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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: May 5, 1997
BNN CORPORATION
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(Exact name of Registrant as specified in its charter)
Nevada 0-17591 93-0957030
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification Number)
incorporation)
345 Park Avenue South, New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 779-6601
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Item 2. Acquisition or Disposition of Assets
On May 5, 1997 a subsidiary of the Company, People & Properties, Inc.
("P&P") sold to Interpublic Group of Companies, Inc. ("IPG"), an aggregate 51%
interest in Kaleidoscope Sports and Entertainment L.L.C. (the "LLC"), a limited
liability company. The sale was made pursuant to an amended and restricted
limited liability company agreement (the "Agreement"). The LLC was formed to
conduct the sports and entertainment business of the Company - the Kaleidoscope
Sports Group ("KSG"). Prior to the sale assets and agreements of KSG were
contributed to the LLC. IPG is an unaffiliated public corporation engaged in the
advertising and public relations business. The purchase price is based upon the
earnings of the LLC during the three annual periods immediately subsequent to
the closing ("Earning Period") with a down payment of $2,200,000 paid at
closing. The Agreement grants IPG a one year option to acquire the remaining 49
percent of the LLC for a purchase price based on the earnings of the LLC during
the Earning Period with an additional downpayment of $1,900,000 at the option
closing date.
After the transaction, employees of KSG became employees of the LLC. In
connection with the transaction, Raymond Volpe became chief executive officer of
the LLC. Mr. Volpe is a director of the corporation and until his resignation
prior to the transaction, was co-chief executive officer of the Company.
Future financial results of the LLC will be included in the Company's
financial statements pursuant to the equity method.
Reference is made to the Agreement, a copy of which is attached hereto
and incorporated by reference herein, for more detailed information of the
transactions described herein.
Item 7. Financial Statements, Pro-Forma Information and Exhibits
(a) Financial Statements of Businesses Acquired
Not Applicable
(b) Pro Forma Financial Information
None Required
(c) Exhibits
2. Amended and Restated Limited Liability Company Agreement,
dated as of April 30, 1997, among the Company, Interpublic
Group of Companies, Inc., 345 Park Avenue PAS Sports, Inc.
and People & Properties, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: May 20, 1997 BNN CORPORATION
(registrant)
By: /s/ Henry Siegel
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KALEIDOSCOPE SPORTS AND ENTERTAINMENT L.L.C.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
("Agreement") of KALEIDOSCOPE SPORTS AND ENTERTAINMENT L.L.C. ("Company") is
made as of the 30th day of April, 1997 by and among THE INTERPUBLIC GROUP OF
COMPANIES, INC., a Delaware corporation ("IPG"), 345 PAS SPORTS, INC., a New
York corporation ("PAS"), and PEOPLE & PROPERTIES, INC. ("P&P"), a New York
corporation.
RECITALS:
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WHEREAS, PAS and P&P have heretofore formed the Company by contributing
certain assets used by them in the conduct of the sports and entertainment
marketing, consulting, and production and diversity and event/presence marketing
businesses in exchange for a one percent (1%) and ninety-nine percent (99%)
Membership Interest, respectively, in the Company and have entered into an
operating agreement (the "Original Agreement") with respect to the Company; and
WHEREAS, IPG desires to purchase an a fifty-one percent (51%)
Membership Interest from P&P and to be admitted as a Member of the Company with
a fifty-one percent (51%) Percentage Interest, so that on the Closing Date IPG,
PAS, and P&P shall be the sole Members of the Company, with IPG having a
fifty-one percent (51%) Percentage Interest, PAS having a one percent (1%)
Percentage Interest, and P&P having a forty-eight percent (48%) Percentage
Interest; and
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WHEREAS, the parties desire to amend and restate the Original Agreement
in its entirety so as to reflect the purchase of Membership Interests by IPG
described in the immediately preceding recital and to further describe the
affairs of the Company and the conduct of its business, which agreement is a
limited liability company agreement within the meaning of Section 18-101(7) of
the Delaware Limited Liability Company Act; and
WHEREAS, all capitalized terms used in this preamble shall have the
respective meanings set forth below;
NOW, THEREFORE, each of the undersigned agrees as follows:
ARTICLE I
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DEFINITIONS
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1.1 Definitions. As used herein, the following terms shall have the
following respective meanings:
"Act" means the Delaware Limited Liability Company Act, Delaware Code
Annotated, Title 6, Chapter 18, as the same may be amended from time to time.
"Additional Interests" has the meaning specified in Section 3, 5
hereof.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of a
relevant Taxable Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such Member is
obligated to restore pursuant to the terms of this Agreement or is deemed to be
obligated to restore
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pursuant to the penultimate sentences of Treasury Regulations ss.ss.
1.704-2(g)(1) or 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in paragraphs
(4), (5) and (6) of Treasury Regulations ss. 1.704-1(b)(2)(ii)(d). The foregoing
definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall
be interpreted consistently therewith.
"Assets" has the meaning specified in Section 3.1(a) hereof.
"Assignment and Assumption Agreement" has the meaning specified in
Section 3.1(b) hereof.
"Balance Sheet Date" has the meaning specified in Section 9.2.
"Bill of Sale" has the meaning specified in Section 3.1(b) hereof.
"Board" or "Board of Directors" means the board of directors of the
Company provided for in Section 6.1 hereof.
"CEO" has the meaning specified in Section 6.2.
"Capital Account" means the account of a Member that is maintained in
accordance with the provisions of Section 4.1 hereof.
"Claims" has the meaning specified in Section 9.3 hereof.
"Closing Date" means the date as of which this Agreement is entered
into.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto. Any reference herein to specific sections of the Code shall
be deemed to include a reference to any corresponding provisions of future law.
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"Company Minimum Gain" means such amount as determined in accordance
with the provisions of Treasury Regulations ss. 1.704-2(d).
"Contract Year" means April 1 of one year through March 31 of the
following year.
"Depreciation" means, for each Taxable Year or other period, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such Taxable Year or other period, except
that if the Gross Asset Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such Taxable Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Taxable Year or other
period bears to such beginning adjusted tax basis. If any asset shall have a
zero adjusted basis for federal income tax purposes, Depreciation shall be
determined utilizing any reasonable method selected by the Board of Directors.
"Director" means a natural person serving on the Board of Directors.
"Distribution" means a distribution to the Members of cash or other
assets of the Company, made from time to time in accordance with the provisions
of this Agreement.
"Downpayment" has the meaning specified in Section 3.4(a).
"Encumbrance" means, with respect to a Membership Interest or any other
asset, any mortgage, lien, pledge, charge, security interest, conditional sale
agreement, financing statement or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest in respect of such asset.
"ERISA" has the meaning specified in Section 9.2(f).
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"Estimated Value" has the meaning specified in Section 3.3.
"Final Option Payment" has the meaning specified in Section 3.5(d)
hereof.
"Final Payment" has the meaning specified in Section 3.4(d).
"Financial Statements" has the meaning specified in Section 9.2.
"Fiscal Year" means an annual accounting period ending December 31 of
each year during the term of the Company; provided, however, that the last such
Fiscal Year shall be the period beginning on January 1 of the calendar year in
which the final liquidation and termination of the Company is completed and
ending on the date such final liquidation and termination is completed. To the
extent any computation or other provision hereof provides for an action to be
taken on a Fiscal Year basis, an appropriate proration or other adjustment shall
be made in respect of the first or final Fiscal Year (or any other Fiscal Year
that is less than a full calendar year) to reflect that such period is less than
a full calendar year period.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as determined
by the contributing Member and the other Members, provided that the Gross Asset
Values of the assets contributed to the Company pursuant to the Original
Agreement and Section 3.3 hereof shall be as set forth in such Section 3.3;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values, as reasonably determined by the
Board of Directors, as of the following times: (i) the acquisition of an
interest or an additional interest in the Company by any
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new or existing Member in exchange for more than a de minimis capital
contribution; (ii) the distribution by the Company to a Member of more than a de
minimis amount of property or money as consideration for an interest in the
Company; and (iii) the liquidation of the Company within the meaning of Treasury
Regulations ss. 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (i) and (ii) above shall be made only if the Board of
Directors reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members;
(c) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations ss.1.704-1(b)(2)(iv)(m); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this paragraph (c) to
the extent the Board of Directors determines that an adjustment pursuant to
paragraph (b) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
paragraph (c); and
(d) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to paragraphs (a), (b), or (c), such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Net Income and Net Losses.
"Gross Income" means the total sales of the Company from all sources,
minus total direct costs paid to third parties in connection with services
rendered by the Company to its clients.
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"Intangibles" mean the Company's "section 197 intangibles," as that
term is defined in Code Section 197(d) and the Treasury Regulations thereunder,
as of the close of the Closing Date.
"Involuntary Transfer" means the transfer of title to or beneficial
ownership of a Membership Interest, or any portion thereof or interest therein,
upon an insolvency, default, forfeiture, court order, an assignment for benefit
of creditors or otherwise (but not by death or a voluntary decision of the
transferor).
"Liabilities" has the meaning specified in Section 3.1(a) hereof.
"Management Services Fee" has the meaning specified in Article VIII.
"Member" or "Members" means IPG, PAS and P&P, and any Person who
becomes a Member in accordance with this Agreement.
"Membership Interest" of a Member means such Member's full right, title
and interest as a member in the Company.
"Member Nonrecourse Debt" means such amount as determined in accordance
with the provisions of Treasury Regulations ss. 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means, with respect to each
Member Nonrecourse Debt, such amount as determined in accordance with the
provisions of Treasury Regulations ss.ss. 1.704-2(i)(2) and (3).
"Member Nonrecourse Deductions" means such amount as determined in
accordance with the provisions of Treasury Regulations ss. 1.704-2(i)(2).
"Net After-Tax Income" of the Company for any Contract Year means the
net income, before taxes and before any deduction for amortization of any
intangible assets existing
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as of the date of the Original Agreement, of the Company for such Contract Year
as agreed to by IPG, PAS, and P&P, determined in accordance with generally
accepted accounting principles consistently applied, as calculated by the
Company's accountants appointed pursuant to Section 6.9(a) (applying principles
consistent with those reflected in the Company's audited financial statements),
adjusted (i) to take into account an assumed income tax deduction in an amount
equal to the combined federal, state and local income tax liability of the
Members with respect to the taxable income of the Company for such Contract
Year, calculated by multiplying the taxable income of the Company (before any
deduction for amortization of any intangible assets existing as of the date of
the Original Agreement) by an effective tax rate which assumes that all Members
are located one hundred percent (100%) in New York City and pay income tax at
the maximum applicable marginal combined federal, state and local tax rates for
corporations, and (ii) to accrue for any actual Management Services Fee or
incentive bonus reflected in the calculation of such net income, (x) a deemed
accrual for the Management Services Fee contemplated by Article VIII for such
Contract Year and (y) a deemed accrual for the minimum incentive bonus
contemplated by Section 7.6 for such Contract Year.
