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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER
0-22582
TBA ENTERTAINMENT CORPORATION
(Name of Small Business Issuer in its Charter)
DELAWARE 62-1535897
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
16501 VENTURA BOULEVARD
ENCINO, CALIFORNIA 91436
(Address of principal executive offices) (Zip Code)
(818) 728-2600
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ].
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $27,272,700.
The aggregate market value of the voting stock held by non-affiliates of the
registrant (based on the closing sale price of such stock as reported on
March 26, 1999 on the Nasdaq National Market of the National Association of
Securities Dealers, Inc.) was approximately $27,240,900.
As of March 26, 1999, 8,522,880 shares of the registrant's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement, to be filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934 in connection
with the registrant's 1999 annual meeting of stockholders, have been
incorporated by reference in Part III of this report.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
TBA Entertainment Corporation ("TBA" or the "Company") is a diversified
communications and entertainment services company. The Company provides a broad
range of services through four integrated business divisions:
- Corporate Communications & Entertainment - Provides a broad range of
business communications, meeting production, entertainment and event
production services to corporate clients worldwide.
- Entertainment Marketing & Special Events - Creates and executes
innovative entertainment marketing and special event initiatives
including music tours, festivals, television broadcasts and syndicated
radio specials.
- Artist Management - Manages the negotiation of recording, touring,
merchandising and performance contracts, and the development of
long-term career strategies for music industry artists.
- Event Merchandising - Creates and executes high-impact merchandising
programs for entertainment and sporting events, institutional
organizations and celebrity clients.
The integration of TBA's four business divisions creates competitive
advantages for the Company. TBA believes that while a variety of competitors
exist with each of the Company's divisions, none offer the complete scope of
entertainment services provided by TBA. This inner-company synergy provides
TBA's clients with an expanded range of comprehensive services while creating
additional sources of revenues and profits for the Company. For example, in
providing corporate meetings and entertainment events and entertainment
marketing programs, the Company creates opportunities to showcase artist
management clients and to provide unique merchandising programs. Providing
entertainment marketing programs and merchandising programs for corporate
clients provides opportunities to cross-sell client decision makers on other
corporate communication and entertainment events.
The Company's current operating structure is the result of strategic
acquisitions within each of the four business divisions. A brief description of
each of the acquisitions completed since January 1, 1998 is included below in
the detailed description of each of the four business divisions.
The Company was incorporated in Tennessee in June 1993 and reincorporated in
Delaware in September 1997. The Company's executive offices are located at 16501
Ventura Boulevard, Encino, California 91436, and its telephone number is (818)
728-2600.
CORPORATE COMMUNICATIONS & ENTERTAINMENT
The Corporate Communications & Entertainment division is an industry leader
in the production of innovative corporate meetings and events. This division
helps businesses effectively communicate their message via a broad range of
business communications, meeting production, entertainment and event productions
services. TBA utilizes award-winning creative capabilities and state-of-the-art
technology to help corporate clients worldwide deliver targeted messages that
educate, inspire and motivate. The Corporate Communications & Entertainment
division targets clients with recurring needs for business communications and
entertainment services. The Company's client list encompasses a number of
industry sectors including airline, automotive, information technology, food
service, insurance and financial services. Representative clients include
American Airlines, Pontiac, Motorola, Microsoft, McDonald's Corporation,
Frito-Lay Corp., State Farm Insurance and Merrill Lynch.
The Corporate Communications & Entertainment division specializes in the
creative development, design, production and staging of a wide variety of
extraordinary events including: sales conferences, corporate meetings and
events, conventions and trade shows, product launches, awards shows, shareholder
meetings, live network broadcasts, television commercials, videoconferencing and
corporate anniversaries. TBA believes that it has benefited from the decision by
an increasing number of major corporations to outsource their business
communications and entertainment needs. TBA, and the companies acquired by TBA
in 1998, collectively produced over 800 events in 1998. The recurring nature of
this large number of events serves as a source of more predictable revenues as
they occur on a more regular basis. The large number of events also provides
opportunities for the Company's other divisions, including corporate event
opportunities for TBA's artist management clients and merchandising activities.
The Corporate Communications & Entertainment division serves it clients from
a growing roster of offices nationwide, including Atlanta, Chicago, Dallas,
Nashville, Phoenix, Salt Lake City and San Diego. These offices were assembled
via strategic acquisitions over the past two years. The following is a brief
description of these acquisitions:
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In April 1997, the Company acquired its first corporate communications and
entertainment company with the acquisition of all of the outstanding capital
stock of TBA Entertainment Group Nashville, Inc., formerly Avalon Entertainment
Group, Inc. ("AEG"). AEG, with offices in Nashville and San Diego, enjoys a
strong reputation for developing and producing live entertainment for
conventions, corporate meetings and special events. AEG provides turn-key
services for entertainment events including event planning, talent arrangements
and event staging.
In August 1998, the Company acquired all of the outstanding capital stock of
TBA Entertainment Group Chicago, Inc., formerly Corporate Productions, Inc.
("CPI"), a Chicago-based company. CPI adds strong business communications
expertise through its award-winning creative capabilities to produce innovative
business communication solutions for corporate meetings.
In September 1998, the Company acquired all of the outstanding capital stock
of TBA Entertainment Group Phoenix, Inc., formerly Image Entertainment
Productions, Inc. ("Image"), a Phoenix-based company. Image specializes in
corporate entertainment and Phoenix-area festivals including the entertainment
activities surrounding the Fiesta Bowl.
In October 1998, the Company acquired all of the outstanding capital stock
of TBA Entertainment Group Dallas, Inc., formerly Magnum Communications, Inc.
("Magnum"). Magnum, with offices in Dallas and Salt Lake City, adds strong
audiovisual presentation and design capabilities to the Corporate Communications
& Entertainment division.
With the completion of the acquisitions described above, TBA delivers a full
range of corporate communications and entertainment services to its clients. The
Corporate Communications & Entertainment division emphasizes the coordination
of services between the division's offices and, as necessary, allocates
resources from one office in order to support another. In addition, this
division supplements its full-time staff with independent contractors where
needed. TBA has long-standing relationships with freelance contractors in
various production, technical and creative disciplines.
The Company believes, based on its experience, that the corporate
communications and entertainment industry is highly fragmented. Further, the
Company believes that its competitors consist of a number of small, primarily
regional companies that provide only a limited range of services. However, the
Company believes that there are other competitors whose business, like the
Company's, is full service in scope. The Company also competes with in-house
corporate communications staff of existing and potential clients and with staffs
of hotel and convention centers.
Because of the highly-fragmented nature of the corporate communications and
entertainment industry, the Company believes that there are a number of
acquisition opportunities available to the Company. The Company believes, based
on its experience with past acquisitions, that some portion of the small,
regional, limited-services companies would welcome the opportunity to provide a
full range of corporate communications and entertainment services that would
result from an association with the Company. However, there can be no assurance
that the Company will be successful in acquiring any more businesses in the
corporate communications and entertainment industry.
ENTERTAINMENT MARKETING & SPECIAL EVENTS
The Entertainment Marketing & Special Events division is an industry
leader in the creation, development and execution of highly integrated and
innovative entertainment marketing and special event programs. This division
continually forges new ways for clients to reach their audiences and realize
their business objectives. The Entertainment Marketing & Special Events division
specializes in the creative development, design, production and execution of a
broad range of marketing initiatives that may include: national music tours,
festivals, lifestyle events, nationally syndicated radio programs, satellite
media tours, network television broadcast specials, point of purchase campaigns,
premium/incentive programs, brand imaging campaigns, sponsorship fullfillment,
webcasts, experiential branding initiatives and consumer/trade promotions.
The Company operates the Entertainment Marketing & Special Events division
both for its own account and through joint venture arrangements. The flagship
joint venture arrangement is Warner/TBA, a strategic joint venture between Time
Warner's Warner Custom Music Group and TBA. The Company's 50% interest in
Warner/TBA was acquired as part of the acquisition of AEG in April 1997. This
partnership combines the vast network of resources of the world's most
diversified, vertically integrated music company with TBA's creative and
production expertise to create an entertainment marketing company with strong
competitive advantages. In July 1997, TBA entered into a joint venture
arrangement (TBA/Frank) with Frank Productions, Inc., which specializes in
concert production and national touring. In December 1998, the Company acquired
all of the outstanding capital stock of TKS Marketing, Inc., which specializes
in sponsorship fullfillment.
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The Company works with its clients to custom craft an entertainment
marketing and special event to the exact specifications of that particular
client. Over time, TBA believes existing clients will expand their programs,
including increasing the scope of existing components of programs and by adding
new components to programs. The Company's Entertainment Marketing & Special
Events division is currently characterized by a relatively small number of
accounts with high revenues per account. As a result, the loss or addition of
any one account could have a material affect on the Company's revenues. Because
contracts for the Company's marketing programs are typically signed six months
to one year before the program takes place, management believes that, to a
reasonable degree, it can forecast and take appropriate action for changes in
its client portfolio. When possible, the Company also seeks to enter into
multi-year contracts with its clients. For example, in 1999 TBA entered into a
three-year agreement to produce Rockfest with Hard Rock Cafe as the corporate
sponsor. In addition, the Company believes that certain of its programs have
applications beyond one single client. For example, in 1998 the Company
developed the "For the Record" concept and marketing program for the country
music group Alabama. This program was developed to highlight the outstanding
career of Alabama and included a guest appearance on a nationally televised CBS
special, a double-CD release of all 41 of their number one hits, a worldwide pay
per view television special, a 13-city Christmas tour and a soon to be released
video of the pay per view event. TBA believes that there are other music
industry artists that would benefit from the For the Record marketing program.
TBA provides companies with the power to reach and engage their customers in
a fresh, contemporary manner utilizing relevant programming and experiential
branding techniques to integrate their company or brand into the lifestyle of
their consumers. The Entertainment Marketing & Special Events division seeks to
develop music marketing programs that appeal to highly-focused demographic
segments. Management believes that national consumer product companies are
well-suited to use entertainment marketing as a tool and seeks to target these
industry participants as potential customers. The Company has produced
entertainment marketing programs for clients that include Fruit of the Loom,
Blockbuster Entertainment, Crown Royal, Turner Sports and Red Lobster
restaurants. In 1999, Warner/TBA will produce the proprietary event Rockfest
with Hard Rock Cafe as the corporate sponsor. In 1997, Rockfest was sponsored by
Blockbuster Entertainment and was the largest one day ticketed event in music
history.
The Entertainment Marketing & Special Events division also provides unique
opportunities for the Company to showcase artist management clients and to
develop high-impact merchandising programs to complement the overall marketing
program. In addition, relationships with corporate clients also create
opportunities to sell corporate communications and entertainment services to an
expanded client base.
ARTIST MANAGEMENT
The Artist Management division develops and implements career strategies for
music industry artists. The Company, as a leader in the production of corporate
communications and entertainment programs, entertainment marketing initiatives,
special events sponsorship procurement and merchandising of entertainment and
sporting events, is uniquely positioned to create incomparable opportunities for
artists. Management believes that the Company's familiarity with all facets of
the entertainment industry enables it to help artists create and capitalize on
opportunities. With its expertise in concert production and corporate
entertainment events and its relationships with venue managers, outside concert
promoters, broadcasting executives and other industry professionals, management
believes that the Company is uniquely positioned to offer services which can
significantly enhance the careers of its clients. The Company develops long term
career strategies and represents music industry artists in the negotiation of
recording, touring, merchandising and performance contracts. Using these
integrated resources, the Artist Management team is unified around the strategy
of creating long-term, sustained success for our management clients.
The Company has made two strategic acquisitions over the past two years in
assembling the Artist Management Division. The following is a brief description
of these acquisitions:
In April 1997, the Company acquired its first Artist Management company
with the acquisition of AEG. AEG manages well-known artists such as Neal McCoy,
Gary Chapman, Jay Johnson and new duo Kincaid.
In June 1998, the Company acquired all of the equity interest in Titley
Spalding & Associates LLC, which currently manages Brooks & Dunn, Kathy Mattea
and Chely Wright.
The Company believes that the artist management industry is
highly-fragmented and its competitors consist primarily of small independent
artist managers with a limited roster of artist management clients, although
there are several participants in the industry that have capabilities and
resources comparable to and in certain respects greater than those of the
Company. The Company currently has artist management clients that are primarily
in the country music genre. Because of the highly-fragmented nature of the
artist management industry, the Company believes that there are a number of
acquisition opportunities available to the Company, a number of which have been
identified by the Company, both within the country music genre as well as in
other music genres including pop and rock. However, there can be no assurances
that the Company will be successful in acquiring any more companies in the
artist management industry.
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EVENT MERCHANDISING
The Event Merchandising division develops and executes merchandising
programs for entertainment and sporting events, institutional organizations and
celebrity clients. This division creates, designs, and executes merchandising
programs as well as promotional and for-sale items. As a leader and innovator in
the industry, TBA has custom-crafted and executed exclusive merchandising
programs for a broad range of events. These events include the Olympic games,
the world's premier sporting event, the Association of Volleyball Professionals,
the world's premier men's beach volleyball tour, U.S. Women's Figure Skating
Championship, and the Lipton Tennis Tournament, a world-class tennis
championship.
In addition, through the Event Merchandising division, TBA can deliver the
added benefit of a merchandising program to any artist management client,
integrated entertainment marketing initiative, special event, corporate
communications program or business imaging campaign. This integrated strategy
serves TBA's clients by building positive public awareness while generating
additional profitability for the Company.
The Company has made three strategic acquisitions over the past three years
in assembling its Event Merchandising division. The following is a brief
description of these acquisitions:
In July 1997, the Company acquired 51% of Eric Chandler Merchandising, Inc.
("ECM"). ECM, a Los Angeles-based company, specializes in executing
merchandising for large-scale entertainment and sporting events, such as the
1996 Summer Olympic Games in Atlanta, Georgia. The remaining 49% of ECM was
acquired by TBA in May 1998.
In August 1998, the Company acquired all of the outstanding stock of
Corporate Incentives, Inc. ("CII"), in connection with its acquisition of CPI.
CII implements corporate merchandising programs.
In March 1999, the Company acquired all of the outstanding stock of Karin
Glass & Associates, Inc. and affiliated companies ("KGA"). KGA, an
Indianapolis-based company, is a full-service merchandising company specializing
in merchandise design, production and fullfillment.
DISCONTINUED OPERATIONS
In 1998, the Company continued to focus its growth in certain segments of
the entertainment sector and, in accordance with this strategy, divested itself
of businesses that were not a part of the future growth plans of the Company.
Such divestitures are described below:
Concert Promotion and Amphitheater Operations. On May 13, 1998, the Company
sold its 51% interest in Avalon West Coast ("AWC"), a group of affiliated
entities engaged primarily in concert promotion and amphitheater operations
on the West coast, to New York-based SFX Entertainment, Inc. The Company
received proceeds from the sale of its interest in AWC in the amount of
approximately $10 million, without giving effect to applicable transaction
costs.
The Village at Breckenridge Resort. On August 12, 1998, the Company sold all
of its interest in The Village at Breckenridge Acquisition Corp., Inc. and
Property Management Acquisition Corp., Inc., the wholly-owned subsidiaries
of the Company that own the Village at Breckenridge Resort located in
Breckenridge, Colorado, and the associated property management business
operating in Breckenridge (the "Breckenridge Resort"), to Vail Summit
Resorts, Inc., an affiliate of Vail Resorts, Inc ("Vail"), for an aggregate
purchase price of approximately $34 million in cash. After repayment of debt
associated with the Breckenridge Resort, the Company realized approximately
$11 million, without giving effect to applicable transaction costs. An
additional $3 million of the $34 million sales proceeds were placed into an
escrow account. TBA will receive the $3 million from the escrow account in
1999 upon the closing of the sale of a portion of the assets comprising the
Breckenridge Resort to an unaffiliated third party.
Nashville Country Club. The Nashville Country Club restaurant opened in
November 1994 and was closed in November 1997. The sale of the restaurant
property was completed in December 1998. The Company realized approximately
$1.4 million in net proceeds from the sale.
The Company utilized a portion of the proceeds from the sale of these assets
to fund its growth strategy in 1998. The remaining proceeds will be utilized
for operations and to fund the continued expansion of the Company's core
entertainment operations pursuant to its business strategy.
COMPETITION
In addition to the competitive factors outlined above for each of the
Company's four business divisions, the success of the Company's entertainment
operations are dependent upon numerous factors beyond the Company's control,
including economic conditions, amounts of available leisure time, transportation
costs, lifestyle trends and weather conditions.
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SEASONALITY
The Company experiences quarterly fluctuations in revenue, operating income
and net income as a result of many factors, including the timing of clients'
meetings and events, timing of artists' tours and recording releases, weather
related issues, delays in or cancellation of clients' entertainment marketing
programs, as well as changes in the Company's mix among the various services
offered.
TRADEMARKS
The Company has filed Intent-To-Use Trademark Applications for the TBA
Entertainment Corporation mark for the various classes of goods and services in
which the Company's mark will be utilized. In addition, the Company has filed or
intends to file Intent-To-Use Trademark Applications for other proprietary
programs developed by the Company. There can be no assurance, however, that
these trademarks will proceed to registration, and if so registered, that the
trademarks, in any one or more classes, will not violate the proprietary rights
of others, that any registration of the trademarks or the Company's use thereof
will be upheld if challenged, or that the Company will not be prevented from
using the trademarks.
REGULATION AND LICENSES
The Company is subject to federal, state and local laws affecting its
business, including various health, sanitation and safety standards. The
Company's entertainment operations are subject to state and local government
regulation, including regulations relating to live music performances. Each live
concert performance must comply with regulations adopted by federal agencies and
with licensing and other regulations enforced by state and local health,
sanitation, safety, fire and other departments. Difficulties or failures in
obtaining the required licenses or approvals can delay and sometimes prevent the
promotion of live concerts. The failure to receive or retain, or delay in
obtaining, a license to serve alcohol and beer in a particular location could
adversely affect the Company's operations in that location and impair the
Company's ability to obtain licenses elsewhere. The failure or inability of the
Company to maintain insurance coverage could materially and adversely affect the
Company.
EMPLOYEES
As of December 31, 1998, the Company had approximately 120 full-time and
part-time employees. It is the Company's intention to manage its growth
consistent with its ability to attract and retain qualified employees to manage
its operations. Over the course of any given event or program, the Company
evaluates the production personnel requirements and determines the extent to
which it must supplement its available employee base with the use of freelance
contractors or part-time employees. The Company believes that its relationship
with its employees and freelance contractors is good.
The Company has no full-time employees whose employment is covered by
collective bargaining or similar agreements with unions; however, the Company
does from time to time independently contract with or hire part-time union
personnel, especially during the production of a particular entertainment
marketing program and, accordingly, the Company is a party to certain agreements
with unions governing the hiring and terms of employment of such personnel.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has offices located in Hickory Valley, Tennessee in a building
owned by a limited partnership, the general partner of which is a corporation
owned by Thomas J. Weaver III and Frank A. McKinnie Weaver, Sr., each an officer
and director of the Company, and of which they also are limited partners. The
limited partnership does not charge the Company rent for its Hickory Valley,
Tennessee offices.
The Company and/or its subsidiaries maintain leased office space in
Nashville, Tennessee, San Diego, California, Los Angeles, California, New York,
New York, Salt Lake City, Utah, Chicago, Illinois and Phoenix, Arizona. These
leases expire at various dates through January 2005. The Company anticipates
that as it expands, it will require additional office space to support such
growth and believes that suitable space will be available as needed.
The Company's wholly-owned subsidiary, TBA Entertainment Group Dallas, Inc.
owns the building in which its offices and production facilities are located, as
well as certain vacant land adjacent to such building. The building is located
at 1333 Maryland Drive in Irving, Texas. The building is encumbered with an
approximately $300,000 first lien mortgage indebtedness.
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ITEM 3. LEGAL PROCEEDINGS.
On July 31, 1997, the Company acquired a 51% partnership interest in the
Irvine Meadows Amphitheater Partnership, a California general partnership which
owned and managed the Irvine Meadows Amphitheater in Irvine, California. The
Company acquired such 51% partnership interest from a corporate affiliate of
Robert Geddes, who was at the time a member of the Board of Directors of the
Company. In order to effectuate such sale, the Geddes affiliate acquired an
aggregate 49% partnership interest in the Irvine Meadows Amphitheater
Partnership from two of its existing partners. On October 23, 1998, the two
partners that sold their partnership interests to Mr. Geddes, along with their
controlling shareholders (collectively, the "Plaintiffs"), filed a complaint in
the Los Angeles Superior Court against the Company and Mr. Geddes. Certain other
defendants were also named in the complaint. In such complaint, the Plaintiffs
allege that, in connection with their sale, Mr. Geddes breached certain
contractual obligations, breached his fiduciary duty to them as partners, and
fraudulently induced them to sell their respective partnership interests. The
Plaintiffs further allege that the Company aided and abetted the alleged breach
of fiduciary duty and the fraud in the inducement. The Company denies all of the
allegations and is vigorously defending this action. Management does not believe
that the outcome of this litigation will have a material adverse effect on the
financial condition and operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Common Stock is quoted on the Nasdaq National Market under the
symbol TBAE. On March 26, 1998, the last reported sale price of the Common Stock
was $4.00 per share. The following table sets forth the range of high and low
sales prices of the Common Stock during each quarterly period within the two
most recent years, as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1998
First Quarter $4 1/16 $ 3 1/4
Second Quarter 5 3 5/8
Third Quarter 5 9/32 3 5/8
Fourth Quarter 4 7/8 3 7/16
1997
First Quarter 6 3 3/8
Second Quarter 5 7/8 4 1/8
Third Quarter 5 7/8 3 3/8
Fourth Quarter 4 3/4 3 1/8
</TABLE>
(b) The approximate number of holders of record of Common Stock on March 26,
1998 was 134.
(c) The Company has not paid or declared cash distributions or dividends and
does not intend to pay cash dividends on the Common Stock in the foreseeable
future. The Company currently intends to retain all earnings to finance the
development and expansion of its operations. The declaration of cash dividends
in the future will be determined by the Board of Directors based upon the
Company's earnings, financial condition, capital requirements and other relevant
factors.
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ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The purpose of the following discussion and analysis is to explain the major
factors and variances between periods of the Company's results of operations.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the historical consolidated
financial statements and notes thereto included in Item 7.
Introduction
The Company is a diversified communications and entertainment services company
that produces a broad range of business communications, meeting production and
entertainment services for corporate meetings, develops and produces integrated
music marketing programs and special events, manages music artists and develops
and executes merchandising programs for large-scale entertainment and sporting
events.
Prior to April 21, 1997, the Company operated a restaurant in Nashville,
Tennessee and the Village at Breckenridge Resort ("Breckenridge Resort") in
Breckenridge, Colorado. In April 1997, the Company acquired its first corporate
communications and entertainment company, TBA Entertainment Group Nashville,
Inc., formerly Avalon Entertainment Group, Inc. ("AEG"), including a 50%
interest in the Warner/TBA (formerly Warner/Avalon) joint venture. In 1998, the
Company grew its operations through the acquisition of several additional
corporate communications and entertainment services businesses, including Titley
Spalding & Associates, LLC ("TSA"), TBA Entertainment Group Chicago, Inc.,
formerly Corporate Productions, Inc. ("CPI"), Corporate Incentives, Inc.
("CII"), TBA Entertainment Group Phoenix, Inc., formerly Image Entertainment
Productions, Inc. ("Image"), TBA Entertainment Group Dallas, Inc., formerly
Magnum Communications, Inc. ("Magnum"), and TKS Marketing, Inc. ("TKS"),
(collectively, the "1998 Acquisitions").
General
The Company currently derives a majority of its revenues (86% and 98% for the
years ended December 31, 1998 and 1997, respectively) from the production of
business communications and entertainment events for corporate clients. The
Company works with its clients to develop creative programming to deliver
messages to the client's targeted audiences. The Company receives a fee for
providing these services, which may include developing creative content,
designing audio/visual presentations and arranging for live entertainment and
related production services, including lights and sound. Revenue is recognized
when the services are completed for each event. Costs of producing the events
are also deferred until the event occurs.
The remainder of the Company's revenues are generated from artist management (6%
and 2% of total revenues for the years ended December 31, 1998 and 1997,
respectively), event merchandising (5% and 0% of total revenues for the years
ended December 31, 1998 and 1997, respectively) and entertainment marketing (3%
and 0% of total revenues for the years ended December 31, 1998 and 1997,
respectively). Artist management revenue, which generally consists of
commissions received from artists' earnings, is recognized in the period in
which the artist earns the revenue. There are generally only minimal direct
costs associated with generating artists management revenue. Event merchandising
revenue is recognized when the merchandise is shipped or sold to the customer.
Cost of sales includes the direct cost of acquiring or producing the
merchandise. Entertainment marketing revenues and cost of revenues are
recognized when the services are completed for each program or, for those
programs with multiple events, apportioned to each event and recognized as each
event occurs.
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The Company also develops and produces entertainment marketing programs and
special events through a 50% interest in Warner/TBA, a joint venture with an
affiliate of Time Warner. The Company accounts for these activities using the
equity method of accounting.
Results of Operations ended December 31, 1998 and 1997
The 1997 period includes the results of operations for AEG from the April 21,
1997 acquisition date, to December 31, 1997, whereas the 1998 period includes
the results of operations for AEG from January 1, 1998 to December 31, 1998.
Results of operations of each of the 1998 Acquisitions are included from the
corresponding acquisition dates in 1998.
Revenues increased $20,835,600, or 324%, to $27,272,700 for 1998 from $6,437,100
for 1997. $17,198,700 of the increase resulted from the production of 298
additional corporate entertainment and meeting production events, to 406 events
in 1998 compared to 108 events produced in 1997. The increase in the number of
shows is primarily attributable to an increase in the Company's sales force, the
addition of corporate meeting event services in 1998 and the acquisitions of
CPI, Image and Magnum, in the third and fourth quarters of 1998. In 1997, the
Company produced primarily corporate entertainment events through the operations
of AEG. The average revenue per event remained relatively constant at
approximately $58,000 between years. The Company is aggressively pursuing larger
corporate entertainment and meeting events with Fortune 1000 companies. In 1998,
the Company produced 20 events with revenues in excess of $250,000, versus two
such events in 1997. However, the impact of the substantial increase in the
number of larger events was offset by the acquisition of Image in September
1998. Historically, Image has produced a large number of relatively low revenue
events. From the September acquisition date, shows produced by Image had average
revenue of $9,600 per event. The Company anticipates that Image will produce
fewer low revenue events in the future as the Company seeks to expand Image's
corporate communications and entertainment services.
Revenue from the artist management division increased $1,565,900 for the 1998
period from the 1997 period. The Company contracted with one well-known new
artist in 1997, which began producing significant revenue in 1998. Additionally,
in June 1998, the Company acquired TSA, an artist management company with three
artists currently under management. Revenue from the event merchandising
division increased $1,233,500 for the 1998 period from the 1997 period, due to
the addition of merchandising activities through the acquisition of Eric
Chandler Merchandising, Inc. and CII. The Company is aggressively pursuing
additional merchandising opportunities. The remaining revenue increase of
$837,500 results from revenue recognized from a comprehensive pay per view
entertainment marketing program that was executed by the Company in the fourth
quarter of 1998. In the 1997 period, all entertainment marketing programs were
executed through the Warner/TBA joint venture, which is accounted for using the
equity method of accounting.
Cost of revenues increased $13,763,100, or 292%, to $18,468,700 for 1998 from
$4,705,600 for 1997. The increase resulted primarily from the production of
additional corporate entertainment and meeting planning events and the addition
of merchandising activities discussed above. Cost of revenues as a percentage of
revenues decreased to 68% for 1998 from 73% for 1997. A portion of the decrease
(3%) was due to improved profit margins related to corporate entertainment and
meeting planning events for 1998 as compared to 1997. The remaining decrease
results from increased revenues for artist management which typically have
minimal direct costs as a percentage of revenue. The decrease in cost of
revenues is offset by the increase in revenues in the event merchandising
division, which had a cost of revenues of 81% of event merchandising revenues
for 1998.
General and administrative expenses increased $5,080,400, or 269%, to $6,969,000
for 1998 from
9
<PAGE> 10
$1,888,600 for 1997. The increase results primarily from increased personnel
and related operating expenses associated with the increased number of corporate
entertainment and meeting planning events, as well as general and administrative
expenses associated with the 1998 Acquisitions. The increase is further
explained by increased personnel and related expenses incurred to develop an
administrative and accounting infrastructure to manage the Company's growth
during the past year.
Depreciation and amortization expense increased $530,500, or 356%, to $679,400
for 1998 from $148,900 for 1997. The increase results primarily from the
amortization of goodwill associated with the 1998 Acquisitions.
Equity income from AEG's 50% joint venture interest in Warner/TBA increased
$264,800, or 336%, to $343,700 for 1998 from $78,900 for 1997. Revenues for
Warner/Avalon decreased $1,979,200, or 18%, to $8,852,500 for 1998 from
$10,831,700 for 1997. Operating costs of Warner/TBA decreased $2,445,900, or
23%, to $8,165,000 for 1998 from $10,610,900 for 1997. The overall decrease in
revenues and operating expenses results primarily from a reduction in the size
of entertainment marketing programs produced in 1998 as compared to 1997.
Operating costs as a percentage of revenues decreased to 92% of revenues in 1998
as compared to 98% in 1997. The decrease results primarily from the elimination
of a music tour program that occurred in 1998 in which the Company incurred
operating losses of $666,000.
For 1998, net interest income was $144,500 versus net interest expense of
$153,000 for 1997. The change is attributable primarily to interest earned on
increased cash balances resulting from proceeds from the sale of certain
businesses, offset by increased outstanding debt associated with the 1998
Acquisitions.
Discontinued operations
Prior to 1998, the Company acquired and operated certain businesses that were
sold in 1998. These businesses included the Nashville Country Club restaurant
(opened in November 1994 and sold in December 1998), the Breckenridge Resort
(acquired in April 1996 and sold in August 1998) and a 51% controlling interest
in another group of entertainment companies (collectively referred to as "AWC")
involved in concert promotion and amphitheater operations (acquired in July 1997
and sold in May 1998).
The sale of these businesses has resulted in the reclassification of the
operating results of these businesses to discontinued operations for all periods
presented, in accordance with generally accepted accounting principles.
Operating results of these businesses and other information for discontinued
operations appear in the notes to consolidated financial statements captioned
"Dispositions" (Note 5).
The Company recognized a net gain on the disposition of AWC and the Nashville
Country Club restaurant in 1998 of $1,196,500. No gain has been recognized on
the sale of the Breckenridge Resort in 1998, as a portion of the proceeds from
the sale of the Breckenridge Resort are held in escrow pending the consummation
of certain other transactions. Upon receipt of the funds held in escrow, which
is expected to occur in 1999, the Company expects to recognize a one-time gain
from the sale of the Breckenridge Resort.
The provision for income taxes, as a percentage of income taxes from continuing
operations before income taxes, was 11% for 1998, which reflects statutory tax
rates adjusted for utilization of net operating loss carryforwards and book/tax
differences. There was no provision for income taxes for 1997 as the Company had
net operating loss carryforwards available to offset taxable income.
Net income (loss) from continuing operations increased $1,870,200, to net income
of $1,490,100 for 1998 from a net loss of $380,100 for 1997 due to the reasons
described above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash and cash equivalents of
$15,583,800 and working capital of $14,933,900 including $759,600 of current
portion of long-term debt. Cash provided by
10
<PAGE> 11
continuing operations was $1,476,900 for the year ended December 31, 1998
compared to cash used in continuing operations of $620,400 for the year ended
December 31, 1997. For 1998, net income from continuing operations plus
depreciation and amortization and less undistributed joint venture earnings and
deferred taxes provided $1,278,500 of operating cash flow, versus using $310,100
of operating cash flow in 1997. For 1998, the net change in working capital
provided $198,400 of operating cash flow, with increases in trade accounts
receivables and decreases in deferred revenue offset by increases in accounts
payable and other accrued liabilities and decreases in deferred charges and
other current assets. For 1997, the net change in working capital used $310,300
of operating cash flow, with increases in trade accounts receivable and
decreases in deferred revenue offset by decreases in deferred charges and other
current assets.
Cash provided by investing activities for the year ended December 31, 1998 was
$15,283,100 resulting primarily from the proceeds received from the sale of AWC,
the Breckenridge Resort and the Nashville Country Club restaurant, offset by
cash used for the 1998 Acquisitions and expenditures for property and equipment.
Cash provided by investing activities for the year ended December 31, 1997 was
$76,400 and resulted primarily from cash acquired in the acquisition of AEG.
Cash used in financing activities for the year ended December 31, 1998 was
$2,154,800, resulting from the repayment of borrowings and the purchase of
treasury shares pursuant to the Company's stock repurchase program, which was
approved in August 1998. Cash provided by financing activities for the year
ended December 31, 1997 was $8,874,800, resulting from an offering of 2,600,000
shares of common stock of the Company for $9,100,000, less offering costs of
$971,000. The proceeds of this offering were used to acquire AWC and for working
capital purposes.
The Company has pursued an aggressive growth strategy since its formation in
1993. From the Company's inception through December 31, 1997, the Company
acquired and operated certain businesses that were sold in 1998. These
businesses included the Nashville Country Club restaurant (opened in November
1994 and sold in December 1998), the Breckenridge Resort (acquired in April 1996
and sold in August 1998) and AWC (acquired in July 1997 and sold in May 1998).
The Company relied on external sources of funds, including public offerings of
its common stock and bank borrowings to finance the acquisition of these
businesses and to fund the general operations of the Company. In 1998, the
Company realized net proceeds of $19,393,800 from the sale of these businesses,
after repayment of borrowings associated with these businesses and applicable
transaction costs. In 1999, the Company expects to receive an additional
$3,000,000 of net proceeds from the sale of the Breckenridge Resort that are
currently held in escrow pending the consummation of certain transactions
involving the Breckenridge Resort.
In April 1997, the Company acquired its first corporate communications and
entertainment services business (AEG) for aggregate consideration of $3,211,000,
including transaction related costs. The primary sources of funds for the AEG
acquisition were operating cash flows and the issuance of $2,480,000 of notes
payable to the sellers of AEG ("AEG Notes"). In November 1997, the Company
borrowed $2,600,000 from a bank, the proceeds of which were used to repay
$1,980,000 of the AEG Notes in 1997. In 1998, the Company repaid the remaining
$500,000 of AEG Notes and $520,000 of the notes payable to the bank.
In 1998, the Company acquired five additional entertainment related businesses
for total consideration paid at closing of $12,406,700, including applicable
transaction costs. The total purchase price paid at closing included cash
payments of $5,427,000, including transaction costs, 956,000 shares of common
stock of the Company valued at $4,071,700 and the issuance of $2,908,000 of
aggregate value of notes payable ("Acquisition Notes"). The Company utilized a
portion of the net proceeds from the sale of certain businesses described above
to fund the cash portion of the purchase price for the 1998 Acquisitions.
11
<PAGE> 12
The Acquisition Notes are payable in various installments of principal plus
accrued interest at 8% through August 2004. Acquisition Notes totaling $458,000
are subject to reduction based on the earnings of Image for the years 1999 and
2000. During 1998 and continuing through a portion of 2003 (the "Earn-out
Period"), the sellers of TSA and TKS will be paid additional sales price
consideration based on the earnings of TSA and TKS during each of the years in
the Earn-out Period, up to a maximum of $6,380,000 additional purchase price.
The additional purchase price for 1998 related to TSA, totaling $546,500 will be
paid entirely in cash. Subsequent to 1998, the additional purchase price for TSA
and TKS will be paid 60% in cash and 40% in notes payable which are payable in
semi-annual installments with 8% interest over a five-year period.
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. In March 1999, the Company acquired Karin
Glass & Associates, Inc. and affiliated companies (collectively, "KGA") for a
maximum purchase price of $3,200,000. The purchase price paid at closing
included a cash payment of $2,300,000 and the issuance of 221,500 shares of
common stock of the Company valued at $900,000. The purchase price is subject to
reduction based on the earnings of KGA during each of the years 1999 and 2000.
The Company anticipates that future business acquisitions made by the Company
will also be completed through a combination of cash, notes payable issued to
the sellers and the issuance of common stock of the Company to the sellers.
In 1998, the Company's board of directors authorized the repurchase of up to
1,000,000 shares of the Company's common stock until August 1999. As of December
31, 1998, the Company had repurchased 196,700 shares of common stock for total
consideration of $724,500. In 1999, the Company repurchased an additional
398,600 shares of common stock for total consideration of $1,850,700. The
Company utilized proceeds from the sale of businesses and cash flow from
operations to fund the repurchases of common stock.
Management believes that cash flow from operations and remaining proceeds from
the sale of AWC, the Breckenridge Resort and the Nashville Country Club
restaurant, will be adequate to fund the operations and the expansion plans of
the Company in 1999. In addition, to provide any additional funds necessary for
the continued pursuit of the Company's growth strategies, the Company may issue
additional equity and debt securities and may incur, from time to time,
additional short- and long-term bank indebtedness. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which relate to the financial condition and performance of the
Company, and some of which will be beyond the Company's control, such as
prevailing interest rates and general economic conditions. There can be no
assurance that such additional financing will be available or, if available,
will be on terms acceptable to the Company. To the extent that the Company is
able to finance its growth through internal and external sources of capital, the
Company intends to continue to grow its operations through additional
acquisitions. There can be no assurance that the Company will be able to acquire
any additional businesses, that any businesses that are acquired will be or will
become profitable or the Company will be able to effectively integrate any such
businesses into its existing operations.
Other Consolidated Items
As of the end of 1998, the Company had fully utilized substantially all net
operating loss carryforwards for income tax purposes. Pursuant to Statement of
Financial Accounting Standards No. 109, the Company has recognized a current
deferred tax asset for the effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes.
12
<PAGE> 13
Year 2000
Many currently installed computer systems, hardware and software products
("Computer Applications") are coded to accept only two digit entries rather than
four digits to define the applicable year. Consequently, these Computer
Applications may not be able to properly recognize dates beginning with the year
2000 which could result in miscalculations or system failures. As a result, many
companies' Computer Applications may need to be upgraded or replaced in order to
comply with "Year 2000" requirements.
The Company's Computer Applications consist of both internal systems and systems
provided by third parties. The Company believes that its Computer Applications
are Year 2000 compliant because the Company purchased such Computer Applications
during 1998 from suppliers that represented them to be Year 2000 compliant.
A comprehensive program is in place to remediate potential Year 2000 issues in
purchased software and hardware, as well as non-information technology (IT)
systems. The program is divided into four phases:
1. complete inventory of IT and non-IT systems that may be sensitive to
the Year 2000 issue
2. assessment of systems to determine Year 2000 compliance
3. remediate non-compliant systems by repair or replacement
4. testing of remediated systems
The inventory and assessment phases were completed by the end of 1998. The
Company anticipates completing the remediation and testing phases by the end of
the third quarter of 1999. While the Company's Year 2000 conversion is expected
to be completed prior to any potential disruption to the Company's business,
the Company acknowledges the uncertainties involved in preparing its system for
the Year 2000. As such, the Company is developing a comprehensive Year 2000
specific contingency plan.
However, there can be no assurance that the Company will identify all
susceptible systems or that systems provided by third parties will be Year 2000
compliant or that any resulting Year 2000 issues would not have an adverse
effect on the operations of the Company.
The Company has not incurred any significant costs to date that are specifically
attributable to resolving the Year 2000 issue and does not estimate the future
costs related to the resolution of this matter to be material.
Forward Looking Statements
The foregoing discussion may contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are intended to be covered by
the safe harbors created by such provisions. These statements include the plans
and objectives of management for future growth of the Company, including plans
and objectives related to the acquisition of certain businesses and the
consummation of future private and public issuances of the Company's equity and
debt securities. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgements with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Form 10-KSB
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives of the Company will be achieved.
