UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-18034
INDENET, INC.
(formerly INDEPENDENT TELEMEDIA GROUP, INC.)
(Exact name of registrant as specified in charter)
Delaware 68-0158367
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1640 North Gower Street, Los Angeles, California 90028
(Address of principal executive office)
Registrant's telephone number, including area code:
(213) 466-6388
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
11,658,606 Shares of Common Stock, Par Value $.001 as of February
12, 1996.
INDENET, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Consolidated Balance Sheet -- December 31, 1995 and
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . .1
Consolidated Statement of Operations --Three-months
and Nine-months Ended December 31, 1995 and
1994. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Changes in Stockholders'
Equity -- Nine-months Ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statement of Cash Flows -- Nine months Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 15
PART II. OTHER INFORMATION:
Item 5. Other Information. . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 18
EXHIBIT I. Financial Statements of Channelmatic, Inc. for
the Twelve Months Ended December 31, 1995,
1994 and 1993. . . . . . . . . . . . . . . 20
EXHIBIT II. Exchange Agreement between IndeNet, Inc. and
Starcom Television Services, Inc . . . . . .
INDENET, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
December 31, March 31,
1995 1995
Current assets:
Cash and cash equivalents $ 4,117,817 $ 479,534
Restricted cash -- 688,826
Receivables
Accounts and other
receivables, net 4,111,109 3,678,553
Note receivable, current
portion 57,132 583,604
Total receivables 4,168,241 4,262,157
Inventories 1,833,522 327,108
Prepaid expenses 271,794 116,843
Total current assets 10,391,374 5,874,468
Property and equipment, less
accumulated depreciation and
amortization 8,342,315 2,762,936
Capitalized costs, net 310,793 59,655
Other long-term assets 331,827 317,124
Goodwill, net 13,256,933 8,443,401
TOTAL ASSETS $ 32,633,242 $ 17,457,584
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1995 1995
Current liabilities:
Accounts payable and accrued
expenses $ 4,107,472 $ 3,217,659
Notes payable, current portion 1,801,115 2,947,620
Total current liabilities 5,908,587 6,165,279
Notes payable to shareholders
of acquired companies 7,923,688 4,604,500
Note payable 1,709,759 1,916,758
Total liabilities 15,542,034 12,686,537
Minority interest 1,668,463
Commitments and contingencies
Stockholders' equity:
Preferred stock $.0001 par value
Authorized - 40,000,000 shares
216,667 issued and outstanding 22 --
Common stock $.001 par value
Authorized - 100,000,000 shares
Issued and outstanding -
11,127,072 and 5,404,823 11,127 5,405
Additional paid-in capital 18,020,910 6,064,463
Retained deficit (2,609,314) (1,298,821)
Total stockholders' equity 15,422,745 4,771,047
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 32,633,242 $ 17,457,584
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months Ended
December 31,
1995 1994
Revenue $ 4,930,388 $ --
Cost of sales 2,221,925 --
Gross profit 2,708,463 --
Operating expenses:
Selling, general and
administrative 2,388,415 --
Depreciation and amortization 563,126 --
Research and development 32,258 --
Corporate 409,271 325,332
Operating loss (684,607) (325,332)
Other income (expense):
Interest income 54,345 53,819
Interest expense (185,034) (16,250)
Reduction of account payable -- --
Settlement of lawsuits -- --
Miscellaneous, net 16,584 --
Net loss before income tax
expense and allocation to
minority interest (798,712) (287,763)
Income tax expense -- --
Loss before allocation to
minority interest (798,712) (287,763)
Allocation to minority interest (51,870) --
Net loss $ (746,842) $ (287,763)
Net loss per share $ (0.08) $ (0.07)
Weighted average number of
common shares outstanding 9,660,288 4,042,810
Nine months Ended
December 31,
Pro forma
1995 1994 1995
Revenue $ 13,558,661 $ -- $ 21,030,939
Cost of sales 5,848,202 -- 10,392,300
Gross profit 7,710,459 -- 10,638,639
Operating expenses:
Selling, general and
administrative 6,518,721 -- 8,621,849
Depreciation and
amortization 1,309,661 19,000 2,536,820
Research and
development 174,960 -- 265,162
Corporate 779,055 936,164 779,055
Operating loss (1,071,938) (955,164) (1,564,247)
Other income (expense):
Interest income 101,395 214,686 105,315
Interest expense (554,740) (48,922) (1,020,915)
Reduction of account
payable -- 211,727 --
Settlement of lawsuits 145,000 102,280 145,000
Miscellaneous, net 54,904 32,723 5,693
Net loss before income
tax expense and
allocation to minority
interest (1,325,379) (442,670) (2,329,154)
Income tax expense 2,484 -- (8,869)
Loss before allocation to
minority interest (1,327,863) (442,670) (2,320,285)
Allocation to minority
interest (51,870) -- (58,094)
Net loss $ (1,275,993) $ (442,670) $(2,262,191)
Net loss per share $ (0.17) $ (0.11) $ (0.27)
Weighted average number
of common shares
outstanding 7,612,723 3,967,531 8,538,417
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months Ended December 31, 1995
(Unaudited)
Preferred Stock
Number of Preferred
Shares Stock
Balance at April 1, 1995 -- $ --
Exercise of warrants and
options -- --
Conversion of debt to
preferred stock 166,667 17
Conversion of debt to common
stock -- --
Sale of preferred stock 50,000 5
Purchase of Channelmatic, Inc.
Buy-back of common stock from
officers
Preferred dividends
Net loss
Balance at December 31, 1995 216,667 $ 22
Common Stock
Number of Common
Shares Stock
Balance at April 1, 1995 5,404,823 $ 5,405
Exercise of warrants and
options 3,464,471 3,464
Conversion of debt to
preferred stock
Conversion of debt to common
stock 750,000 750
Sale of preferred stock
Purchase of Channelmatic, Inc. 1,530,000 1,530
Buy-back of common stock from
officers (22,222) (22)
Preferred dividends
Net loss
Balance at December 31, 1995 11,127,072 $ 11,127
Additional
Paid-in Retained
Capital Deficit Total
Balance at April 1, 1995 $ 6,064,463 $ (1,298,821) $ 4,771,047
Exercise of warrants and
options 4,848,727 4,852,191
Conversion of debt to
preferred stock 499,983 500,000
Conversion of debt to
common stock 2,249,250 2,250,000
Sale of preferred stock 145,395 145,400
Purchase of
Channelmatic, Inc. 4,313,070 4,314,600
Buy-back of common stock
from officers (99,978) (100,000)
Preferred dividends (34,500) (34,500)
Net loss (1,275,993) (1,275,993)
Balance at
December 31, 1995 $ 18,020,910 $ (2,609,314) $ 15,422,745
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine months Ended December 31,
1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,275,993) $ (442,670)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Depreciation and
amortization 1,309,661 19,000
Provision for losses on
accounts receivable (43,812) 77,200
Allocation of loss to minority
interest (51,870) --
Interest accrued on note
receivable -- 14,361
Issuance of common stock for
services and settlement -- (371,299)
Decrease/Increase in operating
assets and liabilities:
Restricted cash 688,826 127,790
Accounts receivable 368,256 185,256
Inventories 24,586 --
Prepaid expenses (79,951) (41,500)
Capitalized costs 13,862 --
Other assets (4,703) --
Accounts payable and accrued
expenses (341,335) 222,901
NET CASH PROVIDED BY (USED IN)
OPERATIONS 607,527 (208,961)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (986,991) --
Cash of acquired entity
Channelmatic 270,000 --
Investment in marketable
securities -- 1,952,283
Collection of note receivable 526,472 1,005,204
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (190,519) 2,957,487
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of notes payable (886,816) (50,000)
Cash paid to acquired entity
Channelmatic (755,000) --
Proceeds from exercise of
warrants and options 4,852,191 125,000
Purchase of Class A warrants -- (77,920)
Proceeds from sale of preferred
stock 145,400 --
Purchase and cancellation of
treasury stock (100,000) (388)
Dividends on preferred stock (34,500) --
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,221,275 (3,308)
INCREASE IN CASH AND CASH
EQUIVALENTS 3,638,283 2,745,218
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 479,534 505,336
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 4,117,817 $ 3,250,554
See accompanying notes to consolidated financial statements
INDENET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 312,737 $ 48,750
Supplemental Disclosure of Noncash Investing and Financing
Activities
Effective June 30, 1995, a shareholder converted $2,250,000 of a
note payable to 750,000 shares of common stock at $3.00 per
share.
Effective June 30, 1995, the holder of a $500,000 note payable
converted the debt to 166,667 shares of Series B Convertible
Preferred Stock. The preferred stock was valued at $3.00 per
share.
Effective November 27, 1995, in conjunction with an Asset
Purchase and Contribution Agreement with Channelmatic, the
Company received assets of approximately $5,823,000 and assumed
liabilities of approximately $1,161,000 in exchange for
1,530,000 shares of the Company's common stock valued at $2.82
per share and a note payable of $5,602,500.
See accompanying notes to consolidated financial statements
INDENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the unaudited
consolidated financial statements contain all
adjustments, consisting solely of adjustments of a
normal recurring nature, necessary to present fairly
the financial position, results of operations and cash
flows for the periods presented. These unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not contain all the
information and footnotes required in a complete set of
financial statements. These statements should be read
in conjunction with the Company's consolidated
financial statements and footnotes thereto as of
December 31, 1994 included in the Company's Annual
Report on Form 10-KSB/A-2. Also included in this
Annual Report are pro-forma financial statements of the
Company and Mediatech, Inc. ("Mediatech") for the years
ended December 31, 1994 and 1993. The results of
operations for the three- and nine-month periods ended
December 31, 1995 are not necessarily indicative of the
results for the year ending March 31, 1996.
Included in this interim report are pro-forma financial
statements for the nine-months ended December 31, 1995
and 1994 for the Company, Mediatech and Channelmatic,
Inc. ("Channelmatic") (acquired November 27, 1995). In
connection with the acquisition of Starcom Television
Services, Inc. ("Starcom") (see Note 10), pro-forma
financial statements are included for the Company,
Mediatech, Channelmatic and Starcom for the nine months
ended December 31, 1995 and for the year ended December
31, 1994.
In May 1995, the Company changed its fiscal year from a
calendar year-end to a March 31 year-end.
Furthermore, effective June 30, 1995, the Company
changed its name from Independent TeleMedia Group, Inc.
to IndeNet, Inc. and re-incorporated as a Delaware
corporation.
The accompanying consolidated financial statements
include the accounts of IndeNet, Inc., its wholly-owned
subsidiary Mediatech (since its acquisition on February
3, 1995), and its 66.67% owned subsidiary Channelmatic
(since its acquisition on November 27, 1995)
(collectively "the Company").
2. Effective November 27, 1995, the Company entered in to
an Asset Purchase and Contribution Agreement with
Channelmatic pursuant to which the Company agreed to
purchase 66.67% of the assets, business and operations
of Channelmatic. The purchase price paid by the
Company for its 66.67% interest consisted of the
following: (i) a $5,602,500 promissory note; and (ii)
1,530,000 restricted shares of the Company's Common
Stock. The restricted common stock was valued at $2.82
per share (which price represents 70% of the average
quoted price of the Company's common stock at the time
of acquisition), which management believes was its fair
value. In addition, the Company agreed to contribute
$3,000,000 to the capital of Channelmatic, which amount
is payable over an 18-month period with interest at an
8% annual rate. On November 27, 1995, the Company made
a $755,000 payment on this note. The Company also has
obtained a five-year option to purchase some or all of
the remaining 33.33% interest in Channelmatic for a
purchase price of up to $6,000,000 on a pro rata basis.
The $5,602,500 promissory note bears interest at a rate
of 8% per annum. A $2,000,000 principal payment was
made on January 5, 1996. Commencing in July 1996, the
Company will make monthly payments of principal and
interest equal to $70,613. Based on the foregoing
payment schedule, the entire promissory note will be
paid in full within 72 months after the closing date of
the acquisition. The Company's obligations under the
promissory note are secured by a lien on the Company's
66.67% common stock interest in Channelmatic, a blanket
lien on substantially all of Channelmatic s assets, and
by a guaranty of Channelmatic.
3. During the nine-months ended December 31, 1995, warrant
and option holders exercised warrants and options to
purchase 3,185,651 shares of the Company's common
stock. The warrants and options were exercised for
between $1.25 and $2.50 per share. The Company
received gross proceeds of $5,095,186. Legal,
professional and solicitation fees of approximately
$243,000 were incurred in connection with the
transactions.
4. Effective June 30, 1995, the holder of the $500,000
note payable converted the debt to 166,667 shares of
Series B Convertible Preferred Stock. The preferred
stock was valued at $3.00 per share and provides for a
12% annual dividend, payable monthly for a period of up
to five (5) years. Commencing July 1, 1997, the
preferred stock is convertible into the Company's
common stock for $3.00 per common share (i.e., one
preferred share for one common share) or market,
whichever is less. Also during the nine-months ended
December 31, 1995, the holder purchased an additional
50,000 shares of Series B Convertible Preferred Stock,
valued at $3.00 per share. This issuance of Preferred
Stock has the same terms as described above. Net
proceeds to the Company, after legal and professional
expenses, was $145,400.
Effective June 30, 1995, a former shareholder of
Mediatech converted $2,250,000 of a note payable to
750,000 shares of common stock at $3.00 per share. The
shareholder has agreed to lockup the shares until
July 1, 1996; at which time the Company has agreed to
demand registration rights.
5. As of June 30, 1995, the Company, as a result of
obtaining appraisals, re-valued certain of the property
and equipment acquired from the Mediatech acquisition,
which occurred in February, 1995. The result of the
re-valuation was to increase property and equipment and
reduce goodwill by $4,418,000.
6. During the nine-months ended December 31, 1995, the
Company settled a lawsuit with one of its former
tenants. The result of the settlement was a net gain
to the Company of $145,000.
7. The Company leases office, production and warehousing
facilities in its Chicago location from real estate
partnerships in which a former shareholder of Mediatech
has a controlling interest. Total rent expense paid to
these partnerships for the three- and nine-months ended
December 31,1995 was $217,078 and $652,337. The
Company also leases office space in Alpine, Calif. from
a director who was the sole shareholder of
Channelmatic. Total rent expense paid to the officer
for the three- and nine-months ended December 31, 1995
was $6,500.
8. Net loss per share is calculated by taking the net loss
after deducting the preferred dividends and dividing
the resultant amount by the average number of common
shares outstanding. Common stock equivalents, such as
stock options, warrants and convertible preferred
stock, have not been included since their effect would
not be dilutive.
9. Condensed pro-forma results of operations of the
Company, Mediatech and Channelmatic as if the purchase
occurred at the beginning of the periods is presented
below.
Pro-forma adjustments include (a) amortization of
allocated costs in connection with the purchases, (b)
reduction of salaries pursuant to employment contracts,
(c) interest expense on shareholder notes, and (d)
allocation to minority interest.
IndeNet Channelmatic Combined
Nine months Eight months Nine months
Ended Ended Ended
12/31/95 11/30/95 12/31/95
Revenue $ 13,558,661 $ 4,551,907 $ 18,110,568
Cost of sales 5,848,202 2,875,782 8,723,984
S,G&A 6,518,721 1,553,676 8,072,397
Depr./Amort. 1,309,661 222,090 1,531,751
Research and development 174,960 90,202 265,162
Corporate 779,055 -- 779,055
Misc. (expense), net (253,441) (87,499) (340,940)
Income taxes 2,484 (11,353) (8,869)
Allocation to min. int. (51,870) (51,870)
Net (loss) income (1,275,993) (265,989) (1,541,982)
Net (loss) per share $ (0.17)
Number of shares 7,612,723
Pro forma
Nine months
Pro forma Ended
Adjustments 12/31/95
Revenue $ -- $ 18,110,568
Cost of sales -- 8,723,984
S,G&A (98,667)(b) 7,973,730
Depr./Amort. 377,056(a) 1,908,807
Research and development 265,162
Corporate -- 779,055
Misc. (expense), net (298,800)(c) (639,740)
Income taxes -- (8,869)
Allocation to min. int. (6,224)(d) (58,094)
Net (loss) income (570,965) (2,112,947)
Net (loss) per share $ (0.24)
Number of shares 8,972,723
IndeNet Mediatech Channelmatic
Nine months Nine months Nine months
Ended Ended Ended
12/31/94 12/31/94 12/31/94
Revenue $ -- $ 13,553,083 $ 7,356,805
Cost of sales -- 5,708,749 3,854,997
S,G&A -- 6,485,073 1,917,772
Depr./Amort. 19,000 797,163 142,063
Research and development -- 481,157
Corporate 936,164 -- --
Misc. (expense), net 512,494 (132,680) (94,974)
Provision for income
taxes -- -- 25,482
Allocation to min. int.
Net (loss) income (442,670) 429,418 840,360
Net (loss) per share $ (0.11)
Number of shares 3,967,531
Combined Pro forma
Nine months Nine months
Ended Pro forma Ended
12/31/94 Adjustments 12/31/94
Revenue $ 20,909,888 $ -- $ 20,909,888
Cost of sales 9,563,746 -- 9,563,746
S,G&A 8,402,845 (242,250)(b) 8,160,595
Depr./Amort. 958,226 1,322,394(a) 2,280,620
Research and development 481,157 481,157
Corporate 936,164 -- 936,164
Misc. (expense), net 284,840 (126,939)(c) 157,901
Provision for income
taxes 25,482 -- 25,482
Allocation to min. int. -- 243,096(d) 243,096
Net (loss) income 827,108 (1,450,179) (623,071)
Net (loss) per share $ (0.10)
Number of shares 6,397,531
10. On January 17, 1996, the Company entered into an
Exchange Agreement with Starcom and all of the
stockholders of Starcom pursuant to which the
Company has agreed to issue 1,000,000 shares of the
Company's restricted common stock for 100% of the
common stock of Starcom, subject to the completion of
certain financing. The restricted common stock was
valued for book purposes at $2.80 per share (which
price represents 70% of the average quoted price of the
Company's common stock at the time of acquisition),
which management believes was its fair value.
Management believes that the Starcom acquisition is
probable.
The number of shares issued to the Starcom shareholders
can be adjusted according to the Formula Value. The
Formula Value is based primarily on the gross profit of
Starcom business from January 1, 1996 through March 31,
1996.
Starcom is engaged in the distribution of syndicated
television programs, television commercials and
infomercial programs. Distribution is accomplished
through satellite broadcast. Starcom will provide the
Company with a West Coast base of operations to
establish a position in the program syndication market
and enhance its position in video duplication. The
digital delivery technology being developed by the
Company has direct application for the delivery of
syndicated programs as well as infomercials. The
synergies between the Company and Starcom permit
elimination of significant costs duplicated at the two
entities.
Condensed pro-forma results of operations of the
Company, Mediatech, Channelmatic and Starcom as if the
purchase occurred at the beginning of the periods is
presented herein.
INDENET, INC.