"Net Income" and "Net Losses" mean for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for such Fiscal
Year or period (for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss) with the following adjustments:
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(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Income or Net Losses
pursuant to this definition shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations ss. 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income or Net Losses pursuant to this definition, shall
be subtracted from such taxable income or loss;
(c) Gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of;
(d) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period;
and
(e) Any items which are specially allocated pursuant to Section 4.3
hereof shall not be taken into account in computing Net Income or Net Losses.
The amounts of the items of Company income, gain, loss, or deduction available
to be specially allocated pursuant to Section 4.3 hereof shall be determined by
applying rules analogous to those set forth in subparagraphs (a) through (d) of
this definition.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations ss. 1.704-2(b)(1).
"Notice Date" has the meaning specified in Section 7.2(b).
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"Operating Profit" means the pre-tax profit of the Company before
taking into account any deduction for incentive bonus payments but after
deduction for the Management Services Fee.
"Option Purchase Price" has the meaning specified in Section 3.5(d)
hereof.
"Percentage Interest", as to any Member, means such Member's
"Percentage Interest" reflected on Schedule 2.7, as the same may be adjusted in
accordance with this Agreement.
"Person" means any natural person, corporation (stock or nonstock),
limited liability company, limited partnership, general partnership, joint stock
company, joint venture, association (profit or nonprofit), company, estate,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Purchase Price" has the meaning specified in Section 3.4(d).
"Purchasing Parties", in connection with a Third Party Offer or
Involuntary Transfer, means all Members opting, pursuant to Section 7.2 hereof,
to exercise their right of first refusal with respect to the Sale Interest
subject to such Third Party Offer or Involuntary Transfer.
"Sale Interest" means any Membership Interest that is subject to a
Third Party Offer or Involuntary Transfer.
"Second Downpayment" has the meaning specified in Section 3.5(a)
hereof.
"Second Option Payment" has the meaning specified in Section 3.5(b)
hereof.
"Second Payment" has the meaning specified in Section 3.4(b).
"Selling Party" means a holder of a Sale Interest.
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"Subsequent Closing Date" has the meaning specified in Section 3.5
hereof.
"Tag-Along Notice" has the meaning specified in Section 7.3(b) hereof.
"Tag-Along Right" has the meaning specified in Section 7.3(a) hereof.
"Tax Matters Partner" has the meaning specified in Section 5.3 hereof.
"Taxable Year" of the Company shall be the Fiscal Year.
"Term" has the meaning specified in Section 2.8 hereof.
"Third Option Payment" has the meaning specified in Section 3.5(c)
hereof.
"Third Party Offer" means the receipt by a Member of a bona fide,
written offer from a third party that would be considered financially
responsible by a reasonably prudent seller to purchase all or any portion of
such Member's Membership Interest, which offer such Member intends to accept.
"Third Payment" has the meaning specified in Section 3.4(c).
"Treasury Regulations" means regulations adopted by the Treasury
Department of the United States governing application and enforcement of the
Code. Any reference to a section or provision of the Treasury Regulations shall
be deemed to refer also to such section or provision as amended or superseded.
ARTICLE II
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THE COMPANY
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2.1 Purpose. The purpose of the Company shall be to engage in the
business of sports and entertainment marketing, consulting, and production, and
diversity and event/presence marketing and, to the extent approved pursuant to
Section 6.5(m) hereof from
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time to time, in any other lawful business that may be engaged in by a limited
liability company organized under the Act.
2.2 Principal Office; Registered Office.
(a) The address of the principal business office of the Company is 345
Park Avenue South, New York, New York 10010.
(b) The registered office of the Company in the State of Delaware is
located at 1013 Centre Road, Wilmington, Delaware 19805, and the registered
agent at such office is Corporation Service Company.
2.3 Changes in Registered Office, etc. The Board of Directors may make
such changes in the registered office, registered agent and principal office as
they may deem necessary or advisable, and shall give notice to all Members
promptly following any such change. The Company may maintain such other or
additional business offices at such other place or places as the Board of
Directors may, subject to this Agreement, from time to time deem advisable.
2.4 Maintenance. The Board of Directors shall cause to be filed
promptly all certificates, amendments or other instruments as required by law to
maintain the Company in good standing as a limited liability company in all
jurisdictions in which it conducts business, including as required to comply
with any fictitious name statutes.
2.5 Authority and Powers. The Company is authorized and empowered to do
any and all acts and things necessary, appropriate, proper, advisable,
incidental to, or convenient for the furtherance and accomplishment of its
purposes, and for the protection and benefit of the Company, including all acts
and things permitted under the Act and this Agreement.
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2.6 Juridical Existence, Properties, etc. The Company shall maintain,
preserve, and keep in full force and effect its limited liability company
existence and all rights, franchises, licenses and permits necessary to the
proper conduct of its business, and the ownership, leasing, or operation of its
properties which, if not so maintained, could reasonably be expected to have a
material adverse effect on the Company, and to take all action which may be
reasonably required to obtain, preserve, renew and extend all material licenses,
permits, authorizations, trade names, trademarks, service names, service marks,
copyrights and patents which are necessary for the continuance of the operation
of any such property by the Company.
2.7 Members. The name and business or residence address of each Member
of the Company are as set forth on Schedule 2.7 attached hereto, as the same may
be amended from time to time.
2.8 Term. The Company's existence shall be perpetual unless earlier
dissolved and terminated in accordance with the Act and this Agreement.
ARTICLE III
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CAPITAL CONTRIBUTIONS; ASSET PURCHASE
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3.1 PAS and P&P Capital Contributions. (a) Pursuant to the Original
Agreement, each of PAS and P&P conveyed, transferred, and assigned to the
Company all of its right, title, and interest in and to the properties and
assets listed on Schedule 3.1 hereto (the "Assets"), which Assets constitute all
of the properties and assets used exclusively in operating the sports and
entertainment marketing, consulting, and production and diversity and
event/presence marketing businesses conducted by them other than the excluded
assets listed on
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Schedule 3.1 (the "Excluded Assets"), subject only to the liabilities set forth
on Schedule 3.1 attached hereto (the "Liabilities").
(b) In order to evidence the conveyance, transfers and assignments and
the assumption of liabilities contemplated by the Original Agreement, PAS and
P&P have each executed and delivered a bill of sale with respect to the Assets
conveyed, transferred and assigned to the Company by it substantially in the
form of Exhibit A to the Original Agreement (the "Bill of Sale") and PAS and
P&P, on the one hand, and the Company, on the other, have executed an assignment
and assumption agreement with respect to the Liabilities assigned to the Company
by PAS and P&P, respectively, and assumed by the Company substantially in the
form of Exhibit B to the Original Agreement (the "Assignment and Assumption
Agreement"). PAS and P&P will execute and deliver from time to time, at the
request of the Company, all such further instruments of conveyance, transfer and
assignment and such further assurances as may reasonably be required to vest in
and confirm to the Company full and complete title to, and the right to use and
enjoy, the Assets or otherwise to carry out the purpose and intent of this
Agreement. From time to time the Company will execute and deliver such further
instruments and documents as PAS or P&P may reasonably request to cause the
Company to assume the Liabilities or otherwise carry out the purposes and intent
of this Agreement.
3.2 IPG Interest. On the Closing Date IPG shall purchase a fifty-one
percent (51%) Membership Interest from P&P, and IPG shall be admitted as a
Member with a Membership Interest comprising a fifty-one percent (51%)
Percentage Interest (the "IPG Interest"). The aggregate purchase price payable
by IPG for the IPG Interest (the "Purchase Price") shall be paid in accordance
with Section 3.4.
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3.3 Opening Capital Account Balances. The purchase by IPG of the IPG
Interest causes a deemed termination of the Company under Section 708(b)(1)(B)
of the Code. The opening Capital Account balances of the Members under Section
4.1 hereof following the subsequent reformation of the Company under such
section shall equal the fair market values of the respective Assets deemed
contributed by the Members on such reformation (net of the Liabilities to which
such Assets are deemed subject), determined as follows: for IPG, such Capital
Account shall equal the Purchase Price paid by it for the IPG Interest; and for
PAS and P&P, such Capital Accounts shall in the aggregate equal forty-nine
percent (49%) of the number derived by dividing the Purchase Price by fifty-one
percent (51%), and shall be allocated sixty-nine and three hundred and
eighty-eight thousandths percent ( 2.041%) to PAS and thirty and six hundred and
twelve thousandths percent (97.959%) to P&P. The initial Capital Account
balances of the Members shall be based on the fair market values of the Assets
deemed contributed by the Members, for this purpose based on an estimated fair
market value of Eight Million Dollars ($8,000,000) (the "Estimated Value"), and
such initial Capital Account balances shall be: (i) apportioned fifty-one
percent (51%) to IPG and forty-nine percent (49%) to PAS and P&P collectively
(and, between them, in accordance with the above proportional percentages), and
(ii) adjusted retroactively (utilizing such apportionment percentages) to
reflect the actual Purchase Price at the time it is computed under Section
3.4(d); provided, however, that the Members may, by mutual agreement, revise the
Estimated Value prior to the computation of the actual Purchase Price in order
to more accurately reflect the Members' estimate of the actual Purchase Price
and to reduce the amount of the adjustment to be made to reflect the actual
Purchase Price.
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3.4 Payment of Purchase Price. In consideration for the purchase by IPG
pursuant to Section 3.2 hereof of a fifty-one percent (51%) Membership Interest
from P&P, IPG shall pay to P&P the following amounts:
(a) On the Closing Date an amount equal to Two Million Two Hundred
Thousand Dollars ($2,200,000) (the "Downpayment") in immediately available
funds.
(b) On June 1, 1998 an amount equal to seventy percent (70%) of the
excess, if any, of fifty-one percent (51%) of seven (7) times the Net After-Tax
Income of the Company for the Contract Year 1998 over the Downpayment (the
"Second Payment") in immediately available funds.
(c) On June 1, 1999 an amount equal to eighty-five percent (85%) of the
excess, if any, of fifty-one percent (51%) of seven (7) times the average Net
After-Tax Income of the Company for the Contract Years 1998 and 1999 over the
sum of the Downpayment and the Second Payment (the "Third Payment") in
immediately available funds.
(d) On June 1, 2000 an amount equal to the excess, if any, of fifty-one
percent (51%) of seven (7) times the average Net After-Tax Income of the Company
for the Contract Years 1998, 1999 and 2000 over the sum of the Downpayment, the
Second Payment and the Third Payment (the "Final Payment," and, together with
the Downpayment, the Second Payment, and the Third Payment, the "Purchase
Price") in immediately available funds.
