Exhibit 2
CONTRIBUTION
AGREEMENT
This CONTRIBUTION AGREEMENT (this
“ Agreement ”), dated as of April 16, 2007, is
by and among Point.360, a California corporation (“
Point.360 ”), New 360, a California corporation and
wholly owned subsidiary of Point.360 (“ New 360
”), and DG FastChannel, Inc., a Delaware corporation (“
DG ”). All capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in
the Merger Agreement (as defined below).
WHEREAS, Point.360, New 360, and DG
are parties to an Agreement and Plan of Merger and Reorganization,
dated as of the date hereof (the “ Merger Agreement
”), pursuant to which, among other things, DG will acquire
the ADS Business of Point.360;
WHEREAS, pursuant to the Merger
Agreement, DG has agreed to commence an exchange offer (the “
Exchange Offer ”) to acquire all of the issued and
outstanding shares (the “ Point.360 Shares ”) of
the common stock, no par value per share, of Point.360, in which
Exchange Offer each Point.360 Share validly tendered and not
properly withdrawn will be exchanged for a certain number of shares
of common stock, par value $0.001 per share, of DG (the “
DG Common Stock ”) as provided in the Merger Agreement
(such amount of shares of DG Common Stock paid per Point.360 Share
pursuant to the Exchange Offer, the “ Exchange Offer
Consideration ”);
WHEREAS, the Merger Agreement
provides that, following the date (the “ Acceptance
Date ”) on which DG accepts for exchange, and exchanges
the Exchange Offer Consideration for, all Point.360 Shares validly
tendered and not withdrawn pursuant to the Exchange Offer,
Point.360 will be merged with and into DG, with DG continuing as
the surviving corporation;
WHEREAS, the Merger Agreement
contemplates that, on the Acceptance Date immediately prior to the
consummation of the Exchange Offer: (i) Point.360 will
contribute to New 360 all of the Excluded Assets in exchange for
shares of New 360 common stock; (ii) New 360 will assume all of the
Assumed Liabilities; and (iii) immediately thereafter, Point.360
will distribute to its shareholders (other than DG), on a pro
rata basis, without consideration being paid by such
shareholders, all then-outstanding shares of New 360 common stock
(the “ Spin-Off ”);
WHEREAS, it is the intention of the
parties to this Agreement that the contribution by Point.360 of the
Excluded Assets to New 360 and the assumption of the Assumed
Liabilities by New 360, together with the Spin-Off, will qualify as
a reorganization within the meaning of Sections 368(a)(1)(D) and
355 of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of
the mutual covenants and promises contained in this Agreement and
in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties to this Agreement hereby agree as
follows:
SECTION 1.
DEFINITIONS
For purposes of this Agreement, the
following terms shall have the respective meanings set forth
below:
(a)
“
Acceptance Date ” has the meaning set forth in the
recitals to this Agreement.
(b)
“
Agreement ” has the meaning set forth in the first
paragraph of this Agreement.
(c)
“
Assumption of Assumed Liabilities ” has the meaning
set forth in Section 2(b) .
(d)
“ Books
and Records ” means all books of account, ledgers,
general, financial, legal, regulatory, Tax, accounting, personnel
and employment records, files, customer lists, sales and
promotional literature, correspondence, manuals, data, papers and
other information, whether in hard copy or computer or other
format, of Point.360 and/or IVC.
(e)
“
Cash ” as of any specified date means cash and cash
equivalents calculated net of issued but uncleared checks and
drafts.
(f)
“ CBS
Agreement ” has the meaning set forth in Section
2(f) of this Agreement.
(g)
“
Contribution ” has the meaning set forth in Section
2(b) .
(h)
“ DG
” has the meaning set forth in the first paragraph of this
Agreement.
(i)
“ DG
Common Stock ” has the meaning set forth in the recitals
to this Agreement.
(j)
“ DG
Confidentiality Agreement ” has the meaning set forth in
Section 3(b)(ii) .
