SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 10, 1994
LIVE ENTERTAINMENT INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4178252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
0-17342
(Commission File Number)
15400 Sherman Way, Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 988-5060
Item 3. Sale of Specialty Retail Division; Redemption of LIVE
Series B Preferred
On August 31, 1994, LIVE Entertainment Inc. ("LIVE" or the
"Registrant") sold its entire interest in its "Specialty Retail
Division," consisting of LIVE's wholly owned subsidiary,
Strawberries Inc. ("Strawberries") and Strawberries' wholly owned
subsidiary, Waxie Maxie Quality Music Co., to a group including
Castle Harlan, Inc., Ivan R. Lipton, the President of the Specialty
Retail Division, and other senior managers of the Specialty Retail
Division. The purchaser group also included Jefferson Capital
Group, Ltd.; R. Timothy O'Donnell, the President of Jefferson
Capital Group, Ltd., is a Director of LIVE. The total purchase
price paid to LIVE for the Specialty Retail Division was
$35,000,000 in cash.
LIVE's Series B Cumulative Convertible Preferred Stock (the
"LIVE Series B Preferred") is mandatorily redeemable from the
proceeds of any sale of the Specialty Retail Division. As a result
of LIVE's decision to dispose of its interest in the Specialty
Retail Division, a total of $40,000,000 of LIVE Series B Preferred
had been re-classified from equity to current liabilities as of
December 31, 1993 reflecting LIVE's then expectation to sell the
Specialty Retail Division for $40,000,000. As a result of the
agreements for the sale of the Specialty Retail Division entered
into in July 1994, such re-classification was decreased to
$35,000,000 in the unaudited financial statements included in
LIVE's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1994. Due to changes in estimates regarding (a) expenses
in connection with the sale, and (b) operating losses during the
phase-out period, no additional expense was recorded in connection
with the reduced sale price for the Specialty Retail Division.
As of August 31, 1994, the aggregate redemption price for the
LIVE Series B Preferred was $51,600,000 and that redemption price
increases by an additional $600,000 per month through October 1995,
when the redemption price reaches $60,000,000 and remains at that
price thereafter.
LIVE is the issuer of $37,000,000 in principal amount of 12%
Subordinated Secured Notes Due September 1994 (the "LIVE 12%
Notes"). The maturity date of the LIVE 12% Notes was September 15,
1994. LIVE and the holders of $31,250,000 in principal amount of
the LIVE 12% Notes have agreed to extend the maturity date for
payment of the LIVE 12% Notes held by them initially to October 17,
1994, pending negotiations for a longer term extension. The
remaining $5,750,000 in principal amount of LIVE 12% Notes will be
paid in full on the later of September 15, 1994 or the date such
LIVE 12% Notes are presented for payment.
LIVE is in negotiations with Chemical Bank, as well as others,
to obtain a credit facility, having a credit limit of at least
$30,000,000 with a term of eighteen months (the "New LIVE Credit
Facility"). A condition to obtaining the New LIVE Credit Facility
is the agreement of holders of at least $31,000,000 in principal
amount of the LIVE 12% Notes to extend the maturity date of the
LIVE 12% Notes held by them to a date no earlier than three months
after the maturity date of the New LIVE Credit Facility (the "LIVE
12% Note Extension"). Management of LIVE believes that a condition
to obtaining the LIVE 12% Note Extension is obtaining the New LIVE
Credit Facility.
Assuming LIVE obtains the New LIVE Credit Facility and the
LIVE 12% Note Extension, LIVE will use the proceeds of the sale of
the Specialty Retail Division to redeem a portion of the LIVE
Series B Preferred provided, that such redemption is not prohibited
under applicable law. Although management of LIVE believes that
LIVE will obtain the New LIVE Credit Facility and the LIVE 12% Note
Extension, there is no assurance that that will be the case. If
LIVE does not obtain the New LIVE Credit Facility or the LIVE 12%
Note Extension, LIVE intends to use the proceeds from the sale of
the Specialty Retail Division to repay the full principal amount of
the outstanding LIVE 12% Notes.
The proceeds of the sale of the Specialty Retail Division will
not be sufficient to redeem the outstanding LIVE Series B Preferred
in its entirety. LIVE has had discussions with potential lenders
to obtain the additional funds necessary to redeem that portion of
the LIVE Series B Preferred that is not redeemed from the proceeds
of the sale of the Specialty Retail Division. There is no
assurance that such additional funds will be obtained, and even if
those funds are obtained, there is no assurance that the lenders
under LIVE's credit facilities or the provisions of applicable law
will permit LIVE to use such funds to redeem any of the LIVE Series
B Preferred that remains outstanding. If the LIVE Series B
Preferred is not redeemed in its entirety, there may be a dilutive
impact on other stockholders of LIVE.
Redemption of the outstanding LIVE Series B Preferred in its
entirety is a condition to the proposed business combination of
LIVE and Carolco Pictures Inc. ("Carolco") described in Item 5
below.
Item 5. Agreement on Business Combination with Carolco
Carolco, LIVE and Carolco Acquisition Corp., a wholly owned
subsidiary of LIVE ("CAC"), entered into an Agreement and Plan of
Merger dated as of August 10, 1994 (the "Merger Agreement")
providing for a business combination of Carolco and LIVE. The
Merger Agreement provides, among other things, that CAC will be
merged with and into Carolco (the "Merger") with Carolco as the
surviving corporation continuing as a wholly owned subsidiary of
LIVE. At the effective date of the Merger, LIVE will be renamed
Carolco Entertainment Inc. ("Carolco Entertainment"). The Merger
has been structured with the intent that it qualify as a tax free
reorganization whereby each Carolco stockholder will receive one
share of newly issued Carolco Entertainment common stock for each
5.5 shares of Carolco common stock held. The exchange ratio will
be adjusted based on the market price of Carolco common stock prior
to the consummation of the Merger subject to two limitations
designed to limit the effect of market fluctuations on both Carolco
and LIVE stockholders. The number of Carolco shares to be
exchanged for each share of Carolco Entertainment will be adjusted
upward, if necessary, so that the market value of Carolco shares to
be exchanged for one share of Carolco Entertainment is at least
$3.00, but in no event will more than 6.5 shares of Carolco be
exchanged for each share of Carolco Entertainment. Likewise, the
number will be adjusted downward, if necessary, so that the market
value of Carolco shares to be exchanged is no more than $4.00, but
in no event will fewer than 4.5 shares of Carolco be exchanged for
each share of Carolco Entertainment. If the Merger had closed on
the date of this Report, the exchange ratio would have been 6.5 to
1. In addition, each outstanding share of Carolco's Series A
Convertible Preferred Stock will be converted into one share of a
new series of preferred stock to be authorized by Carolco
Entertainment. As a result, immediately upon consummation of the
Merger, the current LIVE stockholders will own between
approximately 21% and 28% of the surviving corporation and the
remainder will be owned by the current Carolco stockholders.
Therefore, the Merger, if consummated, will be treated as a reverse
acquisition of LIVE by Carolco for accounting and financial
reporting purposes and the purchase method of accounting will be
applied to a portion of the historical values of LIVE's assets and
liabilities. Additionally, to the extent of common ownership
between LIVE and Carolco (54.6% of LIVE's common stock is owned by
significant stockholders of Carolco), a portion of the transaction
will be treated as a combination of companies under common control,
similar to a pooling.
The Merger is subject to a number of conditions, including (a)
redemption of the LIVE Series B Preferred in its entirety, (b)
amendments to the Indenture governing the LIVE 12% Notes, the
Indenture governing LIVE's $40,000,000 of Increasing Rate Senior
Subordinated Notes due 1999, and the terms of LIVE's Series C
Convertible Preferred Stock, and (c) the availability of financing
commitments at each company prior to consummation of the Merger.
The Merger is also subject to approval by the majority of the non-
affiliated stockholders of each of Carolco and LIVE. On June 30,
1994, The Seidler Companies Incorporated delivered its written
opinion to the Carolco Board of Directors that, based on the
conditions and assumptions contained therein, the financial terms
of the Merger are fair to the unaffiliated stockholders of Carolco.
Chemical Securities Inc., an affiliate of Chemical Bank, delivered
its written opinion dated as of July 1, 1994 to the LIVE Board of
Directors that, based on the conditions and assumptions contained
therein, the exchange ratio for the Merger is fair to the
unaffiliated stockholders of LIVE. The Merger is conditioned upon
the delivery of updates to these fairness opinions immediately
prior to the consummation of the Merger. LIVE anticipates that the
Merger will be consummated in the fourth quarter of 1994. However,
there can be no assurances that the Merger will be consummated, or,
if consummated, will be consummated on the terms set forth above.
In conjunction with the Merger Agreement, LIVE entered into
Investor Representation Agreements dated as of August 10, 1994 (the
"Investor Representation Agreements") with each of Pioneer LDCA,
Inc. ("Pioneer"), Cinepole Productions B.V. ("Cinepole") and RCS
Video International Services B.V. ("RCS"), which in the aggregate
hold approximately 68.4% of the LIVE voting power which would
currently be entitled to vote on the Merger. Carolco is also a
party to the Investor Representation Agreements of Pioneer,
Cinepole and RCS, and is a party to similar Investor Representation
Agreements with each of MGM Holdings Corporation ("MGM Holdings")
and New Carolco Investments B.V. ("New CIBV"). Pioneer, Cinepole,
RCS, MGM Holdings and New CIBV in the aggregate hold approximately
85.3% of the Carolco voting power which would currently be entitled
to vote on the Merger. The Investor Representation Agreements
provide that, subject to receipt of definitive proxy materials,
such stockholders will vote all shares of LIVE stock and, with
respect to Pioneer, Cinepole, RCS, MGM Holdings and New CIBV, all
shares of Carolco stock beneficially owned by them, in favor of the
Merger Agreement and the transactions contemplated thereby.
Pioneer, Cinepole, RCS, MGM Holdings and New CIBV also entered into
a Stockholders Agreement (the "Stockholders Agreement") which
provides for certain corporate governance procedures relating to
the post-merger company.
As part of the Merger, LIVE, as Carolco Entertainment, will
assume a number of agreements to which Carolco is a party. Among
those agreements is an Employment Agreement dated as of August 10,
1994, between Carolco and Mario Kassar (the "1994 Employment
Agreement").
The Merger Agreement, Investor Representation Agreements,
Stockholders Agreement and 1994 Employment Agreement are Exhibits
to this Form 8-K.
Item 7 - Exhibits
The Exhibits listed below are filed as a part of this Report.
Exhibit Number Description of Exhibit
2.1 Agreement and Plan of Merger dated as of August 31,
1994 among the Registrant, Strawberries Inc.,
Strawberries Merger Corp. and Strawberries Holding,
Inc. (without exhibits)
2.2 Agreement and Plan of Merger dated as of August 10,
1994 among Carolco Pictures Inc., the Registrant
and Carolco Acquisition Corp. (including certain
exhibits) (incorporated by reference to Exhibit 2
to Mario F. Kassar and New Carolco Investments
B.V.'s Schedule 13D (Amendment No. 14) under the
Securities Exchange Act of 1934 filed with the
Commission on August 16, 1994)
10.1 Tax Agreement dated as of August 31, 1994 among the
Registrant, Strawberries Inc., Strawberries
Investments Inc., Waxie Maxie Quality Music Co. and
Strawberries Holding, Inc.
10.2 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and Pioneer LDCA, Inc.
10.3 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and Cinepole Productions B.V.
10.4 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and RCS Video International Services
B.V.
10.5 Stockholders Agreement dated as of August 10, 1994
among New Carolco Investments B.V., Pioneer LDCA,
Inc., Cinepole Productions B.V., RCS Video
International Services B.V. and MGM Holdings
Corporation.
10.6 Employment Agreement between Carolco Pictures Inc.
and Mario F. Kassar for the services of Mario F.
Kassar, dated as of August 10, 1994 (incorporated
by reference to Exhibit 5 to Mario F. Kassar and
New Carolco Investments B.V.'s Schedule 13D
(Amendment No. 14) under the Securities Exchange
Act of 1934 filed with the Commission on August 16,
1994)
<PAGE>
Exhibit Number Description of Exhibit
99.1 Letter dated August 30, 1994 from Chemical
Securities Inc. to the Board of Directors of the
Registrant
99.2 Press Release dated August 12, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
LIVE ENTERTAINMENT INC.
Dated: September 15, 1994 By: /s/ MICHAEL J. WHITE
Michael J. White
Acting Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.1 Agreement and Plan of Merger dated as of August 31,
1994 among the Registrant, Strawberries Inc.,
Strawberries Merger Corp. and Strawberries Holding,
Inc. (without exhibits)
2.2 Agreement and Plan of Merger dated as of August 10,
1994 among Carolco Pictures Inc., the Registrant
and Carolco Acquisition Corp. (including certain
exhibits) (incorporated by reference to Exhibit 2
to Mario F. Kassar and New Carolco Investments
B.V.'s Schedule 13D (Amendment No. 14) under the
Securities Exchange Act of 1934 filed with the
Commission on August 16, 1994)
10.1 Tax Agreement dated as of August 31, 1994 among the
Registrant, Strawberries Inc., Strawberries
Investments Inc., Waxie Maxie Quality Music Co. and
Strawberries Holding, Inc.
10.2 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and Pioneer LDCA, Inc.
10.3 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and Cinepole Productions B.V.
10.4 Investor Representation Agreement dated as of
August 10, 1994 among the Registrant, Carolco
Pictures Inc. and RCS Video International Services
B.V.
10.5 Stockholders Agreement dated as of August 10, 1994
among New Carolco Investments B.V., Pioneer LDCA,
Inc., Cinepole Productions B.V., RCS Video
International Services B.V. and MGM Holdings
Corporation.
10.6 Employment Agreement between Carolco Pictures Inc.
and Mario F. Kassar for the services of Mario F.
Kassar, dated as of August 10, 1994 (incorporated
by reference to Exhibit 5 to Mario F. Kassar and
New Carolco Investments B.V.'s Schedule 13D
(Amendment No. 14) under the Securities Exchange
Act of 1934 filed with the Commission on August 16,
1994)
<PAGE>
Exhibit Number Description of Exhibit
99.1 Letter dated August 30, 1994 from Chemical
Securities Inc. to the Board of Directors of the
Registrant
99.2 Press Release dated August 12, 1994.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT and PLAN OF MERGER (the "Agreement") is
made and entered into as of August 31, 1994, among LIVE
Entertainment Inc., a Delaware corporation ("Seller"),
Strawberries, Inc., a Delaware corporation (the "Company"),
Strawberries Merger Corp., a Delaware corporation
("Acquisition"), and Strawberries Holding, Inc., a Delaware
corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding
shares (the "Shares") of the capital stock of the Company, and
Buyer owns all of the issued and outstanding shares of the
capital stock of Acquisition;
WHEREAS, Buyer was formed by Jefferson Capital Group,
Ltd. and Daniels & Associates;
WHEREAS, Strawberries Acquisition Corp., a Delaware
corporation wholly-owned by Buyer ("Old Acquisition"), and Seller
entered into that certain Stock Purchase Agreement dated as of
July 12, 1994, as supplemented by that certain letter agreement
dated July 12, 1994, and as amended as of July 27, 1994 (the
"Previous Agreement"), providing, among other things, for the
sale of the Shares to Old Acquisition;
WHEREAS, the parties now wish to effect the transfer of
the Shares through a merger of Acquisition with and into the
Company;
WHEREAS, the Boards of Directors of the Company and
Acquisition; Buyer, as the sole stockholder of Acquisition; and
Seller, as the sole stockholder of the Company, have approved the
acquisition of the Company by Buyer through the Merger (as
defined in Section 2.2).
NOW, THEREFORE, for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Buyer,
Acquisition, Seller and the Company hereby agree as follows:
Section 1. Definitions. As used in this Agreement,
the following terms shall have the indicated meanings, which
meanings shall be applicable, except to the extent otherwise
indicated in a definition of a particular term, both to the
singular and plural forms of such terms. Any agreement referred
to below shall mean such agreement as amended, supplemented, and
modified from time to time to the extent permitted by the
applicable provisions thereof and by this Agreement.
"Acquisition" has the meaning specified in the first
paragraph of this Agreement.
"Acquisition Common Stock" has the meaning specified in
Section 2.9.
"Adjustment" has the meaning specified in Section 5.11.
"Affiliate" shall mean, with respect to any person, any
other person which directly or indirectly controls, is controlled
by, or is under common control with such person.
"Base Merger Consideration" has the meaning specified
in Section 2.10(a).
"Best Efforts" shall mean reasonable good faith efforts
but shall in no event require the commencement of litigation
against any third party.
"Business Day" shall mean any weekday on which
commercial banks in Los Angeles are open.
"Buyer" has the meaning specified in the first
paragraph of this Agreement.
"Certificate of Merger" has the meaning specified in
Section 2.4.
"Closing" has the meaning specified in Section 2.3.
"Closing Condition Representations" has the meaning
specified in Section 9.1(c).
"Closing Date" has the meaning specified in
Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" has the meaning specified in the first
paragraph of this Agreement.
"Daniels" means Daniels & Associates.
"Deposit" has the meaning specified in Section 2.1.
"DGCL" shall mean the Delaware General Corporation Law.
"DOJ" has the meaning specified in Section 5.1.
"Effective Time" has the meaning specified in Section
2.4.
"Encumbrances" shall mean any claim, lien, security
interest, pledge, charge or restriction.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Excess Sales Price" has the meaning specified in
Section 2.10(b).
"Executives" means the President and the Vice
Presidents of the Company and the Subsidiaries.
"Expense" has the meaning specified in Section 9.1(a).
"FTC" has the meaning specified in Section 5.1.
"Jefferson" means Jefferson Capital Group, Ltd.
"Improvements Act" has the meaning specified in
Section 5.1.
"Loss" has the meaning specified in Section 9.1.
"Merger" has the meaning specified in Section 2.2.
"Old Acquisition" has the meaning specified in the
third recital of this Agreement.
"Preferred Shares" has the meaning specified in Section
3.1(b).
"Previous Agreement" has the meaning specified in the
third recital of this Agreement.
"Securities Act" means the Securities Act of 1933, as
amended.
"Seller" has the meaning specified in the first
paragraph of this Agreement.
"Shares" has the meaning specified in the first recital
of this Agreement.
"Silverman Agreements" means the following: Consulting
Agreement and Non-Competition Agreement, each dated March 2,
1990, by and between Seller and Mark Silverman; and the related
Assignment, dated March 2, 1990, executed by Seller and accepted
by Waxie Maxie, and Undertaking, dated March 2, 1990, executed by
Waxie Maxie.
"Stock Option Plan" means the 1988 Stock Option and
Stock Appreciation Rights Plan of Seller, as amended.
"Subsequent Sales" has the meaning specified in Section
2.10(b).
"Subsequent Sales Additional Payment" has the meaning
specified in Section 2.10(b).
"Subsidiaries" means Waxie Maxie and Strawberries
Investments Inc., a Delaware corporation.
"Surviving Corporation" has the meaning specified in
Section 2.2.
"Surviving Corporation Common Stock" has the meaning
specified in Section 2.9.
"Tax Agreement" means the Tax Agreement among Seller,
Buyer, the Company and the Subsidiaries, in the form attached
hereto as Exhibit D.
"Termination Date" has the meaning specified in
Section 2.2.
"Waxie Maxie" means Waxie Maxie Quality Music Co., a
Delaware corporation.
"Workers Compensation Insurance" has the meaning
specified in Section 5.11.
"401(k) Plan" means the LIVE Entertainment Inc.
Incentive Savings Plan.
Section 2. Deposit; Merger.
2.1 Deposit. Buyer acknowledges that Seller will
incur substantial expenses and expend valuable resources in
connection with the transactions contemplated hereby. In order
to induce Seller to enter into the Previous Agreement and to
incur such expenses and expend such resources, simultaneously
with the execution and delivery of the Previous Agreement, Old
Acquisition paid to Seller Two Hundred and Fifty Thousand Dollars
($250,000). Simultaneously with the execution of delivery
hereof, Old Acquisition assigned all its right, title and
interest in and to the Deposit to Buyer. In the event that the
Closing does not occur by the Termination Date for any reason
whatsoever other than because one or more of the conditions set
forth in Sections 7.1, 7.2, 7.3, 7.4, 7.7, 8.2 or 8.4 is not
satisfied or waived or other than because this Agreement is
terminated pursuant to Section 12(a), Seller shall retain such
$250,000 and any interest earned thereon (collectively, the
"Deposit") and Buyer shall forfeit all rights related thereto.
