attorney, (A) consented to the
consummation of the Share Exchange; (B) agreed to exchange its shares of AEI
Common Stock for the consideration to be issued to it under Section 2.3; (C)
agreed to indemnify the LDIG Indemnified Parties under Section 8, subject to the
limitations on liability imposed by Section 8.3, and consented to the settlement
procedures set forth in Section 8.4; (D) become entitled, under certain
circumstances, to receive additional shares of Maxide Common Stock for
indemnification claims against Maxide, DMX and LDIG under Section 8.4; (E)
agreed to execute and be bound by the terms of the Voting Agreement,
Stockholders Agreement, and the Put and Call Agreement.
(ii) In connection with its rights and
obligations under this Agreement, each of the Remaining AEI Shareholders has, by
executing a Proxy and Special Power of Attorney, constituted and appointed
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as attorney-in-fact (the "AEI Shareholder Representative") of
such Remaining AEI Shareholder, with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to serve as the AEI
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Shareholder Representative in the event of the death or legal incapacitation of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, with full power and authority, including full power of
substitution, in the name of and for and on behalf of such Remaining AEI
Shareholder to:
(A) execute, acknowledge and deliver a
certificate, executed in blank, or a certificate accompanied by an assignment
separate from certificate, representing all of the shares of AEI Common Stock
held of record by the Remaining AEI Shareholder, sufficient to transfer such
shares, free and clear of all liens, encumbrances and adverse claims, to Maxide
upon consummation of the Share Exchange;
(B) accept on behalf of the Remaining
AEI Shareholder notice from the LDIG Indemnified Parties of any Claim for
indemnification pursuant to Section 8.2(ii), agree on behalf of the Remaining
AEI Shareholder to defend against such Claim, retain legal counsel in connection
with any and all matters relating to such Claim, communicate with the LDIG
Indemnified Parties and agree with the LDIG Indemnified Parties on behalf of the
Remaining AEI Shareholder to the compromise, resolution or settlement of such
Claim, agree to the amount of such indemnification payable by the Remaining AEI
Shareholders and agree to the proration of the indemnification amount among the
Remaining AEI Shareholders, including the Remaining AEI Shareholder;
(C) deliver on behalf of the Remaining
AEI Shareholder notice to the LDIG Indemnifying Parties of any Claim for
indemnification pursuant to Section 8.2(i), agree on behalf of the Remaining AEI
Shareholder to prosecute such Claim, retain legal counsel in connection with any
and all matters relating to such Claim, communicate with the LDIG Indemnifying
Parties and agree with the LDIG Indemnifying Parties on behalf of the Remaining
AEI Shareholder to the compromise, resolution or settlement of such Claim, agree
to the amount of such indemnification payable by the LDIG Indemnifying Parties
and agree to the proration of the recovery of indemnification amount among the
Remaining AEI Shareholders, including the Remaining AEI Shareholder,
(D) make, exchange, acknowledge and
deliver all such orders, receipts, notices, requests, instructions,
certificates, letters, contracts and other writings required by this Agreement
after the date hereof, and in general to do all things and take all actions that
the AEI Shareholder Representative, in his discretion, deems necessary or proper
in connection with exercising the rights, or performing the duties and
responsibilities of, the Remaining AEI Shareholder, under this Agreement, as
fully as could the Remaining AEI Shareholder if personally present and acting;
and
(E) execute, acknowledge, and deliver
the Voting Agreement, the Stockholders Agreement and the Put and Call Agreement,
substantially in the forms attached hereto as Exhibits C, D and E, together with
such amendments, modifications or changes thereto as may be approved by the AEI
Shareholder Representative, with the AEI Shareholder Representative's execution
of the agreements constituting conclusive evidence of such approval.
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SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF LDIG. LDIG
represents and warrants to AEI that the statements contained in this Section 3.1
are correct and complete as of the date hereof and on the Closing Date.
3.1.1 Organization of LDIG and Maxide. LDIG is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware. Maxide is a corporation, duly organized, validly
existing and in good standing under the laws of the state of Delaware. Maxide
has full corporate power and authority necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Maxide has delivered to AEI correct and complete copies of the Organizational
Documents of Maxide and has not, and will not permit such Organizational
Documents to be, amended prior to the Closing. The minute books (containing
records of meetings of the stockholders and board of directors of Maxide), the
stock certificate books and the stock record books of Maxide and the forms in
which they have been provided to AEI are correct and complete, and Maxide is not
in default under or in violation of any provision of its Organizational
Documents.
3.1.2 Authorization of Transaction. Each of LDIG
and Maxide has full power and authority to execute and deliver this Agreement
and to perform its respective obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite corporate action on the part of each
of LDIG and Maxide. This Agreement constitutes the valid and legally binding
obligation of each of LDIG and Maxide, enforceable in accordance with its terms
and conditions, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and to general principles of equity. Except as set forth on
Schedule 3.1.2, neither LDIG nor Maxide is required to give any notice to, make
any filing with, or obtain any Licenses or Permits of any Governmental Authority
in order to consummate the transactions contemplated by this Agreement, except
in connection with the HSR filing.
3.1.3 Noncontravention. Neither the execution and
the delivery of this Agreement nor the consummation of the transactions
contemplated hereby, will (i) violate any law, constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Authority to which LDIG or Maxide is subject or
any provision of their respective Organizational Documents or (ii) result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which LDIG or Maxide is a party or by which either is bound or to
which any of their assets is subject.
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3.1.4 Brokers' Fees. Neither LDIG nor Maxide has
any Liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement, other
than as contemplated by Section 5.3.16.
3.1.5 Ownership of Maxide; No Prior Activities;
Assets of Maxide.
(i) Maxide was formed by LDIG solely
for the purpose of engaging in the transactions contemplated by this Agreement.
(ii) The entire authorized capital of
Maxide consists of 1,200,000 shares of common stock par value $0.001 and 100,000
shares of preferred stock par value $0.001.
(iii) As of the date hereof and as of the
Closing, Maxide has and will have only one thousand outstanding shares of Maxide
Common Stock which will be held by LDIG. Other than this Agreement and the
transactions contemplated hereby, including without limitation the Letter
Agreement dated May 17, 2001 by and between Maxide and LDIG substantially the
form attached hereto as Exhibit M, there are not as of the date hereof and the
Closing Date any outstanding or authorized options, warrants, calls, rights,
commitments or any other agreements of any character to or by which Maxide is a
party or may be bound requiring it to issue, transfer, sell, purchase, redeem or
acquire any shares of capital stock or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for or acquire, any
shares of capital stock of Maxide.
(iv) As of the date hereof and
immediately prior to the Closing, except for obligations or liabilities incurred
in connection with its incorporation or organization and the transactions
contemplated by this Agreement, Maxide has not and will not have incurred,
directly or indirectly through any Subsidiary or Affiliate, any obligations or
liabilities or engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any Person.
(v) LDIG will take all action necessary
to ensure that Maxide at no time prior to the Effective Time owns any material
assets other than an amount of cash necessary to incorporate Maxide and to pay
the expenses of the Contribution and Share Exchange attributable to Maxide if
the Contribution and Share Exchange are consummated.
(vi) Attached to this Agreement as
Exhibit L are complete, accurate and true copies of the Organizational Documents
of Maxide, and there are not, and will not be any amendments, supplements,
modifications or other changes to such Organizational Documents prior to the
Closing.
3.2 REPRESENTATIONS AND WARRANTIES OF AEI. AEI represents
and warrants to LDIG and Maxide that the statements contained in this Section
3.2 are correct and complete, except as set forth in the disclosure schedule
delivered by AEI to LDIG and Maxide (the "AEI Disclosure
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Schedule") on the date hereof and on the Closing Date, which AEI Disclosure
Schedule shall identify the specific Sections of this Section 3.2 as to which
the exception or disclosure applies. The AEI Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.2.
3.2.1 Organization, Qualification and Corporate
Power. AEI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington. AEI is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required and each such jurisdiction is listed in
Section 3.2.1(a) of the AEI Disclosure Schedule except where such failure to be
so qualified or in good standing would not have a Material Adverse Effect. AEI
has full corporate power and authority necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Section 3.2.1(b) of the AEI Disclosure Schedule lists the directors and officers
of AEI. AEI has delivered, or made available, to LDIG correct and complete
copies of its Organizational Documents (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors
and any committees of AEI), the stock certificate books and the stock record
books of AEI in the forms in which they have been provided to LDIG are correct
and complete. AEI is not in default under or in violation of any provision of
its Organizational Documents.
3.2.2 AEI Shares and AEI Shareholders.
(i) Capitalization. The entire
authorized capital stock of AEI consists of 5,000,000 shares of Class A Common
Stock, no par value, of which, as of the date hereof, 1,925,795 shares are
issued and outstanding, and, as of the Closing Date (after taking into account
the redemptions contemplated herein), 1,880,406 shares will be issued and
outstanding, plus the additional shares of Class A Common Stock, if any, that
may be issued by AEI prior to the Closing because AEI Stock Optionholders have
exercised their right to acquire Class A Common Stock pursuant to stock options
outstanding as of the date hereof, and 5,000,000 shares of Class B Common Stock,
no par value, of which 242,040 shares are issued and outstanding, and, as of the
Closing Date (after taking into account the redemptions contemplated herein), no
shares will be issued and outstanding. All of the issued and outstanding shares
of AEI Common Stock have been duly authorized, are validly issued, fully paid
and nonassessable and, as of the date hereof, are held of record by the
Shareholders as set forth in Section 3.2.2(a) of the AEI Disclosure Schedule.
Section 3.2.2(b) of the AEI Disclosure Schedule sets forth a list of
Shareholders of AEI whose AEI Common Stock will be redeemed by AEI prior to the
Closing. Except as set forth in a list (including exercise prices, dates of
grant and expiration and number granted to each holder thereof, if applicable)
in Section 3.2.2(c) of the AEI Disclosure Schedule, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require AEI
to issue, sell or otherwise cause to become outstanding any of its capital stock
and all of such options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights or other contracts or commitments will be
cancelled or exercised as of the Effective Time. There are no outstanding or
authorized stock appreciation,
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phantom stock, profit participation or similar rights with respect to AEI. There
are no voting trusts, proxies or other agreements or understandings with respect
to the voting of the AEI Common Stock. None of the outstanding AEI Common Stock
is subject to any forfeiture or similar restriction in connection with the
termination of employment of any holder thereof with AEI.
(ii) Investment. Each AEI Shareholder
who receives Maxide Common Stock in the Share Exchange (A) understands that the
shares of Maxide Common Stock acquired by such AEI Shareholder pursuant to this
Agreement have not been registered under the Securities Act, or under any state
securities laws, and are being exchanged in reliance upon federal and state
exemptions for transactions not involving a public offering, (B) is acquiring
such shares solely for his own account for investment purposes, and not with a
view toward the distribution thereof, (C) qualifies as an "accredited investor"
as defined in Regulation D under the Securities Act, (D) has had the opportunity
to obtain information as desired in order to evaluate the merits and the risks
inherent in holding such shares and (E) is able to bear the economic risk and
lack of liquidity inherent in holding such shares which have not been registered
under the Securities Act.
(iii) AEI Shares. As of the date hereof,
each AEI Shareholder, and as of the Closing Date, each Remaining AEI
Shareholder, holds of record and owns beneficially the number of shares of AEI
Common Stock set forth next to each AEI Shareholder's name in Section 3.2.2(d)
of the AEI Disclosure Schedule (increased, if applicable, by any shares of AEI
Common Stock acquired by such AEI Shareholder after the date hereof as a result
of exercising its warrant or AEI Stock Option Rights, in which event AEI will
update such Section 3.2.2(d) of the AEI Disclosure Schedule no later than five
(5) days prior to the Closing Date), free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws and restrictions on stock purchased pursuant to the AEI Stock
Option Plan), Taxes, Security Interests, options, warrants, purchase rights,
claims and demands. Except for the agreements set forth in Section 3.2.2(e) of
the AEI Disclosure Schedule, such AEI Shareholder is not a party to any option,
warrant, purchase right or other contract or commitment that could require such
AEI Shareholder to sell, transfer or otherwise dispose of any shares of AEI
Common Stock (other than pursuant to this Agreement) and is not a party to any
voting trust, proxy or other agreement or understanding with respect to the
voting of any of the shares of AEI Common Stock.
3.2.3 Authorization of Transaction. AEI has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action other than the approval of the AEI
Shareholders. As of the Closing Date, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized and approved by the AEI Shareholders. This Agreement constitutes
the valid and legally binding obligation of AEI, enforceable in accordance with
its terms and conditions, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and to general principles of equity. Except as set
forth in Section 3.2.3 of the AEI Disclosure Schedule, AEI is not required to
give any notice to, make any filing with or obtain any
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Licenses and Permits of any Governmental Authority in order to consummate the
transactions contemplated by this Agreement, except in connection with the HSR
filing.
3.2.4 Noncontravention. Except as set forth in
Section 3.2.4 of the AEI Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any law, constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Authority to which AEI is subject or any
provision of the Organizational Documents of AEI or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel or require any notice under
any agreement, contract, lease, license, instrument or other arrangement to
which AEI or any of its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets).
3.2.5 Title to Assets. Except as set forth in
Section 3.2.5 of the AEI Disclosure Schedule, AEI and each AEI Subsidiary has
good and marketable title to, or a valid leasehold interest in, the properties
and assets used by it, located on its premises or shown on the Most Recent AEI
Balance Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent AEI Balance Sheet.
3.2.6 Subsidiaries. AEI has Subsidiaries as listed
in Section 3.2.6 of the AEI Disclosure Schedule and, except as disclosed in
Section 3.2.6 of the AEI Disclosure Schedule, does not own, directly or
indirectly, any shares of capital stock or other security of any other entity or
any other investment in any other entity.
3.2.7 Financial Statements. AEI has delivered to
LDIG its (i) unaudited balance sheets and statements of income and changes in
shareholders' equity as of and for the fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999 (collectively, the "AEI Financial
Statements") and (ii) unaudited balance sheet and statement of income (the "Most
Recent AEI Financial Statements") as of and for the six-month period ended June
30, 2000 (the "Most Recent Fiscal Month End"). In addition, AEI will deliver to
LDIG its unaudited balance sheet and statement of income and changes in
shareholders' equity as of and for each of the month-ends from the date hereof
through the Closing Date, provided, however, that it will be relieved of the
obligation of providing such financial statements for the month ending
immediately prior to the Closing Date if such month end is within fifteen (15)
days of the Closing Date. Such financial statements shall also be regarded as
"AEI Financial Statements" for purposes of this Agreement. The AEI Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial position of AEI and its Subsidiaries as of such
dates and the results of operations of AEI and its Subsidiaries for such
periods, subject, in the case of the Most Recent AEI Financial Statements, to
normal year-end adjustments and the failure to include the footnotes that would
be required for GAAP-prepared
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financial statements and are consistent with the books and records of AEI and
its Subsidiaries (which books and records are correct and complete in all
material respects).
