Exhibit 10.17
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AGREEMENT
OF
MEDIAAMERICA, INC.,
▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ NETWORK HOLDINGS, LLC
AND
▇▇▇▇▇ INTERNATIONAL NETWORKS, LTD.
TABLE OF CONTENTS
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1. Transfer of MAI Assets to New Company........................................... 2
Assumption of Certain Obligations and Liabilities.................................. 2
Excluded Assets and Liabilities.................................................... 3
Transfers to New Company by ▇▇▇▇▇.................................................. 4
Exchange Consideration............................................................. 4
The Working Capital Adjustment..................................................... 5
The Earnout........................................................................ 7
Exchange Allocation................................................................ 9
Certain Taxes...................................................................... 10
2. Representation, Warranties, and Covenants of MAI and the Shareholders........... 10
Due Organization; Capitalization: Articles and By-laws; Other Names; Authority..... 10
Subsidiaries or Affiliates......................................................... 11
Financial Statements............................................................... 11
Title to Properties; Liens; Condition of Properties................................ 12
Accounts Receivable and Receivable From Affiliate.................................. 13
Governmental Authority; Compliance With Law........................................ 14
Taxes.............................................................................. 14
Contracts and Agreements........................................................... 15
Labor, Benefit, Employment Agreements, ERISA and Employees......................... 16
Litigation and Disputed Items...................................................... 17
Options............................................................................ 18
No Violation of Other Instruments.................................................. 18
Brokerage Commissions.............................................................. 18
Governmental Approvals............................................................. 18
Transactions with Affiliates....................................................... 19
Intellectual Property.............................................................. 19
Libraries and Programs............................................................. 19
Regarding the Assets............................................................... 20
Correctness of Representations and Warranties...................................... 20
Operations from Date of Latest MAI Financial Statements to Date of this Agreement.. 20
3. Representations, Warranties and Covenants of ▇▇▇▇▇ and New Company.............. 21
Due Organization; Capitalization; Articles and By-laws; Authority.................. 22
Brokerage Commissions.............................................................. 22
ii
Financial Statements............................................................... 22
No Violation of Other Instruments.................................................. 24
Governmental Approvals............................................................. 24
Validity of Shares to be Issued.................................................... 25
Articles and Bylaws................................................................ 25
Governmental Authority; Compliance With Law........................................ 25
Litigation and Disputed Items...................................................... 25
Options............................................................................ 26
Correctness of Representations and Warranties...................................... 26
4. Covenants and Agreements of MAI................................................. 26
Access............................................................................. 26
Satisfaction of Conditions......................................................... 27
Payment of Bank Loans.............................................................. 27
Operations Prior to the Closing.................................................... 27
Name Change Filing................................................................. 30
Bulk Sales Law Compliance.......................................................... 31
Investment Representations......................................................... 31
Authorization to Collect Accounts Receivable....................................... 31
Updated Schedules.................................................................. 31
5. Covenants and Agreements of the Shareholders.................................... 32
Concerning MAI..................................................................... 32
Exclusivity........................................................................ 32
6. Covenants and Agreements of ▇▇▇▇▇ and New Company............................... 33
Satisfaction of Conditions......................................................... 33
Access............................................................................. 33
Employment Offers.................................................................. 33
Consultation With MAI.............................................................. 34
Substituted Letter of Credit....................................................... 34
Consents........................................................................... 34
7. The High Yield Offering......................................................... 34
Nature of the Offering............................................................. 34
Reimbursement of Certain Expenses.................................................. 35
Availability of Underwriters....................................................... 35
8. Conditions to Obligations of MAI and the Shareholders........................... 35
Accuracy of Representations, Warranties and Covenants.............................. 35
Absence of Litigation.............................................................. 36
Validity of Transactions........................................................... 36
iii
No Material Adverse Change, Officers' Certificate.................................. 36
Opinion of Counsel................................................................. 36
Completion of the High Yield Offering.............................................. 38
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Waiting Period................................................... 38
9. Conditions to Obligations of ▇▇▇▇▇ and New Company.............................. 38
Accuracy of Representations, Warranties and Covenants.............................. 38
Absence of Litigation.............................................................. 39
Validity of Transactions........................................................... 39
No Material Adverse Change, Officers' Certificate.................................. 39
Opinion of Counsel................................................................. 39
Completion of the High Yield Offering.............................................. 41
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Waiting Period................................................... 41
Consents........................................................................... 41
10. The Closing.................................................................... 41
11. Survival of Representations and Warranties..................................... 42
12. Expenses....................................................................... 42
13. Termination.................................................................... 43
14. Indemnification................................................................ 44
By MAI............................................................................. 44
By ▇▇▇▇▇ and New Company........................................................... 46
15. Confidential Information....................................................... 48
Exceptions......................................................................... 48
Prohibition of Disclosure.......................................................... 49
Use of Confidential Information................................................... 49
Return of Confidential Information................................................. 50
Injunctive Relief.................................................................. 50
16. Notices........................................................................ 50
17. Miscellaneous.................................................................. 51
Counterparts....................................................................... 51
Entire Agreement, No Waiver........................................................ 51
Headings........................................................................... 52
Schedules and Exhibits as Part of Agreement........................................ 52
Use of the Plural, etc............................................................. 52
Assignment......................................................................... 52
iv
Governing Law...................................................................... 52
Publicity.......................................................................... 53
Further Assurances................................................................. 53
No Third Party Beneficiaries....................................................... 53
Extension of Representation Agreement.............................................. 53
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EXHIBIT:
A. Example of the Working Capital Adjustment
B.-1 Example of the Earnout
B.-2 Selling, General and Administrative Expense Allocation
C. (No Exhibit)
D. New Company Articles of Incorporation
E. Pro Forma Capitalization
F. Employment Agreement
G. Post-Closing Agreement
H. Registration Rights Agreement
I. Section 351 Plan
J. Budgeted Commission Revenue Schedule
K. Extension and Amendments of Representation Agreements
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AGREEMENT
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This Agreement, dated as of June 2, 1998 (the "Agreement"), is by and among
MEDIAAMERICA, INC., a New York corporation ("MAI"), ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇▇ (individually a "Shareholder" and together the "Shareholders"), ▇▇▇▇▇
NETWORK HOLDINGS, LLC, a Colorado limited liability company ("▇▇▇▇▇") and ▇▇▇▇▇
INTERNATIONAL NETWORKS,LTD. ("New Company"), a newly organized Colorado
corporation and a wholly-owned subsidiary of ▇▇▇▇▇.
R E C I T A L S
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(a) MAI is in the business of creating, producing, selling, buying,
representing and distributing radio programming and networks.
(b) MAI and ▇▇▇▇▇ desire to combine their business enterprises through the
contribution of specified assets and liabilities to New Company.
(c) ▇▇▇▇▇ presently holds all of the outstanding stock of the Colorado
corporation known as JPN, Inc., and is the obligor of a promissory note payable
to ▇▇▇▇▇ Global Group, Inc. ("Global Group"). ▇▇▇▇▇ has formed New Company and
intends to have New Company acquire the JIN shares and assume ▇▇▇▇▇' obligations
under the promissory note payable to Global Group to New Company, all in
connection with the other transactions contemplated by this Agreement.
(d) ▇▇▇▇▇ and New Company desire to have New Company acquire certain assets
and assume certain liabilities of MAI and MAI and the Shareholders desire to
have MAI transfer such assets and liabilities to New Company, all on the terms
and conditions hereinafter set forth. As part of such transaction, certain of
the parties are to enter into one or more related agreements which are set forth
as exhibits to this Agreement.
(e) The parties intend that the transfers by ▇▇▇▇▇ and MAI to New Company
described in this Agreement shall together qualify as an exchange under the
provisions of Section 351 ("Section 351") of the Internal Revenue Code of 1986,
as amended (the "Code").
Now, therefore, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Transfer of MAI Assets to New Company.
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(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 10) MAI agrees to transfer and
deliver to New Company and New Company agrees to acquire and accept from MAI all
of the assets and properties of MAI, whether real, personal, tangible or
intangible as the same may exist on the date hereof, and all additions thereto
on and after the date hereof through and including the Closing Date (as defined
in Section 10) but less (i) any permitted dispositions thereof between the date
of this Agreement and the Closing Date, and (ii) the "Excluded Assets" as
defined in Section 1(c). Such assets and properties to be transferred and
delivered are referred to hereinafter as the "Assets," which shall include
without limitation the following:
(i) All cash, cash equivalents, accounts receivable, prepaid
expenses, loans receivable, investments of all kinds and descriptions,
security deposits and government securities;
(ii) All contracts, contract rights, programming agreements, radio
affiliate agreements, agreements to provide services to third parties and
all other agreements and arrangements, whether similar or dissimilar;
(iii) All customer, advertiser and radio station affiliate lists;
(iv) All furniture, fixtures, leasehold improvements, computer
hardware and computer software;
(v) All interests in and to any real property, including any
leasehold interests;
(vi) All Intellectual Property Rights (as defined in Section 2(p)
and goodwill;
(vii) All files, data, books and records related to or with respect
to the Assets; and
(viii) All rights in and to the names "MediaAmerica" and
"MediaAmerica, Inc." and any derivations from or variations thereof.
(b) Assumption of Certain Obligations and Liabilities. On the terms and
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subject to the conditions set forth in this Agreement at the Closing, New
Company shall assume and agree to pay, discharge and perform when due all of the
liabilities and obligations of MAI to be performed after the Closing which are
(i) disclosed or included in the Latest MAI Financial Statements (as defined
below), (ii) incurred in the ordinary course of business since ▇▇▇▇▇ ▇▇, ▇▇▇▇,
(▇▇▇) listed in a Schedule (unless excluded as an Excluded Liability) and (iv)
contracts or liabilities not required to be scheduled because they fall below
the threshold
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disclosure level prescribed for the relevant Schedule (collectively, the
"Liabilities"), except that (x) no unknown or contingent liabilities of MAI
shall be assumed by New Company and such liabilities shall remain the
obligations of MAI and (y) liabilities and obligations which are specifically
hereinafter excluded from assumption by the terms of this Agreement shall remain
the obligations of MAI. It is understood and agreed that after the Closing, MAI
shall remain in existence for at least two (2) years, and that certain of its
obligations and liabilities are not to be assumed or assigned pursuant to this
Agreement.
(c) Excluded Assets and Liabilities. The following sets forth those
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assets and liabilities which will not be transferred to, or assumed by, New
Company and shall remain with MAI.
Excluded Assets:
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(i) Any and all contracts, plans, contributions, funds or trusts
arising out of or related to any pension plan, deferred compensation plan,
profit sharing plan, 401(k) plan, or other employee benefit plan or
arrangement.
(ii) Any loans receivable from Promotion Development Group ("PDG"),
and from the Shareholders.
(iii) Any income tax refund of any kind, nature or description.
(iv) Minute books and stock ledger books.
(v) Any payment, refund, recovery, receivable or insurance proceeds
related to Excluded Liabilities or Excluded Assets
(vi) Any litigation settlement proceeds or litigation expense
reimbursements.
(vii) Any insurance policies.
Excluded Liabilities:
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(i) Any liability or obligation whatsoever, whether fixed or
contingent, that arises out of, or relates in any way to, any pension plan,
profit sharing plan, 401(k) plan or other employee benefit plan, including
any deferred compensation or health care arrangement.
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(ii) Any undisclosed or contingent liability of any kind, nature or
description.
(iii) Any income tax liability or income tax-related liability of any
kind, nature or description.
(iv) Any liability or responsibility to provide any COBRA coverage
or notices under Part 6 of Title I of ERISA.
(v) Any liability with respect to any litigation, whether or not
disclosed, except as set forth in the sentence following clause (vi).
(vi) Liabilities and expenses arising in connection with the New
York sales tax audit, including reserves related thereto.
Notwithstanding the foregoing, the parties hereto agree that if litigation
against MAI or New Company is brought by or against a third party (other than
PDG) with which MAI has an agreement and such litigation arises out of the
treatment of such agreement (either as transferred to New Company or subject to
the Management Agreement) pursuant to the terms of this Agreement, the expenses
and costs of such litigation, and any damages related thereto (and recoveries
therefrom), shall be shared equally by MAI on the one hand and New Company on
the other.
(d) Transfers to New Company by ▇▇▇▇▇. At or before the Closing, ▇▇▇▇▇
---------------------------------
will transfer or will cause to be transferred to New Company its only assets,
consisting of 2,980,953 shares of Class A Common Stock and 1,785,120 shares of
Class B Common Stock of JPN, Inc., and will also cause New Company to assume its
obligation under the promissory note in the amount of $10 million plus any
accrued interest, payable to ▇▇▇▇▇ Global Group, Inc. Upon such transfers,
▇▇▇▇▇ will receive 2,980,953 shares of Class A Common Stock of New Company and
1,785,120 shares of Class B Common Stock of New Company, all of which shares
shall then be distributed to the interest owners of ▇▇▇▇▇. Exhibit E hereto
sets forth, on a pro forma basis, the capitalization and debt of New Company,
assuming (i) the Closing has occurred, (ii) completion of the High Yield
Offering (as defined in Section 7 of this Agreement), and (iii) the completion
of the transfers to New Company set forth in this Section 1(d).
(e) Exchange Consideration. The exchange consideration payable to MAI for
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the transferred Assets (the "Exchange Consideration") shall be $32.7 million
plus or minus the "Working Capital Adjustment" (as hereinafter defined). In
addition, New Company shall also pay to MAI the Earnout (as defined below) ,if
any, as set forth in Section 1(g) of this Agreement. The Exchange
Consideration to be paid at the Closing shall be as follows:
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(i) $26.7 million in cash.
(ii) $6 million (plus or minus the Estimated Working Capital
Adjustment, as hereinafter defined) in shares of Class A Common Stock in
New Company at an agreed value of $15.00 per share.
(f) The Working Capital Adjustment.
