Golden Parachute Compensation to Executive Officers
The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure
of information about certain compensation for each of the named executive officers that is based on or otherwise relates to the Merger. For purposes of this discussion, "single-trigger" refers to
benefits that arise solely as a result of the closing of the Merger and "double-trigger" refers to benefits that require both the closing of the Merger as well as a termination without "cause" or for
"good reason" within one year following the closing of the Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Position
|
|
Payment in
Respect of
Company Options ($)(1)
|
|
Payment in
Respect of
Company
Restricted Shares
($)(2)
|
|
Payment in
Respect of
Company
RSUs($)(3)
|
|
Payment in
Respect of
Company
PSUs ($)(4)
|
|
Total
|
|
Miguel Penella
|
|
Chief Executive Chairman and Director
|
|
$
|
4,787,300
|
|
$
|
191,300
|
|
$
|
1,406,250
|
|
$
|
2,695,313
|
|
$
|
9,080,163
|
|
Mark Nunis
|
|
Principal Financial and Accounting Officer
|
|
|
|
|
|
|
|
$
|
30,631
|
|
|
|
|
$
|
30,631
|
|
-
(1)
-
Represents
amounts payable in respect of Company Options in connection with the Merger. For a description of the treatment of Company Stock Awards in the Merger, see
"Effect of the Merger on Company Stock Awards" beginning on page [
·
] of this Proxy
Statement. Of this amount, $2,512,300 is attributable to a single-trigger arrangement and $2,275,000 is attributable to a double-trigger arrangement.
-
(2)
-
Represents
amounts payable in respect of Company Restricted Shares in connection with the Merger. For a description of the treatment of Company Stock Awards in the
Merger, see "Effect of the Merger on Company Stock Awards" beginning on page [
·
] of
this Proxy Statement. All of this amount is attributable to a single-trigger arrangement.
-
(3)
-
Represents
amounts payable in respect of Company RSUs in connection with the Merger. For a description of the treatment of Company Stock Awards in the Merger, see
"Effect of the Merger on Company Stock Awards" beginning on page [
·
] of this Proxy
Statement. Of the amount payable to Mr. Penella, $468,750 is attributable to a single-trigger arrangement and $937,500 is attributable to a double-trigger arrangement, and of the amount payable
to Mr. Nunis, $15,419 is attributable to a single-trigger arrangement and $15,212 is attributable to a double-trigger arrangement.
-
(4)
-
Represents
amounts payable in respect of Company PSUs in connection with the Merger. For a description of the treatment of Company Stock Awards in the Merger, see
"Effect of the Merger on Company Stock Awards" beginning on page [
·
] of this Proxy
Statement. Of this amount, $937,500 is attributable to a single-trigger arrangement and $1,757,813 is attributable to a double-trigger arrangement, assuming that
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150,000
Company PSUs are earned based on performance as of the Effective Time, 281,250 Company PSUs are converted into a Converted PSU Award and all other Company PSUs are forfeited at the Effective
Time for no consideration.
Company Stock Awards Payments to Non-Employee Directors
In connection with the Merger, each Company Restricted Share that is outstanding immediately prior to the Effective Time will become fully
vested and will be entitled to receive the Per Share Merger Consideration. Each of Messrs. Laszlo, Royster, Sinclair and Judd and Ms. Manos will receive $92,220 in respect of the Company
Restricted Shares that he or she holds. Messrs. Ziegelman and Hsu do not hold any Company Restricted Shares.
Contribution Agreement and Rollover Shares of Johnson Entities
On July 29, 2018, the Johnson Entities entered into the Contribution Agreement, pursuant to which the Johnson Entities agreed to
contribute all of their Common Stock and 2015 Warrants to Parent in exchange for, at the Effective Time, Rollover Shares representing approximately 17% of the Equity Interests in Parent.
At
the closing of the Merger, RLJ SPAC and Mr. Johnson will enter into agreements with respect to Mr. Johnson's liquidity, governance rights and role at the surviving
corporation following the closing of the transaction.
Employment Arrangements Following the Merger
Pursuant to separate agreements which will be entered into after the closing of the Merger, Mr. Johnson will serve as Chairman of the
board of directors of Parent following the Merger and will receive a customary payment for his services as Chairman.
Certain
of the executive officers of the Company may enter into arrangements with Parent or its Affiliates regarding the terms of their employment with the Company or Parent following
the Merger. The terms of any such arrangement, if any, have not yet been determined. There can be no assurance that any mutually acceptable agreements or arrangements can or will be agreed between
management of the Company and Parent and what the terms thereof will be.
Director and Officer Indemnification and Insurance
Under Nevada law, a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding, if he is not liable under the codification of the business judgment rule set forth in NRS 78.138 or acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. However, with respect to
actions by or in the right of the corporation, no indemnification will be made with respect to any claim, issue or matter as to which such person will have been adjudged to be liable to the
corporation unless and only to the extent a court determines that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity. A director or officer who is
successful, on the merits or otherwise, in defense of any proceeding subject to the Nevada corporate statutes' indemnification provisions must be indemnified by the corporation for reasonable expenses
incurred in connection therewith, including attorneys' fees. NRS 78.7502.
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The
Company's Bylaws provide that we will indemnify and hold harmless to the fullest extent permitted by Nevada law, any person who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any threatened, pending, or completed action, suit or proceeding (including, without limitation, an action, suit or proceeding by or in the right of the
Company), whether civil, criminal, administrative, or investigative ("Proceeding"), by reason of the fact that he or she is or was a director or officer of the Company or member, manager or managing
member of a predecessor limited liability company or affiliate of such limited liability company or is or was serving in any capacity at the request of the Company as a director, officer, employee,
agent, partner, member, manager or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise, against all
expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by person
in connection with any Proceeding; provided that such person either is not liable pursuant to NRS 78.138 or acted in good faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to any Proceeding that is criminal in nature, had no reasonable cause to believe that his or her conduct was unlawful.
The
termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that such
person is liable pursuant to NRS 78.138 or did not act in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of the Company, or that, with
respect to any criminal proceeding he or she had reasonable cause to believe that his or her conduct was unlawful.
We
maintain insurance policies insuring our directors and officers, including those of our subsidiaries, against certain liabilities they may incur in their capacity as directors and
officers. Under such policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.
Effect of the Merger Agreement on Directors' and Officers' Indemnification and Insurance
The Merger Agreement provides that, from and after the Effective Time, to the fullest extent permitted under applicable law, the Company's
Organizational Documents, the Surviving Corporation will indemnify and hold harmless Indemnified Parties from and against all costs and expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages and liabilities incurred in connection with, arising out of or otherwise related to any proceeding with respect to
matters existing or occurring at or prior to the Effective Time (including any Merger-related litigation) arising out of or related to the fact that such Indemnified Party was an officer or director
of the Company or a Subsidiary of the Company, whether asserted or claimed prior to, at or after the Effective Time. Parent or Surviving Corporation will also advance expenses as incurred to the
fullest extent permitted under applicable law; provided that any Person who whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is
not entitled to Indemnification.
Prior
to the Effective Time, the Company will and, if the Company is unable to, Parent will cause the Surviving Corporation to obtain and fully pay the premium for all "run off" or
"tail" insurance policies for the extension of (i) the directors' and officers' liability coverage of the Company's existing directors' and officers' insurance policies, and (ii) the
Company's existing fiduciary liability insurance policies, for a claims reporting or discovery period of the six-year period following the Effective Time from one or more insurance carriers with the
same or better credit rating as the Company's insurance carrier as of the date of the Merger Agreement with respect to directors' and officers' liability insurance and fiduciary liability insurance
(collectively, "
D&O Insurance
") with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as the
Company's existing policies with respect to matters existing or occurring at or prior to the Effective Time (including without respect to any Merger-related litigation).
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If
the Company and the Surviving Corporation for any reason fail to obtain such "run off" or "tail" insurance policies as of the Effective Time, the Surviving Corporation will, and
Parent will cause the Surviving Corporation to, continue to maintain in effect, for a six-year period following the effective time, the D&O Insurance in place as of the date of the Merger Agreement
with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as provided in the Company's existing policies as of the date of the Merger Agreement, or the
Surviving Corporation will, and Parent will cause the Surviving Corporation to, purchase comparable D&O Insurance for a six-year period following the Effective Time with terms, conditions, retentions
and limits of liability that are at least as favorable as provided in the Company's existing policies as of the date of the Merger Agreement. However, in no event will the annual cost of the D&O
Insurance exceed during the six-year period following the effective time 300% of the current aggregate annual premium paid by the Company for such purpose. If the cost of such insurance coverage
exceeds such amount, the Surviving Corporation will obtain a policy with the greatest coverage available for a cost not exceeding such amount.
During
the six-year period following the Effective Time, all rights to indemnification and exculpation from liabilities for acts or omissions occurring prior to the Effective Time and
rights to advancement of expenses relating thereto now existing in favor of any Indemnified Party as provided in the Organizational Documents of the Company and its Subsidiaries or any indemnification
agreement between such Indemnified Party and the Company or any of its Subsidiaries, in each case, as in effect on the date of this Agreement, will not be amended, restated, amended and restated,
repealed or
otherwise modified in any manner that would adversely affect any right thereunder of any such Indemnified Party.
The
foregoing summary is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as
Annex A
hereto.
Advisory Vote on Merger-Related Compensation
In accordance with Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, the Company is providing its
Stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that will or may become payable to the Chief Executive Officer and the Principal Financial and Accounting
Officer of the Company in connection with the Merger, which is summarized and included under the heading "Interests of Company's Directors and Executive Officers in the Merger" beginning on
page [
·
] of this Proxy Statement. That summary includes all compensation
that may be paid or become payable to the Company's named executive officers by the Company in connection with the Merger.
As
required by Section 14A of the Exchange Act, the Company is asking its Stockholders to vote on the adoption of the following resolution:
"FURTHER
RESOLVED, by the Stockholders of the Company, that employment compensation that may be paid or become payable to the Chief Executive Officer and the Principal Financial and
Accounting Officer, in connection with the Merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed in "Interests of
the Company's Directors and Executive Officers in the Merger," is hereby APPROVED."
The
vote on executive compensation payable in connection with the Merger is a vote separate and apart from the vote on the proposal to approve the Merger Agreement. Accordingly, you may
vote to approve the executive compensation and vote not to approve the Merger Agreement and vice versa. Because the vote to approve the executive compensation is advisory in nature only, it will not
be binding on either the Company or Parent. Because the Company is contractually obligated to pay such executive compensation, the compensation will be payable, subject only to the conditions
applicable thereto, if the proposal to approve the Merger Agreement is approved and regardless of the outcome of the advisory vote.
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Approval
of the advisory resolution on executive compensation payable to the Company's Chief Executive Officer and the Principal Financial and Accounting Officer in connection with the
Merger requires the affirmative vote of a majority of the votes cast at the Special Meeting. Abstentions will have the same effect as a vote "
AGAINST
"
the proposal, but the failure to vote your shares will have no effect on the outcome of the proposal. Broker non-votes will have no effect on the outcome of the proposal.
THE BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of material U.S. federal income tax consequences of the Merger to U.S. Holders and certain non-U.S.
Holders (each as defined below) whose shares of Common Stock are converted into the right to receive cash in the Merger. This summary is for general information purposes only. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), and applicable Treasury Regulations, rulings, administrative pronouncements and judicial decisions as of the date hereof, all of which are
subject to change or differing interpretations at any time with possible retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein. This summary
is not binding on the Internal Revenue Service (the "IRS") or a court, and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they
would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered as to the U.S. federal income tax consequences
of the Merger.
This
discussion is limited to the U.S. federal income tax consequences to holders of Common Stock who hold the Common Stock as capital assets within the meaning of Section 1221 of
the Code (
i.e
., generally, held for investment). It does not consider all aspects of U.S. federal income taxation that may be relevant to particular
holders in light of their individual circumstances or to certain types of holders subject to special tax rules including, for example, small business investment companies, brokers, dealers in
securities or currencies, banks and other financial institutions, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment
companies, real estate investment trusts, hybrid entities, certain former citizens or residents of the United States, individual retirement and other tax-deferred accounts, tax-exempt entities,
insurance companies, partnerships or other pass-through entities or investors in those entities, persons holding Common Stock as a part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, U.S. Holders (as defined below) that have a functional currency other than the U.S. dollar, controlled foreign corporations, passive foreign investment companies,
corporations that accumulate earnings to avoid U.S. federal income tax, persons subject to the alternative minimum tax or who received Common Stock pursuant to Company Restricted Shares or Company RSU
grants or pursuant to the exercise of employee stock options or otherwise as compensation. This summary does not purport to address the U.S. federal income tax consequences of the transactions to
Stockholders who will actually or constructively (under the rules of Section 318 of the Code) own any stock of the Company, AMC, Parent or Parent's subsidiaries following the Merger, and it
does not address the impact of the Medicare contribution tax on net investment income, state, local or foreign tax considerations or any U.S. federal tax considerations other than U.S. federal income
tax (for example, U.S. estate or gift tax considerations). Further, this summary does not address any tax consequences of the Merger to holders of warrants, options, shares of restricted stock,
performance stock units or restricted stock units. Such holders should consult their tax advisors regarding the tax consequences of the Merger to them.
For
purposes of this discussion, a "U.S. Holder" is a beneficial owner of shares of Common Stock that is, for U.S. federal income tax purposes: (i) an individual citizen or
resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the U.S. federal income tax
laws; (ii) a corporation (including
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an
entity treated as a corporation for U.S. federal income tax purposes) that is created or organized in or under the law of the United States, any state thereof or the District of Columbia;
(iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or a trust that has made a valid election
to be treated as a United States person to the extent provided in applicable Treasury Regulations. A "Non-U.S. Holder" is any beneficial owner of Common Stock who for U.S. federal income tax purposes
is a nonresident alien individual or a corporation, trust or estate that is not a U.S. Holder.
If
a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding Common Stock, you should consult your tax advisor regarding the U.S.
federal income tax consequences of the Merger to such partner.
The exchange of Common Stock for cash pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. In
general, a U.S. Holder who receives cash in exchange for Common Stock pursuant to the Merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if
any, between the amount of cash received (determined before the deduction of any withholding tax) and the U.S Holder's adjusted tax basis in the Common Stock exchanged for cash pursuant to the Merger.
A U.S. Holder's adjusted tax basis in the Common Stock will generally equal the price the U.S. Holder paid for such Common Stock. Gain or loss will be determined separately for each block of Common
Stock (that is, Common Stock acquired at the same cost in a single transaction) exchanged for cash pursuant to the Merger. Such gain or loss generally will be long-term capital gain or loss provided
that a U.S. Holder's holding period for such Common Stock is more than one year at the time of consummation of the Merger. Long term capital gain recognized by an individual and certain other
non-corporate U.S. Holders are generally taxed at preferential U.S. federal income tax rates. A U.S. Holder's ability to deduct capital losses may be limited.
Payments made to a Non-U.S. Holder with respect to the Common Stock that are exchanged for cash pursuant to the Merger generally will not be
subject to U.S. federal income or withholding tax, unless:
-
-
such Non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year of the Merger and
certain other conditions are satisfied, in which case, the Non-U.S. Holder generally will be subject to tax at a rate of 30% (or lower applicable treaty rate) on the amount by which its U.S.-source
gains from sales or exchanges of capital assets exceed its U.S.-source losses from such sales or exchanges during its taxable year in which the Merger occurs;
-
-
the gain with respect to the Common Stock is effectively connected with such Non-U.S. Holder's conduct of a trade or business in the United
States (and, if an income tax treaty applies and so requires, is attributable to such Stockholder's permanent establishment or fixed base in the United States), in which case, the Non-U.S. Holder
generally will be required to pay U.S. federal income tax on the net gain derived from the disposition of Common Stock pursuant to the Merger in the same manner as U.S. Holders, as described above,
and if such Non-U.S. Holder is a corporation, it may be subject to a 30% branch profits tax (or lower applicable treaty rate) on its effectively connected earnings and profits attributable to such
gain; or
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-
-
we are or have been a "United States real property holding corporation" (a "USRPHC") for U.S. federal income tax purposes at any time during
the shorter of the five-year period ending on the date of the Merger and the period that such Non-U.S. Holder held such Common Stock, and the Non-U.S. Holder owned, actually or constructively, more
than 5% of Common Stock at any time during the five-year period preceding the Merger. The determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests
relative to the fair market value of our other trade or business assets and our foreign real property interests. The Company does not believe it is, or has been during the five years preceding the
Merger, a USRPHC for U.S. federal income tax purposes.
A U.S. Holder whose Common Stock is exchanged for cash pursuant to the Merger may be subject to information reporting and backup withholding tax
at the applicable rate, unless the U.S. Holder (i) timely furnishes an accurate taxpayer identification number and otherwise complies with applicable U.S. information reporting or certification
requirements (typically by completing and signing an IRS Form W-9, a copy of which will be included as part of the letter of transmittal to be timely returned to the paying agent) or
(ii) is a corporation or other exempt recipient and, when required, establishes such fact. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding
rules may be refunded or credited against a U.S. Holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.
In
general, Non-U.S. Holders whose Common Stock is exchanged for cash pursuant to the Merger will not be subject to U.S. backup withholding and information reporting if they provide the
paying agent with an applicable IRS Form W-8 and neither we nor the paying agent has actual knowledge (or reason to know) that the relevant Non-U.S. Holder is a U.S. Holder. If the Common Stock
is held through a non-U.S. partnership or other flow-through entity, certain documentation requirements also may apply to the partnership or other flow-through entity. Backup withholding is not an
additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a Non-U.S. Holder's U.S. federal income tax liability, if any, provided that the
required information is furnished to the IRS in a timely manner.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL OF THE TAX CONSEQUENCES RELATING TO THE
MERGER. EACH STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES (INCLUDING THE STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES) OF THE MERGER TO IT IN LIGHT OF ITS OWN
PARTICULAR CIRCUMSTANCES.
Regulatory Approvals
There are no U.S. Governmental Approvals needed to effectuate the Merger or consummate the other transactions contemplated by the Merger
Agreement.
Fee and Expenses
We have retained MacKenzie Partners, Inc., an independent proxy solicitation firm, to assist in the proxy solicitation. We will pay a fee
of $10,000 plus reasonable out-of-pocket expenses for their assistance. We will indemnify MacKenzie Partners, Inc. against any losses arising out of its proxy soliciting services on our behalf.
Whether
or not the Merger is completed, in general, all fees and expenses incurred in connection with the Merger will be paid by the party incurring those fees and expenses. Total fees
and expenses
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incurred
or to be incurred by the Company in connection with the Merger are estimated at this time to be as follows:
|
|
|
|
|
Amount to be
Paid ($)
|
Financial advisory fee and expenses
|
|
|
Legal, accounting and other professional fees
|
|
|
SEC filings fees
|
|
|
Proxy solicitation, printing and mailing costs
|
|
|
Miscellaneous
|
|
|
These
costs and expenses will not reduce the Per Share Merger Consideration to be received by the Non-Affiliate Common Stockholders.
Effective Time of Merger
If the Merger is approved by our Stockholders at the Special Meeting, then, subject to the satisfaction or, to the extent permitted by
applicable law, waiver of certain conditions set forth in the Merger Agreement, we anticipate that the Merger will be completed promptly thereafter. The Effective Time will occur as soon as
practicable on the closing date of the Merger upon the filing
with and acceptance by the Secretary of State of the State of Nevada of Articles of Merger executed in accordance with the relevant provisions of the NRS (or at such later time as we, Parent and
Merger Sub may agree and as specified in the Articles of Merger).
Payment of Merger Consideration and Surrender of Stock Certificates; Payment for Company Stock Awards
Prior to the Effective Time, Parent will deposit, or cause to be deposited, with the Paying Agent, in trust for the benefit of the Stockholders,
an amount in cash in immediately available funds sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments in respect of the Per Share Merger Consideration.
Within
three business days following the Effective Time, Parent will cause the Paying Agent to mail or otherwise provide each holder of record of Eligible Shares, Eligible Preferred
Shares or Eligible 2015 Warrants, a notice advising such holders of the effectiveness of the Merger (including a customary letter of transmittal) and instructions for use in effecting the surrender of
certificates that formerly represented shares of Common Stock or non-certificated shares represented by book-entry in exchange for the Per Share Merger Consideration. You will not be entitled to
receive the Per Share Merger Consideration until you deliver a duly completed and executed letter of transmittal to the paying agent. If your shares of Common Stock are certificated, you must also
surrender your stock certificate or certificates to the Paying Agent. If ownership of your shares of Common Stock is not registered in our transfer records, a check for any cash to be exchanged upon
due surrender of any such Common Stock will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid or are not applicable, in each case, in form and substance reasonably satisfactory to Parent and the Paying Agent.
You should not return your stock certificates with the enclosed proxy card and you should not forward your stock certificates to the Paying Agent without a letter
of transmittal.
As
soon as reasonably practicable (but no later than the first regularly scheduled payroll date not less than 10 business days after the Closing Date or later vesting date with respect
to Converted Option Awards, Converted RSU Awards and Converted PSU Awards), the Surviving Corporation will, through its payroll system, pay or cause to be paid to the holders of Company Stock Awards
the cash amounts described under "
Merger AgreementTreatment of Company Options; Company Restricted Shares; Company RSUs; Company PSUs
"
beginning on page [
·
] of this Proxy Statement. To the extent the holder of
a Company Stock Award is not and was not at any time during the period in which such Company Stock Award was outstanding an employee of the Company, such amounts will not be paid through the payroll
system, and instead will be paid by the Paying Agent, as described above.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement include "forward-looking statements" which reflect our current views as to future events and financial performance with
respect to our operations, the expected completion and timing of the Merger and other information relating to the Merger. All forward-looking statements included in this document are based on
information available to the Company on the date hereof. These statements are identifiable because they do not relate strictly to historical or current facts.
There
are forward-looking statements throughout this Proxy Statement, include, but are not limited to, statements under the headings "Summary Term Sheet," "Questions and Answers About
the Special Meeting and the Merger," "The Special Meeting," "Special Factors" and "Important Information Regarding the Company," statements regarding the Company's proposed business combination
transaction with AMC, all statements regarding the Company's expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, capital
expenditures, competitive positions, growth opportunities, plans, and objectives of management, and in statements containing words such as "aim," "anticipate," "approximate," "are confident,"
"believe," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "could," "would," "should," "will," "intend," "may," "potential," "upside," and other
words and terms of similar meaning in conjunction with a discussion of future operating or financial performance or other future events.
Such
forward-looking statements are inherently uncertain, and Stockholders and other potential investors must recognize that actual results may differ materially from the Company's
expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management's current expectations and include
known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause its actual results, performance or plans to differ materially from
any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time
to time in the Company's filings with the SEC.
You
should be aware that forward-looking statements involve known and unknown risks and uncertainties. Many of the factors that will determine our future results are beyond our ability
to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements,
which reflect management's views only as of the date as of which the statements were made. We cannot guarantee any future results, levels of activity, performance or achievements. Although we believe
that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, we give no assurance that the actual results or developments we anticipate will be realized,
or even if realized, that they will have the expected effects on the business or operations of the Company. In addition to other factors and matters contained in this document, we believe the
following risk factors could cause actual results to differ materially from those discussed in the forward-looking statements:
-
-
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
-
-
the inability to complete the proposed Merger due to the failure to satisfy other conditions to completion of the proposed Merger;
-
-
risks related to disruption of management's attention from the Company's ongoing business operations due to the pendency of the Merger;
-
-
the outcome of any legal proceedings, licensure proceedings, regulatory proceedings or enforcement matters that have been or may be instituted
against the Company and others relating to the Merger Agreement and the transactions contemplated thereby;
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-
-
the risk that the pendency of the Merger disrupts current plans and operations and the potential difficulties in employee retention as a result
of the pendency of the Merger;
-
-
the effect of the announcement or completion of the proposed Merger on the Company's relationships with its customers, suppliers, operating
results and business generally;
-
-
the amount of the costs, fees, expenses and charges related to the Merger;
-
-
uncertainties as to the timing of completion of the Merger;
-
-
adverse effects on the Company's stock price resulting from the announcement of the Merger or the failure of the Merger to be completed;
-
-
competitive responses to the announcement of the Merger;
-
-
any changes in general economic and/or industry-specific conditions; and
-
-
and additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements, which are
discussed in reports we have filed with the SEC, including our most recent filings on Forms 10-Q and 10-K. See "
Where You Can Find More
Information
" beginning on page [
·
] of this Proxy
Statement.
Many
of these risk factors are beyond the Company's control. The Company cautions Stockholders that any forward-looking statements made by it are not guarantees of future performance.
Forward-looking statements speak only as of the date of this Proxy Statement. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed in this Proxy
Statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the
extent required by applicable law or regulation, we disclaim and do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this Proxy
Statement or to reflect the occurrence of unanticipated events.
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THE PARTIES TO THE MERGER AGREEMENT
The Parties to the Merger Agreement
RLJ Entertainment, Inc.
8515 Georgia Avenue
Suite 650
Silver Spring, MD 20910
(301) 608-2115
RLJE
is a premium digital channel company serving distinct audiences through its proprietary subscription-based digital channels, Acorn TV and UMC or Urban Movie Channel. Acorn TV
features high-quality British and international mysteries and dramas. UMC showcases compelling urban programming including feature films, documentaries, original series, stand-up comedy and other
exclusive content for African-American and urban audiences.
AMC Networks Inc.
11 Penn Plaza
New York, New York 10001
(646) 273-3606
AMC
owns and operates several of cable television's most recognized brands delivering high quality content to audiences and a valuable platform to distributors and advertisers. AMC
manages its business through two operating segments: (i) National Networks, which principally includes AMC, WE tv, BBC AMERICA, IFC and SundanceTV; and AMC Studios, AMC's television production
business; and (ii) International and Other, which principally includes AMC Networks International, AMC's
international programming business; IFC Films, AMC's independent film distribution business; and AMC's owned subscription streaming services, Sundance Now and Shudder.
Digital Entertainment Holdings LLC
11 Penn Plaza
New York, New York 10001
(646) 273-3606
Parent
is a Delaware limited liability company and a wholly owned subsidiary of AMC that was formed by AMC solely for the purpose of lending funds to RLJE and holding its interest in
RLJE.
River Merger Sub Inc.
11 Penn Plaza
New York, New York 10001
(646) 273-3606
Merger
Sub is a Nevada corporation and a wholly owned subsidiary of Parent that was formed by Parent solely for the purpose of facilitating the Merger in accordance with the terms and
subject to the conditions of the Merger Agreement. To date, Merger Sub has not conducted any activities other than those related to its formation and completion of the transactions contemplated by the
Merger Agreement. At the Effective Time, Merger Sub will cease to exist.
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THE SPECIAL MEETING
Time, Place and Purpose of the Special Meeting
This Proxy Statement is being furnished to our Stockholders as part of the solicitation of proxies by the Board of Directors for use at the
Special Meeting to be held on [DATE], starting at 9:30 a.m., local time, at the offices of RLJ Entertainment, Inc. located at 8515 Georgia Avenue,
Suite 650, Silver Spring, Maryland 20910, or at any postponement or adjournment thereof. At the Special Meeting, our Stockholders will be asked to vote on (i) the proposal to
approve the Merger Agreement, (ii) the proposal to approve, by non-binding advisory vote, certain compensation that will or may become payable to the Company's Chief Executive Officer and
Principal Financial and Accounting Officer in connection with the Merger, and (iii) the proposal to adjourn the Special Meeting, if necessary or appropriate (as determined by the Company).
A
copy of the Merger Agreement is attached as Annex A hereto, which we encourage you to read carefully in its entirety.
Special Committee Recommendation of the Merger Agreement
The Special Committee, which has been granted the authority of the full Board with respect to the Merger, unanimously: (i) determined
that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and its Non-Affiliate Common Stockholders,
(ii) adopted the Merger Agreement and the Merger and (iii) recommended that the Stockholders vote affirmatively to approve the Merger Agreement at the Special Meeting.
Accordingly,
the Special Committee recommends that the Stockholders vote "
FOR
" the proposal to approve the Merger Agreement.
The
Special Committee also recommends that the Stockholders vote "
FOR
" the proposal to approve the adjournment of the Special Meeting, if
necessary or appropriate (as determined by the Company).
In
addition, the Board recommends that the Stockholders vote "
FOR
" the proposal to approve, on an advisory (non-binding) basis, the
compensation that will or may become payable to the Chief Executive Officer and the Principal Financial and Accounting Officer of the Company in connection with the Merger, as disclosed in the table
under "
Special FactorsInterests of the Company's Directors and Executive Officers in the Merger
," beginning on page
[
·
] of this Proxy Statement.
Record Date and Quorum
We have fixed the close of business on [DATE], as the Record Date for the Special Meeting, and only holders of record of
shares of Common Stock on the Record Date are entitled to vote at the Special Meeting. You are entitled to receive notice of, and to vote at, the Special Meeting if you owned shares of Common Stock at
the close of business on the Record Date. You will have one vote for each share of Common Stock that you owned on the Record Date. As of the Record Date, there were [SHARES]
shares of Common Stock issued and outstanding, and entitled to vote at the Special Meeting.
Holders
of a majority of the votes entitled to be cast at the Special Meeting must be present, in person or by proxy, at the Special Meeting to achieve the required quorum for the
transaction of business at the Special Meeting. Therefore, the presence in person or by proxy of our Stockholders representing at least [SHARES] votes will be required to
establish a quorum. Common Stock represented at the Special Meeting but not voted, including shares of Common Stock for which a Stockholder directs an "abstention" from voting, as well as broker
non-votes, will be counted for
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purposes
of establishing a quorum. A quorum is necessary to transact business at the Special Meeting. Once a share is represented at the Special Meeting, it will be counted for the purpose of
determining a quorum at the Special Meeting and any adjournment of the Special Meeting. However, if a new record date is set for the adjourned Special Meeting, then a new quorum will have to be
established. In the event that a quorum is not present at the Special Meeting, it is expected that the Special Meeting will be adjourned or postponed. If the Special Meeting is adjourned or postponed
to a date more than 60 days later than the original meeting date, we must fix a new record date and deliver another notice of meeting.
Attendance
Only Stockholders of record or their duly authorized proxies have the right to attend the Special Meeting. To gain admittance, you must present
proof that you are a Stockholder of the Company as well as valid picture identification, such as a current driver's license or passport, in order to attend the meeting. If your shares of Common Stock
are held through a bank, brokerage firm or other nominee, please bring to the Special Meeting a copy of your brokerage statement evidencing your beneficial ownership of our Common Stock and a valid
photo identification. If you are the representative of a corporate or institutional Stockholder, you must present valid photo identification along with proof that you are the representative of such
Stockholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the Special Meeting.
Vote Required
The Merger
If a quorum is present, approval of the Merger Agreement requires the affirmative vote of holders (in person or by proxy) of a majority of the
outstanding shares of Common Stock entitled to vote thereon at the Special Meeting. Under applicable Nevada corporate law and the Company Charter, approval of the Merger Agreement requires the
affirmative vote (i.e., "for" the Merger Agreement) by the holders of a majority of the Company's outstanding voting power attributable to all outstanding classes of the Company's voting
securities. The Common Stock is the only class of the Company's capital stock that has the right to vote in respect of and to approve (or disapprove) the Merger Agreement. It is, therefore, a
condition to the obligations of each of Parent, Merger Sub and the Company under the Merger Agreement to consummate the Merger that such requisite Stockholder vote be obtained (in person or by proxy)
at the Special Meeting.
As
of the date of this Proxy Statement, AMC, through DEH, currently owns approximately 30.0% of the outstanding Common Stock, in addition to the AMC Warrants which, if exercised by AMC,
in full (or in substantial part), would result in AMC beneficially owning in the aggregate a majority of the
voting power attributable to all of the outstanding Common Stock. AMC has notified the Company that it intends to exercise the AMC Warrants, in full (or in substantial part), prior to the Record Date
and that it will vote all shares of Common Stock owned by AMC in favor of approval of the Merger Agreement and the transaction contemplated thereby, including the Merger, at the Special Meeting. AMC,
following exercise in full (or in substantial part) of the AMC Warrants, will beneficially own at least 50.1% of the outstanding Common Stock. Accordingly, upon AMC's exercise, in full (or in
substantial part), of the AMC Warrants, AMC will have the requisite voting power and ability at the Special Meeting to unilaterally cause the approval of the Merger Agreement by the Stockholders
(without any need for any additional votes by any other Stockholder). Pursuant to the Voting Agreement, the Johnson Entities, who beneficially owned approximately 43.5% of the issued and outstanding
shares of Common Stock as of the date of this Proxy Statement (but will own a smaller percentage of the outstanding Common Stock once AMC exercises all or a substantial part of the AMC Warrants prior
to the Record Date), have agreed, among other things, to affirmatively vote all of their shares of Common Stock at the Special Meeting "for" the approval of the Merger Agreement and
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have
granted to Parent an irrevocable proxy to secure the performance of their voting obligations under the Voting Agreement. Such voting obligations will automatically terminate upon any termination
of the Merger Agreement in accordance with its terms, including if the Special Committee makes any Recommendation Change with respect to the Merger Agreement. See "
The Merger
AgreementThe Voting Agreement
" beginning on page
[
·
] of this Proxy Statement.
Executive Compensation
If a quorum is present, approval, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company's Chief
Executive Officer and Principal Financial and Accounting Officer in connection with the Merger will be approved if the number of votes cast at the special in favor of such proposal exceeds the number
of votes cast opposing such proposal. The outcome of this vote is not binding on the Company.
Adjournment
If a quorum is present, approval of the proposal to adjourn the Special Meeting, if necessary or appropriate (as determined by the Company),
requires that the number of votes cast at the Special Meeting, whether in person or by proxy, in favor of adjournment exceeds the number of votes cast opposing adjournment.
Abstentions
will not be counted as votes cast in favor of the proposal to approve the Merger Agreement, the proposal to approve, by non-binding, advisory vote, of certain compensation
that will or may become payable to the Company's Chief Executive Officer and Principal Financial and Accounting Officer in connection with the Merger or the proposal to adjourn the Special Meeting, if
necessary or appropriate, for, among other reasons, the solicitation of additional proxies.
If you fail to submit a proxy or to vote in person at the Special Meeting, or
abstain, it will have the same effect as a vote "AGAINST" the proposal to approve the Merger Agreement, but will not affect the outcome of any other proposal.
If
your shares of Common Stock are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of Common
Stock, the "Stockholder of record." This Proxy Statement and proxy card have been sent directly to you by the Company.
If
your shares of Common Stock are held through a bank, brokerage firm or other nominee, you are considered the "beneficial owner" of shares of Common Stock held in street name. In that
case, this Proxy Statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Common Stock, the Stockholder of record. As the
beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares of Common Stock by following their instructions for voting.
Under
the rules of the Nasdaq Capital Market, banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on "routine" proposals when
they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving
non-routine matters, such as the proposal to approve the Merger Agreement, and, as a result, absent specific instructions from the beneficial owner of such shares of Common Stock, banks, brokerage
firms or other nominees are not empowered to vote those shares of Common Stock on non-routine matters, which we refer to generally as broker non-votes. These broker non-votes will be counted for
purposes of determining a quorum, but will have the same effect as a vote "
AGAINST
" the proposal to approve the Merger Agreement.
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If
you are a Stockholder of record, you may have your shares of Common Stock voted on matters presented at the Special Meeting in any of the following ways:
Telephone Voting:
You can vote via telephone by calling the telephone number set forth on your proxy card. You will need your proxy
card in hand when
you call that number. You may vote via the Internet or telephone up until 11:59 p.m. Eastern Time the day before the Special Meeting.
Internet Voting:
If you are a Stockholder of record, in addition to voting in person or by completing and mailing the proxy card, you
may vote by
using the Internet or by telephone. If you wish to vote via the Internet, access the website set forth on your proxy card and follow the instructions given. You will need your proxy card in hand when
you access the website.
Return Your Proxy Card by Mail:
To vote by mail, you may complete the enclosed proxy card and then sign, date and return it in the
postage-paid reply
envelope provided. Submitting a proxy now will not limit your right to vote at the Special Meeting if you decide to attend in person.
Vote at the Meeting:
You may cast your vote in person at the Special Meeting. Written ballots will be passed out to Stockholders or
legal proxies who
want to vote in person at the meeting.
Telephone
and Internet voting is convenient, provides postage and mailing cost savings and is recorded immediately, minimizing the risk that postal delays may cause votes to arrive late
and therefore not be counted.
Even
if you plan to attend the Special Meeting, you are encouraged to vote your shares by proxy. You may still vote your shares in person at the meeting even if you have previously voted
by proxy. If you
are present at the meeting and desire to vote in person, your previous vote by proxy will not be counted.
If
you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Common Stock voted.
Those instructions will identify which of the above choices are available to you in order to have your Common Stock voted.
Please
note that if you are a beneficial owner and wish to vote in person at the Special Meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.
Please
refer to the instructions on your proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you choose to vote by mailing a
proxy card, your proxy card must be filed with our Corporate Secretary by the time the Special Meeting begins.
Please do not send in your stock certificates with your proxy
card
. When the Merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the Merger Consideration in exchange for your stock
certificates.
If
you vote by proxy, regardless of the method you choose to vote, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, or your proxies,
will vote your Common Stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of Common Stock should be voted for
or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.
If
you properly sign your proxy card but do not mark the boxes showing how your shares of Common Stock should be voted on a matter, the shares of Common Stock represented by your
properly signed proxy will be voted "
FOR
" the proposal to approve the Merger Agreement, "
FOR
" approval,
by non-binding advisory vote, of certain compensation that will or may become payable to the Company's Chief Executive Officer and Principal Financial and Accounting Officer in connection with
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the
Merger and "
FOR
" the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies.
If
you have questions or need assistance voting your shares, please contact MacKenzie Partners at
1407
Broadway, 27
th
Floor
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email: proxy@mackenziepartners.com
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN
PERSON.
Proxies and Revocation
Any Stockholder of record entitled to vote at the Special Meeting may submit a proxy by telephone, over the Internet, by returning the enclosed
proxy card in the accompanying prepaid reply envelope, or may vote in person at the Special Meeting. If your shares of Common Stock are held in "street name" by your bank, brokerage firm or other
nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your Common Stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to
submit a proxy or vote in person at the Special Meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Common Stock
will not be voted on any of the proposals described in this Proxy Statement, which will have the same effect as a vote "
AGAINST
" the proposal to approve
the Merger Agreement, but will not affect the outcome of any other proposal.
If
you are a Stockholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is voted at the Special
Meeting by:
-
-
delivering written notice to our Corporate Secretary at 8515 Georgia Avenue, Suite 650, Silver Spring, Maryland 20910;
-
-
executing and delivering to our Corporate Secretary at the address above a proxy bearing a later date;
-
-
attending the Special Meeting in person, at which time the powers of the proxy holders with respect to your shares will be revoked if you so
request; or
-
-
submitting a vote by telephone or via the Internet with a later date.
Please
note that attendance at the Special Meeting will not, by itself, constitute revocation of your proxy.
If
you hold your shares in "street name," the broker, nominee, fiduciary or other custodian through which you hold your shares will instruct you as to how you may revoke or change your
vote. You may also vote in person at the Special Meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.
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Adjournments and Postponements
Although it is not currently expected, the Special Meeting may be adjourned or postponed. Other than an announcement to be made at the Special
Meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. However, if the Special Meeting is adjourned or postponed to a date more than
60 days later than the original meeting date, we must fix a new record date and deliver another notice of meeting.
Anticipated Date of Completion of the Merger
The Company and Parent have agreed in the Merger Agreement to complete the Merger as soon as practicable. If the Merger Agreement is approved at
the Special Meeting then, assuming timely satisfaction or, to the extent permitted by the Merger Agreement and applicable law, waiver of the other necessary closing conditions, we anticipate that the
Merger will be completed promptly thereafter.
Solicitation of Proxies
The Company will bear all costs of this proxy solicitation. Proxies may be solicited by mail, in person, by telephone, or by facsimile or by
electronic means by officers, directors and regular employees of the Company. In addition, to assist in the proxy solicitation we will pay MacKenzie Partners, Inc. a fee of $10,000 plus
reasonable out-of-pocket expenses as compensation for their services. We will indemnify MacKenzie Partners, Inc. against any losses arising out of its proxy soliciting services on our behalf.
The Company may also reimburse brokerage firms, custodians, nominees and fiduciaries for their expenses to forward proxy materials to beneficial owners. Parent, directly or through one or more
affiliates or representatives, may, at its own cost, also make solicitations of proxies by mail, telephone, facsimile or other contact in connection with the Merger.
Questions and Additional Information
If you have more questions about the Merger, or require assistance in submitting your proxy or voting your shares or need additional copies of
the Proxy Statement or the enclosed proxy card, please contact MacKenzie Partners, which is acting as the Company's proxy solicitation agent and information agent in connection with the Merger:
1407
Broadway, 27
th
Floor
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email: proxy@mackenziepartners.com
If
your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.
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THE MERGER AGREEMENT
This section describes the material terms of the Merger Agreement. The description in this section and elsewhere in this
Proxy Statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this Proxy Statement. This description does not
purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully and in its entirety. This
section is not intended to provide you with any factual information about us, Parent or Merger Sub. Capitalized terms used herein but otherwise not defined herein will have the meanings ascribed to
such terms in the Merger Agreement. Such information can be found elsewhere in this Proxy Statement and in the public filings we make with the SEC, as described in the section entitled, "Where You Can
Find More Information," beginning on page [
·
] of this Proxy
Statement.
Explanatory Note Regarding the Merger Agreement
The Merger Agreement has been attached to this Proxy Statement as Annex A solely to inform you of its terms. It is not intended to
provide any other factual information about the Company, Parent Merger Sub or any of their respective subsidiaries or affiliates. The Merger Agreement contains customary representations, warranties
and covenants from the Company, Parent and Merger Sub, which were made only for purposes of that Agreement and as of specific dates; were made solely for the benefit of the parties to the Merger
Agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures; may not have been intended to be statements of fact, but rather,
as a method of allocating contractual risk and governing the contractual rights and relationships between the parties to the Merger Agreement; and may apply standards of materiality in a way that is
different from what may be viewed as material by Stockholders of the Company. Our Stockholders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations,
warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the Company, Parent, Merger Sub or any of their respective subsidiaries or
affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or
may not be fully reflected in the Company's or Parent's public disclosures.
The
Company, Parent, Merger Sub and Ultimate Parent have entered into the Merger Agreement. Accordingly, unless otherwise expressly stated otherwise, all discussions in this Proxy
Statement concerning the Merger, the Merger Agreement, and all transaction documentation, including all discussions concerning the events leading thereto, the applicable proceedings of the Special
Committee, the fairness opinion, and all other considerations, all relate to the Merger Agreement.
Structure of the Merger; Charter and Bylaws; Directors and Officers
The Merger Agreement provides that, at the Effective Time, Merger Sub will be merged with and into the Company, and following the Merger, the
separate corporate existence of Merger Sub will cease. The Company will continue as the Surviving Corporation and a wholly owned subsidiary of Parent and will continue to exist and conduct business
following the Merger.
If
the Merger is completed, our Common Stock will be delisted from the Nasdaq Capital Market and deregistered under the Exchange Act and we will no longer be required to file periodic
reports with the SEC.
The
Company Charter will be amended and restated in the Merger to read in their entirety as set forth on Exhibit A to the Merger Agreement, and such amended Company Charter will
be the articles of incorporation of the Surviving Corporation until thereafter amended as provided therein or by applicable law. The Company Bylaws will be amended and restated to read in their
entirety as set forth
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on
Exhibit B to the Merger Agreement, until thereafter amended as provided therein or by applicable law.
At
the Effective Time, the directors of Merger Sub immediately prior to the Effective Time will be the only directors of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time will be the only officers of the Surviving Corporation.
Terms of the Merger Agreement
The following is a summary of certain provisions of the Merger Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the Merger Agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference. For a complete understanding of the Merger
Agreement, you are encouraged to carefully read the full text of the Merger Agreement. Copies of the Merger Agreement, and any other filings that we make with the SEC with respect to the Merger, may
be obtained in the manner set forth in "
Where You Can Find More Information
" beginning on page
[
·
] of this Proxy Statement. For the purposes of this section, capitalized terms
used but not defined herein will have the meanings set forth in the Merger Agreement.
Effect of the Merger on the Common Stock; Preferred Stock; 2015 Warrants
Common Stock
The Merger Agreement provides that each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than
Excluded Shares) automatically will be converted into the right to receive the Per Share Merger Consideration. All such shares when so converted will no longer be outstanding and automatically will be
cancelled and will cease to exist, and each holder of a certificate (or evidence of shares in book-entry form) that immediately prior to the Effective Time represented any such shares will cease to
have any rights with respect thereto, except the right to receive the Per Share Merger Consideration.
Preferred Stock
The Merger Agreement provides that each Eligible Preferred Share for which a change-of-control cash purchase election has been made by the
record holder thereof pursuant to Section 7(b) of the certificate of designation applicable to such Eligible Preferred Share will be entitled to receive the Preferred Stock Consideration. If
any holder of Eligible Preferred Shares does not make such election and surrender such shares in exchange for the Preferred Stock Consideration within 180 days following the Closing Date, such
holder will be entitled to receive, in respect of each Eligible Preferred Share for which the holder fails to make such election, a security to be issued by Surviving Corporation, as provided in the
applicable certificate of designation. Parent is also required to comply with the notice and other obligations set forth in the certificates of designation in respect of the Preferred Stock, to the
extent applicable, after the date of the Merger Agreement and prior to the Effective Date.
2015 Warrants
The Merger Agreement provides that, at the Effective Time, each Eligible 2015 Warrant will be converted into the right to receive, as promptly
as practicable after the Effective Time, the 2015 Warrant Consideration. For the avoidance of doubt, any Eligible 2015 Warrant which has an exercise price per share that is greater than or equal to
the Per Share Merger Consideration will be cancelled at the Effective Time for no consideration, payment or right to consideration or payment.
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Treatment of Company Options, Company Restricted Shares; Company RSUs; Company PSUs
Company Options
The Merger Agreement provides that, at the Effective Time, (1) each (A) outstanding award of Company Options (or portion thereof)
that is vested and exercisable and (B) outstanding and unvested award of Company Options scheduled to vest before 2020 will be cancelled and converted into the right to receive, as soon as
reasonably practicable after the Effective Time, the Option Consideration, and (2) each outstanding and unvested award of Company Options scheduled to vest after 2019 will be cancelled and
converted into a Converted Option Award.
Company Restricted Shares
The Merger Agreement provides that, at the Effective Time, each Company Restricted Share that is outstanding immediately prior to the Effective
Time will become fully vested will be entitled to receive the Per Share Merger Consideration, less any applicable withholding taxes.
Company RSUs
The Merger Agreement provides that, at the Effective Time, each unvested Company RSU that is scheduled to vest before 2020 will become fully
vested and converted into the right to receive, as soon as reasonably practicable after the Effective Time, the Stock Unit Consideration, and each unvested Company RSU that is scheduled to vest after
2019 will be cancelled and converted into a Converted RSU Award.
Company PSUs
The Merger Agreements provides that, at the Effective Time, each unvested Company PSU that is earned based on performance as of the Effective
Time, as determined in accordance with the Merger Agreement and the applicable award agreement, will become fully vested and converted into the right to receive, as soon as reasonably practicable
after the Effective Time, the Stock Unit Consideration, and a prorated portion (as calculated in accordance with the applicable award agreement) of any Company PSUs that are not earned at the
Effective Time will be cancelled and converted into in a Converted PSU Award. Any Company PSUs that do not vest or convert into a Converted PSU Award will be forfeited at the Effective Time for no
consideration.
Representations and Warranties
In the Merger Agreement, we have made customary representations and warranties to Parent and Merger Sub, including representations relating
to:
-
-
Organization, Good Standing, and Qualification;
-
-
Subsidiaries;
-
-
Capital Structure;
-
-
Corporate Authority; Approval and Fairness Opinion;
-
-
Governmental Filings; No Violations; Certain Contracts;
-
-
Compliance with Laws; Licenses;
-
-
Company Reports;
-
-
Disclosure Controls and Procedures and Internal Control Over Financial Reporting;
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-
-
Financial Statements; No Undisclosed Liabilities; "Off-Balance Sheet Arrangements"; Books and Records;
-
-
Litigation;
-
-
Absence of Certain Changes;
-
-
Company Material Contracts;
-
-
Subscribers;
-
-
Employee Benefits;
-
-
Labor Matters;
-
-
Environmental Matters;
-
-
Tax Matters;
-
-
Real Property;
-
-
Title to Tangible Property;
-
-
Intellectual Property;
-
-
Insurance;
-
-
Takeover Statutes;
-
-
Brokers and Finders; and
-
-
No Other Representations or Warranties; Non-Reliance.
Some
of the representations and warranties in the Merger Agreement made by us are qualified as to "materiality" or "Material Adverse Effect." For purposes of the Merger Agreement,
"
Material Adverse Effect
" means any event, change, development, circumstance, fact or effect that, individually or taken together with any other events,
changes, developments, circumstances, facts or effects is, or would reasonably be expected to be, materially adverse to the condition (financial or otherwise), properties, assets, liabilities
(contingent or otherwise), business operations or results of operations of the Company and its Subsidiaries (taken as a whole);
provided
,
however
, that
none of the following, either alone or in combination, will be taken into account in determining whether a Material Adverse Effect has
occurred or would reasonably be expected to occur:
-
(a)
-
events,
changes, developments, circumstances or facts in or with respect to the economy, credit, capital, securities or financial markets or political, regulatory,
trade or business conditions in the countries in which the Company and its Subsidiaries operate or where their products or services are contracted for, distributed or sold;
-
(b)
-
events,
changes, developments, circumstances, facts or effects that are the result of factors generally affecting the industries in which the Company and its
Subsidiaries operate or in the geographic markets in which they operate or where their products or services are contracted for, distributed or sold;
-
(c)
-
any
loss of, or adverse event, change, development, circumstance or fact in or with respect to, the relationship of the Company or any of its Subsidiaries,
contractual or otherwise, with customers, employees, licensors, licensees, suppliers, distributors, partners or any similar relationship resulting from the entry into, or public announcement of, the
Merger Agreement or any of the transactions contemplated by the Merger Agreement;
-
(d)
-
events
or changes in applicable accounting standards, including GAAP, or in any applicable Law;
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-
(e)
-
any
failure by the Company to meet any internal or public projections or forecasts or estimates of revenues or earnings;
provided
that any event, change, development, circumstance, fact or effect underlying
such failure, to the extent not otherwise expressly excepted from
being taken into account by any of clauses (a) through (k) of this definition of "Material Adverse Effect", may be taken into account in determining whether a Material Adverse Effect has
occurred or would reasonably be expected to occur;
-
(f)
-
any
event, change, development or effect resulting from acts of war (whether or not declared), sabotage, terrorism, military actions or the escalation of any of the
foregoing, whether perpetrated or encouraged by a state or non-state actor or actors (other than cyberattacks), any weather event or natural disaster, or any outbreak of illness or other public health
event, epidemic or pandemic, however and by whomever (other than the Company, its Subsidiaries or any of their respective Affiliates or Representatives) caused;
-
(g)
-
any
actions required to be taken by the Company or any of its Subsidiaries pursuant to the Merger Agreement (except for any obligation to operate in the ordinary
course of business) or, with Parent's prior written consent pursuant to the Merger Agreement or at Parent's written request, any actions permitted to be taken by the Company or any of its
Subsidiaries;
-
(h)
-
any
action not taken by the Company or any of its Subsidiaries pursuant to the Merger Agreement or with Parent's prior written consent or at Parent's written
request;
-
(i)
-
a
decline in the market price of the Shares on the NASDAQ; provided that any event, change, development or effect underlying such decline in market price, to the
extent not otherwise expressly excepted from being taken into account by any of clauses (a) through (k) of this definition of "Material Adverse Effect", may be taken into account in
determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur;
-
(j)
-
any
Proceeding (whether direct or derivative, in the nature of a class action, or otherwise) arising out of or in connection with any actions or omissions, or
alleging or asserting any breach of fiduciary duty or violation of any law, by any of Ultimate Parent or its affiliates or the Johnson Entities or their affiliates with respect to the negotiation,
decision to enter into, execution, delivery or performance by the parties of the Merger Agreement;
-
(k)
-
any
act or omission to act by Ultimate Parent, Parent, Merger Sub or the Johnson Entities (including any action, omission to act, breach or violation by Ultimate
Parent, Parent, Merger Sub or any of the Johnson Entities of or with respect to any of their respective obligations and agreements under the Merger Agreement);
provided,
further, that with respect to clauses (a), (b), (d) and (f) of this definition, such events, changes, developments, circumstances, facts or effects (as the case may be)
will be taken into account in determining whether a "Material Adverse Effect" has occurred or would reasonably be expected to occur to the extent they adversely and disproportionately affect the
Company and its Subsidiaries (taken as a whole) relative to the effect thereof on other companies of similar size operating in the geographic markets in which the Company or any of its Subsidiaries
operates or its products or services are sold.
In
the Merger Agreement, Parent and Merger Sub have each made customary representations and warranties to us, including representations relating
to:
-
-
Organization, Good Standing and Qualification;
-
-
Corporate Authority;
-
-
Government Filings; No Violations;
-
-
Compliance with Laws;
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-
-
Litigation;
-
-
Absence of Certain Changes;
-
-
Available Funds;
-
-
Brokers and Finders; and
-
-
No Other Representations or Warranties; Non-Reliance.
Some
of the representations and warranties in the Merger Agreement made by Parent and Merger Sub are qualified by "knowledge" or subject to "materiality" or "Parent Material Adverse
Effect" qualifiers. For purposes of the Merger Agreement, "
Parent Material Adverse Effect
" means, any event, change, development, circumstance, fact or
effect that, individually or taken together with any other events, changes, developments, circumstances, facts or effects, is or would reasonable be expected to prevent, materially delay or materially
impair the consummation by Parent of Merger Sub of the Merger or the transactions contemplated by the Merger Agreement.
Other Covenants and Agreements
Interim Operations
The Merger Agreement provides that, except as expressly permitted by the Merger Agreement, as required by applicable law or as approved by
Parent in writing (such approval not to be unreasonably withheld, conditioned or delayed), during the period from the date of the Merger Agreement until the Effective Time, we will, and will cause
each of our subsidiaries to, conduct our and their business in the ordinary course consistent with past practice, and will use reasonable best efforts to preserve our business organizations intact and
maintain satisfactory relations and goodwill with governmental entities, customers, suppliers, licensors, licensees, distributors, creditors, lessors, employees and business associates, and to keep
available the services of our present employees and agents.
From
the date of the Merger Agreement to the Effective Time, we are subject to customary operating covenants and restrictions, including restrictions relating to (i) adopting or
proposing any change to our Organizational Documents; (ii) mergers or consolidations of the Company or our subsidiaries, restructurings, reorganizations, or liquidations; (iii) acquiring
assets from any other party, except in the ordinary course of business; (iv) the issuance, sale, pledge, disposal of, grant, transfer, lease, license guarantee, or other encumbrance of our
stock, voting securities or equity interests in our subsidiaries; (v) entrance into any contract between us or a subsidiary and any directors or officers of the Company or certain beneficial
owners of at least five percent (5%) of our stock; (vi) incurrence of any encumbrance on our assets; (vii) making any loans, advances, guarantees or capital contributions to any third
party; (viii) declaring, making or paying a dividend or other distribution with respect to any of our capital stock except for dividends paid by any wholly owned subsidiary to the Company or to
any other wholly owned subsidiary of the company and dividends required to be paid in accordance with the terms of existing Preferred Stock; (ix) reclassification, splitting, combination,
subdivision, redemption or other purchase of any capital stock or securities exchangeable into capital stock, (x) incurrence of any indebtedness; (xi) entrance into any material contract
in excess of $250,000; (xii) termination, amendment, modification of any rights pursuant to any material contract except in the ordinary course of business or such terminations, amendments or
modifications as are replaced by a substantially similar property, product or service; (xiii) cancellation, modification, or waiver of any debts or claims held by us; (xiv) amendment,
modification, termination or cancellation of any insurance policy; (xv) settlement of any trade accounts payable in excess of $100,000 individually or $250,000 in the aggregate;
(xvi) changes in our legal structure or accounting policies or procedures; (xvii) entrance into any line of business in any geographic area other than existing lines of business and
lines of products or services reasonable
ancillary to an existing line of business; (xviii) making of any material changes to existing lines of business or our strategic plans; (xix) making, changing, or revoking any tax
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elections
or tax accounting methods; (xx) transferring, selling, leasing, divesting, cancelling, or allowing to lapse any encumbrance upon any assets, licenses, product lines or business;
(xxi) cancelling, abandonment, or lapse of any of our intellectual property rights; (xxii) amendment or failure to comply with any privacy or security policies or alteration of operation
and security of any information technology assets used by us; (xxiii) increases in compensation or fees, bonuses, pensions, welfare or other benefits, including amendment or establishment of
company benefit plans or grant of awards or acceleration of benefits thereunder or making of other material changes to company benefit plans; (xxiv) hiring any employee or engaging any
independent contractor with an annual salary or fees in excess of $100,000; (xxv) joining as a party any collective bargaining agreement or other agreement with a labor organization;
(xxvi) failure to maintain policies and procedures to ensure compliance with applicable regulations, including FCPA, Anti-Bribery Laws, and Export and Sanctions regulations; (xxvii) the
taking of any action or failure to take any action that is reasonable expected to result in the failure of conditions to the Merger to be satisfied or (xxviii) agreements, authorizations, or
commitments to take action regarding any of the foregoing.
