defm14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o |
|
Preliminary Proxy Statement |
o |
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
þ |
|
Definitive Proxy Statement |
o |
|
Definitive Additional Materials |
o |
|
Soliciting Material Pursuant to §240.14a-12 |
Ascent Media Corporation
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o |
|
No fee required. |
|
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
|
(1) |
|
Title of each class of securities to which transaction applies: |
|
|
|
|
|
|
|
(2) |
|
Aggregate number of securities to which transaction applies: |
|
|
|
|
|
|
|
(3) |
|
Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): |
|
|
|
|
|
|
|
(4) |
|
Proposed maximum aggregate value of transaction: $113,250,000 |
|
|
|
|
|
|
|
(5) |
|
Total fee paid: $8,075 |
|
|
|
|
|
þ |
|
Fee paid previously with preliminary materials. |
|
o |
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. |
|
(1) |
|
Amount Previously Paid: |
|
|
|
|
|
|
|
(2) |
|
Form, Schedule or Registration Statement No.: |
|
|
|
|
|
|
|
(3) |
|
Filing Party: |
|
|
|
|
|
|
|
(4) |
|
Date Filed: |
|
|
|
|
|
|
|
|
|
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the
form displays a currently valid OMB control number. |
ASCENT
MEDIA CORPORATION
12300 Liberty Boulevard
Englewood, Colorado 80112
(720) 875-5622
|
|
Dear
Stockholder:
|
January 25,
2011
|
We cordially invite you to attend a special meeting of the
stockholders of Ascent Media Corporation (the Company),
which will be held at 10:00 a.m., local time, on
February 24, 2011 at the Fairmont Miramar Hotel, 101
Wilshire Boulevard, Santa Monica, California 90401, telephone
(800) 257-7544.
At the special meeting, you will be asked to consider and vote
on a proposal to approve the sale of our content distribution
business unit to Encompass Digital Media, Inc. and its direct,
wholly-owned subsidiary Encompass Digital Media Limited,
pursuant to the Purchase and Sale Agreement described in the
attached proxy statement, for a purchase price of $113,250,000
in cash, plus the assumption of certain liabilities and
obligations with an estimated value on the date of the Purchase
and Sale Agreement of approximately $6.75 million. The
purchase price is subject to net working capital and certain
other adjustments. The sale of our content distribution business
unit, which we refer to as the Content Distribution
transaction, is subject to customary conditions, including
regulatory approvals. Subject to stockholder approval, we expect
the transaction to close in the first quarter of 2011.
The Content Distribution transaction is part of the
previously-announced strategy of your company and its board of
directors to maximize the value of the Company to its
stockholders. On December 31, 2010, we completed the
previously announced sale of our creative services business unit
and media management services business unit, which we refer to
as the Creative/Media transaction, to Deluxe
Entertainment Services Group Inc. and its direct, wholly-owned
subsidiary, Deluxe UK Holdings Limited, for a purchase price of
approximately $67.3 million in cash, after giving effect to
a working capital adjustment of approximately $1.0 million,
plus the assumption of certain net indebtedness in the amount of
approximately $1.8 million.
The sale of our content distribution business unit, following
the closing of the sale of our creative services and media
management services business units, may constitute a sale
of all or substantially all of the property and assets of
the Company under Delaware law. We are therefore seeking
shareholder approval for the Content Distribution transaction.
We are not seeking shareholder approval for the Creative/Media
transaction, and the Content Distribution transaction was not
conditioned on the closing of the Creative/Media transaction.
They are separate, independent transactions. The proceeds of the
Content Distribution transaction and the Creative Media
transaction, after transaction expenses, will be used for
general corporate purposes, which may include potential
acquisitions. We do not intend to distribute any of these
proceeds to our stockholders at this time.
On December 17, 2010, your company acquired 100% of
Monitronics International, Inc., a leading national security
alarm monitoring company, in a transaction valued at
$1.191 billion, exclusive of certain hedge related and
other liabilities, but including the assumption of
Monitronics existing structured financing. The transaction
value is comprised of cash consideration of $413 million
and $778 million in net debt of Monitronics. Monitronics is
a subscription-based business that delivers solid, predictable
revenue and cash flow, and we are pleased to welcome its
highly-regarded management to Ascent. The Monitronics
acquisition is not subject to shareholder approval and is not
contingent upon the divestiture of the content distribution
business. However, following the Content Distribution
transaction and the Creative/Media transaction, Monitronics will
constitute the primary operating business of Ascent.
Accordingly, this proxy statement includes certain financial and
other information about Monitronics and a description of the
Monitronics transaction.
Your board of directors has unanimously approved the Content
Distribution transaction as described in the proxy statement,
has declared the Purchase and Sale Agreement and the transaction
to be advisable, fair to, and in the best interests of the
Company and its stockholders, and recommends that you vote
FOR the proposal to approve that transaction.
Your vote is important, regardless of the number of shares you
own. Whether or not you plan to attend the special meeting,
please vote as soon as possible to make sure that your shares
are represented.
Thank you for your continued support and interest in our company.
Very truly yours,
William R. Fitzgerald
Chairman, President and Chief Executive Officer
This proxy statement is dated January 25, 2011 and is first
being mailed to stockholders on or about January 26, 2011 to the
stockholders of record as of 5:00 p.m., New York City time,
on January 24, 2011.
ASCENT
MEDIA CORPORATION
12300 Liberty Boulevard
Englewood, Colorado 80112
(720) 875-5622
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
to be Held on February 24, 2011
NOTICE IS HEREBY GIVEN of the special meeting of
stockholders of Ascent Media Corporation (the Company) to
be held at 10:00 a.m., local time, on February 24,
2011 at the Fairmont Miramar Hotel, 101 Wilshire Boulevard,
Santa Monica, California 90401, telephone
(800) 257-7544,
to consider and vote on the following proposal:
1. A proposal (the transaction proposal) to approve
the sale of 100% our content distribution business unit, which
under Delaware law may constitute the sale of all or
substantially all of the property and assets of the
Company, to Encompass Digital Media, Inc. and its direct
wholly-owned subsidiary Encompass Digital Media Limited
(together, Encompass) on the terms and subject to the
conditions set forth in the Purchase and Sale Agreement dated
December 2, 2010, attached as Annex B to this proxy
statement (the Purchase Agreement). Pursuant to the
Purchase Agreement, we will sell all our interest in certain of
our subsidiaries, which, following an internal reorganization,
will at closing hold in the aggregate the worldwide assets and
operations of our content distribution business unit, to
Encompass for a purchase price of $113,250,000 in cash, plus the
assumption of certain liabilities and obligations with an
estimated value on the date of the Purchase Agreement of
approximately $6.75 million, subject to net working capital
and certain other adjustments.
We describe the transaction proposal in more detail in the
accompanying proxy statement, including a description of our
content distribution business unit and a summary of the terms
and conditions of the Purchase Agreement. We encourage you to
read the proxy statement in its entirety before voting,
including the historical financial statements of our content
distribution business unit attached as
Annex A-1,
the pro forma financial statements of the Company attached as
Annex A-2,
the Purchase Agreement attached as Annex B, and the
opinion of Moelis & Company LLC, independent financial
advisors to the Company, attached as Annex C.
Holders of record of our Series A common stock, par value
$.01 per share, and Series B common stock, par value $.01
per share (collectively, the common stock), outstanding
as of 5:00 p.m., New York City time, on January 24,
2011, the record date for the special meeting, are
entitled to notice of the special meeting and to vote at the
special meeting or any adjournment thereof. Votes may be cast in
person or by proxy at the special meeting or prior to the
meeting by telephone or via the Internet.
Approval of the transaction proposal requires the affirmative
vote of the holders of record, as of the record date, of a
majority of the aggregate voting power of the shares of our
common stock outstanding and entitled to vote at the special
meeting, voting together as a single class. Our obligation to
consummate the sale of our content distribution business is
conditioned on stockholder approval.
Your board of directors has unanimously approved the Purchase
Agreement and the transaction proposal and declared them
advisable, fair to, and in the best interests of the Company and
its stockholders and recommends that you vote
FOR the proposal.
A list of stockholders entitled to vote at the special meeting
will be available at our offices in Englewood, Colorado for
review by our stockholders, for any purpose germane to the
special meeting, for at least 10 days prior to the special
meeting.
YOUR VOTE IS IMPORTANT. We urge you to vote as soon as
possible by telephone, Internet or mail.
By order of the board of directors,
William E. Niles
Executive Vice President,
General Counsel and Secretary
Englewood, Colorado
January 25, 2011
Please execute and return the enclosed proxy promptly, whether
or not you intend to be present at the special meeting.
HOW YOU
CAN OBTAIN ADDITIONAL INFORMATION
Our company is subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended
(Exchange Act). In accordance with the Exchange Act, we
file periodic reports and other information with the Securities
and Exchange Commission (SEC). This proxy statement
incorporates important business and financial information about
our company from documents that we file with the SEC but are not
being delivered with this proxy statement. This information is
available to you without charge upon your written or oral
request. You can obtain copies of documents we file with the
SEC, including the documents incorporated by reference in this
proxy statement, through the SEC website at
http://www.sec.gov
or by contacting us by writing or telephoning the office of
Investor Relations as follows:
Ascent Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone:
(720) 875-5622
If you would like to request any documents from us please do so
by February 14, 2011, in order to receive them before the
special meeting. If you request any documents, they will be
mailed to you by first class mail, or another equally prompt
means, within one business day after your request is received.
Table of
Contents
|
|
|
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
4
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
8
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
17
|
|
|
|
|
17
|
|
|
|
|
17
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
19
|
|
|
|
|
19
|
|
|
|
|
20
|
|
|
|
|
21
|
|
|
|
|
21
|
|
|
|
|
21
|
|
|
|
|
23
|
|
|
|
|
23
|
|
|
|
|
24
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
33
|
|
|
|
|
33
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
49
|
|
|
|
|
49
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
51
|
|
|
|
|
51
|
|
|
|
|
51
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
52
|
|
|
|
|
52
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
53
|
|
|
|
|
55
|
|
|
|
|
55
|
|
|
|
|
60
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
67
|
|
|
|
|
67
|
|
|
|
|
67
|
|
ii
|
|
|
|
|
ANNEXES
|
|
|
|
|
|
|
|
|
A-1-1
|
|
|
|
|
A-2-1
|
|
|
|
|
A-3-1
|
|
|
|
|
A-4-1
|
|
|
|
|
B-1
|
|
|
|
|
C-1
|
|
iii
SUMMARY
The following summary includes information contained elsewhere
in this proxy statement. This summary does not contain all of
the important information that you should consider before voting
on the transaction proposal. You should read the entire proxy
statement, including the Annexes and the documents incorporated
by reference herein, carefully. A copy of the Purchase Agreement
is attached as Annex B to this proxy statement. We
encourage you to read the Purchase Agreement because it is the
legal document that governs the parties agreement pursuant
to which the parties will consummate the sale of our Content
Distribution business. In addition, we incorporate by reference
into this proxy statement important business and financial
information about the Company. You may obtain a copy of the
documents to which we have referred without charge by following
the instructions in the section entitled How You Can
Obtain Additional Information. Unless we otherwise
indicate or unless the context requires otherwise, all
references in this document to the Company,
our company, we, our, and
us refer to Ascent Media Corporation and its
subsidiaries, taken together.
Our
Company
Ascent Media Corporation, a Delaware corporation, is a holding
company. Our principal executive office is located at 12300
Liberty Boulevard, Englewood, Colorado 80112, telephone number
(720) 875-5622.
Our principal assets consist of our wholly owned operating
subsidiary, Monitronics International, Inc.
(Monitronics), the Content Distribution business
described in this proxy statement (which is the subject of the
transaction to be voted on at the special meeting of
stockholders to which this proxy statement relates), and cash
and cash equivalents. See The Company, The
Transaction Proposal Risk Factors and
Acquisition of Monitronics.
Prior to the acquisition of Monitronics and the divestiture of
our creative services and media management services business
units, our principal operating subsidiary was Ascent Media Group
LLC, which we refer to in this proxy statement as AMG.
AMG provided a wide variety of creative services and content
management and delivery services to the media and entertainment
industries from facilities in the United States, the United
Kingdom and Singapore. See The Company, The
Transaction Proposal and The Creative/Media
Transaction.
Parties
to the Content Distribution Transaction
The
Ascent Parties
Ascent Media Corporation
Ascent Media Network Services, LLC
Ascent Media Network Services Europe Limited
Ascent Media Pte. Ltd.
Four Media Company LLC
Ascent Media Limited
Ascent Media Holdings Ltd.
This proxy statement relates to a proposal to sell our Content
Distribution business unit. In connection with the Content
Distribution transaction, we restructured our subsidiaries and
assets so that our Content Distribution business is currently
owned and operated entirely by three indirect wholly-owned
subsidiaries of the Company:
|
|
|
|
|
Ascent Media Network Services, LLC (the US
Company), which owns the assets and operations of Content
Distribution in the United States;
|
|
|
|
Ascent Media Network Services Europe Limited (the UK
Company), which owns the assets and operations of Content
Distribution in the United Kingdom; and
|
|
|
|
Ascent Media Pte. Ltd. (the Singapore
Company), which owns the assets and operations of Content
Distribution in the Republic of Singapore.
|
1
We refer to the US Company, the UK Company and the Singapore
Company as the Content Distribution Group Entities. The
following subsidiaries of our company are also parties to the
Content Distribution transaction:
|
|
|
|
|
Four Media Company LLC (4MC), is an intermediate
holding company and a direct wholly owned subsidiary of our
company. 4MC owns 100% of the US Company.
|
|
|
|
Ascent Media Limited (AML), is an intermediate
holding company and an indirect wholly owned subsidiary of our
company. AML owns 100% of the UK Company.
|
|
|
|
Ascent Media Holdings Ltd. (AMHL), is
an intermediate holding company and an indirect wholly-owned
subsidiary of our company. AMHL owns 100% of the Singapore
Company.
|
The
Encompass Parties
Encompass Digital Media, Inc.
Encompass Digital Media Limited
Encompass Digital Media, Inc., a Delaware corporation
(Encompass US), owns and operates two independent
broadcast facilities in the U.S., which are located in Los
Angeles and Atlanta. Encompass USs principal business is
cable channel origination and transmission and central
broadcasting operations. Services provided by Encompass US also
include disaster recovery; satellite and fiber transmissions
(occasional use); mobile satellite services; digital media
encoding services; digital file transfers via satellite, fiber
and IP; and video production services. Its principal executive
office is located at 3030 Andrita Street, Los Angeles, CA 90065,
telephone number
(323) 344-4605.
Encompass Digital Media Limited (Encompass UK), is a
wholly-owned subsidiary of Encompass US formed for the purpose
of acquiring the UK Company and the Singapore Company.
Encompass US and Encompass UK are referred to together as
Encompass.
The
Content Distribution Transaction
The
Content Distribution Transaction (Page 41)
On November 19, 2010, our board of directors approved the
Content Distribution transaction on the terms and conditions set
forth in the Purchase Agreement, a copy of which is included as
Annex B to this proxy statement. Pursuant to the
Purchase Agreement:
|
|
|
|
|
we intend to sell our worldwide Content Distribution business
through the sale of all of our interests in the Content
Distribution Group Entities to Encompass US and Encompass
UK; and
|
|
|
|
in exchange for our interests in the Content Distribution Group
Entities, Encompass US and Encompass UK have agreed to pay us,
in the aggregate, $113,250,000 in cash, plus the assumption of
certain liabilities and obligations with an estimated value on
the date of the Purchase Agreement of approximately
$6.75 million, subject to net working capital and certain
other adjustments.
|
If all necessary approvals have been obtained, including
stockholder and regulatory approvals and any required third
party consents, we hope to complete the Content Distribution
transaction on or about February 28, 2011.
Reasons
for the Content Distribution Transaction
(Page 23)
In reaching its decision to approve and recommend the Content
Distribution transaction, our board considered various factors,
including, but not limited to:
|
|
|
|
|
the trading history of the Companys Series A common
stock on The NASDAQ Global Select Market;
|
|
|
|
the strong competition faced by the Content Distribution
business, and the likely need to increase the scale of the
business to meet such competition successfully;
|
2
|
|
|
|
|
the boards assessment that the consideration to be
received by the Company in the Content Distribution transaction
was a fair price for the Content Distribution business;
|
|
|
|
the receipt of the opinion of Moelis & Company LLC
(Moelis), which is described under the heading The
Transaction Proposal Opinion of our Financial
Advisor; and
|
|
|
|
the boards determination that the process undertaken by
the Company to identify potential opportunities or strategies
for maximizing the value of the AMG operating businesses, for
the benefit of the Companys stockholders, as described
below under the heading The Transaction
Proposal Background of the Content Distribution
Transaction, was sufficient to identify the Content
Distribution transaction as the most attractive opportunity or
strategy reasonably available at this time for the Content
Distribution business.
|
In light of these and other factors considered by the board, the
board believes that the Content Distribution transaction is more
favorable to our stockholders than the alternative strategy of
continuing to operate the Content Distribution business.
Recommendation
of the Board of Directors (Page 27)
After careful consideration, your board of directors unanimously:
|
|
|
|
|
determined that the Content Distribution transaction, the
Purchase Agreement and the transactions contemplated thereby are
advisable and are fair to, and in the best interests of, our
company and our stockholders;
|
|
|
|
approved the Content Distribution transaction; and
|
|
|
|
recommends that you vote FOR the transaction proposal.
|
Opinion
of Our Financial Advisor (Page 27)
On November 19, 2010, at a meeting of the board of
directors of the Company held to evaluate the Content
Distribution transaction, our financial advisor,
Moelis & Company LLC (Moelis) delivered to the
board its oral opinion, which it subsequently confirmed in
writing, to the effect that, as of such date and based upon and
subject to the limitations, qualifications, factors and
assumptions set forth in its opinion, the consideration to be
received by the Company in the Content Distribution transaction
was fair, from a financial point of view, to the Company.
The full text of Moelis opinion dated November 19,
2010, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review
undertaken by Moelis, is attached as Annex C to this
proxy statement and is incorporated herein by reference. The
Companys stockholders are urged to read the opinion
carefully in its entirety. The summary of the opinion of Moelis
set forth in this proxy statement is qualified in its entirety
by reference to the full text of such opinion. No limitations
were imposed by the board of directors of the Company upon
Moelis with respect to the investigations made or procedures
followed by it in rendering its opinion. See The
Transaction Proposal Opinion of our Financial
Advisor.
Proceeds
from the Content Distribution Transaction
(Page 33)
We expect to use the entire net proceeds from the Content
Distribution transaction for general corporate purposes which
may include potential acquisitions. We have no current intention
to distribute any proceeds of the transaction as a dividend or
other distribution on our capital stock. See The
Company Corporate Strategy.
Effects
of the Content Distribution Transaction
(Page 33)
If the Content Distribution transaction is approved by our
stockholders and the other conditions to closing of the
transaction are satisfied or, where permissible, waived, we will
sell our worldwide Content Distribution business unit to
Encompass for $113,250,000 in cash, plus the assumption of
certain liabilities and obligations with an estimated value on
the date of the Purchase Agreement of approximately
$6.75 million, subject to net working capital and certain
other adjustments, on the terms and subject to the conditions
set forth in the Purchase Agreement.
3
Upon consummation of the Content Distribution transaction, our
remaining assets will consist of our wholly owned subsidiary
Monitronics, cash and marketable securities, certain real estate
interests in Los Angeles and the UK, our systems integration
business (which we consider non-core), and assets used in the
operation of our corporate and support functions.
If the Content Distribution transaction is not completed for any
reason, we intend to explore other strategic alternatives to
maximize the value of our Content Distribution business for the
benefit of our stockholders, including another sale, a joint
venture or other transaction.
Risk
Factors (Page 36)
In considering whether to vote in favor of the transaction
proposal, stockholders should consider a number of risks and
uncertainties, including, among others, that:
|
|
|
|
|
following the consummation of the Content Distribution
transaction we will be primarily engaged in the alarm monitoring
services business, which is materially different from the media
and entertainment services business in which we were previously
engaged;
|
|
|
|
we will be highly dependent on the management of Monitronics to
operate the Monitronics business;
|
|
|
|
the Monitronics business is highly leveraged, and we may not be
successful in refinancing Monitronicss debt when it comes
due;
|
|
|
|
because we may seek potential additional acquisition candidates
in a number of different industry segments, stockholders will
have no basis to ascertain the merits or risks of any business
that we may ultimately operate; and
|
|
|
|
the Content Distribution transaction may not be completed if the
conditions to closing are not satisfied or waived.
|
Please see The Transaction Proposal Risk
Factors for a discussion of these risks and others that
should be considered in connection with the transaction proposal
and any investment in our common stock.
No
Appraisal Rights (Page 38)
Neither Delaware law nor our certificate of incorporation
provides our stockholders with appraisal or dissenters
rights in connection with the Content Distribution transaction.
The
Purchase Agreement
Purchase
Price (Page 42)
Pursuant to the Purchase Agreement, the aggregate cash purchase
price to be paid by Encompass for our interests in the Content
Distribution Group Entities (which we refer to as the
Purchase Price), is equal to $113,250,000 (which we refer
to as the Base Purchase Price), subject to the following
adjustments: (i) a net working capital adjustment,
(ii) a cash deferred revenue adjustment, (iii) a
capital expenditures adjustment, and (iv) a real estate
credit.
Assumption
of Liabilities (Page 43)
In addition to the Purchase Price, at the closing, Encompass
will assume certain liabilities and obligations of the Content
Distribution Group Entities relating to the Content Distribution
business with an estimated fair value on the date of the
Purchase Agreement of approximately $6.75 million,
comprising approximately $3.0 million in capital lease
obligations under a full time satellite transponder capacity
agreement, $3.5 million in dilapidation liability under an
existing real property lease, and $250,000 for an unused lease
obligation.
4
No
Solicitation, Superior Proposal; Termination Fee
(Page 47)
We have agreed that from the signing of the Purchase Agreement
until the consummation of the Content Distribution transaction
or the earlier termination of the Purchase Agreement, we will
not initiate, solicit or encourage any competing proposal for
our Content Distribution business unit, except as otherwise
permitted by the Purchase Agreement:
If we receive a superior proposal and our board
changes or withdraws its recommendation in favor of the
transaction proposal then, after providing Encompass with an
opportunity to respond to such superior proposal, we may
terminate the Purchase Agreement and enter into an agreement
with respect to such superior proposal, provided that prior to
the effectiveness of any such termination we pay a termination
fee to Encompass of $4,530,000, in cash.
Conditions
to Completion of the Content Distribution Transaction
(Page 44)
Our obligation and Encompasss obligation to complete the
Content Business Transaction are subject to the satisfaction or
waiver of a number of conditions, including:
|
|
|
|
|
approval of the transaction proposal by the holders of a
majority of the voting power of the outstanding shares of our
common stock entitled to vote thereon, voting as a single class;
|
|
|
|
the requisite regulatory approvals shall have been
obtained; and
|
|
|
|
specified third-party consents shall have been obtained.
|
Termination
of the Purchase Agreement (Page 50)
The Purchase Agreement may be terminated, either before or after
approval of the Content Distribution transaction by our
stockholders, under certain circumstances including:
|
|
|
|
|
by mutual written consent of us and Encompass US; and
|
|
|
|
by us or Encompass US, if (1) the closing has not occurred
by February 28, 2011, (2) any governmental authority
of competent jurisdiction has issued an order or taken any other
action permanently restraining, enjoining or otherwise
prohibiting or imposing materially burdensome conditions on the
consummation of the transactions contemplated by the Purchase
Agreement, and such order or other action has become final and
non-appealable, or (3) stockholder approval of the
transaction proposal is not obtained at the special meeting;
|
|
|
|
by us, if our board of directors has determined, in good faith,
that a competing proposal is a superior proposal, subject to
certain conditions; or
|
|
|
|
by Encompass US, (i) if our board of directors makes a
change of recommendation, fails to recommend against a competing
tender offer, enters into an acquisition agreement, or publicly
announces an intention to take any of such actions, or
(ii) if any of certain specified customers terminates
contracts with our company representing, in the aggregate, all
or substantially all the revenue received by us from such
customer for network origination, playout and master control
services in the UK.
|
Reverse
Termination Fee (Page 51)
If the conditions to Encompasss obligations under the
Purchase Agreement are satisfied, but either Encompass US or
Encompass UK breaches its obligation to consummate the Content
Distribution transaction pursuant to the Purchase Agreement, and
we exercise our right to terminate the Purchase Agreement as a
result of Encompasss breach, Encompass will be obligated
to pay us a reverse termination fee of $9,680,000, and such
reverse termination fee shall constitute our sole remedy for
such breach.
5
Regulatory
Matters (Page 40)
The Content Distribution transaction is subject to the
notification and waiting period requirements of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), the Communications Act of 1934, as amended (the
Communications Act) and the Telecommunications Act 1999
of Singapore, as amended (the Telecommunications Act).
Pursuant to the HSR Act, on December 3, 2010, each of our
company and Encompass filed a Notification and Report Form for
Certain Mergers and Acquisitions in connection with the Content
Distribution transaction. On December 13, 2010, we were
notified that we had been granted early termination of the
waiting period under the HSR Act.
Under the Communications Act, our company and Encompass may not
consummate the Content Distribution transaction unless they have
first obtained the approval of the Federal Communications
Commission, which we refer to as the FCC. FCC approval is
sought through the filing of applications with the FCC, which
are subject to public comment and objections from third parties.
Although no assurances can be given, we expect the FCC approval
process to be completed prior to the expected closing date of
February 28, 2011. The Company and Encompass submitted
joint applications with the FCC on December 3, 2010.
Pursuant to the Telecommunications Act and Code of Practice for
Competition in the Provision of Telecommunication Services 2005
(Republic of Singapore), any consolidation involving designated
telecommunication licensees requires the approval of the
Infocomm Development Authority of Singapore (which we refer to
as the IDA). Generally speaking, the acquiring party and
the licensee that is the subject of the consolidation are
required to submit a joint application to IDA for the required
approval within 30 days of the execution of the
privately-negotiated agreement that would, once approved by IDA,
result in the consolidation. IDA would generally complete a
preliminary review of the consolidation application within 5
working days to determine whether further information is
required, and complete the consolidation review within
30 days from the start of the consolidation review period.
The consolidation review period is deemed to commence once the
applicants satisfy the minimum information requirements.
Although no assurances can be given, we expect the IDA approval
process to be completed prior to the expected closing date of
February 28, 2011. The Company and Encompass submitted a
joint application with the IDA on December 9, 2010.
Recent
Developments
The
Creative/Media transaction
On November 24, 2010, we entered into an agreement with
Deluxe Entertainment Services Group Inc. (Deluxe),
pursuant to which we agreed to sell to Deluxe the creative
services and media services business units of AMG. We refer to
this transaction as the Creative/Media transaction. On
December 31, 2010, we closed the Creative/Media transaction
and received approximately $67.3 million in cash, after
giving effect to a working capital adjustment of approximately
$1.0 million, and Deluxe assumed certain net indebtedness
in the amount of approximately $1.8 million. Pursuant to
the Deluxe purchase agreement, 79% of the aggregate purchase
price in the Creative/Media transaction is allocable to the
assets and operations of the Creative/Media business in the
U.S., and 21% of such aggregate purchase price is allocable to
the assets and operations of the Creative/Media business in the
U.K.
The Creative/Media transaction did not require stockholder
approval and will not be voted on at the special meeting. The
net proceeds from the Creative/Media transaction will be used
for general corporate purposes, which may include potential
acquisitions. We have no current intention to distribute any
proceeds of that transaction as a dividend or other distribution
on our capital stock. A summary of the Creative/Media
transaction is provided elsewhere in this proxy statement under
the caption The Creative/Media Transaction.
Acquisition
of Monitronics International, Inc.
On December 17, 2010, our company acquired 100% of
Monitronics International, Inc., a leading national security
alarm monitoring company, in a transaction valued at
$1.191 billion, exclusive of certain hedge related and
other liabilities, but including the assumption of
Monitronics existing structured financing. The transaction
value is comprised of $413 million in cash consideration
and $778 million in net debt of Monitronics. Monitronics
provides
6
monitored business and home security system services to more
than 665,000 subscribers in the United States and Canada,
through a nationwide network of independent authorized dealers.
Additional information regarding Monitronics, including the
principal terms of the acquisition agreement, are described in
this proxy statement under the caption Acquisition of
Monitronics. Please see the audited consolidated financial
statements of Monitronics as of and for the fiscal years ended
June 30, 2010, 2009 and 2008, included in this proxy
statement as
Annex A-3,
and the unaudited balance sheet of Monitronics as of
September 30, 2010 and the unaudited statements of
operations, shareholders net capital and cash flows for
the three months ended September 30, 2010 and 2009,
included in this proxy statement as
Annex A-4.
This proxy statement also includes, as
Annex A-2,
certain unaudited pro forma combined condensed financial
information of the Company, which describes the effects of our
acquisition of Monitronics, together with the effects of the
Content Distribution transaction and the Creative/Media
transaction, on our consolidated balance sheets and statements
of operations.
7
QUESTIONS
AND ANSWERS
The questions and answers below highlight only selected
information about the special meeting and how to vote your
shares. You should read carefully the entire proxy statement,
including the Annexes and the additional documents incorporated
by reference herein, to fully understand the transaction
proposal being considered at the special meeting.
|
|
Q:
|
Why am I
receiving this proxy statement and proxy card?
|
|
|
A: |
You are receiving a proxy statement and proxy card because you
owned shares of our common stock as of the record date. This
proxy statement and proxy card relate to our special meeting of
stockholders (and any adjournment thereof) and describe the
proposal that will be voted on at the special meeting.
|
Q: Who
is soliciting my proxy?
|
|
A: |
Our board of directors is soliciting your proxy for use at the
special meeting.
|
Q: What
proposals will be voted on at the special meeting?
|
|
A: |
You will be asked to consider and vote on a proposal, which we
refer to as the transaction proposal, to approve the sale
of 100% of our content distribution business unit to Encompass
for $113,250,000 in cash, plus assumption of certain liabilities
and obligations with an estimated value on the date of the
Purchase Agreement of approximately $6.75 million, and
subject to net working capital and other adjustments, on the
terms and subject to the conditions set forth in the Purchase
Agreement. We refer to this transaction as the Content
Distribution transaction.
|
Q: Why
are we asking for stockholder approval for the sale of the
content distribution business unit?
|
|
A: |
Our company is incorporated under Delaware law, which requires
that a corporation obtain approval from its stockholders for the
sale of all or substantially all of its property and
assets. The proposed sale of our content distribution business,
following the previously announced sale of our creative services
business unit and media management services business unit, may
be deemed to constitute such a sale, even though we recently
completed the acquisition of Monitronics, which currently
represents our most significant asset. We are therefore seeking
stockholder approval for the Content Distribution transaction.
Stockholder approval is also a condition to closing under the
purchase agreement relating to the Content Distribution
transaction.
|
Q: Will
there be a stockholder vote regarding the sale of the creative
services and media management services business units?
|
|
A: |
No. The previously announced sale of our Creative/Media
business to Deluxe has been completed, and did not require a
stockholder vote. The Creative/Media transaction and the Content
Distribution transaction are separate and independent
transactions, and neither is conditioned on the other.
|
Q: Will
there be a stockholder vote regarding the acquisition of
Monitronics?
|
|
A: |
No. The previously announced acquisition of Monitronics has
been completed, and did not require a stockholder vote. The
acquisition of Monitronics and the Content Distribution
transaction are separate and independent transactions, and
neither is conditioned on the other.
|
Q: Will
any of the proceeds from the Content Distribution transaction be
distributed to me as a stockholder?
|
|
A: |
No. We do not contemplate a distribution to our
stockholders of any net proceeds we receive from the Content
Distribution transaction. We expect to use those proceeds, after
transaction expenses, to support our acquisition strategy of
identifying and acquiring one or more operating businesses as
well as for general corporate purposes.
|
8
Q: Does
the Company intend to effect any other acquisition
transactions?
|
|
A: |
Although the Company does not have any current plan or intention
with respect to any other acquisition transaction, we may in the
future make one or more other acquisitions, if favorable
opportunities to do so arise. Although the Company utilized
approximately $298 million of cash and marketable
securities in connection with the acquisition of Monitronics,
following consummation of the Content Distribution transaction
and the Creative/Media transaction, the Company expects that it
will continue to hold substantial cash and cash equivalents in
excess of the amount required for operations. The Company
intends to seek opportunities to use its excess cash, together
with any free cash flow generated by Monitronics, to enhance
shareholder value, which may include additional investments to
fund subscriber growth at Monitronics; follow-on acquisitions in
the alarm monitoring sector; expansion into adjacent businesses
and geographies; creating or acquiring new businesses in
industries outside of security monitoring; or other
opportunistic investments. See The Transaction
Proposal Risk Factors, below.
|
Q: Will
the Companys common stock still be publicly traded if the
Content Distribution transaction is completed?
|
|
A: |
Yes. Our Series A common stock is currently traded on The
NASDAQ Global Select Market under the symbol ASCMA
and will continue to trade under that symbol if we complete the
Content Distribution transaction. Our Series B common stock
is currently eligible for quotation on the OTC
Bulletin Board under the symbol ASCMB, but it
is not actively traded. The completion of the Content
Distribution transaction will not affect that eligibility.
|
Q: How
does the board of directors recommend that I vote?
|
|
A: |
Your board of directors unanimously recommends that you vote
FOR the transaction proposal.
|
Q: What
stockholder vote is required to approve the proposal?
|
|
A: |
Approval of the transaction proposal requires the affirmative
vote of the holders of record, as of the record date, of a
majority of the aggregate voting power of the shares of our
common stock outstanding and entitled to vote at the special
meeting, voting together as a single class.
|
Q: How
many votes do stockholders have?
|
|
A: |
At the special meeting:
|
|
|
|
|
|
holders of Series A common stock have one vote per
share; and
|
|
|
|
holders of Series B common stock have ten votes per share.
|
A stockholder is only entitled to vote any shares owned as of
the record date at the special meeting.
Q: What
do I need to do to vote on the transaction proposal?
|
|
A: |
After carefully reading and considering the information
contained in this proxy statement, you should complete, sign,
date and return the enclosed proxy card by mail, or vote by
telephone or through the Internet, in each case as soon as
possible so that your shares are represented and voted at the
special meeting. Instructions for voting by using the telephone
or the Internet are printed on the proxy voting instructions
attached to the proxy card. In order to vote via the Internet,
have your proxy card available so you can input the required
information from the card, and log on to the Internet website
address shown on the proxy card. When you log on to the Internet
website address, you will receive instructions on how to vote
your shares. The telephone and Internet voting procedures are
designed to authenticate votes cast by use of a personal
identification number, which will be provided to each voting
stockholder separately.
|
9
Q: If
my shares are held in street name by a broker, bank
or other nominee, will the broker, bank or other nominee vote
those shares for me?
|
|
A: |
Your broker or other nominee will vote your shares only
if you provide instructions on how to vote to such broker or
other nominee. You should follow the voting instruction card
provided by your broker, bank or other nominee in instructing
them how to vote your shares.
|
If you hold your shares in street name and do not provide voting
instructions to your broker, bank or other nominee, your shares
will not be voted on the transaction proposal. Your
broker, bank or other nominee will vote your shares held in
street name on the transaction proposal only
if you provide instructions on how to vote. If a broker, who
is a record holder of shares, indicates on a form of proxy that
the broker does not have discretionary authority to vote those
shares on the transaction proposal, or if those shares are voted
in circumstances in which proxy authority is defective or has
been withheld with respect to the transaction proposal, these
shares are considered broker non-votes with
respect to such proposal.
Broker non-votes will not count as present and entitled to vote
for purposes of determining a quorum, and have the same effect
as votes against the transaction proposal.
You should follow the directions your broker, bank or other
nominee provides to you regarding how to vote your shares of
common stock or when granting or revoking a proxy.
Q: What
if I do not vote on the transaction proposal?
|
|
A: |
If you do not submit a proxy or you do not vote in person at the
special meeting, your shares will not be counted as present and
entitled to vote for purposes of determining whether a quorum
exists for the special meeting. Because approval of the
transaction proposal requires the affirmative vote of a majority
of the voting power of outstanding shares entitled to vote, a
failure to vote has the same effect as a vote
against the transaction proposal (assuming a
quorum is present at the special meeting). If you submit a proxy
but do not indicate how you want to vote, your proxy will be
counted as a vote FOR the transaction
proposal.
|
Q: What
if I respond and indicate that I am abstaining from
voting?
|
|
A: |
If you submit a proxy in which you indicate that you are
abstaining from voting, your shares will count as present for
purposes of determining a quorum, but your proxy will have the
same effect as a vote against the transaction
proposal.
|
Q: May
I change my vote after returning a proxy card or voting by
telephone or over the Internet?
|
|
A: |
Yes. Before the start of the special meeting, you may change
your vote on the transaction proposal by voting in person at the
special meeting or by delivering a signed proxy revocation or a
new signed proxy with a later date to Ascent Media Corporation
c/o Computershare
Trust Company, N.A., 250 Royall Street, Canton, MA 02021.
In addition, you may change your vote through the Internet or by
telephone (if you originally voted by the corresponding method)
not later than 12:00 a.m., New York time, on
February 24, 2011.
|
Any signed proxy revocation or new signed proxy must be
received before the start of the special
meeting. Your attendance at the special meeting
will not, by itself, revoke your proxy. If your shares are held
in an account by a broker, bank or other nominee who you
previously contacted with voting instructions, you should
contact your broker, bank or other nominee to change your vote.
Q: What
if a quorum is not present at the special meeting?
|
|
A: |
To conduct the business of the special meeting, our bylaws
require that the holders of a majority of the aggregate voting
power represented by the shares of our common stock outstanding
on the record date and entitled to vote be present in person or
by proxy at the special meeting. Because applicable New York
Stock Exchange rules do not permit discretionary voting by
brokers with respect to the transaction proposal to be acted
upon at the special meeting, broker non-votes will not count as
present and entitled to vote for purposes of determining a
quorum. This may make it more difficult to establish a quorum at
the special meeting. If a quorum is not present at the special
meeting, we expect the chairman of the meeting to adjourn the
meeting in accordance with the terms of
|
10
|
|
|
our bylaws for the purpose of soliciting additional proxies.
Although our Series A common stock is traded on The NASDAQ
Global Select Market, the rules of the New York Stock Exchange
for this purpose are binding on all brokers that are members of
the New York Stock Exchange.
|
Q: Will
a proxy solicitor be used?
|
|
A: |
Yes. We have engaged Georgeson Inc. (Georgeson) to assist
in the solicitation of proxies for the special meeting and we
estimate that we will pay Georgeson a fee of approximately
$9,000. We have also agreed to reimburse Georgeson for
reasonable administrative and out-of-pocket expenses incurred in
connection with the proxy solicitation and to indemnify
Georgeson against certain losses, costs and expenses.
|
Q: Who
will bear the cost of this solicitation?
|
|
A: |
The expenses of preparing, printing and mailing this proxy
statement and the proxies solicited hereby will be borne by the
Company. Additional solicitation may be made by telephone,
facsimile or other contact by certain directors, officers,
employees or agents of our Company, none of whom will receive
additional compensation therefor. We will, upon request,
reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses for forwarding
material to the beneficial owners of shares held of record by
others.
|
Q: Will
I be entitled to appraisal rights if I oppose the Content
Distribution transaction?
|
|
A: |
No. You will not be entitled to appraisal or
dissenters rights in connection with the Content
Distribution transaction.
|
Q: What
do I do if I have additional questions?
|
|
A: |
If you have any questions prior to the special meeting or if you
would like copies of any document referred to or incorporated by
reference in this document, please call Georgeson at (866)
277-8329.
|
11
SELECTED
FINANCIAL DATA FOR ASCENT MEDIA CORPORATION
The following tables present selected historical information
relating to our Companys financial condition and results
of operations for each of the years in the five-year period
ended December 31, 2009. During the third quarter of 2010,
our company shut down its Global Media Exchange (GMX) business,
which had previously been included in our content services
group. GMX has been reclassified as discontinued operations, and
this reclassification is reflected in the 2009 and 2008 columns
as indicated in the footnotes to the table below. The following
data have been derived from our audited consolidated financial
statements for each of the respective periods, as adjusted to
treat GMX as discontinued operations, and should be read in
conjunction with our consolidated financial statements and
related notes incorporated by reference into this proxy
statement. See Additional Information Where
You Can Find Additional Information below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amounts in thousands
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
416,891
|
|
|
|
490,042
|
|
|
|
362,725
|
|
|
|
316,381
|
|
|
|
385,868
|
|
Property and Equipment, net
|
|
$
|
185,891
|
|
|
|
211,846
|
|
|
|
241,834
|
|
|
|
251,670
|
|
|
|
230,742
|
|
Total assets
|
|
$
|
682,483
|
|
|
|
745,304
|
|
|
|
830,986
|
|
|
|
952,919
|
|
|
|
996,627
|
|
Current liabilities
|
|
$
|
70,872
|
|
|
|
91,202
|
|
|
|
119,600
|
|
|
|
114,229
|
|
|
|
84,783
|
|
Stockholders equity
|
|
$
|
582,596
|
|
|
|
625,310
|
|
|
|
686,896
|
|
|
|
814,696
|
|
|
|
890,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amounts in thousands, except per share amounts
|
|
|
Summary Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
453,681
|
|
|
|
581,625
|
|
|
|
570,731
|
|
|
|
553,326
|
|
|
|
585,049
|
|
Operating income (loss)(a)(c)
|
|
$
|
(39,559
|
)
|
|
|
(120,956
|
)
|
|
|
(175,740
|
)
|
|
|
(118,244
|
)
|
|
|
2,533
|
|
Net earnings (loss) from continuing operations(a)(c)
|
|
$
|
(56,844
|
)
|
|
|
(114,070
|
)
|
|
|
(151,202
|
)
|
|
|
(92,334
|
)
|
|
|
5,703
|
|
Net earnings (loss)(a)
|
|
$
|
(52,897
|
)
|
|
|
(64,619
|
)
|
|
|
(132,331
|
)
|
|
|
(83,007
|
)
|
|
|
8,970
|
|
Basic and diluted earnings (loss) per common share(b)
|
|
$
|
(3.76
|
)
|
|
|
(4.60
|
)
|
|
|
(9.41
|
)
|
|
|
(5.90
|
)
|
|
|
0.64
|
|
|
|
|
(a) |
|
Includes impairment of goodwill of $95,069,000, $165,347,000 and
$93,402,000 for the years ended December 31, 2008, 2007 and
2006, respectively. |
|
(b) |
|
Basic and diluted net earnings (loss) per common share is based
on (1) 14,061,618 shares, which is the number of
shares issued in the spin off, for all periods prior to 2008,
the year of the spin off, and (2) the actual number of
basic and diluted shares for all periods subsequent to the spin
off. |
|
(c) |
|
The 2009 and 2008 amounts do not agree to our previously filed
Annual Report on
Form 10-K
for the year ended December 31, 2009 as the amounts have
been adjusted to reflect the results of operations of GMX as a
discontinued operation. The adjusted financial statements were
filed with the SEC on
form 8-K
on December 7, 2010 and are incorporated by reference into
this proxy statement. |
12
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this proxy statement or in the documents
incorporated by reference herein constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding
our business, marketing and operating strategies, our market
potential, our strategy of divesting our historical operating
businesses and acquiring one or more other operating businesses
that management believes will offer more attractive returns on
equity, the likelihood of our closing the Content Distribution
transaction and the expected closing dates therefor, and other
matters. In particular, statements under Summary,
The Transaction Proposal, The
Company Corporate Strategy, and Material
Tax Consequences contain forward-looking statements.
Where, in any forward-looking statement, we express an
expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or
accomplished. The following include some but not all of the
factors that could cause actual results or events to differ
materially from those anticipated:
|
|
|
|
|
the occurrence of any event, change or other circumstance that
could give rise to the termination of the Purchase Agreement;
|
|
|
|
the outcome of any legal proceedings that may be instituted
against the Company, Encompass and others relating to the
Purchase Agreement;
|
|
|
|
any inability to complete the Content Distribution transaction
due to the failure to obtain stockholder approval or the failure
to satisfy any other conditions set forth in the Purchase
Agreement;
|
|
|
|
the failure of the Content Distribution transaction to close for
any other reason;
|
|
|
|
business risks and uncertainties inherent in the development of
new business lines and business strategies;
|
|
|
|
business risks and uncertainties inherent in the integration of
Monitronics and any other acquired businesses;
|
|
|
|
the possibility that any business or entity acquired by the
Company in connection with its acquisition strategy may have
unanticipated or undisclosed liabilities or obligations;
|
|
|
|
the significant degree of financial leverage contemplated by the
Monitronics business model;
|
|
|
|
competition from other alarm monitoring companies and potential
new entrants into the business such as cable and telephone
providers, many of whom have substantially greater resources
than we do;
|
|
|
|
general economic and business conditions and industry trends;
|
|
|
|
the regulatory environment of the industries in which we, and
the entities in which we have interests, operate;
|
|
|
|
retention of our largest customer and dealer accounts;
|
|
|
|
uncertainties associated with product and service development
and market acceptance;
|
|
|
|
rapid technological changes;
|
|
|
|
present and future financial performance, including availability
and terms of capital;
|
|
|
|
fluctuations in foreign currency exchange rates;
|
|
|
|
political unrest in international markets;
|
|
|
|
the ability of suppliers and vendors to deliver products,
equipment, software and services;
|
|
|
|
the outcome of any pending or threatened litigation;
|
|
|
|
availability of qualified personnel;
|
|
|
|
changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the
FCC, and adverse outcomes from regulatory proceedings;
|
|
|
|
changes in the nature of key strategic relationships with
partners and joint venturers;
|
13
|
|
|
|
|
competitor and overall market response to our products and
services including acceptance of the pricing of such products
and services;
|
|
|
|
threatened terrorists attacks and ongoing military action in the
Middle East and other parts of the world; and
|
|
|
|
risk of loss from earthquakes and other catastrophic events.
|
These forward-looking statements and such risks, uncertainties
and other factors speak only as of the date of this proxy
statement (or, as to documents incorporated by reference, the
date of such documents), and we expressly disclaim any
obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein or
therein, to reflect any change in our expectations with regard
thereto, or any other change in events, conditions or
circumstances on which any such statement is based. When
considering such forward-looking statements, you should keep in
mind the factors described in The Transaction
Proposal Risk Factors and other cautionary
statements contained in this proxy statement or incorporated by
reference in this proxy statement. Such risk factors and
statements describe circumstances which could cause actual
results to differ materially from those inferred by any
forward-looking statement.
14
THE
SPECIAL MEETING
Time,
Place and Date
The special meeting of the stockholders is to be held at 10:00,
local time, on February 24, 2011, at the Fairmont Miramar
Hotel, 101 Wilshire Boulevard, Santa Monica, California 90401,
telephone
(800) 257-7544.
Purpose
At the special meeting, holders of our common stock will be
asked to consider and vote on a proposal, which we refer to as
the transaction proposal, to approve the sale of 100% of
our content distribution business unit to Encompass for
$113,250,000 in cash, plus the assumption of certain liabilities
and obligations with an estimated value on the date of the
Purchase Agreement of approximately $6.75 million, and
subject to net working capital and other adjustments, on the
terms and subject to the conditions set forth in the Purchase
Agreement. The proposed sale of our content distribution
business unit as described in this proxy statement, following
the previously completed sale of our creative services business
unit and media management services business unit, may constitute
a sale of all or substantially all of the property
and assets of the Company under Delaware law. Hence, it requires
stockholder approval, and stockholder approval is a condition to
the closing of the transaction under the Purchase Agreement.
Please see The Transaction Proposal for more
information.
Quorum
To conduct the business of the special meeting, our bylaws
require that the holders of a majority of the aggregate voting
power represented by the shares of our common stock outstanding
on the record date and entitled to vote be present in person or
by proxy at the special meeting. For purposes of determining a
quorum, your shares will be included as represented at the
meeting even if you indicate on your proxy that you abstain from
voting. If a broker, who is a record holder of shares, indicates
on a form of proxy that the broker does not have discretionary
authority to vote those shares on the transaction proposal, or
if those shares are voted in circumstances in which proxy
authority is defective or has been withheld, those shares will
be considered broker non-votes and will not be
counted for purposes of determining the presence of a quorum.
See Voting Procedures for Shares Held in
Street Name Effect of Broker Non-Votes below.
Rules applicable to all brokers that are members of the New York
Stock Exchange prohibit discretionary voting by brokers with
respect to the transaction proposal. If a quorum is not present
at the special meeting, we expect the chairman of the meeting to
adjourn the meeting in accordance with the terms of our bylaws
for the purpose of soliciting additional proxies.
Required
Vote
Approval of the transaction proposal requires the affirmative
vote of the holders of record, as of the record date, of a
majority of the aggregate voting power of the shares of our
common stock outstanding and entitled to vote at the special
meeting, voting together as a single class. Each holder of a
share of our Series A common stock is entitled to one vote
per share and each holder of a share of our Series B common
stock is entitled to ten votes per share on the transaction
proposal.
Failure to vote by proxy (by returning a properly executed proxy
card or by following the instructions printed on the proxy card
for telephone or Internet voting) or in person has the same
effect as a vote AGAINST the transaction
proposal, and will not be treated as present for the purpose of
establishing a quorum. Abstentions will be treated as present
for the purpose of establishing a quorum. However, since
approval of the transaction proposal requires the affirmative
vote of the holders of a majority of the aggregate voting power
of the shares of our common stock outstanding and entitled to
vote at the special meeting, abstentions will have the same
effect as votes AGAINST the proposal.
You are urged to vote by proxy even if you plan to attend the
special meeting so that we will know as soon as possible that
enough votes will be present for the special meeting to be held.