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(i) The "Working Capital Adjustment" means the amount, determined
in accordance with generally accepted accounting principles and the historical
accounting principles and methodologies applied in the preparation of the MAI
Financial Statements, as defined below (the "Historical GAAP Accounting
Principles"), which is equal to the difference between the sum of the current
Assets of MAI to be transferred pursuant to this Agreement and the sum of the
current Liabilities of MAI to be assumed pursuant to this Agreement, all as of
the Closing Date, provided that deferred rent shall not be included as a current
Liability for purposes of the Working Capital Adjustment. For the purpose of
calculating the Working Capital Adjustment, but not the Estimated Working
Capital Adjustment, (x) the net accounts receivable amount (accounts receivable
less the allowance for doubtful accounts) determined using Historical GAAP
Accounting Principles will be adjusted to reflect the amount of accounts
receivable estimated to be collectible based upon actual collection results and
other facts and circumstances existing at the time that the Working Capital
Adjustment is calculated and (y) in the event the Closing occurs other than on
the last day of a broadcast month, revenues and expenses shall be allocated to
the portion of the month prior to the Closing, as agreed to by the parties in
good faith.
(ii) Not less than five (5) days prior to the Closing Date, MAI
shall, in good faith, prepare in accordance with the Historical GAAP Accounting
Principles and deliver to ▇▇▇▇▇ a balance sheet projected as of the opening of
business on the Closing Date (the "Estimated Closing Date Balance Sheet"), and a
calculation of the Working Capital Adjustment ("Estimated Working Capital
Adjustment") based on such Estimated Closing Date Balance Sheet.
(iii) Not more than sixty (60) days after the Closing Date, MAI shall
prepare in accordance with the Historical GAAP Accounting Principles and deliver
to ▇▇▇▇▇ a balance sheet as of the opening of business on the Closing Date (the
"Closing Date Balance Sheet"), which shall be true and correct as of the Closing
Date, and a calculation of the Working Capital Adjustment based on such Closing
Date Balance Sheet. If the Working Capital Adjustment is greater than the
Estimated Working Capital Adjustment, New Company shall pay the
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difference to MAI, and if the Working Capital Adjustment is less than the
Estimated Working Capital Adjustment, MAI shall pay the difference to New
Company. All payments pursuant to this Section 1(f)(iii) shall be made in shares
of Class A Common Stock of New Company, valued at $15.00 per share. Subject to
the provisions of Section 1(f)(iv), payment of such adjustment amounts on the
basis of the Working Capital Adjustment shall be made prior to the close of
business on the second business day following the date that the Closing Date
Balance Sheet shall become final and binding pursuant to Section 1(f)(iii);
(iv) ▇▇▇▇▇ agrees that the Closing Date Balance Sheet delivered by
MAI to New Company pursuant to Section 1(f)(iii) and the computation of the
Working Capital Adjustment annexed thereto shall be conclusive and binding upon
the parties unless New Company, within twenty (20) days after the delivery to
New Company of such Closing Date Balance Sheet, notifies MAI in writing that New
Company disputes any of the amounts set forth therein, specifying the nature of
the dispute and the basis therefor, and any amount due MAI or New Company, as
the case may be, shall nonetheless be promptly paid to the extent such amount is
not in dispute. The parties shall in good faith attempt to resolve any dispute,
in which event the Closing Date Balance Sheet and the computation of the Working
Capital Adjustment, as amended to the extent necessary to reflect the resolution
of the dispute, shall be conclusive and binding upon the parties. If any such
dispute cannot be resolved by the parties within ten (10) days after the date of
the notice of the dispute, it shall be referred to an arbitrator ("Arbitrator")
who shall be a mutually satisfactory independent public accounting firm of
national stature that has not been employed by either party for the two years
preceding the Closing Date. If the parties cannot agree to a mutually
satisfactory independent public accounting firm of national stature, such
accounting firm shall be appointed as Arbitrator by the President of the
American Arbitration Association, upon the application of either party. The
determination of the Arbitrator shall be conclusive and binding on each party.
The fees of any arbitration (including the fees of the Arbitrator) pursuant to
this clause shall be borne equally by New Company and MAI (or the Shareholders).
(v) Each party hereby acknowledges and agrees that access to
employees and representatives of the other party may be required in order that
MAI may prepare the Closing Date Balance Sheet and ▇▇▇▇▇ may review the Closing
Date Balance Sheet. Each party shall make such persons available to the other
party and its representatives and shall give the other party and its
representatives all necessary access to the Books and Records (as defined
herein),
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without charge to the other party, as may reasonably be requested by the other
party, in order to assist in the preparation and review of the Closing Date
Balance Sheet.
(vi) An example of the Working Capital Adjustment, using the
unaudited March 31, 1998 balance sheet of MAI, is set forth on Exhibit A hereto.
Such example is for illustrative purposes only and shall not constitute the
actual calculation of the Working Capital Adjustment determined at the Closing
Date.
(g) The Earnout. The Exchange Consideration shall be adjusted up in the
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event the amount of the Earnout is greater than zero. The Earnout shall be
calculated for the twelve accounting months period which commences on the first
day of the first accounting month following the Closing (the "Earnout Period")
with respect to the EBITDA (meaning net income before interest income and
expense, taxes, depreciation and amortization; generated by the "MAI Business"
(as hereinafter defined) as follows:
The "Earnout" shall mean an amount equal to (i) (a) EBITDA in excess
of $4.24 million from all shows other than (A) the ▇▇. ▇▇▇▇ ▇▇▇▇▇
Show, ▇▇. ▇▇▇▇ ▇▇▇▇▇'▇ Medical Minutes, The Rush Morning Update, and
The ▇▇▇▇ ▇▇▇▇▇▇▇▇ Show (collectively, the "Excluded Shows") or (B) any
termination fees associated with the Excluded Shows multiplied by
(b) nine (9), plus (ii) EBITDA in excess of $0.26 million from the
Excluded Shows and any termination fees associated with the Excluded
Shows which are not reflected in EBITDA for the Excluded Shows.
(i) The term "MAI Business" shall mean (w) all advertising
representation agreements of the nature of those to be acquired from MAI by New
Company, whether in existence at the Closing or entered into during the Earnout
Period, (x) the radio programming agreements included in the Assets, (y) radio
programming agreements principally attributable to the efforts of a Shareholder
which are entered into during the Earnout Period as agreed to by MAI and New
Company on a case-by-case basis and (z) promotion and sponsorship agreements
(whether or not related to radio). MAI Business shall not include any radio
programming which is purchased after the Closing.
(ii) For the purposes of the Earnout calculation, (a) net income,
interest income and expense, taxes, depreciation and amortization related to the
MAI Business will be for the Earnout Period, and the related statements of
financial position, income and cash flows, shall each be prepared in accordance
with the
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Historical GAAP Accounting Principles (the "Earnout Financial Statements"), (b)
selling, general and administrative expenses shall be allocated as set forth on
Exhibit B-2; and (c) the calculation of the Earnout shall be made as if the
representation agreement, in effect as of the date hereof, between ▇▇▇▇▇ and
MAI, were in effect, whether or not such agreement is in effect during the
Earnout Period;
(iii) As promptly as practicable, but in any event not later than two (2)
months after the end of the Earnout Period, New Company shall prepare and
deliver to MAI (a) the Earnout Financial Statements, together with a certificate
of the Chief Financial Officer of New Company certifying that the Earnout
Financial Statements have been prepared in accordance with the Historical GAAP
Accounting Principles, and (b) the computation of the Earnout, in accordance
with Section 1(g)(ii). As promptly as practicable after the Earnout Financial
Statements are delivered, but in no event later than three (3) months after the
end of the Earnout Period, subject to the provisions of Section 1(g)(iv) and
except to the extent amounts payable under the Earnout are in dispute, all
required payments under this Section 1(g) shall be made on the basis of the
Earnout Financial Statements. In the event New Company is required to make a
payment under this Section 1(g) on the basis of the Earnout Financial
Statements, up to and including $5 million of such payment shall be made in
shares of Class A Common Stock of New Company, valued at $15.00 per share. Any
amount of such required payment in excess of $5 million shall be paid by New
Company in cash.
(iv) MAI agrees that the Earnout Financial Statements and the computation
of the Earnout annexed thereto shall be conclusive and binding upon the parties
unless MAI, within twenty (20) days after the delivery to MAI of the Earnout
Financial Statements, notifies New Company in writing that MAI disputes any of
the amounts set forth therein, specifying the nature of the dispute and the
basis therefore, and any amount due MAI shall nonetheless be promptly paid to
the extent such amount is not in dispute. The parties shall in good faith
attempt to resolve any dispute, in which event the Earnout Financial Statements
and the computation of the Earnout, as amended to the extent necessary to
reflect the resolution of the dispute, shall be conclusive and binding upon the
parties for purposes of calculation of the Earnout. If any such dispute cannot
be resolved by the parties within ten (10) days after the date of the notice of
the dispute, it shall be referred to an arbitrator ("Arbitrator") who shall be a
mutually satisfactory independent public accounting firm of national stature
that has not been employed by either party for the two years preceding the
Closing Date. If the parties cannot agree to a mutually satisfactory
independent public accounting firm of national stature, such accounting firm
shall be appointed as Arbitrator by the President of
8
the American Arbitration Association upon application of either party. The
determination of the Arbitrator shall be conclusive and binding on each party.
The fees of any arbitration (including the fees of the Arbitrator) pursuant to
this clause shall be borne equally by New Company and MAI (or the Shareholders);
(v) New Company hereby acknowledges and agrees that access to employees
and representatives of New Company may be required in order that MAI may
evaluate the Earnout Financial Statements. New Company shall make such persons
available to MAI and its representatives and shall give MAI and its
representatives all necessary access to the Books and Records, without charge to
MAI, as may reasonably be requested by MAI, in order to evaluate the Earnout
Financial Statements.
(vi) An example of the Earnout using illustrative EBITDA projections for
the period ending June 30, 1999 as the basis for the calculations is set forth
on Exhibit B-1 hereto. Such example is for illustrative purposes only and shall
not constitute the actual calculation of the Earnout.
(vii) The parties agree the MAI Business shall be conducted, and shall be
permitted to be conducted, during the Earnout Period in the ordinary course,
consistent with past operations and with the goal of creating long-term value
(which may include entering into short-term arrangements or agreements), and the
parties further agree that during the Earnout Period the MAI Business shall not
be conducted or prevented from being conducted with the intention of distorting
a fair calculation of the Earnout.
(h) Exchange Consideration Allocation. The parties agree that the Assets
---------------------------------
which are reflected on the Closing Date Balance Sheet shall be allocated that
portion of the Exchange Consideration (exclusive of the Earnout) as is equal to
the adjusted tax basis of such Assets, except that accounts receivable shall be
valued at their book values as set forth in the Closing Date Balance Sheet,
unless an Arbitrator is chosen pursuant to Section 1(f)(iv), in which event the
book values of the accounts receivable as determined by the Arbitrator shall
control. Any remaining amount of the Exchange Consideration (including the
Earnout) shall be allocated entirely to goodwill. The parties agree that the
amounts allocated to the Assets in this Section 1(h) equal the fair market
values of the respective Assets. The same percentage of cash and stock shall be
allocated to each Asset. The parties shall agree to the allocation of the
Exchange Consideration (exclusive of the Earnout) as soon as practicable, but in
no event later than 120 days after the Closing (or, if an Arbitrator is
determining the Working Capital Adjustment, 30 days after the determination by
the Arbitrator).
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The parties agree to report for federal income tax purposes consistently with
the allocations set forth in this Section 1(h), and to compute MAI's recognized
gain for federal income tax purposes in accordance with the principles of Rev.
Rul. 68-55, 1968-1 C.B 140.
(i) Certain Taxes. Any sales, use, transfer or documentary taxes imposed
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in connection with the sale and delivery of the Assets under this Agreement
shall be borne and paid equally by MAI and New Company.
2. Representation, Warranties, and Covenants of MAI and the Shareholders.
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MAI and the Shareholders jointly and severally hereby represent, warrant
and covenant to and with ▇▇▇▇▇ and New Company as follows:
(a) Due Organization; Capitalization: Articles and By-laws; Other Names;
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Authority.
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(i) MAI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. MAI has full
corporate power and authority to own, lease and operate its properties and
conduct its business as presently being conducted. MAI is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is necessary under applicable law
as a result of the conduct of its business or the ownership of its
properties except where the failure to be so qualified would not have a
material adverse effect on its business or financial condition. MAI has not
used any other name, in connection with its business or otherwise, other
than as set forth on Schedule 2(a) hereto.
(ii) The authorized capital stock of MAI consists of 1,000 shares of
Common Stock, no par value, of which 100 shares are issued, and outstanding
and held of record and beneficially by the Shareholders. All of such
issued shares of its capital stock are fully paid and non-assessable and
have been issued in compliance with applicable securities laws.
(iii) The copy of MAI's certificate of incorporation and any
amendments thereto, certified by the Secretary of State of New York, and
the copy of its bylaws and amendments thereto, certified by its Secretary,
as heretofore delivered or made available to ▇▇▇▇▇, are complete and
accurate (in each case as amended to date). MAI's stock ledger books
accurately reflect the names of the record holders of its shares of capital
10
stock and the number of shares of its capital stock held by each record
holder. True and correct copies of such stock ledger books have been
furnished or made available to ▇▇▇▇▇.
(iv) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the board of directors and the shareholders of MAI and no
other corporate or other proceedings on the part of MAI are necessary to
authorize the Agreement and the transactions contemplated hereby. This
Agreement and the agreements set forth in Exhibits F-1, F-2, G, H and I to
this Agreement (the "Ancillary Agreements") constitute (or, when executed
and delivered, will constitute) the valid and binding agreements of MAI
and/or the Shareholders, as the case may be, enforceable against MAI and/or
the Shareholders, as the case may be, in accordance with their respective
terms, except as such enforcement may be limited by bankruptcy and other
laws affecting the enforceability of creditors' rights generally or laws
governing the availability of specific performance or other equitable
remedies.
(b) Subsidiaries or Affiliates. MAI has no subsidiaries. Except as set
--------------------------
forth under Schedule 2(b) hereto, MAI owns no shares of stock or other
securities in any other corporation, nor is MAI a partner, venturer, participant
or associate in any partnership, venture or other business with any other person
or firm.