13
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements required by this item are filed herewith:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants 15
Consolidated Balance Sheet as of December 31, 1998 16
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997 17
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997 18
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997 19
Notes to Consolidated Financial Statements 20
</TABLE>
14
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TBA Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of TBA Entertainment
Corporation (a Delaware corporation)(formerly Nashville Country Club, Inc.) and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TBA Entertainment
Corporation and subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1998 and 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
15
<PAGE> 16
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 15,583,800
Accounts receivable, net of allowance
for doubtful accounts of $55,800 2,355,100
Deferred charges and other current assets 1,616,800
Net short-term assets from sale of
discontinued operations 2,552,000
------------
Total current assets 22,107,700
Property and equipment, net 1,853,600
Other assets, net:
Goodwill 16,008,600
Investment in Joint Venture 410,600
Other 64,700
------------
Total assets $ 40,445,200
============
Current liabilities:
Accounts payable and accrued liabilities $ 4,299,400
Deferred revenue 2,114,800
Current portion of long term-debt 759,600
------------
Total current liabilities 7,173,800
Long-term debt, net of current portion 4,755,700
------------
Total liabilities 11,929,500
------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
68,800 of Series A convertible preferred stock issued
and outstanding, liquidation preference $2,100 2,100
Common stock, $.001 par value; authorized 20,000,000
shares, 8,831,500 shares issued and outstanding 8,800
Additional paid in capital 30,723,100
Accumulated deficit (1,493,800)
Less treasury stock, at cost, 196,700 shares (724,500)
------------
Total stockholders' equity 28,515,700
------------
Total liabilities and stockholders' equity $ 40,445,200
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
16
<PAGE> 17
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 27,272,700 $ 6,437,100
Costs related to revenues 18,468,700 4,705,600
------------ ------------
Gross profit margin 8,804,000 1,731,500
General and administrative expenses 6,969,000 1,888,600
Depreciation and amortization expense 679,400 148,900
Equity in income of Joint Venture (343,700) (78,900)
Minority interest (36,000) --
Interest (income) expense, net (144,500) 153,000
------------ ------------
Income (loss) from continuing operations
before income taxes 1,679,800 (380,100)
Provision for income taxes (189,700) --
------------ ------------
Income (loss) from continuing operations 1,490,100 (380,100)
------------ ------------
Discontinued operations (Notes 2 and 5):
(Loss) income from operations, including
income tax benefit of ($189,900) and
income tax expense of $351,800 for the
years ended December 31, 1998 and 1997,
respectively (15,600) 782,400
Gain on disposition of discontinued
operations 1,196,500 --
------------ ------------
Income from discontinued operations 1,180,900 782,400
------------ ------------
Net income $ 2,671,000 $ 402,300
============ ============
Earnings per common share - basic:
Income (loss) from continuing operations $ .19 $ (.07)
Income from discontinued operations .15 .14
------------ ------------
Net income $ .34 $ .07
------------ ------------
Earnings per common share - diluted:
Income (loss) from continuing operations $ .18 $ (.06)
Income from discontinued operations .14 .12
------------ ------------
Net income $ .32 $ .06
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- ----------------------------- ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
-------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 334,300 $ 10,000 4,590,400 $ 16,770,400 $ --
Issuance of shares of common
stock and warrants,
net of offering costs -- -- 2,600,000 8,129,000 --
Conversion to $.001 par
value stock upon
reincorporation -- -- -- (24,892,200) 24,892,200
Repurchase of common stock -- -- -- -- --
Net Income -- -- -- -- --
-------- -------- ---------- ------------ ------------
BALANCES, December 31, 1997 334,300 10,000 7,190,400 7,200 24,892,200
Issuance of common stock warrants -- -- -- -- 112,800
Issuance of common stock upon
acquisitions -- -- 1,423,300 1,400 5,948,900
Repurchase of common stock -- -- -- -- --
Common stock cancelled -- -- (47,700) (100) (238,400)
Conversion of preferred
stock into common stock (265,500) (7,900) 265,500 300 7,600
Net income -- -- -- -- --
-------- -------- ---------- ------------ ------------
BALANCES, December 31, 1998 68,800 $ 2,100 8,831,500 $ 8,800 $ 30,723,100
======== ======== ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK TOTAL
ACCUMULATED -------------------------- STOCKHOLDERS'
DEFICIT SHARES AMOUNT EQUITY
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1996 $(4,567,100) -- -- $ 12,213,300
Issuance of shares of common
stock and warrants,
net of offering costs -- -- -- 8,129,000
Conversion to $.001 par
value stock upon
reincorporation -- -- --
Repurchase of common stock -- 4,800 (24,200) (24,200)
Net Income 402,300 -- -- 402,300
----------- ---------- --------- ------------
BALANCES, December 31, 1997 (4,164,800) 4,800 (24,200) 20,720,400
Issuance of common stock warrants -- -- -- 112,800
Issuance of common stock upon
acquisitions -- -- -- 5,950,300
Repurchase of common stock -- 239,600 (938,800) (938,800)
Common stock cancelled -- (47,700) 238,500 --
Conversion of preferred
stock into common stock -- -- -- --
Net income 2,671,000 2,671,000
----------- ---------- --------- ------------
BALANCES, December 31, 1998 $(1,493,800) 196,700 $(724,500) $ 28,515,700
=========== ========== ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 19
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,671,000 $ 402,300
Adjustments to reconcile net income to net cash
provided by (used in) continuing operations:
Depreciation and amortization 679,400 148,900
Income from discontinued operations (1,180,900) (782,400)
Undistributed earnings of Joint Venture (343,700) (78,900)
Deferred tax provision (547,300) --
Changes in assets and liabilities:
Increase in accounts receivable (853,600) (165,100)
Decrease in deferred charges and other current assets 348,300 186,800
Decrease (increase) in other assets 9,900 (33,800)
Increase in accounts payable and accrued liabilities 1,376,900 3,000
Decrease in deferred revenue (683,100) (301,200)
------------ ------------
Net cash provided by (used in) continuing operations 1,476,900 (620,400)
------------ ------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (3,242,900) 124,800
Net proceeds from dispositions of businesses 19,393,800 --
Expenditures for property and equipment (599,800) (48,400)
Increase in other current assets (268,000) --
------------ ------------
Net cash provided by investing activities 15,283,100 76,400
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs -- 8,129,000
Proceeds from borrowings -- 2,750,000
Repayments of borrowings (1,215,900) (1,980,000)
Repurchase of common stock (938,900) (24,200)
------------ ------------
Net cash (used in) provided by financing activities (2,154,800) 8,874,800
------------ ------------
Net cash used in discontinued operations -- (7,534,400)
------------ ------------
Net increase in cash and cash equivalents 14,605,200 796,400
Cash and cash equivalents - beginning of year 978,600 182,200
------------ ------------
Cash and cash equivalents - end of year $ 15,583,800 $ 978,600
============ ============
Cash paid during the year for interest $ 347,300 $ 24,900
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 20
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. The Company
TBA Entertainment Corporation and subsidiaries (the "Company")
(formerly Nashville Country Club, Inc.) is a diversified communications
and entertainment company that produces a broad range of business
communications, meeting productions and entertainment services for
corporate meetings, develops and produces integrated music marketing
programs, manages music industry artists and develops and executes
merchandising programs for entertainment and sporting events. The
Company was incorporated in Tennessee in June 1993 and reincorporated
in Delaware in September 1997.
2. Basis of Financial Presentation
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Discontinued Operations
Prior to 1998, the Company acquired and operated certain businesses
that were sold in 1998 (Note 5). These businesses included the
Nashville Country Club Restaurant (opened in November 1994 and sold in
December 1998), the Village at Breckenridge Resort ("Breckenridge
Resort") (acquired in April 1996 and sold in August 1998) and a 51%
controlling interest in a group of entities (collectively referred to
as "AWC") (acquired in July 1997 and sold in May 1998). The sale of
these businesses has resulted in the reclassification of the operating
results of these businesses to discontinued operations for all periods
presented, in accordance with generally accepted accounting principles.
Unaudited Pro Forma Financial Information
During 1997 and 1998 the Company made several acquisitions which are
described in greater detail in Note 4 (the "Acquisitions"). Operating
results of each of the Acquisitions is included in the accompanying
consolidated statements of operations from their respective acquisition
dates. The following unaudited pro forma financial information
represents the consolidated results for the years ended December 31,
1998 and 1997, as if the Acquisitions had occurred as of the beginning
of such year. The pro forma
20
<PAGE> 21
results reflect certain adjustments, including amortization of the
excess purchase price over fair value of net assets acquired, interest
expense on the acquisition debt and adjustments to salaries and
ownership distributions to former owners.
No pro forma adjustments have been made for the results of
operations of AWC before the July 31, 1997 acquisition date because the
operations of AWC are reflected as discontinued operations. The pro
forma results are not necessarily indicative of what actually would
have occurred if the Acquisitions had been completed as of the
beginning of each of the periods presented, nor are they necessarily
indicative of future consolidated results.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Total revenues .................. $ 41,590,300 $ 33,678,200
Income from continuing
operations .................... $ 1,901,700 $ 1,348,600
Earnings per common share:
Basic ......................... $.22 $.19
Diluted ....................... $.21 $.18
</TABLE>
The above calculations of pro forma basic and diluted earnings per
common share assumes that the following number of weighted average
shares were outstanding:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Basic ................... 8,633,900 7,088,600
Diluted ................. 8,861,900 7,422,900
</TABLE>
3. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue when services are completed for an
event. For those projects that provide for multiple events, the
contract revenue and costs are apportioned and revenue and profit are
recognized as each event occurs. Deferred income represents customer
deposits and advance billings on future events. Deferred charges
represent Company expenditures related to future events. For
merchandise operations, revenue is recognized when the merchandise is
shipped or sold to a customer.
Costs Related to Revenue
Costs related to revenue is comprised of all direct costs associated
with the production of an event, including talent fees, contracted
services, equipment rentals and costs associated with the production of
audio-visual effects. Such costs are
21
<PAGE> 22
deferred until the event occurs. Cost of merchandise revenue is
comprised of the direct costs of the merchandise sold.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks and highly
liquid investments purchased with an original maturity of three months
or less. Cash and cash equivalents carry amounts approximate fair
value. The Company holds its investments in highly qualified financial
institutions.
Property and Equipment
Property and equipment consists of the following as of December 31,
1998:
<TABLE>
<S> <C>
Land $ 388,000
Buildings and improvements 236,800
Furniture, fixtures and equipment 1,424,300
-----------
2,049,100
Less - accumulated depreciation and amortization (195,500)
-----------
Property and equipment, net $ 1,853,600
===========
</TABLE>
Property and equipment are recorded at cost and are depreciated or
amortized using the straight-line method, over the following estimated
useful lives:
<TABLE>
<S> <C>
Building and improvements ........................ 3-25 years
Furniture, fixtures and equipment ................ 3-5 years
</TABLE>
The Company follows the policy of capitalizing expenditures that
materially increase asset lives and charges ordinary maintenance and
repairs to operations as incurred.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the following at
December 31, 1998:
<TABLE>
<S> <C>
Accounts payable ....................................... $1,131,200
Accrued payroll and related taxes ...................... 1,128,000
Due to sellers of acquired businesses .................. 546,500
Income taxes payable ................................... 590,500
Other accrued expenses ................................. 903,200
----------
$4,299,400
==========
</TABLE>
Income Taxes
The Company accounts for income taxes under the liability method
required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
22
<PAGE> 23
recognition of deferred income tax assets and liabilities based on
enacted tax laws for any temporary differences between financial
reporting and tax bases of assets, liabilities and carryforwards. SFAS
109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some or all of the
deferred tax asset will be realized.
Earnings (Loss) per Common Share
The Company computes net income (loss) per common share pursuant to the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Basic Earnings Per Common Share:
Net income (loss) from continuing operations $1,490,100 $ (380,100)
Weighted average common stock outstanding 7,851,600 5,680,300
---------- -----------
Basic earnings per common share $ .19 $ (.07)
========== ===========
Diluted Earnings Per Common Share:
Net income (loss) from continuing operations $1,490,100 $ (380,100)
---------- -----------
Weighted average common stock outstanding 7,851,600 5,680,300
Additional common stock resulting from
dilutive securities:
Preferred Stock 224,200 334,300
Weighted average common stock issued in
AEG transaction 163,500 310,000
Stock options 4,200 --
---------- -----------
Weighted average common stock and dilutive
securities outstanding 8,243,500 6,324,600
---------- -----------
Diluted earnings per common share $ .18 $ (.06)
========== ===========
</TABLE>
Options and warrants to purchase 2,519,000 and 2,264,000 shares of
common stock in 1998 and 1997, respectively, were not considered in
calculating diluted earnings per share as their inclusion would have
been anti-dilutive.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
23
<PAGE> 24
Adoption of new Accounting Pronouncements
Comprehensive Income -- In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income". This Statement, which is
effective for all reporting periods beginning in 1998, requires the
prominent disclosure of all components of Comprehensive Income, as
defined. The Company currently does not have any operations that would
give rise to any elements of comprehensive income.
Employers' Disclosures About Pensions -- In February 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits". This statement, which is effective for
financial periods ending after December 15, 1998, requires full
disclosure of all pension plans and other postretirement benefit plans.
The Company does not currently have any pensions or other
postretirement benefit plans.
Reclassifications
Certain reclassifications have been made to the 1997 consolidated
financial statements to conform with classifications used in 1998.
4. Acquisitions
During 1997 and 1998, the Company made several acquisitions of
businesses. The following is a description of each of the businesses
acquired.
24
<PAGE> 25
1997 Acquisition
Avalon Entertainment Group, Inc.
Effective April 21, 1997, the Company acquired 100% of the common stock
of TBA Entertainment Group Nashville, Inc., formerly Avalon
Entertainment Group, Inc.("AEG"). The purchase price included a cash
payment of $400,000 and the issuance of $2,480,000 of promissory notes
("AEG Notes") as of April 21, 1997, and a future contingent payment, to
be paid in shares of common stock of the Company, based on the 1997
earnings of AEG. The aggregate purchase price for AEG was not to exceed
$7,200,000. In contemplation of the payment of the future contingent
amount, the Company placed 809,800 shares of the Company's common stock
into escrow on April 21, 1997. In May 1998, the Company and the sellers
agreed upon the amount of the future contingent payment on a basis
different than that set forth in the original purchase agreement. On
May 13, 1998, 445,400 shares were released from escrow to the sellers
with the balance of the common stock returned to the Company. The
release of the 445,400 shares to the sellers resulted in the
recognition of additional purchase price for the acquisition of AEG of
$1,781,600.
1998 Acquisitions
Titley Spalding & Associates, LLC
On June 18, 1998 the Company acquired 100% of the membership interest
of Titley Spalding & Associates, LLC ("TSA") for cash, stock and future
contingent consideration. The maximum purchase price is approximately
$7,500,000. At closing the Company paid $1,000,000 cash and issued
175,000 shares of the Company's stock valued at $754,700.
During the remainder of 1998 and continuing through a portion of 2003
(the "Earnout Period"), the sellers of TSA will be paid additional
sales price consideration based on the earnings of TSA during each of
the years in the Earnout Period, up to a maximum of $5,755,000
additional purchase price. The additional purchase price for 1998
totaling $546,500 will be paid entirely in cash. Subsequent to 1998,
the additional purchase price will be paid 60% in cash and 40% in notes
payable which are payable in semi-annual installments with 8% interest
over a 5-year period. Additional consideration paid during the Earnout
Period will be recorded as goodwill and amortized over the remaining
period of the original 10-year amortization period which commenced on
the acquisition date.
25
<PAGE> 26
Corporate Productions, Inc.
On August 11, 1998 the Company acquired 100% of the common stock of TBA
Entertainment Group Chicago, Inc., formerly Corporate Productions, Inc.
("CPI"), for a maximum aggregate purchase price of approximately
$5,000,000. The purchase price paid at closing included a cash payment
of $1,450,000, the issuance of 414,000 shares of common stock of the
Company valued at $2,000,000 and the issuance of $1,550,000 in
aggregate amount of promissory notes ("CPI Notes").
The CPI Notes accrue interest at 8% per annum and are payable in three
equal annual installments of principal plus accrued interest,
commencing August 2001. The CPI Notes are secured by a pledge of the
CPI common stock owned by the Company.
Image Entertainment Productions, Inc.
On September 15, 1998, the Company acquired 100% of the common stock of
TBA Entertainment Group Phoenix, Inc., formerly Image Entertainment
Productions, Inc. ("Image"), for a maximum aggregate purchase price of
approximately $1,375,000. The purchase price paid at closing included a
cash payment of $687,000, the issuance of 60,000 shares of common stock
of the Company valued at $230,000 and the issuance of a $458,000
promissory note ("Image Note").
The principal amount of the Image Note is subject to reduction based on
the earnings of Image during each of the years 1999 through 2000. The
Image Note, as adjusted, accrues interest at 8% per annum and is
payable in two installments of principal plus accrued interest equal to
65% of the Image Note on March 31, 2000 and the remainder on March 31,
2001.
Magnum Communications, Inc.
On October 15, 1998, the Company acquired 100% of the common stock of
TBA Entertainment Group Dallas, Inc., formerly Magnum Communications,
Inc. ("Magnum"), for $3,260,000. The purchase price paid at closing
included a cash payment of $1,273,000, the issuance of 307,000 shares
of common stock of the Company valued at $1,087,000 and the issuance of
$900,000 in aggregate amount of promissory notes ("Magnum Notes"). The
Magnum Notes accrue interest at 8% per annum and are payable in
quarterly installments of interest only commencing December 31, 1998,
and in quarterly installments of principal and interest commencing
December 31, 1999.
26
<PAGE> 27
TKS Marketing, Inc.
On December 8, 1998, the Company acquired 100% of the common stock of
TKS Marketing, Inc. ("TKS"), for $625,000 cash plus future
consideration. The maximum aggregate purchase price is approximately
$1,250,000. TKS was previously affiliated with TSA. Through 2003, the
sellers of TKS will be paid additional sales price consideration based
on the earnings of TKS during each of the years during the earn-out
period, up to a maximum of $625,000 additional purchase price.
The accounting for the above-mentioned acquisitions is in accordance
with the purchase method of accounting. The operations of the acquired
businesses are included in the accompanying consolidated statements of
operations from their respective acquisition dates. The purchase price
for each acquisition has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the
respective acquisition dates. The excess of the purchase price over the
fair value of net assets acquired has been allocated to goodwill and is
being amortized over periods ranging from five to twenty years.
Amortization expense related to goodwill was $504,400 and $128,800 for
the years ended December 31, 1998 and 1997. Accumulated amortization
related to goodwill totaled $629,200 at December 31, 1998.
5. DISPOSITIONS
AWC
Effective July 31, 1997, the Company acquired a 51% controlling
interest in AWC, a group of entities affiliated with AEG. The remaining
49% of AWC was owned by a group of individuals who became officers and
stockholders of the Company. The purchase price included a $7 million
cash payment with proceeds from the Company's 1997 stock offering.
Including acquisition costs, the total purchase price for AWC was
$7,862,900. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the
assets acquired and the liabilities assumed based on their estimated
fair values on the date of acquisition.
On May 13, 1998 the Company sold its 51% controlling interest in
certain of the AWC businesses to an unaffiliated third party (the
"buyer") for $9,915,000 in cash before applicable transaction expenses.
The individuals that owned the remaining 49% of AWC also sold their
interest in these businesses to the buyer. The Company recognized a
one-time pre-tax gain of $1,445,000 as a result of the sale of its
interest in these businesses.
Net operations attributable to those business of AWC included in the
sale to the buyer from the July 31, 1997 acquisition date
27
<PAGE> 28
through the May 13, 1998 sale date, are included in discontinued
operations in the accompanying consolidated statements of operations.
The following is a summary of the revenue and expenses related to these
businesses for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues ................................... $ 2,462,800 $13,204,000
Operating expenses ......................... 3,579,000 10,830,700
Depreciation and amortization .............. 261,600 300,300
Interest expense, net ...................... 36,600 40,200
Income tax (benefit) expense................ (189,800) 351,800
Minority interest in net
(loss) income of AWC ....................... (552,100) 1,319,400
----------- -----------
Net (loss) income from discontinued
operations attributable to the Company ... $ (672,500) $ 361,600
=========== ===========
</TABLE>
Breckenridge Resort
In July 1998, Village at Breckenridge Acquisition Corp. ("VABAC"), a
wholly owned subsidiary of the Company and owner and operator of the
Breckenridge Resort, entered into an agreement with an unaffiliated
third party developer (the "Development Agreement"). Pursuant to the
Development Agreement, VABAC agreed to sell a portion of the assets
comprising the Breckenridge Resort to the Developer for $10,000,000.
The sale is contingent upon the developer receiving approval of the
development plan. The sale of these assets is expected to close in
1999.
In a simultaneous transaction, the Company entered into an agreement to
sell 100% of the common stock of VABAC to Vail Summit Resorts, Inc.
("Vail") for $34,000,000. Vail, by virtue of its acquisition of VABAC,
also acquired the rights and obligations of the Development Agreement.
The sale of the common stock of VABAC was consummated on August 12,
1998. The proceeds from the sale were distributed as follows:
$19,762,300 to repay indebtedness at the Breckenridge Resort,
$3,000,000 to an escrow account, $11,013,170 to the Company and the
remainder to pay closing costs. The Company will be entitled to the
$3,000,000 held in escrow upon the sale of the assets pursuant to the
Development Agreement. As of December 31, 1998, the Company recorded a
receivable for a portion of the escrow amount, totaling $2,121,200
which amount represented the Company's remaining investment in VABAC
after receipt of the August 12, 1998 sale proceeds. This amount is
reflected in "net short-term assets from the sale of discontinued
operations" in the accompanying consolidated balance sheet. Upon
receipt of the entire $3,000,000 held in escrow in 1999, the Company
28
<PAGE> 29
expects to recognize a one-time pre-tax gain as a result of the sale of
VABAC.
Nashville Restaurant
In December 1998, the Company sold substantially all of the assets of
the Nashville restaurant to an unaffiliated third party for $3,450,000.
The assets included the Company's leasehold interest in land on which
the Nashville restaurant is located, the building and equipment and an
adjacent parking structure. The Company recognized a loss on the sale
of the Nashville Restaurant of $248,500 in 1998.
As a result of the sale of the Breckenridge Resort and the Nashville
restaurant, together which previously comprised the Company's Resort
Division, the operations of the Resort Division have been reclassified
to discontinued operations for all periods presented. The following is
a summary of the revenues and expenses related to the Resort Division
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues ............................. $16,350,400 $23,791,800
Operating expenses ................... 13,925,100 20,731,100
Depreciation and amortization ........ 710,200 947,100
Interest expense, net ................ 1,058,200 1,692,800
----------- -----------
Net income from discontinued
Operations ......................... $ 656,900 $ 420,800
=========== ===========
</TABLE>
6. Investment in Warner/TBA Joint Venture
AEG owns a 50% interest in a joint venture with Warner Custom Music
Corp. ("Warner") The joint venture, Warner/TBA (formerly
Warner/Avalon), develops and coordinates live, sponsored music
entertainment marketing tours and programs and related projects and
generates revenues primarily from third party corporate sponsorships.
Warner/TBA recognizes revenue by amortizing the contract sponsorship
funds over the life of the related programs, which may range from
single day events to tours lasting several months.
AEG accounts for the investment using the equity method of accounting.
Summary statements of operations data of Warner/TBA
29
<PAGE> 30
for the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Revenues ..................... $8,852,500 $10,831,700
Net Income ................... $ 687,500 $ 220,800
</TABLE>
Summary balance sheet data of Warner/TBA consists of the following as
of December 31, 1998:
<TABLE>
<S> <C>
Current assets ................. $981,800
Non-current assets ............. 304,500
Current liabilities ............ 568,000
Partners' capital .............. 718,300
</TABLE>
As of December 31, 1998, the Company had undistributed earnings from
Warner/TBA of $359,200 and a receivable from Warner/TBA of $51,400.
During 1998, affiliates of Warner accounted for 60% of the gross
revenues of Warner/TBA. The next two largest customers accounted for
21% and 16% of gross revenues of Warner/TBA. In 1997, the two largest
customers accounted for 68% and 29% of gross revenues of Warner/TBA.
In 1997, Warner/TBA entered into various agreements to develop a live,
sponsored, music tour for each of the years 1997, 1998 and 1999. During
1997 the tour incurred operating losses of $666,000 which reduced
Warner/TBA's net income for 1997. As of March 1998, a line-up of
artists satisfactory to the tour sponsor was not available.
Accordingly, the tour sponsor terminated its agreement with Warner/TBA,
resulting in the cancellation of the tour program for 1998 and 1999.
7. Long-Term Debt
Long-term debt of the Company consists of the following as of
December 31,1998:
<TABLE>
<S> <C>
Acquisition notes payable (Note 4), interest at 8%, unsecured .............. $ 2,908,000
Note payable to a bank, interest at the bank's prime rate plus
0.25%(8.0% at December 31, 1998), due in monthly installments with a
balloon payment in December 2000, secured
by a pledge of the common stock of AEG ..................................... 2,080,000
Mortgage note payable to a bank, interest at 8.25%,
due in monthly installments through December 2011, secured by
land and building .......................................................... 324,900
Equipment notes payable, interest ranging from 7.57% to 10.25%, due in
monthly installments with various maturity dates
through February 2001, secured by equipment ................................ 202,400
-----------
5,515,300
Less-current portion ....................................................... (759,600)
-----------
$ 4,755,700
===========
</TABLE>
30
<PAGE> 31
The Company obtained a $250,000 line of credit in September 1997. The
Company borrowed $150,000 on this line of credit in September 1997,
which amount was repaid in June 1998.
The Company recognized interest expense of $307,700 and $166,400
related to long-term debt for the year ended December 31, 1998 and
1997, respectively.
Future annual maturities of long-term debt consists of the following as
of December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C> <C>
1999......................... $759,600
2000......................... 2,218,000
2001......................... 1,001,100
2002......................... 760,400
2003......................... 537,000
Thereafter................... 239,200
----------
$5,515,300
==========
</TABLE>
8. Stockholders' Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of $.001 par value
preferred stock. The Company has designated 557,100 shares of the
authorized preferred stock as Series A Convertible Preferred Stock
("Series A Preferred Stock"), of which 334,300 shares were previously
issued and were non-voting. In 1998, 265,500 shares of Series A
Preferred Stock were converted into 265,500 shares of common stock.
Subsequent to December 31, 1998, an additional 65,400 shares of Series
A Preferred Stock were converted into 65,400 shares of common stock.
Common Stock and Common Stock Warrants
In April 1996, the Company completed an offering of 1,351,455 units,
each consisting of two shares of common stock and one redeemable common
stock purchase warrant. The redeemable warrants are detachable and
separately transferable. Each redeemable warrant entitles the holder to
purchase one share of common stock at a price of $6.25 per share until
April 2001, and is redeemable by the Company at $0.50 per warrant under
certain conditions. In connection with this offering, the underwriter
was also granted a warrant to acquire up to 120,000 units at $15.50 per
unit. The warrants issued in 1996 were outstanding at December 31,
1998.
In July 1997, the Company issued 2,600,000 shares of its common stock.
In connection with this offering, the underwriter was granted a warrant
to acquire up to 130,000 shares of common stock
31
<PAGE> 32
at $4.20 per share until July 2002. These warrants were outstanding as
of December 31, 1998.
At December 31, 1998, the Company also had other outstanding warrants
to purchase 147,500 shares of common stock at exercise prices ranging
from $4.38-$6.00 per share, expiring 1999 through 2002.
In August 1998, the board of directors authorized the repurchase, at
management's discretion, of up to 1,000,000 shares of the Company's
common stock until August 1999. The Company's repurchases of shares of
common stock are recorded as treasury stock and result in a reduction
of stockholders' equity. As of December 31, 1998, the Company had
repurchased 196,700 shares of common stock for total consideration of
$724,500, pursuant to the stock repurchase program (Note 12).
Stock Options
In 1995 and 1996, the Company granted 80,000 non-qualified options to
key employees and directors of which 28,000 have been cancelled as of
December 31, 1998. In 1997 and 1998, the Company established two stock
option plans that provide for the granting of either incentive stock
options or non-qualified stock options to key employees, officers and
directors of the Company. Under the two plans, the Company may grant a
total of 750,000 stock options at prices not less than the fair market
value on the date of grant, with expiration dates not exceeding ten
years. As of December 31, 1998, the Company has granted 520,000
incentive stock options pursuant to these plans.
Information relating to stock options during 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Shares Under Options Price Weighted-Average
Options Range Per Share Exercise Price
------------ --------------- ---------------
<S> <C> <C> <C>
Options outstanding at December 31, 1996 80,000 $5.00-5.50 $5.31
Cancelled (30,000) 5.00 5.00
Granted 300,000 4.50-5.40 5.28
--------
Options outstanding at December 31, 1997 350,000 4.50-5.50 5.31
Cancelled (298,000) 5.00-5.50 5.38
Granted 520,000 3.78-4.20 4.12
--------
Options outstanding at December 31, 1998 572,000 3.78-5.50 4.23
========
Options exercisable at December 31, 1998 496,500 4.26
========
</TABLE>
The weighted average remaining life of the outstanding stock options at
December 31, 1998 was six years.
The Company applies APB Opinion No. 25 ("Accounting for Stock Issued to
Employees") and related interpretations in accounting
32
<PAGE> 33
for stock options; accordingly, no compensation cost has been
recognized in the accompanying consolidated statements of operations
for options issued. Had compensation cost been determined based on the
fair value of the stock options at grant date consistent with the
method of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), the Company's net income (loss) from continuing operations and
net income (loss) per share would have been the unaudited pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Net income (loss) from continuing operations:
As reported ...................................... $1,490,100 $ (380,100)
Pro forma ........................................ 1,250,600 (813,200)
Basic earnings per common share:
As reported ...................................... .19 (.07)
Pro forma ........................................ .16 (.14)
Diluted earnings per common share:
As reported ...................................... .18 (.06)
Pro forma ........................................ .15 (.13)
</TABLE>
As required by SFAS 123, the Company provides the following disclosure
of hypothetical values for these awards. The weighted-average
grant-date fair value of options granted during 1998 and 1997 was
estimated to be $1.70 and $1.51, respectively.
The fair value of each option grant was estimated on the date of grant
using a Black-Scholes option-pricing model with the following weighted
average assumptions for 1998 and 1997, respectively; risk free interest
rates of 5.67 and 6.70 percent; expected lives of 3 years; volatility
of 64 percent and 40 percent and no assumed dividends. Additional
adjustments are made for assumed cancellations and expectations that
shares acquired through the exercise of options are held during
employment.
Change in Par Value
In September 1997, Company stockholders approved a reincorporation of
the Company in the State of Delaware and a change from no par value to
$.001 par value common and preferred stock. The change in par value has
been recorded as an adjustment to additional paid-in capital and common
stock.
33
<PAGE> 34
9. Income Taxes
The provision for income taxes consists of the following for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Current
Federal ...................................... $373,200
State ........................................ 363,700
Deferred
Federal ...................................... (465,200)
State ........................................ (82,100)
--------
Total .......................................... $189,600
========
</TABLE>
There is no current or deferred tax expense from continuing operations
for 1997 as the Company utilized net operating loss carryforwards. The
benefits of net operating loss carryforwards and other temporary
differences had not previously been recognized as of December 31, 1997.
A reconciliation of the difference between the statutory federal tax
rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1998
-------
<S> <C>
Income taxes at statutory federal rate ... $ 1,085,400
State income tax, net of federal tax
benefit ................................ 191,500
Non-deductible goodwill amortization ..... 189,400
Change in valuation allowance ............ (1,415,100)
Other .................................... 138,400
----------
Income tax provision ..................... $ 189,600
===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
34
<PAGE> 35
liabilities for financial reporting purposes and the amounts used for
income tax purposes. Realization of the future tax benefits related to
the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating
loss carryforward period. Management has considered these factors in
reaching its conclusion as to the valuation allowance for financial
reporting purposes. The income tax effect of temporary differences
comprising the deferred tax assets and liabilities as of December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .................. $ 60,000 $ 1,710,000
Deferred gain on sale of discontinued operations... 406,100 --
Accrued payroll related costs...................... 242,400 5,000
Deferred costs .................................... 19,400 40,000
Other ............................................. 91,800 15,000
--------- -----------
819,700 $ 1,770,000
Deferred tax liabilities:
Accelerated depreciation for tax .................. (57,500) (140,000)
--------- -----------
Net deferred tax asset ..................................... 762,200 1,630,000
Valuation allowance ........................................ (214,900) (1,630,000)
--------- -----------
$ 547,300 $ --
========= ===========
</TABLE>
During 1998, the valuation allowance for net deferred tax assets was
reduced by $1,415,100 due to the use of net operating loss
carryforwards in 1998.
10. Commitments and Contingencies
Operating Leases
The Company leases office space under non-cancelable operating lease
agreements expiring in various years through 2005.
Commitments for operating leases:
<TABLE>
<S> <C>
1999......................... $ 484,400
2000......................... 493,400
2001......................... 468,800
2002......................... 392,500
2003......................... 198,200
Thereafter................... 260,900
----------
$2,298,200
==========
</TABLE>
The Company incurred rent expense of approximately $285,300 and
$95,800 for the years ended December 31, 1998 and 1997,
respectively.
Contingencies
The Company is a party to legal proceedings incidental to its
business. Certain claims, suits or complaints arising out of the
normal course of business have been filed or were pending against the
Company. Although it is not possible to predict the outcome of such
litigation, based on the facts known to the Company and after
consultation with legal counsel, management believes that such
litigation will not have a material adverse effect on its financial
position or results of operations.
11. Business Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information." The statement requires
presentation of segment information based on the way management makes
decisions and assesses performance. The Company believes that all of
its material operations are part of the entertainment services
industry, and it currently reports as a single industry segment. The
Company conducts substantially all of its entertainment operations in
the United States. Within the single entertainment services industry
segment, the Company has four operating divisions: corporate
communications & entertainment, entertainment marketing & special
events, artist management and event merchandising. The revenue and
gross profit of each of these divisions is reported in the following
table. Inter-division revenue is insignificant.
<TABLE>
<CAPTION>
Corporate Entertainment
Communications Marketing & Artist Event
& Entertainment Special Events Management Merchandising
---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
1998
Revenues .............. $23,461,500 $837,500 $1,721,300 $1,252,400
Gross profit margin.... 6,623,200 227,400 1,721,300 232,100
1997
Revenues .............. 6,262,700 -- 155,400 19,000
Gross profit margin ... 1,580,400 -- 142,100 9,000
</TABLE>
12. Subsequent Events
Repurchase of Common Stock
Subsequent to December 31, 1998, the Company repurchased 398,600
shares of its common stock for total consideration of $1,850,700,
pursuant to the stock repurchase program (Note 8).
1999 Acquisition
On March 17, 1999, the Company acquired 100% of the common stock of
Karin Glass Associates, Inc. and affiliated companies (collectively,
"KGA"), for a maximum purchase price of approximately $3,200,000. The
purchase price paid at closing included a cash payment of $2,300,000
and the issuance of 221,500 shares of common stock of the Company
valued at $900,000. The purchase price paid at closing is subject to
reduction based on the earnings of KGA during each of the years 1999
and 2000. The sellers have pledged their shares of common stock of
the Company as collateral during the earn-out period.
35
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item regarding the directors and
executive officers of the Company will be included in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A in connection with the
Company's 1999 annual meeting of stockholders and is incorporated herein by
reference thereto.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item regarding the directors and
executive officers of the Company will be included in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A in connection with the
Company's 1999 annual meeting of stockholders and is incorporated herein by
reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with the Company's 1999 annual meeting of stockholders and is incorporated
herein by reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with the Company's 1999 annual meeting of stockholders and is incorporated
herein by reference thereto.
36
<PAGE> 37
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ---------------------------------------------
<S> <C>
2.1(1) -- Merger Agreement between TBA Entertainment
Corporation and Avalon Acquisition Corp.,
Inc. and Avalon Entertainment Group, Inc.
2.2(2) -- Purchase Agreement between TBA Entertainment
Corporation, Titley Spalding & Associates,
LLC, Clarence Spalding and Robert R. Titley
dated June 18, 1998.
2.3(3) -- Purchase Agreement between TBA Entertainment
Corporation and SFX Entertainment, Inc. and
AWC Acquisition Corp. dated May 13, 1998.
2.4(4) -- Stock Purchase Agreement between TBA
Entertainment Corporation, Magnum
Communications, Inc, William R. Cox, Gary A.
Larr, Charles A. Barry and Lon M. Hudman
dated October 15, 1998.
2.5* -- Merger Agreement among TBA Entertainment
Corporation, CPI Acquisition Corp., Inc.,
Richard S. Smith, Richard W. Perry, Pamela J.
Furmanek and Corporate Productions, Inc.
dated August 11, 1998.
2.6* -- Stock Purchase Agreement among TBA
Entertainment Corporation, Kenneth C. Koziol
and Image Entertainment Productions dated
September 15, 1998.
2.7* Stock Purchase Agreement among TBA
Entertainment Corporation, Karin Glass and
Associates, Inc., Ink Up, Inc., KGA, Inc.,
Karin Glass and Kenneth Glass dated March 18,
1999.
3.1(5) -- Certificate of Incorporation of the Company.
3.2(6) -- Bylaws of the Company.
4.1(7) -- Specimen Common Stock Certificate.
4.2(5) -- Article IX of the Certificate of
Incorporation of the Company (included in
Exhibit 3.1).
4.3(8) -- Certificate of Designation of Series A
Convertible Preferred Stock of the Company.
4.4(9) -- Specimen Warrant Certificate.
10.1(10) -- Purchase and Sale Agreement between TBA
Entertainment Corporation and Vail Summit
Resorts, Inc. dated July 10, 1998.
10.2(11) -- Employment Agreement dated as of January 1,
1994 between the Company and Thomas Jackson
Weaver III.
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ---------------------------------------------
<S> <C>
10.3(12) -- Employment Agreement dated as of January 1,
1994 between the Company and Prab Nallamilli.
10.4(13) -- Stock Purchase Warrant dated February 24,
1994 between the Company and Yee, Desmond,
Schroeder & Allen, Inc.
10.5(14) -- Form of Indemnification Agreement between the
Company and each of the directors and
executive officers.
10.6(15) -- TBA Entertainment Corporation 1995 Stock
Option Plan.
10.7(16) -- Form of Stock Option Agreement for options
granted under the 1995 Stock Option Plan.
10.8(17) -- TBA Entertainment Corporation 1997 Stock
Option Plan.
10.9(18) -- Form of Stock Option Agreement for options
granted under the 1997 Stock Option Plan.
10.10(19) -- Representative's Warrant Agreement dated
April 23, 1996 between the Company and H.J.
Meyers & Co., Inc.
10.11(20) -- Warrant Agreement dated April 23, 1996 among
the Company, H.J. Meyers & Co., Inc. and
American Stock Transfer & Trust Company.
10.12(21) -- Registration Rights Agreement between the
Company, Robert E. Geddes, Greg M. Janese,
Thomas Miserendino, Brian K. Murphy and Marc
W. Oswald.
10.13(22) -- Consulting Agreement between Avalon
Entertainment Group, Inc. and Robert E.
Geddes.
10.14(23) -- Consulting Agreement between Avalon
Entertainment Group Inc. and Thomas
Miserendino.
10.15(24) -- Employment Agreement between Avalon
Entertainment Group, Inc. and Marc W. Oswald.
10.16(25) -- Employment Agreement between Avalon
Entertainment Group, Inc. and Greg M. Janese.
10.17(26) -- Placement Agent Warrant Agreement between the
Company and Rauscher Pierce Refsnes, Inc.
21* -- Subsidiaries of the Company.
27* -- Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated on April 21, 1997.
(2) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated on June 18, 1998.
(3) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated May 13, 1998.
(4) Incorporated herein by reference to the Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 18, 1998.
38
<PAGE> 39
(5) Incorporated herein by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(6) Incorporated herein by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(7) Incorporated herein by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(8) Incorporated herein by reference to Exhibit 4.3 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(9) Incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-97890) dated
March 15, 1996.
(10) Incorporated herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended (June 30, 1998).
(11) Incorporated herein by reference to Exhibit 10.2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(12) Incorporated herein by reference to Exhibit 10.3 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(13) Incorporated herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(14) Incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(15) Incorporated herein by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(16) Incorporated herein by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(17) Incorporated herein by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(18) Incorporated herein by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(19) Incorporated herein by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(20) Incorporated herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(21) Incorporated herein by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(22) Incorporated herein by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(23) Incorporated herein by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(24) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
39
<PAGE> 40
(25) Incorporated herein by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(26) Incorporated herein by reference to Exhibit 10.20 to the Company's Current
Report on Form 8-K dated June 20, 1997.
No reports on Form 8-K were filed during the quarterly period ended
December 31, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Hickory Valley, Tennessee, on the 31st day of
March, 1999.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
------------------------------
Thomas Jackson Weaver III
Chairman of the Board and
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas Jackson Weaver III Chairman of the Board, Chief Executive March 31, 1999
- -------------------------------- Officer and President (Principal
Thomas Jackson Weaver III Executive and Financial Officer)
/s/ Joseph C. Galante
- -------------------------------- Director March 31, 1999
Joseph C. Galante
/s/ Frank Bumstead
- -------------------------------- Director March 31, 1999
Frank Bumstead
/s/ Charles Flood
- -------------------------------- Director March 31, 1999
Charles Flood
/s/ Prab Nallamilli
- -------------------------------- Director March 31, 1999
Prab Nallamilli
/s/ Louis J. Risi, Jr.
- -------------------------------- Director March 31, 1999
Louis J. Risi, Jr.
/s/ Steven L. Risi
- -------------------------------- Director March 31, 1999
Steven L. Risi
/s/ Frank A. McKinnie Weaver, Sr.
- -------------------------------- Director March 31, 1999
Frank A. McKinnie Weaver, Sr.
/s/ Kyle Young
- -------------------------------- Director March 31, 1999
Kyle Young
/s/ Bryan J. Cusworth
- -------------------------------- Chief Financial Officer (Principal March 31, 1999
Bryan J. Cusworth Accounting Officer)
</TABLE>
40
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -------------------------------------------------------
<S> <C>
2.5 Merger Agreement among TBA Entertainment Corporation,
CPI Acquisition Corp., Inc., Richard S. Smith, Richard
W. Perry, Pamela J. Furmanek and Corporate Productions,
Inc., dated August 11, 1998
2.6 Stock Purchase Agreement among TBA Entertainment
Corporation, Kenneth C. Koziol and Image Entertainment
Productions dated September 15, 1998
2.7 Stock Purchase Agreement among TBA Entertainment
Corporation, Karin Glass and Associates, Inc., Ink Up,
Inc., Karin Glass and Kenneth Glass dated March 18,
1999
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.5
MERGER AGREEMENT
among
TBA ENTERTAINMENT CORPORATION,
CPI ACQUISITION CORP., INC.,
RICHARD S. SMITH,
RICHARD W. PERRY,
PAMELA J. FURMANEK
and
CORPORATE PRODUCTIONS, INC.