15
As of the record date for the special meeting, our directors and
executive officers beneficially owned approximately 4.1% of the
total voting power of the outstanding shares of Series A
common stock and approximately 84.5% of the total voting power
of the outstanding shares of Series B common stock, for a
total aggregate voting power of 32.3%. We have been informed
that all of our executive officers and directors intend to vote
FOR the transaction proposal.
Who May
Vote
Holders of shares of our Series A common stock and
Series B common stock, as recorded in our stock register as
of 5:00 p.m., New York City time, on January 24, 2011,
the record date for the special meeting, may vote on the
transaction proposal at the special meeting or at any
adjournment thereof. The holders of the Series A common
stock and the Series B common stock shall vote together on
the transaction proposal as a single class.
Votes You
Have
At the special meeting:
|
|
|
|
|
holders of shares of Series A common stock will have one
vote per share; and
|
|
|
|
holders of shares of Series B common stock will have ten
votes per share;
|
in each case, for each share that our records show they owned as
of the record date.
Shares
Outstanding
As of January 24, 2011, the record date for the special
meeting, an aggregate of 13,554,998 shares of Series A
common stock and 731,852 shares of Series B common
stock were issued and outstanding and entitled to vote at the
special meeting.
Number of
Holders
There were, as of the record date for the special meeting,
approximately 1,191 record holders of Series A common stock
and approximately 66 record holders of Series B common
stock (which amounts do not include the number of stockholders
whose shares are held of record by banks, brokers or other
nominees, but include each such institution as one holder).
Voting
Procedures for Record Holders
Holders of record of our common stock as of the record date for
the special meeting may vote in person at the special meeting.
Alternatively, they may give a proxy by completing, signing,
dating and returning the enclosed proxy card by mail, or by
voting by telephone or through the Internet. Instructions for
voting by using the telephone or the Internet are printed on the
proxy voting instructions attached to the proxy card. In order
to vote through the Internet, holders should have their proxy
cards available so they can input the required information from
the card, and log into the Internet website address shown on the
proxy card. When holders log on to the Internet website address,
they will receive instructions on how to vote their shares. The
telephone and Internet voting procedures are designed to
authenticate votes cast by use of a personal identification
number, which will be provided to each voting stockholder
separately. Unless subsequently revoked, shares of common stock
represented by a proxy submitted as described herein and
received at or before the special meeting will be voted in
accordance with the instructions on the proxy.
YOUR VOTE IS IMPORTANT. It is recommended that
you vote by proxy even if you plan to attend the special
meeting. You may change your vote at the special meeting.
If a proxy is signed and returned by a record holder without
indicating any voting instructions, the shares of common stock
represented by the proxy will be voted FOR
the approval of the transaction proposal.
If you submit a proxy card on which you indicate that you
abstain from voting, it will have the same effect as a vote
AGAINST the transaction proposal.
16
If you fail to respond with a vote, your shares will not be
counted as present and entitled to vote for purposes of
determining a quorum, and your failure to vote will have the
same effect as a vote AGAINST the transaction
proposal.
Voting
Procedures for Shares Held in Street Name
General. If you hold your shares in the name
of a broker, bank or other nominee, you should follow the
instructions provided by your broker, bank or other nominee when
voting your shares of common stock or when granting or revoking
a proxy.
Effect of Broker Non-Votes. As a result of
applicable New York Stock Exchange rules, brokers will not have
discretionary authority to vote on the transaction proposal at
the special meeting. Broker non-votes will not count as shares
of common stock present and entitled to vote for purposes of
determining a quorum. In addition, since the transaction
proposal requires the affirmative vote of a majority of all
shares outstanding and entitled to vote as of the record date,
voting together as a single class, broker non-votes have the
same effect as votes against the transaction
proposal (if a quorum is present). You should follow the
directions your broker, bank or other nominee provides to you
regarding how to vote your shares of common stock or when
granting or revoking a proxy.
Revoking
a Proxy
Before the start of the special meeting, you may change your
vote by voting in person at the special meeting or by delivering
a signed proxy revocation or a new signed proxy with a later
date to Ascent Media Corporation,
c/o Computershare
Trust Company, N.A., 250 Royall Street, Canton, MA 02021.
Any proxy revocation or new proxy must be received before the
start of the special meeting. In addition, you may change
your vote through the Internet or by telephone (if you
originally voted by the corresponding method) not later than
12:00 a.m., New York City time, on February 24, 2011.
Your attendance at the special meeting will not, by itself,
revoke your proxy.
If your shares are held in an account by a broker, bank or other
nominee, you should contact your nominee to change your vote.
Solicitation
of Proxies
The accompanying proxy for the special meeting is being
solicited on behalf of our board of directors. In addition to
this mailing, our employees may solicit proxies personally or by
telephone. We pay the cost of soliciting these proxies. We have
engaged Georgeson Inc. (Georgeson) to assist in the
solicitation of proxies from brokers, nominees, fiduciaries and
other custodians. We will pay Georgeson a fee of approximately
$9,000. We have also agreed to reimburse Georgeson for
reasonable administrative and out-of-pocket expenses incurred in
connection with the proxy solicitation and indemnity Georgeson
against certain losses, costs and expenses. We also reimburse
brokers and other nominees for their expenses in sending these
materials to you and getting your voting instructions.
17
THE
COMPANY
Background
The Company was incorporated in the state of Delaware on
May 29, 2008 as a wholly-owned subsidiary of Discovery
Holding Company (DHC). On September 17, 2008, DHC
completed a spin-off of the Company to DHCs shareholders
and we became an independent, publicly traded company.
We are a holding company. Our principal assets include our
wholly owned operating subsidiary Monitronics, the Content
Distribution business, and cash and cash equivalents. We also
own certain real estate interests in Los Angeles and the UK, the
SI business, which we consider non-core, and assets used in the
operation of our corporate and support functions.
Corporate
Strategy
As previously announced, we actively seek opportunities to
create value for our stockholders by leveraging our strong
capital position through strategic acquisitions and other
potential transactions in various industries. As part of this
strategy, we have been seeking to divest the businesses that
historically have been operated by AMG and to acquire one or
more other operating businesses that we believe offer the
opportunity for more attractive returns on equity. In evaluating
potential acquisition candidates we consider various factors,
including among other things:
|
|
|
|
|
financial characteristics, including recurring revenue streams
and free cash flow;
|
|
|
|
growth potential; and
|
|
|
|
potential return on investment incorporating appropriate
financial leverage, including the targets existing
indebtedness and opportunities to restructure some or all of
that indebtedness.
|
We consider acquisitions for cash, leveraged acquisitions, and
acquisitions using Ascent Media Corporation stock. In addition
to acquisitions, we consider majority ownership positions,
minority equity investments and, in appropriate circumstances,
senior debt investments that we believe provide either a path to
full ownership or control, the possibility for high returns on
investment, or significant strategic benefits.
Consistent with our previously announced acquisition strategy,
we consummated the Monitronics acquisition on December 17,
2010. Monitronics provides monitored business and home security
system services to more than 665,000 subscribers in the United
States and Canada, through a nationwide network of independent
authorized dealers. Monitronics is a subscription-based business
that delivers solid, predictable revenue and cash flow and has
what we believe is a scalable and leveragable business model.
Additional information regarding Monitronics, including the
principal terms of the acquisition agreement, are described in
this proxy statement under the caption Acquisition of
Monitronics.
Our acquisition strategy entails substantial risk. We consider
potential acquisitions in a variety of industries, which could
result in significant additional changes in our operations from
those historically conducted by us. Please see The
Transaction Proposal Risk Factors, below.
AMG
Content and Creative Services
Prior to the consummation of the Creative/Media transaction and
the Monitronics transaction, each of which is described below,
we were primarily engaged in the business of providing content
and creative services to the media and entertainment industries
through our wholly-owned subsidiaries. The business units that
provided such services, which we refer to as the AMG
businesses, were owned by our wholly-owned subsidiary, AMG,
and its wholly-owned subsidiaries. The AMG businesses provided a
wide variety of creative services and content management and
delivery services to the media and entertainment industries from
facilities in the United States, the United Kingdom and
Singapore. The AMG businesses provided solutions for the
creation, management and distribution of content to major motion
picture studios, independent producers, broadcast networks,
programming networks, advertising agencies and other companies
that produce, own
and/or
distribute entertainment, news, sports and advertising content.
The AMG businesses also provided solutions for the management
and distribution of content to multichannel video programming
distributors such as cable operators and IPTV providers.
Services were
18
marketed to target industry segments through AMGs internal
sales force and could be sold on a bundled or individual basis.
The AMG businesses were organized into two operating segments:
businesses that provided content management and delivery
services, which we refer to as Content Services, and
businesses that provided creative services, which we refer to as
Creative Services. The Content Services segment was in
turn divided into three business units: (i) the content
distribution business unit, which we refer to as Content
Distribution, (ii) the media management services
business unit, which we refer to as Media Services and
(iii) the systems integration business unit, which we refer
to as Systems Integration or SI.
Recent
Developments The Creative/Media
transaction
In furtherance of our corporate strategy, on November 24,
2010, we entered into a definitive agreement (the Deluxe
Purchase Agreement) with Deluxe Entertainment Services Group
Inc. (Deluxe US) and its direct, wholly-owned subsidiary,
Deluxe UK Holdings Limited (Deluxe UK and, together with
Deluxe US, Deluxe), pursuant to which we agreed to sell
to Deluxe the Creative Services and Media Services business
units of AMG. We refer to this transaction as the
Creative/Media transaction. In connection with the
Creative/Media transaction, we effected an internal
reorganization, so that prior to the closing of that
transaction: (i) AMG owned the assets and operations of
Creative Services and Media Services in the United States,
(ii) Ascent Media Group Limited, a company organized under
the laws of England (AMGL) owned the assets and
operations of Creative Services and Media Services in the United
Kingdom, and (iii) AMG and AMGL did not hold any assets or
operations other than those included in Creative Services and
Media Services. We refer to AMG and AMGL after such internal
reorganization as the Creative/Media Group Entities. On
December 31, 2010, we consummated the Creative/Media
transaction, and the Creative/Media Group Entities became
wholly-owned subsidiaries of Deluxe, and our company received
approximately $67.3 million in cash, after giving effect to
a working capital adjustment of approximately $1.0 million,
and Deluxe assumed certain net indebtedness of approximately
$1.8 million. As a result of the internal reorganization
described above, the Content Distribution and Systems
Integration units previously held by AMG and its subsidiaries
are currently held by us through subsidiaries other than AMG.
The Creative/Media transaction did not require stockholder
approval and will not be voted on at the special meeting. The
Creative/Media transaction and the Content Distribution
transaction are separate and independent transactions, and
neither is conditioned on the other. The net proceeds from the
Creative/Media transaction will be used to support our
acquisition strategy of identifying and acquiring one or more
operating businesses that we believe offer the opportunity for
attractive returns on equity, and for other general corporate
purposes. We have no current intention to distribute any
proceeds of the transaction as a dividend or other distribution
on our capital stock.
A summary of the Creative/Media transaction is provided in this
proxy statement. Please see The Creative/Media
Transaction below.
Content
Distribution
Content Distribution provides the services to prepare
client-provided media assets for global distribution via
satellite, fiber and the Internet, as well as the technical
infrastructure and operating staff necessary to assemble
programming content for cable and broadcast networks and to
distribute media signals via satellite and terrestrial networks.
Content Distribution operates from facilities located in
California, Connecticut, Minnesota, New York, New Jersey, the
United Kingdom and Singapore.
Key services provided by Content Distribution include the
following:
|
|
|
|
|
Network origination, playout and master
control. Content Distribution provides outsourced
network origination services to cable, satellite and
pay-per-view
programming networks. This suite of services involves the
digitization and management of client-provided media assets
(programs, advertisements, promotions and secondary events) and
their aggregation into a continuous linear playout stream in
accordance with the programming schedule. Currently, more than
one hundred programming feeds running 24 hours
a day, seven days a week are supported by Content
Distribution facilities in the United States, United Kingdom and
Singapore. Network origination services are provided from
large-scale
|
19
|
|
|
|
|
technical platforms with integrated asset management,
hierarchical storage management (a data storage technique which
automatically moves data between high-cost and low-cost storage
media), and broadcast automation capabilities. Associated
services include cut-to-clock and compliance editing, tape
library management, ingest & quality control, format
conversion, and tape duplication. For
multi-language
television services, Content Distribution facilitates the
collection, aggregation, and playout of language-specific
materials, including subtitles and foreign language dubs. On-air
graphics and other secondary events are also integrated with the
content. In conjunction with network origination services,
Content Distribution operates television production studios and
provides complete post-production services for on-air promotions
for some clients.
|
|
|
|
|
|
Transport and connectivity. Content
Distribution operates satellite earth station facilities in
Singapore, California, New York, New Jersey, Minnesota and
Connecticut. Content Distribution facilities are staffed
24 hours a day and are used for uplink, downlink and
turnaround services. Content Distributions facilities
access various distribution points, including basic and premium
cable, broadcast syndication, direct-to-home and DBS markets and
resell transponder capacity for both occasional and full-time
use. Content Distributions teleports are
high-bandwidth communications gateways with video switches and
facilities for satellite, optical fiber and microwave
transmission. Content Distributions facilities offer
satellite antennae capable of transmitting and receiving feeds
in both C-Band and Ku-Band frequencies. Content Distribution
operates a global fiber network to carry real-time video and
data services between various locations in the United States,
United Kingdom, and Singapore. This network is used to provide
full-time program feeds and ad hoc services to clients and to
transport files and real-time signals between locations. Content
Distribution also provides industry standard encryption and
compression services as needed for customer satellite
transmission. Content Distributions transport and
connectivity services may be directly associated with network
origination services or may be provided on a stand-alone basis.
|
Content Distribution has entered into long-term contracts for
network origination and transport services with many of its
largest customers.
Content Distribution is to be sold to Encompass as part of the
Content Distribution transaction. See The Transaction
Proposal below.
Media
Services
Media Services provided the services to archive, optimize,
transform, and repurpose completed media assets for studios and
other owners and distributors of media content.
Key services provided by Media Services included the following:
|
|
|
|
|
Digital media management services that enable content owners to
digitize content once, then store, manage, re-purpose and
distribute such content globally in multiple formats and
languages to numerous providers;
|
|
|
|
Assembly, formatting and master creation and duplication;
|
|
|
|
Transferring film to video or digital media masters;
|
|
|
|
Professional duplication and standards conversion;
|
|
|
|
Advertising distribution;
|
|
|
|
Syndicated television distribution;
|
|
|
|
Restoration, preservation and asset protection of existing and
damaged content;
|
|
|
|
DVD compression and authoring and menu design; and
|
|
|
|
Storage of elements and working masters in physical archives
with a highly controlled environment protected from temperature
and humidity variation, seismic disturbance, fire, theft and
other external events.
|
20
As used in the media services industry, the term
element refers to a unit of created content of any
length, such as a feature film, television episode, commercial
spot, movie trailer, promotional clip or other unique product,
such as a foreign language version or alternate format of any of
the foregoing.
Media Services was sold to Deluxe as part of the Creative/Media
transaction. See The Creative/Media Transaction
below.
Creative
Services
AMGs Creative Services group provided various technical
and creative services necessary to complete principal
photography into final products, such as television commercials,
internet and new media advertising, feature films, movie
trailers, documentaries, independent films, scripted and reality
television, TV movies and mini-series, music videos, interactive
games and new digital media, promotional and identity campaigns
and corporate communications. We refer to this business
collectively as Creative Services.
These services are referred to generally in the entertainment
industry as postproduction services. AMG marketed
its creative services under various brand names that are
generally well known in the entertainment and advertising
industries, including Beast, Company 3, Encore Hollywood,
Level 3 Post, Method, RIOT Atlanta and Rushes. The Creative
Services client base was comprised of advertising agencies,
creative editorial companies, commercial production companies,
major motion picture studios and their international divisions,
independent television production companies, broadcast networks,
cable programming networks, corporate media producers,
independent owners of television and film libraries and emerging
new media distribution channels. The principal facilities of the
Creative Services businesses were in Los Angeles, the New York
metropolitan area and London, with additional facilities in
Atlanta, Austin, Chicago, Detroit and San Francisco.
Key services provided by Creative Services included the
following:
|
|
|
|
|
Creative editorial services, tools and talent required through
all stages of the finishing process necessary for
creation and distribution of completed advertising content;
|
|
|
|
Color correction for the development of a creative look and feel
for media content utilizing creative colorizing techniques,
equipment and processes;
|
|
|
|
Digital intermediate services to convert film to a high
resolution digital master file for color correction, creative
editorial and electronic assembly of masters in other formats;
|
|
|
|
Visual effects to create images that cannot be created
physically through a more cost-effective means; and
|
|
|
|
The services necessary for clients to view principal photography
on a daily basis (known as dailies in the United
States and rushes in Europe).
|
Creative Services was sold to Deluxe as part of the
Creative/Media transaction. See The Creative/Media
Transaction below.
Systems
Integration
The Systems Integration or SI business designs, builds, installs
and services advanced technical systems for production,
management and delivery of rich media content to the worldwide
broadcast, cable television, broadband, government and
telecommunications industries. The SI business operates out of
facilities in New Jersey, California and Virginia, and services
global clients including major broadcasters, cable and satellite
networks, telecommunications providers, and corporate television
networks, as well as numerous production and post-production
facilities. Services offered include program management,
engineering design, equipment procurement, software integration,
construction, installation, service and support. The SI business
is not being sold as part of the Content Distribution
transaction or the Creative/Services transaction.
Effect of
the Content Distribution transaction and Creative/Media
transaction on our Businesses
The Content Distribution transaction provides for the sale of
100% of our Content Distribution business unit to Encompass. The
Creative/Media transaction provided for the sale of 100% of our
Creative Services and Media
21
Services business units to Deluxe. Following consummation of the
Content Distribution transaction and the Creative/Media
transaction, our principal assets will consist of our wholly
owned subsidiary Monitronics and cash and cash equivalents. We
will also own the Systems Integration business unit, certain
commercial real estate holdings previously associated with the
operating businesses of AMG, and assets used in the operation of
our corporate and support functions The Company considers its
real estate holdings and the Systems Integration business unit
to be non-core assets and will continue to explore opportunities
to sell or monetize those assets. The Company currently intends
to use its cash and marketable securities (including the net
proceeds from the Content Distribution transaction and the
Creative/Media transaction) for general corporate purposes,
which may include potential acquisitions. The Company does not
currently intend to pay a cash dividend or distribution to the
holders of our capital stock.
22
THE
TRANSACTION PROPOSAL
The following is a description of the material aspects of the
Content Distribution transaction, including the purpose of the
transaction, background information on the transaction, the
analysis undertaken by our board and its financial advisor, and
the material terms of the Purchase Agreement and certain related
agreements entered into between the Company and Encompass. While
we believe the following description covers the material terms
of the Content Distribution transaction, the description may not
contain all of the information that is important to you. In
particular, the following summary of the Purchase Agreement is
not complete and is qualified in its entirety by reference to
the copy of the Purchase Agreement attached to this proxy
statement as Annex B and incorporated herein by
reference. You should carefully read this proxy statement and
the other documents to which we refer, including the Purchase
Agreement, for a complete understanding of the terms of the
Content Distribution transaction.
Reasons
for the Content Distribution transaction
The purpose of the Content Distribution transaction is to
realize greater value from our Content Distribution business, in
the immediate time frame, by selling that business for cash. Our
board of directors believes that the value of our Content
Distribution business has not been fully reflected in the market
price of the Companys Series A common stock. In
reaching its decision to approve and recommend the Content
Distribution transaction, the board considered various factors,
including, but not limited to:
|
|
|
|
|
the trading history of the Companys Series A common
stock on The NASDAQ Global Select Market;
|
|
|
|
the high degree of competition faced by the Content Distribution
business, and the likely need to increase the scale of the
Content Distribution business to meet such competition
successfully;
|
|
|
|
the substantial ongoing capital commitments that would be
required to maintain and grow the operations of the Content
Distribution business;
|
|
|
|
the dependence of the Content Distribution business on the
media, entertainment and advertising industries, and the
relative volatility of such industries;
|
|
|
|
the boards assessment that the consideration to be
received by the Company in the Content Distribution transaction
was a fair price for the Content Distribution business, under
the present circumstances;
|
|
|
|
the receipt of the opinion of Moelis & Company LLC
described below, under the heading Opinion of our
Financial Advisor;
|
|
|
|
the boards determination that the process undertaken by
the Company to identify potential opportunities or strategies
for maximizing the value of the AMG operating businesses, for
the benefit of the Companys stockholders, as described
below under the heading Background of the
Content Distribution Transaction, was sufficient to
identify the Content Distribution transaction as the most
attractive opportunity or strategy available at this time for
the Content Distribution business; and
|
|
|
|
the fact that the terms of the Content Distribution transaction
were negotiated by the Company and Encompass at
arms-length, over a period of several months.
|
In light of such factors and other factors considered by the
board, the board believes that the Content Distribution
transaction is more favorable to our stockholders than an
alternative strategy of continuing to hold the Content
Distribution business.
The board intends to use the net proceeds of the Content
Distribution transaction, together with the net proceeds of the
Creative/Media transaction and the Companys existing cash
and marketable securities, for general corporate purposes, which
may include potential acquisitions. The board believes that
acquisition candidates are available that provide an opportunity
for better returns on invested capital than would be obtained by
continuing to hold and operate the Content Distribution
business. The Company has no current intention to distribute any
proceeds of the transaction as a dividend or other distribution
on our capital stock.
23
For these reasons, and the other factors discussed below under
the headings Background of the Content
Distribution transaction and Opinion of
Our Financial Advisor, our board of directors has
determined that it is advisable, fair to, and in the best
interests of the Company and its stockholders to sell the
Content Distribution business unit on the terms and subject to
the conditions set forth in the Purchase Agreement.
Background
of the Content Distribution transaction
The Company regularly reviews and evaluates its business
strategy and strategic alternatives with the goal of enhancing
stockholder value. To this end, William R. Fitzgerald, the
chairman of the board of directors and chief executive officer
of the Company, initiated a discussion among the directors at
the Companys regular board meeting on December 17,
2009. Mr. Fitzgerald noted that the Companys
Series A common stock had been trading in a relatively
narrow band on The NASDAQ Global Select Market, with share
prices closing predominantly in the $23 to $27 per share range
since the Companys spin-off, indicating a total market
capitalization for the Company in the range of approximately
$322,000,000 to $378,000,000. Subtracting the Companys
$335,000,000 of cash and marketable securities on a consolidated
basis, this capitalization indicated that the public market was
ascribing relatively minimal value to AMGs operating
businesses.
Mr. Fitzgerald proposed that the board consider whether
opportunities or strategies were available to the Company to
improve the valuation of AMG implied by the public markets.
After discussion, the directors recommended that the Company
undertake a process to identify potential opportunities or
strategies for maximizing the value of the AMG operating
businesses, for the benefit of the Companys stockholders.
The board recommended that the Company engage an independent
financial advisor to assist in such process, but determined that
it was premature to address whether such potential opportunities
or strategies might include a sale or other transaction
involving the AMG operating businesses.
Following that meeting, Mr. Fitzgerald and other
representatives of the Company interviewed representatives from
a number of financial advisory firms and, after reviewing the
qualifications of four candidates, selected Moelis &
Company LLC (Moelis) to represent the Company in
connection with its strategic evaluation process with respect to
the AMG operating businesses.
On January 28, 2010, Emily Keeton, Senior Vice President,
Corporate Development, of AMG presented a report to the board of
directors of the Company in which a number of potential
strategies were discussed for enhancing the value of AMG,
including internal growth, consolidation, partial divestiture,
or a sale of AMG in its entirety. The board discussed the
advantages and disadvantages of each approach, and identified
areas in which they desired additional information. The board
endorsed the retention of Moelis and authorized management to
continue exploring strategic strategies for AMGs
businesses, including a possible sale or other transaction
involving AMG or any of its business units.
The Company engaged Moelis as financial advisor on
February 16, 2010, and the Company and Moelis began work on
the preparation of a confidential information memorandum
(CIM) describing the businesses of AMG, including
Creative Services, Content Distribution, Media Services, and SI.
On March 11, 2010, following a briefing from
Ms. Keeton, the board directed management to complete the
CIM and authorized the distribution of the CIM on behalf of the
Company to a group of potential strategic and financial
investors to be identified by Moelis, in order to assess the
potential level of interest in a sale or other transaction
involving AMG or any of its business units.
During March and April 2010, with assistance from Moelis, AMG
management completed the CIM. In April 2010, Moelis distributed
the CIM to a variety of industry participants and financial
sponsors. Potentially interested parties received a process
letter from Moelis indicating that the Company was open to
inquiries regarding a potential acquisition of AMG as a whole, a
potential acquisition of one or more business units of AMG, or a
joint venture or other alternative transaction regarding AMG or
one or more of its business units. A total of 29 potential
bidders received copies of the CIM, including 19 financial
sponsors and 10 potential strategic investors. Ten parties
submitted initial indications of interest to Moelis in response
to the CIM, including three relating to a potential acquisition
of AMG as a whole, six relating to a potential acquisition of
the Content Distribution business unit (either alone or in
combination with another business unit of AMG), and one relating
to a potential partial acquisition that would not include
Content Distribution.
24
At a board meeting on May 4, 2010, Ms. Keeton provided
the board with an update on the strategic evaluation process,
and the board discussed the range of potentially interested
parties involved.
In June and July 2010, nine potential bidders were invited to
attend management presentations near the Companys offices
in Santa Monica, California, and to conduct initial due
diligence regarding AMGs businesses with information
posted to an electronic data room. Afterwards, eight bidders
submitted non-binding indications of interest with respect to a
potential transaction, including four financial sponsors and
four potential strategic investors.
Due diligence continued in August 2010, including site visits
and meetings with the divisional managers of each of AMGs
business units, for selected potential bidders.
The board of directors of the Company discussed the strategic
alternatives process again at its board meeting on
August 10, 2010, including a review of the process being
conducted by Moelis, the terms of the second round indications
of interest, and other considerations, including AMGs
operating results for the first half of calendar year 2010, the
state of the credit markets and overall financial markets, and
the potential impact of the strategic alternatives process on
AMGs customers and employees. The board also considered
the potential value of the Companys real estate portfolio
and any other assets or operations that might remain with the
Company, after any potential sale of AMG or one or more of its
business units. On the basis of their deliberations, the board
determined to continue with the strategic evaluation process.
On August 11, 2010, bidders were requested to submit final
binding offers to the Company by August 25, 2010, detailing
the terms of the transaction proposed, including the business
units involved, the form and amount of consideration to be
received by the Company, and any financing contingency. The
proposal letter for this round of bidding solicited only offers
relating to acquisition proposals with respect to AMG or one or
more of its business units, and potential bidders were provided
a form of acquisition agreement, which they were requested to
revise to the extent the bidder deemed necessary and return with
their bid. Three strategic bidders submitted offers in this
round, each relating to one or more business units of AMG. Two
of the bidders included
mark-ups of
the draft purchase agreement provided by the Company, and the
other provided a memorandum with detailed comments to the draft.
On August 25, 2010, Encompass submitted a written offer to
acquire the Content Distribution business unit for a purchase
price representing a total enterprise value for the Content
Distribution business unit of $106 million. The Company and
Encompass negotiated the terms of Encompasss offer from
August 25, 2010, through September 10, 2010, when
Encompass submitted a revised offer based on a total enterprise
value of approximately $120 million, including cash and the
assumption of certain liabilities and obligations of the Company
and its subsidiaries. Based on the terms of such revised offer,
including price and the absence of a financing condition, the
Company determined that the Encompass offer was superior to
available alternatives for the Content Distribution business,
and the Company agreed to negotiate exclusively with Encompass
regarding AMGs Content Distribution business unit through
October 11, 2010. The exclusivity period was subsequently
extended by mutual agreement through October 22, 2010.
During this period, the Company also negotiated exclusively with
Deluxe (another bidder in the process described above) regarding
AMGs Creative Services and Media Services business units.
From mid-September through early December, 2010, the Company and
Encompass, directly and through their respective counsel and
financial advisors, negotiated the terms and conditions of a
purchase and sale agreement and other related documentation, and
Encompass completed its confirmatory due diligence. In that
connection, the chief executive officer of Encompass, Simon Bax,
met with Mr. Fitzgerald and other representatives of the
Company on October 21, 2010, including Ms. Keeton and
William Niles, the Executive Vice President and General Counsel
of the Company and AMG, at the Companys offices in Santa
Monica, California, to resolve a number of key business and
legal issues regarding the terms and conditions of the draft
purchase and sale agreement. Ms. Keeton and Mr. Niles
met again with Mr. Bax at Encompasss Los Angeles
offices on October 29, 2010 to resolve a number of key
issues relating to the transaction.
At the Companys board meeting on October 12, 2010,
Mr. Fitzgerald briefed the board of directors regarding the
on-going negotiations with Encompass regarding the sale of the
Content Distribution business unit, as well as the concurrent
negotiations with Deluxe regarding the sale of the Creative
Services and Media Services business
25
units, describing the principal financial and business terms of
each proposed transaction, the financing requirements of each
bidder, and the regulatory approvals, if any, to which each
proposed transaction would be subject. Mr. Fitzgerald noted
that as currently contemplated, the Company had been advised by
outside counsel that the Content Distribution transaction would
be subject to stockholder approval, but the Creative/Media
transaction would not require stockholder approval.
At a meeting of the board of directors on November 5, 2010,
Ms. Keeton and Mr. Niles presented the principal terms
and conditions of each of the Content Distribution transaction
and the Creative/Media transaction. The board carefully reviewed
the financial terms, closing conditions, potential
indemnification obligations, execution risk and other key terms
and conditions of each of the transactions, and discussed the
potential benefits and potential disadvantages of the
transactions to the Company and its stockholders. The board also
discussed the businesses and assets that the Company would
continue to own following consummation of the two transactions,
and the strategic profile and potential value of such business
and assets. Following its deliberations, the board authorized
management to complete the definitive documentation for both
transactions.
On November 19, 2010, the board of directors of the Company
convened a special telephonic meeting to consider the proposed
Content Distribution transaction, as well as the proposed
Creative/Media transaction. Each of the directors was present at
this meeting, as well as Mr. Niles, Ms. Keeton, Marc
Leaf, a partner of Baker Botts L.L.P., special counsel to our
company for each of the Content Distribution transaction and the
Creative/Media transaction, and Navid Mahmoodzadegan and Anthony
Guagliano, each a managing director of Moelis.
At the meeting, Mr. Mahmoodzadegan and Mr. Guagliano
made a presentation to the board of directors regarding the
Content Distribution transaction, and Mr. Mahmoodzadegan
delivered the oral opinion of Moelis, which was later confirmed
in writing, that the consideration to be received by the Company
in such transaction in exchange for the Content Distribution
business was fair to the Company from a financial point of view,
as of the date of the meeting. The directors questioned
Mr. Mahmoodzadegan and Mr. Guagliano regarding the
bases of their opinion and discussed the consideration to be
received by the Company if the transaction were consummated. In
response to questions from the board, Mr. Niles and
Mr. Leaf discussed the terms of the transaction and the
process involved in completing the transaction, including the
requirement for shareholder approval and the likely timetable
for obtaining regulatory consents and otherwise satisfying
closing conditions. Following such discussion, the board
unanimously approved the Content Distribution transaction and
unanimously adopted a resolution finding the Content
Distribution transaction to be advisable, fair to, and in the
best interests of the Company and its stockholders and
recommending that the stockholders of the Company approve the
Content Distribution transaction. In addition, the board
authorized the management of the Company to finalize and enter
into the purchase agreement for the Content Distribution
transaction, consistent with the terms and conditions approved
by the board.
At the November 19, 2010, meeting, Mr. Mahmoodzadegan
and Mr. Guagliano also made a presentation to the board of
directors regarding the Creative/Media transaction, and the
board reviewed and unanimously approved the terms and conditions
of the Creative/Media transaction.
From November 19, 2010 through November 24, 2010,
representatives of the Company and Deluxe finalized the terms of
the purchase agreement for the Creative/Media transaction and
certain related ancillary documents, and on November 24,
2010, the Company and Deluxe executed and delivered a purchase
and sale agreement with respect to the Creative/Media
transaction.
From November 24, 2010 through December 2, 2010,
representatives of the Company and Encompass finalized the terms
of the purchase agreement for the Content Distribution
transaction and certain related real property leases and
services agreements, and on December 2, 2010, the Company
and Encompass executed and delivered the Purchase Agreement with
respect to the Content Distribution transaction.
On December 17, 2010, the Company signed and closed the
Monitronics transaction. See Acquisition of
Monitronics below. On December 31, 2010, the Company
and Deluxe consummated the Creative/Media transaction. See
The Creative/Media Transaction below.
The Content Distribution transaction, the Creative/Media
transaction and the Monitronics transaction are separate
transactions, independently approved by our board of directors,
and none of the transactions is conditioned upon any of the
others.
26
Recommendation
of Our Board of Directors
After careful consideration, our board of directors has
unanimously approved the Purchase Agreement and determined that
the Purchase Agreement and the Content Distribution transaction
are advisable, fair to, and in the best interests of the Company
and its stockholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
TRANSACTION PROPOSAL.
Opinion
of Our Financial Advisor
Opinion
On February 16, 2010, in connection with its ongoing
evaluation of strategic alternatives to enhance the value of AMG
recognized by the Companys stockholders, the Company
engaged Moelis to act as the Companys exclusive financial
advisor and capital markets advisor in connection with certain
potential transactions involving AMG, including a potential sale
of equity securities of AMG, a potential sale of one or more
business units of AMG, or a potential joint venture, business
combination or other alternative transaction involving AMG or
any of its business units.
Pursuant to the engagement letter between the Company and
Moelis, Moelis agreed to undertake the following activities, as
appropriate and if requested by the Company:
(a) customary business and financial analysis of AMG,
including, upon further request, an analysis of the feasibility
and pricing of a potential strategic transaction involving AMG;
(b) identifying and evaluating transaction candidates for a
potential strategic transaction involving AMG;
(c) contacting appropriate transaction candidates that AMG
and Moelis agreed may be appropriate for a transaction, meeting
with them, and providing them information regarding AMG as may
be appropriate and acceptable to the Company, subject to
customary business confidentiality;
(d) assisting the Companys preparation of a marketing
plan and a confidential information memorandum, or CIM, to be
distributed to potential acquirors;
(e) assisting the Company in developing a strategy to
effect potential transactions;
(f) assisting the Company, upon further request, in
structuring, evaluating a potential acquirors financing
for, and negotiating potential transactions and participating in
such negotiations as requested; and
(g) at the Companys request, meeting with the
Companys board of directors to discuss potential
transactions, including financial implications.
Pursuant to the engagement letter, Moelis also agreed, upon the
Companys request, to undertake an investigation and
analysis to enable Moelis to render an opinion to the board of
directors of the Company addressing the fairness to the Company,
from a financial point of view, of the consideration the Company
would receive in a potential transaction involving AMG or one or
more of its business units.
On November 19, 2010, at a meeting of the board of
directors of the Company held to evaluate the Content
Distribution transaction, Moelis delivered to the board its oral
opinion, which it subsequently confirmed in writing, to the
effect that, as of such date and based upon and subject to the
limitations, qualifications, factors and assumptions set forth
in its opinion, the consideration to be received by the Company
in the Content Distribution transaction was fair, from a
financial point of view, to the Company.
The full text of Moeliss opinion dated November 19,
2010, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review
undertaken by Moelis, is attached as Annex C to this
proxy statement and is incorporated herein by reference. The
Companys stockholders are urged to read the opinion
carefully in its entirety. The summary of the opinion of Moelis
set forth in this proxy statement is qualified in its entirety
by reference to the full text of such opinion. No limitations
were imposed by the board of directors of the Company upon
Moelis with respect to the investigations made or procedures
followed by it in rendering its opinion.
27
Moeliss opinion is addressed to the board of directors of
the Company, is directed only to the consideration to be
received by the Company in exchange for the Content Distribution
business unit in the Content Distribution transaction and does
not constitute a recommendation to any holder of the
Companys Series A common stock as to how such holder
should vote with respect to the Content Distribution
transaction. Moeliss opinion does not address the
Companys underlying business decision to effect the
Content Distribution transaction or the relative merits of the
Content Distribution transaction as compared to any alternative
business strategies or transactions that might be available to
the Company. At the direction of the board of directors of the
Company, Moelis was not asked to, nor did it, offer any opinion
as to the material terms of the Purchase Agreement or the form
of the Content Distribution transaction.
In rendering this opinion, Moelis assumed, with the consent of
the Companys board of directors, that the final executed
form of the Purchase Agreement does not differ in any material
respect from the draft that it examined for purposes of
rendering its opinion. Moelis also assumed:
|
|
|
|
|
the accuracy of the representations and warranties of all
parties to the Purchase Agreement;
|
|
|
|
that each party to the Purchase Agreement will perform all of
the covenants and agreements required to be performed by such
party;
|
|
|
|
that the parties will comply with all of the material terms of
the Purchase Agreement;
|
|
|
|
that all conditions to the consummation of the Content
Distribution transaction will be satisfied without waiver
thereof; and
|
|
|
|
that the Content Distribution transaction will be consummated in
a timely manner in accordance with the terms described in the
Purchase Agreement, without any modifications or amendments
thereto or any adjustment to the consideration (through
indemnification claims, offset, purchase price adjustments or
otherwise).
|
Moelis has also assumed, upon the advice of the Company and with
the consent of the board of directors, that all governmental,
regulatory and third party approvals and consents necessary for
the consummation of the Content Distribution transaction will be
obtained without the imposition of any delay, limitation,
restriction, divestiture or condition that would have an adverse
effect on the Content Distribution business unit or Encompass or
on the expected benefits of the Content Distribution transaction.
In arriving at its opinion, Moelis, among other things:
|
|
|
|
|
reviewed certain publicly available business and financial
information relating to the Company that it deemed relevant;
|
|
|
|
reviewed certain internal information relating to the Content
Distribution business unit, including financial forecasts,
earnings, cash flow, assets, liabilities and prospects of the
Content Distribution business unit furnished to it by the
Company;
|
|
|
|
conducted discussions with members of senior management and
representatives of the Company concerning the matters described
above;
|
|
|
|
reviewed publicly available financial and stock market data,
including valuation multiples, for certain other companies in
lines of business that it deemed relevant and compared them with
the Content Distribution business unit;
|
|
|
|
reviewed a draft of the purchase and sale agreement, dated
November 17, 2010;
|
|
|
|
participated in certain discussions and negotiations among
representatives of the Company and Encompass and their financial
and legal advisors; and
|
|
|
|
conducted such other financial studies and analyses and took
into account such other information as Moelis deemed appropriate.
|
In connection with its review, Moelis did not assume any
responsibility for independent verification of any of the
information supplied to, discussed with, or reviewed by it for
the purpose of its opinion and, with the consent of
28
the Companys board of directors, relied on such
information being complete and accurate in all material
respects. In addition, at the board of directors
direction, Moelis has not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent,
derivative, off-balance-sheet, or otherwise) of the Company, nor
has Moelis been furnished with any such evaluation or appraisal.
With respect to the forecasted financial information referred to
above, Moelis has assumed, with the board of directors
consent, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of the management of the Company as to the future performance of
the Content Distribution business unit and that such future
financial results will be achieved at the times and in the
amounts projected by management. Moelis does not assume any
responsibility for and does not express any view as to such
forecasted financial information or any estimate, judgment or
assumptions on which they were based, and Moelis has relied upon
the assurances of the management of the Company that they are
unaware of any facts that that would make the information
provided to or reviewed by us incomplete or misleading.
In connection with its review, Moelis did not undertake any
independent analysis or investigation of any pending or
threatened litigation, possible unasserted claims or other
contingent liabilities (whether or not reserved) to which the
Company or any of its affiliates are a party or may be subject.
Moeliss opinion makes no assumption concerning, and,
therefore, does not consider, the possible assertion of claims,
outcomes or damages arising out of or in connection with any
such matters. In addition, Moelis has not evaluated the solvency
of any party to the Purchase Agreement under any state or
federal laws or rules, regulations, guidelines or principles
relating to bankruptcy, insolvency or similar matters.
Moeliss opinion was necessarily based on economic,
monetary, market and other conditions as in effect on, and the
information made available to Moelis as of, the date of its
opinion. Subsequent developments may affect the opinion and
Moelis does not have any obligation to update, revise, or
reaffirm the opinion. Moelis does reserve the right to modify
its opinion based upon additional information which may become
publicly available, or which may be provided to or obtained by
it, which suggests in its judgment a material change in the
assumptions upon which the opinion is based, or which otherwise
could affect the conclusions expressed in the opinion.
Moeliss opinion is for the use and benefit of the board of
directors of the Company in its evaluation of the Content
Distribution transaction and relates solely to the fairness,
from a financial point of view, as of the date of its opinion,
of the consideration to be received by the Company for the
Content Distribution business unit in the Content Distribution
transaction, and Moelis has expressed no opinion as to the
fairness of the Content Distribution transaction to the holders
of any class of securities, creditors or other constituencies of
the Company or the application by the Company of the
consideration, including any intended use of such consideration
by the Company or any intended distribution of such
consideration in whole or in part by the Company to the
Companys stockholders, creditors, management, affiliates,
employees, agents, representatives, advisors or any other
constituency of the Company.
Furthermore, Moeliss opinion does not in any manner
address the allocation of the consideration among the
Companys affiliates or subsidiaries for U.S. federal,
state or local, or foreign, tax purposes. In addition, Moelis
has not expressed any opinion as to the fairness of the amount
or nature of any compensation to be received by any of the
Companys officers, directors or employees, or any class of
such persons, relative to the consideration. Moelis is also not
expressing any view or opinion with respect to, and has relied,
with the consent of the board of directors of the Company, upon
the assessments of the Companys management regarding
legal, regulatory, accounting, tax or similar matters relating
to the Company or the Content Distribution transaction, as to
which Moelis understands the Company obtained such advice as the
Company deemed necessary from qualified professionals. This
opinion was approved by a Moelis & Company LLC
fairness opinion committee.
Financial
Analyses
In accordance with customary investment banking practice, Moelis
considered generally accepted valuation methods in reaching its
opinion. The following is a summary of the material financial
analyses presented to the Companys board of directors at
its meeting held on November 19, 2010, in connection with
the delivery of its oral opinion at that meeting and its
subsequent written opinion.
In its evaluation of the proposed Content Distribution
transaction, Moelis analyzed the historical and projected
financial performance of the Content Distribution business unit
and considered several valuation methodologies,
29
including a discounted cash flow analysis, a comparable public
trading multiple analysis and a precedent transaction analysis,
among others.
In performing its financial analyses, Moelis noted the following:
|
|
|
|
|
over the past six month period the Company traded at a market
value that implied a total enterprise value for the Content
Distribution business unit of close to zero;
|
|
|
|
the financial projections for the Content Distribution business
unit provided by the Company did not include overhead to operate
the Content Distribution business unit on a standalone basis;
accordingly, using a revenue-based pro rata share of the
Companys total corporate overhead, the Company estimated
annual corporate overhead costs of $9.4 million to be
allocated to the Content Distribution business unit in order to
support standalone operations;
|
|
|
|
transactions with publicly disclosed valuation multiples were
completed during a more robust M&A environment;
accordingly, analyses based on precedent transactions were not
meaningful for the Content Distribution business unit; and
|
|
|
|
the Systems Integration business was not included in the
financial analyses because it was not part of the Content
Distribution transaction.
|
The summary of certain material financial analyses set forth
below does not purport to be a complete description of the
analyses performed by Moelis in arriving at its opinion. The
fact that any specific analysis has been referred to in the
summary below or in this proxy statement is not meant to
indicate that such analysis was given more weight than any other
analysis. The preparation of a fairness opinion is a complex
process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances;
therefore, such an opinion is not readily susceptible to partial
analysis or summary description. No company, business or
transaction used in such analyses as a comparison is identical
to the Company or the Content Distribution business unit or the
proposed Content Distribution transaction, nor is an evaluation
of such analyses entirely mathematical. In arriving at its
opinion, Moelis did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis
and factor. Accordingly, Moelis believes that its analyses must
be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without
considering all factors and analyses, would, in the view of
Moelis, create an incomplete and misleading view of the analyses
underlying Moeliss opinion.
Some of the summaries of financial analyses below include
information presented in tabular format. In order to fully
understand Moeliss analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the analyses. Considering
the data described below without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Moeliss analyses.
The analyses performed by Moelis include analyses based upon
forecasts of future results, which results might be
significantly more or less favorable than those upon which
Moeliss analyses were based. The analyses do not purport
to be appraisals or to reflect the prices at which the
Companys Series A common stock or Series B
common stock would trade at any future time, whether before or
after the closing of the Content Distribution transaction.
Because the analyses are inherently subject to uncertainty,
being based upon numerous factors and events, including, without
limitation, factors relating to general economic and competitive
conditions beyond the control of the parties or their respective
advisors, neither Moelis nor any other person assumes
responsibility if future results or actual values are materially
different from those contemplated above.
Discounted
Cash Flow Analysis
Moelis conducted a discounted cash flow, or DCF, analysis of the
Content Distribution business unit to calculate a range of
implied equity values for the Content Distribution business
unit. A DCF analysis is a method of evaluating an asset using
estimates of the future unlevered free cash flows generated by
assets and taking into consideration the time value of money
with respect to those future free cash flows by calculating
their present
30
value. Present value refers to the current
value of one or more future cash payments from the asset, which
Moelis refers to as that assets free cash flows, and is
obtained by discounting those free cash flows back to the
present using a discount rate that takes into account
macro-economic assumptions and estimates of risk, the
opportunity cost of capital, capitalized returns and other
appropriate factors. Terminal value refers to the
capitalized value of all free cash flows from an asset for
periods beyond the final forecast period.
Moelis analyzed the four-year projections provided by the
Companys management with respect to future unlevered free
cash flows of the Content Distribution business unit. The future
unlevered free cash flows for such four-year period were
discounted back to present value as of December 31, 2010
using discount rates ranging from 14.0% to 16.0%, which discount
ranges were based upon the Content Distribution business
units weighted average cost of capital. The terminal value
of the Content Distribution business unit was then calculated
using perpetuity growth rates ranging from 2.0% to 3.0% in each
case, based upon guidance provided by the Companys
management.
The foregoing analysis implied a valuation range of
$113 million to $138 million assuming
$9.4 million of corporate overhead and no additional cost
synergies. Moelis noted that the consideration for the Content
Distribution transaction of approximately $120 million
(comprising cash consideration of $113.25 million and the
assumption of approximately $6.75 million in existing
Company liabilities and obligations) fell within such range.
Comparable
Public Trading Multiples Analysis
Moelis compared selected financial and transaction value metrics
of the Content Distribution business unit with similar data for
three publicly traded companies. Moelis selected the companies
based on a number of criteria, including the nature of the
companies operations, size and target markets. Moelis
focused on companies providing content distribution services and
placed an emphasis on companies with an express focus on network
origination, playout and master control services and transport
and connectivity services.
Although none of the selected companies are directly comparable
to the Content Distribution business unit, the companies
selected include:
|
|
|
|
|
Loral Space and Communications, Inc.;
|
|
|
|
Hughes Communications, Inc.; and
|
|
|
|
RRS at Global Communications Network Ltd.
|
For each of the companies identified above, Moelis calculated
various valuation multiples, including:
|
|
|
|
|
the ratio of enterprise value to projected revenue for calendar
year 2010;
|
|
|
|
the ratio of enterprise value to projected revenue for calendar
year 2011;
|
|
|
|
the ratio of enterprise value to projected EBITDA for calendar
year 2010; and
|
|
|
|
the ratio of enterprise value to projected EBITDA for calendar
year 2011.
|
Moelis calculated the range of trading multiples for all
companies, as well as just for RRS at Global Communications
Network Ltd., which it considered to be the most directly
comparable company to the Content Distribution business unit
relative to the other companies selected for the analysis. The
following table summarizes the range of trading multiples for
all companies, the mean and median multiples for all companies,
the multiples for
31
the selected company, and the implied multiples for the Content
Distribution business unit in the Content Distribution
transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
Range of All
|
|
Mean of All
|
|
Median of All
|
|
Selected
|
|
Distribution
|
|
|
Companies
|
|
Companies
|
|
Companies
|
|
Company
|
|
Business Unit
|
|
Enterprise Value/CY10E Revenue
|
|
|
0.9x 2.6
|
x
|
|
|
1.6
|
x
|
|
|
1.4
|
x
|
|
|
0.9
|
x
|
|
|
1.1
|
x
|
Enterprise Value/CY10E Revenue
|
|
|
0.8x 2.5
|
x
|
|
|
1.5
|
x
|
|
|
1.3
|
x
|
|
|
0.8
|
x
|
|
|
1.1
|
x
|
Enterprise Value/CY10E EBITDA
|
|
|
4.1x 7.4
|
x
|
|
|
5.9
|
x
|
|
|
6.2
|
x
|
|
|
4.1
|
x
|
|
|
6.2
|
x
|
Enterprise Value/CY10 EBITDA
|
|
|
3.6x 7.0
|
x
|
|
|
5.2
|
x
|
|
|
5.1
|
x
|
|
|
3.6
|
x
|
|
|
5.0
|
x
|
For purposes of its analysis, Moelis calculated the enterprise
value as the market capitalization plus total debt, minority
interests and preferred stock, less cash and cash equivalents,
and used revenue based on projections reported by independent
research analyst reports and Reuters consensus estimates. To
calculate these trading multiples, Moelis used closing trading
prices of equity securities of each identified company on
November 18, 2010. For the Content Distribution business
unit, Moelis used revenue and EBITDA based on estimates and
projections prepared by the Companys management.
It should be noted that no company used in the above analysis is
identical to the Content Distribution business unit. In
evaluating companies identified by Moelis as comparable to the
Content Distribution business unit, Moelis made judgments and
assumptions with regard to industry performance, general
business, economic, market and financial conditions and other
matters, many of which are beyond the control of the Content
Distribution business unit.
