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EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
by and between
POPMAIL.COM, INC.
Purchaser,
and
FAN ASYLUM, INC.,
Seller
and
TIM MCQUAID
Shareholder
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June 14, 2000
--------------------------
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TABLE OF CONTENTS
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ARTICLE I Purchase and Sale of Shares.....................................................................7
Purchase of Shares from Shareholders.....................................................................7
Purchase Price for Shares................................................................................7
Payment of the Purchase Price............................................................................7
Closing..................................................................................................8
Audited Closing Balance Sheet............................................................................7
Adjustments to Purchase Price............................................................................8
ARTICLE II Representations and Warranties of Purchaser.....................................................9
Organization and Corporate Authority....................................................................10
Agreement Not in Breach of Other Instruments............................................................10
Investment Representation...............................................................................10
No Legal Bar............................................................................................10
Brokers.................................................................................................10
ARTICLE III Representations and Warranties of Shareholders Regarding Shareholders and the Purchase
Price Shares............................................................................................10
Organization and Authority..............................................................................10
Title to Shares.........................................................................................11
Brokerage Fees..........................................................................................11
Agreement Not in Breach of Other Instruments............................................................11
No Legal Bar............................................................................................11
Regulatory Approvals....................................................................................11
Due Execution; Enforceability...........................................................................11
No Other Agreements to Sell the Assets or Capital Stock of Fan Asylum or its Subsidiaries...............12
Investment Representation...............................................................................12
ARTICLE IV Representations and Warranties of Shareholders Regarding Fan Asylum and its
Subsidiaries............................................................................................12
Organization, Authority and Purpose.....................................................................12
Financial Statements....................................................................................12
Absence of Certain Changes..............................................................................13
Charter Documents.......................................................................................13
Real Property...........................................................................................14
Leaseholds..............................................................................................14
Tangible Personal Property..............................................................................15
Capitalization..........................................................................................16
Subsidiaries............................................................................................16
Agreement Not in Breach of Other Instruments............................................................17
Insurance...............................................................................................17
Employee Benefit Matters................................................................................17
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Tax Matters.............................................................................................20
Litigation..............................................................................................23
Suppliers...............................................................................................23
Banking Facilities......................................................................................23
Indebtedness to and from Officers, Directors and Stockholders; Insider Transactions.....................23
Personnel...............................................................................................24
Powers of Attorney and Suretyships......................................................................24
Contracts...............................................................................................24
Accounts Receivable; Accounts Payable; Inventory........................................................25
Compliance with Law; Permits............................................................................26
No Undisclosed Liabilities..............................................................................26
Environmental Matters...................................................................................27
Approvals...............................................................................................29
Intellectual Property...................................................................................29
Labor and Employment Agreements.........................................................................30
Entire Business.........................................................................................31
Warranties..............................................................................................31
Debt....................................................................................................31
Predecessor Entities....................................................................................31
Other Information.......................................................................................32
ARTICLE V Certain Covenants, Understandings and Agreements...............................................32
Tax Covenants...........................................................................................32
Conditions..............................................................................................33
Waiver and Release by Shareholders......................................................................33
ARTICLE VI Conditions to Obligations of Purchaser.........................................................35
Representations and Warranties..........................................................................35
Performance of Shareholders and Fan Asylum..............................................................36
Opinions of Shareholders Counsel........................................................................36
No Adverse Change.......................................................................................36
Consents................................................................................................36
Tax Certifications......................................................................................36
Legal Actions or Proceedings............................................................................36
No Injunction...........................................................................................36
Loss....................................................................................................36
Deliveries..............................................................................................37
Searches................................................................................................37
ARTICLE VII Conditions to Obligations of the Shareholders..................................................38
Representations and Warranties..........................................................................38
Performance of Covenants................................................................................38
Opinion of Purchaser's Counsel..........................................................................38
No Injunction...........................................................................................38
Legal Action or Proceedings.............................................................................38
ARTICLE VIII Covenant Not To Compete........................................................................38
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Noncompetition..........................................................................................39
Nonsolicitation.........................................................................................39
Restricted Business.....................................................................................39
Engage or Be Interested, Directly or Indirectly.........................................................39
Injunctive Relief.......................................................................................39
Extension for Breach....................................................................................39
Confidential Information................................................................................39
Public Statements.......................................................................................40
ARTICLE IX Indemnification................................................................................40
Indemnification by the Shareholders.....................................................................40
Generally...............................................................................................40
Deductible and Limitation Amount........................................................................41
Limitation on Indemnification...........................................................................41
Exceptions to Limitations...............................................................................41
Third-Party Claims......................................................................................41
Independent Claims......................................................................................42
Manner of Indemnification...............................................................................43
Non-Waiver..............................................................................................43
Taxes...................................................................................................43
Indemnification by Purchaser............................................................................43
Generally...............................................................................................43
Deductible..............................................................................................43
Limitation on Indemnification...........................................................................43
Exceptions to Limitations...............................................................................44
Third-Party Claims......................................................................................44
Independent Claims......................................................................................44
Manner of Indemnification...............................................................................45
Non-Waiver..............................................................................................45
Taxes...................................................................................................45
Tax Indemnifications....................................................................................45
Indemnification of Purchaser Indemnified Parties........................................................45
Exclusion from Indemnification of Purchaser Indemnified Parties.........................................45
Indemnification of SP Indemnified Parties...............................................................46
Straddle Periods........................................................................................46
Procedures Relating to Indemnification of Tax Claims....................................................46
Manner of Indemnification...............................................................................47
Tax Refunds.............................................................................................47
Limitations.............................................................................................48
Survival of Representations and Warranties..............................................................48
Waiver of Subrogation and Other Rights..................................................................48
ARTICLE X Miscellaneous..................................................................................48
Notices.................................................................................................48
Knowledge...............................................................................................49
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Assignability and Parties in Interest...................................................................49
Dispute Resolution......................................................................................49
Governing Law...........................................................................................50
Counterparts............................................................................................50
Publicity...............................................................................................50
Complete Agreement......................................................................................50
Modifications, Amendments and Waivers...................................................................50
Severability............................................................................................51
Payment of Expenses.....................................................................................51
Further Assurances......................................................................................51
Facsimile Execution.....................................................................................52
Interpretation..........................................................................................52
Negotiations............................................................................................52
Jurisdiction and Venue..................................................................................52
ARTICLE I - Purchase and Sale of Shares
1.01 Purchase of Shares from Shareholder....................................................1
1.02 Purchase Price for Shares. ...........................................................1
1.03 Payment of the Purchase Price..........................................................1
1.04 Escrow.................................................................................2
1.05 Closing................................................................................2
1.07 Loss, Destruction, Condemnation or Damage to Assets....................................2
ARTICLE II - Shareholder.........................................................................................2
2.01 Designation............................................................................2
2.02 Authority..............................................................................2
2.03 Resignation............................................................................3
2.04 Reliance by Third Parties on Shareholder's Authority...................................3
2.05 Exculpation and Indemnification........................................................3
ARTICLE III - Representations and Warranties of Purchaser.........................................................4
3.01 Organization and Corporate Authority...................................................4
3.02 Agreement Not in Breach of Other Instruments...........................................4
3.03 Investment Representation..............................................................4
3.04 No Legal Bar...........................................................................4
3.05 Brokers................................................................................4
ARTICLE IV - Representations and Warranties of Shareholder Regarding
Shareholder and the Shares......................................................................5
4.01 Organization and Authority.............................................................5
4.02 Title to Shares........................................................................5
4.03 Brokerage Fees.........................................................................5
4.04 Agreement Not in Breach of Other Instruments...........................................5
4.05 No Legal Bar...........................................................................6
4.06 Regulatory Approvals...................................................................6
4.07 Due Execution; Enforceability..........................................................6
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4.08 No Other Agreements to Sell the Assets or Capital Stock of
Fan Asylum or its Subsidiaries.........................................................6
ARTICLE V - Representations and Warranties of Shareholder Regarding
Fan Asylum and its Subsidiaries.................................................................6
5.01 Organization, Authority and Purpose....................................................6
5.02 Financial Statements...................................................................7
5.03 Absence of Certain Changes.............................................................7
5.04 Charter Documents......................................................................8
5.05 Leased Property........................................................................8
5.06 Leaseholds.............................................................................8
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5.07 Tangible Personal Property............................................................10
5.08 Capitalization........................................................................10
5.09 Subsidiaries..........................................................................11
5.10 Agreement Not in Breach of Other Instruments..........................................11
5.11 Insurance.............................................................................11
5.12 Employee Benefit Matters..............................................................12
5.13 Tax Matters...........................................................................14
5.14 Litigation............................................................................17
5.15 Suppliers.............................................................................18
5.16 Banking Facilities....................................................................18
5.17 Indebtedness to and from Officers, Directors and Stockholders;
Insider Transactions..................................................................18
5.18 Personnel.............................................................................18
5.19 Powers of Attorney and Suretyships....................................................18
5.20 Contracts.............................................................................18
5.21 Accounts Receivable; Accounts Payable; Inventory......................................19
5.22 Compliance with Law; Permits..........................................................20
5.23 No Undisclosed Liabilities............................................................21
5.24 Environmental Matters.................................................................21
5.25 Approvals.............................................................................23
5.26 Intellectual Property.................................................................23
5.27 Labor and Employment Agreements.......................................................24
5.28 Year 2000.............................................................................25
5.29 Entire Business.......................................................................25
5.30 Product Liability Claims..............................................................25
5.31 Warranties............................................................................26
5.32 Debt..................................................................................26
5.33 Predecessor Entities..................................................................26
5.34 Other Information.....................................................................26
ARTICLE VI - Certain Covenants, Understandings and Agreements....................................................26
6.01 Conduct of the Business...............................................................26
6.03 Conduct of the Business...............................................................26
6.02 Interim Financial Statements of Fan Asylum............................................28
6.03 Access................................................................................28
6.04 Exclusive Dealing.....................................................................29
6.05 Supplements...........................................................................29
6.06 Tax Covenants.........................................................................29
6.07 Conditions............................................................................31
6.08 Waiver and Release by Shareholder.....................................................31
6.09 Put Right.............................................................................31
6.10 Working Capital.......................................................................31
6.13 Employees.............................................................................32
ARTICLE VII - Conditions to Obligations of Purchaser.............................................................32
7.01 Representations and Warranties........................................................32
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7.02 Performance of Shareholder and Fan Asylum.............................................32
7.03 Opinions of Shareholder's Counsel.....................................................33
7.04 No Adverse Change.....................................................................33
7.05 Consents..............................................................................33
7.06 Tax Certifications....................................................................33
7.07 Legal Actions or Proceedings..........................................................33
7.08 No Injunction.........................................................................33
7.09 Loss..................................................................................33
7.10 Deliveries............................................................................33
7.11 Searches..............................................................................34
7.12 Broker................................................................................34
7.13 Capital Event.........................................................................34
ARTICLE VIII - Conditions to Obligations of Shareholder..........................................................34
8.01 Representations and Warranties........................................................35
8.02 Performance of Covenants..............................................................35
8.03 Opinion of Purchaser's Counsel........................................................35
8.04 No Injunction.........................................................................35
8.05 Legal Action or Proceedings...........................................................35
ARTICLE IX - Covenant Not To Compete.............................................................................35
9.01 Noncompetition........................................................................35
9.02 Nonsolicitation.......................................................................36
9.03 Restricted Business...................................................................36
9.04 Engage or Be Interested, Directly or Indirectly.......................................36
9.05 Injunctive Relief.....................................................................36
9.06 Extension for Breach..................................................................36
9.07 Confidential Information..............................................................36
9.08 Public Statements.....................................................................36
ARTICLE X - Indemnification.....................................................................................37
10.01 Indemnification by Shareholder........................................................37
(a) Generally....................................................................37
(b) Deductible and Limitation Amount.............................................38
(c) Limitation on Indemnification................................................38
(d) Exceptions to Limitations....................................................38
(e) Third-Party Claims...........................................................39
(f) Independent Claims...........................................................40
(g) Manner of Indemnification....................................................40
(h) Non-Waiver...................................................................40
(i) Taxes........................................................................40
10.02 Indemnification by Purchaser..........................................................40
(a) Generally....................................................................40
(b) Deductible...................................................................40
(c) Limitation on Indemnification................................................40
(d) Exceptions to Limitations....................................................40
(e) Third-Party Claims...........................................................41
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(f) Independent Claims...........................................................41
(g) Manner of Indemnification....................................................41
(h) Non-Waiver...................................................................42
(i) Taxes........................................................................42
10.03 Tax Indemnifications..................................................................42
(a) Indemnification of Purchaser Indemnified Parties.............................42
(b) Exclusion from Indemnification of Purchaser Indemnified Parties..............42
(c) Indemnification of SP Indemnified Parties....................................43
(d) Straddle Periods.............................................................43
(e) Procedures Relating to Indemnification of Tax Claims.........................43
(f) Manner of Indemnification....................................................44
(g) Tax Refunds..................................................................45
(h) Limitations..................................................................45
10.04 Survival of Representations and Warranties............................................45
10.05 Waiver of Subrogation and Other Rights................................................45
ARTICLE XI - Termination........................................................................................45
11.01 Termination...........................................................................46
11.02 Effect of Termination.................................................................46
ARTICLE XII - Miscellaneous......................................................................................47
12.01 Notices...............................................................................47
12.02 Knowledge.............................................................................47
12.03 Assignability and Parties in Interest.................................................48
12.04 Dispute Resolution....................................................................48
12.05 Governing Law.........................................................................48
12.06 Counterparts..........................................................................48
12.07 Publicity.............................................................................49
12.08 Complete Agreement....................................................................49
12.09 Modifications, Amendments and Waivers.................................................49
12.10 Severability..........................................................................49
12.11 Payment of Expenses...................................................................49
12.12 Further Assurances....................................................................50
12.13 Facsimile Execution...................................................................50
12.14 Interpretation........................................................................50
12.15 Negotiations..........................................................................50
12.16 Jurisdiction and Venue................................................................50
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EXHIBITS AND SCHEDULES
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Exhibit A Escrow Agreement
Exhibit B Opinion of Seller's Counsel
Exhibit C Opinion of Purchaser's Counsel
Exhibit D Shareholder Employment Agreement
Exhibit E Lease Agreement
Exhibit F Registration Rights Agreement
Exhibit G Artists
Exhibit H Letter of Credit
Exhibit I Artists Agreement
Exhibit J Pledge Agreement
SCHEDULE 1.03 Cash Payment
SCHEDULE 1.05(a) Preliminary Balance Sheet
SCHEDULE 4.01 Foreign Jurisdictions
SCHEDULE 4.08 Capitalization
SCHEDULE 4.02 Financial Statements
SCHEDULE 4.03 Certain Changes
SCHEDULE 4.04 Charter Documents and Good Standing
SCHEDULE 4.06 Leased Property
SCHEDULE 4.07 Tangible Personal Property
SCHEDULE 4.09 Subsidiaries
SCHEDULE 4.10 Agreements and Other Agreements not in Breach
SCHEDULE 4.11 Insurance
SCHEDULE 4.12(a) Employee Benefit Plans
SCHEDULE 4.12(c) Qualified Plan
SCHEDULE 4.12(d) Multi-Employer Plans
SCHEDULE 4.12(i) Former Employees Coverage
SCHEDULE 4.13(a) Tax Agreement
SCHEDULE 4.13(h) Taxable Years of Fan Asylum and Subsidiaries
SCHEDULE 4.13(i) Action, Suit or Proceeding
SCHEDULE 4.13(k) Tax Adjustments
SCHEDULE 4.14 Litigation
SCHEDULE 4.16 Banking Facilities
SCHEDULE 4.17 Insider Transactions
SCHEDULE 4.18 Key Employees
SCHEDULE 4.20 Contracts
SCHEDULE 4.22 Permits
SCHEDULE 4.24 Environmental Matters
SCHEDULE 4.25 Approvals
SCHEDULE 4.26 Intellectual Property
SCHEDULE 4.27 Labor and Employment Agreements
SCHEDULE 4.29 Warranties
SCHEDULE 4.32 Liabilities Assumed from Old Corporation
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SCHEDULE 6.12 Employment Agreements
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THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into this 14th day of June, 2000, by and between POPMAIL.COM, INC., a Minnesota
corporation ("PURCHASER"), FAN ASYLUM, INC., a California corporation, and Tim
McQuaid, a California resident ("SHAREHOLDER").
WHEREAS, Shareholder owns all of the issued and outstanding capital
stock (collectively, the "SHARES") of FAN ASYLUM, INC. which owns all of the
issued and outstanding capital stock of FAN ASYLUM JAPAN LTD., a foreign normal
corporation formed under the laws of Japan and FAN ASYLUM EUROPE LIMITED, a
Private Company Limited by Shares incorporated in England under the Companies
Act of 1985 (as amended by the Companies Act of 1989) (collectively, "FAN
ASYLUM" (any reference to Fan Asylum will include all Predecessor (as defined
herein) including but not limited to entities from whom Fan Asylum acquired
assets); and
WHEREAS, Purchaser desires to purchase, and Shareholder desires to sell
to Purchaser, all of the Shares on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Shares
1.01 Purchase of Shares from Shareholder. On the terms and subject to
the conditions set forth herein, at the Closing (as defined herein), Shareholder
shall sell, transfer, convey, assign and deliver to Purchaser, and Purchaser
shall purchase, acquire and accept from Shareholder, the Shares on the terms and
subject to the conditions set forth in this Agreement. At the Closing,
Shareholder shall deliver to Purchaser certificates evidencing the Shares duly
endorsed for transfer, and all such other documentation as is necessary and
helpful as determined by Purchaser to transfer the Shares to Purchaser.
1.02 Purchase Price for Shares. The aggregate purchase price (the
"PURCHASE PRICE") to be paid by Purchaser for the Shares shall be Nine Million
Dollars ($9,000,000).
1.03 Payment of the Purchase Price. The Purchase Price shall be paid by
the delivery of Purchaser common stock (the "COMMON STOCK") in such number of
shares to equal the Purchase Price which will be delivered into escrow as set
forth below and in Section 1.09. The number of shares of Common Stock to equal
the Purchase Price (the "PURCHASE PRICE SHARES") shall be determined two (2)
business days prior to the Closing Date (the "PRE-CLOSING DATE") and will be
based on the average closing share price for the Common Stock for the twenty
(20) business days prior to the Pre-Closing Date as listed on the Nasdaq Stock
Market; provided, however, in the event the per share price of the Common Stock
used to calculate the number of Purchase Price Shares is less than $2.50 per
share of Common Stock, then (i) the Purchase Price shall be $2.50 per share of
Common Stock and (ii) the reset provisions of Section 5.5 of this Agreement may
apply, subject to the terms of such Section. The Purchase Price Shares shall be
divided into two categories as follows: Two Million Dollars in Purchase Price
Shares shall be deemed the "INITIAL SHARES" and Seven Million Dollars of the
Purchase Price Shares shall be deemed the "EARN OUT SHARES" which will only be
earned by Shareholder pursuant to Section 1.09 of this Agreement (in the event
the actual Purchase Price is
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less than Nine Million Dollars, the Purchase Price Shares shall be divided into
the respective categories as follows: Two Million Dollars of the Purchase Price
Shares shall be deemed the INITIAL SHARES and the remaining Purchase Price
Shares shall be deemed the EARN OUT SHARES; provided, however, the Initial
Shares (and then the Earn Out Shares to the extent necessary) shall be reduced
by an amount equal to the Purchase Adjustment as set forth in Section 1.07 of
this Agreement).
