SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 14, 1998
AUDIO BOOK CLUB,INC.
(Exact name of registrant as specified in its charter)
FLORIDA 1-13469 65-0429858
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2295 Corporate Blvd., N.W., Boca Raton, FL 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561-241-1426
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Former name or former address, if changed since last report
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Item 2. Acquisition or Disposition of Assets.
On December 14, 1998 (the "Closing"), Audio Book Club, Inc. (the
"Registrant") consummated the acquisition (the "Acquisition") of Radio Spirits,
Inc., an Illinois corporation ("Radio Spirits"), pursuant to the terms of a
Supplemental Agreement dated December 11, 1998, as amended (the "Purchase
Agreement"), among the Registrant, its wholly-owned subsidiary, Classic Radio
Holding Corp. ("Classic"), Radio Spirits and Carl Amari, the sole stockholder of
Radio Spirits (the "Stockholder") and a Plan and Agreement of Merger of even
date among the Registrant, Classic and Radio Spirits which provided for the
merger of Radio Spirits with and into Classic.
At the time of the Acquisition, Radio Spirits specialized in the
syndication, sales and licensing of popular radio programs which originally
aired from the 1930's through the late 1950's. Radio Spirits also produced and
syndicated three national "classic" radio programs that are collectively heard
in more than 300 markets by over 3 million listeners weekly. Through its
in-house production and mail order services, Radio Spirits also produced and
distributed audiocassettes and compact discs of vintage comedy, mystery,
detective, adventure and suspense programs to customers worldwide. Radio Spirits
also controlled the licensing rights to many popular serials and had an
exclusive licensing arrangement with the Smithsonian Institute to market
products under the Smithsonian name. As part of the transaction, Classic
acquired Radio Spirits' mailing list of over 70,000 individuals as well as all
of its assets. The Stockholder will remain to manage the combined, post-merger
radio operations pursuant to the terms of the employment agreement referred to
below.
As consideration for the Acquisition, the Stockholder and his designees
received an aggregate base purchase price of approximately $340,000 (subject to
adjustment based upon the "Net Liability Value" (as defined in the Purchase
Agreement) of Radio Spirits, as more particularly set forth in the Purchase
Agreement. In addition, the Registrant issued to the Stockholder and his
designees an aggregate of 425,000 shares of its common stock and options to
purchase an additional 175,000 shares of common stock at $13.125 per share. A
total of 200,000 of the 425,000 shares and 100,000 of the 175,000 options were
placed in escrow and are subject to release if certain specified "EBITDA" (as
defined in the Purchase Agreement) levels for the acquired company are met for
the years ending December 31, 1998 and 1999 (with respect to the escrowed
shares) and for the year ending December 31, 2000 (with respect to the escrowed
options). The consideration paid for the Acquisition was determined by
negotiations between the representatives of the Registrant and the Stockholder.
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In conjunction with the Acquisition, the Stockholder entered into a three
year employment agreement to serve as the President of Classic. In addition, the
Stockholder agreed not to compete in the United States with the business of
Classic for a period of eighteen months from the later of (i) the Closing or
(ii) his cessation of employment with Classic in return for an additional
payment from the Registrant.
The Registrant also entered into a Put Agreement which granted the
Stockholder the right, under certain circumstances, commencing three years from
the closing, to require the Registrant to repurchase from him up to 175,000
shares of its common stock issued in connection with the Acquisition at prices
ranging from $4.00 to $12.00 per share.
The cash consideration paid for the Acquisition was obtained by the
Registrant from its Chief Executive Officer.
The descriptions of the Purchase Agreement described herein are qualified
in their entirety by reference to the terms contained in the Purchase Agreement,
a copy of which is filed as an exhibit to this Report.
Item 5. Other Events.
On December 14, 1998 the Registrant consummated the following transactions:
1. Acquisition of Premier Electronics Laboratories ("Premier")
The Registrant acquired all of the assets used by Premier in connection
with its business of licensing, producing, marketing and selling classic videos
and radio programs through mail order catalogs, phone solicitations and
specialty retail organizations. The purchase price paid by the Registrant for
the assets acquired consisted of $240,000 in cash, the issuance of 125,000
shares of the Registrant's common stock and a certain non-compete payment. The
Registrant also granted the seller the right, under certain circumstances and
subject to certain limitations, to sell the 125,000 shares received by it back
to the Registrant at prices ranging from $7.00 per share for the first 25,000
shares so sold to $15.00 per share for the last 50,000 shares so sold, at
various times between the second and tenth year of the closing of the
acquisition.
2. Acquisition of Metacom, Inc. ("Metacom")
The Registrant acquired all of the assets used by Metacom in connection
with its business of producing, marketing, and selling old-time radio programs.
The purchase price paid by the Registrant for the assets acquired consisted of
$990,000 in cash, the issuance of 50,000 shares of the Registrant's Common
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Stock and options to purchase an additional 50,000 shares of Common Stock, the
payment of certain third-party costs and a certain non-compete payment. In
addition, subject to certain limitations, the Registrant granted the seller the
right to sell the 50,000 shares received by it back to the Registrant at $10 per
share, between the third and tenth year anniversary of the closing.
3. Acquisition of Buffalo Productions, Inc. ("Buffalo")
The Registrant acquired all of the assets used by Buffalo in connection
with its business of duplicating pre-recorded compact disks for $368,528.80.
4. Acquisition of Joint Venture Interest
The Registrant acquired from the Stockholder his undivided 50% interest in
a joint venture that is engaged in the business of producing, broadcasting,
marketing and distributing a series of old-time radio programs, for $2,550,000.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
A. Financial Statements of the Business Acquired.
It is impracticable to provide the required financial statements of Radio
Spirits at this time. The required financial statements will be filed under
cover of Form 8-K/A within 60 days of the date this Form 8-K was required to be
filed.
B. Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial information
at this time. The required pro forma financial information will be filed under
cover of Form 8-K/A within 60 days of the date this Form 8-K was required to be
filed.
C. Exhibits.
Exhibit 2.1 - Supplemental Agreement, dated as of December 11, 1998, by and
among the Registrant, Classic, Radio Spirits and the Stockholder.
Exhibit 2.2 - List of Omitted Schedules/Exhibits to the Supplemental
Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUDIO BOOK CLUB INC.
By: /s/ Michael Herrick
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Michael Herrick,
Chief Executive Officer
Date: December 23, 1998
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SUPPLEMENTAL AGREEMENT
This SUPPLEMENTAL AGREEMENT (the "Agreement") is made and entered into as
of December 11, 1998 among Audio Book Club, Inc. a Florida corporation
("Parent"), Classic Radio Holding Corp., a Delaware corporation which is
wholly-owned by Parent ("Subsidiary"), Radio Spirits, Inc., an Illinois
corporation (the "Company") and Carl Amari, the sole stockholder of the Company
("Amari").
RECITALS
A. Simultaneously with the execution and delivery of this Supplemental
Agreement, Parent, Subsidiary and the Company are entering into a Plan and
Agreement of Merger dated as of December 11, 1998 ("Agreement of Merger"), which
provides for the acquisition of the Company by Subsidiary through the merger
(the "Merger") of the Company into Subsidiary at the time provided for therein
(the "Merger Date"). Under the Agreement of Merger, on the Merger Date, each
share of the common stock, no par value, of the Company (the "Company Common
Stock") will be converted into 850 shares of the common stock, no par value, of
Parent (the "Parent Common Stock"), options to purchase 350 shares of the Parent
Common Stock and the right of the holder thereof to receive Seven Hundred
Dollars ($700) in cash. All 500 issued and outstanding shares of the Company
Common Stock shall therefore be converted into an aggregate of 425,000 shares of
Parent Common Stock, options to purchase 175,000 shares of Parent Common Stock
and an aggregate cash payment of Three Hundred Fifty Thousand Dollars
($350,000). Upon consummation of the Merger, Subsidiary shall be the surviving
corporation.
B. The Company is engaged in the business of licensing, producing,
broadcasting, marketing and selling recordings of the radio programs set forth
in Schedule A hereto (the "Recordings"). All of the activities described in this
paragraph shall hereinafter be referred to collectively as the "Business".
C. Amari is the sole stockholder of the Company, owning 500 shares of the
Company Common Stock constituting all of the issued and outstanding shares of
the capital stock of the Company (with the exception of 500 treasury shares
which are currently pledged in escrow to secure the Company's obligations to Roy
Millonzi, a former shareholder of the Company, which pledge shall be released
simultaneously with the Merger).
D. The Company, Amari, Parent and Subsidiary desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
The foregoing recitals shall be included in, and shall be made a part of,
this Agreement.
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NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 "Accounting Firm" shall have the meaning set forth in Section 2.4(a)
hereto.
1.2 "Accounts Receivable" shall have the meaning set forth in Section
4.16(a) hereto.
1.3 "Accrued Liabilities" shall have the meaning set forth in Section
2.3 hereto.
1.4 "Acquisition Corp." shall mean Classic Radio Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Subsidiary.
1.5 "Act" shall have the meaning set forth in Section 2.2(b) hereto.
1.6 "Adjustment Amount" shall have the meaning set forth in Section
2.4(b) hereto.
1.7 "Agreement" shall have the meaning set forth in the opening
paragraph hereto.
1.8 "Agreement of Merger" shall have the meaning set forth in the first
recital hereto.
1.9 "Amari" shall have the meaning set forth in the opening paragraph
hereto.
1.10 "Amari Employment Agreement" shall have the meaning set forth in
Section 8.2(h).
1.11 "Assignment and Assumption Agreement" shall have the meaning set
forth in Section 2.1(iii) hereto.
1.12 "Basket" shall have the meaning set forth in Section 11.2(a) hereto.
1.13 "Business" shall have the meaning set forth in the second recital
hereto.
1.14 "Cash" shall mean cash and all cash equivalents.
1.15 "Category A License Agreements" shall have the meaning set forth in
Schedule 4.11(a) hereof.
1.16 "Category B License Agreements" shall have the meaning set forth in
Schedule 4.11(a) hereof.
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1.17 "Category C License Agreements" shall have the meaning set forth in
Schedule 4.11(a) hereof.
1.18 "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
1.19 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.20 "Collectible Accounts Receivable" shall mean (a) the Company's
Accounts Receivable which at the time of the Merger are within (i)
120 days of the date of invoice or (ii) 180 days of the date of
invoice for those account debtors set forth in Schedule 1.20, and
(b) those other Accounts Receivable which Parent and Subsidiary
elect in their sole discretion to include in Collectible Accounts
Receivable, in accordance with Section 7.10 hereof.
1.21 "Company" shall have the meaning set forth in the opening paragraph
hereto.
1.22 "Company Agreement" shall have the meaning set forth in Section
4.8(d) hereto.
1.23 "Company Authorizations" shall have the meaning set forth in Section
4.14 hereto.
1.24 "Company Common Stock" shall have the meaning set forth in the
second recital hereto.
1.25 "Company Employee Plan" shall have the meaning set forth in Section
4.18(a)(ii) hereto.
1.26 "Company's Intellectual Property" shall have the meaning set forth
in Section 4.12(a) hereto.
1.27 "Company's Schedules" shall have the meaning set forth in the
governing language of Article IV.
1.28 "Confidential Material" shall have the meaning set forth in Section
9.2 hereto.
1.29 "Contracts" shall have the meaning set forth in Section 4.7(iii)
hereto.
1.30 "DOL" shall have the meaning set forth in Section 4.18(c) hereto.
1.31 "EBITDA" shall mean earnings before interest, taxes, depreciation
and amortization as determined in accordance with GAAP.
1.32 "Employee" shall have the meaning set forth in Section 4.18(a)(iii)
hereto.
1.33 "Employee Agreement" shall have the meaning set forth in Section
4.18(a)(iv).
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1.34 "Equipment" shall have the meaning set forth in Section 4.11(b)
hereto.
1.35 "Equity Recipients" shall have the meaning set forth in Section
2.2(a) hereto.
1.36 "ERISA" shall have the meaning set forth in Section 4.18(a)(i)
hereto.
1.37 "Escrow Account" shall have the meaning set forth in Section 2.6(a)
hereto.
1.38 "Escrow Agent" shall have the meaning set forth in Section 2.6(a)
hereto.
1.39 "Escrow Agreement" shall have the meaning set forth in Section
2.6(c) hereto.
1.40 "Escrow Amount" shall have the meaning set forth in Section 2.6(a)
hereto.
1.41 "Escrowed Securities" shall have the meaning set forth in Section
2.5(a) hereto.
1.42 "Estimated Net Liability Value" shall have the meaning set forth in
Section 2.3 hereto.
1.43 "Excluded Assets" shall have the meaning set forth in Section 4.7
hereto.
1.44 "Excluded Liabilities" shall have the meaning set forth in Section
2.1 hereto.
1.45 "Final Adjustment Report" shall have the meaning set forth in
Section 2.4(a) hereto.
1.46 "Final Adjustment Report Date" shall have the meaning set forth in
Section 2.4(a) hereto.
1.47 "Final Escrow Release Date" shall have the meaning set forth in
Section 2.6(a)(ii) hereto.
1.48. "GAAP" shall have the meaning set forth in Section 2.4(c) hereto.
1.49 "Governmental Entity" shall have the meaning set forth in Section
4.6 hereto.
1.50 "Hazardous Materials" shall have the meaning set forth in Section
4.17(a) hereto.
1.51 "Holdback Amount" shall have the meaning set forth in Section 2.3
hereto.
1.52 "Indemnification Amount" shall have the meaning set forth in Section
2.6(a) hereto.
1.53 "Indemnification Notice" shall have the meaning set forth in Section
11.2(b) hereto.
1.54 "Initial Escrow Release Date" shall have the meaning set forth in
Section 2.6(a)(ii) hereto.
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1.55 "Insurance Policies" shall have the meaning set forth in Section
4.20 hereto.
1.56 "Intellectual Property" shall have the meaning set forth in Section
4.12(a) hereto.
1.57 "IRS" shall have the meaning set forth in Section 4.18(a)(v) hereto.
1.58 "Joint Venture" shall mean that the joint venture between Amari and
Dick Brescia Associates, Inc. with respect to production and
syndication of one or more radio programs.
1.59 "Liens" shall have the meaning set forth in Section 4.9(b)(v)
hereto.
1.60 "Loss" and "Losses" shall have the meaning set forth in Section
11.2(a) hereto.
1.61 "Loss Cap" shall have the meaning set forth in Section 11.2(a)
hereto.
1.62 "Masters" shall mean all media from which Amari manufactures
Recordings and Videos for sale to its customers.
