INTEREST PURCHASE AGREEMENT

 

This Interest Purchase Agreement (the “ Agreement ”) is made as of April 26, 2010, by Iconix Brand Group, Inc., a Delaware corporation (“ Buyer ”), United Feature Syndicate, Inc., a New York corporation (“ Seller ”) and The E.W. Scripps Company, an Ohio corporation (“Parent”).

 

RECITALS

 

Seller owns all of the issued and outstanding interests of Character Licensing, LLC, a Delaware limited liability company (the “ Company ”).

 

Seller desires to sell, and Buyer desires to purchase, all of the issued and outstanding interests of the Company (the “ Interests ”) for the consideration and on the terms and conditions set forth in this Agreement.

 

AGREEMENT

 

The parties, intending to be legally bound, agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1             Definitions .  For purposes of this Agreement, the following terms and variations thereof have the meanings specified or referred to in this Section 1.1 :

 

“ ABC ” is defined in Section 3.20 .

 

“ Accountants ” is defined in Section 2.4(c) .

 

“ Affiliate ” means, with respect to any Person, any other Person (a) that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person, (b) that is a general partner, director, manager, trustee or principal officer of, or a limited partner owning more than 10% of, or that serves in a similar capacity with respect to, such Person, or (c) of which such Person is a general partner, director, manager, trustee or principal officer or a limited partner owning more than 10% of, or with respect to which such Person serves in a similar capacity.  For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or to cause the direction of the management or policies of the Person in question through the ownership of voting securities or by contract or otherwise.  For purposes of this Agreement, each of The Edward W. Scripps Trust, Scripps Networks Interactive, Inc. and any of its direct or indirect Subsidiaries shall not be deemed an Affiliate of Seller hereunder.

 

“ Aged Accounts Receivable ” is defined in the definition of Current Assets.

 

“ Agreement ” is defined in the preamble hereto.

 

“ Asset Allocation Statement ” is defined in Section 8.6(j) .

 

“ Basket ” is defined in Section 12.5(b).

 

“ Books and Records ” is defined in Section 8.3 .

 

“ Borrower Group ” is defined in Section 8.11 .

 

“ Business ” is defined in Section 2.1(a) .

 

“ Business Accounts Receivable ” is defined in Section 3.14 .

 

“ Business Assets ” is defined in Section 2.1(a) .

 

“ Business Contracts ” is defined in Section 2.1(b) .

 

“ Business Day ” means any day other than a Saturday or a Sunday, and any day other than a day that is a bank holiday in the State of New York.

 

“ Business Employee ” is defined in Section 3.10(b)(i) .

 

“ Buyer ” is defined in the preamble to this Agreement.

 

“ Cap ” is defined in Section 12.5(c) .

 

“ Closing ” is defined in Section 2.5 .

 

“ Closing Date ” means the date and time as of which the Closing actually takes place.

 

“ Closing Date Statement ” is defined in Section 2.4(b) .

 

“ Company ” is defined in the Recitals to this Agreement

 

“ Consent ” means any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization).

 

“ Contemplated Transactions ” means all of the transactions contemplated by this Agreement, including: (a) the sale of the Interests by Seller to Buyer; (b) the execution, delivery, and performance of the Transaction Documents, including the Contribution; (c) the performance by Buyer and Seller of their respective covenants and obligations under this Agreement; and (d) Buyer’s acquisition and ownership of the Interests.

 

“ Contract ” means any agreement, contract, obligation, promise, or undertaking, whether written or oral.

 

“ Contribution ” is defined in Section 2.1(a) .

 

“ Contribution Agreement ” is defined in Section 2.1(a) .

 

“ Copyrights ” means throughout the world, all registered and unregistered copyrights and registrations and applications to register the same, and all design and database rights, including moral rights of authors.

 

“ Credit Agreement ” is defined in Section 8.11 .

 

“ Credit Support Arrangements ” is defined in Section 8.12 .

 

“ Current Assets ” means those items identified as Current Assets on a Working Capital Statement set forth on Schedule 1.1(a) , as determined (except as set forth on Schedule 1.1(a) ) in a manner consistent with the accounting practices used in preparing the unaudited proforma consolidated balance sheet of the Business as at March 31, 2010 as set forth in Section 3. 4.  The calculation of Current Assets shall not include (i) any deferred Tax assets or (ii) any Accounts Receivable which have been outstanding for more than 90 days from the applicable due date pursuant to the relevant Contract (“ Aged Accounts Receivable ”).

 

 “ Current Liabilities ” means those items identified as Current Liabilities on a Working Capital Statement set forth on Schedule 1.1(a) , as determined (except as set forth on Schedule 1.1(a) ) in a manner consistent with the accounting practices used in preparing the unaudited proforma consolidated balance sheet of the Business as at March 31, 2010 as set forth in Section 3.4 .  The calculation of Current Liabilities shall not include any deferred Tax liabilities or liabilities required to be recorded on the Financial Statements pursuant to Financial Accounting Standards Board No. 48.

 

“ Damages ” is defined in Section 12.1 .

 

“ Designated Reps ” is defined in Section 12.4 .

 

“ Dispute Resolution Period ” is defined in Section 8.6(j) .

 

“ Employee Benefit Plan ” means any deferred compensation, incentive compensation, stock purchase, stock option or other equity compensation plan, program, agreement or arrangement; any severance or termination pay, medical, surgical, hospitalization, life insurance or other “welfare” plan, fund or program (within the meaning of section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)); any profit-sharing, stock bonus or other “pension” plan, fund or program (within the meaning of section 3(2) of ERISA); any employment, termination or severance agreement; and any other employee benefit plan, fund, program, agreement or arrangement.

 

“ Encumbrance ” means any lien, claim, encumbrance, mortgage, easement, charge, option, pledge, security interest or other encumbrance of any nature whatsoever, other than restrictions on transfer of securities imposed by federal or state securities laws.

 

“ Estimated Working Capital ” is defined in Section 2.4(a) .

 

“ Excluded Assets ” is defined in Section 2.1(a) .

 

“ Final Determination ” is defined in Section 12.7 .

 

“ Final Order ” means an Order of a Governmental Body that is in full force and effect and with respect to which no appeal, request for stay, request for reconsideration or other request for review is pending; with respect to which the time for appeal, requesting a stay, requesting reconsideration or requesting other review has expired; and with respect to which the time for the Governmental Body to set aside the order sua sponte has expired.

 

“ Fundamental Reps ” is defined in Section 12.4 .

 

“ GAAP ” is defined in Section 3.4(b) .

 

“ Governmental Authorization ” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

 

“ Governmental Body ” means any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national governmental or quasi-governmental organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

 

“ Hired Employee ” is defined in Section 8.5(a) .

 

“ HSR Act ” is defined in Section 8.2(b) .

 

“ Intellectual Property ” means all Trademarks and all Copyrights and any other intellectual property rights (including remedies against infringement thereof and rights of protection of interest therein under the law of all jurisdictions).

 

“ Indebtedness ” means, with respect to any Person and without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all capitalized lease obligations of such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement, (f) all letters of credit, banker’s acceptances or similar credit transactions (including reimbursement obligations in respect thereof) issued on behalf of such Person, (g) all guarantees and other contingent obligations of such Person in respect of indebtedness of another Person of the type referred to in clauses (a) through (f) above, (h) all indebtedness of another Person of the type referred to in clauses (a) through (g) above which is secured by any Encumbrance on any asset or property of such Person and (i) all obligations under commodity agreements, currency agreements or interest rate agreements of such Person.

 

“ Interests ” is defined in the Recitals of this Agreement.

 

“ IRC ” means the Internal Revenue Code of 1986, as amended, or any successor law, and regulations issued by the IRS pursuant thereto.

 

“ IRCA ” is defined in Section 3.10(g) .

 

“ IRS ” means the U.S. Internal Revenue Service or any successor agency, and, to the extent relevant, the U.S. Department of the Treasury.

 

“ Japanese Anti-Monopoly Act ” means the Japanese Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of April 14, 1947), as amended.

