Document:

EXHIBIT
10.44

	
  

  	
  SECURITIES PURCHASE
  AGREEMENT, dated as of October 3, 2006 (this “Agreement”),
  among ACORDA THERAPEUTICS, INC.,
  a Delaware corporation (the “Company”),
  and the Purchasers listed on Exhibit
  A hereto, together with their permitted transferees (each, a “Purchaser” and collectively, the “Purchasers”).

  	
   

  

 

INTRODUCTION

The Company and the Purchasers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act.

The Purchasers desire to purchase and the Company
desires to sell, upon the terms and conditions stated in this Agreement, shares
of the Company’s common stock, par value $.001 per share (the “Common Stock”).

The capitalized terms used herein and not otherwise
defined have the meanings given them in Article 7.

In consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchasers (severally and not jointly) hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF SHARES

Section 1.1             Purchase and Sale of Shares.  At the Closing, the Company will issue and
sell to each Purchaser, and each Purchaser will, severally and not jointly,
purchase from the Company the number of shares of Common Stock (the “Shares”) set forth opposite such Purchaser’s
name on Exhibit A hereto.  The purchase
price for each Share shall be $9.75 (the “Purchase
Price”), which represents a discount of 15.22% to the closing bid
price of the Common Stock as reported on NASDAQ (symbol “ACOR”), as the 4:00 p.m. EDT, closing bid
price on October 3, 2006.

Section 1.2             Payment.  At the Closing, each Purchaser will pay the
aggregate Purchase Price set forth opposite its name on Exhibit A hereto by
wire transfer of immediately available funds in accordance with wire
instructions provided by the Company to the Purchasers prior to the
Closing.  At or promptly following the
Closing, the Company will instruct its transfer agent to credit each Purchaser
the number of Shares set forth on Exhibit A (and, upon request, will deliver
stock certificates to the Purchasers representing the Shares) against delivery
of the aggregate Purchase Price on the Closing Date.

Section 1.3             Closing Date.  The closing of the transaction contemplated
by this Agreement will take place on or about October 6, 2006 (the “Closing Date”) and the closing (the “Closing”)
will be held at the offices of Covington & Burling, 1330 Avenue of the

 

 

Americas, New
York, New York 10019 or at such other time and place as shall be agreed upon by
the Company and the Purchasers hereunder of a majority in interest of the
Shares.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the
Purchasers that:

Section 2.1             Organization and Qualification;
Subsidiaries.  Each of the Company
and its subsidiary is duly incorporated, validly existing and in good standing
under the laws of the state of its organization, with corporate power and
authority to conduct its business as currently conducted as disclosed in the
SEC Documents.  Each of the Company and
its subsidiary is duly qualified to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
reasonably be expected to have a Material Adverse Effect.  Except for MS Research and Development Corp.,
the Company does not own or control, directly or indirectly, any corporation,
association or other entity.

Section 2.2             Authorization; Enforcement.  The Company has all requisite corporate power
and authority to enter into and to perform its obligations under this
Agreement, to consummate the transactions contemplated hereby and to issue the
Shares in accordance with the terms hereof. 
The execution, delivery and performance of this Agreement by the Company
and the consummation by it of the transactions contemplated hereby (including
the issuance of the Shares) have been duly authorized by the Company’s Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required. 
This Agreement has been duly executed by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, or moratorium or similar
laws affecting creditors’ and contracting parties’ rights generally and except
as enforceability may be subject to general principles of equity and except as
rights to indemnity and contribution may be limited by state or federal
securities laws or public policy underlying such laws.

Section 2.3             Capitalization.  The authorized capital stock of the Company,
as of June 30, 2006, consisted of 80,000,000 shares of Common Stock, of which
19,630,636 shares were issued and outstanding and 20,000,000 shares of blank
check Preferred Stock, $0.001 par value per share, none of which have been
designated.  All of the issued and
outstanding shares of Common Stock have been duly authorized, validly issued,
fully paid, and nonassessable.  Options
and warrants to purchase an aggregate of 2,521,460 shares of Common Stock were
outstanding as of June 30, 2006.  Except
as disclosed in or contemplated by the SEC Documents, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its capital
stock or any such options, rights, convertible securities or obligations other
than options granted under the Company’s stock option plans and its employee
stock purchase plan.

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Section 2.4             Issuance of Shares.  The Shares are duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.

Section 2.5             No Conflicts; Government
Consents and Permits.  (a) The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby (including
the issuance of the Shares) will not (i) conflict with or result in a violation
of any provision of its certificate of incorporation or bylaws or require the
approval of the Company’s stockholders, (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default under, any
agreement, indenture, or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company, except in the case of
clauses (ii) and (iii) only, for such conflicts, breaches, defaults, and
violations as would not reasonably be expected to have a Material Adverse
Effect.

(b)           The
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement in accordance with the
terms hereof, or to issue and sell the Shares in accordance with the terms
hereof other than such as have been made or obtained, and except for the
registration of the Shares under the Securities Act pursuant to Section 6
hereof, any filings required to be made under federal or state securities laws,
and any required filings or notifications regarding the issuance or listing of
additional shares with Nasdaq.

(c)           Each
of the Company and its subsidiary has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, except for such franchise, permit, license or similar
authority, the lack of which would not reasonably be expected to have a
Material Adverse Effect.  Each of the
Company and its subsidiary has not received any written notice of any
proceeding relating to revocation or modification of any such franchise,
permit, license, or similar authority except where such revocation or
modification would not reasonably be expected to have a Material Adverse
Effect.

Section 2.6             SEC Documents, Financial
Statements.  The Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC, pursuant to the reporting requirements of the
Exchange Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the “SEC
Documents”).  As of their
respective dates, the SEC Documents complied as to form in all material
respects with the requirements of the Exchange Act or the Securities Act, as
the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The Financial 

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Statements
have been prepared in accordance with accounting principles generally accepted
in the United States, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in the Financial Statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes, may be condensed or summary statements or may
conform to the SEC’s rules and instructions for Reports on Form 10-Q) and
fairly present in all material respects the consolidated financial position of
the Company as of the dates thereof and the consolidated results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments).  All material agreements that were required to
be filed as exhibits to the SEC Documents under Item 601 of Regulation S-K
(collectively, the “Material Agreements”)
to which the Company or its subsidiary are a party, or the property or assets
of the Company or its subsidiary are subject, have been filed as exhibits to
the SEC Documents.  Each of the Company and its subsidiary is not
in breach of or default under any of the Material Agreements to which it is a
party, and to the Company’s knowledge, no other party to a Material Agreement
is in breach of or default under such Material Agreement, except in each case, for
such breaches or defaults as would not reasonably be expected to have a
Material Adverse Effect.  Neither the
Company nor its subsidiary has received a notice of termination of any of the
Material Agreements.

Section 2.7             Absence of Litigation.  As of the date hereof, there is no action,
suit, proceeding or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
Company’s knowledge, threatened against the Company or its subsidiary  that if determined adversely would reasonably
be expected to have a Material Adverse Effect. 
There has not been, and to the knowledge of the Company, there is not
pending, any investigation by the SEC involving the Company or any current or
former director or officer of the Company. 
The Company has not received any stop order or other order suspending
the effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act and, to the Company’s knowledge, the SEC has
not issued any such order.

Section 2.8             Intellectual Property Rights.  To the Company’s knowledge, each of the Company and its subsidiary owns
or possesses licenses or sufficient rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and
copyrights necessary to enable it to conduct its business as conducted as of
the date hereof (the “Intellectual Property”), except for such Intellectual Property the
lack of which could not reasonably be expected to result in a Material
Adverse Effect.  To the Company’s knowledge and except as
disclosed in the SEC Documents, neither the Company nor its subsidiary has
infringed the intellectual property rights of third parties and no third party,
to the Company’s knowledge and except as disclosed in the SEC Documents, is
infringing the Intellectual Property, in each case, which could reasonably be
expected to result in a Material Adverse Effect.  Except as disclosed in the SEC Documents,
there are no material options, licenses or agreements relating to the
Intellectual Property, nor is the Company nor its subsidiary bound by or a
party to any material options, licenses or agreements relating to the patents,
patent applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names, trade names
or copyrights of any other person or entity. 
As of the date hereof, there is no material claim or action or
proceeding 

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pending or, to
the Company’s knowledge, threatened, that challenges the right of the Company
or its subsidiary with respect to any Intellectual Property.

Section 2.9             Placement Agents.  The Company has taken no action that would
give rise to any claim by any person for brokerage commissions, placement agent’s
fees or similar payments relating to this Agreement or the transactions
contemplated hereby, except for dealings with the Placement Agents, whose
commissions and fees will be paid by the Company.

Section 2.10           Investment Company.  The Company is not and, after giving effect
to the offering and sale of the Shares, will not be an “investment company” as
such term is defined in the Investment Company Act of 1940, as amended.

Section 2.11           No Material Adverse Effect.  Since June 30, 2006, except as described or
referred to in the SEC Documents and except for cash expenditures in the
ordinary course of business, there has not been any change in the business, its
assets or liabilities except for any such change that would not reasonably be
expected to result in a Material Adverse Effect.

Section 2.12           Nasdaq Global Market.  The issued and outstanding shares of Common
Stock are listed on Nasdaq, and, to the Company’s knowledge, there are no
proceedings to revoke or suspend such listing. 
The Company is in compliance in all material respects with the
requirements of Nasdaq for continued listing of the Common Stock thereon and
any other Nasdaq listing and maintenance requirements.

Section 2.13           Acknowledgment Regarding
Purchasers’ Purchase of Shares. The Company acknowledges and agrees that
each of the Purchasers is acting solely in the capacity of an arm’s length
purchaser with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity with respect to the Company), other than as an
officer or director of the Company, with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Purchaser or any
of their respective representatives or agents to the Company in connection with
this Agreement and the transactions contemplated hereby is merely incidental to
such Purchaser’s purchase of the Shares. 
The Company further represents to each Purchaser that the Company’s
decision to enter into this Agreement has been based upon the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.

Section 2.14           Accountants.  KPMG LLP, who will express their opinion with
respect to the audited financial statements and schedules that will be included
as a part of the Registration Statement prior to the filing of the Registration
Statement, are independent accountants as required by the Securities Act.

Section 2.15           Insurance.  Each of the Company and its subsidiary is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as the Company believes are prudent and customary
for a company (i) in the businesses and location in which the Company or
its subsidiary, as applicable, is engaged, (ii) with the resources of the
Company or its subsidiary, as applicable, and (iii) at a similar stage of development
as the Company or its subsidiary, as applicable.  Neither the Company nor its 

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subsidiary has
received any written notice that it will not be able to renew its existing
insurance coverage as and when such coverage expires.  The Company believes it will be able to
obtain similar coverage at reasonable cost from similar insurers as may be
necessary to continue its business and the business of its subsidiary.

Section 2.16           Foreign Corrupt Practices.
Since January 1, 2004, neither the Company, nor to the Company’s
knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company has, in the course of its actions for, or on behalf of,
the Company (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is
in violation of in any material respect any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

Section 2.17           Private Placement.  Neither the Company nor any person acting on
its or their behalf, has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Shares under the
Securities Act.

Section 2.18           No Registration Rights. No
person has the right to (i) prohibit the Company from filing the Registration
Statement or (ii) other than as disclosed in the SEC Documents, require
the Company to register any securities for sale under the Securities Act by
reason of the filing of the Registration Statement.  The granting and performance of the
registration rights under this Agreement will not violate or conflict with, or
result in a breach of any provision of, or constitute a default under, any
agreement, indenture or instrument to which the Company is a party.

Section 2.19           Application of Takeover
Protections.  The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not impose any restriction on any Purchaser, or create
in any party (including any current stockholder of the Company) any rights,
under any share acquisition, business combination, poison pill (including any
distribution under a rights agreement), or other similar anti-takeover
provisions under the Company’s charter documents or the laws of its state of
incorporation.

Section 2.20           Sarbanes-Oxley Act.  The Company is in material compliance with
all applicable provisions of the U.S. Sarbanes-Oxley Act of 2002 that are
effective and the rules and regulations promulgated in connection therewith.

Section 2.21           Internal Accounting Controls.  To the extent legally required, the Company maintains (i) effective internal
control over financial reporting as defined in Rule 13a-15 under the Securities
Exchange Act of 1934, as amended, and (ii) a system of internal accounting
controls sufficient to provide reasonable assurance that (A) transactions
are executed in accordance with management’s general or specific authorizations;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (C) access to assets is

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permitted only in accordance with management’s general or specific
authorization; and (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

Section 2.22           Taxes.  The Company has filed (or has obtained an
extension of time within which to file) all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown as due on
such tax returns, except where the failure to so file or the failure to so pay
would not reasonably be expected to have a Material Adverse Effect.

Section 2.23           No
Manipulation of Stock.  The Company
has not taken, nor will it take, directly or indirectly any action designed to
stabilize or manipulate the price of the Common Stock or any security of the
Company to facilitate the sale or resale of any of the Shares.

Section 2.24           Related
Party Transactions.  Except with
respect to transactions (i) that are not required to be disclosed and (ii)
contemplated hereby to the extent any director or an Affiliate of any director
purchases Securities hereunder, all transactions that have occurred between or
among the Company, on the one hand, and any of its officers or directors, or
any Affiliate or Affiliates of any such officer or director, on the other hand,
prior to the date hereof have been disclosed in the SEC Documents.

ARTICLE III

PURCHASER’S REPRESENTATIONS AND WARRANTIES

Each Purchaser represents and warrants to the Company,
severally and not jointly, with respect to itself and its purchase hereunder,
that:

Section 3.1             Investment
Purpose.  The Purchaser is purchasing
the Shares for its own account and not with a present view toward the public
sale or distribution thereof and has no intention of selling or distributing
any of such Shares or any arrangement or understanding with any other persons
regarding the sale or distribution of such Shares except in accordance with the
provisions of Article 6 and except as would not result in a violation of the
Securities Act.  The Purchaser will not, directly
or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of)
any of the Shares except in accordance with the provisions of Article 6 or
pursuant to and in accordance with the Securities Act.

Section 3.2             Questionnaires. 
Purchaser has submitted to the Company a Stock Certificate and the
Registration Statement questionnaire substantially in the form of Exhibit B
hereto and such questionnaire shall be accurate and correct when delivered and
as of the Closing Date.

Section 3.3             Reliance on Exemptions.  The Purchaser understands that the Shares are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Shares.

Section 3.4             Information.  The Purchaser has had the opportunity to review the SEC Documents. At a
reasonable time prior to the Offering, the Purchaser has been afforded the
opportunity to ask questions and receive answers concerning the terms and
conditions of the Offering and to obtain any additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of the information contained in the SEC
Documents. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the SEC Documents and the Company’s representations and
warranties contained herein.

Section 3.5             Acknowledgement of Risk.  (a) The Purchaser acknowledges and
understands that its investment in the Shares involves a significant degree of
risk, including, without limitation, (i) the Company remains a development
stage business with limited operating history and requires substantial funds in
addition to the proceeds from the sale of the 

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Shares; (ii) an
investment in the Company is speculative, and only Purchasers who can afford
the loss of their entire investment should consider investing in the Company
and the Shares; (iii) the Purchaser may not be able to liquidate its
investment; (iv) transferability of the Shares is extremely limited;
(v) in the event of a disposition of the Shares, the Purchaser could
sustain the loss of its entire investment; and (vi) the Company has not paid
any dividends on its Common Stock since inception and does not anticipate the
payment of dividends in the foreseeable future. 
Such risks are more fully set forth in the SEC Documents;

(b)           The
Purchaser is an “accredited investor” as defined in Rule 501(a) of Regulation D
under the Securities Act.  The Purchaser
is able to bear the economic risk of holding the Shares for an indefinite
period, and has knowledge and experience in financial and business matters such
that it is capable of evaluating the risks of the investment in the Shares; and

(c)           The
Purchaser has, in connection with the Purchaser’s decision to purchase Shares,
not relied upon any representations or other information (whether oral or written)
other than as set forth in the representations and warranties of the Company
contained herein, and the Purchaser has, with respect to all matters relating
to this Agreement and the offer and sale of the Shares, relied solely upon the
advice of such Purchaser’s own counsel and has not relied upon or consulted any
counsel to the Placement Agents or counsel to the Company.

Section 3.6             Governmental Review.  The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Shares or an
investment therein.

Section 3.7             Transfer or Resale.  The Purchaser understands that:

(a)           the
Shares have not been and are not being registered under the Securities Act
(other than as contemplated in Article 6) or any applicable state securities
laws and, consequently, the Purchaser may have to bear the risk of owning the
Shares for an indefinite period of time because the Shares may not be
transferred unless (i) the resale of the Shares is registered pursuant to an
effective registration statement under the Securities Act, as contemplated in
Article 6; (ii) the Purchaser has delivered to the Company an opinion of
counsel (in form, substance and scope reasonably satisfactory to the Company)
to the effect that the Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; or (iii) the
Shares are sold or transferred pursuant to Rule 144;

(b)           any
sale of the Shares made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of
the Shares under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined
in the Securities Act) may require compliance with some other exemption under
the Securities Act or the rules and regulations of the SEC thereunder; and

(c)           except
as set forth in Article 6, neither the Company nor any other person is under
any obligation to register the resale of the Shares under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.

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Section 3.8             Legends.  (a) The Purchaser understands the
certificates representing the Shares will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Shares):

THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS. 
THE COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO THE
EXTENT THAT SUCH OPINION IS REQUIRED PURSUANT TO THAT CERTAIN SECURITIES
PURCHASE AGREEMENT UNDER WHICH THE SHARES WERE ISSUED.

(b)           The
Purchaser may request that the Company remove, and the Company agrees to
authorize the removal of any legend from the Shares (i) following any sale of
the Shares pursuant to an effective Registration Statement or Rule 144, or (ii)
if such Shares are eligible for sale under Rule 144(k).  Following the time a legend is no longer
required for the Shares hereunder, the Company will, no later than five
Business Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a legended certificate representing such
securities, deliver or cause to be delivered to such Purchaser a certificate
representing such securities that is free from all restrictive and other
legends.

Section 3.9             Authorization; Enforcement.  The Purchaser has the requisite power and
authority to enter into this Agreement and to consummate the transactions contemplated
hereby.  The Purchaser has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement.  Upon the execution and
delivery of this Agreement, this Agreement shall constitute a valid and binding
obligation of the Purchaser enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to
general principles of equity and except as rights to indemnity and contribution
may be limited by state or federal securities laws or public policy underlying
such laws.

Section 3.10           Residency.  The Purchaser is a resident of the
jurisdiction set forth immediately below such Purchaser’s name on the signature
pages hereto.

Section 3.11           Acknowledgements Regarding
Placement Agent.  The Purchaser
acknowledges that the Placement Agents are acting as the exclusive placement
agents on a “best efforts” basis for the Shares being offered hereby and will
be compensated by the Company for acting in such capacity.  The Purchaser represents that (i) the
Purchaser was contacted regarding the sale of the Shares by the Placement Agent
(or an authorized agent or representative thereof) 

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with whom the
Purchaser entered into a confidentiality agreement and (ii) no Shares were
offered or sold to it by means of any form of general solicitation or general
advertising.

ARTICLE IV

COVENANTS

Section 4.1             Reporting Status.  The Company’s Common Stock is registered under
Section 12 of the Exchange Act.  During
the Registration Period (or within the periods permitted under Rule 12b-25 of
the Exchange Act), the Company will timely file with the SEC all reports
required to be so filed under the Exchange Act, and the Company will not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.

Section 4.2             Expenses.  The Company and each Purchaser is each severally
and not jointly liable for, and each will pay, its own expenses incurred in
connection with the negotiation, preparation, execution and delivery of this
Agreement, including, without limitation, attorneys’ and consultants’ fees and
expenses.

Section 4.3             Financial Information.  The financial statements of the Company to be
included in any documents filed with the SEC will be prepared in accordance
with accounting principles generally accepted in the United States,
consistently applied (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes, may be
condensed or summary statements or may conform to the SEC’s rules and instructions
for Reports on Form 10-Q), and will fairly present in all material respects the
consolidated financial position of the Company and consolidated results of its
operations and cash flows as of, and for the periods covered by, such financial
statements (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments).

Section 4.4             Securities Laws Disclosure;
Publicity.  On or before 9:30 a.m., New
York local time, on October 4, 2006 the Company shall issue a press release
announcing the signing of this Agreement and describing the material terms of
the transactions contemplated by this Agreement.  On or before October 4, 2006, the
Company shall file a Current Report on Form 8-K with the SEC describing the
terms of the transactions contemplated by this Agreement and including as an
exhibit to such Current Report on Form 8-K this Agreement, in the form required
by the Exchange Act. The Company shall not publicly disclose any information
concerning a Purchaser without the prior written consent of such Purchaser,
except for disclosure of the name of such Purchaser and the type and amount of
securities of the Company held by such Purchaser in connection with any legal
or regulatory filings required to be made by the Company or except as otherwise
required by law.

Section 4.5             Sales by Purchasers.  Each Purchaser will sell any Shares held by
it in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from
registration under the Securities Act and the rules and regulations promulgated
thereunder.  No Purchaser will make any
sale, transfer or other disposition of the Shares in violation of federal or
state securities laws.

Section 4.6             Pledge of Shares.  The Company acknowledges and agrees that the
Shares may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Shares.  The pledge of Shares shall not
be deemed to be a transfer, sale or assignment of the Shares hereunder, and no
Purchasers

 10

 

 

effecting a pledge of the Shares shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement; provided that a Purchaser and its pledgee shall comply with
the provisions of this Agreement in order to effect a sale, transfer, or
assignment of any such Shares to such pledgee. 
At the expense of the Purchaser pledging such Shares, the Company hereby
agrees to execute and deliver such documentation as pledgee of the Shares may
reasonably request in connection with a pledge of the Shares to such pledgee by
a Purchaser.

ARTICLE
V

CONDITIONS TO CLOSING

Section 5.1               Conditions to Obligations of
the Company.  The Company’s
obligation to complete the purchase and sale of the Shares and deliver such
stock certificate(s) to each Purchaser is subject to the fulfillment or waiver
as of the Closing Date of the following conditions:

(a)           Receipt of Funds. 
The Company shall have received immediately available funds in the full
amount of the purchase price for the Shares being purchased hereunder as set
forth opposite such Purchaser’s name on Exhibit A hereto.

(b)           Representations and Warranties.  The representations and warranties made by
each Purchaser in Article 3 that are qualified by materiality shall be true and
correct in all respects as of the Closing Date as if they had been made on and
as of such date and the representations and warranties made by each Purchaser
in Article 3 that are not so qualified shall be true and correct in all
material respects as if they had been made on and as of such date, except that
the accuracy of representations and warranties that by their terms speak as of
a specified date will be determined as of such date.