3.5 Purchase of Additional IPG Interests. IPG shall have an option to
acquire all, but not less than all, of the remaining forty-nine percent (49%)
Membership Interests from PAS and P&P ("Additional Interests") in accordance
with the provisions of this Section 3.5. IPG may elect to acquire the Additional
Interests, no later than one (1) year following the
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Closing Date (including, without limitation, upon the occurrence of a Third
Party Offer or Involuntary Transfer, as contemplated by Section 7.2, prior to
the expiration of such one-year period) by providing each of PAS and P&P with
written notice of its intention to exercise its option to acquire the Additional
Interests. The closing of the sale of the Additional Interests (the "Subsequent
Closing Date") shall take place not later than sixty (60) days following the
date of such notice. In consideration for the purchase by IPG of such interests,
IPG shall pay to PAS and P&P, in proportion to their respective Membership
Interests in the Company, the following amounts:
(a) On the Subsequent Closing Date an amount equal to One Million Nine
Hundred Thousand Dollars ($1,900,000) (the "Second Downpayment") in immediately
available funds.
(b) On June 1, 1998 an amount equal to seventy percent ( 70%) of the
excess, if any, of forty-nine percent (49%) of eight (8) times the Net After-Tax
Income of the Company for the Contract Year 1998 over the Second Downpayment
(the "Second Option Payment") in immediately available funds.
(c) On June 1, 1999 an amount equal to eighty-five percent (85%) of the
excess, if any, of forty-nine percent (49%) of eight (8) times the average Net
After-Tax Income of the Company for the Contract Years 1998 and 1999 over the
sum of the Second Downpayment and the Second Option Payment (the "Third Option
Payment") in immediately available funds.
(d) On June 1, 2000 an amount equal to the excess, if any, of
forty-nine percent (49%) of eight (8) times the average Net After-Tax Income of
the Company for the
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Contract Years 1998, 1999 and 2000 over the sum of the Second Downpayment, the
Second Option Payment and the Third Option Payment (the "Final Option Payment",
and, together with the Second Downpayment, the Second Option Payment, the Third
Option Payment the "Option Purchase Price") in immediately available funds.
In the event that IPG exercises its option pursuant to this Section
3.5, the provisions of Section 6.1, 6.2, 6.3, 6.5, 6.6, 6.9 and 13.1 shall
remain in effect through the date of payment of the Final Option Payment as if
PAS and P&P remained Members through such date.
3.6 No Additional Membership Interests. Except as otherwise
specifically provided in this Agreement, the Company shall not accept additional
contributions to its capital or issue any additional Membership Interests
without the prior written consent of each and every Member.
3.7 Terms of Membership Interests. The Membership Interests are
ordinary membership interests of one class, without series, and shall be equal
in all respects and have identical rights and preferences, except as otherwise
expressly provided in this Agreement.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 Capital Accounts. (a) A capital account (each, a "Capital Account")
shall be established on the books of the Company for each Member in accordance
with the provisions of Treasury Regulations ss. 1.704-1(b). Without limiting the
foregoing, each Member's Capital Account shall be increased by: (i) the amount
of cash contributed by such Member, (ii) the value of any non-cash assets
contributed by such Member, as fixed by agreement at the time
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of contribution, less the amount of any liabilities assumed by the Company
incidental to such contribution or to which the contributed assets are subject,
(iii) such Member's share of the Net Income, as allocated in this Article IV,
and any items in the nature of income or gain that are specially allocated to
such Member pursuant to Section 4.3 hereof, and (iv) the amount of any Company
liabilities that are assumed by such Member (other than liabilities that are
secured by any Company property distributed to such Member). Each Member's
Capital Account shall be decreased by: (i) the amount of cash and the fair
market value of any Company property distributed by the Company to such Member
(net of liabilities secured by any distributed property that such Member is
considered to assume or take subject to), (ii) such Member's share of the Net
Losses, as allocated in this Article IV, and any items in the nature of expenses
or losses that are specially allocated to such Member pursuant to Section 4.3
hereof, and (iii) the amount of any liabilities of such Member that are assumed
by the Company (other than liabilities that are secured by any property
contributed by such Member to the Company). If non-cash Company assets are
distributed in kind, Capital Accounts shall be adjusted as if the assets had
been sold for fair market value on the date of Distribution.
(b) In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor (to the extent related to the transferred
interest).
(c) In the event the Gross Asset Values of the Company assets are
adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset
Value, the Capital Accounts of the Members shall be adjusted simultaneously to
reflect the manner in which unrealized income, gain, loss, and deduction
inherent in the Company property (that has not been previously
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reflected in the Members' Capital Accounts) would be allocated pursuant to this
Article IV if there were a disposition of such property at fair market value.
(d) The foregoing provisions of this Section 4.1 are intended to comply
with Treasury Regulations ss.ss. 1.704-1(b) and 1.704-2, and shall be
interpreted and applied in a manner consistent therewith.
4.2 Allocation of Net Income and Net Losses. All Net Income and Net
Losses shall be allocated between the Members in proportion to their respective
Percentage Interests.
4.3 Special Allocations. The following special allocations shall be
made in the following order:
(a) Company Minimum Gain Chargeback. Notwithstanding any other
provision of this Article IV, if there is a net decrease in Company Minimum Gain
during a Taxable Year, each Member will be specially allocated items of Company
income and gain for such Taxable Year (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Company Minimum
Gain, determined in accordance with Treasury Regulations ss. 1.704-2(g).
Allocations pursuant to the immediately preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations ss.ss. 1.704-2(f)(6) and 1.704-2(j)(2). This Section
4.3(a) is intended to comply with the "minimum gain chargeback" provisions of
Treasury Regulations ss. 1.704-2(f) and shall be interpreted consistently
therewith.
(b) Member Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding
any other provision of this Article IV, if there is a net decrease in Member
Nonrecourse Debt
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Minimum Gain attributable to a Member Nonrecourse Debt during any Taxable Year,
each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Treasury Regulations ss. 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such Taxable Year (and, if necessary, subsequent
years) in an amount equal such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Treasury Regulations ss. 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto. The
items to be so allocated shall be determined in accordance with Treasury
Regulations ss.ss. 1.704-2(i)(4) and 1.704-2(j)(2). This Section 4.3(b) is
intended to comply with the minimum gain chargeback requirement of Treasury
Regulations ss. 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocations, or distributions described in clauses (4), (5) or (6)
of Treasury Regulations ss. 1.704-1(b)(2)(ii)(d), items of Company income and
gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Adjusted Capital Account Deficit created by such adjustments, allocations, or
distributions as quickly as possible, provided that an allocation pursuant to
this Section 4.3(c) shall be made only if and to the extent that such Member
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article IV have been tentatively made as if this Section
4.3(c) were not in the Agreement. This Section 4.3(c) is intended to constitute
a "qualified income offset" within the meaning of Treasury Regulations
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ss. 1.704-1(b)(2)(ii)(d)(3) and shall be interpreted consistently therewith.
(d) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
for any Taxable Year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulations ss. 1.704-2(i)(1).
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Taxable Year
shall be specifically allocated among the Members in proportion to their
Percentage Interests.
(f) Curative Allocations. The allocations set forth in Sections 4.3(a),
(b), (c), (d), and (e) (the "Regulatory Allocations") are intended to comply
with certain requirements of the Treasury Regulations. It is the intent of the
Members that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss, or deduction pursuant to this Section
4.3(f). Therefore, notwithstanding any other provision of this Article IV (other
than the Regulatory Allocations), the Board of Directors shall make such
offsetting special allocations of Company income, gain, loss, or deduction in
whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Section 4.2. In exercising its discretion under this
Section 4.3(f), the Board of Directors shall take into account future Regulatory
Allocations under Section 4.3(a) and (b) that, although not yet made, are likely
to offset other Regulatory Allocations previously made under Sections 4.3(d) and
(e).
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4.4 Other Allocation Rules. (a) Except as otherwise provided in this
Agreement, all items of Company income, gain, loss, deduction, and any other
allocations not otherwise specifically provided for shall be divided among the
Members for tax purposes in the same proportions as they share Net Income or Net
Losses, as the case may be, for the period of such allocation.
(b) The Members are aware of the income tax consequences of the
allocations made by this Article IV and hereby agree to be bound by the
provisions of this Article IV in reporting their shares of Company income and
loss for income tax purposes. It is the intent of the Members that each Member's
share of Net Income, Net Loss, income, gain, expense, deduction, and tax credits
of the Company shall be determined and allocated for income tax purposes in
accordance with this Article IV to the fullest extent permitted by the Code.
(c) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company within the meaning of
Treasury Regulations ss. 1.752-3(a)(3), the Members' interests in Company
profits equals their Percentage Interests.
4.5 Tax Allocations: Code Section 704(c). (a) In accordance with Code
Section 704(c) and the Treasury Regulations thereunder, income, gain, loss, and
deduction with respect to any property contributed to the capital of the Company
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value in
accordance with any method permitted by Treasury Regulations ss. 1.704-3 that is
selected by the Tax Matters Partner, provided, however, that in no event will
IPG be allocated tax amortization on the Intangibles (or similar items through
curative or remedial allocations)
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under this Section 4.5(a) in excess of the actual tax amortization available to
the Company attributable to IPG's share of the Company's adjusted basis in the
Intangibles (exclusive of the Section 743(b) increase described below) plus the
increase in the basis of the Intangibles under Code Section 743(b) in connection
with IPG's purchase of its Membership Interest (as set forth in Section 3.2
hereof).
(b) In the event the Gross Asset Value of any Company property is
adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset
Value hereof, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Treasury Regulations
thereunder.
(c) In applying Code Sections 197, 704(c) and 743(b) with respect to
allocations of Depreciation and tax amortization deductions attributable to the
Intangibles, the Members agree as follows:
(1) Any tax amortization deductions under Code Section 197
attributable to an increase in the basis of Intangibles under Code Section
743(b) in connection with IPG's purchase of its Membership Interest (as set
forth in Section 3.2 hereof) shall be allocated solely to IPG, and
(2) To the extent that the Intangibles also give rise to
Depreciation (including Depreciation attributable to the excess of the Gross
Asset Value of the Intangibles over the tax basis of such Intangibles as of the
Closing Date), the Company shall allocate such Depreciation among the Members as
provided in Section 4.2 or 4.3
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and, to the extent permitted under Code Sections 197 and 704(c), shall
apply Code Section 704(c) in such a manner that IPG will be allocated
tax amortization deductions with respect to such Intangibles (or
similar items through curative or remedial allocations under Treasury
Regulation ss. 1.704-3) equal to the amount of Depreciation allocated
to IPG with respect to such Intangibles, provided, however, that in no
event will IPG be allocated tax amortization on the Intangibles (or
similar items through curative or remedial allocations) under this
Section 4.5(c)(2) in excess of the actual tax amortization available to
the Company attributable to IPG's share of the Company's adjusted basis
in the Intangibles (exclusive of the Section 743(b) increase described
below) plus the increase in the basis of the Intangibles under Code
Section 743(b) in connection with IPG's purchase of its Membership
Interest (as set forth in Section 3.2 hereof).