(c) Financial Statements.
--------------------
(i) Schedule 2(c)(i) consists of the financial statements of MAI
for the three (3) years ended December 31, 1997 (audited) and for the
quarters ended March 31, 1997 and March 31, 1998 (unaudited) (the "MAI
Financial Statements").
(ii) The MAI Financial Statements (A) are true, correct, complete
and accurate in all material respects and present fairly the financial
position and results of operations of MAI, as at the dates and for the
periods indicated, in accordance with generally accepted accounting
principles consistently applied, except, with respect to the financial
statements for the quarter ended March 31, 1997 and for the quarter ended
March 31, 1998 (the "Latest MAI Financial Statements"), for the absence of
footnotes thereto and subject to normal year-end adjustments; (B) reflect
all known claims against MAI and all of MAI's known debts and liabilities,
fixed or contingent, and of a type required to be disclosed in financial
11
statements under generally accepted accounting principles, as of the
respective dates thereof; and (C) have been prepared, in all material
respects, in compliance with Regulation S-X of the United States Securities
and Exchange Commission ("SEC"), or to the extent they are not in such
compliance, the MAI Financial Statements for such periods which are used
for purposes of the High Yield Offering and the Exchange Offer (as set
forth in Section 7) will be in such compliance except to the extent that
changes may be required by the SEC in connection with the review of any
filings to be made with the SEC which include the MAI Financial Statements.
(iii) MAI is not subject to any indebtedness or liability,
contingent or otherwise, except (x) as disclosed or adequately and
specifically reserved for in the MAI Financial Statements as at and for the
periods ended December 31, 1997, or March 31, 1998, (y) as set forth on
Schedule 2(c)(iii), (z) indebtedness or liabilities incurred in the
ordinary course of business since December 31, 1997 or (zz) as set forth on
any other Schedule showing contracts, indebtedness or liabilities, and,
except as may be disclosed in the Latest MAI Financial Statements since
December 31, 1997 (A) there has been no material adverse change in the
business, assets, liabilities (actual or contingent), earnings, prospects
or financial or other condition taken as a whole, other than any such
material adverse change or effect resulting from general economic changes
or industry-wide changes (a "Material Adverse Effect") as to MAI, (B) MAI
has paid no dividends or made any distribution on account of its capital
stock, (C) there has been no change in its capitalization, (D) MAI has not
disposed of any material amount of assets, and (E) MAI has conducted its
business only in the ordinary course and consistent with the manner in
which its business was conducted prior to that date.
(d) Title to Properties; Liens; Condition of Properties.
---------------------------------------------------
(i) Other than as set forth in Schedule 2(d)(i), MAI has good title
to all its tangible assets, free and clear of any mortgages, deeds of
trust, security interests, conditional sales agreements, liens, claims,
restrictions, preferential rights of purchase or other burdens,
("Encumbrances") other than Permitted Encumbrances.
"Permitted Encumbrances" shall mean (a) Encumbrances as set forth in
Schedule 2(d)(i), (b) liens for property and ad valorem taxes or
governmental charges or claims not yet due and payable and (c) other
12
Encumbrances less than $20,000 in the aggregate. Other than as set forth
in Schedule 2(d)(i), no presently effective financing statement under the
Uniform Commercial Code which names MAI as debtor is on file in any
jurisdiction and MAI has not signed any presently effective security
agreement authorizing any secured party thereunder to file any such
financing statement. At the time of Closing, all bank liens encumbering
the Assets, including those set forth in Schedule 2(d)(i), shall have been
released.
(ii) Schedule 2(d)(ii) sets forth all leases pursuant to which real
property is leased by MAI, true and complete copies of which have been
delivered to ▇▇▇▇▇.
(iii) The furniture, fixtures, furnishings, machinery, computer
hardware, computer software, equipment, spare parts, supplies, appliances,
vehicles and other tangible personal property owned by MAI ("Fixtures and
Equipment") are in a state of good repair sufficient for the conduct of
normal operations. The assets and properties (including leased property)
of MAI are adequate to enable it to conduct its business as now being
conducted. Other than as set forth on Schedule 2(d)(iii), MAI is not aware
of any major capital expenditure that will be required within one year from
the date of this Agreement that is not consistent with past practice.
Schedule 2(d)(iii) sets forth a list of each item of Fixtures and Equipment
that has a cost of at least $10,000 .
(iv) The intangible assets of MAI reflect the ownership of network
programming contracts and related agreements with radio stations. True and
correct copies of all such contracts and related agreements have been
delivered or made available to ▇▇▇▇▇. Schedule 2(d)(iv) sets forth a list
of all radio stations that have executed radio program affiliation
agreements with MAI or have entered into oral radio programming affiliation
arrangements with MAI.
(e) Accounts Receivable and Receivable From Affiliate. The accounts
-------------------------------------------------
receivable reflected on the Latest MAI Financial Statements and those acquired
since such date as reflected in the books and records of MAI, subject to any
reserve for bad debts reflected on the Latest MAI Financial Statements,
constitute all of the material receivables owned by MAI.
13
(f) Governmental Authority; Compliance With Law. MAI possesses all
-------------------------------------------
material permits, licenses and/or franchises from governmental agencies having
jurisdiction over it that are required for it to operate and to continue to
operate its business as it is currently being operated (the "Permits"). All of
the Permits are in full force and effect and shall remain so as of the Closing.
MAI has not received any notice from any governmental authority which would have
a Material Adverse Effect and MAI has complied in all material respects with all
statutes, regulations, rules and other orders of all governmental departments or
agencies (including, without limitation, those statutes, regulations, rules and
orders dealing with environmental matters and/or hazardous materials), the
failure to comply with which would have a Material Adverse Effect. Schedule
2(f) describes all of the Permits held by MAI.
(g) Taxes. Except as set forth on Schedule 2(g), MAI has filed returns and
-----
reports of Taxes (as hereinafter defined) required to be filed by it ("Tax
Returns") for each of its fiscal years through its last fiscal year ended
December 31, 1997 and has paid in full all Taxes to the extent such filing and
payments are required prior to the date of this Agreement. True and correct
copies of all Tax Returns, including all schedules thereto, filed since January
1, 1992 have been provided or made available to ▇▇▇▇▇. Except as set forth on
Schedule 2(g), there are no outstanding claimed deficiencies or assessments for
Taxes, or to the best knowledge of MAI or the Shareholders, claimed deficiencies
that are pending or threatened. Except as set forth on Schedule 2(g), there are
no agreements, consents or waivers extending the time for the assessment of any
Tax or Tax deficiency against it. The Latest MAI Financial Statements include
adequate reserves with respect to Taxes accrued but not yet payable prior to the
date of such Financial Statements. Except as disclosed on Schedule 2(g), none
of the Tax Returns of MAI have been audited by the United States Internal
Revenue Service or any state or local agency for any fiscal year and MAI has not
been notified in writing that any audit of a Tax Return is pending and, to the
knowledge of MAI, MAI has not been notified orally that any tax audit is
pending. MAI is, and since its inception has been, a validly electing and
existing "S corporation" under Subchapter S of the Internal Revenue Code. There
is no outstanding claim by any taxing authority that such election made by MAI
is invalid or that in any other way challenges the status of MAI as a validly
electing and existing S corporation. None of the Assets are subject to Tax
liens, except for Taxes not yet due and payable. Except as set forth on
Schedule 2(g), MAI has never been a member of a group of corporations filing
consolidated or combined returns. Except as set forth on Schedule 2(g), MAI is
not liable for the Taxes of any other person under Treasury Regulation (S)
1.1502-6 or any other similar regulation or statute. Except as set forth on
Schedule 2(g), MAI is not a party to a tax sharing agreement. As
14
used in this Agreement, the term "Taxes" shall mean all federal, state, county,
local, foreign and other taxes and governmental assessments, including without
limitation income taxes, estimated taxes, withholding taxes, transfer taxes,
excise taxes, sales taxes, real and personal property taxes, ad valorem taxes,
payroll-related taxes, employment taxes, franchise taxes and import duties,
together with any related liabilities for penalties, fines or additions to tax.
To MAI's knowledge, no Tax deficiency has been asserted against any other person
for Taxes for which MAI could be held liable, and to MAI's knowledge, no such
deficiency has been threatened or is pending.
(h) Contracts and Agreements.
------------------------
(i) Schedule 2(h)(i), which will be delivered no later than ten (10)
days after the execution of this Agreement, lists every material contract
or agreement , written or oral, (including but not limited to, joint
ventures and partnerships) to which MAI is a party or is subject or by
which MAI or any of its properties is bound, and which pursuant to its
terms has not expired, terminated or been fully performed by the parties
thereto (each, a "Material Contract"), excepting those which (A) are
described on, and cross-referenced to, another Schedule hereto, or (B) were
made in the ordinary course of business and can be canceled upon 30 days'
notice or less without incurring any material penalty or material liability
for such cancellation , or (C) do not individually involve annual payments
in excess of $10,000 in any one instance or $100,000 in the aggregate, or
(D) radio program affiliation agreements executed with radio stations , or
(E) sales orders. A true and complete copy of each agreement listed on
Schedule 2(h)(i) has been or will be delivered or made available to ▇▇▇▇▇,
including every programming or similar agreement with a radio station
affiliate, whether or not material.
(ii) Each of the agreements and contracts listed on or made a part of
Schedule 2(h)(i) is a valid and binding obligation of the parties thereto
in accordance with its respective terms, except as the enforceability
thereof may be subject to, or limited by, (A) applicable bankruptcy,
insolvency, moratorium, reorganization, or similar laws in effect which
affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in
equity; and there are no material liabilities, or, to the knowledge of MAI,
no liabilities, arising from any default by MAI heretofore in any of such
agreements or contracts except as set forth on Schedule 2(h)(i). Except as
set forth on Schedule 2(h)(i), MAI is not aware of any material default by
any other
15
party to any of the agreements or contracts required to be listed
on Schedule 2(h)(i) or any other Schedule or of any assertion by any other
person of any default under any of such agreements or contracts.
(iii) With respect to radio program affiliation agreements executed
with radio stations, and oral radio programming affiliation arrangements, a
list of radio stations which have, as of the date hereof, executed such
agreements or entered into and are performing such arrangements, and, to
the knowledge of MAI as of the date of this Agreement, have not terminated
such contracts, has been delivered or made available to ▇▇▇▇▇.
(i) Labor, Benefit, Employment Agreements, ERISA and Employees.
----------------------------------------------------------
(i) Except as set forth on Schedule 2(i)(i), there are no
collective bargaining agreements or other labor agreements to which MAI is
a party, nor are there any pension plans or other employment, profit
sharing, 401(k), deferred compensation, bonus, stock option, stock
purchase, retainer, consultant, retirement, welfare, group medical,
disability or health insurance or incentive plans or contracts or life
insurance or other "fringe benefits" for employees. A true and complete
copy of each item listed on Schedule 2(i)(i) has been delivered or made
available to ▇▇▇▇▇. ▇▇▇▇▇ shall not assume or hereby or otherwise become
obligated to pay any debt, obligation or liability arising from MAI's
employee benefit plans, or any other employment arrangement, whether for a
group of employees or a single employee, it is understood and agreed that
any obligation whether past, present or future under any such plan or
arrangement shall not be the responsibility of ▇▇▇▇▇, New Company or any
affiliate thereof.
(ii) There are no employment agreements, written or oral, now in
effect with any of the officers, directors or individual employees of MAI
except as indicated following such person's name on Schedule 2(i)(ii), true
and complete copies of each of which have been delivered or made available
to ▇▇▇▇▇. Schedule 2(i)(ii) contains a true and complete list of all
persons employed at or in connection with the operation of MAI, a list of
each such employee's current annual salary and a description of all
compensation arrangements (including bonus arrangements) and employee
benefit plans or arrangements applicable to such employees. MAI has no
16
knowledge that any employee identified on such Schedule currently plans to
terminate employment, whether by reason of the transactions contemplated by
this Agreement or otherwise.
(iii) MAI has complied in all material respects with all laws
relating to the employment of labor, including, without limitation, those
laws relating to safety, health, wages, hours, unemployment insurance and
workers' compensation and has complied with all laws relating to equal
employment opportunity matters, except to the extent any non-compliance
would not have or cause a Material Adverse Effect.
(j) Litigation and Disputed Items.
-----------------------------
(i) Except as set forth in Schedule 2(j)(i), no action or proceeding
against MAI or any of its directors, officers, employees, fiduciaries or
agents is pending, or , to the knowledge of MAI, contemplated or threatened
before any court or governmental body or authority, that has an amount in
issue in excess of $20,000 individually or which would in the aggregate
exceed $75,000 or that in any manner could materially adversely affect the
business, property or prospects of MAI nor is MAI subject to any existing
judgment, order or decree of any court or federal, state or local
government (or agency thereof) affecting the operation of its business or
its assets, or which would prevent, hamper or make illegal the transactions
contemplated by this Agreement. It is understood and agreed that, except
as set forth in the last paragraph of Section 1(c) hereof, New Company and
▇▇▇▇▇ shall assume no responsibility or obligation whatsoever for any
litigation and related claims against MAI arising out of acts or omissions
occurring, or events or circumstances related to the ownership or operation
of MAI, prior to the Closing Date, nor shall New Company and ▇▇▇▇▇ have any
responsibility or obligation for any costs or expenses related to any such
litigation or claims. Except as set forth in the last paragraph of Section
1(c) hereof, any such litigation, whether or not disclosed to ▇▇▇▇▇, in
----
which MAI is a party shall not become the responsibility or obligation of
▇▇▇▇▇ or New Company and the litigation shall remain with and be the sole
responsibility of MAI.
(ii) MAI is not engaged in any legal action to recover claims for
moneys due or damages sustained or to enforce any right, except as set
forth on Schedule 2(j)(ii).