(c)           Covenants. 
All covenants, agreements and conditions contained in this Agreement to
be performed by the Purchasers on or prior to the Closing Date shall have been
performed or complied with in all material respects.

(d)           Blue Sky. 
The Company shall have obtained all necessary blue sky law permits and
qualifications, or secured exemptions therefrom, required by any state for the
offer and sale of the Shares.

(e)           Absence of Litigation.  No proceeding challenging this Agreement or
the transactions contemplated hereby, or seeking to prohibit, alter, prevent or
materially delay the Closing, shall have been instituted or be pending before
any court, arbitrator, governmental body, agency or official.

(f)            No Governmental Prohibition.  The sale of the Shares by the Company shall
not be prohibited by any law or governmental order or regulation.

(g)           No Stop Order. 
No stop order or suspension of trading shall have been imposed by
Nasdaq, the SEC or any other governmental or regulatory body with respect to
public trading in the Common Stock.

Section 5.2               Conditions to Purchasers’
Obligations at the Closing.  Each
Purchaser’s obligation to complete the purchase and sale of the Shares is
subject to the fulfillment or waiver as of the Closing Date of the following
conditions:

 

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(a)           Representations and Warranties.  The representations and warranties made by
the Company in Article 2 that are qualified by materiality (including in the
definition of Material Adverse Effect) shall be true and correct in all respects
as of the Closing Date as if they had been made on and as of such date and the
representations and warranties made by the Company in Article 2 that are not so
qualified shall be true and correct in all material respects as if they had
been made on and as of such date, except that the accuracy of representations
and warranties that by their terms speak as of a specified date will be
determined as of such date.

(b)           Covenants.  All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to the
Closing Date shall have been performed or complied with in all material
respects.

(c)           Blue Sky. 
The Company shall have obtained all necessary blue sky law permits and
qualifications, or secured exemptions therefrom, required by any state or
foreign or other jurisdiction for the offer and sale of the Shares.

(d)           Legal Opinion. 
The Company shall have delivered to such Purchaser an opinion, dated as
of the Closing Date, from Covington & Burling LLP, counsel to the Company,
in substantially the form attached hereto as Exhibit C hereto.

(e)           Certificates of the Company.  The Company shall have delivered to such
Purchaser (i) a certificate of a senior executive officer of the Company, dated
the Closing Date, confirming the satisfaction of the conditions set forth in
clauses (a) and (b) of this Section 5.2, (ii) a certificate of the Secretary or
Assistant Secretary of the Company, dated the Closing Date, certifying as to
the incumbency and signatures of the officers executing this Agreement and the
other documents delivered by the Company under this Agreement and (iii) a good
standing certificate of the Company, dated as of a recent date, from the Secretary
of State of the State of Delaware.

(f)            Transfer Agent Instructions.  The Company shall have delivered to its
transfer agent irrevocable instructions to issue to such Purchaser or in such
nominee name(s) as designated by such Purchaser in writing such number of
Shares set forth opposite such Purchaser’s name on Exhibit A hereto or, if
requested by the Purchaser, one or more certificates representing such Shares.

(g)           Absence of Litigation.  No proceeding challenging this Agreement or
the transactions contemplated hereby, or seeking to prohibit, alter, prevent or
materially delay the Closing, shall have been instituted or be pending before
any court, arbitrator, governmental body, agency or official.

(h)           No Governmental Prohibition.  The sale of the Shares by the Company shall
not be prohibited by any law or governmental order or regulation.

(i)            No Stop Order. 
No stop order or suspension of trading shall have been imposed by
Nasdaq, the SEC or any other governmental or regulatory body with respect to
public trading in the Common Stock.

ARTICLE
VI

REGISTRATION RIGHTS

Section 6.1               Filing of Registration
Statement.  The Company shall use its
reasonable best efforts to (i) file a registration statement covering the
resale of the Registrable Securities no later than 45 days after the Closing
Date (the “Filing Date”) on a
registration statement on Form S-1 (the “Registration
Statement”) with the SEC and (ii) effect the registration,
qualifications or compliances (including, without limitation, the execution of
any required undertaking to file post-effective amendments, appropriate
qualifications or exemptions under applicable blue sky or other state
securities laws and appropriate compliance with applicable securities laws,
requirements or regulations) as promptly as possible after the filing thereof,
but in any event by the date which is 135 days after the Closing Date.

 

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Section 6.2               Expenses.  All Registration Expenses incurred in
connection with any registration, qualification, exemption or compliance pursuant
to Section 6.1 shall be borne by the Company. 
All Selling Expenses relating to the sale of securities registered by or
on behalf of any Holder shall be borne by such Holder.

Section 6.3               Registration Defaults.  The Company further agrees that, in the event
that the Registration Statement (i) has not been filed by the SEC within 45
days after the Closing Date, (ii) has not been declared effective by the SEC
within 90 days after the Closing Date, if the SEC determines not to review the
Registration Statement, (iii) has not been declared effective by the SEC within
135 days after the Closing Date, if the SEC determines to review the
Registration Statement, or (iv) after the Registration Statement is declared effective by the SEC, is
suspended by the Company or ceases to remain continuously effective as to all
Registrable Securities for which it is required to be effective, other than, in
each case, within the time period(s) permitted by Section 6.8(b) (each
such event referred to in clauses (i), (ii) and (iii), (a “Registration Default”)),
for any thirty-day period (a “Penalty Period”) during which the Registration
Default remains uncured (which initial thirty-day period shall commence on the
fifth Business Day after the date of such Registration Default if such
Registration Default has not been cured by such date), the Company shall pay in
cash to each Purchaser 1% per month of such Purchaser’s aggregate Purchase
Price for such Purchaser’s Shares for each Penalty Period during which the
Registration Default remains uncured; provided,
however, that if a Purchaser fails to provide the Company with any
information that is required to be provided in the Registration Statement with
respect to such Purchaser as set forth herein, then the commencement of the
Penalty Period described above shall be extended until two Business Days
following the date of receipt by the Company of such required information; provided  further,
that the amount payable to any Holder hereunder for any partial Penalty Period
shall be prorated for the number of actual days during such Penalty Period
during which a Registration Default remains uncured; and provided further, that in no event shall
the Company be required to pay to any Purchaser pursuant to this Section 6.3 an
aggregate amount that exceeds 10% of the aggregate Purchase Price paid by such
Purchaser for such Purchaser’s Shares.

Section 6.4               Registration Period Covenants.  In the case of the registration,
qualification, exemption or compliance effected by the Company pursuant to this
Agreement, the Company shall, upon reasonable request, inform each Holder as to
the status of such registration, qualification, exemption and compliance.  At its expense, during the Registration
Period, the Company shall:

(a)           except for such times as the Company is permitted
hereunder to suspend the use of the prospectus forming part of the Registration
Statement, use its commercially reasonable efforts to keep such registration,
and any qualification, exemption or compliance under state securities laws that
the Company determines to obtain, continuously effective with respect to a
Holder, when the Company has the ability to register its securities on Form
S-3, to convert such Registration Statement into a registration statement on
Form S-3 and to keep such converted registration statement continuously
effective (including, filing any necessary post-effective amendment to the
Registration Statement) and to keep such Registration Statement  free of any material misstatements or
omissions, until the earlier of the following: 
(i) the second anniversary of the Closing Date, (ii) the date on which
all Shares held by such Holder may be sold under Rule 144(k) or (iii) the date
that all of the Shares have been sold by the Holders.  The period of time during which the Company
is required hereunder to keep the Registration Statement effective is referred
to herein as the “Registration Period.”

 

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(b)           advise the Holders:

(i)            within
two Business Days when the Registration Statement or any amendment thereto has
been filed with the SEC and when the Registration Statement or any
post-effective amendment thereto has become effective;

(ii)           within
five Business Days of any request by the SEC following the effectiveness of the
Registration Statement for amendments or supplements to the Registration
Statement or the prospectus included therein or for additional information;

(iii)          within
five Business Days of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for such purpose;

(iv)          within
five Business Days of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities
included therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and

(v)           within
five Business Days of the occurrence of any event that requires the making of
any changes in the Registration Statement or the prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under
which they were made) not misleading;

(c)           use its commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement as soon as reasonably practicable;

(d)           promptly deliver to each such Holder, without charge, as
many copies of the prospectus included in such Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request in
writing; and the Company consents to the use, consistent with the provisions
hereof, of the prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the prospectus or any amendment
or supplement thereto;

(e)           if a Holder so requests in writing, deliver to each
Holder, without charge, (i) one copy of the following documents, other
than those documents available via EDGAR: (A) its annual report to its
stockholders, if any (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of
recognized standing), (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-K (or similar form), (C) its
definitive proxy statement with respect to its annual meeting of stockholders,
(D) each of its quarterly reports to its stockholders, and, if not included in
substance in its quarterly reports to stockholders, its quarterly report on
Form 10-Q (or similar form), and (E) a copy of the full Registration Statement
(the foregoing, in each case, excluding exhibits); and (ii) if explicitly
requested, all exhibits excluded by the parenthetical to the immediately
preceding clause (E);

 

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(f)            prior to any public offering of Registrable Securities
pursuant to any Registration Statement, promptly take such actions as may be
necessary to register or qualify or obtain an exemption for offer and sale
under the securities or blue sky laws of such United States jurisdictions as
any such Holders reasonably request in writing, provided that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do any and
all other acts or things reasonably necessary or advisable to enable the offer
and sale in such jurisdictions of the Registrable Securities covered by such
Registration Statement;

(g)           upon the occurrence of any event contemplated by Section
6.4(b)(v) above, except for such times as the Company is permitted hereunder to
suspend the use of the prospectus forming part of the Registration Statement,
the Company shall use its commercially reasonable efforts to as soon as
reasonably practicable prepare a post-effective amendment to the
Registration Statement or a supplement to the related prospectus, or file any
other required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

(h)           otherwise use its commercially reasonable efforts to
comply in all material respects with all applicable rules and regulations of
the SEC which could affect the sale of the Registrable Securities;

(i)            use its commercially reasonable efforts to cause all
Registrable Securities to be listed on each securities exchange or market, if
any, on which equity securities issued by the Company have been listed; and

(j)            use its commercially reasonable efforts to take all other
steps necessary to effect the registration of the Registrable Securities
contemplated hereby and to enable the Holders to sell Registrable Securities
under Rule 144.

Section 6.5               Certain Limitations.  The Holders shall have no right to take any
action to restrain, enjoin or otherwise delay any registration pursuant to
Section 6.1 hereof as a result of any controversy that may arise with respect
to the interpretation or implementation of this Agreement.

Section 6.6               Indemnity.  (a) To the extent permitted by law, the
Company shall indemnify each Holder, its directors, officers, employees and
agents, and each person controlling such Holder within the meaning of Section
15 of the Securities Act, with respect to which any registration that has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or action in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened (subject to
Section 6.6(c) below), arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in the Registration
Statement, prospectus, any amendment or supplement thereof, or other document
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not

 

 15
 

 

 

misleading, in light of the circumstances in
which they were made, or any violation by the Company of any rule or regulation
promulgated by the Securities Act applicable to the Company and relating to any
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each Holder and
each person controlling such Holder, for reasonable legal and other
out-of-pocket expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action as incurred; provided that the Company will not be
liable in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder for use in
preparation of such Registration Statement, prospectus, amendment or
supplement; provided further that
the Company will not be liable in any such case where the claim, loss, damage
or liability arises out of or is related to the failure of such Holder to
comply with the covenants and agreements contained in this Agreement respecting
sales of Registrable Securities, and except that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the SEC at the time the Registration Statement becomes
effective or in the amended prospectus filed with the SEC pursuant to Rule
424(b) or in the prospectus subject to completion under Rule 434 of the
Securities Act, which together meet the requirements of Section 10(a) of the
Securities Act (the “Final Prospectus”),
such indemnity shall not inure to the benefit of any such Holder or any such
controlling person, if a copy of the Final Prospectus furnished by the Company
to the Holder for delivery was not furnished to the person or entity asserting
the loss, liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act and the Final Prospectus would have cured the
defect giving rise to such loss, liability, claim or damage.

(b)           Each Holder will severally, and not jointly, indemnify the
Company, each of its directors, officers, employees and agents, and each person
who controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened (subject to Section 6.6(c) below),
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement, prospectus, or any
amendment or supplement thereof, incident to any such registration, or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in light of the circumstances in which they were made, and will reimburse the
Company, such directors and officers, and each person controlling the Company
for reasonable legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action as incurred, in each case to the extent, but only to the extent, that
such untrue statement or omission or allegation thereof is made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of the Holder for use in preparation of the Registration Statement,
prospectus, amendment or supplement; provided that
the indemnity shall not apply to the extent that such claim, loss, damage or
liability results from the fact that a current copy of the prospectus was not
made available to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such furnishing is required by the Securities
Act and the Final Prospectus would have cured the defect giving rise to such
loss, claim, damage or liability.  Notwithstanding
the foregoing, a Holder’s aggregate liability pursuant to this subsection (b)
shall

 

 16
 

 

 

be limited to the net amount received by the
Holder from the sale of the Registrable Securities giving rise to such claims,
losses, damages and liabilities (and actions in respect thereof).

(c)           Each party entitled to indemnification under this Section
6.6 (the “Indemnified Party”) shall give notice to
the party required to provide indemnification (the “Indemnifying
Party”) promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any such claim or
any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld or delayed), and the Indemnified Party may
participate in such defense at such Indemnified Party’s expense; provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, unless such failure is materially
prejudicial to the Indemnifying Party in defending such claim or
litigation.  An Indemnifying Party shall
not be liable for any settlement of an action or claim effected without its
written consent (which consent will not be unreasonably withheld or delayed).  No Indemnifying Party, in its defense of any
such claim or litigation, shall, except with the consent (such consent not to
be unreasonably withheld or delayed) of the Indemnified Party consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  After notice by the
Indemnifying Person to such Indemnified Person of the Indemnifying Person’s
election to assume the defense of any claim or litigation, the Indemnifying
Person shall not be liable to such Indemnified Person for any legal expenses
subsequently incurred by such Indemnified Person in connection with the defense
thereof.

(d)           If the indemnification provided for in this Section 6.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party or is insufficient to hold such Indemnified Party harmless with respect
to any loss, liability, claim, damage or expense referred to therein, then the
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations.  The relative fault of
the Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified Party
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.  Notwithstanding the foregoing, a Holder’s aggregate liability pursuant
to this subsection (d) shall be limited to the net amount received by the
Holder from the sale of Registrable Securities giving rise to such loss,
liability, claim, damage or expense (or actions in respect thereof) less all
other amounts paid as damages in respect thereto.

Section 6.7               Additional Covenants and
Agreements of the Holders. 
(a) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a supplement
or amendment to a prospectus relating to Registrable

 

 17
 

 

 

Securities so that, as thereafter delivered
to the Holders, such prospectus shall not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, each Holder will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement and prospectus contemplated by Section 6.1 until its
receipt of copies of the supplemented or amended prospectus from the Company
and, if so directed by the Company, each Holder shall deliver to the Company
all copies, other than permanent file copies then in such Holder’s possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice.

(b)           Each Holder shall suspend, upon request of the Company,
any disposition of Registrable Securities pursuant to the Registration
Statement and prospectus contemplated by Section 6.1 during no more than two
periods of no more than 60 calendar days each during any 12-month period to the extent
that the Board of Directors of the Company determines in good faith that the
sale of Registrable Securities under the Registration Statement would be
reasonably likely to cause a violation of the Securities Act or Exchange Act.

(c)           As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing, including completing a Registration Statement
questionnaire in the form provided by the Company, or as shall be required in
connection with any registration referred to in this Article 6.

(d)           Each Holder hereby covenants with the Company (i) not to
make any sale of the Registrable Securities without effectively causing the
prospectus delivery requirements under the Securities Act to be satisfied, and
(ii) if such Registrable Securities are to be sold by any method or in any
transaction other than on a national securities exchange, Nasdaq or in the
over-the-counter market, in privately negotiated transactions, or in a
combination of such methods, to notify the Company at least five Business Days
prior to the date on which the Holder first offers to sell any such Registrable
Securities.

(e)           Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the Registration Statement are not transferable on
the books of the Company unless the stock certificate submitted to the transfer
agent evidencing such Registrable Securities is accompanied by a certificate
reasonably satisfactory to the Company to the effect that (i) the Registrable
Securities have been sold in accordance with such Registration Statement and
(ii) the requirement of delivering a current prospectus has been satisfied.

(f)            Each Holder agrees not to take any action with respect to
any distribution deemed to be made pursuant to such Registration Statement
which would constitute a violation of Regulation M under the Exchange Act or
any other applicable rule, regulation or law.

(g)           At the end of the Registration Period, the Holders shall
discontinue sales of shares pursuant to such Registration Statement upon
receipt of notice from the Company of its intention to remove from registration
the shares covered by such Registration Statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which
remain unsold immediately upon receipt of such notice from the Company.

 

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Section 6.8             Additional
Covenants and Agreements of the Company. 
With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which at any time permit the sale of the
Registrable Securities to the public without registration, so long as the
Holders still own Registrable Securities, the Company shall use its reasonable
best efforts to:

(a)           make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times;

(b)           file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and

(c)           so long as a Holder owns any Registrable Securities,
furnish to such Holder, upon any reasonable request, a written statement by the
Company as to its compliance with Rule 144 under the Securities Act, and of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Holder to sell any such securities without registration.

Section 6.9             Assignment
of Registration Rights.  The rights
to cause the Company to register Registrable Securities granted to the Holders
by the Company under Section 6.1 may be assigned by a Holder in connection with
a transfer by such Holder of all or a portion of its Registrable Securities, provided, however, that (i) such transfer
complies with all applicable securities laws; (ii) such Holder gives prior
written notice to the Company; and (iii) such transferee agrees in writing to
comply with the terms and provisions of this Agreement, and has provided the
Company with a completed Registration Statement questionnaire in such form as
is reasonably requested by the Company. 
Except as specifically permitted by this Section 6.9, the rights of a
Holder with respect to Registrable Securities as set out herein shall not be
transferable to any other Person, and any attempted transfer shall cause all
rights of such Holder therein to be forfeited.

Section 6.10           Waiver
of Registration Rights.  The rights
of any Holder under any provision of this Article 6 may be waived (either
generally or in a particular instance, either retroactively or prospectively
and either for a specified period of time or indefinitely) or amended by an
instrument in writing signed by Holders holding not less than a majority of the
Registrable Securities; provided, however,
that no consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of this Section 6 unless
the same consideration also is offered to all Holders of Registrable
Securities.

ARTICLE
VII

DEFINITIONS

Section 7.1               Definitions.  The
following capitalized terms have the following meanings:

“Affiliate”
means, with respect to any Person (as defined below), any other Person
controlling, controlled by or under direct or indirect common control with such
Person (for the purposes of this definition “control,”
when used with respect to any specified Person, shall mean the power to direct
the management and policies of such person, directly or indirectly, whether
through ownership of voting securities, by contract or otherwise; and the terms
“controlling” and “controlled”
shall have meanings correlative to the foregoing).

“Business Day”
means a day Monday through Friday on which banks are generally open for
business in New York City.

 

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“Closing” has
the meaning set forth in Section 1.3.

“Closing Date” has
the meaning set forth in Section 1.3.

“Common Stock”
has the meaning set forth in the introduction.

“Company” has
the meaning set forth in the preamble.

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Filing Date” has the meaning set forth in Section
6.1.

“Final Prospectus” has the meaning set forth in
Section 6.6(a).

“Financial Statements” means
the financial statements of the Company included in the SEC Documents.

“Holder” means
any person holding Registrable Securities or any person to whom the rights
under Article 6 have been transferred in accordance with Section 6.9 hereof.

“Indemnified Party” has the meaning set forth in
Section 6.6(c).

“Indemnifying Party” has the meaning set forth in
Section 6.6(c).

“Intellectual Property”
has the meaning set forth in Section 2.8.

“Material Adverse Effect”
means a material adverse effect on (a) the business, operations, assets or
financial condition of the Company and its subsidiary, taken as a whole, or (b)
the ability of the Company to perform its obligations pursuant to the
transactions contemplated by this Agreement.

“Material Agreements”
has the meaning set forth in Section 2.6.

“Nasdaq” means
The Nasdaq Global Market.

“Offering” means
the private placement of the Company’s Shares contemplated by this Agreement.

“Penalty Period” has the meaning set forth in Section 6.3.

“Person” means
any person, individual, corporation, limited liability company, partnership,
trust or other nongovernmental entity or any governmental agency, court, authority
or other body (whether foreign, federal, state, local or otherwise).

“Placement Agents”
means Banc of America Securities LLC and Lazard Frères & Co. LLC.

“Purchasers”
mean the Purchasers whose names are set forth on the signature pages of this
Agreement, and their permitted transferees.

 

 20

 

 

“Purchase Price”
has the meaning set forth in Section 1.1.

“register,” “registered” and “registration”
refer to the registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.

“Registrable Securities”
means the Shares; provided, however, that
securities shall only be treated as Registrable Securities if and only for so
long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the SEC, (B) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities
Act so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale or (C) are held by a Holder
or a permitted transferee pursuant to Section 6.9.

“Registration Default” has the meaning set forth in Section 6.3.

“Registration Expenses”
means all expenses incurred by the Company in complying with Section 6.1
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and expenses of counsel for
the Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the fees of
legal counsel for any Holder).

“Registration Statement”
has the meaning set forth in Section 6.1.

“Registration Period”
has the meaning set forth in Section 6.4(a).

“Rule 144” means
Rule 144 promulgated under the Securities Act, or any successor rule.

“SEC” means the
United States Securities and Exchange Commission.

“SEC Documents”
has the meaning set forth in Section 2.6.

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute.

“Selling Expenses”
means all selling commissions applicable to the sale of Registrable Securities
and all fees and expenses of legal counsel for any Holder.

“Shares” has the
meaning set forth in Section 1.1.

Section 7.2             Certain Interpretations.  Except where expressly stated otherwise in
this Agreement, the following rules of interpretation apply to this
Agreement:  (i) “or” is not exclusive and “include”, “includes” and “including” are not limiting; (ii) definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms; (iii)
references to an agreement or instrument mean such agreement or instrument as
from time to time amended, modified or supplemented; (iv) references to a
Person are also to its permitted successors and assigns; (v) references to an “Article”,
“Section”, “Subsection”, “Exhibit” or 

 21
 

 

 

“Schedule” refer to an
Article of, a Section or Subsection of, or an Exhibit or Schedule to, this
Agreement; and (vi) words importing the masculine gender include the
feminine or neuter and, in each case, vice versa.