No Solicitation and the Company's Fiduciary Exceptions Thereto
The Merger Agreement provides that until the earlier of the termination of the Merger Agreement or the Effective Time, we will not, and we will
cause each of our subsidiaries and our respective directors, officers and employees, not to, and will instruct any representatives not to, (i) initiate, solicit, propose or knowingly encourage
or facilitate any inquiry or the making of any proposal or offer that constitutes or, would reasonably be expected to lead to, an Acquisition Proposal; (ii) engage in, continue or otherwise
participate in any discussions or negotiations relating to any Acquisition Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal (other than
to inform any Person who has made any inquiry with respect to, or who has made, an Acquisition Proposal of the "no-shop" restrictions of the Merger Agreement); (iii) provide any information or
data concerning our or our subsidiaries' properties, books and records to any third party in connection with any Acquisition Proposal or any inquiry, proposal or offer that would reasonably be
expected to lead to an Acquisition Proposal; (iv) enter into any Alternative Acquisition Agreement; (v) take any action to exempt any third party from the restrictions on "business
combinations" or acquisitions or voting of Common Stock under any applicable law or otherwise cause such restrictions not to apply; (vi) grant any waiver, amendment or release under any
standstill or confidentiality agreement concerning an Acquisition Proposal; or (vii) agree, authorize or commit to do any of the foregoing.
Notwithstanding
the foregoing, at any time prior to obtaining the Requisite Company Vote (but not thereafter), in response to an unsolicited,
bona
fide
written Acquisition Proposal, the Company (through the Special Committee and our Representatives) may (i) provide non-public Company information and data and access
to the books and records of the Company and its Subsidiaries to the Person who has made such Acquisition Proposal, provided that such information has been previously made available to Parent or is
made available to Parent not later than 24 hours after the time it is made available to such Person, and that, prior to furnishing any such information, the Company receives from the Person
making such Acquisition Proposal an executed confidentiality agreement with terms not less restrictive to the other party than the terms in the Confidentiality Agreement are on Parent (except that
such confidentiality agreement need not contain any "standstill" provisions) (a "Permitted Confidentiality Agreement"), and (ii) engage or otherwise participate in any discussions or
negotiations with the Person making such Acquisition Proposal (including to request clarification of the terms and conditions of such Acquisition Proposal). The prior actions may be taken if, and only
if, prior to taking the actions set forth above, the Special Committee determines in good faith, after consultation with outside legal counsel, that (A) based on the information available, that
such Acquisition Proposal constitutes or would reasonably be expected to result in a Superior Proposal and
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(B) based
on the information then available, the failure to take such action would be inconsistent with the Special Committee directors' fiduciary duties under applicable law.
The
Company is also required to promptly (but, in any event, within 48 hours) give notice to Parent of (i) any inquiries, proposals or offers with respect to an Acquisition
Proposal or that would reasonably be expected to lead to an Acquisition Proposal received by the Company or the Special Committee (or its Representatives), (ii) any request for non-public
information or data concerning the Company or its Subsidiaries or access to the Company or its Subsidiaries' properties, books or records in connection with any Acquisition Proposal or any inquiry,
proposal or offer that would reasonably be expected to lead to an Acquisition Proposal received by the Company, the Special Committee (or its Representatives), or (iii) any new substantive
developments or discussions or negotiations relating to an Acquisition Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal being conducted
by or on behalf of the Company or the Special Committee (or their Representatives) with respect to an Acquisition Proposal. Such notice will set forth, to the extent not yet publicly disclosed or
previously disclosed to Parent, the name of the applicable Persons who made the Acquisition Proposal and the material terms and conditions of any such Acquisition Proposal or inquiry, proposal or
offer and the request for the information or data (including, if applicable, correct and complete copies of any written Acquisition Proposals and other proposed transaction documentation and other
materials). Thereafter, the Company will keep Parent reasonably informed, on a prompt basis (but, in any event, within 24 hours of any substantive development or change in status) of the status
and terms and conditions of any such Acquisition Proposals, inquiries, proposals or offers, or information requests and the status of any such developments or discussions or negotiations, and provide
to Parent as soon as practicable after receipt or delivery thereof copies of all correspondence and other written material sent by or provided to the Company or the Special Committee (or their
Representatives) from any Person that describes any of the terms or conditions of any Acquisition Proposal. Parent has agreed to promptly give notice and copies to the Special
Committee of all communications and documentation relating to any Acquisition Proposal Parent receives in its capacity as a Stockholder of the Company to the extent any such Acquisition Proposal or
communications or documentation in respect thereof has not previously been delivered or made available to the Special Committee or is not publicly available.
Pursuant
to the Merger Agreement, Parent has waived the provisions of the Investment Agreement prohibiting the Company from entertaining or soliciting any acquisition proposals,
initiating, encouraging, participating in or otherwise facilitating any discussions or negotiations with any person with respect to any acquisition proposals or engaging in certain other solicitation
activities, for the sole purpose of (and solely to the extent necessary for) facilitating and permitting the Company, the Special Committee and their respective representatives to take all actions
permitted to be taken by them under the Merger Agreement in respect of unsolicited Acquisition Proposals, and has consented to the Company's and the Special Committee's taking of such actions.
For
purposes of the Merger Agreement:
"
Acquisition Proposal
" means any (a) proposal, offer, inquiry or indication of interest (other than one made or submitted to the
Company by Ultimate Parent, Parent or Merger Sub) relating to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, spin-off,
share exchange, business combination or similar transaction involving the Company or any of its Subsidiaries or (b) acquisition by any Person or "group" (as defined in Section 13 of the
Exchange Act), other than Ultimate Parent, Parent or Merger Sub, resulting in, or any proposal, offer, inquiry or indication of interest that if consummated would result in, any Person or group (as
defined under Section 13 of the Exchange Act), other than Ultimate Parent, Parent or Merger Sub, becoming the beneficial owner of, directly or indirectly, in one or a series of related
transactions, 25% or more of the total voting power of the then-outstanding equity securities of the Company or any of its Subsidiaries, or 25% or more of the consolidated net revenues, net income or
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total
assets (
it being understood
that total assets include equity securities of Subsidiaries) of the Company, in each case other than the transactions
contemplated by the Merger Agreement.
"
Alternative Acquisition Agreement
" means any letter of intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement (other than a Permitted Confidentiality Agreement) relating to any Acquisition
Proposal.
"
Superior Proposal
" means an unsolicited, bona fide written Acquisition Proposal (provided that for purposes of this definition of
"
Superior Proposal
", all references to 25% contained in the definition of "
Acquisition Proposal
" will be
deemed to be references to 75%) which the Special Committee determines in good faith, after consultation with outside legal counsel and its financial advisor, that (a) if consummated, would
result in a transaction more favorable to the Unaffiliated RLJE Stockholders (as defined in the Merger Agreement) from a financial point of view than the Merger (after taking into account any
revisions to the terms of this Agreement proposed by Parent pursuant to Section 7.2(d)(ii) of the Merger Agreement) and (b) for purposes of any determination to be made or action to be
taken by the Special Committee pursuant to Sections 7.2(d)(ii) and 9.3(b) of the Merger Agreement, is capable of being consummated on the terms proposed, taking into account all legal,
financial, regulatory and approval requirements (including receipt of the requisite approval of the holders of Common Stock, including, for the avoidance of doubt, any Common Stock issued by the
Company pursuant to the exercise of the AMC Warrants or the 2015 Warrants), the sources, availability and terms of any required financing and the existence of a financing contingency, and the identity
of the Person or Persons making the proposal. For the avoidance of doubt, if the transactions contemplated by the Merger Agreement (after taking into account any revisions to the terms of this Merger
Agreement proposed by Parent pursuant to Section 7.2(d)(ii) of the Merger Agreement) contain substantially identical financial and other terms and conditions to those contained in an
Acquisition Proposal, such Acquisition Proposal cannot be deemed by the Special Committee to be a "Superior Proposal" as compared to the proposal then provided by Parent.
Adverse Recommendation Change and Fiduciary Termination of Merger Agreement in the Case of a Superior
Proposal or Intervening Event
The Merger Agreement provides that, except as provided below, neither the Board, the Special Committee, nor any other committee of the Board
will (i) (A) withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) the Company Recommendation in a manner adverse to Parent;
(B) fail to include the Company Recommendation in this Proxy Statement; (C) at any time following receipt of an Acquisition Proposal, fail to reaffirm its approval or recommendation of
the Merger Agreement and the Merger as promptly as practicable (but in any event within five business days) after receipt of any written request to do so from Parent; (D) fail to recommend
rejection (pursuant to Rule 14e-2(a)(1) under the Exchange Act and under cover of Schedule 14D-9 filed by the Company with the SEC) of any tender offer or exchange offer for outstanding
Shares that has been commenced by any Person (other than by Parent or an Affiliate of Parent) pursuant to Rule 14d-2 under the Exchange Act on or prior to the 10th business day after
such commencement; (E) approve, authorize or recommend (or determine to approve, authorize or recommend) or publicly declare advisable any Acquisition Proposal or other proposal that would be
reasonably expected to lead to an Acquisition Proposal or any Alternative Acquisition Agreement; or (F) agree, authorize, or commit to do any of the foregoing. The actions described in
clauses (A)-(E) hereto are defined as a "
Change of Recommendation
".
Notwithstanding
the foregoing, pursuant to the Merger Agreement, the Special Committee may at any time prior to the time the Requisite Company Vote is obtained, but not thereafter, make
a Change of Recommendation and terminate the Merger Agreement if (A) an unsolicited, bona fide written Acquisition Proposal that was not obtained in breach of the Merger Agreement is received
by the
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Company
and has not been withdrawn, and (B) the Special Committee determines in good faith, after consultation with outside legal counsel and its financial advisor, that such Acquisition
Proposal constitutes a Superior Proposal; provided, however, that (x) a Change of Recommendation and termination by the Company of the Merger Agreement may not be made unless and until the
Company has given Parent written notice that the Special Committee intends to convene a meeting of the Special Committee to consider or take any other action with respect to making such Change of
Recommendation, together with a reasonably detailed description of the Superior Proposal, at least four business days in advance of convening such meeting or taking such action; (y) during the
pendency of such notice period, if requested by Parent, the Special Committee negotiates, and authorizes and instructs its Representatives to negotiate, in good faith with Parent and its
Representatives to revise the Merger Agreement (in the form of a proposed binding amendment to the Merger Agreement) to enable the Special Committee to determine in good faith, after consultation with
its outside legal counsel and its financial advisor, that after giving effect to the modifications contemplated by such proposed amendment, such Acquisition Proposal would no longer constitute a
Superior Proposal; and (z) at the expiration of the requisite notice period, and at such meeting of the Special Committee, the Special Committee, after having taken into account the
modifications to the Merger Agreement proposed by Parent in the manner and form described in clause (y) above, has determined in good faith, after consultation with outside legal counsel and
its financial advisor, that a failure to make a Change of Recommendation and to terminate the Merger Agreement and to abandon the Merger would be inconsistent with the fiduciary duties of the
Company's directors constituting the Special Committee under applicable law (
it being understood
that any revisions to the financial terms of, or any
material revisions to any of the other substantive terms of, any Acquisition Proposal will be deemed to be a new Acquisition Proposal for purposes of the foregoing provision, including for purposes of
commencing a new notice period, except that subsequent to the initial notice period, the subsequent notice period be reduced to two business days).
Additionally,
prior to the time the Requisite Company Vote is obtained, but not after, the Special Committee may make a Change of Recommendation and terminate the Merger Agreement if
(A) an Intervening Event has occurred and is continuing and (B) the Special Committee determines in good faith, after consultation with its outside legal counsel and its financial
advisor, that the failure to make a Change of Recommendation as a result of such Intervening Event would be inconsistent with the fiduciary duties of the Company's directors constituting the Special
Committee under applicable Law, provided, however, that (x) a Change of Recommendation and termination by the Company of the Merger Agreement pursuant to the Intervening Event provision may not
be made unless and until the Company has given Parent written notice that the Special Committee intends to convene a meeting of the Special Committee to consider or take any other action with respect
to making such Change of Recommendation, together with a reasonably detailed description of the nature of the Intervening Event that has occurred and is continuing, at least four business days in
advance of convening such meeting or taking such action; (y) during the pendency of such notice period, if requested by Parent, the Special Committee negotiates, and authorizes and instructs
its Representatives to negotiate, in good faith with Parent and its Representatives to revise the Merger Agreement (in the form of a proposed binding amendment to the Merger Agreement) to enable the
Special Committee to determine in good faith, after consultation with its outside legal counsel and financial advisor that, after giving effect to the modifications contemplated by such proposed
amendment, the failure of the Special Committee to
make a Change of Recommendation and to terminate the Merger Agreement, would be inconsistent with the fiduciary duties of the Company's directors constituting the Special Committee under applicable
law; and (z) at the expiration of the requisite notice period, and at the meeting of the Special Committee, the Special Committee, after having taken into account the modifications to the
Merger Agreement proposed by Parent in the manner and form described in clause (y) above, has determined in good faith, after consultation with outside counsel, that a failure to make a Change
of Recommendation and to terminate the Merger Agreement and to abandon the Merger would be
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inconsistent
with the fiduciary duties of the Company's directors constituting the Special Committee under applicable law.
For
purposes of the Merger Agreement, "
Intervening Event
" means any material event, change, effect, condition, development, fact or
circumstance with respect to the Company and its Subsidiaries or the business of the Company and its Subsidiaries, in each case taken as a whole, that (i) is unknown and not reasonably
foreseeable on the date of the Merger Agreement, (ii) does not relate to any Acquisition Proposal and (iii) does not result from a breach of the Merger by the Company, its Subsidiaries
or its or their Affiliates or Representatives.
Certain Permissible Disclosures Not Constituting an Adverse Recommendation Change
Notwithstanding the Company's non-solicitation obligations, nothing will prevent us from, (i) making any disclosure to the holders of
Common Stock if the Special Committee determines in good faith, after consultation with its outside legal counsel, that the failure to make any such disclosure would be inconsistent with the fiduciary
duties of the Company's directors constituting the Special Committee under applicable Law, (ii) disclosing a position contemplated by Rule 14d-9, Rule 14e-2(a)(2) or (3) or
Item 1012(a) of Regulation M-A under the Exchange Act, or (iii) making any "stop, look and listen" communication of the type contemplated by Rule 14d-9(f) under the
Exchange Act. For the avoidance of any doubt, notwithstanding any provision of the Merger Agreement, a factually accurate public or other statement or disclosure made by the Company that describes the
existence and operation of the terms and provisions of the non-solicitation obligations or related portions of the Merger Agreement will not, in itself, constitute a Change of Recommendation for any
purpose of the Merger Agreement; provided that if any disclosures or communications of the type described in clauses (i) and (ii) of this paragraph fail to expressly reaffirm therein the
Company Recommendation, such disclosure or communication will constitute a Change of Recommendation for all purposes of the Merger Agreement.
Special Meeting
The Merger Agreement provides that, unless a Change in Recommendation is made by the Special Committee, or the Merger Agreement has been validly
terminated in accordance with its terms, the Company will, as promptly as practicable after the later of (i) the 10-day waiting period under Rule 14a-6(a) under the Exchange Act and
(ii) the date on which the SEC's staff orally confirms that it has no further comments on the Proxy Statement and Schedule 13E-3 (such later date, the "
Clearance
Date
"), duly call, give notice of and convene the Special Meeting for the purpose of seeking to obtain the Requisite Company Vote. The date of the Special Meeting will not be
less than 30 days after notice of the Special Meeting is first published, sent or given by the Company to the holders of Common Stock (and, pursuant to NRS 92A.120(4) and 92A.410, the holders
of Preferred Stock). In connection with the foregoing, the Company will (i) as promptly as practicable after the Clearance Date, cause this Proxy Statement (and all related materials) to be
mailed in definitive form to holders of Common Stock and holders of Preferred Stock and (ii) use its reasonable best efforts (including by means of engagement by the Company of a nationally
recognized proxy solicitation firm) to solicit proxies from the holders of Shares to seek to obtain the Company Requisite Vote.
The
Company has agreed (i) to provide Parent reasonably detailed periodic updates concerning proxy solicitation results on a timely basis (including, if requested, promptly
providing voting reports compiled by the Company's proxy solicitation firm) and (ii) to give written notice to Parent one day prior to the Company Stockholders Meeting and on the day of, but
prior to the Special Meeting, indicating whether as of such date, sufficient proxies representing the Requisite Company Vote have been obtained.
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Reasonable Best Efforts to Consummate the Merger; Regulatory Filings
The Merger Agreement provides that, except to the extent a different standard of efforts has been expressly agreed to and set forth in any
provision of this Agreement, the Company and Parent will cooperate with each other and use their respective reasonable best efforts to take or cause to be taken all actions necessary or advisable on
its part under the Merger Agreement and applicable laws to consummate the transactions contemplated by the Merger Agreement as promptly as practicable, including preparing and filing documentation to
effect all necessary notices, reports, consents, registrations, approvals, permits, authorizations, expirations of waiting periods and other filings and to obtain all consents, registrations,
approvals, permits and authorizations necessary or advisable to be obtained from any Governmental Entity in order to consummate the transactions contemplated by this Agreement.
Notwithstanding
anything to the contrary set forth in the Merger Agreement, in no event will (i) any party to the Merger Agreement or any of their respective affiliates be
required to agree to any term, condition, liability, obligation, requirement, or other action imposed, required or requested by a Governmental Entity in connection with its grant of any consent,
registration, approval, permit or authorization, necessary or advisable in order to consummate the transactions contemplated by the Merger Agreement to be obtained from any Governmental Entity that is
not conditioned upon the consummation of the transactions contemplated by the Merger Agreement or (ii) the Company or any of its affiliates agree to term, condition, liability, obligation,
requirement, or other action in connection with the obtaining of any such consent, registration, approval, permit or authorization necessary that is not conditioned upon the consummation of the
transactions contemplated by this Agreement without the prior written consent of Parent.
The
Parties have agreed that neither the foregoing nor the "reasonable best efforts" standard will require Parent or any of its Affiliates (i) to resist, vacate, limit, reverse,
suspend or prevent, through litigation, any actual, anticipated or threatened order seeking to delay, restrain, prevent, enjoin or otherwise prohibit or make unlawful the consummation of the
transactions contemplated by the Merger Agreement or (ii) in order to obtain any consent, registration, approval, permit or authorization, including the Governmental Approvals, necessary or
advisable in order to consummate the transactions contemplated by the Merger Agreement to be obtained from any Governmental Entity, to agree to any term, condition, liability, obligation, requirement,
limitation, qualification, remedy, commitment, sanction or other action that would be reasonably likely to have a material adverse effect on the anticipated benefits to Parent and its Affiliates of
the transactions contemplated by the Merger Agreement;
provided
that Parent may compel the Company to (and to cause its Subsidiaries to) agree to any
such term or condition or take any such actions (or agree to take such actions) so long as the effectiveness of such term or condition or action is conditioned upon the consummation of the Merger.
Pursuant
to the Merger Agreement, Parent has the right to direct all matters with any Governmental Entity consistent with its obligations hereunder;
provided
that Parent and the Company have the right to review
in advance and each will consult with the other on and consider in good faith the views of
the other in connection with, all of the information relating to Parent or the Company, as the case may be, any of their respective Affiliates and any of their respective Representatives, that appears
in any filing made with, or written materials submitted to any Governmental Entity in connection with the transactions contemplated by the Merger Agreement. Neither the Company nor Parent will permit
any of its or its Subsidiaries' Representatives to participate in any discussions or meetings with any Governmental Entity in respect of any documentation to effect all necessary notices, reports,
consents, registrations, approvals, permits, authorizations, expirations of waiting periods and other filings or any investigation or other inquiry relating thereto or to the transactions contemplated
by the Merger Agreement unless it consults with the other in advance and, to the extent permitted by such Governmental Entity, gives the other the opportunity to attend and participate. Each of the
Company and Parent, as applicable, will promptly provide to each Governmental Entity of
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non-privileged
or protected information and documents reasonably requested by any Governmental Entity or that are necessary or advisable to permit consummation of the transactions contemplated by the
Merger Agreement.
The
Merger Agreement provides that the Company and Parent each will keep the other reasonably apprised of the status of matters relating to completion of the transactions contemplated by
the Merger Agreement (including in connection with this Proxy Statement) and will, as promptly as practicable, (a) notify the other of any notices or communication from or with any Governmental
Entity concerning the transactions, (b) furnish the other with copies of written notices or other communications received by Parent or the Company from any third party, including any
Governmental Entity, with respect to such transactions and (c) furnish the other with all information as may be necessary or advisable to effect such notices and communications. The Company and
Parent will give prompt notice to each other of any events, changes, developments, circumstances or facts that individually or in the aggregate, has had or would reasonably be expected to
(i) in the case of the Company, have a Material Adverse Effect or prevent, materially delay or materially impair the consummation by the Company of the transactions contemplated by the Merger
Agreement, (ii) in the case of Parent, have a Parent Material Adverse Effect, or (iii) in the case of either the Company or Parent, result in any non-compliance or violation of any of
the respective representations, warranties or covenants of the Company, Ultimate Parent, Parent or Merger Sub, as applicable, set forth in the Merger Agreement, to the extent that any such
non-compliance or violation would reasonably be expected to result in a failure of any of the conditions to the Closing, discussed in further detail below.
Indemnification of Directors and D&O Insurance
The Merger Agreement provides that, from and after the Effective Time, to the fullest extent permitted under applicable law, the Company's
Organizational Documents, the Surviving Corporation will indemnify and hold harmless Indemnified Parties from and against all costs and expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages and liabilities, incurred in connection with any proceeding with respect to matters existing or occurring at or prior to the Effective Time (including any Merger-related
litigation) arising out of or otherwise related to the fact that such Indemnified Party was an officer or director of the Company or a Subsidiary of the Company, whether asserted or claimed prior to,
at or after the Effective Time. Parent or Surviving Corporation will also advance expenses as incurred to the fullest extent permitted under applicable law; provided that any Person who whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to Indemnification.
Prior
to the Effective Time, the Company will and, if the Company is unable to, Parent will cause the Surviving Corporation to obtain and fully pay the premium for all "run off" or
"tail" insurance policies
for the extension of (i) the directors' and officers' liability coverage of the Company's existing directors' and officers' insurance policies, and (ii) the Company's existing fiduciary
liability insurance policies, for a claims reporting or discovery period of the six-year period following the Effective Time from one or more insurance carriers with the same or better credit rating
as the Company's insurance carrier as of the date of this Agreement with respect to directors' and officers' liability insurance and fiduciary liability insurance (collectively,
"
D&O Insurance
") with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as the Company's existing
policies with respect to matters existing or occurring at or prior to the Effective Time.
If
the Company and the Surviving Corporation for any reason fail to obtain such "run off" or "tail" insurance policies as of the Effective Time, the Surviving Corporation will, and
Parent will cause the Surviving Corporation to, continue to maintain in effect for a six-year period following the effective time, the D&O Insurance in place as of the date of the Merger Agreement
with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as provided in the Company's existing policies as of the date of the Merger Agreement, or the
Surviving Corporation will,
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and
Parent will cause the Surviving Corporation to, purchase comparable D&O Insurance for a six-year period following the Effective Time with terms, conditions, retentions and limits of liability that
are at least as favorable as provided in the Company's existing policies as of the date of this Agreement. The Merger Agreement provides that in no event will the annual cost of the D&O Insurance
exceed during the six-year period following the effective time 300% of the current aggregate annual premium paid by the Company for such purpose. If the cost of such insurance coverage exceeds such
amount, the Surviving Corporation will obtain a policy with the greatest coverage available for a cost not exceeding such amount.
During
the six-year period following the Effective Time, all rights to indemnification and exculpation from liabilities for acts or omissions occurring prior to the Effective Time and
rights to advancement of expenses relating thereto now existing in favor of any Indemnified Party as provided in the Organizational Documents of the Company and its Subsidiaries or any indemnification
agreement between such Indemnified Party and the Company or any of its Subsidiaries, in each case, as in effect on the date of the Merger Agreement, may not be amended, restated, amended and restated,
repealed or otherwise modified in any manner that would adversely affect any right thereunder of any such Indemnified Party.
State and Federal Takeover Laws
If any Takeover Statute is or may become applicable to the transactions contemplated by the Merger Agreement, the Merger Agreement provides that
each of Parent and the Company, the respective members of their boards of directors and the Special Committee will grant such approvals and take such actions as are necessary so that such transactions
may be consummated as promptly as practicable on the terms contemplated by this Agreement and will use their reasonable best efforts to otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
Security Holder Litigation
The Merger Agreement provides that in the event that any Stockholder litigation arising out of or in connection with to the transactions
contemplated by the Merger Agreement is brought, or, to the knowledge of the Company, threatened, against the Company, the officers of the Company or any members of the Board from and following the
date of the Merger Agreement and prior to the Effective Time, the Company will as promptly as practicable notify Parent of such Stockholder litigation and will keep Parent reasonably informed with
respect to the status thereof. The Company will give Parent a reasonable opportunity to participate in the defense and/or settlement of any such litigation and will consider in good faith Parent's and
its outside legal counsel's advice with respect to such litigation. The Company may not settle or agree to settle any such litigation without prior written consent of Parent.
Related Party Matters
The Company and Parent have agreed in the Merger Agreement that, prior to the Effective Time, the parties will cooperate to take all such
actions as may be reasonably necessary or appropriate to terminate the Investment Agreement in accordance with its terms as of the Effective Time.
Prior
to the Effective Time, we will cooperate with Parent to take all such administrative and ministerial actions as may be reasonably necessary to consummate the transfer of the Common
Stock
and 2015 Warrants beneficially owned by the Johnson Entities to Parent, pursuant to the Contribution Agreement.
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Employee Benefits
The Merger Agreement provides that, for a period of one year after the Effective Time, Parent or one of its Affiliates will provide
(i) each employee of the Company and its Subsidiaries who continues to be employed by the Company and its Subsidiaries (a "
Continuing Employee
")
with an annual base salary or base wage rate that is no less favorable than the annual base salary or base wage rate provided by the Company and its Subsidiaries to such Continuing Employee
immediately prior to the Effective Time, and (ii) the Continuing Employees with target annual cash bonus opportunities, and pension and welfare benefits (excluding equity and long-term
incentive compensation) that are substantially comparable in the aggregate to those provided by the Company and its Subsidiaries to such employees immediately prior to the Effective Time.
Financing Cooperation
The Merger Agreement provides that the Company, at Parent's sole out-of-pocket expense, will use its commercially reasonable efforts to provide
all cooperation as may be reasonably requested by Parent to assist in the arrangement of any bank debt financing necessary to refinance and replace the Credit Agreement and provide for ongoing capital
requirements of the Company and its Subsidiaries ("
Replacement Financing
");
provided
,
however
, that none of
the foregoing will require such cooperation to the extent it would (i) require any officer, director or employee to take
any action reasonably expected to result in personal liability, (ii) require the Company, its Affiliates or its or their respective Representatives to enter into, supplement or otherwise modify
any Contract to the extent such action is not conditioned on or would be effective prior to the occurrence of the Effective Time, or (iii) unreasonably interfere with the ongoing operations of
the business of the Company or any of its Subsidiaries. The Merger Agreement provides that under no circumstances will the availability or procurement of, or failure of any of the parties to obtain,
any Replacement Financing, constitute a condition to any of the obligations of Parent and Merger Sub to consummate the Merger.
Conditions to the Merger
The Merger Agreement provides that the obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following: (i) the Requisite Company Vote shall have been duly obtained at the Special Meeting and (ii) no order or law (whether
temporary, preliminary or permanent) shall be in effect which enjoins, prevents or otherwise prohibits, restrains or makes unlawful consummation of the Merger and the other transactions contemplated
by the Merger Agreement.
The
Merger Agreement provides that the obligations of Parent and Merger Sub to effect the Merger are also subject to the satisfaction or waiver by Parent at or prior to the Effective
Time of the following conditions:
-
-
Each of the representations and warranties set forth in: (i) Section 5.1 (
Organization, Good Standing and
Qualification
), Section 5.3 (
Capital Structure
) (except, in the case of Section 5.3, for such inaccuracies that
are not reasonably expected to result, individually or in the aggregate, in additional cost, expense or liability to Ultimate Parent, Parent and Merger Sub, of more than $250,000), Section 5.4
(
Corporate Authority; Approval and Fairness
) and Section 5.11 (
Absence of Certain Changes
) are
true and correct as of the Effective Time as though made on and at such time; (ii) Section 5.5(a) (
Governmental Filings; No Violations; Certain Contracts,
Etc.
), Section 5.7 (
Company Reports
), Section 5.8 (
Disclosure Controls and Procedures and
Internal Control Over Financial Reporting
), Section 5.9 (
Financial Statements; No Undisclosed Liabilities; "Off-Balance Sheet Arrangements";
Books and Records
) Section 5.22 (
Takeover Statutes
) and Section 5.23 (
Brokers and
Finders
) are true and correct in all material respects as of the Closing Date as though made on and as of such date and time (without giving effect to any qualification by
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"materiality"
or "Material Adverse Effect" and words of similar import set forth therein); and (iii)
Article V
(other than those sections
set forth in the foregoing clauses (i) and (ii) of this section) are true and correct as of the Closing Date as though made on and as of such date and time, except, in the
case of this clause (iii), for any failure of any such representation and warranty to be so true and correct (without giving effect to any qualification by "materiality" or "Material Adverse
Effect" and words of similar import set forth therein) that would not have a Material Adverse Effect.
-
-
We have performed in all material respects all obligations required to be performed by us under the Merger Agreement;
-
-
Since the date of the Merger Agreement, there has not occurred any event, change development, circumstance, fact or effect that has had a
Material Adverse Effect and that remains in effect; and
-
-
We have delivered to Parent a certificate signed on our behalf by the our Chief Executive Officer certifying that conditions set forth in the
foregoing three bullet points have been satisfied.
The
Merger Agreement provides that the obligations of the Company to consummate the Merger are subject to the satisfaction at or prior to the Effective Time of the following additional
conditions:
-
-
Each of the representations and warranties set forth in (i) Section 6.1 (
Organization, Good Standing and
Qualification
), Section 6.2 (
Corporate Authority
) and Section 6.6 (
Absence of Certain
Changes
), and Section 6.7 (
Available Funds
) are true and correct as of the Closing Date as though made on and as of such
date and time except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty shall be so true
and correct as of such particular date or period of time; and (ii) Article VI (other than those sections set forth in the foregoing clause (i)) shall have been true and correct as
of the date of this Agreement and shall be true and correct as of the Closing Date as though made on and as of such date and time, except, in the case of this clause (ii), for any failure of
any such representation and warranty to be so true and correct (without giving effect to any qualification by "materiality" or "Parent Material Adverse Effect" and words of similar import set forth
therein) that would have a Parent Material Adverse Effect.
-
-
Each of Parent and Merger Sub has performed in all material respects all obligations required to be performed by them under the Merger
Agreement;
-
-
Parent has delivered to us a certificate signed on behalf of Parent and Merger Sub by an executive officer of Merger Sub certifying that
conditions set forth in the foregoing two bullet points have been satisfied.
Termination
The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the
Requisite Company Vote has been obtained:
-
-
by the mutual written consent of us and Parent;
-
-
by either us or Parent: (i) if the Merger is not consummated on or before the Outside Date, provided, that this right to terminate will
not be available to any party whose breach of any provision of the Merger Agreement has proximately contributed to the failure of one or more conditions to the Closing to the consummation of the
Merger, or (ii) if any order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger has become final and non-appealable, provided that this right to terminate
will not be available to any party
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Termination Fees
Under the Merger Agreement, the Company is required to pay to Parent a cash termination fee equal to $6.75 million (the
"
Superior Proposal Termination Fee
") if (i) the Merger Agreement is terminated by either the Company or Parent due to the failure of the parties
to consummate the Merger by the Outside Date, any Person has made and publicly announced an Acquisition Proposal and, within 12 months of such termination, the Company has entered into or
consummated an Alternative Acquisition Agreement with respect to an Acquisition Proposal or (ii) the Merger Agreement is terminated by either Parent or the Company as a result of a
Recommendation Change made in connection with a Superior Proposal.
The
Merger Agreement also contemplates that the Company will pay to Parent a cash termination fee equal to the documented, out-of-pocket expenses of Parent incurred in connection with
the Merger Agreement and the transactions contemplated thereby, up to a maximum of $3.0 million (the "
Intervening Event Termination Fee
"), if the
Merger Agreement is terminated by Parent or the Company as a result of a Recommendation Change made in connection with an Intervening Event.
The
Superior Proposal Termination Fee and the Intervening Event Termination Fee are payable to Parent by wire transfer of immediately available cash funds. In no event will the Company
be required to pay both the Superior Proposal Termination Fee and the Intervening Event Termination Fee, or pay either the Superior Proposal Termination Fee or the Intervening Event Termination Fee on
more than one occasion.
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Amendment
Subject to the provisions of applicable law, at any time prior to the Effective Time, the Merger Agreement may be modified or amended only by an
instrument in writing that is executed by each of the Parties.
Specific Performance
The Merger Agreement provides that the rights of each party to consummate the transactions contemplated by this Agreement are special, unique
and of extraordinary character and that if for any reason any of the provisions of the Merger Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate
and irreparable harm or damage may be caused for which money damages would not be an adequate remedy. Accordingly, each party to the Merger Agreement has agreed that, in addition to any other
available remedies a Party may have in equity or at law, each Party will be entitled to enforce specifically the terms and provisions of the Merger Agreement and to obtain an injunction restraining
any breach or violation or threatened breach or violation of the provisions of this Agreement without necessity of posting a bond or other form of security. In the event that any proceeding should be
brought in equity to enforce the provisions of this Agreement, the parties have agreed that no party will allege, and each party will waive the defense, that there is an adequate remedy at law.
Ultimate Parent Guarantee
Under the Merger Agreement, AMC has irrevocably and unconditionally guaranteed the due and punctual payment by Parent and Merger Sub of the Per
Share Merger Consideration, the Preferred Stock Consideration, the 2015 Warrant Consideration, all payments due to the holders of the Company's outstanding equity awards, and all payments in respect
of directors' and officers' indemnification and insurance contemplated by the Merger Agreement, as and when such amounts are due and payable pursuant to the Merger Agreement.
Governing Law
The Merger Agreement is governed by the laws of the State of Nevada. Any disputes in connection with, arising out of or otherwise relating to
the Merger Agreement or the transactions contemplated thereby are subject to the jurisdiction of the state and federal courts sitting in Clark County, Nevada.
The Voting Agreement
In connection with the Merger Agreement, the Johnson Entities entered into the Voting Agreement with Parent and the Company (as a nominal party
for certain ministerial acts required to be performed by the Company thereunder), pursuant to which the Johnson Entities have agreed, among other things, to affirmatively vote all of their shares of
Common Stock as of the applicable record date at the Special Meeting "for" the approval of the Merger Agreement and have granted to Parent an irrevocable proxy to secure the performance of their
voting obligations under the Voting Agreement. Such voting obligations will automatically terminate upon any termination of the Merger Agreement in accordance with its terms, including if the Special
Committee makes any Recommendation Change with respect to the Merger Agreement. The foregoing summary of the Voting Agreement is qualified in its entirety by reference to the full text of the Voting
Agreement, which is attached as Annex C hereto.
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PROVISIONS FOR NON-AFFILIATE COMMON STOCKHOLDERS
No provision has been made (i) to grant the Company's Non-Affiliate Common Stockholders access to the corporate files of the Company, any
other party to the Merger or any of their respective affiliates, or (ii) to obtain counsel or appraisal services at the expense of the Company, any other such party or affiliate.
IMPORTANT INFORMATION REGARDING THE COMPANY
Company Background
The Company is a premium digital channel company serving distinct audiences through its proprietary subscription-based digital channels, Acorn
TV and UMC or Urban Movie Channel. Acorn TV features high-quality British and international mysteries and dramas. UMC showcases compelling urban programming including feature films, documentaries,
original series, stand-up comedy and other exclusive content for African-American and urban audiences. The digital channels have consistently experienced substantial year-over-year growth rate since
launch in 2011 and 2015, respectively. The table below shows quarterly subscriber growth from December 2015 to December 2017.
We
exclusively control, co-produce, and own a large library of content primarily consisting of British mysteries and dramas, independent feature films and urban content. In addition to
supporting our digital channels, the value of our content library is monetized through our intellectual property (or IP) licensing and wholesale distribution operations. These activities allow us to
control all windows of exploitation of our content. Our IP licensing operations consist of content that we own and includes our 64% investment in Agatha Christie Ltd. (or ACL), while our
wholesale distribution operations consist of content we license from others.
We
develop or acquire content that is intended to satisfy the desire of our niche audiences. We also acquire finished programs through long-term exclusive contracts. We invest in content
that we believe will increase our digital channel subscribers' interests and subscriptions as well as exceed our internal return-on-investment. We maintain our own sales force and also direct selling
relationships
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with
the majority of our broadcast and cable/satellite partners and retail customers. Our in-house marketing department manages promotional efforts across a wide range of off-line and online
platforms.
Management
views our operations based on three distinct reporting segments: (1) the Digital Channels segment; (2) the IP Licensing segment; and (3) the Wholesale
Distribution segment. Operations and net assets that are not associated with any of these operating segments are reported as "Corporate" when disclosing and discussing segment information. The Digital
Channels segment distributes film and television content through our proprietary subscription-based digital channels, Acorn TV and UMC. The IP Licensing segment includes intellectual property rights
that we own, produce and then license; and includes our 64% ownership of ACL. Our Wholesale Distribution segment consists of the worldwide exploitation of exclusive content in various formats
including digital (download-to-rent and electronic sell-through, or EST), television video on demand (VOD) through cable and satellite, broadcast, streaming, and DVD and Blu-ray through third-party
media and retail outlets. The Wholesale Distribution and IP Licensing segments exploit content to third parties such as Amazon, Best Buy, iTunes, Netflix, Target and Walmart.
We
focus on compelling British mystery and drama television, action and thriller independent feature films and diverse urban content, and documentaries. We exploit our titles through our
various brands as follows:
Acorn TV
Known for specializing in the best of British television, Acorn Media Group (or Acorn) monetizes high-quality dramas and mysteries via
our
digital channel Acorn TV in the United States (or U.S.) and Canada and to the broadcast/cable and home video windows within the North American, U.K. and Australian markets. In addition to consistently
receiving strong national public relations coverage, our primary marketing to consumers is through Acorn TV offering viewers thousands of hours of compelling content including Acorn TV original
productions and exclusive premieres of popular series. We further leverage the Acorn brand through a marketing and wholesale partnership with direct-to-consumer specialist Universal Screen Arts (or
USA). USA purchases wholesale inventory from us and pays us a license fee for the exclusive right to publish a branded Acorn direct-to-consumer catalog and website (acornonline.com), which market and
sell Acorn content on DVD and Blu-ray alongside complementary merchandise. Our Acorn brand generates revenues that are reported in the Digital Channels, IP Licensing (Agatha Christie revenues) and
Wholesale Distribution segments (digital download and home video sales).
Our
subsidiaries with a permanent presence in the U.K. television programming community, provide us access to new content and manage and develop our intellectual property rights. Our
owned content includes 28 Foyle's War made-for-TV films and, through our 64% ownership interest in ACL, the Agatha Christie branded library. The bestselling novelist of all time, Agatha Christie has
sold more
than 2 billion books, and her work contains a variety of short story collections, more than 80 novels, 19 plays and a film library of over 100 TV productions. Acorn is known for mystery
and drama franchises and has been releasing TV movie adaptations featuring Agatha Christie's two most famous characters, Hercule Poirot and Miss Marple, for over a decade with both series
ranking among our all-time bestselling lines. Through ACL, we manage the vast majority of Agatha Christie publishing and television/film assets worldwide and across all mediums and actively develop
new content and productions. In addition to film and television projects, in 2014, ACL published its first book since the death of Agatha Christie, The Monogram Murders, and has subsequently published
its second book, Closed Casket, in 2016. The Agatha Christie family retains a 36% holding, and James Prichard, Agatha Christie's great-grandson, is the Chairman of ACL.
UMC
UMC is a premium subscription-based service which features quality urban content showcasing feature films, documentaries, original series,
stand-up comedy and other exclusive content
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for
African American and urban audiences. Select UMC content is also monetized in the home video window in partnership with the Wholesale Distribution segment.
RLJE Films
RLJE Films is a leading film and television licensee focusing on action, thriller, and horror independent feature films and urban
content
in partnership with our digital channel UMC. RLJE Films acquires exclusive long-term film rights across all distribution channels, with terms ranging generally from 5 to 25 years. RLJE Films
content is currently distributed primarily in the U.S. and Canada through theatrical, broadcast/cable, physical and digital platforms. All of the revenues generated by the RLJE Films are included in
our Wholesale Distribution segment.
Trademarks
We currently use several registered trademarks including: RLJ Entertainment, Acorn, Acorn Media, Acorn TV and UMCUrban Movie
Channel. We also currently use registered trademarks through our 64%-owned subsidiary ACL including: Agatha Christie, Miss Marple and Poirot. The above-referenced trademarks, among others, are
registered with the U.S. Patent and Trademark Office and various international trademark authorities. In general, trademarks remain valid and enforceable as long as the marks are used in connection
with the related products and services and the required registration renewals are filed. We believe our trademarks have value in the marketing of our products. It is our policy to protect and defend
our trademark rights.
Competition
The market for entertainment video is intensely competitive and subject to rapid change. We face competition from other digital
channels
with similar genre and target audiences, independent distribution companies, major motion picture studios and broadcast and internet outlets in securing exclusive content distribution rights. We also
face competition from online and direct-to-consumer retailers, as well as alternative forms of leisure entertainment, including video games, the internet and other computer-related activities.
Consumers can choose from a large supply of competing entertainment content from other suppliers. The success of any of our titles depends upon audience acceptance of a given program in relation to
consumer tastes and cultural trends as well as the other titles released into the marketplace at or around the same time. Many of these competitors are larger than us. Sales of digital downloading,
streaming, VOD and other broadcast formats are largely driven by what is visually available to the consumer, which can be supported by additional placement fees or previous sales success. Programming
is available online, delivered to smartphones, tablets, laptops, personal computers, or direct to the consumers' TV set through multiple internet-ready devices, cable or satellite VOD and other
subscription-based digital channels. For our physical wholesale distribution, our DVD and Blu-ray products compete for a finite amount of brick-and-mortar retail and rental shelf space. Our ability to
continue to successfully compete in our markets is largely dependent upon our ability to develop and secure unique and appealing content, and to anticipate and respond to various competitive factors
affecting the industry, including new or changing program formats, changes in consumer preferences, regional and local economic conditions, discount pricing strategies and competitors' promotional
activities.
Employees
As of March 1, 2018, the Company had 98 total employees. Of these employees, 76 are based in the US and 22 are based
internationally in the U.K. and Australia.
Properties
Our principal executive office is located in Silver Spring, Maryland. We also maintain offices in Woodland Hills, California; London,
England and Sydney, Australia with varying terms and expiration dates. All locations are leased. A summary of our locations is set forth in the following table.
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We
believe that our current offices are adequate to meet our business needs, and our properties and equipment have been well maintained.
|
|
|
|
|
|
|
Location
|
|
Primary Purpose
|
|
Lease Expiration
|
|
Reporting Segment(1)
|
Silver Spring, MD
|
|
Executive Office, Administrative/Sales, Content Acquisition
|
|
November 15, 2020
|
|
Corporate, Digital Channels
|
Woodland Hills, CA
|
|
Administrative/Sales, Content Acquisition
|
|
June 30, 2021
|
|
Digital Channels, Wholesale Distribution
|
London, England
|
|
Content Development and Production/Sales, Administration for the U.K.
|
|
July 1, 2018
|
|
Digital Channels/IP Licensing, Wholesale Distribution
|
Sydney, Australia
|
|
Sales, Administration
|
|
Month-to-month
|
|
Wholesale Distribution
|
-
(1)
-
The
segment descriptions above reflect the location's primary activity.
Legal Proceedings
In the normal course of business, we are subject to proceedings, lawsuits and other claims, including proceedings under
government
laws and regulations relating to content ownership and copyright matters. While it is not possible to predict the outcome of these matters, it is the opinion of management, based on consultations with
legal counsel, that the ultimate disposition of known proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity.
Reports to Security Holders
We file annual, quarterly and current reports, proxy statements and other information with the SEC. We also make
available
free of charge through our website at www.rljentertainment.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with the SEC. You may read and copy
any reports, statements or other information that we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may request copies of these
documents, upon payment of a copying fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room. Our SEC filings are also available
to the public on the SEC internet site at http://www.sec.gov.
Other Information
RLJE was incorporated in Nevada in April 2012. On October 3, 2012, the Company completed the business combination of RLJE,
Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media or Acorn). The Company has a direct presence in North America, the U.K. and Australia with strategic
sublicense and distribution relationships covering Europe, Asia and Latin America.
Following
the Merger, the Company will continue as a private company and a wholly owned subsidiary of Parent.
During
the past five years, neither the Company nor any of the Company directors or executive officers listed below has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). In addition, during the past five years, except as set forth below, neither the Company nor any of the Company directors or executive officers listed below has
been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Each of the individuals
listed below is a citizen of the United States.
108
Table of Contents
Directors and Executive Officers
Our executive officers and directors are as follows:
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Robert L. Johnson.
|
|
|
72
|
|
Chairman
|
Miguel Penella
|
|
|
49
|
|
Director; Chief Executive Officer
|
Andor (Andy) M. Laszlo
|
|
|
51
|
|
Director
|
Scott R. Royster
|
|
|
54
|
|
Director
|
H. Van Sinclair
|
|
|
65
|
|
Director
|
Dayton Judd
|
|
|
46
|
|
Director
|
John Ziegelman
|
|
|
54
|
|
Director
|
John Hsu
|
|
|
46
|
|
Director
|
Arlene Manos
|
|
|
76
|
|
Director
|
Mark Nunis
|
|
|
51
|
|
Principal financial and accounting officer
|
Robert L. Johnson
was appointed as the Company's chairman in October 2012. From November 2010 to October 2012, Mr. Johnson served
as the chairman of the board of RLJ Acquisition, Inc., a special purpose acquisition company that created the Company. Mr. Johnson founded The RLJ Companies, an innovative business
network that owns or holds interests in a diverse portfolio of companies in businesses operating in hotel real estate investment; private equity; financial services; asset management; automobile
dealerships; sports and entertainment; and video lottery terminal (or
VLT
) gaming and has served as its chairman since February 2003. Prior to forming
The RLJ Companies, Mr. Johnson was founder and chief executive officer of Black Entertainment Television (or
BET
), which was acquired by
Viacom Inc. in 2001. He continued to serve as chief executive officer of BET until February 2006. In July 2007, Mr. Johnson was named by
USA
Today
as one of the "25 most influential business leaders of the past 25 years." In addition to the Board, Mr. Johnson currently serves on the boards of directors
of RLJ Lodging Trust (NYSE: RLJ), KB Home (NYSE: KBH), Lowe's Companies, Inc. (NYSE: LOW), Elevate Credit, Inc. (NYSE: ELVT), and Retirement Clearinghouse, LLC. He previously
served as a director of Hilton Hotels Corporation, US Airways Group, Inc., General Mills, Inc., Strayer Education, Inc. and IMG Worldwide, Inc., and a member of the board
of trustees at The Johns Hopkins University.
Miguel Penella
was appointed as the Company's Chief Executive Officer on January 18, 2013. From October 2012 until
January 18, 2013, Mr. Penella served as Chief Operating Officer. Mr. Penella has served as a director of the Company since October 2012. From April 2007 to October 2012,
Mr. Penella served as chief executive officer of Acorn Media Group, Inc., which was acquired by the Company in October 2012, where he oversaw operations and was the driving force behind
the worldwide expansion of the Acorn brand, including the acquisition of 64% of Agatha Christie Limited and the launch of Acorn TV, the Company's first proprietary subscription VOD channel (or
SVOD
).
From 2004 to April of 2007, Mr. Penella was president of Acorn's direct-to-consumer operations offering DVDs and other high-quality
products through catalogs and online marketing vehicles. Under his leadership, Acorn Media was transformed from a DVD distributor into a media company with a significant library of television dramas
and mysteries, including intellectual property rights, and a nascent proprietary SVOD business. Mr. Penella came to Acorn from Time-Life where he rose in the ranks from circulation director of
the catalog department to director of catalogs for the music division and then to vice president of customer marketing in 2001. Previously, he worked in ecommerce catalog management for the National
Direct Marketing Corporation and the National Wildlife Federation.
Andor ("Andy") M. Laszlo
has served as a member of the Board since October 2012. Mr. Laszlo joined Sun Trust Robinson Humphrey in
January 2014 where he serves as Managing Director and Head of Technology, Media & Communications Equity Origination. Mr. Laszlo served as a Managing Director at Lazard Capital
Markets LLC (or
LCM
) from June 2010 to December 2013, where he
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Table of Contents
served
as Head of Corporate Underwriting and Head of Business Development. Prior to joining LCM, Mr. Laszlo served as a Senior Advisor to Sports Properties Acquisition Corp., a special purpose
acquisition company focused on the sports, leisure and entertainment sectors, from November 2007 to
April 2010. Between 1997 and 2007, Mr. Laszlo held various senior equity capital markets positions at both Lehman Brothers and Bank of America Securities. Mr. Laszlo was the Head of
Media & Telecom equity capital markets for Bank of America Securities based in New York, NY. Prior to that, Mr. Laszlo was Head of Equity Syndicate and Head of Media & Telecom
Equity Capital Markets at Lehman Brothers International (Europe), during which time he was based in London, England. In between his tenure at Lehman Brothers and Bank of America, Mr. Laszlo
spent approximately one year as the Chief Operating Officer and Head of Business Development at Eagle Rock Capital Management, LLC, a New York-based multi-strategy hedge fund. Mr. Laszlo
has been involved in transactions totaling more than $50 billion of equity issuance over the course of his career. Mr. Laszlo serves on the Advisory Board of Falconhead Capital
Management, a private equity firm based in New York City. Previously, he served on the board of directors of Rita's Franchise Company, a leading franchise company focused on frozen treats.
Mr. Laszlo also previously served on the board of directors of Radar Detection Holdings Corp. (or Escort Radar), a leading designer, manufacturer and distributor of highway radar and laser
detectors. Mr. Laszlo began his career as an attorney with Philadelphia, Pennsylvania-based Rawle & Henderson.
Scott R. Royster
has served as a member of the Board of directors since January 2014. In October 2017, Mr. Royster joined United
Negro College Fund as Chief Financial Officer. Prior to October 2017, Mr. Royster co-founded and served as an officer of two companies in the education sectorLatimer
Education, Inc. (or
Latimer
) and Maarifa Edu Holdings Limited (or
Maarifa
). Since September 2009
he served as Chairman of Latimer and, since August 2014, as Chief Executive Officer and later Chairman of Maarifa. Latimer, based in Washington, DC, is an education company serving the higher
education needs of African-Americans in the USA, and Maarifa is an education company that acquires and operates private universities in Africa and is based in Mauritius. From November 2008 until the
formation of Latimer, Mr. Royster was engaged in planning for the formation of Latimer and acted as a consultant to several companies. Mr. Royster served as Executive Vice President of
Business Development and Chief Financial Officer of DigitalBridge Communications, an early-stage wireless technology company, from January 2008 to November 2008. From 2006 to 2008, Mr. Royster
was a member of the board of directors for HRH, Inc. (NYSE: HRH), an insurance brokerage firm. Between June 1996 to December 2007, Mr. Royster served as Executive Vice President and
Chief Financial Officer of Radio One, Inc., now known as Urban One, Inc. (NASDAQ: UONE and UONEK), an owner/operator of major market radio stations and other media assets.
H. Van Sinclair
has served as a member of the Board since April 2017 and was a prior member of the Board from October 2012 to June 2015.
Since February 2003, Mr. Sinclair has served as president, chief executive officer and general counsel of The RLJ Companies. From January 2006 to May 2011, Mr. Sinclair also served as
Vice President of Legal and Business Affairs for RLJ Urban Lodging Funds, a private equity fund concentrating on limited and focused service hotels in the United States and for RLJ Development, The
RLJ Companies' hotel and hospitality company. Prior to joining The RLJ Companies, Mr. Sinclair spent 28 years, from October 1978 to February 2003, with the law firm of Arent
Fox, LLP. Mr. Sinclair remains of counsel to Arent Fox. Mr. Sinclair previously served as a member of the board of directors of Vringo, Inc. (NASDAQ: VRNG) from July 2012
through March 2016 and RLJ Acquisition, Inc., the predecessor company of RLJE, from November 2010 to October 2012.
Dayton Judd
has served as a member of the Board since May 2015. Mr. Judd is the Founder and Managing Partner of Sudbury Capital
Management (or
Sudbury
). Prior to founding Sudbury, Mr. Judd worked from 2007 through 2011 as a Portfolio Manager at Q Investments, a
multi-billion dollar hedge fund in Fort Worth, Texas. Prior to Q Investments, he worked with McKinsey & Company from 1996
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Table of Contents
through
1998, and again from 2000 through 2007. Mr. Judd graduated from Brigham Young University in 1995 with a bachelor's degree, summa cum laude, and a master's degree, both in accounting. He
also earned an MBA with high distinction from Harvard Business School in 2000, where he was a Baker Scholar. Mr. Judd is a Certified Public Accountant.
John Ziegelman
has served as a member of the Board since May 2015. Mr. Ziegelman is a portfolio manager for Wolverine Asset
Management, LLC (or
Wolverine
). Prior to joining Wolverine in 2013, Mr. Ziegelman was the founder of Carpe Diem Capital Management (2001)
and co-founder of Castle Creek Partners (1997); both firms were engaged in private placements and corporate restructurings. Prior to Castle Creek Partners, Mr. Ziegelman worked at Citadel
Investment Group and spent most of his early career as an investment banker, working for both Shearson Lehman Brothers and Kidder, Peabody & Co. in their real estate and corporate
finance/M&A departments. Mr. Ziegelman graduated from the University of Michigan in 1986 with a BA in Philosophy and Classical Archaeology and earned an MBA from the University of Chicago in
1993 concentrating his studies on finance and accounting.
John Hsu
has served as a member of the Board since October 2016. Mr. Hsu manages the treasury and corporate development operations
of AMC Networks Inc., as its Executive Vice PresidentTreasurer & Financial Strategy, and oversees investment strategies, capital structure planning and debt portfolio
management. Additionally, he is responsible for evaluating strategic business opportunities including mergers and acquisition, corporate development, and digital investment activities. Mr. Hsu
joined AMC Networks in June 2011 from Cablevision where he served as Vice President of Financial Planning during his seven-year tenure with Cablevision. Prior to Cablevision, Mr. Hsu was an
investment banker and served as a Vice President in Bear, Stearns & Co.'s Media & Entertainment Corporate Finance Group, and as an Associate in SG Cowen's Gaming, Lodging and
Leisure Group. He began his career as a Senior Auditor at Arthur Andersen LLP. Mr. Hsu is a CPA and holds a B.S. in Accounting and Finance from New York University's Stern School of
Business.
Arlene Manos
has served as a member of the Board since October 2016. Ms. Manos joined AMC Networks Inc. in 2002 as President
of National Advertising Sales and was responsible for overseeing the advertising sales efforts for its national cable television networks AMC, IFC, SundanceTV, WE tv, and BBC AMERICA (operated through
a joint venture with BBC Worldwide). In January 2017, Ms. Manos position transitioned to President Emeritus, National Ad Sales. Responsibilities also include revenue oversite for BBC World News
in the U.S. Ms. Manos joined AMC Networks from A&E Television Networks where she held a number of sales management positions, most recently as senior vice president of national advertising
sales. Prior to A&E, she served as an associate publisher of Manhattan, Inc. magazine, a retail sales manager at WABC-TV in New York, and as an account executive at CBS Cable. Manos earned her
Bachelor of Arts degree in English from Trinity College in Washington, DC. She served on the National Sales Advisory Committee of the Video Advertising
Bureau and is a past president and board member of what was then called the Advertising Women of New York (AWNY) now called She Runs It. She has been named to the CableFAX 100 and CableFAX's Most
Powerful Women in Cable several times. In 2011, Manos was honored as a "Trailblazer Mom" in the AWNY Working Mothers of the Year Awards.
Mark Nunis
has 26 years of accounting, audit, and financial reporting experience in a variety of industries. Mr. Nunis
joined the Company as Chief Accounting Officer in January 2013. He served as Principal Financial and Accounting Officer from November 2015 until May 2016, following the resignation of the previous
CFO. Prior to joining the Company, Mr. Nunis was an audit partner with J.H. Cohn LLP from January 2006 to January 2013. From May 2002 to January 2006, Mr. Nunis was a founder and
partner of accounting firm, Croutch Nunis Matthews, LLP (or CNM). Prior to CNM, Mr. Nunis worked in the audit practice of Arthur Anderson for 10 years.
111
Table of Contents
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations contains forward-looking
statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As described under the heading "Forward-Looking Statements" of this Proxy
Statement, our actual results could differ materially from those anticipated in our forward-looking statements. Factors that could contribute to such differences include those discussed elsewhere in
this Proxy Statement, including under the heading "Special Factors." You should not place undue reliance on our forward-looking statements, which apply only as of the date of this Proxy Statement.
Except as may be required under federal law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events
occur. You should read the following discussion and analysis in conjunction with our consolidated financial statements and related footnotes included as an Exhibit to this Proxy
Statement.
OVERVIEW
General
RLJ Entertainment, Inc. (
RLJE
or the
Company
) was incorporated in Nevada in April
2012. On October 3, 2012, we completed the business combination of RLJE, Image
Entertainment, Inc. (or
Image
) and Acorn Media Group, Inc. (or
Acorn Media
), which is
referred to herein as the "
Business Combination
." Acorn Media includes its United Kingdom (or
U.K
.)
subsidiaries RLJ Entertainment Ltd (or
RLJE Ltd.
), Acorn Media Enterprises Limited (or
AME
), and RLJE International Ltd (collectively,
RLJE UK
), as well as RLJ Entertainment Australia
Pty Ltd (or
RLJE Australia
). In February 2012, Acorn Media acquired a 64% ownership of Agatha Christie Limited (or
ACL
). References to Image include
its wholly-owned subsidiary Image/Madacy Home Entertainment, LLC. "We," "our" or "us" refers to RLJE and its
subsidiaries unless otherwise noted. Our principal executive offices are located in Silver Spring, Maryland, with an additional location in Woodland Hills, California. We also have international
offices in London, England and Sydney, Australia.
