EXHIBIT 2.1
Execution Copy
PURCHASE AGREEMENT
AMONG
WMGA LLC
AND
▇▇▇▇▇▇▇ ENTERTAINMENT COMPANY
AND
▇▇▇▇▇▇▇ CREATIVE GROUP, INC.
DATED AS OF NOVEMBER 21, 2001
TABLE OF CONTENTS
Page #
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ARTICLE I. PURCHASE AND SALE OF MEMBERSHIP INTERESTS...............................................2
1.01 Transfer of Company Interests..........................................................2
ARTICLE II. CONSIDERATION..........................................................................3
2.01 Purchase Price.........................................................................3
2.02 Payment of Purchase Price..............................................................3
2.03 Purchase Price Adjustment..............................................................3
ARTICLE III. CLOSING; OBLIGATIONS OF THE PARTIES...................................................6
3.01 Closing Date...........................................................................6
3.02 Obligations of the Parties at the Closing..............................................6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES BY ▇▇▇▇▇▇▇ AND SELLER...................................7
4.01 Ownership of Seller and the Company Interests; Validity and Enforceability.............7
4.02 Organization, Good Standing and Qualification..........................................8
4.03 Subsidiaries...........................................................................9
4.04 Authorization; Valid and Binding Agreement............................................11
4.05 No Violation..........................................................................12
4.06 Capitalization........................................................................13
4.07 Financial Statements..................................................................13
4.08 Property and Leases...................................................................14
4.09 Title to Properties; Encumbrances.....................................................15
4.10 Environmental Matters.................................................................16
4.11 No Undisclosed Liability..............................................................17
4.12 Absence of Certain Changes............................................................17
4.13 Taxes.................................................................................19
4.14 Compliance with Applicable Law........................................................22
4.15 Litigation............................................................................22
4.16 Insurance.............................................................................22
4.17 Employees and Fringe Benefit Plans....................................................23
4.18 Intellectual Property.................................................................26
4.19 Contracts and Commitments.............................................................42
4.20 Accounts Receivable...................................................................44
4.21 Labor Matters.........................................................................44
4.22 No Breach.............................................................................45
4.23 Inventory.............................................................................45
4.24 Professional Fees.....................................................................46
4.25 Affiliated Transactions...............................................................46
4.26 Full Disclosure.......................................................................47
ARTICLE V. REPRESENTATIONS AND WARRANTIES BY BUYER................................................47
5.01 Organization and Good Standing........................................................47
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5.02 Authorization.........................................................................47
5.03 Valid and Binding Agreement...........................................................47
5.04 No Violation..........................................................................48
5.05 Professional Fees.....................................................................48
5.06 Consents and Approvals................................................................48
5.07 Investment Intent.....................................................................48
5.08 Sufficient Funds......................................................................49
5.09 Full Disclosure.......................................................................49
5.10 Reliance of Representations of Seller.................................................49
ARTICLE VI. COVENANTS AND AGREEMENTS OF ▇▇▇▇▇▇▇ AND SELLER........................................49
6.01 Conduct of Business Pending the Closing...............................................49
6.02 Access................................................................................54
6.03 Consents and Approvals................................................................54
6.04 Payment of Indebtedness by Related Persons............................................55
6.05 Schedules.............................................................................55
ARTICLE VII. COVENANTS AND AGREEMENTS OF BUYER....................................................56
7.01 Consents and Approvals................................................................56
7.02 Books and Records.....................................................................56
7.03 Buyer's Knowledge of Gaylord's and Seller's Representations...........................57
7.04 Employee Matters......................................................................58
7.05 Use of ▇▇▇▇▇▇▇ or Word Name...........................................................61
7.06 Delivery of Current and Historical Data Files.........................................61
7.07 Canada Distribution...................................................................62
ARTICLE VIII. CONDITIONS TO BUYER'S OBLIGATIONS...................................................62
8.01 Representations and Warranties........................................................62
8.02 Performance by ▇▇▇▇▇▇▇ and Seller.....................................................63
8.03 Certificates of ▇▇▇▇▇▇▇ and Seller....................................................63
8.04 Opinion of Counsel for ▇▇▇▇▇▇▇ and Seller.............................................63
8.05 Consents and Approvals................................................................63
8.06 Litigation............................................................................63
8.07 Certain Actions and Conversions.......................................................64
8.08 Other Agreements......................................................................64
8.09 FIRPTA Affidavit......................................................................64
ARTICLE IX. CONDITIONS TO GAYLORD'S AND SELLER'S OBLIGATIONS......................................65
9.01 Representations and Warranties........................................................65
9.02 Performance by Buyer..................................................................65
9.03 Certificate of Buyer..................................................................65
9.04 Consents and Approvals................................................................65
9.05 Litigation............................................................................65
ARTICLE X. TERMINATION OF AGREEMENT...............................................................66
10.01 Termination Events....................................................................66
10.02 Effect of Termination.................................................................67
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ARTICLE XI. TAX MATTERS...........................................................................67
11.01 Liability for Taxes; Preparation of Tax Returns.......................................67
11.02 Cooperation on Tax Matters............................................................69
11.03 Tax Audits............................................................................69
11.04 Proration of Taxes, Income and Deductions.............................................70
11.05 Allocation of Purchase Price..........................................................71
11.06 Transfer Taxes........................................................................71
11.07 Payroll Taxes.........................................................................72
11.08 Tax Refunds...........................................................................72
ARTICLE XII. INDEMNITY............................................................................72
12.01 Indemnification by Seller.............................................................72
12.02 Indemnification by Buyer..............................................................73
12.03 Procedure.............................................................................73
12.04 Exclusive Remedy......................................................................75
12.05 Survival of Representations...........................................................76
ARTICLE XIII. MISCELLANEOUS.......................................................................77
13.01 Expenses..............................................................................77
13.02 Assignability; Parties in Interest....................................................77
13.03 Entire Agreement; Amendments..........................................................77
13.04 Headings..............................................................................78
13.05 Severability..........................................................................78
13.06 Notices...............................................................................78
13.07 Governing Law.........................................................................79
13.08 WAIVER OF JURY TRIAL..................................................................80
13.09 Public Announcements..................................................................80
13.10 No Third Party Beneficiaries..........................................................81
13.11 Knowledge of Seller...................................................................81
13.12 Counterparts..........................................................................81
List of Exhibits
Exhibit A Form of Opinion of Bass, ▇▇▇▇▇ & ▇▇▇▇
Exhibit B Form of Non-Competition Agreement
Exhibit C Form of FIRPTA Certificate
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PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made and entered into this
21st day of November, 2001, by and among WMGA LLC, a Delaware limited liability
company ("Buyer"), ▇▇▇▇▇▇▇ ENTERTAINMENT COMPANY, a Delaware corporation
("▇▇▇▇▇▇▇"), and ▇▇▇▇▇▇▇ CREATIVE GROUP, INC., a Delaware corporation
("Seller"). Warner Music Group Inc. is executing the Guaranty on the signature
page to this Agreement as guarantor of the obligations of Buyer.
WHEREAS, ▇▇▇▇▇▇▇ owns all of the issued and outstanding shares of the
capital stock of Seller;
WHEREAS, Seller owns: (i) all of the issued and outstanding shares of
the capital stock of Word Music Group, Inc., a Tennessee corporation ("Word
Music Group"); (ii) ninety-nine percent (99%) of the issued and outstanding
limited liability company interests of Word Entertainment Direct, LLC, a
Tennessee limited liability company ("Word Direct"); and (iii) fifty percent
(50%) of the issued and outstanding limited liability company interests of
Celebration Hymnal, LLC, a Tennessee limited liability company ("Celebration");
WHEREAS, Word Music Group owns: (i) all of the issued and outstanding
shares of the capital stock of Dayspring Music, Inc., a Tennessee corporation
("Dayspring"); (ii) all of the issued and outstanding shares of the capital
stock of Wordspring Music, Inc., a Tennessee corporation ("Wordspring"); (iii)
all of the issued and outstanding shares of the capital stock of Word Music,
Inc., a Tennessee corporation ("WMI"); and (iv) one percent (1%) of the issued
and outstanding limited liability company interests of Word Direct;
WHEREAS, Seller and the Subsidiaries (as defined in Section 4.03), under
the trade name "Word Entertainment," currently are engaged in the production,
distribution and marketing of recorded music and related products, the domestic
and international distribution of recordings for other companies and music
publishing, including songwriter development, print music, music publishing,
copyright administration and audio-visual work creation (the "Music Business");
and
WHEREAS, Buyer desires to acquire from Seller, and Seller desires to
sell to Buyer, the Music Business, including the Subsidiaries, upon and subject
to the terms and conditions contained in this Agreement, including the transfer
of certain assets to Idea Entertainment LLC, a Tennessee limited liability
company (the "Company"), as described in Section 6.01(b).
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I.
PURCHASE AND SALE OF MEMBERSHIP INTERESTS
1.01 TRANSFER OF COMPANY INTERESTS. Subject to all of the terms and
conditions of this Agreement, at the Closing (as defined in Section 3.01), and
following the transfer of certain assets by Seller to the Company and the
restructuring of the Subsidiaries as contemplated in Section 6.01(b), Seller
hereby agrees to sell, transfer and convey to Buyer, and Buyer agrees to
purchase and acquire from Seller, free and clear of all Encumbrances (as defined
in Section 4.01) of any kind, all of the membership interests of the Company
held by Seller immediately prior to the Closing (the "Company Interests"), which
will constitute 100% of the outstanding membership interests of the Company.
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ARTICLE II.
CONSIDERATION
2.01 PURCHASE PRICE. Subject to Section 2.03, the purchase price for the
Company Interests shall be $84,100,000 (the "Purchase Price").
2.02 PAYMENT OF PURCHASE PRICE. At the Closing, Buyer shall deliver to
Seller by means of federal funds wire or interbank transfer in immediately
available funds the Purchase Price, to the bank account of Seller designated in
writing to Buyer at least three days before the Closing.
2.03 PURCHASE PRICE ADJUSTMENT.
(a) Subject to Section 7.02(c), Buyer shall prepare and deliver to
Seller, within sixty (60) days after the Closing Date (as defined in Section
3.01), but in any event no later than ninety (90) days after the Closing Date, a
statement of Net Assets (as defined below) of the Acquired Companies (as defined
in Section 4.03(a)) as of the close of business on the day immediately preceding
the Closing Date, which shall be audited by Buyer's independent public
accountants (the "Buyer's Auditors," and such audited statement of Net Assets,
the "Closing Net Asset Statement"). The Closing Net Asset Statement shall be
prepared in accordance with GAAP (as defined in Section 4.07), consistently
applied, and on a basis consistent with the preparation of, and employing the
principles and methodologies used in preparing, the interim statement of assets
and liabilities attached hereto as Schedule 2.03, which schedule shall include a
description in reasonable detail of Seller's methodologies employed in the
preparation of such interim statement; it being understood that if there is a
conflict between the principles or methodologies in Schedule 2.03 and GAAP, GAAP
shall prevail.
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(b) During the period of review of the Closing Net Asset Statement and
the period of any dispute under this Section 2.03, Buyer shall give Seller,
Seller's independent public accountants (the "Seller's Auditors") and Seller's
representatives timely access during normal business hours to the books and
records of the Acquired Companies, including the working papers, trial balances
and similar materials of the Acquired Companies, as Seller and Seller's Auditors
shall reasonably request.
(c) Seller may dispute the Closing Net Asset Statement by notifying
Buyer in writing setting forth, in reasonable detail to the extent possible, the
basis for such dispute ("Seller's Dispute Notice") within thirty (30) days
following its receipt of the Closing Net Asset Statement. If no Seller's Dispute
Notice is received prior to the expiration of such thirty (30)-day period, the
Closing Net Asset Statement shall be final, binding and conclusive on the
parties.
(d) In the event of a dispute with respect to the Closing Net Asset
Statement, Buyer and Seller shall attempt to reconcile their differences and
reach agreement with respect thereto.
(e) If Buyer and Seller are unable to reach agreement on a resolution
within thirty (30) days following Buyer's receipt of the Seller's Dispute
Notice, then a nationally-recognized firm of independent certified public
accountants designated by agreement between Seller and Buyer (the "Accounting
Firm") shall be jointly appointed by the parties to resolve such dispute
promptly. The Accounting Firm shall be instructed to make a determination only
as to each of the items in dispute, which determination shall be (i) in writing,
(ii) furnished to Buyer and Seller as soon as practicable after the items in
dispute have been referred to the Accounting Firm, but in any event no later
than thirty (30) days after the Accounting Firm's appointment,
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(iii) made in accordance with this Agreement, and (iv) final, binding and
conclusive upon Buyer and Seller. The Accounting Firm will be entitled (but
shall not be required) to rely on the work papers, trial balances and similar
materials used in connection with the preparation of the Closing Net Asset
Statement. Buyer shall provide the Accounting Firm with timely access to such
work papers, trial balances and similar materials. The fees and expenses of the
Accounting Firm shall be borne equally by Seller and Buyer.
(f) If the value of the Net Assets as reflected on the Closing Net Asset
Statement is less than or more than $34,949,763, which reflects the Net Assets
of the Acquired Companies as of June 30, 2001 on Schedule 2.03, the Purchase
Price shall be deemed decreased or increased by the difference (such amount, the
"Net Asset Adjustment"). Payment of the Net Asset Adjustment shall be made by
Seller to Buyer, or by Buyer to Seller, as applicable, within five (5) days
after the Closing Net Asset Statement has become conclusive and binding upon the
parties in accordance with this Section 2.03, by wire transfer of immediately
available funds to an account designated in writing by Buyer or Seller, as the
case may be.
(g) No adjustment shall be made unless the Net Asset Adjustment would
result in a payment to Buyer or Seller of more than $500,000, in which case the
Net Asset Adjustment shall be made in respect of the amount in excess of
$500,000 only.
(h) "Net Assets" shall mean the dollar amount of the tangible assets
minus the dollar amount of the liabilities reflected on the Closing Net Asset
Statement. For the avoidance of doubt, the Net Assets shall exclude (i) the Net
Assets of Word Canada (as defined in Section 7.07) and of Word Entertainment
Limited, an English company, (ii) intercompany
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balances, (iii) federal and state income taxes, (iv) amortized intangibles, (v)
the Catalogue (as defined in Section 4.18(a)(vi)), and (vi) the Masters (as
defined in Section 4.18(a)(xiii)).
ARTICLE III.
CLOSING; OBLIGATIONS OF THE PARTIES
3.01 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on the third Business Day (as defined
below) after the satisfaction or (subject to applicable law) waiver of the
conditions set forth in Articles VIII and IX (excluding conditions that, by
their terms, cannot be satisfied until the Closing Date (as defined below)). The
Closing shall be at the offices of ▇▇▇▇▇▇▇ at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other time and place as the parties hereto mutually
agree. The date on which the Closing shall occur is hereinafter referred to as
the "Closing Date." "Business Day" means any day other than a day on which
commercial banks in Nashville, Tennessee or New York City are required or
authorized by applicable law to be closed.
3.02 OBLIGATIONS OF THE PARTIES AT THE CLOSING.
(a) At the Closing, Buyer shall deliver to ▇▇▇▇▇▇▇ and/or Seller:
(i) the amount described in Section 2.01;
(ii) the certificate referred to in Section 9.03; and
(iii) a certificate of the secretary of Buyer, certifying,
as complete and accurate as of the Closing, (x) attached copies of all
requisite resolutions or actions of the members of Buyer approving the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement and (y) the incumbency of
the officers of Buyer executing this Agreement and any other document
relating to the transactions contemplated by this Agreement.
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(b) At the Closing, ▇▇▇▇▇▇▇ and/or Seller shall deliver to Buyer:
(i) instruments of transfer for the Company Interests in
form and substance reasonably satisfactory to Buyer;
(ii) the certificates referred to in Section 8.03;
(iii) a certificate of the secretary of each of ▇▇▇▇▇▇▇ and
Seller, certifying, as complete and accurate as of the Closing, (x)
attached copies of all requisite resolutions or actions of the board of
directors of ▇▇▇▇▇▇▇ or Seller, as the case may be, approving the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement and (y) the incumbency of
the officers of ▇▇▇▇▇▇▇ or Seller, as the case may be, executing this
Agreement and any other document relating to the transactions
contemplated by this Agreement; and
(iv) the opinion of Bass, ▇▇▇▇▇ & ▇▇▇▇, legal counsel for
▇▇▇▇▇▇▇ and Seller, the terms of which are substantially as set forth in
Exhibit A attached hereto.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES BY GAYLORD AND SELLER
▇▇▇▇▇▇▇ and Seller hereby represent and warrant, jointly and severally,
to Buyer as follows:
4.01 OWNERSHIP OF SELLER AND THE COMPANY INTERESTS; VALIDITY AND
ENFORCEABILITY.