Precedent
Transaction Analysis
Transactions with publicly disclosed valuation multiples were
completed during a more robust M&A environment and, as a
result, analyses based on precedent transactions were not
meaningful for the Content Distribution business unit.
Other
Information
The total value of the Content Distribution transaction was
determined through negotiation between the Company and
Encompass, and the decision by the Companys board of
directors to enter into the Purchase Agreement was solely that
of the Companys board of directors. The Moelis opinion and
financial analyses were only one of many factors considered by
the Companys board of directors in its evaluation of the
Content Distribution transaction and should not be determinative
of the views of the Companys board of directors or
management with respect to the Content Distribution transaction
or the consideration received by the Company in the Content
Distribution transaction.
Moelis, as part of its investment banking business, is
continually engaged in the valuation of businesses and
securities in connection with business combinations and
acquisitions and for other purposes. The Company retained Moelis
to advise the Company and to deliver an opinion to the board of
directors of the Company with respect to the Content
Distribution transaction on the basis of such experience and its
familiarity with the industry in which the Company operates and
experience in transactions similar to the proposed Content
Distribution transaction, as well as other factors that the
board of directors of the Company considered relevant. Moelis
has consented to the inclusion of its written opinion delivered
to the board of directors, dated November 19, 2010, in this
proxy statement.
Moelis has acted as financial advisor to the Company with
respect to the proposed Content Distribution transaction and
will be entitled to receive a fee for its services calculated as
provided below if the Content Distribution transaction is
consummated. Pursuant to its engagement letter with the Company
dated February 16, 2010, Moelis has also acted as financial
advisor to the Company in connection with the Creative/Media
transaction and is entitled to receive fees for its services. In
addition, the Company has agreed to reimburse Moelis for certain
expenses and to indemnify Moelis for certain liabilities arising
out of its engagement.
32
Pursuant to the engagement letter between the Company and
Moelis, the Company has agreed to pay Moelis a single retainer
fee of $150,000, an opinion fee of $250,000 for each fairness
opinion requested by the Company, and a transaction fee based on
a percentage of the aggregate transaction value, for each
transaction consummated pursuant to the Companys strategic
alternatives process relating to AMG, subject to an aggregate
minimum fee of $1,000,000; however, all amounts paid by the
Company to Moelis as a retainer fee or an opinion fee with
respect to any transaction will be credited to any transaction
fee subsequently due Moelis for such transaction. To date, the
Company has paid Moelis $1,250,000 in fees, representing the
retainer fee, an opinion fee with respect to the opinion
regarding the Content Distribution transaction (which is
described above), and the portion of Moelis transaction
fee applicable to the Creative/Media transaction. If the Content
Distribution transaction is consummated, the aggregate
additional transaction fee payable to Moelis in connection with
the Content Distribution transaction is expected to be
$1,125,000. In addition, the engagement letter between the
Company and Moelis contemplates a discretionary success fee of
up to $500,000, to be paid at the Companys discretion. The
determination of whether this fee shall be paid shall be
exclusively determined by the Company.
In the future, Moelis may provide investment banking and other
services to the Company and Encompass and may receive
compensation for the rendering of such services. In the ordinary
course of business, Moelis, its successors and its affiliates
may trade securities of the Company for our own accounts and the
accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities.
Timing
and Likelihood of Closing of the Content Distribution
transaction
We expect to complete the Content Distribution transaction as
soon as practicable after all of the conditions to closing the
Content Distribution transaction have been satisfied or waived.
See The Purchase and Sale Agreement Conditions
to the Transaction. We currently plan to complete the
Content Distribution transaction on or about February 28,
2011, assuming that our stockholders approve the transaction
proposal and that each of the other conditions to the Purchase
Agreement is satisfied or, where permissible, waived. If the
closing of the Content Distribution transaction does not occur
on or before February 28, 2011, the Company and Encompass
will each have the right to terminate the Purchase Agreement and
abandon the Content Distribution transaction. However, each of
the parties currently expects that the Content Distribution
transaction will close.
Proceeds
from the Content Distribution transaction
We expect to use the entire net proceeds from the Content
Distribution transaction for general corporate purposes, which
may include potential acquisitions. We have no current intention
to distribute any proceeds of the transaction as a dividend or
other distribution on our capital stock. See The
Company Corporate Strategy, above.
Consistent with our ongoing acquisition strategy, we continue to
seek opportunities to acquire operating businesses and other
acquisition and investment opportunities that management
believes will offer the potential for attractive returns on
equity. We will consider potential acquisition candidates in a
variety of industries, which may result in further changes in
our operations, from our current
and/or
former businesses.
Effects
of the Content Distribution transaction
If the Content Distribution transaction is approved by our
stockholders and the other conditions to closing of the
transaction are satisfied or, where permissible, waived, we will
sell our entire Content Distribution business unit to Encompass
for $113,250,000 in cash, plus the assumption of certain
liabilities and obligations with an estimated value on the date
of the Purchase Agreement of approximately $6.75 million,
subject to net working capital and certain other adjustments, on
the terms and subject to the conditions set forth in the
Purchase Agreement.
Prior to the closing of the Content Distribution transaction, we
have effected an internal reorganization, so that 100% of the
assets and operations of our Content Distribution business unit
is owned and operated by three indirect wholly-owned
subsidiaries of the Company: Ascent Media Network Services, LLC
(the US Company), which owns the assets and operations of
Content Distribution in the United States; Ascent Media Network
Services Europe Limited (the UK Company), which owns the
assets and operations of Content Distribution in the United
Kingdom; and Ascent Media Pte. Ltd. (the Singapore
Company), which owns the assets and operations of Content
33
Distribution in the Republic of Singapore. We sometimes refer to
the US Company, the UK Company and the Singapore Company in this
proxy statement as the Content Distribution Group
Entities.
At the closing of the Content Distribution transaction,
Encompass Digital Media, Inc. (Encompass US) will
purchase 100% of the outstanding ownership interests in the US
Company, and Encompass Digital Media Limited (Encompass
UK), a direct wholly-owned subsidiary of Encompass Digital
Media, Inc., will purchase 100% of the outstanding shares of the
UK Company and 100% of the outstanding shares of the Singapore
Company, in each case for that portion of the purchase price
allocable to those assets and operations and as otherwise
provided in the Purchase Agreement. The purchase price for the
outstanding equity interests of each of the Content Distribution
Group Entities will be paid in cash. Upon consummation of the
Content Distribution transaction, our remaining assets will
consist of our wholly owned subsidiary Monitronics, the net
proceeds of the Content Distribution transaction, our then
existing cash and marketable securities (including the net
proceeds of the Creative/Media transaction), certain real estate
interests in Los Angeles and the UK, and our SI business (which
we consider non-core), and assets used in the operation of our
corporate and support functions.
If the Content Distribution transaction is not completed for any
reason, we intend to explore other strategic alternatives to
maximize the value of our Content Distribution business for the
benefit of our stockholders, including another sale, a joint
venture or some other transaction. There can be no assurance
that any other potential transaction to sell the Content
Distribution business, whether alone or together with other
businesses or assets, will provide consideration equal to or
greater than the purchase price proposed to be paid by Encompass
in the Content Distribution transaction, or that we will be able
to complete an alternative transaction.
The
Purchasers Encompass Digital Media, Inc. and
Encompass Digital Media Limited
Encompass Digital Media Group, Inc. primarily provides
outsourced technical solutions to broadcasters, content owners,
cable channel operators and government departments from its
independent broadcast facilities in Los Angeles and Atlanta.
Formerly known as Broadcast Facilities, Inc., Encompass US began
primary operations on April 1, 2008 upon the acquisition of
the Andrita Media Center in Los Angeles. In January 2010,
Encompass US acquired 100% of the satellite services division of
Crawford Communications, Inc. in Atlanta.
Encompass USs principal business is cable channel
origination and transmission and the provision of central
broadcasting operations for local TV stations. In both, media is
digitally captured from content provided by customers and a
broadcast television signal is created using automated playback
technology. The broadcast signal can be delivered using
satellite, optical fiber, or the internet. Encompass US
broadcasts both standard definition and high definition
channels, and also has the capability of playing out live
broadcasts.
Encompass US also provides a number of other complementary
services including:
|
|
|
|
|
Occasional satellite and fiber transmission and mobile satellite
services;
|
|
|
|
Disaster recovery services;
|
|
|
|
Providing the Defense Video and Imagery Distribution System for
the public affairs division of the U.S. military, which
produces, edits, and distributes video footage to media
outlets; and
|
|
|
|
Creating digital files for distribution as video on demand for
cable and telephone provider head ends, and for other digital
distribution points specified by customers.
|
Encompass USs clients are major networks and broadcasters,
government departments, sports leagues and general entertainment
cable channels. Encompass US is a Delaware corporation with its
principal offices located at 3030 Andrita Street, Los Angeles,
California 90065, telephone number
(323) 344-4605.
Encompass Digital Media Limited is a direct, wholly-owned
subsidiary of Encompass US formed for the purpose of acquiring
the UK Company and Singapore Company. Encompass UK is a private
company incorporated in England and Wales with its principal
offices located at 90 High Holborn, Seventh Floor, London WCIV
6XX.
34
Past
Contacts, Transactions or Negotiations
On several occasions during 2009, Simon Bax, the chief executive
officer and a director of Encompass US, and Bill Tillson, the
president and chief operating officer and a director of
Encompass US, contacted William Fitzgerald, the chief executive
officer of our Company. At various times during such
discussions, which were general in nature, Mr. Bax and
Mr. Tillson asked Mr. Fitzgerald if our company would
be interested in discussing the possibility of a transaction
combining our network origination
and/or
content distribution businesses with those of Encompass US. In
response to such inquiries, Mr. Fitzgerald advised
Mr. Bax and Mr. Tillson that our company was not then
interested in any such transaction, and the matter was dropped
from discussion.
In November 2009, Mr. Bax approached Emily Keeton, then
AMGs senior vice president, corporate development, to
arrange an introduction. On December 2, 2009,
Ms. Keeton met with Mr. Bax and Mr. Tillson at
Encompass USs offices in Los Angeles. The conversation at
this meeting was general in nature. During their discussion,
Mr. Bax raised the possibility of a potential transaction
that would combine AMGs Content Distribution business with
the business of Encompass US. However, Ms. Keeton stated
that she was not authorized to entertain such an overture and
the matter was dropped from discussion.
Mr. Tillson, who is president and chief operating officer
and a director of Encompass US, served as executive vice
president of Compact Video from approximately 1988 through 1991.
The assets of Compact Video were acquired by 4MC-Burbank, Inc.,
which is now Ascent Media Services, LLC. Ascent Media Services,
LLC, an indirect, wholly owned subsidiary of the Company, is
part of the Companys creative services and media
management services business units.
Other
Agreements and Transactions Related to the Content Distribution
transaction
In connection with the completion of the Content Distribution
transaction, the Company, certain of its wholly-owned
subsidiaries (including the Content Distribution Group
Entities), and Encompass US have entered into nine separate
services agreements, pursuant to which the parties agree to
exchange specified services and benefits, including:
|
|
|
|
|
technical and information technology assistance (including with
respect to content preparation and management information
systems, computer, data storage network and telecommunications
services);
|
|
|
|
e-mail and
data extraction services for the transition to new independent
technological systems;
|
|
|
|
routine information technology support services;
|
|
|
|
hierarchical storage management, content preparation, encoding,
transcoding and electronic delivery services;
|
|
|
|
continuation of global interconnect and metro fiber, syndication
and video on demand services;
|
|
|
|
permission to contact a certain customer to assist the
transition to new facilities;
|
|
|
|
financial services to close the books of the Company;
|
|
|
|
storage services and access to certain elements stored in the
Content Distribution business facilities;
|
|
|
|
the lease of certain office equipment; and
|
|
|
|
certain
back-up
power and generator support services.
|
Pursuant to each agreement, the company or companies receiving
services will make payments to the provider(s) based upon an
agreed upon service fee or cost for each service, except in
certain instances where services are provided free of fees or
costs or where the Company and Encompass US will mutually agree
upon commercially reasonable rates. Fees sometimes include
personnel costs based upon applicable hourly rates. The company
receiving services will also usually reimburse the provider for
certain direct out-of-pocket costs incurred in connection with
providing the services.
Some of the services agreements took effect upon the signing of
the Purchase Agreement or the divestiture of our Creative/Media
business, while others will take effect in connection with the
closings under the Purchase
35
Agreement. The majority of the services are expected to be
completed by six months following the closings of the Content
Distribution transaction, with the exception of the continuation
of the video on demand services which will be completed by
December 31, 2012. Most of the services agreements will
continue in effect until the completion of the services or the
term set forth in each agreement, unless earlier terminated
(1) by either party upon written notice to the other party,
following such other party being the subject of certain
bankruptcy or insolvency-related events, (2) by either
party upon written notice to the other party, following a breach
of the agreement by such other party that is not curable or is
not cured within 20 days of the written notice, (3) by
the company receiving services at any time on at least
15 days prior notice to the provider and (4) by mutual
written agreement of the parties.
Accounting
Treatment of the Content Distribution transaction
The proposed sale of the Content Distribution Group Entities is
expected to be accounted for as a sale of a business. Under
accounting principles generally accepted in the United States,
upon stockholder approval of the transaction proposal, although
our evaluation is not complete, we expect to reflect the results
of operations of the Content Distribution business as
discontinued operations, including the related gain on the sale,
net of any applicable taxes, commencing with the quarter during
which the Content Distribution transaction is probable of
occurring and is approved by our stockholders. For further
information, see the unaudited pro forma condensed financial
information included in this proxy statement.
Risk
Factors
You should carefully consider the risk factors described
below and those risk factors generally associated with our
corporate strategy, the operations of the Content Distribution
and Systems Integration businesses, our common stock and other
matters contained in our Annual Report on
Form 10-K
for the year ended December 31, 2009 incorporated by
reference to this proxy statement, along with other information
provided to you in this proxy statement, in deciding how to vote
on the transaction proposal.
Risks
Relating to our Post-Closing Business
There
can be no assurances that the Company will be successful in
investing the proceeds of the Content Distribution
Transaction.
The process to identify potential investment opportunities and
acquisition targets, to investigate and evaluate the future
returns therefrom and business prospects thereof and to
negotiate definitive agreements with respect to such
transactions on mutually acceptable terms can be time consuming
and costly. We have encountered intense competition from other
companies with similar business objectives to ours, including
private equity and venture capital funds, leveraged buyout funds
and operating businesses competing for acquisitions. Many of
these companies are well established and have extensive
experience in indentifying and effecting business combinations.
We will incur operating expenses, resulting from payroll, rent
and other overhead and professional fees, while we are searching
for an appropriate opportunities to invest the proceeds of the
Content Distribution transaction.
Because
we will consider potential acquisition candidates in a number of
different industry segments, stockholders have no basis at this
time to ascertain the merits or risks of any business that we
may ultimately operate.
Our business strategy contemplates the potential acquisition of
one or more operating businesses or other investments that we
believe will provide better returns on equity than the operating
businesses that we are selling, and we are not limited to
acquisitions
and/or
investments in any particular industry or type of business.
Accordingly, there is no current basis for you to evaluate the
possible merits or risks of the particular industry in which we
may ultimately operate or the target business or businesses with
which we may ultimately effect a business combination or other
investment. Although we will seek to evaluate the risks inherent
in a particular investment or acquisition opportunity, we cannot
assure you that all of the significant risks present in that
opportunity will be properly assessed. Even if we properly
assess those risks, some of them may be outside of our control
or ability to affect. We will not seek stockholder approval for
any business combination or other investment that we may pursue,
so you will
36
most likely not be provided with an opportunity to evaluate the
specific merits or risks of such a transaction before we become
committed to the transaction.
Resources
will be expended in researching potential acquisitions and
investments that might not be consummated.
The investigation of target businesses and the negotiation,
drafting and execution of relevant agreements, disclosure
documents, and other instruments will require substantial
management time and attention in addition to costs for
accountants, attorneys and others. If a decision is made not to
complete a specific business combination or other investment the
costs incurred up to that point for the proposed transaction
likely would not be recoverable. Furthermore, even if an
agreement is reached relating to a specific opportunity, we may
fail to consummate the transaction for any number of reasons,
including those beyond our control.
Risks
Relating to the Content Distribution transaction
The
Content Distribution transaction may not be completed if the
conditions to closing are not satisfied or waived.
There is a risk that the Content Distribution transaction may
not be completed because the conditions to closing, including
stockholder approval and the absence of a material adverse event
affecting the Company or the Content Distribution Group Entities
before the closing, may not be satisfied or, where permissible,
waived. If the Content Distribution transaction is not
completed, we may be unable to find another buyer for the
Content Distribution business or the terms offered by another
buyer may not be as favorable to us as those in the Purchase
Agreement.
The
amount of net proceeds that we receive is subject to
uncertainties.
Pursuant to the Purchase Agreement, the amount that we receive
from Encompass is subject to the possibility of reduction by
virtue of the purchase price adjustment described under
The Purchase and Sale Agreement Purchase
Price. In addition, the amount of net proceeds is subject
to further reduction after the closing if Encompass successfully
asserts claims for indemnification pursuant to the
indemnification provisions of the Purchase Agreement.
We may
not participate in a superior offer for the Content Distribution
business unless we pay a termination fee to
Encompass.
The Purchase Agreement requires us to pay Encompass a
termination fee equal to $4,530,000 if we terminate or Encompass
terminates the Purchase Agreement prior to closing as a result
of our board of directors changing its recommendation with
respect to the Content Distribution transaction or determining
to accept an unsolicited acquisition proposal that we determine
to be a superior proposal.
Risks
Relating to our Common Stock
Failure
to complete the Content Distribution transaction could cause our
stock price to decline.
The failure to complete the Content Distribution transaction may
create doubt as to the value of our Content Distribution
business unit and our ability to effectively implement our
current business strategies, which may result in a decline in
our stock price.
Interests
of Our Directors and Executive Officers in the Content
Distribution transaction
After the closing of the Content Distribution transaction,
Encompass has agreed to indemnify and hold harmless our
executive officers and directors from any loss arising out of
any breach of representations and warranties by Encompass, or a
failure of Encompass to perform covenants applicable to them
under the Purchase Agreement. All of our directors and executive
officers own shares of our common stock
and/or
restricted stock or options to purchase shares of our common
stock, and to that extent, their interests in the Content
Distribution
37
transaction are the same as that of the other holders of our
common stock. See Security Ownership of Certain Beneficial
Owners and Management Security Ownership of
Management below.
No
Appraisal Rights
Holders of the Companys common stock will not have
appraisal or dissenters rights in connection with the
Content Distribution transaction. Neither Delaware law nor our
certificate of incorporation provides the Companys
stockholders with appraisal or dissenters rights in
connection with the Content Distribution transaction. The
Companys Series A common stock will remain publicly
traded on The NASDAQ Global Select Market following the
consummation of the Content Distribution transaction.
Financing;
Source and Amount of Funds
The Content Distribution transaction is not conditioned upon
Encompass obtaining financing. Encompass US received a financing
commitment from an affiliate of Macquarie Capital (USA) Inc.,
subject to certain conditions as described below, to provide a
new senior secured credit facility (the New Credit
Facility), including a term loan facility of
$175 million. The proceeds of this new term loan facility
will be used in part to pay, and are expected to be sufficient
to pay, the Estimated Purchase Price (as defined below). In
addition, Encompass US has received a commitment from lenders
under its existing secured credit facility (the Existing
Lenders) to amend such credit facility to support the
consummation of the Content Distribution transaction, subject to
certain conditions as described below.
The commitments described above are subject to customary
conditions, including, but not limited to
|
|
|
|
|
absence of a material adverse effect (as defined in
the Purchase Agreement) with respect to the Content Distribution
Group Entities, Encompass US and its subsidiaries, taken as
whole;
|
|
|
|
consummation of the Content Distribution transaction in
accordance with the Purchase Agreement, with no amendments or
waivers thereto that are materially adverse to the interests of
the lenders under the New Credit Facility and the Existing
Lenders being agreed to by the US Purchaser without the consent
of such lenders;
|
|
|
|
pro forma compliance with certain leverage ratios;
|
|
|
|
solvency of Encompass US and each of the guarantors under each
such facility;
|
|
|
|
execution of documentation, including an intercreditor
agreement, reasonably satisfactory to the lenders under the New
Credit Facility and the Existing Lenders; and
|
|
|
|
closing no later than February 28, 2011.
|
Vote and
Recommendation
The transaction proposal requires approval by the affirmative
vote of the holders of record, as of the record date, of a
majority of the aggregate voting power of the shares of our
common stock outstanding and entitled to vote at the special
meeting, voting together as a single class.
Our board of directors has approved and declared the Purchase
Agreement and the transaction proposal and the transactions
contemplated thereby, including the Content Distribution
transaction, advisable, fair to, and in the best interests of
the Company and its stockholders, and recommends that the
holders of our common stock vote FOR the
transaction proposal.
38
MATERIAL
TAX CONSEQUENCES
Certain
United States Federal Income Tax Consequences
The following is a general discussion of the material United
States federal income tax consequences to the Company of the
sale of the Content Distribution business to Encompass. This
summary is based on the provisions of the Internal Revenue Code
of 1986, as amended (the Code), current and proposed US
Treasury Regulations, judicial authority, and administrative
rulings and practice, all of which are subject to change,
possibly on a retroactive basis and are subject to different
interpretations. There can be no assurances that the Internal
Revenue Service (IRS) will not challenge the tax
treatment of certain matters discussed, and no ruling has been
sought from the IRS as to the federal income tax consequences of
the sale.
The sale of the US Company to Encompass US pursuant to the
Purchase Agreement will be a taxable transaction with respect to
the Company. Because the US Company and all its subsidiaries are
pass-through entities for United States federal
income tax purposes, for such purposes the sale will be treated
as a sale of the assets held by such entities. The Company will
recognize a gain or loss measured by the difference between the
amount realized from the sale and the Companys tax basis
in the assets deemed sold. The amount realized by the Company
will include the cash received by it and any other consideration
received by it for the assets. For purposes of determining the
amount realized by the Company with respect to specific assets,
the total amount realized will be allocated among the assets of
each entity conducting the Content Distribution business
according to rules prescribed under Section 1060 of the
Code. The Companys basis in the assets of the US Company
is generally equal to the cost of such assets adjusted for
depreciation or amortization. Although it is expected that the
sale will result in a gain for United States federal income tax
purposes, it is estimated that the Company has sufficient losses
(including net operating loss carry-forwards) to generally
offset such gain. The Company may be subject to United States
federal alternative minimum tax.
The sale of the UK Company and the sale of the Singapore Company
to Encompass UK should not cause the Company to recognize any
income or gain for United States federal income tax purposes.
However the repatriation of the proceeds of such sales to the
Company will be taxable in part as dividend income. It is
estimated that the Company has sufficient losses (including net
operating loss carry forwards) to generally offset such dividend
income. The Company may be subject to United States federal
alternative minimum tax with respect to such dividend income.
The Company does not expect that any of the sales will result in
any United States federal income tax consequences to our
stockholders.
Certain
United Kingdom Tax Consequences
The sale of the Singapore Company will be a taxable sale for
United Kingdom income tax purposes and is expected to result in
a gain. However it is expected that such gain will be offset by
a loss on the sale of the UK Company. The sale of the UK Company
will result in United Kingdom transfer tax liability, of which
the Companys share under the Purchase Agreement is
expected to be about $54,000. The internal reorganization
effected prior to the Content Distribution transaction may
result in United Kingdom transfer taxes of approximately
$125,000.
Certain
Singapore Tax Consequences
The sale of the Singapore Company is exempt from Singapore
income taxation. Such sale will result in Singapore transfer tax
liability, of which the Companys share under the Purchase
Agreement is expected to be about $35,000.
39
REGULATORY
MATTERS
The Content Distribution transaction is subject to the
pre-merger notification requirements of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), the Communications Act of 1934, as amended (the
Communications Act) and the Telecommunications Act of
1999 of Singapore, as amended (the Telecommunications
Act). The HSR Act provides that certain acquisition
transactions may not be consummated unless certain information
has been furnished to the Antitrust Division of the Department
of Justice, which we refer to as the DOJ, and the Federal
Trade Commission, which we refer to as the FTC, and
certain waiting period requirements have been satisfied.
Pursuant to the HSR Act, on December 3, 2010 each of our
Company and Encompass filed a Notification and Report Form
for Certain Mergers and Acquisitions in connection with the
Content Distribution transaction with the DOJ and FTC. On
December 13, 2010, we were notified that we had been
granted early termination of the waiting period under the HSR
Act. The Creative/Media transaction was not subject to the
notification and waiting period requirements of the HSR Act,
because the aggregate consideration received by the Company from
the sale of the U.S. assets and operations of Creative
Services and Media Services is less than the transaction value
threshold of $64.3 million under the act.
Under the Communications Act, our Company and Encompass may not
consummate the Content Distribution transaction unless they have
first obtained the approval of the FCC to transfer control of
the US Company and any FCC licenses held by the US Company to
Encompass. FCC approval is sought through the filing of
applications with the FCC, which are subject to public comment
and objections from third parties. Although no assurances can be
given, we expect the FCC approval process to be completed prior
to the expected closing date of February 28, 2011. The
Company and Encompass submitted joint applications with the FCC
on December 3, 2010.
The Creative/Media transaction was not subject to FCC approval.
Pursuant to the Telecommunications Act and Code of Practice for
Competition in the Provision of Telecommunication Services 2005
(Republic of Singapore) (Telecom Competition Code), any
consolidation involving designated telecommunication licensees
(including facilities-based operator licensees such as Ascent
Media Pte. Ltd.) require the approval of the Infocomm
Development Authority of Singapore (IDA). Generally speaking,
the acquiring party and the licensee that is the subject of the
consolidation are required to submit a joint application to IDA
for the required approval within 30 days of the execution
of the privately-negotiated agreement that would, once approved
by IDA, result in the consolidation. IDA would generally
complete a preliminary review of the consolidation application
within 5 working days to determine whether further information
is required, and complete the consolidation review within
30 days from the start of the consolidation review period.
The consolidation review period is deemed to commence once the
applicants satisfy the minimum information requirements.
Although no assurances can be given, the IDA approval process is
expected to be completed prior to the expected closing date of
February 28, 2011. The Company and Encompass submitted a
joint application with the IDA on December 9, 2010.
The Creative/Media transaction was not subject to IDA approval.
40
THE
PURCHASE AND SALE AGREEMENT
The following is a summary of the material terms of the Purchase
Agreement. This summary does not purport to describe all the
terms of the Purchase Agreement and is qualified by reference to
the complete text of the Purchase Agreement, which is attached
as Annex B to this proxy statement. We urge you to
read the Purchase Agreement carefully and in its entirety
because it, and not this proxy statement, is the legal document
that governs the Content Distribution transaction.
The text of the Purchase Agreement has been included to provide
you with information regarding its terms. The terms of the
Purchase Agreement (such as the representations and warranties)
are intended to govern the contractual rights and relationships,
and allocate risks, between the parties in relation to the
Content Distribution transaction. The Purchase Agreement
contains representations and warranties that our Company, on the
one hand, and Encompass on the other hand, made to each other as
of specific dates. The representations and warranties were
negotiated between the parties with the principal purpose of
setting forth their respective rights with respect to their
obligations to consummate the Content Distribution transaction
and may be subject to important limitations and qualifications
as set forth therein, including a contractual standard of
materiality different from that generally applicable under
federal securities laws.
In addition, the representations and warranties of our company,
certain covenants and other provisions are qualified by
information in confidential disclosure schedules that our
Company has delivered to Encompass in connection with signing
the Purchase Agreement. While we do not believe that the
disclosure schedules contain information that the securities
laws require to be publicly disclosed, the disclosure schedules
do contain information that modifies, qualifies and creates
exceptions to the representations and warranties, certain
covenants and other provisions set forth in the attached
Purchase Agreement. Accordingly, you should not rely on the
representations and warranties, covenants and other provisions
as characterizations of any actual state of facts, since they
are modified by the underlying disclosure schedules. These
disclosure schedules contain information that has been included
in our prior public disclosures, as well as potential additional
non-public information. Moreover, information concerning the
subject matter of the representations and warranties may have
changed since the date of the Purchase Agreement, which
subsequent information may or may not be fully reflected in our
public disclosures.
This section is not intended to provide you with any other
factual information about us. Such information can be found
elsewhere in this proxy statement and in the public filings we
make with the SEC, as described in the section entitled
Additional Information Where You Can Find
Additional Information. Capitalized terms used, and not
otherwise defined, in this summary have the meanings given to
them in the Purchase Agreement.
The
Content Distribution Transaction
We have agreed to sell our Content Distribution business unit to
Encompass. The terms and conditions of the Content Distribution
transaction are set forth in the Purchase Agreement, dated
December 2, 2010, between the Company and certain of its
direct and indirect wholly-owned subsidiaries, on the one hand,
and Encompass US and Encompass UK (collectively,
Encompass), on the other. A copy of the Purchase
Agreement is attached to this proxy statement as
Annex B.
The Purchase Agreement provides that, prior to the consummation
of the Content Distribution transaction, we will restructure
certain of our subsidiaries and assets, so that the Content
Distribution business unit is owned and operated entirely by the
Content Distribution Group Entities. We refer to this
restructuring as the Company Group Reorganization. As a
result of the Company Group Reorganization, immediately prior to
the consummation of the Content Distribution transaction, 100%
of the assets and operations of our Content Distribution
business unit will be owned and operated by three indirect
wholly-owned subsidiaries of the Company:
|
|
|
|
|
Ascent Media Network Services, LLC (the US Company),
which will own the assets and operations of Content Distribution
in the United States;
|
|
|
|
Ascent Media Network Services Europe Limited (the UK
Company), which will own the assets and operations of
Content Distribution in the United Kingdom; and
|
41
|
|
|
|
|
Ascent Media Pte. Ltd. (the Singapore Company), which
will own the assets and operations of Content Distribution in
the Republic of Singapore.
|
We sometimes refer to the US Company, the UK Company and the
Singapore Company in this proxy statement as the Content
Distribution Group Entities. We refer to the date the
Content Distribution transaction is consummated as the
Closing Date.
Pursuant to the Purchase Agreement, on the Closing Date:
|
|
|
|
|
Encompass US will purchase 100% of the outstanding ownership
interests in the US Company;
|
|
|
|
Encompass UK will purchase 100% of the outstanding shares of the
UK Company; and
|
|
|
|
Encompass UK will purchase 100% of the outstanding shares of the
Singapore Company;
|
in each case for the portion of the purchase price allocable to
those assets and operations and as provided in the Purchase
Agreement. We refer to the ownership interests in the US Company
and the shares of the UK Company and Singapore Company to be
purchased by Encompass collectively as the Company
Interests. We refer to the consummation of such purchases
pursuant to the Purchase Agreement as the Closings.
Purchase
Price
Pursuant to the Purchase Agreement, the aggregate net cash
purchase price to be paid by Encompass for the Company Interests
(which we refer to as the Purchase Price), is equal to
$113,250,000 (which we refer to as the Base Purchase
Price), subject to the following adjustments:
Net
Working Capital
The Purchase Agreement defines Target Working
Capital as $3,934,000. If at the Closing Date, the net
working capital of the Content Distribution business unit (as
defined and calculated pursuant to the Purchase Agreement)
exceeds Target Working Capital, the Purchase Price will be
increased by such excess. If net working capital is less than
Target Working Capital, the Purchase Price will be reduced by
such deficit.
Cash
Deferred Revenue
The Purchase Agreement defines Cash Deferred
Revenue as the portion of deferred revenue (both
current and long-term) associated with cash received from
customers, together with any other liabilities associated with
any cash deposits or upfront payments received from customers.
The Purchase Price will be reduced by the Cash Deferred Revenue
of the Content Distribution business unit as at the Closing
Date. Such Cash Deferred Revenue will be excluded from the
calculation of net working capital to avoid double counting.
Capital
Expenditures
The Purchase Agreement requires us to continue to incur and pay
for certain previously budgeted capital expenditures relating to
the Content Distribution business unit in the ordinary course of
business consistent with past practice, through the Closing
Date. Such capital projects have been projected to cost an
aggregate of $17,256,000 from October 6, 2010 through
December 31, 2010 and may entail additional capital
expenditures thereafter through the Closing Date. If at the
Closing Date, the amount paid in cash by us for such capital
projects is less than $17,256,000, the Purchase Price will be
reduced by such deficit. However, if we incur additional capital
expenditures between October 6, 2010 and the Closing Date
(other than expenditures relating to such previously budgeted
projects or general maintenance), and Encompass consents or such
additional capital expenditure is reasonably incurred, after
good faith consultation with Encompass US, in connection with
new customers, the renewal of a certain customer contract or
certain expansions or enhancements of services to existing
customers, the Purchase Price will be increased by the aggregate
amount of such additional investments.
42
Real
Estate Credit
The Purchase Agreement requires us to use commercially
reasonable efforts to transfer to the US Company certain real
property currently owned by us but used in connection with the
Content Distribution business. If such transfer of real property
is not consummated prior to the Closing Date, the Purchase Price
will be reduced by $1,000,000. If such transfer of real property
is then consummated following the Closing Date and prior to
December 31, 2015, Encompass will pay us $1,000,000 for
such property.
Estimated
Purchase Price and Post-Closing Adjustment
Not less than five business days prior to the anticipated
Closing Date, we will provide Encompass with a statement setting
forth our good faith estimate of the Purchase Price, taking into
account the adjustments described above. We refer to such
estimate as the Estimated Purchase Price. The Purchase
Agreement provides that, on the Closing Date, Encompass shall
pay us the Estimated Purchase Price in cash. Following the
Closings, the parties will determine the final Purchase Price
based on the actual net working capital, Cash Deferred Revenue,
and capital expenditures of the Content Distribution business
unit at or through the Closing Date, as applicable. Any disputes
concerning the final Purchase Price shall be resolved by binding
arbitration before Deloitte & Touche LLP or another
internationally recognized independent public accounting firm.
Within three business days after the Purchase Price has been
finally determined, Encompass shall pay to us the amount, if
any, by which the final Purchase Price exceeds the Estimated
Purchase Price, or we shall pay to Encompass the amount, if any,
by which the Estimated Purchase Price exceeds the final Purchase
Price.
Allocation
of Purchase Price
For purposes of paying the Estimated Purchase Price at the
Closings, 70% of the Estimated Purchase Price will be paid for
the outstanding ownership interests of the US Company and 30%
will be paid collectively for the outstanding shares of the UK
Company and the Singapore Company. The actual Purchase Price
shall be allocated by Encompass after the Closing Date among the
Content Distribution Group Entities (and, for tax purposes,
among their respective assets) with the approval of the Company,
which approval shall not be unreasonably withheld, conditioned
or delayed.
Assumption
of Liabilities and Excluded Liabilities
In addition to the cash Purchase Price, at the Closings,
Encompass will assume certain liabilities and obligations
relating to the Content Distribution business with an estimated
fair value on the date of the Purchase Agreement of
approximately $6.75 million, comprising approximately
$3.0 million in capital lease obligations under a full-time
satellite transponder capacity agreement, $3.5 million in
dilapidation liability under an existing real property lease,
and $250,000 obligations under an existing lease for unused
office space. We have also agreed with Encompass to exclude
certain liabilities of the Company and its subsidiaries,
including the Content Distribution Group Entities, such that we,
and not Encompass, will be responsible for such liabilities
following the closing date.
Closing
Date
Subject to the satisfaction or waiver of the conditions provided
for in the Purchase Agreement, the Closings will occur on
February 28, 2011, or such earlier date on or after
January 31, 2011 as we may specify on at least 20 business
days prior written notice; provided, however, that
we may not specify an earlier date for the Closings unless the
conditions set forth in the Purchase Agreement relating to the
waiting period under the HSR Act, FCC approval, IDA approval,
and certain third-party consents have been satisfied on or prior
to the date of such notice, and the Special Meeting has been
scheduled to take place on or before such specified closing
date. We currently expect the Closings to occur during the first
quarter of 2011.
43
Conditions
to the Transaction
Conditions
to Each Partys Obligations
Each partys obligation to consummate the transactions
contemplated by the Purchase Agreement, including the Content
Distribution transaction, is subject to satisfaction or waiver
of the following conditions:
|
|
|
|
|
approval of the transaction proposal by the holders of a
majority of the voting power of the outstanding shares of our
common stock entitled to vote thereon;
|
|
|
|
the waiting period under the HSR Act and any extension thereof
shall have expired or been terminated;
|
|
|
|
required approvals from the FCC and IDA shall have been obtained;
|
|
|
|
no governmental law or order shall be in force that makes the
Content Distribution transaction illegal or otherwise prohibits
or imposes materially burdensome conditions on the Content
Distribution transaction;
|
|
|
|
no person shall have instituted a claim that would reasonably be
expected to prohibit or impose materially burdensome conditions
on the Content Distribution transaction; and
|
|
|
|
specified third-party consents shall have been obtained.
|
Conditions
to Purchasers Obligations
The obligation of Purchasers to consummate the Content
Distribution transaction is subject to the satisfaction or
waiver of the following additional conditions:
|
|
|
|
|
each of certain fundamental representations made by our Company
and its subsidiaries shall be true and correct as of the date of
the Purchase Agreement and the date of the closing of the
Content Distribution transaction;
|
|
|
|
the other representations and warranties made by our Company and
its subsidiaries shall be true and correct as of the date of the
Purchase Agreement and the date of the closing of the Content
Distribution transaction, except where failure of such
representations and warranties to be true and correct would not
have a material adverse effect;
|
|
|
|
our Company and its subsidiaries shall have performed in all
material respects their agreements and covenants under the
Purchase Agreement;
|
|
|
|
delivery of requisite items by us to Encompass pursuant to the
Purchase Agreement, including executed copies of certain real
property leases and a sublease and documents relating to the
transfer of certain real property and the granting of certain
easements;
|
|
|
|
the Company Group Reorganization shall have been consummated and
written proof thereof shall have been delivered to Encompass;
|
|
|
|
the FCC approvals shall have become final, or no third-party
shall have made any filing associated with the
applications; and
|
|
|
|
certain specified contracts between our Company and certain of
our customers shall be in full force and effect, and we shall
not be in material breach of our obligations thereunder.
|
Conditions
to our Companys Obligations
Our obligation to consummate the Content Distribution
transaction, is subject to the satisfaction or waiver of the
following further conditions:
|
|
|
|
|
each of certain fundamental representations made by Encompass
shall be true and correct as of the date of the Purchase
Agreement and the date of the closing of the Content
Distribution transaction;
|
|
|
|
the other representations and warranties made by Encompass shall
be true and correct as of the date of the Purchase Agreement and
the date of the closing of the Content Distribution transaction,
except where failure of such representations and warranties to
be true and correct would not have a material adverse effect;
|
44
|
|
|
|
|
Encompass shall have performed in all material respects their
agreements and covenants under the Purchase Agreement; and
|
|
|
|
delivery of requisite items by Encompass to us pursuant to the
Purchase Agreement, including executed copies of certain real
property leases and a sublease.
|
Representations
and Warranties
The Purchase Agreement contains a number of representations and
warranties made by our Company and its subsidiaries applicable
to our Company, the Content Distribution Group Entities, and
certain other subsidiaries of our Company that immediately prior
to the closing of the Content Distribution transaction will
directly hold all the Company Interests. Such representations
and warranties are subject to certain qualifications and
exceptions set forth in the Purchase Agreement or in the
confidential disclosure schedules provided by the Company to
Encompass pursuant to the Purchase Agreement, and relate to,
among other things, the following:
|
|
|
|
|
due organization, valid existence, good standing and other
corporate matters;
|
|
|
|
authorization, execution, delivery and enforceability of the
Purchase Agreement and ancillary agreements;
|
|
|
|
conflicts or violations under organizational documents,
contracts or law;
|
|
|
|
pending material litigation or outstanding material orders
against our Company or certain subsidiaries;
|
|
|
|
sufficiency of our title to the interests of the Content
Distribution Group Entities;
|
|
|
|
solvency of our Company and certain subsidiaries;
|
|
|
|
governmental permits and licenses;
|
|
|
|
material compliance with applicable laws;
|
|
|
|
capitalization and corporate structure of the Content
Distribution business;
|
|
|
|
financial statements;
|
|
|
|
absence of undisclosed liabilities;
|
|
|
|
absence of certain material changes or events;
|
|
|
|
material pending or threatened claims or orders related to the
Content Distribution Group Entities or initiated by any of the
Content Distribution Group Entities;
|
|
|
|
related party transactions between the Company and our
affiliates or their respective representatives;
|
|
|
|
employees and employment matters relating to the Content
Distribution business;
|
|
|
|
matters relating to employee benefits applicable to us;
|
|
|
|
taxes;
|
|
|
|
intellectual property matters;
|
|
|
|
leased and owned real property;
|
|
|
|
material contracts and leases;
|
|
|
|
material insurance policies;
|
|
|
|
environmental matters;
|
|
|
|
status of the Companys business relationships with certain
customers and suppliers, including the status of certain
material contracts;
|
|
|
|
condition of tangible property used to conduct the Content
Distribution business;
|
|
|
|
sufficiency of properties and assets used to conduct the Content
Distribution business;
|
45
|
|
|
|
|
validity of accounts receivable relating to the Content
Distribution business, subject to reserves and the adequacy of
these reserves in accordance with GAAP;
|
|
|
|
the preparation of any proxy statement related to the Content
Distribution transaction;
|
|
|
|
brokerage or finders fees with respect to the Content
Distribution transaction;
|
|
|
|
absence of certain indebtedness, and absence of certain expenses
relating to the Content Distribution transaction;
|
|
|
|
completion of the Company Group Reorganization; and
|
|
|
|
the absence of any cash deposits that the Company Group would be
obligated to return.
|
The Purchase Agreement also contains various representations and
warranties made by Encompass (which representations and
warranties are subject to certain qualifications and exceptions
set forth in the Purchase Agreement), relating to, among other
things, the following:
|
|
|
|
|
due organization, valid existence and good standing and other
corporate matters;
|
|
|
|
authorization, execution, delivery and enforceability of the
Purchase Agreement and ancillary agreements;
|
|
|
|
conflicts or violations under organizational documents,
contracts or law;
|
|
|
|
pending or threatened material litigation or outstanding
material orders;
|
|
|
|
no financing contingency;
|
|
|
|
solvency; and
|
|
|
|
brokerage or finders fees with respect to the transactions
contemplated by the Purchase Agreement.
|
Certain
Covenants and Agreements
Under the Purchase Agreement, we have agreed to abide by certain
covenants prior to the closing of the Content Distribution
transaction. Among others, these covenants include the following:
Conduct
of the Business by our Company Prior to the
Closings
Under the Purchase Agreement, we have agreed that, subject to
certain exceptions, between the signing of the Purchase
Agreement and the closing of the Content Distribution
transaction, we will operate the Content Distribution business
in all material respects in the ordinary course of business,
consistent with past practice. We have also agreed that, subject
to certain exceptions, we will cause each of the Content
Distribution Group Entities not to:
|
|
|
|
|
amend its organizational documents;
|
|
|
|
transfer, issue, sell, grant, redeem or dispose of any equity
interests or securities of any Content Distribution Group Entity
or grant any option, warrant, call or other right to purchase
such interests;
|
|
|
|
declare, set aside, or pay dividends or other distributions;
|
|
|
|
sell, assign, transfer, lease or otherwise dispose of material
assets or properties of the Content Distribution Group Entities
or the Content Distribution business;
|
|
|
|
acquire or agree to acquire any business of any other person;
|
|
|
|
incur any indebtedness, make loans or advances, or assume,
guarantee or endorse the obligations of any other person (other
than to another Content Distribution Group Entity);
|
|
|
|
subject any material asset of the Content Distribution Group
Entities to a non-permitted lien;
|
|
|
|
make any material change to any accounting method or practice;
|
|
|
|
enter into or modify any related party agreement;
|
|
|
|
enter into, modify or terminate any material contract or leases
(other than as permitted in accordance with the Purchase
Agreement);
|
46
|
|
|
|
|
increase compensation or benefits for, or grant severance or
termination pay to, any employee of the Content Distribution
Group Entities (other than as permitted in accordance with the
Purchase Agreement);
|
|
|
|
enter into, modify or terminate any employee benefit plan;
|
|
|
|
enter into, modify or terminate any collective bargaining
agreement or otherwise make any commitment or incur any
liability to any labor organization;
|
|
|
|
make or change any tax elections, extend or waive the statute of
limitations for material tax claims, surrender any tax refund,
settle any material tax liability, or make any material change
to the tax practice as each relates to the Content Distribution
Group Entities;
|
|
|
|
discount any receivables outside the ordinary course of business;
|
|
|
|
settle any claim that would impose continuing obligations on any
Content Distribution Group Entity;
|
|
|
|
hire new employees above a certain pay grade; or
|
|
|
|
terminate employees in the Content Distribution business without
cause.
|
In addition, we have agreed to use our commercially reasonable
efforts to preserve the business organization and assets of the
Content Distribution business, the beneficial business
relationships and goodwill of customers, suppliers and other
business relationships relating to the Content Distribution
business, and the availability of the services of certain
employees, directors, officers and consultants.
Proxy
Statement; Stockholder Meeting
We have agreed to use our reasonable best efforts to prepare a
proxy statement and all necessary filings relating to the
stockholder vote and meeting and to provide Encompass with a
right to review such materials. In addition, we have agreed,
acting through our board of directors, to establish a record
date for, duly call, give notice of, convene and hold a meeting
of the holders of the Companys common stock for the
purpose of voting upon the approval of the Content Distribution
transaction as promptly as reasonably practicable. In connection
with such vote, we will solicit proxies from our stockholders in
favor of the approval of the Content Distribution transaction.
We will pay all costs associated with the filing of, and
solicitation of proxies in connection with, this proxy statement.
No
Solicitation; Superior Proposal
Pursuant to the Purchase Agreement, we have agreed that from the
signing of the Purchase Agreement until the consummation of the
Content Distribution transaction or the earlier termination of
the Purchase Agreement, we will not, and will cause our
representatives and affiliates not to, take any of the following
actions, except as otherwise permitted by the Purchase Agreement:
|
|
|
|
|
solicit, initiate or encourage any competing proposal (as
defined below);
|
|
|
|
participate in any negotiations or discussions regarding any
competing proposal;
|
|
|
|
furnish any nonpublic information with respect to any competing
proposal;
|
|
|
|
approve or recommend any competing proposal; or
|
|
|
|
enter into any agreement or understanding providing for any
competing proposal or requiring us to abandon, terminate or fail
to consummate the Content Distribution transaction.
|
However, if prior to the approval of the transaction proposal at
the special meeting, (i) we receive a competing proposal
that constitutes a superior proposal (as defined below), or that
our board of directors determines in good faith could reasonably
be expected to result in a superior proposal, and (ii) our
board of directors determines that the failure to take such
action would be reasonably likely to constitute a breach of the
boards fiduciary duties under applicable law, then so long
as we comply with the relevant provisions of the Purchase
Agreement, we may:
|
|
|
|
|
participate in any negotiations or discussions regarding such
competing proposal; or
|
|
|
|
furnish any nonpublic information with respect to such competing
proposal.
|
47
We are required to promptly notify Encompass of the receipt of
any competing proposal and the material terms of any competing
proposal.
If, prior to the approval of the transaction proposal at the
special meeting, (i) we receive a competing proposal that
constitutes a superior proposal, and (ii) our board of
directors determines that the failure to take such action would
be reasonably likely to constitute a breach of the boards
fiduciary duties under applicable law, the board may change or
withdraw its recommendation to you in favor of the transaction
proposal and, after providing Encompass with an opportunity to
respond to such superior proposal, we may terminate the Purchase
Agreement, and enter into an agreement with respect to such
superior proposal, provided that prior to the effectiveness of
any such termination we pay a termination fee to Encompass of
$4,530,000, in cash. See Purchase and Sale
Agreement Termination Fees.
As used in this proxy statement, the term competing
proposal means a bona fide proposal relating to
(i) a merger or similar transaction involving our company
or a Content Distribution Group Entity, (ii) an acquisition
of 25% or more of our consolidated assets (other than an
acquisition of assets not involving any assets of the Content
Distribution business), (iii) an acquisition of 25% or more
of any class of our common stock, (iv) certain tender or
exchange offers, (v) the acquisition of one or more Content
Distribution Group Entities, (vi) the acquisition, directly
or indirectly, of any assets of the Content Distribution
business, other than in the ordinary course of business, or
(vii) the acquisition of all or any part of the Company
Interests.
As used in this proxy statement, the term superior
proposal means any written competing proposal that was
not solicited, initiated, or encouraged by us or our
representatives in violation of the Purchase Agreement for a
transaction that would result in any person or group
beneficially owning more than 50% of the voting power of our
common stock or acquiring all or substantially all (as defined
for purposes of Section 271 of the Delaware General
Corporation Law) of our consolidated assets, on terms that our
board of directors determines in good faith are more favorable
from a financial point of view to our company and its
stockholders than the Content Distribution transaction, and that
our board of directors has determined is reasonably likely to be
completed on the terms proposed.
Appropriate
Action; Consents; Filings
The parties have agreed to use their respective reasonable best
efforts to consummate the Content Distribution transaction and
to cause all of the conditions to the consummation of the
Content Distribution transaction to be satisfied, including:
|
|
|
|
|
obtaining necessary consents and approval from governmental
authorities or other persons;
|
|
|
|
making filings and submissions required to be made under the HSR
Act by the Company and Encompass and preparing and submitting
any applications necessary to receive the necessary regulatory
approvals from the FCC and IDA; and
|
|
|
|
providing notice or obtaining consents from any third-parties
necessary for the consummation of the transactions contemplated
by the Purchase Agreement.
|
Company
Group Reorganization; Affiliate Transactions; Parent
Release
We have agreed that, prior to the Closing Date, we will
consummate the Company Group Reorganization and terminate any
liabilities and obligations between any of the Content
Distribution Group Entities, on the one hand, and us or our
subsidiaries (other than Content Distribution Group Entities),
on the other hand. In addition, we have agreed to waive any
claim against the Content Distribution Group Entities and
release the Content Distribution Group Entities from any
liabilities related to these claims.
