Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
LIONS GATE ENTERTAINMENT CORP.,
LGE MERGER SUB, INC.
AND
TRIMARK HOLDINGS, INC.
-------------------------
JUNE 6, 2000
-------------------------
TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS..........................................................................1
1.1 Certain Definitions...........................................................................1
1.2 Other Definitions.............................................................................8
ARTICLE II BASIC TRANSACTION....................................................................9
2.1 Merger; Surviving Corporation.................................................................9
2.2 Certificate of Incorporation..................................................................9
2.3 By-Laws.......................................................................................9
2.4 Directors and Officers........................................................................9
2.5 Effective Time. ............................................................................10
2.6 Surrender of Company Certificates............................................................10
2.7 Merger Consideration; Conversion and Cancellation of Securities..............................12
2.8 Stock Transfer Books. ......................................................................13
2.9 Dissenting Shares. .........................................................................13
2.10 Closing. ...................................................................................13
2.11 Treatment of Certain Outstanding Options.....................................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................14
3.1 Organization and Qualification. ............................................................14
3.2 Capitalization...............................................................................14
3.3 Authority and Validity. ....................................................................15
3.4 No Breach or Violation. ....................................................................15
3.5 Consents and Approvals. ....................................................................16
3.6 Title to Non-Film Assets.....................................................................16
3.7 Non-Film Intellectual Property...............................................................17
3.8 Compliance with Legal Requirements. ........................................................17
3.9 Financial and Other Information..............................................................17
3.10 Subsequent Events. .........................................................................18
3.11 Undisclosed Liabilities......................................................................19
3.12 Legal Proceedings. .........................................................................19
3.13 Taxes. .....................................................................................19
3.14 Employee Benefits; Employees. ..............................................................20
3.15 Material Company Contracts. ................................................................22
3.16 Books and Records. .........................................................................22
3.17 Insurance....................................................................................22
3.18 Environmental Matters........................................................................22
3.19 Matters Regarding the Company Film Library...................................................23
3.20 Films In Progress............................................................................25
3.21 Development Projects.........................................................................26
3.22 Brokers or Finders. ........................................................................26
3.23 Fairness Opinion.............................................................................26
3.24 Disclosure. ................................................................................26
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF LIONS GATE........................................26
4.1 Organization and Qualification. ............................................................27
4.2 Capitalization...............................................................................27
4.3 Authority and Validity. ....................................................................28
4.4 No Breach or Violation. ....................................................................28
4.5 Consents and Approvals. ....................................................................29
4.6 Title to Assets..............................................................................29
4.7 Non-Film Intellectual Property...............................................................29
4.8 Compliance with Legal Requirements...........................................................29
4.9 Legal Proceedings............................................................................30
4.10 Subsequent Events............................................................................30
4.11 Undisclosed Liabilities......................................................................30
4.12 Taxes........................................................................................30
4.13 Employee Benefits; Employees.................................................................31
4.14 Material Lions Gate Contracts................................................................32
4.15 Books and Records............................................................................32
4.16 Insurance. .................................................................................32
4.17 Environmental Matters........................................................................32
4.18 Matters Regarding Lions Gate Film Library....................................................32
4.19 Films In Progress............................................................................35
4.20 Development Projects.........................................................................35
4.21 Financial and Other Information..............................................................35
4.22 Canadian Control.............................................................................36
4.23 Canadian Tax Credits.........................................................................36
4.24 Canadian Securities Compliance...............................................................36
4.25 Canadian Securities Laws Matters.............................................................36
4.26 Vote Required................................................................................36
4.27 No Orders....................................................................................36
4.28 Listings.....................................................................................37
4.29 Brokers or Finders...........................................................................37
4.30 Fairness Opinion.............................................................................37
4.31 Disclosure. ................................................................................37
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB........................................37
5.1 Organization and Qualification. ............................................................38
5.2 Certificate of Incorporation and Bylaws. ...................................................38
5.3 Authority. .................................................................................38
5.4 No Conflict; Required Filings and Consents...................................................38
5.5 Legal Proceedings............................................................................39
5.6 Vote Required. .............................................................................39
ARTICLE VI PRE-CLOSING COVENANTS OF THE COMPANY................................................39
6.1 Additional Information. ....................................................................39
6.2 No Solicitations.............................................................................39
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6.3 Continuity and Maintenance of Operations.....................................................40
6.4 Consents and Approvals.......................................................................41
6.5 Meeting of the Company Shareholders..........................................................42
6.6 Securities Filings; Financial Information. .................................................43
6.7 Notification of Certain Matters. ...........................................................43
6.8 Company Disclosure Statement.................................................................43
6.9 State Statutes. ............................................................................44
6.10 Employee Matters.............................................................................44
6.11 Termination of Bonus Plan....................................................................44
6.12 2000 Company Financial Statements. .........................................................45
6.13 Transfer of Stock of Certain Production Affiliates...........................................45
ARTICLE VII PRE-CLOSING COVENANTS OF THE LIONS GATE PARTIES.....................................45
7.1 Additional Information.......................................................................45
7.2 Continuity and Maintenance of Operations.....................................................45
7.3 Consents and Approvals.......................................................................46
7.4 Meeting of the Lions Gate Shareholders.......................................................46
7.5 Merger Registration Statement. .............................................................47
7.6 Financial and Other Information. ...........................................................47
7.7 Notification of Certain Matters. ...........................................................48
7.8 Lions Gate Disclosure Statement..............................................................48
7.9 Section 16 Matters...........................................................................48
7.10 Stock Exchange Listings......................................................................48
7.11 State Statutes...............................................................................49
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE LIONS GATE PARTIES.......................49
8.1 Accuracy of Representations..................................................................49
8.2 Covenants. .................................................................................50
8.3 Consents and Approvals.......................................................................50
8.4 Dissenters' Rights. ........................................................................50
8.5 Delivery of Documents. .....................................................................50
8.6 No Material Adverse Change. ................................................................51
8.7 No Litigation. .............................................................................51
8.8 Lions Gate Merger Registration Statement; Blue Sky Laws......................................51
8.9 Canadian Exemption...........................................................................52
8.10 Employment Agreement. ......................................................................52
8.11 Credit Line..................................................................................52
8.12 Section 367. ...............................................................................52
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..................................52
9.1 Accuracy of Representations..................................................................52
9.2 Covenants. .................................................................................53
9.3 Consents and Approvals.......................................................................53
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9.4 Delivery of Documents. .....................................................................53
9.5 No Material Adverse Change. ................................................................54
9.6 No Litigation. .............................................................................54
9.7 Exchange Listing. ..........................................................................54
9.8 Lions Gate Merger Registration Statement; Blue Sky Laws......................................54
9.9 Canadian Exemption...........................................................................55
9.10 Employment Agreement.........................................................................55
9.11 Credit Line..................................................................................55
9.12 Section 367. ...............................................................................55
ARTICLE X POST CLOSING COVENANTS..............................................................55
10.1 Board Appointment. .........................................................................55
10.2 Indemnification of Directors, Officers and Managers of the Company and its
Predecessors; Directors' and Officers' Insurance.............................................55
10.3 Reports Under Securities Exchange Act of 1934................................................56
10.4 Employee Benefits............................................................................56
10.5 Gain Recognition Agreement. In order to satisfy Sections 8.12 and 9.12, certain
Company Shareholders must each enter into a "Gain Recognition Agreement Under................57
10.6 Section 367 Reporting. .....................................................................57
ARTICLE XI TERMINATION.........................................................................58
11.1 Termination. ...............................................................................58
11.2 Effect of Termination........................................................................59
ARTICLE XII SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................................60
12.1 Survival of Representations and Warranties...................................................60
ARTICLE XIII MISCELLANEOUS.......................................................................60
13.1 Parties Obligated and Benefited. ...........................................................60
13.2 Notices. ...................................................................................60
13.3 Attorneys' Fees. ...........................................................................61
13.4 Headings. ..................................................................................61
13.5 Choice of Law. .............................................................................61
13.6 Rights Cumulative. .........................................................................61
13.7 Further Actions. ...........................................................................61
13.8 Time of the Essence. .......................................................................61
13.9 Late Payments. .............................................................................62
13.10 Counterparts. ..............................................................................62
13.11 Entire Agreement. ..........................................................................62
13.12 Third Party Beneficiaries....................................................................62
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EXHIBITS
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Exhibit 1 Registration Rights Agreement
Exhibit 2 Top Company Films
Exhibit 3 Top Lions Gate Films
Exhibit 4 Voting Agreement
Exhibit 5 Additional Films
v
AGREEMENT AND PLAN OF MERGER, dated June 6, 2000 (the "Agreement"),
among LIONS GATE ENTERTAINMENT CORP., a corporation incorporated under the laws
of the British Columbia, ("Lions Gate"), LGE MERGER SUB, INC., a Delaware
corporation ("Merger Sub") and TRIMARK HOLDINGS, INC., a Delaware corporation
(the "Company"). Lions Gate, Merger Sub and the Company are collectively
referred to herein as the "Parties." Lions Gate and Merger Sub are sometimes
referred to herein collectively as the "Lions Gate Parties."
RECITALS:
The Parties intend for Lions Gate to acquire the Company and its
Subsidiaries by means of the merger of the Company with and into Merger Sub,
upon the terms and subject to the conditions set forth herein.
For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made, and in consideration of the representations, warranties, covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINITIONS. The following terms shall, when used in
this Agreement, have the following meanings:
"Acquisition" means the acquisition by a Person of any businesses,
assets or property other than in the Ordinary Course, whether by way of the
purchase of assets or stock, by merger, consolidation or otherwise.
"Acquisition Proposal" means any proposal for a merger or other business
combination to which the Company, or any Subsidiary of the Company is a party or
the direct or indirect acquisition of any substantial equity interest in, or a
substantial portion of the assets of the Company, or any Subsidiary of the
Company, other than the transactions contemplated by this Agreement.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, assessments, dues, penalties, fines,
interest, costs, amounts paid in settlement, Liabilities, obligations, Taxes,
liens, losses, expenses and fees (including court costs, settlement costs,
legal, accounting, experts' and other fees, costs and expenses).
"Affiliate" means, with respect to any Person: (i) any Person directly
or indirectly owning, controlling, or holding with power to vote 10% or more of
the outstanding voting securities of such other Person (other than passive or
institutional investors); (ii) any Person 10% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or
held with power to vote, by such other Person; (iii) any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person; and (iv) any officer, director or partner of such other Person.
"Control" for the foregoing purposes shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"BCSC" means the British Columbia Securities Commission.
"Business Day" means any day other than Saturday, Sunday or a day on
which banking institutions in Los Angeles, California, are required or
authorized to be closed.
"Canadian Securities Laws" means all applicable securities laws in each
of the provinces of British Columbia, Alberta, Manitoba, Ontario and Quebec and
the respective regulations and rules under such laws together with the
applicable published policy statements of the securities regulatory authorities
in each of such provinces.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Collateral Documents" mean the Exhibits and any other documents,
instruments and certificates to be executed and delivered by the Parties
hereunder or thereunder.
"Commission" means the Securities and Exchange Commission or any
Regulatory Authority that succeeds to its functions.
"Company Assets" mean all properties, assets, privileges, powers,
rights, interests and claims of every type and description that are owned,
leased, held, used or useful in the Company Business and in which the Company or
any of its Subsidiaries has any right, title or interest or in which the Company
or any of its Subsidiaries acquires any right, title or interest on or before
the Closing Date, wherever located, whether known or unknown, and whether or not
now or on the Closing Date on the books and records of the Company or any of its
Subsidiaries, but excluding any of the foregoing, if any, transferred prior to
the Closing pursuant to this Agreement or any Collateral Documents.
"Company Business" means the Film distribution and licensing business
conducted by the Company and its Subsidiaries.
"Company Credit Agreement" means the Credit, Security, Guaranty and
Pledge Agreement, dated December 20, 1996, by and between the Company's
principal operating Subsidiaries, The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank, as amended.
"Company Disclosure Statement" means the disclosure statement delivered
by the Company to Lions Gate concurrently with the execution of this Agreement,
as supplemented pursuant to Section 6.8.
"Company Film Library" means all of the Films in which the Company or
any of its Subsidiaries has any right, title or interest.
2
"Company SEC Filings" means the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999, its quarterly reports on Form 10-Q for each
of the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000
and all other reports filed and to be filed by the Company with the Commission
prior to the Effective Time.
"Company Shareholders" means, as of any particular date, the holders of
Company Capital Stock on that date.
"Completed Film Production Entities" has the meaning provided in Section
6.13 of this Agreement.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan); (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program; or (e) other employee benefit
arrangement or payroll practice.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Encumbrance" means any material mortgage, pledge, lien, encumbrance,
charge, security interest, security agreement, conditional sale or other title
retention agreement, limitation, option, assessment, restrictive agreement,
restriction, adverse interest, restriction on transfer or exception to or
material defect in title or other ownership interest (including restrictive
covenants, leases and licenses).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" means the institution selected by Lions Gate and
approved by the Company to act as exchange agent in accordance with Section
2.6(a).
"Film" means any feature or non-feature motion picture or other
audio-visual work (including but not limited to any Film In Progress or any New
Release), whether produced for theatrical, non-theatrical, home video or
television release or for release in any other medium now known or unknown or
hereafter developed, including any television program or series, in each case
whether recorded on film, video tape, video cassette, cassette, cartridge, disk
or on or by any other means, method, process or device whether now known or
hereafter developed.
"Film Asset Acquisition Agreement" means, with respect to any Person, a
Film Contract pursuant to which that Person has acquired from another Person, or
is obligated to acquire from another Person, all or any of such other Person's
rights in any Film.
3
"Film Asset Exploitation Agreement" means, with respect to any Person, a
Film Contract pursuant to which that Person has granted to another Person, or is
obligated to grant to another Person, all or any part of that Person's rights to
exploit any Film.
"Film Contracts" means, with respect to any Person, all contracts,
agreements, warranties, guaranties, indentures, bonds, options, leases,
subleases, mortgages, licenses, commitments or binding arrangements of any
nature whatsoever, express or implied, written or unwritten, relating to any
Film, and all amendments thereto, entered into or binding upon that Person or to
which any right, title or interest of that Person in any Film may be subject.
"GAAP" means, with respect to the Company and its Subsidiaries, United
States generally accepted accounting principles as in effect from time to time
and, with respect to Lions Gate and its Subsidiaries, Canadian generally
accepted accounting principles as in effect from time to time.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"ITA" means the Income Tax Act (Canada), as amended.
"Legal Requirement" means any statute, ordinance, law, rule, regulation,
code, injunction, judgment, order, decree, ruling, or other requirement enacted,
adopted or applied by any Regulatory Authority, including judicial decisions
applying common law or interpreting any other Legal Requirement.
"Liability" means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Lions Gate Assets" mean all properties, assets, privileges, powers,
rights, interests and claims of every type and description that are owned,
leased, held, used or useful in the Lions Gate Business and in which Lions Gate
or any of its Subsidiaries has any right, title or interest or in which Lions
Gate or any of its Subsidiaries acquires any right, title or interest on or
before the Closing Date, wherever located, whether known or unknown, and whether
or not now or on the Closing Date on the books and records of Lions Gate or any
of its Subsidiaries.
"Lions Gate Business" means the business conducted by Lions Gate and its
Subsidiaries.
"Lions Gate Common Stock" means the no par value common shares of Lions
Gate.
"Lions Gate Credit Agreement" means, collectively, all credit
agreements, loan agreements and other agreements, notes and instruments
providing for each credit facility to which Lions Gate or any of its
Subsidiaries is a party.
"Lions Gate Disclosure Statement" means the disclosure statement
delivered by the Lions Gate Parties to the Company concurrently with the
execution of this Agreement, as supplemented pursuant to Section 7.8.
4
"Lions Gate Film Library" means all of the Films in which Lions Gate or
any of its Subsidiaries has any right, title or interest.
"Lions Gate Preferred Stock" means the 5.25% Convertible Redeemable
Preferred Shares, Series A of Lions Gate.
"Lions Gate Securities Filings" means Lions Gate's annual report on Form
20-F for the year ended March 31, 1999, and all other reports filed and to be
filed with the Commission prior to the Effective Time.
"Market Price" per share of Lions Gate Common Stock on any day means the
average of the Quoted Prices of the Lions Gate Common Stock for the 30
consecutive trading days immediately preceding such day.
"Material Adverse Effect on the Company" means a material adverse effect
on (i) the assets, Liabilities, properties or business of the Company and its
Subsidiaries, taken as a whole, (ii) the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or (iii) the
ability of the Company or any of the Company to perform its obligations under
this Agreement and the Collateral Documents; provided, however, that none of the
following shall constitute a Material Adverse Effect on the Company: (i) the
filing, initiation and subsequent prosecution, by or on behalf of shareholders
of the Company, of litigation that challenges or otherwise seeks damages with
respect to the Merger, this Agreement and/or transactions contemplated thereby
or hereby, (ii) occurrences due to a disruption of the Company's or its
Subsidiaries' businesses as a result of the announcement of the execution of
this Agreement or changes caused by the taking of action required by this
Agreement, (iii) general economic conditions, (iv) any changes generally
affecting the industries in which the Company and its Subsidiaries operate, or
(v) a change in market price or trading volume of Company Common Stock.
"Material Adverse Effect on Lions Gate" means a material adverse effect
on (i) the assets, Liabilities, properties or business of Lions Gate and its
Subsidiaries, taken as a whole, (ii) the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or (iii) the
ability of Lions Gate or any of the Lions Gate Parties to perform its
obligations under this Agreement and the Collateral Documents; provided,
however, that none of the following shall constitute a Material Adverse Effect
on Lions Gate: (i) the filing, initiation and subsequent prosecution, by or on
behalf of shareholders of Lions Gate, of litigation that challenges or otherwise
seeks damages with respect to the Merger, this Agreement and/or transactions
contemplated thereby or hereby, (ii) occurrences due to a disruption of Lions
Gate's or its Subsidiaries' businesses as a result of the announcement of the
execution of this Agreement or changes caused by the taking of action required
by this Agreement, (iii) general economic conditions, (iv) any changes generally
affecting the industries in which Lions Gate and its Subsidiaries operate, or
(v) a change in market price or trading volume of Lions Gate Common Stock.
"Merger Consideration" means the shares of Lions Gate Common Stock and
cash deliverable by Lions Gate in exchange for Company Capital Stock pursuant to
Section 2.7.
5
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course" with reference to a Person means the ordinary course
of business consistent with past practice of that Person and its Subsidiaries
(including with respect to quantity and frequency).
"Permit" means any license, permit, consent, approval, registration,
authorization, qualification or similar right granted by a Regulatory Authority.
"Permitted Liens" means (i) liens for Taxes not yet due and payable or
being contested in good faith by appropriate proceedings; (ii) rights reserved
to any Governmental Authority to regulate the affected property; (iii) statutory
liens of banks and rights of set-off; (iv) as to leased Assets, interests of the
lessors and sublessors thereof and liens affecting the interests of the lessors
and sublessors thereof; (v) inchoate materialmen's, mechanics', workmen's,
repairmen's or other like liens arising in the Ordinary Course; (vi) liens
incurred or deposits made in the Ordinary Course in connection with workers'
compensation and other types of social security; (vii) licenses of trademarks or
other intellectual property rights granted by the Company or Lions Gate, as the
case may be, in the Ordinary Course and not interfering in any material respect
with the Ordinary Course of the business of the Company or Lions Gate, as the
case may be; (viii) as to any Film or related assets, SAG or other union, guild
or similar lien or right against such assets; (ix) as to any liens or other
encumbrances which are customarily incurred in connection with production
financing; and (x) as to real property, any encumbrance, adverse interest,
constructive or other trust, claim, attachment, exception to or defect in title
or other ownership interest (including, but not limited to, reservations, rights
of entry, rights of first refusal, possibilities of reverter, encroachments,
easement, rights-of-way, restrictive covenants, leases, and licenses) of any
kind, which otherwise constitutes an interest in or claim against property,
whether arising pursuant to any Legal Requirement, under any Contract or
otherwise, that do not, individually or in the aggregate, materially and
adversely affect or impair the value or use thereof as it is currently being
used in the Ordinary Course.
"Person" means any natural person, corporation, partnership, trust,
unincorporated organization, association, limited liability company, Regulatory
Authority or other entity.
"Physical Properties" shall mean all physical properties of every kind
or nature of or relating to any Film and all versions thereof, including,
without limitation, exposed film, developed film, positives, negatives, prints,
answer prints, special effects, preparing materials (including interpositives,
negatives, duplicate negatives, internegatives, color reversals, intermediates,
lavenders, fine grain master prints and matrices, and all other forms of
pre-print elements which may be necessary or useful to produce prints or other
copies or additional pre-print elements, whether now known or hereafter
devised), soundtracks, recordings, audio and video tapes and discs of all types
and gauges, cutouts, trims and any and all other physical properties of every
kind and nature relating to any Film in whatever state of completion, and all
duplicates, drafts, versions and copies of each thereof.
The "Quoted Price" of the Lions Gate Common Stock on any day means the
last reported sale price on such day (regular way) of the Lions Gate Common
Stock as reported by the American Stock Exchange.
6
"Regulatory Authority" means: (i) the United States of America; (ii) any
state, commonwealth, territory or possession of the United States of America and
any political subdivision thereof (including counties, municipalities and the
like); (iii) Canada and any other foreign (as to the United States of America)
sovereign entity and any political subdivision thereof; or (iv) any agency,
authority or instrumentality of any of the foregoing, including any court,
tribunal, department, bureau, commission or board.