(a) ▇▇▇▇▇▇▇ is the record and beneficial owner of 1,000 shares of
the Common Stock, $0.01 par value per share, of Seller, which constitute all of
the issued and outstanding shares of capital stock of Seller (the foregoing
shares of Seller are hereinafter referred to as the "Shares"), free and clear of
all liens, claims, charges, conditions, restrictions, security interests,
equities or equitable interests, proxies, pledges, options, rights of first
refusal or other
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encumbrances of any kind, including any restriction on voting, transfer, receipt
of income or exercise of any other attributes of ownership ("Encumbrances");
(b) Upon the formation of the Company, and immediately prior to the
Closing Date, Seller will be the record and beneficial owner of all of the
Company Interests, free and clear of all Encumbrances of any kind, and the
Company Interests will constitute 100% of the outstanding membership interests
of the Company;
(c) Each of ▇▇▇▇▇▇▇ and Seller has the full right, power, authority
and capacity to enter into this Agreement, and Seller has the full right, power,
authority and capacity to sell and transfer the Company Interests; and
(d) By virtue of the transfer of the Company Interests to Buyer at
the Closing, Buyer will obtain full legal and valid title to the Company
Interests, free and clear of all Encumbrances of any kind.
4.02 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of ▇▇▇▇▇▇▇ and
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of ▇▇▇▇▇▇▇ and
Seller has full corporate power and authority to carry on its business as now
conducted or proposed to be conducted and possesses all governmental and other
permits, licenses and other authorizations to carry on its business as now
conducted. Each of ▇▇▇▇▇▇▇ and Seller is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
where the properties owned, leased or operated by it, or the business
transacted, by each of ▇▇▇▇▇▇▇ and Seller makes such licensing or qualification
to do business as a foreign corporation necessary, except where the failure to
so qualify is not reasonably likely, individually or in the aggregate, to have a
Company
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Material Adverse Effect. For the purpose of this Agreement, the term "Company
Material Adverse Effect" means any material adverse effect on the assets,
liabilities, business, operations or condition (financial or otherwise) of
Seller or the Subsidiaries, taken as a whole, or on the ability of ▇▇▇▇▇▇▇ or
Seller to consummate the transactions contemplated hereby; provided that events,
changes, occurrences, effects, facts or circumstances generally adversely
affecting the United States economy or companies in the Company's industry, so
long as such events, changes, occurrences, effects, facts or circumstances do
not materially disproportionately affect Seller and the Subsidiaries, taken as a
whole, shall, in each case, not be taken into account in determining whether
there has been or would be a "Company Material Adverse Effect." Except as set
forth in Schedule 4.02 attached hereto, Seller is engaged in no activities or
businesses other than the Music Business.
4.03 SUBSIDIARIES.
(a) Schedule 4.03 attached hereto is a true and complete list of
each corporation or limited liability company (a "Subsidiary" or, with respect
to all such organizations, the "Subsidiaries") in which Seller or any Subsidiary
owns, directly or indirectly, any capital stock or other equity interest, which
list shows the jurisdiction of incorporation or other organization of, the
authorized and issued shares of capital stock or other equity interests of, and
the percentage of stock or other equity interest of, each Subsidiary owned by
Seller or by a Subsidiary. None of the Subsidiaries are engaged in any
activities or businesses other than the Music Business. Except for the
Subsidiaries and except for the stock of Flying Rhinoceros Holdings, Inc.,
Seller does not, directly or indirectly, own any interest in any other Person
(as defined below). Each Subsidiary is a corporation (and immediately prior to
the Closing Date
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will be converted into a Tennessee limited liability company) or limited
liability company duly organized, in every case, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or other
organization and is duly licensed or qualified to transact business as a foreign
corporation or foreign limited liability company and is in good standing in each
jurisdiction where the properties owned, leased or operated by it, or the
business transacted, by it makes such licensing or qualification to do business
as a foreign corporation or foreign limited liability company necessary, except
where the failure to so qualify is not reasonably likely, individually or in the
aggregate, to have a Company Material Adverse Effect. Each Subsidiary has the
full power and authority to carry on its business as now conducted and possesses
all governmental and other permits, licenses and other authorizations to carry
on its business as now conducted. The outstanding capital stock of each
Subsidiary which is a corporation is duly authorized and validly issued, fully
paid and nonassessable and immediately prior to the Closing Date will be
converted into limited liability company interests. Seller and the Subsidiaries
have good and valid title to the equity interests in the Subsidiaries shown as
owned by each of them on Schedule 4.03 attached hereto, free and clear of all
Encumbrances of any kind, except for the Encumbrance created pursuant to the
Operating Agreement, dated as of October 14, 1997, of Celebration (the
"Celebration Operating Agreement"). Other than as set forth on Schedule 4.03, no
other class of capital stock or other ownership interests of the Subsidiaries is
authorized or outstanding. Seller, the Company and the Subsidiaries are
hereinafter collectively referred to as the "Acquired Companies" and each, an
"Acquired Company", except that Seller shall not be included in such term upon
the completion of the transfers described in Section 6.01(b). "Person" means any
individual, corporation, partnership, limited liability company, limited
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liability partnership, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Authority (as defined in
Section 4.15) or other entity.
(b) Seller has heretofore delivered to Buyer true and complete
copies of the certificate of incorporation (certified by the secretaries of
state or other appropriate official of their respective jurisdictions of
incorporation) and by-laws, or comparable instruments, of each Acquired Company
as in effect on the date hereof. The minute books, or comparable records, of
each Acquired Company heretofore have been made available to Buyer for its
inspection and contain true and complete records of all meetings and consents in
lieu of meeting of the board of directors (and any committee thereof) and
shareholders or members of each Acquired Company since the time of each Acquired
Company's organization, and accurately reflect all transactions referred to in
such minutes and consents in lieu of meeting. The stock books, or comparable
records, of each Acquired Company heretofore have been made available to Buyer
for its inspection and are true and complete.
4.04 AUTHORIZATION; VALID AND BINDING AGREEMENT. Each of ▇▇▇▇▇▇▇ and
Seller has taken all actions required by law, its certificate of incorporation
or its by-laws and otherwise necessary to authorize the execution and delivery
by ▇▇▇▇▇▇▇ and Seller of this Agreement and the consummation by ▇▇▇▇▇▇▇ and
Seller of the transactions contemplated hereby. This Agreement constitutes the
legal, valid and binding obligation of each of ▇▇▇▇▇▇▇ and Seller, enforceable
against ▇▇▇▇▇▇▇ and Seller in accordance with its terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency,
reorganization or other similar laws affecting or limiting the enforcement of
creditors' rights generally and except as
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such enforceability is subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.05 NO VIOLATION. Except as set forth on Schedule 4.05(a) attached
hereto, the execution and delivery of this Agreement by ▇▇▇▇▇▇▇ and Seller does
not, and the consummation of the transactions contemplated hereby will not, and
in the case of Section 6.01(b), the transactions contemplated by Section
6.01(b), to Seller's knowledge, will not, (a) violate any provision of, or
result in the creation of any Encumbrance under, or cause the termination,
modification or acceleration of, or give any other contracting party the right
to terminate, modify or accelerate, any agreement, indenture, instrument, lease,
security agreement, mortgage or lien to which Seller or any other Acquired
Company is a party or by which Seller's or any other Acquired Company's assets
or properties are bound; (b) violate any provision of the articles of
incorporation or by-laws (or comparable governing documents) of ▇▇▇▇▇▇▇, Seller
or any other Acquired Company; or (c) violate any order, arbitration award,
judgment, writ, injunction, decree, statute, rule or regulation applicable to
▇▇▇▇▇▇▇, Seller or any other Acquired Company, except in the case of clauses (a)
and (c) where the violation is not reasonably likely to have a Company Material
Adverse Effect. Except for filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act (as defined
in Section 6.03) and as set forth in Schedule 4.05(b) attached hereto, none of
▇▇▇▇▇▇▇, Seller or any of the other Acquired Companies is or will be required to
give any notice to, or obtain any approval, consent, ratification, waiver or
other authorization ("Consent") from, any Person in connection with the
execution and delivery of this Agreement and the performance of the transactions
contemplated hereby where the failure to obtain such Consent is reasonably
likely to have a Company Material Adverse Effect.
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4.06 CAPITALIZATION. Except for the Shares, there are no shares of
capital stock or other securities of Seller, including any security of any kind
that is convertible or exchangeable into any such capital stock, issued or
outstanding. Except as set forth in the Celebration Operating Agreement, there
are no outstanding options, warrants or rights to purchase or acquire from
Seller or any other Acquired Company any securities of an Acquired Company, and
there are no contracts, commitments, agreements, understandings, arrangements or
restrictions as to which Seller or any other Acquired Company is a party or by
which any of them is bound relating to any shares of capital stock or other
securities of an Acquired Company (including the Shares), whether or not
outstanding.
4.07 FINANCIAL STATEMENTS. Seller has made available to Buyer: (a)
unaudited consolidated balance sheets of Seller and the Subsidiaries relating to
the Music Business as at December 31 in each of the years 1998, 1999 and 2000,
and the related unaudited consolidated statements of income for the fiscal years
then ended (collectively, the "Year End Financial Statements"); and (b) an
unaudited consolidated balance sheet of Seller and the Subsidiaries as of June
30, 2001 (the "Interim Balance Sheet") and the related unaudited statement of
income for the six months then ended (together with the Interim Balance Sheet,
the "Interim Financial Statements") (the Year End Financial Statements and the
Interim Financial Statements are referred to herein collectively as the
"Financial Statements"). Except as set forth in Schedule 4.07 attached hereto,
the Financial Statements fairly present the combined assets, liabilities,
financial condition and results of operations of Seller and the Subsidiaries as
at the respective dates thereof and for the periods therein referred to, all in
accordance with generally accepted US accounting principles ("GAAP"), except
that the Interim Financial Statements are
13
subject to normal recurring year-end adjustments and the Financial Statements do
not contain any notes. The Financial Statements reflect the consistent
application of GAAP throughout the periods involved, except as specifically
disclosed in the Financial Statements or in Schedule 4.07 attached hereto.
4.08 PROPERTY AND LEASES.
(a) Schedule 4.08(a) attached hereto sets forth a true and
complete list of, and describes briefly, all real property owned, leased or
subleased by the Acquired Companies. Seller has delivered to Buyer correct and
complete copies of the leases and subleases listed in Schedule 4.08(a) attached
hereto. All such leases or subleases are valid and enforceable against the
applicable Acquired Company, and to the knowledge of Seller, against the other
parties thereto in accordance with their respective terms. No Acquired Company,
nor to Seller's knowledge, any other party thereto is in default in any material
respect under such leases and subleases.
(b) The buildings, machinery, equipment and other tangible
assets that the Acquired Companies own or lease are free from material defects,
have been maintained in accordance with normal industry practice, and are in
good operating condition and repair (subject to normal wear and tear). To
Seller's knowledge, the buildings, machinery, equipment and other tangible
assets of the Acquired Companies are structurally sound and are adequate for the
uses to which they are being put.
(c) The operation of the real property and other tangible assets
owned or leased by the Acquired Companies in the manner in which they are now
and have been operated is in material compliance with any zoning ordinances,
municipal regulations or other federal,
14
state and local laws, statutes, regulations, rules, codes or ordinances enacted
or promulgated by any Governmental Authority (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements). Each Acquired Company has obtained all material
approvals of Governmental Authorities (including material licenses and permits)
required in connection with the ownership, lease or operation of such Acquired
Company's real property and tangible assets as now owned, leased and operated.
Except as set forth on Schedule 4.08(c) attached hereto, no restrictive
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Acquired Companies for the purposes for which they are now
operated.
4.09 TITLE TO PROPERTIES; ENCUMBRANCES. Each of the Acquired Companies
has good and marketable title to all properties and tangible assets it purports
to own, real, personal and mixed, including, without limitation, the properties
and tangible assets reflected in the Financial Statements. None of such
properties or tangible assets (or any other properties or tangible assets used
in the business of any Acquired Company) are subject to any Encumbrance of any
kind, except (a) as shown on Schedule 4.09 attached hereto, (b) liens for
current taxes not yet due, (c) leases for personal property entered into in the
ordinary course of business that involve annual aggregate lease payments not in
excess of $50,000, and (d) minor imperfections of title and Encumbrances, if
any, which are not substantial in amount, do not detract from the value of the
property subject thereto and do not impair the use of the property subject
thereto or impair the operations of the Acquired Companies. Except as set forth
on Schedule 4.09 attached hereto, (i) there are no leases, subleases, licenses,
concessions or other agreements, written or oral, granting any party the right
of use or occupancy of any portion of any parcel of real property
15
owned by the Acquired Companies, and (ii) there are no parties (other than the
Acquired Companies) in possession of any parcel of real property owned by the
Acquired Companies. There are no pending or, to Seller's knowledge, threatened
condemnation proceedings, lawsuits or administrative actions relating to the
real property of the Acquired Companies which will adversely affect the use,
occupancy or value thereof.
4.10 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.10
attached hereto and to Seller's knowledge:
(a) None of the real property owned, leased or used by the
Acquired Companies has been used by the Acquired Companies or by any other
Person at any time to handle, treat, store or dispose of any hazardous or toxic
waste or substance in a manner that does not comply in all material respects
with applicable laws, nor is any of the real property, including all soils,
ground waters and surface waters located on, in or under such real property,
contaminated with pollutants or other substances, which contamination may give
rise to a clean-up obligation under any Laws (as defined in Section 4.14).
(b) There are no outstanding citations of violations or any
consent decrees entered against any Acquired Company regarding environmental and
land use matters, including, but not limited to, matters affecting the emission
of air pollutants, the discharge of water pollutants, the management of
hazardous or toxic substances or wastes or noise.
(c) All operations conducted by the Acquired Companies on such
real property have been and are, in all material respects, in compliance with
all Laws, permits, licenses and authorizations relating to environmental
compliance and control.
16
4.11 NO UNDISCLOSED LIABILITY. Except as and to the extent of the
amounts disclosed in Schedule 4.11 attached hereto, no Acquired Company has any
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise. All liabilities or obligations of the Acquired Companies accruing
since June 30, 2001 have been incurred in the ordinary course of business
consistent with past practice. The reserves reflected in the Financial
Statements are in accordance with GAAP applied on a consistent basis.
Furthermore, neither ▇▇▇▇▇▇▇ nor Seller knows of any basis for the assertion
against the Acquired Companies of any liability or obligation of any nature not
fully reflected or reserved against in the Financial Statements as required by
GAAP.
4.12 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
on Schedule 4.12 attached hereto, since the date of the Interim Balance Sheet,
none of the Acquired Companies has:
(a) suffered or experienced any event or events reasonably
likely to cause any Acquired Company to suffer a material adverse change to its
assets, liabilities, business, operations or condition (financial or otherwise),
experienced any labor difficulty, or suffered any material casualty loss
(whether or not insured);
(b) made any material change in its business or operations or in
the manner of conducting its business other than changes in the ordinary course
of business;
(c) sold, leased, transferred, conveyed or otherwise encumbered
any of its properties or assets (whether real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with past
practice;
17
(d) granted any increase in the compensation or benefits or made
any other material change in the employment terms of, any officer, member of any
governing body, employee or agent (including, without limitation, any increase
pursuant to any bonus, pension, profit sharing or other plan or commitment), or
adopted any such plan or other arrangements; and no such increase or change, or
the adoption of any such plan or arrangement, is planned or required, except
that Seller has instituted certain retention and separation plans or
arrangements in connection with the transactions contemplated hereby which are
described on Schedule 4.12 attached hereto;
(e) made any capital expenditures or commitments in excess of
$100,000 in the aggregate for replacements or additions to property, plant,
equipment or intangible capital assets;
(f) declared, paid or made or set aside for payment or making,
any dividend or other distribution in respect of its capital stock or other
securities, or directly or indirectly redeemed, purchased or otherwise acquired
any of its capital stock or other securities;
(g) changed its method of accounting or any accounting
principle, method, estimate or practice, except as may be required by GAAP;
(h) canceled, terminated or materially amended any I/P Contracts
(as defined in Section 4.18(a)(xi)) or any other contract, agreement,
undertaking or arrangement that is material to the Music Business; or
(i) agreed, whether in writing or otherwise, to take any action
described in this Section 4.12.