August 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - The Merger.................................................................... 1
1.1 The Merger....................................................................... 1
1.2 Effect of the Merger............................................................. 1
1.3 Consummation of the Merger....................................................... 2
1.4 Charter and Bylaws; Directors and Officers....................................... 2
1.5 Consideration for Merger; Conversion of Securities; Issuance of TBA Shares....... 2
1.6 Closing of CPI's Transfer Books.................................................. 3
1.7 Mechanics of Exchange of CPI Common Stock Certificates........................... 4
1.8 Lost, Stolen or Destroyed Certificates........................................... 5
1.9 Further Action................................................................... 5
ARTICLE 2 - Representations and Warranties of TBA and Merger Sub.......................... 5
2.1 Organization and Qualification................................................... 5
2.2 Authority Relative to this Agreement............................................. 5
2.3 TBA Stock and TBA SEC Documents.................................................. 6
2.4 Liabilities of Merger Sub........................................................ 6
2.5 Certain Corporate Matters........................................................ 6
2.6 Broker's Fees.................................................................... 7
2.7 Disclosure....................................................................... 7
ARTICLE 3 - Representations and Warranties of CPI......................................... 7
3.1 Organization, Qualification and Corporate Power.................................. 7
3.2 Capitalization................................................................... 8
3.3 Authorization of Transaction..................................................... 8
3.4 Subsidiaries..................................................................... 9
3.5 Financial Statements............................................................. 9
3.6 Events Subsequent to Financial Statements........................................ 9
3.7 Undisclosed Liabilities.......................................................... 11
3.8 Tax Returns and Audits........................................................... 11
3.9 Books and Records................................................................ 12
3.10 Real Property.................................................................... 13
3.11 Tangible Property................................................................ 13
3.12 Intellectual Property............................................................ 13
3.13 Contracts........................................................................ 15
3.14 Suppliers and Customers.......................................................... 16
3.15 Notes; Accounts Receivable....................................................... 16
3.16 Powers of Attorney............................................................... 16
3.17 Condition of Property............................................................ 16
3.18 Insurance........................................................................ 16
3.19 Litigation....................................................................... 17
3.20 Employees........................................................................ 17
3.21 Employee Benefit Plans........................................................... 17
3.22 Guarantees....................................................................... 18
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.23 Legal Compliance................................................................. 18
3.24 Certain Business Relationships................................................... 19
3.25 Broker's Fees.................................................................... 19
3.26 Environment, Health and Safety................................................... 19
3.27 Disclosure....................................................................... 19
ARTICLE 4 - Representations and Warranties of the Shareholders............................ 19
4.1 Representations Regarding Shares of CPI.......................................... 19
4.2 Investment Representations....................................................... 20
4.3 Authorization.................................................................... 21
ARTICLE 5 - Conduct of Business Pending The Merger........................................ 21
5.1 Conduct of Business by CPI and CII Pending the Merger............................ 21
5.2 No Other Bids for CPI............................................................ 24
5.3 Lines of Business and Capital Expenditures....................................... 24
5.4 Accounting Methods............................................................... 25
5.5 Other Actions.................................................................... 25
5.6 Conduct of Business by Merger Sub................................................ 25
ARTICLE 6 - Additional Agreements......................................................... 25
6.1 Action of Shareholders........................................................... 25
6.2 Expenses......................................................................... 25
6.3 Notification of Certain Matters.................................................. 25
6.4 Access to Information............................................................ 26
6.5 Shareholder Claims............................................................... 26
6.6 Taking of Necessary Action....................................................... 26
6.7 Notice of Changes................................................................ 26
6.8 Press Releases................................................................... 26
6.9 Employee Matters................................................................. 26
ARTICLE 7 - Conditions to Merger.......................................................... 27
7.1 Conditions to Obligations of Each Party to Effect the Merger..................... 27
7.2 Additional Conditions to TBA's and Merger Sub's Obligations...................... 27
7.3 Additional Conditions to the Obligations of CPI and the Shareholders............. 29
ARTICLE 8 - Termination, Amendment and Waiver............................................. 31
8.1 Termination...................................................................... 31
8.2 Amendment........................................................................ 31
8.3 Waiver........................................................................... 31
8.4 Effect of Termination............................................................ 32
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 9 - Indemnification............................................................... 32
9.1 By TBA, Merger Sub, CPI and the Shareholders..................................... 32
9.2 Claims for Indemnification....................................................... 32
9.3 Defense by Indemnifying Party.................................................... 33
9.4 Payment of Indemnification Obligation............................................ 33
ARTICLE 10 - General Provisions........................................................... 33
10.1 Survival of Representations and Warranties....................................... 33
10.2 Effect of Due Diligence.......................................................... 34
10.3 Specific Performance............................................................. 34
10.4 Notices.......................................................................... 34
10.5 Interpretation................................................................... 35
10.6 Severability..................................................................... 35
10.7 Miscellaneous.................................................................... 35
10.8 Material Adverse Breach.......................................................... 36
10.9 Limitation of Liability.......................................................... 36
SCHEDULE 1 Disclosure Schedule
ANNEX I List of TBA SEC Documents
ANNEX II Shareholders of CPI
EXHIBIT A Form of Plan of Merger
EXHIBIT B Form of Promissory Notes
EXHIBIT C Form of Pledge Agreement
EXHIBIT D Form of Employment Agreements
</TABLE>
-iii-
<PAGE> 5
MERGER AGREEMENT
This MERGER AGREEMENT, dated as of August 11, 1998 (this "Agreement"),
is by and among TBA Entertainment Corporation, a Delaware corporation ("TBA"),
CPI Acquisition Corp., Inc., a Delaware corporation and wholly owned subsidiary
of TBA (the "Merger Sub"), Richard S. Smith ("Smith"), Richard W. Perry
("Perry") and Pamela J. Furmanek ("Furmanek"), all individuals and shareholders
of CPI (as defined below) (individually, a "Shareholder" and collectively, the
"Shareholders"), and Corporate Productions, Inc., an Illinois corporation
("CPI").
RECITALS
WHEREAS, CPI owns one hundred percent (100%) of the outstanding equity
securities of Corporate Incentives, Inc., an Illinois corporation ("CII");
WHEREAS, TBA, Merger Sub, CPI and the Shareholders each desire for TBA
to acquire all of the outstanding shares of CPI's capital stock pursuant to the
Merger described below in Article 1, as a result of which CPI will become a
wholly owned subsidiary of TBA; and
WHEREAS, the Shareholders intend for the Merger to qualify as a
"reorganization" pursuant to the provisions of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
constitutes the plan of reorganization;
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), in
accordance with this Agreement and the respective provisions of the Delaware
General Corporation Law (the "DGCL") and the Illinois Business Corporation Act
(the "IBCA"), CPI shall be merged with and into Merger Sub (the "Merger"), the
separate existence of CPI (except as may be continued by operation of law) shall
cease and Merger Sub shall continue as the surviving corporation under the name
"Corporate Productions, Inc." Merger Sub, in its capacity as the corporation
surviving the Merger, sometimes is referred to herein following the Effective
Time as the "Surviving Corporation."
1.2 Effect of the Merger. The Surviving Corporation shall possess all
the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each of Merger Sub and CPI (collectively, the "Constituent
Corporations"), and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares and all other choses in
action, and every other interest of or belonging to or due to each of the
Constituent Corporations shall be deemed to be transferred to and vested in the
Surviving Corporation without reversion or
<PAGE> 6
impairment and without any further act or deed; and without any transfer or
assignment having occurred, but subject to any existing liens or other
encumbrances thereon, and all liabilities and obligations of each of the
Constituent Corporations shall thenceforth attach to the Surviving Corporation
and the Surviving Corporation shall be the primary obligor therefor, all with
the effect set forth in Sections 251 and 252 of the DGCL and Section 5/11.35 of
the IBCA.
1.3 Consummation of the Merger. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in Article 7 of this
Agreement, and in no event later than the earlier of (a) five business days
after such satisfaction or waiver or (b) July 31, 1998, if all such conditions
have been satisfied or waived, the parties hereto will cause Articles of Merger,
in such form as may be required by, and executed, acknowledged and certified in
accordance with, the relevant provisions of the DGCL and the IBCA to be filed
with the Secretaries of State of the States of Delaware and Illinois, which
shall include, as an exhibit, a Plan of Merger substantially in the form
attached hereto as Exhibit A (the "Plan of Merger"). The Merger shall be
effective upon the filing of the Articles of Merger with the Secretaries of
State of the States of Delaware and Illinois (the "Effective Time"). For the
purposes of this Agreement, the term "Closing Date" shall mean the date on which
all of the terms and conditions to the closing (the "Closing") of the Merger
have been satisfied or waived in accordance with the terms of this Agreement. At
the Closing (a) CPI and the Shareholders shall deliver to TBA and Merger Sub the
various certificates, instruments and documents referred to in Section 7.2; (b)
TBA and Merger Sub shall deliver to CPI and the Shareholders the various
certificates, instruments and documents referred to in Section 7.3; (c) TBA
shall deliver the Merger Consideration (hereinafter defined) to the
Shareholders; and (d) TBA shall file the Articles of Merger with the Secretaries
of State of the States of Delaware and Illinois.
1.4 Charter and Bylaws; Directors and Officers. The charter (as amended
as of the Effective Time to reflect the change of name) and bylaws of Merger Sub
shall be the charter and bylaws of the Surviving Corporation immediately after
the Effective Time and shall thereafter continue to be its charter and bylaws
until further amended. The directors of Merger Sub holding office immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time and shall serve until their successors are
duly elected and shall qualify. The officers of Merger Sub holding office
immediately prior to the Effective Time shall be the officers (holding the same
offices as they held with Merger Sub) of the Surviving Corporation immediately
after the Effective Time and shall serve until their successors are duly elected
and shall qualify.
1.5 Consideration for Merger; Conversion of Securities; Issuance of TBA
Shares. The total consideration payable to the Shareholders in respect of the
Merger (the "Merger Consideration") shall be equal to Five Million Dollars
($5,000,000), subject to possible adjustment as provided in the Notes
(hereinafter defined), and shall be paid or delivered to the Shareholders at the
Closing as follows:
(a) TBA shall issue and deliver to the Shareholders
certificates registered in the Shareholders' names representing the
number of fully-paid and nonassessable shares of TBA common stock,
$.001 par value per share ("TBA Common Stock"), equal to the amount set
-2-
<PAGE> 7
forth opposite such Shareholder's name on Schedule 1.5 divided by the
Average Price (as defined below) (the "Common Stock Portion"). The
total value of the Common Stock Portion shall equal an aggregate total
of Two Million Dollars ($2,000,000);
(b) TBA shall deliver to the Shareholders by wire transfer to
one or more accounts designated in writing by the Shareholders to TBA
prior to the Closing cash in an amount equal to One Million Four
Hundred Fifty Thousand Dollars ($1,450,000) (the "Cash Portion"). The
Cash Portion shall be allocated among the Shareholders as specified in
Schedule 1.5; and
(c) TBA shall deliver to the Shareholders promissory notes
(the "Notes") in the initial aggregate principal amount of One Million
Five Hundred Fifty Thousand Dollars ($1,550,000) (the "Note Portion"),
subject to possible adjustment as set forth in the Notes, each Note
substantially in the form of Exhibit B attached hereto (the "Form of
Note"), allocated among the Shareholders as specified in Schedule 1.5,
and secured by a pledge of the stock of CPI (pursuant to the form of
Pledge Agreement attached hereto as Exhibit C) or other similar form of
collateral to be approved by the Shareholders, such approval not to be
unreasonably withheld.
(d) The term "Average Price" shall mean the average of the
closing sale prices of TBA Common Stock reported by The Nasdaq Stock
Market for each of the thirty (30) consecutive trading days ending five
(5) trading days preceding the Closing Date, but not to be less than
$4.425 per share.
(e) Schedule 1.5 may be amended unilaterally by the
Shareholders at any time prior to the Closing so as to change the
allocation of the total Merger Consideration among the Shareholders.
Such amended Schedule must be signed by all of the Shareholders to be
effective.
(f) No fraction of a share of TBA Common Stock will be issued
to the Shareholders but in lieu thereof each Shareholder who would
otherwise be entitled to receive fractional shares will be paid an
amount in cash equal to the product of (A) the number of fractional
shares to which such holder is otherwise entitled and (B) the Average
Price. No interest shall be paid on such amount.
(g) Each share of CPI Common Stock (as defined below) held in
the treasury of CPI shall automatically be cancelled and no shares of
TBA Common Stock will be issued with respect thereto.
1.6 Closing of CPI's Transfer Books. At the Effective Time, the stock
transfer books of CPI shall be closed with respect to shares of CPI Common Stock
issued and outstanding immediately prior to the Effective Time and no further
transfer of such shares shall thereafter be made on such stock transfer books.
If, after the Effective Time, valid certificates previously
-3-
<PAGE> 8
representing such shares are presented to the Surviving Corporation, such
certificates shall be exchanged as provided in Section 1.7 of this Agreement.
1.7 Mechanics of Exchange of CPI Common Stock Certificates.
(a) After the Effective Time, each holder of an outstanding
certificate that prior thereto represented shares of common stock, no
par value per share (the "CPI Common Stock"), of CPI shall be entitled,
upon surrender thereof to TBA, to receive such Shareholder's pro rata
portion of the Cash Portion and the Note Portion of the Merger
Consideration and (i) a certificate or certificates representing the
number of whole shares of TBA Common Stock into which the shares of CPI
Common Stock so surrendered shall have been converted and exchanged as
aforesaid, in such denominations and registered in such names as such
holder may request and (ii) any cash to which such holder may be
entitled pursuant to Section 1.5(e). Until so surrendered, each such
outstanding certificate that, prior to the Effective Time, represented
shares of CPI Common Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of TBA Common
Stock into which such shares of CPI Common Stock shall have been so
converted and exchanged pursuant to Section 1.5 of this Agreement and
the right to receive an amount in cash in lieu of the issuance of any
fractional share of TBA Common Stock in accordance with Section 1.5(e)
of this Agreement.
(b) All cash and shares of TBA Common Stock into which shares
of CPI Common Stock shall have been converted and exchanged pursuant to
Section 1.5 of this Agreement, including any cash paid in lieu of any
fractional shares of TBA Common Stock in accordance with Section 1.5(e)
of this Agreement, will be issued and delivered in full satisfaction of
all rights pertaining to such exchanged shares and shall be fully-paid
and nonassessable.
(c) If any certificate for shares of TBA Common Stock is to be
issued in a name other than that in which the certificate surrendered
in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such conversion and exchange will have paid to TBA any
transfer or other taxes required by reason of the issuance of a
certificate for shares of TBA Common Stock in any name other than that
of the registered holder of the certificate surrendered, or established
to the satisfaction of TBA that such tax has been paid or is not
payable. Prior to the issuance of such certificate(s), the registered
holder(s) thereof will be required to demonstrate to TBA's satisfaction
that such transfer will be made in compliance with all applicable
securities laws and will not adversely impact any exemption from the
registration/qualification requirements of applicable securities laws
to be relied upon in connection with the transactions contemplated
hereby.
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1.8 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of CPI Common Stock shall have been lost, stolen
or destroyed, TBA shall issue in exchange for such lost, stolen or destroyed
certificate(s), upon the making of an affidavit of that fact by the holder
thereof, such shares of TBA Common Stock and cash for fractional shares, if any,
as may be required pursuant to Section 1.5 of this Agreement; provided, however,
that TBA may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate(s) to
deliver a bond in such sum as TBA may reasonably direct as indemnity against any
claim that may be made against TBA with respect to the certificate(s) alleged to
have been lost, stolen or destroyed.
1.9 Further Action. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, immunities and
franchises of either or both of the Constituent Corporations, the officers and
directors of the Surviving Corporation are fully authorized in the name of
either or both of the Constituent Corporations or otherwise to take, and shall
take, all such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TBA AND MERGER SUB
TBA and Merger Sub hereby represent and warrant to CPI as follows:
2.1 Organization and Qualification. TBA has been duly incorporated and
is validly existing as a corporation and in good standing under the laws of the
State of Delaware and has the requisite corporate power to carry on its business
as now conducted. Merger Sub has been duly incorporated and is validly existing
as a corporation and in good standing under the laws of the State of Delaware
and has the requisite corporate power to carry on its business as now conducted.
2.2 Authority Relative to this Agreement. Each of TBA and Merger Sub
has the requisite corporate power and authority to enter into this Agreement and
to carry out its respective obligations hereunder. The execution and delivery of
this Agreement by TBA and Merger Sub and the consummation by TBA and Merger Sub
of the transactions contemplated hereby have been duly authorized by the
respective Boards of Directors of TBA and Merger Sub and by TBA as the sole
shareholder of Merger Sub, and no other corporate proceedings on the part of TBA
or Merger Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by TBA
and Merger Sub and constitutes the valid and binding obligation of each such
company, enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
None of the execution and delivery of this Agreement by TBA or Merger Sub, the
performance by TBA or Merger Sub of their obligations hereunder or the
consummation of the transactions contemplated hereby by TBA or Merger Sub will
require any consent, approval or notice under, or violate, breach, be in
conflict with
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or constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under, or permit the termination of, or result in
the creation or imposition of any lien upon any properties, assets or business
of TBA or Merger Sub under any note, bond, indenture, mortgage, deed of trust,
lease, franchise, permit, authorization, license, contract, instrument or other
agreement or commitment or any order, judgment or decree to which TBA or Merger
Sub is a party or by which TBA or Merger Sub or any of their respective assets
or properties is bound or encumbered, except those that have already been given,
obtained or filed. Other than in connection with filing Articles of Merger with
the Secretaries of State of the States of Delaware and Illinois, filings under
the Securities Act of 1933, as amended (the "Securities Act"), if any, necessary
to perfect an exemption from registration under the Securities Act, filings made
with the National Association of Securities Dealers, Inc. to list the shares of
TBA Common Stock to be issued in connection with the Merger in the National
Market System of The Nasdaq Stock Market and filings to be made with state
securities regulatory agencies, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of TBA
or Merger Sub for the consummation by TBA and Merger Sub of the transactions
contemplated by this Agreement.
2.3 TBA Stock and TBA SEC Documents. The TBA Common Stock is listed for
trading on the National Market System of The Nasdaq Stock Market. TBA has
furnished CPI with a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by TBA with the
Securities and Exchange Commission ("SEC") since January 1, 1998 (the "TBA SEC
Documents"), which are all the documents (other than preliminary materials) that
TBA was required to file with the SEC since such date and all of which documents
are listed on Annex I attached hereto. As of its date, each TBA SEC Document was
in compliance, in all material respects, with the requirements of its form. The
financial statements of TBA included in the TBA SEC Documents complied, at the
time of filing with the SEC, as to form, in all material respects, with
applicable accounting requirements and published rules and regulations of the
SEC with respect thereto, were prepared in accordance with generally accepted
accounting principles, applied on a consistent basis during the periods
involved, and fairly presented, in all material respects (subject, in the case
of unaudited statements, to normal, recurring year-end audit adjustments) the
financial position of TBA as at the dates thereof and the results of its
operations and cash flows for the periods then ended.
2.4 Liabilities of Merger Sub. Prior to the date hereof, Merger Sub has
conducted no business operations and has incurred no liabilities.
2.5 Certain Corporate Matters. Each of TBA and Merger Sub is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership of its properties, the employment of
its personnel or the conduct of its business requires it to be so qualified,
other than in such jurisdictions where the failure to so qualify would not,
individually or in the aggregate, have a materially adverse effect on TBA and
its subsidiaries, taken as a whole. TBA has full corporate power and authority
and all authorizations, licenses and permits necessary to carry on the business
in which it engages or in which it proposes presently to engage and to own and
use the properties owned and used by it. TBA and Merger Sub have each delivered
to CPI true, accurate and complete copies of its charter documents and bylaws
which reflect all amendments
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made thereto at any time prior to the date of this Agreement. The minute books
containing the records of meetings of the shareholders and board of directors of
TBA and Merger Sub are accurate and complete in all material respects. All
material corporate actions taken by TBA and Merger Sub since their respective
dates of incorporation have been duly authorized and/or subsequently ratified,
as necessary. Neither TBA nor Merger Sub is in default under or in violation of
any material provision of its charter or bylaws.
2.6 Broker's Fees. Neither TBA nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger or any similar transaction.
2.7 Disclosure. The representations and warranties and statements of
fact made by TBA in this Agreement and in certificates and other written
statements or agreements delivered or to be delivered pursuant to this Agreement
are accurate, correct and complete on the date of this Agreement and will,
except as contemplated hereby, be accurate, correct and complete at the
Effective Time and do not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CPI
Except as set forth in the correspondingly numbered section of the
disclosure schedule attached hereto as Schedule 1 and incorporated herein by
this reference (the "Disclosure Schedule"), CPI and CII hereby represent and
warrant to TBA and Merger Sub as follows:
3.1 Organization, Qualification and Corporate Power. Each of CPI and
CII is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Each of CPI and CII is duly
qualified to do business as a foreign corporation and is in good standing in the
jurisdictions specified in Section 3.1 of the Disclosure Schedule, which are the
jurisdictions in which the ownership of its properties, the employment of its
personnel or the conduct of its business requires that it be so qualified or
where a failure to be so qualified or licensed would have a material adverse
effect on its financial condition, results of operation or business. Each of CPI
and CII has full corporate power and authority and all authorizations, licenses
and permits necessary to carry on the business in which it is engaged or in
which it proposes presently to engage and to own and use the properties owned
and used by it. Each of CPI and CII has delivered to TBA true, accurate and
complete copies of its charter and bylaws which reflect all amendments made
thereto at any time prior to the date of this Agreement. The minute books
containing the records of meetings of the shareholders and Board of Directors of
each of CPI and CII, the stock certificate books and the stock record books of
each of CPI and CII are complete and correct in all material respects. The stock
record books of each of CPI and CII and the shareholder
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lists of each of CPI and CII which each of CPI and CII has previously furnished
to TBA are complete and correct in all respects and accurately reflect the
record and beneficial ownership of all the outstanding shares of each of CPI's
and CII's capital stock and all other outstanding securities issued by each of
CPI and CII. All material corporate actions taken by each of CPI and CII since
incorporation have been duly authorized and/or subsequently ratified as
necessary. Neither CPI nor CII is in default under or in violation of any
provision of its charter or bylaws. Neither CPI nor CII is in default or in
violation of any restriction, lien, encumbrance, indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability by which it is
bound or to which any of its assets is subject.
3.2 Capitalization. CPI's entire authorized capital stock consists of
2,000 shares of common stock, of which 947.36842 shares are issued and
outstanding and 947.36842 shares will be issued and outstanding immediately
prior to the Effective Time. CII's entire authorized capital stock consists of
1,000 shares of Common Stock of which 1,000 shares are issued and outstanding
and 1,000 shares will be issued and outstanding immediately prior to the
Effective Time. All of the issued and outstanding shares of CPI Common Stock and
the common stock of CII ("CII Common Stock") have been and, as of the Effective
Time, will be duly authorized and are and, as of the Effective Time, will be
validly issued, fully paid and nonassessable and have not been and, as of the
Effective Time, will not be issued in violation of any pre-emptive rights. There
are no outstanding or authorized options, rights, warrants, calls, convertible
securities, rights to subscribe, conversion rights or other agreements or
commitments to which either CPI or CII is a party or which are binding upon
either CPI or CII providing for the issuance or transfer by either CPI or CII of
additional shares of their respective capital stock and neither CPI nor CII has
reserved any shares of its capital stock for issuance, nor are there any
outstanding stock option rights, phantom equity or similar rights, contracts,
arrangements or commitments based upon the book value, income or other attribute
of either CPI or CII. There are no voting trusts or any other agreements or
understandings with respect to the voting of either CPI's or CII's capital
stock. Upon consummation of the Merger, TBA will own the entire equity interest
in CPI (and through its ownership of CPI, TBA will own the entire equity
interest of CII) and neither CPI nor CII will have outstanding any stock or
securities convertible or exchangeable for any shares of its capital stock, nor
have outstanding any rights, options, agreements or arrangements to subscribe
for or to purchase its capital stock or any stock or securities convertible into
or exchangeable for its capital stock. Annex II attached hereto sets forth a
true accurate and complete list of all holders of capital stock of CPI and CII,
the number of shares of capital stock held by each such person and the address
of each such person. All capital stock, options, warrants and other securities
issued by CPI and CII were issued in compliance, in all respects, with all
applicable federal and state securities laws.
3.3 Authorization of Transaction. CPI has the requisite corporate power
and authority to enter into this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated by this Agreement have been duly authorized by the
Board of Directors of CPI. No other corporate approval on the part of CPI (other
than shareholder approval) will be necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by CPI and, upon
approval hereof by the shareholders of CPI, will constitute
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<PAGE> 13
the valid and binding obligation of CPI, enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally or
by general principles of equity. None of the execution and delivery of this
Agreement by CPI, the performance by CPI of its obligations hereunder or the
consummation of the transactions contemplated hereby by CPI will require any
consent, approval or notice under, or violate, breach, be in conflict with or
constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under, or permit the termination of, or result in
the creation or imposition of any lien upon any properties, assets or business
of either CPI or CII under any note, bond, indenture, mortgage, deed of trust,
lease, franchise, permit, authorization, license, contract, instrument or other
agreement or commitment or any order, judgment or decree to which either CPI or
CII is a party or by which either CPI or CII or any of their respective assets
or properties is bound or encumbered, except those that have already been given,
obtained or filed, all as set forth in Section 3.3 of the Disclosure Schedule.
Other than in connection with filing Articles of Merger with the Secretaries of
State of the States of Delaware and Illinois, no notice to, filing with or
authorization, consent or approval of any public body or authority is necessary
for the consummation by CPI of the transactions contemplated by this Agreement.
3.4 Subsidiaries. Except for CPI's ownership of one hundred percent
(100%) of the outstanding equity securities of CII, CPI does not own and is not
obligated to purchase any equity interest in or any other interest convertible
into or exchangeable for an equity interest in any entity.
3.5 Financial Statements. CPI has delivered to TBA (a) unaudited
balance sheets as of December 31, 1997 and 1996, (b) unaudited statements of
operations for each of the years in the two-year period ended December 31, 1997,
(c) unaudited balance sheets as of March 31, 1998, and (d) unaudited statements
of operations for the three (3) months ended March 31, 1998, for each of CPI and
CII (collectively, the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby and present fairly
the financial condition of CPI and CII as of such dates and the results of its
operations and changes in financial position for such periods. Since December
31, 1994, there have been no changes in CPI's and CII's method of accounting for
tax purposes.
3.6 Events Subsequent to Financial Statements. Except as disclosed in
the Financial Statements, since December 31, 1997, there has not been:
(a) any materially adverse change in the consolidated
financial condition, results of operations or business of either CPI or
CII;
(b) any sale, lease, transfer, license or assignment of any
material assets, tangible or intangible, of either CPI or CII, other
than in the ordinary course of business;
(c) any damage, destruction or property loss, whether or not
covered by insurance, affecting materially adversely the properties or
business of either CPI or CII;
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(d) any declaration or setting aside or payment of any
dividend or distribution with respect to the shares of capital stock of
either CPI or CII or any redemption, purchase or other acquisition of
any such shares;
(e) any mortgage or pledge of, or subjection to any material
lien, charge, security interest or encumbrance of any kind on, any of
the assets, tangible or intangible, of either CPI or CII (other than
liens arising by operation of law which secure obligations which are
not yet due and payable);
(f) any incurrence of indebtedness or liability or assumption
of obligations by either CPI or CII other than (i) those incurred in
the ordinary course of business, (ii) those which do not exceed $5,000
in the aggregate, and (iii) those incurred in the course of
negotiating, documenting and consummating the transactions contemplated
by this Agreement;
(g) any cancellation or compromise by either CPI or CII of any
material debt or claim, except for adjustments made in the ordinary
course of business which, in the aggregate, are not material;
(h) any waiver or release by either CPI or CII of any right of
any material value;
(i) except licenses of software made in the ordinary course of
business, consistently with past practice, any sale, assignment,
transfer or grant by either CPI or CII of any rights under any
concessions, leases, licenses, agreements, patents, inventions,
trademarks, trade names or copyrights or with respect to any know-how
or other intangible assets;
(j) any material arrangement, agreement or undertaking entered
into by either CPI or CII not terminable on 30 days or less notice
without cost or liability (including, without limitation, any payment
of or promise to pay any bonus or special compensation) with employees
or any increase in compensation or benefits to officers or directors of
either CPI or CII, other than in the ordinary course of business;
(k) any change made or authorized in the charter or bylaws of
either CPI or CII;
(l) any issuance, sale or other disposition by either CPI or
CII of any shares of its capital stock or other equity securities, or
any grant of any options, warrants or other rights to purchase or
obtain (including upon conversion or exercise) shares of its capital
stock or other equity securities;
(m) any loan to or other transaction with any officer,
director or shareholder of either CPI or CII giving rise to any claim
or right of either CPI or CII against any such person or of such person
against either CPI or CII;
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(n) any payment to or other transaction with any officer,
director or shareholder of either CPI or CII involving an amount in
excess of $5,000, individually or in the aggregate, other than the
payment of monthly compensation consistent with customary practice;
(o) any acceleration, termination, modification or
cancellation or threat thereof by any party of any contract, lease or
other agreement or instrument to which either CPI or CII is a party or
by which it is bound so as to affect, materially and adversely, the
properties or business of either CPI or CII; or
(p) any other material transaction or commitment entered into
other than in the ordinary course of business by either CPI or CII.
3.7 Undisclosed Liabilities. Neither CPI nor CII has material liability
or obligation whatsoever, known or unknown, either accrued, absolute, contingent
or otherwise, except to the extent shown on the Financial Statements, incurred
in the normal and ordinary course of business of CPI or CII since January 1,
1998 (provided that, liabilities or obligations incurred in connection with the
termination of employees shall not be considered liabilities incurred in the
ordinary course of business), or incurred in the course of negotiating,
documenting and consummating the transactions contemplated by this Agreement.
Neither CPI nor CII is indebted, directly or indirectly, to any person who is an
officer, director or shareholder of either CPI or CII or any affiliate of any
such person in any amount whatsoever other than for salaries for services
rendered or reimbursable business expenses, and no such officer, director,
shareholder or affiliate is indebted to either CPI or CII, except for advances
made to employees of either CPI or CII in the ordinary course of business to
meet reimbursable business expenses anticipated to be incurred by such obligor.
Neither CPI nor CII has any liability with respect to CPI's investment in Mary
Pate Interiors.
3.8 Tax Returns and Audits. For purposes of this Section 3.8, the term
"Group" shall mean, individually and collectively, (i) CPI, (ii) CII, and (iii)
any corporation or other entity for which either CPI or CII may be liable for
taxes incurred by such corporation or other entity. The taxable year of the
Group ends December 31. The Group has duly and timely filed or caused to be
filed all tax returns (the "Tax Returns") required to be filed on behalf of
itself and has paid in full or fully reserved against in the Financial
Statements all taxes, interest, penalties, assessments and deficiencies due or
claimed to be due on behalf of itself to foreign, federal, state or local taxing
authorities (including taxes on properties, income, franchises, licenses, sales,
use and payrolls). Such Tax Returns are correct in all material respects, and
the Group is not required to pay any other taxes for such periods except as
shown in such Tax Returns. Notwithstanding the preceding sentence, TBA
acknowledges that CPI intends to file amended federal income tax returns as a
result of information received during the audit of CPI by TBA. The income tax
returns filed by the Group have not been, and are not being, to the knowledge of
CPI, examined by the Internal Revenue Service or other applicable taxing
authorities for any period. All taxes or estimates thereof that are due, or are
claimed or asserted by any taxing authority to be due, have been timely and
appropriately paid so as to avoid penalties for underpayment. Except for amounts
not yet due and payable, all tax liabilities to which the properties of CPI or
CII may be subject have been paid and discharged. The
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provisions for income and other taxes payable reflected in the Financial
Statements make adequate provision for all then accrued and unpaid taxes of the
Group. There are no tax liens (other than liens for taxes which are not yet due
and payable) on any of the property of CPI or CII, nor are there any pending or
threatened examinations or tax claims asserted. The Group has not granted any
extensions of limitation periods applicable to tax claims or filed a consent
under Section 341(f) of the Code relating to collapsible corporations. Except in
jurisdictions in which CPI or CII voluntarily files tax returns, no claim has
ever been made by a taxing authority that either CPI or CII is or may be subject
to taxation by that jurisdiction. True and correct copies of all federal,
foreign, state and local income and other tax returns, notices from foreign,
federal, state and local taxing authorities, tax examination reports and
statements of deficiencies assessed against or agreed to by CPI or CII since
January 1, 1994, have been delivered to TBA, and the same are listed in Section
3.8 of the Disclosure Schedule. Neither CPI nor CII is a party to, or bound by,
any tax indemnity, tax sharing or tax allocation agreement. Neither CPI nor CII
is a party to any agreement that has resulted or would result in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
CPI has never been a member of an "affiliated group," as defined in Section
1504(a) of the Code (other than a group of which CPI is the common parent). All
positions taken on federal Tax Returns that could give rise to a penalty for
substantial understatement pursuant to Section 6662(d) of the Code have been
disclosed on such Tax Returns. Neither CPI nor CII is a United States real
property holding corporation as defined in Section 897 of the Code. No
shareholder of CPI is a foreign person within the meaning of Section 1445(b)(2)
of the Code. Neither CPI nor CII has made any tax elections under any section of
the Code, including, without limitation under any of Sections 108, 168, 338,
441, 463, 472, 1017, 1033 or 4977 of the Code (or any predecessor thereof). None
of the assets and properties of CPI or CII is an asset or property that TBA or
any of its affiliates is or will be required to treat as being (i) owned by any
other Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954 as amended, and in effect immediately before the enactment
of the Tax Reform Act of 1986, or (ii) tax-exempt use property within the
meaning of Section 168(h)(1) of the Code. No closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local, or foreign law has been entered into by or with respect to
CPI or CII or any assets thereof. Neither CPI nor CII has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of CPI
or CII, neither CPI nor CII has applications pending with any taxing authority
requesting permission for any changes in any accounting method of CPI or CII,
and the I.R.S. has not proposed any such adjustment or change in accounting
method therefor. Neither CPI nor CII has been or is in violation (or with notice
or lapse of time or both, would be in violation) of any applicable law relating
to the payment of withholding of taxes. Each of CPI and CII has duly and timely
withheld from salaries, wages and other compensation and paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
3.9 Books and Records. The general ledgers and books of account of each
of CPI and CII, all federal, state and local income, franchise, property and
other tax returns filed by each of CPI and CII, with respect to its assets, and
all other books and records of each of CPI and CII are in all material respects
complete and correct and have been maintained in accordance with good business
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practice and in accordance with all applicable procedures required by laws and
regulations in all material respects.
3.10 Real Property. Set forth in Section 3.10 of the Disclosure
Schedule is a complete and accurate list and a brief description of all real
property owned or leased by CPI and CII. With respect to each lease so set
forth, except as contemplated by this Agreement: (a) the lease has been validly
executed and delivered by CPI or CII, as applicable, and, to the knowledge of
CPI or CII, as applicable, by the other party or parties thereto and is in full
force and effect; (b) neither CPI nor CII, as applicable, and, to the knowledge
of CPI or CII, as applicable, any other party to the lease is in material breach
or default, and no event has occurred on the part of CPI or CII, as applicable
or, to the knowledge of CPI or CII, as applicable, on the part of any other
party which, with notice or lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration under the lease; (c)
the lease will continue to be binding in accordance with its terms following the
consummation of the Merger; (d) neither CPI nor CII, as applicable, has
repudiated and, to the knowledge of CPI or CII, as applicable, no other party to
the lease has repudiated any provision thereof; (e) there are no disputes, oral
agreements or delayed payment programs in effect as to the lease; and (f) all
facilities leased thereunder have been approved by all necessary governmental
authorities, have been maintained in accordance with normal industry practice
and are in good condition, working order and repair.
3.11 Tangible Property. CPI and CII have good and marketable title to,
or a valid leasehold interest in, each item of tangible property, whether real,
personal or mixed, reflected on its books and records as owned or used by it,
subject to no material encumbrances, loans, security interests, mortgages or
pledges.
3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedule sets forth a
list of intellectual property owned by CPI and CII including all
patents, patent applications, trademarks, service marks, trade dress,
trade names, trade secrets, corporate names, customer lists,
copyrights, mask works, technology or intellectual property that are
material to the business of CPI and CII and registrations or
applications to register any of the foregoing and a list of all
licenses or other contracts related thereto (collectively, the
"Intellectual Property"). With respect to each such item of
Intellectual Property:
(i) CPI or CII, as applicable, is the sole and
exclusive owner and has the sole and exclusive right to use
the item in the conduct of its business;
(ii) no proceedings have been instituted, are pending
or are threatened which challenge the validity,
enforceability, use or ownership thereof;
(iii) the item (A) does not infringe upon or
otherwise violate the rights of others, (B) to the knowledge
of CPI or CII, as applicable, is not being infringed upon
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by others and (C) is not subject to any outstanding order,
decree, judgment, stipulation or charge;
(iv) no license, sublicense or agreement pertaining
to the item has been granted by CPI or CII, as applicable;
(v) Neither CPI nor CII has received any charge of
interference or infringement with respect to the item;
(vi) except in the ordinary course of business, CPI
or CII, as applicable, has not agreed to indemnify any person
or entity for or against any infringement with respect to the
item;
(vii) the transactions contemplated by this Agreement
will have no material adverse effect on the right, title and
interest of CPI or CII, as applicable, in the item;
(viii) CPI or CII, as applicable, has taken all steps
which are commercially reasonable to protect the rights set
forth in Section 3.12(a) of the Disclosure Schedule and will
continue to use commercially reasonable efforts to maintain
those rights prior to the Effective Time so as to not
materially adversely affect the validity or enforcement of
such rights; and
(ix) CPI or CII, as applicable, has supplied TBA with
true and complete copies of all written documentation
evidencing its ownership of the item and of all licenses and
other contracts related thereto.
(b) Section 3.12(b) of the Disclosure Schedule sets forth a
list describing all patents, trademarks, trade names, service marks,
copyrights, trade secrets and mask works of others which CPI or CII, as
applicable, practices or uses that are material to CPI or CII, as
applicable. With respect to each such item of intellectual property:
(i) any license agreement covering the item is a
valid and binding agreement, has been validly executed and
delivered by CPI or CII, as applicable, and, to the knowledge
of CPI or CII, as applicable, by the other parties thereto and
is in full force and effect;
(ii) no event has occurred which constitutes a breach
of such license agreement, CPI or CII, as applicable, has not
repudiated and, to the knowledge of CPI or CII, as applicable,
no other party thereto has repudiated any provision thereof
and there are no disputes, oral arrangements or delayed
payment programs in effect as to any such license agreement;
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<PAGE> 19
(iii) CPI or CII, as applicable, has supplied TBA
with a true and complete copy of the license agreement;
(iv) the transactions contemplated by this Agreement
will have no material adverse effect on the ability of CPI or
CII, as applicable, to continue using or practicing each such
item; and
(v) Neither CPI nor CII, as applicable, is aware of
any claim that the exercise of the rights granted to CPI or
CII, as applicable, with respect to such item infringes upon
the intellectual property rights of any third party.
(c) Neither CPI nor CII, as applicable, has infringed,
misappropriated or otherwise violated any intellectual property rights
of any third party. Neither CPI nor CII, as applicable, is aware of any
infringement, misappropriation or violation with respect to
intellectual property which will occur as a result of the continued
operation of the business of CPI or CII, as applicable, as now
conducted or as presently proposed to be conducted.
(d) CPI and CII have taken commercially reasonable security
measures to protect the security, confidentiality and value of all the
material intellectual property owned by it.
3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the
following contracts and written arrangements, true and complete copies of which
have been delivered to TBA, to which CPI and/or CII is a party:
(a) any contract for the lease of personal property from or to
third parties providing for lease payments in excess of $5,000.00 per
annum;
(b) any contract for the purchase or sale of supplies,
products manufactured by CPI or CII or other personal property or for
the furnishing or receipt of services which contract calls for
performance over a period of more than one year or which involves more
than the sum of $5,000.00;
(c) any joint venture agreement;
(d) any agreement or instrument under which either CPI or CII
is or may become indebted for borrowed money;
(e) any noncompetition agreement;
(f) any other contract in which the consequences of a default
or termination would have a materially adverse effect on the financial
condition of CPI or CII or on the prospects or the conduct of the
business of CPI or CII;
(g) any standard form of license agreement; and
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<PAGE> 20
(h) any other contract or arrangement not entered into in the
ordinary course of business.
All contracts and arrangements listed in Section 3.13 of the Disclosure Schedule
are valid and binding agreements of CPI or CII, as applicable. Neither CPI nor
CII is, as applicable, and, to the knowledge of CPI or CII, as applicable, no
other party is in breach or default, and no event has occurred on the part of
CPI or CII, as applicable, or, to the knowledge of CPI or CII, as applicable, on
the part of any other party to any such contract or arrangement which with
notice or lapse of time would constitute a breach or default or permit
termination under any such contract or arrangement. None of such contracts or
arrangements will be terminated or modified by the consummation of the Merger.
CPI and CII have previously made available to TBA all of the material service
agreements of CPI and CII with their customers. Neither CPI nor CII is a party
to any verbal contract or arrangement which, if reduced to written form, would
be required to be listed in Section 3.13 of the Disclosure Schedule under the
terms of subsections (a)-(h) of this Section 3.13.
3.14 Suppliers and Customers. Section 3.14 of the Disclosure Schedule
is a true and correct list of all suppliers of CPI and CII to whom CPI or CII
made payments, during the fiscal year ended December 31, 1997, in excess of five
percent of CPI's or CII's respective gross revenues, as applicable, as reflected
in the Financial Statements for such year and all customers of CPI and CII that
paid CPI or CII, during the fiscal year ended December 31, 1996, more than five
percent of the gross revenues of either of CPI or CII as reflected in the
Financial Statements for such year. Since December 31, 1996, no material
customer of CPI or CII has notified CPI or CII that it will substantially
decrease or cease doing business with CPI or CII.
3.15 Notes; Accounts Receivable. As of the Effective Time, all notes
payable to and accounts receivable of CPI and CII will be properly reflected on
their respective books and records and will be valid receivables subject to no
setoffs or counterclaims.
3.16 Powers of Attorney. There are no outstanding material powers of
attorney or similar instruments executed by either CPI or CII.
3.17 Condition of Property. Each building, fixture, machine and piece
of equipment (having a net book value of $5,000.00 or more) owned or used by CPI
or CII is in good operating condition and repair, subject to normal wear and
tear, and is in compliance with all zoning, building and fire codes in all
material respects. Each of CPI and CII owns or leases under valid lease all
buildings, machinery, equipment and other tangible assets used in the conduct of
its business as presently conducted.
3.18 Insurance. CPI and CII are insured under the policies listed in
Section 3.18 of the Disclosure Schedule (the "Insurance Policies"). The
Insurance Policies are in full force and effect. All premiums due on the
Insurance Policies or renewals thereof have been paid and there is no default by
either CPI or CII under any of the Insurance Policies.
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<PAGE> 21
3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth any
instances in which (a) CPI or CII is subject to any judgment or order (other
than orders of general applicability) of any court or quasi-judicial or
administrative agency of any jurisdiction, domestic or foreign, or where there
is any charge, complaint, lawsuit or governmental investigation pending or
threatened against CPI or CII; or (b) CPI or CII is a plaintiff in any action,
domestic or foreign, judicial or administrative, or any such action exists in
which a counterclaim against CPI or CII is pending or might be brought. None of
the actions, suits, proceedings or investigations set forth in Section 3.19
of the Disclosure Schedule could result in any adverse change in the condition,
financial or otherwise, of CPI or CII, the same being fully reserved against in
the Financial Statements. There are no unsatisfied judgments, orders (other than
orders of general applicability), decrees or stipulations affecting CPI or CII
or to which CPI or CII is a party and there is no reason to believe that any
such action, suit, proceeding or investigation may be brought or threatened
against CPI or CII.