Assumed
Guarantees and Contracts
Encompass has agreed to use commercially reasonable efforts to
procure our release from liabilities under certain guarantees,
which we refer to as assumed guarantees, so
long as Encompass is not required to make payments or provide
letters of credit or similar credit support. Encompass has
further agreed not to extend beyond the original term or
increase, in any material respect, our liability under assumed
guarantees without our consent.
48
Tax
Matters
We will be responsible for all taxes relating to the Content
Distribution business with respect to any periods ending on or
before the Closing Date, and, in the case of any period
beginning on or before and ending after the Closing Date, for
all taxes allocable to the portion of such period occurring on
or before the Closing Date. Encompass will be responsible for
all taxes relating to the Content Distribution business with
respect to any periods beginning after the Closing Date, and, in
the case of any period beginning on or before and ending after
the Closing Date, for all taxes allocable to the portion of such
period occurring after the Closing Date. We will be responsible
for any transfer taxes relating to the Company Group
Reorganization. Any other transfer taxes relating to the Content
Distribution transaction will be borne 50% by our company and
50% by Encompass. The purchase agreement provides for us to
indemnify Encompass and its affiliates for taxes and related
expenses allocated to our company under the Purchase Agreement,
and for taxes or losses arising from any breach by our company
of the representations and warranties or covenants of our
company related to taxes set forth in the Purchase Agreement.
The purchase agreement provides for Encompass to indemnify us
and our affiliates for taxes and related expenses allocable to
Encompass. Such tax indemnification provisions are not subject
to the basket or cap applicable to indemnification for breaches
of certain representations, warranties and covenants under the
Purchase Agreement. See The Purchase and Sale
Agreement Indemnification; Survival of
Indemnification Obligations below.
Employee
Matters
We will be responsible for compensation and related costs
payable with respect to any employees of the Company and its
subsidiaries, including employees working in the Content
Distribution business, for all periods through the Closing Date,
and for all employees other than employees working in the
Content Distribution business (or otherwise designated by
Encompass as continuing employees) for periods following the
Closing Date, and will be responsible for severance and related
costs for all employees terminated on or prior to the Closing
Date. We will also be responsible for all liabilities relating
to any employee benefit plans relating to the Content
Distribution business, other than liabilities incurred after the
Closing Date for employee benefit plans that Encompass has
specifically agreed to assume. Encompass will be responsible for
all compensation and related costs payable with respect to
employees working in the Content Distribution business, as well
as any other employees of AMC and its subsidiaries designated by
Encompass to work in the Content Distribution business following
the Closing Date (collectively, continuing employees) for
periods following the Closing Date, including severance and
related costs for any such employees terminated after the
Closing Date. In addition, if Encompass or any of its affiliates
hires a former employee of AMC or its affiliates other than a
continuing employee within 90 days following the Closing
Date, Encompass or such affiliate shall pay any severance costs
incurred by AMC or its affiliate in connection with the
termination of such employee.
The Company will be responsible for (i) fully vesting
Continuing Employees in their benefits under the Ascent Media
Group 401(k) Savings Plan (the AMG 401(k)) and
(ii) contributing all contributions due for all pay periods
leading up to and including the Closing Date of the Content
Distribution transaction with respect to the compensation earned
by such employees as of the Closing Date. As soon as practicable
after the closing of the Content Distribution transaction (but
no earlier than the 60th day following the Closing Date),
Encompass and the Company will arrange for the transfer of
accounts for participating Continuing Employees from the AMG
401(k) to a comparable plan sponsored by Encompass, including a
transfer of assets from the AMG 401(k) to the Encompass plan.
Indemnification;
Survival of Indemnification Obligations
Indemnification
by the AMC Entities
Subject to certain limitations set forth in the Purchase
Agreement, following the consummation of the Content
Distribution transaction, the Company and certain of its
subsidiaries will, jointly and severally, indemnify Encompass
and its affiliates and representatives against damages arising
out of or resulting from (i) any breach of a representation
or warranty made by the Company or a subsidiary in the Purchase
Agreement or certain ancillary documents, (ii) any breach
or failure by the Company or a subsidiary to perform any of its
covenants or obligations in the Purchase Agreement or certain
ancillary agreements and (iii) any excluded liabilities or
related third-party claims. The Purchase Agreement also provides
for mutual indemnification with respect to certain tax matters.
See Purchase and Sale Agreement Tax
Matters above.
49
Indemnification
by Purchasers
Subject to certain limitations set forth in the Purchase
Agreement, following the consummation of the Content
Distribution transaction, Encompass and certain of its
subsidiaries will, jointly and severally, indemnify the Company
and its affiliates and representatives against damages arising
out of or resulting from (i) any breach of a representation
or warranty made by Encompass in the Purchase Agreement or
certain ancillary agreements, (ii) any breach or failure by
Encompass to perform any of their covenants or obligations in
the Purchase Agreement or certain ancillary agreements, or
(iii) any assumed guarantee. The Purchase Agreement also
provides for mutual indemnification with respect to certain tax
matters. See Purchase and Sale Agreement Tax
Matters above.
Limits
on Indemnification
The Purchase Agreement provides that, subject to the exceptions
described below, the aggregate liability of the Company for
indemnification for damages arising out of or resulting from
breaches of our representations and warranties, as well as
certain covenants relating to the operation of the Content
Distribution business between signing and closing, will not
exceed $19,360,000. In addition, the Company will not be liable
for indemnification for damages arising out of or resulting from
these types of breaches unless and until the aggregate amount of
such damages exceeds $1,550,000, and then only for the amount by
which such damages exceed $1,550,000.
Such limitations do not apply to (i) any breach or failure
to be true of certain fundamental representations and warranties
of the Company, including the due organization, valid existence
and good standing of the Company and the Content Distribution
Group Entities, and our legal capacity and authority to perform
our obligations under the Purchase Agreement, or (ii) any
other covenant breaches or indemnification obligations.
The liability of Encompass under the indemnification provisions
set forth in the Purchase Agreement are subject to comparable
limitations as those in favor of the Company.
Under certain circumstances, if the Company and its subsidiaries
desire to windup or make certain distributions, we will first
need to deposit into escrow an amount of cash equal to what
remains under the indemnification cap to support our
indemnification obligations under the Purchase Agreement.
Termination
The Purchase Agreement may be terminated and the Content
Distribution transaction and the other transactions contemplated
thereby abandoned at any time prior to the consummation of such
transactions and before or after approval of the Content
Distribution transaction by our stockholders:
|
|
|
|
|
by mutual written consent of us and Encompass;
|
|
|
|
by us or Encompass, if (1) the closing has not occurred by
February 28, 2011, (2) any governmental authority of
competent jurisdiction has issued an order or taken any other
action permanently restraining, enjoining or otherwise
prohibiting or imposing materially burdensome conditions on the
consummation of the transactions contemplated by the Purchase
Agreement, and such order or other action has become final and
non-appealable, or (3) stockholder approval of the
transaction proposal is not obtained at the special meeting (in
which case, we shall be required to pay Encompasss
out-of-pocket costs and expenses incurred in connection with the
Content Distribution transaction not to exceed $2,000,000);
|
|
|
|
by us, if (1) Encompass has breached representations,
warranties, covenants or other agreements which leads to a
violation of applicable closing conditions and cannot be cured
by February 28, 2011 or if curable, is not cured within
30 days of our notice of intent to terminate, or
(2) our board of directors has determined, in good faith,
that a competing proposal is a superior proposal, subject to
certain conditions;
|
|
|
|
by Encompass, if (1) we have breached representations,
warranties, covenants or other agreements which leads to a
violation of applicable closing conditions and cannot be cured
by February 28, 2011 or if curable, is not cured within
30 days of Encompass notice of intent to terminate,
(2) our board of directors makes a change of
recommendation, fails to recommend against a competing tender
offer, enters into an acquisition agreement, or publicly
announces an intention to take any of such actions, or
(3) if any of certain specified customers terminate
contracts with our company and its subsidiaries representing, in
the aggregate, all or substantially all the revenue received by
us from such customer for network origination, playout and
master control services in the UK.
|
50
Termination
Fees
The Company must pay to Purchasers a termination fee of
$4,530,000 in cash if any of the following occurs:
|
|
|
|
|
a competing proposal is publicly announced, and, following such
announcement, the Purchase Agreement is terminated (i) by
us or Encompass because the closing of the Content Distribution
transaction does not occur by February 28, 2011,
(ii) by us or Encompass because the transaction proposal is
not approved at the special meeting, or (iii) by Encompass
because of our breach or failure to perform, and, in any such
case, prior to, concurrently with or within twelve months after
termination we enter into a definitive agreement with respect to
any competing proposal;
|
|
|
|
the Purchase Agreement is terminated by us due to the
determination, in good faith, by our board of directors that a
competing proposal is a superior proposal; or
|
|
|
|
the Purchase Agreement is terminated by Encompass due to a
change of recommendation effected by our board of directors.
|
Reverse
Termination Fee
If the conditions to Encompasss obligations under the
Purchase Agreement are satisfied, but either Encompass US or
Encompass UK breaches its obligation to consummate the Content
Distribution transaction pursuant to the Purchase Agreement, and
we exercise our right to terminate the Purchase Agreement as a
result of Encompasss breach, Encompass US will be
obligated to pay us a reverse termination fee of $9,680,000 (the
Reverse Termination Fee), and such Reverse Termination
Fee shall constitute our Companys sole remedy for such
breach.
Amendment
The Purchase Agreement may not be amended except by an
instrument in writing signed by all parties.
Waiver
Any of the terms or conditions of the Purchase Agreement may be
waived at any time by the Company or Encompass, but only by a
writing signed by the party waiving such terms or conditions.
Specific
Performance
The Company and Encompass have agreed that (i) Encompass
would suffer irreparable damage in the event any of the
provisions of the Purchase Agreement were not performed by the
Company in accordance with the terms thereof and
(ii) Encompass shall be entitled to specific performance of
the terms of the Purchase Agreement in addition to any other
remedies to which it may be entitled.
The Company has expressly waived any right to specifically
enforce the Purchase Agreement, and has agreed that its right to
receive the Reverse Termination Fee as provided in the Purchase
Agreement shall be the Companys exclusive remedy in the
event of any breach of the Purchase Agreement by Encompass prior
to the Closing.
51
THE
CREATIVE/MEDIA TRANSACTION
Deluxe
Deluxe Entertainment Services Group Inc. (Deluxe US) is a
wholly-owned subsidiary of MacAndrews & Forbes
Holdings Inc. and Deluxe UK Holdings Limited (Deluxe UK
and, together with Deluxe US, Deluxe) is a wholly
owned subsidiary of Deluxe US. A leading provider of a broad
range of entertainment industry services and technologies,
Deluxe has an international client base comprising major motion
picture studios and other owners and distributors of filmed
entertainment, video and digital media content. Services include
motion picture film processing, printing and distribution;
digital intermediates; post production and subtitling services;
titles design and digital visual effects; DVD compression,
encoding and authoring; digital cinema services, digital asset
management, digital distribution; and marketing fulfillment
services. Laboratory and post production facilities are located
in North America, Europe, and Australia. Deluxe also offers home
entertainment services in North America, Europe and India.
|
|
|
State of incorporation:
|
|
Delaware
|
Principal Offices:
|
|
1377 North Serrano Avenue
Hollywood, CA 90027
|
Creative/Media
Transaction
As previously disclosed, on December 31, 2010, we sold
Creative Services and Media Services to Deluxe. The terms and
conditions of this transaction were set forth in a purchase
agreement dated November 24, 2010, between the Company and
certain of its indirect wholly-owned subsidiaries, on the one
hand, and Deluxe US and Deluxe UK, on the other hand. We refer
to that purchase agreement as the Deluxe purchase
agreement. We refer to Creative Services and Media Services,
on a combined basis, as the Creative/Media business and
we refer to the purchase and sale of the Creative/Media business
to Deluxe pursuant to the Deluxe purchase agreement as the
Creative/Media transaction.
Prior to the closing of the Creative/Media transaction, we
restructured certain of our subsidiaries and assets so that the
Creative/Media business was owned and operated entirely by the
entities purchased by Deluxe. Giving effect to such internal
reorganization: (i) AMG owned the assets and operations of
the Creative/Media business in the United States, (ii) AMGL
owned the assets and operations of the Creative/Media business
in the United Kingdom, and (iii) AMG and AMGL did not hold
any assets or operations other than those included in the
Creative/Media business.
On December 31, 2010 our company and Deluxe consummated the
Creative/Media transaction. At the closing of the Creative/Media
transaction:
|
|
|
|
|
Deluxe US purchased 100% of the outstanding ownership interests
in AMG; and
|
|
|
|
Deluxe UK purchased 100% of the outstanding shares of AMGL;
|
in each case for the portion of the purchase price allocable to
such ownership interests or outstanding shares, as provided in
the Deluxe purchase agreement.
Purchase
Price
At the closing of the Creative/Media transaction, our company
received approximately $67.3 million in cash, after giving
effect to a working capital adjustment of approximately
$1.0 million, and Deluxe assumed certain net indebtedness
of approximately $1.8 million. Pursuant to the Deluxe
purchase agreement, 79% of the aggregate purchase price in the
Creative/Media transaction was allocable to the ownership
interests of AMG, and 21% of such aggregate purchase price was
allocable to the shares of AMGL.
Post-Closing
Adjustment
Two business days prior to the anticipated closing date, we
provided Deluxe with a statement setting forth our good faith
estimate of the Creative/Media purchase price, taking into
account the working capital, net debt, and
52
other purchase price adjustments described in the Deluxe
purchase agreement. On the closing date for the Creative/Media
transaction, Deluxe and its subsidiary paid us such estimated
purchase price, in the aggregate, in cash. Following the closing
of the Creative/Media transaction, the parties will determine
the final purchase price for such transaction based on the
actual net closing indebtedness, net working capital, and
company transaction expenses of the Creative/Media business at
the closing date of such transaction, as applicable. Any
disputes concerning the final Purchase Price shall be resolved
by binding arbitration before an independent nationally
recognized accounting firm mutually agreed upon by the Company
and Deluxe US. Promptly after such purchase price has been
finally determined, Deluxe US shall pay to us the amount, if
any, by which such final purchase price exceeds the estimated
purchase price, or we shall pay to Deluxe US the amount, if any,
by which such estimated purchase price exceeds such final
purchase price.
Certain
Covenants and Agreements
Pursuant to the Deluxe purchase agreement, we have also agreed
to certain covenants, including the following:
UK
Defined Benefit Pension Plan
The Company has agreed that, within one year after the closing
of the Creative/Media transaction, two pension plans for which
AMGL is a responsible party in the United Kingdom (which we
refer to collectively as the UK DB Plans) shall be wound
up or fully funded on a buyout basis. In that connection, the
Company agreed to take all actions necessary to cause one of the
UK DB Plans, which is currently accruing benefits for
participants, to be closed to future accrual prior to the
closing date, and to cause each Creative/Media Group Entity that
is the principal employer under a UK DB Plan to be replaced as
principal employer with AMC or a subsidiary of AMC other than
the Creative/Media Group Entities, and to be released from
liability thereunder, in each case with effect from the closing
date. In connection with that undertaking, the Company currently
expects that it will make additional capital contributions to
the UK DB Plans in the aggregate amount of not less than
$4.5 million, during 2011.
Restrictions
on Competition
The Company has also agreed for a period of three years after
the closing of the Creative/Media transaction, subject to
certain exceptions, not to enter into a business that competes
with the Creative/Media business or to solicit employees from
Deluxe or its subsidiaries that operate the Creative/Media
business.
Affiliate
Transactions; Parent Release
Prior to the closing date of the Creative/Media transaction, we
terminated any liabilities and obligations between any of the
entities operating the Creative/Media business, on the one hand,
and us or our other subsidiaries, on the other hand. In
addition, we have agreed to waive any claim against the entities
operating the Creative/Media business and release such entities
from any liabilities related to these claims.
Services
Agreements
In connection with the consummation of the Creative/Media
transaction, the Company entered into services agreements with
Deluxe pursuant to which the Company or its subsidiaries
(including, in certain instances, the Content Distribution Group
Entities) will provide certain transitional support services to
Deluxe in its operation of the Creative/Media business.
Similarly, Deluxe will provide certain transitional support
services to the Company.
Indemnification;
Survival of Indemnification Obligations
Indemnification
by AMC
Subject to certain limitations set forth in the Deluxe purchase
agreement, the Company will indemnify Deluxe and its affiliates
and representatives against damages arising out of or resulting
from (i) any breach of a representation or warranty made by
the Company or any of its subsidiaries in the Deluxe purchase
agreement or other transaction documents, (ii) any breach
or failure by the Company or a subsidiary to perform any of its
covenants or obligations in the Deluxe purchase agreement or
other transaction agreements and (iii) any excluded
53
liabilities or related third-party claims. In addition, the
Deluxe Purchase Agreement provides for the Company to indemnify
Deluxe and its affiliates and representatives after the closing
of the Creative/Media Transaction from any taxes of the
Creative/Media Group Entities and their affiliates for periods
prior to the closing of the Creative/Media transaction, as wells
as certain other tax-related obligations.
Indemnification
by Deluxe
Subject to certain limitations set forth in the Deluxe purchase
agreement, Deluxe, its subsidiary and the entities operating the
Creative/Media business will, jointly and severally, indemnify
the Company and its affiliates and representatives against
damages arising out of or resulting from (i) any breach of
a representation or warranty made by Deluxe in the Deluxe
purchase agreement or other transaction agreements,
(ii) any breach or failure by Deluxe to perform any of
their covenants or obligations in the Deluxe purchase agreement
or other transaction agreements and (iii) any related
third-party claims brought against the Company or its
subsidiaries arising from the operation of the Creative/Media
business by Deluxe after the closing of the Creative/Media
transaction.
Limits
on Indemnification
The Deluxe purchase agreement provides that, subject to the
exceptions described below, the aggregate liability of the
Company for indemnification for damages arising out of or
resulting from breaches of our representations or warranties, as
well as certain covenants relating to the operation of the
Creative/Media business between signing and closing, will not
exceed $10,500,000. In addition, the Company will not be liable
for indemnification for damages arising out of or resulting from
these types of breaches of our representations or warranties
unless and until the aggregate amount of such damages exceeds
$1,000,000, and then only for the amount by which such damages
exceed $1,000,000.
Such limitations do not apply to (i) any breach or failure
to be true of certain fundamental representations and warranties
of the Company, including (x) the due organization, valid
existence and good standing of the Company and the entities
operating the Creative/Media Business, (y) our legal
capacity and authority to perform our obligations under the
Deluxe purchase agreement, including our ownership and ability
to sell the entities involved, and (z) the absence of
brokers fees, or (ii) breaches of certain specified
covenants.
The liability of Deluxe under the indemnification provisions set
forth in the Deluxe purchase agreement are subject to comparable
limitations as those in favor of the Company.
Escrow
As security for any potential indemnification obligations to
under the Deluxe purchase agreement, $7,000,000 of the purchase
price was deposited into escrow, pursuant to an escrow agreement
entered into by the Company, Deluxe and Wells Fargo, N.A. on
December 31, 2010. The escrow agreement provides that any
amounts remaining in the escrow account on the second
anniversary of the closing date shall be released to the
Company, except to the extent of any open claims therefor. Under
certain circumstances, if the Company and its subsidiaries
desire to wind up or make certain distributions, we will first
need to deposit into escrow an amount of cash equal to
$3,500,000 or, in certain circumstances, the lesser amount that
is necessary to satisfy all outstanding claims under the Deluxe
Purchase Agreement.
54
ACQUISITION
OF MONITRONICS
On December 17, 2010, our company acquired 100% of the
outstanding capital stock of Monitronics International, Inc.
(Monitronics) through the merger of Mono Lake
Merger Sub, Inc., a direct wholly owned subsidiary of our
company established to consummate the merger, with and into
Monitronics, with Monitronics as the surviving corporation in
the merger.
The terms of the merger are set forth in an agreement and plan
of merger dated December 17, 2010 (which we refer to as the
merger agreement), among our company, Mono Lake Merger
Sub, Inc., Monitronics, and, for certain purposes only, ABRY
Partners, LLC (the Shareholder Representative). At the
time of the merger, ABRY Partners IV, L.P., a private equity
investment fund whose general partner is an affiliate of the
Shareholder Representative, held common stock of Monitronics
representing a majority of the common stock of Monitronics
outstanding or issuable upon the exercise of outstanding options
and warrants. Pursuant to the merger agreement, the Shareholder
Representative was designated as the agent for the holders of
Monitronics common stock and options or warrants.
The closing of the merger occurred simultaneously with the
execution of the merger agreement. Concurrently with the merger
agreement, the Company, Monitronics, and the Shareholder
Representative also entered into an escrow agreement with
Citibank, N.A. as escrow agent, to provide for the
adjustment escrow and indemnity escrow described below.
Monitronics
Merger Agreement
The following is a summary of the material terms of the merger
agreement. This summary does not purport to describe all the
terms of the merger agreement and is qualified by reference to
the complete text of the merger agreement, which is filed as an
exhibit to our current report on
Form 8-K
dated December 17, 2010. We urge you to read the merger
agreement carefully and in its entirety because it, and not this
description, is the legal document that governs the transaction
by which we acquired Monitronics.
The following summary of the merger agreement is intended to
provide you with information regarding the principal terms of
the merger. The terms of the merger agreement (such as the
representations and warranties) are intended to govern the
contractual rights and relationships, and allocate risks,
between the parties in relation to the merger. The merger
agreement contains representations and warranties that our
company, on the one hand, and Monitronics on the other hand,
made to each other as of specific dates. The representations and
warranties were negotiated between the parties with the
principal purpose of setting forth their respective rights in
connection with the indemnification provisions provided for in
the merger agreement, and are subject to important limitations
and qualifications set forth in the merger agreement, including
contractual standards of materiality that may be different from
that generally applicable under federal securities laws.
In addition, the representations and warranties and other
provisions are qualified by information in confidential
disclosure schedules that our company and Monitronics have
exchanged in connection with signing the merger agreement. While
we do not believe that the disclosure schedules contain
information that the securities laws require to be publicly
disclosed, the disclosure schedules do contain information that
modifies, qualifies and creates exceptions to the
representations and warranties and other provisions set forth in
the merger agreement. Accordingly, you should not rely on the
representations and warranties and other provisions as
characterizations of any actual state of facts, since they may
be modified by the underlying disclosure schedules. Prior to the
merger, Monitronics was a private company, and the disclosure
schedule delivered by Monitronics contains certain non-public
information, which may be material to an understanding of
Monitronics and its business and financial results. Moreover,
information concerning the subject matter of the representations
and warranties of Monitronics may have changed since the date of
the merger agreement, which may or may not be fully reflected in
our public disclosures.
This section is not intended to provide you with any other
factual information about us or Monitronics. Such information
can be found elsewhere in this proxy statement and in the other
public filings we make with the SEC.
55
Merger
Consideration
The aggregate merger consideration payable by our company
to the former stockholders, option holders and warrant holders
of Monitronics pursuant to the merger was calculated based on:
|
|
|
|
|
an adjusted enterprise value of $1,191,000,000,
|
|
|
|
minus net indebtedness,
|
|
|
|
minus unpaid company transaction expenses, and
|
|
|
|
plus the difference between target working capital and
closing working capital.
|
Adjusted Enterprise Value. The purchase
agreement provides for a nominal enterprise value of
$1,255,000,000 including all outstanding indebtedness of
Monitronics, which includes for this purpose the net breakage
costs under certain derivative arrangements entered into by
Monitronics to fix the effective interest rate under its
existing structured financing, which we refer to as the swap
breakage costs. The swap breakage costs represent an
estimate of the cost that Monitronics would incur to effectively
terminate such derivative arrangements as of the closing date,
and are reflected on Monitronicss closing balance sheet.
However, Monitronics is not required to terminate such
derivative arrangements, and if Monitronics continues to make
fixed interest payments in accordance with such derivative
arrangements for the remainder of their stated terms, the swap
breakage costs would be zero on April 15, 2012, subject to
a floor that expires in 2014. The amount of the swap breakage
costs also varies based on prevailing interest rates and other
market factors, and could be greater than, or less than, the
amount of such costs on the closing date, if Monitronics should
at any point in the future determine to terminate such
derivative arrangements. As part of its negotiations with
Monitronics in connection with the merger, our company agreed to
fix the amount of the swap breakage costs at $64,000,000 for
purposes of calculating net merger consideration under the
merger agreement. This term was implemented by agreeing
(a) to increase the nominal enterprise value by the amount,
if any, that the actual swap breakage costs were greater than
$64,000,000, or to decrease the nominal enterprise value by any
amount that the actual swap breakage costs were less than
$64,000,000, and (b) to subtract the actual swap breakage
costs from such nominal enterprise value (in addition to the
other adjustments described below) in the calculation of net
merger consideration. The net effect of these provisions was to
fix the enterprise value of Monitronics, exclusive of such
derivative arrangements, but including the assumption of all
other indebtedness of Monitronics, at $1,191,000,000. For
purposes of this discussion, we refer to such amount as the
adjusted enterprise value of Monitronics, although such
term is not used in the merger agreement.
Net Indebtedness. For purposes of calculating
the merger consideration as described above, the net
indebtedness of Monitronics equals (i) long-term debt of
Monitronics and its subsidiaries on the closing date, in the
aggregate amount of $844,200,000, (ii) minus $66,214,000 in
cash of Monitronics and its subsidiaries on the closing date,
which includes restricted cash. Based on such calculation, net
indebtedness of Monitronics was estimated to be $777,986,000 on
the closing date.
Unpaid Company Transaction Expenses. The
merger agreement defines unpaid company transaction expenses as
all expenses incurred on or before the closing date and payable
by Monitronics or any of its subsidiaries in connection with the
transaction, to the extent unpaid as of the closing date, other
than compensation expense relating to outstanding stock options,
and other than certain expenses relating to the preparation of
Monitronics financial information for this proxy statement, and
certain expenses relating to our companys financing in
connection with the merger. At the closing, the unpaid company
transaction expenses were estimated to be $14,072,000.
Closing Working Capital and Target Working
Capital. The merger agreement generally defines
closing working capital as the aggregate amount of current
assets of Monitronics and its subsidiaries minus the aggregate
amount of current liabilities of Monitronics and its
subsidiaries, in each case as of the closing date, whether such
result is a positive number or a negative number. The merger
agreement defines target working capital as negative
$16,579,000. At the closing, the difference between target
working capital and closing working capital was
estimated to be $127,000.
56
Estimated Merger Consideration, Escrowed
Amounts. In connection with the closing,
Monitronics provided the Company with a statement setting forth
its good faith estimate of the merger consideration, taking into
account the terms described above. Based on such calculation,
the aggregate amount paid in cash by the Company at the closing
was $413,141,000, of which $14,072,000 comprised transaction
expenses incurred by Monitronics and payable by the Company
pursuant to the merger agreement and $399,069,000 comprised
merger consideration payable to the stockholders, option holders
and warrant holders of Monitronics in the merger. Pursuant to
the merger agreement, on the closing date, the Company paid the
estimated merger consideration, in cash, to the Shareholder
Representative, as paying agent for the holders of Monitronics
common stock, options and warrants, less:
|
|
|
|
|
$3,000,000 from the aggregate estimated merger consideration,
which was deposited with Citibank, N.A., as escrow agent
pursuant to the escrow agreement, as an adjustment escrow
to be available to satisfy any amounts due to our company as
set forth below under Post-Closing
Adjustment; and
|
|
|
|
$25,000,000 from the aggregate estimated merger consideration,
which was deposited with Citibank, N.A., as escrow agent
pursuant to the escrow agreement, as an indemnity escrow
to be available to satisfy any obligation of Monitronics as
set forth below under Indemnification
Indemnification by Monitronics.
|
The following table shows the calculation of the merger
consideration and total cash consideration paid by the Company
at the closing, in connection with its acquisition of
Monitronics:
|
|
|
|
|
Description
|
|
Amount
|
|
|
Adjusted Enterprise Value
|
|
$
|
1,191,000,000
|
|
- Net Indebtedness
|
|
$
|
777,986,000
|
|
- Unpaid Company Transaction Expenses
|
|
$
|
14,072,000
|
|
+ Closing Working Capital minus Target Working Capital
|
|
$
|
127,000
|
|
|
|
|
|
|
Estimated Merger Consideration
|
|
$
|
399,069,000
|
|
+ Unpaid Company Transaction Expenses
|
|
$
|
14,072,000
|
|
|
|
|
|
|
Total cash consideration paid by the Company
|
|
$
|
413,141,000
|
|
|
|
|
|
|
Post-Closing Adjustment. Following the
closing, the parties will determine the final merger
consideration based on the actual adjusted net indebtedness,
closing working capital, and unpaid company transaction expenses
of Monitronics at the closing date of the transaction, as
applicable. Any disputes concerning the final merger
consideration shall be resolved by binding arbitration
adjudicated by Deloitte LLP. Promptly after such merger
consideration has been finally determined, if the actual merger
consideration is greater than the merger consideration estimated
by Monitronics at the closing, our company will pay such
deficiency in cash to the Shareholder Representative, as paying
agent for the former holders of Monitronics common stock,
options and warrants, and if the actual merger consideration is
less than the merger consideration estimated by Monitronics at
the closing, the amount of such difference shall be repaid to
our company in cash from the adjustment escrow (or, if the
adjustment escrow is insufficient, from the indemnity escrow).
Source of Funds. The aggregate consideration
paid in cash by the Company at the closing was funded from cash
on hand, proceeds from the sale of marketable securities, and
$105,000,000 in borrowings under a new $175,000,000 credit
facility. See, Acquisition Financing, below.
Treatment
of Monitronics Common Stock and Common Stock
Equivalents
Pursuant to the merger agreement, at closing:
|
|
|
|
|
each share of Monitronics common stock that was outstanding
immediately prior to the effective time of the merger was
converted into the right to receive the per share cash merger
consideration (calculated on a fully diluted basis, assuming the
exercise in full of all options and warrants for Monitronics
common stock outstanding immediately prior to the effective time
of the merger and the receipt by Monitronics of the aggregate
exercise price of such options and warrants); and
|
57
|
|
|
|
|
each Monitronics option or warrant that was outstanding
immediately prior to the effective time of the merger was
converted into the right to receive an amount in cash equal to
the difference between (i) the aggregate merger
consideration that would be payable with respect to the
aggregate number of shares of common stock underlying such
option or warrant as though such shares were issued and
outstanding immediately prior to the effective time of the
merger, and (ii) the aggregate exercise price applicable
under such option or warrant;
|
in each case subject to the indemnification and escrow
provisions set forth in the merger agreement, and any deductions
by the Shareholder Representative in reimbursement of its costs
incurred as agent of the holders under the merger agreement,
which may have the effect of reducing the amount payable per
share of Monitronics common stock or option or warrant therefor.
Representations
and Warranties
The merger agreement contains a number of representations and
warranties made by Monitronics. Such representations and
warranties are subject to certain qualifications and exceptions
set forth in the merger agreement or in the confidential
disclosure schedules provided by Monitronics to the Company
pursuant to the merger agreement, and relate to, among other
things, the following:
|
|
|
|
|
due organization, valid existence, good standing and other
corporate matters;
|
|
|
|
capitalization and corporate structure of Monitronics;
|
|
|
|
authorization, execution, delivery and enforceability of the
merger agreement and the transactions contemplated thereby;
|
|
|
|
conflicts or violations under organizational documents,
contracts or law;
|
|
|
|
financial statements and indebtedness, including the absence of
certain undisclosed liabilities;
|
|
|
|
the absence of certain changes or events;
|
|
|
|
pending litigations or proceedings against Monitronics;
|
|
|
|
permits and other approvals from governmental entities and
compliance with applicable law;
|
|
|
|
taxes;
|
|
|
|
certain intellectual property matters;
|
|
|
|
material contracts, leases, financial instruments and other
agreements;
|
|
|
|
matters relating to employee benefit plans;
|
|
|
|
leased and owned real property;
|
|
|
|
employees and certain employee matters;
|
|
|
|
certain environmental matters;
|
|
|
|
material insurance policies;
|
|
|
|
transactions with affiliates of Monitronics;
|
|
|
|
certain matters relating to alarm monitoring contract dealers
and customers;
|
|
|
|
brokerage or finders fees with respect to the transaction;
|
|
|
|
certain matters relating to security systems and monitoring
centers;
|
|
|
|
the absence of violations under certain laws relating to foreign
corrupt practices and international trade sanctions; and
|
|
|
|
the conduct of Monitronics on the closing date of the merger.
|
58
The merger agreement also contains various representations and
warranties made by the Company and its subsidiary. Such
representations and warranties are subject to certain
qualifications and exceptions set forth in the merger agreement,
and relate to, among other things, the following:
|
|
|
|
|
due organization, valid existence, good standing and other
corporate matters;
|
|
|
|
authorization, execution, delivery and enforceability of the
merger agreement and the transactions contemplated thereby;
|
|
|
|
conflicts or violations under organizational documents,
contracts or law;
|
|
|
|
the absence of litigation and other proceedings;
|
|
|
|
the absence of brokerage of finders fees with respect to
the transaction;
|
|
|
|
the solvency of the Company, Merger Sub and Monitronics as the
surviving corporation after giving effect to the merger and
other transactions contemplated by the merger agreement; and
|
|
|
|
matters relating to the funding of the transactions contemplated
by the merger agreement.
|
Indemnification
Indemnification by Monitronics. Subject to
certain limitations and exceptions set forth in the merger
agreement, the Company and the surviving corporation will be
indemnified (but only to the extent of funds on deposit in the
indemnity escrow and amounts available under an indemnity
policy, as defined below) against damages arising out of or
resulting from (i) any breach of a representation or
warranty made by Monitronics in the merger agreement or
(ii) any breach by the Shareholder Representative of any
covenant set forth in the merger agreement or any unpaid company
transaction expense to the extent it is not actually reflected
in the amount of unpaid company transaction expenses used to
calculate the merger consideration. The representations and
warranties of Monitronics will remain in full force and effect
until August 31, 2012.
Indemnification by the Company. Subject to
certain limitations and exceptions set forth in the merger
agreement, the former holders of Monitronics common stock and
common stock equivalents and the Shareholder Representative will
be indemnified against any damages arising out of or resulting
from (i) any breach of a representation or warranty made by
the Company or our subsidiary in the merger agreement or
(ii) any breach by the Company, our subsidiary or, if after
the effective time, the surviving corporation, of any of their
covenants in the merger agreement. The representations and
warranties of the Company and Merger Sub will remain in full
force and effect until August 31, 2012.
Indemnity Escrow and Indemnity Policy. As
security for any potential indemnification obligations owed to
the Company and the surviving corporation under the merger
agreement, at the closing of the transaction, the Company
deposited $25,000,000 of the merger consideration into the
indemnity escrow pursuant to the escrow agreement. Although the
indemnification provisions of the merger agreement extend
through August 31, 2012, the indemnity escrow will be
released on December 31, 2011 (which we refer to as the
escrow release date), except to the extent of any open
claims therefor. From and after the earlier of (a) any
depletion of the indemnity escrow and (b) the escrow
release date, any claims by our company for indemnification
under the merger agreement will be limited to claims for breach
of representation and warranty only and may be brought only
against certain insurance policies obtained by the Shareholder
Representative for the benefit of our company for such purpose
from certain insurance carriers, in the aggregate amount of
$50,000,000, which insurance policies will remain in effect
until August 31, 2012. We refer to such representation and
warranty insurance policies collectively as the indemnity
policy. Pursuant to the merger agreement, the premiums and
certain other costs relating to the indemnity policy were paid
in full by Monitronics prior to closing.
Limits on Indemnification. The merger
agreement provides that, subject to the exceptions described
below, the aggregate liability for which our company and the
surviving corporation may be indemnified for damages arising out
of or resulting from breaches of representations or warranties
and certain covenants will be limited to the indemnity escrow
and the amount available under the indemnity policy.
Indemnifiable claims will be applied first to the indemnity
escrow and then, following the earlier of the escrow release
date and the indemnity escrows
59
depletion, against the indemnity policy. In addition,
Monitronics will not be liable for indemnification for damages
arising out of or resulting from breaches of its representations
and warranties unless and until the aggregate amount of such
damages exceeds a $10,000,000 basket, and then only
for the amount by which such damages exceed such amount. This
limitation does not apply to any breach of covenant by
Monitronics or any breach of its representation and warranty
relating to brokerage and similar fees and commissions in
connection with the merger or any related transaction, or any
breach of the representation and warranty of Monitronics
relating to the conduct of Monitronics on the closing date.
The
Monitronics Business
Monitronics International, Inc. (Monitronics) is the
fourth largest alarm monitoring company in the United States,
with over 665,000 subscribers under contract. With subscribers
in all 50 states, the District of Columbia, Puerto Rico,
and Canada, Monitronics provides a wide range of security alarm
services, monitoring signals from burglaries, fires and other
events, as well as providing customer service and technical
support. Monitronicss service offerings include hands-free
two-way interactive voice communication with the monitoring
center, a cellular
back-up
option, and an interactive service option which allows a
customer to control their security system remotely using a
computer or smart phone. Monitronics was incorporated in 1994
and is headquartered in Dallas, Texas.
Unlike many of its national competitors, Monitronics outsources
the sales, installation and field service functions to its
dealers. By outsourcing the low margin, high fixed-cost elements
of its business to a large network of independent service
providers, Monitronics is able to allocate capital to growing
its revenue-generating account base rather than to local offices
or depreciating hard assets. Monitronics believes that it is the
only alarm-monitoring company of national scale that operates
exclusively through a network of independent dealers.
During the 12 months ended September 30, 2010,
Monitronics purchased alarm monitoring contracts from
approximately 450 dealers. Monitronics generally enters into
alarm monitoring purchase agreements with dealers only after a
thorough review of the dealers qualifications, licensing
and financial situation. Once a dealer has qualified,
Monitronics generally obtains rights of first refusal to
purchase all accounts sold by that dealer for a period of three
years.
The primary steps in creating an account are as follows:
1. Dealer sells an alarm system to a homeowner or small
business.
2. Dealer installs the alarm system, which is monitored by
Monitronics central monitoring center, trains the customer on
its use, and receives a signed three to five year contract for
monitoring services.
3. Dealer presents the account to Monitronics for purchase.
4. Monitronics performs diligence on the alarm monitoring
account to validate quality. This process includes several due
diligence tests including a credit score analysis and telephonic
confirmation with a significant number of subscribers confirming
satisfaction with their installation and security system.
Because purchase criteria are agreed upon with each dealer in
advance, Monitronics is able to acquire most accounts submitted
to it for purchase.
5. Monitronics acquires the customer contract at a
formula-based price.
6. Customer becomes a Monitronics account.
7. All future billing and customer service is conducted
through Monitronics.
Monitronics generally pays its dealers a purchase price for each
new customer account based on a multiple of the accounts
monthly recurring revenue. The terms on which Monitronics
acquires customer accounts from dealers are provided for in the
dealer contract. The dealer contract generally provides that, if
a customer account acquired by Monitronics is terminated within
the first 12 months, the dealer must replace the account or
refund the purchase price paid by Monitronics. To secure the
dealers obligation, Monitronics holds back a percentage of
the purchase price for a 12 month period. Following the
initial three-to-five year contract period, subscriber
monitoring contracts are subject to automatic renewal on a
month-to-month basis, until terminated.
60
Monitronics believes that this process, which includes both
clearly defined customer account standards and a consistently
applied due diligence process, contributes significantly to the
high quality of its subscriber base. For each of its last five
fiscal years, the average credit score of accounts purchased by
Monitronics, was in excess of 700 on the FICO scale.
Approximately 93% of Monitronics subscribers are residential
homeowners and the remainder are small commercial accounts.
Monitronics believes that its primary focus on residential
homeowners helps minimize churn, because homeowners relocate
less frequently than renters and have higher average credit
scores.
Monitronics provides monitoring services as well as billing and
24-hour
telephone support through its central monitoring station,
located in Dallas, Texas. This facility is UL listed and has
earned the Central Station Alarm Associations
(CSAA) prestigious Five Diamond Certification. According
to the CSAA, less than 4% of all central monitoring stations in
the U.S. have attained Five Diamond Certified status.
Monitronics also has a
back-up
facility located in McKinney, Texas that is capable of
supporting monitoring, billing and customer service operations
in the event of a disruption at its primary monitoring center. A
call center in Mexico provides telephone support for
Spanish-speaking subscribers.
Monitronicss telephone systems utilize high-capacity,
high-quality, digital circuits backed up by conventional
telephone lines. When an alarm signal is received at the
monitoring facility, it is routed to an operator. At the same
time, information concerning the subscriber whose alarm has been
activated and the nature and location of the alarm signal are
delivered to the operators computer terminal. The operator
is then responsible for following standard procedures to contact
the subscriber or take other appropriate action, including, if
the situation requires, contacting local emergency service
providers. Local emergency service providers are usually
contacted if Monitronics is unable to contact a subscriber, if
the monitoring station receives the wrong password, if the
subscribers specified contact telephone line is busy or if
Monitronics has reason to suspect an emergency situation at a
subscribers home. Monitronics never dispatches its own
personnel to the subscribers premises.
Monitronics seeks to increase subscriber satisfaction and
retention by carefully managing customer and technical service.
The customer service center handles all general inquiries from
subscribers, including those related to subscriber information
changes, basic alarm troubleshooting, alarm verification,
technical service requests and requests to enhance existing
services. Monitronics has a proprietary centralized information
system that enables it to satisfy almost 90% of subscriber
technical inquiries over the telephone, without dispatching a
service technician. If the customer requires field service,
Monitronics relies on its nationwide network of over 500 service
dealers to provide such service on a time and materials basis.
Facilities and Personnel. Monitronics leases
approximately 120,000 square feet in Dallas, Texas to house
its executive offices, monitoring center, sales and marketing
and data retention functions, as well as approximately
13,000 square feet for the McKinney, Texas
back-up
monitoring facility. Monitronics employs approximately
700 people, substantially all of whom are based in Texas.
Intellectual Property. The Company has a
registered service mark for the Monitronics name and a service
mark for the Monitronics logo. It owns certain proprietary
software applications that are used to provide services to its
dealers and subscribers. Monitronics does not hold any patents
or other intellectual property rights on its proprietary
software applications.
Legal. In the ordinary course of business,
Monitronics is subject to various legal proceedings and claims,
including product liability matters, claims brought by or on
behalf of subscribers (and by insurance companies pursuant to
subrogation rights) based on alleged failures relating to
monitoring services, patent infringement claims, employment
disputes, disputes on agreements and other commercial disputes.
Monitronics does not expect the outcome of these proceedings or
claims, individually or in the aggregate, to have a material
adverse effect on the Companys financial condition,
results of operations or liquidity.
Regulatory. Monitronics operations are
subject to a variety of laws, regulations and licensing
requirements of federal, state and local authorities. In certain
jurisdictions, the Company is required to obtain licenses or
permits, to comply with standards governing employee selection
and training and to meet certain standards in the conduct of its
business. Many jurisdictions also require certain of their
employees to obtain licenses or permits. The security industry
is also subject to requirements imposed by various insurance,
approval, listing and standards organizations.
61
Depending upon the type of subscriber served, the type of
security service provided and the requirements of the applicable
local governmental jurisdiction, adherence to the requirements
and standards of such organizations is mandatory in some
instances and voluntary in others.
Acquisition
Financing
On December 17, 2010, Monitronics entered into a credit
agreement (the credit facility) with the lenders party
thereto and Bank of America, N.A., as administrative agent. The
credit facility provides a $60,000,000 term loan and a
$115,000,000 revolving credit facility. The interest rate under
the term loan is:
|
|
|
|
|
LIBOR plus 3.50% per annum through June 30, 2011,
|
|
|
|
LIBOR plus 4.00% per annum from July 1, 2011 through
December 31, 2011, and
|
|
|
|
LIBOR plus 4.50% per annum thereafter.
|
The interest rate under the revolving credit facility is LIBOR
plus 4.00% per annum. There is a LIBOR floor of 1.50% per annum,
and a commitment fee of 0.50% per annum on unused portions of
the revolving credit facility. The term loan matures on
June 30, 2012, and requires principal installments of
$20,000,000 on December 31, 2011, and March 31, 2012.
The revolving credit facility matures on December 17, 2013.
The terms of the credit facility include customary
representations and warranties, customary mandatory prepayments,
customary affirmative and negative covenants and customary
events of default. In addition, Monitronics must maintain a
total leverage ratio of no more than 2.75 to 1 through
September 30, 2011, and no more than 2.50 to 1 thereafter,
and a fixed charge coverage ratio of not less than 2.50 to 1.
Upon any refinancing of the notes issued by Monitronics Funding
LP, a subsidiary of Monitronics, in connection with
Monitronicss existing structured financing, Monitronics
must prepay the term loan under the credit facility. If such
refinancing does not occur by June 30, 2012, Monitronics
must maintain a ratio of total debt to monthly recurring revenue
of no more than 25 to 1 in place of the total leverage ratio
test, until such refinancing occurs.
At any time after the occurrence of an event of default under
the credit facility, the lenders may, among other remedies,
declare any amounts outstanding under the credit facility
immediately due and payable and terminate any commitment to make
further loans under the credit facility. The obligations under
the credit facility are secured by a security interest on
substantially all the assets of Monitronics and its wholly owned
subsidiary, Monitronics Canada, Inc., as well as a pledge by our
company of all outstanding stock of Monitronics. Our company has
guaranteed payment of the term loan up to the first $30,000,000
of obligations thereunder.
On December 17, 2010, Monitronics borrowed the full amount
of the term loan and $45,000,000 under the revolving credit
facility, for total initial borrowings under the credit facility
of $105,000,000. The proceeds of such loans, after repayment of
approximately $5.0 million outstanding under a previously
existing credit facility, and payment of certain fees and
expenses relating to the credit facility, were used to fund a
portion of the aggregate merger consideration payable by our
company in connection with its acquisition of Monitronics on
December 17, 2010.
62
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security
Ownership of Certain Beneficial Owners
The following table sets forth information concerning shares of
our common stock beneficially owned by each person or entity
(excluding any of our directors and executive officers) known by
us to own more than five percent of the outstanding shares of
any series of our common stock. All of such information is based
on publicly available filings.
The security ownership information is given as of
November 30, 2010, and, in the case of percentage ownership
information, is based upon 13,556,343 shares of our
Series A common stock and 733,599 shares of our
Series B common stock, in each case, outstanding on that
date. The percentage voting power is presented on an aggregate
basis for all series of common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address
|
|
Title of
|
|
Amount and Nature of
|
|
Percent of
|
|
Voting
|
of Beneficial Owner
|
|
Class
|
|
Beneficial Ownership
|
|
Class
|
|
Power
|
|
Robert R. Bennett
|
|
Series A
|
|
|
17,980
|
(1)(2)(3)
|
|
|
|
*
|
|
|
3.73
|
%
|
c/o Liberty
Media Corporation
|
|
Series B
|
|
|
76,212
|
(1)(2)
|
|
|
10.39
|
%
|
|
|
|
|
12300 Liberty Boulevard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Englewood, CO 80112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock, Inc.
|
|
Series A
|
|
|
1,184,307
|
(4)
|
|
|
8.74
|
%
|
|
|
5.67
|
%
|
40 East 52nd Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR LLC
|
|
Series A
|
|
|
857,185
|
(5)
|
|
|
6.32
|
%
|
|
|
4.10
|
%
|
82 Devonshire Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mario J. Gabelli
|
|
Series A
|
|
|
1,331,356
|
(6)
|
|
|
9.82
|
%
|
|
|
6.37
|
%
|
c/o GAMCO
Investors, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Corporate Center
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rye, NY 10580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Associates, Inc.
|
|
Series A
|
|
|
873,977
|
(7)
|
|
|
6.45
|
%
|
|
|
4.18
|
%
|
100 E. Pratt Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Based upon the Schedule 13D filed on February 22, 2010
by Robert R. Bennett, which states that Mr. Bennett has
sole voting power and sole dispositive power over
17,980 shares of Series A common stock and
76,212 shares of Series B common stock. |
|
(2) |
|
Includes 12,472 shares of Series A Common Stock and
76,210 shares of Series B common stock jointly held by
Mr. Bennett and his wife, Deborah Bennett. Also includes
5,491 shares of Series A Common Stock and
2 shares of Series B Common Stock owned by Hilltop
Investments, LLC, which is jointly owned by Mr. Bennett and
his wife, Deborah Bennett. |
|
(3) |
|
Does not include beneficial ownership of shares of our
Series A common stock issuable upon exercise of conversion
rights relating to shares of our Series B common stock held
by Mr. Bennett. |
|
(4) |
|
Based upon the Schedule 13G filed on January 29, 2010
by BlackRock, Inc., which states that BlackRock, Inc., a parent
holding company, has sole voting power and sole dispositive
power over 1,184,307 shares. All shares covered by the
Schedule 13G are held by subsidiaries of BlackRock, Inc. |
|
(5) |
|
Based upon Amendment No. 1 to Schedule 13G filed on
February 16, 2010 by FMR LLC, a parent holding company
(FMR). Fidelity Management & Research Company,
a wholly-owned subsidiary of FMR, is the beneficial owner of
781,124 shares as a result of acting as an investment
adviser. Strategic Advisers, Inc., a wholly-owned subsidiary of
FMR (SAI), is the beneficial owner of 11 shares as a
result of acting as an investment adviser. Pyramis Global
Advisors Trust Company, an indirect wholly-owned subsidiary
of FMR (PGATC), is the beneficial owner of
76,050 shares as a result of acting as an investment
manager. The Schedule 13G states that FMR has sole voting
power over the 76,061 shares beneficially owned by SAI and
PGATC and sole dispositive power over 857,185 shares. |
63
|
|
|
(6) |
|
Based upon Amendment No. 10 to Schedule 13D filed on
October 4, 2010, by Gabelli Funds, LLC, GAMCO Asset
Management Inc., Gabelli Securities, Inc., Teton Advisors, Inc.,
Gabelli Foundation, Inc., GGCP, Inc., GAMCO Investors, Inc. and
Mario J. Gabelli (whom we collectively refer to as the
Gabelli Reporting Persons). In addition to shares of our
Series A common stock held directly by Mr. Gabelli,
Mr. Gabelli is deemed to have beneficial ownership of those
shares of our common stock held by the other Gabelli Reporting
Persons. The Schedule 13D states that Mr. Gabelli has
sole voting power and sole dispositive power over
1,300 shares. |
|
(7) |
|
Based upon Amendment No. 2 to Schedule 13G filed on
February 12, 2010 by T. Rowe Price Associates, Inc. (T.