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(Unaudited)
INDE Starcom Combined
ASSETS
Cash $ 4,117,817 $ (76,748) $ 4,041,069
Accounts receivable 4,111,109 493,172 4,604,281
Inventory 1,833,522 109,420 1,942,942
Other current
(incl. prepaid) 328,926 -- 328,926
Total current assets 10,391,374 525,844 10,917,218
PP&E at cost 18,232,490 2,652,450 20,884,940
Accumulated depr./amort. (9,890,175) (548,600) (10,438,775)
PP&E, net 8,342,315 2,103,850 10,446,165
Goodwill 13,256,933 -- 13,256,933
Other long term assets 642,620 157,493 800,113
Total Assets $ 32,633,242 $ 2,787,187 $ 35,420,429
LIABILITIES
Accounts payable $ 2,566,509 $ 1,586,251 $ 4,152,760
Accrued expenses 1,540,963 534,749 2,075,712
Line of credit 1,525,115 1,147,615 2,672,730
Customer deposits -- -- --
Note payable -
current portion 276,000 -- 276,000
Total current
liabilities 5,908,587 3,268,615 9,177,202
Notes payable 1,709,759 2,394,294 4,104,053
Note payable to S/H -
Mediatech 2,321,188 -- 2,321,188
Note payable to S/H -
Channelmatic 5,602,500 -- 5,602,500
Total long term
liabilities 9,633,447 2,394,294 12,027,741
Total Liabilities 15,542,034 5,662,909 21,204,943
Minority Interest 1,668,463 -- 1,668,463
STOCKHOLDERS' EQUITY
Preferred stock 22 -- 22
Common stock 11,127 -- 11,127
Additional paid-in capital 18,020,910 768,741 18,789,651
Retained earnings (2,609,314) (3,644,463) (6,253,777)
Total Stockholders'
Equity 15,422,745 (2,875,722) 12,547,023
Total Liabilities and
Equity $ 32,633,242 $ 2,787,187 $ 35,420,429
Pro forma
Adjustments Pro forma
ASSETS
Cash $ -- $ 4,041,069
Accounts receivable -- 4,604,281
Inventory -- 1,942,942
Other current
(incl. prepaid) -- 328,926
Total current assets -- 10,917,218
PP&E at cost 2,933,750(a) 23,818,690
Accumulated depr./amort. -- (10,438,775)
PP&E, net 2,933,750 13,379,915
Goodwill 1,296,387 (a) 14,553,320
Other long term assets -- 800,113
Total Assets $ 4,230,137 $ 39,650,566
LIABILITIES
Accounts payable $ -- $ 4,152,760
Accrued expenses -- 2,075,712
Line of credit -- 2,672,730
Customer deposits -- --
Note payable -
current portion -- 276,000
Total current
liabilities -- 9,177,202
Notes payable (1,445,585) (b) 2,658,468
Note payable to S/H -
Mediatech -- 2,321,188
Note payable to S/H -
Channelmatic -- 5,602,500
Total long term
liabilities (1,445,585) 10,582,156
Total Liabilities (1,445,585) 19,759,358
Minority Interest -- 1,668,463
STOCKHOLDERS' EQUITY
Preferred stock -- 22
Common stock 1,000 (a) 12,127
Additional paid-in capital 2,799,000 (a) 20,819,910
1,445,585 (b)
(2,214,326)(a)
Retained earnings 3,644,463 (a) (2,609,314)
Total Stockholders'
Equity 5,675,722 18,222,745
Total Liabilities and
Equity $ 4,230,137 $ 39,650,566
INDENET, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
INDE Acquisitions Combined
Revenues $ 13,558,661 $ 8,186,278 $ 21,744,939
Cost of sales 5,848,202 5,075,098 10,923,300
Gross profit 7,710,459 3,111,180 10,821,639
Operating expenses:
Salaries 4,624,013 1,891,146 6,515,159
Legal and professional 230,273 62,131 292,404
Rent 811,373 212,208 1,023,581
Depreciation and
amortization 1,309,661 405,426 1,715,087
Research and development 174,960 90,202 265,162
Other general and
administrative 1,632,117 1,240,310 2,872,427
Total operating expenses 8,782,397 3,901,423 12,683,820
Operating income (1,071,938) (790,243) (1,862,181)
Miscellaneous income
(expense)
Interest expense (554,740) (333,375) (888,115)
Interest income 101,395 3,920 105,315
Other 199,904 (49,211) 150,693
Loss before taxes and
minority interest (1,325,379) (1,168,909) (2,494,288)
Income taxes 2,484 (11,353) (8,869)
Loss before minority
interest (1,327,863) (1,157,556) (2,485,419)
Minority interest in
Channelmatic (51,870) -- (51,870)
Net loss $ (1,275,993) $ (1,157,556) $(2,433,549)
Loss per share $ (0.17)
Weighted average number
of common shares
outstanding 7,612,723
Pro forma
Adjustments Pro forma
Revenues $(714,000)(c) $ 21,030,939
Cost of sales (531,000)(c),(d) 10,392,300
Gross profit (183,000) 10,638,639
Operating expenses:
Salaries (898,667)(e) 5,616,492
Legal and professional -- 292,404
Rent (126,000)(f) 897,581
Depreciation and
amortization 821,733 (h) 2,536,820
Research and development -- 265,162
Other general and
administrative (278,000)(g) 2,594,427
Total operating expenses (480,934) 12,202,886
Operating income 297,934 (1,564,247)
Miscellaneous income
(expense)
Interest expense (292,800)(i),(k) (1,020,915)
160,000 (k)
Interest income 160,000 (k) 105,315
(160,000)(k)
Other -- 150,693
Loss before taxes and
minority interest 165,134 (2,329,154)
Income taxes -- (8,869)
Loss before minority
interest 165,134 (2,320,285)
Minority interest in
Channelmatic (6,224)(j) (58,094)
Net loss $ 171,358 $ (2,262,191)
Loss per share $ (0.27)
Weighted average number
of common shares
outstanding 8,612,723
INDENET, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1994
(Unaudited)
INDE Acquisitions Combined
Sales $ -- $ 34,626,544 $ 34,626,544
Cost of sales -- 17,568,403 17,568,403
Gross Profit -- 17,058,141 17,058,141
Operating expenses:
Salaries 442,311 8,063,243 8,505,554
Legal and professional 454,802 285,382 740,184
Rent 11,423 1,458,819 1,470,242
Depreciation and
amortization 25,000 1,179,154 1,204,154
Other general and
administrative 312,546 5,118,548 5,431,094
Total operating
expenses 1,246,082 16,105,146 17,351,228
Operating (loss) income (1,246,082) 952,995 (293,087)
Miscellaneous income
(expense), net 247,292 251,522 498,814
Interest (expense) (65,000) (1,087,377) (1,152,377)
Gain from settlement of
lawsuits 102,280 -- 102,280
Gain from reduction of
account payable 211,727 -- 211,727
Net (loss) income before
income taxes and allocation
to minority interest (749,783) 117,140 (632,643)
Provision for income taxes -- 32,000 32,000
Net (loss) income before
allocation to minority
interest (749,783) 85,140 (664,643)
Allocation to minority interest -- -- --
Net (loss) income $ (749,783) $ 85,140 $ (664,643)
Net (loss) income per
share $ (0.19)
Weighted average number
of common shares
outstanding 3,936,668
Pro forma
Adjustments Pro forma
Sales $(3,178,000)(c) $ 31,448,544
Cost of sales (2,328,000)(c),(d)15,240,403
Gross Profit (850,000) 16,208,141
Operating expenses:
Salaries (1,510,311)(e) 6,995,243
Legal and professional -- 740,184
Rent (179,423)(f) 1,290,819
Depreciation and
amortization 2,345,717 (h) 3,549,871
Other general and
administrative (302,000)(g) 5,129,094
Total operating
expenses 353,983 17,705,211
Operating (loss) income (1,203,983) (1,497,070)
Miscellaneous income
(expense), net 20,601 (k) 404,470
(114,945)
Interest (expense) (205,095)(i),(k)(1,242,527)
114,945 (k)
Gain from settlement of
lawsuits -- 102,280
Gain from reduction of
account payable -- 211,727
Net (loss) income before
income taxes and allocation
to minority interest (1,388,477) (2,021,120)
Provision for income taxes -- 32,000
Net (loss) income before
allocation to minority
interest (1,388,477) (2,053,120)
Allocation to minority interest 438,222 (j) 438,222
Net (loss) income $(1,826,699) $ (2,491,342)
Net (loss) income per
share $ (0.39)
Weighted average number
of common shares
outstanding 6,366,668
(a) On January 24, 1996, the Company entered into an agreement
to acquire Starcom for 1,000,000 shares of the Company's
common stock. The common stock was valued for book purposes
at $2.80 per share. The Company will acquire net
liabilities of $1,430,137 (after conversion of notes payable
to equity) and allocate the remaining purchase price to
property and equipment - $2,933,750 and goodwill -
$1,296,387. The Company believes 20 years to be an
appropriate life for the goodwill resulting from the Starcom
acquisition.
(b) Adjustment to offset Starcom notes payable of $1,445,585 to
stockholders equity.
(c) Adjustments to reflect elimination of Starcom product lines.
(d) Adjustments to reflect application of existing lower
Mediatech inventory purchasing to Starcom inventory.
(e) Adjustments to reflect reduction in payroll of principal
officers with employment contracts and reduction of general
payroll of Starcom due to a redundancy of staff with
Mediatech. It is anticipated that the Company will combine
the Starcom operations with the existing Mediatech
operations.
(f) Adjustments to reflect non-recurring rent expense due to the
closure of the Starcom offices and Company's corporate
office.
(g) Adjustments to reflect non-recurring expenses such as
property insurance, building costs, and data processing due
to the closure of the Starcom offices.
(h) Adjustments to reflect amortization of goodwill for both
Channelmatic and Starcom over 20 years and amortization of
step-up of equipment over five years.
(i) Adjustments to reflect interest expense related to the
$5,602,500 note payable to the former Channelmatic
shareholder.
(j) Adjustments to reflect a 33.33% allocation of operations
from Channelmatic to minority shareholder.
(k) Adjustments to record and eliminate intercompany interest
income and expense.
INDENET, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The results of operations for the nine- and three-months ended
December 31, 1995 include the operations of the Company's wholly-
owned subsidiary Mediatech as a result of the acquisition of
Mediatech effective February 3, 1995 and 66.67% owned subsidiary
Channelmatic as a result of the acquisition of Channelmatic
effective November 27, 1995. Additionally, condensed pro-forma
results of operations of the Company, Mediatech, Channelmatic and
Starcom are summarized in the Notes to Consolidated Financial
Statements and discussed below.
Revenue
The increase in revenue was a result of the consolidation of
revenue of the Company's acquired subsidiaries Mediatech and
Channelmatic. All revenues in the current periods presented
resulted from the operations of Mediatech and Channelmatic.
There was no revenue for the nine- and three-months ended
December 31, 1994 since the Company had no operations during
those periods. On a pro-forma basis revenue for the periods
ended December 31, 1995 are lower than the prior period. Revenue
for Mediatech and Starcom are consistent with the prior period.
Revenue for Channelmatic, however, declined from prior periods
due to a shift from MPEG1 standard digital equipment and analog
equipment to MPEG2 standard digital equipment and the resulting
lag in the development and introduction of the new MPEG2
products. It is anticipated that Channelmatic revenue in future
periods will increase in comparison to revenue in the current
period.
Cost of Sales
Cost of sales was 43% and 45% for the nine- and three-months
ended December 31, 1995. There was no cost of sales for the
comparable periods in the prior year since there was no revenue
for those periods. On a pro-forma basis the Company experienced
a similar cost of sales percentage. It is anticipated that cost
of sales as a percentage of revenue will remain consistent in
future periods until the Company has fully deployed its Digital
Broadcast Network; at which time cost of sales should decrease.
Selling, General and Administrative
Selling, general and administrative expenses for the nine- and
three-months December 31, 1995 represent operating expense of
Mediatech and Channelmatic. There are no selling, general and
administrative expenses for the nine- and three months ended
December 31, 1994 since the Company did not have an operating
business at that time. On a pro-forma basis selling, general and
administrative expenses are consistent with the prior period. It
is anticipated that selling, general and administrative expense
in future periods will be proportionately consistent with revenue
in the future periods.
Depreciation and Amortization
Depreciation and amortization increased as a result of the
acquisitions of Mediatech and Channelmatic for the nine- and
three-months ended December 31, 1995. It is anticipated that
depreciation and amortization will increase further in future
periods as a result of the reallocation of Goodwill to Property,
Plant and Equipment as discussed in Footnote 5 to the
Consolidated Financial Statements and a full period of
amortization resulting from the Channelmatic acquisition and the
Starcom acquisition.
Research and Development
Research and development expenses for the nine- and three-months
ended December 31, 1995 represent expenses related to the
development of the Company's Digital Broadcast Network and
research and development of Channelmatic products. It is
anticipated that research and development will increase in future
periods related to the development and deployment of the Digital
Broadcast Network.
Corporate
Corporate overhead represents general and administrative expenses
related to the administration of the Company, exclusive of
expenses related to Mediatech and Channelmatic. These expenses
for the nine-months ended December 31, 1995 decreased 17% in
comparison to the prior year s period primarily as the result of
resolving all outstanding litigation. The expense for the three-
months ended December 31, 1995 increased 26% primarily as a
result of increased management performance bonuses. Since the
Company has no ongoing material litigation, it is anticipated
that corporate expenses will remain consistent with the three-
month period.
Interest Income
Interest income decreased $113,297 for the nine-months ended
December 31, 1995 due to the reduction in the average cash
balance during the period. Interest income for the three months
ended December 31, 1995 increased $526 as a result a higher
average cash balance due to the exercise of the warrants and
options. It is expected that interest income will decrease as a
result of the $2,000,000 cash payment made on January 5, 1996 to
the minority shareholder of Channelmatic.
Interest Expense
Interest Expense increased $505,818 and $168,784 for the nine-
and three-months ended December 31, 1995 primarily as a result of
increased interest expense resulting from debt related to the
acquisition of Mediatech and Channelmatic. It is anticipated
that interest expense will increase in future periods as a result
of a full period of interest expense resulting from the
Channelmatic acquisition.
Miscellaneous, net
Miscellaneous, net increased $22,181 and $16,584 for the nine-
and three-months ended December 31, 1995 primarily as the result
of increased investment income and decrease in miscellaneous
expenses.
Income Taxes Benefit
As all available loss carrybacks were utilized in 1993, there is
no carryback provided for in the current periods. The Company
has net operating loss carryforwards. The Company has not
recorded a deferred tax asset for its current net operating loss
as the Company cannot conclude that it is more likely than not
the deferred tax asset would be realized.
Minority Interest
The allocation of net loss to minority interest for the periods
presented represents the 33.33% minority interest in
Channelmatic. The minority shareholder is the former sole
shareholder of Channelmatic and current director of the Company.
Net Loss
Net loss for the nine- and three-months ended December 31, 1995
increased $833,323 and $459,079 from prior year s periods
primarily as a result of the items discussed above as well as
consolidation of the results of the operations of Mediatech and
Channelmatic with the Company for the current periods. It is
anticipated that the results of operations will be impacted by
increased expenses related to deployment of the Company's Digital
Broadcast Network.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-months ended December 31, 1995, cash and cash
equivalents increased $3,638,283 primarily as a result of the
exercise of warrants and stock options, the sale of preferred
stock, the conversion of restricted cash to cash and cash
equivalents, and the collection of the note receivable. Working
capital increased $4,773,598 for the nine-months ended December
31, 1995 compared to prior year s periods primarily as the result
of the above factors.
Long term debt was reduced by $2,250,000 as the result of
conversion of a note payable to shareholder of the acquired
company to common stock and increased $5,602,500 as a result of
the debt incurred for the acquisition of Channelmatic.
The Company anticipates that its current liquidity will fund
operations at the current level without reliance on additional
outside sources of financing. As a result of the purchase of
Mediatech and the acquisition of Channelmatic, the Company
anticipates that up to $8,000,000 will need to be raised to fund
the anticipated deployment of a Digital Broadcast Network
throughout the country to broadcast television stations.
INDENET, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None material.
Item 5. Other Information
On January 17, 1996, the Company entered into an Exchange
Agreement with Starcom and all of the stockholders of Starcom
pursuant to which the Company has agreed to issue 1,000,000
shares of the Company's restricted common stock for 100% of the
common stock of Starcom. The restricted common stock for book
purposes was valued at $2.80 per share (which price represents
70% of the average quoted price of the Company's common stock at
the time of acquisition), which management believes was its fair
value.
The number of shares issued to the Starcom shareholders can be
adjusted according to the Formula Value. The Formula Value is
based primarily on the gross profit of Starcom business from
January 1, 1996 through March 31, 1996.
Starcom is engaged in the distribution of syndicated television
programs, television commercials and infomercial programs.
Distribution is accomplished through satellite broadcast.
Starcom will provide the Company with a West Coast base of
operations to establish a position in the program syndication
market and enhance its position in video duplication. The
digital delivery technology being developed by the Company has
direct application for the delivery of syndicated programs as
well as infomercials. The synergies between the Company and
Starcom permit elimination of significant costs duplicated at the
two entities.
Item 6. Exhibits and Reports on Form 8-K
a1. The required audited and interim financial statements with
respect to the Channelmatic acquisition are included in this Form
10-Q as Exhibit I. The required pro-forma financial statements
of Channelmatic are included on pages 9-12.
a2. Included as Exhibit II to this document is the Starcom
Exchange Agreement.
b1. A Form 8-K was filed for the event reported October 11,
1995 related to the entering into an Asset Purchase Agreement
with Channelmatic.
b2. A Form 8-K was filed for the event reported November 27,
1995 related to the acquisition of Channelmatic
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned hereunto duly authorized.
INDENET, INC.
(Registrant)
Date: February 12, 1996 By: /s/ Lewis K. Eisaguirre
(Lewis K. Eisaguirre)
Chief Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 4,117,817
<SECURITIES> 0
<RECEIVABLES> 4,111,109
<ALLOWANCES> 125,000
<INVENTORY> 1,833,522
<CURRENT-ASSETS> 10,391,374
<PP&E> 18,232,490
<DEPRECIATION> 9,890,175
<TOTAL-ASSETS> 32,633,242
<CURRENT-LIABILITIES> 5,908,587
<BONDS> 0
<COMMON> 11,127
0
22
<OTHER-SE> 15,411,596
<TOTAL-LIABILITY-AND-EQUITY> 32,633,242
<SALES> 13,558,661
<TOTAL-REVENUES> 13,558,661
<CGS> 5,848,202
<TOTAL-COSTS> 5,848,202
<OTHER-EXPENSES> 7,472,736
<LOSS-PROVISION> (43,812)
<INTEREST-EXPENSE> 554,740
<INCOME-PRETAX> (1,325,379)
<INCOME-TAX> 2,484
<INCOME-CONTINUING> (1,327,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,275,993)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
CHANNELMATIC, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITOR'S REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Channelmatic, Inc.:
We have audited the accompanying balance sheets of CHANNELMATIC,
INC. (a California corporation) as of December 31, 1994 and 1993,
and the related statements of income and retained earnings and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Channelmatic, Inc. as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Diego, California
February 9, 1995
CHANNELMATIC, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
1994 1993
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 112,000 $ 105,000
Trade receivables (net of allowance of
$50,000 and $54,000, respectively) 1,675,000 772,000
Inventory 1,768,000 1,103,000
Prepaids and other 87,000 54,000
---------- ----------
Total current assets 3,642,000 2,034,000
PROPERTY, PLANT AND EQUIPMENT, net 730,000 404,000
---------- ----------
$4,372,000 $2,438,000
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 909,000 $ 602,000
Accrued expenses 719,000 271,000
Line of credit 600,000 -
Customer deposits 15,000 118,000
---------- ----------
Total current liabilities 2,243,000 991,000
---------- ----------
SHAREHOLDER'S EQUITY
Common stock, 1,000 shares authorized,
270 shares issued and outstanding,
stated at 27,000 27,000
Retained earnings 2,102,000 1,420,000
---------- ----------
Total shareholder's equity 2,129,000 1,447,000
---------- ----------
$4,372,000 $2,438,000
========== ==========
The accompanying notes are an integral part of these
balance sheets.