17
(k) Options. MAI has not granted any options, warrants or rights to
-------
acquire its stock or other securities, nor is it a party to any agreement
requiring it to issue any options, warrants, rights or other securities of MAI
or requiring MAI or its shareholders, or any of them, to sell any options,
warrants, rights or other securities of it. MAI has no securities outstanding
that are convertible into shares of any class of capital stock of MAI.
(l) No Violation of Other Instruments. Neither the execution and delivery
---------------------------------
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in a breach of MAI's certificate of incorporation or bylaws, or
of the terms of any evidence of indebtedness or agreement to which it is a party
or by which it is bound (except for the need to obtain the consents of third
parties to transfer certain representation agreements, the procedure for which
is set forth in Section 9(h), and other agreements, copies of which have been or
will be provided to ▇▇▇▇▇ and New Company); (ii) cause a default under any
mortgage or deed of trust or other lien, charge or encumbrance to which any of
its Fixtures and Equipment or leased real property is subject; (iii) conflict
with, or permit any party to declare a default under or cancel or modify any
contract to which it is a party, of which it is a beneficiary or by which it or
any of its property is bound (except for the need to obtain the consents to
transfer described in (i) above); (iv) accelerate or constitute an event
entitling the holder of any of its indebtedness to accelerate the maturity of
any of its indebtedness; or (v) result in a material violation of any judgment,
order, writ, injunction or decree of any court, commission, bureau or agency to
which it is a party or by which it is bound. Schedule 2(l) sets forth certain
material agreements of MAI (other than representation agreements) which require
the consent of a third party to the transfer of such agreement .
(m) Brokerage Commissions. Neither MAI nor the Shareholders has agreed to
---------------------
pay to any person any finder's or brokerage fee or commission in connection with
this Agreement or the transactions contemplated thereby; provided that the
Shareholders may pay a fee to T M Capital Corp.
(n) Governmental Approvals. Except (i) as set forth on Schedule 2(n) or
----------------------
(ii) pursuant to the ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇ Antitrust Improvement Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), no
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, is required to be made or obtained by MAI or
the Shareholders for the execution and delivery by MAI and the Shareholders of
this Agreement and the consummation of the transactions contemplated hereby.
18
(o) Transactions with Affiliates. Except as set forth in Schedule 2(o),
----------------------------
there are no loans, leases, agreements or other transactions (other than
dividends or distributions to any stockholders of MAI in his capacity as such)
between MAI and any officer or director or employee of MAI or any holder of any
class of capital stock of MAI or any member of any such officer's, director's,
employee's or stockholder's immediate family or any corporation or other entity
controlled by any such officer, director, employee or stockholder or a member of
any such officer's, director's, employee's or stockholder's immediate family. A
true and complete copy of each agreement or transaction listed in Schedule 2(o)
has been fully disclosed on such Schedule, or if the transaction is in a
document, such document has been delivered to ▇▇▇▇▇. Any such agreement or
transaction with PDG shall not be assumed by New Company without its express
written consent, specifically referring to the agreement or transaction in
question.
(p) Intellectual Property. Except as set forth on Schedule 2(p)(i), MAI
---------------------
owns or has valid and enforceable licenses or other valid and enforceable rights
to use all material copyrights, trademarks, trade names, service marks, computer
software, licenses, jingles, privileges, and other similar intangible property
rights and interests applied for, issued to or owned by it, or under which it is
licensed or franchised, which are used in the present conduct of its businesses
and operations ("Intellectual Property Rights"). Such ownership and licenses
will not cease to be valid and in full force and effect in any material respect
by reason of execution and delivery of this Agreement and consummation of the
transactions contemplated hereby. Schedule 2(p)(ii), to be delivered no later
than ten (10) days after the date of this Agreement, sets forth a list of (x)
all Intellectual Property Rights which are registered or for which applications
for registration have been made and (y) the names of programs and "Combo"
programming packages for which filing or registrations with federal, state or
local government agencies have not been made but to which MAI in good faith
believes it has valid and enforceable rights and (z) computer software, whether
developed or licensed from third parties. MAI has no knowledge of any
threatened or pending proceeding or litigation affecting or with respect to any
Intellectual Property Rights. MAI has received no notice alleging infringement
of the rights of any third party to Intellectual Property Rights or unlawful use
of such property. Except as set forth on Schedule 2(p), MAI has the right to
use the Intellectual Property Rights and has not granted any licenses or other
rights and has no obligation to grant licenses or other rights with respect
thereto to any party.
(q) Libraries and Programs. MAI has good title to all of its radio
----------------------
programs, radio services and libraries, provided that in the event MAI has less
19
than the entire interest in any such program, radio service or library, Schedule
2(q) sets forth the other party or parties in interest and their respective
ownership interests, and MAI's representation herein shall apply only to extent
of its ownership interest. Schedule 2(q) sets forth the name of each such
program, service and library, and indicates the extent to which any third party
has any rights or Encumbrances with respect to such libraries or programs (other
than Permitted Encumbrances) and any other rights of any third parties with
respect to any such library or program, or any revenue therefrom.
(r) Regarding the Assets. The Assets and the Excluded Assets constitute
--------------
all of the property and assets that are used by MAI in the conduct of its
business and operations.
(s) Correctness of Representations and Warranties. No representation or
---------------------------------------------
warranty made by MAI or the Shareholders in this Agreement or in any of the
Exhibits to this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make such representation or warranty
not misleading. All of the facts recited with respect to MAI in any of the
Schedules attached hereto shall be deemed to be representations as to fact and
shall be as if recited in this Agreement. All the representations and
warranties herein contained shall survive any investigation made by or on behalf
of ▇▇▇▇▇ and New Company.
(t) Operations from Date of Latest MAI Financial Statements to Date of this
-----------------------------------------------------------------------
Agreement. Except as set forth in Schedule 2(t), since the date of the Latest
---------
MAI Financial Statements, to the date of this Agreement, MAI has not:
(i) Declared or paid any dividend; redeemed any shares of its
capital stock or granted any option or other type of right to acquire any
shares of its capital stock;
(ii) Incurred any indebtedness for borrowed money or assumed,
guaranteed, endorsed or otherwise as an accommodation, became responsible
for obligations of any other individual, corporation or other entity or
organization in any one instance in excess of $20,000 or $50,000 in the
aggregate;
(iii) Other than in the ordinary course of business, sold, leased,
transferred, released, abandoned or otherwise disposed of, or entered into
any contract or license for the sale, lease or other disposition of or
granted
20
any preferential right to purchase, lease or otherwise acquire, any of its
properties, rights or other assets or any interest therein or canceled,
released or assigned, any indebtedness owed to it or any claim, license or
permit held by it or released, abandoned or terminated any lease, contract,
agreement, instrument or right relating to title to or ownership of any of
its properties, rights or other assets or any interest therein;
(iv) Except for the Permitted Encumbrances, mortgaged, pledged,
hypothecated, subjected to lien or other encumbrance, or granted any
security interest in any of the Assets or any interest therein;
(v) Except in the ordinary course of business, purchased, leased
or otherwise acquired, or entered into any contract for the purchase, lease
or other acquisition of, machinery, equipment, material, products,
supplies, or other personal property or rights or services at a cost of
more than $20,000 in any one instance or more than $50,000 in the
aggregate;
(vi) Purchased, leased or otherwise acquired, or entered into any
contract for the purchase, lease or other acquisition of, any interest in
real property;
(vii) Made any investment, either by purchase of stock or other
securities, the purchase of partnership interest, contributions to capital,
transfer, merger, consolidation or otherwise, or by the purchase of any
business or any other entities.
(viii) Made any loans or advances to any individual, entity or
organization of more than $20,000 in any one instance or more than $50,000
in the aggregate unless such loan or advance was tied to a producer fee
payable to the borrower in an amount equal to, or greater than, the loan or
advance.
(ix) Entered into or engaged in any transaction with any of the
persons set forth in Schedule 2(i)(ii).
3. Representations, Warranties and Covenants of ▇▇▇▇▇ and New Company.
------------------------------------------------------------------
▇▇▇▇▇ and New Company hereby jointly and severally represent, warrant and
covenant to and with MAI and the Shareholders as follows:
21
(a) Due Organization; Capitalization; Articles and By-laws; Authority.
-----------------------------------------------------------------
(i) Each of ▇▇▇▇▇ and New Company is duly organized, validly existing
and in good standing under the laws of Colorado. Each of ▇▇▇▇▇ and New
Company has full power and authority to own, lease and operate its
properties and conduct business as presently being conducted. Each of
▇▇▇▇▇ and New Company is duly qualified to do business as a foreign entity
and is in good standing in all jurisdictions except where the failure to be
so qualified would have a material adverse effect on their business or
financial condition.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the
board of managers of ▇▇▇▇▇ and the board of directors of New Company, and
no other proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement and the Ancillary
Agreements constitute (or, when executed and delivered, will constitute)
the valid and binding agreements of ▇▇▇▇▇ and/or New Company, as the case
may be, enforceable in each case in accordance with their respective terms,
except as such enforcement may be limited by bankruptcy and other laws
affecting the enforceability of creditors' rights generally or laws
governing the availability of specific performance or other equitable
remedies.
(b) Brokerage Commissions. Neither ▇▇▇▇▇ nor New Company has agreed to pay
---------------------
to any person any fee or commission in the nature of a finder's, broker's or
originator's fee or commission in connection with this Agreement or the
transactions contemplated thereby.
(c) Financial Statements.
--------------------
(i) ▇▇▇▇▇ and New Company have heretofore delivered to MAI their
respective financial statements. For ▇▇▇▇▇, such financial statements
consist of balance sheets as of December 31, 1996 and 1997 (audited) and
statements of operations for the three years ended December 31, 1997
(audited) and a balance sheet and statement of operations for the quarters
ended March 31, 1997 and March 31, 1998 (unaudited). For New Company, such
financial statements consist of an unaudited balance sheet as of May 29,
1998. The ▇▇▇▇▇ financial statements and the New Company financial
statements are hereinafter referred to as the "▇▇▇▇▇ Entities Financial
Statements".
22
(ii) The ▇▇▇▇▇ Entities Financial Statements (A) are true, correct,
complete, and accurate in all material respects and present fairly the
financial position and results of operations of the ▇▇▇▇▇ Entities, as at
the dates and for the periods indicated, in accordance with generally
accepted accounting principles consistently applied; (B) reflect all known
claims against the ▇▇▇▇▇ Entities and all of the ▇▇▇▇▇ Entities known debts
and liabilities, fixed or contingent, and of a type required to be
disclosed in financial statements under generally accepted accounting
principles, as of the respective dates thereof; and (C) have either been
prepared, in all material respects, in compliance with Regulation S-X of
the SEC or to the extent they are not in such compliance, the ▇▇▇▇▇
Entities Financial Statements for such periods which are used for purposes
of the High Yield Offering and Exchange Offer (as set forth in Section 7)
will be in such compliance.
(iii) Neither ▇▇▇▇▇ nor New Company has, nor is it subject to, any
material indebtedness or liability, contingent or otherwise, except as
disclosed or adequately and specifically reserved for in the ▇▇▇▇▇ Entities
Financial Statements as at and for the period ended March 31, 1998 (the
"Latest ▇▇▇▇▇ Entities Financial Statements") or indebtedness or
liabilities incurred in the ordinary course of business. Since the date of
the Latest ▇▇▇▇▇ Entities Financial Statements (A) there has been no
Material Adverse Effect as to ▇▇▇▇▇ or New Company, (B) neither ▇▇▇▇▇ nor
New Company has paid any dividends nor made any distribution on account of
its capital stock or equity interest, (C) there has been no change in the
capitalization of ▇▇▇▇▇ and New Company, (D) neither ▇▇▇▇▇ nor New Company
has disposed of any material amount of assets, and (E) ▇▇▇▇▇ and New
Company have conducted their respective businesses only in the ordinary
course and consistent with the manner in which such businesses were
conducted prior to that date.
(d) At the date of this Agreement, the authorized capitalization of New
Company consists of 50,000,000 shares of Class A Common Stock $.01 par value and
1,785,120 shares of Class B Stock $.01 par value, of which one share and zero
shares, respectively, are issued and outstanding. All of the outstanding shares
of New Company's Class A Common Stock and Class B Common Stock are fully paid
and non-assessable and were not issued in violation of, or subject to, any
preemptive rights. The respective rights and preferences of the two classes of
stock are set forth in the Articles of Incorporation of New Company, attached
hereto as Exhibit D. Prior to the Closing, there will be no additional
23
shares or options of any class either authorized or issued and no options to
acquire shares of any class of stock of New Company will be outstanding as of
the Closing; provided (i) that ▇▇▇▇▇ and/or New Company may issue equity
interests to operators of cable television systems in connection with
programming or other agreements with an affiliate of ▇▇▇▇▇ (Schedule 3(d)
contains a brief description of the terms of such issuances) and (ii) New
Company will issue shares of its Class A Common Stock and Class B Common Stock
as part of the transfer of assets and liabilities to New Company described in
Section 2(d) of this Agreement and may also grant stock options to its
associates consistent with the terms of its stock option plan. Following the
Closing, (x) 2,980,953 shares of Class A Common Stock will be issued and
outstanding and held of record and beneficially owned by the persons set forth
on Schedule 3(d)(ii), and (y) 1,785,120 shares of Class B Common Stock will be
issued and outstanding and held of record and beneficially owned by the persons
set forth on Schedule 3(d)(ii). All such issued shares of Class A Common Stock
and Class B Common Stock will be fully paid and non-assessable and will not have
been issued in violation of, or subject to, any preemptive rights.
(e) No Violation of Other Instruments. Neither the execution and delivery
---------------------------------
of this Agreement nor the performance of the transactions contemplated thereby
will (i) result in a breach of the articles of incorporation or bylaws of ▇▇▇▇▇
or the organizational documents of New Company, or of the terms of any evidence
of indebtedness or agreement to which either of them is a party or by which
either of them is bound; (ii) result in a default under any mortgage or deed of
trust or other lien, charge or encumbrance to which the property of either of
them is subject; (iii) conflict with or permit any party to declare a default
under or cancel or modify any contract to which either of them is a party, of
which either of them is a beneficiary or by which either of them or any of their
respective properties is bound; (iv) accelerate or constitute an event entitling
the holder of any indebtedness of either of them to accelerate the maturity of
any indebtedness of either of them; or (v) result in a material violation of any
judgment, order, writ, injunction or decree of any court, commission, bureau or
agency to which either of them is a party or by which either of them is bound.