1.04 Escrow. At the Closing, Purchaser shall deposit with the Escrow
Agent (the "ESCROW AGENT") as set forth in the Escrow Agreement (the "ESCROW
AGREEMENT") attached hereto as EXHIBIT A, the Initial Shares (the "ESCROWED
SHARES" which shall include any Earn Out Shares deposited in escrow pursuant to
Section 1.09), which will be held by the Escrow Agent and disbursed in
accordance with the terms and conditions of this Agreement and the Escrow
Agreement. All fees and expenses of the Escrow Agent under the Escrow Agreement
("Agent Fees") shall be paid by or for the account of Purchaser in accordance
with the terms and conditions of the Escrow Agreement.
1.05 Closing. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Maslon Edelman
Borman & Brand, LLP, at 10:00 a.m., Minneapolis time, on June 14, 2000 (the
"CLOSING DATE"), unless Shareholder and Purchaser agree in writing upon a
different time, date or place, provided all of the conditions to the Closing
contained herein have been satisfied or waived in writing on or prior to the
Closing Date.
1.06 Audited Closing Balance Sheet.
a. Purchaser shall prepare and shall cause Grant Thornton LLP
(the "SPECIAL AUDITORS") to audit, as soon as practicable after the Closing
Date, but in no event later than ninety (90) days after the Closing Date, a
balance sheet, income statements and other records (the "CLOSING BALANCE SHEET")
of Fan Asylum and its Subsidiaries (as defined herein) prepared in accordance
with generally accepted accounting principles in the United States of America
("GAAP") reflecting Fan Asylum's and its Subsidiaries' assets, liabilities,
stock holders' equity and revenue (the "AUDITED CLOSING BALANCE SHEET") as of
the year ending December 31, 1999. The Special Auditors shall also prepare a
supplemental revenue schedule (the "Revenue Schedule") which states the revenue
of Fan Asylum for the year ending December 31, 1999 in accordance with GAAP
except that ticket revenue will be recorded based upon Fan Asylum's historical
practices. Upon completion of the audit, Purchaser shall deliver a copy of the
Audited Closing Balance Sheet to Shareholder. Shareholder shall assist Purchaser
in preparation of the Closing Balance Sheet if requested by Purchaser.
b. Within ten (10) days after the Shareholder's receipt of the
Audited Closing Balance Sheet, Shareholder shall notify Purchaser in writing of
any items of dispute with respect to the Audited Closing Balance Sheet. If any
differences are not resolved by agreement of the Shareholder and Purchaser
within thirty (30) days after delivery of such statement of objections, such
differences shall be submitted by any affected party for resolution to a big
five accounting firm agreed upon by the parties (the "Resolution Auditors"). The
determination of the Resolution Auditors shall be set forth in a written report
delivered to the parties and shall be final and binding upon all parties.
Shareholder and Purchaser shall equally split the fees and expenses of the
Resolution Auditors employed pursuant to this paragraph.
1.07 Adjustments to Purchase Price. The Purchase Price shall be
decreased by the greater of the following three adjustments: in the event that
the (i) actual gross revenue ("GROSS REVENUE") as set forth on the Revenue
Schedule is less than ninety percent (90%) of Five Million Two Hundred Fifty
Thousand Dollars
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($5,250,000.00) (the "BASE REVENUE"), the Purchase Price shall be decreased by
ten percent (10%), (ii) actual net assets (net assets minus net liabilities)
("NET ASSETS") as of the Closing Date as determined by Purchaser by March 8,
2001 are more than $100,000.00 less than ($193,542.00) (the "BASE ASSETS"), the
Purchase Price shall be decreased dollar for dollar based upon the short fall of
Net Assets from the Base Assets, or (iii) actual net income ("NET INCOME") as
set forth in the Audited Closing Balance Sheet is more than $100,000.00 less
than ($126,000) (the "BASE INCOME"), the Purchase Price shall be decreased by
ten percent (10%) for every $100,000, or portion thereof, the Net Income is less
than Base Income (the "PAYMENT ADJUSTMENT"), and the Escrow Agent shall promptly
return the number of Purchase Price Shares (rounded up to the nearest whole
number) which equals the Payment Adjustment. The Payment Adjustment, if any,
shall first be made with the Earn Out Shares. For purposes of calculating Net
Assets in Section 1.07(ii), the fixed asset amount shall be taken from the April
30, 2000 balance sheet delivered to Purchaser. In calculating all amounts under
Section 1.07, the revenue of the Subsidiaries shall be consolidated with Fan
Asylum.
1.08 Payment Adjustment Earn Back. In the event that the GAAP gross
revenue for Fan Asylum for the year ended December 31, 2001 is equal to or
greater than Ten Million Dollars ($10,000,000) or the GAAP net income of Fan
Asylum for the year ended December 31, 2001 is equal to or greater than Eight
Hundred Thousand Dollars ($800,000), Purchaser shall return the Payment
Adjustment to Shareholder only to the extent that Shareholder would have been
entitled to such Purchase Price Shares making up the Payment Adjustment pursuant
to the terms of this Agreement and the Escrow Agreement within sixty (60) days
after the Purchaser's audit for the year ended December 31, 2001 is finalized
and the foregoing numbers are determined.
1.09 Earn Out Shares. Notwithstanding the amount of the Purchase Price,
Shareholder shall have no rights to or in the Earn Out Shares until such Earn
Out Shares, if any, become "Vested Earn Out Shares" as defined below at which
time Purchaser shall contribute such Vested Earn Out Shares to the Escrow Agent
to be deposited in the Earn Out Shares Account (as defined in the Escrow
Agreement) to be distributed as set in the Escrow Agreement; provided, however,
Purchaser shall only be obligated to make such deposits of Vested Earn Out
Shares, if any, with the Escrow Agent three business days prior to the nine
month anniversary of the Closing Date and on the one year anniversary of the
Closing Date. If any Earn Out Shares have not become Vested Earn Out Shares as
of the one year anniversary of the Closing Date (the "UNVESTED EARN OUT
SHARES"), Purchaser's obligations with respect to and Shareholder's rights to
the Unvested Earn Out Shares under this Agreement and the Escrow Agreement shall
immediately terminate. Ten percent (10%) of the Earn Out Shares shall become
vested ("VESTED EARN OUT SHARES ") for each three (3) additional artists set
forth on EXHIBIT G (the "ARTISTS") with whom Fan Asylum executes agreements
following the Closing Date but prior to the one year anniversary of the Closing
Date in the form of agreement attached hereto as EXHIBIT I (the "ARTIST
AGREEMENT") (or such other form of agreement as approved by Purchaser's Board of
Directors) (all of the Earn Out Shares shall become Vested Earn Out Shares upon
executing an Artist Agreement with thirty (30) of the Artists). In the event
that the Artist Agreement is not finalized on the date of this Agreement and is
marked as a "draft", Fan Asylum and Purchaser shall negotiate the final form of
the Artist Agreement in good faith based upon the form attached hereto as
EXHIBIT I.
ARTICLE II
Representations and Warranties of Purchaser.
Purchaser represents and warrants to Shareholder that:
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2.01 Organization and Corporate Authority. Purchaser is organized,
validly existing and in good standing under the laws of the State of Minnesota
and has all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. This Agreement and all
other agreements herein contemplated to be executed in connection herewith by
Purchaser have been (or upon execution will have been) duly executed and
delivered by Purchaser, have been effectively authorized by all necessary
action, corporate or otherwise, and constitute (or upon execution will
constitute) legal, valid and binding obligations of Purchaser enforceable in
accordance with their respective terms, except as the same may be subject to
general principles of equity or limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws.
2.02 Agreement Not in Breach of Other Instruments. The execution,
delivery and performance of this Agreement and all other agreements contemplated
herein to be executed by Purchaser and the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof and
thereof, will not result in a breach of any of the terms or provisions of, or
constitute a default under, or conflict with, (a) any material agreement,
contract, commitment, permit, indenture or other instrument to which Purchaser
is a party or by which its assets are bound or (b) the Articles of Incorporation
or Bylaws of Purchaser.
2.03 Investment Representation. Purchaser is purchasing the Shares for
its own account with the present intention of holding the Shares for investment
purposes and not with a view to or for sale in connection with any distribution
of the Shares in violation of any applicable securities law.
2.04 No Legal Bar. Purchaser is not prohibited by any order, writ,
injunction or decree of any body of competent jurisdiction from consummating the
transactions contemplated by this Agreement, and no such action or proceeding is
pending against Purchaser which questions the validity of this Agreement, any of
the transactions contemplated hereby or any action which has been taken by any
of the parties in connection herewith or in connection with any of the
transactions contemplated hereby.
2.05 Brokers. No broker or finder has acted for Purchaser or any
Affiliate of Purchaser in connection with this Agreement or the transactions
contemplated hereby, and no broker or finder is entitled to any brokerage or
finder's fees or other commissions in respect of such transactions based in any
way on agreements, arrangements or understandings made by or on behalf of
Purchaser or any Affiliate of Purchaser.
ARTICLE III
Representations and Warranties of
Shareholder Regarding Shareholder and the Shares
Shareholder represents and warrants to Purchaser that the following
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true and correct:
3.01 Organization and Authority. Shareholder has executed and delivered
this Agreement, all other agreements set forth herein or contemplated hereby and
any other document or instrument delivered by Shareholder or entered into as
part of the transactions contemplated herein or hereby (the "OTHER AGREEMENTS")
and has full and adequate authority to perform Shareholder's obligations
hereunder.
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Shareholder is of legal capacity and has full power and authority to execute and
deliver this Agreement and the Other Agreements, and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of Shareholder, enforceable in accordance with its terms and conditions.
Shareholder need not give notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement
3.02 Title to Shares. Shareholder has good title to his Shares free and
clear of any and all covenants, conditions, demands, subscriptions, commitments,
warrants, proxies, restrictions, shareholder agreements, voting trust
arrangements, liens, charges, encumbrances, community property or
quasi-community property interests, options, adverse claims or rights
whatsoever. Upon consummation of the purchase contemplated hereby, Purchaser
will acquire from Shareholder good title to his Shares, free and clear of all
covenants, liabilities, obligations, conditions, demands, subscriptions,
commitments, warrants, proxies, restrictions, shareholder agreements, voting
trust arrangements, liens, charges, encumbrances, community property or
quasi-community property interests, options, adverse claims or rights
whatsoever. No person other than Shareholder has any beneficial or legal
ownership to his Shares.
3.03 Brokerage Fees. No broker or finder has acted for Shareholder in
connection with this Agreement or the Other Agreements, and no broker or finder
is entitled to any broker or finder's fees or other commissions in respect of
such transactions based in any way on agreements, arrangements or understandings
made by or on behalf of Shareholder.
3.04 Agreement Not in Breach of Other Instruments. The execution and
delivery of this Agreement and the Other Agreements, the consummation of the
transactions contemplated hereby and thereby, and the fulfillment of the terms
hereof and thereof will not result in a breach of any of the terms or provisions
of, or constitute a default under, or conflict with, (a) any agreement,
contract, commitment, permit, indenture or other instrument to which Shareholder
is a party or by which Shareholder or his, her or its assets or the Shares are
bound, including but not limited to any trust agreement or any agreement or
instrument related thereto, or (b) any law, statute or regulation or any
judgment, decree, order or award of any court, governmental body or arbitrator
to which Shareholder or any of his, her or its assets or the Shares are subject.
3.05 No Legal Bar. Shareholder is not prohibited by any order, writ,
injunction or decree of any body of competent jurisdiction from consummating the
transactions contemplated by this Agreement, and no such action or proceeding is
pending against Shareholder which questions the validity of this Agreement or
the Other Agreements.
3.06 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Shareholder from any governmental authority in order to
permit the consummation of the transactions contemplated by this Agreement or
the Other Agreements have been obtained and satisfied, or will have been
obtained and satisfied as of the Closing Date.
3.07 Due Execution; Enforceability. This Agreement and the Other
Agreements have been (or upon execution will have been) duly executed and
delivered by Shareholder and have been effectively authorized by all necessary
action, corporate or otherwise, and, constitute (or upon execution will
constitute) legal, valid and binding obligations of Shareholder enforceable in
accordance with their respective terms, except as the same may be subject to
general principles of equity or limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws.
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3.08 No Other Agreements to Sell the Assets or Capital Stock of Fan
Asylum or its Subsidiaries. None of Shareholder, Fan Asylum or its Subsidiaries
has, any legal obligation, absolute or contingent, to any other person or entity
to sell or effect a sale of the assets of Fan Asylum or its Subsidiaries, to
sell or effect a sale of any of the capital stock of Fan Asylum or its
Subsidiaries or to effect any merger, consolidation or other reorganization of
Fan Asylum or its Subsidiaries or to enter into any agreement or cause the
entering into of an agreement with respect thereto.
3.09 Investment Representation. Shareholder is purchasing the Purchase
Price Shares for his own account with the present intention of holding the
Purchase Price Shares for investment purposes and not with a view to or for sale
in connection with any distribution of the Purchase Price Shares in violation of
any applicable securities law.
ARTICLE IV
Representations and Warranties of
Shareholder Regarding Fan Asylum and its Subsidiaries
Shareholder represents and warrants to Purchaser that, the following
representations and warranties are true and correct as of the date hereof and
will be, as of the Closing Date, true and correct:
4.01 Organization, Authority and Purpose. Each of Fan Asylum and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has all requisite corporate power and
authority to carry on its business as it is now, and has since its formation
been, conducted and is duly authorized to own the properties and assets it now
owns. Each of Fan Asylum and its Subsidiaries is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under the applicable law as a result of the
conduct of its business or the ownership of its properties except where the
failure to be so qualified and in good standing would not have a Material
Adverse Effect. "MATERIAL ADVERSE EFFECT" shall mean any matter which, either
individually or in the aggregate, could or does have a material adverse effect
on the Shares or the assets, business, financial condition, results of
operations or prospects of Fan Asylum or its Subsidiaries. The jurisdiction of
incorporation of each of Fan Asylum and its Subsidiaries and each jurisdiction
in which they are qualified to do business as a foreign corporation is listed in
SCHEDULE 4.01. Except as set forth in SCHEDULE 4.01, none of Fan Asylum or its
Subsidiaries owns, of record or beneficially, or control, directly or
indirectly, any equity interest in any entity (each, a "SUBSIDIARY," and
collectively, "SUBSIDIARIES"). Fan Asylum and its Subsidiaries each have full
power and authority to perform its obligations under this Agreement and the
Other Agreements and no other authority, whether by directors, shareholders or
otherwise, is necessary to execute, deliver or consummate this Agreement or the
Other Agreements. SCHEDULE 4.01 lists and describes each and every predecessor
(whether direct or indirect) corporation or entity to Fan Asylum or its
Subsidiaries and describes each and every assumed name or trade name such
predecessors, Fan Asylum or its Subsidiaries have used or had rights to during
the past ten (10) years.
4.02 Financial Statements. SCHEDULE 4.02 contains the unaudited balance
sheets of Fan Asylum and its Subsidiaries as of December 31, 1999, and the
related statements of earnings for the fiscal years then ended and the notes
related thereto (the "FINANCIAL STATEMENTS"). SCHEDULE 4.02(a)(ii) contains the
unaudited consolidated and consolidating balance sheets of Fan Asylum and its
Subsidiaries as of April 30, 2000, and the related consolidated and
consolidating statements of earnings for the period then ended. The April 30,
2000 financial statements and all subsequent financial statements of Fan Asylum
and its Subsidiaries through Closing, shall collectively be referred to as the
"INTERIM FINANCIAL STATEMENTS". The Financial Statements and, subject to the
exceptions hereinafter set forth in this Section 4.02, the Interim
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Financial Statements (i) were prepared in accordance with the books and records
of Fan Asylum and its Subsidiaries, respectively; (ii) were prepared in
accordance with accounting principles consistently applied, consistent with past
practices; (iii) fairly present Fan Asylum's and its Subsidiaries' respective
financial condition and the results of their operations as at the relevant dates
thereof and for the periods covered thereby; and (iv) are true and accurate. For
purposes of this Agreement, "BALANCE SHEET" means the balance sheets of each of
Fan Asylum and its Subsidiaries as of April 30, 2000 (the "BALANCE SHEET DATE").
4.03 Absence of Certain Changes. Except as set forth on SCHEDULE 4.03,
since the Balance Sheet Date, each of Fan Asylum and its Subsidiaries has
conducted its business in the ordinary course of business substantially
consistent with past practice and there has not been (i) any declaration or
payment of distributions or dividends by Fan Asylum or its Subsidiaries or any
intercompany transfer of assets of any kind whatsoever by Fan Asylum or its
Subsidiaries; (ii) any transaction not in the ordinary course of business (for
purposes of this Agreement, "ordinary course of business" means the ordinary
course of business consistent with past custom and practice (including with
respect to quantity and frequency)); (iii) any change in the business, results
of operations, condition (financial or otherwise), assets, liabilities (whether
absolute, accrued, contingent or otherwise) or business of Fan Asylum or its
Subsidiaries that has had or is reasonably likely to have, with the passage of
time or otherwise, a Material Adverse Effect; (iv) any damage, destruction or
loss, whether or not covered by insurance, which has had or is reasonably likely
to have, with the passage of time or otherwise, a Material Adverse Effect; (v)
any sale or transfer of any of their assets or any cancellation of any debts,
rights or claims, except sales in the ordinary course of business of inventory
or immaterial amounts (not in excess of $5,000 in the aggregate) of other
tangible personal property not required in their respective businesses; (vi) any
mortgage, pledge or subjection to lien, charge or encumbrance of any kind,
except liens for taxes not due, of any of their properties or assets; (vii) any
material amendment, modification or termination of any material contract or
agreement to which Fan Asylum or its Subsidiaries is a party; (viii) any
increase in, or commitment to increase, the compensation payable or to become
payable to any employee or agent of Fan Asylum or its Subsidiaries or any bonus
payment or similar arrangement made to or with any of such employees or agents,
except with the prior written consent of Purchaser other than those undertaken
in the ordinary course of business in connection with annual salary reviews
consistent with past practices which, in the aggregate, have not increased
annual payroll by more than $50,000 and, individually, with respect to any
employee, has not increased annual compensation by $10,000; (ix) any incurrence
of, assumption of, or taking of any property subject to, any liability, except
for liabilities incurred or assumed or property taken subsequent to the Balance
Sheet Date in the ordinary course of business and consistent with past practice;
(x) any alteration in the manner of keeping the books, accounts or records of
Fan Asylum or its Subsidiaries, or in the accounting practices therein
reflected; (xi) any issuance or sale of any interests, including but not limited
to equity and debt, in or of Fan Asylum or its Subsidiaries, or any issuance or
sale of securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe to, any interests in or of Fan Asylum or its
Subsidiaries, or any agreements entered into obligating Fan Asylum or its
Subsidiaries to issue, sell, redeem, repurchase or acquire any such interests;
(xii) any labor dispute or any activity or proceeding by a labor union or
representative thereof to organize any employees of Fan Asylum or its
Subsidiaries or any lockouts, strikes, slowdowns, work stoppages, or threats
thereof by or with respect to such employees; (xiii) any notice from any
customer or customers or supplier or suppliers, as to such customer or
supplier's intention not to conduct business with Fan Asylum or its
Subsidiaries, the results of which loss or losses of business or supplies,
individually or in the aggregate, has had, or may reasonably be expected to
have, with the passage of time or otherwise, a Material Adverse Effect; (xiv)
any adoption of, amendment to or termination of any Employee Plans (as defined
herein); or (xv) any other event or condition of any character which has had or
may reasonably be expected to have, with the passage of time or otherwise, a
Material Adverse Effect.
4.04 Charter Documents. Attached as SCHEDULE 4.04 are true and correct
copies of the Articles
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of Incorporation, all amendments thereto, and the Bylaws of Fan Asylum and its
Subsidiaries, in each case as in effect on the date hereof. Shareholder has
provided Purchaser with all the corporate minutes of Fan Asylum and its
Subsidiaries. All such documents have been maintained in accordance with good
business and record keeping practices and in compliance with all applicable
laws, regulations and procedures.