ARTICLE VIII

GOVERNING LAW; MISCELLANEOUS

Section 8.1             Governing Law; Jurisdiction;
Waiver of Jury Trial.  This Agreement
will be governed by and interpreted in accordance with the laws of the State of
New York.  Each of the parties hereto irrevocably
submits and consents to the exclusive jurisdiction of the courts of the State
of New York and the United States District Court for the Southern District of
New York, in each case located in the Borough of Manhattan, for the purpose of
any suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby.  Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient
forum.  EACH OF THE PARTIES HERETO WAIVES
ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO
THIS WAIVER.

Section 8.2             Counterparts; Signatures by
Facsimile.  This Agreement may be
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. 
This Agreement, once executed by a party, may be delivered to the other
parties hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

Section 8.3             Headings.  The headings of this Agreement are for convenience
of reference only, are not part of this Agreement and do not affect its
interpretation.

Section 8.4             Severability.  If any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision will be deemed modified in order to conform with such statute or rule
of law.  Any provision hereof that may
prove invalid or unenforceable under any law will not affect the validity or
enforceability of any other provision hereof.

Section 8.5             Entire Agreement; Amendments.  This Agreement (including all schedules and
exhibits hereto) and any confidentiality agreement entered into between the
Company and a Purchaser (which confidentiality agreement shall continue to be
in full force and effect) constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein.  This Agreement supersedes all
prior agreements and understandings among the parties hereto with respect to
the subject matter hereof.  No provision
of this Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.  Any amendment or waiver effected in
accordance with this Section 8.5 shall be binding upon each holder of any
Shares 

 22
 

 

 

purchased
under this Agreement at the time outstanding, each future holder of all such
securities, and the Company.

Section 8.6             Notices.  All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
email, telex or facsimile if sent during normal business hours of the recipient,
if not, then on the next business day, (c) five days after having been
sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one business day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.  The addresses
for such communications are:

If to the Company:                                                                                             Acorda
Therapeutics, Inc. 

15 Skyline Drive

Hawthorne, New York 10532

Facsimile:  (914) 347-4560

Attn:  General Counsel

With a copy to:                                                                                                             Covington
& Burling LLP

1330 Avenue of the Americas

New York, NY 10019

Attn:  Ellen B. Corenswet

If to a Purchaser: 
To the address set forth immediately below such Purchaser’s name on the
signature pages hereto.  Each party will
provide ten days’ advance written notice to the other parties of any change in
its address.

Section 8.7             Successors and Assigns.  This Agreement is binding upon and inures to
the benefit of the parties and their successors and assigns.  The Company will not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Purchasers, and no Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company, except
as permitted in accordance with Section 6.9 hereof.

Section 8.8             Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto, their respective permitted successors and assigns and the
Placement Agents, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.

Section 8.9             Further Assurances.  Each party will do and perform, or cause to
be done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

Section 8.10           No Strict Construction.  The language used in this Agreement is deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 23
 

 

 

Section 8.11           Equitable Relief.  The Company recognizes that if it fails to
perform or discharge any of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief to the Purchasers.  The Company therefore agrees that the
Purchasers are entitled to seek temporary and permanent injunctive relief in
any such case.  Each Purchaser also
recognizes that, if it fails to perform or discharge any of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to
the Company.  Each Purchaser therefore
agrees that the Company is entitled to seek temporary and permanent injunctive
relief in any such case.

Section 8.12           Survival of Representations and
Warranties.  Notwithstanding any
investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchasers herein shall survive for
a period of one year following the date hereof.

Section 8.13           Independent Nature of
Purchasers’ Obligations and Rights. 
The obligations of each Purchaser under this Agreement are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. Nothing contained herein and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group, or are deemed affiliates (as such term is defined under the Exchange
Act) with respect to such obligations or the transactions contemplated by this
Agreement.  Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

[Signature Page Follows]

 

 24

 

 

IN
WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.

	
  

  	
  ACORDA THERAPEUTICS, INC.

  
	
   

  	
  By:

  	
  /s/ Ron Cohen

  
	
   

  	
  Name: Ron Cohen

  
	
   

  	
  Title: President and Chief Executive Officer

  

 

 

 25

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Green Way Managed Account Series, Ltd., in respect
  to

  
	
   

  	
  its segregated account, Green Way Portfolio D

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Atticus Capital L.P. its Investment Manager

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ MATTHEW EDMONDS

  
	
   

  	
   

  	
   

  	
  Matthew Edmonds, President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Atticus Capital LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  152 West 57th St., 45th Fl.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10019

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-373-0801

  
					

 

 26
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Atticus Trading, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ MATTHEW EDMONDS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Matthew Edmonds, Director

  
	
   

  	
           (print name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Atticus Capital LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  152 West 57th St., 45th Fl.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10019

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-373-0801

  
					

 

 27
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Atticus Global Advisors, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ MATTHEW EDMONDS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Matthew Edmonds, Director

  
	
   

  	
           (print name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Atticus Capital LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  152 West 57th St., 45th Fl.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10019

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-373-0801

  
					

 

 28
 

 

 

	
  

  	
  PURCHASER

  	 

	
   

  	
   

  	 

	
   

  	
  Visium Balanced Fund, LP

  	 

	
   

  	
  (investor name)

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
  By:

  	
  /s/ Mark Gottlieb

  	 

	
   

  	
  (signature)

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Mark Gottlieb, CCO

  	 

	
   

  	
  (print name and
  title)

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Address:

  	
  135 East 57th Street, 27th Floor

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	 

	
   

  	
  Facsimile:

  	
  212-808-2301

  	 

									

 

 29
 

 

 

	
  

  	
  PURCHASER

  	 

	
   

  	
   

  	 

	
   

  	
  Visium Balanced Offshore Fund, Ltd.

  	 

	
   

  	
  (investor name)

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
  By:

  	
  /s/ Mark Gottlieb

  	 

	
   

  	
  (signature)

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Mark Gottlieb, CCO

  	 

	
   

  	
  (print name and
  title)

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Address:

  	
  135 East 57th Street, 27th Floor

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	 

	
   

  	
  Facsimile:

  	
  212-808-2301

  	 

									

 

 30
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Visium Long Bias Fund, LP

  
	
   

  	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK GOTTLIEB

  
	
   

  	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  	
   

  
	
   

  	
  Mark Gottlieb, CCO

  
	
   

  	
   

  	
  (print name and title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  135 East 57th Street, 27th Floor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-808-2301

  
						

 

 31
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Atlas Master Fund, Ltd.

  
	
   

  	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SCOTT SCHROEDER

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  	
   

  
	
   

  	
  Scott Schroeder,
  Authorized Signatory

  
	
   

  	
   

  	
  (print name and title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  135 East 57th Street, 27th Floor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-808-2301

  
						

 

 32
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Visium Long Bias Offshore Fund, Ltd.

  
	
   

  	
           (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK
  GOTTLIEB

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Mark Gottlieb, CCO

  
	
   

  	
   

  	
  (print name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  135 East 57th Street, 27th Floor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-808-2301

  
					

 

 33

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Pierce Diversified Strategy Master Fund LLC, Ena

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Brendan O’Neil

  
	
   

  	
           (signature)

  
	
   

  	
  Brendan O’Neil,
  Principal and Portfolio Manager

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  One Ferry Building, Suite 255

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  415-677-1580

  
					

 

 34
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Enable Opportunity Partners LP

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Brendan O’Neil

  
	
   

  	
           (signature)

  
	
   

  	
  Brendan O’Neil,
  Principal and Portfolio Manager

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  One Ferry Building, Suite 255

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  415-677-1580

  
					

 

 35
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Enable Growth Partners LP

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Brendan O’Neil

  
	
   

  	
           (signature)

  
	
   

  	
  Brendan O’Neil, Principal
  and Portfolio Manager

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  One Ferry Building, Suite 255

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  415-677-1580

  
					

 

 36
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  UBS O’Connor LLC FBO

  
	
   

  	
  O’Connor PIPES Corporate Strategies Master Ltd.

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Nicholas S. Nocerino

  
	
   

  	
           (signature)

  
	
   

  	
  Nicholas S. Nocerino

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  UBS O’Connor LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  One North Wacker Drive, 32nd Floor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Chicago, IL 60606

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (312) 525-6271

  
	
   

  	
   

  	
   

  
	
   

  	
  Contact:

  	
  Jeff Richmond

  
	
   

  	
   

  	
   

  
	
   

  	
  Tele:

  	
  (312) 525-5839

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  jeff.richmond@ubs.com

  
					

 

 37
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  HIGHBRIDGE INTERNATIONAL LLC

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
  By: HIGHBRIDGE CAPITAL MANAGEMENT, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Adam J. Chill

  
	
   

  	
           (signature)

  
	
   

  	
  Adam J. Chill, Managing
  Director

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Highbridge Capital Management, LLC

  
	
   

  	
   

  	
  9 West 57th Street, 27th Floor

  
	
   

  	
   

  	
  New York, New York 10019

  
	
   

  	
   

  	
  Attn: Ari J. Storch / Adam J. Chill

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (212) 751-0755

  
					

 

 38
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Iroquois Master Fund Ltd.

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joshua Silverman

  
	
   

  	
           (signature)

  
	
   

  	
  Joshua Silverman, Authorized
  Signatory

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  641 Lexington Ave.

  
	
   

  	
   

  	
  26th Floor

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (212) 207-3452

  
					

 

 39
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  LB I Group Inc.

  
	
   

  	
               (investor
  name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eric Salzman

  
	
   

  	
           (signature)

  
	
   

  	
  Eric Salzman SVP

  
	
   

  	
               (print
  name and title)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  399 Park Ave 9th Floor

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (646) 758-1630

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3 Oct. 2006

  
					

 

 40

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Life Science Capital Master Fund

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Sinclair

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Robert Sinclair / Director

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  PO Box 309 GT, Ugland House

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  South Church St, Georgetown

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Grand Cayman, Cayman Islands

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  011 44 1481 729499

  
					

 

 41
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  SF Capital Partners Ltd.

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian H. Davidson

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Brian H. Davidson, Managing Director

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  3600 South Lake Drive

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  St. Francis, WI 53235

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  414-294-7700

  
	
   

  	
   

  	
   

  
	
   

  	
  SF Capital Partners Ltd. is a

  British Virgin Islands corporation

  
					

 

 42
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Third Point Offshore Fund Ltd

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Waller

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Keith Waller

  Managing Director Operations

  Third Point LLC

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  390 Park Ave, 18th Fl

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-224-7401

  
	
   

  	
   

  	
   

  
					

 

 43
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Third Point Partners LP

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Waller

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Keith Waller

  Managing Director Operations

  Third Point LLC

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  390 Park Ave, 18th Fl

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-224-7401

  
	
   

  	
   

  	
   

  
					

 

 44
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Third Point Partners Qualified LP

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Waller

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Keith Waller

  Managing Director Operations

  Third Point LLC

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  390 Park Ave, 18th Fl

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-224-7401

  
	
   

  	
   

  	
   

  
					

 

 45
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  Third Point Ultra Ltd.

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Waller

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Keith Waller

  Managing Director Operations

  Third Point LLC

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  390 Park Ave, 18th Fl

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-224-7401

  
	
   

  	
   

  	
   

  
					

 46
 

 

 

	
  

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
  JP Morgan Ventures Corp.

  
	
   

  	
  (investor name)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jennifer Piepszak

  
	
   

  	
   

  	
  (signature)

  
	
   

  	
   

  
	
   

  	
  Jennifer Piepszak, MD

  
	
   

  	
  (print name and
  title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  270 Park Ave

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Floor 7

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10017

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212-834-6004

  
	
   

  	
   

  	
   

  
					

 

 47

 

	
   

  	
   

  	
  PURCHASER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Baker Biotech Fund I, L.P.

  
	
   

  	
   

  	
  By:

  	
  Baker Biotech Capital, L.P.

  
	
   

  	
   

  	
   

  	
  its general Partner

  
	
   

  	
   

  	
  By:

  	
  Baker Biotech Capital (GP), LLC

  
	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ FELIX
  BAKER, PH.D.

  
	
   

  	
   

  	
   

  	
  Felix Baker, Ph.D.

  
	
   

  	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Baker Brothers Life Sciences L.P.

  
	
   

  	
   

  	
  By:

  	
  Baker Brothers Life Sciences Capital, L.P.

  
	
   

  	
   

  	
   

  	
  its general Partner

  
	
   

  	
   

  	
  By:

  	
  Baker Brothers Life Sciences Capital (GP), LLC

  
	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ FELIX
  BAKER, PH.D.

  
	
   

  	
   

  	
   

  	
  Felix Baker, Ph.D.

  
	
   

  	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  14159, L.P.

  
	
   

  	
   

  	
  By:

  	
  14159 Capital, L.P.

  
	
   

  	
   

  	
   

  	
  its general Partner

  
	
   

  	
   

  	
  By:

  	
  14159 Capital (GP), LLC

  
	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ FELIX
  BAKER, PH.D.

  
	
   

  	
   

  	
   

  	
  Felix Baker, Ph.D.

  
	
   

  	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for above entities is:

  
	
   

  	
   

  	
  667 Madison Avenue 17th Floor

  
	
   

  	
   

  	
  New York, NY 10012

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax # 212 521 2245

  

 

[SECURITIES PURCHASE
AGREEMENT SIGNATURE PAGE]

 

 

 48

 

EXHIBIT A

SCHEDULE OF
PURCHASERS

	
  Purchaser

  	
   

  	
   

  	
   

  	
  Shares

  	
   

  	
  Aggregate Purchase Price

  	
   

  
	
  Atticus Global
  Advisors, Ltd.

  	
   

  	
  311,450

  	
   

  	
  $

  	
  3,036,637.50

  	
   

  
	
  Atticus Trading, Ltd.

  	
   

  	
  53,336

  	
   

  	
  $

  	
  520,026.00

  	
   

  
	
  Green Way Managed
  Account Series, Ltd.

  	
   

  	
  45,470

  	
   

  	
  $

  	
  443,332.50

  	
   

  
	
  Baker Biotech Fund I,
  L.P.

  	
   

  	
  78,701

  	
   

  	
  $

  	
  767,334.75

  	
   

  
	
  Baker Brothers Life
  Sciences, L.P.

  	
   

  	
  675,357

  	
   

  	
  $

  	
  6,584,730.75

  	
   

  
	
  14159, L.P.

  	
   

  	
  15,173

  	
   

  	
  $

  	
  147,936.75

  	
   

  
	
  Atlas Master Fund, Ltd.

  	
   

  	
  28,674

  	
   

  	
  $

  	
  279,571.50

  	
   

  
	
  Visium Long Bias
  Offshore Fund, Ltd.

  	
   

  	
  119,639

  	
   

  	
  $

  	
  1,166,480.25

  	
   

  
	
  Visium Long Bias Fund,
  LP

  	
   

  	
  30,560

  	
   

  	
  $

  	
  297,960.00

  	
   

  
	
  Visium Balanced
  Offshore Fund, Ltd.

  	
   

  	
  167,610

  	
   

  	
  $

  	
  1,634,197.50

  	
   

  
	
  Visium Balanced Fund,
  LP

  	
   

  	
  102,300

  	
   

  	
  $

  	
  997,425.00

  	
   

  
	
  Pierce Diversified
  Strategy Master Fund LLC, Ena

  	
   

  	
  15,385

  	
   

  	
  $

  	
  150,003.75

  	
   

  
	
  Enable Growth Partners,
  LP

  	
   

  	
  261,538

  	
   

  	
  $

  	
  2,549,995.50

  	
   

  
	
  Enable Opportunity
  Partners, LP

  	
   

  	
  30,769

  	
   

  	
  $

  	
  299,997.75

  	
   

  
	
  Highbridge
  International LLC

  	
   

  	
  89,679

  	
   

  	
  $

  	
  874,370.25

  	
   

  
	
  JP Morgan Ventures
  Corp.

  	
   

  	
  461,538

  	
   

  	
  $

  	
  4,499,995.50

  	
   

  
	
  Iroquois Master Fund
  Ltd.

  	
   

  	
  76,923

  	
   

  	
  $

  	
  749,999.25

  	
   

  
	
  LB I Group Inc.

  	
   

  	
  205,128

  	
   

  	
  $

  	
  1,999,998

  	
   

  
	
  Life Science Capital
  Master Fund

  	
   

  	
  25,641

  	
   

  	
  $

  	
  249,999.75

  	
   

  
	
  SF Capital Partners
  Ltd.

  	
   

  	
  102,564

  	
   

  	
  $

  	
  999,999.00

  	
   

  
	
  Third Point Partners
  Qualified LP

  	
   

  	
  22,700

  	
   

  	
  $

  	
  221,325.00

  	
   

  
	
  Third Point Partners LP

  	
   

  	
  28,800

  	
   

  	
  $

  	
  280,800.00

  	
   

  
	
  Third Point Offshore Fund
  Ltd

  	
   

  	
  184,511

  	
   

  	
  $

  	
  1,798,982.25

  	
   

  
	
  Third Point Ultra Ltd

  	
   

  	
  20,400

  	
   

  	
  $

  	
  198,900.00

  	
   

  
	
  UBS O’Connor LLC FBO
  O’Connor PIPES Corporate Strategies Master Ltd.

  	
   

  	
  76,923

  	
   

  	
  $

  	
  749,999.25

  	
   

  
	
  Total

  	
   

  	
  3,230,769

  	
   

  	
  $

  	
  31,499,997.75Exhibit
10.1

EXECUTION
COPY

PURCHASE
AND SALE AGREEMENT

 

Dated
as of October 3, 2006

 

by
and among

CROWN
MEDIA HOLDINGS, INC.,

CM
INTERMEDIARY, LLC,

CROWN
MEDIA DISTRIBUTION, LLC

and

RHI
ENTERPRISES, LLC

 

 

TABLE OF CONTENTS

	
  ARTICLE 1

  	
   

  	
  CERTAIN DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  PURCHASE AND SALE

  	
   

  	
  11

  
	
  2.1

  	
   

  	
  Purchase and Sale of the Company

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  PURCHASE PRICE AND PAYMENT

  	
   

  	
  11

  
	
  3.1

  	
   

  	
  Purchase Price

  	
   

  	
  11

  
	
  3.2

  	
   

  	
  Adjustment of Purchase Price

  	
   

  	
  11

  
	
  3.3

  	
   

  	
  Allocation of Purchase Price

  	
   

  	
  13

  
	
  3.4

  	
   

  	
  Sales Tax

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  REPRESENTATIONS AND WARRATIES OF SELLER AND THE
  COMPANY

  	
   

  	
  13

  
	
  4.1

  	
   

  	
  Organization and Qualification

  	
   

  	
  13

  
	
  4.2

  	
   

  	
  Authorization and Validity of Agreement

  	
   

  	
  14

  
	
  4.3

  	
   

  	
  No Undisclosed Liabilities

  	
   

  	
  14

  
	
  4.4

  	
   

  	
  No Violation; Consents and Approvals

  	
   

  	
  14

  
	
  4.5

  	
   

  	
  Legal Proceedings

  	
   

  	
  15

  
	
  4.6

  	
   

  	
  Compliance with Applicable Laws

  	
   

  	
  15

  
	
  4.7

  	
   

  	
  Absence of Certain Changes

  	
   

  	
  15

  
	
  4.8

  	
   

  	
  Employees

  	
   

  	
  16

  
	
  4.9

  	
   

  	
  Real Property

  	
   

  	
  16

  
	
  4.10

  	
   

  	
  Taxes

  	
   

  	
  16

  
	
  4.11

  	
   

  	
  Contracts

  	
   

  	
  17

  
	
  4.12

  	
   

  	
  Liens

  	
   

  	
  17

  
	
  4.13

  	
   

  	
  Film Properties

  	
   

  	
  17

  
	
  4.14

  	
   

  	
  Music Rights

  	
   

  	
  18

  
	
  4.15

  	
   

  	
  Availabilities of Group A Films

  	
   

  	
  18

  
	
  4.16

  	
   

  	
  Quality of Film Properties

  	
   

  	
  18

  
	
  4.17

  	
   

  	
  Brokers

  	
   

  	
  18

  
	
  4.18

  	
   

  	
  Intellectual Property

  	
   

  	
  19

  
	
  4.19

  	
   

  	
  Ownership by the Company; No Inconsistent Actions

  	
   

  	
  19

  
	
  4.20

  	
   

  	
  Bagbridge Agreement

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  REPRESENTATIONS AND WARRANTIES OF BUYES

  	
   

  	
  19

  
	
  5.1

  	
   

  	
  Organization and Qualification

  	
   

  	
  19

  
	
  5.2

  	
   

  	
  Authorization and Validity of Agreement

  	
   

  	
  19

  
	
  5.3

  	
   

  	
  No Violation; Consents and Approvals

  	
   

  	
  20

  
	
  5.4

  	
   

  	
  Financing Commitment Letters

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  COVENANTS

  	
   

  	
  20

  
	
  6.1

  	
   

  	
  Access to Information

  	
   

  	
  20

  
	
  6.2

  	
   

  	
  Information

  	
   

  	
  21

  
	
  6.3

  	
   

  	
  Operations in the Ordinary Course of Business

  	
   

  	
  21

  
	
  6.4

  	
   

  	
  Forbearance by Seller

  	
   

  	
  21

  

 

 

 

	
  6.5

  	
   

  	
  Operation of Business

  	
   

  	
  22

  
	
  6.6

  	
   

  	
  Notification of Claims

  	
   

  	
  22

  
	
  6.7

  	
   

  	
  Regulatory Consents, Authorizations, etc

  	
   

  	
  22

  
	
  6.8

  	
   

  	
  No Inconsistent Action

  	
   

  	
  23

  
	
  6.9

  	
   

  	
  Right of Access

  	
   

  	
  23

  
	
  6.10

  	
   

  	
  No Additional Representations

  	
   

  	
  23

  
	
  6.11

  	
   

  	
  Tax Matters

  	
   

  	
  24

  
	
  6.12

  	
   

  	
  Participations and Residuals

  	
   

  	
  27

  
	
  6.13

  	
   

  	
  Additional Obligations Related to Participations and
  Receivables

  	
   

  	
  28

  
	
  6.14

  	
   

  	
  Program License Agreements Payments

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  CONDITIONS TO CLOSING

  	
   

  	
  29

  
	
  7.1

  	
   

  	
  Conditions of Each Party’s Obligation to Close

  	
   

  	
  29

  
	
  7.2

  	
   

  	
  Conditions of Buyer’s Obligation to Close

  	
   

  	
  30

  
	
  7.3

  	
   

  	
  Conditions to Seller’s Obligation to Close

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  THE CLOSING

  	
   

  	
  32

  
	
  8.1

  	
   

  	
  Time and Location of Closing

  	
   

  	
  32

  
	
  8.2

  	
   

  	
  Actions by Seller at the Closing

  	
   

  	
  32

  
	
  8.3

  	
   

  	
  Actions by Buyer at the Closing

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  INDEMNIFICATION

  	
   

