<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 20, 1996
Golden Books Family Entertainment, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-14399 06-1104930
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
850 Third Avenue, New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:(212) 753-8500
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 20, 1996, Golden Books Family Entertainment, Inc. (the
"Company") acquired substantially all of the television and film library
properties of Broadway Video Entertainment, L.P. ("BVE L.P.") and its
affiliates (which constituted substantially all of the assets of BVE, L.P.)
and assumed the profit participations payable and all liabilities incurred in
connection with the exploitation of such assets after the closing (the
"Acquisition") pursuant to an Asset Purchase Agreement, dated as of July 30,
1996 (the "Asset Purchase Agreement"), among BVE, L.P., Broadway Video
Enterprises, Inc., Lone Ranger Music, Inc., Palladium Limited Partnership, the
Company and certain of the Company's subsidiaries. The acquired library
properties consisted of copyrights, distribution rights, trademarks or
licenses relating to characters, television programs and motion pictures, both
animation and live action, and included individual specials and multiple
episode series. The purchase price was $81 million in cash, plus 901,408
shares of Common Stock, par value $.01 per share, of the Company ("Company
Common Stock"), based on a $10 million aggregate market value (calculated
based on the average trading price of the Company Common Stock on The Nasdaq
National Market for the 20-day trading period ended two days immediately
preceding the closing date of the Acquisition). The purchase price was
determined through negotiation between the parties to the Asset Purchase
Agreement. The shares of Company Common Stock included in the purchase price
(and any cash placed in escrow in place of such shares pursuant to the terms
of the Asset Purchase Agreement) will be held in an escrow account for a
period of at least one year to satisfy any obligations of BVE, L.P. and its
affiliates arising under indemnification obligations included under the Asset
Purchase Agreement.
In funding the Acquisition, the Company used existing cash and a portion
of the proceeds of a $100 million private placement of Convertible Trust
Originated Preferred Securities that was consummated prior to the Acquisition.
Pursuant to the Acquisition, Lorne Michaels, who indirectly owns BVE,
L.P., and Eric Ellenbogen, the former President of BVE, L.P. and, since the
consummation of the Acquisition, the President of the Company's new Golden
Books Entertainment Group division and an Executive Vice President of the
Company, will be appointed to the Board of Directors of the Company.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
It is impracticable for the Company to provide as part of
this report at the time that this report is being filed financial statements
for BVE, L.P. in respect of its fiscal quarter ended June 30, 1996. Such
financial statements will be filed pursuant to an amendment to this report as
soon as practicable but not later than 60 days after the date on which this
report is required to be filed.
The following financial statements are being filed as part of
this report:
(a) Financial statements of businesses acquired.
<PAGE>
(i) Broadway Video Entertainment, L.P.
(A) Audited Consolidated Financial
Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of
December 31, 1995 and 1994
Consolidated Statements of Operations for
the year ended December 31, 1995 and for
the period from inception (August 1,
1994) through December 31, 1994
Consolidated Statements of Changes in
Partners' Capital for the year ended
December 31, 1995 and for the period
from inception (August 1, 1994) through
December 31, 1994
Consolidated Statements of Cash Flows for
the year ended December 31, 1995 and for
the period from inception (August 1,
1994) through December 31, 1994
Notes to Consolidated Financial
Statements
(B) Unaudited Interim Condensed Consolidated
Financial Statements:
Unaudited Condensed Consolidated Balance
Sheet as of March 31, 1996
Unaudited Condensed Consolidated
Statements of Operations for the three
months ended March 31, 1996 and 1995
Unaudited Condensed Consolidated
Statement of Changes in Partners'
Capital for the three months ended
March 31, 1996
Unaudited Condensed Consolidated
Statements of Cash Flows for the
three months ended March 31, 1996 and
1995
Notes to Unaudited Condensed Consolidated
Financial Statements
(ii) Palladium Limited Partnership
Report of Independent Auditors
Statement of Operations for the seven
<PAGE>
months ended July 31, 1994
Statement of Changes in Partners' Capital
for the seven months ended July 31, 1994
Statement of Cash Flows for the seven
months ended July 31, 1994
Notes to Financial Statements
(b) Pro forma financial information.
Unaudited Pro Forma Condensed Balance
Sheet at May 4, 1996
Unaudited Pro Forma Condensed Statement
of Operations for the quarter ended
May 4, 1996
Unaudited Pro Forma Condensed Statement
of Operations for the year ended
February 3, 1996
Notes to Unaudited Pro Forma Condensed
Financial Statements
(c) Exhibits.
The following Exhibits are filed herewith:
Number Title
------- ------
2.1 Asset Purchase Agreement
23 Consent of Ernst & Young LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
Dated: August 29, 1996 By: /s/ Philip E. Rowley
Philip E. Rowley
Chief Financial Officer and
Executive Vice President
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENT DESCRIPTION
(a)(i) Broadway Video Entertainment, L.P.:
(A) Audited Consolidated Financial
Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of
December 31, 1995 and 1994
Consolidated Statements of Operations for
the year ended December 31, 1995 and for
the period from inception (August 1,
1994) through December 31, 1994
Consolidated Statements of Changes in
Partners' Capital for the year ended
December 31, 1995 and for the period
from inception (August 1, 1994) through
December 31, 1994
Consolidated Statements of Cash Flows for
the year ended December 31, 1995 and for
the period from inception (August 1,
1994) through December 31, 1994
Notes to Consolidated Financial
Statements
(B) Unaudited Interim Condensed Consolidated
Financial Statements:
Unaudited Condensed Consolidated Balance
Sheet as of March 31, 1996
Unaudited Condensed Consolidated
Statements of Operations for the three
months ended March 31, 1996 and 1995
Unaudited Condensed Consolidated
Statement of Changes in Partners'
Capital for the three months ended
March 31, 1996
Unaudited Condensed Consolidated
Statements of Cash Flows for the
three months ended March 31, 1996 and
1995
Notes to Unaudited Condensed Consolidated
Financial Statements
<PAGE>
(ii) Palladium Limited Partnership:
Report of Independent Auditors
Statement of Operations for the seven
months ended July 31, 1994
Statement of Changes in Partners' Capital
for the seven months ended July 31, 1994
Statement of Cash Flows for the seven
months ended July 31, 1994
Notes to Financial Statements
(b) Pro forma financial information:
Unaudited Pro Forma Condensed Balance
Sheet at May 4, 1996
Unaudited Pro Forma Condensed Statement
of Operations for the quarter
ended May 4,1996
Unaudited Pro Forma Condensed Statement
of Operations for the year ended
February 3, 1996
Notes to Unaudited Pro Forma Condensed
Financial Statements
<PAGE>
EXHIBIT EXHIBIT DESCRIPTION
NUMBER
- -------
2.1 Asset Purchase Agreement
23 Consent of Ernst & Young LLP
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Broadway Video Entertainment, L.P.
We have audited the accompanying consolidated balance sheets of Broadway
Video Entertainment, L.P. and subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes
in partners' capital and cash flows for the year ended December 31, 1995 and
for the period from inception (August 1, 1994) through December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Broadway Video Entertainment, L.P. and subsidiaries as of December 31,
1995 and 1994, and the results of its operations, changes in partners'
capital and its cash flows for the year ended December 31, 1995 and for the
period from inception (August 1, 1994) through December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
April 10, 1996
F-1
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 2,507,302 $ 6,430,452
Accounts receivable, less allowance for doubtful accounts of
$63,392 and $80,000 in 1995 and 1994 ........................... 1,434,173 2,105,421
Prepaid expenses and other current assets ........................ 139,592 33,361
------------- -------------
Total current assets ............................................... 4,081,067 8,569,234
Accounts receivable ................................................ 688,074 924,031
Property and equipment, net ........................................ 149,681 --
Film library, net .................................................. 4,709,694 1,461,327
Deferred writers advances .......................................... 132,152 --
Organization costs, net ............................................ 1,069,490 1,144,857
Music catalogs, net ................................................ 704,400 --
Other assets ....................................................... 49,018 --
------------- -------------
$11,583,576 $12,099,449
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ................................................. $ 227,835 $ 75,896
Profit participation payable ..................................... 1,046,234 813,914
Accrued interest payable ......................................... 1,051,702 548,350
Deferred revenue ................................................. 256,813 --
Accrued expenses and other current liabilities ................... 516,791 475,808
------------- -------------
Total current liabilities .......................................... 3,099,375 1,913,968
Profit participation payable ....................................... 197,831 --
Long-term debt--subordinated (Note 6) .............................. 12,975,272 12,029,816
Partners' capital .................................................. (4,688,902) (1,844,335)
------------- -------------
$11,583,576 $12,099,449
============= =============
</TABLE>
See accompanying notes.
F-2
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues ........................................................ $9,535,642 $3,173,594
Costs and expenses:
Direct costs .................................................. 2,755,888 1,302,378
Selling expenses .............................................. 460,037 5,980
General and administrative expenses ........................... 2,988,148 160,444
Management fees ............................................... 2,057,000 760,417
------------ ------------
Operating income before other deductions and provision for
income taxes ................................................... 1,274,569 944,375
Other (income) expenses:
Minority interest ............................................. (552) --
Amortization of organization costs ............................ 270,946 104,078
Interest expense, net of interest income of $513,105 and
$183,340 .................................................... 1,821,595 1,111,166
------------ ------------
Loss before income taxes ...................................... (817,420) (270,869)
Provision for income taxes .................................... 65,000 --
------------ ------------
Net loss ...................................................... $ (882,420) $ (270,869)
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
BROADWAY VIDEO BROADWAY
ENTERPRISES, INC. VIDEO, INC. TOTAL
----------------- ------------- -------------
<S> <C> <C> <C>
Contributed Capital .......... $ 3,046,310 $ 328,224 $ 3,374,534
Distributions ................ (4,786,700) (161,300) (4,948,000)
Net loss for the period ..... (262,743) (8,126) (270,869)
----------------- ------------- -------------
Balance at December 31, 1994 (2,003,133) 158,798 (1,844,335)
Distributions ................ (1,898,184) (63,963) (1,962,147)
Net loss for the period ..... (853,653) (28,767) (882,420)
----------------- ------------- -------------
Balance at December 31, 1995 $(4,754,970) $ 66,068 $(4,688,902)
================= ============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................... $ (882,420) $ (270,869)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation ..................................................... 25,405 --
Amortization of film library and production costs ................ 300,991 469,873
Amortization of organization and interest cost ................... 1,216,402 488,822
Amortization of music catalog .................................... 56,260 --
Minority interest ................................................ 2,408 --
Changes in operating assets and liabilities:
Decrease (increase) in receivables .............................. 907,206 (2,229,638)
Increase in prepaid and other current assets .................... (106,231) (28,828)
Increase in deferred writers advances ........................... (132,152) --
Increase in other assets ........................................ (49,018) (326,353)
Increase in profit participation payable ........................ 430,151 654,109
Increase in accounts payable .................................... 151,940 31,258
Increase in deferred revenue .................................... 256,813 --
Increase in accrued expenses and other current liabilities ..... 541,927 929,542
------------- -------------
Total adjustments ................................................. 3,602,102 (11,215)
------------- -------------
Net cash provided by (used in) operating activities ............... 2,719,682 (282,084)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs incurred ....................................... (195,581) (1,248,935)
Acquisition of property and equipment ............................. (175,086) --
Acquisition of music catalogs ..................................... (760,660) --
Acquisition of film assets ........................................ (3,549,358) --
------------- -------------
Net cash used in investing activities ............................. (4,680,685) (1,248,935)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from long-term debt .................................. -- 11,645,072
Distributions to partners ......................................... (1,962,147) (4,948,000)
Partners' capital contributions and other ......................... -- (224,432)
------------- -------------
Net cash (used in) provided by financing activities ............... (1,962,147) 6,472,640
------------- -------------
Net (decrease) increase in cash ................................... (3,923,150) 4,941,621
Cash and cash equivalents at beginning of period .................. 6,430,452 1,488,831
------------- -------------
Cash and cash equivalents at end of period ........................ $ 2,507,302 $ 6,430,452
============= =============
Supplemental disclosures of cash flow information:
Interest paid .................................................... $ 1,163,935 $ 1,654,375
============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM INCEPTION
(AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
1. ORGANIZATION AND NATURE OF BUSINESS
Broadway Video Entertainment, L.P. (the "Partnership") was organized on
August 1, 1994 as a limited partnership under the laws of the State of New
York to engage in the acquisition, licensing and commercial exploitation of
certain motion picture rights and properties. In accordance with the
Partnership Agreement, the initial capitalization of the Partnership occurred
in a series of transactions in which certain net assets were contributed to
the Partnership from its partners' in exchange for interests in the
Partnership. In addition, debt was issued to a third party (see Notes 5 and 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership, its 50% owned subsidiary, McSpadden Smith Music, L.L.C. and its
Broadway Comics division. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Certain reclassifications have been made to the prior year's financial
statements in order to conform with the current year's presentation.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Film Library
Film library consists of the costs incurred to acquire the film library,
which are stated at the lower of unamortized costs or net realizable value.
The costs are being amortized using the film-forecast method, which amortizes
such costs in the same ratio that current revenues bear to anticipated total
revenues.
Depreciation and Amortization
The Company records depreciation and amortization of property and
equipment using the straight-line and other accelerated methods, over the
estimated useful lives of the assets.
Organization costs are amortized on a straight-line basis over a five-year
period.
Deferred Writer's Advances
Advance royalty payments to artists and producers are capitalized when the
past performance and current popularity of the artist or producer provide a
sound basis for estimating that the amount of the advance will be receivable
from future earned royalties. Amounts capitalized are recouped as subsequent
royalties are earned by the artists or producer. Any portion of capitalized
amounts not deemed to be recoverable from future royalties are fully reserved
in the period in which the loss becomes evident.
The portion of advances which are anticipated to be recovered from artists
or producer earnings within one year are considered to be current.
Music Catalogs
Music catalogs consist of the cost incurred to acquire music and
publishing catalogs and are amortized on a straight-line basis over their
estimated useful lives of either 5 or 15 years.
F-6
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM INCEPTION
(AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Partnership is not subject to federal or state income taxes. Income or
loss from the Partnership's operations is included in the determination of
taxable income of the respective partners, pursuant to the terms of the
Partnership Agreement.
The Partnership is, however, subject to the New York City Unincorporated
Business Tax. This tax generally arises from nondeductible payments made to
the general partner. The Partnership Agreement provides that for each fiscal
year the general partner shall make special distributions out of cash
available for distribution to all partners, pro rata, in accordance with
their respective allocation percentages, in an amount equal to the product of
their allocated book income and the applicable tax rate.
Revenue Recognition
Revenue from the sale of film rights, principally for the home video and
domestic and foreign syndicated television markets, is recognized when the
film is available for showing or exploitation. Amounts received prior to the
film's availability are classified as deferred revenue. Revenue from the sale
of merchandising rights is recognized when the license period begins.
Generally, in accordance with industry practices, revenue derived from
licensing the use of songs in the Company's song catalogs is recognized as
payments are received from licensees.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
The long-term accounts receivable arising from the licensing of motion
picture rights are due as follows.
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
1995 .............. $ -- $ 29,031
1996 .............. -- 707,500
1997 .............. 567,673 187,500
1998 .............. 115,400 --
1999 .............. 5,000 --
---------- ---------
Total ............ $ 688,073 $ 924,031
========== =========
</TABLE>
In 1994, current accounts receivables include $916,430 due from affiliated
companies.
F-7
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM INCEPTION
(AUGUST 1, 1994) THROUGH DECEMBER 31, 1994
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at December
31, 1995:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Technical equipment ............................ $ 30,630
Office equipment ............................... 3,956
Leasehold improvements ......................... 6,497
Computer equipment and hardware ................ 134,003
----------
175,086
Less accumulated depreciation and amortization (25,405)
----------
Property and equipment, net .................... $ 149,681
==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
During 1995 and 1994, management fees of approximately $2,057,000 and
$760,000, respectively, were charged to the Partnership by an affiliated
company. The fees are in accordance with a ten-year management services
agreement, as outlined in the Partnership Agreement.
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Subordinated notes .. $ 16,968,000 $ 16,968,000
Unamortized discount 3,992,728 4,938,184
------------- -------------
$ 12,975,272 $ 12,029,816
============= =============
</TABLE>
Long-term debt consists of Participating Subordinated Notes ("Notes")
issued on August 1, 1994 as part of the Partnership's initial capitalization.
The Notes will mature on December 31, 2003 unless otherwise accelerated in
accordance with the Note Purchase Agreement dated as of August 1, 1994. The
Notes bear interest at the rate of 7% per annum, payable on a semiannual
basis; plus additional interest of 13% per annum, which is payable contingent
upon cash flow on a semi-annual basis. The notes have been discounted to
reflect an effective interest rate of 18%.
The Notes are subordinated to up to $50,000,000 of Senior Indebtedness of
the Partnership.
The Note Purchase Agreement includes, among other things, provisions
relative to additional borrowings, issuance of additional notes, maintenance
of working capital, re-capitalization, amount of capital expenditures, and
certain restrictions on the acquisitions of film libraries and related
business.
7. PARTNERSHIP OPTION AGREEMENT
As part of the Partnership's initial capitalization, partnership options
were issued. The options collectively entitle the holders thereof to purchase
44,092 units (subject to a dilution adjustment) representing in the aggregate
a 44.09% limited partner interest in the Partnership (subject to dilution
adjustment), in accordance with the terms and conditions of that certain
option purchase agreement, dated as of August 1, 1994 ("Option Agreement").
8. LEGAL PROCEEDINGS
The Partnership is involved in various legal proceedings from time to time
in the normal course of business. In management's opinion, the litigation in
which the Partnership is currently involved, individually and in the
aggregate, is not material to the Partnership's financial condition or
results of operations.
F-8
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents ..................... $ 3,189,858
Accounts receivable, net ...................... 1,364,253
Prepaid expenses and other current assets .... 193,398
--------------
Total current assets ............................ 4,747,509
Film library, net ............................... 4,709,694
Deferred writers advances ....................... 168,149
Other assets .................................... 2,626,340
--------------
$12,251,692
==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accrued interest payable ...................... $ 1,880,010
Accrued expenses and other current liabilities 1,514,745
--------------
Total current liabilities ....................... 3,394,755
Long-term debt--subordinated .................... 13,255,610
Other liabilities ............................... 225,656
Partners' capital ............................... (4,624,329)
--------------
$12,251,692
==============
</TABLE>
See notes to financial statements.
F-9
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues ................................................. $3,629,616 $4,551,895
Costs and expenses:
Direct costs ........................................... 1,065,194 1,035,277
Selling expenses ....................................... 177,318 578
General and administrative expenses .................... 966,910 579,066
Management fees ........................................ 547,251 478,000
------------ ------------
Operating income before other deductions and provision
for income taxes ........................................ 872,943 2,458,974
Other expenses:
Minority interest ...................................... 5,417 --
Interest expense, net .................................. 800,254 1,030,346
------------ ------------
Income before income taxes ............................... 67,272 1,428,628
Provision for income taxes ............................... 2,700 65,000
------------ ------------
Net income ............................................... $ 64,572 $1,363,628
============ ============
</TABLE>
See notes to financial statements.
F-10
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
BROADWAY VIDEO BROADWAY
ENTERPRISES, INC. VIDEO, INC. TOTAL
----------------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 ........................ ($4,754,970) $66,068 ($4,688,902)
Net Income for the three months ended March 31, 1996 62,468 2,105 64,573
----------------- ------------- --------------
Balance at March 31, 1996 ........................... ($4,692,502) $68,173 ($4,624,329)
================= ============= ==============
</TABLE>
See notes to financial statements.