(k)
“
Exchange Offer ” has the meaning set forth in the
recitals to this Agreement.
(l)
“
Exchange Offer Consideration ” has the meaning set
forth in the recitals to this Agreement.
(m)
“
Indemnification Agreement ” has the meaning set forth
in Section 6 .
(n)
“
IVC ” means International Video Conversions, Inc., a
California corporation and wholly owned subsidiary of
Point.360.
(o)
“
Licensed IP ” has the meaning set forth in Section
4(a) .
(p)
“ Merger
Agreement ” has the meaning set forth in the recitals to
this Agreement.
(q)
“ Merger
Effective Time ” means the time at which the merger of
Point.360 with and into DG that is contemplated by the Merger
Agreement becomes effective in accordance with the Delaware General
Corporation Law and the California General Corporation
Law.
(r)
“ New
360 ” has the meaning set forth in the first paragraph of
this Agreement.
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(s)
“
Non-ADS Real Property Leases ” means the six (6)
leases or sub-leases by Point.360 of real property that are
described in Schedule A to this Agreement.
(t)
“
Point.360 ” has the meaning set forth in the first
paragraph of this Agreement.
(u)
“
Point.360 Shares ” has the meaning set forth in the
recitals to this Agreement.
(v)
“
Spin-Off ” has the meaning set forth in the recitals
to this Agreement.
(w)
“ Tax
Attribute ” means a net operating loss, net capital loss,
investment credit, foreign Tax credit, excess charitable
contribution, general business credit or any other item of loss,
deduction or credit that could reduce a Tax liability.
(x)
“ Tax
Item ” means any item of income, gain, loss, deduction,
credit, recapture of credit or any other item (including the basis
or adjusted basis of property) which increases or decreases Income
Taxes paid or payable in any taxable period.
(y)
“
Tentative Tax Item Allocation ” has the meaning set
forth in Section 7 .
(z)
“
Tentative Tax Item Allocation Date ” has the meaning
set forth in Section 7 .
(aa)
“
Transfer ” or “ Transfers ” means
the contribution, assignment, conveyance and transfer.
(bb)
“
Transfer of Excluded Assets ” has the meaning set
forth in Section 2(a) .
SECTION 2.
CONTRIBUTION AND SPIN-OFF
(a)
Transfer of
Excluded Assets by Point.360 to New 360 . Effective as of
immediately prior to DG’s consummation of the Exchange Offer
on the Acceptance Date, Point.360 hereby Transfers to New 360 (the
“ Transfer of Excluded Assets ”), in exchange
for the concurrent issuance by New 360 to Point.360 of a number of
shares of New 360 common stock equal to the number of Point.360
Shares outstanding on the Acceptance Date (other than Point.360
Shares owned by DG), all of the right, title and interest of
Point.360 and/or IVC in and to all of the Excluded Assets.
Point.360 shall retain all of its right, title and interest in and
to all of the Acquired Assets.
(b)
Assumption of
Assumed Liabilities by New 360 . Effective as
of immediately prior to DG’s consummation of the Exchange
Offer on the Acceptance Date, Point.360 hereby delegates to New
360, and New 360 hereby assumes from Point.360, and agrees to pay,
perform, discharge and fulfill, all of the Assumed Liabilities (the
“ Assumption of Assumed Liabilities ” and,
together with the Transfer of Excluded Assets, the “
Contribution ”).
(c)
Spin-Off of
New 360 Common Stock . On the Acceptance
Date immediately following the Contribution but immediately prior
to DG’s consummation of the Exchange Offer, Point.360 shall
distribute to its shareholders (other than DG), on a pro
rata basis, without consideration being paid by such
shareholders, all of the outstanding shares of New 360 common
stock. Subject to any limitations imposed by applicable law,
Point.360 shall be entitled to select
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the record date
to be used in determining the shareholders entitled to receive the
distribution of shares of New 360 common stock in the Spin-Off;
provided that such record date must be prior to the
Acceptance Date.