  	
  34

  
	
  9.1

  	
   

  	
  Indemnification by Seller

  	
   

  	
  34

  
	
  9.2

  	
   

  	
  Indemnification by Buyer

  	
   

  	
  34

  
	
  9.3

  	
   

  	
  Defense of Claims

  	
   

  	
  35

  
	
  9.4

  	
   

  	
  Survival of Representations, Warranties and
  Covenants

  	
   

  	
  36

  
	
  9.5

  	
   

  	
  No Limitation on Rights

  	
   

  	
  36

  
	
  9.6

  	
   

  	
  Treatment of Indemnity Payments

  	
   

  	
  36

  
	
  9.7

  	
   

  	
  No Right of Contribution

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  GENERAL PROVISIONS

  	
   

  	
  36

  
	
  10.1

  	
   

  	
  Further Assurances

  	
   

  	
  36

  
	
  10.2

  	
   

  	
  Termination

  	
   

  	
  37

  
	
  10.3

  	
   

  	
  Dispute Resolution

  	
   

  	
  38

  
	
  10.4

  	
   

  	
  Successors and Assigns

  	
   

  	
  39

  
	
  10.5

  	
   

  	
  No Waiver

  	
   

  	
  39

  
	
  10.6

  	
   

  	
  Entire Agreement; Amendments

  	
   

  	
  39

  
	
  10.7

  	
   

  	
  Notices

  	
   

  	
  39

  
	
  10.8

  	
   

  	
  Governing Law

  	
   

  	
  41

  
	
  10.9

  	
   

  	
  Publicity

  	
   

  	
  41

  
	
  10.10

  	
   

  	
  Section Headings

  	
   

  	
  41

  
	
  10.11

  	
   

  	
  Severability

  	
   

  	
  41

  
	
  10.12

  	
   

  	
  Counterparts

  	
   

  	
  41

  

 

 

 

	
  Schedules

  	
   

  
	
  Schedule 1.41

  	
  Group A Films

  
	
  Schedule 1.42

  	
  Group B Films

  
	
  Schedule 1.68

  	
  Certain Sales Commissions to be Excluded From
  Retained Liabilities

  
	
  Schedule 1.71

  	
  Sale and Leaseback Transactions

  
	
  Schedule 1.76

  	
  Seller’s Knowledge

  
	
  Schedule 3.2(b)

  	
  A/R Statement Methodology

  
	
  Schedule 4.7

  	
  Certain Changes

  
	
  Schedule 4.10

  	
  Taxes

  
	
  Schedule 4.11(a)

  	
  Contracts

  
	
  Schedule 4.11(b)

  	
  Company License Agreements

  
	
  Schedule 4.11(c)

  	
  Pre-2001 License Agreements

  
	
  Schedule 4.13

  	
  Locations of Film Properties

  
	
  Schedule 4.15(a)

  	
  Group A Availabilities

  
	
  Schedule 4.15(b)

  	
  Group A Profit Participants

  
	
  Schedule 4.19

  	
  Ownership of Assets

  
	
  Schedule 6.13(c)

  	
  Information Submitted or to be Submitted to
  Entertainment Partners

  
	
  Schedule 6.14

  	
  Program License Agreements Payments

  
	
  Schedule 7.2(c)

  	
  Requisite Consents

  
	
   

  	
   

  
	
  Exhibits

  	
   

  
	
  Exhibit A

  	
  Form of Assignment and Assumption Agreement

  
	
  Exhibit B

  	
  HMCER License Agreement

  
	
  Exhibit C

  	
  Retained Liabilities Assumption Agreement

  
	
  Exhibit D

  	
  Debt Commitment Letter

  
	
  Exhibit E

  	
  Equity Commitment Letter

  

 

 

THIS PURCHASE AND SALE AGREEMENT is made and entered
into as of October 3, 2006 by and among Crown Media Holdings, Inc., a Delaware
corporation, CM Intermediary, LLC, a Delaware limited liability company
(collectively, “Seller”), Crown Media Distribution, LLC, a Delaware
limited liability company (the “Company”), and RHI Enterprises, LLC, a
Delaware limited liability company (“Buyer”).

WHEREAS, CM Intermediary, LLC, an entity wholly owned
by Crown Media Holdings Inc., is the sole member of the Company;

WHEREAS, the Company owns certain rights to a library
of theatrical films, made-for-television movies, specials, mini-series, series
and other television programming;

WHEREAS, as an inducement for Buyer to enter into this
Agreement, Seller, Hallmark Cards, Incorporated, the Company and Buyer have
entered into an Intercreditor Agreement dated as of the date hereof; and

WHEREAS, Buyer desires to purchase from Seller, and
Seller desires to sell, assign, transfer and convey to Buyer, all of Seller’s
interest in the Company on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and
of the mutual covenants, representations, warranties and agreements contained
herein, the parties hereto agree as follows:

ARTICLE 1

CERTAIN DEFINITIONS

Capitalized terms not otherwise defined herein shall
have the following meanings when used in this Agreement:

1.1           “2001
Purchase and Sale Agreement” means that certain Purchase and Sale
Agreement, dated as of April 10, 2001, by and between Crown Media Holdings,
Inc. and Hallmark Entertainment Distribution, LLC.

1.2           “Accounting
Firm” shall be defined as set for in Section 3.2(d).

1.3           “Accounts
Receivable” are any and all payments due under all Company License
Agreements as of the Closing Date.

1.4           “Affiliate”
shall mean with respect to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person; provided that for purposes of this
Agreement the Affiliates of the Company shall include only Crown Media Holdings
Inc., and its Subsidiaries and that Hallmark Cards, Incorporated, a Missouri
corporation, and its Subsidiaries, other than Crown Media Holdings, Inc. and
its Subsidiaries, shall not be Affiliates of the Seller or the Company.

1.5           “Agreement”
shall mean this Purchase and Sale Agreement as amended and modified from time
to time.

 1
 

 

 

1.6           “Ancillary
Rights” shall mean any collateral, allied, ancillary or subsidiary rights
of Seller, the Company or their Affiliates derived from, appurtenant to or
related to any Film or the Literary Property, including, without limitation,
the production, Exploitation, reissue, remake, prequel, sequel, serial or series
production rights, whether based upon, derived from or inspired by any Film or
the Literary Property, or any part thereof, rights to use, exploit and license
others to use or exploit the novelization, publishing or commercial tie-ups,
including those arising out of or connected with or inspired by any Film or the
Literary Property, the characters appearing in any Film or the Literary
Property or the names or characteristics of these characters, and including
rights to Exploit the same commercially in connection with or related to any
Film or any remakes, prequels, sequels, serials or series, whether based upon,
derived from or inspired by any Film or any part thereof, or other derivative
works thereof or derived from the Literary Property, or music publishing rights
or merchandising rights.

1.7           “A/R
Statement” shall be as defined in Section 3.2(c).

1.8           “Assignment
and Assumption Agreement” shall mean an agreement in substantially the form
attached hereto as Exhibit A, pursuant to which Buyer will acquire all of
Seller’s right, title and interest in the Company.

1.9           “Bagbridge
Agreement” shall mean the Asset Purchase and Sale Agreement dated as of
February 23, 2005, by and among Crown Media Holdings, Inc., the Company and
Bagbridge Limited.

1.10         “Bagbridge
Rights” shall mean all rights and interests, tangible and intangible, in,
of, or related to the Films to the extent sold by certain Affiliates of Seller
to Bagbridge Limited pursuant to the Bagbridge Agreement.

1.11         “Baseline”
shall be as defined in Section 3.2(a).

1.12         “Buyer”
shall be as defined in the preamble to this Agreement.

1.13         “Buyer
Material Adverse Effect” shall mean any event, occurrence, fact, condition,
change, or effect that has a materially adverse effect on the ability of Buyer
to consummate the transactions contemplated hereby.

1.14         Intentionally
Omitted.

1.15         “Cash
Consideration” shall be as defined in Section 3.1(a).

1.16         “Closing”
shall be as defined in Section 8.1.

1.17         “Closing
Date” shall be as defined in Section 8.1.

1.18         “Code”
shall mean the Internal Revenue Code of 1986, as amended.

1.19         “Company”
shall be as defined in the preamble to this Agreement.

 2
 

 

 

1.20         “Company
Assets” shall mean all rights and interests, tangible or intangible in, of,
or related to the Films, including, without limitation, the Film Rights
(including, but not limited to, the Literary Property, the Film Properties, the
Ancillary Rights and the other Film Intellectual Property), the Accounts
Receivable, the rights of Seller and the Company under the Company License
Agreements, the rights of Seller and the Company under the Film Agreements, and
the goodwill associated with the foregoing.

1.21         “Company
License Agreements” are those License Agreements entered into by Seller or
the Company (or any such License
Agreements of which the Company was the
assignee, transferee, or beneficiary, in whole or in part) between
January 1, 2001 and the Closing Date pursuant to which the Company or any
designee acting on behalf of the Company licensed, granted, conveyed, assigned,
and/or transferred, in whole or in part, any rights in the Company Assets, to
any Person.

1.22         “Confidential
Memorandum” shall be as defined in Section 6.10.

1.23         “Confidentiality
Agreement” shall mean the Confidentiality Agreement dated as of July 6,
2006, by and between Crown Media Holdings, Inc. and Kelso & Company.

1.24         “Contract”
shall mean any note, bond, indenture, mortgage, deed of trust, contract,
instrument, document or other agreement.

1.25         “Control”
shall mean the possession, directly or indirectly, of the affirmative power to
direct or cause the direction of the management and policies of a Person
(whether through ownership of securities, partnership interests or other
ownership interests, by contract, by membership or involvement in the board of
directors, management committee or management structure of such Person, or
otherwise), and “Controlled” shall be construed accordingly.

1.26         “Controlling
Party” shall be as defined in Section 6.11(f).

1.27         Intentionally
Omitted.

1.28         “Copyright
Registrations” shall mean the copyright registrations with respect to the
Films, issued by the U.S. Copyright Office or such foreign Copyright Office, or
equivalent thereof, wherever the Films are licensed, distributed or otherwise
exploited.

1.29         “Dispute
Notice” shall be as defined in Section 3.2(c).

1.30         “Estimated
A/R Statement” shall be as defined in Section 3.2(b).

1.31         “Estimated
Adjusted Accounts Receivable” shall be as defined in Section 3.2(b).

1.32         
“Exploitation” shall mean, in relation to any Film, the release, sale,
distribution, sub-distribution, leasing, sub-leasing, marketing, licensing,
sub-licensing, exhibition, broadcasting or other exploitation of such Film, and
“Exploit” shall be construed accordingly.

 3
 

 

 

1.33         “Film
Agreements” shall mean those Contracts, judicial awards and/or rulings
pursuant to which Seller, the Company, their Affiliates or their predecessors
in interest acquired or purchased from any other Person any of the Film Rights,
as such agreements have been amended from time to time.  Such agreements shall include, but not be
limited to, any and all:  production
services agreements, writer agreements, literary or other rights acquisition
agreements, work-for-hire agreements, producer agreements, talent agreements,
assignment of rights agreements, assignments of Film Intellectual Property,
releases and/or any and all other documents, agreements, letters, releases,
contracts, or memoranda, (whether in written or electronic format) pertaining
to the acquisition of Film Rights of each such Film.

1.34         “Film
Intellectual Property” shall mean all right, title and interest of Seller
and the Company in and to any of the Intellectual Property owned, used, held,
developed, or under development related to the Films, including, but not
limited to, the Copyright Registrations and Trademark Registrations.

1.35         “Film
Properties” shall mean all existing physical properties (other than
Literary Property) of or relating to the Films owned or controlled by Seller or
the Company or to which Seller or the Company has access, subject to the
Bagbridge Rights therein, including, but not limited to, film, film negatives
and positives; sound effect tracks; master tapes and other duplicating
materials of any kind; original art work; and other tangible elements and
materials and properties in respect of the Films; foreign language dubbed and
titled versions; prints and negatives of stills; trailers and television spots
and all promotional and other advertising and publicity materials of all kinds;
cuts, trims, outtakes and stock footage, together with digital copies of any of
the foregoing.

1.36         “Film
Rights” shall mean any and all right and interest, tangible and intangible,
of Seller, the Company and any of their Affiliates in, of, or relating to the
Films, including, but not limited to, the following:

(a)           the
Literary Property for each Film;

(b)           the
Film Properties for each Film;

(c)           copyrights,
rights and interests in copyrights, renewals and extensions of copyrights,
domestic and foreign, including any such rights pursuant to the Sale and
Leaseback Transactions or otherwise, obtained upon or in relation to any Film
or the Literary Property or any part thereof, rights (but not the obligation)
to make publication thereof for copyright purposes and to register claims under
copyright, rights (but not the obligation) to renew and extend such copyrights,
and rights (but not the obligation) to sue in the name of any Person for past,
present or future infringements of copyright;

(d)           the
Ancillary Rights;

(e)           the
right to Exploit (including, without limitation, by way of remake or prequel)
any Film in any Media in any language or authorize third parties to do so,
including, without limitation, the music synchronization rights for the music
composition and musical recording rights as contained in such Films and
language dubbing rights, including, without 

 4
 

 

 

limitation, the rights to edit, alter, dub,
subtitle and voiceover, in each instance subject to the License Agreements;

(f)            rights
to advertise, promote and publicize the Films in any Media and language in
connection with the Exploitation of the Films, including the right to create
and use trailers and promotional materials, the use of synopses of or brief
excerpts from the Films, or from the Literary Property; the use of the music and
dialogue of the Films, and the names, voices, images, likenesses and
biographies of the lead cast, director, producer, writers, composers, and other
significant personnel or entities rendering services for or connected with the
Films, to the fullest extent possible; provided, however, that
all of the foregoing shall be subject to those restrictions set forth in the
Film Agreements;

(g)           rights
to use in connection with the Exploitation of the Films in any Media and
language, the names, credits, logos, trade names, trademarks and titles
contained in or incorporated into the Films, trailers, positive prints,
preprint materials and video masters of the Films and advertising and publicity
materials relating to the Films; and

(h)           to
the extent not covered by Section 1.36(a) through (g), all Film Intellectual
Property.

Notwithstanding anything herein to the contrary, Film
Rights shall not include the Bagbridge Rights.

1.37         “Films”
shall mean the Group A Films and the Group B Films.

1.38         “GAAP”
shall mean United States generally accepted accounting principles as in effect
on the applicable date.

1.39         “Governmental
Entity” shall mean any court, arbitrator, administrative or other
governmental department, agency, commission, authority or instrumentality,
domestic (including federal, state or local) or foreign.

1.40         “Group
A Availabilities Schedule” shall be as defined in Section 4.15(a).

1.41         “Group
A Films” shall mean those Films set forth on Schedule 1.41.

1.42         “Group
B Films” shall mean those Films set forth on Schedule 1.42.

1.43         “Guild”
shall mean the Screen Actors Guild (SAG), American Federation of Television and
Radio Artists (AFTRA), American Federation of Musicians (AFM), Directors Guild
of America (DGA), Writers Guild of America (WGA), British Equity, Alliance of
Canadian Cinema Television and Radio Artists (ACTRA), Directors Guild of Canada
(DGC), American Society of Composers, Authors and Publishers (ASCAP), SESAC,
Inc. (SESAC), Broadcast Music, Inc. (BMI) and all other applicable guilds,
unions or collectives.

1.44         “Guild
Assumption Agreements” shall mean the standard assumption agreements
required by any Guild to be signed by Buyer or an Affiliate in connection with
the acquisition of the Company.

 5
 

 

 

1.45         “HMCER
License” shall mean the license to be executed by Buyer and Seller in
substantially the form attached hereto as Exhibit B.

1.46         “Income
Tax” shall mean any tax imposed by any United States federal, state, local
and foreign or other tax authority with respect to income, gross receipts,
gains, profits or windfall profits.

1.47         “Indemnified
Buyers” shall be as defined in Section 9.1.

1.48         “Indemnified
Seller Parties” shall be as defined in Section 9.2.

1.49         “Intellectual
Property” shall mean all of the following: 
(i) registered and unregistered trademarks, service marks, names,
slogans, logos, symbols, trade dress, and trade names, trademark and service
mark applications, trademark and service mark registrations, and any and all
goodwill symbolized thereby and associated therewith; (ii) patents, including,
without limitation, reissues and reexamined patents, substitutes, divisions,
continuations, continuations-in-part, renewals, extensions, patent disclosures
and improvements thereto, and patent applications, whenever filed  and whenever issued, including, without
limitation, all priority rights resulting from such applications, designs,
formulas, ideas, concepts, methods, processes, discoveries, and inventions;
(iii) computer software (in object code and source code), programs, systems,
algorithms, menu structures, syntax, and applications, with the exception of
commercially available, off-the-shelf software; (iv) trade secrets,
information, and know-how; (v) registered and unregistered copyrights in all
works, including, without limitation, all rights to distribute, reproduce and
prepare derivative works, software programs, copyright registrations, copyright
renewals, works of authorship, databases, copyright applications, and moral
rights; (vi) domain names; (vii) any and all other intellectual property assets
of any nature whatsoever; (viii) any copies and tangible embodiments thereof
(in whatever form or medium); and (ix) any and all right (including the right
to use), title, and interest in and to any and all of the foregoing, including,
but not limited to the right to sue for past, present, and future infringement,
misappropriation or dilution.

1.50         “IRS”
shall mean the United States Internal Revenue Service.

1.51         “Liability”
shall mean, with respect to any Person, any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, or guaranty of such Person of any kind,
whether or not contingent, whether accrued or unaccrued, and whether or not the
same is required by applicable GAAP to be accrued on the financial statements
of such Person.

1.52         “License
Agreements” shall mean those Contracts entered into by Seller or the
Company, their Affiliates or by their predecessors in interest, (or any such Contracts of which Seller or the Company
or their predecessors in interest is the assignee, transferee, or beneficiary
of, in whole or in part), pursuant to which Seller or the Company or
their predecessors in interest licensed, granted, conveyed, assigned, and/or
transferred, in whole or in part, any rights in the Company Assets, to any Person.  Sale and Leaseback Transactions shall be
treated as License Agreements regardless of when they were concluded.  For the avoidance of doubt, License
Agreements shall not include the Bagbridge Agreement.

 6
 

 

 

1.53         “Lien”
shall mean any lien, encumbrance, pledge, mortgage, security interest, claim
under bailment or storage contract.

1.54         “Literary
Property” shall mean the literary and musical material upon which, in whole
or in part, any Film is based, or which has been used or included in any Film,
including, without limitation, the screenplay, and all other scripts, scenarios,
stories, treatments, movies, outlines, titles, concepts, manuscripts, recorded
music scores, soundtracks and lead sheets or other properties or materials of
any kind or nature, in whatever state of completion and all drafts, versions
and variations thereof.

1.55         “Losses”
shall be as defined in Section 9.1.

1.56         “Material
Contracts” shall be as defined in Section 4.11.

1.57         “Media”
shall mean any and all forms of exhibition and delivery by every means, method,
process, medium or device now or hereafter known, invented, contemplated or
devised throughout the universe, including, without limitation:  theatrical, television, Internet, broadband
and narrowband digital delivery, and Videogram (as defined below) exhibition,
free (or over-the-air), cable and basic cable television, pay and subscription
television, and community antenna systems, low and full power television,
multi-point distribution systems, wire, fiber optics, microwave, Telstar-type,
DBS, all other forms of satellite and relay television, so-called “interactive
television,” video-on-demand, near-video-on-demand, high-definition television
(HDTV) and any and all other kinds of open or closed circuit systems (as now or
hereafter known).

1.58         “Participations
and Residuals” means any (i) profit participation related to the
Exploitation of any Film Rights and (ii) residual payments due to creative
artists or Guilds on account of the Exploitation of the Film Rights, except for
payments due in connection with music licensing contemplated in Section
4.14(a).

1.59         “Permitted
Liens” shall mean (a) Liens
for taxes or governmental assessments, charges or claims the payment of which
is not yet due, or for Taxes the validity of which are being contested in good
faith; (b) Liens of laboratories, carriers, warehousemen, mechanics,
materialmen and other similar persons and other Liens imposed by applicable
law, in each case, in respect to accounts due and owing prior to the Closing,
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith; (c) Liens securing executory obligations under
any lease entered into through or arranged by Servicing Agent that constitutes
an “operating lease” under GAAP; (d) Liens in favor of Guilds and their
Affiliated pension and/or health plans for profit participations and residual
costs, in each case, not yet due and payable; (e) customary Liens granted in
the ordinary course to secure the rights granted a licensee under a License
Agreement to which such licensee is a party; (f) Liens set forth in the
agreements related to the Company Assets entered into through or arranged by
Servicing Agent, access to which has been provided to Buyer; and (g) Liens
granted in connection with the Sale and Leaseback Transactions.

 7
 

 

 

1.60         “Person”
shall mean an individual, partnership, corporation, business trust, limited
liability company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental
Entity.

1.61         “Potential
Change of Control” shall be as defined in Section 6.13(b).

1.62         “Post-Closing
Period” shall mean any taxable period beginning after the Closing Date.

1.63         “Pre-2001
License Agreements” shall mean those License Agreements entered into by the
predecessors in interest of the Company (or any
such License Agreements of which the
Company’s predecessors in interest were the assignees, transferees, or
beneficiaries of, in whole or in part) prior to January 1, 2001 pursuant
to which the Company’s predecessors in interest licensed, granted, conveyed,
assigned, and/or transferred, in whole or in part, any rights in the Company
Assets, to any Person.

1.64         “Pre-Closing
Period” shall mean any taxable period ending on or before the Closing Date.

1.65         “Program
License Agreements” shall mean (i) the Amended and Restated Program License
Agreement dated January 1, 2001 and (ii) the Second Amended and Restated
Program License Agreement dated January 1, 2005, in each case, between RHI
Entertainment Distribution, LLC (f.k.a. Hallmark Entertainment Distribution,
LLC) and Crown Media United States, LLC, and as amended from time to time.

1.66         “Purchase
Price” shall be as defined in Section 3.1.

1.67         “Purchase
Price Adjustment” shall be as defined in Section 3.2(a).