1.63 "Material Adverse Effect" shall mean any change or changes or effect
or effects that individually or in the aggregate are or are
reasonably likely to be materially adverse to (a) the assets of the
Company and/or the Business taken as a whole or (b) the transactions
contemplated by this Agreement.
1.64 "Merger" shall have the meaning set forth in the first recital
hereto.
1.65 "Merger Balance Sheet" shall have the meaning set forth in Section
2.4(a) hereto.
1.66 "Merger Consideration" shall have the meaning set forth in Section
2.2 hereto.
1.67 "Merger Date" shall have the meaning set forth in the first recital
hereto.
1.68 "Multiemployer Plan" shall have the meaning set forth in Section
4.18(a)(vi) hereto.
1.69 "Net Liability Value" shall have the meaning set forth in Section
2.4(c)hereto.
1.70 "Non-Compete Period" shall have the meaning set forth in Section
10.1(a) hereto.
1.71 "Non-Competition Payment" shall have the meaning set forth in
Section 2.2(d) hereto.
1.72 "Option Agreements" shall have the meaning set forth in Section
2.2(c)hereto.
1.73 "Options" shall have the meaning set forth in Section 2.2(a)(ii)
hereto.
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1.74 "Parent" shall have the meaning set forth in the opening paragraph
hereto.
1.75 "Parent Common Stock" shall have the meaning set forth in the first
recital hereto.
1.76 "Pension Plan" shall have the meaning set forth in Section
4.19(a)(vii) hereto.
1.77 "Performance Period" shall have the meaning set forth in Section
2.5(b) hereto.
1.78 "Person" shall mean any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government (and any
agency or department thereof) or other entity.
1.79 "Preliminary Adjustment Report" shall have the meaning set forth in
Section 2.4(a) hereto.
1.80 "Pre-Merger Balance Sheet" shall have the meaning set forth in
Section 2.3 hereto.
1.81 "Pre-Merger Report" shall have the meaning set forth in Section 2.3
hereto.
1.82 "Prepaid Expenses " shall mean all expenses and costs of the Company
which, as of the Merger Date, have been paid for periods of time
following the consummation of the Merger.
1.83 "Prime Rate" shall mean the rate of interest announced publicly by
Fleet National Bank in Boston, Massachusetts, from time to time, as
Fleet National Bank's prime rate.
1.84 "Put Agreement" shall have the meaning set forth in Section 2.2(b)
hereto.
1.85 "Radio Show" shall mean the syndicated radio show(s) which will be
produced, distributed and aired pursuant to a joint venture between
Dick Brescia Associates, Inc. and Acquisition Corp. following the
Merger Date.
1.86 "Recordings" shall have the meaning set forth in the second recital
hereto.
1.87 "Reduction Amount" shall have the meaning set forth in Section 2.3
hereto.
1.88 "Registration Rights Agreement" shall have the meaning set forth in
Section 2.2(b) hereto.
1.89 "Related Party Indebtedness" shall have the meaning set forth in
Section 7.9 hereto.
1.90 "Returns" shall have the meaning set forth in Section 4.9(b)(i)
hereto.
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1.91 "Saleable Inventory" shall mean Amari's inventory that (i) is in
good condition and undamaged and (ii) can be sold in usual
commercial channels.
1.92 "Subsidiary" shall have the meaning set forth in the opening
paragraph hereto.
1.93 "Supplemental Schedules" shall have the meaning set forth in Section
7.7 hereto.
1.94 "Target Companies" shall collectively refer to the businesses
acquired by Subsidiary and/or Acquisition Corp. through the
acquisition of (i) substantially all of the assets of Premier
Electronic Laboratories, Inc. (a/k/a Radiola) and (ii) substantially
all of the assets of the Adventures in Cassettes division of
Metacom, Inc.
1.95 "Tax" or "Taxes" shall have the meaning set forth in Section 4.9(a)
hereto.
ARTICLE II
ADDITIONAL AGREEMENTS
2.1 Liabilities and Obligations of Amari. Neither Parent nor Subsidiary
shall assume or be obligated for any liabilities of Amari of any kind or nature
whether the same are personal liabilities of Amari, or whether the same are
liabilities of the Company which are assumed by Amari in connection with the
Merger or otherwise ("Excluded Liabilities"). Without limiting the foregoing,
all of the following shall be "Excluded Liabilities":
(i) any taxes to be paid by Amari as a result of the transactions
contemplated hereunder;
(ii) any costs and expenses incurred by Amari incident to the
negotiation and preparation of this Agreement (including the fees and
expenses of any brokers, accountants or attorneys) and the performance and
compliance with the agreements and conditions herein except as posted to
the Merger Balance Sheet; and
(iii) the liabilities of the Company assumed by Amari pursuant to the
terms of an assignment and assumption agreement in the form of Exhibit A
(the "Assignment and Assumption Agreement"), which are set forth on
Schedule 2.1 hereto.
Amari shall remain responsible for, and indemnify Parent and Subsidiary
with respect to, all Excluded Liabilities. In addition, (a) any liabilities of
the Company which are not set forth on the Merger Balance Sheet or disclosed on
the Company's Schedules shall be deemed to be an Excluded Liability (provided,
however, that any liability of the Company associated with the tax audit
described on Schedule 4.9 hereto shall be an Excluded Liability) and (b) any
liabilities which are set forth on the Merger Balance Sheet or disclosed on
Schedule 4.23 shall not be deemed an Excluded Liability.
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2.2 Payments.
(a) Merger Consideration. In addition to the delivery of up to an aggregate
of 425,000 shares of Parent Common Stock (200,000 of which will be held in
escrow and released in accordance with the terms of Section 2.5 hereof) and cash
in the amount of $340,000 (subject to the adjustments called for below and the
deposit of the Indemnification Amount in escrow in accordance with Section 2.6
hereof), pursuant to the terms of the Agreement of Merger, on the Merger Date:
(i) Subsidiary shall pay the Non-Competition Payment in cash; and
(ii) Parent shall grant stock options to purchase up to One Hundred
Seventy-Five Thousand shares of Parent Common Stock (100,000 of such
options shall not be exercisable unless the EBITDA targets for the calendar
year 2000 set forth in Section 2.5 are achieved by Subsidiary)
(collectively, the "Options");
The above items of consideration are hereinafter referred to as the "Merger
Consideration". The Merger Consideration shall be payable on the Merger Date as
follows: (I) the Holdback Amount, if any, to the Escrow Agent, to be held in
escrow as provided in Section 2.6(a); (II) the Indemnification Amount to the
Escrow Agent, to be held in escrow as provided in Section 2.6(a); (III) the
Escrowed Securities to the Escrow Agent, to be held in escrow as provided in
Section 2.5; and (IV) the balance of the Merger Consideration to Amari,
including payment of the remaining balance of the cash portion of the Merger
Consideration and delivery of the balance of the Parent Common Stock and Options
to be delivered on the Merger Date to Amari and/or the person's designated on
Schedule 2.2(a) (together with Amari, the "Equity Recipients") in the amounts
set forth opposite such person's name.
(b) Parent Common Stock. The Parent Common Stock may not be sold,
transferred or assigned by an Equity Recipient unless the Parent Common Stock
held by such parties is registered under the Securities Act of 1933, as amended
(the "Act") and any applicable state securities law or unless an exemption from
such registration becomes or is available. Upon a written demand by Amari,
Parent agrees to file a registration statement to register the Parent Common
Stock under the Act in accordance with the terms of the registration rights
agreement attached hereto as Exhibit B (the "Registration Rights Agreement") and
use its reasonable efforts to include in such registration statement the 75,000
shares of Parent Common Stock which Amari would be entitled to receive if the
EBITDA target set forth in Section 2.5(a) for the year 1998 is achieved by
Subsidiary, subject to the approval of the Securities and Exchange Commission
and the other applicable regulatory authorities. Amari shall have certain "put"
rights with respect to the Parent Common Stock as set forth in the agreement
with Parent attached hereto as Exhibit C (the "Put Agreement").
(c) Options. The Options shall be granted to the Equity Recipients in
accordance with their respective interests pursuant to the terms of Section 2.5
hereof and the terms of (i) an option agreement in the form of Exhibit D-1 (with
respect to the Options to be
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granted to Amari on the Merger Date), (ii) an option agreement in the form of
Exhibit D-2 (with respect to the Options to be granted to Amari subsequent to
the Merger Date), and (iii) an option agreement in the form of Exhibit D-3 (with
respect to the Options to be granted to the other Equity Recipients)
(collectively, the "Option Agreements"). All Options shall be subject to the
terms of the Option Agreement pursuant to which such Options were granted.
(d) Non-Competition Payment. In consideration of Amari's obligations set
forth in Section 10.1, on the Merger Date, Subsidiary shall pay to Amari (as
directed by Amari in writing) an aggregate of Ten Thousand Dollars ($10,000) in
immediately available funds (the "Non- Competition Payment").
2.3 Pre-Merger Balance Sheet. Amari shall deliver to Parent no later than
seven (7) days prior to the Merger Date a balance sheet for the Company dated no
later than seven (7) days prior to the Merger Date and not earlier than fourteen
(14) days prior to the Merger Date prepared in accordance with GAAP (the
"Pre-Merger Balance Sheet"). Amari shall also deliver to Parent with the
Pre-Merger Balance Sheet (i) a report (the "Pre-Merger Report") setting forth in
reasonable detail the computation of an estimate of the Net Liability Value (the
"Estimated Net Liability Value") using the financial information set forth in
the Pre-Merger Balance Sheet and (ii) a copy of any back-up used by Amari in
making such calculation. In determining the Estimated Net Liability Value under
this Section 2.3 and the Net Liability Value under Section 2.4(c), the
liabilities of the Company shall include the following, to the extent the same
have not been satisfied, paid or discharged prior to the Merger Date: (i) all
payments or benefits to employees or officers of the Company for calendar year
1998 pro-rated through the Merger Date, including, without limitation, all
salary payments, commissions, bonuses, vacation, severance payments or other
employee expenses, (ii) professional fees (including, but not limited to, the
fees of Schwartz & Freeman and BD&A Certified Public Accountants, Ltd.) through
the Merger Date, (iii) lease payments accrued through the Merger Date, (iv) all
principal and interest accrued on indebtedness of the Company through the Merger
Date, (v) provision for bad debts, product returns and obsolete assets, (vi) all
taxes of the Company (including income taxes) for the period prior to the Merger
Date and (vii) insurance premiums for the period prior to the Merger Date
(collectively, the "Accrued Liabilities"). Unless Parent (on behalf of itself
and Subsidiary) provides specific written notice to Amari of an objection to any
aspect of the Pre-Merger Report and the calculation of the Estimated Net
Liability Value before the close of business on the first business day which is
seven (7) calendar days after Parent's receipt thereof, the Pre-Merger Report
and such calculation shall become the basis for determining the Reduction
Amount, if any, and the Holdback Amount, if any. If, however, Parent, by written
notice to Amari before the close of business on such business day, objects to
the Pre-Merger Report and the calculation of the Estimated Net Liability Value,
Parent and Amari shall discuss Parent's objections in good faith and, if they
reach agreement amending the Pre-Merger Report, such amended Pre-Merger Report
and the resulting calculation of Estimated Net Liability Value shall become the
basis for determining the reduction to the Merger Consideration and the Holdback
Amount. If, however, Parent and Amari do not reach such written agreement within
seven (7) days after Parent gives such notice of objection, Parent at its sole
option may (i) delay the Merger until such time as Parent and Amari reach an
agreement with respect to the Pre-Merger
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Report and the calculation of Estimated Net Liability Value; provided, however,
that if no agreement is reached within fourteen (14) days after Parent gives
notice of such objection, Parent may terminate the Merger, this Agreement and
all obligations hereunder at its election upon written notice to Amari within
fourteen (14) days after the end of such fourteen (14) day period or (ii)
proceed with the Merger using Amari's Pre-Merger Report and calculation of the
Estimated Net Liability Value; provided, however, that Parent and Subsidiary
shall not waive any of their rights hereunder and Amari shall remain fully
liable for any adjustment to the Merger Consideration calculated in accordance
with Section 2.4. At the time of the Merger, if the Estimated Net Liability
Value is greater than zero, the Merger Consideration shall be preliminarily
reduced by the amount of the Estimated Net Liability Value (the "Reduction
Amount") and Parent and Subsidiary shall hold back from the cash portion of the
Merger Consideration (as reduced) an amount equal to twenty-five percent (25%)
of the Estimated Net Liability Value (the "Holdback Amount") and deposit such
amount with the Escrow Agent in accordance with Section 2.6.
2.4 Merger Consideration Adjustment.
(a) Within thirty (30) days after the Merger Date, the certified public
accountants of Parent shall prepare and deliver to Amari and Steve Salutric of
BD&A Certified Public Accountants, Ltd. a balance sheet (the "Merger Balance
Sheet") of the Company (prepared as set forth in Section 2.4(c)) as of the
Merger Date and a report (the "Preliminary Adjustment Report"), stating in
reasonable detail the computation of the Net Liability Value as of the Merger
Date. Unless Amari provides written notice to Parent and Subsidiary of an
objection to any aspect of the Preliminary Adjustment Report before the close of
business on the first business day that is fourteen (14) calendar days after
Amari's receipt thereof, the Preliminary Adjustment Report shall then become
binding upon the Amari, and shall be the "Final Adjustment Report", and such
business day shall be the "Final Adjustment Report Date". If Amari, by written
notice to Parent and Subsidiary before the close of business on such business
day, objects to specific provisions of the Preliminary Adjustment Report, then
the Preliminary Adjustment Report shall not become binding, and Parent (on
behalf of itself and Subsidiary) and Amari shall discuss Amari's objections in
good faith and, if they reach written agreement on such objections and amend the
Preliminary Adjustment Report, the Preliminary Adjustment Report, as amended by
such written agreement, shall become binding upon Parent, Subsidiary and Amari,
and shall be the "Final Adjustment Report", and the date of such written
agreement shall be the "Final Adjustment Report Date". If Parent and Amari do
not reach such written agreement within thirty (30) days after Amari gives such
notice of objection, Amari's objections and Parent's responses thereto shall be
submitted for arbitration to Grant Thornton (the "Accounting Firm") (whose fees
shall be paid as directed by the Accounting Firm in the Final Adjustment
Report), which shall arbitrate the dispute and submit a written statement of its
determination. Such statement, when delivered to Amari and to Subsidiary and
Parent, shall be binding upon Amari, Subsidiary and Parent, and shall, together
with those aspects of the Preliminary Adjustment Report as to which no objection
was made, be the "Final Adjustment Report". In such case, the second business
day after the date on which such statement is delivered to Amari, Subsidiary and
Parent shall be the "Final Adjustment Report Date". In
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<PAGE>
acting hereunder, the Accounting Firm shall be entitled to the privileges and
immunities of arbitrators.