 

“ Knowledge of the  Seller ” means the actual knowledge of the officers and directors of Seller named on Schedule 1.1(b), in each case after due inquiry of those individuals responsible for the matter being represented or warranted.  “ Knowledge of the Buyer ” means the actual knowledge of the officers and directors of Buyer named on Schedule 1.1(b) , in each case after due inquiry of those individuals responsible for the matter being represented or warranted.  Notwithstanding anything to the contrary, where “Knowledge” refers to the absence of a particular fact or matter, an individual will not be deemed to have “Knowledge” unless he or she is actually aware of the presence of such particular fact or matter.

 

“ Legal Requirement ” means any order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty of any Governmental Body.

 

“ Licensed Installments ” means the installments of the Peanuts Feature that are the subject of the Heirs’ Renewal Copyrights as that term is used in The 1979 Agreement.

 

“ Lender Banks ” is defined in Section 8.11 .

 

“ Licensed Peanuts Assets ” means the following Peanuts Feature-related assets:  (a) the Licensed Installments; (b) derivative works derived by Seller from the Licensed Installments, if any; and (c) those assets relating to the Peanuts Feature for which Seller is currently licensed or which Seller is otherwise permitted by other Persons to use pursuant to the Business Contracts.

 

“ Material Adverse Effect ” or “ Material Adverse Change ” means, as to the Business, any change, circumstance, occurrence, event, development or effect that individually or in the aggregate, is, has been or would reasonably be expected to be materially adverse to the financial condition, business, assets, operating results, or operations of the Business, or as to either party hereto or the Company, the ability of such person to consummate or perform the Contemplated Transactions in accordance with the terms of the Transaction Documents; provided, however, that none of the following shall constitute or be deemed to be a Material Adverse Effect or Material Adverse Change, and otherwise shall not be taken into account in determining whether a Material Adverse Effect or Material Adverse Change has occurred or would reasonably be expected to occur: any adverse effect or change resulting from (a) (i) the U.S. or global economy generally or capital or financial markets generally, including changes in interest or exchange rates, (ii) political conditions generally of the U.S. or any other country or jurisdiction in which Seller or the Company conducts its Business or (iii) changes that are the result of factors generally affecting the media industry, except, in each case, to the extent that they affect the Business in a materially disproportionate manner relative to other participants in the media industry; (b) the announcement of the transactions contemplated by, including, the reaction of employees, licensees, partners and talent of the Business in connection therewith, or the performance of obligations under, this Agreement and the other Transaction Documents; (c) any changes or prospective changes after the date of this Agreement in applicable Legal Requirement or the enforcement or interpretation thereof; or (d) any hostilities, act of war, sabotage, terrorism or military actions or any escalation or worsening of any such hostilities, act of war, sabotage, terrorism or military actions except to the extent that they affect the Business in a materially disproportionate manner relative to other participants in the media industry.

 

“ Material Contract ” means any Business Contract (i) referenced in Section 3.8(a)(i ) under which either Seller or UMKK has received cash in excess of $200,000 in the one-year period ended December 31, 2008 or the one-year period ended December 31, 2009; (ii) set forth in Schedule 1.1(c) ; or (iii) referenced in Section 3.8(a) (ii) or (iii) .

 

“ Non-Disclosure Agreement ” means the Non-Disclosure Agreement between Buyer and Seller dated March 16, 2010.

 

“ Order ” means any award, decree, decision, injunction, judgment, order, ruling, subpoena or verdict entered, issued, made, or rendered by any court, administrative agency or other Governmental Body or by any arbitrator.

 

“ Organizational Documents ” means, as to any Person, (a) the articles or certificate of incorporation and bylaws or code of regulations of a corporation; or (b) the articles of organization or certificate of formation or similar document and limited liability company agreement or operating agreement or similar document of a limited liability company; (c) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (d) any amendment to any of the foregoing.

 

“ Owned Peanuts Assets ” means (a) any installments of the Peanuts Feature created pursuant to The 1950 Agreement, The 1959 Agreement and/or The 1979 Agreement (excluding the Licensed Installments), and (b) any derivative works based on the whole of or any part of any of the installments referenced in clause (a), and any other improvements of any installments referenced in clause (a) that are, in each case, owned by Seller.

 

“ Parent ” is defined in the Recitals.

 

“ Peanuts Assets ” means the Owned Peanuts Assets and the Licensed Peanuts Assets.

 

“ Peanuts Feature ” means the comic feature entitled PEANUTS, created by Charles M. Schulz.

 

“ Person ” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.

 

“ Pre-Closing Tax Period ” is defined in Section 12.2 .

 

“ Prior Service ” is defined in Section 8.5(b) .

 

“ Proceeding ” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

 

“ Replacement Credit Support Arrangement ” is defined in Section 8.12 .

 

“ Representative ” means with respect to a particular Person, any director, officer, member, manager, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

 

“ Ringtales Agreement ” means the Agreement, dated January 28, 2008, between Seller and Ringtales, LLC, as amended.

 

“ Securities Act ” means the Securities Act of 1933, as amended, or any successor law, and the rules and regulations issued pursuant thereto.

 

“ Security Agreements ” is defined in Section 8.11 .

 

“ Seller ” is defined in the preamble to this Agreement.

 

“ Seller Software ” is defined in Section 3.12(a) .

 

“ Severance Provision ” is defined in Section 8.5 .

 

“ Short Form License ” means the license agreement, dated as of the Closing Date, between Buyer and Seller, granting to Buyer from Seller an irrevocable, non-exclusive, royalty-free, worldwide, license for the term of the copyright to certain website platform technology solely for use on Dilbert.com.

 

“ Stationery ” is defined in Section 8.9 .

 

“ Straddle Tax Period ” is defined in Section 8.6(a) .

 

“ Sublease ” shall mean the sublease of space at 200 Madison Avenue, New York, New York from Buyer to Seller incorporating the terms set forth on Exhibit B , in form and substance satisfactory to the parties hereto.

 

“ Syndicate Services Agreement ” means the agreement between Buyer and Seller, dated the Closing Date, covering services to be provided by Seller to Buyer with respect to newspaper syndication of certain Intellectual Property of Buyer after Closing on terms satisfactory to the parties hereto.

 

“ Tarsin Agreement ” means the agreement, dated October 4, 2007, between Seller and Tarsin (Europe) Limited, as amended.

 

“ Tax ” means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, franchise, profits, license, withholding on amounts paid to or by a Person, payroll, employment, excise, severance, stamp occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Body responsible for the imposition of any such tax (domestic or foreign), (b) any liability for the payment of any amounts of the type described in clause (a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period prior to the Closing, and (c) any liability for the payment of any amounts of the type described in clause (a) as a result of any express or implied obligation to indemnify any Person.

 

 “ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax, including any amendment thereto.

 

“ Tax Ruling ” is defined in Section 4.1(g) .

 

“ Tax Closing Agreement ” is defined in Section 4.1(g) .

 

“ Tax Dispute Accountants ” is defined in Section 8.6(k) .

 

“ Termination Date ” is defined in Section 11.1(c) .

 

“ The 1950 Agreement ” means that certain agreement dated June 14, 1950, between Seller and Charles M. Schulz, as amended.

 

“ The 1959 Agreement ” means that certain agreement dated October 1, 1959, between Seller and Charles M. Schulz, as amended.

 

“ The 1979 Agreement ” means that certain agreement dated September 1, 1979, among Seller, Charles M. Schulz, and the trustees of the Schulz Family Renewal Copyright Trust, as amended.

 

“ Threatened ” is defined as follows:  a claim, Proceeding, dispute, action, or other matter will be deemed to have been “Threatened” if any demand or statement has been made either orally or in writing or any notice has been given in writing, or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is reasonably likely to be asserted, commenced, taken, or otherwise pursued in the future.

 

“ Trademarks ” means throughout the world, all trademarks, service marks, logos, doing business designations, trade names, Internet domain name registrations, together with goodwill, registrations and applications relating to the foregoing, common law trademarks and service marks and trade dress.

 

“ Transaction Documents ” means this Agreement, the Contribution Agreement, the Non-Disclosure Agreement, the Transition Services Agreements, the Replacement Credit Support Arrangements, the Syndicate Services Agreement, the Short Form License and the Sublease.