F-11
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net cash provided by operating activities ...... $ 718,202 $3,208,260
INVESTING ACTIVITIES
Acquisition of property and equipment ........... (35,646) --
------------ ------------
Net cash used in investing activities ........... (35,646) --
Net increase in cash ............................ 682,556 3,208,260
Cash and cash equivalents at beginning of period 2,507,302 6,430,452
------------ ------------
Cash and cash equivalents at end of period ..... $3,189,858 $9,638,712
============ ============
</TABLE>
See notes to financial statements.
F-12
<PAGE>
BROADWAY VIDEO ENTERTAINMENT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Broadway Video Entertainment, L.P., (the "Partnership") was organized on
August 1, 1994 as a limited partnership under the laws of the State of New
York to engage in acquiring, licensing and exploiting certain motion picture
rights and properties. In accordance with the Partnership Agreement, (the
"Agreement"), the initial capitalization of the Partnership occurred through
a series of transaction in which net assets were contributed from individual
partners in exchange for proportionate interests in the Partnership. In
addition, debt was issued to a third party.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included herein. Operating results for the three month
periods ended March 31, 1996 and 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996 and 1995,
respectively. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's annual
financial report.
3. PRINCIPLES OF CONSOLIDATION
The consolidated unaudited interim financial statements included herein
reflect the accounts of the Partnership, its 50% owned subsidiary, McSpadden
Smith Music, LLC, and its Broadway Comics Division. Significant intercompany
accounts and transaction have been eliminated in consolidation.
4. RELATED PARTY TRANSACTIONS
The Partnership regularly enters into transactions with an affiliated
company in accordance with a ten-year Management Service Agreement (the
"Service Agreement"), as defined in the Agreement. Accordingly, during the
three months ended March 31, 1996 and 1995, management fees under the Service
Agreement were charged to the Partnership in the approximate amounts of
$547,000 and $478,000, respectively.
5. RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities,
and the disclosure of contingent assets and liabilities, at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
6. LEGAL PROCEEDINGS
The Partnership is involved in various legal proceedings from time to time
in the normal course of business. In management's opinion, the litigation in
which the Partnership is currently involved, both individually and in the
aggregate, is not material to the Partnership's financial condition or its
results of operation.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Palladium Limited Partnership
We have audited the accompanying statement of operations, changes in
partners' capital and cash flows of Palladium Limited Partnership for the
seven months ended July 31, 1994. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, changes in partners'
capital and cash flows of Palladium Limited Partnership for the seven months
ended July 31, 1994 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
October 19, 1994
F-14
<PAGE>
PALLADIUM LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED JULY 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Revenues ................................................ $ 2,393,285
Cost and expenses:
Direct costs .......................................... 804,478
Selling expenses ...................................... 17,811
General and administrative expenses .................. 122,581
Administrative surcharge --general partner ............ 102,081
------------
Income before provision for income taxes ............... 1,346,334
Provision for income taxes .............................. 22,569
------------
Net income .............................................. $ 1,323,765
============
</TABLE>
See notes to financial statements.
F-15
<PAGE>
PALLADIUM LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
SEVEN MONTHS ENDED JULY 31, 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993 ............................. $1,030,495 $1,030,494 $2,060,989
Net Income for the seven months ended July 31, 1994 ...... 661,883 661,882 1,323,765
------------ ------------ ------------
Balance at July 31, 1994 ................................. $1,692,378 $1,692,376 $3,384,754
============ ============ ============
</TABLE>
See notes to financial statements.
F-16
<PAGE>
PALLADIUM LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 1994
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net income ...................................................................... $1,323,765
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of film library ................................................... 322,913
Allowance for doubtful accounts ................................................ 37,500
Changes in operating assets and liabilities:
Increase in accounts receivable ............................................... (287,043)
Increase in due from general partner .......................................... (55,553)
Increase in other assets ...................................................... (783)
Increase in accounts receivable, long-term .................................... (65,000)
Increase in profit participation payable ...................................... 82,098
Increase in due to Broadway Video, Inc. ....................................... 86,562
Decrease in accounts payable and accrued expenses ............................. (50,000)
Increase in income taxes payable .............................................. 7,269
------------
Net cash provided by operating activities ..................................... 1,401,728
Cash and cash equivalents at beginning of period ................................ 87,103
------------
Cash and cash equivalents at end of period ...................................... $1,488,831
============
</TABLE>
See notes to financial statements.
F-17
<PAGE>
PALLADIUM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE SEVEN MONTHS ENDED JULY 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Palladium Limited Partnership (the "Partnership") was organized on April
18, 1991 as a limited partnership under the laws of the State of New York to
engage in the acquisition, licensing and commercial exploitation of certain
motion picture rights and properties (see Note 3).
INCOME TAXES
No provision has been made for federal and state income taxes since the
Partnership is not a taxable entity. However, a provision has been made for
the New York City Unincorporated Business Tax according to the following:
<TABLE>
<CAPTION>
<S> <C>
Current .................... $ 26,269
Deferred .................. (3,700)
---------
$ 22,569
=========
</TABLE>
The provision for deferred income taxes relates primarily to temporary
differences between financial and tax reporting of certain expenses.
REVENUE RECOGNITION
Revenue from the sale of film rights, principally for the home video and
domestic and foreign syndicated television markets, is recognized when the
film is available for showing or exploitation. Amounts received prior to the
film's availability are classified as deferred revenue. Revenue from the sale
of merchandising rights is recognized when the license period begins.
2. RELATED PARTY TRANSACTIONS
Certain administrative expenses, totaling $102,081, are allocated from the
general partner in accordance with the partnership agreement.
3. SUBSEQUENT EVENT
On August 23, 1994, a series of transactions occurred in which certain
assets and a 99% interest in the Partnership was transferred from the limited
and general partners to Broadway Video Entertainment, L.P., ("BVELP"), a
newly formed partnership, controlled by the general partner. In exchange for
certain assets and the respective partnership interests, the general partner
received an interest in BVELP and the limited partner received a note and
options from the general partner to purchase up to 44% of BVELP.
F-18
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following set forth the unaudited pro forma condensed balance sheet
and unaudited pro forma condensed statement of operations of the Company for the
quarter ended May 4, 1996 and the unaudited pro forma condensed statement of
operations for the year ended February 3, 1996, which are derived from the
historical Consolidated Financial Statements of the Company. The unaudited pro
forma condensed statement of operations data for the periods presented give pro
forma effect to (i) the issuance of Series B Preferred Stock to Golden Press
Holding, L.L.C. (the "GPH Transaction"), (ii) the Acquisition, (iii) the
issuance of $100,000,000 of Convertible Trust Originated Preferred Securities by
Golden Books Financing Trust (the "Preferred Securities") (the "Offering"), (iv)
the investment by a wholly-owned subsidiary of Hallmark Cards, Incorporated
("Hallmark") in $25 million of Company Common Stock (the "Hallmark Investment")
and (v) the issuance of approximately 84,967 additional shares of Company Common
Stock to Richard E. Snyder pursuant to his employment agreement, in each case,
as if such transaction had been consummated at the beginning of the period
presented. The pro forma statements of operations for the three months ended May
4, 1996 and the year ended February 3, 1996, reflect the statements of
operations information for BVE, L.P. for the three months ended March 31, 1996
and the year ended December 31, 1995, respectively. The unaudited pro forma
condensed balance sheet gives pro forma effect to (i) the GPH Transaction, as
more fully described in the notes therein, (ii) the Acquisition, (iii) the
issuance of Preferred Securities in the Offering, (iv) the Hallmark Investment
and (v) the issuance of approximately 84,967 additional shares of Company Common
Stock and options to purchase approximately 157,796 shares of Company Common
Stock to Richard E. Snyder and other future payments pursuant to his employment
agreement, in each case, as if such transactions had been consummated on May 4,
1996. The stockholders' equity reflected in the unaudited pro forma condensed
balance sheet does not reflect the impact of the write downs and other charges
contemplated to be recorded in fiscal 1997, including approximately $80 million
to be included in the fiscal 1997 second quarter financial statements. The pro
forma balance sheet at May 4, 1996 reflects the financial position of BVE, L.P.
as of March 31, 1996. The pro forma adjustments are described in the notes
hereto and are based upon available information and certain assumptions that the
Company believes are reasonable. The unaudited pro forma condensed financial
statements do not necessarily reflect the results of operations or the financial
position of the Company that actually would have resulted had the transactions
described above been consummated as of the date or for the period indicated. The
unaudited pro forma condensed financial statements should be read in conjunction
with the notes hereto, the consolidated financial statements and notes thereto
of the Company for the year ended February 3, 1996 and for the quarter ended
May 4, 1996 and the consolidated financial statements of BVE, L.P. for the year
ended December 31, 1995 and for the quarter ended March 31, 1996 and the notes
thereto.
P-1
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MAY 4, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
GOLDEN FOR GPH FOR GPH HISTORICAL PRO FORMA
BOOKS TRANSACTION TRANSACTION BVE, L.P. ADJUSTMENTS PRO FORMA
------------ ------------- ------------- ------------ -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 33,025 $ 44,604 (a) $ 77,629 $ 3,190 $ (83,200)(e) $115,629
96,200 (f)
(3,190)(g)
25,000 (h)
Accounts receivable, net .............. 56,272 -- 56,272 1,364 57,636
Inventories ........................... 78,562 -- 78,562 -- -- 78,562
Net assets held for sale .............. 12,850 -- 12,850 -- -- 12,850
Other current assets .................. 18,393 (2,671)(b) 15,722 193 (193)(g) 15,722
------------ ------------- ----------- ------------ -------------- -----------
Total Current Assets ................ 199,102 41,933 241,035 4,747 34,617 280,399
Property, plant & equipment, net ..... 74,917 -- 74,917 171 -- 75,088
Film library, goodwill and other
intangibles, net ..................... 8,558 -- 8,558 6,382 85,422 (e) 100,362
Other non-current assets .............. 13,723 -- 13,723 952 -- 14,675
------------ ------------- ----------- ------------ -------------- -----------
Total Assets ........................ $296,300 $ 41,933 $338,233 $12,252 $ 120,039 $470,524
============ ============= =========== ============ ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Accounts payable ...................... $ 11,310 $ (2,042)(a) $ 9,268 $ 228 $ (228)(g) $ 9,268
Profit participation payable .......... -- -- -- 866 -- 866
Accrued expenses and other current
liabilities .......................... 29,252 5,566 (c) 34,172 2,301 (2,301)(g) 34,566
(646)(a) 394 (i)
------------ ------------- ----------- ------------ -------------- -----------
Total Current Liabilities ........... 40,562 2,878 43,440 3,395 (2,135) 44,700
Long-term debt ........................ 149,850 -- 149,850 13,256 (13,256)(k) 149,850
Pension liability ..................... 27,917 1,600 (c) 29,517 -- -- 29,517
Other non-current liabilities ......... 2,546 2,546 225 -- 2,771
Company-Obligated Mandatorily
Redeemable Convertible Preferred
Securities of Golden Books Financing
Trust Holding Solely Convertible
Debentures ........................... -- -- -- -- 96,200 (f) 96,200
Series A Preferred Stock .............. 9,985 (9,985)(a) -- -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Series B Preferred stock .............. -- 65,000 (a) 65,000 -- -- 65,000
Common stock .......................... 219 -- 219 -- 9 (e) 254
1 (i)
25 (h)
Additional paid-in capital ............ 87,172 (6,177)(a) 80,995 -- 9,991 (e) 116,852
891 (i)
24,975 (h)
Receivable from sale of common stock . (4,796) 4,796 (c) -- -- -- --
Retained earnings (deficit) ........... (12,584) (16,179)(d) (28,763) -- (892)(i) (30,049)
(394)(i)
Cumulative translation adjustment .... (1,749) -- (1,749) -- -- (1,749)
Partner's capital ..................... -- -- -- (4,624) 4,624 (e) --
Treasury stock ........................ (2,822) -- (2,822) -- -- (2,822)
------------ ------------- ----------- ------------ -------------- -----------
Total Stockholders' Equity (Deficit) 65,440 47,440 112,880 (4,624) 39,230 147,486
Total Liabilities and Stockholders'
Equity (Deficit) ..................... $296,300 $ 41,933 $338,233 $12,252 $ 120,039 $470,524
============ ============= =========== ============ ============== ===========
</TABLE>
(See accompanying notes)
P-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MAY 4, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
GOLDEN FOR GPH HISTORICAL PRO FORMA
BOOKS TRANSACTION BVE, L.P. ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues ................................. $68,888 $ 68,888 $3,629 $ -- $ 72,517
Costs and Expenses:
Cost of sales ................................ 51,919 51,919 1,065 -- 52,984
Selling, general and administrative expenses 22,725 22,725 1,691 1,136 (j) 25,552
------------- ------------- ------------ ------------- ---------
(Loss) Income before interest and other
expenses, taxes, and distributions on
redeemable preferred securities of
subsidiary trust and other .................. (5,756) (5,756) 873 (1,136) (6,019)
Interest and other expenses, net ............. 3,060 3,060 805 (800)(k) 3,113
48 (k)
Distributions on redeemable preferred
securities of subsidiary trust .............. -- -- -- 2,188 (l) 2,188
------------- ------------- ------------ ------------- ---------
(Loss) Income before taxes ................... (8,816) (8,816) 68 (2,572) (11,320)
(Benefit) Provision for income taxes ........ (52) (52) 3 -- (49)
------------- ------------- ------------ ------------- ---------
Net (Loss) Income ............................ $(8,764) $ (8,764) $ 65 $ (2,572) $ (11,271)
============= ============= ============ ============= =========
Preferred dividends paid ..................... 212 2,048 (m) 2,048
------------- ------------- ---------
Net loss available to common stockholders ... $(8,976) $(10,812) $ (13,319)
============= ============= =========
Loss Per Common Share ........................ $ (0.41)(n) $ (0.48)(o) $ (0.51)(p)
============= ============= =========
</TABLE>
(See accompanying notes)
P-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
GOLDEN FOR GPH HISTORICAL PRO FORMA
BOOKS TRANSACTION BVE, L.P. ADJUSTMENTS PRO FORMA
------------ ------------- ------------ ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues ................................. $ 374,257 $ 374,257 $ 9,536 $ -- $ 383,793
Costs and Expenses:
Cost of sales ................................ 281,392 281,392 2,756 -- 284,148
Selling, general and administrative expenses 129,020 129,020 5,505 4,498 (j) 139,023
Restructuring charges, net ................... 6,701 6,701 -- 6,701
------------ ------------- ------------ ------------- -----------
(Loss) Income before interest and other
expenses, taxes, and distributions on
redeemable preferred securities of
subsidiary trust and other .................. (42,856) (42,856) 1,275 (4,498) (46,079)
Interest and other expenses, net ............. 12,859 12,859 2,092 (1,822)(k) 13,319
190 (k)
Distributions on redeemable preferred
securities of subsidiary trust .............. -- -- -- 8,750 (l) 8,750
------------ ------------- ------------ ------------- -----------
Loss before taxes ............................ (55,715) (55,715) (817) (11,616) (68,148)
Provision for income taxes ................... 11,332 11,332 65 -- 11,397
------------ ------------- ------------ ------------- -----------
Net Loss ..................................... $ (67,047) $ (67,047) $ (882) $ (11,616) $ (79,545)
============ ============= ============ ============= ===========
Preferred dividends paid ..................... 848 8,190 (m) 8,190
------------ ------------- -----------
Net loss available to common stockholders ... $ (67,895) $ (75,237) $ (87,735)
============ ============= ===========
Loss Per Common Share ........................ $ (3.23)(n) $ (3.43)(o) $ (3.44)(p)
============ ============= ===========
</TABLE>
(See accompanying notes)
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
PRO FORMA ADJUSTMENTS FOR GPH TRANSACTION
(a) Represents (i) the issuance of $65,000 of Series B Preferred Stock in
connection with the GPH Transaction, less $6,177 in transaction costs,
(ii) the redemption of $9,985 of Series A Preferred Stock and the
related payment of $646 in accrued dividends, and (iii) the payment of
$3,588 for severance and transition expenses.
(b) Represents the reduction of $2,671 of previously capitalized deferred
costs as a result of the closing of the GPH Transaction.
(c) Represents (i) the accrual of a $5,566 special bonus, (ii) the accrual
of supplemental retirement benefits of $1,600 and (iii) the vesting of
the 599,465 shares of Company Common Stock and a bonus to receive
$4,796, the proceeds of which will be used to repay the related
receivable for Richard E. Snyder pursuant to his employment agreement
entered into in connection with the GPH Transaction.
(d) Represents the statement of operations effect of adjustments discussed
in (a), (b) and (c). These adjustments represent non-recurring costs
that are not reflected in the Unaudited Pro Forma Condensed Statements
of Operations.
PRO FORMA ADJUSTMENTS FOR THE ACQUISITION, THE OFFERING AND THE HALLMARK
INVESTMENT
(e) Represents the Acquisition purchase price of $91,000 as represented by
$81,000 in cash consideration (from proceeds of issued Preferred
Securities-see Note (f)) and the issuance of $10,000 in Company Common
Stock (assumed to be 952,381 shares, based upon the $10 1/2 closing
stock price of the Company Common Stock on August 14, 1996). Cash
adjustment includes $2,200 in estimated transaction costs. Also
reflects the elimination of BVE, L.P.'s historical stockholder's
deficit and the recording of $91,804 of film library, goodwill and
other intangible assets associated with the Acquisition.
(f) Represents the proceeds from the issuance of 2,000,000 shares of
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of Golden Books Financing Trust Holding Solely Convertible
Debentures for an aggregate of $100,000 (estimated), net of $3,800
(estimated) in transaction costs, as contemplated in the Offering.
The Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of Golden Books Financing Trust Holding Solely Convertible
Debentures are mandatorily redeemable in 2016.
(g) Represents the elimination of certain assets not acquired and certain
liabilities not assumed in connection with the Acquisition.
(h) Represents the receipt of the $25,000 proceeds and the issuance of
2,506,266 (preliminary estimate) shares of Company Common Stock in
connection with the Hallmark Investment. The amount of shares issued
to Hallmark is based on 95% of the closing price for the Company
Common Stock on August 14, 1996.
(i) Represents (i) the accrual of $394 of special bonus and (ii) the
issuance of approximately 84,967 shares of Company Common Stock to
Richard E. Snyder in connection with the anti-dilution provision of
his employment agreement in connection with the Offering, the
Acquisition and the Hallmark Investment based on the August 14, 1996
Company Common Stock closing price.
(j) Represents the incremental amortization due to the application of
purchase price accounting resulting from the preliminary allocation of
the purchase price to the film library, goodwill and other
intangibles. The film library (preliminarily estimated at $40,000) is
being amortized using the film-forecast method and the goodwill
(preliminarily estimated at $51,804) and other intangible assets are
being amortized on a straight line basis over a period of 25 years
(preliminary estimate). The preliminary purchase price allocation to
the film library, goodwill and other intangibles and the respective
amortization periods are subject to finalization.
P-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (continued)
(DOLLARS IN THOUSANDS)
(k) Represents the elimination of BVE, L.P.'s historical long-term debt
and interest expense for the period presented as BVE, L.P.'s long term
debt will be retired by BVE, L.P. in connection with the Acquisition.
Also reflects the recognition of non-cash interest expense from
amortization of deferred financing costs from the Offering.
(l) Represents dividends paid for period on Company-Obligated Mandatorily
Redeemable Convertible Preferred Securities of Golden Books Financing
Trust Holding Solely Convertible Debentures. Calculated based on
estimated offering of $100,000 of securities (See Note (f)) and an
assumed 8.75% annual dividend rate.
(m) Represents dividends of Company Common Stock paid on the Series B
Preferred Stock issued in connection with the GPH Transaction.
Calculated based on 195,000 shares of Company Common Stock issued
quarterly utilizing the August 14, 1996 closing price of the Company
Common Stock. Dividend on the Series A Preferred Stock is eliminated
as the Series A Preferred Stock was retired in connection with the GPH
Transaction.