CHANNELMATIC, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
SALES $9,401,000 $5,532,000
COST OF SALES 5,270,000 2,927,000
---------- ----------
4,131,000 2,605,000
OPERATING EXPENSES:
Selling, general and administrative 2,360,000 1,790,000
Research and development 670,000 370,000
---------- ----------
INCOME FROM OPERATIONS 1,101,000 445,000
INTEREST EXPENSE, net 36,000 8,000
---------- ----------
Income before provision for
income taxes 1,065,000 437,000
PROVISION FOR INCOME TAXES 32,000 12,000
---------- ----------
Net income 1,033,000 425,000
RETAINED EARNINGS, beginning of year 1,420,000 1,255,000
LESS--Shareholder distributions (351,000) (260,000)
----------- ----------
RETAINED EARNINGS, end of year $2,102,000 $1,420,000
=========== ==========
The accompanying notes are an integral part of these
statements.
CHANNELMATIC, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,033,000 $425,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 177,000 118,000
Changes in assets and liabilities:
Trade receivables (903,000) (478,000)
Prepaids and other assets (33,000) 1,000
Inventory (665,000) (264,000)
Trade accounts payable 307,000 395,000
Accrued expenses and other 448,000 18,000
Customer deposits (103,000) 83,000
---------- ---------
Net cash provided by operating
activities 261,000 298,000
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of property, plant and
equipment (503,000) (148,000)
---------- ---------
Net cash used in investing
activities (503,000) (148,000)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 600,000 -
Cash distributions to shareholder (351,000) (260,000)
---------- ---------
Net cash provided by (used in)
financing activities 249,000 (260,000)
---------- ---------
NET INCREASE (DECREASE) IN CASH 7,000 (110,000)
CASH AND CASH EQUIVALENTS,
beginning of year 105,000 215,000
---------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 112,000 $105,000
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the year $ 33,000 $ 9,000
Income taxes paid during the year 5,800 5,900
The accompanying notes are an integral part of these
statements.
CHANNELMATIC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1. Summary of Significant Accounting Policies
Business
Channelmatic, Inc. (the "Company") designs, manufactures,
sells and services analog and digital television
automation systems. The systems are used to play
television programs and commercials on cable and broadcast
television, as well as full service telecommunication
networks.
Revenue Recognition
The Company recognizes revenues when shipments are made to
customers and no significant obligations remain. Payments
received or billed in advance of shipment are deferred and
recognized in the period the shipment is made.
Maintenance and customer support revenue is deferred and
recognized ratably as revenue over the term of the
agreement (usually twelve months).
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with a maturity of three months or less to be
cash equivalents. Cash equivalents consist of savings
accounts and certificates of deposit.
Inventories
Inventories are stated at the lower of cost (first in,
first out) or market and include material, labor and
overhead.
Property, Plant and Equipment
Property and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the
estimated useful lives of the assets ranging from three to
five years. Leasehold improvements are depreciated using
the straight-line method over the shorter of the lease
term or the estimated useful lives of the improvements.
Reclassifications
Certain reclassifications have been made to prior year
balances to conform to current year presentation.
2. Inventories
Inventories at December 31, are summarized as follows:
1994 1993
Raw materials $ 879,000 $ 398,000
Work in process 434,000 157,000
Finished goods 455,000 548,000
---------- ----------
$1,768,000 $1,103,000
========== ==========
3. Property, Plant and Equipment
Property, plant and equipment as of December 31, consist of the
following:
1994 1993
Land and land improvements $ 110,000 $ 110,000
Automobiles 44,000 75,000
Furniture and fixtures 62,000 61,000
Leasehold improvements 138,000 138,000
Machinery and equipment 1,496,000 995,000
---------- ----------
1,850,000 1,379,000
Less--Accumulated depreciation
and amortization (1,120,000) (975,000)
---------- ----------
$ 730,000 $ 404,000
========== ==========
All significant additions and betterments are capitalized.
Repairs and maintenance are expensed as incurred. When property
is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain
or loss is reflected in operations.
4. Line of Credit
During the year, the Company entered into a revolving line of
credit agreement with a bank which expires on April 1, 1995. The
agreement provides for maximum borrowings of the lesser of
$1,500,000 or specified percentages of eligible accounts
receivable and inventory as defined in the agreement. At
December 31, 1994, outstanding borrowings were $600,000 with an
interest rate at prime plus one percent, (9.5 percent at December
31, 1994). The agreement requires the Company to be in
compliance with certain covenants and borrowings are secured by
inventories, receivables and equipment. The Company is currently
negotiating with the bank to renew this facility for at least a
year.
The Company had no borrowings at December 31, 1993.
5. Commitments and Contingencies
The Company leases its warehouses and office facilities (see Note
6) under noncancelable operating leases expiring in March 2000.
Total lease expense was $116,000 and $93,000 for the years ended
December 31, 1994 and 1993, respectively. The total future
minimum rental payments under the operating leases is as follows:
For the year ended December 31,
1995 $115,000
1996 115,000
1997 113,000
1998 78,000
1999 78,000
Thereafter 13,000
--------
$512,000
========
6. Related-Party Transactions
The Company leases its office facility discussed in Note 5 above
from its sole shareholder. The total related rent expense was
$78,000 for the years ended December 31, 1994 and 1993.
7. Income Taxes
The Company operates as an S Corporation for Federal and state
income tax purposes. Although the current and future taxable
income of the Company will be treated as if distributed to the
stockholders, the Company is responsible for certain minimum
state taxes. The Company's tax returns are subject to
examination by Federal and state taxing authorities. If such
examination results in a change in the Company's status as an
S-Corporation, the tax liability of the Company could be changed
accordingly.
8. Significant Customers
The Company recognized revenues of approximately $4,107,000 and
$1,965,000 in 1994 and 1993 from sales to five customers. These
customers comprised 44% and 36% of total sales in 1994 and 1993,
respectively, with one of these customers accounting for 17% and
12% of total sales. Another customer in 1994 accounted for 10%
of total sales.
CHANNELMATIC, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116,000
Trade receivables (net of allowance of
$52,000) 623,000
Note Receivable - IndeNet 2,112,000
Inventory 1,509,000
Prepaids and other 61,000
----------
Total current assets 4,421,000
PROPERTY, PLANT AND EQUIPMENT, net 694,000
CAPITALIZED R&D EXPENSE, net 290,000
----------
$5,405,000
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 200,000
Accrued expenses 486,000
Customer deposits 157,000
----------
Total current liabilities 843,000
----------
SHAREHOLDER'S EQUITY
Common stock, 1,000,000 shares authorized
and outstanding at $.0001 par value 1,000
Retained earnings (166,000)
Paid in Capital 4,727,000
----------
Total shareholder's equity 4,562,000
----------
$5,405,000
==========
The accompanying notes are an integral part of this balance sheet
CHANNELMATIC, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
SALES $7,049,000
COST OF SALES 4,658,000
----------
2,391,000
OPERATING EXPENSES:
Selling, general and administrative 2,276,000
Research and development 257,000
----------
LOSS FROM OPERATIONS (142,000)
INTEREST EXPENSE, net 85,000
----------
Loss before provision for income taxes (227,000)
BENEFIT FOR INCOME TAXES (61,000)
----------
Net loss (166,000)
RETAINED EARNINGS, beginning of year 2,102,000
RETAINED EARNINGS, Adjustments to (2,268,000)
----------
RETAINED EARNINGS, end of year $(166,000)
==========
The accompanying notes are an integral part of this statement.
CHANNELMATIC, INC.
STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (166,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 260,000
Changes in assets and liabilities:
Trade receivables 965,000
Prepaids and other assets 8,000
Inventory 259,000
Trade accounts payable (605,000)
Accrued expenses and other (228,000)
Customer deposits 142,000
----------
Net cash provided by operating activities 635,000
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of property, plant
and equipment (188,000)
Net increase in Capitalized R&D Expense (326,000)
----------
Net cash used in investing activities (514,000)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collections on Note Receivable - IndeNet 888,000
Net borrowings on line of credit (600,000)
Cash distributions to shareholder (401,000)
----------
Net cash used in financing activities (113,000)
----------
NET INCREASE IN CASH 8,000
CASH AND CASH EQUIVALENTS, beginning of year 108,000
----------
CASH AND CASH EQUIVALENTS, end of year $ 116,000
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year $ 52,000
Income taxes paid during the year 40,000
The accompanying notes are an integral part of this statement.
CHANNELMATIC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Summary of Significant Accounting Policies
Business
Channelmatic, Inc. (the "Company") designs, manufactures,
sells and services analog and digital television automation
systems. The systems are used to play television programs
and commercials on cable and broadcast television, as well
as full service telecommunication networks.
As discussed in Note 8, 66.67% of the Company was sold to
IndeNet effective November 27, 1995. To conform to
IndeNet s fiscal year-end, the Company has changed its
fiscal year-end to March 31.
Revenue Recognition
The Company recognizes revenues when shipments are made to
customers and no significant obligations remain. Payments
received or billed in advance of shipment are deferred and
recognized in the period the shipment is made. Maintenance
and customer support revenue is deferred and recognized
ratably as revenue over the term of the agreement (usually
twelve months).
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents consist of savings accounts
and certificates of deposit.
Inventories
Inventories are stated at the lower of cost (first in, first
out) or market and include material, labor and overhead.
Property, Plant and Equipment
Property and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the
estimated useful lives of the assets ranging from three to
five years. Leasehold improvements are depreciated using
the straight-line method over the shorter of the lease term
or the estimated useful lives of the improvements.
2. Inventories
Inventories at December 31, are summarized as follows:
1995
Raw materials $ 708,000
Work in process 148,000
Finished goods 653,000
----------
$1,509,000
==========
3. Property, Plant and Equipment
Property, plant and equipment as of December 31, consist of the
following:
1995
Automobiles $ 0
Furniture and fixtures 3,000
Leasehold improvements 2,000
Machinery and equipment 702,000
----------
707,000
Less--Accumulated depreciation
and amortization (14,000)
----------
$ 693,000
==========
All significant additions and betterments are capitalized.
Repairs and maintenance are expensed as incurred. When property
is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations.
4. Commitments and Contingencies
The Company leases its warehouses and office facilities (see
Note 6) under noncancelable operating leases expiring in March
2000. Total lease expense was $133,000 for the twelve months
ended December 31, 1995. The total future minimum rental
payments under the operating leases is as follows:
For the year ended December 31,
1996 128,000
1997 128,000
1998 78,000
1999 78,000
Thereafter 13,000
--------
$425,000
========
5. Related-Party Transactions
The Company leases its office facility discussed in Note 4 above
from its sole shareholder. The total related rent expense was
$77,500 for the twelve months ended December 31, 1995.
6. Income Taxes
The Company operated as an S Corporation for Federal and state
income tax purposes for the first eleven months of 1995. On
November 27, 1995 the Company changed its status to a C
Corporation. Taxable income through November 1995 was treated
as if distributed to the stockholders. Taxable income for the
month of December 1995 is the responsibility of the new C
Corporation. The Company's tax returns are subject to
examination by Federal and state taxing authorities. If such
examination results in a change in the Company's status as an S-
Corporation, the tax liability of the Company could be changed
accordingly.
7. Significant Customers
The Company recognized revenues of approximately $2,311,000 in
1995 from sales to five customers. These customers comprised
38% of total sales for the Twelve months ended December 31,
1995, with one of these customers accounting for 10% of total
sales.
8. Sale of Business
Effective November 27, 1995, the Company entered in to an Asset
Purchase and Contribution Agreement with IndeNet pursuant to
which the Company agreed to sell 66.67% of its assets, business
and operations. The purchase price paid by the IndeNet for its
66.67% interest consisted of the following: (i) a $5,602,500
promissory note payable; and (ii) 1,530,000 restricted shares of
the IndeNet s Common Stock. In addition, IndeNet agreed to
contribute $3,000,000 to the capital of the Company, which
amount is payable over an 18-month period with interest at an 8%
annual rate. On November 27, 1995, IndeNet made a $755,000
payment on this note. IndeNet also has obtained a five-year
option to purchase some or all of the remaining 33.33% interest
in the Company for a purchase price of up to $6,000,000 on a pro
rata basis.
EXCHANGE AGREEMENT
Between
INDENET, INC.,
a Delaware corporation
STARCOM TELEVISION SERVICES, INC.,
a Delaware corporation
and
THE STOCKHOLDERS
OF
STARCOM TELEVISION SERVICES, INC.,
_________________
Dated: January 17, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 EXCHANGE OF STOCK; CLOSING . . . . . . . .. . . . . . . . . .1
1.1 Exchange of Stock. . . . . . . . . . . . . . . . . . . . . . .1
1.2 Consideration. . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Repayment of Indebtedness. . . . . . . . . . . . . . . . . . .6
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.5 Delivery by the Stockholders at Closing. . . . . . . . . . . .6
1.6 Delivery by IndeNet at Closing . . . . . . . . . . . . . . . .6
1.7 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 2 REPRESENTATIONS OF STARCOM . . . . . . . . . . . . . . . . . .7
2.1 Starcom Stock. . . . . . . . . . . . . . . . . . . . . . . . .7
2.2 Existence and Good Standing. . . . . . . . . . . . . . . . . .7
2.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . .7
2.4 Subsidiaries, Affiliates and Investments . . . . . . . . . . .8
2.5 Financial Statements and No
Material Changes . . . . . . . . . . . . . . . . . . . . .8
2.6 Books and Records. . . . . . . . . . . . . . . . . . . . . . .9
2.7 Title to Properties: Encumbrances. . . . . . . . . . . . . . .9
2.8 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.9 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Valid Agreements; Restrictive Documents. . . . . . . . . . . 11
2.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Taxes Payable by Starcom . . . . . . . . . . . . . . . . . . 11
2.13 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 12
2.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.15 Intellectual Properties. . . . . . . . . . . . . . . . . . . 13
2.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 13
2.17 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.18 Supplier and Customer Relations. . . . . . . . . . . . . . . 14
2.19 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . 14
2.20 Employment Relations . . . . . . . . . . . . . . . . . . . . 14
2.21 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . 15
2.21.1 List of Plans. . . . . . . . . . . . . . . . . . . . . . . . 15
2.21.2 Status of Plans. . . . . . . . . . . . . . . . . . . . . . . 15
2.21.3 Contributions. . . . . . . . . . . . . . . . . . . . . . . . 15
2.21.4 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.22 Interests in Customers, Suppliers, Etc.. . . . . . . . . . . 16
2.23 Bank Accounts, Powers of Attorney and
Compensation of Employees. . . . . . . . . . . . . . . . . . 16
2.24 No Changes Since the Balance Sheet Date. . . . . . . . . . . 17
2.25 Required Approvals, Notices and Consents . . . . . . . . . . 17
2.26 Corporate Controls . . . . . . . . . . . . . . . . . . . . . 18
2.27 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.28 Environment. . . . . . . . . . . . . . . . . . . . . . . . . 18
2.29 Pacific Syndication Acquisition. . . . . . . . . . . . . . . 19
2.30 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.31 Representations True at Closing. . . . . . . . . . . . . . . 19
ARTICLE 3 INDIVIDUAL REPRESENTATIONS OF THE STOCKHOLDERS . . . . . . . 20
3.1 Ownership of Stock . . . . . . . . . . . . . . . . . . . . . 20
3.2 Valid Agreements; Restrictive Documents. . . . . . . . . . . 20
3.3 Investment Intent. . . . . . . . . . . . . . . . . . . . . . 21
3.4 Qualification as an Investor . . . . . . . . . . . . . . . . 21
ARTICLE 4 REPRESENTATIONS OF INDENET . . . . . . . . . . . . . . . . . 21
4.1 Existence and Good Standing. . . . . . . . . . . . . . . . . 21
4.2 IndeNet Shares . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Valid Agreements; Restrictive Documents. . . . . . . . . . . 22
4.4 Consents and Approvals of Governmental
Authorities. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . 23
4.8 Financial Statements . . . . . . . . . . . . . . . . . . . . 23
4.9 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.10 Representations True at Closing. . . . . . . . . . . . . . . 24
ARTICLE 5 CONDUCT OF BUSINESS; REVIEW. . . . . . . . . . . . . . . . . 24
5.1 Conduct of Business of Starcom . . . . . . . . . . . . . . . 24
5.2 Review of Starcom. . . . . . . . . . . . . . . . . . . . . . 26
5.3 Continued Effectiveness of Representations and
Warranties of Starcom. . . . . . . . . . . . . . . . . . . . 26
5.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . 26
5.5 Indemnification of Brokers . . . . . . . . . . . . . . . . . 26
5.6 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6 CONDITIONS TO INDENET'S OBLIGATIONS. . . . . . . . . . . . . 27
6.1 Good Standing and Tax Certificates . . . . . . . . . . . . . 28
6.2 No Material Adverse Change . . . . . . . . . . . . . . . . . 28
6.3 Truth of Representations and Warranties. . . . . . . . . . . 28
6.4 Performance of Agreements. . . . . . . . . . . . . . . . . . 28
6.5 No Litigation Threatened . . . . . . . . . . . . . . . . . . 28
6.6 Required Approvals, Notices and Consents . . . . . . . . . . 28
6.7 Governmental Approvals . . . . . . . . . . . . . . . . . . . 29
6.8 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 29
6.9 Termination of Management Agreement. . . . . . . . . . . . . 29
6.10 New Consulting Agreement . . . . . . . . . . . . . . . . . . 29
6.11 Covenant Not To Compete. . . . . . . . . . . . . . . . . . . 29
6.12 Completion of Spin-Off . . . . . . . . . . . . . . . . . . . 29
6.13 Lock-Up Agreement. . . . . . . . . . . . . . . . . . . . . . 29
6.14 Repayment of Stockholder Indebtedness. . . . . . . . . . . . 29
6.15 Exclusive Distribution Agreement . . . . . . . . . . . . . . 30
6.16 Transponder Agreement. . . . . . . . . . . . . . . . . . . . 30
6.17 Convertible Securities . . . . . . . . . . . . . . . . . . . 30
ARTICLE 7 CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS. . . . . . . . . 30
7.1 Truth of Representations and Warranties. . . . . . . . . . . 30
7.2 Performance of Agreements. . . . . . . . . . . . . . . . . . 30
7.3 No Litigation Threatened . . . . . . . . . . . . . . . . . . 30
7.4 Good Standing and Tax Certificates . . . . . . . . . . . . . 30
7.5 No Material Adverse Change . . . . . . . . . . . . . . . . . 31
7.6 Consulting Agreement . . . . . . . . . . . . . . . . . . . . 31
7.7 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Registration Rights Agreement. . . . . . . . . . . . . . . . 31
7.9 Termination of Management Agreement. . . . . . . . . . . . . 31
7.10 Governmental Approvals . . . . . . . . . . . . . . . . . . . 31
7.11 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 8 COVENANTS OF INDENET . . . . . . . . . . . . . . . . . . . . 31
8.1 Financial Statements . . . . . . . . . . . . . . . . . . . . 31
8.2 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 9 COVENANT OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . 32
9.1 Spinoff of Starcom Entertainment, Inc. . . . . . . . . . . . 32
9.2 Tax Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 10 SURVIVAL OF REPRESENTATIONS; INDEMNITY . . . . . . . . . . . 32
10.1 Survival of Representations and Warranties of
Starcom and the Stockholders . . . . . . . . . . . . . . . . 32
10.2 Obligation of the Stockholders to Indemnify. . . . . . . . . 33
10.3 Survival of Representations and Warranties of
IndeNet. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.4 Obligation of IndeNet to Indemnify . . . . . . . . . . . . . 35
10.5 Notice and Opportunity to Defend . . . . . . . . . . . . . . 35
10.5.1 Notice of Asserted Liability . . . . . . . . . . . . . . . . 35
10.5.2 Opportunity to Defend. . . . . . . . . . . . . . . . . . . . 36
10.6 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.7 Disputes with Customers or Suppliers . . . . . . . . . . . . 37
10.8 Offset; Other Rights . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 11 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 38
11.3 "Person" Defined . . . . . . . . . . . . . . . . . . . . . . 38
11.4 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 38
11.5 "Knowledge" Defined. . . . . . . . . . . . . . . . . . . . . 39
11.6 "Affiliate" Defined. . . . . . . . . . . . . . . . . . . . . 39
11.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.9 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 39
11.10 Parties in Interest. . . . . . . . . . . . . . . . . . . . . 40
11.11 Press Releases and Announcements . . . . . . . . . . . . . . 40
11.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . 40
11.13 Construction . . . . . . . . . . . . . . . . . . . . . . . . 40
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . 41
11.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 41
11.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 41
11.17 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.18 Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . 41
11.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 41
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement"), dated as of
January 17, 1996, is entered into by and among IndeNet, Inc., a
Delaware corporation ("IndeNet"), Starcom Television Services,
Inc., a Delaware corporation ("Starcom"), and the stockholders of
Starcom listed on the signature page hereof (individually, a
"Stockholder" and collectively, the "Stockholders").
