EXHIBIT 2.1
-------------------------
ASSET PURCHASE AGREEMENT
-------------------------
between
CALIFA ENTERTAINMENT GROUP, INC.,
V.O.D., INC.,
STEVEN HIRSCH,
DEWI JAMES
&
WILLIAM ASHER
and
PLAYBOY ENTERPRISES, INC.
dated as of
June 29, 2001
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omissions have been indicated by asterisks ("*****"), and the omitted
text has been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
Page
ARTICLE 1 ASSET PURCHASE........................................................................1
1.1 Purchase and Sale of Assets...........................................................1
1.2 Assumption of Certain Liabilities.....................................................2
ARTICLE 2 PURCHASE PRICE AND ALLOCATION.........................................................4
2.1 Purchase Price........................................................................4
2.2 Base Purchase Price...................................................................6
2.3 Performance-Based Purchase Price......................................................7
2.4 Purchase Price Allocation.............................................................8
2.5 Issuance of PEI Shares................................................................8
2.6 Deferral of Sale of Vivid TV Assets..................................................17
ARTICLE 3 CLOSING..............................................................................20
3.1 Closing Date.........................................................................20
3.2 Items to be Delivered at the Closing by the Seller Parties...........................20
3.3 Items to be Delivered at the Closing by PEI..........................................21
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLER PArties.................................21
4.1 Organization and Related Matters.....................................................21
4.2 Ownership of Purchased Assets........................................................21
4.3 Authorization; No Conflicts..........................................................22
4.4 Financial Statements; No Changes; No Other Liabilities or Contingencies..............23
4.5 Receivables..........................................................................24
4.6 Accounting Records; Internal Controls................................................24
4.7 Tax and Other Returns and Reports....................................................24
4.8 Material Contracts...................................................................25
4.9 Intangible Property..................................................................26
4.10 Legal Proceedings....................................................................26
4.11 Insurance............................................................................26
4.12 Approvals and Permits................................................................27
4.13 Compliance with Law..................................................................27
4.14 Employee Matters.....................................................................27
4.15 Certain Interests....................................................................28
4.16 Intercompany Transactions............................................................28
4.17 Bank Accounts, Powers, etc...........................................................28
4.18 No Brokers or Finders................................................................28
4.19 Accuracy of Information..............................................................28
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PEI................................................29
5.1 Organization and Related Matters.....................................................29
5.2 Authorization........................................................................29
5.3 No Conflicts.........................................................................29
5.4 PEI Shares...........................................................................29
5.5 No Brokers or Finders................................................................30
5.6 Legal Proceedings....................................................................30
5.7 SEC Filings..........................................................................30
5.8 Bankruptcy...........................................................................30
ARTICLE 6 PRE-CLOSING COVENANTS................................................................30
6.1 Notification of Certain Matters......................................................30
6.2 Conduct of the Business Prior to the Closing Date....................................30
6.3 Preservation of Business Prior to Closing Date.......................................32
6.4 Permits and Approvals................................................................32
6.5 Exclusivity..........................................................................33
6.6 Sales Tax............................................................................33
ARTICLE 7 CONTINUING COVENANTS.................................................................34
7.1 Non-Competition Covenants............................................................34
7.2 Nondisclosure........................................................................35
7.3 *****................................................................................36
7.4 Employee Related Obligations.........................................................36
7.5 Bulk Sales Laws......................................................................36
7.6 Collective Action....................................................................36
7.7 Program Supply Agreements............................................................37
ARTICLE 8 CONDITIONS OF PURCHASE...............................................................37
8.1 General Conditions...................................................................37
8.2 Conditions to Obligations of PEI.....................................................38
8.3 Conditions to Obligations of Sellers.................................................38
ARTICLE 9 TERMINATION OF OBLIGATIONS; SURVIVAL.................................................39
9.1 Termination of Agreement.............................................................39
9.2 Effect of Termination................................................................40
9.3 Survival of Representations and Warranties...........................................40
ARTICLE 10 INDEMNIFICATION......................................................................40
10.1 Obligations of Sellers...............................................................40
10.2 Obligations of PEI...................................................................41
10.3 Certain Tax Matters..................................................................41
10.4 Procedure............................................................................42
10.5 Tax Adjustments......................................................................43
10.6 Limitation on Indemnity..............................................................44
10.7 Offset...............................................................................45
10.8 Notice...............................................................................45
10.9 Survival.............................................................................45
ARTICLE 11 DISPUTE RESOLUTION...................................................................45
11.1 Alternate Dispute Resolution.........................................................45
11.2 Notification and Negotiation.........................................................46
11.3 Arbitration..........................................................................46
11.4 Rules of Arbitration.................................................................46
11.5 Damages..............................................................................47
11.6 Fees and Expenses....................................................................47
11.7 Confidential Negotiations and Proceedings............................................47
11.8 Service of Process...................................................................47
11.9 Choice of Law; Place of Arbitration..................................................48
11.10 Availability of Equitable Relief.....................................................48
11.11 Survival.............................................................................48
ARTICLE 12 GENERAL..............................................................................48
12.1 Cash Payments........................................................................48
12.2 Waivers, Remedies Cumulative, Amendments, etc........................................48
12.3 Schedules; Exhibits; Integration.....................................................48
12.4 FurtherAssurances....................................................................49
12.5 Governing Law........................................................................49
12.6 Representation By Counsel; Interpretation............................................49
12.7 No Assignment; Third Party Beneficiary...............................................49
12.8 Severability.........................................................................49
12.9 Headings.............................................................................50
12.10 Counterparts.........................................................................50
12.11 Public Announcements.................................................................50
12.12 Confidentiality......................................................................50
12.13 Parties in Interest..................................................................51
12.14 Performance by Subsidiaries..........................................................51
12.15 Notices..............................................................................51
12.16 Expenses.............................................................................53
12.17 Knowledge Convention.................................................................53
12.18 Specific Performance.................................................................53
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into as of
June 29, 2001 (the "Effective Date") among Playboy Enterprises, Inc., a
Delaware corporation ("PEI"), on the one hand, and Califa Entertainment
Group, Inc., a California corporation ("Califa"), V.O.D., Inc., a
California corporation ("VODI"; and together with Califa, the "Sellers"),
Steven Hirsch, an individual ("Hirsch"), Dewi James, an individual
("James"), and William Asher, an individual ("Asher"; and together with
Hirsch and James, the "Stockholders"), on the other hand. Sellers,
Stockholders and their respective Affiliates are collectively the "Seller
Parties". Capitalized terms used in the text of this Agreement without
definition are defined in Schedule 1.
R E C I T A L S
A. Sellers own and operate the Business and Stockholders are the
record and beneficial owners of 100% of the Equity Securities of Sellers.
B. Califa desires to sell, and PEI desires to purchase
substantially all of Califa's assets used in the operation and distribution
of the television channels known as "The Hot Network" and "The Hot Zone" on
the terms and conditions set forth in this Agreement (the "Califa Assets").
C. VODI desires to sell, and PEI desires to purchase substantially
all of VODI's assets used in the operation and distribution of the
television channel known as "Vivid TV" and all of the assets used in the
operation and distribution of its video on demand business (other than the
Excluded VODI Businesses) on the terms and conditions set forth in this
Agreement (the "VODI Assets").
In consideration of the mutual promises contained herein and
intending to be legally bound, the parties agree as follows:
ARTICLE 1
ASSET PURCHASE
1.1 Purchase and Sale of Assets.
1.1.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Sellers will sell to PEI or its
designated subsidiaries the Califa Assets and VODI Assets, which
are identified in Schedule 1.1.1 (the "Purchased Assets");
provided, however, that the sale of the Vivid TV Assets will be
further subject to Section 2.6. Sellers will identify in Schedule
1.1.1 which Purchased Assets are Califa Assets, Vivid TV Assets
(as defined below) and Other VODI Assets (as defined below).
1.1.2 Excluded Assets. The following assets used in the Business or in
the Excluded VODI Businesses are expressly excluded from the
Purchased Assets (the "Excluded Assets"):
(a) Tangible personal property consisting of vehicles, furniture,
fixtures, equipment, machinery and other tangible personal
property not identified in Schedule 1.1.1
(b) The Vivid Marks, which will be licensed to PEI pursuant to the
Trademark License Agreement.
(c) Intangible Property not identified in Schedule 1.1.1.
(d) The assets identified in Schedule 1.1.2; provided that, without
limiting Section 4.2, assets of Sellers unintentionally omitted
from Schedule 1.1.2 are not Purchased Assets unless identified on
Schedule 1.1.1.
1.2 Assumption of Certain Liabilities.
1.2.1 Liabilities Not Assumed. Except for the liabilities and
obligations specifically assumed pursuant to and identified in
Section 1.2.2, PEI will not assume, will not take the Purchased
Assets subject to and will not be liable for, any liabilities or
obligations of any kind or nature, whether absolute, contingent,
accrued, known or unknown, whenever arising, of any of the Seller
Parties (the "Excluded Liabilities"), including:
(a) Liabilities or obligations incurred, arising from or out of, in
connection with or as a result of claims made by or against any of
the Seller Parties or against PEI or its Affiliates as
successor(s) to the Business with respect to the Purchased Assets
or conduct of the Business prior to the Closing Date, including as
a result of the breach of any Contract by any of the Seller
Parties prior to the Closing Date or the violation by any of the
Seller Parties of any applicable Law prior to the Closing Date,
whether asserted before or after the Closing Date regardless of
whether the Vivid TV Assets transfer upon the Closing or upon the
Vivid TV Closing.
(b) Any liability for indebtedness for borrowed money of any of the
Seller Parties, except as expressly provided for in Section
1.2.2(c), including amounts owed to Hirsch and James for loans in
the amount of $232,950 each, or amounts owed to Califa in the
amount of $1,100,160..
(c) Liabilities or obligations (whether assessed or unassessed) of any
of the Seller Parties for any Taxes, including any Taxes arising
by reason of the transactions contemplated herein, for any period
or portion thereof ending on or prior to the Closing Date, except
as expressly provided for in Section 6.6.
(d) Fees and expenses of any of the Seller Parties incurred in
connection with the transactions contemplated in this Agreement.
(e) Liabilities or obligations to former or current officers,
directors, shareholders, employees, Affiliates or Associates of
any of the Seller Parties, including any severance arrangements of
employees of Califa not employed by PEI following the Closing in
accordance with Section 7.4 and any intercompany loans not
discharged prior to Closing.
(f) Liabilities or obligations of any of the Seller Parties incurred
in connection with or arising out of any real property lease,
except as provided in Section 1.2.2(d).
(g) Liabilities or obligations arising out of any of the Seller
Parties' obligations to MediaPath LLC, a Connecticut limited
liability company ("MediaPath") and/or James Cofer, an individual
("Cofer") under that certain Services Agreement dated March 15,
1999 between Califa and Cofer (the "Services Agreement"), which
was assigned to and assumed by MediaPath effective September 15,
2000, and a verbal agreement between VODI and MediaPath on
substantially the same terms as provided for in the Services
Agreement, except any sales bonus due to MediaPath and/or Cofer
after the Closing relating to an affiliation agreement between
Califa and Echostar.
(h) Liabilities or obligations arising out of any of the Sellers
Parties' obligations to MediaPath and/or Cofer under that certain
indemnification agreement between Califa and Cofer executed
contemporaneously with the execution of the Services Agreement
(the "Indemnification Agreement"), and a verbal agreement between
VODI and MediaPath on substantially the same terms as provided for
in the Indemnification Agreement.
(i) Liabilities or obligations arising out of any of the Seller
Parties' obligations to any licensor under the portions of the
program supply agreements listed in Schedule 1.1.1 (the "Program
Supply Agreements") retained in part by any of the Seller Parties.
1.2.2 Assumed Liabilities. Notwithstanding Section 1.2.1, on the Closing
Date PEI will assume, and will be liable for only the liabilities
or obligations specifically identified in this Section 1.2.2 (the
"Assumed Liabilities"), including:
(a) Liabilities or obligations arising under the terms of Contracts
assigned to and assumed by PEI pursuant to this Agreement (to the
extent relating to and arising from the rights and obligations
assumed by PEI herein), but excluding any liability or obligation
arising as a result of (i) a breach of or non-payment of any
Contract by any of the Seller Parties prior to the Closing Date,
(ii) a breach of any Contract not disclosed on Schedule 1.1.1
which breach arises as a consequence of the consummation of the
transactions contemplated by this Agreement (other than any
Contract assigned to and assumed by the Seller Parties or their
Affiliates in connection with the original sale of Spice assets to
Califa pursuant to that certain asset purchase agreement dated as
of May 29, 1998 (the "Spice Asset Purchase Agreement") if a copy
of such Contract was not provided at or before the closing of the
Spice Asset Purchase Agreement), or (iii) any non-payment under
any Contract by any of the Seller Parties relating to any period
prior to the Closing Date.
(b) Any trade payables incurred in the ordinary course of business by
Sellers in connection with the Business as of the Closing Date
that are not more than 90 days past due.
(c) The remaining principal and all accrued interest under the
$10,000,000 promissory note of Califa in favor of an Affiliate of
PEI dated March 15, 1999 and the accrued and remaining
non-competition payments, as amended, owing from Califa to an
Affiliate of PEI arising from the Spice Asset Purchase Agreement,
which payments totaled $1,600,000 as of May 31, 2001.
(d) Liabilities or obligations arising under the terms of the real
property lease(s) listed in Schedule 1.1.1, but excluding any
liability or obligation arising as a result of (i) a breach of any
real property lease by any of the Seller Parties prior to the
Closing Date, (ii) a breach of any real property lease not
identified on Schedule 1.1.1 which breach arises as a consequence
of the consummation of the transactions contemplated by this
Agreement, or (iii) any non-payment under any real property lease
by any of the Seller Parties relating to any period prior to the
Closing Date.
(e) Any sales bonus due after the Effective Date to any employee or
independent contractor of Sellers listed in and pursuant to
arrangements described in Schedule 1.2.2 for sales arising prior
to the Closing Date.
ARTICLE 2
PURCHASE PRICE AND ALLOCATION
2.1 Purchase Price. The total purchase price (the "Purchase Price") to be
paid to Sellers by PEI for the Purchased Assets, the license granted to PEI
under the Trademark License Agreement and the Non-Competition Covenants
will be the sum of the amounts described in Sections 2.2 and 2.3. Whenever
any payment under this Section 2 is due on a day that is not a Business
Day, such payment will instead be paid on the Business Day immediately
following the applicable payment date.
2.1.1 Gross Purchase Price Allocation between Sellers. Subject to
Section 2.6, each payment of the Purchase Price will be allocated
40.37% to the Califa Assets and 59.63% to the VODI Assets. *****
2.1.2 Acceleration of Payments. PEI may accelerate all or any portion of
the remaining unpaid Purchase Price, but only by making the
accelerated payment(s) in cash subject to the following:
(a) From the Closing until the end of the 18th month following the
Closing, PEI may not accelerate any portion of the remaining
unpaid Purchase Price unless the parties mutually agree in good
faith negotiations upon a discount rate to be applied to the
outstanding payments in order to determine the accelerated
payment(s).
(b) From the beginning of the 19th month following the Closing until
the end of the 36th month following the Closing, PEI may elect to
accelerate all or any portion of the remaining unpaid Purchase
Price as follows: PEI will notify Sellers of its intention to
accelerate and the parties will negotiate in good faith to
determine the appropriate discount rate to be applied to the
outstanding payments in order to determine the accelerated
payment(s). If the parties are unable to agree on such a discount
rate within 10 Business Days of the notice of PEI's intent to
accelerate, PEI may, at its sole discretion, elect to accelerate
payment at a 10% discount rate.
(c) After the end of the 36th month following the Closing, PEI may
elect to accelerate all or any portion of the remaining unpaid
Purchase Price as follows: PEI will notify Sellers of its
intention to accelerate and the parties will negotiate in good
faith to determine the appropriate discount rate to be applied to
the outstanding payments in order to determine the accelerated
payment(s). If the parties are unable to agree on such a discount
rate within 10 Business Days of the notice of PEI's intent to
accelerate, PEI may, at its sole discretion, elect to accelerate
payment at a 12% discount rate.
(d) Notwithstanding anything to the contrary in this Section 2.1.2,
PEI will not accelerate all or any portion of the remaining unpaid
Purchase Price prior to the transfer of the Vivid TV Assets from
VODI to PEI without the Seller Parties' prior written consent;
provided however that if PEI obtains such consent from the Seller
Parties, PEI will accelerate no more than the remaining unpaid
portion of the Purchase Price allocated to the Califa Assets and
the Other VODI Assets.
2.1.3 Late Cash Payments. If PEI does not make any cash payments owing
to Sellers when due, PEI will pay Sellers interest on the cash due
as follows (such interest will accrue from but will exclude the
date payment was due and will include the date payment is made and
will be paid together with the relevant cash payment):
(a) Prime Rate on the date the payment was due plus 200 basis points
for the first 90 days following the date the cash payment was due;
and
(b) Prime Rate on the date the payment was due plus 400 basis points
for the 91st through 180th day following the date the cash payment
was due.
2.1.4 Remedies. Upon the occurrence of an Event of Default, Sellers may,
in their sole discretion but upon delivering not less than 5
Business Days' written notice to PEI, exercise any or all of the
following rights:
(a) Accelerate (i) the remaining unpaid Purchase Price due under this
Agreement and require the immediate payment in cash thereof, and
(ii) the transfer of the Vivid TV Assets to PEI as provided
herein; provided however that if Sellers accelerate the Purchase
Price pursuant to this Section 2.1.4(a) and PEI pays Sellers the
remaining unpaid Purchase Price in cash due under this Agreement,
Sellers may not exercise any other remedy provided for below;
(b) Notwithstanding the provisions of Article 11, file suit and obtain
judgment to collect all amounts owing from PEI;
(c) Terminate the Non-Competition Covenants; provided that if the
Non-Competition Covenants are terminated (under this Agreement or
the Output Agreement) PEGI's Affiliate PEI will be deemed to have
automatically released MediaPath LLC, a Connecticut limited
liability company and James Cofer, an individual, from covenants
in favor for PEI contained in the terms of that certain
Termination and Non-Competition Agreement dated June 26, 2001
between Califa, VODI and PEI, on the one hand, and MediaPath and
Cofer, on the other hand.
(d) Terminate the Trademark License Agreement and the Output Agreement.
2.1.5 Payments in PEI Shares. Except for the payments to be made under
Sections 2.2.1(a), (c), (d) and (e), PEI may pay Sellers, at PEI's
sole discretion, any Purchase Price payment due under Sections 2.2
and 2.3 (or any portion thereof) by delivering stock certificates
representing the number of PEI Shares with an aggregate Per Share
Value equal to the applicable payment due. All such stock payments
will be made in accordance with the terms of Section 2.5.
(a) If any portion of the payment due under Section 2.2.1(b) is made
in PEI Shares, then such payment will be made on or before
September 14, 2001, subject to Section 2.5.
(b) If any portion of any payment due under Section 2.2.2 is made in
PEI Shares, then such payment will be made on or before March 1 of
the relevant year, subject to Section 2.5.
(c) If any portion of the payment due under Section 2.3.1 is made in
PEI Shares, then such payment will be made on or before March 1,
2003, subject to Section 2.5.
(d) If any portion of the payment due under Section 2.3.2 is made in
PEI Shares, then such payment will be made on or before March 1,
2004, subject to Section 2.5.
2.2 Base Purchase Price.
2.2.1 Initial Base Consideration. PEI will pay Sellers the following
amounts:
(a) $1 million in cash on the Closing Date.
(b) $16 million in cash on or before December 29, 2001.
(c) $250,000 in cash on January 2, 2002.
(d) $333,333 in cash on the first Business Day of each calendar
quarter commencing April 1, 2002 and ending October 1, 2002, as
set forth in Schedule 2.2.1.