"Registration Rights Agreement" means the form of registration rights
agreement attached hereto as Exhibit 1.
"Representative" means any director, officer, employee, agent,
consultant, advisor or other representative of a Person, including legal
counsel, accountants and financial advisors.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Subsidiary" of a specified Person means (a) any Person if securities
having ordinary voting power (at the time in question and without regard to the
happening of any contingency) to elect a majority of the directors, trustees,
managers or other governing body of such Person are held or controlled by the
specified Person or a Subsidiary of the specified Person; (b) any Person in
which the specified Person and its Subsidiaries collectively hold a 50% or
greater equity interest; (c) any partnership or similar organization in which
the specified Person or Subsidiary of the specified Person is a general partner;
or (d) any Person the management of which is directly or indirectly controlled
by the specified Person and its Subsidiaries through the exercise of voting
power, by contract or otherwise. For purposes of this Agreement, Subsidiaries of
the Company shall be deemed to include each Subsidiary of William Wesley.
"Superior Offer" means any unsolicited, bona fide written offer made by
a third party to consummate any of the following transactions (other than the
Merger): (i) a merger or consolidation involving the Company which results in a
sale of the Company and its Subsidiaries, as a group, (ii) the acquisition by
any Person or group (including by way of a tender offer or an exchange offer or
a two step transaction involving a tender offer or exchange offer followed with
reasonable promptness by a cash-out merger involving the Company), directly or
indirectly, of ownership of 80% or more of the then outstanding shares of
capital stock of the Company, or (iii) the sale or disposition of all or
substantially all the assets of the Company to a third party, in each case on
terms that the Board of Directors of the Company determines, in its good faith
judgment, to be more favorable to the Company Shareholders than the terms of the
Merger; provided, however, that any such offer shall not be deemed to be a
"Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the good faith
judgment of the Company's board of directors to be obtained by such third party
on a timely basis.
"Tax" means any U.S. or Canadian federal, state, provincial, local or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs duties,
capital, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, intangible property,
recording, occupancy, sales, use, transfer, registration, value added minimum,
7
estimated or other tax of any kind whatsoever, including any interest, additions
to tax, penalties, fees, deficiencies, assessments, additions or other charges
of any nature with respect thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund or
credit or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Top Company Films" means those Films set forth on Exhibit 2.
"Top Lions Gate Films" means the Films set forth on Exhibit 3.
"Treasury Regulations" means regulations promulgated by the U.S.
Treasury Department under the Code.
"Voting Agreement" means the form of voting agreement attached hereto as
Exhibit 4.
1.2 OTHER DEFINITIONS. The following terms shall, when used in this
Agreement, have the meanings assigned to such terms in the Sections indicated.
TERM SECTION
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"Agreement" ................................................... Preamble
"Assumed Tax on Gain".......................................... 10.5
"Assumed Tax Factor"........................................... 10.5
"Canadian Lions Gate Reports" ................................. 4.24
"Certificate of Merger" ....................................... 2.5
"CGCL" ........................................................ 2.9
"Closing" ..................................................... 2.10
"Closing Date" ................................................ 2.10
"Company Capital Stock" ....................................... 2.7(a)
"Company Certificates" ........................................ 2.6(c)
"Company Development Projects" ................................ 3.21
"Company Films in Progress" ................................... 3.20(a)
"Company Financial Statements"................................. 3.9(a)
"Company Non-Film Intellectual Property Rights"................ 3.7(a)
"Company Shareholders' Meeting"................................ 6.13
"Company Termination Fee"...................................... 11.2(b)
"Completed Film Production Entities............................ 6.5(a)
"Current Market Price"......................................... 2.7(a)(ii)
"DGCL"......................................................... 2.1
"Dissenting Shares" ........................................... 2.9
"Effective Time" .............................................. 2.5
"Environmental Laws" .......................................... 3.18
"Five-Year Gain Recognition Agreement.......................... 10.5
"Gross-Up Amount".............................................. 10.5
"Lions Gate Development Projects" ............................. 4.20
"Lions Gate Financial Statements" ............................. 4.21(a)
8
"Lions Gate Merger Registration Statement" .................... 7.5
"Lions Gate Non-Film Intellectual Property Rights" ............ 4.7
"Lions Gate Parties" .......................................... Preamble
"Lions Gate Shareholders' Meeting" ............................ 7.4(a)
"Lions Gate Termination Fee"................................... 11.2(c)
"Material Company Contract" ................................... 3.4
"Material Lions Gate Contract" ................................ 4.4
"Merger" ...................................................... 2.1
"Notice of Superior Offer"..................................... 6.5(c)
"Options" ..................................................... 3.2(c)
"Parties" ..................................................... Preamble
"Section 367 Gain"............................................. 10.5
"Surviving Corporation" ....................................... 2.1
ARTICLE II
BASIC TRANSACTION
2.1 MERGER; SURVIVING CORPORATION. In accordance with and subject to
the provisions of this Agreement and the General Corporation Law of the State of
Delaware ("DGCL"), at the Effective Time, the Company shall be merged with and
into Merger Sub (the "Merger"), and Merger Sub shall be the surviving
corporation in the Merger (hereinafter sometimes called the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Delaware. At the Effective Time, the separate existence of the Company
shall cease. All properties, franchises and rights belonging to the Company and
Merger Sub, by virtue of the Merger and without further act or deed, shall be
vested in the Surviving Corporation, which shall thenceforth be responsible for
all the liabilities and obligations of each of Merger Sub and the Company.
2.2 CERTIFICATE OF INCORPORATION. Merger Sub's certificate of
incorporation, as in effect at the Effective Time, shall be amended and restated
effective at the Effective Time to be as set forth in the Certificate of Merger,
and, as so amended and restated shall thereafter continue in full force and
effect as the certificate of incorporation of the Surviving Corporation until
altered or amended as provided therein or by law.
2.3 BY-LAWS. Merger Sub's by-laws, as in effect at the Effective
Time, shall be the by-laws of the Surviving Corporation until altered, amended
or repealed as provided therein or by law.
2.4 DIRECTORS AND OFFICERS. The directors of Merger Sub prior to the
Effective Time shall continue to serve after the Effective Time, but Lions Gate
shall immediately thereafter take such action as may be necessary to cause those
Persons mutually agreed upon by the Parties to be elected to serve as directors
of the Surviving Corporation. The members of the board of directors of the
Surviving Corporation, as so reconstituted, shall serve thereafter in accordance
with the certificate of incorporation and by-laws of the Surviving Corporation
and the DGCL. The officers of Merger Sub prior to the Effective Time shall
continue to serve as officers of the Surviving Corporation, but Lions Gate
shall, immediately thereafter, cause those Persons mutually agreed upon by the
Parties to be appointed as the officers of the Surviving Corporation.
9
The officers of the Surviving Corporation shall thereafter serve at the pleasure
of the board of directors of the Surviving Corporation in accordance with the
certificate of incorporation and by-laws of the Surviving Corporation and the
DGCL.
2.5 EFFECTIVE TIME. The Merger shall become effective at the time
and date that the certificate of merger (the "Certificate of Merger"), in form
and substance acceptable to the Parties, is accepted for filing by the Secretary
of State of the State of Delaware in accordance with the provisions of Section
251 of the DGCL. The Certificate of Merger shall be executed by the Surviving
Corporation and delivered to the Secretary of State of the State of Delaware for
filing on the Closing Date. The date and time when the Merger becomes effective
are referred to herein as the "Effective Time."
2.6 SURRENDER OF COMPANY CERTIFICATES.
(a) EXCHANGE AGENT. Lions Gate shall engage Chase Mellon
Shareholder Services, LLC, or such other institution as may be
reasonably approved by the Company to act as the Exchange Agent in the
Merger.
(b) LIONS GATE TO PROVIDE MERGER CONSIDERATION. Within five
Business Days prior to the Effective Time, Lions Gate shall make
available to the Exchange Agent for exchange in accordance with this
ARTICLE II at least 95% of (i) the cash component of the Merger
Consideration and (ii) any dividends or distributions to which holders
of shares of the Company Common Stock may be entitled pursuant to
Section 2.6(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Lions Gate shall cause the Exchange Agent to mail to each holder of
record (as of the Effective Time) of a certificate or certificates (the
"Company Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive the Merger Consideration, (i) a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall
pass, only upon delivery of the Company Certificates to the Exchange
Agent and which shall be in such form and have such other provisions as
Lions Gate may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange for the
Merger Consideration, cash in lieu of any fractional shares pursuant to
Section 2.7(d) and any dividends or other distributions pursuant to
Section 2.6(d). Upon surrender of Company Certificates for cancellation
to the Exchange Agent or to such other agent or agents as may be
appointed by Lions Gate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions
thereto, the holders of such Company Certificates shall be entitled to
receive the Merger Consideration in exchange therefor, payment in lieu
of fractional shares which such holders have the right to receive
pursuant to Section 2.7(d) and any dividends or distributions payable
pursuant to Section 2.6(d), and the Company Certificates so surrendered
shall forthwith be canceled. Until so surrendered, outstanding Company
Certificates will be deemed from and after the Effective Time, for all
corporate purposes, subject to Section 2.9, to evidence the ownership of
the number of full shares of Lions Gate Common Stock into which such
shares of the Company Common Stock shall have been so converted and the
right to receive the other Merger Consideration pursuant to Section
2.7(a), the right to receive an amount
10
in cash in lieu of the issuance of any fractional shares in accordance with
Section 2.7(d) and any dividends or distributions payable pursuant to Section
2.6(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Lions Gate Common Stock with a record date
after the Effective Time, will be paid to the holders of any
unsurrendered Company Certificates with respect to the shares of Lions
Gate Common Stock represented thereby until the holders of record of
such Company Certificates shall surrender such Company Certificates.
Subject to applicable law, following surrender of any such Company
Certificates, the Exchange Agent shall deliver to the record holders
thereof, without interest, the Merger Consideration along with payment
in lieu of fractional shares pursuant to Section 2.7(d) hereof and the
amount of any such dividends or other distributions with a record date
after the Effective Time payable with respect to such whole shares of
Lions Gate Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates for shares of
Lions Gate Common Stock are to be issued in a name other than that in
which the Company Certificates surrendered in exchange therefor are
registered, it will be a condition of the issuance thereof that the
Company Certificates so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the persons requesting
such exchange will have paid to Lions Gate or any agent designated by it
any transfer or other taxes required by reason of the issuance of
certificates for shares of Lions Gate Common Stock in any name other
than that of the registered holder of the Company Certificates
surrendered, or established to the satisfaction of Lions Gate or any
agent designated by it that such tax has been paid or is not payable.
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, Lions
Gate and the Surviving Corporation shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement to any holder or former holder of the Company
Common Stock such amounts as may be required to be deducted or withheld
therefrom under the Code or under any provision of state, local or
foreign tax law or under any other applicable laws. To the extent such
amounts are so deducted or withheld, such amounts shall be treated for
all purposes under this Agreement as having been paid to the person to
whom such amounts would otherwise have been paid.
(g) NO LIABILITY. Notwithstanding anything to the contrary
in this Section 2.6, neither the Exchange Agent, Lions Gate, the
Surviving Corporation nor any party hereto shall be liable to any Person
for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Company
Certificate shall not have been surrendered prior to the date
immediately prior to the date on which such property would otherwise
escheat to or become the property of any Governmental or Regulatory
Authority, any such property, to the extent permitted by applicable law,
shall become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(h) TERMINATION. Any property provided to the Exchange Agent
which remains undistributed to holders of the Company Certificates for
120 days after the Effective Time shall be delivered to Lions Gate, upon
demand, and any holders of the Company Certificates who have not
theretofore complied with this ARTICLE II shall thereafter look only
11
to Lions Gate or the Surviving Corporation for, and Lions Gate and the Surviving
Corporation shall remain liable for, payment of their claim for Merger
Consideration, any cash in lieu of fractional shares of Lions Gate Common Stock
and any dividends or distributions with respect to Lions Gate Common Stock,
without interest thereon.
2.7 MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF SECURITIES.
(a) CONVERSION OF COMPANY CAPITAL STOCK. At the Effective
Time of the Merger each of the issued and outstanding shares of the common stock
of the Company, par value of $0.001 per share (the "Company Capital Stock")
outstanding immediately before the Effective Time, other than shares described
in Section 2.7(b) and other than Dissenting Shares, shall be converted, by
virtue of the Merger and without any further action on the part of the holders
thereof, into:
(i) the right to receive U.S. $4.50 in cash; and
(ii) 2 shares of Lions Gate Common Stock; provided,
however, that to the extent the Market Price per share of Lions
Gate Common Stock as of the fifth calendar day prior to the date
of the Company Shareholders' Meeting (and not any adjournment
thereof) ("Current Market Price") is less than U.S. $2.75 per
share, then the number of shares of Lions Gate Common Stock
delivered as part of the Merger Consideration shall be the
result obtained by dividing U.S. $5.50 by the Current Market
Price.
If between the date of this Agreement and the Closing Date, Lions Gate shall
subdivide or combine the outstanding Lions Gate Common Stock or shall declare a
dividend on Lions Gate Common Stock payable in Lions Gate Common Stock (or set a
record date with respect thereto), the number of shares of Lions Gate Common
Stock determined above shall be adjusted to reflect fully the appropriate effect
of any such subdivision, combination or dividend.
(b) TREASURY SHARES, ETC. Each share of Company Capital
Stock held in the treasury of the Company and each share of Company Capital
Stock, if any, held by Lions Gate or any Subsidiary of Lions Gate or of the
Company immediately before the Effective Time shall be cancelled and
extinguished, and nothing shall be issued or paid in respect thereof.
(c) MERGER SUB SHARES. Each share of common stock, par value
U.S. $1.00 per share, of Merger Sub issued and outstanding immediately before
the Effective Time shall remain issued and outstanding, and shall in all other
respects remain unaffected by the Merger.
(d) FRACTIONAL SHARES. No certificates or scrip evidencing
fractional shares of Lions Gate Common Stock shall be issued in exchange for
Company Capital Stock. In lieu of any such fractional shares, each holder of
Company Capital Stock shall be paid an amount in cash (without interest),
rounded upward to the nearest cent, determined by multiplying (i) the Market
Price on the Closing Date of the Lions Gate Common Stock by (ii) the fractional
share of Lions Gate Common Stock to which such holder would otherwise be
entitled (taking into account all shares held of record by such holder at the
Effective Time).
12
2.8 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of shares of Company Capital Stock thereafter on the records of the
Company.
2.9 DISSENTING SHARES. Shares of Company Capital Stock which are
issued and outstanding immediately prior to the Effective Time and which are
held by persons who have properly exercised, and not withdrawn or waived,
appraisal rights with respect thereto in accordance with Section 262 of the DGCL
or Section 1300 of the California General Corporation Law ("CGCL"), as
applicable (the "Dissenting Shares"), will not be converted into the right to
receive the Merger Consideration, and holders of such shares of Company Capital
Stock will be entitled, in lieu thereof, to receive payment of the appraised
value of such shares of Company Capital Stock in accordance with the provisions
of such Section 262 or Section 1300 unless and until such holders fail to
perfect or effectively withdraw or lose their rights to appraisal and payment
under the DGCL or the CGCL. If, after the Effective Time, any such holder fails
to perfect or effectively withdraws or loses such right, such shares of Company
Capital Stock will thereupon be treated as if they had been converted at the
Effective Time into the right to receive the Merger Consideration, without any
interest thereon. The Company will give Lions Gate prompt notice of any demands
received by the Company for appraisal of shares of Company Capital Stock. Prior
to the Effective Time, the Company will not, except with the prior written
consent of Lions Gate make any payment with respect to, or settle or offer to
settle, any such demands.
2.10 CLOSING. The closing of the transactions contemplated by this
Agreement and the Collateral Documents ("Closing") shall take place at the
offices of Loeb & Loeb LLP, 10100 Santa Monica Boulevard, Suite 2100, Los
Angeles, California 90067, or at such other location as the parties may agree,
at 8:00 a.m., Pacific Daylight Time, on a Business Day specified by Lions Gate
that may be on, but shall not be more than five Business Days after, all
conditions precedent to the Closing set forth in ARTICLE VIII and ARTICLE IX
have been satisfied or waived, or on such other date and at such other time as
the Parties may agree, provided that all such conditions precedent have been
satisfied or waived. The date on which the Closing actually occurs is referred
to herein as the "Closing Date."
2.11 TREATMENT OF CERTAIN OUTSTANDING OPTIONS.
(a) At the Effective Time, Lions Gate will not assume the
Company's obligations under any of the Options described in Section
3.2(c)(i) of the Company Disclosure Schedule and the Company shall cause
all such Options to terminate, without liability to Lions Gate or the
Surviving Corporation. Lions Gate shall cooperate with the Company so as
to enable Persons who desire to exercise such Options prior to the
Effective Time (which exercise may be deemed to occur immediately prior
to and conditioned upon the Merger) to effect a complete or partial
"cashless exercise" utilizing the Merger Consideration payable with
respect to the Company Shares received (or to be received) upon the
exercise of such Options to pay for both the exercise price of the
Options and any required withholding amounts, provided that the cash
component of the Merger Consideration shall be first applied to the
withholding and then to the exercise price of the Options.
13
(b) The Board of Directors or compensation committee of the
Company and Lions Gate shall each grant all approvals and take all other
actions required pursuant to Rules 16b-3(d) and 16b-3(e) under the
Exchange Act to cause the disposition in the Merger of the Company
Common Stock and Options and the acquisition in the Merger of Lions Gate
Common Stock to be exempt from the provisions of Section 16(b) of the
Exchange Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Lions Gate that the statements
contained in this ARTICLE III are correct and complete as of the date of this
Agreement and, except as provided in Section 8.1, will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout ARTICLE III, except in the
case of representations and warranties stated to be made as of the date of this
Agreement or as of another date and except for changes contemplated or permitted
by this Agreement).
3.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and each Subsidiary of the Company is a business organization
of the type described in Section 3.1 of the Company Disclosure Statement and is
duly organized, validly existing and in good standing under the laws of the
state identified in Section 3.1 of the Company Disclosure Statement. All of the
Company's Subsidiaries are identified in Section 3.1 of the Company Disclosure
Statement. The Company has, and each of its Subsidiaries has, all requisite
power and authority to own, lease and use its assets as they are currently
owned, leased and used and to conduct its business as it is currently conducted.
The Company is, and each of its Subsidiaries is, duly qualified or licensed to
do business in and is in good standing in each jurisdiction in which the
character of the properties owned, leased or used by it or the nature of the
activities conducted by it make such qualification necessary, all of which are
identified in Section 3.1 of the Company Disclosure Statement, except any such
jurisdiction where the failure to be so qualified or licensed would not have a
Material Adverse Effect on the Company or a material adverse effect on the
validity, binding effect or enforceability of this Agreement or the Collateral
Documents or the ability of the Company to perform its obligations under this
Agreement or any of the Collateral Documents.
3.2 CAPITALIZATION.
(a) The authorized, issued and outstanding capital stock and
other ownership interests of the Company and each of its Subsidiaries (including
all options and warrants to acquire capital stock of the Company and any
Subsidiary) as of June 1, 2000 are fully and accurately described in Section
3.2(a) of the Company Disclosure Statement.
(b) All of the issued and outstanding ownership interests in
each Subsidiary of the Company are owned, beneficially and of record, by the
Persons set forth in Section 3.2(b) of the Company Disclosure Statement, in the
numbers and percentages set forth therein, and no other Person has any right,
title or interest, whether legal or equitable, in said ownership interests
14
(except to the extent the Shareholders' ownership of the Company could be deemed
to constitute beneficial ownership of the Company's Subsidiaries).
(c) Section 3.2(c)(i) of the Company Disclosure Statement
lists as of June 1, 2000 all outstanding or authorized options, warrants,
purchase rights, preemptive rights or other contracts or commitments that could
require the Company or any of its Subsidiaries to issue, sell, or otherwise
cause to become outstanding any of its capital stock or other ownership
interests (collectively "Options"). Except as described in Section 3.2(c)(ii) of
the Company Disclosure Statement, there are no authorized or outstanding stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company or any of its Subsidiaries, and no rights described in
Section 3.2(c)(ii) of the Company Disclosure Statement will be outstanding at
the time of the Closing.
(d) All of the issued and outstanding shares of Company
Capital Stock, and all outstanding ownership interests of each of the Company's
Subsidiaries, have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable (with respect to Subsidiaries that are
corporations) and have been issued in compliance with applicable securities laws
and other applicable Legal Requirements, and all of the outstanding ownership
interests of each of the Company's Subsidiaries are subject to no Encumbrances
other than under the Company Credit Agreement, or transfer restrictions under
applicable securities laws except as described in Section 3.2(d) of the Company
Disclosure Statement.