(d)
Further
Assurances . This Agreement is
intended by the parties to fully evidence and carry out (without
the need for additional documents) the Acceptance Date Transfer of
the Excluded Assets by Point.360 to New 360 pursuant to Section
2(a) and the Acceptance Date assumption by New 360 of the
Assumed Liabilities pursuant to Section 2(b) ;
provided , however , from and after the Acceptance
Date, (i) if requested by New 360, Point.360 shall execute and
deliver to New 360 a bill of sale or similar instrument that
further evidences the Transfer of the Excluded Assets to New 360
and/or stock powers with respect to the Transfer of the capital
stock of IVC to New 360, and (ii) if requested by Point.360 or DG,
New 360 shall execute and deliver to Point.360 an assumption
agreement or similar instrument that further evidences New
360’s assumption of the Assumed Liabilities. Each such
instrument must be in form and substance reasonably satisfactory to
Point.360, New 360 and DG. Without limiting the generality of
the foregoing, from and after the Acceptance Date, each of
Point.360, New 360 and DG shall cooperate with the other parties in
executing and delivering any other instruments necessary to
effectuate the Contribution as may be reasonably requested by any
other party from time to time, in each case consistent with the
terms of this Agreement.
(e)
Conditions to
Point.360’s Obligations . Point.360 shall not
be obligated to Transfer the Excluded Assets to New 360, and New
360 shall not be obligated to assume the Assumed Liabilities,
unless and until (i) the Form 10 to be filed by New 360 with the
SEC has been declared effective under the Exchange Act, and no stop
order with respect thereto is in effect and (ii) DG has given
Point.360 at least one (1) business day’s prior written
notice of the Acceptance Date.
(f)
CBS
Agreement . Point.360 and CBS
Worldwide Distribution, CBS Broadcasting, Inc. are parties to an
Agreement, dated January 31, 2006 (the “ CBS Agreement
”), that constitutes an Excluded Asset. New 360 hereby
agrees that: (i) it shall comply with the terms of the CBS
Agreement from and after the Acceptance Date; (ii) it shall not use
any products or services under the CBS Agreement from and after the
Acceptance Date; and (iii) it shall not allow any renewal,
extension or further assignment of the CBS Agreement.
(g)
No
Representations or Warranties . This Agreement shall
not be construed as containing, expressly or by implication, any
representations or warranties by Point.360, New 360 or DG regarding
(i) the nature, condition, amount or value of any Acquired Assets,
Assumed Liabilities, Excluded Assets or Retained Liabilities, (ii)
any consents, waivers or approvals from Governmental Entities and
other third parties that are required to be obtained in connection
with the transactions contemplated by this Agreement or (iii) the
absence of security interests, liens, claims and other encumbrances
with respect to any Acquired Assets or Excluded Assets. All
Acquired Assets and Excluded Assets are being transferred or
retained, as applicable, on an “as is,” “where
is” basis.
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SECTION 3.
RETENTION BY POINT.360 OF THE ACQUIRED ASSETS AND RETAINED
LIABILITIES
(a)
For the avoidance
of doubt, from and after the Contribution: (i) Point.360
shall retain all of its right, title and interest in and to the
Acquired Assets to the same extent that such right, title, and
interest existed immediately prior to the Contribution; (ii)
Point.360 shall retain the obligation to pay, perform, discharge
and fulfill all of the Retained Liabilities; (iii) New 360 shall
have no right, title or interest in or to any of the Acquired
Assets; and (iv) New 360 shall have no obligation to pay, perform,
discharge or fulfill any of the Retained Liabilities.
(b)
Books and
Records .
(i)
For a period of
at least five years after the Acceptance Date (or the later of the
applicable statute of limitations for Books and Records relating to
Taxes), New 360 shall retain the Books and Records that constitute
Excluded Assets. For a period of at least five years after
the Acceptance Date (or the later of the applicable statute of
limitations for Books and Records relating to Taxes), Point.360 and
DG shall retain the minute books and share record books relating to
Point.360 and the Books and Records that constitute Acquired
Assets.