 

“ Transferred Peanuts Copyrights ” means Seller’s right, title and interest in the Copyrights embodied in the Owned Peanuts Assets.

 

“ Transferred Peanuts IP ” means the Transferred Peanuts Trademarks and the Transferred Peanuts Copyrights.

 

“ Transferred Peanuts Trademarks ” means those Trademarks and domain names set forth on Schedule 1.1(d ) and any unregistered Peanuts Feature-related Trademarks owned and currently used by Seller, UMKK or UMNet in connection with the Owned Peanuts Assets.

 

“ Transition Services Agreements ” means the agreement or agreements for transition services incorporating the terms set forth on Exhibit C , in form and substance satisfactory to the parties hereto.

 

“ UMKK ” is defined in Section 2.1(a) .

 

“ UMKK Shares ” is defined in Section 3.3 .

 

“ UMNet ” is defined in Section 2.1(a) .

 

“ UMNet Shares ” is defined in Section 3.3 .

 

“ United Media Names ” is defined in Section 8.9 .

 

“ Unpaid Taxes Shortfall ” is defined in Section 8.6(c) .

 

“ Working Capital Amount ” means Current Assets minus Current Liabilities.  The Working Capital Amount can be represented by a positive or a negative number.

 

“ Working Capital Deficiency ” shall mean the amount, if any, by which the Working Capital Amount, as set forth on the Closing Date Statement, as modified as a result of the resolution of any disputed items determined pursuant to Section 2.4(c) , is less than the Estimated Working Capital.

 

“ Working Capital Excess ” shall mean the amount, if any, by which the Working Capital Amount, as set forth on the Closing Date Statement, as modified as a result of the resolution of any disputed items determined pursuant to Section 2.4(c) , is greater than the Estimated Working Capital.

 

Section 1.2             Usage .

 

(a)            Interpretation .  In this Agreement, unless a clear contrary intention appears:

 

(i)           the singular number includes the plural number and vice versa;

 

(ii)          reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individuality;

 

(iii)         reference to any gender includes each other gender;

 

(iv)         reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

 

(v)          reference to any Legal Requirement means such Legal Requirement as amended, modified, codified, replaced, reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Legal Requirement means that provision of such Legal Requirement from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;

 

(vi)         “hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision hereof;

 

(vii)        “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term;

 

(viii)       “or” is used in the inclusive sense of “and/or”;

 

(ix)          with respect to the determination of any period of time, “from” means “from and including” and “to” means “to but excluding”; and

 

(x)           references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto.

 

(b)            Legal Representation of the Parties .  This Agreement was negotiated by the parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any party shall not apply to any construction or interpretation hereof.

 

ARTICLE II

CONTRIBUTION AND ASSUMPTION; SALE OF INTERESTS; CLOSING

 

Section 2.1             Contribution and Assumption .

 

(a)           On or prior to the Closing Date and pursuant to the terms of the Contribution and Assumption Agreement to be entered into by the Company and Seller in the form attached hereto as Exhibit A (the “ Contribution Agreement ”), Seller shall contribute and transfer to the Company (together with the transactions described in Section 2.1(b) below, the “ Contribution ”) all of Seller’s right, title and interest in, to, and under any and all assets used exclusively in Seller’s licensing business as currently operated by Seller and any and all assets comprising the Peanuts Assets (the “ Business ”), whether tangible or intangible and whether fixed, contingent or otherwise, including, without limitation, the assets listed on Schedule 2.1(a)(i) , the specific assets of Seller’s syndication and web business (which as a general matter are not part of the Business) listed on Schedule 2.1(a)(ii ), and all of the outstanding shares of capital stock of Seller’s wholly-owned subsidiary United Media Kabushiki Kaisha, a corporation formed under the laws of Japan (“ UMKK ”) which owns all of the outstanding shares of capital stock of UMNet Y.K., a corporation formed under the laws of Japan (“ UMNet ”) (collectively, the “ Business Assets ”); provided , that the Business Assets shall not include the assets listed on Schedule 2.1(a)(iii) (the “ Excluded Assets ”).

 

(b)           In consideration of the transactions described in (a) above, concurrently therewith and pursuant to the Contribution Agreement, the Company shall assume any and all obligations of Seller, UMKK and UMNet, arising on and after the Closing Date, under all Contracts listed on Schedule 1.02(a) of the Contribution Agreement, including, without limitation, the Contracts used exclusively in the Business (excluding the Contracts set forth as Excluded Assets on Schedule 2.1(a)(iii) , but including all Contracts entered into by Seller,  UMKK or UMNet  after the date hereof but prior to the Closing Date in the ordinary course of the Business) (all Contracts to be so assumed, the “ Business Contracts ”) and only those other obligations, liabilities and claims set forth on Schedule 1.02(a) of the Contribution Agreement.

 

Section 2.2             Interests .  Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell and transfer the Interests to Buyer, and Buyer shall purchase, the Interests from Seller, free and clear of all Encumbrances.

 

Section 2.3            Purchase Price .  The consideration for the Interests will be (a) One Hundred Seventy-Five Million Dollars $175,000,000 (“ Base Purchase Price ”) and (b) plus or minus any Estimated Working Capital as defined in and determined in accordance with Section 2.4(a) ; and (c) plus any Working Capital Excess or minus any Working Capital Deficiency, as the case may be, in each case as defined in and determined in accordance with Section 2.4(d ) and Section 2.4(e) (such amounts referred to in (a), (b) and (c) shall be collectively referred to herein as the “ Purchase Price ”). Seller shall cause the Company, UMKK and UMNet to have no Indebtedness as of the Closing.

 

Section 2.4             Company Working Capital Adjustment .

 

(a)           Seller shall prepare and deliver to Buyer at least five (5) Business Days prior to the Closing Date, a written notice setting forth Seller’s good faith estimate of the Working Capital Amount as of the Closing Date (the “ Estimated Working Capital ”), giving effect to the Contribution.

 

(b)           Buyer shall prepare and deliver to Seller within one hundred eighty (180) calendar days after the Closing Date the final statement of the Working Capital Amount as of the Closing Date (the “ Closing Date Statement ”).

 

(c)           If Seller does not notify Buyer in writing within thirty (30) Business Days after Seller’s receipt of Buyer’s Closing Date Statement that it disputes any of the information or calculations provided to Seller in the Closing Date Statement, Buyer’s Closing Date Statement shall be final and conclusive.  If Seller disagrees with any of the information or calculations provided by Buyer in the Closing Date Statement, Seller may, within thirty (30) Business Days after delivery of such statement to it, deliver a written notice to Buyer stating the existence and nature of such disagreement.  Any such notice of disagreement shall specify those items or amounts as to which Seller disagrees.  If such notice of disagreement is delivered, the parties shall use their reasonable best efforts to reach agreement on the disputed items or amounts within ten (10) Business Days after Buyer’s receipt of such notice.  If the parties are unable to reach agreement on the disputed items within such period, then the issues in dispute will be submitted to Ernst & Young, LLP, independent certified public accountants (the “ Accountants ”), for review and resolution, with instructions to complete the review as promptly as practicable.  Each party will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party or its subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants.  The resolution of the Accountants shall be conclusive and binding on the parties.  Seller and Buyer shall each pay one-half of the fees and expenses charged by the Accountants.

 

(d)           If there is a Working Capital Deficiency (as determined under Section 2.4(c)) , Seller shall pay to Buyer the amount of such Working Capital Deficiency within five (5) Business Days after the final determination of the Current Assets and Current Liabilities made in accordance with Section 2.4(c) by wire transfer of immediately available funds to an account designated by Buyer.

 

(e)           If there is a Working Capital Excess (as determined under Section 2.4(c) ), Buyer shall pay to Seller the amount of such Working Capital Excess within five (5) Business Days after the final determination of the Current Assets and Current Liabilities made in accordance with Section 2.4(c ) by wire transfer of immediately available funds to an account designated by Seller.