(b) If the Final Adjustment Report states that the Net Liability Value is
zero or less than zero, the Escrow Agent shall pay to Amari from the Escrow
Account an amount equal to the Holdback Amount, if any, as provided in Section
2.3 plus any interest earned thereon for the period from the Merger Date to the
date of such payment and Subsidiary shall pay to Amari an amount equal to the
sum of (I) the amount by which the Net Liability Value is less than zero and
(II) the Reduction Amount, if any. If the Final Adjustment Report states that
the Net Liability Value is greater than zero, the Escrow Agent shall pay to (x)
Subsidiary, from the Escrow Account, an amount equal to the sum of (i) the Net
Liability Value specified in the Final Adjustment Report less the Reduction
Amount, if any (the "Adjustment Amount") and (ii) any interest earned thereon
for the period from the Merger Date to the date of such payment and (y) Amari,
from the Escrow Account, an amount equal to the sum of (i) the amount, if any,
by which the Holdback Amount exceeds the Adjustment Amount and (ii) interest
earned thereon for the period from the Merger Date to the date of such payment.
If the Adjustment Amount is greater than the Holdback Amount, the Holdback
Amount shall be released by the Escrow Agent to Subsidiary and Amari shall pay
to Subsidiary an amount of cash (within 7 days) equal to the Adjustment Amount
less the Holdback Amount; provided, however, if Subsidiary does not receive such
payment from Amari, Subsidiary retains the right to have such payment be paid
out of the Escrow Amount pursuant to written notice to the Escrow Agent. If the
Adjustment Amount is a negative number, the Escrow Agent shall pay to Amari the
full Holdback Amount plus interest earned thereon for the period from the Merger
Date to the date of such payment, and Subsidiary shall pay Amari an amount of
cash (within 7 days) equal to the amount by which the Adjustment Amount is less
than zero. All payments to be made in accordance with this Section 2.4(b) shall
be made within seven (7) days after completion of the Final Adjustment Report.
Notwithstanding anything to the contrary contained herein, any payments to be
made directly by Amari or Subsidiary to the other party pursuant to this Section
2.4(b) shall begin to accrue interest at the Prime Rate plus one percent, if not
paid within sixty (60) days after the Merger Date.
(c) The term "Net Liability Value" shall mean (i) the liabilities as set
forth in the Merger Balance Sheet (including the Accrued Liabilities) less (ii)
the aggregate of (w) Prepaid Expenses as of the Merger Date up to $15,000, (x)
Cash as set forth in the Merger Balance Sheet, (y) Collectible Accounts
Receivable as of the Merger Date and (z) Saleable Inventory as of the Merger
Date. It is understood and agreed by the parties hereto that, although the
amounts due to Dennis Levin and Vince Amari on the Merger Date (pursuant to
their respective agreements with the Company) are liabilities of the Company,
those items should not be included as a "Liability" in the Net Liability Value
calculation (even if the same appear on the Pre-Merger Balance Sheet or the
Merger Balance Sheet). The Pre-Merger Balance Sheet and the Merger Balance Sheet
shall each be prepared in accordance with generally accepted accounting
principles in the United States consistently applied ("GAAP") and calculated in
a manner consistent with, and using the same methods as, the Company's annual
financial statements. The resolution of the disputes submitted to the Accounting
Firm shall be reflected in the Final Adjustment Report for purposes of
calculating the Net Liability Value.
(d) Amari and the Company covenant and agree to provide Subsidiary, Parent
and, if necessary, the Accounting Firm with all financial and other information,
books and records of the Company necessary or useful to enable the Accounting
Firm to prepare the Merger Balance Sheet.
2.5 Post Merger Adjustments.
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<PAGE>
(a) On the Merger Date two hundred thousand (200,000) shares of Parent
Common Stock and Options to purchase one hundred thousand (100,000) shares of
Parent Common Stock (collectively, the "Escrowed Securities"), to be delivered
to Amari as part of the Merger Consideration, will be placed by Parent in escrow
with the Escrow Agent and released to Amari in such amounts and at such times as
provided below based on the achievement by Subsidiary of certain EBITDA
targets1. Any shares of Parent Common Stock or Options not released to Amari due
to a failure by Subsidiary to meet such EBITDA targets shall be returned to
Parent in accordance with the provisions of subsections (b) and (c) below.
<TABLE>
<CAPTION>
PERFORMANCE PERIOD EBITDA TARGETS ESCROWED SECURITIES
TO BE RELEASED
<S> <C> <C>
January 1, 1998 - December EBITDA in excess of 75,000 shares
31, 1998 $700,000
- ---------------------------------------------------------------------------------------------------------------
January 1, 1999 - December EBITDA in excess of 50,000 shares
31, 1999 $900,000
EBITDA in excess of additional 75,000 shares for
$1,100,000 a total of 125,000 shares for
1999
- ---------------------------------------------------------------------------------------------------------------
January 1, 2000 - December EBITDA in excess of 50,000 Options
31, 2000 $1,150,000
- ---------------------------------------------------------------------------------------------------------------
EBITDA in excess of additional 50,000 Options
$1,350,000 for a total of 100,000
Options for 2000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Subject to the conditions set forth herein, within ninety (90) days
after the end of each performance period as set forth in Section 2.5(a) above
(each"Performance Period"), Parent shall deliver to Amari documents showing the
calculation of EBITDA along with a calculation of the number of shares or
Options, if any, to be released to Amari from escrow with respect to the
- --------
(1) Note: The EBITDA target for the fiscal year ending December 31, 1998 shall
be based on the aggregate of the Company's earnings through and including
the Merger Date and the earnings of Subsidiary and Acquisition Corp. after
the Merger Date through and including December 31, 1998 attributable to the
Business, the interest in the Joint Venture and the business acquired in
the acquisition of all of the assets of Buffalo Production, Inc. The EBITDA
targets for each subsequent fiscal year shall be based upon all of
Subsidiary's and Acquisition Corp.'s earnings for such periods, which shall
include without limitation all earnings pertaining to: (i) Acquisition
Corp.'s interest in the Radio Show; (ii) the Target Companies, if acquired
by Parent, Subsidiary or an affiliate of Parent or Subsidiary; and (iii)
the business attributable to the assets of Buffalo Productions, Inc.,
purchased by Acquisition Corp.
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<PAGE>
applicable Performance Period preceding the payment date. If any shares of
Parent Common Stock or Options are not released to Amari for such period (due to
the failure to reach the prescribed EBITDA thresholds), such shares or Options
shall be immediately released by the Escrow Agent to Parent, subject to the
provisions of the Escrow Agreement.
(c) For all purposes contemplated in this Agreement (and all related
agreements), Subsidiary and Parent agree to calculate EBITDA in a manner
consistent with the current accounting practices of the Company, including all
accruals and other adjustments required to be reported in accordance with GAAP.
For purposes of calculating EBITDA hereunder, there will be no inter-company
charges -- such as management fees -- charged to Subsidiary by Parent. The costs
incurred and the consideration paid by Parent, Subsidiary and/or Acquisition
Corp. in connection with the acquisition of the Target Companies shall not be
charged against EBITDA for purposes of this Agreement, nor shall the
professional fees of either party (in connection with the Merger and related
transactions) or the items of cash and stock paid to Vince Amari and Dennis
Levin at the Merger Date, be charged against EBITDA for purposes hereof. For the
purpose of calculating EBITDA for 1998, Amari shall be deemed to have received a
total of $300,000 in compensation from the Company and Subsidiary in 1998
(notwithstanding the actual amount of his compensation for such year). Amari
shall have the right to review the information upon which the determination of
EBITDA, for any applicable period, was made, and shall have the right to review
all work papers relating to the determination of EBITDA. If Amari, by written
notice to Parent before the close of business on the thirtieth (30th) business
day following delivery of the calculation, objects to any aspect of such
calculation, then the calculation shall not become binding, and Parent (on
behalf of itself and Subsidiary) and Amari shall discuss Amari's objections in
good faith and, if they reach agreement regarding the calculation, then the
calculation, as may be amended by the parties in writing, shall become the
determination of EBITDA for the applicable Performance Period. If Parent and
Amari do not reach such agreement within twenty (20) days after Amari gives such
notice of objection, then the release from escrow of those Escrowed Securities
that Amari claims should remain in escrow shall be suspended until a final
determination shall have been reached, and Amari's objections and Parent's
responses thereto shall be submitted for arbitration to the Accounting Firm
(whose fees shall be paid as directed by the Accounting Firm in its written
adjudication), which shall arbitrate the dispute and submit a written statement
of its adjudication, which statement, when delivered to Amari and to Parent and
Subsidiary, shall become binding upon Amari, Parent and Subsidiary, and shall
become the determination of EBITDA for the applicable Performance Period.
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<PAGE>
(d) Notwithstanding anything to the contrary contained herein, if for any
reason Parent, Subsidiary and/or Acquisition Corp. do not consummate the
acquisition of the Target Companies within six (6) months after the Merger Date,
the 1999 and 2000 EBITDA thresholds set forth in Section 2(a) above shall be
reduced as follows: (i) if the assets of the Adventures in Cassettes division of
Metacom, Inc. are not acquired, the EBITDA numbers set forth above shall be
reduced, across the board, by $200,000; and (ii) if the assets of Premier
Electronic Laboratories, Inc. (a/k/a Radiola) are not acquired, the EBITDA
numbers set forth above shall be reduced, across the board, by $100,000.
(e) Pursuant to the terms of Section 6.7 of the Amari Employment Agreement,
which are incorporated herein by reference, under certain conditions, the
Escrowed Securities may be released to Amari without regard to the EBITDA
targets set forth in this Section 2.5 hereof.
(f) All shares of Parent Common Stock included in the Escrowed Securities
shall include the following legend (as well as the legend set forth in Section
4.22):
"THESE SECURITIES ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET
FORTH IN ARTICLE II OF THAT CERTAIN SUPPLEMENTAL AGREEMENT DATED
DECEMBER __, 1998 AMONG AUDIO BOOK CLUB, INC., CLASSIC RADIO HOLDING
CORP., RADIO SPIRITS, INC. AND CARL AMARI."
Once the shares are released from escrow, Parent shall issue new stock
certificates without this legend.
2.6 Escrow Account.
(a) On the Merger Date, Subsidiary will deposit out of the cash portion of
the Merger Consideration an amount (the "Escrow Amount") equal to the sum of (I)
the Holdback Amount to be used for the payment to Parent of the Adjustment
Amount, if any, pursuant to Section 2.4(b) and (II) the amount of One Hundred
Fifty Thousand Dollars ($150,000) to be applied against indemnifications by
Amari pursuant to Section 11.2 of this Agreement (the "Indemnification Amount"),
into an interest bearing escrow account (the "Escrow Account") with Frankfurt,
Garbus, Klein & Selz, P.C. (the "Escrow Agent"). The Escrow Amount shall be
invested in accordance with the terms of the Escrow Agreement. The Escrow Amount
and interest thereon shall be applied in accordance with the balance of this
Section 2.7, as follows:
(i) Within five (5) business days after the Final Adjustment Report
Date provided for in Section 2.5(a), Escrow Agent shall make payments
provided for in Section 2.4(b).
(ii) On the date which is one (1) year after the Merger Date (the
"Initial Escrow Release Date"), the Escrow Agent shall pay to Amari (I) the
Indemnification Amount
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<PAGE>
less the sum of (x) $75,000, (y) any amounts actually paid to Parent or
Subsidiary pursuant to Section 11.2 hereof and (z) the amount Parent or
Subsidiary shall advise the Escrow Agent and Amari in writing prior to the
Initial Escrow Release Date that Parent or Subsidiary, as the case may be,
reasonably deems appropriate to retain as provided in Section 2.6(a)(iii)
plus (II) any interest earned on the amounts set forth in (I), and on the
date which is two (2) years from the Merger Date (the "Final Escrow Release
Date"), the balance of the Indemnification Amount less the amount Parent or
Subsidiary shall advise the Escrow Agent and Amari in writing prior to the
Final Escrow Release Date that Parent or Subsidiary, as the case may be,
reasonably deems appropriate to retain as provided in Section 2.6(a)(iii)
shall be paid to Amari by Escrow Agent plus any interest earned on the
difference between such amounts;
(iii) If at any time allegations have been made by anyone, including,
without limitation, Subsidiary or Parent, which include a written basis for
such allegations set forth in reasonable detail and reasonably related
supporting documentation and, if true, would be subject to indemnification
by Amari under and in accordance with the provisions of Section 11.2 or if
at any time there are any other reasonable grounds (of which Subsidiary or
Parent has given written notice to Amari) for believing that facts or
circumstances exist which could give rise to any claim subject to such
indemnification, then, provided Subsidiary or Parent has first provided
Amari and the Escrow Agent with a copy of such written allegations and
documentation, Parent shall have the right to direct the Escrow Agent to
retain in the Escrow Account an amount which shall not exceed the sum of
(i) the amount of such claim and (ii) an amount to cover the reasonable
legal fees and expenses in connection with such claim, to cover the
possible amounts for which Parent and Subsidiary are being indemnified
pursuant to Section 11.2 hereof, such amount to be retained in the Escrow
Account until such allegations or other reasonable grounds have been
finally adjudicated or settled. Without releasing Amari from its
obligations pursuant to Section 11.2 hereof, Parent and Subsidiary shall
cover the first amounts to be indemnified pursuant to Section 11.2 from the
amounts in the Escrow Account.
(b) On the Merger Date, the Escrowed Securities shall be delivered to the
Escrow Agent and held in the Escrow Account until such time as such Escrowed
Securities shall be released to Amari and/or Parent as the case may be, in
accordance with Section 2.5 of this Agreement and the terms of the Escrow
Agreement.
(c) Other terms and conditions applicable to the Escrow Account shall be as
set forth in escrow agreement (among Subsidiary, Parent, Amari and the Escrow
Agent substantially in the form of Exhibit E, the "Escrow Agreement").
ARTICLE III
THE MERGER
3.1 The Merger. The closing of the Merger shall be held at the offices of
Parent's lender or such lender's counsel on the Merger Date. Subsidiary, Parent
and Amari hereby agree to use all reasonable efforts to cause the fulfillment,
at or prior to Merger, of each of the Merger conditions within its control set
forth in Article VIII hereof.