4.05 Real Property. Neither Fan Asylum nor its Subsidiaries has sold,
transferred, assigned, gifted or otherwise disposed of any interest in any real
property to any person or entity in the ten year period preceding the date of
this Agreement. Neither Fan Asylum nor its Subsidiaries owns or has any
interest, contingent or otherwise in or to any real property.
4.06 Leaseholds. Other than the leases (the "Leases") described on
SCHEDULE 4.06 (the "LEASED PROPERTY"), none of Fan Asylum or its Subsidiaries
leases or subleases any real property from any person or entity. With respect to
the Leases:
(a) Fan Asylum or its Subsidiaries, through the Leases, have,
to the best of Fan Asylum's and Shareholder's knowledge, valid written
leasehold interests in all of the Leased Property;
(b) the Leases are , to the best of Fan Asylum's and
Shareholder's knowledge, legal, valid, binding, enforceable, and in
full force and effect;
(c) the Leases will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby;
(d) no action of any kind is necessary or required by Fan
Asylum or its Subsidiaries (or any other person, entity or government
body), including but not limited to obtaining consent, with respect to
such Leased Property or the Leases, in connection with the transactions
contemplated by this Agreement;
(e) neither Fan Asylum nor its Subsidiaries is in breach or
default, and, to the best of Fan Asylum's and Shareholder knowledge, no
event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(f) to the best of Fan Asylum's and Shareholder's knowledge,
no party to the Leases has repudiated any provision thereof;
(g) there are no disputes, oral agreements, or forbearance
programs in effect as to the Leases;
(h) neither Fan Asylum nor its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the Leases;
(i) all facilities leased under the Leases are supplied with
utilities and other services necessary for the operation of said
facilities;
(j) (i) there are no pending or, to the knowledge of Fan
Asylum, its Subsidiaries and Shareholder, threatened or contemplated
condemnation proceedings, lawsuits, administrative actions, or
proceedings relating to the Leased Property or otherwise affecting
adversely the current use, occupancy, or value thereof; and (ii)
neither Fan Asylum, its Subsidiaries nor Shareholder has
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received notice of or has knowledge of (without independent
investigation) any proposed or pending public improvements project(s),
the cost of which a governmental agency may assess against the Leased
Property;
(k) to the best of Fan Asylum's and Shareholder's knowledge,
no violation of any law (including but not limited to Environmental
Laws), regulation, ordinance, permit, license, certificate or other
governmental requirement (including without limitation, laws,
regulations or ordinances relating to zoning or city planning) relating
to the Leased Property presently exists other than for violations,
which have not had and will not have with the passage of time or
otherwise, individually or in the aggregate, a Material Adverse Effect;
(l) to the best of Fan Asylum's and Shareholder's knowledge,
all facilities have received all approvals of governmental authorities
(including licenses and permits) required in connection with the
ownership and operation thereof and have been operated and maintained
in accordance with applicable laws (including but not limited to
Environmental Laws), rules, and regulations, except for noncompliance
which has not had, and will not have with the passage of time or
otherwise, individually or in the aggregate, a Material Adverse Effect;
(m) other than the Lease, there are no leases, subleases,
licenses, concessions, or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of
any parcel of Leased Property;
(n) there are no parties (other than Fan Asylum and its
Subsidiaries) in possession of the Leased Property;
(o) to the best of Fan Asylum's and Shareholder's knowledge,
here has been no labor or materials furnished to the Leased Property
for which payment has not been paid;
(p) there are no wells located on the Leased Property;
(q) each such Leased Property is sufficient for the conduct of
the business as is currently being carried out by Fan Asylum and its
Subsidiaries and is consistent with past practices;
(r) Fan Asylum and its Subsidiaries have maintained the
improvements on the Leased Property in a manner consistent with the
ongoing requirements of their respective businesses and have not
altered such maintenance practices in anticipation of the transactions
contemplated hereby; and
(s) all facilities located on the Leased Property are supplied
with utilities and other services necessary for the operation of such
facilities, including (if necessary) gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of which services are,
to the best of Fan Asylum's and Shareholder's knowledge, adequate in
accordance with all applicable laws, ordinances, rules, and
regulations.
4.07 Tangible Personal Property. Except as set forth in SCHEDULE 4.07:
(a) Fan Asylum and its Subsidiaries have good title to each
item of tangible personal property owned by them free and clear of any
and all Security Interests, leases, encumbrances, claims
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under bailment and storage agreements, equities, conditional sales
contracts, charges and restrictions of any kind ("LIENS");
(b) Each item of tangible personal property not owned by Fan
Asylum or its Subsidiaries is in such condition that upon the return of
such property to its owner in its present condition at the end of the
relevant lease term or as otherwise contemplated by the applicable
agreement between Fan Asylum and the owner or lessor thereof, the
obligations of Fan Asylum to such owner or lessor will be discharged;
(c) The tangible personal property owned or used by each of
Fan Asylum and its Subsidiaries is sufficient for the proper conduct of
its business as heretofore conducted;
(d) Fan Asylum and its Subsidiaries have maintained the
tangible personal property owned or leased by them and material to
their respective businesses in a manner consistent with the ongoing
requirements of their respective businesses and have not altered such
maintenance practices in anticipation of the transactions contemplated
hereby;
(e) Fan Asylum and its Subsidiaries own or otherwise have the
right to use all of the tangible personal property currently in the
operation of its business; and
(f) neither Fan Asylum nor its Subsidiaries has any material
contract, letter of intent or proposal relating to the acquisition or
divestiture of tangible personal property.
4.08 Capitalization. Fan Asylum is authorized to issue 10,000,000
shares of Common Stock no par value per share and no other capital stock or
other equity or debt interests. Of its authorized capital stock, 1,000 shares of
Common Stock are issued and outstanding, all of which are owned, of record and
beneficially, by Shareholder in such amounts as set forth in SCHEDULE 4.08. All
of the Shares have been duly authorized and are validly issued, fully paid and
nonassessable. There are not, and on the Closing Date there will not be,
outstanding (i) any options, warrants or, other rights to purchase from Fan
Asylum or any other person or entity any capital stock of Fan Asylum or its
Subsidiaries, (ii) any securities convertible into or exchangeable for shares of
such stock or (iii) any other commitments of any kind for the issuance of
additional shares of capital stock or options, warrants or other securities of
Fan Asylum. There are no outstanding obligations of Fan Asylum or its
Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of Fan
Asylum or securities convertible into such capital stock.
4.09 Subsidiaries. SCHEDULE 4.09 sets forth for each Subsidiary: (i)
its name and jurisdiction of incorporation, (ii) the number of shares of
authorized capital stock of each class of its capital stock, (iii) the number of
issued and outstanding shares of each class of its capital stock, the names of
the holders thereof, and the number of shares held by each such holder, and (iv)
the number of shares of its capital stock held in treasury. All of the issued
and outstanding shares of capital stock of each Subsidiary have been duly
authorized and are validly issued, fully paid, and nonassessable. Fan Asylum or
its Subsidiaries holds of record and owns beneficially all of the outstanding
shares of each subsidiary, free and clear of any restrictions on transfer (other
than restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require Fan Asylum or its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its subsidiaries that could require any Subsidiary to issue, sell, or
otherwise cause to become outstanding any of its own capital stock. There are no
outstanding stock appreciation, phantom stock, profit participation, or similar
rights with respect to any Subsidiary. There
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are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary. Neither Fan Asylum
nor its Subsidiaries controls directly or indirectly or has any direct or
indirect equity participation in any corporation, limited liability company,
limited liability partnership, partnership, trust, or other business association
which is not a Subsidiary.
4.10 Agreement Not in Breach of Other Instruments. Except as set forth
in SCHEDULE 4.10, neither the execution and delivery of this Agreement or the
Other Agreements, nor the consummation of the transactions contemplated hereby
or thereby, nor the fulfillment of the terms hereof or thereof, will (a)
violate, or result in a breach of, any of the terms and provisions of, or
constitute a default under, or conflict with (i) any agreement, contract,
commitment, permit, indenture or other instrument to which any of Fan Asylum or
its Subsidiaries is a party or by which any of Fan Asylum or its Subsidiaries or
any of their assets, are bound, or give rise to any right of termination,
cancellation or acceleration under any such agreement, contract, commitment,
permit, indenture or other instrument by any party thereto, (ii) the bylaws,
articles/certificate of incorporation or shareholder agreements of any of Fan
Asylum or its Subsidiaries or (iii) any law, statute or regulation, or any
judgment, decree, order or award of any court, governmental body or arbitrator
applicable to any of Fan Asylum or its Subsidiaries; or (b) result in the
creation or imposition of any lien, charge, pledge, Security Interest or
encumbrance of any kind on any asset of any of Fan Asylum or its Subsidiaries.
4.11 Insurance. SCHEDULE 4.11 sets forth a true and correct list of all
insurance policies of any nature whatsoever, including self- insurance plans,
currently maintained by Fan Asylum or its Subsidiaries or maintained by
Shareholder and covering Fan Asylum or its Subsidiaries or Fan Asylum's or its
Subsidiaries' assets, and the annual or other premiums payable from time to time
thereunder. All such policies of Fan Asylum and its Subsidiaries (i) are issued
by insurance companies reasonably believed by Shareholder to be financially
sound and reputable and are in full force and effect; (ii) are sufficient (in
form, amount and otherwise) for compliance with all requirements of law and of
all applicable agreements; (iii) are valid, outstanding and enforceable
policies; and (iv) in the reasonable judgment of each of Fan Asylum, its
Subsidiaries and Shareholder provide reasonable insurance coverage for the
assets and operations of Fan Asylum and its Subsidiaries for all risks normally
insured against by persons carrying on the same business as Fan Asylum and its
Subsidiaries. SCHEDULE 4.11 also contains a description of all contingent
liability that Fan Asylum or its Subsidiaries may be subject as a result of
retrospective insurance premium obligations, and describes the extent of any
self-insurance reserves which are actuarially determinable but not accrued as
liabilities on the Financial Statements. There are no outstanding claims by Fan
Asylum or its Subsidiaries under the insurance coverages listed in SCHEDULE
4.11, as to which full and complete coverage (subject to deductibles) for losses
has been questioned, disputed or denied. None of Fan Asylum and its Subsidiaries
has failed to give any notice or present any outstanding claim under any
insurance policy in a timely and complete manner. No claims are being handled by
an insurer of Fan Asylum or its Subsidiaries under a reservation of rights
letter. To the best of Fan Asylum's and Shareholder's knowledge, there are no
outstanding requirements or recommendations by any insurance company that issued
any policy listed in SCHEDULE 4.11 or by any Board of Fire Underwriters or other
similar body exercising similar functions or by any governmental authority
exercising similar functions which requires or recommends any changes in the
conduct of the business of, or any repairs or other work to be done on or with
respect to any of the properties or assets of Fan Asylum or its Subsidiaries.
None of Fan Asylum and its Subsidiaries has received any notice or other
communication from any such insurance company within the three years preceding
the date hereof canceling or materially amending or materially increasing the
annual or other premiums payable under any of said insurance policies, and no
such cancellation, amendment or increase of premiums is threatened.
4.12 Employee Benefit Matters.
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(a) SCHEDULE 4.12(A) lists and generally describes:
(i) each employee welfare benefit plan and each employee
pension benefit plan within the meaning of Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), that is
maintained or contributed to by Fan Asylum, its Subsidiaries or
Shareholder for the benefit of Fan Asylum's or its Subsidiaries'
employees (collectively, the "ERISA Plans"); and each trust fund
maintained by Fan Asylum, its Subsidiaries or Shareholder in connection
with any of such ERISA Plans; and
(ii) all other plans providing compensation (other than
salaries or wages), benefits or perquisites to any class of employees
of Fan Asylum or its Subsidiaries, including without limitation any
incentive, bonus, stock option, restricted stock, vacation pay, sick
pay and severance plans ("COMPENSATION PLANS"); and any cafeteria plan"
("125 PLAN") governed by Section 125 of the Internal Revenue Code of
1986, as amended, including all regulations and rules adopted in
connection therewith or pursuant thereto (the "CODE"). The ERISA Plans,
the Compensation Plans and any 125 Plan may be collectively referred to
as the "EMPLOYEE PLANS."
(b) Shareholder has furnished to Purchaser a true, correct and complete
copy of each of the ERISA Plans and any related trust agreements or other
funding vehicles; true, correct and complete copies of the Compensation Plans
and 125 Plan (or summaries of any unwritten Compensation Plans or 125 Plan) and
true, correct and complete copies of any employment policy manuals distributed
to any class of employees of Fan Asylum or its Subsidiaries. With respect to
each of the ERISA Plans and any 125 Plan, Shareholder has also furnished to
Purchaser the most recent summary plan description and the last three most
recently filed annual reports required to be made on Form 5500. As to each of
the ERISA Plans that is funded, Fan Asylum and its Subsidiaries have delivered
or made available to Purchaser a true, correct and complete copy of the most
recent annual financial report (including any auditor's report) with respect to
such plan, and any subsequent interim report. Each such financial report and
interim report is an accurate description of the financial status of the subject
employee benefit plan, and to the knowledge of Fan Asylum, its Subsidiaries and
Shareholder, there have been no adverse changes in the financial status of any
such funded ERISA Plans since the date of the most recent report provided with
respect thereto.
(c) SCHEDULE 4.12(C) specifically identifies each of the ERISA Plans
that is represented to be a qualified plan under Code Section 401(a) ("QUALIFIED
PLAN"). With respect to each Qualified Plan, the following are true: (a) the
plan, in form and operation, currently satisfies, and for all years subsequent
to the establishment of such plan, has satisfied, the qualification requirements
of Section 401(a) of the Code; and (b) the Internal Revenue Service (the "IRS")
has issued a favorable letter of determination with respect to the plan
(including without limitation the provisions of the Tax Reform Act of 1986 and
related regulations), and all amendments required by the Code as a condition of
retention of such qualified status as of the date hereof have been adopted
within time limits required to maintain such status or such time limits have not
expired. Each of the Qualified Plans is and has been operating in compliance
with all amendments required by the Tax Reform Act of 1986 and subsequent
legislation and regulations. Fan Asylum or its Subsidiaries have furnished to
Purchaser a true, correct and complete copy of the most recent letter of
determination issued with respect to each such Qualified Plan.
(d) None of Fan Asylum and its Subsidiaries maintains or contributes to
any Qualified Plan that is subject to Title IV of ERISA, nor has Fan Asylum or
its Subsidiaries terminated or withdrawn
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from participation in any such plan. Except as set forth in SCHEDULE 4.12(D),
none of the Qualified Plans is a Multiemployer Plan, as defined in ERISA Section
4001(a)(3). All contributions payable by Fan Asylum or its Subsidiaries to any
of the ERISA Plans for any plan year ending prior to the date hereof have been
paid in full on a timely basis and no accumulated funding deficiency (as defined
in Section 302(a)(2) of ERISA) has been incurred with respect to any Qualified
Plan subject to Code Section 412. Except as set forth in SCHEDULE 4.12(D), (i)
neither Fan Asylum nor its Subsidiaries has maintained, contributed to or been
required to contribute to a Multiemployer Plan, (ii) no amount is due by Fan
Asylum or its Subsidiaries to any Multiemployer Plan on account of any
withdrawal therefrom, (iii) no withdrawal events triggering liability have
occurred with respect to any Multiemployer Plan (and no material risk of such
event exists), (iv) no contingent liability exists with respect to any
Multiemployer Plan in respect of an asset sale by Fan Asylum or any ERISA
Affiliate made in the prior five (5) years, and (v) SCHEDULE 4.12(D), lists and
described the current liability of Fan Asylum and its Subsidiaries under each
Multiemployer Plan if a withdrawal liability occurred on the date of this
Agreement.
(e) Neither Fan Asylum nor its Subsidiaries have engaged in, nor
entered into any arrangement pursuant to which Fan Asylum or a Subsidiary is
contractually bound to enter into, any transaction which could result in
imposition upon Fan Asylum or its Subsidiaries, Purchaser or Purchaser's
subsidiaries, of any excise tax under Sections 4971 through 4980B, inclusive,
and Section 5000 of the Code or civil liability under Section 502(i) or 502(l)
of ERISA or otherwise incurred a liability for any excise tax with respect to
any of the Employee Plans, other than excise taxes that have heretofore been
paid or have been accrued, and, in either case are fully reflected in the
Balance Sheet.
(f) Fan Asylum or its Subsidiaries has (a) filed or caused to be filed
on a timely basis each and every return, report, statement, notice, declaration
and other document required to be filed with any governmental agency, federal,
state and local (including, without limitation, the IRS, the Department of
Labor, the Pension Benefit Guaranty Corporation and the SEC) with respect to
each of the Employee Plans; and Fan Asylum or its Subsidiaries have maintained
on their premises (or have caused to be maintained by a service provider) all
records with respect to such plans as are required for their proper
administration and proper continued reporting and disclosure; (b) timely
complied with all applicable participant disclosure requirements of ERISA; and
(c) maintained in full force and effect any bond required under ERISA in
connection with the ERISA Plans.
(g) Neither Fan Asylum nor any Subsidiary (during the period it is a
Subsidiary) is or ever has been a member of a controlled group of corporations,
an unincorporated trade or business under common control, or a member of an
affiliated service group (as such terms are defined in Sections 414(b), 414(c)
and 414(m) of the Code), that includes any entity other than Fan Asylum and its
Subsidiaries.
(h) Fan Asylum and its Subsidiaries have not utilized to any material
extent, the services of "leased employees" (as defined in Section 414(n) of the
Code) within the four (4) year period ending on the Closing Date, nor are there
any persons now working for Fan Asylum or its Subsidiaries who are anticipated
to become such leased employees with the passage of time, except to the extent
such status would not have a Material Adverse Effect on any of the Employee
Plans.
(i) Except as described in SCHEDULE 4.12(I), neither Fan Asylum nor its
Subsidiaries maintain any group life insurance or health benefit coverage for
former employees or directors of Fan Asylum or its Subsidiaries, other than
group life insurance or health benefit coverage mandated
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by applicable law. Fan Asylum and its Subsidiaries have timely complied with all
of their respective "COBRA" obligations under ERISA Section 602, Code Section
4980B and applicable state insurance laws, with respect to group life insurance
or health benefit continuation coverage to be provided by those of its Employee
Plans that provide such benefits.
(j) With respect to the Employee Plans, there are no claims, actions,
suits or proceedings pending or, to the knowledge of Fan Asylum, its
Subsidiaries and Shareholder, threatened against Fan Asylum, its Subsidiaries or
any other fiduciaries thereof, respecting their duties or obligations to any
such plan, its assets, any trust thereunder or any participant or beneficiary
thereof, except claims made in the ordinary course for benefits or compensation
provided by such plans.
(k) Neither Fan Asylum, its Subsidiaries, nor any of their respective
directors, officers, employees or other "fiduciaries," as that term is defined
in Section 3(21) of ERISA, has committed any breach of fiduciary responsibility
imposed by ERISA or any other applicable law with respect to the ERISA Plans,
that would subject Fan Asylum or its Subsidiaries, Purchaser, Purchaser's
subsidiaries or any of their respective directors, officers or employees to any
liability under ERISA or any other applicable law and that is reasonably
expected to have a Material Adverse Effect.
4.13 Tax Matters.
(a) The following terms shall have the meanings indicated below:
(i) "TAXES" (or "TAX" or "TAXABLE" or "TAXING" where the
context requires) shall mean (a) all federal, state, county, local,
foreign and other taxes (including, without limitation, net income,
gross income, profits, premium, estimated, excise, sales, use,
value-added, occupancy, occupation, gross receipts, franchise, license,
ad valorem, severance, capital levy, production, transfer, withholding,
employment and payroll related, and property taxes, custom and import
duties and other governmental fees, charges and assessments), whether
attributable to statutory or nonstatutory rules and whether or not
measured in whole or in part by net income, whether or not
consolidated, combined, unitary or separate; (B) any interest,
additions to tax or interest and penalties with respect thereto; and
(C) any liability for the payment of any of such amounts as a result of
being a member of an affiliated or combined group.