18
4.13 TAXES.
(a) For purposes of this Section 4.13, the term "Acquired
Companies" shall include any predecessor corporation to an Acquired Company that
was in existence prior to the conversions contemplated by Section 6.01(b) below.
(b) The Acquired Companies have duly filed, either separately or
as a member of an affiliated, combined, unitary, aggregate or other similar
group of corporations, all returns, reports or forms, including any information
return, with respect to Taxes (as defined below) ("Tax Returns") required to be
filed by any Taxing Authority (as defined below) on or before the date hereof
and have duly paid all Taxes and other charges shown thereon as owing
(including, without limitation, those due in respect of its properties, income,
franchises, licenses, sales and payrolls), except where the failure to file any
such Tax Return would not, individually or in the aggregate, have a Company
Material Adverse Effect. True and correct copies of Tax Returns for the Acquired
Companies relating to such Taxes and other charges for the periods since January
1, 1998 have been heretofore made available to Buyer. The reserves for Taxes
contained in the Financial Statements and carried on the books of the Acquired
Companies are adequate to cover all Tax liabilities as of the date of this
Agreement. Since the date of the Interim Balance Sheet, the Acquired Companies
have not incurred any Tax liabilities other than in the ordinary course of
business; there are no Tax liens (other than liens for current Taxes not yet
due) upon any properties or assets of the Acquired Companies (whether real,
personal or mixed, tangible or intangible); and, except as reflected in the
Financial Statements, there are no pending or threatened questions or
examinations relating to, or claims asserted for the assessment or collection of
Taxes against, the Acquired Companies, and to the knowledge of Seller there is
19
no basis for any such question or claim. Except as set forth on Schedule 4.13
attached hereto, neither the Acquired Companies nor their parent has granted or
been requested to grant any extension of the limitation period applicable to any
claim for Taxes or assessments with respect to Taxes. None of the Acquired
Companies has been a member of an affiliated group filing a consolidated federal
income tax return other than the group the common parent of which is Seller. As
of the date of this Agreement, no adjustments have been proposed by any Taxing
Authority with respect to any Tax Returns required to be filed by the Acquired
Companies on or before the date of this Agreement. Except as set forth on
Schedule 4.13, as of the date of this Agreement, none of the Acquired Companies
or their parent is presently under examination by any Taxing Authority, and none
of the Acquired Companies or its parent has received notice that any such audit
or examination is pending or threatened. Except as recorded as reserves, current
liabilities or intercompany accounts, none of the Acquired Companies owes any
amount pursuant to any written or unwritten Tax sharing, group or indemnity
agreement or arrangement, or will have any liability after the date hereof for
any amounts due in respect of any such agreement or arrangement executed or
agreed on or before the date of this Agreement, or will have liability for the
Taxes of any other Person. None of the Acquired Companies has agreed to or is
required to make any adjustments under Section 481 of the Internal Revenue Code
of 1986, as amended (the "Code"), by reason of a change in accounting method or
otherwise. Any Tax deficiencies or assessments asserted against the Acquired
Companies have been paid or settled. No claim has been asserted against any of
the Acquired Companies that such Acquired Company is, or may be, subject to Tax
in any jurisdiction in which such Acquired Company does not file Tax Returns.
All Taxes required to have been withheld, collected or deposited by the Acquired
20
Companies or its parent as of the date of this Agreement have been timely
withheld, collected or deposited, and, to the extent required under applicable
law, have been paid to the relevant Taxing Authorities. None of the Assets is
"tax exempt use property" within the meaning of Section 168(h) of the Code. None
of the Assets (as defined in Section 4.13(e)) is subject to a lease made
pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately before the enactment of the Tax Reform Act of 1986.
(c) "Taxes" means any and all federal, state, provincial, local,
foreign and other taxes, levies, fees, imposts, duties, and similar governmental
charges (including any interest, fines, assessments, penalties or additions to
tax imposed in connection therewith or with respect thereto), including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, ad valorem, value added, capital gains, sales, goods and
services, use, real or personal property, capital stock, license, branch,
payroll, estimated, withholding, employment, social security (or similar),
unemployment, compensation, utility, severance, production, excise, stamp,
occupation, premium, windfall profits, transfer and gains taxes, and customs
duties.
(d) "Taxing Authority" means any United States or foreign
federal, state, local or other governmental entity (including any governmental
subdivision or quasi-governmental body) exercising Tax regulatory authority.
(e) "Asset" means any asset transferred by Seller in connection
with the sale of the Company Interests that is treated as directly held by
Seller for U.S. federal income tax purposes.
21
4.14 COMPLIANCE WITH APPLICABLE LAW. Each Acquired Company has in the
past duly complied and is presently duly complying in all material respects, in
the conduct of its business and the ownership of its assets, with all applicable
laws, whether statutory or otherwise, rules, regulations, orders, ordinances,
judgments and decrees of all Governmental Authorities (collectively, "Laws").
None of ▇▇▇▇▇▇▇, Seller or any other Acquired Company has received any notice
of, or notice of any investigation of, a possible violation of any applicable
Laws, or any other Law or requirement relating to or affecting the operations or
properties of the Acquired Companies.
4.15 LITIGATION. Except as set forth in Schedule 4.15 attached hereto,
there are no material claims, actions, suits, proceedings or investigations
pending or, to the knowledge of Seller, threatened by or against, or otherwise
affecting, the Acquired Companies at law or in equity or before or by any
governmental department, commission, board, agency, instrumentality or
authority, whether federal, state, local, foreign or otherwise (collectively,
"Governmental Authorities"). Seller does not know or have any reason to know of
any basis for any such claim, action, suit, proceeding or investigation.
4.16 INSURANCE. Seller has made available to Buyer copies of all
material policies of fire, liability, workers' compensation, health, title and
other forms of insurance presently in effect with respect to the Acquired
Companies. All such policies will remain in full force and effect at least
through the Closing without the payment of additional premiums. All such
policies insure against risks and liabilities to an extent and in a manner that
are reasonable for the Music Business.
22
4.17 EMPLOYEES AND FRINGE BENEFIT PLANS.
(a) Except as set forth on Schedule 4.17(a) attached hereto, the
Acquired Companies do not maintain or contribute to or have any obligation to
contribute to, or have any direct or indirect liability, whether contingent or
otherwise, with respect to any plan, program, arrangement, agreement or
commitment which is an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance plan, or
vacation, or other employee benefit plan, program, arrangement, agreement or
commitment, including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), with respect to any employee or former employee of the
Acquired Companies (collectively, the "Plans").
(b) Except as set forth on Schedule 4.17(b) attached hereto,
with respect to each Plan, the Acquired Companies have delivered to Buyer a
current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable: (i) any related
trust agreement or other funding instrument; (ii) the most recent Internal
Revenue Service determination letter, if applicable; (iii) any summary plan
description and other material written communication (or a description of any
material oral communications) by the Acquired Companies to their employees
concerning the benefits provided under any Plan; (iv) all material
communications with any Governmental Authority (including, without limitation,
the Pension Benefit Guaranty Corporation and the Internal Revenue Service) given
or received within the last three (3) years; and (v) for the three (3) most
recent years (A) the Form
23
5500 and attached schedules, (B) audited financial statements, (C) actuarial
valuation reports, and (D) attorney's response to an auditor's request for
information.
(c) With respect to any Plan, no event has occurred in
connection with which any of the Acquired Companies or any Plan, directly or
indirectly, could be subject to any material liability under ERISA, the Code or
any other laws, regulations or governmental orders applicable to any Plan,
including, without limitation, Section 406, 409, 502(i), 502(l) or 4069 of
ERISA, or Section 4971, 4975 or 4976 of the Code, or under any agreement,
instrument, statute, law or regulation pursuant to or under which the Acquired
Companies or any ERISA Affiliate (as defined below) has agreed to indemnify any
Person against liability incurred under, or for a violation or failure to
satisfy the requirement of, any such law, regulation or order.
(d) With respect to each Plan (i) all payments due from the
Acquired Companies to date have been made when due and all amounts properly
accrued to date or as of the Closing Date as liabilities of the Acquired
Companies which have not been paid have been properly recorded on the books of
the Acquired Companies; (ii) the Acquired Companies have complied with, and each
such Plan conforms in form and operation to, all applicable Laws, including, but
not limited to, ERISA and the Code, in all material respects; (iii) each such
Plan which is an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) and intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service with respect to
such qualification, its related trust has been determined to be exempt from
taxation under Section 501(a) of the Code, and nothing has occurred since the
date of such letter that has or is likely to adversely affect such qualification
or exemption; and (iv) there are no actions, suits or claims pending (other than
routine claims for
24
benefits) or, to the knowledge of Seller, threatened with respect to such Plan
or against the assets of such Plan which could subject the Acquired Companies to
any material liability.
(e) No "accumulated funding deficiency," as defined in Section
412 of the Code, has been incurred with respect to any Plan subject to such
Section 412, whether or not waived. No "reportable event", within the meaning of
Section 4043 of ERISA, has occurred with respect to any Plan, and no event
described in Section 4062 or 4063 of ERISA, has occurred in connection with any
Plan. Neither the Acquired Companies nor any ERISA Affiliate (as defined below)
have (i) engaged in, or is a successor or parent corporation to an entity that
has engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or
(ii) incurred, or reasonably expect to incur prior to the Closing Date, any
liability under Title IV of ERISA arising in connection with the termination of
any plan covered or previously covered by Title IV of ERISA. No condition exists
that could constitute grounds for termination by the Pension Benefit Guaranty
Corporation of any Plan that is subject to Title IV of ERISA that is maintained
by the Acquired Companies or any ERISA Affiliate (as defined below).
(f) Except as set forth on Schedule 4.17(f), the consummation of
the transactions contemplated by this Agreement will not (i) accelerate the time
of the payment or vesting of, or increase the amount of, compensation due to any
employee, (ii) reasonably be expected to result in any "excess parachute
payment" under Section 280G of the Code, (iii) result in any liability to any
employee, or (iv) entitle any employee to severance pay, unemployment
compensation or similar payment.
(g) Except as set forth in Schedule 4.17(g) attached hereto,
there are no Plans maintained or contributed to by the Acquired Companies or in
which employees of the Acquired
25
Companies participate pursuant to which welfare benefits are provided to current
or former employees beyond their retirement or other termination of service,
other than coverage required by applicable law, the cost of which is fully paid
by the current or former employees.
(h) As of the Closing Date, Seller, each of the other Acquired
Companies and their respective ERISA Affiliates will not have incurred any
liability or obligation under Worker Adjustment and Retraining Notification Act
of 1988, as amended, or any similar state law, and within the 90-day period
immediately following the Closing Date, none of the foregoing will incur any
such liability or obligation if, during such 90-day period, only terminations of
employment in the normal course of operations occur.
(i) For purposes of this Agreement, "ERISA Affiliate" shall mean
any trade or business (whether or not incorporated) that together with the
Acquired Companies is considered a "single employer" for purposes of Section
414(b), (c), (m) or (o) of the Code.
4.18 INTELLECTUAL PROPERTY.
(a) For purposes of this Section 4.18, the following defined
terms shall have the respective meanings set forth below:
(i) "Acquisition Agreements" shall mean and include
individually and collectively each and every contract (excluding Artist
Agreements, Writer Agreements, Distributed Label Agreements, A/V Work
Agreements, and Producer Agreements) pursuant to which any Acquired
Company has an interest in any of the I/P Assets, including, without
limitation, catalogue purchase, master license, co-publishing, royalty
participation, administration, subpublishing and collection agreements,
and any and all rights and benefits thereunder, and assignments thereof,
including any Unrecouped
26
Advances, including those agreements listed on Schedule 4.18(a)(i)
attached hereto. Schedule 4.18(a)(i) attached hereto sets forth a true
and complete list of each Acquisition Agreement pursuant to which any
Acquired Company has an interest in the I/P Assets for which (x) any
Acquired Company has paid royalties, advances and/or other payments
exceeding $75,000 in the ordinary course of regular accountings during
the current calendar year or in any one of the preceding two calendar
years, or (y) any Acquired Company is or is reasonably expected to be
obligated to pay royalties, advances and/or other payments exceeding
$75,000 in calendar year 2002.
(ii) "Artist Agreements" shall mean all agreements,
including all amendments thereto, with or in respect of recording
artists that are directly required for the exploitation of the Masters
or the A/V Works (other than artists who performed solely as "sidemen"
or other non-featured performers on such Masters), including those
agreements listed on Schedule 4.18(a)(ii) attached hereto. Schedule
4.18(a)(ii) attached hereto sets forth a true and complete list of each
Artist Agreement with or in respect of any Person (x) who has earned or
been paid by any Acquired Company royalties, advances (specifically
excluding any amounts paid to or on behalf of an artist which are
characterized or identified under the Artist Agreement as "advances" but
which are actually intended as reimbursement or third party payments for
items such as recording costs, video costs, independent promotion or
marketing, deficit tour support or other similar payments) and/or any
other payments exceeding $150,000 in the ordinary course of regular
accountings during the current calendar year or any one of the preceding
two calendar years or (y) to whom any Acquired Company is or is
reasonably expected to be
27
obligated to pay any royalties, advances (specifically excluding any
amounts paid to or on behalf of an artist which are characterized or
identified under the Artist Agreement as "advances" but which are
actually intended as reimbursement or third party payments for items
such as recording costs, video costs, independent promotion or
marketing, deficit tour support or other similar payments) and/or any
other payments exceeding $150,000 in calendar year 2002, in either case,
where such royalties, advances or other payments directly relate to the
creation, production and exploitation of sound recordings.
(iii) "Artwork" shall mean the photographs, negatives,
photographic plates, covers, liners, textual, advertising, websites,
point of purchase and promotional materials related to the I/P Assets in
Seller's possession, and all rights to make commercial use thereof as
used in the Music Business prior to the date hereof pursuant to the
underlying rights grant in the relevant contracts.
(iv) "A/V Works" shall mean works owned in whole or in
part by any Acquired Company that consist primarily of a series of
related images which are intrinsically intended to be shown by the use
of machines or devices such as projectors, viewers, or electronic
equipment, together with accompanying sounds, if any, regardless of the
nature of the material objects, such as films or tapes, in which the
works are embodied, including, without limitation, the works listed on
Schedule 4.18(a)(iv) attached hereto.
(v) "A/V Work Agreements" shall mean all agreements
related to the production, manufacture and distribution or other
exploitation of A/V Works, including those agreements listed on Schedule
4.18(a)(v) attached hereto. Schedule 4.18(a)(v)
28
attached hereto sets forth a true and complete list of each A/V Work
Agreement with or in respect of any recording artist, producer, licensor
or other contributor or Person (x) who has been paid by any Acquired
Company any royalties, advances and/or any other payments exceeding
$150,000 in the ordinary course of regular accountings during the
current calendar year or any one of the preceding two calendar years, or
(y) to whom any Acquired Company is or is reasonably expected to be
obligated to pay any royalties, advances and/or any other payments
exceeding $150,000 in calendar year 2002.
(vi) "Catalogue" shall mean the catalogue of the current
Compositions, Records and related products of the Music Business. To
Seller's knowledge, none of the Compositions or Records in the Catalogue
are in the public domain.