3.2 Deliveries at the Merger by Amari. On the Merger Date, Amari shall
deliver or cause to be delivered to Parent and Subsidiary the following:
(a) the stock certificates representing all of the issued and
outstanding shares of Company Common Stock, free and clear of all liens,
charges, encumbrances and security interests whatsoever; and
15
<PAGE>
(b) all other documents, certificates, instruments or writings
required by Parent and Subsidiary to be delivered by Amari at or prior to
the Merger Date pursuant to this Agreement or otherwise required in
connection herewith.
3.3 Deliveries at the Merger by Parent and Subsidiary. At the Merger,
Parent and Subsidiary shall deliver the following:
(a) to Amari:
(i) a wire transfer(s) for that portion of the Merger
Consideration payable to Amari pursuant to Section 2.2(a) and in
accordance with the wire instructions set forth on Schedule 3.3(a)(i)
hereto;
(ii) a wire transfer in the amount of the Non-Competition Payment
payable to Amari pursuant to Section 2.2(d) and in accordance with the
wire instructions set forth on Schedule 3.3(a)(i) hereto;
(iii) stock certificates for all of the Parent Common Stock to be
issued on the Merger Date and not held in escrow;
(iv) Option Agreements for the Options granted on the Merger
Date;
(v) all other documents, certificates, instruments or writings
required by Amari to be delivered by Parent or Subsidiary at or prior
to the Merger Date pursuant to this Agreement or otherwise required in
connection herewith; and
(b) to the Escrow Agent, a wire transfer in the amount of the Escrow
Amount to be deposited into the Escrow Account pursuant to Section 2.6(a)
and in accordance with the wire instructions set forth on Schedule 3.3(b)
and the Escrowed Securities.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY AND AMARI
The Company and Amari, hereby jointly and severally represent and warrant
to Parent and Subsidiary as of the date hereof and as of the Merger Date,
subject to such exceptions as are specifically disclosed in the disclosure
schedules (referencing the appropriate section and paragraph numbers) supplied
by the Company and Amari to Parent and Subsidiary (the "Company's Schedules")
and dated as of the date hereof, as follows:
4.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois. The Company has the corporate power to own its properties and to carry
on its business as it is now being conducted. The Company is duly qualified to
16
<PAGE>
do business and is in good standing as a foreign corporation in each
jurisdiction where the Company's business activities and/or assets would require
such qualification. The Company has delivered a true and correct copy of the
Certificate of Incorporation and Bylaws of the Company, as amended to date, to
Subsidiary. Schedule 4.1 lists the directors and officers of the Company and the
jurisdictions in which the Company is qualified to do business. The operations
now being conducted by the Company have not been conducted under any name other
than Radio Spirits, Inc.
4.2 The Company Common Stock. Amari has good and valid title to the all of
the issued and outstanding shares of the Company Common Stock, free and clear of
any liens, claims, encumbrances, security interests, options, charges or
restrictions of any kind, other than as provided hereunder, or as set forth on
Schedule 4.2. Other than this Agreement or as set forth on Schedule 4.2, the
shares of the Company Common Stock are not subject to any voting trust
agreement, commitment or understanding restricting or otherwise relating to the
voting, dividend rights or disposition of the Company Common Stock. No State of
Illinois stock transfer taxes are due as a result of the Merger.
4.3 Capital Structure of the Company.
(a) The authorized capital stock of the Company consists of 1,000 shares of
the Company Common Stock, of which 500 shares of the Company Common Stock are
issued and outstanding and wholly-owned by Amari. Additionally, 500 treasury
shares are currently pledged in escrow (as described in the third recital
hereto) and will be released from escrow at the time of the Merger and returned
to the Company. The shares of the Common Stock are duly authorized and validly
issued and nonassessable.
(b) Except as set forth in Schedule 4.3(b), the Company has not adopted or
maintained any stock option plan or other plan providing for equity compensation
of any person. There are no options, warrants, calls, subordinated debentures,
debentures, rights, commitments or agreements of any character, written or oral,
to which the Company is a party or by which it is bound obligating the Company
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of such party or
obligating such party to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. Except as set forth in Schedule 4.3(b), as of the date
hereof there are no outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to the Company. Except as
attached hereto as Schedule 4.3(b), there are no voting trusts, proxies, or
other agreements or understandings to which Amari or the Company is a party with
respect to the Company Common Stock. Except as set forth in Schedule 4.3(b),
there are no bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which stockholders of the Company may vote.
4.4 Equity Interests. Except as set forth on Schedule 4.4, the Company does
not directly or indirectly own any capital stock of or other equity interests in
any corporation, partnership, limited liability company or other Person and the
Company is not a member of or participant in any partnership, limited liability
company, joint venture or similar Person.
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<PAGE>
4.5 Authority. The Company has all requisite corporate power and authority
to enter into this Agreement, and the Agreement of Merger and to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by the Company and Amari and constitutes the valid and
binding obligation of the Company and Amari, enforceable in accordance with its
terms.
4.6 No Conflict. Except as set forth on Schedule 4.6, the execution,
delivery and performance of this Agreement by the Company and Amari do not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit or creation of any lien,
claim, encumbrance, security interest, option, charge or restriction of any kind
upon any of the properties or assets of the Company under (i) any provision of
the Articles of Incorporation or By-laws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation to which the Company or Amari is a party or by which any of the
properties or assets of the Company are bound. No consent, waiver, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other federal, state, county,
local or foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party is required by or with respect to the
Company or Amari in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for such
consents, waivers, authorizations, filings, approvals and registrations which
are set forth on Schedule 4.6.
4.7 Assets of the Company. Set forth on Schedule 4.7 is a list of all of
the assets and properties of the Company, including, without limitation, all
assets of the Company used in, useful to and/or related to the Business (except
for those assets set forth on Schedule 4.7 under the heading "Excluded Assets"
which will be assigned to Amari on the Merger Date in accordance with the terms
of an Assignment and Assumption Agreement between Parent and
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<PAGE>
Subsidiary, on the one hand, and Amari, on the other hand (the "Assignment and
Assumption Agreement")), which shall include (but not be limited to) the
following:
(i) the Company's Cash;
(ii) the Collectible Accounts Receivable of the Company and other
evidences of indebtedness owing to the Company;
(iii) licenses, commitments, obligations, development or distribution
agreements, joint venture agreements, or other contracts, agreements or
instruments to which the Company is a party or receives a benefit, whether
written or oral, and rights thereunder, including without limitation, the
licenses pursuant to which the Company has acquired the rights necessary to
distribute the Recordings not otherwise in the public domain (collectively,
the "Contracts");
(iv) franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights of the Company obtained from
governments and governmental agencies necessary for the operation of the
Business,
(v) tangible personal property, including without limitation all
supplies owned by the Company, Saleable Inventory, work-in-process and the
equipment owned or leased by the Company;
(vi) business and financial records (including its corporate minute
books), books, ledgers, files, plans, documents, correspondence,
specifications, creative materials, advertising and promotional materials,
marketing materials, conference materials, database materials, subscriber
lists, customer lists, mailing lists, supplier lists, equipment repair,
maintenance or service records, and all other printed or written materials
whether written or electronically stored or otherwise recorded other than
the Company's corporate books and records;
(vii) Prepaid Expenses;
(viii) the Company's goodwill;
(ix) the benefit of all right, title and interest of the Company
(including without limitation the right to manage any such claims or causes
of action) to claims, causes of action, deposits, refunds (excluding any
tax refunds related to tax periods through the Merger Date), rights of
recovery and/or set-off and rights of recoupment and to insurance policies
and amounts payable thereunder;
(x) the Company's patents, patent applications, copyrights,
trademarks, service marks, trade names (including, without limitation,
"Radio Spirits" and any variation thereof), trade secrets, proprietary
information, software, technology rights and licenses, proprietary
19
<PAGE>
rights and processes, know-how, research and development in progress, and
any and all other intellectual property of the Company and all things
authored, collected, created, discovered, developed, made, perfected,
improved, designed, engineered, devised, acquired, produced, conceived or
first reduced to practice and that pertain to or are used in the Business
or that are relevant to an understanding or to the development of the
Business, whether tangible or intangible, in any stage of development,
including without limitation, all goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder;
(xi) the rights in and to the Internet domain names registered in the
name of Amari and the content and Intellectual Property included in the
websites corresponding to such domain names;
(xii) all telephone numbers, e-mail addresses and other communications
addresses of the Company; and
(xiii) the right, title and interest of the Company in the Production
Assistance and Marketing Agreement between the Company and the Joint
Venture and all other rights, if any, the Company may have in the radio
shows produced or aired by the Joint Venture.
Notwithstanding anything to the contrary contained herein, the assets of the
Company for purposes of this Agreement do not include the items set forth on
Schedule 4.7 under the heading "Excluded Assets" (the "Excluded Assets") and
Parent and Subsidiary shall have no rights to such items as a result of the
transactions contemplated hereunder.
4.8 No Material Changes. Except as set forth in Schedule 4.8, since May 1,
1998 there has not been, occurred or arisen any of the following in connection
with the Business:
(a) amendment or change to the Articles of Incorporation or By-laws of
the Company;
(b) any material decrease in the dollar value of the Accounts
Receivable taken as a whole;
(c) material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(d) any agreement, contract, lease or commitment (collectively a
"Company Agreement") or any extension or modification of the terms of any
Company Agreement which (i) involves the payment by the Company of greater
than $25,000 per annum or (ii) involves any payment or obligation to any
affiliate of the Company other than in the ordinary course of business as
conducted on that date and consistent with past practices;
(e) the commencement or notice or, to Amari's knowledge, threat of
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commencement, of any lawsuit or proceeding against or, to the Amari's
knowledge, investigation of, the Company or the Business;
(f) notice of any claim of ownership by a third party of Company's
Intellectual Property (as defined in Section 4.2 below) or of infringement
by Company of any third party's Intellectual Property rights; or
(g) any transaction, event or condition of any character that has or
could be reasonably be expected to have a Material Adverse Effect.
4.9 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 4.9:
(i) The Company has prepared and filed, or will prepare and file, all
required federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") required to be filed on or prior to the
Merger Date or with respect to any period up to the Merger Date and such
Returns shall be true and correct in all material respects and shall have
been completed in accordance with applicable law;
(ii) The Company is not delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of
limitations on, or extending the period for the assessment or collection
of, any such Tax;
(iii) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination;
(iv) The Company has no liability for unpaid federal, state, local or
foreign Taxes, whether asserted or unasserted, contingent or otherwise,
other than liability for taxes not yet due and payable, and the Company has
no knowledge of any reasonable basis for the assertion of any additional
liability for Taxes attributable to such party, its business or its assets
or operations;
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(v) There are (and as of immediately following the Merger there will
be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any type or nature
(collectively, "Liens") on any assets of the Company relating to or
attributable to Taxes, other than liens for personal property, sales,
payroll and other taxes not yet due and payable; and
(vi) The Company is not, nor has it been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
4.10 Restrictions on Business Activities. Except as set forth in Schedule
4.10 there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
on such party which has or could be expected to have the effect of prohibiting
or impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by such party or the conduct of its business, and the
Company has not entered into any agreement under which such party is restricted
from providing services to customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
4.11 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company has good and valid title to all of the assets of the
Company (other than licensed properties) free and clear of any Liens, except as
reflected in Schedule 4.11(a) and except for such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not detract from or interfere with, the value or present use, of the
property subject thereto or affected thereby. With respect to the licensed
properties, Amari makes the following representations and warranties:
(i) the Company has good and valid title to the Category A License
Agreements free and clear of any Liens, except as reflected in Schedule
4.11(a) and except for such imperfections of title and encumbrances, if
any, which are not material in character, amount or extent, and which do
not detract from or interfere with, the value or present use, of the
property subject thereto or affected thereby;
(ii) as to the Category B License Agreements, no person or entity
other than the licensors would be able to successfully assert valid
ownership rights to the Programs licensed under the Category B License
Agreements that would prevent the Company from exploiting the licensed
Programs; and
(iii) as to the Category C License Agreements, the Company entered
into such license agreements upon a good faith determination that the
licensors are, to the knowledge of Company and Amari, the owners of the
Programs licensed under the Category C License Agreements.
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(b) Schedule 4.11(b) lists each item of equipment used by the Company in
its business with a value of $500 or more and any other items of personal
property that are material to such business and used by such party in its
Business (collectively, the "Equipment"). The Equipment is owned or leased by
the Company (as indicated on Schedule 4.11(b)), and is (i) adequate for the
conduct of the business of the Company as currently conducted and (ii) in good
operating condition, subject to normal wear and tear.
4.12 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights associated therewith: (i) all copyrights, copyright registrations
and applications therefor, and all other rights corresponding thereto
throughout the world; (ii) all trade names, logos, common law trademarks
and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith; (iii) all
Internet domain names and any registrations and applications therefor and
telephone numbers; (iv) all computer software including all source code,
object code, firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded and all documentation
related to any of the foregoing; (v) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (vi) all industrial
designs and any registrations and applications therefor; and (vii) all
domestic and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, continuations and continuations-in-part
thereof.
"Company's Intellectual Property" shall mean any Intellectual Property
that: (i) is owned by or licensed to the Company or (ii) which is necessary
to the operation of the Business as it is currently operated, which
includes all rights in and to "The Old Time Radio Club of America".
(b) Schedule 4.12(b) lists (i) all of the following held by the Company:
(1) U.S. and foreign registered trademarks, trademark applications, service
marks, service mark applications, intent to use applications, and domain name
registrations, (2) U.S. and foreign registered copyrights and applications for
copyright registration, (3) U.S. and foreign patent and patent applications; and
(ii) any other of the Company's Intellectual Property that is the subject of an
application, certificate or registration issued by any state, government or
other public legal authority.
(c) The registrations of the Intellectual Property listed on Schedule
4.12(b) are valid and subsisting in the Company's name.
(d) Except as set forth in Schedule 4.12(d), (i) no Person has any rights
to use any of Company's Intellectual Property, which is owned by the Company or
exclusively licensed
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to the Company under a Category A License Agreement and any mailing lists and/or
customer lists; and (ii) the Company has not granted to any Person, nor
authorized any Person to retain any of the Company's rights in Company's
Intellectual Property. Except as set forth in Schedule 4.12(d), to Amari's
knowledge, no Person has any rights to use any of Company's Intellectual
Property, which is exclusively licensed to the Company under the Category B
License Agreements or Category C License Agreements.