1.68         “Retained
Liabilities” shall mean all Liabilities of the Company (excluding its
Subsidiary Wayzgoose) as of the Closing Date other than those Liabilities
relating to (i) the Company Assets arising prior to January 1, 2001 or after
the Closing Date, or Liabilities incurred in the ordinary course of business
pursuant to License Agreements arranged by Servicing Agent and entered into
after April 30, 2006, (ii) Sale and Leaseback Transactions, (iii) the Pre-2001
License Agreements, (iv) those sales commissions described on Schedule 1.68
arising on account of revenues received after the Closing pursuant to Company
License Agreements and (v) any trade payable or other current liabilities for
which a purchase price adjustment is made pursuant to Section 3.2 (a)
hereof.  Notwithstanding any provision to
the contrary, Retained Liabilities shall include, (a) any Liability to pay any
Participations and Residuals, including any penalties, interest, fees or other
related Liabilities, related to any Film Rights where the event giving rise to
such Liability occurs after January 1, 2001 but prior to the tenth anniversary
of the Closing Date (regardless of when such Participations and Residuals are
payable), so long as such Exploitation is pursuant to licenses (including the
licenses granted pursuant to the License Agreements) or other contractual
commitments granted by Seller, the Company, Buyer or one of their respective
Affiliates, except that such Retained Liabilities shall not include
Participations and Residuals related to the Pre-2001 License Agreements; (b)
any Liability in, of or related to the Bagbridge Agreement, other than Sections
6.14(a), (b), (c) and (d) and Section 6.16 thereof, but including, without
limitation, any Liability relating to the 

 8
 

 

 

payment of any Participations and Residuals
thereunder; and (c) any Liability with respect to Taxes incurred or imposed on
or with respect to the Company, the Company Assets, Company License Agreements,
or the income, properties or operations of the Company and its Subsidiaries for
any Tax period (or portion thereof) ending on or before the Closing Date
excluding Tax Liabilities relating to Sale and Leaseback Transactions; provided
that Retained Liabilities shall not include any penalties, interest, fees, or
other Liabilities resulting solely from Buyer’s failure to timely perform its
obligations under Section 6.12.  For the
avoidance of doubt, Retained Liabilities includes all Liabilities to Seller or
its Affiliates or Hallmark Cards, Incorporated or its Subsidiaries.

1.69         “Retained
Liabilities Assumption Agreement” shall mean an agreement in substantially
the form attached hereto as Exhibit C, pursuant to which the Company will
assign to Seller, and Seller will assume from the Company, the Retained
Liabilities.

1.70         “Sale
and Leaseback Rights” shall mean rights granted to or retained by third
parties in connection with sale and leaseback and other financing transactions
related to the Films.

1.71         “Sale
and Leaseback Transactions” shall mean any agreement relating to Sale and
Leaseback Rights and set forth on Schedule 1.71.

1.72         “Seller”
shall be as defined in the preamble to this Agreement.

1.73         “Seller
Disclosure Schedule” shall mean the schedules of Seller attached hereto.

1.74         “Seller’s
Affiliated Group” shall mean any unitary, combined or consolidated group of
which the Seller is a member for United States, federal, state or local tax
purposes.

1.75         
“Seller’s Indemnification Claim” shall be as defined in Section 9.1.

1.76         “Seller’s
Knowledge” shall mean the actual knowledge of any of the persons set forth
on Schedule 1.76.  The parties
acknowledge that the sections of the Seller Disclosure Schedule listing
information required by Sections 4.5, 4.11, 4.13, 4.14 4.15, 4.16 and 4.18 will
be based primarily on information provided to Seller, the Company or their
Affiliates by Servicing Agent and in such circumstances qualifications as to
Seller’s Knowledge shall mean the persons on Schedule 1.76 have no actual
knowledge of any inaccuracies regarding any such information provided by
Servicing Agent, and such persons shall not have any implied duty to perform an
independent verification of the accuracy of such information.

1.77         “Servicing
Agent” means RHI Entertainment, LLC or any related Persons performing
certain sales, marketing and other services in connection with the Films
pursuant to that certain Library Services Agreement by and between Crown Media
Holdings, Inc. and Hallmark Entertainment, Inc. (predecessor in interest to RHI
Entertainment, LLC), dated as of September 28, 2001, as amended or extended
from time to time.

 9
 

 

 

1.78         “Straddle
Period” shall mean any taxable period beginning before the Closing Date and
ending after the Closing Date.

1.79         “Subsidiary”
of any Person means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the Board of Directors or other Persons performing similar functions are at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person.

1.80         “Tax”
or “Taxes” shall include all taxes imposed by any U.S. federal, state,
local, foreign or other taxing authority, including all income, gross receipts,
gains profits, windfall profits, gift, severance, ad valorem, capital, social
security, unemployment disability, premium, recapture, credit, excise,
property, commercial rent, sales, use, occupation, service, service use,
leasing, leasing use, value added, transfer, payroll, employment, withholding,
estimated, license, stamp, franchise or similar taxes of any kind whatsoever,
including interest, penalties or additions thereto.

1.81         “Tax
Contest” shall be as defined in Section 6.11(f).

1.82         “Tax
Return” shall mean any report, return, documents, declaration or other
information (and any supporting schedules or attachments thereto) required to
be supplied to any taxing authority or jurisdiction with respect to Taxes
(including any returns or reports filed on a consolidated, unitary, or combined
basis).

1.83         Intentionally
Omitted.

1.84         “Trademark
Registrations” shall mean the trademark registrations with respect to the
Films, both foreign and domestic, wherever the Films are licensed, distributed
or otherwise exploited.

1.85         “Video-On-Demand
Agreements” means the VOD License Agreement between Crown Media United
States, LLC and Comcast Cable Communications, LLC, dated as of October 4, 2004
and any other similar agreements with third parties related to “video-on-demand”
exhibition to the extent such agreements grant rights to the Films.

1.86         “Videogram”
shall mean any and all forms of videocassette, DVD, CD-ROM, videodisc, video
cartridge, audiovisual tape, or other similar device now known or hereafter
devised and designed primarily (but not exclusively) for in-home exhibition by
means of a VCR, DVD player or other playback device which causes a visual image
(whether or not synchronized with sound) to be seen on the screen of a
television receiver or any comparable device now known or hereafter devised.

1.87         “Warner
Bros. License Agreement” shall mean the Distribution Agreement dated as of
May 22, 2006 by and between Warner Bros. Domestic Cable Distribution (“Warner
Bros.”) and the Company.

1.88         “Wayzgoose,
Ltd.” shall be as defined in Section 4.1(c).

 10
 

 

 

ARTICLE 2

PURCHASE AND SALE

2.1           Purchase
and Sale of the Company.  Upon the
terms and subject to conditions set forth in this Agreement, Seller shall at
the Closing sell, assign, grant, convey and deliver to Buyer, and Buyer shall acquire
from Seller with effect from the Closing, all of its right, title and interest
in and to the Company free and clear of all Liens, except for Permitted Liens.

ARTICLE 3

PURCHASE PRICE AND
PAYMENT

3.1           Purchase
Price.  The full and complete
consideration for the Seller’s interest in the Company shall be as follows (the
“Purchase Price”):

(a)           At
the Closing, Buyer shall pay to Seller $160.0 million (the “Cash
Consideration”; provided that the Cash Consideration shall be
subject to adjustment pursuant to Section 3.2) in United States dollars by wire
transfer of immediately available funds to such account as Seller shall direct
for the purchase of the Company.

(b)           At
the Closing, Seller shall assign to Buyer all of Seller’s right, title and
interest in the Company pursuant to the Assignment and Assumption Agreement and
Buyer shall assume Seller’s obligations arising after the date of the Closing
under the operating agreement of the Company.

3.2           Adjustment
of Purchase Price.  (a)  The Purchase Price shall be adjusted in
accordance with this Section 3.2 to the extent that (i)(A) the Accounts
Receivable (including Accounts Receivable with respect to which payment has
been received by the Servicing Agent but not remitted to Seller as of the
Closing Date, but excluding Accounts Receivable related to Company License
Agreements entered into on or after April 30, 2006), net only of an allowance
for doubtful accounts, less (B) the amount of any cash received by Seller or
the Company (and not paid to Buyer) related to Company License Agreements
entered into on or after April 30, 2006, less (C) the amount of any trade
payables or other current liabilities as of the Closing Date (the amount
referred to in this clause (i), the “Adjusted Accounts Receivable”),
differs from (ii) $16,535,000, which Seller and the Company represent was the
balance of the Accounts Receivable as of April 30, 2006 (excluding receivables
attributable to non-United States Film licensee fees) determined in accordance
with the procedures set forth on Schedule 3.2(b) attached hereto (the amount
referred to in this clause (ii), the “Baseline”).

(b)           No
later than 5 days prior to the Closing Date, Seller shall prepare, or cause to
be prepared, and deliver to Buyer an estimated statement of the Adjusted
Accounts Receivable (the “Estimated A/R Statement”), which shall include
an estimate of the Adjusted Accounts Receivable (the “Estimated Adjusted
Accounts Receivable”).  The Estimated
A/R Statement shall be prepared in accordance with Section 3.2(a) and the
procedures set forth on Schedule 3.2(b) attached hereto and shall be based on
the accounts receivable report prepared in the ordinary course of business of
the Company as of the last day of the calendar month immediately preceding the
tenth day prior to the Closing Date.  If
the Estimated Adjusted 

 11
 

 

 

Accounts Receivable is less than the
Baseline, then the Purchase Price shall be reduced by an amount equal to such
difference.  If the Estimated Adjusted
Accounts Receivable exceeds the Baseline, then the Purchase Price shall be increased
by an amount equal to such excess.

(c)           No
later than 60 days following the Closing Date, Buyer shall prepare, or cause to
be prepared, and deliver to Seller a final statement of the Adjusted Accounts
Receivable (the “A/R Statement”). 
The A/R Statement shall be prepared in accordance with Section 3.2(a)
and the procedures set forth on Schedule 3.2(b) attached hereto.  Seller shall provide Buyer and its advisors
reasonable access to the books and records of Seller in connection with the
preparation of the A/R Statement.  Upon
receipt of the A/R Statement, Seller shall have 30 days following the receipt
thereof to review such statement and, in connection therewith, Seller shall
have full access (during normal business hours and without disruption to the operations
of the Company) to the Buyer’s and the Company’s officers, employees,
accountants and other representatives and the books and records reasonably
related to the A/R Statement calculation. 
If as a result of such review, Seller disagrees with Buyer’s final A/R
Statement, Seller shall deliver to Buyer a written notice of disagreement (a “Dispute
Notice”) prior to the expiration of the 30 day review period, setting forth
the basis for such dispute in reasonable detail.  If Seller does not deliver a Dispute Notice
within such 30 day period, then the A/R Statement as of the Closing Date shall
be final and binding on Buyer and Seller.

(d)           If
Seller delivers a Dispute Notice to Buyer in a timely manner, then,
notwithstanding anything to the contrary set forth in Section 10.3, Buyer and
Seller shall attempt in good faith to resolve such dispute within 30 days from
the date of such Dispute Notice.  Such
negotiations shall be conducted by managers or executive officers of each party
who have authorization to resolve such dispute. 
If Buyer and Seller cannot reach agreement within such 30 days period,
then, such dispute will be submitted for resolution to a nationally recognized
accounting firm (the “Accounting Firm”) mutually agreed upon by both
parties, if and to the extent that such Accounting Firm agrees to resolve the
dispute without conducting an audit or preparing an attest report.  The parties shall share equally the cost of
the Accounting Firm.  In the event that
the parties cannot find an Accounting Firm willing to resolve the dispute in
accordance with the foregoing procedures within 15 days, then such dispute will
be subject to mediation and, if necessary, submitted to final and binding
arbitration, pursuant to Section 10.3  of
this Agreement.

(e)           If,
pursuant to clauses (c) or (d) of this Section 3.2, it is finally determined
that the Adjusted Accounts Receivable was less than the Estimated Adjusted
Accounts Receivable, then Seller shall, within 10 business days from the date
of such final determination, pay to the Buyer the amount equal to such
difference, together with interest thereon at the rate of 10% per annum from
the Closing Date to the date of payment, such cash payment to be made by wire
transfer of immediately available funds to such bank account as Buyer may
designate (or, in the absence of any such designation, by corporate check
delivered to Buyer).

(f)            If,
pursuant to clauses (c) or (d) of this Section 3.2, it is finally determined
that the Adjusted Accounts Receivable was greater than the Estimated Adjusted
Accounts Receivable, then Buyer shall, within 10 business days of the date of
such final determination, pay to Seller, the amount equal to such difference,
together with interest thereon at the rate of 10% per annum from the Closing Date
to the date of payment, such cash payment to be made by wire 

 12
 

 

 

transfer of immediately available funds to
such bank account as Seller may designate (or in the absence of such
designation, by corporate check delivered to Seller).

3.3           Allocation
of Purchase Price.  Buyer shall
prepare a proposed allocation of the total consideration among the assets of
the Company as soon as practicable after Closing and Seller shall have the
right to review and make reasonable comments on such proposed allocation.  Buyer and Seller shall (except as may be
required by a “determination” within the meaning of Section 1313(a) of the Code
or any similar state, local or foreign Tax law) (i) report the allocation of
the total consideration among the assets of the Company in accordance with the
allocation made pursuant to this Section 3.3 and (ii) act in accordance with
such allocation (x) in the preparation and filing of all Tax Returns (including
filing any forms or statements required by the Code, Treasury Regulations, the
IRS or any applicable state or local Tax authority) and (y) in the course of
any Tax proceeding.  Buyer and Seller
shall promptly inform one another of any challenge by any Governmental Entity
to the allocation made pursuant to this Section 3.3 after the Closing and agree
to consult and keep one another informed with respect to the status of, and any
discussion, proposal or submission with respect to, such challenge.

3.4           Sales
Tax.  Buyer shall be liable for, and
timely pay any sales, transfer, stamp, stock transfer, use, real property,
goods and services and similar Taxes that are payable in connection with the
purchase of all of Seller’s right, title and interest in and to the Company by
Buyer pursuant to this Agreement.  Buyer
and Seller shall cooperate in timely making all filings, returns, reports and
forms as may be required in connection with the payment of such Taxes.  Seller and Buyer, as appropriate, shall
execute and deliver all instruments and certificates necessary to enable the
other to comply with any filing requirements and/or laws relating to such
Taxes.

ARTICLE 4

REPRESENTATIONS
AND WARRANTIES OF SELLER AND THE COMPANY

Except as disclosed in the Seller Disclosure Schedule,
Seller and the Company hereby represent and warrant to Buyer as follows:

4.1           Organization
and Qualification.

(a)           Crown
Media Holdings, Inc. is a corporation duly formed, validly existing and in good
standing under the laws of the state of Delaware and has all requisite
corporate power and authority to carry on its business as it is now being
conducted as and where the business is located.

(b)           CM
Intermediary, LLC is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite limited liability company power and authority to own, license and
dispose of its assets and to carry on its business as it is now being conducted
as and where the business is located.

(c)           The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
limited liability company power and authority to own, license and dispose of
its assets and to 

 13
 

 

 

carry on its business as it is now being
conducted as and where the business is located. The Company does not have any
Subsidiaries or otherwise hold any equity interests in other entities other
than an interest in Wayzgoose Concerts Services B.V., a wholly-owned Subsidiary
of the Company (“Wayzgoose”). 
Neither the Company nor any Seller has ever caused Wayzgoose to conduct
any business or incur any Liability except at the express direction of
Servicing Agent.

4.2           Authorization
and Validity of Agreement.  Each of
Seller and the Company has all requisite power and authority to execute and
deliver this Agreement and to carry out and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.  The execution, delivery and performance by
Seller and the Company of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
action of Seller and the Company and no other action on the part of Seller or
the Company is necessary for the authorization, execution, delivery or
performance by Seller or the Company of this Agreement and the consummation of
the transactions contemplated hereby. 
This Agreement has been duly executed and delivered by Seller and the
Company and, assuming the due authorization, execution and delivery by Buyer,
constitutes the valid and binding obligation of Seller and the Company,
enforceable against Seller and the Company in accordance with its terms (except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally, or by principles governing the availability of equitable remedies).

4.3           No
Undisclosed Liabilities.  Except for
Liabilities and obligations set forth on Schedule 1.64 or incurred in the
ordinary course of business pursuant to Film Agreements, License Agreements or
other agreements, in each case, where the Servicing Agent was involved in the
negotiation or drafting of such agreement (including obligations to pay sales
commissions on account of revenues received after the Closing pursuant to
Company License Agreements), the Company has no Liabilities or obligations.

4.4           No
Violation; Consents and Approvals. 
(a)  Neither the execution and
delivery of this Agreement by Seller or the Company, nor the consummation of
the transactions contemplated hereby, do or would after the giving of notice or
the lapse of time or both, (i) violate, conflict with, result in a breach of,
or constitute a default under, the certificate of formation or other similar
governing documents of Seller or the Company or any U.S. federal, state or local
court or administrative order or process, or any agreement, Contract, or other
instrument, to which Seller or the Company is a party or by which the Company’s
assets are subject or bound; (ii) violate or conflict with any U.S. federal,
state or local law, statute or regulation; (iii) result in the creation or
vesting of any right of payment to any third party, or give any party the right
to create, any Lien upon the assets of the Company; (iv) terminate or give any
party the right to terminate, amend, abandon or refuse to perform any agreement
or Contract to which the Company’s assets are subject or bound; or (v)
accelerate or modify, or give any party thereto the right to accelerate or
modify, the time within which, or the terms under which, any party is to
perform any duties or obligations or receive any rights or benefits under any
agreement or Contract affecting the Company’s assets.

(b)           Except
for the waiting period under the Hart Scott Rodino Antitrust Improvements Act
of 1976, as amended, all consents, approvals, authorizations and other 

 14
 

 

 

requirements prescribed by law, rule or
regulation which must be obtained or satisfied by Seller or the Company and
that are necessary for the execution and delivery by Seller and the Company of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been obtained and satisfied, other than as would not reasonably
be expected to have a material adverse effect on the assets or liabilities of
the Company or the ability of Seller or the Company to consummate the
transactions contemplated herein.

4.5           Legal
Proceedings.  There are no, nor have
there been during the three years ending on the date of this Agreement any
suits, actions, claims received directly by Sellers or the Company or
litigation, or legal, administrative, arbitration, mediation or other
proceedings or governmental investigations or inquiries, past, current, pending
or, to Seller’s Knowledge, threatened against the Company (other than Guild
claims or audits in the ordinary course of business, notice of which was given
to Servicing Agent) or that challenges the Seller’s or the Company’s ability to
consummate the transactions contemplated hereby, nor is there any judgment,
decree, injunction, ruling, award, order or writ of any Governmental Entity or
other Person outstanding against or binding upon the Company or to the Seller’s
Knowledge, relating to the Company Assets, or otherwise affecting the ability
of Seller or the Company to consummate the transactions contemplated
hereby.  Neither the Seller nor the
Company is subject to, or in default under, any judgment, order, injunction or
decree of any Governmental Entity in respect of the Company Assets which would
have a material adverse effect on the Company’s ability to exploit, license,
assign, transfer, sell or otherwise deal with the Company Assets following the
Closing.

4.6           Compliance
with Applicable Laws.  Seller and the
Company are, and at all times during the three years ending on the date of this
Agreement have been, in compliance with all laws, statutes, ordinances, rules,
regulations and orders of all Governmental Entities applicable to the Company
and the Company Assets, except for such non-compliance as would not be material
to the Company or the Company Assets as a whole.

4.7           Absence
of Certain Changes.  From April 30,
2006 through the date hereof, and except as otherwise contemplated by this
Agreement, and except as set forth in Schedule 4.7, the business of the Company
has been conducted only in the ordinary course, consistent with past practice,
and:

(a)           the
Company has not suffered any material change in its assets, including, but not
limited to, the Company Assets, or Liabilities;

(b)           the
Company has not, through the date hereof declared, paid or set aside for
payment any distribution in respect of its equity interests or redeemed,
purchased or otherwise acquired, directly or indirectly, any equity interests
of the Company;

(c)           the
Company has not made any sale, disposal or transfer of any assets, including,
but not limited to, the Company Assets, by way of the execution of any Company
License Agreement or otherwise, except pursuant to agreements in which the
Servicing Agent was involved in the negotiation or drafting of such agreement;

 15
 

 

 

(d)           the
Company has not, except in the ordinary course of business consistent with past
practice, amended or waived any material right under, or terminated, any
Material Contract;

(e)           the
Company has not incurred any capital expenditures; and

(f)            the
Company has not entered into any agreement, Contract, commitment or arrangement
to do any of the foregoing.

4.8           Employees.  The Company does not have, and has never had,
any employees.

4.9           Real
Property.  The Company does not, and
has never, owned or leased any real property.

4.10         Taxes.  (a) 
All material Tax Returns required to be filed on or before the Closing
Date by or on behalf of the Company (and with respect to the income, properties
or operations of the Company and each of its Subsidiaries) and with respect to
Seller’s interest in the Company have been timely filed (taking into account
extensions of time approved by the appropriate taxing authority) and all such
Tax Returns are true, complete and correct in all material respects; (b) all
material Taxes due and payable or required to be deducted or withheld by or
with respect to the Company (and with respect to the income, properties or
operations of the Company and each of its Subsidiaries) and with respect to
Seller’s interest in the Company have been timely deducted, withheld or paid;
(c) there are no Tax Liens, whether imposed by any U.S. federal, state, county,
municipal or foreign taxing authority, outstanding against the Company, or any
of the assets of the Company or any of its Subsidiaries, except for Permitted
Liens; (d) except as set forth on Schedule 4.10, none of the Company or any of
its Subsidiaries has waived any statute of limitations with respect to Taxes
which waiver remains in effect; (e) except as set forth on Schedule 4.10, there
are no pending (or threatened in writing) audits, examinations, investigations
or other proceedings in respect of material Taxes or material Tax Returns of
the Company or any of its Subsidiaries (or with respect to the income, properties
or operations of any of them); (f) neither the Company nor any of its
Subsidiaries is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any payments that
would not be deductible under Section 280G of the Code (or substantially
similar provision under foreign law); (g) neither the Company nor any of its
Subsidiaries is a party to or bound by any tax allocation or sharing agreement;
(h) the Company and its Subsidiaries hold no “United States real property
interests” within the meaning of Section 897(c) of the Code; (i) the Company is
a “disregarded entity” for United States federal income tax purposes and is
wholly-owned by CM Intermediary, LLC; (j) all Tax Returns, examination reports
and statements of deficiencies assessed with respect to the Company and its
Subsidiaries (and with respect to the income, properties or operations of the
Company or any of its Subsidiaries) made available to Buyer are correct and
complete; and (k) there has been no sale or transfer (including by way of
liquidation) of any tangible material assets, and no assumption of material
liabilities in connection with any sale or transfer of tangible assets,
(excluding any licensing of films in the ordinary course of business) owned
directly or indirectly by the Company or any of its Subsidiaries during the
taxable year of 2006, excluding any sale or 

 16
 

 

 

transfer for which any applicable sales or
transfer (or similar) taxes have already been paid and excluding any sale or
transfer occurring or deemed to occur as a result of this Agreement.