3.3 AUTHORITY AND VALIDITY. The Company has all requisite corporate
power to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement (subject to the
approval of the Company Shareholders as contemplated by Section 6.5 and to
receipt of any consents, approvals, authorizations or other matters referred to
in Section 6.4). The execution and delivery by the Company of, the performance
by the Company of its obligations under, and the consummation by the Company of
the transactions contemplated by, this Agreement have been duly authorized by
all requisite action of the Company (subject to the approval of the Company
Shareholders as contemplated by Section 6.5). This Agreement has been duly
executed and delivered by the Company and (assuming due execution and delivery
by the Lions Gate Parties) is the legal, valid, and binding obligation of the
Company, enforceable against it in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles. Upon the
execution and delivery of the Collateral Documents by each Person (other than
the Lions Gate Parties) that is required by this Agreement to execute, or that
does execute, this Agreement or any of the Collateral Documents, and assuming
due execution and delivery thereof by the Lions Gate Parties, the Collateral
Documents will be the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
3.4 NO BREACH OR VIOLATION. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons identified in the
exceptions to Section 3.5, the execution,
15
delivery and performance by the Company of this Agreement and the Collateral
Documents to which it is a party, and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms and conditions
hereof and thereof, do not and will not conflict with, constitute a violation or
breach of, constitute a default or give rise to any right of termination or
acceleration of any right or obligation of the Company under, or result in the
creation or imposition of any Encumbrance upon the Company, any of its
Subsidiaries, the Company Assets, the Company Business or the Company Capital
Stock by reason of the terms of (i) the certificate of incorporation, by-laws or
other charter or organizational document of the Company or any Subsidiary of the
Company, (ii) any material contract, agreement, lease, indenture or other
instrument to which the Company or any Subsidiary of the Company is a party or
by or to which the Company, any Subsidiary of the Company or the Assets may be
bound or subject and a violation of which would result in a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole (a "Material Company
Contract"), (iii) any order, judgment, injunction, award or decree of any
arbitrator or Regulatory Authority or any statute, law, rule or regulation
applicable to the Company or any Subsidiary of the Company or (iv) any Permit of
the Company or any Subsidiary of the Company, which in the case of (ii), (iii)
or (iv) above would have a Material Adverse Effect on the Company or a material
adverse effect on the validity, binding effect or enforceability of this
Agreement or the Collateral Documents or the ability of the Company to perform
its obligations under this Agreement or any of the Collateral Documents.
3.5 CONSENTS AND APPROVALS. Except for (i) requirements under the
Exchange Act, the HSR Act, the NASDAQ Stock Market and the Company Credit
Agreement, and (ii) requirements described in Section 3.5 of the Company
Disclosure Statement, no consent, approval, authorization or order of,
registration or filing with, or notice to, any Regulatory Authority or any other
Person is necessary to be obtained, made or given by the Company or any of its
Subsidiaries in connection with the execution, delivery and performance by them
of this Agreement or any Collateral Document or for the consummation by them of
the transactions contemplated hereby or thereby, except to the extent the
failure to obtain any such consent, approval, authorization or order or to make
any such registration or filing would not have a Material Adverse Effect on the
Company or a material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or the ability of
the Company to perform its obligations under this Agreement or any of the
Collateral Documents.
3.6 TITLE TO NON-FILM ASSETS. With respect to all assets and
properties of the Company other than Films:
(a) The Company does not own any real property. Section 3.6
of the Company Disclosure Statement includes an accurate and complete
description of (i) all real property leased by the Company or any of its
Subsidiaries (identifying the lessee and the lessor and describing the term and
the payment terms) and (ii) each place of business of the Company or any of its
Subsidiaries. The Company and its Subsidiaries have good title to the material
Company Assets, free and clear of any and all Encumbrances, except (A)
Encumbrances arising under the Company Credit Agreement, (B) the matters
described in Section 3.6 of the Company Disclosure Statement (all of which will
have been discharged at or before the Closing unless otherwise indicated in
Section 3.6 of the Company Disclosure Statement), (C) Permitted Liens, and (D)
Encumbrances on property that would not have a Material Adverse Effect on the
16
Company or a material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or the ability of
the Company to perform its obligations under this Agreement or any of the
Collateral Documents.
(b) Except as provided by this Agreement, and except as
described in Section 3.2 or 3.6 of the Company Disclosure Statement, no Person
has any right to acquire, directly or indirectly, any interest in any of the
Company's Subsidiaries or any material Company Assets, and there is no agreement
to which the Company, any Subsidiary of the Company or any of their Affiliates
is a party or is otherwise bound relating to the foregoing.
3.7 NON-FILM INTELLECTUAL PROPERTY.
(a) Section 3.7 of the Company Disclosure Statement sets
forth a true and complete list of all registered patents, trademarks, copyrights
and applications therefor relating to assets and properties of the Company other
than Films or matters relating to Films owned by or registered in the name of
the Company or any of its Subsidiaries, or in which the Company or any of its
Subsidiaries has any right, license or interest (the "Company Non-Film
Intellectual Property Rights"). Except as set forth in Section 3.7 of the
Company Disclosure Statement, the Company is not a party to any material license
agreement, either as licensor or licensee, with respect to any Company Non-Film
Intellectual Property Rights. To the knowledge of the Company, the Company or
one of its subsidiaries has good title to or the right to use all material
Company Non-Film Intellectual Property Rights and all material inventions,
processes, designs, formulae, trade secrets and know-how necessary for the
operation of the Company Business without the payment of any royalty or similar
payment.
(b) To the knowledge of the Company, neither the Company nor
any of its Subsidiaries has in its operation of the Company Business infringed
upon, and the operation of the Business as currently conducted does not infringe
upon, any patents, copyrights, trade names, trademarks or service marks of third
parties, except to the extent any such infringement would not have a Material
Adverse Effect on the Company or a material adverse effect on the validity,
binding effect or enforceability of this Agreement or the Collateral Documents
and neither the Company nor any of its Subsidiaries has received any charge,
complaint, claim, demand or notice alleging such infringement. To the knowledge
of the Company, no third party has infringed upon any Company Non-Film
Intellectual Property Rights.
3.8 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as described in
Section 3.8 of the Company Disclosure Statement, the Company and its
Subsidiaries have operated the Company Business in compliance with all Legal
Requirements applicable to the Company and its Subsidiaries except to the extent
the failure to operate in compliance with all material Legal Requirements would
not have a Material Adverse Effect on the Company. Except as described in
Section 3.8 of the Company Disclosure Statement, no action, suit, proceeding,
hearing or investigation has been commenced or, to the Company's knowledge,
threatened, and no charge, complaint, claim, demand or notice has been filed,
against the Company or any of its Subsidiaries alleging any failure to so
comply.
3.9 FINANCIAL AND OTHER INFORMATION.
17
(a) The historical financial statements (including the notes
thereto) ("Company Financial Statements") contained in the Company SEC Filings
have been prepared in all material respects in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated in the notes thereto) and present fairly in all material respects the
financial condition of the Persons reported on and their results of operations
as of the dates and for the periods indicated (except as may be indicated in the
notes thereto), subject in the case of the unaudited financial statements only
to normal year-end adjustments (none of which will be material in amount) and
the omission of footnotes. Lions Gate acknowledges and agrees that Company makes
no representation, directly or indirectly, hereby or otherwise with respect to
the impact of the May 2000 amendments to FASB 53.
(b) The Company has filed each Company SEC filing which it
was required to file with the SEC, except to the extent the failure to make such
filing would not have a Material Adverse Effect on the Company or a material
adverse effect on the validity, binding effect or enforceability of this
Agreement or the Collateral Documents or on the ability of the Company or any of
the Company to perform its obligations under this Agreement or the Collateral
Documents. The Company SEC Filings did not, as of their filing dates contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were or will be made, not misleading. The Company
SEC filings when filed materially complied with all then applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated by the SEC thereunder.
(c) No written information concerning the Company, its
Subsidiaries or its Company Shareholders furnished to Lions Gate by the Company
specifically for inclusion in the Lions Gate Registration Statement will at the
time provided, or as of any later time confirmed in writing by any such Person,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were or will be made, not
misleading.
3.10 SUBSEQUENT EVENTS. Except as set forth in Section 3.10 of the
Company Disclosure Statement, or to the extent consented to in writing by Lions
Gate, since March 31, 2000, except as disclosed in Company SEC Filings prior to
the date hereof: (i) neither the Company nor any of its subsidiaries has sold,
leased, transferred or assigned any of its material Company Assets outside of
the Ordinary Course; (ii) no third party has accelerated, terminated, modified
or canceled any material agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) relating to the Company, any
of its Subsidiaries or the Company Business; (iii) neither the Company nor any
of its Subsidiaries has imposed or permitted the imposition of any Encumbrance
(other than Permitted Liens) upon any of the rights of the Company or its
Subsidiaries in its material Assets outside of the Ordinary Course; (iv) neither
the Company nor any of its Subsidiaries has made any material capital investment
in, any loan to, or any Acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans or Acquisitions) other
than loans to or investments in Subsidiaries of the Company; (v) neither the
Company nor any of its Subsidiaries has delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course in excess of
$100,000 (exclusive of matters being contested in good faith); (vi) neither the
Company nor any of its Subsidiaries has canceled, compromised, waived or
released any rights or claims outside
18
the Ordinary Course involving more than the reasonable approximation of $100,000
in the aggregate; and (vii) neither the Company nor any of its Subsidiaries have
committed to any of the foregoing. Since March 31, 2000, there has not been any
other occurrence, event, incident, action, failure to act or transaction
involving the Company or any of its Subsidiaries which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
3.11 UNDISCLOSED LIABILITIES.
(a) As of the date of this Agreement, neither the Company
nor any of its Subsidiaries has any Liability, except for (i) Liabilities
reflected, accrued or reserved against in the Company Financial Statements as of
March 31, 2000 or the notes thereto or disclosed in the Company SEC Filings,
(ii) Liabilities incurred after March 31, 2000 in the Ordinary Course, (iii)
Liabilities incurred after March 31, 2000 under the Company Credit Agreement to
finance expenditures not prohibited by this Agreement, (iv) Liabilities
disclosed in Section 3.11 of the Company Disclosure Statement and (v)
Liabilities incurred in connection with this Agreement.
(b) As of the Closing Date, neither the Company nor any of
its Subsidiaries will have any Liability, except for (i) Liabilities reflected,
accrued or reserved against in the Company Financial Statements as of March 31,
2000, or the notes thereto, (ii) current Liabilities incurred after March 31,
2000, in the Ordinary Course, (iii) Liabilities incurred after March 31, 2000,
under the Company Credit Agreement to finance expenditures not prohibited by
this Agreement, (iv) Liabilities disclosed in Section 3.11 of the Company
Disclosure Statement, and (v) liabilities incurred in connection with this
Agreement.
3.12 LEGAL PROCEEDINGS. Except as set forth in Section 3.12 of the
Company Disclosure Statement, (i) there are no outstanding judgments or orders
against or otherwise affecting or related to the Company, any of its
Subsidiaries, the Company Business or the Company Assets; (ii) there is no
action, suit, complaint, proceeding or investigation, judicial, administrative
or otherwise, that is pending or, to the Company's knowledge, threatened that,
if adversely determined, would have a Material Adverse Effect on the Company or
a material adverse effect on the validity, binding effect or enforceability of
this Agreement or the Collateral Documents.
3.13 TAXES. The Company has, and each of its Subsidiaries has, duly
and timely filed in proper form all Tax Returns for all Taxes required to be
filed with the appropriate Regulatory Authority, except where such failure would
not have a Material Adverse Effect on the Company. All Taxes due and payable by
the Company and any of its Subsidiaries (or claimed to be due and payable) have
been paid (regardless whether Tax Returns relating to such Taxes have been duly
and timely filed or, if filed, regardless whether such Tax Returns are
deficient), except such amounts as (i) are not in the aggregate material or (ii)
are being contested diligently and in good faith by appropriate proceedings and
for which there are adequate reserves in the Company Financial Statements. The
Company has furnished to Lions Gate true and correct copies of all income Tax
Returns filed by it or any of its Subsidiaries in the past three years, all of
which are accurate and complete in all material respects. Except as set forth in
Section 3.13 of the Company Disclosure Statement, there are no pending Tax
audits, claims or proceedings relating to the Company any of its Subsidiaries,
the Company Assets or the Company Business or income
19
therefrom. Neither the Company nor any of its Subsidiaries has agreed to any
waiver or extension of any statute of limitations relating to any Tax. Except as
set forth in Section 3.13 of the Company Disclosure Statement, neither the
Company nor any of its Subsidiaries is a: (i) member of a partnership, joint
venture or other entity that may allocate income or Taxes to any of its members
or (ii) party to any joint filing arrangement with any third party. Neither the
Company nor any of its Subsidiaries is liable for any Tax of any other Person
(other than the Company or a Subsidiary being acquired by Lions Gate in the
Merger). Neither the Company nor any of its Subsidiaries has an outstanding
power of attorney authorizing any Person to act on its behalf in connection with
any Tax or Tax Return. Neither the Company nor any of its Subsidiaries has an
outstanding closing agreement, request for a ruling or determination, request
for a change in method of accounting, subpoena or request for information with
or by any Regulatory Authority with respect to any Tax or Tax return. Neither
the Company nor any of its Subsidiaries is required to include any adjustment
under Section 481 of the Code or any corresponding provision of any Legal
Requirement in income for any period ending after March 31, 2000.
3.14 EMPLOYEE BENEFITS; EMPLOYEES. All Employee Benefit Plans
maintained or contributed to by the Company are set forth in Section 3.14 of the
Company Disclosure Statement. Except as set forth in Section 3.14 of the Company
Disclosure Statement:
(a) To the extent applicable, all such Employee Benefit
Plans are, and have been at all times since their establishment, qualified for
federal income tax purposes under Code Section 401(a) and the related trusts
are, and have been at all times since their establishment, exempt from federal
income tax under Code Section 501(a). All such Employee Benefit Plans are in
compliance in all material respects with all applicable provisions of ERISA,
including, but not limited to, the applicable reporting and disclosure
requirements, as they relate to such plans, and the Company is not subject to
any Liabilities based on past non-compliance, if any except to the extent such
Liabilities would not have a Material Adverse Effect on the Company. Lions Gate
and Merger Sub are not presently required under ERISA, the Code, any collective
bargaining agreement or any other agreement to maintain or to continue to
contribute to any Employee Benefit Plan maintained or contributed to by the
Company.
(b) The Company has made all required contributions under
each Employee Benefit Plan listed in Section 3.14 of the Company Disclosure
Statement for all periods through and including the fiscal year ended June 30,
1999, and has made all required contributions for subsequent periods or has
provided adequate accruals therefor in the Company Financial Statements, except
to the extent the failure to make such contributions or accruals would not have
a Material Adverse Effect on the Company.
(c) There is not now, and has not been, any violation of the
Code or ERISA with respect to the filing of applicable reports, documents, and
notices regarding the Employee Benefit Plans maintained or contributed to by the
Company with the Secretary of Labor and the Secretary of the Treasury or the
furnishing of such documents to the participants or beneficiaries of the
Employee Benefit Plans, except to the extent such violation would not have a
Material Adverse Effect on the Company.
20
(d) No fiduciary or other party in interest with respect to
any of the Employee Benefit Plans maintained or contributed to by the Company
has caused any of such plans to engage in a "prohibited transaction," as defined
in ERISA Section 406.
(e) The Company has never been obligated to contribute to
any Multiemployer Plan to any benefit or pension plan or arrangement involving
employees or service providers who do not ordinarily report for work within the
United States, other than plans established by unions, guilds or similar Persons
in connection with the motion picture industry.
(f) There has been no violation of the "continuation
coverage requirements" of "group health plans" as set forth in Code Section
4980B and Part 6 of Subtitle B of Title I of ERISA or the "HIPAA" requirements
as set forth in Code Sections 9801 and 9802 and Part 7 of Subtitle B of ERISA
with respect to any Employee Benefit Plan maintained by the Company to which
such requirements apply.
(g) The Company does not maintain retiree life and retiree
health insurance plans which are Employee Welfare Benefit Plans providing for
continuing benefits or coverage for any employee or any beneficiary of any
employee after such employee's termination of employment (except to the extent
such continued coverage is required by Code Section 4980B and Part 6 of Subtitle
B of Title I of ERISA).
(h) Prior to the Closing, the Company will not establish or
create any new Employee Benefit Plan, except with the consent of Lions Gate, nor
will the Company amend or modify as to any benefit or in any other way any
existing Employee Benefit Plan, except with the consent of Lions Gate.
(i) The Company does not maintain and is not obligated to
contribute to any Employee Benefit Plan that is a defined benefit plan, and has
not maintained and has not been obligated to contribute to such a plan within
the last six years.
(j) "Company," as used in subsections (a) through (i) of
this Section 3.14 shall include any other entity required to be aggregated with
the Company under Sections 414(b), 414(c), 414(m), or 414(o) of the Code and the
regulations thereunder.
(k) Except as set forth in Section 3.14 of the Company
Disclosure Statement, there are no collective bargaining agreements applicable
to any Persons employed by the Company or any of its Subsidiaries, and to the
knowledge of the Company the Company and its Subsidiaries have no duty to
bargain with any labor organization with respect to any such Person. There are
not pending any unfair labor practice charges against the Company or any of its
Subsidiaries, nor is there any demand for recognition, or any other request or
demand from a labor organization for representative status with respect to any
Person employed by the Company or any of its Subsidiaries.
(l) The Company and its Subsidiaries are in substantial
compliance with all applicable Legal Requirements respecting employment
conditions and practices, have withheld all amounts required by any applicable
Legal Requirements or Contracts to be withheld from the wages or salaries of
their employees, and are not liable for any arrears of wages or any Taxes or
21
penalties for failure to comply with any of the foregoing, except to the extent
the failure to withhold any such amounts would not have a Material Adverse
Effect on the Company.
(m) The Company and its Subsidiaries have not engaged in any
unfair labor practice within the meaning of the National Labor Relations Act and
have not violated any Legal Requirement prohibiting discrimination on the basis
of race, color, national origin, sex, religion, age, marital status, or handicap
in their employment conditions or practices, except where such violations would
not have a Material Adverse Effect on the Company. There is not pending or, to
the best of the Company's knowledge, threatened any discrimination complaint
relating to race, color, national origin, sex, religion, age, marital status, or
handicap against the Company or any of its Subsidiaries before any Regulatory
Authority.
3.15 MATERIAL COMPANY CONTRACTS. Except as set forth in Section 3.15
of the Company Disclosure Statement:
(a) Each Material Company Contract is legal, valid, binding,
enforceable and in full force and effect;
(b) Subject to obtaining any consent referred to in Section
3.4 or disclosed in Section 3.4 of the Company Disclosure Schedule, the
transactions contemplated by this Agreement will not prevent the Material
Company Contract from continuing to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; and
(c) Neither the Company nor any of its Subsidiaries, nor, to
the knowledge of the Company, any other party thereto, is in material breach or
default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination, modification or
acceleration, under the Material Company Contract.
3.16 BOOKS AND RECORDS. The books and records of the Company and its
Subsidiaries accurately and fairly represent the Company Business and its
results of operations in all material respects. All accounts receivable and
inventory of the Company Business are reflected properly on such books and
records in all material respects.
3.17 INSURANCE. Except as set forth in Section 3.17 of the Company
Disclosure Statement, the Company has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of the Company and its Subsidiaries. As of the
date of this Agreement, there is no material claim pending under any of such
policies or bonds as to which coverage has been denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and the Company
subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. Except as set forth in Section 3.17 of the Company
Disclosure Statement, the Company has no knowledge of any threatened termination
of any such policies.
3.18 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.18 of
the Company Disclosure Statement, neither the Company nor any of the Company
Subsidiaries has violated any environmental, safety or similar law or regulation
applicable to its business or property
22
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or waste, pollutants or contaminants
("Environmental Laws"), lacks any permits, licenses or other approvals required
of them under applicable Environmental Laws or is violating any term or
condition of any such permit, license or approval, except in each case as would
not, individually or in the aggregate, result in a Material Adverse Effect on
the Company.
3.19 MATTERS REGARDING THE COMPANY FILM LIBRARY.
(a) Section 3.19(a) of the Company Disclosure Statement sets
forth a true and correct list of substantially all of the Films in the Company
Film Library, specifying for each Top Company Film the territory, term and media
for which the applicable rights are held. The Company and/or its Subsidiaries
hold all such rights as are necessary for the distribution, exhibition and
exploitation of the Top Company Films in the territories, in the media, and for
the term indicated in Section 3.19(a) of the Company Disclosure Statement
without, to the Company's knowledge, infringing or violating any laws or rights
of third parties. Neither the Company nor any of its Subsidiaries has engaged in
television series production or is contractually obligated to engage in
television series production or has acquired, or is contractually obligated to
acquire, other than with respect to its video distribution business, any rights
in any produced television series or episode thereof.
(b) Section 3.19(b) of the Company Disclosure Statement sets
forth a true, correct and complete list of all agreements granting any equity or
income stream interest (other than talent or producer participations) in any Top
Company Film or any other Film listed on Exhibit 5 to this Agreement, and all
film production financing agreements (other than agreements regarding television
licensing fees or producer participations) with parties other than financial
institutions, to which the Company or any of its Subsidiaries is a party.
Section 3.19(b) of the Company Disclosure Statement also sets forth a true,
correct and complete list of: (i) all Film Asset Exploitation Agreements between
the Company or any of its Subsidiaries and any video wholesale distributor or
involving any video sharing arrangement; and (ii) all Film Asset Exploitation
Agreements to which the Company or any of its Subsidiaries is a party which
constitute original license agreements, or require the Company or any of its
Subsidiaries to transfer rights to or to deliver Physical Properties, with
respect to any Film that is not: (A) in the Company Film Library; or (B) as of
the date of this Agreement, a Film with respect to which the Company or one of
its Subsidiaries has executed a binding acquisition agreement, but with respect
to which the Company's or such Subsidiary's rights have not yet vested because
it has not yet paid in full the fixed purchase price or minimum guarantee; or
(C) a Company Development Project.