Section 2.5             Closing .  The purchase and sale provided for in this Agreement (the “ Closing ”) will take place at the offices of Baker & Hostetler LLP, 45 Rockefeller Plaza, New York, NY 10111 at 10:00 a.m. (local time) within two (2) Business Days after the satisfaction of the conditions set forth in Article IX and Article X (but in any event not earlier than May 10, 2010) or at such other time and place as the parties may agree.  Subject to the provisions of Article XI , failure to consummate the Closing on the date and time determined pursuant to this Section will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.  For purposes of this Agreement, all calculations to be made as of the Closing Date shall be made as of 11:59 p.m. on the day before the Closing Date.  At the Closing, Buyer shall pay to Seller, by wire transfer in immediately available funds to an account specified by Seller, against receipt of the Interests, the Base Purchase Price plus or minus any Estimated Working Capital.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES AS TO SELLER

AND CERTAIN OF ITS SUBSIDIARIES

 

Seller represents and warrants to Buyer, as of the date hereof and as of the Closing Date, as follows:

 

Section 3.1             Organization and Good Standing .

 

(a)           Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York and each of UMKK and UMNet is a corporation duly organized, validly existing, and in good standing under the laws of Japan.  Each of Seller, UMKK and UMNet has all requisite corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under this Agreement and the other Transaction Documents to which it is a party.  Each of Seller, UMKK and UMNet is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect on Seller or the Business.

 

(b)           The Company is a limited liability company formed, validly existing, and in good standing under the laws of the State of Delaware, with full limited liability power and authority to own the assets that it purports to own and to perform all its obligations under this Agreement and the other Transaction Documents to which it is a party.  The Company has not conducted any business following its formation.

 

(c)           Seller has delivered to Buyer copies of the Organizational Documents, as currently in effect, for Seller, UMKK, UMNet and the Company.

 

(d)           UMNet is a wholly-owned subsidiary of UMKK. UMNet holds the registration of the Internet domain names “snoopy.co.jp” and “snoopy.jp” and was formed for the sole purpose of holding the “snoopy.co.jp” registration.

 

 

Section 3.2             Enforceability; Authority; No Conflict .

 

(a)           This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to creditors’ rights generally and by equitable principles.  Upon the execution and delivery by Seller and the Company of each other Transaction Document to which either of them is a party, such Transaction Documents will constitute the legal, valid, and binding obligations of Seller and the Company, as applicable, enforceable against Seller or the Company in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to creditors’ rights generally and by equitable principles.  Each of Seller and the Company has the necessary power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations thereunder.

 

(b)           Except as set forth in Schedule 3.2 , neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

 

(i)           contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of Seller, UMKK, UMNet or the Company, or (B) any resolution adopted by the board of directors or the shareholders of Seller, UMKK, UMNet or the members or managers of the Company;

 

(ii)          contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions, exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company, Seller, UMKK, UMNet, any of the Business Assets, UMKK Shares, UMNet Shares or the Interests may be subject, except as could not reasonably be expected to result in a Material Adverse Effect on Seller or the Company or the Business;

 

(iii)         contravene, conflict with, or result in a violation of any of the terms of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental  Authorization that relates to the Business or any of the Business Assets, except for as could not reasonably be expected to result in a Material Adverse Effect on Seller or the Company or the Business;

 

(iv)         cause the Company, UMKK or UMNet to become subject to, or to become liable for the payment of, any Tax;

 

(v)          cause any of the Business Assets to be reassessed or revalued by any taxing authority or other Governmental Body;

 

(vi)         contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Business Contract or any other Contract to which Seller, the Company, UMKK or UMNet is bound and to which the Business Assets or Interests, UMKK Shares or UMNet Shares are subject, except as could not reasonably be expected to result in material direct or indirect costs or liabilities to the Business; or

 

(vii)        result in the imposition or creation of any Encumbrance upon or with respect to any of the Business Assets, the Interests, UMKK Shares or UMNet Shares.

 

(c)           Except as set forth in Schedule 3.2 hereof, and except such instances in which the failure to give such notice or obtain such Consent could not, individually or in the aggregate, reasonably be expected to result in material direct or indirect costs or liabilities to the Seller or the Company or the Business, neither Seller, any Affiliate of Seller nor the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

 

Section 3.3             Capitalization .  The Interests constitute all of the outstanding equity interests of the Company.  Seller is the record and beneficial owner and holder of all of the Interests.  The authorized capital shares of UMKK consist solely of thirty-two (32) shares of common stock (“ UMKK Shares ”).  The UMKK Shares constitute all of the outstanding shares of common stock of UMKK.  The Company is the record and beneficial owner and holder of all of the UMKK Shares.  The authorized capital shares of UMNet consist solely of sixty (60) shares of common stock (“ UMNet Shares ”).  The UMNet Shares constitute all of the outstanding shares of common stock of UMNet.  UMKK is the record and beneficial owner and holder of all of the UMNet Shares.  The Interests, UMKK Shares and UMNet Shares are free and clear of all Encumbrances or any right of first refusal.  All of the Interests are duly authorized and validly issued, and were issued in conformity with all applicable state and federal securities laws.  All of the UMKK and UMNet Shares are duly authorized, validly issued, fully paid and nonassessable, and were issued in conformity with all applicable Japanese laws.  Except with respect to the Interests, UMKK Shares and UMNet Shares, neither the Company, UMKK nor UMNet has any other equity securities of any class issued, reserved for issuance, or outstanding.  There are no outstanding options, offers, warrants, conversion rights, agreements, or other rights to subscribe for or to purchase securities of the Company, UMKK or UMNet.  No shares or membership interests, as applicable, of the Company, UMKK or UMNet carry, and no shareholder, or member, as applicable of the Company, UMKK or UMNet has been granted, any preemptive rights.  Neither the Company, UMKK nor UMNet is obligated under any agreement, arrangement or understanding to redeem or otherwise purchase any equity or other securities of the Company, UMKK or UMNet. Other than as contemplated by this Agreement, there are no Contracts to which Seller, the Company, UMKK or UMNet or any of their Affiliates is bound relating to the issuance, sale, or transfer of the Interests, UMKK Shares, UMNet Shares or any equity or other securities of the Company, UMKK or UMNet.  Except with respect to the Company’s ownership of the UMKK Shares and UMKK’s ownership of the UMNet Shares, neither the Company, UMKK nor UMNet owns or is a party to any Contract to acquire any equity or other securities of any Person or any direct or indirect equity or ownership interest in any business.

 

 

Section 3.4             Financial Statements .

(a)           Attached hereto as Exhibit D are the unaudited proforma consolidated balance sheet of the Business as of December 31, 2008, and December 31, 2009, and the related unaudited proforma consolidated statements of earnings, for the two (2) years ended December 31, 2009, and the unaudited proforma consolidated balance sheet as of March 31, 2010, and the related unaudited proforma consolidated statements of earnings for the three (3) months ended March 31, 2010.  All such financial statements are hereafter collectively referred to as the “ Financial Statements .”

 

(b)           The Financial Statements have been prepared from books and records maintained by the Seller in accordance with generally accepted accounting principles as in effect in the United States of America, consistently applied (“ GAAP ”).  The Financial Statements fairly present, in all material respects, the consolidated financial condition of the Business for the periods and as of the dates indicated and the results of operations for the periods then ended. In the opinion of management of Seller, all adjustments, including normally occurring accruals, considered necessary for a fair presentation have been included in the Financial Statements. The Financial Statements do not contain any material misstatements or omissions regarding the Business, its assets or its condition (financial or otherwise).

 

Section 3.5            Title to Business Assets .  Seller is transferring to Buyer good and marketable title to all property included in the Business Assets, free and clear of all Encumbrances, except as set forth in Schedule 3.5 and except for Encumbrances that do not interfere with the use or detract from the value of such property and that, taken in the aggregate, could not reasonably be expected to result in material direct or indirect costs or liabilities to the  Business.  None of the Company, UMKK, or UMNet has ever owned any real property.

 

Section 3.6             Legal Proceedings; Orders .