4.6 No Right to Priority or Interest. Except as otherwise expressly
provided in this Agreement, or as required to comply with the Code and Treasury
Regulations, no Member shall have priority over any other Member as to any
allocations, Distributions, or return of all or any part of its Capital
Contributions. No interest shall be paid by the Company on capital contributions
or on balances in Members' Capital Accounts.
4.7 Operating Distributions.
(a) Any Distributions authorized by the Members, other than liquidating
distributions made pursuant to Section 4.8 hereof, shall be distributed among
the Members in accordance with their Percentage Interests.
(b) The Company shall distribute quarterly, not later than forty-five
(45) days after the close of each fiscal quarter, all cash receipts remaining
after the payment of or provision
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for all current expenses and current liabilities of the Company and after the
provision of a working capital and capital expenditure reserve and a debt
repayment reserve, all as reasonably determined by the Board.
4.8 Liquidating Distributions. If the Company is dissolved pursuant to
Article XII, the Company shall be wound up and terminated as provided by the
Act. All tangible and intangible property of the Company, including money,
remaining after the discharge of the debts, obligations, and liabilities of the
Company (including any loans made by Members) shall be distributed to the
Members as follows:
(a) To the Members in proportion to, and to the extent of, the positive
balances in their Capital Accounts (as adjusted to reflect all Company
operations up to and including the liquidation of the Company and any adjustment
required by the ultimate sentence of Section 4.1(a) upon the distribution of
non-cash Company property); and, thereafter
(b) To the Members in accordance with their Percentage Interests.
4.9 Additional Capital Contributions. No Member shall have any
obligation to make additional capital contributions not set forth in this
Article IV to the Company or to fund, advance, or lend monies that may be
necessary to pay deficits, if any, incurred by the Company during the term
hereof. Additional capital contributions shall be made only upon the unanimous
consent of the Members and then only in proportion to their respective
Percentage Interests. Members may make loans to the Company from time to time,
as authorized by the Board. Any payment or transfer accepted by the Company from
a Member which is not a capital contribution shall be deemed a loan and shall
neither be treated as a contribution to the capital of the Company for any
purpose hereunder, nor entitle such Member (as such) to any increase in
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such Member's Percentage Interest or voting interest. Any such loan shall be
repaid at such times and with such interest (at rates not to exceed the maximum
permitted by law) as the Board and the lending Member shall reasonably agree.
4.10 Adjustment of Percentage Interests. Upon any sale or assignment of
all or a portion of a Membership Interest in accordance with the provisions of
this Agreement, the Percentage Interest of the assignor shall be reduced in
proportion to the Percentage Interest so assigned, the assignee thereof shall be
credited therewith, and Schedule 2.7 shall be appropriately revised to reflect
the foregoing.
ARTICLE V
TAX MATTERS
5.1 Tax Characterization and Returns. The Members anticipate that the
Company will be treated as a partnership for federal and state income tax
purposes, and agree to take all actions necessary to assure such treatment.
Within ninety (90) days after the end of each Taxable Year, the Company will
deliver to each person who was a Member or assignee of a Membership Interest at
any time during such Taxable Year a Form K-1 and such other information, if any,
with respect to the Company as may be necessary for the preparation of such
Member's federal or state income tax (or information) returns, including a
statement showing each such person's share of income, gain or loss and credits
for such Taxable Year for federal or state income tax purposes. To the extent
that the treatment of any item or transaction is set forth in this Agreement,
the Members agree to report such items or transactions on their respective tax
returns in a manner consistent with the treatment set forth in this Agreement.
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5.2 Accounting and Tax Decisions. Except as otherwise provided herein,
all decisions as to accounting matters shall be made by the Board. The Board by
its unanimous consent may make or revoke such elections as may be allowed
pursuant to the Code, including the election referred to in Section 754 of the
Code, to adjust the basis of Company property.
5.3 Tax Matters Partner. IPG shall act on behalf of the Company as the
"tax matters partner" within the meaning of Section 6231(a)(7) of the Code ("Tax
Matters Partner"), without additional compensation. In addition to all powers
specifically granted to a Tax Matters Partner under the Code, the Tax Matters
Partner shall have all powers, not inconsistent with the terms of this
Agreement, needed to perform its duties under the Code and applicable
regulations. The Tax Matters Partner shall be entitled to reimbursement from the
Company for all necessary and reasonable out-of-pocket expenses incurred in
performing its duties as Tax Matters Partner. The Tax Matters Partner shall
notify each Member of any proposed action to be taken by it in such capacity,
and shall advise and consult with the Members from time to time of the status of
tax-related investigations, proceedings and negotiations with governmental
authorities. The Tax Matters Partner shall give all other Members at least
thirty (30) days' prior written notice of any significant action to be taken by
it in its capacity as Tax Matters Partner.
ARTICLE VI
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MANAGEMENT
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6.1 Management; Board of Directors.
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(a) The Members hereby delegate their respective rights and powers to
manage and control the business and affairs of the Company to the Board of
Directors.
(b) Commencing the Closing Date, the Board shall consist of three (3)
Directors, of which two (2) shall be designated by IPG (initially, Norman Holtz
and Barry Linsky), and one (1) of which shall be designated by PAS and P&P
collectively (initially, Ray Volpe). PAS and P&P acting collectively, on the one
hand, and IPG, on the other hand, shall each have the right to cause the removal
and replacement of any Director appointed by them or it, in their or its sole
discretion. All power and authority of the Board shall be subject to IPG's
Standard Policies and Procedures in effect from time to time, except as
otherwise provided in this Agreement, and except as the Board may otherwise
determine from time to time in good faith.
(c) Except as otherwise provided herein, the affirmative vote of two
(2) Directors shall be required for any matter requiring the consent or approval
of the Board.
(d) Any Director shall have the authority to call a meeting of the
Board of Directors, and each such meeting shall be called upon not less than
five (5) days' written notice to all Directors. A Director may be present at a
meeting of the Board of Directors by telephone or in person.
(e) Directors shall receive no compensation for acting as Directors of
the Company.
6.2 Chief Executive Officer. Ray Volpe ("Volpe") shall be employed by
the Company as its Chief Executive Officer (the "Chief Executive Officer" or
"CEO") with such responsibilities and duties as are customarily performed by a
person in a similar position in a business of a similar nature to that of the
Company, subject at all times: (a) to the consent of the
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Members and/or the Board of Directors whenever required by this Agreement or
applicable law, (b) to the terms of the employment agreement between Volpe and
the Company, and (c) to the general policies of IPG, to the extent not
inconsistent with this Agreement. The Company may cause to be appointed
additional officers upon the unanimous approval of the Members.
6.3 Management by Members. The Members may, by written action signed by
each and every Member, take any action otherwise within the authority of the
Board of Directors. All actions taken by the Board of Directors shall be
understood to be attributable to the authority of the Members in their capacity
as Members provided that the actions contemplated by items (a), (b) and (c) of
Section 6.5 and Section 6.6 below shall require the vote of the Members.
6.4 Guarantees. On the Closing Date, IPG will arrange for and keep in
effect a revolving line of credit for the Company in the amount of One Million
Dollars ($1,000,000), bearing interest at the rate of interest publicly
announced by Chase Manhattan Bank or its successor as its prime rate, as in
effect from time to time. Any indebtedness of the Company above this amount that
is required to be guaranteed by the Members shall be guaranteed by the Members
proportionate to their Membership Interest.
6.5 Member Approval Required. Notwithstanding anything in this
Agreement to the contrary, and in addition to any other restrictions contained
herein, from and after the Closing Date the prior written consent of each and
every Member shall be required for any action within the scope of any of the
following, and the CEO shall not take such action until the required consent has
been obtained:
(a) The sale of all or substantially all of the assets of the Company;
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(b) Any merger or consolidation to which the Company is a party;
(c) The issuance of any additional Membership Interests or the
admission of any new Member except as otherwise specifically provided herein;
(d) The payment of any Distribution other than as provided in Section
4.7(b) of this Agreement;
(e) Any amendment to the certificate of formation of the Company;
(f) The acquisition of the assets of, or any stock, partnership or
membership interests or other equity, debt or convertible debt interests in, any
other Person (excluding publicly tradeable securities held by the Company in the
ordinary course of business and the acquisition by the Company of equipment,
inventory, supplies and other assets in the ordinary course of business);
(g) Any redemption of all or any portion of any Membership Interest
except as otherwise specifically provided in this Agreement;
(h) Granting an Encumbrance in any assets of the Company, other than
purchase money security interests granted with respect to the acquisition of
equipment in the ordinary course of business;
(i) Incurring any indebtedness for borrowed money greater than Fifty
Thousand Dollars ($50,000) in the aggregate, other than drawdowns under the line
of credit established pursuant to Section 6.4 hereof to pay agreed budgeted
expenses;
(j) Incurring or assuming any obligation or liability, or entering into
any binding commitment to incur or assume any obligation or liability, other
than in the ordinary course of business;
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(k) Entering into any contract or commitment for the purchase of
material, supplies or equipment involving a payment or series of payments in
excess of Fifty Thousand Dollars ($50,000) or that continue for a period greater
than six months, other than:
(i) equipment leases or purchase agreements entered into in the
ordinary course involving payments of less than Ten Thousand Dollars ($10,000)
per lease per year, and
(ii) purchases on behalf of clients for which the Company has a right
of reimbursement from such client;
(l) Making any loan to, or acting as guarantor or surety for, any
Member, Director, officer or employee of the Company;
(m) Engaging in any business other than the sports and entertainment
marketing, consulting, and production and diversity and event/presence marketing
business and businesses reasonably related thereto (including the business
conducted by PAS and P&P immediately prior to the formation of the Company
pursuant to the Original Agreement);
(n) Expanding the Company's business outside the United States; and
(o) Causing the Company to guarantee the indebtedness of any other
Person.
6.6 Increase in Operating Expenses. The members intend that, during the
first three Contract Years, the overhead and operating expenses of the Company
(before the incentive bonus provided for by Section 7.6 hereof) will not
increase significantly relative to revenue over those experienced while the
Company's business was conducted by P&P. In no event may the overhead and
operating expenses of the Company (other than such incentive bonus) for any
Contract Year exceed such items for the immediately preceding Contract Year (or,
for the first
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Contract Year, as set forth in the budget attached hereto as a part of Schedule
6.8) by more than 25% without the prior written consent of each and every
Member, except where such increase is proportionate to an increase in the
Company's revenues.