(n) Historical loss per share of Company Common Stock is calculated based
on weighted shares of 21,667,000 and 21,047,000 for the quarter and
year ended May 4, 1996, and February 3, 1996, respectively.
(o) Pro forma loss for the quarter and year ended May 4, 1996, and
February 3, 1996, respectively, has been calculated based on the pro
forma effect of the GPH Transaction. The pro forma loss has been
adjusted to reflect the 12% Series B Preferred Stock dividend. The pro
forma loss per common share has been calculated based on the
historical weighted shares outstanding as adjusted for the issuance of
shares of Company Common Stock to Richard E. Snyder and the dividends
of shares of Company Common Stock payable to holders of Series B
Preferred Stock (based on August 14, 1996 closing stock price). The
resulting adjusted pro forma weighted average shares outstanding for
the quarter and year ended May 4, 1996, and February 3, 1996, are
22,447,000 and 21,941,000, respectively. All other common stock
equivalents including warrants, options, Series A Preferred Stock and
Series B Preferred Stock were deemed anti-dilutive.
(p) The pro forma loss for the quarter and year ended May 4, 1996, and
February 3, 1996, respectively, has been calculated based on the pro
forma effect of the GPH Transaction, the issuance of the Preferred
Securities and the Acquisition. The pro forma loss has been adjusted
to reflect the 12% Series B Preferred Stock dividend. The pro forma
loss per share of Company Common Stock has been calculated based on
the historical weighted average shares outstanding as adjusted for the
issuance of shares of Company Common Stock to Richard E. Snyder, the
dividends of shares of Company Common Stock payable to holders of
Series B Preferred Stock (based on August 14, 1996 closing stock
price), shares to be issued in connection with the Acquisition and
shares to be issued in connection with the Hallmark Investment. The
resulting adjusted pro forma weighted average shares for the quarter
and year ended May 4, 1996, and February 3, 1996, are 25,990,000 and
25,484,000, respectively. All other common stock equivalents including
warrants, options, Series A Preferred Stock and Series B Preferred
Stock were deemed anti-dilutive.
P-6
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
BROADWAY VIDEO ENTERTAINMENT, L.P.
AND THE OTHER SELLERS NAMED HEREIN
AND
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
GOLDEN BOOKS PRODUCTIONS, INC. AND
LRM ACQUISITION CORP.
DATED AS OF JULY 30, 1996
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND SALE OF THE ASSETS........................................ 1
1.1 Agreements to Transfer and Assign.............................. 1
1.2 Closing........................................................ 2
1.2.1 Time and Place........................................ 2
1.2.2 Deliveries by the Buyers and Parent................... 2
1.2.3 Deliveries by the Sellers............................. 3
1.3 Assumption and Payment of Obligations.......................... 3
1.4 Allocation of Purchase Price................................... 3
1.5 Sales and Use Tax.............................................. 4
1.6 Restrictions on Transferability of Purchase Price
Stock.......................................................... 4
1.7 Escrow of Purchase Price Stock................................. 4
1.8 Receivables, Payables and EBITDA Adjustment.................... 5
1.9 Audited Financial Statements................................... 6
2. SELLERS' REPRESENTATIONS AND WARRANTIES................................ 7
2.1 Existence and Rights........................................... 7
2.2 Agreements Authorized.......................................... 8
2.3 Consents and Approvals; No Conflict............................ 8
2.4 Contingencies.................................................. 8
2.5 Financial Statements........................................... 8
2.6 Absence of Certain Changes..................................... 9
2.7 Licenses, Authorizations, Trademarks, etc...................... 9
2.7.1. Limitations on Representations and Warranties......... 9
2.7.2 Trademarks............................................ 9
2.7.3 Copyrights............................................ 11
2.7.4 Music................................................. 12
2.7.5 Literary Properties................................... 12
2.7.6 Profit Participants................................... 12
2.7.7 Physical Materials.................................... 12
2.8 [INTENTIONALLY OMITTED]........................................ 13
2.9 Status of Outstanding Agreements............................... 13
2.10 Commissions.................................................... 13
2.11 Tax Matters.................................................... 13
2.12 Compliance with Applicable Law................................. 14
2.13 Investment Representation...................................... 14
2.14 Environmental Matters.......................................... 14
2.15 Employee Benefits; Labor....................................... 14
3. BUYERS' AND PARENT'S REPRESENTATIONS AND WARRANTIES.................... 16
3.1 Existence and Rights........................................... 16
3.2 Agreements Authorized.......................................... 16
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3.3 Consents and Approvals; No Conflict............................ 16
3.4 Shares Authorized.............................................. 17
3.5 Reports and Financial Statements............................... 17
3.6 Absence of Certain Changes..................................... 17
3.7 [INTENTIONALLY OMITTED]........................................ 18
3.8 Commissions.................................................... 18
4. COVENANTS OF THE SELLERS............................................... 18
4.1 Access......................................................... 18
4.2 Business Conduct............................................... 18
4.3 Representations True........................................... 19
4.4 Permits; Consents.............................................. 19
4.5 Legal Opinion.................................................. 19
4.6 Preparation of Financials; Additional Information.............. 19
4.7 Repayment of Debt.............................................. 20
4.8 Identified Employees........................................... 20
4.9 Insurance...................................................... 20
4.10 Change of Name................................................. 20
5. COVENANTS OF PARENT AND THE BUYERS..................................... 20
5.1 Representations True........................................... 20
5.2 Permits; Consents.............................................. 20
5.3 Financing...................................................... 20
5.4 Legal Opinion.................................................. 20
5.5 Litigation..................................................... 20
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYERS
TO COMPLETE THE CLOSING................................................ 21
6.1 Representations and Warranties................................. 21
6.2 Covenants...................................................... 21
6.3 No Injunction or Litigation.................................... 21
6.4 Consents Obtained.............................................. 21
6.5 Closing Agreements............................................. 21
6.6 [INTENTIONALLY OMITTED]........................................ 22
6.7 Closing Documents.............................................. 22
6.8 Legal Opinion.................................................. 22
6.9 Availability of Ellenbogen..................................... 22
6.10 Financing...................................................... 22
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERS
TO COMPLETE THE CLOSING................................................ 22
7.1 Representations and Warranties................................. 22
7.2 Covenants...................................................... 22
7.3 No Injunction or Litigation.................................... 22
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7.4 Consents Obtained.............................................. 22
7.5 Closing Agreements............................................. 22
7.6 Purchase Price................................................. 22
7.7 Closing Documents.............................................. 23
7.8 Legal Opinion.................................................. 23
8. TERMINATION............................................................ 23
8.1 Grounds for Termination........................................ 23
8.2 Effect of Termination.......................................... 23
8.3 Rights to Proceed.............................................. 23
8.4 Liquidated Damages............................................. 24
8.5 Option to Extend Specified Date................................ 25
9. INDEMNIFICATION........................................................ 25
9.1 Indemnification................................................ 25
9.2 Time Limit..................................................... 26
9.3 Procedures for Indemnification................................. 26
9.4 Cooperation.................................................... 27
10. ADDITIONAL OBLIGATIONS................................................. 27
10.1 Confidentiality Obligations.................................... 27
10.2 Announcements.................................................. 28
10.3 Name........................................................... 28
10.4 Tax Cooperation: Allocation of Taxes.......................... 28
10.5 Delivery of Assets............................................. 29
10.6 Cooperation.................................................... 29
10.6.1 Additional Acts....................................... 29
10.6.2 Cooperation Regarding Financial Matters............... 29
10.6.3 Confirmation of Title................................. 29
10.6.4 Additional Consents................................... 30
10.7 Employee Benefits.............................................. 30
10.8 Distribution of Purchase Price................................. 30
11. GENERAL PROVISIONS..................................................... 30
11.1 Complete Agreement; Modifications.............................. 30
11.2 Expenses....................................................... 30
11.3 Remedies Not Exclusive......................................... 31
11.4 Bulk Sale Law.................................................. 31
11.5 Notices........................................................ 31
11.6 Parties........................................................ 32
11.6.1 No Third-Party Benefits............................... 32
11.6.2 Successors and Assigns................................ 32
11.7 Governing Law; Jurisdiction.................................... 32
11.8 Injunction..................................................... 32
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11.9 Waivers Strictly Construed..................................... 33
11.10 Rules of Construction.......................................... 33
11.10.1Headings.............................................. 33
11.10.2Tense and Case........................................ 33
11.10.3Severability.......................................... 33
11.10.4Exhibits and Schedules................................ 33
11.11 Counterparts................................................... 33
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ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of the 30th day of July, 1996, among BROADWAY VIDEO ENTERTAINMENT, L.P., a
New York limited partnership ("BVEL"); BROADWAY VIDEO ENTERPRISES, INC., a New
York corporation ("BVE"); LONE RANGER MUSIC, INC., a New York corporation
("LRM"); and PALLADIUM LIMITED PARTNERSHIP, a New York limited partnership
("Palladium", and together with BVEL, BVE and LRM, the "Sellers" and each a
"Seller"); GOLDEN BOOKS FAMILY ENTERTAINMENT, INC., a Delaware corporation
("Parent"); GOLDEN BOOKS PRODUCTIONS INC., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("Productions"); and LRM
ACQUISITION CORP., a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("LRM Acquisition," and together with Productions, the
"Buyers" and each a "Buyer"), with reference to the following facts:
A. The Sellers are the owners of the Assets (definitions of capitalized
terms not otherwise defined herein are set forth in Schedule O hereto) more
particularly described in this Agreement, primarily motion pictures,
television programs and interests in music and comic book publishing.
B. The Buyers wish to purchase the Assets and the Sellers wish to sell
the Assets on the terms and conditions set forth herein.
C. Upon the closing of the Transaction, (i) Productions and BVI will
enter into the Night Music-Blues Brothers License and (ii) Productions and BVI
will enter into the Kids License. In addition, Parent and the Sellers will
enter into the Registration Rights Agreement.
NOW, THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein, the parties agree as
follows:
1. PURCHASE AND SALE OF THE ASSETS
1.1 AGREEMENTS TO TRANSFER AND ASSIGN. At the Closing, on the terms and
subject to the conditions of this Agreement, the Buyers shall acquire, and the
Sellers shall (and with respect to the Other Assets shall cause BVI to) sell,
assign, transfer, convey, grant and set over to the Buyers, their successors and
assigns, all of the Sellers' right, title and interest in, to and under the
Assets, provided that Productions shall acquire all of the Assets other than
those Assets owned by LRM, which Assets shall be conveyed to and acquired by LRM
Acquisition. The instruments effecting such sale, assignment, transfer,
conveyance, grant or setting over will effectively vest in Productions and LRM
Acquisition, as the case may be, the right, title and interest of the Sellers
and BVI in the Assets.
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1.2 CLOSING
1.2.1 TIME AND PLACE. The closing of the Transaction (the
"Closing") will take place at the offices of Schulte Roth & Zabel ("SR&Z"), 900
Third Avenue, New York, New York 10022 and at the offices of Ernst & Young LLP
("E&Y"), 99 Wood Avenue South, Iselin, New Jersey 08830 with respect to certain
Assets on (i) the earlier of (A) the Specified Date and (B) the third Business
Day after satisfaction or waiver of the conditions set forth in Articles 6 and 7
hereof or (ii) such other date, time and place as may be mutually agreed upon in
writing by the parties (the "Closing Date"); provided if Parent and Buyer extend
the Specified Date to December 31, 1996 pursuant to Section 8.5 and BVEL
determines in good faith prior to the Closing that it would be unable to
complete its liquidation, notwithstanding its best efforts to do so, before the
last Business Day of December, 1996, then the Sellers shall have the option,
exercisable by written notice to Parent and the Buyers, to extend the Closing
Date to the first Business Day of January, 1997.
1.2.2 DELIVERIES BY THE BUYERS AND PARENT. Upon execution of this
Agreement and unless otherwise instructed by BVEL, Productions (on behalf of the
Buyers and Parent) shall deliver to BVEL (on behalf of the Sellers) by federal
reserve wire transfer to one or more bank accounts designated by BVEL in
writing, as representatives of the Sellers, an aggregate amount equal to the
Advance Amount.
At the Closing, the Buyers and Parent, as the case may be, shall
deliver (i) to the Sellers (A) the cash portion of the Purchase Price less the
sum of (I) the Advance Amount and (II) any Extension Amounts paid pursuant to
Section 8.5 hereof (such net amount the "Net Closing Cash Payment"); (B) the
opinion of counsel to the Buyers and Parent described in Section 5.4 hereof;
(C) the Parent and Buyers' certificate described in Section 7.1 hereof; (D) a
counterpart of the Registration Rights Agreement executed by Parent
substantially in the form of Exhibit "G" attached hereto; (E) a counterpart of
the Assets and Obligations Assignment and Assumption Agreement executed by
Parent and the Buyers substantially in the form of Exhibit "A" attached
hereto; (F) a counterpart of the Receivables and Payables Assignment and
Assumption Agreement executed by Parent and the Buyers substantially in the
form of Exhibit "H" attached hereto; (G) a counterpart of the Escrow Agreement
executed by Parent, the Buyers and the Escrow Agent substantially in the form
of Exhibit "I" attached hereto; (H) copies of Parent and Buyers' statement
with respect to taxes described in Section 10.4(ii) hereof; (I) a counterpart
of the Kids License executed by Productions; (J) a counterpart of the Night
Music-Blues Brothers License executed by Productions; and (K) stock
certificates representing the Purchase Price Stock; provided, however, Parent
shall not be required to issue and deliver any fractional shares of Purchase
Price Stock but shall deliver in lieu thereof cash in an amount equal to the
value of such fractional shares; and (ii) such other documents reasonably
requested by the Sellers. The Advance Amount shall be allocated among the
Sellers as set forth on Schedule 1.2.2(i) attached hereto and held for their
account by BVEL until the Closing. The Purchase Price less the Advance Amount
shall be allocated among the Sellers as set forth on Schedule 1.2.2(ii) to be
provided prior to the Closing. Unless otherwise instructed in writing by BVEL,
the Net Closing Cash Payment shall be delivered to the Sellers by federal
reserve wire transfer to one or more bank accounts designated in writing (not
less than three Business Days prior to the Closing Date) to Productions (on
behalf of the Buyers and Parent) by BVEL as representative of the Sellers.
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1.2.3 DELIVERIES BY THE SELLERS. At the Closing, the applicable
Sellers shall deliver to Productions on behalf of the Buyers and Parent: (i) a
counterpart of the Assets and Obligations Assignment and Assumption Agreement
executed by the applicable Sellers substantially in the form of Exhibit "A"
attached hereto; (ii) a Short Form Copyright Assignment executed by the
applicable Sellers substantially in the form of Exhibit "B" attached hereto;
(iii) a Common Law Trademark and Trademark Registration Assignment executed by
the applicable Sellers substantially in the form of Exhibit "C" attached hereto
relating to the Trademarks duly executed and delivered by the applicable
Sellers; (iv) a Notice and Acknowledgment of Sale executed by the applicable
Sellers substantially in the form of Exhibit "D" attached hereto duly executed
and delivered by the applicable Sellers and each of the persons listed in
Schedule 1.2.3 attached hereto; (v) a counterpart of the Receivables and
Payables Assignment and Assumption Agreement executed by the Applicable Sellers
substantially in the form of Exhibit "H" attached hereto; (vi) the Physical
Materials (other than those covered by the notices described in clause (iv)
above) which shall include the books and records of the Sellers and computer
files and databases relating to the Assets, in the manner reasonably requested
by Productions on behalf of the Buyers and Parent; (vii) the opinions of
counsels to the Sellers described in Section 4.5 hereof; (viii) an executed
counterpart of the Registration Rights Agreement substantially in the form of
Exhibit "G" attached hereto; (ix) the Sellers' Certificate described in Section
6.1 hereof; (x) certain computer equipment used by the Identified Employees to
substantially fulfill their function with respect to the Assets in the manner
reasonably requested by Productions (on behalf of the Buyers and Parent); (xi)
the License to use Names; (xii) a counterpart of the Escrow Agreement executed
by the Sellers substantially in the form of Exhibit "I" attached hereto; (xiii)
a counterpart of the Kids License executed by BVI; (xiv) a counterpart of the
Night-Music Music-Blues Brothers License executed by BVI; (xv) the schedule of
material transactions referred to in Section 4.2 hereof; (xvi) copies of the
Sellers' statement with respect to taxes described in Section 10.4(ii) hereof;
and (xvii) such other instruments of conveyance and assignment and other
documents as may be reasonably requested by the Buyers and Parent.
1.3 ASSUMPTION AND PAYMENT OF OBLIGATIONS. At the Closing, the Buyers
will assume, and thereafter will perform, pay or otherwise satisfy in accordance
with their terms as and when due, all of the Obligations (with LRM Acquisition
assuming solely the Obligations of LRM and Productions assuming all other
Obligations). However, this Section 1.3 shall not be construed to expand or
increase the rights or remedies of any third party against the Buyers or Parent
with respect to the Obligations. The Sellers will retain all of the Excluded
Obligations and Parent and the Buyers do not assume and shall not be liable for
such Excluded Obligations. However, this Section 1.3 shall not be construed to
expand or increase the rights or remedies of any third party against any Seller
with respect to the Excluded Obligations.
1.4 ALLOCATION OF PURCHASE PRICE. The parties shall agree to the
allocation of the Purchase Price among the Assets as set forth in Schedule 1.4
to be provided prior to the Closing. Each of the parties agrees (i) to report
the Transaction for federal and state income tax purposes in accordance with
this allocation, (ii) not to take any position inconsistent with such allocation
on its tax returns without the consent of the other and (iii) to timely file
federal tax Form 8594 with the applicable tax return for the year of the
Transactions. Each party shall provide the others with a draft copy of its
federal tax Form 8594 at least fifteen (15) days prior to filing it.
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1.5 SALES AND USE TAX. The Buyers and the Sellers shall cooperate in
preparing and filing sales and use tax returns relating to, and Parent and the
Buyers shall pay any sales or use tax due with regard to the Transaction. Parent
and the Buyers each agree to indemnify and hold harmless the Sellers from and
against any Losses related to Parent's and the Buyers' failure to pay the sales
and use taxes due with respect to the Transaction.
1.6 RESTRICTIONS ON TRANSFERABILITY OF PURCHASE PRICE STOCK. Each Seller
understands that the shares of Purchase Price Stock to be issued and delivered
in accordance with the provisions hereof will not have been registered under the
Securities Act, or under any securities laws of any jurisdiction. Each Seller
agrees not to transfer any of the shares of Purchase Price Stock (together with
any other shares received in respect thereof pursuant to conversions, exchanges,
stock splits, stock dividends or other reclassifications or changes thereof, or
consolidations or reorganizations or otherwise) issued hereunder except (i)
pursuant to an effective registration statement covering such shares of Purchase
Price Stock under the Securities Act or (ii) pursuant to an exemption from
registration under the Securities Act.
Each certificate representing the Purchase Price Stock shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
(B) PURSUANT TO A VALID EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT AND
UNDER THE SECURITIES LAWS OF ANY STATE AND UPON RECEIPT BY GOLDEN BOOKS
FAMILY ENTERTAINMENT, INC. OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT ANY SUCH SALE IS IN
COMPLIANCE WITH THE ACT AND THE STATE SECURITIES LAWS.