3.20 Employees. Each of CPI and CII has listed in Section 3.20 of the
Disclosure Schedule and has furnished to TBA true and complete copies of: (a)
any written employment agreements with officers and directors of CPI and CII;
and (b) any written employment agreements with its employees which by their
terms may not be terminated by CPI and CII, as applicable, at will or which
grant severance payments. Neither CPI nor CII has entered into any similar oral
employment agreements. To CPI's and CII's knowledge, no key employee or group of
employees has any plans to terminate employment with CPI or CII. Neither CPI nor
CII is a party to or bound by any collective bargaining agreement. There are no
loans or other obligations payable or owing by CPI or CII to any shareholder,
officer, director or employee of CPI or CII (except salaries and wages incurred
and accrued in the ordinary course of business), nor are there any loans or
debts payable or owing by any of such persons to CPI or CII or any guarantees by
CPI or CII of any loan or obligation of any nature to which any such person is a
party. Each of CPI and CII has complied in all material respects with all laws
and regulations which relate to the employment of labor, employee civil rights
or equal employment opportunities.
3.21 Employee Benefit Plans. Each of CPI and CII has listed in Section
3.21 of the Disclosure Schedule and has furnished to TBA true and complete
copies of (a) any nonqualified deferred or incentive compensation or retirement
plans or arrangements, (b) any qualified retirement plans or arrangements, (c)
any other employee compensation, severance or termination pay or welfare benefit
plans, programs or arrangements and (d) any related trusts, insurance contracts
or other funding arrangements maintained, established or contributed to by CPI
or CII or to which CPI or CII is a party or otherwise is bound ("CPI/CII
Employee Benefit Plans"). Except as required by law, neither CPI nor CII
maintains or contributes or has ever maintained or contributed to any funded or
unfunded medical, health or life insurance plan or arrangement for retirees or
terminated employees. Neither CPI nor CII contributes or has any obligation to
make and has never contributed or had any obligation to make any payment or
contribution to a "multiemployer plan," as that term is defined in Section 3(37)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and neither CPI nor CII has any actual or potential liability under Section 4201
of ERISA for any complete or partial withdrawal from a multiemployer plan.
Neither CPI nor CII maintains, contributes to or has any liability with respect
to any employee pension benefit plan (as
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<PAGE> 22
defined in Section 3(2) of ERISA) which is intended to meet the requirements of
a qualified plan under Section 401(a) of the Code. Neither CPI nor CII
maintains, contributes to or has any liability with respect to a plan which is
subject to Title IV of ERISA or Section 412 of the Code. With respect to the
employee benefit plans listed in Section 3.21 of the Disclosure Schedule, CPI
and CII have furnished to TBA true and complete copies of (i) any summary plan
description or other employee communication materials, (ii) the latest financial
statements and annual reports, and (iii) all documents filed with the Internal
Revenue Service or the Department of Labor since December 31, 1994. All employee
benefit plans and related trusts listed in Section 3.21 of the Disclosure
Schedule and maintained or contributed to by CPI or CII or with respect to which
CPI or CII now has or has ever had any liability or potential liability comply
in form and in operation with all requirements of ERISA and the Code. All
required reports with respect to such plans required by applicable law have been
filed and all contributions or payments presently anticipated hereunder have
been made or properly accrued. No applications for rulings, determination
letters, advisory opinions or prohibited transaction exemptions are currently
pending before Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation with respect to any such employee benefit plans or
arrangements or any related trusts. None of such employee benefit plans or
arrangements, any related trusts, the trustees of any related trusts or the
directors, officers and employees of CPI or CII is the subject of any lawsuit,
arbitration or other proceeding concerning any benefit claim or other
benefit-related matter (other than routine claims in the ordinary course of
business), and there have been no prohibited transactions as described in
Section 406 of ERISA or as defined in Section 4975 of the Code with respect to
any such plan. Neither CPI, CII, their respective directors, officers and
employees nor any other fiduciary, as such term is defined in Section 3 of
ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or
any other applicable law which would subject CPI or CII or their respective
directors, officers and employees to liability under ERISA or any applicable
law.
3.22 Guarantees. Neither CPI nor CII is a guarantor or otherwise liable
for any material indebtedness of any other person, firm or corporation other
than endorsements for collection in the ordinary course of business.
3.23 Legal Compliance. Each of CPI and CII and each of their respective
directors, officers and employees (the individuals only in their capacities as
representatives of CPI or CII) has complied in all material respects with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof, and no claim has been filed against CPI or CII
alleging a violation of any such laws or regulations. Each of CPI and CII holds
all of the material permits, licenses, certificates or other authorizations of
foreign, federal, state or local governmental agencies required for the conduct
of its business as presently conducted or proposed to be conducted. Neither CPI
nor CII, nor any director, officer, agent, partner or employee thereof or any
other person associated with or acting for or on behalf of either CPI or CII has
directly or indirectly (a) made or agreed to make any contribution, gift, bribe,
rebate, payoff, influence payment, kickback or other payment (whether in cash or
otherwise) to any person, private or public, regardless of form, whether in
money, property, or services, in violation of any applicable law, rule or
regulation (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
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<PAGE> 23
either CPI or CII, or (iv) to pay for any lobbying or similar services or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of either CPI or CII.
3.24 Certain Business Relationships. To the knowledge of CPI and CII,
none of the present or former shareholders, directors, officers or employees of
CPI or CII owns, directly or indirectly, any interest in any business,
corporation or other entity (other than investments in publicly held companies)
which, on the date hereof or within the past 12 months, has been involved in any
manner in any business arrangement or relationship with CPI or CII, and none of
the foregoing persons owns any property or rights, tangible or intangible, which
are used in the business of CPI or CII.
3.25 Broker's Fees. Neither CPI nor CII nor anyone on their behalf has
any liability to any broker, finder, investment banker or agent, or has agreed
to pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger or any similar transaction.
3.26 Environment, Health and Safety. Neither CPI nor CII is in
noncompliance with environmental, health and safety laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been held or commenced against either CPI or CII alleging any failure so to
comply. Each of CPI and CII has obtained and been in compliance with all of the
material terms and conditions of all permits, licenses and other authorizations
which are required under, and have complied with all other material limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, laws, and timetables which are contained in, all applicable
environmental, health and safety laws.
3.27 Disclosure. The representations and warranties and statements of
fact made by CPI and/or CII in this Agreement, in the Disclosure Schedule and in
certificates and other written statements or agreements delivered or to be
delivered pursuant to this Agreement are accurate, correct and complete in all
material respects on the date of this Agreement and will, except as contemplated
hereby, be accurate, correct and complete in all material respects at the
Effective Time and do not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as set forth in the correspondingly numbered section of the
Disclosure Schedule, each Shareholder severally represents and warrants to TBA
as to himself or herself only and not with respect to any other Shareholder as
follows:
4.1 Representations Regarding Shares of CPI.
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(a) Such Shareholder is the record and beneficial owner of and has good
title to the shares of CPI Common Stock set forth opposite his or her name on
Annex II attached hereto, free and clear of any and all restrictions, voting
rights or agreements, liens, charges, encumbrances, options and adverse claims
or rights whatsoever. Annex II attached hereto sets forth the number of all
shares of capital stock of CPI owned by each of the Shareholders, and all such
shares collectively represent all the issued and outstanding shares of CPI.
(b) Such Shareholder has the full right, power and authority to enter
into this Agreement.
(c) Such Shareholder is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body which would prevent the execution or delivery
of this Agreement by such Shareholder.
(d) No broker or finder has acted for such Shareholder in connection
with this agreement or the transactions contemplated hereby, and no broker or
finder is entitled to any brokerage or finder's fee or other commissions in
respect of such transactions based upon agreements, arrangements or
understandings made by or on behalf of such Shareholder.
4.2 Investment Representations.
(a) Such Shareholder is acquiring TBA Common Stock in the
Merger for his or her own account for investment and not with a view
to, or for sale in connection with, any distribution thereof, nor with
any present intent of distributing or selling his or her shares.
(b) Such Shareholder has reviewed the representations
concerning TBA contained in this Agreement and has made or has had the
opportunity to make inquiry concerning TBA. Such Shareholder has
sufficient knowledge and experience so as to be able to evaluate the
risks and merits of his or her investment in TBA, and he or she is able
financially to bear the risks thereof. Such Shareholder is entering
into the transactions contemplated herein based on his or her own
assessments of the merits and risks, upon his or her own experience as
an officer and/or shareholder of CPI and is not relying on any business
plan, projections, valuations or other financial information provided
to such Shareholder by TBA (other than the TBA SEC Documents). Such
Shareholder further acknowledges and agrees that TBA and Merger Sub
have made no assurances of any nature whatsoever regarding the future
operations of TBA and Merger Sub and have made no guarantees as to the
profitability of an investment therein. Shareholder further
acknowledges that he or she is an accredited investor as defined in
Rule 501 of Regulation D of the Securities Act.
(c) Such Shareholder acknowledges that Surviving Corporation
is a newly-formed entity with no history of operations.
(d) Such Shareholder understands that the certificates of TBA
Common Stock to be issued to him or her pursuant to this Agreement will
bear a restrictive legend in substantially the following form:
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The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to TBA is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates, at the
request of the holder thereof, at such time as they become registered for resale
or eligible for resale pursuant to Rule 144(k) under the Securities Act.
4.3 Authorization. This Agreement and all such other agreements and
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which each of the Shareholders is a party constitute the
valid and legally binding obligations of such Shareholder, enforceable against
such Shareholder in accordance with their respective terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
moratorium, reorganization or other laws of general application relating to or
affecting creditors' rights generally.
The execution, delivery and performance by each of the Shareholders of
this Agreement and the agreements provided for herein, and the consummation by
each of the Shareholders of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to each of
the Shareholders; (b) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (c) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of such Shareholder pursuant to, any indenture,
mortgage, deed of trust or other instrument or agreement to which such
Shareholder is a party or by which such Shareholder or any of his or her
properties is or, to the knowledge of such Shareholder, may be bound, except for
violations or conflicts which individually or in the aggregate would not have a
material adverse effect on CPI's and CII's financial condition or results of
operation.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Conduct of Business by CPI and CII Pending the Merger. Each of CPI
and CII covenants and agrees that, prior to the Effective Time, unless TBA shall
otherwise approve in writing (which approval will not be unreasonably withheld)
or as otherwise expressly contemplated or permitted by this Agreement:
(a) Each of CPI and CII shall conduct its business and
operations, including its cash management practices, the collection of
receivables, maintenance of facilities and payment of payables, only in
the usual and ordinary course of business and consistent with past
custom and practice in all material respects;
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(b) Except for the acquisition by CPI of two hundred (200)
shares of the capital stock of CII on July 1, 1998, neither CPI nor CII
shall directly or indirectly do any of the following: (i) sell, pledge,
dispose of or encumber any material portion of its assets, except in
the ordinary course of business; (ii) amend or propose to amend its
charter or bylaws; (iii) split, combine or reclassify any outstanding
shares of its capital stock, or declare, set aside or pay any dividend
or other distribution payable in cash, stock, property or otherwise
with respect to shares of its capital stock; (iv) redeem, purchase or
acquire or offer to acquire any shares of its capital stock or other
securities; (v) create any subsidiaries; or (vi) enter into or modify
any contract, agreement, commitment or arrangement with respect to any
of the matters set forth in this Section 5.1(b);
(c) Neither CPI nor CII shall (i) issue, sell, pledge or
dispose of, or agree to issue, sell, pledge or dispose of, any
additional shares of, or any options, warrants, conversion privileges
or rights of any kind to acquire any shares of, its capital; (ii)
acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization
or division or material assets thereof; (iii) incur any material
indebtedness for borrowed money, issue any debt securities or guarantee
any indebtedness to others; or (iv) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(d) Neither CPI nor CII shall (i) enter into or modify any
employment, severance or similar agreements or arrangements with, or
grant any bonus, salary increase, severance or termination pay to, any
officers or directors; or (ii) in the case of employees who are not
officers or directors, take any action other than in the ordinary
course of business and consistent in all material respects with past
practice (none of which shall be unreasonable or unusual) with respect
to the grant of any bonuses, salary increases, severance or termination
pay or with respect to any increase of benefits payable in effect on
January 1, 1998;
(e) Neither CPI nor CII shall adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employee;
(f) except as otherwise required by its charter or bylaws, by
this Agreement or by applicable law, and except in connection with the
acquisition on July 1, 1998 by CPI of two hundred (200) shares of the
capital stock of CII, neither CPI nor CII shall call any meeting of its
shareholders and, with respect to any meeting of its shareholders
called by CPI or CII, as applicable, shall provide to TBA copies of all
written materials and other information given to the shareholders prior
to the time such materials and information are given to the
shareholders;
(g) Each of CPI and CII shall use commercially reasonable
efforts to cause its current insurance (or reinsurance) policies not to
be cancelled or terminated or any of the coverage thereunder to lapse,
unless simultaneously with such termination, cancellation or
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lapse, replacement policies underwritten by insurance and reinsurance
companies of nationally recognized standing providing coverage equal to
or greater than the coverage under the cancelled, terminated or lapsed
policies for substantially similar premiums are in full force and
effect;
(h) Each of CPI and CII shall (i) use commercially reasonable
efforts to preserve intact its business organization and goodwill, keep
in full force and effect all material rights, licenses, permits and
franchises relating to its business, keep available the services of its
officers and employees as a group and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with it; (ii) report on a regular and frequent
basis, at reasonable times, to representatives of TBA regarding
operational matters and the general status of ongoing operations; (iii)
use commercially reasonable efforts not to take any action which would
render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue in any
material respect at any time prior to the Effective Time if then made;
and (iv) notify TBA of any emergency or other change in the normal
course of their respective business or in the operation of their
properties and of any tax audits, tax claims, governmental or third
party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency,
change, audit, claim, complaint, investigation or hearing would be
material, individually or in the aggregate, to the financial condition,
results of operations or business of CPI or CII, or to the ability of
CPI, CII, Merger Sub or TBA to consummate the transactions contemplated
by this Agreement;
(i) Each of CPI and CII shall deliver to TBA promptly (but in
any event within two business days) after the discovery or receipt of
notice of any default under any material agreement to which it is a
party or any other material adverse event or circumstance affecting CPI
or CII (including the filing of any material litigation against CPI or
CII or the existence of any dispute with any person or entity which
involves a reasonable likelihood of such litigation being commenced), a
certificate of the President of each of CPI or CII, as applicable,
specifying the nature and period of the existence thereof and what
actions CPI or CII has taken and proposes to take with respect thereto;
(j) Each of CPI and CII shall use commercially reasonable
efforts to maintain its assets in customary repair, order and
condition, replace in accordance with past practice its inoperable,
worn out or obsolete assets with assets of quality at least comparable
to the original quality of the assets being replaced and maintain in
all material respects its books, accounts and records in accordance
with past custom and practice as used in the preparation of the
Financial Statements;
(k) Each of CPI and CII shall use commercially reasonable
efforts to maintain in full force and effect the existence of all
material patents, inventions, trademarks, service marks, trade dress,
trade names, corporate names, copyrights, mask works, trade secrets,
licenses, computer software, data and documentation and other
proprietary rights, which it uses or owns;
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(l) Each of CPI and CII shall have positive working capital at
the Effective Time;
(m) Each of CPI and CII shall comply in all material respects
with all legal requirements and contractual obligations applicable to
its operations and business and pay all applicable taxes; and
(n) Neither CPI nor CII shall enter into any contract (except
for artist performances) requiring payments in excess of $5,000 or for
a duration of more than one (1) year.
For purposes of this Section 5.1, should TBA fail to approve in writing
any action for which its approval is required pursuant to this Section 5.1
within three (3) business days after its receipt of a written request for
approval in accordance with the notice requirements contained herein, the matter
shall be deemed approved by TBA. Notwithstanding the foregoing, in the event
"time is of the essence" with respect to a pending contract, the verbal approval
by Greg Janese of Avalon Entertainment Group, Inc., a wholly-owned subsidiary of
TBA, will be sufficient to satisfy this requirement provided a facsimile of the
contract to be approved has been previously sent to Thomas Miserendino of TBA.
Notwithstanding any other provision of this Agreement, the amendment or
modification of the Disclosure Schedule by CPI or CII after the time TBA has
signed this Agreement shall have no effect with respect to the agreements,
covenants and obligations of CPI, CII, TBA and Merger Sub pursuant to this
Section 5.1 and Sections 7.2 and 7.3 of this Agreement.
5.2 No Other Bids for CPI. CPI shall not, nor either authorize or
knowingly permit any officer, director, shareholder or employee of, or any
investment banker, attorney, accountant or other representative retained by, CPI
to, make, solicit, initiate, encourage or respond to a submission of a proposal
or offer from any person or entity (other than TBA) relating to any liquidation,
dissolution, recapitalization, merger, consolidation or acquisition or purchase
of all or a material portion of the assets of, or any equity interest in, CPI or
CII or other similar transaction or business combination involving CPI or CII
(hereinafter collectively referred to as a "Third Party Offer"). Neither CPI nor
CII will participate in any negotiations regarding, or furnish to any person or
entity (other than TBA) any information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any person or entity (other than TBA) to do or seek any of
the foregoing. Each of CPI and CII will immediately cease and cause to be
terminated any contacts or negotiations currently pending with respect to Third
Party Offers, if any, and shall use its best efforts to cause all reports,
material, data and other written information heretofore disseminated by it or on
its behalf by any such officer, director or employee or any investment banker,
attorney, accountant or other representative in connection with any such Third
Party Offer or any inquiry or proposal related thereto to be promptly returned
to it. Each of CPI and CII shall promptly notify TBA of the receipt of any Third
Party Offer or any inquiry or communication which might reasonably be expected
to lead to any Third Party Offer and will provide TBA with all information that
TBA may reasonably request with respect thereto.
5.3 Lines of Business and Capital Expenditures. Unless approved in
writing by TBA, each of CPI and CII covenants that it will not (a) enter into
any new material line of business;
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(b) change its investment, liability management and other material policies in
any material respect; or (c) incur or commit to any capital expenditures,
obligations or liabilities in connection therewith.
5.4 Accounting Methods. Unless approved in writing by TBA, each of CPI
and CII covenants that it will not change its methods of accounting in effect at
December 31, 1997, except as required by changes in generally accepted
accounting principles as concurred in by CPI's independent accountants.
Notwithstanding the provisions of the preceding sentence, each of CPI and CII
will, at their expense, have their financial statements converted to accrual
basis statements prepared in accordance with generally accepted accounting
principles for the fiscal years ended 1996 and 1997 and for the quarter ended
March 31, 1998. Expenses incurred by CPI and CII to comply with such conversion
and any accounting and legal fees incurred in connection with the transactions
contemplated by this Agreement, may be expensed in 1998, prior to Closing, up to
the amount by which actual consolidated stockholders' equity of CPI and CII as
of December 31, 1997, exceeds $245,000.
5.5 Other Actions. Unless approved in writing by TBA, each of CPI and
CII covenants that it shall not take any action that would or might reasonably
be expected to result in any of the representations and warranties of CPI and
CII set forth in this Agreement becoming untrue in any material respect after
the date hereof or any of the conditions to the Merger set forth in Article 7 of
this Agreement not being satisfied.
5.6 Conduct of Business by Merger Sub. Prior to the Effective Time, TBA
covenants that Merger Sub will not conduct any business activities and will not
incur any material liabilities.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Action of Shareholders. CPI shall take all action in accordance
with the IBCA and its charter and bylaws to cause its shareholders promptly to
consider and vote upon this Agreement and the Plan of Merger and the
transactions contemplated hereby and thereby, and shall take all other action
necessary or, in the opinion of TBA, helpful, to secure a vote of CPI's
shareholders in favor of adoption of this Agreement and the Plan of Merger and
the transactions contemplated hereby and thereby.
6.2 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the other agreements
contemplated hereby and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses. All costs and expenses incurred by
TBA and Merger Sub in connection with this Agreement shall be borne by TBA.
6.3 Notification of Certain Matters. Each party shall give prompt
notice to the others of (a) the occurrence or failure to occur of any event,
which occurrence or failure would result in any
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Material Adverse Breach (as defined in Section 10.8 of this Agreement), and (b)
any failure of such party, or any officer, director, employee or agent thereof,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied hereunder.
6.4 Access to Information. From the date hereof to the Effective Time,
each of CPI, CII, Merger Sub and TBA shall, and shall cause its respective
officers, directors, employees and agents to, afford the officers, employees,
agents and representatives of the other parties hereto (including the
Shareholders) complete access at all reasonable times to such officers,
employees and agents and its properties, books and records (all such access to
be arranged through the respective officers of the parties hereto so as not to
be unreasonably disruptive to any of the parties), and shall furnish each of
such parties all financial, operating, personnel, compensation, tax and other
data and information as such parties, through their respective officers,
employees, agents or representatives, may request.
6.5 Shareholder Claims. CPI shall not settle or compromise any claim
brought by any present, former or purported holder of any securities of CPI or
CII in connection with the Merger prior to the Effective Time without the prior
written consent of TBA.
6.6 Taking of Necessary Action. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees, subject to applicable laws,
to use all reasonable efforts promptly to take or cause to be taken all action
and promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Without limiting the foregoing,
CPI, CII, Merger Sub and TBA shall use their best efforts to maintain and make
all filings with and obtain all consents, approvals, and/or assurances from
third parties and appropriate governmental agencies and authorities necessary
or, in the opinion of CPI, CII or TBA, advisable for the consummation of the
transactions contemplated by this Agreement. Each party shall cooperate with the
other in good faith to help the other satisfy its obligations in this Section
6.6.
6.7 Notice of Changes. Each of CPI, CII and TBA shall each promptly
inform the other in writing if any change shall have occurred or shall have been
threatened (or any development shall have occurred or shall have been threatened
involving a prospective change) in its financial condition, results of
operations or business that is or may reasonably be expected to have a material
adverse effect on its financial condition, results of operations or business.
6.8 Press Releases. CPI and TBA shall consult with each other as to the
form and substance of any press release or other public disclosure of matters
related to this Agreement or any of the transactions contemplated hereby;
provided, however, that nothing in this Section 6.8 shall be deemed to prohibit
any party hereto from making any disclosure that is required to fulfill such
party's disclosure obligations imposed by law, including, without limitation,
federal securities laws.
6.9 Employee Matters. TBA and CPI agree that all employees of CPI and
CII immediately prior to the Effective Time shall be employed by the Surviving
Corporation and CII, as applicable, immediately after the Effective Time at such
level of pay which is mutually agreed
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upon between each employee and TBA, it being understood that TBA shall not have
any obligations to continue employing such employees for any length of time or
at any level of pay for any length of time thereafter, except as set forth in
binding agreements of employment. In the event the CPI Employee Benefit Plans
are not continued after the Effective Time, CPI employees will be eligible to
participate in TBA's comparable employee benefit plans.
ARTICLE 7
CONDITIONS TO MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) this Agreement and the Plan of Merger shall have been
adopted and approved by the Board of Directors of CPI and by the vote
of the shareholders of CPI holding at least a majority of the
outstanding shares of CPI;
(b) no order shall have been entered and remain in effect in
any action or proceeding before any foreign, federal or state court or
governmental agency or other foreign, federal or state regulatory or
administrative agency or commission that would prevent or make illegal
the consummation of the transactions contemplated hereby; and
(c) the Shareholders shall have provided TBA with written
agreements not to sell, assign, convey, encumber or otherwise transfer
shares of TBA Common Stock acquired pursuant to this Agreement for a
period of one year following the Closing Date, provided however, the
Shareholders shall be entitled to assign and transfer all or a portion
of their TBA Common Stock to employees of CPI or CII provided such
employees enter into written agreements not to sell, convey, encumber
or otherwise transfer such shares for the remainder of such one-year
period.
7.2 Additional Conditions to TBA's and Merger Sub's Obligations. The
obligations of TBA and Merger Sub to effect the Merger are subject to the
satisfaction of the following conditions on or before the Effective Time:
(a) Except for breaches which do not constitute a Material
Adverse Breach (as defined in Section 10.8 of this Agreement) by CPI,
CII or the Shareholders, the representations and warranties set forth
in Articles 3 and 4 of this Agreement (without regard to any amendments
or modifications of the Disclosure Schedule by CPI after the time TBA
has signed this Agreement) will be true and correct as of the date
hereof and at and as of the Effective Time, as though then made and as
though the Effective Time were substituted for the date of this
Agreement throughout such representations and warranties and with
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appropriate modifications of tense with respect to representations and
warranties made as of a specified date;
(b) Each of CPI and CII shall have performed, in all material
respects, each obligation and agreement and complied, in all material
respects, with each covenant to be performed and complied with by it
under this Agreement prior to the Effective Time, including, without
limitation, all of its agreements contained in Article 6 of this
Agreement;
(c) Except as otherwise disclosed on the Disclosure Schedule,
all consents by governmental or regulatory agencies or otherwise that
are required for the consummation of the transactions contemplated
hereby or that are required for TBA to own, operate or control CPI or
any portion of the assets of CPI or to prevent a breach of or a default
under or a termination of any agreement material to CPI or CII to which
CPI or CII is a party or to which any material portion of the assets of
CPI or CII is subject, will have been obtained;
(d) No action or proceeding before any court or governmental
body will be pending or threatened wherein a judgment, decree or order
would prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded or which might
adversely affect the right of TBA to own, operate or control CPI or any
material portion of the assets of CPI or the value of the assets of
CPI;
(e) On or prior to the Effective Time, each of the
Shareholders shall have entered into employment agreements with CPI or
CII, as applicable, substantially in the form of Exhibit D attached
hereto dated as of the Closing Date (the "Employment Agreements") and
each Shareholder shall have terminated any employment, compensation,
consulting, fee, services or other similar agreements payable to him or
her, or to his or her affiliated entities, if any;
(f) At the Effective Time, CPI will have delivered to TBA and
Merger Sub the following:
(i) a certificate executed on behalf of CPI by its
President stating that the conditions set forth in Sections
7.2(a) through 7.2(d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted
by CPI's Board of Directors recommending the Merger and the
Plan of Merger, authorizing the execution, delivery and
performance of this Agreement, the Plan of Merger, and the
other agreements contemplated hereby and thereby;
(iii) certified copies of the resolutions duly
adopted by CPI's shareholders approving the Merger and the
Plan of Merger and authorizing the execution, delivery and
performance of this Agreement and the Plan of Merger;
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(iv) good standing or comparable certificates for
each of CPI and CII from the jurisdiction of its incorporation
and from every jurisdiction where a failure to be qualified or
licensed would have a material adverse effect on the
consolidated financial condition, results of operations or
business of CPI and CII, dated not earlier than ten (10) days
prior to the Effective Time;
(v) copies of all third party and governmental
consents (or other evidence satisfactory to TBA) that each of
CPI and CII is required to obtain in order to effect the
transactions contemplated by this Agreement;
(vi) a copy of each of CPI's and CII's charter
certified by the Secretary of State of the State of Illinois;
(vii) two copies of the Plan of Merger executed by
the President of CPI;
(viii) certificates evidencing the shares of CPI
Common Stock owned by the Shareholders for cancellation in
connection with the Merger; and
(ix) such other documents as TBA or Merger Sub may
reasonably request in connection with the transactions
contemplated hereby;
(g) All proceedings to be taken by CPI in connection with the
consummation of the Merger at the Effective Time and the other
transactions contemplated hereby and all documents required to be
delivered by CPI and CII in connection with the Merger and the other
transactions contemplated hereby will be reasonably satisfactory in
form and substance to TBA and Merger Sub.
7.3 Additional Conditions to the Obligations of CPI and the
Shareholders. The obligations of CPI and the Shareholders to effect the Merger
are subject to the satisfaction of the following conditions on or before the
Effective Time;
(a) Except for breaches which do not constitute a Material
Adverse Breach (as defined in Section 10.8 of this Agreement) by TBA
and Merger Sub, the representations and warranties set forth in Article
2 of this Agreement will be true and correct as of the date hereof and
at and as of the Effective Time, as though then made and as though the
Effective Time were substituted for the date of this Agreement
throughout such representations and warranties and with appropriate
modifications of tense with respect to representations and warranties
made as of a specified date;
(b) TBA and Merger Sub shall have performed, in all material
respects, each obligation and agreement and complied, in all material
respects, with each covenant required to be performed and complied with
by them under this Agreement prior to the Effective Time;
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(c) No action or proceeding before any court or government
body will be pending or threatened wherein a judgment, decree or order
would prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded;
(d) At the Effective Time, TBA and Merger Sub will have
delivered to CPI and the Shareholders the following:
(i) a certificate executed on behalf of each of TBA
and Merger Sub by its Chief Executive Officer stating that the
conditions set forth in Sections 7.3(a) through (c) of this
Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted
by TBA's and Merger Sub's respective boards of directors
recommending the Merger and the Plan of Merger and authorizing
the execution, delivery and performance of this Agreement and
the Plan of Merger;
(iii) certified copies of the resolutions duly
adopted by Merger Sub's sole shareholder approving the Merger
and the Plan of Merger and authorizing the execution, delivery
and performance of this Agreement and the Plan of Merger;
(iv) good standing certificates for Merger Sub and
for TBA from the Secretary of State of the State of Delaware
each dated not earlier than ten (10) days prior to the
Effective Time;
(v) copies of all third party and governmental or
regulatory consents (or other evidence satisfactory to CPI)
that TBA and Merger Sub are required to obtain in order to
effect the transactions contemplated by this Agreement;
(vi) copies of Merger Sub's and TBA's charter
certified by the Secretary of State of the State of Delaware;
(vii) two copies of the Plan of Merger executed by
the appropriate officer of Merger Sub; and
(viii) such other documents as CPI or the
Shareholders may reasonably request in connection with the
transactions contemplated hereby;
(e) All proceedings to be taken by TBA and Merger Sub in
connection with the consummation of the Merger at the effective Time
and all documents required to be delivered by TBA and Merger Sub in
connection with the transactions contemplated hereby will be reasonably
satisfactory in form and substance to CPI and the Shareholders;
(f) Except as otherwise disclosed to CPI and the Shareholders,
all consents by governmental or regulatory agencies or otherwise that
are required for the consummation of
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the transactions contemplated hereby or that are required for TBA to
own, operate or control CPI or any portion of the assets of CPI and CII
or to prevent a breach of or a default under or a termination of any
agreement material to CPI and CII to which CPI and CII is a party or to
which any material portion of the assets of CPI and CII is subject,
will have been obtained; and
(g) The Employment Agreements will have been executed and
delivered by the Effective Time and there will not have been any
changes, amendments or modifications to, or terminations of, such
agreements.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether prior to or after approval by the Shareholders:
(a) by mutual consent of the Boards of Directors of TBA,
Merger Sub and CPI;
(b) by either TBA or CPI if the Merger shall not have been
consummated by July 31, 1998;
(c) by TBA if there has been a misrepresentation or breach of
a representation or warranty or a failure to perform a covenant on the
part of CPI, CII or the Shareholders with respect to their
representations, warranties and covenants set forth in this Agreement
and any such breach or failure constitutes a Material Adverse Breach;
and
(d) by CPI if there has been a misrepresentation or a breach
of a representation or warranty or a failure to perform a covenant on
the part of TBA or Merger Sub with respect to their representations,
warranties and covenants set forth in this Agreement and any such
breach or failure constitutes a Material Adverse Breach.
8.2 Amendment. This Agreement may not be amended except by an
instrument signed by each of the parties hereto.
8.3 Waiver. At any time prior to the Effective Time, (a) TBA may (i)
extend the time for the performance of any of the obligations or other acts of
CPI and/or the Shareholders or (ii) waive compliance with any of the agreements
of CPI and/or the Shareholders or with any conditions to its own obligations,
and (b) CPI and/or the Shareholders may (i) extend the time for the performance
of any of the obligations or other acts of TBA and/or Merger Sub or (ii) waive
compliance with any of the agreements of TBA and/or Merger Sub or with any
conditions to their own obligations in each case only to the extent such
obligations, agreements and conditions are intended for their benefit.
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8.4 Effect of Termination. If this Agreement is terminated as provided
in Section 8.1, this Agreement shall become void and there shall be no liability
or further obligation on the part of any party hereto or any of their respective
shareholders, officers or directors, except (a) that nothing herein and no
termination pursuant hereto will relieve any party from liability for any breach
of this Agreement and (b) the provisions of Section 6.8 and any confidentiality
agreements by and between TBA and CPI will survive such termination.
ARTICLE 9
INDEMNIFICATION
9.1 By TBA, Merger Sub, CPI and the Shareholders. TBA and Merger Sub on
the one hand and CPI and the Shareholders on the other hand each hereby agree to
indemnify and hold harmless the other against all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, settlement costs
and any legal, accounting or other expenses for defending any actions or
threatened actions) (collectively "Damages") reasonably incurred by TBA, Merger
Sub, CPI and the Shareholders in connection with each and all of the matters set
forth below to the extent they constitute a Material Adverse Breach.
(a) Any breach by the Indemnifying Party (as defined below) of
any representation or warranty made by such Indemnifying Party in this
Agreement;
(b) Any breach of any covenant, agreement or obligation of the
Indemnifying Party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the Indemnifying Party pursuant to
this Agreement or in connection with the transactions contemplated by
this Agreement.
The Shareholders severally, in proportion to their respective interests
in the Merger Consideration, agree to indemnify TBA for any breaches of any
representation or warranty covenant, agreement or obligation of CPI made or
contained, respectively, in this Agreement or any other agreement, instrument or
document contemplated by this Agreement, or any misrepresentation by CPI, as
described in (a) through (c) above to the extent they constitute a Material
Adverse Breach.
9.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without
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the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld, unless suit shall have been instituted against it and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided in Section 9.3 of this Agreement in which case the
Indemnified Party may settle or compromise such claim without the prior consent
of the Indemnifying Party. If the Indemnified Party fails to give prompt notice
of any claim and such failure prejudices the Indemnifying Party's position or
its ability to defend the claim, the Indemnifying Party's liability to the
Indemnified Party shall be reduced by the amount, if any, demonstrated to be
directly attributable to the failure to give such notice in a timely manner.
9.3 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
9.4 Payment of Indemnification Obligation. All indemnification by TBA,
CPI or a Shareholder hereunder shall be effected by payment by wire transfer or
delivery of a cashier's or certified check in the amount of the indemnification
liability.
ARTICLE 10
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The representations
and warranties set forth in this Agreement shall survive the consummation of the
Merger for a period of one (1) year. Notwithstanding the above, claims resulting
from any breach of any representation or warranty concerning tax or CPI Employee
Benefit Plan matters shall expire one hundred twenty (120) days after the
expiration of any applicable statute of limitations. Any litigation arising out
of or attributable to a breach of any representation, warranty or covenant
contained herein must be commenced within the applicable period described above.
If not commenced within the applicable
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period, any such claim will thereafter conclusively be deemed to be waived
regardless of when such claim is or should have been discovered.
10.2 Effect of Due Diligence. No investigation by TBA or CPI into the
business, operations and condition of the other shall diminish in any way the
effect of any representations or warranties made by either party in this
Agreement or shall relieve such party of any of its obligations under this
Agreement.
10.3 Specific Performance. TBA, CPI and the Shareholders understand and
agree that the covenants and undertakings on each of their parts herein
contained are uniquely related to the desire of TBA, CPI and the Shareholders to
consummate the Merger, that the Merger is a unique business opportunity for CPI,
TBA, Merger Sub and the Shareholders and that, although monetary damages may be
available for the breach of such covenants and undertakings, monetary damages
would be an inadequate remedy therefor. Accordingly, CPI, TBA, Merger Sub and
the Shareholders agree that TBA and Merger Sub shall be entitled to obtain
specific performance by CPI and the Shareholders of every such covenant and
undertaking contained herein to be performed by CPI and the Shareholders and
that CPI and the Shareholders shall be entitled to obtain specific performance
from TBA and Merger Sub of each and every covenant and undertaking herein
contained to be observed or performed by TBA or Merger Sub.
10.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
sent by telex, telecopy, facsimile or overnight courier, or mailed by registered
or certified mail (postage prepaid and return receipt requested), to the party
to whom the same is so delivered, sent or mailed at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) if to TBA or Merger Sub:
TBA Entertainment Corporation
402 Heritage Plantation Way
Hickory Valley, Tennessee 38042
Attention: Thomas J. Weaver III
Telecopy: (901) 764-6107
with a copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Randall E. Roberts, Esq.
Telecopy: (214) 745-5390
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(b) if to CPI, CII or the Shareholders:
Corporate Productions, Inc.
1100 Jorie Blvd.
Oak Brook, Illinois 60523
Telecopy: (630) 990-0457
with a copy to:
Loss, Pavone & Orel
2311 West 22nd Street
Suite 315
Oak Brook, Illinois 60523
Attention: Louis V. Pavone, Esq.
Telecopy: (630) 572-2299
Notices delivered personally or by telex, telecopy or facsimile shall be deemed
delivered as of actual receipt, mailed notices shall be deemed delivered three
days after mailing and overnight courier notices shall be deemed delivered one
day after the date of sending.
10.5 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
10.6 Severability. If any term, provision, covenant or Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated and the parties shall negotiate in good faith to modify
the Agreement to preserve each party's anticipated benefits under the Agreement.
10.7 Miscellaneous. This Agreement (together with all other documents
and instruments referred to herein): (a) except for any confidentiality
agreements executed in connection with the transactions contemplated hereby,
constitutes the entire agreement and supersedes all other prior agreements and
undertakings, both written and oral, among the parties with respect to the
subject matter hereof, including, without limitation, the Letter of Intent dated
May 7, 1998 among TBA and the Shareholders; (b) except as expressly set forth
herein, is not intended to confer upon any other person any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise, except
that TBA and Merger Sub may assign all or any portion of their rights under this
Agreement to any wholly owned subsidiary but no such assignment shall relieve
TBA and Merger Sub of their obligations hereunder, and except that this
Agreement may be assigned by operation of law to any corporation with or into
which TBA may be merged; and (d) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Illinois, without giving effect to the principles of conflict of laws thereof.
Courts within the State of Illinois will have jurisdiction over any and all
disputes between the parties hereto, whether in law or equity, arising
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out of or relating to this Agreement. The parties consent to and agree to submit
to the jurisdiction of such courts. This Agreement may be executed in two or
more counterparts which together shall constitute a single agreement.
10.8 Material Adverse Breach. Breaches of representations, warranties
and covenants by either party hereto which (a) individually results in damages
to the other party in excess of $25,000 or (b) in the aggregate result in
damages to the other party in excess of $50,000, shall constitute, for purposes
of this Agreement, a "Material Adverse Breach."
10.9 Limitation of Liability. Neither TBA, CPI, CII, the Shareholders
nor Merger Sub shall have any liability for breach of the representations,
warranties and covenants made by them and contained in this Agreement unless
such breach is a Material Adverse Breach.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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MERGER AGREEMENT
Signature Page
IN WITNESS WHEREOF, TBA, Merger Sub, the Shareholders and CPI have
caused this Agreement to be executed on the date first written above by their
respective officers duly authorized.
TBA ENTERTAINMENT CORPORATION
By:
--------------------------------
Thomas Jackson Weaver III,
Chief Executive Officer
CPI ACQUISITION CORP., INC.
By:
--------------------------------
Thomas Jackson Weaver III,
President
CORPORATE PRODUCTIONS, INC.
By:
--------------------------------
Richard S. Smith, President
------------------------------------
RICHARD S. SMITH
------------------------------------
RICHARD W. PERRY
------------------------------------
PAMELA J. FURMANEK
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<PAGE> 42
Joined in, consented to and
acknowledged by:
Corporate Incentives, Inc.
By:
-----------------------------------
Pamela J. Furmanek, President
-38-
<PAGE> 43
SCHEDULE 1
DISCLOSURE SCHEDULE
<PAGE> 44
SCHEDULE 1.5
ALLOCATION OF MERGER CONSIDERATION AMONG SHAREHOLDERS
<TABLE>
<CAPTION>
Common Stock Cash Note
Portion Portion Portion Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Richard S. Smith $1,161,111.20 $ 841,806.00 $ 899,861.18 $2,902,778.38
Richard W. Perry 738,888.80 535,694.00 572,638.82 1,847,221.62
Pamela J. Furmanek 100,000.00 72,500.00 77,500.00 250,000.00
------------- ------------- ------------- -------------
$2,000,000.00 $1,450,000.00 $1,550,000.00 $5,000,000.00
</TABLE>
<PAGE> 45
ANNEX I
LIST OF TBA SEC DOCUMENTS
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997;
2. Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998; and
3. Current Report on Form 8-K filed May 22, 1998, as amended by Form 8-K/A
filed May 26, 1998.
<PAGE> 46
ANNEX II
SHAREHOLDERS OF CORPORATE PRODUCTIONS, INC.
<TABLE>
<CAPTION>
Number of Certificate(s)
Name Address Shares Number Date
---- ------- ------ ------ ----
<S> <C> <C> <C> <C>
Richard S. Smith 1100 Jorie Blvd. 550 6 10/25/90
Oak Brook, Illinois 60521
Richard W. Perry 1100 Jorie Blvd. 350 7 10/25/90
Oak Brook, Illinois 60521
Pamela J. Furmanek 1100 Jorie Blvd. 47.36842 8 07/01/98
Oak Brook, Illinois 60521
</TABLE>
SHAREHOLDER OF CORPORATE INCENTIVES, INC.
<TABLE>
<CAPTION>
Number of Certificate(s)
Name Address Shares Number Date
---- ------- --------- -------------- -------
<S> <C> <C> <C> <C>
Corporate Productions, Inc. 1100 Jorie Blvd. 800 2 9/18/87
Oak Brook, Illinois 60521
Corporate Productions, Inc. 1100 Jorie Blvd. 200 3 7/01/98
Oak Brook, Illinois 60521
</TABLE>
<PAGE> 47
EXHIBIT A
FORM OF PLAN OF MERGER
<PAGE> 48
EXHIBIT B
FORM OF PROMISSORY NOTES
<PAGE> 49
EXHIBIT C
FORM OF PLEDGE AGREEMENT
<PAGE> 50
EXHIBIT D
FORM OF EMPLOYMENT AGREEMENTS
<PAGE> 1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
among
TBA ENTERTAINMENT CORPORATION,
KENNETH C. KOZIOL
and
IMAGE ENTERTAINMENT PRODUCTIONS, INC.