4.11         Contracts.  To Seller’s Knowledge: (i) an accurate,
complete and up-to-date list of all material Contracts to which the Company is
a party (whether or not related to the Company Assets) is set out on Schedule
4.11(a); (ii) an accurate, complete and up-to-date list of all Company License
Agreements is set out on Schedule 4.11(b); and (iii) an accurate, complete and
up-to-date list of all Pre-2001 License Agreements is set out on Schedule
4.11(c).  Together, these material
agreements, Company License Agreements and Pre-2001 License Agreements are
defined herein as the “Material Contracts”.  To Seller’s Knowledge, each Material Contract
is a valid and legally binding obligation of the Company and any counterparty
thereto, and is in full force and effect. 
To Seller’s Knowledge, all material obligations required to be performed
under the Material Contracts as of the date hereof by the Company have been
performed, and neither the Company nor any other party to any Material Contract
is in default in any material respect under the terms thereof.  To Seller’s Knowledge, there are no, nor have
there been any, material breaches or defaults under any Material Contract to
which the Company is a party, by which the Company is bound, or pursuant to
which the Company has any rights, by the Company or by any other party thereto,
which could result in any counterparty to such Material Contract becoming
entitled to any damages or giving rise to any right of termination. As of the
date hereof, none of Seller, the Company or any of their Subsidiaries has
received any written notice of termination of any Material Contract nor, to
Seller’s Knowledge, are there any pending or threatened notices of termination
by any party to any Material Contract. To Seller’s Knowledge, each Material
Contract is in full force and effect in all material respects and upon
consummation of the transactions contemplated hereby, will continue to be
legal, valid, and binding and in full force and effect on terms identical to
those in effect immediately prior to the consummation of the transactions
contemplated hereby.  No action, claim,
suit, proceeding, or investigation is pending or, to Seller’s Knowledge, is
being or has been threatened nor has any claim or demand been made, which
challenges the legality, validity, or enforceability of any such Material
Contract.  Without limiting the
foregoing, to the extent reflected in all relevant information provided by
Buyer or its Affiliates, all amounts due and owing on the date hereof with
respect to (i) profit participations related to any Film Rights and the
Bagbridge Rights based upon licenses (including the licenses granted pursuant
to the License Agreements) or other contractual commitments and (ii) residual
costs due to creative artists or Guilds for the Exploitation of Film Rights and
the Bagbridge Rights based upon licenses (including the licenses granted
pursuant to the License Agreements) or other contractual commitments, in each
case, have been paid in full.

4.12         Liens.  The Company’s assets transferred hereunder
are, and shall be at the Closing, free and clear of any and all Liens, other
than Permitted Liens.

4.13         Film
Properties.  To Seller’s Knowledge,
Schedule 4.13 sets forth a true, correct and complete list of the locations of
all of the Film Properties, the location and the parties and laboratories with
whom the Film Properties are deposited or kept and indicates whether such Film
Properties are owned by the Company and, where not owned by the Company, what
rights of access Seller has thereto.  The
Company has not sold, assigned, leased, licensed, granted, mortgaged, pledged,
subjected to any Lien or otherwise conveyed, transferred or disposed of any of
the Film Rights to any Person other than pursuant to the Company License
Agreements and 

 17
 

 

 

none of the Company License Agreements were
entered into by Seller or one of its Affiliates on or after April 30, 2006.

4.14         Music
Rights.  To Seller’s Knowledge, the
small performance rights in the music contained in the Films are either:  (a) controlled by and available for licensing
from ASCAP, BMI, SESAC or similar music performance rights societies; (b) in
the public domain; or (c) controlled by Seller or the Company and not available
for licensing through the music performance rights societies (in which case
such small performance rights controlled by Seller shall be deemed licensed to
the Company hereby by way of irrevocable, perpetual, royalty-free, fully-paid
up, worldwide license to use such music for the purpose of Exploiting the Film
Rights.)

4.15         Availabilities
of Group A Films.

(a)           To
Seller’s Knowledge, Schedule 4.15(a) sets forth a true, accurate and complete
list of the following rights by title with respect to all of the Group A Films:
(i) the availability (whether sold or not sold) of pay television rights, free
television rights, and videogram rights; (ii) if such rights are not currently
available for Exploitation in the categories set out in the preceding clause (i),
either the current customer, if the duration of rights granted is co-terminous
with Company’s duration of ownership or control of such rights, or, the
customer for the final sale made by the Company (any intervening customers are
set forth in the ‘Detailed Windows’ of this schedule); (iii) whether the sale
is exclusive or non-exclusive; (iv) when such customer’s rights expire; and (v)
the expiration date of the Film Rights (the “Group A Availabilities Schedule”).
To Seller’s knowledge, the Group A Films will be available for Exploitation by
the Company as indicated in the Group A Availabilities Schedule, and all such
rights will be available for assignment or transfer by the Company to third
parties after the Closing.  Buyer
acknowledges certain Group A Films have limited or no available distribution
rights as identified in the Group A Availabilities Schedule.  To Seller’s Knowledge, there are no material
limitations on the Exploitation of the Group A Films set forth in the Group A
Availabilities Schedule other than as set forth therein or pursuant to any
License Agreement.

(b)           To
Seller’s Knowledge, Schedule 4.15(b) sets forth a true, complete and correct
list of the profit participants related to the Group A Films.

4.16         Quality
of Film Properties.  To Seller’s
Knowledge, (a) there are sufficient Film Properties relating to the Group A
Films which are of suitable technical quality to create copies of the Group A
Films for Exploitation by major television exhibitors and Videogram companies
at the present time in conventional 525 NTSC television formats and (b)  Seller has in its possession, or has access
pursuant to written agreements with laboratories, or otherwise, sufficient
materials relating to each Group A Film to enable Buyer to manufacture
one-inch, D3 or Beta format NTSC Videograms to exercise the Film Rights.  Each Group A Film is completed and ready for
exhibition and distribution for use by the Company as set forth in the Group A
Availabilities Schedule.

4.17         Brokers.  Except for Salem Partners LLC, none of Seller
or any of its Subsidiaries has employed any broker or finder or incurred any
liability for any broker’s fees, commissions or finder’s fees in connection
with the sale of the Company or related transactions 

 

 18

 

 

contemplated by this Agreement.  Seller or a Subsidiary of Seller, as
applicable, shall be solely liable for all fees, commissions and/or finder’s
fees payable or owing (whether demanded or not) to Salem Partners LLC except
for matters where Buyer or its Affiliates have separately engaged Salem
Partners LLC.

4.18         Intellectual
Property.  The Company owns
exclusively and solely, or has the valid right and title to use, and has good
and marketable title to all of the Film Rights, free and clear of all Liens (except
Permitted Liens).  To Seller’s Knowledge,
use of the Film Rights has not violated or infringed upon or interfered with,
and is not currently violating or infringing upon or interfering with, third
party-owned Intellectual Property.  To
Seller’s Knowledge, no Person is violating or infringing upon or interfering
with, or has violated or infringed upon or interfered with at any time, any
Film Rights.  No Intellectual Property
other than the Film Rights is required by Buyer to exploit the Films and make
the Films available as provided in Schedule 4.15(a), except to the extent
limited by the Bagbridge Rights.

4.19         Ownership
by the Company; No Inconsistent Actions. 
Except (a) with respect to transfers directly or indirectly to the
Company, (b) pursuant to the Bagbridge Agreement, (c) pursuant to agreements in
which the Servicing Agent was involved in negotiation or drafting of such
agreement or (d) as set forth on Schedule 4.19,(1) neither Seller nor the
Company has taken any action, that has resulted, or may result in (i) the
disposition of or encumbrance on any asset acquired pursuant to the 2001
Purchase Agreement or (ii) the execution or termination of any Contract or any
amendment thereto or waiver of any provision thereof.  The Company, and not Seller or its Affiliates
(other than the Company), holds the Company Assets.

(1)             This
would be where the “video on demand” rights, scope and the Warner Bros.
agreement would be listed.

 

4.20         Bagbridge
Agreement.  Sellers have provided
Bagbridge Limited with copies of all License Agreements and extracts of
Excluded License Agreements and Excluded Preexisting HEI License Agreements
(each as defined in the Bagbridge Agreement) in the possession of Seller or its
Affiliates. 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

5.1           Organization
and Qualification.  Buyer is duly
organized, validly existing and in good standing under its jurisdiction of
formation.

5.2           Authorization
and Validity of Agreement.  Buyer has
all requisite corporate power and authority to execute this Agreement and to
carry out and perform its obligations under this Agreement, subject to the
terms of this Agreement, and to consummate the transactions contemplated
hereby.  The execution, delivery and
performance by Buyer of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by all
necessary action of Buyer and no other corporate action on the part of 

 19
 

 

 

Buyer is necessary for the authorization,
execution, delivery or performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby.  This Agreement has been duly executed and
delivered by Buyer and, assuming the due authorization, execution and delivery
by Seller, constitutes the valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms (except insofar as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors’ rights generally, or by principles
governing the availability of equitable remedies.

5.3           No
Violation; Consents and Approvals. 
(a)  Neither the execution and
delivery of this Agreement by Buyer nor the consummation of the transactions
contemplated hereby, do or would after the giving of notice or the lapse of
time or both (i) violate, conflict with, result in a breach of, or constitute a
default under, the certificate of incorporation or bylaws of Buyer, or any U.S.
federal, state, or local court or administrative order or process, or any
agreement, Contract, or other instrument, to which Buyer is a party or by which
Buyer (or any of its rights, properties or assets) is subject or bound or (ii)
violate or conflict with, any U.S. federal, state or local law, statute or
regulation, except in the case of (i) and (ii), as would not reasonably be
expected to have a Buyer Material Adverse Effect.

(b)           Except
for the waiting period under the Hart Scott Rodino Antitrust Improvements Act
of 1976, as amended, all consents, approvals, authorizations and other requirements
prescribed by any law, rule or regulation which must be obtained or satisfied
by Buyer and that are necessary for the execution and delivery by Buyer of this
Agreement and, subject to the terms of this Agreement, the consummation of the
transactions contemplated by this Agreement have been obtained and satisfied,
other than (i) as required under the antitrust, trade regulation or competition
laws of any jurisdiction or (ii) as would not reasonably be expected to have a
Buyer Material Adverse Effect or would not prevent the consummation of the
transactions contemplated by this Agreement.

5.4           Financing
Commitment Letters.   Attached hereto
as Exhibit D is the commitment letter delivered to Buyer for the proposed debt
financing of the transactions contemplated hereby, which letter is in full
force and effect and has not been amended or rescinded.  Buyer has an equity commitment for the
financing of the transactions contemplated hereby as reflected in the letter
attached hereto as Exhibit E, which equity commitment letter is in full force
and effect and has not been amended or rescinded.

ARTICLE 6

COVENANTS

6.1           Access
to Information.  (a)  Subject to the Confidentiality Agreement,
Seller and the Company agree to provide Buyer and Buyer’s officers, directors,
employees, accountants, counsel, financial advisors, agents and other
representatives, from time to time prior to the Closing Date or the termination
of this Agreement, such information as Buyer shall reasonably request with
respect to the Company and the directors and employees of the Company and the
Company shall give reasonably promptly all such information and explanations as
Buyer or any of Buyer’s officers, directors, employees, accountants, counsel,
financial advisors, agents and other representatives may reasonably
request.  Except as required 

 20
 

 

 

by law, Buyer shall hold, and shall cause
Buyer’s Affiliates and officers, directors, employees, accountants, counsel,
financial advisors, agents and other representatives to hold, any non-public
information received from Seller or the Company, directly or indirectly, in
accordance with the Confidentiality Agreement.

(b)           Seller
and the Company shall reasonably cooperate with Buyer with respect to the
financing Buyer desires to obtain in connection with the transactions
contemplated hereby, including, but not limited to, allowing Buyer access to
information regarding the Company, including Material Contracts.

6.2           Information.  Each party hereto undertakes to the other
parties that it will disclose promptly in writing to the other parties any
matter or thing which may arise or become known after the date of this
Agreement which is inconsistent with any representations or warranties set out
in Articles 4 and 5 and which might reasonably be expected to result in a
failure of a condition to Closing set out in Article 7 to be satisfied or a
claim or series of claims under the covenants of Article 9. Any such notice or
update to any Schedule to this Agreement shall not affect the rights of any
party hereunder.

6.3           Operations
in the Ordinary Course of Business. 
From the date hereof through the Closing Date, except as otherwise
contemplated by this Agreement, the Company shall, and Seller shall cause the Company
to, conduct its business in the usual course and in such manner as to ensure
that no act or event shall occur prior to the Closing Date which would
reasonably be expected to result in a breach of the representations and
warranties set out in Article 4.  Without
limiting the foregoing, Seller shall prepare, or shall cause to be prepared,
the financial information of the Company as needed to compile the Estimated A/R
Statement and determine the Estimated Adjusted Accounts Receivable as
contemplated by Section 3.2(b).

6.4           Forbearance
by Seller.  From the date hereof
through the Closing Date, except as otherwise contemplated by this Agreement,
the Company shall not, and Seller shall cause the Company not to, without the
prior written consent of Buyer:

(a)           sell,
assign, lease, license, grant, mortgage, pledge, subject to any Lien or
otherwise convey, transfer or dispose of any of the Company Assets or enter
into any agreement to do any of the foregoing;

(b)           enter
into, amend, modify, terminate, cancel or extend any Material Contract
(including License Agreements or further Contracts that could be considered
License Agreements);

(c)           waive
or release any rights, or cancel, compromise, release or assign any claims held
by Seller, except in the ordinary course of business;

(d)           incur
any capital expenditures;

(e)           change
any financial accounting methods, principles or practices, except insofar as
may be required by a change in GAAP; and

 21
 

 

 

(f)            authorize
or commit or agree to do any of the things described in clauses (a) through
(e).

6.5           Operation
of Business.  From the date hereof
through the Closing Date, the Company shall, and Seller shall cause the Company
to, conduct its business in all material respects in accordance with all
applicable legal and administrative requirements in any jurisdiction.  Without limiting the foregoing, the Company
shall, and Seller shall cause the Company to, promptly pay all amounts due and
owing in respect of (i) profit participations related to any Film Rights and
the Bagbridge Rights based upon licenses (including the licenses granted
pursuant to the License Agreements) or other contractual commitments and (ii)
residual costs due to creative artists or Guilds for the Exploitation of Film
Rights and the Bagbridge Rights based upon licenses (including the licenses
granted pursuant to the License Agreements) or other contractual commitments,
in each case, as and when such amounts become due and owing, as reflected in
information, of the same nature as described in Section 6.12, necessary to pay
such profit participations and residuals and provided to the Company or Seller
by Buyer or Servicing Agent.

6.6           Notification
of Claims.  From the date hereof
through the Closing Date, the Company and Seller shall, as promptly as
practicable, notify Buyer of the commencement or threatened commencement of any
material lawsuits, claims, proceedings or investigations against Seller or the
Company affecting the Company or the Company Assets, or seeking to enjoin the
transactions contemplated herein; and, Buyer shall, as promptly as practicable,
notify the Company and Seller of the commencement or threatened commencement of
any material lawsuits, claims, proceedings or investigations against Buyer
affecting the Company or the Company Assets, or seeking to enjoin the transactions
contemplated herein.

6.7           Regulatory
Consents, Authorizations, etc.  From
the date hereof through the Closing Date, (a)  each
of the parties hereto shall use its reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to (i) promptly make all registrations and filings with,
and obtain all necessary or advisable actions or non-actions, waivers, consents
and approvals from, all Governmental Entities and take all steps as may be
necessary or advisable to obtain an approval or waiver from, or to avoid an
action or proceeding by, a Governmental Entity; and (ii) defend any legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any order, stay or temporary
restraining order or preliminary or permanent injunction entered by any
Governmental Entity vacated or reversed.

(b)           From
the date hereof through the Closing Date, each party shall keep the other party reasonably
apprised of the status of matters relating to the completion of the transactions contemplated hereby, including promptly
furnishing the other party with copies of notices or other communications
received by such party or by any of its Affiliates from any third party and/or
any Governmental Entity with respect to the transactions contemplated hereby.
Each party shall promptly furnish to the other party such necessary information
and reasonable assistance as the other party may request in connection with the
foregoing and shall promptly provide counsel for the other party with copies of
all filings made by such party, and all correspondence between such party (and
its advisors) with any Governmental Entity and any other information supplied
by such party and its Affiliates to a Governmental Entity in 

 22
 

 

 

connection herewith and the
transactions contemplated hereby; provided, however, that each
party may, as it deems advisable and necessary, reasonably designate any
competitively sensitive material provided to the other party as “outside
counsel only,” and materials may be redacted (i) to remove
references concerning the valuation of the Company Assets and (ii) as necessary
to comply with applicable contractual arrangements.  Materials designated as for “outside
counsel only” and the information contained therein shall be given only to the
outside legal counsel of the receiving party and shall not be disclosed by such
outside counsel to employees, officers or directors of the receiving party
unless express permission is obtained in advance from the disclosing party or
its legal counsel.  Each party shall,
subject to applicable Law, permit counsel for the other party reasonable opportunity
to review in advance, and consider in good faith the views of such party in
connection with, any proposed written communication to any Governmental
Entity.  Each party agrees not to
participate, or to permit its Affiliates to participate, in any substantive
meeting or discussion, either in person or by telephone, with any Governmental
Entity in connection herewith and the transactions contemplated hereby unless
it consults with the other party in advance and, to the extent not prohibited
by such Governmental Entity, gives the other party the opportunity to attend
and participate.  None of the
parties hereto shall take or omit to take any action for the purpose of
delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing or registration.

6.8           No
Inconsistent Action.  From the date
hereof through the Closing Date, each party hereto shall use its commercially
reasonable efforts to consummate the transactions contemplated by this
Agreement and shall not take any action inconsistent with its obligations
hereunder or which could hinder or delay the consummation of the transactions
contemplated hereby.

6.9           Right
of Access.  Following the Closing,
(i) Buyer agrees to and agrees to cause the Company to make available to Seller
from time to time, and upon Seller’s reasonable request therefor, all
agreements, assignments and other documents relating to the Company or the
Company Assets as Seller may reasonably require for the purpose of responding
to or addressing legal issues that arise with respect to the Company or the
Company Assets and that involve the Seller, and for any other reason which
Buyer reasonably believes warrants access to such agreements, assignments and
other documents, and (ii) Sellers agree to make available to Buyer from time to
time, and upon Buyer’s reasonable request therefor, all agreements, assignments
and other documents relating to the Company or the Company Assets still in the
possession of Sellers as Buyer may reasonably require for the purpose of
responding to or addressing legal issues that arise with respect to the Company
or the Company Assets, determining whether payments under Company License
Agreements have been inadvertently made to Seller as contemplated by Section
6.14 and for any other reason which Seller reasonably believes warrants access
to such agreements, assignments and other documents.

6.10         No
Additional Representations.  Buyer
acknowledges that it and its representatives have received access to such books
and records, facilities, equipment, contracts and other assets of Seller which
it and its representatives have desired or requested to review, and that it and
its representatives have had full opportunity to meet with the management of
Seller to discuss the Company or the Company Assets.  Buyer acknowledges that (a) should the
Closing occur, Buyer shall acquire the Company and the Company Assets in an “as
is” condition 

 23
 

 

 

and on a “where is” basis, except as
expressly represented or warranted in this Agreement (which includes the
Schedules hereto); (b) neither Seller nor any other Person has made any
representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding the Company or the Company Assets
furnished or made available to Buyer and its representatives except as
expressly set forth in this Agreement (which includes the Schedules hereto) and
(c) except as contemplated hereby, neither Seller nor any other Person shall
have or be subject to any liability to Buyer or any other Person resulting from
Seller’s making available to Buyer or Buyer’s use of any such information,
including the presentation materials delivered to Buyer by Salem Partners, LLC
and dated July, 2006, as subsequently updated, supplemented or amended (the “Confidential
Memorandum”) or any information, documents or material made available to
Buyer in certain “data rooms,” other management presentations (formal or
informal) or in any other form in connection with the transactions contemplated
hereby.  Without limiting the foregoing,
except for the representations and warranties set forth herein, Seller makes no
representation or warranty to Buyer with respect to (x) the information set
forth in the Confidential Memorandum or (y) any financial projection or
forecast relating to Seller, the Company or the Company Assets, whether or not
included in the Confidential Memorandum.

6.11         Tax
Matters.

(a)           Cooperation
and Exchange of Information.  Seller
and Buyer shall provide each other with such assistance and information as may
reasonably be requested by each of them in connection with (i) the preparation
of any Tax Returns required to be filed (x) by the Company and its Subsidiaries
(or with respect to the income, properties or operations of the Company or any
of its Subsidiaries) or (y) with respect to ownership interests of the Company
and (ii) any audit or other examination by any Tax authority or any judicial or
administrative proceedings relating to such Tax Returns.  Seller, Buyer and the Company and any of its
Subsidiaries, as applicable, shall retain for the full period of any statute of
limitations (including any extensions) all Tax Returns, schedules and work
papers, and all material records and other documents relating to Tax matters,
of the Company and its Subsidiaries for all Pre-Closing Periods and Straddle
Periods, and shall provide to each other, any records or information reasonably
requested in connection with the preparation of such Tax Returns or any audit,
examination or proceeding relating to such Tax Returns.

(b)           Tax
Returns.  (i) Seller shall prepare
and file (or cause to be prepared and filed) in a timely manner all Tax Returns
of the Company and its Subsidiaries (and with respect to the income, properties
or operations of the Company and its Subsidiaries) for any Pre-Closing Period
other than all such Tax Returns that are due after the Closing Date.  Seller shall prepare such Tax Returns, and
each item thereon shall be treated, in a manner consistent with past practices
employed by the Company and its Subsidiaries, as appropriate, unless otherwise
required by law, and Buyer shall have the right to review and comment on such
Tax Returns in a reasonable manner; provided, however, that for the avoidance
of doubt the foregoing shall not apply to any Tax Returns of Seller’s Affiliated
Group. (ii) Buyer shall prepare and file (or cause to be prepared and filed) in
a timely manner all Tax Returns required to be filed by the Company and any of
its Subsidiaries (and with respect to the income, properties or operations of
the Company and its Subsidiaries, other than such income or operation that is
includable in any Tax Return of Seller or Seller’s Affiliated Group) for any
Pre-Closing Period that are due after the 

 24
 

 

 

Closing Date and for any Straddle
Period.  The rest of this Section 6.11(b)(ii)
shall apply only if Seller is at least partially liable for payment of Taxes
shown on such Tax Returns (and Buyer requests payment of such Taxes from
Seller) under provisions of Section 6.11(c). 
Buyer shall prepare such Tax Returns, and each item thereon shall be
treated, in a manner consistent with past practices employed by the Company and
its Subsidiaries, as appropriate, unless otherwise required by law or such past
practice is unreasonable.  Buyer shall
provide Seller with a copy of such completed Tax Return (and, in the case of
any Tax Return for a Straddle Period, a statement certifying the amount of Tax
shown on such Tax Return that is allocable to Seller in accordance with Section
6.11(g) hereof), together with appropriate supporting information and
schedules, at least 20 business days prior to the due date (including any
extension thereof) for the filing of such Tax Return.  Seller shall have the right to review and
comment on such Tax Returns prior to the filing thereof.  In the case of any Tax Return for a
Pre-Closing Period, Buyer shall make any changes reasonably requested by Seller
with respect to any such Tax Return.  No
Tax Return for a Pre-Closing Period shall be filed without Seller’s prior
written approval (which approval shall not be unreasonably withheld,
conditioned or delayed).  (iii) Buyer
shall prepare and file (or cause to be prepared and filed) in a timely manner
all Tax Returns of the Company and any of its Subsidiaries (and with respect to
the income, properties or operations of the Company and its Subsidiaries) for
any Post-Closing Period.