We
are a premium digital channel company serving distinct audiences through our proprietary subscription-based digital channels (or
Digital Channels
segment
), Acorn TV and UMC or Urban Movie Channel. Acorn TV features high-quality British and International mysteries and dramas. UMC showcases quality urban programming
including feature films, documentaries, original series, stand-up comedy and other exclusive content for African-American and urban audiences.
We
also exclusively control, co-produce, and own a large library of content primarily consisting of British mysteries and dramas, independent feature films and Urban content. In addition
to supporting our Digital Channels, we monetize our library through intellectual property (or
IP
) rights that we own, produce, and then exploit
worldwide (our
IP Licensing segment
) and distribution operations across all available wholesale windows of exploitation (our
Wholesale Distribution segment
). Our IP Licensing segment consists of content that we own and includes our investment in Agatha Christie Ltd.
(
or ACL
), while our Wholesale Distribution segment consists of worldwide exploitation of exclusive content in various formats through our wholesale
partners, including broadcasters, digital outlets and major retailers in the United States of America (or
U.S.
), Canada, U.K. and Australia. We work
closely with our wholesale partners to outline and implement release and promotional campaigns customized to the different audiences we serve and the program genres we exploit.
On
June 24, 2016, we entered into a licensing agreement with Universal Screen Arts (or
USA
) whereby USA took over our Acorn U.S.
catalog/ecommerce business becoming the official, exclusive, direct-to-consumer seller of Acorn product in the U.S. During the quarter ended June 30, 2016, we also electronically distributed
our last Acacia catalogs. As a result of these actions, we classified the U.S. catalog/ecommerce business as discontinued operations.
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Table of Contents
YEARS ENDED DECEMBER 31, 2017 AND 2016
Revenue Sources
Revenues by reporting segment as a percentage of total revenues for the periods presented are as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
Digital Channels
|
|
|
31.5
|
%
|
|
20.3
|
%
|
IP Licensing(1)
|
|
|
0.1
|
%
|
|
0.2
|
%
|
Wholesale Distribution
|
|
|
68.4
|
%
|
|
79.5
|
%
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Reported
net revenues exclude revenues generated by our 64% owned subsidiary, ACL, which is accounted for under the equity method of accounting.
Revenues
by geographical area as a percent of the total revenues are as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
United States
|
|
|
85.1
|
%
|
|
84.9
|
%
|
United Kingdom
|
|
|
13.6
|
%
|
|
13.9
|
%
|
Other
|
|
|
1.3
|
%
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Digital Channels segment predominately operates in the U.S. and comprises 31.5% of our overall revenue base. The Digital Channels segment
revenues are derived from our online, proprietary, SVOD channels, Acorn TV and UMC. During 2017, revenues from our Digital Channels totaled $27.2 million, which represents an increase of
$10.9 million when compared to 2016.
Our television drama productions are generally financed by the pre-sale of the initial broadcast license rights. Revenues reported in this
segment include the initial broadcast license revenues, generally from the U.K. territory, and sublicense revenues for other territories outside the U.S., U.K. and Australia.
Our primary source of revenues within the Wholesale Distribution segment continues to be from the exploitation of exclusive content on DVD and
Blu-ray through third-party retailers such as Amazon and Walmart.
Digital, VOD and Broadcast
Revenues derived from digital and broadcast exploitation of our content continue to grow as a percentage of revenues. Net revenues derived from
digital, VOD, third-party SVOD and broadcast
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Table of Contents
exploitation
account for approximately 41.5% of the segment's revenues in 2017 versus 34.9% in 2016. This is consistent with consumer adoption trends. As retailers continue to offer consumer-friendly
devices that make access to these on-demand services easier, including allowing consumption on portable devices such as smartphones and tablets, we believe we are well-positioned to capture business
in this growing distribution channel. Some of our digital retailers include Amazon, Hulu, iTunes, Netflix and a variety of cable television providers.
We continue our efforts to acquire more programming with international rights. Our key sublicensing partners, that cover territories outside the
U.S., the U.K. and Australia, are Universal Music Group International, Universal Pictures Australia and Warner Music Australia. To date, most of the feature films we have acquired do not include
rights outside of North America. However, given our presence in the United Kingdom and Australia, we are focusing our efforts to acquire more programming in all English-language markets. When
appropriate, we now seek the greatest variety of distribution rights regarding acquired content in the greatest variety of formats. We believe that this will allow us to further diversify revenue
streams.
Cost Structure
Our most significant costs and cash expenditures relate to acquiring or producing content for exclusive exploitation. We generally acquire
programming through exclusive license or distribution agreements, under which we either (1) pay royalties or (2) receive distribution fees and pay net profits after recoupment of our
upfront costs. Upon entering into a typical license (royalty) agreement, we pay an advance based on the estimated expected future net profits. Once the advance payment has been recouped, we pay
royalties to the content suppliers quarterly based on the net revenues collected from the previous quarter. Under a typical exclusive distribution agreement, we may pay upfront fees, which are
expressed as advances against future net profits. Once the advance and any other costs incurred are recouped, we pay the content supplier their share of net cash-profits, which is after our
distribution fee, from the prior quarter's exploitation.
In
addition to advances, upfront fees and production costs, the other significant expenditures we incur are DVD/Blu-ray replication and digitalization of program masters, shipping costs
from self-distribution of exclusive content, content hosting and delivery costs associate with our Digital Channels segment, advertising, personnel compensation costs and interest.
We
strive to achieve long-term, sustainable growth and profitability exceeding our internal return on investment target on new content acquisitions. This financial target is based on all
up-front expenses associated with the acquisition and release of a title, including advances and development costs, and is calculated after allocating overhead costs.
We
also seek to maximize our operational cash flow and profitability by closely managing our marketing and discretionary expenses, and by actively negotiating and managing collection and
payment terms.
HIGHLIGHTS
Highlights for the year ended December 31, 2017 and other significant events are as follows:
-
-
Digital Channels segment revenues increased 67.2% to $27.2 million, driven by subscriber growth of 50.6% and was 31.5% of 2017 total
revenues compared to 20.3% of 2016 total revenues.
-
-
Total revenues increased 7.6% to $86.3 million, primarily driven by the increase in Digital Channels segment revenues.
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Table of Contents
-
-
Gross profit increased 40.7% to $37.1 million and gross margin increased over ten percentage points to 43.0% in 2017 from last year.
Continued growth in Digital Channels segment, which represents a larger portion of total revenues, drove the improvements in gross profit and gross margin.
-
-
Net loss (as revisedsee footnote on our summary of results of operations on the next page) improved by $15.8 million and
was $5.7 million for the year compared to a net loss of $21.5 million last year.
-
-
Adjusted EBITDA improved 26.5% to $16.6 million from $13.1 million last year.
The
highlights above and the discussion below are intended to identify some of our more significant results and transactions during 2017 and should be read in conjunction with our
consolidated audited financial statements and related discussions within our Form 10-K filed on March 16, 2018.
RESULTS OF OPERATIONS
A summary of our consolidated results of operations is presented below for the years ended December 31, 2017 and 2016, which have been
prepared in accordance US GAAP and should be read in conjunction with our consolidated audited financial statements included in our Form 10-K filed on March 16, 2018.
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
|
|
(Revised)(1)
|
|
Revenues
|
|
$
|
86,304
|
|
$
|
80,238
|
|
Costs of sales
|
|
|
49,174
|
|
|
53,847
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
37,130
|
|
|
26,391
|
|
Operating expenses
|
|
|
36,305
|
|
|
30,096
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
825
|
|
|
(3,705
|
)
|
Equity earnings of affiliate
|
|
|
5,955
|
|
|
3,078
|
|
Interest expense, net
|
|
|
(8,622
|
)
|
|
(8,400
|
)
|
Change in fair value of stock warrants and other derivatives
|
|
|
(3,922
|
)
|
|
(4,573
|
)
|
Gain (Loss) on extinguishment of debt
|
|
|
351
|
|
|
(3,549
|
)
|
Other income (expense)
|
|
|
521
|
|
|
(1,293
|
)
|
Benefit (provision) for income taxes
|
|
|
(803
|
)
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of income taxes
|
|
|
(5,695
|
)
|
|
(18,231
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
|
|
|
(3,277
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,695
|
)
|
$
|
(21,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
As
disclosed in our Form 10-Q for the quarterly period ended June 30, 2018 filed on August 9, 2018, we identified an error that caused an
overstatement of our previously reported deferred tax liability and an overstatement of our provision for income taxes. Through 2017, we were tax affecting our ACL equity earnings and accumulating a
deferred tax liability, which in theory would become payable when we disposed of our equity investment. In addition to recognizing equity earnings, we also receive distributions from ACL,
periodically, and when received, those distributions are not taxable nor does our foreign tax basis in ACL change. Therefore, we should have been tax affecting our ACL equity earnings after deducting
distributions received. Because of this error, we overstated our benefit (provision) for income taxes for the 2017 and 2016 by $0.4 million for each year.
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Table of Contents
In
accordance with Staff Accounting Bulletin (
SAB
) No. 99,
Materiality
, and SAB No. 108,
Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
, we evaluated the error and
determined that the impact was not material to the results of operations or financial position for the years ended December 31, 2017 and 2016. Because the December 31, 2017 balance sheet
was included in our June 30, 2018 quarterly Form 10-Q, we corrected that balance sheet in that filing. We will correct the statement of operations for 2017 the next time we file a Form
10-K.
We
have corrected the benefit (provision) for income taxes in the above table as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
(In thousands)
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Benefit (provision) for income taxes
|
|
$
|
(1,234
|
)
|
$
|
431
|
|
$
|
(803
|
)
|
Loss from continuing operations, net of income taxes
|
|
$
|
(6,126
|
)
|
$
|
431
|
|
$
|
(5,695
|
)
|
Loss from discontinued operations, net of income taxes
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Net loss
|
|
$
|
(6,126
|
)
|
$
|
431
|
|
$
|
(5,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
(In thousands)
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Benefit (provision) for income taxes
|
|
$
|
(155
|
)
|
$
|
366
|
|
$
|
211
|
|
Loss from continuing operations, net of income taxes
|
|
$
|
(18,597
|
)
|
$
|
366
|
|
$
|
(18,231
|
)
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(3,277
|
)
|
$
|
|
|
$
|
(3,277
|
)
|
Net loss
|
|
$
|
(21,874
|
)
|
$
|
366
|
|
$
|
(21,508
|
)
|
Revenues
A summary of revenues by segment for the years ended December 31, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
Digital Channels
|
|
$
|
27,194
|
|
$
|
16,262
|
|
Intellectual Property
|
|
|
47
|
|
|
168
|
|
Wholesale Distribution Revenue:
|
|
|
|
|
|
|
|
U.S.
|
|
|
46,224
|
|
|
51,834
|
|
International
|
|
|
12,839
|
|
|
11,974
|
|
|
|
|
|
|
|
|
|
Total Wholesale Distribution
|
|
|
59,063
|
|
|
63,808
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
86,304
|
|
$
|
80,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
for the year ended December 31, 2017 increased $6.1 million when compared to the year ended December 31, 2016. The increase in revenues is primarily driven
by our Digital Channels segment, which increased by $10.9 million, offset by revenues from our Wholesale Distribution segment, which decreased by $4.8 million. The increase in revenues
from our Digital Channels segment was driven by 50.6% growth in paying subscribers. We increased our marketing efforts during the year to support subscriber growth. In addition, we are continually
featuring new content on our digital channels, which we believe is a key factor in attracting new subscribers for all of our channels.
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Revenues
from our Digital Channels segment continues to represent a growing and more meaningful portion of our consolidated revenues. Revenues from these channels for the year ended
December 31, 2017, account for 31.5% of our total revenues as compared to 20.3% for the same period in 2016.
Our
Wholesale Distribution segment's revenue decline is attributable to decreases in the U.S. revenues of $5.6 million and an increase in international revenues of
$0.9 million. The Wholesale Distribution segment's U.S. revenue decrease is primarily attributable to less content being released in the first half of 2017 compared to the same period last year
as well as a decline in demand for DVDs and Blu-ray product as more digital programming becomes available. In 2017, one of our major wholesale partners substantially discontinued the sale of DVDs
which contributed to the decrease in U.S. revenues. International Wholesale Distribution revenues increased due to the strong performance of two new releases during the year.
Cost of Sales ("COS") and Gross Margins
A summary of COS by segment and overall gross margins for the years ended December 31, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
Digital Channels
|
|
$
|
7,664
|
|
$
|
4,929
|
|
IP Licensing
|
|
|
|
|
|
158
|
|
Wholesale Distribution
|
|
|
41,510
|
|
|
48,760
|
|
|
|
|
|
|
|
|
|
Total COS
|
|
$
|
49,174
|
|
$
|
53,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
37,130
|
|
$
|
26,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin %
|
|
|
43.0
|
%
|
|
32.9
|
%
|
COS
decreased by $4.7 million to $49.2 million for 2017 compared to the same period in 2016. The decrease in COS is attributed to lower sales of physical content, lower
impairment charges and lower step-up amortization in our Wholesale Distribution segment. Impairment charges recorded for content investments and inventories total $3.0 million and
$4.6 million for the years ended December 31, 2017 and 2016, respectively. Impairment charges decreased due to improved performance of our released content relative to our estimation of
future revenues. Our step-up amortization was $2.6 million and $3.6 million for the years ended December 31, 2017 and 2016, respectively. The decrease in step-up amortization is
attributable to lower revenues from titles that were acquired prior to our Business Combination. As time passes, we expect that step-up amortization will decrease.
As
a percentage of revenues, our gross margin improved to 43.0% for 2017 compared to 32.9% for 2016. The improvement is primarily attributable to lower impairments and step-up
amortization, as well as, revenue growth of our proprietary digital channels. Revenues from this segment account for 31.5% of our total revenues during 2017 as compared to 20.3% of total revenues
during 2016. This business segment generates a higher gross margin than our other business segments. The Wholesale Distribution segment margins also increased due to the positive impact of a few
one-time sales and licensing renewal transactions representing revenues of $1.1 million during 2017, which had very little associated costs.
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Table of Contents
Operating Expenses ("SG&A")
The following table includes a summary of the components of SG&A:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
Selling expenses
|
|
$
|
12,896
|
|
$
|
9,298
|
|
General and administrative expenses
|
|
|
19,704
|
|
|
17,841
|
|
Depreciation and amortization
|
|
|
3,705
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
36,305
|
|
$
|
30,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
increased by $6.2 million for the year ended December 31, 2017, compared to the same period in 2016. The increase is primarily attributable to targeted marketing
expenses that increased $3.6 million for year ended December 31, 2017, primarily due to increased marketing related to our Digital Channels segment. General and administrative expenses
increased $1.9 million primarily due to increased incentive compensation costs including increased expenses associated with stock-based compensation for executives and employees. Depreciation
and amortization expense increased $0.8 million primarily due to investments in our websites to support the growth of the Digital Channels segment.
Equity Earnings of Affiliate
Equity earnings of affiliate (which is ACL) increased $2.9 million for the year ended December 31, 2017 to $6.0 million
when compared to 2016. During 2017, ACL's gross profit margin and its income from operations are higher when compared to 2016 due to higher publishing and licensing revenues, as a
percent of its total revenues, which generate higher margins when compared to its other operations. In addition, ACL's results were impacted by the strong performance of film and
television programming released in 2017, as well as the receipt of additional licensing revenues from one title.
Interest Expense
Interest expense increased $0.2 million for the year ended December 31, 2017, as compared to 2016. The increase is primarily a
result of higher average outstanding debt balances partially offset by reduced interest rates on our senior debt.
Change in Fair Value of Stock Warrants and Other Derivatives
The change in the fair value of our warrant and other derivative liabilities impacts the statement of operations. A decrease in the fair value
of the liabilities results in the recognition of income, while an increase in the fair value of the liabilities results in the recognition of expense. Changes in fair value are primarily driven by
changes in our common stock price and its volatility. During 2017, we recognized expense of $3.9 million due to changes in the fair value of our stock
warrants and other derivative liabilities. During 2016, we recognized expense of $4.6 million due to changes in the fair value of our stock warrants and other derivative liabilities.
Gain (Loss) on Extinguishment of Debt
In 2016, upon repaying our previous credit facility and entering into the senior secured credit agreement with AMC, we recognized a
$3.6 million loss from the early extinguishment of debt, which is reported separately within our statement of operations. This loss primarily represents the unamortized debt discount and
deferred financing costs at the time of repayment and a prepayment penalty of $0.8 million. In 2017, we amended our credit agreement with AMC (see
Liquidity and Capital
Resources
below) and recorded a gain of $0.3 million. The gain was a result of us recording the new amended debt at an amount that was slightly less than its current
carrying amount.
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Table of Contents
Other Income (Expense)
Other expense mostly consists of foreign currency gains and losses resulting primarily from advances and loans by our U.S. subsidiaries to our
foreign subsidiaries that have not yet been repaid. Our foreign currency gains and losses are primarily impacted by changes in the exchange rate of the British Pound Sterling (or
the Pound
) relative to
the U.S. dollar (or the
Dollar
). As the Pound strengthens relative to the Dollar,
we recognized other income; and as the Pound weakens relative to the Dollar, we recognize other expense. During 2017, the Pound strengthened relative to the dollar, and we recognized a foreign
currency gain of $0.6 million. During 2016, the Pound weakened relative to the dollar, and we recognized foreign currency loss of $1.5 million.
Income Taxes
We have fully reserved our net U.S. deferred tax assets, and such tax assets may be available to reduce future income taxes payable should we
have U.S. taxable income in the future. To the extent such deferred tax assets relate to net operating losses (or
NOL
) carryforwards, the ability to use
our NOL carryforwards against future earnings will be subject to applicable carryforward periods and limitations subsequent to a change in ownership. As of December 31, 2017, we had NOL
carryforwards for federal and state income tax purposes of approximately $113.6 million and $61.0 million, respectively.
We
recorded income tax benefit (benefit) of $(0.8) million and $0.2 million for the years ended December 31, 2017 and 2016, respectively. As revised, our tax
provision (benefit) consists primarily of a deferred tax provision (benefit) for certain deferred tax liabilities and a current tax provision for our U.K. operations. We are recording a deferred tax
provision (benefit) and liability on our equity earnings of affiliate (ACL) less distributions received. These undistributed earnings will be taxable in the U.K., when and if we dispose of our
investment. We are providing current income tax expense on pre-tax income from our consolidated U.K. subsidiaries at an effective tax rate of approximately 19%. We are not providing a current tax
provision (benefit) on our U.S. operations, other than for certain state minimum taxes, which are not material.
Loss from Discontinued Operations, Net of Income Taxes
Our loss from discontinued operations is attributable to us transitioning our U.S. catalog/ecommerce business to USA, which was completed during
2016. For the year ended December 31, 2016, our loss from discontinued operations was $3.3 million. Revenues from discontinued operations were $7.8 million for the year ended
December 31, 2016.
Adjusted EBITDA
Management defines Adjusted EBITDA as earnings before income tax, depreciation and amortization, non-cash royalty expense, interest expense,
non-cash exchange gains and losses on intercompany accounts, goodwill impairments, restructuring costs, change in fair value of
stock warrants and other derivatives, stock-based compensation, basis-difference amortization in equity earnings of affiliate and dividends received from affiliate in excess of equity earnings of
affiliate.
Management
believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of
operations because it removes material non-cash items that allows investors to analyze the operating performance of the business using the same metric management uses. The exclusion of non-cash items
better reflects our ability to make investments in the business and meet obligations. Presentation of Adjusted EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by
financial analysts and others who follow the industry to measure operating performance. Management uses this measure to assess operating results and performance of our business, perform analytical
119
Table of Contents
comparisons,
identify strategies to improve performance and allocate resources to our business segments. While management considers Adjusted EBITDA to be an important measure of comparative operating
performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with US GAAP. Not all companies
calculate Adjusted EBITDA in the same manner and the measure, as presented, may not be comparable to similarly-titled measures presented by other companies.
The
following table includes the reconciliation of our consolidated US GAAP net loss to our consolidated Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
Net loss
|
|
$
|
(5,695
|
)
|
$
|
(21,508
|
)
|
Interest expense
|
|
|
8,622
|
|
|
8,400
|
|
Provision (benefit) for income tax
|
|
|
803
|
|
|
(211
|
)
|
Depreciation and amortization
|
|
|
3,705
|
|
|
2,957
|
|
Basis-difference amortization in equity earnings of affiliate
|
|
|
460
|
|
|
484
|
|
Change in fair value of stock warrants and other derivatives
|
|
|
3,922
|
|
|
4,573
|
|
Stock-based compensation
|
|
|
1,841
|
|
|
1,010
|
|
Restructuring
|
|
|
249
|
|
|
5,938
|
|
Loss from discontinued operations
|
|
|
|
|
|
3,277
|
|
Foreign currency exchange loss on intercompany accounts
|
|
|
(591
|
)
|
|
1,487
|
|
Non-cash royalty expense
|
|
|
3,234
|
|
|
6,681
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
16,550
|
|
$
|
13,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA increased by $3.5 million for the year ended December 31, 2017 compared to the same period in the prior year. The increase reflects our improved operating
results from continuing operations after adjusting for the above non-cash expenses. The improved performance primarily results from the growth of our Digital Channels segment, which is becoming a
larger portion of our business and is contributing a higher profit margin. Adjusted EBITDA also improved due to the improved performance of our investment in ACL during the fiscal year ended
December 31, 2017 as compared to the same period in December 31, 2016. The 2017 restructuring adjustment primarily includes our net gain on extinguishment of debt, certain non-recurring
transaction costs totaling $0.3 million, a legal settlement of $0.2 million and severance payments totaling $0.2 million. The 2016 restructuring adjustment includes our loss on
extinguishment of debt and related transaction costs. The adjustment
also includes severance payments and related expenses totaling $2.1 million, which consist entirely of personnel costs that have been eliminated as a result of our restructuring activities.
BALANCE SHEET ANALYSIS
Assets
Total assets at December 31, 2017 and 2016, were $151.8 million and $140.8 million, respectively. The increase of
$11.0 million in assets is primarily attributed to increases in investments in content of $9.8 million, equity investment in ACL of $5.1 million and increase in accounts
receivable of $0.6 million offset by decreases in other intangible assets of $1.6 million, cash of $1.6 million and inventories of $1.3 million. The decrease in cash is
primarily due to increased investments in content and increased royalty payments offset by the expansion of our debt, which generated about $9.3 million of cash, and cash dividends received
from ACL of $2.5 million. Our equity investment in ACL primarily increased due to improved operating performance. Our accounts receivable increased largely due to the growth of revenues from
our Digital Channels segment.
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Table of Contents
A
summary of assets by segment is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
|
|
(Revised)
(1)
|
|
Digital Channels
|
|
$
|
11,148
|
|
$
|
5,941
|
|
IP Licensing
|
|
|
23,981
|
|
|
18,648
|
|
Wholesale Distribution
|
|
|
109,178
|
|
|
107,565
|
|
Corporate
|
|
|
7,473
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
151,780
|
|
$
|
140,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
On
January 1, 2018, we adopted Accounting Standard Update (
ASU
) No. 2014-09, Revenue from Contracts
with Customers, as a new Topic, Accounting Standards Codification (
ASC
) Topic 606 using the modified retrospective method applied to all contracts as of
January 1, 2018. Upon adoption of the new revenue standards, we reclassified our sales return reserve from accounts receivable to accounts payable and accrued liabilities. Our sales return
reserve as of December 31, 2017 and 2016 was $4.2 million and $4.8 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
(In thousands)
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Wholesale Distribution assets
|
|
$
|
104,987
|
|
$
|
4,191
|
|
$
|
109,178
|
|
Total assets
|
|
$
|
147,589
|
|
$
|
4,191
|
|
$
|
151,780
|
|
Total liabilities and equity
|
|
$
|
147,589
|
|
$
|
4,191
|
|
$
|
151,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
(In thousands)
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Wholesale Distributions assets
|
|
$
|
102,748
|
|
$
|
4,817
|
|
$
|
107,565
|
|
Total assets
|
|
$
|
135,980
|
|
$
|
4,817
|
|
$
|
140,797
|
|
Total liabilities and equity
|
|
$
|
135,980
|
|
$
|
4,817
|
|
$
|
140,797
|
|
Liabilities and Equity
The increase of liabilities and equity of $11.0 million to $151.8 million is primarily due to an $10.6 million increase in
our debt balance.
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Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
A summary of our cash flow activities is as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
Net cash used in operating activities
|
|
$
|
(8,886
|
)
|
$
|
(1,484
|
)
|
Net cash used in investing activities
|
|
|
(1,933
|
)
|
|
(1,428
|
)
|
Net cash provided by financing activities
|
|
|
8,732
|
|
|
6,462
|
|
Effect of exchange rate changes on cash
|
|
|
468
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(1,619
|
)
|
|
3,304
|
|
Cash at beginning of year
|
|
|
7,834
|
|
|
4,530
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
6,215
|
|
$
|
7,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2017 and 2016, our cash balances were approximately $6.2 million and $7.8 million, respectively.
The
aggregate cash used in operating and investing activities during the year ended December 31, 2017 was provided by cash from our operation and our financing activities. During
the year ended December 31, 2017, our cash position was impacted by the following:
-
-
We used cash for operating activities of $8.9 million compared to $1.5 million for the same period last year. We used more cash
for operating activities in 2017 due to increasing our investments in content to expand our program library and to reducing our royalty liabilities. We continue to experience liquidity constraints as
we have several competing demands on our available cash and cash that may be generated from operations. We continue to have significant short-term vendor debts, that are past due and which we are in
the process of paying off by making increased cash payments or modifying payment terms in the short term. Bringing our vendor trade payables current continues to constrain our liquidity.
-
-
Our quarterly results are typically affected by: (a) the timing and release dates of key productions, (b) the seasonality of our
Wholesale Distribution business which is 32% to 35% weighted to the fourth quarter and (c) the increased investment in content during the first half of the year, though investments are limited
by liquidity constraints.
-
-
Our reported cash flow activities include the impacts of our discontinued operations. During the year ended 2016, our discontinued operations
required a net use of cash from operating activities of $3.8 million.
-
-
During 2017, we received $8.7 million from financing activities compared to $6.5 million for the same period in the prior year.
During 2017, we increased our senior debt by $18.0 million and used $8.6 million to repay our subordinated debt. During 2016, we received net cash proceeds from the AMC Credit Agreement,
as defined below under
Capital Resources
, of $64.2 million when refinancing our senior debt. The proceeds received were used to repay our prior
senior secured term notes of $56.9 million, including accrued interest, and transaction expenses of approximately $1.7 million, which included a prepayment penalty of
$0.8 million.
Our
past due vendor payables are currently $7.7 million, a reduction of $4.4 million from last year. These past-due payables are largely a result of significant past-due
vendor payables acquired in 2012 when purchasing Image. As we work to catch up on the acquired past-due payables, we have fallen behind on other payables. We continue to work with our vendors to make
payment arrangements that
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Table of Contents
are
agreeable with them and that give us flexibility in terms of when payments will be made. Additionally, we must maintain a certain level of expenditures for marketing to support subscriber growth
and for the acquisition of new content that allows us to generate revenues and margins sufficient to meet our obligations.
Growth
of our Digital Channels segment has the potential impact of improving our liquidity. We continue to realize significant growth in our Digital Channels segment. Our Digital
Channels segment revenues increased 67.2% to $27.2 million during 2017. After cost of sales and operating expenses, our Digital Channels segment contributed $8.8 million of income from
continuing operations for 2017 compared to $6.3 million last year. Our expectation is that our Digital Channels will continue to grow, however there is no assurance that this will occur.
In
October 2016, we refinanced our senior debt. In January 2017, to repay our subordinated notes payable, we amended our senior debt and borrowed an additional $8.0 million. In
June 2017, we
expanded our senior debt and borrowed an additional $10.0 million. The proceeds received are available for working capital purposes, including the acquisition of content In addition to
providing us liquidity, the amended senior loan facility helps us address our liquidity constraints going forward in three ways: (1) it eliminates cash interest payments, which were 12% prior
to October 14, 2016 and 4% through March 31, 2017, (2) there are no required principal payments until 2020, and (3) the financial covenants have been reset to less
restrictive levels that provide us the necessary flexibility to invest in our operations.
During
the year ended December 31, 2017, we had capital expenditures of $1.9 million which includes $0.3 million that was accrued for in accounts payable. The
capital expenditures by segment during 2017 were $1.3 million $0.6 million for the Digital Channels and Corporate segments, respectively. During the year ended December 31, 2016,
we had capital expenditures of $1.7 million, which includes $0.3 million that was accrued for in accounts payable. The capital expenditures by segment during 2016 were
$1.4 million and $0.3 million for the Digital Channels and Corporate segments, respectively.
We
believe that our current cash at December 31, 2017, will be sufficient to meet our forecasted requirements for operating liquidity and capital expenditures for at least one
year from the date of issuance of this report. We have no required debt repayments until 2020. However, there can be no assurances that we will be successful in realizing improved results from
operations including improved Adjusted EBITDA, generating sufficient cash flows from operations or agreeing with vendors on revised payment terms.
Capital Resources
As of December 31, 2017, we had cash of $6.2 million, as compared to $7.8 million as of December 31, 2016.
On October 14, 2016, we entered into a $65.0 million Credit and Guaranty Agreement (the
AMC Credit
Agreement
) with Digital Entertainment Holdings LLC, a wholly owned subsidiary of AMC Networks Inc. (or
AMC
).
Concurrent with entering into the AMC Credit Agreement, we also issued AMC three warrants (the
AMC Warrants
) to acquire a total of 20.0 million
shares of our common stock at $3.00 per share. The entering of the AMC Credit Agreement, the issuance of the AMC Warrants and the associated transactions are referred to as the AMC Transaction.
The
proceeds received from the AMC Credit Agreement were used to repay our prior senior secured term notes of $55.1 million, including accrued interest, and transaction expenses
of
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Table of Contents
approximately
$1.7 million, which includes a prepayment penalty of $0.8 million. Initially, the AMC Credit Agreement consisted of (i) a term loan tranche in the principal amount
of $5.0 million (or
Tranche A Loan)
, which was due on October 14, 2017, and (ii) a term loan tranche in the principal amount
of $60.0 million (or
Tranche B Loan)
of which 25% is due after five years, 50% is due after six years and the remaining 25% is due after
seven years. The Tranche A Loan bears interest at a rate of 7.0% per annum and the Tranche B Loan bears interest at a rate of 6.0% per annum. Interest was payable quarterly whereby 4.0%
was payable in cash and the balance was payable in shares of common stock determined using a per-share value of $3.00. The loan is secured by a lien on substantially all of our consolidated assets.
On
January 30, 2017, to repay prior debt obligations under the subordinated notes payable we amended the AMC Credit Agreement and borrowed an additional $8.0 million,
thereby increasing our Tranche A Loan from $5.0 million to $13.0 million. We also extended the maturity date for our Tranche A Loan from October 14, 2017 to
June 30, 2019.
On
June 16, 2017, to fuel the growth of our business we expanded the AMC Credit Agreement and borrowed an additional $10.0 million, thereby increasing our Tranche A
Loan from $13.0 million to $23.0 million. Further, we extended the maturity date for our Tranche A Loan from June 30, 2019 to beginning on June 30, 2020. We also
amended the payment provisions regarding interest whereby all interest is now settled with shares of common stock at $3.00 per share beginning as of April 1, 2017. The additional
$10.0 million borrowed was used for working capital purposes, including the acquisition of content. This amendment also changed certain debt covenant ratios to reflect the extended maturity
date and the increase of the Tranche A Loan balance.
On
October 2, 2017, we issued AMC 427,347 shares of common stock in payment of $1.3 million of interest on $78.0 million of principal outstanding under the AMC
Credit Agreement.
Concurrent
with the June amendment, RLJ SPAC Acquisition, LLC converted all of its preferred stock holdings into shares of common stock and AMC exercised a portion of its
warrants, which resulted in the Tranche B Loan principal reduction of $5.0 million. This reduction in principal did not result in a prepayment penalty.
Subject
to certain customary exceptions, the AMC Credit Agreement requires mandatory prepayments if we were to receive proceeds from asset sales, insurance, debt issuance or the exercise
of the warrants. We may also make voluntary prepayments. Prepayments of the Tranche B Loan (either voluntary or mandatory) are subject to a prepayment premium of 3.0% if principal is repaid on
or before October 14, 2018, and 1.5% if principal is repaid after October 14, 2018 but on or before October 14, 2019. No prepayment premium is due for amounts prepaid after
October 14, 2019, and for mandatory prepayments made from proceeds received from the exercise of warrants. The Tranche A Loan is not subject to prepayment penalties.
The
AMC Credit Agreement contains certain financial and non-financial covenants. Financial covenants are assessed annually and are based on Consolidated Adjusted EBITDA, as defined in
the AMC Credit Agreement. Financial covenants vary by fiscal year and generally become more restrictive over time.
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Table of Contents
Financial
covenants include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2017
|
|
December 31,
2018
|
|
Thereafter
|
Leverage Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt-to-Adjusted EBITDA
|
|
|
6.00 : 1.00
|
|
|
5.75 : 1.00
|
|
|
4.00 : 1.00
|
|
Ranges from 3.75 : 1.00 to 2.50 : 1.00
|
Total debt-to-Adjusted EBITDA
|
|
|
6.75 : 1.00
|
|
|
6.00 : 1.00
|
|
|
5.00 : 1.00
|
|
4.00 : 1.00
|
Fixed charge coverage ratio
|
|
|
1.00 : 1.00
|
|
|
1.00 : 1.00
|
|
|
2.00 : 1.00
|
|
2.00 : 1.00
|
The
AMC Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and
warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with our U.S. distribution facilitation
partner and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or
otherwise). The occurrence of an event of default would increase the applicable rate of interest and could result in the acceleration of our obligations under the AMC Credit Agreement.
The
AMC Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends to Stockholders, other indebtedness, stock repurchases, capital expenditures
and entering into new lease obligations. Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are not in the
ordinary course of business. Pursuant to the AMC Credit Agreement, we must maintain at all times a cash balance of $2.0 million in cash for 2017 and $3.5 million in cash for all years
thereafter. As of December 31, 2017, we were in compliance with all covenants as stipulated in the amended AMC Credit Agreement.
On January 31, 2017, we repaid the outstanding principal and interest on our unsecured subordinated promissory notes. When doing so, we
did not incur a prepayment penalty. The subordinated notes were issued in 2012 in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image (or
Subordinated Note
Holders
). In 2015, and in connection with the sale of preferred stock and warrants, the Subordinated Note Holders exchanged
approximately $8.5 million of subordinated notes for 8,546 shares of preferred stock and warrants to acquire approximately 855,000 shares of common stock.
On May 20, 2015, we closed a transaction in which we sold 31,046 shares of preferred stock and warrants to acquire 3.1 million
shares of common stock (the
2015 Warrants
) for $22.5 million in cash and the exchange of $8.5 million in subordinated notes. Of the
preferred shares and warrants sold, 16,500 shares of preferred stock and warrants to acquire 1.7 million shares of common stock were sold to certain board members or their affiliated companies.
We used $10.0 million of the cash proceeds from this sale to make partial payment on our senior notes payable and approximately $1.9 million for prepayment penalties, legal and
accounting fees, which include fees associated with our registration statement filed in July 2015 and other expenses associated with the transaction. The balance of the net cash proceeds was used for
content investment and working capital purposes. Of the fees incurred, $0.9 million was recorded against the proceeds received, $0.5 million was recorded as additional debt discounts,
$0.2 million was included as interest expense and the balance was included in other expense.
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Table of Contents
On October 14, 2016 and concurrent with the close of the AMC Credit Agreement, we amended our preferred stock such that we were able to classify our
preferred stock and its embedded conversion feature within our shareholders' equity. Prior to the amendment, our preferred stock and its embedded conversion feature were recorded on our consolidated
balance sheet outside of shareholders' equity. The amended terms are disclosed below.
The
preferred stock has the following rights and preferences:
-
-
Rank
the preferred stock ranks higher than other company issued equity securities
in terms of distributions, dividends and other payments upon liquidation.
-
-
Dividends
the preferred stockholders are entitled to cumulative dividends at a rate
of 8% per annum of a preferred share's stated value ($1,000 per share plus any unpaid dividends). The first dividend payment was made on July 1, 2017 and payments will be made quarterly
thereafter. At our discretion, dividend payments are payable in either cash, or if we satisfy certain equity issuance conditions, in shares of common stock. Pursuant to the October 14, 2016
amended terms, if we don't satisfy equity issuance conditions, then we may elect to accrue the value of the dividend and add it to the preferred share's stated value.
-
-
Conversion
at the preferred stockholder's discretion, each share of preferred stock
is convertible into 333.3 shares of our common stock, subject to adjustment for any unpaid dividends. Prior to the October 14, 2016 amendment, the conversion rate was subject to anti-dilution
protection for offerings consummated at a per-share price of less than $3.00 per common share. This down-round provision was removed as part of the October 14, 2016 amendment.
-
-
Mandatory Redemption
unless previously converted, on May 20, 2020, at our
option we will either redeem the preferred stock with (a) cash equal to $1,000 per share plus any unpaid dividends (Redemption Value), or (b) shares of common stock determined by
dividing the Redemption Value by a conversion rate equal to the lower of (i) the conversion rate then in effect (which is currently $3.00) or (ii) 85% of the then trading price, as
defined, of our common stock. As part of the October 14, 2016 amendment, a floor was established for all but 16,500 shares of preferred stock such that the redemption ratio cannot be below
$0.50 per common share. For the 16,500 shares of preferred stock, a floor of $2.49 was already in place and remained unchanged. If we were to redeem with shares of common stock, the actual number of
shares that would be issued upon redemption is not determinable as the number is contingent upon the then trading price of our common stock. Generally, if we were to redeem with shares, the number of
common shares needed for redemption increases as our common stock price decreases. Because of the October 14, 2016 amendment, the maximum number of common shares issuable upon redemption is
determinable given the redemption conversion floors. If we elect to redeem with shares of common stock, and we fail to meet certain conditions with respect to the issuance of equity, then we would be
subject to a 20% penalty of the maturity redemption price, payable in either cash or shares of common stock. This penalty is subject to, and therefore possibly limited by, a $0.50 per share floor.
-
-
Voting
except for certain matters that require the approval of the preferred
stockholders, such as changes to the rights and preferences of the preferred stock, the preferred stock does not have voting rights. However, the holders of the preferred stock are entitled to appoint
two board members and, under certain circumstances, appoint a third member.
We
are adjusting the carrying balance of our preferred stock to its Redemption Value using the effective interest-rate method over a period of time beginning from the issuance of
May 20, 2015 to the required redemption date of May 20, 2020. During the years ended December 31, 2017 and 2016, we recognized accretion of $1.2 million and
$4.3 million, respectively. Accretion includes cumulative
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Table of Contents
preferred
dividends. As of December 31, 2017, the accumulated unpaid dividends on preferred stock were $2.8 million. During the years ended December 31, 2017 and 2016, accumulated
unpaid dividends increased by $0.7 million (or $46.16 per share of preferred stock) and $2.7 million (or $88.60 per share of preferred stock), respectively.
During
2016, two preferred shareholders converted a total of 849 shares of preferred stock and $0.1 million of accumulated dividends into 0.3 million shares of common
stock. During June 2017, the largest preferred shareholder (RLJ SPAC Acquisition, LLC) converted a total of 15,000 shares of preferred stock and $2.7 million of accumulated dividends
into 5.9 million shares of common stock.
In
2015, we filed a registration statement with the Securities and Exchange Commission to register the shares issuable upon conversion of the preferred stock and exercise of the 2015
Warrants. The registration statement was declared effective in July 2015 and amended in 2016. If we are in default of the registration rights agreement, and as long as the event of default is not
cured, then we are required to pay, in cash, partial liquidation damages, which in total are not to exceed 6% of the aggregated subscription amount of $31.0 million. We will use our best
efforts to keep the registration statement effective.
THREE AND SIX MONTH PERIODS ENDED June 30, 2018 AND 2018
RESULTS OF OPERATIONS
A summary of our results of operations for the three and six months ended June 30, 2018 and 2017, as disclosed in our consolidated
financial statements, included in our Form 10-Q filed on August 9, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Revenues
|
|
$
|
21,474
|
|
$
|
18,833
|
|
$
|
40,056
|
|
$
|
32,720
|
|
Costs of sales
|
|
|
10,240
|
|
|
9,090
|
|
|
20,022
|
|
|
18,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,234
|
|
|
9,743
|
|
|
20,034
|
|
|
14,510
|
|
Operating expenses
|
|
|
10,574
|
|
|
8,495
|
|
|
21,035
|
|
|
16,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
660
|
|
|
1,248
|
|
|
(1,001
|
)
|
|
(1,665
|
)
|
Equity in earnings of affiliate
|
|
|
1,288
|
|
|
869
|
|
|
2,072
|
|
|
1,420
|
|
Interest expense, net
|
|
|
(2,362
|
)
|
|
(2,152
|
)
|
|
(4,653
|
)
|
|
(4,038
|
)
|
Change in fair value of stock warrants and other derivatives
|
|
|
(471
|
)
|
|
(491
|
)
|
|
(3,438
|
)
|
|
(3,383
|
)
|
(Loss) Gain on extinguishment of debt
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
470
|
|
Other (expense) income, net
|
|
|
(1,414
|
)
|
|
161
|
|
|
(1,591
|
)
|
|
445
|
|
Benefit (Provision) for income taxes
|
|
|
285
|
|
|
(76
|
)
|
|
145
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,014
|
)
|
$
|
(866
|
)
|
$
|
(8,466
|
)
|
$
|
(6,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
Table of Contents
Revenues
A summary of revenues by segment for the three and six months ended June 30, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Digital Channels
|
|
$
|
9,402
|
|
$
|
6,439
|
|
$
|
18,075
|
|
$
|
12,404
|
|
IP Licensing
|
|
|
17
|
|
|
2
|
|
|
36
|
|
|
4
|
|
Wholesale Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
9,876
|
|
|
8,619
|
|
|
16,947
|
|
|
14,029
|
|
International
|
|
|
2,179
|
|
|
3,773
|
|
|
4,998
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Wholesale Distribution
|
|
|
12,055
|
|
|
12,392
|
|
|
21,945
|
|
|
20,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
21,474
|
|
$
|
18,833
|
|
$
|
40,056
|
|
$
|
32,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
increased $2.6 million for the three months ended June 30, 2018 compared to the same period in 2017. The increase in revenues is primarily driven by our Digital
Channels segment, which increased by $3.0 million, partially offset by our Wholesale Distribution segment, which decreased by $0.3 million. The increase in revenues from our Digital
Channels segment was driven by a 49.1% growth in paying subscribers. We increased our marketing efforts beginning in the third quarter of 2017 to support subscriber growth. In addition, we are
continually featuring new content on our digital channels, which we believe is a key factor in attracting new subscribers for all our channels. Revenues from our Digital Channels segment continues to
represent a growing and more meaningful portion of our consolidated revenues. Revenues from these channels for the three months ended June 30, 2018 account for 43.8%, as compared to 34.2% for
the three months ended June 30, 2017. Our Wholesale Distribution segment's revenue decrease is primarily attributable to decreases in International revenues of $1.6 million for the three
months ended June 30, 2018, offset by a $1.3 million increase in U.S. revenues. The International Wholesale Distribution revenues decreased primarily due to the release of two strong
performing releases during the second quarter of 2017. The Wholesale Distribution segment's U.S. revenue increase is primarily attributable to increased digital sales and demand for content being
released during the current period.
Revenues
increased $7.3 million for the six months ended June 30, 2018 compared to the same period in 2017. The increase in revenues is primarily driven by our Digital
Channels segment, which increased by $5.7 million, and our Wholesale Distribution segment, which increased by $1.6 million. The increase in revenues from our Digital Channels segment was
driven by a 49.1% growth in paying subscribers. Revenues from these channels for the six months ended June 20, 2018 account for 45.1% of our total revenues as compared to 37.9% for the six
months ended June 30, 2017. Our Wholesale Distribution segment's revenue increase is primarily attributable to increases in U.S. revenues of $2.9 million for the six months ended
June 30, 2018. The Wholesale Distribution segment's U.S. revenue increase is primarily attributable to increased digital sales and demand for content being released during the current period.
This increase was offset by a $1.3 million decrease in revenues from the International
Wholesale Distribution segment due to the release of two strong performing releases during the second quarter of 2017.
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Table of Contents
Cost of Sales ("COS") and Gross Margins
A summary of COS by segment and overall gross margins for the three and six months ended June 30, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Digital Channels
|
|
$
|
2,398
|
|
$
|
1,698
|
|
$
|
4,653
|
|
$
|
3,205
|
|
Wholesale Distribution
|
|
|
7,842
|
|
|
7,392
|
|
|
15,369
|
|
|
15,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total COS
|
|
$
|
10,240
|
|
$
|
9,090
|
|
$
|
20,022
|
|
$
|
18,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
11,234
|
|
$
|
9,743
|
|
$
|
20,034
|
|
$
|
14,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin %
|
|
|
52.3
|
%
|
|
51.7
|
%
|
|
50.0
|
%
|
|
44.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COS
increased by $1.2 million to $10.2 million for the three months ended June 30, 2018 compared to the same period in 2017. The increase in COS is primarily
attributable to an increase in royalty expenses within our Digital Channels segment. This increase is due to the release of new content on the channels. COS increased by $0.5 million within our
Wholesale Distribution segment primarily due to an increasing proportion of revenues coming from digital distribution which carries a higher royalty rate than generated by sales of physical content.
Our step-up amortization was $0.2 million and $0.4 million for the three months ended June 30, 2018 and 2017, respectively. The decrease in step-up amortization is attributable to
lower revenues from titles that were acquired prior to our Business Combination. As time passes, we expect that step-up amortization will continue to decrease.
COS
increased by $1.8 million to $20.0 million for the six months ended June 30, 2018 compared to the same period in 2017. The increase in COS is primarily
attributable to an increase in royalty expenses within our Digital Channels segment. This increase is due to the release of new content on the channels. Within our Wholesale Distribution segment,
impairment charges recorded for content investments and inventories total $0.7 million and $1.1 million for the six months ended June 30, 2018 and 2017, respectively. Impairment
charges decreased due to improved performance of our released content relative to our estimation of future revenues. Our step-up amortization was $0.7 million and $1.3 million for the
six months ended June 30, 2018 and 2017, respectively. The decrease in step-up amortization is attributable to lower revenues from titles that were acquired prior to our Business Combination.
As time passes, we expect that step-up amortization will continue to decrease.
As
a percentage of revenues, our gross margin improved to 52.3% for the three months ended June 30, 2018 as compared to 51.7% for the same period last year. As a percentage of
revenues, our gross margin improved to 50.0% for the six months ended June 30, 2018 as compared to 44.3% for the same period last year. The improvement is primarily attributable to lower
impairments and step-up amortization within our Wholesale Distribution segment, as well as, revenue growth of our proprietary digital channels, which generates a higher gross margin than our other
business segments.
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Table of Contents
Operating Expenses ("SG&A")
A summary of the components of SG&A for the three and six months ended June 30, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Selling expenses
|
|
$
|
4,776
|
|
$
|
2,875
|
|
$
|
9,041
|
|
$
|
5,159
|
|
General and administrative expenses
|
|
|
5,093
|
|
|
4,716
|
|
|
10,404
|
|
|
9,239
|
|
Depreciation and amortization
|
|
|
705
|
|
|
904
|
|
|
1,590
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
10,574
|
|
$
|
8,495
|
|
$
|
21,035
|
|
$
|
16,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three and six months ended June 30, 2018, SG&A increased by $2.1 million and $4.9 million, respectively, compared to the same period last year. The increase
is attributable to targeted marketing expenses that increased $1.9 million and $3.9 million, respectively, during the three and six months ended June 30, 2018, primarily due to
increased marketing related to our Digital Channels segment. For the three and six months ended June 30, 2018, General and administrative expenses increased $0.4 million and
$1.2 million, respectively, primarily due to increased incentive compensation costs including increased expenses associated with share-based compensation for executives and employees.
Equity Earnings of Affiliate
Equity earnings of affiliate (which is ACL) increased $0.4 million and $0.7 million, respectively, for the three and six months
ended June 30, 2018 when compared to the same periods in 2017. During 2018, ACL's gross profit and its income from operations are higher when compared to the same period in 2017
due to higher publishing revenues, as a percent of its total revenues, which generate higher margins when compared to its other operations.
Interest Expense, Net
Interest expense increased $0.2 million and $0.6 million, respectively, for the three and six months ended June 30, 2018 as
compared to the same period in 2017. The increase is primarily a result of higher average outstanding debt balances during the three and six months ended June 30, 2018 as compared to the same
period in 2017.
Change in Fair Value of Stock Warrants and Other Derivatives
The change in the fair value of our warrant and other derivative liabilities impacts the statement of operations. A decrease in the fair value
of the liabilities results in the recognition of income, while an increase in the fair value of the liabilities results in the recognition of expense. Changes in fair value are primarily driven by
changes in our common stock price and its volatility. For the three months ended June 30, 2018 and 2017, we recognized expense of $0.5 million in each period due to changes in the fair
value of our stock warrants and other derivative liabilities. For the six months ended June 30, 2018 and 2017, we recognized expense of $3.4 million in each period due to changes in the
fair value of our stock warrants and other derivative liabilities.
Other (Expense) Income
Other (expense) income mostly consists of foreign currency gains and losses resulting from advances and loans by our U.S. subsidiaries to our
foreign subsidiaries that have not yet been repaid. Our foreign currency gains and losses are primarily impacted by changes in the exchange rate of the
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Table of Contents
British
Pound Sterling (or
the Pound
) relative to the U.S. dollar. As the Pound strengthens relative to the U.S. dollar, we recognize other income; and
as the Pound weakens relative to the Dollar, we recognize other expense. During the three and six months ended June 30, 2018, we recognized foreign currency losses of $0.4 million on
intercompany loans with our foreign subsidiaries for each period. During the three and six months ended June 30, 2017, we recognized foreign currency gains of $0.2 million and
$0.5 million.
During
the three and six months ended June 30, 2018, other expenses also included $1.0 million and $1.1 million, respectively, of transaction costs incurred to
respond to AMC's merger proposal.
Income Taxes
We have fully reserved our net U.S. deferred tax assets, and such tax assets may be available to reduce future income taxes payable should we
have U.S. taxable income in the future. To the extent such deferred tax assets relate to net operating losses (or
NOL
) carryforwards, the ability to use
our NOL carryforwards against future earnings will be subject to applicable carryforward periods and limitations subsequent to a change in ownership.
We
recorded income tax benefit of $0.3 million for the three months ended June 30, 2018. We recorded income tax expense of $0.1 million for the three months ended
June 30, 2017. We recorded income tax benefit of $0.1 million for the six months ended June 30, 2018. We recorded income tax expense of $0.2 million for the six months
ended June 30, 2017. Our tax provision consists primarily of a deferred tax provision for certain deferred tax liabilities and a current tax provision for our U.K. operations. We
are recording a deferred tax provision and liability for our equity earnings of affiliate (ACL) after deducting distributions received. The earnings in excess of distributions received will be taxable
in the U.K., when and if we dispose of our investment. We are providing current income tax expense on pre-tax income from our consolidated U.K. subsidiaries at an effective tax rate of approximately
19%. We are not providing a current tax provision (benefit) on our U.S. operations, other than for certain state minimum taxes, which are not material.
Adjusted EBITDA
Management defines Adjusted EBITDA as earnings before income tax, depreciation and amortization, non-cash royalty expense, interest expense,
non-cash exchange gains and losses on intercompany accounts, goodwill impairments, restructuring costs, change in fair value of stock warrants and other derivatives, stock-based compensation,
basis-difference amortization in equity earnings of affiliate and dividends received from affiliate in excess of equity earnings of affiliate.
Management
believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of
operations because it removes material non-cash items that allows investors to analyze the operating performance of the business using the same metric management uses. The exclusion of non-cash items
better reflects our ability to make investments in the business and meet obligations. Presentation of Adjusted EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by
financial analysts and others who follow the industry to measure operating performance. Management uses this measure to assess operating results and performance of our business, perform analytical
comparisons, identify strategies to improve performance and allocate resources to our business segments. While management considers Adjusted EBITDA to be an important measure of comparative operating
performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with US GAAP. Not all companies
calculate Adjusted EBITDA in the same manner and the measure, as presented, may not be comparable to similarly-titled measures presented by other companies.
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Table of Contents
The following table includes the reconciliation of our consolidated US GAAP net loss to our consolidated Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Net loss
|
|
$
|
(2,014
|
)
|
$
|
(866
|
)
|
$
|
(8,466
|
)
|
$
|
(6,988
|
)
|
Interest expense
|
|
|
2,362
|
|
|
2,152
|
|
|
4,653
|
|
|
4,038
|
|
Provision for income tax
|
|
|
(285
|
)
|
|
76
|
|
|
(145
|
)
|
|
237
|
|
Depreciation and amortization
|
|
|
705
|
|
|
904
|
|
|
1,590
|
|
|
1,777
|
|
Basis-difference amortization in equity earnings of affiliate
|
|
|
121
|
|
|
114
|
|
|
246
|
|
|
225
|
|
Change in fair value of stock warrants and other derivatives
|
|
|
471
|
|
|
491
|
|
|
3,438
|
|
|
3,383
|
|
Stock-based compensation
|
|
|
638
|
|
|
358
|
|
|
1,327
|
|
|
512
|
|
Restructuring
|
|
|
1,097
|
|
|
423
|
|
|
1,321
|
|
|
(192
|
)
|
Foreign currency exchange gain on intercompany accounts
|
|
|
381
|
|
|
(192
|
)
|
|
388
|
|
|
(475
|
)
|
Dividends received from affiliate in excess of equity earnings of affiliate
|
|
|
824
|
|
|
|
|
|
824
|
|
|
|
|
Non-cash royalty expense
|
|
|
228
|
|
|
476
|
|
|
824
|
|
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
4,528
|
|
$
|
3,936
|
|
$
|
6,000
|
|
$
|
4,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three and six months ended June 30, 2018, our Adjusted EBITDA improved by $0.6 million and $2.0 million compared to the same period last year. The increase reflects
our improved operating results from continuing operations after adjusting for the above non-cash expenses. The improved performance primarily results from the growth of our Digital Channels segment,
which is becoming a larger portion of our business and is contributing a higher profit margin. Adjusted EBITDA also improved due to the improved performance of our Wholesale Distribution segment
during the six months ended June 30, 2018 as compared to the same period in 2017. The 2018 restructuring adjustment primarily consists of $1.1 million of non-recurring transaction costs
incurred to respond to AMC's merger proposal. The 2017 restructuring adjustment for the six months ended June 30, 2017 primarily includes our net gain on extinguishment of debt and certain
non-recurring transaction costs totaling $0.4 million.
BALANCE SHEET ANALYSIS
Assets
Total assets at June 30, 2018 and December 31, 2017, were $146.9 million and $151.8 million, respectively. The
decrease of $4.9 million in assets is primarily attributed to decreases in cash of $2.8 million, accounts receivable of $7.9 million, equity investment in ACL of $1.5 million, and
other intangible assets of $0.7 million; offset by increases in investments in content of $8.2 million. The decrease in cash is primarily due to increased investments in content, the use
of cash for incentive compensation and payments and to reduce vendor payables, offset by net cash received from the collection of accounts receivable and cash dividends received from ACL of
$3.1 million. Our equity investment in ACL decreased due to the receipt of cash dividends partially offset by the improved operating performance at ACL. Our accounts receivable decreased due to
the seasonal nature of our Wholesale Distribution business and follows the decline in our Wholesale Distribution segment revenues.
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Table of Contents
A
summary of assets by segment is as follows:
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 30,
2018
|
|
December 31,
2017
|
|
Digital Channels
|
|
$
|
16,427
|
|
$
|
11,148
|
|
IP Licensing
|
|
|
25,585
|
|
|
23,981
|
|
Wholesale Distribution
|
|
|
100,291
|
|
|
109,178
|
|
Corporate
|
|
|
4,596
|
|
|
7,473
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
146,899
|
|
$
|
151,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
The decrease of liabilities and equity of $4.9 million to $146.9 million is primarily due to a decrease in our account payable and
accrued liabilities of $3.0 million, primarily resulting from payments to vendors and incentive compensation payments; and a decrease in retained earnings of $9.2 million primarily
attributable to our net loss during the quarter. These decreases were offset by increases in the fair value of our stock warrants of $3.4 million, the accretion of debt discount of
$2.2 million, additional paid-in capital of $3.4 million, primarily from stock-based compensation and the issuance of common stock for interest.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
A summary of our cash flow activities is as follows:
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
(In thousands)
|
|
2018
|
|
2017
|
|
Net cash used in operating activities
|
|
$
|
(871
|
)
|
$
|
(4,272
|
)
|
Net cash used in investing activities
|
|
|
(969
|
)
|
|
(816
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(708
|
)
|
|
9,339
|
|
Effect of exchange rate changes on cash
|
|
|
(214
|
)
|
|
162
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(2,762
|
)
|
|
4,413
|
|
Cash at beginning of period
|
|
|
6,215
|
|
|
7,834
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
3,453
|
|
$
|
12,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the six months ended June 30, 2018, our cash position was impacted by the following:
-
-
We used cash for operating activities of $0.9 million compared to $4.3 million for the same period last year. We used more cash
for operating activities in 2017 due to increasing our investments in content to expand our program library and to reducing our royalty liabilities. We continue to experience liquidity constraints as
we have several competing demands on our available cash and cash that may be generated from operations. We continue to have short-term vendor debts, that are past due and which we are in the process
of paying off by making increased cash payments or modifying payment terms in the short term. Bringing our vendor trade payables current continues to constrain our liquidity.
-
-
Our quarterly results are typically affected by: (a) the timing and release dates of key productions, (b) the seasonality of our
Wholesale Distribution business which is 32% to 35%
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Table of Contents
Growth
of our Digital Channels segment has the potential to improve our liquidity. We continue to realize significant growth in our Digital Channels segment. Our Digital Channels segment
revenues increased 45.7% to $18.1 million during the six months ended June 30, 2018 as compared to the same period in 2017. After cost of sales and operating expenses, our Digital
Channels segment contributed $5.3 million of income from operations during the six months ended June 30, 2018 compared to $4.9 million last year. Our expectation is that our
Digital Channels segment will continue to grow, however there is no assurance that this will occur.