3.2.8 Events Subsequent to Most Recent Fiscal
Month End. Except as set forth in Section 3.2.8 of the AEI Disclosure Schedule,
since the Most Recent Fiscal Month End, there has not been any event, occurrence
or circumstance outside the Ordinary Course of Business or that has had or could
reasonably be expected to have a Material Adverse Effect as to AEI or its
Subsidiaries. Without limiting the generality of the foregoing, except as set
forth in Section 3.2.8 of the AEI Disclosure Schedule, since that date:
(i) Neither AEI nor any of its
Subsidiaries has sold, leased, transferred or assigned any of its assets,
tangible or intangible, other than for a fair consideration in the Ordinary
Course of Business;
(ii) Neither AEI nor any of its
Subsidiaries has entered into any agreement, contract, lease or license (or
series of related agreements, contracts, leases and licenses) (A) made in the
Ordinary Course of Business involving more than $300,000 (excluding customer and
vendor contracts with established business partners involving less than
$500,000) or (B) made outside of the Ordinary Course of Business involving more
than $100,000;
(iii) No party (including AEI and its
Subsidiaries) has accelerated, terminated, modified or canceled any agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses) involving the payment or receipt of in excess of $100,000 to which
AEI or any of its Subsidiaries is a party or by which it is bound, other than at
the end of the stated term for such agreement;
(iv) Neither AEI nor any of its
Subsidiaries has imposed any Security Interest upon any of its assets, tangible
or intangible;
(v) Neither AEI nor any of its
Subsidiaries has made any capital expenditure (or series of related capital
expenditures) (A) in the Ordinary Course of Business involving more than
$1,000,000 or (B) outside the Ordinary Course of Business involving more than
$250,000;
(vi) Neither AEI nor any of its
Subsidiaries has made any capital investment in, any loan to or any acquisition
of the securities or assets of any other Person (or series of related capital
investments, loans and acquisitions);
(vii) Neither AEI nor any of its
Subsidiaries has issued any note, bond or other debt security or created,
incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
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(viii) Neither AEI nor any of its
Subsidiaries has delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) Neither AEI nor any of its
Subsidiaries has canceled, compromised, waived or released any right or claim
(or series of related rights and claims) outside the Ordinary Course of
Business;
(x) Neither AEI nor any of its
Subsidiaries has granted any license or sublicense of any rights under or with
respect to any Intellectual Property outside the Ordinary Course of Business;
(xi) There has been no change made or
authorized in the Organizational Documents of AEI or any of its Subsidiaries;
(xii) AEI has not issued, sold or
otherwise disposed of any of its capital stock or granted any options, warrants
or other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock, as the case may be;
(xiii) Neither AEI nor any of its
Subsidiaries has declared, set aside or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased or otherwise acquired any of its capital stock;
(xiv) Neither AEI nor any of its
Subsidiaries has experienced any material damage, destruction or loss (whether
or not covered by insurance) to its property;
(xv) Neither AEI nor any of its
Subsidiaries has made any loan to, or entered into any other transaction with,
any of its directors, officers or employees;
(xvi) Neither AEI nor any of its
Subsidiaries has entered into any employment contract (other than at-will
contracts) or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xvii) Neither AEI nor any of its
Subsidiaries has granted an increase of more than fifteen percent in the
compensation of any of its directors, officers or employees;
(xviii) Neither AEI nor any of its
Subsidiaries has adopted, amended, modified or terminated any bonus,
profit-sharing, incentive, stock option, severance or other plan, contract or
commitment for the benefit of any of its directors, officers and employees (or
taken any such action with respect to any other Employee Benefit Plan);
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(xix) Neither AEI nor any of its
Subsidiaries has made any other material change in employment terms for any of
its directors, officers or employees outside the Ordinary Course of Business or
in the terms of its agreements with any independent contractors;
(xx) There has not been any other
material occurrence, event, incident, action, failure to act or transaction
outside the Ordinary Course of Business involving AEI or any of its
Subsidiaries; and
(xxi) Neither AEI nor any of its
Subsidiaries is under any legal obligation, whether written or oral, to do any
of the foregoing.
3.2.9 Undisclosed Liabilities. Except as set forth
in Section 3.2.9 of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries has any material Liability (and there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against AEI giving rise to any Liability), except for (i)
Liabilities set forth or described in the Most Recent AEI Balance Sheet
(including the notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of or was caused by
any breach of contract, breach of warranty, tort, infringement or violation of
law).
3.2.10 Legal Compliance. AEI and each of its
Subsidiaries has complied in all material respects with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) of any Governmental Authority, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against it alleging any failure so
to comply.
3.2.11 Taxes.
(i) Except as set forth in Section
3.2.11(a) of the AEI Disclosure Schedule, (A) all federal, state, local and
foreign Tax Returns required to be filed by, or on behalf of, AEI and its
Subsidiaries have been filed on a timely basis with the appropriate Governmental
Authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, correct and complete in all
material respects; (B) all Taxes due and payable in respect of such Tax Returns
(whether or not shown on such returns) have been fully and timely paid or are
adequately provided for in the AEI Financial Statements; (C) all payments made
to Affiliates were properly reported on such Tax Returns and (D) all Taxes
relating to taxable periods beginning before the Closing Date (and a ratable
portion of any Taxes relating to a taxable period which begins before and ends
after the Closing Date) which are not yet due and payable by AEI or its
Subsidiaries have been fully accrued on its books and adequate reserves have
been established therefor, and all such Taxes not yet due and payable for all
periods covered by the AEI Financial Statements have been adequately provided
for in the AEI Financial Statements.
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(ii) AEI and each of its Subsidiaries
has duly and timely withheld and paid over to the appropriate Governmental
Authorities all Taxes and other amounts required to be so withheld and paid over
for all periods under all applicable laws in connection with amounts paid or
owing to any employee, independent contractor, subcontractor, lender,
stockholder or other third party or other personnel supplied by any third party.
(iii) Section 3.2.11(b) of the AEI
Disclosure Schedule lists all federal, state, local and foreign Tax Returns of
AEI and its Subsidiaries that currently are the subject of audit (including any
jurisdictions for which only a written notice of audit has been received) or as
to which there are other pending administrative or court proceedings with
respect to any Taxes for which AEI may be liable, including any known criminal
proceedings, and indicates the nature and status of any disputes or claims
concerning such Taxes. AEI has delivered, or made available, to LDIG complete
copies of all Tax Returns of AEI and its Subsidiaries for Taxes measured on or
by income or gross receipts, examination reports and statements of deficiencies
assessed against or agreed to by AEI and its Subsidiaries for all taxable
periods ending on or after December 31, 1997. All positions taken on such
federal income Tax Returns that could give rise to a substantial understatement
of federal income Tax of AEI within the meaning of Section 6662 of the Internal
Revenue Code of 1986, as amended (the "Code"), have been disclosed in such Tax
Returns in accordance with Section 6662.
(iv) Except as set forth in Section
3.2.11(c) of the AEI Disclosure Schedule, (A) neither AEI nor any of its
Subsidiaries has received notice (written or oral) of any assessment or intent
to make any assessment by any Governmental Authority regarding Taxes for any
period for which Tax Returns have been filed by or on behalf of AEI or any of
its Subsidiaries which has not been resolved prior to the date of the Agreement
or reserved against in the Most Recent AEI Financial Statements; (B) there are
no pending requests for rulings from any Governmental Authority with respect to
Taxes of AEI or any of its Subsidiaries; (C) neither AEI nor any of its
Subsidiaries has received written or, to the Knowledge of AEI, oral notice of
any claim by a Governmental Authority in a jurisdiction where such entity does
not file Tax Returns that AEI or any of its Subsidiaries is or may be subject to
taxation by that jurisdiction or is obliged to act as withholding agent under
the laws of that jurisdiction and (D) no waiver or extension of any statute of
limitations has been given or requested with respect to AEI or any of its
Subsidiaries in connection with any Tax Returns.
(v) There are no Security Interests on
any of the assets of AEI or any of its Subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax.
(vi) Except as set forth in Section
3.2.11(d) of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries is a party to or bound by any agreement providing for the
allocation, sharing or indemnification of Taxes and there are no powers of
attorney currently in effect with respect to any matter related to Taxes of AEI
or any of its Subsidiaries.
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(vii) Except as set forth in Section
3.2.11(e) of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries (A) is or ever has been a member of any "Affiliated Group" or (B)
has any liability for the Taxes of any Person under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law).
(viii) Except as set forth in Section
3.2.11(f) of the AEI Disclosure Schedule, the performance of the transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional or subsequent event) result in any payment, or the assumption of
any obligation to make a payment, that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(ix) No portion of the cost of any of
the assets of AEI or any of its Subsidiaries was financed directly or indirectly
from the proceeds of any tax-exempt state or local government obligation
described in Section 103(a) of the Code.
(x) Except as set forth in Section
3.2.11(g) of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries is a party to any joint venture, partnership or other arrangement
or contract that could be treated as a partnership for federal income tax
purposes.
(xi) AEI utilizes the accrual method of
accounting for federal income tax purposes.
(xii) Except as set forth in Section
3.2.11(h) of the AEI Disclosure Schedule, none of the AEI Shareholders is a
foreign person within the meaning of Section 1445 of the Code, nor is AEI a
foreign person within the meaning of Section 1445 of the Code.
(xiii) Except as set forth in Section
3.2.11(i) of the AEI Disclosure Schedule, neither AEI nor any other Person on
behalf of AEI: (A) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
"subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by AEI; (B) has executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any predecessor provision thereof or any
similar provision of state, local or foreign law or any other agreement relating
to Taxes with any Governmental Authority or (C) has agreed to or is required to
make any adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by AEI. The Internal Revenue Service has not proposed any such
adjustment or change in accounting method, and AEI has no application pending
with any Governmental Authority requesting permission for any changes in
accounting methods that relate to the business or operations of AEI.
(xiv) Except as set forth in Section
3.2.11(j) of the AEI Disclosure Schedule, none of the assets of AEI is (A)
property required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986;
(B) "tax-
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exempt use property" within the meaning of Section 168(h)(l) of the Code; (C)
"tax exempt bond financed property" within the meaning of Section 168(g) of the
Code or (D) "limited use property" (as that term is used in Rev. Proc. 76-30).
(xv) AEI does not constitute either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for
tax-free treatment under Section 355 of the Code (A) in the two years prior to
the date of this Agreement or (B) in a distribution that could otherwise
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Share Exchange.
(xvi) None of the transactions
contemplated by this Agreement will cause any gain or loss to be recognized by
reason of the application of the consolidated return regulations promulgated
under Section 1502 of the Code.
3.2.12 Real Property. Section 3.2.12 of the AEI
Disclosure Schedule lists and describes briefly all real property owned, leased
or subleased by or to AEI or any of its Subsidiaries. AEI has delivered, or made
available, to LDIG correct and complete copies of the leases and subleases
listed in Section 3.2.12 of the AEI Disclosure Schedule (as amended to date).
With respect to each lease and sublease to which AEI or a Subsidiary is a party,
whether or not listed in Section 3.2.12 of the AEI Disclosure Schedule:
(i) such lease or sublease is legal,
valid, binding, enforceable and in full force and effect, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, and to general
principles of equity;
(ii) except as set forth in Section
3.2.12 of the AEI Disclosure Schedule, no consent is required with respect to
such lease or sublease as a result of this Agreement, and the actions
contemplated by this Agreement will not result in the change of any terms of any
lease or sublease or otherwise affect the ongoing validity of any lease or
sublease;
(iii) neither AEI nor, to the Knowledge
of AEI, any other party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit termination, modification or acceleration
thereunder;
(iv) no party to such lease or sublease
has repudiated any material provision thereof;
(v) there are no disputes, oral
agreements or forbearance programs in effect as to such lease or sublease;
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(vi) except as set forth in Section
3.2.12 of the AEI Disclosure Schedule, neither AEI nor any of its Subsidiaries
has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the leasehold or subleasehold;
(vii) AEI and each of its Subsidiaries
have all material Licenses and Permits required in connection with the operation
of all facilities leased or subleased, and such facilities have been operated
and maintained by AEI or such Subsidiary in all material respects in accordance
with applicable laws, rules and regulations; and
(viii) all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for the
operation of said facilities.
3.2.13 Intellectual Property.
(i) Except as set forth in Section
3.2.13(a) of the AEI Disclosure Schedule, AEI and each of its Subsidiaries owns
or has the right to use pursuant to license, sublicense, agreement or permission
all Intellectual Property used in the operation of its business as presently
conducted. AEI and each of its Subsidiaries has taken all necessary action to
maintain and protect Intellectual Property that it owns or uses in the conduct
of its business, as presently conducted or reasonably expected to be conducted.
(ii) Except as set forth in Section
3.2.13(b), neither AEI nor any of its Subsidiaries has, in any material respect,
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties, and none of the
directors or officers (or employees with responsibility for Intellectual
Property matters) of AEI or any of its Subsidiaries has ever received any
charge, complaint, claim, demand or notice alleging any such material
interference, infringement, misappropriation or violation (including any claim
that AEI or any of its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party). To the knowledge of AEI, no
third party has interfered with, infringed upon, misappropriated or otherwise
come into conflict, in any material respect, with any Intellectual Property
rights of AEI or any of its Subsidiaries.
(iii) Except as set forth in Section
3.2.13(c) of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries holds any patent or patent registration which has been issued with
respect to any of its Intellectual Property, or has any application pending for
any such patent.
3.2.14 Tangible Assets. Except as set forth in
Section 3.2.14 of the AEI Disclosure Schedule, AEI or a Subsidiary of AEI owns
or leases all buildings, machinery, equipment and other tangible assets used in
the conduct of its business as presently conducted and as presently proposed to
be conducted. Each such tangible asset is free from all material defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear) and is
suitable for the purposes for which it
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presently is used. The tangible assets owned or leased by AEI and its
Subsidiaries are sufficient to conduct its business as it is currently being
conducted and as it is contemplated to be conducted in the future.
3.2.15 Contracts. Section 3.2.15 of the AEI
Disclosure Schedule lists the following contracts and other agreements to which
AEI is a party:
(i) any agreement (or group of related
agreements) for the lease of personal property to or from any Person providing
for lease payments in excess of $100,000 per annum;
(ii) any agreement concerning a
partnership or joint venture;
(iii) any agreement (or group of related
agreements) under which it has created, incurred, assumed or guaranteed any
indebtedness for borrowed money or any capitalized lease obligation or under
which a Security Interest has been imposed on any of its assets, tangible or
intangible;
(iv) any agreement concerning
noncompetition;
(v) any agreement with any AEI
Shareholder or any Affiliate or family member of any AEI Shareholder other than
at will employment arrangements with each of its Shareholders for which no
severance or other remuneration would be required in the event of a termination
without cause;
(vi) any profit sharing, stock option,
stock purchase, stock appreciation, deferred compensation, severance or other
material plan or arrangement for the benefit of its current or former directors,
officers and employees;
(vii) any written agreement for the
employment of any individual on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $150,000 or providing severance
benefits;
(viii) any agreement under which it has
borrowed, advanced or loaned any amount to any of its directors, officers and
employees other than advances in anticipation of reimbursement of ordinary and
necessary business expenses in an aggregate amount not exceeding $20,000; and
(ix) any agreements with employees or
consultants for the provision of any material goods or services other than on
arms-length terms and in the Ordinary Course of Business.
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AEI has delivered, or made available, to LDIG a correct and complete
copy of each written agreement listed in Section 3.2.15 of the AEI Disclosure
Schedule (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.2.15 of the AEI
Disclosure Schedule. With respect to each such agreement, except as set forth in
Section 3.2.15 of the AEI Disclosure Schedule: (A) the agreement is the legal,
valid and binding obligation of AEI or a Subsidiary of AEI enforceable against
AEI or such Subsidiary and in full force and effect; (B) the agreement will
continue to be the legal, valid and binding obligation of AEI or such
Subsidiary, enforceable against AEI or such Subsidiary, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither AEI nor, to the Knowledge of AEI, any other
party thereto, is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by, or permit
termination, modification or acceleration, under the agreement and (D) no party
has repudiated any provision of the agreement. The consummation of the
transaction described herein will not affect any of the agreements disclosed
herein in a manner that could reasonably be expected to have a Material Adverse
Effect on AEI or any of its Subsidiaries.
3.2.16 Powers of Attorney. There are no outstanding
powers of attorney executed on behalf of AEI or any of its Subsidiaries, except
as set forth in Section 3.2.16 of the AEI Disclosure Schedule.