(c)           Tax
Payments.  (i) Seller shall pay (or
cause to be paid) to the relevant Tax authority all Taxes shown on Tax Returns
required to be filed by Seller pursuant to Section 6.11(b)(i) hereof on or
prior to the due date for payment thereof. 
(ii) Buyer shall pay (or cause to be paid) to the relevant Tax authority
all Taxes shown on Tax Returns required to be filed by Buyer pursuant to
Section 6.11(b)(ii) hereof on or prior to the due date for payment
thereof.  Seller shall remit to Buyer (x)
the amount of such Taxes, in the case of Pre-Closing Periods or (y) the portion
of such Taxes that is allocable to the portion of the period ending on the
Closing Date in accordance with Section 6.11(g) hereof, in the case of Straddle
Periods.  Payment of such amounts shall
be made to Buyer in immediately available funds at least two business days
before the date on which such Taxes are due.

(d)           Tax
Indemnity.  Seller shall defend,
indemnify and hold the Indemnified Buyers and the Company and each of its
Subsidiaries harmless from and against any Losses with respect to (i) Taxes of
or with respect to the Company or any of its Subsidiaries, or for which any of
them may be liable, for any Pre-Closing Period (or portion of a Straddle Period
ending on the Closing Date), (ii) Taxes of or which are the liability of Seller
or of any of the members of Seller’s Affiliated Group (for which the Company or
any of its Subsidiaries may become liable under Treasury Regulations §1.1502-6
or otherwise), and (iii) any Taxes imposed on the Company or any of its
Subsidiaries arising as a result of a breach or violation of the
representations and warranties contained in Section 4.10 (Taxes) and/or the
covenants contained in Section 6.11 (Tax Matters), in each case together with
reasonable out-of-pocket attorneys’ and accountants’ fees and, in each case,
without duplication of amounts previously paid by Seller pursuant to Section
6.11(c)(i) in each case, excluding Losses for Taxes relating to Sale and
Leaseback Transactions.  Indemnity
payments under this Section 6.11(d) shall be made to Buyer in immediately
available funds at least two business days before the date payment of the Taxes
to which such payment relates is due, or, if such Tax has been paid by Buyer or
any of its Affiliates, within ten days after written demand is made for such
payment, and shall not be subject to any minimum threshold or maximum limit.

 25
 

 

 

(e)           Tax
Refunds/Benefits.  Any credit which
has the result of reducing the Tax payable by the Company or any of its
Subsidiaries in any Post-Closing Period and any Tax credit or refund (including
any interest with respect thereto), in each case relating to the Company and
any of its Subsidiaries for any Pre-Closing Period (or portion of any Straddle
Period ending on the Closing Date) and to the extent Seller is liable for or
has made payment of Tax giving rise to such credit pursuant to Section 6.11(c)
hereof, shall be the property of Seller, and if received by Buyer, the Company
or any of their Subsidiaries shall be payable promptly to Seller (other than
any credit or Tax refund that arises out of the carry back of a loss or credit
incurred by the Company or any of its Subsidiaries in the Post-Closing Period).  Any other Tax refund or credit shall be the
property of Buyer.

(f)            Contests.  (i) After the Closing, Buyer shall promptly
notify Seller in writing of (x) any correspondence from any Tax authority
relating to any Tax Return filed by Seller pursuant to Section 6.11(b)(i) or by
Buyer pursuant to Section 6.11(b)(ii) and (y) any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding
involving Company or any of its Subsidiaries (clauses (x) and (y) together, a “Tax
Contest”) which, if determined adversely to the taxpayer, would be grounds
for indemnification by Seller (including any payment under Section
6.11(c)).  (ii) In the case of a Tax
Contest that relates to a Pre-Closing Period, Seller shall have the right at
its expense to control the conduct of such Tax Contest; provided that (x)
Seller shall indemnify the Company or any of its Subsidiaries in respect of all
third-party costs and expenses incurred by such Company or any such Subsidiary
at Seller’s request in connection with such Tax Contest, (y) Seller shall keep
Buyer informed of all material progress (and shall send Buyer copies of all
material correspondence relating thereto) of the Tax Contest and (z) Seller
shall not enter into any compromise or agree to settle any claim pursuant to
such Tax Contest with respect to any issue that recurs for any Straddle Period
or Post-Closing Period or any item resulting in a reciprocal adjustment to any
Straddle Period or Post-Closing Period without the prior written consent of Buyer
(which consent shall not be unreasonably withheld, conditioned or
delayed).  Buyer also may participate at
its own expense in any such Tax Contest and, if Seller does not notify Buyer in
writing within 30 days of receiving notice of such Tax Contest pursuant to
Section 6.11(f)(i) hereof of its intent to assume the defense of such Tax
Contest, Buyer may defend the same in such manner as it may deem appropriate,
including, but not limited to, settling such Tax Contest after giving five days’
prior written notice to Seller setting forth the terms and conditions of
settlement.  (iii) In the case of a Tax
Contest that relates to a Straddle Period, (x) each of Seller and Buyer may
participate in the Tax Contest, and (y) the Tax Contest shall be controlled by
that party which would bear the burden of the greater portion of the adjustment
(the “Controlling Party”); provided that (a) the Controlling Party shall
indemnify the Company or any Subsidiary in respect of all third-party costs and
expenses incurred by the Company or any such Subsidiary at the Controlling
Party’s request in connection with such Tax Contest, (b) the Controlling Party
shall keep the other party informed of all material progress (and shall send
such party copies of all material correspondence relating thereto) of the Tax
Contest and (c) if Seller is the Controlling Party, Seller shall not enter into
any compromise or agree to settle any claim pursuant to such Tax Contest with
respect to any issue that recurs for any Straddle Period or Post-Closing Period
or any item resulting in a reciprocal adjustment to any Straddle Period or
Post-Closing Period without the prior written consent of Buyer (which consent
shall not be unreasonably withheld, conditioned or delayed).  The principle set forth in clause (y) of the
preceding sentence also shall govern for purposes of deciding any issue that
must be decided 

 26
 

 

 

jointly (in particular, choice of judicial
forum) in situations in which separate issues are otherwise controlled
hereunder by Buyer and Seller.  (iv) In
the case of a Tax Contest that relates to a Post-Closing Period, Buyer shall
have the right at its expense to control the conduct of such Tax Contest.  (v) Except as provided in paragraph (ii)
above, neither Buyer nor Seller shall enter into any compromise or agree to
settle any claim pursuant to any Tax Contest which would adversely affect the
other party for such year or a subsequent year, or which would result in a
payment under Section 6.11(d), without the written consent of the other party, which
consent may not be unreasonably withheld. 
Buyer and Seller agree to cooperate, and Buyer agrees to cause the
Company and any of its Subsidiaries to cooperate, in the defense against or
compromise of any claim in any Tax Contest.

(g)           Allocation
of Tax for Straddle Periods.  With
respect to any Tax that is payable with respect to a Straddle Period, the
portion of any such Tax allocable to the portion of the period ending on the
Closing Date shall be deemed to equal: (i) in the case of Taxes that are based
upon or related to income or receipts, the amount that would be payable if the
taxable year ended with the Closing Date (giving effect to any Tax credit or
net operating loss carryover available as of the Closing Date), and (ii) in the
case of all other Tax, the amount of such Taxes for the entire period
multiplied by a fraction the numerator of which is the number of calendar days
in the period ending with the Closing Date and the denominator of which is the
number of calendar days in the entire period.

(h)           Tax
Returns of Seller’s Affiliated Group. 
Notwithstanding any other provision of this Agreement, (i) Seller’s
Affiliated Group shall be entitled to control in all respects, and neither
Buyer nor any of its Affiliates shall be entitled to participate in, any Tax
Contest or other Tax proceeding with respect to any consolidated, combined or
unitary Tax Return that includes any member of Seller’s Affiliated Group and
(ii) no member of Seller’s Affiliated Group shall be required to provide any
person with any consolidated, combined or unitary Tax Return or copy thereof
that includes any member of Seller’s Affiliated Group (provided, however, that
to the extent that such Tax Returns would be required to be delivered but for
this Section 6.11(h), the person that would be required to deliver such Tax
Returns shall instead deliver pro forma Tax Returns relating solely to the
Company or its relevant Subsidiary).

(i)            Termination
of Any Tax Sharing Agreement.  Any
and all tax allocation or sharing agreements or other arrangements for the
sharing of taxes between the Company and/or any of its Subsidiaries, on the one
hand, and Seller and/or any member of the Seller’s Affiliated Group, on the
other hand, shall terminate as of, or prior to, the Closing Date and the Company,
any of its Subsidiaries and/or Buyer shall have no obligation to pay to the
Seller and/or any member of the Seller’s Affiliated Group any amount relating
to taxes under any such agreement or arrangement.

6.12         Participations
and Residuals.  (a)  Buyer shall, or shall cause Servicing Agent
to, provide Seller, or its designee, with all sales data, payee information and
other information required to enable Seller to discharge the Participations and
Residuals, in each case, within a reasonable time period after receipt by
Servicing Agent of all information required from film exhibitors, licensees and
other third parties.  Seller shall
discharge each of the Participations and Residuals promptly following receipt
from Buyer of all sales data, payee information and other information with
respect to such Participations and Residuals. 
Buyer shall provide 

 27
 

 

 

reasonable access to Buyer’s and the Company’s
employees, books and records and other relevant information required to enable
Seller to discharge promptly when due the Participations and Residuals.  The information provided by Buyer shall
include, but not be limited to (i) the relevant information for all
license agreements and other contracts entered into by Buyer or the Company
following the Closing relating to the Film Rights, (ii) the revenues
received by Buyer, the Company and their licenses from Exploitation of the Film
Rights, (iii) the number of exhibitions of any Film, (iv) the Media
and territories in which the licensed Exploitation has taken place, (v) any
discussions or agreements with any creative artist or Guild in respect of any
Film Rights, and (vi) any other information required for calculation of
residuals and participations under applicable Guild agreements and the Film
Agreements.  For avoidance of doubt, no
party hereunder shall have any obligations under this Section 6.12 for any
Participations and Residuals that become due and payable as a result of events
occurring after the tenth (10th) anniversary of the Closing.

(b)           In
the event and at the time that the Films hereunder are sold or licensed by the
Company or its agents in transactions involving other films or programs (a “film
package”), Buyer shall in good faith ensure that any license revenues allocated
to any Films in a film package are reasonably and fairly based on the relative
value of the Films in relation to the other films or programs in the film
package.  Buyer shall give Seller prompt
written notice of any claim for such participation and residual costs to enable
Seller to defend, dispute or mitigate such residual costs at its option and in
its sole discretion.

(c)           Buyer
shall, effective as of the business day following the tenth anniversary of the
Closing Date, enter into the Guild Assumption Agreements in a form consistent
with industry standards and sufficient to fully terminate and discharge Seller’s
obligations and liability for any Participations and Residuals that become due
and payable as a result of events occurring after the tenth (10th) anniversary of the Closing
Date under any Guild Assumption Agreements Seller has entered into with respect
to any Exploitation of or revenues received from the Company Assets.

6.13         Additional
Obligations Related to Participations and Receivables.  (a) 
After the Closing Date, Buyer shall cause the Servicing Agent to provide
the following to Seller with respect to Participations and Residuals: (i) with
respect to the profit participations referred to in clause (i) of the
definition of Participations and Residuals, (A) a list of Film titles subject
to participation rights, and (B) with respect to each such Film the formula or
formulas for calculating the profit participations; and (ii) with respect to
the residual payment obligations referred to in clause (ii) of the definition
of Participations and Residuals, on a Film-by-Film basis, the formula or
formulas for calculating the residual payment obligation to each Guild in
connection with the exhibition of such Film. 
Buyer shall use commercially reasonable efforts to cause the Servicing
Agent to provide the information referred to in this Section 6.13(a) within 45
days following the Closing Date.

(b)           If
Seller delivers a written notice to Buyer at any time prior to the date on
which Buyer or an Affiliate executes a Guild Assumption Agreement that Seller
is the subject of a potential transaction with an unaffiliated third party
involving a sale of all or substantially all of the capital stock or assets of
Seller (a “Potential Change of Control”), Buyer shall, within 30 days of
Buyer’s receipt of such notice, deliver to Seller a proposal for the
termination of Seller’s 

 28
 

 

 

obligations under Section 6.12 in connection
with such Potential Change of Control, which proposal shall include the price
payable by Seller as consideration for such termination.  Thereafter, Buyer will negotiate in good
faith to reach an agreement with Seller with respect to such termination;
provided that Buyer shall not be obligated to agree to any such termination on
any terms unless and until a definitive agreement is reached between Buyer and
Seller with respect to such a termination. 
Buyer agrees to keep confidential information regarding a Potential
Change of Control communicated to it by Seller, subject to the same exceptions
to confidential treatment of “Evaluation Information” set forth in paragraphs 1
and 4 of the Confidentiality Agreement.

(c)           Service
Agent has or shall submit to Entertainment Partners the information attached
hereto as Schedule 6.13(c), which is intended to provide the information
necessary for Entertainment Partners to determine residual payments due to
creative artists or Guilds on account of the Exploitation of the Film Rights
(except for payments due in connection with music licensing contemplated in
Section 4.14(a)) as of September 20, 2006. 
Seller agrees that this Section 6.13(c) shall not be construed to limit
Seller’s obligation to indemnify Buyer for any Retained Liability in accordance
with Article IX.

6.14         Program
License Agreements Payments. 
Schedule 6.14 sets forth the amounts due and payable by Seller or its
Affiliates to RHI Entertainment Distribution, LLC under the Program License
Agreements as of September 30, 2006. 
Seller and Buyer agree to cooperate in good faith to amend Schedule 6.14
prior to the Closing Date to add such additional amounts that become due and
payable under the Program License Agreements during the period from September
30, 2006 through the Closing Date, it being understood that any good faith
disputes as to such amounts shall be resolved after the Closing Date in accordance
with the terms of the Program License Agreements.

ARTICLE 7

CONDITIONS TO
CLOSING

7.1           Conditions
of Each Party’s Obligation to Close. 
The obligation of the parties hereto to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or before the
Closing, of the conditions set forth below in this Section 7.1.  The parties hereto may mutually agree to
waive any or all of these conditions.

(a)           All
consents, authorizations, orders and approvals of, and filings and registrations
with, any Governmental Entity that are required in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto of the transactions contemplated on its part hereby, shall have been
obtained or made, and the waiting period pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated.

(b)           As
of the Closing Date, there shall be no statute, regulation, injunction,
restraining order or decree of any nature of any court or governmental agency
or body of competent jurisdiction that is in effect that restrains or prohibits
the consummation of the transactions contemplated by this Agreement.

 29
 

 

 

(c)           JP
Morgan Chase Bank shall have consented to the transactions contemplated herein
as required by that certain Credit, Security and Pledge Agreement, dated as of
December 31, 2001, as amended, by and among Crown Media Holdings, Inc., its
Subsidiaries named therein, the lenders named therein and The Chase Manhattan Bank
(now known as JPMorgan Chase Bank, as administrative agent and issuing bank).

7.2           Conditions
to Buyer’s Obligation to Close.  The
obligation of Buyer to consummate the transactions contemplated hereby shall be
subject to the fulfillment, at or before the Closing, of all of the conditions
set forth below in this Section 7.2. 
Buyer may waive in writing any or all of these conditions in whole or in
part without prior notice.

(a)           The
representations and warranties of Seller and the Company contained or incorporated
herein shall be true and correct on and as of the Closing Date with the same
effect as if such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties which are as of a
particular date, which shall be true and correct as of such date), except, in
the case of any such representation or warranty that is not qualified by “material,”
“material adverse effect” or similar language, as would not be material, and
Seller and the Company shall have performed in all material respects their
respective obligations and complied in all material respects with their
respective agreements and covenants required by this Agreement to be performed
or complied with on their part on or prior to the Closing Date and no event as
described in Section 10.2(d)(iii) shall have occurred.

(b)           Buyer
shall have received from Seller and the Company a certificate dated as of the
Closing Date and signed by an authorized officer of Seller and the Company
certifying its compliance with the conditions set forth in Section 7.2(a).

(c)           [Reserved]

(d)           Buyer
shall receive at the Closing the deliveries required by Section 8.2.

(e)           As
of the Closing Date, neither Seller nor the Company shall be the subject of a
bankruptcy case; no court of competent jurisdiction shall have entered an
order, judgment or decree appointing a receiver, trustee, liquidator or
conservator of Seller or the Company or of the whole or any substantial part of
its properties, or approved a petition filed against Seller or the Company
seeking reorganization or similar relief under the federal bankruptcy laws or
any other applicable law or statute of the United States of America or any
state or foreign state which shall not have been dismissed; no court of
competent jurisdiction shall have assumed custody or control of Seller or the
Company or of the whole or any substantial part of their respective properties
under the provisions of any other law for the relief of the debts of Seller or
the Company; there shall not be pending against Seller or the Company any
proceeding seeking any of the foregoing relief nor shall a petition in
bankruptcy have been pending against Seller or the Company and not been
dismissed prior to the Closing Date; nor shall Seller or the Company by any act
have indicated its consent to, approval of, or acquiescence in, any such
proceeding or petition; nor shall Seller or the Company have admitted in
writing its inability to pay its debts generally as they become due, filed a
petition in bankruptcy or a petition to take advantage of any insolvency act or
made an assignment for the benefit of its creditors or commenced a proceeding
for the appointment of a receiver, trustee, 

 30
 

 

 

liquidator, conservator of itself or of a
whole or any substantial part of its property or filed a petition or answer
seeking reorganization or arrangement or similar relief under the federal
bankruptcy laws or any other applicable law or statue of the United States of
America or any state or foreign state.

(f)            Buyer
shall have received from Seller a copy of the resolutions of the Board of
Directors, Members, or similar body of Seller and the Company having the
authority to approve the execution, delivery and performance of this Agreement
authorizing the execution and delivery of this Agreement and the consummation
of the transactions set forth herein. 
Said resolutions shall be certified by an authorized officer of Seller
as being true and correct and in full force and effect as of the Closing Date.

(g)           RHI
Entertainment Distribution, LLC shall have received the amount in cash set
forth on Schedule 6.14, as amended pursuant to Section 6.14.

(h)           Buyer
shall have received from Seller or the Company evidence reasonably satisfactory
to Buyer that all Video-On-Demand Agreements have been terminated as to the
Films.

(i)            Buyer
shall have received from Seller a license from Hallmark Cards, Incorporated to
allow the Company to continue to use the Hallmark name as part of the name “Hallmark
Entertainment” as it appears on screen, and in any packaging, advertising or
publicity material produced prior to the Closing Date, in each case, for any of
the Films.

(j)            Seller
shall have delivered to Buyer a certification of non-foreign status in a form
and manner that complies with the requirements of Treasury Regulation Section
1.1445-2(b)(2).

7.3           Conditions
to Seller’s Obligation to Close.  The
obligation of Seller and the Company to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or before the
Closing, of all of the conditions set forth below in this Section 7.3.  Seller may waive in writing any or all of
these conditions in whole or in part without prior notice.

(a)           Buyer
shall have performed in all material respects its material obligations and
complied in all material respects with its material agreements and covenants
required by this Agreement to be performed or complied with on its part on or
prior to the Closing Date.

(b)           Seller
and the Company shall have received from Buyer a certificate dated as of the Closing
Date and signed by an authorized officer of Buyer certifying Buyer’s compliance
with the conditions set forth in Section 7.3(a).

(c)           As
of the Closing Date, Buyer shall not be the subject of a bankruptcy case; no
court of competent jurisdiction shall have entered an order, judgment or decree
appointing a receiver, trustee, liquidator or conservator of Buyer or of the
whole or any substantial part of its properties, or approved a petition filed
against Buyer seeking reorganization or similar relief under the federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state or foreign state which shall not have been 

 31
 

 

 

dismissed; no court of competent jurisdiction
shall have assumed custody or control of Buyer or of the whole or any
substantial part of its properties under the provisions of any other law for
the relief of Buyer’s debts; there shall not be pending against Buyer any
proceeding seeking any of the foregoing relief nor shall a petition in
bankruptcy have been pending against Buyer and not been dismissed prior to the
Closing Date; nor shall Buyer by any act have indicated its consent to,
approval of, or acquiescence in, any such proceeding or petition; nor shall
Buyer have admitted in writing its inability to pay its debts generally as they
become due, filed a petition in bankruptcy or a petition to take advantage of
any insolvency act or made an assignment for the benefit of its creditors or
commenced a proceeding for the appointment of a receiver, trustee, liquidator,
conservator of itself or of a whole or any substantial part of its property or
filed a petition or answer seeking reorganization or arrangement or similar
relief under the federal bankruptcy laws or any other applicable law or statue
of the United States of America or any state or foreign state.

(d)           Seller
and the Company shall have received from Buyer a copy of the resolutions of the
Board of Directors of Buyer (and any committee thereof) authorizing the
execution and delivery of this Agreement and the consummation of the
transactions set forth herein.  Said
resolutions shall be certified by an authorized officer of Buyer as being true
and correct and in full force and effect as of the Closing Date.

(e)           Seller
shall receive at the Closing the deliveries required by Section 8.3.

(f)            Seller
shall have received a reasonably satisfactory written opinion of an investment
bank of national repute to the effect that, from a financial point of view and
subject to certain assumptions and limitations, the consideration to be
received by Seller pursuant to this Agreement is fair.

ARTICLE 8

THE CLOSING

8.1           Time
and Location of Closing.  Subject to
the fulfillment of all of the conditions specified in Article 7 (any or all of
which may be waived in writing by the respective party whose performance is
conditioned upon the satisfaction of such conditions), the purchase and sale of
the Company and the other transactions contemplated by this Agreement shall be
consummated at a closing (the “Closing”) to be held at the offices of
Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022 at 10:00
A.M., local time, on the date falling seven days following the date when all of
the conditions specified in Article 7 shall have been fulfilled or waived or on
such other date as the parties shall mutually agree (the “Closing Date”).