6.7 IPG Discretionary Actions. From and after the Closing Date, IPG
shall have the authority to direct the Company to do any one or more of the
following, and the Company shall comply with any such direction:
(a) Resign any active account (other than any account with General
Motors Corporation or any affiliate thereof) that in the reasonable judgment of
IPG represents a substantial conflict with a material client of IPG. In the
event of any such required resignation, and only for purposes of calculating the
Purchase Price, the Company shall be credited with an appropriate amount
reflecting the profit which would have been generated from such client with
respect to such account had the Company not resigned its account with such
client, as agreed by the Members in good faith, which amount shall be mitigated
by any revenues generated from other accounts resulting from the engagement of
those Company staff members who would have been servicing the account in
question had the Company not resigned from such account; and
(b) Generally comply with IPG's Standard Policies and Procedures as in
effect from time to time, including procedures concerning new business
clearance, except as otherwise inconsistent with this Agreement.
6.8 Disposition of Unwanted Activities. In the event any project or
other activity developed or conducted, or proposed to be developed or conducted,
by the Company is required pursuant to any action taken pursuant to this Article
VI (or pursuant to a failure to gain any appropriate approval required by this
Article VI) to be abandoned, resigned, or disposed of
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by the Company, the Company and the Members shall use commercially reasonable
efforts to attempt to find an appropriate Person to purchase the rights to such
project or activity so as to maximize the return to the Company upon such
abandonment, resignation, or disposition.
6.9 Annual Audit; Quarterly Information.
(a) The Company shall furnish to each Member as soon as practicable
after the end of each Fiscal Year, and in any event within twenty-one (21) days
thereafter, unaudited Statements and within sixty (60) days thereafter, audited
statements, in each case setting forth a balance sheet of the Company as of the
end of such Fiscal Year, and a statement of income and statement of cash flows
of the Company for such Fiscal Year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous Fiscal Year and the
figures included in the Company's operating plan then in effect and approved by
the Board of Directors, all in reasonable detail and, except for the figures
included in the Company's operating plan, in the case of the audited statements
audited by an independent certified public accounting firm of national
reputation, as the Members shall agree. The costs of such audit shall be borne
by the Company.
(b) The Company shall furnish to each Member as soon as practicable
after the end of each fiscal quarter, and in any event within fifteen (15) days
thereafter, a balance sheet of the Company as of the end of such quarter, and a
cash flow statement and statement of income for such quarter and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles consistently applied, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting
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officer of the Company, together with a comparison of such statements to the
Company's operating plan then in effect and approved by its Board of Directors.
The costs of preparing such reports shall be borne by the Company.
(c) The Company shall furnish to each Member budgets and updates in the
manner and on the dates as prescribed by IPG policies. The proposed budget for
the Company for the first Contract Year, as well as expense and sub-lease
allocations, are attached hereto as Schedule 6.9. The costs of such reports
shall be borne by the Company and shall follow IPG's budgeting procedures and
guidelines contained in IPG's policies.
6.10 Custody of Funds.
(a) The Members shall have fiduciary responsibility for the safekeeping
and use of all funds and assets of the Company, whether or not in their
immediate possession or control. The Company's funds shall not be commingled
with the funds of any other Person and the Members shall not use, or permit use
of, the Company's funds in any manner except for the benefit of the Company.
(b) All funds of the Company not otherwise invested shall be deposited
in one or more accounts maintained in such federally insured financial
institutions as the Board may deem appropriate, and withdrawals shall be made
only in the regular course of Company business on such signatures as the Members
may deem appropriate; provided, however, that any check in the amount of
twenty-five thousand dollars ($25,000) or more shall require two signatures, one
of which shall be of a designee appointed jointly by PAS and P&P and the other
of which shall be an IPG designee's.
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ARTICLE VII
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TRANSFER OF INTERESTS: INCENTIVE PLAN
-------------------------------------
7.1 Restriction on Transfer of Interests. No Membership Interest, nor
any portion thereof or interest therein, shall be sold, assigned, conveyed,
pledged, mortgaged, hypothecated or otherwise transferred without the prior
written consent of each and every Member, except as otherwise specifically
provided in this Article VII or in Section 3.5.
7.2 Right of First Refusal Upon a Third
Party Offer or Involuntary Transfer.
-----------------------------------
(a) Basic Terms. Subject to IPG's rights under Section 3.5, upon the
occurrence of a Third Party Offer or Involuntary Transfer, each Member shall
have a right of first refusal to purchase the Percentage Interest subject
thereto in accordance with the provisions of this Section 7.2. The price and
terms of any such purchase shall be (i) in the case of a Third Party Offer, the
price and terms contained in the Third Party Offer, or (ii) in the case of an
Involuntary Transfer, the book value of the Company determined in accordance
with generally accepted accounting principles consistently applied, multiplied
by the Percentage Interest of the Sale Interest, payable in the manner provided
in paragraph (g) of this Section 7.2.
(b) Notice of Triggering Events. Upon the occurrence of a Third Party
Offer, the Selling Party shall deliver notice thereof to each of the other
Members and the Company, including with such notice the identity of the party
making the Third Party Offer and a copy of such written offer containing all of
the terms and conditions thereof. Upon the occurrence of an Involuntary
Transfer, the Selling Party or the transferee thereof shall give notice of such
transfer to each of the other Members and the Company. For the purposes of this
Section 7.2, "Notice
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Date" means the date upon which a notice required to be given pursuant to this
paragraph (b) is given to the last party entitled to be so notified.
(c) Exercise of Right of First Refusal. A Member that desires to
exercise its right of first refusal pursuant to this Section 7.2 shall do so by
delivering to the Selling Party, the Company and each of the other Members,
prior to the 60th day following the Notice Date, written notice of exercise
specifying the amount of the Sale Interest to be purchased by it.
(d) Purchase and Closing. In the event the Purchasing Parties, in the
aggregate, elect to purchase all (but not less than all) of the Sale Interest,
the Purchasing Parties shall purchase from the Selling Party (or its transferee
in the case of an Involuntary Transfer), and the Selling Party (or such
transferee) shall sell to the Purchasing Parties, the Sale Interest at the price
and on the terms determined in accordance with paragraph (a) of this Section
7.2. The closing of any such purchase shall occur at a time and place acceptable
to all Purchasing Parties and the Selling Party or, if such parties are not able
to agree upon a time and place, at a time and place specified by the Board of
Directors of the Company.
(e) Allocation Among Purchasing Parties. In the event the Purchasing
Parties, in the aggregate, elect to purchase more than all of the Sale Interest,
the Sale Interest shall be divided among the Purchasing Parties pro rata in
accordance with the percentages of the Sale Interest specified by the Purchasing
Parties to be purchased by them in their notices delivered pursuant to Section
7.2(c).
(f) Election Not to Purchase. Unless the Purchasing Parties, in the
aggregate, elect to purchase all of the Sale Interest, the Selling Party (or its
transferee in the case of an Involuntary Transfer) shall not be required to sell
to the Purchasing Parties any of the Sale
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Interest. In such event, if the Triggering Event was a Third Party Offer, the
Selling Party, subject to Section 7.3 hereof, shall be entitled, for a period of
ninety (90) days commencing on the expiration of the period described in
paragraph (c) above, to sell all (but not less than all) of the Sale Interest,
but only (i) to the party that made the Third Party Offer, (ii) on the terms and
subject to the conditions of the Third Party Offer, and (iii) provided that the
transferee agrees in writing to be bound by the terms and provisions of this
Agreement. If the Sale Interest is not so transferred within such 90-day period,
then such Third Party Offer shall be deemed to have expired. Such Sale Interest
shall not then be transferred except in accordance with this Agreement.
(g) Payment of Purchase Price Upon Involuntary Transfer. Any purchase
price payable upon the occurrence of an Involuntary Transfer shall be payable:
(i) in cash at the closing to the extent of twenty percent (20%) of such
purchase price, and (ii) the remainder by the delivery at the closing by each
purchaser of a promissory note in such amount. Each such note shall provide for
payment of all principal and interest owing thereunder in 60 equal monthly
installments commencing on the first day of the first month following the
closing and continuing on the first day of each of the next fifty-nine (59)
months, with interest accruing on the principal balance remaining unpaid from
time to time at the rate of interest publicly announced by Chase Manhattan Bank
or its successor as its prime rate as of the date of the closing. Each payment
under each such note shall be applied first to accrued but unpaid interest owing
thereunder and any remainder in reduction of the principal balance thereof. If
any installment of principal or interest owing under any such note is not paid
within ten (10) days from the date due, then, at the option of the holder of
such note, the entire unpaid principal balance thereof, plus all accrued but
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unpaid interest thereon, shall become immediately due and payable in full
without notice of any kind, presentment or demand for payment, notice of
nonpayment, protest and notice of protest being waived. In addition, payments
owing under each such note shall be secured by a pledge of the Membership
Interest purchased thereby (but such holder shall have no rights with respect
thereto, absent a default under each such note or such pledge). All amounts
owing under each such note shall be prepayable in whole or in part, at any time
and from time to time, without premium or penalty.
7.3 Tag-Along Right.
(a) With respect to any proposed sale to a third party of a Sale
Interest by any Member pursuant to Section 7.2(f) hereof, each other Member
shall have the right with respect to its Membership Interest (the "Tag-Along
Right") to require, as a condition to the transfer of the Sale Interest pursuant
to this Article VII, the party that made the Third Party Offer to purchase from
it a percentage of its Membership Interest not to exceed the percentage that the
Sale Interest proposed to be so transferred bears to the aggregate Membership
Interest of the Selling Party. Any Membership Interest purchased from a Member
pursuant to this Section 7.3 shall be purchased at the same price and upon the
same terms and conditions as the Third Party Offer.
(b) The Tag-Along Right may be exercised by any Member by delivery of a
written notice to the Selling Party, the Company, and the other Members (the
"Tag-Along Notice") within the period described in paragraph (c) of Section 7.2
hereof. The Tag-Along Notice shall state the percentage of its Membership
Interest that the electing Member proposes to sell.
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(c) In the event that the proposed transferee of the Sale Interest does
not agree to purchase the requested percentage interests of the other Members
who have elected to exercise their Tag-Along Rights in accordance with this
Section 7.3 at the same price and on the same terms and conditions as the Third
Party Offer, then the Selling Party shall not be permitted to consummate the
proposed sale of the Sale Interest to such transferee. If no Tag-Along Notice is
received during the period referred to in Section 7.3(b) above, the Selling
Party shall have the right to dispose of the Sale Interest in accordance with
the provisions of Section 7.2(f) hereof.