(e) Except as set forth on Schedule 4.12(e), (i) the Company owns and has
good and exclusive title to each item of Intellectual Property attributable to
the Company listed on Schedule 4.12(b), free and clear of any lien or
encumbrance; and
(f) All of the Company's Intellectual Property licensed by the Company is
set forth on Schedule 4.12(f). The Company has the right to use all of the
Company's Intellectual Property licensed to the Company under the Category A
License Agreements pursuant to a valid Contract. To the best of Amari's
knowledge, the Company has the right to use all of the Company's Intellectual
Property licensed to the Company under Category B License Agreements and
Category C License Agreements. Additionally, as to the Category B License
Agreements, Amari and the Company jointly and severally represent and warrant
that, to his/its knowledge, such licenses are valid and enforceable against the
licensor in accordance with their terms.
(g) As of the Merger Date, the operation of the Business has not infringed
the Intellectual Property rights, rights of privacy or publicity or any other
personal or property rights of any other Person and, to the extent the Company
has infringed (through and including the Merger Date) any such rights, Amari
shall fully indemnify and defend Parent and Subsidiary and their respective
officers, directors and affiliates in accordance with Section 11.2 from and
against any such infringement; provided, however, in the event of fraud or a
willful non-disclosure by the Company and/or Amari with respect to such
infringement, Amari's indemnification shall cover any Losses due to an
infringement by Parent, Subsidiary or their respective officers, directors, and
affiliates after the Merger Date (except to the extent Parent or Subsidiary
continues any infringing activities after becoming aware of same). Absent fraud
or a willful non-disclosure on the part of the Company and/or Amari, Parent and
Subsidiary shall bear the responsibility for any infringements of the
Intellectual Property rights, rights of privacy or publicity or any other
personal or property rights of any other Person which occur after, or continue
beyond (but only to the extent of such continuation), the Merger Date and Parent
and Subsidiary shall fully indemnify and defend Amari and his heirs, executors,
successors and assigns in accordance with Section 11.3 from and against the
same.
(h) The Company has not received a notice from a third party alleging any
infringement of the Intellectual Property rights, rights of privacy or publicity
or any other personal or property rights of any other Person.
(i) Except as listed on Schedule 4.12(i), there are no contracts, licenses
or agreements between the Company and any other person with respect to Company's
Intellectual Property pursuant to which there is any dispute known to the
Company regarding the scope of
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such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Company thereunder.
(j) Except as listed on Schedule 4.12(j), to the knowledge of the Company,
no person is infringing or misappropriating any of Company's Intellectual
Property.
4.13 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 4.13(a), the Company is not a party to,
or bound by, any of the following in connection with the Business:
(i) any agreements or arrangements that contain any severance pay or
post-employment obligations with respect to any employee;
(ii) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or
sales agreement, contract or commitment with a firm or other organization;
(iii) any fidelity or surety bond or completion bond;
(iv) any agreement of indemnification or guaranty;
(v) any purchase order or contract for the purchase of materials
involving $10,000, individually, or $50,000 in the aggregate;
(vi) any distribution, joint marketing or development agreement; or
(vii) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) The Company has not breached, violated or defaulted under, or received
written notice that the Company has breached, violated or defaulted under, any
of the terms or conditions of any agreement, contract or commitment to which the
Company is a party or by which it is bound with respect to its business or its
assets, which breach, violation or default would have a Material Adverse Effect.
To the Company's and Amari's knowledge, each such agreement, contract or
commitment is in full force and effect in accordance with its terms. The Company
is in compliance with, and has not breached any contract, license or agreement
to which it is a party or by which it is bound with respect to its business or
its assets or by which its assets are bound, and, to the knowledge of the
Company and Amari, the Company and all other parties to all such contracts,
licenses and agreements are in compliance with, and have not breached any of
such contracts, licenses or agreements. Following the Merger Date, Subsidiary
will be permitted to exercise all of rights of the Company under the Contracts
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which such party would otherwise be required
to pay for periods subsequent to the
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Merger Date.
(c) The contracts, licenses and agreements listed on Schedule 4.13(c) are
all contracts, licenses and agreements, that involve $10,000 or more or are not
cancelable without penalty within thirty (30) days, to which the Company is a
party which still require performance of services or other obligations,
including without limitation, indemnification, non-compete and non-disclosure
obligations, delivery of materials or ongoing royalties or similar payments,
either by such party or to the benefit of such party, other than "shrink wrap"
and similar commercial end-user licenses. To the knowledge of the Company and
Amari, the contracts, licenses and agreements listed on Schedule 4.13(c) are in
full force and effect in accordance with its terms. Provided that the consents
to assignment requested by Parent and Subsidiary have been obtained, to the
knowledge of the Company and Amari the consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of the contracts,
licenses and agreements listed on Schedule 4.13(c).
4.14 Governmental Authorization. To the knowledge of the Company and Amari,
Schedule 4.14 lists each consent, license, permit, grant or other authorization
issued to the Company by a Governmental Entity (herein collectively called
"Company Authorizations") (i) pursuant to which such party currently operates or
holds any interest in any of its assets or (ii) which is required for the
operation of the its business or the holding of any such interest in its assets.
All such Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company to operate or conduct the
Business or hold any interest in its assets.
4.15 Litigation. Except as set forth on Schedule 4.15, (a) there is no
action, suit or proceeding, or warranty or indemnity claim of any nature
pending, or to the knowledge of the Company or Amari, threatened against the
Company, its assets or the Business; (b) there is no investigation pending or,
to the knowledge of the Company and Amari, threatened against the Company, its
assets or its business by or before any Governmental Entity; and (c) no
Governmental Entity has at any time challenged or questioned the legal right of
the Company to produce, offer or sell any of its products or services in the
present manner or style thereof.
4.16 Accounts Receivable; Inventory.
(a) The Company has made available to Subsidiary a list of all accounts
receivable of the Company with respect to the Business (the "Accounts
Receivable"), including Collectible Accounts Receivables, along with a range of
days elapsed since invoice.
(b) All of the Collectible Accounts Receivable of the Company arose in the
ordinary course of business for valid consideration and are in their entirety
valid accounts receivable which are carried at values determined in accordance
with GAAP. Except as set forth on Schedule 4.16(b), no person has any Lien on
any of such Collectible Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Collectible
Accounts Receivable.
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(c) All of the inventory of the Company is not damaged and is in good and
saleable condition. No inventory of the Company has been sold at (i) more than
fifty-five percent (55%) off when sold at retail or (ii) more than seventy
percent (70%) off when sold at wholesale.
4.17 Environmental Matters.
(a) Hazardous Material. The Company has not (i) operated any underground
storage tanks at any property that it has at any time owned, operated, occupied
or leased; or (ii) illegally released any material amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, petroleum,
ureaformaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws ("Hazardous Materials"), but excluding office
and janitorial supplies properly and safely maintained. No Hazardous Materials
are present as a result of the deliberate actions of the Company or as a result
of any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that it has at any time owned, operated, occupied or leased.
(b) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company or Amari, threatened concerning any Hazardous
Materials. Neither the Company nor Amari is aware of any fact or circumstance
which could involve the Company in any environmental litigation or impose upon
the Company any environmental liability or require such party to have any
environmental approval, permit, license, clearance or consent for the conduct of
its business as currently conducted.
4.18 Employee Matters and Benefit Plans.
(a) Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(i) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(ii) "Company Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded
and whether or not legally binding, including without limitation, each
"employee benefit plan", within the meaning of Section 3(3) of ERISA which
is maintained, contributed to, or required
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to be contributed to, by the Company for the benefit of any "Employee" (as
defined below), and pursuant to which the Company has or may have any
material liability, whether contingent or otherwise;
(iii) "Employee" shall mean any current, former, or retired employee,
officer, or director of the Company or;
(iv) "Employee Agreement" shall refer to each management, employment,
severance, consulting or similar agreement or contract between either the
Company and any Employee or consultant;
(v) "IRS" shall mean the Internal Revenue Service;
(vi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(vii) "Pension Plan" shall refer to each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 4.18(b) contains an accurate and complete list of:
(i) each Employee of the Company and such Employee's current salary and bonus
applicable to the current fiscal period; (ii) the Company Employee Plan; and
(iii) each Employee Agreement. The Company has no intention, plan or commitment,
whether legally binding or not, to enter into or establish any new Company
Employee Plan or Employee Agreement, to materially modify the Company Employee
Plan or Employee Agreement (except to the extent required by law or to conform
the Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Subsidiary in writing,
or as required by this Agreement).
(c) Documents. The Company has provided to Subsidiary: (i) correct and
complete copies of all documents embodying or relating to the Company Employee
Plan and each Employee Agreement including all amendments thereto; (ii) the most
recent annual actuarial valuations, if any, prepared for the Company Employee
Plan; (iii) the two most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA in connection with the Company Employee
Plan or related trust; (iv) if the Company Employee Plan is funded, the most
recent annual and periodic accounting of the Company Employee Plan assets; (v)
the most recent summary plan description together with the most recent summary
of material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters and rulings relating
to the Company Employee Plan and copies of all applications and correspondence
to or from the IRS or the Department of Labor ("DOL") with respect to the
Company Employee Plan; and (viii) all material communications to any Employee or
Employees relating to the Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 4.18(d), (i)
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the Company has performed in all material respects all obligations required to
be performed by it under the Company Employee Plan and the Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to, ERISA or the Code; (ii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to the Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company or Amari, threatened or reasonably anticipated (other than routine
claims for benefits) against the Company Employee Plan or against the assets of
the Company Employee Plan; and (iv) the Company Employee Plan can be amended,
terminated or otherwise discontinued on the Merger Date or within a reasonable
time thereafter in accordance with its terms, without liability to the Company,
any Company Affiliate, Subsidiary or any Subsidiary Affiliate (other than
ordinary administration expenses typically incurred in a termination event); (v)
there are no inquiries or proceedings pending or, to the knowledge of the
Company or Amari, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vi) neither Company nor any Company Affiliate is subject to
any penalty or tax with respect to the Company Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now maintain, sponsor, participate
in or contribute to, nor has the Company ever maintained, established,
sponsored, participated in, or contributed to, any Pension Plan which is subject
to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of
the Code.
(f) Multiemployer Plans. At no time has the Company contributed to any
Multiemployer Plan.
(g) No Post Employment Obligations. Except as set forth in Schedule
4.18(g), the Company Employee Plan does not provide, nor has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and the Company has not ever represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute. Except as set forth in Schedule 4.18(g), the Company is not liable to
any former employee for medical benefits.
(h) Effect of Transaction.
(i) The execution of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under the Company Employee Plan, Employee Agreement, trust or loan
that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
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(ii) No payment or benefit which will or may be made by the Company or
Subsidiary or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment", within the
meaning of Section 280G(b)(1) of the Code.
4.19 Employment Matters. (i) To the knowledge of the Company and Amari, the
Company is in compliance in all material respects with all applicable foreign,
federal and state laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to its employees; (ii) the Company has withheld all amounts
required by law or by agreement to be withheld from the wages, salaries and
other payments to its employees or other persons who by virtue of their
activities performed on behalf of the Company may be deemed employees within the
meaning of applicable law; (iii) the Company is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) the Company is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for its employees or other persons who by virtue of their activities
performed on behalf of the Company may be deemed employees within the meaning of
applicable law.
(a) Labor. No work stoppage or labor strike against the Company is pending
or, to the best knowledge of the Company and Amari, threatened. The Company is
not involved in or, to the knowledge of the Company and Amari, threatened with,
any labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
liability to the Company. To the knowledge of the Company and Amari, the Company
has not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to the Company. The Company is not presently,
nor has the Company been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to its employees and no
collective bargaining agreement is being negotiated by the Company.
(b) No Interference or Conflict. To the knowledge of the Company and Amari,
no employee or consultant of the Company or the Business is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such person's best
efforts to promote the interests of the Business or that would conflict with the
Business. Neither the execution, delivery nor performance of this Agreement, nor
the carrying on of the Business by Subsidiary as presently conducted or proposed
to be conducted will, to the knowledge of the Company and Amari, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
officers, directors, employees or consultants is now obligated.
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4.20 Insurance Policies. Schedule 4.20 sets forth a complete and correct
list of all casualty, liability, business interruption, errors and omissions and
other insurance policies currently in force with respect to the Company (the
"Insurance Policies"), regardless of the periods to which they relate, including
a description of whether such Insurance Policies are "occurrence based" or
"claims made" liability policies. For each Insurance Policy, Schedule 4.20
indicates the type of coverage, the name of the insured, the insurer, the
premium, the expiration date, the period to which it relates, the deductibles
and the loss retention amounts and the amounts of coverage. All premiums due on
the Insurance Policies have been paid in full and, to the knowledge of the
Company and Amari, the Insurance Policies are in full force and effect and are
valid, outstanding and enforceable. The Company is in compliance with the
provisions of and conditions contained in all such policies applicable to it. No
insurer under any such policy or, to the knowledge of the Company and Amari,
indicated any intent to do so or to materially increase the premiums payable
under or not renew any such policy. All material claims under any Insurance
Policies are listed on Schedule 4.20 and have been filed in a timely fashion.
4.21 Corporate Name. Except as set forth in Schedule 4.21, (i) the Company,
to the knowledge of the Company and Amari, has the exclusive right to use "Radio
Spirits" as the name of a corporation in any jurisdiction in which such party
does business and (ii) the Company has not received any notice of conflict
during the past two (2) years with respect to the rights of others regarding
such corporate name. Except as set forth in Schedule 4.21, to the knowledge of
the Company and Amari, no person is presently authorized by the Company or Amari
to use the name of the Company.
4.22 Receipt of Parent Common Stock. The Parent Common Stock that Amari, as
the sole stockholder of the Company, will receive in connection with the Merger
will be held by Amari for his own account for investment, without a view to, or
for a resale in connection with, the distribution thereof in violation of the
Act or any state securities laws and with no present intention of distributing
or reselling any part thereof. Amari will not so distribute or resell any of
such Parent Common Stock in violation of any such law. Amari acknowledges that
the Parent Common Stock to be received by Amari have not been registered under
the Act but Parent has committed to filing a registration statement pursuant to
Section 2.2(b). Amari hereby agrees that the Parent Common Stock he will receive
will contain substantially the following legend until such time as the same has
been registered pursuant to an effective registration statement:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN EXEMPTION FROM THE REQUIREMENTS THEREOF."