(e) $250,000 in cash on the first Business Day of each calendar
quarter commencing January 2, 2003 and ending July 1, 2011 as set
forth in Schedule 2.2.1.
2.2.2 Additional Base Consideration. PEI will pay Sellers in cash in
equal installments on each of May 1 and November 1 the following
amounts:
(a) $6.5 million in 2002,
(b) $8.5 million in 2003,
(c) $7.0 million in 2004,
(d) $7.0 million in 2005,
(e) $7.0 million in 2006, and
(f) $7.0 million in 2007.
2.3 Performance-Based Purchase Price. In addition to the Base Purchase
Price paid to Sellers by PEI pursuant to Section 2.2, PEI will pay Sellers
in cash, the following amounts (the "Performance-Based Purchase Price"):
2.3.1 $5 million within 59 days of December 31, 2002; provided that
Gross Receipts exceed $***** for fiscal year ended December 31,
2002.
2.3.2 $7 million within 59 days of December 31, 2003; provided that
Gross Receipts exceed $***** for fiscal year ended December 31, 2003.
2.3.3 *****
2.3.4 Right to Audit and Inspect; Quarterly Reports.
(a) PEI will keep and cause its Affiliates to keep an accurate set of
books and records adequately showing the Gross Receipts. The
Seller Parties and their duly authorized representatives will have
the right within 3 months of the date payment is due under
Sections 2.3.1 and 2.3.2, if any, to audit and inspect during
business hours (not more than once in each of 2003 and 2004) the
books and records and any other data in any way pertaining to such
Gross Receipts received by PEI and any Affiliates in the prior
fiscal year.
(i) If the Seller Parties' inspection or audit determines
such Gross Receipts have been understated to the extent
that no Performance-Based Purchase Price was paid
pursuant to Sections 2.3.1 or 2.3.2 when such payment was
due, PEI will promptly pay the Performance-Based Purchase
Price due no later than 30 days after the determination
thereof.
(ii) If the Seller Parties' audit or inspection discloses, or
PEI or any of its Affiliates otherwise discovers, such
Gross Receipts have been overstated to the extent that no
Performance-Based Purchase Price was due pursuant to
Sections 2.3.1 or 2.3.2 when such payment was made, the
Seller Parties will refund the Performance-Based Purchase
Price paid no later than 30 days after determination
thereof.
(b) PEI will send or cause to be sent a quarterly report to the Seller
Parties showing the applicable Gross Receipts received during such
quarter not later than 60 days after the end of each calendar
quarter of 2002 and 2003.
2.4 Purchase Price Allocation. In addition to the gross Purchase Price
allocation set forth in Section 2.1.1, the Purchase Price will be allocated
among the Califa Assets, the VODI Assets, the license granted to PEI under
the Trademark License Agreement, and the Non-Competition Covenants as set
forth in Schedule 2.4. PEI and the Seller Parties agree that such
allocation will be used, reported and implemented for all federal, state,
local and other accounting and tax purposes.
2.5 Issuance of PEI Shares.
2.5.1 Resale Registration.
(a) PEI will prepare and file, as promptly as practicable after the
Closing Date, a shelf registration statement on Form S-3 (the
"Initial Registration Statement") under the Securities Act,
covering the potential issuance of PEI Shares pursuant to this
Agreement with an aggregate Per Share Value of $16 million and
will use reasonable best efforts (i) to cause the Initial
Registration Statement to be declared effective as soon as
reasonably practicable, and (ii) to maintain the effectiveness of
the Initial Registration Statement for the Initial Selling Period
(as defined below) and for any Additional Selling Periods (as
defined below) to the extent PEI Shares covered by the Initial
Registration Statement constitute Eligible Shares for any such
Additional Selling Period.
(b) PEI will, as promptly as reasonably practicable, but in no event
later than 3 Business Days after receiving Sellers' properly
completed Eligible Shares Election Form (as defined below), to the
extent permitted by the Securities and Exchange Commission, file
one or more additional shelf registration statements on Form S-3
(each, an "Additional Registration Statement") covering potential
future issuances of PEI Shares pursuant to this Agreement and will
use reasonable best efforts (i) to cause the Additional
Registration Statement(s) to be declared effective as soon as
reasonably practicable, and (ii) to maintain the effectiveness of
the Additional Registration Statement(s) for the applicable
Selling Period (as defined below) to the extent PEI Shares covered
by such Additional Registration Statement constitute Eligible
Shares for any other Additional Selling Period.
(c) The number of PEI Shares issued with respect to any payment will
be determined as follows: (i) to the extent PEI Shares not
previously issued as part of a payment are available for resale
pursuant to the Initial Registration Statement or an Additional
Registration Statement, the number of PEI Shares issued will be
determined at the time of payment by dividing (A) the aggregate
stock consideration to be paid by (B) the Per Share Value, and
(ii) to the extent PEI Shares not previously issued as part of a
payment are not available for resale pursuant to the Initial
Registration Statement or an Additional Registration Statement,
the number of PEI Shares to be issued with respect to such payment
will be determined at the time such Initial Registration Statement
or Additional Registration Statement, as the case may be, becomes
effective by dividing (A) the aggregate stock consideration to be
paid by (B) the Per Share Value on the date such Initial
Registration Statement or Additional Registration Statement
becomes effective. PEI will bear all registration costs and
selling commissions (to the extent set forth in Section 2.5.6(d)).
(d) PEI agrees to use commercially reasonable efforts to consult with
the Sellers prior to filing the Initial Registration Statement or
any Additional Registration Statement.
2.5.2 Selling Periods. For purposes of this Agreement, the "Initial
Selling Period" will mean the period beginning on September 14,
2001 or the date the Initial Registration Statement is first
declared effective, if later, and ending on the earlier of (a) the
date that is 90 days thereafter, as extended pursuant to Sections
2.5.3(c) and 2.5.4 and (b) the date all Eligible Shares (as
defined below) covered by the Initial Registration Statement will
have been sold as contemplated therein. For purposes of this
Agreement, "Additional Selling Period" will mean the period
beginning on March 1 of each year beginning in 2002 or the date
the Additional Registration Statement with respect to Eligible
Shares to be issued with respect to such Additional Selling Period
is first declared effective, if later, and ending on the earlier
of (a) the date that is 90 days thereafter, as extended pursuant
to Sections 2.5.3(c) and 2.5.4 and (b) the date all Eligible
Shares for that Additional Selling Period will have been sold as
contemplated therein. For purposes of this Agreement,
"Performance-Based Selling Period" will mean the period beginning
on the date Eligible Shares are issued as payment for any
Performance Based Purchase Price or the date the Additional
Registration Statement with respect to Eligible Shares to be
issued in connection therewith is first declared effective, if
later, and ending on the earlier of (a) the date that is 90 days
thereafter, as extended pursuant to Sections 2.5.3(c) and 2.5.4,
and (b) the date all Eligible Shares for that Selling Period will
have been sold as contemplated therein. The Initial Selling
Period, any Additional Selling Period or any Performance-Based
Selling Period may be referred to as a "Selling Period."
2.5.3 Volume Limitation.
(a) The number of Eligible Shares that Sellers may sell during the
Initial Selling Period will not exceed the product of (i) the
average of the daily trading volume of PEI Shares for the prior
eight calendar weeks ending on the second day prior to the
beginning of the Initial Selling Period and (ii) 40. The number of
Eligible Shares that Sellers may sell during any trading day
during the Initial Selling Period will not exceed 50% of the
average daily trading volume of the PEI Shares for the 30 trading
days ending on the second trading day prior to the beginning of
the Initial Selling Period. PEI will notify Sellers of the
applicable volume limitations for the Initial Selling Period by no
later than the day prior to the beginning of the Initial Selling
Period. PEI may waive or modify (but only by making the
limitations less restrictive) the volume limitations set forth in
this Section 2.5.3(a) by delivering not less than 3 trading days'
written authorization to Sellers (with a copy to Seller's
designated broker).
(b) The number of Eligible Shares that Sellers may sell during any
Additional Selling Period or Performance-Based Selling Period, as
the case may be, will not exceed the product of (i) the average of
the daily trading volume of PEI Shares for the prior eight
calendar weeks ending on the second day prior to the beginning of
such Additional Selling Period or Performance-Based Selling
Period, as the case may be, excluding any Eligible Shares, if
applicable, sold during such measuring period and (ii) 30. The
number of Eligible Shares that Sellers may sell during any trading
day will not exceed 25% of the average daily trading volume of the
PEI Shares for the 30 trading days ending on the second trading
day prior to the beginning of any Additional Selling Period or
Performance-Based Selling Period (if any), as the case may be,
excluding any Eligible Shares, if applicable, sold during such
measuring period. By no later than 3 days prior to the beginning
of the Additional Selling Period or the Performance Based Selling
Period, as the case may be, the Sellers will cause their broker to
notify PEI in writing as to how many Eligible Shares were sold
during the above measuring period. PEI will notify Sellers of the
applicable volume limitations for the Additional Selling Period or
Performance Based Selling Period, as the case may be, by no later
than the day prior to the beginning of the Additional Selling
Period or Performance Based Selling Period, as the case may be.
PEI may waive or modify (but only by making the limitations less
restrictive) the volume limitations set forth in this Section
2.5.3(b) by delivering not less than 3 trading days' written
authorization to Sellers (with a copy to Sellers' designated
broker).
(c) If the foregoing volume limitations applicable to a Selling Period
would not permit Sellers to sell all Eligible Shares relating to
such Selling Period during the 90 day period referenced in Section
2.5.2, the Selling Period will be extended by the number of
trading days required to sell such Eligible Shares assuming that
the maximum number of Eligible Shares were sold during each
trading day during the applicable Selling Period. Notwithstanding
the foregoing, if Sellers, using commercially reasonable efforts,
are unable to sell all the Eligible Shares in any Selling Period
by the dates set forth herein, then such Selling Period will be
extended for an additional 5 trading days; provided that (i)
Sellers notify PEI within 10 days of the end of the applicable
Selling Period of their inability to sell all Eligible Shares
during such Selling Period, (ii) such Eligible Shares will
continue to be subject to all terms and conditions of this Section
2.5, and (iii) PEI will not accrue any interest from the end of
the Selling Period through such 5 trading day period on the
unsold Eligible Shares pursuant to clause (iii) of Section
2.5.3(d).
(d) Notwithstanding anything to the contrary contained in Sections
2.5.3(a), (b), (c), and 2.5.4 if at the end of 7 full calendar
months following the initiation of any Selling Period or any Make
Whole Selling Period Sellers (whether or not PEI has exercised its
right to institute a Blackout Period) have not sold all of the
applicable Eligible Shares for that Selling Period or Make Whole
Selling Period, as the case may be, PEI will in its sole
discretion either (i) eliminate the volume limitations with
respect to those of the Eligible Shares unsold at the end of such
Selling Period or Make Whole Selling Period, as the case may be,
that could not have been sold if Sellers sold the maximum number
of Eligible Shares permitted under the applicable volume
limitations (including any relaxation of the volume limitations by
PEI pursuant to Sections 2.5.3(a) and (b) and 2.5.6 (b)), if any,
or (ii) maintain the applicable volume limitations with respect to
the unsold Eligible Shares and increase the next payment of
consideration by the amount of the interest accruing at the Prime
Rate plus 200 basis points on the value of those of the Eligible
Shares unsold at the end of such Selling Period or Make Whole
Selling Period, as the case may be, that could not have been sold
if Sellers sold the maximum number of Eligible Shares permitted
under the applicable volume limitations (including any relaxation
of the volume limitations by PEI pursuant to Sections 2.5.3 (a)
and (b) and 2.5.6 (b) if any, until such Eligible Shares are sold;
provided, however, that to the extent such Selling Period or Make
Whole Selling Period, as the case may be, overlaps with a
subsequent Selling Period, Eligible Shares or Make Whole Selling
Period, as the case may be, will be sold on a
first-issued-first-sold basis so as to minimize the interest paid
pursuant hereto.
(e) Sales of Eligible Shares will be conducted in a commercially
reasonable manner through market transactions by a nationally
recognized major brokerage house chosen by Sellers. If requested
by PEI, Sellers will cause such broker to provide PEI a list of
all transactions effected during the applicable Selling Period.
Sellers hereby agree to use all commercially reasonable efforts to
minimize any make-whole payment pursuant to Section 2.5.6 by
selling all Eligible Shares at the prevailing market price.
Sellers hereby agree that Eligible Shares not sold during the
Selling Period applicable to such Eligible Shares will not be
registered or resold pursuant to this Section 2.5 in any
subsequent Selling Period and will be deemed converted into
Investment Shares ("Converted Investment Shares"). If at any time
prior to date that is 2 years after the date such Converted
Investment Shares were issued, the Sellers sell or otherwise
dispose of any Converted Investment Shares and the gross proceeds
received by the Sellers from such sale equals the aggregate Per
Share Value of such Converted Investment Shares on the date the
Converted Investment Shares were issued (the "Cessation Date"),
then Sellers will immediately cease the offering and sale of the
remaining Converted Investment Shares and the remaining converted
Investment Shares will be returned promptly to PEI (the "Excess
Converted Investment Shares") along with any excess sales proceeds
from the sale of such Converted Investment Shares. If Sellers fail
to return such Excess Converted Investment Shares and excess sales
proceeds within 15 Business Days of the Cessation Date, Sellers
will be deemed to have elected to retain such Excess Converted
Investment Shares as Investment Shares and PEI will decrease the
next scheduled payment of consideration pursuant to Section 2.2.2
to the Sellers in an amount (the "Excess Converted Investment
Shares Sale Amount") equal to the excess sales proceeds plus the
product of (i) the number of Excess Converted Investment Shares
and (ii) the average per share sales price of the Converted
Investment Shares with respect to such tranche of Converted
Investment Shares. If Sellers fail to return such Excess Converted
Investment Shares and the excess proceeds within the time period
specified above and no further consideration pursuant to Section
2.2.2 is due to the Sellers under the Agreement, then Sellers will
pay PEI the Excess Converted Investment Shares Sale Amount in cash
within 20 Business Days of the Cessation Date.
2.5.4 Blackout Periods. PEI will be entitled to postpone and/or suspend
for a period of time, not to exceed 90 days (each, a "Blackout
Period"), any Additional Selling Period, Performance-Based Selling
Period or Make Whole Selling Period, as the case may be, if PEI
reasonably determines that the offering of any Eligible Shares by
Sellers would impede, delay or interfere with any financing, offer
or sale of securities, acquisition, corporate reorganization or
other material transaction involving PEI or any of its Affiliates,
or require disclosure of material information as to which
disclosure at that time would not be in the best interest of PEI
and its stockholders; provided, however, that the Blackout Period
will earlier terminate upon public disclosure by PEI of such
material information or completion or abandonment of such a
transaction. Upon notice by PEI to Sellers of such determination,
Sellers agree to (a) keep the fact of any such notice strictly
confidential, (b) promptly halt any offer, sale, trading or
transfer by Sellers of any Eligible Shares for the duration of the
Blackout Period set forth in such notice (or until earlier
terminated by PEI) and (c) promptly halt any use, publication,
dissemination or distribution of any registration statement, each
prospectus included therein, and any amendment or supplement
thereto for the duration of the Blackout Period set forth in such
notice (or until earlier terminated by PEI). In the event PEI
gives such notice, the Additional Selling Period,
Performance-Based Selling Period or Make Whole Selling Period, as
the case may be, will be extended for a period equal to the lesser
of the actual length of the Blackout Period and the number of days
necessary to sell the applicable Eligible Shares. PEI cannot
impose more than two Blackout Periods during any 360-day period
and the consecutive cumulative length of any two Blackout Periods
will not exceed 150 days. PEI will not impose a Blackout Period
during the Initial Selling Period without Sellers' prior consent.
2.5.5 Notice of Election.
(a) By no later than September 3, 2001, PEI agrees to notify Sellers
in writing of its election to pay the consideration due September
14, 2001 in cash, PEI Shares or a combination thereof. To the
extent PEI elects to pay all or a portion of such consideration in
PEI Shares, each Seller must notify PEI in writing within 5
Business Days after receiving PEI's election notice of the amount
of such stock consideration that such Seller intends to sell
pursuant to the Initial Registration Statement (the "Initial
Eligible Shares") and the amount of such stock consideration that
such Seller will hold for investment (the "Initial Investment
Shares") by delivering properly completed questionnaires in the
form attached hereto as Exhibit G (the "Eligible Shares Election
Form").
(b) By no later than the tenth Business Day preceding March 1 of each
year beginning in 2002, PEI agrees to notify Sellers in writing of
its election to pay the applicable consideration due for such
calendar year in cash, PEI Shares or a combination thereof. To the
extent PEI elects to pay all or a portion of such consideration in
PEI Shares, each Seller must notify PEI in writing within 5
Business Days after receiving PEI's election notice of the amount
of such stock consideration that such Seller intends to sell
pursuant to the Initial Registration Statement or any Additional
Registration Statement, as the case may be (the "Additional
Eligible Shares") and the amount of such stock consideration that
such Seller intends to hold for investment (the "Additional
Investment Shares) by delivering a properly completed Eligible
Shares Election Form.
(c) By no later than the tenth Business Day preceding March 1 in any
year that the Performance Based Purchase Price is to be paid, PEI
agrees to notify the Sellers in writing of its election to pay
such consideration in cash, PEI Shares or a combination thereof.
To the extent PEI elects to pay all or a portion of the
consideration in PEI Shares, each Seller must notify PEI in
writing within 5 Business Days after receiving PEI's election
notice of the amount of such stock consideration that such Seller
intends to sell pursuant to the Additional Registration Statement
(the "Performance Based Eligible Shares," and together with the
Initial Eligible Shares, the Additional Eligible Shares and the
Make Whole Shares (as defined below), the "Eligible Shares") and
the amount of such stock consideration that such Seller intends to
hold for investment (the "Performance Based Investment Shares,"
and together with the Initial Investment Shares and the Additional
Investment Shares, the "Investment Shares") by delivering a
properly completed Eligible Shares Election Form.
(d) If any Seller fails to notify PEI in writing in accordance with
the terms of this Section 2.5.5, of such Seller's election with
respect to Eligible Shares, PEI will notify such Seller in writing
of such failure. If within 3 days of delivery of such notice, such
Seller fails to respond to PEI's notice, then such Seller will be
deemed to have elected to designate the applicable PEI Shares as
Eligible Shares; provided that (i) such Seller promptly delivers
all information required in the Eligible Shares Election Form,
(ii) any grace period provided for in Section 2.5.7 will not
commence until such Seller complies with clause (i) above, and
(iii) any period of time allowable before an Event of Default
occurs will not commence until such Seller complies with clause
(i) above. Without limiting the effect of any other provision in
this Section 2.5, the applicable Selling Period will not be
extended if Sellers fail to comply with clause (i) above within 10
calendar days of their receipt of the second notice from PEI under
this Section 2.5.5(d). At all times during which any registration
statement pursuant to this Section 2.5 is in effect, Sellers will
promptly notify PEI in writing of any changes to the information
set forth in the applicable Eligible Shares Election Form.
(e) Sellers hereby acknowledge that (a) PEI will have no further
obligations with respect to the registration of Investment Shares
and Converted Investment Shares and (b) Investment Shares and
Converted Investment Shares will not be subject to the make-whole
provisions set forth in Section 2.5.6. Sellers hereby agree not to
sell or otherwise dispose of Investment Shares and Converted
Investment Shares during any applicable Selling Period.