We
believe that our current cash at June 30, 2018, and cash to be generated from operations will be sufficient to meet our forecasted requirements for operating liquidity, capital
expenditures and debt repayments (none due until 2020) for at least one year from the date of issuance of this Quarterly Report. However, there can be no assurances that we will be successful in
realizing improved results from operations including improved Adjusted EBITDA, generating sufficient cash flows from operations or agreeing with vendors on revised payment terms.
Capital Resources
As of June 30, 2018 we had cash of $3.5 million, as compared to $6.2 million as of December 31, 2017.
On October 14, 2016, we entered into a $65.0 million Credit and Guaranty Agreement (the
AMC Credit
Agreement
) with Digital Entertainment Holdings LLC, a wholly owned subsidiary of AMC. Concurrent with entering into the AMC Credit Agreement, we also issued AMC three
warrants (the
AMC Warrants
) to acquire a total of 20.0 million shares of our common stock at $3.00 per share. The entering of the AMC Credit
Agreement, the issuance of the AMC Warrants and the associated transactions are referred to as the AMC Transaction.
Initially,
the AMC Credit Agreement consisted of (i) a term loan tranche in the principal amount of $5.0 million (or
Tranche A
Loan)
, which was due on October 14, 2017, and (ii) a term loan tranche in the principal amount of $60.0 million (or
Tranche B Loan)
of which 25% is due after
five years, 50% is due after six years and the remaining 25% is due after seven years. The
Tranche A Loan bears interest at a rate of 7.0% per annum and the Tranche B Loan bears interest at a rate of 6.0% per annum. Interest was payable quarterly whereby 4.0% was payable in
cash and the balance was payable in shares of common stock determined using a per-share value of $3.00. The loan is secured by a lien on substantially all of our consolidated assets.
On
January 30, 2017, to repay prior debt obligations under the subordinated notes payable we amended the AMC Credit Agreement and borrowed an additional $8.0 million,
thereby increasing our Tranche A Loan from $5.0 million to $13.0 million. We also extended the maturity date for our Tranche A Loan from October 14, 2017 to
June 30, 2019. When doing so, we did not incur a prepayment penalty.
On
June 16, 2017, to fuel the growth of our business, we expanded the AMC Credit Agreement and borrowed an additional $10.0 million, thereby increasing our Tranche A
Loan from $13.0 million to $23.0 million. Further, we extended the maturity date for our Tranche A Loan from June 30, 2019 to beginning on June 30, 2020. We also
amended the payment provisions regarding interest whereby all
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Table of Contents
interest
is now settled with shares of common stock at $3.00 per share beginning as of April 1, 2017. This amendment also changed certain debt covenant ratios to reflect the extended maturity
date and the increase of the Tranche A Loan balance.
Concurrent
with the June 2017 amendment, RLJ SPAC Acquisition, LLC (a related party) converted all of its preferred stock holdings into shares of common stock and AMC exercised a
portion of their warrants that resulted in the Tranche B Loan principal reduction of $5.0 million.
Subject
to certain customary exceptions, the AMC Credit Agreement requires mandatory prepayments if we were to receive proceeds from asset sales, insurance, debt issuance or the exercise
of warrants. We may also make voluntary prepayments. Prepayments of the Tranche B Loan (either voluntary or mandatory) are subject to a prepayment premium of 3.0% if principal is repaid on or
before October 14, 2018, and 1.5% if principal is repaid after October 14, 2018 but on or before October 14, 2019. No prepayment premium is due for amounts prepaid after
October 14, 2019, and for mandatory prepayments made from proceeds received from the exercise of warrants. The Tranche A Loan is not subject to prepayment penalties.
The
AMC Credit Agreement contains certain financial and non-financial covenants. Financial covenants are assessed annually and are based on Consolidated Adjusted EBITDA, as defined in
the AMC Credit Agreement. Financial covenants vary by fiscal year and generally become more restrictive over time.
Financial
covenants include the following:
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2018
|
|
Thereafter
|
Leverage Ratios:
|
|
|
|
|
|
|
Senior debt-to-Adjusted EBITDA
|
|
5.75 : 1.00
|
|
4.00 : 1.00
|
|
Ranges from 3.75 : 1.00 to 2.50 : 1.00
|
Total debt-to-Adjusted EBITDA
|
|
6.00 : 1.00
|
|
5.00 : 1.00
|
|
4.00 : 1.00
|
Fixed charge coverage ratio
|
|
1.00 : 1.00
|
|
2.00 : 1.00
|
|
2.00 : 1.00
|
The
AMC Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and
warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with our U.S. distribution facilitation
partner and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or
otherwise). The occurrence of an event of default would increase the applicable rate of interest and could result in the acceleration of our obligations under the AMC Credit Agreement.
The
AMC Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends to common stockholders, other indebtedness, stock repurchases, capital
expenditures and entering into new lease obligations. Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are
not in the ordinary course of business. Pursuant to the AMC Credit Agreement, we must maintain at all times a cash balance of $3.5 million for all years beginning after 2017, except for a
four-month period ending September 30, 2018 whereby the minimum cash balance requirement was reduced to $2.0 million. On August 7, 2018, AMC agreed in principle to further reduce
our minimum cash balance requirement. We are currently drafting an amendment to the AMC Credit Agreement to formalize this change. As of
June 30, 2018, we were in compliance with all covenants as stipulated in the amended AMC Credit Agreement.
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Table of Contents
Concurrent
with entering into the AMC Transaction, we issued the AMC Warrants to acquire shares of our common stock. The first warrant is for 5.0 million shares of common stock,
of which 1.7 million shares were exercised in June 2017, and expires on October 14, 2021. The second warrant is for 10.0 million shares of common stock and expires on
October 14, 2022. The third warrant is for 5.0 million shares of common stock, subject to adjustment, and expires on October 14, 2023. The AMC Warrants are subject to certain
standard anti-dilution provisions and may be exercised on a non-cash basis at AMC's discretion.
The
third warrant (the
AMC Tranche C Warrant
) contains a provision that may increase the number of shares acquirable upon
exercising, for no additional consideration payable by AMC, such that the number of shares acquirable upon exercise is equal to the sum of (i) at least 50.1% of our then outstanding shares of
common stock, determined on a fully diluted basis, less (ii) the sum of 15.0 million shares and the equity interest shares issued in connection with the AMC Credit Agreement. This provision
provides AMC the ability to acquire at least 50.1% of our common stock for $60.0 million, provided that all warrants are exercised and AMC elects not to exercise on a non-cash basis.
On May 20, 2015, we closed a transaction in which we sold 31,046 shares of preferred stock and warrants to acquire 3.1 million
shares of common stock (the
2015 Warrants
) for $22.5 million in cash and the exchange of $8.5 million in subordinated notes. Of the
preferred shares and warrants sold, 16,500 shares of preferred stock and warrants to acquire 1.7 million shares of common stock were sold to certain board members or their affiliated companies.
On
October 14, 2016 and concurrent with the close of our AMC Credit Agreement, we amended our preferred stock such that we were able to classify our preferred stock and its
embedded conversion feature within our shareholders' equity. Prior to the amendment, our preferred stock and its embedded conversion feature were recorded on our consolidated balance sheet outside of
shareholders' equity. The amended terms are disclosed below.
The
preferred stock has the following rights and preferences:
-
-
Rank
the preferred stock ranks higher than other company issued equity securities
in terms of distributions, dividends and other payments upon liquidation.
-
-
Dividends
the preferred stockholders are entitled to cumulative dividends at a rate
of 8% per annum of a preferred share's stated value ($1,000 per share plus any unpaid dividends). The first dividend payment was made on July 1, 2017 and payments have been made quarterly
thereafter. At our discretion, dividend payments are payable in either cash, or if we satisfy certain equity issuance conditions, in shares of common stock. Pursuant to the October 14, 2016
amended terms, if we don't satisfy equity issuance conditions, then we may elect to accrue the value of the dividend and add it to the preferred share's stated value.
-
-
Conversion
at the preferred stockholder's discretion, each share of preferred stock
is convertible into 333.3 shares of our common stock, subject to adjustment for any unpaid dividends. Prior to the October 14, 2016 amendment, the conversion rate was subject to anti-dilution
protection for offerings consummated at a per-share price of less than $3.00 per common share. This down-round provision was removed as part of the October 14, 2016 amendment.
-
-
Mandatory Redemption
unless previously converted, on May 20, 2020, at our
option we will either redeem the preferred stock with (a) cash equal to $1,000 per share plus any unpaid
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Table of Contents
dividends
(
Redemption Value
), or (b) shares of common stock determined by dividing the Redemption Value by a conversion rate equal to the lower
of (i) the conversion rate then in effect (which is currently $3.00) or (ii) 85% of the then trading price, as defined, of our common stock. As part of the October 14, 2016
amendment, a floor was established for all but 16,500 shares of preferred stock such that the redemption ratio cannot be below $0.50 per common share. For the 16,500 shares of preferred stock, a floor
of $2.49 was already in place and remained unchanged. If we were to redeem with shares of common stock, the actual number of shares that would be issued upon redemption is not determinable as the
number is contingent upon the then trading price of our common stock. Generally, if we were to redeem with shares, the number of common shares needed for redemption increases as our common stock price
decreases. Because of the October 14, 2016 amendment, the maximum number of common shares issuable upon redemption is determinable given the redemption conversion floors. If we elect to redeem
with shares of common stock, and we fail to meet certain conditions with respect to the issuance of equity, then we would be subject to a 20% penalty of the maturity redemption price, payable in
either cash or shares of common stock. This penalty is subject to, and therefore possibly limited by, a $0.50 per share floor.
-
-
Voting
except for certain matters that require the approval of the preferred
stockholders, such as changes to the rights and preferences of the preferred stock, the preferred stock does not have voting rights. However, the holders of the preferred stock are entitled to appoint
two board members and, under certain circumstances, appoint a third member.
We
are adjusting the carrying balance of our preferred stock to its Redemption Value using the effective interest-rate method over a period of time beginning from the issuance date of
May 20, 2015 to the required redemption date of May 20, 2020. During the six months ended June 30, 2018 and 2017, we recognized accretion of $0.4 million and
$0.8 million, respectively. Accretion includes cumulative preferred dividends. Pursuant to the October 14, 2016 amendment, accumulated unpaid dividends from the issuance date through
April 1, 2017 were added to the stated value of the preferred stock. Subsequently, we began making quarterly dividend payments. As of June 30, 2018, the accumulated unpaid dividends on
preferred stock were $0.4 million. During the six months ended June 30, 2018, we made cash dividend payments of $0.7 million. No dividend payments were made during the six months
ended June 30, 2017. During the six months ended June 30, 2018 there was no change in accumulated dividends.
During
June 2017, the largest preferred shareholder (RLJ SPAC Acquisition, LLC) converted a total of 15,000 shares of preferred stock and $2.7 million of accumulated
dividends into 5.9 million shares of common stock.
NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS
Summary of new accounting pronouncements adopted during 2018 is as follows:
On
January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to all contracts as of January 1, 2018. Results for reporting periods beginning
after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
We
recorded a net increase to opening accumulated deficit of $0.7 million as of January 1, 2018 due to the cumulative impact to revenues and cost of sales of adopting Topic
606, with the impact primarily related to renewals for licensing agreements within our Wholesale Distribution segment. Under the new standard, renewals are a separate deliverable for which revenue
should generally be
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Table of Contents
deferred
and recognized when the renewal period begins. Under the prior standards, renewals were generally recognized as revenue when entering into an amendment.
The
cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606, RevenueRevenue from Contracts with
Customers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
As previously
reported
|
|
Adjustment
due to
Topic 606
|
|
|
|
(In thousands)
|
|
As revised
|
|
Liabilities and Shareholders' Equity
|
|
Accrued royalties and distribution fees
|
|
$
|
47,414
|
|
$
|
(310
|
)
|
$
|
47,104
|
|
Deferred revenue
|
|
|
2,859
|
|
|
1,057
|
|
|
3,916
|
|
Accumulated deficit (Revised)(1)
|
|
|
(130,842
|
)
|
|
(747
|
)
|
|
(131,589
|
)
|
-
(1)
-
Our
previously reported accumulated deficit was revised due to a correction of an immaterial misstatements in our prior period financial statements related to our
deferred tax liablility resulting from us tax affecting our ACL equity earnings without taking into account distributions received. The correction decreased our accumulated deficit by
$2.7 million to $130.8 million from $133.5 million.
Upon
adoption of the new revenue standards, we also made certain other reclassifications within our consolidated balance sheet, which pertained to sales of physical product within our
Wholesale Distribution segment, as follows:
-
-
We estimate a certain amount of inventory that will be received when processing sales returns. This amount of inventory to be received had been
included within our inventory balance. This amount is now included within prepaid expenses and other assets. As of December 31, 2017, the inventory balance reclassified was $0.5 million.
-
-
We have reclassified our sales return reserve from accounts receivable to accounts payable and accrued liabilities. Our sales return reserve as
of December 31, 2017 was $4.2 million.
The
impact of adoption on our operating results for the three and six months ended June 30, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2018
|
|
|
|
|
|
Balance
without
Topic 606
|
|
Effect of
Change
|
|
(In thousands)
|
|
As reported
|
|
Statement of Operations
|
|
Revenues
|
|
$
|
21,474
|
|
$
|
21,417
|
|
$
|
57
|
|
Content amortization and royalties
|
|
|
7,562
|
|
|
7,561
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30, 2018
|
|
(In thousands)
|
|
|
|
Balance without
Topic 606
|
|
Effect of
Change
|
|
|
As reported
|
|
Statement of Operations
|
|
Revenues
|
|
$
|
40,056
|
|
$
|
39,328
|
|
$
|
728
|
|
Content amortization and royalties
|
|
|
14,258
|
|
|
13,919
|
|
|
339
|
|
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Table of Contents
A
summary of the accounting pronouncement issued but, not required to be adopted as of June 30, 2018 is as follows:
In
February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on
the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in
the income statement. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain
practical expedients available. We are currently evaluating the impact of the pending adoption of this new standard on our financial statements and we have yet to determine the overall impact this ASU
is expected to have. The likely impact will be one of presentation only on our consolidated balance sheet. Our leases currently consist of operating leases with varying expiration dates through 2022
and our future minimum lease commitments before sub-lease income total $3.8 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with US GAAP, which requires management to make estimates, judgments and
assumptions that affect the amounts reported in our consolidated financial statements. Management considers an accounting policy to be critical if it is important to our financial condition and
results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been
determined by management and the related disclosures have been reviewed with the Audit Committee of our Board of Directors. We consider the following accounting policies to be critical in the
preparation of our consolidated financial statements:
Revenue Recognition
Revenues from our digital channels are recognized on a straight-line basis over the subscription period once the subscription has been
activated.
Revenues
from home video exploitation, which includes IP Licensing and Wholesale Distribution revenues, are recognized upon meeting the recognition requirements of the Financial
Accounting Standards Board Accounting Standards Codification (or
ASC
)
926
,
EntertainmentFilms
and
ASC 605,
Revenue Recognition
. We generate our IP Licensing
and Wholesale Distribution revenues primarily from the exploitation of acquired or produced content rights through various distribution channels. The content is monetized in DVD format to wholesalers,
licensed to broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows such as VOD. Revenues are presented net of sales returns, rebates,
unit price adjustments, sales return reserves, sales discounts and market development fund reserves. Revenues from our U.K. catalog sales are recognized, net of an allowance for estimated returns,
once payment has been received from the customer and the items ordered have been shipped.
Revenues
from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our
wholesale partners (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after "street date" restrictions
lapse). Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts
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are
determinable. Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the
licensee and all other recognition requirements are met such as the broadcaster is free to air the programming. Fees received in advance of availability, usually in the case of advances received from
international home video sub-licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied. Provisions for sales returns and
uncollectible accounts receivable are provided at the time of sale.
For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales
allowances and other credits given, and delinquent accounts. Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise
of judgment and affect reported revenues and net earnings. In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive
returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity. Based on this
information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit. Actual returns could differ from our estimates and
current provisions for sales returns and allowances, resulting in future charges to earnings. Estimates of future sales returns and other credits are subject to substantial uncertainty. Factors that
could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space
at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar
titles, and poor responses to package designs. Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.
Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.
Investments in Content
Investments in content include the unamortized costs of completed and uncompleted films and television programs that were acquired or produced.
Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.
Royalty and Distribution Fee AdvancesWhen acquiring titles, we often make a royalty and distribution fee advances that represent a
fixed minimum payment made to program suppliers for exclusive content distribution rights. A program supplier's share of exclusive program distribution revenues is retained by us until the share
equals the advance(s) paid to the program supplier plus recoupable costs. Thereafter, any excess is paid to the program supplier. In the event of an excess, we also record, as content amortization and
royaltiesa component of cost of sales, an amount equal to the program supplier's share of the net distribution revenues.
Original
Production CostsFor films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as
production overhead.
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Table of Contents
Unamortized
content investments for our Digital Channels are charged to content amortization and royalties using the straight-line method over the license term for which the content is
available to the Digital Channels.
For
IP Licensing and Wholesale Distribution, unamortized content investments are charged to content amortization and royalties as revenues are earned in the same ratio that current
period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.
Ultimate
revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed
10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.
Investments
in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or
change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized
costs exceed the estimated fair value of the film or television program. Estimates of future revenues involve measurement uncertainty and it is therefore possible that reductions in the carrying value
of investment in films and television programs may be required as a consequence of changes in management's future revenue estimates.
Content
programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to
amortize these investments once the content has been released.
The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the
optical disc format. Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related
to disc manufacturing, ancillary material production, product packaging design and related services. These costs are capitalized as incurred. A percentage of the capitalized production costs are
amortized to expense based upon: (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management's
estimate of the ultimate net realizable value of the production costs. Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly. If estimated
future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.
Inventories
For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales. Values in excess of
anticipated future sales are recorded as
obsolescence reserve. Inventories consist primarily of packaged goods for sale, which are stated at average cost, as well as componentry.
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Table of Contents
Goodwill and Other Intangible Assets
Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a
business acquisition. Goodwill is recorded at our reporting units, which are consolidated into our reporting segments. Goodwill is not amortized but is reviewed for impairment annually on
October 1
st
of each year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting
unit is less than its carrying value. Goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value
of the reporting unit is less than the reporting unit's carry amount, including goodwill. An impairment loss is then measured as the excess of recorded goodwill over the value of the goodwill. The
calculated value of goodwill is determined as the difference between the reporting unit's current fair value and its book value, without goodwill. The determination of a reporting unit's fair value
requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should
actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.
Other intangible assets are reported at their estimated fair value, when acquired, less accumulated amortization. The majority of our intangible
assets were recognized as a result of the Business Combination. As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting. Additions since the 2012 Business
Combination are limited to software expenditures related to our websites and various digital platforms such as Roku and AppleTV. Similar to how we account for internal-use software development, costs
incurred to develop and implement our websites and digital platforms are capitalized in accordance with ASC 350-50,
Website Development Costs
.
Website operating costs are expensed as incurred. Costs incurred for upgrades and enhancements that provide additional functionality are capitalized.
Amortization
expense of our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the
estimated useful lives of trade names (11 to 15 years), websites and digital platforms (three years), supplier contracts (seven years), customer relationships (five years), options on future
content (seven years) and leases (two years). The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the
first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life. The recorded value of our options on future content is amortized based on forecasted
future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.
Additional
amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected. Other intangible assets
are reviewed for impairment when an event or circumstance indicates the fair value is lower than the current carrying value.
Warrant and Other Derivative Liabilities
We have warrants outstanding to purchase 21.3 million shares of our common stock. In October 2016, we issued three separate warrants to
our senior lender to acquire a total of 20.0 million shares of our common stock. For one of these warrants issued to acquire 5.0 million shares of common stock, we
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Table of Contents
are
accounting for the warrant as a derivative liability because the warrant contains a provision that may increase the number of shares acquirable for no additional consideration. This increase is
contingent upon the number of shares of common stock outstanding at the time of exercise. Derivative liability warrants are carried on our consolidated balance sheet at their fair value with changes
in fair value being included in the consolidated statement of operations as a separate component of other income (expense).
In
May 2015, we issued additional warrants to acquire 3.1 million shares of our common stock. We were accounting for these warrants as a derivative liability because, among other
provisions, the warrants contained a provision that allows the warrant holders to sell their warrants back to us, at their discretion, at a cash purchase price equal to the warrants' then fair value,
upon the consummation of certain fundamental transactions, such as a business combination or other change-in-control transactions. In October 2016, the 2015 warrants were amended and they are now
being accounted for within shareholders' equity.
Warrants
issued in 2012 to acquire 7.0 million shares of common stock contain a provision whereby the exercise price would be reduced if RLJE is reorganized as a private company.
Because of this provision, we accounted for those warrants as a derivative liability in accordance with ASC 815-40,
Contracts in Entity's Own
Equity
. The 2012 Warrants expired on October 3, 2017.
Our
preferred stock is convertible into shares of common stock at an exchange rate equal to 333.3 shares of common stock for each share of preferred stock, subject to adjustment for any
unpaid dividends. The conversion rate is subject to certain anti-dilution protections. Those protections did include an adjustment for offerings consummated at a per-share price of less than $3.00 per
common share. Because of this potential adjustment to the conversion rate, we had bifurcated the conversion feature from its host instrument (a preferred share) and we were accounting for the
conversion feature as a derivative liability. In October 2016, we amended the conversion feature to avoid liability accounting and as such we now account for the conversion feature as part of the host
instrument.
Income Taxes
We account for income taxes pursuant to the provisions of ASC 740,
Income Taxes
, whereby
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and
their respective tax bases and the future tax benefits derived from operating loss and tax credit
carryforwards. We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized.
ASC 740
requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the
technical merits of the position. The first step is to determine whether or not a tax benefit should be recognized. A tax benefit will be recognized if the weight of available evidence indicates that
the tax position is more likely than not to be sustained upon examination by the relevant tax authorities. The recognition and measurement of benefits related to our tax positions requires significant
judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and our assumptions, or
changes in our assumptions in future periods, are recorded in the period they become known. For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of
income tax expense, and penalties, if incurred, are recognized as a component of operating expense.
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Table of Contents
Off-Balance Sheet Arrangements
We typically acquire content via separately executed licensing or distribution agreements with content suppliers. These contracts generally
require that we make advance payments before the content is available for exploitation. Advance payments are generally due prior to and upon delivery of the related content. To the extent payment is
not due until delivery has occurred, we do not recognize our payment obligations under our licensing and distribution agreements prior to the content being delivered. As of December 31, 2017,
we had entered into licensing and distribution agreement for which we are obligated to pay $7.2 million once the related content has been delivered.
Book Value Per Share
Our net book value per share as of June 30, 2018 was approximately $0.7153 (calculated based on 15,138,250 shares of Common Stock
outstanding as of such date).
Market Price of the Common Stock and Dividend Information
Market Information
Our common stock is traded on The NASDAQ Capital Market® under the symbol "RLJE". The table below presents the quarterly high and
low closing sales prices of our common stock reported by NASDAQ.
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
High
|
|
Low
|
|
2018
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.08
|
|
$
|
3.70
|
|
Second Quarter
|
|
$
|
5.06
|
|
$
|
4.40
|
|
Third Quarter (through 8/23)
|
|
$
|
6.19
|
|
$
|
4.45
|
|
2017
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2.52
|
|
$
|
1.46
|
|
Second quarter
|
|
$
|
3.31
|
|
$
|
2.46
|
|
Third quarter
|
|
$
|
4.46
|
|
$
|
2.91
|
|
Fourth quarter
|
|
$
|
4.40
|
|
$
|
3.25
|
|
2016
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2.97
|
|
$
|
1.41
|
|
Second quarter
|
|
$
|
2.70
|
|
$
|
1.58
|
|
Third quarter
|
|
$
|
2.90
|
|
$
|
1.88
|
|
Fourth quarter
|
|
$
|
2.28
|
|
$
|
1.34
|
|
The
closing price of our Common Stock on the Nasdaq Capital Market on July 27, 2018, the last trading day prior to the public announcement of the Merger Agreement, was $4.87 per
share of our Common Stock. The Merger Consideration of $6.25 per share represented a premium of approximately 28.3% over the closing price per share on July 27, 2018. On
[
·
], the most recent practicable date before this Proxy Statement was mailed to
our Stockholders, the closing price for our Common Stock on the Nasdaq Capital Market was
$[
·
] per share. You are encouraged to obtain current market quotations for our
Common Stock in connection with voting your shares of Common Stock.
As
of the Record Date, we had [
·
] Stockholders.
We
have not paid any cash dividends on our Common Stock to date and do not anticipate paying any cash dividends in the foreseeable future. Under the terms of the Merger Agreement, we are
not
144
Table of Contents
permitted
to declare or pay any dividends on any shares of our capital stock unless consented to in writing by Parent (or as expressly permitted by the Merger Agreement or as required by applicable
law).
AMC Networks Acquisition Proposal
On February 27, 2018, we announced the formation of the Special Committee of the Board of Directors to consider the February 26,
2018 proposal from AMC to acquire all of our outstanding common stock and outstanding rights to acquire our common stock not owned by AMC or entities affiliated with Robert L. Johnson, Chairman of our
Board of Directors.
F-81
Table of Contents
ANNEX A
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
By and Among
RLJ ENTERTAINMENT, INC.,
AMC NETWORKS INC.
(solely for the purposes of
Section 10.7 hereof),
DIGITAL ENTERTAINMENT HOLDINGS LLC
and
RIVER MERGER SUB INC.
Dated as of July 29, 2018
Table of Contents
TABLE OF CONTENTS
Table of Contents
A-ii
Table of Contents
A-iii
Table of Contents
EXHIBITS
EXHIBITS
|
|
|
Exhibit A
|
|
Form of Amended and Restated Articles of Incorporation of the Surviving Corporation
|
Exhibit B
|
|
Form of Amended and Restated Bylaws of the Surviving Corporation
|
SCHEDULES
Company
Disclosure Letter
Parent
Disclosure Letter
A-iv
Table of Contents
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "
Agreement
"), dated as of July 29, 2018, is
entered into by and among RLJ Entertainment, Inc., a Nevada corporation (the "
Company
"), AMC Networks Inc., a Delaware corporation
("
Ultimate Parent
"), Digital Entertainment Holdings LLC, a Delaware limited liability company and Wholly Owned Subsidiary of Ultimate Parent
("
Parent
"), and River Merger Sub Inc., a Nevada corporation and Wholly Owned Subsidiary of Parent ("
Merger
Sub
" and, together with the Company, Ultimate Parent and Parent, the "
Parties
" and each, a
"
Party
"). Ultimate Parent is made a Party to this Agreement solely for purposes of Section 10.7 hereof.
RECITALS
WHEREAS, the Parties intend that, subject to the terms and conditions of this Agreement, Merger Sub shall merge with and into the Company (the
"
Merger
"), with the Company surviving the Merger, pursuant to the provisions of the NRS;
WHEREAS,
pursuant to resolutions of the Company Board heretofore adopted and currently in effect, the Company Board has granted the Special Committee the full power and authority of the
Company Board under NRS 78.125(1) with respect to the Merger and any alternative transaction among the Company, Ultimate Parent, Parent and Merger Sub;
WHEREAS,
the Special Committee has unanimously (a) determined that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of,
the Company and the Unaffiliated RLJE Stockholders, (b) adopted, pursuant to NRS 92A.120, this Agreement and the transactions contemplated by this Agreement, (c) directed that this
Agreement be submitted for approval by a vote of the holders of Shares at the Company Stockholders' Meeting, and (d) recommended that the holders of Shares affirmatively vote to approve this
Agreement;
WHEREAS,
the sole member of Parent has (a) determined that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of, Parent,
and (b) approved and declared advisable this Agreement and the transactions contemplated by this Agreement;
WHEREAS,
the board of directors of Merger Sub has unanimously (a) adopted, pursuant to NRS 92A.120, this Agreement and the transactions contemplated by this Agreement,
(b) determined that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of Merger Sub and Parent (as Merger Sub's sole stockholder), and
(c) recommended that Parent (as Merger Sub's sole stockholder) approve this Agreement; and
WHEREAS,
Parent intends to exercise the AMC Warrants, in full, prior to the record date for holders of Common Stock entitled to notice of and to vote in respect of this Agreement and the
Merger at the Company Stockholders Meeting, upon which conversion, Ultimate Parent shall become the owner of a majority of the outstanding voting power of the then-outstanding Common Stock;
WHEREAS,
concurrently with the execution and delivery of this Agreement, as a condition and inducement to Ultimate Parent's, Parent's and Merger Sub's willingness to enter into this
Agreement, the Company and the Johnson Entities, as beneficial owners of (i) Shares representing, in the aggregate, 43.7 percent of the issued and outstanding Shares as of the date of
this Agreement and (ii) 2015 Warrants, are entering into a Voting and Transaction Support agreement with Parent (the "
Voting Agreement
"),
pursuant to which such Persons have agreed to, among other things, vote the Shares beneficially owned by each of them in favor of the approval of this Agreement as more particularly set forth therein;
WHEREAS,
immediately prior to the Closing, the Johnson Entities will contribute all of the Shares and 2015 Warrants beneficially owned by them to Parent; and
WHEREAS,
the Parties desire to make certain representations, warranties, covenants and agreements in connection with the transactions contemplated by this Agreement.
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NOW,
THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements set forth in this Agreement, the Parties, intending to be legally
bound, agree as follows:
ARTICLE I
Definitions; Interpretation and Construction
1.1.
Definitions.
For
the purposes of this Agreement, except as otherwise specifically provided herein, the following terms have meanings set forth in this Section 1.1:
"
2015 Warrant Consideration
" has the meaning set forth in Section 4.1(c).
"
2015 Warrants
" means the warrants to purchase Shares with an initial exercise date of May 20, 2015.
"
Acquisition Proposal
" means any (a) proposal, offer, inquiry or indication of interest (other than one made or submitted to the
Company by Ultimate Parent, Parent or Merger Sub) relating to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, spin-off,
share exchange, business combination or similar transaction involving the Company or any of its Subsidiaries or (b) acquisition by any Person or "group" (as defined in Section 13 of the
Exchange Act), other than Ultimate Parent, Parent or Merger Sub, resulting in, or any proposal, offer, inquiry or indication of interest that if consummated would result in, any Person or group (as
defined under Section 13 of the Exchange Act), other than Ultimate Parent, Parent or Merger Sub, becoming the beneficial owner of, directly or indirectly, in one or a series of related
transactions, 25% or more of the total voting power of the then-outstanding equity securities of the Company or any of its Subsidiaries, or 25% or more of the consolidated net revenues, net income or
total assets (
it being understood
that total assets include equity securities of Subsidiaries) of the Company, in each case other than the transactions
contemplated by this Agreement.
"
Affiliate
" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control
with such Person as of the date on which, or at any time during the period for which, the determination of affiliation is being made (for purposes of this definition, the term "control" (including the
correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such Person, whether through the ownership of voting securities, by Contract or otherwise);
provided
, that
(i) with respect to Parent, the term "Affiliate" means only Ultimate Parent and its Subsidiaries (and, for the avoidance of doubt, does not include the Company or its Subsidiaries or any other
Persons that are not controlled by Ultimate Parent) and (ii) with respect to the Company, the term "Affiliate" includes (among other Persons) Agatha Christie Limited and Agatha Christie
Productions Limited, but does not include Ultimate Parent or its Subsidiaries.
"
Agreement
" has the meaning set forth in the Preamble.
"
Alternative Acquisition Agreement
" means any letter of intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement (other than a Permitted Confidentiality Agreement) relating to any Acquisition
Proposal.
"
AMC Transaction Documents
" means (i) the Investment Agreement; (ii) the Voting Agreement, dated as of August 19,
2016, by and among the Company, Parent and certain stockholders of the Company; (iii) the Registration Rights Agreement, dated as of October 14, 2016, by and between the Company and
Parent; (iv) the Stockholders' Agreement, dated as of October 14, 2016, by and among
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the
Company, Parent and certain stockholders of the Company; (v) the Credit Agreement; and (vi) the Waiver Agreements, dated as of August 19, 2016, by and among the Company and
certain holders of securities of the Company.
"
AMC Warrants
" means the Class A, Class B and Class C warrants held by Parent to purchase Shares with an initial
exercise date of October 14, 2016.
"
Applicable Date
" means December 31, 2017.
"
Articles of Merger
" means the articles of merger pursuant to NRS 92A.200 relating to the Merger to be filed at or prior to the Effective
Time with the Nevada Secretary of State.
"
Audit Committee
" means the audit committee of the Company Board.
"
Bankruptcy and Equity Exception
" has the meaning set forth in Section 5.4(a).
"
Book-Entry Share
" means each book-entry account formerly representing any non-certificated Eligible Shares or Eligible Preferred Shares.
"
Business Day
" means any day ending at 11:59 p.m. (New York time) other than a Saturday or Sunday or a day on which
(a) banks in Las Vegas, Nevada or New York, New York are required or authorized by Law to close, or (b) for purposes of determining the Closing Date only, the Nevada Secretary of State
is required or authorized by Law to close.
"
Bylaws
" has the meaning set forth in Section 3.2.
"
Certificate
" means each certificate formerly representing any of the Eligible Shares or Eligible Preferred Shares.
"
Change of Recommendation
" means any of the actions set forth in clauses (A) through (E) of Section 7.2(d)(i).
"
Charter
" has the meaning set forth in Section 3.1.
"
Chosen Courts
" means the state and federal courts sitting in Clark County, Nevada.
"
Closing
" means the closing of the transactions contemplated by this Agreement.
"
Closing Date
" means such date on which the Closing actually occurs.
"
Code
" means the Internal Revenue Code of 1986.
"
Common Stock
" means the common stock, par value $0.001 per share, of the Company and any other class of securities into which such stock
may hereafter be reclassified or changed.
"
Company
" has the meaning set forth in the Preamble.
"
Company 401(k) Plan
" means the RLJ Entertainment 401(k) Plan, effective October 3, 2012.
"
Company Benefit Plan
" means any benefit or compensation plan, program, policy, practice, Contract or other obligation, whether or not in
writing and whether or not funded, in each case, which is sponsored or maintained by, or required to be contributed to, or with respect to which any potential liability is borne by, the Company or any
of its Subsidiaries, including "employee benefit plans" within the meaning of Section 3(3) of ERISA ("
ERISA Plans
"), employment, consulting,
retirement, severance, termination or "change of control" agreements, deferred compensation, equity-based, incentive, bonus, supplemental retirement, profit sharing, insurance, medical, welfare,
fringe or other benefits or remuneration of any kind.
"
Company Board
" means the board of directors of the Company.
"
Company Cash
" has the meaning set forth in Section 4.2(a)(i).
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"
Company Compensation Committee
" means the compensation committee of the Company Board.
"
Company Disclosure Letter
" has the meaning set forth in Article V.
"
Company Employee
" means any current or former employee (whether full- or part-time and, including any officer), director or independent
contractor (who is a natural person) of the Company or any of its Subsidiaries.
"
Company Equity Awards
" means, collectively, the Company Options, Company Restricted Shares, Company RSUs and Company PSUs.
"
Company Intellectual Property Contract
" has the meaning set forth in Section 5.20(i).
"
Company Intellectual Property Rights
" means any and all Intellectual Property Rights that are owned by or exclusively licensed to the
Company or any of its Subsidiaries, or purported to be owned by or exclusively licensed to the Company or any of its Subsidiaries, including all rights in and to the Company Programs.
"
Company Material Contract
" has the meaning set forth in Section 5.12(a)(xx).
"
Company Option
" means any outstanding option to purchase Shares granted under the Incentive Plan.
"
Company Programs
" means any and all Programs to which the Company or any of its Subsidiaries owns or controls any right, title and
interest.
"
Company PSU
" means any outstanding performance stock unit granted under the Incentive Plan.
"
Company Recommendation
" has the meaning set forth in Section 5.4(b).
"
Company Reports
" means the forms, statements, certifications, reports and documents required to be filed with or furnished by the Company
to the SEC pursuant to the Exchange Act or the Securities Act since the Applicable Date (other than any documents filed by the Company with the SEC on a voluntary basis by means of a Current Report on
Form 8-K and other than the Schedule 13E-3 and the Proxy Statement; such excepted filings being referred to collectively as the "Excluded Filings"), including financial statement notes,
exhibits and schedules thereto and all other information incorporated by reference therein and any amendments and supplements thereto and those forms, statements, certifications, reports and documents
filed with or furnished to the SEC by the Company subsequent to the date of this Agreement (other than the Excluded Filings), including financial statement notes, exhibits and schedules thereto and
all other information incorporated by reference and any amendments and supplements thereto.
"
Company Restricted Share
" means any outstanding restricted stock award granted under the Incentive Plan.
"
Company RSU
" means any outstanding restricted stock unit granted under the Incentive Plan.
"
Company Stockholders Meeting
" means the special meeting of stockholders of the Company to be held for the purpose of submitting this
Agreement to the holders of record of the Common Stock for their consideration and approval.
"
Confidentiality Agreement
" means the Mutual Non-Disclosure Agreement, dated as of October 14, 2016, by and between Rainbow Media
Holdings LLC, an Affiliate of Ultimate Parent, and the Company, as amended by the Letter Agreement, dated as of April 13, 2018, and as supplemented by the Clean Team Non-Disclosure
Agreement, dated as of April 13, 2018, by and between Ultimate Parent and the Company, as amended by Amendment No. 1 to Exhibit A to the Clean Team Non-Disclosure Agreement, dated
as of June 8, 2018.
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"
Continuing Employees
" means the employees of the Company and its Subsidiaries at the Effective Time who continue to remain employed with
the Company or its Subsidiaries.
"
Contract
" means any legally binding contract, agreement, lease, license, note, mortgage, indenture, arrangement or other obligation.
"
Contribution Agreement
" means the Contribution Agreement, dated as of July 29, 2018, between the Johnson Entities and Parent.
"
Controlled Group Liability
" means any and all liabilities (1) under Title IV of ERISA, (2) under Section 302 of
ERISA, (3) under Sections 412 and 4971 of the Code, and (4) as a result of a failure to comply with the continuation coverage requirements of Section 601
et seq
. of ERISA and
Section 4980B of the Code.
"
Conversion Amount
" means, with respect to each share of Preferred Stock, as of the applicable date of determination, the sum of
(1) the Stated Value plus (2) all accrued and unpaid dividends on such share, whether or not declared (other than Capitalized Dividends, as defined in the certificate of designation for
such share) and any accrued and unpaid Late Charge (as defined in the certificate of designation for such share).
"
Converted Option Award
" has the meaning set forth in Section 4.3(a)(ii).
"
Converted PSU Award
" has the meaning set forth in Section 4.3(d)(ii).
"
Converted RSU Award
" has the meaning set forth in Section 4.3(c)(ii).
"
Credit Agreement
" means the Credit and Guaranty Agreement, dated as of October 14, 2016, by and among the Company, certain
subsidiaries of the Company as Guarantors and Parent, as amended by the First Amendment thereto, dated as of January 30, 2017, and the Second Amendment thereto, dated as of June 16,
2017.
"
D&O Insurance
" has the meaning set forth in Section 7.13(b).
"
Delisting Period
" has the meaning set forth in Section 7.10.
"
Dissenting Share
" means each share of Preferred Stock owned by a Dissenting Stockholder as to which the Dissenting Stockholder has duly
demanded and perfected, and has not withdrawn or otherwise waived or lost, dissenter's rights pursuant to NRS 92A.300 through NRS 92A.500.
"
Dissenting Stockholder
" means a holder of Dissenting Shares who has duly demanded and perfected, and has not withdrawn or otherwise
waived or lost, dissenter's rights pursuant to NRS 92A.300 through NRS 92A.500.
"
DTC
" means The Depositary Trust Company.
"
Effective Time
" means the date and time when the Articles of Merger have been duly filed with and accepted by the Nevada Secretary of
State, or such later date and time as may be agreed by the Parties in writing and specified in the Articles of Merger in accordance with the NRS.
"
Eligible 2015 Warrants
" means each 2015 Warrant issued and outstanding immediately prior to the Effective Time other than 2015 Warrants
owned by Ultimate Parent, Parent, Merger Sub or any other Affiliate of Parent.
"
Eligible Preferred Share
" means each share of Preferred Stock issued and outstanding immediately prior to the Effective Time other than
Dissenting Shares and shares of Preferred Stock owned by Ultimate Parent, Parent, Merger Sub or any other Affiliate of Parent.
"
Eligible Shares
" has the meaning set forth in Section 4.1(a).
"
Encumber
" has the meaning set forth in the definition of "Encumbrance."
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"
Encumbrance
" means any pledge, lien, charge, option, hypothecation, mortgage, security interest, adverse right, prior assignment, or any
other encumbrance of any kind or nature whatsoever, whether contingent or absolute, or any agreement, option, right or privilege (whether by Law, Contract or
otherwise) capable of becoming any of the foregoing (and any action of correlative meaning, to "
Encumber
").
"
Environmental Law
" means any Law relating to: (a) the protection, investigation, remediation or restoration of the environment,
health, safety or natural resources; (b) the handling, labeling, management, recycling, generation, use, storage, treatment, transportation, presence, disposal, release or threatened release of
any Hazardous Substance; or (c) any noise, odor, indoor air, employee exposure, wetlands, pollution, contamination or any injury or threat of injury to persons or property relating to any
Hazardous Substance.
"
ERISA
" means the Employee Retirement Income Security Act of 1974.
"
ERISA Affiliate
" means all employers (whether or not incorporated) that would be treated together with the Company or any of the
Subsidiaries as a "single employer" within the meaning of Section 414 of the Code.
"
ERISA Plans
" has the meaning set forth in the definition of "Company Benefit Plan."
"
Exchange Act
" means the Securities Exchange Act of 1934.
"
Exchange Fund
" has the meaning set forth in Section 4.2(a)(ii).
"
Excluded Disclosure
" has the meaning set forth in Article V.
"
Excluded Shares
" means, collectively, (a) the Shares (including Shares underlying the Preferred Stock, 2015 Warrants and AMC
Warrants) owned by Ultimate Parent, Parent, Merger Sub or any other Affiliate of Parent, and (b) any Shares directly or indirectly owned by the Company or any controlled Affiliate of the
Company, in each case not held on behalf of third parties.
"
Exploit
" means, with respect to any Program, to release, copy, reproduce and distribute, perform, display, exhibit, broadcast or telecast
or otherwise commercially exploit. The meaning of the term "
Exploitation
" shall be correlative to the foregoing.
"
Export and Sanctions Regulations
" means all applicable sanctions and export control Laws in jurisdictions in which the Company or any of
its Subsidiaries do business or are otherwise subject to jurisdiction, including the U.S. International Traffic in Arms Regulations, the Export Administration Regulations, and U.S. sanctions Laws and
regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control.
"
FCPA
" means the U.S. Foreign Corrupt Practices Act of 1977.
"
GAAP
" means the generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, as applicable, as of the time of the relevant financial
statements referred to herein.
"
GDPR
" means the European Union General Data Protection Regulation (Regulation (EU) 2016/679) and all applicable Laws
promulgated thereunder or with respect to the implementation thereof.
"
Government Official
" means any official or Representative of, or any Person acting in an official capacity for or on behalf of, any
Governmental Entity, and includes any official or employee of any entity directly or indirectly owned or controlled by any Governmental Entity.
"
Governmental Approvals
" has the meaning set forth in Section 5.5(a).
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"
Governmental Entity
" means any U.S., non-U.S., or supranational governmental (including public international organizations),
quasi-governmental, regulatory or self-regulatory authority, agency, commission, body, department or instrumentality, or any court, tribunal or arbitrator or other entity or subdivision thereof or
other legislative, executive or judicial entity or subdivision thereof, in each case of competent jurisdiction.
"
Hazardous Substance
" means any substance that (a) is listed, designated, classified or regulated pursuant to any Environmental
Law; (b) is a petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, mold, radioactive material or radon; and
(c) poses a risk of harm or may be the subject of regulation or liability in connection with any Environmental Law.
"
HSR Act
" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976.
"
Incentive Plan
" means the Company's 2012 Incentive Compensation Plan, as amended.
"
Indebtedness
" means, with respect to any Person, without duplication, all obligations or undertakings by such Person (a) for
borrowed money (including deposits or advances of any kind to such Person), (b) evidenced by bonds, debentures, notes or similar instruments, (c) for capitalized leases (as determined in
accordance with GAAP) or to pay the deferred and unpaid purchase price of property or equipment, (d) pursuant to securitization or factoring programs or arrangements, (e) to maintain or
cause to be maintained the financing, financial position or covenants of others or to purchase the obligations or property of others, (f) net cash payment obligations of such Person under
swaps, options, forward sales contracts, derivatives and other hedging Contracts, financial instruments or arrangements that will be payable upon termination thereof (assuming termination on the date
of determination), (g) letters of credit, performance bonds, bank guarantees, and other similar Contracts or arrangements entered into by or on behalf of such Person, (h) all obligations
under conditional sale or other title retention agreements relating to property or assets or (i) pursuant to guarantees and arrangements having the economic effect of a guarantee of any
obligation or undertaking of any other Person contemplated by the foregoing clauses (a) through (h) of this definition (other than solely between or among any of Ultimate Parent and its
Wholly Owned Subsidiaries or solely between or among the Company and its Wholly Owned Subsidiaries), in each case including all interest, penalties and other payments due with respect thereto.
"
Indemnified Parties
" means, collectively, each present and former (determined as of the Effective Time) director or officer of the
Company or any of its Subsidiaries, in each case, when acting in such capacity.
"
Insurance Policies
" means any fire and casualty, general liability, business interruption, product liability, sprinkler and water damage,
workers' compensation and employer liability, directors, officers and fiduciaries liability policies and other liability insurance policies, including any reinsurance policies.
"
Intellectual Property Rights
" means all rights anywhere in the world, in or to: (a) Trademarks; (b) patents, patent
applications, registrations and invention disclosures, including divisionals, revisions, supplementary protection certificates, continuations, continuations-in-part, renewals, extensions, substitutes,
re-issues and re-examinations; (c) Trade Secrets; (d) published and unpublished works of authorship, whether copyrightable or not (including Software, website and mobile content, data,
databases and other compilations of information), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof;
(e) Internet domain names and URLs; and (f) rights of privacy, publicity and all other intellectual property, industrial or proprietary rights.
"
Intervening Event
" means any material event, change, effect, condition, development, fact or circumstance with respect to the Company and
its Subsidiaries or the business of the Company and its Subsidiaries, in each case taken as a whole, that (a) is unknown and not reasonably foreseeable on the date of this Agreement,
(b) does not relate to any Acquisition Proposal and (c) does not result from a breach of this Agreement by the Company, its Subsidiaries or its or their Affiliates or Representatives.
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"
Intervening Event Termination Fee
" has the meaning set forth in Section 9.5(c).
"
Intervening Event Notice Period
" has the meaning set forth in Section 7.2(d)(ii).
"
Investment Agreement
" means the Investment Agreement, dated as of August 19, 2016, by and between the Company and Parent.
"
IRS
" means the U.S. Internal Revenue Service.
"
IT Assets
" means technology devices, Software, servers, networks, workstations, routers, hubs, circuits, switches, data communications
lines, and all other information technology equipment (including computers, monitors, cameras, printers, scanners, audio and video equipment) and all data stored therein or processed thereby, and all
associated documentation.
"
Johnson Entities
" means, collectively, Robert L. Johnson, The RLJ Companies, LLC and RLJ SPAC Acquisition, LLC.
"
Knowledge
" or any similar phrase means (a) with respect to the Company, the collective actual knowledge of the individuals set
forth in Section 1.1 of the Company Disclosure Letter and any individuals that, following the date of this Agreement, replace or share the employment responsibilities of any such individuals,
in each case after reasonable inquiry of such individuals' direct reports, and (b) with respect to Parent and Merger Sub, the collective actual knowledge of the individuals set forth in
Section 1.1 of the Parent Disclosure Letter and any individuals that, following the date of this Agreement, replace or share the employment responsibilities of any such individuals, in each
case after reasonable inquiry of such individuals' direct reports.
"
Law
" means any U.S. or non-U.S. federal, state, provincial, local, municipal or other law, statute, constitution, principle of common
law, ordinance, code, standard, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental
Entity or any Order.
"
Leased Real Property
" means all leasehold or subleasehold estates and other rights to use and occupy any land, buildings, structures,
improvements, fixtures or other interest in real property held by the Company or any of its Subsidiaries.
"
Library Programs
" means any and all Company Programs that have been completed, acquired or delivered and for which the Exploitation has
commenced on or prior to the date of this Agreement.
"
Licenses
" means all licenses, permits, certifications, approvals, registrations, consents, authorizations, franchises, variances and
exemptions issued or granted by a Governmental Entity.
"
Material Adverse Effect
" means any event, change, development, circumstance, fact or effect that, individually or taken together with any
other events, changes, developments, circumstances, facts or effects is, or would reasonably be expected to be, materially adverse to the condition (financial or otherwise), properties, assets,
liabilities (contingent or otherwise), business operations or results of operations of the Company and its Subsidiaries (taken as a whole);
provided
,
however
, that none of the following, either alone or in combination, shall be taken into account in determining whether a Material Adverse Effect has
occurred or would reasonably be expected to occur:
(a) events,
changes, developments, circumstances or facts in or with respect to the economy, credit, capital, securities or financial markets or political, regulatory, trade
or business conditions in the
countries in which the Company and its Subsidiaries operate or where their products or services are contracted for, distributed or sold;
(b) events,
changes, developments, circumstances, facts or effects that are the result of factors generally affecting the industries in which the Company and its
Subsidiaries operate or in the
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geographic
markets in which they operate or where their products or services are contracted for, distributed or sold;
(c) any
loss of, or adverse event, change, development, circumstance or fact in or with respect to, the relationship of the Company or any of its Subsidiaries, contractual
or otherwise, with customers, employees, licensors, licensees, suppliers, distributors, partners or any similar relationship resulting from the entry into, or public announcement of, this Agreement or
any of the transactions contemplated by this Agreement;
(d) events
or changes in applicable accounting standards, including GAAP, or in any applicable Law;
(e) any
failure by the Company to meet any internal or public projections or forecasts or estimates of revenues or earnings;
provided
that any event, change, development, circumstance, fact or effect underlying
such failure, to the extent not otherwise expressly excepted from
being taken into account by any of clauses (a) through (k) of this definition of "Material Adverse Effect", may be taken into account in determining whether a Material Adverse Effect has
occurred or would reasonably be expected to occur;
(f) any
event, change, development or effect resulting from acts of war (whether or not declared), sabotage, terrorism, military actions or the escalation of any of the
foregoing, whether perpetrated or encouraged by a state or non-state actor or actors (other than cyberattacks), any weather event or natural disaster, or any outbreak of illness or other public health
event, epidemic or pandemic, however and by whomever (other than the Company, its Subsidiaries or any of their respective Affiliates or Representatives) caused;
(g) any
actions required to be taken by the Company or any of its Subsidiaries pursuant to this Agreement (except for any obligation to operate in the Ordinary Course of
Business) or, with Parent's prior written consent pursuant to this Agreement or at Parent's written request, any actions permitted to be taken by the Company or any of its Subsidiaries;
(h) any
action not taken by the Company or any of its Subsidiaries pursuant to this Agreement or with Parent's prior written consent or at Parent's written request;
(i) a
decline in the market price of the Shares on the NASDAQ; provided that any event, change, development or effect underlying such decline in market price, to the extent
not otherwise expressly excepted from being taken into account by any of clauses (a) through (k) of this definition of "Material Adverse Effect", may be taken into account in determining
whether a Material Adverse Effect has occurred or would reasonably be expected to occur;
(j) any
Proceeding (whether asserted derivatively in the name and right of the Company, directly by any holder of Shares or Preferred Shares, in the nature of a class
action, or otherwise) arising out of or in connection with any actions or omissions to act, or alleging or asserting any breach of fiduciary duty or violation of any Law, by any of Ultimate Parent and
its Affiliates or the Johnson Entities and its Affiliates, in each case with respect to the negotiation, decision to enter into, execution, delivery and/or performance by the Parties of this
Agreement;
(k) any
act or omission to act by Ultimate Parent, Parent, Merger Sub or the Johnson Entities (including any action, omission to act, breach or violation by Ultimate Parent,
Parent, Merger Sub or any of the Johnson Entities of or with respect to any of their respective obligations and agreements under this Agreement);
provided further
that, with respect to clauses (a), (b), (d) and (f) of this definition, such events, changes,
developments, circumstances, facts or effects (as the case may be) shall be taken into account in determining whether a "Material Adverse Effect" has occurred or would reasonably be expected to occur
to the extent they adversely and disproportionately affect the Company and its Subsidiaries
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(taken
as a whole) relative to the effect thereof on other companies of similar size operating in the geographic markets in which the Company or any of its Subsidiaries operates or its products or
services are sold.
"
Material Licenses
" has the meaning set forth in Section 5.6(c).
"
Merger
" has the meaning set forth in the Recitals.
"
Merger Sub
" has the meaning set forth in the Preamble.
"
Multiemployer Plans
" means "multiemployer plans" as defined by Section 3(37) of ERISA.
"
NASDAQ
" means the Nasdaq Global Select Market.
"
Non-U.S. Company Benefit Plan
" means a Company Benefit Plan that is maintained primarily for the benefit of Company Employees outside of
the United States.
"
NRS
" means the Nevada Revised Statutes.
"
Order
" means any order, award, judgment, injunction, writ, decree (including any consent decree or similar agreed order or judgment),
directive, settlement, stipulation, ruling, determination, decision or verdict, whether civil, criminal or administrative, in each case, that is entered, issued, made or rendered by any Governmental
Entity.
"
Ordinary Course of Business
" means conduct that is (a) consistent in nature, scope and magnitude with the past business practices
of the Company prior to the date of this Agreement and taken in the ordinary course of normal, day-to-day operations of the Company and (b) similar in nature, scope and magnitude to actions
customarily taken, without any separate or special authorization, in the ordinary course of normal, day-to-day operations of other companies of similar size to the Company and its Subsidiaries taken
as a whole.
"
Organizational Documents
" means (a) with respect to any Person that is a corporation, its articles or certificate of
incorporation, memorandum and articles of association, as the case may be, and bylaws, or comparable documents, (b) with respect to any Person that is a partnership, its certificate of
partnership, if any, and partnership agreement, or comparable documents, (c) with respect to any Person that is a limited liability company, its certificate of formation or articles of
organization and limited liability company or operating agreement, or comparable documents and (d) with respect to any other Person that is not an individual, its comparable organizational
documents.
"
Other Anti-Bribery Laws
" means, other than the FCPA, all anti-bribery, anti-corruption, anti-money-laundering and similar applicable laws
of each jurisdiction in which the Company and its Subsidiaries operate or have operated and in which any agent thereof is conducting or has conducted business involving the Company or any of its
Subsidiaries.
"
Outside Date
" has the meaning set forth in Section 9.2(a).
"
Parent
" has the meaning set forth in the Preamble.
"
Parent Disclosure Letter
" has the meaning set forth in Article VI.
"
Parent Material Adverse Effect
" means any event, change, development, circumstance, fact or effect that, individually or taken together
with any other events, changes, developments, circumstances, facts or effects, is or would reasonably be expected to prevent, materially delay or materially impair the consummation by Parent or Merger
Sub of the Merger or the transactions contemplated hereby.
"
Parties
" and "
Party
" have the meanings set forth in the Preamble.
"
Paying Agent
" has the meaning set forth in Section 4.2(a)(ii).
"
Paying Agent Agreement
" has the meaning set forth in Section 4.2(a)(iii).
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"
Per Share Merger Consideration
" means $6.25 per Share in cash, without interest.
"
Permitted Confidentiality Agreement
" has the meaning set forth in Section 7.2(b)(i).
"
Person
" means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature.
"
Personal Information
" means any information that identifies or could reasonably be used to identify an individual, and any other personal
information that is subject to any applicable Laws or the Company's or its Subsidiaries' privacy policies, including an individual's first and last name, address, telephone number, fax number, email
address, social security number or other identifier issued by a Governmental Entity (including any state identification number, driver's license number, or passport number), geolocation information of
an individual or device, biometric data, medical or health information, credit card or other financial information (including bank account information), cookie identifiers, or any other browser- or
device-specific number or identifier, or any web or mobile browsing or usage information that is linked to the foregoing.
"
Preferred Stock
" means the preferred stock of the Company, par value $0.001 per share.
"
Preferred Stock Consideration
" has the meaning set forth in Section 4.1(b).
"
Privacy and Security Policies
" has the meaning set forth in Section 5.20(l).
"
Proceeding
" means any action, cause of action, claim, controversy, complaint, demand, litigation, suit, investigation, review, mediation,
grievance, citation, summons, subpoena, inquiry, audit, hearing, originating application or legal proceeding of any nature (whether sounding in Contract, tort or otherwise, and whether civil or
criminal or brought at law or in equity) that is brought, asserted, instituted, commenced, tried, heard or reviewed by a Governmental Entity.
"
Programs
" means any and all motion pictures or television series.
"
Proxy Statement
" has the meaning set forth in Section 7.6(a)(i).
"
Registered
" means issued by, registered with, renewed by or the subject of a pending application before any Governmental Entity.
"
Replacement Financing
" has the meaning set forth in Section 7.14.
"
Representative
" means, with respect to any Person, any director, principal, partner, manager, member (if such Person is a member-managed
limited liability company or similar entity), employee (including any officer), consultant, investment banker, financial advisor, legal counsel, authorized attorneys-in-fact, accountant or other
advisor, agent or representative of such person, in each case acting in their capacity as such.
"
Requisite Company Vote
" means the approval of this Agreement by the holders of a majority of the outstanding Shares entitled to notice of
and to vote on such matter at a meeting of the holders of Common Stock duly called and held for such purpose.
"
Sarbanes-Oxley Act
" means the Sarbanes-Oxley Act of 2002.
"
Schedule
" has the meaning set forth in Section 4.3(d)(i).