4.23 No Undisclosed Liabilities. Except as set forth in Schedule 4.23 or
otherwise disclosed on the other Schedules hereto, the Company has no known
liability, indebtedness,
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obligation, expense, claim, deficiency, guaranty or endorsement of any type in
excess of $2,500, individually, or $10,000 in the aggregate, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), which (i) has not
been reflected in the financial statements required to be delivered to Parent
and Subsidiary pursuant to Section 7.4 and the Pre-Merger Balance Sheet, or (ii)
has not arisen since January 1, 1998 in the ordinary course of the Company's
business consistent with past practices; it being understood that Parent and
Subsidiary shall not assume or otherwise be liable for any undisclosed
liabilities of the Company or Seller.
4.24 Financial Condition. As of the Merger Date, the EBITDA of the Company
(without regard to earnings from the Joint Venture, the Target Companies and
Buffalo Productions, Inc.) for the first eleven months of 1998 is greater than
$600,000 and Amari hereby warrants that the EBITDA for fiscal year ending
December 31, 1998, as calculated in accordance with Section 2.5, shall be in
excess of $600,000.
4.25 Compliance with Laws. To the knowledge of the Company and Amari, the
Company has complied in all material respects with all, and the Company is not
in violation of and it has not received any, notices of violation with respect
to, any foreign, federal, state or local statute, law or regulation.
4.26 Power of Attorney. The Company has not granted any power of attorney
(revocable or irrevocable) with respect to its business or its assets to any
person, firm or corporation for any purpose whatsoever.
4.27 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent, Subsidiary or their counsel and set forth on
Schedule 4.27.
4.28 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company's Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
Except as expressly set forth in this Agreement, the Schedules hereto, and the
other documents and agreements delivered in connection herewith, Amari and the
Company make no other representations or warranties, express or implied, in
respect to the Company or any of its assets or liabilities or operations and any
other representation and warranties are hereby disclaimed.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
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Parent and Subsidiary jointly and severally represent and warrant to the
Company as of the date hereof and as of the Merger Date as follows:
5.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Parent has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction where Parent's business activities and/or assets, as the case may
be, would require such qualification. Subsidiary has the corporate power to own
its properties and to carry on its business as now being conducted and, as of
the Merger Date, will be duly qualified to do business and will be in good
standing in each jurisdiction where Subsidiary's business activities and/or
assets, as the case may be, would require such qualification.
5.2 Authority. Parent and Subsidiary have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Subsidiary. This
Agreement has been duly executed and delivered by Parent and Subsidiary and
constitutes the valid and binding obligations of Parent and Subsidiary,
enforceable in accordance with its terms.
5.3 No Conflicts. The execution and delivery of this Agreement by Parent or
Subsidiary, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit or
creation of any security interest under (i) any provision of the Certificate of
Incorporation or By-laws of Parent or Subsidiary or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgement, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Subsidiary or any of their respective
properties and assets, except where such conflict does not have a material
adverse affect on the business, assets, financial conditions or results of
operations of Parent and Subsidiary taken as a whole. No consent, waiver,
approval, order, or authorization of, or registration, declaration or filing
with, any Governmental Entity or third party is required by or with respect to
Parent or Subsidiary in connection with the execution and delivery of this
Agreement, the consummation of the Merger and the other transactions
contemplated hereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which may be required
under applicable Federal and state securities laws and such consents, waivers,
authorizations, filings, approvals and registration, which if not obtained,
would not have a material adverse affect on the business, assets, financial
condition or results of operations of Parent and Subsidiary taken as a whole.
5.4 Parent Common Stock. The Parent Common Stock to be issued to the
stockholders of the Company upon conversion of the Company Common Stock into
Parent
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Common Stock in accordance with the provisions of the Agreement of Merger will
be duly authorized and validly issued and outstanding, fully paid and
nonassessable when issued.
5.5 Brokers' and Finders' Fees. Neither Parent nor Subsidiary has incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
5.6 Complete Copies of Materials. Parent and Subsidiary have delivered or
made available true and complete copies of each document (or summaries of the
same) that has been requested by the Company or its counsel regarding Subsidiary
or the proposed acquisitions by Subsidiary or its subsidiaries.
5.7 Representations Complete. None of the representations or warranties
made by Parent or Subsidiary, nor any statements made in any certificate
furnished by Parent or Subsidiary pursuant to this Agreement contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. Except as expressly set forth in
this Agreement and the other documents and agreements delivered in connection
herewith, Parent and Subsidiary make no other representations or warranties,
express or implied.
ARTICLE VI
CONDUCT PRIOR TO THE MERGER DATE
6.1 Conduct of Business of the Company. During the period from the date of
the Agreement and continuing until the earlier of the termination of this
Agreement or the Merger Date, the Company agrees (except to the extent that
Parent and Subsidiary shall otherwise consent in writing in advance), to carry
on the Business in all material respects in the usual, regular and ordinary
course in the same manner as heretofore conducted, to pay its debts and Taxes
when due, to pay or perform other obligations when due, and, to the extent
consistent with the Business, use all commercially reasonable efforts consistent
with past practice and policies to preserve intact the Company's present
business organization, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the assets of the Company, including
without limitation, the Company's goodwill and ongoing business at the Merger
Date. The Company shall promptly notify Parent and Subsidiary of any event or
occurrence involving the Company or its assets, whether or not in the ordinary
course of business of the Company, which could be expected to have a Material
Adverse Effect. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent and Subsidiary:
(a) Enter into any material commitment or transaction (with a value of
$25,000
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or more) not in the ordinary course of business including any commitment or
transaction of the type described in Section 4.6 hereof. The Company must
notify, and get approval of, Parent in writing of any commitment or
transaction with a value of $25,000 or more (except sales of inventory in
the ordinary course of business);
(b) Transfer to any person or entity any rights with respect to
Intellectual Property of the Company except in fulfillment of Contracts in
existence on the date hereof or licenses granted in the ordinary course of
business;
(c) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any material contract
or agreement set forth on Schedule 4.13(a) with a value of $25,000 or more.
The Company must notify, and get approval of, Parent in writing of any such
amendment, modification or violation of any contracts or agreements with a
value of $25,000 or more;
(d) Commence any litigation except in the ordinary course of business;
(e) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(f) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
Business;
(g) Sell, lease, license or otherwise dispose of any of the assets of
the Company, except in the ordinary course of business and consistent with
past practices;
(h) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others totaling $25,000 or more;
(i) Grant any severance or termination pay to (i) any director or
officer or (ii) any employee, except in either case payments made pursuant
to written agreements or policies outstanding on the date hereof;
(j) Other than as set forth on Schedule 6.1(j), adopt or amend any
employee benefit plan, or enter into any employment contract, pay or agree
to pay any special bonus or special remuneration to any employee other than
pursuant to existing contracts or incentive plans, or increase the salaries
or wage rates of its employees other than pursuant to such employee's
regular annual review in the ordinary course of business, which increase is
not greater than four percent (4%) of such employee's then-current salary;
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(k) Other than as set forth on Schedule 6.1(k), pay, discharge or
satisfy any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of liabilities reflected on the Company's financial statements
delivered to Parent and Subsidiary in accordance with Section 7.4 or in the
ordinary course of business;
(l) Enter into any material strategic alliance or joint marketing or
joint venture agreement in connection with the Business; or
(m) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.1(a) through 6.1(l) above.
6.2 No Solicitation. Until the earlier of the Merger Date or December 31,
1998, the Company and Amari will not (and the Company will not permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent, Subsidiary or their designees: (a) solicit, conduct discussions
with or engage in negotiations with any person, relating to the possible
acquisition of the Company or any of its assets (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of the capital stock or assets of the Company; (b) enter into an
agreement with any Person, other than Parent or Subsidiary, providing for the
acquisition of the Company or any its assets (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any material portion of
capital stock or assets; or (c) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company or any of
its assets (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its capital stock or assets by
any Person, other than by Parent or Subsidiary. In addition to the foregoing, if
the Company receives prior to the earlier of the Merger Date or December 31,
1998 any offer or proposal relating to any of the above, the Company shall
immediately notify Parent and Subsidiary thereof, including information as to
the identity of the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent or Subsidiary may reasonably request. Nothing herein
shall prohibit the Company from selling any inventory of the Recordings in the
usual, regular and ordinary course of business.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger, including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring
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such fees and expenses; provided, however, in the event the Merger becomes
effective, the Subsidiary shall pay all reasonable legal and accounting fees and
expenses of the Company and Amari incurred in connection with the transactions
contemplated hereunder (and such liabilities shall be included in the Accrued
Liabilities and, therefore shall be reflected as a liability in respect of the
Net Liability Value formula).
7.2 Consents. Amari shall obtain such consents, waivers and approvals under
the Contracts as may be requested by Parent or Subsidiary with the Merger (all
of such consents, waivers and approvals are set forth in the Company's
Schedules) so as to preserve all rights of, and benefits to, the Company and its
assets. Each party hereto will use its commercially reasonable efforts to obtain
all authorizations, consents, orders and approvals of all federal, state, and
other regulatory bodies and officials that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement and will cooperate fully with the other parties hereto in
promptly seeking to obtain all such authorizations, consents, orders and
approvals.
7.3 Notification of Certain Matters. The Company and Amari shall give
prompt notice to Parent and Subsidiary, and Parent and Subsidiary shall give
prompt notice to the Company and Amari, of (i) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company and Amari or Parent and Subsidiary,
respectively, contained in this Agreement to be untrue or inaccurate at or prior
to the Merger Date and (ii) any failure of the Company and Amari or Parent and
Subsidiary, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.3
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
7.4 The Company's Financial Statements. The Company shall deliver to Parent
and Subsidiary at or prior to the Merger Date audited financial statements for
the Company's fiscal years ending December 31, 1996 and December 31, 1997 and
financial statements for such additional periods in 1998 as may be available by
the Merger Date prepared in accordance with GAAP and with such detail and
supporting documentation to enable Parent's accountants to audit such interim
financial statements and provide Parent with an opinion acceptable to Parent.
7.5 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such instruments and
do and perform such acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
7.6 Tax Clearance Certificate. The parties agree to cooperate to obtain
state or local tax clearance certificates relating to sales taxes, employment or
employee withholding taxes and bulk sales.
7.7 Supplements to Exhibits. The Company and Amari shall deliver to Parent
and
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Subsidiary, as soon as reasonably possible after they become aware thereof, but
not later than at the Merger Date, supplemental schedules (the "Supplemental
Schedules") updating, amending and supplementing the information required to be
set forth in the Company's Schedules, so that such Schedules supplemented by the
Supplemental Schedules will be true and correct as of the Merger Date as if then
made.
7.8 Books and Records. Subsequent to the Merger Date, Subsidiary shall
afford to Amari and his authorized representatives reasonable access to all of
the books and records of the Company as such books and records existed prior to
the Merger Date, including but not limited to, financial statements, ledgers,
work papers and minute books, and shall permit Amari to make extracts and copies
therefrom to enable Amari to prepare tax returns. Subsidiary agrees that for a
period of ten (10) years following the Merger Date none of such books and
records shall be destroyed without the prior written approval of Amari.
7.9 Related Party Indebtedness. The Company shall have the right to
eliminate all indebtedness owed to the Company from parties related to Amari or
the Company as set forth on Schedule 7.9 ("Related Party Indebtedness") and
treat the same as compensation or other payments to Amari from the Company.
7.10 Collection of Accounts Receivable. On or prior to the Merger Date,
Parent and Subsidiary shall deliver to the Company and Amari a list of all
Accounts Receivable of the Company, which do not meet the definition of
Collectible Accounts Receivable but which Parent and Subsidiary elect (in their
sole discretion) to include as Collectible Accounts Receivable. Set forth on
Schedule 7.10 hereto is a list of all Collectible Accounts Receivable, including
all of the Accounts Receivable which Parent and Subsidiary elected to include as
Collectible Accounts Receivable in accordance with this Section 7.10 (and which
will be treated as Collectible Accounts Receivable in calculating Net Liability
Value pursuant to Section 2.4(c)). The parties hereto agree that the account
receivable of $93,033 due from the OTR Series Joint Venture shall be deemed not
to be a Collectible Accounts Receivable for purposes of this Agreement. For a
period of 180 days after the Merger Date, Subsidiary shall act as Amari's agent
for purposes of collecting monies from any Accounts Receivable which are not, or
which are not deemed to be, Collectible Accounts Receivable and ninety-five
percent (95%) of the amounts collected by Subsidiary shall be paid to Amari
(accounted for monthly) as additional Merger Consideration and the remaining
five (5%) percent shall be retained by Subsidiary as a collection fee. The
payments to Amari pursuant to this Section 7.10 shall be accompanied by a report
setting forth the account debtor and the amounts received. Subsidiary shall be
under no obligation to pursue collection of such Accounts Receivable. If any
such Accounts Receivable remain uncollected more than 180 days after the Merger
Date, Subsidiary shall transfer such remaining Accounts Receivable to Amari and
he may pursue the collection thereof at his sole cost and expense.
7.11 Due Diligence. Prior to the Merger Date, Parent and Subsidiary shall
forward all information about Target Companies reasonably requested by Amari,
subject to the terms of any confidentiality agreements between Parent or
Subsidiary and such parties.
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7.12 Post-Merger Operations. Other than with respect to the Excluded
Liabilities, Subsidiary and Parent shall be responsible for all liabilities and
obligations arising or accruing after the Merger Date with respect to the
ownership and operation of the Business (without in any way limiting the
indemnification rights of Parent and Subsidiary provided herein). Amari shall be
released from all personal guaranties pertaining to any obligation of the
Company that is disclosed on (a) the Schedules attached hereto, (b) the
financial statements delivered pursuant to Section 7.4, or (c) the Pre-Merger
Balance Sheet (unless and to the extent such guaranties pertain to an Excluded
Liability).
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Merger Date of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger
illegal.
(b) Litigation. There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against the Company, Amari or
the properties of the Company or any of its officers or directors, arising
out of, or in any way connected with, the Merger or the other transactions
contemplated by the terms of this Agreement or the Agreement of Merger.
8.2 Additional Conditions to the Obligations of the Company and Amari. In
addition to the deliveries contemplated by Section 3.3, the obligations of the
Company and Amari to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction on or prior to the
Merger Date of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations and
warranties of Parent and Subsidiary in this Agreement shall be true and
correct in all respects on and as of the Merger Date, and each of Parent
and Subsidiary shall have performed and complied in all material respects
with all covenants and obligations of this Agreement required to be
performed and complied with by it as of the Merger Date.
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(b) Certificate of Parent. The Company shall have been provided with a
certificate from Parent executed on its behalf by an authorized officer of
Parent to the effect that, as of the Merger Date:
(i) all representations and warranties made by Parent in this
Agreement are true and correct in all respects; and
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in
all material respects.