September 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - PURCHASE AND SALE OF SHARES.................................................1
1.1 Purchase and Sale.....................................................1
1.2 Purchase Price........................................................1
1.3 Registration Rights...................................................2
1.4 Closing...............................................................2
1.5 Further Action........................................................3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF TBA.......................................3
2.1 Organization and Qualification........................................3
2.2 Authority Relative to this Agreement..................................3
2.3 TBA Common Stock and TBA SEC Documents................................3
2.4 Certain Corporate Matters.............................................4
2.5 Broker's Fees.........................................................4
2.6 Disclosure............................................................4
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF IMAGE.....................................5
3.1 Organization, Qualification and Corporate Power.......................5
3.2 Capitalization........................................................5
3.3 Authorization of Transaction..........................................6
3.4 Subsidiaries..........................................................6
3.5 Financial Statements..................................................6
3.6 Events Subsequent to Financial Statements.............................7
3.7 Undisclosed Liabilities...............................................8
3.8 Tax Returns and Audits................................................8
3.9 Books and Records....................................................10
3.10 Real Property........................................................10
3.11 Tangible Property....................................................10
3.12 Intellectual Property................................................10
3.13 Contracts............................................................12
3.14 Suppliers and Customers..............................................13
3.15 Notes; Accounts Receivable...........................................13
3.16 Powers of Attorney...................................................13
3.17 Condition of Property................................................13
3.18 Insurance............................................................14
3.19 Litigation...........................................................14
3.20 Employees............................................................14
3.21 Employee Benefit Plans...............................................14
3.22 Guarantees...........................................................15
3.23 Legal Compliance.....................................................15
3.24 Certain Business Relationships.......................................16
3.25 Broker's Fees........................................................16
3.26 Environment, Health and Safety.......................................16
3.27 Disclosure...........................................................16
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 4 - Representations and Warranties of the Shareholder..........................17
4.1 Representations Regarding Shares of Image............................17
4.2 Investment Representations...........................................17
4.3 Authorization........................................................18
ARTICLE 5 - Conduct of Business Pending The Closing....................................18
5.1 Conduct of Business by Image Pending the Closing.....................18
5.2 No Other Bids for Image..............................................21
5.3 Lines of Business and Capital Expenditures...........................22
5.4 Accounting Methods...................................................22
5.5 Other Actions........................................................22
ARTICLE 6 - Additional Agreements......................................................22
6.1 Expenses.............................................................22
6.2 Notification of Certain Matters......................................22
6.3 Access to Information................................................22
6.4 Taking of Necessary Action...........................................23
6.5 Notice of Changes....................................................23
6.6 Press Releases.......................................................23
6.7 Employee Matters.....................................................23
6.8 Tax Matters..........................................................23
6.9 Section 338(h)(10) Election..........................................24
6.10 Collection of Receivables............................................24
ARTICLE 7 - Conditions to Closing......................................................24
7.1 Conditions to Obligations of Each Party to Effect the Closing........24
7.2 Additional Conditions to TBA's Obligations...........................25
7.3 Additional Conditions to the Obligations of Image and Shareholder....26
ARTICLE 8 - Termination, Amendment and Waiver..........................................28
8.1 Termination..........................................................28
8.2 Amendment............................................................28
8.3 Waiver...............................................................28
8.4 Effect of Termination................................................29
ARTICLE 9 - Indemnification............................................................29
9.1 By TBA, Image and Shareholder........................................29
9.2 Claims for Indemnification...........................................29
9.3 Defense by Indemnifying Party........................................30
9.4 Payment of Indemnification Obligation................................30
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 10 - General Provisions........................................................30
10.1 Survival of Representations and Warranties...........................30
10.2 Effect of Due Diligence..............................................30
10.3 Specific Performance.................................................31
10.4 Notices..............................................................31
10.5 Interpretation.......................................................32
10.6 Severability.........................................................32
10.7 Miscellaneous........................................................32
10.8 Material Adverse Breach..............................................33
10.9 Limitation of Liability..............................................33
</TABLE>
SCHEDULE 1 Disclosure Schedule
ANNEX I List of TBA SEC Documents
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Employment Agreements
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of September 15, 1998 (this
"Agreement"), is by and among TBA Entertainment Corporation, a Delaware
corporation ("TBA"), Kenneth C. Koziol, an individual and sole shareholder of
Image (as defined below) ("Koziol" or "Shareholder"), and Image Entertainment
Productions, Inc., an Arizona corporation ("Image").
RECITALS
WHEREAS, Shareholder owns all of the issued and outstanding common
stock (the "Shares") of Image;
WHEREAS, TBA, Image and Shareholder each desire for TBA to acquire (the
"Acquisition") all of the Shares pursuant to the terms and conditions of this
Agreement, as a result of which Image will become a wholly owned subsidiary of
TBA;
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Shareholder agrees to sell, assign, transfer and deliver to TBA at
the Closing (as hereinafter defined), and TBA agrees to purchase from
Shareholder at the Closing, the Shares, free and clear of any and all charges,
claims, community property interests, equitable interests, mortgages, liens,
security interests, pledges, charges, rights of assignment, rights of purchase,
rights of first offer or refusal, options, warrants or encumbrances of any
nature (collectively, "Liens").
1.2 Purchase Price. The aggregate purchase price (the "Purchase Price")
for the Shares shall be equal to One Million Three Hundred Seventy-Five Thousand
Dollars ($1,375,000), subject to possible adjustment as provided in the Notes
(hereinafter defined), and shall be paid or delivered to Shareholder at the
Closing as follows:
(a) TBA shall issue and deliver to Shareholder a certificate
registered in Shareholder's name representing the number of fully-paid
and nonassessable shares of TBA common stock, $.001 par value per share
("TBA Common Stock"), equal to Two Hundred Thirty Thousand Dollars
($230,000) divided by the Average Price (as defined below) (the "Common
Stock Portion");
(b) TBA shall deliver to Shareholder by wire transfer to one
or more accounts designated in writing by Shareholder to TBA prior to
the Closing cash in an amount equal to Six Hundred Eighty Seven
Thousand Dollars ($687,000) (the "Cash Portion"); and
<PAGE> 6
(c) TBA shall deliver to Shareholder a promissory note (the
"Note") in the initial aggregate principal amount of Four Hundred Fifty
Eight Thousand Dollars ($458,000) (the "Note Portion"), subject to
possible adjustment as set forth in the Note, substantially in the form
of Exhibit A attached hereto (the "Form of Note"). Any adjustment to
the Purchase Price hereunder shall be accomplished only through
adjustment to payments under the Note as set forth in the Note, and
neither the Common Stock Portion nor the Cash Portion of the Purchase
Price shall be adjusted subsequent to Closing.
(d) The term "Average Price" shall mean the average of the
closing sale prices of TBA Common Stock reported by The Nasdaq Stock
Market for each of the five (5) consecutive trading days ending five
(5) trading days preceding the Closing Date.
(e) No fraction of a share of TBA Common Stock will be issued
to Shareholder but in lieu thereof Shareholder will be paid an amount
in cash equal to the product of (A) the number of fractional shares to
which Shareholder is otherwise entitled and (B) the Average Price. No
interest shall be paid on such amount.
1.3 Registration Rights. Shareholder and TBA shall execute a
Registration Rights Agreement (herein so called) in the form attached hereto as
Exhibit B with respect to the shares of TBA Common Stock issued to Shareholder
pursuant to Section 1.2(a) and Shareholder shall have the registration and other
rights provided in such Registration Rights Agreement, which Registration Rights
Agreement is hereby incorporated herein by this reference as if set forth in
full in this Agreement. The parties hereto stipulate and agree that the
execution and delivery of the Registration Rights Agreement is intended to
provide Shareholder with flexibility in liquidating his investment in TBA Common
Stock and does not evidence any present intention to dispose of such investment.
1.4 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Winstead Sechrest &
Minick P.C., 1201 Elm Street, 5400 Renaissance Tower, Dallas, Texas, on
September 15, 1998, or as soon as reasonably practicable thereafter as the
conditions set forth in Article 7 have been satisfied or waived (the "Closing
Date"). At the Closing:
(a) TBA will (i) pay to Shareholder the Cash Portion by wire
transfer of immediately available funds, (ii) issue and deliver to
Shareholder the Common Stock Portion, (iii) execute and deliver to
Shareholder the Note, and (iv) execute and deliver to Shareholder such
other documents and instruments required to be executed and delivered
by TBA under the terms of this Agreement; and
(b) Shareholder will deliver to TBA (i) certificates
representing the Shares, duly endorsed, and (ii) such other documents
and instruments required to be delivered by Shareholder under the terms
of this Agreement or reasonably requested by TBA.
1.5 Further Action. If, at any time after the Closing Date, any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest TBA with full right, title and
-2-
<PAGE> 7
possession and all rights, privileges and immunities with respect to any or all
of the Shares, Shareholder shall take all such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TBA
TBA hereby represents and warrants to Image and Shareholder as follows:
2.1 Organization and Qualification. TBA has been duly incorporated and
is validly existing as a corporation and in good standing under the laws of the
State of Delaware and has the requisite corporate power to carry on its business
as now conducted.
2.2 Authority Relative to this Agreement. TBA has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by TBA and
the consummation by TBA of the transactions contemplated hereby have been duly
authorized by the Board of Directors of TBA, and no other corporate proceedings
on the part of TBA are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by TBA and constitutes the valid and binding obligation of TBA,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
None of the execution and delivery of this Agreement by TBA, the performance by
TBA of its obligations hereunder or the consummation of the transactions
contemplated hereby by TBA will require any consent, approval or notice under,
or violate, breach, be in conflict with or constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default) under,
or permit the termination of, or result in the creation or imposition of any
lien upon any properties, assets or business of TBA under any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit, authorization,
license, contract, instrument or other agreement or commitment or any order,
judgment or decree to which TBA is a party or by which TBA or any of its assets
or properties is bound or encumbered, except those that have already been given,
obtained or filed. Other than filings under the Securities Act of 1933, as
amended (the "Securities Act"), if any, necessary to perfect an exemption from
registration under the Securities Act, filings made with the National
Association of Securities Dealers, Inc. to list the shares of TBA Common Stock
to be issued in connection with the Acquisition in the National Market System of
The Nasdaq Stock Market and filings to be made with state securities regulatory
agencies, no authorization, consent or approval of, or filing with, any public
body, court or authority is necessary on the part of TBA for the consummation by
TBA of the transactions contemplated by this Agreement.
2.3 TBA Common Stock and TBA SEC Documents. The TBA Common Stock is
listed for trading on the National Market System of The Nasdaq Stock Market. TBA
has furnished Image and Shareholder with a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
TBA with the Securities and Exchange Commission ("SEC")
-3-
<PAGE> 8
since January 1, 1998 (the "TBA SEC Documents"), which are all the documents
(other than preliminary materials) that TBA was required to file with the SEC
since such date and all of which documents are listed on Annex I attached
hereto. As of its date, each TBA SEC Document was in compliance, in all material
respects, with the requirements of its form. The financial statements of TBA
included in the TBA SEC Documents complied, at the time of filing with the SEC,
as to form, in all material respects, with applicable accounting requirements
and published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles, applied on
a consistent basis during the periods involved, and fairly presented, in all
material respects (subject, in the case of unaudited statements, to normal,
recurring year-end audit adjustments) the financial position of TBA as and at
the dates thereof and the results of its operations and cash flows for the
periods then ended.
2.4 Certain Corporate Matters. TBA is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which the
ownership of its properties, the employment of its personnel or the conduct of
its business requires it to be so qualified, other than in such jurisdictions
where the failure to so qualify would not, individually or in the aggregate,
have a materially adverse effect on TBA and its subsidiaries, taken as a whole.
TBA has full corporate power and authority and all authorizations, licenses and
permits necessary to carry on the business in which it engages or in which it
proposes presently to engage and to own and use the properties owned and used by
it. TBA has delivered to Image and Shareholder true, accurate and complete
copies of its charter documents and bylaws which reflect all amendments made
thereto at any time prior to the date of this Agreement. The minute books
containing the records of meetings of the shareholders and board of directors of
TBA are accurate and complete in all material respects. All material corporate
actions taken by TBA since its date of incorporation have been duly authorized
and/or subsequently ratified, as necessary. TBA is not in default under or in
violation of any material provision of its charter or bylaws.
2.5 Broker's Fees. Neither TBA nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Acquisition or any similar transaction.
2.6 Disclosure. The representations and warranties and statements of
fact made by TBA in this Agreement and in certificates and other written
statements or agreements delivered or to be delivered pursuant to this Agreement
are accurate, correct and complete on the date of this Agreement and will,
except as contemplated hereby, be accurate, correct and complete at the Closing
and do not and will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained herein or therein not misleading.
-4-
<PAGE> 9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF IMAGE
Except as set forth in the correspondingly numbered section of the
disclosure schedule attached hereto as Schedule 1 and incorporated herein by
this reference (the "Disclosure Schedule"), Image hereby represents and warrants
to TBA as follows:
3.1 Organization, Qualification and Corporate Power. Image is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Image is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions specified
in Section 3.1 of the Disclosure Schedule, which are the jurisdictions in which
the ownership of its properties, the employment of its personnel or the conduct
of its business requires that it be so qualified or where a failure to be so
qualified or licensed would have a material adverse effect on its financial
condition, results of operation or business. Image has full corporate power and
authority and all authorizations, licenses and permits necessary to carry on the
business in which it is engaged or in which it proposes presently to engage and
to own and use the properties owned and used by it. Image has delivered to TBA
true, accurate and complete copies of its charter and bylaws which reflect all
amendments made thereto at any time prior to the date of this Agreement. The
minute books containing the records of meetings of the shareholders and Board of
Directors of Image, the stock certificate books and the stock record books of
Image are complete and correct in all material respects. The stock record books
of Image and the shareholder lists of Image which Image has previously furnished
to TBA are complete and correct in all respects and accurately reflect the
record and beneficial ownership of all the outstanding shares of Image's capital
stock and all other outstanding securities issued by Image. All material
corporate actions taken by Image since incorporation have been duly authorized
and/or subsequently ratified as necessary. Image is not in default under or in
violation of any provision of its charter or bylaws. Image is not in default or
in violation of any restriction, lien, encumbrance, indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability by which it is
bound or to which any of its assets is subject.
3.2 Capitalization. Image's entire authorized capital stock consists of
1,000,000 shares of common stock, $1.00 par value per share ("Image Common
Stock"), of which 1,000 shares are issued and outstanding and 1,000 shares will
be issued and outstanding immediately prior to the Closing Date. All of the
issued and outstanding shares of Image Common Stock have been and, as of the
Closing Date, will be duly authorized and are and, as of the Closing Date, will
be validly issued, fully paid and nonassessable and have not been and, as of the
Closing Date, will not be issued in violation of any pre-emptive rights. There
are no outstanding or authorized options, rights, warrants, calls, convertible
securities, rights to subscribe, conversion rights or other agreements or
commitments to which Image is a party or which are binding upon Image providing
for the issuance or transfer by Image of additional shares of its capital stock
and Image has not reserved any shares of its capital stock for issuance, nor are
there any outstanding stock option rights, contracts, arrangements or
commitments based upon the book value, income or other attribute of Image. There
are no voting trusts or any other agreements or understandings with respect to
the voting of Image's
-5-
<PAGE> 10
capital stock. Upon consummation of the Acquisition, TBA will own the entire
equity interest in Image and Image will not have outstanding any stock or
securities convertible or exchangeable for any shares of its capital stock, nor
have outstanding any rights, options, agreements or arrangements to subscribe
for or to purchase its capital stock or any stock or securities convertible into
or exchangeable for its capital stock. Shareholder is the only holder of capital
stock of Image. All capital stock, options, warrants and other securities issued
by Image were issued in compliance, in all respects, with all applicable federal
and state securities laws.
3.3 Authorization of Transaction. Image has the requisite corporate
power and authority to enter into this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated by this Agreement have been duly authorized by the
Board of Directors of Image. No other corporate approval on the part of Image
(other than shareholder approval) will be necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Image and, upon
approval hereof by the shareholders of Image, will constitute the valid and
binding obligation of Image, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity. None of the execution and delivery of this Agreement by
Image, the performance by Image of its obligations hereunder or the consummation
of the transactions contemplated hereby by Image will require any consent,
approval or notice under, or violate, breach, be in conflict with or constitute
a default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of, or result in the
creation or imposition of any lien upon any properties, assets or business of
Image under any note, bond, indenture, mortgage, deed of trust, lease,
franchise, permit, authorization, license, contract, instrument or other
agreement or commitment or any order, judgment or decree to which Image is a
party or by which Image or any of its assets or properties is bound or
encumbered, except those that have already been given, obtained or filed, all as
set forth in Section 3.3 of the Disclosure Schedule. No notice to, filing with
or authorization, consent or approval of any public body or authority is
necessary for the consummation by Image of the transactions contemplated by this
Agreement.
3.4 Subsidiaries. Image does not own and is not obligated to purchase
any equity interest in or any other interest convertible into or exchangeable
for an equity interest in any entity.
3.5 Financial Statements. Image has delivered to TBA (a) unaudited
balance sheets as of December 31, 1997, 1996 and 1995, (b) unaudited statements
of operations and statements of cash flows for each of the years in the
three-year period ended December 31, 1997, (c) unaudited balance sheets as of
June 30, 1998, and (d) unaudited statements of operations and statements of cash
flows for the six (6) months ended June 30, 1998, for Image (collectively, the
"Financial Statements"). The Financial Statements have been prepared on the cash
basis of accounting, which basis of accounting has been applied consistently for
all periods and present fairly the financial condition of Image as of such dates
and the results of its operations and cash flows for such periods. Since
December 31, 1994, there have been no changes in Image's method of accounting
for tax purposes.
-6-
<PAGE> 11
3.6 Events Subsequent to Financial Statements. Except as disclosed in
the Financial Statements, since December 31, 1997, there has not been:
(a) any materially adverse change in the financial condition,
results of operations or business of Image;
(b) any sale, lease, transfer, license or assignment of any
material assets, tangible or intangible, of Image, other than in the
ordinary course of business;
(c) any damage, destruction or property loss, whether or not
covered by insurance, affecting materially adversely the properties or
business of Image;
(d) any declaration or setting aside or payment of any
dividend or distribution with respect to the shares of capital stock of
Image or any redemption, purchase or other acquisition of any such
shares;
(e) any mortgage or pledge of, or subjection to any material
lien, charge, security interest or encumbrance of any kind on, any of
the assets, tangible or intangible, of Image (other than liens arising
by operation of law which secure obligations which are not yet due and
payable);
(f) any incurrence of indebtedness or liability or assumption
of obligations by Image other than (i) those incurred in the ordinary
course of business, (ii) those which do not exceed $5,000 in the
aggregate, and (iii) those incurred in the course of negotiating,
documenting and consummating the transactions contemplated by this
Agreement;
(g) any cancellation or compromise by Image of any material
debt or claim, except for adjustments made in the ordinary course of
business which, in the aggregate, are not material;
(h) any waiver or release by Image of any right of any
material value;
(i) except licenses of software made in the ordinary course of
business, consistently with past practice, any sale, assignment,
transfer or grant by Image of any rights under any concessions, leases,
licenses, agreements, patents, inventions, trademarks, trade names or
copyrights or with respect to any know-how or other intangible assets;
(j) any material arrangement, agreement or undertaking entered
into by Image not terminable on 30 days or less notice without cost or
liability (including, without limitation, any payment of or promise to
pay any bonus or special compensation) with employees or any increase
in compensation or benefits to officers or directors of Image, other
than in the ordinary course of business;
(k) any change made or authorized in the charter or bylaws of
Image;
-7-
<PAGE> 12
(l) any issuance, sale or other disposition by Image of any
shares of its capital stock or other equity securities, or any grant of
any options, warrants or other rights to purchase or obtain (including
upon conversion or exercise) shares of its capital stock or other
equity securities;
(m) any loan to or other transaction with any officer,
director or shareholder of Image giving rise to any claim or right of
Image against any such person or of such person against Image;
(n) any payment to or other transaction with any officer,
director or shareholder of Image involving an amount in excess of
$5,000, individually or in the aggregate, other than the payment of
monthly compensation consistent with customary practice;
(o) any acceleration, termination, modification or
cancellation or threat thereof by any party of any contract, lease or
other agreement or instrument to which Image is a party or by which it
is bound so as to affect, materially and adversely, the properties or
business of Image; or
(p) any other material transaction or commitment entered into
other than in the ordinary course of business by Image.
3.7 Undisclosed Liabilities. Image has no material liability or
obligation whatsoever, known or unknown, either accrued, absolute, contingent or
otherwise, except to the extent shown on the Financial Statements, incurred in
the normal and ordinary course of business of Image since January 1, 1998
(provided that, liabilities or obligations incurred in connection with the
termination of employees shall not be considered liabilities incurred in the
ordinary course of business), or incurred in the course of negotiating,
documenting and consummating the transactions contemplated by this Agreement.
Image is not indebted, directly or indirectly, to any person who is an officer,
director or shareholder of Image or any affiliate of any such person in any
amount whatsoever other than for salaries for services rendered or reimbursable
business expenses (other than accumulated but undistributed "S" corporation
earnings distributable to the Shareholder), and no such officer, director,
shareholder or affiliate is indebted to Image, except for advances made to
employees of Image in the ordinary course of business to meet reimbursable
business expenses anticipated to be incurred by such obligor.
3.8 Tax Returns and Audits.
(a) The taxable year of Image ends December 31. Image has duly
and timely filed or caused to be filed all tax returns (the "Tax
Returns") required to be filed on behalf of itself and has paid in full
or fully reserved against in the Financial Statements all taxes,
interest, penalties, assessments and deficiencies due or claimed to be
due on behalf of itself to foreign, federal, state or local taxing
authorities (including taxes on properties, income, franchises,
licenses, sales, use and payrolls). Such Tax Returns are correct in all
material respects, and Image is not required to pay any other taxes for
such periods except as shown
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in such Tax Returns. The income tax returns filed by Image have not
been, and are not being, to the knowledge of Image, examined by the
Internal Revenue Service or other applicable taxing authorities for any
period. All taxes or estimates thereof that are due, or are claimed or
asserted by any taxing authority to be due, have been timely and
appropriately paid so as to avoid penalties for underpayment. Except
for amounts not yet due and payable, all tax liabilities to which the
properties of Image may be subject have been paid and discharged. The
provisions for income and other taxes payable reflected in the
Financial Statements make adequate provision for all then accrued and
unpaid taxes of Image. There are no tax liens (other than liens for
taxes which are not yet due and payable) on any of the property of
Image, nor are there any pending or threatened examinations or tax
claims asserted. Image has not granted any extensions of limitation
periods applicable to tax claims or filed a consent under Section
341(f) of the Code relating to collapsible corporations. Except in
jurisdictions in which Image voluntarily files tax returns, no claim
has ever been made by a taxing authority that Image is or may be
subject to taxation by that jurisdiction. True and correct copies of
all federal, foreign, state and local income and other tax returns,
notices from foreign, federal, state and local taxing authorities, tax
examination reports and statements of deficiencies assessed against or
agreed to by Image since January 1, 1994, have been delivered to TBA,
and the same are listed in Section 3.8 of the Disclosure Schedule.
Image is not a party to, or bound by, any tax indemnity, tax sharing or
tax allocation agreement. Image is not a party to any agreement that
has resulted or would result in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code. Image has
never been a member of an "affiliated group," as defined in Section
1504(a) of the Code. All positions taken on federal Tax Returns that
could give rise to a penalty for substantial understatement pursuant to
Section 6662(d) of the Code have been disclosed on such Tax Returns.
Image is not is a United States real property holding corporation as
defined in Section 897 of the Code. No shareholder of Image is a
foreign person within the meaning of Section 1445(b)(2) of the Code.
Image has not made any tax elections under any section of the Code
(other than its election to be taxed as an "S" corporation under
Section 1362), including, without limitation under any of Sections 108,
168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code (or any
predecessor thereof). None of the assets and properties of Image is an
asset or property that TBA or any of its affiliates is or will be
required to treat as being (i) owned by any other Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954 as amended, and in effect immediately before the enactment of the
Tax Reform Act of 1986, or (ii) tax-exempt use property within the
meaning of Section 168(h)(1) of the Code. No closing agreement pursuant
to Section 7121 of the Code (or any predecessor provision) or any
similar provision of any state, local, or foreign law has been entered
into by or with respect to Image or any assets thereof. Image has not
agreed to or is not required to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method of Image, Image has no applications
pending with any taxing authority requesting permission for any changes
in any accounting method of Image, and the I.R.S. has not proposed any
such adjustment or change in accounting method therefor. Image has not
been or is not in violation (or with notice or lapse of time or both,
would be in violation) of any applicable law relating to the payment of
withholding of taxes. Image has duly and
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timely withheld from salaries, wages and other compensation and paid
over to the appropriate taxing authorities all amounts required to be
so withheld and paid over for all periods under all applicable laws.
(b) Image has been a validly electing S corporation within the
meaning of Code Sections 1361 and 1362 since November 14, 1992 and
Image will be an S corporation up to and including the day before the
Closing Date. Except as set forth in Section 3.8 of the Disclosure
Schedule, Image would not be liable for any tax under Code Section 1374
if its assets were sold for their fair market value as of January 1,
1998.
3.9 Books and Records. The general ledgers and books of account of
Image, all federal, state and local income, franchise, property and other tax
returns filed by Image, with respect to its assets, and all other books and
records of Image are in all material respects complete and correct and have been
maintained in accordance with good business practice and in accordance with all
applicable procedures required by laws and regulations in all material respects.
3.10 Real Property. Set forth in Section 3.10 of the Disclosure
Schedule is a complete and accurate list and a brief description of all real
property owned or leased by Image. With respect to each lease so set forth: (a)
the lease has been validly executed and delivered by Image and, to the knowledge
of Image, by the other party or parties thereto and is in full force and effect;
(b) neither Image nor, to the knowledge of Image, any other party to the lease
is in material breach or default, and no event has occurred on the part of Image
or, to the knowledge of Image, on the part of any other party which, with notice
or lapse of time, would constitute such a breach or default or permit
termination, modification or acceleration under the lease; (c) the lease will
continue to be binding in accordance with its terms following the consummation
of the Acquisition; (d) Image has not repudiated and, to the knowledge of Image,
no other party to the lease has repudiated any provision thereof; (e) there are
no disputes, oral agreements or delayed payment programs in effect as to the
lease; and (f) all facilities leased thereunder have been approved by all
necessary governmental authorities, have been maintained in accordance with
normal industry practice and are in good condition, working order and repair.
3.11 Tangible Property. Image has good and marketable title to, or a
valid leasehold interest in, each item of tangible property, whether real,
personal or mixed, reflected on its books and records as owned or used by it,
subject to no material encumbrances, loans, security interests, mortgages or
pledges.
3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedule sets forth a
list of intellectual property owned by Image including all patents,
patent applications, trademarks, service marks, trade dress, trade
names, trade secrets, corporate names, customer lists, copyrights, mask
works, technology or intellectual property that are material to the
business of Image and registrations or applications to register any of
the foregoing and a list of all licenses or
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other contracts related thereto (collectively, the "Intellectual
Property"). With respect to each such item of Intellectual Property:
(i) Image is the sole and exclusive owner and has the
sole and exclusive right to use the item in the conduct of its
business;
(ii) no proceedings have been instituted, are
pending or are threatened which challenge the validity,
enforceability, use or ownership thereof;
(iii) the item (A) does not infringe upon or
otherwise violate the rights of others, (B) to the knowledge
of Image is not being infringed upon by others and (C) is not
subject to any outstanding order, decree, judgment,
stipulation or charge;
(iv) no license, sublicense or agreement pertaining
to the item has been granted by Image;
(v) Image has not received any charge of
interference or infringement with respect to the item;
(vi) except in the ordinary course of business,
Image has not agreed to indemnify any person or entity for or
against any infringement with respect to the item;
(vii) the transactions contemplated by this Agreement
will have no material adverse effect on the right, title and
interest of Image in the item;
(viii) Image has taken all steps which are
commercially reasonable to protect the rights set forth in
Section 3.12(a) of the Disclosure Schedule and will continue
to use commercially reasonable efforts to maintain those
rights prior to the Closing Date so as to not materially
adversely affect the validity or enforcement of such rights;
and
(ix) Image has supplied TBA with true and complete
copies of all written documentation evidencing its ownership
of the item and of all licenses and other contracts related
thereto.
(b) Section 3.12(b) of the Disclosure Schedule sets forth a
list describing all patents, trademarks, trade names, service marks,
copyrights, trade secrets and mask works of others which Image
practices or uses that are material to Image. With respect to each such
item of intellectual property:
(i) any license agreement covering the item is a
valid and binding agreement, has been validly executed and
delivered by Image and, to the knowledge of Image, by the
other parties thereto and is in full force and effect;
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(ii) no event has occurred which constitutes a breach
of such license agreement, Image has not repudiated and, to
the knowledge of Image, no other party thereto has repudiated
any provision thereof and there are no disputes, oral
arrangements or delayed payment programs in effect as to any
such license agreement;
(iii) Image has supplied TBA with a true and complete
copy of the license agreement;
(iv) the transactions contemplated by this Agreement
will have no material adverse effect on the ability of Image
to continue using or practicing each such item; and
(v) Image is not aware of any claim that the exercise
of the rights granted to Image with respect to such item
infringes upon the intellectual property rights of any third
party.
(c) Image has not infringed, misappropriated or otherwise
violated any intellectual property rights of any third party. Image is
not aware of any infringement, misappropriation or violation with
respect to intellectual property which will occur as a result of the
continued operation of the business of Image as now conducted or as
presently proposed to be conducted.
(d) Image has taken commercially reasonable security measures
to protect the security, confidentiality and value of all the material
intellectual property owned by it.
3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the
following contracts and written arrangements, true and complete copies of which
have been delivered to TBA, to which Image is a party:
(a) any contract for the lease of personal property from or to
third parties providing for lease payments in excess of $5,000.00 per
annum;
(b) any contract for the purchase or sale of supplies,
products manufactured by Image or other personal property or for the
furnishing or receipt of services which contract calls for performance
over a period of more than one year or which involves more than the sum
of $5,000.00;
(c) any joint venture agreement;
(d) any agreement or instrument under which Image is or may
become indebted for borrowed money;
(e) any noncompetition agreement;
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(f) any other contract in which the consequences of a default
or termination would have a materially adverse effect on the financial
condition of Image or on the prospects or the conduct of the business
of Image;
(g) any standard form of license agreement; and
(h) any other contract or arrangement not entered into in the
ordinary course of business.
All contracts and arrangements listed in Section 3.13 of the Disclosure Schedule
are valid and binding agreements of Image. Neither Image nor, to the knowledge
of Image, any other party is in breach or default, and no event has occurred on
the part of Image or, to the knowledge of Image, on the part of any other party
to any such contract or arrangement which with notice or lapse of time would
constitute a breach or default or permit termination under any such contract or
arrangement. None of such contracts or arrangements will be terminated or
modified by the consummation of the Acquisition. Image has previously made
available to TBA all of the material service agreements of Image with its
customers. Image is not a party to any verbal contract or arrangement which, if
reduced to written form, would be required to be listed in Section 3.13 of the
Disclosure Schedule under the terms of subsections (a)-(h) of this Section 3.13.
3.14 Suppliers and Customers. Section 3.14 of the Disclosure Schedule
is a true and correct list of all suppliers of Image to whom Image made
payments, during the fiscal year ended December 31, 1997, in excess of one
percent of Image's respective gross revenues, as applicable, as reflected in the
Financial Statements for such year and all customers of Image that paid Image,
during the fiscal year ended December 31, 1997, more than two percent of the
gross revenues of Image as reflected in the Financial Statements for such year.
Since December 31, 1997, no material customer of Image has notified Image that
it will substantially decrease or cease doing business with Image.
3.15 Notes; Accounts Receivable. As of the Closing Date, all notes
payable to and accounts receivable of Image will be properly reflected on their
respective books and records and will be valid receivables subject to no setoffs
or counterclaims (subject to the provisions of Section 6.10 hereof).
3.16 Powers of Attorney. There are no outstanding material powers of
attorney or similar instruments executed by Image.
3.17 Condition of Property. Each building, fixture, machine and piece
of equipment (having a net book value of $5,000.00 or more) owned or used by
Image is in good operating condition and repair, subject to normal wear and
tear, and is in compliance with all zoning, building and fire codes in all
material respects. Image owns or leases under valid lease all buildings,
machinery, equipment and other tangible assets used in the conduct of its
business as presently conducted.
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3.18 Insurance. Image is insured under the policies listed in Section
3.18 of the Disclosure Schedule (the "Insurance Policies"). The Insurance
Policies are in full force and effect. All premiums due on the Insurance
Policies or renewals thereof have been paid and there is no default by Image
under any of the Insurance Policies.
3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth any
instances in which (a) Image is subject to any judgment or order (other than
orders of general applicability) of any court or quasi-judicial or
administrative agency of any jurisdiction, domestic or foreign, or where there
is any charge, complaint, lawsuit or governmental investigation pending or
threatened against Image; or (b) Image is a plaintiff in any action, domestic or
foreign, judicial or administrative, or any such action exists in which a
counterclaim against Image is pending or might be brought. None of the actions,
suits, proceedings or investigations set forth in Section 3.19 of the Disclosure
Schedule could result in any adverse change in the condition, financial or
otherwise, of Image, the same being fully reserved against in the Financial
Statements. There are no unsatisfied judgments, orders (other than orders of
general applicability), decrees or stipulations affecting Image or to which
Image is a party and there is no reason to believe that any such action, suit,
proceeding or investigation may be brought or threatened against Image.
3.20 Employees. Image has listed in Section 3.20 of the Disclosure
Schedule and has furnished to TBA true and complete copies of: (a) any written
employment agreements with officers and directors of Image; and (b) any written
employment agreements with its employees which by their terms may not be
terminated by Image at will or which grant severance payments. Image has not
entered into any similar oral employment agreements. To Image's knowledge, no
key employee or group of employees has any plans to terminate employment with
Image. Image is not a party to or bound by any collective bargaining agreement.
There are no loans or other obligations payable or owing by Image to any
shareholder, officer, director or employee of Image (except (i) salaries and
wages incurred and accrued in the ordinary course of business, and (ii)
accumulated but undistributed "S" corporation earnings distributable to the
Shareholder), nor are there any loans or debts payable or owing by any of such
persons to Image or any guarantees by Image of any loan or obligation of any
nature to which any such person is a party. Image has complied in all material
respects with all laws and regulations which relate to the employment of labor,
employee civil rights or equal employment opportunities.
3.21 Employee Benefit Plans. Image has listed in Section 3.21 of the
Disclosure Schedule and has furnished to TBA true and complete copies of (a) any
nonqualified deferred or incentive compensation or retirement plans or
arrangements, (b) any qualified retirement plans or arrangements, (c) any other
employee compensation, severance or termination pay or welfare benefit plans,
programs or arrangements and (d) any related trusts, insurance contracts or
other funding arrangements maintained, established or contributed to by Image or
to which Image is a party or otherwise is bound ("Image Employee Benefit
Plans"). Except as required by law, Image does not maintain or contribute or has
ever maintained or contributed to any funded or unfunded medical, health or life
insurance plan or arrangement for retirees or terminated employees. Image does
not contribute or have any obligation to make and has never contributed or had
any obligation to make any payment or contribution to a "multiemployer plan," as
that term is defined in Section 3(37) of
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the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Image has no actual or potential liability under Section 4201 of ERISA for any
complete or partial withdrawal from a multiemployer plan. Image neither
maintains, contributes to or has any liability with respect to any employee
pension benefit plan (as defined in Section 3(2) of ERISA) which is intended to
meet the requirements of a qualified plan under Section 401(a) of the Code.
Image neither maintains, contributes to or has any liability with respect to a
plan which is subject to Title IV of ERISA or Section 412 of the Code. With
respect to the employee benefit plans listed in Section 3.21 of the Disclosure
Schedule, Image has furnished to TBA true and complete copies of (i) any summary
plan description or other employee communication materials, (ii) the latest
financial statements and annual reports, and (iii) all documents filed with the
Internal Revenue Service or the Department of Labor since December 31, 1994. All
employee benefit plans and related trusts listed in Section 3.21 of the
Disclosure Schedule and maintained or contributed to by Image or with respect to
which Image now has or has ever had any liability or potential liability comply
in form and in operation with all requirements of ERISA and the Code. All
required reports with respect to such plans required by applicable law have been
filed and all contributions or payments presently anticipated hereunder have
been made or properly accrued. No applications for rulings, determination
letters, advisory opinions or prohibited transaction exemptions are currently
pending before the Internal Revenue Service, the Department of Labor or the
Pension Benefit Guaranty Corporation with respect to any such employee benefit
plans or arrangements or any related trusts. None of such employee benefit plans
or arrangements, any related trusts, the trustees of any related trusts or the
directors, officers and employees of Image is the subject of any lawsuit,
arbitration or other proceeding concerning any benefit claim or other
benefit-related matter (other than routine claims in the ordinary course of
business), and there have been no prohibited transactions as described in
Section 406 of ERISA or as defined in Section 4975 of the Code with respect to
any such plan. Neither Image, its directors, officers and employees nor any
other fiduciary, as such term is defined in Section 3 of ERISA, has committed
any breach of fiduciary responsibility imposed by ERISA or any other applicable
law which would subject Image or its directors, officers and employees to
liability under ERISA or any applicable law.
3.22 Guarantees. Image is not a guarantor or otherwise liable for any
material indebtedness of any other person, firm or corporation other than
endorsements for collection in the ordinary course of business.
3.23 Legal Compliance. Image and each of its respective directors,
officers and employees (the individuals only in their capacities as
representatives of Image) has complied in all material respects with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof, and no claim has been filed against Image alleging a
violation of any such laws or regulations. Image holds all of the material
permits, licenses, certificates or other authorizations of foreign, federal,
state or local governmental agencies required for the conduct of its business as
presently conducted or proposed to be conducted. Neither Image, nor any
director, officer, agent, partner or employee thereof or any other person
associated with or acting for or on behalf of Image has directly or indirectly
(a) made or agreed to make any contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment (whether in cash or otherwise) to
any person, private or public, regardless of form, whether in money, property,
or services, in violation of any applicable
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law, rule or regulation (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of Image, or (iv) to pay for any lobbying or similar services or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of Image.
3.24 Certain Business Relationships. To the knowledge of Image, none of
the present or former shareholders, directors, officers or employees of Image
owns, directly or indirectly, any interest in any business, corporation or other
entity (other than investments in publicly held companies) which, on the date
hereof or within the past 12 months, has been involved in any manner in any
business arrangement or relationship with Image, and none of the foregoing
persons owns any property or rights, tangible or intangible, which are used in
the business of Image.
3.25 Broker's Fees. Neither Image nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Acquisition or any similar transaction.
3.26 Environment, Health and Safety. Image is in compliance with all
environmental, health and safety laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been held or
commenced against Image alleging any failure so to comply. Image has obtained
and been in compliance with all of the material terms and conditions of all
permits, licenses and other authorizations which are required under, and have
complied with all other material limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, laws, and
timetables which are contained in, all applicable environmental, health and
safety laws.
3.27 Disclosure. The representations and warranties and statements of
fact made by Image in this Agreement, in the Disclosure Schedule and in
certificates and other written statements or agreements delivered or to be
delivered pursuant to this Agreement are accurate, correct and complete in all
material respects on the date of this Agreement and will, except as contemplated
hereby, be accurate, correct and complete in all material respects on the
Closing Date and do not and will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
Except as set forth in the correspondingly numbered section of the
Disclosure Schedule, Shareholder represents and warrants to TBA as follows:
4.1 Representations Regarding Shares of Image.
(a) Shareholder is the record and beneficial owner of and has good
title to the Shares, free and clear of any and all Liens. The Shares are all of
the shares of capital stock of Image owned by Shareholder, and the Shares
collectively represent all the issued and outstanding capital stock of Image.
(b) Shareholder has the full right, power and authority to enter into
this Agreement.
(c) Shareholder is not a party to, subject to or bound by any agreement
or any judgment, order, writ, prohibition, injunction or decree of any court or
other governmental body which would prevent the execution or delivery of this
Agreement by Shareholder.
(d) No broker or finder has acted for Shareholder in connection with
this agreement or the transactions contemplated hereby, and no broker or finder
is entitled to any brokerage or finder's fee or other commissions in respect of
such transactions based upon agreements, arrangements or understandings made by
or on behalf of Shareholder.
4.2 Investment Representations.
(a) Shareholder will acquire the shares of TBA Common Stock
issued pursuant to this Agreement for his own account for investment
and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intent of distributing or
selling his or her shares.
(b) Shareholder has reviewed the representations concerning
TBA contained in this Agreement and has made or has had the opportunity
to make inquiry concerning TBA. Shareholder has sufficient knowledge
and experience so as to be able to evaluate the risks and merits of his
or her investment in TBA, and he or she is able financially to bear the
risks thereof. Shareholder is entering into the transactions
contemplated herein based on his or her own assessments of the merits
and risks, upon his or her own experience as an officer and/or
shareholder of Image and is not relying on any business plan,
projections, valuations or other financial information provided to
Shareholder by TBA (other than the TBA SEC Documents). Shareholder
further acknowledges and agrees that TBA has made no assurances of any
nature whatsoever regarding the future operations of TBA and has made
no guarantees as to the profitability of an investment therein.
Shareholder further acknowledges that he is an accredited investor as
defined in Rule 501 of Regulation D of the Securities Act.
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(c) Shareholder understands that the certificates of TBA
Common Stock to be issued to him or her pursuant to this Agreement will
bear a restrictive legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to TBA is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates, at the
request of the holder thereof, at such time as they become registered for resale
or eligible for resale pursuant to Rule 144(k) under the Securities Act.
4.3 Authorization. This Agreement and all such other agreements and
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which Shareholder is a party constitute the valid and
legally binding obligations of Shareholder, enforceable against Shareholder in
accordance with their respective terms, except as enforceability may be limited
or affected by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws of general application relating to or affecting creditors' rights
generally.