2.5.6 Make-Whole.
(a) Within 10 days of the expiration of any Selling Period or any Make
Whole Selling Period, Sellers will notify PEI in writing (the
"Sales Proceeds Notice") of the amount of the gross proceeds to
the Sellers from the sale of any Eligible Shares (the "Sales
Proceeds") during such Selling Period or Make Whole Selling
Period, as the case may be, and provide any evidence reasonably
satisfactory to PEI of such sales. In the event the aggregate
value on the date of issuance of the Eligible Shares sold during
such Selling Period or Make Whole Selling Period, as the case may
be, (the "Aggregate Share Value") exceeds the Sales Proceeds of
such Eligible Shares sold during such Selling Period or Make Whole
Selling Period, as the case may be, (the "Sales Proceeds
Shortfall"), within 10 days of receiving the Sales Proceeds Notice
and the related evidence of sales and Sales Proceeds, PEI will
notify the Sellers of its election to (i) pay the Sales Proceeds
Shortfall in cash, (ii) issue additional PEI Shares (the "Make
Whole Shares") in an amount equal to the Sales Proceeds Shortfall
in accordance with the procedures set forth in Section 2.5.6(b)
below, or (iii) increase the next scheduled payment of
consideration pursuant to Section 2.2.2 to the Sellers in an
amount equal to the Sales Proceeds Shortfall and interest accruing
on the Sales Proceeds Shortfall at the Average Rate for the period
from the date of the Sales Proceeds Notice until the commencement
of the subsequent Selling Period or Make Whole Selling Period, as
the case may be. The parties hereby agree that if PEI elects to
increase the next scheduled payment of consideration in accordance
with clause (iii) of the preceding sentence, then such increase,
if paid in stock, will be subject to all of the terms and
conditions set forth in this Section 2.5, including without
limitation, the volume limitations and the make-whole provisions
set forth herein. If an adjustment in accordance with this Section
2.5.6(a) is required with respect to the final payment of
consideration to the Sellers, such adjustment will be paid in cash
by PEI within 30 days of the expiration of the final Selling
Period or Make Whole Selling Period, as the case may be.
(b)
(i) If PEI elects to issue Make Whole Shares pursuant to
Section 2.5.6(a) above, PEI will register the Make Whole
Shares as promptly as reasonably practicable. The number
of Make Whole Shares to be issued will be determined in
accordance with the provisions set forth in Section
2.5.1(c).
(ii) For purposes of this Agreement, the term "Make Whole
Selling Period" will mean the period beginning the date
the registration statement with respect to the Make Whole
Shares is first declared effective and ending on the
earlier of (A) the date that is 30 days thereafter, as
extended pursuant to this Section 2.5.6(b) and (B) the
date all Make Whole Shares with respect to such Make
Whole Selling Period will have been sold.
(iii) The number of Make Whole Shares that Sellers may sell
during any Make Whole Selling Period will not exceed the
product of (A) the average of the daily trading volume of
PEI Shares for the prior eight calendar weeks ending on
the second day prior to the beginning of the Make Whole
Selling Period, excluding any Eligible Shares sold during
such measuring period and (B) 10. The number of Make
Whole Shares that the Sellers may sell during any trading
day will not exceed 25% of the average daily trading
volume of the PEI Shares for the 30 trading days ending
on the second trading day prior to the beginning of the
Make Whole Selling Period, excluding any Eligible Shares
sold during such measuring period. By no later than 3
days prior to the beginning of the Make Whole Selling
Period, the Sellers will cause their broker to notify PEI
in writing as to how many Eligible Shares were sold
during the above measuring period. PEI will notify the
Sellers of the applicable volume limitations for the Make
Whole Selling Period by no later than the day prior to
the beginning of the Make Whole Selling Period. PEI may
waive or modify (but only by making the limitations less
restrictive) the volume limitations set forth in this
Section 2.5.6(b)(iii) by delivering not less than 3
trading days' written authorization to Sellers (with a
copy to Sellers' designated broker).
(iv) If the foregoing volume limitations applicable to a Make
Whole Selling Period would not permit Sellers to sell all
Make Whole Shares relating to such Make Whole Selling
Period during the 30 day period referenced in Section
2.5.6(b)(ii) above, the Make Whole Selling Period will be
extended by the number of trading days required to sell
such Make Whole Shares assuming that the maximum number
of Make Whole Shares were sold during each trading day
during the Make Whole Selling Period. Sales of Make Whole
Shares will be conducted in a commercially reasonable
manner through market transactions by a nationally
recognized major brokerage house chosen by the Sellers.
If requested by PEI, Sellers will cause such broker to
provide PEI a list of all transactions effected during
the Make Whole Selling Period. Sellers hereby agree to
use all commercially reasonable efforts to sell all Make
Whole Shares at the prevailing market price. Sellers
hereby agree that Make Whole Shares not sold during the
Make Whole Selling Period will not be registered or
resold in any subsequent Selling Period or Make Whole
Selling Period and will be deemed converted into
Converted Investment Shares and will be subject to the
clawback provision in the last sentence of Section 2.5.3.
(v) The provisions set forth in Section 2.5.4 will apply to
the sale of Make Whole Shares.
(c) If during any Selling Period or any Make Whole Selling Period the
Sales Proceeds equals the Aggregate Share Value, Sellers will
immediately cease the offering and sale of the remaining Eligible
Shares and the remaining Eligible Shares will be returned promptly
to PEI (the "Excess Eligible Shares") along with any excess Sales
Proceeds. In the event the Sellers fail to return the Excess
Eligible Shares and excess Sales Proceeds within 15 Business Days
of the end of such Selling Period or Make Whole Selling Period, as
the case may be. Sellers will be deemed to have elected to retain
such Excess Eligible Shares as Investment Shares and PEI will
decrease the next scheduled payment of consideration pursuant to
Section 2.2.2 to the Sellers in an amount (the "Excess Sale
Amount") equal to the excess Sales Proceeds plus the product of
(i) the number of Excess Eligible Shares and (ii) the average per
share sales price of the Eligible Shares sold during such Selling
Period or Make Whole Selling Period, as the case may be. If an
adjustment in accordance with this Section 2.5.6(b) is required
with respect to the final payment of consideration to the Sellers
and the Sellers fail to return the Excess Eligible Shares and
excess Sales Proceeds within 15 Business Days of the end of the
final Selling Period or Make Whole Selling Period, as the case may
be, Sellers will pay PEI the Excess Sale Amount in cash within 20
Business Days of the end of the final Selling Period or Make Whole
Selling Period, as the case may be.
(d) Within 5 Business Days of the initiation of each Selling Period
and Make Whole Selling Period, PEI agrees to pay Sellers, at PEI's
option, in cash, additional stock consideration, or any
combination thereof, an amount equal to the estimated reasonable
per share selling commission in accordance with the prevailing
market rate. The parties agree that initially, such selling
commission will be $0.05 per Eligible Share.
2.5.7 Extraordinary Events. To the extent PEI elects to pay any
consideration due under this agreement in stock:
(a) If PEI does not issue registered stock to Sellers pursuant to
Section 2.2.1(b) on or before September 14, 2001, such payment
will be increased by interest accruing on the aggregate stock
consideration until such stock is registered as follows: (a) 0%
for the first 45 days, (b) Prime Rate plus 200 basis points for
the next 90 days, and (c) Prime Rate plus 400 basis points
thereafter;
(b) If PEI does not issue registered stock to Sellers pursuant to
Section 2.2.2 on or before March 1 of any year in which Additional
Base Consideration is to be paid in stock, such payment will be
increased by interest accruing on the aggregate stock
consideration until such stock is registered as follows: (a) 0%
for the first 45 days, (b) Prime Rate plus 200 basis points for
the next 90 days and (c) Prime Rate plus 400 basis points
thereafter; and
(c) If PEI does not issue registered stock to Sellers pursuant to
Section 2.3 on or before March 1 of any year in which Performance
Based Purchase Price is to be paid in stock, such payment will be
increased by interest accruing on the aggregate stock
consideration until such stock is registered as follows: (a) 0%
for the first 45 days, (b) Prime Rate plus 200 basis points for
the next 90 days and (c) Prime Rate plus 400 basis points
thereafter.
2.5.8 Voluntary Suspension Period. Notwithstanding anything to the
contrary contained in this Section 2.5, if at any time during any
Selling Period or any Make Whole Selling Period the market value
of PEI Shares falls below 75% of the Per Share Value of the
Eligible Shares on the date of issuance of such Eligible Shares,
PEI will have the option, but not the obligation, to notify
Sellers to suspend the sale of Eligible Shares for a period not to
exceed 30 days (each a "Suspension Period"). Upon receipt of such
notice, Sellers agree to (a) promptly halt any offer, sale,
trading or transfer by Sellers of any Eligible Shares for the
duration of the Suspension Period set forth in such notice (or
until earlier terminated by PEI) and (b) promptly halt any use,
publication, dissemination or distribution of any registration
statement, each prospectus included therein, and any amendment or
supplement thereto for the duration of the Suspension Period set
forth in such notice (or until earlier terminated by PEI). PEI
will not suspend trading pursuant to this Section 2.5.8 during the
Initial Selling Period without Sellers' prior consent. PEI may
suspend trading pursuant to this Section 2.5.8 no more than once
in any Selling Period or any Make Whole Selling Period, as the
case may be. If PEI suspends trading pursuant to this Section
2.5.8, then PEI will pay interest accruing at the Prime Rate plus
200 basis points on the value of those of the Eligible Shares
unsold, if any, at the 91st day after the commencement of the
Selling Period or Make Whole Selling Period, as the case may be,
that could not have been sold if Sellers sold the maximum number
of Eligible Shares permitted under the applicable volume
limitations during the Suspension Period (including any relaxation
of the volume limitations by PEI pursuant to Sections 2.5.3 (a)
and (b) and 2.5.6(b)) for the number of days of the Suspension
Period. If PEI suspends trading pursuant to this Section 2.5.8,
then the Selling Period or the Make Whole Selling Period, as the
case may be, will be extended by the number of days of the
Suspension Period.
2.5.9 Legends; Securities Laws Compliance. Sellers acknowledge that any
PEI Shares issued pursuant to this Agreement will bear any and all
appropriate state and federal securities law legends. Sellers
agree that they will comply with all state and federal securities
laws relating to the sale and distribution of PEI Shares issued to
them pursuant to this Agreement, including delivering the
prospectus provided by PEI for resales pursuant to the Initial
Registration Statement or any Additional Registration Statement.
2.6 Deferral of Sale of Vivid TV Assets.
2.6.1 If, as of the Closing Date, DTV has not consented to the transfer
of the VODI Assets used in the operation of Vivid TV (the "Vivid
TV Assets"; all other VODI Assets being the "Other VODI Assets")
to PEI pursuant to the terms of this Agreement (the "DTV
Consent"), then VODI will engage PEI to supervise and coordinate
the day to day activities of the Vivid TV business on the terms
described below. The parties will negotiate in good faith a
management services agreement (the "Management Services
Agreement") incorporating the following terms and such other terms
as the parties may mutually agree and until the Management
Services Agreement is executed, this Section 2.6.1 will constitute
a binding agreement of the parties and will be fully operative.
Upon execution of the Management Services Agreement, this Section
2.6.1 will terminate and be of no further force and effect.
(a) VODI will authorize and permit PEI to have general responsibility
for managing the day-to-day operation of the Vivid TV Assets,
including scheduling the channel, providing administrative
support, maintaining bookkeeping and accounting systems, and
accounts payable and accounts receivable processing (the
"Management Services").
(b) PEI's performance and implementation of the Management Services
will be subject to the supervision of and direction by the board
of directors of VODI (the "Board") and an officer of VODI
designated by the Board for this purpose, which will retain all
jurisdictional powers incident to ownership of VODI and its full
responsibility to act for the benefit of VODI and its
shareholders.
(c) The Net Revenues will be distributed by VODI as follows:
(i) As compensation for the Management Services and the
programming licensed to VODI under Section 2.6.1(e), PEI
will be entitled to receive from VODI an amount equal to
90% of VODI's aggregate Net Revenues during the period of
time in which PEI provides the Management Services. Such
consideration will be paid in quarterly installments
within 60 days after the end of each quarter and all
remaining Net Revenues will be distributed by VODI to its
stockholders; provided that PEI will be entitled to draw
a monthly estimated advance on such quarterly payments.
(ii) If at the end of any quarter, VODI's Net Revenues in such
quarter are less than zero, PEI will fund such cash
deficits from Net Revenues received in previous quarters,
if any. If such funding by PEI is insufficient to cover
cash deficits, PEI will fund such deficits against
amounts due for Net Revenues for future quarters.
(iii) Any Net Revenues undistributed at the time of the Vivid
TV Closing will be included in the Vivid TV Assets and
transferred to PEI and all funding by PEI pursuant to
Section 2.6.1(c)(ii) will be forgiven.
For the purposes of this Section 2.6.1(c), "Net Revenues" will
mean gross revenues of VODI arising from the Vivid TV Assets less
all operating costs (including overhead and cost of programming)
and sales taxes and other similar taxes as calculated in
accordance with GAAP.
(d) VODI will indemnify PEI and its directors, officers, shareholders,
employees, Affiliates, agents and assigns from and against any
Losses incurred, directly or indirectly, as a result of, or based
upon or arising from any liability or damage incurred or suffered
by PEI by reason of any act performed or omitted to be performed
by PEI or VODI's agents or employees to the extent performed or
omitted in compliance with the directives of the Board pursuant to
Section 2.6.1(b), provided, however, that the foregoing provision
will not eliminate the liability of PEI for, and PEI will not be
entitled to indemnification hereunder with respect to, Losses for
which PEI indemnifies VODI caused primarily by the bad faith,
willful misconduct or gross negligence of PEI. PEI will indemnify
VODI and its directors, officers, shareholders, employees,
Affiliates, agents and assigns from and against any Losses
incurred, directly or indirectly, as a result of, or based upon or
arising from any liability or damage incurred or suffered by VODI
outside the ordinary course of business by reason of any act
performed or omitted to be performed by PEI or its agents or
employees in connection with the Management Services, provided,
however, that the foregoing provision will not eliminate the
liability of VODI for, and VODI will not be entitled to
indemnification hereunder with respect to, Losses caused primarily
by the bad faith, willful misconduct or gross negligence of VODI
or actions taken by PEI in compliance with the directives of the
Board under Section 2.6.1(b).
(e) For each calendar month prior to the Vivid TV Closing, PEI will
license or cause one of its Affiliates to license to VODI all
versions (including the cable version, the Enhanced Cable Versions
and the unedited version) of certain feature-length pictures,
movies, features or films (the "Pictures") to be distributed,
broadcasted, transmitted, displayed, exhibited, exploited or
projected on Vivid TV in the Territory and International
Territory. PEI will select the Pictures to be licensed by VODI,
deliver masters for the Pictures directly to VODI and schedule
such Pictures for distribution on Vivid TV. If VODI reasonably
requires access to additional materials necessary to distribute,
broadcast, transmit, display, exhibit, exploit, or project any of
the Pictures other than the master for such Picture, PEI will, at
PEI's expense, use commercially reasonable efforts to facilitate
access to such additional materials. Upon the Vivid TV Closing
such licenses will immediately terminate and all rights will
revert to PEI and its Affiliates.
(f) Until the Vivid TV Closing, VODI will grant PEI the royalty-free
option to license exclusively from VODI the satellite signal of
Vivid TV for sublicense, distribution and marketing of Vivid TV in
the Territory and the satellite feed to the International
Territory, excluding the United States (its territories and
possessions) (the "Satellite Option"). PEI may, at its sole
discretion, assign or otherwise transfer the Satellite Option to
Playboy TV International, LLC, an Affiliate of PEI. PEI may
exercise the Satellite Option at any time prior to the Vivid TV
Closing; provided that with respect to the programming licensed to
VODI under paragraph (e) above, PEI or its Affiliates have the
requisite programming rights in Latin America. Once exercised, PEI
will be permitted to exploit the rights pursuant to the Satellite
Option until the Vivid TV Closing, unless PEI notifies VODI that
it does not intend to continue using the satellite signal for
Vivid TV.
2.6.2 If the purchase of the Vivid TV Assets is deferred, then the
portion of the Purchase Price allocated to the VODI Assets as
described in Section 2.1.1 will be allocated to the Other VODI
Assets until the total amount for the Other VODI Assets has been
paid. Commencing with the first payment of Purchase Price after
the Vivid TV Closing, the Purchase Price will be allocated
entirely to the Vivid TV Assets until the allocation equals what
it would have been if the Closing and the Vivid TV Closing
occurred simultaneously. Title to the Vivid TV Assets will not
transfer to PEI and PEI will not assume the liabilities and
obligations associated with the Vivid TV Assets (subject to
Section 2.6.1(c)) until the Vivid TV Closing.
2.6.3 The closing of the purchase of the Vivid TV Assets (the "Vivid TV
Closing") will take place promptly following the earliest to occur
of (a) the parties obtaining the DTV Consent or (b) the earlier of
the termination of the DTV Agreement or December 31, 2004. As of
the Vivid TV Closing, the parties will deem this Agreement
modified as if the transfer of the Califa Assets, the Other VODI
Assets and the Vivid TV Assets occurred simultaneously with all of
the terms herein applying mutatis mutandis, and will reduce the
first payment (and any subsequent payments, to the extent
necessary) of Purchase Price following the Vivid TV Closing by the
Net Revenues Adjustment Amount. For the purposes of this Section
2.6.3, "Net Revenues Adjustment Amount" will mean (a) the Net
Revenues paid to Sellers between the Closing Date and the Vivid TV
Closing less (b) an amount equal to such Net Revenues multiplied
by the percentage point difference between (x) the sum of the
highest effective federal individual income tax rate plus the
highest effective California state individual income tax rate, and
(y) the sum of the federal individual capital gains tax rate plus
the California state individual capital gains tax rate.
2.6.4 Upon the Vivid TV Closing, the Management Services Agreement or
Section 2.6.1, as the case may be, will terminate and be of no
further force and effect.
ARTICLE 3
CLOSING
3.1 Closing Date. Upon the terms and subject to the conditions set forth in
this Agreement, the Closing of the transactions contemplated by this
Agreement (subject to Section 2.6) will take place at the offices of
O'Melveny & Myers LLP, at 10:00 a.m., on the third Business Day after the
satisfaction or waiver of all of the conditions set forth in Sections 8.1,
8.2, and 8.3, or at such other location or time as Sellers and PEI may
agree (the "Closing Date"). The parties will use their best efforts to
satisfy all of the conditions set forth in Sections 8.1, 8.2, and 8.3 and
promptly close the transactions contemplated in this Agreement.
3.2 Items to be Delivered at the Closing by the Seller Parties. At the
Closing (and/or, where applicable, at the Vivid TV Closing), the Seller
Parties will deliver or cause to be delivered to PEI:
3.2.1 A Bill of Sale and Assignment, in substantially the form of
Exhibit B (provided, that if the sale of the Vivid TV Assets is
deferred pursuant to Section 2.6, the Bill of Sale will exclude
the Vivid TV Assets and at the Vivid TV Closing Sellers will
deliver a second Bill of Sale with respect to such assets);
3.2.2 As reasonably requested by PEI, instruments of transfer in the
form customarily used in commercial transactions in the area in
which the personal property is located sufficient to transfer each
personal property interest included in the Purchased Assets,
including all items of Intangible Property listed on Section 4.9
of the Sellers Disclosure Schedule;
3.2.3 As reasonably requested by PEI, such other instruments of transfer
necessary or appropriate to transfer to and vest in PEI all of
Sellers' right, title and interest in and to the Purchased Assets;
3.2.4 The opinions, certificates, consents and other documents referred
to herein as then deliverable by Sellers;
3.2.5 To the extent Sellers have possession or control thereof, executed
originals of all Contracts that are Purchased Assets;
3.2.6 Electronic copies of all books and records (including the general
ledger and sub ledgers), files, documents and agreements (the
"Books") pertaining to the Purchased Assets or otherwise to the
Business. If such Books are not contained in digital or other
electronic storage media, the Sellers will deliver all original
books and records (including the general ledger and sub ledgers),
files, documents and agreements; provided that Sellers may retain
copies thereof to the extent reasonably necessary for the conduct
by Sellers of the Excluded VODI Businesses.