(ii) "TAX AGREEMENT" shall mean any tax sharing or indemnity
arrangement among or between Fan Asylum, its Subsidiaries, Shareholder
or any of Shareholder's Affiliates, or any predecessor thereof and
described in SCHEDULE 4.13(A).
(iii) "TAX RETURNS" (or "TAX RETURN" where the context
requires) shall mean all returns, declarations, reports and information
returns of whatsoever kind in respect of Taxes.
(iv) "PRE-CLOSING TAX PERIOD" shall mean all Tax Periods
ending on or before the Closing Date and that portion to and including
the Closing Date of any Taxable period that includes (but does not end
on) the Closing Date.
(b) (a) Each of Fan Asylum and its Subsidiaries: (1) has timely filed
all Tax Returns required to be filed through the date hereof, has timely paid
any Tax due through the date hereof with respect to the time periods covered by
such Tax Returns and shall timely pay any such Taxes
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required to be paid by it after the date hereof and on or prior to the Closing
Date with respect to such Tax Returns; and (2) shall prepare and timely file all
such Tax Returns required to be filed after the date hereof and through the
Closing Date and timely pay all Taxes required to be paid by them on or prior to
the Closing Date with respect to the periods covered by such Tax Returns; and
(b) all such Tax Returns filed pursuant to clause (a) after the date hereof
shall, in each case, be prepared and filed in a manner consistent in all
material respects (including elections and accounting methods and conventions)
with such Tax Return most recently filed in the relevant jurisdiction prior to
the date hereof, except as otherwise required by law or regulation or agreed to
in writing by Purchaser.
(c) All consolidated or combined Tax Returns (except those described in
subparagraph (b) above) required to be filed by any person through the date
hereof that are required or permitted to include the income, or reflect the
activities, business, operations, assets or transactions, of Fan Asylum and its
Subsidiaries for any taxable period have been timely filed, and the income,
business, activities, operations, property and transactions of each of Fan
Asylum and its Subsidiaries have been properly included and reflected thereon.
Shareholder shall prepare and timely file, or cause to be prepare and timely
filed, all such consolidated or combined Tax Returns that are required or
permitted to include the income, or reflect the activities, business,
operations, assets or transactions, of each of Fan Asylum and its Subsidiaries,
with respect to any taxable year or operation thereof ending on or prior to the
Closing Date.
(d) There has been adequately disclosed in the federal income Tax
Returns filed by Fan Asylum and its Subsidiaries or will be disclosed in any
such Tax Returns to be filed on or before the Closing Date, all positions taken
therein that otherwise could give rise to a substantial understatement of
federal taxes within the meaning of Code Section 6662.
(e) As of the time of filing, each of such Tax Returns:
(i) correctly reflected (and, as to any Tax Returns not filed
as of the date hereof, will correctly reflect) the facts regarding
income, activities, business, operations, assets, transactions and
status of Fan Asylum and its Subsidiaries and any other information
required to be shown therein;
(ii) constitute (and, as to any Tax Returns not filed as of
the date hereof, will constitute) complete and accurate representations
of the Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent required
to be included or reflected in the Tax Returns) relevant to future Tax
liabilities, including the Tax bases of properties and assets.
(f) All amounts required to be withheld as of the Closing Date by Fan
Asylum and its Subsidiaries for Taxes or otherwise shall by then have been
withheld and paid when due to the appropriate agency or authority.
(g) There is no agreement, waiver or consent providing for an extension
of time with respect to the assessment of any Taxes attributable to Fan Asylum,
its Subsidiaries or any of their assets or operations that is currently in
effect. No power of attorney granted by Fan Asylum or its Subsidiaries with
respect to any Tax matter is currently in force.
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(h) Neither Fan Asylum nor its Subsidiaries is delinquent in the
payment of any Taxes with respect to Fan Asylum or its Subsidiaries; or has
requested any extension of time within which to file or send any Tax Return
required to be filed by Fan Asylum or its Subsidiaries, which Tax Return
has not since been filed or sent.
(i) SCHEDULE 4.13(H) (i) sets forth Taxable years of Fan Asylum and
its Subsidiaries for which the statute of limitations has not expired for
federal or state income Tax purposes; and (ii) with respect to such open
years, specifies whether an examination by the IRS or state taxing
authority has been initiated or completed.
(j) Except as set forth in SCHEDULE 4.13(I), there is no action, suit,
proceeding, audit, claim, demand, deficiency or additional assessment
outstanding, in progress, pending, or to the knowledge of Fan Asylum, its
Subsidiaries and Shareholder, threatened, against or with respect to any
Tax attributable to Fan Asylum or its Subsidiaries, any of their assets or
operations, or pursuant to which Fan Asylum or its Subsidiaries could be
held liable for any Tax attributable to Fan Asylum or its Subsidiaries;
nor, to the knowledge of Fan Asylum, its Subsidiaries and Shareholder, is
any investigation pending or threatened regarding any of the foregoing.
(k) There are no Tax rulings, requests for Tax rulings, or Tax closing
agreements relating to Fan Asylum or its Subsidiaries, in which any of
Shareholder, Fan Asylum or its Subsidiaries is named that could affect the
liability of Purchaser, Fan Asylum or its Subsidiaries for any taxable
period ending after the Closing.
(l) Except as set forth on SCHEDULE 4.13(K), Fan Asylum has not
agreed, and is not required, to make any adjustment under Code Section
481(a) that could affect a Tax Period ending after the Closing Date.
(m) No property of Fan Asylum or its Subsidiaries is either
"tax-exempt use property" within the meaning of Section 168(h) of the Code,
or property that Purchaser and/or Fan Asylum or its Subsidiaries will be
required to treat as being owned by another person pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986.
(n) Neither Fan Asylum nor its Subsidiaries has participated in an
international boycott within the meaning of Section 999 of the Code.
(o) Neither Fan Asylum nor its Subsidiaries has ever filed a consent
under Code Section 341(f) or made an election to be taxed as an S
corporation under Section 1362(a) of the Code.
(p) No Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transactions contemplated in this Agreement.
(q) Neither Fan Asylum nor its Subsidiaries is a party to, bound by,
or has any obligation under (a) any Tax Agreement, (B) any agreement
relating to a foreign sales corporation within the meaning of Section
922(a) of the Code, or (C) any cost sharing agreement with respect to the
sharing of the costs and risks of developing intangible property within the
meaning of Treas. Reg. 1.482-7(d).
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(r) There have been made available to Purchaser true and complete
copies of Tax Returns for the last three (3) fiscal years and any other Tax
Returns requested by Purchaser that may be relevant to Fan Asylum or its
Subsidiaries or their respective business, assets or operations for any and
all periods up through the period ending on December 31, 1999; and for any
other Tax years that remain subject to audit or investigation by any Taxing
authority or entity.
(s) To the best of Fan Asylum's and Shareholder's knowledge, there is
no contract, agreement, plan or arrangement, including but not limited to
the provisions of this Agreement, covering any employee or former employee
of Fan Asylum or its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or 162 of the Code.
(t) Neither Fan Asylum nor its Subsidiaries is or has been subject to
any liability under Treas. Reg. 1.1502-6 with respect to any affiliated
group, except for the group including only them.
(u) Neither Fan Asylum nor any of its Subsidiaries is or has been
liable for any accumulated earnings Tax under Code Section 531 for any
Taxable period, except (i) to the extent that such Tax has been paid or
(ii) for any Taxable periods for which the statute of limitations
(including any extensions thereof) for assessment and collection of such
Tax has expired.
4.14 Litigation. Except as set forth in SCHEDULE 4.14, there is no charge,
complaint, action, order, writ, injunction, judgment or decree outstanding or
claim, suit, litigation, proceeding, labor dispute, arbitral action or, to the
knowledge of Fan Asylum, its Subsidiaries and Shareholder, threatened or
anticipated against, relating to or affecting, or an investigation pending
concerning (collectively, "ACTIONS"): (i) Fan Asylum or its Subsidiaries or
their assets or operations as currently operated, (ii) any Employee Plan or any
trust or other funding instrument, fiduciary or administrator thereof, (iii) the
transactions contemplated by this Agreement or the Other Agreements, or (iv) the
Shares. Each of Fan Asylum and its Subsidiaries is not in default with respect
to any judgment, order, writ, injunction or decree of any court or governmental
agency, and there are no unsatisfied judgments against Fan Asylum or its
Subsidiaries or the business of Fan Asylum or its Subsidiaries. To the knowledge
of Fan Asylum, its Subsidiaries and Shareholder, there is not a reasonable
likelihood of an adverse determination of any pending Actions that would,
individually or in the aggregate, have a Material Adverse Effect.
4.15 Suppliers. There has been no adverse change in the business
relationship with any supplier material to their respective businesses and, to
the knowledge of Fan Asylum, its Subsidiaries, and Shareholder, no threat or
indication that any such change is reasonably foreseeable which is reasonably
likely to have a Material Adverse Effect.
4.16 Banking Facilities. SCHEDULE 4.16 contains a true and complete list
of: (i) each bank, savings and loan, trust company or similar or other financial
institution in which Fan Asylum or its Subsidiaries has an account or safety
deposit box and the numbers of such accounts or safety deposit boxes; (ii) the
names of all persons authorized to draw on each such account or to have access
to any such safety deposit box facility, together with a description of the
authority (and conditions thereof, if any) of each such person with respect
thereto; and (iii) each letter of credit issued by either Fan Asylum or its
Subsidiaries.
4.17 Indebtedness to and from Officers, Directors and Stockholders; Insider
Transactions. Except as set forth in SCHEDULE 4.17, neither Fan Asylum nor its
Subsidiaries is indebted, directly or indirectly, to any person who is an
officer, director or shareholder of Fan Asylum or its Subsidiaries in any amount
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whatsoever, other than for salaries for services rendered or reimbursable
business expenses incurred in the ordinary course of business, nor is any such
officer, director, shareholder or Affiliate indebted to Fan Asylum or its
Subsidiaries except for advances made to employees of Fan Asylum or its
Subsidiaries in the ordinary course of business consistent with past practice to
meet reimbursable business expenses anticipated to be incurred by such obligor.
Except as set forth in SCHEDULE 4.17, none of the directors, officers or
shareholders of Fan Asylum or its Subsidiaries has any transaction pending or
agreement (oral or written) outstanding with Fan Asylum or its Subsidiaries.
4.18 Personnel. SCHEDULE 4.18 contains a true and complete list of the
names and current salaries of all the directors and officers of Fan Asylum and
its Subsidiaries and all employees (collectively, the "Employees") of Fan Asylum
and its Subsidiaries whose annual compensation exceeds or is expected to exceed
$20,000. There is listed on SCHEDULE 4.18 the annual salary, vacation, other
compensation due and benefits entitled to for each such Employee.
4.19 Powers of Attorney and Suretyships. Neither Fan Asylum nor its
Subsidiaries has any general or special powers of attorney outstanding (whether
as grantor or grantee thereof) or any obligation or liability (whether actual,
accrued, accruing, contingent or otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
person, corporation, partnership, joint venture, association, organization or
other entity, except as endorser or maker of checks or letters of credit, made
in the ordinary course of business.
4.20 Contracts. Except as disclosed in SCHEDULE 4.20, neither Fan Asylum
nor its Subsidiaries is a party or subject to any of the following written or
oral contracts and agreements: (i) any union or collective bargaining agreements
and any employment contracts; (ii) any contracts with agents, consultants,
advisors, salespersons, sales representatives, distributors or dealers; (iii)
any contracts or commitments for capital expenditures or the acquisition of
fixed assets providing for payments of $10,000 in the aggregate; (iv) any
contracts relating to the rental or use of equipment, other personal property or
fixtures involving payment of fixed or contingent annual rentals or sums in
excess of $10,000; (v) any contracts relating in any way to indebtedness for
borrowed money or evidenced by a bond, debenture, note or other evidence of
indebtedness (whether secured or unsecured) including but not limited to,
indebtedness by way of lease or installment purchase arrangement, guarantee,
undertaking on which others rely in extending credit, or otherwise, and any
conditional sales contracts, chattel and purchase money mortgages and other
security arrangements with respect to any equipment, other personal property or
fixtures; (vi) any contracts limiting the freedom of Fan Asylum or its
Subsidiaries to engage in or to compete in any line of business or with any
person or in any area or to use or disclose any information in its possession;
(vii) any license or franchise agreements, either as licensor or licensee or as
franchisee or franchisor; (viii) any contracts or commitments not made in the
ordinary course of business; (ix) any joint venture or partnership contracts;
(x) any contracts or agreements for the purchase of any materials or supplies or
services in the ordinary course of business and involving more than $10,000 in
consideration in each such case; (xi) any contracts or agreements under which
either Fan Asylum or its Subsidiaries has agreed to indemnify any person or
entity with respect to, or to share, any liability of any person or entity; and
(xii) any other contract or commitment which is material to Fan Asylum or its
Subsidiaries or that, if terminated, could reasonably be expected to have, with
the passage of time or otherwise, a Material Adverse Effect. The contracts and
agreements which are required to be identified in SCHEDULE 4.20 are each
hereinafter referred to individually as a "CONTRACT" and collectively as the
"CONTRACTS." Except as set forth on SCHEDULE 4.20:
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(a) Each of the Contracts is a valid and binding agreement of Fan
Asylum or its Subsidiaries, respectively, and, to the knowledge of Fan
Asylum, its Subsidiaries, and Shareholder, all other parties thereto
(subject to general principles of equity and bankruptcy, insolvency,
reorganization or other similar laws);
(b) Fan Asylum and its Subsidiaries have, respectively, fulfilled all
obligations required pursuant to each of the Contracts to have been
performed by it prior to the date hereof and none of Fan Asylum, its
Subsidiaries nor Shareholder, has reason to believe that Fan Asylum or its
Subsidiaries will not be able to fulfill, when due, all of their respective
obligations under the Contracts which remain to be performed after the date
hereof;
(c) There has not occurred a default under any of the Contracts on the
part of Fan Asylum or its Subsidiaries, or to the knowledge of Fan Asylum,
its Subsidiaries, and Shareholder, on the part of any other party thereto
nor has any event occurred which with the giving of notice or the lapse of
time, or both, would constitute a default on the part of Fan Asylum or its
Subsidiaries under any of the Contracts nor, to the knowledge of Fan
Asylum, its Subsidiaries and Shareholder, has any event occurred which with
the giving of notice or the lapse of time, or both, would constitute any
default on the part of any other party to any of the Contracts; and
(d) Each Contract and all other agreements entered into by Fan Asylum
have been negotiated on an arm's length basis and the terms thereof reflect
fair market value.
(e) No consent of any party to any of the Contracts is required by the
execution, delivery or performance of this Agreement, the Other Agreements
or the consummation of the transactions contemplated hereby.
4.21 Accounts Receivable; Accounts Payable; Inventory.
(a) The accounts and notes receivable of Fan Asylum and its
Subsidiaries on the Balance Sheet and arising after the date thereof (i)
arose from the bona fide sale of inventory, assets or services, in each
case, in the ordinary course of business, (ii) constitute only valid and
undisputed claims, (iii) are not subject to counterclaims or setoffs, and
(iv) are collectible in full, net of the applicable reserve for doubtful
accounts, in the ordinary course of business. The reserves for accounts and
notes receivable of Fan Asylum and its Subsidiaries, as reflected on their
respective books and records, are adequate to reserve for all such
outstanding receivables that are or become uncollectible in the ordinary
course of business within such 90 day period and such reserves were
calculated in a manner consistent with past practices.
(b) The accounts payable of Fan Asylum and its Subsidiaries on the
Balance Sheet and arising after the date thereof are the result of bona
fide transactions in the ordinary course of business and were paid, will be
paid, or are not yet due and payable.
(c) Each of the products produced or sold or services provided by Fan
Asylum and its Subsidiaries: (i) is and at all times has been, in
compliance in all respects with all applicable federal, state, local and
foreign laws, rules, and regulations and (ii) is, and at all relevant times
has been, fit for the ordinary purposes for which such product or service
is intended to be used and conforms in all respects to any warranties or
promises or affirmations of fact, oral or written, including but not
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limited to those made on the container or label for such products or in
connection with its sale. There is no design defect with respect to any of
the products or services.
4.22 Compliance with Law; Permits. Fan Asylum and its Subsidiaries, and the
conduct of their respective businesses, are in compliance with all applicable
laws, statutes, ordinances, rules and regulations promulgated, or judgments,
decisions or orders entered, by any federal, state, local, or foreign court or
governmental agency, department, authority or instrumentality relating to the
assets or the business of Fan Asylum or its Subsidiaries. Neither Fan Asylum,
its Subsidiaries, nor any of Shareholder has received during the past five years
any written notice to the effect that, or to the knowledge of Fan Asylum, its
Subsidiaries and Shareholder, otherwise been advised by a governmental
authority, that, Fan Asylum or its Subsidiaries is not in compliance with any of
such statutes, regulations, orders, ordinances or other laws, and neither Fan
Asylum, its Subsidiaries, their directors or officers, nor any of Shareholder
has any reason to anticipate that any currently existing circumstances are
likely to result in violations of any such regulations which could, in any one
case or in the aggregate, have a Material Adverse Effect. Fan Asylum and its
Subsidiaries have all Permits (as herein defined), authorizations and approvals,
each of which is currently valid and in full force and effect, material to the
conduct of the business of each of Fan Asylum and its Subsidiaries, which
licenses, Permits, authorizations and approvals are set forth in SCHEDULE 4.22.
Without limiting the generality of the preceding representation and warranty,
neither Fan Asylum nor its Subsidiaries has (i) made or agreed to make any
contribution, payment or gift to any government official, employee, or agent
where either the contribution, payment or gift or the purpose thereof was
illegal under the laws of any federal, state, local or foreign jurisdiction,
(ii) established or maintained any unrecorded fund or asset for any purpose or
made any false entries on the books and records of Fan Asylum or its
Subsidiaries for any reason, or (iii) made or agreed to make any contribution,
or reimbursed any political gift or contribution made by any other person, to
any candidate for, federal, state, local or foreign public office. In addition,
each of Fan Asylum and its Subsidiaries (a) has complied with all applicable
laws relating to employee and civil rights and relating to employment
opportunities, (b) filed in a timely manner all reports and documents it was
required to file (and the information contained therein was correct and complete
in all respects) under all applicable laws, (c) has possession of all records
and documents it was required to retain under all applicable law, and (d) has
not violated in any respect or received a notice or charge asserting any
violation of and there are no current, nor have there been any in the past five
(5) years, government investigations, including but not limited to any civil
investigative demand or similar request, related to the Sherman Act, the Clayton
Act, the Robinson-Patman Act, the Federal Trade Commission Act, the Securities
Act of 1933 or the Securities Exchange Act of 1934, each as amended, except
where such violation would not have a Material Adverse Effect. "PERMITS" shall
mean all licenses, permits and other governmental authorizations necessary to
carry on the business of Fan Asylum and its Subsidiaries as presently conducted
and as proposed to be conducted.
4.23 No Undisclosed Liabilities. Neither Fan Asylum nor its Subsidiaries
has liabilities or obligations of any nature or kind whatsoever, liquidated or
unliquidated, absolute, accrued, contingent or otherwise, and whether due or to
become due (including, without limitation, any liability for Taxes and interest,
penalties and other charges payable with respect to any such liability or
obligation) ("FAN ASYLUM LIABILITIES"), other than (i) liabilities or
obligations reflected or reserved against in the Interim Financial Statements;
and (ii) liabilities or obligations incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which individually
or in the aggregate will not have a Material Adverse Effect or is otherwise
specifically disclosed in detail in a written Schedule attached hereto
referencing a specific Section of this Agreement but only with respect to and to
the extent of the specifically detailed exception to the representation or
warranty being referenced by such Schedule. There is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in Fan Asylum Liabilities other than the matters set forth in Subsections
4.23(i) and (ii) and liabilities or obligations covered by any insurance policy
disclosed in SCHEDULE 4.11 to this Agreement.