3.2.17 Insurance. Section 3.2.17 of the AEI
Disclosure Schedule identifies each insurance policy (including policies
providing property, casualty, liability and workers' compensation coverage and
bond and surety arrangements) currently in effect to which AEI is a party, a
named insured or otherwise the beneficiary of coverage. With respect to each
such insurance policy, except as set forth in Section 3.2.17 of the AEI
Disclosure Schedule: (i) the policy is the legal, valid and binding obligation
of AEI, enforceable against AEI and in full force and effect; (ii) the policy
will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (iii) neither AEI nor, to the Knowledge of AEI, any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default by,
or permit termination, modification or acceleration, under the policy and (iv)
no party to the policy has repudiated any provision thereof. AEI has been
covered during the past five years by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged during the
aforementioned period. Section 3.2.17 of the AEI Disclosure Schedule describes
any self-insurance arrangements affecting AEI.
3.2.18 Litigation. Section 3.2.18 of the AEI
Disclosure Schedule sets forth each instance in which AEI or any of its
Subsidiaries (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge or (ii) is a party or, to the Knowledge of AEI, is
threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in or before any Governmental Authority, including any court
or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator. Except as disclosed in Section
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3.2.18 of the AEI Disclosure Schedule, to the Knowledge of AEI, AEI has no basis
to believe that any such action, suit, proceeding, hearing or investigation may
be brought or threatened against AEI or any of its Subsidiaries.
3.2.19 Licenses and Permits. Except as set forth in
Section 3.2.19 of the AEI Disclosure Schedule, AEI and each of its Subsidiaries
own, hold or possess all material licenses, consents, franchises, permits,
approvals and other permits, orders or authorizations of or registrations,
declarations, notices or filings with, (collectively, "Licenses and Permits")
any Governmental Authority and any other Person necessary to entitle it to use
its corporate name, to own or lease, operate and use its assets and properties
and to carry on and conduct its business and operations as presently conducted,
except for such Licenses and Permits the absence of which would not reasonably
be expected to have a Material Adverse Effect. Neither AEI nor any of its
Subsidiaries is in violation of or default under any Licenses or Permits or any
judgment, order, writ, injunction or decree of any court or administrative
agency issued against it or any law, ordinance, rule or regulation applicable to
it in any case which would reasonably be expected to have a Material Adverse
Effect.
3.2.20 Consents. Section 3.2.20 of the AEI
Disclosure Schedule lists each material permit and contract (true and complete
copies of which have been made available to LDIG) as to which notice to, or the
consent of, a Governmental Authority or Person is required to be obtained by AEI
as a condition to the transfer of control or the right to control such material
permit or contract in connection with the transactions contemplated hereby (the
"AEI Required Consents"). Other than filings and/or notices under HSR, and
except for the aforementioned notices and consents, which shall have been
obtained prior to the Closing Date and the filing of the Share Exchange
documents with the Washington Secretary of State, no Licenses and Permits of any
Governmental Authority or any Person are required to be obtained by AEI or made
by or with respect to AEI on or prior to the Closing Date in connection with (i)
the execution, delivery and performance of this Agreement, the consummation of
the transactions contemplated hereby or the taking by AEI of any other action
contemplated hereby, (ii) the continuing validity and effectiveness immediately
following the Effective Time of any material contract or permit of AEI or (iii)
the conduct by AEI of its business immediately following the Closing as
conducted or proposed to be conducted on the date hereof.
3.2.21 Employees. Except as set forth in Section
3.2.21 of the AEI Disclosure Schedule, AEI has no Knowledge of or reason to
believe that any executive, key employee or group of employees currently has any
plans voluntarily to terminate employment with AEI or any of its Subsidiaries.
Neither AEI nor any of its Subsidiaries has committed any unfair labor practice.
AEI has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of AEI
or any of its Subsidiaries.
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3.2.22 Employee Benefits.
(i) Section 3.2.22 of the AEI
Disclosure Schedule lists each Employee Benefit Plan that AEI or any of its
Subsidiaries maintains or to which AEI or any of its Subsidiaries contributes or
with respect to which AEI has or could have any material Liability or obligation
(each an "AEI Employee Benefit Plan").
(ii) Except as set forth on Schedule
3.2.22(a), each AEI Employee Benefit Plan (and each related trust, insurance
contract or fund) complies in form and in operation in all material respects
with the applicable requirements of ERISA, the Code and other applicable laws.
(iii) All required reports and
descriptions (including Form 5500 Annual Reports, Summary Annual Reports and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each AEI Employee Benefit Plan, except where failure to do so could
not reasonably be expected to result in a material Liability to AEI or any of
its Subsidiaries, as applicable. The applicable requirements of Part 6 of
Subtitle B of Title 1 of ERISA and of Code Section 4980B have been met in all
material respects with respect to each group health plan (as defined in Section
607(1) of ERISA and Section 4980B(g)(2) of the Code) sponsored, maintained or
contributed to by AEI, any of its Subsidiaries or any trade or business (whether
or not incorporated) which is or at the relevant time was under common control,
or which is or at the relevant time was treated as a single employer, with AEI
or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code (an
"AEI ERISA Affiliate").
(iv) All contributions (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of AEI. All premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(v) Except as set forth on Schedule
3.2.22(b), each AEI Employee Benefit Plan which is intended to be qualified
under Code Section 401(a) is so qualified and (A) is the subject of an unrevoked
favorable determination letter from the IRS with respect to such AEI Employee
Benefit Plan's qualified status under the Code, as amended by the Tax Reform Act
of 1986 and all subsequent legislation, or (B) has remaining a period of time
under the Code or applicable Treasury regulations or IRS pronouncements in which
to apply to the IRS for such a letter and to make any amendments necessary to
obtain such a letter from the IRS.
(vi) AEI has delivered, or made
available, to DMX correct and complete copies of the plan documents and summary
plan descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual
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Report and all related trust agreements, insurance contracts and other funding
agreements which implement each AEI Employee Benefit Plan.
(vii) With respect to each Employee
Benefit Plan that AEI or any of its Subsidiaries maintains or ever has
maintained or to which it contributes, ever has contributed or ever has been
required to contribute, there have been no Prohibited Transactions with respect
to any such Employee Benefit Plan which could reasonably be expected to result
in a material Liability to AEI, its Subsidiaries or, to AEI's Knowledge, any
other Person, which Liability has not already been satisfied. To AEI's
Knowledge, no Fiduciary has any material Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No action, suit,
proceeding, hearing or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. AEI has no Knowledge of any basis
for any such action, suit, proceeding, hearing or investigation.
(viii) None of AEI, any of its
Subsidiaries, or any AEI ERISA Affiliate contributes to, has ever contributed to
or has ever been obligated to contribute to any "employee pension plan," as
defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA or
Section 412 of the Code or to any Multiemployer Plan.
(ix) Neither AEI nor any of its
Subsidiaries maintains or contributes to, has ever maintained or contributed to
and has ever been required to contribute to, any Employee Welfare Benefit Plan
providing medical, health or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses or their
dependents (other than as required by applicable law, including, without
limitation, Sections 601 through 609 of ERISA and Section 4980B of the Code).
3.2.23 Guaranties. Neither AEI nor any of its
Subsidiaries is a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person, except as noted on
Section 3.2.23 of the AEI Disclosure Schedule.
3.2.24 Environment, Health and Safety.
(i) AEI and each of its Subsidiaries
has complied in all material respects with all Environmental, Health and Safety
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced against it
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, AEI and each of its Subsidiaries have obtained and been in
compliance with all of the terms and conditions of all material permits,
licenses and other authorizations which are required under, and has complied
with all other material limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables which are
contained in, all Environmental, Health and Safety Laws.
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(ii) AEI and each of its Subsidiaries
have no Liability and has not handled or disposed of any substance, arranged for
the disposal of any substance, exposed any employee or other individual to any
substance or condition or owned or operated any property or facility in any
manner that could form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
AEI or any of its Subsidiaries giving rise to any Liability for damage to any
site, location or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual or for any reason under any
Environmental, Health and Safety Law.
(iii) All properties and equipment owned
by, or used in the business of, AEI and each of its Subsidiaries have been free
of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans and Extremely Hazardous
Substances.
3.2.25 Customers. All contracts and agreements with
customers of AEI and its Subsidiaries are valid, effective and enforceable,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and to general principles of equity.
3.2.26 Relationships with Customers and Suppliers.
Except as set forth in Section 3.2.26 of the AEI Disclosure Schedule, AEI
believes that the relationships of AEI and its Subsidiaries with the existing
material customers and suppliers of AEI and its Subsidiaries are sound, and,
apart from the negative market reactions that might arise from the consummation
of the transactions contemplated by this Agreement, there is no basis to believe
that any of the primary customers or suppliers of AEI or any of its Subsidiaries
will materially and adversely change the manner in which they currently conduct
business with AEI or any of its Subsidiaries. Except as set forth in Section
3.2.26 of the AEI Disclosure Schedule, AEI does not know of any written or oral
communication, fact, event or action which exists or has occurred within 120
days prior to the date of this Agreement which would indicate that any of the
following shall terminate or materially reduce its business with AEI or any of
its Subsidiaries:
(i) any current customer of AEI or any
of its Subsidiaries which accounted for over 1% of total net sales of AEI and
its Subsidiaries for its most recently completed fiscal year; or
(ii) any current supplier to AEI or any
of its Subsidiaries of items essential to the conduct of the business, which
items cannot be replaced at comparable cost and the loss of which could
reasonably be expected to have an adverse effect on AEI or any of its
Subsidiaries.
Except as set forth in Schedule 3.2.26 of the AEI Disclosure
Schedule, since the date of the Most Recent AEI Balance Sheet, no customer (or
group of customers) purchasing in the aggregate $100,000 in products and
services on a yearly basis has terminated its relationship with
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AEI and its Subsidiaries prior to the end of the term of such customer's
contract or the completion of services performed by AEI and its Subsidiaries.
3.2.27 Employee and Shareholder Indebtedness.
Section 3.2.27 of the AEI Disclosure Schedule sets forth, as of the date hereof,
all indebtedness to AEI or any of its Subsidiaries of the AEI Shareholders or
the officers, directors or employees of AEI and its Subsidiaries.
3.2.28 Product Liability. Except to the extent
covered by insurance (other than the applicable insurance deductibles), neither
AEI nor any of its Subsidiaries has any Liability (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against AEI or any of its Subsidiaries giving rise to
any Liability) arising out of any injury to individuals or property as a result
of the ownership, possession or use of any product manufactured, sold, leased,
delivered, promoted, advertised or marketed by AEI or any of its Subsidiaries.
3.2.29 Change in Control. Except as set forth in
Section 3.2.29 of the AEI Disclosure Schedule, neither AEI nor any of its
Subsidiaries is a party to any contract or arrangement which contains a "change
in control," "potential change in control" or similar provision, and the
consummation of the transactions contemplated hereby do not (either alone or
upon the occurrence of additional acts or events which have occurred) result in
any payment or payments becoming due from AEI to any Person or give any Person
the right to terminate or alter the provisions of any agreement to which AEI is
a party.
3.2.30 Brokers' Fees. Neither AEI, any of its
officers, directors or employees, nor any Shareholder has any Liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement, except as disclosed
in Schedule 3.2.30.
3.3 REPRESENTATIONS AND WARRANTIES CONCERNING DMX.
DMX represents and warrants to AEI and the Remaining
AEI Shareholders that the statements contained in this Section 3.3 are correct
and complete, except as set forth in the disclosure schedule delivered by DMX to
AEI and Maxide (the "DMX Disclosure Schedule") on the date hereof and on the
Closing Date, which DMX Disclosure Schedule shall identify the specific Sections
of this Section 3.3 as to which the exception or disclosure applies. The DMX
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 3.3.
3.3.1 Organization, Qualification and Corporate
Power. DMX is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. DMX is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required and each such jurisdiction is listed in
Section
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3.3.1(a) of the DMX Disclosure Schedule, except where failure to be so qualified
or in good standing would not have a Material Adverse Effect. DMX has full
corporate power and authority necessary to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. Section
3.3.1(b) of the DMX Disclosure Schedule lists the directors and officers of DMX.
DMX has delivered to AEI and Maxide correct and complete copies of the
Organizational Documents of DMX (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors
and any committees of DMX), the stock certificate books and the stock record
books of DMX in the forms in which they have been provided to AEI are correct
and complete. DMX is not in default under or in violation of any provision of
its Organizational Documents.
3.3.2 Capitalization. The entire authorized
capital stock of DMX consists of 10,000 shares of common stock, par value $0.01.
Of this, 1,000 shares are issued and outstanding. All of the issued and
outstanding DMX Shares have been duly authorized, are validly issued, fully paid
and nonassessable and are held of record by LDIG. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require DMX
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to DMX. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of the DMX Shares. None of the outstanding DMX Shares are subject to any
forfeiture or similar restriction.
3.3.3 Authorization of Transaction. DMX has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action on the part of DMX. This Agreement constitutes
the valid and legally binding obligation of DMX, enforceable in accordance with
its terms and conditions, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and to general principles of equity. Except as set
forth in Section 3.3.3 of the DMX Disclosure Schedule, DMX is not required to
give any notice to, make any filing with or obtain any Licenses and Permits of
any Governmental Authority in order to consummate the transactions contemplated
by this Agreement, except in connection with the HSR filing.
3.3.4 Noncontravention. Except as set forth in
Section 3.3.4 of the DMX Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any law, constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Authority to which DMX is subject or any
provision of the Organizational Documents of DMX or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel or require any notice under
any agreement, contract, lease, license, instrument or other arrangement to
which DMX or any of its
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Subsidiaries is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets).
3.3.5 Title of Assets. Except as set forth in
Section 3.3.5 of the DMX Disclosure Schedule, DMX has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by it,
located on its premises or shown on the Most Recent DMX Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent DMX Balance Sheet.
3.3.6 Subsidiaries. DMX has Subsidiaries as listed
in Section 3.3.6 of the DMX Disclosure Schedule and, except as disclosed in
Section 3.3.6 of the DMX Disclosure Schedule, does not own, directly or
indirectly, any shares of capital stock or other security of any other entity or
any other investment in any other entity.
3.3.7 Financial Statements. DMX has delivered to
AEI its (i) unaudited balance sheets and statements of income and changes in
shareholders' equity as of and for the fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999 (collectively, the "DMX Financial
Statements") and (ii) unaudited balance sheet and statement of income (the "Most
Recent DMX Financial Statements") as of the Most Recent Fiscal Month End. In
addition, DMX will deliver to AEI its unaudited balance sheet and statement of
income and changes in shareholders' equity as of and for each of the month-ends
from the date hereof through the Closing Date; provided, however, that it will
be relieved of the obligation of providing such financial statements for the
month ending immediately prior to the Closing Date if such month end is within
fifteen (15) days of the Closing Date. Such financial statements shall also be
regarded as "DMX Financial Statements" for the purposes of this Agreement. The
DMX Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial position of DMX and its
Subsidiaries as of such dates and the results of operations of DMX and its
Subsidiaries for such periods, subject, in the case of the Most Recent DMX
Financial Statements, to normal year-end adjustments and the failure to include
the footnotes that would be required for GAAP-prepared financial statements, and
are consistent with the books and records of DMX and its Subsidiaries (which
books and records are correct and complete in all material respects).