(vii) "Compositions" shall mean all right, title and
interest in all musical compositions owned in whole or in part by any
Acquired Company (including, without limitation, for the avoidance of
doubt, Squint Music Publishing) or in which any Acquired Company owns an
interest, including, without limitation, derivative works thereof,
copyrighted arrangements, titles, lyrics and music thereof, all
demonstration recordings thereof created by any Acquired Company and all
other rights therein and thereto, whether now or hereafter known, and
all claims and demands accrued or to accrue with respect thereto, and
the copyrights and the future contingent renewal and extended terms of
copyrights therein and thereto, and all rights to secure renewals and
extensions of copyright, throughout the world, including, without
limitation, those musical compositions contained on the list attached
hereto as Schedule 4.18(a)(vii).
29
(viii) "Distributed Label Agreements" shall mean all
contracts, including all amendments thereto, pursuant to which any
Acquired Company has been granted the right to use or exploit in any way
sound recordings, records or audiovisual works owned in whole or in part
by any other Person, including those agreements listed on Schedule
4.18(a)(viii) attached hereto. Schedule 4.18(a)(viii) attached hereto
sets forth a true and complete list of each Distributed Label Agreement
pursuant to which any Acquired Company (x) has paid or recouped from an
advance paid thereunder any amounts exceeding $250,000 during the
current calendar year or any one of the two preceding calendar years in
the ordinary course of regular accountings, or (y) is or is reasonably
expected to be obligated to pay or is entitled to recoup from an advance
paid thereunder any amount exceeding $250,000 in calendar year 2002.
(ix) "Distribution Agreements" shall mean all contracts,
including all amendments thereto, granting others any exclusive right to
use or exploit in any way the Masters, the Print Music, A/V Works,
Trademarks, or Artwork, including, without limitation, granting any
Person, including Affiliates, the right to manufacture, distribute
and/or sell Records containing the Masters, including those agreements
listed on Schedule 4.18(a)(ix)(1) attached hereto. Schedule
4.18(a)(ix)(1) attached hereto sets forth a true and complete
description of each Distribution Agreement (including the term of such
agreement and the territory covered thereby) pursuant to which (x)
during the current calendar year or any one of the preceding two
calendar years any Person has made payments to, or recouped any amounts
from any advance paid by, any Acquired Company in excess of $150,000 or
(y) during calendar year 2002 any Person is required
30
to make payments to, or is entitled to recoup any amounts from any
advance paid by, any Acquired Company in excess of $150,000. The costs
to the Acquired Companies associated with terminating the Logistics
Services Agreement, dated as of September 1, 1998, between Menlo
Logistics, Inc. and Idea Entertainment, Inc. in accordance with its
terms shall not exceed $2,800,000 (the representation set forth in this
sentence is hereafter referred to as the "Menlo Representation"). The
Distribution Agreement, dated November 3, 1995, between Word
Incorporated and Sony Music Entertainment Inc. for the "non-CBA" market
will expire or otherwise be terminated no later than December 31, 2001
in accordance with its terms and thereafter will no longer have any
force or effect, except for a non-exclusive sell-off period of six (6)
months and as otherwise set forth in Schedule 4.18(a)(ix)(2) attached
hereto.
(x) "I/P Assets" shall mean the Catalogue, Masters, the
Compositions, the Print Music, the A/V Works, the Trademarks, the
Artwork and the copyrights, copyright applications, copyright
registrations, business method patents, patents, patent applications,
patent registrations, designs, design registrations and domain names
owned by any Acquired Company.
(xi) "I/P Contracts" shall mean the Acquisition
Agreements, the Artist Agreements, the Producer Agreements, the Writer
Agreements, the A/V Work Agreements, the Licenses, the Distribution
Agreements and the Distributed Label Agreements, and all other
agreements related to copyrights or other intellectual property or other
proprietary rights used by any of the Acquired Companies.
31
(xii) "Licenses" shall mean, individually and
collectively, each and every license, subpublishing agreement,
administration agreement, participation, licensing or collection
agreement, mechanical or public performance society agreement and all
other contracts and agreements relating to the use or exploitation of
the Compositions, the Print Music, the Masters or the A/V Works and any
and all rights and benefits thereunder, including those licenses and
agreements set forth on Schedule 4.18(a)(xii) attached hereto. Schedule
4.18(a)(xii) attached hereto sets forth a true and complete list of each
License pursuant to which any Acquired Company (x) has paid or has
received any amounts exceeding $150,000 during the current calendar year
or any one of the two preceding calendar years, or (y) is or is
reasonably expected to be obligated to pay any amounts (including by way
of recoupment of any advance) exceeding $150,000 in calendar year 2002.
(xiii) "Masters" shall mean the sound recordings listed
on Schedule 4.18(a)(xiii) attached hereto, which sound recordings
comprise the entire current commercially available catalog of sound
recordings of Word Entertainment (as well as sound recordings not
currently commercially available) and all copyrights, renewal
copyrights, copyright registrations and copyright applications and
similar rights therein.
(xiv) "Print Music" shall mean any Acquired Company's
interest in and to all print music works directly related to the Music
Business, reproducing the music and/or lyrics of one or more musical
works of authorship, all artwork related thereto and
32
all photographic or engraving plates, all film negatives and digital
files and all engraving software files, in each case embodying all or
part thereof.
(xv) "Producer Agreements" shall mean any agreement with
any individual producer of any of the Masters or A/V Works, including
those agreements listed on Schedule 4.18(a)(xv) attached hereto.
Schedule 4.18(a)(xv) attached hereto sets forth a true and complete list
of each Producer Agreement pursuant to which any Acquired Company (x)
has paid royalties, advances against royalties and/or any other payments
directly to a producer or such producer's furnishing entity exceeding
$75,000 in the ordinary course of regular accountings during the current
calendar year or any one of the preceding two calendar years, or (y) is
or is reasonably expected to be obligated to pay royalties, advances
against royalties and/or any other payments directly to a producer or
such producer's furnishing entity exceeding $75,000 in calendar year
2002.
(xvi) "Records" shall mean any reproduction of a Master,
which reproduction is in any form now known and in which reproductions
of sounds, with or without visual images, are fixed by any method now
known, and from which sounds, with or without visual images, can be
perceived, reproduced or otherwise communicated, either directly or with
the aid of a machine, device or process, and including the object in
which sounds, without visual images, are fixed, including, but not
limited to, digital downloads (to the extent that such rights may be
granted), disc records, soundtracks, film, tape, tape cartridges and
cassette tape, digital audio tape, compact disc and all "sight and sound
devices" including "audiovisual" devices (as such term is used in the
1976 Copyright Act, as amended).
33
(xvii) "Royalties" shall mean all royalties, shares of
profits and/or other consideration due and payable by any Acquired
Company to writers, co-publishers, artists, producers or any other
royalty or similar participants in connection with any I/P Assets.
(xviii) "Trademarks" shall mean the trademarks,
trademark registrations, trademark registration applications, service
marks, service ▇▇▇▇ applications, service ▇▇▇▇ registrations, business
names, brand names, tradenames, imprints and logos described in Schedule
4.18(a)(xviii) attached hereto, together with the goodwill associated
therewith. Schedule 4.18(a)(xviii) attached hereto sets forth a true and
complete list of all such assets that are registered (or in respect of
which a registration has been applied for) or are material to the Music
Business.
(xix) "Unrecouped Advances" shall mean advances and
other recoupable costs and expenses relating to the I/P Assets paid by
any Acquired Company to any third Person or incurred by an Acquired
Company on behalf of a third Person which are unrecouped. Schedule
4.18(a)(xix) attached hereto sets forth a true and complete list of all
Unrecouped Advances in excess of $100,000.
(xx) "Writer Agreements" shall mean and include
individually and collectively each of the songwriter, co-publishing,
administration and other agreements between any Acquired Company, on the
one hand, and with or in respect of any songwriter or arranger on the
other, including those agreements listed on Schedule 4.18(a)(xx)
attached hereto. Schedule 4.18(a)(xx) attached hereto sets forth a true
and complete list of each Writer Agreement with any Person (x) who has
earned or
34
been paid by any Acquired Company royalties, advances and/or any other
payments in the ordinary course of regular accountings or regular
contractual payments exceeding $75,000 in the aggregate during the
current calendar year or any one of the preceding two calendar years, or
(y) who will earn or to whom any Acquired Company is or is reasonably
expected to be obligated to pay royalties, advances and/or any other
payments exceeding $75,000 in calendar year 2002, in either case where
such royalties, advances or other payments relate to the creation,
production, distribution or the exploitation of musical compositions.
Schedule 4.18(a)(xx) attached hereto also sets forth for each Writer
Agreement listed whether the period during which the Acquired Company
party thereto has the exclusive right to administer rights in the
musical compositions, arrangements, titles, lyrics or music created
thereunder is less than in perpetuity and for such agreements, the
duration of such shorter period.
(b) None of the Acquired Companies use or require any
intellectual property or other similar proprietary rights for which they do not
possess the requisite rights in connection with the operation of the Music
Business as now conducted. Except as disclosed on Schedule 4.18(b) attached
hereto, (i) all rights of the Acquired Companies in and to each Significant
Product and the Masters are valid and enforceable and (ii) to Seller's
knowledge, all rights of the Acquired Companies in and to all other I/P Assets
are valid and enforceable. "Significant Product" means any audio or audiovisual
product in respect of which the Acquired Companies have sold more than 100,000
units in the CBA market since January 1, 1994, all of which products are set
forth in Schedule 4.18(b) attached hereto. All parties entitled to Royalties
have been paid all Royalties due and payable to them based upon income received
by Seller
35
pursuant to and in accordance with the applicable I/P Contracts. The Acquired
Companies are the sole and exclusive owners of the I/P Assets free and clear
from any and all Encumbrances, except the royalty obligations and other third
party payment obligations related to exploitation by Buyer as contained in the
I/P Contracts.
(c) To Seller's knowledge, the Acquired Companies are not
infringing upon any rights of any Person with respect to the use or exploitation
of any of the I/P Assets, and since January 1997, no Acquired Company has
received any notice of any such claim, and Seller is not aware of any such claim
of which any other Person has received written notice, which was not without
merit or which has not been satisfactorily resolved, other than those listed on
Schedule 4.18(c), nor does Seller have any knowledge of any facts that could
give rise to any such claim. To Seller's knowledge, the I/P Assets are original
works of authorship of the respective creators thereof and Buyer's use of such
works consistent with the Acquired Companies' current practices will not
infringe upon or violate any rights of privacy, publicity, copyright, trademark
or other proprietary right, as applicable, of any Person.
(d) Seller has applied for copyright registration and
certificates of renewal registration (for works protected in the United States
on or before December 31, 1977 where the original term of copyright has expired
and where necessary to protect such renewal rights) in respect of all material
Masters, Compositions, Print Music, Artwork and A/V Works. The copyrights and
renewal copyrights were duly and timely applied for, registered and remain in
full force and effect. No Acquired Company has received any notice terminating
any Acquired Company's rights under Section 304 of the United States Copyright
Act.
36
(e) Other than the Trademarks, there are no trademarks,
trademark registrations, trademark registration applications, service marks,
service ▇▇▇▇ applications, service ▇▇▇▇ registrations, business names, brand
names, tradenames, imprints or logos which are owned, currently used by the
Acquired Companies in connection with the Music Business and that are material
to the Music Business. Except as listed on Schedule 4.18(e) attached hereto, no
Acquired Company has received any notice from any Person, or is aware of any
pending or threatened claim, alleging that any Trademark infringes upon the
rights of any other Person which was not without merit or which has not been
satisfactorily resolved, and Seller has no knowledge of any facts which could
reasonably be expected to give rise to such a claim.
(f) Except as listed on Schedule 4.18(f) attached hereto, as of
the date hereof each I/P Contract is, and following the consummation of the
transactions contemplated hereby will continue to be, in full force and effect
and enforceable in accordance with its terms (except that such enforcement may
be subject to bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium (whether general or specific) or other laws now or hereafter in
effect relating to creditors' rights generally and the remedy of specific
enforcement and injunctive or other forms of equitable relief may be subject to
equitable defense and to the discretion of the court before which any proceeding
therefor may be brought) except where the invalidity or non-enforceability of
such I/P Contract, in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect; and the Acquired Companies have performed their
material obligations thereunder and are not in material default with respect to
any such agreements.
(g) The grant of copyright in each Significant Composition, to
the extent it was afforded statutory copyright protection under U.S. law as of
January 1, 1978 from the
37
writer(s) thereof to any Acquired Company, extends to all rights for the full
term of copyright, except as otherwise set forth on Schedule 4.18(g). The grant
of copyright in the Compositions from which substantially all of NPS (other than
NPS relating to Significant Compositions) was derived during the Relevant Period
(as defined below), to the extent such Compositions were afforded statutory
protection under U.S. law as of January 1, 1978 from the writer(s) thereof to
any Acquired Company, extends to all rights for the full term of copyright.
"Significant Compositions" means those Compositions set forth on Schedule
4.18(g), which represent the highest earning Compositions as to which the
Acquired Companies received at least 50% of the NPS during the period commencing
on January 1, 1999 through June 30, 2001 (the "Relevant Period"), and "NPS"
means net publisher's share calculated as follows: with respect to any
accounting period, NPS means all gross revenues received or which should have
been received in such period, based upon such number of royalty accounting
statements as are normally or customarily received or which normally or
customarily should have been received in such accounting period by the Acquired
Companies with respect to any rights in and to the Compositions, less any
amounts actually paid or payable relating to such gross revenues, by the
Acquired Companies to writers of Compositions, joint owners of rights, and any
other third parties, including, without limitation, co-publishers, subpublishers
and administrators, having a royalty interest in the rights or other royalty
participation. For purposes of the computation of NPS, (i) there shall be no
acceleration of payment of gross revenues to a time earlier than otherwise would
have been made so as to prematurely include such payments in an accounting
period with a view towards distorting NPS for such period, (ii) all normal and
customary royalty revenues shall be included (including any amounts on any
corrected royalty statement for such
38
period whether or not received in such period, such as, payments at an incorrect
royalty rate, which rate is later corrected), and (iii) any advances,
prepayments, advance recoupments or non-recurring items shall not be included.
(h) Schedule 4.18(a)(vii) attached hereto lists all Compositions
owned in whole or in part by the Acquired Companies, which whole or partial
ownership is indicated next to each such Composition, contained in the Acquired
Companies' electronic database and includes all Compositions which have
generated revenue since January 1, 1999.
(i) Except as set forth on Schedule 4.18(i) attached hereto,
during the period commencing one year prior to the date hereof, no Acquired
Company has entered into any contract for the licensing or other exploitation of
the I/P Assets which adversely and materially varies from the type of agreements
theretofore entered into by the Acquired Companies pursuant to normal business
custom.
(j) With respect to each Artist Agreement, set forth on Schedule
4.18(j) attached hereto are true and complete descriptions of the extent to
which the obligations and commitments of the applicable recording artist under
each such Artist Agreement have been or remain to be performed or delivered,
including, without limitation, the number of albums delivered to date thereunder
and the number of "firm" and option albums to be delivered thereunder. With
respect to each Artist Agreement having executory obligations (e.g., remaining
albums yet to be delivered thereunder), such Artist Agreement conveys exclusive,
perpetual and worldwide rights to manufacture, sell, distribute and advertise
records (that is, all forms of reproduction, whether now known or unknown,
embodying sound alone, or sound accompanied by visual images) embodying master
recordings and to lease, license, convey or otherwise use or
39
dispose of master recordings by any method now or hereafter known in any field
of use, except as othewise set forth on Schedule 4.18(j). Neither Seller nor
any Acquired Company is aware that any recording artist will terminate or seek
not to perform its Artist Agreement. All options which any Acquired Company has
purported to exercise under any Acquisition Agreement or Artist Agreement have
been validly and properly exercised. No Acquired Company has failed to timely
exercise any options under any Artist Agreement listed on Schedule 4.18(a)(ii)
attached hereto. All Unrecouped Advances under the Artist Agreements were made
in the ordinary course of business. Except as listed on Schedule 4.18(j), to the
knowledge of Seller, there are no bona fide defenses or facts constituting a
basis for a bona fide defense to the recoupment of such Unrecouped Advances.
Each Artist Agreement contains representations and warranties that the
applicable recording artist was free to furnish such services, without violation
of any contract, contractual restriction or duty owed to any Person, and to the
knowledge of Seller, there has been no such violation.