In the event that the Closing does not occur by the Termination
Date because one or more of the conditions set forth in Sections
7.1, 7.2, 7.3, 7.4, 7.7, 8.2 or 8.4 is not satisfied or waived,
or because this Agreement is terminated pursuant to Section
12(a), Seller shall promptly return the Deposit to Buyer, and
Seller shall forfeit all rights related thereto. In the event
the Closing occurs in accordance with the terms hereof, the
Deposit shall be applied to the Base Merger Consideration.
2.2 The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time Acquisition shall be
merged with and into the Company and upon such merger (the
"Merger") the separate corporate existence of Acquisition shall
cease. The Company (which, as it exists from and after the
Effective Time, is sometimes hereinafter referred to as the
"Surviving Corporation") shall be the surviving corporation in
the Merger and shall continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger
shall have the effects specified in Section 259 of the DGCL.
2.3 Closing Date. Unless this Agreement is terminated
pursuant to Section 12 hereof, the closing of the Merger (the
"Closing") shall take place at the offices of Mayer, Brown &
Platt, 787 Seventh Avenue, New York, N.Y. 10019, at 10:30 a.m.,
New York City time, on the later of (x) August 31, 1994, or (y)
the first Business Day that is two (2) days following
satisfaction of the conditions in Section 7.2 and 8.2, or at such
other time and place as shall be agreed upon in writing by Seller
and Buyer (such date and time being hereinafter called the
"Closing Date"). Notwithstanding the foregoing, the Closing Date
shall not be later than September 7, 1994 (the "Termination
Date").
2.4 Effective Time. At the time of the Closing, and
provided that this Agreement has not been terminated or the
Merger has not been abandoned pursuant to Section 12 hereof,
Acquisition and the Company will cause a certificate of merger
(the "Certificate of Merger") to be executed and filed with the
Secretary of State of Delaware in such form as is required by,
and executed in accordance with, the relevant provisions of the
DGCL. The Merger shall become effective on the date on which the
Certificate of Merger has been duly filed with the Secretary of
State of Delaware and such date and time are hereinafter referred
to as the "Effective Time".
2.5 Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be
advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of
the rights, properties or assets of Acquisition or the Company as
a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver,
in the name and on behalf of Acquisition or the Company, as
appropriate, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of
Acquisition or the Company, as appropriate, all such other
actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to
and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
2.6 Certificate of Incorporation and By-Laws of the
Surviving Corporation. The Certificate of Incorporation of the
Company as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving
Corporation, without change or amendment until thereafter
amended, and the By-Laws of Acquisition as in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving
Corporation, without change or amendment until thereafter
amended.
2.7 Directors and Officers of the Surviving
Corporation. The directors of Acquisition immediately prior to
the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving
Corporation. The officers of Acquisition immediately prior to
the Effective Time shall be the officers of the Surviving
Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving
Corporation.
2.8 Conversion of the Shares. At the Effective Time
and without any action on the part of Seller, the Shares (i)
shall be converted into the right to receive, upon surrender of
the certificates representing the Shares, the Base Merger
Consideration; and (ii) shall be immediately cancelled by the
Company.
2.9 Acquisition Common Stock. At the Effective Time,
each share of Acquisition common stock, $.01 par value per share
(the "Acquisition Common Stock"), issued and outstanding
immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof,
be converted into and exchangeable for one share of common stock
of the Surviving Corporation ("Surviving Corporation Common
Stock"). From and after the Effective Time, each outstanding
certificate theretofore representing shares of Acquisition Common
Stock shall be deemed for all purposes to evidence ownership of
and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Acquisition Common Stock
shall have been converted. At the Closing, the Surviving
Corporation shall issue Buyer, in exchange for the certificate or
certificates which formerly represented Buyer's shares of
Acquisition Common Stock, which shall be immediately cancelled, a
stock certificate or certificates representing a number of shares
of Surviving Corporation Common Stock equal to the number of
shares of Acquisition Common Stock exchanged.
2.10 Payment of Base Merger Consideration; Additional
Payment Due Upon Subsequent Sale. (a) Simultaneously with the
filing of the Certificate of Merger with the Secretary of State
of Delaware, Buyer shall pay to Seller, by wire transfer in U.S.
dollars in immediately available funds, to the account specified
by Seller to Buyer prior to the Closing Date, an amount in
consideration for the Merger (the "Base Merger Consideration")
equal to Thirty Five Million Dollars ($35,000,000).
(b) In the event of any Subsequent Sale, in addition
to the Base Merger Consideration, Seller will receive from Buyer
an additional payment (the "Subsequent Sales Additional Payment")
equal to 20% of the Excess Sales Price from the direct or
indirect sale (other than ordinary course of business sales), in
one or more transactions, of all or substantially all of the
assets or stock of the Company or Buyer or its successor to one
or more third party purchasers during the twelve month period
beginning on the Closing Date (the "Subsequent Sales"). The
"Excess Sales Price" means (x) the aggregate amount of net
proceeds received by the seller(s) in the Subsequent Sales
(inclusive of assumed debt), minus (y) the sum of the following:
(i) the Base Merger Consideration; (ii) the principal amount on
the Closing Date of the Company's mortgage loan (which, as of
April 30, 1994 was $3,800,000); (iii) the principal amount on the
Closing Date of the Company's credit facility (which, as of April
30, 1994 was approximately $6,013,000); (iv) the fees and
expenses necessary for Buyer to close the Merger (currently
estimated to be $2,000,000, it being agreed that Buyer will
provide Seller with a schedule of the actual expenses incurred
within 60 days of the Closing Date); (v) any capital invested in
the Company following the Closing by Buyer or other investors;
(vi) any working capital debt incurred in the ordinary course of
the Company's business; and (vii) $10,000,000. The Subsequent
Sales Additional Payment shall be paid by wire transfer in U.S.
dollars in immediately available funds, to the account specified
by Seller to Buyer, as soon as practicable following completion
of the Subsequent Sales, but in any event within 30 days
thereafter. Promptly following the completion of the Subsequent
Sales, Buyer shall notify Seller thereof.
2.11 Closing Date Deliveries. (a) On the Closing
Date, Seller shall deliver or cause to be delivered to Buyer and
Acquisition, as appropriate;
(i) stock certificates representing all of the
Shares, together with duly executed stock powers in
blank attached thereto;
(ii) all of the documents, instruments, and opinions
required to be delivered pursuant to Section 7; and
(iii) the Tax Agreement executed by Seller, the
Company and the Subsidiaries.
(b) On the Closing Date, Buyer and Acquisition shall
deliver or cause to be delivered to Seller:
(i) the Base Merger Consideration, minus the Deposit,
in immediately available funds by wire transfer to
Seller's account, such account to be identified in a
writing from Seller to Buyer prior to the Closing Date;
(ii) all of the documents, instruments and opinions
required to be delivered by Buyer and/or Acquisition
under Section 8; and
(iii) the Tax Agreement executed by Buyer.
Section 3. Representations and Warranties of Seller.
As an inducement to Acquisition and Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby,
Seller represents and warrants to Acquisition and Buyer as
follows, it being agreed that such representations and warranties
are hereby deemed modified to reflect any fact which is actually
known to the Executives and which is required to render such
representations and warranties true and correct:
3.1 Organization and Capital Structure of the Company.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Delaware and duly qualified and in good standing in all other
states in which the Company does business, except where the
failure to be so qualified would not have a material adverse
effect on the financial condition of the Company and the
Subsidiaries taken as a whole. The Company has full corporate
power and authority to carry on its business as now conducted.
(b) The authorized capital stock of the Company
consists of (i) 50,000 shares of common stock, $.01 par value per
share, of which 100 shares are issued and outstanding and not
subject to any preemptive rights; and (ii) 50,000 shares of
Preferred Stock, $1 par value per share, of which 24,000 shares
are issued and outstanding and not subject to any preemptive
rights (the "Preferred Shares"). All of the Shares are validly
issued, fully paid, and nonassessable. The Shares are owned,
beneficially and of record, by Seller, free and clear of all
Encumbrances except for those Encumbrances that will be released
on the Closing Date. Except for this Agreement, neither Seller
nor the Company are parties to any agreements, options or
warrants for the issuance, sale, purchase, or redemption of any
shares of the Company's capital stock, and there are no
outstanding securities convertible into or exchangeable for any
capital stock of the Company. Except for this Agreement and
except for those Encumbrances that will be released on the
Closing Date, neither Seller nor the Company are parties to any
options, warrants or other rights, including, without limitation,
stock appreciation rights, to purchase or subscribe for or
relating to the capital stock of the Company, or voting
agreements, stockholder agreements, subscription agreements,
proxies or other similar instruments restricting the rights of
the holder of the Shares to vote or transfer the Shares.
3.2 Subsidiaries. (a) The Company has no
subsidiaries and no equity interests in any other business entity
other than the Subsidiaries. Each Subsidiary is a corporation
duly organized, validly existing, and in good standing under the
laws of the State of Delaware and duly qualified and in good
standing in all other states in which such Subsidiary does
business, except where the failure to be so qualified would not
have a material adverse effect on the financial condition of the
Company and the Subsidiaries taken as a whole. Each Subsidiary
has full corporate power and authority to carry on its business
as now conducted.
(b) The authorized capital stock of Waxie Maxie
consists of 10,000 shares of common stock, $0.01 par value per
share, of which 1,000 shares are issued and outstanding and not
subject to any preemptive rights; and the authorized capital
stock of Strawberries Investments Inc. consists of 3,000 shares
of common stock, no par value, of which 100 shares are issued and
outstanding and not subject to any preemptive rights. All of the
outstanding shares of the capital stock of the Subsidiaries are
validly issued, fully paid, and nonassessable. The Company is
the record and beneficial owner of such shares, free and clear of
Encumbrances except for those Encumbrances that will be released
on the Closing Date.
3.3 Certificates of Incorporation and By-laws. True
and complete copies of the Company's and the Subsidiaries'
Certificates of Incorporation and all amendments thereto to date,
certified by the Secretary of State of the State of Delaware, and
their respective By-laws, as amended to date, have been delivered
to Buyer or Old Acquisition.
3.4 Authority. (a) Seller has full corporate power
and authority to enter into this Agreement and the Tax Agreement
and to consummate the transactions contemplated hereby and
thereby. The execution, delivery, and performance of this
Agreement and the Tax Agreement by Seller have been duly
authorized by Seller's Board of Directors and do not require any
further corporate authorization or consent on the part of Seller
or its stockholders. This Agreement is, and the Tax Agreement,
when executed and delivered by Seller, will be, the legal, valid,
and binding agreement of Seller, enforceable against Seller in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, or other laws relating to
or affecting the enforcement of creditor's rights generally.
(b) The Merger has been approved by Board of Directors
of the Company and by Seller, as the sole stockholder of the
Company, and does not require any further corporate authorization
or consent on the part of the Company or its stockholder.
3.5 Effect of Agreement. Assuming compliance with the
Improvements Act and after giving effect to consents or releases
obtained on or before the Closing Date, neither the execution nor
delivery of this Agreement or the Tax Agreement by Seller, nor
consummation of the transactions contemplated hereby or thereby,
nor compliance with or fulfillment of the terms and provisions
hereof or thereof, will (x) conflict with, result in a breach of
the terms or conditions of, or constitute a default or violation
under, (i) the Certificate of Incorporation or the By-laws of
Seller, the Company or the Subsidiaries; or (ii) any order, writ,
injunction, decree, statute, other law, rule, or regulatory
provision affecting Seller, the Company or the Subsidiaries in
any material respect; (y) conflict with, result in a breach of
the terms or conditions of, or constitute a default or violation
under, any agreement or other instrument to which Seller, the
Company or the Subsidiaries is a party or by which any of them is
bound or to which its properties are subject, the breach or
violation of which or the default under which would have a
material adverse effect on the financial condition of the Company
and the Subsidiaries taken as a whole; or (z) require the Company
or either of the Subsidiaries to obtain any consent, waiver,
authorization or approval of, or make any filing with or give any
notice to any person, entity or governmental authority, the
failure to obtain, make or give which would have a material
adverse effect on the financial condition of the Company and the
Subsidiaries taken as a whole.
3.6 Financial Statements. Seller has previously
furnished Buyer or Old Acquisition with a true and complete copy
of (i) the unaudited consolidated balance sheet of the Company
and the Subsidiaries as of January 31, 1994, and the related
unaudited consolidated statement of operations and cash flows for
the year then ended, including the notes thereto; and (ii) the
unaudited consolidated balance sheet of the Company and the
Subsidiaries as of April 30, 1994, and the related unaudited
consolidated statement of operations and cash flows for the
quarter then ended. Such financial statements present fairly the
consolidated financial position of the Company and the
Subsidiaries as of the dates thereof and the consolidated results
of their operations for the periods then ended in conformity with
generally accepted accounting principles consistently applied
except for the accounting for goodwill therein and subject, in
the case of the financial statements described in clause (ii)
above, to year end adjustments.
3.7 Taxes. Seller has, in respect of the Company and
the Subsidiaries, filed all federal and state income tax returns
which are required to be filed and has paid (or, in the case of
state taxes, has caused the Company and the Subsidiaries to pay)
all federal and state income taxes which were shown as due
pursuant to such returns or pursuant to any assessment which has
become payable and which is not being contested in good faith by
appropriate proceeding. The payment of such taxes and the
provision made for taxes on the consolidated balance sheet of the
Seller as of March 31, 1994 are sufficient for the payment of all
federal and state income taxes of the Company and the
Subsidiaries, whether or not disputed, which are due and payable
or properly accruable through such date. There are no agreements
by Seller for the extension of time for the assessment of any
federal or state income taxes, other than with the Internal
Revenue Service for the taxable year ending December 31, 1989 and
the California Franchise Tax Board for the taxable year ending
December 31, 1988. The actions of Seller in connection with the
consummation of the Merger pursuant hereto will not result in a
payment constituting an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) to any of the employees of the
Company.
3.8 Litigation. There is no (i) action, suit, claim,
investigation or proceeding (legal, administrative or
arbitrative) pending or, to the knowledge of Seller, threatened
against the Company or either of the Subsidiaries, whether at law
or in equity and whether civil or criminal in nature, before any
court, arbitrator, governmental department, commission, agency or
instrumentality, domestic or foreign, or (ii) judgment, decree or
order of any court, arbitrator, governmental department,
commission, agency or instrumentality outstanding against the
Company or either of the Subsidiaries, in each case which has, or
can reasonably be expected to have, a material adverse effect on
the financial condition of the Company and the Subsidiaries taken
as a whole. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of Seller, threatened
against the Company or Seller which restrains or prohibits or
otherwise challenges the legality or validity of the transactions
contemplated hereby.
3.9 Compliance With Laws. The businesses of the
Company and the Subsidiaries have been operated in all material
respects in compliance with all, and neither the Company nor
either of the Subsidiaries is in default under or in violation of
any, laws, regulations, policies, guidelines, orders, judgments
or decrees of any federal, state, local or foreign, court or
governmental authority applicable to such businesses including,
without limitation, those related to antitrust and trade matters,
environmental matters, civil rights, zoning and building codes,
public health and safety, worker health and safety and labor and
non-discrimination, in each case other than any non-compliance,
default or violation which does not have, or can reasonably be
expected not to have, a material adverse effect on the financial
condition of the Company and the Subsidiaries taken as a whole.
3.10 Seller's Employment Agreements. Seller is not a
party to or bound by any oral or written employment, consulting,
advisory or deferred compensation agreement with any employee of
the Company or the Subsidiaries. Except as set forth in Section
5.8 and except for the Silverman Agreements, to the knowledge of
Seller without independent investigation, neither the Company nor
either of the Subsidiaries is a party to or bound by any oral or
written agreement relating to the employment, retirement or
termination of the services of any current or former director,
officer, employee or consultant of the Company or either of the
Subsidiaries.
3.11 401(k) Plan. The 401(k) Plan is the only
"employee pension benefit plan" (as such term is defined in
section 3(2) of ERISA) now maintained by Seller in which
employees of the Company and the Subsidiaries are eligible to
participate. As of the date hereof, the 401(k) Plan is qualified
under Section 401(a) of the Code and the trust related to such
Plan is exempt from federal income tax under Section 501(a) of
the Code.
3.12 No Finder. Neither Seller, the Company, either
of the Subsidiaries, nor any party acting on behalf of any of
them has paid or become obligated to pay any fee or commission to
any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
3.13 No Undisclosed Liabilities. Neither the Company
nor either of the Subsidiaries has any outstanding claims,
liabilities or indebtedness, contingent or otherwise, in excess
of amounts shown or reserved for in the financial statements
described in clause (ii) of Section 3.6 hereof, other than
claims, liabilities or indebtedness (x) incurred after April 30,
1994 in the ordinary course of business and consistent with past
practice; or (ii) the existence of which would not have a
material adverse effect on the financial condition of the Company
and the Subsidiaries taken as a whole.
3.14 Sufficiency of Assets. The Company and each of
the Subsidiaries has good title to all assets owned by it
(whether real, fee, or leasehold, personal or mixed, tangible or
intangible) and used in its business, free and clear of any
Encumbrances other than Encumbrances disclosed in the financial
statements referred to in Section 3.6 or 7.4, or second priority
vendor liens in favor of the major label suppliers of the Company
and the Subsidiaries, or Encumbrances the existence of which
would not have a material adverse effect on the financial
condition of the Company and the Subsidiaries taken as a whole,
and such assets are adequate and suitable for the purposes for
which they are currently being used and are sufficient for the
conduct of the business of the Company as it is currently being
conducted.
Section 4. Representations and Warranties of Buyer.
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, each of
Acquisition and Buyer, jointly and severally, hereby represents
and warrants to Seller as follows:
4.1 Organization of Buyer and Acquisition. (a) Buyer
is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
(b) Acquisition is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware. Acquisition was organized solely for the
purpose of engaging in the transactions contemplated by this
Agreement and has not engaged in any business or entered into any
agreement since it was incorporated which is not in connection
with this Agreement, has not incurred any liabilities since it
was incorporated, and does not own any properties.
(c) The authorized capital stock of Acquisition
consists of 1,000 shares of Acquisition Common Stock, of which
100 shares are issued and outstanding and not subject to any
preemptive rights. All of the outstanding shares of Acquisition
Common Stock are validly issued, fully paid, and nonassessable
and are owned, beneficially and of record, by Buyer, free and
clear of all Encumbrances. Except for this Agreement, neither
Buyer nor Acquisition are parties to any agreements, options or
warrants for the issuance, sale, purchase, or redemption of any
shares of Acquisition's capital stock, and there are no
outstanding securities convertible into or exchangeable for any
capital stock of Acquisition.
(d) All of the issued and outstanding shares of the
capital stock Old Acquisition are owned by Buyer, free and clear
of any Encumbrances.
4.2 Authority. (a) Buyer has full corporate power and
authority to enter into this Agreement and the Tax Agreement and
to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance of this Agreement and
the Tax Agreement by Buyer have been duly authorized by the Board
of Directors of Buyer and do not require any further corporate
authorization or consent on the part of Buyer or its
stockholders. This Agreement is, and the Tax Agreement, when
executed by Buyer, will be, the legal, valid, and binding
agreement of Buyer enforceable against Buyer in accordance with
their terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, or other laws relating to or
affecting the enforcement of creditor's rights generally.
(b) Acquisition has full corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery, and performance of
this Agreement by Acquisition have been duly authorized by the
Board of Directors of Acquisition and do not require any further
corporate authorization or consent by Acquisition or its
stockholder. This Agreement is the legal, valid, and binding
agreement of Acquisition enforceable against Acquisition in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, or other laws relating to
or affecting the enforcement of creditor's rights generally.
(c) The Merger has been approved by Board of Directors
of Acquisition and by Buyer, as the sole stockholder of
Acquisition, and does not require any further corporate
authorization or consent on the part of Acquisition or its
stockholder.
4.3 Effect of Agreement. Assuming compliance with
the Improvements Act, neither the execution nor delivery of this
Agreement or the Tax Agreement by Buyer, nor the execution or
delivery of this Agreement by Acquisition, nor consummation of
the transactions contemplated hereby or thereby, nor compliance
with or fulfillment of the terms and provisions hereof or
thereof, will (x) conflict with, result in a breach of the terms
or conditions of, or constitute a default or violation under, (i)
the Certificate of Incorporation or the By-laws of either
Acquisition or Buyer; or (ii) any order, writ, injunction,
decree, statute, other law, rule, or regulatory provision
affecting Acquisition or Buyer in any material respect; or (y)
conflict with, result in a breach of the terms or conditions of,
or constitute a default or violation under, any agreement or
other instrument to which, Old Acquisition, Acquisition or Buyer
is a party or by which any of them is bound or to which any of
their properties is subject.