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4.24 Environmental Matters. Except as set forth in SCHEDULE 4.24:
(a) Each of Fan Asylum and its Subsidiaries is conducting and
has conducted its business and operations in compliance with all
applicable Environmental Laws and pursuant to all necessary government
permits, including but not limited to in connection with any clean-up
or remedial work necessitated by such compliance failure, any damages
to personal property arising from such compliance failure, any damages
for personal injury or nuisance claims arising from such compliance
failure or any fines, penalties or natural resource damages arising
from such compliance failure. Neither Fan Asylum nor its Subsidiaries
is violating and has not violated any Environmental Laws, including but
not limited to in connection with any clean-up or remedial work in
respect of such violation, any damages to personal property arising
from such violation, any damages for personal injury or nuisance claims
arising from such violation or any fines, penalties or natural resource
damages arising from such violation. There is no Environmental Claim
(as herein defined) pending, or to the knowledge of Fan Asylum, its
Subsidiaries and Shareholder, threatened, against Fan Asylum or its
Subsidiaries or with respect to any properties or assets now or
previously owned, leased or used by any of them, including but not
limited to in connection with any clean-up or remedial work in respect
of such Environmental Claim, any damages to personal property arising
from such Environmental Claim, any damages for personal injury or
nuisance claims arising from such Environmental Claim or any fines,
penalties or natural resource damages arising from such Environmental
Claim.
(b) There has been no release, emission, discharge, storage,
generation, treatment or disposal of any Hazardous Substance (as herein
defined) by Fan Asylum or its Subsidiaries, their respective agents or
contractors, that could form the basis of any Environmental Claim
against Fan Asylum or its Subsidiaries or with respect to any of their
properties or assets. No property or facility now owned, used or
leased, or to the knowledge of Fan Asylum, its Subsidiaries and
Shareholder, previously owned, used or leased by Fan Asylum or its
Subsidiaries is listed or, to the knowledge of Fan Asylum, its
Subsidiaries and Shareholder, proposed for listing under CERCLA or any
similar Environmental Law, as sites requiring investigation or clean
up.
(c) Neither Fan Asylum nor its Subsidiaries has transported or
arranged for the transportation (directly or indirectly) of any
Hazardous Substance to any location which is listed or, to the
knowledge of Fan Asylum, its Subsidiaries, and Shareholder, proposed
for listing under CERCLA or any other similar Environmental Law, or
which is the subject of federal, state, local or foreign enforcement
actions or other investigation which may be reasonably anticipated to
lead to claims against Fan Asylum or its Subsidiaries for clean-up
costs, remedial work, damages to natural resources, personal injury or
nuisance claims.
(d) There have been no environmental investigations,
administrative orders, consent orders, studies, audits, tests, reviews
or other analyses conducted by or which are in the possession of Fan
Asylum or its Subsidiaries in relation to any property or facility now
or previously owned, used or leased by Fan Asylum or its Subsidiaries
which have not been delivered to Purchaser prior to the date hereof and
which deal with or relate to facts that would form the basis of an
Environmental Claim against Fan Asylum or its Subsidiaries or with
respect to any of their properties and assets.
(e) No Hazardous Substance has been generated, treated,
stored, released, disposed or otherwise placed or located on or
deposited in the Leased Property or the Leased Property or any real
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property previously owned or leased by Fan Asylum or its Subsidiaries,
or their agents or contractors in such form or substance as to create
any liability for Fan Asylum or its Subsidiaries.
(f) There are not now, nor have there ever been in the past,
any underground or above ground storage tanks or other contaminant
facilities of any kind on the Leased Property or the Leased Property or
any real property previously owned or leased by Fan Asylum or its
Subsidiaries which contain or ever did contain any Hazardous Substance
(including but not limited to fuel oil or diesel fuel).
(g) Throughout this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE", as applied to any other Person,
shall mean any other Person directly or indirectly
controlling, controlled by or under common control with that
Person.
(ii) "ENVIRONMENTAL CLAIM" shall mean any claim or
demand, or notice thereof, alleging potential liability
(including, without limitation, liability for investigatory
costs, clean-up costs, monitoring costs, governmental response
costs, natural resources damages, property damages, liability
for nuisance or damage to property values, personal injuries
or penalties) arising out of, based on or resulting from: (a)
noncompliance with Environmental Laws by Fan Asylum, its
Subsidiaries, or by any of their respective Affiliates,
employees or agents, (B) the condition of any real or personal
property now or previously owned, used or leased by Fan Asylum
or its Subsidiaries; (C) the release into the environment of
any Hazardous Substance by Fan Asylum, its Subsidiaries or any
of their respective Affiliates, employees or agents.
(iii) "ENVIRONMENTAL LAWS" shall mean all present
and future Federal, state, local, foreign or other statutes,
laws, regulations, ordinances, rules, orders, consent decrees,
consent judgments, judicial or administrative decisions,
agreements or directives, issued or enacted relating to: (A)
pollution or protection of the environment, including natural
resources; (B) exposure of any individual, including employees
of Fan Asylum and its Subsidiaries, to any Hazardous
Substance; (C) protection of human health or welfare from the
effects of manufacture, use or introduction into commerce of
Hazardous Substances, including, without limitation, use of or
rights with respect to their manufacture, formulation,
packaging, labeling, distribution, transportation, handling,
storage and disposal; and (E) regulation generally of the use
of the environment, including, without limitation, ambient
air, surface water, ground water, and surface or subsurface
strata, in each case, as amended and as now or hereafter in
effect. For purposes of this definition, the term
"Environmental Laws" shall include, without limitation, the
following statutes: (1) the Clean Air Act, as amended, 42
U.S.C.ss.ss. 7401 et seq.; (2) the Federal Water Pollution
Control Act, as amended, 33 U.S.C.ss.ss. 1251 et seq.; (3) the
Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C.ss.ss.6901 et seq. ("RCRA"); (4) the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C.ss.ss. 9601 et seq., as amended by
the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"); (5) the Toxic Substances Control Act, as amended,
15 U.S.C.ss.ss. 2601 et seq.; (6) the Occupational Safety and
Health Act, as amended, 29 U.S.C.ss. 651; (7) the Emergency
Planning and Community Right-to-Know Act of 1986, 42
U.S.C.ss.ss.801 et seq.; (8) the Mine Safety and Health Act of
1977, as amended, 30 U.S.C.ss.ss. 801 et seq.; (9) the Safe
Drinking Water Act, 42 U.S.C.ss.ss.3008 et seq.; and (10) all
comparable United States, state, local and foreign laws,
statutes, rules regulations, judgments, orders decrees,
stipulations or charges.
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(iv) "HAZARDOUS SUBSTANCE" shall mean: (A) any
"hazardous substance" as defined in CERCLA, 42 U.S.C. ss.
9601(14); (B) any "pollutant or contaminant" as defined in
CERCLA, 42 U.S.C.ss. 9601(33); (C) any "hazardous waste" as
defined in RCRA, 42 U.S.C.ss. 6903(5); (D) any asbestos,
dioxins, polychlorinated biphenyls that exceed regulated
levels, uranium, radioactive isotopes and other nuclear
by-products, toxic substances or petroleum products,
by-products or derivatives; (E) any substance, whether liquid,
solid or gas that presents a significant risk of an adverse or
harmful effect upon human health, upon animals or upon air,
water, land, natural resources or any other aspects of the
environment; and (F) any other substance, material or waste
classified as hazardous, toxic, harmful or dangerous or
otherwise regulated under any Environmental Law.
(v) "PERSON" shall mean any individual,
corporation, limited liability company, limited liability
partnership, partnership, firm, joint venture, association,
joint stock company, trust, unincorporated organization,
governmental or regulatory body, or other entity.
4.25 Approvals. Except as set forth in SCHEDULE 4.25, no consent,
approval, authorization or order of or registration, declaration or filing with
any entity is required in connection with (a) the execution, performance and
delivery of this Agreement and the Other Agreements, or (b) the consummation of
the transactions contemplated hereby and thereby.
4.26 Intellectual Property.
(a) SCHEDULE 4.26 (i) lists (including where applicable the
federal, state, local or foreign registration, application or patent
number and the date of registration, application or patent and the name
in which such registration, application or patent was applied for and,
if different, issued), to the extent material to the business of Fan
Asylum or its Subsidiaries, (x) all of Fan Asylum's and its
Subsidiaries' registrations of trademarks, service marks, assumed names
and trade names, and all pending applications for any of the foregoing,
(y) all of Fan Asylum's or its Subsidiaries' patents and copyrights and
all pending applications therefor, and (z) all computer software owned
and/or used by Fan Asylum or its Subsidiaries in the conduct of their
respective businesses ("COMPUTER SOFTWARE") (all of the items referred
to in this clause (i) being "INTELLECTUAL PROPERTY RIGHTS"), and (ii)
identifies any Intellectual Property Rights that any third party owns
and that Fan Asylum or its Subsidiaries uses (specifically excluding
normal commercial software routinely available for purchase), and
specifies whether such use is pursuant to license, sublicense,
agreement or permission. Fan Asylum or its Subsidiaries owns (or, as
set forth on SCHEDULE 4.26, possesses adequate and enforceable licenses
or other rights to use) all Intellectual Property Rights now used in
its business and has taken all reasonably necessary or appropriate
action to protect the Intellectual Property Rights. Except as set forth
on SCHEDULE 4.26, no person has a right to receive a royalty or similar
payment in respect of any Intellectual Property Rights by Fan Asylum or
its Subsidiaries pursuant to any contractual arrangements entered into
by Fan Asylum, its Subsidiaries or otherwise. Except as set forth on
SCHEDULE 4.26, neither Fan Asylum nor its Subsidiaries has licenses
granted by or to it and no other agreements exist to which it is a
party, relating in whole or in part to any of the Intellectual Property
Rights. Neither Fan Asylum nor its Subsidiaries has received notice
that, Fan Asylum's or its Subsidiaries' use of the Intellectual
Property Rights is (and to the knowledge or Fan Asylum, its
Subsidiaries and Shareholder, such use is not) interfering with,
infringing upon or otherwise violating the rights of any third party in
or to such Intellectual Property Rights, and no proceedings have been
instituted against or notices received by Fan Asylum or its
Subsidiaries alleging that Fan Asylum's or its Subsidiaries' use of any
Intellectual Property Rights infringes upon
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or otherwise violates any rights of a third party in or to such
Intellectual Property Rights.
(b) The foregoing Section 4.26(a) notwithstanding, Fan Asylum
represents artists and entertainers. Each of Fan Asylum's clients
maintains full rights to its own name, likeness, trademarks and
intellectual properties. To the extent necessary to perform the
services Fan Asylum carried on for clients, Fan Asylum has been granted
rights to use its client's rights and intellectual property. Fan Asylum
has no rights in any of the client's intellectual property beyond that
granted in the contracts.
4.27 Labor and Employment Agreements. Except as set forth in SCHEDULE
4.27:
(a) Each of Fan Asylum and its Subsidiaries has paid in full,
or fully accrued for in the Financial Statements, the Interim Financial
Statements and the Closing Balance Sheet, all wages, overtime wages,
salaries, commissions, bonuses, stay-pay benefits, severance payments,
vacation payments, pay in lieu of compensatory time and other
compensation or remuneration due or to become due to all current and
former employees of Fan Asylum and its Subsidiaries for all services
performed through the Closing Date by any of them;
(b) Upon the Closing Date and/or the date of termination of
the employment of any of said employees, neither Fan Asylum, its
Subsidiaries nor Purchaser will be liable to any of said current or
former employees for "severance pay" or similar form of termination pay
or incentive pay;
(c) Each of Fan Asylum and its Subsidiaries is in compliance
in all material respects with all applicable federal, state, local and
foreign laws, rules and regulations relating to the employment of
labor, including without limitation, laws, rules and regulations
relating to payment of wages, employment and employment practices,
terms and conditions of employment, hours, immigration, discrimination,
child labor, occupational health and safety, collective bargaining, and
other aspects of labor management relations and the payment and
withholding of Taxes and other sums required by governmental
authorities;
(d) There is no unfair labor practice charge pending or
threatened against Fan Asylum or its Subsidiaries before the National
Labor Relations Board or any other federal, state or local agency or
department;
(e) There have not been in the past three years and currently
are no labor strikes, disputes, slowdowns, sympathy strikes, wildcat
strikes, lockouts or other form of work stoppages pending nor, to the
knowledge of Fan Asylum, its Subsidiaries and Shareholder threatened
against or involving Fan Asylum or its Subsidiaries, and there has not
been in the past three years and there currently is no recognitional
picketing at any of Fan Asylum's or its Subsidiaries' locations;
(f) No grievance or any arbitration proceeding arising out of
or under collective bargaining agreements is pending against Fan Asylum
or its Subsidiaries and no claim therefor has been asserted;
(g) No collective bargaining agreement is currently in place
or being negotiated by Fan Asylum or its Subsidiaries;
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(h) To the knowledge of Fan Asylum, its Subsidiaries and
Shareholder, there have been no attempts to organize any employees of
Fan Asylum or its Subsidiaries to join a labor organization;
(i) No key employee of Fan Asylum or its Subsidiaries or group
of such employees has stated an intent to terminate his, her or their
employment;
(j) No civil action, administrative charge, or any other type
of employment claim whatsoever is pending against Fan Asylum or its
Subsidiaries in any court, governmental agency, or elsewhere;
(k) Fan Asylum has no affirmative action plans with any
governmental agency except as set forth on any SCHEDULE 4.12; and
(l) There are no employment contracts for a definite term
between Fan Asylum and current employees, and all employees work for
Fan Asylum on an at will basis.
4.28 Entire Business. All of the assets, properties, intellectual
properties and operations of Fan Asylum and its Subsidiaries are comprised
within and owned by Fan Asylum or its Subsidiaries. Following the consummation
of the transactions contemplated by this Agreement and the Other Agreements, Fan
Asylum and its Subsidiaries will own all of the assets and rights necessary to
conduct the fan club management business of Fan Asylum and its Subsidiaries in
the same manner as conducted during the periods covered by the Financial
Statements and the Interim Financial Statements and except for the real property
leased in San Francisco as set forth on Schedule 4.06, no Shareholder, directly
or indirectly, will own or have any interest in any real or personal property,
tangible or intangible, used in or useful for such businesses.
4.29 Warranties. To the knowledge of Fan Asylum, its Subsidiaries and
Shareholder, and except as set forth on SCHEDULE 4.29, all products manufactured
or sold, and all services provided by Fan Asylum and its Subsidiaries during the
longer of the three (3) year period prior to the date hereof or the period prior
to the date hereof for which any applicable statute of limitations would apply
with respect to any claims related thereto, have complied, and are in compliance
with all contractual requirements, warranties or covenants, express or implied,
applicable thereto, and complied with all applicable governmental or regulatory
specifications therefor or applicable thereto at the time of manufacture or
sale.
4.30 Debt. No prepayment penalties or similar charges would be payable
in connection with the payment or prepayment on the Closing Date of all debt of
Fan Asylum and its Subsidiaries.
4.31 Predecessor Entities. No facts or circumstances exist whereby any
of Fan Asylum, its Subsidiaries and Purchaser has or will incur any liability,
costs or damages, or which could result in a Material Adverse Effect, related
to, connected with or resulting from any (i) entity that is a direct or indirect
predecessor (whether through stock or assets) to Fan Asylum or its Subsidiaries,
or (ii) an entity that is currently owned or was previously owned, directly or
indirectly, by Shareholder, or his predecessors (collectively, a "PREDECESSOR").
4.32 Assets. All right, title, interest and possession of all tangible
and intangible property and assets owned or leased by and all rights of Fan
Holdings, Inc., a California corporation ("OLD CORPORATION"), including but not
limited to those assets set forth on the various financial statements of Old
Corporation, have been assigned to and accepted by Fan Asylum free and clear of
any and all covenants, conditions, demands, commitments, restrictions,
arrangements, liens, charges, encumbrances, community property or
quasi-community property interests, options, adverse claims or rights
whatsoever, other than liens
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for taxes not yet due and payable. Fan Asylum has not assumed any liabilities or
obligations of any kind (whether known or unknown, contingent or non-contingent)
of Old Corporation other than those specific liabilities set forth on SCHEDULE
4.32. The parties understand that their a lien for taxes in the amount of
approximately $3,000.00 on Fan Asylum's predecessor which is being contested and
which the Selling Parties agree to pay all amounts associated therewith.
4.33 Other Information. No representations or warranties by
Shareholder, whether made on behalf of Shareholder, Fan Asylum or its
Subsidiaries, in this Agreement, the Other Agreements, any document, exhibit,
statement, certificate or schedule furnished or to be furnished to Purchaser
pursuant hereto, contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading. There is no material fact
that has not been disclosed in writing to Purchaser which has a Material Adverse
Effect or could reasonably be anticipated to have a Material Adverse Effect.
ARTICLE V
Certain Covenants, Understandings and Agreements
5.01 Tax Covenants.
(a) Preparation of Tax Returns. For Tax Returns required to be
filed on or before the Closing Date, Shareholder shall cause Fan Asylum
and its Subsidiaries to prepare and timely file such Tax Returns so as
to not reflect any new elections or the adoption of any new accounting
methods or conventions or other similar items, except to the extent
such particular reflection or adoption is required to comply with any
law or regulation, without the prior written approval of Purchaser. For
Tax Returns required to be filed after the Closing Date, Purchaser
agrees to cause Fan Asylum and its Subsidiaries to prepare and timely
file such Tax Returns, to the extent they relate to a Pre-Closing Tax
period, in a manner consistent with all material respects with such Tax
Returns previously filed in the relevant jurisdiction, unless the
relevant Taxing authority will not accept such a return filed on that
basis.
(b) Payment of Taxes. Fan Asylum and its Subsidiaries shall
timely pay any Taxes due on or before the Closing Date, as required by
Section 4.13(b) of this Agreement. Purchaser agrees to cause Fan Asylum
and its Subsidiaries to pay Taxes due after the Closing Date, to the
extent they relate to Pre-Closing Tax Periods, in a timely manner.
Nothing contained in this Section 6.08(b) shall be deemed to modify the
indemnities contained in Article IX. For Tax Returns required to be
filed after the Closing Date for Tax Periods ending on or prior to the
Closing Date, Purchaser shall cause Fan Asylum to engage its regular
accountants to prepare such returns, and the fees and expenses of such
firm shall be equally shared between Shareholder and the Purchaser.
(c) After the Closing, Purchaser and Fan Asylum shall (except
as provided in Section 10.03(e)) have the exclusive right to exercise,
at their own expense, control at any time over the handling,
disposition and/or settlement of any issue raised in any official
inquiry, examination or proceeding regarding any Tax Return for Taxes
affecting Fan Asylum or its Subsidiaries (including the right to settle
or otherwise terminate any contest with respect thereto).