Notwithstanding the foregoing, it is understood and agreed that the credit
facility of ▇▇▇▇▇ may require modification or may be terminated in order to
accommodate the transactions contemplated by this Agreement.
(f) Governmental Approvals. Except pursuant to the HSR Act, no
----------------------
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for the execution
24
and delivery by ▇▇▇▇▇ and New Company of this Agreement and the consummation of
the transactions contemplated hereby.
(g) Validity of Shares to be Issued. The shares of Class A Common Stock
-------------------------------
$.01 par value of New Company to be issued to MAI pursuant to this Agreement
have been duly authorized and when issued in accordance with this Agreement will
be duly and validly issued shares of New Company, fully paid and non-assessable,
subject to no Encumbrances (other than as set forth in the Ancillary
Agreements).
(h) Articles and Bylaws. The copy of New Company's Articles of
-------------------
Incorporation, certified by its Secretary, and the copy of its bylaws, certified
by its Secretary, as heretofore delivered or made available to MAI, are complete
and accurate (in each case as amended to date). New Company's stock ledger
books accurately reflect the names of the record holders of its shares of
capital stock and the number of shares of its capital stock held by each record
holder. True and correct copies of such stock ledger books have been made
available to MAI.
(i) Governmental Authority; Compliance With Law. ▇▇▇▇▇ and New Company
-------------------------------------------
possess all material permits, licenses and/or franchises from governmental
agencies having jurisdiction over them that are required for them to operate and
to continue to operate their business as it is currently being operated (the
"▇▇▇▇▇ Permits"). All of the ▇▇▇▇▇ Permits are in full force and effect and
shall remain so as of the Closing. Neither ▇▇▇▇▇ nor New Company has received
any notice from any governmental authority which would have a Material Adverse
Effect and New Company has complied in all material respects with all statutes,
regulations, rules and other orders of all governmental departments or agencies
(including, without limitation, those statutes, regulations, rules and orders
dealing with environmental matters and/or hazardous materials), the failure to
comply with which would have a Material Adverse Effect.
(j) Litigation and Disputed Items. Except as disclosed to MAI, no action
-----------------------------
or proceeding against New Company or ▇▇▇▇▇ or any of its directors, officers,
employees, fiduciaries or agents is pending, or, to the knowledge of New Company
or ▇▇▇▇▇, contemplated or threatened before any court or governmental body or
authority, that has an amount in issue in excess of $20,000 individually or
which would in the aggregate exceed $75,000 or that in any manner could
materially adversely affect the business, property or prospects of New Company,
nor is New Company subject to any existing judgment, order or decree of any
court or federal, state or local government (or agency thereof) affecting the
25
operation of its business or its assets, or which would prevent, hamper or make
illegal the transactions contemplated by this Agreement.
(k) Options. Except as contemplated by, or referred to in, this Agreement
-------
or any Schedule or Exhibit hereto, New Company has not granted any options,
warrants or rights to acquire its stock or other securities, nor is it a party
to any agreement requiring it to issue any options, warrants, rights or other
securities of New Company or requiring New Company or its shareholders, or any
of them, to sell any options, warrants, rights or other securities of it.
Except for its shares of Class B Common Stock which are convertible into shares
of Class A Common Stock, New Company has no securities outstanding that are
convertible into shares of any class of capital stock of New Company. After the
Closing, the Global Group note referred to in Recital C is convertible into
shares of Class A Common Stock at $15 per share.
(l) Correctness of Representations and Warranties. No representation or
---------------------------------------------
warranty made by ▇▇▇▇▇ or New Company in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to make
such representation or warranty not misleading. All representations and
warranties of ▇▇▇▇▇ and New Company herein contained shall survive any
investigation made by or on behalf of MAI.
4. Covenants and Agreements of MAI.
-------------------------------
MAI covenants and agrees that, from and after the date of this Agreement
and through (i) the termination of this Agreement or (ii) the Closing, whichever
shall first occur:
(a) Access. It will, upon reasonable notice, permit ▇▇▇▇▇ and its
------
authorized representatives to have access to its premises and to inspect the
Books and Records of MAI during regular business hours and will make available
to ▇▇▇▇▇ such financial and operating data and other information with respect to
the business and properties of MAI as ▇▇▇▇▇ reasonably shall request, including
all working papers pertaining to examinations made by its auditors and
accountants. Notwithstanding the foregoing, MAI shall not be obligated to
provide ▇▇▇▇▇ with any information (i) that would violate any law, rule or
regulation or term of any Material Contract or (ii) if the provision thereof
would adversely affect the ability of MAI or the Shareholders to assert
attorney-client, attorney work product or other similar legal privilege. Any
disclosure whatsoever during such investigation by ▇▇▇▇▇ and its authorized
representatives (who may be required to enter into a confidentiality agreement
or agreements directly with MAI) shall not constitute an
26
enlargement of, or additional, representations or warranties of MAI or the
Shareholders beyond those specifically set forth in this Agreement.
(b) Satisfaction of Conditions. MAI will use its reasonable best efforts
--------------------------
to cause the satisfaction of the conditions precedent contained in this
Agreement and to bring about the transactions contemplated by this Agreement as
soon as practicable. Notwithstanding the foregoing, nothing contained herein
shall require MAI to enter into any agreement or arrangement for the High Yield
Offering on terms that are not reasonably satisfactory to it.
(c) Payment of Bank Loans. Prior to Closing, MAI shall pay in full all
---------------------
indebtedness owed by it to any bank or financial institution ("Bank Loans") and
MAI shall obtain a complete release of any and all liens on the Assets.
(d) Operations Prior to the Closing.
-------------------------------
Prior to the Closing, except in accordance with prior approval of
▇▇▇▇▇, which approval shall not be unreasonably withheld:
(i) MAI will carry on its business in the same manner as was
conducted immediately prior to the date of this Agreement and will not make
any purchase or sale or enter into any transaction or execute any agreement
or incur any obligation or liability or introduce any method of management
or operation in respect of any such business or properties, except in the
ordinary course of business as heretofore conducted (and in every case,
only in accordance with and subject to the other restrictions of this
Agreement).
(ii) MAI will use its reasonable best efforts to maintain and
preserve intact its business organization and relationship with employees,
advertisers, advertising agencies, suppliers and customers and others
having business relations with it.
(iii) MAI will not declare or pay any dividends in respect of its
capital stock or purchase or redeem any shares of any of its capital stock
or make, or permit any of its Subsidiaries to make, any loans or
distributions or capital contributions of any kind to any persons other
than MAI, including, without limitation, to its shareholders or
Subsidiaries.
(iv) MAI will not, without the written consent of ▇▇▇▇▇, which
consent will not be unreasonably withheld, discharge or satisfy any
material
27
lien or encumbrance, or pay or perform any material obligation or liability
other than (A) current liabilities, (B) tax liabilities or current
assessments, as set forth on the Latest MAI Financial Statements, or
current liabilities, tax liabilities or current assessments incurred since
the date of the Latest MAI Financial Statements in the ordinary course of
business, (C) income tax liabilities, (D) the repayment of Bank Loans prior
to or at the Closing in accordance with the provisions hereof, and (E) any
such discharge, satisfaction, payment or performance in the ordinary course
of business consistent with past practice, and (F) of liens, encumbrances,
obligations or Liabilities disclosed on the Schedules.
(v) Except as specifically contemplated hereby or unless the prior
written approval to do so has been received by MAI from ▇▇▇▇▇, which
approval will not be unreasonably withheld, MAI will not:
(A) Make any change in its articles or certificate of
incorporation or bylaws;
(B) Issue or sell, or issue or grant any options, warrants, calls
or other rights to purchase or subscribe to, any of its unissued or
treasury stock or any other equity or debt securities or make any
change in its capital structure;
(C) Other than in the ordinary course of business, enter into (i)
any contract which commits it for a fixed term (unless such term is
terminable by it without penalty on not more than 30 days' notice), or
(ii) any agreement with any labor union or other bargaining agent or
unit:
(D) Prepay any obligations, except in the ordinary course of
business;
(E) Incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible
for obligations of any other individual, corporation or other entity
or organization (except for endorsement for collection or deposit of
negotiable instruments received in the ordinary course of business);
(F) Other than in the ordinary course of business, sell, lease,
transfer, release, abandon or otherwise dispose of, or enter
28
into any contract or license for the sale, lease or other disposition
of or grant any preferential right to purchase, lease or otherwise
acquire, any of its properties, rights or other assets or any interest
therein or cancel, release or assign any indebtedness owed to it or
any claim, license or permit held by it or release, abandon or
terminate any lease, contract, agreement, instrument or right relating
to title to or ownership of any of its properties, rights or other
assets or any interest therein;
(G) Mortgage, pledge, hypothecate, subject to lien or other
encumbrance, (other than the Permitted Encumbrances) or grant any
security interest in any of its properties, rights or other assets or
any interest therein;
(H) Purchase, lease or otherwise, acquire, or enter into any
contract for the purchase, lease or other acquisition of, machinery,
equipment, material, products, supplies, other personal property or
rights or services, except in the ordinary course of business;
(I) Purchase, lease or otherwise acquire, or enter into any
contract for the purchase, lease or other acquisition of, any interest
in real property;
(J) Make any investment either by the purchase of stock or other
securities, the purchase of partnership interests, contributions to
capital, transfer, merger, consolidation or otherwise, or by the
purchase of any real property or business of, any other individual or
entity;
(K) Increase (except providing on an employee's employment
anniversary date a salary raise not to exceed six percent) in any
manner the compensation of any of its officers, managers, employees or
consultants; enter into or adopt, or make or commit itself or make any
contribution to, any pension plan, retirement plan, bonus plan, profit
sharing plan, stock purchase plan, insurance plan or other employee
benefit plan or agreement, except for the matching payment and any
additional payments agreed to by ▇▇▇▇▇ and New Company under MAI's
401(k) plan and deferred compensation plan, consistent with past
practice and amounts contributed; enter into or commit itself to any
employment
29
agreement, management agreement or consulting agreement with or for
the benefit of any person;
(L) Except as permitted by (K) above, agree to any changes to the
compensation arrangements outlined on Schedule 2(i)(ii) hereto;
(M) Make any loans or advances (except in the case of normal
business travel and expense advances) to any individual, entity or
organization unless such loan is less than $20,000 in any one instance
or $50,000 in the aggregate and is tied to a producer fee payable to
the borrower in an amount equal to, or greater than, the loan or
advance;
(N) Take or permit any action within its control inconsistent
with the consummation of the transactions contemplated hereby;
(O) Merge or consolidate with any other entity or agree to do so,
or to conduct any discussions or negotiations with respect thereto;
(P) Except with respect to transactions with Promotion
Development Group on terms, conditions and amounts consistent with
past practice, enter into any transaction, including, without
limitation, any loans or extensions of credit, with any officer or
director of MAI , or any member of their respective immediate families
or any corporation or other entity directly or indirectly controlled
by one or more of such officers or directors or members of their
immediate families.
(e) Name Change Filing. At least three (3) days prior to the Closing, MAI
------------------
and the Shareholders will deliver to ▇▇▇▇▇ a duly executed and acknowledged
certificate of amendment to MAI's certificate of incorporation or other
appropriate document which is required to change MAI's corporate name to a new
name bearing no resemblance to its present name so as to make MAI's name
available to New Company under the terms of this Agreement. New Company is
hereby authorized to file such certificate or other document in order to
effectuate such change of name at or after the Closing as New Company shall
elect.
30
(f) Bulk Sales Law Compliance. New Company hereby waives compliance by MAI
-------------------------
with the provisions of the Bulk Sales Law of any state (if applicable), and MAI
warrants and agrees to pay and discharge when due all claims of creditors which
could be asserted against New Company by reason of such non-compliance to the
extent that such liabilities are not specifically assumed by New Company under
this Agreement.
(g) Investment Representations. The shares of Class A Common Stock of New
--------------------------
Company to be issued under this Agreement have not been registered under the
Securities Act of 1933, as amended, or under any state securities laws.
Accordingly, MAI understands and agrees that it is acquiring such shares for
investment and it may not sell, transfer, or convey any interest in or to such
shares unless the shares have been registered under the Securities Act of 1933,
as amended, and under any applicable state securities laws, or unless suitable
exemptions from such registration are available. Any certificates representing
the shares shall bear a legend to the foregoing effect and the transfer records
of New Company shall be noted to the same effect. MAI represents that it is an
"accredited investor" within the meaning of the Securities Act of 1933 and the
rules and regulations thereunder. MAI further represents that it has received a
Memorandum describing in detail the business, assets and financial condition of
▇▇▇▇▇ and New Company and that it had the opportunity to ask questions of, and
to obtain information from, representatives of ▇▇▇▇▇ regarding the business,
assets and financial condition of ▇▇▇▇▇ and New Company.
(h) Authorization to Collect Accounts Receivable. Subject to the Closing,
--------------------------------------------
MAI agrees that, following the Closing (i) New Company shall have the right and
authority to collect for its own account all receivables and other items
included in the Assets and (ii) it will endorse with the name of MAI any checks
received on account of any such receivables or other items. MAI agrees that it
will promptly transfer and deliver to New Company any cash or other property
which MAI may receive after the Closing in respect of such receivables or other
items.
(i) Updated Schedules. Not less than five days prior to Closing, MAI will
-----------------
deliver to ▇▇▇▇▇ and New Company revised copies of the Schedules which shall
have been updated to show any changes occurring between the date of this
Agreement and two (2) days prior to the date of such delivery and any
corrections to the Schedules in the form originally attached to this Agreement,
which would have been required to have been disclosed on such Schedules in
accordance with the provisions of this Agreement if the matters being so
disclosed had been known on the date of this Agreement; provided, however, that
for purposes of the
31
representations, warranties and covenants in this Agreement of MAI and the
Shareholders, including the indemnification provisions set forth in Section 14,
all references to the Schedules will mean the version of the Schedules attached
to this Agreement on the date of signing (except for Schedule 2(h)). The
occurrence of the Closing shall not constitute the waiver by ▇▇▇▇▇ and New
Company of their rights to assert that an item on any updated Schedule or the
Schedules delivered subsequent to execution of this Agreement is an Excluded
Asset or Excluded Liability.