4.4 Litigation. There is no (i) action, suit, claim,
investigation or proceeding (legal, administrative or
arbitrative) pending or, to the knowledge of either Acquisition
or Buyer, threatened against either Acquisition or Buyer, whether
at law or in equity and whether civil or criminal in nature,
before any court, arbitrator, governmental department,
commission, agency or instrumentality, domestic or foreign, or
(ii) judgment, decree or order of any court, arbitrator,
governmental department, commission, agency or instrumentality
outstanding against either Acquisition or Buyer, in each case
which has, or can reasonably be expected to have, a material
adverse effect on the financial condition of either Acquisition
or Buyer. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of either Acquisition or
Buyer, threatened against either Acquisition or Buyer which
restrains or prohibits or otherwise challenges the legality or
validity of the transactions contemplated hereby.
4.5 No Finder. Neither Old Acquisition, Acquisition,
Buyer nor any party acting on the behalf of Old Acquisition,
Acquisition, or Buyer has paid or become obligated to pay any fee
or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement, other
than to Jefferson and Daniels, whose fees and expenses shall be
paid by Buyer.
4.6 Source of Funds. On the Closing Date, after
giving effect to the transactions contemplated by this Agreement
and any additional indebtedness incurred by Buyer, the Company
and the Subsidiaries in connection with the Closing, Buyer, the
Company and each of the Subsidiaries (i) will not be insolvent,
(ii) will be able to pay its liabilities as they mature and
become due, and (iii) will have sufficient capital to ensure that
it will continue to be a going concern for a period of at least
one year from the Closing Date. On the Closing Date, after
giving effect to the transactions contemplated by this Agreement,
Buyer will have invested in the Company equity capital equal to
at least Thirteen Million Dollars ($13,000,000).
Section 5. Actions Prior to Closing Date. The parties
covenant to take the following actions between the date hereof
and the Closing Date:
5.1 Improvements Act. (a) Buyer and Acquisition on
the one hand and Seller on the other hand have each filed, (or
caused their respective ultimate parent to file, as applicable)
with the Federal Trade Commission ("FTC") and the Antitrust
Division of the Department of Justice ("DOJ") the notifications
and other information required to be filed under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the
"Improvements Act"), or any rules and regulations promulgated
thereunder, with respect to the transactions contemplated hereby.
Each party represents and warrants that all such filings by it or
its ultimate parent have been, to the best of their knowledge and
belief, as of the date filed, true and accurate in all material
respects and in accordance with the requirements of the
Improvements Act and any such rules and regulations.
(b) In connection with the foregoing, each of
Acquisition and Buyer on the one hand, and Seller and the Company
on the other hand agrees to make available to the other, such
information as each of them may reasonably request relative to
its (and its ultimate parent's, if applicable) business, assets,
and property and to file (or cause their ultimate parents to
file, as applicable) any additional information requested by such
agencies under the Improvements Act and any such rules and
regulations.
5.2 Investigation of the Company's Corporate and
Financial Records. (a) Seller shall afford to the officers,
employees, and authorized representatives of Buyer and
Acquisition (including, without limitation, financial advisors
and providers, independent public accountants and attorneys)
reasonable access during normal business hours to the employees,
authorized representatives, corporate, financial, and accounting
records of the Company and the Subsidiaries and shall furnish or
cause to be furnished to Buyer and Acquisition or their
authorized representatives such additional information concerning
the Company and the Subsidiaries as shall be reasonably requested
and which Seller or the Company possess. Buyer and Acquisition
agree that such investigation shall be conducted in such manner
as not to interfere unreasonably with the operation of the
Company's and the Subsidiaries' business.
(b) Buyer and Acquisition agree that, having received
such access, in the event this Agreement is terminated pursuant
to Section 12, Buyer and Acquisition will return all information
and all copies of all documents they obtain regarding Seller, the
Company and the Subsidiaries to Seller and not use such
information for any purpose and will not solicit or seek to hire
any officer, employee, or commission sales person of Seller, the
Company or the Subsidiaries for a period of twenty-four (24)
months from the date hereof.
5.3 Accuracy of Representations and Warranties. (a)
If, prior to the Closing Date, either Acquisition or Buyer learns
of any material breach of any warranty or the inaccuracy of any
representation of Seller herein, Buyer and Acquisition shall so
notify Seller promptly after so learning, and in all events prior
to the Closing. Failure to so notify Seller or proceeding with
the Closing shall be deemed a waiver by Buyer and Acquisition of
their right to allege such breach or inaccuracy in any action
against Seller following the Closing.
(b) If, prior to the Closing Date, Seller learns of
any material breach of any warranty or the inaccuracy of any
representation of either Acquisition or Buyer herein, Seller
shall so notify Buyer and Acquisition promptly after so learning,
and in all events prior to the Closing. Failure to so notify
Buyer and Acquisition or proceeding with the Closing shall be
deemed a waiver by Seller of its right to allege such breach or
inaccuracy in any action against either Acquisition or Buyer
following the Closing.
5.4 Continuation of the Company's Business. (a) From
the date hereof until the Closing Date, Seller shall use its Best
Efforts to cause the Company to continue to operate its business
in the ordinary course consistent with past practice. Prior to
the Closing, Seller may cause the Company to pay to Seller
accrued and unpaid dividends on the Preferred Shares as follows:
(i) $237,500, in respect of the period prior to July 1,
1994; and
(ii) $1,597.22 per day from July 1, 1994 to and
including the Closing Date.
Seller shall not cause the Company to pay Seller any other
dividends in respect of the Shares.
(b) Effective on the Closing, each of Roger Burlage, Robert
Denton and Michael White shall resign as officers and directors
of the Company and the Subsidiaries.
5.5 Elimination of Intercompany Debt. (a)
Immediately prior to the Closing, Seller will contribute to the
capital of the Company that certain Promissory Note issued by the
Company to Carolco Pictures Inc. and previously assigned to a
subsidiary of Seller, together with all accrued and unpaid
interest thereon. As of the date hereof, such Note has an
aggregate principal amount of $3,000,000.
(b) Subject to this Agreement, the Tax Agreement and
the transactions contemplated hereby and thereby, between the
date hereof and the Closing Date, Seller, the Company and the
Subsidiaries will eliminate any and all indebtedness owed (i) to
the Company or a Subsidiary by Seller or any of its subsidiaries;
or (ii) by the Company or a Subsidiary to Seller or any of its
subsidiaries, other than indebtedness owed by the Company or a
Subsidiary to LIVE Home Video Inc. or its subdistributors
pursuant to ordinary course, arm's length, video cassette
acquisition transactions.
5.6 401(k) Plan. (a) Effective as of the Closing
Date, the Company and the Subsidiaries shall cease to be
participating employers as defined in the 401(k) Plan, and all
employees of the Company and the Subsidiaries shall cease to be
active participants in the 401(k) Plan. Effective as of the
Closing Date, Seller, the Company and the Subsidiaries shall take
any and all actions as shall be necessary or appropriate to cause
the Company and the Subsidiaries to cease to be participating
employers under the 401(k) Plan. From and after the Closing
Date, all employees of the Company and the Subsidiaries shall
have no right to participate in the 401(k) Plan, and Seller shall
have no obligation to make any contribution under the 401(k) Plan
for or on behalf of such employees.
(b) If permitted by applicable law, prior to the
Closing the Board of Directors of Seller shall adopt an amendment
to the 401(k) Plan vesting as of the Closing Date the unvested
benefits of the employees of the Company and Subsidiaries
relating to employer contributions made prior to the Closing.
5.7 Stock Option Plan. From and after the Closing
Date, all employees of the Company and the Subsidiaries shall
have no right to participate in the Stock Option Plan, except for
the right to exercise vested options for a period ending 90 days
after the Closing Date in accordance with such Plan. All vested
options or stock appreciation rights held by such employees under
such Plan shall terminate ninety (90) days after the Closing,
unless exercised as and to the extent provided in such Plan. On
the Closing Date, all unvested options or stock appreciation
rights held by such employees under such Plan shall terminate.
5.8 Certain Employment Agreements. Buyer agrees that
Seller shall have no liability or obligation under (i) Section
2.6 of the Employment Agreement dated as of December 1, 1992,
between Ivan Lipton and the Company; or (ii) Section 2.6 of the
Employment Agreement dated as of December 1, 1992, between Alan
Wilson and the Company, such liability and obligation being
solely that of the Company.
5.9 Insurance. Seller shall use its Best Efforts to
cause all policies of liability insurance maintained, owned or
held by the Company or the Subsidiaries or maintained by Seller
for the benefit of the Company and the Subsidiaries to be kept in
full force and effect through the Closing Date.
5.10 Tax Provisions. The parties agree to execute
and deliver the Tax Agreement on the Closing Date in connection
with the Closing.
5.11 Workers Compensation Insurance. (a) Seller has
been carrying workers compensation insurance (the "Workers
Compensation Insurance") under its workers compensation insurance
policies that cover the employees of the Company and the
Subsidiaries as well as the employees of other domestic
subsidiaries of Seller. The Company, on behalf of itself and the
Subsidiaries, has been paying a portion of the premiums on the
Workers Compensation Insurance. The parties hereby agree to make
a post-Closing allocation, as provided in subsections (b) and (c)
immediately below, of any adjustment in the premiums paid on the
Workers Compensation Insurance, either in the form of refunds or
requirements for additional payment (an "Adjustment"), if such
Adjustment relates to periods prior to the Closing Date.
(b) If an Adjustment is in the form of a refund,
Seller shall, within twenty (20) Business Days after receipt of
such refund, deliver to the Company the share of such refund
attributable to the Company and the Subsidiaries, in accordance
with the calculations of Seller's insurer, which calculations
shall have taken into account both (a) the portion of the
original premium paid by the Company and the Subsidiaries, and
(b) the loss experience of Seller and its other subsidiaries, on
the one hand, compared against the loss experience of the Company
and the Subsidiaries, on the other.
(c) If an Adjustment is in the form of a requirement
to pay additional premiums, Seller shall forward to Buyer and the
Company the premium notice received by Seller from its insurer,
together with a calculation of the share of such premium increase
attributable to the Company and the Subsidiaries, which
calculation shall have been prepared by Seller's insurer taking
into account both (a) the portion of the original premium paid by
the Company and the Subsidiaries, and (b) the loss experience of
Seller and its other subsidiaries, on the one hand, compared
against the loss experience of the Company and the Subsidiaries,
on the other. The Company and the Subsidiaries shall, and Buyer
shall cause them to, within twenty (20) Business Days after
receipt of such notice, deliver to Seller the share of such
premium increase attributable to the Company and the
Subsidiaries.
Section 6. Additional Agreements.
6.1 Expenses. Each party hereto will pay all costs
and expenses incident to its negotiation and preparation of this
Agreement, the Previous Agreement and the Tax Agreement and to
its performance and compliance with all agreements and conditions
contained herein and therein on its part to be performed or
complied with, including the fees, expenses and disbursements of
its counsel, accountants, brokers, or finders, it being agreed
that the Company shall not bear such expenses of Seller.
6.2 Certain Information. (a) Seller acknowledges
that Jefferson and Daniels have prepared that certain Information
Memorandum, dated March 19, 1994, in connection with their
efforts on behalf of management of the Company to raise financing
to purchase the Shares. Seller agrees not to distribute such
memorandum to other potential purchasers of the Shares or the
assets of the Company without the consent of Jefferson or
Daniels.
(b) Buyer and Acquisition acknowledge that they will
conduct their own investigation of the business and affairs of
the Company and the Subsidiaries and that Seller does not make
any representations or warranties to Buyer or Acquisition in
connection with the transactions contemplated hereby other than
those set forth in Section 3 and Section 5.1 hereof. Buyer and
Acquisition further acknowledge that they have had free access to
the Company's and the Subsidiaries' books and records to conduct
such due diligence as they deemed appropriate and that they have
had free access to the President and other members of the
management of the Company and the Subsidiaries.
6.3 Further Assurances. Following the Closing, Buyer,
the Surviving Corporation and Seller shall execute and deliver,
or cause to be executed and delivered, to the other parties such
other instruments of conveyance and transfer as the other parties
may reasonably request or as may be otherwise necessary to more
effectively carry out the transactions contemplated hereby.
Following the Closing, Seller agrees to cooperate with Buyer and
the Surviving Corporation, upon their reasonable request, in
their preparation of audited financial statements of the Company
and its Subsidiaries for the three year period ended January 31,
1994 and the six months ended July 31, 1994.
Section 7. Conditions Precedent to Obligations of
Buyer and Acquisition. The obligations of Buyer and Acquisition
under this Agreement shall, at the option of Buyer and
Acquisition, be subject to the satisfaction, on or prior to the
Closing Date, of the following conditions, it being agreed that
if the Closing occurs pursuant to this Agreement, Buyer and
Acquisition shall be deemed to have waived all conditions to
Closing which were not satisfied at the time of Closing.
7.1 Performance of Agreement; No Misrepresentation.
There shall have been no material breach by Seller in the
performance of any of its covenants and agreements herein; each
of the representations and warranties of Seller contained in
Section 3 and Section 5.1 of this Agreement shall be true and
correct in all material respects on the Closing Date as though
made on the Closing Date except for (i) changes permitted by this
Agreement or resulting from any transaction consented to by Buyer
or Acquisition, or (ii) inaccuracies or omissions in such
representations and warranties which were actually known to the
Executives; and there shall have been delivered to Buyer and
Acquisition a certificate or certificates to such effect, dated
the Closing Date, signed on behalf of Seller by an officer
thereof.
7.2 Improvements Act. Any applicable notice period
relevant to any required notification under the Improvements Act
shall have expired (or been terminated) without objection by the
FTC or the DOJ.
7.3 Opinion of Counsel to Seller. Buyer and
Acquisition shall have received a favorable opinion of Michael J.
White, General Counsel of Seller, in the form of Exhibit A
hereto, addressed to Buyer and Acquisition and dated the Closing
Date.
7.4 Audited Financial Statements. Seller shall have
furnished Buyer and Acquisition with the audited consolidated
balance sheet of the Company and the Subsidiaries as of January
31, 1994, and the related audited consolidated statement of
operations and cash flows for the year then ended, including the
notes thereto, together with the opinion of Ernst & Young,
addressed to Seller, to the effect that based on and subject to
the limitations of their audit of the Company, in their opinion
such financial statements present fairly, in all material
respects, the consolidated financial position of the Company and
the Subsidiaries as of the date thereof and the consolidated
results of their operations for the year then ended in conformity
with generally accepted accounting principles except for the
accounting for goodwill therein. Such audited financial
statements shall be substantially similar to the unaudited
financial statements described in clause (i) of Section 3.6.
7.5 Financing; Mortgage. Buyer shall have received
the Base Merger Consideration, from one or more financing sources
and/or equity investors, in order to enable Buyer to pay the Base
Merger Consideration. On the Closing Date, the principal amount
on the Company's mortgage loan shall not be in excess of
$3,900,000 and the accrued and unpaid interest on such mortgage
shall not be in excess of $30,000.
7.6 Consents. The Company shall have received any
consent or approval required for the consummation of the
transactions contemplated hereby, other than any the failure to
obtain which would not have a material adverse effect on the
financial condition of the Company and the Subsidiaries taken as
a whole.
7.7 Absence of Changes. There shall not have occurred
between the date of this Agreement and the Closing Date:
(i) any sale, disposition or other transfer
of any assets of the Company or the
Subsidiaries except in the ordinary course of
business;
(ii) any addition to the mortgages, pledges
or other encumbrances of any of the assets of
the Company or the Subsidiaries, other than
any which does not affect or cannot
reasonably be expected to affect, materially
and adversely, the financial condition of the
Company and the Subsidiaries taken as a
whole;
(iii) any damage, destruction or loss
(whether or not covered by insurance) which
affects or can reasonably be expected to
affect, materially and adversely, the
financial condition of the Company and the
Subsidiaries taken as a whole; and
(iv) any increase in the indebtedness of the
Company or the Subsidiaries except (x)
indebtedness incurred under the Company's
currently existing credit facility with
Foothill Capital Corporation for working
capital purposes in the ordinary course of
business; (y) indebtedness to suppliers of
the Company and the Subsidiaries incurred in
the ordinary course of business; and (z)
other indebtedness not for borrowed money
incurred in the ordinary course of business.
7.8 Exclusive Remedy. In the event that any of the
conditions set forth in Sections 7.1 through 7.7 is not satisfied
on the Closing Date or waived on or before the Closing Date and
therefore the Closing does not take place, neither Acquisition
nor Buyer shall have a cause of action against Seller or the
Company, at law or in equity, for breach of this Agreement or
otherwise and Acquisition's and Buyer's exclusive remedy shall be
return of the Deposit to Buyer, except (i) that in the case of
the conditions set forth in Sections 7.5 and 7.6, neither Buyer
nor Acquisition shall be entitled to a return of the Deposit; and
(ii) as provided in Section 12(c).
Section 8. Conditions Precedent to Obligations of
Seller. The obligations of Seller under this Agreement shall, at
the option of Seller, be subject to the satisfaction, on or prior
to the Closing Date, of the following conditions, it being agreed
that if the Closing occurs pursuant to this Agreement, Seller
shall be deemed to have waived all conditions to Closing which
were not satisfied at the time of Closing.
8.1 Performance of Agreement; No Misrepresentation;
Insolvency. (a) There shall have been no material breach by
either Acquisition or Buyer in the performance of any of its
covenants and agreements herein; each of the representations and
warranties of Acquisition or Buyer contained in Section 4 and
Section 5.1 of this Agreement shall be true and correct in all
material respects on the Closing Date as though made on the
Closing Date except for changes therein permitted by this
Agreement or resulting from any transaction expressly consented
to in writing by Seller; and there shall have been delivered to
Seller a certificate or certificates to such effect, dated the
Closing Date, signed on behalf of Buyer and Acquisition by an
officer thereof.
(b) Buyer and Acquisition shall have delivered to
Seller evidence reasonably satisfactory to Seller confirming the
accuracy of the representation contained in Section 4.6.
(c) Buyer shall have delivered to Seller evidence
satisfactory to Seller confirming that simultaneously with the
filing of the Certificate of Merger with the Secretary of State
of Delaware, Buyer will pay to Seller the Base Merger
Consideration.
8.2 Improvements Act. Any applicable notice period
relevant to any required notification under the Improvements Act
shall have expired (or been terminated) without objection by the
FTC or the DOJ.
8.3 Opinion of Counsel to Buyer. Seller shall have
received a favorable opinion of Mayer, Brown & Platt, counsel to
Buyer and Acquisition , in the form of Exhibit B hereto,
addressed to Seller and dated the Closing Date.
8.4 Fairness Opinion. Seller shall have received
such fairness opinions from such investment banking firms as the
Board of Directors of Seller shall deem appropriate in its sole
discretion, and such opinions shall not have been withdrawn or
modified in a manner unsatisfactory to the Board of Directors of
Seller.
8.5 Releases. Each of Robert Kliewe, Ivan Lipton and
Alan Wilson shall have executed and delivered to Seller a
release, dated the Closing Date, in the form attached hereto as
Exhibit C.
8.6 Exclusive Remedy. In the event that any of the
conditions set forth in Sections 8.1 through 8.5 is not satisfied
or waived on the Closing Date and therefore the Closing does not
take place, neither the Company nor Seller shall have a cause of
action against either Acquisition or Buyer, at law or in equity,
for breach of this Agreement or otherwise and Seller's exclusive
remedy shall be its right to retain the Deposit; except (i) that
in the case of the conditions set forth in Sections 8.2 and 8.4,
Seller shall not retain the Deposit and shall instead return it
to Buyer; and (ii) as provided in Section 12(c).
Section 9. Indemnification.
9.1 Indemnification by Seller. (a) Seller agrees to
indemnify and hold harmless Buyer and Acquisition, from and
against, and to pay, any and all (a) liabilities, losses, costs,
or damages ("Loss") and (b) reasonable attorneys' and
accountants' fees and expenses, court costs, and all other out-
of-pocket expenses ("Expense") incurred by Buyer or Acquisition
(net of any offsetting benefits, including, without limitation,
tax benefits or detriments [whether or not realized at the time
of such Loss or Expense] arising out of or related to the event
to which such Loss or Expense relates) in connection with or
arising from (i) any failure of Seller to perform any of its
agreements contained herein; or (ii) any breach of any warranties
or inaccuracy of any representation of Seller contained in
Section 3.1, 3.2, 3.3, 3.4, 3.11, 3.12 or 5.1 of this Agreement
or in the certificate delivered by Seller pursuant to Section 7.1
(to the extent it relates to Section 3.1, 3.2, 3.3, 3.4, 3.11,
3.12 or 5.1), other than any such breach or inaccuracy which was
actually known to the Executives on or prior to the Closing Date;
provided, however, that, Seller shall be required to indemnify
and hold harmless Buyer and Acquisition under this Section 9.1(a)
only to the extent that the aggregate amount of Loss and Expense
incurred by Buyer and Acquisition exceeds a combined total of
Fifty Thousand Dollars ($50,000); and provided further that (x)
Seller shall not be obligated to pay Buyer and Acquisition, in
the aggregate, more than a combined total of Four Million Dollars
($4,000,000) pursuant to this Section 9.1(a) for the total of all
claims of Loss and Expense made hereunder and (y) this Section
9.1(a) shall in no way limit Buyer's right to return of the
Deposit pursuant to this Agreement. The indemnification provided
for in this Section 9.1(a) shall terminate one year after the
Closing Date (and no claims shall be made by Buyer or Acquisition
under this Section 9.1(a) thereafter), except as to any Loss or
Expense of which Seller has been notified in accordance with
Section 9.3. The foregoing limitations with respect to the
period and amount of indemnification shall not apply to any
failure of Seller to perform its agreements under Section 5.11.