"
Schedule 13E-3
" has the meaning set forth in Section 7.6(a)(i).
"
SEC
" means the U.S. Securities and Exchange Commission.
"
Securities Act
" means the Securities Act of 1933.
"
Share
" means a share of Common Stock.
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"
Software
" means any computer program, application, middleware, firmware, microcode and other software, including production and editing
software, operating systems, software implementations of algorithms, models and methodologies, in each case, whether in source code, object code or other form or format, including libraries,
subroutines and other components thereof, and all documentation relating thereto.
"
Special Committee
" means the special committee of independent and disinterested directors of the Company Board heretofore constituted,
established and authorized pursuant to duly adopted resolutions of the Company Board and NRS 78.125(1) for the purpose of, among other things, considering, negotiating and making a dispositive and
binding determination on behalf of the Company and the Company Board to approve or disapprove of the Merger and the other transactions contemplated by this Agreement.
"
Stated Value
" means, with respect to each share of Preferred Stock, the sum of (i) $1,000 per share and (ii) any
Capitalized Dividends (as defined in the certificate of designation for such share) with respect to such share of Preferred Stock, subject to adjustment for stock splits, stock dividends,
recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the initial issuance date of such share.
"
Subsidiary
" means, with respect to any Person, any other Person of which at least a majority of the securities or ownership interests
having by their terms ordinary voting power to elect a majority of the board of directors or other individuals performing similar functions is directly or indirectly owned or controlled by such Person
and/or by one or more of its Subsidiaries;
provided
, that with respect to Ultimate Parent and its Subsidiaries, the term "Subsidiary" does not include
the Company.
"
Superior Proposal
" means an unsolicited,
bona fide
written Acquisition Proposal (provided
that for purposes of this definition of "Superior Proposal", all references to 25% contained in the definition of "Acquisition Proposal" shall be deemed to be references to 75%) which the Special
Committee determines in good faith, after consultation with outside legal counsel and its financial advisor, that (a) if consummated, would result in a transaction more favorable to the
Unaffiliated RLJE Stockholders from a financial point of view than the Merger (after taking into account any revisions to the terms of this Agreement proposed by Parent pursuant to
Section 7.2(d)(ii)) and (b) for purposes of any determination to be made or action to be taken by the Special Committee pursuant to Sections 7.2(d)(ii) and 9.3(b), is capable of
being consummated on the terms proposed, taking into account all legal, financial, regulatory and approval requirements (including receipt of the requisite approval of the holders of Shares,
including, for the avoidance of doubt, any Shares issued by the Company pursuant to the exercise of the AMC Warrants or the 2015 Warrants), the sources, availability and terms of any required
financing and the existence of a financing contingency, and the identity of the Person or Persons making the proposal. For the avoidance of doubt, if the transactions contemplated by this Agreement
(after taking into account any revisions to the terms of this Agreement proposed by Parent pursuant to Section 7.2(d)(ii)) contain substantially identical financial and other terms and
conditions to those contained in an Acquisition Proposal, such Acquisition Proposal cannot be deemed by the Special Committee to be a "Superior Proposal" as compared to the proposal then provided by
Parent.
"
Superior Proposal Notice Period
" has the meaning set forth in Section 7.2(d)(ii).
"
Superior Proposal Termination Fee
" has the meaning set forth in Section 9.5(b).
"
Surviving Corporation
" has the meaning set forth in Section 2.1.
"
Tail Period
" means the six-year period from and after the Effective Time.
"
Takeover Statute
" means any "fair price," "moratorium," "interested stockholder," "control share acquisition," "business combination" or
other anti-takeover Law or similar Law enacted under state or federal Law, including NRS 78.378 through 78.3793, inclusive, and NRS 78.411 through 78.444, inclusive.
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"
Tax Returns
" means all returns and reports (including elections, declarations, disclosures, schedules, estimates,
information returns and other documents and attachments thereto) relating to Taxes or the administration of any Laws relating to Taxes, including any amendment thereof, required to be filed or
supplied to Taxing Authority.
"
Taxes
" means all income, profits, franchise, transfer, net income, gross receipts, environmental, customs duty, capital stock,
severances, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added,
ad valorem,
occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts and any interest in respect of such
penalties and additions, in each case imposed by any Taxing Authority.
"
Taxing Authority
" means any Governmental Entity having competent jurisdiction over the assessment, determination, collection or
imposition of any Tax.
"
Third-Party Consents
" has the meaning set forth in Section 7.8.
"
Trade Secrets
" means, collectively, confidential or proprietary trade secrets, inventions, discoveries, ideas, improvements, information,
know-how, data and databases, including processes, schematics, business methods, formulae, drawings, specifications, prototypes, models, designs, customer lists and supplier lists, that, in each case,
is protected under applicable trade secret Law.
"
Trademarks
" means, collectively, trademarks, service marks, brand names, certification marks, collective marks, d/b/a's, logos, symbols,
trade dress, trade names, and other indicia of origin, all applications and registrations for the foregoing, and all goodwill associated therewith and symbolized thereby, including all renewals of the
same.
"
Transaction Litigation
" has the meaning set forth in Section 7.17.
"
Ultimate Parent
" has the meaning set forth in the Preamble.
"
Ultimate Parent Common Stock
" means shares of Class A common stock, par value $0.01 per share, of Ultimate Parent.
"
Unaffiliated RLJE Stockholders
" means the holders of outstanding Shares, other than Excluded Shares.
"
Vested PSUs
" has the meaning set forth in Section 4.3(d)(i).
"
Voting Agreement
" has the meaning set forth in the Recitals.
"
Wholly Owned Subsidiary
" means, with respect to any Person, any other Person of which all of the equity or ownership interests of such
other Person are directly or indirectly owned or controlled by such first Person.
1.2.
Other Terms.
Each
of the other capitalized terms used in this Agreement has the meaning set forth where such term is first used or, if no meaning is set forth, the meaning required by the context in
which such term is used.
1.3.
Interpretation and Construction.
(a) The
table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise
affect any of the provisions of this Agreement.
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(b) All
Preamble, Recital, Article, Section, Subsection, Schedule, and Exhibit references used in this Agreement are to the preamble, recitals, articles, sections,
subsections, schedules and exhibits to this Agreement unless otherwise specified herein.
(c) Unless
the context expressly otherwise requires, for purposes of this Agreement:
(i) if
a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb);
(ii) the
terms defined in the singular have a comparable meaning when used in the plural and
vice versa
;
(iii) words
importing the masculine gender shall include the feminine and neutral genders and
vice versa
;
(iv) whenever
the words "includes" or "including" are used, they shall be deemed to be followed by the words "including without limitation";
(v) the
words "hereto," "hereof," "hereby," "herein," "hereunder" and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement; and
(vi) the
word "extent" in the phrase "to the extent" shall mean the degree to which a subject or other thing extends and such phrase shall not mean simply "if."
(d) Except
as otherwise specifically provided herein or the context expressly otherwise requires, the term "dollars" and the symbol "$" mean United States Dollars and all
amounts in this Agreement shall be paid in United States Dollars.
(e) Except
as otherwise specifically provided herein, to the extent this Agreement refers to information or documents having been "made available" (or words of similar
import) by or on behalf of one or more Parties to another Party or Parties such obligation shall be deemed satisfied if (i) such Parties or Representatives thereof made such information or
document available to such other Party or Parties or its or their Representatives, including by posting the information in a virtual data room, or (ii) such information or document is publicly
available without substantive redactions in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database of the SEC, in each case, at least one Business Day prior to the date of this
Agreement.
(f) Except
as otherwise specifically provided herein, when calculating the period of time within which, or following which, any action is to be taken pursuant to this
Agreement, the date that is the reference day in calculating such period shall be excluded. References to a number of days shall refer to calendar days unless Business Days are specified.
(g) Except
as otherwise specifically provided herein, (i) all references to any statute in this Agreement include the rules and regulations promulgated thereunder,
and unless the context otherwise requires, all applicable guidelines, bulletins or policies made in connection therewith, and (ii) all references to any Law in this Agreement shall be a
reference to such Law as amended, re-enacted, consolidated or replaced as of the applicable date or period of time.
(h) Except
as otherwise specifically provided herein, (i) all references in this Agreement to any Contract, other agreement, document or instrument (excluding this
Agreement) mean such Contract, other agreement, document or instrument as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and, unless otherwise
specified therein, include all schedules, annexes, addendums, exhibits and any other documents attached thereto or incorporated therein, and (ii) all references to this Agreement mean this
Agreement (taking into account the provisions of Section 10.11(a)) as amended, supplemented or otherwise modified from time to time in accordance with Section 10.4.
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(i) The
Company Disclosure Letter or the Parent Disclosure Letter may include items and information the disclosure of which is not required either in response to an express
disclosure requirement set forth in a provision of this Agreement or as an exception to one or more representations or warranties or covenants set forth in this Agreement. Inclusion of any such items
or information shall not be deemed to be an acknowledgement or agreement that any such item or information (or any non-disclosed item or information of comparable or greater significance) is
"material" or has had a Material Adverse Effect.
(j) The
Parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of
this Agreement.
ARTICLE II
The Merger; Closing; Effective Time
2.1.
The Merger.
Subject
to the terms and conditions of this Agreement and the applicable provisions of the NRS, (a) at the Effective Time, Merger Sub shall be merged with and into the Company and
the separate corporate existence of Merger Sub shall thereupon cease; (b) the Company shall be the surviving corporation in the Merger (sometimes referred to as the
"
Surviving Corporation
") and, from and after the Effective Time, shall be a Subsidiary of Parent and the separate corporate existence of the
Company with all of its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger; and (c) the Merger shall have such other effects as provided in the NRS.
2.2.
Closing.
The
Closing shall take place at the offices of Sullivan & Cromwell LLP, 125 Broad Street, New York, New York 10004, at 9:00 a.m. (New York time) on the third
Business Day following the satisfaction or waiver of the last of the conditions set forth in Article VIII to be satisfied (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or, to the extent permitted by Law, waiver of those conditions) or at such other date, time and place (or by means of remote communication) as the
Company and Parent may agree in writing.
2.3.
Effective Time.
As
promptly as practicable following the Closing, but on the Closing Date, the Parties shall cause the Articles of Merger to be executed and filed with the Nevada Secretary of State as
provided in NRS Chapter 92A. The Merger shall become effective at the Effective Time.
ARTICLE III
Articles of Incorporation and Bylaws; Directors and Officers of the Surviving Corporation
3.1.
Articles of Incorporation of the Surviving Corporation.
At
the Effective Time, the articles of incorporation of the Company as in effect immediately prior to the Effective Time shall be amended and restated to read in their entirety as set
forth in Exhibit A hereto, which, as so amended and restated, shall be the articles of incorporation of the Surviving Corporation (the
"
Charter
"), until thereafter amended in accordance with their terms, the terms of this Agreement and applicable Law.
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3.2.
The Bylaws of the Surviving Corporation.
At
the Effective Time, the bylaws of the Company as in effect immediately prior to the Effective Time shall be amended and restated to read in their entirety as set forth in
Exhibit B hereto, which, as so amended and restated, shall be the bylaws of the Surviving Corporation (the "
Bylaws
"), until thereafter amended in
accordance with the terms of the Charter, such bylaws, the terms of this Agreement and applicable Law.
3.3.
Directors and Officers of the Surviving Corporation.
At
the Effective Time, (i) the directors of Merger Sub immediately prior to the Effective Time shall become and constitute the only directors of the Surviving Corporation, each to
hold office until his or her successor has been duly elected or appointed and qualified or until his or her death, resignation or removal in accordance with the Organizational Documents of the
Surviving Corporation and applicable Law, and (ii) the officers of the Company immediately prior to the Effective Time shall become and constitute the only officers of the Surviving
Corporation, each to hold office until his or her successor has been duly elected or appointed and qualified or until his or her earlier death, resignation or removal in accordance with the
Organizational Documents of the Surviving Corporation and applicable Law. The Parties shall take all actions necessary to give effect to the foregoing provision, including the delivery of all
applicable instruments and notices of resignation.
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
4.1.
Effect of the Merger on Capital Stock.
At
the Effective Time, by virtue of the Merger and without any action on the part of the holder of any capital stock of the Company or on the part of the sole stockholder of Merger Sub:
(a)
Common Stock.
Each Share issued and outstanding immediately prior to the Effective Time other than the
Excluded Shares and the Company Restricted Shares, which are separately addressed in Section 4.3 (such Shares, the "
Eligible Shares
"), shall be
converted into the right to receive the Per Share Merger Consideration, and shall cease to be outstanding, shall be cancelled and shall cease to exist, and each Certificate representing Eligible
Shares, and each Book-Entry Share representing Eligible Shares, shall thereafter only represent the right to receive the Per Share Merger Consideration, payable pursuant to Section 4.2.
(b)
Preferred Stock Consideration.
Each Eligible Preferred Share for which a change-of-control cash purchase
election has been made by the record holder thereof pursuant to Section 7(b) of the certificate of designation applicable to such Eligible Preferred Share shall be entitled to receive an amount
in cash, without interest (the "
Preferred Stock Consideration
"), equal to the product of (i) 125%
multiplied
by
(ii) the product of (A) the Conversion Amount being redeemed
multiplied by
(B) the quotient of
(1) the Per Share Merger Consideration
divided by
(2) $3.00;
provided
,
however
, that if any holder
of Eligible Preferred Shares does not make such election and surrender such shares to the Paying Agent in exchange for the
Preferred Stock Consideration in accordance with Section 4.2(b) of this Agreement within 180 days following the Closing Date, such holder shall be entitled to receive, in respect of each
Eligible Preferred Share for which the holder fails to make such election, a security to be issued by the Surviving Corporation as provided in the applicable certificate of designation. Parent also
shall comply with the notice and other obligations set forth in the certificates of designation in respect of the Preferred Stock, to the extent applicable, after the date hereof and prior to the
Closing Date.
(c)
2015 Warrant Consideration.
Each Eligible 2015 Warrant shall be converted into the right to receive, as
promptly as practicable after the Effective Time, an amount in cash, without
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interest
(the "
2015 Warrant Consideration
"), equal to the product of (i) the number of Shares issuable upon exercise of such Eligible 2015
Warrant immediately prior to the Effective Time
multiplied by
(ii) the excess, if any, of (A) the Per Share Merger Consideration
minus
(B) the exercise price per Share of such Eligible 2015 Warrant. For the avoidance of doubt, any Eligible 2015 Warrant which has an exercise
price per Share that is greater than or equal to the Per Share Merger Consideration shall be cancelled at the Effective Time for no consideration, payment or right to consideration or payment.
(d)
Treatment of Excluded Shares.
Each Excluded Share shall cease to be outstanding, shall be cancelled without
payment of any consideration therefor and shall cease to exist.
(e)
Merger Sub.
Each share of common stock, par value $0.001 per share, of Merger Sub, issued and outstanding
immediately prior to the Effective Time shall be converted into one share of common stock, par value $0.001 per share, of the Surviving Corporation.
4.2.
Exchange of Certificates and Delivery of Merger Consideration.
(a)
Deposit of Merger Consideration and Paying Agent.
(i) If
and as directed by Parent in writing on or prior to the second Business Day prior to the Closing, the Company shall and shall cause its Subsidiaries to:
(A) set aside all or a portion of the aggregate cash on hand at the Company and its Subsidiaries, less any amounts required to satisfy the obligations contemplated by Section 4.3(e) as
reasonably determined by Parent (such amount of aggregate cash, the "
Company Cash
"), to be deposited at or as promptly as practicable after the
Effective Time, but on the Closing Date, with the Paying Agent; and (B) as promptly as practicable after the Effective Time, but on the Closing Date, deposit the Company Cash with the Paying
Agent.
(ii) As
promptly as practicable after the Effective Time, but on the Closing Date, Parent shall deposit, or cause to be deposited, with a paying agent selected and engaged
by Parent prior to the Closing Date that is reasonably acceptable to the Special Committee (the "
Paying Agent
"), an amount in cash in immediately
available funds sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments in respect of the Eligible Shares, Eligible Preferred Shares and Eligible 2015 Warrants
pursuant to Section 4.2(b), taking into account any Company Cash deposited with the Paying Agent pursuant to Section 4.2(a)(i) (the aggregate amount of cash deposited, the
"
Exchange Fund
").
(iii) The
agreement pursuant to which Parent appoints the Paying Agent (the "
Paying Agent Agreement
") shall be in form and
substance reasonably acceptable to the Special Committee (such acceptance not to be unreasonably conditioned, withheld or delayed). Pursuant to the Paying Agent Agreement, among other things, the
Paying Agent shall (A) act as the paying agent for the payment and delivery of the Per Share Merger Consideration and the payments in respect of Eligible Preferred Shares and Eligible 2015
Warrants pursuant to the terms of this Agreement and (B) invest the Exchange Fund, if and as directed by Parent;
provided
,
however
, that any
investment shall be in obligations of or guaranteed as to principal and interest by the U.S. government in commercial paper
obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Financial Services, LLC, respectively, in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding $10 billion (based on the most recent financial statements of such bank that are then publicly available), or in
money market funds having a rating in the highest investment category granted by a recognized credit rating agency at the time of acquisition or a combination of the foregoing and, in any such case,
no such instrument shall have a maturity exceeding 30 days. To the extent that there are losses with respect to such investments, or the Exchange Fund diminishes for any other reason below the
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level
required to make prompt payment and delivery of the aggregate Per Share Merger Consideration as contemplated Section 4.1(a), aggregate Preferred Stock Consideration as contemplated by
Section 4.1(b) and aggregate 2015 Warrant Consideration as contemplated by Section 4.1(c), Parent shall promptly replace or restore or cause the replacement or restoration of the cash in
the Exchange Fund lost through such investments or other events so as to ensure that the Exchange Fund is at all times maintained at a level sufficient to make such cash payments in full as required
by this Agreement. Any interest and other income resulting from such investment (if any) in excess of the amounts payable pursuant to Section 4.2(b) and Section 4.3(e) shall be promptly
returned to Parent or the Surviving Corporation, as determined by Parent in accordance with the terms and conditions of the Paying Agent Agreement.
(b)
Procedures for Surrender.
(i) As
promptly as reasonably practicable after the Effective Time (but in any event within three Business Days thereafter), Parent shall cause the Paying Agent to mail or
otherwise provide each holder of record of Eligible Shares and Eligible Preferred Shares that are held in the form of (A) Certificates or (B) Book-Entry Shares not held through DTC as
well as the 2015 Warrants, notice advising such holders of the effectiveness of the Merger, which notice shall include (1) appropriate transmittal materials (including a customary letter of
transmittal) specifying that delivery shall be effected, and risk of loss and title to such Certificates, Book-Entry Shares and 2015 Warrants shall pass only upon delivery of the Certificates (or
affidavits of loss in lieu of the Certificates, as provided in Section 4.2(e)) or 2015 Warrants or the surrender of such Book-Entry Shares to the Paying Agent (which shall be deemed to have
been effected upon the delivery of a customary "agent's message" with respect to such Book-Entry Shares or such other reasonable evidence, if any, of such surrender as the Paying Agent may reasonably
request pursuant to the terms and conditions of the Paying Agent Agreement), as applicable, such materials to be in such form and have such other provisions as Parent and the Company may reasonably
agree and (2) instructions for effecting the surrender of the Certificates (or affidavits of loss in lieu of the Certificates, as provided in Section 4.2(e)) or 2015 Warrants or such
Book-Entry Shares to the Paying Agent in exchange for the Per Share Merger Consideration, Preferred Stock Consideration and 2015 Warrant Consideration that such holder is entitled to receive as a
result of the Merger pursuant to Section 4.1.
(ii) With
respect to Book-Entry Shares held through DTC, Parent and the Company shall cooperate to establish procedures with the Paying Agent, DTC and such other necessary
or desirable third-party intermediaries to ensure that the Paying Agent will transmit to DTC or its nominees as promptly as practicable after the Effective Time, upon surrender of Eligible Shares held
of record by DTC or its nominees in accordance with DTC's customary surrender procedures and such other procedures as agreed by Parent, the Company, the Paying Agent, DTC and such other necessary or
desirable third-party intermediaries, the Per Share Merger Consideration to which the beneficial owners thereof are entitled pursuant to the terms of this Agreement.
(iii) Upon
surrender to the Paying Agent of Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants in accordance with the instructions set forth in
Section 4.2(b)(i) and Section 4.2(b)(ii), as applicable, the holder of such Certificate, Book-Entry Share or 2015 Warrant shall be entitled to receive in exchange therefor, and Parent
shall cause the Paying Agent to pay and deliver, out of the Exchange Fund, as promptly as practicable to such holders, an amount in cash in immediately available funds (after giving effect to any
required Tax withholdings as provided in Section 4.2(f)) equal to the aggregate Per Share Merger
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Consideration,
Preferred Stock Consideration and 2015 Warrant Consideration that such holder is entitled to receive as a result of the Merger pursuant to Section 4.1.
(iv) For
the avoidance of doubt, no interest will be paid or accrued for the benefit of any holder of Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants on
any amount payable upon the surrender of any Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants.
(v) In
the event of a transfer of ownership of any Certificate that is not registered in the stock transfer books or ledger of the Company, or if the consideration payable
is to be paid in a name other than that in which the Certificate or Certificates surrendered or transferred in exchange therefor are registered in the stock transfer books or ledger of the Company, a
check for any cash to be exchanged upon due surrender of any such Certificate or Certificates may be issued to such a transferee if the Certificate or Certificates is or are properly endorsed and
otherwise in proper form for surrender and presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable transfer Taxes
have been paid or are not applicable, in each case, in form and substance reasonably satisfactory to Parent and the Paying Agent. Payment of the applicable Per Share Merger Consideration with respect
to Book-Entry Shares shall only be made to the Person in whose name such Book-Entry Shares are registered in the stock transfer books or ledger of the Company.
(c)
Transfers.
From and after the Effective Time, there shall be no transfers on the stock transfer books or
ledger of the Company of the Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants. If, after the Effective Time, any Certificate, 2015 Warrant or acceptable evidence of a Book-Entry
Share formerly representing any Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants, as applicable, is presented to the Surviving Corporation, Parent or the Paying Agent for transfer,
it shall be cancelled and exchanged for the cash amount in immediately available funds to which the holder thereof is entitled pursuant to this Article IV and in accordance with
Section 4.2(b)(v).
(d)
Termination of Exchange Fund.
(i) Any
portion of the Exchange Fund (including the proceeds of any investments thereof (if any)) that remains unclaimed by the holders of Shares for one year from and
after the Closing Date shall be delivered to Parent or the Surviving Corporation, as determined by Parent. Any holder of Eligible Shares, Eligible Preferred Shares or Eligible 2015 Warrants who has
not theretofore complied with the procedures, materials and instructions contemplated by this Section 4.2 shall thereafter look only to the
Surviving Corporation as a general creditor thereof for such payments (after giving effect to any required Tax withholdings as provided in Section 4.2(f)) in respect thereof.
(ii) Notwithstanding
anything to the contrary set forth in this Article IV, none of the Surviving Corporation, Parent, the Paying Agent or any other Person shall be
liable to any former holder of Eligible Shares, Eligible Preferred Shares, Eligible 2015 Warrants or Company Equity Awards for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar Laws.
(e)
Lost, Stolen or Destroyed Certificates.
In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount and upon such terms as may be required by Parent as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Paying
Agent shall issue in exchange for such Certificate an amount in cash (after
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giving
effect to any required Tax withholdings as provided in Section 4.2(f)) equal to the product obtained by
multiplying
(i) the number
of Eligible Shares or Eligible Preferred Shares represented by such lost, stolen or destroyed Certificate by (ii) the Per Share Merger Consideration or the Preferred Stock Consideration, as
applicable.
(f)
Withholding Rights.
Each of Parent, the Surviving Corporation and the Paying Agent (and any of their
Affiliates) shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Person such amounts as it is required to deduct and withhold with
respect to the making of such payment under any applicable Tax Law. To the extent that amounts are so withheld, such withheld amounts (i) shall be remitted to the applicable Governmental
Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the Persons in respect of which such deduction and withholding was made.
(g)
Dissenter's Rights.
No Dissenting Stockholder shall be entitled to receive the Preferred Stock Consideration
with respect to the Dissenting Shares owned by such Dissenting Stockholder. Each Dissenting Stockholder shall be entitled to receive only the payment of the fair value (as defined in NRS 92A.320) of
the Dissenting Shares owned by such Dissenting Stockholder in accordance with the NRS, solely to the extent such Dissenting Stockholder has perfected and not withdrawn and is
otherwise entitled to dissenter's rights in accordance with the NRS. The Company shall give Parent (i) prompt notice and copies of any written demands for dissenter's rights, attempted or
purported withdrawals of such demands and any other instruments served pursuant to NRS 92A.440 that are received by the Company relating to the Company's stockholders' demands for dissenter's rights
and (ii) the opportunity to participate in and, if Parent elects, direct all negotiations and Proceedings with respect to any such demands for dissenter's rights. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to any demands for dissenter's rights, offer to settle or settle any such demands or approve any withdrawal of any such demands,
or agree, authorize or commit to do any of the foregoing. If any Dissenting Stockholder withdraws its demand for dissenter's rights or otherwise waives or loses its dissenter's rights under the NRS
with respect to any Dissenting Shares, such Dissenting Shares shall become Eligible Preferred Shares and thereupon converted into the right to receive, without any interest thereon, the aggregate
Preferred Stock Consideration with respect to such shares pursuant to this Article IV.
4.3.
Treatment of Equity Awards.
(a)
Company Options.
At the Effective Time:
(i) each
(A) outstanding award of Company Options (or portion thereof) that is vested and exercisable and (B) outstanding and unvested award of Company
Options identified on Section 4.3(a)(i) of the Company Disclosure Letter shall, automatically and without any required action on the part of the holder thereof, be cancelled and converted into
the right to receive, as soon as reasonably practicable after the Effective Time, an amount in cash, without interest and subject to applicable withholding Taxes, equal to the product of
(A) the number of Shares issuable upon exercise of such Company Options immediately prior to the Effective Time
multiplied by
(B) the
excess, if any, of (1) the Per Share Merger Consideration
minus
(2) the exercise price of such Company Option, and
(ii) each
outstanding and unvested award of Company Options other than the Company Options identified on Section 4.3(a)(i) of the Company Disclosure Letter shall,
automatically and without any required action on the part of the holder thereof, be cancelled and converted into an award (the "
Converted Option Award
")
to receive an amount in cash on the earlier of (x) the date on which each such Company Option is scheduled to vest (subject to achievement of the vesting conditions) and (y) the first
anniversary of the Closing Date, subject to continued employment through that date, without interest and subject to applicable
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withholding
Taxes, equal to the product of (A) the number of Shares issuable upon exercise of such Company Options immediately prior to the Effective Time
multiplied
by
(B) the excess, if any, of (1) the Per Share Merger Consideration
minus
(2) the exercise price of such
Company Option. Except as specifically provided above, each Converted Option Award shall remain subject to the same terms and conditions (including vesting conditions) as were applicable to such
Company Option immediately prior to the Effective Time.
(b)
Company Restricted Shares.
At the Effective Time, each unvested Company Restricted Share shall,
automatically and without any required action on the part of the holder thereof, become fully vested (and all then-applicable forfeiture restrictions in respect thereof thereupon shall lapse) and
shall only entitle the holder thereof to receive, without interest and as soon as reasonably practicable after the Effective Time, an amount in cash equal to the Per Share Merger Consideration, less
applicable taxes required to be withheld with respect to such payment.
(c)
Company Restricted Stock Units.
At the Effective Time:
(i) each
unvested Company RSU that is scheduled to vest before 2020 shall, automatically and without any required action on the part of the holder thereof, become fully
vested and converted into the right to receive, as soon as reasonably practicable after the Effective Time, an amount in cash, without interest and subject to applicable withholding Taxes, equal to
the product of (A) the number of Shares underlying such Company RSU immediately prior to the Effective Time
multiplied by
(B) the Per
Share Merger Consideration and
(ii) each
unvested Company RSU that is scheduled to vest after 2019 shall, automatically and without any required action on the part of the holder thereof, be cancelled and
converted into an award (the "
Converted RSU Award
") to receive an amount in cash on the earlier of (x) the date on which each such Company RSU is
scheduled to vest (subject to achievement of the vesting conditions) and (y) the first anniversary of the Closing Date, subject to continued employment through that date, without interest and
subject to applicable withholding Taxes, equal to the product of (A) the number of Shares underlying such Company RSU immediately prior to the Effective Time
multiplied
by
(B) the Per Share Merger Consideration. Except as specifically provided above, each Converted RSU Award shall remain subject to the same terms and conditions
(including vesting conditions) as were applicable to such Company RSU immediately prior to the Effective Time.
(d)
Company Performance Share Units.
At the Effective Time:
(i) the
number of unvested Company PSUs earned based on performance as of the Closing Date, as determined in accordance with Schedule 1 to the Performance Stock Unit
Grant Notice (the "
Schedule
"), shall, automatically and without any required action on the part of the holder thereof, become fully vested (the
"
Vested PSUs
") and converted into the right to receive, as soon as reasonably practicable after the Effective Time, an amount in cash, without interest
and subject to applicable withholding Taxes, equal to the product of (i) the number of Shares underlying such Vested PSU
multiplied by
(ii) the Per Share Merger Consideration. The Company shall consult with Parent in determining the number of Vested PSUs earned under the terms of the Schedule; and
(ii) with
respect to any Company PSUs that do not become Vested PSUs at the Effective Time, the number of such Company PSUs equal to the "Final Shares" as defined in the
Schedule shall, automatically and without any required action on the part of the holder thereof, be cancelled and converted into an award (the "
Converted PSU
Award
") to receive an amount in cash on the earlier of (x) the date on which each such Final Share is scheduled to vest (subject to achievement of the vesting
conditions) and (y) the first anniversary of the
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Closing
Date, subject to continued employment through that date, without interest and subject to applicable withholding Tax, equal to the product of (A) the number of Final Shares underlying
such Converted PSU Award
multiplied by
(B) the Per Share Merger Consideration. Except as specifically provided above, each Converted PSU Award
shall remain subject to the same terms and conditions (including vesting conditions) as were applicable to such Company PSU immediately prior to the Effective Time. The Company shall consult with
Parent in determining the number of Final Shares. Any Company PSUs that do not become Vested PSUs or Final Shares shall be forfeited at the Effective Time for no consideration
(e)
Company Equity Payments.
As soon as reasonably practicable (but no later than the first regularly scheduled
payroll date not less than ten Business Days after the Closing Date or later vesting date with respect to Converted Option Awards, Converted RSU Awards and Converted PSU Awards), the Surviving
Corporation shall, through the payroll system of the Surviving Corporation, pay or cause to be paid to the holders of the Company Equity Awards, the amounts contemplated by Section 4.3(a),
Section 4.3(b), Section 4.3(c) and Section 4.3(d), respectively;
provided
,
however
,
that to the extent the holder of a Company Equity Award is not and was not at any time during the period in which such Company Equity Award was outstanding a Company Employee, such amounts shall not
be paid through the payroll system, and instead shall be paid by the Paying Agent pursuant to Section 4.2.
(f)
Company Actions.
At or prior to the Effective Time, the Company, the Company Board and the Company
Compensation Committee, as applicable, shall adopt any resolutions and take any actions that are necessary to (i) effectuate the treatment of Sections 4.3(a) through
Section 4.3(d) and (ii) upon the request of Parent, cause the Incentive Plan to terminate at or prior to the Effective Time. The Company shall take all actions necessary to ensure that
from and after the Effective Time neither Parent nor the Surviving Corporation will be required to deliver Shares or other capital stock of the Company to any Person pursuant to or in settlement of
Company Equity Awards.
4.4.
Adjustments to Prevent Dilution.
Notwithstanding anything to the contrary set forth in this
Agreement, if, from the date of this Agreement to the earlier of the Effective Time and the termination
of this Agreement pursuant to Article IX, the issued and outstanding Shares or securities convertible or exchangeable into or exercisable for Shares shall have been changed into a different
number of Shares or securities or a different class by reason of any reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, issuer
tender or exchange offer, or other similar transaction, or a stock dividend with a record date within such period shall have been declared, then the Per Share Merger Consideration shall be
appropriately adjusted to provide the holders of Shares the same economic effect as contemplated by this Agreement prior to such event, and such items so adjusted shall, from and after the date of
such event, be the Per Share Merger Consideration; provided, however, that nothing in this Section 4.4 shall be construed to permit the Company or any other Person to take any action except to
the extent consistent with, and not otherwise prohibited by, this terms of this Agreement.
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ARTICLE V
Representations and Warranties of the Company
Except as set forth in the Company Reports filed with or furnished to the SEC and publicly available on or after the Applicable Date and prior
to the date of this Agreement, but excluding, in each case, any disclosures set forth or referenced in any risk factor, forward-looking statement, quantitative and qualitative disclosures about market
risk section or in any other section to the extent they are cautionary, predictive or forward-looking in nature ("
Excluded Disclosure
") or in the
corresponding sections of the confidential disclosure letter delivered to Parent by the Company prior to
or concurrently with the execution and delivery of this Agreement (the "
Company Disclosure Letter
") (
it being
agreed
that for the purposes of the representations and warranties made by the Company in this Agreement, disclosure of any item in any section of the Company Disclosure Letter
shall be deemed disclosure with respect to any other section to the extent the relevance of such item is reasonably apparent on its face), the Company hereby represents and warrants to Parent and
Merger Sub that:
5.1.
Organization, Good Standing and Qualification.
The Company and each of its Subsidiaries is a
legal entity duly organized, validly existing and, to the extent such concept is applicable, in good standing under
the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business
as currently conducted and is qualified to do business and, to the extent such concept is applicable, is in good standing as a foreign corporation or other legal entity in each jurisdiction where the
ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except, solely with respect to the Company's Subsidiaries, as would not have a
Material Adverse Effect. The Company has made available to Parent correct and complete copies of the Company's and its Subsidiaries' Organizational Documents in the forms that are in full force and
effect as of the date of this Agreement.
5.2.
Subsidiaries.
Section 5.2(a) of the Company Disclosure Letter sets forth (i) each of
the Company's direct and indirect Subsidiaries and the ownership interest of
the Company in each such Subsidiary and (ii) the Company's or its Subsidiaries' capital stock, equity interest or other direct or indirect ownership interest in any other Person. The Company
does not own, directly or indirectly, any voting interest in any Person that would require a filing by Parent or Ultimate Parent under the HSR Act in connection with the transactions contemplated by
this Agreement. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each of the Subsidiaries free and clear of any Encumbrances, and all of the issued and
outstanding shares of capital stock of each of the Subsidiaries are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.
No current or past holder of any capital stock, equity interest or other direct or indirect ownership interest of the Company or any of the Subsidiaries (x) has (or has ever had) a "controlling
interest" (within the meaning of Section 414 of the Code) in the Company or any of the Subsidiaries or (y) would otherwise be (or would have otherwise been) treated as a "single
employer" with the Company or any of the Subsidiaries under Section 414 of the Code or Section 4001 of ERISA.
5.3.
Capital Structure.
(a) The
authorized capital stock of the Company consists of 250,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. As of the date of this Agreement, the
only issued and outstanding capital stock of the Company consists of 15,540,847 shares of Common Stock (including 83,712 shares of restricted stock) and 15,197.530 shares of Preferred Stock (including
4,000 shares of Series C-1 Convertible Preferred Stock, 2,000 shares of Series C-2 Convertible Preferred Stock, 7,697.530 shares of Series D-1 Convertible Preferred Stock and
1,500 shares of Series D-2 Convertible Preferred Stock) were
outstanding. All of the outstanding shares of Common Stock and Preferred Stock have been duly authorized and are validly issued, fully paid
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and
nonassessable and are free and clear of any Encumbrance. As of the date of this Agreement, 2,999,111 2015 Warrants and 18,333,000 AMC Warrants were outstanding. Other than 2,999,111 shares of
Common Stock reserved for issuance upon the exercise of the 2015 Warrants, 18,333,000 shares of Common Stock reserved for issuance upon the exercise of the AMC Warrants, 5,879,722 shares (including
accrued dividends through April 1, 2017 but not including additional dividends accrued from the date of the last Preferred Stock cash dividend payment through the date of this Agreement) of
Common Stock reserved for issuance upon conversion of the Preferred Stock, and 3,389,084 shares of Common Stock available for issuance under the Company's Incentive Plan, the Company has no additional
shares of Common Stock reserved for issuance. Upon any issuance of shares of Common Stock in accordance with the terms of the Incentive Plan, such shares will be duly authorized, validly issued, fully
paid and nonassessable and free and clear of any Encumbrances. Other than the Preferred Stock, the 2015 Warrants and the AMC Warrants, the Company does not have outstanding any bonds, debentures,
notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.
The Company has delivered to Parent a true and complete copy of each certificate of designation in respect of the Preferred Stock (as filed with the Nevada Secretary of State), each form of warrant
and each form of award agreement pertaining to each equity award outstanding under the Incentive Plan, and any other warrant agreements or award agreements to the extent there are variations from the
general forms, specifically identifying the Persons to whom such variant forms apply.
(b) All
of the outstanding shares of capital stock of the Company have been issued in compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for, purchase or otherwise acquire securities. Other than the Voting Agreement and the AMC Transaction Documents,
there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company's capital stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders.
(c) Section 5.3(c)
of the Company Disclosure Letter sets forth a correct and complete listing of all outstanding Company Equity Awards as of the close of business on
July 27, 2018, setting forth the number of Shares subject to each Company Equity Award and the holder, grant date, vesting schedule and exercise price with respect to each Company Equity Award,
as applicable. Except as set forth in Section 5.3(a), Section 5.3(b) or this Section 5.3(c), there are no preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements, calls, commitments or rights of any kind that obligate the Company or any of its Subsidiaries to issue or to sell any shares of capital stock or other securities of the
Company or any of its Subsidiaries or any securities or obligations convertible or exchangeable into or exercisable for, valued by reference to or giving any Person a right to subscribe for or
acquire, any securities of the Company or any of its Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. There are no outstanding securities or
instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. Upon any issuance of any Shares in accordance with the terms of the Incentive Plan, such Shares will be duly
authorized, validly issued, fully paid and non-assessable and free and clear of any Encumbrance. Since the close of business on July 27, 2018, the Company has not issued any capital stock.
(d) Each
Company Option (i) was granted in compliance with all applicable Laws and all of the terms and conditions of the Incentive Plan pursuant to which it was
issued, (ii) has an exercise price per Share equal to or greater than the fair market value of a Share on the date of such
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grant,
(iii) has a grant date identical to the date on which the Company Board or Company Compensation Committee actually awarded such Company Option, (iv) qualifies for the Tax and
accounting treatment afforded to such Company Option in the Company's Tax returns and the Company Reports made available to Parent, respectively, and (v) does not trigger any liability for the
holder thereof under Section 409A of the Code.
5.4.
Corporate Authority; Approval and Fairness Opinion.
(a) The
Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated by this Agreement, subject only to obtaining the Requisite Company Vote. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors' rights and remedies and to general equitable principles (the
"
Bankruptcy and Equity Exception
").
(b) At
a meeting duly called and held on or prior to the date hereof, the Special Committee (i) unanimously (A) determined that this Agreement and the
transactions contemplated by this Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated RLJE Stockholders, (B) adopted, pursuant to NRS 92A.120, this
Agreement and the transactions contemplated by this Agreement, (C) directed that this Agreement be submitted for approval by a vote of the holders of Shares at the Company Stockholders Meeting
and (D) recommended that the holders of Shares vote affirmatively at the Company stockholders Meeting to approve this Agreement and the Merger (the "
Company
Recommendation
"). Subject to the provisions of Section 7.2(d), the foregoing resolutions have not been withdrawn or modified.
(c) The
Special Committee has received the opinion of Allen & Company, financial advisor to the Special Committee, to the effect that as of the date of such opinion
and subject to the qualifications, exceptions and limitations set forth therein, the Per Share Merger Consideration to paid by Parent is fair, from a financial point of view, to the Unaffiliated RLJE
Stockholders, a copy of which opinion will be delivered to Parent not later than 24 hours after the execution and delivery of this Agreement solely for Parent's informational purposes
(
it being agreed
that such opinion is exclusively addressed to and for the benefit of the Special Committee and may not be relied upon by Ultimate
Parent, Parent, Merger Sub or any other Person).
5.5.
Governmental Filings; No Violations; Certain Contracts.
(a) Other
than the expirations of waiting periods and the filings, notices, reports, consents, registrations, approvals, permits and authorizations (i) pursuant to
the NRS, (ii) under the Exchange Act, (iii) required to be made with the NASDAQ and (iv) under the Takeover Statutes and state securities and "blue sky" Laws (collectively, the
"
Governmental Approvals
"), as applicable, no expirations of waiting periods are required and no filings, notices, reports, consents, registrations,
approvals, permits or authorizations are required to be made by the Company with, nor are any required to be made or obtained by the Company with or from, any Governmental Entity in connection with
the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated by this Agreement, or in connection with the continuing operation of the
business of the Company and its Subsidiaries following the Effective Time, except as would not have a Material Adverse Effect or prevent, materially delay or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
(b) The
execution, delivery and performance of this Agreement by the Company do not, and the consummation of the transactions contemplated by this Agreement will not,
constitute or result
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in
(i) a breach or violation of, or a default under the Organizational Documents of the Company (including each of the certificates of designation relating to any outstanding Preferred Stock)
or any of its Subsidiaries, (ii) with or without notice, lapse of time or both, a breach or violation of, a termination (or right of termination) of or default under, the loss of any benefit
under, the creation or acceleration of any obligations under or the creation of an Encumbrance on any of the rights or assets of the Company or any of its Subsidiaries pursuant to, any Contract
binding upon the Company or any of its Subsidiaries, or, assuming (solely with respect to performance by the Company of this Agreement and the consummation of the transactions contemplated by this
Agreement) compliance with the matters referred to in Section 5.5(a) or under any Law or Order applicable to the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is subject or (iii) any change in the substantive rights or obligations of any party under any Contract binding upon the Company or any of its Subsidiaries, except, in the case of
clause (ii) or (iii) of this Section 5.5(b), as would not have a Material Adverse Effect (it being agreed that for purposes of this Section 5.5(b), effects resulting from
or arising in connection with the matters set forth in clause (c) of the definition of the term "Material Adverse Effect" shall not be excluded in determining whether a Material Adverse Effect
has occurred) or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement.
5.6.
Compliance with Laws; Licenses.
(a)
Compliance with Laws.
(i) The
businesses of the Company and its Subsidiaries have not been, and are not being, conducted in violation of any applicable Law, except for such non-compliance as
would not have a Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. Except with respect
to routine examinations of patent, trademark and copyright applications filed or to be filed with U.S. and non-U.S. patent offices, to the knowledge of the Company no investigation or review by any
Governmental Entity with respect to the Company or any of the Subsidiaries is pending, nor has any Governmental Entity notified the Company of an intention to conduct the same.
(ii) The
Company is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of the NASDAQ. Except as permitted by
the Exchange Act, including Sections 13(k)(2) and 13(k)(3) or rules of the SEC, neither the Company nor any of its Affiliates has
made, arranged or modified (in any material respect) any extensions of credit in the form of a personal loan to any executive officer or director of the Company.
(b)
FCPA and Other Anti-Bribery Laws; Export and Sanctions Regulations.
(i) The
Company, its Subsidiaries and their respective owners, directors, employees (including officers) and agents are in compliance with and have complied with the FCPA,
the Other Anti-Bribery Laws and the Export and Sanctions Regulations. No Proceeding by or before any Governmental Entity involving the Company or any of its Subsidiaries with respect to the FCPA, the
Other Anti-Bribery Laws or the Export and Sanctions Regulations is pending or, to the knowledge of the Company, threatened.
(ii) None
of the Company, any of the Subsidiaries or, to the knowledge of the Company, any director, employee (including officer), agent or Affiliate of the Company or any
of its Subsidiaries (in each case, acting in the capacity of a director, employee, agent or representative of the Company or any of its Subsidiaries, as applicable), (A) has paid, offered or
promised to pay, or authorized or ratified the payment, directly or indirectly, of any monies
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or
anything of value to any Government Official or any political party or candidate for political office for the purpose of influencing any act or decision of such official or of any Governmental
Entity to obtain or retain business, or direct business to any person or to secure any other improper benefit or advantage, in each case in violation in any respect of the FCPA or any of the Other
Anti-Bribery Laws, or (B) is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department.
(iii) The
Company and its Subsidiaries have instituted policies and procedures designed to ensure compliance with the FCPA, the Other Anti-Bribery Laws and the Export and
Sanctions Regulations and have maintained such policies and procedures in full force and effect.
(c)
Licenses.
The Company and each of its Subsidiaries have obtained, hold and are in compliance with all
Licenses necessary to conduct their respective businesses as currently conducted (collectively, "
Material Licenses
"), except for any non-compliance as
would not have a Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement. Neither the Company nor any Subsidiary has received any notice of Proceedings relating to the revocation or modification of any Material License.
5.7.
Company Reports.
(a) The
Company has filed with or furnished to the SEC, as applicable, on a timely basis (giving effect to all extensions of any period to so file that were obtained
pursuant to filings by the Company on Form 12b-25 under the Exchange Act), all Company Reports.
(b) Each
of the Company Reports, at the time of its filing with or being furnished to the SEC, complied, or if not yet filed or furnished (other than any Excluded Filings),
will comply with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act. As of their respective dates (or, if amended or supplemented, as of the date of such
amendment or supplement), the Company Reports did not, and any Company Reports filed with or furnished to the SEC subsequent to the date of this Agreement (other than the Excluded Filings) will not,
contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which
they were made, not misleading.
(c) No
Subsidiary of the Company is subject to the reporting requirements of Section 13a or 15d of the Exchange Act.
5.8.
Disclosure Controls and Procedures and Internal Control Over Financial Reporting.
(a) The
Company and its Subsidiaries maintain disclosure controls and procedures (as defined in the Exchange Act) designed to ensure that all information required to be
disclosed by the Company is recorded and reported on a timely basis to the individuals responsible for the preparation of the Company's filings with the SEC and other public disclosure documents.
(b) The
Company and its Subsidiaries maintain internal controls over financial reporting (as such term is defined in the Exchange Act) designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and that include policies and procedures that
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the asset of the Company, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management of the Company and the Company Board, and (iii) provide
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reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on its financial statements.
(c) The
Company's management has completed an assessment of the effectiveness of the internal control over financial reporting of the Company and its Subsidiaries in
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended December 31, 2017, and such assessment concluded that such system was effective. Since
such date, there have been no changes in the internal control over financial reporting of the Company and its Subsidiaries that have materially affected, or would reasonably be likely to materially
affect, the internal control over financial reporting of the Company and the Subsidiaries.
(d) The
Company has disclosed, based on the most recent evaluation of its chief executive officer and its chief financial officer prior to the date of this Agreement, to the
Company's auditors and the Audit Committee, (i) any significant deficiencies in the design or operation of its internal controls over financial reporting that are reasonably expected to
adversely affect the Company's ability to record, process, summarize and report financial information and has identified for the Company's auditors and Audit Committee any material weaknesses in
internal control over financial reporting and (ii) any allegation of fraud, whether or not material, that involves management or other employees who have a significant role in the Company's
internal control over financial reporting.
(e) The
Company has made available to Parent (i) a summary of any such disclosure made by management to the Company's auditors and Audit Committee since the
Applicable Date and (ii) any material communication since the Applicable Date made by management or the Company's auditors to the Audit Committee required or contemplated by listing standards
of the NASDAQ, the Audit Committee's charter or professional standards of the Public Company Accounting Oversight Board. Since the Applicable Date, no material complaints from any source regarding
accounting, internal accounting controls or auditing matters, and no concerns from Company Employees regarding questionable accounting or auditing matters, have been received by the Company. The
Company has made available to Parent a summary of all material complaints or concerns relating to other matters made since the Applicable Date through the Company's whistleblower hotline or equivalent
system for receipt of employee concerns regarding possible violations of Law.
5.9.
Financial Statements; No Undisclosed Liabilities; "Off-Balance Sheet Arrangements"; Books and Records.
(a)
Financial Statements.
Each of the consolidated balance sheets included in or incorporated by reference into
the Company Reports fairly presents, or, in the case of Company Reports filed after the date of this Agreement, will fairly present the consolidated financial position of the Company and its
consolidated Subsidiaries as of its date and each of the consolidated statements of operations, comprehensive loss, changes in shareholders' (deficit) equity and cash flows included in, or
incorporated by reference into, the Company Reports fairly presents, or, in the case of Company Reports filed after the date of this Agreement, will fairly present the consolidated results of
operations, retained earnings (loss) and changes in financial position, as the case may be, of such companies for the periods set forth therein (subject, in the case of unaudited statements, to notes
and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted
therein or in the notes thereto.
(b)
No Undisclosed Liabilities.
Except for obligations and liabilities (i) reflected or reserved against
in the Company's most recent consolidated balance sheets included in or incorporated by reference into the Company Reports filed prior to the date of this Agreement or (ii) incurred in the
Ordinary Course of Business since the date of such consolidated balance sheet, there are no
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obligations
or liabilities of the Company or any of its Subsidiaries, whether or not accrued, contingent or otherwise and whether or not required to be disclosed or any other facts or circumstances
that would reasonably be expected to result in any material claims against, or obligations or liabilities of, the Company or any of its Subsidiaries.
(c)
"Off-Balance Sheet Arrangements".
Neither the Company nor any of its Subsidiaries is a party to, or has any
commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract or any "off-balance sheet arrangements" (as defined in Item 303(a) of
Regulation S-K of the Securities Act).
(d)
Books and Records.
The books of account of the Company and its Subsidiaries have been kept accurately in all
material respects in the Ordinary Course of Business, the transactions entered therein represent
bona fide
transactions, and the revenues, expenses,
assets and liabilities of the Company and its Subsidiaries have been properly recorded therein in all material respects. The corporate records and minute books of the Company and each of its
Subsidiaries have been maintained in accordance with all applicable Laws in all material respects, and such corporate records and minute books are correct and complete in all material respects. The
financial statements of the Company have been prepared in a manner consistent in all material respects with the books of account and other records of the Company and its Subsidiaries.
5.10.
Litigation.
(a) There
are no Proceedings pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries.
(b) Neither
the Company nor any of its Subsidiaries is a party to or subject to the provisions of any Order that restricts the manner in which the Company and its
Subsidiaries conduct their businesses in any material respect, or that would, individually or in the aggregate, reasonably be expected to prevent, materially delay or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
(c) Neither
the Company nor any of the Subsidiaries, nor any director or officer thereof, is or has been the subject of any Proceeding involving a claim of violation of or
liability under federal or state securities laws or, as of the date hereof, a claim of breach of fiduciary duty. There has not been since the Applicable Date and, to the knowledge of the Company,
there is not currently pending, and the Company has not received as of the date hereof any written notice of, any investigation by the SEC involving the Company or any current or former director or
officer of the Company. The Company shall inform Parent of any such investigation promptly after it receives any notice thereof.
5.11.
Absence of Certain Changes.
Since the Applicable Date and through the date of this Agreement,
(i) the Company and its Subsidiaries have conducted their respective businesses only in
the Ordinary Course of Business; and (ii) there has not occurred any event, change, development, circumstance or fact that, individually or taken together with any other events, changes,
developments, circumstances, facts or effects, have had a Material Adverse Effect.
5.12.
Company Material Contracts.
(a) Except
for this Agreement or any Company Benefit Plan, as of the date of this Agreement, neither the Company nor any of its Subsidiaries is a party to or bound by any
Contract:
(i) related
to any settlement of any Proceeding within the past three years;
(ii) constituting
a collective bargaining arrangement or with a labor union, labor organization, works council or similar organization;
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(iii) evidencing
financial or commodity hedging or similar trading activities, including any interest rate swaps, financial derivatives master agreements or confirmations,
or futures account opening agreements and/or brokerage statements or similar Contract to which the Company or any of its Subsidiaries is a party;
(iv) for
any Leased Real Property or the lease of personal property providing, in each case, for annual payments thereunder of $100,000 or more;
(v) involving
the payment or receipt of (x) royalties, licensing fees or advances of more than $500,000 in the aggregate or (y) any other amounts of more than
$250,000 in the aggregate, in each case in the twelve (12)-month period ending on December 31, 2017 and December 31, 2018, calculated based upon the actual or projected revenues or
income of the Company or any of the Subsidiaries or the actual or projected income or revenues related to any product of the Company or any of the Subsidiaries;
(vi) with
any equity holder of the Company (other than Company Benefit Plans);
(vii) between
the Company or any of its Subsidiaries, on the one hand, and any director or officer of the Company or any Person beneficially owning five percent or more of
the outstanding Shares or shares of common stock of any of their respective Affiliates, on the other hand;
(viii) other
than the Credit Agreement, relating to Indebtedness of the Company or any of the Subsidiaries of $100,000 or more;
(ix) containing
any standstill or similar agreement pursuant to which the Company or any of the Subsidiaries has agreed not to acquire assets or securities of another Person
or any of its affiliates;
(x) that
would prevent, materially delay or materially impede the Company's ability to consummate the transactions contemplated by this Agreement;
(xi) providing
for indemnification by the Company or any of the Subsidiaries of any Person or pursuant to which any indemnification obligations of the Company or any of its
Subsidiaries remain outstanding or otherwise survive as of the date of this Agreement, except for immaterial Contracts entered into in the ordinary course of business;
(xii) that
was not, to the knowledge of the Company, negotiated and entered into on an arm's length basis (except to the extent that such contract is solely between
(x) the Company and one or more wholly-owned Subsidiaries or (y) two or more Subsidiaries that are each wholly-owned by the Company);
(xiii) that
grants any right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of the Company or any of the
Subsidiaries;
(xiv) other
than those entered into in the ordinary course of business with respect to the acquisition of Company Programs, relating to the acquisition or disposition of any
assets or business (whether by merger, sale of stock, sale of assets or otherwise) pursuant to which the Company or any of its Subsidiaries reasonably expects to be required to pay any earn-out,
deferred or other contingent payments;
(xv) any
Contract that prohibits the payment of dividends or distributions in respect of the capital stock, membership interests, partnership interests or other equity
interests of the Company or any of its Subsidiaries, the pledging of the capital stock, membership interests, partnership interests or other equity interests of the Company or any of its Subsidiaries
or the incurrence of Indebtedness by the Company or any of its Subsidiaries;
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(xvi) that
(1) purports to limit in any material respect either the type of business in which the Company or any of the Subsidiaries may engage or the manner or
locations in which any of them may so engage in any business, (2) could require the disposition of any material assets or line of business of the Company or any of the Subsidiaries,
(3) grants "most favored nation" status or (4) prohibits or limits the right of the Company or any of the Subsidiaries in any material respect to make, sell or distribute any products or
services or use, transfer, license, distribute or enforce any of their respective Intellectual Property Rights;
(xvii) that
is a Company Intellectual Property Contract;
(xviii) that
contains a put, call or similar right pursuant to which the Company or any of the Subsidiaries could be required to purchase or sell, as applicable, any equity
interests of any Person or assets that have a fair market value or purchase price of more than $100,000;
(xix) providing
for a joint venture, partnership, limited liability company or similar arrangement involving the sharing of profits, losses, costs or liabilities with any
third party; or
(xx) any
other Contract or group of related Contracts not otherwise described in the foregoing clauses (i) through (xix) of this Section 5.12(a) that is
material to the Company and its Subsidiaries, taken as a whole (together with each Contract constituting any of the foregoing types of Contract described in clauses (i) through (xix) of
this Section 5.12(a) and together with any Contract that has been or would be required to be filed by the Company as a "material contract" pursuant to Item 601(b)(10) of
Regulation S-K under the Securities Act or disclosed as a "material contract" on a Current Report on Form 8-K or pursuant to Item 404 of Regulation S-K under the Securities
Act, a "
Company Material Contract
").
(b) A
correct and complete copy of each Company Material Contract has been made available to Parent. Each Company Material Contract is valid and binding on the Company or
its Subsidiaries, as the case may be, and, to the Knowledge of the Company, each other party thereto, and is in full force and effect, except as would not have a Material Adverse Effect or prevent,
materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. There is no breach or event of default under any such Contract by the
Company or its Subsidiaries or, to the Knowledge of the Company, any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a
default thereunder by the Company or its Subsidiaries, or, to the Knowledge of the Company, any other party thereto, in each case, except as has
not had a Material Adverse Effect or as would not prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement.
5.13.
Subscribers.
Section 5.13 of the Company Disclosure Letter sets forth the
aggregate numbers of subscribers to the Company's Acorn TV digital channel and the aggregate
number of subscribers to the Company's UMC digital channel, in each case determined as of March 31, 2018 and May 31, 2018 and in accordance with the Company's subscriber accounting
policy set forth on Section 5.13 of the Company Disclosure Letter.
5.14.
Employee Benefits.
(a) Section 5.14(a)
of the Company Disclosure Letter sets forth a correct and complete list of each Company Benefit Plan.
(b) With
respect to each Company Benefit Plan, the Company has made available to Parent, to the extent applicable, correct and complete copies of (i) the Company
Benefit Plan document, including any amendments or supplements thereto, and all related trust documents, insurance contracts or other funding vehicles, (ii) a written description of any
material Company Benefit Plan if such plan is not set forth in a written document, (iii) the most recently prepared actuarial report
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and
(iv) all material correspondence to or from any Governmental Entity received in the last three years with respect to any Company Benefit Plan.
(c) (i)
Each Company Benefit Plan (including any related trusts) has been established, operated and administered in material compliance with its terms and applicable Laws,
including ERISA and the Code, (ii) all material contributions or other material amounts payable by the Company or any of its Subsidiaries with respect to each Company Benefit Plan in respect of
current or prior plan years have been paid or accrued in accordance with GAAP, and (iii) there are no claims or Proceedings (other than routine claims for benefits) pending or, to the Knowledge
of the Company, threatened, by, on behalf of
or against any Company Benefit Plan or any trust related thereto which could reasonably be expected to result in any material liability to the Company or any of its Subsidiaries.