(c) Certificate of Subsidiary. The Company shall have been provided
with a certificate from Subsidiary executed on its behalf by an authorized
officer of Subsidiary to the effect that, as of the Merger Date:
(i) all representations and warranties made by Subsidiary in this
Agreement are true and correct in all respects; and
(ii) all covenants and obligations of this Agreement to be
performed by Subsidiary on or before such date have been so performed
in all material respects.
(d) Claims. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business,
assets (including intangible assets), financial condition or results of
operations of Parent and its subsidiaries (including Subsidiary), taken as
a whole.
(e) Escrow Agreement. Amari shall have received the Escrow Agreement
in the form of Exhibit E signed by Parent, Subsidiary and Escrow Agent.
(f) Put Agreement. Amari shall have received the Put Agreement in the
form of Exhibit C signed by Parent.
(g) Registration Rights Agreement. Amari shall have received the
Registration Rights Agreement in the form of Exhibit B signed by Parent.
(h) Amari Employment Agreement. Amari shall have received an
employment agreement between Amari and Subsidiary in the form of Exhibit F
signed by Subsidiary and guaranteed by Parent (the "Amari Employment
Agreement").
(i) Option Agreements. Amari shall have received the Option Agreements
to which he is a party in the form of Exhibit D-1 and Exhibit D-2 signed by
Parent and the other Equity Recipients shall have each received an Option
Agreement in the form of Exhibit D-3. signed by Parent.
(j) Security Agreement. Amari shall have received a security agreement
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pursuant to which Parent's obligations under the Put Agreement are secured
in the form of Exhibit G.
(k) Assignment and Assumption Agreement. Amari shall have received the
Assignment and Assumption Agreement in the form of Exhibit A signed by
Parent and Buyer.
(l) Lease. Amari shall have received a copy of a lease for the
premises currently used by the Company at 974 Estes Court, Schaumburg,
Illinois in the form of Exhibit H (the "Lease") signed by Subsidiary.
(m) Legal Opinion. The Company and Amari shall have received a legal
opinion from Frankfurt, Garbus, Klein & Selz, P.C., legal counsel to Parent
and Subsidiary substantially in the form of Exhibit I.
(n) Other Acquisitions. Parent, Subsidiary and/or Acquisition Corp.
shall simultaneously with the Merger consummate the purchase from Amari of
all of the Assets of Buffalo Productions, Inc. and Amari's interest in the
Joint Venture.
8.3 Additional Conditions to the Obligations of Parent and Subsidiary. The
obligations of Parent and Subsidiary to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction on or
prior to the Merger Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent and Subsidiary:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Company and Amari in this Agreement (including, without
limitation, in the Supplemental Schedules) shall be true and correct in all
respects on and as of the Merger Date as though such representations and
warranties were made on and as of such time and the Company and Amari shall
have performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by
the Company and Amari as of the Merger Date. The Supplemental Schedules
shall not disclose any matter which may have a Material Adverse Effect on
the Business.
(b) Certificate of the Company. Parent and Subsidiary shall have been
provided with a certificate executed by the Company to the effect that, as
of the Merger Date:
(i) all representations and warranties made by the Company in
this Agreement are true and correct in all respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed
in all material respects.
(c) Certificate of Amari. Parent and Subsidiary shall have been
provided
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with a certificate executed by Amari to the effect that, as of the Merger
Date:
(i) all representations and warranties made by Amari in this
Agreement are true and correct in all respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Amari on or before such date have been so performed
in all material respects.
(d) Material Claims or Events. There shall not have occurred any
claims (whether or not asserted in litigation), or the occurrence or
discovery of any event, circumstance or condition, which may materially and
adversely affect the consummation of the transactions contemplated hereby
or may have a Material Adverse Effect.
(e) Third Party Consents. Any and all consents, waivers, and approvals
listed on Schedule 4.6 as being a condition precedent to the Merger shall
have been obtained.
(f) Legal Opinion. Subsidiary shall have received a legal opinion from
Schwartz & Freeman, legal counsel to the Company and Amari, substantially
in the form of Exhibit J.
(g) Escrow Agreement. Parent and Subsidiary shall have received the
Escrow Agreement in the form of Exhibit E signed by Amari and the Escrow
Agent.
(h) Lease. Subsidiary shall have received the Lease in the form of
Exhibit H signed by Carl P. Amari as sole beneficiary under a Land Trust in
the name of West Suburban Bank, as trustee under the Trust Agreement dated
July 15, 1998 and known as 10737.
(i) Amari Employment Agreement. Parent and Subsidiary shall have
received the Amari Employment Agreement in the form of Exhibit F signed by
Amari.
(j) The Company's Financial Statements. Parent and Subsidiary shall
have received the financial statements required to be delivered to Parent
and Subsidiary pursuant to Section 7.4.
(k) Assignment and Assumption Agreement. Parent and Subsidiary shall
have received the Assignment and Assumption Agreement in the form of
Exhibit A signed by Amari.
(l) Other Acquisitions. Amari shall simultaneously with the Merger
consummate the sale to Parent, Subsidiary and/or Acquisition Corp. all of
the assets of Buffalo Productions, Inc. and Amari's interest in the Joint
Venture.
(m) Millonzi Release. Parent and Subsidiary shall have received a
release
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signed by Roy Millonzi of the pledge to Roy Millonzi of 500 treasury shares
of the Company (or Amari, alternatively, may deliver possession of the
pledged shares to Parent and subsidiary at the Closing).
ARTICLE IX
CONFIDENTIAL INFORMATION
9.1 Confidentiality. The Company and Amari agree to hold all Confidential
Material (as hereinafter defined) in strict confidence and not to, directly or
indirectly, disclose any Confidential Information to any person, firm or
corporation, without the written consent of Parent, who at the time of such
disclosure is not an employee or agent of Parent or Subsidiary. The Company and
Amari agree that all Confidential Material, together with all notes and records
related to the Business and all copies or facsimiles thereof in the possession
of the Company or Amari (whether made by the foregoing or other means) will
become the exclusive property of Subsidiary on the Merger Date. Amari shall not
in any manner use any Confidential Material of Parent and/or Subsidiary, or any
other property of Parent and/or Subsidiary, in any manner not specifically
directed by Parent or Subsidiary, as the case may be, or in any way which is
detrimental to or competitive to Parent or Subsidiary.
9.2 Confidential Material. For the purposes hereof, the term "Confidential
Material" shall mean proprietary information of Parent or Subsidiary concerning
the Business and/or the Acquired Assets including without limitation,
information concerning trade secrets, sales and financial information,
information concerning business methods, operational processes, products and
projects in development, details of contractual relationships between Subsidiary
and any third party, marketing plans or techniques, client and customer lists,
mailing lists, data, databases, software, works in progress, manuals, and price
lists, which information is acquired by Subsidiary pursuant to this Agreement.
Confidential Information does not include information which (i) was or becomes
generally available to the public other than as a result of a disclosure by the
Company, its directors, officers, employees, agents, advisors, or
representatives, or (ii) was or becomes available to the Company or Amari on a
non-confidential basis from a source other than Parent or Subsidiary
9.3 Compliance with the Law. In the event that the Company or Amari is
required, by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process, to disclose
any Confidential Material, such party shall provide Parent and Subsidiary with
prompt notice thereof so that Parent and/or Subsidiary may seek an appropriate
protective order and/or waive compliance by such party with the provisions
hereof; provided, however, that if in the absence of a protective order or the
receipt of such a waiver, such party is compelled to disclose Confidential
Material not otherwise disclosable hereunder to any legislative, judicial or
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regulatory body, agency or authority, or else be exposed to liability for
contempt, fine or penalty or to other censure, such Confidential Material may be
so disclosed, provided such disclosure is limited to the specific information
required to be disclosed.
ARTICLE X
NON-COMPETITION AGREEMENT
10.1 Covenant Not to Compete or Solicit.
(a) In consideration of the Non-Competition Payment, for other good and
valuable consideration the receipt and sufficiency of which Amari hereby
acknowledges, and as an inducement to Parent and Subsidiary to enter into this
Agreement, Amari hereby agrees with Parent and Subsidiary that for the
commencing on the Merger Date and ending on the later of (i) eighteen (18)
months following the Merger Date or (ii) eighteen (18) months from the date of
termination of Amari's employment with Subsidiary (the "Non-Compete Period")
Amari shall not, without the prior written consent of Subsidiary:
(i) directly or indirectly, engage, whether as an individual
proprietor, partner, stockholder, officer, executive, director, employee,
author, consultant, contractor, joint venturer, lender, investor,
representative or in any other capacity whatsoever (other than as a holder
of not more than one percent (1%) of the total outstanding stock of a
publicly held company), with or without pay, or assist any other Person in
engaging in any activity or line of business which is similar to, or
competitive with, the business of Subsidiary, including, without
limitation, the Business conducted by Subsidiary at any time during the
period of Amari's employment by Subsidiary or any affiliate of Subsidiary;
(ii) Amari will not directly or indirectly (1) enter into any kind of
arrangement with any person then employed by Parent or Subsidiary with a
view to terminating the employment of such person or (2) solicit, engage,
or hire any individual who is then employed or was employed by Parent or
Subsidiary during the previous six (6) month period it being understood
that Amari shall not be prohibited from soliciting, engaging or hiring
Vince Amari, Dennis Levin or Christine Vrba;
(iii) Amari will not directly or indirectly, either on his own behalf
or on behalf of any other Person:
1. attempt in any manner to persuade any customer, client,
distributor or supplier of Subsidiary to cease to do business, or to
reduce the amount of business which such customer, client, distributor
or supplier has customarily done or contemplates doing, with
Subsidiary; or
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2. solicit business of any customer, client, distributor or
supplier of Subsidiary that was a customer, client, distributor or
supplier of Subsidiary during the period of Amari's employment by
Subsidiary or any affiliate of Subsidiary or render any services of
the type usually rendered by Subsidiary for any such customer, client,
distributor or supplier of Subsidiary.
(b) The covenants contained in the preceding paragraphs shall be construed
as a series of separate covenants, one for each county, city and state of any
geographic area where any business is carried on by Parent or Subsidiary. Except
for geographic coverage, each such separate covenant shall be deemed identical
in terms to the covenant contained in the preceding paragraphs. If, in any
judicial proceeding, a court refuses to enforce any of such separate covenants
(or any part thereof), then such unenforceable covenant (or such part) shall be
eliminated from this Agreement to the extent necessary to permit the remaining
separate covenants (or portions thereof) to be enforced. In the event that the
provisions of this Section 10.1 are deemed to exceed the time, geographic or
scope limitations permitted by applicable law, then such provisions shall be
reformed to the maximum time, geographic or scope limitations, as the case may
be, permitted by applicable laws.
(c) Amari hereby acknowledges that all of Amari's covenants not to compete
or solicit contained in this Section 10.1 are a material inducement to Parent
and Subsidiary to proceed with the Merger.
10.2 Equitable Remedy. The Company and Amari agree that it would be
impossible or inadequate to measure and calculate Parent's and Subsidiary's
damages from any breach of the covenants set forth in this Article X.
Accordingly, the Company and Amari agree that if Amari breaches any provision of
this Article X, Parent and Subsidiary will have available, in addition to any
other right or remedy otherwise available, the right to obtain an injunction
from a court of competent jurisdiction restraining such breach or threatened
breach and to specific performance of any such provision of this Agreement. The
Company and Amari further agree that no bond or other security shall be required
in obtaining such equitable relief, nor will proof of actual damages be required
for such equitable relief. The Company and Amari hereby expressly consent to the
issuance of such injunction and to the ordering of such specific performance.
ARTICLE XI
SURVIVAL, INDEMNIFICATION AND INSURANCE
11.1 Survival of Representations and Warranties.
(a) All representations and warranties of the Company and Amari in this
Agreement or in any instrument delivered pursuant to this Agreement (each as
modified by the Company's Schedules and the Supplemental Schedules) shall
survive the consummation of
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the Merger for a period of two (2) years following the Merger Date (except
fraud, the environmental representation set forth in Section 4.17 and all tax
matters as to which there shall be no termination date except for the applicable
statute of limitations).
(b) All of Parent's and Subsidiary's representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger for a period of two (2) years following
the Merger Date (except fraud and all tax matters of parent and Subsidiary,
unless such tax matters relate to Amari or the Company (pre-Merger), as to which
there shall be no termination date except for applicable statute of
limitations).
11.2 Indemnification.
(a) Indemnification. Amari hereby agrees to indemnify and hold Parent and
Subsidiary (and any lenders providing financing to Parent or Subsidiary in
connection with the transactions contemplated hereby as provided in Section 12.5
below) and their respective officers, directors and affiliates harmless against
all claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses of investigation (hereinafter
individually a "Loss" and collectively "Losses"), incurred by Parent or
Subsidiary, or any of their officers, directors or affiliates directly or
indirectly as a result of (i) any inaccuracy or breach of a representation or
warranty of the Company and/or Amari contained in this Agreement, (ii) any
failure by the Company and/or Amari to perform or comply with any covenant or
agreement contained in this Agreement or in any agreement entered into pursuant
to this Agreement, (iii) any liabilities resulting from noncompliance with any
bulk transfer laws pursuant to Article 6 of the Uniform Commercial Code or
otherwise, or (iv) any liability resulting from, or any failure of Amari to pay,
any Excluded Liability, including, without limitation, liabilities of the
Company assumed by Amari pursuant to the Assignment and Assumption Agreement.
Parent and Subsidiary will seek indemnification for Losses in the manner
provided in Section 11.2(b). A Loss shall be reduced by the amount of any
insurance proceeds received by Parent or Subsidiary in connection with such
Loss. Notwithstanding the foregoing, there shall be no right to indemnification
pursuant to this Section 11.2 unless and until and only to the extent that the
aggregate amount of Losses for which Parent and/or Subsidiary seeks
indemnification shall exceed $37,500 (the "Basket"); provided, that once such
aggregate Losses exceed the Basket, Amari shall be liable for the entire amount
of Losses, including the first $37,500 of Losses. In no event shall Amari's
liability for indemnification pursuant to this Section 11.2 exceed $3,250,000
(the "Loss Cap"). Notwithstanding the foregoing, there shall be no Basket or
Loss Cap on Amari's indemnification where the Losses for which such
indemnification is sought are due to (x) fraud of the Company and/or Amari, (y)
a breach of Section 4.12 or (z) any claim arising from any broadcast of the
radio programs by the Joint Venture prior to the Merger Date. Any payment with
respect to an indemnification by Amari of any Loss suffered by Parent,
Subsidiary, Acquisition Corp. or their respective officers, directors or
affiliates under (I) the Asset Purchase Agreement of even date herewith among
Parent, Acquisition Corp. and Buffalo Productions, Inc. and/or (II) the Joint
Venture Interest
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Purchase and Assignment Agreement of even date herewith among Acquisition Corp.,
Amari and the Joint Venture shall be applied against the Basket and the Loss
Cap. Parent and Subsidiary shall not have the right to seek indemnification from
Amari for breach of the representations and warranties of Amari and the Company
contained herein (except fraud, the environmental representation set forth in
Section 4.17 and all tax matters) unless such indemnification is sought within
two (2) years following the Merger Date.