3.3.8 Events Subsequent to Most Recent Fiscal
Month End. Except as set forth in Section 3.3.8 of the DMX Disclosure Schedule,
since the Most Recent Fiscal Month End, there has not been any event, occurrence
or circumstance outside the Ordinary Course of Business or that has had or could
reasonably be expected to have a Material Adverse Effect as to DMX or its
Subsidiaries. Without limiting the generality of the foregoing, except as set
forth in Section 3.3.8 of the DMX Disclosure Schedule, since that date:
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(i) Neither DMX nor any of its
Subsidiaries has sold, leased, transferred or assigned any of its assets,
tangible or intangible, other than for a fair consideration in the Ordinary
Course of Business;
(ii) Neither DMX nor any of its
Subsidiaries has entered into any agreement, contract, lease or license (or
series of related agreements, contracts, leases and licenses) (A) made in the
Ordinary Course of Business involving more than $300,000 (excluding customer and
vendor contracts with established business partners involving less than
$500,000) or (B) made outside the Ordinary Course of Business involving more
than $100,000;
(iii) No party (including DMX and its
Subsidiaries) has accelerated, terminated, modified or canceled any agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses) involving the payment or receipt of in excess of $100,000 to which
DMX is a party or by which it is bound other than at the end of the stated term
for such agreement;
(iv) Neither DMX nor any of its
Subsidiaries has imposed any Security Interest upon any of its assets, tangible
or intangible;
(v) Neither DMX nor any of its
Subsidiaries has made any capital expenditure (or series of related capital
expenditures) (A) in the Ordinary Course of Business involving more than
$1,000,000 or (B) outside the Ordinary Course of Business involving more than
$250,000;
(vi) Neither DMX nor any of its
Subsidiaries has made any capital investment in, any loan to or any acquisition
of the securities or assets of any other Person (or series of related capital
investments, loans and acquisitions);
(vii) Neither DMX nor any of its
Subsidiaries has issued any note, bond or other debt security or created,
incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
(viii) Neither DMX nor any of its
Subsidiaries has delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) Neither DMX nor any of its
Subsidiaries has canceled, compromised, waived or released any right or claim
(or series of related rights and claims) outside the Ordinary Course of
Business;
(x) Neither DMX nor any of its
Subsidiaries has granted any license or sublicense of any rights under or with
respect to any Intellectual Property outside the Ordinary Course of Business;
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(xi) There has been no change made or
authorized in the Organizational Documents of DMX or any of its Subsidiaries;
(xii) DMX has not issued, sold or
otherwise disposed of any of its capital stock or granted any options, warrants
or other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock, as the case may be;
(xiii) Neither DMX nor any of its
Subsidiaries has declared, set aside or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased or otherwise acquired any of its capital stock;
(xiv) Neither DMX nor any of its
Subsidiaries has experienced any material damage, destruction or loss (whether
or not covered by insurance) to its property;
(xv) Neither DMX nor any of its
Subsidiaries has made any loan to, or entered into any other transaction with,
any of its directors, officers or employees;
(xvi) Neither DMX nor any of its
Subsidiaries has entered into any employment contract (other than at-will
contracts) or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xvii) Neither DMX nor any of its
Subsidiaries has granted an increase of more than fifteen percent in the
compensation of any of its directors, officers or employees;
(xviii) Neither DMX nor any of its
Subsidiaries has adopted, amended, modified or terminated any bonus,
profit-sharing, incentive, stock option, severance or other plan, contract or
commitment for the benefit of any of its directors, officers and employees (or
taken any such action with respect to any other Employee Benefit Plan);
(xix) Neither DMX nor any of its
Subsidiaries has made any other material change in employment terms for any of
its directors, officers or employees outside the Ordinary Course of Business or
in the terms of its agreements with any independent contractors;
(xx) There has not been any other
material occurrence, event, incident, action, failure to act or transaction
outside the Ordinary Course of Business involving DMX or any of its
Subsidiaries; and
(xxi) Neither DMX nor any of its
Subsidiaries is under any legal obligation, whether written or oral, to do any
of the foregoing.
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3.3.9 Undisclosed Liabilities. Except as set forth
in Section 3.3.9 of the DMX Disclosure Schedule, neither DMX nor any of its
Subsidiaries has any material Liability (and there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against DMX giving rise to any Liability), except for (i)
Liabilities set forth or described in the Most Recent DMX Balance Sheet
(including the notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of or was caused by
any breach of contract, breach of warranty, tort, infringement or violation of
law).
3.3.10 Legal Compliance. DMX and each of its
Subsidiaries has complied in all material respects with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) of any Governmental Authority, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against it alleging any failure so
to comply.
3.3.11 Taxes.
(i) Except as set forth in Section
3.3.11(a) of the DMX Disclosure Schedule, (A) all federal, state, local and
foreign Tax Returns required to be filed by, or on behalf of, DMX and its
Subsidiaries have been filed on a timely basis with the appropriate Governmental
Authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, correct and complete in all
material respects; (B) all Taxes due and payable in respect of such Tax Returns
(whether or not shown on such returns) have been fully and timely paid or are
adequately provided for in the DMX Financial Statements; (C) all payments made
to Affiliates were properly reported on such Tax Returns and (D) all Taxes
relating to taxable periods beginning before the Closing Date (and a ratable
portion of any Taxes relating to a taxable period which begins before and ends
after the Closing Date) which are not yet due and payable by DMX or its
Subsidiaries have been fully accrued on its books and adequate reserves have
been established therefor, and all such Taxes not yet due and payable for all
periods covered by the DMX Financial Statements have been adequately provided
for in the DMX Financial Statements.
(ii) DMX and each of its Subsidiaries
has duly and timely withheld and paid over to the appropriate Governmental
Authorities all Taxes and other amounts required to be so withheld and paid over
for all periods under all applicable laws in connection with amounts paid or
owing to any employee, independent contractor, subcontractor, lender,
stockholder or other third party or other personnel supplied by any third party.
(iii) Section 3.3.11(b) of the DMX
Disclosure Schedule lists all federal, state, local and foreign Tax Returns of
DMX and its Subsidiaries that currently are the subject of audit (including any
jurisdictions for which only a written notice of audit has been received) or as
to which there are other pending administrative or court proceedings with
respect to any Taxes for which DMX may be liable, including any known criminal
proceedings, and indicates
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the nature and status of any disputes or claims concerning such Taxes. DMX has
delivered, or made available, to AEI complete copies of all Tax Returns of DMX
and its Subsidiaries for Taxes measured on or by income or gross receipts,
examination reports and statements of deficiencies assessed against or agreed to
by DMX and its Subsidiaries for all taxable periods ending on or after December
31, 1997. All positions taken on such federal income Tax Returns that could give
rise to a substantial understatement of federal income Tax of DMX within the
meaning of Section 6662 of the Code have been disclosed in such Tax Returns in
accordance with Section 6662.
(iv) Except as set forth in Section
3.3.11(c) of the DMX Disclosure Schedule, (A) neither DMX nor any of its
Subsidiaries has received notice (written or oral) of any assessment or intent
to make any assessment by any Governmental Authority regarding Taxes for any
period for which Tax Returns have been filed by or on behalf of DMX or any of
its Subsidiaries; (B) there are no pending requests for rulings from any
Governmental Authority with respect to Taxes of DMX or any of its Subsidiaries;
(C) neither DMX nor any of its Subsidiaries has received written or to the
Knowledge of LDIG or DMX, oral notice of any claim by a Governmental Authority
in a jurisdiction where such entity does not file Tax Returns that DMX or any of
its Subsidiaries are or may be subject to taxation by that jurisdiction or are
obliged to act as withholding agent under the laws of that jurisdiction and (D)
no waiver or extension of any statute of limitations has been given or requested
with respect to DMX or any of its Subsidiaries in connection with any Tax
Returns.
(v) There are no Security Interests on
any of the assets of DMX or any of its Subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax.
(vi) Except as set forth in Section
3.3.11(d) of the DMX Disclosure Schedule, neither DMX nor any of its
Subsidiaries is a party to or bound by any agreement providing for the
allocation, sharing or indemnification of Taxes and there are no powers of
attorney currently in effect with respect to any matter related to Taxes of DMX
or any of its Subsidiaries.
(vii) Except as set forth in Section
3.3.11(e) of the DMX Disclosure Schedule, neither DMX nor any of its
Subsidiaries (A) is or has ever been a member of any "Affiliated Group" or (B)
has any liability for the Taxes of any Person under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law).
(viii) The performance of the transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional or subsequent event) result in any payment, or the assumption of
any obligation to make a payment, that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(ix) No portion of the cost of any of
the assets of DMX or any of its Subsidiaries was financed directly or indirectly
from the proceeds of any tax-exempt state or local government obligation
described in Section 103(a) of the Code.
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(x) Except as set forth in Section
3.3.11(f) of the DMX Disclosure Schedule, neither DMX nor any of its
Subsidiaries is a party to any joint venture, partnership or other arrangement
or contract that could be treated as a partnership for federal income tax
purposes.
(xi) DMX utilizes the accrual method of
accounting for federal income tax purposes.
(xii) Neither LDIG nor DMX is a foreign
person within the meaning of Section 1445 of the Code.
(xiii) Except as set forth in Section
3.3.11(g) of the DMX Disclosure Schedule, neither DMX nor any other Person on
behalf of DMX: (A) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
"subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by DMX; (B) has executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any predecessor provision thereof or any
similar provision of state, local or foreign law or any other agreement relating
to Taxes with any Governmental Authority or (C) has agreed to or is required to
make any adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by DMX. The Internal Revenue Service has not proposed any such
adjustment or change in accounting method, and DMX has no application pending
with any Governmental Authority requesting permission for any changes in
accounting methods that relate to the business or operations of DMX.
(xiv) Except as set forth in Section
3.3.11(h) of the DMX Disclosure Schedule, none of the assets of DMX is (A)
property required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986;
(B) "tax-exempt use property" within the meaning of Section 168(h)(l) of the
Code; (C) "tax exempt bond financed property" within the meaning of Section
168(g) of the Code or (D) "limited use property" (as that term is used in Rev.
Proc. 76-30).
(xv) DMX does not constitute either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for
tax-free treatment under Section 355 of the Code (A) in the two years prior to
the date of this Agreement or (B) in a distribution that could otherwise
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Contribution.
(xvi) None of the transactions
contemplated by this Agreement will cause any gain or loss to be recognized by
reason of the application of the consolidated return regulations promulgated
under Section 1502 of the Code.
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3.3.12 Real Property. Section 3.3.12 of the DMX Disclosure
Schedule lists and describes briefly all real property owned, leased or
subleased by or to DMX or any of its Subsidiaries. DMX has delivered, or made
available, to AEI correct and complete copies of the leases and subleases listed
in Section 3.3.12 of the DMX Disclosure Schedule (as amended to date). With
respect to each lease and sublease to which DMX is a party, whether or not
listed in Section 3.3.12 of the DMX Disclosure Schedule:
(i) such lease or sublease is legal, valid, binding,
enforceable and in full force and effect, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, and to general principles of equity;
(ii) except as set forth in Section 3.3.12 of the
DMX Disclosure Schedule, no consent is required with respect to such lease or
sublease as a result of this Agreement, and the actions contemplated by this
Agreement will not result in the change of any terms of any lease or sublease or
otherwise affect the ongoing validity of any lease or sublease;
(iii) neither DMX nor, to the Knowledge of DMX, any
other party to the lease or sublease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default, or permit termination, modification or acceleration thereunder;
(iv) no party to such lease or sublease has
repudiated any material provision thereof;
(v) there are no disputes, oral agreements or
forbearance programs in effect as to such lease or sublease;
(vi) Neither DMX nor any of its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the leasehold or subleasehold;
(vii) DMX and each of its Subsidiaries have all
material Licenses and Permits required in connection with the operation of all
facilities leased or subleased, and such facilities have been operated and
maintained by DMX or such Subsidiary in all material respects in accordance with
applicable laws, rules and regulations; and
(viii) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the operation of
said facilities.
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3.3.13 Intellectual Property.
(i) Except as set forth in Section 3.3.13(a) of the
DMX Disclosure Schedule, DMX and each of its Subsidiaries own or have the right
to use pursuant to license, sublicense, agreement or permission all Intellectual
Property used in the operation of its business as presently conducted. DMX and
each of its Subsidiaries have taken all necessary action to maintain and protect
Intellectual Property that it owns or uses in the conduct of its business, as
presently conducted or reasonably expected to be conducted.
(ii) Except as set forth in Section 3.3.13(b) of the
DMX Disclosure Schedule, neither DMX nor any of its Subsidiaries has, in any
material respect, interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of third parties, and
none of the shareholders or the directors or officers (or employees with
responsibility for Intellectual Property matters) of DMX or any of its
Subsidiaries has ever received any charge, complaint, claim, demand or notice
alleging any such material interference, infringement, misappropriation or
violation (including any claim that DMX or any of its Subsidiaries must license
or refrain from using any Intellectual Property rights of any third party). To
the knowledge of DMX, no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict, in any material respect, with
any Intellectual Property rights of DMX or any of its Subsidiaries.
(iii) Except as set forth in Section 3.3.13(c) of
the DMX Disclosure Schedule, neither DMX nor any of its Subsidiaries holds any
patent or patent registration which has been issued with respect to any of its
Intellectual Property.
3.3.14 Tangible Assets. Except as set forth in Section 3.3.14
of the DMX Disclosure Schedule, DMX or a Subsidiary of DMX own or lease all
buildings, machinery, equipment and other tangible assets used in the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from all material defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. The tangible assets owned or
leased by DMX and its Subsidiaries are sufficient to conduct its business as it
is currently being conducted and as it is contemplated to be conducted in the
future.
3.3.15 Contracts. Section 3.3.15 of the DMX Disclosure
Schedule lists the following contracts and other agreements to which DMX is a
party:
(i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person providing for lease
payments in excess of $100,000 per annum;
(ii) any agreement concerning a partnership or joint
venture;
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(iii) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation or under which a Security
Interest has been imposed on any of its assets, tangible or intangible;
(iv) any agreement concerning noncompetition;
(v) any agreement with a DMX Shareholder or any
Affiliate of a DMX Shareholder other than at will employment arrangements for
which no severance or other remuneration would be required in the event of a
termination without cause;
(vi) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation, severance or other material
plan or arrangement for the benefit of its current or former directors, officers
and employees;
(vii) any written agreement for the employment of
any individual on a full-time, part-time, consulting or other basis providing
annual compensation in excess of $150,000 or providing severance benefits;
(viii) any agreement under which it has borrowed,
advanced or loaned any amount to any of its directors, officers and employees
other than advances in anticipation of reimbursement of ordinary and necessary
business expenses in an aggregate amount not exceeding $20,000; and
(ix) any agreements with employees or consultants
for the provision of any material goods or services other than on arms-length
terms and in the Ordinary Course of Business.
DMX has delivered, or made available, to AEI a correct and complete
copy of each written agreement listed in Section 3.3.15 of the DMX Disclosure
Schedule (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.3.15 of the DMX
Disclosure Schedule. With respect to each such agreement, except as set forth in
Section 3.3.15 of the DMX Disclosure Schedule: (A) the agreement is the legal,
valid and binding obligation of DMX or a Subsidiary of DMX, enforceable against
DMX or such Subsidiary and in full force and effect; (B) the agreement will
continue to be the legal, valid and binding obligation of DMX or such
Subsidiary, enforceable against DMX or such Subsidiary and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither DMX nor, to the Knowledge of DMX, any other
party thereto, is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by, or permit
termination, modification or acceleration, under the agreement and (D) no party
has repudiated any provision of the agreement. The consummation of the
transaction described herein will not affect any
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of the agreements disclosed herein in a manner that could reasonably be expected
to have a Material Adverse Effect on DMX or any of its Subsidiaries.
3.3.16 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of DMX or any of its Subsidiaries.
3.3.17 Insurance. Section 3.3.17 of the DMX Disclosure
Schedule identifies each insurance policy (including policies providing
property, casualty, liability and workers' compensation coverage and bond and
surety arrangements) currently in effect to which DMX is a party, a named
insured or otherwise the beneficiary of coverage. With respect to each such
insurance policy, except as set forth in Section 3.3.17 of the DMX Disclosure
Schedule: (i) the policy is the legal, valid and binding obligation of DMX,
enforceable against DMX and in full force and effect; (ii) the policy will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (iii) neither DMX nor, to the Knowledge of DMX, any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices) and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default by, or permit
termination, modification or acceleration, under the policy and (iv) no party to
the policy has repudiated any provision thereof. DMX has been covered during the
past five years by insurance in scope and amount customary and reasonable for
the businesses in which it has engaged during the aforementioned period. Section
3.3.17 of the DMX Disclosure Schedule describes any self-insurance arrangements
affecting DMX.