(d) With
respect to each ERISA Plan, the Company has made available to Parent, to the extent applicable, correct and complete copies of (i) the most recent summary
plan description together with any summaries of all material modifications and supplements thereto, (ii) the most recent IRS determination or opinion letter and (iii) the two most recent
annual reports (Form 5500 or 990 series and all schedules and financial statements attached thereto).
(e) Each
ERISA Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter, opinion letter, or advisory
letter from the Internal Revenue Service upon which it may rely as to its qualification and, to the Knowledge of the Company, nothing has occurred that would adversely affect the qualification or tax
exemption of any such ERISA Plan. With respect to any ERISA Plan, neither the Company nor any of its Subsidiaries has engaged in a transaction in connection with which the Company or any of its
Subsidiaries reasonably could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976
of the Code.
(f) Except
as required by applicable Law, no Company Benefit Plan provides retiree or post-employment medical, disability, life insurance or other welfare benefits to any
Person, and none of the Company or any of its Subsidiaries has any obligation to provide such benefits. To the extent that the Company or any of its Subsidiaries sponsors such plans, the Company or
the applicable Subsidiary has reserved the right to amend, terminate or modify at any time each Company Benefit Plan that provides retiree or post-employment disability, life insurance or other
welfare benefits to any Person.
(g) Each
Company Benefit Plan that is a "nonqualified deferred compensation plan" (within the meaning of Section 409A of the Code) is in material documentary
compliance with, and has been operated and administered in all material respects in compliance with, Section 409A of the Code and the guidance issued by the IRS provided thereunder.
(h) No
Controlled Group Liability has been incurred by the Company or its ERISA Affiliates that has not been satisfied in full, and no condition exists that presents a risk
to the Company or its ERISA Affiliates of incurring any such liability.
(i) Except
as required under the terms of this Agreement, none of the execution and delivery of this Agreement, the Requisite Company Vote or other approval of this
Agreement or the consummation of the transactions contemplated by this Agreement could, either alone or in combination with another event, (i) entitle any Company Employee to severance pay or
any material increase in severance pay, (ii) accelerate the time of payment or vesting, or materially increase the amount of compensation due to any such Company Employee, (iii) directly
or indirectly cause the Company to transfer or set aside any assets to fund any material benefits under any Company Benefit Plan, (iv) otherwise give rise to any material liability under any
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Company
Benefit Plan or (v) limit or restrict the right to merge, materially amend, terminate or transfer the assets of any Company Benefit Plan on or following the Effective Time.
(j) Neither
the execution and delivery of this Agreement, the Requisite Company Vote or other approval of this Agreement nor the consummation of the transactions
contemplated by this Agreement could, either alone or in combination with another event, result in the payment of any amount that could, individually or in combination with any other such payment,
constitute an "excess parachute payment" as defined in Section 280G(b)(1) of the Code.
(k) Neither
the Company nor any Subsidiary has any obligation to provide, and no Company Benefit Plan or other agreement provides any individual with the right to, a gross
up, indemnification, reimbursement or other payment for any excise or additional taxes, interest or penalties incurred pursuant to Section 409A or Section 4999 of the Code.
(l) All
Non-U.S. Company Benefit Plans comply with applicable local Law in all material respects, and all such plans that are intended to be funded and/or book-reserved are
funded and/or book reserved in all material respects, as appropriate, based upon reasonable actuarial assumptions, and to the extent required to be registered or approved by a foreign Governmental
Entity, have been registered with, or approved by, a foreign Governmental Entity and, to the Company's Knowledge, nothing has occurred that would adversely affect such registration or approval. No
Non-U.S. Company Plan is a defined benefit pension plan.
5.15.
Labor Matters.
(a) Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or other agreement with a labor union, labor organization, works
council or similar organization, and to the Knowledge of the Company, there are no activities or Proceedings by any individual or group of individuals, including representatives of any labor unions,
labor organizations, works councils or similar organizations, to organize any employees of the Company or any of its Subsidiaries.
(b) There
is no, and has not been any, strike, lockout, slowdown, work stoppage, unfair labor practice or other labor dispute, arbitration or grievance pending or, to the
Knowledge of the Company, threatened, that may interfere in any material respect with the respective business activities of the Company or any of its Subsidiaries. Each of the Company and its
Subsidiaries is in compliance with all applicable Laws respecting labor, employment and employment practices, terms and conditions of employment, wages and hours (including classification of employees
and equitable pay practices) and occupational safety and health. Neither the Company nor any of its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act and the regulations promulgated thereunder or any similar state or local Law that remains unsatisfied.
(c) To
the Company's Knowledge, in the last ten (10) years, (i) no allegations of sexual harassment have been made against any officer of the Company or any of
its Subsidiaries, and (ii) the Company and its Subsidiaries have not entered into any settlement agreements related to allegations of sexual harassment or misconduct by an officer of the
Company or any of its Subsidiaries.
5.16.
Environmental Matters.
(a) the Company and its Subsidiaries have complied at all times with all
applicable Environmental Laws; (b) the Company and its Subsidiaries have received
all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and are in compliance in all material respects with all terms and
conditions of any such permit, license or approval; (c) no property currently owned or operated by the Company or any of its Subsidiaries (including soils, groundwater, surface water, buildings
and surface and subsurface structures) is contaminated with any Hazardous Substance; (d) neither the Company nor any of its
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Subsidiaries
is subject to liability for any Hazardous Substance disposal or contamination on any third-party property; (e) neither the Company nor any of its Subsidiaries has received any
notice, demand, letter, claim or request for information alleging that the Company or any of its Subsidiaries may be in violation of or subject to liability under any Environmental Law;
(f) neither the Company nor any of its Subsidiaries is subject to any Order or other agreement with any Governmental Entity or any indemnity or other agreement with any third party relating to
liabilities or obligations under any Environmental Law; and (g) there are no other circumstances or conditions involving the Company or any of its Subsidiaries that could reasonably be expected
to result in any claim, liability, investigation, cost or restriction on the ownership, use, or transfer of any property pursuant to any Environmental Law.
5.17.
Tax Matters.
(a) The
Company and each of its Subsidiaries (i) have prepared in good faith and duly and timely filed (taking into account any extension of time within which to
file) all material Tax Returns required to be filed by any of them with the appropriate Taxing Authority and all such filed Tax Returns are correct and complete in all material respects,
(ii) have paid all material Taxes that are required to be paid (whether or not shown on any Tax Returns), (iii) have withheld and paid all material Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, stockholder, creditor, independent contractor or third party (each as determined for Tax purposes), (iv) have complied with
all information reporting (and related withholding) and record retention requirements and (v) have not waived any statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(b) The
Tax Returns of the Company and each of its Subsidiaries for all years up to and including 2017 have been examined by the IRS or are Tax Returns with respect to which
the applicable period for assessment under applicable Law, after giving effect to extensions or waivers, has expired.
(c) No
deficiency with respect to an amount of Taxes has been proposed, asserted or assessed against the Company or any of its Subsidiaries and there are no pending or, to
the Knowledge of the Company, threatened Proceedings regarding any Taxes of the Company and its Subsidiaries or the assets of the Company and its Subsidiaries.
(d) In
the prior six-year period, neither the Company nor any of its Subsidiaries has been informed in writing by any jurisdiction that the jurisdiction believes that the
Company or any of its Subsidiaries was required to file any material Tax Return that was not filed.
(e) The
Company has made available to Parent correct and complete copies of any private letter ruling requests, closing agreements or gain recognition agreements with
respect to Taxes requested or executed in the prior six-year period.
(f) There
are no Encumbrances for Taxes (except Taxes not yet due and payable) on any of the assets of the Company or any of its Subsidiaries.
(g) Neither
the Company nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an
agreement or arrangement solely between or among the Company and its Subsidiaries) except for agreements entered into in the ordinary course of business, the principal purpose of which is not to
indemnify for Taxes.
(h) Neither
the Company nor any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group
the common parent of which was the Company) or (ii) has any liability for the Taxes of any person (other than the
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Company
or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of Law), as a transferee or successor, by Contract or otherwise.
(i) Neither
the Company nor any of its Subsidiaries has been, within the past two years or otherwise as part of a "plan (or series of related transactions)" within the
meaning of Section 355(e) of the Code of which the Merger is also a part, a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code.
(j) Neither
the Company nor any of its Subsidiaries has participated in a "listed transaction" within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
(k) At
no time during the past five years has the Company been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.
(l) Neither
the Company nor any of its Subsidiaries will be required to include any item of income in, or to exclude any item of deduction from, taxable income in any
taxable period (or portion thereof) ending after the Closing Date as a result of any closing agreement, installment sale or open transaction on or prior to the Closing Date, any accounting method
change or agreement with any Tax authority, any prepaid amount received on or prior to the Closing Date, any intercompany transaction or excess loss account described in Section 1502 of the
Code (or any corresponding provision of Tax Law), or any election pursuant to Section 108(i) of the Code (or any similar provision of Law) made with respect to any taxable period ending on or
prior to the Closing Date.
(m) The
"section 965(a) inclusion amount" as defined in Notice 2018-07, I.R.B. 2018-04, with respect to each of the Company's Subsidiaries does not exceed the amount
set forth with respect to such Subsidiary in Section 5.17(m) of the Company Disclosure Letter.
5.18.
Real Property.
(a) Neither
the Company nor any of the Subsidiaries owns any real property.
(b) With
respect to the Company's Leased Real Property, (i) the lease or sublease for such property is valid, legally binding, enforceable and in full force and
effect in accordance with its terms, (ii) none of the Company or any of its Subsidiaries is in breach of or default under such lease or sublease, and no event has occurred, which, with notice,
lapse of time or both, would constitute a breach or event of default by any of the Company or its Subsidiaries or permit termination, modification or acceleration by any third party thereunder, or
prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement, (iii) there are no written or oral subleases, concessions or other Contracts
or arrangements granting to any Person other than the Company or its Subsidiaries the right to use or occupy any such property, and (iv) such property and all buildings, structures,
improvements and fixtures located thereon have been maintained in accordance with normal industry practice, are in good operating condition and repair, and are suitable for the purposes for which they
are currently used.
(c) Neither
the Company nor any of its Subsidiaries has received any notice of any pending or threatened condemnation of any Leased Real Property by any Governmental Entity,
nor, to the Knowledge of the Company, are there any public improvements or re-zoning measures proposed or in progress that could result in special assessments against or otherwise adversely affect the
Leased Real Property, in each case, that would reasonably be expected to materially interfere with the business or operations of the Company and its Subsidiaries as currently conducted.
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5.19.
Title to Tangible Property.
(a) Each
of the Company and its Subsidiaries has good and valid title to, or a valid leasehold interest in, all the tangible properties and assets which it purports to own
or lease, including all the tangible properties and assets reflected on consolidated balance sheets included in or incorporated by reference into the Company Reports filed with the SEC and publicly
available prior to the date of this Agreement.
(b) All
tangible properties and assets reflected therein are held free and clear of all Encumbrances, except for Encumbrances reflected on consolidated balance sheets
included in or incorporated by reference into the Company Reports filed with the SEC and publicly available prior to the date of this Agreement, Encumbrances for current Taxes not yet due and other
Encumbrances that do not materially impair the use of the property or assets subject thereto.
(c) The
machinery, equipment, furniture, fixtures and other tangible personal property and assets owned, leased or used by the Company or any of its Subsidiaries are, in the
aggregate, sufficient to carry on their respective businesses in all material respects as conducted as of the date of this Agreement, and the Company and its Subsidiaries are in possession of and have
good title to, or valid leasehold interests in or valid rights under contract to use, such machinery, equipment, furniture, fixtures and other tangible personal property and assets that are material
to the respective businesses of the Company and each of its Subsidiaries, taken as a whole, free and clear of all Encumbrances, except as would not have a Material Adverse Effect.
5.20.
Intellectual Property.
(a) Section 5.20(a)
of the Company Disclosure Letter sets forth a true and complete list, as of the date of this Agreement, of (A) all Registered Company
Intellectual Property Rights, (B) all Programs, the Intellectual Property Rights in which form part of the Company Intellectual Property Rights, and which such Programs are material to the
Company or any of its Subsidiaries, and (C) all other Programs that are material to the Company or any of its Subsidiaries.
(b) The
Company and its Subsidiaries own or otherwise have sufficient and valid rights to use all Intellectual Property Rights material to, and used in or necessary for, the
conduct of their respective businesses as currently conducted and as currently planned to be conducted, all of which rights shall survive the consummation of the transactions contemplated by this
Agreement, without modification, cancellation, termination, suspension of, or acceleration of any right, obligation or payment with respect to any such Intellectual Property Right.
(c) The
Company and its Subsidiaries solely and exclusively own, free and clear of any Encumbrances, except for Encumbrances reflected on consolidated balance sheets
included in or incorporated by reference into the Company Reports filed with the SEC and publicly available prior to the date of this Agreement, all Intellectual Property Rights owned or purported to
be owned by the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries has dedicated to the public domain or forfeited, abandoned or otherwise allowed to enter into the public domain any Company
Intellectual Property Right that is material to any business of the Company or any of its Subsidiaries (or any Intellectual Property Right that was material to any business of the Company or any of
its Subsidiaries at the time of such action or inaction).
(d) All
Registered Company Intellectual Property Rights are subsisting, valid and enforceable, and are not subject to any outstanding Order adversely affecting the validity
or enforceability of, or the Company's or its Subsidiaries' ownership or use of, or rights in or to, any such Registered Intellectual Property Right. All registration, maintenance and renewal fees and
filings in respect of the Registered Company Intellectual Property Rights have been paid to and/or filed if and when due with the relevant Governmental Entities for the purpose of registering,
maintaining and renewing such Intellectual Property Rights, other than pursuant to intentional abandonment and similar portfolio maintenance decisions made in the Ordinary Course of Business.
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(e) Within
the prior three-year period, neither the Company nor any of its Subsidiaries has received any claim, notice, invitation to license or similar communication, and
there have been no actual or, to the Knowledge of the Company, threatened Proceedings (i) terminating or reverting any right, title or interest of the Company or any of its Subsidiaries in or
to any material Company Intellectual Property Right (or any Intellectual Property Right that was, at the time of such termination or reversion, a material Company Intellectual Property Right) or
material Company Program (or any Program that was, at the time of such termination or reversion, a material Company Program), (ii) contesting or challenging the use, validity, enforceability or
ownership of any material Company Intellectual Property Right or material Company Program, or (iii) alleging or suggesting that the Company or any of its Subsidiaries or any of their respective
products or services (including any Program and any of the literary, dramatic or musical material contained therein or upon which any Program is based) has infringed, misappropriated or otherwise
violated the Intellectual Property Rights of any Person, whether directly or indirectly, or has committed or constituted a libel, slander or other defamation of any Person.
(f) None
of the Company, its Subsidiaries, the conduct of the respective businesses of the Company and its Subsidiaries as currently conducted and as currently planned to be
conducted, nor any product or service of the Company or any of its Subsidiaries (including any Company Program or any of the literary, dramatic or musical material contained in any Company Program or
upon which any Company Program is based), has infringed, misappropriated or otherwise violated in the prior three-year period,
or does or will infringe, misappropriate or otherwise violate any Intellectual Property Right of any Person, whether directly or indirectly, or has constituted a libel, slander or other defamation of
any Person.
(g) To
the Knowledge of the Company, within the prior three-year period, no Person has infringed, misappropriated or otherwise violated any Company Intellectual Property
Right, whether directly or indirectly.
(h) Each
of the Company and each of its Subsidiaries has taken commercially reasonable steps to protect, register and maintain the Registered Company Intellectual Property
Rights it owns or purports to own. Each current and former employee and consultant of the Company or any of its Subsidiaries that has contributed to the creation or development of any Intellectual
Property Right or any embodiment thereof for or on behalf of the Company or any of its Subsidiaries has executed a valid and enforceable confidentiality agreement in substantially the forms made
available to Parent, pursuant to which such employee or consultant is obligated to maintain all of the Company's and each of its Subsidiaries' confidential information (including any trade secrets
included in the Company Intellectual Property Rights and any third party confidential information disclosed to the Company or any of its Subsidiaries on a confidential basis) as strictly confidential
and not use any such information except as authorized by the Company or such Subsidiary. Each current and former employee and consultant of the Company or any of its Subsidiaries that has contributed
to the creation or development of any Intellectual Property Right or any embodiment thereof for or on behalf of the Company or any of its Subsidiaries has executed a written, valid and enforceable
agreement with an assignment of inventions and rights provision pursuant to which such employee or consultant has assigned to the Company or one of its Subsidiaries all such created or developed
Intellectual Property Rights and all embodiments thereof. No current or former employee or consultant of the Company or its Subsidiaries has made any ownership claim with respect to any Intellectual
Property Right to which the Company or any of its Subsidiaries claims any ownership right, title or interest, and to the Company's Knowledge, there is no reasonable basis for any such claim.
(i) Neither
the Company nor any of its Subsidiaries is a party to or is otherwise bound by any Contract pursuant to which (i) any license, covenant not to sue,
release, waiver, option or other right is granted to any third party under any material Company Intellectual Property Right
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or
to any material Company Program, (ii) any Person has granted to the Company or any of its Subsidiaries any license, covenant not to sue, release, waiver, option or other right under any
Intellectual Property Right or to any Program that is material to any business of the Company or any of its
Subsidiaries, other than non-exclusive licenses for off-the-shelf Software that have been granted on standardized, generally available terms, (iii) the Company or any of its Subsidiaries has
assigned or agreed to assign any material Company Intellectual Property Right or material Company Program (or any Intellectual Property Right or Program that was a material Company Intellectual
Property Right or material Company Program, as applicable, at the time of such assignment or agreement) to any Person, (iv) the Company or any of its Subsidiaries is subject to any obligation
or covenant with respect to the use, licensing, enforcement, prosecution or other exploitation of any Intellectual Property Right or Program that is material to any business of the Company or any of
its Subsidiaries, including stand-stills and Trademark co-existence or consent Contracts (each such Contract described in clauses (i) through (iv) of this Section 5.20(i),
together with all amendments, exhibits and schedules to such Contract, a "
Company Intellectual Property Contract
").
(j) An
original negative or master, or digital equivalent thereof, of each of the Library Programs has been properly stored, in each case in accordance with standards
customarily applied by major theatrical, television and home video distributors, as applicable, or the Company or any of its Subsidiaries has reasonable access to printable elements of such Library
Programs or other television or short form pictures. All such original negatives, masters or printable elements are in a commercially reasonable condition. Section 5.20(j) of the Company
Disclosure Letter sets forth a true and complete list, as of the date hereof, of the physical locations of all such original negatives, masters, or printable elements, and to the extent such physical
locations are owned or controlled by third parties, the Company or one of the Subsidiaries are party to customary access agreements with respect to access to all such negatives, masters or printable
elements.
(k) The
IT Assets owned, leased, controlled, used or held for use (including through cloud-based or other third-party service providers) by the Company or any of its
Subsidiaries are reasonably sufficient for the current and currently anticipated needs of the businesses of the Company and its Subsidiaries, and to the Company's Knowledge, in the prior three-year
period, there has been no unauthorized access to or unauthorized use of (i) any such IT Assets, (ii) any information stored on or processed by such IT Assets, or (iii) any
Personal Information or confidential or proprietary information that is in the Company's or any of its Subsidiaries' possession or control, in each case, in a manner that, individually or in the
aggregate, has resulted in or is reasonably expected to result in material liability to, or material disruption of the business operations of, the Company or any of its Subsidiaries.
(l) The
Company and its Subsidiaries have established and implemented written policies regarding privacy, cyber security and data security that are commercially reasonable,
and consistent with (i) standard industry practices, (ii) any and all commitments of the Company or any of its Subsidiaries and (iii) any and all publicly-facing statements or
internal or external policies adopted by the Company or any of its Subsidiaries (such statements and policies, collectively, the "
Privacy and Security
Policies
").
(m) Within
the prior three-year period, the Company and each of its Subsidiaries have at all times (i) complied with all of their respective Privacy and Security
Policies, (ii) complied in all material respects with all of their contractual and fiduciary obligations and with all applicable Laws, in each case, with respect to the collection, use,
storage, processing, transmission, transfer (including cross-border transfers), disclosure and protection of Personal Information in their possession or control, including for the avoidance of doubt,
GDPR, and (iii) used commercially reasonable measures consistent with standard
industry practices to ensure the security of the IT Assets and confidentiality, privacy and security of Personal Information.
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5.21.
Insurance.
All Insurance Policies maintained by the Company or any of its
Subsidiaries are with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of the Company and its Subsidiaries and their respective properties and assets, and are in character and amount at least equivalent to that carried by Persons
engaged in similar businesses and subject to the same or similar risks. Each Insurance Policy is in full force and effect and, to the extent applicable, all premiums due with respect to all Insurance
Policies have been paid, and, to the extent applicable, neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that (including with respect to the
transactions contemplated by this Agreement), with notice or lapse of time or both, would constitute a breach or event of default, or permit a termination of any of the Insurance Policies. The Company
has made available to Parent correct and complete copies or summary descriptions of the Insurance Policies.
5.22.
Takeover Statutes.
Within ten days of the date of this Agreement, the Company will take all
action necessary to render inapplicable any control share acquisition, business
combination, or other similar anti-takeover provision under the Company's Organizational Documents or any applicable Takeover Statute that is or could become applicable to Parent, this Agreement, the
Merger or the other transactions contemplated hereby.
5.23.
Brokers and Finders.
Neither the Company nor any of its directors or employees (including any
officers) has employed any broker, finder or investment bank or incurred any liability
for any brokerage fees, commissions or finders fees in connection with the transactions contemplated by this Agreement, except that the Special Committee has employed Allen & Company as its
financial advisor, whose fees and expenses will be paid by the Company. The Company has made available to Parent correct and complete copies of all Contracts pursuant to which Allen & Company
is entitled to any fees and expenses in connection with any of the transactions contemplated by this Agreement. Prior to or at the Closing, Parent and Merger Sub shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 5.23 that may be due in connection with the transactions
contemplated by this Agreement.
5.24.
No Other Representations or Warranties; Non-Reliance.
Except for the express written
representations and warranties made by the Company, neither the Company nor any of its Representatives or any other Person makes
any express or implied representation or warranty with respect to the Company or any of its Affiliates or any of their respective businesses, operations, assets, liabilities, conditions (financial or
otherwise) or prospects in connection with this Agreement, the Merger or any of the other transactions contemplated by this Agreement, and the Company hereby expressly disclaims making any such other
representations or warranties. With respect to the preceding sentence, Ultimate Parent, Parent and Merger Sub hereby expressly disclaim that any of Ultimate Parent, Parent, Merger Sub or any of their
respective Affiliates or Representatives has relied on or are relying on any representations or warranties regarding the Company, other than the express written representations and warranties of the
Company expressly set forth in this Agreement, and Ultimate Parent, Parent and Merger Sub hereby further acknowledge that none of the Company, any of its Representatives or any other Person shall have
or be subject to any liability to any of Ultimate Parent, Parent, Merger Sub or any of their Affiliates or Representatives resulting from the use of or access to any information, documents, data,
instruments or materials made available to them in any physical or electronic form (including in any "virtual data room") or pursuant to any management presentation, confidential memoranda, or
otherwise, in expectation of this Agreement and the Merger. Notwithstanding the foregoing provisions of this Section 5.24, nothing in this Section 5.24 shall limit Ultimate Parent's,
Parent's or Merger Sub's remedies with respect to claims against the Company for fraud or intentional or willful misrepresentation by the Company, its Subsidiaries or any of its or their respective
Affiliates in connection with, arising out of or otherwise related to this Agreement and the transactions contemplated by this Agreement.
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ARTICLE VI
Representations and Warranties of Parent and Merger Sub
Except as set forth in any reports, forms, statements, certifications and documents required to be filed with or furnished to the SEC pursuant
to the Exchange Act or the Securities Act by Parent (including notes, exhibits and schedules thereto and all information incorporated by reference and any amendments and supplements thereto) on or
after the Applicable Date and prior to the date of this Agreement and publicly available, but excluding, in each case, any Excluded Disclosure or in the
corresponding sections of the confidential disclosure letter delivered to the Company by Parent prior to or concurrently with the execution and delivery of this Agreement (the
"
Parent Disclosure Letter
") (
it being agreed
that for the purposes of the representations and warranties
set forth in this made by Parent or Merger Sub in this Agreement, disclosure of any item in any section of the Parent Disclosure Letter shall be deemed disclosure with respect to any other section to
the extent the relevance of such item is reasonably apparent on its face), Parent and Merger Sub each hereby represent and warrant to the Company that:
6.1.
Organization, Good Standing and Qualification.
Each of Parent and Merger Sub is a legal entity
duly organized, validly existing and, to the extent such concept is applicable, in good standing under the Laws of
its respective jurisdiction of organization and has all requisite corporate or similar power and authority to consummate the transactions contemplated by this Agreement. Merger Sub has been organized
for the sole purpose of consummating the Merger and the other transactions contemplated by this Agreement and, since its date of incorporation, has conducted no business activities or operations other
than as necessary to facilitate the consummation of the Merger and the other transactions contemplated by this Agreement.
6.2.
Corporate Authority.
(a) Each
of Parent and Merger Sub has all requisite corporate or similar power and authority and has taken all corporate and limited liability company action necessary in
order to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement, subject only to approval of this Agreement by Parent (as
the sole stockholder of Merger Sub). This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes a valid and binding agreement of Parent and Merger Sub, enforceable
against them in accordance with its terms, subject to the Bankruptcy and Equity Exception.
6.3.
Governmental Filings; No Violations.
(a) Other
than the Governmental Approvals, no expirations of waiting periods are required and no filings, notices, reports, consents, registrations, approvals, permits or
authorizations are required to be made or obtained by Parent or Merger Sub with, nor are any required to be obtained by Parent or Merger Sub from, any Governmental Entity, in connection with the
execution, delivery and performance of this Agreement by Parent and Merger Sub and the consummation of the transactions contemplated by this Agreement, or in connection with the continuing operation
of the business of Parent and its Subsidiaries following the Effective Time, except as would not have a Parent Material Adverse Effect.
(b) The
execution, delivery and performance of this Agreement by Parent and Merger Sub do not, and the consummation by Parent or Merger Sub of the transactions contemplated
by this Agreement, will not, constitute or result in (i) a breach or violation of, or a default under, the Organizational Documents of Parent, Merger Sub or any of their Subsidiaries, or
(ii) conflict with or result in a violation of any Law or Order to which either Parent or Merger Sub is subject, except in the case of clause (ii) as would not have a Parent Material
Adverse Effect.
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6.4.
Compliance with Laws.
The businesses of Parent and Merger Sub have not been, and are not being,
conducted in violation of any applicable Law, except for such non-compliance as would
not have a Parent Material Adverse Effect.
6.5.
Litigation.
(a) There
are no Proceedings pending or, to the Knowledge of Parent, threatened against Parent or Merger Sub or any of their Affiliates which, were any such Proceeding to
result in an Order adverse to Parent, Merger Sub or any of their Affiliates, would have a Parent Material Adverse Effect.
(b) Neither
Parent nor Merger Sub, or any of their Affiliates, is a party to or subject to the provisions of any Law or Order that would have a Parent Material Adverse
Effect.
6.6.
Absence of Certain Changes.
Since the Applicable Date and through the date of this Agreement,
there has not occurred any event, change, development, circumstance or fact that, individually
or taken together with any other events, changes, developments, circumstances, facts or effects, have had a Parent Material Adverse Effect.
6.7.
Available Funds.
At the Closing, Parent will have available to it, or will cause Merger Sub to
have available to it, immediately available cash funds sufficient to pay, in full,
all amounts required to be paid by Parent and Merger Sub pursuant to Article IV of this Agreement and otherwise to consummate the transactions contemplated by this Agreement (including the
payment of all fees and expenses payable by Ultimate Parent, Parent and Merger Sub in respect thereof).
6.8.
Brokers and Finders.
Neither Parent nor any of its directors or employees (including any
officers) has employed any broker, finder or investment bank or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the transactions contemplated by this Agreement, except that Parent has employed Citigroup Global Markets Inc. as its financial
advisor, whose fees and expenses will be paid by Parent.
6.9.
No Other Representations or Warranties; Non-Reliance.
Except for the express written
representations and warranties made by Ultimate Parent, Parent and Merger Sub, none of Ultimate Parent, Parent, Merger Sub or any
of their Representatives or any other Person makes any express or implied representation or warranty with respect to Ultimate Parent, Parent, Merger Sub or any of their Affiliates or any of their
respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects in connection with this Agreement, the Merger or any of the other transactions contemplated by
this Agreement, and Ultimate Parent, Parent and Merger Sub each hereby expressly disclaims making any such other representations or warranties. With respect to the preceding sentence, the Company
hereby expressly disclaims that the Company or any of its respective Affiliates or Representatives has relied on or are relying on any representations or warranties regarding Ultimate Parent, Parent
or Merger Sub, other than the express written representations and warranties of Ultimate Parent, Parent or Merger Sub expressly set forth in this Agreement, and the Company hereby further acknowledges
that none of Ultimate Parent, Parent, Merger Sub, any of their Representatives or any other Person shall have or be subject to any liability to any of the Company or its Affiliates or Representatives
resulting from the use of or access to any information, documents, data, instruments or materials made available to them in any physical or electronic form (including in any "virtual data room") or
pursuant to any management presentation, confidential memoranda, or otherwise, in expectation of this Agreement and the Merger. Notwithstanding the foregoing provisions of this Section 6.9,
nothing in this Section 6.9 shall limit the Company's remedies against Ultimate Parent, Parent or Merger Sub with respect to claims against Ultimate Parent, Parent, or Merger Sub for fraud or
intentional or willful misrepresentation by Ultimate Parent, Parent, Merger Sub or any of their Affiliates in connection with, arising out of or otherwise related to this Agreement and the
transactions contemplated by this Agreement.
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ARTICLE VII
Covenants
7.1.
Interim Operations.
(a) The
Company shall, and shall cause each of its Subsidiaries to, from and after the date of this Agreement and prior to the Effective Time (unless Parent shall otherwise
approve in writing, with such approval not to be unreasonably withheld, conditioned or delayed), and except as otherwise expressly required by this Agreement or as required by applicable Law, conduct
its business in the Ordinary Course of Business and, to the extent consistent therewith, shall use and cause each of its Subsidiaries to use their respective reasonable best efforts to, preserve its
and their business organizations intact and maintain satisfactory relations and goodwill with Governmental Entities, customers, suppliers, licensors, licensees, distributors, creditors, lessors,
employees and business associates and keep available the services of its and its Subsidiaries' present employees and agents. Without limiting the generality of and in furtherance of the foregoing
sentence, from the date of this Agreement until the Effective Time, except as otherwise expressly required by this Agreement, required by applicable Law, required by the express terms of any Company
Material Contract made available to Parent, as approved in writing by Parent or set forth in the corresponding subsection of Section 7.1(a) of the Company Disclosure Letter, the Company shall
not and shall cause its Subsidiaries not to:
(i) adopt
or propose any change in its Organizational Documents;
(ii) merge
or consolidate the Company or any of its Subsidiaries with any other Person, except for any such transactions solely among Wholly Owned Subsidiaries of the
Company, or restructure, reorganize or completely or partially liquidate or otherwise enter into any agreements or arrangements imposing material changes or restrictions on its assets, operations or
businesses;
(iii) acquire
assets from any other Person, other than acquisitions of Programs or other goods in the Ordinary Course of Business;
(iv) issue,
sell, pledge, dispose of, grant, transfer, lease, license, guarantee, Encumber, or otherwise enter into any Contract or understanding with respect to the voting
of, any shares of capital stock of the Company (including, for the avoidance of doubt, Shares, Preferred Stock or 2015 Warrants) or of any of its Subsidiaries, securities convertible or exchangeable
into or exercisable for any such shares of capital stock, or any options, warrants or other rights of any kind to acquire any such shares of capital stock or such convertible or exchangeable
securities (other than (A) the Voting Agreement and the AMC Transaction Documents and (B) the issuance of shares of capital stock (1) by a Wholly Owned Subsidiary of the Company
to the Company or another Wholly Owned Subsidiary of the Company, (2) in respect of Company Equity Awards outstanding as of the date of this Agreement or issued after the date of this Agreement
in accordance with Section 7.1(a)(xxiii), in each case in accordance with their terms and, as applicable, the Incentive Plan as in effect on the date of this Agreement or (3) pursuant to
the terms of the Preferred Stock, the 2015 Warrants or the AMC Warrants);
(v) enter
into any Contracts or other arrangements between the Company or any of its Subsidiaries, on the one hand, and any director or officer of the Company or any Person
beneficially owning five percent or more of the outstanding Shares or shares of common stock of any of their respective Affiliates, on the other hand, except for compensatory arrangements entered into
in the Ordinary Course of Business with Company Employees consistent with Section 7.1(a)(xxiii) and transactions with Ultimate Parent or its Affiliates;
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(vi) create
or incur any Encumbrance that is not incurred in the Ordinary Course of Business on any of the assets of the Company or any of its Subsidiaries;
(vii) make
any loans, advances, guarantees or capital contributions to or investments in any Person (other than to or from the Company and any of its Wholly Owned
Subsidiaries);
(viii) declare,
set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (including
with respect to the Company, for the avoidance of doubt, Shares), except for (A) dividends paid by any Wholly Owned Subsidiary to the Company or to any other Wholly Owned Subsidiary of the
Company and (B) dividends required to be paid in accordance with the terms of the Company's existing Preferred Stock;
(ix) reclassify,
split, combine, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock or securities convertible or
exchangeable into or exercisable for any shares of its capital stock (including with respect to the Company, for the avoidance of doubt, Shares, Preferred Stock and 2015 Warrants);
(x) incur
any Indebtedness (including the issuance of any debt securities, warrants or other rights to acquire any debt security);
(xi) enter
into any Contract that would have been a Company Material Contract had it been entered into prior to this Agreement, other than Contracts entered into in the
Ordinary Course of Business with payment obligations not to exceed $250,000;
(xii) other
than with respect to Company Material Contracts related to Indebtedness, which shall be governed by Section 7.1(a)(x), terminate or amend, modify,
supplement or waive, or assign, convey, Encumber or otherwise transfer, in whole or in part, rights or interest pursuant to or in any Company Material Contract, except for (x) expirations of
any such Contract in the Ordinary Course of Business and in accordance with the terms of such Contract with no further action by the Company, any of its Subsidiaries or other party to such Contract,
except for any ministerial actions, (y) non-exclusive licenses under Intellectual Property Rights owned or purported to be owned by the Company or any of its Subsidiaries, in each case, granted
in the Ordinary Course of Business or (z) terminations, amendments, modifications, assignments, conveyances, transfers or expirations where, concurrent therewith, the Company or a Subsidiary,
as applicable, enters into a replacement Contract providing substantially similar property, products or services on substantially similar terms;
(xiii) cancel,
modify or waive any debts or claims held by the Company or any of its Subsidiaries or waive any material rights;
(xiv) except
as expressly provided for by Section 7.13, amend, modify, terminate, cancel or let lapse an Insurance Policy, unless simultaneous with such termination,
cancellation or lapse, replacement self-insurance programs are established by the Company or one or more of its Subsidiaries or replacement policies underwritten by insurance and reinsurance companies
of nationally recognized standing are in full force and effect, in each case, providing coverage equal to or greater than the coverage under the terminated, canceled or lapsed Insurance Policies for
substantially similar premiums, as applicable, as in effect as of the date of this Agreement;
(xv) other
than with respect to Transaction Litigation, which shall be governed by Section 7.17, and settlement of trade accounts payable in the Ordinary Course of
Business, settle or compromise any Proceeding for an amount in excess of $100,000 individually or $250,000 in the aggregate during any calendar year;
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(xvi) make
any changes with respect to the legal structure of the Company and its Subsidiaries or to their accounting policies or procedures, except as required by changes
in GAAP;
(xvii) enter
into any line of business in any geographic area other than the existing lines of business of the Company and its Subsidiaries and lines of products and
services reasonably ancillary to any existing line of business, in any geographic area for which a License (if one is required) authorizing the conduct of such business, product or service in such
geographic area is held by it or any of its Subsidiaries, or, except as currently conducted, engage in the conduct of any business in any jurisdiction that would require the receipt or transfer of any
License issued by any Governmental Entity;
(xviii) make
any material changes to the existing lines of business of the Company and its Subsidiaries or adopt or make any material modifications to the Company's
strategic plan (including with respect to the Company's and its Subsidiaries' subscription video on demand (SVOD) business);
(xix) make,
change or revoke any Tax election, change an annual Tax accounting period, adopt or change any Tax accounting method, file any amended Tax Return, enter into any
closing agreement with respect to Taxes, settle any Tax claim, audit, assessment or dispute, surrender any right to claim a refund or take any action which would be reasonably expected to result in an
increase in the Tax liability of the Company or its Subsidiaries, or, in respect of any taxable period (or portion thereof) ending after the Closing Date, the Tax liability of Parent or its
Affiliates;
(xx) transfer,
sell, lease, divest, cancel, allow to lapse or expire, or otherwise dispose of or transfer, or permit or suffer to exist the creation of any Encumbrance upon,
any assets (tangible or intangible, including any Intellectual Property Rights and Programs), Licenses, product lines or businesses of the Company or any of its Subsidiaries, including capital stock
of any of its Subsidiaries, except in connection with services provided in the Ordinary Course of Business or sales of obsolete assets;
(xxi) cancel,
abandon or otherwise allow to lapse or expire any Company Intellectual Property Rights, except in the Ordinary Course of Business with respect to Intellectual
Property Rights that are not material to any business of the Company or any of its Subsidiaries;
(xxii) amend
or fail to comply with the Privacy and Security Policies, or alter the operation or security of any IT Assets owned, used or held for use in the operation of
the Company's and its Subsidiaries' businesses, in each case, in a manner that would be less protective of any IT Assets, Personal Information or any other confidential or proprietary information that
is in the Company's or any of its Subsidiaries' possession or control, including any information stored on or processed by such IT Assets;
(xxiii) except
as required pursuant to the terms of any Company Benefit Plan in effect as of the date of this Agreement and set forth in Section 7.1(a)(xxiii) of the
Company Disclosure Letter, (A) increase in any manner the compensation or fees, bonus, pension, welfare, fringe or other benefits, severance or termination pay of any Company Employee,
(B) become a party to, establish, adopt, amend, commence participation in or terminate any Company Benefit Plan or any arrangement that would have been a Company Benefit Plan had it been
entered into prior to the date of this Agreement, (C) grant any new awards, or amend or modify the terms of any outstanding awards, under any Company Benefit Plan, (D) take any action to
accelerate the vesting or lapsing of restrictions or payment, or fund or in any other way secure the payment, of compensation or benefits under any Company Benefit Plan,
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(E) change
any actuarial or other assumptions used to calculate funding obligations with respect to any Company Benefit Plan that is required by applicable Law to be funded or change the manner
in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP, (F) forgive any loans or make any extensions of credit
in the form of a personal loan to any Company Employee (other than routine travel advances issued in the Ordinary Course of Business), (G) hire any employee or engage any independent contractor
(who is a natural person) with an annual salary or wage rate or consulting fees and target cash bonus opportunity in excess of $100,000 or (H) terminate the employment of any executive officer
other than for cause;
(xxiv) become
a party to, establish, adopt, amend, commence participation in or terminate any collective bargaining agreement or other agreement with a labor union, labor
organization, works council or similar organization;
(xxv) fail
to maintain policies and procedures designed to ensure compliance with the FCPA and Other Anti-Bribery Laws;
(xxvi) fail
to maintain policies and procedures designed to ensure compliance with the Export and Sanctions Regulations in each jurisdiction in which the Company and its
Subsidiaries operate or are otherwise subject to jurisdiction;
(xxvii) take
any action or fail to take any action that is reasonably expected to result in any of the conditions to the Merger set forth in Article VIII not being
satisfied; or
(xxviii) agree,
authorize or commit to do any of the foregoing.
(b) Nothing
set forth in this Agreement shall give Parent, directly or indirectly, the right to control or direct the Company's or its Subsidiaries' operations prior to the
Effective Time or give the Company, directly or indirectly, the right to control or direct the Parent's or its Subsidiaries' operations prior to the Effective Time.
7.2.
Acquisition Proposals; Change of Recommendation.
(a)
No Solicitation.
At all times during the period commencing with the execution and delivery of this Agreement
and continuing until the earlier to occur of the termination of this Agreement pursuant to Article IX and the Effective Time, except as expressly permitted by this Section 7.2, the
Company shall not, and shall cause its Subsidiaries not to, and shall direct its and their directors and employees (including officers), not to, and shall instruct its Representatives not to, directly
or indirectly:
(i) initiate,
solicit, propose or knowingly encourage or otherwise knowingly facilitate any inquiry or the making of any proposal or offer that constitutes or, would
reasonably be expected to lead to, an Acquisition Proposal;
(ii) engage
in, continue or otherwise participate in any discussions or negotiations relating to any Acquisition Proposal or any inquiry, proposal or offer that would
reasonably be expected to lead to an Acquisition Proposal (other than to inform any Person who has made any inquiry with respect to, or who has made, an Acquisition Proposal of the provisions of this
Section 7.2);
(iii) provide
any information or data concerning the Company or its Subsidiaries or access to the Company or its Subsidiaries' properties, books and records to any Person in
connection with any Acquisition Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal;
(iv) enter
into any Alternative Acquisition Agreement;
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(v) take
any action to exempt any third party from the restrictions on "business combinations" or acquisitions or voting of Common Stock under any applicable Takeover
Statute or otherwise cause such restrictions not to apply;
(vi) grant
any waiver, amendment or release under any standstill or confidentiality agreement concerning an Acquisition Proposal; or
(vii) agree,
authorize or commit to do any of the foregoing.
(b)
Window Shop Exceptions.
Notwithstanding anything to the contrary set forth in Section 7.2(a), but
subject to the provisions of Section 7.2(c), prior to the time, but not after, the Requisite Company Vote is obtained, in response to an unsolicited,
bona
fide
written Acquisition Proposal, the Company (through the Special Committee and its Representatives) may:
(i) provide
non-public Company and other information and data concerning the Company and its Subsidiaries and access to the Company and its Subsidiaries' properties, books
and records in response to a request to the Person who made such Acquisition Proposal;
provided
that such information or data has previously been made
available to Parent or its Representatives, or if not previously made available to Parent or its Representatives, such information or data is made available to Parent not later than 24 hours
after the time such information and data is made available to such Person, and that, prior to furnishing any such information, the Company receives from the Person making such Acquisition Proposal an
executed confidentiality agreement with terms not less restrictive to the other party than the terms in the Confidentiality Agreement are on Parent (
it being
understood
that such confidentiality agreement need not contain any "standstill" or other similar provisions, and provided that such confidentiality agreement shall not include
any restrictions that could reasonably be expected to restrain the Company from satisfying its information and Parent notification obligations contemplated by Section 7.2(c)) (any
confidentiality agreement satisfying such criteria, a "
Permitted Confidentiality Agreement
"); and
(ii) engage
or otherwise participate in any discussions or negotiations with any such Person regarding such unsolicited,
bona
fide
written Acquisition Proposal (including to request from such Person or its Representatives clarification of the terms and conditions of such Acquisition Proposal to the
extent necessary for the Special Committee and its Representatives to become fully informed with respect to such proposed terms and conditions),
if,
and only if, prior to taking any action described in clause (i) or clause (ii) of this Section 7.2(b), the Special Committee determines in good faith, after consultation with
outside legal counsel, that (A) based on the information then available and after consultation with its financial advisor, that such Acquisition Proposal either constitutes a Superior Proposal
or is reasonably expected to result in a Superior Proposal and (B) based on the information then available, including the terms and conditions of such Acquisition Proposal and those of this
Agreement, the failure to take such action would be inconsistent with the directors' fiduciary duties under applicable Law.
(c)
Notice of Acquisition Proposals.
The Company shall promptly (but, in any event, within 48 hours) give
notice to Parent of (i) any inquiries, proposals or offers with respect to an Acquisition Proposal or that would reasonably be expected to lead to an Acquisition Proposal received by the
Company or the Special Committee (or its Representatives), (ii) any request for non-public information or data concerning the Company or its Subsidiaries or access to the Company or its
Subsidiaries' properties, books or records in connection with any Acquisition Proposal or any inquiry, proposal or offer that
would reasonably be expected to lead to an Acquisition Proposal received by the Company, the Special Committee (or its Representatives), or (iii) any new substantive developments or discussions
or negotiations relating to an Acquisition
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Proposal
or any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal being conducted by or on behalf of the Company or the Special Committee (or their
Representatives) with respect to an Acquisition Proposal, setting forth in such notice, to the extent not theretofore publicly disclosed or previously disclosed to Parent, the name of the applicable
Persons who made the Acquisition Proposal and the material terms and conditions of any such Acquisition Proposal or inquiry, proposal or offer and the request for the information or data (including,
if applicable, correct and complete copies of any written Acquisition Proposals and other proposed transaction documentation (or where no written proposed transaction documentation have been provided
to the Company, a reasonably detailed written summary of the proposed transaction terms then-known by the Company or Special Committee), and thereafter shall keep Parent reasonably informed, on a
prompt basis (but, in any event, within 24 hours of any substantive development or change in status) of the status and terms and conditions of any such Acquisition Proposals, inquiries,
proposals or offers, or information requests (including any amendments or supplements thereto) and the status of any such substantive developments or discussions, or negotiations, and
(B) provide to Parent as soon as practicable after receipt or delivery thereof copies of all correspondence and other written material sent by or provided to the Company or the Special
Committee (or their Representatives) from any Person that describes any of the terms or conditions of any Acquisition Proposal. Parent shall promptly (but, in any event, within 48 hours) give
notice and copies to the Special Committee of all communications and documentation relating to any Acquisition Proposal Parent receives in its capacity as a stockholder of the Company to the extent
any such Acquisition Proposal or communications or documentation in respect thereof has not previously been delivered or made available to the Special Committee or is not publicly available.
(d)
Change of Recommendation Permitted in Certain Circumstances.
(i) Except
as permitted by Section 7.2(d)(ii) and Section 7.2(e), none of the Company Board, the Special Committee or any other committee of the Company Board
shall:
(A) withhold,
withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) the Company Recommendation in a manner adverse to Parent;
(B) fail
to include the Company Recommendation in the Proxy Statement;
(C) at
any time following receipt of an Acquisition Proposal (other than a tender or exchange offer as contemplated by clause (D) below that has been publicly
disclosed), fail to reaffirm its approval or recommendation of this Agreement and the Merger as promptly as practicable (but in any event within five Business Days) after receipt of any written
request to do so from Parent;
(D) fail
to recommend rejection (pursuant to Rule 14e-2(a)(1) under the Exchange Act and under cover of Schedule 14D-9 filed by the Company with the SEC) of
any tender offer or exchange offer for outstanding Shares that has been commenced by any Person (other than by Parent or an Affiliate of Parent) pursuant to Rule 14d-2 under the Exchange Act on
or prior to the 10th Business Day after such commencement;
(E) approve,
authorize or recommend (or determine to approve, authorize or recommend) or publicly declare advisable any Acquisition Proposal or other proposal that would be
reasonably expected to lead to an Acquisition Proposal or any Alternative Acquisition Agreement; or
(F) agree,
authorize or commit to do any of the foregoing (any action described in clauses (A) through (E) of this Section 7.2(d)(i) being referred to
as a "
Change of Recommendation
").
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(ii) Notwithstanding
anything to the contrary set forth in this Section 7.2(d) or elsewhere in this Agreement, at any time prior to the time the Requisite Company
Vote is obtained, the Special Committee may make a Change of Recommendation and terminate this Agreement pursuant to Section 9.3(b) if: (A) an unsolicited,
bona
fide
written Acquisition Proposal that was not obtained in breach of Section 7.2 is received by the Company and has not been withdrawn, and (B) the Special
Committee determines in good faith, after consultation with outside legal counsel and its financial advisor, that such Acquisition Proposal constitutes a Superior Proposal;
provided
,
however
, that (x) a Change of Recommendation and termination by the Company of
Agreement pursuant to Section 9.3(b) may not be made unless and until the Company has given Parent written notice that the Special Committee intends to convene a meeting of the Special
Committee to consider or take any other action with respect to making such Change of Recommendation together with a reasonably detailed description of the Superior Proposal (it being hereby
acknowledged and agreed that the provision to Parent of all proposed definitive transaction documentation providing for such Superior Proposal shall be deemed to satisfy such description requirement
pursuant to this Section 7.2(d)(i)) at least four Business Days in advance of convening such meeting of the Special Committee or taking such other action (the "
Superior
Proposal Notice Period
"), which notice shall also comply with the provisions of
Section 7.2(c); (y) during the pendency of the Superior Proposal Notice Period, if requested by Parent, the Special Committee shall, and shall authorize and instruct its Representatives
to, negotiate in good faith with Parent and its Representatives to revise this Agreement (in the form of a proposed binding amendment to this Agreement) to enable the Special Committee to determine in
good faith, after consultation with its outside legal counsel and its financial advisor, that after giving effect to the modifications contemplated by such proposed amendment, such Acquisition
Proposal would no longer constitute a Superior Proposal; and (z) at the expiration of the Superior Proposal Notice Period, and at such meeting of the Special Committee, the Special Committee,
after having taken into account the modifications to this Agreement proposed by Parent in the manner and form described in clause (y) above, shall have determined in good faith, after
consultation with outside legal counsel and its financial advisor, that a failure to make a Change of Recommendation and to terminate this Agreement pursuant to Section 9.3(b) and to abandon
the Merger would be inconsistent with the fiduciary duties of the Company's directors constituting the Special Committee under applicable Law (
it being
understood
that any revisions to the financial terms of, or any material revisions to any of the other substantive terms of, any Acquisition Proposal shall be deemed to be a
new Acquisition Proposal for purposes of Section 7.2(c) and this Section 7.2(d)(ii), including for purposes of commencing a new Superior Proposal Notice Period, except that subsequent to
the initial Superior Proposal Notice Period, the subsequent Superior Proposal Notice Period shall be reduced to two Business Days).
(iii) Notwithstanding
anything to the contrary in this Section 7.2(d) or elsewhere in this Agreement, at any time prior to the time the Requisite Company Vote is
obtained, the Special Committee may make a Change of Recommendation and terminate this Agreement pursuant to Section 9.3(b) if (A) an Intervening Event shall have occurred and be
continuing and (B) the Special Committee determines in good faith, after consultation with its outside legal counsel and its financial advisor, that the failure to make a Change of
Recommendation as a result of such Intervening Event would be inconsistent with the fiduciary duties of the Company's directors constituting the Special Committee under applicable Law, provided,
however, that (x) a Change of Recommendation and termination by the Company of this Agreement pursuant to Section 9.3(b) may not be made unless and until the Company has given Parent
written notice that the Special Committee intends to convene a meeting of the Special Committee to consider or take any other action with respect to making such Change of Recommendation together with
a reasonably detailed description of the nature of the
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Intervening
Event that has occurred and is continuing, at least four Business Days in advance of convening such meeting of the Special Committee or taking such other action (the
"
Intervening Event Notice Period
"), which notice shall also comply with the provisions of Section 7.2(c); (y) during the pendency of the
Intervening Event Notice Period, if requested by Parent, the Special Committee shall, and shall authorize and instruct its Representatives to, negotiate in good faith with Parent and its
Representatives, to revise this Agreement (in the form of a proposed binding amendment to this Agreement) to enable the Special Committee to determine in good faith, after consultation with its
outside legal counsel and financial advisor that, after giving effect to the modifications contemplated by
such proposed amendment, the failure of the Special Committee to make a Change of Recommendation and to terminate this Agreement pursuant to Section 9.3(b), would be inconsistent with the
fiduciary duties of the Company's directors constituting the Special Committee under applicable Law; and (z) at the expiration of the Intervening Event Notice Period, and at the meeting of the
Special Committee, the Special Committee, after having taken into account the modifications to this Agreement proposed by Parent in the manner and form described in clause (y) above, shall have
determined in good faith, after consultation with outside counsel, that a failure to make a Change of Recommendation and to terminate this Agreement pursuant to Section 9.3(b) and to abandon
the Merger would be inconsistent with the fiduciary duties of the Company's directors constituting the Special Committee under applicable Law.
(e)
Certain Permitted Disclosure.
Nothing set forth in this Section 7.2 or elsewhere in this Agreement
shall prohibit the Company from (i) making any disclosure to the holders of Common Stock if the Special Committee determines in good faith, after consultation with its outside legal counsel,
that the failure to make any such disclosure would be inconsistent with the fiduciary duties of the Company's directors constituting the Special Committee under applicable Law, (ii) disclosing
a position contemplated by Rule 14d-9, Rule 14e-2(a)(2) or (3) or Item 1012(a) of Regulation M-A under the Exchange Act, or (iii) making any "stop, look and
listen" communication of the type contemplated by Rule 14d-9(f) under the Exchange Act. For the avoidance of any doubt, notwithstanding any provision of this Agreement, a factually accurate
public or other statement or disclosure made by the Company (including in response to any unsolicited inquiry, proposal or offer made by any Person to the Company not in violation of
Section 7.2(a)) that describes the existence and operation of the terms and provisions of this Section 7.2 shall not, in itself, constitute a Change of Recommendation for any purpose of
this Agreement; provided that if any disclosures or communications of the type described in clauses (i) and (ii) of this Section 7.2(e) fail to expressly reaffirm therein the
Company Recommendation, such disclosure or communication shall constitute a Change of Recommendation for all purposes of this Agreement.
(f)
Existing Discussions.
The Company (i) has, as of the date hereof, ceased and caused to be terminated
any activities, solicitations, discussions and negotiations with any Person conducted prior to the date hereof with respect to any Acquisition Proposal, or proposal that would reasonably be expected
to lead to an Acquisition Proposal, and (ii) shall promptly (but in any event within 24 hours of the execution and delivery of this Agreement) (A) deliver a written notice to each
such Person (1) providing that the Company is ending all discussions and negotiations with such Person with respect to any potential transaction and (2) if such Person has executed a
confidentiality agreement, requesting the prompt return or destruction of all confidential information concerning the Company and any of its Subsidiaries pursuant to the terms of such agreement, and
(B) if applicable, terminate any physical and electronic data or other diligence access previously granted to such Persons.
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(g)
Anti-Takeover and Standstill Provisions.
From the date of this Agreement and
continuing until the earlier to occur of the termination of this Agreement pursuant to Article IX and the Effective Time, the Company shall not take any action to exempt any Person (other than
Ultimate Parent, Parent and Merger Sub) from the restrictions, prohibitions and provisions of any Takeover Statute or to terminate, amend or otherwise modify or waive any provision of any
confidentiality, "standstill" or similar agreement to which the Company or any of its Subsidiaries is a party and shall enforce, to the fullest extent permitted under applicable Law, the provisions of
any such agreement, including by seeking to obtain injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof;
provided
that irrespective of the
foregoing, the Company shall be permitted to exempt any such Person from the restrictions, prohibitions and provisions
of any Takeover Statute and to terminate, amend or otherwise modify, waive or fail to enforce any provision of any such confidentiality, "standstill" or similar agreement if the Special Committee
determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be inconsistent with the fiduciary duties of the Company's directors
constituting the Special Committee under applicable Law.
(h) Parent
hereby waives the provisions of Sections 4.1(A) and 4.12 of the Investment Agreement for the sole purpose of (and solely to the extent necessary for)
facilitating and permitting the Company, the Special Committee and their respective Representatives to take all actions permitted to be taken as set
forth in this Section 7.2 and elsewhere in this Agreement that, but for the waiver hereby, would or may otherwise be prohibited or restricted by such provisions of the Investment Agreement, and
Parent hereby consents in its capacity as the "Investor" under the Investment Agreement to the Company's and the Special Committee's taking of the actions permitted to be taken in this
Section 7.2 and elsewhere in this Agreement.
7.3.
Company Stockholders Meeting.
(a) Unless
a Change in Recommendation shall have been made by the Special Committee in accordance with Section 7.2(d) or this Agreement shall have been terminated
pursuant to Article IX, the Company shall, as promptly as practicable after the later of (x) the 10-day waiting period prescribed by Rule 14a-6(a) under the Exchange Act and
(y) the date on which the SEC's staff orally confirms to the Company or its Representatives that will not have any, or that it has no further, comments with respect to the Proxy Statement (such
later date, the "
Clearance Date
"), duly call, give notice of and convene (in accordance with applicable Law and the Company's Organizational Documents)
the Company Stockholders Meeting for the purpose of submitting this Agreement to the holders of Common Stock for their consideration and to seek to obtain the Requisite Company Vote; it being hereby
acknowledged and agreed that the date of the Company Stockholders Meeting shall not be less than 30 days after notice of the Company Stockholders Meeting is first published, sent or given by
the Company to the holders of Common Stock (and, pursuant to NRS 92A.120(4) and 92A.410, the holders of Preferred Stock). The Company shall (i) as promptly as practicable after the Clearance
Date, cause the Proxy Statement (and all related materials) to be mailed in definitive form to holders of Common Stock and Preferred Stock and (ii) subject to Section 7.2(d), use its
reasonable best efforts (including by means of engagement by the Company of a nationally recognized proxy solicitation firm) to solicit proxies from the holders of Shares to seek to obtain the Company
Requisite Vote.
(b) The
Company shall make the inquiry required by Rule 14a-3(1) under the Exchange Act within the time period specified by Rule 14a-3(a)(3). The record date
for holders of Common Stock entitled to notice of and to vote at the Company Stockholders Meeting (the "
Record Date
") shall be mutually agreed to by
Parent and the Company. Once the Record Date has been established, the Company shall not change the Record Date or establish a different such date without the prior written consent of Parent, which
consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything in this Section 7.3(b) or elsewhere in this
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Agreement
to the contrary, nothing shall prohibit the Company from postponing, adjourning or otherwise delaying the Company Stockholders Meeting if (and only if) the Special Committee has determined
in good faith, after consultation with its outside counsel, that the Company is required to postpone, adjourn or delay the Company Stockholders Meeting pursuant to any request by the SEC's staff or
order to update, correct or otherwise make any necessary additional disclosures to the holders of Common Stock such that the Proxy Statement does not contain any untrue statement of material fact, or
omit to state any material fact necessary, in order to make the statements made, in the light of the circumstances under which they were made, not misleading;
provided
, however, that the Company
Stockholders Meeting shall not be postponed, adjourned or delayed for more than ten Business Days in the aggregate
without the prior written consent of Parent, which consent shall not be unreasonably withheld, conditioned or delayed. The Company agrees that, unless the Special Committee has made a Change of
Recommendation pursuant to and in accordance with the terms and conditions of Section 7.2(d) or this Agreement is terminated pursuant to Article IX, its obligations to hold the Company
Stockholders Meeting pursuant to this Section 7.3 shall not be affected by the commencement, announcement or disclosure of or communication to the Company of any Acquisition Proposal, and the
Company shall continue to take all lawful action to obtain the Requisite Company Vote, including the solicitation of proxies therefor. in the manner set forth in this Section 7.3.