(b) Notice and Payment. In the event Parent and/or Subsidiary may be
subject to any Losses for which indemnification pursuant to this Article XI may
be sought, Parent and/or Subsidiary, as applicable, shall deliver to Amari a
notice (each, an "Indemnification Notice"): (A) stating that Parent or
Subsidiary has paid or properly accrued or reasonably anticipates that it will
have to pay or accrue Losses; and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related. Within thirty (30) days
after delivery of the Indemnification Notice, Amari shall pay the amount of the
Losses not disputed by Amari set forth in the Indemnification Notice. If within
such thirty (30) day period Amari fails to agree with Parent and/or Subsidiary,
as applicable, on the amount of such Losses, then the parties shall have their
respective rights and remedies under law and in equity with respect to any
disputed amount of such Losses. Failure of Parent or Subsidiary to deliver a
timely Indemnification Notice to Amari with respect to any Loss shall not be
deemed to be a waiver of their rights hereunder, except to the extent Amari is
prejudiced by the delay.
(c) Set-off. It is understood and agreed by Amari that Parent and
Subsidiary may, but shall not be obligated to, upon written notice to Amari,
satisfy any of their respective Losses by offsetting the amount of such Losses
against the Escrow Amount in accordance with Section 2.7. It is further
understood and agreed that nothing set forth in this Section 11.2(c) shall in
any way relieve Amari of its indemnification obligations pursuant to this
Section 11 or otherwise limit such indemnification obligations.
(d) Third Party Claims. If Parent (on behalf of itself and Subsidiary)
becomes aware of a third-party claim against Parent and/or Subsidiary which
Parent believes may result in Losses, Parent shall notify Amari of such claim,
and Amari shall be entitled, at his expense, to participate in the defense of
such claim. Parent and Subsidiary, as the case may be, shall have the right in
their sole discretion to settle any such claim after consulting with Amari;
provided, however, that except with the consent of Amari, no settlement of any
such claim with third-party claimants shall be determinative of the amount of
any claim for indemnification pursuant to Sections 11.1 and 11.2.
(e) Escrow Account. To the extent the Escrow Amount is still in the Escrow
Account, payment of Losses of Parent and/or Subsidiary in accordance with the
provisions hereof shall be made from such Escrow Amount, without limiting the
obligations of Amari hereunder if the Escrow Amount has been paid out or is
insufficient to pay for such Losses.
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11.3 Indemnification by Parent and Subsidiary of Amari.
(a) Indemnity. Parent and Subsidiary agree to indemnify and hold Amari
harmless against all Losses incurred by Amari resulting from or attributable to
(i) any inaccuracy or breach of a representation or warranty of Parent or
Subsidiary contained in this Agreement; (ii) any failure by Parent or Subsidiary
to perform or to comply with any covenant or agreement contained in this
Agreement or in any agreement entered into pursuant to this Agreement; (iii) any
liability resulting from, or any failure of Parent or Subsidiary to pay, any
liability of the Company not otherwise assigned to, and assumed by, Amari
pursuant to the Assignment and Assumption Agreement; or (iv) the operation of
the Business after the Merger, except if due to the fault of the Company and/or
Amari prior to the Merger Date. Notwithstanding the foregoing, Amari shall not
be entitled to indemnification with respect to any Loss to the extent
attributable to a liability of the Company assumed by Amari pursuant to the
Assignment and Assumption Agreement, and Amari shall not have the right to seek
indemnification from Parent or Subsidiary for breach of their representations
and warranties contained herein unless such indemnification is sought within two
(2) years following the Merger Date (except fraud and all tax matters of parent
and Subsidiary, unless such tax matters relate to Amari or the Company
(pre-Merger), as to which there shall be no termination date except for
applicable statute of limitations).
(b) Procedures for Asserting Claims. In the event Amari may be subject to
any Losses for which indemnification pursuant to this Article XI may be sought,
Amari shall deliver an Indemnification Notice to Parent and Subsidiary. Failure
of Amari to deliver a timely Indemnification Notice to Parent and Subsidiary
with respect to any Loss shall not be deemed to be a waiver by Amari of his
rights hereunder, except to the extent Parent and/or Subsidiary is/are
prejudiced by such delay. Parent and/or Subsidiary shall pay the amount of the
Losses not disputed by Parent and Subsidiary set forth in the Indemnification
Notice. If within such thirty (30) day period Parent or Subsidiary fails to
agree with Amari on the amount of such Losses, then the parties shall have their
respective rights and remedies under law and in equity with respect to any
disputed amount of such Losses. If Amari becomes aware of a third party claim
against Amari which Amari believes may give rise to a claim of indemnity
pursuant to Section 11.3(a), Amari shall notify Parent and Subsidiary of such
claim and Parent and Subsidiary shall be entitled, at their expense, to
participate in the defense of such claim. Amari shall have the right in its sole
discretion to settle any such claim after consulting with Parent and Subsidiary;
provided, however, that except with the consent of Parent and Subsidiary, no
settlement of any such claim shall be determinative of the amount of any claim
for indemnification pursuant to this Section 11.3. In the event that Parent and
Subsidiary have consented to any such settlement, Amari shall not have power or
authority to object under any provision of this Section 11.3 to the
indemnification for such Losses being limited to the amount of such settlement.
11.4 Liquidated Damages. If the EBITDA for the fiscal year ending December
31, 1998 as calculated in accordance with Section 2.5 is not greater than
$600,000 as warranted by Amari in Section 4.24, the parties hereto agree that
due to the difficulty in determining
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the amount of damages suffered by Parent and Subsidiary in the event such EBITDA
level is not achieved, Amari shall immediately pay to Parent as damages $300,000
in cash. The parties acknowledge and agree that any amounts paid by Amari
pursuant to the preceding sentence shall be deemed liquidated damages and shall
not constitute a penalty. The liquidated damages to be paid hereunder, if any,
shall not be subject to or included in the calculation of either the Basket or
the Loss Cap. In the event of a breach of the representation and warranty set
forth in Section 4.24, the sole remedy of Parent and Subsidiary shall be limited
to the liquidated damages hereunder and Parent and Subsidiary shall not be
entitled to any further indemnification by Amari pursuant to Section 11.2.
ARTICLE XII
GENERAL PROVISIONS
12.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service requiring signed acknowledgment of delivery, or
mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with acknowledgment of complete transmission). If sent by registered
or certified mail, notice shall be deemed to have been received and Merger five
(5) days after mailing, if by overnight mail, one (1) day after being sent, or
upon actual receipt if sent by facsimile. All notices shall be addressed to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Subsidiary, to:
Classic Radio Holding Corp.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attention: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
and
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attention: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
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and
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
with a copy to:
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary Schonwald, Esq.
Telephone No.: (212) 826-5535
Facsimile No.: (212) 593-9175
(b) if to the Parent, to:
Audio Book Club, Inc.
20 Community Place
P.O. Box 2346
Morristown, NJ 07962-2346
Attention: Michael Herrick
Telephone No.: 973-539-1390
Facsimile No.: 973-539-0596
and
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Suite 222
P.O. Box 5010
Boca Raton, FL 33431
Attn: Norton Herrick
Telephone No.: 561-241-9880
Facsimile No.: 561-241-9887
with a copy to:
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
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New York, New York 10022
Attention: Gary Schonwald, Esq.
Telephone No.: (212) 826-5535
Facsimile No.: (212) 593-9175
(c) if to Amari, to:
Mr. Carl Amari
11 Cutters Run
South Barrington, IL 60010
Telephone No.: 847-428-9485
with copies to:
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago, IL 60611-4206
Attn: William Kummerer, Esq.
Telephone No.: 312-222-6683
Facsimile No.: 312-222-0818
12.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become Merger when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
12.4 Amendment. This Agreement may only be amended by the parties hereto by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
12.5 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Subsidiary may assign its rights and delegate its obligations
hereunder to its affiliates; provided that Parent and Subsidiary shall remain
liable for their obligations hereunder and that Parent and Subsidiary may grant
a security interest in their rights under this Agreement
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to the lenders providing financing to or on behalf of Parent or Subsidiary in
connection with the transactions contemplated hereby; provided, further, that
such security interest(s) shall not in any way restrict, limit, impair or
otherwise affect any of Amari's rights hereunder, nor shall such security
interest(s) expand or enhance any rights of Parent, Holding Corp. or Acquisition
Corp. hereunder.
12.6 Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision provided that Subsidiary shall
remain liable for its obligations hereunder.
12.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
12.8 Knowledge. Whenever used in this Agreement, the words (a) "to
Company's knowledge," or similar words, shall mean the knowledge that the
Company, its directors, officers or employees would obtain in the exercise of
reasonable diligence or after due inquiry or (b) "to Amari's knowledge" or
similar words, shall mean the knowledge of that Amari would obtain in the
exercise of reasonable diligence or after due inquiry.
12.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
12.10 Publicity. Until the business day after the Merger Date and except
for any public disclosure which Parent in good faith upon advice of counsel
believes is required by law, none of the parties shall issue any press release
or make any public statement regarding the transactions contemplated hereby,
without the prior written approval of the other party which will not be
unreasonably withheld. Parent and Amari shall issue a mutually acceptable press
release as soon as practicable after the Merger Date. Notwithstanding anything
to the contrary contained above, the parties hereto may continue such
communication with their lenders, lessors, shareholders and other particular
groups as may be legally required or necessary or appropriate and not
inconsistent with the best interests of the other parties or the consummation of
the transactions contemplated by this Agreement.
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12.11 Parent Guarantee. Parent hereby fully, completely, unconditionally
and irrevocably guarantees the full payment and performance of any and all of
Subsidiary's obligations, representations, warranties, covenants and promises to
Amari hereunder.
12.12 Attorneys' Fees. In the event of any litigation arising out of or
pertaining to this Agreement, the prevailing party in such action(s) shall be
entitled to recover from the non-prevailing party his or its reasonable
attorneys' fees, court costs and litigation expenses in connection therewith.
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IN WITNESS WHEREOF, Parent, Subsidiary, the Company and Amari have caused
this Agreement to be signed by their duly authorized respective officers all as
of the date first written above.
CLASSIC RADIO HOLDING CORP.
By: /s/ Norton Herrick
------------------------------
Name: Norton Herrick
Title: Co-CEO
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
------------------------------
Name: Norton Herrick
Title: Co-CEO
RADIO SPIRITS, INC.
By: /s/ Carl Amari
------------------------------
Name: Carl Amari
Title: CEO/Pres.
/s/ Carl Amari
-----------------------------------
CARL AMARI
Exhibit 2.2
LIST OF OMITTED SCHEDULES/EXHIBITS
TO SUPPLEMENTAL AGREEMENT
The list below identifies schedules and exhibits annexed to the
Supplemental Agreement but omitted from this filing. In accordance with Item 601
of Regulation S-B, copies of any such schedule or exhibit will be furnished by
the Registrant to the Securities and Exchange Commission upon request.
Exhibit/Schedule Description
- ---------------- -----------
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Put Agreement
Exhibit D-1 Form of Option to be granted to Stockholder
Exhibit D-2 Form of Option to be granted to Stockholder
Post-Merger
Exhibit D-3 Form of Option to be granted to Recipients
other than the Stockholder
Exhibit E Form of Escrow Agreement
Exhibit F Form of Carl Amari Employment Agreement
Exhibit G Form of Security Agreement
Exhibit H Form of Lease of Real Property
Exhibit I Form of Legal Opinion
Exhibit J Form of Legal Opinion
Schedule A List of Radio Programs
Schedule 2.1 List of Liabilities Assumed by the Stockholder
Schedule 2.2(a) List of Recipients of Consideration of Sale
Proceeds
Schedule 3.3(a)(i) Wire Instructions for payments to Stockholder
Schedule 3.3(b) Wire Instructions for Escrow Account
Schedule 4.1 Officers and Directors of Radio Spirits and
Jurisdictions in which Business is Conducted
Schedule 4.2 List of Liens, Claims or Encumbrances on Radio
Spirits Stock Sold by the Stockholder
Schedule 4.3(b) List of Radio Spirits option or benefit plans
and other outstanding securities
Schedule 4.4 Equity Interest of Radio Spirits in Other Companies
Schedule 4.6 Noncontravention, Approvals and Consents
Required
Schedule 4.7 List of Assets and Properties of Radio Spirits
Schedule 4.8 Material Changes
Schedule 4.9 Description of Tax Audit
<PAGE>
Schedule 4.10 Restrictions on Business Activities
Schedule 4.11(a) List of Liens on Assets
Schedule 4.11(b) List of Equipment
Schedule 4.12(b) List of Trademarks, Service Marks and
Copyrights
Schedule 4.12(d) Rights of Third Parties to use Intellectual
Property Rights of Radio Spirits
Schedule 4.12(e) Exceptions to Title of Intellectual Property
Schedule 4.12(f) List of Intellectual Property Subject to
License
Schedule 4.12(i) Existing Disputes Concerning Intellectual
Property
Schedule 4.12(j) Infringements of Intellectual Property
Schedule 4.13(a) Agreements, Contracts and Commitments
Schedule 4.13(c) Non-Cancelable Contracts
Schedule 4.14 Government Consents, Licenses and Permits
Schedule 4.15 Litigation
Schedule 4.16(b) Liens on Accounts Receivable
Schedule 4.18(b) Employee Information
Schedule 4.18(d) Employee Plan Compliance
Schedule 4.18(g) Post Employment Obligations
Schedule 4.20 Insurance Policies
Schedule 4.21 Exceptions to Right to Use Corporate Name
Schedule 4.23 List of Liabilities
Schedule 4.27 List of Documents provided by Radio Spirits
Schedule 6.1(j) Exclusions from Pre-Merger Prohibitions on
Radio Spirits Compensation Matters
Schedule 6.1(k) Exclusions from Pre-Merger Prohibitions on
the Discharge of Radio Spirits Obligations
Schedule 7.9 Related Party Indebtedness
Schedule 7.10 Collectible Accounts Receivable