1.7 ESCROW OF PURCHASE PRICE STOCK. At the Closing, the Sellers shall
deliver or cause to be delivered (i) approximately one third of the Purchase
Price Stock and (ii) approximately $6,700,000 to an escrow agent (the "Escrow
Agent") pursuant to the terms of an escrow agreement substantially in the form
attached hereto as Exhibit "I" (the "Escrow Agreement"), which stock shall be
placed by the Escrow Agent in an account (the "Escrow Account") established by
the Closing Date and remaining in existence until the first anniversary of the
Closing Date (or, if later, until the resolution of any unresolved claims for
which Buyer Indemnitees may seek indemnity from any Seller pursuant to Article 9
below); provided, however, until the first anniversary of the Closing Date the
Purchase Price Stock may be withdrawn by any Seller from the Escrow Account so
long as each share of Purchase Price Stock so withdrawn is replaced by an amount
of cash equal to twice the Market Value of such stock on the Closing Date. The
Market Value for purposes of this Section 1.7 shall be appropriately
4
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adjusted to reflect any conversions, exchanges, stock splits, stock dividends
or other reclassifications or changes thereof, or consolidations or
reorganizations of such stock. The Purchase Price Stock held in the Escrow
Account shall include all securities issued or issuable in respect of the
Purchase Price Stock by way of conversions, exchanges, stock splits, stock
dividends or other reclassifications or changes thereof, or consolidations or
reorganizations.
1.8 RECEIVABLES, PAYABLES AND EBITDA ADJUSTMENT.
(i) Assignment and Assumption of Receivables and Payables Directly
Relating to the Assets. At the Closing, (A) the Sellers shall sell assign,
transfer and convey to Productions (or LRM Acquisition, as applicable), and
Productions (or LRM Acquisition, as applicable) shall acquire, the accounts
receivable (both current and non-current) of the Sellers and their Affiliates
as of the Closing Date directly relating to the Assets and (B) Productions (or
LRM Acquisition, as applicable) shall assume the profit participations payable
(both current and non-current) of the Sellers and their Affiliates as of the
Closing Date directly relating to the Assets. In consideration therefor, (A)
Productions (or LRM Acquisition, as applicable) shall pay on the Adjustment
Payment Date to the Sellers or BVEL as their representative, an amount of cash
equal to the excess, if any, of such accounts receivable over such profit
participations payable reflected in the Audited Net Reconciliation (as defined
in Section 1.9(i) below) or (B) the Sellers shall pay to Productions (or LRM
Acquisition, if applicable) on the Adjustment Payment Date an amount of cash
equal to the excess, if any, of such profit participations payable over such
accounts receivable reflected in the Audited Net Reconciliation. The amount of
accounts receivable and profit participations payable for purposes of
determining any excess pursuant to this Section 1.8(i) shall be determined by
discounting the amount of such accounts receivable (net of credit reserves)
and profit participations payable as of the Closing Date at a 10% per annum
rate (the "Discount Rate").
(ii) Payments In Respect of Excess Earnings Before Interest, Taxes,
Depreciation and Amortization. On the Adjustment Payment Date, the Sellers
shall pay to Productions (or LRM Acquisition, as applicable) an amount, if any
(the "Adjustment Amount"), equal to the amount by which earnings before
interest, taxes, depreciation and amortization ("EBITDA") derived from the
Audited Interim Income Statement (as defined in Section 1.9(i) below) exceeds
the product of (A) $7.3 million multiplied by (B) a fraction, the numerator of
which is the number of days which has elapsed from January 1, 1996 through the
Closing Date and the denominator of which is 366. The Adjustment Amount shall
be paid in the form of cash and the assignment of receivables, as agreed by
the parties in good faith, based upon the form of payment received by the
Sellers from third parties in the most recent revenue transactions recognized
on the Sellers' financial statements that gave rise to the obligation to pay
the Adjustment Amount.
(iii) Restrictions on Distributions. Until the Adjustment Amount
shall have been paid to Productions (or LRM Acquisition, if applicable), BVEL
may not distribute to its partners or to Trust Company of the West any of its
EBITDA with respect to any period after June 30, 1996 (other than
distributions of the Purchase Price).
5
<PAGE>
1.9 AUDITED FINANCIAL STATEMENTS.
(i) Within 60 days of the Closing Date the Sellers shall deliver to
Productions on behalf of the Buyers and Parent an audited consolidated balance
sheet as of the Closing Date with respect to the Assets (the "Audited Balance
Sheet") from which the Sellers shall derive a reconciliation of all accounts
receivables directly relating to the Assets as of the Closing Date and all
profit participations payable directly relating to the Assets as of the
Closing Date (the "Audited Net Reconciliation"). The Audited Balance Sheet
shall be prepared both in accordance with GAAP, consistently applied, and in
accordance with the accounting principles used in the preparation of the
Financial Statements and shall be derived from and consistent with the Audited
Interim Income Statement. Within 60 days of the Closing Date, the Sellers
shall also deliver to Productions on behalf of the Buyers and Parent an
audited statement of operations of the Sellers with respect to the Assets for
the period beginning January 1, 1996 and ending on the Closing Date (the
"Audited Interim Income Statement"). The Audited Interim Income Statement
shall be prepared both in accordance with GAAP, consistently applied, and in
accordance with the accounting principles used in the preparation of the
Financial Statements. The Audited Balance Sheet (including the Audited Net
Reconciliation derived therefrom) and the Audited Interim Income Statement are
collectively referred to herein as the "Post Closing Audited Financials". The
audit for the Post Closing Audited Financials shall be performed by E&Y.
(ii) Following the completion and delivery of the Post Closing
Audited Financials, the Sellers shall promptly make available to Productions
(on behalf of the Buyers and Parent) all available work papers of E&Y created
in connection with the preparation of the Post Closing Audited Financials. The
Sellers shall cause the representatives of E&Y to be available promptly to
assist Productions (on behalf of the Buyers and Parent) and its auditors in
its review of such work papers.
(iii) Productions may dispute the Post Closing Audited Financials by
giving written notice to the Sellers within 10 days after delivery of the Post
Closing Audited Financials to Productions (on behalf of the Buyers and
Parent), setting forth in reasonable detail the basis for such dispute
(hereinafter called an "Audited Financials Disagreement"). The parties shall
promptly commence good faith negotiations with a view to resolving such
Audited Financials Disagreement, which resolution shall be not later than 30
days after the date the Post Closing Audited Financials are received by
Productions.
(iv) If Productions (on behalf of the Buyers and Parent), on the one
hand, or the Sellers, on the other hand, deliver a written notice to the other
that an Audited Financials Disagreement has not been resolved, such Audited
Financials Disagreement shall be referred to a nationally recognized
accounting firm other than E&Y for the preparation of original Audited
Financials (without regard to those previously prepared by the Sellers and
audited by E&Y) from the books and records of the Sellers so that such firm
may determine the disputed amounts in accordance with this Agreement. If
Productions and the Sellers do not promptly agree on the selection of a
nationally recognized accounting firm, their respective independent public
accountants shall select such accounting firm which shall be a firm other than
E&Y. Productions and the Sellers shall present their positions in writing with
respect to the Audited Financials
6
<PAGE>
Disagreement to the firm retained to prepare original Audited Financials under
this clause (iv). Such firm shall render its determination as soon as
practicable after referral of the Audited Financials Disagreement. The
determination of such firm shall be final and binding upon the parties hereto;
provided, however, if such determination falls outside the range within the
positions presented by Productions and the Sellers, the position of
Productions, on the one hand, or the Sellers, on the other hand, which is
closest to the determination of such firm shall be final and binding upon the
parties hereto. The fees and expenses of such firm with respect to the Audited
Financials Disagreement shall be paid by the party whose position in the
Audited Financials Disagreement submitted to the arbiter is furthest from the
final determination of the accounting firm selected. The fees of E&Y solely
with respect to the preparation of the Post Closing Audited Financials shall
be borne equally by Productions (on behalf of the Buyers and Parent), on the
one hand, and Sellers, on the other hand.
2. SELLERS' REPRESENTATIONS AND WARRANTIES. As an inducement for Parent and
the Buyers to enter into this Agreement, each of the Sellers hereby jointly and
severally represents and warrants as follows:
2.1 EXISTENCE AND RIGHTS. Each Seller (i) is duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and (ii) has the requisite power
and authority to own, lease and operate the Assets it now owns, leases and
operates and to carry on its business with respect to such Assets as now being
conducted, except where the failure to be so incorporated, organized, existing
and in good standing, or to have such power and authority, would not,
individually or in the aggregate, have a Seller Material Adverse Effect. Each
Seller is duly qualified or licensed and is in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing which will not in the aggregate have a Seller Material Adverse Effect.
A complete and correct copy of the certificate of incorporation, charter,
by-laws, partnership agreements, certificates of limited partnership, or similar
governing documents of each Seller have been made available to the Buyers or
Parent.
Except as set forth on Schedule 2.1(i), none of the Sellers has any
Subsidiaries. Except as set forth in Schedule 2.1 (ii), BVEL and BVI each owns
their respective membership or partnership interests (as the case may be) in
the McSpadden Entities and Broadway Comics, in each case, free and clear of
all Liens, agreements, limitations on voting rights and options. Except as set
forth in Schedule 2.1(ii), there are no equity interests in McSpadden or
Broadway Comics issued or outstanding or any subscriptions, options, warrants,
calls, rights convertible securities or other agreements or commitments of any
character obligating McSpadden or Broadway Comics to issue, transfer or sell
any of its equity interests, nor will there be any rights to receive any
distributions in respect of such equity interests. All consents and approvals
to the transfer of the interests in Broadway Comics and McSpadden hereunder
shall have been obtained prior to the Closing.
Set forth on Schedule 2.1 (iii) is the term sheet governing the
organization of Broadway Comics.
7
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2.2 AGREEMENTS AUTHORIZED. The execution, delivery and performance by
each Seller of this Agreement and the Closing Agreements to which each Seller is
a party and the consummation by each Seller of the transactions contemplated
hereby and thereby have been and will be as of the Closing duly authorized by
all necessary corporate, partnership or other action and no other proceeding on
the part of any Seller is (as of the execution hereof and as of the Closing)
necessary to authorize the execution, delivery and performance of this
Agreement; and this Agreement and the Closing Agreements to which any Seller is
a party has been (or will be, as the case may be) and all such agreements will
be as of the Closing duly executed and delivered by each such Seller and are (or
will be, as the case may be) the legal, valid and binding obligation of such
Seller enforceable in accordance with their terms, except to the extent limited
by bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws affecting the rights and remedies of creditors generally.
2.3 CONSENTS AND APPROVALS; NO CONFLICT. Except as set forth in
Schedule 2.3(i), no filing with, and no permit, authorization, consent or
approval of, any public body or authority is necessary for the consummation by
any Seller of the transactions contemplated hereby. Except as set forth in
Schedule 2.3(ii), neither the execution, delivery and performance nor the
consummation by any Seller of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the certificate of
incorporation, by-laws, charter, partnership agreement, certificate of limited
partnership, joint venture agreement or other organizational document of any
Seller; (ii) violate or conflict with any order, injunction, decree, statute,
rule, ordinance or regulation applicable to any Seller or by which any of its
properties or assets may be bound; (iii) result in the violation or breach of,
or constitute a default (or give rise to any right of modification, termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, license, franchise, permit, lease, agreement or
other instrument to which any Seller is a party or by which any Seller or any of
its properties or assets may be bound or (iv) result in the creation or
imposition of (or the obligation to create or impose) any Encumbrance on any
Asset, excluding from the foregoing clauses (iii) and (iv) such violations,
conflicts, breaches, defaults and Encumbrances that, in the aggregate could not
reasonably be expected to have a Seller Material Adverse Effect or that would
not adversely affect, in a material respect, the ability of any Seller to
consummate the transactions provided for by this Agreement.
2.4 CONTINGENCIES. Except as set forth on Schedule 2.4, (i) there is no
litigation, arbitration or other proceeding pending or, to the Knowledge of any
Seller, threatened against any Seller or any of their directors, officers,
employees or agents before any court, arbitrator, or administrative,
governmental or regulatory authority or body, domestic or foreign which has, or
could reasonably be expected to have, a Seller Material Adverse Effect and (ii)
no Seller nor any of the Assets is subject to any order, writ, judgment,
injunction, decree, determination or award which has, or could reasonably be
expected to have, a Seller Material Adverse Effect.
2.5 FINANCIAL STATEMENTS. The Financial Statements have heretofore been
delivered to Parent and the Buyers and fairly present the financial position of
BVEL and its predecessor entities (as applicable) as of the respective dates
thereof and the results of their operations, changes in partners' capital and
their cash flows for the respective periods set forth therein, were prepared in
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accordance with GAAP applied on a consistent basis and reflect all material
liabilities and obligations of BVEL and its predecessor entities (as
applicable) required to be reflected thereon by GAAP.
2.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 2.6 since
December 31, 1995, there has not been (i) any change in the business,
operations, properties, condition (financial or otherwise), assets or
liabilities (including without limitation, contingent liabilities), results of
operations, business or prospects of any Seller, taken as whole, which,
individually or in the aggregate, has, or could reasonably be expected to have,
a Seller Material Adverse Effect; (ii) any change by any Seller in accounting
methods, principles or practices except as required by GAAP; and (iii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets of any Seller which, individually or in the aggregate, has or
could reasonably be expected to have a Seller Material Adverse Effect.
2.7 LICENSES, AUTHORIZATIONS, TRADEMARKS, ETC.
2.7.1. LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. Unless
expressly stated otherwise, all of Sellers' representations and warranties in
this Section 2.7 are made (a) only to the extent of the Knowledge of any Seller
(the "Knowledge Qualification"), and (b) only as to matters that are material to
the Assets as they are currently being exploited by the Sellers (the
"Materiality Qualification"), except that, with respect to representations and
warranties as to actions taken or omitted to be taken subsequent to such
Seller's acquisition of the subject Asset, such representations and warranties
are qualified only by the Materiality Qualification.
2.7.2 TRADEMARKS.
(i) The Sellers are the sole and exclusive owners of all of
the registered LASSIE and LONE RANGER trademarks and service marks in the
United States for the goods and services listed on Schedule 2.7.2(a), subject
to the limitations set forth in that Schedule (the "Material Trademarks"),
together with the goodwill of the business associated therewith; they have the
sole and exclusive right to use the Material Trademarks for such goods and
services; and the Material Trademarks have been registered in the United
States, which registrations are valid, subsisting, enforceable and have not
been abandoned. The foregoing representation and warranty is subject to the
Materiality Qualification, but is not subject to the Knowledge Qualification.
With respect to all registered trademarks and service marks listed on Schedule
2.7.2.(a) other than the Material Trademarks, subject to the limitations set
forth in that Schedule (the "Other Trademarks"), and with respect to all
applications for trademarks and service marks listed in Schedule 2.7.2(a),
subject to the limitations set forth in that Schedule (the "Applications"),
all representations and warranties are made subject to the Knowledge
Qualification and the Materiality Qualification.
(ii) The Sellers are the sole and exclusive owners of the
Other Trademarks for the goods and services and in the jurisdictions (the
"Territory") listed on Schedule 2.7.2(a) together with the goodwill of the
business associated therewith; and they have
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the sole and exclusive right to use the Other Trademarks for such goods and
services in the Territory and the Other Trademarks have been registered in the
Territory, which registrations are valid, subsisting, enforceable and have not
been abandoned in the Territory. The information relating to the Material
Trademarks and the Other Trademarks identified in Schedule 2.7.2(a) is true,
accurate and complete. For each of the Material Trademarks and the Other
Trademarks identified on Schedule 2.7.2(a), the record title owner has been
specifically identified in that Schedule and, where applicable, said Schedule
also identifies the registration number and date for each Material Trademark
or Other Trademark for which a registration has been issued by, or the
Application serial number and date for each pending Application for
registration in, the United States Patent and Trademark Office, or similar
office in any foreign jurisdiction. Notwithstanding anything to the contrary
set forth above, none of the Sellers is the record title owner of certain of
the Other Trademarks as specifically identified on Schedule 2.7.2(a) and,
therefore, in certain of the jurisdictions it may not be possible for
Productions (or LRM Acquisition, as applicable) to record an assignment of
such Other Trademark to Productions (or LRM Acquisition, as applicable)
because of a prior break in the chain of title. Nonetheless with respect to
each such trademark registration where the Sellers are not the record title
owner, the Sellers represent and warrant that they are the sole and exclusive
owners of the trademark exploitation rights specified in Schedule 2.7.2(a),
subject to the limitations set forth in that Schedule, and any goodwill of the
business associated therewith and they have the sole and exclusive right to
use said trademarks for the goods and services in the particular jurisdictions
indicated on Schedule 2.7.2(a).
(iii) Upon the Closing, the sale and assignment of the
Material Trademarks and the Other Trademarks and the goodwill of the business
represented thereby will be free and clear of any Liens. Neither the Knowledge
Qualification nor the Materiality Qualification apply to the representation
contained in the immediately preceding sentence. Except for the agreements
identified on Schedule 2.7.2(b), there are no outstanding licenses or other
agreements that relate to or restrict the use of either the Material
Trademarks or the Other Trademarks and any goodwill of the business associated
therewith. Except as set forth on Schedule 2.7.2(c), there are no pending
suits, disputes, or claims whatsoever regarding the use and/or registration of
either the Material Trademarks or the Other Trademarks. No adverse holding,
decision or judgment has been rendered against any Seller or a Predecessor by
any governmental authority which would limit, cancel or question the validity
of any of the Material Trademarks or the Other Trademarks. Except as set forth
in Schedule 2.7.2 (c), no Seller is aware of any information that would
adversely affect the validity of any of the Other Trademarks. The Sellers have
taken all economically reasonable necessary or desirable steps to secure,
protect and maintain the Material Trademarks and the Other Trademarks in the
United States and in the Territory and have disclosed to the Buyers any known
infringements.
(iv) The Sellers have placed the LASSIE and LONE RANGER
trademarks on a worldwide trademark watching service and from time-to-time
have performed trademark searches in various jurisdictions for said marks
and/or confusingly similar marks and, based thereon, to the Knowledge of the
Sellers, except as set forth in Schedule 2.7.2(c), there are no trademarks
used or registered in the Territory that conflict with or infringe the
Material Trademarks or the Other Trademarks for the goods and services
identified on Schedule 2.7.2(a),
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and no third party has claimed or is claiming it owns any right, title or
interest in the Material Trademarks or the Other Trademarks superior to
Sellers' rights in the Material Trademarks or Other Trademarks so that
Sellers' use of the Material Trademarks or the Other Trademarks does not
infringe on any trademarks, trade names or service marks of any third party.
(v) The Sellers will take all reasonable actions requested
by Parent and the Buyers at the expense of Parent and the Buyers which are
necessary or desirable to transfer ownership to Productions (or LRM
Acquisition, as applicable) and/or to assist in maintaining the validity of
the Material Trademarks and the Other Trademarks, including making available a
knowledgeable witness or witnesses to testify concerning the use of the
Material Trademarks and/or the Other Trademarks without any expense to any
Buyer or Parent, if any such witness or witnesses are then employed by the
Sellers or under their control, should this be required in connection with
litigation or claims affecting the Material Trademarks and/or the Other
Trademarks.
2.7.3 COPYRIGHTS.
(i) REGISTRATION OF COPYRIGHT.
Except as set forth in Schedule 2.7.3(a), the
copyrights in the Film Properties, (as defined below) that are identified
in Schedule 2.7.3(b) as being held by any Seller have been duly registered
in the U.S. Copyright Office in the name of one of the Sellers or a
Predecessor. Schedule 2.7.3(e) sets forth, as to each such copyright in
the Film Properties, the following information: copyright registration
number, date of registration, renewal date and renewal number, to the
extent previously compiled by the Sellers. In addition, Schedule 2.7.3(e)
sets forth such information as to properties not included in the Film
Properties, and at the Closing the Sellers shall assign their rights, if
any, to such additional properties to Productions (or LRM Acquisition, as
applicable), and Productions (or LRM Acquisition, as applicable) shall
assume all obligations incurred by a Person as a result of the operation,
use or other exploitation of such additional properties after the Closing.
Except as set forth in Schedule 2.7.3(a), the Sellers are not aware of any
country outside the United States which is a member of the Berne
Convention or Universal Copyright Convention and in which any copyright in
any Film Property identified in Schedule 2.7.3(b) as being held by any
Seller is not currently subsisting.
(ii) FILM PROPERTIES AND OTHER PROPERTIES.