(c) The
Company agrees (i) to provide Parent reasonably detailed periodic updates concerning proxy solicitation results on a timely basis (including, if requested,
promptly providing voting reports compiled by the Company's proxy solicitation firm) and (ii) to give written notice to Parent one day prior to the Company Stockholders Meeting and on the day
of, but prior to the Company Stockholders Meeting, indicating whether as of such date, sufficient proxies representing the Requisite Company Vote have been obtained.
(d) Without
the prior written consent of Parent, which consent shall not be unreasonably withheld, conditioned or delayed, matters related to the approval of this Agreement
and matters required by Regulation S-K, shall be the only matters that the Company may propose to be acted on by the Company's stockholders at the Company Stockholders Meeting.
7.4.
Parent Vote.
So
long as there has been no Change of Recommendation, Parent shall vote or cause to be voted any Shares beneficially owned by it or any of its Affiliates or with respect to which it or
any of its Affiliates has the power (by agreement, proxy or otherwise) to cause to be voted, in favor of the approval of this
Agreement at any meeting of stockholders of the Company, at which this Agreement shall be submitted for approval and at all adjournments, recesses or postponements thereof.
7.5.
Approval of Sole Stockholder of Merger Sub.
As
promptly as practicable after the execution and delivery of this Agreement, Parent (in its capacity as Merger Sub's sole stockholder) shall execute and deliver, in accordance with
applicable Law and Merger Sub's Organizational Documents, a written consent or similar binding authorization approving Merger Sub's execution and delivery of this Agreement and the consummation by
Merger Sub of the transactions contemplated by this Agreement.
7.6.
Disclosure Documents; Other Regulatory Matters.
(a)
Disclosure Documents.
(i) As
promptly as practicable after the date of this Agreement, but in any event within 15 Business Days after the date of this Agreement, (A) the Company shall
prepare and file with the SEC a proxy statement in preliminary form relating to the Company Stockholders Meeting (such proxy statement, including any amendments or supplements thereto, the
"
Proxy
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Statement
") and (B) Parent shall prepare and file with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3 relating to the Merger (such
Rule 13e-3 Transaction Statement, including any amendments or supplements thereto, the "
Schedule 13E-3
"). Except under the circumstances
expressly permitted by Section 7.2(d)(ii), the Proxy Statement shall include the Company Recommendation.
(ii) The
Company shall ensure that the Proxy Statement complies in all material respects as to form and substance with the provisions of the Exchange Act, and Parent shall
ensure that the Schedule 13E-3 complies in all material respects as to form and substance with the provisions of the Exchange Act.
(iii) The
Company and Parent each shall ensure that none of the information supplied by it or any of its Affiliates for inclusion or incorporation by reference in the Proxy
Statement and the Schedule 13E-3 will contain any untrue statement of a material fact or 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 (A) in the case of the Proxy Statement, at the date of mailing to stockholders of the Company, at
the time of the Company Stockholders Meeting or at the time of filing with the SEC (as applicable), and (B) in the case of the Schedule 13E-3, at the time of filing with the SEC;
provided
,
however
, that the Company, on the one hand, and Parent and Merger Sub, on the other hand,
assume no responsibility with respect to information supplied by or on behalf of the other Party or its Affiliates for inclusion or incorporation by reference in the Proxy Statement or
Schedule 13E-3.
(iv) If
at any time prior to the Company Stockholders Meeting, any information relating to the Company or Parent, or any of their respective Affiliates, should be discovered
by a Party, which information should be set forth in an amendment or supplement to the Proxy Statement or the Schedule 13E-3, so that either the Proxy Statement or the Schedule 13E-3
would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they are made, not
misleading, the Party that discovers such information shall as promptly as practicable following such discovery notify the other Party or Parties. After any such notification relating to the Proxy
Statement, the Company shall, as and to the extent required by applicable Law, promptly (A) prepare and file an amendment or supplement to the Proxy Statement and (B) cause the Proxy
Statement as so amended or supplemented to be disseminated to its stockholders. After any such notification relating to the Schedule 13E-3, Parent shall, to the extent required by applicable
Law, promptly prepare and file with the SEC an amendment or supplement to the Schedule 13E-3.
(v) Prior
to filing or mailing the Proxy Statement and any other documents and communications related to the Company Stockholders Meeting (in the case of the Company) or the
Schedule 13E-3 (in the case of Parent), the Company and Parent (as the case may be) shall provide the other Party and its outside legal counsel and other Representatives with a reasonable
opportunity to review and comment on drafts of such documents and shall consider in good faith all such comments promptly and reasonably proposed by the other Party.
(vi) Without
limiting the generality of the other provisions of Section 7.7, the Company and Parent shall (A) promptly notify the other of the receipt of all
comments from the SEC with respect to the Proxy Statement and Schedule 13E-3, respectively, and of any request by the SEC for any amendment or supplement to the Proxy Statement or
Schedule 13E-3 or for additional information, (B) as promptly as practicable following receipt thereof provide the other with copies of all correspondence with the SEC with respect to
the Proxy Statement and
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Schedule 13E-3
and (C) provide the other Party's outside legal counsel and its other applicable Representatives a reasonable opportunity to participate in any discussions or meetings
with the SEC relating to the Proxy Statement or Schedule 13E-3. The Company and Parent each shall, as applicable and subject to the requirements of Section 7.6(a)(v), use its best
efforts to promptly provide responses to the SEC with respect to all comments and requests received on the Proxy Statement and Schedule 13E-3, respectively, by the SEC. The Company shall cause
the definitive Proxy Statement to be mailed as promptly as practicable after the date the SEC staff advises that it has no further comments thereon or that the Company may commence mailing the Proxy
Statement.
(b)
Other Regulatory Matters.
(i) Except
to the extent a different standard of efforts has been expressly agreed to and set forth in any provision of this Agreement, the Company and Parent shall
cooperate with each other and use (and shall cause their respective Affiliates to use) their respective reasonable best efforts to take or cause to be taken all actions necessary or advisable on its
part under this Agreement and applicable Laws to consummate the transactions contemplated by this Agreement as promptly as practicable after the date of this Agreement, including preparing and filing
as promptly as practicable after the date of this Agreement documentation to effect all necessary notices, reports, consents, registrations, approvals, permits, authorizations, expirations of waiting
periods and other filings and to obtain as promptly as practicable after the date of this Agreement all consents, registrations, approvals, permits and authorizations necessary or advisable to be
obtained from any Governmental Entity, including the Governmental Approvals, in order to consummate the transactions contemplated by this Agreement.
(ii) Notwithstanding
anything to the contrary set forth in this Agreement:
(A) in
no event shall (1) any Party or any of its Affiliates be required to agree to any term, condition, liability, obligation, requirement, limitation,
qualification, remedy, commitment, sanction or other action imposed, required or requested by a Governmental Entity in connection with its grant of any consent, registration, approval, permit or
authorization, including the Governmental Approvals, necessary or advisable in order to consummate the transactions contemplated by this Agreement to be obtained from any Governmental Entity that is
not conditioned upon the consummation of the transactions contemplated by this Agreement or (2) the Company or any of its Affiliates agree to any term, condition, liability, obligation,
requirement, limitation, qualification, remedy, commitment, sanction or other action in connection with the obtaining of any such consent, registration, approval, permit or authorization necessary
that is not conditioned upon the consummation of the transactions contemplated by this Agreement without the prior written consent of Parent and subject to Section 7.6(b)(ii)(B); and
(B) the
Parties hereby acknowledge and agree that neither this Section 7.6(b) nor the "reasonable best efforts" standard shall require, or be construed to require,
Parent or any of its Affiliates, (1) to resist, vacate, limit, reverse, suspend or prevent, through litigation, any actual, anticipated or threatened Order seeking to delay, restrain, prevent,
enjoin or otherwise prohibit or make unlawful the consummation of the transactions contemplated by this Agreement or (2) in order to obtain any consent, registration, approval, permit or
authorization, including the Governmental Approvals, necessary or advisable in order to consummate the transactions contemplated by this Agreement to be obtained from any Governmental Entity, to agree
to any term, condition, liability, obligation, requirement, limitation, qualification, remedy, commitment, sanction or other action that would be reasonably likely to have a material adverse effect on
the anticipated
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benefits
to Parent and its Affiliates of the transactions contemplated by this Agreement;
provided
that Parent may compel the Company to (and to cause
its Subsidiaries to) agree to any such term or condition or take any such actions (or agree to take such actions) so long as the effectiveness of such term or condition or action is conditioned upon
the consummation of the Merger.
(iii)
Cooperation
. Parent shall have the right to direct all matters with any Governmental Entity consistent
with its obligations hereunder;
provided
that Parent and the Company shall have the right to review in advance and, to the extent practicable, each will
consult with the other on and consider in good faith the views of the other in connection with, all of the information relating to Parent or the Company, as the case may be, any of their respective
Affiliates and any of their respective Representatives, that appears in any filing made with, or written materials submitted to any Governmental Entity in connection with the transactions contemplated
by this Agreement. Neither the Company nor Parent shall permit any of its or its Subsidiaries' Representatives to participate in any discussions or meetings with any Governmental Entity in respect of
any documentation to effect all necessary notices, reports, consents, registrations, approvals, permits, authorizations, expirations of waiting periods and other filings or any investigation or other
inquiry relating thereto or to the transactions contemplated by this Agreement unless it consults with the other in advance and, to the extent permitted by such Governmental Entity, gives the other
the opportunity to attend and participate. Each of the Company and Parent, as applicable, shall (and shall cause their respective Affiliates to) promptly provide or cause to be provided to each
Governmental Entity of non-privileged or protected information and documents reasonably requested by any Governmental Entity or that are necessary or advisable to permit consummation of the
transactions contemplated by this Agreement.
7.7.
Status and Notifications.
(a) The
Company and Parent each shall keep the other reasonably apprised of the status of matters relating to completion of the transactions contemplated by this Agreement
(including in connection with the Proxy Statement and Schedule 13E-3) and shall, as promptly as practicable, (i) notify the other of any notices or communication from or with any
Governmental Entity concerning the transactions, (ii) furnish the other with copies of written notices or other communications received by Parent or the Company, as the case may be, or any of
its Affiliates from any third party, including any Governmental Entity, with respect to such transactions and (iii) furnish the other with all information as may be necessary or advisable to
effect such notices and communications. The Company and Parent shall give prompt notice to each other of any events, changes, developments, circumstances or facts that individually or in the
aggregate, has had or would reasonably be expected to (x) in the case of the Company, have a Material Adverse Effect or prevent, materially delay or materially impair the consummation by the
Company of the transactions contemplated by this Agreement, (y) in the case of Parent, have a Parent Material Adverse Effect, or (z) in the case of either the Company or Parent, result
in any non-compliance or violation of any of the respective representations, warranties or covenants of the Company, Ultimate Parent, Parent or Merger Sub, as applicable, set forth in this Agreement,
to the extent that any such non-compliance or violation would reasonably be expected to result in a failure of any of the conditions set forth in Sections 8.2(a), 8.2(b), 8.3(a) or 8.3(b), as
applicable.
7.8.
Third-Party Consents and Encumbrance Terminations.
(a) The
Company shall use its, and shall cause its Subsidiaries to use their, reasonable best efforts to take or cause to be taken all actions reasonably necessary and
proper or advisable on its part under this Agreement and applicable Law to give and obtain as promptly as practicable following the date of this Agreement all notices, acknowledgments, waivers,
consents, amendments
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or
other modification required under any Company Material Contract to which Company or any of its Subsidiaries is bound (the "Third-Party Consents"), and in connection therewith, neither the Company
nor any of its Subsidiaries shall (a) make any payment of a consent fee, "profit sharing" payment,
"make whole" payment or other consideration (including increased or accelerated payments) or concede anything of value, (b) amend, supplement or otherwise modify any such Contract or
(c) agree or commit to do any of the foregoing, in each case for the purposes of obtaining any Third-Party Consents without the prior consent of Parent; provided, however, that Parent may
compel the Company to (and to cause the Company's Affiliates to) take any such actions so long as the effectiveness of such action is contingent upon the consummation of the Merger.
(b) The
Company shall use its, and shall cause its Subsidiaries to use their, reasonable best efforts to take or cause to be taken all actions reasonably necessary and
proper or advisable on its part under this Agreement and applicable Law to obtain as promptly as practicable following the date of this Agreement, in a form reasonably acceptable to Parent, the
confirmatory release and termination of each of the Encumbrances set forth on Section 7.8(b)(i) of the Company Disclosure Letter and to file with the appropriate Governmental Entities all such
confirmatory releases and terminations, as well as the releases and terminations of Encumbrances set forth on Section 7.8(b)(ii) of the Company Disclosure Letter, and in connection therewith,
neither the Company nor any of its Subsidiaries shall (a) make any payment of a consent fee, "profit sharing" payment, "make whole" payment or other consideration (including increased or
accelerated payments) or concede anything of value, other than any fees charged by the Governmental Authorities in connection with such filings, (b) other than as expressly set forth in this
Section 7.8(b), amend, supplement or otherwise modify any such Contract or (c) agree or commit to do any of the foregoing, in each case for the purposes of obtaining any such releases
and terminations, without the prior consent of Parent.
7.9.
Information and Access.
(a) The
Company shall (and shall cause its Subsidiaries to), upon reasonable prior notice, afford Parent and its Representatives reasonable access throughout the period
prior to the Effective Time, to the Company Employees, agents, properties, offices and other facilities, Contracts, books and records, and, during such period, the Company shall (and shall cause its
Subsidiaries to) furnish promptly to Parent all other information and documents (to the extent not publicly available) concerning or regarding its businesses, properties and assets (including
Intellectual Property Rights and Programs) and personnel as may reasonably be requested by Parent;
provided
,
however
, that subject to compliance with the
obligations set forth in Section 7.9(b), none of the Company or any of its Subsidiaries shall be
required to provide such access or furnish such information and documents to the extent it reasonably determines in good faith, after consultation with the Company's outside counsel, that doing so
would be reasonably likely to (i) result in a violation of applicable Law or (ii) waive the attorney-client privilege or similar protections.
(b) In
the event that the Company objects to any request submitted pursuant to Section 7.9(a) on the basis of one or more of the matters set forth in
Section 7.9(a), it must do so by providing Parent, in reasonable detail, the nature of what is being withheld and the reasons and reasonable support therefor, and prior to preventing such
access or withholding such information or documents from Parent and its Representatives, the Company shall cooperate with Parent to make appropriate substitute arrangements to permit reasonable
disclosure that does not suffer from any of the impediments expressly set forth in Section 7.9(a), including using reasonable best efforts to take such
actions and implement appropriate and mutually agreeable measures to permit such access, including through appropriate "counsel-to-counsel" disclosure, clean room procedures, redaction and other
customary procedures.
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(c) No
access or information provided to Parent or any of its Representatives or to the Company or any of its Representatives following the date of this Agreement, whether
pursuant to this Section 7.9 or otherwise, shall affect or be deemed to affect, modify or waive the representations and warranties of the Parties set forth in this Agreement.
7.10.
Delisting and Deregistration.
Prior to the Closing Date, the Company shall cooperate with Parent
and use reasonable best efforts to take, or cause to be taken, all actions necessary or
advisable on its part under applicable Laws and rules and policies of the NASDAQ to enable the delisting by the Surviving Corporation of Shares from the NASDAQ and the deregistration of the Shares
under the Exchange Act as promptly as practicable after the Effective Time, but in any event no more than ten days after the Effective Time and the Surviving Corporation shall file with the SEC
(a) a Form 25 on or as promptly as practicable following the Closing Date and (b) a Form 15 on the first Business Day that is at least ten days after the date the
Form 25 is filed (such period between the Form 25 filing date and the Form 15 filing date, the "Delisting Period").
7.11.
Publicity.
The initial press release with respect to the transactions contemplated by this
Agreement shall be a joint press release. Subject to 7.2(d)(ii), and unless and
until a Change of Recommendation has occurred and has not been rescinded, Parent and the Company shall consult with each other before issuing, and give each other the reasonable opportunity to review
and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make
any such public statement prior to such consultation, except as such party may reasonably conclude may be required by applicable Law, court process or by obligations pursuant to any listing agreement
with any national securities exchange or national securities quotation system. Nothing in this Section 7.11 shall limit the ability of any party hereto to make internal announcements to their
respective employees in accordance with Section 7.12(d) that are consistent in all material respects with the prior public disclosures regarding the transactions contemplated by this Agreement.
7.12.
Employee Benefits.
(a) During
the period commencing at the Effective Time and ending on the one-year anniversary of the Effective Time, Parent agrees that Parent or one of its Affiliates shall
provide (1) each Continuing Employee with an annual base salary or base wage rate that is no less favorable than the annual base salary or base wage rate provided by the Company and its
Subsidiaries to such Continuing Employee immediately prior to the Effective Time, and (2) the Continuing Employees with target annual cash bonus opportunities, and pension and welfare benefits
(excluding equity and long-term incentive compensation) that are substantially comparable in the aggregate to those provided by the Company and its Subsidiaries to such employees immediately prior to
the Effective Time.
(b) Parent
shall use commercially reasonable efforts to (i) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health
plans of Parent or its Affiliates to be waived with respect to the Continuing Employees and their eligible dependents, (ii) give each Continuing Employee credit for the plan year in which the
Effective Time occurs towards applicable deductibles and annual out-of-pocket limits for medical expenses incurred prior to the Effective Time for which payment has been made and (iii) give
each Continuing Employee service credit for such Continuing Employee's employment with the Company and its Subsidiaries for purposes of vesting, benefit accrual and eligibility to participate under
each applicable plan of Parent or its Affiliate, as if such service had been performed with Parent, except for purposes of qualifying for subsidized early retirement benefits or to the extent it would
result in a duplication of benefits.
(c) Prior
to the Effective Time, if requested by Parent in writing, to the extent permitted by applicable Law and the terms of the applicable plan or arrangement, the
Company shall (i) cause
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to
be amended the employee benefit plans and arrangements of it and its Subsidiaries to the extent necessary to provide that no employees of Parent and its Subsidiaries shall commence participation
therein following the Effective Time unless the Surviving Corporation or such Subsidiary explicitly authorizes such participation and (ii) cause the Company 401(k) Plan to be terminated
effective immediately prior to the Effective Time. In the event that Parent requests that the Company 401(k) Plan be terminated, the Company shall provide Parent with evidence that such Plan has been
terminated (the form and substance of which shall be subject to review and approval by Parent) not later than the day immediately preceding the Effective Time.
(d) Prior
to making any written or oral communications to Company Employees pertaining to compensation or benefit matters that are affected by the transactions contemplated
by this Agreement, the Company shall provide Parent with a copy of the intended communication, Parent shall have a reasonable period of time to review and comment on the communication, and the Company
shall consider any such comments in good faith.
(e) Nothing
set forth in this Agreement is intended to (i) be treated as an amendment of any particular Company Benefit Plan, (ii) prevent Parent, the
Surviving Corporation or any of their Affiliates from amending or terminating any of their benefit plans or, after the Effective Time, any Company Benefit Plan in accordance with their terms,
(iii) prevent Parent, the Surviving Corporation or any of their Affiliates, after the Effective Time, from terminating the employment of any Continuing Employee, or (iv) create any
third-party beneficiary rights in any Company Employee, any beneficiary or dependent thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and
conditions of employment and/or benefits that may be provided by Parent, the Surviving Corporation or any of their Affiliates or under any benefit plan which any of them may maintain.
7.13.
Indemnification; Directors' and Officers' Insurance.
(a) From
and after the Effective Time, to the fullest extent permitted under applicable Law and the Company's Organizational Documents in effect as of the date of this
Agreement, the Surviving Corporation shall indemnify and hold harmless the Indemnified Parties from and against all costs and expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages and liabilities incurred in connection with, arising out of or otherwise related to any Proceeding with respect to matters existing or occurring at or prior to the Effective Time
(including any Transaction Litigation) arising out of or otherwise related to the fact that the Indemnified Party is or was an officer or director of the Company or its Subsidiaries, whether asserted
or claimed prior to, at or after the Effective Time, and Parent or the Surviving Corporation shall also advance expenses as incurred to the fullest extent permitted under applicable Law and the
Company's Organizational Documents in effect as of the date of this Agreement;
provided
that any Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined by final adjudication from which no further appeal is taken that such person is not entitled to indemnification.
(b) Prior
to the Effective Time, the Company shall and, if the Company is unable to, Parent shall cause the Surviving Corporation as of the Effective Time to, obtain and
fully pay the premium for all "run off" or "tail" insurance policies for the extension of (i) the directors' and officers' liability coverage of the Company's existing directors' and officers'
insurance policies, and (ii) the Company's existing fiduciary liability insurance policies, for a claims reporting or discovery period of the Tail Period from one or more insurance carriers
with the same or better credit rating as the Company's insurance carrier as of the date of this Agreement with respect to directors' and officers' liability insurance and fiduciary liability insurance
(collectively, "
D&O Insurance
") with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as the
Company's existing policies with respect to matters existing or occurring at or prior to the
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Effective
Time (including, without any Transaction Litigation). If the Company and the Surviving Corporation for any reason fail to obtain such "run off" or "tail" insurance policies as of the
Effective Time, the Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, continue to maintain in effect for the Tail Period the D&O Insurance in place as of the date of
this Agreement with terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as provided in the Company's existing policies as of the date of this
Agreement, or the Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, purchase comparable D&O Insurance for the Tail Period with terms, conditions, retentions and limits
of liability that are at least as favorable as provided in the Company's existing policies as of the date of this Agreement;
provided
,
however
, that in no
event shall the annual cost of the D&O Insurance exceed during the Tail Period 300% of the current aggregate annual premium paid by
the Company for such purpose; and
provided further
, that if the cost of such insurance coverage exceeds such amount, the Surviving Corporation shall
obtain a policy with the greatest coverage available for a cost not exceeding such amount.
(c) Any
Indemnified Party wishing to claim indemnification under this Section 7.13, upon learning of any such Proceeding, shall promptly notify Parent thereof in
writing, but the failure to so notify shall not relieve Parent or the Surviving Corporation of any liability it may have to such Indemnified Party except to the extent such failure materially
prejudices the substantive rights of the indemnifying party. In the event of any such Proceeding: (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof
(
it being understood and agreed
that by electing to assume the defense thereof, neither Parent nor the Surviving Corporation will be deemed to have
waived any right to object to the Indemnified Party's entitlement to indemnification hereunder with respect thereto or assumed any liability with respect thereto), except that if Parent or the
Surviving Corporation elects not to assume such defense or legal counsel for the Indemnified Party advises that there are issues which raise conflicts of interest between Parent or the Surviving
Corporation and the Indemnified Party, the Indemnified Party may retain legal counsel satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable and documented fees and
expenses of such legal counsel for the Indemnified Party promptly as statements therefor are received;
provided
,
however
, that Parent and the Surviving
Corporation shall be obligated pursuant to this Section 7.13(c) to pay for only one firm of legal counsel
for all Indemnified Parties in any jurisdiction unless the use of one legal counsel for such Indemnified Parties would present such legal counsel with a conflict of interest, in which case that the
fewest number of legal counsels necessary to avoid conflicts of interest shall be used; (ii) if Parent or the Surviving Corporation elects to assume such defense, the Indemnified Parties shall
cooperate in the defense of any such matter; (iii) if Parent or the Surviving Corporation elects to assume such defense, the Indemnified Parties shall not be liable for any settlement effected
without their prior written consent, and if Parent or the Surviving Corporation elects not to assume such defense, Parent and the Surviving Corporation shall not be liable for any settlement effected
without their prior written consent; (iv) Parent and the Surviving Corporation shall not have any obligation hereunder to any Indemnified Party if and when a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final, that the indemnified action of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law; and (v) all rights to indemnification in respect of any such Proceedings shall continue until final disposition of all such Proceedings.
(d) During
the Tail Period, all rights to indemnification and exculpation from liabilities for acts or omissions occurring prior to the Effective Time and rights to
advancement of expenses relating thereto now existing in favor of any Indemnified Party as provided in the Organizational Documents of the Company and its Subsidiaries or any indemnification agreement
between such Indemnified Party and the Company or any of its Subsidiaries, in each case, as in effect on the date of this Agreement, shall not be amended, restated, amended and restated, repealed or
otherwise modified in any manner that would adversely affect any right thereunder of any such Indemnified Party.
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(e) If
Parent or the Surviving Corporation or any of their respective successors or assigns (i) shall consolidate with or merge into any other Person and shall not be
the continuing or surviving Person of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then, and in each such case,
proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation shall assume all of the obligations set forth in this Section 7.13.
(f) The
provisions of this Section 7.13 (i) shall survive consummation of the Merger, (ii) are intended to be for the benefit of, and from and after the
Effective Time shall be enforceable by, each of the Indemnified Parties, who shall be third-party beneficiaries of this Section 7.13, and (iii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any such Person may have by contract or otherwise.
(g) The
rights of the Indemnified Parties under this Section 7.13 are in addition to any rights such Indemnified Parties may have under the Organizational Documents
of the Company or any of its Subsidiaries, or under any applicable Contracts or Laws and nothing in this Agreement is intended to, shall be construed or shall release, waiver or impair any rights to
directors' and officers' insurance claims
under any policy that is or has been in existence with respect to the Company or any of its Subsidiaries for any of their respective directors, officers or other employees (
it
being understood and agreed
that the indemnification provided for in this Section 7.13 is not prior to or in substitution of any such claims under such policies).
7.14.
Financing Matters.
From the date of this Agreement to the earlier of the
Closing Date and the date this Agreement is terminated in accordance with its terms, the Company, at
Parent's sole out-of-pocket expense, shall use its commercially reasonable efforts to, and shall cause its Affiliates and its and their respective Representatives to use their commercially reasonable
efforts to, provide all cooperation and information as may be reasonably requested by Parent to assist Parent in the commitment, arrangement, syndication and execution of any bank debt financing
necessary to refinance and replace the Credit Agreement and provide for the ongoing capital requirements of the Company and its Subsidiaries (the "Replacement Financing"), including
(i) participating in a reasonable number of due diligence sessions, sessions with prospective lenders and investors and other syndication activities, rating agency presentations and lender
meetings, if any; (ii) cooperating in the preparation of any syndication and marketing documents and materials customarily used to arrange financings similar to the Replacement Financing and
executing customary authorization letters with respect to such syndication and marketing documents and materials; (iii) providing such financial and other information with respect to the
Company and its Subsidiaries, respectively, as Parent may reasonably request and which is customarily included in information memoranda and other syndication materials for revolving and term loan
facilities, it being hereby agreed and acknowledged that the Company shall be the only Party to determine which, if any, Company information is material and non-public and, prior to such time that any
such information is provided to any potential lenders (or such lenders are provided with access to any such information), such lenders shall have or be required to enter into customary confidentiality
agreements or arrangements reasonably acceptable to the Company; (iv) assisting in the obtaining of audit reports, authorization letters and consents of accountants with respect to historical
financial statements for the Company and its Subsidiaries for inclusion in any customary syndication materials; and (v) negotiating, preparing, signing and entering into any certificates and
documents and facilitating the pledging of collateral as may be reasonably necessary in respect of any Replacement Financing; provided, however, that nothing in this Section 7.14 shall require
such cooperation to the extent it would (i) require any officer, director or employee of the Company or its Subsidiaries to deliver or be required to deliver any certificate or take any other
action to the extent any such action could reasonably be expected to result in personal liability to such officer, director or employee, (ii) require the Company, any of its Affiliates or any
of its or their respective Representatives to enter into any Contract, or agree to amend, supplement or otherwise modify any
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Contract,
or agree, authorize or commit to do any of the foregoing to the extent such action is not conditioned on or would be effective prior to the occurrence of the Effective Time or
(iii) would unreasonably interfere with the ongoing operations of the business of the Company or any of its Subsidiaries. Notwithstanding anything express or implied to the contrary in this
Section 7.14 or elsewhere in this Agreement to the contrary, under no circumstances shall the availability or procurement of, or failure of any of the Parties to obtain, any Replacement
Financing, constitute a
condition to any of the obligations of Parent and Merger Sub to consummate the Merger and the other transactions contemplated by this Agreement.
7.15.
Takeover Statutes.
If any Takeover Statute is or may become applicable to the transactions
contemplated by this Agreement, each of Parent and the Company, the respective members of
their boards of directors and the Special Committee shall grant such approvals and take such actions as are necessary so that such transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement and shall use their reasonable best efforts to otherwise act to eliminate or minimize the effects of such statute or regulation on such transactions.
7.16.
Section 16 Matters.
The Company, and the Company Board (or a duly formed committee thereof
consisting of non-employee directors, as such term is defined for the purposes of
Rule 16b-3 promulgated under the Exchange Act), shall, prior to the Effective Time, take all such actions as may be necessary or appropriate to cause the transactions contemplated by this
Agreement and any other dispositions of equity securities of the Company (including derivative securities) in connection with the transactions contemplated by this Agreement by any individual who is
subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act, to the extent
permitted by applicable Law.
7.17.
Transaction Litigation.
In the event that any stockholder litigation (whether asserted
derivatively in the name and right of the Company, directly by any holder of Shares or Preferred
Shares, in the nature of a class action, or otherwise) arising out of or in connection with to the transactions contemplated by this Agreement is brought, or, to the knowledge of the Company,
threatened, against the Company, the officers of the Company, or any members of the Company Board from and following the date of this Agreement and prior to the Effective Time (such litigation,
"Transaction Litigation"), the Company shall as promptly as practicable notify Parent of such Transaction Litigation and shall keep Parent reasonably informed with respect to the status thereof. The
Company shall give Parent a reasonable opportunity to participate in the defense and/or settlement of any Transaction Litigation and shall consider in good faith Parent's and its outside legal
counsel's advice with respect to such Transaction Litigation unless the Company determines in good faith, after consultation with its outside counsel or counsel to the Special Committee, that there
may be certain defenses available to it and/or to one or more of the Company's officers or directors that are different from or in addition to the defenses available to Parent and its Affiliates such
that it would not be appropriate for all such defendants to participate jointly in the defense of such Transaction Litigation or to be represented jointly by the same legal counsel in such Transaction
Litigation; provided that the Company shall not settle or agree to settle any Transaction Litigation without prior written consent of Parent.
7.18.
Investment Agreement.
The Company and Parent shall, prior to the Effective Time, cooperate to
take all such actions as may be reasonably necessary or appropriate to terminate the
Investment Agreement in accordance with its terms as of the Effective Time.
7.19.
Transfer of Securities Beneficially Owned by Johnson Entities.
The Company shall, prior to the
Effective Time, cooperate with Parent to take all such administrative and ministerial actions as may be reasonably necessary or
appropriate to consummate the transfer of the Common Stock and 2015 Warrants beneficially owned by the Johnson Entities to Parent prior to the Effective Time, pursuant to the Contribution Agreement.
The Company agrees to use commercially reasonable efforts to execute
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and
deliver, or cause to be executed and delivered, such instruments or documents and to take such other actions (including providing instructions to the Company's transfer agent or other custodian of
the Company's securities) as may be reasonably necessary, or as reasonably requested by Parent, to consummate such transfer.
ARTICLE VIII
Conditions
8.1.
Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each Party to
effect the Merger is subject to the satisfaction or waiver at or prior to the Effective Time of each of the following
conditions:
(a)
Company Stockholder Approval.
The Requisite Company Vote shall have been obtained at the Company
Stockholders Meeting.
(b)
No Legal Prohibition.
No Order or Law (whether temporary, preliminary or permanent) shall be in effect which
enjoins, prevents or otherwise prohibits, restrains or makes unlawful the consummation of the Merger and the other transactions contemplated by this Agreement.
8.2.
Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to
effect the Merger are also subject to the satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a)
Representations and Warranties.
Each of the representations and warranties set forth in:
(i) Section 5.1 (
Organization, Good Standing and Qualification
), Section 5.3 (
Capital
Structure
) (except, in the case of Section 5.3, for such inaccuracies that are not reasonably expected to result, individually or in the aggregate, in additional cost,
expense or liability to Ultimate Parent, Parent and Merger Sub, of more than $250,000 (it being hereby acknowledged and agreed that the foregoing $250,000 limitation is not intended to and shall not
establish a materiality standard or threshold for any other provision or purpose of this Agreement)), Section 5.4 (
Corporate Authority; Approval and
Fairness
) and Section 5.11 (
Absence of Certain Changes
) shall have been true and correct as of the date of this Agreement
and shall be true and correct as of the Effective Time as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of a
particular date or period of time, in which case such representation and warranty shall be so true and correct as of such particular date or period of time); (ii) Section 5.5(a)
(
Governmental Filings; No Violations; Certain Contracts, Etc.
), Section 5.7 (
Company Reports
),
Section 5.8 (
Disclosure Controls and Procedures and Internal Control Over Financial Reporting
), Section 5.9
(
Financial Statements; No Undisclosed Liabilities; "Off-Balance Sheet Arrangements"; Books and Records
) Section 5.22
(
Takeover Statutes
) and Section 5.23 (
Brokers and Finders
) shall have been true and correct in
all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as though made on and as of such date and time (except to the
extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty shall be so true and correct in all material
respects as of such particular date or period of time) (without giving effect to any qualification by "materiality" or "Material Adverse Effect" and words of similar import set forth therein); and
(iii) Article V (other than those sections set forth in the foregoing clauses (i) and (ii) of this Section 8.2(a)) shall have been true and correct as of the date of
this Agreement and shall be true and correct as of the Closing Date as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as
of a particular date or period of time, in which case such representation and warranty shall be so true and correct as of such particular date or period of time), except, in the case of this
clause (iii), for any failure of any such representation and warranty to be so true and correct (without giving effect to any qualification by "materiality"
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or
"Material Adverse Effect" and words of similar import set forth therein) that would not have a Material Adverse Effect.
(b)
Performance of Obligations of the Company.
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to the Closing Date.
(c)
No Material Adverse Effect.
Since the date of this Agreement, there shall not have occurred any event,
change, development, circumstance, fact or effect that has had a Material Adverse Effect and that remains in effect.
(d)
Company Closing Certificate.
Parent shall have received at the Closing a certificate signed on behalf of the
Company by the Chief Executive Officer of the Company certifying that he has read Section 8.2(a), Section 8.2(b) and Section 8.2(c) and that the conditions set forth in
Section 8.2(a), Section 8.2(b) and Section 8.2(c) are satisfied.
8.3.
Conditions to Obligation of the Company.
The
obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company at or prior to the Effective Time of the following conditions:
(a)
Representations and Warranties.
Each of the representations and warranties set forth in
(i) Section 6.1 (Organization, Good Standing and Qualification), Section 6.2 (Corporate Authority), Section 6.6 (Absence of Certain Changes) and Section 6.7
(Available Funds) shall have been true and correct as of the date of this Agreement and shall be true and correct as of the Closing Date as though made on and as of such date and time (except to the
extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty shall be so true and correct as of such
particular date or period of time); and (ii) Article VI (other than those sections set forth in the foregoing clause (i)of this Section 8.3(a)) shall have been true and
correct as of the date of this Agreement and shall be true and correct as of the Closing Date as though made on and as of such date and time (except to the extent that any such representation and
warranty expressly
speaks as of a particular date or period of time, in which case such representation and warranty shall be so true and correct as of such particular date or period of time), except, in the case of this
clause (ii), for any failure of any such representation and warranty to be so true and correct (without giving effect to any qualification by "materiality" or "Parent Material Adverse Effect"
and words of similar import set forth therein) that would have a Parent Material Adverse Effect.
(b)
Performance of Obligations of Parent and Merger Sub.
Each of Parent and Merger Sub shall have performed in
all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date.
(c)
Parent and Merger Sub Closing Certificate.
The Company shall have received at the Closing a certificate
signed on behalf of Parent and Merger Sub by an executive officer of Parent certifying that such executive officer has read Section 8.3(a) and Section 8.3(b) and that the conditions set
forth in Section 8.3(a) and Section 8.3(b) are satisfied.
ARTICLE IX
Termination
9.1.
Termination by Mutual Written Consent.
This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Effective Time, whether before or
after the Requisite Company Vote has been obtained, by mutual written consent of the Company and Parent by action of the Company Board and the sole member of Parent.
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9.2.
Termination by Either Parent or the Company.
This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior to the Effective Time, by action of either
the Company Board or the sole member of Parent if:
(a) the
Merger shall not have been consummated by 5:00 p.m. (New York time) on February 28, 2019 (the "
Outside
Date
");
provided
, that the right to terminate this Agreement pursuant to this Section 9.2(a) shall not be available to
any party that has breached in any material respect its obligations set forth in this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of a condition to
the consummation of the Merger; or
(b) any
Order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become final and non-appealable;
provided
that the right to terminate this Agreement pursuant to this
Section 9.2(b) shall not be available to any party that has breached in any
material respect its obligations set forth in this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of a condition to the consummation of the Merger.
9.3.
Termination by the Company.
This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned by the Special Committee:
(a) if
there has been a breach of any representation, warranty, covenant or agreement made by Parent or Merger Sub set forth in this Agreement, or if any representation or
warranty of Parent or Merger Sub shall have become untrue following the date of this Agreement, in either case such that the condition in Section 8.3(a) or Section 8.3(b) would not be
satisfied (and such breach or failure to be true and correct is not curable prior to the Outside Date, or if curable prior to the Outside Date, has not been cured within the earlier of
(i) thirty days after the giving of notice thereof by the Company to Parent and (ii) three Business Days prior to the Outside Date);
provided
,
however
, that the right to terminate this Agreement pursuant to this Section 9.3(a)
shall not be available to the Company if it has breached in any material respect its obligations set forth in this Agreement in any manner that shall have proximately contributed to the occurrence of
the failure of a condition to the consummation of the Merger; or
(b) prior
to the time the Requisite Company Vote is obtained, following a Change of Recommendation, but only if (i) the Company is not then in material breach of
Section 7.2 of this Agreement and (ii) the Change of Recommendation occurred pursuant to and in accordance with the terms and conditions of Section 7.2(d)(ii) or
Section 7.2(d)(iii).
9.4.
Termination by Parent.
This Agreement may be terminated and the transactions contemplated by this
Agreement may be abandoned by the sole member of Parent:
(a) if
there has been a breach of any representation, warranty, covenant or agreement made by the Company set forth in this Agreement, or if any representation or warranty
of the Company shall have become untrue following the date of this Agreement, in either case such that the conditions in Section 8.2(a) or Section 8.2(b) would not be satisfied (and such
breach or failure to be true and correct is not curable prior to the Outside Date, or if curable prior to the Outside Date, has not been cured within the earlier of (i) thirty days after the
giving of notice thereof by Parent to the Company and (ii) three Business Days prior to the Outside Date);
provided
,
however
, that the right to
terminate this Agreement pursuant to this Section 9.4(a) shall not be available to Parent if it has breached in any
material respect its obligations set forth this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of a condition to the consummation of the Merger; or
(b) following
a Change of Recommendation, if the Requisite Company Vote has not yet been obtained at the Company Stockholders Meeting.
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9.5.
Effect of Termination and Abandonment.
(a) Except
to the extent provided in Section 9.5(b), in the event of termination of this Agreement pursuant to this Article IX, this Agreement shall become
void and of no effect with no liability to any Person on the part of any party hereto (or any of its Representatives or Affiliates);
provided
,
however
,
(i) no such termination shall relieve any party hereto of any liability or damages to the other party hereto resulting from any knowing
and intentional breach of this Agreement and (ii) the provisions set forth in this Section 9.5 and the second sentence of Section 10.1 shall survive the termination of this
Agreement.
(b) In
the event that this Agreement is terminated:
(i) by
either the Company or Parent pursuant to Section 9.2(a) [
Outside Date
]:
(A) any
Person shall have made and publicly announced an Acquisition Proposal (whether or not conditional) and such Acquisition Proposal shall not have been publicly
withdrawn at least 15 Business Days prior to the date of termination;
provided
that for purposes of this Section 9.5(b)(i)(A) and
Section 9.5(b)(i)(B) all references to 25% in the definition of "Acquisition Proposal" shall be deemed to be references to a "majority" of the outstanding Common Stock, and
(B) within
12 months after such termination, the Company or any of its Subsidiaries shall have entered into, or consummated the transactions contemplated by, an
Alternative Acquisition Agreement with respect to an Acquisition Proposal, then on the earlier of the date such Alternative Acquisition Agreement is entered into or the date the transactions
contemplated by such Alternative Acquisition Agreement are consummated,
(ii) by
Parent pursuant to Section 9.4(b) [
Change of Recommendation
] as a result of a Change
of Recommendation made in accordance with Section 7.2(d)(ii), then promptly, but in no event later than two Business Days after the date of such termination, or
(iii) by
the Company pursuant to Section 9.3(b) [
Change of Recommendation
] as a result of a
Change of Recommendation made in accordance with Section 7.2(d)(ii), then immediately prior to or concurrently with such termination,
the
Company shall pay to Parent a termination fee equal to $6.75 million (the "
Superior Proposal Termination Fee
"), which payment shall be made
to Parent by wire transfer of immediately available cash funds.
(c) In
the event that this Agreement is terminated:
(i) by
Parent pursuant to Section 9.4(b) [
Change of Recommendation
] as a result of a Change
of Recommendation made in accordance with Section 7.2(d)(iii), then promptly, but in no event later than two Business Days after the date of such termination, or
(ii) by
the Company pursuant to Section 9.3(b) [
Change of Recommendation
] as a result of a
Change of Recommendation made in accordance with Section 7.2(d)(iii), then immediately prior to or concurrently with such termination,
the
Company shall pay to Parent a termination fee equal to the documented, out-of-pocket expenses of Parent incurred in connection with this Agreement and the transactions contemplated hereby, up to a
maximum of $3.0 million (the "
Intervening Event Termination Fee
"), which payment shall be made to Parent by wire transfer of immediately
available cash funds.
(d) In
no event shall the Company be required to pay both the Superior Proposal Termination Fee and the Intervening Event Termination Fee, or pay either the Superior
Proposal Termination Fee or the Intervening Event Termination Fee on more than one occasion.
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(e) The
parties acknowledge that the agreements set forth in this Section 9.5 are an integral part of the transactions contemplated by this Agreement and that,
without these agreements, the other parties would not enter into this Agreement. Accordingly, if the Company fails to promptly pay the Superior Proposal Termination Fee or the Intervening Event
Termination Fee due pursuant to this Section 9.5, and, in order to obtain such payment, Parent or Merger Sub commences a suit that results in a judgment against the Company for the Superior
Proposal Termination Fee or the Intervening Event Termination Fee or any portion thereof, the Company shall pay to Parent and Merger Sub their out-of-pocket costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on the Superior Proposal Termination Fee or the Intervening Event Termination Fee, as applicable, at the prime rate as published by The Wall
Street Journal in effect on the date the payment thereof was required to be made from the date such fee was required to be paid through the date of payment. No payment of the Superior Proposal
Termination Fee or the Intervening Event Termination Fee pursuant to this Section 9.5 shall relieve any party to this Agreement of any liability or damages to the other party hereto resulting
from any knowing and intentional breach of this Agreement.
ARTICLE X
Miscellaneous and General
10.1.
Survival.
Article I, this Article X and the agreements of the Company, Parent and Merger Sub
set forth in Article IV, Section 5.24 (No Other
Representations or Warranties; Non-Reliance), Section 6.9 (No Other Representations or Warranties; Non-Reliance), Section 7.12 (Employee Benefits), Section 7.13 (Indemnification;
Directors' and Officers' Insurance), Section 10.3 (Expenses), and the provisions that substantively define any related defined terms not substantively defined in Article I and those
other covenants and agreements set forth in this Agreement that by their terms apply, or that are to be performed in whole or in part, after the Effective Time, shall survive the Effective Time.
Article I, this Article X, the agreements of the Company, Parent and Merger Sub set forth in Section 10.3 (Expenses), Section 9.5 (Effect of Termination and Abandonment)
and the provisions that substantively define any related defined terms not substantively defined in Article I and the Confidentiality Agreement shall survive the termination of this Agreement.
All other representations, warranties, covenants and agreements in this Agreement or in any instrument or other document delivered pursuant to this Agreement, including rights arising out of any
breach of such representations, warranties, covenants and agreements, shall not survive the Effective Time or the termination of this Agreement.
10.2.
Notices.
All notices, requests, instructions, consents, claims, demands, waivers, approvals and
other communications to be given or made hereunder by one or more Parties
to another Party shall be in writing and shall be deemed to have been duly given or made on the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile or email (i) at or prior to 5:30 p.m. (New York City time) on a Business Day or (ii) on a day that is not a Business Day or after 5:30 p.m. (New York City time)
on a Business Day if such transmission is confirmed by the recipient, (b) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service
or (c) upon actual receipt by the party to whom such notice is required to be given. Such communications must be sent to the respective Parties at the following street
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addresses,
facsimile numbers or email addresses (or at such other address or number previously made available as shall be specified in a notice given in accordance with this Section 10.2):
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(A)
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If to the Special Committee, to:
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c/o RLJ Entertainment, Inc.
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8515 Georgia Avenue, Suite 650
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Silver Spring, Maryland 20910
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Attention:
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Andor Lazslo and Scott Royster
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Facsimile:
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(301) 608-9313
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Email:
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alazslo@rljentertainment.com /
sroyster@rljentertainment.com
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with a copy to (which shall not constitute notice pursuant to this Section 10.2) to:
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Greenberg Traurig, LLP
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MetLife Building
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200 Park Avenue
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New York, New York 10166
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Attention:
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Clifford E. Neimeth, Esq.
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Facsimile:
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(212) 805-9383
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Email:
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neimethc@gtlaw.com
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(B)
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If to the Company, to:
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RLJ Entertainment
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8515 Georgia Avenue, Suite 650
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Silver Spring, Maryland 20910
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Attention:
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Miguel Penella, Chief Executive Officer
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Facsimile:
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(310) 608-9313
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Email:
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mpenella@rljentertainment.com
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with a copy to (which shall not constitute notice pursuant to this Section 10.2), to:
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Arent Fox LLP
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1717 K Street, NW
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Washington, DC 20006
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Attention:
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Jeffrey E. Jordan, Esq.
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Facsimile:
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(202) 857-6395
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Email:
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jeffrey.jordan@arentfox.com
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and to the Special Committee and to its counsel indicated in Section 10.2 I. above
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(C)
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If to Ultimate Parent, Parent or Merger Sub, to:
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AMC Networks Inc.
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11 Penn Plaza
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New York, New York 10001
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Attention:
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Jamie Gallagher, EVP and General Counsel
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Facsimile:
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(646) 273-3789
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Email:
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jamie.gallagher@amcnetworks.com
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with a copy to (which shall not constitute notice pursuant to this Section 10.2):
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Sullivan & Cromwell LLP
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125 Broad Street
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New York, New York 10004
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Attention:
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Brian E. Hamilton, Esq.
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Facsimile:
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(212) 558-3588
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Email:
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hamiltonb@sullcrom.com
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10.3.
Expenses.
Whether or not the Merger is consummated, all costs, fees and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement, including all costs, fees and expenses of its Representatives, shall be paid by the party incurring such cost, fee or expense, except as otherwise expressly provided herein.
10.4.
Modification or Amendment; Waiver.
(a) Subject
to the provisions of applicable Law and the provisions of Section 7.13(d), at any time prior to the Effective Time, this Agreement may be modified or
amended only by an instrument in writing that is executed by each of the Parties.
(b) The
conditions to each of the respective Parties' obligations to consummate the transactions contemplated by this Agreement are for the sole benefit of such Party and
may be waived by such Party in whole or in part to the extent permitted by applicable Law;
provided
,
however
, that any such waiver shall only be effective
if made in writing and executed by the Party against whom the waiver is to be effective. No
failure or delay by any Party in exercising any right, power or privilege hereunder or under applicable Law shall operate as a waiver of such rights and, except as otherwise expressly provided herein,
no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by Law.
10.5.
Governing Law and Venue; Submission to Jurisdiction; Selection of Forum; Waiver of Trial by Jury.
(a) THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE INTERNAL PROCEDURAL AND
SUBSTANTIVE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICT OF LAWS RULES OR PRINCIPLES THEREOF (OR ANY OTHER JURISDICTION) TO THE EXTENT THAT SUCH LAWS, RULES AND PRINCIPLES WOULD DIRECT A
MATTER TO ANOTHER JURISDICTION.
(b) Each
of the Parties agrees that, except to the extent that a dispute concerning an agreement between the Parties other than the Merger Agreement (including the
Confidentiality Agreement) is subject to the governing law or exclusive jurisdiction of another jurisdiction pursuant to the terms of such agreement: (i) it shall bring any Proceeding in
connection with, arising out of or otherwise relating to this Agreement or the transactions contemplated by this Agreement exclusively in the Chosen Courts; and (ii) solely in connection with
such Proceedings, (A) irrevocably and unconditionally submits to the exclusive jurisdiction of the Chosen Courts, (B) irrevocably waives any objection to the laying of venue in any such
Proceeding in the Chosen Courts, (C) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any Party, (D) agrees that mailing of process
or other papers in connection with any such Proceeding in the manner provided in Section 10.2 or in such other manner as may be permitted by applicable Law shall be valid and sufficient service
thereof and (E) it shall not assert as a defense any matter or claim waived by the foregoing clauses (A) through (D) of this Section 10.5(b) or that any Order issued by the
Chosen Courts may not be enforced in or by the Chosen Courts.
(c) EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY BE CONNECTED WITH, ARISE OUT OF OR OTHERWISE RELATE TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT IS EXPECTED TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY KNOWINGLY AND INTENTIONALLY, TO THE FULLEST
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EXTENT
PERMITTED BY APPLICABLE LAW, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY PROCEEDING, DIRECTLY OR INDIRECTLY, CONNECTED WITH, ARISING OUT
OF OR OTHERWISE RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY HEREBY ACKNOWLEDGES AND CERTIFIES THAT (i) NO REPRESENTATIVE OF THE OTHER PARTIES HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF ANY PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) IT
MAKES THIS WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS,
ACKNOWLEDGMENTS AND CERTIFICATIONS SET FORTH IN THIS SECTION 10.5(c).
10.6.
Specific Performance.
(a) Each
of the Parties acknowledges and agrees that the rights of each Party to consummate the transactions contemplated by this Agreement are special, unique and of
extraordinary character and that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or damage may be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies a Party may have in
equity or at law, each Party shall be entitled to enforce specifically the terms and provisions of this Agreement and to obtain an injunction restraining any breach or violation or threatened breach
or violation of the provisions of this Agreement, consistent with the provisions of Section 10.5(b), in the Chosen Courts without necessity of posting a bond or other form of security. In the
event that any Proceeding should be brought in equity to enforce the provisions of this Agreement, no Party shall allege, and each Party hereby waives the defense, that there is an adequate remedy at
law.
10.7.
Payment Guarantee by and Representations of Ultimate Parent.
(a) Ultimate
Parent hereby irrevocably and unconditionally guarantees the due and punctual payment of all amounts due and payable by Parent and Merger Sub pursuant to
Sections 4.1, 4.3 and 7.13 as and when due and payable. The foregoing notwithstanding, Ultimate Parent may assert as a defense to such payment any defense to any such payment that Parent could
assert pursuant to the terms of this Agreement, other than any such defense arising out of, due to or as a result of the Bankruptcy and Equity Exception with respect to Parent or an Affiliate of
Parent. Ultimate Parent acknowledges that it will receive substantial direct and indirect benefits from the transactions contemplated by this Agreement and that the guarantees and waivers of Ultimate
Parent set forth herein are knowingly made in contemplation of such benefits. The guaranty of Ultimate Parent herein is one of payment, not collection, and a separate action or actions may be brought
and prosecuted against Ultimate Parent to enforce such guaranty, irrespective of whether any action is brought against Parent or Merger Sub. Ultimate Parent expressly and irrevocably waives all
suretyship defenses, all defenses on the basis of promptness, diligence, notice of acceptance hereof, presentment, demand for payment, notice of non-performance, default, dishonor, protest and all
other notices of any kind, and all defenses which may be available by virtue of any valuation, stay, moratorium or other similar law now or hereafter in effect, and any right to require the marshaling
of assets; provided, however, Ultimate Parent expressly reserves any rights of set-off or counterclaims and any other defenses that Parent or Merger Sub may have under the terms of this Agreement.
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(b) Ultimate
Parent is a corporation duly organized and validly existing under the Laws of the State of Delaware. Ultimate Parent has all requisite corporate power and
authority to execute and deliver and perform its obligations under this Agreement. The execution and delivery of this Agreement and the performance of Ultimate Parent's obligations under this
Agreement have been duly authorized by all necessary corporate action on the part of Ultimate Parent and no other corporate proceedings on the part of Ultimate Parent are necessary to authorize the
execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered by Ultimate Parent and, assuming due execution and
delivery by the Company, constitutes a valid and binding obligation of Ultimate Parent, enforceable against Ultimate Parent in accordance with its terms, except as the same may be limited by the
Bankruptcy and Equity Exception. As of the date of this Agreement, Ultimate Parent indirectly beneficially owns 100% of the issued and outstanding capital stock of Parent. Other than the Governmental
Approvals, no expirations of waiting periods are required and no filings, notices, reports, consents, registrations, approvals, permits or authorizations are required to be made or obtained by
Ultimate Parent with, nor are any required to be obtained by Ultimate Parent from, any Governmental Entity, in connection with Ultimate Parent's execution and delivery of this Agreement and the
performance by Ultimate Parent of its obligations under this Agreement, or in connection with the continuing operation of the business of Ultimate Parent and its Subsidiaries following the Effective
Time, except as would not prevent, materially delay or materially impair Ultimate Parent's ability to perform its obligations pursuant to this Agreement. The execution, delivery and performance of
this Agreement by Ultimate Parent do not, and the consummation by Ultimate Parent of the transactions contemplated by this Agreement, will not, constitute or result in (i) a breach or violation
of, or a default under, the Organizational Documents of Ultimate Parent or any of its Subsidiaries, or (ii) conflict with or result in a violation of any Law or Order of any Governmental
Entity, or by which any property or asset of Ultimate Parent is bound or affected, except in the case of clause (ii) as would not prevent, materially delay or materially impair Ultimate
Parent's ability to perform its obligations under this Agreement.
(c) Except
for the express written representations and warranties made by Ultimate Parent in this Agreement, Ultimate Parent does not make any express or implied
representation or warranty with respect to itself, any of its Affiliates (other than Parent and Merger Sub) or any of their respective businesses, operations, assets, liabilities, conditions
(financial or otherwise) or prospects in connection with this Agreement or the transactions contemplated by this Agreement. Ultimate Parent expressly disclaims any such other representations or
warranties, and the Company acknowledges and agrees that none of the Company or its Affiliates or Representatives has relied on or are relying on any representations or warranties regarding Ultimate
Parent, other than the express written representations and warranties expressly set forth in this Section 10.7.
10.8.
Third-Party Beneficiaries.
Except, from and after the Effective Time, for the rights of the
Indemnified Parties as provided in Section 7.13, the Parties hereby agree that their
respective representations, warranties and covenants set forth in this Agreement are solely for the benefit of the other, subject to the terms and conditions of this Agreement, and this Agreement is
not intended to, and does not, confer upon any Person other than the Parties and their respective successors, legal representatives and permitted assigns any rights or remedies, express or implied,
hereunder, including the right to rely upon the representations and warranties set forth in this Agreement.
10.9.
Non-Recourse.
Other than in any Proceeding for fraud or intentional or willful
misrepresentation, this Agreement may only be enforced against, and any Proceeding in connection
with, arising out of or otherwise resulting from this Agreement, any instrument or other document delivered pursuant to this Agreement or the transactions contemplated by this Agreement may only be
brought against the Persons expressly named as Parties (or any of their respective successors, legal representatives and permitted assigns) in, and who have executed and delivered, this Agreement, and
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then
only with respect to the specific obligations set forth herein with respect to such Party. No past, present or future director, employee (including any officer), incorporator, manager, member,
partner, stockholder, other equity holder or persons in a similar capacity, controlling person, Affiliate or other Representative of any Party or of any Affiliate of any Party, or any of their
respective successors, legal representatives and permitted assigns, shall have any liability or other obligation for any obligation of any Party under this Agreement or for any Proceeding in
connection with, arising out of or otherwise resulting from this Agreement or the transactions contemplated by this Agreement; provided, however, that nothing in this Section 10.9 shall limit
any liability or other obligation of any Party for any breaches by any such Party of the terms and conditions of this Agreement.
10.10.
Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, legal representatives and permitted assigns. Except
as may be required to satisfy the obligations contemplated by Section 7.13, no Party may assign any of its rights or interests or delegate any of its obligations under this Agreement, in whole
or in part, by operation of Law or otherwise, without the prior written consent of the other Parties not seeking to assign any of its rights or interests or delegate any of its obligations, and any
attempted or purported assignment or delegation in violation of this Section 10.10 shall be null and void; provided, however, that Parent may designate any of its Affiliates to be a constituent
corporation in lieu of Merger Sub, in which event all references to Merger Sub in this Agreement shall be deemed references to such other Affiliate of Parent, except that all representations and
warranties made in this Agreement with respect to Merger Sub as of the date of this Agreement shall be deemed representations and warranties made with respect to such other Affiliate as of the date of
such designation.
10.11.
Entire Agreement.