(b) Seller agrees to indemnify and hold harmless Buyer
from and against, and to pay, any and all Loss and Expense
incurred by Buyer, respectively, (net of any offsetting benefits,
including, without limitation, tax benefits or detriments
[whether or not realized at the time of such Loss or Expense]
arising out of or related to the event to which such Loss or
Expense relates) in connection with or arising from any breach of
any warranty or inaccuracy of any representation of Seller
contained in Section 3.7 hereof, other than any such breach or
inaccuracy which was actually known to the Executives on or prior
to the Closing Date. The indemnification provided for in this
Section 9.1(b) shall continue for the maximum period permitted
under the applicable tax statutes of limitation, including
extensions thereof.
(c) Notwithstanding anything else to the contrary
contained in this Agreement, (i) the representations and
warranties of Seller contained in this Agreement, other than
those set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.7, 3.11, 3.12
and 5.1 and (ii) the certificate to be delivered by Seller at the
Closing pursuant to Section 7.1, to the extent it relates to any
representations and warranties of Seller other than those
expressly listed in clause (i) of this Section 9.1(c)
(collectively the "Closing Condition Representations"), are
intended by the parties to operate only as conditions to
Acquisition's and Buyer's obligations to consummate the Merger.
Accordingly, neither Acquisition nor Buyer shall have a cause of
action against Seller or the Company, at law or in equity,
whether before or after the Closing, in connection with any
breach of any warranties or inaccuracy of any representation
included in the Closing Condition Representations, and
Acquisition's and Buyer's exclusive remedy shall be return of the
Deposit to the extent provided in Section 7.8.
9.2 Indemnification by Buyer and Acquisition. (a)
Buyer and Acquisition, jointly and severally, agree to indemnify
and hold harmless Seller from and against, and to pay, any and
all Loss and Expense incurred by Seller (net of any offsetting
benefits, including, without limitation, tax benefits or
detriments [whether or not realized at the time of such Loss or
Expense] arising out of or related to the event to which such
Loss or Expense relates) in connection with or arising from
(i) any failure of Buyer or Acquisition to perform any of its
agreements contained herein; or (ii) any breach of any warranty
or inaccuracy of any representation of Buyer or Acquisition
contained in Section 4 or Section 5.1 of this Agreement or in the
certificate(s) delivered by Seller pursuant to Section 8.1;
provided, however, that, Buyer and Acquisition shall be required
to indemnify and hold harmless Seller under this Section 9.2(a)
only to the extent that the aggregate amount of the Loss and
Expense incurred by Seller, in the aggregate, exceeds Fifty
Thousand Dollars ($50,000); and provided further that (x) neither
Acquisition nor Buyer shall be obligated to pay Seller, in the
aggregate, more than Four Million Dollars ($4,000,000) pursuant
to this Section 9.2(a) for the total of all claims of Loss and
Expense made hereunder and (y) this Section 9.2(a) shall in no
way limit Seller's right to payment of the Deposit pursuant to
this Agreement. The indemnification provided for in this
Section 9.2(a) shall terminate one year after the Closing Date
(and no claims shall be made by Seller with respect thereto under
this Section 9.2(a) thereafter), except as to any such Loss or
Expense of which Buyer or Acquisition has been notified in
accordance with Section 9.3. The foregoing limitations with
respect to the period and amount of indemnification shall not
apply to any failure of Buyer to perform its agreements under
Sections 2.10(b) and 5.11.
(b) Further, Buyer and Acquisition, jointly and
severally, agree to indemnify and hold harmless Seller from and
against, and to pay, any and all Loss and Expense incurred by
Seller (net of any offsetting benefits, including, without
limitation, tax benefits or detriments [whether or not realized
at the time of such Loss or Expense] arising out of or related to
the event to which such Loss or Expense relates) in connection
with or arising from any liabilities or obligations of the
Company or a Subsidiary with respect to which neither Acquisition
nor Buyer is entitled to indemnification under Section 9.1
hereof.
9.3 Procedure for Indemnification. The following
procedures apply to indemnification under Sections 9.1 and 9.2 of
this Agreement:
(a) If an indemnified party under this Section 9 has
suffered or incurred any Loss or incurred any Expense, whether or
not the applicable dollar limitation specified by Section 9.1 or
9.2 has been exceeded, the indemnified party shall so notify the
indemnifying party no later than thirty (30) Business Days after
the indemnified party acquires knowledge of any such suffered or
incurred Loss or Expense, in writing, describing such Loss or
Expense, the amount thereof, if known, and the method of
computation of such Loss or Expense, all with reasonable
particularity and containing a reference to the provisions of
this Agreement in respect of which such Loss or Expense shall
have occurred. If any such indemnity shall arise from the claim
of a third party, the indemnified party shall permit the
indemnifying party to assume the defense of any such claim and
any litigation resulting from such claim. Failure by an
indemnifying party to notify an indemnified party of its election
to defend any such claim or action by a third party within thirty
(30) Business Days after notice thereof shall have been given to
the indemnifying party shall be deemed a waiver by the
indemnifying party of its right to defend such claim or action.
(b) If the indemnifying party assumes the defense of
such claim or litigation resulting therefrom, the indemnifying
party shall have the right to undertake, conduct and control,
through counsel of its own choosing and at the sole expense of
the indemnifying party, the conduct and settlement of such action
or suit, and the indemnified party shall cooperate with the
indemnifying party in connection therewith; provided that (x) the
indemnifying party shall not thereby permit to exist any lien,
encumbrance or other adverse charge upon any asset of the
indemnified party; (y) the indemnifying party shall not, in the
defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) or enter into any
settlement, except with the written consent of the indemnified
party, which shall not be unreasonably withheld; and (z) the
indemnifying party shall permit the indemnified party to
participate in such conduct or settlement through counsel chosen
by the indemnified party, but the fees and expenses of such
counsel shall be borne by the indemnified party. So long as the
indemnifying party is contesting any such action or suit in good
faith, the indemnified party shall not pay or settle any such
action or suit. Notwithstanding the foregoing, the indemnified
party shall have the right to pay or settle any such action or
suit, provided that in such event the indemnified party shall
waive any right to indemnity therefor by the indemnifying party,
and no amount in respect thereof shall be claimed as Loss or
Expense under this Section 9.
(c) If the indemnifying party shall not assume the
defense of any such claim by a third party or litigation
resulting therefrom after receipt of notice from such indemnified
party, the indemnified party may defend against such claim or
litigation in such manner as the indemnified party deems
appropriate; provided that, the indemnified party shall give the
indemnifying party advance notice of any proposed compromise or
settlement. The indemnified party shall permit the indemnifying
party to participate in the defense of any such action or suit
through counsel chosen by it, provided that the fees and expenses
of such counsel shall be borne by the indemnifying party. Any
compromise or settlement with respect to a claim effected after
the indemnifying party by notice to the indemnified party shall
have reasonably disapproved of such compromise or settlement
shall discharge the indemnifying party from liability with
respect to the subject matter thereof, and no amount in respect
thereof shall be claimed as Loss or Expense under this Section 9.
Section 10. Survival of Obligations. Except as
otherwise provided herein, all representations, warranties,
covenants, and obligations contained in this Agreement or in any
certificate delivered at the Closing shall survive the Closing
only insofar as a party hereto is expressly entitled to
indemnification with respect thereto pursuant to Section 9 and,
in such case, only for such period as indemnification is provided
pursuant to Section 9, and no action or claim in respect of this
Agreement, any such certificate, the Shares, or the Merger may be
brought or commenced (i) in any forum or jurisdiction on any
theory in law or equity after the expiration of such period; and
(ii) except as provided in Section 9.
Section 11. Notices. All notices or other
communications required or permitted hereunder shall be in
writing and shall be deemed given or delivered to a party when
delivered personally or when sent to such party by registered or
certified mail or by private courier to the following address:
If to Buyer, Acquisition or the Surviving Corporation:
c/o Jefferson Capital Group, Ltd.
1 James Center
901 East Cary Street, Suite 1400
Richmond, VA 23219
Attention: R. Timothy O'Donnell
With a copy to:
Mayer, Brown & Platt
787 Seventh Avenue
New York, New York 10019
Attention: James B. Carlson, Esq.
If to Seller or the Company (prior to the Merger):
LIVE Entertainment Inc.
15400 Sherman Way
Suite 500
Van Nuys, California 91406
Attention: Michael J. White, Esq.
With a copy to:
Sidley & Austin
1722 Eye Street
Washington, D.C. 20006
Attention: Imad I. Qasim, Esq.
Either party hereto may specify a different address for such
purpose by notice to the other party.
Section 12. Termination. (a) Anything contained in
this Agreement to the contrary notwithstanding, this Agreement
may be terminated and the Merger may be abandoned, whether before
or after approval of the Merger by the stockholders of the
Company or Acquisition, in any of the following ways:
(i) At any time on or prior to the Closing Date, by
the mutual consent in writing of Buyer, Acquisition, Seller
and the Company.
(ii) By any of Buyer, Acquisition or Seller if the FTC
or the DOJ has objected to the transaction described in the
filings made pursuant to the Improvements Act or either such
agency has threatened to take action to prevent the
consummation of such transaction.
(b) Further, this Agreement shall terminate and the Merger
shall be abandoned if the Closing shall not have occurred on or
before the Termination Date.
(c) In the event that this Agreement shall be terminated
pursuant to this Section 12, all further obligations of the
parties under this Agreement (other than Sections 2.1, 5.2(b),
6.1, 7.8, 8.6, 13 and this Section 12) shall terminate without
further liability of either party to the other, provided, that
nothing in this Agreement shall relieve any party from liability
for its willful breach of this Agreement.
Section 13. General Provisions.
13.1 Confidentiality, Press Releases. (a) Buyer and
Acquisition agree to keep proprietary information regarding the
Company and the Subsidiaries confidential and agree that they
will only use such information in connection with the
transactions contemplated by this Agreement and not disclose any
of such information other than (i) to Buyer's or Acquisition's
directors, officers, employees, representatives, and agents who
are or may be involved with the transactions contemplated by this
Agreement, (ii) to the extent such information presently is or
hereafter becomes available, on a non-confidential basis, from a
source other than Seller, and (iii) to the extent disclosure is
required by law, regulation, or judicial order by any
governmental authority.
(b) Neither Acquisition nor Buyer shall issue any
press release or make any public statement in connection with
this Agreement or the transactions contemplated hereby without
the prior written approval of Seller. Subject to applicable law,
before issuing any press release or making any public statement
in connection with this Agreement or the transactions
contemplated hereby, Seller shall inform Buyer and Acquisition
thereof and shall consult with Buyer and Acquisition with respect
thereto.
13.2 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California (without reference to any rule as to conflicts of
law).
13.3 Partial Invalidity. In case any one or more of
the provisions contained herein shall, for any reason, be held to
be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision
or provisions had never been contained herein unless the deletion
of such provision or provisions would result in such a material
change as to cause completion of the transactions contemplated
hereby to be unreasonable.
13.4 Successors and Assigns. (a) Neither this
Agreement nor any right, remedy, obligation, or liability arising
hereunder or by reason hereof shall be assignable by any party
hereto without the prior written consent of the other parties
hereto; provided that any party may assign its right to receive
payments due to it hereunder.
(b) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon any
person other than the parties and successors and assigns
permitted by Section 13.4(a) any right, remedy or claim under or
by reason of this Agreement.
13.5 Execution in Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
considered an original counterpart, and shall become a binding
agreement when Acquisition, Buyer, Seller and the Company shall
have each executed one counterpart.
13.6 Titles and Headings. Titles and headings to
Sections herein are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
13.7 Exhibits. The Exhibits to this Agreement shall
be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim
herein. Disclosure of any fact or item in any particular
Section in this Agreement shall, should the existence of the fact
or item or its contents be relevant to any other Section, be
deemed to be disclosed with respect to that other Section whether
or not an explicit cross-reference appears.
13.8 Waivers. Except as provided herein, the failure
of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this
Agreement or any part hereof or thereof or the right of such
party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
13.9 Entire Agreement; Amendments. (a) This Agreement
and the Exhibits referred to herein contain the entire
understanding of the parties hereto with regard to the subject
matter contained herein or therein, and supersede all prior
agreements, understandings or intents between or among any of the
parties hereto. The parties hereto, by mutual agreement in
writing, may amend, modify and supplement this Agreement.
(b) Upon execution of this Agreement by all of the
parties hereto, (i) Old Acquisition and Seller shall be deemed to
have consented to termination of the Previous Agreement pursuant
to Section 12(a)(i) thereof; and (ii) Old Acquisition shall be
deemed to have assigned all its right, title and interest in and
to the Deposit to Buyer, which Deposit shall be applied as
provided in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first written above.
LIVE ENTERTAINMENT INC.
By:
Name:
Title:
STRAWBERRIES INC.
By:
Name:
Title:
STRAWBERRIES MERGER CORP.
By:
Name:
Title:
STRAWBERRIES HOLDING, INC.
By:
Name:
Title:
Consent dated as of the day and year first written above:
For good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Strawberries Acquisition Corp.
hereby irrevocably consents to and agrees to be bound by the
provisions of Section 13.9(b) of the foregoing Agreement and Plan
of Merger to the full extent as if it were a signatory thereto.
STRAWBERRIES ACQUISITION CORP.
By:
Name:
Title:
TAX AGREEMENT
This TAX AGREEMENT (this "Tax Agreement") is made as of
August 31, 1994, among STRAWBERRIES HOLDING, INC., a Delaware
corporation ("Purchaser"), LIVE ENTERTAINMENT INC., a Delaware
corporation ("Seller"), STRAWBERRIES INC., a Delaware corporation
("Strawberries"), WAXIE MAXIE QUALITY MUSIC CO., a Delaware
corporation ("Waxie"), and STRAWBERRIES INVESTMENTS INC., a
Delaware corporation ("Investments"). (Strawberries, Waxie, and
Investments are sometimes referred to individually as a "Company"
and together as the "Companies").
RECITALS
A. Purchaser, Strawberries Merger Corp., a wholly-owned
subsidiary of Purchaser ("Merger Corp."), Strawberries, and
Seller have entered into an agreement and plan of merger dated as
of August 31, 1994 (the "Merger Agreement"), pursuant to which
Purchaser will acquire from Seller all of the outstanding shares
of capital stock of Strawberries by merger of Merger Corp. with
and into Strawberries. Waxie and Investments are wholly-owned
subsidiaries of Strawberries.
B. The Merger Agreement provides, among other things, that
the parties will enter into this Tax Agreement.
NOW THEREFORE, in consideration of the foregoing and the
representations, warranties, agreements and conditions contained
in this Tax Agreement, the parties agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Capitalized terms not otherwise defined in this Tax
Agreement have the meaning ascribed to them in the Merger
Agreement, the singular shall be deemed to include the plural and
vice-versa, and the following terms shall have the following
meanings:
"Affiliated Group" means any affiliated group within the
meaning of Internal Revenue Code Section 1504 (or any similar
group defined under a similar provision of state law).
"Business Day" means any weekday on which commercial banks
in Los Angeles are open.
"Current Tax Year" means the accounting period for tax
purposes that includes the Closing Date.
"Expense" shall have the meaning given to it in Section
4.01.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
"Loss" shall have the meaning given to it in Section 4.01.
"Person" means a member or former member of the Selling
Group.
"Post-Closing Operations" means all activities of any of the
Companies other than Pre-Closing Operations.
"Pre-Closing Operations" means all activities attributable
to, or conducted by, Seller, any of the Companies, or any member
of an Affiliated Group that includes Seller or any of the
Companies, during any period ending on or before the Closing
Date, including the entire day of Closing.
"Pre-Closing Tax Returns" means all Tax Returns for any of
the Companies, or all Tax Returns that include any of the
Companies, for any taxable period that ends on or before the
Closing Date.
"Purchaser Tax Liabilities" shall have the meaning given to
it in Section 2.01.
"Seller Tax Liabilities" shall have the meaning given to it
in Section 2.01.
"Selling Group" means the consolidated group of corporations
having Seller as its common parent or any other Affiliated Group
that includes Seller.
"Tax or Taxes" means all federal, state, and local taxes
based on net income, together with any interest, penalties or
additions to tax or additional amounts with respect to the
foregoing, whether disputed or not.
"Tax Return" means any declaration, report, claim for
refund, information return, return or statement relating to
Taxes, including any schedules or attachments as well as any
amendments (whether submitted on a consolidated, combined,
separate or unitary basis).
ARTICLE II.
ALLOCATION OF LIABILITY FOR TAXES
Section 2.01 Liability for Taxes. Seller shall be
responsible for and pay (i) all Taxes resulting from Pre-Closing
Operations and (ii) any liability of any of the Companies for the
Taxes of any Person, other than the Companies, under Treasury
Regulation Section 1.1502-6 (or any similar provision of state
income tax law) for any taxable period of any Person ending after
the Closing Date and which includes the Closing Date
(collectively "Seller Tax Liabilities"). The Companies shall be
responsible for and pay all federal, state and local taxes
(including interest, penalties and additions to tax) other than
Taxes resulting from Pre-Closing Operations ("Purchaser Tax
Liabilities").
For purposes of this Section 2.01, Seller Tax Liabilities
shall not include any Taxes resulting from events, elections, or
transactions occurring at the direction or under the control of
Purchaser on the Closing Date, including sales, exchanges,
liquidations or dispositions. Notwithstanding the foregoing
sentence, Seller Tax Liabilities shall include the following:
(i) Taxes relating to operations of any of the Companies in
the ordinary course of business on the Closing Date;
(ii) Any item of Tax, income, gain, loss, deduction,
credit, recapture of deduction or credit, or any similar item
with respect to any of the Companies resulting from any
adjustment under Section 481 of the Internal Revenue Code
necessary to implement a change of accounting made in any taxable
period ending on or before the Closing Date; or
(iii) Any item of Tax, income, gain, loss, deduction,
credit, recapture of deduction or credit, or any similar item
with respect to any of the Companies resulting from the
restoration of any deferred income or gain, the triggering of any
credit or recapture item, or any similar increase in Tax or
inclusion in income subject to tax under applicable law,
including without limitation the federal consolidated return
regulations and similar provisions of state tax laws.
Section 2.02 Computations. The amount of taxable income,
gain, loss and any Tax thereon that is considered attributable to
Pre-Closing Operations and to Post-Closing Operations shall be
determined by (a) assuming that the Companies' taxable year
(including the taxable year of organizations in which any of the
Companies owns a partnership interest or other equity interest)
ends as of the close of business on the Closing Date; (b) closing
on an actual basis each of the Company's books as of the close of
such date (or if an actual closing is not feasible, on an
equitable pro forma basis that has a comparable economic result
to the result that would have been obtained had an actual closing
occurred, taking into account extraordinary items); and (c)
preparing a Tax Return based on the income, gain, deductions and
losses as so determined under an accurate and appropriate
accounting method and consistent with the methodology and
elections employed in prior years.
ARTICLE III.
PREPARING AND FILING TAX RETURNS AND PAYING TAXES
Section 3.01 Pre-Closing Date Returns and Taxes. Seller
shall be responsible for preparing and filing all Pre-Closing Tax
Returns on or before the due date (including extensions) and for
the payment of all Tax due with respect to such Pre-Closing Tax
Returns. Except as previously consented to in writing by
Purchaser or any of the Companies (which consent shall not be
unreasonably withheld or delayed), every material position taken
on a Pre-Closing Tax Return filed after the Closing Date shall be
consistent with the methodology and elections employed in prior
years. Seller shall deliver a copy of all Pre-Closing Tax
Returns filed after the Closing Date to Purchaser promptly after
filing.
Not less than 25 days before the earlier of the due date of
any Pre-Closing Tax Return (including amended Tax Returns and
refund claims) of any of the Companies or the date on which such
Tax Returns are filed, Seller shall furnish a draft of such Tax
Return (or the portions relating to any of the Companies of a
consolidated federal Tax Return or a state or local consolidated,
combined, or unitary Tax Return that includes any of the
Companies) to Purchaser for its review. Not less than 10 days
before the earlier of the due date of such Tax Return or the date
on which such Tax Return is filed, Purchaser shall forward to
Seller any comments it may have relating to such Tax Return.