8.2           Actions
by Seller at Closing.  At the
Closing, Seller and the Company shall deliver to Buyer the following:

(a)           The
Assignment and Assumption Agreement, duly executed by Seller.

(b)           An
Assignment from Seller to the Company of all Company Assets held by Seller.

 32
 

 

 

(c)           The  Retained Liabilities Assumption Agreement,
duly executed by Seller.

(d)           All
original Copyright Registration certificates and Trademark Registration
certificates, or, if not available, true and correct copies thereof; and Buyer
shall be entitled to any and all other agreements, assignments and other
material documents relating to the Company acquired by Buyer hereunder which
are in Seller’s possession.

(e)           Certified
copies of minutes or unanimous written consents of the board of directors and
stockholders or members, if necessary, of Seller and the Company approving the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.

(f)            The
certificate described in Section 7.2(b).

(g)           Evidence
satisfactory to Buyer in its sole discretion to the effect that all Liens on
the Company’s Assets other than Permitted Liens (but including, without limitation, Liens granted in connection
with that certain Credit, Security and Pledge Agreement, dated as of December
31, 2001, as amended, by and among Crown Media Holdings, Inc., its Subsidiaries
named therein, the lenders named therein and The Chase Manhattan Bank (now
known as JPMorgan Chase Bank) as administrative agent and issuing bank) have been fully released and
discharged.

(h)           The
HMCER License, duly executed by Seller.

(i)            Evidence
reasonably satisfactory to Buyer that Seller or the Company has paid the
amounts set forth on any statement provided by Entertainment Partners of
amounts due in respect of residual payments due to creative artists or Guilds
on account of the Exploitation of the Film Rights and as relates to the
Bagbridge Rights (except for payments due in connection with music licensing
contemplated in Section 4.14(a)) based on the information provided to
Entertainment Partners by Servicing Agent pursuant to Section 6.13(c).

(j)            Evidence
to the effect that the Company has (i) terminated any and all rights relating to
the Exploitation of the relevant Films granted to Warner Bros. pursuant to the
Warner Bros. License Agreement and (ii) caused Warner Bros. to terminate any
and all rights relating to the Exploitation of the relevant Films granted by
Warner Bros. to third parties pursuant to or otherwise in connection with the
Warner Bros. License Agreement.

8.3           Actions by Buyer at Closing.  At the
Closing, Buyer shall deliver to Seller the following:

(a)           The
Cash Consideration in the manner set forth in Section 3.1(a).

(b)           Certified
copies of minutes or unanimous written consents of the board of directors and
stockholders or members, if necessary, of Buyer approving the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.

(c)           Assignment
and Assumption Agreement, duly executed by Buyer.

 33
 

 

 

(d)           The
certificate described in Section 7.3(b).

(e)           The
HMCER License, duly executed by Buyer.

ARTICLE 9

INDEMNIFICATION

9.1           Indemnification
by Seller.  Seller shall defend, indemnify
and hold Buyer and its officers, directors, shareholders, partners, members,
employees, representatives, agents, attorneys, licensees, Affiliates and
assigns (the “Indemnified Buyers”) harmless from and against any and all
claims, demands, actions or causes of action, assessments, judgments, awards,
fines, sanctions, charges, damages, liabilities, losses, costs, interest,
penalties, Tax and amounts paid in settlement and expenses (including, without
limitation, reasonable costs, fees and expenses of attorneys, experts,
accountants, appraisers, consultants, witnesses, investigators and any other
agents or representatives of Buyer) (“Losses”) which may be incurred or
suffered by the Indemnified Buyers or any of them, arising out of or relating
to (a) any breach of any representation or warranty made by Seller or the
Company in this Agreement; (b) any failure on the part of Seller to perform any
covenant or agreement in this Agreement, or on the part of the Company with
respect to covenants required to be performed prior to the Closing; or (c) any
Retained Liabilities (each, a “Seller’s Indemnification Claim”).  Save in the case of fraud, including, without
limitation, fraudulent concealment by Seller, in no event shall Seller have any
liability with respect to any indemnification pursuant to Section 9.1(a)
(except in the case of any breach of Section 4.3 (No Undisclosed Liabilities),
Section 4.10 (Taxes) or Section 4.19 (Ownership by the Company; No Inconsistent
Actions)) until the total dollar amount of all such indemnification obligations
that would otherwise be identifiable pursuant to such Section 9.1(a) (other
than Losses arising from breaches of the representations and warranties set
forth in Section 4.3 (No Undisclosed Liabilities), Section 4.10 (Taxes) or
Section 4.19 (Ownership by the Company; No Inconsistent Actions)), shall exceed
$1,600,000, in which event Seller will be liable only for the amount in excess
of $1,600,000; provided that (save in the case of fraud, including,
without limitation, fraudulent concealment by Seller) in no event shall Seller’s
aggregate liability in respect of Section 9.1(a) (except in the case of any
breach of Section 4.3 (No Undisclosed Liabilities), Section 4.10 (Taxes) or
Section 4.19 (Ownership by the Company; No Inconsistent Actions)) exceed
$25,000,000, provided that the foregoing limits on the Seller’s liability shall
not apply with respect to Losses arising from breaches of the representations
and warranties set forth in Section 4.3 (No Undisclosed Liabilities), Section
4.10 (Taxes) or Section 4.19 (Ownership by the Company; No Inconsistent
Actions).

9.2           Indemnification
by Buyer.  Buyer shall defend,
indemnify and hold Seller and its officers, directors, shareholders, partners,
members, employees, representatives, agents, attorneys, licensees, Affiliates
and assigns (the “Indemnified Seller Parties”) harmless from and against
any and all Losses which may be sustained, incurred or suffered by the
Indemnified Seller Parties as a result of, arising out of or relating to (a)
any breach of any representation or warranty made by Buyer in this Agreement,
and (b) any failure on the part of Buyer to perform any covenant or agreement
in this Agreement.  Save in the case of
fraud, including, without limitation, fraudulent concealment by Buyer, in no
event shall Buyer have any liability with respect to any indemnification
pursuant to Section 9.2(a) in an amount exceeding $25,000,000.

 34
 

 

 

9.3           Defense
of Claims.

(a)           If
any claim is brought against any of the indemnified parties by a third party,
and if such indemnified party intends to seek indemnity with respect thereto
under this Article 9, such indemnified party shall promptly notify in writing
Buyer or Seller, as the case may be, of such claim.  If any indemnified party fails to provide the
foregoing written notice in a timely manner, which failure to notify results in
or otherwise gives rise to any material prejudice to the defense of such claim,
the indemnified party or parties shall be deemed to have waived its or their
rights to indemnification under this Article 9 from the indemnifying party or
parties only to the extent of the prejudice suffered as a result of failure to
timely notify.

(b)           Upon
receipt of such notice, the indemnifying party shall have 30 days to commence
to undertake, conduct and control, through counsel of its own choosing and its
sole cost and expense, the settlement or defense thereof, and the indemnified
party shall cooperate in connection therewith (including, without limitation,
providing to the indemnifying party, at the indemnifying party’s request, and
at no cost, any information and reasonable assistance from the indemnified
party’s staff which may be necessary for such settlement or defense); provided
that:

(i)            without the
indemnified party’s consent, the indemnifying party shall not consent to the
entry of any judgment or enter into any settlement that provides for the
imposition of any Lien on any assets of the Company or other assets of the
indemnified party, or any injunctive or equitable relief affecting the
indemnified party;

(ii)           the
indemnifying party shall permit the indemnified party to participate in such settlement
or defense through counsel chosen by the indemnified party; provided
that the fees and expenses of such counsel shall be borne by the indemnified
party; and

(iii)          the
indemnifying party shall agree promptly to reimburse the indemnified party for
the full amount of any loss, damage or third party costs incurred by the
indemnified party as a result of such claim, but not including any attorney’s
fees or expenses of the indemnified party when the indemnifying party has
assumed the defense and not including overhead or personnel costs of the
indemnified party arising from cooperating with the indemnifying party; and so
long as the indemnifying party is reasonably contesting any such claim in good
faith, the indemnified party shall not pay or settle any claim.  If the indemnifying party does not notify the
indemnified party within 30 days after receipt of the indemnified party’s
written notice of a claim of indemnity hereunder that it elects to undertake
the defense thereof, the indemnified party shall have the right to contest,
settle or compromise the claim at the expense of the indemnifying party.  The indemnified party shall, however, notify
the indemnifying party writing of any compromise or settlement of any such
claim.

(c)           Notwithstanding
the foregoing, in the event of any claim by a third party against any
Indemnified Buyer with respect to Participations and Residuals, Buyer shall be
permitted (but not required) to pay (or cause to be paid) the amount of such
third party claim 

 35
 

 

 

prior to delivery of notice to Seller and
without the requirement of compliance with Section 9.3(b) if a hearing or other
proceeding regarding foreclosure of a Company Asset is scheduled to take place
within ten (10) days, and any amount paid to such third party shall constitute
a Loss subject to indemnification pursuant to Section 9.1(c).  If Buyer shall make any payments pursuant to
this Section 9.3(c), Seller shall be subrogated to all Buyer’s rights to
contest the amount of such payment.

(d)           The
foregoing provisions of Section 9.3 shall not apply to Tax matters, which
instead shall be governed by Section 6.11.

9.4           Survival
of Representations and Warranties. 
All representations and warranties in this Agreement shall survive the
Closing for a period of 36 months; provided that the indemnification
obligations of Section 9.1 (c) and those of Section 9.1(a) with respect to
Section 4.19 (Ownership by the Company, No Inconsistent Actions) shall survive
indefinitely, and those of Section 9.1(a) with respect to Section  4.3 (No Undisclosed Liabilities) and  4.10 (Taxes) shall survive the Closing until
the 30 days after the expiration of the applicable statute of limitations with
respect thereto; and provided  further that all covenants in this
Agreement shall survive the Closing in accordance with their terms (or until
the expiration of the applicable statute of limitations, if no term is
specified).  No claim may be brought for
breaches or alleged breaches of any representations or warranties after the
expiration of the survival period.

9.5           No
Limitation on Rights.

(a)           Except
as expressly limited herein, the rights of Buyer and Seller set forth in this
Article 9 shall be in addition to all other rights and remedies which otherwise
would be available to Buyer or Seller at law or in equity.

(b)           The
amount of any Losses for which indemnification is provided under this Article 9
shall be net of any amounts recovered by any indemnified party from third
parties (including without limitation amounts recovered under insurance
policies).

9.6           Treatment of
Indemnity Payments.  The parties agree that, except as required
pursuant to a “determination” as defined in Section 1313(a) of the Code, any
indemnity payments pursuant to this Agreement will be treated for Tax purposes
as an adjustment to the Purchase Price.

9.7           No Right of
Contribution.   Seller shall have no right of contribution
against the Company with respect to the indemnification obligations of Seller
set forth in this Article 9.

ARTICLE 10

GENERAL PROVISIONS

10.1         Further
Assurances.  Following the Closing,
Seller agrees to execute and deliver to Buyer from time to time upon written
request by Buyer (at Seller’s expense), such additional documents or
instruments consistent herewith and to perform such further acts as Buyer may
reasonably require to give to Buyer the full benefit of all of the provisions
of this 

 36
 

 

 

Agreement (which shall include the transfer
to Buyer of any Company Assets not transferred 
through the acquisition by Buyer of all right title and interest in the
Company).  Seller and Buyer shall
cooperate to send, on or promptly following the Closing Date, notice
letters  (in a form to be provided by
Buyer) addressed from Seller to each licensee under the Company License
Agreements that inform such licensees of the change of control in licensor and
provide, as necessary, new contact information and payment instructions.  Seller agrees to remit to Buyer any payments
under the Company License Agreements received by it or any of its Affiliates
after the Closing Date.

10.2         Termination.  This Agreement may be terminated at any time
prior to the Closing, as follows:

(a)           by
mutual written consent of Buyer and Seller duly authorized by their respective
boards of directors;

(b)           by
either of Buyer or Seller if the Closing shall not have occurred on or before
December 31, 2006; provided, however, that the right to terminate
this Agreement under this Section 10.2 shall not be available to the party
whose failure to fulfill any obligation under this Agreement shall have been
the cause of, or resulted in, the failure of the Closing to occur on or before
such date;

(c)           by
either of Buyer or Seller if any order, injunction or decree preventing the
consummation of the transactions contemplated hereby shall have been entered by
any court of competent jurisdiction or Governmental Entity and shall have
become final and non-appealable;

(d)           by
Buyer if (i) there shall have been a material breach of any representation or
warranty on the part of Seller set forth in this Agreement or if any material
representation or warranty of Seller shall have become untrue in either case
such that the condition set forth in Section 7.2(a) would be or might
reasonably be expected to be incapable of being satisfied by December 31, 2006
(and for the purposes of this clause, any information provided by Seller
pursuant to Section 6.11 shall be deemed not to qualify the Seller’s
representations and warranties); (ii) there shall have been a material breach
or breaches by Seller of its covenants or agreements hereunder such that the
condition set forth in Section 7.2(a) would be incapable of being satisfied by
December 31, 2006; or (iii) between the date of this Agreement and the Closing
there is any material adverse change in the business, operations, assets,
liabilities, position (financial, trading or otherwise), profits or prospects
of the Company or any event or circumstance that may reasonably result in such
a material adverse change; or

(e)           by
Seller if there shall have been a material breach or breaches by Buyer of its
covenants or agreements hereunder such that the condition set forth in Section
7.3(a) would be incapable of being satisfied by December 31, 2006,

and in each of the cases set out in clauses (a)-(e)
above the rights and liabilities of the parties which have accrued prior to
termination shall continue to subsist and such termination shall be in addition
to any other rights or remedies the terminating party may have against the
other party.

 37
 

 

 

10.3         Dispute
Resolution.  (a)  In the event of any controversy or claim
arising out of, or in connection with or relating to this Agreement or the
interpretation, performance or breach thereof, the parties hereto shall use
their reasonable best efforts to settle such controversy or claim.  To this effect, they shall consult and
negotiate with each other in good faith and, recognizing their mutual
interests, attempt to reach a just and equitable solution satisfactory to both
parties.  If they do not reach such
solution within a period of 30 days, then upon notice by either party to the
other, any controversy or claim shall be submitted to mediation administered by
the American Arbitration Association under its Commercial Mediation Rules in
New York before resorting to arbitration.

(b)           In
the event Buyer and Seller are unable to resolve any controversy or claim
arising out of, or in connection with or relating to this Agreement or the
interpretation, performance or breach thereof pursuant to Section 10.3(a), the
parties hereto irrevocably agree to settle such controversy or claim arising
out of, or in connection with or relating to this Agreement or the
interpretation, performance or breach thereof by binding arbitration under the
rules then in effect of the American Arbitration Association or its successor
and in accordance with applicable law but subject to the following agreed
provisions.  The arbitration shall be
conducted in New York, New York, and the proceedings shall be kept
confidential.  Notice of papers or
processes relating to any arbitration proceeding, or for the confirmation of
award and entry of judgment on an award may be served on each of the parties by
registered or certified mail at the addresses set forth in Section 10.7
hereof.  Each Dispute shall be promptly
adjudicated by a panel of three neutral arbitrators appointed as follows:

(i)            each party
shall nominate an arbitrator, and the two arbitrators so appointed shall
appoint a third arbitrator who shall act as president of the arbitral tribunal;

(ii)           if either
party fails to nominate an arbitrator within 30 days of receiving notice of the
nomination of an arbitrator by the other party, such arbitrator shall at the
request of that party be appointed by the American Arbitration Association;

(iii)          if the two
arbitrators to be nominated by the parties fail to agree upon a third
arbitrator within 30 days of the appointment of the second arbitrator, the
third arbitrator shall be appointed on the nomination of the American
Arbitration Association at the written request of either party; and

(iv)          should a
vacancy arise because any arbitrator dies, resigns, refuses to act, or becomes
incapable of performing his functions, the vacancy shall be filled by the method
by which that arbitrator was originally appointed.

All arbitrators shall be of good reputation and
character and shall be highly knowledgeable of entertainment industry
matters.  Seller shall pay one-half of
the arbitrators’ expenses and Buyer shall pay one-half.  The parties shall pay their own legal
expenses.  The arbitrators shall provide
a reasoned opinion supporting their conclusion, including detailed findings of
fact and conclusions of law.  Such
findings of fact shall be final and binding on the parties but such conclusions
of law shall be subject to appeal in any court of competent 

 38
 

 

 

jurisdiction. 
The arbitrators may award damages and/or permanent injunctive relief,
but in no event shall the arbitrators have the authority to award punitive or
exemplary damages.  Notwithstanding
anything to the contrary in this Section 10.3, either party may apply to a
court of competent jurisdiction for relief in the form of a temporary
restraining order or preliminary injunction, or other provisional remedy pending
final determination of a claim through arbitration in accordance with this
Section 10.3.  If proper notice of any
hearing has been given, the arbitrators will have full power to proceed to take
evidence or to perform any other acts necessary to arbitrate the matter in the
absence of any party who fails to appear.

10.4         Successors
and Assigns.  This Agreement shall
inure to the benefit of and be binding upon the respective successors,
licensees and assigns of the parties hereto, but any such assignment by either
party hereto shall not relieve such assigning party of any of its obligations
or agreements hereunder; provided that this Agreement may not be assigned by
any party hereto unless expressly agreed to in writing by the other party
hereto in its sole discretion (provided that such express agreement is not
required for assignments by Buyer to an Affiliate or for the collateral
assignment of Buyer’s rights under this Agreement to any Person providing
financing related to the transactions contemplated hereby).

10.5         No
Waiver.  No waiver by either party
hereto of any breach of any covenant, agreement, representation or warranty
hereunder shall be deemed a waiver of any preceding or succeeding breach of the
same.  The exercise of any right, power
or privilege granted to either party herein shall not operate as a waiver of
any default or breach on the part of the other party hereto nor shall any
single or partial exercise of any such right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.  Each and all of the several
rights and remedies of either party hereto under this Agreement shall be
construed as cumulative and not exclusive of any rights or remedies provided by
law.

10.6         Entire
Agreement; Amendments.  This
Agreement, including the exhibits attached hereto and any other agreement or
document referred to in this Agreement, constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and supersedes
all prior or contemporaneous written or oral agreements, arrangements,
understandings, representations and correspondence between them or any of their
related entities or Affiliates with respect to the subject matter hereof,
except for the Confidentiality Agreement, which shall continue in full force
and effect, and shall survive any termination of this Agreement or the Closing,
in accordance with its terms.  No change,
modification, alteration, amendment or agreement to discharge in whole or in
part, or waiver of any of the terms and conditions of this Agreement, shall be
binding upon either party, unless the same shall be made by a written
instrument signed and executed by the authorized representatives of each party,
with the same formality as the execution of this Agreement.

10.7         Notices.  All notices, requests, demands and other
communications given or made hereunder or in connection with the matters
contemplated by this Agreement, shall be in writing made by personal service,
or sent by certified mail, return receipt requested, postage prepaid, by
overseas courier or by facsimile addressed as follows, or to such other address
an may hereafter be designated in writing by the respective parties hereto:

 39
 

 

 

(a)                  if
to Seller, to:

Crown Media Holdings, Inc.

12700 Ventura Boulevard, Suite 100

Studio City, California 91604

Attention:  Charles L. Stanford, General Counsel

Telephone:  (818) 755-2469

Facsimile:  (818) 755-2461

with a copy to:

Christensen,
Glaser, Fink, Jacobs, Glaser, Weil & Shapiro LLP

10250 Constellation Blvd.

19th Floor

Los Angeles, CA 90067 

Attention:  Jeffrey C. Soza

Telephone:  (310) 553-3000

Facsimile:  (310) 556-2920

(b)                 if
to Buyer, to:

RHI Enterprises, LLC

1325 Avenue of the Americas

21st Floor

New York, NY 10019

Attention:  Robert Halmi, Jr.

Telephone:  (212) 977-9001

Facsimile:  (212) 977-9049

with a copy to:

Kelso &
Company, L.P.

320 Park Avenue

24th Floor

New York, NY 10022

Attention:  James Connors

Telephone:  (212) 751-3939

Facsimile:  (212) 223-2379

and

Latham &
Watkins LLP

885 Third Avenue

New York, NY 10022

Attention:  Raymond Y. Lin

Telephone:  (212) 906-1200

Facsimile:  (212) 751-4864

 40
 

 

 

and shall be deemed to have been duly given or made as
follows:

(c)           if
personally delivered, upon delivery at the address of the relevant party;

(d)           if
sent by certified mail, five days after the date of posting;

(e)           if
sent by overseas courier, seven days after the date of posting; and

(f)            if
sent by facsimile, when dispatched.

10.8         Governing
Law.  This Agreement (and any
dispute, controversy, proceedings or claim of whatever nature arising out of or
in any way relating to this Agreement or its formation) shall be governed and
construed in accordance with the laws of the State of New York without reference to such State’s principles of
conflicts of law.

10.9         Publicity.  Prior to the Closing, each party hereto
agrees not to issue any press release or otherwise make any public statement in
any general circulation medium with respect to the transactions contemplated by
this Agreement, without the consent, which shall not be unreasonably withheld
or delayed, of the other party hereto; provided, however, that
the parties hereto may, without the consent of the other, make any disclosures
required to comply with applicable law or the regulations of any securities
exchange or national securities association.

10.10       Section
Headings.  The section headings of
this Agreement are for convenience of reference only and shall not be deemed to
alter or affect any provision hereof.

10.11       Severability.  If any provision of this Agreement is held or
deemed to be or is or becomes, in fact, inoperative, illegal or unenforceable
as applied in any particular case under any constitution or statute or rule of
public policy of any jurisdiction:

(a)           the
operation, legality and enforceability under the constitution or statute or
rule of public policy of that jurisdiction of any other provision; and

(b)           the
operation, legality and enforceability under the constitution or statute or
rule of public policy of any other jurisdiction of that or any other provision
shall not be affected or impaired in any way.

10.12       Counterparts.  This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.  Any party may enter into this Agreement by
executing a counterpart and this Agreement shall not take effect until it has
been executed by all parties.

*              *              *

 41
 

 

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above written.

	
   

  	
  CROWN MEDIA HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles L. Stanford

  
	
   

  	
  Name:

  	
  Charles L. Stanford

  
	
   

  	
  Title:

  	
  Executive Vice President, General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CM INTERMEDIARY, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles L. Stanford

  
	
   

  	
  Name:

  	
  Charles L. Stanford

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROWN MEDIA DISTRIBUTION, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles L. Stanford

  
	
   

  	
  Name:

  	
  Charles L. Stanford

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RHI ENTERPRISES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter von Gal

  
	
   

  	
  Name:

  	
  Peter von Gal

  
	
   

  	
  Title:

  	
  Authorized Signatory

  

 

 42

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