3.3.18 Litigation. Section 3.3.18 of the DMX Disclosure
Schedule sets forth each instance in which DMX or any of its Subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree, ruling or charge
or (ii) is a party or, to the Knowledge of DMX, is threatened to be made a party
to any action, suit, proceeding, hearing or investigation of, in or before any
Governmental Authority, including any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator. Except as disclosed in Section 3.3.18 of the DMX Disclosure
Schedule, to the Knowledge of DMX, DMX has no basis to believe that any such
action, suit, proceeding, hearing or investigation may be brought or threatened
against DMX or any of its Subsidiaries.
3.3.19 Licenses and Permits. Except as set forth in Section
3.3.19 of the DMX Disclosure Schedule, DMX and each of its Subsidiaries own,
hold or possess all Licenses and Permits with any Governmental Authority and any
other Person necessary to entitle it to use its corporate name, to own or lease,
operate and use its assets and properties and to carry on and conduct its
business and operations as presently conducted, except for such Licenses and
Permits the absence of which would not reasonably be expected to have a Material
Adverse Effect. Neither DMX nor any of its Subsidiaries is in violation of or
default under any Licenses or Permits or any judgment, order, writ, injunction
or decree of any court or administrative agency issued against it or any law,
ordinance, rule or regulation applicable to it in any case which would
reasonably be expected to have a Material Adverse Effect.
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3.3.20 Consents. Section 3.3.20 of the DMX Disclosure Schedule
lists each material permit and contract (true and complete copies of which have
been made available to AEI) as to which notice to, or the consent of, a
Governmental Authority or Person is required to be obtained by DMX as a
condition to the transfer of control or the right to control such material
permit or contract in connection with the transactions contemplated hereby (the
"DMX Required Consents"). Other than filings and/or notices under HSR, and
except for the aforementioned notices and consents, which shall have been
obtained prior to the Closing Date, no Licenses and Permits of any Governmental
Authority or any Person are required to be obtained by DMX or made by or with
respect to DMX on or prior to the Closing Date in connection with (i) the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby or the taking by DMX of any other action
contemplated hereby, (ii) the continuing validity and effectiveness immediately
following the Effective Time of any material contract or permit of DMX or (iii)
the conduct by DMX of its business immediately following the Closing as
conducted or proposed to be conducted on the date hereof.
3.3.21 Employees. To the Knowledge of DMX, no executive, key
employee or group of employees currently has any plans voluntarily to terminate
employment with DMX or any of its Subsidiaries. Neither DMX nor any of its
Subsidiaries has committed any unfair labor practice. DMX has no Knowledge of
any organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of DMX or any of its Subsidiaries.
3.3.22 Employee Benefits.
(i) Section 3.3.22 of the DMX Disclosure Schedule
lists each Employee Benefit Plan that DMX or any of its Subsidiaries maintains
or to which DMX or any of its Subsidiaries contributes or with respect to which
DMX has or could have any material Liability or obligation (each a "DMX Employee
Benefit Plan").
(ii) Each DMX Employee Benefit Plan (and each
related trust, insurance contract or fund) complies in form and in operation in
all material respects with the applicable requirements of ERISA, the Code and
other applicable laws.
(iii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
DMX Employee Benefit Plan, except where failure to do so could not reasonably be
expected to result in a material Liability to DMX or any of its Subsidiaries, as
applicable. The applicable requirements of Part 6 of Subtitle B of Title 1 of
ERISA and of Code Section 4980B have been met in all material respects with
respect to each group health plan (as defined in Section 607(1) of ERISA and
Section 4980B(g)(2) of the Code) sponsored, maintained or contributed to by DMX,
any of its Subsidiaries or any trade or business (whether or not incorporated)
which is or at the relevant time was under common control, or which is or at the
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relevant time was treated as a single employer, with DMX or any of its
Subsidiaries under Section 414(b), (c), (m) or (o) of the Code (a "DMX ERISA
Affiliate").
(iv) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each DMX Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension Benefit Plan
or accrued in accordance with the past custom and practice of DMX. All premiums
or other payments for all periods ending on or before the Closing Date have been
paid with respect to each DMX Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(v) Each DMX Employee Benefit Plan which is intended
to be qualified under Code Section 401(a) is so qualified and (A) is the subject
of an unrevoked favorable determination letter from the IRS with respect to such
Employee Benefit Plan's qualified status under the Code, as amended by the Tax
Reform Act of 1986 and all subsequent legislation, or (B) has remaining a period
of time under the Code or applicable Treasury regulations or IRS pronouncements
in which to apply to the IRS for such a letter and to make any amendments
necessary to obtain such a letter from the IRS.
(vi) DMX has delivered, or made available, to AEI
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report and all related trust agreements,
insurance contracts and other funding agreements which implement each DMX
Employee Benefit Plan.
(vii) With respect to each Employee Benefit Plan
that DMX or any of its Subsidiaries maintains or ever has maintained or to which
it contributes, ever has contributed or ever has been required to contribute,
there have been no Prohibited Transactions with respect to any such Employee
Benefit Plan which could reasonably be expected to result in a material
Liability to DMX, its Subsidiaries or, to DMX's Knowledge, any other Person,
which Liability has not already been satisfied. To DMX's Knowledge, no Fiduciary
has any material Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment of the assets
of any such Employee Benefit Plan. No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or threatened. DMX has no Knowledge of any basis for any such action,
suit, proceeding, hearing or investigation.
(viii) None of DMX or any of its Subsidiaries
contributes to, has ever contributed to or has ever been obligated to contribute
to any "employee pension plan," as defined in Section 3(2) of ERISA, that is
subject to Title IV of ERISA or Section 412 of the Code or to any Multiemployer
Plan.
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(ix) Neither DMX nor any of its Subsidiaries
maintains or contributes to, has ever maintained or contributed to and has ever
been required to contribute to, any Employee Welfare Benefit Plan providing
medical, health or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses or their dependents (other
than as required by applicable law, including, without limitation, Sections 601
through 609 of ERISA and Section 4980B of the Code).
3.3.23 Guaranties. Neither DMX nor any of its Subsidiaries is
a guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person, except as noted on Section 3.3.23 of the DMX
Disclosure Schedule.
3.3.24 Environment, Health and Safety.
(i) DMX and each of its Subsidiaries have complied
in all material respects with all Environmental, Health and Safety Laws and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against it alleging any failure so
to comply. Without limiting the generality of the preceding sentence, DMX and
each of its Subsidiaries have obtained and been in compliance with all of the
terms and conditions of all material permits, licenses and other authorizations
which are required under, and have complied with all other material limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables which are contained in, all Environmental, Health and
Safety Laws.
(ii) DMX and each of its Subsidiaries have no
Liability and have not handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other individual to any
substance or condition or owned or operated any property or facility in any
manner that could form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
DMX or any of its Subsidiaries giving rise to any Liability for damage to any
site, location or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual or for any reason under any
Environmental, Health and Safety Law.
(iii) All properties and equipment owned by, or used
in the business of, DMX and each of its Subsidiaries have been free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans and Extremely Hazardous Substances.
3.3.25 Customers. All contracts and agreements with customers
of DMX and its Subsidiaries are valid, effective and enforceable, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, and to general
principles of equity.
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3.3.26 Relationships with Customers and Suppliers. Except as
set forth in Section 3.3.26 of the DMX Disclosure Schedule, DMX believes that
the relationships of DMX and its Subsidiaries with the existing material
customers and suppliers of DMX and its Subsidiaries are sound, and, apart from
the negative market reactions that might arise from the consummation of the
transactions contemplated by this Agreement, there is no basis to believe that
any of the primary customers or suppliers of DMX or any of its Subsidiaries will
materially and adversely change the manner in which they currently conduct
business with DMX or any of its Subsidiaries. Except as set forth in Section
3.3.26 of the DMX Disclosure Schedule, DMX does not know of any written or oral
communication, fact, event or action which exists or has occurred within 120
days prior to the date of this Agreement which would indicate that any of the
following shall terminate or materially reduce its business with DMX or any of
its Subsidiaries:
(i) any current customer of DMX or any of its
Subsidiaries which accounted for over 1% of total net sales of such company for
its most recently completed fiscal year or
(ii) any current supplier to DMX or any of its
Subsidiaries of items essential to the conduct of the business, which items
cannot be replaced at comparable cost and the loss of which could reasonably be
expected to have an adverse effect on DMX or any of its Subsidiaries.
Since the date of the Most Recent DMX Balance Sheet, no customer
(or group of customers) purchasing in the aggregate $100,000 in products and
services on a yearly basis has terminated its relationship with DMX and its
Subsidiaries prior to the end of the term of such customer's contract or the
completion of services performed by DMX and its Subsidiaries.
3.3.27 Employee and Shareholder Indebtedness. Section 3.3.27
of the DMX Disclosure Schedule sets forth, as of the date hereof, all
indebtedness to DMX or any of its Subsidiaries of the DMX Shareholders or the
officers, directors or employees of DMX and its Subsidiaries.
3.3.28 Product Liability. Except to the extent covered by
insurance (other than the applicable insurance deductibles), neither DMX nor any
of its Subsidiaries has any Liability (and there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against DMX or any of its Subsidiaries giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession or use of any product manufactured, sold, leased,
delivered, promoted, advertised or marketed by DMX or any of its Subsidiaries.
3.3.29 Change in Control. Except as set forth in Section
3.3.29 of the DMX Disclosure Schedule, neither DMX nor any of its Subsidiaries
is a party to any contract or arrangement which contains a "change in control,"
"potential change in control" or similar provision, and the consummation of the
transactions contemplated hereby do not (either alone or upon the
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occurrence of additional acts or events which have occurred) result in any
payment or payments becoming due from DMX to any Person or give any Person the
right to terminate or alter the provisions of any agreement to which DMX is a
party.
3.3.30 Brokers' Fees. Neither DMX, any of its officers,
directors or employees, nor any Shareholder has any Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
SECTION 4. COVENANTS
4.1 PRE-CLOSING COVENANTS. From the date hereof until the earlier of
the Closing or, if applicable, termination of this Agreement under Section 7:
4.1.1 AEI Shareholders Meeting. AEI, acting through its Board
of Directors, will, in accordance with applicable law and AEI's Organizational
Documents, duly call, give notice of, convene and hold a meeting of its
shareholders as soon as practicable following the date of this Agreement for the
purpose of considering and taking action upon the approval of the Share
Exchange, redemption and note issuance and any other related matters required
under applicable law to be approved by such shareholders. AEI's Board of
Directors will recommend such approval by the shareholders and shall take all
reasonable, lawful action to solicit such approval by its shareholders.
4.1.2 Notices and Consents. Each of the Contributing Parties
and Maxide will use its commercially reasonable efforts to obtain the AEI and
DMX Required Consents and to consummate the transactions contemplated hereby,
including, without limitation, entering into agreements with certain AEI
Shareholders who are not accredited investors with respect to the redemption of
AEI Common Stock.
4.1.3 Equity Interests and Ownership Interests. Each of the
Contributing Parties will maintain all of its Equity Interests in full force and
effect, and no Contributing Party will sell, transfer, assign or take any action
to make any disposition of any of the Equity Interests or the ownership
interests held by such Person other than as contemplated by this Agreement and
the Transaction Documents.
4.1.4 Continuity and Maintenance of Operations.
(i) Each of DMX and AEI will continue to operate its
businesses, and cause its Subsidiaries to operate their businesses, in the
ordinary course consistent with past practices and will use their best efforts
to keep available the services of their employees and to preserve any beneficial
business relationships with customers, suppliers and others having business
dealings with such Party and its Subsidiaries relating to its businesses.
Without limiting the generality of the foregoing, each of DMX and AEI will, and
will cause its Subsidiaries to, maintain their assets in good condition and
repair, maintain insurance as in effect on the date of this
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Agreement and keep all of their business books, records and files in the
Ordinary Course of Business in accordance with past practices.
(ii) Neither DMX nor AEI will incur any indebtedness
for borrowed money except as contemplated under Section 4.1.8, and each of DMX
and AEI will not permit any of its Subsidiaries to incur any indebtedness for
borrowed money except as contemplated under Section 4.1.8.
(iii) Except as they may otherwise agree in writing,
and except as disclosed in Section 4.1.4 of the AEI Disclosure Schedule and
Section 4.1.4 of the DMX Disclosure Schedule, neither DMX nor AEI will, and each
of DMX and AEI will cause its Subsidiaries not to, enter into or consummate any
material acquisition, sale, merger, consolidation, strategic alliance or similar
transaction without the prior written consent of the other Party.
(iv) Neither DMX nor AEI will, and each of DMX and
AEI will cause its Subsidiaries not to, (A) issue any additional equity
securities of whatever class or series, (B) make any distributions with respect
to its capital stock or (C) redeem and/or repurchase outstanding equity, except
as contemplated under this Agreement.
4.1.5 No Violations of Representations and Warranties. No
Party will voluntarily take any action that is likely to or will result in the
failure of any representation or warranty to be true and correct on and as of
the Closing Date.
4.1.6 ▇▇▇▇▇▇ Covenants.
(i) ▇▇▇▇▇▇ will vote all shares of AEI Common Stock
with respect to which he possesses a right to vote in favor of the Share
Exchange, the acceleration of unvested AEI Options pursuant to the AEI Stock
Option Plan in accordance with the shareholder approval requirements of Section
280G of the Code and the other transactions contemplated by this Agreement.
(ii) ▇▇▇▇▇▇ will not sell, transfer or otherwise
dispose of any of his shares of AEI Common Stock prior to the earlier of the
consummation of the transactions contemplated by this Agreement or the
termination of the Agreement pursuant to Section 7.
4.1.7 Maxide Debt. As soon as is reasonably practicable
following the execution of this Agreement, the Parties will use their best
efforts to secure a loan of not less than $125 million for Maxide to be funded
in full at the Closing. Maxide will, at Closing, use the proceeds of such
financing to:
(i) refinance AEI's institutional debt (which
institutional debt will not exceed $49 million at Closing) and pay any
prepayment penalty imposed by such lenders;
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(ii) satisfy AEI's obligations under the Alliance
Stock Redemption Agreement, the DuKane Contribution Agreement and the ▇▇▇▇▇▇▇▇
Warrant Redemption Agreement;
(iii) satisfy AEI's obligations to make cash
payments to AEI Stock Optionholders, in an aggregate amount not to exceed $22.2
million, to cancel outstanding AEI stock options and to make certain payments
for post-closing employment under the AEI Stock Option Cancellation Agreements;
(iv) make the cash payments due to AEI Shareholders
who exercise and properly perfect their dissenters' rights under Chapter 23B.13
of the Washington Business Corporation Act in connection with the Share
Exchange; and
(v) cover the costs incurred by AEI and DMX (except
to the extent of costs to be borne by AEI Shareholders as described under
"Expenses" in the Letter Agreement).
4.1.8 Pre-Closing Debt Levels of AEI, Maxide and DMX. From the
date hereof through the Closing Date:
(i) AEI will manage its affairs so that AEI and its
Subsidiaries do not have, immediately prior to the Closing, debt for borrowed
money in excess of $49 million;
(ii) DMX will manage its affairs so that DMX and its
Subsidiaries do not have, immediately prior to the Closing, debt for borrowed
money in excess of $3.7 million (exclusive of debt owed to former stockholders
of Xtra Music Limited, which debt is to be satisfied in full by LDIG as required
by Section 4.2.2); and
(iii) Maxide will maintain its affairs so that
Maxide does not have any liabilities (other than incidental expenses associated
with this organization) and any debt for borrowed money other than the
obligations it has or will have at the Closing under the $125 million credit
facility contemplated by Section 4.1.7.