5. Covenants and Agreements of the Shareholders.
--------------------------------------------
(a) Concerning MAI. The Shareholders agree to use their reasonable best
--------------
efforts to cause MAI to perform in all respects its covenants, agreements, and
obligations under this Agreement. The Shareholders further agree to vote (by
consent or otherwise) all shares of MAI as to which they have voting control
and/or beneficial ownership in favor of this Agreement and the transactions
contemplated thereby. Notwithstanding the foregoing, nothing contained herein
shall require either of the Shareholders to enter into any agreement or
arrangement for the High Yield Offering on terms that are not reasonably
satisfactory to such Shareholder.
(b) Exclusivity. Prior to 11:59 P.M., Denver time on the Closing Date,
-----------
(the "Exclusivity Period"), the Shareholders shall not, directly or indirectly,
through any employee, legal or financial advisor or other agent or otherwise,
solicit, initiate or encourage submission of, proposals or offers from any
person relating to any acquisition or purchase of all or a portion of the assets
of, or any equity interest in, MAI or any business combination with MAI or in
any shares of MAI held by the Shareholders or participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Shareholders shall immediately cease and cause to be terminated
any existing discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The Shareholders shall promptly notify
▇▇▇▇▇ if any such proposal or offer, or any inquiry or contact with any person
with respect thereto, is made and shall, in any such notice to ▇▇▇▇▇ indicate in
reasonable detail the nature of the offeror and the terms and conditions of any
proposal or offer, or any such inquiry or contact.
32
6. Covenants and Agreements of ▇▇▇▇▇ and New Company.
-------------------------------------------------
(a) Satisfaction of Conditions. ▇▇▇▇▇ and New Company will use their
--------------------------
reasonable best efforts to cause the satisfaction of the conditions precedent
contained in this Agreement and to bring about the transactions contemplated by
this Agreement as soon as practicable. Notwithstanding the foregoing, nothing
contained herein shall require ▇▇▇▇▇ or New Company or their affiliates to enter
into any agreement or arrangement for the High Yield Offering on terms that are
not reasonably satisfactory to them, it being agreed that the terms set forth in
the term sheet of April 21, 1998 provided to ▇▇▇▇▇ in respect of the High Yield
Offering (the "Terms Sheet") are acceptable to ▇▇▇▇▇ and New Company.
(b) Access. ▇▇▇▇▇ and New Company will, upon reasonable notice, permit
------
MAI and its authorized representatives to have access to their premises and
books and records of ▇▇▇▇▇ and New Company during regular business hours and
will make available to MAI such financial and operating data and other
information with respect to the business and properties of ▇▇▇▇▇ and New Company
as MAI reasonably shall request, including all working papers pertaining to
examinations made by its auditors and accountants. Notwithstanding the
foregoing, ▇▇▇▇▇ and New Company shall not be obligated to provide MAI with any
information (i) that would violate any law, rule or regulation or term of any
material contract of either of them or (ii) if the provision thereof would
adversely affect the ability of ▇▇▇▇▇ or New Company to assert attorney-client,
attorney work product or other similar legal privilege. Any disclosure
whatsoever during such investigation by MAI and its authorized representatives
(who may be required to enter into a confidentiality agreement or agreements
with ▇▇▇▇▇ and New Company directly) shall not constitute an enlargement of, or
additional, representations or warranties of ▇▇▇▇▇ or New Company beyond those
specifically set forth in this Agreement.
(c) Employment Offers. Upon and subject to the Closing, New Company will
-----------------
make offers of employment to employees of MAI (except the Shareholders, who are
to have written employment agreements and except as the parties may agree) (the
"Employees"), the names of whom are set forth on Schedule 6(c) on the same cash
salary basis as now exists for such persons, but with the benefits package
available to other ▇▇▇▇▇ employees; provided that the period of prior service
with MAI shall be taken into account in determining the period of vacation an
Employee shall receive and with respect to the Company's 401(k) plan, if such
plan can reasonably be amended to allow such prior service credit.
33
(d) Consultation With MAI. ▇▇▇▇▇ and New Company agree to notify MAI of
---------------------
any transaction which is out of the ordinary course of business that it proposes
to enter into between the date of this Agreement and the Closing Date and ▇▇▇▇▇
and New Company shall consult with MAI with respect to such transaction, but
such consultation shall be for information purposes only.
(e) Substituted Letter of Credit. Promptly after the Closing, New Company
----------------------------
shall arrange for a substituted letter of credit to replace the MAI letter of
credit which is security for the performance of the lease on MAI's New York City
office.
(f) Consents. MAI shall use its best efforts (without the requirement,
--------
directly or indirectly, of payment to any of the other parties to the
agreements, unless MAI and New Company mutually agree to such payment) to obtain
consents with respect to MAI's advertising representation agreements. In
addition, MAI and New Company shall in good faith enter into an agreement at
Closing in form and substance satisfactory to the parties (the "Management
Agreement") for the purpose of setting forth how MAI shall service the accounts
represented by the representation agreements as to which consent to transfer has
not been received and the procedures for prompt collection and remittal of the
net revenues from such accounts to New Company.
With respect to obtaining consents for the transfer of all other agreements
of MAI which require such consents (other than advertising representation
agreements), MAI shall use its best efforts (without the requirement, directly
or indirectly, of payment to any of the other parties to the agreements, unless
MAI and New Company mutually agree to such payment) both before and after
Closing, to obtain consents to transfer all such agreements, and MAI shall
notify New Company no less frequently than monthly as to the status of obtaining
such consents. All such other agreements for which consents to transfer have
not been obtained shall be administered pursuant to the provisions of the
Management Agreement.
7. The High Yield Offering.
-----------------------
(a) Nature of the Offering. ▇▇▇▇▇ and New Company intend that New Company
----------------------
will make either a private offering or an offering under Rule 144A under the
Securities Act of 1933, as amended, of debt securities in an amount intended to
provide at least seventy million dollars of net proceeds (the "High Yield
Offering"). The terms of the High Yield Offering will require New Company to
thereafter make an exchange offer to the purchasers of the high yield
34
securities, which offer is to be registered under the Securities Act of 1933
(the "Exchange Offer"). The terms and conditions of the High Yield Offering
(other than those set forth in the Terms Sheet) must be acceptable to ▇▇▇▇▇ and
New Company in their reasonable discretion, it being understood and agreed that
any features, including without limitation, an offering, amount, an interest
rate or an equity feature not set forth in the Term Sheet , shall not be
required to be accepted by ▇▇▇▇▇ and New Company. Subject to the foregoing and
subject to Sections 4(b), 5(a) and 6(a), the parties to this Agreement agree to
use all reasonable efforts (including the provision of information for inclusion
in offering documents and related material and assistance in the due diligence
process) to complete and close the High Yield Offering by July 31, 1998, it
being understood and agreed that part of the proceeds from the High Yield
Offering will be used to make the payment of the cash portion of the Exchange
Consideration. It is also understood and agreed that the debtor with respect to
the High Yield Offering will be the same entity that issues the non-cash portion
of the Exchange Consideration.
(b) Reimbursement of Certain Expenses. If the High Yield Offering has not
---------------------------------
been completed and closed by July 31, 1998 (unless such date has been mutually
extended by the parties), ▇▇▇▇▇ will reimburse MAI for the reasonable out-of-
pocket expenses of MAI for audit and legal costs attributable to the High Yield
Offering which would not otherwise have been incurred (but not with respect to
any other transaction contemplated by this Agreement).
(c) Availability of Underwriters. ▇▇▇▇▇ agrees to use its best efforts to
----------------------------
make the underwriters of the High Yield Offering reasonably available upon
notice by the Shareholder for discussions with the Shareholders regarding the
High Yield Offering. Such availability may be by telephone.
8. Conditions to Obligations of MAI and the Shareholders.
-----------------------------------------------------
The obligations of MAI and the Shareholders to consummate the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
of all of the following conditions precedent, compliance with which or the
occurrence of which may be waived in whole or in part by MAI and the
Shareholders in writing.
(a) Accuracy of Representations, Warranties and Covenants.
-----------------------------------------------------
(i) Except for any representations and warranties regarding the ▇▇▇▇▇
Entities Financial Statements which are made as of a specific date, in
which case such representations or warranties shall be true and correct as
35
of such date, all representations and warranties of ▇▇▇▇▇ and New Company
contained in this Agreement shall be true and correct on and as of the
Closing Date, with the same effect as though the same had been made on and
as of the Closing Date, except for any changes which would not individually
or in the aggregate have a Material Adverse Effect .
(ii) ▇▇▇▇▇ and New Company shall have performed and satisfied, in
all material respects, all agreements, covenants, and conditions required
by the Agreements to be performed or satisfied by them on or prior to the
Closing Date.
(iii) There shall have been delivered to MAI and the Shareholders on
the Closing Date certificates dated as of the Closing Date from officers of
▇▇▇▇▇ and New Company certifying that ▇▇▇▇▇ and New Company, respectively,
have complied with their obligations under this Section.
(b) Absence of Litigation. On the Closing Date, there shall not be pending
---------------------
or threatened litigation in any court, or any proceeding by any governmental
commission, board or agency, with a view to seeking or in which it is sought to
restrain or prohibit consummation of this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with this Agreement,
and, to the knowledge of any of the parties hereto, no investigation by any
governmental agency shall be pending or threatened which might eventuate in any
such suit, action or other proceeding.
(c) Validity of Transactions. The form and substance of certificates and
------------------------
other documents to be delivered to MAI and the Shareholders hereunder shall be
reasonably satisfactory in all material respects to MAI and the Shareholders.
(d) No Material Adverse Effect, Officers' Certificate. During the period
-------------------------------------------------
from the date of the Latest ▇▇▇▇▇ Entities Financial Statements to the Closing
Date, there shall not have been any Material Adverse Effect with respect to
▇▇▇▇▇ or New Company. MAI shall have received a certificate dated the Closing
Date, signed by the President and Chief Financial Officer of ▇▇▇▇▇ and New
Company, certifying to the foregoing effect.
(e) Opinion of Counsel.
------------------
(i) ▇▇▇▇▇ and New Company shall have furnished MAI and the
Shareholders with an opinion of ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., their General
Counsel, dated as of the Closing Date and addressed to MAI and
36
the Shareholders, concerning the matters set forth below. In preparation of
such opinion, counsel may (A) rely without investigation upon
representations and warranties of ▇▇▇▇▇ and New Company contained in this
Agreement as to matters of fact that do not involve conclusions of law and
upon certificates of appropriate officers thereof and certificates of
governmental authorities as to certain matters of fact and (B) may have
such other qualifications and exemptions which are normal or appropriate
for opinions of the type described herein. The opinion shall be
substantially to the effect that:
(A) Each of ▇▇▇▇▇ and New Company is organized and validly
existing and in good standing under the laws of Colorado and each of
▇▇▇▇▇ and New Company has all requisite powers under the laws of
Colorado to own its assets and conduct its business as it is presently
being conducted.
(B) At the time of the Closing Date, the consummation of the
transactions contemplated by this Agreement will not result in a
breach of organizational documents of ▇▇▇▇▇ or the articles of
incorporation or bylaws of New Company.
(C) The execution and delivery by each of ▇▇▇▇▇ and New Company
of this Agreement and each Ancillary Agreement to which it is a party
and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part of
▇▇▇▇▇ and New Company; they each have requisite power and authority to
execute and deliver this Agreement and to perform their respective
obligations thereunder, and this Agreement is enforceable against them
in accordance with their respective terms, subject to or limited by,
(A) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (B) general principles
of equity, whether considered in a proceeding at law or in equity.
(D) New Company has an authorized capital as set forth in this
Agreement. All of the outstanding shares of New Company's Class A
Common Stock and Class B Common Stock are fully paid and non-
assessable, and were not issued in violation of or subject to any
preemptive rights. Upon issuance pursuant to the term of this
Agreement, the shares of Class A Common Stock $.01 par value of
37
New Company to be issued to MAI under this Agreement will be duly and
validly issued shares of New Company, fully paid and non-assessable,
and will not have been issued in violation of, or subject to, any
preemptive rights.
(E) No consent, approval, authorization or order of any court or
governmental agency of the United States or the State of Colorado,
which has not been obtained, is required to be obtained by ▇▇▇▇▇ or
New Company for the consummation at Closing by ▇▇▇▇▇ or New Company of
the transactions contemplated by this Agreement other than filings
required in connection with or in compliance with the provisions of
the HSR Act and other filings that have been made or obtained.
(f) Completion of the High Yield Offering. The High Yield Offering shall
-------------------------------------
have been completed and closed or shall be completed and closed
contemporaneously with the Closing.
(g) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Waiting Period. All applicable waiting periods (and
--------------------------------
any extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
9. Conditions to Obligations of ▇▇▇▇▇ and New Company.
--------------------------------------------------
The obligations of ▇▇▇▇▇ and New Company to consummate the Closing under
this Agreement are subject to the satisfaction on or prior to the Closing of all
of the following conditions precedent, compliance with which or the occurrence
of which may be waived in whole or in part by ▇▇▇▇▇ and New Company in writing:
(a) Accuracy of Representations, Warranties and Covenants.
-----------------------------------------------------
(i) Except for any representations and warranties regarding the MAI
Financial Statements which are made as of a specific date, in which case
such representations or warranties shall be true and correct as of such
date, all representations and warranties of MAI and the Shareholders
contained in this Agreement shall be true and correct on and as of the
Closing Date, with the same effect as though the same had been made on and
as of the Closing Date, except for any changes which would not,
individually or in the aggregate, have a Material Adverse Effect, and the
38
Schedules provided by MAI and the Shareholders shall likewise be true and
correct in every material respect on and as of the Closing Date.