RECITALS
WHEREAS, Starcom's authorized shares of capital stock
consist of 5,000 shares of common stock without par value (the
"Starcom Common Stock");
WHEREAS, the Stockholders own 1,429 shares (the "Starcom
Shares") of Starcom Common Stock, constituting all of Starcom's
outstanding shares of capital stock;
WHEREAS, the Stockholders desire to exchange all of the
Starcom Shares owned by the Stockholders solely for shares of
IndeNet's $.001 par value common stock (the "IndeNet Common
Stock") pursuant to the provisions contained herein (the
"Exchange"); and
WHEREAS, IndeNet agrees to the Exchange pursuant to the
provisions herein;
NOW, THEREFORE, in consideration of the mutual promises
herein made, and in consideration of the representations,
warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE 1
EXCHANGE OF STOCK; CLOSING
1.1 Exchange of Stock. Subject to the terms and
conditions herein stated, (i) the Stockholders agree to transfer,
convey, assign and deliver to IndeNet at the Closing (as defined
in Section 1.4 below) all of the Starcom Shares, and (ii) IndeNet
agrees to acquire and accept the Starcom Shares from the
Stockholders, and in exchange therefore, further agrees to issue
and deliver to the Stockholders shares of IndeNet Common Stock
pursuant to Section 1.2 below.
1.2 Consideration.
1.2.1 The parties hereto agree that all shares of
IndeNet Common Stock issued to the Stockholders in connection
with the Exchange shall, for the purposes of determining the
number of shares to be issued to the Stockholders, be valued at
$4.00 per share. Except as provided in Section 1.2.2 below, the
aggregate number of shares of IndeNet Common Stock to be issued
to the Stockholders pursuant to the Exchange shall be equal to
the greater of (i) 1,000,000 shares or (ii) the Formula Value
divided by $4.00. For the purposes of this Agreement, the
"Formula Value" shall mean (A) the dollar value derived by
subtracting the amount of Acceptable Liabilities from 1.14 times
the Annualized Adjusted Gross Profit less (B) the sum of $268,750
and the bonus to be paid by Starcom to Starcom Management
Services, Inc. pursuant to Section 2.2 of the Consulting
Agreement referred to in Section 6.10 below. "Acceptable
Liabilities" shall mean, as of December 31, 1995, (x) all
liabilities of Starcom (including Unpaid Taxes (as defined
below) and Estimated Penalties and Interest (as defined below))
other than the Stockholder Indebtedness (as defined below) less
(y) all of the current assets of Starcom. For the purposes of
this Agreement, "Annualized Adjusted Gross Profit" shall be
defined as four times the gross profit (revenues less Cost of
Sales, (as defined below)) of Starcom for the period commencing
on January 1, 1996 and ending on March 31, 1996 (the "Adjustment
Period"), as adjusted as follows:
(a) All revenues received from Excluded
Clients (as defined below) during the Adjustment Period
shall be subtracted from revenues, and all Cost of Sales
associated with revenues derived from Excluded Clients
during the Adjustment Period shall be subtracted from Cost
of Sales. In the event that, during the Adjustment Period,
any of Starcom's business, operations or customers are
transferred to or assumed by IndeNet or any Affiliate (as
defined in Section 11.6 below) of IndeNet (a "Transfer"),
all revenues derived from such clients during the Adjustment
Period will be deemed to be revenues of Starcom, and all
costs of sales incurred by IndeNet or any Affiliate with
respect to such transferred business, operations or
customers shall be deemed to be cost of sales of Starcom
(the "Imputed Cost of Sales"); provided, however, that: (i)
in the event that any Transfer results in the termination by
any existing client of Starcom (other than an Excluded
Client) of such client's relationship with Starcom, IndeNet
or any Affiliate of IndeNet, as the case may be, then all
revenues derived by Starcom from such client during the 90
days prior to such termination will be deemed to be revenues
of Starcom during the Adjustment Period for purposes of
calculating Annualized Adjusted Gross Profit, and (ii) in no
event shall the aggregate amount of the Imputed Cost of
Sales be greater than the amount of Cost of Sales which
would have been incurred by Starcom had no Transfers
occurred.
The consummation of the Pacific Syndication Transaction (as
defined below) shall not be taken into account in calculating the
Formula Value pursuant to this Section 1.2.1. unless the sum of
the net increase in Starcom's total liabilities and the net
decrease in Starcom's current assets as a result of the Pacific
Syndication Transaction exceeds $990,000. In the event that the
sum of the net decrease in current assets and the net increase in
total liabilities exceeds $990,000, the amount of Acceptable
Liabilities will increase by the excess over $990,000, and such
increase shall be applied retroactively to the December 31, 1995
Starcom balance sheet as if the Pacific Syndication Transaction
had been consummated on December 31, 1995. As used herein,
"Pacific Syndication Transaction" means the transaction
contemplated by that certain letter, dated December 11, 1995,
from Starcom to Ms. Karen Terpstra regarding Starcom's offer to
purchase certain assets and assume certain liabilities of Pacific
Syndication, Inc.
In the event that the transactions contemplated by the
Conversions Plus Agreement (as defined in Section 5.1(b) below)
are consummated before or during the Adjustment Period, the
revenues and Cost of Sales related to the operations of New Age,
L.P. shall be included in Starcom's revenues and Cost of Sales
for the purposes of determining Formula Value; provided, however,
that an appropriate adjustment will be made to such revenues and
Cost of Sales to reflect Starcom's proportionate interest in New
Age, L.P.
For the purposes of this Agreement, the capitalized terms
used in this Section 1.2.1 but not otherwise defined in this
Agreement shall have the following meanings:
"Unpaid Taxes" means all of Starcom's liabilities for
unpaid payroll and other taxes as of December 31, 1995;
"Estimated Penalties and Interest" means the
liabilities for uninvoiced penalties and interest estimated
to be imposed on Starcom as a result of the Unpaid Taxes;
"Cost of Sales" means all costs and expenses
ordinarily included by Starcom under Account Nos. 04000
through 04900 on its general ledger trial balance (a sample
of which is attached hereto as Schedule 1.2.1(a)); provided,
however, that all salaries, including external production
labor, of Starcom during the Adjustment Period, to the
extent such salaries are included in Account Nos. 04000
through 04900, shall not be Cost of Sales. Cost of Sales
also shall not include any amounts paid by Starcom and/or
IndeNet to Starcom Management Services, Inc. pursuant to the
Consulting Agreement referred to in Section 6.10 below;
"Excluded Clients" are clients for whom Starcom has
provided distribution services during the Adjustment Period
but who (xx) for any reason, no longer are clients of
Starcom as of March 31, 1996, (yy) have informed Starcom in
writing that they shall terminate their relationship with
Starcom during 1996, or (zz) who otherwise are not regular,
on-going customers and who are not expected to become
regular, on-going customers of Starcom; and
"Stockholder Indebtedness" shall mean all of the loans
and other obligations of Starcom to the Stockholders listed
on Schedule 1.2.1(b). However, amounts owed by Starcom to
Fifth Dimension Communications Holdings, Inc. with respect
to Starcom's use of that certain satellite transponder known
as Telstar 401/1, shall not be deemed "Stockholder
Indebtedness" hereunder.
The amount of Acceptable Liabilities and the Annualized
Adjusted Gross Profit shall be determined based on the unaudited
financial statements prepared by Starcom/IndeNet as of December
31, 1995 and for the Adjustment Period; provided, however, that
if, during the Adjustment Period, (a) Starcom is invoiced for
penalties and/or interest with respect to the Unpaid Taxes, and
the amount of such penalties and/or interest is less than the
amounts included in Estimated Penalties and Interest, for any
reason whatsoever, then the difference between the Estimated
Penalties and Interest, on the one hand, and the actual amount of
penalties and/or interest invoiced, on the other, shall be
excluded in determining the amount of Acceptable Liabilities, or
(b) any federal or state taxing authority agrees to accept less
than the full amount of Unpaid Taxes or less than the full amount
Estimated Penalties and Interest as payment in full for such
Unpaid Taxes or Estimated Penalties and Interest, then the
Acceptable Liabilities will be reduced by such permanent
reduction. The December 31, 1995 balance sheet of Starcom and
the Adjustment Period financial statements shall be prepared in
accordance with generally accepted accounting principles applied
on a consistent basis. The December 31, 1995 balance sheet of
Starcom shall be completed during the Adjustment Period and the
Adjustment Period financial statements shall be completed by no
later than June 15, 1996.
1.2.2 Notwithstanding the provisions of Section
1.2.1, if the Formula Value (calculated in accordance with
Section 1.2.1 above) is less than $3,286,000, then the number of
IndeNet Shares to be issued to the Stockholders shall be equal to
(aa) $4,000,000 less the difference between $3,286,000 and the
Formula Value, (bb) divided by $4.
1.2.3 The shares of IndeNet Common Stock to be issued
pursuant to this Article 1 shall be issued as follows: (a)
Certificates representing the Initial Shares (as defined below)
shall be issued and delivered at Closing, and (b) the balance
(the "Deferred Shares"), as determined by subtracting 500,000
shares from the aggregate number of shares of IndeNet Common
Stock to be issued pursuant to the Exchange and calculated
pursuant to this Section 1.2, shall be issued and delivered on or
before June 30, 1996 (the "Second Closing"), or as soon as any
disputes regarding such shares are resolved pursuant to Section
1.2.4 below (the date of issuance of the Deferred Shares is
hereinafter referred to as the "Second Closing Date"). (The
shares of IndeNet Common Stock to be issued at the Closing,
consisting of both the Initial Shares and the Repayment Shares,
and the Second Closing are hereinafter collectively referred to
as the "IndeNet Shares.") The "Initial Shares" shall mean the
number of shares of IndeNet Common Stock derived by subtracting
from 500,000 shares of IndeNet Common Stock the number of
Repayment Shares (as defined in Section 1.3 below) issued at the
Closing.
1.2.4 Copies of the unaudited December 31, 1995
balance sheet and the unaudited Adjustment Period financial
statements shall be delivered in the manner described in Section
8.1 to each and every Stockholder as soon as both of such
financial statements have been completed, but in no event later
than June 15, 1996. The foregoing unaudited financial statements
that are delivered to each of the Stockholders shall be
accompanied by a notice (the "Notice") that lists the number of
Deferred Shares to be issued to the Stockholders, together with a
summary of the adjustments made in determining the number of
Deferred Shares to be issued. The Stockholders shall have ten
business days in which to notify IndeNet in writing of their
disagreement with the unaudited financial statements or with the
adjustments made, which written notice shall state the basis of
such disagreement and the number of Deferred Shares that the
Stockholders believe they are entitled to receive under this
Agreement. (The number of Deferred Shares that the Stockholders
believe that they are entitled to are herein referred to as the
"Requested Shares"). If such written notice of disagreement is
given by any Stockholder, IndeNet and all Stockholders shall, in
good faith, attempt to reconcile such disagreement within five
business days of IndeNet's receipt of the notice of disagreement.
No Deferred Shares will be issued to any of the Stockholders
until the disagreement with the Stockholders is resolved. In the
event that IndeNet and the Stockholders are unable to mutually
reconcile their disagreement, IndeNet and the Stockholders shall
promptly mutually agree upon an independent accounting firm (the
"Accountants") to complete the following within 90 days following
the engagement of the Accountants: (i) perform such a review and
analysis of the financial statements and records of Starcom as is
reasonably necessary for such Accountants to calculate the number
of Deferred Shares issuable pursuant to Section 1.2.3(b) above
and (ii) based on such review and analysis, determine the number
of Deferred Shares that are required to be issued pursuant to
this Section 1.2. The determination by the Accountants of the
amount of Deferred Shares to be issued shall be binding on all
parties hereto. The costs and expenses incurred in connection
with such a review and analysis by the Accountants shall be borne
by (A) IndeNet if the Accountants determine that the number of
Deferred Shares to be issued according to the Accountants is
closer to the number of Requested Shares than to the number of
shares specified in the Notice, or by (B) the Stockholders if the
Accountants determine that the number of Deferred Shares to be
issued according to the Accountants is closer to the number of
shares specified in the Notice than to the number of Requested
Shares.
1.2.5 All Initial Shares issued to the Stockholders
at the Closing and all Deferred Shares issued to the Stockholders
at the Second Closing will, unless otherwise instructed in
writing by the Stockholders, be issued in accordance with the
percentages specified on Schedule 1.2.5 hereto. At the Closing
and the Second Closing, IndeNet shall deliver to each
Stockholder, or such Stockholder's representative, a stock
certificate dated as of the Closing Date or Second Closing Date,
as the case may be, representing such Stockholder's percentage in
the IndeNet Shares to be issued as of each such date.
1.3 Repayment of Indebtedness.
1.3.1 Concurrently with the Closing, and as part of
the transactions contemplated by this Agreement, all of the
Stockholder Indebtedness outstanding as of the Closing Date shall
be repaid in full by the issuance to the holders of the
Stockholder Indebtedness of shares of IndeNet Common Stock (the
"Repayment Shares"). The number of shares of Repayment Shares to
be issued in repayment of the Stockholder Indebtedness shall be
equal to the total amount of such Stockholder Indebtedness
(principal and all accrued and unpaid interest) divided by $4.00.
All such Stockholder Indebtedness shall, upon such repayment,
thereafter cease to be a liability or obligation of Starcom or
IndeNet.
1.3.2 Concurrently with the Closing, and as part of
the transactions contemplated by this Agreement, the loan
previously made by Robert Blay to Starcom (the outstanding
principal balance of which is $48,305.55 as of the date hereof),
together with all unpaid interest that accrues through the
Closing Date, shall be repaid in full in cash by IndeNet. All
such indebtedness to Robert Blay shall, upon such repayment,
thereafter cease to be a liability or obligation of Starcom or
IndeNet.
1.4 Closing. The closing under this Agreement (the
"Closing") shall take place at 10:00 A.M. at the offices of
IndeNet on the second business day following the satisfaction or
waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby, or at such other
time and date as the parties hereto shall be written instrument
designate. Such time and date are herein referred to as the
"Closing Date."
1.5 Delivery by the Stockholders at Closing. On the
Closing Date, the Stockholders shall deliver to IndeNet all
certificates representing the Starcom Shares duly endorsed or
accompanied by a stock power duly executed in form for transfer,
which Starcom Shares shall be duly authorized, fully paid and
non-assessable. The Stockholders agree to cure any deficiencies
with respect to the endorsement of the certificates representing
the Starcom Shares or with respect to the stock power
accompanying any such certificates.
1.6 Delivery by IndeNet at Closing. IndeNet shall
instruct its transfer agent, American Securities Transfer, Inc.
(the "Transfer Agent"), to issue the Initial Shares on the
Closing Date and the Deferred Shares on the Second Closing Date,
in each case in the names of each of the Stockholders (or to
Laidlaw Equities, Inc. as an assignee of the Stockholders, as the
Stockholders may hereafter designate in writing) and to deliver
to each of them such IndeNet Shares in the percentages set forth,
respectively, on Schedule 1.2.5 annexed hereto. In addition,
IndeNet shall instruct the Transfer Agent to issue to each holder
of Stockholder Indebtedness the number of Repayment Shares
determined pursuant to Section 1.3 above.
1.7 Legends. The following legend shall be placed on the
certificates for the IndeNet Shares and Repayment Shares
delivered to the Stockholders:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO INDENET, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
ARTICLE 2
REPRESENTATIONS OF STARCOM
Starcom hereby represents, warrants and agrees as follows:
2.1 Starcom Stock. The Starcom Shares constitute one
hundred percent (100%) of the issued and outstanding shares of
stock of all classes of Starcom. The Starcom Shares are duly
authorized, fully paid and nonassessable shares of Starcom Common
Stock.
2.2 Existence and Good Standing. Starcom is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. Starcom has the full corporate
power and authority to own its property and to carry on its
business all as and in the places where such properties are now
owned or operated or such business is now being conducted.
Except as set forth on Schedule 2.2, (i) Starcom has not
qualified to do business as a foreign corporation in any
jurisdiction, and (ii) neither the character nor location of the
properties owned or leased by Starcom, nor the nature of the
business conducted by Starcom, requires such qualification in any
jurisdiction other than in those set forth on Schedule 2.2.
Starcom is in good standing in each jurisdiction in which it is
qualified to do business as a foreign corporation as set forth on
Schedule 2.2.
2.3 Capital Stock. The authorized capital stock of
Starcom consists of 5,000 shares of common stock, without par
value, of which 1,429 shares are issued and outstanding. All
such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable, and have not been
issued in violation of any preemptive rights of stockholders. No
other class of capital stock of Starcom is authorized or
outstanding. Except as set forth on Schedule 2.3, there are no
outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements
of any character providing for the purchase, issuance or sale of
any shares of the capital stock of Starcom.
2.4 Subsidiaries, Affiliates and Investments. Except as
set forth in Schedule 2.4, Starcom does not own any capital stock
or other equity or ownership or proprietary interest in any
corporation, partnership, association, trust, joint venture or
other entity and, except as contemplated by Section 9.1 below,
the Stockholders do not own any capital stock or other equity or
ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity
which is affiliated or associated with Starcom or participates in
the conduct of its business.
2.5 Financial Statements and No Material Changes.
(a) Starcom has heretofore furnished to
IndeNet true and correct copies of the following financial
statements:
(i) unaudited balance sheet of Starcom as
at August 31, 1995 and the related statements of operations,
changes in stockholders' equity, cash flows and supporting
schedules for the year ended August 31, 1995 (the "Financial
Statements"), which Financial Statements have been prepared in
accordance with generally accepted accounting principles
consistently applied; and
(ii) unaudited balance sheet (the "Interim
Balance Sheet") of Starcom as at November 30, 1995 (the "Balance
Sheet Date") and a related statement of operations from September
1, 1995 through November 30, 1995, certified by Starcom.