(k) With respect to each Writer Agreement, set forth on Schedule
4.18(k) attached hereto are true and complete descriptions of the extent to
which the obligations and commitments of the applicable songwriter or arranger
under each such Writer Agreement have been or remain to be performed or
delivered, including the number of contract periods elapsed to date and the
number of "firm" and option contract periods remaining. Neither Seller nor any
Acquired Company is aware that any songwriter or arranger will terminate or seek
not to perform its Writer Agreement. All options which any Acquired Company has
purported to exercise under any Acquisition Agreement or Writer Agreement have
been validly and properly exercised. No Acquired Company has failed to timely
exercise any options under any Writer
40
Agreement listed on Schedule 4.18(a)(xx) attached hereto. All Unrecouped
Advances under the Writer Agreements were made in the ordinary course of
business. To the knowledge of Seller, there are no bona fide defenses or facts
constituting a basis for a bona fide defense to the recoupment of such
Unrecouped Advances. Most of the Writer Agreements contain representations and
warranties that the applicable songwriter or arranger was free to furnish such
services, without violation of any contract, contractual restriction or duty
owed to any Person, and to the knowledge of Seller, there has been no such
violation.
(l) To Seller's knowledge, Schedule 4.18(l) attached hereto
contains true and complete details of all written requests for renegotiation in
relation to any of the IP Contracts received by Seller or any Acquired Company.
(m) No Acquired Company has received any notice of any asserted
failure, past or present, of the Masters to comply with all applicable Laws or
collective bargaining agreements. No Master embodies any performance of any
recording artist who was a minor either at the time such performance was
recorded onto such Master or at the time that the recording artist entered into
an Artist Agreement pursuant to which the Master was delivered, other than
artists listed on Schedule 4.18(m). With respect to any recording artist whose
services or works are embodied on a Master, each Master embodying the results
and proceeds of the services or works of such artist (i) was prepared within the
scope of the applicable Acquired Company's engagement of such artist's personal
services and is a work made-for-hire, or was prepared as part of a Master which
constitutes a work specifically ordered by the Acquired Company for use as a
contribution to a collective work, (ii) has been acknowledged in writing by the
artist to be a work made-for-hire and (iii) such artist has agreed with the
applicable Acquired
41
Company that, to the extent that the artist is deemed the "author" of any such
Master, the artist has assigned to the applicable Acquired Company the entire
worldwide right, title and interest in and to such Master, including all
copyrights and the performances by such artist embodied thereon.
(n) No Acquired Company has received any notice of any asserted
failure, past or present, of the Compositions to comply with all applicable Laws
or collective bargaining agreements. Except as set forth on Schedule 4.18(n), no
Composition embodies any musical composition, arrangement, title, lyric or music
of any songwriter or arranger who was a minor either at the time such musical
composition, arrangement, title, lyric or music was created or at the time that
the songwriter or arranger entered into a Writer Agreement pursuant to which the
Composition was delivered.
4.19 CONTRACTS AND COMMITMENTS. Schedule 4.19 attached hereto lists the
following contracts and other agreements currently in effect to which an
Acquired Company is a party:
(a) any contracts, commitments, arrangements or understandings
which (i) may involve the expenditure by an Acquired Company after the Closing
Date of more than $150,000 for any individual contract, commitment, arrangement
or understanding, (ii) was not entered into in the ordinary course of business
or (iii) is not terminable by an Acquired Company by notice of not more than
sixty (60) days for a cost less than $150,000. Except as set forth on Schedule
4.05(a), and with respect to the transactions contemplated by Section 6.01(b),
to Seller's knowledge with respect to such transactions, the legal
enforceability after the Closing of the rights of the Acquired Companies under
any contracts, commitments, arrangements or
42
understandings to which they are a party will not be affected in any manner by
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby;
(b) any agreement under which it has advanced or loaned any
amount to any of the members of its board of directors or similar governing
body, its officers or its employees;
(c) any agreement containing a covenant of Seller or any
Acquired Company not to compete or any other restriction on Seller's or any
Acquired Company's ability to conduct the Music Business;
(d) any agreement, contract or other instrument under which (i)
any Person has directly or indirectly guaranteed or become surety for
indebtedness, liabilities or obligations of an Acquired Company, or (ii) an
Acquired Company has directly or indirectly guaranteed or become surety for
indebtedness, liabilities or obligations of any Person (in each case other than
endorsements for the purpose of collection in the ordinary course of business);
(e) any agreement, contract or other instrument under which an
Acquired Company has, directly or indirectly, made any advance, loan, extension
of credit (other than an account receivable) or capital contribution in excess
of $150,000 to, or other investment in, any Person;
(f) any agreement or instrument providing for indemnification of
any Person with respect to liabilities relating to any current or former
business of an Acquired Company or any predecessor Person; or
(g) except as provided in Section 4.18, any other agreement,
contract or instrument that is material to the operation of the Music Business.
43
Seller has delivered or made available to Buyer a correct and complete
copy of each written agreement listed in Schedule 4.19 attached hereto and a
written summary setting forth the material terms and conditions of each oral
agreement referred to in Schedule 4.19.
4.20 ACCOUNTS RECEIVABLE. All accounts receivable of the Acquired
Companies (collectively, the "Accounts Receivable") are properly reflected on
the Interim Balance Sheet or on the accounting records of the Acquired Companies
and represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. There is no contest,
claim or right of set-off, other than returns in the ordinary course of business
consistent with past practice, under any contract, agreement or understanding
with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. Schedule 4.20 attached hereto contains a complete and
accurate list of all Accounts Receivable as of the date of the Interim Balance
Sheet, which list sets forth the aging of such Accounts Receivable. Upon
request, Seller will, subject to Section 6.05, update Schedule 4.20 attached
hereto as of a date not more than five (5) days prior to the Closing Date.
4.21 LABOR MATTERS. There are no collective bargaining agreements in
effect between any of the Acquired Companies or any labor unions or
organizations representing any of the Acquired Companies' employees. During the
past three years, there has been no request for collective bargaining or for an
employee election from any employee, union or the National Labor Relations
Board. Except as and to the extent set forth in Schedule 4.21 attached hereto
and to the knowledge of Seller: (a) the Acquired Companies are in material
compliance with all Laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and are not engaged in any
unfair labor practice; (b) there is no unfair
44
labor practice complaint against any Acquired Company pending or threatened
before the National Labor Relations Board or the United States Department of
Labor; (c) there is no labor strike, dispute, slowdown or stoppage in progress
or threatened against or involving any Acquired Company; (d) no question
concerning representation has been raised or is threatened respecting the
employees of the Acquired Companies; and (e) no grievance or arbitration
proceeding is pending and no claim therefor exists.
4.22 NO BREACH. Except as set forth on Schedule 4.05(a) attached hereto,
and with respect to the transactions contemplated by Section 6.01(b), to
Seller's knowledge, each contract, agreement, understanding or arrangement
referred to in this Agreement or in any Schedule hereto to which any of the
Acquired Companies is a party is legal, valid, binding and enforceable against
the applicable Acquired Company and, to the knowledge of Seller, the other
parties thereto, and is in full force and effect. Except as set forth on
Schedule 4.22, there have been no threatened cancellations thereof nor
outstanding disputes thereunder, and none of the Acquired Companies has, and to
the knowledge of Seller, no third party has, breached any provision of, nor does
there exist any default in any material respect under, or event (including the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby) which is, or with the giving of notice or the
passage of time or both would become, a breach or default in any material
respect under or would give rise to any right to terminate, modify or accelerate
in any material respect the terms of any such contract, agreement, understanding
or arrangement.
4.23 INVENTORY. All inventory of the Acquired Companies, whether or not
reflected in the Interim Balance Sheet, consists of a quality and quantity
usable and salable in the ordinary
45
course of business consistent with past practice, except for obsolete items and
items of below-standard quality, all of which, to Seller's knowledge, have been
written off or written down to net realizable value in the Interim Balance Sheet
or on the accounting records of the Acquired Companies as of the Closing Date,
as the case may be. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Acquired Companies.
4.24 PROFESSIONAL FEES. Except for fees and commissions that will be
paid by ▇▇▇▇▇▇▇ or Seller, no agent, broker, investment banker or Person acting
on behalf of ▇▇▇▇▇▇▇, Seller or the other Acquired Companies or under their
authority is or will be entitled to any broker's or finder's fee or any other
compensation or similar fee directly or indirectly in connection with any of the
transactions contemplated herein.
4.25 AFFILIATED TRANSACTIONS. Schedule 4.25 attached hereto sets forth a
true and complete list of all written contracts or other agreements between an
Acquired Company and any Affiliate (as defined below) thereof, except for
dealings with other Acquired Companies. Schedule 4.25 attached hereto sets forth
a true and complete summary of all other business arrangements or dealings
between an Acquired Company and any Affiliate thereof. All of the contracts,
agreements, arrangements or dealings set forth or described in Schedule 4.25 are
arm's length transactions containing fair market terms and conditions. Except as
set forth in Schedule 4.25 attached hereto, and except for dealings with other
Acquired Companies, no Acquired Company has any direct or indirect dealings with
any Affiliate thereof or with any officer, member of the board of directors or
similar governing body or key employee of such Acquired Company or with any of
their respective Affiliates. "Affiliate" means, with respect to
46
any Person, any Person who directly or indirectly controls, is controlled by or
is under common control with such Person. For purposes of the foregoing,
"control" means the direct or indirect power to direct the management and
policies of a Person, whether through the ownership of voting securities, by
agreement or otherwise.
4.26 FULL DISCLOSURE. Neither this Agreement, nor any certificate or
other instrument or document furnished or to be furnished by ▇▇▇▇▇▇▇ or Seller
to Buyer pursuant to this Agreement, contains any untrue statement of a material
fact or omits to state any material fact required to be stated herein or therein
or necessary to make the statements and information contained herein or therein
not misleading in any material respect.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES BY BUYER
Buyer hereby represents and warrants to ▇▇▇▇▇▇▇ and Seller as follows:
5.01 ORGANIZATION AND GOOD STANDING. Buyer is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and has full limited liability company power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
5.02 AUTHORIZATION. Buyer has taken all actions required by law, its
constitutive documents and otherwise necessary to authorize the execution and
delivery by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby.
5.03 VALID AND BINDING AGREEMENT. This Agreement constitutes the legal,
valid and binding agreement of Buyer, enforceable against Buyer in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency, reorganization or other similar laws affecting or
limiting the enforcement of creditors' rights generally and except
47
as such enforceability is subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.04 NO VIOLATION. The execution and delivery of this Agreement by Buyer
does not, and the consummation of the transactions contemplated hereby will not,
(a) violate any provision, or result in the creation of any Encumbrance under,
any agreement, indenture, instrument, lease, security agreement, mortgage or
lien to which Buyer is a party or by which it is bound; (b) violate any
provision of Buyer's constitutive documents; or (c) violate any order,
arbitration award, judgment, writ, injunction, decree, statute, rule or
regulation applicable to Buyer, except where the violation would not have a
material adverse effect on Buyer or its ability to consummate the transactions
contemplated hereby.
5.05 PROFESSIONAL FEES. Except for fees and commissions that will be
paid by Buyer, no agent, broker, investment banker or Person acting on behalf of
Buyer or under its authority is or will be entitled to any broker's or finder's
fee or any other compensation or similar fee directly or indirectly in
connection with any of the transactions contemplated herein.
5.06 CONSENTS AND APPROVALS. Buyer has obtained all consents, approvals,
authorizations or orders of third parties, excluding Governmental Authorities,
necessary for the authorization, execution and performance of this Agreement by
Buyer.
5.07 INVESTMENT INTENT. Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the risks and
merits associated with the acquisition of the Company Interests and is acquiring
the Company Interests for its own account for investment, with no present
intention of making a public distribution thereof. Buyer will not
48
sell or otherwise dispose of the Company Interests in violation of the
Securities Act of 1933, as amended, or any state securities laws.
5.08 SUFFICIENT FUNDS. As of the Closing, Buyer will have sufficient
funds to consummate the transactions contemplated hereby, including, without
limitation, to pay the Purchase Price in accordance with the terms of this
Agreement, and has all requisite power and authority to make payment of such
funds in the manner described herein, and such funds will be at the Closing
Date, free and clear of all Encumbrances of any kind.
5.09 FULL DISCLOSURE. Neither this Agreement, nor any certificate or
other instrument or document furnished or to be furnished by Buyer to ▇▇▇▇▇▇▇ or
Seller pursuant to this Agreement, contains any untrue statement of a material
fact or omits to state any material fact required to be stated herein or therein
or necessary to make the statements and information contained herein or therein
not misleading.
5.10 RELIANCE OF REPRESENTATIONS OF SELLER. Buyer acknowledges that,
except for the representations and warranties of ▇▇▇▇▇▇▇ and Seller specifically
set forth in Article IV and in any certificate delivered pursuant to Section
8.03 and the instruments of transfer for the Company Interests, it has not
relied on any information provided by ▇▇▇▇▇▇▇, Seller or the other Acquired
Companies in connection with the transactions contemplated by this Agreement as
constituting a representation or warranty of ▇▇▇▇▇▇▇ or Seller.
ARTICLE VI.
COVENANTS AND AGREEMENTS OF ▇▇▇▇▇▇▇ AND SELLER
6.01 CONDUCT OF BUSINESS PENDING THE CLOSING.
(a) Except as otherwise expressly provided in Section 6.01(b) or
6.01(c) below, from the date hereof until the Closing, ▇▇▇▇▇▇▇ will, and will
cause Seller, and, if
49
applicable, the Subsidiaries to, fulfill the following covenants and agreements
unless otherwise consented to by Buyer in writing:
(i) ▇▇▇▇▇▇▇, Seller and the other Acquired Companies
will use their best efforts consistent with past practices to maintain
the existence, rights and franchises of the Acquired Companies and to
preserve for Buyer the present relationships of the Acquired Companies
with their suppliers and customers and others having business
relationships with them.
(ii) ▇▇▇▇▇▇▇, Seller and the other Acquired Companies
shall not affirmatively take any action that would cause any of the
representations and warranties made by ▇▇▇▇▇▇▇ and Seller not to be true
and correct in all material respects on and as of the Closing Date with
the same force and effect as if such representations and warranties had
been made on and as of the Closing Date.
(iii) ▇▇▇▇▇▇▇, Seller and the other Acquired Companies
will not do or omit to do any act, or permit any act or omission to act,
which would cause a material breach of any I/P Contract or any other
material contract, commitment or obligation of the Acquired Companies.
(iv) With respect to the Acquired Companies, ▇▇▇▇▇▇▇,
Seller and the other Acquired Companies will not (w) grant any increase
in the wages or salary of any officer, employee or agent of the Acquired
Companies, except normal wage or salary increases for officers or
employees in the ordinary course of business and consistent with past
practice; (x) enter into any employment agreement, sales agency or other
contract or arrangement with respect to the performance of personal
services (other than in the
50
ordinary course of business) which is not terminable by it without
liability on not more than thirty (30) days' notice; (y) enter into or
extend any labor contract with any hourly-paid employees or any union;
or (z) agree to take any of the foregoing actions.
(v) The Acquired Companies will not mortgage, pledge or
subject to any other Encumbrance, any of the Acquired Companies' assets.
(vi) The Acquired Companies will not enter into (s) any
Acquisition Agreement or Writer Agreement committing any Acquired
Company to pay any royalties, advances or other payments exceeding
$75,000 in any twelve (12) month period; (t) any Artist Agreement
committing any Acquired Company to pay any royalties, advances or other
payments exceeding $200,000 in any twelve (12) month period; (u) any A/V
Work Agreement committing any Acquired Company to pay any royalties,
advances or other payments exceeding $150,000 in any twelve (12) month
period; (v) any Producer Agreement committing any Acquired Company to
pay any royalties, advances or other payments exceeding $100,000 in any
twelve (12) month period; (w) any Distribution Label Agreement
committing any Acquired Company to make payments exceeding $250,000 in
any twelve (12) month period; (x) any Distribution Agreement; (y) any
License committing any Acquired Company to pay any amounts or make any
advances or entitling any Acquired Company to receive amounts exceeding
$200,000 in any twelve (12) month period; or (z) any other transaction
involving more than $150,000 or a commitment extending more than six (6)
months.