3.2.7 Executed originals of the Trademark License Agreement and the
Output Agreement; and
3.2.8 An agreement in form and substance satisfactory to PEI terminating
the provisions of and releasing without further liability all
non-competition obligations of PEI and its Affiliates made in
favor of Sellers or their respective Affiliates, whether pursuant
to that certain Asset Purchase Agreement dated as of May 29, 1998
between Affiliates of PEI and Affiliates of Califa or otherwise.
3.3 Items to be Delivered at the Closing by PEI. At the Closing (and/or,
where applicable, at the Vivid TV Closing), PEI will deliver or cause to be
delivered to the Sellers:
3.3.1 The portion of the Purchase Price described in Section 2.2.1(a);
3.3.2 Executed originals of the Trademark License Agreement and the
Output Agreement; and
3.3.3 An Assumption Agreement, in substantially the form of Exhibit C
(provided, that if the sale of the Vivid TV Assets is deferred
pursuant to Section 2.6, the Assumption Agreement will exclude the
Assumed Liabilities relating to Vivid TV and at the Vivid TV
Closing, PEI will deliver a second Assumption Agreement with
respect to such Assumed Liabilities).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLER PArties
Except as otherwise indicated on Sellers' Disclosure Schedule,
each of the Seller Parties jointly and severally represent and warrant, for
the benefit of PEI and its Affiliates that:
4.1 Organization and Related Matters. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California. Each Seller has all necessary corporate power and
authority to own its respective properties and assets (including the
Purchased Assets) and to carry on its respective businesses as now
conducted. True, correct and complete copies of the respective charter
documents of each Seller as of the Effective Date have been delivered to
PEI. Neither Seller is a registered or reporting company under the Exchange
Act. Stockholders are the record and beneficial owners of 100% of each
Seller's Equity Securities. No person holds beneficial ownership of 50% or
more of the Equity Securities of both Califa and VODI.
4.2 Ownership of Purchased Assets.
4.2.1 Each Seller has good and marketable title to all of its respective
Purchased Assets, free and clear of any Encumbrances. Each Seller
has the full capacity, right, power and authority to enter into
this Agreement and to transfer, convey and sell to PEI at the
Closing its respective Purchased Assets pursuant to the terms of
this Agreement. The tangible, physical Purchased Assets are being
sold "as is", except the Avid editing system owned by VODI, which
is in good condition and repair (except for ordinary and
reasonable wear and tear) as required for its current use. At the
Closing (and the Vivid TV Closing, if applicable), without
exception, PEI will acquire from each Seller good and marketable
title to and complete ownership of its respective Purchased
Assets, free and clear of all Encumbrances.
4.2.2 The Purchased Assets constitute all of the assets, properties,
privileges, interests or rights, tangible or intangible, of every
type and description including goodwill used in the Business.
4.3 Authorization; No Conflicts.
4.3.1 None of the Seller Parties is a party to, subject to or bound by
any Law, and no Action is pending against any of the Seller
Parties or, to the knowledge of each of the Seller Parties,
threatened that would prevent or adversely affect the execution,
delivery or performance by any of the Seller Parties of this
Agreement and all other agreements herein contemplated or the
transfer, conveyance and sale of the Purchased Assets pursuant to
the terms hereof.
4.3.2 This Agreement and any related agreements have been duly executed
and delivered by each of the Seller Parties and constitute the
legally valid and binding obligation of each of the Seller
Parties, enforceable against each of the Seller Parties in
accordance with their terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws and equitable principles relating to or
limiting creditors rights generally, subject to the
unenforceability under certain circumstances of covenants not to
compete.
4.3.3 Neither the execution, delivery or performance of this Agreement
or related agreements, nor the consummation of the transactions
contemplated hereby, nor the fulfillment of the terms hereof, by
any of the Seller Parties violates or will violate, constitutes or
will constitute a breach of or default under any of the terms and
provisions of (whether upon lapse of time and/or the occurrence of
any act or event or otherwise), or conflicts or will conflict with
(a) any Contract (provided that no such representation is made
with respect to Sellers' Contracts to the extent listed in
Schedule 1.1.1), Order or other material obligation to which any
of the Seller Parties is a party or is bound, (b) any Law
applicable to any of the Seller Parties or (c) the charter
documents or bylaws of Sellers.
4.3.4 Neither the execution, delivery or performance of this Agreement
or related agreements, nor the consummation of the transactions
contemplated hereby, nor the fulfillment of the terms hereof, by
any of the Seller Parties results in or will result in (a) any
augmentation or acceleration of rights, benefits or obligations of
any party under any Contract or other material obligation to which
any of the Seller Parties is a party or is bound or subject to or
(b) the imposition of any Encumbrance against any Purchased Asset.
4.3.5 The Seller Parties must obtain all Permits and Approvals listed on
Section 4.3 of the Sellers Disclosure Schedule to consummate the
transactions contemplated by this Agreement. Except for matters
identified in Section 4.3 of the Sellers Disclosure Schedule as
requiring that certain actions be taken by or with respect to a
third party or Governmental Entity, the execution and delivery of
this Agreement by each of the Seller Parties and the performance
of this Agreement and any related or contemplated transactions by
each of the Seller Parties will not require filing or registration
with, or the issuance of any Permit by, any other third party or
Governmental Entity.
4.4 Financial Statements; No Changes; No Other Liabilities or
Contingencies.
4.4.1 The Sellers have delivered to PEI the Financial Statements, which
have been prepared in accordance with GAAP consistently applied
(except for changes, if any, required by GAAP and disclosed
therein). The income statements included in the Financial
Statements present fairly in all material respects the operations
of each of the Sellers for the period covered, and the balance
sheets included in the Financial Statements present fairly in all
material respects the financial condition of each of the Sellers
as of the dates specified therein. Since December 31, 2000, there
has been no change in any of the significant accounting policies,
practices or procedures of Sellers.
4.4.2 Since December 31, 2000, whether or not in the ordinary course of
business, there has not been, occurred or arisen:
(a) any change in or event affecting the Purchased Assets or the
Business that has had or may reasonably be expected to have a
material adverse effect on the Purchased Assets or the Business;
(b) any casualty, loss, damage or destruction (whether or not covered
by insurance) of any Purchased Asset that is material or has
involved or may involve a Loss to the Seller Parties of more than
$50,000;
(c) any payments, dividends or other distribution of assets or
securities, whether consisting of cash, equity, other personal
property, real property or other thing of value declared, issued
or paid to or for the benefit of Stockholders not in the ordinary
course of business except (i) as reflected on or disclosed in the
Financial Statements or (ii) a distribution of cash to the
Stockholders in an amount equal to the Taxes owed by Stockholders
on behalf of Sellers as of the Closing Date and as set forth on
Section 4.4.2 of the Sellers Disclosure Schedule.
(d) any agreement, condition, action or omission which would be
proscribed by (or require consent under) Section 6.2 had it
existed, occurred or arisen after the Effective Date; or
(e) any strike or other labor dispute.
4.4.3 To the best knowledge of each of the Seller Parties, there are no
liabilities or obligations of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become
due, probable of assertion or not, that relate to the Purchased
Assets or the Business, which, individually or in the aggregate,
do not have, or are not reasonably likely to have a material
adverse effect on the Purchased Assets or the Business, except
liabilities that (a) are reflected on or disclosed in the
Financial Statements, (b) were incurred after December 31, 2000 in
the ordinary course of business or (c) are set forth in Section
4.4.3 of the Sellers Disclosure Schedule. To the knowledge of each
of the Seller Parties, the reserves reflected in the Financial
Statements are adequate, appropriate and reasonable and have been
calculated in a consistent manner.
4.5 Receivables. The accounts receivable reflected on the Financial
Statements, and all accounts receivable arising between December 31, 2000
and the Effective Date, have been estimated by Sellers in good faith
consistent with prudent industry practice and arose from transactions in
the ordinary course of business, and the goods or services involved have
been sold and delivered to the account obligor, or are in transit, and no
further goods or services are required to be provided in order to complete
the sales. The Sellers offer no guaranty as to the collectability of the
accounts receivable. As of the Effective Date, no such receivable will be
pledged or assigned to any other Person. No defense or set off to any such
receivable has been asserted in writing by the receivable obligor, or, to
the knowledge of each of the Seller Parties, exists.
4.6 Accounting Records; Internal Controls.
4.6.1 Each of the Sellers has records that accurately and validly
reflect their respective transactions, and accounting controls
sufficient to insure that such transactions are (a) executed in
accordance with management's general or specific authorization and
(b) recorded in conformity with GAAP so as to maintain
accountability for assets.
4.6.2 Such records, to the extent they contain important information
that is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely
pursuant to procedures and techniques utilized by companies of
comparable size in similar lines of business.
4.7 Tax and Other Returns and Reports.
4.7.1 The Seller Parties have timely filed or have caused to be filed or
will file or will cause to be filed all Tax Returns required to be
filed and have paid all Taxes required to be paid by the Seller
Parties for all periods ending on or before the Closing Date.
Adequate provision has been made in the books and records of each
of the Sellers, and to the extent required by GAAP in the
Financial Statements, for all Taxes whether or not due and payable
and whether or not disputed. The Seller Parties have prepared all
required Tax Returns, including amendments to date, in good faith
without gross negligence or willful misrepresentation, and such
Tax Returns are complete and accurate in all material respects.
Section 4.7.1 of the Sellers Disclosure Schedule lists the date or
dates through which the IRS and any other Governmental Entity have
examined the United States federal income tax returns and any
other Tax Returns of the Seller Parties. Except as set forth in
Section 4.7.1 of the Sellers Disclosure Schedule, no Governmental
Entity has during the past three years, examined or is in the
process of examining any Tax Returns of the Seller Parties or
proposed (tentatively or definitively), asserted or assessed or,
to the best knowledge of each of the Seller Parties, threatened to
propose or assert, any deficiency, assessment or claim for Taxes
and there would be no basis for any such delinquency assessment or
claim.
4.7.2 Each of the Sellers withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, shareholder or
other third party.
4.7.3 None of the Seller Parties nor any director or officer (or
employee responsible for Tax matters) of the Sellers reasonably
expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of any of the Sellers either
(a) claimed or raised by any authority in writing or (b) as to
which any of the Seller Parties and the directors and officers
(and employees responsible for Tax matters) of the Sellers has
knowledge based upon personal contact with any agent of such
authority. Section 4.7.3 of the Sellers Disclosure Schedule lists
all federal, state, local, and foreign income Tax Returns that
have been audited and/or that currently are the subject of audit.
Sellers have delivered to PEI or its designee correct and complete
copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of
the Sellers since their date of incorporation.
4.7.4 None of the Seller Parties has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
4.7.5 To the knowledge of each of the Seller Parties, the unpaid Taxes
of Sellers (a) did not, as of the Most Recent Fiscal Month End,
exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (b) do not
exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice
of Sellers in filing their Tax Returns.
4.7.6 None of the Seller Parties is a party to any Tax allocation or
sharing agreement. None of the Sellers (a) has been a member of an
Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which were one or the
other of the Sellers) or (b) has any Liability for the Taxes of
any Person (other than any of the Sellers) under Reg. ss.1.1502-6
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
4.8 Material Contracts. Section 4.8 of the Sellers Disclosure Schedule
lists each Material Contract. Each such Material Contract was entered into
in the ordinary course of business. True copies of the Material Contracts
appearing in Section 4.8 of the Sellers Disclosure Schedule, including all
amendments and supplements, have been delivered to PEI (other than any
Contract assigned to and assumed by the Seller Parties or their Affiliates
in connection with the original sale of Spice assets to Califa pursuant to
the Spice Asset Purchase Agreement if a copy of such Contract was not
provided at or before the closing of the Spice Asset Purchase Agreement).
Each Material Contract is valid, binding and in full force and effect and
is enforceable by Sellers in accordance with its terms. Each of the Seller
Parties has duly performed all of its obligations thereunder to the extent
that such obligations to perform have accrued; and no breach or default,
alleged breach or default, or event which would (with the passage of time,
notice or both) constitute a breach or default thereunder by any of the
Seller Parties, or, to the best knowledge of each of the Seller Parties,
any other party or obligor with respect thereto, has occurred. None of the
Seller Parties has received any notice of default or breach with respect to
any Material Contract.
4.9 Intangible Property. Section 4.9 of the Sellers Disclosure Schedule
lists any and all Marks and other material items of Intangible Property in
which each of the Sellers has an interest and the nature of such interest.
Such assets include all Permits or other rights with respect to any of the
foregoing. Each Seller has complete rights to and ownership of all
Intangible Property required for use in connection with the Business,
except the Vivid Marks. None of the Sellers uses any Intangible Property by
consent of any other Person (other than consents evidenced by Permits
described on Section 4.3 of the Sellers Disclosure Schedule and the consent
of VVI for the use of the Vivid Marks) and are not required to and do not
make any payments to others with respect thereto. The Intangible Property
of each of the Sellers is fully assignable free and clear of any
Encumbrances. None of the Sellers has received any notice to the effect (or
is otherwise aware) that the Intangible Property or any use by Sellers of
any such property conflicts with or allegedly conflicts with or infringes
the rights of any Person.
4.10 Legal Proceedings. There is no Order or Action pending, or, to the
best knowledge of each of the Seller Parties, threatened, against or
affecting any of the Seller Parties, the Purchased Assets or the Business
that individually or when aggregated with one or more other Orders or
Actions has or might reasonably be expected to have a material adverse
effect on the Purchased Assets or the Business, on any of the Seller
Parties' ability to perform this Agreement or on any aspect of the
transactions contemplated by this Agreement. Section 4.10 of the Sellers
Disclosure Schedule lists each Order and each Action that involves a claim
or potential claim of aggregate liability in excess of $50,000 against, or
that enjoins or seeks to enjoin any activity of any of the Seller Parties.
There is no matter as to which any of the Seller Parties has received any
notice, claim or assertion, or, to the best knowledge of each of the Seller
Parties, which otherwise has been threatened or is reasonably expected to
be threatened or initiated, against or affecting any director, officer,
employee, agent or representative of any of the Seller Parties or any other
Person, nor to the best knowledge of each of the Seller Parties is there
any reasonable basis therefor, in connection with which any such Person has
or may reasonably be expected to have any right to be indemnified by any of
the Seller Parties.
4.11 Insurance. Each of the Sellers is insured with reputable insurers
against all risks normally insured against by companies in similar lines of
business, and all of the insurance policies and bonds maintained by each of
the Sellers are in full force and effect. PEI acknowledges that Sellers do
not maintain an errors and omissions insurance policy. Section 4.11 of the
Sellers Disclosure Schedule lists all insurance policies and bonds that are
material to the Business. None of the Sellers is in default under any such
policy or bond. Each of the Sellers has timely filed claims with its
respective insurers with respect to all matters and occurrences for which
they believe they have coverage. Neither Seller has received notice or
other indication from any insurer or agent of any intent to cancel or not
to renew any of such insurance policies.
4.12 Approvals and Permits.
4.12.1 Each of the Sellers hold each Approval or Permit by or filing with
any Governmental Entity or any Person not a party to this
Agreement that is required to be made or obtained by any of the
Seller Parties in connection with the execution, delivery and
performance of this Agreement or any related agreement or the
consummation by each of the Seller Parties of the transactions
contemplated by this Agreement or any related agreement, except as
provided for in Section 2.6.
4.12.2 Each of the Sellers hold all Permits that are required by any
Governmental Entity to permit the conduct of the Business as now
conducted, and all such Permits are valid and in full force and
effect and will remain so upon consummation of the transactions
contemplated by this Agreement or any related agreement. To the
best knowledge of each of the Seller Parties, no suspension,
cancellation or termination of any of such Permits is threatened
or imminent.
4.13 Compliance with Law. To the best knowledge of each of the Seller
Parties, the use of the Purchased Assets and the Business are in compliance
with all applicable Laws in all material respects; provided that with
respect to compliance with applicable local, state and federal obscenity
laws of the content of programming exhibited in the conduct of the
Business, the Seller Parties make no representation that they have
conducted a reasonably diligent investigation and represent and warrant
only that none of the Seller Parties has received any notice or other
indication from any Governmental Entity that either Seller is in violation
of any applicable Law.
4.14 Employee Matters. Each of the Seller Parties has complied in all
material respects with all applicable Laws relating to the employment of
labor, including, ERISA, COBRA, and those Laws relating to wages, hours,
collective bargaining, unemployment insurance, worker's compensation, equal
employment opportunity and the payment and withholding of taxes. None of
the Sellers has any employment agreements, whether written or oral, express
or implied, with any Person that would require PEI to employ any Person
after the Closing Date. None of the Sellers is a party to any Contract with
any labor organization. None of the Sellers has agreed to recognize, is not
required to recognize, and has not received any demand for recognition by,
any union or other collective bargaining unit, and no union or other
collective bargaining unit has been certified as representing any of its
employees. None of the Sellers is a party to any defined benefit, defined
contribution, or other employee benefit plan subject to the jurisdiction of
ERISA or any other benefit agreement. Schedule 4.14 sets forth the
following information with respect to each employee of Sellers: (a) name;
(b) title and job description; (c) date of hire; (d) salary (as of the
Effective Date); (e) sales bonus or other performance payments (whether
such bonuses or payments are due before or after the Closing Date); (f)
vacation and sick days; (g) exempt/non-exempt status; (h) social security
number and (i) leaves of absence, if any.
4.15 Certain Interests. None of the Seller Parties, nor any officer or
director of any thereof, nor Associate of any such Person, has any material
interest in any property used in or pertaining to the Purchased Assets or
the Business; no such Person is indebted or otherwise obligated to the
Seller Parties; and none of the Seller Parties is indebted or otherwise
obligated to any such Person, except for amounts due under normal
arrangements applicable to all employees generally as to salary or
reimbursement of ordinary of business expenses not unusual in amount or
significance. Neither the execution, delivery or performance of this
Agreement or any related agreement nor the consummation of the transactions
contemplated by this Agreement or any related agreement will (either alone,
or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any benefit or payment (severance or other) arising or
becoming due from any of the Sellers or the successor or assign of any
thereof to any Person.
4.16 Intercompany Transactions. Except as set forth in Section 4.16 of the
Sellers Disclosure Schedule or as contemplated by the Non-Competition
Covenants, none of the (a) Sellers has engaged in any transaction with the
Stockholders or any Affiliate of Sellers, (b) Stockholders has any
liabilities or obligations to any of the Sellers or any of their Affiliates
and (c) Sellers or any of their Affiliates has any liabilities or
obligations to any of the Stockholders. Except as set forth in Section 4.16
of the Sellers Disclosure Schedule, neither the execution, delivery or
performance of this Agreement or any related agreement nor the consummation
of the transactions contemplated by this Agreement or any related agreement
will (either alone, or upon the occurrence of any act or event, or with the
lapse of time, or both) result in any payment arising or becoming due from
any of the Sellers or the successor or assign of any thereof to any of the
Sellers or any of their Affiliates.
4.17 Bank Accounts, Powers, etc. Section 4.17 of the Sellers Disclosure
Schedule lists each bank, trust company, savings institution, brokerage
firm, mutual fund or other financial institution with which each of the
Sellers has an account or safe deposit box and the names and identification
of all Persons authorized to draw thereon or to have access thereto, and
lists the names of each Person holding powers of attorney or agency
authority from each of the Sellers and a summary of the terms thereof.
4.18 No Brokers or Finders. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf
of any of the Seller Parties in connection with the negotiation, execution
or performance of this Agreement or any related agreement or the
transactions contemplated by this Agreement or any related agreement, is or
will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement or such transactions.