(ii) MAI and the Shareholders shall have performed and satisfied, in
all material respects, all agreements, covenants and conditions required by
this Agreement to be performed or satisfied by them on or prior to the
Closing Date.
(iii) There shall have been delivered to ▇▇▇▇▇ on the Closing Date
(A) a certificate of the Chairman, the President and the Controller of MAI
dated as of the Closing Date certifying that MAI has complied with its
obligations under this Section and (B) a certificate of the Shareholders
dated the Closing Date certifying that the Shareholders have complied with
their obligations under this Section.
(b) Absence of Litigation. On the Closing Date, there shall not be pending
---------------------
or threatened litigation in any court, or any proceeding by any governmental
commission, board or agency, with a view to seeking or in which it is sought to
restrain or prohibit consummation of this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with this Agreement,
and, to the knowledge of any of the parties hereto, no investigation by any
governmental agency shall be pending or threatened which might eventuate in any
such suit, action or other proceeding.
(c) Validity of Transactions. The form and substance of certificates and
------------------------
other documents to be delivered to ▇▇▇▇▇ and New Company hereunder shall be
reasonably satisfactory in all material respects to ▇▇▇▇▇ and New Company.
(d) No Material Adverse Change, Officers' Certificate. During the period
-------------------------------------------------
from the date of the Latest MAI Financial Statements to the Closing Date, there
shall not have been any Material Adverse Effect and there shall not have
occurred any material destruction, loss or damage to the Assets, whether or not
insured. ▇▇▇▇▇ and New Company shall have received a certificate dated the
Closing Date, signed by the Chairman, President and Controller of MAI,
certifying to the foregoing effect.
(e) Opinion of Counsel.
------------------
(i) MAI shall have furnished ▇▇▇▇▇ with an opinion of ▇▇▇▇▇, ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, its counsel, dated as of the Closing Date and
addressed to ▇▇▇▇▇ and New Company, concerning the matters set
39
forth below. In preparation of such opinion, counsel may (A) rely without
investigation upon representations and warranties of MAI and of the
Shareholders contained in this Agreement as to matters of fact that do not
involve conclusions of law and upon certificates of appropriate officers of
MAI and certificates of governmental authorities as to certain matters of
fact, (B) assume for the purposes of such opinion that this Agreement and
each of the Ancillary Agreements are governed by the laws of the State of
New York and (C) have such other qualifications and exemptions which are
normal or appropriate for opinions of the type described herein. The
opinion shall be substantially to the effect that:
(A) MAI is a corporation organized and validly existing and in
good standing under the laws of the State of New York and has all
requisite corporate powers under the laws of the State of New York to
own the Assets and conduct its business as it is presently being
conducted.
(B) At the time of the Closing Date, the consummation of the
transactions contemplated by this Agreement will not result in a
breach of the certificate of incorporation or bylaws of MAI.
(C) The execution and delivery by each of MAI and the
Shareholders of this Agreement and each Ancillary Agreement to which
it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all
necessary action on the part of MAI and the Shareholders,
respectively. Each of MAI and the Shareholders has requisite power and
authority to execute and deliver each of this Agreement and each of
the Ancillary Agreements to which it is a party and to perform its
obligations thereunder, and this Agreement and each of the Ancillary
Agreements to which it is a party are enforceable against MAI and the
Shareholders in accordance with its terms, subject to, or limited by,
(A) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (B) general principles
of equity, whether considered in a proceeding at law or in equity.
(D) No consent, approval, authorization or order of any court or
governmental agency of the United States of America or the State of
New York, which has not been obtained, is required to be
40
obtained by MAI or the Shareholders for the consummation at Closing by
MAI or the Shareholders of the transactions contemplated by this
Agreement other than filings required in connection with or in
compliance with the provisions of the HSR Act and other filings that
have been made or obtained.
(f) Completion of the High Yield Offering. The High Yield Offering shall
-------------------------------------
have been completed and closed or shall be completed and closed
contemporaneously with the Closing.
(g) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Waiting Period. All applicable waiting periods (and
--------------------------------
any extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
(h) Consents. It shall be a condition of Closing that MAI obtain consents
--------
(in form and substance satisfactory to ▇▇▇▇▇ and New Company) from those parties
to advertising representation agreements with MAI (other than (x) Radio-Active
Media, Inc. (formerly known as EFM Programming, Inc.), (y) Innerview and (z)
▇▇▇▇▇ affiliates) constituting 1998 budgeted commission revenue of $4.509
million (the "Required Consents"). Exhibit J sets forth the 1998 budgeted
commission revenues for the representation agreements described or provided for
therein. If MAI enters into any new representation agreements prior to Closing,
the parties will agree in good faith on the 1998 budgeted commission revenue
amount with respect to those representation agreements. Except for obtaining a
UCC termination statement and lien release from Chemical Bank, no other consents
shall be a condition of Closing.
10. The Closing.
-----------
The Closing hereunder shall be held at 9:00 a.m. local time approximately
contemporaneously with the closing of the High Yield Offering, but not later
than July 31, 1998 (unless the parties agree to an extension of such date) at
the offices of ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at
such other time, date and place as the parties shall agree (the date of such
Closing being herein called the "Closing Date"). At the Closing, the parties
shall deliver the following:
(a) MAI shall deliver such suitable transfer documents as ▇▇▇▇▇ or New
Company may require pursuant to which the Assets are conveyed to New Company.
41
(b) New Company shall deliver (i) one or more documents whereby it agrees
to assume the Liabilities after the Closing, (ii) the cash portion of the
purchase price for the Assets by wire transfer to an account designated in
writing by MAI, and (iii) a certificate for the shares of Class A Common Stock
to be delivered to MAI at Closing.
(c) The parties thereto shall deliver the Employment Agreements between New
Company and each of the Principals in the form set forth as Exhibits F-1 and F-2
hereto.
(d) The Shareholders, MAI and the various ▇▇▇▇▇ entities shall deliver the
Post-Closing Agreement in the form set forth as Exhibit G hereto.
(e) New Company and MAI shall deliver the Registration Rights Agreement in
the form set forth as Exhibit H hereto.
(f) The various closing documents contemplated by Sections 8(e) and 9(e) of
this Agreement.
(g) Each of ▇▇▇▇▇, ▇▇▇ and New Company shall execute and deliver a Section
351 Plan in the form of Exhibit I hereto and New Company and ▇▇▇▇▇ shall deliver
the items to be transferred, as contemplated by the Section 351 Plan.
11. Survival of Representations and Warranties.
------------------------------------------
All representations, warranties and covenants in the Agreements or in any
closing certificate delivered pursuant to the provisions of this Agreement shall
be continuing and shall survive the Closing for a period of two (2) years,
except for any representations, warranties and covenants set forth in Sections
1(h) or 2(g) or regarding environmental matters, which shall survive until the
end of the applicable statutes of limitation, and the Section 351 Plan shall
survive in accordance with its terms; and except that the obligations under
Section 15 shall survive for a period of three (3) years from Closing or
termination.
12. Expenses.
--------
Costs and expenses relating to the transactions contemplated by this
Agreement shall be borne and paid by each of ▇▇▇▇▇ and New Company, on the one
hand, and MAI and the Shareholders, on the other hand, incurring such costs and
expenses or on whose behalf such expenses are incurred except as otherwise
provided in this Agreement.
42
13. Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned at any time prior to the Closing:
(i) By the mutual written consent of MAI, the Shareholders and
▇▇▇▇▇;
(ii) By MAI and the Shareholders in the event that any condition to
their obligations set forth in Section 8 has not been fulfilled at or prior to
the Closing, provided that, if there shall have been a material breach by ▇▇▇▇▇
or New Company of any of their representations, warranties, covenants or
agreements contained herein and such breach results in a failure to satisfy a
condition to their obligations set forth in Section 8, and such breach can be
remedied with diligent effort in period set forth in this sentence, this
Agreement cannot be terminated for a period, not to exceed three (3) days if a
longer cure period affects the timing of the pricing of the High Yield Offering
or fifteen (15) days otherwise, as may be necessary to remedy such breach after
notice of such breach to ▇▇▇▇▇ and New Company.
(iii) By ▇▇▇▇▇ and New Company in the event that any condition to
their obligations set forth in Section 9 has not been fulfilled at or prior to
the Closing, provided that, if there shall have been a material breach by either
of MAI or the Shareholders of any of its representations, warranties, covenants
or agreements contained herein and such breach results in a failure to satisfy a
condition to their obligations set forth in Section 9, and such breach can be
remedied with diligent effort in the period set forth in this sentence, this
Agreement cannot be terminated for a period, not to exceed three (3) days if a
longer cure period affects the timing of the pricing of the High Yield Offering
or fifteen (15) days otherwise, as may be necessary to remedy such breach after
notice of such breach to MAI or the Shareholders, as the case may be.
(iv) By the Shareholders and MAI or by ▇▇▇▇▇ and New Company, if the
High Yield Offering has not been completed and closed by July 31, 1998, unless
all parties have agreed to a later date.
(b) The right to terminate this Agreement shall be exercised by written
notice from the terminating party to the other party or parties, which notice
shall specify in reasonable detail the basis upon which the Agreement is being
43
terminated. The termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement at or before the date of
termination.
(c) The parties agree to give prompt notice of the discovery of a breach or
potential breach of this Agreement by any party, including the party giving such
notice.
14. Indemnification.
---------------
(a) By MAI and the Shareholders.
---------------------------
(1) MAI and the Shareholders, jointly and severally, will indemnify,
defend and hold harmless ▇▇▇▇▇ and New Company and their respective
officers, directors, shareholders, owners, employees, agents,
successors and assigns (each, a "▇▇▇▇▇ Party" and collectively, the
"▇▇▇▇▇ Parties") from and against all losses, damages, liabilities,
deficiencies or obligations, including, without limitation, all
claims, actions, suits, proceedings, demands, judgments, assessments,
fines, interest, penalties, costs and expenses (including settlement
costs and reasonable legal, accounting, experts and other fees, costs
and expenses) incident or relating to or resulting from the foregoing
(collectively, "Losses") resulting from or arising out of (i) any
breach of any representation or warranty made by MAI or the
Shareholders in this Agreement, (ii) any breach of any covenant,
agreement or obligation of MAI or the Shareholders contained in this
Agreement, (iii) any act or omission of MAI with respect to, or any
event or circumstance related to, the ownership or operation of the
assets or the conduct of the business of MAI, which act, omission,
event or circumstance occurred or existed prior to or at the Closing
Date, without regard to whether a claim with respect to such matter is
first asserted before or after the Closing Date, including any matters
disclosed in the Schedules hereto, except to the extent the claim is
in respect of a Liability, or (iv) any liability or obligation of MAI
which was not expressly assumed under this Agreement by New Company;
provided, however, that all representations and warranties concerning
any current Assets or Liabilities which the parties specifically
resolve in connection with the finalization of the Closing Date
Balance Sheet, whether as a result of a decision of the Arbitrator or
an agreement
44
among the parties, shall not be the basis for an indemnity claim under
this Agreement. Any recovery to the ▇▇▇▇▇ Parties for indemnification
shall be limited as follows: (w) no ▇▇▇▇▇ Party shall be entitled to
any recovery unless a claim for indemnification is made in accordance
with Section 14(c) and within the time period of survival set forth in
Section 11; (x) no ▇▇▇▇▇ Party shall be entitled to recover any amount
for indemnification claims under this Section 14(a) unless and until
the amount which the ▇▇▇▇▇ Parties are entitled to recover in respect
of such claims exceeds, in the aggregate, $75,000 (the "Deductible"),
in which event (subject to Clause (y) below) the entire amount which
the ▇▇▇▇▇ Parties are entitled to recover in respect of such claims
less the Deductible shall be payable; (y) the maximum amount
recoverable by the ▇▇▇▇▇ Parties shall in the aggregate be equal to
the sum of $7 million in cash plus the value of all shares of Class A
Common Stock received by MAI pursuant to Sections 1(e)(ii), 1(f) and
1(g) of this Agreement; and (z) Losses shall be offset by any net
insurance recovery obtained by New Company for the related portion of
the Losses. A net insurance recovery (as used in this Agreement) means
after the costs of collection and the allocable portion of the premium
related to such coverage. MAI and the Shareholders shall pay any
indemnification claim under this Section 14(a) and, at Shareholders'
option, payment may be made through the transfer to the ▇▇▇▇▇ Parties
of shares of Class A Common Stock or in cash. For purposes of this
Section 14, if New Company's Class A Common Stock is not registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") at the time of payment of a claim hereunder, the
Class A Common Stock shall be deemed to have a value of $15 per share.
If the Class A Common Stock of New Company is registered under the
1934 Act at the time of payment of a claim hereunder, the Class A
Common Stock shall be valued based on the average closing price of the
Class A Common Stock in the over-the-counter market, or on the
principal market or securities exchange on which the shares are then
listed for trading, for the 10 trading days preceding the payment of
the claim.
(2) All shares of New Company which are issued to MAI pursuant to
this Agreement (whether at Closing or pursuant to the Working Capital
Adjustment or the Earnout) shall be retained in, and owned by, MAI for
a period of two (2) years from the Closing Date; except that MAI may
sell the shares of New Company during
45
such period in a public offering or other public market transaction if
the proceeds of such sale, less the portions of the proceeds required
to pay all tax obligations arising as a result of such sale, remain
the property of MAI. Notwithstanding the preceding sentence, the
period during which MAI shall be required to retain shares or proceeds
shall be extended by notice from New Company that it has a claim under
this Section 14, in which case MAI shall retain a sufficient number of
shares of New Company Class A Common Stock or cash sufficient to
provide for payment in full of the amount claimed, or such lesser
amount equal to the full amount of shares or cash in MAI at the
conclusion of the two-year period, until any such claim is resolved.