4.2 POST-CLOSING COVENANTS.
4.2.1 Tax Matters. From and after the Closing Date:
(i) Each of the Parties agrees to use reasonable
efforts to cause the Contribution, the Share Exchange and the Subsequent
Contribution to constitute exchanges governed by Section 351 of the Code and
will not take any action reasonably likely to cause the Contribution, governed
by the Share Exchange and the Subsequent Contribution not to so qualify. Unless
and then only to the extent otherwise required by a "determination" (as defined
in Section 1313(a)(1) of the Code) or by a similar applicable provision of state
or local law, each Party agrees (A) to report the Contribution, the Share
Exchange and the Subsequent Contribution as exchanges governed by Section 351 of
the Code and (B) not to take any position in any audit, administrative
proceeding or
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litigation that is inconsistent with the characterization of the Contribution,
the Share Exchange and the Subsequent Contribution as exchanges governed by
Section 351 of the Code.
(ii) Without the prior written consent of ▇▇▇▇▇▇
(which consent may be withheld at ▇▇▇▇▇▇'▇ sole discretion), for a period of not
less than two years after the Closing Date, AEI will not, and Maxide will not
permit AEI to, (A) merge with or into Maxide, DMX or any other Affiliate of
Maxide, (B) transfer any of its assets to Maxide, (C) transfer all or
substantially all of its assets to any Affiliate of Maxide (other than transfers
to DMX) or (D) actually or constructively liquidate. No Party has any current
plan or intention to (or to cause AEI to) perform any of the transactions listed
in this Section 4.2.1(ii).
(iii) Without the prior written consent of ▇▇▇▇▇▇
(which consent may be withheld at ▇▇▇▇▇▇'▇ sole discretion), for a period of not
less than two years after the Closing Date, DMX will not, and Maxide will not
permit DMX to (A) merge with or into Maxide, AEI or any other Affiliate of
Maxide, (B) transfer any of its assets to Maxide or AEI, (C) transfer all or
substantially all of its assets to any Affiliate of Maxide or (D) actually or
constructively liquidate. No Party has any current plan or intention to (or to
cause DMX to) perform any of the transactions listed in this Section 4.2.1(iii).
4.2.2 Payments to Former Stockholders of Xtra Music Limited.
If and to the extent that any amounts are due and owing to former shareholders
of Xtra Music Limited, in connection with DMX's acquisition of its interest in
Xtra Music Limited, LDIG will pay, or cause to be paid, when due, such amounts.
4.2.3 Post-Closing Dissenters' Payments. AEI will, and Maxide
will cause AEI to, pay any and all amounts due to the AEI Stock Optionholders
under the Stock Option Cancellation Agreements that AEI enters into prior to the
Closing, whether such amounts are payable at or subsequent to the Closing. To
the extent that AEI Shareholders exercise and perfect dissenters' rights under
Chapter 23B.13 of the Washington Business Corporation Act, AEI will, and Maxide
will cause AEI to, pay after the Closing any and all amounts to which such
dissenting AEI Shareholders are entitled under applicable law.
4.3 ACCOUNTING TREATMENT. The parties intend, for accounting and
purchase accounting purposes, to treat the Contribution and Share Exchange as
though they had occurred and were effective as of May 1, 2001.
4.4 POST-CLOSING PAYMENT. No later than May 31, 2001, Maxide will
disburse to LDIG $1,272,533 to reimburse it for prior funding of DMX's expenses.
The parties acknowledge that LDIG is providing certain employee health and
retirement plan benefits to DMX on an ongoing basis and that Maxide or DMX will
reimburse LDIG for such benefits from and including May 1, 2001.
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SECTION 5. CONDITIONS TO OBLIGATIONS
OF THE CONTRIBUTING PARTIES
5.1 JOINT CONDITIONS TO CLOSING. The obligations of Maxide, LDIG,
DMX, AEI and ▇▇▇▇▇▇ to consummate the transactions contemplated by this
Agreement to take place at the Closing are subject to satisfaction, or waiver by
them, at or prior to the Closing, of each of the following conditions:
5.1.1 HSR Waiting Period; Government Approvals. Any applicable
waiting period under the HSR has expired or terminated. All requisite
governmental approvals and waivers have been received.
5.1.2 Debt Facility. At least $125 million in debt financing
for Maxide has been received on terms reasonably acceptable to AEI and LDIG.
5.1.3 European and Middle East Business Operations. DMX and
AEI shall each have, in their discretion, consented to the terms of a merger or
other business combination in which the operations of Xtra Music Limited are
merged or combined with the European and Middle East operations of AEI. Such
terms must be agreed upon, and set forth in Exhibit K to be attached to this
Agreement, no later than May 31, 2001.
5.1.4 Xtra Music Limited Funding. DMX and AEI shall have
reached a mutually acceptable agreement as to the funding of capital
contributions to be made by DMX to Xtra Music Limited other than such funding as
is to be made by LDIG under Section 5.2.19. This Agreement shall be set forth in
Exhibit K.
5.1.5 Absence of Injunctions. No permanent or preliminary
injunction or restraining order or other similar order issued or entered by any
court or other Governmental Authority of competent jurisdiction or other legal
restraint or prohibition preventing consummation of the transactions
contemplated hereby as provided herein shall be in effect.
5.1.6 Dissenters' Rights. In the Share Exchange, dissenters'
rights have not been exercised by AEI Shareholders owning five percent (5%) or
more of the shares of AEI Common Stock.
5.1.7 Special Power of Attorney. Each Remaining AEI
Shareholder has executed the Special Power of Attorney referred to in Section
2.8.
5.2 CONDITIONS TO THE OBLIGATIONS OF AEI. The obligations of AEI to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to satisfaction, or waiver by it, at or prior to the
Closing, of each of the following conditions:
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5.2.1 Truth of Representations and Warranties. All
representations and warranties of Maxide, LDIG and DMX set forth in this
Agreement are true in each case when made and on and as of the Closing Date as
though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which are true only as of the specified
date).
5.2.2 Performance of Agreements. All agreements of each of
Maxide, DMX and LDIG set forth in this Agreement that are required to be
performed by it at or before the Closing have been performed in all material
respects.
5.2.3 Notices and Consents. All of the DMX Required Consents
have been obtained other than where failure to obtain such consent does not have
a Material Adverse Effect on DMX, AEI or any of their Subsidiaries or their
properties, taken as a whole, or on the ability of the Contributing Parties to
consummate the transactions contemplated hereby.
5.2.4 No Material Adverse Change. No material adverse change
has occurred in the financial condition, operations or prospects of DMX and its
Subsidiaries, taken as a whole, since June 30, 2000.
5.2.5 Voting Agreement. LDIG shall have executed and delivered
the Voting Agreement.
5.2.6 Stockholders Agreement. LDIG and Maxide shall have
executed and delivered the Stockholders Agreement.
5.2.7 Employment Agreement. Maxide shall have executed and
delivered the ▇▇▇▇▇▇ Employment Agreement.
5.2.8 Board of Directors. Each member of the Board of
Directors of AEI shall have resigned as a member of such Board of Directors,
effective as of the Closing Date. Maxide, LDIG, DMX and AEI have taken any and
all actions as may be necessary to elect, effective as of the Closing Date, the
Persons identified in Exhibit J as the members of the Boards of Directors of
Maxide, DMX and AEI, respectively.
5.2.9 Opinion Letter. Maxide, DMX and LDIG shall have
delivered to the Remaining AEI Shareholders an opinion dated as of the Closing
Date from ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C., special counsel to Maxide, DMX and LDIG,
addressed and in form satisfactory to AEI.
5.2.10 DMX Officer's Certificate. DMX shall have delivered to
AEI a certificate of the President or Chief Operating Officer of DMX to the
effect that:
(i) The representations and warranties of DMX
contained in this Agreement are true and correct on and as of the Closing Date
as though made on and as of the
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Closing Date (except for representations and warranties made as of a specified
date, which are true only as of the specified date);
(ii) DMX has performed and complied in all material
respects with all of the covenants and agreements hereunder required to be
performed and complied with on and as of the Closing Date; and
(iii) No action, suit or proceeding is pending or
threatened in writing before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge that would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
in any material respect the right of the Remaining AEI Shareholders to own the
capital stock of Maxide or (D) affect adversely in any material respect the
right of DMX to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling or charge is in effect).
5.2.11 Maxide Officer's Certificate. Maxide shall have
delivered to the Remaining AEI Shareholders a certificate of the President or
Chief Operating Officer of Maxide to the effect that:
(i) The representations and warranties of Maxide
contained in this Agreement are true and correct on and as of the Closing Date
as though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which are true only as of the specified
date);
(ii) Maxide has performed and complied in all
material respects with all of the covenants and agreements hereunder required to
be performed and complied with on and as of the Closing Date; and
(iii) No action, suit or proceeding is pending or
threatened in writing before any court of quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge that would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
in any material respect the right of the Remaining AEI Shareholders to own the
capital stock of Maxide or (D) affect adversely in any material respect the
right of Maxide to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling or charge is in effect).
5.2.12 LDIG Officer's Certificate. LDIG shall have delivered
to the Remaining AEI Shareholders a certificate of the President or Chief
Operating Officer of LDIG to the effect that:
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(i) The representations and warranties of LDIG
contained in this Agreement are true and correct on and as of the Closing Date
as though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which are true only as of the specified
date);
(ii) LDIG has performed and complied in all material
respects with all of the covenants and agreements hereunder required to be
performed and complied with on and as of the Closing Date; and
(iii) No action, suit or proceeding is pending or
threatened in writing before any court of quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge that would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
in any material respect the right of the Remaining AEI Shareholders to own the
capital stock of Maxide or (D) affect adversely in any material respect the
right of LDIG to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling or charge is in effect).
5.2.13 Maxide's Secretary's Certificate. Maxide shall have
delivered to the Remaining AEI Shareholders a certificate dated as of the
Closing Date, signed by a Secretary or Assistant Secretary of Maxide, certifying
that attached thereto are true and complete copies of:
(i) The Certificate of Incorporation and the Bylaws
of Maxide and all amendments thereto;
(ii) Resolutions of the Maxide Board of Directors,
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered pursuant
thereto; and
(iii) Certificates of incumbency with respect to
each Maxide officer executing and delivering any Transaction Documents.
5.2.14 DMX's Secretary's Certificate. DMX shall have delivered
to the Remaining AEI Shareholders a certificate dated as of the Closing Date,
signed by a Secretary or Assistant Secretary of DMX, certifying that attached
thereto are true and complete copies of:
(i) The Certificate of Incorporation and the Bylaws
of DMX and all amendments thereto;
(ii) Resolutions of the DMX Board of Directors,
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered pursuant
thereto; and
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(iii) Certificates of incumbency with respect to
each DMX officer executing and delivering any Transaction Documents.
5.2.15 LDIG's Secretary's Certificate. LDIG shall have
delivered to the Remaining AEI Shareholders a certificate dated as of the
Closing Date, signed by a Secretary or Assistant Secretary of LDIG, certifying
that attached thereto are true and complete copies of:
(i) The Certificate of Incorporation and the Bylaws
of LDIG and all amendments thereto;
(ii) Resolutions of the LDIG Board of Directors,
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered pursuant
thereto; and
(iii) Certificates of incumbency with respect to
each LDIG officer executing and delivering any Transaction Document.
5.2.16 Put Rights. LDIG shall have executed and delivered the
Put and Call Agreement.
5.2.17 Contribution of Xtra Music. DMX shall own a 50%
interest in Xtra Music Limited, free of any debt other than obligations which
will be satisfied by LDIG or such as have been agreed to pursuant to Sections
5.1.3 and 5.1.4.
5.2.18 Registration Rights. Maxide and LDIG shall have
executed and delivered the Registration Rights Agreements.
5.2.19 LDIG Subordinated Loan. LDIG shall have made a
subordinated loan to Maxide in the principal amount of $2,060,000 to fund the
capital contribution to be made by DMX to Xtra Music Limited. Maxide will be
obligated to repay such loan in accordance with the terms of the LDIG Promissory
Note in the form attached hereto as Exhibit I.
5.2.20 Conversion of Intercompany Debt. LDIG and DMX shall
have entered into an agreement, in form satisfactory to AEI, pursuant to which
LDIG has contributed to DMX as a capital contribution, the entire intercompany
obligation of DMX to LDIG as of the Closing Date, which debt is expected to be
in the approximate amount of $80 million.
5.3 CONDITIONS TO THE OBLIGATIONS OF MAXIDE, LDIG AND DMX.
The obligations of Maxide, LDIG and DMX to consummate the
transactions contemplated by this Agreement to take place at the Closing are
subject to satisfaction, or waiver by LDIG, at or prior to the Closing, of each
of the following conditions:
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5.3.1 Truth of Representations and Warranties. All
representations and warranties of AEI set forth in this Agreement are in all
material respects true in each case when made and on and as of the Closing Date
as though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which are true only as of the specified
date).
5.3.2 Performance of Agreements. All agreements of AEI and
▇▇▇▇▇▇ set forth in this Agreement that are required to be performed by it or
him at or before the Closing have been performed in all material respects.
5.3.3 Notices and Consents. All of the AEI Required Consents
have been obtained other than where failure to obtain such consent does not have
a Material Adverse Effect on AEI or any of its Subsidiaries or their properties,
taken as a whole, or on the ability of the Contributing Parties to consummate
the transactions contemplated hereby.
5.3.4 No Material Adverse Change. No material adverse change
has occurred in the financial condition, operations or prospects of AEI and its
Subsidiaries, taken as a whole, since June 30, 2000.
5.3.5 Voting Agreement. ▇▇▇▇▇▇ and the Consenting AEI
Shareholders shall have executed and delivered the Voting Agreement.
5.3.6 Stockholders Agreement. The Consenting AEI Shareholders
shall have executed and delivered the Stockholders Agreement.
5.3.7 Employment Agreement. Maxide shall have executed and
delivered the ▇▇▇▇▇▇ Employment Agreement.
5.3.8 Board of Directors. Each member of the Board of
Directors of DMX shall have resigned as a member of such Board of Directors,
effective as of the Closing Date, and Maxide, LDIG, DMX and AEI have taken any
and all actions necessary to elect, effective as of the Closing Date, the
Persons identified in Exhibit J as the members of the Boards of Directors of
Maxide, DMX and AEI, respectively.
5.3.9 Opinion Letter. AEI shall have delivered to LDIG an
opinion dated as of the Closing Date from ▇▇▇▇▇▇▇ Coie LLP, special counsel to
AEI, addressed and in form satisfactory to LDIG.
5.3.10 AEI Officer's Certificate. AEI shall have delivered to
LDIG a certificate of the President or Chief Operating Officer of AEI to the
effect that:
(i) The representations and warranties of AEI
contained in this Agreement are true and correct on and as of the Closing Date
as though made on and as of the
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Closing Date (except for representations and warranties made as of a specified
date, which are true only as of the specified date);
(ii) AEI has performed and complied in all material
respects with all of the covenants and agreements hereunder required to be
performed and complied with on and as of the Closing Date; and
(iii) No action, suit or proceeding is pending or
threatened in writing before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge that would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
in any material respect the right of LDIG to own the capital stock of Maxide or
(D) affect adversely in any material respect the right of AEI to own its assets
and to operate its businesses (and no such injunction, judgment, order, decree,
ruling or charge is in effect).
5.3.11 AEI's Secretary's Certificate. AEI shall have delivered
to LDIG a certificate dated as of the Closing Date, signed by a Secretary or
Assistant Secretary of AEI, certifying that attached thereto are true and
complete copies of:
(i) The Articles of Incorporation and the Bylaws of
AEI and all amendments thereto;
(ii) Resolutions of the AEI Board of Directors,
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered pursuant
thereto; and
(iii) Certificates of incumbency with respect to
each AEI officer executing and delivering any Transaction Documents.