4.19 Accuracy of Information. None of the information supplied or to be
supplied by or on behalf of each of the Seller Parties (a) to any Person
for inclusion in any document or application filed with any Governmental
Entity having jurisdiction over or in connection with the transactions
contemplated by this Agreement or any related agreement or (b) to PEI, its
agents or representatives in connection with these transactions, this
Agreement or any related agreement or the negotiations leading up to this
Agreement or any related agreement did contain, or at the respective times
such information is or was delivered, will contain any untrue statement of
a material fact, or omitted or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If any of such information at any time subsequent to delivery
and prior to Closing becomes untrue or misleading, in any material respect,
the Seller Parties will promptly notify PEI in writing of such fact and the
reason for such change. All documents required to be filed by any of the
Seller Parties with any Governmental Entity in connection with this
Agreement or any related agreement or the transactions contemplated by this
Agreement or any related agreement will comply in all material respects
with the provisions of applicable Law.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PEI
PEI represents and warrants for the benefit of the Seller Parties
and their Affiliates as follows:
5.1 Organization and Related Matters. PEI is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. PEI has all necessary corporate power and authority to carry on
its business as now being conducted. PEI has the necessary corporate power
and authority to execute, deliver and perform this Agreement and any
related agreements to which it is a party.
5.2 Authorization. The execution, delivery and performance of this
Agreement and any related agreements by PEI has been duly and validly
authorized by the board of directors of PEI and by all other necessary
corporate action on the part of PEI. This Agreement constitutes the legal,
valid and binding obligation of PEI, enforceable against PEI in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally. Approval of
PEI's stockholders is not required to consummate the transactions
contemplated by this Agreement.
5.3 No Conflicts. The execution, delivery and performance of this Agreement
and any related agreements by PEI will not violate the provisions of, or
constitute a breach or default (whether upon lapse of time and/or the
occurrence of any act or event or otherwise) under (a) the charter
documents or bylaws of PEI, (b) any Law to which PEI is subject to or
bound, (c) any Contract to which PEI is a party that is material to the
financial condition, results of operations or conduct of the business of
PEI, provided (as to clauses (b) and (c) respectively) that the appropriate
Approvals are received as contemplated by Section 8.1.2 and specified
consents, if any, are secured. PEI is not in material default under any
Contract to which it is a party that would have or might reasonably be
expected to have a material adverse effect on PEI's ability to consummate
the transactions contemplated by this Agreement or any related agreements.
5.4 PEI Shares. Upon issuance of PEI Shares in accordance with the terms of
this Agreement, such PEI's Shares will be validly issued, fully paid and
nonassessable and will be issued in conformity with applicable Laws.
5.5 No Brokers or Finders. No agent, broker, finder or investment or
commercial banker, or other Person or firms engaged by or acting on behalf
of PEI or its Affiliates in connection with the negotiation, execution,
delivery or performance of this Agreement or the transactions contemplated
by this Agreement, is or will be entitled to any broker's or finder's or
similar fees or other commissions as a result of this Agreement or such
transactions.
5.6 Legal Proceedings. There is no Order or Action pending or to the best
knowledge of PEI, threatened against or affecting PEI that individually or
when aggregated with one or more other Orders or Actions has or might
reasonably be expected to have a material adverse effect on PEI's ability
to perform this Agreement or any other aspect of the transactions
contemplated by this Agreement.
5.7 SEC Filings. PEI has filed with the Securities and Exchange Commission
(the "SEC") all forms, reports and documents required to be filed with the
SEC since January 1, 2001 (the "PEI SEC Reports"). The PEI SEC Reports (a)
were prepared in all material respects in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and (b) did
not as of their respective issue dates contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. No subsidiary
of PEI is required to file any report, form or other document with the SEC.
5.8 Bankruptcy. PEI is not presently subject to a Bankruptcy Event and does
not presently contemplate filing a petition in Bankruptcy or for
reorganization under the federal Bankruptcy Code, nor is PEI aware of any
threatened Bankruptcy Event against PEI.
ARTICLE 6
PRE-CLOSING COVENANTS
6.1 Notification of Certain Matters. From the Effective Date until the
Closing, the Seller Parties will give prompt notice to PEI, and PEI will
give prompt notice to the Seller Parties, of (a) the occurrence, or failure
to occur, of any event that would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Closing
Date and (b) any failure of PEI or the Seller Parties, as the case may be,
to comply with or satisfy, in any material respect, any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement.
No such notification will affect the representations or warranties of the
parties or the conditions to their respective obligations hereunder.
6.2 Conduct of the Business Prior to the Closing Date. From the Effective
Date until the Closing, the Seller Parties will operate the Business only
in the ordinary course consistent with prudent industry practice and will
use commercially reasonable efforts to preserve its relationship with and
the goodwill of its customers, suppliers, employees and other Persons
having business dealings in connection with the Business. The Seller
Parties will not, without the prior written consent of PEI, which consent
will not be unreasonably withheld:
(a) conduct the Business in any manner except in the ordinary course
consistent with prudent industry practice;
(b) take any action or omit to take any action that would result in a
breach or inaccuracy in any material respect of any of the
representations and warranties set forth in this Agreement at or
as of any time prior to the Closing;
(c) amend, terminate, renew (or fail to renew) or renegotiate any
Material Contract;
(d) default (or take or omit to take any action that, with or without
the giving of notice or passage of time, would constitute a
default) in any of its obligations under any Material Contract or
enter into any new Material Contract or take any action that would
jeopardize the continuance of its material commercial
relationships;
(e) terminate, amend or fail to renew any existing insurance coverage;
(f) terminate or fail to renew or preserve any Permits;
(g) incur or agree to incur any obligation or liability (absolute or
contingent) that individually calls for payment by Sellers of more
than $100,000 in any specific case or $250,000 in the aggregate;
(h) make any loan, guaranty or other extension of credit to or for the
benefit of any director, officer, employee, shareholder or any of
their respective Associates or Affiliates;
(i) grant any general or uniform increase in the rates of pay or
benefits to officers, directors or employees (or a class thereof)
or any material increase in salary or benefits of any officer,
director, employee or agent or pay any special bonus to any
Person, or enter into any new employment, collective bargaining or
severance agreement;
(j) sell, transfer, mortgage, encumber or otherwise dispose of any
Purchased Assets, except (i) for dispositions of property not
material in amount, (ii) in the ordinary course of business or
(iii) as contemplated by this Agreement;
(k) issue, sell, redeem or acquire for value any debt obligations or
Equity Securities of Sellers;
(l) declare, issue, make or pay any dividend or other distribution of
assets, whether consisting of money, other personal property, real
property or other thing of value, to the Stockholders, except a
distribution of cash to the Stockholders in an amount equal to the
unpaid Taxes owed by Stockholders as of the Closing Date resulting
from the operations of Sellers prior to the Closing Date and as
set forth in Section 4.4.2 of the Sellers Disclosure Schedule;
(m) directly or indirectly assign, transfer, mortgage, pledge, lease
or otherwise dispose of or grant or create or permit to exist any
Encumbrance on, the Purchased Assets;
(n) fail to maintain the books and records relating to the Business in
the usual, regular and ordinary manner, subject to the terms and
conditions herein;
(o) change or amend its charter documents or bylaws in a manner that
would frustrate Sellers' ability to consummate the transactions
contemplated by this Agreement;
(p) directly or indirectly purchase any real property;
(q) make any capital expenditures or commitments that individually
calls for payment by Sellers of more than $10,000 in any specific
case or $25,000 in the aggregate;
(r) renew or initiate any new system or affiliate launches;
notwithstanding the foregoing, Sellers may renew or initiate any
new system or affiliate launches if (i) such new system or
affiliate launch has terms and conditions (both financial and
otherwise) that are consistent with prudent industry practice and
(ii) Sellers promptly notify PEI of such new system or affiliate
launch;
(s) make special or extraordinary payments to any Person, including
providing for, paying or otherwise satisfying trade payables or
other obligations other than those that are currently due and
payable, except a cash payment to the Stockholders in an amount
equal to the unpaid Taxes owed by Stockholders as of the Closing
Date resulting from the operations of Sellers prior to the Closing
Date and as set forth in Section 4.4.2 of the Sellers Disclosure
Schedule;
(t) make any material investment, by purchase, contributions to
capital, property transfers, or otherwise, in any other Person;
(u) dispose of or permit to lapse any rights to the use of any
Intangible Property or dispose of or disclose any Intangible
Property not a matter of public knowledge;
(v) compromise or otherwise settle any claims, or adjust any assertion
or claim of a deficiency in Taxes (or interest thereon or
penalties in connection therewith), or file any appeal from an
asserted deficiency, except in a form previously approved by PEI
in writing, or file or amend any Tax Return, in any case before
furnishing a copy to PEI and affording PEI an opportunity to
consult with respect thereto; or
(w) agree to or make any commitment to take any actions prohibited by
this Section 6.2.
6.3 Preservation of Business Prior to Closing Date. From the Effective Date
until the Closing, (a) the Seller Parties will use their reasonable best
efforts to preserve the Purchased Assets and the Business and to preserve
the goodwill of customers, suppliers and others having business relations
with Sellers and (b) the Seller Parties and PEI will consult with each
other concerning, and the Seller Parties will cooperate to keep available
to PEI, the services of the officers and employees of Sellers that PEI may
wish to offer employment.
6.4 Permits and Approvals.
6.4.1 The Seller Parties and PEI each agree to cooperate and use their
reasonable best efforts to obtain (and will immediately prepare
all registrations, filings and applications, requests and notices
preliminary to all) Approvals and Permits that may be necessary or
which may be reasonably requested by PEI to consummate the
transactions contemplated by this Agreement or any related
agreements.
6.4.2 To the extent that the Approval of a third party with respect to
any Contract is required in connection with the transactions
contemplated by this Agreement or any related agreements, the
Seller Parties will use their reasonable best efforts to obtain
such Approval prior to the Closing Date (except as provided for in
Section 2.6) and if any such Approval is not obtained, the Seller
Parties will cooperate with PEI to ensure that PEI obtains the
benefits of each Contract. PEI will reimburse the Seller Parties
for reasonable out of pocket expenses relating to the Seller
Parties' compliance with this Section 6.4.2. The Seller Parties
will jointly and severally indemnify and hold harmless (without
limitation or duration) PEI for and against any and all Losses as
a result, directly or indirectly, of the failure to obtain any
such Approval with respect to any Contract not listed in Schedule
1.1.1.
6.5 Exclusivity. From the Effective Date through the Closing (and, if
applicable, the Vivid TV Closing) Sellers agree not to, and agree not to
authorize or permit any of their Affiliates and the officers, directors,
shareholders, employees, financial advisors or other representatives of
Sellers or their Affiliates to, enter into any agreement with respect to,
furnish any information to any Person with respect to, or propose or take
any other action to effect, or propose or take any other action that may
reasonably be expected to solicit, initiate, encourage or lead to an offer,
proposal or indication of interest by any Person other than PEI or its
Affiliates with respect to:
(a) any merger or consolidation of Sellers or their Affiliates with or
into any Person other than PEI or its Affiliates,
(b) any transfer of all or any portion of the Purchased Assets to any
Person other than PEI or its Affiliates,
(c) any issuance or sale of any debt or Equity Securities of Sellers
to any Person other than PEI or its Affiliates,
(d) the sale by any holder of any debt or Equity Securities of Sellers
to any Person other than PEI or its Affiliates, or
(e) any other transaction the conclusion of which could reasonably be
expected to impede, interfere with, prevent or materially delay
the conclusion of the transactions contemplated hereby or could
reasonably be expected to materially reduce the benefits to PEI of
the transactions contemplated hereby.
The terms of this Section 6.5 will be valid, binding, enforceable
and irrevocable until this Agreement is terminated in accordance
with its terms.
6.6 Sales Tax. PEI agrees to pay for any sales or transfer taxes
incurred in connection with this Agreement and the transactions
contemplated herein.
ARTICLE 7
CONTINUING COVENANTS
7.1 Non-Competition Covenants.
7.1.1 Scope of Covenants. For the period commencing on the Effective
Date and ending 10 years thereafter (the "Restricted Period"), the
Seller Parties will not, directly or indirectly (the
"Non-Competition Covenants"):
(a) engage in the Playboy Business either alone or in association with
or in connection with or on behalf of any other Person (provided
that this Section 7.1.1(a) will not prohibit Stockholders from
engaging in the Vivid Business),
(b) enter the employ of, or render or provide any material goods or
services to, any Person or Affiliate of a Person engaged in the
Playboy Business, which employment, goods or services are directly
related to businesses or activities in which Stockholders are
otherwise prohibited from engaging under the terms of this Section
7.1,
(c) acquire more than a 5% financial interest in any Person engaged in
the Playboy Business, unless such Seller Party (i) acquires less
than a 50% financial interest in a Person engaged in the Playboy
Business in connection with the receipt of an interest as
consideration for a sale of another business in which such Seller
Party holds an ownership interest or in connection with a
strategic transaction (i.e., not in exchange for investment
capital), (ii) such Seller Party does not exercise voting rights
or other management authority, and (iii) all other terms
restricting such Seller Party's ability to compete under this
Section 7.1 continue in full force and effect with respect to such
Person;
(d) otherwise become involved in any material respect (whether as an
investor, partner, joint venturer, stockholder (except as
permitted by clause (c)), officer, director, employee, consultant,
agent or otherwise), with any Person engaged in the Playboy
Business,
(e) interfere in any material respect with the business relationships
or suppliers of PEI or its Affiliates as they relate to the
Playboy Business,
(f) enter into any Contract to acquire any licensing, distribution or
transmission rights with respect to any Adult Programming for
transmission in the Media in the Territory,
(g) interfere in any material respect with the relationships of PEI
with any of its employees, agents, representatives, consultants
under contract, joint venturers or other partners,
(h) solicit or encourage any employee of PEI to leave the employment
of PEI, or otherwise hire, retain, employ or engage in any
business with any employee of PEI,
(i) hire any employee who has left the employment of PEI within one
year after the termination of such employment, or
(j) use, license or otherwise exploit the Vivid Marks alone, in
combination with other words, or in any stylistic or other
variations thereof in connection with any Playboy Business.
7.1.2 Separate Covenants and Judicial Limitation. The Non-Competition
Covenants will be construed as divided in separate and distinct
covenants with respect to each Seller Party and with respect to
each jurisdiction in the applicable territories. The parties
hereby expressly agree that the duration, scope and geographic
area of restriction set forth in the Non-Competition Covenants are
reasonable. If at any time a court of competent jurisdiction holds
that any portion of any Non-Competition Covenant is unenforceable
by reason of its extending for too great a period of time or over
too great a geographical area or by reason of its being too
extensive in any other respect, such Non-Competition Covenant will
be interpreted to extend only over the maximum period of time,
geographical area or in all other respects as to which it may be
enforceable.
7.1.3 Special Remedies and Enforcement. Each Seller Party recognizes and
agrees that a breach or threatened breach by any Seller Party (or
the Seller Parties acting collectively) of any of the
Non-Competition Covenants could cause irreparable harm to PEI and
its Affiliates, that PEI's remedies at law in the event of such
breach or threatened breach would be inadequate, and that,
accordingly, in the event of such breach or threatened breach a
restraining order or injunction or both may be issued against the
breaching Seller Party, in addition to any other rights and
remedies which are available to PEI under law or in equity.
7.1.4 Event of Default. Upon the occurrence of an Event of Default, each
of the Seller Parties may be released from the Non-Competition
Covenants as provided in Section 2.1.4.
7.1.5 Acknowledgements. Each of the parties acknowledges that the
covenants and restrictions above are necessary, fundamental and
required for the protection of the Business and PEI, that such
covenants and restrictions relate to matters that are of a
special, unique and extraordinary value and that PEI would not
enter into the transactions contemplated by this Agreement without
the protection provided by such covenants and restrictions.
7.1.6 Convergent Technology. Notwithstanding anything to the contrary in
this Section 7.1, no Seller Party will be in breach of the
Non-Competition Covenants if such Seller Party distributes,
broadcasts, transmits, displays, exhibits, exploits, or projects
Adult Programming to a Convergent Technology developed during the
Restricted Period.
7.2 Nondisclosure. Neither the Stockholders nor any of their
representatives will, at any time, make use of, divulge or otherwise
disclose, directly or indirectly, any trade secret or other proprietary
data (including, but not limited to, any customer list, record or financial
information) concerning the Purchased Assets or the Business that
Stockholders or any representative of Stockholders may have learned as a
shareholder, employee, officer or director of Sellers. In addition, neither
Stockholders nor any of their representatives will make use of, divulge or
otherwise disclose, directly or indirectly, to persons other than PEI, any
confidential information concerning the Purchased Assets or the Business
which may have been learned in any such capacity.
7.3 *****
7.4 Employee Related Obligations. Effective as of the Closing Date, PEI
will (or will cause an Affiliate to) offer full-time employment (as defined
by PEI) to those Califa employees listed in Schedule 7.4 at the same salary
Califa paid to such employee as of the Closing Date (and identified on such
Schedule) and all standard benefits as provided by PEI to each PEI employee
in an equivalent employment position. PEGI's employment policies and
procedures will apply to such employees and PEGI will have no obligation or
liability under any of Califa's employment policies and procedures,
including salary increases, bonuses / commissions (except as expressly
provided in this Agreement), vacation, holiday and health coverage. All
obligations for termination notice, compensation, bonuses, severance pay,
vacation time, pay in lieu of vacation and similar employee benefits will
be paid or otherwise satisfied by Sellers as of the Closing Date with
respect to such employees. *****
7.5 Bulk Sales Laws. Each of the Seller Parties and PEI waive compliance
with applicable laws under any version of Article 6 of the Uniform
Commercial Code adopted by any state or any similar law relating to the
sale of inventory, equipment or other assets in bulk in connection with the
sale of the Purchased Property.
7.6 Collective Action. The Seller Parties will act collectively in
exercising the remedies available to them pursuant to this Agreement. In
furtherance of, and without limiting, the foregoing, the Seller Parties
will deliver a single objection notice, if any, pursuant to Section 2.4, a
single claim for indemnification, if any, and a single response to a
request for indemnification by PEI, if any. Pursuant to an agreement among
the Seller Parties of even date herewith, Asher has been designated as the
Seller Parties' representative and authorized to act on behalf of the
Seller Parties in all respects under the Agreement.
7.7 Program Supply Agreements. If the rights and obligations under any
Program Supply Agreement apply to PEI only (as set forth in Schedule 7.7),
then such Program Supply Agreement will be assigned to PEI in its entirety.
If the rights and obligations under any such Program Supply Agreement apply
to both PEI and any of the Seller Parties (as set forth in Schedule 7.7),
then such Program Supply Agreement will be assigned in part to PEI and
retained in part by such Seller Party. The parties agree and acknowledge
that with respect to each Program Supply Agreement assigned in part to PEI
and retained in part by any Seller Party, the general terms and conditions
of such Program Supply Agreement will apply to both parties. The parties
will use commercially reasonable efforts to obtain acknowledgements from
the applicable licensors. Neither party will amend or modify any such
Program Supply Agreement if such amendment or modification changes a right
or obligation of the other party. The parties agree that they will each
have equal access to the storage location of the masters and related
materials delivered under those Program Supply Agreements assigned in part
to PEI and retained in part by any Seller Party and that the parties will
apportion the license fees in such Program Supply Agreements as set forth
in Schedule 7.7.
ARTICLE 8
CONDITIONS OF PURCHASE
8.1 General Conditions. The obligations of the parties to effect the
Closing will be subject to the following conditions unless waived
in writing by all parties:
8.1.1 No Orders; Legal Proceedings. No Law or Order will have been
enacted, entered, issued, promulgated or enforced by any
Governmental Entity, nor will any Action have been instituted and
remain pending or, to the best knowledge of each of the Seller
Parties, have been threatened and remain so by any Governmental
Entity at what would otherwise be the Closing Date, which
prohibits or restricts or would (if successful) prohibit or
restrict the transactions contemplated by this Agreement or any
related agreements or, with respect to obligations of PEI only,
which would not permit the Business as presently conducted to
continue unimpaired following the Closing Date. No Governmental
Entity will have notified any party to this Agreement that
consummation of the transactions contemplated by this Agreement or
any related agreements would constitute a violation of any Laws of
any jurisdiction and/or that it intends to commence proceedings to
restrain or prohibit such transactions or force divestiture or
rescission, unless such Governmental Entity will have withdrawn
such notice and abandoned any such proceedings prior to the time
which otherwise would have been the Closing Date.