(b) The Financial Statements and the Interim
Balance Sheet, including the footnotes thereto, have been
prepared, except as stated therein, in accordance with generally
accepted accounting principles consistently applied throughout
the periods indicated. The Financial Statements and Interim
Balance Sheet fairly present the financial condition of Starcom
at the dates thereof and, except as indicated therein, reflect
all claims against and all debts and liabilities of Starcom,
fixed or contingent, as at the dates thereof, required to be
shown thereon under generally accepted accounting principles, and
the related statements of operations, changes in stockholders
equity and cash flows fairly present the results of operations of
Starcom and cash flows for the periods indicated.
(c) Since the Balance Sheet Date, except as
set forth on Schedule 2.5, there has been (a) no material adverse
change in the assets or liabilities, or in the business or
financial condition, the results of operations, or to the best
knowledge, information and belief of Starcom, in the prospects of
Starcom, and (b) no change in the assets or liabilities, or in
the business or financial condition, or the results of
operations, of Starcom except in the ordinary course of business;
and no fact or condition exists or is contemplated or, to the
best knowledge, information and belief of Starcom, threatened
which might cause such a material adverse change in the future.
2.6 Books and Records. All accounts, books, ledgers and
official and other records material to the business of Starcom of
whatsoever kind have been fully, properly and accurately kept and
completed in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected
therein, and taken as a whole they fairly present the financial
position of Starcom. The minute books of Starcom, as previously
made available to IndeNet and its representatives, contain
complete and accurate records of all meetings of and corporate
actions or written consents by the shareholders and Board of
Directors as shareholders and directors of Starcom. Except as
set forth on Schedule 2.6, Starcom does not have any of its
records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on
or held by any means (including all means of access thereto and
therefrom) that are not under the exclusive ownership and direct
control of Starcom. True and complete copies of the charter
documents and by-laws of Starcom, and all amendments thereto,
have been delivered to IndeNet.
2.7 Title to Properties: Encumbrances. Except as set
forth in Schedule 2.7, Starcom has good and marketable title to
(a) all its material properties and assets (real and personal,
tangible and intangible), including, without limitation, all the
material properties and assets reflected in the Interim Balance
Sheet, except as indicated in the notes thereto, and (b) all the
material properties and assets purchased by Starcom since the
Interim Balance Sheet Date (except in each case for properties
and assets reflected in the Interim Balance Sheet or acquired
since the Balance Sheet Date that have been sold or otherwise
disposed of in the ordinary course of business); in each case
subject to no encumbrance, lien, charge or other restriction of
any kind or character, except for liens reflected in the Interim
Balance Sheet. The property, plant and equipment owned by
Starcom are adequate and suitable for the purposes for which they
are presently being used.
2.8 Leases. Schedule 2.8 contains an accurate and
complete list of all real property leases and all material
equipment leases to which Starcom is a party (as lessee or
lessor). Each lease set forth in Schedule 2.8 (or required to be
set forth on Schedule 2.8) is in full force and effect; all rents
and additional rents due to date on each such lease have been
paid; in each case, the lessee is in peaceable possession of the
lease and is not in default thereunder, and no waiver, indulgence
or postponement of the lessee's obligations thereunder has been
granted by the lessor; and, except as set forth in Schedule 2.8,
there exists no default or event of default by Starcom or to the
best knowledge, information and belief of Starcom, by any other
party to the lease, or occurrence, condition or act (including
this Exchange) which, with the giving of notice, the lapse of
time or the happening of any further event or condition, would
become a default or event of default under such lease. Starcom
has not violated any of the material terms or conditions under
any lease set forth on Schedule 2.8 (or required to be set forth
on Schedule 2.8), and all of the covenants to be performed by any
other party under any such lease have been performed in all
material respects, and there are no outstanding claims of breach
or indemnification or notice of default or termination of any
such lease. The property leased by Starcom is adequate and
suitable for the purposes for which it is presently being used.
2.9 Contracts. Except as set forth in Schedule 2.9,
Starcom is not party to or bound by (a) any agreement, contract
or commitment relating to any bonus, deferred compensation,
pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, (b) any agreement,
indenture or other instrument which contains restrictions with
respect to payment of dividends or any other distribution in
respect of its capital stock, (c) any agreement, contract or
commitment relating to capital expenditures, (d) any loan or
advance to, or investment in, any other Person (as defined in
Section 11.3) or any agreement, contract or commitment relating
to the making of any such loan, advance or investment, (e) any
guarantee or other contingent liability in respect of any
indebtedness or obligation of any other Person (other than the
endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any management service,
employment, consulting or any other similar type of contract, (g)
any agreement, contract or commitment limiting the freedom of
Starcom to engage in any line of business or to compete with any
other Person, (h) any agreement, contract or commitment which
involves Ten Thousand Dollars ($10,000) or more and is not
cancelable without penalty within thirty (30) days, (i) any
collective bargaining agreement, (j) any agreement with any
officer or director of Starcom, (k) any secrecy agreement, (l)
any licensing or franchise agreement, or (m) any contract with
any Stockholder. Except as set forth in Schedule 2.9, each
contract or agreement set forth on Schedule 2.9 (or required to
be set forth on Schedule 2.9) is in full force and effect, and
there exists no material default or event of default by Starcom
or to the best knowledge, information and belief of Starcom, by
any other party, or occurrence, condition, or act (including this
Exchange) which, with the giving of notice, the lapse of time or
the happening of any other event or condition, would become a
default or event of default thereunder. Except as set forth in
Schedule 2.9, Starcom has not violated any of the material terms
or conditions of any contract or agreement set forth on Schedule
2.9 (or required to be set forth on Schedule 2.9) or any term or
condition which would permit termination or material modification
of any such contract or agreement, and all of the covenants to be
performed by any other party thereto have been fully performed in
all material respects, and there are no outstanding claims of
breach or indemnification or notice of default or termination of
any such agreements, contracts or commitments.
2.10 Valid Agreements; Restrictive Documents. Except as
set forth in Schedule 2.10, Starcom is not subject to, or a party
to, any charter, by-law, mortgage, lien, lease, license, permit,
agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction
of any kind or character, which adversely affects the business or
condition of Starcom or any of its assets or property in any
material respect, or which would prevent consummation of the
transactions contemplated by this Agreement, or the continued
operation of Starcom's business after the date hereof on
substantially the same basis as heretofore operated, or which
would restrict the ability of Starcom to acquire any property or
conduct business in any geographic area. The execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate, conflict
with or result in the breach of any provision of the charter
documents or by-laws of Starcom; (ii) subject to obtaining
necessary consents specified in Schedule 2.25, violate, conflict
with or result in the breach or material modification of any of
the terms of, or constitute (or with notice or lapse of time or
both constitute) a default under, or otherwise give any other
contracting party the right to accelerate or terminate, any
material obligation, contract, agreement, lien, judgment, decree
or other instrument to which Starcom is a party or by or to which
Starcom or any of its assets or properties or the Stockholders
may be bound or subject; (iii) violate any order, writ, judgment,
injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, Starcom
or upon the assets of Starcom; or (iv) violate any statute, law
or regulation of any jurisdiction.
2.11 Litigation. Except as set forth in Schedule 2.11,
there is no action, suit, proceeding at law or in equity by any
Person, or any arbitration or any administrative or other
proceeding by or before (or to the best knowledge, information
and belief of Starcom, any investigation by) any governmental or
other instrumentality or agency, pending or, to the best
knowledge, information and belief of Starcom, threatened, against
or affecting Starcom or any of its properties or rights, which,
if adversely determined would have a material adverse effect on
the assets, business or condition of Starcom, and Starcom does
not know of any valid basis for any such action, proceeding or
investigation. Starcom is not subject to any judgment, order or
decree entered in any lawsuit or proceeding.
2.12 Taxes Payable by Starcom. Starcom has filed, or
caused to be filed, within the manner prescribed by law, all
federal, state, local and foreign tax returns and tax reports
which are required to be filed by, or with respect to, Starcom.
Such returns and reports reflect accurately taxable income and
all liability for taxes of Starcom for the periods covered
thereby. All federal, state, local and foreign income, profits,
franchise, sales, use, occupancy, excise, payroll, accumulated
earnings tax and other taxes and assessments (the "Taxes")
(including interest and penalties for which Starcom has been
invoiced, but excluding interest and penalties for which it has
not yet been invoiced) payable by, or due from, Starcom (whether
in its own right or as transferee of the assets of, or successor
to, any Person) have been fully paid or adequately disclosed and
fully provided for in the books and financial statements of
Starcom, and no other tax of any nature whatsoever, interest or
penalty, will be payable by Starcom in respect to any fiscal
period of Starcom ended on or before August 31, 1995 or with
respect to the period between September 1, 1995 through the
Closing Date. Schedule 2.12 contains a list of (i) all Taxes
that, as of the date of this Agreement, are overdue or delinquent
(whether or not such unpaid Taxes are disclosed and fully
provided for in the books and financial statements of Starcom),
and (ii) the amount of interest and penalties that are known or
estimated to be imposed or levied on Starcom as a result of any
of Starcom's unpaid and overdue or delinquent Taxes. The
federal, state and local taxable income and tax liability of
Starcom has never been finally determined for any fiscal period.
No examination of any return of Starcom by any taxing authority
is currently in progress and Starcom has not received notice of
any proposed audit or examination. There are no outstanding
agreements or waivers extending the statutory period of
limitation applicable to any tax return of Starcom.
2.13 Liabilities. Except as set forth on Schedule 2.13,
Starcom has no outstanding claims, liabilities or indebtedness,
contingent or otherwise, except as set forth in the Financial
Statements or the Interim Balance Sheet or referred to in the
footnotes thereto, other than (i) liabilities incurred subsequent
to the Balance Sheet Date in the ordinary course of business not
involving borrowings by Starcom and which are consistent with
past practice and, individually or in the aggregate, are not
material to the business, prospects, operation, properties,
income or condition (financial or otherwise) of Starcom, (ii)
liabilities set forth on any schedule hereto or which are not
required to be set forth on any schedule hereto because such
liabilities are specifically excluded from disclosure on the
schedules provided for by the provisions of this Agreement, or
(iii) any other liabilities provided for in this Agreement.
Schedule 2.13 sets forth a list of all current arrangements of
Starcom for borrowed money and all outstanding balances as of the
date hereof with respect thereto. Except as set forth on
Schedule 2.13, Starcom is not in default in respect of the terms
or conditions of any indebtedness.
2.14 Insurance. Schedule 2.14 is a schedule of all
insurance policies (including life insurance) or binders
maintained by Starcom. All such policies are in full force and
effect and are in such amounts, and insure against such losses
and risks, as are generally maintained by comparable businesses
and all premiums that have become due have been currently paid.
None of such policies shall lapse or terminate by reason of the
transactions contemplated hereby. Starcom has received no notice
of cancellation or non-renewal of any such policy or binder.
Starcom has received no notice from any of its insurance carriers
that any premiums will be materially increased in the future or
that any insurance coverage listed on Schedule 2.14 will not be
available in the future on substantially the same terms now in
effect.
2.15 Intellectual Properties. Schedule 2.15 contains an
accurate and complete list of all domestic and foreign patents,
patent applications, patent licenses, software licenses and know-
how licenses, trade names, trademarks, copyrights, service marks,
trademark registrations and applications (including those which
are pending), service mark registrations and applications,
copyright registrations and applications (whether pending or
abandoned), owned or used by Starcom in the operation of its
business (collectively, the "Intellectual Property"). No claim
of infringement or misappropriation of Intellectual Property has
been made against Starcom and to the best knowledge, information
and belief of Starcom, Starcom is not infringing or
misappropriating any Intellectual Property.
2.16 Compliance with Laws. Starcom is in compliance in all
material respects with all applicable laws, regulations, orders,
judgments and decrees ("Requirements of Law"). To the best
knowledge, information and belief of Starcom, Starcom (i) has not
been charged with, (ii) is not under any investigation with
respect to, and (iii) has not been threatened with, any charge
concerning any violation of any Requirements of Law. Neither the
ownership nor use by Starcom of its properties nor the conduct of
its business (a) violates or conflicts with, any of the terms or
provisions of Starcom's articles of incorporation or by-laws as
presently in effect or (b) to the best knowledge, information and
belief of Starcom, violates or conflicts with, or results in a
material breach, default, right to accelerate or loss of rights
under, or termination of, any of the terms or provisions of, any
material lien, contract, commitment or license to which Starcom
is a party or by which it or its properties may be bound, or (c)
to the best knowledge, information and belief of Starcom,
conflicts with the rights of any other Person.
2.17 Licenses. Except as set forth in Schedule 2.17,
Starcom has all licenses and permits and other governmental
certificates, authorizations and approvals (collectively,
"Licenses") required by any governmental or regulatory body for
the operation of its business and the use of its properties as
presently operated or used, except where the failure to have such
Licenses would not have a material and adverse effect on the
financial condition, results of operations, assets, properties or
business of Starcom. All of the Licenses are in full force and
effect and no action or claim is pending, nor to the best
knowledge, information and belief of Starcom is threatened, to
revoke or terminate any of the Licenses or declare any License
invalid in any material respect.
2.18 Supplier and Customer Relations. Schedule 2.18 lists
each supplier from which Starcom made greater than five percent
(5%) of all of its purchases and each customer from which Starcom
derived more than five percent (5%) of its gross revenues (in the
aggregate) for (i) the fiscal year ended August 31, 1995 and (ii)
the quarter ended November 30, 1995. Except as set forth on
Schedule 2.18 none of Starcom's suppliers or customers has
advised Starcom, orally or in writing, formally or informally,
that it is terminating or considering terminating, or is
materially dissatisfied with, the handling of its business by
Starcom, as a whole or in respect of any particular product or
service, or that the transactions contemplated by this Agreement
will result in an adverse change in the relations with such
supplier or customer.
2.19 Accounts Receivable. The amount of all accounts
receivable, unbilled invoices (including, without limitation,
unbilled invoices for services and out-of-pocket expenses) and
other debts due or recorded in the records and books of account
of Starcom as being due to Starcom (less the amount of any
provision, reserve-or similar adjustment therefor made in the
records and books of account of Starcom) will be good and
collectible in full in the ordinary course of business, and none
of such accounts receivable or other debts is or will be subject
to any counterclaim or set-off except to the extent of any such
provision in reserve. Except as set forth on Schedule 2.19,
there has been no material change since the Balance Sheet Date in
the amount of the accounts receivable or other debts due to
Starcom or the reserves with respect thereto, or accounts payable
of Starcom, from that reflected in the Interim Balance Sheet.
2.20 Employment Relations. (a) Starcom is in compliance in
all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair
labor practice; (b) no unfair labor practice complaint against
Starcom is pending before any applicable government entity; (c)
there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or involving Starcom; (d) no
representation question exists respecting the employees of
Starcom; (e) no grievance which might have an adverse effect on
Starcom or the conduct of its business nor any arbitration
proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefor has been asserted; (f)
no collective bargaining agreement is currently being negotiated
by Starcom; and (g) Starcom has not experienced any work stoppage
or any other labor difficulty during the last three (3) years.
There has not been, and Starcom does not anticipate, any adverse
change in relations with employees as a result of the
announcement of the transactions contemplated by this Agreement.
2.21 Compliance with ERISA.
2.21.1 List of Plans. Set forth separately in
Schedule 2.21 is an accurate and complete list of all Employee
Benefit Plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any such Employee Benefit Plans are otherwise
exempt from the provisions of ERISA, established, maintained or
contributed to by Starcom (including for this purpose and for the
purpose of all of the representations in this Section 2.21, all
employers (whether or not incorporated) which by reason of common
control are treated together with Starcom and/or the Stockholders
as a single employer with the meaning of Section 414 of the
Internal Revenue Code of 1986 (the "Code")).
2.21.2 Status of Plans. Except as set forth on
Schedule 2.21, Starcom does not maintain or contribute to any
such Employee Benefit Plan subject to ERISA, or maintain any
Employee Benefit Plans or any other pension, welfare or
retirement benefit plans. To the best of Starcom's knowledge,
the Employee Benefit Plans listed on Schedule 2.21 comply with
ERISA in all material respects. Starcom has not incurred any
withdrawal liability (including any contingent or secondary
withdrawal liability) within the meaning of Subtitle E of Title
IV of ERISA, to any Employee Benefit Plan which is a
Multiemployer Plan (as defined in Section 4001 of ERISA), and
no event has occurred, and there exists no condition or set of
circumstances, which present a material risk of the occurrence of
any withdrawal from or the partition, termination, reorganization
or insolvency of any Multiemployer Plan which could result in any
liability to a Multiemployer Plan.
2.21.3 Contributions. Full payment has been made of
all amounts which Starcom is required, under applicable law or
under any Employee Benefit Plan or any agreement relating to any
Employee Benefit Plan to which Starcom is a party, to have paid
as contributions thereto as of the last day of the most recent
fiscal year of such Employee Benefit Plan ended prior to the date
hereof. Starcom has made adequate provision for reserves to meet
contributions that have not been made because they are not yet
due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as
of which documents have been provided.
2.21.4 Documents. Starcom has delivered or caused to
be delivered to IndeNet and its counsel true and complete copies
of (i) all Employee Benefit Plans as in effect, together with all
amendments thereto which will become effective at a later date;
(ii) the latest Internal Revenue service determination letter if
obtained with respect to any such Employee Benefit Plan qualified
under Section 401 and 501 of the Code; (iii) Form 5500 for the
two most recent fiscal years for each Employee Benefit Plan
required to file such form; and (iv) the two most recent
actuarial reports for each Employee Benefit Plan which is a
pension benefit plan, as defined in ERISA.
2.22 Interests in Customers, Suppliers, Etc. Except as set
forth on Schedule 2.22, neither (i) the Stockholders nor any
entity controlled by any of them, (ii) to the best knowledge,
information and belief of Starcom, any relative of any
Stockholder, nor (iii) to the best knowledge, information and
belief of Starcom, any other officer, director, Affiliate
(defined in Section 10.6 hereafter) or employee of Starcom or
relative or spouse (or relative of such spouse) of any such
officer, director, Affiliate or employee, and no entity
controlled by one or more of the foregoing:
(a) owns, directly or indirectly, any interest
in (excepting less than 1% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an
officer, director, employee or consultant of, any Person which
is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent, customer or client of
Starcom;
(b) owns, directly or indirectly, in whole or
in part, any tangible or intangible property that Starcom uses in
the conduct of business;
(c) has any cause of action or other claim
whatsoever against, or owes any amount to, Starcom, except for
claims in the ordinary course of business such as for accrued
wages, vacation pay, accrued benefits under employee benefit
plans, and similar matters and agreements existing on the date
hereof.
2.23 Bank Accounts, Powers of Attorney and Compensation of
Employees. Set forth in Schedule 2.23 is an accurate and
complete list showing (a) the name of each bank in which Starcom
has an account, credit line or safe deposit box and the names of
all Persons authorized to draw thereon or to have access thereto,
(b) the names of all Persons, if any, holding powers of attorney
from Starcom and a summary statement of the terms thereof, (c)
the names of all directors, officers and employees with
outstanding indebtedness to Starcom (other than routine travel
and vacation advances) and the amount of indebtedness of each
such director, officer and employee, (d) the names and positions
of all Persons whose compensation from Starcom during the twelve
(12) months ended on the Balance Sheet Date exceeded an
annualized rate of Fifty Thousand Dollars ($50,000), together
with a statement of the full amount paid or payable (whether by
agreement, custom or understanding) to each such Person for
services rendered during calendar years 1994 and 1995 (listing
separately direct salary, bonus compensation, and other fringe
benefits (clubs, car, etc,)), and (e) a list of all bonus
compensation paid or payable (whether by agreement, custom or
understanding) to any employee of Starcom not listed in (d) above
for services rendered during calendar years 1994 and 1995.