5.3.12 Call Rights. The Consenting AEI Shareholders shall have
executed and delivered the Put and Call Agreement.
5.3.13 Cancellation or Exercise of Existing AEI Stock Options.
On or prior to the Closing, AEI shall have obtained the written commitments from
each of the AEI Stock Optionholders to take one of the following alternatives
prior to the Closing:
(i) to cancel the AEI Stock Options held in exchange
for cash payments, as set forth in an AEI Stock Option Cancellation Agreement;
or
(ii) if such AEI Stock Optionholder is an accredited
investor, to exercise all of its AEI Stock Options immediately prior to, and in
connection with, the Closing,
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entitling such AEI Stock Optionholder to receive consideration as a Remaining
AEI Stockholder in connection with the Share Exchange as contemplated by Section
2.3.
5.3.14 Registration Rights. The Consenting AEI Shareholders
shall have executed and delivered the Registration Rights Agreement.
5.3.15 AEI Shareholder Approval. AEI Shareholders holding at
least a two- thirds of the outstanding AEI Common Stock have approved the Share
Exchange.
5.3.16 AEI Brokers Release. The broker listed in Section
3.2.30 of the AEI Disclosure Schedule has executed a release for (i) any
liability for the payment of any brokerage fees in excess of $1,700,000 and (ii)
all other claims arising from the agreement(s) listed on Section 3.2.30 of the
AEI Disclosure Schedule.
5.3.17 Tax Sharing Agreement. Maxide has entered into a
mutually agreeable tax-sharing agreement with LDIG regarding the options to buy
LDIG Common Stock held by employees of DMX.
SECTION 6. CLOSING
6.1 CLOSING. Subject to the provisions of Section 7, the Closing will
take place on a date mutually agreed to by the Parties that is as soon as
practicable after all requisite SEC and shareholder approvals are obtained and
all other closing conditions are satisfied or waived (the "Closing Date").
6.2 ITEMS TO BE DELIVERED BY THE CONTRIBUTING PARTIES.
6.2.1 At the Closing, LDIG will deliver to Maxide duly
executed certificates or assignments separate from certificate representing the
shares evidencing the DMX Equity Interests. Such contribution will be made free
and clear of all liens, encumbrances and adverse claims.
6.2.2 At the Closing, AEI will deliver to Maxide duly executed
certificates or assignments separate from certificate representing the shares
evidencing the AEI Equity Interests. Such contribution will be made free and
clear of all liens, encumbrances and adverse claims.
6.3 ITEMS TO BE DELIVERED BY MAXIDE.
(i) At the Closing, Maxide will deliver to LDIG (A) duly
executed certificates representing the shares of Maxide Common Stock as provided
in Section 2.2 and (B) such other instruments as may be necessary to consummate
the transactions contemplated by this Agreement.
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(ii) At the Closing, Maxide will deliver to the Remaining AEI
Shareholders (A) duly executed certificates representing the shares of Maxide
Common Stock to which they are entitled under Section 2.3(ii), (B) their
respective share of the AEI Cash Consideration to which they are entitled under
Section 2.3(i), payable in cash or through the wire transfer of immediately
available funds to such accounts as may be designated by AEI not less than five
(5) days prior to the Closing Date; (C) the Promissory Notes to which they are
entitled under Section 2.3(iii) and (D) such other instruments as may be
necessary to consummate the transactions contemplated by this Agreement.
(iii) At the Closing, AEI will, and Maxide will cause AEI to,
pay the cash payment due to Alliance to redeem its equity interest in AEI as
provided in the Alliance Stock Redemption Agreement. Such payment shall be made
in cash, or through the wire transfer of immediately available funds, as
required by the terms of the Alliance Stock Redemption Agreement.
(iv) At the Closing, AEI and/or Maxide will deliver the
consideration due to DuKane as provided in the DuKane Contribution Agreement.
(v) At the Closing, AEI will, and Maxide will cause AEI to,
perform any and all obligations that AEI has as of the Closing under the
▇▇▇▇▇▇▇▇ Warrant Redemption Agreement.
(vi) At the Closing, Maxide shall deliver to AEI the cash
consideration, if any, to be reserved for payment to AEI Dissenting Shareholders
as provided in Section 2.3.
6.4 OTHER ITEMS TO BE DELIVERED AT CLOSING.
(i) At the Closing, Maxide, LDIG and DMX shall deliver (A) to
the extent not already delivered, each of the documents required by Section 5.2
and (B) evidence reasonably satisfactory to AEI of the satisfaction of each of
the other closing conditions required by Section 5.1.
(ii) At the Closing, AEI shall deliver (A) to the extent not
already delivered, each of the documents required by Section 5.3 and (B)
evidence reasonably satisfactory to Maxide, LDIG and DMX of the satisfaction of
each of the other closing conditions required by Section 5.1.
SECTION 7. TERMINATION
7.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time, whether
before or after approval of this Agreement:
(i) by mutual consent of LDIG and AEI;
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(ii) by either AEI or LDIG if a joint condition to closing
specified in Section 5.1 has not been satisfied on or before May 31, 2001, and
the failure to satisfy such joint condition to closing is not attributable to
such Party's breach of any obligation imposed upon it under this Agreement;
(iii) by either AEI or LDIG if the Parties are unable to
obtain, on or before May 31, 2001, a bank commitment letter, in form and
substance reasonably satisfactory to the Parties, for not less than $125 million
of financing for Maxide;
(iv) by AEI if a condition to closing specified in Section 5.2
has not been satisfied on or before May 31, 2001, unless the failure to satisfy
such condition is attributable to AEI's or ▇▇▇▇▇▇'▇ breach of any obligation
imposed upon it or him under this Agreement;
(v) by LDIG if a condition to closing specified in Section 5.3
has not been satisfied on or before May 31, 2001, unless the failure to satisfy
such condition is attributable to Maxide's, LDIG's or DMX's breach of any
obligation imposed upon it under this Agreement; or
(vi) by either AEI or DMX if (A) in the case of DMX, either
AEI or ▇▇▇▇▇▇ is in material breach of a material obligation hereunder, and such
material breach is not cured in full within ten (10) days of demand by DMX,
specifying in reasonable detail the nature of the default, or (B) in the case of
AEI, either Maxide, DMX or LDIG is in breach of a material obligation hereunder,
and such material breach is not cured in full within ten (10) days of demand
from AEI, specifying in reasonable detail the nature of the default.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 7.1, this Agreement forthwith shall become null and void and have no
further effect, and there shall be no liability or obligation on the part of
Maxide or any of the Contributing Parties or their respective Affiliates,
stockholders, directors, officers, agents or representatives other than as
provided in Section 7.3 and except that the obligations of the Parties pursuant
to Section 9.2 shall survive the termination of this Agreement indefinitely.
7.3 BREAK-UP FEE. In the event that this Agreement is terminated by
LDIG pursuant to either paragraph (v) or (vi) of Section 7.1, AEI will pay to
LDIG $5 million no later than five (5) days after such termination. In the event
that this Agreement is terminated by AEI pursuant to either paragraph (iv) or
(vi) of Section 7.1, DMX will pay to AEI $5 million no later than five (5) days
after such termination. In the event this Agreement is terminated pursuant to
any other paragraph of Section 7.1, no Party shall have any liability or further
obligation to any other Party to this Agreement.
SECTION 8. SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL. All representations and warranties contained in this
Agreement or in the other Transaction Documents or in any certificate delivered
pursuant hereto or thereto shall
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survive the Closing for a period ending the later of (i) 12 months after the
Effective Time or (ii) 60 days following delivery to LDIG and the AEI
Shareholder Representative of Maxide's audited financial statements for the year
ending December 31, 2001 (the "Survival Period"), and shall not be deemed waived
or otherwise affected by any investigation made or any knowledge acquired with
respect thereto; provided, however that the representations and warranties in
Section 3.2.11 and Section 3.3.11 shall survive the Closing for a period ending
on the date which is two years after the Effective Time (the "Tax Survival
Period"). The covenants and agreements contained in this Agreement or in the
other Transaction Documents shall survive the Closing and shall continue until
all obligations with respect thereto shall have been performed or satisfied or
shall have been terminated in accordance with their terms.
8.2 INDEMNIFICATION.
(i) Subject to the limitations set forth in this Section 8,
from and after the Closing, each of Maxide, LDIG and DMX (the "LDIG Indemnifying
Parties"), jointly and severally, shall indemnify and hold the Remaining AEI
Shareholders and their officers, directors and affiliates (as "affiliate" is
defined in Rule 12b-2 of the Exchange Act) (the "AEI Indemnified Parties")
harmless from and against, and shall reimburse the AEI Indemnified Parties for,
any and all losses, damages, debts, liabilities, obligations, judgments, orders,
awards, writs, injunctions, decrees, fines, penalties, costs or expenses,
including legal fees or disbursements ("Losses") arising out of (A) any
inaccuracy or misrepresentation in, or breach of, any representation or warranty
made by Maxide, LDIG or DMX in this Agreement, together with the DMX Disclosure
Schedule as delivered upon execution of this Agreement and as may be updated
pursuant to Section 3.3, or in any other Transaction Document and (B) any
failure by Maxide, LDIG or DMX to perform or comply, in whole or in part, with
any covenant or agreement in this Agreement or in any other Transaction
Document.
(ii) Subject to the limitations set forth in this Section 8,
from and after the Closing, the Remaining AEI Shareholders (the "AEI
Indemnifying Parties") shall indemnify and hold each of Maxide, LDIG, and DMX,
and each of their officers, directors and affiliates (as "affiliate" is defined
in Rule 12b-2 of the Exchange Act) (the "LDIG Indemnified Parties") harmless
from and against, and shall reimburse the LDIG Indemnified Parties for, any and
all Losses arising out of (A) any inaccuracy or misrepresentation in, or breach
of, any representation or warranty made by AEI in this Agreement, together with
the AEI Disclosure Schedule as delivered upon execution of this Agreement and as
may be updated pursuant to Section 3.2, or in any other Transaction Document and
(B) any failure by AEI to perform or comply, in whole or in part, with any
covenant or agreement in this Agreement or in any other Transaction Document.
(iii) Section 3.3.9 of the DMX Disclosure Schedule notes that
Pixel Systems, Inc., by correspondence commencing on August 2, 2000, has alleged
claims against DMX in the amount of $5,234,787 arising out of an agreement for
the purchase of VSAT equipment and related services (the "Pixel Claims").
Notwithstanding any other provisions in this Agreement to the contrary, if DMX,
Maxide, AEI, any of their Subsidiaries or any of their respective directors,
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officers, employees or agents (the "Maxide Indemnified Parties") should, at any
time, incur or be likely to incur any Losses (as defined in Section 8.2(i))
arising out of the Pixel Claims, such Losses shall be handled as follows:
(A) LDIG shall indemnify and hold harmless the
Maxide Indemnified Parties from any and all such Losses in accordance with the
procedures set forth in this Section 8.2(iii).
(B) To the extent that the Maxide Indemnified
Parties have Losses which in the aggregate are equal to or less than $1,000,000,
LDIG will either (i) promptly pay such Losses in cash so that the Maxide
Indemnified Parties do not in any way bear such Losses or (ii) cause Maxide to
issue to the Remaining AEI Shareholders, in proportion to the number of shares
of Maxide Common Stock obtained by them in connection with the Share Exchange,
additional shares of Maxide Common Stock equal to the aggregate amount of such
Losses divided by $417.40 (with incidental expenses incurred by Maxide in
issuing such shares of Maxide Common Stock to be borne by LDIG).
(C) To the extent that the Maxide Indemnified
Parties have Losses which in the aggregate exceed $1,000,000, LDIG will promptly
pay such Losses in cash so that the Maxide Indemnified Parties do not in any way
bear such Losses.
(D) If any of the Maxide Indemnified Parties
believes it has incurred or may be likely to incur Losses for which LDIG has an
indemnity obligation under this Section 8.2(iii), such Maxide Indemnified Party
shall give written notice of such Claim for indemnity under this Section
8.2(iii) in the same manner as any other Claims made under this Section 8, with
the following qualifications:
(i) Such Claim is not subject to the
thresholds and the limitations contained in Section 8.3;
(ii) Such Claim is not subject to the claim
procedures set forth in Section 8.4; and
(iii) The amount of such Claim will be
disregarded in determining whether the Threshold requirement of Section 8.3(i)
as to other Claims that may be brought by the AEI Indemnified Parties is met.
8.3 THRESHOLD AND LIMITATIONS. The rights of parties to seek
indemnification under this Section 8 are subject to the following limitations:
(i) The Indemnified Parties, whether they are claiming under
Section 8.2(i) or Section 8.2(ii), shall be not be entitled to receive any
indemnification payment with respect to any claims for indemnification under
this Section 8 ("Claims") until the aggregate Losses
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for which such Indemnified Parties would be otherwise entitled to receive
indemnification exceed $2,000,000 if the Claims are brought by the AEI
Indemnified Parties under Section 8.2(i), or exceed $2,000,000 if the Claims are
brought by the LDIG Indemnified Parties under Section 8.2(ii) (in either case,
such amount is the "Threshold"); provided, however, that once such aggregate
Losses exceed the Threshold for either Party, both the AEI Indemnified Parties
and the LDIG Indemnified Parties, as the case may be (each such group herein
collectively referred to as the "Indemnified Parties"), shall be entitled to
indemnification for the aggregate amount of all Losses without regard to the
Threshold.
(ii) No Claim may be asserted by either the AEI Indemnified
Parties or the LDIG Indemnified Parties unless a Claim Notice with respect to
such Claim is given to the Indemnifying Parties no later than 30 days after the
expiration of the Survival Period or the Tax Survival Period, as the case may
be.
(iii) Any and all claims that either the AEI Indemnified
Parties or the LDIG Indemnified Parties may have, whether under Section 8.2(i)
or Section 8.2(ii) of this Agreement, shall be settled exclusively in accordance
with the settlement procedures set forth in Section 8.4, and no such Indemnified
Parties shall have the right to receive, or pursue a judgment for, a personal
judgment against any of the parties having indemnification obligations under
this Section 8.
8.4 CLAIM SETTLEMENTS. If any of the Indemnified Parties has a Claim
for indemnification for the breach of representations and warranties, whether
such Claim is asserted under Section 8.2(i) or Section 8.2(ii), the settlement
of such Claim must be handled in accordance with this Section 8.4:
(i) The Indemnified Party shall give the Claim Notice, as
provided in Section 8.5, as soon as is reasonably practicable after discovery of
the facts on which the Indemnified Party intends to base a Claim for
indemnification pursuant to Section 8. However, such Claim Notice must, in all
events, be given no later than 30 days after expiration of the Survival Period
or the Tax Survival Period, as the case may be. Irrespective of the date Claim
Notices are given, all Claims for which indemnification is sought shall be
settled concurrently on a settlement date (the "Settlement Date") selected by
the AEI Shareholder Representative on behalf of the AEI Indemnified Parties and
LDIG on behalf of the LDIG Indemnified Parties, which date may be no later than
90 days after expiration of the Tax Survival Period, or, if one or more of the
Claims is being contested as permitted under Section 8.5, no later than 30 days
after the resolution of all contested Claims.
(ii) All Claims timely asserted, whether brought under Section
8.2(i) or Section 8.2(ii), shall be settled concurrently on the Settlement Date.
(iii) If an Indemnified Party is obligated to incur any out of
pocket expenses associated with any Claim as to which such Indemnified Party
gives a Claim Notice within the time period permitted by Section 8.4(ii),
although the settlement of such Claim shall be deferred
until the Settlement Date, the Indemnified Party shall be entitled, as an
additional element of its Claim, to
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interest on the expenses incurred at the rate of 8% per annum, until such Claim
is settled. All references in this Section 8.4 to Claims shall be understood to
include such interest accrual.