(d) Subsequent to the date hereof (including the time after
the Closing), the parties hereto shall provide each other, and
Purchaser or Shareholder (as applicable) shall cause Fan Asylum to
provide Shareholder, with such cooperation and information relating to
Fan Asylum as a party
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reasonably may request in (i) filing any Tax Return, amended Tax
Return, claim for Tax refund, election or consent, (ii) determining any
liability for Taxes or a right to refund of Taxes, (iii) conducting or
defending any audit or other proceedings in respect of Taxes or (iv)
conducting due diligence with respect to the transaction contemplated
by this Agreement. Such mutual cooperation and information shall
include providing copies of all relevant Tax Returns, together with
accompanying schedules and related work papers, documents relating to
rulings or other determinations by Tax authorities and records
concerning the ownership and Tax basis of property which any party, Fan
Asylum, or its Subsidiaries or predecessors may possess. Shareholder or
Purchaser (as applicable) shall make, and shall cause Fan Asylum to
make its employees, accountants and other advisors available on a
mutually convenient basis to provide explanations of any documents or
information required to be provided hereunder. In response to requests
made after the Closing, such persons or required documents and
information, as the case may be, shall be made available or delivered,
as applicable, to the requesting party within thirty (30) days after a
party's receipt of any written request therefor. The requesting party
shall pay or reimburse the direct out-of-pocket expenses of the other
party (excluding compensation for services of a party or an Affiliate
or their employees) reasonably incurred in providing assistance in
response to such request.
(e) The Shareholder shall deliver to Purchaser, on or before
the Closing Date, an affidavit of Shareholder, sworn to under penalty
of perjury, setting forth the Shareholder's name, address and federal
tax identification number and stating that Shareholder is not a
"foreign person" within the meaning of Section 1445 of the Code. If, on
or before the Closing Date, Purchaser shall not have received such
affidavit in a form satisfactory to Purchaser, Purchaser may withhold
from the purchase price payable at Closing to Shareholder pursuant
hereto such sums as are required to be withheld therefrom under Section
1445 of the Code.
5.02 Conditions. Shareholder shall take all commercially reasonable
actions necessary or desirable to cause the conditions set forth in ARTICLE VI
to be satisfied.
5.03 Waiver and Release by Shareholder. Effective as of the Closing,
Shareholder, for itself and for each of its Affiliates, successors, assigns,
beneficiaries insurers, indemnitors, trustees, agents, and representatives
(collectively, the "Releasing Parties"), hereby releases and forever discharges
Fan Asylum and each of its Subsidiaries, and each of their respective officers,
directors, shareholders, Affiliates existing prior to Closing, predecessors,
successors, assigns, insurers, indemnitors, attorneys, employees, agents and
representatives (collectively, the "Released Parties"), of and from any and all
past, present and future claims, demands, liabilities, judgments, and causes of
action, at law or in equity, known or unknown, asserted or unasserted,
liquidated or unliquidated, absolute or contingent, accrued or not accrued,
which any of the Releasing Parties (either individually or jointly) ever had,
presently has, might have in the future, claim to have, or claim to have had
against any of the Released Parties arising out of, touching upon, relating to,
or in any manner connected with (i) the Shares, or (ii) Fan Asylum or its
Subsidiaries or the operation and conduct of the business of Fan Asylum and its
Subsidiaries prior to and including the Closing Date.
5.04 Put Right. Shareholder shall have the one-time right, during the
Put Period, to "put" all or a portion of the Initial Shares (as adjusted) to
Purchaser for a cash payment calculated as follows but in no event exceeding Two
Million Dollars ($2,000,000.00) minus the value of the Purchase Price Shares
delivered to the Purchaser in connection with the Purchase Adjustment (the
"MAXIMUM PUT AMOUNT"). The per share price of the Initial Shares shall be the
greater of (a) the average closing share price for Purchaser's common stock for
the five (5) business days prior to the notice of exercise of the "put" or (b)
the per share price for Purchaser's common stock on the Pre-Closing Date (the
"PUT PRICE"). The "put" right shall only be exercisable by written notice (the
"PUT NOTICE") from Shareholder and received by Purchaser during the
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period beginning January 2, 2001 and ending on January 31, 2001 (the "PUT
PERIOD"). The closing of the put shall take place at the executive offices of
Purchaser on the thirtieth day (or the next business day if the thirtieth day
falls on a Saturday, Sunday or national holiday) following the date Purchaser
received the Put Notice from Shareholder. The Put Price shall be secured by an
irrevocable stand-by letter of credit in form substantially similar to EXHIBIT H
or as otherwise agreed to by Purchaser and Shareholder (the "LETTER OF CREDIT")
(issuing bank to be reasonably satisfactory to Shareholder), effective from the
Closing Date through the earlier of: (1) payment of the Put Price to Shareholder
or (2) the end of the Put Period. The Letter of Credit shall be delivered to
Shareholder at Closing. Purchaser shall have the right from time to time
following Closing to replace the Letter of Credit with a substantially similar
letter of credit from a financial institution reasonably acceptable to
Shareholder.
5.05 Lock-up and Reset. In addition to other restrictions imposed by
law and the restrictions and rights set forth in the Escrow Agreement, the
Purchase Price Shares shall be subject to lock-up and restricted as follows:
none of the Purchase Price Shares shall be sold on any public market for two
hundred seventy (270) days following the Closing Date and after such two hundred
seventy (270) day period following the Closing Date, no more than twenty-five
percent (25%) of the Purchase Price Shares may be sold during any two hundred
seventy (270) day period until three (3) years after the Closing Date. Until,
following the Closing Date, the Common Stock has for twenty (20) consecutive
trading days obtained an average closing sale price of $3.50 per share as
disclosed by the Nasdaq Stock Market, certain of the Earn Out Shares may be
subject to the reset provisions set forth in the remainder of this Section: on
the nine month anniversary of the Closing Date, and at the next consecutive
three nine month intervals thereafter (a "RESET DATE"), if the Common Stock has
not had an average closing sale price of $2.50 per share or greater as disclosed
by the Nasdaq Stock Market for the prior five business days prior to such Reset
Date (such actual five day average per share price shall be referred to as the
"FIVE DAY PER SHARE AVERAGE PRICE"), then the Earn Out Shares being released, if
any, (the "RELEASED SHARES") from escrow to Shareholder by the Escrow Agent on
the Reset Date pursuant to the terms of the Escrow Agreement (and not previously
the subject of a reset calculation and not previously sold) shall be
supplemented with such additional shares having a value equal to the following
formula (the "RESET VALUE"): (number of Released Shares times $2.50) minus
(number of Released Shares times the Five Day Per Share Average Price).
Notwithstanding the foregoing, Purchaser shall have the right to pay the Reset
Value in cash.
5.06 Strategic Artists Incentive Plan. Purchaser has established a
Strategic Artists Incentive Plan (the "PLAN") and reserved for issuance under
the Plan four million shares of Purchaser's Common Stock (the "ARTISTS SHARES").
Within ten (10) days following Closing, Shareholder will be appointed Chairman
of the three member Artist Incentive Plan Committee which will permit him to
grant options to purchase the Artists Shares from time to time to any of the
Artists set forth on EXHIBIT G for the purpose of signing Artists to contracts
as contemplated in the Escrow Agreement; provided, however, that Shareholder
shall only have individual authority to grant options under the Plan that (i)
cover up to 10% of the Artist Shares for any one Artist, (ii) have an exercise
price at least equal to the fair market value of the Common Stock on the date of
grant of the option following the issuance of options under the Plan having an
exercise price with an aggregate discount from the fair market value of the
Common Stock on the date of grant of such option of One Million Dollars
($1,000,000) and (iii) have an option term no greater than six months. For any
other options under the Plan, the three member Artist Incentive Plan Committee,
which shall initially consist of Shareholder, Stephen King and a current member
of Purchaser's Board of Directors, shall have final approval of any such option
grant. Prior to the expiration of the one year period following Closing during
which Shareholder can vest in the Earn Out Shares pursuant to the terms of the
Escrow Agreement, in the event that (a) Shareholder has granted options to
purchase all of the Artists Shares (4,000,000 shares) to Artists, (b)
Shareholder has caused Fan Asylum to execute an Artist Agreement (as defined in
the Escrow Agreement) with fifteen or more Artists, and (c) the aggregate value
of the Artists Shares is less than Ten Million Dollars
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($10,000,000) (the value of each Artist Share being equal to the closing price
as listed on the Nasdaq Stock Market on the date of grant of an option to
purchase such share), then either (1) Purchaser shall increase the number of
shares of its Common Stock available under the Plan (or implement a new plan)
such that the value of such additional shares of Common Stock on the date of the
increase in share number is equal to the value of Ten Million Dollars
($10,000,000) minus the aggregate value of the Artists Shares computed pursuant
to subparagraph (c) above (the "SHARE VALUE SHORTFALL"), OR (2) the remaining
Unvested Earn Out Shares (as defined in the Escrow Agreement) shall become
Vested Earn Out Shares (as defined in the Escrow Agreement). Notwithstanding the
foregoing, Purchaser shall have the right to elect a combination of the two
foregoing options such that the same percentage of the remaining Unvested Earn
Out Shares shall become Vested Earn Out Shares as the corresponding percentage
of the Share Value Shortfall being made up in additional shares. The obligations
of Purchaser set forth in this Section 5.06 are subject to all applicable laws
and regulations and approvals required thereby. All of Shareholder's rights and
Purchaser's obligations pursuant to this Section 5.06 shall terminate on the
one-year anniversary of the Closing Date.
5.07 Working Capital. Purchaser shall provide Fan Asylum working
capital of One Million Dollars ($1,000,000) (of which $300,000 has already been
provided) (the "WORKING CAPITAL") for the conduct of Fan Asylum activities over
the one year period following the Closing Date. Said amount shall be paid as
follows: $100,000 shall be paid on the Closing Date and $200,000 shall be paid
on July 1, August 1 and September 1, 2000. For the four year period following
Closing, subject to annual budgets approved by Purchaser's Board of Directors in
its sole discretion (which shall be based upon such factors as Fan Asylum's
business plan and Fan Asylum's demonstrated need), Purchaser shall guarantee up
to One Million Dollars per year in working capital for the conduct of Fan Asylum
activities. Purchaser shall grant to Shareholder a security interest in three
hundred (300) of the one thousand (1,000) Shares securing only Purchaser's
obligations to contribute the Working Capital set forth in this Section 5.07
pursuant to the Pledge Agreement attached hereto as EXHIBIT J to be executed by
the parties within five days of Closing, which security interest will
automatically expire upon Purchaser fulfilling its obligations set forth in this
Section 5.07.
5.08 Employees. Shareholder shall determine which employees of Fan
Asylum will be entitled to receive an agreed upon number of the Earn Out Shares
on the Closing Date which shares shall vest over a period of three years and
contain such other terms acceptable to Purchaser and shall be subject to the
terms of the Escrow Agreement.
5.09 Board of Directors. From the Closing Date through the expiration
of the Put Period, the Board of Directors of Fan Asylum shall consist of five
members, of which two members shall be chosen by Shareholder and three members
shall be chosen by Purchaser. The initial five members are Shareholder, Lee
Stein, Roger Metzler, Gary Schneider and Jesse Berst. Following the expiration
of the Put Period, Purchaser shall control all aspects of the Fan Asylum Board
of Directors, including but not limited to the total number of directors and the
individual members comprising the Board of Directors.
ARTICLE VI
Conditions to Obligations of Purchaser
The obligations of Purchaser to effect the transactions contemplated
hereby shall be, at the option of Purchaser, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:
6.01 Representations and Warranties. The representations and warranties
of Shareholder contained in this Agreement, the Other Agreements, the Schedules
hereto and any other agreement
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contemplated herein or hereby shall be true and correct on the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date with the same force and effect as
though made on the Closing Date, except for: (i) changes specifically
contemplated by this Agreement and (ii) inaccuracies which, individually or in
the aggregate, have not had and are not reasonably likely to have a Material
Adverse Effect (without regard to any materiality limitations contained in any
such representation or warranty), or a material adverse effect upon the
consummation of the transactions contemplated hereby; and Shareholder shall have
delivered to Purchaser a certificate to such effect signed by Shareholder.
6.02 Performance of Shareholder and Fan Asylum. Each of the obligations
of Shareholder and Fan Asylum to be performed by any of them on or before the
Closing Date pursuant to the terms of this Agreement, including but not limited
to those set forth in Article V, shall have been duly performed on or before the
Closing Date; and Shareholder shall have delivered to Purchaser a certificate to
such effect signed by Shareholder.
6.03 Opinions of Shareholder's Counsel. Purchaser shall have been
furnished at the Closing with an opinion of McQuaid, Metzler, Bedford & Van
Zandt, L.L.P., counsel to Fan Asylum and Shareholder, dated the Closing Date,
addressed to Purchaser in a form of EXHIBIT B.
6.04 No Adverse Change. There shall not have occurred between the date
hereof and the Closing Date any material adverse changes in the consolidated
results of operations, condition (financial or otherwise), assets, liabilities
(whether absolute, accrued, contingent or otherwise) or business of Fan Asylum
or its Subsidiaries or the Shares.
6.05 Consents. The Shareholder shall have obtained or, to the
satisfaction of Purchaser obviated the need to obtain, all consents, approvals
or waivers from governmental bodies or agencies, regulatory authorities and
third parties necessary for the execution, delivery and performance of this
Agreement, the Other Agreements and the transactions contemplated hereby.
Purchaser shall have obtained all consents, approvals or waivers from
governmental bodies or agencies, regulatory authorities and third parties
necessary for the execution, delivery and performance of this Agreement, the
Other Agreements and the transactions contemplated hereby.
6.06 Tax Certifications. Shareholder shall have furnished Purchaser a
non-foreign person affidavit as defined in Section 1445(b)(2) of the Code.
6.07 Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted or threatened by, any entity or person seeking to (i)
restrain, prohibit, invalidate, or otherwise affect the consummation of the
transactions contemplated hereby; (ii) impose any material limitation upon the
ability of Purchaser to own, hold or vote the interest or operate, manage or
conduct the business of Fan Asylum or its Subsidiaries or the business of
Purchaser or its Affiliates; or (iii) cause the divestiture, or the holding
separate, of any material portion of the business, of Fan Asylum or its
Subsidiaries from Purchaser or any of its Affiliates.
6.08 No Injunction. No preliminary or permanent injunction issued by
any court to restrain or prohibit consummation of this Agreement shall be in
effect.
6.09 Loss. There shall have been no damage, destruction or loss of or
to any property or properties owned or used by Fan Asylum or its Subsidiaries,
whether or not covered by insurance, which, in the aggregate, has, or would be
reasonably likely to have, a Material Adverse Effect.
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6.10 Deliveries. On the Closing Date, Shareholder shall have delivered
to Purchaser all of the following:
certificates referred to in Section 6.01 and 6.02;
(a) copies of the third party and governmental consents and
approvals referred to in Section 6.05 above;
(b) the stock certificates issued to Shareholder representing
the Shares, duly endorsed for transfer or accompanied by a duly
executed stock power, with requisite stock transfer stamps, if any,
attached;
(c) Fan Asylum's and its Subsidiaries' minute books, stock
transfer records, corporate seal and other materials related to Fan
Asylum's and its Subsidiaries' corporate administration;
(d) resignations (effective as of the Closing Date) from such
of Fan Asylum's and its Subsidiaries' officers and members of Fan
Asylum's and its Subsidiaries' Board of Directors as Purchaser shall
have requested prior to the Closing Date;
(e) Certificates of Good Standing dated as of a recent date
from the Secretary(ies) of State of the State(s) of incorporation of
Fan Asylum and its Subsidiaries evidencing the good standing of Fan
Asylum and its Subsidiaries in each such jurisdiction, as well as
Certificates of Good Standing or Certificates of Authority from each
jurisdiction in which Fan Asylum or its Subsidiaries is authorized to
do business as a foreign corporation;
(f) A certificate in form reasonably acceptable to Purchaser
from the Chief Financial Officer of Fan Asylum certifying that the
Interim Financial Statements and the Closing Balance Sheet are in
compliance with Section 4.02; and
(g) such other certificates, documents and instruments as
Purchaser reasonably requests related to the transactions contemplated
hereby.
6.11 Searches. Purchaser shall have received, as of a date no more than
five (5) days prior to the Closing Date, Uniform Commercial Code Searches
against Fan Asylum and its Subsidiaries from the Secretary of State of
California and from such other states, countries and/or counties as Purchaser
shall reasonably request, together with tax lien and judgment lien searches, in
each case certified by a reporting service reasonably satisfactory to Purchaser,
and disclosing no liens or security interests against the assets of Fan Asylum
or its Subsidiaries or Shares.
6.12 Employment Agreements. Purchaser shall have received signed copies
of Employment Agreements between Purchaser and each of the Employees of Fan
Asylum set forth in SCHEDULE 6.12 in form acceptable to Purchaser in its sole
discretion.
6.13 Shareholder Employment Agreement. Purchaser shall have received a
signed copy of the Employment Agreement between Purchaser and Shareholder in
form set forth as EXHIBIT D.
6.14 San Francisco Lease. Purchaser shall have received a signed copy
of the Lease Agreement between Purchaser and Shareholder in form set forth as
EXHIBIT E.
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6.15 Capital Event. On or prior to the Closing Date, Purchaser shall
have raised $3,000,000 in new equity capital (a "CAPITAL EVENT") either through
the exercise of existing warrants or through the sale of new shares of common
stock or securities convertible into common stock (or any combination of them).
6.16 Due Diligence. Purchaser shall not have discovered on or prior to
the Closing Date, any fact or condition in the performance of its due diligence
which Purchaser believes, in its sole discretion, effects the amount,
composition, quality or prospects of the Purchase Price Shares or the business
of Fan Asylum.
ARTICLE VII
Conditions to Obligations of Shareholder
The obligations of Shareholder to effect the transactions contemplated
hereby shall be, at the option of Shareholder, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions, any one or
more of which may be waived by Shareholder:
7.01 Representations and Warranties. The representations and warranties
of Purchaser contained in this Agreement and the Schedules hereto shall be true
and correct on the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date with the same force and effect as though made on the Closing Date, except
for (i) changes specifically contemplated by this Agreement and (ii)
inaccuracies which, individually or in the aggregate, have not had and are not
reasonably likely to have a material adverse effect on Purchaser or upon the
consummation of the transactions contemplated hereby; and Purchaser shall have
delivered to Shareholder a certificate to such effect signed by an executive
officer of Purchaser.
7.02 Performance of Covenants. Each of the obligations of Purchaser to
be performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed on or before the Closing Date, and
Purchaser shall have delivered to Shareholder a certificate to such effect.
7.03 Opinion of Purchaser's Counsel. The Shareholder shall have been
furnished with an opinion of Purchaser's legal counsel dated the Closing Date,
addressed to Shareholder in the form of EXHIBIT C.
7.04 No Injunction. No preliminary or permanent injunction issued by
any court to restrain or prohibit consummation of this Agreement shall be in
effect.
7.05 Legal Action or Proceedings. No legal action or proceeding shall
have been instituted or threatened by any entity or person other than
Shareholder, Fan Asylum, its Subsidiaries or an entity Affiliated with any of
them seeking to restrain, prohibit, invalidate, or otherwise affect the
consummation of the transactions contemplated hereby.
7.06 Registration Rights Agreement. Shareholder shall have received a
signed copy of the Registration Rights Agreement between Purchaser and
Shareholder in form set forth as EXHIBIT F.
ARTICLE VIII
Covenant Not To Compete
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8.01 Noncompetition. Shareholder acknowledges and agrees that the
business of Fan Asylum and its Subsidiaries is conducted throughout the United
States (the "TERRITORY"). In consideration of the purchase of the Shares,
Shareholder agrees that Shareholder will not, without the prior written consent
of Purchaser (which Purchaser may withhold with or without reason) for the
period commencing on the Closing Date and ending five (5) years from such date
(the "NONCOMPETE PERIOD"), engage or be interested, directly or indirectly,
whether alone or together with or on behalf of or through any other person,
firm, association, trust, venture or corporation whether as partner,
shareholder, agent, officer, director, employee, technical adviser, lender,
trustee, or otherwise, in any phase of the "RESTRICTED BUSINESS" (as defined
herein) in the Territory; provided, however, that a Shareholder shall be
permitted to own equity interests of not more than one percent (1%) of the
outstanding stock of any company whose shares are traded on a national
securities exchange.