(a) This
Agreement (including Exhibits), the Company Disclosure Letter, the Parent Disclosure Letter, the Voting Agreement and the Confidentiality Agreement constitute the
entire agreement among the Parties with respect to the subject matter of this Agreement and supersede all other prior and contemporaneous agreements, negotiations, understandings, representations and
warranties, whether oral or written, with respect to such subject matter, except for the AMC Transaction Documents, which shall remain in full force and effect to the extent provided in this
Agreement.
(b) In
the event of any inconsistency between the statements in the body of this Agreement, on the one hand, and any of the Exhibits, the Company Disclosure Letter, the
Parent Disclosure Letter (other than an exception expressly set forth in the Company Disclosure Letter or the Parent Disclosure Letter), the Voting Agreement and the Confidentiality Agreement, on the
other hand, the statements in the body of this Agreement shall control.
10.12.
Severability.
The provisions of this Agreement shall be deemed severable and the illegality,
invalidity or unenforceability of any provision shall not affect the legality,
validity or enforceability of the other provisions of this Agreement. If any provision of this Agreement, or the application of such provision to any Person or any circumstance, is illegal, invalid or
unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be legal, valid and enforceable, the intent and purpose of such legal,
invalid or unenforceable provision, and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such illegality,
invalidity or unenforceability, nor shall such illegality, invalidity or unenforceability affect the legality, validity or enforceability of such provision, or the application of such provision, in
any other jurisdiction.
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10.13.
Counterparts; Effectiveness.
This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement. A signed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as
delivery of an original signed copy of this Agreement. This Agreement shall become effective when each Party shall have received one or more counterparts hereof signed by each of the other Parties.
[
Signature Pages Follow
]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the Parties as of the date first written above.
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RLJ ENTERTAINMENT, INC.
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By:
|
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/s/ MIGUEL PENELLA
|
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Name:
|
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Miguel Penella
|
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Title:
|
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Chief Executive Officer
|
[
Signature Page to Merger Agreement
]
Table of Contents
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AMC NETWORKS INC.,
solely for purposes of Section 10.7
|
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By:
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/s/ JOSHUA SAPAN
|
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Name:
|
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Joshua Sapan
|
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Title:
|
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President & Chief Executive Officer
|
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DIGITAL ENTERTAINMENT HOLDINGS LLC
|
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By:
|
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/s/ JOSHUA SAPAN
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Name:
|
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Joshua Sapan
|
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Title:
|
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President & Chief Executive Officer
|
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RIVER MERGER SUB INC.
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By:
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/s/ JOSHUA SAPAN
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Name:
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Joshua Sapan
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Title:
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President & Chief Executive Officer
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[
Signature Page to Merger Agreement
]
Table of Contents
Annex B
July 29,
2018
Special
Committee of the Board of Directors
c/o RLJ Entertainment, Inc.
8515 Georgia Avenue, Suite 650
Silver Spring, Maryland 20910
The
Special Committee of the Board of Directors:
We
understand that RLJ Entertainment, Inc., a Nevada corporation ("
RLJE
"), AMC Networks Inc., a Delaware corporation
("
AMC
"), Digital Entertainment Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of AMC
("
Digital
Entertainment"),
and River Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Digital
Entertainment ("
Merger Sub"
), propose to enter into an Agreement and Plan of Merger, dated July 29, 2018 (the
"Agreement"
), pursuant to which, among
other things, Merger Sub will be merged with and into RLJE (the
"Merger"
), and other than the Excluded Shares (as defined in the Agreement) and the Company Restricted Shares (as defined in the
Agreement), each
outstanding share of Common Stock, par value $0.001 per share, of RLJE (
"RLJE Common Stock"
) will be converted into the right to receive $6.25 in cash
(the
"Per Share Merger Consideration"
). The terms and conditions of the Merger are more fully set forth in the Agreement.
Allen &
Company LLC (
"Allen & Company"
) has acted as a financial advisor to RLJE in connection with the proposed
Merger and has been asked to render an opinion to the Special Committee (the
"Committee"
) of the Board of Directors of RLJE as to the fairness, from a
financial point of view, to the Unaffiliated RLJE Stockholders (as defined in the Agreement) of the Per Share Merger Consideration to be received by such holders pursuant to the Agreement. For such
services, RLJE has agreed to pay to Allen & Company cash fees, of which a portion is payable upon the delivery of this opinion (the
"Opinion
Fee"
) and the principal portion is contingent upon consummation of the Merger. No portion of the Opinion Fee is contingent upon either the conclusion expressed in this opinion
or successful consummation of the Merger. RLJE also has agreed to reimburse Allen & Company's reasonable expenses and to indemnify Allen & Company and related parties against certain
liabilities arising out of our engagement.
Allen &
Company, as part of our investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions,
private placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations
for corporate and other purposes. Although Allen & Company has not provided during the two-year period prior to the date hereof, and is not currently providing, investment banking services to
RLJE, AMC, Digital Entertainment, Robert L. Johnson, The RLJ Companies, LLC or RLJ SPAC Acquisition, LLC for which Allen & Company has received compensation, Allen &
Company may provide such services to RLJE, AMC, Digital Entertainment, Robert L. Johnson, The RLJ Companies, LLC or RLJ SPAC Acquisition, LLC and/or their/his respective affiliates in
the future, for which services Allen & Company would expect to receive compensation. In the ordinary course, Allen & Company, as a broker-dealer and market maker, and certain of
Allen & Company's affiliates and/or related entities, have invested or may invest, hold long or short positions and may trade, either on a discretionary or non-discretionary basis, for their
own account or for those of Allen & Company's clients, in the debt and equity securities (or related derivative securities) of RLJE, AMC and/or their respective affiliates. The issuance of this
opinion has been approved by Allen & Company's fairness opinion committee.
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Our
opinion as expressed herein reflects and gives effect to our general familiarity with RLJE as well as information that we received during the course of this assignment, including
information provided by the management of RLJE in the course of discussions relating to the Merger as more fully described below. In arriving at our opinion, we neither conducted a physical inspection
of the properties or facilities of RLJE, AMC, Digital Entertainment or any other entity, nor made or obtained any evaluations or appraisals of the assets or liabilities (contingent, accrued,
derivative, off-balance sheet or otherwise) of RLJE, AMC, Digital Entertainment or any other entity or conducted any analysis concerning the solvency or fair value of RLJE, AMC, Digital Entertainment
or any other entity.
In
arriving at our opinion, we have, among other things:
-
(i)
-
reviewed
the financial terms and conditions of the Merger as reflected in the Agreement;
-
(ii)
-
reviewed
certain publicly available historical business and financial information relating to RLJE and AMC, including public filings of RLJE and AMC, and historical
market prices and trading volumes for RLJE Common Stock;
-
(iii)
-
reviewed
certain financial information relating to RLJE provided to or discussed with us by the management of RLJE, including certain internal financial forecasts,
estimates and other financial and operating data relating to RLJE prepared by the management of RLJE (such forecasts, the "
RLJE Forecasts
");
-
(iv)
-
held
discussions with the management of RLJE relating to the past and current operations, financial condition and prospects of RLJE;
-
(v)
-
reviewed
and analyzed certain publicly available information, including certain stock market data and financial information, relating to selected companies with
businesses that we deemed generally relevant in evaluating RLJE;
-
(vi)
-
reviewed
and analyzed certain publicly available financial information relating to selected transactions that we deemed generally relevant in evaluating the Merger;
and
-
(vii)
-
conducted
such other financial analyses and investigations as we deemed necessary or appropriate for purposes of the opinion expressed herein.
In
rendering our opinion, we have relied upon and assumed, with your consent and without independent verification, the accuracy and completeness of all of the financial, legal,
regulatory, tax, accounting and other information available to us from public sources, provided to or discussed with us by the management and/or other representatives of RLJE, or otherwise reviewed by
us. With respect to the RLJE Forecasts that we have been directed to utilize for purposes of our analyses, we have been advised by the management of RLJE, and we have assumed, at your direction, that
the RLJE Forecasts, estimates and other financial and operating data have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the
management of RLJE as to, and are a reasonable basis upon which to evaluate, the future financial and operating performance of RLJE and the other matters covered thereby. We also have assumed, with
your consent, that the financial results, reflected in the RLJE Forecasts, estimates and other financial and operating data utilized in our analyses will be realized in the amounts and at the times
projected. We
express no opinion or view as to the RLJE Forecasts or any of the estimates or other financial or operating data or the assumptions on which they are based.
B-2
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Further,
our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. It should
be understood that subsequent developments may affect the conclusion expressed in this opinion and that we assume no responsibility for advising any person of any change in any matter affecting this
opinion or for updating or revising our opinion based on circumstances or events occurring after the date hereof.
It is understood that this opinion is intended for the benefit and use of the Committee (in its capacity as such) in connection with its evaluation of the Per Share Merger Consideration
from a financial point of view. This opinion does not constitute a recommendation as to the course of action that RLJE (or the Committee) should pursue in connection with the Merger or otherwise
address the merits of the underlying decision by RLJE (or the Committee) to engage in the Merger, including in comparison to other strategies or transactions that might be available to RLJE or which
RLJE might engage in or
consider. This opinion does not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the Merger or otherwise. We do not
express any opinion as to the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation or other consideration payable to any officers, directors or employees of
any party to the Merger or any related entities, or any class of such persons or any other party, relative to the Per Share Merger Consideration or otherwise. We are not expressing any opinion as to
the prices at which shares of RLJE Common Stock will trade at any time or the value thereof.
In
addition, we do not express any opinion or view as to any tax or other consequences that might result from the Merger, nor do we express any opinion or view as to, and we have relied,
at your direction, upon the assessments of representatives of RLJE regarding, legal, regulatory, accounting, tax and similar matters relating to RLJE and the Merger, as to which we understand RLJE
obtained such advice as it deemed necessary from qualified professionals. We have assumed, with your consent, that the Merger will be consummated in accordance with the terms and conditions of the
Agreement and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that all
governmental, regulatory or other consents, approvals, releases and waivers necessary for consummation of the Merger will be obtained without delay, limitation, restriction or condition, including any
divestiture or other requirements that would be meaningful in any respect to our analyses or opinion. We further have assumed, with your consent, that the final executed Agreement will not differ from
the draft reviewed by us in any respect meaningful to our analyses or opinion.
Our
opinion is limited to the fairness, from a financial point of view and as of the date hereof, to the Unaffiliated RLJE Stockholders of the Per Share Merger Consideration to be
received by them pursuant to the Agreement (to the extent expressly specified herein). Our opinion does not address any other term, aspect or implication of the Merger, including the form or structure
of the Merger or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise.
Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Per Share Merger Consideration to be received by the Unaffiliated RLJE Stockholders pursuant
to the Agreement is fair, from a financial point of view, to such holders.
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Very truly yours,
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ALLEN & COMPANY LLC
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B-3
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ANNEX C
EXECUTIVE VERSION
VOTING AND TRANSACTION SUPPORT AGREEMENT
This VOTING AND TRANSACTION SUPPORT AGREEMENT, dated as of July 29, 2018 (this
"
Agreement
"), is entered into by and among RLJ Entertainment, Inc., a Nevada corporation (the
"
Company
"), Digital Entertainment Holdings LLC, a Delaware limited liability company ("
Parent
"),
Robert L. Johnson, a natural person, The RLJ Companies, LLC, a Delaware limited liability company, and RLJ SPAC Acquisition, LLC, a Delaware limited liability company
("
RLJ SPAC
" and together with Robert L. Johnson and The RLJ Companies, LLC, the "
Stockholder
").
Capitalized terms used and not otherwise defined herein, and the term "materially delay" as used in this Agreement, shall have the respective meanings ascribed to them in the Merger Agreement (as
defined below). The Company is made a party to this Agreement solely for purposes of Sections 6 and 8.
RECITALS
WHEREAS, as of the date hereof, the Stockholder is the record and beneficial owner of the number of shares of common stock, par value $0.001 per
share, of the Company ("
Common Stock
") and warrants to purchase Common Stock with an initial exercise date of May 20, 2015 (the
"
2015 Warrants
") set forth on
Schedule A
hereto (the shares of Common Stock set forth on
Schedule A
hereto, together with all additional shares of Common Stock that become beneficially owned by the Stockholder or any Affiliate (as
defined in the Merger Agreement) of Robert L. Johnson upon the exercise of the 2015 Warrants or otherwise after the date hereof through the Expiration Date (as defined below), the
"
Subject Shares
");
WHEREAS,
concurrently with the execution of this Agreement, the Company, AMC Networks Inc., a Delaware corporation ("
Ultimate
Parent
"), Parent and River Merger Sub Inc., a Nevada corporation and wholly owned subsidiary of the Company ("
Merger
Sub
"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "
Merger Agreement
"), pursuant to
which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and into the Company (the "
Merger
"), with the Company
surviving the Merger as a wholly owned subsidiary of Parent;
WHEREAS,
as a condition and inducement to the willingness of Ultimate Parent, Parent and Merger Sub to enter into the Merger Agreement, Parent has required that the Stockholder and the
Company agree to, and the Stockholder and Company have agreed to, enter into this Agreement;
WHEREAS,
concurrently with the execution and delivery of this Agreement, the Stockholder is entering into a Contribution Agreement with Parent, whereby the Stockholder will contribute to
Parent
the 2015 Warrants and Common Stock beneficially owned by the Stockholder immediately prior to the closing of the Merger (the "
Contribution Agreement
");
and
WHEREAS,
as of the date hereof and subject to the terms and conditions herein, the Stockholder has determined to vote in favor of the Merger and the transactions contemplated by the
Merger Agreement and, in furtherance thereof, has agreed to enter into this Agreement.
NOW,
THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the parties, intending to be legally bound, hereby agree
as follows:
1.
Agreement to Vote.
(a) From
the date hereof until the Expiration Date, at every meeting of the stockholders of the Company called with respect to any of the following, and at every adjournment
or postponement thereof, the Stockholder hereby irrevocably and unconditionally agrees to be present (in person or by proxy) and vote (or cause to be voted) all of the Subject Shares as of the
applicable record date: (i) in favor of the approval of the Merger Agreement (and any other
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matter
in connection therewith submitted by the Company to a vote of the Company's stockholders at the Company Stockholders' Meeting) and (ii) against the following actions: (A) any
Acquisition Proposal and (B) any amendment of the Company's Organizational Documents or any action or agreement that would reasonably be expected to (1) result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement, which breach would result in a failure of any of Parent's and Merger Sub's
obligations to consummate the Merger pursuant to Section 8.2(a) or Section 8.2(b) under the Merger Agreement to be satisfied, or (2) prevent, materially delay or materially impair
the consummation of the Merger or any other transaction contemplated by the Merger Agreement. Any such vote shall be affirmatively cast by the Stockholder in accordance with
applicable Law and the Company's Organizational Documents so as to ensure that it is duly counted at the Company Stockholders' Meeting, including for purposes of determining that a quorum is present
at the Company Stockholders' Meeting and recording the results of such vote.
(b) Solely
in the event of a failure by the Stockholder to act in accordance with its obligations pursuant to
Section
1
(a)
of this Agreement, the Stockholder hereby irrevocably grants to and appoints Parent (and any designee thereof) as such Stockholder's proxy
and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Stockholder, to (i) represent the Subject Shares and (ii) vote and otherwise act (by
voting at any meeting of stockholders of the Company or otherwise) with respect to the Subject Shares, in the case of each of clause (i) and clause (ii), regarding the matters referred
to in
Section
1
(a)
until the Expiration Date, to the same extent and with the same effect as the
Stockholder could do under applicable Law. The proxy granted by the Stockholder pursuant to this
Section
1
(b)
is delivered in connection with the transactions contemplated by the Merger Agreement, is coupled with an interest (including for the
purposes of Nevada Revised Statutes 78.355(5)), revokes any and all prior proxies granted by the Stockholder with respect to the Subject Shares regarding the matters referred to in
Section
1
(a)
and is irrevocable until the Expiration Date (notwithstanding, for the avoidance of
doubt, whether or not such term extends beyond the date that is six months after the date of this Agreement). The Stockholder hereby ratifies and confirms all actions that the proxy appointed
hereunder may lawfully do or cause to be done in accordance with this Agreement. Notwithstanding the foregoing, this proxy shall automatically be revoked on the Expiration Date. The parties
acknowledge and agree that neither Parent, nor any of its Affiliates, shall owe any duty (fiduciary or otherwise), or incur any liability of any kind to any Stockholder, in connection with or as a
result of the exercise of the powers granted to Parent by this
Section
1
(b)
.
2.
Restrictions on Transfer of Shares and Warrants; Proxies.
The Stockholder covenants and agrees
that during the period from the date of this Agreement through the Expiration Date, the Stockholder will not, directly or
indirectly, (i) transfer, assign, sell, pledge, encumber, hypothecate or otherwise dispose of (whether by merger, by tendering into any tender or exchange offer, by testamentary disposition, by
operation of law or otherwise) or consent to any of the foregoing ("
Transfer
"), or cause to be Transferred, any of the 2015 Warrants or the Subject
Shares (together, the "
RLJ Securities
"); (ii) grant any proxies (whether revocable or irrevocable) or powers of attorney, or any other
authorization or consent with respect to any of the RLJ Securities (except in connection with voting by proxy at a meeting of the stockholders of the Company, as contemplated by
Section
1
(a)
of this Agreement); (iii) deposit any of the RLJ Securities into a voting
trust or enter into a voting agreement or arrangement with respect to any of the RLJ Securities; (iv) enter into any Contract with respect to the Transfer of any of the RLJ Securities; or
(v) take any other action that would restrict, limit or interfere with (A) the performance of the Stockholder's obligations hereunder or (B) the transactions contemplated by the
Merger Agreement;
provided
,
however
, that the foregoing restrictions on Transfers of the RLJ Securities
shall not prohibit any such Transfers by the Stockholder in connection with the transactions contemplated by the Contribution Agreement or the Merger Agreement.
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3.
No Solicitation.
From the date hereof until the Expiration Date, neither the Stockholder nor any
Affiliate of Robert L. Johnson shall, and the Stockholder shall instruct its and
its Affiliate's Representatives not to, directly or indirectly, (i) initiate, solicit, propose or knowingly encourage or otherwise knowingly facilitate (including by way of furnishing Company
information) any inquiries or the making of any proposals or offers that constitute, or that would reasonably be expected to lead to, an Acquisition Proposal, (ii) other than to inform any
Person of the existence of this
Section
3 and the provisions of Section 7.2 of the Merger Agreement, participate in any discussions or
negotiations with any third party regarding any Acquisition Proposal or (iii) enter into any Agreement related to an Acquisition Proposal. The Stockholder agrees to notify and promptly furnish
to each of the Special Committee and Parent any communications or documentation that the Stockholder or any of his Affiliates receives relating to an Acquisition Proposal to the extent it is not
apparent on the face of such communication or documentation received by the Stockholder or any of his Affiliates that the same was concurrently provided directly to the Special Committee and to
Parent.
4.
Documentation and Information; Publication.
The Stockholder hereby (a) consents to and
authorizes the publication and disclosure by the Company, Parent and/or their respective Affiliates of its
identity and holdings of the Subject Shares and the nature of its commitments and obligations under this Agreement in any announcement, the Proxy Statement, Schedule 13E-3 or any other
disclosure document or filing with or notice to a Governmental Entity in connection with the transactions contemplated by the Merger Agreement and the Contribution Agreement, and (b) agrees as
promptly as practicable to give to the Company and Parent any information it may reasonably require for the preparation of any such disclosure documents. The Stockholder hereby agrees to as promptly
as practicable notify the Company and Parent of any required corrections with respect to any written information supplied by the Stockholder specifically for use in any such disclosure document,
filing or notice if and to the extent that it contains any untrue statement of material fact or omits 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. Except as required by applicable Law, neither the Stockholder nor any Affiliate of Robert L. Johnson, nor
any of its or their Representatives, shall issue or cause the publication of any press release or make any other public announcement with respect to this Agreement, the Merger Agreement or the
transactions contemplated hereby or thereby without the prior consent of each of Parent and the Special Committee.
5.
Representations and Warranties of the Stockholder.
Each of Robert L. Johnson, The RLJ Companies,
LLC and RLJ SPAC, severally and jointly, hereby represents and warrants to Parent and the Company as follows
(and as used in this Section 5, "
Stockholder
" shall mean each of Robert L. Johnson, The RLJ Companies, LLC and RLJ SPAC):
(a)
Organization; Good Standing.
The Stockholder, if not a natural person, is a legal entity duly organized,
validly existing and in good standing under the Laws of the State of Delaware.
(b)
Authority.
The Stockholder has all requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Stockholder and constitutes a valid and binding obligation of the Stockholder
enforceable in accordance with its terms, subject to the Bankruptcy and Equity Exception.
(c)
Consents and Approvals.
Other than as provided in the Merger Agreement and except for any filings by the
Stockholder with the SEC, the execution, delivery and performance by the Stockholder of this Agreement does not require any action by or in respect of, or any notice, report or other filing by the
Stockholder with or to, or any consent, registration, approval, permit or authorization from, any Governmental Entity other than any actions or filings the absence of which would not reasonably be
expected to prevent, materially delay or materially impair the
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consummation
of the transactions contemplated by the Merger Agreement or the Stockholder's ability to observe and perform the Stockholder's obligations hereunder.
(d)
No Conflicts.
Neither the execution and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor compliance with the terms hereof, will (with or without notice or the passage of time or both) (i) violate, conflict with, result in a breach of, constitute a default
under (with or without notice or lapse of time or both), or give rise to a right of termination, cancellation, first offer, first refusal, modification or acceleration of, any obligation under the
organizational documents (if the Stockholder is not a natural person) of, any Contract of or Law applicable to, the Stockholder, or (ii) result in the creation of any lien, charge, pledge,
security interest, claim or other encumbrance ("
Lien
") upon any of the properties or assets of the Stockholder, except, in the case of
clause (ii), as would not, individually or in the aggregate, be reasonably likely to prevent or materially delay or materially impair the performance of the Stockholder's obligations under this
Agreement.
(e)
Litigation.
There are no civil, criminal or administrative actions, suits, claims, hearings, arbitrations,
investigations or other proceedings pending or threatened against the Stockholder that seek to enjoin, or are reasonably likely to have the effect of preventing, making illegal or otherwise
interfering with, the performance of the Stockholder's obligations under this Agreement.
(f)
Ownership of RLJ Securities; Voting Power.
The Stockholder is the record and/or beneficial owner of, and has
good and marketable title to, the RLJ Securities set forth on
Schedule A
hereto, free and clear of any and all Liens and free of any other
limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of the RLJ Securities), other than any Liens (i) arising hereunder or under the Merger Agreement, the Contribution Agreement, the Stockholders'
Agreement, dated as of October 14, 2016, by and among the Company, Parent, Robert L. Johnson and RLJ SPAC (the "
2016 Stockholders' Agreement
"),
the Waiver Agreement, dated as of August 19, 2016, by and among the Company, Parent, Robert L. Johnson and RLJ SPAC (the "
2016 Waiver
Agreement
"), or the Voting Agreement, dated as of August 19, 2016, by and among the Company, Parent, Robert L. Johnson and RLJ SPAC, or (ii) imposed by federal or
state securities Laws. Neither the Stockholder nor any other Affiliate of Robert L. Johnson owns, of record or beneficially, any shares of Common Stock (or any securities convertible or exchangeable
for Common Stock) other than the RLJ Securities set forth on
Schedule A
hereto. The Stockholder has, and will have at the time of the applicable
stockholder meeting, the sole right to vote and direct the vote of, and to dispose of and direct the disposition of, the Subject Shares, and none of the RLJ Securities is subject to any agreement,
arrangement or restriction that would prevent or delay the Stockholder's ability to perform its obligations hereunder. There are no agreements or arrangements of any kind, contingent or otherwise,
obligating such Stockholder to Transfer, or cause to be Transferred, any of the RLJ Securities set forth on
Schedule A
hereto (other than arising
hereunder or under the Merger Agreement, the Contribution Agreement, the 2016 Stockholders' Agreement or the 2016 Waiver Agreement), and no Person has any contractual or other right or obligation to
purchase or otherwise acquire any of the RLJ Securities.
(g)
Additional Company Stock.
For the avoidance of doubt, any additional shares of Common Stock with respect to
which the Stockholder or any controlled Affiliate of Robert L. Johnson acquires record or beneficial ownership after the date hereof, including by exercise of the 2015 Warrants, shall automatically
become subject to the terms of this Agreement as though owned by such Stockholder as of the date hereof.
(h)
Adjustments.
The Stockholder hereby agrees that in the event of any stock split, stock combination
(including by way of reverse stock split), stock dividend, reclassification, exchange of shares or other similar transaction affecting the Subject Shares, the terms of this Agreement shall apply to
the resulting securities.
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(i)
Reliance by Parent.
The Stockholder understands and acknowledges that Parent is
entering into the Merger Agreement in reliance upon the Stockholder's execution, delivery and performance of this Agreement.
(j)
Other Agreements.
Except for this Agreement, the Stockholder has not: (a) taken any action that would
or would reasonably be expected to (i) constitute or result in a breach hereof, (ii) make any representation or warranty of the Stockholder set forth in this
Section
5 untrue or incorrect, or
(iii) have the effect of preventing or disabling the Stockholder from performing any of its obligations under
this Agreement; (b) granted any proxies or powers of attorney, or any other authorization or consent with respect to any of the Subject Shares with respect to the matters set forth in
Section
1
(a)
; or (c) deposited any of the RLJ Securities into a separate voting trust or entered
into a voting agreement or arrangement with respect to any of the Subject Shares.
6.
Representations and Warranties of the Company.
The Company hereby represents and warrants to
Parent and the Stockholder as follows:
(a)
Organization; Good Standing.
The Company is a legal entity duly organized, validly existing and in good
standing under the Laws of the State of Nevada.
(b)
Authority.
The Company has all requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to the Bankruptcy and Equity Exception.
(c)
Consents and Approvals.
Other than as provided in the Merger Agreement and any publicly available filings by
the Company with the SEC, the execution, delivery and performance by the Company of this Agreement does not require any consent, approval, authorization or permit of, filing with or notification to
any Governmental Entity, other than any consent, approval, authorization, permit, filing or notification the failure of which to make or obtain would not, individually or in the aggregate, be
reasonably expected to prevent or materially delay the consummation of the Merger.
7.
Representations and Warranties of Parent.
Parent hereby represents and warrants to the Stockholder
and the Company as follows:
(a)
Organization; Good Standing.
Parent is a legal entity duly organized, validly existing and in good standing
under the Laws of the State of Delaware.
(b)
Authority.
Parent has all requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by Parent and constitutes a valid and binding obligation of Parent enforceable in accordance with its
terms, subject to the Bankruptcy and Equity Exception.
(c)
Consents and Approvals.
Other than as provided in the Merger Agreement and any publicly available filings by
Parent with the SEC, the execution, delivery and performance by Parent of this Agreement does not require any consent, approval, authorization or permit of, filing with or notification to any
Governmental Entity, other than any consent, approval, authorization, permit, filing or notification the failure of which to make or obtain would not, individually or in the aggregate, be reasonably
expected to prevent or materially delay the consummation of the Merger.
8.
Stop Transfer; Changes in Subject Shares.
(a) The
Stockholder hereby agrees with, and covenants to, Parent that (i) this Agreement and the obligations hereunder shall attach to the RLJ Securities and shall be
binding upon any Person
C-5
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or
entity to which legal or beneficial ownership shall pass, whether by operation of law or otherwise, including its successors or assigns; and (ii) other than as permitted by this Agreement,
the Stockholder shall not request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any or all of the RLJ Securities.
Notwithstanding any Transfer, the Stockholder shall remain liable for the performance of all of its obligations under this Agreement.
(b) The
Company hereby acknowledges the restrictions on Transfers of the RLJ Securities contained in
Section
2. The Company
agrees not to register the Transfer of any certificate or uncertificated interest representing any RLJ Security unless such Transfer is made in compliance with this Agreement.
9.
Termination.
This Agreement shall automatically terminate without further action upon the earliest
to occur of (a) the Effective Time, (b) the termination of the
Merger Agreement in accordance with its terms (including, for the avoidance of doubt, in accordance with Sections 9.2(b) and 9.3(b) of the Merger Agreement) and (c) the effective date of
a written agreement of the parties hereto terminating this Agreement (the date and time at which the earliest of clause (a), clause (b) and clause (c) occurs being, the
"
Expiration Date
"). Upon termination of this Agreement, no party shall have any further obligations or liabilities under this Agreement;
provided
,
however
, that (i) nothing set forth in this
Section
9 shall relieve any party from liability for any breach of this Agreement occurring prior to the
termination hereof; and (ii) the
provisions of this
Section
9 and
Section 11
through
Section 19
shall survive any termination of
this Agreement.
10.
Definition of "Beneficial Ownership".
For purposes of this Agreement, "beneficial ownership" with
respect to (or to "beneficially own") any securities shall mean having "beneficial ownership" of such
securities as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, including pursuant to any agreement, arrangement or understanding, whether or
not in writing.
11.
Further Assurances.
The Stockholder shall execute and deliver, or cause to be executed and
delivered, such additional instruments and other documents and shall take such further
actions as Parent or the Company may reasonably request for the purpose of carrying out and complying with all of the terms of this Agreement and the transactions contemplated thereby.
12.
Notices.
All notices, requests and other communications to any party hereunder shall be in writing
(including facsimile transmission and electronic mail
("
e-mail
") transmission) and shall be given,
if
to the Company, to:
RLJ
Entertainment, Inc.
8515 Georgia Avenue, Suite 650
Silver Spring, Maryland 20910
Attention: Miguel Penella
Facsimile No.: (301) 608-9313
E-mail: mpenella@rljentertainment.com
with
copies (which shall not constitute notice) to each of :
Arent
Fox LLP
1717 K Street, NW
Washington, D.C. 20006
Attention: Jeffrey E. Jordan
Facsimile No.: (202) 857-6395
E-mail: jeffrey.jordan@arentfox.com
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RLJ
Entertainment, Inc.
8515 Georgia Avenue, Suite 650
Silver Spring, Maryland 20910
Attention: Andor Lazslo and Scott Royster
Facsimile No.: (301) 608-9313
E-mail: alazslo@rljentertainment.com / sroyster@rljentertainment.com
Greenberg
Traurig, LLP
MetLife Building
200 Park Avenue
New York, NY 10166
Attention: Clifford E. Neimeth
Facsimile No. (212) 805-9383
E-mail: neimethc@gtlaw.com
if
to Parent, to:
AMC
Networks Inc.
11 Penn Plaza
New York, New York 10001
Attention: Jamie Gallagher, EVP and General Counsel
Facsimile No.: (646) 273-3789
E-mail: jamie.gallagher@amcnetworks.com
with
a copy (which shall not constitute notice) to:
Sullivan &
Cromwell LLP
125 Broad St.
New York, NY 10004
Attention: Brian E. Hamilton
Facsimile No.: (212) 558-3588
E-mail: hamiltonb@sullcrom.com
if
to the Stockholder, to:
The
RLJ Companies, LLC
3 Bethesda Metro Center, Suite 1000
Bethesda, MD 20814
Attention: H. Van Sinclair
Facsimile No.: (202) 280-7750
E-mail: Van@rljcompanies.com
or
to such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be
deemed received on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile or email (i) at or prior to 5:30 p.m. (New York City
time) on a Business Day or (ii) on a day that is not a Business Day or after 5:30 p.m. (New York City time) on a Business Day if such transmission is confirmed by the recipient,
(b) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (c) upon actual receipt by the party to whom such notice is
required to be given
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13.
Amendment; Waivers.
(a) Any
provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case
of an amendment, by a duly authorized officer of each party to this Agreement or, in the case of a waiver, by a duly authorized officer of each party against whom the waiver is to be effective.
(b) No
failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable
Law.
14.
Fees and Expenses.
All costs and expenses incurred in connection with this Agreement, including
fees and expenses of financial advisors, financial sponsors, legal counsel and other
advisors, shall be paid by the party incurring such cost or expense, whether or not the transactions contemplated by the Merger Agreement are consummated.
15.
Assignment; Binding Effect.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise, by any of the parties without the prior written consent of the other parties to this Agreement. Any purported assignment in violation of this Agreement is void. This Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties to this Agreement and their respective successors and assigns.
16.
Governing Law; Jurisdiction.
(a) This
Agreement shall be governed by and construed in accordance with the Laws of the State of Nevada, without regard to the conflict of law principles of such state to
the extent that such principles would have the effect of applying the Laws of, or directing a matter to, another jurisdiction.
(b) The
parties hereto irrevocably agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby (whether brought by any party or any of its Affiliates or against any party or any of its Affiliates) shall be exclusively brought in the
state and federal courts sitting in the Clark County, Nevada, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and the appropriate appellate courts therefrom) in
any such suit, action or proceeding and irrevocably agrees not to assert, and hereby waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of
the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 12 shall be deemed effective service of process on such party.
17.
WAIVER OF JURY TRIAL.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY BE
CONNECTED WITH, ARISE OUT OF OR OTHERWISE RELATE TO THIS AGREEMENT IS EXPECTED TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY KNOWINGLY AND INTENTIONALLY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, CONNECTED WITH, ARISING OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT
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OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY HEREBY ACKNOWLEDGES AND CERTIFIES THAT (i) NO REPRESENTATIVE OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) IT MAKES
THIS WAIVER VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 17.
18.
Counterparts; Effectiveness.
This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original instrument (including signatures delivered via facsimile
or e-mail) and all of which together shall constitute the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by all of the
other parties hereto.
19.
Entire Agreement.
This Agreement, together with the Merger Agreement and the Contribution
Agreement, constitutes the entire agreement among the applicable parties hereto and
thereto with respect to the subject matter hereof and thereof and supersedes all prior agreements and understandings, both oral and written, among the applicable parties with respect to the subject
matter hereof and thereof.
20.
Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court
of competent jurisdiction or other Governmental Entity to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated
as originally contemplated to the fullest extent possible.
21.
Specific Performance.
In the event of a breach or a threatened breach by any party to this
Agreement of its obligations under this Agreement, any party injured or to be injured by such
breach shall be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted
by Law, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense or
objection in any action for specific performance or injunctive relief for which a remedy at law would be adequate is hereby waived.
22.
Interpretation; Construction.
(a) The
headings and other captions in this Agreement are for convenience and reference only, do not constitute a part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof.
(b) The
parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of
this Agreement.
23.
Stockholder Capacity Only.
The parties to this Agreement hereby acknowledge and agree that Robert
L. Johnson is entering into this Agreement solely in his capacity as a beneficial owner of
Common Stock, 2015 Warrants and other securities of the Company and not in his capacity as a director or officer of the Company. Accordingly, notwithstanding anything express or implied to the
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contrary
set forth in this Agreement, no provision in this Agreement is intended to, nor shall any provision of this Agreement, operate in any way to limit, restrict or prevent Robert L. Johnson from
making any determination or taking or omitting to take any action in accordance with his fiduciary duties under applicable Law as they may pertain to his capacity as a director or officer of the
Company.
[
Remainder of page intentionally left blank
]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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RLJ ENTERTAINMENT, INC.
(solely for purposes of Sections 6 and 8)
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By:
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/s/ MIGUEL PENELLA
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Name:
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Miguel Penella
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Title:
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Chief Executive Officer
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[Signature Page to Voting and Transaction Support Agreement]
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DIGITAL ENTERTAINMENT HOLDINGS LLC
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By:
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/s/ JOSHUA SAPAN
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Name:
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Joshua Sapan
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Title:
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President and CEO
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[Signature Page to Voting and Transaction Support Agreement]
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ROBERT L. JOHNSON
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By:
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/s/ ROBERT L. JOHNSON
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THE RLJ COMPANIES, LLC
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By:
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/s/ ROBERT L. JOHNSON
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Name:
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Robert L. Johnson
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Title:
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Chairman and Founder
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RLJ SPAC ACQUISITION, LLC
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By:
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/s/ H. VAN SINCLAIR
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Name:
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H. Van Sinclair
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Title:
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President and CEO
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SCHEDULE A
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Name of Stockholder
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Shares of
Common Stock
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2015
Warrants
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Shares of
Common Stock
Purchasable by
Warrants Held
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Total
Common Stock
Beneficially
Owned
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RLJ SPAC Acquisition, LLC / The RLJ Companies, LLC / Robert L. Johnson
(1)
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6,794.465
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1
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1,500,000
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8,294,465
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3 Bethesda Metro Center
Suite 1000
Bethesda, MD 20814
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(1)
-
The
RLJ Companies, LLC is the sole manager and voting member of RLJ SPAC Acquisition, LLC, and Robert L. Johnson is the sole manager and
voting member of The RLJ Companies, LLC.
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Appendix D
NRS 92A.300 Definitions.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise requires,
the words and terms
defined in NRS 92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those sections.
(Added
to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined.
"Beneficial stockholder" means a person who is a beneficial owner
of shares held in a
voting trust or by a nominee as the stockholder of record.
(Added
to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined.
"Corporate action" means the action of a domestic corporation.
(Added
to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under
NRS 92A.380 and who exercises that right when and in the manner required by NRS 92A.400 to 92A.480, inclusive.
(Added
to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined.
"Fair value," with respect to a dissenter's shares, means the value of the
shares determined:
1. Immediately
before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable;
2. Using
customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and
3. Without
discounting for lack of marketability or minority status.
(Added
to NRS by 1995, 2087; A 2009, 1720)
NRS 92A.325 "Stockholder" defined.
"Stockholder" means a stockholder of record or a beneficial stockholder of a
domestic corporation.
(Added
to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined.
"Stockholder of record" means the person in whose name shares are
registered in the records
of a domestic corporation or the beneficial owner of shares to the extent of the rights granted by a nominee's certificate on file with the domestic corporation.
(Added
to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined.
"Subject corporation" means the domestic corporation which is the
issuer of the shares held
by a dissenter before the corporate action creating the dissenter's rights becomes effective or the surviving or acquiring entity of that issuer after the corporate action becomes effective.
(Added
to NRS by 1995, 2087)
NRS 92A.340 Computation of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective
date of the action until the date of payment, at the rate of interest most recently established pursuant to NRS 99.040.
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(Added
to NRS by 1995, 2087; A 2009, 1721)
NRS 92A.350 Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic
limited partnership or,
unless otherwise provided in the partnership agreement, an agreement of merger or exchange, may provide that contractual rights with respect to the partnership interest of a dissenting general or
limited partner of a domestic limited partnership are available for any class or group of partnership interests in connection with any merger or exchange in which the domestic limited partnership is a
constituent entity.
(Added
to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability company.
The articles of organization or
operating agreement of a
domestic limited-liability company or, unless otherwise provided in the articles of organization or operating agreement, an agreement of merger or exchange, may provide that contractual rights with
respect to the interest of a dissenting member are available in connection with any merger or exchange in which the domestic limited-liability company is a constituent entity.
(Added
to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except
as otherwise provided in subsection 2, and unless otherwise provided in the articles or bylaws, any member of any constituent domestic nonprofit corporation
who voted against the merger may, without prior notice, but within 30 days after the effective date of the merger, resign from membership and is thereby excused from all contractual obligations
to the constituent or surviving corporations which did not occur before the member's resignation and is thereby entitled to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless
otherwise provided in its articles of incorporation or bylaws, no member of a domestic nonprofit corporation, including, but not limited to, a cooperative
corporation, which supplies services described in chapter 704 of NRS to its members only, and no person who is a member of a domestic nonprofit corporation as a condition of or by reason of the
ownership of an interest in real property, may resign and dissent pursuant to subsection 1.
(Added
to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate actions and to obtain payment for shares.
1. Except
as otherwise provided in NRS 92A.370 and 92A.390 and subject to the limitation in paragraph (f), any stockholder is entitled to dissent from, and obtain
payment of the fair value of the stockholder's shares in the event of any of the following corporate actions:
(a) Consummation
of a plan of merger to which the domestic corporation is a constituent entity:
(1) If
approval by the stockholders is required for the merger by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation, regardless of whether the stockholder
is entitled to vote on the plan of merger; or
(2) If
the domestic corporation is a subsidiary and is merged with its parent pursuant to NRS 92A.180.
(b) Consummation
of a plan of conversion to which the domestic corporation is a constituent entity as the corporation whose subject owner's interests will be converted.
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(c) Consummation
of a plan of exchange to which the domestic corporation is a constituent entity as the corporation whose subject owner's interests will be acquired, if the
stockholder's shares are to be acquired in the plan of exchange.
(d) Any
corporate action taken pursuant to a vote of the stockholders to the extent that the articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares.
(e) Accordance
of full voting rights to control shares, as defined in NRS 78.3784, only to the extent provided for pursuant to NRS 78.3793.
(f) Any
corporate action not described in this subsection that will result in the stockholder receiving money or scrip instead of a fraction of a share except where the
stockholder would not be entitled to receive such payment pursuant to NRS 78.205, 78.2055 or 78.207. A dissent pursuant to this paragraph applies only to the fraction of a share, and the stockholder
is entitled only to obtain payment of the fair value of the fraction of a share.
2. A
stockholder who is entitled to dissent and obtain payment pursuant to NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action creating the entitlement
unless the action is unlawful or fraudulent with respect to the stockholder or the domestic corporation.
3. Subject
to the limitations in this subsection, from and after the effective date of any corporate action described in subsection 1, no stockholder who has
exercised the right to dissent pursuant to NRS 92A.300 to 92A.500, inclusive, is entitled to vote his or her shares for any purpose or to receive payment of dividends or any other distributions
on shares. This subsection does not apply to dividends or other distributions payable to stockholders on a date before the effective date of any corporate action from which the stockholder has
dissented. If a stockholder exercises the right to dissent with respect to a corporate action described in paragraph (f) of subsection 1, the restrictions of this subsection apply only
to the shares to be converted into a fraction of a share and the dividends and distributions to those shares.
(Added
to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189; 2005, 2204; 2007, 2438; 2009, 1721; 2011, 2814)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or series; action of stockholders not required for plan of merger.
1. There
is no right of dissent with respect to a plan of merger, conversion or exchange in favor of stockholders of any class or series which is:
(a) A
covered security under section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. § 77r(b)(1)(A) or (B), as amended;
(b) Traded
in an organized market and has at least 2,000 stockholders and a market value of at least $20,000,000, exclusive of the value of such shares held by the
corporation's subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares; or
(c) Issued
by an open end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, 15 U.S.C.
§§ 80a-1 et seq., as amended, and which may be redeemed at the option of the holder at net asset value,
unless
the articles of incorporation of the corporation issuing the class or series or the resolution of the board of directors approving the plan of merger, conversion or exchange expressly provide
otherwise.
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2. The
applicability of subsection 1 must be determined as of:
(a) The
record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the corporate action requiring
dissenter's rights; or
(b) The
day before the effective date of such corporate action if there is no meeting of stockholders.
3. Subsection 1
is not applicable and dissenter's rights are available pursuant to NRS 92A.380 for the holders of any class or series of shares who are required by
the terms of the corporate action requiring dissenter's rights to accept for such shares anything other than cash or shares of any class or any series of shares of any corporation, or any other
proprietary interest of any other entity, that satisfies the standards set forth in subsection 1 at the time the corporate action becomes effective.
4. There
is no right of dissent for any holders of stock of the surviving domestic corporation if the plan of merger does not require action of the stockholders of the
surviving domestic corporation under NRS 92A.130.
5. There
is no right of dissent for any holders of stock of the parent domestic corporation if the plan of merger does not require action of the stockholders of the parent
domestic corporation under NRS 92A.180.
(Added
to NRS by 1995, 2088; A 2009, 1722; 2013, 1285)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to shares registered to stockholder; assertion by beneficial stockholder.
1. A
stockholder of record may assert dissenter's rights as to fewer than all of the shares registered in his or her name only if the stockholder of record dissents with
respect to all shares of the class or series beneficially owned by any one person and notifies the subject corporation in writing of the name and address of each person on whose behalf the stockholder
of record asserts dissenter's rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the partial dissenter dissents and his or her other shares
were registered in the names of different stockholders.
2. A
beneficial stockholder may assert dissenter's rights as to shares held on his or her behalf only if the beneficial stockholder:
(a) Submits
to the subject corporation the written consent of the stockholder of record to the dissent not later than the time the beneficial stockholder asserts dissenter's
rights; and
(b) Does
so with respect to all shares of which he or she is the beneficial stockholder or over which he or she has power to direct the vote.
(Added
to NRS by 1995, 2089; A 2009, 1723)
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If
a proposed corporate action creating dissenter's rights is submitted to a vote at a stockholders' meeting, the notice of the meeting must state that stockholders are,
are not or may be entitled to assert dissenter's rights under NRS 92A.300 to 92A.500, inclusive. If the domestic corporation concludes that dissenter's rights are or may be available, a copy of NRS
92A.300 to 92A.500, inclusive, must accompany the meeting notice sent to those record stockholders entitled to exercise dissenter's rights.
2. If
the corporate action creating dissenter's rights is taken by written consent of the stockholders or without a vote of the stockholders, the domestic corporation shall
notify in writing all
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stockholders
entitled to assert dissenter's rights that the action was taken and send them the dissenter's notice described in NRS 92A.430.
(Added
to NRS by 1995, 2089; A 1997, 730; 2009, 1723; 2013, 1286)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If
a proposed corporate action creating dissenter's rights is submitted to a vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's rights with
respect to any class or series of shares:
(a) Must
deliver to the subject corporation, before the vote is taken, written notice of the stockholder's intent to demand payment for his or her shares if the proposed
action is effectuated; and
(b) Must
not vote, or cause or permit to be voted, any of his or her shares of such class or series in favor of the proposed action.
2. If
a proposed corporate action creating dissenter's rights is taken by written consent of the stockholders, a stockholder who wishes to assert dissenter's rights with
respect to any class or series of shares must not consent to or approve the proposed corporate action with respect to such class or series.
3. A
stockholder who does not satisfy the requirements of subsection 1 or 2 and NRS 92A.400 is not entitled to payment for his or her shares under this chapter.
(Added
to NRS by 1995, 2089; A 1999, 1631; 2005, 2204; 2009, 1723; 2013, 1286)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert rights; contents.
1. The
subject corporation shall deliver a written dissenter's notice to all stockholders of record entitled to assert dissenter's rights in whole or in part, and any
beneficial stockholder who has previously asserted dissenter's rights pursuant to NRS 92A.400.
2. The
dissenter's notice must be sent no later than 10 days after the effective date of the corporate action specified in NRS 92A.380, and must:
(a) State
where the demand for payment must be sent and where and when certificates, if any, for shares must be deposited;
(b) Inform
the holders of shares not represented by certificates to what extent the transfer of the shares will be restricted after the demand for payment is received;
(c) Supply
a form for demanding payment that includes the date of the first announcement to the news media or to the stockholders of the terms of the proposed action and
requires that the person asserting dissenter's rights certify whether or not the person acquired beneficial ownership of the shares before that date;
(d) Set
a date by which the subject corporation must receive the demand for payment, which may not be less than 30 nor more than 60 days after the date the notice is
delivered and state that the stockholder shall be deemed to have waived the right to demand payment with respect to the shares unless the form is received by the subject corporation by such specified
date; and
(e) Be
accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added
to NRS by 1995, 2089; A 2005, 2205; 2009, 1724; 2013, 1286)
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NRS 92A.440 Demand for payment and deposit of certificates; loss of rights of stockholder; withdrawal from appraisal process.
1. A
stockholder who receives a dissenter's notice pursuant to NRS 92A.430 and who wishes to exercise dissenter's rights must:
(a) Demand
payment;
(b) Certify
whether the stockholder or the beneficial owner on whose behalf he or she is dissenting, as the case may be, acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this certification; and
(c) Deposit
the stockholder's certificates, if any, in accordance with the terms of the notice.
2. If
a stockholder fails to make the certification required by paragraph (b) of subsection 1, the subject corporation may elect to treat the stockholder's
shares as after-acquired shares under NRS 92A.470.
3. Once
a stockholder deposits that stockholder's certificates or, in the case of uncertified shares makes demand for payment, that stockholder loses all rights as a
stockholder, unless the stockholder withdraws pursuant to subsection 4.
4. A
stockholder who has complied with subsection 1 may nevertheless decline to exercise dissenter's rights and withdraw from the appraisal process by so notifying
the subject corporation in writing by the date set forth in the dissenter's notice pursuant to NRS 92A.430. A stockholder who fails to so withdraw from the appraisal process may not thereafter
withdraw without the subject corporation's written consent.
5. The
stockholder who does not demand payment or deposit his or her certificates where required, each by the date set forth in the dissenter's notice, is not entitled to
payment for his or her shares under this chapter.
(Added
to NRS by 1995, 2090; A 1997, 730; 2003, 3189; 2009, 1724)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand for payment.
The subject
corporation may restrict the
transfer of shares not represented by a certificate from the date the demand for their payment is received.
(Added
to NRS by 1995, 2090; A 2009, 1725)
NRS 92A.460 Payment for shares: General requirements.
1. Except
as otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for payment pursuant to NRS 92A.440, the subject corporation shall pay in
cash to each dissenter who complied with NRS 92A.440 the amount the subject corporation estimates to be the fair value of the dissenter's shares, plus accrued interest. The obligation of the subject
corporation under this subsection may be enforced by the district court:
(a) Of
the county where the subject corporation's principal office is located;
(b) If
the subject corporation's principal office is not located in this State, in the county in which the corporation's registered office is located; or
(c) At
the election of any dissenter residing or having its principal or registered office in this State, of the county where the dissenter resides or has its principal or
registered office.
Ê
The court shall dispose of the complaint promptly.
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2. The
payment must be accompanied by:
(a) The
subject corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, a statement of income for that
year, a statement of changes in the stockholders' equity for that year or, where such financial statements are not reasonably available, then such reasonably equivalent financial information and the
latest available quarterly financial statements, if any;
(b) A
statement of the subject corporation's estimate of the fair value of the shares; and
(c) A
statement of the dissenter's rights to demand payment under NRS 92A.480 and that if any such stockholder does not do so within the period specified, such stockholder
shall be deemed to have accepted such payment in full satisfaction of the corporation's obligations under this chapter.
(Added
to NRS by 1995, 2090; A 2007, 2704; 2009, 1725; 2013, 1287)
NRS 92A.470 Withholding payment for shares acquired on or after date of dissenter's notice: General requirements.
1. A
subject corporation may elect to withhold payment from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the first date of any announcement to the news media or to the stockholders of the terms of the proposed action.
2. To
the extent the subject corporation elects to withhold payment, within 30 days after receipt of a demand for payment pursuant to NRS 92A.440, the subject
corporation shall notify the dissenters described in subsection 1:
(a) Of
the information required by paragraph (a) of subsection 2 of NRS 92A.460;
(b) Of
the subject corporation's estimate of fair value pursuant to paragraph (b) of subsection 2 of NRS 92A.460;
(c) That
they may accept the subject corporation's estimate of fair value, plus interest, in full satisfaction of their demands or demand appraisal under NRS 92A.480;
(d) That
those stockholders who wish to accept such an offer must so notify the subject corporation of their acceptance of the offer within 30 days after receipt of
such offer; and
(e) That
those stockholders who do not satisfy the requirements for demanding appraisal under NRS 92A.480 shall be deemed to have accepted the subject corporation's offer.
3. Within
10 days after receiving the stockholder's acceptance pursuant to subsection 2, the subject corporation shall pay in cash the amount offered under
paragraph (b) of subsection 2 to each stockholder who agreed to accept the subject corporation's offer in full satisfaction of the stockholder's demand.
4. Within
40 days after sending the notice described in subsection 2, the subject corporation shall pay in cash the amount offered under paragraph (b)
of subsection 2 to each stockholder described in paragraph (e) of subsection 2.
(Added
to NRS by 1995, 2091; A 2009, 1725; 2013, 1287)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject corporation; demand for payment of estimate.
1. A
dissenter paid pursuant to NRS 92A.460 who is dissatisfied with the amount of the payment may notify the subject corporation in writing of the dissenter's own estimate
of the fair value of his or
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her
shares and the amount of interest due, and demand payment of such estimate, less any payment pursuant to NRS 92A.460. A dissenter offered payment pursuant to NRS 92A.470 who is dissatisfied with
the offer may reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of his or her shares and interest due.
2. A
dissenter waives the right to demand payment pursuant to this section unless the dissenter notifies the subject corporation of his or her demand to be paid the
dissenter's stated estimate of fair value plus interest under subsection 1 in writing within 30 days after receiving the subject corporation's payment or offer of payment under NRS
92A.460 or 92A.470 and is entitled only to the payment made or offered.
(Added
to NRS by 1995, 2091; A 2009, 1726)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject corporation; powers of court; rights of dissenter.
1. If
a demand for payment pursuant to NRS 92A.480 remains unsettled, the subject corporation shall commence a proceeding within 60 days after receiving the demand
and petition the court to determine the fair value of the shares and accrued interest. If the subject corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded by each dissenter pursuant to NRS 92A.480 plus interest.
2. A
subject corporation shall commence the proceeding in the district court of the county where its principal office is located in this State. If the principal office of
the subject corporation is not located in this State, the right to dissent arose from a merger, conversion or exchange and the principal office of the surviving entity, resulting entity or the entity
whose shares were acquired, whichever is applicable, is located in this State, it shall commence the proceeding in the county where the principal office of the surviving entity, resulting entity or
the entity whose shares were acquired is located. In all other cases, if the principal office of the subject corporation is not located in this State, the subject corporation shall commence the
proceeding in the district court in the county in which the corporation's registered office is located.
3. The
subject corporation shall make all dissenters, whether or not residents of Nevada, whose demands remain unsettled, parties to the proceeding as in an action against
their shares. All parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
4. The
jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the powers described in the order appointing them, or any amendment thereto. The dissenters
are entitled to the same discovery rights as parties in other civil proceedings.
5. Each
dissenter who is made a party to the proceeding is entitled to a judgment:
(a) For
the amount, if any, by which the court finds the fair value of the dissenter's shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For
the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the subject corporation elected to withhold payment pursuant to NRS
92A.470.
(Added
to NRS by 1995, 2091; A 2007, 2705; 2009, 1727; 2011, 2815; 2013, 1288)
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NRS 92A.500 Assessment of costs and fees in certain legal proceedings.
1. The
court in a proceeding to determine fair value shall determine all of the costs of the proceeding, including the reasonable compensation and expenses of any appraisers
appointed by the court. The court shall assess the costs against the subject corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment.
2. The
court may also assess the fees and expenses of the counsel and experts for the respective parties, in amounts the court finds equitable:
(a) Against
the subject corporation and in favor of all dissenters if the court finds the subject corporation did not substantially comply with the requirements of NRS
92A.300 to 92A.500, inclusive; or
(b) Against
either the subject corporation or a dissenter in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If
the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services
should not be assessed against the subject corporation, the court may award to those counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.
4. In
a proceeding commenced pursuant to NRS 92A.460, the court may assess the costs against the subject corporation, except that the court may assess costs against all or
some of the dissenters who are parties to the proceeding, in amounts the court finds equitable, to the extent the court finds that such parties did not act in good faith in instituting the proceeding.
5. To
the extent the subject corporation fails to make a required payment pursuant to NRS 92A.460, 92A.470 or 92A.480, the dissenter may bring a cause of action
directly for the amount owed and, to the extent the dissenter prevails, is entitled to recover all expenses of the suit.
6. This
section does not preclude any party in a proceeding commenced pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68.
(Added
to NRS by 1995, 2092; A 2009, 1727; 2015, 2566)
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VOTE BY INTERNET - www.investorvote.com/RLJE Use the Internet to transmit your voting instructions and for electronic delivery of information up until midnight. Eastern Time on , 2018, the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. RLJ ENTERTAINMENT, INC. C/O INVESTOR RELATIONS 8515 GEORGIA AVENUE, SUITE 650 SILVER SPRING, MARYLAND 20910 VOTE BY PHONE - 1-800-652-VOTE (8683) Use any touch-tone telephone to transmit your voting instructions up until midnight Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage paid envelope we have provided. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. time, by and among the Company, AMC Networks Inc., Digital officers in connection with the merger (Proposal 2). Company)(Proposal 3). RLJ ENTERTAINMENT, INC. Stockholder Proposals 1. Approval of the Agreement and Plan of Merger dated as of JulyForAgainstAbstain 29, 2018, as it may be amended or supplemented from time to Entertainment Holdings LLC, and River Merger Sub Inc. (Proposal 1). 2. Approval, by non-binding advisory vote, of compensation thatForAgainstAbstain will or may become payable to the Companys named executive 3. Approval of the adjournment of the Special Meeting from timeForAgainstAbstain to time, if necessary or advisable (as determined by the 4. The proxies are authorized to vote in their discretion upon such other business as may properly come before the Annual Meeting and any matters incident to the conduct of the Meeting. Please date this Proxy and sign exactly as your name appears hereon. If shares are jointly held, this Proxy should be signed by each joint owner. Executors, administrators, guardians or others signing in a fiduciary capacity should state their full titles. A Proxy executed by a corporation should be signed in its name by its president or other authorized officer. A Proxy executed by a partnership should be signed in its name by an authorized person. YesNo Please indicate if you plan to attend this meetingSignatureDateSignature (Joint Owners)Date
RLJ ENTERTAINMENT, INC. Proxy Solicited by the Board of Directors for the Special Meeting of Stockholders , 2018 The undersigned appoints Miguel Penella and Dawn Martens, and each of them, proxies (each with full power of substitution) to represent the undersigned at the RLJ Entertainment, Inc. Special Meeting of Stockholders to be held on, 2018, and any adjournments or postponements thereof and to vote the shares of the Companys common stock held of record by the undersigned on , 2018 as directed on the reverse side. The shares represented by this Proxy will be voted as directed on the reverse side. If no direction is indicated, the shares represented by this Proxy will be voted FOR approval of the Agreement and Plan of Merger (Proposal 1), FOR approval, by non-binding advisory vote, of certain compensation payable to the Companys named executive officers in connection with the merger (Proposal 2), and FOR approval of the adjournment of the Special Meeting from time to time, if necessary or advisable (as determined by the Company)(Proposal Three). The undersigned acknowledges receipt of the Notice of Special Meeting of Stockholders and the Proxy Statement dated , 2018. PLEASE PROMPTLY COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. PLEASE SIGN ON REVERSE SIDE