Section 3.02 Post-Closing Date Returns and Taxes.
Purchaser and the Companies shall be responsible for preparing
and filing all Tax Returns other than Pre-Closing Tax Returns and
for paying all Purchaser Tax Liabilities with respect to such
returns. Except as previously consented to in writing by Seller
(which consent shall not be unreasonably withheld or delayed),
every material position taken on a Tax Return other than a Pre-
Closing Tax Return shall be consistent with the methodology and
elections employed in prior years.
Section 3.03 Straddle Returns and Taxes. Notwithstanding
Sections 3.01 and 3.02 of this Tax Agreement, with respect to any
tax period that includes Pre-Closing Operations and Post-Closing
Operations and for which Seller does not file returns and pay
Taxes because the applicable tax period does not end on or before
the Closing Date or with respect to any other reason that
Purchaser (or any of the Companies) incurs liability for Taxes
that are attributable in any way to activities, operations or
assets of any of the Companies, the Company (or Purchaser) shall
file the applicable Tax Returns and pay the Tax due with respect
to such returns. Not less than 25 days before the earlier of the
due date of any such Tax Return (including amended Tax Returns
and refund claims) of any of the Companies (or Purchaser) or the
date on which any of the Companies (or Purchaser) files such Tax
Return, the Company (or Purchaser) shall furnish a draft of such
Tax Return (or the portions relating to any of the Companies of a
consolidated federal income Tax Return or a state or local
consolidated, combined, or unitary Tax Return that includes any
of the Companies) to Seller for its review. Not less than 10
days before the earlier of the due date of such Tax Return or the
date on which such Tax Return is filed, Seller shall forward to
Purchaser any comments it may have relating to such Tax Return.
Seller shall be responsible for and pay to the Company (or
Purchaser) five days before the due date of such Tax Return any
Seller Tax Liabilities computed in accordance with the method
described in Section 2.02 with respect to such Tax Return that
are in excess of the amounts previously paid as estimated taxes
or reserved for in the Companies' last financial statements prior
to the Closing Date. If the Seller Tax Liabilities computed in
accordance with the method described in Section 2.02 with respect
to such Tax Return are less than the amounts previously paid as
estimated taxes or reserved for in the Companies' last financial
statements prior to the Closing Date, then Purchaser and the
Companies shall refund such amount to Seller five days after the
due date of such Tax Return.
Section 3.04 Cooperation. Seller, Purchaser, and the
Companies shall cooperate fully with each other in connection
with the preparation and filing of all Tax Returns or any audit
examinations for any period, including, but not limited to, the
timely furnishing or making available of records, books of
account and any other information necessary for the preparation
of the Tax Returns, as well as making employees available on a
mutually convenient basis to provide additional information and
explanation. If Seller is required to file a Pre-Closing Tax
Return after the Closing Date, the applicable Company shall
permit Seller to sign such Pre-Closing Tax Return on behalf of
the Company under a limited power of attorney. Each of Seller,
Purchaser, and the Companies shall use its best efforts to obtain
any certificates or other documents from any governmental
authority or any other persons as may be necessary or helpful to
mitigate, reduce or eliminate any Taxes that would otherwise be
imposed with respect to the transactions contemplated by the
Merger Agreement or this Tax Agreement and which do not adversely
affect any party to this Tax Agreement.
Section 3.05 Amended Return. Any of the Companies may
amend, with the prior written consent of Seller (which consent
may not be unreasonably withheld or delayed), any Pre-Closing Tax
Returns to reflect the carryback of net operating losses or other
Tax benefits from later years to earlier years, or as a result of
an audit provided the amendment of any such Tax Return would not
have the effect of increasing Seller's Tax liabilities. To the
extent permitted under applicable law and under this Tax
Agreement, Purchaser, its Affiliated Group or the Companies may
with the consent of Seller (which consent may not be unreasonably
withheld or delayed) claim a refund of Taxes paid with respect to
Pre-Closing Operations of the Companies due to the carryback of
losses or credits attributable to Post-Closing Operations to
taxable years involving Pre-Closing Operations provided such
refund claim would not have the effect of increasing Seller's Tax
liabilities. Seller shall cooperate with the Company in obtaining
such refund of Taxes, including through the filing of amended Tax
Returns or refund claims. Copies of any such amended Tax Returns
or refund claims shall be provided to Seller within five days of
filing.
Section 3.06 Record Retention. Purchaser shall cause the
Companies to retain all books, records, returns, schedules,
documents and other papers relating to its federal, state,
foreign or other tax liability, for any taxable year or portion
thereof ending on or before the Closing Date, for the full period
of the applicable statutes of limitations, including extensions,
for the period to which such taxes relate. Thereafter, Purchaser
and the Companies shall have the right to dispose of or destroy
any of such items, provided that Seller shall have the right, at
its sole cost and expense, promptly to make copies of such items
if it notifies Purchaser of its intention to do so.
Section 3.07 Contests.
(i) With respect to any Pre-Closing Tax Return, Seller and
its duly appointed representatives shall have the sole right, at
its expense, to supervise or otherwise coordinate any examination
process and to negotiate, resolve, settle or contest any asserted
Tax deficiencies or assert and prosecute any claims for refund.
The foregoing notwithstanding, without the express written
consent of Purchaser or any of the Companies, which consent shall
not be unreasonably withheld or delayed, Seller shall not file
any amended Tax Return, settle any Tax claim or assessment, or
surrender any right to claim a refund of Tax, if such action
could have the effect of materially increasing Purchaser Tax
Liabilities.
(ii) With respect to any other Tax Return of any of the
Companies, Purchaser, the Companies and their duly appointed
representatives shall have the sole right, at its expense, to
supervise or otherwise coordinate any examination process and to
negotiate, resolve, settle or contest any asserted Tax
deficiencies or assert and prosecute any claims for refund. The
foregoing notwithstanding, without the express written consent of
Seller, which consent shall not be unreasonably withheld or
delayed, neither Purchaser nor any of the Companies shall file
any amended Tax Return, settle any Tax claim or assessment, or
surrender any right to claim a refund of Tax, if such action
could have the effect of materially increasing Seller Tax Liab-
ilities.
(iii) Each party hereto shall, within 30 days (unless
action is required sooner, then as soon as practicable), notify
the other of the assertion of any claim or the commencement of
any suit, action, proceeding, investigation or audit with respect
to the operations of the Company that is the subject of this
Section 3.07, and shall provide the other party with copies
(subject to deletion of nonrelevant information) of all corre-
spondence relating to such contest.
Section 3.08 Allocation of Refunds. Except as otherwise
agreed upon in writing, in the event an audit, amended Tax Return
or other action results in a refund of Taxes, such refund
(including any interest paid thereon) shall be paid: (i) to
Seller if the deduction, loss, or other item that gives rise to
the refund is attributable to Pre-Closing Operations and the
refunded Tax was actually paid by Seller; and (ii) to Purchaser
if such item is attributable to Post-Closing Operations and the
refunded Tax was actually paid by Purchaser or any of the
Companies. In all other events, such refund shall be paid to the
Company. The parties shall lend mutual assistance to each other
in taking such action as may be necessary to procure a refund,
including the preparation, filing and processing of any requisite
amended return or other documents.
Seciton 3.09 Outstanding Items. Notwithstanding the
provisions of Section 3.08, the parties hereby agree to the
following: (i) the Companies shall pay the federal tax
assessment plus interest for the taxable year ended July 31,
1988, (ii) the Companies shall be entitled to receive any amounts
paid to the Companies as a result of the Companies' pending claim
for refund of Massachusetts sales and use tax; and (iii) the
Companies shall be entitled to receive any amounts paid to the
Companies as a result of the Companies' pending claim for refund
of New York income tax.
ARTICLE IV.
INDEMNIFICATION
Section 4.01 Indemnification of Purchaser.
Seller agrees to indemnify and hold harmless Purchaser and
the Companies from and against, and to pay, any and all (a)
liabilities, losses, costs, or damages ("Loss") and (b)
reasonable attorneys' and accountants' fees and expenses, court
costs, and all other out-of-pocket expenses ("Expense") incurred
by Purchaser and the Companies, respectively, (net of any
offsetting benefits and increased by any detriments, including,
without limitation, tax benefits or detriments whether or not
realized at the time of such Loss or Expense arising out of or
related to the event to which such Loss or Expense relates) in
connection with or arising from any failure of Seller to perform
any of its agreements contained in this Tax Agreement, provided,
however, that Seller shall be required to indemnify and hold
harmless Purchaser and the Companies under this Section 4.01 only
to the extent that the aggregate amount of the Loss and Expense
incurred by Purchaser and the Companies, in the aggregate,
exceeds $10,000. The indemnification provided for in this
Section 4.01 shall continue for the maximum period permitted
under the applicable tax statutes of limitation, including
extensions thereof.
Section 4.02 Indemnification of Seller.
The Purchaser and each of the Companies, jointly and
severally, agree to indemnify and hold harmless Seller from and
against, and to pay, any and all Loss and Expense incurred by
Seller (net of any offsetting benefits and increased by any
detriments, including, without limitation, tax benefits or
detriments whether or not realized at the time of such Loss or
Expense arising out of or related to the event to which such Loss
or Expense relates) in connection with or arising from any
failure of Purchaser or any of the Companies to perform any of
its agreements contained in this Tax Agreement, provided,
however, that Purchaser and the Companies shall be required to
indemnify and hold harmless Seller under this Section 4.02 only
to the extent that the aggregate amount of the Loss and Expense
incurred by Seller, in the aggregate, exceeds $10,000. The
indemnification provided for in this Section 4.02 shall continue
for the maximum period permitted under the applicable tax
statutes of limitation, including extensions thereof.
Section 4.03 Procedure for Indemnification. The following
procedures apply to indemnification under Sections 4.01 and 4.02
of this Tax Agreement:
(i) If an indemnified party under this Article IV has
suffered or incurred any Loss or incurred any Expense (whether or
not the amount of such Loss or Expense exceeds $10,000), the
indemnified party shall so notify the indemnifying party no later
than thirty (30) Business Days after the indemnified party
acquires knowledge of any such suffered or incurred Loss or
Expense, in writing, describing such Loss or Expense, the amount
thereof, if known, and the method of computation of such Loss or
Expense, all with reasonable particularity and containing a
reference to the provisions of this Tax Agreement in respect of
which such Loss or Expense shall have occurred. If any such
indemnity shall arise from the claim of a third party, the
indemnified party shall permit the indemnifying party to assume
the defense of any such claim and any litigation resulting from
such claim. Failure by an indemnifying party to notify an
indemnified party of its election to defend any such claim or
action by a third party within thirty (30) Business Days after
notice thereof shall have been given to the indemnifying party
shall be deemed a waiver by the indemnifying party of its right
to defend such claim or action.
(ii) If the indemnifying party assumes the defense of
such claim or litigation resulting therefrom, the indemnifying
party shall have the right to undertake, conduct and control,
through counsel of its own choosing and at the sole expense of
the indemnifying party, the conduct and settlement of such action
or suit, and the indemnified party shall cooperate with the
indemnifying party in connection therewith; provided that (a) the
indemnifying party shall not thereby permit to exist any lien,
encumbrance or other adverse charge upon any asset of the
indemnified party; (b) the indemnifying party shall not, in the
defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) or enter into any
settlement, except with the written consent of the indemnified
party, which shall not be unreasonably withheld; and (c) the
indemnifying party shall permit the indemnified party to
participate in such conduct or settlement through counsel chosen
by the indemnified party, but the fees and expenses of such
counsel shall be borne by the indemnified party. So long as the
indemnifying party is contesting any such action or suit in good
faith, the indemnified party shall not pay or settle any such
action or suit. Notwithstanding the foregoing, the indemnified
party shall have the right to pay or settle any such action or
suit, provided that in such event the indemnified party shall
waive any right to indemnity therefor by the indemnifying party,
and no amount in respect thereof shall be claimed as Loss or
Expense under this Article IV.
(iii) If the indemnifying party shall not assume the
defense of any such claim by a third party or litigation
resulting therefrom after receipt of notice from such indemnified
party, the indemnified party may defend against such claim or
litigation in such manner as the indemnified party deems
appropriate; provided that, the indemnified party shall give the
indemnifying party advance notice of any proposed compromise or
settlement. The indemnified party shall permit the indemnifying
party to participate in the defense of any such action or suit
through counsel chosen by it, provided that the fees and expenses
of such counsel shall be borne by the indemnifying party. Any
compromise or settlement with respect to a claim effected after
the indemnifying party by notice to the indemnified party shall
have reasonably disapproved of such compromise or settlement
shall discharge the indemnifying party from liability with
respect to the subject matter thereof, and no amount in respect
thereof shall be claimed as Loss or Expense under this Article
IV.
Section 4.04 Survival of Obligations. Except as otherwise
provided in this Tax Agreement, all covenants and obligations
contained in this Tax Agreement shall survive the Closing only
insofar as a party hereto is expressly entitled to
indemnification with respect thereto pursuant to this Article IV
and, in such case, only for such period as indemnification is
provided pursuant to Article IV, and no action or claim in
respect of this Tax Agreement may be brought or commenced (i) in
any forum or jurisdiction on any theory in law or equity after
the expiration of such period; and (ii) except as provided in
this Article IV.
ARTICLE V.
MISCELLANEOUS
Section 5.01 Certain Tax Elections.
(i) Except as required by the Internal Revenue Code or
the regulations promulgated thereunder, without the prior written
consent of Purchaser (not to be unreasonably withheld or
delayed), neither Seller nor any of the Companies shall make any
new election or change any existing election, change an annual
accounting period or adopt or change any accounting method if any
such election, adoption or change would have the effect of
materially increasing Purchaser Tax Liabilities, provided, that
Purchaser will waive such objection on payment by Seller of the
amount necessary to hold Purchaser harmless.
(ii) Except as required by the Internal Revenue Code
or the regulations promulgated thereunder, without the prior
written consent of Seller (not to be unreasonably withheld or
delayed), neither Purchaser nor any of the Companies shall make
any election, change an annual accounting period or adopt or
change any accounting method if any such election, adoption or
change would have the effect of materially increasing Seller Tax
Liabilities, provided, that Seller will waive such objection on
payment by Purchaser of the amount necessary to hold Seller
harmless.
(iii) Seller is not required to apportion or allocate
all or any portion of its section 382 limitation to Purchaser or
to any of the Companies.
(iv) Without the written consent of Purchaser, neither
of Seller nor any of the Companies shall make (and Seller and the
Companies hereby confirm that they have not previously made) an
election under Section 341(f) of the Internal Revenue Code.
(v) To the extent permitted, Seller shall take all
actions reasonably necessary to allocate to the Companies the
Companies' net operating loss carryovers for state income tax
purposes provided that such actions do not interfere with
Seller's ability to make the election described in Regulation
Section 1.1502-20(g)(1) with respect to the Companies or with
Section 5.01(iii) hereof.
Section 5.02 Tax Sharing Agreements. Seller hereby
releases each of the Companies from and indemnifies each of the
Companies with respect to any obligations, duties or rights
arising in connection with any tax sharing agreements, practices
or other arrangement for the allocation of tax liabilities to
which any of the Companies may be subject for all periods after
the Closing Date. Each of the Companies hereby releases Seller
from any obligations, duties or rights with respect to any tax
sharing agreements, practices or other arrangement for the
allocation of tax liabilities to which Seller may be subject for
all periods after the Closing Date. Neither Seller nor any of
the Companies shall have any continuing liabilities, whether
fixed, contingent or otherwise, under any such agreements or
arrangements after the Closing Date.
Section 5.03 Merger Agreement. The parties hereto agree
that the transactions described in the Merger Agreement shall be
reported on all relevant Tax Returns as a purchase by Purchaser
of all of Strawberries' stock held by Seller and the parties
hereto shall not take any action inconsistent with such position.
Section 5.04 Notices. All notices, requests, demands and
other communications that are required or may be given under this
Tax Agreement shall be considered to be properly given and
received when made in accordance with the provisions of the
Merger Agreement. Further, all such notices, requests, demands,
and other communications that are required or may be given to
Waxie or to Investments under this Tax Agreement shall be
considered to be properly given and received when given to
Strawberries in accordance with the provisions of the Merger
Agreement.
Section 5.05 Successors. This Tax Agreement shall inure to
the benefit of and be binding upon the parties and their
respective successors and assigns.
Section 5.06 Clearance Certificate. At or before Closing,
Seller agrees to provide Purchaser and any of the Companies with
all required clearance certificates or similar documents that may
be required by any state, local or other taxing authority in
order, to the extent allowed, to relieve Purchaser and the
Companies of any obligation to withhold any portion of the Base
Merger Consideration. If necessary to avoid sales or use Taxes,
Purchaser and the Companies shall, to the extent allowed, provide
Seller with all appropriate state and local resale certificates.
Section 5.07 Nonforeign Affidavit. Seller shall furnish
Purchaser with, an affidavit stating, under penalties of perjury,
its U.S. taxpayer identification number and that it is not a
foreign person, pursuant to Sections 897 and 1445(b)(2) of the
Internal Revenue Code and the Treasury Regulations thereunder.
Section 5.08 Governing Law. This Tax Agreement shall be
governed in all respects by the laws of the State of California
without regard to its laws or regulations relating to conflicts
of laws.
Section 5.09 Counterparts. This Tax 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.
IN WITNESS WHEREOF, the parties by their duly authorized
officers have caused this Tax Agreement to be executed as of the
date above first written.
WAXIE MAXIE QUALITY MUSIC CO. STRAWBERRIES HOLDING, INC.
By: _________________________ By: __________________________
Title: ______________________ Title: _______________________
STRAWBERRIES INVESTMENTS INC. LIVE ENTERTAINMENT INC.
By: _________________________ By: __________________________
Title: ______________________ Title: _______________________
STRAWBERRIES INC.
By:__________________________
Title: _______________________
PIONEER INVESTOR REPRESENTATION AGREEMENT
As a condition to LIVE ENTERTAINMENT INC., a
Delaware corporation ("LIVE"), CAROLCO ACQUISITION
CORP., a Delaware corporation and a wholly-owned
subsidiary of LIVE ("CAC"), and CAROLCO PICTURES
INC., a Delaware corporation ("Carolco"), entering
into an Agreement and Plan of Merger dated as of
August 10, 1994 (the "Merger Agreement"), the
undersigned Carolco shareholder ("Significant
Shareholder") hereby enters into this Investor
Representation Agreement (this "Agreement").
WHEREAS, pursuant to the Merger Agreement and in
accordance with the applicable provisions of the
General Corporation Law of the State of Delaware
(the "DGCL"), CAC will merge with and into Carolco
with Carolco surviving (the "Merger") and, pursuant
to the Merger, (i) the issued and outstanding shares
of common stock, par value $.01 per share, of
Carolco ("Carolco Common Stock") shall be converted
into, and become exchangeable for, shares of common
stock, $.01 par value per share, of LIVE ("LIVE
Common Stock") as set forth in the Merger Agreement;
and (ii) each issued and outstanding share of Series
A Convertible Preferred Stock of Carolco ("Carolco
Series A Preferred Stock") shall be converted into,
and become exchangeable for, one share of Series D
Convertible Preferred Stock of LIVE, par value $1.00
("LIVE Series D Preferred Stock"); and
WHEREAS, Carolco, LIVE, and CAC are willing to
consummate the Merger only if such transaction will
qualify as a tax free transaction under the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, THE SIGNIFICANT SHAREHOLDER AGREES
AS FOLLOWS:
A. The Significant Shareholder represents
to LIVE and Carolco as follows:
1. The Significant Shareholder represents
that as of the date hereof it (a) is the record and
beneficial owner of (x) 46,420,574 shares of Carolco
Common Stock and 40,000 shares of Carolco Series A
Preferred Stock (collectively, the "Carolco Shares")
and (y) 4,029,223 shares of LIVE Common Stock and
15,000 shares of Series C Convertible Preferred
Stock of LIVE, par value $1.00 per share
(collectively, the "LIVE Shares") and (b) has the
power to vote or consent as to matters concerning
the Carolco Shares and the LIVE Shares.<PAGE>
2. The Significant Shareholder (a)
represents that, as of the date hereof, it has no
plan or intention to, and (b) agrees that, prior to
the Effective Date as defined in Section 1.2 of the
Merger Agreement, it will not form a plan or
intention or enter into an arrangement to sell,
transfer or otherwise dispose of any of the shares
of LIVE Common Stock and/or LIVE Series D Preferred
Stock to be received in the Merger by the
Significant Shareholder.