(c) Except as set forth in Section 3.19(c) of the Company
Disclosure Statement, each Film Asset Acquisition Agreement with respect to a
Top Company Film to which the Company or any of its Subsidiaries is a party is
the valid and binding obligation of each party thereto, enforceable in
accordance with its terms and is in full force and effect; to the Company's
knowledge, no party to any such Film Asset Acquisition Agreement or has breached
any provision of or is in default under the terms of any such agreement (other
than failures to deliver music licenses in cases in which the Company or its
applicable Subsidiary has withheld payment of a portion of the fixed
compensation or minimum guarantee to cover the delivery of
23
such music licenses); and the consummation of the transactions contemplated by
this Agreement will not give any party the right to terminate, or result in the
termination of, any such agreement.
(d) Except as set forth in Section 3.19(d) of the Company
Disclosure Statement, the Company and each of its Subsidiaries has casualty
insurance and errors and omissions insurance with an independent carrier
covering the Films in the Company Film Library, in each case to the extent and
in the manner customary for companies engaged in a similar business or owning
similar assets. Section 3.19(d) of the Company Disclosure Statement is a true,
complete and correct list of all casualty and errors and omissions insurance
policies maintained by the Company or any of its Subsidiaries with respect to
the Films in the Company Film Library (other than policies covering a single
Film). The Company's umbrella errors and omissions insurance policies provide
that, immediately upon the expiration of the single film errors and omissions
policy with respect to any Film produced or acquired by the Company or any of
its Subsidiaries, coverage under the Company's umbrella errors and omissions
policies is extended to cover such Films. Except as disclosed in Section 3.19(d)
of the Company Disclosure Statement, no insurance claims in an amount exceeding
$30,000 have been made and are currently outstanding and unsettled as of the
date of this Agreement on the producer's errors and omissions policies that the
Company or any of its Subsidiaries maintained or maintains with respect to the
Films in the Company Film Library.
(e) Section 3.19(e) of the Company Disclosure Statement sets
forth a true, correct and substantially complete list of the locations of all of
the Physical Properties in which the Company or any of its Subsidiaries has any
right, title or interest relating to any of the Top Company Films. There are no
other locations of any such Physical Properties, and, except as disclosed on
Section 3.19(e) of the Company Disclosure Statement, all amounts due from the
Company or its Subsidiaries to the laboratories in respect of such Physical
Properties have been paid in full, except in the ordinary course of business.
The Company and its Subsidiaries have in their possession, or have access
pursuant to written agreements with laboratories to, sufficient positive print,
preprint and sound materials relating to each Top Company Film to enable them to
distribute, exhibit, exploit and license the distribution and exhibition rights
in such Top Company Films and to fulfill the delivery requirements under all
Film Asset Exploitation Agreements with respect to the Top Company Films. All
Physical Properties in which the Company or any of its Subsidiaries has any
right, title or interest relating to Top Company Films are of a commercially
acceptable quality suitable for the making of commercially reasonable sound
materials, prints, tapes and other material (including, but not limited to,
interpositives and internegatives, where available) and dubbed and subtitled
versions thereof suitable for use in the exploitation of the rights in the Top
Company Films by all means and in all media.
(f) The respective rights, titles and interests of the
Company or its Subsidiaries in and to the Top Company Films are free and clear
of all Encumbrances, other than Encumbrances set forth in Section 3.19(f) of the
Company Disclosure Statement; Encumbrances in favor of the Company's line
lender; Encumbrances in favor of the production financier or completion
guarantor with respect to such Top Company Film; Encumbrances in favor of a
motion picture talent guild or film laboratory; and Encumbrances granted to
licensors or licensees of rights with respect to such Top Company Film in the
ordinary course of business.
24
(g) Except as disclosed in Section 3.19(g) of the Company
Disclosure Statement, neither the Company nor any of its Subsidiaries has
received any notice that any other party thereto intends to cancel, terminate or
repudiate any of the Film Asset Acquisition Agreements relating to any Top
Company Film to which the Company or any of its Subsidiaries is a party.
(h) Other than as disclosed in Section 3.19(h) of the
Company Disclosure Statement, all advances and guarantees payable prior to the
date hereof by the Company or any of its Subsidiaries in connection with the Top
Company Films have been fully paid, all other obligations of the Company and its
Subsidiaries in connection with the Top Company Films required to be performed
prior to the date of execution of this Agreement (including, without limitation,
delivery obligations) have been fully performed, and there is no condition or
event which, upon notice or lapse of time or both, would constitute a breach or
default by the Company or any of its Subsidiaries relating to any of such Top
Company Films.
(i) Each of the Top Company Films is protected by copyright
under the laws of the United States (either under the United States Copyright
Act or under the applicable similar statutory regime of such Film's country of
origin) to the maximum extent permitted by such laws, and good and sufficient
notice of such copyright is affixed to each such Top Company Film.
(j) To the Company's knowledge, no Film in the Company Film
Library, nor any part thereof, nor any of the literary, dramatic or musical
material contained therein or upon which any such Film is based, nor the
exercise by any authorized person or entity of any right granted to the Company
or any of its Subsidiaries in connection therewith, will violate or infringe
upon the trademark, service mark, tradename, copyright, literary, dramatic,
music, artistic, personal, private, civil, contract or property right or rights
of privacy or any other right, whether tangible or intangible, of any Person.
(k) Section 3.19(k) of the Company Disclosure Schedule sets
forth a true, correct and complete list of: (i) each Film in the Company Film
Library with respect to which, to the Company's knowledge, any Person has
received a Canadian content certification from the Canadian Audio Visual
Certification Office; (ii) the amount of the estimated Canadian Production Tax
Credit or the comparable tax credit of any Canadian province received or to be
received in connection with such Film; and (iii) the year in which such Film was
delivered (if applicable).
3.20 FILMS IN PROGRESS.
(a) Section 3.20(a) of the Company Disclosure Statement sets
forth for the Company and its Subsidiaries a complete list as of the date of
this Agreement of all Films (i) currently in scheduled pre-production where
talent other than writers are receiving compensation, principal photography or
post-production; or (ii) which the Company or any of its Subsidiaries has
entered into a Film Asset Acquisition Agreement to acquire under which more than
$200,000 of the acquisition price remains outstanding and unpaid as of the date
of this Agreement, but which have not yet been delivered to the Company or its
applicable Subsidiary pursuant thereto (collectively, the "Company Films In
Progress"), together with the amount
25
payable (or which may become payable) by the Company or any of its Subsidiaries
pursuant to any Film Asset Acquisition Agreement with respect to any Company
Film In Progress. The Company Financial Statements accurately reflect all
obligations of the Company or any of its Subsidiaries in connection with the
financing of production, print and advertising, or minimum guarantee or other
acquisition costs of any of the Company Films in Progress.
(b) Except as disclosed in Section 3.20(b) of the Company
Disclosure Statement, each Company Film In Progress that is a feature-length
motion picture is being produced in color, will if released theatrically in the
United States, be released (or will be capable of being edited to be released)
with a rating that is not more restrictive than the current rating equivalent to
an "R" under the present system or its equivalent rating under any successor
system, and is being produced primarily in the English language.
(c) The Company or one of its Subsidiaries has (or will by
the commencement of principal photography have) in effect film negative casualty
and errors and omissions insurance coverage relating to each Company Film In
Progress.
3.21 DEVELOPMENT PROJECTS. Section 3.21 of the Company Disclosure
Statement identifies all material projects in development by or on behalf of the
Company and its Subsidiaries (the "Company Development Projects").
3.22 BROKERS OR FINDERS. Except as disclosed in Section 3.22 of the
Company Disclosure Statement, no broker or finder has acted directly or
indirectly for the Company, the Company or any of its Affiliates in connection
with the transactions contemplated by this Agreement, and neither the Company,
the Company nor any of its Affiliates has incurred any obligation to pay any
brokerage or finder's fee or other commission in connection with the transaction
contemplated by this Agreement.
3.23 FAIRNESS OPINION. Salem Partners LLC has rendered an oral
opinion to the Board of Directors of the Company (to be followed by a written
opinion) that the consideration to be received by the holders of the Company
Capital Stock in the Merger is fair, from a financial point of view, to such
holders.
3.24 DISCLOSURE. No representation or warranty of the Company in this
Agreement or in the Collateral Documents and no statement in any certificate
furnished or to be furnished by the Company pursuant to this Agreement
contained, contains or will contain on the date such agreement or certificate
was or is delivered, or on the Closing Date, any untrue statement of a material
fact, or omitted, omits or will omit on such date to state any material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LIONS GATE
Each of Lions Gate and Merger Sub, jointly and severally, represents and
warrants to the Company that the statements contained in this ARTICLE IV are
correct and complete as of the date of this Agreement and, except as provided in
Section 9.1, will be correct and complete as of the Closing Date (as though made
then and as though the Closing Date were substituted for the
26
date of this Agreement throughout this ARTICLE IV, except in the case of
representations and warranties stated to be made as of the date of this
Agreement or as of another date).
4.1 ORGANIZATION AND QUALIFICATION. Each of Lions Gate and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of British Columbia, Canada and the State of Delaware, respectively,
and each Subsidiary of Lions Gate is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or formation.
Lions Gate has, and each Subsidiary of Lions Gate (including Merger Sub) has all
requisite power and authority to own, lease and use its assets as they are
currently owned, leased and used and to conduct its business as it is currently
conducted. Lions Gate is, and each of its Subsidiaries (including Merger Sub)
is, duly qualified or licensed to do business in and is in good standing in each
jurisdiction in which the character of the properties owned, leased or used by
it or the nature of the activities conducted by it makes such qualification
necessary, except any such jurisdiction where the failure to be so qualified or
licensed and in good standing would not have a Material Adverse Effect on Lions
Gate or a material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents or the ability of
the Company or any of the Lions Gate Parties to perform its obligations under
this Agreement or any of the Collateral Documents.
4.2 CAPITALIZATION.
(a) Lions Gate's authorized capital stock consists of
500,000,000 shares of Lions Gate Common Stock and 200,000,000 shares of Lions
Gate Preferred Stock, of which 31,421,374 shares and 12,205 shares,
respectively, are issued and outstanding as of June 1, 2000. Subject to Section
7.2, the issuance by Lions Gate of additional capital stock or other securities
between the date of this Agreement and the Closing Date shall not be deemed to
cause the representations and warranties in this Section to be untrue or
breached as of the Closing Date. The shares of Lions Gate Common Stock included
in the Merger Consideration, when issued in accordance with this Agreement, will
have been duly authorized, validly issued and outstanding and will be fully paid
and nonassessable.
(b) All of the issued and outstanding ownership interests in
each Subsidiary of Lions Gate are owned, beneficially and of record, by the
Persons set forth in Section 4.2(b) of the Lions Gate Disclosure Statement, as
set forth therein, and no other Person has any right, title or interest, whether
legal or equitable, in said ownership interests (except to the extent the
Shareholders' ownership of Lions Gate could be deemed to constitute beneficial
ownership of the Lions Gate's Subsidiaries).
(c) Section 4.2(c) of the Lions Gate Disclosure Statement
lists all outstanding or authorized options, warrants, purchase rights,
preemptive rights or other contracts or commitments that could require Lions
Gate or any of its Subsidiaries to issue, sell, or otherwise cause to become
outstanding any of its capital stock or other ownership interests (collectively
"Options"). Except as described in Section 4.2(c) of the Lions Gate Disclosure
Statement, there are no authorized or outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to Lions Gate or any
of its Subsidiaries.
27
(d) All of the issued and outstanding shares of Lions Gate
Capital Stock, and all outstanding ownership interests of each of Lions Gate's
Subsidiaries have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable (with respect to Subsidiaries that are
corporations) and have been issued in compliance with applicable securities laws
and other applicable Legal Requirements. The securities of the Lions Gate
Subsidiaries are subject to no Encumbrances other than under the Lions Gate
Credit Agreement, or transfer restrictions under applicable securities laws
except as described in Section 4.2(d) of the Lions Gate Disclosure Statement.
4.3 AUTHORITY AND VALIDITY. Each Lions Gate Party has all requisite
power to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Collateral
Documents. The execution and delivery by each Lions Gate Party of, the
performance by each Lions Gate Party of its respective obligations under, and
the consummation by the Lions Gate Parties of the transactions contemplated by,
this Agreement and the Collateral Documents have been duly authorized by all
requisite action of each Lions Gate Party (subject to the approval of Lions
Gate's shareholders as contemplated by Section 8.3(b)). This Agreement has been
duly executed and delivered by each of the Lions Gate Parties and (assuming due
execution and delivery by the Company) is the legal, valid and binding
obligation of each Lions Gate Party, enforceable against each of them in
accordance with its terms. Upon the execution and delivery by each of the Lions
Gate Parties of the Collateral Documents to which each of them is a party, and
assuming due execution and delivery thereof by the other parties thereto, the
Collateral Documents will be the legal, valid and binding obligations of each
such Person, as the case may be, enforceable against each of them in accordance
with their respective terms.
4.4 NO BREACH OR VIOLATION. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Regulatory Authorities and Persons identified in the
exceptions to Section 4.5, the execution, delivery and performance by the Lions
Gate Parties of this Agreement and the Collateral Documents to which each is a
party and the consummation of the transactions contemplated hereby and thereby
in accordance with the terms and conditions hereof and thereof, do not and will
not conflict with, constitute a violation or breach of, constitute a default or
give rise to any right of termination or acceleration of any right or obligation
of any Lions Gate Party under, or result in the creation or imposition of any
Encumbrance upon the property of Lions Gate or Merger Sub by reason of the terms
of (i) the certificate of incorporation, by-laws or other charter or
organizational document of any Lions Gate Party, (ii) any contract, agreement,
lease, indenture or other instrument to which any Lions Gate Party is a party or
by or to which any Lions Gate Party or its property may be bound or subject and
a violation of which would result in a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole ("Material Lions Gate Contract"), (iii)
any order, judgment, injunction, award or decree of any arbitrator or Regulatory
Authority or any statute, law, rule or regulation applicable to any Lions Gate
Party or (iv) any Permit of Lions Gate or Merger Sub, which in the case of (ii),
(iii) or (iv) above would have a Material Adverse Effect on Lions Gate or a
material adverse effect on the validity, binding effect or enforceability of
this Agreement or the Collateral Documents or the ability of any Lions Gate
Party to perform its obligations hereunder or thereunder.
28
4.5 CONSENTS AND APPROVALS. Except for requirements under applicable
U.S., state, Canadian or provincial securities laws, the Toronto Stock Exchange,
the American Stock Exchange and the HSR Act, no consent, approval, authorization
or order of, registration or filing with, or notice to, any Regulatory Authority
or any other Person is necessary to be obtained, made or given by any Lions Gate
Party in connection with the execution, delivery and performance by them of this
Agreement or any Collateral Documents or for the consummation by them of the
transactions contemplated hereby or thereby, except to the extent the failure to
obtain such consent, approval, authorization or order or to make such
registration or filings or to give such notice would not have a Material Adverse
Effect on Lions Gate or a material adverse effect on the validity, binding
effect or enforceability of this Agreement or the Collateral Documents or the
ability of the Company or any of the Lions Gate Parties to perform its
obligations under this Agreement or any of the Collateral Documents.
4.6 TITLE TO ASSETS.
(a) Lions Gate and its Subsidiaries have good title to their
material Lions Gate Assets, free and clear of any and all Encumbrances, except
(A) Encumbrances arising under the Lions Gate Credit Agreement, (B) the matters
described in Section 4.6 of the Company Disclosure Statement, (C) Permitted
Liens, and (D) Encumbrances on property that would not have a Material Adverse
Effect on Lions Gate.
(b) Except as provided by this Agreement, and except as
described in Section 4.2 or 4.6 of the Lions Gate Disclosure Statement, no
Person has any right to acquire, directly or indirectly, any interest in any of
Lions Gate's Subsidiaries or any material Lions Gate Assets, and there is no
agreement to which any Lions Gate Party, any Subsidiary of Lions Gate or any of
their Affiliates is a party or is otherwise bound relating to the foregoing.
4.7 NON-FILM INTELLECTUAL PROPERTY. Section 4.7 of the Lions Gate
Disclosure Statement sets forth a true and complete list of all registered
patents, trademarks, copyrights and applications therefor relating to assets and
properties of Lions Gate other than Films owned by or registered in the name of
Lions Gate or any of its Subsidiaries, or in which Lions Gate or any of its
Subsidiaries has any right, license or interest (the "Lions Gate Non-Film
Intellectual Property Rights"). Except as set forth in Section 4.7 of the Lions
Gate Disclosure Statement, Lions Gate is not a party to any material license
agreement, either as licensor or licensee, with respect to any Lions Gate
Non-Film Intellectual Property Rights. To the knowledge of Lions Gate, Lions
Gate or one of its subsidiaries has good title to or the right to use all
material Lions Gate Non-Film Intellectual Property Rights and material all
inventions, processes, designs, formulae, trade secrets and know-how necessary
for the operation of Lions Gate Business without the payment of any royalty or
similar payment.
4.8 COMPLIANCE WITH LEGAL REQUIREMENTS. Lions Gate and its
Subsidiaries have operated Lions Gate Business in compliance with all material
Legal Requirements applicable to Lions Gate and its Subsidiaries, except to the
extent the failure to operate in compliance with all material Legal Requirements
would not have a Material Adverse Effect on Lions Gate or a material adverse
effect on the validity, binding effect or enforceability of this Agreement or
the Collateral Documents.
29
4.9 LEGAL PROCEEDINGS. Except as set forth in Section 4.9 of the
Lions Gate Disclosure Statement or in the Lions Gate Securities Filings, (i)
there are no outstanding judgments or orders against or otherwise affecting or
related to Lions Gate, any of its Subsidiaries, or their business or assets; and
(ii) there is no action, suit, complaint, proceeding or investigation, judicial,
administrative or otherwise, that is pending or, to the best knowledge of any
Lions Gate Party, threatened that, if adversely determined, would have a
Material Adverse Effect on Lions Gate or a material adverse effect on the
validity, binding effect or enforceability of this Agreement or the Collateral
Documents.
4.10 SUBSEQUENT EVENTS. Since the date of the balance sheet included
in the most recent Lions Gate Securities Filings, there has not been any
occurrence, event, incident, action, failure to act or transaction involving
Lions Gate or any of its Subsidiaries which is reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on Lions Gate.
4.11 UNDISCLOSED LIABILITIES.
(a) As of the date of this Agreement, neither Lions Gate nor
any of its Subsidiaries has any Liability, except for (i) Liabilities disclosed
in the Lions Gate Securities Filings, (ii) Liabilities incurred after the date
of the balance sheet included in the most recent Lions Gate Securities Filings
in the Ordinary Course, (iii) Liabilities incurred after the date of the balance
sheet included in the most recent Lions Gate Securities Filings under the Lions
Gate Credit Agreement, (iv) Liabilities disclosed in Section 4.11 of the Lions
Gate Disclosure Statement, and (v) Liabilities incurred in connection with this
Agreement.
(b) As of the Closing Date, neither Lions Gate nor any of
its Subsidiaries will have any Liability, except for (i) Liabilities disclosed
in the Lions Gate Securities Filings, (ii) Liabilities incurred after the date
of the balance sheet included in the most recent Lions Gate Securities Filings
in the Ordinary Course, (iii) Liabilities incurred after the date of the balance
sheet included in the most recent Lions Gate Securities Filings under the Lions
Gate Credit Agreement, (iv) Liabilities disclosed in Section 4.11 of the Lions
Gate Disclosure Statement, and (v) Liabilities incurred in connection with this
Agreement.
4.12 TAXES.
(a) Lions Gate has, and each of its Subsidiaries has, duly
and timely filed in proper form all Tax Returns for all Taxes required to be
filed with the appropriate Governmental Authority, except where such failure to
file would not have a Material Adverse Effect on Lions Gate. All Taxes due and
payable by Lions Gate and any of its Subsidiaries (or claimed to be due and
payable) have been paid (regardless whether Tax Returns relating to such Taxes
have been duly and timely filed or, if filed, regardless whether such Tax
Returns are deficient), except such amounts as (i) are not in the aggregate
material or (ii) are being contested diligently and in good faith by appropriate
proceedings and for which there are adequate reserves in the Lions Gate
Financial Statements. Lions Gate has furnished to the Company true and correct
copies of all income Tax Returns filed by it or any of its Subsidiaries in the
past three years, all of which are accurate and complete in all material
respects. There are no pending Tax audits, claims or proceedings relating to
Lions Gate any of its Subsidiaries, the Lions Gate Assets or the Lions Gate
Business or income therefrom. Neither Lions Gate nor any of its Subsidiaries has
agreed to
30
any waiver or extension of any statute of limitations relating to any Tax. No
amount in respect of any outlay or expense that is deductible for the purposes
of computing the income of Lions Gate for the purposes of the ITA has been owing
by Lions Gate or any of its Subsidiaries, as the case may be, for longer than
two years to a person not dealing at arm's length (for the purposes of the ITA)
with Lions Gate or such Subsidiary at the time the outlay or expense was
incurred. There are no circumstances which exist and would result in, or which
have existed and resulted in, Section 80 of the ITA applying to Lions Gate or
its Subsidiaries. Neither Lions Gate nor any of its Subsidiaries has an
outstanding power of attorney authorizing any Person to act on its behalf in
connection with any Tax or Tax Return. Neither Lions Gate nor any of its
Subsidiaries has an outstanding closing agreement, request for a ruling or
determination, request for a change in method of accounting, subpoena or request
for information with or by any Regulatory Authority with respect to any Tax or
Tax Return. Neither Lions Gate nor any of its Subsidiaries is required to
include any adjustment under Section 481 of the Code or any corresponding
provision of any Legal Requirement in income for any period ending after March
31, 2000.