The execution, delivery and performance by Shareholder of this
Agreement and the agreements provided for herein, and the consummation by
Shareholder of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to Shareholder; (b) violate
any judgment, decree, order or award of any court, governmental body or
arbitrator; or (c) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of Shareholder pursuant to, any indenture, mortgage, deed
of trust or other instrument or agreement to which Shareholder is a party or by
which Shareholder or any of his properties is or, to the knowledge of
Shareholder, may be bound, except for violations or conflicts which individually
or in the aggregate would not have a material adverse effect on Image's
financial condition or results of operation.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by Image Pending the Closing. Image covenants
and agrees that, prior to the Closing Date, unless TBA shall otherwise approve
in writing (which approval will not be unreasonably withheld) or as otherwise
expressly contemplated or permitted by this Agreement:
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(a) Image shall conduct its business and operations, including
its cash management practices, the collection of receivables,
maintenance of facilities and payment of payables, only in the usual
and ordinary course of business and consistent with past custom and
practice in all material respects;
(b) Image shall not directly or indirectly do any of the
following: (i) sell, pledge, dispose of or encumber any material
portion of its assets, except in the ordinary course of business; (ii)
amend or propose to amend its charter or bylaws; (iii) split, combine
or reclassify any outstanding shares of its capital stock, or declare,
set aside or pay any dividend or other distribution payable in cash,
stock, property or otherwise with respect to shares of its capital
stock, provided, however, Image shall be allowed to distribute cash
with respect to its stock in an amount equal to its net income for
prior periods ending on the Closing Date, provided further that no such
cash distribution may create or increase a deficit working capital
(current liabilities in excess of current assets) of Image as of the
Closing Date; (iv) redeem, purchase or acquire or offer to acquire any
shares of its capital stock or other securities; (v) create any
subsidiaries; or (vi) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.1(b);
(c) Image shall not (i) issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of,
or any options, warrants, conversion privileges or rights of any kind
to acquire any shares of, its capital stock; (ii) acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division or
material assets thereof; (iii) incur any material indebtedness for
borrowed money, issue any debt securities or guarantee any indebtedness
to others; or (iv) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) Image shall not (i) enter into or modify any employment,
severance or similar agreements or arrangements with, or grant any
bonus, salary increase, severance or termination pay to, any officers
or directors; or (ii) in the case of employees who are not officers or
directors, take any action other than in the ordinary course of
business and consistent in all material respects with past practice
(none of which shall be unreasonable or unusual) with respect to the
grant of any bonuses, salary increases, severance or termination pay or
with respect to any increase of benefits payable in effect on January
1, 1998;
(e) Image shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee;
(f) Except as otherwise required by its charter or bylaws, by
this Agreement or by applicable law, Image shall not call any meeting
of its shareholders and, with respect to any meeting of its
shareholders called by Image, shall provide to TBA copies of all
written
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materials and other information given to the shareholders prior to the
time such materials and information are given to the shareholders;
(g) Image shall use commercially reasonable efforts to cause
its current insurance (or reinsurance) policies not to be canceled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and reinsurance
companies of nationally recognized standing providing coverage equal to
or greater than the coverage under the cancelled, terminated or lapsed
policies for substantially similar premiums are in full force and
effect;
(h) Image shall (i) use commercially reasonable efforts to
preserve intact its business organization and goodwill, keep in full
force and effect all material rights, licenses, permits and franchises
relating to its business, keep available the services of its officers
and employees as a group and maintain satisfactory relationships with
suppliers, distributors, customers and others having business
relationships with it; (ii) report on a regular and frequent basis, at
reasonable times, to representatives of TBA regarding operational
matters and the general status of ongoing operations; (iii) use
commercially reasonable efforts not to take any action which would
render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue in any
material respect at any time prior to the Closing Date if then made;
and (iv) notify TBA of any emergency or other change in the normal
course of their respective business or in the operation of their
properties and of any tax audits, tax claims, governmental or third
party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency,
change, audit, claim, complaint, investigation or hearing would be
material, individually or in the aggregate, to the financial condition,
results of operations or business of Image, or to the ability of Image
or TBA to consummate the transactions contemplated by this Agreement;
(i) Image shall deliver to TBA promptly (but in any event
within two business days) after the discovery or receipt of notice of
any default under any material agreement to which it is a party or any
other material adverse event or circumstance affecting Image (including
the filing of any material litigation against Image or the existence of
any dispute with any person or entity which involves a reasonable
likelihood of such litigation being commenced), a certificate of the
President of Image specifying the nature and period of the existence
thereof and what actions Image has taken and proposes to take with
respect thereto;
(j) Image shall use commercially reasonable efforts to
maintain its assets in customary repair, order and condition, replace
in accordance with past practice its inoperable, worn out or obsolete
assets with assets of quality at least comparable to the original
quality of the assets being replaced and maintain in all material
respects its books, accounts and records in accordance with past custom
and practice as used in the preparation of the Financial Statements;
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(k) Image shall use commercially reasonable efforts to
maintain in full force and effect the existence of all material
patents, inventions, trademarks, service marks, trade dress, trade
names, corporate names, copyrights, mask works, trade secrets,
licenses, computer soft ware, data and documentation and other
proprietary rights, which it uses or owns;
(l) Image shall have positive working capital on the Closing
Date;
(m) Image shall comply in all material respects with all legal
requirements and contractual obligations applicable to its operations
and business and pay all applicable taxes; and
(n) Image shall not enter into any contract (except for artist
performances) requiring payments in excess of $5,000 or for a duration
of more than one (1) year.
For purposes of this Section 5.1, should TBA fail to approve in writing
any action for which its approval is required pursuant to this Section 5.1
within three (3) business days after its receipt of a written request for
approval in accordance with the notice requirements contained herein, the matter
shall be deemed approved by TBA. Notwithstanding any other provision of this
Agreement, the amendment or modification of the Disclosure Schedule by Image
after the time TBA has signed this Agreement shall have no effect with respect
to the agreements, covenants and obligations of Image and TBA pursuant to this
Section 5.1 and Sections 7.2 and 7.3 of this Agreement.
5.2 No Other Bids for Image. Image shall not, nor either authorize or
knowingly permit any officer, director, shareholder or employee of, or any
investment banker, attorney, accountant or other representative retained by,
Image to, make, solicit, initiate, encourage or respond to a submission of a
proposal or offer from any person or entity (other than TBA) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or acquisition
or purchase of all or a material portion of the assets of, or any equity
interest in, Image or other similar transaction or business combination
involving Image (hereinafter collectively referred to as a "Third Party Offer").
Image will not participate in any negotiations regarding, or furnish to any
person or entity (other than TBA) any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any person or entity (other than TBA) to do or seek any
of the foregoing. Image will immediately cease and cause to be terminated any
contacts or negotiations currently pending with respect to Third Party Offers,
if any, and shall use its best efforts to cause all reports, material, data and
other written information heretofore disseminated by it or on its behalf by any
such officer, director or employee or any investment banker, attorney,
accountant or other representative in connection with any such Third Party Offer
or any inquiry or proposal related thereto to be promptly returned to it. Image
shall promptly notify TBA of the receipt of any Third Party Offer or any inquiry
or communication which might reasonably be expected to lead to any Third Party
Offer and will provide TBA with all information that TBA may reasonably request
with respect thereto.
5.3 Lines of Business and Capital Expenditures. Unless approved in
writing by TBA, Image covenants that it will not (a) enter into any new material
line of business; (b) change its
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investment, liability management and other material policies in any material
respect; or (c) incur or commit to any capital expenditures, obligations or
liabilities in connection therewith.
5.4 Accounting Methods. Unless approved in writing by TBA, Image
covenants that it will not change its methods of accounting in effect at
December 31, 1997, except as required by changes in generally accepted
accounting principles as concurred in by Image's independent accountants.
Notwithstanding the provisions of the preceding sentence, Image will, at
Shareholder's expense, have its financial statements converted to accrual basis
statements prepared in accordance with generally accepted accounting principles
for the fiscal year 1997 and for the quarter ended June 30, 1998.
5.5 Other Actions. Unless approved in writing by TBA, Image covenants
that it shall not take any action that would or might reasonably be expected to
result in any of the representations and warranties of Image set forth in this
Agreement becoming untrue in any material respect after the date hereof or any
of the conditions to the Closing set forth in Article 7 of this Agreement not
being satisfied.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the other agreements
contemplated hereby and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses.
6.2 Notification of Certain Matters. Each party shall give prompt
notice to the others of (a) the occurrence or failure to occur of any event,
which occurrence or failure would result in any Material Adverse Breach (as
defined in Section 10.8 of this Agreement), and (b) any failure of such party,
or any officer, director, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied hereunder.
6.3 Access to Information. From the date hereof to the Closing Date,
each of Image and TBA shall, and shall cause its respective officers, directors,
employees and agents to, afford the offi cers, employees, agents and
representatives of the other parties hereto (including Shareholder) complete
access at all reasonable times to such officers, employees and agents and its
properties, books and records (all such access to be arranged through the
respective officers of the parties hereto so as not to be unreasonably
disruptive to any of the parties), and shall furnish each of such parties all
financial, operating, personnel, compensation, tax and other data and
information as such parties, through their respective officers, employees,
agents or representatives, may request.
6.4 Taking of Necessary Action. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees, subject to applicable laws,
to use all reasonable efforts promptly to take or cause to be taken all action
and promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
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transactions contemplated by this Agreement. Without limiting the foregoing,
Image and TBA shall use their best efforts to maintain and make all filings with
and obtain all consents, approvals, and/or assurances from third parties and
appropriate governmental agencies and authorities necessary or, in the opinion
of Image or TBA, advisable for the consummation of the transactions contemplated
by this Agreement. Each party shall cooperate with the other in good faith to
help the other satisfy its obligations in this Section 6.4.
6.5 Notice of Changes. Each of Image and TBA shall each promptly inform
the other in writing if any change shall have occurred or shall have been
threatened (or any development shall have occurred or shall have been threatened
involving a prospective change) in its financial condition, results of
operations or business that is or may reasonably be expected to have a material
adverse effect on its financial condition, results of operations or business.
6.6 Press Releases. Image and TBA shall consult with each other as to
the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby; provided, however, that nothing in this Section 6.6 shall be deemed to
prohibit any party hereto from making any disclosure that is required to fulfill
such party's disclosure obligations imposed by law, including, without
limitation, federal securities laws.
6.7 Employee Matters. TBA and Image agree that all employees of Image
immediately prior to the Closing shall be employed by Image immediately after
the Closing at such level of pay which is mutually agreed upon between each
employee and TBA, it being understood that TBA shall not have any obligations to
continue employing such employees for any length of time or at any level of pay
for any length of time thereafter, except as set forth in binding agreements of
employment.
6.8 Tax Matters. From and after the Closing, TBA, on the one hand, and
Shareholder, on the other hand, shall cooperate fully with each other and make
available or cause to be made available to each other for consultation,
inspection and copying (at such other party's expense) in a timely fashion such
personnel, tax data, tax returns and filings, files, books, records, documents,
financial, technical and operating data, computer records and other information
as may be reasonably required (1) for the preparation by either of them of any
Tax Returns, elections, consents or certificates required to be prepared and
filed by such parties or (2) in connection with any audit or proceeding relating
to taxes relating to the assets of Image. TBA agrees to retain all books and
records with respect to tax matters pertinent to Image relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations of the respective taxable periods, and to abide by all record
retention agreements entered into with any taxing authority. None of the parties
hereto shall cause an election to be made, an accounting for tax purposes to be
adopted, or a position to be taken on any tax return, or in any tax proceeding,
that is inconsistent with the provisions of this Agreement. In addition, as
custodian of the books and records of Image as of the Closing Date, TBA, or its
authorized representatives, shall be responsible for closing such books and
records as of the Closing Date for state and federal income tax and financial
reporting purposes. TBA and Shareholder shall cooperate fully with each other in
connection with such closing and TBA
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shall make available to Shareholder all financial and income tax data,
statements, reports and information relating to such closing of the books and
records as of the Closing Date.
6.9 Section 338(h)(10) Election. TBA and Shareholder shall jointly
elect to treat the Acquisition as a "qualified stock purchase" within the
meaning of Section 338 of the Code and shall timely prepare and file with the
Internal Revenue Service a Section 338(h)(10) election on Form 8023. TBA
indemnifies Shareholder for the amount by which Shareholder's combined state and
federal income tax liability arising as a result of the sale of the Shares in
accordance with the Section 338(h)(10) election exceeds the combined state and
federal income tax liability Shareholder would have incurred had TBA and
Shareholder not filed the Section 338(h)(10) election. Any payment due by TBA to
Shareholder hereunder shall be paid within thirty (30) days following the
agreement of the parties hereto as to the amount of indemnification payment
payable hereunder. Should the parties disagree with respect to such calculation,
Arthur Andersen LLP shall calculate the indemnification payment due hereunder,
if any, and the parties shall be bound by such determination. Sections 10.8 and
10.9 of this Agreement shall not apply to the indemnification obligation of TBA
under this Section 6.9.
6.10 Collection of Receivables. Notwithstanding anything to the
contrary contained herein, following the Closing, Shareholder shall be entitled
to collect receivables posted on the books and records of Image prior to the
Closing Date ("Image Accounts Receivable"), which Image Accounts Receivable
shall be received following the Closing Date by Image as agent for Shareholder
and remitted to Shareholder as soon as practicable after such collection. Upon
receipt of same by Shareholder, Image Accounts Receivable shall constitute
taxable income of Shareholder and shall be included in the income of
Shareholder; provided, however, no receivable of Image posted on the books and
records of Image prior to the Closing shall constitute Image Account's
Receivable to the extent the collection of such receivable and payment of same
to Shareholder (in conjunction with cash distributions paid to Shareholder
pursuant to Section 5.1(b)) create a deficit working capital of Image as of the
Closing Date.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) no order shall have been entered and remain in effect in
any action or proceeding before any foreign, federal or state court or
governmental agency or other foreign, federal or state regulatory or
administrative agency or commission that would prevent or make illegal
the consummation of the transactions contemplated hereby; and
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(b) Shareholder shall have provided TBA with a written
agreement not to sell, assign, convey, encumber or otherwise transfer
shares of TBA Common Stock acquired pursuant to this Agreement for a
period of one year following the Closing Date.
7.2 Additional Conditions to TBA's Obligations. The obligations of TBA
to effect the Closing are subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) Except for breaches which do not constitute a Material
Adverse Breach (as defined in Section 10.8 of this Agreement) by Image
or Shareholder, the representations and warranties set forth in
Articles 3 and 4 of this Agreement (without regard to any amendments or
modifications of the Disclosure Schedule by Image after the time TBA
has signed this Agreement) will be true and correct as of the date
hereof and at and as of the Closing Date, as though then made and as
though the Closing Date were substituted for the date of this Agreement
throughout such representations and warranties and with appropriate
modifications of tense with respect to representations and warranties
made as of a specified date;
(b) Image shall have performed, in all material respects, each
obligation and agreement and complied, in all material respects, with
each covenant to be performed and complied with by it under this
Agreement prior to the Closing Date, including, without limitation, all
of its agreements contained in Article 6 of this Agreement;
(c) Except as otherwise disclosed on the Disclosure Schedule,
all consents by governmental or regulatory agencies or otherwise that
are required for the consummation of the transactions contemplated
hereby or that are required for TBA to own, operate or control Image or
any portion of the assets of Image or to prevent a breach of or a
default under or a termination of any agreement material to Image to
which Image is a party or to which any material portion of the assets
of Image is subject, will have been obtained;
(d) No action or proceeding before any court or governmental
body will be pending or threatened wherein a judgment, decree or order
would prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded or which might
adversely affect the right of TBA to own, operate or control Image or
any material portion of the assets of Image or the value of the assets
of Image;
(e) On or prior to the Closing Date, Shareholder and Kevin
Koziol shall have entered into employment agreements with Image
substantially in the form of Exhibit C attached hereto dated as of the
Closing Date (the "Employment Agreements") and each of Shareholder and
Kevin Koziol shall have terminated any employment, compensation,
consulting, fee, services or other similar agreements payable to him,
or to his affiliated entities, if any;
(f) At the Closing, Image will have delivered to TBA the
following:
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(i) a certificate executed on behalf of Image by its
President stating that the conditions set forth in Sections
7.2(a) through 7.2(d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted
by Image's Board of Directors authorizing the execution,
delivery and performance of this Agreement and the other
agreements contemplated hereby and thereby;
(iii) good standing or comparable certificates for
Image from the jurisdiction of its incorporation and from
every jurisdiction where a failure to be qualified or licensed
would have a material adverse effect on the consolidated
financial condition, results of operations or business of
Image, dated not earlier than ten (10) days prior to the
Closing Date;
(iv) copies of all third party and governmental
consents (or other evidence satisfactory to TBA) that Image is
required to obtain in order to effect the transactions
contemplated by this Agreement;
(v) a copy of Image's charter certified by the
Secretary of State of the State of Arizona;
(vi) certificates evidencing the Shares, duly
endorsed; and
(vii) such other documents as TBA may reasonably
request in connection with the transactions contemplated
hereby;
(g) All proceedings to be taken by Image in connection with
the consummation of the Acquisition at the Closing and the other
transactions contemplated hereby and all documents required to be
delivered by Image in connection with the Acquisition and the other
transactions contemplated hereby will be reasonably satisfactory in
form and substance to TBA.
7.3 Additional Conditions to the Obligations of Image and Shareholder.
The obligations of Image and Shareholder to effect the Closing are subject to
the satisfaction of the following conditions on or before the Closing Date;
(a) Except for breaches which do not constitute a Material
Adverse Breach (as defined in Section 10.8 of this Agreement) by TBA,
the representations and warranties set forth in Article 2 of this
Agreement will be true and correct as of the date hereof and at and as
of the Closing Date, as though then made and as though the Closing Date
were substituted for the date of this Agreement throughout such
representations and warranties and with appropriate modifications of
tense with respect to representations and warranties made as of a
specified date;
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(b) TBA shall have performed, in all material respects, each
obligation and agreement and complied, in all material respects, with
each covenant required to be performed and complied with by it under
this Agreement prior to the Closing Date;
(c) No action or proceeding before any court or government
body will be pending or threatened wherein a judgment, decree or order
would prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded;
(d) At the Closing, TBA will have delivered to Image and
Shareholder the following:
(i) a certificate executed on behalf of TBA by its
Chief Executive Officer stating that the conditions set forth
in Sections 7.3(a) through (c) of this Agreement have been
satisfied;
(ii) certified copies of the resolutions duly adopted
by TBA's board of directors authorizing the execution,
delivery and performance of this Agreement;
(iii) good standing certificates for TBA from the
Secretary of State of the State of Delaware dated not earlier
than ten (10) days prior to the Closing Date;
(iv) copies of all third party and governmental or
regulatory consents (or other evidence satisfactory to Image)
that TBA are required to obtain in order to effect the
transactions contemplated by this Agreement;
(v) copies of TBA's charter certified by the
Secretary of State of the State of Delaware; and
(vi) such other documents as Image or Shareholder may
reasonably request in connection with the transactions
contemplated hereby;
(e) All proceedings to be taken by TBA in connection with the
consummation of the Acquisition at the Closing and all documents
required to be delivered by TBA in connection with the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to Image and Shareholder;
(f) Except as otherwise disclosed to Image and Shareholder,
all consents by governmental or regulatory agencies or otherwise that
are required for the consummation of the transactions contemplated
hereby or that are required for TBA to own, operate or control Image or
any portion of the assets of Image or to prevent a breach of or a
default under or a termination of any agreement material to Image to
which Image is a party or to which any material portion of the assets
of Image is subject, will have been obtained;
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(g) The Employment Agreements will have been executed and
delivered by the Closing Date and there will not have been any changes,
amendments or modifications to, or terminations of, such agreements;
and
(h) The Registration Rights Agreement will have been executed
and delivered as of the Closing Date.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the unanimous written consent of Shareholder and the
Boards of Directors of TBA and Image;
(b) by either TBA or Image if the Acquisition shall not have
been consummated by September 15, 1998;
(c) by TBA if there has been a misrepresentation or breach of
a representation or warranty or a failure to perform a covenant on the
part of Image or Shareholder with respect to their representations,
warranties and covenants set forth in this Agreement and any such
breach or failure constitutes a Material Adverse Breach; and
(d) by Image if there has been a misrepresentation or a breach
of a representation or warranty or a failure to perform a covenant on
the part of TBA with respect to their representations, warranties and
covenants set forth in this Agreement and any such breach or failure
constitutes a Material Adverse Breach.
8.2 Amendment. This Agreement may not be amended except by an
instrument signed by each of the parties hereto.
8.3 Waiver. At any time prior to the Closing Date, (a) TBA may (i)
extend the time for the performance of any of the obligations or other acts of
Image and/or Shareholder or (ii) waive compliance with any of the agreements of
Image and/or Shareholder or with any conditions to its own obligations, and (b)
Image and/or Shareholder may (i) extend the time for the performance of any of
the obligations or other acts of TBA or (ii) waive compliance with any of the
agreements of TBA or with any conditions to their own obligations in each case
only to the extent such obligations, agreements and conditions are intended for
their benefit.
8.4 Effect of Termination. If this Agreement is terminated as provided
in Section 8.1, this Agreement shall become void and there shall be no liability
or further obligation on the part of any party hereto or any of their respective
shareholders, officers or directors, except (a) that nothing
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herein and no termination pursuant hereto will relieve any party from liability
for any breach of this Agreement and (b) the provisions of Section 6.6 and any
confidentiality agreements by and between TBA and Image will survive such
termination.
ARTICLE 9
INDEMNIFICATION
9.1 By TBA, Image and Shareholder. TBA on the one hand and Image and
Shareholder on the other hand each hereby agree to indemnify and hold harmless
the other against all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for defending any actions or threatened actions) (collectively
"Damages") reasonably incurred by TBA, Image and Shareholder in connection with
each and all of the matters set forth below to the extent they constitute a
Material Adverse Breach.
(a) Any breach by the Indemnifying Party (as defined below) of
any representation or warranty made by such Indemnifying Party in this
Agreement;
(b) Any breach of any covenant, agreement or obligation of the
Indemnifying Party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the Indemnifying Party pursuant to
this Agreement or in connection with the transactions contemplated by
this Agreement.
9.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as provided
in Section 9.3 of this Agreement in which case the Indemnified Party may settle
or compromise such claim without the prior consent of the Indemnifying Party. If
the Indemnified Party fails to give prompt notice of any claim and such failure
prejudices the Indemnifying Party's position or its ability to defend the claim,
the Indemnifying Party's liability to the Indemnified Party shall be reduced by
the amount, if any, demonstrated to be directly attributable to the failure to
give such notice in a timely manner.
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9.3 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
9.4 Payment of Indemnification Obligation. All indemnification by TBA,
Image or Shareholder hereunder shall be effected by payment by wire transfer or
delivery of a cashier's or certified check in the amount of the indemnification
liability.
ARTICLE 10
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The representations
and warranties set forth in this Agreement shall survive the Closing for a
period of one (1) year. Notwithstanding the above, claims resulting from any
breach of any representation or warranty concerning tax or Image Employee
Benefit Plan matters shall expire one hundred twenty (120) days after the
expiration of any applicable statute of limitations. Any litigation arising out
of or attributable to a breach of any representation, warranty or covenant
contained herein must be commenced within the applicable period described above.
If not commenced within the applicable period, any such claim will thereafter
conclusively be deemed to be waived regardless of when such claim is or should
have been discovered.
10.2 Effect of Due Diligence. No investigation by TBA or Image into the
business, operations and condition of the other shall diminish in any way the
effect of any representations or warranties made by either party in this
Agreement or shall relieve such party of any of its obligations under this
Agreement.
10.3 Specific Performance. TBA, Image and Shareholder understand and
agree that the covenants and undertakings on each of their parts herein
contained are uniquely related to the desire
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of TBA, Image and Shareholder to consummate the Acquisition, that the
Acquisition is a unique business opportunity for Image, TBA, and Shareholder and
that, although monetary damages may be available for the breach of such
covenants and undertakings, monetary damages would be an inadequate remedy
therefor. Accordingly, Image, TBA and Shareholder agree that TBA shall be
entitled to obtain specific performance by Image and Shareholder of every such
covenant and undertaking contained herein to be performed by Image and
Shareholder and that Image and Shareholder shall be entitled to obtain specific
performance from TBA of each and every covenant and undertaking herein contained
to be observed or performed by TBA.
10.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
sent by telex, telecopy, facsimile or overnight courier, or mailed by registered
or certified mail (postage prepaid and return receipt requested), to the party
to whom the same is so delivered, sent or mailed at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) if to TBA:
TBA Entertainment Corporation
402 Heritage Plantation Way
Hickory Valley, Tennessee 38042
Attention: Thomas J. Weaver III
Telecopy: (901) 764-6107
with a copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Randall E. Roberts, Esq.
Telecopy: (214) 745-5390
(b) if to Image:
Image Entertainment Productions, Inc.
600 East Gilbert Drive
Tempe, Arizona 85281
Attention: Kenneth C. Koziol
Telecopy: (602) 921-8700
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with a copy to:
Hubert E. Kelly, Esq.
3035 East Weldon
P.O. Box 44138
Phoenix, Arizona 85064
Telecopy: (602) 957-4201
(c) if to Shareholder:
Kenneth C. Koziol
4437 North 85th Street
Scottsdale, Arizona 85251
with a copy to:
Hubert E. Kelly, Esq.
3035 East Weldon
P.O. Box 44138
Phoenix, Arizona 85064
Telecopy: (602) 957-4201
Notices delivered personally or by telex, telecopy or facsimile shall be deemed
delivered as of actual receipt, mailed notices shall be deemed delivered three
days after mailing and overnight courier notices shall be deemed delivered one
day after the date of sending.
10.5 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
10.6 Severability. If any term, provision, covenant or Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated and the parties shall negotiate in good faith to modify
the Agreement to preserve each party's anticipated benefits under the Agreement.
10.7 Miscellaneous. This Agreement (together with all other documents
and instruments referred to herein): (a) except for any confidentiality
agreements executed in connection with the transactions contemplated hereby,
constitutes the entire agreement and supersedes all other prior agreements and
undertakings, both written and oral, among the parties with respect to the
subject matter hereof, including, without limitation, the Letter of Intent dated
June 24, 1998 among TBA and Shareholder; (b) except as expressly set forth
herein, is not intended to confer upon any other person any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise, except
that TBA may assign all or any portion of their rights under this Agreement to
any wholly
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<PAGE> 37
owned subsidiary but no such assignment shall relieve TBA of its obligations
hereunder, and except that this Agreement may be assigned by operation of law to
any corporation with or into which TBA may be merged; and (d) shall be governed
in all respects, including validity, interpretation and effect, by the internal
laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof. Courts within the State of Delaware will have
jurisdiction over any and all disputes between the parties hereto, whether in
law or equity, arising out of or relating to this Agreement. The parties consent
to and agree to submit to the jurisdiction of such courts. This Agreement may be
executed in two or more counterparts which together shall constitute a single
agreement.
10.8 Material Adverse Breach. Breaches of representations, warranties
and covenants by either party hereto which (a) individually results in damages
to the other party in excess of $10,000 or (b) in the aggregate result in
damages to the other party in excess of $25,000, shall constitute, for purposes
of this Agreement, a "Material Adverse Breach."
10.9 Limitation of Liability. Neither TBA, Image, nor Shareholder shall
have any liability for breach of the representations, warranties and covenants
made by them and contained in this Agreement unless such breach is a Material
Adverse Breach.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE> 38
STOCK PURCHASE AGREEMENT
Signature Page
IN WITNESS WHEREOF, TBA, Shareholder and Image have caused this
Agreement to be executed on the date first written above by their respective
officers duly authorized.
TBA ENTERTAINMENT CORPORATION
By:
----------------------------------
Thomas Jackson Weaver III,
Chief Executive Officer
IMAGE ENTERTAINMENT PRODUCTIONS, INC.
By:
----------------------------------
Kenneth C. Koziol, President
-------------------------------------
KENNETH C. KOZIOL
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<PAGE> 39
SCHEDULE 1
DISCLOSURE SCHEDULE
<PAGE> 40
ANNEX I
LIST OF TBA SEC DOCUMENTS
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997;
2. Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998; and
3. Current Report on Form 8-K filed May 22, 1998, as amended by Form 8-K/A
filed May 26, 1998.
<PAGE> 41
EXHIBIT A
FORM OF PROMISSORY NOTE
<PAGE> 42
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 43
EXHIBIT C
FORM OF EMPLOYMENT AGREEMENTS
<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
among
TBA ENTERTAINMENT CORPORATION,
KARIN GLASS,
KENNETH GLASS,
KARIN GLASS & ASSOCIATES, INC.,
INK UP, INC.
and
KGA, INC.
March 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - DEFINITIONS......................................................................1
Section 1.1 Definition of Certain Terms............................................1
ARTICLE 2 - PURCHASE AND SALE OF SHARES......................................................8
Section 2.1 Purchase and Sale......................................................8
Section 2.2 Purchase Price.........................................................8
Section 2.3 Adjustment to Purchase Price...........................................8
Section 2.4 Registration Rights...................................................10
Section 2.5 Closing...............................................................10
Section 2.6 Further Action........................................................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF TBA...........................................11
Section 3.1 Organization and Qualification........................................11
Section 3.2 Authority Relative to this Agreement..................................11
Section 3.3 TBA Common Stock and TBA SEC Documents................................11
Section 3.4 Certain Corporate Matters.............................................12
Section 3.5 Broker's Fees.........................................................12
Section 3.6 Absence of Certain Changes............................................12
Section 3.7 No Reliance...........................................................12
Section 3.8 No Actions Pending....................................................13
Section 3.9 Investment Intent.....................................................13
Section 3.10 Information...........................................................13
Section 3.11 Sophistication of TBA.................................................13
Section 3.12 Accredited Investor...................................................13
Section 3.13 No Knowledge of Breach................................................13
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS..............................13
Section 4.1 Authorization, etc....................................................13
Section 4.2 Organization, Status, Capitalization etc..............................14
Section 4.3 No Conflicts, etc. ..................................................15
Section 4.4 Financial Statements..................................................15
Section 4.5 Absence of Undisclosed Liabilities....................................15
Section 4.6 Tax Returns and Audits................................................16
Section 4.7 Absence of Changes. ..................................................17
Section 4.8 Litigation............................................................19
Section 4.9 Compliance with Laws; Governmental Approvals and Consents;
Governmental Contracts................................................19
Section 4.10 Tangible Property.....................................................20
Section 4.11 Contracts.............................................................20
Section 4.12 Territorial Restrictions. ............................................22
Section 4.13 Inventories. .........................................................22
Section 4.14 Customers.............................................................22
Section 4.15 Suppliers.............................................................22
Section 4.16 Product Warranties....................................................23
Section 4.17 Intellectual Property.................................................23
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.18 Insurance. ...........................................................24
Section 4.19 Real Property.........................................................25
Section 4.20 Environmental Matters.................................................26
Section 4.21 Employees, Labor Matters, etc.........................................27
Section 4.22 Employee Benefit Plans and Related Matters............................28
Section 4.23 No Guarantees.........................................................30
Section 4.24 Records...............................................................30
Section 4.25 Brokers, Finders, etc.................................................30
Section 4.26 Receivables...........................................................30
Section 4.27 Certain Business Relationships........................................31
Section 4.28 Investment Representations............................................31
Section 4.29 Limitation of Representations.........................................32
ARTICLE 5 - [INTENTIONALLY DELETED].........................................................32
ARTICLE 6 - ADDITIONAL AGREEMENTS...........................................................32
Section 6.1 Expenses..............................................................33
Section 6.2 Press Releases........................................................33
Section 6.3 Employee Matters......................................................33
Section 6.4 Tax Matters...........................................................33
Section 6.5 Section 338(h)(10) Election...........................................34
Section 6.6 Adjustments to Eliminate Debt and Transfer Inventory..................34
Section 6.7 Glass Guaranties......................................................34
Section 6.8 Lease Agreements......................................................34
ARTICLE 7 - CLOSING.........................................................................35
Section 7.1 Closing Deliveries by TBA.............................................35
Section 7.2 Closing Deliveries by the Shareholders................................35
ARTICLE 8 - INDEMNIFICATION; MISCELLANEOUS..................................................36
Section 8.1 Indemnification.......................................................36
Section 8.2 Survival of Representations and Warranties, etc.......................39
Section 8.3 Severability..........................................................39
Section 8.4 Notices...............................................................40
Section 8.5 Miscellaneous.........................................................41
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
ANNEX I List of TBA SEC Documents
EXHIBIT A Form of Pledge Agreement
EXHIBIT B Registration Rights Agreement
EXHIBIT C Form of Employment Agreement
EXHIBIT D Form of Rucker Realty Lease Agreement
EXHIBIT E Form of The Glass Family Limited Partnership Lease Agreement
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated March 18, 1999,
is by and among TBA Entertainment Corporation, a Delaware corporation ("TBA"),
Karin Glass and Kenneth Glass, each individual residents of the State of Indiana
and shareholders of the Acquired Companies (as defined below) (individually
referred to as a "Shareholder" and collectively, the "Shareholders"), Karin
Glass & Associates, Inc., an Indiana corporation ("KGA"), Ink Up, Inc., an
Indiana corporation ("Ink"), and KGA, Inc., an Indiana corporation ("K Corp.")
(KGA, Ink and K Corp. are sometimes referred to herein individually as an
"Acquired Company" and collectively as the "Acquired Companies").
W I T N E S S E T H :
WHEREAS, the Shareholders own all of the issued and outstanding equity
stock (the "Shares") of the Acquired Companies;
WHEREAS, TBA, the Acquired Companies and the Shareholders each desire
for TBA to acquire (the "Acquisition") all of the Shares pursuant to the terms
and conditions of this Agreement, as a result of which the Acquired Companies
will become wholly-owned subsidiaries of TBA;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein, and of the mutual benefits to be
derived hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITION OF CERTAIN TERMS. The terms defined in this
Section 1.1, whenever used in this Agreement (including in the Schedules), shall
have the respective meanings indicated below for all purposes of this Agreement.
All references herein to a Section, Article or Schedule are to a Section,
Article or Schedule of or to this Agreement, unless otherwise indicated.
ACQUIRED COMPANY: any of KGA, Ink or K Corp., individually.
ACQUIRED COMPANIES: KGA, Ink and K Corp., collectively.
ACQUIRED COMPANY INDEMNITEES: as defined in Section 8.1(b).
ACQUISITION: as defined in the recitals to this Agreement.
<PAGE> 6
AFFILIATE: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
AGREEMENT: this Stock Purchase Agreement, including the Schedules and
Exhibits hereto.
APPLICABLE LAW: all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Authority, (ii) Governmental
Approvals and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority.
AVERAGE PRICE: the average of the closing sale prices of TBA Common
Stock reported by The Nasdaq Stock Market for each of the five (5) consecutive
trading days ending five (5) business days preceding the Closing Date.
BUSINESS DAY: shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Indianapolis, Indiana are authorized or
required to close.
CASH PORTION: as defined in Section 2.2(b).
CERCLA: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601 et seq.
CLOSING: as defined in Section 2.5.
CLOSING DATE: as defined in Section 2.5.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK PORTION: as defined in Section 2.2(a).
CONSENT: any consent, approval, authorization, waiver, permit, grant,
franchise, concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any Person,
including but not limited to any Governmental Authority.
CONTRACT: as defined in Section 4.11(a).
DISPUTE: as defined in Section 2.3.
EMPLOYEES: as defined in Section 4.22(a).
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<PAGE> 7
EMPLOYMENT AGREEMENT: as defined in Section 7.1(c).
ENVIRONMENTAL LAWS: all Applicable Laws relating to the protection of
the environment, to human health and safety, or to any emission, discharge,
generation, processing, storage, holding, abatement, existence, Release,
threatened Release or transportation of any Hazardous Substances, including,
without limitation, (i) CERCLA, the Resource Conservation and Recovery Act, and
the Occupational Safety and Health Act, (ii) all other requirements pertaining
to reporting, licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous Substances, and (iii) all other requirements pertaining to
the protection of the health and safety of employees or the public.
ENVIRONMENTAL LIABILITIES AND COSTS: all Losses, whether direct or
indirect, known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, without
limitation, all Losses related to Remedial Actions, and all fees, disbursements
and expenses of counsel, experts, personnel and consultants based on, arising
out of or otherwise in respect of: (i) the ownership or operation of the
Acquired Companies, Real Property or Other Leases or any other real properties,
assets, equipment or facilities, by the Shareholders, or any of their
predecessors or Affiliates; (ii) the environmental conditions existing on the
Closing Date on, under, above, or about any Real Property or property subject to
Other Leases or any other real properties, assets, equipment or facilities
currently or previously owned, leased or operated by the Acquired Companies, or
any of their predecessors or Affiliates; and (iii) expenditures necessary to
cause any Real Property or any aspect of the business of the Acquired Companies
to be in compliance with any and all requirements of Environmental Laws as of
the Closing Date, including, without limitation, all Environmental Permits
issued under or pursuant to such Environmental Laws, and reasonably necessary to
make full economic use of any Real Property and/or the business of the Acquired
Companies.
ENVIRONMENTAL PERMITS: any federal, state and local permit, license,
registration, consent, order, administrative consent order, certificate,
approval or other authorization with respect to the Acquired Companies necessary
for the conduct of the Acquired Companies' business as currently conducted under
any Environmental Law.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
FINANCIAL STATEMENTS: each of the financial statements provided by the
Acquired Companies pursuant to Section 4.4.
FINANCIAL STATEMENTS DATE: as defined in Section 4.4.
GAAP: generally accepted accounting principles as in effect in the
United States on the date of this Agreement, as may be modified or amended from
time to time.
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<PAGE> 8
GLASS GUARANTIES: as defined in Section 4.23.
GOVERNMENT APPROVAL: any Consent of, with or to any Governmental
Authority.
GOVERNMENTAL AUTHORITY: any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including, without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any State of the
United States or any political subdivision thereof, and any tribunal or
arbitrator(s) of competent jurisdiction, and any self-regulatory organization.
HAZARDOUS SUBSTANCES: any substance that: (i) is or contains asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or
petroleum-derived substances or wastes, radon gas or related materials, (ii)
requires investigation, removal or remediation under any Environmental Law, or
is defined, listed or identified as a "hazardous waste" or "hazardous substance"
thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by
any Governmental Authority or Environmental Law.
INDEMNIFICATION DISPUTE: as defined in Section 8.1(d).
INDEMNIFIED PARTY: as defined in Section 8.1(d).
INDEMNIFYING PARTY: as defined in Section 8.1(d).
INK: Ink Up, Inc., an Indiana corporation.
INTELLECTUAL PROPERTY: any and all United States and foreign: (a)
patents (including design patents, industrial designs and utility models) and
patent applications (including docketed patent disclosures awaiting filing,
reissues, divisions, continuations-in-part and extensions), patent disclosures
awaiting filing determination, inventions and improvements thereto; (b)
trademarks, service marks, trade names, trade dress, logos, business and product
names, slogans, and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d) inventions,
processes, designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing, engineering and technical
drawings, product specifications and confidential business information; (e) mask
work and other semiconductor chip rights and registrations thereof; (f)
intellectual property rights similar to any of the foregoing; (g) copies and
tangible embodiments thereof (in whatever form or medium, including electronic
media).
INTELLECTUAL PROPERTY ASSETS: all Intellectual Property, including, but
not limited to, all designs and art work developed for or by the Acquired
Companies for their own use or for any client of the Acquired Companies, and all
rights thereunder or in respect thereof, primarily relating to or
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<PAGE> 9
used or held for use in connection with the business of the Acquired Companies,
including, but not limited to, rights to sue for and remedies against past,
present and future infringements thereof, and rights of priority and protection
of interests therein under the laws of any jurisdiction worldwide and all
tangible embodiments thereof, and the right to use, and conduct business under,
the names "Karin Glass & Associates," "KGA," "Ink Up" and "K Corp."
INVENTORIES: all inventories of raw materials, work in process, finished
products, goods, spare parts, replacement and component parts, and office and
other supplies.
IRS: the Internal Revenue Service.
K CORP.: KGA, Inc. d/b/a K Corp., an Indiana corporation.
KGA: Karin Glass & Associates, Inc., an Indiana corporation.
KNOWLEDGE: an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter or (b) such individual should have been aware of such fact
or other matter as a result of the receipt of information by such individual
which indicates the existence of such fact or other matter. A person (other than
an individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving, or who has at any time served, as a
director, officer, partner, executor, or trustee of such person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
LEASED REAL PROPERTY: means all interests leased pursuant to the Leases.
LEASES: means the real property leases, subleases, licenses and
occupancy agreements pursuant to which any Acquired Company is the lessee,
sublessee, licensee or occupant.
LIEN: any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy agreement,
adverse claim or interest, easement, covenant, encroachment, burden, title
defect, title retention agreement, voting trust agreement, interest, equity,
option, lien, right of first refusal, charge or other restrictions or
limitations of any nature whatsoever, including but not limited to such as may
arise under any Contracts.
LOSSES: as defined in Section 8.1(a).
MATERIAL ADVERSE EFFECT: any event, occurrence, fact, condition, change
or effect that (a) is materially adverse to the business, operations, prospects,
results of operations, prospects, condition (financial or otherwise), properties
(including intangible properties), assets (including intangible assets) or
liabilities of the Acquired Companies taken as a whole and (b) materially
impairs the ability of the Acquired Companies as a whole to conduct their
business.
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<PAGE> 10
NET PRETAX INCOME: Net income before provision is made for federal and
state income taxes and any amortization or write-off of goodwill or other costs
associated with the Acquisition, as calculated in accordance with GAAP, and
pursuant to the provisions of Section 2.3.
OTHER LEASES: the leases, subleases, licenses and occupancy agreements
pursuant to which any Acquired Company is a lessor, sublessor or licensor of any
part of the Real Property.
OWNED INTELLECTUAL PROPERTY: as defined in Section 4.17(a).
OWNED REAL PROPERTY: the real property owned by the Acquired Companies,
together with all other structures, facilities, improvements, fixtures, systems,
equipment and items of property presently or hereafter located thereon attached
or appurtenant thereto, or owned by the Acquired Companies and located on Leased
Real Property and all easements, licenses, rights and appurtenances relating to
the foregoing.
PERMITTED LIENS: (i) Liens reserved against in the Financial Statements,
to the extent so reserved, (ii) Liens for Taxes not yet due and payable or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the Acquired Companies' books in
accordance with GAAP, or (iii) Liens that, individually and in the aggregate, do
not and would not materially detract from the value of any of the property or
assets of any Acquired Company or materially interfere with the use thereof as
currently used or contemplated to be used or otherwise.