 

(a)           Except as set forth in Schedule 3.6 , and except with respect to any Proceedings related to intellectual property rights (addressed in Section 3.11 below), there is no Proceeding pending, or to the Knowledge of Seller, Threatened:

 

(i)           that has been commenced by or against the Company, Seller, UMKK or UMNet or that otherwise relates to or may affect the Business, or any of the Business Assets; or

 

(ii)          against the Company, Seller, UMKK or UMNet that challenges, or would reasonably be expected to prevent, materially delay, make illegal, or otherwise materially interfere with, any of the Contemplated Transactions.

 

(b)           Except as set forth in Schedule 3.6 , and except with respect to any Proceedings related to intellectual property rights (addressed in Section 3.11 below), there is no Proceeding pending or to the Knowledge of Seller, Threatened, or any contingent liability that would give rise to any right to indemnification on the part of any officer, director, member, manager, employee or agent of the Seller or the Company or any of their respective successors or assigns.

 

(c)           There is no Order to which the Company, UMKK or UMNet is subject.  Except with respect to any Proceedings related to intellectual property rights (addressed in Section 3.11 below), Seller is not subject to any Order that relates to the Business or any of the Business Assets.  No Business Employee is subject to any Order that prohibits such Person from engaging in or continuing any conduct, activity, or practice relating to the Business.

 

(d)           True and correct copies of all complaints, pleadings, petitions, notices, motions and other papers filed in connection with any Proceeding or Order set forth in Schedule 3.6 have been delivered to Buyer.

 

Section 3.7             Absence of Certain Changes and Events .  Except as set forth in Schedule 3.7 or as contemplated by this Agreement, since December 31, 2009, each of Seller, UMKK and UMNet has conducted the Business only in the ordinary course and there has not been any:

 

(a)           obligations or liabilities (whether absolute, accrued or contingent and whether due or to become due) incurred by Seller, UMKK or UMNet except as incurred in the ordinary course of business consistent with past practice;

 

(b)           damage to or destruction or loss of any asset or property owned or used by Seller, UMKK or UMNet, whether or not covered by insurance other than in the ordinary course of business;

 

(c)           (i) termination prior to the expiration of its term of, or receipt of notice of termination prior to the expiration of its term of, any license, representation, joint venture, credit, affiliation, agent, talent or similar agreement where such termination could reasonably be expected to result in material direct or indirect costs or liabilities to the Business, or (ii) entry into, amendment or modification of or settlement or waiver of any rights under any such agreement, other than in the ordinary course of business consistent with past practice;

 

(d)           sale, assignment or transfer of any Peanuts Assets or assets that would have comprised Transferred Peanuts IP but for such sale, assignment or transfer, or other intangible asset;

 

(e)           sale, lease, or other disposition of any tangible property owned or used by Seller in operating the Business or any mortgage or pledge of, or imposition of any Encumbrance on, any Business Asset, except for any such sale, lease, other disposition, mortgage, pledge or imposition as has not had or could not, individually or in the aggregate, reasonably be expected to result in material direct or indirect costs or liabilities to the Business;

 

(f)           cancellation, settlement or waiver of any claims or rights with a value to the Business in excess of $50,000;

 

(g)           material change in the accounting methods used by Seller in operating the Business  or any material Tax election;

 

(h)           payment or increase by Seller or UMKK of any salary or other compensation to any Business Employee (except in the ordinary course of business consistent with past practice) or entry into, or modification or amendment of, any employment, severance, or similar Contract with any Business Employee;

 

(i)           adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any Business Employee of it;

 

(j)           (i) acceleration of the collection of receivables or other amounts due from third parties or (ii) delay of payment of any payables or other amounts owed to third parties;

 

(k)          agreement by Seller to do any of the foregoing.

 

Section 3.8             Contracts .

 

(a)            Schedule 3.8(a ) contains a complete and accurate list as of the date hereof, and Seller has delivered to Buyer true and complete copies, of each of the following Business Contracts in effect on the date hereof, to which Seller or UMKK is a party:

 

(i)           each Intellectual Property license agreement under which either Seller or UMKK has received cash in excess of $100,000 in the one-year period ended December 31, 2008 or the one-year period ended December 31, 2009;

 

(ii)          each international agent agreement under which Seller has granted a third-party the right to solicit Intellectual Property license agreements or syndication agreements for the Business or any other agent agreement pursuant to which Seller or UMKK is obligated to pay such agent more than $100,000 in the aggregate after the date hereof;

 

(iii)         each representation or talent agreement under which Seller acts as licensing agent;

 

(iv)         each material Intellectual Property license agreement, including, without limitation, any software license agreements, under which Seller is a licensee (other than “off-the-shelf” or other non customized software or subscriptions generally commercially available for a license fee of no more than $100,000 per year);

 

(v)          each Contract providing for the sale, lease or other disposition of tangible assets of the Business at any time after the date hereof with a value in excess of $100,000;

 

(vi)         each Contract relating to the Business that requires the expenditure of more than $150,000 by Seller or UMKK in the aggregate after the date hereof;

 

(vii)        each written guaranty or other similar undertaking with respect to contractual performance granted by Seller or UMKK or otherwise binding on the Business;

 

(viii)       each Contract granting a third-party an exclusive license to rights in the Transferred Peanuts IP other than immaterial licenses and licenses granted in connection with the publication of books;

 

(ix)          each Contract for consulting services related to Seller Software;

 

(x)           each Contract for software support and maintenance agreements for Seller Software and, to the extent included in the Business Assets, software licensed by Seller or UMKK from third parties; and

 

(xi)          each amendment, supplement, and modification in respect of any of the foregoing.

 

(b)           Except as set forth in Schedule 3.8(b) , and those Business Contracts that will, after the date hereof but prior to Closing, expire in accordance with their terms, each Business Contract listed in Schedule 3.8(a) is in full force and effect and is valid and enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to creditors’ rights generally or by equitable principles or by any other laws of general application.

 

(c)           Except as set forth in Schedule 3.8(c) :

 

(i)           To the Knowledge of Seller, Seller and UMKK are in compliance, in all material respects, with the terms and requirements of each Business Contract set forth on Schedule 3.8(a) and each Material Contract;

 

(ii)          to the Knowledge of Seller, no event has occurred or circumstance exists that (with or without notice or lapse of time) does or could reasonably be expected to contravene, conflict with, or result in a violation or breach of, or gives or would give any other Person the right to declare a default under, or to accelerate the maturity or performance of, any Business Contract set forth on Schedule 3.8(a) and any Material Contract;

 

(iii)         neither Seller nor UMKK has received from any Person, at any time since January 1, 2009, any written notice or other communication regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Business Contract set forth on Schedule 3.8(a) and any Material Contract that would be reasonably expected to result in material direct or indirect costs or liabilities to the Seller or the Company;

 

(iv)         to the Knowledge of Seller, no party to any Business Contract set forth on Schedule 3.8(a) and any Material Contract, in each case, in effect on the date hereof, has given to Seller or UMKK, and neither Seller nor UMKK has given written notice of its intention to cancel, terminate or fail to renew any such Business Contract or Material Contract;

 

(v)          there are no renegotiations of, or attempts to renegotiate or outstanding rights to renegotiate any material amounts paid or payable to Seller or UMKK under any current or completed Business Contract set forth on Schedule 3.8(a) and any Material Contract, in each case, in effect on the date hereof, with any Person having the contractual or statutory right to demand or require such renegotiation and no such Person has made written demand for such renegotiation; and

 

(vi)         UMNet is not a party to, nor has it ever been a party to, any Business Contract, other than the domain name registration agreements for “snoopy.co.jp” and “snoopy.jp.”

 

(d)           Neither Seller nor UMKK has entered into any Business Contract set forth on Schedule 3.8(a) and any Material Contract with respect to which the performance thereunder by either of them, acting alone or in connection with any other Person, or the payment or promise of any consideration thereunder, would violate any Legal Requirement.

 

Section 3.9             Compliance with Laws .  Seller, UMKK and UMNet hold all Governmental Authorizations necessary for the lawful conduct of the Business and each such Governmental Authorization is valid and in full force and effect.  None of Seller, UMKK or UMNet is in violation of any Governmental Authorizations or Legal Requirements and each of Seller, UMKK and UMNet is being and, since January 1, 2007 has been, conducted in compliance in all material respects with all applicable Legal Requirements.

 

Section 3.10           Employees .