Starcom has not, because of past practices or previous
commitments with respect to its employees, established any rights
on the part of any of its employees to additional compensation
with respect to any period after the Closing Date except as set
forth on Schedule 2.23. The present severance and vacation
policy of Starcom is set forth on Schedule 2.23.
2.24 No Changes Since the Balance Sheet Date. Since the
Balance Sheet Date (a) except as specifically stated on Schedule
2.24 or contemplated by Section 5.1(b) or Section 9.1 below,
Starcom has not (i) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise),
except in the ordinary course of business, (ii) permitted any of
its material assets to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of
any kind, (iii) sold, transferred or otherwise disposed of any
assets except in the ordinary course of business, (iv) made any
capital expenditure or commitment therefor, except in the
ordinary course of business, (v) declared or paid any dividends
or made any distribution on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its
capital stock or any option, warrant or other right to purchase
or acquire any such shares, except as otherwise provided for in
this Agreement, (vi) made any bonus or profit sharing
distribution or payment of any kind, (vii) increased or prepaid
its indebtedness for borrowed money, except current borrowings
under credit lines listed on Schedule 2.23 from banks in the
ordinary course of business, or made any loan to any Person,
(viii) written down the value of any work in process, or written
off as uncollectible any notes or accounts receivable, except
write-downs and writeoffs in the ordinary course of business,
none of which, individually or in the aggregate, is material to
Starcom, (ix) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any employee who after
giving effect to such increase or prior thereto receives
compensation at an annual rate of Fifty Thousand Dollars
($50,000) or more, or except in the ordinary course of business
any other employees, (x) cancelled or waived any claims or rights
of substantial value, (xi) made any change in any method of
accounting or auditing practice, (xii) otherwise conducted its
business or entered into any transaction, except in the usual and
ordinary manner and in the ordinary course of its business,
(xiii) amended or terminated any agreement which is material to
the business of Starcom, (xiv) renewed, extended or modified any
lease of real property or except in the ordinary course of
business any lease of personal property, or (xv) agreed, whether
or not in writing, to do any of the foregoing, and (b) there has
been no material adverse change in the financial condition or
results of operations or, to the best knowledge, information and
belief of Starcom, the prospects of Starcom.
2.25 Required Approvals, Notices and Consents. Except as
set forth on Schedule 2.25, no consent or approval of, other
action by, or notice to, any governmental body or agency,
domestic or foreign, or any third party to a material contract to
which Starcom is a party is required in connection with the
execution and delivery by the Stockholders and Starcom of this
Agreement or the consummation by the Stockholders and Starcom of
the transactions contemplated hereby.
2.26 Corporate Controls. To the best knowledge,
information and belief of Starcom, neither Starcom, the
Stockholders, nor any director, officer, agent, employee or other
Person associated with or acting on behalf of Starcom, has,
directly or indirectly, on behalf of Starcom, used any corporate
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity.
2.27 Inventory. The inventory shown on the Interim Balance
Sheet is shown at the lower of cost or market. All inventories
conform to customary trade standards for marketable goods. As of
the Closing Date, inventory will consist of current (meaning not
more than one year old), readily salable goods and merchandise.
2.28 Environment.
(i) Except as disclosed on Schedule 2.28,
Starcom has obtained all permits, licenses, and other
authorizations which are required under, and has complied in all
material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal,
state, local, and foreign laws (including rules, regulations,
codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to (x) public
health and safety, (y) worker health and safety, or (2) pollution
or protection of the environment, including laws relating to
emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes (the
"Environmental Laws").
(ii) Except as disclosed on Schedule 2.28,
Starcom has not handled or disposed of any substance in or on any
of its facilities or properties or operated any properties or
facilities in any manner that could form the basis for any
present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim or demand (under the common law or
pursuant to any statute) against Starcom or IndeNet giving rise
to any liability under any Environmental Law or otherwise for
damage to any site, location, or body of water (surface or
subsurface) or for illness or personal injury.
(iii) Except as disclosed on Schedule
2.28 and except for ordinary and necessary quantities of
trichlorethylene used for film cleaning, other cleaning, pest
control and office supplies, used and stored in compliance with
applicable Environmental Laws, or ordinary rubbish, debris and
nonhazardous solid waste stored in garbage cans or bins for
regular disposal off-site, or petroleum contained in and de
minimis quantities discharged from motor vehicles in their
ordinary operation on real property owned, used or leased by
Starcom, to the knowledge of Starcom, no pollutant, contaminant,
or chemical, industrial, hazardous, or toxic material or waste
ever has been buried, stored, spilled, leaked, discharged,
emitted, or released on any real property owned, used or leased
by Starcom.
2.29 Pacific Syndication Acquisition. Attached hereto as
Schedule 2.29 are true and correct copies of that certain letter
dated December 11, 1995, by Starcom to Ms. Karen Terpstra,
setting forth Starcom's offer to purchase certain assets and
assume certain liabilities of Pacific Syndication, Inc. and the
order executed by the United States Bankruptcy Court for the
Central District of California authorizing the transactions
contemplated by said letter.
2.30 Disclosure.
(a) None of this Agreement, the financial
statements referred to in Section 2.5 above, or any schedule
hereto, or any certificate, document or statement in writing to
be delivered as required under this Agreement by or on behalf of
Starcom or the Stockholders, contains, or will contain, any
untrue statement of a material fact, or omits, or will omit, any
statement of a material fact required to be stated or necessary
in order to make the statements contained herein or therein not
misleading. There is no fact actually known to Starcom which
materially and adversely affects the business, prospects or
financial condition of Starcom or its properties or assets, which
has not been, or will not be, set forth in this Agreement or any
schedule hereto, or in the certificates, documents or statements
in writing to be delivered at the closing of the transactions
contemplated by this Agreement.
(b) Notwithstanding specific cross references in
the schedules hereto (each a "Schedule"), any disclosure under
any Schedule shall be deemed to be a disclosure applicable to all
representations and warranties of Starcom and the Stockholders
under this Agreement and under all other Schedules. To the
extent that the Schedules contain exceptions to the
representations and warranties set forth in Article 2 and 3 of
this Agreement, the inclusion of an item in any Schedule shall
not be deemed an admission by Starcom or any Stockholder that
such item is material to Starcom or such Stockholder or that it
will have a material adverse effect on the business, condition,
result of operations or prospects of Starcom.
2.31 Representations True at Closing. All representations
by Starcom in this Article 2 or in any document delivered
pursuant hereto in connection with the transactions contemplated
hereby shall be true and accurate as of the date when made and
shall be deemed to be made again at the Closing as of the Closing
Date and shall then be true and accurate in all respects, except
as affected by the transactions contemplated by this Agreement.
ARTICLE 3
INDIVIDUAL REPRESENTATIONS OF THE STOCKHOLDERS
Each Stockholder hereby represents, warrants and agrees,
individually on his, her or its own behalf, as follows:
3.1 Ownership of Stock. The Stockholder is the record and
beneficial owner of the Starcom Shares specified in Schedule 3.1
hereto, free and clear of all liens, encumbrances, restrictions
and claims of every kind; the Stockholder has full legal right,
power and authority to enter into this Agreement and has full
legal right, power and authority to transfer and convey such
Stockholder's Starcom Shares pursuant to this Agreement; the
delivery to IndeNet of the Starcom Shares pursuant to this
Agreement will transfer to IndeNet such Stockholder's valid title
thereto, free and clear of all liens, encumbrances, restrictions
and claims of every kind.
3.2 Valid Agreements; Restrictive Documents. The
Stockholder has the full legal right and capacity to execute,
deliver and perform this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Stockholder and constitutes the valid and
binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms except as the
enforcement thereof may be limited by bankruptcy, reorganization,
moratorium, insolvency and other laws of general applicability
relating to or affecting creditors' rights or general principles
of equity. The Stockholder is not subject to, or a party to, any
charter, by-law, mortgage, lien, lease, license, permit,
agreement, contract, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or
character, which would prevent either the consummation of the
transactions contemplated by this Agreement or the compliance
by the Stockholder with the terms, conditions and provisions of
this Agreement or any other agreement entered into by such
Stockholder in connection with the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by the Stockholder and the consummation of the
transactions contemplated hereby by such Stockholder will not (i)
violate, conflict with or result in a breach of any provision of
any of the Stockholder's charter documents, if any; (ii) violate
any order, writ, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or
binding upon the Stockholder or upon the assets of the
Stockholder; or (iii) violate any statute, law or regulation of
any jurisdiction.
3.3 Investment Intent. The IndeNet Shares being acquired
by the Stockholder hereunder are being acquired for such
Stockholder's own account and not with a view to, or for resale
in connection with, any distribution other than resales made in
compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the
"Act"). The Stockholder understands that the IndeNet Shares have
not been registered under the Act by reason of available
exemptions from the registration and prospectus delivery
requirements of the Act, that such IndeNet Shares must be held
indefinitely unless such IndeNet Shares are registered under the
Act or until any transfer is exempt from registration, and that
reliance of IndeNet upon these exemptions is predicated in part
upon these representations and warranties by the Stockholder.
3.4 Qualification as an Investor.
(a) The Stockholder hereby represents and warrants
that he, she or it has the requisite knowledge and experience in
financial and business matters to assess the relative merits and
risks of investment in the IndeNet Shares.
(b) The Stockholder has received certain
information concerning IndeNet and has had the opportunity to
obtain additional information as desired in order to evaluate the
merits and risks of holding the IndeNet Shares, and is able to
bear the economic risk and lack of liquidity inherent in holding
the IndeNet Shares. Furthermore, the Stockholder has had the
full opportunity to discuss with IndeNet all material aspects of
an investment in the IndeNet Shares, including the opportunity to
ask, and to receive answers to his, her or its full satisfaction,
regarding such questions as such Stockholder has deemed necessary
to evaluate this opportunity to invest.
(c) The Stockholder has had full opportunity to
seek advice of independent counsel respecting this investment and
the tax risks and implications of the Exchange and all
transactions consummated in connection therewith.
ARTICLE 4
REPRESENTATIONS OF INDENET
IndeNet represents, warrants and agrees, as follows:
4.1 Existence and Good Standing. IndeNet is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. IndeNet has the full corporate
power and authority to own its property and to carry on its
business all as and in the places where such properties are now
owned or operated or such business is now being conducted.
Except in those states in which IndeNet is qualified to do
business as a foreign corporation, IndeNet has not otherwise
qualified to do business as a foreign corporation, and neither
the character nor location of the properties owned or leased by
IndeNet, nor the nature of the business conducted by IndeNet,
requires such additional qualification in any jurisdiction.
IndeNet is in good standing in each jurisdiction in which it is
qualified to do business as a foreign corporation.
4.2 IndeNet Shares. The IndeNet Shares when delivered to
the Stockholders will have been duly authorized and validly
issued and be fully paid and non-assessable.
4.3 Valid Agreements; Restrictive Documents. IndeNet has
the full authority to execute, deliver and perform this Agreement
and the transactions contemplated hereby. This Agreement has
been duly and validly authorized, executed and delivered by
IndeNet and constitutes a valid and binding agreement of IndeNet
enforceable against IndeNet in accordance with its terms except
as the enforcement thereof may be limited by bankruptcy,
reorganization, moratorium, insolvency and other laws of general
applicability relating to or affecting creditors' rights or
general principles of equity. IndeNet is not subject to, or a
party to, any mortgage, lien, lease, license, permit, agreement,
contract, instrument, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or
character, which would prevent consummation of the transactions
contemplated by this Agreement or compliance by IndeNet with the
terms, conditions and provisions of this Agreement or any other
agreement entered into by IndeNet in connection with the
transactions contemplated herein. The execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate, conflict
with or result in the breach or material modification of any of
the terms of, or constitute (or with notice or lapse of time or
both constitute) a default under, or otherwise give any other
contracting party the right to accelerate or terminate, any
obligation, contract, agreement, lien, judgment, decree or other
instrument to which IndeNet is a party or by or to which IndeNet
may be bound or subject; (ii) violate any order, writ, judgment,
injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, IndeNet
or its assets; or (iii) violate any statute, law or regulation of
any jurisdiction.
4.4 Consents and Approvals of Governmental Authorities.
No consent, approval or authorization of, or declaration or
registration with, any governmental or regulatory authority is
required in connection with the execution and delivery of this
Agreement by IndeNet or the consummation by IndeNet of the
transactions contemplated hereby.
4.5 Litigation. Except as set forth in Schedule 4.5,
there is no action, suit, proceeding at law or in equity by any
Person, or any arbitration or administrative or other proceeding
by or before (or to the best knowledge, information and belief of
IndeNet, any investigation by) any governmental or other
instrumentality or agency, pending or, to the best knowledge,
information and belief of IndeNet, threatened against or
affecting IndeNet or any of its properties or rights, which, if
adversely determined would have a material adverse effect on the
assets, business or condition of IndeNet, and IndeNet does not
know of any valid basis for any such action, proceeding or
investigation. IndeNet is not subject to any judgment, order or
decree entered in any lawsuit or proceeding.
4.6 Capitalization. The authorized capital of IndeNet
consists solely of (i) 100,000,000 shares of IndeNet Common
Stock, of which approximately 10,871,000 shares are issued and
outstanding as of the date of this Agreement, and (ii) 40,000,000
shares of $.0001 par value preferred stock, of which no shares
are issued or outstanding as of the date of this Agreement. All
of the outstanding shares of IndeNet Common Stock have been duly
authorized and validly issued and are fully paid and
non-assessable, and have not been issued in violation of any
preemptive rights of stockholders. Except as set forth in
Schedule 4.6, there are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans
or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock of IndeNet.
4.7 SEC Filings. Since January 1, 1995, IndeNet has
timely filed and, as required by Section 13 of the Securities
Exchange Act of 1934, will continue to timely file, all the
required forms, reports and other documents with the Securities
and Exchange Commission ("SEC"). As of the date hereof, and at
the Closing Date, all reports, forms and other documents so
filed: (i) complied in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the
SEC, and (ii) do not, and will not, contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
4.8 Financial Statements. IndeNet has or will deliver to
the Stockholders copies of the audited balance sheet of IndeNet
as of December 31, 1994 and the related statements of income,
changes in shareholders' equity and cash flows for the year then
ended, and the unaudited balance sheet of IndeNet as at September
30, 1995 and the related statements of income, changes in
shareholders' equity and cash flows for the three-month period
then ended (collectively, the "IndeNet Financials"). The IndeNet
Financials were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the
periods involved (except as may otherwise be indicated in the
notes thereto) and fairly present the financial position of
IndeNet as of the dates thereof and the results of operations and
changes in financial position of IndeNet as of the dates thereof
and the results of operations and changes in financial position
for the periods then ended. Except as may be disclosed in the
SEC filings described in Section 4.7 above, since December 31,
1994, there has not been any material adverse change in the
assets or liabilities, or in the business or financial condition,
the results of operations or prospects of IndeNet.
4.9 Contracts. Every contract that is material to the
business of IndeNet, taken as a whole, is in full force and
effect, and there exists no material default or any event of
default by IndeNet or to the best knowledge, information and
belief of IndeNet, by any other party, or occurrence, condition,
or act (including this Exchange) which, in the giving of notice,
a lapse of time or happening of any other event or condition,
would become a default or event of default thereunder. IndeNet
has not violated any of the material terms or conditions of any
such material contract or agreement or any term or condition
which would permit termination or material modification of any
such contract or agreement, and all of the covenants to be
performed by any other party thereto have been performed in all
material respects, and there are no outstanding claims of breach
or indemnification or notice of default or termination of any
such agreements, contracts or commitments.
4.10 Representations True at Closing. All representations
by IndeNet in this Article 3 or in any document delivered
pursuant hereto in connection with the transactions contemplated
hereby shall be true and accurate as of the date when made and
shall be deemed to be made again both at the Closing and the
Second Closing and shall then be true and accurate in all
respects.
ARTICLE 5
CONDUCT OF BUSINESS; REVIEW
5.1 Conduct of Business of Starcom.
(a) During the period from the date of this
Agreement to the Closing Date, Starcom shall conduct its
operations only according to its ordinary and usual course of
business and shall use its best efforts to preserve intact its
business organization, keep available the services of its
officers and employees and maintain satisfactory relationships
with suppliers, clients and others having business relationships
with it. Notwithstanding the immediately preceding sentence,
pending the Closing, except as may be first approved in writing
by IndeNet or as is otherwise permitted or required by this
Agreement, Starcom will (i) maintain its Certificate of
Incorporation and By-Laws in their form on the date of this
Agreement, (ii) maintain the compensation payable or to become
payable by Starcom to any officer or employee being paid Fifty
Thousand Dollars ($50,000) per year or more on the Balance Sheet
Date at their levels on the date of this Agreement, (iii) refrain
from making any bonus, profit sharing, pension, retirement or
insurance payment or arrangement to or with any such Persons
except those that may have already been accrued or required to be
made properly in the ordinary course of business or by a contract
listed on Schedule 2.9 hereof, or payments with respect to health
and life insurance policies, except as otherwise provided herein,
(iv) refrain from entering into any contract or commitment except
contracts in the ordinary course of business, (v) refrain from
making any change affecting any power of attorney arrangements,
(vi) refrain from paying, setting aside or declaring any dividend
or distribution to Stockholders, except as provided for in this
Agreement, and (vii) refrain from increasing or prepaying any
indebtedness set forth on Schedule 2.13 except in the ordinary
course of business and except for any prepayment made using the
proceeds from the Refinancing (as defined in paragraph (b)
below). During the period from the date of this Agreement to the
Closing Date, Starcom, if requested, will confer on a regular and
frequent basis with one or more designated representatives of
IndeNet to report material operational-matters and to report the
general status of on-going operations. Starcom shall notify
IndeNet of any unexpected emergency or other material change in
the normal course of its business or in the operation of its
properties and of any governmental complaints, investigations or
hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings or
submissions involving any material property of Starcom and to
keep IndeNet fully informed of such events and permit its
representatives prompt access to all materials prepared in
connection therewith.
(b) Notwithstanding the foregoing Section 5.1(a),
IndeNet hereby acknowledges that: (i) Starcom is currently
negotiating the refinancing of its existing credit facility with
Sterling Business Credit upon the terms set forth on Schedule
5.1(b) (the "Refinancing") and, (ii) Starcom has entered into
that certain Limited Partnership Agreement of New Age, L.P.,
dated July 24, 1995 (the "Conversions Plus Agreement"), among
Starcom, as general partner, and Conversions Plus, Inc., a
California corporation ("Conversions Plus"), Jack and Vicki
Michaelson, jointly, Charles Brickman, individually, and Glen
Hartford, individually, as limited partners. IndeNet agrees that
so long as the Refinancing is consummated upon terms no less
favorable to Starcom than those set forth on Schedule 5.1(b),
then Starcom shall have the right to consummate the Refinancing,
whether or not such consummation occurs prior to or following the
Closing, and that IndeNet shall not interfere in any manner with
the consummation of the Refinancing unless IndeNet secures an
alternate credit facility (an "Alternate Facility") for Starcom
consisting of terms no less favorable to Starcom than those set
forth on Schedule 5.1(b). The contribution of capital to New
Age, L.P., and the commencement of such partnership's business
are dependent upon the completion of the Refinancing. IndeNet
hereby further agrees that following the Closing, it shall not
interfere in any manner with the consummation by Starcom of the
transactions contemplated by the Conversions Plus Agreement, so
long as (x) the terms of the Conversions Plus Agreement are not
modified in any material respect, (y) between the date when
IndeNet completes its due diligence investigations of Conversions
Plus and the closing of the transactions contemplated by the
Conversions Plus Agreement, there shall be no material adverse
change in the assets or liabilities, the business or condition,
financial or otherwise, or the results of operations or prospects
of Conversions Plus, or (z) the Refinancing is completed without
IndeNet having to guaranty or financially support Starcom's
obligations under the credit facility; provided, however, that
the condition contained in this clause (z) shall not apply in the
event that an Alternate Facility is obtained.