Rowe Price), an investment advisor, which states that T.
Rowe Price has sole voting power over 241,429 shares and
sole dispositive power over 873,977 shares. T. Rowe Price
is deemed the beneficial owner of such shares as a result of
acting as an investment advisor. |
Security
Ownership of Management
The following table sets forth information with respect to the
ownership by each of our directors, each of our named executive
officers (William R. Fitzgerald, William E. Niles, George C.
Platisa, and John Orr), and by all of our directors and
executive officers as a group, of shares of Series A common
stock and Series B common stock. The security ownership
information is given as of November 30, 2010, and, in the
case of percentage ownership information, is based upon
13,556,343 shares of Series A common stock and
733,599 shares of Series B common stock, in each case,
outstanding on that date. Such outstanding share amounts do not
include shares of our common stock that may be issued upon the
exercise of stock options, including stock options disclosed in
the table below. The percentage voting power is presented in the
table below on an aggregate basis for all series of common stock.
Shares of restricted stock that have been granted pursuant to
our equity incentive plans are included in the outstanding share
numbers provided throughout this proxy statement. Shares of
common stock issuable upon exercise or conversion of options,
warrants and convertible securities that, as of
November 30, 2010, were exercisable or convertible on such
date or within 60 days thereafter, are deemed to be
outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose
of computing the percentage ownership of the person, but are not
treated as outstanding for the purpose of computing the
percentage ownership of any other person. For purposes of the
following presentation, any beneficial ownership of shares of
our Series B common stock, though convertible on a
one-for-one basis into shares of our Series A common stock,
is reported as beneficial ownership of our Series B common
stock only, and not as beneficial ownership of our Series A
common stock. So far as is known to us, the persons indicated
below have sole voting power with respect to the shares
indicated as owned by them, except as otherwise stated in the
notes to the table.
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title of
|
|
Amount and Nature of
|
|
Percent of
|
|
Voting
|
Name of Beneficial Owner
|
|
Class
|
|
Beneficial Ownership
|
|
Class
|
|
Power
|
|
William R. Fitzgerald
|
|
|
Series A
|
|
|
|
240,469
|
|
|
|
1.75
|
%
|
|
|
*
|
|
Chairman of the Board and
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philip J. Holthouse
|
|
|
Series A
|
|
|
|
16,227
|
|
|
|
*
|
|
|
|
*
|
|
Director
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Malone
|
|
|
Series A
|
|
|
|
150,617
|
|
|
|
1.11
|
%
|
|
|
30.33
|
%
|
Director
|
|
|
Series B
|
|
|
|
618,525
|
|
|
|
84.31
|
%
|
|
|
|
|
Brian C. Mulligan
|
|
|
Series A
|
|
|
|
16,207
|
|
|
|
*
|
|
|
|
*
|
|
Director
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Niles
|
|
|
Series A
|
|
|
|
15,593
|
|
|
|
*
|
|
|
|
*
|
|
Executive Vice President,
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Counsel and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John A. Orr
|
|
|
Series A
|
|
|
|
84,451
|
|
|
|
*
|
|
|
|
*
|
|
Senior Vice President
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George C. Platisa
|
|
|
Series A
|
|
|
|
15,593
|
|
|
|
*
|
|
|
|
*
|
|
Executive Vice President and
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Pohl
|
|
|
Series A
|
|
|
|
16,207
|
|
|
|
*
|
|
|
|
*
|
|
Director
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl E. Vogel
|
|
|
Series A
|
|
|
|
3,830
|
|
|
|
*
|
|
|
|
*
|
|
Director
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (9 persons)
|
|
|
Series A
|
|
|
|
559,194
|
|
|
|
4.12
|
%
|
|
|
32.28
|
%
|
|
|
|
Series B
|
|
|
|
618,525
|
|
|
|
84.31
|
%
|
|
|
|
|
(1) Includes, as applicable, the following restricted
shares of our Series A common stock which remain subject to
vesting as of November 30, 2010:
|
|
|
|
|
Name
|
|
Restricted Shares
|
|
William R. Fitzgerald
|
|
|
47,271
|
|
Philip J. Holthouse
|
|
|
2,016
|
|
Brian C. Mulligan
|
|
|
2,016
|
|
William E. Niles
|
|
|
444
|
|
John A. Orr
|
|
|
17,271
|
|
George C. Platisa
|
|
|
444
|
|
Michael J. Pohl
|
|
|
2,016
|
|
Carl E. Vogel
|
|
|
1,915
|
|
65
(2) Includes, as applicable, beneficial ownership of the
following shares of our Series A common stock that may be
acquired upon exercise of stock options that are exercisable
within 60 days of November 30, 2010:
|
|
|
|
|
Name
|
|
Option Shares
|
|
William R. Fitzgerald
|
|
|
156,174
|
|
Philip J. Holthouse
|
|
|
11,030
|
|
Brian C. Mulligan
|
|
|
11,030
|
|
William E. Niles
|
|
|
13,820
|
|
John A. Orr
|
|
|
54,807
|
|
George C. Platisa
|
|
|
13,820
|
|
Michael J. Pohl
|
|
|
11,030
|
|
(3) Includes 20 shares of our Series A common
stock owned by Mr. Holthouse jointly with his wife.
(4) Includes 26,833 shares of our Series A common
stock and 17,046 shares of our Series B common stock
held by Mr. Malones wife, Leslie Malone, as to which
shares Mr. Malone has disclaimed beneficial ownership.
(5) Includes 16 and 55,317 shares of our Series A
common stock held by two trusts with respect to which
Mr. Malone is the sole trustee and, with his wife, retains
a unitrust interest in the trust. Also includes
2,570 shares of our Series A common stock and
9,178 shares of our Series B common stock held by two
trusts which are managed by an independent trustee, of which the
beneficiaries are Mr. Malones adult children and in
which Mr. Malone has no pecuniary interest. Mr. Malone
retains the right to substitute assets held by the trusts but
has disclaimed beneficial ownership of the shares held by the
trusts for the benefit of his children.
(6) Includes 1 share of our Series A common stock
held by an IRA account.
Changes
in Control
We know of no arrangements, including any pledge by any person
of our securities, the operation of which may at a subsequent
date result in a change in control of our company.
66
ADDITIONAL
INFORMATION
Delivery
to Stockholders Sharing an Address
The SEC has adopted rules that permit companies and
intermediaries (such as brokers) to satisfy delivery
requirements for proxy statements with respect to two or more
stockholders sharing the same address by delivering a single
proxy statement addressed to those stockholders. This process,
known as householding, potentially means extra
convenience for stockholders and cost savings for companies.
This year, a number of brokers with customers who are our
stockholders will be householding our proxy
materials unless contrary instructions have been received from
the customers. We will promptly deliver, upon oral or written
request, a separate copy of the proxy statement to any
stockholder sharing an address to which only one copy was
mailed. Requests for additional copies should be directed to
Ascent Media Corporation, Investor Relations Department, 12300
Liberty Boulevard, Englewood, Colorado 80112 (telephone number
(720) 875-5622).
Once a stockholder has received notice from his or her broker
that the broker will be householding communications
to the stockholders address, householding will
continue until the stockholder is notified otherwise or until
the stockholder revokes his or her consent. If, at any time, a
stockholder no longer wishes to participate in
householding and would prefer to receive separate
copies of the proxy statement, the stockholder should so notify
his or her broker. In addition, any stockholder who currently
receives multiple copies of the proxy statement at his or her
address and would like to request householding of
communications in the future should contact his or her broker.
If shares are registered in the stockholders name, the
stockholder should contact our Investor Relations Department, at
Ascent Media Corporation, 12300 Liberty Boulevard, Englewood,
Colorado 80112, Attention: Investor Relations (telephone number
(720) 875-5622)
to make these requests.
Shareholder
Proposals
This proxy statement relates to a Special Meeting of
stockholders which will take place on February 24, 2011. We
currently expect that our annual meeting of stockholders for the
calendar year 2011 will be held during May or June of 2011. In
order to be eligible for inclusion in the proxy materials for
the 2011 annual meeting, any stockholder proposal must have been
submitted in writing to our Corporate Secretary and received at
our executive offices at 12300 Liberty Boulevard, Englewood,
Colorado 80112, on or before the close of business on
January 28, 2011 unless a later date is determined and
announced in connection with the actual scheduling of the annual
meeting. To be considered for presentation at the 2011 annual
meeting, any stockholder proposal must have been received at our
executive offices at the foregoing address on or before the
close of business on May 10, 2011 or such later date as may
be determined and announced in connection with the actual
scheduling of the annual meeting.
All stockholder proposals for inclusion in our proxy materials
will be subject to the requirements of the proxy rules adopted
under the Exchange Act and, as with any stockholder (regardless
of whether it is included in our proxy materials), our charter
and bylaws and Delaware law.
Where You
Can Find Additional Information
Our Company is subject to the information and reporting
requirements of the Exchange Act. In accordance with the
Exchange Act, we file periodic reports and other information
with the SEC. You may read and copy any document that we file
with the SEC at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at (800) SEC-0330. You may also
inspect such filings on the Internet website maintained by the
SEC at www.sec.gov. Additional information can also be
found on our website at www.ascentmedia.com. (Information
contained on any website referenced in this proxy statement is
not incorporated by reference in this proxy statement.) In
addition, copies of our Annual Report on
Form 10-K
for the year ended December 31, 2009, or any of the
exhibits listed
67
therein, or copies of documents filed by our Company with the
SEC are also available by contacting us by writing or
telephoning the office of Investor Relations:
Ascent Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone:
(720) 875-5622
The Securities and Exchange Commission allows us to
incorporate by reference information into this
document, which means that we can disclose important information
about the Company to you by referring you to other documents.
The information incorporated by reference is an important part
of this proxy statement, and is deemed to be part of this
document except for any information superseded by this document
or any other document incorporated by reference into this
document. Documents incorporated by reference herein will be
made available to you, at no cost, upon your oral or written
request to the Investor Relations office. Any statement,
including financial statements, contained in our Annual Report
on
Form 10-K
for the year ended December 31, 2009 (the 2009
Form 10-K)
shall be deemed to be modified or superseded to the extent that
a statement, including financial statements, contained in this
proxy statement or in any other later incorporated document
modifies or supersedes that statement. During the third quarter
of 2010, we shut down our Global Media Exchange (GMX) business,
which had been included in our Content Services group. We filed
as exhibits to our Current Report on
Form 8-K,
filed on December 7, 2010 (the Reclassification
Form 8-K),
selected financial data, Managements Discussion and
Analysis of Financial Condition and Results of Operations, and
consolidated financial statements and notes thereto for each of
the two years in the period ended December 31, 2009, which
reflect the reclassification of GMX from continuing operations
to discontinued operations. The information in the
Reclassification
Form 8-K,
including the reclassified financial statements and notes,
supersedes the same information in the 2009
Form 10-K.
Anything contained herein to the contrary notwithstanding, the
financial statements of the Company for the fiscal year ended
December 31, 2007, contained in the 2009
Form 10-K,
are not incorporated by reference into this proxy statement.
Subject to the foregoing, we incorporate by reference the
documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act (other than any report or portion thereof furnished
or deemed furnished under any Current Report on
Form 8-K)
prior to the date on which the special meeting is held:
|
|
|
(File No. 001-34176)
|
|
Period
|
|
Annual Report on
Form 10-K
|
|
Fiscal year ended December 31, 2009, filed on March 12, 2010, as
amended by Amendment No. 1 to Annual Report on Form 10-K filed
on April 3, 2010.
|
Proxy Statement on Schedule 14A
|
|
Filed on May 24, 2010.
|
Current Reports on
Form 8-K
|
|
Filed on January 25, 2010, February 23, 2010, July 20, 2010,
November 30, 2010, and December 7, 2010, December 23, 2010, and
January 5, 2011.
|
Quarterly Reports on
Form 10-Q
|
|
Filed on May 7, 2010, August 6, 2010 and November 5, 2010.
|
68
Annex A-1
UNAUDITED
COMBINED FINANCIAL STATEMENTS OF THE CONTENT DISTRIBUTION
BUSINESS UNIT OF ASCENT MEDIA CORPORATION
The following are unaudited combined financial statements of the
Content Distribution business unit of Ascent Media Corporation
(Ascent Media). These unaudited combined financial
statements have been derived from historical financial data of
Ascent Media and include unaudited balance sheets of the Content
Distribution business unit as of September 30, 2010 and
December 31, 2009 and 2008, and the related unaudited
statements of operations and cash flows for the nine months
ended September 30, 2010 and September 30, 2009, and
the years ended December 31, 2009 and December 31,
2008. These unaudited combined financial statements reflect the
assets and liabilities, operations and cash flows of the Content
Distribution business unit and include allocations for expenses
incurred by Ascent Media on behalf of the Content Distribution
business unit. See Note 3 to the combined financial
statements for further information. The unaudited combined
financial statements are not necessarily indicative of the
financial position, results of operations or cash flows that
would have occurred had the Content Distribution business unit
been a stand-alone entity during the periods presented, nor is
it indicative of future results of the Content Distribution
business unit.
The unaudited combined financial statements of the Content
Distribution business unit are qualified in their entireties by,
and should be read in conjunction with, the audited historical
consolidated financial statements of Ascent Media including the
notes thereto, as included in Ascent Medias
Form 8-K
filed on December 7, 2010 and incorporated by reference
herein, and the unaudited condensed consolidated financial
statements in Ascent Medias Quarterly Report filed on
Form 10-Q
for the quarter ended September 30, 2010, which is
incorporated by reference herein.
A-1-1
CONTENT
DISTRIBUTION BUSINESS UNIT OF ASCENT MEDIA CORPORATION
Combined
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
Amounts in thousands
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,192
|
|
|
|
5,856
|
|
|
|
4,211
|
|
Trade receivables, net
|
|
|
13,810
|
|
|
|
13,904
|
|
|
|
19,972
|
|
Prepaid expenses
|
|
|
3,004
|
|
|
|
2,401
|
|
|
|
2,803
|
|
Deferred income tax assets
|
|
|
|
|
|
|
5,194
|
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
2,817
|
|
|
|
1,918
|
|
Other current assets
|
|
|
221
|
|
|
|
162
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
21,227
|
|
|
|
30,334
|
|
|
|
28,921
|
|
Property and equipment, net
|
|
|
55,957
|
|
|
|
58,827
|
|
|
|
70,000
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
9,261
|
|
|
|
11,211
|
|
Other assets
|
|
|
112
|
|
|
|
124
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
77,296
|
|
|
|
98,546
|
|
|
|
110,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND BUSINESS UNIT EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,457
|
|
|
|
5,499
|
|
|
|
4,927
|
|
Accrued payroll and related liabilities
|
|
|
3,173
|
|
|
|
2,864
|
|
|
|
3,210
|
|
Other accrued liabilities
|
|
|
8,955
|
|
|
|
8,128
|
|
|
|
11,928
|
|
Deferred revenue
|
|
|
6,240
|
|
|
|
4,627
|
|
|
|
6,396
|
|
Income taxes payable
|
|
|
496
|
|
|
|
779
|
|
|
|
1,461
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
4,098
|
|
|
|
3,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,321
|
|
|
|
25,995
|
|
|
|
31,718
|
|
Deferred income tax liabilities
|
|
|
947
|
|
|
|
802
|
|
|
|
1,174
|
|
Other liabilities
|
|
|
8,689
|
|
|
|
10,944
|
|
|
|
10,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
30,957
|
|
|
|
37,741
|
|
|
|
43,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business unit equity
|
|
|
46,339
|
|
|
|
60,805
|
|
|
|
67,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and business unit equity
|
|
$
|
77,296
|
|
|
|
98,546
|
|
|
|
110,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial
statements.
A-1-2
CONTENT
DISTRIBUTION BUSINESS UNIT OF ASCENT MEDIA CORPORATION
Combined
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
Amounts in thousands
|
|
|
Revenue from external customers
|
|
$
|
77,375
|
|
|
|
78,756
|
|
|
|
104,791
|
|
|
|
116,048
|
|
Revenue from related parties
|
|
|
862
|
|
|
|
636
|
|
|
|
1,259
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
78,237
|
|
|
|
79,392
|
|
|
|
106,050
|
|
|
|
116,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
48,749
|
|
|
|
51,652
|
|
|
|
68,567
|
|
|
|
77,072
|
|
Selling, general, and administrative (note 3)
|
|
|
16,943
|
|
|
|
16,753
|
|
|
|
21,607
|
|
|
|
24,767
|
|
Restructuring charges (note 5)
|
|
|
371
|
|
|
|
423
|
|
|
|
3,249
|
|
|
|
1,619
|
|
Loss (gain) on sale of operating assets, net
|
|
|
49
|
|
|
|
(220
|
)
|
|
|
(238
|
)
|
|
|
(123
|
)
|
Depreciation and amortization
|
|
|
16,465
|
|
|
|
17,158
|
|
|
|
23,848
|
|
|
|
22,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,577
|
|
|
|
85,766
|
|
|
|
117,033
|
|
|
|
126,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,340
|
)
|
|
|
(6,374
|
)
|
|
|
(10,983
|
)
|
|
|
(9,380
|
)
|
Other expense, net
|
|
|
(441
|
)
|
|
|
(501
|
)
|
|
|
(648
|
)
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(4,781
|
)
|
|
|
(6,875
|
)
|
|
|
(11,631
|
)
|
|
|
(9,949
|
)
|
Income tax benefit from continuing operations (note 7)
|
|
|
618
|
|
|
|
1,330
|
|
|
|
6,600
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(4,163
|
)
|
|
|
(5,545
|
)
|
|
|
(5,031
|
)
|
|
|
(8,473
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
27,099
|
|
|
|
5,494
|
|
|
|
7,869
|
|
|
|
6,602
|
|
Income tax expense from discontinued operations
|
|
|
(6,248
|
)
|
|
|
(1,538
|
)
|
|
|
(2,203
|
)
|
|
|
(1,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income taxes
|
|
|
20,851
|
|
|
|
3,956
|
|
|
|
5,666
|
|
|
|
4,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,688
|
|
|
|
(1,589
|
)
|
|
|
635
|
|
|
|
(3,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial
statements.
A-1-3
CONTENT
DISTRIBUTION BUSINESS UNIT OF ASCENT MEDIA CORPORATION
Combined
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
Amounts in thousands
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,688
|
|
|
|
(1,589
|
)
|
|
|
635
|
|
|
|
(3,720
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
(20,851
|
)
|
|
|
(3,956
|
)
|
|
|
(5,666
|
)
|
|
|
(4,753
|
)
|
Depreciation and amortization
|
|
|
16,465
|
|
|
|
17,158
|
|
|
|
23,848
|
|
|
|
22,726
|
|
Loss (gain) on sale of assets, net
|
|
|
49
|
|
|
|
(220
|
)
|
|
|
(238
|
)
|
|
|
(123
|
)
|
Deferred income tax expense (benefit)
|
|
|
5,339
|
|
|
|
172
|
|
|
|
(5,566
|
)
|
|
|
(477
|
)
|
Other non-cash credits, net
|
|
|
(723
|
)
|
|
|
(1,277
|
)
|
|
|
(1,187
|
)
|
|
|
4,248
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
94
|
|
|
|
4,220
|
|
|
|
6,068
|
|
|
|
2,296
|
|
Prepaid expenses and other assets
|
|
|
(650
|
)
|
|
|
(534
|
)
|
|
|
271
|
|
|
|
901
|
|
Payables and other liabilities
|
|
|
(2,369
|
)
|
|
|
(4,721
|
)
|
|
|
(4,884
|
)
|
|
|
(3,940
|
)
|
Operating activities from discontinued operations, net
|
|
|
(6,111
|
)
|
|
|
5,447
|
|
|
|
8,029
|
|
|
|
13,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
7,931
|
|
|
|
14,700
|
|
|
|
21,310
|
|
|
|
30,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(12,664
|
)
|
|
|
(8,332
|
)
|
|
|
(11,287
|
)
|
|
|
(9,255
|
)
|
Cash proceeds from the sale of discontinued operations
|
|
|
34,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds from the sale of operating assets
|
|
|
|
|
|
|
234
|
|
|
|
275
|
|
|
|
145
|
|
Investing activities from discontinued operations, net
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
(1,010
|
)
|
|
|
(2,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
22,164
|
|
|
|
(9,206
|
)
|
|
|
(12,022
|
)
|
|
|
(11,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash transfers to Ascent Media
|
|
|
(31,154
|
)
|
|
|
(4,960
|
)
|
|
|
(6,891
|
)
|
|
|
(16,520
|
)
|
Payment of capital lease obligations
|
|
|
(605
|
)
|
|
|
(558
|
)
|
|
|
(752
|
)
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(31,759
|
)
|
|
|
(5,518
|
)
|
|
|
(7,643
|
)
|
|
|
(17,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,664
|
)
|
|
|
(24
|
)
|
|
|
1,645
|
|
|
|
2,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
5,856
|
|
|
|
4,211
|
|
|
|
4,211
|
|
|
|
2,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,192
|
|
|
|
4,187
|
|
|
|
5,856
|
|
|
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial
statements.
A-1-4
CONTENT
DISTRIBUTION BUSINESS UNIT OF ASCENT MEDIA CORPORATION
Combined
Statements of Business Unit Equity
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Amounts in thousands
|
|
|
Balance at December 31, 2007
|
|
$
|
87,301
|
|
Net loss
|
|
|
(3,720
|
)
|
Net distributions to Ascent Media
|
|
|
(16,520
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
67,061
|
|
Net income
|
|
|
635
|
|
Net distributions to Ascent Media
|
|
|
(6,891
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
60,805
|
|
Net income
|
|
|
16,688
|
|
Net distributions to Ascent Media
|
|
|
(31,154
|
)
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
46,339
|
|
|
|
|
|
|
See accompanying notes to unaudited combined financial
statements.
A-1-5
CONTENT
DISTRIBUTION BUSINESS UNIT OF ASCENT MEDIA CORPORATION
Notes to
Combined financial statements
(Unaudited)
|
|
(1)
|
Basis of
Presentation and Description of Business
|
The Content Distribution Business Unit (Content
Distribution Business or the Business)
provides services to globally distribute completed media assets
via satellite, fiber, the Internet and freight to assemble
programming content for cable and broadcast networks and to
distribute media signals via satellite and terrestrial networks.
The key services provided by the Content Distribution Business
include network origination, playout and control services
provided to cable, satellite and
pay-per-view
programming networks. The Business also provides transport and
connectivity services by operating satellite earth station
facilities which are used for uplink, downlink and turnaround
services. In addition, the Business operates a global fiber
network which carries video and data services between its
various locations. The Business operates from facilities located
in California, Connecticut, Minnesota, New York, New Jersey,
Virginia, the United Kingdom and Singapore.
The accompanying unaudited combined financial statements
represent the Content Distribution Business of Ascent Media
Corporation (Ascent Media). These unaudited combined
financial statements have been carved out from the consolidated
financial statements of Ascent Media using the historical assets
and liabilities, results of operations and cash flows of Ascent
Media attributable to the Content Distribution Business. The
carved out combined financial statements include allocations for
certain corporate and other overhead expenses incurred by Ascent
Media on behalf of the Business. See Note 3 for further
information. Management believes the assumptions underlying the
unaudited carve-out combined financial statements of the Content
Distribution Business are reasonable. However, the unaudited
combined financial statements are not necessarily indicative of
the financial position, results of operations or cash flows that
would have occurred had the Content Distribution Business been a
stand-alone entity during the periods presented, nor are they
indicative of future results of the Business.
The unaudited combined financial statements of the Content
Distribution Business unit are qualified in their entireties by,
and should be read in conjunction with, the audited historical
consolidated financial statements of Ascent Media including the
notes thereto, as included in Ascent Medias
Form 8-K
filed on December 7, 2010 and incorporated by reference
herein, and the unaudited condensed consolidated financial
statements in Ascent Medias Quarterly Report filed on
Form 10-Q
for the quarter ended September 30, 2010, which is
incorporated by reference herein.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents
The cash and cash equivalents included on the balance sheet is
comprised of cash held in bank accounts owned by the Singapore
business that was generated from their operations and which is
used to fund their working capital requirements. Transfers of
financial resources from Singapore do occur from time to time.
Trade
Receivables
Trade receivables are shown net of an allowance for doubtful
accounts based on historical collection trends and
managements judgment regarding the collectability of these
accounts. These collection trends, as well as prevailing and
anticipated economic conditions, are routinely monitored by
management, and any adjustments required are reflected in
current operations. The allowance for doubtful accounts as of
September 30, 2010, December 31, 2009, and
December 31, 2008 was $899,000, $772,000 and $687,000,
respectively.
Concentration
of Credit Risk and Significant Customers
One customer of the Business generated more than 10% of total
revenue for all periods. For the nine months ended
September 30, 2010 and September 30, 2009, this
customer generated $15,411,000, or 20%, and $14,272,000, or 18%,
respectively, of total Business revenue. For the years ended
December 31, 2009 and 2008, this customer generated
$19,491,000, or 18%, and $18,388,000, or 16%, respectively, of
total Business revenue. In addition, for the year ended
December 31, 2008, an additional customer generated
$13,345,000, or 11%, of total Business revenue.
A-1-6
Fair
Value of Financial Instruments
The Business financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable are
carried at cost, which approximates their fair value because of
their short-term maturities.
Property
and Equipment
Property and equipment are carried at cost and depreciated using
the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the term of the underlying
lease. Estimated useful lives by class of asset are as follows:
|
|
|
Buildings
|
|
20 years
|
Leasehold improvements
|
|
15 years or lease term, if shorter
|
Machinery and equipment
|
|
5 - 7 years
|
Computer software (included in Machinery and Equipment in
Note 4)
|
|
3 years
|
Depreciation and amortization expense for property and equipment
was $16,465,000 and $17,158,000, for the nine months ended
September 30, 2010 and September 30, 2009,
respectively, and $23,848,000 and $22,726,000 for the years
ended December 31, 2009, and December 31, 2008,
respectively.
Long-Lived
Assets
Management reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In evaluating the
value and future benefits of long-term assets, their carrying
value is compared to managements best estimate of
undiscounted future cash flows over the remaining economic life.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
value of the assets exceeds the estimated fair value of the
assets.
For the year ended December 31, 2009, the Business recorded
an asset impairment charge for one of its facilities. The fair
value of the asset group was $7,195,000 resulting in an
impairment charge of $972,000, which is included in depreciation
and amortization on the statements of operations. The fair value
was a non-recurring, Level 3 valuation and was measured
using a discounted cash flow model based on internal estimates
of future revenues and costs and an estimated discount rate.
Foreign
Currency Translation
The functional currencies of the Businesss foreign
subsidiaries are their respective local currencies. Assets and
liabilities of foreign operations are translated into United
States dollars using exchange rates on the balance sheet date,
and revenue and expenses are translated into United States
dollars using average exchange rates for the period. The effects
of the foreign currency translation adjustments are deferred and
are included in business unit equity.
Business
Unit Equity
As a business unit of Ascent Media, the Content Distribution
Business, with the exception of its Singapore operations, is
dependent upon Ascent Media for all of its working capital and
financing requirements. Accordingly, the transfers of financial
resources between Ascent Media and the Business are reflected as
a component of business unit equity in lieu of cash,
intercompany debt, and equity accounts.
Revenue
Recognition
Revenue from content distribution contracts, which may include
multiple services, is recognized ratably over the term of the
contract as services are provided. Under such contracts, any
services which are not performed ratably are not material to the
contract as a whole. Revenue on non-contractual services is
recognized as services are rendered.
Prepayments received for services to be performed at a later
date are reflected in the balance sheets as deferred revenue
until such services are provided.
A-1-7
Income
Taxes
The Business does not file separate tax returns but rather is
included in the income tax returns filed by Ascent Media in
various domestic and foreign jurisdictions. For purposes of
these unaudited historical carve-out combined financial
statements, the tax provision of the Business was determined
from the Content Distribution Business financial information
carved out of the consolidated financial statements of Ascent
Media, including allocations deemed necessary by management as
though the Business were filing its own tax return.
The Business accounts for income taxes under the Income Taxes
Topic of the FASB ASC, which prescribes an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in the Businesss combined
financial statements or tax returns. In estimating future tax
consequences, the Business generally considers all expected
future events other than proposed changes in the tax law or
rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in
deferred tax assets and liabilities.
The Income Taxes Topic of the FASB ASC specifies the accounting
for uncertainty in income taxes recognized in a companys
financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. In instances where the Business believes it is
more likely than not that such tax position will be upheld by
the relevant taxing authority, the Business records the benefits
of such tax position in its combined financial statements.
Management
Incentive Plan
Ascent Media offers a Management Incentive Plan
(MIP) which provides for annual cash incentive
awards based on business and individual performance. Certain
executive officers and certain employees of the Content
Distribution Business are eligible to receive awards under the
MIP, as determined by a management incentive plan compensation
committee. To the extent an award is earned, it is payable no
later than two and one-half months following the end of the
applicable plan year. Participants must be employed by Ascent
Media through the payment date to be eligible to receive the
award. The forecasted award liability is accrued on a monthly
basis throughout the plan year. For the nine months ended
September 30, 2010, and the year ended December 31,
2008, total MIP expense was $146,000 and $398,000, respectively.
For the year ended December 31, 2009, the MIP plan was
suspended and no expense was recorded. The MIP liability at
September 30, 2010 and December 31, 2008 was
equivalent to the expense for that year.
Segment
Reporting
The Business represents a single operating and reportable
segment.
Estimates
The preparation of the combined financial statements in
conformity with generally accepted accounting principles in the
United States of America (GAAP) requires management
to make estimates and assumptions that affect the reported
amounts of revenue and expenses for each reporting period. The
significant estimates made in preparation of the Content
Distribution Business combined financial statements
primarily relate to long-lived assets, deferred tax assets, and
the amount of the allowance for doubtful accounts. These
estimates are based on managements best estimates and
judgment. Management evaluates its estimates and assumptions on
an ongoing basis using historical experience and other factors
and adjusts them when facts and circumstances change. As the
effects of future events cannot be determined with any
certainty, actual results could differ from the estimates upon
which the carrying values were based.
|
|
(3)
|
Corporate
Expense Allocations
|
The Content Distribution Business receives services and support
functions from Ascent Media. The Business operations are
dependant upon Ascent Medias ability to perform these
services and support functions. The costs associated with these
services and support functions have been allocated to the
Business using methodologies
A-1-8
established by Ascent Medias management and are considered
to be a reasonable reflection of the utilization of services
provided to the Business. Allocations for corporate expenses
such as finance, legal and corporate management costs,
depreciation of corporate assets and other costs are based
primarily on revenue. Allocations for information technology and
human resources costs are based primarily on headcount.
The expense allocations, which were included in selling, general
and administrative expense on the statements of operations,
totaled $8,266,000 and $7,674,000 for the nine months ended
September 30, 2010 and 2009, respectively, and $10,726,000
and $8,629,000 for the years ended December 31, 2009 and
2008, respectively.
|
|
(4)
|
Property
and Equipment
|
Property and equipment at September 30, 2010,
December 31, 2009 and December 31, 2008 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
48,973
|
|
|
|
49,710
|
|
|
|
60,848
|
|
Machinery and equipment
|
|
|
112,516
|
|
|
|
140,831
|
|
|
|
212,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,489
|
|
|
|
190,541
|
|
|
|
273,425
|
|
Accumulated depreciation and amortization
|
|
|
(105,532
|
)
|
|
|
(131,714
|
)
|
|
|
(203,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,957
|
|
|
|
58,827
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Restructuring
Charges
|
Since 2008, the Business completed certain restructuring
activities designed to improve operating efficiencies and to
strengthen its competitive position in the marketplace primarily
through cost and expense reductions. In connection with these
integration and consolidation initiatives, the Business recorded
charges of $371,000 and $423,000 for the nine months ended
September 30, 2010 and 2009, respectively, and $3,249,000
and $1,619,000, for the years ended December 31, 2009 and
2008, respectively.
The restructuring charges related to certain severance and
facility costs in conjunction with ongoing structural changes
commenced in 2008 that were implemented to align Ascent
Medias organization with its strategic goals and with how
it operates, manages and sells its services. Such changes
include the consolidation of certain facilities in the United
Kingdom and further restructuring and labor cost mitigation
measures undertaken across the Business.
The following table provides the activity and balances of the
restructuring reserve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
Balance
|
|
|
|
Amounts in thousands
|
|
|
Severance
|
|
$
|
283
|
|
|
|
1,378
|
|
|
|
(786
|
)
|
|
|
875
|
|
Excess facility costs
|
|
|
(105
|
)
|
|
|
241
|
|
|
|
(194
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
178
|
|
|
|
1,619
|
|
|
|
(980
|
)
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
875
|
|
|
|
545
|
|
|
|
(1,105
|
)
|
|
|
315
|
|
Excess facility costs
|
|
|
(58
|
)
|
|
|
2,704
|
|
|
|
246
|
(b)
|
|
|
2,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
817
|
|
|
|
3,249
|
|
|
|
(859
|
)
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
315
|
|
|
|
371
|
|
|
|
(686
|
)
|
|
|
|
|
Excess facility costs
|
|
|
2,892
|
|
|
|
|
|
|
|
(1,274
|
)
|
|
|
1,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
$
|
3,207
|
|
|
|
371
|
|
|
|
(1,960
|
)
|
|
|
1,618
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments.
|
A-1-9
|
|
|
(b) |
|
Amount includes a foreign exchange gain of $119,000 and
allocation adjustments of $171,000, which offset cash payments
of $44,000.
|
|
(c) |
|
Substantially all of this amount is expected to be paid by the
end of 2011.
|
In February 2010, the Business completed the sale of the assets
and operations of the Chiswick Park facility in the United
Kingdom to Discovery Communications, Inc. The net cash proceeds
from the sale were $34.8 million. The Chiswick Park assets
and liabilities were classified as discontinued operations at
December 31, 2009, and the results of operations of the
Chiswick Park facility have been treated as discontinued
operations in the combined financial statements for all periods
presented. The Business recorded a pre-tax gain on the sale for
the nine months ended September 30, 2010 of $25,498,000,
subject to customary post-closing adjustments, and $4,413,000 of
related income tax expense. The gain and related income tax
expense are included in earnings from discontinued operations in
the accompanying statements of operations.
The following table presents the results of operations of the
discontinued operations that are included in earnings from
discontinued operations, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
|
Amounts in thousands
|
|
Revenue
|
|
$
|
2,532
|
|
|
$
|
13,425
|
|
|
$
|
18,368
|
|
|
|
18,988
|
|
Earnings before income taxes(a)
|
|
$
|
27,099
|
|
|
$
|
5,494
|
|
|
$
|
7,869
|
|
|
|
6,602
|
|
|
|
|
(a) |
|
The nine months ended September 30, 2010 amount includes a
$25,498,000 gain on the sale of the Chiswick Park facility. |
The Business operating results have historically been
included in Ascent Medias consolidated U.S. federal
and state income tax returns and
non-U.S. jurisdictions
tax returns. The provisions for income taxes in these combined
financial statements have been redetermined on a separate return
basis. The Business assesses the realization of its net deferred
tax assets and the need for a valuation allowance on a separate
return basis, and excludes from that assessment any utilization
of those losses by Ascent Media. This assessment requires that
the Business management make judgments about benefits that
could be realized from the future taxable income, as well as
other positive and negative factors influencing the realization
of deferred tax assets. Due to cumulative losses incurred by the
Business in the United States and United Kingdom, a full
valuation allowance against the net deferred tax assets has been
recorded, except for a $1.4 million benefit recorded in
December 31, 2009 to reflect the anticipated use of a
United Kingdom net operating loss carryforward in 2010 to offset
a portion of the tax gain on sale of Chiswick Park.
The Business intends to maintain a full valuation allowance
until sufficient positive evidence exists to support reversal of
the valuation allowance. All tax return attributes generated, as
calculated on a separate return methodology not used by Ascent
Media historically, will be retained by Ascent Media. Income
taxes for the Business were determined independent of the
potential impact of Ascent Media ownership changes under
Section 382 of the Internal Revenue Code.
In accordance with the Income Taxes Topic of the FASB ASC, the
Business uses the forecasted method to account for income taxes
for its interim periods. There were no uncertain tax positions
in any of the periods presented in these combined financial
statements.
A-1-10
The Businesss income tax benefit from continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Current
|
|
|
|
|
|
|
|
|
State
|
|
|
(11
|
)
|
|
|
(9
|
)
|
Foreign
|
|
|
1,129
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
5,482
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,482
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
Total tax benefit
|
|
$
|
6,600
|
|
|
$
|
1,476
|
|
|
|
|
|
|
|
|
|
|
Components of pretax loss from continuing operations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Domestic
|
|
$
|
(3,457
|
)
|
|
|
(2,093
|
)
|
Foreign
|
|
|
(8,171
|
)
|
|
|
(6,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,628
|
)
|
|
|
(8,914
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit differs from the amounts computed by applying
the United States federal income tax rate of 35% as a result of
the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Computed expected tax benefit
|
|
$
|
4,070
|
|
|
|
3,120
|
|
State and local income taxes, net of federal income taxes
|
|
|
305
|
|
|
|
100
|
|
Change in valuation allowance affecting tax expense
|
|
|
1,169
|
|
|
|
(716
|
)
|
Foreign rate variances
|
|
|
(137
|
)
|
|
|
(10
|
)
|
Non-deductible expenses
|
|
|
(42
|
)
|
|
|
(73
|
)
|
United States tax on foreign income
|
|
|
543
|
|
|
|
(1,415
|
)
|
Other, net
|
|
|
692
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
6,600
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
A-1-11
Components of deferred tax assets and liabilities as of
September 31, 2010, December 31, 2009, and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
267
|
|
|
$
|
267
|
|
|
|
167
|
|
Accrued liabilities
|
|
|
2,044
|
|
|
|
2,044
|
|
|
|
3,922
|
|
Net operating loss carryforward
|
|
|
|
|
|
|
5,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
2,311
|
|
|
|
7,505
|
|
|
|
4,089
|
|
Valuation allowance
|
|
|
(2,307
|
)
|
|
|
(6,367
|
)
|
|
|
(3,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,138
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
14,558
|
|
|
|
13,581
|
|
|
|
13,253
|
|
Property, plant and equipment
|
|
|
3,411
|
|
|
|
3,411
|
|
|
|
1,460
|
|
Intangible assets
|
|
|
11,079
|
|
|
|
11,079
|
|
|
|
12,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets
|
|
|
29,048
|
|
|
|
28,071
|
|
|
|
27,607
|
|
Valuation allowance
|
|
|
(28,995
|
)
|
|
|
(23,813
|
)
|
|
|
(26,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
4,258
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
57
|
|
|
|
5,396
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(89
|
)
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(996
|
)
|
|
|
(996
|
)
|
|
|
(2,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,004
|
)
|
|
|
(1,004
|
)
|
|
|
(2,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(947
|
)
|
|
$
|
4,392
|
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Businesss deferred tax assets and liabilities are
reported in the accompanying balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Current deferred tax assets (liabilities), net
|
|
$
|
(4
|
)
|
|
$
|
1,130
|
|
|
|
41
|
|
Long-term deferred tax assets (liabilities), net
|
|
|
(943
|
)
|
|
|
3,262
|
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(947
|
)
|
|
$
|
4,392
|
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010, the Business has $37,061,000,
$34,531,000 and $583,000 in net operating loss carryforwards for
federal, state and foreign tax purposes, respectively.
During 2008, the Business provided $1,415,000 of United States
tax expense for future repatriation of cash from its Singapore
operations. This charge represents undistributed earnings from
Singapore not previously taxed in the United States that is
anticipated to be repatriated.
During 2009, the Business restructured its United Kingdom and
Singapore operations which resulted in the Business permanently
reinvesting excess cash from these operations within those
countries. There were no undistributed earnings from these
operations as of December 31, 2009.
A-1-12
|
|
(8)
|
Long-Term
Compensation
|
2006
Ascent Media Group Long-Term Incentive Plan
Ascent Media has made awards to certain employees under its 2006
Long-Term Incentive Plan, as amended, (the 2006
Plan). The 2006 Plan provides the terms and conditions for
the grant of, and payment with respect to, Phantom Appreciation
Rights (PARs) granted to certain employees of the
Business. The value of a single PAR (PAR Value) is
equal to the positive amount (if any) by which (a) the sum
of (i) 6% of cumulative free cash flow (as defined in the
2006 Plan) over a period of up to six years, divided by 500,000;
plus (ii) the calculated value of Ascent Media Group, the
main operating subsidiary of Ascent Media, based on a formula
set forth in the 2006 Plan, divided by 10,000,000; exceeds
(b) a baseline value determined at the time of grant. The
2006 Plan is administered by a committee whose members are
designated by Ascent Medias board of directors. Grants are
determined by the committee, with the first grant occurring on
August 3, 2006. The maximum number of PARs that may be
granted by Ascent Media under the 2006 Plan is 500,000, and
there were 66,000 PARs granted to Content Distribution Business
employees as of December 31, 2008. The PARs vest quarterly
over a three year period beginning on the grant date, and vested
PARs are payable on March 31, 2012 (or, if earlier, on the
six-month anniversary of a grantees termination of
employment for any reason other than cause) in either cash or
stock at the committees discretion. The Business records a
liability and a charge to expense based on the PAR Value and
percent vested at each reporting period.
Effective September 9, 2008, the 2006 Plan was amended to
reflect the sale of another business owned by Ascent Media. As a
result of the amendment, Ascent Media made cash distributions to
each Business grantee who held PARs on the date of the sale, in
an aggregate amount for each grantee representative of the
increase in PAR Value related to the sold company from the date
of grant of PARs to such grantee through the date of sale. These
cash distributions will be made over a three year period,
beginning in February 2009, with the majority of grantees
receiving their entire distribution in 2009. For the year ended
December 31, 2008, the Business recorded a liability and a
charge to selling, general and administrative expense of
$447,000 for such distribution.
|
|
(9)
|
Commitments
and Contingencies
|
Future minimum lease payments under scheduled operating leases,
which are primarily for buildings, equipment and real estate,
having initial or remaining noncancelable terms in excess of one
year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
$
|
10,470
|
|
2011
|
|
|
|
|
|
$
|
9,514
|
|
2012
|
|
|
|
|
|
$
|
5,944
|
|
2013
|
|
|
|
|
|
$
|
2,138
|
|
2014
|
|
|
|
|
|
$
|
2,166
|
|
Thereafter
|
|
|
|
|
|
$
|
5,459
|
|
Rent expense for noncancelable operating leases for real
property and equipment was $9,359,000 and $10,575,000, for the
nine months ended September 30, 2010 and 2009,
respectively, and $14,057,000, and $14,423,000 for the years
ended December 31, 2009 and 2008, respectively. Various
lease arrangements contain options to extend terms and are
subject to escalation clauses.
The Business is involved in litigation and similar claims
incidental to the conduct of its business. In managements
opinion, none of the pending actions is likely to have a
material adverse impact on the Businesss financial
position or results of operations.
A-1-13
|
|
(10)
|
Related
Party Transactions
|
The Content Distribution Business records revenue and purchases
services from other businesses owned by Ascent Media, which are
considered related parties. The amounts included in the
statements of operations related to related parties is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
|
Amounts in thousands
|
|
Revenue
|
|
$
|
862
|
|
|
$
|
636
|
|
|
$
|
1,259
|
|
|
$
|
633
|
|
Purchases(a)
|
|
$
|
3,872
|
|
|
$
|
786
|
|
|
$
|
1,052
|
|
|
$
|
667
|
|
|
|
|
(a) |
|
Included in cost of services on the statements of operations. |
|
|
(11)
|
Information
About Geographic Locations
|
Information as to the Business in different geographic locations
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
49,095
|
|
|
|
49,294
|
|
|
|
66,497
|
|
|
|
71,369
|
|
United Kingdom
|
|
|
12,717
|
|
|
|
13,243
|
|
|
|
17,434
|
|
|
|
22,883
|
|
Singapore
|
|
|
16,425
|
|
|
|
16,855
|
|
|
|
22,119
|
|
|
|
22,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,237
|
|
|
|
79,392
|
|
|
|
106,050
|
|
|
|
116,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
32,089
|
|
|
|
36,301
|
|
|
|
41,870
|
|
United Kingdom
|
|
|
8,216
|
|
|
|
7,861
|
|
|
|
10,439
|
|
Singapore
|
|
|
15,652
|
|
|
|
14,665
|
|
|
|
17,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,957
|
|
|
|
58,827
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-1-14
Annex A-2
SELECTED
UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial
information is provided for informational purposes only. The pro
forma information is not necessarily indicative of what the
Companys financial position or results of operations
actually would have been had the Content Distribution
transaction and Creative/Media transaction been completed at the
dates indicated. In addition, the unaudited pro forma condensed
consolidated financial information does not purport to project
the future financial position or operating results of the
Company. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the
Companys historical consolidated financial statements and
accompanying notes incorporated herein by reference.
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements have been prepared from the historical financial
statements of Ascent Media Corporation (Ascent Media
or the Company) and Monitronics International, Inc.
and subsidiaries (Monitronics) to give effect to the
Companys proposed sale of the Content Distribution
business, the proposed sale of the Creative/Media business and
the consummated acquisition of Monitronics (together, the
Transactions). See Note 1 for further
information.
The unaudited pro forma condensed combined financial statements
do not purport to represent, and are not necessarily indicative
of, what the Companys financial position or results of
operations would have been had the Transactions occurred on the
dates indicated.
The Companys fiscal year ends on December 31 and
Monitronics fiscal year ends on June 30. In order to
prepare the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2008,
Monitronics statement of operations for the six months
ended June 30, 2008 (the last six months of
Monitronics 2008 fiscal year) was combined with
Monitronics statement of operations for the six months
ended December 31, 2008 (the first six months of
Monitronics 2009 fiscal year). Similarly, in order to
prepare the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2009,
Monitronics statement of operations for the six months
ended June 30, 2009 (the last six months of
Monitronics 2009 fiscal year) was combined with
Monitronics statement of operations for the six months
ended December 31, 2009 (the first six months of
Monitronics 2010 fiscal year). In order to prepare the
unaudited pro forma condensed combined statement of operations
for the nine months ended September 30, 2010,
Monitronics statement of operations for the six months
ended June 30, 2010 (the last six months of
Monitronics 2010 fiscal year) was combined with
Monitronics statement of operations for the three months
ended September 30, 2010 (the first three months of
Monitronics 2011 fiscal year). The unaudited pro forma
condensed combined statements of income are presented as if the
acquisition had occurred on January 1, 2008 and include all
adjustments that give effect to events that are directly
attributable to the acquisition of Monitronics, are expected to
have a continuing impact, and are factually supportable.
The unaudited pro forma condensed combined balance sheet as of
September 30, 2010 combines Ascent Medias historical
unaudited condensed consolidated balance sheet as of
September 30, 2010 and Monitronics historical
unaudited condensed consolidated balance sheet as of
September 30, 2010 and is presented as if the acquisition
of Monitronics had occurred on September 30, 2010 and
includes all adjustments that give effect to events that are
directly attributable to the acquisition of Monitronics, and
that are factually supportable.
Although the historical consolidated statements of operations of
Monitronics for the fiscal years ended June 30, 2008,
June 30, 2009, and June 30, 2010 have been audited,
Monitronics historical consolidated statements of
operations for the years ended December 31, 2008,
December 31, 2009, and the nine months ended
September 30, 2010, that were used in preparing the
unaudited pro forma condensed combined statements of operations,
have not been audited.
A-2-1
The unaudited pro forma condensed combined financial statements
should be read in conjunction with the Companys historical
consolidated financial statements, including the related notes,
and Managements Discussion and Analysis, and
the Monitronics historical consolidated financial statements,
including the related notes. The consolidated balance sheets of
the Company and its subsidiaries as of December 31, 2009
and 2008, and the related consolidated statements of operations
and comprehensive loss, cash flows and stockholders equity
for the years then ended, along with the related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations are set forth in the
Companys Current Report on
Form 8-K
filed December 7, 2010, which is incorporated by reference
in this Proxy Statement. The consolidated balance sheets of
Monitronics as of June 30, 2010 and 2009, and the related
consolidated statements of operations, shareholders net
capital (deficiency), and cash flows for each of the three years
in the period ended June 30, 2010, along with the related
notes, are included as
Annex A-3
in this Proxy Statement. The interim financial statements of
Monitronics for the three months ended September 30, 2010
and 2009 are included as
Annex A-4
in this Proxy Statement.
The unaudited pro forma condensed combined statements of
operations exclude only the revenues and expenses that are
directly attributable to Content Distribution and
Creative/Media. As such, the unaudited pro forma condensed
combined statements of operations do not reflect a reduction of
general corporate expenses or other non-direct costs of the
Company which are expected to be reduced as a result of the
Transactions.