(iv) If the AEI Indemnified Parties bring a Claim under
Section 8.2(i), such Claim shall be satisfied, on the Settlement Date, as
follows:
(A) First, by offsetting against the Claim the
amount, if any, of Claims that the LDIG Indemnifying Parties have against the
AEI Indemnified Parties under Section 8.2(ii), whether or not such Claims meet
the Threshold; and
(B) Thereafter, to the extent that the AEI
Indemnified Parties have a residual unsatisfied claim against the LDIG
Indemnifying Parties (the "AEI Residual Claim"), by issuing to the Remaining AEI
Shareholders additional shares of Maxide Common Stock, so that the ratio of the
number of shares of Maxide Common Stock issued to the Remaining AEI Shareholders
under this Agreement to the number of such shares issued to LDIG equals the
ratio of (I) $109.10 million to (II) $141.34 million reduced by the amount of
the AEI Residual Claim; provided that, to the extent that the issuance of shares
pursuant to this Section 8.4(iii)(B) would result in LDIG owning less than 50.1%
of the outstanding shares of Maxide Common Stock, such Remaining AEI
Shareholders will be issued shares of an authorized class of stock having the
same rights as the Maxide Common Stock other than voting rights.
(v) If the LDIG Indemnified Parties bring a Claim under
Section 8.2(ii), such Claim shall be satisfied, on the Settlement Date, as
follows:
(A) First, by offsetting against the Claim the
amount, if any, of the Claims that the AEI Indemnifying Parties have against the
LDIG Indemnified Parties under Section 8.2(i), whether or not such Claims meet
the Threshold; and
(B) Thereafter, to the extent that the LDIG
Indemnified Parties have a residual unsatisfied claim against the AEI
Indemnifying Parties (the "LDIG Residual Claim"), by issuing to LDIG additional
shares of Maxide Common Stock, so that the ratio of the number of shares issued
to LDIG under this Agreement to the number of such shares issued to the
Remaining AEI Shareholders equals the ratio of (I) $141.34 million, to (II)
$109.10 million reduced by the amount of the LDIG Residual Claim.
(vi) If, after the Effective Date, but before the Settlement
Date, Maxide issues additional shares of its capital stock, Maxide's Board of
Directors may, at its discretion, grant to the recipients of such capital stock
anti-dilution protection to protect such recipients from dilution of their
equity interest in Maxide as a result of the issuance of additional shares of
Maxide Common Stock pursuant to either Section 8.4(iv) or Section 8.4(v).
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8.5 PROCEDURE FOR INDEMNIFICATION.
(i) An Indemnified Party shall give written notice (the "Claim
Notice") of any Claim for indemnification under this Section 8 to the LDIG
Indemnifying Parties or the AEI Indemnifying Parties, as appropriate (each an
"Indemnifying Party") reasonably promptly after the assertion against an
Indemnified Party of any claim by a third party (a "Third Party Claim") or, if
such Claim is not in respect of a Third Party Claim, reasonably promptly after
the discovery of facts on which the Indemnified Party intends to base a Claim
for indemnification pursuant to Section 8; provided, however, that, subject to
Section 8.4(i), the failure or delay to so notify the Indemnifying Party shall
not relieve the Indemnifying Party of any obligation or liability that the
Indemnifying Party may have to the Indemnified Party except to the extent that
the Indemnifying Party demonstrates that the Indemnifying Party's ability to
defend or resolve such Claim is adversely affected thereby. Any such Claim
Notice shall describe the facts and circumstances on which the asserted Claim
for indemnification is based and the basis for the determination of the amount
which the Indemnified Party intends to recover. If the Indemnified Party is any
of the AEI Indemnified Parties, once either the AEI Shareholder Representative
or the Remaining AEI Shareholders have given LDIG notice of a Claim under this
Section 8.5, thereafter the AEI Shareholder Representative shall, subject to
Section 8.5(iii), make all decisions regarding the settlement or resolution of
such Claim by and on behalf of the Indemnified Party, and the Indemnifying Party
may rely conclusively upon the power and authority of the AEI Shareholder
Representative to receive notices with respect to, and to take actions binding
upon, the Remaining AEI Shareholders as an Indemnified Party. For purposes of
providing notice to the Remaining AEI Shareholders when such persons are
Indemnifying Parties under Section 8.2(ii), notice to the AEI Shareholder
Representative shall be sufficient.
(ii) If, within 30 days of the receipt by the Indemnifying
Party of a Claim Notice, the Indemnifying Party contests in writing to the
Indemnified Party that Losses identified in such Claim Notice constitute
disputed Claims (the "Contest Notice"), then the Indemnified Party and the
Indemnifying Party, acting in good faith, shall attempt to reach agreement with
respect to the contested portions of such Claims. Unless a Claim is contested
within such 30-day period, the Indemnified Party shall, subject to the other
terms of this Section 8, be obligated to settle the amount of the Losses related
to such Claim or the uncontested portion thereof in accordance with the
provisions of Section 8.4. The Indemnifying Party shall not object to any Claim
unless (A) it believes in good faith that the Indemnified Party is not entitled
to be indemnified with respect to the Losses specified therein or (B) it lacks
sufficient information to assess the validity or amount of the Claim. If the
Indemnifying Party objects to a Claim on the basis that it lacks sufficient
information, it shall promptly request from the Indemnified Party any additional
information reasonably necessary for it to assess such Claim and the Indemnified
Party shall, to the extent the Indemnified Party reasonably can, provide
additional information reasonably requested. Upon receipt of such additional
information, the Indemnifying Party shall review it as soon as reasonably
practicable and notify the Indemnified Party of any withdrawal or modification
of the objection. If the Indemnified Party and the Indemnifying Party are unable
to reach agreement with respect to any contested Claims within 45 days of the
delivery of the Contest Notice, the matter shall be settled by binding
arbitration
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in Los Angeles, California as set forth below. All claims shall be settled in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association (the "AAA Rules"). The Indemnifying Party and the
Indemnified Party shall each designate one arbitrator within 15 days after the
termination of such 45-day period. The Indemnifying Party and the Indemnified
Party shall cause such designated arbitrators mutually to agree upon and
designate a third arbitrator; provided, however, that (i) failing such agreement
within 70 days of delivery of the Contest Notice, the third arbitrator shall be
appointed in accordance with the AAA Rules and (ii) if either the Indemnifying
Party or the Indemnified Party fails to timely designate an arbitrator, the
dispute shall be resolved by the one arbitrator timely designated. All of the
fees and expenses of the arbitrators shall be paid by the non-prevailing party,
or as determined by the arbitrators if neither party is fully prevailing. The
Indemnifying Party and the Indemnified Party shall cause the arbitrators to
decide the matter to be arbitrated pursuant hereto within 30 days after the
appointment of the last arbitrator. The arbitrators' decision shall relate
solely to whether the Indemnified Party is entitled to be indemnified for the
contested Claim, or the contested portion thereof, pursuant to the applicable
terms of this Agreement. The final decision of the majority of the arbitrators
shall be furnished to the Indemnifying Party and the Indemnified Party in
writing and shall constitute the conclusive determination of the issue in
question binding upon the Indemnifying Party, and the Indemnified Party, and
shall not be contested by any of them. Such decision may be used in a court of
law only for the purpose of seeking enforcement of the arbitrators' decision.
(iii) (A) Subject to the rights of or duties to any insurer or
other third party having potential liability therefor, the Indemnifying Party
shall have the right, upon written notice given to the Indemnified Party within
30 days after receipt of the notice from the Indemnified Party of any Third
Party Claim, to assume the defense or handling of such Third Party Claim, at the
Indemnifying Party's sole expense, in which case the provisions of Section
8.5(iii)(B) shall govern; provided, however, that, notwithstanding the
foregoing, Maxide may elect to assume the defense and handle any such Third
Party Claim if it determines in good faith that the resolution of such Third
Party Claim could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of Maxide, in which case the provisions of
Section 8.5(iv)(B) hereof shall govern.
(B) The Indemnifying Party (or Maxide, as the case
may be) shall select counsel reasonably acceptable to the Indemnified Party in
connection with conducting the defense or handling of such Third Party Claim,
and the Indemnifying Party (or Maxide) shall defend or handle the same in
consultation with the Indemnified Party and shall keep the Indemnified Party
timely apprised of the status of such Third Party Claim. The Indemnifying Party
(or Maxide) shall not, without the prior written consent of the Indemnified
Party, agree to a settlement of any Third Party Claim, unless (I) the settlement
provides an unconditional release and discharge of the Indemnified Party, and
the Indemnified Party is reasonably satisfied with such discharge and release
and (II) the Indemnified Party shall not have reasonably objected to any such
settlement on the ground that the circumstances surrounding the settlement could
result in an adverse impact on the business, operations, assets, liabilities
(absolute, accrued, contingent or otherwise), condition (financial or otherwise)
or prospects of the Indemnified Party. The Indemnified Party shall cooperate
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with the Indemnifying Party (or Maxide) and shall be entitled to participate in
the defense or handling of such Third Party Claim with its own counsel and at
its own expense.
(iv) (A) If (I) the Indemnifying Party does not give written
notice to the Indemnified Party pursuant to Section 8.5(ii)(A) within 30 days
after receipt of the notice from the Indemnified Party of any Third Party Claim
of the Indemnifying Party's election to assume the defense or handling of such
Third Party Claim or (II) Maxide does not elect to assume the defense or
handling of the Third Party Claim pursuant to Section 8.5(iii)(B), the
provisions of Section 8.5(iv)(B) shall govern.
(B) The Indemnified Party may, at the Indemnifying
Party's expense (which shall be paid from time to time by the Indemnifying Party
as such expenses are incurred by the Indemnified Party), select counsel in
connection with conducting the defense or handling of such Third Party Claim and
defend or handle such Third Party Claim in such manner as it may deem
appropriate; provided, however, that the Indemnified Party shall keep the
Indemnifying Party timely apprised of the status of such Third Party Claim and
shall not settle such Third Party Claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. If the
Indemnified Party defends or handles such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party and shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
8.6 REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided in
this Section 8.6, the indemnification provisions of this Section 8 are the sole
and exclusive remedy of any Party to this Agreement for a breach of any
representation, warranty or covenant contained herein. Notwithstanding the
preceding sentence, each of the Parties acknowledges and agrees that the other
Parties hereto would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties hereto agrees that the
other Parties hereto shall be entitled to an injunction to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof (including the indemnification provisions
hereof) in any competent court having jurisdiction over the Parties.
8.7 ISSUANCE OF ADDITIONAL SHARES OF MAXIDE COMMON STOCK. By
executing this Agreement, each of the Parties consents to the issuance, if
necessary, of additional shares of Maxide Common Stock under this Section 8, and
agrees to take, or cause to be taken, all such board and stockholder action as
may be necessary to authorize the issuance of such shares of Maxide Common
Stock. Such shares of Maxide Common Stock, when issued, will be duly and validly
issued and outstanding, fully paid and nonassessable and will not have been
issued in violation of, or subject to, any preemptive rights.
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SECTION 9. MISCELLANEOUS
9.1 NOTICES. All notices, requests, demands and other communications
called for or contemplated hereunder will be in writing and will be deemed to
have been duly given if delivered in Person or by United States certified or
registered mail, postage prepaid, return receipt requested, addressed to the
Parties, their permitted successors in interest or assignees, or sent by
overnight courier or telecopier (with acknowledgment received):
To Maxide, DMX or LDIG at: ▇/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Street
Englewood, Colorado 80112
Attention: ▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: DMX Music, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and another copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
To AEI or ▇▇▇▇▇▇ at: AEI Music Network, Inc.
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ Coie LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any Party may change the address to which notices are required to be
sent by giving notice of such change in the manner provided in this Section.
All notices and other communications given to a Person in accordance with the
provisions of this Section will be deemed to have been received (i) on the date
of delivery if delivered by hand or transmitted by telecopier (with
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acknowledgment received), (ii) on the next Business Day after the sending
thereof by a reliable overnight courier service, with acknowledgment of receipt
or (iii) on the third Business Day after the mailing thereof by certified or
registered mail, postage prepaid, return receipt requested, except that any
notice of a change of address will be effective only upon actual receipt.
9.2 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the Parties will bear the fees and expenses relating to its
compliance with the various provisions of this Agreement, and each of the
Parties will pay all of its own expenses (including all attorneys' fees and
expenses) incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the preparation
made for carrying the same into effect.
9.3 MODIFICATION; WAIVER. This Agreement may be modified by mutual
agreement only by a writing signed by each of the Parties, and no provision or
condition herein may be waived other than by a writing signed by the Party
waiving such provision or condition.
9.4 HEADINGS. Article and Section headings in this Agreement are for
the sole purpose of convenient reference and in no way define, limit or
prescribe the scope or intent of this Agreement or any part hereof, and such
headings will not be considered in interpreting or construing this Agreement.
9.5 ASSIGNMENT. Neither Maxide, DMX nor any of the Contributing
Parties may assign any of its rights under this Agreement or delegate its duties
hereunder unless it obtains the prior written consent of the other Parties
hereto, which consent may be withheld at any such Party's absolute discretion.
9.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be deemed to be an original, and all of which
taken together will constitute one instrument.
9.7 ADDITIONAL DOCUMENTS. At the Closing and from time to time after
the Closing, at any Party's request and without further consideration, any of
the other Parties will execute and deliver (or cause to be executed and
delivered) such other instruments of conveyance and transfer and will take such
other actions as may reasonably be required effectively to carry out the
Contribution and Share Exchange and the other transactions contemplated by this
Agreement and the Transaction Documents.
9.8 OTHER. Except as provided in Section 9.12, this Agreement
constitutes the entire agreement of the Parties regarding the subject matter
hereof, and all prior or contemporaneous agreements, understandings,
representations and statements, oral or written, are merged into this Agreement,
including, without limitation, the Letter Agreement. This Agreement will be
binding upon and inure to the benefit of the Parties and, subject to the
limitations set forth in Section 9.5, their respective successors and assigns.
The provisions of this Agreement are for the exclusive
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benefit of the Parties and their permitted successors and assigns, and no other
Person is intended to be a third-party beneficiary or to have any rights by
virtue of this Agreement.
9.9 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Delaware, without regard to the conflicts of laws rules thereof.
9.10 INTERPRETATION. Terms used with initial capital letters will
have the meanings specified, applicable to both singular and plural forms, for
all purposes of this Agreement. All pronouns (and any variation) will be deemed
to refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word "include" (and any variation) is used in an illustrative sense
rather than a limiting sense. The word "day" means a calendar day, and if the
last day for the giving of any notice or the taking of any other action is a day
that is not a Business Day, the time for giving such notice or taking such
action will be deemed extended to the next Business Day.
9.11 CONFIDENTIALITY. Each party hereby acknowledges and reaffirms
their respective obligations under the certain Nondisclosure Agreement between
the parties, dated July 5, 2000, the provisions of which shall apply to this
Agreement.
9.12 SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the Parties. The Parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
9.13 ▇▇▇▇▇▇'▇ EXECUTION AGREEMENT. ▇▇▇▇▇▇ is executing this Agreement
for the sole purpose of evidencing his agreement to be bound by the specific
provisions of this Agreement to which he is a Party. His execution does not bind
him to perform the duties and obligations of AEI under this Agreement.
9.14 DELIVERIES TO LDIG. Various sections in this Agreement require
the pre- closing delivery of documents to LDIG. AEI will have satisfied such
delivery obligations if such documents are delivered to either LDIG or DMX.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
LIBERTY DIGITAL, INC.
By: s/s ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
DMX MUSIC, INC.
By: s/s ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
AEI MUSIC NETWORK INC.
By: s/s ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
MAXIDE ACQUISITION, INC.
By: s/s ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
By: s/s ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