(b) Lions Gate, directly and through Subsidiaries, is, and
for the 36 months prior to the Closing Date will have continuously been, engaged
in an active trade or business carried on outside the United States, within the
meaning of Sections 1.367(a)-3(c)(3) and 1.367(a)-2T(b)(2) and -2T(b)(3) of the
Treasury Regulations. Lions Gate and its Subsidiaries have no intention, and as
of the Closing Date will have no intention, to substantially dispose of or
discontinue such trade or business.
4.13 EMPLOYEE BENEFITS; EMPLOYEES. All Employee Benefit Plans
maintained or contributed to by Lions Gate are set forth in Section 4.13 of the
Lions Gate Disclosure Statement. Except as set forth in Section 4.13 of the
Lions Gate Disclosure Statement:
(a) All such Employee Benefit Plans are in substantial
compliance with all applicable Legal Requirements.
(b) There are not pending any unfair labor practice charges
against Lions Gate or any of its Subsidiaries, nor is there any demand for
recognition, or any other request or demand from a labor organization for
representative status with respect to any Person employed by Lions Gate or any
of its Subsidiaries.
(c) Lions Gate and its Subsidiaries are in substantial
compliance with all applicable Legal Requirements respecting employment
conditions and practices, have withheld all amounts required by any applicable
Legal Requirements or Lions Gate to be withheld from the wages or salaries of
their employees, and are not liable for any of arrears of wages or any Taxes or
penalties for failure to comply with any of the foregoing, except to the extent
the failure to withhold any amounts would not have a Material Adverse Effect.
(d) To the knowledge of Lions Gate, Lions Gate and its
Subsidiaries have not engaged in any unfair labor practice within the meaning of
the National Labor Relations Act and have not violated any Legal Requirement
prohibiting discrimination on the basis of race, color, national origin, sex,
religion, age, marital status, or handicap in their employment conditions or
practices, except where such violations would not have a Material Adverse Effect
on Lions Gate. There is not pending or to the best of Lions Gate's knowledge,
threatened, any discrimination
31
complaint relating to race, color, national origin, sex, religion, age, marital
status or handicap against Lions Gate or any of its Subsidiaries before any
Regulatory Authority.
4.14 MATERIAL LIONS GATE CONTRACTS.
(a) Each Material Lions Gate Contract is legal, valid,
binding, enforceable and in full force and effect;
(b) Subject to obtaining any consent referred to in Section
4.4 or disclosed in Section 4.4 of the Lions Gate Disclosure Schedule, the
transactions contemplated by this Agreement will not prevent the Material Lions
Gate Contract from continuing to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; and
(c) Neither Lions Gate nor any of its Subsidiaries, nor, to
the knowledge of Lions Gate, any other party thereto, is in material breach or
default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination, modification or
acceleration, under the Material Lions Gate Contract.
4.15 BOOKS AND RECORDS. The books and records of Lions Gate and its
Subsidiaries accurately and fairly represent the Lions Gate Business and its
results of operations in all material respects. All accounts receivable and
inventory of the Lions Gate Business are reflected properly on such books and
records in all material respects.
4.16 INSURANCE. Lions Gate has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Lions Gate and its Subsidiaries. As of the
date of this Agreement, there is no material claim pending under any of such
policies or bonds as to which coverage has been denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Lions Gate and the Lions Gate
Subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. Lions Gate has no knowledge of any threatened
termination of any such policies.
4.17 ENVIRONMENTAL MATTERS. Neither Lions Gate nor any of the Lions
Gate Subsidiaries has violated any Environmental Laws, lacks any permits,
licenses or other approvals required of them under applicable Environmental Laws
or is violating any term or condition of any such permit, license or approval,
except in each case as would not, individually or in the aggregate, result in a
Material Adverse Effect on Lions Gate.
4.18 MATTERS REGARDING LIONS GATE FILM LIBRARY.
(a) Section 4.18(a) of the Lions Gate Disclosure Statement
sets forth a true and correct list of substantially all of the Films in the
Lions Gate Film Library, specifying for each Top Lions Gate Film the territory,
term and media for which the applicable rights are held. Lions Gate and/or its
Subsidiaries hold all such rights as are necessary for the distribution,
exhibition and exploitation of the Top Lions Gate Films in the territories, in
the media, and for the term indicated in Section 4.18(a) of the Lions Gate
Disclosure Statement without, to Lions Gate's knowledge, infringing or violating
any laws or rights of third parties.
32
(b) Section 4.18(b) of the Lions Gate Disclosure Statement
sets forth a true, correct and complete list of all agreements granting any
equity or income stream interest (other than talent or producer participations)
in any Top Lions Gate Film, and all film production financing agreements (other
than agreements regarding television licensing fees or producer participations)
with parties other than financial institutions, to which Lions Gate or any of
its Subsidiaries is a party. Section 4.18(b) of the Lions Gate Disclosure
Statement also sets forth a true, correct and complete list of: (i) all Film
Asset Exploitation Agreements between Lions Gate or any of its Subsidiaries and
any video wholesale distributor or involving any video sharing arrangement; and
(ii) all Film Asset Exploitation Agreements to which Lions Gate or any of its
Subsidiaries is a party which constitute original license agreements, or require
Lions Gate or any of its Subsidiaries to transfer rights to or to deliver
Physical Properties, with respect to any Film that is not: (A) in the Lions Gate
Film Library; or (B) as of the date of this Agreement, a Film with respect to
which Lions Gate or one of its Subsidiaries has executed a binding acquisition
agreement, but with respect to which Lions Gate's or such Subsidiary's rights
have not yet vested because it has not yet paid in full the fixed purchase price
or minimum guarantee; or (C) a Lions Gate Development Project.
(c) Each Film Asset Acquisition Agreement with respect to a
Top Lions Gate Film to which Lions Gate or any of its Subsidiaries is a party is
the valid and binding obligation of each party thereto, enforceable in
accordance with its terms and is in full force and effect; to Lions Gate's
knowledge, no party to any such Film Asset Acquisition Agreement has breached
any provision of or is in default under the terms of any such agreement (other
than failures to deliver music licenses in cases in which Lions Gate or its
applicable Subsidiary has withheld payment of a portion of the fixed
compensation or minimum guarantee to cover the delivery of such music licenses);
and the consummation of the transactions contemplated by this Agreement will not
give any party the right to terminate, or result in the termination of, any such
agreement.
(d) Lions Gate and each of its Subsidiaries has casualty
insurance and errors and omissions insurance with an independent carrier
covering the Films in the Lions Gate Film Library, in each case to the extent
and in the manner customary for companies engaged in a similar business or
owning similar assets. Section 4.18(d) of the Lions Gate Disclosure Statement is
a true, complete and correct list of all casualty and errors and omissions
insurance policies maintained by Lions Gate or any of its Subsidiaries with
respect to the Films in the Lions Gate Film Library (other than policies
covering a single Film). Lions Gate's umbrella errors and omissions insurance
policies provide that, immediately upon the expiration of the single film errors
and omissions policy with respect to any Film produced or acquired by Lions Gate
or any of its Subsidiaries, coverage under Lions Gate's umbrella errors and
omissions policies is extended to cover such Films. Except as disclosed in
Section 4.18(d) of the Lions Gate Disclosure Statement, no insurance claims in
an amount exceeding $30,000 have been made and are currently outstanding and
unsettled as of the date of this Agreement on the producer's errors and
omissions policies that Lions Gate or any of its Subsidiaries maintained or
maintains with respect to the Films in the Lions Gate Film Library.
(e) Section 4.18(e) of the Lions Gate Disclosure Statement
sets forth a true, correct and substantially complete list of the locations of
all of the Physical Properties in which Lions Gate or any of its Subsidiaries
has any right, title or interest relating to any of the Top Lions Gate Films.
There are no other locations of any such Physical Properties, and, except as
33
disclosed on Section 4.18(e) of the Lions Gate Disclosure Statement, all amounts
due from Lions Gate or its Subsidiaries to the laboratories in respect of such
Physical Properties have been paid in full, except in the ordinary course of
business. Lions Gate and its Subsidiaries have in their possession, or have
access pursuant to written agreements with laboratories to, sufficient positive
print, preprint and sound materials relating to each Top Lions Gate Film to
enable them to distribute, exhibit, exploit and license the distribution and
exhibition rights in such Top Lions Gate Films and to fulfill the delivery
requirements under all Film Asset Exploitation Agreements with respect to the
Top Lions Gate Films. All Physical Properties in which Lions Gate or any of its
Subsidiaries has any right, title or interest relating to Top Lions Gate Films
are of a commercially acceptable quality suitable for the making of commercially
reasonable sound materials, prints, tapes and other material (including, but not
limited to, interpositives and internegatives, where available) and dubbed and
subtitled versions thereof suitable for use in the exploitation of the rights in
the Top Lions Gate Films by all means and in all media.
(f) The respective rights, titles and interests of Lions
Gate or its Subsidiaries in and to the Top Lions Gate Films are free and clear
of all Encumbrances, other than Encumbrances set forth in Section 4.18(f) of the
Lions Gate Disclosure Statement; Encumbrances in favor of Lions Gate's line
lender; Encumbrances in favor of the production financier or completion
guarantor with respect to such Top Lions Gate Film; Encumbrances in favor of a
motion picture talent guild or film laboratory; and Encumbrances granted to
licensors or licensees of rights with respect to such Top Lions Gate Film in the
ordinary course of business.
(g) Except as disclosed in Section 4.18(g) of the Lions Gate
Disclosure Statement, neither Lions Gate nor any of its Subsidiaries has
received any notice that any other party thereto intends to cancel, terminate or
repudiate any of the Film Asset Acquisition Agreements relating to any Top Lions
Gate Film to which Lions Gate or any of its Subsidiaries is a party.
(h) Other than as disclosed in Section 4.18(h) of the Lions
Gate Disclosure Statement, all advances and guarantees payable prior to the date
hereof by Lions Gate or any of its Subsidiaries in connection with the Top Lions
Gate Films have been fully paid, all other obligations of Lions Gate and its
Subsidiaries in connection with the Top Lions Gate Films required to be
performed prior to the date of execution of this Agreement (including, without
limitation, delivery obligations) have been fully performed, and there is no
condition or event which, upon notice or lapse of time or both, would constitute
a breach or default by Lions Gate or any of its Subsidiaries relating to any of
such Top Lions Gate Films.
(i) Except as set forth in Section 4.18(i) of the Lions Gate
Disclosure Statement, each of the Top Lions Gate Films is protected by copyright
under the laws of the United States (either under the United States Copyright
Act or under the applicable similar statutory regime of such Film's country of
origin) to the maximum extent permitted by such laws, and good and sufficient
notice of such copyright is affixed to each such Top Lions Gate Film.
(j) To Lions Gate's knowledge, no Film in the Lions Gate
Film Library, nor any part thereof, nor any of the literary, dramatic or musical
material contained therein or upon
34
which any such Film is based, nor the exercise by any authorized person or
entity of any right granted to Lions Gate or any of its Subsidiaries in
connection therewith, will violate or infringe upon the trademark, service mark,
tradename, copyright, literary, dramatic, music, artistic, personal, private,
civil, contract or property right or rights of privacy or any other right,
whether tangible or intangible, of any Person.
(k) Section 4.18(k) of Lions Gate Disclosure Schedule sets
forth a true, correct and complete list of: (i) each Top Lions Gate Film with
respect to which, to Lions Gate's knowledge, any Person has received a Canadian
content certification from the Canadian Audio Visual Certification Office; (ii)
the amount of the estimated Canadian Production Tax Credit or the comparable tax
credit of any Canadian province received or to be received in connection with
such Film; and (iii) the year in which such Film was delivered (if applicable).
4.19 FILMS IN PROGRESS.
(a) Section 4.19(a) of the Lions Gate Disclosure Statement
sets forth for Lions Gate and its Subsidiaries a complete list as of the date of
this Agreement of all Films (i) currently in scheduled pre-production where
talent other than writers are receiving compensation, principal photography or
post-production; or (ii) which Lions Gate or any of its Subsidiaries has entered
into a Film Asset Acquisition Agreement to acquire under which more than
$200,000 of the acquisition price remains outstanding and unpaid as of the date
of this Agreement, but which have not yet been delivered to Lions Gate or its
applicable Subsidiary pursuant thereto (collectively, the "Lions Gate Films In
Progress"), together with the amount payable (or which may become payable) by
Lions Gate or any of its Subsidiaries pursuant to any Film Asset Acquisition
Agreement with respect to any Lions Gate Film In Progress. The Lions Gate
Financial Statements accurately reflect all obligations of Lions Gate or any of
its Subsidiaries in connection with the financing of production, print and
advertising, or minimum guarantee or other acquisition costs of any of the Lions
Gate Films in Progress.
(b) Except as disclosed in Section 4.19(b) of the Lions Gate
Disclosure Statement, each Lions Gate Film In Progress that is a feature-length
motion picture is being produced in color, will if released theatrically in the
United States, be released (or will be capable of being edited to be released)
with a rating that is not more restrictive than the current rating equivalent to
an "R" under the present system or its equivalent rating under any successor
system, and is being produced primarily in the English language.
(c) Lions Gate or one of its Subsidiaries has (or will by
the commencement of principal photography have) in effect film negative casualty
and errors and omissions insurance coverage relating to each Lions Gate Film In
Progress.
4.20 DEVELOPMENT PROJECTS. Section 4.20 of the Lions Gate Disclosure
Statement identifies all material projects in development by or on behalf of
Lions Gate and its Subsidiaries (the "Lions Gate Development Projects").
4.21 FINANCIAL AND OTHER INFORMATION.
(a) The historical financial statements (including the notes
thereto) ("Lions Gate Financial Statements") contained (or incorporated by
reference) in the Lions Gate
35
Securities Filings have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, (with reconciliations
to U.S. GAAP) and present fairly the financial condition of the Persons reported
on and their results of operations as of the dates and for the periods
indicated, subject in the case of the unaudited financial statements only to
normal year-end adjustments (none of which will be material in amount) and the
omission of footnotes.
(b) The Lions Gate Securities Filings did not, as of their
filing dates, contain (directly or by incorporation by reference) any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein (or incorporated
therein by reference), in light of the circumstances under which they were or
will be made, not misleading.
(c) No written information concerning Lions Gate, its
Subsidiaries or shareholders furnished to the Company by Lions Gate specifically
for inclusion in the Company Proxy Statement will at the time provided, or as of
any later time confirmed in writing by any such Person, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were or will be made, not misleading.
4.22 CANADIAN CONTROL. Lions Gate and each of its Subsidiaries
organized under the laws of Canada are Canadian Controlled as defined under the
Investment Canada Act.
4.23 CANADIAN TAX CREDITS. Lions Gate and each of its Subsidiaries
organized under the laws of Canada has complied in full with all applicable
Canadian federal and provincial statutory and regulatory requirements and
policies in connection with their respective applications, if any, for Canadian
federal or provincial film or television tax credits.
4.24 CANADIAN SECURITIES COMPLIANCE. Lions Gate has filed all forms,
reports and documents with the BCSC required to be filed by it pursuant to the
Securities Act (British Columbia) and the regulations promulgated thereunder and
the other Canadian Securities Law (the "Canadian Lions Gate Reports"), all of
which complied when filed in all material respects with all applicable
requirements of the Canadian Securities Laws. None of the Canadian Lions Gate
Reports at the time filed, or as subsequently amended, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
4.25 CANADIAN SECURITIES LAWS MATTERS. The issuance of the Merger
Consideration will not result in any contravention by Lions Gate of the Canadian
Securities Laws.
4.26 VOTE REQUIRED. The affirmative vote of the holders of greater
than 50% of the outstanding Lions Gate Common Stock is the only vote of the
holders of any class or series of securities of Lions Gate necessary to approve
the Merger and all shareholders of such class are entitled to vote upon such
matter.
4.27 NO ORDERS. No order suspending the sale or ceasing the trading
of the Lions Gate Common Stock has been issued by any court, securities
commission or regulatory authority in
36
Canada or the United States, and no proceedings for such purpose are pending or,
to the knowledge of Lions Gate, after reasonable inquiry, threatened.
4.28 LISTINGS. The Lions Gate Common Stock is registered pursuant to
Section 12(b) of the Securities Exchange Act of 1934 and is listed on the
American Stock Exchange and the Toronto Stock Exchange. Lions Gate is a
reporting issuer under the Canadian Securities Laws and Lions Gate is not on the
list of defaulting reporting issuers maintained by any of the Canadian
securities commissions. Lions Gate has taken no actions designed to cause, or
likely to result in, the termination of the registration of the Lions Gate
Common Stock under Section 12(b) of the Securities Exchange Act of 1934 or Lions
Gate's reporting issuer status under the Canadian Securities Laws or the
delisting of the Lions Gate Common Stock from the American Stock Exchange or the
Toronto Stock Exchange, nor has Lions Gate received any notification that the
Securities and Exchange Commission or any Canadian securities commission or the
National Association of Securities Dealers, Inc. or the Toronto Stock Exchange
is contemplating the termination of such registration or listing. Lions Gate is
a reporting issuer (or has equivalent status) only in the Provinces of British
Columbia, Alberta, Manitoba, Ontario and Quebec and is not subject to the filing
obligations under securities laws in any other Canadian jurisdiction.
4.29 BROKERS OR FINDERS. Except as disclosed in Section 4.29 of the
Lions Gate Disclosure Statement, no broker or finder has acted directly or
indirectly for Lions Gate, any Lions Gate Party or any of their Affiliates in
connection with the transactions contemplated by this Agreement, and neither
Lions Gate, any Lions Gate Party nor any of their Affiliates has incurred any
obligation to pay any brokerage or finder's fee or other commission in
connection with the transaction contemplated by this Agreement.
4.30 FAIRNESS OPINION. Ladenburg Thalmann & Company, Inc. has
rendered an oral opinion to Lions Gate (to be followed by a written opinion)
confirming that the Merger is fair to Lions Gate from a financial point of view.
4.31 DISCLOSURE. No representation or warranty of Lions Gate in this
Agreement or in the Collateral Documents and no statement in any certificate
furnished or to be furnished by Lions Gate pursuant to this Agreement contained,
contains or will contain on the date such agreement or certificate was or is
delivered, or on the Closing Date, any untrue statement of a material fact, or
omitted, omits or will omit on such date to state any material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Each of Lions Gate and Merger Sub, severally and jointly, represents and
warrants to the Company that the statements contained in ARTICLE V are correct
and complete as of the date of this Agreement and, except as provided in Section
9.1, will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this Agreement
throughout ARTICLE V), except in the case of representations and warranties
stated to be made as of the date of this Agreement or as of another date.
37
5.1 ORGANIZATION AND QUALIFICATION. Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
5.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Merger Sub has
heretofore made available to the Company a complete and correct copy of the
certificate of incorporation and the bylaws of Merger Sub, each as amended to
date. Such certificate of incorporation and bylaws are in full force and effect.
Merger Sub is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
5.3 AUTHORITY. Merger Sub has the necessary corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Merger Sub, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
5.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Merger
Sub do not, and the performance by Merger Sub of its obligations under this
Agreement will not (i) conflict with or violate the certificate of incorporation
or bylaws of Merger Sub, (ii) conflict with or violate any law, statute
ordinance, rule, regulation, order, judgment or decree applicable to Merger Sub
or by which any of its properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on any of the properties or assets of Merger Sub
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger Sub
is a party or by which Merger Sub or any of its properties or assets is bound or
affected, except, in the case of clauses (ii) and (iii) above for any such
conflicts, violations, breaches, defaults or other alterations or occurrences
that would not prevent or delay consummation of the Merger in any material
respect, or otherwise prevent Merger Sub from performing its obligations under
this Agreement in any material respect.
(b) The execution and delivery of this Agreement by Merger
Sub does not, and the performance of this Agreement by Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except (i) for (A) applicable
requirements, if any, of the Securities Act, the Exchange Act, state takeover
laws, exchanges on which Lions Gate's securities are traded, the HSR Act, (B)
filings and recordation of appropriate merger documents as required by Delaware
law and (ii) where failure
38
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Merger
in any material respect.
5.5 LEGAL PROCEEDINGS. There are no outstanding judgments or orders
against or otherwise affecting or related to Merger Sub or its business or
assets, and there is no action, suit, complaint, proceeding or investigation,
judicial, administrative or otherwise, that is pending or threatened against or
otherwise affecting or related to Merger Sub or its business or assets.
5.6 VOTE REQUIRED. The affirmative vote of Lions Gate, the sole
shareholder of Merger Sub, is the only vote of the holder of any class or series
of Merger Sub capital stock necessary to approve any of the transactions
contemplated hereby.