8.02 Nonsolicitation. For the five (5) year period following the
Closing Date (the "NONSOLICITATION TIME PERIOD"), Shareholder agrees that
Shareholder will not, individually or on behalf of or through any other person
or entity (i) employ, solicit for employment, or otherwise interfere with the
employment relationship of any person who has been an employee, of Fan Asylum,
its Subsidiaries or Purchaser at any time within the six month period prior to
the Closing Date or during the term of the Nonsolicitation Period, or (ii)
solicit, contact, contract with or otherwise have a relationship with any then
current or past ("past" shall mean the period beginning three (3) years prior to
the Closing Date and ending at the expiration of the Nonsolicitation Time
Period) customer or client of Fan Asylum or Purchaser (including but not limited
to artists and performers).
8.03 Restricted Business. The term "RESTRICTED BUSINESS" means (i) the
business of Fan Asylum as conducted over the three (3) year period prior to the
Closing Date and as conducted by Fan Asylum for the five year period following
Closing and any business competitive or complimentary therewith.
8.04 Engage or Be Interested, Directly or Indirectly. The term "ENGAGE
OR BE INTERESTED, DIRECTLY OR INDIRECTLY" as used herein, includes, but shall
not be limited to, giving advice or technical or financial assistance, by loan,
guarantees, stock transactions or in any other manner to any person, firm,
association, trust, venture or corporation doing or proposing to undertake such
"Restricted Business" in the Territory.
8.05 Injunctive Relief. In the event that any portion of this Article
VIII is considered by a court of competent jurisdiction to be excessive in its
duration, scope or in the area to which it applies, it shall be considered
modified and valid for such scope, duration and for such area as said court may
determine reasonable under the circumstances. In recognition of the irreparable
harm that a violation of said covenant would cause to Purchaser, Shareholder
agrees that Purchaser shall have the right to enforce this agreement by specific
remedies, which shall include, among other things, temporary restraining orders
and temporary and permanent injunctions. In the event of any such violation,
Shareholder agrees to be liable for and pay the reasonable attorneys' fees
incurred by Purchaser in pursuing any of its rights with respect to such
violation or violations by Shareholder in addition to the actual damages
sustained by Purchaser as a result thereof.
8.06 Extension for Breach. The duration of the Noncompete Period and
the Nonsolicitation Time Period with respect to Shareholder shall be extended
beyond the time period set forth herein for a period equal to the duration of
any breach or default of either such covenant by Shareholder.
8.07 Confidential Information. Shareholder acknowledges that
Shareholder has possession of, and will or may have access to and become
informed of, Confidential Information. As used herein, "CONFIDENTIAL
INFORMATION" shall mean information that is proprietary to Fan Asylum or its
Subsidiaries
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or the Restricted Business or proprietary to others and made available on a
confidential basis to Fan Asylum or its Subsidiaries, whether or not trade
secrets, and such information as acquired from Fan Asylum or its Subsidiaries
hereunder. Confidential Information includes, but is not limited to, information
relating to business plans and to business as conducted or anticipated to be
conducted by Fan Asylum or its Subsidiaries and to their past, current or
anticipated businesses including without limitation the Restricted Business.
Confidential Information also includes, without limitation, customer lists and
information concerning purchasing, accounting, marketing, selling, products and
services of Fan Asylum and its Subsidiaries. Shareholder agrees that Shareholder
will keep all Confidential Information in strict confidence and to never
directly or indirectly make known, divulge, reveal, furnish, make available, or
use any Confidential Information. Confidential Information shall not include
information that (i) is shown to be or to have been generally known to others
engaged in the same trade or business as Fan Asylum or its Subsidiaries, (ii) is
or becomes public knowledge through no act or omission by Shareholder, Fan
Asylum or its Subsidiaries or any of their directors, officers, employees,
professional advisors or other representatives, or (iii) is disclosed to
Shareholder, Fan Asylum or its Subsidiaries by a third party owing no duty of
confidentiality to Purchaser, Fan Asylum or its Subsidiaries.
8.08 Public Statements. During the Noncompete Period, none of the
parties hereto shall make any statement or other communication that impugns or
attacks the reputation or character of the other party, Fan Asylum, its
Subsidiaries or their respective Affiliates or directors, officers or employees,
or damages the goodwill of any other party, Fan Asylum, its Subsidiaries or
their respective Affiliates, take any action that would interfere with any
contractual or customer relationships of any other party, Fan Asylum, its
Subsidiaries or their respective Affiliates, including but not limited to any
action that would result in a diminution of business, or otherwise take any
action that is detrimental to the best interests of any other party, Fan Asylum,
its Subsidiaries or their respective Affiliates, excluding legal action by a
party under this Agreement and/or any agreement contemplated herein or hereby.
8.09 Bankruptcy and Termination without Cause. If Purchaser has availed
itself of, or been subjected to by any third party which has not been dismissed
within ninety (90) days of filing, a proceeding in a liquidating bankruptcy in
which Purchaser is the named debtor, then Sections 8.01 and 8.02 shall not
apply. In the event that Section 8 of Shareholder's Employment Agreement
attached hereto as Exhibit D is deemed null and void as a result of a
"Termination without Cause" as defined in the Employment Agreement, Sections
8.01 and 8.02 shall not apply.
ARTICLE IX
Indemnification
9.01 Indemnification by Shareholder.
(a) Generally. Shareholder shall indemnify, defend and hold
harmless Fan Asylum, its Subsidiaries and Purchaser, and their
directors, officers, employees, agents, consultants, representatives,
successors, transferees and assigns (individually a "PURCHASER
INDEMNIFIED PARTY"; and collectively the "PURCHASER'S INDEMNIFIED
PARTIES"), promptly upon demand, at any time and from time to time,
from, against, and in respect of any and all demands, claims, losses,
Taxes, damages, judgments, liabilities, assessments, suits, actions,
proceedings, interest, penalties, and expenses (including, without
limitation, settlement costs and any legal, accounting and other
expenses for investigating or defending any actions or threatened
actions or for enforcing such rights of indemnity and defense), whether
or not involving a third-party claim (collectively, "LOSSES")
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incurred or suffered by any of the Purchaser's Indemnified Parties, in
connection with, arising out of or as a result of each and all of the
following:
(i) any breach of any representation or warranty
made by Shareholder in this Agreement or the Other Agreements;
(ii) the breach of any covenant, agreement or
obligation of Shareholder contained in this Agreement or the
Other Agreements;
(iii) any misrepresentation or omission contained
in this Agreement, the Other Agreements, any statement or
certificate furnished by Shareholder pursuant to this
Agreement, the Other Agreements or in connection with the
transactions contemplated by this Agreement or the Other
Agreements;
(iv) (A) operation of Fan Asylum's, its
Subsidiaries' or a Predecessor's respective businesses, prior
to the Closing, (B) ownership or control of the Leased
Property, or the assets of Fan Asylum, its Subsidiaries or a
Predecessor prior to the Closing Date, or (C) incidents,
occurrences or omissions prior to the Closing related to Fan
Asylum, its Subsidiaries or a Predecessor.
(b) Deductible and Limitation Amount. No claim for
indemnification under Sections 9.01 or 9.03 shall be made by a
Purchaser Indemnified Party unless and until the aggregate amount of
such Losses by all Purchaser's Indemnified Parties shall exceed
Sixty-two Thousand Five Hundred Dollars ($62,500) (the "THRESHOLD
AMOUNT") and in such event the Purchaser's Indemnified Parties shall be
entitled to indemnification for all amounts in excess of the Threshold
Amount.
(c) Limitation on Indemnification. The right to
indemnification under Sections 9.01 or 9.03 shall terminate on the
second (2nd) anniversary of the Closing Date, except that for any
pending claim for indemnity hereunder which shall have been made prior
to such termination date, the right to indemnity shall have no limit as
to time and such claim shall not terminate until the final
determination and satisfaction of such claim.
(d) Exceptions to Limitations. Notwithstanding any provision
to the contrary contained in this Agreement, including but not limited
to Sections 9.01(b) and (c), and there shall be no limitations
(including but not limited to dollar amount or duration of time) or
deductible on any of Shareholder's obligation to indemnify the
Purchaser's Indemnified Parties under this Article IX for any of the
following: (i) any breach of any representation or warranty of
Shareholder contained in Article III or IV, (ii) any breach of any
agreement or obligation of Shareholder in Article VIII, (iii) fraud or
intentional or willful misrepresentation or intentional or willful
breach of this Agreement or the Other Agreements, or (iv) any action
related to the Purchase Adjustment or Taxes.
(e) Third-Party Claims.
(i) Procedures. In the event any demands or
claims are asserted against a Purchaser Indemnified Party or
any actions, suits or proceedings are commenced against a
Purchaser Indemnified Party for which Shareholder is obligated
to indemnify a Purchaser Indemnified Party under this Section
9.01, then the Purchaser Indemnified Party shall give prompt
notice thereof to Shareholder, with a copy to the Escrow
Agent, in order to permit
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Shareholder the necessary time to evaluate the merits of such
demand, claim, action, suit or proceeding and defend, settle
or compromise the same so that Shareholder's interests are not
materially prejudiced. Within thirty (30) calendar days after
such notice, Shareholder shall assume the defense thereof by
written notice to the Purchaser Indemnified Party with counsel
chosen by Shareholder and reasonably acceptable to the
Purchaser Indemnified Party. The Shareholder shall not be
liable for any costs or expenses incurred by a Purchaser
Indemnified Party in connection with any demand, claim,
action, suit or proceeding for which Shareholder is obligated
to indemnify the Purchaser Indemnified Party under this
Section 9.01, provided that the Shareholder Representative
shall have assumed the defense thereof in accordance with this
Section 9.01. The Purchaser Indemnified Parties shall be
entitled to participate in (but not control) the defense of
any such action, with its counsel and at its own expense. If
Shareholder does not assumes the defense of any such claim or
litigation resulting therefrom in a timely fashion, (a) a
Purchaser Indemnified Party may defend against such claim or
litigation, in such manner as it may deem appropriate, at
Shareholder's expense, including, but not limited to, settling
such claim or litigation, after giving notice of the same to
Shareholder, on such terms as such Purchaser Indemnified Party
may deem appropriate, and (b) Shareholder shall be entitled to
participate in (but not control) the defense of such action,
with its own counsel and at its own expense.
(ii) Settlement and Compromise. The Shareholder
shall not settle or compromise any demands, claims, actions,
suits or proceedings for which a Purchaser Indemnified Party
has sought indemnification from Shareholder unless he shall
have given the Purchaser Indemnified Party not less than 15
days prior written notice of the proposed settlement or
compromise and afforded the Purchaser Indemnified Party an
opportunity to consult with Shareholder regarding the proposed
settlement or compromise. Such notice shall contain a copy of
all documents related to the proposed settlement or
compromise.
(iii) Special Claims. Notwithstanding Sections
9.01(e)(i) and 9.01(e)(ii), the following claims will be
subject to the provisions of this Section 9.01(e)(iii): any
claims which Purchaser determines in its reasonable discretion
would likely have a significant effect on the ongoing
business, operations, or condition (financial or otherwise) of
Purchaser, Fan Asylum or its Subsidiaries, including but not
limited to (a) government regulation on an ongoing basis,
including employment matters, working conditions and
environmental matters, (b) relations with major suppliers and
customers, (c) product liability claims and (d) injunctive or
other equitable relief (collectively the "SPECIAL CLAIMS"). No
Special Claim shall be settled without Purchaser's prior
written consent, which consent shall not be unreasonably
withheld. Such consent shall not be deemed to be unreasonably
withheld if such settlement would have a Material Adverse
Effect on Purchaser's ongoing business. In the event that
Purchaser does withhold such consent, Purchaser shall have the
obligation to assume the defense thereof at its own cost from
that point forward and shall be obligated to pay any judgment
over the amount set forth in such settlement that Purchaser
rejected.
(f) Independent Claims. In the event that a Purchaser
Indemnified Party believes it is entitled to indemnification under this
Section 9.01 by Shareholder which does not involve a third-party as
contemplated by Section 9.01(e) above, then such Purchaser Indemnified
Party shall give prompt notice thereof to Shareholder, with a copy to
the Escrow Agent, in order to permit Shareholder time to evaluate the
merits of such demand. If the Escrow Agent has not received written
notice of an objection to the payment of such amounts from Shareholder
("copy of which shall be sent by Shareholder to each Purchaser
Indemnified Party disclosed on the original notice)
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within thirty (30) calendar days after receipt of the Purchaser
Indemnified Party's notice, then Shareholder shall be obligated to
promptly pay and shall pay such amounts to such Purchaser Indemnified
Party or Parties. If Shareholder objects to such indemnification demand
within the 30 day period set forth herein, such dispute shall be
settled pursuant to Section 9.04 of this Agreement.
(g) Manner of Indemnification. All indemnification by
Shareholder shall first be effected by the delivery of first the
Initial Shares, then the Earn-Out Shares from the Escrow Agent pursuant
to the terms of the Escrow Agreement within ten (10) days of the
resolution of any such claim. Any and all indemnification payments
shall be deemed an adjustment to the Purchase Price. The Initial Shares
and the Earn Out Shares shall have the value as set forth on the
Closing Date. To the extent Shareholder's obligations under this
Section 9.01 are greater that the value of the Earn Out Shares and the
Initial Shares, the indemnification by Shareholder shall be effected by
the payment of cash or delivery of a certified check.
(h) Non-Waiver. Failure of the Purchaser Indemnified Parties
to give reasonably prompt notice of any claim or claims shall not
release, waive or otherwise affect any of Shareholder's obligations
with respect thereto except to the extent that Shareholder can
demonstrate actual loss and prejudice as a result of such failure.
(i) Taxes. To the extent a Purchaser Indemnified Party incurs
a Loss related to Taxes, indemnification is not governed by this
Section 9.01, but instead is governed by Section 9.03.
9.02 Indemnification by Purchaser.
(a) Generally. Purchaser shall indemnify, defend and hold
harmless Shareholder (individually a "SP INDEMNIFIED PARTY"; and
collectively the "SP INDEMNIFIED PARTIES"), promptly upon demand, at
any time and from time to time, from, against, and in respect of any
and all demands, claims, losses, damages, judgments, liabilities,
assessments, suits, actions, proceedings, interest, penalties, and
expenses (including, without limitation, settlement costs and any
legal, accounting and other expenses for investigating or defending any
actions or threatened actions or for enforcing such rights of indemnity
and defense) incurred or suffered by the SP Indemnified Parties, in
connection with, arising out of or as a result of each and all of the
following:
(i) any breach of any representation or warranty
made by Purchaser in this Agreement or the Other Agreements;
(ii) the breach of any covenant, agreement or
obligation of Purchaser contained in this Agreement or the
Other Agreements; and
(iii) any broker, finder or investment banker
engaged by Purchaser.
(b) Deductible. No claim for indemnification under Sections
9.02 or 9.03 shall be made by an SP Indemnified Party unless and until
the aggregate amount of such claims by all SP Indemnified Parties shall
exceed a deductible of Sixty-two Thousand Five Hundred Dollars
($62,500) (the "THRESHOLD AMOUNT") and such event the Purchaser's
Indemnified Parties shall be entitled to indemnification for all
amounts in excess of the Threshold Amount.
(c) Limitation on Indemnification. The right to
indemnification under Sections 9.02 and 9.03 shall terminate on the
second (2nd) anniversary hereof, except that for any pending claim for
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indemnity hereunder which shall have been made prior to such
termination date, the right to indemnity shall have no limit as to time
and such claim shall not terminate until the final determination and
satisfaction of such claim.
(d) Exceptions to Limitations. Notwithstanding any provision
to the contrary contained in this Agreement, including but not limited
to Sections 9.02(b) and (c), there shall be no limitations (including
but not limited to dollar amount and duration of time) or deductibles
on any of the Purchasers' obligations to indemnify the SP Indemnified
Parties under this Article IX for the Purchaser's fraud or intentional
or willful misrepresentation or intentional or willful breach.
(e) Third-Party Claims.
(i) Procedures. In the event any demands or
claims are asserted against the SP Indemnified Parties or any
actions, suits or proceedings are commenced against any SP
Indemnified Party for which Purchaser is obligated to
indemnify a SP Indemnified Party under this Section 9.02, then
the SP Indemnified Party shall give prompt notice thereof to
Purchaser in order to permit Purchaser the necessary time to
evaluate the merits of such demand, claim, action, suit or
proceeding and defend, settle or compromise the same so that
Purchaser's interest is not materially prejudiced. Within 30
calendar days after such notice, Purchaser shall assume the
defense thereof by written notice to Shareholder with counsel
chosen by Purchaser and reasonably acceptable to the SP
Indemnified Party. Purchaser shall not be liable for any costs
or expenses incurred by the SP Indemnified Party in connection
with any demand, claim, action, suit or proceeding for which
Purchaser is obligated to indemnify the SP Indemnified Party
under this Section 9.02, provided that Purchaser shall have
assumed the defense thereof in accordance with this Section
9.02. The SP Indemnified Parties shall be entitled to
participate in (but not control) the defense of any such
action, with its counsel and at its own expense. If the
Purchaser does not assumes the defense of any such claim or
litigation resulting therefrom in a timely fashion, (a) the SP
Indemnified Party may defend against such claim or litigation,
in such manner as it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving
notice of the same to Purchaser on such terms as the SP
Indemnified Party may deem appropriate, and (b) Purchaser
shall be entitled to participate in (but not control) the
defense of such action, with their own counsel and at its own
expense.
(ii) Settlement and Compromise. Purchaser shall
not settle or compromise any demands, claims, actions, suits
or proceedings for which the SP Indemnified Parties have
sought indemnification from Purchaser unless it shall have
given the SP Indemnified Parties not less than 15 days prior
written notice of the proposed settlement or compromise and
afforded the SP Indemnified Parties an opportunity to consult
with Purchaser regarding the proposed settlement or
compromise. Such notice shall contain a copy of all documents
related to the proposed settlement or compromise.
(f) Independent Claims. In the event that an SP Indemnified
Party believes it is entitled to indemnification under this Section
9.02 by the Purchaser which does not involve a third-party as
contemplated by Section 9.02(d) above, then such SP Indemnified Party
shall give prompt notice thereof to the Purchaser in order to permit
the Purchaser time to evaluate the merits of such demand. Within thirty
(30) calendar days after such notice, the Purchaser shall pay such SP
Indemnified Party or Parties such amounts demanded or object to such
demand by delivering written notice thereof to Shareholder or to each
SP Indemnified Party disclosed on the original notice. If the Purchaser
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objects to such demand within the 30 day period set forth herein, such
dispute shall be settled pursuant to Section 9.04 of this Agreement.
(g) Manner of Indemnification. All indemnification by the
Purchaser shall be effected by the payment of cash or delivery of a
certified or official bank check within ten (10) days of the resolution
of any such claim. Any and all indemnification payments shall be deemed
an adjustment to the Purchase Price.
(h) Non-Waiver. Failure of the SP Indemnified Parties to give
reasonably prompt notice of any claim or claims shall not release,
waive or otherwise affect any of the Purchaser's obligations with
respect thereto except to the extent that the Purchaser can demonstrate
actual loss and prejudice as a result of such failure.
(i) Taxes. To the extent an SP Indemnified Party incurs a Loss
related to Taxes, indemnification is not governed by this Section 9.02,
but instead is governed by Section 9.03.
9.03 Tax Indemnifications.
(a) Indemnification of Purchaser Indemnified Parties.
Shareholder shall indemnify and hold the Purchaser Indemnified Parties
harmless from and against:
(i) all liability for Taxes of Fan Asylum and its
Subsidiaries for the Pre-Closing Tax Period;
(ii) all liability (as a result of Treasury
Regulation '1.1502-6(a) or otherwise) for Taxes for any
Pre-Closing Tax Period of any corporation Affiliated at any
time prior to the Closing with Fan Asylum or its Subsidiaries;
(iii) all liability for Taxes attributable to a
breach of Section 4.13 or 5.01 or any other provision of this
Agreement; and
(iv) all liability for professional fees including
without limitation reasonable legal, accounting and expert
witness fees and expenses, attributable or related to any item
in clause (i), (ii) or (iii) above.