5.2 Review of Starcom. IndeNet may, prior to the Closing
Date, through its representatives, review the properties, books
and records of Starcom and its financial and legal condition as
they deem necessary or advisable to familiarize themselves with
such properties and other matters; such review shall not,
however, affect the representations and warranties made by
Starcom or the Stockholders hereunder. Starcom shall permit
IndeNet and its representatives to have, after the date of
execution hereof, full access to the Starcom offices and premises
and to all the books and records of Starcom and the officers of
Starcom shall furnish IndeNet with such financial and operating
data and other information with respect to the business and
properties of Starcom as IndeNet shall from time to time
reasonably request. The Stockholders and Starcom shall deliver
or cause to be delivered on the Closing Date, and at such other
times and places as shall be reasonably agreed on, such
additional instruments as the other party may reasonably request
for the purpose of carrying out this Agreement.
5.3 Continued Effectiveness of Representations and
Warranties of Starcom. From the date hereof through the Closing
Date, Starcom shall use its best efforts to conduct its business
in such a manner so that the representations and warranties
contained in Article 2 shall continue to be true and correct on
and as of the Closing Date as if made on and as of the Closing
Date. Starcom or the Stockholders shall give IndeNet notice of
any of the following of which Starcom or the Stockholders have
actual knowledge: (i) any event, condition or circumstance
occurring from the date hereof through the Closing Date that
would constitute a violation or breach in any material respect of
any representation, warranty or covenant of Starcom or the
Stockholders contained in this Agreement, or (ii) any event,
occurrence, transaction or other item that would have been
required to have been disclosed on any schedule or statement
delivered hereunder, had such event, occurrence, transaction or
other item existed on the date hereof.
5.4 Further Assurances. Each such party shall use its,
his or her best efforts to fulfill or obtain the fulfillment of
the conditions to the Closing set forth in Articles 6 and 7.
5.5 Indemnification of Brokers. Laidlaw Equities, Inc.
has been retained by the Stockholders in connection with the
transactions contemplated hereby, and the Stockholders (not
Starcom) shall be responsible for any fees and expenses that may
be due to such Person. Starcom and the Stockholders represent
and warrant to IndeNet that, other than Laidlaw Equities, Inc.,
no broker, finder, agent or similar intermediary has acted on
behalf of Starcom or the Stockholders in connection with this
Agreement or the transactions contemplated hereby, and that there
are no brokerage commissions, finder's fees or similar fees or
commissions payable in connection therewith based on any
agreement, arrangement or understanding with any of them, or any
action taken by any of them. The Stockholders agree to indemnify
and save Starcom and IndeNet harmless from any claim or demand
for commission or other compensation by Laidlaw Equities, Inc. or
any other broker, finder, agent or similar intermediary claiming
to have been employed by or on behalf of Starcom or any of the
Stockholders, and to bear the cost of legal expenses incurred in
defending against any such claim. IndeNet represents and
warrants to Starcom and the Stockholders that no broker, finder,
agent or similar intermediary has acted on behalf of IndeNet or
its Affiliates in connection with this Agreement or the
transactions contemplated hereby, and that there are no brokerage
commissions, finders' fees or similar fees or commissions payable
in connection therewith based on any agreement, arrangement or
understanding with IndeNet or its Affiliates, or any action taken
by IndeNet or its Affiliates. IndeNet agrees to indemnify and
save Starcom and the Stockholders harmless from any claim or
demand for commission or other compensation by any broker,
finder, agent or similar intermediary claiming to have been
employed by or on behalf of IndeNet, and to bear the cost of
legal expenses incurred in defending against any such claim.
5.6 No Shop. Until the expiration or termination of this
Agreement, Starcom and the Stockholders agree that they shall not
(i) encourage, solicit or initiate any Acquisition Proposal (as
hereinafter defined) with, (ii) negotiate, discuss or otherwise
communicate with or furnish or cause to be furnished any
information to, or otherwise cooperate with, or (iii) enter into
any contract or agreement with, any Person (other than IndeNet or
its representatives) with respect to or for any Acquisition
Proposal. In the event that any third party contacts Starcom or
the Stockholders (or any of their advisors) with any Acquisition
Proposal or expression of interest concerning such transaction,
the Stockholders will promptly notify IndeNet of the identity of
such third party and the nature and terms, if any, of such
Acquisition Proposal or expression of interest. As used herein,
"Acquisition Proposal" means the proposal for a merger, sale of
stock, sale of assets not in the ordinary course of business or
other business combination involving Starcom.
ARTICLE 6
CONDITIONS TO INDENET'S OBLIGATIONS
The exchange of the IndeNet Shares by IndeNet for the
Starcom Shares, on the Closing Date, is conditioned upon the
fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by IndeNet.
6.1 Good Standing and Tax Certificates. Starcom or the
Stockholders shall have delivered to IndeNet: (a) a copy of
Starcom's Certificate of Incorporation, including all amendments,
certified by the Secretary of State of the State of Delaware; (b)
a certificate from the Secretary of State of the State of
Delaware and each state in which Starcom is qualified as a
foreign corporation to do business, to the effect that such
corporation is in good standing in such state; and (c) a
certificate as to the tax status of Starcom in the State of
Delaware and each state in which it is qualified as a foreign
corporation to do business.
6.2 No Material Adverse Change. Between the date hereof
and the Closing Date, there shall be no material adverse change
in the assets or liabilities (except as provided for in this
Agreement), the business or condition, financial or otherwise,
the results of operations or prospects of Starcom, and Starcom
shall have delivered to IndeNet a certificate, dated the Closing
Date, to such effect.
6.3 Truth of Representations and Warranties. The
representations and warranties of Starcom and the Stockholders
contained in this Agreement or in any schedule delivered pursuant
hereto shall be true and correct on and as of the Closing Date
with the same effect as though such representations and
warranties had been made on and as of such date, and Starcom and
the Stockholders shall have delivered to IndeNet a certificate,
dated the Closing Date, to such effect.
6.4 Performance of Agreements. Each and all of the
agreements of Starcom and the Stockholders to be performed
pursuant to the terms hereof on or before the Closing Date shall
have been duly performed, and Starcom and the Stockholders shall
have each delivered to IndeNet a certificate, dated the Closing
Date, to such effect.
6.5 No Litigation Threatened. No action or proceedings
shall have been instituted or, to the best knowledge, information
and belief of Starcom, shall have been threatened before a court
or other government body or by any public authority to restrain
or prohibit any of the transactions contemplated hereby, and
Starcom shall have delivered to a certificate, dated the Closing
Date, to such effect.
6.6 Required Approvals, Notices and Consents. The
Stockholders and Starcom shall have obtained or given, as the
case may be, at no expense to IndeNet or Starcom, and there shall
not have been withdrawn or modified (i) any notices, consents,
approvals or other actions listed on Schedule 2.25 hereof and
(ii) any consents, approvals and/or waivers required under the
contracts listed on Schedule 2.9 in order to permit the
consummation of the transactions contemplated by this Agreement
without causing or resulting in a default, event of default,
acceleration event or termination event under any of such
documents and without entitling any party to any of such
documents to exercise any other right or remedy adverse to the
interests of IndeNet or Starcom thereunder. Each such consent,
approval and/or waiver shall be in form satisfactory to counsel
for IndeNet.
6.7 Governmental Approvals. All governmental and other
consents and approvals, if any, necessary to permit the
consummation of the transactions contemplated by this Agreement
shall have been received.
6.8 Proceedings. All proceedings to be taken in
connection with the transactions contemplated by this Agreement
and all documents incident thereto, shall be satisfactory in form
and substance to IndeNet and its counsel, and IndeNet shall have
received copies of all such documents and other evidences as
IndeNet or its counsel may reasonably request in order to
establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
6.9 Termination of Management Agreement. IndeNet and the
parties to the Management Agreement, dated February 15, 1995, by
and between Starcom and Starcom Management Services, Inc. and
Starcom Television Services, Inc., a British Virgin Islands
Company, shall have entered into a Termination Agreement, in the
form attached hereto as Exhibit F.
6.10 New Consulting Agreement. IndeNet shall have received
a copy of the Consulting Agreement, in the form attached hereto
as Exhibit A (the "Consulting Agreement"), duly executed by
Starcom Management Services, Inc.
6.11 Covenant Not To Compete. IndeNet shall have received
a copy of the Covenant Not To Compete, the form of which is
attached hereto as Exhibit B, duly executed by Gary J. Worth.
6.12 Completion of Spin-Off. The Spin-Off (as defined in
Section 8.1, below) shall have been completed and IndeNet shall
have received evidence of such completion satisfactory to
IndeNet's counsel.
6.13 Lock-Up Agreement. IndeNet shall have received a copy
of the Registration Rights and Lock-Up Agreement, in the form
attached hereto as Exhibit C, duly executed by each of the
Stockholders.
6.14 Repayment of Stockholder Indebtedness. Each holder of
Stockholder Indebtedness shall have executed and delivered any
and all documents and instruments reasonably requested by IndeNet
to evidence the repayment of all Stockholder Indebtedness at the
Closing by the issuance of the Repayment Shares.
6.15 Exclusive Distribution Agreement. Starcom
Entertainment, Inc. and Starcom shall have entered into an
assignable, three-year Exclusive Distribution Agreement in the
form attached hereto Exhibit E.
6.16 Transponder Agreement. Fifth Dimension Communications
Holdings, Inc. shall have duly executed and delivered that
certain Starcom Transponder Agreement, the form of which is
attached hereto as Exhibit G.
6.17 Convertible Securities. No options, warrants or
securities convertible into capital stock of Starcom (including
the warrants listed on Schedule 2.3) shall be outstanding as of
the Closing.
ARTICLE 7
CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS
The exchange of the Starcom Shares by the Stockholders for
the IndeNet Shares, on the Closing Date, is conditioned upon the
fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by them.
7.1 Truth of Representations and Warranties. The
representations and warranties of IndeNet contained in this
Agreement shall be true and correct on and as of the Closing Date
with the same effect as though such representations and
warranties had been made on and as of such date, and a duly
authorized officer of IndeNet shall have delivered to the
Stockholders a certificate, dated the Closing Date, to such
effect.
7.2 Performance of Agreements. Each and all of the
agreements of IndeNet to be performed on or before Closing Date
pursuant to the terms hereof shall have been duly performed, and
a duly authorized officer of IndeNet shall have delivered to the
Stockholders a certificate, dated the Closing Date, to such
effect.
7.3 No Litigation Threatened. No action or proceedings
shall have been instituted or, to the best knowledge, information
and belief of IndeNet shall have been threatened, before a court
or other government body or by any public authority to restrain
or prohibit IndeNet from consummating any of the transactions
contemplated hereby, and a duly authorized officer of IndeNet
shall have delivered to the Stockholders a certificate, dated the
Closing Date, to such effect.
7.4 Good Standing and Tax Certificates. IndeNet shall
have delivered to the Stockholders: (a) a copy of IndeNet's
Certificate of Incorporation, including all amendments, certified
by the Secretary of State of the State of Delaware; (b) a
certificate from the Secretary of State of the State of Delaware
and each state in which IndeNet is qualified as a foreign
corporation to do business, to the effect that such corporation
is in good standing in such state; and (c) a certificate as to
the tax status of IndeNet in the State of Delaware and each state
in which it is qualified as a foreign corporation to do business.
7.5 No Material Adverse Change. Between the date hereof
and the Closing Date, there shall be no material adverse change
in the assets or liabilities (except as provided for in this
Agreement), the business or condition, financial or otherwise,
the results of operations or prospects of IndeNet, and a duly
authorized officer of IndeNet shall have delivered to the
Stockholders a certificate, dated the Closing Date, to such
effect.
7.6 Consulting Agreement. IndeNet shall have delivered to
Starcom Management Services, Inc., as of the Closing Date, the
Consulting Agreement, duly executed by Starcom.
7.7 Voting Agreement. The stockholders of IndeNet
identified in the Voting Agreement, the form of which is attached
hereto as Exhibit D, shall have executed and delivered to Mr.
Andre Blay the Voting Agreement.
7.8 Registration Rights Agreement. IndeNet shall have
executed and delivered the Registration Rights and Lock-Up
Agreement.
7.9 Termination of Management Agreement. IndeNet and the
parties to the Management Agreement, dated February 15, 1995, by
and between Starcom and Starcom Management Services, Inc. and
Starcom Television Services, Inc., a British Virgin Islands
Company, shall have entered into a Termination Agreement, in the
form attached hereto as Exhibit F.
7.10 Governmental Approvals. All governmental and other
consents and approvals, if any, necessary to permit the
consummation of the transactions contemplated by this Agreement
shall have been received.
7.11 Proceedings. All proceedings to be taken in
connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Stockholders and their
counsel.
ARTICLE 8
COVENANTS OF INDENET
8.1 Financial Statements. IndeNet shall prepare, or cause
the officers of Starcom to prepare, the unaudited financial
statements (i) as of the Closing Date and (ii) for the Adjustment
Period required to be prepared pursuant to Section 1.2 of this
Agreement, at such times, and in accordance with Section 1.2
hereof, and to distribute copies of such financial statements to
each of the Stockholders in accordance with Section 1.2.4 hereof.
8.2 Tax Returns. IndeNet agrees to report the Exchange in
a manner consistent with a reorganization as described in Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, in
all income tax returns and other filings which describe the
Exchange. Notwithstanding the foregoing, IndeNet does not
represent or warrant that the Exchange does or will qualify as a
reorganization under Section 368(a)(1)(B), and IndeNet does not
agree to take any action, other than as required by the first
sentence of this Section 8.2, to ensure compliance with said
section, or to refrain from taking any action that might prevent
the applicability of said section to the Exchange.
ARTICLE 9
COVENANT OF STOCKHOLDERS
9.1 Spinoff of Starcom Entertainment, Inc. Prior to the
Exchange contemplated by this Agreement, Starcom shall (i) cause
Starcom Entertainment, Inc. to assign and transfer all satellite
uplink assets to Starcom, and (ii) distribute to the Stockholders
all of the capital stock of Starcom Entertainment, Inc.
(collectively, the "Spinoff"). The parties hereto acknowledge
that the Spinoff may constitute a taxable transaction to Starcom
and/or the Stockholders.
9.2 Tax Indemnity. The Stockholders, jointly and
severally, hereby indemnify and agree to defend and hold harmless
on an after tax basis Starcom and IndeNet from any liability for
Taxes arising from the Spinoff.
9.3 Tax Returns. Each Stockholder agrees to report the
Exchange in a manner consistent with a reorganization as
described in Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended, in all income tax returns and other filings
which describe the Exchange. Each Stockholder hereby
acknowledges that the Exchange may not qualify as a
reorganization under Section 368(a)(1)(B) and agrees that,
subject to Section 8.2, IndeNet may take, or may refrain from
taking, any future action without regard to the impact thereof on
the status of the Exchange as a reorganization under Section
368(a)(1)(B).
ARTICLE 10
SURVIVAL OF REPRESENTATIONS; INDEMNITY
10.1 Survival of Representations and Warranties of Starcom
and the Stockholders.
(a) Notwithstanding any right of IndeNet
fully to investigate the affairs of Starcom and notwithstanding
any knowledge of facts determined or determinable by IndeNet
pursuant to such investigation or right of investigation, IndeNet
shall have the right to rely fully upon the representations,
warranties, covenants and agreements of Starcom and the
Stockholders contained in this Agreement and the schedules or in
any document or other papers delivered in connection with this
Agreement. Except as set forth in Section 10.1(b) below, all
such representations, warranties, covenants and agreements shall
survive the execution and delivery of this Agreement and the
Closing hereunder, and the representations and warranties shall
thereafter terminate and expire and any claim based thereon shall
be brought two years from the Closing Date, except (i) as to
matters as to which an Indemnitee has made a claim for
indemnification or made a Claims Notice, pursuant to Section 10.5
hereafter, on or prior to such date, in which case the rights to
indemnification shall survive until such claim is finally
resolved and any obligations with respect thereto are fully
satisfied, and (ii) with respect to any claim pertaining to a
misrepresentation or a breach of warranty under this Agreement
relating to federal, state and other taxes and related interest
and penalties. The obligation to indemnify referred to in the
preceding clause (ii) shall terminate upon the expiration of the
relevant federal, state or other statute of limitations for all
pertinent periods ending on or prior to the Closing Date, except
as to matters as to which any Indemnitee has made a claim for
indemnification or given a Claims Notice under Section 10.5 on or
prior to such date, in which case the right to indemnification
with respect thereto shall survive the expiration of any such
period until such claim is finally resolved and any obligations
with respect thereto are fully satisfied.
(b) The representations, warranties, covenants
and agreements of Starcom contained in Section 2.5, 2.13, 2.19
and 2.27, and the representation with respect to Schedule 2.12
set forth in Section 2.12, shall terminate upon the Closing.
10.2 Obligation of the Stockholders to Indemnify.
(a) In addition to the indemnification provi-
sions contained in Section 9.2 of this Agreement, and subject to
Section 10.2(d), the Stockholders agree to indemnify, defend and
hold harmless IndeNet, its respective officers, directors,
employees and agents, and any of its successors and assigns from
and against any and all losses, liabilities, damages,
deficiencies, demands, claims, actions, judgments or causes of
action, assessments, costs or expenses (including, without
limitation, interest, penalties and reasonable attorneys, fees
and disbursements) ("Losses"), whether such Losses are incurred
in disputes with the Stockholders or involving third-party claims
against Starcom or IndeNet, based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Starcom and/or
the Stockholders contained in this Agreement or any schedule, or
any document or other papers delivered by Starcom or the
Stockholders to IndeNet in connection with this Agreement.
(b) Notwithstanding Section 10.2(a) above, the
obligation of the Stockholders to indemnify IndeNet under
Sections 9.2 and 10.2 shall apply (i) only if the cumulative
aggregate amount of Losses thereunder exceeds $175,000 and (ii)
only to the amounts in excess of such total. This Section
10.2(b) shall not, however, apply to IndeNet's rights under
Section 10.8 below.
(c) Any amount that the Stockholders are
required to indemnify IndeNet under Sections 9.2 and 10.2 may, at
the option of the Stockholders, be satisfied in cash and/or by
the return to IndeNet of shares of IndeNet Shares. The amount of
shares of IndeNet Shares to be returned shall be calculated by
dividing the dollar amount of the Losses by $4.00. The aggregate
maximum liability of each of the Stockholders under Sections 9.2
and 10.2 shall not exceed the dollar value of the sum of all of
the IndeNet Shares (valued at $4.00 per share) issued to such
Stockholder pursuant to this Agreement. IndeNet agrees that the
sum set forth in the immediately preceding sentence shall be an
absolute limitation upon the liability of the Stockholders to
IndeNet for any Losses based upon, arising out of or otherwise in
respect of any Taxes arising from the Spinoff or any inaccuracy
in or any breach of any representation, warranty, covenant or
agreement of Starcom and/or the Stockholder contained in this
Agreement or any schedule, or any document or other papers
delivered by Starcom or the Stockholders to IndeNet in connection
with this Agreement.
(d) Any claim of indemnification made by
IndeNet pursuant to this Section 10.2 with respect to a breach by
any Stockholder of such Stockholder's representations, warranties
or agreements contained in Article 3 shall be made only against
the breaching Stockholder, and IndeNet shall not be entitled to
make a claim against or otherwise pursue any other Stockholder.