A-2-2
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Unaudited
Pro Forma Condensed Combined Balance Sheet
At
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
before
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
before Content
|
|
|
Content
|
|
|
Monitronics
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Acquisition
|
|
|
Monitronics
|
|
|
Acquisition
|
|
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
279,023
|
|
|
|
(51
|
)(A)
|
|
|
343,715
|
|
|
|
(461
|
)(B)
|
|
|
452,274
|
|
|
|
36,101
|
|
|
|
96,906
|
(K)
|
|
|
269,008
|
|
|
|
|
|
|
|
|
64,743
|
(C)
|
|
|
|
|
|
|
109,020
|
(C)
|
|
|
|
|
|
|
|
|
|
|
105,000
|
(K)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(413,141
|
)(K)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,003
|
)(T)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,129
|
)(O)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)(U)
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,544
|
|
|
|
|
|
|
|
53,544
|
|
Trade receivables, net
|
|
|
81,848
|
|
|
|
(58,614
|
)(A)
|
|
|
23,234
|
|
|
|
(13,810
|
)(B)
|
|
|
9,424
|
|
|
|
10,624
|
|
|
|
|
|
|
|
20,048
|
|
Prepaid expenses
|
|
|
10,300
|
|
|
|
(6,113
|
)(A)
|
|
|
4,187
|
|
|
|
(2,889
|
)(B)
|
|
|
1,298
|
|
|
|
3,224
|
|
|
|
|
|
|
|
4,522
|
|
Deferred income tax assets, net
|
|
|
75
|
|
|
|
(61
|
)(A)
|
|
|
14
|
|
|
|
(14
|
)(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes receivable
|
|
|
15,945
|
|
|
|
|
|
|
|
15,945
|
|
|
|
229
|
(B)
|
|
|
16,174
|
|
|
|
|
|
|
|
|
|
|
|
16,174
|
|
Other current assets
|
|
|
1,657
|
|
|
|
(1,356
|
)(A)
|
|
|
301
|
|
|
|
(221
|
)(B)
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
388,848
|
|
|
|
(1,452
|
)
|
|
|
387,396
|
|
|
|
91,854
|
|
|
|
479,250
|
|
|
|
103,493
|
|
|
|
(219,367
|
)
|
|
|
363,376
|
|
Investments in marketable securities
|
|
|
96,906
|
|
|
|
|
|
|
|
96,906
|
|
|
|
|
|
|
|
96,906
|
|
|
|
|
|
|
|
(96,906
|
)(K)
|
|
|
|
|
Property and equipment, net
|
|
|
172,903
|
|
|
|
(53,817
|
)(A)
|
|
|
119,086
|
|
|
|
(56,301
|
)(B)
|
|
|
62,785
|
|
|
|
14,987
|
|
|
|
3,513
|
(M)
|
|
|
81,285
|
|
Subscriber accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639,490
|
|
|
|
149,110
|
(N)
|
|
|
788,600
|
|
Dealer network
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,300
|
(N)
|
|
|
42,300
|
|
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,626
|
|
|
|
(27,626
|
)(O)
|
|
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,129
|
(O)
|
|
|
|
|
Goodwill
|
|
|
1,954
|
|
|
|
(1,954
|
)(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,795
|
|
|
|
(14,795
|
)(L)
|
|
|
467,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467,801
|
(L)
|
|
|
|
|
Other assets, net
|
|
|
9,408
|
|
|
|
(6,748
|
)(A)
|
|
|
2,660
|
|
|
|
(112
|
)(B)
|
|
|
2,548
|
|
|
|
2,973
|
|
|
|
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
670,019
|
|
|
|
(63,971
|
)
|
|
|
606,048
|
|
|
|
35,441
|
|
|
|
641,489
|
|
|
|
803,364
|
|
|
|
306,159
|
|
|
|
1,751,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-2-3
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Unaudited
Pro Forma Condensed Combined Balance Sheet
(Continued)
At
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
before
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
before Content
|
|
|
Content
|
|
|
Monitronics
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Acquisition
|
|
|
Monitronics
|
|
|
Acquisition
|
|
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands)
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
19,245
|
|
|
|
(12,180
|
)(A)
|
|
|
7,065
|
|
|
|
(2,457
|
)(B)
|
|
|
4,608
|
|
|
|
1,788
|
|
|
|
|
|
|
|
6,396
|
|
Accrued payroll and related liabilities
|
|
|
19,822
|
|
|
|
(13,003
|
)(A)
|
|
|
6,819
|
|
|
|
(2,569
|
)(B)
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
4,250
|
|
Other accrued liabilities
|
|
|
24,831
|
|
|
|
(8,013
|
)(A)
|
|
|
16,818
|
|
|
|
(9,027
|
)(B)
|
|
|
7,791
|
|
|
|
19,911
|
|
|
|
|
|
|
|
27,702
|
|
Deferred revenue
|
|
|
9,254
|
|
|
|
(2,352
|
)(A)
|
|
|
6,902
|
|
|
|
(6,239
|
)(B)
|
|
|
663
|
|
|
|
5,627
|
|
|
|
|
|
|
|
6,290
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,414
|
|
|
|
|
|
|
|
2,414
|
|
Liabilities related to assets of discontinued operations
|
|
|
774
|
|
|
|
|
|
|
|
774
|
|
|
|
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
73,926
|
|
|
|
(35,548
|
)
|
|
|
38,378
|
|
|
|
(20,292
|
)
|
|
|
18,086
|
|
|
|
29,740
|
|
|
|
|
|
|
|
47,826
|
|
Deferred tax liabilities
|
|
|
1,094
|
|
|
|
(133
|
)(A)
|
|
|
961
|
|
|
|
(961
|
)(B)
|
|
|
|
|
|
|
|
|
|
|
58,608
|
(L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,608
|
)(S)
|
|
|
|
|
Other liabilities
|
|
|
26,893
|
|
|
|
(9,697
|
)(A)
|
|
|
17,196
|
|
|
|
(8,486
|
)(B)
|
|
|
8,710
|
|
|
|
|
|
|
|
|
|
|
|
8,710
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844,200
|
|
|
|
105,000
|
(K)
|
|
|
944,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,003
|
)(T)
|
|
|
|
|
Fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,978
|
|
|
|
|
|
|
|
77,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
101,913
|
|
|
|
(45,378
|
)
|
|
|
56,535
|
|
|
|
(29,739
|
)
|
|
|
26,796
|
|
|
|
951,918
|
|
|
|
99,997
|
|
|
|
1,078,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A common stock
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
311
|
|
|
|
(311
|
)(R)
|
|
|
136
|
|
Series B common stock
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,037
|
)
|
|
|
12,037
|
(R)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,467,207
|
|
|
|
|
|
|
|
1,467,207
|
|
|
|
|
|
|
|
1,467,207
|
|
|
|
126,016
|
|
|
|
(126,016
|
)(R)
|
|
|
1,467,207
|
|
Accumulated deficit
|
|
|
(894,927
|
)
|
|
|
(19,819
|
)(E)
|
|
|
(914,746
|
)
|
|
|
77,498
|
(E)
|
|
|
(837,248
|
)
|
|
|
(262,844
|
)
|
|
|
262,844
|
(R)
|
|
|
(779,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,608
|
(S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)(U)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(4,317
|
)
|
|
|
1,226
|
(A)
|
|
|
(3,091
|
)
|
|
|
(12,318
|
)(B)
|
|
|
(15,409
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
568,106
|
|
|
|
(18,593
|
)
|
|
|
549,513
|
|
|
|
65,180
|
|
|
|
614,693
|
|
|
|
(148,554
|
)
|
|
|
206,162
|
|
|
|
672,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
670,019
|
|
|
|
(63,971
|
)
|
|
|
606,048
|
|
|
|
35,441
|
|
|
|
641,489
|
|
|
|
803,364
|
|
|
|
306,159
|
|
|
|
1,751,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined
financial statements.
A-2-4
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
Content
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Other
|
|
|
Acquisition
|
|
|
Monitronics
|
|
|
Acquisition
|
|
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands)
|
|
|
Service revenue
|
|
$
|
307,433
|
|
|
|
(212,305
|
)(F)
|
|
|
95,128
|
|
|
|
(78,237
|
)(G)
|
|
|
937
|
(I)
|
|
|
21,625
|
|
|
|
210,407
|
|
|
|
|
|
|
|
232,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,797
|
(J)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,455
|
(H)
|
|
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
307,433
|
|
|
|
(212,305
|
)
|
|
|
95,128
|
|
|
|
(78,237
|
)
|
|
|
8,189
|
|
|
|
25,080
|
|
|
|
210,407
|
|
|
|
|
|
|
|
235,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
223,178
|
|
|
|
(163,611
|
)(F)
|
|
|
59,567
|
|
|
|
(48,774
|
)(G)
|
|
|
937
|
(I)
|
|
|
18,473
|
|
|
|
25,683
|
|
|
|
|
|
|
|
44,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,946
|
(H)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,797
|
(J)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
80,813
|
|
|
|
(46,474
|
)(F)
|
|
|
34,339
|
|
|
|
(9,389
|
)(G)
|
|
|
509
|
(H)
|
|
|
25,459
|
|
|
|
40,040
|
|
|
|
|
|
|
|
65,499
|
|
Restructuring charges
|
|
|
2,013
|
|
|
|
|
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
2,013
|
|
Gain on sale of operating assets, net
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Depreciation and amortization
|
|
|
38,483
|
|
|
|
(19,231
|
)(F)
|
|
|
19,252
|
|
|
|
(16,618
|
)(G)
|
|
|
|
|
|
|
2,634
|
|
|
|
95,600
|
|
|
|
527
|
(M)
|
|
|
116,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,528
|
(N)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,471
|
|
|
|
(229,316
|
)
|
|
|
115,155
|
|
|
|
(74,781
|
)
|
|
|
8,189
|
|
|
|
48,563
|
|
|
|
161,323
|
|
|
|
18,055
|
|
|
|
227,941
|
|
Operating income (loss)
|
|
|
(37,038
|
)
|
|
|
17,011
|
|
|
|
(20,027
|
)
|
|
|
(3,456
|
)
|
|
|
|
|
|
|
(23,483
|
)
|
|
|
49,084
|
|
|
|
(18,055
|
)
|
|
|
7,546
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
2,666
|
|
|
|
|
|
|
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
2,666
|
|
|
|
(43,241
|
)
|
|
|
(3,038
|
)(Q)
|
|
|
(43,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
(P)
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,770
|
)
|
|
|
1,285
|
(F)
|
|
|
(485
|
)
|
|
|
441
|
(G)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,058
|
)
|
|
|
|
|
|
|
(7,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
896
|
|
|
|
1,285
|
|
|
|
2,181
|
|
|
|
441
|
|
|
|
|
|
|
|
2,622
|
|
|
|
(50,299
|
)
|
|
|
(2,749
|
)
|
|
|
(50,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(36,142
|
)
|
|
|
18,296
|
|
|
|
(17,846
|
)
|
|
|
(3,015
|
)
|
|
|
|
|
|
|
(20,861
|
)
|
|
|
(1,215
|
)
|
|
|
(20,804
|
)
|
|
|
(42,880
|
)
|
Income tax (expense) benefit from continuing operations
|
|
|
2,331
|
|
|
|
|
|
|
|
2,331
|
|
|
|
|
|
|
|
(2,331
|
)(D)
|
|
|
|
|
|
|
(1,414
|
)
|
|
|
|
|
|
|
(1,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(33,811
|
)
|
|
|
18,296
|
|
|
|
(15,515
|
)
|
|
|
(3,015
|
)
|
|
|
(2,331
|
)
|
|
|
(20,861
|
)
|
|
|
(2,629
|
)
|
|
|
(20,804
|
)
|
|
|
(44,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(2.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
14,194,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,194,973
|
|
See accompanying notes to unaudited pro forma condensed combined
financial statements.
A-2-5
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
Content
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Other
|
|
|
Acquisition
|
|
|
Monitronics
|
|
|
Acquisition
|
|
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands)
|
|
|
Service revenue
|
|
$
|
453,681
|
|
|
|
(300,480
|
)(F)
|
|
|
153,201
|
|
|
|
(106,050
|
)(G)
|
|
|
1,308
|
(I)
|
|
|
49,462
|
|
|
|
253,737
|
|
|
|
|
|
|
|
303,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003
|
(J)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,893
|
(H)
|
|
|
4,893
|
|
|
|
|
|
|
|
|
|
|
|
4,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
453,681
|
|
|
|
(300,480
|
)
|
|
|
153,201
|
|
|
|
(106,050
|
)
|
|
|
7,204
|
|
|
|
54,355
|
|
|
|
253,737
|
|
|
|
|
|
|
|
308,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
327,713
|
|
|
|
(223,554
|
)(F)
|
|
|
104,159
|
|
|
|
(68,410
|
)(G)
|
|
|
1,308
|
(I)
|
|
|
42,275
|
|
|
|
30,868
|
|
|
|
|
|
|
|
73,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,215
|
(H)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003
|
(J)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
101,943
|
|
|
|
(61,970
|
)(F)
|
|
|
39,973
|
|
|
|
(11,738
|
)(G)
|
|
|
678
|
(H)
|
|
|
28,913
|
|
|
|
52,631
|
|
|
|
|
|
|
|
81,544
|
|
Restructuring and other charges
|
|
|
7,273
|
|
|
|
|
|
|
|
7,273
|
|
|
|
|
|
|
|
|
|
|
|
7,273
|
|
|
|
|
|
|
|
|
|
|
|
7,273
|
|
Gain on sale of operating assets, net
|
|
|
(467
|
)
|
|
|
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
(467
|
)
|
Depreciation and amortization
|
|
|
56,778
|
|
|
|
(28,144
|
)(F)
|
|
|
28,634
|
|
|
|
(24,130
|
)(G)
|
|
|
|
|
|
|
4,504
|
|
|
|
119,553
|
|
|
|
703
|
(M)
|
|
|
150,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,906
|
(N)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
493,240
|
|
|
|
(313,668
|
)
|
|
|
179,572
|
|
|
|
(104,278
|
)
|
|
|
7,204
|
|
|
|
82,498
|
|
|
|
203,052
|
|
|
|
26,609
|
|
|
|
312,159
|
|
Operating income (loss)
|
|
|
(39,559
|
)
|
|
|
13,188
|
|
|
|
(26,371
|
)
|
|
|
(1,772
|
)
|
|
|
|
|
|
|
(28,143
|
)
|
|
|
50,685
|
|
|
|
(26,609
|
)
|
|
|
(4,067
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
2,660
|
|
|
|
18
|
(F)
|
|
|
2,678
|
|
|
|
(4
|
)(G)
|
|
|
|
|
|
|
2,674
|
|
|
|
(56,596
|
)
|
|
|
(4,050
|
)(Q)
|
|
|
(57,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750
|
(P)
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,412
|
)
|
|
|
1,964
|
(F)
|
|
|
552
|
|
|
|
623
|
(G)
|
|
|
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
1,175
|
|
Unrealized gain on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,346
|
|
|
|
|
|
|
|
25,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
|
|
1,982
|
|
|
|
3,230
|
|
|
|
619
|
|
|
|
|
|
|
|
3,849
|
|
|
|
(31,250
|
)
|
|
|
(3,300
|
)
|
|
|
(30,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(38,311
|
)
|
|
|
15,170
|
|
|
|
(23,141
|
)
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
(24,294
|
)
|
|
|
19,435
|
|
|
|
(29,909
|
)
|
|
|
(34,768
|
)
|
Income tax (expense) benefit from continuing operations
|
|
|
(18,533
|
)
|
|
|
|
|
|
|
(18,533
|
)
|
|
|
|
|
|
|
18,533
|
(D)
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(56,844
|
)
|
|
|
15,170
|
|
|
|
(41,674
|
)
|
|
|
(1,153
|
)
|
|
|
18,533
|
|
|
|
(24,294
|
)
|
|
|
18,998
|
|
|
|
(29,909
|
)
|
|
|
(35,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(4.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
14,086,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,086,075
|
|
See accompanying notes to unaudited pro forma condensed combined
financial statements.
A-2-6
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Unaudited
Pro Forma Condensed Combined Statement of Operations
For the
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
|
|
|
before
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
Content
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Other
|
|
|
Acquisition
|
|
|
Monitronics
|
|
|
Acquisition
|
|
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands)
|
|
|
Service revenue
|
|
$
|
581,625
|
|
|
|
(322,276
|
)(F)
|
|
|
259,349
|
|
|
|
(116,681
|
)(G)
|
|
|
1,300
|
(I)
|
|
|
143,968
|
|
|
|
219,074
|
|
|
|
|
|
|
|
363,042
|
|
Rental revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,575
|
(H)
|
|
|
4,575
|
|
|
|
|
|
|
|
|
|
|
|
4,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
581,625
|
|
|
|
(322,276
|
)(F)
|
|
|
259,349
|
|
|
|
(116,681
|
)(G)
|
|
|
5,875
|
|
|
|
148,543
|
|
|
|
219,074
|
|
|
|
|
|
|
|
367,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
434,710
|
|
|
|
(236,759
|
)(F)
|
|
|
197,951
|
|
|
|
(76,793
|
)(G)
|
|
|
1,300
|
(I)
|
|
|
126,354
|
|
|
|
27,965
|
|
|
|
|
|
|
|
154,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,896
|
(H)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
117,475
|
|
|
|
(67,133
|
)(F)
|
|
|
50,342
|
|
|
|
(16,926
|
)(G)
|
|
|
679
|
(H)
|
|
|
34,095
|
|
|
|
49,815
|
|
|
|
|
|
|
|
83,910
|
|
Restructuring and other charges
|
|
|
8,801
|
|
|
|
|
|
|
|
8,801
|
|
|
|
|
|
|
|
|
|
|
|
8,801
|
|
|
|
|
|
|
|
|
|
|
|
8,801
|
|
Gain on sale of operating assets, net
|
|
|
(9,038
|
)
|
|
|
|
|
|
|
(9,038
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,038
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,038
|
)
|
Depreciation and amortization
|
|
|
55,564
|
|
|
|
(27,250
|
)(F)
|
|
|
28,314
|
|
|
|
(22,914
|
)(G)
|
|
|
|
|
|
|
5,400
|
|
|
|
111,207
|
|
|
|
703
|
(M)
|
|
|
145,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,590
|
(N)
|
|
|
|
|
Impairment of goodwill
|
|
|
95,069
|
|
|
|
|
|
|
|
95,069
|
|
|
|
|
|
|
|
|
|
|
|
95,069
|
|
|
|
|
|
|
|
|
|
|
|
95,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,581
|
|
|
|
(331,142
|
)
|
|
|
371,439
|
|
|
|
(116,633
|
)
|
|
|
5,875
|
|
|
|
260,681
|
|
|
|
188,987
|
|
|
|
29,293
|
|
|
|
478,961
|
|
Operating loss
|
|
|
(120,956
|
)
|
|
|
8,866
|
|
|
|
(112,090
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
(112,138
|
)
|
|
|
30,087
|
|
|
|
(29,293
|
)
|
|
|
(111,344
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income
|
|
|
6,579
|
|
|
|
|
|
|
|
6,579
|
|
|
|
(14
|
)(G)
|
|
|
|
|
|
|
6,565
|
|
|
|
(50,465
|
)
|
|
|
(4,050
|
)(N)
|
|
|
(47,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817
|
(P)
|
|
|
|
|
Other (expense) income, net
|
|
|
1,007
|
|
|
|
46
|
(F)
|
|
|
1,053
|
|
|
|
380
|
(G)
|
|
|
|
|
|
|
1,433
|
|
|
|
|
|
|
|
|
|
|
|
1,433
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,205
|
)
|
|
|
|
|
|
|
(59,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,586
|
|
|
|
46
|
|
|
|
7,632
|
|
|
|
366
|
|
|
|
|
|
|
|
7,998
|
|
|
|
(109,670
|
)
|
|
|
(3,233
|
)
|
|
|
(104,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(113,370
|
)
|
|
|
8,912
|
|
|
|
(104,458
|
)
|
|
|
318
|
|
|
|
|
|
|
|
(104,140
|
)
|
|
|
(79,583
|
)
|
|
|
(32,526
|
)
|
|
|
(216,249
|
)
|
Income tax (expense) benefit from continuing operations
|
|
|
(700
|
)
|
|
|
|
|
|
|
(700
|
)
|
|
|
|
|
|
|
700
|
(D)
|
|
|
|
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(114,070
|
)
|
|
|
8,912
|
|
|
|
(105,158
|
)
|
|
|
318
|
|
|
|
700
|
|
|
|
(104,140
|
)
|
|
|
(81,061
|
)
|
|
|
(32,526
|
)
|
|
|
(217,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(8.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
14,061,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,061,921
|
|
See accompanying notes to unaudited pro forma condensed combined
financial statements.
A-2-7
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited Pro Forma Condensed Combined Financial
Statements
|
|
1.
|
Description
of Transactions and Basis of Pro Forma Presentation
|
Content
Distribution Sale
As described further in this Proxy Statement, on
December 2, 2010, Ascent Media entered into a definitive
agreement (the Content Distribution Purchase
Agreement) with Encompass Digital Media, Inc.
(Encompass), pursuant to which it agreed to sell to
Encompass, and Encompass agreed to purchase, 100% of its content
distribution business unit (which is refered to as Content
Distribution), for a purchase price of $113,250,000 in
cash, subject to adjustment based on net working capital on the
closing date and other balance sheet items, plus the assumption
of certain liabilities and obligations relating to the Content
Distribution business. The sale of the Content Distribution
business is subject to stockholder approval. The Company expects
to account for the disposition of the Content Distribution
business as a discontinued operation in its consolidated
financial statements if shareholder approval for the Content
Distribution sale is obtained.
Creative/Media
Sale
On November 24, 2010, Ascent Media entered into a
definitive agreement (the Creative/Media Purchase
Agreement) with Deluxe Entertainment Services Group Inc.
(Deluxe), pursuant to which it agreed to sell to
Deluxe, and Deluxe agreed to purchase, 100% of its creative
services business unit and 100% of our media services business
unit (which is refered to collectively as
Creative/Media), for an aggregate purchase price of
$67,823,000 in cash, subject to adjustments based on net working
capital on the closing date and other balance sheet items, plus
the assumption of certain capital leases in the amount of
$2,177,000. The sale of the Creative/Media business is not
subject to stockholder approval. The Company will account for
the disposition of the Creative/Media business as a discontinued
operation in its consolidated financial statements for the year
ended December 31, 2010.
Monitronics
Acquisition
On December 17, 2010, the Company signed and closed an
agreement to acquire 100% of the outstanding capital stock of
Monitronics, through the merger of the Companys wholly
owed subsidiary, Mono Lake Merger Sub, Inc., with and into
Monitronics, with Monitronics surviving such merger. The cash
consideration paid in connection with the merger was
$413,141,000. The Company also assumed $778 million in net
debt of Monitronics. In connection with the acquisition,
Monitronics International, Inc. entered into a Credit Agreement,
which provides a $60,000,000 term loan and a $115,000,000
revolving credit facility. The obligations under the credit
facility are secured by a security interest on substantially all
the assets of Monitronics International, Inc. and its wholly
owned subsidiary, Monitronics Canada, Inc., as well as a pledge
by Ascent Media Corporation of all outstanding stock of
Monitronics. Ascent Media Corporation has guaranteed payment of
the term loan up to the first $30,000,000 of obligations
thereunder. At closing, Monitronics borrowed the full amount of
the term loan and $45,000,000 under the revolving credit
facility, for total initial borrowings under the credit facility
of $105,000,000. The proceeds of such loans, after repayment of
$5,000,000 outstanding under a previously existing credit
facility, and payment of certain fees and expenses relating to
the credit facility, were used to fund a portion of the
aggregate merger consideration payable in connection with the
acquisition of Monitronics. The remaining cash consideration
paid was funded by cash on hand and proceeds from the sale of
marketable securities.
The allocation of the purchase price in the Monitronics
acquisition to the assets acquired and liabilities assumed from
Monitronics is based on preliminary estimates and assumptions.
In addition, the Company is in the process of assessing the
useful lives and appropriate amortization method for the
identifiable intangible assets that were acquired from
Monitronics. These estimates and assumptions are subject to
future adjustments upon completion of the valuation of
Monitronics assets and liabilities and these valuations
could change significantly from those used in the unaudited pro
forma condensed combined financial statements.
A-2-8
Basis
of Presentation
The unaudited pro forma condensed combined balance sheet as of
September 30, 2010 gives effect to the Transactions as if
they occurred on that date. The unaudited pro forma condensed
combined statements of operations for the nine months ended
September 30, 2010, and the years ended December 31,
2009 and 2008, give effect to the Transactions as if they
occurred on January 1, 2008.
The accompanying unaudited pro forma condensed combined
statements of operations for the nine months ended
September 30, 2010 and for the years ended
December 31, 2009 and 2008 do not reflect any gain or loss
on sale from the Transactions. The estimated after tax gain on
the sale on the Content Distribution business and the estimated
after tax loss on the sale of the Creative / Media
business are included as an adjustment to equity in the
accompanying unaudited pro forma combined balance sheet as of
September 30, 2010.
Pro
Forma Footnotes
|
|
|
(A) |
|
Reflects the adjustments to the Companys historical
combined balance sheet for the Creative/Media assets and
liabilities to be sold under the Creative/Media Purchase
Agreement. |
|
(B) |
|
Reflects the adjustments to the Companys historical
combined balance sheet for the Content Distribution assets and
liabilities to be sold under the Content Distribution Purchase
Agreement. |
|
(C) |
|
Reflects the adjustments to cash and cash equivalents related to
the adjusted net cash proceeds of the sales of the
Creative/Media and Content Distribution businesses as follows
(amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
|
Creative/Media
|
|
|
Distribution
|
|
|
Base Purchase Price per agreement
|
|
$
|
70,000
|
|
|
$
|
113,250
|
|
Capital Lease assumed in purchase
|
|
|
(2,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,823
|
|
|
|
113,250
|
|
Other purchase price adjustments
|
|
|
(1,170
|
)
|
|
|
(1,695
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted purchase price
|
|
|
66,653
|
|
|
|
111,555
|
|
Estimated transaction costs
|
|
|
(1,910
|
)
|
|
|
(2,535
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted net cash proceeds
|
|
$
|
64,743
|
|
|
|
109,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(D) |
|
Reflects an adjustment to income taxes. The Company does not
anticipate that its remaining results of operations will
generate any tax liability or benefit for the periods presented. |
|
(E) |
|
Reflects an estimated loss, net of tax, on the sale of the
Creative/Media business and an estimated gain, net of tax, on
the sale the Content Distribution business. The Company does not
anticipate any income tax liability as a result of these
transactions due to the availability of net operating loss
carryforwards. |
The estimated net loss on the sale of the Creative/Media
business is computed as follows (amounts in thousands):
|
|
|
|
|
|
|
Creative/ Media
|
|
|
Adjusted net cash proceeds
|
|
$
|
64,743
|
|
Total assets transferred (see Note A)
|
|
|
128,714
|
|
Total liabilities and accumulated other comprehensive income
(AOCI) assumed (see Note A)
|
|
|
(44,152
|
)
|
|
|
|
|
|
|
|
|
84,562
|
|
Pre-tax loss on sale
|
|
|
(19,819
|
)
|
Income taxes on loss
|
|
|
|
|
|
|
|
|
|
Net loss on sale of Creative/Media business
|
|
$
|
(19,819
|
)
|
|
|
|
|
|
A-2-9
The estimated net gain on the sale of the Content Distribution
business is computed as follows (amounts in thousands):
|
|
|
|
|
|
|
Content
|
|
|
|
Distribution
|
|
|
Adjusted net cash proceeds
|
|
$
|
109,020
|
|
Total assets transferred (see Note B)
|
|
|
73,579
|
|
Total liabilities and AOCI assumed (see Note B)
|
|
|
(42,057
|
)
|
|
|
|
|
|
|
|
|
31,522
|
|
Pre-tax gain on sale
|
|
|
77,498
|
|
Income taxes on gain
|
|
|
|
|
|
|
|
|
|
Net gain on sale of Content Distribution business
|
|
$
|
77,498
|
|
|
|
|
|
|
|
|
|
(F) |
|
Reflects adjustments to remove the results of operations
directly attributable to the Creative/Media business that is
being sold. Such pro forma adjustments do not include general
corporate expenses or other non-direct costs incurred by Ascent
Media on behalf of the Creative/Media business. |
|
(G) |
|
Reflects adjustments to remove the results of operations
directly attributable to the Content Distribution business that
is being sold. Such pro forma adjustments do not include general
corporate expenses or other non-direct costs incurred by Ascent
Media on behalf of the Content Distribution business. |
|
(H) |
|
Reflects adjustments to reclassify rent paid by the
Creative/Media and Content Distribution businesses to rental
revenue for facilities that are owned by Ascent Media. Both the
Creative/Media and Content Distribution businesses have
operating leases with Ascent Media to lease facilities to
conduct their operations. These facilities are not included in
the sale of the Creative/Media or Content Distribution
businesses. |
|
(I) |
|
Reflects the elimination of intercompany transactions between
the Creative/Media and Content Distribution businesses. |
|
(J) |
|
Reflects adjustments to reclassify intercompany purchases made
by the Creative/Media and Content Distribution businesses to
service revenue of the remaining Ascent Media businesses. |
|
(K) |
|
Reflects the sources of the $413,141,000 cash consideration paid
for the Monitronics acquisition, as follows (amounts in
thousands): |
|
|
|
|
|
Proceeds from long-term debt:
|
|
|
|
|
Term loan
|
|
$
|
60,000
|
|
Revolving credit facility
|
|
|
45,000
|
|
|
|
|
|
|
Total proceeds from long-term debt
|
|
|
105,000
|
|
Cash on hand
|
|
|
211,235
|
|
Proceeds from sale of marketable securities
|
|
|
96,906
|
|
|
|
|
|
|
Cash consideration paid for Monitronics acquisition
|
|
$
|
413,141
|
|
|
|
|
|
|
|
|
|
(L) |
|
Reflects the elimination of Monitronics historical
goodwill balance of $14,795,000 and the establishment of
goodwill arising from Ascent Medias purchase of
Monitronics. Under the acquisition method of accounting, the
purchase price has been allocated to Monitronics tangible and
identifiable intangible assets acquired and liabilities assumed
based on preliminary estimates of fair value. The sum of the
purchase price and the estimated fair value of the net
liabilities assumed is recorded as goodwill. The purchase price
of Monitronics has been allocated on a preliminary basis as
follows (amounts in thousands): |
A-2-10
|
|
|
|
|
Cash consideration paid
|
|
$
|
413,141
|
|
Estimated fair value of assets acquired and liabilities assumed:
|
|
|
|
|
Subscriber accounts
|
|
$
|
788,600
|
|
Property and equipment
|
|
|
18,500
|
|
Dealer network
|
|
|
42,300
|
|
Other assets acquired
|
|
|
76,726
|
|
Monitronics debt assumed
|
|
|
(844,200
|
)
|
Deferred tax liability
|
|
|
(58,608
|
)
|
Derivative instruments
|
|
|
(77,978
|
)
|
|
|
|
|
|
Subtotal of estimated fair value of net liabilities assumed
|
|
$
|
(54,660
|
)
|
|
|
|
|
|
Goodwill
|
|
$
|
467,801
|
|
|
|
|
|
|
|
|
|
(M) |
|
Reflects the fair value adjustments for property plant and
equipment and adjustments for additional depreciation expense,
as follows (amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Twelve
|
|
|
Twelve
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Fair
|
|
|
Fair Value
|
|
|
Useful
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
Historical Amounts
|
|
Value
|
|
|
Adjustment
|
|
|
Lives
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
$14,987
|
|
$
|
18,500
|
|
|
$
|
3,513
|
|
|
|
5 years
|
|
|
$
|
527
|
|
|
$
|
703
|
|
|
$
|
703
|
|
|
|
|
(N) |
|
Reflects the fair value adjustments for identifiable intangible
assets and adjustments for additional amortization expense, as
follows ($ amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Twelve
|
|
|
Twelve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Historical
|
|
|
Fair
|
|
|
Fair Value
|
|
|
Remaining
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Amounts
|
|
|
Value
|
|
|
Adjustment
|
|
|
Useful Lives
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Subscriber accounts
|
|
$
|
639,490
|
|
|
$
|
788,600
|
|
|
$
|
149,110
|
|
|
|
10 years*
|
|
|
$
|
11,183
|
|
|
$
|
17,446
|
|
|
$
|
20,130
|
|
Dealer network
|
|
|
|
|
|
|
42,300
|
|
|
|
42,300
|
|
|
|
5 years
|
|
|
|
6,345
|
|
|
|
8,460
|
|
|
|
8,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
639,490
|
|
|
$
|
830,900
|
|
|
$
|
191,410
|
|
|
|
|
|
|
$
|
17,528
|
|
|
$
|
25,906
|
|
|
$
|
28,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Subscriber accounts are amortized over a period of 10 years
using an accelerated amortization method. The Companys
calculation of pro forma amortization expense is based on
accelerated amortization rates applied to the fair value
adjustment as follows ($ amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
For the Twelve
|
|
For the Twelve
|
|
|
Months Ended
|
|
Months Ended
|
|
Months Ended
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Amortization rate
|
|
|
10.0
|
%
|
|
|
11.7
|
%
|
|
|
13.5
|
%
|
Incremental pro forma amortization expense
|
|
$
|
11,183
|
|
|
$
|
17,446
|
|
|
$
|
20,130
|
|
|
|
|
(O) |
|
Reflects the elimination of Monitronics historical
unamortized deferred financing costs of $27,626,000 and the
payment of debt issuance costs of $2,129,000 incurred in
connection with the new Credit Agreement. |
|
(P) |
|
Reflects the elimination of Monitronics interest expense
related to the amortization of historical deferred financing
costs. This adjustment also reflects interest expense related to
the amortization of deferred financing costs incurred in
connection with the new Term Loan and Revolving Credit Facility
over the term of the debt, as follows (amounts in thousands): |
A-2-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
For the Nine
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Monitronics historical amortization of deferred financing costs
|
|
$
|
(821
|
)
|
|
$
|
(1,460
|
)
|
|
$
|
(1,527
|
)
|
Amortization of deferred financing costs related to the Term
Loan and Credit Facility
|
|
|
532
|
|
|
|
710
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma decrease to interest expense
|
|
$
|
(289
|
)
|
|
$
|
(750
|
)
|
|
$
|
(817
|
)
|
|
|
|
(Q) |
|
Reflects interest expense on the new term loan and revolving
credit facility, as follows (amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
Face
|
|
|
Interest
|
|
|
Ended September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Amount
|
|
|
Rate
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Term loan
|
|
$
|
60,000
|
|
|
|
3.75
|
%
|
|
$
|
1,688
|
|
|
$
|
2,250
|
|
|
$
|
2,250
|
|
Revolving credit facility
|
|
$
|
45,000
|
|
|
|
4.00
|
%
|
|
$
|
1,350
|
|
|
$
|
1,800
|
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
105,000
|
|
|
|
|
|
|
$
|
3,038
|
|
|
$
|
4,050
|
|
|
$
|
4,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(R) |
|
Reflects the elimination of Monitronics historical
shareholders net deficiency. |
|
(S) |
|
Reflects an adjustment to the Companys valuation allowance
on its net deferred tax assets which decreased as a result of
the $58,608,000 deferred tax liability that was recorded in the
preliminary acquisition accounting for the Monitronics
acquisition. |
|
(T) |
|
Reflects $5,003,000 of principal and interest on
Monitronics revolving credit facility repaid in connection
with the Monitronics acquisition. |
|
(U) |
|
Reflects the cash impact of Ascents estimated transaction
costs of $1,000,000 related to the Monitronics acquisition. No
pro forma adjustments for transaction costs have been reflected
in the unaudited pro forma condensed combined statement of
operations since these transaction costs are not expected to
have recurring impact. |
A-2-12
Annex A-3
Consolidated
Financial Statements
Monitronics International, Inc. and Subsidiaries
Years Ended June 30, 2010, 2009 and 2008
With Report of Independent Auditors
A-3-1
Monitronics
International, Inc. and Subsidiaries
Consolidated
Financial Statements
Years
Ended June 30, 2010, 2009 and 2008
Contents
|
|
|
|
|
|
|
|
A-3-3
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
A-3-5
|
|
|
|
|
A-3-7
|
|
|
|
|
A-3-8
|
|
|
|
|
A-3-9
|
|
|
|
|
A-3-10
|
|
A-3-2
Report of
Independent Auditors
The Board of Directors
Monitronics International, Inc.
We have audited the accompanying consolidated balance sheets of
Monitronics International, Inc. and its subsidiaries as of
June 30, 2010 and 2009, and the related consolidated
statements of operations, shareholders net capital
(deficiency), and cash flows for each of the three years in the
period ended June 30, 2010. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Companys internal control over financial reporting.
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Monitronics International, Inc. and its
subsidiaries at June 30, 2010 and 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30,
2010, in conformity with accounting principles generally
accepted in the United States.
October 13, 2010
A-3-3
(This page
intentionally left blank.)
A-3-4
Monitronics
International, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,838
|
|
|
$
|
33,268
|
|
Restricted cash
|
|
|
51,776
|
|
|
|
79,452
|
|
Accounts receivable, less allowance for doubtful accounts of
$1,794 in 2010 and $1,917 in 2009
|
|
|
10,748
|
|
|
|
11,016
|
|
Prepaid expenses and other current assets
|
|
|
1,453
|
|
|
|
2,011
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
104,815
|
|
|
|
125,747
|
|
Property and equipment, net
|
|
|
15,718
|
|
|
|
17,633
|
|
Subscriber accounts, net of accumulated amortization of $652,562
in 2010 and $615,635 in 2009
|
|
|
638,255
|
|
|
|
577,785
|
|
Deferred financing costs, net
|
|
|
27,991
|
|
|
|
29,451
|
|
Fair value of derivative financial instruments
|
|
|
433
|
|
|
|
2,402
|
|
Other assets
|
|
|
1,557
|
|
|
|
71
|
|
Long-term deferred tax asset
|
|
|
1,198
|
|
|
|
1,198
|
|
Goodwill
|
|
|
14,795
|
|
|
|
14,795
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
804,762
|
|
|
$
|
769,082
|
|
|
|
|
|
|
|
|
|
|
A-3-5
Monitronics
International, Inc. and Subsidiaries
Consolidated
Balance Sheets (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
LIABILITIES AND SHAREHOLDERS NET CAPITAL
(DEFICIENCY)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,409
|
|
|
$
|
1,842
|
|
Accrued expenses
|
|
|
5,434
|
|
|
|
5,095
|
|
Purchase holdbacks
|
|
|
15,604
|
|
|
|
13,309
|
|
Deferred revenue
|
|
|
5,604
|
|
|
|
5,074
|
|
Interest payable
|
|
|
2,283
|
|
|
|
2,196
|
|
Taxes payable
|
|
|
1,984
|
|
|
|
1,729
|
|
Current portion of long-term debt
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,330
|
|
|
|
29,245
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
844,188
|
|
|
|
813,384
|
|
Fair value of derivative financial instruments
|
|
|
77,011
|
|
|
|
76,778
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
921,199
|
|
|
|
890,162
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders net capital (deficiency):
|
|
|
|
|
|
|
|
|
Preferred stock, Series A:
|
|
|
|
|
|
|
|
|
Authorized shares 8,247,075
|
|
|
|
|
|
|
|
|
Issued shares 0
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
Authorized shares 80,000,000
|
|
|
|
|
|
|
|
|
Issued shares 31,102,347 as of June 30, 2010
and 2009
|
|
|
311
|
|
|
|
311
|
|
Class B common stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
Authorized shares 700,000; issued shares
none
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
125,939
|
|
|
|
125,633
|
|
Treasury stock, at cost, 1,322,135 shares as of
June 30, 2010 and 2009
|
|
|
(12,037
|
)
|
|
|
(12,037
|
)
|
Accumulated deficit
|
|
|
(263,980
|
)
|
|
|
(264,232
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders net capital (deficiency)
|
|
|
(149,767
|
)
|
|
|
(150,325
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders net capital (deficiency)
|
|
$
|
804,762
|
|
|
$
|
769,082
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-3-6
Monitronics
International, Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
271,951
|
|
|
$
|
234,432
|
|
|
$
|
207,716
|
|
Cost of services
|
|
|
32,966
|
|
|
|
28,997
|
|
|
|
29,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
238,985
|
|
|
|
205,435
|
|
|
|
178,608
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, general, and administrative
|
|
|
52,385
|
|
|
|
52,475
|
|
|
|
47,724
|
|
Depreciation
|
|
|
5,937
|
|
|
|
5,172
|
|
|
|
4,608
|
|
Amortization
|
|
|
118,834
|
|
|
|
110,623
|
|
|
|
100,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,156
|
|
|
|
168,270
|
|
|
|
152,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
61,829
|
|
|
|
37,165
|
|
|
|
25,670
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments
|
|
|
2,202
|
|
|
|
37,510
|
|
|
|
39,843
|
|
Write-off of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
6,952
|
|
Interest
|
|
|
57,561
|
|
|
|
54,107
|
|
|
|
62,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,763
|
|
|
|
91,617
|
|
|
|
109,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,066
|
|
|
|
(54,452
|
)
|
|
|
(83,522
|
)
|
Provision for income taxes
|
|
|
1,814
|
|
|
|
315
|
|
|
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
252
|
|
|
$
|
(54,767
|
)
|
|
$
|
(84,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-3-7
Monitronics
International, Inc. and Subsidiaries
Consolidated
Statement of Shareholders Net Capital
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Treasury Stock,
|
|
|
|
|
|
Shareholders
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
at Cost
|
|
|
Accumulated
|
|
|
Net Capital
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Deficiency)
|
|
|
|
(In thousands, except share data)
|
|
|
Balances at July 1, 2007
|
|
|
31,102,317
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
124,819
|
|
|
|
968,722
|
|
|
$
|
(9,673
|
)
|
|
$
|
(124,512
|
)
|
|
$
|
(9,055
|
)
|
Options exercised
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,413
|
|
|
|
(2,364
|
)
|
|
|
|
|
|
|
(2,364
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,953
|
)
|
|
|
(84,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008
|
|
|
31,102,347
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
125,333
|
|
|
|
1,322,135
|
|
|
|
(12,037
|
)
|
|
|
(209,465
|
)
|
|
|
(95,858
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,767
|
)
|
|
|
(54,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2009
|
|
|
31,102,347
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
125,633
|
|
|
|
1,322,135
|
|
|
|
(12,037
|
)
|
|
|
(264,232
|
)
|
|
|
(150,325
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010
|
|
|
31,102,347
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
125,939
|
|
|
|
1,322,135
|
|
|
$
|
(12,037
|
)
|
|
$
|
(263,980
|
)
|
|
$
|
(149,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-3-8
Monitronics
International, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
252
|
|
|
$
|
(54,767
|
)
|
|
$
|
(84,953
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
124,771
|
|
|
|
115,795
|
|
|
|
105,214
|
|
Amortization of deferred financing costs
|
|
|
1,460
|
|
|
|
1,464
|
|
|
|
8,209
|
|
Provision for uncollectible accounts
|
|
|
5,725
|
|
|
|
5,260
|
|
|
|
4,003
|
|
Noncash interest expense for preferred stock redeemable
|
|
|
|
|
|
|
|
|
|
|
411
|
|
Noncash interest accretion
|
|
|
|
|
|
|
|
|
|
|
521
|
|
Change in value of put option
|
|
|
|
|
|
|
|
|
|
|
(324
|
)
|
Change in deferred tax asset
|
|
|
|
|
|
|
(1,198
|
)
|
|
|
|
|
Noncash stock-based compensation
|
|
|
306
|
|
|
|
300
|
|
|
|
514
|
|
Unrealized gain on derivative instruments
|
|
|
2,202
|
|
|
|
37,510
|
|
|
|
39,843
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable (excluding provision for bad debt)
|
|
|
(5,457
|
)
|
|
|
(7,456
|
)
|
|
|
(3,885
|
)
|
Prepaid expenses and other assets
|
|
|
(928
|
)
|
|
|
(477
|
)
|
|
|
375
|
|
Accounts payable
|
|
|
567
|
|
|
|
(543
|
)
|
|
|
420
|
|
Accrued expenses
|
|
|
339
|
|
|
|
294
|
|
|
|
(1,031
|
)
|
Interest payable
|
|
|
87
|
|
|
|
62
|
|
|
|
(12,480
|
)
|
Deferred revenue
|
|
|
530
|
|
|
|
(124
|
)
|
|
|
(455
|
)
|
Taxes payable
|
|
|
255
|
|
|
|
(943
|
)
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
130,109
|
|
|
|
95,177
|
|
|
|
57,698
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in restricted cash
|
|
|
27,676
|
|
|
|
(65,591
|
)
|
|
|
(13,861
|
)
|
Purchases of property and equipment
|
|
|
(4,022
|
)
|
|
|
(6,832
|
)
|
|
|
(7,449
|
)
|
Purchases of subscriber accounts (net of holdbacks)
|
|
|
(177,009
|
)
|
|
|
(181,609
|
)
|
|
|
(131,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(153,355
|
)
|
|
|
(254,032
|
)
|
|
|
(152,770
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facility
|
|
|
44,392
|
|
|
|
253,449
|
|
|
|
712,796
|
|
Payments on credit facility
|
|
|
(13,576
|
)
|
|
|
(79,066
|
)
|
|
|
(520,813
|
)
|
Payment of deferred financing costs
|
|
|
|
|
|
|
(14
|
)
|
|
|
(31,937
|
)
|
Redemption of preferred stock, less accrued interest
|
|
|
|
|
|
|
|
|
|
|
(45,212
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
30,816
|
|
|
|
174,369
|
|
|
|
112,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
7,570
|
|
|
|
15,514
|
|
|
|
17,398
|
|
Cash and cash equivalents at beginning of fiscal year
|
|
|
33,268
|
|
|
|
17,754
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of fiscal year
|
|
$
|
40,838
|
|
|
$
|
33,268
|
|
|
$
|
17,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes paid
|
|
$
|
1,699
|
|
|
$
|
2,574
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
41,921
|
|
|
$
|
35,776
|
|
|
$
|
40,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-3-9
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
June 30,
2010
|
|
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
Monitronics International, Inc. and Subsidiaries (the Company)
provide security alarm monitoring and related services to
residential and business subscribers throughout the United
States and parts of Canada. The Company monitors signals arising
from burglaries, fires and other events through security systems
installed by independent dealers at subscribers premises.
Cash,
Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks
and cash equivalents. The Company classifies all highly liquid
investments with original maturities when purchased of three
months or less as cash equivalents. At June 30, 2010 and
2009, there is $51.8 million and $79.5 million,
respectively, that is restricted and can be drawn per the terms
of the debt issued through the securitization. This amount is
excluded from cash and cash equivalents.
Consolidation
Policy
The Company consolidates companies in which it owns or controls,
directly or indirectly, more than 50% of the voting shares.
Monitronics consists of the following five entities: Monitronics
International, Inc. (Parent), Monitronics Funding LP (Funding),
Monitronics Security LP (Security), MIBU, Inc., and Monitronics
Canada (Subsidiaries). The Company eliminates all material
intercompany balances and transactions.
Funding and Security are controlled by general partners that are
majority-owned by the Company. The general partners include
independent directors who must concur with the Company in the
event that either Security or Funding files for bankruptcy or
liquidation.
Accounting
Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Accounts
Receivable
Accounts receivable consist primarily of amounts due from
customers for recurring monthly monitoring services over a wide
geographical base. The Company performs extensive credit
evaluations on the portfolios of subscriber accounts prior to
purchase and requires no collateral on the accounts that are
acquired. The Company has established an allowance for doubtful
accounts for estimated losses resulting from the inability of
subscribers to make required payments. Factors such as
historical-loss experience, recoveries and economic conditions
are considered in determining the sufficiency of the allowance
to cover potential losses. The actual collection of receivables
could be different from recorded amounts.
The Companys allowance for doubtful accounts as of
June 30, 2010 and 2009, was $1.8 million and
$1.9 million, respectively. During the fiscal years ended
June 30, 2010, 2009, and 2008, the Company recorded a
provision for uncollectible accounts of $5.7 million,
$5.2 million, and $4.0 million, respectively, and
wrote off (net of recoveries) accounts receivable of
$5.7 million, $4.9 million, and $4.0 million,
respectively.
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
computed on a straight-line basis over the estimated useful life
of the assets. Major replacements and betterments are
capitalized at cost. Maintenance and repair costs are charged to
expense when incurred. When assets are replaced or disposed of,
the cost and accumulated
A-3-10
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
depreciation are removed from the accounts and the gains or
losses, if any, are reflected in the consolidated statements of
operations.
Subscriber
Accounts and Other Intangible Assets
Subscriber accounts relate to the cost of acquiring portfolios
of monitoring service contracts from independent dealers. The
subscriber accounts are initially recorded at cost. All direct
external costs associated with the creation of subscriber
accounts are initially capitalized. Internal costs, including
all personnel and related support costs, incurred solely in
connection with subscriber account acquisitions and transitions
are expensed as incurred.
The costs of subscriber accounts are amortized using the
10-year 135%
declining balance method. The amortization method was selected
to provide a matching of amortization expense to individual
subscriber revenues. Amortization of subscriber accounts was
$118.8 million, $110.6 million, and
$100.6 million for the fiscal years ended June 30,
2010, 2009, and 2008, respectively.
Based on subscriber accounts held at June 30, 2010,
estimated amortization of subscriber accounts in the succeeding
five fiscal years ending June 30 is as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
113,192
|
|
2012
|
|
|
99,801
|
|
2013
|
|
|
88,637
|
|
2014
|
|
|
77,332
|
|
2015
|
|
|
68,351
|
|
|
|
|
|
|
Total
|
|
$
|
447,313
|
|
|
|
|
|
|
Management reviews the subscriber accounts for impairment or a
change in amortization period at least annually or whenever
events or changes indicate that the carrying amount of the asset
may not be recoverable or the life should be shortened. For
purposes of recognition and measurement of an impairment loss,
the Company views subscriber accounts as a single pool because
of the assets homogeneous characteristics, which is the
lowest level for which identifiable cash flows are largely
independent of the cash flows of the other assets and
liabilities. Based on managements analysis, no impairment
was indicated during the years ended June 30, 2010, 2009,
or 2008.