(b) Exclusion from Indemnification of Purchaser Indemnified
Parties. Notwithstanding paragraph (a) of this Section 9.03,
Shareholder shall not indemnify and hold harmless the Purchaser
Indemnified Parties from the following:
(v) any liability for Taxes of Fan Asylum or its
Shareholder to the extent such liability has been included in
the final determination of the Audited Closing Balance Sheet
and taken into account in the calculation of the Stockholder's
Equity in determining a Payment Adjustment; or
(vi) any liability (net of any concurrent or
future Tax benefit or refund resulting therefrom) for Taxes of
Fan Asylum or its Subsidiaries for the Pre-Closing Tax Period
attributable to any action taken after the Closing by
Purchaser, any of its Affiliates, or any transferee of
Purchaser or any of its Affiliates, including Fan Asylum and
its Subsidiaries, other than any such action expressly
required by applicable law or permitted by this
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Agreement (a "PURCHASER TAX ACT"), or for any Taxes
attributable to a breach by Purchaser of its obligations under
this Agreement.
(j) Indemnification of SP Indemnified Parties. Purchaser
shall, or shall cause Fan Asylum or its Subsidiaries to, indemnify the
SP Indemnified Parties and hold them harmless from the following:
(i) all liability for Taxes of Fan Asylum and its
Subsidiaries for any Taxable period after the Closing Date
(other than Taxes for which indemnification of the Purchaser
Indemnified Parties by Shareholder has been expressly provided
under paragraph (a) of this Section 9.03);
(ii) all liability for Taxes of Fan Asylum and its
Subsidiaries for the Pre-Closing Tax Period to the extent such
liability has been included in the final determination of the
Audited Closing Balance Sheet and taken into account in the
calculation of the Stockholder's Equity in determining a
Payment Adjustment.
(iii) all liability (net of any concurrent or
future Tax benefit or refund resulting therefrom) for Taxes
attributable to a Purchaser Tax Act or to a breach by
Purchaser of its obligations under this Agreement; and
(iv) all liability for professional fees including
without limitation reasonable legal, accounting and expert
witness fees and expenses attributable or related to any item
in clause (i), (ii) or (iii) above.
(k) Straddle Periods. In the case of any Taxable period that
includes (but does not end on) the Closing Date (a "STRADDLE PERIOD"):
(i) real, personal and intangible property Taxes
("PROPERTY TAXES") of Fan Asylum and its Subsidiaries for the
Pre-Closing Tax Period (which may be subject to
indemnification by Shareholder to the extent set forth in this
Section 9.03) shall be equal to the amount of such Property
Taxes assessed against such property by the appropriate Taxing
authority during the entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period and
the denominator of which is the total number of days in the
Straddle Period; and
(ii) the Taxes of Fan Asylum and its Subsidiaries
(other than Property Taxes) for the Pre-Closing Tax Period
(which may be subject to indemnification by Shareholder to the
extent set forth in this Section 9.03) shall be computed as if
such Taxable period ended on the Closing Date.
(l) Procedures Relating to Indemnification of Tax Claims.
(i) If a claim shall be made by any Taxing
authority, that, if successful, might result in an indemnity
payment to a Purchaser Indemnified Party pursuant to this
Section 9.03, a Purchaser Indemnified Party shall promptly
notify Shareholder in writing of such claim (a "TAX CLAIM").
If a Purchaser Indemnified Party has notice of a Tax Claim and
if notice of such Tax Claim is not given to Shareholder within
a sufficient period of time to allow Shareholder to
effectively contest such Tax Claim, Shareholder shall not be
liable to any
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Purchaser Indemnified Party to the extent that Shareholder's
position is actually prejudiced as a result thereof.
(ii) With respect to any Tax Claim (except to the
extent otherwise provided in clause (iii) and (iv) of this
Section 9.03(e)), Shareholder may, at his election, control
all proceedings taken in connection with such Tax Claim
(including, without limitation, selection of counsel which is
reasonably acceptable to Purchaser) and, without limiting the
foregoing, may in his sole discretion pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with any Taxing authority with respect thereto,
and may, in his sole discretion, either pay the Tax claimed
and sue for a refund where applicable law permits such refund
suits or contest the Tax claim in any permissible manner. If
Shareholder does not elect to control such proceedings, then
Purchaser (or Fan Asylum or its affected Subsidiaries) shall
control them, but shall not settle any issue without the
consent of Shareholder, which consent shall not be
unreasonably withheld or delayed.
(iii) The Shareholder may elect to participate with
the Purchaser (or Fan Asylum or any affected Subsidiary) in
the joint control of all proceedings taken in connection with
any Tax Claim to the extent it relates to Taxes of Fan Asylum
or its Subsidiaries for a Straddle Period. If Shareholder does
not elect to participate in joint control of a proceeding,
then Purchaser (or Fan Asylum or its affected Subsidiaries)
shall control the proceedings, but shall not settle any issue
without the consent of Shareholder, which consent shall not be
unreasonably withheld or delayed.
(iv) The Shareholder may elect to participate with
the Purchaser (or Fan Asylum or any affected Subsidiary) in
the joint control of all proceedings taken in connection with
any Tax Claim under clause (ii) of this paragraph if a
Purchaser Indemnified Party may not be fully indemnified for
such Tax Claim as a result of limitations contained in this
Article IX. If Shareholder does not elect to participate in
joint control, then the Purchaser (or Fan Asylum or any
affected Subsidiary) shall control the proceedings, but shall
not settle any issue without the consent of Shareholder, which
consent shall not be unreasonably withheld or delayed.
(v) In no case shall Purchaser, Fan Asylum or its
Subsidiaries admit any liability with respect to, or settle,
compromise or discharge, any Tax Claim without Shareholder's
prior written consent, which consent shall not be unreasonably
withheld or delayed. In no case shall Shareholder admit any
liability with respect to, or settle, compromise or discharge,
any Tax Claim relating to Taxes of Fan Asylum and its
Subsidiaries for a Straddle Period without Purchaser's prior
written consent, which consent shall not be unreasonably
withheld or delayed.
(m) Manner of Indemnification. All indemnification of Taxes by
Shareholder shall be effected by the payment of cash or delivery of a
certified or official bank check to the Purchaser within ten (10) days
of resolution of any claim. All indemnification of Taxes by the
Purchaser, Fan Asylum or any Subsidiary shall be effected by the
payment of cash or delivery of a certified or official bank check to
Shareholder within ten (10) days of the resolution of any claim.
(n) Tax Refunds. All refunds of Taxes (net of the present
value (using the Applicable Federal Rate) of any future Tax liability
associated with or resulting from such refund or the event or item
giving rise to the refund or Tax) received by, or credited to the Tax
liability of, Fan Asylum or its Subsidiaries, to the extent such
refunds are of Taxes paid by Fan Asylum or its Subsidiaries
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for any Pre-Closing Tax Period or for the portion of any Straddle
Period ending on the Closing Date, and, in either case, to the extent
that the amount of such Tax refund was not included in the final
determination of the Audited Closing Balance Sheet, shall be allocated
among the parties as follows:
(i) if a claim is filed with the appropriate
Taxing authority for such Tax refund prior to the third
anniversary of the Closing Date, the Purchaser shall cause Fan
Asylum to deliver such net tax refund to the Escrow Agent and
such amount shall be credited and disbursed according to and
made a part of the Third Anniversary Indemnity Amount;
provided, however, if one or more Purchaser Indemnified
Parties shall have made a claim for Losses against Shareholder
under Article IX prior to the receipt by Fan Asylum or its
Subsidiaries, as applicable, of the Tax refund and the
Escrowed Shares was insufficient to cover such Losses, such
refund shall be paid to such Purchaser Indemnified Parties on
a pro rata basis if there has been more than one claim by
Purchaser Indemnified Parties; and
(ii) if any such claim is filed after the third
anniversary of the Closing Date, such Tax refund shall be
retained by Fan Asylum.
(o) Limitations. Notwithstanding any provision to the contrary
contained in this Agreement, including but not limited to Sections
9.01(b) and (c), there shall be no limitations (including but not
limited to dollar amount or duration of time) or deductibles on any of
Shareholder's obligation to indemnify the Purchaser's Indemnified
Parties under this Article IX for any Losses arising out of, related to
or in connection with any Tax.
9.04 Survival of Representations and Warranties. All statements
contained in this Agreement, the Other Agreements, the Schedules to this
Agreement or in any certificate or instrument or conveyance delivered by or on
behalf of the parties pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations and warranties of
Shareholder and Purchaser contained herein and as provided in the preceding
sentence shall forever survive the Closing Date.
9.05 Waiver of Subrogation and Other Rights. Shareholder hereby agrees
that if, following the Closing, any payment is made by or on behalf of
Shareholder in respect of any Losses, Shareholder shall not have any rights
against Fan Asylum or its Subsidiaries, whether by reason of subrogation or
otherwise, in respect of any such payments, and shall not take any action
against Fan Asylum or its Subsidiaries with respect thereto. Any such rights
that Shareholder may, by operation of law or otherwise, have against Fan Asylum
or its Subsidiaries effective at the time of the Closing, shall be deemed to be
hereby expressly and knowingly waived.
ARTICLE X
Miscellaneous
10.01 Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally, or
sent by facsimile transmission with telephone confirmation, or sent by
certified, registered, or express mail, postage prepaid, and shall be deemed
given when so delivered personally, or sent by facsimile transmission, or if
mailed, three days after the date of mailing, as follows:
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If to Purchaser: PopMail.com, inc.
1333 Corporate Drive, Suite 350
Irving, TX 75038
Attention: Stephen King, Chief Executive Officer
Telephone No.: (972) 550-5500
Facsimile No.: (972) 550-5581
With a copy to: Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
Attention: William Mower, Esq.
Telephone No.: (612) 672-8358
Facsimile No.: (612) 672-8397
If to Shareholder: Tim McQuaid
1250 Folsom Street
San Francisco, California 94103
Telephone No.: (415) 865-2727
Facsimile No.: (415) 865-2722
With a copy to: Roger J. Metzler
McQuaid, Metzler, Bedford & Van Zandt, L.L.P.
221 Main Street, 16th Floor
San Francisco, California 94105-1936
Telephone No.: (415) 905-0200
Facsimile No.: (415) 905-0202
10.02 Knowledge. "KNOWLEDGE" means actual knowledge after reasonable
investigation. Knowledge of Fan Asylum or its Subsidiaries shall include the
knowledge of their directors, officers and the persons responsible within Fan
Asylum and its Subsidiaries for the matters being referenced in the respective
knowledge reference.
10.03 Assignability and Parties in Interest. This Agreement shall not be
assignable by any of the parties hereto, provided that Purchaser shall have the
right to assign to one or more of its Affiliates any and all of its rights under
this Agreement. This Agreement (a) shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns
and (b) is not intended to confer upon any other persons any rights or remedies
hereunder.
10.04 Dispute Resolution. All disputes arising under this Agreement shall
be resolved by arbitration pursuant to the commercial rules of the American
Arbitration Association ("AAA") then in effect before a single arbitrator. The
arbitrator must be a retired judge of a state or federal court of the United
States or a licensed lawyer with at least ten (10) years of corporate or
commercial law experience from a law firm with at least 10 attorneys and at
least an AV rating by Martindale Hubbell. A list of ten (10) potential
arbitrators shall be obtained from the AAA. Each party to the dispute shall rank
the potential arbitrators from one to ten with ten being the most desirable. The
arbitrator who receives the most points shall be the
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arbitrator for such dispute. If there is a tie, a random drawing shall be held
and the first arbitrator chosen shall be the arbitrator for such dispute. If a
dispute arises from the period beginning on April 1 through September 30 of any
given year, such dispute shall be arbitrated in Minneapolis, Minnesota and if
such dispute arises during the period beginning on October 1 through March 31 of
any year, such dispute shall be arbitrated in San Francisco, California. The
award rendered by the arbitrator shall be final and binding on the parties and
may be entered in any court having jurisdiction thereof.
(a) Each party shall have discovery rights as provided by the Federal
Rules of Civil Procedure within the limits imposed by the arbitrator;
provided, however, that all such discovery shall be commenced and concluded
within ninety (90) days of the selection of the arbitrator.
(b) It is the intent of the parties that any arbitration shall be
concluded as quickly as reasonably practicable. Unless the parties
otherwise agree, once commenced, the hearing on the disputed matters shall
be held four days a week until concluded, with each hearing date to begin
at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrator shall use all
reasonable efforts to issue the final award or awards within a period of
five (5) business days after closure of the proceedings. Failure of the
arbitrator to meet the time limits of this Section shall not be a basis for
challenging the award.
(c) The arbitrator shall instruct the non-prevailing parties to pay
and the non-prevailing party shall pay all costs of the proceedings,
including the fees and expenses of the arbitrators and the reasonable
attorneys' fees and expenses of the prevailing parties. If the arbitrator
determine that there is not a prevailing party, each party shall be
instructed to bear its own costs and to pay one-half of the fees and
expenses of the arbitrators.
(d) Nothing contained herein shall bar any party hereto from seeking
equitable relief in a court of competent jurisdiction.
10.05 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws, and not the laws pertaining to
choice or conflicts of laws, of the State of Minnesota.
10.06 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute but one and the same instrument.
10.07 Publicity. Except as otherwise required by law or rules of any
applicable stock exchange, Shareholder and Purchaser agree that prior to issuing
any press releases and other announcements, whether written or oral, to be made
by any of them with respect to the transactions contemplated hereby, such
releasing party shall provide written notice to and consult with the other
parties hereto (either Shareholder or the Purchaser, as the case may be) prior
to such release.
10.08 Complete Agreement. This Agreement, the Other Agreements, the
exhibits hereto, the Schedules hereto delivered pursuant to this Agreement, and
all Other Agreements contemplated herein or hereby contain the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and, except as provided herein, supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, writings and understandings,
including but not limited to the letter of intent between certain of the
parties.
10.09 Modifications, Amendments and Waivers. At any time prior to the
Closing Date or termination of this Agreement, Purchaser and Shareholder may, by
mutual written agreement:
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(a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties made
by the other parties contained in this Agreement or in the Schedules hereto
or any other document delivered pursuant to this Agreement;
(c) waive compliance with any of the covenants or agreements of the
other parties contained in this Agreement; and
(d) modify any term hereof.
10.10 Severability. If any provision or portion thereof of this Agreement
is held to be illegal, invalid or unenforceable under any present or future law
in any jurisdiction, (a) such provision or portion thereof will be fully
severable in such jurisdiction, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision or portion
thereof had never comprised a part hereof, (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or portion thereof or by its
severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision or portion thereof, there will be added automatically as a part of
this Agreement a legal, valid and enforceable provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible to the
maximum extent allowable by law.
10.11 Setoff. If Shareholder or Fan Asylum fails to pay any amounts it or
they owe Purchaser or any entity related to Purchaser in any manner ("Setoff
Party") pursuant to this Agreement, the Other Agreements, or any other agreement
(oral or written) between any of such parties, Purchaser shall have the right to
offset such amounts which have not been paid against all amounts which are owed
by Purchaser or a Setoff Party to Shareholder or Fan Asylum pursuant to any and
all obligations. If Purchaser fails to pay any amount it owes to Shareholder
pursuant to this Agreement, the Other Agreements, or any other agreement between
Purchaser and Shareholder, Shareholder shall have the right to offset such
amounts which have not been paid against all amounts which are owed by
Shareholder to Purchaser pursuant to any and all obligations.
10.12 Payment of Expenses. Except as specifically provided for herein, each
of the parties hereto will pay all fees and expenses (including, without
limitation, brokerage, investment banking, environmental consulting and
accounting fees, as well as legal fees and expenses) incurred by them in
connection with the transactions contemplated hereunder. All sales or transfer
taxes arising out of the conveyance of the Shares shall be borne by Shareholder.
10.13 Further Assurances. If, at any time after the Closing Date, any party
shall consider or be advised that any further assignments, conveyances,
certificates, filings, instruments or documents or any other things are
necessary or desirable to vest, perfect or confirm in Purchaser title to the
Shares, or to consummate any of the transactions contemplated by this Agreement,
the appropriate other party(ies) shall, upon request, promptly execute and
deliver all such proper deeds, assignments, certificates, filings, instruments
and documents and do all things reasonably necessary and proper to vest, perfect
or confirm title to the Shares in Purchaser and to otherwise carry out the
purpose of this Agreement.
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10.14 Facsimile Execution. This Agreement may be executed by one or more of
the parties by facsimile transmitted signature and all parties agree that the
reproduction of signatures by way of telecopying device will be treated as
though such reproductions were executed originals.
10.15 Interpretation. All references herein to Articles and Sections refer
to Articles and Sections of this Agreement. All Article and Section headings are
for reference purposes only and shall not affect the interpretation of this
Agreement. Within this Agreement, the singular shall include the plural and the
plural shall include the singular, and any gender shall include all other
genders, all as the meaning and the context of this Agreement shall require. The
parties acknowledge that this Agreement and the other agreements contemplated
hereby were mutually drafted by both parties and that the interpretation thereof
will not prejudice any one party due to control of the Agreement.
10.16 Negotiations. Until all parties have fully executed this Agreement,
this Agreement constitutes nonbinding negotiations between the parties hereto
and no rights shall arise hereunder.
10.17 Jurisdiction and Venue. Subject to Section 10.04, the parties hereto
hereby consent to the exclusive jurisdiction of any state or federal court
situated in Hennepin County, Minnesota and waive any objection based on forum
non conveniens, with regard to any actions, claims, disputes or proceedings
related to this Agreement or the Other Agreements, the sale of Shares, any other
document related hereto, or any transactions contemplated hereby, or enforcement
and/or interpretation of any of the foregoing.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the date first above written.
POPMAIL.COM, INC.
By: s/ Mark D. Dacko
-----------------------------------
Name: Mark D. Dacko
-----------------------------------
Title: President
-----------------------------------
FAN ASYLUM, INC.
By: s/ Tim McQuaid
-----------------------------------
Name: Tim McQuaid
-----------------------------------
Title: President
-----------------------------------
SHAREHOLDER:
s/ Tim McQuaid
--------------------------------------------
Tim McQuaid
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SCHEDULE 5.01
SUBSIDIARIES
FAN ASYLUM JAPAN LTD., a Japanese corporation
FAN ASYLUM EUROPE LIMITED, a British corporation
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EXHIBIT G
ARTISTS
AEROSMITH
EAGLES
MELISSA ETHERIDGE
NSYNC
BACK STREET BOYS
PEARL JAM
WHITNEY HOUSTON
TLC
MATCHBOX 20
SHERYL CROW
ENRIQUE IGLESIAS
CORN
SANTANA
DAVE MATTHEWS
GRATEFUL DEAD
JENNIFER LOPEZ
GOO GOO DOLLS
GEORGE MICHAEL
LENNY KRAVITZ
BRIAN MCKNIGHT
BIIM
JOHN MELLENCAMP
B U S H
SEAL
LIMP BISKIT
HANSON
MAVERICKS
LUCINDA WILLIAMS
USHER
BRANDY
PAULA COLE
MEGADETH
JOURNEY
SLASH
MAXWELL
JORDAN KNIGHT
DEBRA COX
BROWNSTONE
MARC NELSON
SHANE MINOR
JOEY MACINTIRE
MYA
A TEENS
BILLY CRAWFORD
RUFUS WAINWRIGHT
BREE SHARP
BANGLES
SHANUON TWEED
DEON RICHMOND
MERLIN SANTANA
Or other Artists of equal status of those listed above.
55