 

(a)           Neither the Company nor UMNet has any employees.

 

(b)            Schedule 3.10 contains:

 

(i)           a complete and accurate list, as of the date of this Agreement, of the following information for each employee of UMKK, Seller and Parent whose services are allocated to the Business, including each such employee on leave of absence or layoff status as indicated thereon (individually, a “ Business Employee ”): name; employment location; job title; current base salary and any 2010 target bonus; and hire date;

 

(ii)          all written employment or severance agreements or bonus letters with any Business Employee; and

 

(iii)         All union contracts, collective bargaining agreements, or other similar labor agreements related to Business Employees.

 

(c)           Except as set forth in Schedule 3.10 , no Business Employee is covered by any union contract, collective bargaining agreement or other similar labor agreement.

 

(d)           There is not presently pending or existing, and to the Knowledge of the Seller there is not threatened, with respect to any Business Employee, (i) any strike, slowdown, picketing, boycott or work stoppage; (ii) any organizing effort, question concerning representation, or application for certification of a collective bargaining agent; or (iii) any unfair labor practice.

 

(e)           No Proceeding in respect to any Business Employee is pending or, to the Knowledge of the Seller, threatened by or on behalf of any past, present, or prospective Business Employee with respect to discrimination, harassment, wrongful termination, workers’ compensation, or any other Legal Requirement related to employment.  To the Knowledge of Seller, there is no violation of any Contract with any Business Employee.  Seller is in compliance in all material respects with all Legal Requirements related to Business Employees.

 

(f)           Seller is in compliance with its obligations pursuant to the Worker Adjustment and Retraining Notification Act of 1988, as amended (the “WARN Act”), and any similar state or local law, in respect to the Business.  Seller has not had any layoffs of Business Employees within 90 days prior to the Closing Date.

 

(g)           All current Business Employees are, and all former Business Employees whose employment terminated, voluntarily or involuntarily, within the three years prior to the Closing Date, were legally authorized to work in the United States.  Seller has completed and retained the necessary employment verification paperwork under the Immigration Reform and Control Act of 1986 (the “ IRCA ”) for the Business Employees hired prior to the date of this Agreement, and Seller has complied with anti-discrimination provisions of the IRCA.  Further, at all times prior to the date of this Agreement, Seller was in compliance with both the employment verification provisions and anti-discrimination provisions of IRCA related to Business Employees.

 

(h)            Schedule 3.10 identifies any layoffs or “employment loss”, as defined by the WARN Act, of any Business Employees in the ninety (90) day period prior to the Closing Date.

 

(i)           Except as set forth on Schedule 8.5 , the consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any material benefit under any benefit plan of the Seller, nor will it trigger the payment of severance or termination pay under any policy, plan, procedure, practice or agreement to any Seller employee, in each case in respect of any Hired Employee, that is payable by Buyer.

 

Section 3.11           Peanuts Feature Intellectual Property .

 

(a)            Schedule 3.11(a ) sets forth an accurate and complete list of all registered Trademarks held by Seller, and all pending applications that have been filed by Seller for the registration of Trademarks, in each case that are included within the Transferred Peanuts Trademarks.  With respect to such registered Trademarks (i) all registration, maintenance and renewal fees required by applicable Legal Requirement have been paid, (ii) all documents and certificates required by law to be filed have been filed with the relevant trademark authorities for the purpose of maintaining such registered Trademarks, and (iii) are in full force and effect.  All registration agreements with respect to Internet domain names that are included within the Transferred Peanuts Trademarks are in full force and effect.

 

(b)            Schedule 3.11(b ) lists the registration numbers of all U.S. copyright registrations obtained by Seller for the Peanuts Assets, including numbers of U.S. copyright registrations obtained by Seller for any animated television program or documentary included in the Peanuts Assets.

 

(c)           Except as set forth in Schedule 3.11(c ), and subject to the provisions of applicable Legal Requirements and the terms of The 1950 Agreement, The 1959 Agreement and The 1979 Agreement, Seller (i) owns and possesses all right title and interest in and to the Copyrights embodied in the Peanuts Assets or (ii) possesses the right to use, pursuant to a license, sublicense or other legal rights under the Copyrights embodied in the Peanuts Assets to use the Peanuts Assets as they are currently used by Seller in the Business.

 

(d)          Except as set forth in Schedule 3.11(d ), since January 1, 2007, no written claims have been received by Seller from any other Person to the effect that Seller’s use of the Peanuts Assets infringes any Intellectual Property of such other Person, except for infringements which, if proved, could not, individually or in the aggregate, reasonably be expected to result in material direct or indirect costs or liabilities to the Business.

 

(e)           Seller has taken commercially reasonable measures consistent with industry practice to enforce Seller’s Intellectual Property in the Owned Peanut Assets.

 

(f)           Except as set forth in Schedule 3.11(f ), no Orders to which Seller is a party limit or restrict Seller’s use of the Peanuts Assets in the Business, except for Orders which, individually or in the aggregate, could not reasonably be expected to result in material direct or indirect costs or liabilities to the Business.

 

(g)           Except as set forth in Schedule 3.11(g ), the consummation of the Contemplated Transactions will not (i) result in the loss or impairment of any rights to use the Transferred Peanuts IP that Seller had in such Transferred Peanuts IP immediately prior to the Closing Date or (ii) obligate the Buyer to pay any royalties or other amounts to any other Person in excess of the amounts that would have been payable by Seller for the same use absent the consummation of the Contemplated Transactions, except where such loss or impairment (in the case of clause (i)) or obligation to pay any royalties or other amounts (in the case of clause (ii)), could not, individually or in the aggregate, reasonably be expected to result in material direct or indirect costs or liabilities to the Business.

 

(h)           The Owned Peanuts Assets are free and clear of all Encumbrances, except (i) as provided under applicable Legal Requirements, The 1950 Agreement, The 1959 Agreement or The 1979 Agreement, (ii) as set forth on Schedule 3.11(h ) or (iii) Encumbrances that do not interfere with the use or detract from the value of such Owned Peanuts Assets.

 

Section 3.12           Seller Software .

 

(a)            Schedule 3.12(a) sets forth a complete and accurate list of all material software owned by the Seller, UMKK or UMNet and used by Seller, UMKK or UMNet exclusively in the Business (“ Seller Software ”).  Subject to provisions of applicable Legal Requirements and except as set forth on Schedule 3.12(a) , Seller, UMKK or UMNet is the sole and exclusive owner of all right and title and interest in and to the Seller Software, free and clear of Encumbrances.

 

(b)          No written claims have been received by Seller, UMKK or UMNet from any other Person to the effect that the use by Seller, UMKK or UMNet of Seller Software infringes any Intellectual Property of such other Person.

 

(c)           Except as set forth on Schedule 3.12(c) , to the Knowledge of Seller, no other Person is infringing upon the Intellectual Property of Seller, UMKK or UMNet in the Seller Software.

 

(d)          Seller, UMKK or UMNet has not licensed or provided to any other Person any source code for any Seller Software (other than with respect to any access or use for the benefit of Seller, UMKK or UMNet).  None of Seller, UMKK or UMNet is currently a party to any Contract (or a party to any Contract obligating Seller, UMKK or UMNet to enter into a Contract) requiring the deposit into escrow of source code of any Seller Software.

 

(e)           Except as set forth on Schedule 3.12(e) , to the Knowledge of Seller, no third party software is incorporated in, or linked to, any Seller Software that is subject to terms and conditions that require the disclosure to any other Person of any source code of the Seller Software, based on the use of such Seller Software in the Business prior to the Closing Date.

 

Section 3.13           Certain Payments .  Since December 31, 2008, none of the Company, UMKK, UMNet, Seller or any member, manager or officer of the Company, UMKK, UMNet, Seller, or, to the Knowledge of Seller, any agent, employee or other Person associated with or acting for or on behalf of the Company, UMKK, UMNet or Seller, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business for the Business, (ii) to pay for favorable treatment for business secured for the Business, or (iii) in violation of any Legal Requirement applicable to the Business, or (b) established or maintained any fund or asset that has not been recorded in the books and records of Seller, UMKK or UMNet relating to the Business.