7.4 Substituted Members. (a) Notwithstanding anything in this Agreement
to the contrary, no assignee of a Membership Interest, whether such Person
acquired such interest by a Third Party Offer, by an Involuntary Transfer, as a
result of the death of a Member, or otherwise, will be admitted as a substituted
Member unless such Person first:
(i) Executes and acknowledges such instruments as the Board deems
necessary or appropriate to effectuate such Person's admission;
(ii) Ratifies and assumes in writing all of the terms of this
Agreement: and
(iii) Pays all costs incurred by the Company incidental to such
Person's admission, including attorneys' fees for evaluation of the proposed
admission for conformance with this Agreement, the Act and other applicable law,
and preparation of appropriate documentation.
(b) No Person shall be admitted as a substituted Member if such
admission will constitute a violation of any applicable provisions of the
Securities Act or any applicable state securities laws. Such admission shall
then take effect when the Board has accepted such
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Person as a substituted Member and the books and records of the Company reflect
such Person as admitted to the Company as a substituted Member.
7.5 Limitation on all Transfers. Notwithstanding anything in this
Agreement to the contrary, no transfer of a Membership Interest, or any portion
thereof, shall be made if such transfer, when added to the total of all other
transfers within the period of 12 consecutive months prior thereto, would result
in the termination of the Company under Code Section 708 (or any successor
provision).
7.6 Incentive Plan. The Company shall establish an Incentive Plan (the
"Plan") for key executives of the Company as soon as practicable following the
Closing Date. The determination of participants in and allocations pursuant to
the Plan shall be in the discretion of the Board. The Plan shall be funded each
Fiscal Year by the Company, and shall provide for the payment by the Company of
bonuses with respect to each such Fiscal Year for which the Operating Profit of
the Company exceeds One Million Five Hundred Thousand Dollars ($1,500,000), in a
minimum amount equal to: (i) ten percent (10%) of the Operating Profit of the
Company for such Fiscal Year not in excess of Two Million Dollars ($2,000,000),
(ii) fifteen percent (15%) of the Operating Profit of the Company for such
Fiscal Year if such Operating Profit is greater than Two Million Dollars
($2,000,000) but less than or equal to Two Million Five Hundred Thousand Dollars
($2,500,000), and (iii) twenty percent (20%) of the Operating Profit of the
Company if such Operating Profit is greater than Two Million Five Hundred
Thousand Dollars ($2,500,00). The payment of any additional bonuses under the
Plan in excess of the minimum amounts set forth in the immediately preceding
sentence may (but will not be required to) be made in the sole discretion of the
Board of Directors. Bonuses under the Plan
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shall be paid in April of the year following the applicable Fiscal Year to which
such bonuses relate (after audit by the Company's internal audit department or
outside auditors).
ARTICLE VIII
------------
SUPPORT SERVICES
----------------
IPG shall provide to the Company its standard liaison services,
provided, however, that legal services, if requested, will be charged back to
the Company in an amount which will represent a discount from market rate. In
consideration thereof, the Company shall pay to IPG, quarterly in arrears, a
management services fee (the "Management Services Fee") equal to 1.53% percent
of the Company's Gross Income, as reflected on the audited financial statements
of the Company. The parties agree to execute such agreements and other
documentation reasonably requested by IPG to further effectuate the provisions
of this Article VIII. Other than the auditing and accounting fees referred to in
this Agreement, the Management Services Fee and fees for additional services
actually rendered by or on behalf of IPG to the Company (including costs
relating to the maintenance of health and benefit plans and the Company's share
of blanket insurance policies applicable to IPG and its affiliates) and agreed
to by the parties, IPG shall not impose any other charges upon the Company.
Without limiting the generality of the foregoing, any Company matches to
employee benefit plans of the Company shall be the responsibility of the Company
and not of IPG.
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ARTICLE IX
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
9.1 Representations of all Parties. IPG represents and warrants to PAS
and P&P, and each of PAS and P&P represents and warrants to IPG, as follows:
(a) This Agreement has been duly authorized and validly executed and
delivered by such party, and is valid and enforceable against such party in
accordance with its terms.
(b) Such party has full power and authority to enter into this
Agreement and to carry out the transactions contemplated by this Agreement.
(c) The execution and delivery of this Agreement by such party do not
violate such party's charter or trust documents (as applicable) or Bylaws (if
any), any agreement to which such party is a signatory or any governmental law,
regulation, order or judgment to which such party is subject.
9.2 Representations of PAS and P&P. PAS and P&P jointly and severally
represent and warrant to IPG and the Company as follows:
(a) PAS and P&P have delivered to IPG: (i) the audited consolidated
balance sheet and statement of operations of BNN Corporation and subsidiaries at
December 31, 1996 and for the fiscal year then ended, (ii) the unaudited
management operating financial report of PAS and P&P at December 31, 1996 and
for the fiscal year then ended, and (iii) the unaudited management operating
financial report of PAS and P&P as of March 31, 1997 (the "Balance Sheet Date")
and for the two-month period then ended (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in
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accordance with generally accepted accounting principles (except that the
unaudited Financial Statements do not contain footnotes) applied on a consistent
basis throughout the periods indicated. The Financial Statements accurately set
out and describe the financial condition and operating results of PAS and P&P,
as appropriate, as of the dates and during the periods indicated therein,
subject to normal year-end audit adjustments which are neither individually nor
in the aggregate material. As of the Balance Sheet Date, there were no material
liabilities or obligations of PAS or P&P of any nature, fixed or contingent,
matured or unmatured, which are not shown or provided for on the Financial
Statements for such date.
(b) Since the Balance Sheet Date and other than as contemplated by the
Original Agreement in the case of PAS and P&P, and since the date of the
Original Agreement in the case of the Company, there has not been:
(i) Any material change in the assets, liabilities, condition
(financial or otherwise), affairs, earnings, business, operations or prospects
of PAS, P&P or the Company from that reflected in the Financial Statements at
the Balance Sheet Date, except changes in the ordinary course of business which
have not been, either in any case or in the aggregate, materially adverse;
(ii) Any material change, except in the ordinary course of business, in
the contingent obligations of PAS, P&P or the Company by way of guaranty or any
assurance of performance or payment, endorsement, indemnity, warranty or
otherwise;
(iii) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of PAS,
P&P or the Company;
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(iv) Any disposition by PAS, P&P or the Company of any material
property or asset other than in the ordinary course of business;
(v) Any amendment, termination, or waiver by PAS, P&P or the Company of
a valuable right or of a material debt owned by or owed to it, except in the
ordinary course of business;
(vi) Any loans made by PAS, P&P or the Company to its employees,
officers or directors other than advances of expenses made in the ordinary
course of business;
(vii) Any declaration or payment of any dividend or other distribution
of the assets of PAS, P&P or the Company or any direct or indirect redemption,
purchase or acquisition of any of the securities of PAS, P&P or the Company.
(viii) Any material amendment or termination of, or any notice of any
proposed material amendment or termination of, any material contract, agreement,
plan, lease or license to which PAS, P&P or the Company is a party or by which
it may be bound;
(ix) Any labor organization activity or work stoppage;
(x) Any other event or condition of any character which has materially
and adversely affected the products, technology, business, prospects, condition,
affairs, operations, properties or assets of PAS, P&P or the Company;
(xi) Any material obligation, commitment or liability (whether fixed or
contingent, matured or unmatured) incurred or accrued by PAS, P&P or the Company
other than obligations, commitments or liabilities incurred in the ordinary
course of business;
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(xii) Any material payment, discharge or satisfaction of any liability
or obligation (whether fixed or contingent, matured or unmatured) by PAS, P&P or
the Company, except in the ordinary course of business;
(xiii) Any material change in the accounting methods or accounting
practices followed by PAS, P&P or the Company or in the depreciation or
amortization policies or rates theretofore adopted; or
(xiv) Any agreement, whether in writing or otherwise, to take any of
the actions specified in the foregoing items.
(c) As of the date of the Original Agreement in the case of PAS and P&P
and as of the date hereof in the case of the Company, in each case as
applicable:
(i) PAS and P&P had, and the Company has, the full corporate power to
own or lease their assets and to carry on their businesses as previously
conducted;
(ii) PAS and P&P had, and the Company has good and valid title to the
Assets, in each case subject to no Encumbrance (other than any liens for taxes
not yet due or which are being contested in good faith and other than the
security interest in certain Assets in favor of Henry Siegel Production
Employees Pension Plan that had been released as between the parties prior to
the date of the Original Agreement but as to which the UCC-3 Termination
statements were not filed until April [16], 1997 and the security interest in
certain Assets in favor of David Sklaver as to which the parties entered into a
Modification and Consent, dated April 9, 1997 (a true and correct copy of which
has previously been furnished to IPG), pursuant to which the security interest
in any Assets will be released and UCC-3 Termination Statements will be filed
upon
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payment to Mr. Sklaver of Fifty Thousand Dollars ($50,000), which payment PAS
and P&P represent and warrant to IPG and the Company will be made on the Closing
Date upon receipt of the Downpayment), other than as disclosed in the Financial
Statements; there exists no condition which materially interferes with the
economic value or use of the Assets and all tangible Assets are in good working
condition and repair (subject to ordinary wear and tear) and there are no Assets
in By The Way Inc. which relate to the conduct of the businesses of the Company;
(iii) PAS and P&P owned, or had applied for registration of, all
patents, trademarks, service marks, trade names, and copyrights necessary for
the conduct of their businesses, all of which are included in the Assets.
Attached hereto as Schedule 9.2(c)(iii) is a list of all such patents,
trademarks, service marks, trade names and copyrights; and neither PAS nor P&P
nor the Company has received any notice of infringement of, or conflict with,
asserted rights of others with respect to any such patent, trademark, service
mark, trade name, or copyright that, individually or in the aggregate, if the
subject of an unfavorable decision, ruling, or finding, would have a material
adverse effect upon the business, operations, financial condition, income,
prospects, or results of operations, present or prospective, of the Company;
(iv) PAS and P&P had, and the Company has, taken all reasonable
measures to protect and preserve the confidentiality of all trade secrets and
other non-patented proprietary information of PAS and P&P included in the
Assets, including the procurement of proprietary invention assignments and
non-disclosure and non-competition agreements from employees, consultants,
subcontractors, customers and
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other persons who have access to such information; and to the best knowledge of
PAS, P&P and the Company, the procedures implemented by them are in conformity
with the practices of similarly situated companies in the industry in which they
operate;
(v) Except as set forth on Schedule 9.2(c)(v) hereto, there were and
are no actions, suits, claims, investigations or legal, administrative or
arbitration proceedings pending, or, to the best of their knowledge, threatened,
against or affecting PAS, P&P or the Company or any of their assets, properties,
condition (financial or otherwise), affairs, business, operations or prospects
that would, if determined adversely to PAS, P&P or the Company, have a material
adverse effect on its financial condition or results of operations;
(vi) Neither PAS nor P&P was in violation, breach or default of any
term of its Certificate of Incorporation or Bylaws, nor is the Company in
violation, breach or default of any term of the Original Agreement, or in any
material respect of any term or provision of any mortgage, indenture, contract,
agreement or instrument to which it is a party, or of any provision of any state
or federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon it or any of its assets or properties;
(vii) No employee of PAS or P&P was in violation of any term of any
employment contract, patent or other proprietary information disclosure or non
competition agreement or any other contract or agreement relating to the right
of any such employee to be employed by PAS or P&P because of the nature of the
business conducted by PAS or P&P or for any other reason, and the continued
employment by the Company of the employees of PAS and P&P will not result in any
such violation; and
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(viii) The Company does not owe any amount to any of the shareholders,
employees, officers or directors of PAS or P&P or the members of their families
for money loaned to PAS or P&P.