B. The Significant Shareholder agrees as
follows:
1. On or prior to the Effective Date, it
will not sell, transfer or otherwise dispose of any
of its shares of Carolco Common Stock or Carolco
Series A Preferred Stock.
2. (a) Until the Effective Date, it will
not grant a proxy with respect to, or otherwise
encumber, any of its Carolco Shares, nor will it
acquire any additional Carolco Shares unless the
Significant Shareholder executes an amendment
whereby such additional shares become subject to
this Agreement. The Significant Shareholder agrees
that until the Effective Date it will not (i)
deposit any Carolco Shares into any voting trust or
similar arrangement, (ii) enter into any
discussions, negotiations, arrangements or
understandings with any third party with respect to
any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The
Significant Shareholder further agrees that, subject
to its receipt of the Prospectus and Joint Proxy
Statement pursuant to which Carolco and LIVE propose
to solicit proxies from their respective
shareholders in connection with the Merger and the
transactions contemplated thereby (the
"Prospectus"), it will vote all of the Carolco
Shares in favor of the Merger and the transactions
contemplated hereby.
(b) Until the Effective Date, it will not
grant a proxy with respect to, or otherwise
encumber, any of its LIVE Shares, nor will it
acquire any additional LIVE Shares unless the
Significant Shareholder executes an amendment
whereby such additional shares become subject to
this Agreement. The Significant Shareholder agrees
that until the Effective Date it will not (i)
deposit any LIVE Shares into any voting trust or
similar arrangement, (ii) enter into any
discussions, negotiations, arrangements or
understandings with any third party with respect to
any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The
Significant Shareholder further agrees that, subject
to its receipt of the Prospectus, it will vote all
of the LIVE Shares in favor of the Merger and the
transactions contemplated hereby, the proposed
amendments to the 1988 Stock Option and Stock
Appreciation Rights Plan of LIVE to increase the
number of shares for which options may be granted by
an additional 500,000 shares and the proposal to
adopt the 1994 Stock Option and Stock Appreciation
Rights Plan of Carolco Entertainment Inc.
3. The Significant Shareholder consents to
disclosure in the Prospectus of its intention to
vote for the Merger and the transactions
contemplated in the Merger Agreement.
4. The Significant Shareholder agrees to
proceed with the proposed transactions on a prompt
basis and to use its reasonable best efforts to
prepare all documentation, obtain all necessary
consents, authorizations, approvals and waivers
required in connection with the consummation of the
Merger (including any filings required pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, with respect to such Significant
Shareholder) and take all other actions necessary to
consummate the transactions contemplated hereby in a
manner consistent with applicable law, including,
but not limited to, executing the Carolco
Entertainment Registration Rights Agreement attached
to the Merger Agreement as Exhibit 9.10 (the
"Carolco Entertainment Registration Rights
Agreement") and the Amendment to the Standby
Purchase and Investment Agreement attached to the
Merger Agreement as Exhibit 9.9(c).
5. The Significant Shareholder accepts and
agrees to the terms of the Carolco Entertainment
Registration Rights Agreement and agrees that such
agreement shall supersede and replace all
registration rights existing as of the Effective
Date with respect to all Carolco securities owned by
it as of the Effective Date and all LIVE securities
owned by it as of the Effective Date (other than the
Series C Convertible Preferred Stock of LIVE and the
LIVE Common Stock underlying such stock
(collectively, the "Series C Securities") as to
which the existing registration rights agreement
(the "LIVE Registration Rights Agreement") shall
remain in full force and effect). The Significant
Shareholder agrees that the registration rights
granted to it pursuant to the LIVE Registration
Rights Agreement are subject to the provisions of
Section 3(b) of the Carolco Entertainment
Registration Rights Agreement respecting the
exclusivity during the MGM Registration Period (as
defined in the Carolco Entertainment Registration
Rights Agreement) of the registration rights granted
to MGM under Section 3(a) of the Carolco
Entertainment Registration Rights Agreement as if
the Significant Shareholder were a Holder (as
defined in the Carolco Entertainment Registration
Rights Agreement) with respect to the Series C
Securities. The provisions of this Section B.5 will
apply to the transferees of the Significant
Shareholder's Series C Securities. MGM is an
intended third party beneficiary of this Section
B.5.
C. This Agreement will terminate upon the
earlier to occur of (i) the Effective Date (other
than with regard to Paragraph A.2 of this Agreement)
and (ii) the termination of the Merger Agreement
pursuant to the terms of Section 11.1 thereof, but
in no event later than December 31, 1994 unless an
extension of such date is agreed to by the
Significant Shareholder.
D. In the event of a waiver by Carolco or
LIVE of any material condition, covenant or breach,
or in the event of an amendment of any material
term, of the Merger Agreement without the consent of
the Significant Shareholder, then the Significant
Shareholder shall be entitled to rescind this
Agreement within five (5) business days of receipt
of notice of such waiver or amendment.
E. On or prior to the Effective Date, LIVE
shall pay to the holders of record as of the
Effective Date of the LIVE Series C Preferred Stock,
an amount in cash equal to all accrued and unpaid
Series C Cash Dividends at the Series C Cash Rate
from the date of issuance of the LIVE Series C
Preferred Stock until the Effective Date. The terms
"Series C Cash Dividends" and "Series C Cash Rate"
shall have the meanings ascribed thereto in the
Amended and Restated Certificate of Incorporation of
LIVE (the "Certificate").
F. As long as the Significant Shareholder
owns at least a majority of the LIVE Series C
Preferred Stock outstanding as of the Effective
Date, if LIVE proposes to declare, pay or set aside
for payment any dividend (other than in shares of
Junior Stock (as defined in the Certificate) or
other distribution in respect of its Junior Stock,
or call for redemption, redeem, purchase or
otherwise acquire for any consideration (other than
shares of its Junior Stock) any shares of its Junior
Stock, any warrants, rights, call or options
exercisable for any shares of Junior Stock, then
LIVE shall offer to redeem any shares of LIVE Series
C Preferred Stock owned by the Significant
Shareholder at the Series C Redemption Price (as
defined in the Certificate) and if the Significant
Shareholder accepts such offer, LIVE shall redeem
such shares of LIVE Series C Preferred Stock at the
Series C Redemption Price prior to making any such
dividend, distribution or call. If the Significant
Shareholder does not accept such redemption offer
within three (3) business days of receiving written
notice of such offer from LIVE, then LIVE shall not
be prohibited from making any such dividend,
distribution or call. The provisions of this
Paragraph F apply only to the Significant
Shareholder and are not transferable to any
transferee who acquires the Significant
Shareholder's LIVE Series C Preferred Stock.<PAGE>
IN WITNESS WHEREOF, the undersigned has duly
executed this Agreement on August 10, 1994.
PIONEER LDCA, INC.
By: /s/ Tetsuro Kudo
Name: Tetsuro Kudo
Its: President
Agreed to and accepted as of
the date first written above:
CAROLCO PICTURES INC.
By: /s/ Robert W. Goldsmith
Name: Robert W. Goldsmith
Its: Senior Vice President
LIVE ENTERTAINMENT INC.
By: /s/ Roger A. Burlage
Name: Roger A. Burlage
Its: President and Chief Executive Officer
CINEPOLE INVESTOR REPRESENTATION AGREEMENT
As a condition to LIVE ENTERTAINMENT INC., a
Delaware corporation ("LIVE"), CAROLCO ACQUISITION
CORP., a Delaware corporation and a wholly-owned
subsidiary of LIVE ("CAC"), and CAROLCO PICTURES
INC., a Delaware corporation ("Carolco"), entering
into an Agreement and Plan of Merger dated as of
August 10, 1994 (the "Merger Agreement"), the
undersigned Carolco shareholder (acting for itself
and on behalf of its affiliates) ("Significant
Shareholder") hereby enters into this Investor
Representation Agreement (this "Agreement").
WHEREAS, pursuant to the Merger Agreement and in
accordance with the applicable provisions of the
General Corporation Law of the State of Delaware
(the "DGCL"), CAC will merge with and into Carolco
with Carolco surviving (the "Merger") and, pursuant
to the Merger, (i) the issued and outstanding shares
of common stock, par value $.01 per share, of
Carolco ("Carolco Common Stock") shall be converted
into, and become exchangeable for, shares of common
stock, $.01 par value per share, of LIVE ("LIVE
Common Stock") as set forth in the Merger Agreement;
and (ii) each issued and outstanding share of Series
A Convertible Preferred Stock of Carolco ("Carolco
Series A Preferred Stock") shall be converted into,
and become exchangeable for, one share of Series D
Convertible Preferred Stock of LIVE, par value $1.00
("LIVE Series D Preferred Stock"); and
WHEREAS, Carolco, LIVE, and CAC are willing to
consummate the Merger only if such transaction will
qualify as a tax free transaction under the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, THE SIGNIFICANT SHAREHOLDER AGREES
AS FOLLOWS:
A. The Significant Shareholder represents
to LIVE and Carolco as follows:
1. The Significant Shareholder represents
that as of the date hereof it (a) is the record and
beneficial owner of (x) 26,100,031 shares of Carolco
Common Stock and 12,500 shares of Carolco Series A
Preferred Stock (collectively, the "Carolco Shares")
and (y) 1,288,030 shares of LIVE Common Stock and no
shares of Series C Convertible Preferred Stock of
LIVE, par value $1.00 per share (collectively, the
"LIVE Shares") and (b) has the power to vote or
consent as to matters concerning the Carolco Shares
and the LIVE Shares.
2. The Significant Shareholder (a)
represents that, as of the date hereof, it has no
plan or intention to, and (b) agrees that, prior to
the Effective Date as defined in Section 1.2 of the
Merger Agreement, it will not form a plan or
intention or enter into an arrangement to sell,
transfer or otherwise dispose of any of the shares
of LIVE Common Stock and/or LIVE Series D Preferred
Stock to be received in the Merger by the
Significant Shareholder.
B. The Significant Shareholder agrees as
follows:
1. On or prior to the Effective Date, it
will not sell, transfer or otherwise dispose of any
of its shares of Carolco Common Stock or Carolco
Series A Preferred Stock.
2. (a) Until the Effective Date, it will
not grant a proxy with respect to, or otherwise
encumber, any of its Carolco Shares, nor will it
acquire any additional Carolco Shares unless the
Significant Shareholder executes an amendment
whereby such additional shares become subject to
this Agreement. The Significant Shareholder agrees
that until the Effective Date it will not (i)
deposit any Carolco Shares into any voting trust or
similar arrangement, (ii) enter into any
discussions, negotiations, arrangements or
understandings with any third party with respect to
any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The
Significant Shareholder further agrees that, subject
to its receipt of the Prospectus and Joint Proxy
Statement pursuant to which Carolco and LIVE propose
to solicit proxies from their respective
shareholders in connection with the Merger and the
transactions contemplated thereby (the
"Prospectus"), it will vote all of the Carolco
Shares in favor of the Merger and the transactions
contemplated hereby.
(b) Until the Effective Date, it will not
grant a proxy with respect to, or otherwise
encumber, any of its LIVE Shares, nor will it
acquire any additional LIVE Shares unless the
Significant Shareholder executes an amendment
whereby such additional shares become subject to
this Agreement. The Significant Shareholder agrees
that until the Effective Date it will not (i)
deposit any LIVE Shares into any voting trust or
similar arrangement, (ii) enter into any
discussions, negotiations, arrangements or
understandings with any third party with respect to
any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The
Significant Shareholder further agrees that, subject
to its receipt of the Prospectus, it will vote all
of the LIVE Shares in favor of the Merger and the
transactions contemplated hereby, the proposed
amendments to the 1988 Stock Option and Stock
Appreciation Rights Plan of LIVE to increase the
number of shares for which options may be granted by
an additional 500,000 shares and the proposal to
adopt the 1994 Stock Option and Stock Appreciation
Rights Plan of Carolco Entertainment Inc.
3. The Significant Shareholder consents to
disclosure in the Prospectus of its intention to
vote for the Merger and the transactions
contemplated in the Merger Agreement.
4. The Significant Shareholder agrees to
proceed with the proposed transactions on a prompt
basis and to use its reasonable best efforts to
prepare all documentation, obtain all necessary
consents, authorizations, approvals and waivers
required in connection with the consummation of the
Merger (including any filings required pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, with respect to such Significant
Shareholder) and take all other actions necessary to
consummate the transactions contemplated hereby in a
manner consistent with applicable law, including,
but not limited to, executing the Carolco
Entertainment Registration Rights Agreement attached
to the Merger Agreement as Exhibit 9.10 (the
"Carolco Entertainment Registration Rights
Agreement") and the Amendment to the Standby
Purchase and Investment Agreement attached to the
Merger Agreement as Exhibit 9.9(c).
5. The Significant Shareholder accepts and
agrees to the terms of the Carolco Entertainment
Registration Rights Agreement and agrees that such
agreement shall supersede and replace all
registration rights existing as of the Effective
Date with respect to all Carolco securities owned by
it as of the Effective Date and all LIVE securities
owned by it as of the Effective Date.
C. This Agreement will terminate upon the
earlier to occur of (i) the Effective Date (other
than with regard to Paragraph A.2 of this Agreement)
and (ii) the termination of the Merger Agreement
pursuant to the terms of Section 11.1 thereof, but
in no event later than December 31, 1994 unless an
extension of such date is agreed to by the
Significant Shareholder.
D. In the event of a waiver by Carolco or
LIVE of any material condition, covenant or breach,
or in the event of an amendment of any material
term, of the Merger Agreement without the consent of
the Significant Shareholder, then the Significant
Shareholder shall be entitled to rescind this
Agreement within five (5) business days of receipt
of notice of such waiver or amendment.
IN WITNESS WHEREOF, the undersigned has duly
executed this Agreement on August 10, 1994.
CINEPOLE PRODUCTIONS B.V.
By: MeesPierson Trust B.V., Managing Director
By: /s/ Dominique Jeunot
Name: Dominique Jeunot
Its: Co-Managing Director
Agreed to and accepted as of
the date first written above:
CAROLCO PICTURES INC.
By: /s/ Robert W. Goldsmith
Name: Robert W. Goldsmith
Its: Senior Vice President
LIVE ENTERTAINMENT INC.
By: /s/ Roger A. Burlage
Name: Roger A. Burlage
Its: President and Chief Executive Officer<PAGE>
IN WITNESS WHEREOF, the undersigned has duly
executed this Agreement on August 10, 1994.
CINEPOLE PRODUCTIONS B.V.
By: MeesPierson Trust B.V., Managing Director
By: /s/ Otger Van der Nap
Name: Otger Van der Nap
Its: Senior Account Manager
Agreed to and accepted as of
the date first written above:
CAROLCO PICTURES INC.
By:
Name:
Its:
LIVE ENTERTAINMENT INC.
By:
Name:
Its: <PAGE>
IN WITNESS WHEREOF, the undersigned has duly
executed this Agreement on August 10, 1994.
CINEPOLE PRODUCTIONS B.V.
By: MeesPierson Trust B.V., Managing Director
By: /s/ Peter J. Van Duinen
Name: Peter J. Van Duinen
Its: Account Manager
Agreed to and accepted as of
the date first written above:
CAROLCO PICTURES INC.
By:
Name:
Its:
LIVE ENTERTAINMENT INC.
By:
Name:
Its:
RCS VIDEO INTERNATIONAL SERVICES B.V.
INVESTOR REPRESENTATION AGREEMENT
As a condition to LIVE ENTERTAINMENT INC., a Delaware corporation
("LIVE"), CAROLCO ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of LIVE ("CAC"), and CAROLCO PICTURES
INC., a Delaware corporation ("Carolco"), entering into an Agreement and
Plan of Merger dated as of August 10 , 1994 (the "Merger Agreement"), the
undersigned Carolco shareholder (acting for itself and on behalf of its
affiliates) ("Significant Shareholder") hereby enters into this Investor
Representation Agreement (this "Agreement").
WHEREAS, pursuant to the Merger Agreement and in accordance with the
applicable provisions of the General Corporation Law of the State of Delaware
(the "DGCL"), CAC will merge with and into Carolco with Carolco surviving
(the "Merger") and, pursuant to the Merger, (i) the issued and outstanding
shares of common stock, par value $.01 per share, of Carolco ("Carolco
Common Stock") shall be converted into, and become exchangeable for, shares
of common stock, $.01 par value per share, of LIVE ("LIVE Common Stock")
as set forth in the Merger Agreement; and (ii) each issued and outstanding
share of Series A Convertible Preferred Stock of Carolco ("Carolco Series A
Preferred Stock") shall be converted into, and become exchangeable for, one
share of Series D Convertible Preferred Stock of LIVE, par value $1.00
("LIVE Series D Preferred Stock"); and
WHEREAS, Carolco, LIVE, and CAC are willing to consummate the Merger
only if such transaction will qualify as a tax free transaction under the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, THE SIGNIFICANT SHAREHOLDER AGREES AS
FOLLOWS:
A. The Significant Shareholder represents to LIVE and Carolco as follows:
1. The Significant Shareholder represents that as of the date hereof it (a) is
the record and beneficial owner of (x) 15,960,316 shares of Carolco Common
Stock and no shares of Carolco Series A Preferred Stock (collectively, the
"Carolco Shares") and (y) 1,288,030 shares of LIVE Common Stock and no
shares of Series C Convertible Preferred Stock of LIVE, par value $1.00 per
share (collectively, the "LIVE Shares") and (b) has the power to vote or
consent as to matters concerning the Carolco Shares and the LIVE Shares.
2. The Significant Shareholder (a) represents that, as of the date hereof, it
has no plan or intention to, and (b) agrees that, prior to the Effective Date as
defined in Section 1.2 of the Merger Agreement, it will not form a plan or
intention or enter into an arrangement to sell, transfer or otherwise dispose of
any of the shares of LIVE Common Stock and/or LIVE Series D Preferred
Stock to be received in the Merger by the Significant Shareholder.
B. The Significant Shareholder agrees as follows:
1. On or prior to the Effective Date, it will not sell, transfer or otherwise
dispose of any of its shares of Carolco Common Stock or Carolco Series A
Preferred Stock.
2. (a) Until the Effective Date, it will not grant a proxy with respect to, or
otherwise encumber, any of its Carolco Shares, nor will it acquire any
additional Carolco Shares unless the Significant Shareholder executes an
amendment whereby such additional shares become subject to this Agreement.
The Significant Shareholder agrees that until the Effective Date it will not (i)
deposit any Carolco Shares into any voting trust or similar arrangement, (ii)
enter into any discussions, negotiations, arrangements or understandings with
any third party with respect to any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The Significant Shareholder further
agrees that, subject to its receipt of the Prospectus and Joint Proxy Statement
pursuant to which Carolco and LIVE propose to solicit proxies from their
respective shareholders in connection with the Merger and the transactions
contemplated thereby (the "Prospectus"), it will vote all of the Carolco Shares
in favor of the Merger and the transactions contemplated hereby.
(b) Until the Effective Date, it will not grant a proxy with respect to, or
otherwise encumber, any of its LIVE Shares, nor will it acquire any additional
LIVE Shares unless the Significant Shareholder executes an amendment
whereby such additional shares become subject to this Agreement. The
Significant Shareholder agrees that until the Effective Date it will not (i)
deposit any LIVE Shares into any voting trust or similar arrangement, (ii) enter
into any discussions, negotiations, arrangements or understandings with any
third party with respect to any of the foregoing, or (iii) take any action
inconsistent with any of the foregoing. The Significant Shareholder further
agrees that, subject to its receipt of the Prospectus, it will vote all of the
LIVE Shares in favor of the Merger and the transactions contemplated hereby, the
proposed amendments to the 1988 Stock Option and Stock Appreciation
Rights Plan of LIVE to increase the number of shares for which options may
be granted by an additional 500,000 shares and the proposal to adopt the 1994
Stock Option and Stock Appreciation Rights Plan of Carolco Entertainment
Inc.
3. The Significant Shareholder consents to disclosure in the Prospectus of its
intention to vote for the Merger and the transactions contemplated in the
Merger Agreement.
4. The Significant Shareholder agrees to proceed with the proposed
transactions on a prompt basis and to use its reasonable best efforts to prepare
all documentation, obtain all necessary consents, authorizations, approvals and
waivers required in connection with the consummation of the Merger
(including any filings required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to such Significant
Shareholder) and take all other actions necessary to consummate the
transactions contemplated hereby in a manner consistent with applicable law,
including, but not limited to, executing the Carolco Entertainment Registration
Rights Agreement attached to the Merger Agreement as Exhibit 9.10 (the
"Carolco Entertainment Registration Rights Agreement") and the Amendment
to the Standby Purchase and Investment Agreement attached to the Merger
Agreement as Exhibit 9.9(c).