 

Section 3.14           Accounts Receivable .  The accounts receivable that are reflected in the Financial Statements (collectively, the “ Business Accounts Receivable ”) include all accounts receivable for UMKK and UMNet and represent estimates in U.S. dollars of earned royalty payments or fixed-amount advance and guaranteed royalty payments to be made to Seller, UMKK or UMNet by licensees of the Business in the ordinary course consistent with past practice.   Schedule 3.14 contains a list, complete and accurate in all material respects, of the Business Accounts Receivable as of March 31, 2010 derived from the books and records of Seller, UMKK and UMNet, consistent with past practice.  Consistent with past practice, Seller does not accrue Business Accounts Receivable for any Business Contract with advance or minimum guarantee payments of less than $250,000 or for which Seller anticipates earned royalties of less than $250,000, in each case over the term of the Business Contract.  As of March 31, 2010, the reserves for bad debt shown on the Financial Statements are adequate and calculated consistently with past practice.  All Business Accounts Receivable have arisen in the ordinary course of business consistent with past practice and are estimates of valid obligations due to Seller, UMKK or UMNet arising out of bona fide contracts or other arrangements between Seller, UMKK or UMNet, on the one hand, and their respective licensees, on the other hand.

 

Section 3.15           Brokers or Finders .  None of Seller, UMKK, UMNet or any of their  respective Representatives has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payments in connection with the Contemplated Transactions.

Section 3.16           Condition and Sufficiency of Facilities .  The facilities currently occupied, used or operated by Seller, UMKK and UMNet, and to be occupied by the Company commencing on the Closing Date, in connection with the operation of the Business in New York, New York and Tokyo, Japan are, in all material respects, in good operating condition and repair, and adequate in all material respects for the uses to which they are being put, and none of such facilities is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs that are not material in nature or cost.  Except as set forth on Schedule 3.16 , the facilities currently occupied, used or operated by Seller, UMKK and UMNet, and to be occupied by the Company commencing on the Closing Date, in connection with the operation of the Business in New York, New York and Tokyo, Japan are sufficient in all material respects for the continued conduct of their business after the Closing in substantially the same manner as conducted prior to the Closing.

 

Section 3.17           No Undisclosed Liabilities .  Except (a) as set forth in Schedule 3.17 , (b) as may be disclosed on the other Schedules attached hereto, or (c) for liabilities not material in amount or reflected or reserved against in the Financial Statements and current liabilities incurred in the ordinary course since December 31, 2009, none of the Business Assets, UMKK, UMNet or the Company is subject to any liabilities of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise).

 

Section 3.18          Transactions with Affiliates .  Except as described on Schedule 3.18 , (a) there are no services currently being provided to the Business by Seller or any Affiliate of the Seller that are material to the Business and (b) since January 1, 2008 there have been no transactions between the Seller relating to the Business, on the one hand, or any Affiliate of Seller, on the other hand, that are material to the Business.

 

Section 3.19          Sufficiency of Assets .  Except for the Excluded Assets and those assets and services constituting assets covered by the transactions set forth on Schedule 3.18 , the assets being contributed to the Company pursuant to the Contribution Agreement comprise all of the assets, properties and rights of every type and description, real, personal, mixed, tangible and intangible that are used in the conduct of the Business as it is currently conducted.

 

Section 3.20          Customers, Suppliers and Licensees .  Except as set forth in Schedule 3.20 , no single customer, supplier or licensee provides more than five percent (5%) of revenue of the Business.  The relationships of Seller and UMKK with their respective suppliers, customers and licensees are good commercial working relationships and no supplier, customer or licensee of Seller or UMKK has cancelled or otherwise terminated, or threatened in writing to cancel or otherwise terminate, its relationship with Seller or UMKK or has during the last 12 months decreased materially, or threatened in writing to decrease or limit materially, its services, supplies or materials to Seller or UMKK or its usage of the services or products of Seller or UMKK, except, in each case, for any cancellation or termination that would not be reasonably expected to have a Material Adverse Effect.  To the Knowledge of Seller, Seller has received no written communication to the effect that American Broadcasting Companies, Inc. (“ ABC ”) does not intend to proceed with the agreement currently being negotiated between Seller and ABC on the terms and conditions substantially similar to those found on the draft provided by Seller to Buyer to date.

Section 3.21           Books of Account and Reports .  Except as expressly set forth on Schedule 3.14 , the books of account and other financial books and records of Seller from which the Financial Statements have been prepared are maintained in accordance with GAAP.  Seller has not made any changes in accounting principles or practices in preparing the Financial Statements and the Financial Statements are capable of being audited.  Each of Seller, UMKK and UMNet has filed all reports required by all Legal Requirements to be filed, and it has duly paid or accrued on its books of account all applicable duties and charges due or assessed against it pursuant to such reports.

 

Section 3.22           Seller Tax Representations .   The Seller and each of its subsidiaries other than the Company, UMKK and UMNet filed all material Tax Returns required to be filed. All such Tax Returns disclose all Taxes required to be paid for the periods covered thereby. All material Taxes due and owing by the Seller and each of its subsidiaries other than the Company, UMKK and UMNet (whether or not shown on any Tax Return) have been paid. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of Seller and each of its subsidiaries other than the Company, UMKK and UMNet.  The Seller and each of its subsidiaries other than the Company, UMKK and UMNet have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.  Since December 31, 2005, no Tax Returns of the Seller and each of its subsidiaries other than the Company, UMKK and UMNet have been audited or currently are the subject of audit.  There is no material dispute or claim concerning any Tax liability of the Seller and each of its subsidiaries other than the Company, UMKK and UMNet claimed or raised by any Governmental Body.

 

Section 3.23           No Material Adverse Effect .  Since December 31, 2009 to the date of this Agreement, there has been no change, circumstance, occurrence, event, development or effect that, individually or in the aggregate, is, has or would reasonably be expected to have a Material Adverse Effect on the Business.

 

ARTICLE IV

 

ADDITIONAL REPRESENTATIONS AND WARRANTIES AS

TO UMKK AND UMNET AND PARENT

 

Seller represents and warrants to Buyer as follows:

 

Section 4.1             Tax Representations .  Except as set forth in Schedule 4.1:

 

(a)           The Company, UMKK and UMNet have filed all material Tax Returns required to be filed. All such Tax Returns disclose all Taxes required to be paid for the periods covered thereby. All Taxes due and owing by the Company, UMKK and UMNet (whether or not shown on any Tax Return) have been paid. Neither the Company, UMKK nor UMNet is currently the beneficiary of any extension of time within which to file any Tax Return. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company, UMKK or UMNet.  The Company, UMKK and UMNet have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. No claim has been made by a Governmental Body in a jurisdiction where the Company, UMKK or UMNet does not file Tax Returns that the Company, UMKK or UMNet is or may be subject to taxation by that jurisdiction and to there is no basis for such a claim.

 

(b)           The unpaid Taxes of the Company, UMKK or UMNet (i) did not, as of the March 31, 2010, exceed the amount of Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Financial Statements (rather than in any notes thereto) and (ii) will not exceed that amount as adjusted for the passage of time and the consummation of the transactions contemplated hereunder through the Closing Date determined in accordance with the past custom and practice of each of the Company, UMKK or UMNet in filing their Tax Returns.