Any claim made for indemnification under this Agreement other
than with respect to a breach under Article 3 (a "Joint Claim")
shall be made against only Andre A. Blay and the Andre A. Blay
Trust (collectively, "Blay"), Fifth Dimension Communication
Holdings, Inc. ("Fifth Dimension"), and Starcom Television
Services, Inc., an International Business Company of the British
Virgin Islands ("Starcom BVI"). Any Joint Claim shall initially
demand indemnification by Blay, Fifth Dimension and Starcom BVI
in accordance with Schedule 10.2(d) but may, at the discretion of
said Stockholders, be satisfied by said Stockholders in any
manner determined by said Stockholders. Blay, Fifth Dimension
and Starcom BVI hereby acknowledge and agree that their
obligation to indemnify IndeNet hereunder includes the obligation
to indemnify due to Losses that may have been incurred as a
result of a breach of a representation, warranty or covenant by
Starcom even through such representation, warranty or covenant
was not made by the Stockholders, or any of them.
(e) Gary J. Worth hereby irrevocably,
unconditionally and absolutely guarantees and promises to pay to
IndeNet any and all amounts owed by Starcom BVI to IndeNet under
Sections 9.2 and 10.2 if, as and when the same shall become due
and owing by Starcom BVI hereunder.
(f) Douglas Duncan and Stewart Duncan, jointly
and severally, hereby irrevocably, unconditionally and absolutely
guaranty and promise to pay to IndeNet any and all amounts owed
by Fifth Dimension Communications Holdings, Inc., a Delaware
corporation, to IndeNet as and when the same shall become due and
owing by Fifth Dimension Communications Holdings, Inc. under
Sections 9.2 and 10.2.
(g) Andre A. Blay hereby irrevocably,
unconditionally and absolutely guarantees and promises to pay to
IndeNet any and all amounts owed by the Andre A. Blay Trust to
IndeNet under Sections 9.2 and 10.2 if, as and when the same
shall become due and owing by the Andre A. Blay Trust hereunder.
10.3 Survival of Representations and Warranties of IndeNet.
Notwithstanding any knowledge of facts determined or determinable
by the Stockholders pursuant to any investigation or right of
investigation of the affairs of IndeNet, the Stockholders shall
have the right to rely fully upon the representations,
warranties, covenants and agreements of IndeNet contained in this
Agreement and the schedules or in any document or other papers
delivered in connection with this Agreement. All such
representations, warranties, covenants and agreements shall
survive the execution and delivery of this Agreement and the
Closing hereunder, and the representations and warranties shall
thereafter terminate and expire, and any claim based thereon
shall be brought two (2) years from the Closing Date, except as
to matters as to which an Indemnitee has made a claim for
indemnification or given a Claims Notice under Section 10.5
hereafter on or prior to such date, in which case the rights to
indemnification shall survive until such claim is finally
resolved and any obligations with respect thereto are fully
satisfied.
10.4 Obligation of IndeNet to Indemnify. IndeNet agrees to
indemnify, defend and hold harmless the Stockholders and their
successors and assigns from and against any and all Losses based
upon, arising out of or otherwise in respect of any inaccuracy in
or any breach of any representation, warranty, covenant or
agreement of IndeNet contained in this Agreement or in any
document or other papers delivered by IndeNet to the Stockholders
in connection with this Agreement.
10.5 Notice and Opportunity to Defend.
10.5.1 Notice of Asserted Liability. Promptly after
receipt by any party hereto (the "Indemnitee") of notice of any
demand, claim or circumstances which, with the lapse of time,
would or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in any
Losses, the Indemnitee shall promptly give notice thereof (the
"Claims Notice") to any other party obligated to provide
indemnification pursuant to Section 10.2, 10.4 or 9.2 (the
"Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary and to the extent feasible) of
the Losses that have been or may be suffered by the Indemnitee.
10.5.2 Opportunity to Defend. The Indemnifying Party
may elect to compromise or defend, at its own expense and by its
own counsel, any Asserted Liability. If the Indemnifying Party
elects to compromise or defend such Asserted Liability, it shall
within thirty (30) days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against,
such Asserted Liability. If the Indemnifying Party elects not to
compromise or defend the Asserted Liability, fails to notify the
Indemnitee of its election as herein provided, or contests its
obligation to indemnify under this Agreement, the Indemnitee may
pay, compromise or defend such Asserted Liability at the expense
of the Indemnifying Party. Subject to the limitations contained
in Section 10.5.3 on the obligations of the Indemnifying Party in
respect of proposed settlements, the Indemnitee shall have the
right to employ its own counsel with respect to any Asserted
Liability, but the fees and expenses of such counsel shall be at
the expense of such Indemnitee unless (a) the employment of such
counsel shall have been authorized in writing by the Indemnifying
Party in connection with the defense of such action, or (b) such
Indemnifying Party shall not have, as provided above, promptly
employed counsel reasonably satisfactory to such Indemnitee to
take charge of the defense of such action, or (c) such Indemnitee
shall have reasonably concluded based on an opinion of counsel
that there may be one or more legal defenses available to it
which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees
and expenses shall be borne by the Indemnifying Party and the
Indemnifying Party shall not have the right to direct the defense
of such action on behalf of the Indemnitee in respect of such
different or additional defenses. If the Indemnifying Party
chooses to defend any claim, the Indemnitee shall make available
to the Indemnifying Party any books, records or other documents
within its control that are necessary or appropriate for such
defense.
10.6 Settlement. Notwithstanding the provisions of Section
10.5.2, neither the Indemnifying Party nor the Indemnitee may
settle or compromise any claim for which indemnification has been
sought and is available hereunder, over the objection of the
other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld or delayed. If,
however, the Indemnitee refuses to consent to a bona fide offer
of settlement which the Indemnifying Party wishes to accept, the
Indemnitee may continue to pursue such matter, free of any
participation by the Indemnifying Party, at the sole expense of
the Indemnitee. In such event, the obligation of the
Indemnifying Party to the Indemnitee shall be equal to the lesser
of (i) the amount of the offer of settlement which the Indemnitee
refused to accept plus the costs and expenses of the Indemnitee
prior to the date the Indemnifying Party notified the Indemnitee
of the offer of settlement, and (ii) the actual out-of-pocket
amount the Indemnitee is obligated to pay as a result of the
Indemnitees continuing to pursue such matter.
10.7 Disputes with Customers or Suppliers. Anything in
Section 10.5.2 to the contrary notwithstanding, in the case of
any Asserted Liability by any customer or supplier of Starcom
with respect to the business conducted by Starcom prior to the
Closing Date in connection with which IndeNet may make a claim
against the Stockholders for indemnification pursuant to Section
10.1, IndeNet shall give a Claims Notice with respect thereto,
but, unless IndeNet and the Indemnifying Party otherwise agree,
IndeNet shall have the exclusive right at its option to defend,
at its own expense, any such matter, subject to the duty of
IndeNet to consult with the Indemnifying Party and its attorneys
in connection with such defense or any settlement decision. All
amounts required to be paid in connection with any such Asserted
Liability pursuant to the determination of any court,
governmental or regulatory body or arbitrator, and all amounts
required to be paid in connection with any compromise or
settlement of such Asserted Liability, shall be borne and paid by
the Indemnifying Party. The parties agree to cooperate fully
with one another in the defense, compromise or settlement of any
such Asserted Liability.
10.8 Offset; Other Rights.
(a) In the event of any Losses arising in
respect of any inaccuracy in or any breach by Starcom of a
representation, warranty or covenant contained in this Agreement
(other than the representations and warranties that terminated at
the Closing pursuant to Section 10.1(b)) prior to the Second
Closing Date, IndeNet may, in addition to any other remedy it may
have under this Article 10, offset against the IndeNet Shares to
be issued at the Second Closing an amount equal to any and all
Losses sustained by IndeNet or Starcom by reason of such breach
or inaccuracy. The amount of IndeNet Shares subject to offset
will be equal to the dollar amount of the Losses sustained
divided by $4.00 per share. In the event that a breach or
inaccuracy has occurred and IndeNet proposes to avail itself of
the offset provisions of this Section 10.8(a), IndeNet shall
provide the Stockholders with written notice of the breach or
inaccuracy, which notice shall also specify the amount of
damages, losses and liabilities sustained as a result of such
breach or inaccuracy. Unless the Stockholders notify IndeNet in
writing of their objection to the proposed offset within 10
calendar days of their receipt of such written notice, the offset
may be implemented in the manner specified in IndeNet's written
notice. If the Stockholders notify IndeNet in a timely fashion
of their objection to any proposed offset, IndeNet may withhold,
from any share issuance to be made at the Second Closing, an
amount of IndeNet Shares equal to the number of shares specified
in IndeNet's notice until the disagreement regarding the breach
or inaccuracy and the proposed offset is resolved between the
Stockholders and IndeNet.
(b) The $175,000 minimum Loss limit imposed by
Section 10.2(b) shall not apply to IndeNet's right to offset
contained in this Section 10.8.
(c) Subject to the limitation on damages (in
cash or by the return of IndeNet Shares) contained in Section
10.2(c), the foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory, equitable or common-
law remedy any party hereto may have for breach of
representation, warranty, covenant or agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Expenses. Except as otherwise provided herein, the
parties hereto shall pay all of their own expenses relating to
the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective
counsel and financial advisers.
11.2 Governing Law. The interpretation and construction of
this Agreement, and all matters relating hereto, shall be
governed by the laws of the State of California without reference
to its conflict of laws provisions.
11.3 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or other
department or agency thereof.
11.4 Jurisdiction. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out
of this Agreement or any matter related hereto shall be brought
in the courts of the State of California in Los Angeles County or
in the United States District Court located in Los Angeles,
California, and by execution and delivery of this Agreement, each
of the parties to this Agreement accepts for itself or himself
the jurisdiction of the aforesaid courts, irrevocably consents to
the service of any and all process in any action or proceeding by
the mailing of copies of such process to such party at its or his
address as set forth in Section 11.8 hereafter, and irrevocably
agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Each party hereto irrevocably waives to the
fullest extent permitted by law any objection that it or he may
now or hereafter have to the laying of the venue of any judicial
proceeding brought in such courts and any claim that any such
judicial proceeding has been brought in an inconvenient forum.
The foregoing consent to jurisdiction shall not constitute
general consent to service of process in the State of California
for any purpose except as provided above and shall not be deemed
to confer rights on any Person other than the respective parties
to this Agreement.
11.5 "Knowledge" Defined. Where any representation and
warranty contained in this Agreement is expressly qualified by
reference to knowledge, information or belief of Starcom, such
representations and warranties shall be based on the actual
knowledge of all executive officers and directors of Starcom
after due and diligent inquiry as to the matters that are the
subject of such representations and warranties as shall be
reasonable under the circumstances.
11.6 "Affiliate" Defined. As used in this Agreement, an
"Affiliate" of any Person shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person.
11.7 Captions. The article and section captions used
herein are for reference purposes only, and shall not in any way
affect the meaning or interpretation of this Agreement.
11.8 Notices. Any notice or other communications required
or permitted hereunder shall be in writing and shall be deemed
effective (a) upon personal delivery, if delivered by hand and
followed by notice by mail or facsimile transmission, or (b)
three days after the date of deposit in the mails, if mailed by
certified or registered mail (return receipt requested), or (c)
on the next business day, if mailed by an overnight mail service
to the parties or sent by facsimile transmission, and in each
case of mailing, postage prepaid, addressed to a party at its or
his address set forth on the signature page hereof, or such other
address as shall be furnished in writing by like notice by any
such party. A copy of each notice sent to either Starcom or any
Stockholder should also be sent to David L. Ficksman, Esq., Loeb
and Loeb, 1000 Wilshire Blvd., Ste. 1800, Los Angeles, California
90017, and a copy of each notice sent to IndeNet should also be
sent to Istvan Benko, Esq., Troy & Gould, 1801 Century Park East,
16th Floor, Los Angeles, CA 90067.
11.9 Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) By mutual agreement of IndeNet and the
Stockholders holding a majority of the Starcom Shares;
(b) By IndeNet on the one hand or the
Stockholders on the other if the Closing has not occurred on or
before February 29, 1996 for any reason other than a breach by
the terminating party;
(c) IndeNet if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by
any Stockholder under this Agreement or (ii) any of the
conditions precedent to the Closing set forth in Article 6 have
not been met on the Closing Date, and, in each case, IndeNet is
not then in default of its obligations hereunder; and
(d) By the Stockholders if (i) there has been
a material misrepresentation, breach of warranty or breach of
covenant by IndeNet under this Agreement or (ii) any of the
conditions precedent to the Closing set forth in Article 7 have
not been met on the Closing Date, and, in each case, the
Stockholders are not in default of their obligations hereunder.
In the event of termination of this Agreement as provided in
Section 11.9(a) or 11.9(b), this Agreement shall become void and
there shall be no liability hereunder on the part of any party
hereto. In the event of termination of this Agreement as
provided in Section 11.9(c), such termination shall be without
prejudice to any of the rights that IndeNet may have against the
Stockholders or any other person under the terms of this
Agreement or otherwise. In the event of termination of this
Agreement as provided in Section 11.9(d), such termination shall
be without prejudice to any of the rights that the Stockholders
may have against IndeNet or any other person under the terms of
this Agreement or otherwise.
11.10 Parties in Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party
hereto, other than by operation of law. No assignment or
transfer shall be effective unless the assignee agrees in writing
to assume such assignor's obligations under the Agreement. This
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
11.11 Press Releases and Announcements. No party to this
Agreement shall issue any press release or public announcement
relating to the subject matter of this Agreement without the
prior approval of the other parties to this Agreement; provided,
however, that any party to this Agreement may make any public
disclosure it believes in good faith is required by law or
regulation, including any state or federal securities laws (in
which case the disclosing party will advise the other parties
prior to making the disclosure).
11.12 Further Assurances. The parties hereby agree from
time to time to execute and deliver such further and other
transfer, assignment and other documents and to do all matters
and things which may be convenient or necessary to more
effectively and completely carry out the intentions of this
Agreement.
11.13 Construction. The language used in this Agreement
will be deemed to be the language chosen by all of the parties
hereto to express their mutual intent, and no rule of
construction shall be specified against any party.
11.14 Severability. In the event any provision of this
Agreement is found to be void and unenforceable by a court of
competent jurisdiction or arbitration panel, the remaining
provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect though the void or unenforceable
part had been severed and deleted.
11.15 Counterparts. This Agreement may be executed in two
or more counterparts, all of which taken together shall
constitute one instrument.
11.16 Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof, contains
the entire understanding of the parties hereto with respect to
the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
11.17 Amendments. This Agreement may not be changed orally,
but only by any agreement in writing signed by IndeNet and each
Stockholder.
11.18 Third-Party Beneficiaries. Each party hereto intends
that this Agreement shall not benefit or create any right or
cause of action in or on behalf of any Person other than the
parties hereto and their respective successors and assigns as
permitted under Section 11.10.
11.19 Confidentiality. Subject to any obligation to comply
with any law, rule or regulation of any governmental authority or
any subpoena or other legal process to make information available
to the persons entitled thereto, IndeNet shall, and shall cause
its Affiliates, attorneys, accountants and representatives to,
keep confidential and IndeNet shall not use, or permit its
Affiliates, attorneys, accountants and representatives to use, in
any manner other than for the purpose of evaluating the
transaction contemplated herein any information obtained from
Starcom or any of the Stockholders or acquired by this Agreement,
whether or not obtained or acquired pursuant to the terms of this
Agreement, unless such information is readily ascertainable from
public or published information, from trade sources, or is
already known to IndeNet. If the transactions contemplated
herein fail to close for any reason whatsoever, IndeNet shall
immediately return or cause to be returned to Starcom or the
Stockholders, as the case may be, all written data, software,
encoded data information, files, records and copies of documents,
worksheets and other materials obtained by IndeNet in connection
with the transactions contemplated herein.
IN WITNESS WHEREOF, IndeNet, Inc., Starcom and the
Stockholders have each executed this Agreement as of the date
first written above.
"INDENET" INDENET, INC., a Delaware
corporation
By:_____________________________
Robert Lautz
IndeNet, Inc.
1640 North Gower St.
Los Angeles, CA 90028
"STARCOM" STARCOM TELEVISION SERVICES, INC.
a Delaware corporation
By:_____________________________
10523 Burbank Blvd.,
No. Hollywood, California 91603
"STOCKHOLDERS" FIFTH DIMENSION COMMUNICATIONS
HOLDINGS, INC., a Delaware
corporation
By:_____________________________
2500 Don Reid Drive
Ottawa, Ontario, Canada K1H8P5
Copy to:
Jaime Wyllie, Esq.
Kelly, Howard, Santini
200 Elgin Street, #900
Ottawa, Ontario, Canada
K2P 1L5
STARCOM TELEVISION SERVICES, INC.,
an International Business Company
of the British Virgin Islands
By:_____________________________
Abbott Building
2nd Floor, P.O. Box 933,
Road Town, Tortola,
British Virgin Islands
Copy to:
Gary J. Worth
2301 Sunset Plaza Drive
Los Angeles, California 90069
________________________________
Andre A. Blay, Trustee for the
Andre A. Blay Trust
40240 Fairway III Drive
Northville, MI 48157
________________________________
Wayne Kennedy
371 Elm Street
San Carlos, CA 94070
________________________________
Loreli Rockwell
371 Elm Street
San Carlos, CA 94070
________________________________
Rabiner Partners
c/o Bartlett & Co.
36 East Fourth Street
Cincinnati, OH 45202
________________________________
James Miller
c/o Bartlett & Co.
36 East Fourth Street
Cincinnati, OH 45202
________________________________
Mary G. Miller
c/o Bartlett & Co.
36 East Fourth Street
Cincinnati, OH 45202
Agreement with respect to
Section 10.2(e) only:
_______________________________
Gary J. Worth
Agreement with respect to
Section 10.2(f) only:
______________________________
Douglas Duncan
______________________________
Stewart Duncan
Agreement with respect to
Section 10.2(g) only:
______________________________
Andre A. Blay
INDEX TO
SCHEDULES AND EXHIBITS
STARCOM
SCHEDULES
1.2.1(a) Sample Starcom General Ledger Trial Balance
1.2.1(b) Stockholder Indebtedness
1.2.5 Percentage Distribution
2.2 Jurisdiction
2.3 Convertible Securities
2.4 Subsidiaries, Affiliates and Investments
2.5 Financial Statements
2.6 Books and Records
2.7 Properties and Encumbrances
2.8 Leases
2.9 Contracts
2.10 Restrictive Documents
2.11 Litigation
2.12 Taxes Payable by Starcom
2.13 Liabilities
2.14 Insurance
2.15 Intellectual Properties
2.17 Licenses
2.18 Suppliers and Customers
2.19 Accounts Receivable
2.21 ERISA Plans
2.22 Interested Transactions
2.23 Bank Accounts, Powers of Attorney and Compensation
2.24 Recent Changes
2.25 Required Approvals, Notices and Consents
2.28 Environment
2.29 Pacific Syndication Acquisition
3.1 Ownership of Starcom Stock
5.1(b) Terms of Refinancing
10.2(d) Stockholder Indemnification
INDENET
SCHEDULES
4.5 Litigation
4.6 Capitalization
EXHIBITS
A. Consulting Agreement
B. Covenant Not To Compete
C. Registration Rights and Lock-Up Agreement
D. Voting Agreement
E. Exclusive Distribution Agreement
F. Termination Agreement
G. Starcom Transponder Agreement