8.1.2 Approvals. To the extent required by applicable Law, all Permits
and Approvals required to be obtained from any Governmental Entity
or a third party (except as provided for in Section 2.6) will have
been received or obtained on or prior to the Closing Date.
8.1.3 Output Agreement. Contemporaneously with the Closing, the parties
will execute and deliver the Output Agreement.
8.1.4 Trademark License Agreement. Contemporaneously with the Closing,
the parties will execute and deliver the Trademark License
Agreement.
8.1.5 Termination of SEI / SEI 1 Program Supply Agreement.
Contemporaneously with the Closing, that certain program supply
agreement between PEGI, as successor in interest to SEI, and
Califa, as successor in interest to SEI 1, dated June 30, 1999
will terminate without further action by the parties.
8.2 Conditions to Obligations of PEI. The obligations of PEI to effect the
Closing will be subject to the following conditions except to the extent
waived in writing by PEI:
8.2.1 Representations and Warranties and Covenants of the Seller
Parties. The representations and warranties of each of the Seller
Parties herein contained will be true in all material respects at
the Closing Date with the same effect as though made at such time.
Each of the Seller Parties will have in all material respects
performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Sellers will have
delivered to PEI certificates of each of the Sellers in form and
substance satisfactory to PEI, dated the Closing Date and signed
by its chief executive officer and chief financial officer, to
such effect. For the purposes of this section, the words "material
adverse effect", "material" and other similar qualifying words or
phrases will be deemed to be excluded from the representations and
warranties of the Seller Parties.
8.2.2 Consents. The Seller Parties will have obtained and delivered to
PEI all required Approvals and Permits listed in Section 4.3 of
the Sellers Disclosure Schedule in form and substance satisfactory
to PEI, except as provided for in Section 2.6.
8.2.3 Spousal Consent. If any Stockholder is married on the Closing
Date, such Stockholder will have delivered a duly executed Spousal
Consent in the form of Exhibit D.
8.2.4 Cofer Non-Competition Agreement. Contemporaneously with the
Closing, Sellers will have entered into the Non-Competition
Agreement with Cofer substantially in the form attached hereto as
Exhibit E.
8.2.5 Deliveries. The Seller Parties will have delivered to PEI all
items required by Section 3.2.
8.2.6 Eligible Shares Election Form. Sellers will have delivered a
properly completed Eligible Shares Election Form setting forth the
information required therein as of the Closing Date.
8.3 Conditions to Obligations of Sellers. The obligations of the Seller
Parties to effect the Closing will be subject to the following conditions,
except to the extent waived in writing by the Seller Parties:
8.3.1 Representations and Warranties and Covenants of PEI. The
representations and warranties of PEI herein contained will be
true in all material respects at the Closing Date with the same
effect as though made at such time. PEI will have in all material
respects performed all obligations and complied with all covenants
and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing Date, and PEI will
have delivered to Sellers certificates of PEI in form and
substance satisfactory to Sellers, dated the Closing Date and
signed by its chief executive officer and chief financial officer,
to such effect. For the purposes of this section, the words
"material adverse effect", "material" and other similar qualifying
words or phrases will be deemed to be excluded from the
representations and warranties of PEI.
8.3.2 Deliveries. PEI will have delivered to Sellers all items required
by Section 3.3.
ARTICLE 9
TERMINATION OF OBLIGATIONS; SURVIVAL
9.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated by this
Agreement will terminate by mutual consent in writing of PEI and the Seller
Parties at any time before the Closing or as follows (and in no other
manner):
9.1.1 By either PEI or the Seller Parties, by written notice to the
other part(ies), on or after the 30th calendar day following the
Effective Date; provided, however, that the party providing such
written notice is not then in breach of any of its
representations, warranties or obligations under this Agreement.
Nothing in this Section 9.1.1 excuses a party from its affirmative
obligation to use its best efforts to satisfy all of the
conditions set forth in Sections 8.1, 8.2, and 8.3 and promptly
close the transactions contemplated in this Agreement pursuant to
Section 3.1 if the other party has performed all of its
obligations hereunder in all material respects;
9.1.2 By either PEI or the Seller Parties if there has been a material
misrepresentation or material breach on the part of the other
party in its representations, warranties or covenants set forth
herein; provided, however, that if such breach or
misrepresentation is susceptible to cure, the Seller Parties or
PEI, as the case may be, will have 10 Business Days after receipt
of notice from the other party of its intention to terminate this
Agreement pursuant to this Section 9.1 in which to cure such
breach or misrepresentation (if such misrepresentation or breach
continues) before the other party may so terminate this Agreement.
9.1.3 By either PEI or the Seller Parties upon written notice to the
other part(ies) if any event occurs which would render impossible
the satisfaction of one or more conditions to the obligation of
the parties to consummate the transactions contemplated by this
Agreement as set forth in Section 8.1;
9.1.4 By the Seller Parties upon written notice to PEI if any event
occurs which would render impossible the satisfaction of one or
more conditions to the obligation of the Seller Parties to
consummate the transactions contemplated by this Agreement as set
forth in Section 8.3; or
9.1.5 By PEI upon written notice to the Seller Parties if any event
occurs which would render impossible the satisfaction of one or
more conditions to the obligations of PEI to consummate the
transactions contemplated by this Agreement as set forth in
Section 8.2.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement
will terminate without further liability of any party to another; provided
that the obligations of the parties contained in Section 12.12 and 12.16
will survive any such termination. A termination under Section 9.1 will not
relieve any party of any liability for a breach of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver
of any available remedy (including specific performance if available) for
any such breach or misrepresentation.
9.3 Survival of Representations and Warranties. All representations and
warranties contained in or made pursuant to this Agreement will survive the
Closing until 18 months after the Closing Date, except that:
9.3.1 the representations and warranties contained in Sections 4.1, 4.2,
4.3, 4.18, 5.1, 5.2, 5.3 and 5.5 will survive the Closing and will
remain in full force and effect indefinitely,
9.3.2 the representations and warranties contained in Section 4.7 will
continue through the expiration of the applicable statute of
limitations as the same may be extended (or, if a claim has been
asserted prior to such expiration, until 6 months after the date
of its final resolution), and
9.3.3 if any claim or notice is given under Article 10 with respect to
any representation or warranty prior to the applicable expiration
date, such representation or warranty will continue indefinitely
until such claim is finally resolved; provided that any such claim
or notice has a reasonable basis and its scope can be reasonably
estimated.
ARTICLE 10
INDEMNIFICATION
10.1 Obligations of Sellers. Each of the Seller Parties jointly and
severally agrees to indemnify and hold harmless PEI and its directors,
officers, stockholders, employees, Affiliates, agents and assigns from and
against any and all Losses incurred directly or indirectly, as a result of,
or based upon or arising from:
10.1.1 any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by the
Seller Parties in or pursuant to this Agreement whether or nor not
of material nature (provided however that, except for Section
4.19, for the purposes of this Article 10, the words "material
adverse effect", "material", "to [its] knowledge" or "to [its]
best knowledge" and other similar qualifying words or phrases will
be deemed to be excluded from the representations and warranties
of the Seller Parties); or
10.1.2 any Excluded Liabilities.
10.2 Obligations of PEI. PEI agrees to indemnify and hold harmless the
Seller Parties and their directors, officers, shareholders, employees,
Affiliates, agents and assigns from and against any Losses incurred,
directly or indirectly, as a result of, or based upon or arising from:
10.2.1 any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by PEI
in or pursuant to this Agreement whether or nor not of material
nature (provided however that, except for Section 5.7, for the
purposes of this Article 10, the words "material adverse effect",
"material" and other similar qualifying words or phrases will be
deemed to be excluded from the representations and warranties of
PEI); or
10.2.2 any third party claims regarding the conduct of the Business after
the Closing to the extent such claim is not subject to
indemnification by the Seller Parties pursuant to Section 10.1.
10.3 Certain Tax Matters.
10.3.1 Sellers Indemnity. Each of the Seller Parties jointly and
severally agrees to indemnify, defend and hold harmless PEI and
its directors, officers, stockholders, employees, Affiliates,
agents and assigns against any and all Losses incurred directly or
indirectly, as a result of, or based upon or arising from:
(a) any Tax payable by or on behalf of the Seller Parties for any
taxable period (or portion thereof) ending on or prior to the
Closing Date,
(b) any deficiencies in any Tax payable by or on behalf of the Seller
Parties arising from any audit by any taxing agency or authority
with respect to any period (or portion thereof) ending on or prior
to the Closing Date,
(c) any claim or demand for reimbursement or indemnification resulting
from any transfer by the Seller Parties prior to the Closing of
any Tax benefits or credits to any other Person,
(d) any Tax liabilities arising out of the transfer of the Purchased
Assets, except as expressly provided for herein, and
(e) with respect to any Taxes payable by PEI with respect to the
operation of the Business (other than PEI's income or franchise
taxes) due for periods beginning before and ending after the
Closing Date (whether or not assessed prior to the Closing Date),
a pro-rata share of such Taxes, calculated as if the period ended
on the Closing Date. For purposes of calculating Sellers' pro-rata
share of Taxes described in this Section 10.3.1(e), the Closing
Date will be treated as the last day of a taxable period, and the
portion of any such Tax that is allocable to the taxable period
that is so deemed to end on the Closing Date will be:
(i) in the case of Taxes that are either (A) based upon or
related to income or receipts, (B) imposed in connection
with any sales or other transfer or assignment of
property (real or personal, tangible or intangible) other
than transfers pursuant to this Agreement or (C) imposed
on a periodic basis and measured by the level of any item
which is required to be determined as of the Closing Date
or which is reasonably determinable as of the Closing
Date and such determination is made by a party in a
manner reasonably acceptable to both parties, deemed
equal to the amount which would be payable if the period
for which such Tax is assessed ended with the Closing
Date; and
(ii) in the case of Taxes imposed on a periodic basis and
measured by the level of any item, other than Taxes
described in clause (i) above, will be deemed to be the
amount of such Taxes for the entire period (or, in the
case of such taxes determined on an arrears basis, the
amount of such Taxes for the immediately preceding
period) multiplied by a fraction the numerator of which
is the number of calendar days in the period ending with
the Closing Date and the denominator of which is the
number of calendar days in the entire period.
10.3.2 PEI Indemnity. PEI agrees to indemnify the Seller Parties and
their directors, officers, shareholders, employees, Affiliates,
agents and assigns against any Taxes due with respect to the
Purchased Assets or the Business for tax periods beginning after
the Closing Date.
10.4 Procedure.
10.4.1 Any party seeking indemnification under this Article 10 (the
"Indemnified Party") will promptly notify the party required to
provide indemnity hereunder (the "Indemnifying Party") in
accordance with Section 12.15. Notwithstanding the foregoing,
failure to give or delay in giving notice will not release the
Indemnifying Party from liability except to the extent that the
Indemnifying Party is materially prejudiced thereby.
10.4.2 If the Indemnifiable Loss arises from any claim, demand or
liability is asserted by any third party against the Indemnified
Party (a "Third-Party Claim"), the Indemnified Party will, upon
notice of the claim or demand, promptly notify the Indemnifying
Party, and the Indemnifying Party will defend and/or settle any
actions or proceedings brought against the Indemnified Party in
respect of matters embraced by the indemnity with counsel
reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party does not promptly defend or settle any such
claims, the Indemnified Party will have the right to control any
defense or settlement, at the expense of the Indemnifying Party.
No claim will be settled or compromised without the prior written
consent of each party to be affected by such settlement or
compromise, such consent not to be unreasonably withheld. The
Indemnified Party will at all times also have the right to
participate fully in the defense at its own expense; provided
Indemnifying Party will pay legal fees of one counsel for
Indemnified Party if (a) under applicable standards of conduct, a
conflict on any significant issue exists between any two or more
Indemnified Parties, or (b) the Third Party Claim is made both
against an Indemnifying Party and an Indemnified Party and the
Indemnified Party has been advised by counsel that there are legal
defenses available to such Indemnified Party that are materially
different from those available to the Indemnifying Party. The
parties will cooperate in the defense of all Third-Party Claims
that may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party will make
available to the party controlling such defense, any books,
records or other documents within its control that are necessary
or appropriate for such defense.
10.4.3 If the Indemnified Party has a claim against the Indemnifying
Party that does not involve a Third-Party Claim (an "Inter-Party
Claim", and together with a Third-Party Claim, an "Indemnifiable
Claim"), the Indemnified Party will notify the Indemnifying Party
with reasonable promptness of the claim, specifying the nature,
estimated amount and the specific basis for the claim. The
Indemnifying Party will respond within 45 days of receipt of the
notice of an Inter-Party Claim. If the Indemnifying Party fails to
respond, the estimated amount of the claim specified by the
Indemnified Party will be conclusively deemed a liability of the
Indemnifying Party. If the Indemnifying Party timely disputes the
claim, the Indemnified and the Indemnifying Party will negotiate
in good faith to resolve the dispute, and if not resolved, will be
submitted for resolution pursuant to Article 11.
10.5 Tax Adjustments. Any amounts payable by the Indemnifying Party to
or on behalf of an Indemnified Party in respect of a Loss will be
adjusted by the net effect of Sections 10.5.1 and 10.5.2 as
follows:
10.5.1 Tax Reimbursement Amount. If such Indemnified Party is liable for
any additional Taxes as a result of the payment of amounts in
respect of an Indemnifiable Claim, the Indemnifying Party will pay
to the Indemnified Party in addition to such amounts in respect of
the Loss within 10 days after being notified by the Indemnified
Party of the payment of such liability (a) an amount equal to such
additional Taxes (the "Tax Reimbursement Amount") plus (b) any
additional amounts required to pay additional Taxes imposed with
respect to the Tax Reimbursement Amount and with respect to
amounts payable under this clause (b), with the result that the
Indemnified Party will have received from the Indemnifying Party,
net of the payment of Taxes, an amount equal to the Loss.
10.5.2 Net Tax Benefit. The Indemnified Party will reimburse the
Indemnifying Party an amount equal to the net reduction in any
year in the liability for Taxes (that are based upon or measured
by income) of the Indemnified Party or any member of a
consolidated or combined tax group of which the Indemnified Party
is, or was at any time, part, which reduction is actually realized
with respect to any period after the Closing Date and which
reduction would not have been realized but for the amounts paid
(or any audit adjustment or deficiency with respect thereto, if
applicable) in respect of a Loss, or amounts paid by the
Indemnified Party pursuant to this paragraph (a "Net Tax
Benefit"). The amount of any Net Tax Benefit will be paid not
later than 15 days after the date on which such Net Tax Benefit
will be realized. For purposes of this Section 10.5.2, the Net Tax
Benefit will be deemed to be actually realized on the date on
which such Net Tax Benefit is used to compute an obligation to pay
installments of estimated tax or, if earlier, reported earnings;
provided, however, that if the amount of any Net Tax Benefit is
subsequently affected by reason of any event or events, including,
without limitation, any payment of Taxes by such Indemnified Party
with respect to the loss of such Net Tax Benefit upon audit or
litigation, appropriate adjustments and payments to take into
account the increase or decrease in such Net Tax Benefit will be
made between the Indemnified Party and the Indemnifying Party
within 15 days after such event or events. Any expenses associated
with the realization of a Net Tax Benefit or any contest or
proceeding with respect to a Net Tax Benefit will be deemed to
reduce such Net Tax Benefit.
10.6 Limitation on Indemnity.
10.6.1 None of the Seller Parties will be obligated to indemnify PEI or
its directors, officers, stockholders, employees, Affiliates,
agents or assigns pursuant to this Agreement unless and until the
aggregate amount of the Indemnifiable Claims thereunder exceeds
$250,000 (except for an amount equal to any payment, dividend or
other distribution to any Seller Party in violation of Sections
4.4.2(c), 6.2(l) or 6.2(s)), it being understood that after such
amount exceeds $250,000, each of the Seller Parties will be
jointly and severally liable only for all amounts in excess of
$250,000 of Indemnifiable Claims (subject to the following
sentence). The maximum amount for which each of the Seller Parties
will be jointly and severally liable to PEI or its directors,
officers, stockholders, employees, agents or assigns for any
Inter-Party Claims will be $25 million, unless a Seller Party
violated a Law prior to the Closing directly resulting in the Loss
arising from such Inter-Party Claim(s), in which case there will
be no maximum indemnification amount. The maximum amount for which
each of the Seller Parties will be jointly and severally liable to
PEI or its directors, officers, stockholders, employees, agents or
assigns for any Third Party Claims will be the Purchase Price,
unless a Seller Party violated a Law prior to the Closing directly
resulting in the Loss arising from such Third-Party Claims(s), in
which case there will be no maximum indemnification amount.
10.6.2 PEI will not be obligated to indemnify the Seller Parties or any
of their directors, officers, shareholders, employees, Affiliates,
agents or assigns pursuant to this Agreement unless and until the
aggregate amount of the Indemnifiable Claims thereunder exceeds
$250,000 (except for trade payables assumed by PEI pursuant to
Section 1.2.2(b)), it being understood that after such amount
exceeds $250,000, PEI will be liable only for all amounts in
excess of $250,000 of Indemnifiable Claims (subject to the
following sentence). The maximum amount for which PEI will be
liable to the Seller Parties or their directors, officers,
stockholders, employees, agents or assigns for any Inter-Party
Claims will be $25 million, unless PEI violated a Law prior to the
Closing directly resulting in the Loss arising from such
Inter-Party Claim(s), in which case there will be no maximum
indemnification amount. The maximum amount for which PEI will be
liable to PEI or its directors, officers, stockholders, employees,
agents or assigns for any Third Party Claims will be the Purchase
Price, unless PEI violated a Law prior to the Closing directly
resulting in the Loss arising from such Third-Party Claims(s), in
which case there will be no maximum indemnification amount.
10.6.3 The parties' recovery will be net of any insurance recovery to the
extent applicable. Notwithstanding the foregoing, nothing in this
Article 10 will obligate the parties to maintain insurance or
pursue a claim thereunder.
10.6.4 Except with respect to Losses arising from any party's
intentional, willful or reckless misrepresentations or breaches of
agreements made as part of this Agreement, no party will be liable
for any consequential, incidental or special damages.
10.7 Offset. If at the time any payment is due from PEI to Sellers the
Seller Parties have either acknowledged in writing responsibility for or a
binding third party determination of responsibility (e.g. pursuant to
Article 11) has been reached for any Indemnifiable Losses claimed by PEI
under this Agreement, PEI will have the right, in addition to other rights
and remedies (whether under this Agreement or applicable Law), to withhold
from such payment an amount equal to the amount of such Indemnifiable
Losses.
10.8 Notice. Each party agrees to notify the other part(ies) of any
liabilities, claims or misrepresentations, breaches or other matters that
are covered by or could be reasonably covered by this Article 10 reasonably
promptly following discovery or receipt of notice thereof, whether before
or after Closing and whether or not a demand or claim for indemnification
has arisen.
10.9 Survival. Subject to the applicable limitations otherwise set forth in
this Agreement, this Article 10 will survive any termination of this
Agreement. This indemnification further will survive the Closing and will
remain in effect indefinitely. Any matter as to which a claim has been
asserted by notice to the other party that is pending or unresolved at the
end of any applicable limitation period will continue to be covered by this
Article 10 notwithstanding any applicable statute of limitations (which the
parties hereby waive) until such matter is finally terminated or otherwise
resolved by the parties under this Agreement or by a court of competent
jurisdiction and any amounts payable hereunder are finally determined and
paid.