The Sellers own or otherwise control the film and
television properties as set forth on Schedule 2.7.3(b) in the media, for the
terms and for the geographic areas set forth in that Schedule, subject to the
territorial availabilities set forth in Schedule 2.7.3(c), the limitations set
forth in Schedule 2.7.3(a), the Outstanding Agreements and other non-material
matters (the "Film Properties"). Upon the Closing, Productions (or LRM
Acquisition, as applicable) will own or be licensed or otherwise possess the
necessary rights and interests sufficient to permit Productions (or LRM
Acquisition, as applicable) to exploit the Film Properties as set forth in
Schedule 2.7.3(b), in the media, for the terms and for the geographic areas
set forth therein,
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subject to the territorial availabilities set forth in Schedule 2.7.3(c) the
limitations set forth in Schedule 2.7.3(a), the Outstanding Agreements and
other non-material matters, free and clear of any and all Liens.
(iii) INFRINGEMENT CLAIMS.
No Seller is infringing any valid copyright in the
operation of its business. Except as set forth in Schedule 2.7.3(a) no adverse
holding, decision or judgment has been rendered against any Seller or a
Predecessor by any governmental authority that would limit, cancel, or
question the validity of any copyright in any of the Film Properties
transferred hereunder. Except as set forth in Schedule 2.7.3(d), there are no
asserted and pending suits, disputes, or claims relating to Sellers' right to
exploit any of the Film Properties or to any copyrights therein. The
warranties and representations set forth in the immediately preceding sentence
are not subject to the Knowledge Qualification.
(iv) Sellers' exploitation of the Film Properties does not libel,
defame, or violate the right of publicity or privacy of any person. With
respect to the Film Property entitled "Frosty Returns," the representation and
warranties in the immediately preceding sentence are not limited by the
Knowledge Qualification.
2.7.4 MUSIC. All public performance and synchronization rights to
the musical compositions recorded in the Film Properties are, to the extent
required for the purposes of exploitation of the Film Properties, either: (i)
owned or controlled by a Seller and licensed to the American Society of
Composers, Authors and Publishers ("ASCAP"), Broadcast Music Inc. ("BMI") the
Society of European Stage Authors and Composers ("SESAC") or similar
organizations in other countries such as the Performing Rights Society Limited
("PRS"); (ii) in the public domain throughout the world, or duly licensed to a
Seller; or (iii) otherwise owned by or licensed to a Seller.
2.7.5 LITERARY PROPERTIES. The Sellers own, are licensed or
otherwise possess the necessary right, title and interest in the Literary
Properties to permit the exploitation of the Film Properties.
2.7.6 PROFIT PARTICIPANTS. Schedule 2.7.6 contains a true,
accurate and complete summary of all agreements under which third parties are
entitled to shares of revenues relating to any Film Properties or Other Assets.
No union, collective bargaining, guild or other agreement prevents the Sellers
from exploiting the Film Properties.
2.7.7 PHYSICAL MATERIALS. For each of the Film Properties which
has heretofore been exploited by the Sellers, there exist, original or dupe
negatives or other appropriate and customary preprint and duplicating materials,
sound tracks and other materials owned and controlled by the Sellers, sufficient
to create master tapes to support the exploitation of the Film Properties in the
manner heretofore exploited by the Sellers. The Sellers are storing Physical
Materials in accordance with recognized industry standards for the use and
preservation of such materials. The representations and warranties in Section
2.7.7 are not subject to the Knowledge Qualification.
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2.8 [INTENTIONALLY OMITTED]
2.9 STATUS OF OUTSTANDING AGREEMENTS. All Outstanding Agreements which in
the aggregate contributed at least 70 percent of the aggregate revenues (in
descending order of contribution to revenues) derived from the Assets from
January 1, 1994 through and including June 30, 1996 or which involved,
individually, any material obligation on the part of the Sellers with respect to
the Assets (the "Scheduled Agreements") are listed in Schedule 2.9(i) hereto.
Except as set forth on Schedule 2.9(ii), no Seller party thereto nor, to the
Knowledge of any Seller, any other party to any Scheduled Agreement (and the
other agreements listed on Schedule 2.9(i)) is in breach thereof or default
thereunder, and there does not exist under any Scheduled Agreement (and the
other agreements listed on Schedule 2.9(i)) any event which, with the giving of
notice or the lapse of time, would constitute a breach or default by any Seller
or, to the Knowledge of any Seller, a breach or default by any third party,
except in each case for such breaches, defaults and events as to which requisite
waivers or consents have been obtained or which would not, in the aggregate,
have a Seller Material Adverse Effect. Except as separately identified on
Schedule 2.9(ii), no approval or consent of, or notice to or filing with, any
person is needed under the terms of any such Scheduled Agreement (and the other
agreements listed on Schedule 2.9(i)) in order that such agreement continue in
full force and effect (without giving any contractual party the right to modify,
accelerate or terminate) following the consummation of the transactions
contemplated by this Agreement. Except as set forth on Schedule 2.9(iii), each
Scheduled Agreement (and the other agreements listed on Schedule 2.9(i)) has
been duly executed and delivered by the applicable Seller, is in full force and
effect and is valid, binding and enforceable in accordance with its terms and
against the Seller party thereto, and to the Sellers' Knowledge, and assuming
the due authorization and execution of such Scheduled Agreement (and the other
agreements listed on Schedule 2.9(i)) by the other party or parties thereto, any
other party thereto. No Seller has received a notice of termination under any
Scheduled Agreement (and the other agreements listed on Schedule 2.9(i)). The
material terms of (i) any oral Scheduled Agreement (and the other agreements
listed on Schedule 2.9(i)), (ii) any oral amendment to a material term of a
Scheduled Agreement (and the other agreements listed on Schedule 2.9(i)) and
(iii) any other material oral amendments to any Scheduled Agreements (and the
other agreements listed on Schedule 2.9(i)) are set forth on Schedule 2.9(iv).
2.10 COMMISSIONS. Neither any Seller nor any of its officers, directors,
agents or employees has employed or incurred any liability to any broker, finder
or agent for any brokerage fees, finder's fees, commissions or other amounts
with respect to the Transaction, and each Seller shall hold each Buyer and its
Affiliates harmless from and against the full amount of any Losses incurred by
reason of any contrary assertions.
2.11 TAX MATTERS.
(i) Each Seller, each of the McSpadden Entities and Broadway Comics
has timely filed all Tax returns (if applicable) and has timely paid or will
timely pay all Taxes payable by it for the Pre-Closing Tax Period. There are
no Encumbrances for Taxes on any Asset or on any asset held by Broadway Comics
or by any of the McSpadden Entities.
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(ii) Each Seller, each of the McSpadden Entities and Broadway Comics
has or will timely pay all Tax liabilities, assessments, interest and
penalties which arise from or with respect to the Assets or the operation of
its business and are incurred in or attributable to the Pre-Closing Tax
Period, the non-payment of which would result in an Encumbrance on any Asset
or would otherwise adversely affect the Assets or the assets held by Broadway
Comics or any of the McSpadden Entities or would result in the Buyers or
Parent becoming liable therefor.
2.12 COMPLIANCE WITH APPLICABLE LAW. Each Seller possesses all permits,
licenses, variances, exemptions, orders, approvals and authorizations of all
public bodies that are necessary for the current use and operation of the Assets
except for permits, licenses, variances, exemptions, orders, approvals and
authorizations which, if not possessed, would not result in a Seller Material
Adverse Effect. The business of each of the Sellers is being conducted in all
material respects in compliance with all permits, orders, writs, judgments,
ordinances, laws, statutes, codes, rules, regulations and policies of any public
body.
2.13 INVESTMENT REPRESENTATION. No Seller is taking Parent Common Stock
with a view towards distribution in violation of the Act.
2.14 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 2.14, (i) the
operations of each Seller are in compliance with Environmental Laws; (ii) there
has been no Release at any of the assets or properties operated by any Seller
during the Sellers' operation of same, or which is reasonably likely to result
in Environmental Liabilities that have a Seller Material Adverse Effect; (iii)
no Environmental Claim has been asserted against any Seller nor does any Seller
have Knowledge or notice of any threatened or pending Environmental Claims
against any Seller or its Predecessors which are reasonably likely to result in
Environmental Liabilities that have a Seller Material Adverse Effect; and (iv)
no Seller has received any notice that it or its Predecessors is a potentially
responsible party in connection with Releases or threatened Releases at any
disposal or treatment facility which received Wastes generated by any Seller or
its Predecessors.
2.15 EMPLOYEE BENEFITS; LABOR.
(a) With respect to each Plan, (i) such Plan has been maintained in
compliance in all material respects with ERISA, the Code, the terms of such
Plan and all laws, rules and regulations applicable thereto, (ii) a favorable
determination letter has been obtained from the Internal Revenue Service, for
any such Plan that is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and that is intended to be qualified within the meaning
of Section 401(a) of the Code, and since such determination letter, no event
has occurred that would disqualify such Plan; and (iii) there has been no
"prohibited transaction" within the meaning of Section 4975(c) of the Code or
Section 406 of ERISA involving the assets of any Plan which would result in
any liability under ERISA or the Code to Parent or the Buyers.
(b) Each member of the ERISA Group that is a participating employer
in any Multiemployer Plan has neither (i) failed to make any required
contribution or payment to any such Multiemployer Plan which would result in
any liability to Parent or the Buyers, (ii) entered into or made any amendment
to any such Multiemployer Plan which has resulted in the
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establishment of a bond or other security under ERISA or the Code which would
result in any liability to Parent or the Buyers, or (iii) incurred any
withdrawal liability under Title IV of ERISA with respect to any such
Multiemployer Plan which would result in any liability to Parent or the
Buyers.
(c) The annual reports (Form 5500 Series) with respect to each Plan
have been properly filed, including the payment in full of any late fees,
interest and penalties, if, and to the extent, applicable, and with respect to
any annual reports which are filed improperly, late or incomplete, neither
Parent nor any of the Buyers shall be subject to any liability under ERISA or
the Code.
(d) No member of the ERISA Group, with respect to each Plan that is
an employee pension benefit plan (other than a Multiemployer Plan) which is
covered by Title IV or ERISA or subject to the minimum funding standards under
Section 412 of the Code (a "Defined Benefit Plan") (i) has failed to satisfy,
or sought a waiver of, the minimum funding standards under Section 412 of the
Code with respect to any Defined Benefit Plan which would result in any
liability to Parent or the Buyers, (ii) failed to make any contribution or
payment to any Defined Benefit Plan, or made any amendment to any Defined
Benefit Plan, which has resulted in the establishment of a bond or other
security under ERISA or the Code which would result in any liability to Parent
or either of the Buyers, or (iii) incurred any liability under Title IV of
ERISA other than liability to the Pension Benefit Guaranty Corporation for
premiums under Section 4007 of ERISA, which would result in any liability to
Parent or either of the Buyers.
(f) The liabilities for all benefits provided pursuant to all Plans
have been fully and adequately provided for on the books of account of the
members of the ERISA Group in accordance with GAAP.
(g) There are no written and filed claims or grievances outstanding
against any member of the ERISA Group under any Plan other than in the normal
course of business which would result in any liability to Parent or the
Buyers.
(h) Except for agreements with guilds and other entertainment
industry unions, no Seller is a party to any labor or collective bargaining
agreement and there are no labor or collective bargaining agreements that
pertain to employees of the Sellers. No employees of the Sellers are
represented by a labor organization. No labor organization or group of
employees of the Sellers has made a pending demand against any of the Sellers
for recognition, and there are no representation proceedings or petitions
seeking a representation proceeding presently pending against or, to the
knowledge of any Seller, threatened to be brought or filed against any such
Seller, with the National Labor Relations Board or other labor relations
tribunal. There is no organizing activity involving any Seller pending or, to
the knowledge of any Seller, threatened by any labor organization or group of
employees of the Sellers. There are no (i) strikes, work stoppages, slowdowns,
lockouts or arbitrations or (ii) grievances or other labor disputes pending
or, to the knowledge of any Seller, threatened against or involving any
Seller. There are no unfair labor practice charges, grievances or complaints
pending or, to the knowledge of any Seller, threatened by or on behalf of any
employee or group of employees of the Sellers. No
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Seller has incurred any liability or obligation under the Worker Adjustment
and Retraining Notification Act or similar state laws, which remains unpaid or
unsatisfied.
(i) As a result of the consummation of the transactions contemplated
hereby, neither Parent nor any of the Buyers shall (i) be liable, responsible
for or otherwise obligated to pay or accrue any employee benefit or related
payment, fine, fee, penalty, excise tax or other employee-related liability
relating to any Asset which was held or owned at any time by any member of the
ERISA Group (ii) be obligated to maintain, contribute to or otherwise assume
responsibility for any Plan maintained or previously maintained by any member of
the ERISA Group or (iii) be liable under any agreement or arrangement involving
guilds or other entertainment industry unions with respect to any employees of
the Sellers or their Affiliates.
3. BUYERS' AND PARENT'S REPRESENTATIONS AND WARRANTIES. As an inducement for
the Sellers to enter into this Agreement, each of the Buyers and Parent each
hereby jointly and severally represents and warrants as follows:
3.1 EXISTENCE AND RIGHTS. Each of Parent and the Buyers is duly
incorporated or organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and the Buyers has the requisite power
and authority to own, lease and operate the properties and assets it now owns,
leases and operates and to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing, or to have
such power and authority, would not, individually or in the aggregate, have a
Buyers Material Adverse Effect. Each of Parent and the Buyers is duly qualified
or licensed and is in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing which will not in
the aggregate have a Buyers Material Adverse Effect. A complete and correct copy
of the certificate of incorporation and by-laws of each of the Buyers and Parent
have been made available to BVEL.
3.2 AGREEMENTS AUTHORIZED. The execution, delivery and performance by
each of Parent and the Buyers of this Agreement and the Closing Agreements and
the consummation by each of Parent and the Buyers of the transactions
contemplated hereby and thereby have been and will be as of the Closing duly
authorized by all necessary corporate action and no other proceedings on the
part of any of Parent or the Buyers are necessary to authorize the execution,
delivery and performance of this Agreement. This Agreement and the Closing
Agreements have been (or will be, as the case may be) and all such agreements
will be as of the Closing duly executed and delivered by the applicable Buyers
and Parent and are (or will be, as the case may be) the legal, valid and binding
obligation of the applicable Buyers and Parent enforceable in accordance with
their terms, except to the extent limited by bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws affecting the
rights and remedies of creditors generally.
3.3 CONSENTS AND APPROVALS; NO CONFLICT. Except as set forth in
Schedule 3.3(i), to Parent and Buyers' Knowledge, no filing with, and no permit,
authorization, consent or approval
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of, any public body or authority is necessary for the consummation by Parent
or each of the Buyers of the transactions contemplated hereby. Except as set
forth in Schedule 3.3(ii), neither the execution, delivery or performance nor
the consummation by Parent or the Buyers of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws of Parent or either of the Buyers;
(ii) violate or conflict with any order, injunction, decree, statute, rule,
ordinance or regulation applicable to Parent or the Buyers or by which any of
their properties or assets may be bound; (iii) result in the violation or
breach of, or constitute a default (or give rise to any right of modification,
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, license, franchise, permit, lease,
agreement or other instrument to which Parent or the Buyers is a party or by
which Parent or either of the Buyers or any of its properties or assets may be
bound, excluding from the foregoing clauses (ii) and (iii) such violations,
conflicts, breaches, defaults that, in the aggregate would not reasonably be
expected to have a Buyers Material Adverse Effect or to adversely affect, in a
material respect, the ability of the either of the Buyers or Parent to
consummate the transactions provided for by this Agreement.
3.4 SHARES AUTHORIZED. All Parent Common Stock that shall be issued to
the Sellers pursuant to this Agreement will be duly and validly authorized and
is not subject to any preemptive or similar rights with respect to its issuance,
and when issued and delivered pursuant to this Agreement, shall be validly
issued, fully paid and non-assessable.
3.5 REPORTS AND FINANCIAL STATEMENTS. Parent has previously furnished the
Sellers with true and complete copies of Parent's (i) Quarterly Report on Form
10-Q for the fiscal quarter ended May 4, 1996, as filed with the SEC, (ii)
Annual Report on Form 10-K for the fiscal year ended February 3, 1996, as filed
with the SEC and (iii) the proxy statement related to the May 8, 1996 special
meeting of its stockholders, (the documents referenced in clauses (i) through
(iii), as amended since the time of filing, shall be referred to collectively as
the "SEC Documents"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act. As of their
respective dates, the SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the SEC Documents: (i) fairly present the consolidated
financial condition of Parent as of the respective dates thereof, and the
consolidated results of the operations and cash flows of Parent for the
respective periods covered thereby; (ii) disclose all liabilities required to be
disclosed therein; and (iii) have been prepared in accordance with GAAP applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and except as the application may be modified in accordance with GAAP
for interim reporting.
3.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC Documents,
the July 27, 1996 printer's proof of the Private Placement Memorandum relating
to the Financing and in press releases issued by or on behalf of the Buyers or
Parent, copies of which have been delivered to the Sellers, since February 3,
1996, there has not been (i) any change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities (including without
limitation, contingent liabilities), results of operations, business of Parent
and the Buyers, taken as whole,
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which, individually or in the aggregate, has, or could reasonably be
expected to have, a Buyers Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to
Parent or the Buyers; (iii) any revaluation by Parent or any Buyer of any of
its assets, including, without limitation, writing down the value of inventory
or writing off notes or accounts receivable; (iv) any entry by Parent or the
Buyers into any material contractual obligation, borrowing, capital
expenditure or transaction; or (v) any change by Parent or the Buyers in
accounting methods, principles or practices except as required by GAAP.
3.7 [INTENTIONALLY OMITTED]
3.8 COMMISSIONS. Except as set forth in Schedule 3.8, neither the Buyers
nor Parent nor any of its officers, directors, agents or employees has employed
or incurred any liability to any broker, finder or agent for any brokerage fees,
finder's fees, commissions or other amounts with respect to the Transaction, and
agrees to hold the Sellers and their Affiliates harmless from and against the
full amount of any Losses incurred by reason of any contrary assertions.
4. COVENANTS OF THE SELLERS.
4.1 ACCESS. The Sellers shall authorize the Buyers and Parent upon any of
their request (including without limitation by giving any laboratory, storage
facility or other party having possession of any of the Physical Materials
written authorization and instructions, with copies thereof to the Buyers or
Parent) to have access at all reasonable times during business hours to the
Sellers' representatives (including accountants and lawyers), Senior Management
and other appropriate employees of the Sellers, Physical Materials and the
books, records, offices and other facilities with respect to or relating to the
Assets and the Physical Materials as any of the Buyers or Parent and their
representatives from time to time may reasonably request. Without limiting the
foregoing, the Sellers shall use their best efforts to cause E&Y to provide the
Buyers and Parent full and free access to such firm's work papers relating to
the Financial Statements; provided, however, that any inquiries shall be
performed in such a manner so as to not unreasonably interfere with the business
operations of the Sellers and further provided that any inquiry or investigation
in connection with this Agreement shall not affect Parent's or the Buyers'
ability to rely on any representation or warranty of the Sellers set forth in
this Agreement. If any Physical Materials are not in the Sellers' possession or
under its control at a laboratory, storage facility or other place, the Sellers
will exercise reasonable efforts to cause such Physical Materials to be made
available or delivered to the Buyers as hereinabove provided.