 

(c)           With respect to the Company, UMKK or UMNet for taxable periods ended on or after December 31, 2005, no Tax Returns have been audited or currently are the subject of audit.  There is no dispute or claim concerning any Tax liability of the Company, UMKK or UMNet claimed or raised by any Governmental Body and no such dispute is Threatened.  None of the Company, UMKK or UMNet has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency;

 

(d)           None of the Company, UMKK or UMNet is a party to any agreement, contract, arrangement, or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of IRC §280G (or any corresponding provision of state, local, or non-U. S. Tax law).  None of the Company, UMKK or UMNet has been a United States real property holding corporation within the meaning of IRC §897(c)(2) during the applicable period specified in IRC §897(c)(1)(A)(ii).  None of the Company, UMKK or UMNet (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than the Company is a member of an affiliated group filing a consolidated federal income Tax Return the common parent of which is The E. W. Scripps Company); (ii) has any liability for the Taxes of any Person (other than the Company, UMKK or UMNet) as a transferee or successor, by contract or otherwise; or (iii) is a party to any Tax sharing, Tax allocation or other agreement pursuant to which it has liability for Taxes of another Person;

 

(e)           None of the Company, UMKK or UMNet will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

 

(i)           change in method of accounting for a taxable period ending on or prior to the Closing Date;

 

(ii)          “closing agreement” as described in IRC §7121 (or any corresponding or similar provision of state, local, or non-U. S. income Tax law) executed on or prior to the Closing Date;

 

(iii)         intercompany transactions or any excess loss account described in Treasury Regulations under IRC §1502 (or any corresponding or similar provision of state, local, or non-U. S. income Tax law);

 

(iv)         installment sale or open transaction disposition made on or prior to the Closing Date; or

 

(v)          prepaid amount received on or prior to the Closing Date.

 

(f)           None of the Company, UMKK or UMNet has distributed stock of another corporation or has had its stock distributed by another corporation, in a transaction that was purported or intended to be governed in whole or in part by IRC §355 or IRC §361; and

 

(g)          The Seller has made available to the Buyer prior to the date hereof true, correct and complete copies of all material Tax Returns and examination reports and all statements of deficiencies relating to Taxes of the Company, UMKK and UMNet for taxable periods ending on or after December 31, 2005.  Neither the Company, UMKK or UMNet has received any Tax Ruling or entered into a Tax Closing Agreement with any Governmental Body that would have a continuing effect after the Closing Date.  For purposes of the preceding sentence, the term “Tax Ruling” shall mean written rulings of a Governmental Body relating to Taxes, and the term “Tax Closing Agreement” shall mean a written and legally binding agreement with a Governmental Body relating to Taxes.  No power of attorney currently in force has been granted by the Company, UMKK or UMNet concerning any Tax matter; and

 

(h)          None of the Company, UMKK or UMNet is or has been a party to any “listed transaction,” as defined in IRC §6707A(c)(2) and Reg. §1.6011-4(b)(2).

 

Section 4.2             Employee Benefits .

 

(a)           (i)            Schedule 4.2(a) contains a list complete and accurate, in all material respects, of all Employee Benefit Plans of which the Company, UMKK or UMNet is, or within the last six (6) years has been, a plan sponsor, in which the Company, UMKK or UMNet participates or, within the last six (6) years has, participated, or to which the Company UMKK or UMNet contributes or, within the last six (6) years has, contributed.  None of the Company, UMKK or UMNet has any liability or obligation with respect to any Employee Benefit Plan that is not included on Schedule 4.2(a).

 

(i)           The financial cost of all obligations owed by the Company, UMKK and UMNet under any Employee Benefit Plan is included in the Financial Statements.

 

(ii)          Except as set forth on Schedule 4.2(a) , none of the Company, UMKK nor UMNet has any liability for post-employment benefits under any Employee Benefit Plan.

 

(b)           Seller has made available to Buyer copies, current as of the date hereof, of:

 

(i)           all documents that set forth the terms of each Employee Benefit Plan of the Company, UMKK or UMNet, and of any related trust (or other funding vehicle) and, in the case of any oral agreement relating to an Employee Benefit Plan, a summary of the material terms thereof;

 

(ii)          all personnel, payroll, and employment manuals and policies of the Company, UMKK or UMNet;

 

(iii)         any collective bargaining agreements pursuant to which contributions have been made or obligations incurred (including contributions relating to any Employee Benefit Plan) by the Company, UMKK or UMNet;

 

(iv)         any insurance policies purchased by or to provide benefits under any Employee Benefit Plan of the Company, UMKK or UMNet;

 

(v)          all Contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to any Employee Benefit Plan of the Company, UMKK and UMNet; and

 

(vi)         the rules of employment, if any, applicable to the Company, UMKK and UMNet.

 

(c)           Except as set forth in Schedule 4.2(c) :

 

(i)           Each of the Company, UMKK and UMNet has performed its obligations in all material respects under all Employee Benefit Plans;

 

(ii)          No statement has been made by Seller, the Company, UMKK or UMNet to any Person with regard to any Employee Benefit Plan of the Company, UMKK or UMNet that was not in accordance with such Employee Benefit Plan and that would have, individually or in the aggregate, a Material Adverse Effect on the Business.

 

(iii)         Each of the Company, UMKK and UMNet, with respect to any Employee Benefit Plan is, and each Employee Benefit Plan sponsored by the Company, UMKK and UMNet is, in compliance in all material respects with applicable Legal Requirements;

 

(iv)         All filings required of the Company, UMKK or UMNet as to each Employee Benefit Plan have been timely filed, and all notices and disclosures to participants required by law have been timely provided, except for such filings, notices and disclosures the failure of which to make would not, individually or in the aggregate, have a Material Adverse Effect on the Business;

 

(v)          Since December 31, 2009, there has been no establishment or material amendment of any Employee Benefit Plan for which the Company, UMKK or UMNet is a sponsor;

 

(vi)         Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving, any Employee Benefit Plan for which the Company, UMKK or UMNet is sponsor is pending or, to the Knowledge of Seller, Threatened;

 

(vii)        None of the Company, UMKK or UMNet provides health or welfare benefits for any retired or former employee nor are any of them obligated to provide health or welfare benefits to any active employee following such employee’s retirement or other termination of employment; and

 

(viii)       The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any material benefit under any benefit plan of the Company, UMKK or UMNet, nor will it trigger the payment of severance or termination pay under any policy, plan, procedure, practice or agreement to any Company, UMKK or UMNet employee.

 

Section 4.3             Insurance .

 

(a)           Seller has made available to Buyer summaries, accurate in all material respects, of all policies of insurance to which UMKK is a party or under which UMKK, or any director or officer of UMKK, is covered.  UMKK has no pending applications for policies of insurance, except as disclosed on Schedule 4.3(a) .

 

(b)          UMKK has not claimed any losses for the current policy year or in any of the three preceding policy years under any policy that provides coverage to UMKK.

 

(c)           Except as set forth on Schedule 4.3(c) :

 

(i)           To the Knowledge of Seller, UMKK has not received any notice of refusal of coverage or any notice that a defense will be afforded with reservation of rights, or any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder, any of which individually, or all of which in the aggregate, would have a Material Adverse Effect on the Business; and

 

(ii)          all premiums due, and all obligations to be performed by UMKK, under each insurance policy to which it is a party or that provides coverage to UMKK or its business, have been paid or performed, except for such failures which individually or in the aggregate would not have a Material Adverse Effect on the Business.

 

Section 4.4             Parent Representations .

 

(a)            Organization and Good Standing .

 

(i)           Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio.  Parent has all requisite corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under this Agreement and the other Transaction Documents to which it is a party.  Parent is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect on Parent or the Business.

 

 

(b)           Enforceability; Authority; No Conflict .

 

(i)           This Agreement constitutes the legal, valid, and binding obligation of Parent, enforceable against Parent in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to creditors’ rights generally and by equitable principles.  Upon the execution and delivery by Parent of each the Transaction Document to which it is a party, such Transaction Documents will constitute the legal, valid, and binding obligations of Parent enforceable against Parent in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to creditors’ rights generally and by equitable principles.  Parent has the corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations thereunder.

 

(ii)           Except as set forth in Schedule 4.4 , neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

 

(i)           contravene, conflict with, or result in a violation of (x) any provision of the Organizational Documents of Parent, or (y) any resolution adopted by the board of directors or the shareholders of Parent;

 

(ii)          contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions, exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Parent may be subject;

 

(iii)         contravene, conflict with, or result in a violation of any of the terms of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental  Authorization that relates to the Business or any of the Business Assets; and

 

(iv)         Except as set forth in Schedule 4.4 hereof, and except such instances in which the failure to give such notice or obtain such Consent could not, individually or in the aggregate, reasonably be expected to result in material direct or indirect costs or liabilities to the Seller or the Company or the Business, neither Parent, any Affiliate of Parent nor the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller as follows:

 

Section 5.1             Organization and Good Standing .  Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.