(vii) The Acquired Companies will not declare, pay or
make or set aside for payment or making, any dividend or other
distribution in respect of its capital stock or
51
other securities, or directly or indirectly redeem, purchase or
otherwise acquire any of its capital stock or other securities.
(viii) Neither ▇▇▇▇▇▇▇ nor Seller shall issue or sell,
or authorize the issuance or sale of, any shares of capital stock or
limited liability company interests of any Acquired Company or any
securities convertible into, or exchangeable for, or options, warrants
to purchase, rights to subscribe for, calls or commitments of any
character relating to, or enter into any contract, understanding or
arrangement with respect to the issuance of, any shares of capital stock
or limited liability company interests of any Acquired Company or
adjust, split, combine or reclassify any of the securities of an
Acquired Company, or make any other changes to the capital structure of
an Acquired Company.
(ix) ▇▇▇▇▇▇▇, Seller and the other Acquired Companies
will not directly or indirectly (through a representative or otherwise)
solicit or furnish information to any prospective acquirors, commence
negotiations with any other party or enter into any agreement with any
other party concerning the sale of any of the Acquired Companies'
capital stock or other equity interests or assets or any part thereof,
or involving the merger, consolidation or combination of an Acquired
Company or share exchange with any other Person.
(x) Neither ▇▇▇▇▇▇▇, Seller nor any of the other
Acquired Companies will enter into any agreement to do any of the
foregoing.
(b) Immediately prior to the Closing Date, (i) Seller shall form
the Company as a Tennessee limited liability company, with Seller owning all the
issued and outstanding
52
membership interests of the Company, and (ii) Seller shall transfer to the
Company all the assets of Seller, including all of the issued and outstanding
shares of the capital stock of Word Music Group, ninety-nine percent (99%) of
the issued and outstanding limited liability company interests of Word Direct
and fifty percent (50%) of the issued and outstanding limited liability company
interests of Celebration, and all Trademarks and other intellectual property,
but excluding those assets described in Section 6.01(c), and the Company shall
assume all liabilities and obligations of Seller relating to the transferred
assets. Immediately prior to the Closing Date, (i) ▇▇▇▇▇▇▇ shall cause Seller to
cause Word Music Group to be converted into a Tennessee limited liability
company and all of the issued and outstanding shares of capital stock of Word
Music Group to be converted into limited liability company interests, and (ii)
▇▇▇▇▇▇▇ shall cause Seller to cause Word Music Group to cause each of Dayspring,
Wordspring and WMI to be converted into Tennessee limited liability companies
and all of the issued and outstanding shares of capital stock of each of them to
be converted into limited liability company interests, in each case pursuant to
agreements and other documents in form and substance reasonably satisfactory to
Buyer. ▇▇▇▇▇▇▇ shall, and shall cause each Acquired Company to, take all such
actions and execute and file all such documents as may be necessary or required
to effect the conversions contemplated by this Section 6.01(b) and the
termination of the separate existence of the predecessor corporate entities,
including, without limitation, filing certificates of conversion and other
applicable certificates with the Secretary of State of the State of Tennessee.
(c) Notwithstanding anything to the contrary in this Agreement,
Seller shall retain and shall not transfer to the Company all of the stock of
Flying Rhinoceros Holdings, Inc. held by Seller and the assets of Seller's GET
Management business.
53
6.02 ACCESS. From the date hereof to the Closing, ▇▇▇▇▇▇▇ shall cause
the Acquired Companies to permit Buyer and its counsel, accountants, and other
representatives reasonable access during normal business hours and upon
reasonable notice to the facilities, properties, books, contracts, commitments,
records, employees, accountants and other consultants of or relating to the
Acquired Companies and will furnish Buyer and its representatives during such
period with all such information concerning the Acquired Companies' affairs and
such copies of such documents relating thereto (at Buyer's expense), as Buyer or
its representatives may reasonably request. Any such access or investigation
shall not affect or otherwise diminish or obviate in any respect any of the
representations and warranties of ▇▇▇▇▇▇▇ and Seller or their indemnification
obligations contained in this Agreement or in any certificate, instrument or
other document furnished or to be furnished by ▇▇▇▇▇▇▇ or Seller to Buyer
pursuant to this Agreement. In the event that this Agreement is terminated,
Buyer shall return or destroy all confidential, non-public documents or portions
thereof prepared by Buyer or its representatives that contain nonpublic
information furnished by ▇▇▇▇▇▇▇ pursuant hereto, and shall hold all nonpublic
information received pursuant hereto, in accordance with the Confidentiality
Agreement entered into between ▇▇▇▇▇▇▇ and Buyer dated July 6, 2001.
6.03 CONSENTS AND APPROVALS. From the date hereof to the Closing, each
of ▇▇▇▇▇▇▇ and Seller shall take all necessary corporate and other action and
use all commercially reasonable efforts to obtain promptly all consents,
approvals, permits, licenses, authorizations, exemptions and waivers from third
parties to carry out the transactions contemplated in this Agreement, including
but not limited to filings required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act"), and shall
provide to Buyer such
54
information as Buyer may reasonably require to make such filings and prepare
such applications as may be required for the consummation by Buyer of the
transactions contemplated by this Agreement. Specifically, with respect to the
filings pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, both Buyer and ▇▇▇▇▇▇▇ agree that
they will, as promptly as possible, but in any event no later than twenty (20)
days hereafter, file with the Federal Trade Commission and the Antitrust
Division of the Justice Department the notifications and other information
required to be filed under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act with respect to the
transactions contemplated hereby. Each party shall pay its own filing fees
payable in connection with the filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
6.04 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS. On or prior to the
Closing, (a) ▇▇▇▇▇▇▇ will cause all indebtedness owed by any Acquired Company to
▇▇▇▇▇▇▇ or any of its Affiliates (other than the Acquired Companies) to be
converted, directly or indirectly, into equity or otherwise forgiven, and (b)
▇▇▇▇▇▇▇ will, or will cause its Affiliates (other than the Acquired Companies)
to, repay to the Acquired Companies all indebtedness or accounts payable owed by
Gaylord or any such Affiliates to the Acquired Companies.
6.05 SCHEDULES. From the date hereof to the Closing, ▇▇▇▇▇▇▇ or Seller
shall promptly notify Buyer in writing of any event, condition or circumstance
unknown to ▇▇▇▇▇▇▇ and Seller as of the date hereof that would cause any of the
representations and warranties of ▇▇▇▇▇▇▇ and Seller contained in this Agreement
to become untrue in any respect. ▇▇▇▇▇▇▇ and Seller may, from time to time prior
to or at the Closing, by notice to Buyer in accordance with the terms of this
Agreement, supplement or amend any Schedule, including one or more supplements
or amendments to correct any matter which would constitute an inaccuracy or
breach of any representation or warranty contained herein. No such supplemental
or amended Schedule shall
55
be deemed to cure any inaccuracy or breach for purposes of Section 8.01. If,
however, the Closing occurs, any such supplement or amendment will be effective
to cure and correct for all other purposes any inaccuracy in or breach of any
representation or warranty that would have existed if ▇▇▇▇▇▇▇ and Seller had not
made such supplement or amendment, and all references to any Schedule that is
supplemented or amended as provided in this Section 6.05 shall for all purposes
after the Closing be deemed to be a reference to such Schedule as so
supplemented or amended.
ARTICLE VII.
COVENANTS AND AGREEMENTS OF BUYER
7.01 CONSENTS AND APPROVALS. From the date hereof to the Closing, Buyer
shall take all necessary corporate and other action and use commercially
reasonable efforts to obtain promptly all consents, approvals, permits,
licenses, authorizations, exemptions and waivers from third parties (including
pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act) to carry out the transactions
contemplated in this Agreement, and shall provide to ▇▇▇▇▇▇▇ such information as
▇▇▇▇▇▇▇ may reasonably require to make such filings and prepare such
applications as may be required for the consummation by ▇▇▇▇▇▇▇ and Seller of
the transactions contemplated by this Agreement.
7.02 BOOKS AND RECORDS. Subject to Section 11.02, for a period of six
(6) years with respect to tax-related books and records, and three (3) years
with respect to all other books and records, from and after the Closing Date:
(a) Buyer shall not dispose of or destroy any of the Acquired
Company's books and records relating to periods prior to the Closing ("Books and
Records") without first offering to turn over possession thereof to Seller by
written notice to Seller at least thirty (30) days prior to the proposed date of
such disposition or destruction.
56
(b) Buyer shall upon reasonable notice and at reasonable times
allow Seller and its agents reasonable access to all Books and Records during
normal working hours at Buyer's principal place of business or at any location
where any Books and Records are stored, and Seller shall have the right, at its
expense, to make copies of any Books and Records. Buyer shall make available to
Seller upon written request (i) copies of any Books and Records, (ii) Buyer's
personnel to assist Seller in locating and obtaining any Books and Records, and
(iii) any of Buyer's personnel whose assistance or participation is reasonably
required by Seller in anticipation of, or preparation for, existing or future
litigation, tax returns, or other matters in which Seller or any of its
Affiliates are involved. Seller shall reimburse Buyer for the reasonable
out-of-pocket expenses incurred by Buyer in performing the covenants contained
in this Section 7.02.
(c) To the extent any books and records of ▇▇▇▇▇▇▇ or Seller
relate to matters involving the Acquired Companies for periods ending prior to
or on the Closing, ▇▇▇▇▇▇▇ or Seller shall, upon reasonable notice and at
reasonable times allow Buyer and its agents reasonable access to such books and
records during normal working hours at Gaylord's or Seller's principal place of
business or at any location where any such books or records are stored and Buyer
shall have the right, at its expense, to make copies thereof. For the avoidance
of doubt, such access shall include access in order to enable Buyer to prepare
the Closing Net Asset Statement on a timely basis.
7.03 BUYER'S KNOWLEDGE OF GAYLORD'S AND SELLER'S REPRESENTATIONS. Buyer
hereby agrees that to the extent any representation or warranty of ▇▇▇▇▇▇▇ and
Seller made herein is, to the knowledge of Buyer prior to the Closing, untrue or
incorrect, Buyer will notify ▇▇▇▇▇▇▇ and
57
Seller of such representation or warranty being untrue or incorrect prior to
Closing so that ▇▇▇▇▇▇▇ and Seller may supplement their Schedules in accordance
with and subject to Section 6.05.
7.04 EMPLOYEE MATTERS.
(a) Following the Closing, Buyer shall, or shall cause each of
the Acquired Companies to (i) honor all obligations under employment agreements
of each such Acquired Company identified on Schedule 4.17(a) attached hereto,
(ii) honor the "stay-on" bonus obligations of the Acquired Companies as
described on Schedule 4.17(a) attached hereto, and (iii) except as provided
herein or any failure to comply with Section 4.17(d)(i), pay all benefits
accrued through the Closing Date under employee plans and benefit arrangements
of such Acquired Company in accordance with the terms thereof. In furtherance
and not in limitation of the foregoing, Buyer agrees to provide, or cause the
Acquired Companies to provide, employees of the Acquired Companies who are
employed by the Acquired Companies immediately prior to the Closing Date other
than any such employees who are in benefit payment status on the Closing Date
under the ▇▇▇▇▇▇▇ ▇▇▇▇-Term Disability Plan ("Continuing Employees") with
compensation and benefits (other than severance and termination benefits)
comparable in the aggregate to the compensation and benefits provided to
similarly-situated Buyer employees. Notwithstanding the foregoing, Buyer shall
have the same right to terminate or cause the termination of the employment of
any Continuing Employee as the Acquired Company employing such Continuing
Employee had as of the Closing Date. With respect to medical benefits provided
to Continuing Employees as of the Closing Date under Buyer's benefit plans,
Buyer agrees that it will, or it will cause each Acquired Company to, waive
waiting periods and
58
pre-existing condition requirements under such plans, and will give Continuing
Employees credit for any copayments and deductibles actually paid by such
employees under such Acquired Company's medical plans during the plan year in
which the Closing occurs. In addition, service with the Acquired Companies shall
be recognized for purposes of eligibility and vesting under Buyer's welfare
plans as well as for purposes of Buyer's programs or policies for vacation and
sick pay. Without limiting the generality of the foregoing, Buyer shall honor
all vacation, personal and sick days accrued by Continuing Employees under any
Acquired Company's plans, policies, programs and arrangements immediately prior
to the Closing. With respect to any person whose employment with an Acquired
Company terminated prior to the Closing Date and who is not a Continuing
Employee, liability, if any, under employee plans and benefit arrangements shall
be the responsibility of ▇▇▇▇▇▇▇. Except as otherwise specifically provided in
this Section 7.04, Buyer shall have no responsibility to provide or continue any
employee benefit plan or arrangement for Continuing Employees and shall have no
responsibility or obligation in connection with any equity plan or program
(including stock options and stock appreciation rights) based on or relating to
Gaylord's or Seller's stock. In the event any person who is a Continuing
Employee and is receiving benefits under Gaylord's short-term disability program
on the Closing Date subsequently begins to receive benefit payments under
Gaylord's Long-Term Disability Plan without returning to active employment, such
person shall cease to be a Continuing Employee as of the date such Long Term
Disability Plan benefit payments commence.
(b) Effective as of the Closing Date, the Acquired Companies and
each Continuing Employee shall cease participation in Gaylord's health and
welfare benefit plans
59
("Seller Welfare Plans") and commence participation in the benefit plans
established or otherwise made available to Continuing Employees by Buyer
pursuant to Section 7.04(a). ▇▇▇▇▇▇▇ agrees that each Seller Welfare Plan shall
be responsible for claims incurred for Continuing Employees under such plans
prior to the Closing Date and claims incurred prior to, on or after the Closing
Date by any individual covered or eligible to elect coverage under a Seller
Welfare Plan under the provisions of Section 601 through 609 of ERISA ("COBRA")
by virtue of a "qualifying event" as defined by COBRA which occurred prior to
the Closing Date. All claims for health and welfare benefits incurred for
Continuing Employees after the Closing Date shall be the responsibility of
Buyer. For purposes of this Section 7.04(b), a claim shall be deemed "incurred"
when the relevant service is provided or item is purchased.
(c) Each Continuing Employee whose employment with Buyer and its
Affiliates is involuntarily terminated within the 12-month period beginning on
the Closing Date shall be eligible for benefits under a Buyer severance or
separation plan or policy that provides a severance benefit of at least one week
of pay for each year of service (credited with Buyer, Seller and their
respective Affiliates). Subject to the foregoing, such benefits may be provided
in the manner and under the plan or policy designated by Buyer in its
discretion.
(d) Buyer and its Affiliates shall not have any responsibility
or liability for any post-retirement health or other post-retirement welfare
benefit obligations for any Continuing Employee or other person. ▇▇▇▇▇▇▇ or
Seller shall retain or assume all responsibility and liability for all
Continuing Employees who are eligible for benefits under any post-retirement
health or welfare benefit plan, program or arrangement sponsored, maintained or
contributed to by ▇▇▇▇▇▇▇, Seller or any of their respective Affiliates as of,
or at any time prior
60
to, the Closing Date (the "Seller Retiree Benefit Plans"). ▇▇▇▇▇▇▇ and Seller
shall indemnify and hold Buyer and its Affiliates harmless for any Losses (as
defined in Section 12.01) incurred by Buyer or its Affiliates with respect to
any and all claims by any persons, including, but not limited to, Continuing
Employees, their beneficiaries or dependents, for benefits under the Seller
Retiree Benefit Plans.
7.05 USE OF ▇▇▇▇▇▇▇ OR WORD NAME.
(a) As promptly as practicable following the Closing Date, Buyer
shall cause the Acquired Companies to cease and desist from all further use of
the name "▇▇▇▇▇▇▇," or any trade names, trademarks, identifying logos or service
marks related thereto (including "▇▇▇▇▇▇▇ Creative Group" and "GCG"), or any
part or variation of any of the foregoing or any confusingly similar trade
names, trademarks or logos; provided, however, that Buyer shall be permitted a
reasonable time to transition signage, stationery, business cards and the like,
it being understood that Buyer will use all reasonable efforts to expedite such
transition.
(b) As promptly as practicable following the Closing Date,
▇▇▇▇▇▇▇ and Seller shall, and shall cause their Affiliates to, cease and desist
from all future use of the name "Word" or "Word Entertainment," or any trade
names, trademarks, identifying logos or service marks related thereto, or any
variation of any of the foregoing or any confusingly similar tradenames,
trademarks or logos.