4.2 BUSINESS CONDUCT. The Sellers agree that, until the Closing, unless
Parent or either of the Buyers otherwise consents in writing (such consent not
be unreasonably withheld) and except for the Transaction, each of the Sellers
will (i) conduct its business in the ordinary and usual course consistent with
past practice and in compliance in all material respects with all applicable
laws and governmental regulations relating to the Assets and the Sellers'
exploitation thereof and all covenants, terms and conditions upon which any of
the Assets are held; (ii) preserve the goodwill and business relationships with
suppliers, distributors, customers, licensors, licensees and others having a
business relationship with any Seller involving or relating to the Assets and
Obligations in each case in the ordinary and usual course of business consistent
with past practice; (iii)
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maintain and preserve in full force and effect the existence of, and ownership
of, or other rights to, the Assets, and not waive any material license or
other right with respect thereto in each case in the ordinary and usual course
of business consistent with past practice; (iv) not waive, modify, amend,
release, settle or terminate any rights, debts or claims, including
infringement claims of substantial value; (v) pay any obligation relating to
the Assets upon its becoming due, consistent with past practices, except if
and to the extent that such obligation is subject to a bona fide dispute, in
which event the detailed circumstances of such failure to pay shall be
promptly communicated in a notice to either of the Buyers or Parent; and (vi)
not enter into or amend or terminate any agreement not in the ordinary course
of business which would decrease (other than de minimus decreases) the value
the Assets, taken as a whole. Not less than five Business Days prior to the
Closing, the Sellers shall deliver to Productions (on behalf of the Buyers and
Parent) a schedule of all material contractual obligations, borrowings,
capital expenditures or transactions entered into since the date hereof, which
schedule shall be true, complete and correct in all material respects as of
the Closing.
4.3 REPRESENTATIONS TRUE. Until the Closing Date, the Sellers will use
all reasonable efforts to prevent the occurrence of any event which would cause
any representations and warranties made by or on behalf of any Seller set forth
in this Agreement not to be true and correct. The Sellers will inform
Productions (on behalf of the Buyers and Parent) promptly upon discovery that
any of their representations or warranties ceases to be true or correct.
4.4 PERMITS; CONSENTS. The Sellers will make all filings with
governmental bodies and other regulatory authorities (including under HSR), and
use all reasonable efforts to obtain all permits, approvals, authorizations and
consents of all third parties, necessary for the Sellers to consummate the
Transaction. As soon as practical following receipt of any written request from
any Buyer or Parent, each Seller will furnish to Productions (on behalf of the
Buyers and the Parent) all information which is in each Seller's possession and
not otherwise available to Parent and the Buyers which Productions (on behalf of
the Buyers and the Parent) may reasonably deem necessary in connection with any
such filing to be made by Parent and the Buyers.
4.5 LEGAL OPINION. The Sellers will use all reasonable efforts to cause
Irell & Manella LLP, Beldock, Levine & Hoffman LLP or other counsels for the
Sellers, to render opinions, dated as of the Closing Date, each in a form
mutually agreed to by the Parent, the Buyers and the Sellers.
4.6 PREPARATION OF FINANCIALS; ADDITIONAL INFORMATION. The Sellers, at
Parent and Buyers' expense, shall provide reasonable assistance to Parent and
the Buyers in connection with Parent and Buyers' preparation of the financial
statements described in Schedule 4.6 (the "Additional Financial Statements") on
or before the times specified therein in order to facilitate the Financing (and
related transactions) by Parent and its Affiliates and the reporting and other
obligations of such entities under the Securities Act and the Exchange Act.
Notwithstanding the foregoing, the Sellers shall not be responsible for the
preparation of, and make no representations or warranties with respect to, the
Additional Financial Statements.
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The Sellers shall also provide Parent and the Buyers with such other
information reasonably requested by Parent or the Buyers in connection with
the Financing (and related transactions).
4.7 REPAYMENT OF DEBT. Simultaneously, with the Closing hereof, the
Sellers shall cause any Liens on any Assets to be released.
4.8 IDENTIFIED EMPLOYEES. The Sellers and their Affiliates shall release
the employment obligations of the Identified Employees who notify the Sellers of
their intention to accept positions with Parent or any of its Affiliates in
connection with the acquisition of the Assets hereunder.
4.9 INSURANCE. Each of the Sellers shall use its best efforts to maintain
all insurance policies relating to the Assets in full force and effect through
the Closing Date.
4.10 CHANGE OF NAME. The Sellers shall cause the name of "Lone Ranger
Music, Inc." to be changed, as soon as practicable after the Closing, to a name
which is not confusingly similar to the name "Lone Ranger."
5. COVENANTS OF PARENT AND THE BUYERS.
5.1 REPRESENTATIONS TRUE. Until the Closing Date, Parent and the Buyers
will use all reasonable efforts to prevent the occurrence of any event which
would cause any of their representations and warranties set forth in this
Agreement not to be true and correct. Each of Parent and the Buyers will inform
the Sellers promptly upon discovery that any of its representations or
warranties ceases to be true or correct.
5.2 PERMITS; CONSENTS. Parent and the Buyers will make all filings with
governmental bodies and other regulatory authorities (including under HSR), and
use all reasonable efforts to obtain all permits, approvals, authorizations and
consents of all third parties, necessary to consummate the Transaction. As soon
as practical following receipt of any written request from any Seller, Parent
and the Buyers will furnish to the Sellers all information which is in their
possession and not otherwise available to the Sellers which the Sellers may
reasonably deem necessary in connection with any such filing to be made by the
Sellers (or an appropriate parent company of any Seller).
5.3 FINANCING. Each of Parent and the Buyers will use its best efforts to
complete the Financing on or before the Closing Date.
5.4 LEGAL OPINION. Each of Parent and the Buyers will use all reasonable
efforts to cause SR&Z, counsel for Parent and the Buyers, to render an opinion,
dated as of the Closing Date, in a form mutually agreed to by Parent, the Buyers
and the Sellers.
5.5 LITIGATION. Productions shall assign to the Sellers 25% of the Gross
Margin of Broadway Comics after the Closing up to the lesser of (i) the Maximum
Participation Amount and (ii) the total amount of the settlement involving the
payment of money by the Sellers (or any
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of them) in connection with the third item of litigation identified on
Schedule 2.4 (the "Identified Litigation") (such lesser amount, the "Buyer
Settlement Obligation"); provided, however, that the Buyer Settlement
Obligation shall not be applicable to any amounts payable under such
settlement that are not contingent on the results of Broadway Comics. None of
the Parent or the Buyers shall assume any other obligations in connection with
the Identified Litigation which shall be Excluded Obligations under this
Agreement. Notwithstanding the foregoing, except as set forth in the term
sheet referred to on Schedule 2.1(iii), none of the Parent or Buyers shall
have any obligation to provide any capital or other funding or take any other
actions to ensure the profitability of Broadway Comics or to maintain the
existence of Broadway Comics.
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYERS TO COMPLETE THE
CLOSING. The obligations of the Buyers and Parent to consummate this Agreement
and the Transaction are subject to the fulfillment, prior to or at the Closing,
of the following conditions, each of which may be waived by Parent or any Buyer
in writing:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of the Sellers contained in this Agreement shall be true and correct at and
as of the Closing Date and each of the Sellers shall have delivered to
Productions (on behalf of Parent and the Buyers) a certificate, dated as of the
Closing Date, to such effect.
6.2 COVENANTS. Each of the Sellers shall have complied in all material
respects with all covenants contained herein to be complied with by it prior to
or at the Closing and each Seller will have delivered to the Buyers a
certificate, dated as of the Closing Date, to such effect.
6.3 NO INJUNCTION OR LITIGATION. The Buyers or Parent shall not be
prohibited by any order, ruling, consent, decree, judgment or injunction of a
court or regulatory agency of competent jurisdiction from consummating the
Transaction. No litigation instituted by any governmental body or other
regulatory authority shall be pending to restrain or invalidate any material
part of the Transaction.
6.4 CONSENTS OBTAINED.
(i) All waiting periods under HSR shall have expired or been
terminated.
(ii) The Sellers shall have obtained all of the material consents and
approvals required for the execution, delivery and performance of this
Agreement and the transactions contemplated hereby (including under
Outstanding Agreements), which consents and approvals are set forth on
Schedule 2.9(ii), except that if any such material consent under an
Outstanding Agreement is not obtained, the Sellers shall have provided an
arrangement reasonably acceptable to Productions (or LRM, as applicable) which
is reasonably designed to provide Productions (or LRM Acquisition, as
applicable) with the benefits and obligations of any such Outstanding
Agreement as if the consent had been obtained prior to the Closing.
6.5 CLOSING AGREEMENTS. The Closing Agreements shall have been executed
and delivered by all parties thereto, unless the failure to do so is a result of
a breach by Parent or either of the Buyers.
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6.6 [INTENTIONALLY OMITTED]
6.7 CLOSING DOCUMENTS. Buyer shall have received, in form and substance
reasonably satisfactory to its counsel, each and every closing document required
to be delivered to it as set forth in this Agreement.
6.8 LEGAL OPINION. Parent and the Buyers shall have received the legal
opinion referred to in Section 4.5.
6.9 AVAILABILITY OF ELLENBOGEN. Ellenbogen shall not be deceased or
Parent, pursuant to the Ellenbogen Employment Agreement, shall not reasonably
expect Ellenbogen to have a Disability (as defined in such Agreement).
6.10 FINANCING. The Financing shall have been consummated.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERS TO COMPLETE THE
CLOSING. The obligations of the Sellers to consummate this Agreement and
the Transaction are subject to the fulfillment, prior to or at the Closing, of
the following conditions, each of which may be waived by any Seller in
writing:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyers and Parent contained in this Agreement shall be true and correct
in all respects as of the Closing Date. Parent and the Buyers shall have
delivered to the Sellers a certificate, dated as of the Closing Date, to the
foregoing effect.
7.2 COVENANTS. Each of the Buyers and Parent shall have complied in all
material respects with all covenants contained herein to be complied with by it
prior to or at the Closing and each of the Buyers and Parent will have delivered
to the Sellers a certificate, dated as of the Closing Date, to such effect.
7.3 NO INJUNCTION OR LITIGATION. No Seller shall be prohibited by any
order, ruling, consent, decree, judgment or injunction of a court or regulatory
agency of competent jurisdiction from consummating the Transaction. No
litigation instituted by any governmental body or other regulatory authority
shall be pending to restrain or invalidate any material part of the Transaction.
7.4 CONSENTS OBTAINED. All waiting periods under HSR shall have expired
or terminated.
7.5 CLOSING AGREEMENTS. The Closing Agreements shall have been executed
and delivered by all parties thereto, unless the failure to
do so is a result of a breach by any Seller or any Affiliates of the Sellers
that are signatories thereto.
7.6 PURCHASE PRICE. The Purchase Price shall have been delivered as
required by Section 1.2.2.
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7.7 CLOSING DOCUMENTS. The Sellers shall have received, in form and
substance reasonably satisfactory to its counsel, each and every closing
document required to be delivered to it as set forth in this Agreement.
7.8 LEGAL OPINION. The Sellers shall have received the legal opinion
referred to in Section 5.4.
8. TERMINATION.
8.1 GROUNDS FOR TERMINATION. This Agreement may be terminated: (i) at any
time prior to the Closing Date by either Parent and the Buyers, on the one hand,
or the Sellers, on the other hand, if there has been a material breach of the
representations, warranties or covenants of the Sellers, on the one hand, or
Parent and the Buyers, on the other hand, respectively, set forth herein; (ii)
by Parent and the Buyers if the conditions stated in Article 6 cannot be or have
not been satisfied in all material respects by the Closing Date; (iii) by the
Sellers if the conditions stated in Article 7 cannot be or have not been
satisfied in all material respects by the Closing Date; or (iv) at any time
prior to the Closing Date by mutual written agreement of Parent, the Buyers and
BVEL. Before termination under clauses (i), (ii) or (iii) above, each party will
provide the other with a reasonable opportunity for curing any breach or failure
of condition, based on the nature of the breach, the possibility for cure, and
the effect of delay on the party seeking termination.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided
in Section 8.1, all obligations of the parties hereunder will terminate without
liability of any party to any other party, except (i) that the obligations set
forth in Sections 2.10, 3.8, 10.1, 10.2, and Article 11 will survive any such
termination, (ii) for liability for Losses caused by a knowing and intentional
breach and (iii) as provided in Section 8.4.
8.3 RIGHTS TO PROCEED. Subject to Section 8.1, if any of the conditions
specified in Article 6 have not been satisfied, Parent and the Buyers will have
the right to proceed with the Transaction without waiving any of its rights
hereunder; and if any of the conditions specified in Article 7 have not been
satisfied, the Sellers will have the right to proceed with the Transaction
without waiving any of their rights hereunder.
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8.4 LIQUIDATED DAMAGES. The Sellers' ability to acquire film libraries
and to identify and enter into favorable distribution and marketing
arrangements, as well as their ability to maintain favorable relationships with
their employees and other persons with whom the Sellers have ongoing business
dealings, depend to a high degree on the perception in the Sellers' industry and
by the employees of the Sellers of a going concern under present management and
control. The parties acknowledge that the Sellers would be harmed in a real and
substantial way, and their value greatly impaired, by any perception of a failed
transaction to sell their Assets as contemplated herein. If the Agreement is
terminated (i)(A) by Parent or the Buyers solely because Parent cannot complete
the Financing and no Financial Event has occurred or (B) by the Sellers while
Parent or any Buyer is in material breach of any of its representations,
warranties or covenants contained herein and none of the Sellers is in breach of
any of their representations, warranties or covenants, then the Buyers shall pay
to BVEL an amount equal to the difference between Sellers' Liquidated Damages
and the sum of the Advance Amount and any Extension Amounts (as defined in
Section 8.5 below) previously paid to the Sellers hereunder, and the Sellers,
notwithstanding such termination hereof, shall retain any Advance Amount and all
Extension Amounts previously paid hereunder; (ii) by Parent or the Buyers
because Parent cannot complete the Financing and a Financial Event has occurred,
then, notwithstanding the termination hereof by Parent or the Buyers, the
Sellers shall retain the Advance Amount and any Extension Amounts previously
paid to them hereunder but no additional amounts on account of Sellers'
Liquidated Damages shall be paid to the Sellers or (iii) by Parent or the Buyers
when neither Parent nor any Buyer is in material breach of any of its
representations, warranties or covenants contained herein, then the Sellers
shall promptly return to the Buyers any Advance Amount and all Extension Amounts
previously paid to BVEL on their behalf hereunder, and no amounts on account of
Sellers Liquidated Damages shall be paid to the Sellers.
The parties have discussed and negotiated this provision for liquidated
damages which shall apply and be recoverable if the Closing does not or will
not occur as a result of the matters set forth in the preceding paragraph.
This liquidated damages provision shall not limit and shall be in addition to
the Sellers' rights to obtain injunctive and other equitable relief against
the Buyers but in no event shall the Sellers be entitled to additional
monetary damages. Each Seller acknowledges that it shall have no further claim
for damages against the Buyers or Parent, even if it can establish substantial
actual damages in excess of the amount specified herein. IN PLACING THEIR
INITIALS IN THE PLACE PROVIDED, THE SIGNATORIES BELOW ON BEHALF OF EACH PARTY
SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE HEREIN.
INITIAL HERE: SELLERS: /S/ SWS BUYERS: /S/ RES PARENT: /S/ RES
/S/ SWS /S/ RES
/S/ SWS
/S/ SWS
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8.5 OPTION TO EXTEND SPECIFIED DATE: Notwithstanding anything to the
contrary contained herein, Parent and the Buyers shall have the option to extend
the Specified Date beyond October 31, 1996, as follows: (i) to November 30, 1996
by paying $2,000,000 (an "Extension Amount") to BVEL on or before October 31,
1996 and (ii) to December 31, 1996 by paying an additional Extension Amount to
BVEL on or before November 30, 1996.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION.
(i) Indemnification by the Sellers. Each of the Sellers will jointly
and severally indemnify and hold harmless the Buyers, Parent, their respective
Affiliates, and each of the respective officers, directors, employees,
consultants, agents and representatives of each of the foregoing (together,
"Buyer Indemnitees"):
(A) With respect to any Losses which the Buyer Indemnitees may
incur or suffer as a result of any breach of any of the representations or
warranties in this Agreement made by or on behalf of any of the Sellers or any
failure to perform or comply with any covenant or agreement of any of the
Sellers in this Agreement;
(B) With respect to any and all Losses which the Buyer
Indemnitees may incur or suffer on account of any Excluded Obligation.
Any Losses incurred by the Buyer Indemnitees which are
indemnifiable by the Sellers but do not result from Sellers' fraud or willful
misconduct or from any Excluded Obligations shall be satisfied solely by
withdrawals from the Escrow Fund, and such Losses shall not be indemnifiable
after the Escrow Fund's termination pursuant to its terms and the terms
hereof.
Notwithstanding the foregoing, the Sellers shall not be required
to make any indemnification payments pursuant to the terms of clause (A) of
this Section 9.1 until the aggregate Losses with respect to which the Buyer
Indemnitees are entitled to indemnification thereunder shall have exceeded
$3,000,000 (the "Threshold Amount"), but then shall be required to pay the
full amount of such Losses including the Threshold Amount up to the Maximum
Indemnification Amount; provided, however, that the limitations set forth in
this Section shall not apply to any Losses (which Losses shall be fully
indemnifiable without regard to the Threshold Amount or the Maximum Amount)
(i) based upon fraud or willful or deliberate wrongdoing by any Seller or its
Affiliates or (ii) on account of any Excluded Obligation or on account of or
incurred as a result of a breach of the representatives and warranties set
forth in Section 2.10 hereof.
(ii) Indemnification by the Buyers and Parent. The Buyers and Parent
will jointly and severally indemnify and hold harmless each of the Sellers,
their respective Affiliates, and each of the respective officers, directors,
employees, consultants, agents and representatives of each of the foregoing
(together, "Seller Indemnitees").
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(A) With respect to any Losses which the Seller Indemnitees may
incur or suffer as a result of any breach of any of the representations or
warranties in this Agreement made by or on behalf of the Buyers or Parent or
any failure to perform or comply with any covenant or agreement of the Buyers
or Parent in this Agreement;
(B) With respect to any Losses which the Seller Indemnitees may
incur or suffer on account of any Obligations, the sales and use taxes
specified in Section 1.5 or claims against the Sellers arising primarily from
the Financing;
Notwithstanding the foregoing, the Buyers and Parent shall not
be required to make any indemnification payments pursuant to the terms of
clause (A) of this Section 9.1(ii) until the aggregate Losses of Seller
Indemnitees with respect to which Sellers are entitled to indemnification
thereunder shall have exceeded the Threshold Amount, but then shall be
required to pay the full amount of such Losses, including the Threshold Amount
up to the Maximum Amount; provided, however, that the limitations set forth in
this Section shall not apply to any Losses (which Losses shall be fully
indemnifiable without regard to the Threshold Amount or the Maximum Amount)
(i) based upon fraud or willful or deliberate wrongdoing by the Buyers, Parent
or their Affiliates or (ii) on account of any Obligation or on account of or
incurred as a result of a breach of the representations and warranties set
forth in Section 3.8 hereof, the sales and use taxes specified in Section 1.5
or claims against the Sellers arising primarily from the Financing.
9.2 TIME LIMIT. The representation and warranties in Articles 2 and 3
shall survive the Closing until the first anniversary of the date hereof. The
covenants and agreements of the parties hereto shall survive the Closing in
accordance with their terms. No party hereto shall be obligated to indemnify a
party pursuant to this Article 9 for any breach of a representation or warranty
after the first anniversary of the Closing Date or for Losses on account of the
Obligations or Excluded Obligations (as applicable) after the fifth anniversary
of the Closing Date (each such anniversary date, an "Outside Date"); provided,
however, in the event that an Indemnified Party (i) receives (on or prior to the
applicable Outside Date) notice of any matter which provides a reasonable basis
for a claim for indemnification hereunder and (ii) provides notice to the
Indemnifying Party of the receipt of such notice, then such Indemnified Party
shall be entitled to indemnification with respect to such claim until its final
resolution.