ARTICLE 11
DISPUTE RESOLUTION
11.1 Alternate Dispute Resolution. Following the Closing, any dispute
arising out of or relating to this Agreement will be resolved in accordance
with the procedures specified in this Article 11, which will be the sole
and exclusive procedures for the resolution of any such disputes, except
this Article 11 will not apply to the following disputes, which will be
litigated in a court of law:
11.1.1 any dispute concerning the validity, ownership or control of the
Vivid Marks;
11.1.2 any dispute concerning the copyrights to any programming supplied
by Vivid pursuant to the Output Agreement;
11.1.3 any claim asserted by one party against the other party arising
out of the subject matter of any court litigation or proceeding
commenced by any third party against one party in which the other
party is an indispensable party or third party defendant; or
11.1.4 any claim asserted by a third party, which is not bound and will
not, upon request of either party, agree to arbitrate subject to
the arbitration rules provided by this Article 11, against one
party in which the other party is an indispensable or necessary
party.
11.2 Notification and Negotiation. If either party wishes to assert a
dispute with the other party arising out of or relating to this Agreement
or any related agreements, such party will promptly notify the other party
in writing of such dispute and will attempt in good faith to resolve any
dispute arising out of or relating to this Agreement or any related
agreements promptly by negotiation between executives who have authority to
settle the controversy. All reasonable requests for information made by one
party to the other will be honored.
11.3 Arbitration. Except as otherwise expressly provided in Sections 11.1
and 11.10 of this Agreement or any related agreements, any controversy,
dispute or claim under, arising out of, in connection with or in relation
to this Agreement or any related agreements, including the negotiation,
execution, interpretation, construction, coverage, scope, performance,
non-performance, breach, termination, validity or enforceability of this
Agreement or any related agreements will be settled, at the request of
either party, by arbitration conducted in accordance with this Article 11
and the then existing rules for commercial arbitration of the American
Arbitration Association before a panel of three arbitrators, one of whom
will be selected by PEI, the second of whom will be selected by the Seller
Parties and the third of whom will be selected by the other two arbitrators
and will chair the tribunal. The third arbitrator will be a disinterested
person of recognized competence in the matter at issue and who is
independent of each of the parties. If one party fails or refuses to select
an arbitrator within 15 days after notice of the selection of the first
arbitrator, or the two arbitrators selected fail to select the third
arbitrator within 15 days after their selection, the necessary arbitrator
or arbitrators will be selected by the presiding judge of a court of
general jurisdiction in the place designated in Section 11.9. Decisions of
the tribunal will be made by not less than a majority of the arbitrators.
The arbitration will be governed by the Federal Arbitration Act (9 U.S.C.
ss.ss. 1-16). The arbitration of such issues, including the determination
of any amount of damages suffered by any party hereto by reason of the acts
or omissions of either party, will be final and binding upon the parties to
the maximum extent permitted by Law.
11.4 Rules of Arbitration. The arbitration will be conducted in accordance
with rules of procedure adopted by the arbitrators to allow each of the
parties to present evidence and argument to the arbitrators.
11.4.1 Statute of Limitations. The statute of limitations of the State of
California applicable to the commencement of a lawsuit will apply
to the commencement of an arbitration hereunder, except that no
defenses will be available based upon the passage of time during
any negotiation called for by the preceding paragraphs of this
Article 11.
11.4.2 Discovery; Rules of Evidence. Upon request of either party, the
arbitrators will order such discovery (including third-party
discovery) as the arbitrators determine to be reasonable under the
circumstances. The arbitrators will, however, impose reasonable
schedules and deadlines to ensure that discovery is conducted and
concluded on a timely basis and may impose sanctions on either
party for abuse or delay of discovery. Rules of civil procedure
and evidence may be applied, in the discretion of the arbitrators.
11.4.3 Expedited Procedure. Either party to the arbitration may elect, by
notice to the other party, to have the arbitration conducted on an
expedited basis. Thereafter, the arbitrators will be empowered to
expedite the proceedings by all reasonable means consistent with a
fair hearing of the dispute. Such means may include the imposing
of accelerated discovery and hearing schedules, requiring
submissions within abbreviated time periods and imposing limits on
number of witnesses and the length of hearings.
11.4.4 Decisions; Judgment. The arbitrators will in all cases as promptly
as possible determine such matter. A determination and damage
award (if any) of the majority of the arbitrators will be
conclusive and binding upon the parties to the maximum extent
permitted by law. The arbitrators will give written notice to the
parties stating the determination and award (if any) and will
furnish to each party a copy of such notice signed by the
arbitrators. Judgment upon any award rendered by the arbitrators
may be entered by any court having jurisdiction thereof.
11.5 Damages. Except as expressly provided below, the arbitrators are not
empowered to award damages in excess of compensatory damages (e.g.,
consequential, incidental or special damages) and the Seller Parties and
PEI each irrevocably waive any right to recover such damages with respect
to any dispute resolved by arbitration. The arbitrators will have the
authority to include, as an item of damages, the costs of arbitration,
including reasonable legal fees and expenses, incurred by the prevailing
party and to apportion such costs among the parties on a claim-by-claim
basis as such party prevails thereon. For purposes of the foregoing, the
"prevailing party" will mean the party whose final settlement offer (or
other position or monetary claim) prior to the start of arbitration is
closest to the judgment awarded by the arbitrators, regardless of whether
such judgment is entered into in favor of or against such party.
11.6 Fees and Expenses. Except as provided for in Section 11.5, each party
will bear its own expenses, including attorneys' fees, in connection with
arbitration proceedings under this Article 11 and will compensate the
arbitrator selected by such party. The parties will share equally the
expenses of the proceedings and the compensation of the third arbitrator.
Neither party in any such proceeding or any appeal thereon or challenge
thereto will be entitled to attorneys' fees or court, arbitration and other
costs or expenses incurred, unless otherwise decreed by the court or
arbitrators in the same or a separate suit.
11.7 Confidential Negotiations and Proceedings. All negotiations and
proceedings pursuant to this Article 11 are confidential and will be
treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.
11.8 Service of Process. The Seller Parties and PEI each agree that service
by registered or certified mail, return receipt requested, delivered to
such party at the address provided in Section 12.15 will be deemed in every
respect effective service of process upon such party for all purposes of
these provisions relating to arbitration. The Seller Parties and PEI each
irrevocably submit to the jurisdiction of the courts of the State of
California and to any federal court located within such state for the
purpose of any action or judgment with respect to this Agreement,
regardless of where any alleged breach or other action, omission, fact or
occurrence giving rise thereto occurred. The Seller Parties and PEI each
hereby irrevocably waive any claim that any action or proceeding brought in
California has been brought in any inconvenient forum.
11.9 Choice of Law; Place of Arbitration. Proceedings under and the
provisions of this Article 11 will be subject to Section 12.5 of this
Agreement. Any arbitration proceedings hereunder will be held in Los
Angeles County.
11.10 Availability of Equitable Relief. Notwithstanding the foregoing
provisions of this Article 11, the Seller Parties and PEI each acknowledge
that a material breach of this Agreement or any related agreements by a
party thereto may result in irreparable harm to the Seller Parties or PEI
for which there is no adequate remedy at law. Accordingly, if any of the
parties reasonably believes in good faith that another party or a party to
any related agreements (a) has materially breached this Agreement or any
related agreements and (b) said breach will create irreparable harm to such
Person for which there is not adequate remedy at law, the allegedly harmed
party will be entitled to seek preliminary or temporary equitable relief in
any Federal or State Court of competent jurisdiction located in the State
of California.
11.11 Survival. The Seller Parties and PEI each intend that these
provisions will be valid, binding, enforceable and irrevocable and will
survive any termination of this Agreement or any related agreements.
ARTICLE 12
GENERAL
12.1 Cash Payments. All cash payments owing pursuant to this Agreement will
be made net of any withholding required by applicable Law, unless Sellers
provide PEI a valid FIRPTA certificate. All cash payments due Sellers
pursuant to this Agreement will be made in lawful money of the United
States of America by checks payable to each of the Sellers.
12.2 Waivers, Remedies Cumulative, Amendments, etc.
12.2.1 No failure or delay by any of the parties hereto in exercising any
right, power or privilege under this Agreement will operate as a
waiver thereof nor will any single or partial exercise by any of
the parties hereto of any right, power or privilege preclude any
further exercise thereof or the exercise of any other right, power
or privilege.
12.2.2 The rights and remedies herein provided are cumulative and not
exclusive of any rights and remedies provided by law.
12.2.3 No provision of this Agreement or any schedule or exhibit attached
hereto may be amended, modified, waived, discharged or terminated,
other than by the express written agreement of the parties hereto
nor may any breach of any provision of this Agreement be waived or
discharged except with the express written consent of the party
not in breach.
12.3 Schedules; Exhibits; Integration. Each schedule and exhibit delivered
pursuant to the terms of this Agreement will be in writing and will
constitute a part of this Agreement, although schedules need not be
attached to each copy of this Agreement. This Agreement, together with such
schedules and exhibits, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements
and understandings of the parties in connection therewith, including, but
not limited to, the term sheet dated February 27, 2001.
12.4 Further Assurances. Each party will use its commercially reasonable
efforts to cause all conditions to its obligations to be timely satisfied
and to perform and fulfill all obligations on its part to be performed and
fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement will be effected substantially in accordance
with its terms as soon as reasonably practicable. The parties will
cooperate with each other in such actions and in securing requisite
Approvals. Each party will execute and deliver both before and after the
Closing such further certificates, agreements and other documents and take
such other actions as the other party may reasonably request to consummate
or implement the transactions contemplated hereby or to evidence such
events or matters.
12.5 Governing Law. This Agreement has been negotiated and entered into in
the State of California and all questions with respect to this Agreement
and the relationships of the parties hereunder will be governed by the
internal laws of the State of California, regardless of the choice of law
principles of California or any other jurisdiction.
12.6 Representation By Counsel; Interpretation. Each of the Seller Parties
and PEI acknowledge that each party to this Agreement is sophisticated and
has been represented by counsel, who have carefully negotiated the
provisions hereof, in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of Law, including
Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this Agreement against
the party that drafted it has no application and is expressly waived. The
provisions of this Agreement will be interpreted in a reasonable manner to
effect the intent of the Seller Parties and PEI.
12.7 No Assignment; Third Party Beneficiary. The provisions of this
Agreement will be binding on and inure to the benefit of the successors of
each party hereto; provided, that no party may agree to assign, transfer,
pledge, hypothecate, charge or otherwise dispose of or subcontract any of
its rights or obligations hereunder without the prior written consent of
the other party, except that PEI may so assign, etc. this Agreement to (a)
an Affiliate if PEI remains responsible and liable for such transferee's
compliance with all of PEI's obligations hereunder or (b) a third-party in
connection with a merger, consolidation or sale of all or substantially all
of PEI's assets. Except as expressly provided in Article 10, nothing in
this Agreement, expressed or implied, is intended to confer on any Person
other than the parties hereto or their respective permitted successors and
assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
12.8 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement to the extent permitted by Law will remain in
full force and effect provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse
to any party.
12.9 Headings. The section headings in this Agreement are inserted only as
a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Agreement or of any particular section.
12.10 Counterparts. This Agreement and any amendment hereto or any other
agreement (or document) delivered pursuant hereto may be executed in one or
more counterparts and by different parties in separate counterparts. All of
such counterparts will constitute one and the same agreement (or other
document) and will become effective (unless otherwise provided therein)
when one or more counterparts have been signed by each party and delivered
to the other party.
12.11 Public Announcements. All media releases, public announcements and
public disclosures regarding the transactions contemplated by this
Agreement will be developed and drafted by PEI and coordinated between and
approved by the other parties before release (it being understood that
while the parties will consult in good faith, they will not have approval
rights over any announcement of the other party intended solely for
internal distribution or any disclosure of the other party required by
legal, accounting, or regulatory requirements, or any listing agreement
with The New York Stock Exchange). Such approval will not be unreasonably
withheld, conditioned or delayed by any party. The parties will develop
mutually acceptable guidelines for seeking confidential treatment of terms
of this Agreement deemed highly sensitive by any party. The parties will
develop a mutually acceptable press release concerning the subject matter
of this Agreement to be released promptly following Closing. This Section
12.11 will survive the completion, expiration, termination or cancellation
of this Agreement.
12.12 Confidentiality.
12.12.1 All information disclosed by any party (or its representatives)
whether before or after the Effective Date, in connection with the
transactions contemplated by, or the discussions and negotiations
preceding, this Agreement to any other party (or its
representatives) will be kept confidential by such other party and
its representatives and will not be used by any such Persons other
than as contemplated by this Agreement, except to the extent that
such information (a) was known by the recipient when received, (b)
is or hereafter becomes lawfully obtainable from other sources,
which have an independent right to such information, (c) is
generally available to the public or becomes generally available
to the public other than through disclosure in violation of this
provision and only after the date such information is generally
available to the public, (d) which is required to be disclosed by
a Governmental Entity having jurisdiction over the parties or
applicable law; provided that the disclosing party notifies the
other party as promptly as reasonably practicable following
receipt of notice from a Governmental Entity, (e) is disclosed to
each party's auditors and financial and legal advisors who have
been advised of their obligation to maintain the information in
confidence, (f) may be disclosed pursuant to a written waiver by
the other party or (g) is deemed necessary by the Seller Parties
in their reasonable business judgment to negotiate and consummate
Internet related business dealings, provided that (i) the Seller
Parties do not reveal any financial information relating to PEI or
its Affiliates, this Agreement or any related agreement, (ii) the
Seller Parties do not reveal any information in connection with
the issuance and sale of PEI Shares under this Agreement, and
(iii) prior to disclosure, the recipient enters into a written
confidentiality agreement with the Seller Parties acceptable to
PEI and which gives PEI the right as a third party beneficiary to
enforce its terms.
12.12.2 In recognition of each party's understanding that the other may in
the future invite third parties to participate as equity or
non-equity investors or other providers of financing in or to such
party or its respective affiliates, the parties agree that each
may provide to such entities copies of this Agreement and such
other information as would be reasonable in the circumstances for
a potential investor to require. Notwithstanding the foregoing, no
such information will be provided until a confidentiality
agreement for the benefit of the other party and their respective
affiliates has been signed by such potential investor.
12.12.3 In recognition of the fact that PEI is a publicly held company,
(a) the parties agree that PEI may provide to current and
prospective institutional investors and analysts such information
concerning Sellers as is conventional to assist such investors in
deciding whether to invest or how to manage their investment or
such analysts to prepare their reports; provided, that no
information may be disclosed without the prior consent of Sellers
that would reasonably be expected to cause harm to Sellers,
including with respect to its competitive position and (b) the
Seller Parties will maintain the confidentiality of this Agreement
and the discussions and negotiations associated with this
Agreement until mutually acceptable press release concerning the
subject matter of this Agreement is developed and disclosed
pursuant to Section 12.11.
12.12.4 If this Agreement is terminated in accordance with its terms, each
party will use all reasonable efforts to return upon written
request from the other party all documents (and reproductions
thereof) received by it or its representatives from such other
party (and, in the case of reproductions, all such reproductions
made by the receiving party) that include information not within
the exceptions contained in this Section 12.12, unless the
recipients provide assurances reasonably satisfactory to the
requesting party that such documents have been destroyed.
12.13 Parties in Interest. This Agreement will be binding upon and inure to
the benefit of each party, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement is intended to relieve or discharge the obligation of any
third person to any party to this Agreement.
12.14 Performance by Subsidiaries. Each party agrees to cause its
Subsidiaries to comply with any obligations hereunder relating to such
Subsidiaries and to cause its Subsidiaries to take any other action which
may be necessary or reasonably requested by the other party in order to
consummate the transactions contemplated by this Agreement.
12.15 Notices. All notices, requests, demands and other communications
required to be given under this Agreement will be in writing and will
conclusively deemed to have been duly given (or to such other address, or
facsimile transmission number as the relevant addressee may hereafter by
notice hereunder substitute): (a) when hand delivered to the other party,
(b) the next Business Day, if sent by a generally recognized overnight
courier service that provides written acknowledgment by the addressee of
receipt, or (c) when received, if sent by facsimile or other generally
accepted means of electronic transmission (including e-mail); provided that
such facsimile or other generally accepted means of electronic transmission
is followed by a delivery pursuant to clauses (a) or (b) above or U.S.
mail.
if to PEI to:
Playboy Enterprises, Inc.
Attention: Howard Shapiro, Esq., General Counsel
680 North Lake Shore Drive
Chicago, Illinois 60611
United States of America
Fax number: (312) 266-2042
with a copy to:
Playboy Entertainment Group, Inc.
Attention: Jim English, President
9242 Beverly Blvd., Third Floor
Beverly Hills, CA 90210
United States of America
Fax number: (310) 246-7730
with a copy to:
O'Melveny & Myers, LLP
Attn: Jennifer Borow, Esq.
1999 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067
Fax number: (310) 246-6779
if to any Seller Party to:
Vivid Video, Inc.
Attn: William Asher
15127 Califa Street
Van Nuys, CA 91411
Fax number: (818) 908-3380
with a copy to:
Lipsitz, Green, Fahringer,
Roll, Salisbury & Cambria, LLP
Attn: Paul Cambria, Esq.
42 Delaware Avenue
Suite 300
Buffalo, NY 14202
Fax number: (716) 854-3013
12.16 Expenses. Sellers and PEI will each pay their own expenses incident
to the negotiation, preparation and performance of this Agreement and the
transactions contemplated hereby, including the fees, expenses and
disbursements of their respective investment bankers, accountants and
counsel. Notwithstanding the foregoing, PEI will pay Sellers $100,000 at
Closing in expense reimbursement.
12.17 Knowledge Convention. Whenever any statement herein or in any
schedule, exhibit, certificate or other documents delivered to any party
pursuant to this Agreement is made "to [its] knowledge" or "to [its] best
knowledge" or words of similar intent or effect of any party or its
representative, such person will make such statement only after conducting
a reasonably diligent investigation of the subject matter thereof, and each
statement will be deemed to include a representation that such
investigation has been conducted.
12.18 Specific Performance. Each of the Seller Parties and PEI acknowledge
that, in view of the uniqueness of the Business and the transactions
contemplated by this Agreement, each party would not have an adequate
remedy at law for money damages if this Agreement has not been performed in
accordance with its terms, and therefore agrees that the other party will
be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which it may be entitled, at law or in equity.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
or caused this Agreement to be executed by its duly authorized officers as
of the day and year first above written.
PEI:
PLAYBOY ENTERPRISES, INC.
/s/ James L. English
- ------------------------------
By: James L. English
Its: Executive Vice President
SELLERS: STOCKHOLDERS:
CALIFA ENTERTAINMENT GROUP, INC.
/s/ William Asher /s/ Dewi James
- ---------------------------- -----------------------
By: William Asher Dewi James
Its: Executive Vice President
V.O.D., INC.
/s/ William Asher /s/ Steven Hirsch
- ----------------------------- -----------------------
By: William Asher Steven Hirsch
Its: President
/s/ William Asher
------------------------
William Asher
SCHEDULE 1
DEFINITIONS
A. For all purposes of this Agreement, except as otherwise
expressly provided,
(i) the terms defined in this Schedule 1 have the
meanings assigned to them in this Schedule 1 and include the
plural as well as the singular,
(ii) all accounting terms not otherwise defined herein
have the meanings assigned under GAAP,
(iii) all references in this Agreement to designated
"Articles" and "Sections" and other subdivisions are to the
designated Sections and other subdivisions of the body of this
Agreement,
(iv) pronouns of either gender or neuter will include, as
appropriate, the other pronoun forms,
(v) "including," and "includes" will be deemed to be
followed by "but not limited to" and "but is not limited to,"
respectively,
(vi) "or" is not exclusive,
(vii) "amended" with reference to a Contract or Law, will
be deemed to be followed by "or superceded from time to time", and
(viii) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole
and not to any particular Section or other subdivision.