Deferred financing costs are capitalized when the related debt
is issued or when amendments to revolving credit lines increase
the borrowing capacity. Deferred financing costs are amortized
over the term of the related debt on a straight-line basis.
Goodwill (carrying value of $14.8 million, including
accumulated amortization of $1.2 million, at June 30,
2010 and 2009) consists of the excess of the cost over the
fair value of the net assets acquired in a business combination.
Goodwill is tested for impairment annually using a fair
value-based approach. The Companys goodwill of
$14.8 million relates to two acquisitions of businesses
from competitors occurring in the fiscal years ended
June 30, 1999, and June 30, 1995. During the fiscal
years ended June 30, 2010, 2009, and 2008, the Company
performed its annual tests of goodwill impairment using a fair
value-based approach and no impairment was indicated.
Income
Taxes
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the tax basis of
assets and liabilities and their reported amounts in the
financial statements. These temporary differences will result in
taxable or deductible amounts in future years when reported
amounts of the assets or liabilities are recovered or settled.
The deferred tax assets are reviewed for recoverability at least
annually, and a valuation allowance is provided if it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
A-3-11
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Purchase
Holdbacks
The Company typically withholds payment of a designated
percentage of the purchase price when it purchases subscriber
accounts from dealers. The withheld funds are recorded as a
liability until the guarantee period provided by the dealer has
expired. The holdback is used as a reserve to cover any
terminated subscriber accounts that are not replaced by the
dealer during the guarantee period as well as lost revenue
during such period. At the end of the guarantee period, which is
typically one year from the date of purchase, the dealer is
responsible for any deficit or is paid the balance of the
holdback.
Stock
Compensation
The Company recognizes the cost of employee services received in
exchange for awards of equity instruments, such as stock options
and restricted stock, based on the fair value of those awards at
the date of grant over the requisite service period. The Company
uses the Black-Scholes option pricing model to determine the
fair value of stock-option awards. Stock-based compensation
plans, related expenses and assumptions used in the
Black-Scholes option-pricing model are more fully described in
Note 6.
Revenue
Recognition
Revenues are recognized as the related monitoring services are
provided. Deferred revenue primarily includes payments for
monitoring services to be provided in the future.
Risk
Concentration
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
trade accounts receivable. The Company performs extensive credit
evaluations on the portfolios of subscriber accounts prior to
purchase and requires no collateral on the subscriber accounts
that are acquired. Concentrations of credit risk with respect to
trade accounts receivable are generally limited due to the large
number of subscribers comprising the Companys customer
base.
Fair
Value of Financial Instruments
The carrying amount of our financial instruments, consisting of
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, and certain other liabilities, approximates
their fair value due to their relatively short maturities.
Borrowings under the Companys revolving credit and term
loan agreement approximate fair value due to the borrowings
being based on variable market interest rates. Derivative
financial instruments are carried at fair value.
Derivative
Financial Instruments
The Company uses derivative financial instruments to manage
exposure to movement in interest rates. The use of these
financial instruments modifies the exposure of these risks with
the intention of reducing the risk or cost. The Company does not
use derivatives for speculative or trading purposes. The Company
recognizes the fair value of all derivative instruments as
either assets or liabilities at fair value on the consolidated
balance sheets. Fair value is based on market quotes for similar
instruments with the same duration. Changes in the fair value of
derivatives are reported in the consolidated statements of
operations.
On the date the derivative instrument is entered into, the
Company may designate the derivative as either a hedge of a
forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability
(cash flow hedge) or a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (fair
value hedge). For effective hedges, the Company records in
accumulated other comprehensive income or loss the effective
portion of changes in the fair value of derivatives that are
designated as and meet all the required criteria for a cash flow
hedge. The Company reclassifies these amounts into earnings as
the
A-3-12
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
underlying hedged item affects earnings. The Company immediately
records into earnings any changes in the fair value of
derivatives that are not designated as hedges.
Recent
Accounting Pronouncements
During 2010, the Company adopted changes issued by the Financial
Accounting Standards Board (FASB) relating to the authoritative
hierarchy of GAAP. These changes establish the FASB Accounting
Standards Codification (ASC) as the source of authoritative
accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial
statements in conformity with GAAP. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under
the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The FASB will no longer
issue new standards in the form of Statements of Financial
Accounting Standards, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead, the FASB will issue Accounting
Standards Updates (ASUs). ASUs will not be authoritative in
their own right, as they will only serve to update the ASC.
These changes and the ASC itself do not change GAAP. Other than
the manner in which the new accounting guidance is referenced,
the adoption of these changes had no impact on our financial
statements.
During 2010, the Company adopted changes issued by the FASB
relating to disclosures about hedging activities. The changes
require qualitative disclosures about the objectives and
strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative
instruments, and disclosures about credit risk-related
contingent features in derivative agreements. The adoption of
these changes required us to expand our disclosures regarding
derivative instruments, but did not have a material impact on
our financial position, results of operations or cash flows. See
Note 10.
|
|
2.
|
Property
and Equipment
|
Property and equipment consists of the following at June 30 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
2010
|
|
|
2009
|
|
|
Central monitoring station and computer systems
|
|
35 years
|
|
$
|
34,902
|
|
|
$
|
31,048
|
|
Furniture and office equipment
|
|
35 years
|
|
|
2,294
|
|
|
|
2,146
|
|
Automobiles
|
|
5 years
|
|
|
20
|
|
|
|
20
|
|
Leasehold improvements
|
|
Lease term
|
|
|
4,408
|
|
|
|
4,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,624
|
|
|
|
37,601
|
|
Less accumulated depreciation
|
|
|
|
|
25,906
|
|
|
|
19,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,718
|
|
|
$
|
17,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Noncurrent
Liabilities
|
Noncurrent liabilities consist of the following at June 30 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Revolving credit line and term notes payable
|
|
$
|
|
|
|
$
|
|
|
Parent term loans payable
|
|
|
5,000
|
|
|
|
5,000
|
|
Funding VFNs and term notes payable
|
|
|
839,200
|
|
|
|
808,384
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
844,200
|
|
|
$
|
813,384
|
|
|
|
|
|
|
|
|
|
|
On August 8, 2007, the Company completed a financing
transaction of the type commonly referred to as a whole business
securitization. Under the securitization, Funding, a newly
formed, wholly owned subsidiary of the
A-3-13
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Company, issued $350.0 million
Class A-1a
Term Notes, $100.0 million
Class A-1b
Term Notes, $100.0 million
Class A-2
Term Notes, a $260.0 million
Class A-3
Variable Funding Note, and a $28.0 million
Class A-4
Variable Funding Note, all of which mature in July 2037, except
for the A-1a
and the A-1b
Term Notes, which mature in July 2027. Principal payments under
the Term Notes and Variable Funding Notes (VFNs) are payable
monthly beginning July 2012 in accordance with the priority of
payments established in the securitization. Available cash
remaining after paying higher-priority items is allocated
ratably between the Class A Term Notes and the VFNs.
Amounts allocated to the Class A Term Notes are paid first
to the
Class A-1
Term Notes until their outstanding amount has been paid in full,
and second to the
Class A-2
Term Notes. Amounts allocated to the VFNs are paid ratably
between the
Class A-3
VFN and the
Class A-4
VFN. The
Class A-1a
Term Notes bear interest at a rate of LIBOR plus 1.8% (including
certain other fees). The
Class A-1a
Term Notes were converted from floating to fixed with a
derivative instrument at a rate of 7.5% (including certain other
fees). The
Class A-1b
Term Notes bear interest at a rate of LIBOR plus 1.7% (including
certain other fees). The
Class A-1b
Term Notes were converted from floating to fixed with a
derivative financial instrument at a rate of 7.0% (including
certain fees). The
Class A-2
Term Notes bear interest at a rate of LIBOR plus 2.2% (including
certain other fees). The
Class A-2
Term Notes were converted from floating to fixed with a
derivative instrument at a rate of 7.6% (including certain other
fees).
As part of the transaction, the Company transferred
substantially all of its subscriber assets, dealer alarm
monitoring purchase agreements, and property and equipment
related to its backup monitoring center, to Funding. The Company
also transferred substantially all of its other property and
equipment, dealer service agreements, contract monitoring
agreements, and employees to Security, which also was a newly
formed, wholly owned subsidiary of the Company. Following such
transfers, Security assumed responsibility for the monitoring,
customer service, billing, and collection functions of Funding
and the Company.
Funding and Security are distinct legal entities, and their
assets are available only for payment of the debt and
satisfaction of the other obligations arising under the
securitization transactions and are not available to pay the
Companys other obligations or the claims of the
Companys other creditors.
On the closing date of the securitization, Funding also entered
into interest rate swaps in an aggregate notional amount of
$550.0 million that have similar terms in order to reduce
the financial risk related to changes in interest rates
associated with the floating rate term notes. The Company also
entered into interest rate caps in an aggregate notional amount
of $600.0 million and an interest rate floor with a
notional amount of $260.0 million to reduce the financial
risk related to changes in interest rates associated with the
floating rate variable funding notes.
On August 5, 2009, after receiving a nonrenewal notice from
a holder of 34% of the liquidity facility for the VFNs, Funding
drew down the banks unfunded commitment of
$23.5 million, of which $14.0 million and
$9.5 million were drawn from the
Class A-3
VFN and
Class A-4
VFN, respectively, which was deposited with the Trustee. On
August 6, 2008, after receiving a nonrenewal notice from a
holder of 66% of the liquidity facility for the VFNs, Funding
drew down the banks unfunded commitment and deposited with
the Trustee a total of $121.4 million, comprised of
$102.9 million and $18.5 million drawn from the
Class A-3
VFN and
Class A-4
VFN, respectively. As of June 30, 2010, a total of
$260.0 million and $28.0 million was outstanding under
the
Class A-3
VFN and
Class A-4
VFN, respectively. As of June 30, 2010, no amounts are
available to be drawn from the VFNs.
The Company has $2.0 million of the
Class A-3
VFN and $28.0 million of the
Class A-4
VFN in restricted cash, which continues to be available to the
Company.
The Company is charged a commitment fee of 0.15% on the unused
portion. The VFNs bear interest at the conduit cost of funds as
established at the time of borrowing plus certain other fees if
funded from the commercial paper market or LIBOR plus 0.75% plus
certain other fees if funded by liquidity banks. Interest
incurred on borrowings is payable monthly. The securitization
debt and interest rate swaps have an expected repayment date of
July 2012. If the securitization debt is not redeemed at that
time, contingent additional interest payments at a rate of 5.0%
will apply.
A-3-14
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
On August 8, 2007, the Company entered into a
$5.0 million term loan and $15.0 million revolving
credit line, of which both mature in August 2011, with payment
in full due at that time. The Company is charged a commitment
fee of 0.375% on the average daily unused portion. The facility
bears interest at a rate of either prime or LIBOR plus 1.75%.
Interest incurred on borrowings is payable monthly in arrears.
The credit facility and securitization debt have certain
financial tests, which must be met on a monthly or quarterly
basis. Credit facility tests include maximum total senior debt,
maximum total leverage, and a minimum fixed charge coverage
ratio. Securitization debt tests include maximum attrition
rates, interest coverage, and minimum average recurring monthly
revenue. Indebtedness under the securitization is secured by all
of the assets of Funding. As of June 30, 2010, the Company
was in compliance with all required financial tests.
Scheduled maturities (as defined) of long-term debt at
June 30, 2010, utilizing the required payment schedule of
the securitization debt and credit facility, are as follows for
the fiscal years below (in thousands):
|
|
|
|
|
2011
|
|
$
|
12
|
|
2012
|
|
|
5,013
|
|
2013
|
|
|
14
|
|
2014
|
|
|
16
|
|
2015
|
|
|
17
|
|
Thereafter
|
|
|
839,128
|
|
|
|
|
|
|
|
|
$
|
844,200
|
|
|
|
|
|
|
|
|
4.
|
Related-Party
Transactions
|
On November 7, 2003, the Hull Family Limited Partnership
(the Partnership) and Mr. Hull entered into a written
investor put option to sell up to a combined total of $500,000
in value of Class A common stock to the Company in each of
the five fiscal years ending June 30, 2009, at purchase
prices per share that were based on a multiple of the
Companys consolidated cash flow. Based on the fair value
of the Companys stock at the time of the agreement, the
Company recorded no liability in connection with this agreement.
As of June 30, 2007, the Partnership had sold the Company
182,805 shares of Class A common stock for $1,500,000.
As of June 30, 2007, the outstanding liability for the put
option was $300,000. On September 15, 2007, the Company
entered into a stock redemption agreement with Mr. Hull,
whereby the Company redeemed the remaining 353,413 shares
of Class A common stock and outstanding options for a price
of $9.32 per share. Also on this date, the Company entered into
an option surrender agreement whereby Mr. Hull surrendered
options entitling him to 135,000 shares of Class A
common stock in exchange for $448,200, representing the
difference between the price of $9.32 per share less the
exercise price of $6.00 per share. In connection with this
redemption, the Company recorded $1.0 million in sales,
general, and administrative expense, and $2.4 million to
treasury stock, based on the fair value of the repurchased stock.
|
|
5.
|
Shareholders
Net Capital
|
Preferred
Stock
The Series A preferred stock votes together with
Class A common stock as a single class on an as-converted
basis on all matters to come before the Companys
shareholders. The Series A preferred stock was redeemed on
August 8, 2007, from the proceeds of the securitization
transaction described in Note 3. As a result, the former
holders of Series A preferred stock have no ongoing
contractual rights.
A-3-15
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Common
Stock
The Class A common stock and the Class B common stock
are identical except for voting and conversion rights and
entitle the holders thereof to the same rights and privileges.
Class B common stock is nonvoting, and Class A common
stock has full voting rights. Each holder of shares of
Class A common stock is entitled to one vote per share in
the election of directors and on each other matter submitted to
a vote of the Companys shareholders. Class A common
stock is not entitled to vote separately as a class on any
matter, unless expressly mandated by law. Class B common
stock is convertible on a
share-for-share
basis into Class A common stock, provided the conversion
does not result in the holder of Class B common stock
acquiring voting securities in excess of the amounts allowed for
the holder under applicable laws or regulations.
The Company has reserved 3,855,023 shares of Class A
common stock for future issuance upon the possible exercise of
outstanding stock options and warrants.
Stock
Warrants
During January 2002, the Company issued warrants to purchase
1,133,328 shares of Class A common stock at an
exercise price of $0.01 per share in connection with a
subordinated note agreement. These warrants will expire on
January 17, 2012. These warrants remain outstanding and are
currently exercisable.
|
|
6.
|
Restricted
Stock and Stock Option Plans
|
The Company maintains a 1999 Stock Option Plan (the 1999 Plan),
which was adopted November 3, 1999, and provides for the
grant of options to purchase up to 150,000 shares of
Class A common stock to its officers and employees; a 2001
Stock Option Plan (the 2001 Plan), which was adopted on
April 27, 2001, and provides for the grant of options to
purchase up to 250,000 shares of Class A common stock
to its officers and employees; and a 2005 Stock Option Plan (the
2005 Plan), which was adopted on March 28, 2005, and
provides for the grant of options to purchase up to
1,350,000 shares of Class A common stock to its
officers and employees. As of June 30, 2010, there were
39,000, 115,212, and 1,167,483 options outstanding under the
1999, 2001, and 2005 Plans, respectively. In addition, there are
options outstanding to purchase up to 1,400,000 shares of
Class A common stock that were not issued under a plan.
Options granted to date vest ratably over periods not exceeding
five years, as specified by the option agreements. The Company
recognizes compensation expense on a straight-line basis for
options that vest ratably.
Stock option transactions for the years ended June 30 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Number of
|
|
Exercise
|
|
Number of
|
|
Exercise
|
|
Number of
|
|
Exercise
|
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Outstanding at beginning of year
|
|
|
2,658,695
|
|
|
$
|
7.16
|
|
|
|
2,555,195
|
|
|
$
|
7.07
|
|
|
|
1,363,896
|
|
|
$
|
6.58
|
|
Granted
|
|
|
84,000
|
|
|
|
7.50
|
|
|
|
315,000
|
|
|
|
7.50
|
|
|
|
1,504,000
|
|
|
|
7.50
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
6.75
|
|
|
|
(211,500
|
)
|
|
|
6.51
|
|
|
|
(177,671
|
)
|
|
|
7.80
|
|
Canceled
|
|
|
(16,000
|
)
|
|
|
20.00
|
|
|
|
|
|
|
|
|
|
|
|
(135,000
|
)
|
|
|
6.00
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,721,695
|
|
|
$
|
7.10
|
|
|
|
2,658,695
|
|
|
$
|
7.16
|
|
|
|
2,555,195
|
|
|
$
|
7.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,762,695
|
|
|
$
|
6.90
|
|
|
|
1,315,235
|
|
|
$
|
6.96
|
|
|
|
975,992
|
|
|
$
|
6.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-3-16
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes information about stock options
outstanding at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Stock Options
|
|
Contractual
|
Exercise Prices
|
|
Outstanding
|
|
Exercisable
|
|
Life (in years)
|
|
$
|
6.00
|
|
|
|
739,195
|
|
|
|
732,595
|
|
|
|
4.80
|
|
|
6.25
|
|
|
|
100,000
|
|
|
|
80,000
|
|
|
|
6.00
|
|
|
7.50
|
|
|
|
1,871,000
|
|
|
|
938,600
|
|
|
|
7.33
|
|
|
20.00
|
|
|
|
11,500
|
|
|
|
11,500
|
|
|
|
0.33
|
|
The weighted-average remaining contractual life for outstanding
and exercisable stock options is 6.6 and 4.7 years,
respectively.
During 2010, 2009, and 2008, the Company recognized $306,513,
$299,613, and $513,952, respectively, of stock compensation
expense. At June 30, 2010, the balance of unearned
stock-based compensation to be expensed in future periods
related to unvested share-based awards, as adjusted for
estimated forfeitures, is approximately $0.39 million. The
Company anticipates that it will grant additional stock-based
awards to employees in the future, which will increase the
stock-based compensation by additional unearned compensation
resulting from these grants. If the Company uses different
assumptions in measuring or accounting for future awards, the
stock-based compensation expense that is recorded relating to
those awards may differ significantly from what has been
recorded in the current period.
The Company estimates the fair value of each option using the
Black-Scholes option pricing model. The following
weighted-average assumptions were used in computing the fair
value of stock options for the purpose of expense recognition
for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
2010
|
|
2009
|
|
2008
|
|
Expected volatility
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.6
|
%
|
|
|
4.6
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected term (years)
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
5.5
|
|
Weighted-average stock option fair value per option granted
|
|
$
|
0.19
|
|
|
$
|
0.21
|
|
|
$
|
0.98
|
|
The expected volatility was based on the historical volatility
of similar industry sector companies, taking into consideration
their size and nature of operations.
The risk-free interest rate assumption was based upon the yield
curve of U.S. Treasury notes with a remaining term equal to
the expected term of the options.
The expected term of employee stock options represents the
period of time the stock options are expected to remain
outstanding and is based upon historical employee exercise
behavior and the lack of marketability for employee stock
options and the underlying securities created primarily by
certain restrictions stated in the employee stock option
agreements.
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current state income taxes
|
|
$
|
1,814
|
|
|
$
|
1,513
|
|
|
$
|
1,431
|
|
Deferred state income taxes
|
|
|
|
|
|
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
1,814
|
|
|
$
|
315
|
|
|
$
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-3-17
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The differences between the actual income tax benefit and the
amount computed by applying the statutory federal tax rate to
the loss before income taxes result in the following (in
thousands). The amounts have been restated to record the change
in fair value of the swaps within the statement of operations
instead of within other comprehensive income, as follows :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
(Benefit) computed at federal statutory rate
|
|
$
|
724
|
|
|
$
|
(19,058
|
)
|
|
$
|
(29,233
|
)
|
Nondeductible expenses
|
|
|
67
|
|
|
|
79
|
|
|
|
|
|
State tax (net of federal benefit)
|
|
|
1,179
|
|
|
|
984
|
|
|
|
1,431
|
|
Other
|
|
|
177
|
|
|
|
(337
|
)
|
|
|
(114
|
)
|
(Decrease) increase in valuation allowance
|
|
|
(333
|
)
|
|
|
18,647
|
|
|
|
29,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
1,814
|
|
|
$
|
315
|
|
|
$
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes are provided for the tax effects of
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
The components of net deferred income tax assets as of June 30
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Book over tax depreciation and amortization
|
|
$
|
15,526
|
|
|
$
|
15,465
|
|
Charitable contributions
|
|
|
42
|
|
|
|
41
|
|
Allowance for doubtful accounts
|
|
|
629
|
|
|
|
606
|
|
Deferred revenue
|
|
|
485
|
|
|
|
503
|
|
Texas credit carryforwards
|
|
|
1,198
|
|
|
|
1,198
|
|
Alternative minimum tax carryforward
|
|
|
426
|
|
|
|
426
|
|
Texas deferred assets
|
|
|
22
|
|
|
|
22
|
|
Accrued expenses
|
|
|
650
|
|
|
|
912
|
|
Mark-to-market
valuation on derivative financial instruments
|
|
|
26,800
|
|
|
|
26,032
|
|
Net operating loss carryforwards
|
|
|
25,627
|
|
|
|
26,478
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
71,405
|
|
|
|
71,683
|
|
Valuation allowance
|
|
|
(69,564
|
)
|
|
|
(69,897
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
1,841
|
|
|
|
1,786
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(643
|
)
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(643
|
)
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
1,198
|
|
|
$
|
1,198
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010, the Company had available for federal
income tax purposes an alternative minimum tax credit
carryforward of $426,000, which is available for an indefinite
period. The Company had $76.3 million of federal net
operating loss carryforwards, which begin to expire, if unused,
in 2024. The Company had available for state income tax purposes
net operating loss carryforwards of $716,000 as of June 30,
2010.
The Company provides a valuation allowance for deferred tax
assets when it is more likely than not that some portion or all
of its deferred tax assets will not be realized. In assessing
the realizability of the deferred tax assets, management
considers whether it is more likely than not that some portion
or all of the deferred tax assets will be
A-3-18
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
realized. The Company had deferred tax assets totaling
$71.4 million and $71.7 million at June 30, 2010
and 2009, respectively. The Company maintains a valuation
allowance primarily based on experiencing a cumulative loss
before income taxes for the three-year period ended
June 30, 2010. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the
periods in which those temporary differences will become
deductible. The $1.2 million net deferred tax asset relates
to Texas margin tax and does not depend on net income. The asset
will more likely than not be realized based on future gross
margin.
The Company accounts for uncertain tax positions using a
two-step approach. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being recognized upon
settlement. The Company has evaluated matters such as
derecognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition, and
has determined that there is no impact on the Companys
financial statements for fiscal 2010. The only periods still
subject to audit for the Companys federal tax return are
the 2007 through 2010 tax years. The Company will classify
interest and penalties in the provision for income taxes. The
Company has determined that no additional accrual for interest
is required in the provision for income taxes during the year
ended June 30, 2010.
The Company maintains a tax-qualified, defined contribution plan
that meets the requirements of Section 401(k) of the
Internal Revenue Code (the Monitronics 401(k) Plan) . For the
fiscal year ended June 30, 2010, the Company, at its
election, made contributions to the Monitronics 401(k) Plan.
These contributions were allocated among participants based upon
the respective contributions made by the participants through
salary reductions during the applicable plan year. The Company
also makes matching cash contributions under the Monitronics
401(k) Plan. For the fiscal years ended June 30, 2010,
2009, and 2008, the Company made matching cash contributions to
the Monitronics 401(k) Plan of approximately $76,723, $106,000,
and $109,000, respectively. The funds of the Monitronics 401(k)
Plan are deposited with a trustee and invested at each
participants option in one or more investment funds.
|
|
9.
|
Commitments
and Contingencies
|
The Company leases certain office space and equipment under
various noncancelable operating leases. The Company leases
132,880 square feet of total office space, of which 10,000,
13,050, 11,830, and 98,000 square feet are currently under
separate leases expiring on February 28, 2011, May 31,
2014, January 31, 2015, and May 31, 2015,
respectively. The Company has the option to renew the lease
expiring on February 28, 2011, for an additional term of
60 months following the expiration of the original lease
agreement. The lease expiring May 31, 2014, has rent
escalation clauses associated with it, and the Company has the
option to renew the lease for three additional terms of
60 months each following the expiration of the original
lease agreement. The lease expiring January 31, 2015, has
rent escalation clauses associated with it, and the Company has
the option to renew the lease for an additional term of
36 months following the expiration of the original lease
agreement. The lease expiring May 31, 2015, has rent
escalation clauses associated with it, and the Company has the
option to renew the lease for two additional terms of
60 months each following the expiration of the original
lease agreement. All equipment leases are renewable at the
option of the Company upon expiration.
A-3-19
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
At June 30, 2010, future minimum payments under such leases
are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
1,854
|
|
2012
|
|
|
1,799
|
|
2013
|
|
|
1,818
|
|
2014
|
|
|
1,810
|
|
2015
|
|
|
1,503
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
8,784
|
|
|
|
|
|
|
Rental expense for all operating leases was approximately
$1,746,000, $1,739,000, and $1,745,000 for the fiscal years
ended June 30, 2010, 2009, and 2008, respectively.
On March 22, 2006, a lawsuit was filed by State Farm
Fire & Casualty Co., as Subrogee of Edward Streit vs.
Monitronics International, Inc., Q.I.S. Incorporated, Protection
Associates, Inc., and C&H Electric &
Communications, Ltd. in the Circuit Court of the Twenty-First
Judicial District for Kankakee County, Illinois. The complaint
alleges that the Company and the various other defendants
negligently serviced, maintained, installed, tested, repaired,
and inspected the central fire alarm system located at a
multiunit apartment building in Kankakee, Illinois. The
complaint alleges that as a result of these actions by the
various defendants, the central fire alarm system did not
immediately detect and notify the authorities of a fire,
resulting in damage to the building premises in excess of what
normally would have been caused. The plaintiff seeks
compensatory damages from the various defendants. The Company
believes that it acted properly and lawfully in its dealings
with the customer. As a result, the Company intends to
vigorously defend and contest any and all issues or threatened
claims in this matter. Management is currently unable to
determine the outcome of the claims or to estimate the amount of
potential loss. The Company has not established a loss accrual
associated with this claim.
On March 13, 2008, a lawsuit was filed by Paradox Security
Systems, Ltd., Shmuel Hershkovitz, and Pinhas Shpater vs. ADT
Security Services, Inc., Digital Security Controls, Ltd.,
Monitronics International, Inc., and Protection One, Inc. in the
United States District Court for the Eastern District of Texas.
Judgment was entered as a matter of law in the Companys
favor with no finding of liability. On August 27, 2009, a
final judgment was entered and the Company was dismissed from
the lawsuit.
On August 18, 2009, a lawsuit was filed by Velma Veasley
vs. Monitronics International, Inc. and Tel-Star Alarms, Inc. in
the state court of Dekalb County, Georgia. The complaint alleges
that the Company and Tel-Star Alarms, Inc. negligently installed
and monitored the alarm system located at Plaintiffs
residence, that defendants breached the terms of the alarm
monitoring contract with Plaintiff, and that defendants
fraudulently misrepresented to Plaintiff the capabilities of the
alarm monitoring system. The complaint alleges that as a result
of these actions, Plaintiff was assaulted in her home. The
plaintiff seeks compensatory and punitive damages from the
various defendants. The Company believes that it acted properly
and lawfully in its dealings with the customer. As a result, the
Company intends to vigorously defend and contest any and all
issues or threatened claims in this matter. Management is
currently unable to determine the outcome of the claims or to
estimate the amount of potential loss; therefore, the Company
has not established a loss accrual associated with this claim.
The Company is party to various other legal proceedings and
claims that have arisen in the ordinary course of its business.
In the opinion of management, the amount of ultimate liability
with respect to these actions will not have a material impact on
the Companys financial position or results of operations.
The Company uses interest rate derivatives to manage its
interest rate risk. The valuation of these instruments is
determined using widely accepted valuation techniques, including
discounted cash flow analysis on the expected
A-3-20
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
cash flows of each derivative. This analysis reflects the
contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including
interest rate curves and implied volatilities. The fair values
of interest rate caps are determined using the market standard
methodology of discounting the future expected cash receipts
that would occur if variable interest rates rise above the
strike rate of the caps. The variable interest rates used in the
calculation of projected receipts on the cap are based on an
expectation of future interest rates derived from observable
market interest rate curves and volatilities. The Company
incorporates credit valuation adjustments to appropriately
reflect the respective counterpartys nonperformance risk
in the fair value measurements.
At June 30, 2010, derivative financial instruments include
two interest rate caps with an aggregate fair value of
$0.4 million, an interest rate floor with a fair value of
$(23.5) million, and three interest rate swaps (Swaps) with
an aggregate fair value of $(53.5) million. The interest
rate caps represent financial assets of the Company, while the
interest rate floor and Swaps represent financial liabilities of
the Company. The interest rate caps floor and Swaps have not
been designated as hedges. The net change in fair value of these
derivatives for the years ended June 30, 2010, 2009, and
2008, is a loss of $2.2 million, $37.5 million, and
$30.8 million, respectively, included in unrealized loss on
derivative instruments in the consolidated statements of
operations.
For purposes of valuation of the Swaps, the Company has
considered that certain provisions of the Term Notes and VFNs
provide for significant adverse changes to interest rates and
uses of cash flows if this debt is not repaid by July 2012. In
addition, the Swaps can be terminated at this time with no
additional costs to the Company. Currently, a make whole payment
would be due to the counterparty to the Swaps were the swaps
terminated before April 2012. Were the Term Notes and the VFNs
not repaid in full by July 2012, the Company would incur
additional interest and other costs and be restricted in
subscriber account purchases at Funding, until the Term Notes
and VFNs were repaid in full. Management believes it is highly
likely the Company will be able to refinance
and/or repay
the Term Notes and VFNs in full by July 2012, and the valuation
considers adjustments for termination dates before and after
July 2012 on a probability weighted basis. The valuation of the
Swaps is based principally on a July 2012 maturity of the Term
Notes less a credit valuation adjustment.
Borrowings under the debt bear interest at variable rates. Our
objective in entering into the Swaps was to reduce the risk
associated with these variable rates. The Swaps, in effect,
convert variable rates of interest into fixed rates of interest
on $550 million of borrowings. It is our policy to offset
fair value amounts recognized for derivative instruments
executed with the same counterparty under a master netting
agreement. As of June 30, 2010, 2009, and 2008, no such
amounts were offset.
The Companys Swaps are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Rate Paid
|
|
Rate Received
|
|
$
|
350,000
|
|
|
|
6.56
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
|
100,000
|
|
|
|
6.06
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
|
100,000
|
|
|
|
6.64
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
The fair value of derivative instruments as of June 30,
2010, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Purchased interest rate swaps
|
|
|
Other assets
|
|
|
$
|
|
|
|
|
Other liabilities
|
|
|
$
|
53,486
|
|
Purchased interest rate caps
|
|
|
Other assets
|
|
|
|
433
|
|
|
|
Other liabilities
|
|
|
|
|
|
Sold interest rate floor
|
|
|
Other assets
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
23,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate products
|
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
77,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
433
|
|
|
|
|
|
|
$
|
77,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-3-21
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Gains and losses recognized during the year ended June 30,
2010, relating to derivatives not designated as hedging
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
Amount of Gain
|
|
|
|
Gain (Loss)
|
|
|
(Loss)
|
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
Income on
|
|
|
Income on
|
|
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Interest rate products
|
|
|
Unrealized loss on derivative instruments
|
|
|
$
|
2,202
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,202
|
|
|
|
|
|
|
|
|
|
|
The Company has a single counterparty that it faces for its
derivative contracts. The Companys contractual agreement
with its counterparty contains a provision where if the Company
defaults on its master debt agreement and liquidates the assets
that are encumbered by the debt agreement, then the Company
could also be declared in default on its derivative obligations.
As of June 30, 2010, the fair value of derivatives in a net
liability position, which includes accrued interest but excludes
any adjustment for nonperformance risk, related to these
agreements was $77.0 million. As of June 30, 2010, the
Company has not posted any collateral related to these
agreements. If the Company had breached the provision above, it
could have been required to settle its obligations under the
agreements at the termination value of $77.0 million.
|
|
11.
|
Fair
Value Accounting
|
On July 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defined fair value,
established a framework for measuring fair value, and expanded
disclosures about fair value measurements. SFAS 157 was
replaced by ASC 820, Fair Value Measurements and
Disclosures.
ASC 820, defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants at the measurement date.
ASC 820 establishes a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. This
hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three
levels of inputs used to measure fair value are, as follows:
Level 1 Quoted prices in active markets
for identical assets or liabilities.
Level 2 Observable inputs other than
quoted prices included in Level 1, such as quoted prices
for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data.
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. This
includes certain pricing models, discounted cash flow
methodologies, and similar techniques that use significant
unobservable inputs.
We have aggregated our financial assets and liabilities that are
measured at fair value on a recurring basis (at least annually)
into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the
measurement dates.
The tables below presents the Companys assets and
liabilities measured at fair value on a recurring basis as of
June 30, 2010 and 2009, aggregated by the level in the fair
value hierarchy within which those measurements fall.
A-3-22
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The tables do not include cash on hand or assets and liabilities
that are measured at historical cost or any basis other than
fair value (in thousands):
Assets
and Liabilities Measured at Fair Value on a Recurring Basis at
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
Markets for
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Other
|
|
Significant
|
|
|
|
|
Assets and
|
|
Observable
|
|
Unobservable
|
|
Balance at
|
|
|
Liabilities
|
|
Inputs
|
|
Inputs
|
|
June 30,
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
88,035
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88,035
|
|
Derivative financial instruments
|
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
433
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
23,524
|
|
|
$
|
53,487
|
|
|
$
|
77,011
|
|
Assets
and Liabilities Measured at Fair Value on a Recurring Basis at
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
Markets for
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Other
|
|
Significant
|
|
|
|
|
Assets and
|
|
Observable
|
|
Unobservable
|
|
Balance at
|
|
|
Liabilities
|
|
Inputs
|
|
Inputs
|
|
June 30,
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
108,606
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
108,606
|
|
Derivative financial instruments
|
|
|
|
|
|
|
2,402
|
|
|
|
|
|
|
|
2,402
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
19,237
|
|
|
$
|
57,541
|
|
|
$
|
76,778
|
|
The Companys fair value measurements of the Swaps rely on
significant unobservable inputs (Level 3) as of
June 30, 2010 and 2009.
The Company has determined that the majority of the inputs used
to value its interest rate caps and floor derivatives fall
within Level 2 of the fair value hierarchy. The Company has
determined that the majority of the inputs used to value its
Swaps fall within Level 3 of the fair value hierarchy, as
the valuation is based in part on managements estimates of
the refinancing date of the Term Notes, which affects the
termination date of the Swaps as the notional amount of the
Swaps is directly linked to the outstanding principal balance of
the Term Notes. However, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the
likelihood of default by its counterparties. For counterparties
with publicly available credit information, the credit spreads
over LIBOR used in the calculations represent implied credit
default swap spreads obtained from a third-party credit data
provider. However, as of June 30, 2010, the Company has
assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions
and has determined that the credit valuation adjustments are not
significant to the overall valuation of its interest rate caps
and floor derivatives, but are significant for the Swaps. As a
result, the Company has determined that its derivative
valuations on its interest rate caps and floor are classified in
Level 2 of the fair value hierarchy and its derivative
valuation on its Swaps are classified in Level 3 of the
fair-value hierarchy.
A-3-23
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The table below sets forth a summary of changes in the fair
value of the Companys Level 3 liabilities for the
year-ended June 30, 2010, 2009, and 2008:
|
|
|
|
|
Fair value at July 1, 2007
|
|
$
|
|
|
Change in unrealized loss related to the Swaps
|
|
|
30,846
|
|
|
|
|
|
|
Fair value at June 30, 2008
|
|
|
30,846
|
|
Change in unrealized loss related to the Swaps
|
|
|
26,695
|
|
|
|
|
|
|
Fair value at June 30, 2009
|
|
|
57,541
|
|
Change in unrealized loss related to the Swaps
|
|
|
4,054
|
|
|
|
|
|
|
Fair value at June 30, 2010
|
|
$
|
53,487
|
|
|
|
|
|
|
The Company has evaluated events and transactions subsequent to
October 13, 2010, the date that the financial statements
were available to be issued. Based on requirements of the
subsequent event guidance, the Company has not identified any
events that require disclosure.
|
|
13.
|
Acquisition
by Ascent Media Corporation
|
On December 17, 2010, Ascent Media Corporation (AMC)
acquired 100% of the outstanding capital stock of the Company
through the merger of Mono Lake Merger Sub, Inc. (Merger Sub), a
direct wholly owned subsidiary of AMC established to consummate
the merger, with and into the Company, with the Company as the
surviving corporation in the merger. The terms of the merger are
set forth in an agreement and plan of merger dated
December 17, 2010, among AMC, Merger Sub, the Company, and,
for certain purposes only, ABRY Partners, LLC (the Shareholder
Representative). The closing of the merger occurred
simultaneously with the execution of the merger agreement. The
cash portion of the aggregate merger consideration paid by AMC
pursuant to the merger agreement, including unpaid company
transaction expenses, was approximately $413,141,000, subject to
adjustment.
A-3-24
Annex A-4
Consolidated
Financial Statements
(Unaudited)
Monitronics International, Inc. and Subsidiaries
For the Three Months ended September 30, 2010 and
September 30, 2009
A-4-1
|
|
|
|
|
|
|
|
A-4-2
|
|
|
|
|
A-4-3
|
|
|
|
|
A-4-5
|
|
|
|
|
A-4-6
|
|
|
|
|
A-4-7
|
|
|
|
|
A-4-8
|
|
A-4-2
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,101
|
|
Restricted cash
|
|
|
53,544
|
|
Accounts receivable, less allowance for doubtful accounts of
$1,778 in 2010
|
|
|
10,624
|
|
Prepaid expenses and other current assets
|
|
|
3,224
|
|
|
|
|
|
|
Total current assets
|
|
|
103,493
|
|
Property and equipment, net
|
|
|
14,987
|
|
Subscriber accounts, net of accumulated amortization of $653,631
in 2010
|
|
|
639,490
|
|
Deferred financing costs, net
|
|
|
27,626
|
|
Fair value of derivative financial instruments
|
|
|
231
|
|
Other assets
|
|
|
1,544
|
|
Long-term deferred tax asset
|
|
|
1,198
|
|
Goodwill
|
|
|
14,795
|
|
|
|
|
|
|
Total assets
|
|
$
|
803,364
|
|
|
|
|
|
|
A-4-3
Monitronics
International, Inc. and Subsidiaries
Consolidated
Balance Sheet (Continued)
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
|
(Unaudited)
|
|
|
LIABILITIES AND SHAREHOLDERS NET CAPITAL
(DEFICIENCY)
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
1,788
|
|
Accrued expenses
|
|
|
5,175
|
|
Purchase holdbacks
|
|
|
12,437
|
|
Deferred revenue
|
|
|
5,627
|
|
Interest payable
|
|
|
2,299
|
|
Taxes payable
|
|
|
2,414
|
|
|
|
|
|
|
Total current liabilities
|
|
|
29,740
|
|
Noncurrent liabilities:
|
|
|
|
|
Long-term debt
|
|
|
844,200
|
|
Fair value of derivative financial instruments
|
|
|
77,978
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
922,178
|
|
Commitments and contingencies
|
|
|
|
|
Shareholders net capital (deficiency):
|
|
|
|
|
Preferred stock, Series A:
|
|
|
|
|
Authorized shares 8,247,075
|
|
|
|
|
Issued shares 0
|
|
|
|
|
Class A common stock, $0.01 par value:
|
|
|
|
|
Authorized shares 80,000,000
|
|
|
|
|
Issued shares 31,102,347
|
|
|
311
|
|
Class B common stock, $0.01 par value:
|
|
|
|
|
Authorized shares 700,000; issued shares
none
|
|
|
|
|
Additional paid-in capital
|
|
|
126,016
|
|
Treasury stock, at cost, 1,322,135 shares
|
|
|
(12,037
|
)
|
Accumulated deficit
|
|
|
(262,844
|
)
|
|
|
|
|
|
Total shareholders net capital (deficiency)
|
|
|
(148,554
|
)
|
|
|
|
|
|
Total liabilities and shareholders net capital (deficiency)
|
|
$
|
803,364
|
|
|
|
|
|
|
See accompanying notes.
A-4-4
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
71,653
|
|
|
$
|
65,175
|
|
Cost of services
|
|
|
9,213
|
|
|
|
8,235
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
62,440
|
|
|
|
56,940
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales, general, and administrative
|
|
|
13,023
|
|
|
|
12,725
|
|
Depreciation
|
|
|
1,499
|
|
|
|
1,411
|
|
Amortization
|
|
|
30,660
|
|
|
|
28,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,182
|
|
|
|
42,973
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
17,258
|
|
|
|
13,967
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments
|
|
|
1,169
|
|
|
|
3,745
|
|
Interest
|
|
|
14,471
|
|
|
|
14,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,640
|
|
|
|
18,107
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,618
|
|
|
|
(4,140
|
)
|
Provision for income taxes
|
|
|
482
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,136
|
|
|
$
|
(4,568
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-4-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Treasury Stock,
|
|
|
|
|
|
Shareholders
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
at Cost
|
|
|
Accumulated
|
|
|
Net Capital
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Deficiency)
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Balances at June 30, 2009
|
|
|
31,102,347
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
125,633
|
|
|
|
1,322,135
|
|
|
$
|
(12,037
|
)
|
|
$
|
(264,232
|
)
|
|
$
|
(150,325
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,568
|
)
|
|
|
(4,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
31,102,347
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
125,710
|
|
|
|
1,322,135
|
|
|
$
|
(12,037
|
)
|
|
$
|
(268,800
|
)
|
|
$
|
(154,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010
|
|
|
31,102,347
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
125,939
|
|
|
|
1,322,135
|
|
|
$
|
(12,037
|
)
|
|
$
|
(263,980
|
)
|
|
$
|
(149,767
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,136
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
31,102,347
|
|
|
$
|
311
|
|
|
|
|
|
|
$
|
|
|
|
$
|
126,016
|
|
|
|
1,322,135
|
|
|
$
|
(12,037
|
)
|
|
$
|
(262,844
|
)
|
|
$
|
(148,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-4-6
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,136
|
|
|
$
|
(4,568
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
32,159
|
|
|
|
30,248
|
|
Amortization of deferred financing costs
|
|
|
365
|
|
|
|
365
|
|
Provision for uncollectible accounts
|
|
|
1,363
|
|
|
|
1,556
|
|
Noncash stock-based compensation
|
|
|
77
|
|
|
|
77
|
|
Unrealized loss on derivative instruments
|
|
|
1,169
|
|
|
|
3,745
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,341
|
)
|
|
|
(1,557
|
)
|
Prepaid expenses and other assets
|
|
|
(1,655
|
)
|
|
|
(1,698
|
)
|
Accounts payable
|
|
|
(620
|
)
|
|
|
451
|
|
Accrued expenses
|
|
|
(259
|
)
|
|
|
5
|
|
Interest payable
|
|
|
15
|
|
|
|
44
|
|
Deferred revenue
|
|
|
23
|
|
|
|
66
|
|
Taxes payable
|
|
|
430
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
32,862
|
|
|
|
29,094
|
|
Investing activities
|
|
|
|
|
|
|
|
|
(Increase) decrease in restricted cash
|
|
|
(1,769
|
)
|
|
|
10,295
|
|
Purchases of property and equipment
|
|
|
(768
|
)
|
|
|
(871
|
)
|
Purchases of subscriber accounts (net of holdbacks)
|
|
|
(35,062
|
)
|
|
|
(60,884
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(37,599
|
)
|
|
|
(51,460
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from credit facility
|
|
|
|
|
|
|
42,892
|
|
Payments on credit facility
|
|
|
|
|
|
|
(13,276
|
)
|
Payment of deferred financing costs
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
29,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(4,737
|
)
|
|
|
7,252
|
|
Cash and cash equivalents at beginning of period
|
|
|
40,838
|
|
|
|
33,267
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
36,101
|
|
|
$
|
40,519
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-4-7
|
|
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
Monitronics International, Inc. (Monitronics) and Subsidiaries
(the Company) provide security alarm monitoring and related
services to residential and business subscribers throughout the
United States and parts of Canada. The Company monitors signals
arising from burglaries, fires and other events through security
systems installed by independent dealers at subscribers
premises.
Basis of
Presentation
The consolidated balance sheet and related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows contained in this report,
which are unaudited, include the accounts of Monitronics and its
wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States (GAAP) for interim financial
information. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial
statements. The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts in the
consolidated financial statements and accompanying notes. In the
opinion of management, all adjustments, consisting of normal
recurring items, necessary for a fair presentation of
consolidated financial statements have been included. Operating
results for the three months ended September 30, 2010, are
not necessarily indicative of the results to be expected for any
other interim period or for the fiscal year ending June 30,
2011.
These unaudited interim consolidated financial statements should
be read in conjunction with the Companys audited
consolidated financial statements and related notes thereto for
the year ended June 30, 2010.
Accounting
Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Risk
Concentration
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
trade accounts receivable. The Company performs extensive credit
evaluations on the portfolios of subscriber accounts prior to
purchase and requires no collateral on the subscriber accounts
that are acquired. Concentrations of credit risk with respect to
trade accounts receivable are generally limited due to the large
number of subscribers comprising the Companys customer
base.
Deferred income taxes are provided for the tax effects of
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Companys deferred tax
asset is fully reserved primarily based on experiencing a
cumulative loss before income taxes for the three-year period
ended September 30, 2010. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income (including reversals of deferred tax liabilities)
during the periods in which those temporary differences will
become deductible. The $1.2 million net deferred tax asset
relates to Texas margin tax and does not depend on net income.
The asset will more likely than not be realized based on future
gross margin.
A-4-8
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Unaudited) Continued)
September 30,
2010
The tax expense of $482 thousand and $428 thousand at
September 30, 2010 and 2009, respectively, is for Texas
margin tax. The Company has not reported any federal income tax
expense due to its ability to utilize net operating loss
carry-forwards.
The Company accounts for uncertain tax positions using a
two-step approach. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being recognized upon
settlement. The Company has evaluated matters such as
de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition and
has determined that there is no impact on the Companys
financial statements for quarter ending September 30, 2010.
The only periods still subject to audit for the Companys
federal tax return are the 2007 through 2010 tax years. The
Company will classify interest and penalties in the provision
for income taxes. The Company has determined that no additional
accrual for interest is required in the provision for income
taxes during the quarter ended September 30, 2010.
|
|
4.
|
Commitment
and Contingencies
|
On March 22, 2006, a lawsuit was filed by State Farm
Fire & Casualty Co., as Subrogee of Edward Streit vs.
Monitronics International, Inc., Q.I.S. Incorporated, Protection
Associates, Inc., and C&H Electric &
Communications, Ltd. in the Circuit Court of the Twenty-First
Judicial District for Kankakee County, Illinois. The complaint
alleges that the Company and the various other defendants
negligently serviced, maintained, installed, tested, repaired
and inspected the central fire alarm system located at a
multiunit apartment building in Kankakee, Illinois. The
complaint alleges that as a result of these actions by the
various defendants, the central fire alarm system did not
immediately detect and notify the authorities of a fire,
resulting in damage to the building premises in excess of what
normally would have been caused. The plaintiff seeks
compensatory damages from the various defendants. The Company
believes that it acted properly and lawfully in its dealings
with the customer. As a result, the Company intends to
vigorously defend and contest any and all issues or threatened
claims in this matter. Management is currently unable to
determine the outcome of the claims or to estimate the amount of
potential loss. The Company has not established a loss accrual
associated with this claim.
On March 13, 2008, a lawsuit was filed by Paradox Security
Systems, Ltd., Shmuel Hershkovitz and Pinhas Shpater vs. ADT
Security Services, Inc., Digital Security Controls, Ltd.,
Monitronics International, Inc. and Protection One, Inc. in the
United States District Court for the Eastern District of Texas.
Judgment was entered as a matter of law in the Companys
favor with no finding of liability. On August 27, 2009, a
final judgment was entered and the Company was dismissed from
the lawsuit.
On August 18, 2009, a lawsuit was filed by Velma Veasley
vs. Monitronics International, Inc. and Tel-Star Alarms, Inc. in
the state court of Dekalb County, Georgia. The complaint alleges
that the Company and Tel-Star Alarms, Inc. negligently installed
and monitored the alarm system located at Plaintiffs
residence, that defendants breached the terms of the alarm
monitoring contract with Plaintiff and that defendants
fraudulently misrepresented to Plaintiff the capabilities of the
alarm monitoring system. The complaint alleges that as a result
of these actions, Plaintiff was assaulted in her home. The
plaintiff seeks compensatory and punitive damages from the
various defendants. The Company believes that it acted properly
and lawfully in its dealings with the customer. As a result, the
Company intends to vigorously defend and contest any and all
issues or threatened claims in this matter. Management is
currently unable to determine the outcome of the claims or to
estimate the amount of potential loss, therefore, the Company
has not established a loss accrual associated with this claim.
The Company is party to various other legal proceedings and
claims that have arisen in the ordinary course of its business.
In the opinion of management, the amount of ultimate liability
with respect to these actions will not have a material impact on
the Companys financial position or results of operations.
A-4-9
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Unaudited) Continued)
September 30,
2010
The Company uses interest rate derivatives to manage its
interest rate risk. The valuation of these instruments is
determined using widely accepted valuation techniques, including
discounted cash flow analysis on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses
observable market-based inputs, including interest rate curves
and implied volatilities. The fair values of interest rate caps
are determined using the market standard methodology of
discounting the future expected cash receipts that would occur
if variable interest rates rise above the strike rate of the
caps. The variable interest rates used in the calculation of
projected receipts on the cap are based on an expectation of
future interest rates derived from observable market interest
rate curves and volatilities. The Company incorporates credit
valuation adjustments to appropriately reflect the respective
counterpartys nonperformance risk in the fair value
measurements.