PERSON: any natural person, firm, partnership, association, corporation,
company, trust, business trust, Governmental Authority or other entity.
PLAN: as defined in Section 4.22(a).
PLEDGE AGREEMENT: as defined in Section 2.3.
PURCHASE PRICE: as defined in Section 2.2.
PURCHASE PRICE ADJUSTMENT: as defined in Section 2.3.
REAL PROPERTY: the Owned Real Property and the Leased Real Property.
REAL PROPERTY LAWS: as defined in Section 4.19(f).
RELATED PERSONS: as defined in Section 4.22(a).
RELEASE: any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing
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<PAGE> 11
and the like, including without limitation, the moving of any materials through,
into or upon, any land, soil, surface water, ground water or air, or otherwise
entering into the environment.
REMAINING TBA STOCK: as defined in Section 2.3.
REMEDIAL ACTION: all actions required to (i) clean up, remove, treat or
in any other way remediate any Hazardous Substances; (ii) prevent the release of
Hazardous Substances so that they do not migrate or endanger or threaten to
endanger public health or welfare or the environment; or (iii) perform studies,
investigations and care related to any such Hazardous Substances.
SEC: the United States Securities and Exchange Commission.
SECURITIES ACT: the Securities Act of 1933, as amended.
SECURITY: as defined in Section 4.28.
SHARES: as defined in the recitals to this Agreement.
SUBSIDIARIES: each corporation or other Person in which a Person owns or
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
TAX: any federal, state, provincial, local, foreign or other income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, net worth, capital, profits, windfall profits, gross receipts,
value added, sales, use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording, premium,
severance, environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, health care, withholding, estimated or other
similar tax, duty or other governmental charge or assessment or deficiencies
thereof (including all interest and penalties thereon and additions thereto
whether disputed or not).
TAX RETURN: any return, report, declaration, form, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
TBA: TBA Entertainment Corporation, a Delaware corporation.
TBA COMMON STOCK: the common stock, par value $.001 per share, of TBA.
TBA INDEMNITEES: as defined in Section 8.1(a).
TBA SEC DOCUMENTS: as defined in Section 3.3.
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<PAGE> 12
TREASURY REGULATIONS: the regulations prescribed pursuant to the Code.
ARTICLE 2
PURCHASE AND SALE OF SHARES
SECTION 2.1 PURCHASE AND SALE. Subject to the terms and conditions of
this Agreement, the Shareholders hereby sell, assign, transfer and deliver to
TBA, and TBA hereby purchases from the Shareholders the Shares, free and clear
of any and all Liens.
SECTION 2.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") for the Shares shall be equal to Three Million Two Hundred Thousand
Dollars ($3,200,000), subject to adjustment as provided in Section 2.3 hereof,
and shall be paid or delivered to the Shareholders at the Closing as follows:
(a) TBA shall issue and deliver to the Shareholders
certificates registered in the Shareholders' names representing the
number of fully-paid and nonassessable shares of TBA Common Stock equal
to the dollar amount set forth opposite each such Shareholder's name on
Schedule 2.2 divided by the Average Price (the "Common Stock Portion").
The total aggregate value of the Common Stock Portion shall equal Nine
Hundred Thousand Dollars ($900,000). The Common Stock Portion shall be
subject to the Pledge Agreement;
(b) TBA shall deliver to the Shareholders by wire transfer
of immediately available funds to one or more accounts designated in
writing by the Shareholders to TBA prior to the Closing cash in an
amount equal to Two Million Three Hundred Thousand Dollars ($2,300,000)
(the "Cash Portion"). The Cash Portion shall be allocated among the
Shareholders as specified in Schedule 2.2; and
(c) No fraction of a share of TBA Common Stock will be
issued to the Shareholders but in lieu thereof the Shareholders will be
paid an amount in cash equal to the product of (A) the number of
fractional shares to which the Shareholders are otherwise entitled and
(B) the Average Price. No interest shall be paid on such amount.
SECTION 2.3 ADJUSTMENT TO PURCHASE PRICE. (a) The Purchase Price may be
reduced based on the Net Pretax Income of the Acquired Companies for the twelve
(12) month periods ending December 31, 1999 and December 31, 2000, as such
amounts are agreed to by TBA and the Shareholders or determined by arbitration
in accordance with Section 2.3(c) (the "Purchase Price Adjustment"). In
calculating the Net Pretax Income of the Acquired Companies for purposes of this
Agreement, if TBA charges its other Subsidiaries for overhead costs, TBA may
charge the Acquired Companies an overhead fee consistent with charges to other
TBA Subsidiaries not to exceed two percent (2%) of gross revenue, but no other
corporate fees or expenses of any kind shall be charged by TBA or any of its
Affiliates to the Acquired Companies for the purposes of calculating Net Pretax
Income. In addition, the parties agree that certain administrative and operating
personnel will be
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<PAGE> 13
hired by the Acquired Companies to assist in the operations of the Acquired
Companies with total costs associated with such employees, including salary,
bonus, all benefits and any other compensation of any kind, not to differ
materially from such costs and expenses reflected in the budgets prepared by TBA
and the Shareholders, unless otherwise mutually agreed by TBA and the
Shareholders. In the event that the aggregate Net Pretax Income of the Acquired
Companies for the twelve (12) month period ended December 31, 1999, is less than
$650,000 ("1999 Target Earnings") or the aggregate Net Pretax Income of the
Acquired Companies for the twelve (12) month period ended December 31, 2000 is
less than $750,000 ("2000 Target Earnings"), subject to the limitations and
adjustments hereinafter set forth, the Purchase Price shall be reduced by, and
the Shareholders shall pay to TBA (in accordance with the provisions of the
Section 2.3), the cumulative amount calculated as follows:
1. 1999 Target Earnings less the actual aggregate Net Pretax Income
of the Acquired Companies for the twelve (12) month period ended
December 31, 1999 multiplied by five (5) multiplied by sixty
five percent (65%); and
2. 2000 Target Earnings less the actual aggregate Net Pretax Income
of the Acquired Companies for the twelve (12) month period ended
December 31, 2000 multiplied by five (5) multiplied by thirty
five percent (35%).
(b) The aggregate Net Pretax Income of the Acquired
Companies for the twelve (12) month period ended December 31, 1999 shall
be calculated as if the Closing Date was January 1, 1999. In addition,
for purposes of the calculations set forth in 1. and 2. above, (i) the
excess, if any, of the Net Pretax Income of the Acquired Companies for
the twelve (12) month period ended December 31, 1999 over the 1999
Target Earnings shall be carried forward and may be used as a credit
against the excess, if any, of the 2000 Target Earnings over the Net
Pretax Income of the Acquired Companies for the twelve (12) month period
ended December 31, 2000, and (ii) the excess, if any, of the Net Pretax
Income of the Acquired Companies for the twelve (12) month period ended
December 31, 2000 over the 2000 Target Earnings (the "2000 Excess")
shall be carried back and may be used as a credit against the excess, if
any, of the 1999 Target Earnings over the Net Pretax Income of the
Acquired Companies for the twelve (12) month period ended December 31,
1999 (the "1999 Shortfall") at the rate of one dollar ($1.00) of 2000
Excess for each fifty cents ($0.50) of 1999 Shortfall. The amount
payable by the Shareholders to TBA hereunder, if any, shall be paid by
the Shareholders to TBA at the option of the Shareholders (a) in cash by
wire transfer of immediately available funds, or (b) by the delivery to
TBA of TBA Common Stock held by TBA pursuant to the Pledge Agreement.
The payment of the Purchase Price Adjustment shall be made not later
than the later of (x) March 31, 2001 or (y) ten (10) business days after
any Dispute is resolved. The obligation of the Shareholders pursuant to
this Section 2.3 shall be secured by a pledge of the shares of TBA
Common Stock to be issued to the Shareholders pursuant to Section 2.2(a)
pursuant to a pledge agreement (the "Pledge Agreement") substantially in
the form attached hereto as Exhibit A. Notwithstanding any other
provisions of this Section 2.3, the Shareholders shall have no liability
to TBA pursuant to this Section 2.3 in excess of the value of the TBA
Common Stock issued to the Shareholders pursuant to Section 2.2(a) and
then held by TBA pursuant to the Pledge Agreement
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(the "Remaining TBA Stock"), and upon delivery of the Remaining TBA
Stock (or release thereof in accordance with the Pledge Agreement), the
Shareholders shall have no further liability to TBA pursuant to this
Section 2.3, whether or not the value of the Remaining TBA Stock is less
than the Purchase Price Adjustment. For purposes of this Section 2.3,
the value of such TBA Common Stock shall be the average of the closing
sales price of TBA Common Stock reported by the Nasdaq Stock Market for
each of the five (5) consecutive trading days ending five (5) business
days preceding the date the payment, if any, is due hereunder from the
Shareholders to TBA. TBA shall provide to the Acquired Companies such
assistance as it may, in its reasonable discretion, determine to be
advisable to enable the Acquired Companies to achieve the 1999 Target
Earnings and the 2000 Target Earnings. Net Pretax Income as calculated
for purposes of this Section 2.3 shall also be increased by any amount
received or which may be received by TBA, the Acquired Companies or any
of their Affiliates pursuant to Section 8.1 of this Agreement, to the
extent that Net Pretax Income includes a corresponding deduction for
such amount.
(c) TBA shall provide to the Shareholders all relevant
information used to determine the Net Pretax Income amounts not later
than February 15, 2001 and shall provide the Shareholders access to the
books and records of the Acquired Companies. If TBA and the Shareholders
cannot reach an agreement on Net Pretax Income for any period, all
disagreements (a "Dispute") shall be resolved by arbitration to be held
in Indianapolis, Indiana. All Disputes shall be presented to an
arbitrator selected by mutual agreement of TBA and the Shareholders from
impartial arbitrators designated by the American Arbitration Association
who are familiar with matters similar to the Dispute. The decision of
the arbitrator shall be binding on TBA and the Shareholders. The
expenses of such arbitration shall be allocated by the arbitrator.
(d) Prior to December 31, 2000, unless consented to by Karin
Glass in writing, the Acquired Companies shall not undertake any
project, event or activity which, after deducting all applicable costs
and expenses associated with such project, event or activity, is
reasonably expected to cause the Acquired Companies to incur a pretax
loss with respect to such project, event or activity for calendar years
1999 or 2000.
SECTION 2.4 REGISTRATION RIGHTS. The Shareholders and TBA shall execute
a Registration Rights Agreement (herein so called) in the form attached hereto
as Exhibit B with respect to the shares of TBA Common Stock issued to the
Shareholders pursuant to Section 2.2(a) and the Shareholders shall have the
registration and other rights provided in such Registration Rights Agreement,
which Registration Rights Agreement is hereby incorporated herein by this
reference as if set forth in full in this Agreement. The parties hereto
stipulate and agree that the execution and delivery of the Registration Rights
Agreement is intended to provide the Shareholders with flexibility in
liquidating their investment in TBA Common Stock and does not evidence any
present intention to dispose of such investment.
SECTION 2.5 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Ice Miller
Donadio & Ryan, Indianapolis, Indiana simultaneously with the execution of this
Agreement (the "Closing Date").
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SECTION 2.6 FURTHER ACTION. If, at any time after the Closing Date, any
further action is necessary or desirable to vest TBA with full right, title and
possession and all rights, privileges and immunities with respect to any or all
of the Shares, the Shareholders shall take all such action. After the Closing,
all parties to this Agreement will take such action as is reasonably requested
by any other party hereto to carry out the purposes of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TBA
TBA hereby represents and warrants to the Acquired Companies and the
Shareholders as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. TBA has been duly
incorporated and is validly existing as a corporation and in good standing under
the laws of the State of Delaware and has the requisite corporate power to carry
on its business as now conducted.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. TBA has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by TBA and
the consummation by TBA of the transactions contemplated hereby have been duly
authorized by the Board of Directors of TBA, and no other corporate proceedings
on the part of TBA are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by TBA and constitutes the valid and binding obligation of TBA,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
None of the execution and delivery of this Agreement by TBA, the performance by
TBA of its obligations hereunder or the consummation of the transactions
contemplated hereby by TBA will require any consent, approval or notice under,
or violate, breach, be in conflict with or constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default) under,
or permit the termination of, or result in the creation or imposition of any
Lien upon any properties, assets or business of TBA under any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit, authorization,
license, contract, instrument or other agreement or commitment or any order,
judgment or decree to which TBA is a party or by which TBA or any of its assets
or properties is bound or encumbered, except those that have already been given,
obtained or filed. Other than filings under the Securities Act, if any,
necessary to perfect an exemption from registration under the Securities Act,
filings made with the National Association of Securities Dealers, Inc. to list
the shares of TBA Common Stock to be issued in connection with the Acquisition
in the National Market System of The Nasdaq Stock Market and filings to be made
with state securities regulatory agencies, no authorization, consent or approval
of, or filing with, any public body, court or authority is necessary on the part
of TBA for the consummation by TBA of the transactions contemplated by this
Agreement.
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SECTION 3.3 TBA COMMON STOCK AND TBA SEC DOCUMENTS. The TBA Common Stock
is listed for trading on the National Market System of The Nasdaq Stock Market.
The shares of TBA Common Stock to be issued by TBA at the Closing have been duly
authorized for such issuance and, when issued and delivered by TBA in accordance
with the provisions of this Agreement, will be validly issued, fully paid, and
nonassessable. The issuance of such shares under this Agreement is not subject
to any preemptive or similar rights. TBA has furnished the Acquired Companies
and the Shareholders with a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by TBA with the SEC
since January 1, 1998 (the "TBA SEC Documents"), which are all the documents
(other than preliminary materials) that TBA was required to file with the SEC
since such date and all of which documents are listed on Annex I attached
hereto. As of its date, each TBA SEC Document was in compliance, in all material
respects, with the requirements of its form. None of the TBA SEC Documents,
including, without limitation, any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. The financial statements of TBA
included in the TBA SEC Documents complied, at the time of filing with the SEC,
as to form, in all material respects, with applicable accounting requirements
and published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles, applied on
a consistent basis during the periods involved, and fairly presented, in all
material respects (subject, in the case of unaudited statements, to normal,
recurring year-end audit adjustments) the financial position of TBA as and at
the dates thereof and the results of its operations and cash flows for the
periods then ended.
SECTION 3.4 CERTAIN CORPORATE MATTERS. TBA is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership of its properties, the employment of its personnel or the
conduct of its business requires it to be so qualified, other than in such
jurisdictions where the failure to so qualify would not, individually or in the
aggregate, have a materially adverse effect on TBA and its Subsidiaries, taken
as a whole. TBA has full corporate power and authority and all authorizations,
licenses and permits necessary to carry on the business in which it engages or
in which it proposes presently to engage and to own and use the properties owned
and used by it. TBA has delivered to the Acquired Companies and the Shareholders
true, accurate and complete copies of its charter documents and bylaws which
reflect all amendments made thereto at any time prior to the date of this
Agreement. The minute books containing the records of meetings of the
shareholders and board of directors of TBA are accurate and complete in all
material respects. All material corporate actions taken by TBA since its date of
incorporation have been duly authorized and/or subsequently ratified, as
necessary. TBA is not in default under or in violation of any material provision
of its charter or bylaws.
SECTION 3.5 BROKER'S FEES. Neither TBA nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Acquisition or any similar transaction.
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<PAGE> 17
SECTION 3.6 ABSENCE OF CERTAIN CHANGES. Since January 1, 1998, there has
not been any material adverse change in the business, assets, results of
operations, condition (financial or otherwise), or prospects of TBA and its
Subsidiaries considered as a whole.
SECTION 3.7 NO RELIANCE. In determining to enter into this Agreement and
consummate the transactions contemplated herein, TBA has not relied on any
information or materials other than (a) the representations and warranties of
the Shareholders set forth in Article 4 of this Agreement, and (b) the schedules
related to such representations and warranties.
SECTION 3.8 NO ACTIONS PENDING. There are no actions, suits or
proceedings pending or, to the Knowledge of TBA, threatened, and to the
Knowledge of TBA, there are no investigations pending or threatened, which in
any manner challenge or seek to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement, by or before any court, arbitrator
or administrative or governmental body.
SECTION 3.9 INVESTMENT INTENT. TBA is acquiring the Shares for its own
account for the purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof within the meaning of the Securities
Act. TBA will not sell or otherwise dispose of any shares in a manner which
would require registration under the Securities Act or any applicable blue sky
law unless such registrations are effected.
SECTION 3.10 INFORMATION. TBA has had an opportunity to ask questions
of, and receive answers from, the Shareholders concerning the Shares, and the
operations, financial condition and prospects of the Acquired Companies.
SECTION 3.11 SOPHISTICATION OF TBA. TBA has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Shares.
SECTION 3.12 ACCREDITED INVESTOR. TBA is an "accredited investor" as
that term is defined in regulations promulgated by the SEC.
SECTION 3.13 NO KNOWLEDGE OF BREACH. Neither TBA nor any of its
employees, agents or Affiliates is aware of any breach by the Shareholders of
any of the representations and warranties of the Shareholders as set forth in
Article 4 of this Agreement.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder represents and warrants, jointly and severally, to TBA
as follows:
SECTION 4.1 AUTHORIZATION, ETC. Each Acquired Company has the corporate
power and authority to execute and deliver this Agreement, to perform fully its
obligations hereunder, and to consummate the transactions contemplated hereby.
The execution and delivery by each Acquired Company of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly authorized
by all requisite action of such Acquired Company. This Agreement is a legal,
valid and binding obligation of each Shareholder and each Acquired Company,
enforceable against each Shareholder and each Acquired Company in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
SECTION 4.2 ORGANIZATION, STATUS, CAPITALIZATION ETC.
(a) Each Acquired Company is a corporation duly organized
and validly existing under the laws of the jurisdiction of its
organization, as set forth in Schedule 4.2(a), with full power and
authority to carry on the business in which it is engaged and to own or
lease and to operate its properties as such properties are owned, leased
or operated.
(b) [Intentionally Deleted]
(c) Each Acquired Company has delivered to TBA complete and
correct copies of its Articles of Incorporation and Bylaws or other
organizational documents, in each case, as amended and in effect on the
date hereof. No Acquired Company is in violation of any of the
provisions of its Articles of Incorporation and Bylaws or other
organizational documents. The minute books containing the records of
meetings of the shareholders and Board of Directors of each Acquired
Company, the stock certificate books and the stock record books of each
Acquired Company are complete and correct in all material respects. The
stock record books and the shareholder lists of each Acquired Company
which the Shareholders have previously furnished to TBA are complete and
correct in all respects and accurately reflect the record and beneficial
ownership of all of the outstanding shares of the Acquired Companies'
capital stock and all other outstanding securities issued by any
Acquired Company. All material corporate actions taken by the Acquired
Companies since incorporation have been duly authorized and/or
subsequently ratified as necessary.
(d) KGA has an authorized capitalization consisting of 1,000
shares of common stock, no par value per share, of which 500 shares are
issued and outstanding. Ink has an authorized capitalization consisting
of 1,000 shares of common stock, no par value per share, of which 100
shares are issued and outstanding. K Corp. has an authorized
capitalization
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consisting of 1,000,000 shares of common stock, no par value per share,
of which 95 shares are issued and outstanding. All of the issued and
outstanding shares of each of KGA, Ink and K Corp. have been duly
authorized and are validly issued, fully paid and nonassessable and have
not been issued in violation of any preemptive rights. There are no
outstanding or authorized options, rights, warrants, calls, convertible
securities, rights to subscribe, conversion rights or other agreements
or commitments to which any Acquired Company is a party or which are
binding upon any Acquired Company providing for the issuance or transfer
by such Acquired Company of additional shares of its capital stock and
no Acquired Company has reserved any shares of its capital stock for
issuance, nor are there any outstanding stock option rights, contracts,
arrangements or commitments based upon the book value, income or other
attribute of any Acquired Company. There are no voting trusts or any
other agreements or understandings with respect to the voting of any
Acquired Company's capital stock. Upon consummation of the Acquisition,
TBA will own the entire equity interest in each Acquired Company and no
Acquired Company will have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock, nor
have outstanding any rights, options, agreements or arrangements to
subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock. The
Shareholders are the only holders of capital stock of the Acquired
Companies. All capital stock, options, warrants and other securities
issued by any Acquired Company were issued in compliance, in all
respects, with all applicable federal and state securities laws.
(e) No Acquired Company owns nor is obligated to purchase
any equity interest in or any other interest convertible into or
exchangeable for an equity interest in any entity.
SECTION 4.3 NO CONFLICTS, ETC. The execution, delivery and performance
by each Acquired Company of this Agreement and the consummation of the
transactions contemplated hereby, do not and will not in any material respect
conflict with or result in a violation of or a default under (with or without
the giving of notice or the lapse of time or both) (i) any Applicable Law
applicable to such Acquired Company or any Affiliate of such Acquired Company or
any of the properties or assets of such Acquired Company, (ii) the Articles of
Incorporation or other organizational documents of such Acquired Company or
(iii) any material Contract or other material contract, agreement or other
instrument to which such Acquired Company or any Affiliate of such Acquired
Company is a party or by which such Acquired Company or any of its properties or
assets, may be bound or affected. To the Knowledge of the Shareholders, except
as set forth on Schedule 4.3, no Governmental Approval or other Consent is
required to be obtained or made by any Acquired Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
SECTION 4.4 FINANCIAL STATEMENTS. Financial statements of each Acquired
Company as at and for the period ended December 31, 1998 (the "Financial
Statements Date") including a balance sheet and statement of income and retained
earnings are attached hereto as Schedule 4.4 (collectively the "Financial
Statements"). The Financial Statements have been generated based on the
accounting
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systems of the respective Acquired Companies and reflect all of the transactions
which have been entered into such systems. Since December 31, 1997, there have
been no changes in any Acquired Company's method of accounting for tax purposes.
The financial condition of the Acquired Companies on the Closing Date shall not
be materially different from the Acquired Companies' financial condition as set
forth in the Financial Statements.
SECTION 4.5 ABSENCE OF UNDISCLOSED LIABILITIES. No Acquired Company has
any liabilities or obligations of any nature, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due,
arising out of or relating to the business of the Acquired Companies, except (a)
as set forth in Schedule 4.5, (b) as and to the extent disclosed or reserved
against in the Financial Statements and (c) for liabilities and obligations that
were incurred after the Financial Statements Date in the ordinary course of
business consistent with prior practice. No employee of any Acquired Company is
now or will by the passage of time hereinafter become entitled to receive any
vacation time, vacation pay or severance pay attributable to services rendered
prior to such date except as disclosed in the Financial Statements. Except as
set forth on Schedule 4.5, no Acquired Company is indebted, directly or
indirectly, to any person who is an officer, director or shareholder of any
Acquired Company or any Affiliate of any such Person in any amount whatsoever
other than for salaries for services rendered or reimbursable business expenses,
and no such officer, director, shareholder or Affiliate is indebted to any
Acquired Company, except for advances made to employees of the Acquired
Companies in the ordinary course of business to meet reimbursable business
expenses anticipated to be incurred by such obligor.
SECTION 4.6 TAX RETURNS AND AUDITS.
(a) The taxable year of each Acquired Company ends December
31. Except as set forth on Schedule 4.6, each Acquired Company has duly
and timely filed or caused to be filed all Tax Returns required to be
filed on behalf of itself and has paid in full or fully reserved against
in the Financial Statements all Taxes. Except as set forth on Schedule
4.6, such Tax Returns are correct in all material respects, and no
Acquired Company is required to pay any other Taxes for such periods
except as shown in such Tax Returns. The income tax returns filed by
each Acquired Company have not been, and are not being, to the Knowledge
of the Shareholders, examined by the Internal Revenue Service or other
applicable taxing authorities for any period. Except as set forth on
Schedule 4.6, all Taxes or estimates thereof that are due, or are
claimed or asserted by any taxing authority to be due, have been timely
and appropriately paid so as to avoid penalties for underpayment. Except
as set forth on Schedule 4.6, except for amounts not yet due and
payable, all Tax liabilities to which the properties of any Acquired
Company may be subject have been paid and discharged. There are no Tax
liens (other than liens for Taxes which are not yet due and payable) on
any of the property of any Acquired Company, nor are there any pending
or threatened examinations or Tax claims asserted. No Acquired Company
has granted any extensions of limitation periods applicable to Tax
claims or filed a consent under Section 341(f) of the Code relating to
collapsible corporations. To the Knowledge of the Shareholders, except
in jurisdictions in which any Acquired Company voluntarily files Tax
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Returns, no claim has ever been made by a taxing authority that any
Acquired Company is or may be subject to taxation by that jurisdiction.
True and correct copies of all federal, foreign, state and local income
and other Tax Returns, notices from foreign, federal, state and local
taxing authorities, tax examination reports and statements of
deficiencies assessed against or agreed to by any Acquired Company since
January 1, 1994, have been made available to TBA. No Acquired Company is
a party to, or bound by, any tax indemnity, tax sharing or tax
allocation agreement. No Acquired Company is a party to any agreement
that has resulted or would result in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code. No
Acquired Company has ever been a member of an "affiliated group," as
defined in Section 1504(a) of the Code. All positions taken on federal
Tax Returns that could give rise to a penalty for substantial
understatement pursuant to Section 6662(d) of the Code have been
disclosed on such Tax Returns. No Acquired Company is a United States
real property holding corporation as defined in Section 897 of the Code.
No shareholder of any Acquired Company is a foreign person within the
meaning of Section 1445(b)(2) of the Code. No Acquired Company has made
any tax elections under any section of the Code (other than its election
to be taxed as an "S" corporation under Section 1362), including,
without limitation under any of Sections 108, 168, 338, 441, 463, 472,
1017, 1033 or 4977 of the Code (or any predecessor thereof). None of the
assets and properties of any Acquired Company is an asset or property
that TBA or any of its affiliates is or will be required to treat as
being (i) owned by any other Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954 as amended, and
in effect immediately before the enactment of the Tax Reform Act of
1986, or (ii) tax-exempt use property within the meaning of Section
168(h)(1) of the Code. No closing agreement pursuant to Section 7121 of
the Code (or any predecessor provision) or any similar provision of any
state, local, or foreign law has been entered into by or with respect to
any Acquired Company or any assets thereof. No Acquired Company has
agreed to or is required to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method of any Acquired Company, no Acquired
Company has any applications pending with any taxing authority
requesting permission for any changes in any accounting method of any
Acquired Company, and the IRS has not proposed any such adjustment or
change in accounting method therefor. Except as set forth on Schedule
4.6, no Acquired Company has been or is in violation (or with notice or
lapse of time or both, would be in violation) of any Applicable Law
relating to the payment or withholding of Taxes. Except as set forth on
Schedule 4.6, each Acquired Company has duly and timely withheld from
salaries, wages and other compensation and paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over
for all periods under all applicable laws.
(b) Each Acquired Company has been a validly electing S
corporation within the meaning of Code Sections 1361 and 1362 since
their respective dates of incorporation, and each Acquired Company will
be an S corporation up to and including the day before the Closing Date.
Except as set forth in Schedule 4.6, no Acquired Company would be liable
for any tax under Code Section 1374 if its assets were sold for their
fair market value as of January 1, 1999.
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SECTION 4.7 ABSENCE OF CHANGES. Except as set forth in Schedule 4.7,
since the Financial Statements Date, the Acquired Companies have conducted their
respective businesses only in the ordinary course consistent with prior practice
and no Acquired Company has, on behalf of, in connection with or relating to its
business:
(a) suffered any Material Adverse Effect;
(b) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection
with the purchase of goods or services in the ordinary course of
business consistent with prior practice; none of which liabilities in
any case or in the aggregate, could have a Material Adverse Effect;
(c) discharged or satisfied any Lien other than those then
required to be discharged or satisfied, or paid any obligation or
liability, absolute, accrued, contingent or otherwise, whether due or to
become due, other than current liabilities shown on the Financial
Statements and current liabilities incurred since the date thereof in
the ordinary course of business consistent with prior practice;
(d) mortgaged, pledged or subjected to Lien, any material
property, business or assets, tangible or intangible;
(e) sold, transferred, leased to others or otherwise
disposed of any material assets, except for inventory sold in the
ordinary course of business, or cancelled or compromised any debt or
claim, or waived or released any right of substantial value;
(f) received any notice of termination of any contract,
lease or other agreement or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any case or in the
aggregate, has had a Material Adverse Effect;
(g) transferred or granted any rights under, or entered into
any settlement regarding the breach or infringement of, any Intellectual
Property, or modified in any material respect any existing rights with
respect thereto;
(h) other than in the ordinary course of business as
disclosed on Schedule 4.7, made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable,
declared or paid a dividend or otherwise made or agreed to make any
distribution with respect to the outstanding stock of any Acquired
Company or any redemption, purchase or other acquisition of any such
stock, or paid or agreed or orally promised to pay, conditionally or
otherwise, any material bonus, incentive, retention or other
compensation, retirement, welfare, fringe or severance benefit or
vacation pay, to or in
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respect of any shareholder, director, officer, employee, salesman,
distributor or agent of such Acquired Company;
(i) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slowdowns or
lockouts, or had any change in its relations with its employees, agents,
customers or suppliers which has had a Material Adverse Effect;
(j) made any capital expenditures or capital additions or
improvements in excess of $10,000;
(k) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body other than in
the ordinary course of business consistent with past practices but not
in any case involving amounts in excess of $10,000;
(l) made or authorized any changes to the articles of
incorporation or bylaws of any Acquired Company;
(m) entered into any transaction, contract or commitment
other than in the ordinary course of business; or
(n) taken any action or omitted to take any action that
would result in the occurrence of any of the foregoing.
SECTION 4.8 LITIGATION. Except as set forth on Schedule 4.8, there is no
action, claim, demand, suit, proceeding, arbitration, grievance, citation,
summons, subpoena, inquiry or investigation of any nature, civil, criminal,
regulatory or otherwise, in law or in equity, pending or, to the Knowledge of
the Shareholders, threatened against or relating to any Acquired Company or
against or relating to the transactions contemplated by this Agreement, and the
Shareholders have no Knowledge of any basis for the same. None of the actions,
suits, proceedings or investigations set forth on Schedule 4.8 could result in a
Material Adverse Effect. There are no unsatisfied judgments, orders (other than
orders of general applicability), decrees or stipulations affecting any Acquired
Company or to which any Acquired Company is a party.
SECTION 4.9 COMPLIANCE WITH LAWS; GOVERNMENTAL APPROVALS AND CONSENTS;
GOVERNMENTAL CONTRACTS.
(a) Except as disclosed in Schedule 4.9(a), to the Knowledge
of the Shareholders, each Acquired Company has complied in all material
respects with all Applicable Laws, and no Acquired Company has received
any notice alleging any such conflict, violation, breach or default.
(b) To the Knowledge of the Shareholders, Schedule 4.9(b)
sets forth all Governmental Approvals and other Consents necessary for,
or otherwise material to, the
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business of the Acquired Companies. Except as set forth in Schedule
4.9(b), all such Governmental Approvals and Consents have been duly
obtained and are in full force and effect, and each Acquired Company is
in material compliance with each of such Governmental Approvals and
Consents held by it.
(c) Schedule 4.9(c) sets forth all Contracts with any
Governmental Authority.
(d) To the Knowledge of the Shareholders, there are no
proposed laws, rules, regulations, ordinances, orders, judgments,
decrees, governmental takings, condemnations or other proceedings which
would be applicable to the business, operations or properties of any
Acquired Company and which might adversely affect the properties,
assets, liabilities, operations or prospects of any Acquired Company,
either before or after the Closing Date.
(e) To the Knowledge of the Shareholders, none of the
Shareholders or the Acquired Companies, nor any director, officer,
agent, partner or employee thereof or any other person associated with
or acting for or on behalf of the Shareholders or the Acquired
Companies, has directly or indirectly (a) made or agreed to make any
contribution, gift, bribe, rebate, payoff, influence payment, kickback
or other payment (whether in cash or otherwise) to any person, private
or public, regardless of form, whether in money, property, or services,
in violation of any Applicable Law, rule or regulation (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of any
Acquired Company, or (iv) to pay for any lobbying or similar services or
(b) established or maintained any fund or asset that has not been
recorded in the books and records of the Acquired Companies.
SECTION 4.10 TANGIBLE PROPERTY. Each Acquired Company has good and
marketable title to, or a valid leasehold interest in, each item of tangible
property, whether real, personal or mixed, reflected on its books and records as
owned or used by it, subject to no material encumbrances, loans, security
interests, mortgages or pledges except for Permitted Liens. Each building,
fixture, machine and piece of equipment owned or used by any Acquired Company is
in good operating condition and repair, subject to normal wear and tear, and, to
the Knowledge of the Shareholders, is in compliance with all zoning, building
and fire codes in all material respects. Each Acquired Company owns or leases or
is under valid lease of all buildings, machinery, equipment and other tangible
assets used in the conduct of its business as presently conducted.
SECTION 4.11 CONTRACTS.
(a) Schedule 4.11(a) contains a complete and correct list of
all agreements, contracts, commitments and other instruments and
arrangements (whether written or oral) of the types described below to
which any Acquired Company is a party or by which it is bound (the
"Contracts"):
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(i) leases, licenses, permits, franchises, insurance
policies, Governmental Approvals and other contracts concerning
or relating to any real or personal property;
(ii) employment, consulting, agency, collective
bargaining or other similar contracts, agreements, and other
instruments and arrangements relating to or for the benefit of
current, future or former employees, officers, directors, sales
representatives, distributors, dealers, agents, independent
contractors or consultants;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements, deeds of
trust, bonds, notes, guarantees, and other agreements and
instruments relating to the borrowing of money or obtaining of
or extension of credit;
(iv) licenses, licensing arrangements and other
contracts providing in whole or in part for the use of, or
limiting the use of, any Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including but not
limited to joint research and development and joint marketing
contracts);
(vii) asset purchase agreements and other acquisition
or divestiture agreements (other than sales of inventory in the
ordinary course of business) or agreements involving continuing
indemnity or other obligations;
(viii) orders and other contracts for the purchase or
sale of materials, supplies, products or services, each of which
involves aggregate payments in excess of $25,000;
(ix) contracts with respect to which the aggregate
amount that could reasonably be expected to be paid or received
thereunder in the future exceeds $25,000 per annum or $50,000 in
the aggregate;
(x) sales agency, manufacturer's representative,
licensing, marketing or distributorship agreements;
(xi) contracts, agreements or commitments with any
employee, director, officer, stockholder or Affiliate of any
Acquired Company; and
(xii) any other contracts, agreements or commitments
not entered into in the ordinary course of business.
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(b) The Acquired Companies have delivered or made available
to TBA complete and correct copies of all written Contracts, together
with all amendments thereto, and accurate descriptions of all material
terms of all oral Contracts, set forth or required to be set forth in
Schedule 4.11(a).
(c) To the Knowledge of the Shareholders, all Contracts are
in full force and effect and enforceable against each party thereto. To
the Knowledge of the Shareholders, there does not exist under any
Contract any event of default or event or condition that, after notice
or lapse of time or both, would constitute a violation, breach or event
of default thereunder on the part of any Acquired Company or, to the
Knowledge of the Shareholders, any other party thereto except as set
forth in Schedule 4.11(c) and except for such events or conditions that,
individually and in the aggregate, (i) has not had or resulted in, and
will not have or result in, a Material Adverse Effect and (ii) has not
and will not materially impair the ability of any Acquired Company to
perform its obligations under this Agreement. Except as set forth in
Schedule 4.11(c), to the Knowledge of the Shareholders, no consent of
any third party is required under any Contract as a result of or in
connection with, and the enforceability of any Contract will not be
affected in any manner by, the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated
hereby.
(d) No Acquired Company has outstanding powers of attorney.
SECTION 4.12 TERRITORIAL RESTRICTIONS. No Acquired Company is restricted
by any written agreement or understanding with any other Person from carrying on
its business anywhere in the world.
SECTION 4.13 INVENTORIES. Except as provided on Schedule 4.13, all
Inventories are of good, usable and merchantable quality in all material
respects and do not include obsolete or discontinued items. Schedule 4.13 lists
the locations of all Inventories.
SECTION 4.14 CUSTOMERS. Schedule 4.14 sets forth the names and addresses
of all customers of the Acquired Companies that ordered goods and services from
the Acquired Companies with an aggregate value for each such customer of $25,000
or more since January 1, 1998. Except as set forth on Schedule 4.14, no Acquired
Company has received any written notice that any significant customer of any
Acquired Company (i) has ceased, or will cease, to use the products, goods or
services of any Acquired Company, (ii) has substantially reduced or will
substantially reduce, the use of products, goods or services of any Acquired
Company or (iii) has sought, or is seeking, to reduce the price it will pay for
products, goods or services of any Acquired Company, including in each case
after the consummation of the transactions contemplated hereby. To the Knowledge
of the Shareholders, no customer of any Acquired Company described in the first
sentence of this section has otherwise threatened to take any action described
in the preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement.
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SECTION 4.15 SUPPLIERS. Schedule 4.15 sets forth the names and addresses
of all suppliers from which any Acquired Company ordered raw materials,
supplies, merchandise and other goods and services with an aggregate purchase
price for each such supplier of $25,000 or more since January 1, 1998. Except as
set forth on Schedule 4.15, no Acquired Company has received any written notice
that there has been any material adverse change in the price of such raw
materials, supplies, merchandise or other goods or services, or that any such
supplier will not sell raw materials, supplies, merchandise and other goods to
TBA at any time after the Closing Date on terms and conditions similar in all
material respects to those used in its current sales to the Acquired Companies,
subject to general and customary price increases. To the Knowledge of the
Shareholders, no supplier of any Acquired Company described in the first
sentence of this section has otherwise threatened to take any action described
in the preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement.
SECTION 4.16 PRODUCT WARRANTIES. Except as set forth in Schedule 4.16
and for warranties under Applicable Law, (a) there are no warranties express or
implied, written or oral, with respect to the products of any Acquired Company
and (b) there are no pending or threatened claims with respect to any such
warranty, and, to the Knowledge of the Shareholders, no Acquired Company has any
liability with respect to any such warranty, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due.
SECTION 4.17 INTELLECTUAL PROPERTY.
(a) TITLE. Schedule 4.17(a) contains a complete and correct
list of all Intellectual Property that is owned by any Acquired Company,
including all patents, patent applications, trademarks, service marks,
trade dress, trade names, trade secrets, corporate names, customer
lists, copyrights, mask works, technology or intellectual property that
are material to the business of such Acquired Company and restrictions
or applications to register any of the foregoing and a list of all
licenses or other contracts related thereto (the "Owned Intellectual
Property") other than (i) inventions, trade secrets, processes,
formulas, compositions, designs and confidential business and technical
information and (ii) Intellectual Property that is both not registered
or subject to application for registration and not material to the
business of the Acquired Companies. To the Knowledge of the
Shareholders, each Acquired Company owns or has the exclusive right to
use pursuant to license, sublicense, agreement or permission all
Intellectual Property Assets, free from any Liens (other than Permitted
Liens) and free from any requirement of any past, present or future
royalty payments, license fees, charges or other payments, or conditions
or restrictions whatsoever. The Intellectual Property Assets comprise
all of the Intellectual Property necessary to conduct and operate the
business as now being conducted by the Acquired Companies.
(b) TRANSFER. To the Knowledge of the Shareholders,
immediately after the Closing Date, the Acquired Companies will continue
to own all of the Owned Intellectual Property and will have a right to
use all other Intellectual Property Assets, free from any
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Liens (other than Permitted Liens) and on the same terms and conditions
as in effect prior to the Closing Date.
(c) NO INFRINGEMENT. To the Knowledge of the Shareholders,
the Owned Intellectual Property does not infringe or otherwise conflict
with any rights of any Person in the United States in respect of any
Intellectual Property. To the Knowledge of the Shareholders, none of the
Intellectual Property Assets is being infringed or otherwise used or
available for use, by any other Person.
(d) LICENSING ARRANGEMENTS. Schedule 4.17(d) sets forth all
agreements (i) pursuant to which any Acquired Company has licensed
Intellectual Property Assets to, or the use of Intellectual Property
Assets is otherwise permitted (through non-assertion, settlement or
similar agreements or otherwise) by, any other Person and (ii) pursuant
to which any Acquired Company has had Intellectual Property licensed to
it, or has otherwise been permitted to use Intellectual Property
(through non-assertion, settlement or similar agreements or otherwise).
All of the agreements or arrangements set forth on Schedule 4.17(d) (x)
are, to the Knowledge of the Shareholders, in full force and effect in
accordance with their terms, and no default exists thereunder by any
Acquired Company, or to the Knowledge of the Shareholders, by any other
party thereto, (y) are free and clear of all Liens, except Permitted
Liens, and (z) do not contain any change in control or other terms or
conditions that will become applicable or inapplicable as a result of
the consummation of the transactions contemplated by this Agreement. The
Acquired Companies have delivered or made available to TBA true and
complete copies of all written licenses and arrangements (including
amendments) set forth on Schedule 4.17(d). To the Knowledge of the
Shareholders, all royalties, license fees, charges and other amounts
payable by, on behalf of, to, or for the account of, any Acquired
Company in respect of any Intellectual Property are set forth on
Schedule 4.17(d).
(e) NO INTELLECTUAL PROPERTY LITIGATION. No claim or demand
of any Person has been made nor is there any proceeding that is pending,
or to the Knowledge of the Shareholders, threatened, which (i)
challenges the rights of any Acquired Company in respect of any Owned
Intellectual Property, (ii) asserts that any Acquired Company is
infringing or otherwise in conflict with, or is, except as set forth in
Schedule 4.17(d), required to pay any royalty, license fee, charge or
other amount with regard to, any Intellectual Property Asset in the
United States, or (iii) claims that any default exists under any
agreement or arrangement listed on Schedule 4.17(d). None of the
Intellectual Property Assets is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court,
arbitrator, or administrative agency, or has been the subject of any
litigation within the last five (5) years, whether or not resolved in
favor of the Acquired Companies.
(f) USE OF NAMES AND MARKS. Except as set forth in Schedule
4.17(g), there are, to the Knowledge of the Shareholders, no contractual
restriction or limitations pursuant to any orders, decisions,
injunctions, judgments, awards or decrees of any Governmental
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Authority on TBA's right to use the names "Karin Glass & Associates,"
"KGA" or "Ink Up" and any marks associated with such names, in the
conduct of the business as presently carried on by the Acquired
Companies.