ARTICLE VI
PRE-CLOSING COVENANTS OF THE COMPANY
Between the date of this Agreement and the Closing Date:
6.1 ADDITIONAL INFORMATION. The Company shall provide to Lions Gate
and its Representatives such financial, operating and other documents, data and
information relating to the Company and its Subsidiaries, the Company Business
and the Company Assets and Liabilities of the Company and its Subsidiaries, as
Lions Gate or its Representatives may reasonably request. In addition, the
Company shall take all action necessary to enable Lions Gate and its
Representatives to review, inspect and audit the Company Film Library and the
other Assets, the Company Business and Liabilities of the Company and its
Subsidiaries and discuss them with the Company's officers, employees,
independent accountants, customers, licensees, and counsel. Notwithstanding any
investigation that Lions Gate may conduct of the Company and its Subsidiaries,
the Company Business, the Company Assets and the Liabilities of the Company and
its Subsidiaries, the Lions Gate Parties may fully rely on the Company's
warranties, covenants and indemnities set forth in this Agreement, the
Collateral Documents and any documents or certificates delivered hereunder and
thereunder, which will not be waived or affected by or as a result of such
investigation.
6.2 NO SOLICITATIONS.
(a) From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to ARTICLE XI, the
Company will not, nor will it authorize or permit any of its Subsidiaries or any
of their respective officers, directors, affiliates or employees or any
investment banker, attorney or other advisor or representative retained by any
of them to, directly or indirectly, (i) solicit or initiate the making,
submission or announcement of any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to any Acquisition Proposal, (iii) engage in
discussions with any Person with respect to any Acquisition Proposal, except as
to the existence of these provisions, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any contract agreement or commitment contemplating or otherwise relating to
any Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prohibit or restrict the Board of Directors of the Company from
furnishing information to or entering into discussions or
39
negotiations with, any Person that makes an unsolicited (from and after the date
of this Agreement) proposal that the Board of Directors of Company believes may
constitute or may lead to a Superior Offer or to the extent the Board of
Directors of Company concludes in good faith that such action is reasonably
necessary for the Board of Directors of Company to comply with its fiduciary
obligations to shareholders under applicable law. The Company shall provide
Lions Gate with a copy of any correspondence to be delivered by the Company in
connection with such proposal or Superior Offer prior to sending such
correspondence to any third-party.
(b) In addition to the obligations of the Company set forth
in Section 6.2(a), the Company as promptly as practicable shall advise Lions
Gate orally and in writing of any Acquisition Proposal or any request for
non-public information or inquiry which the Company reasonably believes would
lead to an Acquisition Proposal, the material terms and conditions of such
Acquisition Proposal, request or inquiry, and, unless prohibited by such
proposal, the identity of the person or group making any such Acquisition
Proposal, request or inquiry. The Company shall keep Lions Gate informed as
promptly as practicable in all material respects of the status of any such
Acquisition Proposal, request or inquiry.
6.3 CONTINUITY AND MAINTENANCE OF OPERATIONS.
(a) The Company shall, and shall cause its Subsidiaries to:
(i) comply in all material respects with all Legal Requirements applicable to
the Company and its Subsidiaries relating to the Company Business; (ii) fulfill
in all material respects all of its obligations under and use commercially
reasonable efforts to maintain in full force and effect all Material Company
Contracts (other than those that expire by their terms or as otherwise consented
to by Lions Gate), and shall not, without the prior written consent of Lions
Gate, seek to materially alter, modify or amend any of the foregoing in a manner
adverse to the Company or its Subsidiaries (other than those Material Company
Contracts that expressly provide that they will be amended or modified upon the
happening of specified contingencies, and other than amendments or modifications
that are consented to by Lions Gate); (iii) use its commercially reasonable
efforts to promote the financial success of the Company Business and promptly
notify Lions Gate of any material adverse change in the condition (financial or
otherwise) of the Company Business; and (iv) use its commercially reasonable
efforts to promote, develop and preserve its relationships with its present
employees as well as the goodwill of its customers and promptly notify Lions
Gate of any material adverse change in such relationships. Without limiting the
generality of the foregoing, the Company shall, and shall cause its Subsidiaries
to maintain the Company Assets in materially good order, condition and repair,
maintain insurance relating to the Company Business in all material respects as
in effect on the date of this Agreement, operate the Company Business in the
Ordinary Course, and keep and maintain all of the books and records in the
Ordinary Course. Other than in the Ordinary Course, the Company and its
Subsidiaries shall not pay or credit in any way any accounts receivable prior to
the Closing Date, and shall not permit any of its Representatives to do so
either.
(b) The Company shall not, and shall cause its Subsidiaries
not to, without the prior written consent of Lions Gate sell, lease, transfer,
convey or assign any material Company Assets other than in the Ordinary Course
(or enter into any contract to do any of the foregoing) or permit the creation
of any Encumbrance on any of its Company Assets except Permitted Liens or Liens
under the Company Credit Agreement, or as otherwise contemplated by this
Agreement.
40
(c) Unless the Company shall have obtained the prior written
consent of Lions Gate or except as set forth in Section 6.3(c) of the Company
Disclosure Statement or required by Section 6.13 of this Agreement, the Company
shall not, and shall cause its Subsidiaries not to:
(i) engage in any Acquisition;
(ii) amend the Company Credit Agreement;
(iii) declare or pay any dividends or make any other
distributions to the Company Shareholders;
(iv) redeem or repurchase any stock (other than stock
of employees in connection with termination of their employment on terms
consistent with the terms of any employment agreement described in
Section 3.15 of the Company Disclosure Statement);
(v) issue additional shares of Company Capital Stock
(except pursuant to options outstanding on the date hereof) or
additional Options or any stock appreciation, phantom stock, profit
participation or similar rights;
(vi) incur any material debt (except borrowings under
the Company Credit Agreement to finance expenditures not prohibited by
this Agreement, and other obligations incurred in the Ordinary Course
including, without limitation, project loans for Films);
(vii) make any loans other than in the Ordinary
Course; or
(viii) enter into any agreement to do any of the
foregoing.
(d) The Company shall not take or omit to take any action
that would cause any of its representations or warranties in this Agreement or
the Collateral Documents to be untrue in any material respect as of the Closing
Date, nor take or omit to take any action that would cause it to be in breach in
any material respect of any of the covenants made by it in this Agreement or the
Collateral Documents or that would, if such action had been taken or omitted on
or before the date of this Agreement, have been required to be disclosed in
Section 3.11 of the Company Disclosure Statement.
6.4 CONSENTS AND APPROVALS.
(a) As soon as practicable after execution of this
Agreement, the Company shall use commercially reasonable efforts to obtain any
necessary consent, approval, authorization or order of, make any registration or
filing with or give any notice to, any Regulatory Authority or Person as is
required to be obtained, made or given by the Company to consummate the
transactions contemplated by this Agreement and the Collateral Documents,
including, without limitation, the consent of Chase Manhattan Bank under the
Company Credit Agreement without giving rise to any prepayment, penalty or
premium, and all of the authorizations, consents, approvals, actions, filings or
notices set forth in Section 3.5 of this Agreement or Section 3.5 of the Company
Disclosure Statement.
41
(b) The Company shall cooperate with Lions Gate in providing
such information and reasonable assistance as may be required in connection with
the obligations of the Lions Gate Parties under Section 7.4(a).
6.5 MEETING OF THE COMPANY SHAREHOLDERS.
(a) Promptly after the date hereof, but subject to Section
6.5(c), the Company will take all action necessary in accordance with the DGCL
and its Certificate of Incorporation and by-laws to convene a meeting of the
Company's shareholders to consider adoption and approval of this Agreement and
approval of the Merger (the "Company Shareholders' Meeting") to be held as
promptly as practicable. Subject to Section 6.5(c), the Company will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its shareholders required by the DGCL to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, the
Company may adjourn or postpone the Company Shareholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Company's
proxy statement is provided to the Company's shareholders in advance of a vote
on the Merger and this Agreement or, if as of the time for which the Company
Shareholders' Meeting is originally scheduled (as set forth in the Company's
proxy statement) there are insufficient shares of the Company Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Company's Shareholders' Meeting. Subject to Section
6.5(c), the Company shall ensure that the Company Shareholders' Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited by
the Company in connection with the Company Shareholders' Meeting are solicited,
in compliance with the DGCL, the Company's Certificate of Incorporation and
by-laws, and all other applicable laws.
(b) Subject to Section 6.5(c): (i) the Board of Directors of
the Company shall recommend that the Company's shareholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Shareholders' Meeting; (ii) the Company's proxy statement shall include a
statement to the effect that the Board of Directors of the Company has
recommended that the Company's shareholders vote in favor of and adopt and
approve this Agreement and the Merger at the Company Shareholders' Meeting; and
(iii) neither the Board of Directors of the Company nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Lions Gate, the recommendation of the Board of
Directors of the Company that the Company's shareholders vote in favor of and
adopt and approve this Agreement and the Merger.
(c) Nothing in this Agreement shall prevent the Board of
Directors of the Company from withholding, withdrawing, amending or modifying
its recommendation in favor of the Merger if (i) a Superior Offer is made to the
Company and is not withdrawn, (ii) the Company shall have provided written
notice to Lions Gate (a "Notice of Superior Offer") advising Lions Gate that the
Company has received a Superior Offer, specifying the material terms and
conditions of such Superior Offer and identifying the person or entity making
such Superior Offer, (iii) Lions Gate shall not have, within five Business Days
of Lions Gate's receipt of the Notice of Superior Offer, made an offer that the
Company's Board of Directors by a majority vote determines in its good faith
judgment to be at least as favorable to the Company's
42
Shareholders as such Superior Offer (it being agreed that the Company Board
shall convene a meeting to consider any such offer by Lions Gate promptly
following the receipt thereof), (iv) the Board of Directors of the Company
concludes in good faith, after consultation with its outside counsel, that, in
light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is required or advisable in order for the
Board of Directors of the Company to properly discharge its fiduciary
obligations to the Company Shareholders under applicable laws and (v) the
Company shall not have violated in any material respect any of the restrictions
set forth in Section 6.2 or this Section 6.5. The Company shall provide Lions
Gate with at least three Business Days prior notice (or such lesser prior notice
as provided to the members of the Company's Board of Directors but in no event
less than 24 hours) of any meeting of the Company's Board of Directors at which
the Company's Board of Directors is reasonably expected to consider any
Acquisition Proposal.
6.6 SECURITIES FILINGS; FINANCIAL INFORMATION. The Company shall
make all required filings with the Commission at or before the date they are due
and shall simultaneously furnish Lions Gate with a copy thereof. The Company
shall, promptly after execution of this Agreement and from time to time
thereafter, provide such information and documents to Lions Gate and its
Affiliates concerning the Company, its Subsidiaries and shareholders as may be
required or appropriate for inclusion in the Lions Gate Merger Registration
Statement or any other filing, notification or report made by Lions Gate or any
Affiliate of Lions Gate under the Securities Act, the Exchange Act or any state,
provincial or Canadian securities law; shall cause their respective counsel and
independent accountants to cooperate with Lions Gate, its Affiliates and their
investment bankers, counsel and independent accountants in the preparation of
such filings, notifications and reports; and shall use their best efforts to
obtain consents and "comfort letters" from such accountants as required in
connection with such filings, notifications and reports. The Company represents
and warrants to Lions Gate that no information or document provided by the
Company for inclusion in any filing, notification or report made by Lions Gate
or any Affiliate under the Securities Act, the Exchange Act or any state,
provincial or Canadian securities law will contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading.
6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall promptly
notify Lions Gate of any fact, event, circumstance or action known to it that is
reasonably likely to cause the Company to be unable to perform any of its
covenants contained herein or any condition precedent in ARTICLE VIII not to be
satisfied, or that, if known on the date of this Agreement, would have been
required to be disclosed to Lions Gate pursuant to this Agreement or the
existence or occurrence of which would cause any of the Company's
representations or warranties under this Agreement not to be correct and/or
complete. The Company shall give prompt written notice to Lions Gate of any
adverse development causing a breach of any of the representations and
warranties in ARTICLE III. However, except as provided in Section 6.8, no
disclosure pursuant to this Section, shall be deemed to amend or supplement this
Agreement or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant by the Company.
6.8 COMPANY DISCLOSURE STATEMENT. The Company shall, from time to
time prior to Closing, supplement the Company Disclosure Statement with
additional information that, if
43
existing or known to it on the date of delivery of the Company Disclosure
Statement to the Lions Gate Parties, would have been required to be included
therein. For purposes of determining the satisfaction of any of the conditions
to the obligations of the Lions Gate Parties in ARTICLE VIII, the Company
Disclosure Statement shall be deemed to include only (a) the information
contained therein on the date of this Agreement and (b) information added to the
Company Disclosure Statement by written supplements delivered prior to Closing
by the Company that (i) are accepted in writing by Lions Gate, or (ii) reflect
actions expressly permitted by this Agreement to be taken prior to Closing that
(A) do not breach any covenant in this Agreement so as to cause the condition
precedent stated in Section 8.2 not to be fulfilled at or prior to the Closing,
and (B) do not in the aggregate have a Material Adverse Effect on the Company or
a material adverse effect on the validity, binding effect or enforceability of
this Agreement or the Collateral Documents or the ability of the Company or any
of the Lions Gate Parties to perform its obligations under this Agreement or any
of the Collateral Documents.
6.9 STATE STATUTES. The Company and its Board of Directors shall, if
any state takeover statute or similar law is or becomes applicable to the
Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Lions Gate or the
Company or any Subsidiary or Affiliate thereof to agree to any divestiture by
itself or any of its Affiliates of shares of capital stock or of any business,
assets or property, or the imposition of any material limitation on the ability
of any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
6.10 EMPLOYEE MATTERS. The Company shall, or shall cause the sponsor
of the 401(k) Qualified Retirement Plan (the "401(k) Plan") to, take the
following actions: (i) adopt resolutions, or take such other action as required
by the 401(k) Plan, to (A) terminate the 401(k) Plan effective immediately prior
to the Closing Date, subject to receipt of a ruling from the District Director
of Internal Revenue that the termination of the 401(k) Plan does not adversely
affect the tax qualified status of the 401(k) Plan, and (B) cease contributions
under the 401(k) Plan effective as of the Closing Date; and (ii) file Internal
Revenue Service Form 5310 (Application for Determination for Terminating Plan)
with respect to the 401(k) Plan termination with the District Director of
Internal Revenue, such Form fully disclosing the corporate transaction
contemplated by this Agreement and the status of 401(k) Plan participants after
the transaction. Such resolutions (or other action required by the 401(k) Plan)
and Form 5310 shall be in a form satisfactory to Lions Gate. To the extent a
distribution from the 401(k) Plan is an eligible rollover distribution (as
defined in Section 402(c)(4) of the Code), Lions Gate shall permit the direct
rollover of such distribution to the 401(k) Plan of Lions Gate provided that the
individual requesting the rollover contribution is a participant in the 401(k)
Plan of Lions Gate at the time of such rollover, and further provided that the
rollover contribution is in cash and/or other property acceptable to the trustee
of the Lions Gate Plan.
6.11 TERMINATION OF BONUS PLAN. Subject to the consummation of the
Merger, the Company shall terminate its Executive Bonus Pool for periods after
June 30, 2000.
44
6.12 2000 COMPANY FINANCIAL STATEMENTS. The Company shall use its
commercially reasonable efforts to deliver to Lions Gate not later than
September 30, 2000, its audited financial statements as of and for the year
ended June 30, 2000, accompanied by the report thereon of PriceWaterhouseCoopers
LLP. The delivery of such audited financial statements shall constitute a
representation and warranty that such financial statements (including the notes
thereto) have been prepared in accordance with GAAP on a consistent basis with
past practice and that such financial statements present fairly the financial
condition of the Company and its Subsidiaries and the results of their
operations as of June 30, 2000, and for the year then ended.
6.13 TRANSFER OF STOCK OF CERTAIN PRODUCTION AFFILIATES. The Company
shall cause William Wesley and each other holder of an equity interest in any
Affiliate of the Company established in connection with the production of any
single Film in the Company Film Library (other than Films which, at the Closing
Date, are in pre-production, principal photography or post-production)
(collectively, the "Completed Film Production Entities"), including but not
limited to Augmented Productions, Inc., Crocodile Productions, Inc., and Skipped
Parts Productions Inc., to transfer all of such Person's right, title and
interest in such Completed Film Production Entities to such Person as Lions Gate
shall identify to the Company in writing.
ARTICLE VII
PRE-CLOSING COVENANTS OF THE LIONS GATE PARTIES
Between the date of this Agreement and the Closing Date,
7.1 ADDITIONAL INFORMATION. Lions Gate shall provide to the Company
and its Representatives such financial, operating and other documents, data and
information relating to Lions Gate and its Subsidiaries, the Lions Gate Business
and the Lions Gate Assets and the Liabilities of Lions Gate and its
Subsidiaries, as Company or its Representatives may reasonably request. In
addition, the Company shall take all action necessary to enable the Company and
its Representatives to review and inspect the Lions Gate Assets, the Lions Gate
Business and the Liabilities of Lions Gate and its Subsidiaries and discuss them
with the Company's officers, employees, independent accountants and counsel.
Notwithstanding any investigation that the Company may conduct of Lions Gate and
its Subsidiaries, the Lions Gate Business, the Lions Gate Assets and the
Liabilities of Lions Gate and its Subsidiaries, the Company may fully rely on
the Lions Gate Parties' warranties, covenants and indemnities set forth in this
Agreement, the Collateral Documents and any documents or certificates delivered
hereunder and thereunder, which will not be waived or affected by or as a result
of such investigation.
7.2 CONTINUITY AND MAINTENANCE OF OPERATIONS.
(a) Lions Gate shall, and shall cause each of its
Subsidiaries to use its commercially reasonable efforts to promote the financial
success of the Lions Gate Business and promptly notify the Company of any
material adverse change in the condition (financial or otherwise) of the Lions
Gate Business and use its commercially reasonable efforts to promote, develop
and preserve its relationships with its present employees as well as the
goodwill of its customers and promptly notify the Company of any material
adverse change in such relationships.
45
(b) No Lions Gate Party shall take or omit to take any
action that would cause any of them to be in material breach of any
representations, warranties or covenants made by them in this Agreement or the
Collateral Documents or that would, if such action had been taken or omitted on
or before the date of this Agreement, have been required to be disclosed in
Section 4.10 of the Lions Gate Disclosure Statement.
(c) Before entering into any Film Asset Acquisition
Agreement, Film Asset Exploitation Agreement or other Film Contract with respect
to a Film where any of (a) the print and advertising costs, (b) production
costs, or (c) acquisition costs exceed U.S. $3,000,000, Lions Gate will consult
with the Company respecting such transaction so as to allow the Company to
express its views with respect to such transaction. Further, neither Lions Gate
nor any Subsidiary controlled by Lions Gate shall enter into any contractual
obligation or otherwise effect any transaction, acquisition or stock issuance
involving Lions Gate or such Subsidiary which involves Lions Gate's or such
Subsidiary's financial commitment of U.S. $20,000,000 or more or is reasonably
valued in excess of U.S. $20,000,000, without the prior reasonable approval of
the Company. Further, before entering into any Acquisition outside of the
Ordinary Course of less than U.S. $20,000,000 (a "Minor Acquisition") (or
agreement to effect a Minor Acquisition) which when combined with any prior
Minor Acquisition(s) (or agreement to effect such prior Minor Acquisition(s))
from the date hereof aggregate at least U.S. $20,000,000 Lions Gate (or any
Subsidiary controlled by Lions Gate) will consult with the Company respecting
such transaction so as to allow the Company to express its views with respect to
such transaction.
7.3 CONSENTS AND APPROVALS. As soon as practicable after execution
of this Agreement, the Lions Gate Parties shall use their commercially
reasonable efforts to obtain any necessary consent, approval, authorization or
order of, make any registration or filing with or give notice to, any Regulatory
Authority or Person as is required to be obtained, made or given by any of the
Lions Gate Parties to consummate the transactions contemplated by this Agreement
and the Collateral Documents, including without limitation any authorizations,
consents, approvals, actions, filings or notices set forth in Section 4.5 of
this Agreement or Section 4.5 of the Lions Gate Disclosure Statement.
7.4 MEETING OF THE LIONS GATE SHAREHOLDERS.
(a) Lions Gate will take all action in accordance with
Canadian law and its charter documents to convene a meeting of Lions Gate's
shareholders to consider adoption and approval of this Agreement and approval of
the Merger (the "Lions Gate Shareholders' Meeting") to be held as promptly as
practicable after the date of the Company Shareholders' Meeting. Lions Gate will
use its commercially reasonable efforts to solicit from its shareholders proxies
in favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its shareholders required by applicable law and to obtain such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
Lions Gate may adjourn or postpone the Lions Gate Shareholders' Meeting to the
extent necessary to ensure that any necessary supplement or amendment to Lions
Gate's proxy statement is provided to Lions Gate's shareholders in advance of a
vote on the Merger and this Agreement or, if as of the time for which the Lions
Gate Shareholders' Meeting is originally scheduled (as set forth in Lions Gate's
proxy statement) there are insufficient shares of Lions Gate Common Stock
represented (either in person or by
46
proxy) to constitute a quorum necessary to conduct the business of the Lions
Gate's Shareholders' Meeting. Lions Gate shall ensure that the Lions Gate
Shareholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by Lions Gate in connection with the Lions Gate
Shareholders' Meeting are solicited, in compliance with applicable law and Lions
Gate's charter documents.