5. The Significant Shareholder accepts and agrees to the terms of the Carolco
Entertainment Registration Rights Agreement and agrees that such agreement
shall supersede and replace all registration rights existing as of the Effective
Date with respect to all Carolco securities owned by it as of the Effective Date
and all LIVE securities owned by it as of the Effective Date.
C. This Agreement will terminate upon the earlier to occur of (i) the Effective
Date (other than with regard to Paragraph A.2 of this Agreement) and (ii) the
termination of the Merger Agreement pursuant to the terms of Section 11.1
thereof, but in no event later than December 31, 1994 unless an extension of
such date is agreed to by the Significant Shareholder.
D. In the event of a waiver by Carolco or LIVE of any material condition,
covenant or breach, or in the event of an amendment of any material term of
the Merger Agreement without the consent of the Significant Shareholder, then
the Significant Shareholder shall be entitled to rescind this Agreement within
five (5) business days of receipt of notice of such waiver or amendment.
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement
on August 10 , 1994.
RCS VIDEO INTERNATIONAL SERVICES B.V.
By: /s/ Paolo Glisenti
Name: Paolo Glisenti
Its: Managing Director
Agreed to and accepted as of
the date first written above:
CAROLCO PICTURES INC.
By: /s/ Robert W. Goldsmith
Name: Robert W. Goldsmith
Its: Senior Vice President
LIVE ENTERTAINMENT INC.
By: /s/ Roger A. Burlage
Name: Roger A. Burlage
Its: President and Chief Executive Officer
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement") is
made and entered into on this 10th day of August,
1994, by and among Pioneer LDCA, Inc., a Delaware
corporation ("Pioneer"), Cinepole Productions B.V.,
a Netherlands company ("Cinepole"), RCS Video
International Services B.V., a Netherlands company
(acting for itself and on behalf of its Affiliates,
hereinafter referred to as "RCS"), MGM Holdings
Corporation, a Delaware corporation ("MGM H") and
New Carolco Investments, B.V., a Netherlands company
("New CIBV").
W I T N E S S E T H:
WHEREAS, Pioneer, Cinepole, RCS, MGM H and New CIBV
own certain of the capital stock (the "Existing
Carolco Stock") of Carolco Pictures Inc., a Delaware
corporation (the "Carolco");
WHEREAS, Pioneer, Cinepole and RCS own certain of
the capital stock (the "Existing LIVE Stock") of
LIVE Entertainment Inc., a Delaware corporation
("Company");
WHEREAS, Carolco, the Company and Carolco
Acquisition Corp., a Delaware corporation
("Acquisition Corp.") and a wholly-owned subsidiary
of the Company, have entered into an Agreement and
Plan of Merger, dated as of August 10, 1994 (the
"Merger Agreement");
WHEREAS, pursuant to the terms of the Merger
Agreement, Acquisition Corp. will be merged into
Carolco and, in connection therewith, the Existing
Carolco Stock will be exchanged for certain capital
stock of the Company (the "CEI Stock"); and
WHEREAS, the parties wish to enter into this
Agreement to establish certain rights and
obligations of the parties with respect to the
voting of the Existing LIVE Stock and the CEI Stock,
the management of the Company, the disposition of
their respective interests in the Company and other
matters;
NOW, THEREFORE, the parties hereby agree as follows:
Section 1. Definitions. As used in this Agreement,
the following terms have the meanings indicated:
"5% Notes" means the 5% Payment-in-Kind Convertible
Subordinated Notes due 2002 of the Company and
Carolco as co-obligors.
"7% Notes" means the 7% Convertible Subordinated
Notes due 2006 of the Company and Carolco as co-
obligors.
"Affiliate", as to any Person, means any other
Person directly or indirectly controlling,
controlled by or under direct or indirect common
control with, such Person and shall include, without
limitation, any director or executive officer of
such Person, provided, however, that for purposes of
this Agreement the Company shall not be deemed an
Affiliate of any of the Strategic Investors, MGM H,
or any of their respective Affiliates. For purposes
of this definition, "control" when used with respect
to any specified Person means the power to direct or
cause the direction of the management or policies of
such Person, directly or indirectly, whether through
ownership of voting securities, by contract or
otherwise.
"Agreement" means this Agreement as the same may be
amended or modified from time to time in accordance
with the provisions hereof.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday,
Sunday or any other day on which commercial banks in
Los Angeles, California are authorized by law to be
closed for business.
"Bylaws" means the Amended and Restated Bylaws of
the Company, the form of which is attached as
Exhibit 3.2 to the Merger Agreement, together with
all amendments thereto made pursuant to the terms
hereof and applicable law.
"Common Stock" means the Company's common stock par
value $0.01 per share.
"Common Stock Equivalent" means the number of shares
of Common Stock into which any shares of Series C
Preferred Stock, Series D Preferred Stock, 5% Notes
or 7% Notes are convertible, taking into account at
the time such Common Stock Equivalent is calculated,
adjustments for distributions-in-kind and any other
dilutive transactions.
"Common Stock Equivalent Price" means the highest
aggregate number of shares of Common Stock into
which Securities could have been converted during
the course of the transactions triggering Tag-along
Rights multiplied by the fair market value per share
of Common Stock (or Common Stock Equivalent, in the
event the Strategic Investors have sold shares of
Series C Preferred Stock or Series D Preferred
Stock) to be sold.
"Director Designee" means any director designated
for election to the Board by each of the
Stockholders other than New CIBV.
"Director Pool" shall mean a group of directors of
the Company composed of the Director Designees, the
Management Director Designees and the two
Independent Directors listed on Schedule 1.1, whose
designation as members of the Director Pool may be
changed by New CIBV by letter delivered to the other
Stockholders. Such directors designated by New CIBV
as set forth in the preceding sentence shall remain
members of the Director Pool until they cease to be
members of the Board. When either of the directors
designated by New CIBV ceases to be a member of the
Board, the director's successor shall be deemed to
be the designated member of the Director Pool unless
New CIBV shall notify each of the other Stockholders
by letter designating another director, not a
Director Designee or Management Director Designee,
as a member of the Director Pool.
"Distribution Agreement" means the Domestic Output
Agreement, dated as of May 1, 1993, between Metro-
Goldwyn-Mayer Inc. and Carolco and the Confidential
Draft Term Sheet, dated as of April 23, 1993,
between Metro-Goldwyn-Mayer Inc. and Carolco,
setting forth, among other matters, the terms and
conditions of MGM H's international distribution of
certain Carolco motion pictures (the "International
Output Agreement"), each as assumed by the Company
by the Agreement substantially in the form of
Exhibit 9.9(g) to the Merger Agreement, as the same
may be further amended, modified or supplemented
from time to time.
"Holder" means any holder of Securities with voting
rights.
"Independent Directors" means directors elected to
the Board by the shareholders at large in accordance
with the Restated Certificate and Bylaws and who are
not Director Designees or Management Director
Designees and who would qualify as a member of the
audit committee of the Board of the Company pursuant
to the rules of the New York Stock Exchange, or in
the case of any Independent Director vacancy, a
director appointed in accordance with the Bylaws and
this Agreement, provided that, no Independent
Director shall be an officer, director, employee,
agent or Affiliate (for purposes of this definition,
as defined under Rule 12b-2 of the Securities and
Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) of the Company
or any of the Stockholders or their Affiliates.
"Kassar" means Mario F. Kassar.
"Kassar Employment Agreement" means the employment
agreement, dated as of August 10, 1994, between
Carolco and Kassar which will be assumed by the
Company on the Effective Date of the Merger (as
defined in the Merger Agreement).
"Management Director Designee" means any director
nominated by the Chairman of the Board of the
Company.
"Permitted Indebtedness" means, without duplication,
(i) film production financing incurred by the
Company or by special purpose Subsidiaries engaged
solely in motion picture production, (ii) "pay or
play" obligations related directly to motion picture
production and (iii) bank financing used for general
corporate purposes of the Company and its
Subsidiaries in an aggregate amount not exceeding
the amount of bank financing available to be drawn
pursuant to its terms at the closing of the
Securities Purchase Agreement dated as of May 25,
1993 among the Company, Pioneer, Cinepole and MGM H,
plus $10,000,000.
"Permitted Interested Transaction" means (i)
existing contractual relationships with the
Stockholders or their Affiliates, (ii) the MGM H
Distribution Agreement (other than any material
amendment, modification or supplement thereto, other
than a long-form agreement in respect of the
International Output Agreement), (iii) the Kassar
Employment Agreement and (iv) transactions to be
consummated in the Merger.
"Permitted Investments" means (i) marketable direct
obligations issued or unconditionally guaranteed by
the United States Government or issued by any agency
thereof and backed by the full faith and credit of
the United States, (ii) marketable direct
obligations issued by any state of the United States
of America or any political subdivision of any such
state or any public instrumentality thereof, (iii)
commercial paper or other corporate obligations
provided that, at the time of acquisition, if the
security has less than an investment grade rating
obtainable from either Standard & Poor's Corp. or
Moody's Investors Services, Inc., then the Company
shall not purchase the security if the result would
be that the Company would (A) have invested more
than 20% of its assets in the obligations of one
issuer or (B) own more than 10% of a single issue of
securities, (iv) demand deposits, certificates of
deposit (including Eurodollar certificates of
deposit) or bankers' acceptances issued by
commercial banks, savings and loans or other
financial institutions organized under the laws of
the United States of America or any state thereof or
the District of Columbia, each having capital and
surplus of, in the case of any such institution
organized under the laws of the United States or any
political subdivision thereof, not less than
$100,000,000 or, in the case of any such institution
organized under the laws of any foreign
jurisdiction, not less than $500,000,000 or whose
commercial paper is rated "A-1" by Standard & Poor's
Corp. or "P-1" by Moody's Investors Services, Inc.
("Qualifying Banks"), (v) repurchase agreements and
reverse repurchase agreements with Qualifying Banks,
(vi) money market funds organized under the laws of
the United States of America or any state thereof
and administered by securities dealers of recognized
national standing, (vii) any investment in Persons
that are Subsidiaries of the Company and at least
95% of the Capital Stock of which is owned by the
Company, (viii) negotiable instruments endorsed for
deposit or collection or similar instruments in the
ordinary course of business, and (ix) any investment
outstanding on the Effective Date of the Merger
Agreement and any extension, renewal refinancing or
deferral of such investment provided that such
extension, renewal, refinancing or deferral does not
increase the amount of such investment outstanding
on the date of such extension, renewal, refinancing
or deferral.
"Person" means any individual, corporation,
partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or
government or any agency or political subdivision
thereof.
"Put and Call Agreement" means the Amended and
Restated Put and Call Agreement, dated as of August
10, 1994, between MGM H and Cinepole.
"Restated Certificate" means the Amended and
Restated Certificate of Incorporation of the
Company, the form of which is attached as Exhibit
3.1 to the Merger Agreement, together with all
amendments thereto made pursuant to the terms hereof
and applicable law.
"Restructuring" has the meaning specified in the
Securities Purchase Agreement.
"Securities" means the 5% Notes, the 7% Notes, the
Common Stock (including any Common Stock issued
pursuant to a conversion of the Series C Preferred
Stock, the Series D Preferred Stock, the 5% Notes or
the 7% Notes), the Series C Preferred Stock and the
Series D Preferred Stock.
"Series C Preferred Stock" means the Company's
Series C Convertible Preferred Stock, par value
$1.00 per share.
"Series D Preferred Stock" means the Company's
Series D Convertible Preferred Stock, par value
$1.00 per share.
"Stockholders" means Pioneer, Cinepole, RCS, MGM H
and New CIBV.
"Strategic Investors" means Pioneer, Cinepole and
RCS.
"Subsidiary" means, as to any Person, (i) any
corporation more than 50% of whose stock of any
class or classes having by the terms thereof
ordinary voting power to elect a majority of the
directors of such corporation (irrespective of
whether or not at the time stock of any class or
classes of such corporation shall have or might have
voting power by reason of the happening of any
contingency) is at the time owned by such Person
and/or one or more Subsidiaries of such Person and
(ii) any partnership, association, joint venture or
other entity in which such Person and/or one or more
Subsidiaries of such Person have more than a 50%
equity interest at the time.
"Tag-along Rights" has the meaning specified in
Section 6 hereof.
Section 2. Effectiveness. This Agreement shall
become effective on the Effective Date of the Merger
(as defined in the Merger Agreement).
Section 3. Board of Directors.
(a) Composition of the Board. As of the Effective
Date of the Merger, the Board of the Company will
consist of twenty-one (21) directors. For purposes
of this Agreement, the parties hereby agree that
until the stockholdings of any of the Stockholders
in the Company change, in accordance with subsection
(c) hereof, Pioneer shall be entitled to nominate
five (5) Director Designees, Cinepole shall be
entitled to nominate three (3) Director Designees,
RCS shall be entitled to nominate one (1) Director
Designee and MGM H shall be entitled to nominate
three (3) Director Designees. Kassar shall be
entitled to nominate two (2) Management Director
Designees.
(b) Election and Removal. (i) Subject to the
provisions of the Restated Certificate and Bylaws,
each Stockholder agrees to vote, or to cause its
Director Designees to vote, consistent with their
fiduciary duties, for the election of the Director
Designees of each of the other Stockholders and for
the election of the two (2) Management Director
Designees and two (2) Independent Directors referred
to in the definition of "Director Pool".
(ii) As soon as practicable after receipt of a
written request from any Stockholder to remove a
Director Designee designated by the Stockholder
making such request, the other Stockholders agree to
take, or cause to be taken, all appropriate action
to effect the removal and replacement of such
Management Director Designee or Director Designee,
as the case may be.
(c) Reduction in Number of Director Designees. The
number of Director Designees allocated to each of
the Strategic Investors and MGM H as provided in
subsection (a) of this Section 3 shall be reduced as
follows: (i) in the case of Pioneer, upon each
incremental reduction of at least twenty percent
(20%) of the Securities it holds upon the
effectiveness of the Merger, the number of Pioneer
Director Designees shall be reduced by one (1); (ii)
in the case of Cinepole, upon each incremental
reduction of at least thirty-three percent (33%) of
the Securities it holds upon the effectiveness of
the Merger, the number of Cinepole Director
Designees shall be reduced by one (1); (iii) in the
case of MGM H, upon each incremental reduction of at
least thirty-three percent (33%) of the Securities
it holds upon the effectiveness of the Merger, the
number of MGM H Director Designees shall be reduced
by one (1); and (iv) in the case of RCS, upon the
reduction of at least fifty percent (50%) of the
Securities it holds upon the effectiveness of the
Merger, the RCS Director Designee position shall be
eliminated.
(d) Committees. Each of the Stockholders agrees to
cause its Director Designees to vote, if consistent
with such director's fiduciary duty, to take
appropriate corporate action to establish a
Supervisory Committee of the Board, and to cause the
election of such Supervisory Committee composed of
the Directors listed on Schedule 3.1. All Director
Designees appointed to the Supervisory Committee and
Kassar shall constitute a quorum at meetings of the
Supervisory Committee. No action shall be taken by
the Supervisory Committee without the unanimous
affirmative vote of each of the Director Designees
on the Supervisory Committee or the unanimous
written consent of the Supervisory Committee.
Notwithstanding the foregoing, if any member of the
Supervisory Committee is not present or represented
at any meeting of the Supervisory Committee, the
attendance of such member shall not be required for
purposes of determining a quorum or unanimous voting
on any action to be taken, provided any such absent
member shall have been given five Business Days
prior written notice of such meeting. Any such
absent Supervisory Committee member may designate a
representative to attend such meeting, provided that
if the representative of such absent member objects
to any action proposed to be taken by the
Supervisory Committee, the meeting shall be
adjourned for two Business Days to allow the absent
member to attend, provided further, however, that
the continued absence of such member shall not
affect the validity of any actions taken at the
adjourned meeting. In the event any Strategic
Investor or MGM H sells or otherwise disposes of
more than 50% of the Securities it holds upon the
effectiveness of the Merger, such party shall no
longer be entitled to a seat on the Supervisory
Committee. All other committees of the Board shall
be formed in accordance with the Restated
Certificate and Bylaws, subject to Section 5(a)(i)
hereof.
Section 4. Undertakings; Condition Precedent. Each
of the Stockholders undertakes and agrees as
follows:
(a) Each Stockholder agrees to cause its Director
Designee to vote, if consistent with such director's
fiduciary duty, to adopt the Bylaws as amended in
accordance with the Merger Agreement.
(b) Each Stockholder will vote against any proposal
to amend the Restated Certificate or the Bylaws and
any proposal to change the composition or character
of the Board as set forth in Section 3 hereof,
unless all of the Stockholders agree to vote in
favor of such proposal.
(c) The Stockholders agree to execute and deliver
all documents and instruments, to share all relevant
information and to do all things necessary to give
effect to the provisions of this Agreement.
(d) The obligations of the Stockholders under this
Agreement and the effectiveness of this Agreement
are subject to the satisfaction of the following
conditions:
(i) the Restated Certificate and By-laws shall have
been amended in accordance with the Merger Agreement
and the By-laws shall include provisions
implementing Section 5 hereof and establishing the
Supervisory Committee, each in form and substance
satisfactory to each of the Stockholders;
(ii) the Merger shall have become effective in
accordance with the terms of the Merger Agreement;
and
(iii) the bylaws of Carolco and LIVE Home Video
Inc. ("LHV") shall have been amended to provide that
shareholder consent shall be required for Carolco or
LHV to enter into, terminate, amend or modify any
agreement or incur any liability or obligation, not
made in the ordinary course of business, that is
material to the business or operations of Carolco or
LHV, as the case may be.
Section 5. Restrictions on Certain Actions.
(a) Major Decisions. Each Stockholder agrees that
the following actions, decisions, expenditures and
obligations to be taken, made or incurred by the
Company (each a "Major Decision") shall require the
affirmative vote of (i) at least eighty-five percent
(85%) of the Director Pool and (ii) Director
Designees representing at least three of the
Stockholders (other than New CIBV). Each
Stockholder also agrees that it shall not exercise
its voting rights as a Holder to take, make or incur
any of the following actions, decisions,
expenditures and obligations, and shall not call a
special meeting of Holders to vote on any such
matter, without the agreement of (A) Holders
entitled to cast at least 80% of the votes entitled
to be cast and (B) at least three Stockholders
(other than New CIBV):
(i) any amendments to the Restated Certificate or
the Bylaws which would alter (A) the voting rights
of the Holders, (B) the number or classes of
directors on the Board, (C) the notice and quorum
requirements for meetings of the Board or
shareholders of the Company, (D) the constitution,
powers or proceedings of the Supervisory Committee
or (E) the constitution of the Director Pool;
(ii) any merger, consolidation, liquidation,
dissolution or winding up of the Company or any
Subsidiary which is material to the business and
operations of the Company and its Subsidiaries taken
as a whole;
(iii) the disposition of any asset or assets, of the
Company or any Subsidiary, other than in the
ordinary course of business, with an aggregate fair
market value in excess of $10,000,000;
(iv) any acquisition by the Company or any
Subsidiary of any business of another person, or any
property, securities, rights or other assets in one
or a series of related transactions for a
consideration in excess of $10,000,000; provided,
that the Company may acquire rights to motion
pictures or other related properties or assets in
the ordinary course of business, or as permitted
under the Kassar Employment Agreement or pursuant to
a resolution of the Board existing on the date of
the Restructuring;
(v) the creation, incurrence, assumption or guaranty
by the Company or any Subsidiary of any
indebtedness, obligation or liability, whether
direct or contingent, in excess of $10,000,000,
except for Permitted Indebtedness.
(vi) the creation, incurrence, or assumption of any
lien, mortgage, pledge, security interest, charge or
encumbrance by the Company or any Subsidiary with
respect to any property, capital stock or asset of
the Company or any Subsidiary, which secures payment
of indebtedness of the Company in excess of
$10,000,000, except for liens or pledges securing
Permitted Indebtedness;
(vii) the declaration or payment by the Company or
any Subsidiary (other than special purpose
subsidiaries engaged solely in motion picture
production) of any dividend on its Common Stock or
any other capital stock junior to the Series C
Preferred Stock and the Series D Preferred Stock
(except that (A) any Subsidiary may declare and pay
dividends to the Company and (B) the Company may
declare and pay dividends on the Series C Preferred
Stock or the Series D Preferred Stock in accordance
with the terms of the Restated Certificate and
applicable law);
(viii) the termination of, or material amendment,
modification or supplement to, the Kassar Employment
Agreement; the Co-Production Financing Commitment
Agreement dated as of August 19, 1993 among Carolco,
an affiliate of Cinepole and Tele-Communications,
Inc. ("TCI") and the Standby Purchase and Investment
Agreement dated as of July 29, 1993 among Carolco,
Cinepole, an affiliate of Cinepole, Pioneer, RSC and
TCI, as amended as of the Effective Date of the
Merger Agreement;
(ix) any investments, or series of investments, by
the Company or any Subsidiary in excess of
$3,000,000, other than Permitted Investments; and
(x) any agreement, understanding or arrangement by
the Company or any Subsidiary, or the amendment of
any agreement, understanding or arrangement of the
Company or any Subsidiary, with respect to any of
the foregoing matters.