B. As used in this Agreement and the exhibits and schedules
delivered pursuant to this Agreement, the following definitions will apply:
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity,
or before any arbitrator or Governmental Entity.
"Additional Eligible Shares" has the meaning set forth in Section
2.5.5(b).
"Additional Investment Shares" has the meaning set forth in
Section 2.5.5(b).
"Additional Registration Statement" has the meaning set forth in
Section 2.5.1(b).
"Additional Selling Period" has the meaning set forth in Section
2.5.2.
"Adult Programming" means any programming (including motion
pictures, films, videos, compilations or programs) of an erotic nature that
has a level of explicitness equal to or greater than the level of
explicitness regularly exhibited on Playboy TV in the United States as of
the Effective Date.
"Affiliate" with respect to any party means any Person controlled
by, controlling, or under common control with such party. The term
"control" means the right or power to direct the management or policies of
a Person, whether by ownership of stock, by contract or otherwise, and the
words "controlled" and "controlling" have the correlative meanings.
"Aggregate Share Value" has the meaning set forth in Section
2.5.6(a).
"Agreement" means this Agreement by and among PEI and the Seller
Parties, as amended together with all exhibits and schedules attached or
incorporated by reference.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing,
required to be obtained from, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental
Entity or any other Person.
"Associate" of a Person means
(i) a corporation or organization (other than
PEI or Sellers or any of their respective Affiliates) of which
such Person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of
equity securities;
(ii) any trust or other estate in which such
Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity; and
(iii) any relative or spouse of such Person or
any relative of such spouse who has the same home as such Person
or who is a director or officer of Sellers or any of their
respective Affiliates.
"Assumed Liabilities" has the meaning set forth in Section 1.2.2.
"Average Rate" means the average between the Discount Rate and the
Prime Rate plus 200 basis points.
"Basic Cable" has the meaning currently or hereafter commonly
understood in the television industry, but will also include for all
purposes of this Agreement any broadcast or other transmission (whether by
satellite or otherwise) to television sets or other television devices, now
or hereafter known, of a program service (other than any free television
terrestrial broadcast station) (a) that is included as part of a package of
program services for which members of the public pay a periodic fee for the
right to receive such package of program services and (b) for which program
service a separate fee is not generally charged for the right to receive
the particular service in question.
"Bankruptcy Event" means (a) the filing of an application by a
Person for, or such Person's consent to, the appoint of a trustee, receiver
or custodian of such Person's assets, (b) the entry of an order for relief
with respect to a Person in proceedings under the United States Bankruptcy
Code, as amended, (c) the making by a Person of a general assignment for
the benefit of creditors, (d) the entry of an order, judgment or decree by
any court of competent jurisdiction appointing a trustee, receiver or
custodian of the assets of a Person unless the proceedings and the trustee,
receiver or custodian appointed are dismissed within 90 days, or (e) the
failure by a Person generally to pay such party's debts as the debts become
due within the meaning of Section 303(h)(1) of the United States Bankruptcy
Code, as determined by the Bankruptcy Court, or the admission in writing of
such Person's inability to generally pay its debts as they become due.
"Blackout Period" has the meaning set forth in Section 2.5.4.
"Business" means the Sellers' businesses, including all of the
assets used in the operation and distribution in the Territory in the Media
of the television channels known as "The Hot Network," "The Hot Zone" and
"Vivid TV" as presently conducted and all of the video on demand business
of VODI in the Media, other than the Excluded VODI Businesses.
"Business Day" means any day other than a Saturday, Sunday or
legal holiday under the laws of the State of California or any other day on
which banking institutions located in such state are authorized or required
by law or other governmental action to close.
*****
"Closing" means the consummation of the purchase and sale of the
Purchased Assets under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Computer-Based Viewing Device" means any device which operates on
an open platform where any Person can (a) load or cause to be loaded
application software distinct from the application software loaded by the
device's manufacturer or (b) program the device to respond to a specific
set of instructions.
"Consumer Video Devices" means video cassettes, video discs or
other tangible magnetic or optical storage media for exhibition of motion
pictures, movies, films, features, videos, compilations or programming by
means of a playback device located in consumer homes without restriction as
to timing or number of playbacks, and distributed for sale on a retail,
mail order or other direct consumer basis (including a one-time download
from the Internet to a Consumer Video Device). Consumer Video Devices do
not include tangible media that store interactive software products which
allow the viewer or user to affect the content, form, sequence or other
characteristics of the motion picture, movie, film, feature, video,
compilation or program.
"COBRA" means the continuing coverage obligations under Code
Section 4980B and Sections 601-608 of ERISA, as amended, and the related
regulations and published interpretations.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or
understanding, whether or not in writing.
"Convergent Technology" means any device, platform or format that
can receive images and/or text via the Media and is both a Computer-Based
Viewing Device and a Television-Based Viewing Device.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg.ss.1.1502-13.
"DTV" means DirecTV, Inc., a California corporation.
"DTV Agreement" means the Affiliation and License Agreement for
DBS Satellite Exhibition of Programming between DTV and VODI dated August
11, 2000, as amended.
"Discount Rate" means the discount rate published in the Wall
Street Journal.
"Eligible Shares" has the meaning set forth in Section 2.5.5(c).
"Eligible Shares Election Form" has the meaning set forth in
Section 2.5.5(a).
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, condition, security interest, lien, option, pledge, rights
of others (including, but not limited to, marital property rights), or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by Contract, understanding, law, equity or otherwise,
except for any restrictions on transfer generally arising under any
applicable federal or state securities law.
"Enhanced Cable Version" means the versions of any motion picture,
movie, film, feature, video, compilation or programming commonly known as
the "hot version" or the "hot plus version," the content of which would
generally be considered in the adult programming industry to be more
explicit than the "cable version" edit, but less explicit than the
"explicit version" edit, the "hard edit" or the unedited version, as those
terms are commonly understood in the adult programming industry, and is
otherwise substantially similar in content and degree of explicitness to
the movies and other programming exhibited on "The Hot Network", "The Hot
Zone", and "Vivid TV" as of the Effective Date.
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or exchangeable for capital
stock or any other rights, warrants or options to acquire any of the
foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the related regulations and published interpretations.
"Event of Default" means any of the following events that remain
uncured at the time Sellers exercise remedies with respect to such events:
(a) PEI fails to make any cash payment due to Sellers under the terms of
this Agreement within 180 days following the date the cash payment is due;
(b) PEI fails to issue Sellers all of the Registered Stock pursuant to
Sections 2.2.1(b), 2.2.2 or 2.3, if any, within 225 days following the date
the stock payment is due; (c) the trading of PEI Shares on a national
exchange is suspended for more than 30 consecutive days when general stock
trading on such exchange is not suspended at any time that a Selling Period
is in force; (d) PEI defaults on the payment of indebtedness owed to senior
secured lenders and such senior secured lenders either commence foreclosure
on PEI assets pledged to secure such indebtedness or accelerate the amounts
due under the contracts and/or instruments evidencing such indebtedness and
PEI fails to provide Sellers with reasonable financial assurances that it
will continue to make all scheduled payments in accordance with Sections
2.2 and 2.3; or (e) PEI becomes subject to a Bankruptcy Event.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" has the meaning set forth in Section 1.1.2.
"Excluded Liabilities" has the meaning set forth in Section 1.2.1.
"Excluded VODI Businesses" means the business of producing,
licensing, marketing, distributing and otherwise exploiting adult themed
products, including Adult Programming, worldwide, excluding the
distribution of Adult Programming via the Media in the Territory.
"Financial Statements" means the income statements for the year
ended December 31, 2000, the quarter ended March 31, 2001 and the months
ended April 30, 2001 and May 31, 2001 and the balance sheets as of December
31, 2000, March 31, 2001, April 30, 2001 and May 31, 2001 for each of
Califa and VODI (and, in the case of VODI, pro forma adjustments thereto
eliminating the Excluded VODI Businesses).
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"Governmental Entity" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
"Gross Receipts" means the cash actually received from program
distributors or end users in connection with (a) any channel owned,
operated or controlled by PEI or in which PEI holds a 10% equity interest
and that principally features Enhanced Cable Version or more explicit
programming in the Territory, or (b) Vivid TV from the Effective Date until
the Vivid TV Closing.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under this Agreement. "Indemnified
Party" means the party entitled to indemnity hereunder. "Indemnifying
Party" means the party obligated to provide indemnification hereunder.
"Independent Accountants" has the meaning set forth in Section
2.4.2.
"Initial Eligible Shares" has the meaning set forth in Section
2.5.5(a).
"Initial Investment Shares" has the meaning set forth in Section
2.5.5(a).
"Initial Registration Statement" has the meaning set forth in
Section 2.5.1(a).
"Initial Selling Period" has the meaning set forth in Section
2.5.2.
"Intangible Property" means any trade secret, secret process or
other confidential information or know-how and any and all Marks and
goodwill.
"International Territory" means Latin America and the Caribbean
Basin. "Caribbean Basin" means the U.S. Virgin Islands, Guadeloupe,
Martinique, Netherlands Antilles, Anguilla, Antigua and Barbuda, Aruba, The
Bahamas, Barbados, Bermuda, The British Virgin Islands, The Cayman Islands,
Cuba, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Montserrat,
St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad
and Tobago, Turks and Caicos Islands. "Latin America" means each country
comprising Central and South America from the U.S.-Mexican border to Tierra
del Fuego.
"Internet" means the global information system that (a) is
logically linked together by a globally unique address space based on the
Internet Protocol (IP) or its subsequent extensions/follow-ons, (b) is able
to support communications using the Transmission Control Protocol/Internet
Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/or
other IP-compatible protocols, and (c) provides, uses or makes accessible,
either publicly or privately, high level services layered on the
communications and related infrastructure described herein.
"Investment Shares" has the meaning set forth in Section 2.5.5(c).
"IRS" means the Internal Revenue Service or any successor entity.
"Law" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any Governmental Entity and any
Order.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including interest or other carrying costs, penalties, legal, accounting
and other professional fees and expenses incurred in the investigation,
collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified Person.
"Make Whole Shares" has the meaning set forth in Section 2.5.6(a).
"Mark" means any brand name, copyright, patent, service mark,
trademark, trade name, logo or similar materials and all registrations or
application for registration of any of the foregoing.
"Material Contract" means any Contract material to the Purchased
Assets or the Business to which any of the Seller Parties is a party or to
which any of the Seller Parties or any of their respective properties
(including the Purchased Assets) is subject or bound as of or after the
Effective Date including any Contract that (a) after December 31, 2000
obligates Sellers to pay or receive an amount of $50,000 or more, (b) has a
term beyond December 31, 2001, (c) represents a Contract upon which the
Business is substantially dependent or which is otherwise material to the
Business, (d) provides for the extension of credit, (e) limits or restricts
the ability of Sellers to compete, (f) limits or restricts the ability of
Sellers to conduct the Business, (g) provides for a guaranty or indemnity
by Sellers, (h) grants a power of attorney, agency or similar authority to
another Person, (i) contains a right of first refusal, (j) contains a right
or obligation of Sellers other than in the ordinary course of business to
any Affiliate, officer or director or any Associate of Sellers, (k) is a
real property lease, or (l) was not made in the ordinary course of
business.
"Media" means all current forms of television distribution,
broadcast, transmission, retransmission, display, exploitation, projection,
performance or other exhibition whether on a subscription, Pay-Per-View or
free basis, including the following: (a) conventional VHF or UHF television
broadcast, (b) Basic Cable and pay cable whether by means of cable wire or
fiber of any material, (c) "over the air pay" subscription television (STV)
in any frequency band, (d) direct broadcasting by satellite (DBS) in any
frequency band, (e) master antenna television systems (MATV), (f)
multipoint distribution services (MDS), (g) multichannel multipoint
distribution services (MMDS), (h) satellite master antenna television
systems (SMATV), (i) microwave transmission, and (j) any other means of
transmitting programming to Television-Based Viewing Devices.
Notwithstanding the foregoing, if any current form of television
distribution, broadcast, transmission, retransmission, display,
exploitation, projection, performance or other exhibition is augmented by a
level of functionality that does not alter the fundamental means in which
the viewer receives images and/or text, such form of television
distribution, broadcast, transmission, retransmission, display,
exploitation, projection, performance or other exhibition will continue to
be deemed "Media" for the purposes of this Agreement.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Output Agreement" means the Amendment to Current Output
Agreements and New Output Agreement dated as of the Closing between PEGI,
on the one hand, and VVI and VVII, on the other hand in substantially the
form attached hereto as Exhibit E.
"Pay-Per View" means the distribution, broadcast, transmission,
retransmission, display, exploitation, projection, performance or other
exhibition of Adult Programming by means whereby the subscriber is able to
receive the pre-scheduled Adult Programming (as distinguished from an
entire programming service, group of programs, program channel or network)
on any viewing device in the subscriber's home by means of any Media, where
the following is also applicable: (a) the scheduling of Adult Programming
and hence its availability to the subscriber is predetermined by the
distribution service (i.e., the subscriber can select its desired viewing
time only in accordance with a list of possible viewing times independently
established by the distribution service, which list of viewing times is the
same for all potential subscribers of the Adult Programming in question),
and (b) the subscriber is required to pay or is assessed a separate fee for
the right to receive each such pre-scheduled Adult Programming.
"Performance Based Eligible Shares" has the meaning set forth in
Section 2.5.5(c).
"Performance Based Investment Shares" has the meaning set forth in
Section 2.5.5(c).
"Performance Based Purchase Price" has the meaning set forth in
Section 2.3.
"Performance Based Selling Period" has the meaning set forth in
Section 2.5.2.
"Playboy Business" means (a) the business of producing, licensing,
acquiring, distributing, marketing, and otherwise exploiting or conducting
any other activity with respect to any Adult Programming (including, motion
pictures, feature films, game shows, feature programs, Pay-Per-View
programs and magazine format shows) for distribution via the Media in the
Territory, (b) the transmission and distribution of the television networks
currently known as "Playboy TV", "Spice", "Spice 2", and "Spice Platinum"
and any other Adult Programming network subsequently owned, operated or
controlled by PEI in the Media in the Territory, (c) subsequent to the
Closing, the transmission and distribution of the television channels
currently known as "The Hot Network", "The Hot Zone", and "Vivid TV" and
their successors, (d) any other business, venture or activity which
competes with any of the networks or channels listed in clauses (b) and
(c), or with any business, venture or activity conducted or proposed to be
conducted directly or indirectly by PEI in connection with exploiting Adult
Programming in the Media in the Territory. Notwithstanding the foregoing,
nothing in the above definition will be construed to prohibit Stockholders
from engaging in the Vivid Business.
"PEI" means Playboy Enterprises, Inc., a Delaware corporation.
"PEI Shares" means shares of Class B common stock of PEI.
"PEGI" means Playboy Entertainment Group, Inc., a Delaware
corporation and a wholly owned indirect subsidiary of PEI.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued
by any Governmental Entity.
"Per Share Value" means the average of the average sale price per
share of PEI Shares for each of the five trading days ending on the second
trading day preceding the date on which PEI Shares are issued.
"Person" means an association, a corporation, a limited liability
company, an individual, a partnership, a trust or any other entity or
organization, including a Governmental Entity.
"Prime Rate" means the prime rate published in the Wall Street
Journal.
"Purchased Assets" has the meaning set forth in Section 1.1.1.
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchase Price Allocation Statement" has the meaning set forth in
Section 2.4.1.
"Sales Proceeds" has the meaning set forth in Section 2.5.6(a).
"Sales Proceeds Notice" has the meaning set forth in Section
2.5.6(a).
"Sales Proceeds Shortfall" has the meaning set forth in Section
2.5.6(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers Disclosure Schedule" means the Disclosure Schedule
delivered by Sellers to PEI and attached hereto. The sections of the
Sellers Disclosure Schedule are numbered to correspond to the applicable
Section of this Agreement. Sellers will use their best efforts to have all
required disclosures correspond to the applicable Section of this
Agreement; provided, however, that information included in any Section of
the Disclosure Schedule will be deemed to be included in each other Section
of the Disclosure Schedule to the extent that the applicability of the
information to that other Section is reasonably apparent on the face of
such disclosure.
"SEI" means SEI ApS, a company formed under the laws of Denmark,
and a wholly owned subsidiary of PEGI.
"SEI 1" means SEI 1 ApS, a company formed under the laws of
Denmark, and wholly owned subsidiary of Califa.
"Selling Period" has the meaning set forth in Section 2.5.2.
"Streaming" means the delivery of audio and/or visual programming
whether in real time or by program download (including but not limited to
RealVideo, VDO, any format that operates on the Windows Media Player or any
other streaming or direct download audio and/or visual software), through
the medium commonly known as the Internet.
"Tax" or "Taxes" means (a) any foreign, federal, state, county or
local income, sales and use, excise, franchise, real and personal property,
transfer, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, severance or withholding tax,
ad valorem, alternative or add-on minimum, customs duties, environmental
(including taxes under Code ss.59A), escheat, estimated tax, lease,
license, occupation, premium, profits, service, social security (or
similar), stamp, value added, windfall profits, any charge imposed by any
Governmental Entity, or any other taxes, fees, assessments or charges of
any kind whatsoever, including any interest and penalties (civil or
criminal), or additions to tax or additional amounts with respect thereto,
whether disputed or not, or to the nonpayment thereof, and any Loss in
connection with the determination, settlement or litigation of any Tax
liability; (b) any liability for payment of amounts described in clause (a)
above whether as a result of transferee liability, of being a member of an
affiliated, consolidated, combined, or unitary group for any period, or
otherwise through operation of law; and (c) any liability for the payment
of amounts described in clauses (a) or (b) above as a result of any tax
sharing, tax indemnity, or tax allocation agreement or any other express or
implied agreement to indemnify any other Person.
"Tax Return" means a report, return or other information required
to be supplied to a Governmental Entity with respect to Taxes including,
where permitted or required, combined or consolidated returns for any group
of Persons that includes Sellers and any amendments thereto.
"Television-Based Viewing Device" means any device, platform or
format which can receive images and/or text via the Media.
"Territory" means the United States and Canada (and their
territories and possessions).
"Trademark License Agreement" means the Trademark License
Agreement dated as of the Closing between PEI and VVI in substantially the
form attached hereto as Exhibit F.
"Verizon Agreement" means that certain television video-on-demand
license agreement dated as of September 28, 2000 between Verizon Avenue
Corporation, a Delaware Corporation, and VODI.
"Video-on-Demand" means the distribution, broadcast transmission,
retransmission, display, exploitation, projection, performance or other
exhibition of Adult Programming by means where the viewer is able to
receive the Adult Programming on a point to point basis for which a
separate, discrete or supplemental charge (such as a per program or per day
charge) is made to the subscriber for the privilege of viewing such Adult
Programming at a time selected by the subscriber in the subscriber's
discretion (i.e., the viewer can independently select his/her desired
viewing time without reference to a list of possible viewing times
pre-established by the operator of the applicable service).
"Vivid Business" means anything other than the Playboy Business,
including the production and acquisition of Adult Programming for (a)
distribution by means of Consumer Video Devices (b) Streaming via the
Internet, or (c) exploitation by means of Video-on-Demand to Computer Based
Viewing Devices in the Territory (except to the extent that such rights in
clauses (b) and (c) have been granted to PEI or its Affiliates pursuant to
the Output Agreement).
"Vivid Marks" means the Marks currently used in connection with
the VODI Assets, including the television channel known as Vivid TV.
"VVI" means Vivid Video, Inc., a California corporation.
"VVII" means Vivid Video International Inc., a California
corporation.