SECTION 4.18 INSURANCE. Schedule 4.18 contains a complete and correct
list and summary description of all insurance policies maintained by the
Acquired Companies. The Acquired Companies have delivered or made available to
TBA complete and correct copies of all such policies together with all riders
and amendments thereto. To the Knowledge of the Shareholders, such policies are
in full force and effect, and all premiums due thereon have been paid. The
Acquired Companies have complied in all material respects with the terms and
provisions of such policies. Schedule 4.18 sets out all claims made by any
Acquired Company under any policy of insurance during the past two years.
SECTION 4.19 REAL PROPERTY.
(a) OWNED REAL PROPERTY. None of the Acquired Companies owns
any real property.
(b) LEASES. Schedule 4.19(b) contains a complete and correct
list of (i) all Leases setting forth the address, landlord and tenant
for each Lease and (ii) all Other Leases, setting forth the address,
landlord and tenant for each Other Lease. The Acquired Companies have
delivered or made available to TBA correct and complete copies of the
Leases and the Other Leases. To the Knowledge of the Shareholders, each
Lease and Other Lease is legal, valid, binding, enforceable, and in full
force and effect, except as may be limited by bankruptcy, insolvency,
reorganization and similar Applicable Laws affecting creditors generally
and by the availability of equitable remedies. No Acquired Company nor,
to the Knowledge of the Shareholders, any other party, is in default,
violation or breach in any respect under any Lease or Other Lease, and
no event has occurred and is continuing that constitutes or, with notice
or the passage of time or both, would constitute a default, violation or
breach in any respect under any Lease or Other Lease. Each Lease grants
the tenant under the Lease the exclusive right to use and occupy the
demised premises thereunder. Each Acquired Company has good and valid
title to the leasehold estate under each Lease free and clear of all
Liens other than Permitted Liens. Each Acquired Company enjoys peaceful
and undisturbed possession under its respective Leases for the Leased
Real Property.
(c) FEE AND LEASEHOLD INTERESTS, ETC. The Real Property
constitutes all the fee and leasehold interests in real property held
for use in connection with, necessary for the conduct of, or otherwise
material to, the business as conducted by the Acquired Companies.
(d) NO PROCEEDINGS. There are no eminent domain or other
similar proceedings pending or, to the Knowledge of the Shareholders,
threatened, affecting any portion of the Real Property. There is no
writ, injunction, decree, order or judgment outstanding, nor any
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action, claim, suit or proceeding, pending or threatened, relating to
the ownership, lease, use, occupancy or operation by any Person of any
Real Property.
(e) CURRENT USE. The use and operation of the Real Property
by the Acquired Companies does not violate in any material respect any
instrument of record or agreement affecting the Real Property. To the
Knowledge of the Shareholders, there is no material violation of any
covenant, condition, restriction, easement or order of any Governmental
Authority having jurisdiction over such property or of any other Person
entitled to enforce the same affecting the Real Property or the use or
occupancy thereof. No damage or destruction has occurred with respect to
any of the Real Property since January 1, 1998 that would, individually
or in the aggregate, have a Material Adverse Effect.
(f) COMPLIANCE WITH REAL PROPERTY LAWS. To the Knowledge of
the Shareholders, the Real Property is in compliance in all material
respects with all applicable building, zoning, subdivision and other
land use and similar Applicable Laws affecting the Real Property
(collectively, the "Real Property Laws"), and no Acquired Company has
received any notice of violation or claimed violation of any Real
Property Law. To the Knowledge of the Shareholders, no current use by
any Acquired Company of the Real Property is dependent on a
nonconforming use or other Governmental Approval the absence of which
would materially limit the use of such properties or assets.
SECTION 4.20 ENVIRONMENTAL MATTERS.
(a) PERMITS. To the Knowledge of the Shareholders, no
Environmental Permits are necessary to the business of the Acquired
Companies. No Acquired Company has been notified in writing by any
relevant Governmental Authority that any Environmental Permit will be
necessary to the business of the Acquired Companies.
(b) NO VIOLATIONS. To the Knowledge of the Shareholders,
each Acquired Company has complied and is in compliance in all material
respects with all Environmental Permits and all applicable Environmental
Laws pertaining to the Real Property (and the use, ownership or
transferability thereof). No Person has alleged any violation by any
Acquired Company of any Environmental Permits or any applicable
Environmental Law relating to the use, ownership or transferability of
the Real Property.
(c) NO ACTIONS. Except as set forth in Schedule 4.20(c), to
the Knowledge of the Shareholders, no Acquired Company has caused or
taken any action that has resulted or may result in, or has been or is
subject to, any liability or obligation relating to (i) the
environmental conditions on, under, or about any Real Property or other
properties or assets owned, leased or used by any Acquired Company held
for use in connection with, necessary for the conduct of, or otherwise
material to, the business of the Acquired Companies, or (ii) the past or
present use, management, handling, transport, treatment, generation,
storage or Release of any Hazardous Substances, except for any such
liabilities and obligations that,
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individually and in the aggregate, are not material to the business of
the Acquired Companies and have not had or resulted in, and will not
have or result in, a Material Adverse Effect.
(d) OTHER. Except as set forth in Schedule 4.20(d), to the
Knowledge of the Shareholders:
(i) None of the current or past operations, or any
by-product thereof, and none of the currently or formerly owned
property or assets of any Acquired Company is related to or
subject to any investigation or evaluation by any Governmental
Authority, as to whether any Remedial Action is needed to
respond to a Release or threatened Release of any Hazardous
Substances.
(ii) No Acquired Company is subject to any
outstanding order, judgment, injunction, decree or writ from, or
contractual or other obligation to or with, any Governmental
Authority or other Person in respect of which TBA or any
Acquired Company may be required to incur any Environmental
Liabilities and Costs arising from the Release or threatened
Release of a Hazardous Substance.
(iii) None of the Real Property is, and no Acquired
Company has transported or arranged for transportation (directly
or indirectly) of any Hazardous Substances relating to Real
Property to any location that is listed or proposed for listing
under CERCLA, or on any similar state list, or the subject of
federal, state or local enforcement actions or investigations or
Remedial Action.
(iv) No work, repair, construction or capital
expenditure is required or planned pursuant to or to comply with
any Environmental Law, nor has any Acquired Company received any
notice of any such requirement, except for such work, repair,
construction or capital expenditure as is not material to the
business of the Acquired Companies and is in the ordinary course
of business.
(e) FULL DISCLOSURE. The Acquired Companies have made
available to TBA all information, including without limitation all
studies, analyses and test results, in the possession, custody or
control of the Acquired Companies and their Affiliates relating to (i)
the environmental conditions on, under or about the Real Property, and
(ii) Hazardous Substances used, managed, handled, transported, treated,
generated, stored or Released by any Acquired Company or any other
Person at any time on any Real Property, or otherwise in connection with
the use or operation of the properties or assets used in or held for use
in connection with the business of the Acquired Companies.
SECTION 4.21 EMPLOYEES, LABOR MATTERS, ETC. The Acquired Companies have
listed in Schedule 4.21 and have furnished to TBA true and complete copies of:
(a) any written employment agreements with officers and directors of any
Acquired Company; and (b) any written employment agreements with its employees
which by their terms may not be terminated by the Acquired
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Company at will or which grants severance payments. No Acquired Company has
entered into any similar oral employment agreements. Except as set forth in
Schedule 4.21, no Acquired Company is a party to or bound by any collective
bargaining agreement and there are no labor unions or other organizations
representing, purporting to represent or, to the Knowledge of the Shareholders,
attempting to represent any employees employed by any Acquired Company. Since
January 1, 1997 there has not occurred or, to the knowledge of the Shareholders
and the Acquired Companies, been threatened any material strike, slowdown,
picketing, work stoppage, concerted refusal to work overtime or other similar
labor activity with respect to any employees employed by any Acquired Company.
There are no labor disputes currently subject to any grievance procedure,
arbitration or litigation and there is no representation petition pending or, to
the knowledge of the Shareholders and the Acquired Companies, threatened with
respect to any employee of any Acquired Company. To the Knowledge of the
Shareholders, the Acquired Companies have complied with all provisions of
Applicable Law pertaining to the employment of employees, including, without
limitation, all such laws relating to labor relations, equal employment, fair
employment practices, entitlements, prohibited discrimination or other similar
employment practices or acts, except for any failure so to comply that,
individually or together with all such other failures, has not and will not
result in a material liability or obligation on the part of TBA or the Acquired
Companies, and has not had or resulted in, and will not have or result in, a
Material Adverse Effect. To the Shareholders' Knowledge, no key employee or
group of employees has any plans to terminate employment with any Acquired
Company. Except as set forth on Schedule 4.21, there are no loans or other
obligations payable or owing by any Acquired Company to any shareholder,
officer, director or employee of any Acquired Company (except salaries and wages
incurred and accrued in the ordinary course of business), nor are there any
loans or debts payable or owing by any of such persons to any Acquired Company
or any guarantees by any Acquired Company of any loan or obligation of any
nature to which any such person is a party.
SECTION 4.22 EMPLOYEE BENEFIT PLANS AND RELATED MATTERS.
(a) EMPLOYEE BENEFIT PLANS. Schedule 4.22(a) sets forth a
true and complete list of each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, whether or not subject to ERISA, and
each bonus, incentive or deferred compensation, severance, termination,
retention, change of control, stock option, stock appreciation, stock
purchase, phantom stock or other equity-based, performance or other
employee or retiree benefit or compensation plan, program, arrangement,
agreement, policy or understanding, whether written or unwritten, that
provides or may provide benefits or compensation in respect of any
employee or former employee employed or formerly employed by the
Acquired Companies or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under
which any Employee is or may become eligible to participate or derive a
benefit and that is or has been maintained or established by any
Acquired Company or any other trade or business, whether or not
incorporated, which, together with such Acquired Company is or would
have been at any date of determination occurring within the preceding
six years treated as a single employer under Section 414 of the Code
(such other trades and businesses
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collectively, the "Related Persons"), or to which such Acquired Company
or any Related Person contributes or is or has been obligated or
required to contribute or with respect to which any Acquired Company may
have any liability or obligation (individually, a "Plan" and
collectively, the "Plans"). With respect to each such Plan, the Acquired
Companies have provided TBA complete and correct copies of: all written
Plans; descriptions of all unwritten Plans; all trust agreements,
insurance contracts or other funding arrangements; the two most recent
actuarial and trust reports; the two most recent Forms 5500 and all
schedules thereto; the most recent IRS determination letter; current
summary plan descriptions; all material communications received from or
sent to the IRS, the Pension Benefit Guaranty Corporation or the
Department of Labor (including a written description of any oral
communication); an actuarial study of any post-employment life or
medical benefits provided under any such Plan, if any; statements or
other communications regarding withdrawal or other multiemployer plan
liabilities, if any; and all amendments and modifications to any such
document. No Acquired Company has communicated to any Employee any
intention or commitment to modify any Plan or to establish or implement
any other employee or retiree benefit or compensation arrangement. No
Acquired Company contributes or has any obligation to make and has never
contributed or had any obligation to make any payment or contribution to
a "multiemployer plan," as that term is defined in Section 3(37) of
ERISA, and no Acquired Company has actual or potential liability under
Section 4201 of ERISA for any complete or partial withdrawal from a
multiemployer plan.
(b) QUALIFICATION. To the Knowledge of the Shareholders,
each Plan intended to be qualified under Section 401(a) of the Code, and
the trust (if any) forming a part thereof, has received a favorable
determination letter from the IRS as to its qualification under the Code
and to the effect that each such trust is exempt from taxation under
Section 501(a) of the Code, and nothing has occurred since the date of
such determination letter that could adversely affect such qualification
or tax-exempt status.
(c) COMPLIANCE; LIABILITY. To the Knowledge of the
Shareholders:
(i) No Plan is subject to Section 412 of the Code or
Section 302 or Title IV of ERISA.
(ii) No liability has been or is expected to be
incurred by any Acquired Company or any Related Person (either
directly or indirectly, including as a result of an
indemnification obligation) under or pursuant to Title I or IV
of ERISA or the penalty, excise tax or joint and several
liability provisions of the Code relating to employee benefit
plans that could, following the Closing Date, become or remain a
liability of any Acquired Company or become a liability of TBA
or of any employee benefit plan established or contributed to by
TBA and, to the knowledge of the Shareholders and the Acquired
Companies, no event, transaction or condition has occurred or
exists that could result in any such liability to any Acquired
Company or, following the Closing Date, TBA.
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(iii) Each of the Plans has been operated and
administered in all respects in compliance with all Applicable
Laws, except for any failure so to comply that, individually or
together with all other such failures, has not and will not
result in a material liability or obligation on the part of any
Acquired Company, or, following the Closing Date, TBA, and has
not had or resulted in, and will not have or result in, a
Material Adverse Effect. There are no material pending or, to
the knowledge of the Shareholders and the Acquired Companies
threatened, claims by or on behalf of any of the Plans, by any
Employee or otherwise involving any such Plan or the assets of
any Plan (other than routine claims for benefits).
(iv) All contributions required to have been made by
each Acquired Company and each Related Person to any Plan under
the terms of any such Plan or pursuant to any applicable
collective bargaining agreement or Applicable Law have been made
within the earliest time prescribed by any such Plan, agreement
or Applicable Law.
(v) No applications for rulings, determination
letters, advisory opinions or prohibited transaction exemptions
are currently pending before the IRS, the Department of Labor or
the Pension Benefit Guaranty Corporation with respect to any
Plan or arrangements or any related trusts. None of such Plans
or arrangements, any related trusts, the trustees of any related
trusts or the directors, officers and employees of the Acquired
Companies is the subject of any lawsuit, arbitration or other
proceeding concerning any benefit claim or other benefit-related
matter (other than routine claims in the ordinary course of
business), and there have been no prohibited transactions as
described in Section 406 of ERISA or as defined in Section 4975
of the Code with respect to any such plan. None of the Acquired
Companies, their respective directors, officers and employees,
nor any other fiduciary, as such term is defined in Section 3 of
ERISA, has committed any breach of fiduciary responsibility
imposed by ERISA or any other applicable law which would subject
any Acquired Company or its directors, officers and employees to
liability under ERISA or any Applicable Law.
SECTION 4.23 NO GUARANTEES. Except for guarantees by Karin Glass and/or
Kenneth Glass (the "Glass Guaranties"), none of the obligations or liabilities
of the Acquired Companies incurred in connection with the operation of the
business of the Acquired Companies is guaranteed by or subject to a similar
contingent obligation of any other Person. No Acquired Company has guaranteed or
become subject to a similar contingent obligation in respect of the obligations
or liabilities of any other Person. There are no outstanding letters of credit,
surety bonds or similar instruments of any Acquired Company or any of its
Affiliates in connection with the business of the Acquired Companies.
SECTION 4.24 RECORDS. The books of account of each Acquired Company are
sufficient to prepare the Financial Statements in accordance with GAAP, and if
not so sufficient, shall be
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converted at the expense of the Shareholders by an outside accountant chosen by
the Shareholders so as to be sufficient.
SECTION 4.25 BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement and the transactions contemplated hereby, have been carried on without
the participation of any Person acting on behalf of the Shareholders, the
Acquired Companies or their Affiliates in such manner as to give rise to any
valid claim against any Acquired Company, TBA or any of its subsidiaries for any
brokerage or finder's commission, fee or similar compensation, or for any bonus
payable to any officer, director, employee, agent or sales representative of or
consultant to the Acquired Companies or their Affiliates upon consummation of
the transactions contemplated hereby.
SECTION 4.26 RECEIVABLES. All notes payable to and accounts receivable
of the Acquired Companies as stated in the Financial Statements are properly
reflected in all material respects on their respective books and records and, to
the Knowledge of the Shareholders, are valid receivables subject to no setoffs
or counterclaims. All of the Acquired Companies' receivables (including accounts
receivable, loans receivable and advances) which are reflected in the Financial
Statements, and all such receivables which will have arisen since the Financial
Statements Date, shall have arisen only from bona fide transactions in the
ordinary course of business. Schedule 4.26 lists as of December 31, 1998 all
receivables of the Acquired Companies in excess of $10,000, the amount owing and
the aging of such receivable, the name and last known address of the party from
whom such receivable is owing, and any security in favor of the Acquired
Companies for the repayment of such receivable which the Acquired Companies
purport to have. The Acquired Companies have delivered to TBA complete and
correct copies of all instruments, documents and agreements evidencing such
receivables and of all instruments, documents or agreements creating security
therefor ("Security"). The Acquired Companies have valid and perfected security
interests in such Security (to the extent such priority may be obtained under
applicable law by possession of such Security or the filing of financing
statements or similar documents with respect thereto).
SECTION 4.27 CERTAIN BUSINESS RELATIONSHIPS. Except as set forth on
Schedule 4.27, to the Knowledge of the Shareholders, none of the present or
former shareholders, directors, officers or employees of any Acquired Company
owns, directly or indirectly, any interest in any business, corporation or other
entity (other than investments in publicly held companies) which, on the date
hereof or within the past 12 months, has been involved in any manner in any
business arrangement or relationship with any Acquired Company, and none of the
foregoing persons owns any property or rights, tangible or intangible, which are
used in the business of the Acquired Companies.
SECTION 4.28 INVESTMENT REPRESENTATIONS.
(a) Each of the Shareholders is acquiring the shares of TBA
Common Stock issued pursuant to this Agreement for their own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intent of distributing or
selling her, his or its shares.
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(b) Each of the Shareholders has reviewed the
representations concerning TBA contained in this Agreement and has made
or has had the opportunity to make inquiry concerning TBA. Each of the
Shareholders has sufficient knowledge and experience so as to be able to
evaluate the risks and merits of her or his investment in TBA, and each
of the Shareholders is able financially to bear the risks thereof. The
Shareholders are entering into the transactions contemplated herein
based on her or his own assessment of the merits and risks, upon her or
his own experience as an officer and/or shareholder of the Acquired
Companies, and upon the representations and warranties of TBA in Article
3 of this Agreement, and are not relying on any business plan,
projections, valuations or other financial information provided to the
Shareholders by TBA (other than the TBA SEC Documents). Each of the
Shareholders further acknowledge and agree that TBA (i) has made no
assurances of any nature whatsoever regarding the future operations of
TBA and/or its Affiliates, including, without limitation, the Acquired
Companies subsequent to the Closing Date, and (ii) has made no
guarantees as to the profitability of an investment therein.
(c) Each of the Shareholders understand that the
certificates of TBA Common Stock to be issued pursuant to this Agreement
will bear a restrictive legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE 'ACT') OR ANY
OTHER SECURITIES STATUTE AND MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF UNLESS AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT ANY
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION WOULD NOT VIOLATE
OR REQUIRE REGISTRATION UNDER THE ACT OR ANY OTHER SECURITIES
STATUTE."
SECTION 4.29 LIMITATION OF REPRESENTATIONS. Notwithstanding any other
provision of this Agreement or otherwise, the Shareholders shall not be deemed
to have made any representation or warranty other than those expressly made in
Sections 4.1 through 4.28 hereof. Without limiting the generality of the
foregoing, and notwithstanding any otherwise express representation or warranty
made by the Shareholders in Sections 4.1 through 4.28 hereof, the Shareholders
make no representation and warranty to TBA with respect to:
(i) any oral or written projections, estimates,
budgets or statements heretofore delivered to or made available
to TBA of future revenues, expenses or expenditures, results of
operations, profitability, cash flows, budgets, prospects,
financial condition, market conditions or new developments; or
(ii) any other oral or written information or
documents of any kind made available to TBA or its counsel,
accountants or advisers with respect to the Acquired Companies,
except as expressly covered by a representation or warranty
contained in Sections 4.1 through 4.28 hereof.
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ARTICLE 5
[INTENTIONALLY DELETED]
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the other agreements
contemplated hereby and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses.
SECTION 6.2 PRESS RELEASES. The Shareholders and TBA shall consult with
each other as to the form and substance of any press release or other public
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby; provided, however, that nothing in this Section 6.2 shall
be deemed to prohibit any party hereto from making any disclosure that is
required to fulfill such party's disclosure obligations imposed by law,
including, without limitation, federal securities laws.
SECTION 6.3 EMPLOYEE MATTERS. TBA and the Acquired Companies agree that
all employees of the Acquired Companies immediately prior to the Closing shall
be employed by the Acquired Companies immediately after the Closing at such
level of pay which is mutually agreed upon between each employee, the
Shareholders and TBA, it being understood that TBA shall not have any
obligations to continue employing such employees for any length of time or at
any level of pay for any length of time thereafter, except as set forth in
binding agreements of employment. To the maximum extent permitted by Applicable
Law and the applicable plan or benefit arrangement of TBA, TBA agrees to treat
employment with the Acquired Companies as past service for all employee benefit
plans of TBA in which any employees of the Acquired Companies on the Closing
Date may participate.
SECTION 6.4 TAX MATTERS. From and after the Closing, TBA, on the one
hand, and the Shareholders, on the other hand, shall cooperate fully with each
other and make available or cause to be made available to each other for
consultation, inspection and copying (at such other party's expense) in a timely
fashion such personnel, tax data, tax returns and filings, files, books,
records, documents, financial, technical and operating data, computer records
and other information as may be reasonably required (1) for the preparation by
either of them of any Tax Returns, elections, consents or certificates required
to be prepared and filed by such parties or (2) in connection with any audit or
proceeding relating to taxes relating to the assets of the Acquired Companies.
TBA agrees to retain all books and records with respect to tax matters pertinent
to the Acquired Companies relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority. None of the parties hereto shall cause
an election
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to be made, an accounting for tax purposes to be adopted, or a position to be
taken on any tax return, or in any tax proceeding, that is inconsistent with the
provisions of this Agreement. In addition, as custodian of the books and records
of the Acquired Companies as of the Closing Date, TBA, or its authorized
representatives, shall be responsible for closing such books and records as of
the Closing Date for state and federal income tax and financial reporting
purposes. TBA and the Shareholders shall cooperate fully with each other in
connection with such closing and TBA shall make available to the Shareholders
all financial and income tax data, statements, reports and information relating
to such closing of the books and records as of the Closing Date.
SECTION 6.5 SECTION 338(h)(10) ELECTION. TBA and the Shareholders shall
jointly elect to treat the Acquisition as a "qualified stock purchase" within
the meaning of Section 338 of the Code and shall timely prepare and file with
the Internal Revenue Service a Section 338(h)(10) election on Form 8023. TBA
indemnifies the Shareholders for the amount by which the Shareholders' combined
state and federal income tax liability arising as a result of the sale of the
Shares in accordance with the Section 338(h)(10) election exceeds the combined
state and federal income tax liability the Shareholders would have incurred had
TBA and the Shareholders not filed the Section 338(h)(10) election. Any payment
due by TBA to the Shareholders hereunder shall be paid within thirty (30) days
following the agreement of the parties hereto as to the amount of
indemnification payment payable hereunder. Should the parties disagree with
respect to such calculation, such dispute shall be resolved in accordance with
the arbitration procedures set forth in Section 8.1(d)(iii).
SECTION 6.6 ADJUSTMENTS TO ELIMINATE DEBT AND TRANSFER INVENTORY. The
Shareholders shall take or cause to be taken any and all action necessary (i) to
eliminate any indebtedness between any of the Acquired Companies and the
Shareholders or their Affiliates, including, without limitation, Great Stuff,
Inc., and (ii) to transfer any Inventories of the Acquired Companies from Great
Stuff, Inc. to the appropriate Acquired Company, as applicable, prior to the
Closing.
SECTION 6.7 GLASS GUARANTIES. TBA and the Acquired Companies will use
reasonable efforts to terminate the Glass Guaranties as soon as reasonably
practicable, and TBA will indemnify the Shareholders for any amounts paid by the
Shareholders under or with respect to the Glass Guaranties.
SECTION 6.8 LEASE AGREEMENTS. The Shareholders shall use their
reasonable efforts and cooperate with TBA following the Closing to obtain new
lease agreements (i) with Rucker Realty with respect to the leasehold space
utilized by Ink located at 5277 Emco Drive, Indianapolis, Indiana on such terms
and conditions no less favorable than those imposed on Ink immediately prior to
Closing under the terms of the existing lease agreement between Ink and Rucker
Realty and (ii) with The Glass Family Limited Partnership with respect to the
leasehold space utilized by KGA located at 5225 Emco Drive, Indianapolis,
Indiana on such terms and conditions no less favorable than those imposed on KGA
immediately prior to Closing under the terms of the existing lease agreement
between KGA and The Glass Family Limited Partnership.
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ARTICLE 7
CLOSING
SECTION 7.1 CLOSING DELIVERIES BY TBA. At the Closing, TBA shall:
(a) Execute and deliver:
(i) to the Shareholders, the Pledge Agreement and
the Registration Rights Agreement;
(ii) to Karin Glass, an employment agreement (the
"Employment Agreement") in substantially the form of Exhibit C
attached hereto.
(b) Issue and deliver, or cause to be issued and delivered,
to the Shareholders the Common Stock Portion.
(c) Pay to the Shareholders the Cash Portion in accordance
with Section 2.2(b).
(d) Deliver to the Shareholders:
(i) certified copies of the resolutions duly adopted
by the board of directors of TBA authorizing the execution,
delivery and performance of this Agreement and the other
agreements contemplated hereby and thereby;
(ii) a good standing certificate for TBA from the
Secretary of State of the State of Delaware dated not earlier
than ten (10) days prior to the Closing Date; and
(iii) a copy of the charter of TBA certified by the
Secretary of State of the State of Delaware.
SECTION 7.2 CLOSING DELIVERIES BY THE SHAREHOLDERS. At the Closing:
(a) The Shareholders shall execute and deliver to TBA the
Registration Rights Agreement and the Pledge Agreement (including the
certificates representing the Common Stock Portion accompanied by stock
powers executed in blank).
(b) Karin Glass shall execute and deliver to TBA the
Employment Agreement.
(c) The Shareholders shall deliver to TBA all documents,
certificates and agreements necessary to transfer to TBA good and
marketable title to the Shares, free and
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clear of any and all Liens thereon, including without limitation,
certificates representing the Shares, duly endorsed for transfer.
(d) The Shareholders shall provide satisfactory evidence to
TBA that the transactions necessary to eliminate debt and transfer
Inventories as provided by Section 6.6 have occurred.
(e) The Shareholders shall deliver to TBA:
(i) certified copies of the resolutions duly adopted
by each Acquired Company's Board of Directors authorizing the
execution, delivery and performance of this Agreement and the
other agreements contemplated hereby and thereby;
(ii) good standing or comparable certificates for
each Acquired Company from the jurisdiction of its incorporation
and from every jurisdiction where a failure to be qualified or
licensed would have a material adverse effect on the business or
of such Acquired Company, dated not earlier than ten (10) days
prior to the Closing Date;
(iii) a copy of each Acquired Company's charter
certified by the Secretary of State of the state of its
incorporation.
ARTICLE 8
INDEMNIFICATION; MISCELLANEOUS
SECTION 8.1 INDEMNIFICATION.
(a) BY THE SHAREHOLDERS. Each of the Shareholders covenants
and agrees to defend, indemnify and hold harmless TBA and its respective
officers, directors, employees, agents, advisers, representatives and
Affiliates (collectively, the "TBA Indemnitees") from and against, and
pay or reimburse Indemnitees for, any and all claims, liabilities,
obligations, losses, fines, costs, royalties, proceedings, deficiencies
or damages (whether absolute, accrued, conditional or otherwise and
whether or not resulting from third party claims), including
out-of-pocket expenses and reasonable attorneys' and accountants' fees
incurred in the investigation or defense of any of the same or in
asserting any of their respective rights hereunder (collectively,
"Losses"), resulting from or arising out of:
(i) any inaccuracy of any representation or warranty
made by the Shareholders herein or in connection herewith;
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(ii) any failure of the Shareholders to perform in
any material respect any covenant or agreement hereunder or
fulfill in any material respect any other obligation in respect
hereof; and
(iii) Environmental Liabilities and Costs arising in
connection with the storage, use and disposal of chemicals,
inks, and emulsions utilized in the business of Ink, prior to
the Closing Date.
Except for inaccuracies in the representations and warranties
contained in Sections 4.2, 4.6, 4.20, 4.21 and 4.22, the Shareholders
shall not be required to indemnify TBA Indemnitees with respect to any
claim for indemnification pursuant to clause (i) of the first sentence
of this Section 8.1(a) unless and until the amount of the claims against
the Shareholders under such clause exceeds $25,000 individually or
$50,000 in the aggregate, at which time the Shareholders shall be
required to indemnify TBA Indemnitees for the full amount of all such
claims. TBA shall notify the Shareholders in accordance with the
provisions of Section 8.1(a) of the aggregate amount of all claims on no
less than a quarterly basis. . Furthermore, the Shareholders shall have
no liability to TBA pursuant to this Section 8.1(a) in excess of the
value of the TBA Common Stock issued to the Shareholders pursuant to
Section 2.2(a) and held at the time of any claim under this Section
8.1(a) by TBA pursuant to the Pledge Agreement. For purposes of the
preceding sentence, the value of such TBA Common Stock shall be the
average of the closing sales price of TBA Common Stock reported by the
Nasdaq Stock Market for each of the five (5) consecutive trading days
ending five (5) business days preceding the date a payment, if any, is
due hereunder from the Shareholders to TBA. The obligations of the
Shareholders pursuant to this Section 8.1(a) shall be secured by the
Pledge Agreement.
(b) BY TBA. TBA covenants and agrees to defend, indemnify
and hold harmless the Shareholders, the Acquired Companies and their
officers, directors, employees, agents, advisers, representatives and
Affiliates (collectively, the "Acquired Company Indemnitees") from and
against any and all Losses resulting from or arising out of:
(i) any inaccuracy in any representation or warranty
by TBA made or contained in this Agreement or in connection
herewith;
(ii) any failure of TBA to perform any covenant or
agreement made or contained in this Agreement or fulfill any
other obligation in respect hereof; and
(iii) the operation of the Acquired Companies by TBA
following the Closing Date, except to the extent such Losses
constitute Losses for which the Shareholders are required to
indemnify TBA Indemnitees under Section 8.1(a).
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(c) ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment
made by the Shareholders to TBA Indemnitees, on the one hand, or by TBA
to the Acquired Company Indemnitees, on the other hand, pursuant to this
Section 8.1 in respect of any claim (i) shall be net of any insurance
proceeds realized by and paid to the Indemnified Party in respect of
such claim and (ii) shall be (A) reduced by an amount equal to any Tax
benefits attributable to such claim and (B) increased by an amount equal
to any Taxes attributable to the receipt of such payment, but only to
the extent that such Tax benefits are actually realized, or such Taxes
are actually paid, as the case may be, by the Shareholders or by TBA or
by any consolidated, combined or unitary group of which TBA or the
Shareholders is or are a member. The Indemnified Party shall use its
reasonable efforts to make insurance claims relating to any claim for
which it is seeking indemnification pursuant to this Section 8.1 or any
other claims against third parties which may be available; provided that
the Indemnified Party shall not be obligated to make such an insurance
claim if the Indemnified Party in its reasonable judgment believes, with
the consent of the Indemnifying Party, such consent not to be
unreasonably withheld, that the cost of pursuing such an insurance claim
together with any corresponding increase in insurance premiums or other
chargebacks to the Indemnified Party, as the case may be, would exceed
the value of the claim for which the Indemnified Party is seeking
indemnification.
(d) INDEMNIFICATION PROCEDURES. (i) In the case of any claim
asserted by a third party against a party entitled to indemnification
under this Agreement (the "Indemnified Party"), written notice shall be
given by the Indemnified Party to the party required to provide
indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, such notice to include reasonable details of
the claim (the "Claim Notice"), and the Indemnified Party shall permit
the Indemnifying Party (at the expense of such Indemnifying Party) to
assume the defense of any claim or any litigation resulting therefrom,
provided that (A) the counsel for the Indemnifying Party who shall
conduct the defense of such claim or litigation shall be reasonably
satisfactory to the Indemnified Party, (B) the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and (C)
the omission by any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its indemnification
obligation under this Agreement except to the extent that such omission
results in a failure of actual notice to the Indemnifying Party and such
indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified
Party, which shall not be unreasonably withheld, no Indemnifying Party,
in the defense of any such claim or litigation, shall consent to entry
of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party
or that does not include as an unconditional term thereof the giving by
each claimant or plaintiff to such Indemnified Party of a release from
all liability with respect to such claim or litigation. In the event
that the Indemnified Party shall in good faith determine that the
conduct of the defense of any claim subject to indemnification hereunder
or any proposed settlement of any such claim by the Indemnifying Party
might be expected to affect adversely the Indemnified Party's Tax
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liability or the ability of TBA to conduct its business, or that the
Indemnified Party may have available to it one or more defenses or
counterclaims that are inconsistent with one or more of those that may
be available to the Indemnifying Party in respect of such claim or any
litigation relating thereto, the Indemnified Party shall have the right
at all times to take over and assume control over the defense,
settlement, negotiations or litigation relating to any such claim at the
sole cost of the Indemnifying Party, provided that if the Indemnified
Party does so take over and assume control, the Indemnified Party shall
not settle such claim or litigation without the written consent of the
Indemnifying Party, such consent not to be unreasonably withheld. In the
event that the Indemnifying Party does not accept the defense of any
matter as above provided, the Indemnified Party shall have the full
right to defend against any such claim or demand and shall be entitled
to settle or agree to pay in full such claim or demand, subject to
obtaining the written consent thereto of the Indemnifying Party which
consent shall not be unreasonably withheld. In any event, the
Indemnifying Party and the Indemnified Party shall cooperate in the
defense of any claim or litigation subject to this Section 8.1 and the
records of each shall be available to the other with respect to such
defense.
(ii) In the event any party to this Agreement should
have a claim pursuant to this Section 8.1 against any other
party to this Agreement which does not involve a claim or demand
being asserted against or sought to be collected from it by a
third party, such party shall send a Claim Notice with respect
to such claim to the party from whom indemnification is sought.
If the party from whom indemnification is sought does not notify
the party requesting indemnification within thirty (30) days of
receipt of the Claim Notice that the party from whom
indemnification is sought disputes such claim, the amount of
such claim will be conclusively deemed a liability of the party
from whom indemnification was sought hereunder.
(iii) If TBA and the Shareholders cannot reach an
agreement with respect to any claim for indemnification under
this Article 8 (an "Indemnification Dispute"), such
Indemnification Dispute shall be resolved by arbitration. All
Indemnification Disputes shall be presented in Indianapolis,
Indiana to an arbitrator selected by mutual agreement of TBA and
the Shareholders from impartial arbitrators familiar with the
nature of the Indemnification Dispute. The decision of the
arbitrator shall be binding on TBA and the Shareholders. The
expenses of such arbitration shall be allocated by the
arbitrator.
(e) TIME LIMITATION. All claims for indemnification under
clause (i) of the first sentence of Section 8.1(a) or clause (i) of the
first sentence of Section 8.1(b) must be asserted within thirty (30)
days after the termination of the survival period set forth in Section
8.2, and all claims under clause (ii) or (iii) of the first sentence of
Section 8.1(a) must be asserted within the two year period following the
date of this Agreement.
(f) All claims for indemnification to be paid by the
Shareholders may be paid at the otpion of the Shareholders either by (i)
the payment in cash of such claim by wire transfer, or (b) the release
and delivery of shares of TBA Common Stock held by TBA
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pursuant to the Pledge Agreement; provided that the Shareholders shall
have no liability for any indemnification claim in excess of the value
of the TBA Common Stock then held by TBA pursuant to the Pledge
Agreement. Upon satisfaction of an indemnification claim by the
Shareholders pursuant to clause 8.1(f)(i), TBA Common Stock having a
value equal to the payment made by the Shareholders shall be released to
the Shareholders.
SECTION 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement and the completion of the transactions
contemplated herein, for a period of twelve (12) months following the Closing
Date.
SECTION 8.3 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 8.4 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(i) if to TBA:
TBA Entertainment Corporation
402 Heritage Plantation Way
Hickory Valley, Tennessee 38042
Attn: Thomas J. Weaver III
Telecopy: (901) 764-6107
with a copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attn: Randall E. Roberts, Esq.
Telecopy: (214) 745-5390
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(ii) if to the Shareholders:
Karin and Kenneth Glass
5225 Enco Drive
Indianapolis, Indiana 46220
Attn: Karin Glass
Telecopy: (317) 722-4778
with a copy to:
Ice Miller Donadio & Ryan
One American Square
Indianapolis, Indiana 46282
Attn: Dean T. Burger
Telecopy: (317) 236-2219
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 8.5 MISCELLANEOUS.
(a) HEADINGS. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
(b) ENTIRE AGREEMENT. This Agreement (including the
Schedules, Annexes and Exhibits hereto), constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof, including, without limitation, the Letter of Intent dated
December 31, 1998 among TBA, Karin Glass, KGA, Ink and K Corp.
(c) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute one and the same instrument.
(d) GOVERNING LAW, ETC. This Agreement shall be governed in
all respects, including as to validity, interpretation and effect, by
the internal laws of the State of Indiana, without giving effect to the
conflict of laws rules thereof. Courts within the State of Indiana
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will have jurisdiction over any and all disputes between the parties
hereto, whether in law or equity, arising out of or relating to this
Agreement. The parties consent to and agree to submit to the
jurisdiction of such courts.
(e) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
(f) ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written
consent of the other party hereto, provided that TBA may assign this
Agreement to any Subsidiary or Affiliate of TBA.
(g) NO THIRD PARTY BENEFICIARIES. Except as provided in
Section 8.1 with respect to indemnification of Indemnified Parties
hereunder, nothing in this Agreement shall confer any rights upon any
person or entity other than the parties hereto and their respective
heirs, successors and permitted assigns.
(h) AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, discharge or
waiver is sought. Any such waiver shall constitute a waiver only with
respect to the specific matter described in such writing and shall in no
way impair the rights of the party granting such waiver in any other
respect or at any other time. Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more
occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a
waiver of any other breach or default of a similar nature, or as a
waiver of any of such provisions, rights or privileges hereunder. The
rights and remedies herein provided are cumulative and are not exclusive
of any rights or remedies that any party may otherwise have at law or in
equity. The rights and remedies of any party based upon, arising out of
or otherwise in respect of any inaccuracy or breach of any
representation, warranty, covenant or agreement or failure to fulfill
any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any
such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement as to which there
is no inaccuracy or breach. The representations and warranties of the
Shareholders shall not be affected or deemed waived by reason of any
investigation made by or on behalf of TBA (including but not limited to
by any of its advisors, consultants or representatives), but excluding
any breach by any of the Shareholders of any of the representations and
warranties in Article 4 to the extent that TBA or any of its employees,
agents or Affiliates is aware of such breach) or by reason of the fact
that TBA or any of such advisors, consultants or representatives should
have known that any such representation or warranty is or might be
inaccurate.
[Remainder of page left intentionally blank]
-42-
<PAGE> 47
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TBA ENTERTAINMENT CORPORATION
By: _____________________________________
Thomas J. Weaver III
Chairman and Chief Executive Officer
_____________________________________
Karin Glass
_____________________________________
Kenneth Glass
KARIN GLASS & ASSOCIATES, INC.
By: _____________________________________
Karin Glass
President
INK UP, INC.
By: _____________________________________
Kenneth Glass
President
KGA, INC.
By: _____________________________________
Karin Glass
President
-43-
<PAGE> 48
ANNEX I
LIST OF TBA SEC DOCUMENTS
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997, as amended;
2. Quarterly Report on Form 10-QSB for the quarterly period ended March 31,
1998;
3. Current Report on Form 8-K filed May 22, 1998, as amended by Form 8-K/A
filed May 26, 1998;
4. Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
1998;
5. Registration Statement on Form S-3 filed August 28, 1998;
6. Current Report on Form 8-K filed September 1, 1998;
7. Proxy Statement relating to the Annual Meeting of Stockholders to be
held on October 27, 1998;
8. Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1998; and
9. Current Report on Form 8-K filed January 11, 1999.
<PAGE> 49
EXHIBIT A
FORM OF PLEDGE AGREEMENT
<PAGE> 50
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
<PAGE> 51
EXHIBIT C
FORM OF EMPLOYMENT AGREEMENT
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
<S> <C>
TBA Entertainment Group Nashville, Inc. Tennessee
(formerly known as Avalon Entertainment
Group, Inc.)
AWC Acquisition Group Delaware
TBA Entertainment Holding Corporation Delaware
Eric Chandler Merchandising, Inc. California
TBA Entertainment Group Chicago, Inc. Delaware
(formerly known as Corporate Productions,
Inc.)
Corporate Incentives, Inc. Illinois
TBA Entertainment Group Dallas, Inc. Texas
(formerly known as Magnum
Communications, Inc.)
TBA Entertainment Group Phoenix, Inc. Arizona
(formerly known as Image Entertainment
Productions, Inc.)
Karin Glass & Associates, Inc. Indiana
Ink Up, Inc. Indiana
KGA, Inc. Indiana
Titley Spalding & Associates LLC Tennessee
TKS Marketing, Inc. Tennessee
TBA Resort Holding Corporation Delaware
TBA/Frank Joint Venture Not applicable
Warner/TBA Joint Venture Not applicable
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,583,800
<SECURITIES> 0
<RECEIVABLES> 2,355,100
<ALLOWANCES> 55,800
<INVENTORY> 0
<CURRENT-ASSETS> 22,107,700
<PP&E> 2,049,100
<DEPRECIATION> 195,900
<TOTAL-ASSETS> 40,445,200
<CURRENT-LIABILITIES> 7,173,800
<BONDS> 4,755,700
0
2,100
<COMMON> 8,800
<OTHER-SE> 29,998,600
<TOTAL-LIABILITY-AND-EQUITY> 40,445,200
<SALES> 0
<TOTAL-REVENUES> 27,272,700
<CGS> 0
<TOTAL-COSTS> 18,468,700
<OTHER-EXPENSES> 7,648,400
<LOSS-PROVISION> 55,800
<INTEREST-EXPENSE> 307,700
<INCOME-PRETAX> 1,679,800
<INCOME-TAX> 189,700
<INCOME-CONTINUING> 1,490,100
<DISCONTINUED> 1,180,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,671,000
<EPS-PRIMARY> .34
<EPS-DILUTED> .32
</TABLE>