(ii)
During the
five-year period after the Acceptance Date (or the later period
described in Section 3(b)(i) for Books and Records relating
to Taxes), each of New 360, on the one hand, and DG and Point.360,
on the other hand, shall provide to the other party and its
authorized accountants, counsel and other designated
representatives, promptly after receipt of a written request from
the requesting party and with any related out-of-pocket expenses to
be paid by the requesting party, reasonable access during normal
business hours to the Books and Records that such providing party
is required to retain pursuant to the terms of Section
3(b)(i) , subject to appropriate restrictions for classified,
privileged or confidential information; provided ,
however , a request for access that is made by New 360, DG
or Point.360, as applicable, must specify in reasonable detail the
Books and Records to which such requesting party desires access,
and such request must specify a legitimate business purpose for
such access; provided , further , however ,
(i) in the case of a request by DG or Point.360, such request must
relate solely to Books and Records relating to the Acquired Assets,
the Retained Liabilities or the ADS Business and (ii) in the case
of a request by New 360, such request must relate solely to Books
and Records relating to the Excluded Assets, the Assumed
Liabilities or Point.360’s business prior to the Merger
Effective Time. The confidentiality provisions contained in
Section 1 of the Noncompetition Agreement to be entered into by and
between DG and New 360 shall govern the use and disclosure of any
ADS Confidential Information (as defined in said agreement) that is
obtained by New 360 pursuant to this Section 3(b)(ii)
. The Confidentiality Agreement, dated August 16, 2006, by
and between DG and Point.360, as amended on April 16, 2007 to add
New 360 as a party thereto (the “ DG Confidentiality
Agreement ”), shall govern the obligations owed to New
360 regarding the use and disclosure of any Confidential
Information (as defined in said agreement) that is obtained by DG
or Point.360 pursuant to this Section 3(b)(ii) .
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(iii)
Nothing in this
Section 3(b) shall require any party to violate any
agreement with any third party regarding the confidentiality of
confidential and proprietary information relating to that third
party or its business; provided , however , that in
the event that a party is otherwise required to disclose any such
information pursuant to this Section 3(b) , such party shall
use commercially reasonable efforts to seek to obtain a consent
from such third party to the disclosure of such
information.
(iv)
After the
Acceptance Date, each of New 360, Point.360 and DG may receive from
third parties mail, packages and other communications properly
belonging to another party. The receiving party shall
promptly deliver such mail, packages or other communications at its
expense to the proper party.
(v)
New 360 shall
promptly deliver any Books and Records which are in electronic
format or otherwise and which constitute Acquired Assets to DG upon
written request; provided that such Books and Records are
identified with reasonable specificity in such request.
Notwithstanding anything in this Agreement to the contrary, New 360
shall not be obligated to deliver any Books and Records which are
in electronic format (other than those Books and Record
specifically identified in Schedule C ) unless and until a
request for such Books and Records is received in accordance with
the immediately preceding sentence.
(c)
Point.360
Lockbox . From and after the
Acceptance Date, New 360 shall remit to DG on a weekly basis any
payments received by New 360 in respect of accounts receivable
constituting Acquired Assets (regardless of the manner in which
such payments are received by New 360).
SECTION 4.
INTELLECTUAL PROPERTY LICENSES
(a)
Effective upon
the consummation of the Contribution, New 360 hereby grants to
Point.360 and DG a non-exclusive, non-transferable, royalty-free
license for a term of five (5) years after the Acceptance Date to
use, solely in connection with the operation of the ADS Business,
all Intellectual Property constituting Excluded Assets that is
currently used in the conduct of the ADS Business (the “
Licensed IP ”); provided that New 360 shall not
further license the Licensed IP to any third party engaged in a
business equivalent to the ADS Business. Neither Point.360
nor New 360 makes any representation or warranty, expressed or
implied, regarding any of the Licensed IP. Neither Point.360
nor DG shall have the right to use any of the Licensed IP after the
expiratio
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