7.06 DELIVERY OF CURRENT AND HISTORICAL DATA FILES. ▇▇▇▇▇▇▇ and Seller
shall cause current data relating to the music publishing business of the Music
Business to be transferred from ▇▇▇▇▇-▇▇▇▇ Music Publishing, Inc. to Buyer in an
ASCII flat file (in a mutually agreed upon format). Historical data currently in
electronic format will be similarly transferred. Other
61
historical data will be transferred in hard copy format only. All data,
electronic and hard copy, will be transferred as promptly as practicable
following the Closing, but in any event no later than three (3) weeks
thereafter.
7.07 CANADA DISTRIBUTION. On or before the Closing Date, ▇▇▇▇▇▇▇ shall,
and shall cause its Affiliates to, take all such actions as may be necessary to
transfer, assign or otherwise vest in the Company or any other Acquired Company
the exclusive right to manufacture, distribute and/or sell (a) Records
containing the Masters, and (b) the sound recordings, records or audiovisual
works owned in whole or part by any Person other than an Acquired Company, in
each case which are currently or proposed to be manufactured, distributed or
sold by Word Entertainment (Canada) Inc., a corporation organized under the laws
of Yukon, Canada, and a wholly-owned subsidiary of ▇▇▇▇▇▇▇ ("Word Canada"). On
or before the Closing Date, ▇▇▇▇▇▇▇ shall, and shall cause its Affiliates to,
transfer all inventory of Records containing the Masters and A/V Works that are
in the possession or control of Word Canada to one or more Acquired Companies.
ARTICLE VIII.
CONDITIONS TO BUYER'S OBLIGATIONS
All obligations of Buyer to enter into and complete the Closing are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Buyer (other than the
second sentence of Section 8.05):
8.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by ▇▇▇▇▇▇▇ and Seller in this Agreement and the statements contained in the
Schedules attached hereto, to the extent qualified by materiality or by
reference to a Company Material Adverse Effect shall be true and correct, and to
the extent not so qualified, shall be true and correct in all
62
material respects, in each case when made and at and as of the Closing Date as
though such representations and warranties were made at and as of the Closing
Date (except for those representations and warranties made as of a specific
date, which shall have been true and correct as aforesaid as of such date).
8.02 PERFORMANCE BY ▇▇▇▇▇▇▇ AND SELLER. ▇▇▇▇▇▇▇ and Seller shall have
performed and complied in all material respects with all covenants, agreements,
obligations and conditions required by this Agreement to be complied with or
performed by ▇▇▇▇▇▇▇ or Seller, as the case may be, on or prior to the Closing
Date.
8.03 CERTIFICATES OF ▇▇▇▇▇▇▇ AND SELLER. Each of ▇▇▇▇▇▇▇ and Seller
shall have delivered to Buyer a certificate, dated the Closing Date and signed
by an officer of ▇▇▇▇▇▇▇ or Seller, as the case may be, certifying as to the
fulfillment by ▇▇▇▇▇▇▇ or Seller of the conditions specified in Sections 8.01
and 8.02.
8.04 OPINION OF COUNSEL FOR ▇▇▇▇▇▇▇ AND SELLER. Buyer shall have
received an opinion of Bass, ▇▇▇▇▇ & ▇▇▇▇, legal counsel for ▇▇▇▇▇▇▇ and Seller,
dated the Closing Date, substantially in the form attached hereto as Exhibit A.
8.05 CONSENTS AND APPROVALS. All applicable waiting periods under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or been terminated.
8.06 LITIGATION. On the Closing Date, none of ▇▇▇▇▇▇▇, Seller or any of
the other Acquired Companies shall be a party to, nor will there otherwise be
pending or threatened in writing any judicial, administrative or other action,
proceeding or investigation seeking to enjoin, prohibit, restrain or otherwise
prevent the transactions contemplated hereby.
63
8.07 CERTAIN ACTIONS AND CONVERSIONS. Buyer shall have received from
▇▇▇▇▇▇▇ or Seller evidence reasonably satisfactory to Buyer that immediately
prior to the Closing Date, (i) the Company has been duly formed as a Tennessee
limited liability company, with Seller owning all of the issued and outstanding
membership interests of the Company, free and clear of all Encumbrances of any
kind, (ii) the transfers of assets to, and the assumption of liabilities and
obligations by, the Company referred to in Section 6.01(b) have been duly made,
(iii) each of Word Music Group, Dayspring, Wordspring and WMI has been converted
into a Tennessee limited liability company, and (iv) all of the issued and
outstanding shares of capital stock of each of Word Music Group, Dayspring,
Wordspring and WMI have been converted into limited liability company interests
of the limited liability company into which each of them has been converted, and
all such limited liability company interests are free and clear of all
Encumbrances of any kind.
8.08 OTHER AGREEMENTS. Each of ▇▇▇▇▇▇▇ and Seller shall have executed
and delivered to Buyer a non-competition agreement, substantially in the form of
Exhibit B attached hereto (the "Non-Competition Agreement").
8.09 FIRPTA AFFIDAVIT. Seller shall have furnished Buyer with a
certificate, in the form of Exhibit C attached hereto, stating that Seller is
not a "foreign" person within the meaning of Section 1445 of the Code, which
certificate shall set forth all information required by, and otherwise be
executed in accordance with, Treasury Regulation Section 1.1445-2(b).
64
ARTICLE IX.
CONDITIONS TO GAYLORD'S AND SELLER'S OBLIGATIONS
All obligations of ▇▇▇▇▇▇▇ and Seller to enter into and complete the
Closing are subject to the fulfillment, prior to or at the Closing, of each of
the following conditions, any one or more of which may be waived by ▇▇▇▇▇▇▇ and
Seller (other than Section 9.04):
9.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Buyer in this Agreement, to the extent qualified by materiality shall be
true and correct, and to the extent not so qualified, shall be true and correct
in all material respects, in each case when made and at and as of the Closing
Date as though such representations and warranties were made at and as of the
Closing Date (except for those representations made as of a specific date, which
shall have been true and correct as aforesaid as of such date).
9.02 PERFORMANCE BY BUYER. Buyer shall have performed and complied in
all material respects with all covenants, agreements, obligations and conditions
required by this Agreement to be complied with or performed by Buyer on or prior
to the Closing Date.
9.03 CERTIFICATE OF BUYER. Buyer shall have delivered to ▇▇▇▇▇▇▇ and
Seller a certificate, dated the Closing Date and signed by an officer of Buyer,
certifying as to the fulfillment of the conditions specified in Sections 9.01
and 9.02.
9.04 CONSENTS AND APPROVALS. All applicable waiting periods under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or been terminated.
9.05 LITIGATION. On the Closing Date, Buyer shall not be a party to, nor
will there otherwise be pending or threatened in writing any judicial,
administrative or other action, proceeding or investigation seeking to enjoin,
prohibit, restrain or otherwise prevent the transactions contemplated hereby.
65
ARTICLE X.
TERMINATION OF AGREEMENT
10.01 TERMINATION EVENTS. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual agreement of ▇▇▇▇▇▇▇, Seller and Buyer.
(b) By Buyer, (i) if there has been a material violation or breach
by ▇▇▇▇▇▇▇ or Seller of any of the agreements, representations or warranties
contained in this Agreement which has not been waived in writing by Buyer and
which is not capable of being, or is not, cured by ▇▇▇▇▇▇▇ or Seller within five
(5) Business Days after ▇▇▇▇▇▇▇ or Seller receives written notice thereof, or
(ii) if any of the conditions set forth in Article VIII have not been satisfied
by the Closing or have not been waived in writing by Buyer.
(c) By ▇▇▇▇▇▇▇ and Seller, (i) if there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
▇▇▇▇▇▇▇ and Seller and which is not capable of being, or is not, cured by Buyer
within twenty (20) days after Buyer receives written notice thereof, or (ii) if
any of the conditions set forth in Article IX have not been satisfied by the
Closing or have not been waived in writing by ▇▇▇▇▇▇▇ and Seller.
(d) By either Buyer, on the one hand, or ▇▇▇▇▇▇▇ and Seller, on
the other hand, if the transactions contemplated by this Agreement shall not
have been consummated on or before February 28, 2002, provided, that, such right
of termination shall not be available to any party whose failure to fulfill any
obligation or condition under this Agreement has been the cause of, or resulted
in, the failure of the transactions contemplated hereby to be consummated on or
before that date.
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(e) By either Buyer, on the one hand, or ▇▇▇▇▇▇▇ and Seller, on
the other hand, if the other makes an assignment for the benefit of creditors,
files a voluntary petition in bankruptcy or seeks or consents to any
reorganization or similar relief under any present or future bankruptcy act or
similar law, or is adjudicated a bankrupt or insolvent.
10.02 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 10.01, all further obligations of the parties
under this Agreement will terminate, except that the obligations of Buyer in
Section 6.02 and the obligations in Section 13.01 and Section 13.08 will
survive. Nothing in this Section 10.02 shall relieve any party to this Agreement
from liability for any intentional or willful breach of this Agreement.
ARTICLE XI.
TAX MATTERS
11.01 LIABILITY FOR TAXES; PREPARATION OF TAX RETURNS.
(a) For purposes of this Article XI, the term "Acquired Companies"
shall include any predecessor corporation to an Acquired Company that was in
existence prior to the conversions contemplated by Section 6.01(b) above.
(b) ▇▇▇▇▇▇▇ shall be liable to Buyer and the Acquired Companies,
and shall, unless otherwise directed by Buyer, pay to Buyer an amount equal to
any liability of the Acquired Companies for the following Taxes (including,
without limitation, any obligation to contribute to the payment of Tax
determined on a consolidated, combined, unitary, aggregate or other similar
basis with respect to a group of corporations that includes or included the
Acquired Companies, and Taxes resulting from the Acquired Companies ceasing to
be members of any such group): (i) Taxes imposed on the Acquired Companies or
for which the Acquired Companies may otherwise be liable for any taxable year or
period that ends on or before the
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Closing Date, and, with respect to any taxable year or period that begins before
and ends after the Closing Date, the portion of such taxable year or period
ending on and including the Closing Date (such taxable periods or portions
thereof, "Pre-Closing Tax Periods,"); (ii) Taxes required to be paid or
reimbursed by Gaylord under Sections 11.01(c) and (d); (iii) Taxes or other
payments required to be made after the Closing Date by any Acquired Company to
any party (other than another Acquired Company) under (or in respect of) any Tax
sharing, group, indemnity or allocation agreement or arrangement entered into
prior to the Closing Date (whether written or unwritten); and (iv) Taxes
resulting from a breach of any representation or warranty contained in Section
4.13.
(c) ▇▇▇▇▇▇▇ shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Acquired Companies for all periods
ending on or prior to the Closing Date which are filed after the Closing Date.
▇▇▇▇▇▇▇ shall pay or cause to be paid when due any and all Taxes due on each
such Tax Return to the extent such Taxes are not reflected in a reserve to the
Financial Statements.
(d) Buyer shall prepare or cause to be prepared and file or cause
to be filed any Tax Returns of the Acquired Companies for all periods which
begin before the Closing Date and end after the Closing Date, and shall pay when
due the Taxes shown on such Tax Returns. Buyer shall permit ▇▇▇▇▇▇▇ to review
and comment on each such Tax Return prior to filing. ▇▇▇▇▇▇▇ shall indemnify
Buyer for Taxes paid in respect of such Tax Returns equal to the portion of such
Taxes that relates to the portion of the taxable period ending on the Closing
Date to the extent that such Taxes are not reflected in a reserve to the
Financial Statements.
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11.02 COOPERATION ON TAX MATTERS. Buyer, the Acquired Companies, Seller
and ▇▇▇▇▇▇▇ shall cooperate fully, as and to the extent reasonably requested by
any other party, in connection with the filing of any Tax Returns pursuant to
this Article XI. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Acquired
Companies, Buyer, Seller and ▇▇▇▇▇▇▇ agree (a) to retain all Books and Records
with respect to Tax matters pertinent to the Acquired Companies relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer, Seller or ▇▇▇▇▇▇▇,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any Taxing Authority, and (b) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such Books and Records and, if the other party so requests,
the Acquired Companies, Buyer, Seller or ▇▇▇▇▇▇▇, as the case may be, shall
allow the other party to take possession of such Books and Records.
11.03 TAX AUDITS.
(a) ▇▇▇▇▇▇▇ shall have the sole right to represent the interests
of the Acquired Companies in any Tax audit or administrative or court proceeding
relating to Tax Returns for periods ending prior to the Closing Date and to
employ counsel of its choice at its expense; provided, that, (i) Buyer shall be
entitled to participate in any such audit or proceeding at its own expense, and
(ii) ▇▇▇▇▇▇▇ shall not be entitled to settle any claim for Taxes that would
adversely affect the liability for Taxes of Buyer or the Acquired Companies
without the prior written
69
consent of Buyer, which consent shall not be unreasonably withheld. If any
Taxing Authority asserts a claim, makes an assessment or otherwise disputes or
affects any Tax for which Seller is responsible hereunder, Buyer shall, promptly
upon receipt by Buyer or the Acquired Companies of notice thereof, inform
▇▇▇▇▇▇▇ thereof.
(b) Buyer shall have the sole right to represent the interests of the
Acquired Companies in any Tax audit or administrative or court proceeding
relating to Tax Returns for periods ending after the Closing Date and to employ
counsel of its choice at its expense; provided, that, ▇▇▇▇▇▇▇ shall be entitled
to participate, at its own expense, in any Tax audit or administrative or court
proceeding relating to any Tax Return for any period that begins before and ends
after the Closing Date.
11.04 PRORATION OF TAXES, INCOME AND DEDUCTIONS.
(a) Income, deductions and other items of the Acquired Companies
will be allocated between the final Pre-Closing Tax Period and the initial
Post-Closing Tax Period based on an actual closing of the books of the Acquired
Companies on the Closing Date; provided, that, (A) if the Closing Date occurs on
a date other than the last day of a calendar month, then income, deductions, and
other items for such month (other than amounts attributable to transactions not
in the ordinary course of business) will be prorated on a daily basis; and (B)
any amounts attributable to transactions not in the ordinary course of business
prior to the Closing will be allocated to the final Pre-Closing Tax Period, and
any amounts attributable to transactions not in the ordinary course of business
after the Closing will be allocated to the initial Post-Closing Tax Period.
70
(b) All real estate and personal property Taxes and all rents,
utilities and other charges against, or payable by the owner of, any of the
Assets (including any real property) relating to a time period beginning prior
to, and ending after, the Closing Date shall be prorated (on a daily basis) as
of the Closing Date.
11.05 ALLOCATION OF PURCHASE PRICE. Buyer and Seller agree to allocate
for federal Tax purposes the Purchase Price (which, for this purpose, shall be
increased by any assumed liabilities) among the Assets in the manner set forth
on Schedule 11.05. Such allocation will be jointly prepared and agreed by Seller
and Buyer within thirty (30) days after the determination of the Net Asset
Adjustment pursuant to Section 2.03. Seller and Buyer further agree to cooperate
in preparing and filing Form 8594 to be filed with the IRS reflecting the agreed
allocation and will acknowledge and agree that such allocation was determined by
arm's length negotiations and that neither of them will take a position on any
tax return, before any governmental agency charged with the collections of any
income tax, or in any judicial proceeding, that is inconsistent with such
allocation.
11.06 TRANSFER TAXES. All recordation, transfer and documentary taxes
and fees, stamps, and any excise, sales or use taxes, and all similar costs of
transferring the Assets in accordance with this Agreement, including such Taxes
incurred as a result of the transactions contemplated by Section 6.01(b), shall
be paid by Seller. At the Closing, Seller and Buyer shall deliver to each other
such properly completed resale exemption certificates and other similar
certificates or instruments as are necessary to claim available exemptions from
the payment of sales, transfer, use or other similar taxes under applicable law.
71
11.07 PAYROLL TAXES. For purposes of payroll taxes with respect to all
employees of ▇▇▇▇▇▇▇ or Seller that become employees of Buyer, ▇▇▇▇▇▇▇, Seller
and Buyer shall treat the transactions contemplated herein as a transaction
described in Treas. Reg. Sections 31.3121(a)(1)-1(b)(2) and
31.3306(b)(1)-1(b)(2).