(b) The Board of Directors of Lions Gate shall recommend
that Lions Gate's shareholders vote in favor of and adopt and approve this
Agreement and approve the Merger at the Lions Gate Shareholders' Meeting. Lions
Gate's proxy statement shall include a statement to the effect that the Board of
Directors of Lions Gate has recommended that Lions Gate's shareholders vote in
favor of and adopt and approve this Agreement and the Merger at the Lions Gate
Shareholders' Meeting. Neither the Board of Directors of Lions Gate nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to the Company, the recommendation
of the Board of Directors of Lions Gate that Lions Gate's shareholders vote in
favor of and adopt and approve this Agreement and the Merger.
7.5 MERGER REGISTRATION STATEMENT. Lions Gate shall prepare and file
with the Commission a registration statement on Form F-4 (such registration
statement, together with any amendments thereof or supplements thereto, being
the "Lions Gate Merger Registration Statement") registering under the Securities
Act the Lions Gate Common Stock. Lions Gate shall provide the Company and its
counsel reasonable opportunity to review and comment upon the contents of the
Lions Gate Merger Registration Statement prior to any filing, mailing or
amendment thereof. Lions Gate will use commercially reasonable efforts to cause
the Lions Gate Merger Registration Statement to become effective as promptly as
practicable. Lions Gate shall also file an application with the securities
commission in each Canadian jurisdiction for a ruling that the issuance of the
Merger Consideration shall be exempt from the prospectus and registration
requirements of, and the first trade by the Company Shareholders of the Lions
Gate Common Stock, shall be exempt from the prospectus requirements of, and not
be subject to any hold period under, Canadian Securities Laws or the securities
laws of any other Canadian jurisdiction where such application may be necessary,
subject to any restrictions that may be applicable to a Company Shareholder
should he be considered to be a controlling shareholder of Lions Gate for the
purposes of Canadian Securities Laws, provided that no application need be filed
in any jurisdiction from which the Company has received from Lions Gate a legal
opinion of local counsel that an exemption from the prospectus and registration
requirements in that jurisdiction exists.
7.6 FINANCIAL AND OTHER INFORMATION. Lions Gate shall, promptly
after execution of this Agreement and from time to time thereafter, provide such
information and documents to the Company and its Affiliates concerning Lions
Gate, its Subsidiaries and shareholders as may be required or appropriate for
inclusion in the Company Proxy Statement or any other filing, notification or
report made by the Company or any Affiliate of the Company under the Securities
Act, the Exchange Act or any state securities law; shall cause their respective
counsel and independent accountants to cooperate with the Company, its
Affiliates and their investment bankers, counsel and independent accountants in
the preparation of such filings, notifications and reports; and shall use their
best efforts to obtain consents and "comfort letters" from such accountants as
required in connection with such filings, notifications and reports. Lions Gate
47
represents and warrants to the Company that no information or document provided
by Lions Gate for inclusion in any filing, notification or report made by the
Company or any Affiliate under the Securities Act, the Exchange Act or any state
securities law will contain any untrue statement of material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not misleading.
7.7 NOTIFICATION OF CERTAIN MATTERS. Lions Gate shall promptly
notify the Company of any fact, event, circumstance or action known to it that
is reasonably likely to cause any Lions Gate Party to be unable to perform any
of its covenants contained herein or any condition precedent in ARTICLE IX not
to be satisfied, or that, if known on the date of this Agreement, would have
been required to be disclosed to the Company pursuant to this Agreement or the
existence or occurrence of which would cause any of the Lions Gate Parties'
representations or warranties under this Agreement not to be correct and/or
complete. The Lions Gate Parties shall give prompt written notice to the Company
of any adverse development causing a breach of any of the representations and
warranties in ARTICLE IV or ARTICLE V as of the date made. However, except as
provided in Section 7.5, no disclosure by the Lions Gate Parties pursuant to
this Section shall be deemed to amend or supplement this Agreement or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant by the
Lions Gate Parties.
7.8 LIONS GATE DISCLOSURE STATEMENT. The Lions Gate Parties shall,
from time to time prior to Closing, supplement the Lions Gate Disclosure
Statement with additional information that, if existing or known to it on the
date of this Agreement, would have been required to be included therein. For
purposes of determining the satisfaction of any of the conditions to the
obligations of the Company in ARTICLE IX, the Lions Gate Disclosure Statement
shall be deemed to include only (a) the information contained therein on the
date of delivery of the Company Disclosure Statement to the Lions Gate Parties
and (b) information added to the Lions Gate Disclosure Statement by written
supplements delivered prior to Closing by the Lions Gate Parties that (i) are
accepted in writing by the Company or (ii) reflect actions taken or events
occurring after the date hereof and prior to Closing that (A) do not breach any
covenant in this Agreement so as to cause the condition precedent stated in
Section 9.2 not to be fulfilled at or prior to the Closing, and (B) do not in
the aggregate have a Material Adverse Effect on Lions Gate or a material adverse
effect on the validity, binding effect or enforceability of this Agreement or
the Collateral Documents or the ability of the Company or any of the Lions Gate
Parties to perform its obligations under this Agreement or any of the Collateral
Documents.
7.9 SECTION 16 MATTERS. Prior to the Effective Time, Lions Gate
shall take all such steps as may be required to cause any acquisitions of Lions
Gate Common Stock and derivative securities resulting from the transactions
contemplated by this Agreement by each individual who is subject to the
reporting requirements of Section 16(a) of the Exchange Act with respect to the
Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act, such
steps to be taken in accordance with the No-Action Letter dated January 12,
1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.
7.10 STOCK EXCHANGE LISTINGS. Lions Gate shall cause the shares of
Lions Gate Common Stock to be issued in the Merger to be approved for listing on
the American Stock
48
Exchange and Toronto Stock Exchange subject to official notice of issuance,
prior to the Effective Time.
7.11 STATE STATUTES. Lions Gate and its board of directors shall, if
any state takeover statute or similar law is or becomes applicable to the
Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Lions Gate or any
Subsidiary or Affiliate thereof to agree to any divestiture by itself or any of
its Affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their businesses or to own or exercise control of such assets,
properties and stock.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE LIONS GATE PARTIES
All obligations of the Lions Gate Parties under this Agreement shall be
subject to the fulfillment at or prior to Closing of each of the following
conditions, it being understood that the Lions Gate Parties may, in their sole
discretion, to the extent permitted by applicable Legal Requirements, waive any
or all of such conditions in whole or in part.
8.1 ACCURACY OF REPRESENTATIONS. All representations and warranties
of the Company (other than those set forth in Sections 3.19 through 3.21,
inclusive, of this Agreement) contained in this Agreement (giving effect to
Section 6.8), the Collateral Documents and any certificate delivered by any of
the Company at or prior to Closing shall be, if specifically qualified by
materiality, true in all respects and, if not so qualified, shall be true in all
material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, except for representations and
warranties expressly stated to be made as of the date of this Agreement or as of
another date other than the Closing Date and except for changes contemplated or
permitted by this Agreement. All representations and warranties of the Company
set forth in Sections 3.19 through 3.21 inclusive of this Agreement shall be
true in all respects on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, except for representations and warranties
expressly stated to be made as of the date of this Agreement and except: (i) for
changes contemplated or permitted by this Agreement; (ii) to the extent that (A)
Lions Gate possessed actual knowledge on the date of execution of this Agreement
of information contrary to any such representation or warranty (and then only to
the extent of such information of which Lions Gate had actual knowledge) or (B)
the falsity or misleading nature of such representations and warranties would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company; a material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents; or a material
adverse effect on the value of the Company Film Library. The Company shall have
delivered to Lions Gate and Merger Sub a certificate dated the Closing Date to
the foregoing effect.
49
8.2 COVENANTS. The Company shall, in all material respects, have
performed and complied with each of the covenants, obligations and agreements
contained in this Agreement and the Collateral Documents that are to be
performed or complied with by them at or prior to Closing. The Company shall
have delivered to Lions Gate and Merger Sub a certificate dated the Closing Date
to the foregoing effect.
8.3 CONSENTS AND APPROVALS.
(a) All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Regulatory Authority or Person as
provided in Sections 6.4(a) and 7.3 shall have been duly obtained, made or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by applicable law, including the HSR Act, or any
Regulatory Authority in connection with such transactions shall have expired or
have been earlier terminated, unless the failure to obtain, make or give any
such consent, approval, authorization, order, registration, filing or notice, or
to allow any such waiting period to expire or terminate would not have a
Material Adverse Effect on the Company or a material adverse effect on the
validity, binding effect or enforceability of this Agreement or the Collateral
Documents or the ability of the Company to perform its obligations under this
Agreement or any of the Collateral Documents.
(b) This Agreement and the Merger shall have been approved
by the requisite vote of Lions Gate's shareholders in accordance with the
applicable Canadian law and the rules of the American Stock Exchange and the
Toronto Stock Exchange.
(c) This Agreement and the Merger shall have been approved
by the requisite vote of the Company's Shareholders in accordance with the DGCL
and the Company's Certificate of Incorporation and by-laws.
(d) Lions Gate and Merger Sub shall have been furnished with
appropriate evidence, reasonably satisfactory to it and its counsel, of the
granting of such consents, approvals, authorizations and orders, the making of
such registrations and filings and the giving of such notices referred to in
subsections (a), (c) and (d).
8.4 DISSENTERS' RIGHTS. The period for assertion of dissenters'
rights pursuant to Section 262 of the DGCL and Section 1300 of the CGCL shall
have expired, and the holders of Company Capital Stock entitled to receive not
more than 9.5% of the Lions Gate Common Stock included in the Merger
Consideration shall have perfected their dissenters' appraisal rights under
Section 262 of the DGCL and Section 1300 of the CGCL in connection with the
Merger.
8.5 DELIVERY OF DOCUMENTS. The Company shall have delivered, or
caused to be delivered, to Lions Gate and Merger Sub the following documents:
(i) The Registration Rights Agreement, executed by
the parties thereto other than Lions Gate.
(ii) Concurrently with the execution of this
Agreement, the Voting Agreement, executed by the parties thereto.
50
(iii) Certified copies of the Company's certificate or
incorporation and by-laws and certified resolutions of the board of directors
and Shareholders of the Company authorizing the execution of this Agreement and
the Collateral Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby.
(iv) An opinion of Bryan Cave LLP, counsel to the
Company, dated the Closing Date, in form and substance reasonably satisfactory
to Lions Gate.
(v) All books and records of the Company and its
Subsidiaries.
(vi) Such other documents and instruments as Lions
Gate may reasonably request: (A) to evidence the accuracy of the Company's
representations and warranties under this Agreement, the Collateral Documents
and any documents, instruments or certificates required to be delivered
thereunder; (B) to evidence the performance by the Company of, or the compliance
by the Company with, any covenant, obligation, condition and agreement to be
performed or complied with by the Company under this Agreement and the
Collateral Documents; or (C) to otherwise facilitate the consummation or
performance of any of the transactions contemplated by this Agreement and the
Collateral Documents.
8.6 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there shall
have been no material adverse change in the Company Assets, the Company Business
or the financial condition or operations of the Company and its Subsidiaries,
taken as a whole.
8.7 NO LITIGATION. No action, suit or proceeding shall be pending or
threatened by or before any Regulatory Authority, and no Legal Requirement or
policy or any applicable regulatory authority, shall have been enacted,
promulgated or issued that would: (i) prohibit or adversely affect in any
material respect Lions Gate's or the Surviving Corporation's and its
Subsidiaries' ownership or operation of all or a material portion of the Company
Business or the Company Assets or materially and adversely affect the value of
the Company Assets; (ii) materially restrict or limit or otherwise condition
Lions Gate's or the Surviving Corporation's and its Subsidiaries' right to
transfer and/or assign the Company Business or the Company Assets in the future;
(iii) compel Lions Gate or the Surviving Corporation or any of its Subsidiaries
to dispose of or hold separate all or a material portion of the Company Business
or the Company Assets as a result of any of the transactions contemplated by
this Agreement and the Collateral Documents; (iv) prevent or make illegal the
consummation of any transactions contemplated by this Agreement and the
Collateral Documents; or (v) cause any of the transactions contemplated by this
Agreement and the Collateral Documents to be rescinded following consummation.
8.8 LIONS GATE MERGER REGISTRATION STATEMENT; BLUE SKY LAWS. The
Lions Gate Merger Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the Commission or any
state regulatory authorities. All state securities or "Blue Sky" permits and
other authorizations necessary to issue the Lions Gate Common Stock shall have
been received.
51
8.9 CANADIAN EXEMPTION. The issuance of the Lions Gate Common Stock
and the first trade of the Lions Gate Common Stock shall be exempt from the
applicable prospectus and registration requirements of any applicable Canadian
jurisdiction and, where necessary, the discretionary rulings of the Canadian
securities commissions contemplated in Section 7.5 shall have been obtained.
8.10 EMPLOYMENT AGREEMENT. Concurrently with the Closing, Mark Amin
shall have entered into an employment agreement with the Surviving Corporation
in form and substance satisfactory to Lions Gate.
8.11 CREDIT LINE. After taking into account the transactions
contemplated by this Agreement, Lions Gate shall have an aggregate credit line
of US$100,000,000 under the Lions Gate Credit Agreement exclusive of (a) the
Bank of Montreal term loans secured by Lions Gate Studios, (b) any debt of
Cine-Groupe Corporation or its productions, (c) the Cdn. $16,500,000
(approximate) Lions Gate convertible promissory notes due July 31, 2003, (d) the
US$750,000 Lions Gate convertible promissory notes issued on the acquisition of
Termite Art Productions, (e) tax credit financing for Hope Island and Higher
Ground from Equicap Financial Corporation, (f) amounts outstanding under Lions
Gate Films prints and advertising facility from Imperial Bank, and (g)
production financing related to American Psycho from Imperial Bank.
8.12 SECTION 367. The requirements set forth in Treasury Regulations
Section 1.367(a) - 3(c)(1) shall be satisfied on the Closing Date.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
All obligations of the Company under this Agreement shall be subject to
the fulfillment at or prior to Closing of the following conditions, it being
understood that the Company may, in its sole discretion, to the extent permitted
by applicable Legal Requirements, waive any or all of such conditions in whole
or in part.
9.1 ACCURACY OF REPRESENTATIONS. All representations and warranties
of the Lions Gate Parties (other than those set forth in Sections 4.18 through
4.20, inclusive, of this Agreement) contained in this Agreement (giving effect
to Section 7.8) and the Collateral Documents and any other document, instrument
or certificate delivered by any of the Lions Gate Parties at or prior to the
Closing shall be, if specifically qualified by materiality, true and correct in
all respects and, if not so qualified, shall be true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, except for representations and warranties
expressly stated to be made as of the date of this Agreement or as of another
date other than the Closing Date and except for changes contemplated or
permitted by this Agreement. All representations and warranties of Lions Gate
set forth in Sections 4.18 through 4.20 inclusive of this Agreement shall be
true in all respects on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, except for representations and warranties
expressly stated to be made as of the date of this Agreement and except: (i) for
changes contemplated or permitted by this Agreement; (ii) to the extent that (A)
the Company possessed actual knowledge on the date of execution of this
Agreement of information contrary to any such representation or warranty (and
then only to the extent of such
52
information of which the Company had actual knowledge) or (B) the falsity or
misleading nature of such representations and warranties would not, individually
or in the aggregate, have a Material Adverse Effect on Lions Gate; a material
adverse effect on the validity, binding effect or enforceability of this
Agreement or the Collateral Documents; or a material adverse effect on the value
of the Lions Gate Film Library. The Lions Gate Parties shall have delivered to
the Company a certificate dated the Closing Date to the foregoing effect.
9.2 COVENANTS. The Lions Gate Parties shall, in all material
respects, have performed and complied with each obligation, agreement, covenant
and condition contained in this Agreement and the Collateral Documents and
required by this Agreement and the Collateral Documents to be performed or
complied with by the Lions Gate Parties at or prior to Closing. The Lions Gate
Parties shall have delivered to the Company a certificate dated the Closing Date
to the foregoing effect.
9.3 CONSENTS AND APPROVALS.
(a) All consents; approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Regulatory Authority or Person as
provided in Section 7.3 shall have been duly obtained, made or given, as the
case may be, and shall be in full force and effect, and any waiting period
required by applicable law, including the HSR Act, or any Regulatory Authority
in connection with such transactions shall have expired or have been earlier
terminated, unless the failure to obtain, make or give any such consent,
approval, authorization, order, registration, filing or notice, or to allow any
such waiting period to expire or terminate would not have a Material Adverse
Effect on Lions Gate or a material adverse effect on the validity, binding
effect or enforceability of this Agreement or the Collateral Documents or the
ability of the Company or any of the Lions Gate Parties to perform its
obligations under this Agreement or any of the Collateral Documents.
(b) This Agreement and the Merger shall have been approved
by the requisite vote of Lions Gate's shareholders in accordance with applicable
law, Lions Gate's Certificate of Incorporation and by-laws and the rules of the
American Stock Exchange and the Toronto Stock Exchange.
(c) This Agreement and the Merger shall have been approved
by the requisite vote of the Company's Shareholders in accordance with the DGCL
and the Company's Certificate of Incorporation and by-laws.
(d) The Company shall have been furnished with the
appropriate evidence, reasonably satisfactory to them and their counsel, of the
granting of such consents, approvals, authorizations and orders, the making of
such registrations and filings and the giving of such notices referred to in
subsections (a), (b) and (c).
9.4 DELIVERY OF DOCUMENTS. The Lions Gate Parties, as applicable,
shall have executed and delivered, or caused to be executed and delivered, to
the Company the following documents:
(i) The Registration Rights Agreement, executed by
Lions Gate.
53
(ii) Concurrently with the execution of this
Agreement, the Voting Agreement, executed by the parties thereto.
(iii) Certified copies of the certificate of
incorporation and by-laws of Lions Gate and certified resolutions by the
board of directors and Company Shareholders of Lions Gate authorizing
the execution of this Agreement and the Collateral Documents and the
consummation of the transactions contemplated hereby.
(iv) Such other documents and instruments as the
Company may reasonably request: (A) to evidence the accuracy of the
representations and warranties of the Lions Gate Parties under this
Agreement and the Collateral Documents and any documents, instruments or
certificates required to be delivered thereunder; (B) to evidence the
performance by the Lions Gate Parties of, or the compliance by the Lions
Gate Parties with, any covenant, obligation, condition and agreement to
be performed or complied with by the Lions Gate Parties under this
Agreement and the Collateral Documents; or (C) to otherwise facilitate
the consummation or performance of any of the transactions contemplated
by this Agreement and the Collateral Documents.
(v) Opinion of Heenan Blaikie and Loeb & Loeb LLP,
counsel to the Lions Gate Parties, dated the Closing Date, in form and
substance reasonably satisfactory to the Company.
9.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the business, financial condition or operations of Lions Gate
and its Subsidiaries taken as a whole.
9.6 NO LITIGATION. No action, suit or proceeding shall be pending or
threatened by or before any Regulatory Authority and no Legal Requirement shall
have been enacted, promulgated or issued or deemed applicable to any of the
transactions contemplated by this Agreement and the Collateral Documents that
would: (i) prevent consummation of any of the transactions contemplated by this
Agreement and the Collateral Documents; (ii) cause any of the transactions
contemplated by this Agreement and the Collateral Documents to be rescinded
following consummation; (iii) result in the Lions Gate Common Stock being
ineligible for trading on the American Stock Exchange or the Toronto Stock
Exchange; or (iv) have a Material Adverse Effect on Lions Gate.
9.7 EXCHANGE LISTING. The shares of Lions Gate Common Stock issuable
in the Merger shall have been approved for listing on the American Stock
Exchange and the Toronto Stock Exchange upon official notice of issuance.
9.8 LIONS GATE MERGER REGISTRATION STATEMENT; BLUE SKY LAWS. The
Lions Gate Merger Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the Commission or any
state regulatory authorities. All state securities or "Blue Sky" permits and
other authorizations necessary to issue the Lions Gate Common Stock shall have
been received.
54
9.9 CANADIAN EXEMPTION. The issuance of the Lions Gate Common Stock
and the first trade of the Lions Gate Common Stock shall be exempt from the
applicable prospectus and registration requirements of any applicable Canadian
jurisdiction and, where necessary, the discretionary rulings of the Canadian
securities commissions contemplated in Section 7.5 shall have been obtained.
9.10 EMPLOYMENT AGREEMENT. Concurrently with the Closing, Mark Amin
shall have entered into an employment agreement with the Surviving Corporation.
9.11 CREDIT LINE. After taking into account the transactions
contemplated by this Agreement, Lions Gate shall have an aggregate credit line
of US$100,000,000 under the Lions Gate Credit Agreement exclusive of (a) the
Bank of Montreal term loans secured by Lions Gate Studios, (b) any debt of
Cine-Groupe Corporation or its productions, (c) the Cdn. $16,500,000
(approximate) Lions Gate convertible promissory notes due July 31, 2003, (d) the
US$750,000 Lions Gate convertible promissory notes issued on the acquisition of
Termite Art Productions, (e) tax credit financing for Hope Island and Higher
Ground from Equicap Financial Corporation, (f) amounts outstanding under Lions
Gate Films prints and advertising facility from Imperial Bank, and (g)
production financing related to American Psycho from Imperial Bank.