9.3 PROCEDURES FOR INDEMNIFICATION. (i) If any claim is asserted or any
action or proceeding is brought in respect of which indemnity may be sought, the
Indemnified Party will promptly notify the Indemnifying Party in writing of such
asserted claim or the institution of such action or proceeding. The Indemnifying
Party may undertake full responsibility for the defense or prosecution in
connection with any claim brought by any third-party ("Third-Party Claim") and
may contest or settle it on such terms as the Indemnifying Party may choose,
provided that the Indemnifying Party will not have the right, without the
Indemnified Party's written consent, to settle any such claim if such settlement
(A) arises from or is part of any criminal action, suit or proceeding, (B)
contains a stipulation to, confession of judgment with respect to, or admission
or acknowledgment of, any liability or wrongdoing on the part of the Indemnified
Party, (C) relates to any federal, state or local tax matters, (D) provides for
injunctive relief, or other relief other than
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damages, which is binding on the Indemnified Party or its Affiliates, or (E)
is, in the good faith judgment of the Indemnified Party, likely to establish a
pattern or practice materially adverse to the continuing business interests of
the Indemnified Party, except that if the Indemnified Party shall have failed
to consent to any settlement, the Indemnified Party shall be liable for the
full amount by which any subsequent judgment or settlement exceeds the
proposed settlement amount. Such defense will be conducted by reputable
attorneys retained by the Indemnifying Party at the Indemnifying Party's cost
and expense, but the Indemnified Party will have the right to participate in
such proceedings and to be separately represented by attorneys of its own
choosing. The Indemnified Party will be responsible for the costs of such
separate representation unless there are one or more legal defenses available
to the Indemnified Party that conflict with those available to the
Indemnifying Party, or if the Indemnifying Party fails to take promptly
reasonable steps necessary to defend diligently the claim after receiving
notice from the Indemnified Party that it believes in good faith that the
Indemnifying Party has failed to do so (specifying in reasonable detail and
alleged basis for such failure), which makes appropriate the retention of
separate counsel for the Indemnified Party, in which case the Indemnifying
Party will pay for one separate counsel chosen by the Indemnified Party.
(ii) If the indemnification of the Seller Indemnitees or the Buyer
Indemnitees provided for in this Article 9 is for any reason held
unenforceable, the party against whom indemnification was sought agrees to
contribute to the Losses for which such indemnification is unenforceable in
such proportion as is appropriate to reflect the relative fault of such party,
on the one hand, and the Buyer Indemnitees or the Seller Indemnitees, as the
case may be, on the other hand, as well as any other relevant equitable
considerations.
9.4 COOPERATION. The Indemnifying Party and the Indemnified Party shall
cooperate in determining the validity of any Third-Party Claim for any Loss for
which a claim of indemnification may be made hereunder. Each party shall also
use all reasonable efforts to minimize all Losses and all obligations under the
Outstanding Agreements.
10. ADDITIONAL OBLIGATIONS.
10.1 CONFIDENTIALITY OBLIGATIONS. Each party hereto shall maintain the
confidential nature of, and not disclose to any third party without prior
written consent, (i) any confidential information learned about the other or its
Affiliates in the course of the Transaction, or (ii) the terms of this
Agreement, unless and to the extent necessary to carry out the Transaction.
After the Closing, the Sellers shall not, and shall use all reasonable efforts
to cause others (including, without limitation their Affiliates and their
respective Affiliates' respective directors, officers, employees, agents or
representatives) not to disclose to any Person, any non-public information
included in, or concerning, the Assets or the Obligations. At the termination of
this Agreement, the Sellers, the Buyers and Parent each agree to return, and to
cause its Affiliates to return, to the other party any and all materials
containing any confidential information. These restrictions on use and
obligations of confidentiality will not apply to any information (i) to the
extent the receiving party is required to disclose such information (including
in connection with a public offering or the Financing or under court or
governmental order), (ii) then in the public domain by acts not attributable to
the receiving party, (iii) hereafter received by the receiving party from a
third party
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source on an unrestricted basis, or (iv) known to the receiving party prior to
the date of disclosure hereunder, provided in each case that the other party
is provided a reasonable prior opportunity to object to any use or disclosure.
If the Closing occurs, the Buyers and Parent shall be released from any
obligations under this Section 10.1 with regard to the Assets, except (i) that
this release will not affect the obligations with regard to the Transaction
and (ii) the Buyers and Parent will use all reasonable efforts to protect the
reasonable privacy interests of the Sellers and their respective partners,
shareholders, principals and other Affiliates.
10.2 ANNOUNCEMENTS. The Buyers and Parent, on the one hand, and the
Sellers, on the other hand, agree not to make, nor cause to be made, any news
releases or other public announcements and shall use all reasonable efforts to
cause their employees and Affiliates not to make any announcements pertaining to
the Transaction without first consulting the other and attempting to formulate a
mutually satisfactory arrangement for such disclosure, and in any case will only
make an announcement thereafter without the consent of the other (not to be
unreasonably withheld) to the extent required by applicable law.
10.3 NAME. The Buyers and Parent agree that they will not use the names
"Broadway Video," "Broadway Video Entertainment, L.P." or any confusingly
similar name other than as otherwise permitted by the terms hereof, without the
express written consent of the Sellers; provided, however, the Buyers, Parent
and their Affiliates shall at no time be required to remove such names from any
of the Assets or be required to dispose of any Assets on which such names appear
as of the Closing Date.
10.4 TAX COOPERATION: ALLOCATION OF TAXES. (i) Parent, the Buyers and the
Sellers agree to furnish or cause to be furnished to each other, upon request,
as promptly as practicable, such information and assistance relating to the
Assets as is reasonably necessary for the filing of all Tax returns, and making
of any election related to Taxes, the preparation for any audit by any taxing
authority, and the prosecution or defense of any claim, suit or proceeding
relating to any Tax return. The Sellers, Parent and the Buyers shall cooperate
with each other in the conduct of any audit or other proceeding related to Taxes
involving the Assets and each shall execute and deliver such powers of attorney
and other documents as are necessary to carry out the intent of this paragraph
(i) of Section 10.4.
(ii) All real property taxes, personal property taxes and similar ad
valorem obligations levied with respect to the Assets for a taxable period
which includes (but does not end on) the Closing Date (collectively, the
"Apportioned Obligations") shall be apportioned between the Sellers and the
Buyers as of the Closing Date based on the number of days of such taxable
period included in the Pre-Closing Tax Period and the number of days of such
taxable period included in the Post-Closing Period. The Sellers shall be
liable for the proportionate amount of such taxes that is attributable to the
Pre-Closing Tax Period and Parent and the Buyers shall be liable for the
proportionate amount of such taxes that is attributable to the Post-Closing
Tax Period. On or prior to the Closing Date, the Sellers, on the one hand, and
Parent and the Buyers, on the other hand, shall present a statement to the
other setting forth the amount of reimbursement to which each is entitled
under this Section 10.4(ii) together with such supporting evidence as is
reasonably necessary to calculate the proration amount. The proration amount
shall be paid by
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the party owing it to the other on or prior to the Closing Date. Thereafter,
the Sellers shall notify Parent and the Buyers upon receipt of any bill for
real or personal property taxes relating to the Assets, part or all of which
are attributable to the Post-Closing Tax Period, and shall promptly deliver
such bill to Parent and the Buyers which shall pay the same to the appropriate
taxing authority, provided that if such bill covers the Pre-Closing Tax
Period, the Sellers shall also remit to the Buyers prior to the due date of
the assessment payment for the proportionate amount of such bill that is
attributable to the Pre-Closing Tax Period. In the event that the Sellers, on
the one hand, or Parent and the Buyers, on the other hand, shall thereafter
make a payment for which it is entitled to reimbursement under this Section
10.4(ii), the other shall make such reimbursement promptly but in no event
later than 30 days after the presentation of a statement setting forth the
amount of reimbursement to which the presenting party is entitled along with
such supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section and not made within 10
days of delivery of the statement shall bear interest at the rate per annum
determined, from time to time, under the provisions of Section 6621(a)(2) of
the Code for each day until paid.
10.5 DELIVERY OF ASSETS. After the Closing, if any third party whether
under an Outstanding Agreement, or a previously expired license agreement or
otherwise, shall be found to possess any Asset or any Physical Materials
relating to any of the Assets, if and to the extent Productions (or LRM
Acquisition, as applicable) is entitled to such Physical Materials, the Sellers
will exercise reasonable efforts diligently and in good faith to cause such
Physical Materials to be furnished or delivered to Productions (or LRM
Acquisition, as applicable) or its licensees or designees.
10.6 COOPERATION.
10.6.1 ADDITIONAL ACTS. Each party hereto agrees, both before and
after the Closing, to execute any and all further documents and writings and
perform such other reasonable actions which may be or become necessary or
expedient to effectuate and carry out the Transaction (which except as otherwise
provided herein shall not include any obligation to make payments).
10.6.2 COOPERATION REGARDING FINANCIAL MATTERS. From and after the
Closing, the Buyers and Parent on the one hand, and the Sellers on the other
hand, agree that they will provide without charge the representatives of the
other and its current officers and partners with such reasonable assistance of
their employees and such access to the business records and other information
under their control regarding the Assets or the Obligations as may be reasonably
necessary for such persons to use in relation to the preparation and review of
any tax filings, audits or similar matters so long as such access does not
unreasonably interfere with the business of the parties providing access. Each
of the parties hereto will use reasonable efforts to maintain all records
included in the Assets until the end of the expiration of the applicable tax
statute of limitations for periods prior to the Closing Date.
10.6.3 CONFIRMATION OF TITLE. At and following the Closing, the
Sellers shall from time to time execute and deliver any reasonable deeds,
assignments or other assurances or reports
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which the Buyers shall reasonably advise the Sellers are necessary to vest,
perfect or confirm title to any Asset in Productions (or LRM Acquisition, as
applicable).
10.6.4 ADDITIONAL CONSENTS. Each Seller agrees with respect to all
consents not covered by Section 6.4 to use all reasonable efforts (which shall
not include any obligation to make payments) to obtain the consent of any
parties to an Outstanding Agreement whose consent is ultimately found to be
required for the assignment of that Outstanding Agreement to Productions (or LRM
Acquisition, as applicable) or for the consummation of the Transaction and whose
consent has not been obtained prior to the Closing. If such consent cannot be
obtained, the Sellers, the Buyers and Parent will cooperate to effect an
arrangement reasonably designed to provide Productions (or LRM Acquisition, as
applicable) with the benefits and obligations of any such Outstanding Agreement
as if the consent had been obtained, such as any agency or license agreement,
all at the cost of, all for the benefit of, Productions (or LRM Acquisition, as
applicable). If any antitrust clearances other than HSR cannot be obtained, the
parties shall close the Transaction, with such amendments that are (i) not
materially adverse to the Sellers (giving appropriate credit for any benefits to
the Sellers) and (ii) intended to give Productions (or LRM Acquisition, as
applicable), to the extent reasonably possible, the benefits of the current
structure. If the HSR clearance cannot be obtained, the parties will negotiate
in good faith to attempt to restructure the Transaction to allow it to be
closed.
10.7 EMPLOYEE BENEFITS. None of the Buyers, Parent or their Affiliates
shall assume any liability under any Plans of the Sellers or their Affiliates
notwithstanding the employment by Productions (or LRM Acquisition, as
applicable) after the Closing Date of certain of the employees of the Sellers or
their Affiliates.
10.8 DISTRIBUTION OF PURCHASE PRICE. No Seller may distribute any portion
of the Purchase Price received by it to BVI unless BVI enters into an agreement
delivered to Parent that BVI agrees, solely for the benefit of Parent and the
Buyers, to be responsible for the Excluded Obligations and the indemnification
obligations of the Sellers hereunder relating to the Excluded Obligations to the
extent of the amount or value of such distribution.
11. GENERAL PROVISIONS.
11.1 COMPLETE AGREEMENT; MODIFICATIONS. This Agreement and any documents
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the parties.
11.2 EXPENSES. Except as set forth in Article 9, the parties hereto will
each pay all of their own expenses incurred in connection with the
authorization, preparation, execution and performance of this Agreement and the
Transaction, including, without limitation, all fees and expenses of their
respective agents, representatives, counsel and accountants.
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11.3 REMEDIES NOT EXCLUSIVE. Except as expressly provided in Article 8, no
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy will be
cumulative and will be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies will not constitute a waiver of the right
to pursue other available remedies.
11.4 BULK SALE LAW. In connection with the transactions contemplated by
this Agreement, none of the Sellers, the Buyers or Parent shall be required to
comply with the provisions of the New York Commercial Code relating to bulk
transfers or sales or any other applicable law relating to bulk transfers or
sales. Nothing in this paragraph shall stop or prevent the Buyers or Parent from
asserting the inapplicability of the bulk transfer or sales provisions in any
action or proceeding brought by a third party.
11.5 NOTICES. Unless otherwise specifically permitted by this Agreement,
all notices under this Agreement shall be in writing and shall be delivered by
personal service, telecopy, Federal Express or comparable overnight service or
certified mail (if such service is not available, then by first class mail),
postage prepaid, to such address as may be designated from time to time by the
relevant party, and which shall initially be:
If to the Sellers:
c/o Broadway Video Entertainment, L.P.
c/o Broadway Video Enterprises, Inc.
1619 Broadway
Ninth Floor
New York, NY 10019
Fax: (212) 582-8097
Attention: Stephen Shippee
with a copy to:
Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Fax: (310) 203-7199
Attention: Werner F. Wolfen, Esq.
If to the Buyers or Parent:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Fax: (212) 371-1091
Attention: Philip Rowley
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with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Fax: (212) 593-5955
Attention: Andre Weiss, Esq.
Any notice sent by certified mail shall be deemed to have been given three
(3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
11.6 PARTIES.
11.6.1 NO THIRD-PARTY BENEFITS. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any third-party
beneficiary, except for the Seller Indemnitees and Buyer Indemnitees.
11.6.2 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
Sellers, on the one hand, or the Buyers and Parent, on the other hand, (whether
by operation of law or otherwise) without the prior written consent of the
other, except the Buyers may assign, in each of their sole discretion, any or
all of their rights, interests and obligations hereunder to Parent or any direct
or indirect wholly owned Subsidiary of Parent and any Seller may assign its
rights, interests and obligations hereunder to any Affiliate. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
11.7 GOVERNING LAW; JURISDICTION. This Agreement has been negotiated and
entered into in the State of New York and all questions with respect to the
Agreement and the rights and liabilities of the parties will be governed by the
laws of that state, regardless of the choice of law provisions of New York or
any other jurisdiction. Any and all disputes between the parties that may arise
pursuant to this Agreement will be heard and determined before a federal or
state court located in the Borough of Manhattan, New York, New York. The parties
hereto acknowledge that such court has the jurisdiction to interpret and enforce
the provisions of this Agreement and the parties waive any and all objections
that they may have as to personal jurisdiction or venue in any of the above
courts.
11.8 INJUNCTION. The Sellers, the Buyers and Parent acknowledge that the
remedy at law for any breach, or threatened breach, of any of the provisions of
Section 10.1 or 10.2 will be inadequate and, accordingly, each covenants and
agrees that the other will, in addition to any other rights or remedies that it
may have and regardless of whether such other rights or remedies have been
previously exercised, be entitled to such equitable and injunctive relief as may
be available from any appropriate court referred to in Section 11.7.
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11.9 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (i) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party and (ii) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or by any other indulgence.
11.10 RULES OF CONSTRUCTION.
11.10.1 HEADINGS. The Article and Section headings in this Agreement
are inserted only as a matter of convenience, and in no way define, limit, or
interpret the scope of this Agreement or of any particular Article or Section.
11.10.2 TENSE AND CASE. Throughout this Agreement, as the context may
require, references to any word used in one tense or case shall include all
other appropriate tenses or cases.
11.10.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any Person or circumstance, is invalid, prohibited or
unenforceable in any jurisdiction, (i) a substitute and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable in such jurisdiction, the intent and purpose of the invalid,
prohibited or unenforceable provision and (ii) the remainder of this Agreement
and the application of such provision to other Persons or circumstances shall
not be affected by such invalidity, prohibition or unenforceability of such
provision, nor shall such invalidity, prohibition or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
11.10.4 EXHIBITS AND SCHEDULES. The exhibits and schedules attached
to this Agreement are hereby incorporated as though set forth in their entirety
herein. Any matter disclosed in any schedule to this Agreement shall be deemed
disclosed in any other schedule hereto where the applicability of such
disclosure would be reasonably ascertainable. The disclosure of any matter on a
schedule to the Agreement shall not constitute an acknowledgment (i) by the
Sellers that such matter is material or (ii) by the Buyers or Parent that such
matter constitutes an Obligation.
11.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A faxed signature shall
have the same effect as an original signature provided that an original signed
copy shall be provided promptly thereafter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year set forth above.
BROADWAY VIDEO ENTERTAINMENT, L.P.
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
-----------------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer and
Chief Financial Officer
BROADWAY VIDEO ENTERPRISES, INC.
By: /s/ Stephen W. Shippee
-----------------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer and
Chief Financial Officer
LONE RANGER MUSIC, INC.
By: /s/ Stephen W. Shippee
-----------------------------------
Name: Stephen W. Shippee
Title: Chief Financial Officer and
Treasurer
PALLADIUM LIMITED PARTNERSHIP
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
-----------------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer and
Chief Financial Officer
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
GOLDEN BOOKS PRODUCTIONS, INC.
By: /s/ Richard E. Snyder
Name: Richard E. Snyder
Title: Chairman of the Board of Directors,
Chief Executive Officer and President
LRM ACQUISITION CORP.
By: /s/ Richard E. Snyder
Name: Richard E. Snyder
Title: Chairman of the Board of Directors,
Chief Executive Officer and President
<PAGE>
SCHEDULE 0
DEFINITIONS
As used in the Agreement, the following terms have the following
meanings:
"ADDITIONAL FINANCIAL STATEMENTS" is defined in Section 4.6.
"ADJUSTMENT AMOUNT" is defined in Section 1.8.
"ADJUSTMENT PAYMENT DATE" means ten days following the date of (i)
delivery to Productions (on behalf of Parent and the Buyers) of the Post
Closing Audited Financials if there is no Audited Financials Disagreement or
(ii) resolution of the Audited Financials Disagreement if such a disagreement
arises.
"ADVANCE AMOUNT" means $5,000,000.
"AFFILIATE" means any Person which, directly or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with, a specified Person.
"AGREEMENT" is defined in the Preamble hereto.
"APPLICATIONS" is defined in Section 2.7.2.
"APPORTIONED OBLIGATIONS" is defined in Section 10.4.
"ASCAP" is defined in Section 2.7.4.
"ASSETS" means all of the Sellers' right, title and interest in and to
the (i) Trademarks, (ii) the Film Properties, (iii) the Copyrights, (iv) the
Literary Properties, (v) the Music Rights, (vi) the Music Publishing Rights,
(vii) the Outstanding Agreements, (viii) the Physical Materials, (ix) the
Warranty Rights, (x) the Other Assets and (xi) any property or assets similar
to the foregoing which is acquired by the Sellers after the date hereof and
prior to the Closing and excluding any of the foregoing property or assets
immaterial, individually or in the aggregate, in nature which is disposed of by
the Sellers in the ordinary course of business consistent with past practice
after the date hereof and prior to the Closing, but not including the Excluded
Assets.
"ASSETS AND OBLIGATIONS ASSIGNMENT AND ASSUMPTION AGREEMENT" means the
Assets and Obligations Assignment Agreement substantially in the form of
Exhibit A.
"AUDITED FINANCIALS DISAGREEMENT" is defined in Section 1.9.
"AUDITED INTERIM INCOME STATEMENT" is defined in Section 1.9.
"AUDITED NET RECONCILIATION" is defined in Section 1.9.
"BMI" is defined in Section 2.7.4.
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"BROADWAY COMICS" means Broadway Comics, a general partnership to be
organized and governed pursuant to the terms set forth in Schedule 2.1(iii) to
the Agreement.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City are required or authorized to
close.