(d) Attached hereto as Schedule 9.2(d) is a list of all oral or written
agreements, contracts, leases, indebtedness, liabilities and other obligations
to which PAS and P&P were a party or by which they were bound which constitute
part of the Assets. Copies of such agreements, contracts, leases and
documentation evidencing such liabilities and other obligations have been made
available to IPG. All of such agreements, contracts and leases are valid,
binding and in full force and effect in all material respects. PAS and P&P shall
enter into, or shall cause to be entered into, with the Company a sublease
agreement permitting the Company to occupy the office space currently occupied
by PAS and P&P with respect to the businesses transferred to the Company
pursuant to this Agreement on the same terms and conditions as the lease which
PAS and P&P currently enjoy for such premises; and PAS and P&P shall use
commercially reasonable efforts to assign all other such agreements, contracts
and leases to the Company on or after the Closing Date.
(e) There were and are no Encumbrances with respect to any federal,
state, or local municipal property, income, franchise, or payroll or withholding
taxes upon any of the assets or properties of PAS, P&P or the Company (other
than with respect to any such taxes not yet due and payable).
(f) Except as set forth on Schedule 9.2(f) hereto, (i) there is no
collective bargaining or other union agreement to which PAS, P&P or the Company
is a party or by which any of them is bound, or which is currently being
negotiated, and (ii) neither PAS, P&P nor the
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Company sponsors, maintains or contributes to any pension, retirement, profit
sharing, incentive compensation, bonus or other employee benefit plan, including
any employee benefit plan covered by Title 4 of the Employee Retirement Income
Security Act of 1974 ("ERISA") or any "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA, other than group medical, disability and life
insurance plans (which are not subject to ERISA). No employee of PAS, P&P or the
Company was or is a party to or bound by any agreement, contract or commitment,
or subject to any restrictions in connection with any previous employment of any
such person, which materially and adversely affects, or in the future may
materially and adversely affect, the business or operations of the Company or
the rights of any such person to participate in the affairs of the Company and
no employee has given written notice of any present intention of terminating his
employment with the Company, and the Company has no present intention of
terminating any such employment. Schedule 9.2(f) hereto sets forth a list of all
employees of PAS and P&P and of all contracts between PAS or P&P and their
employees as of the date of the Original Agreement. It is understood that the
employees of the Company will be maintained on the current benefit plans of PAS
and P&P until such time as the Members unanimously agree otherwise.
(g) Schedule 9.2(g) hereto lists all sports and entertainment
marketing, consulting, and production and all diversity and event/presence
marketing clients serviced by PAS and P&P as of the date of the Original
Agreement and serviced by the Company as of the date hereof. None of such
clients has indicated its intention to terminate its relationship with the
Company, and all of such clients shall become clients of the Company on the
Closing Date.
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(h) All of the properties, assets and operations of the Company which
are of a character usually insured by persons of established reputation engaged
in the same or a similar business similarly situated are adequately insured, by
financially sound and reputable insurers, against loss, damage or liability. All
insurance policies that were carried by PAS and P&P on such properties, assets
and operations and that are carried by the Company are described in Schedule
9.2(h) hereto. There are no claims currently outstanding under such insurance
policies.
(i) Except as set forth in Schedule 9.2(i) hereto, the Company does not
have any obligation, directly or indirectly, to enter into any transaction,
including the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any affiliate of PAS or P&P, except in the
ordinary course of and pursuant to the reasonable requirements of the Company's
business and upon fair and reasonable terms no less favorable to the Company
than it would obtain in a comparable arm's length transaction with a Person
other than an affiliate.
(j) No representation or warranty in this Agreement or any statement or
certificate furnished or to be furnished to IPG pursuant hereto or in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. There is no fact within the knowledge of PAS or P&P that has not
been disclosed herein or in writing by them to IPG that materially adversely
affects, or in the future in its reasonable opinion may, insofar as it can now
foresee, materially adversely affect the business, properties, assets or
condition, financial or otherwise, of the Company.
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9.3 Indemnity. Notwithstanding anything else contained in this
Agreement, PAS and P&P shall jointly and severally indemnify IPG from and
against any and all claims, losses, judgments, damages, costs and expenses,
including reasonable attorneys' fees, costs and disbursements (collectively,
"Claims"), arising out of, relating to or in connection with the breach of any
representation or warranty made by any of them herein, and any liability of PAS
and P&P other than the Liabilities. IPG shall indemnify PAS and P&P from and
against any and all Claims arising out of, relating to or in connection with the
breach of any representation or warranty made by IPG herein. The indemnities in
this Section 9.3 shall expire upon the latter to occur of: (i) three (3) years
after the date hereof, and (ii) with respect to tax matters only, the applicable
statutes of limitations.
ARTICLE X
---------
LIMITATION OF LIABILITY
-----------------------
10.1 Liability of Members: Enforcement of Obligations. Except to the
extent otherwise expressly stated in this Agreement or prescribed under the Act:
(a) the Members shall have no fiduciary or partnership relationship between or
among themselves solely by reason of their status as Members, and (b) the rights
of each of the Members and the Company to sue for matters and claims arising out
of or pertaining to this Agreement shall not be dependent upon the dissolution,
winding-up or termination of the Company.
10.2 Indemnification of Members and Directors.
(a) Except as provided in Section 10.3, every Person who was or is a
party, or who is threatened to be made a party, to any pending, completed or
impending action, suit or
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proceeding of any kind, whether civil, criminal, administrative, arbitrative or
investigative (whether or not by or in the right of the Company) by reason of:
(i) being or having been a Member or Director of the Company, (ii) being or
having been a member, manager, partner, officer, director or agent of any other
entity at the request of the Company, or (iii) serving or having served in a
representative capacity for the Company in connection with any corporation,
limited liability company, partnership, joint venture, committee, trust,
employee benefit plan or other enterprise, shall be indemnified by the Company
against all expenses (including reasonable attorneys' fees and expenses),
judgments, fines, penalties, awards, costs, amounts paid in settlement and
liabilities of all kinds, actually incurred by such Person incidental to or
resulting from such action, suit or proceeding to the fullest extent permitted
under the Act, without limiting any other indemnification rights to which such
Person otherwise may be entitled. The Company may, but shall not be required to,
purchase insurance on behalf of such Person against liability asserted against
or incurred by such Person in its capacity as a Member or Director of the
Company, or arising from such Person's status as a Member or Director, whether
or not the Company would have authority to indemnify such Person against the
same liability under the provisions of this Section 10.2 or the Act.
(b) In any claim for indemnification under Section 9.3 or this Section
10.2: (i) the indemnifying Person shall have the right to settle any claim
without the prior consent of the Person to be indemnified, provided that such
indemnifying Person receives a release from such claim, (ii) the Person to be
indemnified may not settle or compromise any such claim without the prior
written consent of the indemnifying Person, and (iii) the indemnifying Person
may defend such claim with counsel of its own choosing (and in such event, the
indemnifying Person shall
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not be required to pay the expenses of counsel to the indemnified Person). If
IPG is the indemnified party with respect to any Claim, then IPG may, by notice
to the indemnifying parties, withhold from the payment of the Purchase Price, an
amount reasonably determined by IPG to represent the total dollar amount of
indemnification payable to the indemnified parties in connection with the Claim
in question; and, after final determination of the indemnification payable to
the indemnified parties in such Claim, IPG may, at its option, apply such
withheld amounts to payment of the indemnifying parties' indemnification
obligations with respect to such Claim. Any amounts so withheld (and not
otherwise paid to the indemnifying parties) which are determined not to be
rightfully payable to the indemnified parties shall be paid over to the
indemnifying parties, with interest from the original payment date therefor,
calculated at the prime rate as announced from time to time by Chase Manhattan
Bank N.A. or its successor entity.
10.3 Limitation of Liability. Except as otherwise expressly provided in
this Agreement, no Member or Director shall have liability to the Company or
other Members for damages resulting from such Member's or Director's act or
omission which does not constitute fraud, gross negligence or willful
misconduct.
10.4 Qualification of Indemnification and Liability Limitation. (a) The
indemnification rights set forth in Section 10.2 and the limitation of liability
provided for in Section 10.3 shall not apply to: (i) any Claim by any federal,
state or local taxing authority which relates to or is in connection with the
allocation of any installment of the Purchase Price or (ii) claims based upon
fraud, gross negligence or willful misconduct nor shall such indemnification
rights and limitations on liabilities preclude the Company or any
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Member from recovery for any loss or damage otherwise covered under any
insurance policy or fidelity bonding. Nothing herein shall be deemed to prohibit
or limit the Company's right to pay, or obtain insurance covering, the costs
(including reasonable attorneys' fees and expenses) to defend an indemnitee,
Member or Manager against any such claims, subject to a full reservation of
rights to reimbursement in the event of a final adjudication adverse to such
indemnitee, Member or Director.
(b) An indemnitee shall be entitled to recover from an indemnitor all
legal costs or expenses, including reasonable attorney's fees and expenses,
incurred by such indemnitee to enforce its rights hereunder, or to collect any
sums due from the indemnitor hereunder.
ARTICLE XI
----------
DISSOLUTION AND TERMINATION
---------------------------
11.1 Dissolution of the Company. The Company shall be dissolved on the
earlier of the expiration of the term of the Company or upon:
(a) The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member unless, within ninety (90) days after the occurrence of
any such event, all of the remaining Members elect to continue the Company;
(b) The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member which leaves only one (1) Member remaining, and no
additional or substitute Member is admitted to the Company in accordance with
this Agreement within ninety (90) days thereafter;
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(c) The expiration of ninety (90) days following the sale or other
disposition of all or substantially all of the Company's assets;
(d) The election by IPG to liquidate the Company if the Company: (i)
has incurred a Net Loss of Five Hundred Thousand Dollars ($500,000) in any
Fiscal Year, or (ii) as of the end of any Fiscal Year has a cumulative aggregate
Net Loss of One Million and Five Hundred Thousand Dollars ($1,500,000) or more,
in each case as reflected in the Company's audited financial statements, unless
PAS and P&P have offered to purchase IPG's Membership Interest for its
liquidation value as determined by an independent appraiser mutually selected by
the Members;
(e) The unanimous election by the Members (made in accordance with the
terms of this Agreement) to liquidate the Company; or
(f) The entry of a decree of judicial dissolution under Section 18-802
of the Act.