11.08 TAX REFUNDS. Any refunds or credits of taxes from Taxing
Authorities (including any interest thereon) received by or credited to an
Acquired Company after the Closing Date which are attributable to Pre-Closing
Tax Periods shall be for the benefit of ▇▇▇▇▇▇▇ or Seller, and Buyer shall use
reasonable efforts to obtain any such refund or credit and shall cause the
Acquired Company to pay over to ▇▇▇▇▇▇▇ or Seller any such refund or the amount
of any such credit within fifteen (15) days after receipt or entitlement
thereto.
ARTICLE XII.
INDEMNITY
12.01 INDEMNIFICATION BY SELLER. ▇▇▇▇▇▇▇ and Seller shall, jointly and
severally, defend, indemnify and hold harmless Buyer, the Acquired Companies,
each fiduciary of Buyer's employee benefit plans and each of Buyer's
shareholders, Affiliates, officers, directors, employees, agents, successors and
assigns ("Buyer's Indemnified Persons") and shall reimburse Buyer's Indemnified
Persons for, from and against each claim, loss, liability, cost and expense
(including, without limitation, interest, penalties, costs of preparation and
investigation, and the reasonable fees, disbursements and expenses of attorneys,
accountants and other professional advisors) (collectively, "Losses"), directly
or indirectly relating to, resulting from or arising out of any untrue
representation, misrepresentation or breach of representation or warranty of
▇▇▇▇▇▇▇ and Seller contained herein or in any Schedule attached hereto or
non-fulfillment of any covenant, agreement or other obligation by ▇▇▇▇▇▇▇ or
Seller contained herein (including,
72
without limitation, any Losses incurred by any Buyer's Indemnified Person in
enforcing its rights under this Section 12.01 or otherwise relating to,
resulting from or arising out of any breach by ▇▇▇▇▇▇▇ or Seller of its
obligations under this Article XII); it being understood that in determining
whether a representation or warranty of ▇▇▇▇▇▇▇ and Seller that is qualified by
Company Material Adverse Effect is untrue, is a misrepresentation or has been
breached, the proviso to the definition of "Company Material Adverse Effect" in
Section 4.02 above shall be disregarded for the purposes of this Article XII.
12.02 INDEMNIFICATION BY BUYER. Buyer shall defend, indemnify and hold
harmless ▇▇▇▇▇▇▇, Seller, each fiduciary of Gaylord's and Seller's employee
benefit plans and each of Gaylord's and Seller's shareholders, Affiliates,
officers, directors, employees, agents, successors and assigns ("Seller's
Indemnified Persons"), and shall reimburse Seller's Indemnified Persons for,
from and against Losses directly or indirectly relating to, resulting from or
arising out of any untrue representation, misrepresentation or breach of
representation or warranty of Buyer contained herein or non-fulfillment of any
covenant, agreement or other obligation by Buyer contained herein (including,
without limitation, any Losses incurred by any Seller's Indemnified Person in
enforcing its rights under this Section 12.02 or otherwise relating to,
resulting from or arising out of any breach by Buyer of its obligations under
this Article XII).
12.03 PROCEDURE.
(a) The amounts for which an indemnifying party shall be liable
under Sections 12.01 and 12.02 shall be: (i) net of any Tax benefit actually
realized by the indemnified party by reason of the facts and circumstances
giving rise to an indemnifying party's liability; (ii) calculated by taking into
account any Tax required to be paid by the indemnified party as a
73
result of any payment made to the indemnified party pursuant to Section 12.01
and 12.02; and (iii) net of any insurance proceeds received by the indemnified
party in connection with the facts giving rise to the right of indemnification.
(b) The indemnified party shall promptly notify the indemnifying
party of any claim, demand, action or proceeding for which indemnification will
be sought under Sections 12.01 and 12.02 of this Agreement, and, if such claim,
demand, action or proceeding is a third party claim, demand, action or
proceeding, the indemnifying party will have the right at its expense to assume
the defense thereof using counsel reasonably acceptable to the indemnified
party. The indemnified party shall have the right to participate, at its own
expense, with respect to any such third party claim, demand, action or
proceeding. In connection with any such third party claim, demand, action or
proceeding, Buyer, ▇▇▇▇▇▇▇ and Seller shall cooperate with each other and
provide each other with access to relevant books and records in their
possession. No such third party claim, demand, action or proceeding shall be
settled without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld or delayed). If a firm written offer
is made to settle any such third party claim, demand, action or proceeding and
the indemnifying party proposes to accept such settlement and the indemnified
party refuses to consent to such settlement, then: (i) the indemnifying party
shall be excused from, and the indemnified party shall be solely responsible
for, all further defense of such third party claim, demand, action or
proceeding; and (ii) the maximum liability of the indemnifying party relating to
such third party claim, demand, action or proceeding shall be the amount of the
proposed settlement if the amount thereafter recovered from the indemnified
party on such third party claim, demand, action or proceeding is greater than
the amount of the proposed settlement.
74
(c) Notwithstanding any provision contained herein to the contrary
but subject to Sections 12.03(d) and (e), except with respect to Losses relating
to Taxes and the Menlo Representations, in each case, for which indemnification
is provided hereunder, including pursuant to Section 11.01, none of ▇▇▇▇▇▇▇,
Seller or Buyer shall have any obligation to indemnify or to reimburse any
indemnified parties pursuant to Section 12.01 and 12.02 for the inaccuracy or
breach of any representation or warranty or for misrepresentation except to the
extent that the Losses exceed in the aggregate $750,000, in which event the
indemnifying party shall reimburse the indemnified party for all Losses
exceeding $750,000.
(d) Except for claims with respect to Losses relating to Taxes,
Seller Retiree Benefit Plans or the Menlo Representations, in each case, for
which indemnification is provided hereunder, including pursuant to Section
11.01, no claim for Losses incurred by reason of an inaccuracy or breach of any
representation or warranty or for misrepresentation may be made unless the
Losses incurred with respect to such claim (or series of claims, if arising from
the same cause or origin) exceed $50,000.
(e) Notwithstanding the foregoing and except with respect to
Losses relating to Taxes for which indemnification is provided hereunder,
including pursuant to Section 11.01, Seller Retiree Benefit Plans or the
representations and warranties set forth in Sections 4.01, 4.03, 4.04 and 4.06,
the aggregate liability of ▇▇▇▇▇▇▇ and Seller to indemnify Buyer pursuant to
Section 12.01 shall be limited in the aggregate to forty-five percent (45%) of
the Purchase Price.
12.04 EXCLUSIVE REMEDY. Except for any claim based on fraud and without
limiting the liability of Warner Music Group Inc. under the Guaranty on the
signature page hereof, the indemnification and reimbursement provided in this
Article XII shall be the sole and exclusive
75
remedy after the Closing Date for damages available to the parties for breach of
any of the representations, warranties, covenants and agreements contained
herein or any right, claim or action arising from the transactions contemplated
hereby.
12.05 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the parties contained in this Agreement shall survive the Closing and shall
expire on the date that is eighteen (18) months after the Closing Date, except
that (a) the representations and warranties contained in Sections 4.13 and 4.17
shall survive until the expiration of the applicable statute of limitations with
respect to the subject matter thereof, (b) the representations and warranties in
Section 4.10 shall terminate on the fifth anniversary of the Closing date, and
(c) the representations and warranties in Sections 4.01, 4.03 and 4.06 shall
survive the Closing Date indefinitely. Thereafter, all such representations and
warranties shall be extinguished and no claim for the recovery of any Losses may
be asserted against ▇▇▇▇▇▇▇, Seller or Buyer in respect thereof; provided,
however, that claims first asserted in writing within the applicable period
referred to above shall not thereafter be barred. The covenants and agreements
of Buyer, ▇▇▇▇▇▇▇ and Seller contained in this Agreement shall survive beyond
the Closing, except for those covenants and agreements that are expressly
limited by their terms to other dates or times, which shall survive only to such
dates or times.
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ARTICLE XIII.
MISCELLANEOUS
13.01 EXPENSES. All fees and expenses incurred by ▇▇▇▇▇▇▇ and Seller,
including, without limitation, legal fees and expenses, in connection with this
Agreement will be borne by ▇▇▇▇▇▇▇ and Seller and all fees and expenses incurred
by Buyer, including, without limitation, legal fees and expenses, in connection
with this Agreement will be borne by Buyer.
13.02 ASSIGNABILITY; PARTIES IN INTEREST.
(a) No party hereto may assign, transfer or otherwise dispose of
any of its rights hereunder without the prior written consent of the other
parties.
(b) All the terms and provisions of this Agreement shall be
binding upon, shall inure to the benefit of and shall be enforceable by the
respective successors and permitted assigns of the parties.
13.03 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the
exhibits, Schedules, lists and other documents and writings referred to herein
or delivered pursuant hereto, which form a part hereof, contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument duly
executed by all parties. Any condition to a party's obligations hereunder may be
waived but only by a written instrument signed by the party entitled to the
benefits thereof. The failure or delay of any party at any time or times to
require performance of any provision or to exercise its rights with respect to
any
77
provision hereof, shall in no manner operate as a waiver of or affect such
party's right at a later time to enforce the same.
13.04 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.05 SEVERABILITY. The invalidity of any term or terms of this
Agreement shall not affect any other term of this Agreement, which shall remain
in full force and effect.
13.06 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) on the day of delivery if delivered in person, (b) on
confirmation of receipt if delivered by facsimile, (c) on the first Business Day
following the date of sending if sent by a nationally recognized overnight
commercial carrier, or (d) on the third Business Day following the date of
mailing if delivered by registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to Gaylord or Seller:
▇▇▇▇▇▇▇ Entertainment Company
Attn: General Counsel
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
F. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
Bass, ▇▇▇▇▇ & ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
78
If to Buyer:
c/o Warner Music Group Inc.
Attn: General Counsel
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ Y.F. ▇▇▇▇
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
1285 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
13.07 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Tennessee applicable to agreements
made and to be performed wholly within that jurisdiction. Each party hereby
irrevocably and unconditionally consents to submit to (a) in the case of any
action, suit or proceeding commenced by Buyer, to the jurisdiction of the courts
of the State of Tennessee and for any United States district court in the State
of Tennessee, for any litigation arising out of or relating to this Agreement
and the transactions contemplated hereby, and (b) in the case of any action,
suit or proceeding commenced by ▇▇▇▇▇▇▇ or Seller, to the jurisdiction of the
courts of the State of New York and of the Southern District of New York. Each
party further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in Section 13.06 shall
be effective service of process for any litigation brought against it in any
79
such court. Each party hereby irrevocably and unconditionally waives any
objection to the laying of venue of any litigation arising out of this Agreement
or the transactions contemplated hereby in the courts designated in the second
sentence of this Section 13.07, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such litigation brought in any such court has been brought in an
inconvenient forum.
13.08 WAIVER OF JURY TRIAL. EACH OF BUYER, ▇▇▇▇▇▇▇ AND SELLER HEREBY
IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE
ACTIONS OF BUYER, ▇▇▇▇▇▇▇ OR SELLER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT.
13.09 PUBLIC ANNOUNCEMENTS. None of ▇▇▇▇▇▇▇, Seller or Buyer shall make
any public statements, including, without limitation, any press releases, with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of the other parties, except as may be required by law. If
a public statement is required to be made by law, prior to making such
statement, such party will deliver a draft of such announcement to the other
parties and shall give the other parties reasonable opportunity to comment
thereon. Buyer acknowledges that ▇▇▇▇▇▇▇ will be required to make a press
release concerning the execution of this Agreement, and that any such press
release shall be subject to the immediately preceding sentence.
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13.10 NO THIRD PARTY BENEFICIARIES. This Agreement is intended and
agreed to be solely for the benefit of the parties hereto and, except as
provided in Article XII, no other party shall accrue any benefit, claim or right
of any kind whatsoever pursuant to, under, by or through this Agreement.
13.11 KNOWLEDGE OF SELLER OR ▇▇▇▇▇▇▇. To the extent that a
representation or warranty in this Agreement is qualified as to the knowledge of
Seller or ▇▇▇▇▇▇▇, such qualification shall mean it is made to the actual
knowledge, after reasonable inquiry, of (i) ▇▇▇▇▇ ▇. ▇▇▇▇ (▇▇▇▇▇▇▇'▇ Chief
Executive Officer), (ii) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (President, Word Entertainment), (iii)
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (Vice President, Finance), (iv) ▇▇▇▇▇ ▇▇▇▇▇▇ (President, Word
Entertainment), (v) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (President, Distribution), (vi) ▇▇▇ ▇▇▇▇▇
(President, Print), (vii) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (President, Music Publishing), and
(viii) ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ (Vice President, Business Development).
13.12 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, with the same effect as if the signatories executing the
several counterparts had executed one counterpart; provided, however, that the
several executed counterparts shall together have been signed by Buyer, ▇▇▇▇▇▇▇
and Seller. All such executed counterparts shall together constitute one and the
same instrument.
[remainder of page left intentionally blank]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the duly authorized officers of Buyer, ▇▇▇▇▇▇▇ and Seller on the date first
above written.
BUYER:
WMGA LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Title: Authorized Signatory
----------------------------------
▇▇▇▇▇▇▇:
▇▇▇▇▇▇▇ ENTERTAINMENT COMPANY
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Title: Chief Executive Officer
----------------------------------
SELLER:
▇▇▇▇▇▇▇ CREATIVE GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------
Title: Vice President
----------------------------------
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DISCLOSURE SCHEDULES
Schedule 4.02 Businesses Other than Music Business
Schedule 4.03 Subsidiaries
Schedule 4.05(a) Violation of Provisions
Schedule 4.05(b) Consents
Schedule 4.07 Financial Statements
Schedule 4.08(a) Real Property
Schedule 4.08(c) Restrictive Covenants, Easements and Rights of Way
Schedule 4.09 Encumbrances
Schedule 4.10 Environmental Matter
Schedule 4.11 Undisclosed Liabilities
Schedule 4.12 Material Changes
Schedule 4.13 Tax Liability
Schedule 4.15 Litigation
Schedule 4.17(a) Employees and Fringe Benefit Plans
Schedule 4.17(b) Delivery of Plans
Schedule 4.17(f) Acceleration of Plans
Schedule 4.17(g) Retiree Benefits
Schedule 4.18(a)(i) Acquisition Agreements
Schedule 4.18(a)(ii) Artist Agreements
Schedule 4.18(a)(iv) A/V Works
Schedule 4.18(a)(v) A/V Work Agreements
Schedule 4.18(a)(vii) Musical Compositions
Schedule 4.18(a)(viii) Distributed Label Agreements
Schedule 4.18(a)(ix)(1) Distribution Agreements
Schedule 4.18(a)(ix)(2) Sony Rights After Termination
Schedule 4.18(a)(xii) Licenses
Schedule 4.18(a)(xiii) Masters
Schedule 4.18(a)(xv) Producer Agreements
Schedule 4.18(a)(xviii) Trademarks
Schedule 4.18(a)(xix) Unrecouped Advances
Schedule 4.18(a)(xx) Writer Agreements
Schedule 4.18(b) Titles Selling Over 100,000 Units
Schedule 4.18(c) Unresolved Claims to I/P Assets
Schedule 4.18(e) Threatened Trademark Infringements
Schedule 4.18(f) Material IP Contracts
Schedule 4.18(g) Significant Compositions
Schedule 4.18(i) Contracts of IP Assets
Schedule 4.18(j) Defense to Unrecouped Advances
Schedule 4.18(k) Executory Commitments; Defenses to Unrecouped
Advances (Writers)
Schedule 4.18(l) Request for Negotiation I/P Contracts
Schedule 4.18(m) Minor Masters Artists
Schedule 4.18(n) Minor Writers
Schedule 4.19 Contracts and Commitments
Schedule 4.20 Accounts Receivable
Schedule 4.21 Labor Matters
Schedule 4.22 Breach of Contract
Schedule 4.25 Affiliated Transactions
OTHER SCHEDULES
Schedule 2.03 Interim Statement
Schedule 11.05 Allocation of Purchase Price to Assets