During such period, MAI shall not engage in active operations other
than those undertaken pursuant to the Management Agreement. MAI and
the Shareholders agree not to take any action which would directly or
indirectly transfer record or beneficial ownership interest in the
shares of MAI owned by them at the Closing Date nor will the
Shareholders or ▇▇▇ ▇▇▇▇▇ any lien or encumbrance on the shares of New
Company owned by MAI or the shares of MAI owned by the Shareholders,
for the entire period set forth in this Section. MAI and the
Shareholders also agree to take whatever action may be necessary or
appropriate to carry out their obligations under this Section.
(b) By ▇▇▇▇▇ and New Company. ▇▇▇▇▇ and New Company will jointly and
------------------------
severally indemnify, defend and hold harmless MAI and the Shareholders and the
MAI officers, directors, shareholders, employees, agents, successors and assigns
from and against all losses, damages, liabilities, deficiencies or obligations,
including, without limitation, all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts and other
fees, costs and expenses) incident or relating to or resulting from the
foregoing (collectively, "Losses") result from or arising out of (i) any breach
of any representation or warranty made by ▇▇▇▇▇ in this Agreement (ii) any
breach of any covenant, agreement or obligation of ▇▇▇▇▇ or New Company
contained in this Agreement, (iii) any act or omission of ▇▇▇▇▇ or New Company
with respect to, or any event or circumstance related to, the ownership or
operation of the Assets and assumption of the Liabilities as provided for herein
subsequent to the Closing Date or (iv) an untrue statement of a material fact,
or omission to state a material fact, in the private placement memorandum used
in the High Yield Offering, except to the extent that Losses arise out of
information concerning MAI specifically approved in writing by MAI or the
Shareholders provided to
46
New Company for use in the High Yield Offering. Any recovery from the ▇▇▇▇▇
Parties for indemnification shall be limited as follows: (w) no ▇▇▇▇▇ Party
shall be liable for any recovery unless a claim for indemnification is made in
accordance with Section 14(c) and within the time period of survival set forth
in Section 11; (x) no ▇▇▇▇▇ Party shall be liable for any amount for
indemnification claims under this Section 14(b) unless and until the amount in
respect of such claims exceeds, in the aggregate, $75,000 (the "▇▇▇▇▇
Deductible"), in which event (subject to Clause (y) below) the entire amount
which MAI is entitled to recover in respect of such claims less the ▇▇▇▇▇
Deductible shall be payable; (y) the maximum amount recoverable from the ▇▇▇▇▇
Parties shall in the aggregate be equal to $7.0 million; and (z) Losses shall be
offset by any net insurance recovery obtained by MAI or the Shareholders for the
related portion of the Losses. A net insurance recovery means after the costs of
collection and the allocable portion of the premiums related to such recovery.
▇▇▇▇▇ shall pay any amount owed in respect of an indemnification claim under
this Section 14(b)(i) 60% through the issuance to MAI of shares of Class A
Common Stock and (ii) 40% in cash. For purposes of this Section 14, if New
Company's Class A Common Stock is not registered under Section 12(g) of the 1934
Act at the time of payment of a claim hereunder, the Class A Common Stock shall
be deemed to have a value of $15 per share. If the Class A Common Stock of New
Company is registered under the 1934 Act at the time of payment of a claim
hereunder, the Class A Common Stock shall be valued based on the average closing
price of the Class A Common Stock in the over-the-counter market, or on the
principal market or securities exchange on which the shares are then listed for
trading, for the 10 trading days preceding the payment of the claim.
(c) (i) In the event that any party shall incur or suffer any losses in
respect of which indemnification may be sought by such party pursuant to the
provisions of this Section 14, the party seeking to be indemnified hereunder
(the "Indemnitee") shall assert a claim for indemnification by written notice (a
"Notice") to the party from whom indemnification is sought (the "Indemnitor")
stating the nature and basis of claim, and if such claim is with respect to a
third-party claim, accompanied by a copy of the written notice of the third-
party claimant. In the case of Losses arising by reason of any third-party
claim, the Notice shall be given within thirty (30) days of the filing or other
written assertion of any such claim against the Indemnitee. The Indemnitor
shall have the option, and shall notify the Indemnitee in writing within thirty
(30) days after the date of the Notice of its election either (A) to participate
(at its own expense) in the defense of such claim (in which case the defense of
such claim shall be controlled by the Indemnitee) or (B) to take charge of and
control the defense of such claim (at its own expense). If the Indemnitor fails
to notify the Indemnitee
47
of its election within the applicable response period (as determined in the
immediately preceding sentence), then the Indemnitor shall be deemed to have
elected not to assume the defense of such claim, in which case the Indemnitee
may assume the defense of such claim (provided that the Indemnitee shall not
settle such claim without the prior written consent of the Indemnitor, which
consent shall not be unreasonably withheld). The Indemnitor's failure to respond
shall not relieve the Indemnitor of its indemnification obligations under this
Section 14. If the Indemnitor elects to assume the defense of any claim in
accordance with this Section 14(c), then the Indemnitee shall be entitled to
participate (at its own expense) in such defense. If the Indemnitor elects not
to assume the defense of any claim, the Indemnitor may nonetheless participate
(at its own expense) in the defense thereof.
(ii) The Indemnitee shall provide to the Indemnitor on request all
information and documentation reasonably necessary to support and verify any
Losses which the Indemnitee believes gives rise to a claim for indemnification
hereunder and shall give the Indemnitor reasonable access to all books, records
and personnel in the possession or under the control of the Indemnitee which
would have a bearing on such claim.
(d) In no event shall any party to this Agreement be liable for
consequential damages by reason of a breach of any representation, warranty or
covenant made by such party in this Agreement or any Ancillary Agreement. All
claims arising in respect to this Agreement (but not the agreements attached as
Exhibits hereto) shall be made under the provisions of, and subject to the
limitations set forth in, this Section 14, except for claims arising based on
fraud or under applicable securities laws.
15. Confidential Information.
------------------------
As used in this Section, "Owner" refers to the party disclosing
information, "Recipient" refers to the party to whom a disclosure is made, and
an "affiliate" of a party shall mean any person or entity controlling,
controlled by or under common control with such party. For purposes of this
Agreement, "Confidential Information" shall mean all information, in whatever
form or format, regarding an Owner, any of its affiliates, or any of their
respective businesses and operations, that is disclosed to a Recipient prior to
the Closing.
(a) Exceptions. Notwithstanding the foregoing, information shall not be
----------
considered "Confidential Information" for purposes of this Agreement if: (i)
the Recipient or its affiliates already possesses the information without
obligation of
48
confidentiality at the time of disclosure by the Owner; (ii) the information is
or becomes part of the public domain other than as a result of unauthorized
disclosure by the Recipient or its affiliates; (iii) the information has been or
is made available to the Recipient or its affiliates by a third party which, to
the Recipient's or its affiliates' knowledge, is not under an obligation of
confidentiality to the Owner or its affiliates; (iv) the information is
independently developed by the Recipient or its affiliates; or (v) the
information is required to be disclosed by the Recipient or its affiliates
pursuant to a judicial or governmental request, requirement or order (provided
that the Recipient uses reasonable efforts to provide the Owner with sufficient
notice so as to permit the Owner to contest such request, requirement or order)
or is required to be disclosed in connection with a securities offering or
filing by the Recipient or its affiliates.
(b) Prohibition of Disclosure. A Recipient shall not distribute or
-------------------------
disclose any Confidential Information to any person or entity, except employees
of the Recipient or its affiliates with a need to know in connection with this
Agreement. In fulfilling its obligations under this Agreement, a Recipient
shall treat Confidential Information with no less than the degree of care that
the Recipient exercises in the protection of its own proprietary information.
At a minimum, a Recipient and its affiliates shall maintain in force with each
of their employees to whom any Confidential Information may be disclosed, such
confidentiality agreements or company policies as will permit the Recipient to
perform its obligations under this Agreement.
(c) Use of Confidential Information. Neither party shall use any
--------------------------------
Confidential Information of which it is a Recipient in any manner other than in
furtherance of the transactions contemplated by this Agreement. Notwithstanding
the foregoing, the parties acknowledge and understand that their respective
employees, during the course of performing employment services, may further
develop their general knowledge, skills and experience as it relates to the
businesses in which they work. The subsequent use by such employees of such
general knowledge, skills and experience in the ordinary course of business with
their respective employers and such employers' affiliates shall not constitute a
breach of this Agreement. Furthermore, receipt of Confidential Information
shall not create any obligation in any way limiting or restricting the re-
assignment of employees within the respective organizations of the parties;
provided, however, that upon the re-assignment of any employee, such employee
shall not be allowed to keep or have access to any Confidential Information,
unless (and only to the extent that) it is necessary to the furtherance of the
transactions contemplated by this Agreement.
49
(d) Return of Confidential Information. In the event that there is no
----------------------------------
Closing under this Agreement, upon an Owner's request, a Recipient promptly
shall deliver to the Owner each and every document, magnetic tape, and every
other tangible record of any of the Confidential Information (including any
analyses, work sheets and similar materials prepared by Recipient which are
based on or derived from Confidential Information) in the possession of the
Recipient or, in lieu thereof, at the option of the Owner, shall issue to the
Owner a certificate of destruction evidencing that Recipient has destroyed all
such documents, tapes and records.
(e) Injunctive Relief. There will not be an adequate remedy at law for a
-----------------
breach by a Recipient of this Section 15, and the Owner may suffer irreparable
harm as a result of such a breach. Therefore, if a breach or threatened breach
by a Recipient of this Section occurs, in addition to any other rights and
remedies it may have, the Owner shall be entitled to seek injunctive relief
restraining the Recipient from doing any act in violation of this Section. The
Recipient shall pay all costs (including attorneys fees and expenses) incurred
by the Owner in enforcing its rights under this Section if the Recipient is
found by a court of competent jurisdiction to have violated this Section.
16. Notices.
-------
All notices, requests, demands, and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if (i) mailed, registered or certified mail,
return receipt requested, postage prepaid, (ii) delivered by hand, (iii) sent by
facsimile transmission, or (iv) delivered by courier, to the following
addresses, or at such other address as a party may designate by notice given in
accordance with this Section:
(a) If to ▇▇▇▇▇ or ▇▇▇▇▇ International Networks, Ltd.
New Company, to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
With copy to: General Counsel
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
50
(b) If to MAI to: MediaAmerica, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to: Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(c) If to the Shareholders: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
With copy to: Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Notices delivered personally or by courier shall be deemed to have been
given upon delivery to the intended recipient. Notices transmitted by facsimile
transmission shall be deemed to have been given when confirmation of
transmission is received. Notices delivered by registered or certified mail
shall be deemed to have been given on the delivery date set forth on the receipt
of registered or certified mail, or three business days after deposit in the
mail, whichever is earlier.
17. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
(b) Entire Agreement, No Waiver. This Agreement and the documents and
---------------------------
instruments referred to herein constitute the entire agreements among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
and
51
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements among the parties in connection
with the subject matter hereof except as specifically set forth herein; provided
that the forms of agreements attached hereto as Exhibits shall be superseded by
the copies of such agreements executed and delivered by the respective parties
thereto, the execution and delivery of such agreements by the parties thereto to
be conclusive evidence of such parties' approval of any change or modification
therein. No supplement, modification or waiver or termination of this Agreement
shall be binding unless duly executed in writing by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party against whom it is asserted and delivered by that party
to each of the other parties. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
thereof (whether or not similar), nor shall such waiver constitute a continuing
waiver.
(c) Headings. The title or headings of the various sections and paragraphs
--------
hereof are intended solely for convenience of reference and are not intended and
shall not be deemed for any purpose whatsoever to modify or explain or place any
construction upon any of the provisions of this Agreement.
(d) Schedules and Exhibits as Part of Agreement. The Schedules and
-------------------------------------------
Exhibits to this Agreement constitute a part of this Agreement. Such Schedules
are referred to herein individually as a "Schedule" and collectively as
"Schedules." All statements contained in (i) any Schedule or (ii) any
certificate or other instrument delivered by or on behalf of the parties hereto
at the Closing, are an integral part of this Agreement and shall be deemed
representations and warranties hereunder.
(e) Use of the Plural, etc. Throughout this Agreement, wherever the
----------------------
context so requires the singular shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and vice versa.
(f) Assignment. No party may assign this Agreement or any interest herein
----------
without the prior written consent of all other parties.All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective transferees, successors, and
assigns.
(g) Governing Law. The parties agree that this Agreement has been executed
-------------
and delivered in the State of Colorado and shall be construed, enforced and
governed by the laws thereof, without giving effect to the principles of
conflicts of law of such State.
52
(h) Publicity. Any communications and notices to third parties and all
---------
other publicity concerning the transactions contemplated by the Agreements shall
be planned and coordinated between ▇▇▇▇▇ and MAI. None of the parties hereto
shall disseminate or make public or cause to be disseminated or made public any
information regarding the transactions contemplated thereunder without the prior
written approval of ▇▇▇▇▇ and MAI, which approval shall not be unreasonably
withheld, subject however to the disclosure obligations of any party and its
affiliates under applicable securities laws or as otherwise required pursuant to
court order, subpoena or other process of law.
(i) Further Assurances. From time to time after the Closing, MAI shall, if
------------------
reasonably requested by New Company, make, execute and deliver to New Company
such additional assignments, bills of sale, deeds and other instruments of
transfer, as may be necessary or proper to transfer all of MAI's right, title,
and interest in and to the Assets.
(j) No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights, claims or remedies upon anyone not a party to this Agreement or the
permitted successors and assigns of such a party.
(k) Extension of Representation Agreement. Simultaneously with the
-------------------------------------
execution of this Agreement, the relevant parties have extended the three MAI
representation agreements dated January 1, 1997, January 1, 1997 and December 1,
1995 respectively, on the same terms, to December 31, 1999, pursuant to, and on
the terms set forth in Exhibit K.
(EXECUTION PAGE FOLLOWS)
53
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and this Agreement has been
signed and delivered by the Shareholders, all effective as of the date first
above written.
MEDIAAMERICA, INC.
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------
President
THE SHAREHOLDERS:
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------ ------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ NETWORK HOLDINGS, LLC
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
President
▇▇▇▇▇ INTERNATIONAL
NETWORKS, LTD.
By/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
President
54