(b) Interested Transactions. Subject to the
provisions of Section 5(a) hereof, any transaction
between the Company or any of its Subsidiaries and
any Stockholder or any Affiliate of a Stockholder,
other than Permitted Interested Transactions, shall
be approved by a majority of the disinterested
directors on the Board.
Section 6. Tag-Along Rights. (a) At such time as
any two or more of the Strategic Investors enter
into a joint privately negotiated transaction or
series of related transactions to sell or otherwise
dispose for value to any person (other than the
Company or its Subsidiaries, or any Strategic
Investor, MGM H or their respective Affiliates), at
least
(i) 50% of the aggregate amount of Securities
beneficially owned by the Strategic Investors as of
the date of the effectiveness of the Merger (which
amount is subject to adjustment for, among other
things, in-kind interest or dividends and/or any
other anti-dilution adjustments) and
(ii) 10% of Securities beneficially owned by each of
Pioneer and Cinepole, respectively, as of the date
of such sale or disposal, such other purchasers
shall afford MGM H Tag-along Rights (the "Tag-along
Rights"). The Tag-along Rights shall entitle MGM H
to participate proportionately in the above-
referenced transaction or series of transactions by
selling, at an equivalent price and on the same
terms, up to the number of Securities beneficially
owned by MGM H as of the date of the effectiveness
of the Merger (which amount will be subject to
adjustment for, among other things, in-kind interest
or dividends and/or any other anti-dilution
adjustments) multiplied by a fraction, the numerator
of which is the number of Securities sold by the
Strategic Investors in such transaction or series of
transactions and the denominator of which is the
aggregate number of Securities originally held by
all Strategic Investors, as adjusted for, among
other things, in-kind interest or dividends and/or
any other anti-dilution adjustments.
(b) In the event that the Strategic Investors sell
Securities which are of a different class,
designation or type than those of which MGM H
desires to exercise Tag-along Rights, (i) the number
of Securities which may be sold by MGM H shall be
equal to the Common Stock Equivalent of all
Securities held by MGM H as of the date of the
effectiveness of the Merger and (ii) all Securities
shall be valued, for the purpose of determining the
price at which MGM H is entitled to exercise its
Tag-along Rights, at the "Common Stock Equivalent
Price".
(c) The Strategic Investors shall be required to
provide MGM H with 25 days' written notice of any
proposed sale of Securities. MGM H shall have 20
days following such notification in which to notify
the Strategic Investors of its exercise of Tag-along
Rights.
(d) In the event that the Strategic Investors and
MGM H enter into a joint privately negotiated
transaction or series of related transactions to
sell or dispose for value to any Person (other than
the Company or its Subsidiaries, or any Strategic
Investor or MGM H, or their respective Affiliates)
at least (i) 50% of the aggregate amount of
Securities beneficially owned by them as of the date
of the effectiveness of the Merger (which amount
will be subject to adjustment for, among other
things, in-kind interest or dividends and/or any
other anti-dilution adjustments), (ii) 10% of the
Securities beneficially owned by each of Pioneer,
Cinepole and MGM H, respectively, as of the date of
such sale or disposal, then New CIBV shall be
afforded Tag-along Rights in the same manner as the
Tag-along Rights afforded to MGM H under this
Section 6; provided, however, that if any reduction
in the aggregate amount of Securities to be sold by
the Strategic Investors and MGM H in such
transaction becomes necessary as a result of the
exercise by New CIBV of its Tag-along Rights, such
reduction shall apply solely to the Securities to be
sold by the Strategic Investors.
(e) In the event that MGM H and Cinepole enter into
a joint privately negotiated transaction or series
of related transactions to sell or dispose for value
to any Person (other than the Company or its
Subsidiaries, or any Strategic Investor or MGM H, or
their respective Affiliates) at least (i) 50% of the
aggregate amount of Securities beneficially owned by
them as of the date of the effectiveness of the
Merger (which amount will be subject to adjustment
for, among other things, in-kind interest or
dividends and/or any other anti-dilution
adjustments), and
(ii) 10% of the Securities beneficially owned by
each of them, respectively, as of the date of such
sale or disposal, then Pioneer, RCS and New CIBV
shall be afforded Tag-along Rights in the same
manner as the Tag-along Rights afforded to MGM H
under this Section 6.
(f) In the event that MGM H and Pioneer enter into
a joint privately negotiated transaction or series
of related transactions to sell or dispose for value
to any Person (other than the Company or its
subsidiaries, or any Strategic Investor or MGM H, or
their respective Affiliates) at least (i) 50% of the
aggregate amount of Securities beneficially owned by
them as of the date of the effectiveness of the
Merger (which amount will be subject to adjustment
for, among other things, in-kind interest or
dividends and/or any other anti-dilution
adjustments), and (ii) 10% of the Securities
beneficially owned by each of them, respectively, as
of the date of such sale or disposal, then Cinepole,
RCS and New CIBV shall be afforded Tag-along Rights
in the same manner as the Tag-along Rights afforded
to MGM H under this Section 6; provided, however,
that if any reduction in the aggregate amount of
Securities to be sold by MGM H and Pioneer in such
transaction becomes necessary as a result of the
exercise by Cinepole, RCS or New CIBV of their
respective Tag-along Rights, such reduction shall
apply solely to the Securities to be sold by
Pioneer.
Section 7. Representations and Warranties. Each of
the parties hereto represents and warrants to all
the other parties that:
(a) Such party has full power and authority to
enter into this Agreement and all corporate or other
action required to authorize the entering into of
this Agreement and the performance by such party of
all its obligations hereunder has been duly taken;
(b) All acts, conditions and things required to be
done, fulfilled and performed and (except as
disclosed in writing by any of the parties to the
others prior to the signing of this Agreement) all
consents, permissions, authorizations or other
approval of, notice to, or registration with, any
regulatory authority or other person required to be
obtained or made, in order (i) to enable such party
lawfully to enter into, exercise its rights under,
and perform the obligations expressed to be assumed
by it in this Agreement, (ii) to ensure that the
obligations expressed to be assumed by such party in
this Agreement are legal, valid and enforceable;
(c) The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate
any provision of the charter instruments of such
party; (ii) violate, conflict with or result in the
breach of any of the terms of, result in a
modification of the effect of, otherwise give any
other contracting party the right to terminate, or
constitute (with notice or otherwise) a default
under, any contract by which each such party, its
assets, properties or business, or the assets,
properties or business of any of its subsidiaries,
may be bound or subject; (iii) violate any order,
judgment, injunction, award or decree of any
regulatory authority against, or binding upon, such
party or its assets, properties or business, or the
assets, properties or business of any of its
subsidiaries; or (iv) except as disclosed in writing
by any of the parties to the others prior to the
signing of this Agreement violate any applicable law
or regulation or any permit, license, franchise,
registration or similar authorization with respect
to, or binding upon, its assets, properties or
business or the assets, properties or business of
any of its subsidiaries.
Section 8. Confidentiality. Each Stockholder
agrees, and will cause each of its respective
Director Designees, officers, directors,
subsidiaries, employees, agents and other
affiliates, to keep confidential all material non-
public information obtained by any of them, and
refrain from causing material non-public information
to become public information, provided that, such
information may be disseminated by the Stockholders
and the Director Designees to their respective
officers, directors, subsidiaries, employees, agents
and other affiliates and to other unaffiliated
parties (if each such unaffiliated party enters into
a confidentiality agreement with such Stockholder or
with the Director Designee, as the case may be, with
regard to such information) to the extent necessary
for each Stockholder to evaluate the operations of
the Company and for other corporate purposes.
Section 9. Competition. None of the terms herein
shall be construed to restrict the rights of the
Stockholders (other than New CIBV as long as the
Kassar Employment Agreement remains in effect) or
Director Designees to form, invest in or otherwise
participate in business activities or ventures which
may at any time compete with the Company.
Section 10. Miscellaneous.
(a) Legends on Certificates. Each certificate
representing any of the Securities, and each share
of Common Stock issued upon the conversion of either
the Series C Preferred Stock, the Series D Preferred
Stock, the 7% Notes or the 5% Notes, shall bear
appropriate legends alerting the holder thereof of
the existence of this Agreement.
(b) Superseding Agreement. This Agreement replaces
and supersedes any and all agreements, arrangements
or understandings among any of the parties hereto
concerning the subject matter hereof, including (i)
the Stockholders Agreement dated March 23, 1992
among Pioneer, Le Studio Canal+ S.A., RCS and New
CIBV and (ii) the Stockholders Agreement dated
October 20, 1993 among Pioneer, Cinepole, RCS, MGM H
and New CIBV, except for other agreements entered
into in connection with the Restructuring or the
Merger.
(c) Amendments and Waivers. No amendment to this
Agreement shall be valid or binding unless set forth
in writing, specifically referring to the provision
to be amended, and duly executed by all of the
parties hereto. No waiver of any provision of this
Agreement, or of any breach thereof, shall be
effective or binding unless made in writing and
signed by the party purporting to grant such waiver
and, unless provided otherwise, shall be limited to
the specific matter waived.
(c) Assignment; Termination. Except as expressly
provided herein, none of the parties may assign its
rights or obligations hereunder without prior
written consent of all the other parties hereto.
This Agreement shall terminate, with respect to any
Stockholder, at such time as any Stockholder (or its
Affiliates) no longer beneficially owns an amount of
Securities which would entitle such Stockholder to
appoint a Director Designee in accordance with
Section 2(c) hereof, provided, that with respect to
New CIBV, this Agreement shall terminate upon
termination of the Kassar Employment Agreement.
(e) Notices. Any demand, notice or other
communication given in connection with this
Agreement shall be in writing and shall be delivered
personally or sent by facsimile to the parties at
the following addresses (or at such other address,
facsimile number or individual for a party as may be
designated by notice by such party to the others):
Pioneer: Pioneer LDCA, Inc.
2265 East 220th Street
Long Beach, California 90810
Attention: Mr. Tetsuro Kudo
With a copy to:
Pioneer LDC, Inc.
Arco Tower, 8-1
Shimomeguro 1-chome
Meguro-ku
Tokyo 153, Japan
Attention: Mr. Ryuichi Noda
and
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: Blake Hornick, Esq.
Cinepole: Cinepole Productions B.V.
P.O. Box 990
1000 AZ Amsterdam
The Netherlands
With a copy to:
Coudert Freres
52, Avenue des Champs-Elysees
75008 Paris
France
Attention: Jonathan M. Wohl, Esq.
and
Le Studio Canal+ (U.S.)
301 North Canon Drive, Suite 228
Beverly Hills, California 90210
Attention: Richard J. Garzilli, Esq.
and
Coudert Brothers
1055 West Seventh Street, 20th Fl.
Los Angeles, California 90017
Attention: John St. Clair, Esq.
MGM H: c/o Metro-Goldwyn-Mayer
2500 Broadway
Santa Monica, California 90404
Attention: Mr. Michael S. Hope
and
c/o Credit Lyonnais
19 boulevard des Italiens
75002 Paris, France
Attention: Mr. Rene-Claude Jouannet
With a copy to:
White & Case
633 West Fifth Street
Los Angeles, California 90071
Attention: David G. Johnson, Esq.
RCS: Museumplein 11
1071 DJ Amsterdam
Netherlands
Attention: Mr. Koopsman or
Mr. Peters
With a copy to:
Avv. Enzo Pulitano
Affari Legali e Societari
RCS Editori SpA
Corso Garibaldi 86
20121 Milan
Italy
and
Werbel, McMillin & Carnelutti
711 Fifth Avenue
New York, New York 10022
Attention: Paul D. Downs, Esq.
New CIBV: Parklaan 46
3016 BC Rotterdam
The Netherlands
Attention: Mr. Hans Schutte
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 S. Grand Avenue
Suite 3400
Los Angeles, California 90071-3144
Attention: Brian J. McCarthy, Esq.
(f) Governing Law; Jurisdiction. THE AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THOSE LAWS RELATING TO CONFLICTS OF LAWS.
Each party irrevocably agrees that any suit, action,
or other legal proceeding arising from or relating
to this Agreement shall be brought in the courts of
the State of New York or the United States of
America located in New York County, or the courts of
the State of California or the United States of
America located in Los Angeles County.
(g) Counterparts. This Agreement may be entered
into in any number of counterparts and by the
parties to it on separate counterparts, each of
which when so executed and delivered shall be an
original, but all of which together shall constitute
one and the same instrument.
(h) Severability. If any one or more of the
provisions contained herein, or the application
thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of
any such provision in every other respect and of the
remaining provisions hereof shall not be in any way
impaired, it being intended that all of the rights
of the parties hereto shall be enforceable to the
fullest extent permitted by law.
IN WITNESS WHEREOF, the parties have executed this
Agreement this 10th day of August, 1994.
PIONEER LDCA, INC.
By: /s/ Tetsuro Kudo
Title: President
CINEPOLE PRODUCTIONS B.V.
By: /s/ Dominique Jeunot
Title: Co-Managing Director
RCS VIDEO INTERNATIONAL SERVICES B.V. & NV
By: /s/ Paolo Glisenti
Title: Managing Director
MGM HOLDINGS CORPORATION
By: /s/ Rene-Claude Jouannet
Title: President and Treasurer
NEW CAROLCO INVESTMENTS, B.V.
By: /s/ Roberto C. Brazao Gomes
Title: Managing Director
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement this 10th day of August, 1994.
PIONEER LDCA, INC.
By:
Title:
CINEPOLE PRODUCTIONS B.V.
By: MeesPierson Trust B.V., Managing Director
By: /s/ Otger Van der Nap
Title: Senior Account Manager
RCS VIDEO INTERNATIONAL SERVICES B.V. & NV
By:
Title:
MGM HOLDINGS CORPORATION
By:
Title:
NEW CAROLCO INVESTMENTS, B.V.
By:
Title:
August 30, 1994
LIVE Entertainment Inc.
15400 Sherman Way, Suite 500
Van Nuys, California 91406
Attn: Board of Directors
Gentlemen:
You have requested that we render our opinion as to the
fairness, from a financial point of view, to LIVE Entertainment
Inc. (the "Company") of the consideration (the "Consideration") to
be received by the Company for the transfer (the "Transfer") of all
the issued and outstanding shares of capital stock of Strawberries,
Inc. ("Strawberries") and the elimination of the intercompany debt
due to the Company from Strawberries pursuant to an Agreement and
Plan of Merger (the "Agreement"), a draft of which has been
presented to us. The Consideration consists of $35 million in
cash.
In arriving at the opinion set forth below, we have, among
other things:
(a) reviewed drafts of the Agreement;
(b) reviewed certain internal financial and operating data
of Strawberries, including management forecasts;
(c) discussed the business prospects of Strawberries with
senior management of Strawberries and the Company;
(d) compared the financial and operating performance of
Strawberries with certain other companies we deemed
comparable;
(e) reviewed the financial terms of certain recent business
combinations and acquisition transactions we deemed
relevant; and
(f) made such other analyses and examinations as we deemed
necessary or appropriate.
<PAGE>
LIVE Entertainment Inc.
August 30, 1994
Page 2
We have assumed and relied upon without independent
verification the accuracy and completeness of all of the financial
and other information provided to or reviewed by or for us, or
publicly available, for purposes of this opinion. We have neither
made nor obtained any independent evaluations or appraisals of the
assets or liabilities of Strawberries, nor have we conducted a
physical inspection of the properties and facilities of
Strawberries. We have assumed that the financial forecasts of
Strawberries have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of the management
of Strawberries and the Company as to the future financial
performance of Strawberries. We express no view as to such
forecasts or the assumptions on which they were based.
Our opinion herein is necessarily based on market, economic
and other conditions as they exist and can be evaluated on the date
of this letter. Our opinion is limited to the fairness, from a
financial point of view, to the Company of the Consideration to be
received by the Company for the Transfer and we express no opinion
as to the merits of the decision to divest Strawberries.
Chemical Securities Inc., as part of its financial advisory
business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions and
valuations for estate, corporate and other purposes. We have acted
as financial advisor to the Company in connection with the Transfer
and will receive a fee for our services, including for rendering
this opinion. In addition, the Company has agreed to indemnify us
for certain liabilities arising out of our engagement.
Based upon and subject to the foregoing, we are of the
opinion, as of the date hereof, that the Consideration to be
received for the Transfer pursuant to the Agreement is fair, from
a financial point of view, to the Company.
This opinion is solely for the use of the Board of Directors
of the Company and shall not be disclosed publicly or made
available to, relied upon by, any third party without our prior
written approval.
Very truly yours,
Chemical Securities Inc.
Contact: Mitch Stoller
Ogilvy Adams & Rinehart
(212) 557-0100
CAROLCO PICTURES AND LIVE ENTERTAINMENT
ANNOUNCE SIGNING OF MERGER AGREEMENT
LOS ANGELES, August 12, 1994 -- Carolco Pictures Inc. (NYSE: CRC) and
LIVE Entertainment Inc. (NYSE: LVE) announced today that they have signed
a definitive merger agreement.
As previously announced, the merger will be structured as a tax free exchange
whereby each Carolco stockholder will receive one share of newly issued LIVE
common stock for each 5.5 shares of Carolco common stock currently held. The
exchange ratio will be adjusted based on the market price of Carolco common
stock prior to the consummation of the merger subject to two limitations
designed to limit the effect of market fluctuations on both Carolco and LIVE
stockholders. The number of Carolco shares to be exchanged for each share of
LIVE will be adjusted upward, if necessary, so that the market value of Carolco
shares to be exchanged for one share of LIVE is at least $3.00, but in no event
will more than 6.5 shares of Carolco be exchanged for each share of LIVE.
Likewise, the number will be adjusted downward, if necessary, so that the market
value of Carolco shares to be exchanged is no more than $4.00, but in no event
will fewer than 4.5 shares of Carolco be exchanged for each share of LIVE. As a
result, the current LIVE stockholders will own between approximately 21% and 28%
of the surviving corporation immediately following the closing of the merger and
the remainder will be owned by the current Carolco stockholders. If the merger
had closed today, the exchange ratio would have been 6.5 to 1. The corporation
resulting from the merger will be named Carolco Entertainment Inc. Mario F.
Kassar will be the Chairman of the Board and Chief Executive Officer of the new
company.
The merger has been approved by the Boards of Directors of both companies.
The Seidler Companies Incorporated delivered its written opinion to the Carolco
Board of Directors that the financial terms of the merger are fair to the
unaffiliated stockholders of Carolco. Chemical Securities Inc., an affiliate of
Chemical Bank, delivered its written opinion to the LIVE Board of Directors that
the exchange ratio is fair to the unaffiliated stockholders of LIVE.
Consummation of the merger, which is subject to, among other things, approval by
regulatory agencies and the non-affiliated common stockholders of both
companies, is expected by the end of 1994. The merger is also subject to the
redemption of LIVE's Series B Cumulative Convertible Preferred Stock, certain
amendments to various public and private securities of LIVE, the availability of
ongoing financing commitments prior to the merger and other customary conditions
to closing.
Daniels & Associates is acting as the financial advisor to Carolco management
and Jefferson Capital Group, Ltd. is acting as the financial advisor to LIVE
management in connection with the merger.
Pioneer LDCA, Inc. and its affiliates own approximately 41.2% of Carolco's
voting stock and approximately 53.5% of LIVE's voting stock; Cinepole
Productions B.V., an affiliate of Le Studio Canal+, owns approximately 17% of
Carolco's voting stock and approximately 7.4% of LIVE's voting stock; and RCS
Video International Services B.V. and its affiliates own approximately 5.7% of
Carolco's voting stock and approximately 7.4% of LIVE's voting stock. MGM
Holdings Corporation, an affiliate of Metro-Goldwyn-Mayer Inc., owns
approximately 18.5% of Carolco's voting stock. Prior to consummation of
Carolco's financial restructuring on October 20, 1993, Carolco owned
approximately 36.7% of LIVE's voting stock.
Carolco is an entertainment company engaged in the financing, production and
leasing of motion picture properties worldwide and is headquartered in Los
Angeles, California. Carolco has produced such box office hits as "Total
Recall," "Terminator 2: Judgment Day," "Basic Instinct" and "Cliffhanger."
LIVE is a diversified entertainment software supplier, distributor and retailer,
headquartered in Los Angeles, California. LIVE is the parent company of L.A.
based LIVE Home Video, a leading supplier of home video.
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