"BUYER" means Golden Books Productions, Inc., a Delaware corporation
or LRM Acquisition Corp., a Delaware corporation.
"BUYER INDEMNITEES" is defined in Section 9.1.
"BUYERS MATERIAL ADVERSE EFFECT" means any circumstance, fact, event,
change or effect that is materially adverse to the business, operations of the
Buyers and Parent, taken as a whole.
"BUYER SETTLEMENT OBLIGATION" is defined in Section 4.11.
"BVE" means Broadway Video Enterprises, Inc., a New York corporation
and the general partner of BVEL.
"BVEL" means Broadway Video Entertainment L.P., a New York Limited
Partnership.
"BVI" means Broadway Video, Inc., a New York corporation and the
limited partner of BVEL.
"CLOSING" is defined in Section 1.2.1.
"CLOSING AGREEMENTS" means the Registration Rights Agreement, the
Night Music-Blues Brothers License, the Kids License, the Receivables and
Payables Assignment and Assumption Agreement, the Assets and Obligations
Assignment and Assumption Agreement, the Escrow Agreement, the Copyright
Assignment, the Common Law Trademark and Trademark Registration Assignment and
the License to use Names.
"CLOSING DATE" is defined in Section 1.2.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON LAW TRADEMARK AND TRADEMARK REGISTRATION ASSIGNMENT" means the
Common Law Trademark and Trademark Registration Assignment substantially in the
form of Exhibit C.
"COPYRIGHT ACT" means the Copyright Law of the United States of
America enacted on October 19, 1976, as amended, Title 17 U.S.C. ss.101 et seq.
"COPYRIGHT ASSIGNMENT" means the Short Form Copyright Assignment
substantially in the form of Exhibit B.
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"COPYRIGHTS" means all rights, title and interest owned by the Sellers
in the copyrights (and any renewals and extensions thereof) of the Film
Properties.
"DEFINED BENEFIT PLAN" is defined in Section 2.15.
"DISCOUNT RATE" is defined in Section 1.8.
"EBITDA" is defined in Section 1.8.
"ELLENBOGEN EMPLOYMENT AGREEMENT" means the Employment Agreement
between Parent and Eric Ellenbogen dated as of the date hereof.
"ENCUMBRANCE" means any encumbrance, charge, adverse claim or
restriction of any kind affecting title or resulting in an encumbrance against
property, real or personal, tangible or intangible or a security interest of
any kind; provided, however, such term shall not apply to any representation or
warranty as it relates to matters specifically covered by Section 2.7 of the
Agreement.
"ENVIRONMENTAL CLAIMS" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter or other communication from any governmental
agency, department, bureau, office or other authority, or any third party
involving violations of Environmental Laws or Releases of Waste.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as amended;
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq., as
amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq, as amended; the
Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; the Occupational
Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq., and any other federal,
state, local or municipal laws, statutes, regulations, rules or ordinances
imposing liability or establishing standards of conduct for protection of the
environment.
"ENVIRONMENTAL LIABILITIES" means any monetary obligations, losses,
liabilities (including strict liability), damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any governmental authority or any third party
which relate to any violations of Environmental Laws or Releases or threatened
Releases of Wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA GROUP" means the Sellers and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control
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which, together with any Sellers, are treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code.
"ESCROW ACCOUNT" is defined in Section 1.7.
"ESCROW AGENT" is defined in Section 1.7.
"ESCROW AGREEMENT" is defined in Section 1.7.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXCLUDED ASSETS" means the assets of Seller not included in the
Assets (other than the receivables acquired by the Buyers pursuant to Section
1.8 hereof), including, without limitation, (i) all rights to the names
"Broadway Video Entertainment, L.P." and "Broadway Comics" or any name
confusingly similar to those, except as provided for in the License to Use
Names, (ii) all rights in the television programs entitled "NIGHT MUSIC," "BEST
OF THE BLUES BROTHERS" AND "KIDS IN THE HALL," and (iii) all office furniture,
fixtures and equipment (including computers) and other tangible personal
property owned or leased by the Sellers, except for the Physical Materials and
such computers as will be delivered by the Sellers to the Buyers pursuant to
Section 1.2.3(x).
"EXCLUDED OBLIGATIONS" means any liability or obligation
(notwithstanding its inclusion on any Schedule to the Agreement) which (i) is
an obligation of the Sellers to their respective employees not specifically
included in the Obligations or to the extent such Obligation arises out of the
operation of the businesses of the Sellers prior to the Closing or (ii) is
otherwise incurred by any Person as a result of the operation, use or other
exploitation of the Assets prior to the Closing or the execution of this
Agreement or the sale of the Assets. Without limiting the foregoing, the
Excluded Obligations described in this definition shall include such
liabilities and obligations with respect to employee benefits (including all
accrued compensation and other benefits (including under bonus plans and
arrangements) which may be due to Identified Employees with respect of their
employment with the Sellers or their Affiliates), Environmental Liabilities
arising out of the operation of the Assets prior to the Closing, obligations
from any Tax attributable to the Pre-Closing Tax Period and obligations in
connection with the Identified Litigation (other than the Buyer Settlement
Obligation), but shall not include the liability for sales and use taxes
assumed by the Buyers pursuant to Section 1.5 of the Agreement or the profit
participations payable assumed by the Buyers pursuant to Section 1.8 of the
Agreement.
"EXTENSION AMOUNT" is defined in Section 8.5.
"E&Y" is defined in Section 1.2.
"FILM PROPERTIES" is defined in Section 2.7.3(ii).
"FINANCIAL STATEMENTS" means (i) the consolidated statements of
operations, changes in partners' capital and cash flows of BVEL and its
predecessor entities, as applicable, for the year
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ended December 31, 1995 and for the period from inception (August 1, 1994)
through December 31, 1994, audited by E&Y, and for the year ended December 31,
1993, audited by Hecht & Co., (ii) the unaudited consolidated statements of
operations, changes in partners' capital and cash flows of BVEL for the three
months ended March 31, 1996 and 1995, (iii) the statement of operations,
changes in partners' equity and cash flows of Palladium for the seven months
ended July 31, 1994, audited by E&Y, (iv) the consolidated balance sheet of
BVEL as of December 31,1995 and 1994 audited by E&Y and (v) the unaudited
consolidated balance sheet of BVEL as of March 31, 1996, including in each case
the applicable notes and schedules, if required.
"FINANCING" means either (i) the financing transaction of Parent
contemplated by the July 27, 1996 printer's proof of the private placement
memorandum either as a transaction under Rule 144A or as a public offering,
resulting in gross proceeds of at least $100 million before discounts and
expenses or (ii) a transaction at substantially equivalent costs (as determined
by the underwriters to such transaction) and providing equivalent benefits to
the transaction described in clause (i) above.
"FINANCIAL EVENT" means (i) the managing underwriters or initial
purchasers for the Financing notify in writing the Sellers that they are unable
to successfully complete the sale of the applicable securities or that they are
unable to do so with a Parent Common Stock price per share of $10 or more, (ii)
the closing price per share of the Parent Common Stock falls below $10 at any
time during a five Business Day period (occurring in whole or in part after
October 1, 1996) beginning on the sixth Business Day after the commencement of
a "road show" in connection with the Financing and notice of reliance on such
decline to terminate the Agreement is provided by Parent to the Sellers within
ten days of such decline or (iii) the average closing price per share of the
Parent Common Stock for the five trading days immediately preceding the
Specified Date (as extended pursuant to Section 1.2.1 of the Agreement) is less
than $10 in the event that no "road show" in connection with the Financing has
commenced.
"GAAP" means generally accepted accounting principles and practices as
in effect in the United States of America at the time of application to the
provisions of this Agreement.
"GROSS MARGIN" shall have the same definition ascribed to that term in
the Settlement Agreement relating to the Broadway Comics litigation listed in
Schedule 2.4, which definition shall be consistent with Broadway Comics'
historical accounting practices and shall substantially consist of (i) net
revenues minus (ii) direct production costs (including pre-press preparation,
paper, printing and binding costs), direct distribution costs and third party
creative costs.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTY" means, with respect to any alleged Loss, the party
seeking indemnity hereunder.
"INDEMNIFYING PARTY" means, with respect to any alleged Loss, the
party from whom indemnity is being sought hereunder.
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"IDENTIFIED EMPLOYEES" means employees of Sellers or their Affiliates
identified prior to the Closing by mutual agreement of the parties who may be
offered employment by any Buyer in connection with the Assets.
"IDENTIFIED LITIGATION" is defined in Section 4.11.
"KIDS LICENSE" means that certain License Agreement between
Productions and BVI on substantially the terms set forth in Exhibit "E."
"KNOWLEDGE" means that the Senior Management of such party actually
knows of the existence or non-existence of such fact.
"KNOWLEDGE QUALIFICATION" is defined in Section 2.7.1.
"LICENSE TO USE NAMES" means a one year license from the applicable
Sellers to the applicable Buyers (i) to use the name "Broadway Comics" solely
for the purpose of selling existing comic book inventory and a one year license
to use the name "Broadway Video Entertainment L.P." on existing Physical
Materials each of which shall be automatically extended in order to permit the
applicable Buyer to use its reasonable best efforts to sell or otherwise
dispose of such existing comic book inventory and Physical Materials and (ii)
containing such other terms as agreed to by the parties hereto.
"LIEN" means any security interest or other encumbrance to secure the
payment of money.
"LITERARY PROPERTIES" means any and all rights to underlying literary,
dramatic or other works, screenplays, stories, adaptations, treatments,
scenarios and any and all other literary or dramatic materials of any kind on
which any of the Film Properties are based necessary to permit the use of such
materials as part of the Film Properties.
"LONE RANGER" means Lone Ranger Music, Inc., a New York corporation.
"LOSSES" means any and all costs and expenses (including without
limitation reasonable attorneys' fees and expenses and court costs incident to
any suit, action, investigation or other proceeding), damages and losses.
"LRM" means Lone Ranger Music, Inc., a New York Corporation.
"LRM ACQUISITION" means LRM Acquisition Corp., a Delaware corporation.
"MARKET VALUE" means with respect to any stock the average trading
price of such stock on the NASDAQ National Market System (or its primary
exchange) for the 20-day trading period ending two trading days immediately
preceding the date on which such value is determined.
"MATERIALITY QUALIFICATION" is defined in Section 2.7.1.
"MATERIAL TRADEMARKS" is defined in Section 2.7.2.
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"MAXIMUM INDEMNIFICATION AMOUNT" means the amount of the cash and the
Market Value from time to time of the Purchase Price Stock held in the Escrow
Fund pursuant to Section 1.7 hereof.
"MAXIMUM PARTICIPATION AMOUNT" is $400,000.
"MCSPADDEN" means McSpadden Smith Music LLC, a Tennessee limited
liability corporation.
"MCSPADDEN ENTITIES" means McSpadden, Chunky Monkey Music, LLC ("CMM")
Magnolia Hill Music, LLC ("MHM"), McSpadden Music, LLC ("MM"), McSpadden-Smith
Publishing, LLC ("MSP") and Summerdawn Music (ASCAP), LLC ("SM"), each a
Tennessee limited liability company.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding six plan years made contributions or been jointly
and severally liable to make contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such six year
period.
"MUSIC PUBLISHING RIGHTS" means all rights owned by either LRM or BVE
to exploit the musical compositions listed in Schedule 0.1.
"MUSIC RIGHTS" means any and all music synchronization, performance,
mechanical, publication, soundtrack album, composition and other rights in and
to any of the music or musical compositions or sound recordings.
"NET CLOSING CASH PAYMENT" is defined in Section 1.2.2.
"NIGHT MUSIC-BLUES BROTHERS LICENSE" means that certain License
Agreement between Productions and BVI on substantially the terms set forth in
Exhibit "F".
"NOTICE AND ACKNOWLEDGMENT OF SALE" means the Notice and
Acknowledgment of Sale substantially in the form of Exhibit D.
"OBLIGATIONS" means all obligations incurred by any Person as a result
of the operation, use or other exploitation of the Assets after the Closing
under the Outstanding Agreements or otherwise with respect to the Assets,
including without limitation, the profit participations listed in Schedule
2.7.6 and all obligations from any Tax attributable to the Post-Closing Tax
Period.
"OTHER ASSETS" means Seller's (a) BVEL and BVI's 49.5% and 0.5%
membership interest, respectively, in McSpadden, (b) BVEL and BVI's 0.99% and
0.01% membership interest, respectively, in each of CMM, MHM, MM, MSP and SM,
(c) BVEL's rights under that certain Credit and Security Agreement dated July
1, 1995 with MSM, including the promissory Note issued to BVEL by MSM with
respect thereto, (d) BVEL's 50% partnership interest in, and
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repayment rights under the loans made by BVEL to Broadway Comics and (e) such
computers as will be delivered by the Sellers pursuant to Section 1.2.3(x) by
the Sellers prior to the Closing.
"OTHER TRADEMARKS" is defined in Section 2.7.2(i).
"OUTSIDE DATE" is defined in Section 9.2.
"OUTSTANDING AGREEMENTS" means the rights and obligations of the
Sellers under any written or oral agreement now in effect pursuant to which any
Seller or any of its Predecessors acquired or purchased from or sold, licensed
or granted to any other person or entity any rights to distribute, exhibit,
sublicense, use or exploit, or to exercise or exploit any rights in or to, or
providing for the acquisition, sale, purchase, lease, license or other
disposition of, any rights in any Film Property, or any Physical Materials,
Literary Properties or Music Rights including, without limitation, any
Underlying Agreements now in effect.
"PALLADIUM" means Palladium Limited Partnership, a New York limited
partnership.
"PARENT" means Golden Books Family Entertainment, Inc.
"PARENT COMMON STOCK" means the common stock, $.01 par value, of
Parent.
"PERSON" means any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company, limited
liability company, estate, unincorporated organization or governmental entity.
"PHYSICAL MATERIALS" means the physical properties owned by the
Sellers relating to the Assets, including without limitation prints, negatives,
duplicating negatives, fine grains, master video tapes, music and sound effects
tracks, master tapes and other duplicating materials of any kind, foreign
language dubbed and titled versions, advertising, marketing and publicity
materials of all kinds such as brochures, trailers, posters and similar
materials, legal files, and all other books and records relating to the Assets
including Sellers' general financial records relating to the Assets.
"PLAN" means at any time an "employee benefit plan" (as defined in
Section 3(3) of ERISA) and either (i) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained, or
contributed to, by any Person that was at such time a member of the ERISA Group
for employees of any Person that was at such time a member of the ERISA Group
or, during such period, with respect to which a member of the ERISA Group was
jointly and severally liable for contributions.
"POST-CLOSING AUDITED FINANCIALS" is defined in Section 1.9.
"POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof)
ending after the Closing Date.
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof)
ending on or before the close of business on the Closing Date.
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"PREDECESSOR" means any person or entity that is a predecessor in
interest to the Sellers or with regard to any right included in the Assets.
"PRODUCTIONS" means Golden Books Productions, a Delaware corporation.
"PRS" is defined in Section 2.7.4.
"PURCHASE PRICE" means $81 million in cash plus a number of shares of
Parent Common Stock that have an aggregate Market Value on the Closing Date, of
$10 million; provided, however, that in no event shall the number of such
shares be greater than 1,000,000 or less than 666,667.
"PURCHASE PRICE STOCK" means the shares of the Parent Common Stock
that are part of the Purchase Price.
"RECEIVABLES AND PAYABLES ASSIGNMENT AND ASSUMPTION AGREEMENT" means
the Receivables and Payables Assignment and Assumption Agreement substantially
in the form of Exhibit H.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement among Parent and the Sellers substantially in the form of Exhibit "G"
hereto relating to the shares of Parent Common Stock to be delivered to the
Sellers as part of the Purchase Price for the Assets.
"RELEASE" means any spilling, leaking, pumping, emitting, emptying,
discharging, injecting, escaping, leaching, migrating, dumping or disposing of
Wastes (including the abandonment or discarding of barrels, containers or other
closed receptacles containing Wastes) into the environment.
"SCHEDULED AGREEMENTS" is defined in Section 2.9.
"SEC" means Securities and Exchange Commission.
"SEC DOCUMENTS" is defined in Section 3.5.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLER" is defined in the preamble hereto.
"SELLER INDEMNITEES" is defined in Section 9.1.
"SELLER MATERIAL ADVERSE EFFECT" means any circumstance, fact, event,
change or effect that is materially adverse to any material Assets listed on
Schedule 0.2 or to the Assets taken as a whole or to the business or operations
with respect to the Assets of any Seller with respect to any material Assets
listed on Schedule 0.2 or the Assets, taken as a whole.
"SELLERS' LIQUIDATED DAMAGES" means $9,000,000.
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"SENIOR MANAGEMENT" means (i) with respect to Parent and the Buyers,
senior management of a party with a title at least equal to Vice President (or
its equivalent) and (ii) with respect to any Seller, Eric Ellenbogen, John
Engelman, Steve Shippee and Jonathan Flom.
"SESAC" is defined in Section 2.7.4.
"SPECIFIED DATE" means October 31, 1996, or such later date to which
the Specified Date may be extended pursuant to Section 8.5.
"SR&Z" is defined in Section 1.2.1.
"SUBSIDIARY" means with respect to any party, any Person, of which
such party (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, 50% or more of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board or directors or other governing body of such Person.
"TAX" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, greenmail, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge or any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any governmental
authority (domestic or foreign) responsible for the imposition of any such tax.
"TERRITORY" is defined in Section 2.7.2.
"THIRD-PARTY CLAIM" is defined in Section 9.3.
"THIRD PARTY COSTS" shall mean any rerun, reuse, or residual costs,
license fees, royalties, production costs or other amounts paid or payable to
third parties including, without limitation, to the Sellers' Affiliates or to
performers, actors, musicians, hosts, writers, directors, producers, guild,
union and other Persons employed in the exploitation of the Film Properties or
any of the Other Assets and/ or portions thereof or rights therein.
"THRESHOLD AMOUNT" is defined in Section 9.1.
"TRADEMARKS" means the Material Trademarks and the Other Trademarks,
plus any common law rights owned by the Sellers therein.
"TRANSACTION" means the sale of the Assets hereunder and the other
aspects of the transactions contemplated by this Agreement.
"UNDERLYING AGREEMENTS" means any and all agreements with writers,
directors, producers, actors, composers or other parties who rendered services
or otherwise participated in preparation or production of each of the Film
Properties under which Seller holds any rights in Literary Properties and/or
Music Rights, but only to the extent such agreements relate to the Film
Properties.
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"WARRANTY RIGHTS" means all of any Seller's or, to the extent received
by any Seller, any Predecessor's rights and remedies relating to the Film
Properties under and pursuant to any representations, warranties,
indemnifications, covenants or agreements made or entered into by any party
under or pursuant to any of the Outstanding Agreements, the Underlying
Agreements or any agreements, contracts or other instruments relating thereto.
"WASTES" means (a) any element, compound, or chemical that is defined,
listed or otherwise classified as a contaminants, pollutant, toxic pollutant,
toxic or hazardous substances, extremely hazardous substance or chemical,
hazardous waste, or solid waste under Environmental Laws; (b) petroleum,
petroleum-based or petroleum-derived products; (c) dielectric fluids and
electrical equipment containing polychlorinated biphenyls; (d)
asbestos-containing materials.
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Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-18430, No. 33-18692, No. 33-18693 and No. 33-28019) of (i) our
report dated April 10, 1996, with respect to the consolidated financial
statements of Broadway Video Entertainment, L.P. and subsidiaries for the year
ended December 31, 1995, and (ii) our report dated October 19, 1994 with respect
to the statement of operations, changes in partners' capital and cash flows of
Palladium Limited Partnership for the seven months ended July 31, 1994 included
in the Current Report on Form 8-K of Golden Books Family Entertainment, Inc.
dated August 30, 1996.
ERNST & YOUNG LLP
New York, New York
August 29, 1996