9.12 SECTION 367. The requirements set forth in Treasury Regulations
Section 1.367(a)-3(c)(1) shall be satisfied on the Closing Date.
ARTICLE X
POST CLOSING COVENANTS
The Parties agree as follows with respect to the period following
Closing:
10.1 BOARD APPOINTMENT. Promptly following the Effective Time, Mark
Amin will be appointed to the Board of Directors of Lions Gate subject to the
terms and conditions of that certain Employment Agreement by and between Lions
Gate and Mark Amin dated as of even date hereof.
10.2 INDEMNIFICATION OF DIRECTORS, OFFICERS AND MANAGERS OF THE
COMPANY AND ITS PREDECESSORS; DIRECTORS' AND OFFICERS' INSURANCE.
(a) For six years after the Effective Time, Lions Gate
shall, and shall cause the Surviving Corporation to, indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its Subsidiaries (the "Indemnified Parties") against all losses,
expenses, claims, damages or liabilities (including advancement of expenses)
arising out actions or omissions occurring on or prior to the Effective Time
(including without limitation, the transactions contemplated by this Agreement)
(i) to the fullest extent permitted by Delaware law, or (ii) if the protections
afforded thereby to an Indemnified Party are greater, to the same extent and on
the same terms and conditions provided for in the Company's certificate of
incorporation and by-laws and agreements in effect at the date hereof (to the
extent consistent with applicable law) (and of any corporation that shall
succeed to it by merger, consolidation or otherwise), which provisions shall
survive the Merger and continue in full force and effect for a period of six
years after the Effective Time. Without limiting the foregoing, in any case in
which approval by the Surviving Corporation is required to effectuate any
55
indemnification, Lions Gate shall cause the Surviving Corporation to direct, at
the election of the Indemnified Party, that the determination of any such
approval shall be made by an independent counsel selected by the Indemnified
Party.
(b) Lions Gate shall, for six years from the Effective Time,
maintain in effect the current directors' and officers' liability insurance
coverage listed, and identified as such, on Section 3.17 of the Company
Disclosure Statement maintained by the Company (provided that Lions Gate may
substitute therefor policies from insurers of the same quality rating of at
least the same coverage and amounts containing terms and conditions which are no
less advantageous to such officers and directors so long as substitution does
not result in gaps or lapses in coverage) with respect to matters occurring
through the Effective Time. Lions Gate shall deliver advance notice of any
substitution of insurance policies to the persons insured thereby. Lions Gate
shall also request that the insurer deliver notice of non-payment of premiums
and at least 30 days advance notice of any cancellation of such policies to the
persons insured by such policies.
(c) In the event Lions Gate or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of Lions Gate shall assume the obligations set
forth in this Section 10.2.
(d) The obligations of Lions Gate under this Section 10.2
shall not be terminated or modified in such a manner as to adversely affect any
director, officer, employee, fiduciary and agent to whom this Section 10.2
applies without the consent of each affected director, officer, employee,
fiduciary and agent (it being expressly agreed that the directors, officers,
employees, fiduciaries and agents to whom this Section 10.2 applies shall be
third-party beneficiaries of this Section 10.2).
10.3 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Company Shareholders the benefits of Rule 144 and 145
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Company Shareholder to sell securities of Lions Gate to the
public without registration, Lions Gate agrees to: (a) make and keep public
information available, as those terms are understood and defined in SEC Rule 144
and 145, at all times; (b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and (c)
furnish to any Company Shareholder forthwith upon request (i) a written
statement by Lions Gate that it has complied with the reporting requirements of
SEC Rule 144 and 145, the Securities Act and the Exchange Act, (ii) a copy of
the most recent annual or periodic report of Lions Gate and such other reports
and documents so filed by Lions Gate, and (iii) such other information as may be
reasonably requested in availing any Company Shareholder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration.
10.4 EMPLOYEE BENEFITS. Lions Gate shall cause the Surviving
Corporation to provide to all active employees of the Company at the Effective
Time who become employed by the Surviving Corporation as of the Effective Time
coverage by benefit plans or arrangements that are similar to benefit plans or
arrangements currently provided by Lions Gate to its U.S.-based employees.
56
10.5 GAIN RECOGNITION AGREEMENT. In order to satisfy Sections 8.12
and 9.12, certain Company Shareholders must each enter into a "Gain
Recognition Agreement Under Section 1.367(a)-8", as defined in Treasury
Regulation Section 1.367(a)-8 ("Five-Year Gain Recognition Agreement"). Upon
receipt by Lions Gate of written notice by each such Company Shareholder that
such Company Shareholder agrees to enter into such a Five-Year Gain
Recognition Agreement and be bound by this Section 10.5, Lions Gate agrees to
pay each such Company Shareholder who gives a copy of his or her executed
Five-Year Gain Recognition Agreement to Lions Gate upon request, as
additional consideration in connection with the Merger, an amount equal to
the "Gross-Up Amount," as defined below, in the event Lions Gate directly or
indirectly disposes of all or any portion of Company Common Stock or
Company's assets in a manner that would require such Company Shareholder to
recognize gain pursuant to the Five-Year Gain Recognition Agreement or the
Treasury Regulations under Code Section 367 ( the amount of such gain for
each such Company Shareholder shall hereinafter be the "Section 367 Gain").
For purposes of this Section 10.5, "Gross-Up Amount" shall mean a lump sum
payment, payable within thirty (30) days of the event giving rise to the
payment obligation, equal to the product of the "Assumed Tax Factor"
multiplied by the "Assumed Tax on Gain," as such terms are defined below. For
purposes of this Section 10.5, "Assumed Tax on Gain" shall mean an amount of
federal and all applicable state income tax liabilities imposed on the
Section 367 Gain for such Company Shareholder, assuming that the highest
marginal rate of federal income taxation on capital gains applicable to
individuals for the taxable year in which such gain is recognized is imposed
and that the highest marginal rate of state income taxation on capital gains
applicable to individuals for the taxable year in which such gain is
recognized is imposed plus interest thereon. For purposes of this Section
10.5, "Assumed Tax Factor" shall mean the fraction 1 divided by
[1 - F - S + (F x S)], where F is the highest marginal rate of federal income
taxation on capital gains applicable to individuals for the taxable year in
which such payment is made and S is the highest marginal rate of state income
taxation on capital gains applicable to individuals for the taxable year in
which such payment is made. In the event that it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding that
the amount of Section 367 Gain used as the basis for a payment under this
Section 10.5 was too high, or if such Company Shareholder makes such a
determination, files an amended return, and receives a refund, such Company
Shareholder shall repay to Lions Gate, within 30 days of such Company
Shareholder's receipt of the refund (or, in the event there is no refund
forthcoming, the notice of such final determination), the portion of the
Gross-Up Amount attributable to such overstated Section 367 Gain, plus any
interest received by such Company Shareholder as part of such refund. In the
event that it is established pursuant to a final determination of a court or
an Internal Revenue Service proceeding settled in good faith that the amount
of Section 367 Gain used as the basis for a payment under this Section 10.5
was too low, or the capital gain rates were not applicable, or if such
Company Shareholder makes such a determination, files an amended return, and
pays tax, Lions Gate shall make an additional payment to such Company
Shareholder, such amount to be calculated as a Gross-Up Amount but using only
the additional Section 367 Gain or the applicable marginal rate of taxation
in the computation. Mark Amin is an intended third party beneficiary of
Sections 10.1 and 10.5 and by signing this Agreement is deemed to have agreed
to enter into a Five-Year Gain Recognition Agreement and be bound by this
Section 10.5.
10.6 SECTION 367 REPORTING. Lions Gate will cause the Surviving
Corporation (in its own capacity, and in its capacity as successor to the
Company) to take any and all actions a U.S.
57
target company must take to avoid having the transaction treated as a taxable
exchange under Code Section 367(a)(1), including without limitation complying
with all reporting requirements of Section 1.367(a)-3(c)(6) of the Treasury
Regulations in connection with filing the U.S. Federal Income Tax Return for the
Company for the period that ends on the Closing Date, except that Lions Gate and
the Surviving Corporation shall be permitted to dispose of any stock, securities
or assets, even if doing so causes gain recognition to some former
shareholder(s) of the Company. At least 10 days prior thereto, Lions Gate shall
notify any former shareholder of the Company who shall be a party to a gain
recognition agreement pursuant to Section 1.367(a)-8 of the Treasury Regulations
of any disposition of stock, securities or assets that could give rise to the
requirement that gain will be recognized pursuant to such agreement, or that is
required to be reported by such shareholder to the Internal Revenue Service in
order to comply with the terms of such agreement, provided that the obligation
to notify any former shareholder of the Company other than Mark Amin shall not
arise until Lions Gate shall have received written notice from such other former
shareholder that such former shareholder has entered into such a gain
recognition agreement.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time:
(a) by mutual written agreement of Lions Gate and the
Company hereto duly authorized by action taken by or on behalf of their
respective Boards of Directors;
(b) by either the Company or Lions Gate upon notification to
the non-terminating party by the terminating party:
(i) at any time after November 30, 2000 if the
Merger shall not have been consummated on or prior to such date and such
failure to consummate the Merger is not caused by a material breach of
this Agreement by the terminating party;
(ii) if the Company Shareholder Approval or the Lions
Gate Shareholder Approval shall not be obtained by reason of the failure
to obtain the requisite vote upon a vote held at a meeting of such
shareholders, or any adjournment thereof, called therefor;
(iii) if the terminating party is not in material
breach of its obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement
on the part of the non-terminating party set forth in this Agreement
such that the conditions in Sections 8.1, 8.2, 9.1 or 9.2 will not be
satisfied; provided, however, that if such breach is curable by the
non-terminating party and such cure is reasonably likely to be completed
prior to the date specified in Section 11.1(b)(i), then, for so long as
the non-terminating party continues to use its reasonable efforts to
effect and cure, the terminating party may not terminate pursuant to
this Section 11.1(b)(iii);
58
(iv) if any court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have issued an
order making illegal or otherwise permanently restricting, preventing or
otherwise prohibiting the Merger and such order shall have become final
and nonappealable;
(c) by Lions Gate or the Company if the Company or its
shareholders receive a Superior Offer in connection with which the Board of
Directors of the Company exercises the rights specified in Section 6.5(c) to
withhold, withdraw, amend or modify its recommendation of the Merger; or
(d) by Lions Gate if the Company breaches Section 6.2 of
this Agreement and Lions Gate is in substantial compliance with its obligations
under this Agreement.
11.2 EFFECT OF TERMINATION.
(a) If this Agreement is validly terminated by either the
Company or Lions Gate pursuant to Section 11.1, this Agreement will forthwith
become null and void and there will be no liability or obligation on the part of
the parties hereto, except (i) that nothing, other than Sections 11.2(b) and
11.2(c), contained herein shall relieve any party hereto from liability for
willful breach of its representations, warranties, covenants or agreements
contained in this Agreement, and (ii) as provided in Sections 11.2(b) and
11.2(c).
(b) In the event that Lions Gate or the Company terminates
this Agreement pursuant to Section 11.1(c), then the Company shall, within one
Business Day after receipt of a request from Lions Gate, pay to Lions Gate in
cash (x) a termination fee of US$3,000,000 as liquidated damages and not as a
penalty and (y) an amount equal to all documented out-of-pocket expenses and
fees incurred by Lions Gate in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees and
expenses payable to all banks, investment banking firms and other financial
institutions and persons and their respective agents and counsel for acting as
Lions Gate's financial advisor with respect to, or arranging or committing to
provide or providing any financing for, the Merger, Lions Gate's legal counsel
and Lions Gate's independent accountants), PROVIDED, that in no event shall the
amount of such reimbursable fees and expenses exceed $500,000 in the aggregate
(the amounts referred to in clauses (x) and (y) above are collectively referred
to as the "Company Termination Fee").
(c) In the event that the Merger does not close due to the
nonfulfillment of the conditions specified in Section 8.11 or Section 9.11, then
Lions Gate shall, within one Business Day after receipt of a request from the
Company, pay to the Company in cash (x) a termination fee of US$1,000,000 as
liquidated damages and not as a penalty and (y) an amount equal to all
documented out-of-pocket expenses and fees incurred by the Company in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, fees and expenses payable to all banks, investment banking firms and
other financial institutions and persons and their respective agents and counsel
for acting as the Company's financial advisor with respect to, or arranging or
committing to provide or providing any financing for, the Merger, the Company's
legal counsel and the Company's independent accountants), PROVIDED, that in no
event shall the amount of such reimbursable fees and expenses exceed US$250,000
in
59
the aggregate (the amounts referred to in clauses (x) and (y) above are
collectively referred to as the "Lions Gate Termination Fee").
(d) The Parties acknowledge that the agreements contained in
this Section 11.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Parties would not enter into
this Agreement; accordingly, if a Party fails to pay in a timely manner the
amounts due pursuant to this Section 11.2 and, in order to obtain such payment,
the other Party makes a claim that results in a judgment against such Party for
the amounts set forth in this Section 11.2, such Party shall pay to the other
Party its reasonable costs and expenses (including reasonable attorneys' fees
and expenses) in connection with such suit, together with interest on the
amounts set forth in this Section 11.2 as provided by this Agreement. Payment of
the Company Termination Fee or the Lions Gate Termination Fee described in this
Section 11.2 shall be in lieu of the amount of Adverse Consequences incurred in
the event of breach of this Agreement.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in this Agreement shall be deemed
conditions to the Merger, to the extent stated in Sections 8.1 and 9.1, and
shall not survive the Closing or the termination of this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 PARTIES OBLIGATED AND BENEFITED. This Agreement shall be binding
upon the Parties and their respective successors by operation of law and shall
inure solely to the benefit of the Parties and their respective successors by
operation of law, and no other Person shall be entitled to any of the benefits
conferred by this Agreement, except that the Company Shareholders shall be third
party beneficiaries of this Agreement and except as provided in Sections 10.5
and 13.12. Without the prior written consent of the other Party, no Party may
assign this Agreement or the Collateral Documents or any of its rights or
interests or delegate any of its duties under this Agreement or the Collateral
Documents.
13.2 NOTICES. Any notices and other communications required or
permitted hereunder shall be in writing and shall be effective upon delivery by
hand or upon receipt if sent by certified or registered mail (postage prepaid
and return receipt requested) or by a nationally recognized overnight courier
service (appropriately marked for overnight delivery) or upon transmission if
sent by telex or facsimile (with request for immediate confirmation of receipt
in a manner customary for communications of such respective type and with
physical delivery of the communication being made by one or the other means
specified in this Section as promptly as practicable thereafter). Notices shall
be addressed as follows:
(a) If to Lions Gate, Merger Sub or the Surviving
Corporation, to:
Lions Gate Entertainment Corp.
Suite 3123, Three Bentall Centre
60
595 Burrard Street
Vancouver, British Columbia V7X 1J1
Attention: Gordon Keep, Senior Vice President
Facsimile No. (604) 609-6145
If to the Company before the Closing Date to:
Trimark Holdings, Inc.
4553 Glencoe Avenue, Suite 200
Marina Del Rey, California 90292
Attention: Mark Amin, Chief Executive Officer
Facsimile No. (310) 314-4238
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section.
13.3 ATTORNEYS' FEES. In the event of any action or suit based upon
or arising out of any alleged breach by any Party of any representation,
warranty, covenant or agreement contained in this Agreement or the Collateral
Documents, the prevailing Party shall be entitled to recover reasonable
attorneys' fees and other costs of such action or suit from the other Party.
13.4 HEADINGS. The Article and Section headings of this Agreement are
for convenience only and shall not constitute a part of this Agreement or in any
way affect the meaning or interpretation thereof.
13.5 CHOICE OF LAW. This Agreement and the rights of the Parties
under it shall be governed by and construed in all respects in accordance with
the laws of the State of California, without giving effect to any choice of law
provision or rule (whether of the State of California or any other jurisdiction
that would cause the application of the laws of any jurisdiction other than the
State of California).
13.6 RIGHTS CUMULATIVE. All rights and remedies of each of the
Parties under this Agreement shall be cumulative, and the exercise of one or
more rights or remedies shall not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
13.7 FURTHER ACTIONS. The Parties shall execute and deliver to each
other, from time to time at or after Closing, for no additional consideration
and at no additional cost to the requesting party, such further assignments,
certificates, instruments, records, or other documents, assurances or things as
may be reasonably necessary to give full effect to this Agreement and to allow
each party fully to enjoy and exercise the rights accorded and acquired by it
under this Agreement.
13.8 TIME OF THE ESSENCE. Time is of the essence under this Agreement.
If the last day permitted for the giving of any notice or the performance of any
act required or permitted under
61
this Agreement falls on a day which is not a Business Day, the time for the
giving of such notice or the performance of such act shall be extended to the
next succeeding Business Day.
13.9 LATE PAYMENTS. If either Party fails to pay the other any
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the prime rate reported in the WALL
STREET JOURNAL from time to time.
13.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 ENTIRE AGREEMENT. This Agreement (including the Exhibits, the
Company Disclosure Statement, the Lions Gate Disclosure Statement and any other
documents, instruments and certificates referred to herein, which are
incorporated in and constitute a part of this Agreement) contains the entire
agreement of the Parties.
13.12 THIRD PARTY BENEFICIARIES. The officers and directors of the
Company, including Mark Amin in that capacity, are intended third party
beneficiaries of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the day and year first above written.
LIONS GATE ENTERTAINMENT CORP., a British
Columbia corporation
By: /s/ Jon Feltheimer
--------------------------------------------------
LGE MERGER SUB, INC., a Delaware corporation
By: /s/ Jon Feltheimer
--------------------------------------------------
TRIMARK HOLDINGS, INC., a Delaware corporation
By: /s/ Mark Amin
--------------------------------------------------
/s/ Mark Amin
-----------------------------------------------------
Mark Amin, individually (as to Section 10.5 only)
62
EXHIBIT 2
TOP COMPANY FILMS
1. "After the Storm"
2. "Another Day In Paradise"
3. "Blood Oranges"
4. "Blood Surf" aka "Krocodylus"
5. "Chairman of the Board"
6. "Cord"
7. "Cube"
8. "Diplomatic Siege" aka "Enemy of My Enemy"
9. "Eve's Bayou"
10. "Fear of Flying" aka "Turbulence II"
11. "Gateway" aka "Turbulence III"
12. "Held Up" aka "Inconvenienced II"
13. "King Cobra"
14. "Leprechaun V"
15. "Mummy" aka "Nora"
16. "Skipped Parts"
17. SNL Titles (including but not limited to "SNL-Chris Farley", "SNL-Adam
Sandler" and "SNL-Mike Myers")
18. "Stalk"
19. "Star Kid"
20. "Storm of the Century"
63
EXHIBIT 3
TOP LIONS GATE FILMS
1. "American Psycho"
2. "Buffalo"
3. "Gods & Monsters"
4. "Affliction"
5. "Dogma"
6. "Ginger Snaps"
7. "Shadow of a Vampire"
8. "Onegin"
9. "The Dinner Game"
10. "8 1/2 Women"
64
EXHIBIT 5
1. "ANOTHER DAY IN PARADISE"
2. "BILLY'S HOLLYWOOD SCREEN KISS"
3. "BLOOD ORANGES"
4. "BLUE JUICE"
5. "CARNIVAL OF SOULS"
6. "CHAIRMAN OF THE BOARD"
7. "CIRCLE OF PASSION" aka "Never Ever"
8. "COLONY, THE"
9. "CORD"
10. "CUBE"
11. "CURVE" aka "Dead Man's Curve"
12. "DELIVERY, THE"
13. "DENTIST II, THE"
14. "DIPLOMATIC SIEGE" aka "Enemy of My Enemy"
15. "EVE'S BAYOU"
16. "FEAR OF FLYING" aka "Turbulence II"
17. "GOING OVERBOARD"
18. "GROUND CONTROL"
19. "INCONVENIENCED II" aka "Held Up"
20. "JOE THE KING"
21. "KID IN ALADDIN'S PALACE" aka "Kid in Arabian Knights" aka "Kid in
Aladdin's Court"
22. "KING COBRA"
65
23. "KROCODYLUS" aka "Blood Surf"
24. "LAST SEPTEMBER"
25. "LEPRECHAUN V"
26. "LET THE DEVIL WEAR BLACK"
27. "MEET WALLY SPARKS"
28. "MR. MURDER"
29. "MUMMY" aka "Nora" aka "Trance"
30. "MY TEACHER'S WIFE" aka "Bad with Numbers"
31. "NATURAL BORN KILLERS"
32. "NOAH DEARBORN" aka "The Secret Life of Noah Dearborn"
33. "PHOENIX"
34. "SKIPPED PARTS"
35. "SLAM"
36. SNL Titles (including but not limited to "SNL - CHRIS FARLEY",
"SNL-ADAM SANDLER" and "SNL-MIKE MEYERS")
37. "SOMETIMES III" aka "Sometimes They Come Back for More"
38. "SPRUNG" aka "Dogs"
39. "STALK"
40. "STAND OFF" aka "Prairie Fire"
41. "STAR KID"
42. "STORM OF THE CENTURY"
43. "TAIL LIGHTS FADE"
44. "TREEHOUSE"
45. "TRUCKS"
46. "TWICE UPON A YESTERDAY"
66
47. ULTIMATE FIGHTING CHAMPIONSHIP 16 & 17
48. "WARLOCK III"
49. "AFTER THE STORM"
50. "TURBULENCE III" aka "Gateway"
67