11.2 Winding-up and Dissolution of the Company. Upon the dissolution of
the Company pursuant to Section 11.1, the Company's business shall be wound up
and its assets liquidated, and the net proceeds of such liquidation shall be
applied and distributed as provided in Section 4.8 hereof.
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ARTICLE XII
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CONDITIONS TO OBLIGATIONS TO PURCHASE
-------------------------------------
12.1 Conditions to IPG Obligations. The obligation of IPG to perform
the obligations required to be performed by it under this Agreement shall be
subject to the following conditions:
(a) All representations and warranties contained in this Agreement made
by or on behalf of PAS and P&P shall be true and correct in all material
respects on the Closing Date as if made on the date thereof; and
(b) All covenants and obligations contained in this Agreement to be
performed by or on behalf of PAS or P&P shall have been fully performed on or
prior to the Closing Date; and
(c) Counsel for the Company shall have delivered an opinion of counsel
regarding general corporate matters reasonably satisfactory to IPG; and
(d) The Company shall have received a commitment from General Motors
Corporation ("GM") to appoint the Company as the agency of record for GM's
consolidated event marketing programs. Upon a failure of PAS or P&P to meet the
requirements of this Section 12.1, then this Agreement shall terminate and IPG
shall be under no obligation to PAS, P&P or the Company.
12.2 Conditions to PAS and P&P Obligations. The obligations of PAS and
P&P to perform the obligations required to be performed by them under this
Agreement shall be subject to the following conditions:
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(a) All representations and warranties of IPG contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as if made on the date hereof;
(b) All covenants and obligations contained in this Agreement to be
performed by IPG shall have been fully performed on or prior to the Closing
Date;
(c) The Company shall have executed and delivered to each of PAS and
P&P the Assignment and Assumption Agreement; and
(d) Counsel for IPG shall have delivered an opinion of counsel
regarding general corporate matters reasonably satisfactory to PAS and P&P. Upon
of a failure of IPG to meet the requirements of this Section 12.2, then this
Agreement shall terminate and neither PAS nor P&P shall be under any obligation
to IPG or the Company.
12.3 The Closing. The Closing Date shall be on a date not later than
forty-five (45) days following the date hereof, or on such later date as the
parties may agree. In addition to the documents referred to in this Article XII,
at such closing PAS and P&P shall provide IPG, and IPG shall provide PAS and
P&P, with such reasonable closing documentation requested.
ARTICLE XIII
------------
MISCELLANEOUS
-------------
13.1 Amendment of Agreement. No change, modification or amendment of
this Agreement shall be valid or binding unless such change, modification or
amendment shall be in writing signed by each and every Member.
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13.2 Governing Law. This Agreement and the rights of the parties
hereunder shall be governed by and interpreted and enforced in accordance with
the laws of the State of Delaware.
13.3 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Members, and their respective successors and assigns.
13.4 Making Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. However, in making proof hereof it shall
be necessary to produce only one copy hereof signed by the party to be charged.
13.5 Additional Documents and Acts. Each Member agrees to execute and
deliver such additional documents and instruments and to perform such additional
acts as may be necessary or appropriate to effectuate, carry out and perform all
of the terms and provisions of this Agreement.
13.6 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the parties hereto, and their
respective successors and assigns, and no other person shall have any rights,
interests, or claims hereunder or be entitled to any benefits under or on
account of this Agreement as a third party beneficiary or otherwise.
13.7 Notices. Any notice to be given to or served upon the Company or
any party hereto in connection with this Agreement must be in writing and
delivered in person or by telecopy, nationally recognized overnight courier or
registered or certified mail, postage prepaid, addressed as follows:
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If to PAS :
345 Park Avenue South
New York, New York 10010
Attn: Bernard Bushkin
Telecopy No. (212) 684-0797
with copies to:
Whitman Breed Abbott & Morgan
200 Park Avenue
New York, New York 10166
Attn: Christopher M. Flanagan
Telecopy No. (212) 351-3131
and
Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attn: Michael D. DiGiovanna
Telecopy No. (212) 972-9487
If to P&P:
People & Properties, Inc.
345 Park Avenue South
New York, New York 10010
Attn: Bernard Bushkin
Telecopy No. (212) 684-0797
with copies to:
Whitman Breed Abbott & Morgan
200 Park Avenue
New York, New York 10166
Attn: Christopher M. Flanagan
Telecopy No. (212) 351-3131
and
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Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attn: Michael D. DiGiovanna
Telecopy No. (212) 972-9487
If to IPG:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attn: Chief Financial Officer
Fax No. (212) 399-8130
with a copy to:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attn: General Counsel
Fax No. (212) 399-8280
Any such notice shall be deemed given when received. Any member or the Company
may, at any time by giving five (5) days' prior written notice to the other
Members and the Company, designate any other address for itself in substitution
of the foregoing address.
13.8 Publicity. The parties agree not to disclose the existence or
terms of this Agreement to third parties, including clients of PAS or P&P,
unless the terms of such disclosure have been agreed upon by the parties in
advance. The parties shall cooperate in preparing a press release with respect
to the transactions contemplated hereby, which shall be subject to the parties'
prior approval.
13.9 Dispute Resolution. (a) The parties hereto shall, and shall cause
their designated Directors to, attempt in good faith to resolve any controversy
or claim between the parties arising out of or relating to this Agreement
promptly by negotiations. If a controversy or
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claim should arise out of the interpretation of or performance under this
Agreement, each party to the dispute will meet at least once, in person or by
telephone, on not more than five (5) days notice to meet made by either party,
to attempt to resolve the matter.
(b) If the matter, other than any matter referred to in Section 13.9(d)
hereof, has not been resolved by negotiation within ten (10) days of the notice
described in Section 13.9(a), the parties shall endeavor to settle the dispute
by mediation in accordance with the then current mediation rules of the American
Arbitration Association (the "AAA"), with a neutral mediator mutually selected
from the approved list of AAA mediators.
(c) If the mediation is not successful in resolving the dispute within
sixty (60) days of the first mediation session or if the party receiving first
notice refuses to meet, the parties shall settle such dispute by binding
arbitration in New York City conducted expeditiously in accordance with the
current AAA arbitration rules by a sole arbitrator. The sole arbitrator shall be
a lawyer mutually selected from the approved list maintained by the AAA. If the
parties cannot agree on a sole arbitrator, then one shall be chosen by the AAA
in accordance with its rules. In deciding the dispute, the arbitrator shall be
bound by, and shall faithfully apply, the laws of the State of Delaware,
including the laws of evidence but excluding procedural rules. The arbitrator's
decision shall be final and binding upon the parties, and the prevailing party
may confirm such decision in a court of competent jurisdiction. The costs of
mediation and arbitration shall be borne equally by the parties to this
Agreement; provided, however, that each party shall pay its own attorneys' fees
and expenses.
(d) Notwithstanding anything contained herein to the contrary, Sections
13.9(b) and (c) of this Agreement shall not apply to any dispute relating to the
failure of IPG to
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make any payment required to be made by it pursuant to Sections 3.2, 3,4, or 3.5
hereof. In the event of any such failure, either or both of PAS and P&P may
commence a legal proceeding seeking to compel such payment.
13.10 Specific Performance. Recognizing that in the event of a breach
of this Agreement damages at law would be inadequate, in addition to any other
remedies available at law or in equity, any Member shall be entitled to specific
performance, by way of restraining order or injunction in any court of competent
jurisdiction, to restrain or prevent any such breach.
13.11 Partition. The Members hereby acknowledge and agree that the
assets of the Company will not be suitable for partition; and, accordingly, each
Member hereby irrevocably waives any and all rights which it may otherwise have,
under the Act or any other applicable law, to maintain any action for partition
of such assets.
13.12 Severability of Provisions. If any term or provision of this
Agreement or the application thereof to any Person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, and the
application of such term or provision, to Persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforceable to the fullest extent permitted by law.
13.13 Entire Agreement. This Agreement sets forth all (and is intended
by the Members to be an integration of all) of the promises, agreements and
understandings among the Members with respect to the Company, its business
operations and management and all Company assets, and there are no promises,
agreements, or understandings, oral or written, express or implied, among them
other than as set forth or incorporated herein.
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13.14 Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
13.15 Pronouns and Plurals. Whenever the context may require, any
pronouns used herein shall be deemed to refer to the masculine, feminine, or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural, and vice versa. Whenever used herein, the terms "include,"
"includes" and "including" shall mean to include without limitation.
13.16 Costs and Expenses. Each party hereto shall bear its own costs
and expenses in connection with the preparation, negotiation and execution of
this Agreement, and the transactions contemplated hereby and thereby, including
the costs of legal counsel.
13.17 Allocation Statement. IPG, PAS, and P&P shall cooperate in good
faith in the preparation and filing of any initial and supplemental asset
acquisition statements required to be filed under Code Section 1060 as a result
of the consummation of the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
By: /s/ Barry Linsky
------------------------------------
Name: Barry Linsky
Title: Senior Vice President
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345 PAS SPORTS, INC.
By: /s/ Bernard Bushkim
----------------------------------
Name: Bernard Bushkim
Title: President
PEOPLE AND PROPERTIES, INC.
By: /s/ Bernard Bushkim
----------------------------------
Name: Bernard Bushkim
Title: President
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List of Schedules
-----------------
2.7 - Members and Percentage Interests
3.1 - Assets; Excluded Assets; Liabilities
6.9 - Budget, Expense Allocation
9.2(c)(iii) - Trademarks, etc.
9.2(c)(v) - Actions, Suits, Claims, etc.
9.2(d) - Material Contracts and Leases
9.2(f) - Employee Benefits; Employees
9.2(g) - Existing Clients
9.2(h) - Insurance Policies
9.2(i) - Affiliate Obligations
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Schedule 2.7
------------
Members and Percentage Interests
--------------------------------
Name and Address of Member Percentage Interest
- -------------------------- -------------------
The Interpublic Group of Companies, Inc. 51%
1271 Avenue of the Americas
New York, New York 10020
People and Properties, Inc. 48%
345 Park Avenue South
New York, New York 10010
345 PAS Sports, Inc. 1%
345 Park Avenue South
New York, New York 10010
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