For purposes of valuation of the interest rate swaps (the
Swaps), the Company has considered that certain provisions
of the Term Notes and VFNs provide for significant adverse
changes to interest rates and uses of cash flows if this debt is
not repaid by July 2012. In addition, the Swaps can be
terminated at this time with no additional costs to the Company.
Currently, a make whole payment would be due to the counterparty
to the Swaps were the swaps terminated before April 2012. Were
the Term Notes and the VFNs not repaid in full by July 2012, the
Company would incur additional interest and other costs and be
restricted in subscriber account purchases at Funding, until the
Term Notes and VFNs were repaid in full. Management believes it
is highly likely the Company will be able to refinance
and/or repay
the Term Notes and VFNs in full by July 2012, and the valuation
considers adjustments for termination dates before and after
July 2012 on a probability weighted basis. The valuation of the
Swaps is based principally on a July 2012 maturity of the Term
Notes less a credit valuation adjustment.
Borrowings under the debt bear interest at variable rates. Our
objective in entering into the Swaps was to reduce the risk
associated with these variable rates. The Swaps, in effect,
convert variable rates of interest into fixed rates of interest
on $550 million of borrowings. It is our policy to offset
fair value amounts recognized for derivative instruments
executed with the same counterparty under a master netting
agreement. As of June 30, 2010 and 2009, no such amounts
were offset.
At September 30, 2010, derivative financial instruments
included a purchased interest rate cap, a sold interest rate
floor, and three Swaps as summarized in the tables below. The
interest rate cap represents a financial asset of the Company,
while the interest rate floor and Swaps represent financial
liabilities of the Company. Although effective economic hedges
of the Companys floating rate debt, the interest rate cap,
floor, and Swaps are not designated as hedges and as such, the
periodic changes in value are recorded in current period
earnings. The following table summarizes the key economic terms
of the Companys active derivatives as of
September 30, 2010 (dollars in thousands):
The Companys derivative instruments are, as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Rate Paid
|
|
Rate Received
|
|
Swap
|
|
$
|
350,000
|
|
|
|
6.56
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
Swap
|
|
|
100,000
|
|
|
|
6.06
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
Swap
|
|
|
100,000
|
|
|
|
6.64
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
Cap
|
|
|
240,000
|
|
|
|
6.30
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
Floor
|
|
|
260,000
|
|
|
|
3.80
|
%
|
|
|
1 mo. USD-LIBOR-BBA
|
|
A-4-10
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Unaudited) Continued)
September 30,
2010
The fair value of derivative instruments as of
September 30, 2010, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Purchased interest rate swaps
|
|
|
Other assets
|
|
|
$
|
|
|
|
|
Other liabilities
|
|
|
$
|
51,487
|
|
Purchased interest rate caps
|
|
|
Other assets
|
|
|
|
231
|
|
|
|
Other liabilities
|
|
|
|
|
|
Sold interest rate floor
|
|
|
Other assets
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
26,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate products
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
77,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
231
|
|
|
|
|
|
|
$
|
77,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and losses recognized during the three months ended
September 30, 2010 and 2009, relating to derivatives are as
follows:
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
Amount of Loss
|
|
|
|
Recognized in
|
|
Recognized in
|
|
|
|
Loss on
|
|
Loss on
|
|
Three Months Ended September 30, 2010
|
|
Derivatives
|
|
Derivatives
|
|
|
Interest rate products
|
|
Unrealized loss on derivative instruments
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
Amount of Loss
|
|
|
|
Recognized in
|
|
Recognized in
|
|
|
|
Loss on
|
|
Loss on
|
|
Three Months Ended September 30, 2009
|
|
Derivatives
|
|
Derivatives
|
|
|
Interest rate products
|
|
Unrealized loss on derivative instruments
|
|
$
|
3,745
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,745
|
|
|
|
|
|
|
|
|
The Company has a single counterparty that it faces for its
derivative contracts. The Companys contractual agreement
with its counterparty contains a provision where if the Company
defaults on its master debt agreement and liquidates the assets
that are encumbered by the debt agreement, then the Company
could also be declared in default on its derivative obligations.
As of September 30, 2010, the fair value of derivatives in
a net liability position, which includes accrued interest and
any adjustment for nonperformance risk related to these
agreements, was $77.7 million. As of September 30,
2010, the Company has not posted any collateral related to these
agreements. If the Company had breached the provision above, it
could have been required to settle its obligations under the
agreements at the termination value of $77.7 million.
ASC 820, Fair Value Measurement and Disclosures, defines
fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants at the
measurement date.
ASC 820 establishes a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. This
hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three
levels of inputs used to measure fair value are, as follows:
Level 1 Quoted prices in active markets for
identical assets or liabilities.
A-4-11
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Unaudited) Continued)
September 30,
2010
Level 2 Observable inputs other than quoted
prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices
for identical or similar assets and liabilities in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
We have aggregated our financial assets and liabilities that are
measured at fair value on a recurring basis (at least annually)
into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the
measurement dates.
The tables below present the Companys assets and
liabilities measured at fair value on a recurring basis as of
September 30, 2010, aggregated by the level in the fair
value hierarchy within which those measurements fall. The tables
do not include cash on hand or assets and liabilities that are
measured at historical cost or any basis other than fair value
(in thousands):
Assets
and Liabilities Measured at Fair Value on a Recurring Basis at
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
Markets for
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Other
|
|
Significant
|
|
|
|
|
Assets and
|
|
Observable
|
|
Unobservable
|
|
Balance at
|
|
|
Liabilities
|
|
Inputs
|
|
Inputs
|
|
September 30,
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
86,706
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86,706
|
|
Derivative financial instruments
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
231
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
26,510
|
|
|
$
|
51,469
|
|
|
$
|
77,978
|
|
The Company has determined that the majority of the inputs used
to value its interest rate cap and sold floor fall within
Level 2 of the fair value hierarchy. The Company has
determined that the majority of the inputs used to value its
Swaps fall within Level 3 of the fair value hierarchy, as
the valuation is based in part on managements estimates of
the refinancing date of the Term Notes, which affects the
termination date of the Swaps as the notional amount of the
Swaps is directly linked to the outstanding principal balance of
the Term Notes. However, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the
likelihood of default by its counterparties. For counterparties
with publicly available credit information, the credit spreads
over LIBOR used in the calculations represent implied credit
default swap spreads obtained from a third-party credit data
provider. However, as of September 30, 2010, the Company
has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative
positions and has determined that the credit valuation
adjustments are not significant to the overall valuation of its
interest rate caps and floor derivatives, but are significant
for the Swaps. As a result, the Company has determined that its
derivative valuations on its interest rate caps and floor are
classified as Level 2 of the fair value hierarchy and its
derivative valuation on its Swaps are classified in Level 3
of the fair-value hierarchy.
A-4-12
Monitronics
International, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Unaudited) Continued)
September 30,
2010
The table below sets forth a summary of changes in the fair
value of the Companys Level 3 liabilities for the
three months ended September 30, 2010:
|
|
|
|
|
Fair value at June 30, 2010
|
|
$
|
53,487
|
|
Change in unrealized loss related to the Swaps
|
|
|
(2,018
|
)
|
|
|
|
|
|
Fair value at September 30, 2010
|
|
$
|
51,469
|
|
|
|
|
|
|
The Company has evaluated events and transactions subsequent to
September 30, 2010 through December 23, 2010, the date
that the financial statements were available to be issued. Based
on requirements of the subsequent event guidance, the Company
has not identified any events that require disclosure, except
for the event described below.
On December 17, 2010, Ascent Media Corporation (AMC)
acquired 100% of the outstanding capital stock of the Company
through the merger of Mono Lake Merger Sub, Inc. (Merger Sub), a
direct wholly owned subsidiary of AMC established to consummate
the merger, with and into the Company, with the Company as the
surviving corporation in the merger. The terms of the merger are
set forth in an agreement and plan of merger dated
December 17, 2010, among AMC, Merger Sub, the Company, and,
for certain purposes only, ABRY Partners, LLC (the Shareholder
Representative). The closing of the merger occurred
simultaneously with the execution of the merger agreement. The
cash portion of the aggregate merger consideration paid by AMC
pursuant to the merger agreement, including unpaid company
transaction expenses, was approximately $413,141,000, subject to
adjustment.
A-4-13
Annex B
EXECUTION
VERSION
PURCHASE
AND SALE AGREEMENT
by
and among
ASCENT MEDIA CORPORATION,
FOUR MEDIA COMPANY LLC,
ASCENT MEDIA NETWORK SERVICES, LLC,
ASCENT MEDIA NETWORK SERVICES EUROPE LIMITED,
ASCENT MEDIA LIMITED,
ASCENT MEDIA HOLDINGS LTD.,
ASCENT MEDIA PTE. LTD.,
ENCOMPASS DIGITAL MEDIA LIMITED,
and
ENCOMPASS DIGITAL MEDIA, INC.
Dated as of
December 2, 2010
B-1
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
ARTICLE I DEFINITIONS
|
|
|
B-7
|
|
1.1 Certain Defined Terms
|
|
|
B-8
|
|
1.2 Additional Definitions
|
|
|
B-19
|
|
1.3 Terms Generally
|
|
|
B-23
|
|
ARTICLE II CLOSINGS; PURCHASE PRICE AND ADJUSTMENT
|
|
|
B-23
|
|
2.1 Purchases and Sales
|
|
|
B-23
|
|
2.2 Closings; Purchase Price; Pre-Closing Estimates
|
|
|
B-24
|
|
2.3 Post-Closing Adjustment
|
|
|
B-24
|
|
2.4 Tax Allocation
|
|
|
B-26
|
|
2.5 Intercompany Accounts
|
|
|
B-26
|
|
2.6 Transfer Taxes
|
|
|
B-26
|
|
2.7 Purchaser Closing Deliverables
|
|
|
B-27
|
|
2.8 AMC Entities Closing Deliverables
|
|
|
B-27
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES WITH RESPECT
TO THE AMC ENTITIES
|
|
|
B-29
|
|
3.1 Organization and Qualification
|
|
|
B-29
|
|
3.2 Authority; Subsidiaries
|
|
|
B-30
|
|
3.3 No Conflicts
|
|
|
B-31
|
|
3.4 Legal Proceedings
|
|
|
B-31
|
|
3.5 Title to Equity Interests
|
|
|
B-31
|
|
3.6 Brokers
|
|
|
B-32
|
|
3.7 Solvency
|
|
|
B-32
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES WITH RESPECT
TO THE COMPANY GROUP
|
|
|
B-32
|
|
4.1 Organization and Qualification; Subsidiaries
|
|
|
B-32
|
|
4.2 Organizational or Governing Documents
|
|
|
B-33
|
|
4.3 Authority
|
|
|
B-33
|
|
4.4 No Conflict; Required Filings and Consents
|
|
|
B-33
|
|
4.5 Company Permits; Compliance with Laws
|
|
|
B-34
|
|
4.6 Capitalization
|
|
|
B-34
|
|
4.7 Financial Statements
|
|
|
B-35
|
|
4.8 No Undisclosed Liabilities
|
|
|
B-36
|
|
4.9 Absence of Certain Changes or Events
|
|
|
B-36
|
|
4.10 Absence of Litigation
|
|
|
B-36
|
|
4.11 Related Party Transactions
|
|
|
B-36
|
|
4.12 Labor Matters
|
|
|
B-37
|
|
4.13 Employee Benefit Plans
|
|
|
B-38
|
|
4.14 Taxes
|
|
|
B-40
|
|
4.15 Intellectual Property
|
|
|
B-41
|
|
4.16 Real Property
|
|
|
B-42
|
|
4.17 Material Contracts and Leases
|
|
|
B-45
|
|
4.18 Insurance
|
|
|
B-47
|
|
4.19 Environmental Matters
|
|
|
B-48
|
|
4.20 Customers and Suppliers
|
|
|
B-49
|
|
B-2
|
|
|
|
|
|
|
Page
|
|
|
4.21 Tangible Property
|
|
|
B-49
|
|
4.22 Sufficiency of Assets
|
|
|
B-49
|
|
4.23 Accounts Receivable
|
|
|
B-49
|
|
4.24 Information Supplied
|
|
|
B-50
|
|
4.25 Brokers
|
|
|
B-50
|
|
4.26 Indebtedness; Transaction Expenses
|
|
|
B-50
|
|
4.27 Company Group Reorganization
|
|
|
B-50
|
|
4.28 Cash Deposits
|
|
|
B-50
|
|
4.29 No Other Representations or Warranties
|
|
|
B-50
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
PURCHASERS
|
|
|
B-50
|
|
5.1 Organization and Qualification
|
|
|
B-50
|
|
5.2 Authority
|
|
|
B-51
|
|
5.3 No Conflicts
|
|
|
B-51
|
|
5.4 Legal Proceedings
|
|
|
B-51
|
|
5.5 No Financing Contingency
|
|
|
B-51
|
|
5.6 Solvency
|
|
|
B-52
|
|
5.7 Brokers
|
|
|
B-52
|
|
5.8 No Other Representations or Warranties
|
|
|
B-52
|
|
ARTICLE VI CERTAIN COVENANTS
|
|
|
B-52
|
|
6.1 Conduct of the Business Prior to the Closings
|
|
|
B-52
|
|
6.2 Proxy Statement
|
|
|
B-54
|
|
6.3 Stockholders Meeting
|
|
|
B-55
|
|
6.4 No Solicitation of Competing Proposal
|
|
|
B-55
|
|
6.5 HSR and Other Required Filings
|
|
|
B-58
|
|
6.6 Third-Party Consents
|
|
|
B-59
|
|
6.7 Access to Information; Certain Projections; Business
Records; Post-Closing; Confidentiality
|
|
|
B-59
|
|
6.8 Use of AMC Name
|
|
|
B-60
|
|
6.9 Insurance
|
|
|
B-60
|
|
6.10 Reasonable Best Efforts; Cooperation
|
|
|
B-61
|
|
6.11 Publicity
|
|
|
B-63
|
|
6.12 Excluded Assets
|
|
|
B-63
|
|
6.13 [Intentionally Omitted]
|
|
|
B-63
|
|
6.14 Termination of Affiliate Transactions
|
|
|
B-63
|
|
6.15 Releases
|
|
|
B-63
|
|
6.16 Resignations
|
|
|
B-63
|
|
6.17 Company Group Reorganization
|
|
|
B-64
|
|
6.18 Real Estate
|
|
|
B-64
|
|
6.19 Burbank Parcels
|
|
|
B-65
|
|
6.20 Assumed Guarantees
|
|
|
B-66
|
|
6.21 Certain Capital Expenses
|
|
|
B-67
|
|
6.22 Financial Updates
|
|
|
B-68
|
|
6.23 Audited Financial Statements
|
|
|
B-68
|
|
6.24 Microsoft Licenses
|
|
|
B-68
|
|
B-3
|
|
|
|
|
|
|
Page
|
|
|
ARTICLE VII TAX MATTERS
|
|
|
B-68
|
|
7.1 Tax Matters
|
|
|
B-68
|
|
ARTICLE VIII EMPLOYEE MATTERS
|
|
|
B-74
|
|
8.1 Company Employees
|
|
|
B-74
|
|
8.2 Participation in AMC Plans
|
|
|
B-75
|
|
8.3 Workers Compensation
|
|
|
B-75
|
|
8.4 WARN Obligations
|
|
|
B-75
|
|
8.5 Welfare Plan Obligations
|
|
|
B-75
|
|
8.6 Vacation
|
|
|
B-76
|
|
8.7 401(k) Plan
|
|
|
B-76
|
|
8.8 No Additional Rights
|
|
|
B-76
|
|
8.9 Additional Matters
|
|
|
B-76
|
|
ARTICLE IX CONDITIONS TO THE CLOSINGS
|
|
|
B-77
|
|
9.1 Conditions to the Obligations of Each Party
|
|
|
B-77
|
|
9.2 Conditions to the Obligations of Purchasers
|
|
|
B-77
|
|
9.3 Conditions to the Obligations of AMC Entities
|
|
|
B-78
|
|
ARTICLE X INDEMNIFICATION
|
|
|
B-79
|
|
10.1 Survival of Representations, Warranties and Agreements
|
|
|
B-79
|
|
10.2 Indemnification by AMC Entities
|
|
|
B-79
|
|
10.3 Indemnification by Purchasers and the Company Group Members
|
|
|
B-79
|
|
10.4 Limits on Indemnification
|
|
|
B-80
|
|
10.5 Procedures Relating to Indemnification
|
|
|
B-80
|
|
10.6 Additional Matters
|
|
|
B-81
|
|
10.7 Limitation on Remedies
|
|
|
B-82
|
|
10.8 Tax Matters
|
|
|
B-82
|
|
10.9 Escrow
|
|
|
B-82
|
|
ARTICLE XI TERMINATION
|
|
|
B-83
|
|
11.1 Termination
|
|
|
B-83
|
|
11.2 Effect of Termination
|
|
|
B-84
|
|
11.3 Termination Fees
|
|
|
B-84
|
|
ARTICLE XII GENERAL PROVISIONS
|
|
|
B-85
|
|
12.1 Assignment
|
|
|
B-85
|
|
12.2 No Third-Party Beneficiaries
|
|
|
B-86
|
|
12.3 Expenses
|
|
|
B-66
|
|
12.4 Equitable Relief
|
|
|
B-86
|
|
12.5 Amendments
|
|
|
B-86
|
|
12.6 Notices
|
|
|
B-86
|
|
12.7 Interpretation; Schedules
|
|
|
B-87
|
|
12.8 Counterparts
|
|
|
B-87
|
|
12.9 Severability
|
|
|
B-87
|
|
12.10 Waiver of Compliance; Consents
|
|
|
B-87
|
|
12.11 Entire Agreement
|
|
|
B-88
|
|
12.12 Governing law; Submission to Jurisdiction
|
|
|
B-88
|
|
12.13 Time of Essence
|
|
|
B-88
|
|
B-4
|
|
|
EXHIBITS
|
|
|
|
Sample Purchase Price Calculation and Closing Statement
|
|
Exhibit A
|
Form of 2901 West Alameda Sublease
|
|
Exhibit B
|
Form of Northvale Lease
|
|
Exhibit C
|
Form of Tappan Lease
|
|
Exhibit D
|
Form of Appurtenant Earth Station Easement Agreement
|
|
Exhibit E
|
Form of 2813 West Alameda Lease
|
|
Exhibit F
|
Form of Declaration for 2813 West Alameda Parcel
|
|
Exhibit G
|
Form of Declaration for 2820 West Olive Parcel
|
|
Exhibit H
|
Form of
In-Gross
Earth Station Easement Agreement
|
|
Exhibit I
|
|
|
|
SCHEDULES
|
|
|
|
Schedule A
|
|
AMC Entities and Companies Knowledge
|
Schedule 1.1(a)
|
|
Assumed Employee Benefit Plans
|
Schedule 1.1(b)
|
|
Networks Brands and Divisions
|
Schedule 1.1(c)
|
|
Excluded Liabilities
|
Schedule 1.1(d)
|
|
Major Customers
|
Schedule 1.1(e)
|
|
Working Capital Assets and Working Capital Liabilities
|
Schedule 1.1(f)
|
|
2813 West Alameda Parcel
|
Schedule 1.1(g)
|
|
2820 West Olive Parcel
|
Schedule 1.1(h)
|
|
Excluded Assets
|
Schedule 1.1(i)
|
|
Continuing Commercial Arrangements
|
Schedule 1.1(j)
|
|
23 Research Drive Parcel
|
Schedule 1.1(k)
|
|
UK Company Employees
|
Schedule 1.1(l)
|
|
Services Agreements
|
Schedule 4.19
|
|
Environmental Documents
|
Schedule 6.5(b)
|
|
FCC Licenses
|
Schedule 6.7(c)
|
|
Delivered Books and Records
|
Schedule 6.10(a)(i)
|
|
Disney Contracts
|
Schedule 6.10(a)(ii)
|
|
Sony Contracts
|
Schedule 6.17
|
|
Acquired Assets
|
Schedule 6.18(b)
|
|
Transferred Owned Real Property
|
Schedule 6.18(c)(i)
|
|
2901 West Alameda Premises
|
Schedule 6.18(c)(ii)
|
|
Northvale Premises
|
Schedule 6.18(c)(iii)
|
|
Tappan Premises
|
Schedule 6.20(a)
|
|
Assumed Guarantees
|
Schedule 6.21(a)
|
|
Approved Capital Projects
|
Schedule 6.24(a)
|
|
Microsoft Licenses
|
Schedule 8.1(c)
|
|
Services Employees
|
Schedule 8.1(d)
|
|
Non-Solicit Employees
|
Schedule 9.1(f)
|
|
Consents
|
|
|
|
COMPANY DISCLOSURE LETTER
|
|
|
|
4.1(b)
|
|
Subsidiaries and Equity Ownership
|
4.4(a)(iii)
|
|
Consents
|
4.6(d)
|
|
Equity Securities Obligations
|
B-5
|
|
|
COMPANY DISCLOSURE LETTER
|
|
|
|
4.7(b)
|
|
Non-GAAP Accounting
|
4.7(c)
|
|
GAAP Capital Expenditures
|
4.9
|
|
Certain Changes or Events
|
4.11
|
|
Related Party Transactions
|
4.12(a)
|
|
Labor Matters
|
4.12(c)(i)
|
|
Company Group Employees
|
4.12(c)(ii)
|
|
Certain Employee Arrangements
|
4.12(c)(iii)
|
|
Employment Agreements
|
4.13(a)(i)
|
|
Company Benefit Plans
|
4.13(a)(ii)
|
|
Other Company Benefit Plans
|
4.13(c)
|
|
Pension Plans
|
4.13(f)
|
|
Employee Participation under the Company Benefit Plans
|
4.13(g)
|
|
Non-US Company Benefit Plans
|
4.13(m)
|
|
Benefits Insurance Policies
|
4.14(a)
|
|
Tax Matters
|
4.14(c)
|
|
Tax Classification
|
4.15(a)
|
|
Company Intellectual Property Rights
|
4.15(b)
|
|
Intellectual Property Licenses
|
4.15(c)
|
|
Registered Intellectual Property
|
4.15(d)
|
|
Intellectual Property Claims
|
4.16(a)
|
|
Leased Real Property
|
4.16(b)
|
|
Owned Real Property
|
4.16(c)
|
|
Rent Roll
|
4.16(d)(vii)
|
|
Wetland, Flood Plain or Flood Insurance Area
|
4.16(d)(x)
|
|
Former Real Property Liability
|
4.17(a)
|
|
Company Material Contracts
|
4.17(c)
|
|
Third-Party Consents
|
4.18
|
|
Insurance Policies
|
4.19
|
|
Environmental Matters
|
4.20(a)
|
|
Customers and Suppliers
|
4.20(b)
|
|
Notices from Major Customers
|
4.20(c)
|
|
Notices from Major Suppliers
|
4.21
|
|
Tangible Property
|
4.22
|
|
Sufficiency of Assets
|
4.23
|
|
Accounts Receivable
|
6.1
|
|
Conduct of Business Prior to Closing
|
6.12
|
|
Excluded Assets
|
6.14
|
|
Affiliate Transactions
|
6.17(a)(i)
|
|
Plan of Reorganization
|
6.17(a)(ii)
|
|
Company Group Structure
|
8.1(a)
|
|
AMC Business Employees
|
Annex A
|
|
Company Financial Statements
|
B-6
PURCHASE
AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (this
Agreement) is dated as of December 2,
2010 (the Effective Date), by and among
Ascent Media Corporation, a Delaware corporation
(AMC), Four Media Company LLC, a Delaware
limited liability company (US Seller), Ascent
Media Network Services, LLC, a California limited liability
company (the US Company), Ascent Media
Limited, a company organized under the laws of England with its
registered office at 1 Stephen Street, London W1T 1AT
(registered number 03014792) (UK Seller),
Ascent Media Network Services Europe Limited, a company
organized under the laws of England with its registered office
at 1 Stephen Street, London W1T 1AT (registered number 0226317)
(the UK Company), Ascent Media Holdings Ltd.
(registration number 198200337D), a company incorporated in
Singapore with its registered address at 20 Loyang Crescent
Singapore 508984 (Singapore Seller and,
together with US Seller and UK Seller, the
Sellers), Ascent Media Pte. Ltd.
(registration number 199501194K), a company incorporated in
Singapore with its registered address at 20 Loyang Crescent
Singapore 508984 (the Singapore Company and,
together with the US Company and the UK Company, the
Companies), Encompass Digital Media, Inc., a
Delaware corporation (US Purchaser), and
Encompass Digital Media Limited, a private company incorporated
in England and Wales (registered number 07379104) (UK
Purchaser and, together with US Purchaser, the
Purchasers).
Recitals
A. US Seller is an indirect, wholly-owned Subsidiary of
AMC. UK Seller is an indirect, wholly-owned Subsidiary of AMC.
Singapore Seller is an indirect, wholly-owned Subsidiary of AMC.
B. US Seller owns all of the outstanding limited liability
company interest (the US Company Interest) of
the US Company. Ascent Media Group Limited owns all of the
issued shared capital (the UK Company
Interest) of the UK Company. As of the Closings (and
prior to giving effect to the Transactions contemplated hereby),
UK Seller will own all of the UK Company Interest. Singapore
Seller owns all of the issued shared capital (the
Singapore Company Interest and, together with
the US Company Interest and the UK Company Interest, the
Company Interests) of the Singapore Company.
C. UK Purchaser is a direct, wholly-owned Subsidiary of US
Purchaser.
D. Prior to the Closings, AMC shall reorganize its
Subsidiaries such that the US Company shall not have any direct
or indirect Subsidiaries. As of the Closings, none of the
Companies shall have any direct or indirect Subsidiaries.
E. Prior to the Closings, AMC shall ensure that the
Companies, in the aggregate, shall own or hold all the assets
(including the Real Property and material licenses) of the
Business, shall be counterparties to, or shall be properly
assigned, all of the Contracts (including Real Property Leases)
of the Business, and shall employ all of the employees of the
Business.
F. This Agreement provides that at the Closings,
(i) US Seller shall sell and assign to US Purchaser, and US
Purchaser shall purchase and pay for, all the US Company
Interest, upon the terms and subject to the conditions set forth
herein, (ii) UK Seller shall sell and assign to UK
Purchaser, and UK Purchaser shall purchase and pay for, all the
UK Company Interest, upon the terms and subject to the
conditions set forth herein, and (iii) Singapore Seller
shall sell and assign to UK Purchaser, and UK Purchaser shall
purchase and pay for, all the Singapore Company Interest, upon
the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements
hereinafter set forth, the parties to this Agreement hereby
agree as follows:
ARTICLE I
DEFINITIONS
B-7
1.1 Certain Defined Terms. As used
in this Agreement, the following terms have the corresponding
meanings:
23 Research Drive Parcel means that certain
parcel of real property located in the City of Stamford, County
of Fairfield, State of Connecticut, as more particularly
described on Schedule 1.1(j).
2813 West Alameda Parcel means that
certain parcel of real property located in the City of Burbank,
County of Los Angeles, State of California, as more particularly
described on Schedule 1.1(f).
2820 West Olive Parcel means that
certain parcel of real property located in the City of Burbank,
County of Los Angeles, State of California, as more particularly
described on Schedule 1.1(g).
535 Fifth Avenue Lease means that
certain lease dated June 11, 1996, between 535 Fifth
Avenue LLC, as landlord, and Ascent Media Network Services, LLC
(as
successor-in-interest
to Big Picture, Even Time Limited and International Post
Limited), as tenant, with respect to the leased premises on the
13th, 14th, and 15th floors of 535 Fifth Avenue, New
York New York.
Accounting Methodology means, collectively,
the accounting principles, methods and practices used in
preparing the Interim Balance Sheet and the Sample Calculation,
applied on a consistent basis and in accordance with GAAP in
effect as of September 30, 2010 (subject to a materiality
threshold determined in relation to the Company Group);
provided, that, if there is any conflict between
the accounting principles, methods and practices used in
preparing the Interim Balance Sheet and those used in preparing
the Sample Calculation, the accounting principles, methods and
practices used in preparing the Sample Calculation shall control.
A&E Contract means the Services
Agreement by and between Ascent Media Network Services, LLC and
A&E Television Networks, dated as of October 14, 2005,
as amended and supplemented by that certain Work Order, dated as
of July 1, 2010, by and between Ascent Media Network
Services, LLC and A&E Television Networks, LLC, as
successor-in-interest
to A&E Television Networks.
AETN means A&E Television Networks, LLC,
a Delaware limited liability company and
successor-in-interest
to A&E Television Networks, a New York general partnership.
Affiliate of any Person means any other
Person that, directly or indirectly, controls or is controlled
by or is under common control with such first Person. A Person
shall be deemed to control another Person for
purposes of this definition if such first Person possesses,
directly or indirectly, the power to direct or cause the
direction of the management or policies of such other Person, by
contract, or ownership of voting securities or otherwise.
AMC Common Stock means the Ascent Media
Corporation Series A common stock, par value $.01 per
share, and the Ascent Media Corporation Series B common
stock, par value $.01 per share.
AMC Credit Facility means the Credit
Agreement, dated as of July 23, 2010, by and among Wells
Fargo Capital Finance, LLC, a Delaware limited liability
company, as lender, Wells Fargo Capital Finance, LLC, a Delaware
limited liability company, as agent, and Ascent Media Group,
LLC, a Delaware limited liability company, as borrower.
AMC Entities means AMC, the US Seller, the UK
Seller and the Singapore Seller.
AMC Fundamental Representations means the
representations and warranties set forth in Sections 3.1
(Organization and Qualification), 3.2 (Authority; Subsidiaries),
3.3 (No Conflicts), 3.5 (Title to Equity Interests), 3.6
(Brokers), 4.1 (Organization and Qualification; Subsidiaries),
4.2 (Organizational or Governing Documents), 4.3 (Authority),
4.4(a) (No Conflicts), 4.6 (Capitalization), 4.14 (Taxes), 4.25
(Brokers), 4.26 (Indebtedness; Transaction Expenses) and 4.27
(Company Group Reorganization), other than the
representations and warranties set forth in clause (iii) of
Section 3.3 or clause (iii) of Section 4.4(a),
relating to the absence of certain contractual conflicts.
AMC Material Adverse Effect means (i) a
Material Adverse Effect with respect to the AMC Entities, or
(ii) any event, occurrence, effect or change that would
prevent or delay beyond the Termination Date the
B-8
consummation of the Transactions or otherwise prevent the AMC
Entities or the Companies from performing their respective
obligations under this Agreement in all material respects.
Assumed Employee Benefit Plans means the
Employee Benefit Plans of the Company Group set forth on
Schedule 1.1(a), it being understood that as of the
Closings, the Company Group shall not have any Employee Benefit
Plans other than the Assumed Employee Benefit Plans.
Base Purchase Price means $113,250,000.
Board of Film Censors Singapore means the
board of film censors of Singapore established under the Films
Act of Singapore (Cap. 107).
Burbank Credit Amount means $1,000,000.
Burbank Municipal Code means the Municipal
Code of the City of Burbank in the State of California as the
same may be from time to time amended.
Business means the businesses of providing
(i) network origination, playout and master control
services, including: digitization of client-provided media
assets; aggregation of media content into a continuous linear
playout stream; cut-to-clock and compliance editing; associated
tape library management, ingest and quality control; format
conversion; subtitling and foreign language dubbing; and tape
duplication; and (ii) transport and connectivity services,
including: operation of satellite earth stations
and/or fiber
connectivity and related video switches and communications
gateways for occasional use backhaul services, video file
transfers and dedicated data and video services in Singapore,
the United Kingdom, California, New York, New Jersey, Minnesota
and Connecticut; provision of leased fiber optic capacity; and
related encryption and compression systems, in each case as such
businesses are conducted by AMC and its Subsidiaries as of the
Effective Date, directly and indirectly, through any of the
facilities set forth on Schedule 1.1(b);
provided, however, that such term shall not
include (x) the businesses conducted by Ascent Media
Systems Integration, LLC and TGS, LLC, or (y) the
businesses conducted through the entities, divisions and brands
set forth on Schedule 1.1(h).
Business Day means any day that is not a
Saturday, Sunday or other day on which banks are required or
authorized by Law to be closed in New York, New York.
Cash Deferred Revenue means, as of the
Closings, (i) the portion of deferred revenue (both current
and long-term) associated with cash received from customers
(including deposits under Contracts) and upfront payments from
customers (including MTV), and (ii) customer deposits and
upfront payments in cash from customers that are not reflected
in deferred revenue but otherwise reflected as a liability (both
current and long-term).
Changi Lease means the sublease and other
documents described in Paragraphs 2(d), 2.1 and 2.2 of
Section 4.16(a) of the Company Disclosure Letter.
Changi Liabilities means, collectively,
(i) all Liabilities arising from or related to the Changi
Lease, including the Singapore Companys obligation to
restore the Changi Premises upon the expiration or termination
of the Changi Lease, (ii) all Liabilities under the Changi
Lease arising from or related to the failure to obtain any
necessary consent(s) to the change in control of the Singapore
Company in connection with the Transactions, and (iii) all
Liabilities arising from or related to the termination of
employment of all employees of AMC and its Subsidiaries
(including the Company Group Members) providing services
primarily at the Changi Premises, including ex-gratia payments,
leave encashments, and payments provided in lieu of notice.
Changi Premises means the premises at 3
Changi Business Park Vista, Singapore as described in
Paragraph 2(c) of Section 4.16(a) of the Company
Disclosure Letter.
Claim means any claim, action, suit,
litigation, hearing, grievance proceeding or other similar
proceeding or investigation (whether civil, criminal,
administrative, investigative or other) by or before any
Governmental Authority or by a private party seeking to enforce
any Law or seeking injunctive relief or damages for alleged
property damage or personal injury, or any arbitration.
B-9
COBRA means the Consolidated Omnibus Budget
Reconciliation Act of 1985.
Code means the U.S. Internal Revenue
Code of 1986, as amended.
Communications Act means the Communications
Act of 1934, as amended, including by the Cable Communications
Policy Act of 1984, the Cable Television Consumer Protection and
Competition Act of 1992 and the Telecommunications Act of 1996,
and the rules, regulations, policies and published orders of the
FCC thereunder.
Company Disclosure Letter means that separate
disclosure letter which has been delivered by the AMC Entities
to the Purchasers prior to the execution of this Agreement,
which forms a part of this Agreement.
Company Employee means any individual
employed by any Company Group Member at the Closing Date.
Company Group means the US Company (for the
avoidance of doubt, not including Ascent Media Systems
Integration, LLC or TGS, LLC), the UK Company and the Singapore
Company, taken as a whole.
Company Group Member means any of the US
Company (for the avoidance of doubt, not including Ascent Media
Systems Integration, LLC or TGS, LLC), the UK Company or the
Singapore Company.
Company Material Adverse Effect means
(i) a Material Adverse Effect with respect to the Company
Group, or (ii) any event, occurrence, effect or change that
would prevent or delay beyond the Termination Date the
consummation of the Transactions or otherwise prevent the AMC
Entities or the Companies from performing their respective
obligations under this Agreement in all material respects.
Company Transaction Compensation means
(i) all bonuses, payments and awards arising under the
Ascent Media Group, LLC 2006 Long-Term Incentive Plan (as
amended and restated effective September 9, 2008, as
amended by the First Amendment to Ascent Media Group, LLC 2006
Long-Term Incentive Plan effective as of July 9, 2010), the
Ascent Media Group 2010 Retention Bonus Plan, and the Ascent
Media Group, LLC Management Incentive Plan (as amended and
restated effective January 1, 2007), made or required to be
made by the Company Group to any employee of AMC or any of its
Subsidiaries (including the Company Group), or for which the
Company Group is obligated to reimburse or pay any Person, the
obligation for which arose on or before the Closings, and
(ii) any and all stay bonuses, change in control payments,
severance payments (in case of any employee terminated, or who
received notice of termination, prior to the Closings),
retention payments, or transaction bonuses, or any acceleration
or payment of bonuses, options, restricted stock, phantom equity
or equity appreciation rights or other incentive or equity-based
compensation awards (including any such bonus, payment or
acceleration under any of the plans described in clause (i)
of this definition), made or required to be made by the Company
Group to any employee of AMC or any of its Subsidiaries
(including the Company Group), or for which the Company Group is
obligated to reimburse or pay any Person, in each case
(x) as a result of the execution of this Agreement, the
consummation of the Transactions, or otherwise in connection
with this Agreement or the Transactions, or (y) the
obligation for which arose on or before the Closings, remains
outstanding as of the Closings, and is not reflected as a
Working Capital Liability.
Company Transaction Expenses means any and
all out-of-pocket costs, fees and expenses incurred by the
Company Group or on its behalf, or subject to reimbursement by
the Company Group, in connection with the drafting, negotiation,
preparation and review of the Transaction Documents (including
the Company Disclosure Letter and the disclosure of the
documents referenced therein) or the consummation of the
Transactions (whether incurred prior to, on or after the date
hereof), including, without duplication, (a) any brokerage
fees, costs and expenses, commissions, finders fees or
financial advisory fees, (b) the fees and expenses of
counsel, accountants or other advisors or service providers, and
(c) any Company Transaction Compensation; provided,
however, that, for the avoidance of doubt, the foregoing
amount shall exclude any and all Transfer Taxes arising from
this Agreement or the Transactions.
Contamination Easement means that certain
Easement dated December 15, 1953 and recorded in Volume 715
at Page 574 in the Stamford Land Records in the Office of
the Town Clerk of the City of Stamford, which was partially
released in Volume 4410 at Page 65 of the Stamford Land
Records, and which affects the
B-10
23 Research Drive Parcel and the adjacent real property commonly
known as 562 Glenbrook Road, Stamford, Connecticut.
Contamination Easement Liability means, so
long as the 23 Research Drive Parcel is owned by the US
Purchaser or any of its Affiliates and used for substantially
the same purposes as used on the Closing Date, any and all
Third-Party Claims (including Claims by any Governmental
Authority) arising from or in connection with the Contamination
Easement, or any Release of Hazardous Materials pursuant
thereto, and any Losses or other Environmental Liabilities
arising from or in connection with any such Third-Party Claims
(including Claims by any Governmental Authority).
Consent means any consent or approval of any
third-party person that is not a Governmental Authority.
Contract means any contract, agreement,
mortgage, instrument, license, lease, binding sales or purchase
order or other legally binding commitment.
DBS Facility means that certain Facility Pack
for Fully Cash-Backed Overdraft/Letter of Guarantee Facility
provided to the Singapore Company by DBS Bank Ltd.
Employee Benefit Plan means any benefit,
compensation, bonus or incentive plan, program, policy,
contract, agreement, commitment, understanding or arrangement of
any kind whatsoever (whether qualified or unqualified, and
whether or not in writing), and any trust, escrow or other
similar arrangement relating thereto, that AMC or any of its
Subsidiaries sponsors, maintains or contributes to or to which
AMC or any of its Subsidiaries has any direct or indirect
Liability, whether contingent or actual, including: (a) any
employee benefit plan within the meaning of
Section 3(3) of ERISA, (b) any health, medical,
dental, pharmaceutical, vision, sickness, long-term care,
workers compensation, disability, employee assistance, accident,
disability or life insurance, pension, defined benefit, defined
contribution, savings, retirement, retiree medical, supplemental
retirement, cafeteria benefit, dependent care, director or
employee loan, vacation, sabbatical, unemployment, salary
continuation, matching gift, tuition reimbursement or fringe
benefit plan, program or arrangement, (c) any bonus, profit
sharing, deferred compensation, stock option, stock purchase,
restricted stock, stock appreciation, phantom stock, cash or
equity-based incentive, retention, stay bonus, severance,
termination payment,
gross-up or
change in control plan, program or arrangement, (d) any
collective bargaining or other labor union Contract, or
(e) any employment or consulting agreement or arrangement.
Environmental Law means any Law relating to
(i) pollution, protection, preservation or restoration of
the environment (including ambient air, water vapor, surface
water, groundwater, drinking water supply, surface land,
subsurface strata, and plant and animal life) or natural
resources, (ii) public health and safety, (iii) worker
health and safety, (iv) presence, use, production,
manufacture, generation, management, processing, handling,
transportation, treatment, storage, recycling, disposal,
discharge, Release, threatened Release, emission, spillage,
control or cleanup of, or exposure to, Hazardous Materials, or
(v) record keeping, notification, disclosure or reporting
requirements with respect to Hazardous Materials. For the
avoidance of doubt, Environmental Law includes the
Comprehensive Environmental Response, Compensation, and
Liability Act, the Resource Conservation and Recovery Act, the
Toxic Substances Control Act, the Safe Drinking Water Act, the
Clean Air Act, the Federal Water Pollution Control Act, the
Emergency Planning and Community Right-to-Know Act, and the
Occupational Safety and Health Act, and any similar state or
local Law.
Environmental Liabilities means any and all
Liabilities to the extent arising from, relating to or in
connection with (i) any presence, use, production,
manufacture, generation, management, processing, handling,
transportation, treatment, storage, recycling, disposal,
discharge, Release, threatened Release, emission, spillage,
control, cleanup or exposure by any Person of any Hazardous
Material, (ii) any pollution or contamination by any Person
of air, soil, surface land, subsurface strata, groundwater,
drinking water supply, surface water, buildings, structures and
improvements by or with any Hazardous Material, including in
connection with underground storage tanks, (iii) any
off-site storage, transportation, Release, discharge, emission,
spillage or disposal of any Hazardous Material by any Person,
(iv) any violation or non-compliance by any Person with any
Environmental Law, including any Claim, judgment, award,
settlement, demand or response relating thereto, or (v) any
Remediation.
B-11
Environmental Permit means any permit,
license, identification number, franchise, authorization,
certificate, approval or order required or issued pursuant to
any Environmental Law.
Equity Securities means, collectively, shares
of capital stock or share capital of any class or series,
general or limited partnership interests, limited liability
company interests
and/or other
types of ownership or equity interests in, to or under any
partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association,
joint venture or other entity of whatever nature, or any legal
or beneficial interest in any of the foregoing.
ERISA means the Employee Retirement Income
Security Act of 1974.
ERISA Affiliate means, with respect to any
Person, and other Person that is required to be treated as a
single employer together with such first Person pursuant to
Section 414 of ERISA.
Estimated Purchase Price means (i) the
Base Purchase Price, minus (ii) Estimated Cash
Deferred Revenue as certified by AMC pursuant to
Section 2.2(c), minus (iii) Estimated Capex
Shortfall as certified by AMC pursuant to Section 2.2(c),
plus (iv) Estimated Added Investments as certified
by AMC pursuant to Section 2.2(c), plus (v) the
amount, if any, by which the Estimated Net Working Capital as
certified by AMC pursuant to Section 2.2(c) exceeds Target
Working Capital, minus (vi) the amount, if any, by
which Target Working Capital exceeds the Estimated Net Working
Capital as certified by AMC pursuant to Section 2.2(c), and
minus (vii) the Burbank Credit Amount in the event
that fee simple title to the 2813 West Alameda Parcel is
not transferred to the US Company in connection with the
Closings by five Business Days prior to the anticipated Closing
Date.
Exchange Act means the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder.
Excluded Liabilities means the following
Liabilities to the extent such Liabilities are not Liabilities
arising under the Intelsat Capital Lease:
(a) all Indebtedness of the Company Group Members and their
respective Affiliates and predecessors outstanding at or at any
time before the Closings;
(b) all Liabilities for Company Transaction Expenses;
(c) all Changi Liabilities;
(d) all Liabilities arising from or related to any
Contract, other than a Transaction Document, for the acquisition
or sale of any assets, Equity Securities or businesses
(including by equity or asset purchase, merger, combination or
otherwise) other than in the ordinary course of business
consistent with past practice, pursuant to which any Company
Group Member has any material outstanding rights or obligations
(including any such Contract containing material
representations, warranties, covenants, indemnities or other
obligations, including any earnout or other deferred
or contingent consideration, that is still in effect), or any
Contract granting to any Person any preferential rights to
purchase any assets, Equity Securities or businesses, in each
case under which there are material outstanding obligations, to
the extent such Contract was entered into or consummated on or
prior to the Closings;
(e) all Liabilities arising from the SIC Contract;
(f) all Liabilities arising from or related to any Employee
Benefit Plan (including any such Liabilities triggered, in whole
or in part, by the execution of this Agreement or the
consummation of the Transactions and any Liabilities for
deductibles under any applicable insurance policies), other than
Assumed Employee Benefit Plans;
(g) all Liabilities arising from or related to any Assumed
Employee Benefit Plan (including any such Liabilities triggered,
in whole or in part, by the execution of this Agreement or the
consummation of the Transactions and any Liabilities for
deductibles under any applicable insurance policies) to the
extent such Liabilities relate to or arise from periods (or
portions thereof) ending, or Claims incurred, on or prior to the
Closing Date;
B-12
(h) all other Liabilities that the Retained Group has
agreed to retain pursuant to Article VIII hereof;
(i) all Contamination Easement Liabilities;
(j) all Liabilities arising from or related to the receipt
of a contribution notice or financial support direction (within
the meaning of sections 38 to 56 of the Pensions Act
2004) by any Company Group Member or any director, officer
or employee of any Company Group Member from the United
Kingdoms Pensions Regulator to the extent such Liabilities
relate to or arise from periods (or portions thereof) ending, or
actions or omissions taken or failed to be taken, on or prior to
the Closing Date;
(k) all Liabilities arising out of the contract of
employment of any person being found or alleged to have been
transferred to any Company (including the UK Company) by reason
of the Transfer Regulations applying to such person as a
consequence of (or in order to effect) the Transactions,
including all Liabilities arising out of the dismissal of such
person or any failure in respect of any obligation to inform and
consult with such person or such persons representatives
under the Transfer Regulations, but not including any such
Liabilities to the extent triggered by termination by any
Purchaser of any person indentified on
Schedule 1.1(k) if notice of such termination shall
be given following the Closing Date;
(l) all Liabilities arising from or related to any breach
by AMC or any of its Subsidiaries (including any Company Group
Member) of any Contract governing the lease, sublease or
co-occupation of Leased Real Property occurring on or prior to
the Closings or for any amounts due the landlord under any such
Contract in connection with the Transactions (including any
fees, costs, expenses, sums or other consideration arising from
or related to the assignment of such Contract to a Company Group
Member or as a result of a change in control of a Company Group
Member);
(m) all Liabilities arising from or related to any Claim
made prior to, on or following the Closings by any licensee or
occupier at the Leased Real Property in the United Kingdom (who
is such a licensee or occupier as of the Closings) pursuant to
the Landlord and Tenant Act of 1954;
(n) all Liabilities arising from or related to any Claim
set forth on Schedule 1.1(c);
(o) all Liabilities of the Company Group owed to the
Retained Group, including intercompany payables, intercompany
debt or other intercompany obligations or those arising under
any intercompany Contract, in any such case other than any
Liabilities of the Company Group owed to the Retained Group
under the Transaction Documents and other than the commercial
arrangements described on Schedule 1.1(i) to the
extent relating to any period following the Closings;
(p) all Liabilities attributable to the elimination of
Intercompany Accounts pursuant to this Agreement;
(q) any Liabilities that do not relate to or arise from the
Business, including (i) any Liabilities of the Retained
Group (including all Liabilities of and in respect of Ascent
Media Systems Integration, LLC and TGS, LLC and their respective
businesses and assets, including pursuant to that certain Rights
Agreement, dated as of December 31, 2003, by and among
Ascent Media Group, Inc. (now Ascent Media Group, LLC), A.F.
Associates, Inc. (now Ascent Media Systems Integration, LLC),
and Sony Electronics, Inc., as amended) of any nature
whatsoever, whether presently existing or arising hereafter
(including any Liabilities of the Retained Group under this
Agreement or any other Transaction Document), (ii) any
Liabilities relating to or arising from the Excluded Assets or
the transfer of any Excluded Assets and (iii) any
Liabilities relating to or arising from the Company Group
Reorganization; and
(r) all Liabilities arising from or related to the
535 Fifth Avenue Lease.
The parties hereto agree and acknowledge that any Liability
described above that would have been an Excluded Liability but
for the fact that such Liability has been transferred to another
Person or but for the fact that a Person that was a Subsidiary
of AMC is no longer a Subsidiary of AMC is, and shall remain, an
Excluded Liability for all purposes under this Agreement.
Extended Representations means the
representations and warranties set forth in 4.12(a) (labor laws
and bargaining agreements) and 4.13 (Employee Benefit Plans).
B-13
FCC means the Federal Communications
Commission, including any official bureau or division thereof
acting on delegated authority.
Final FCC Order means a written action or
order issued by the FCC granting any of the required FCC
consents constituting Requisite Regulatory Approvals that
(i) has not been reversed, stayed, enjoined, annulled or
set aside, and (ii) with respect to which no requests have
been filed for administrative or judicial review,
reconsideration, appeal or stay, and the time for filing any
such requests and for the FCC to set aside or suspend the action
on its own motion has expired.
Fundamental Representations means,
collectively, the AMC Fundamental Representations and the
Purchaser Fundamental Representations.
GAAP means generally accepted accounting
principles in the United States, consistently applied.
Governmental Approval means any
authorization, consent, approval, certification, waiver, permit,
license or order of, or any filing, registration or
qualification with, or notification to, any Governmental
Authority.
Governmental Authority means any nation or
government, any foreign, international, multinational, national,
federal, provincial, regional, state, local, municipal or other
political subdivision, agency or court thereof and any other
entity that under applicable Law is entitled to exercise and
does exercise executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, whether
domestic or foreign.
Ground Leased Real Property means any Leased
Real Property that is leased by AMC and its Subsidiaries
pursuant to a ground lease (as that term is
customarily used in the commercial real estate industry).
Group Relief means any of the following
(A) relief surrendered or claimed pursuant either to
Chapter IV in Part X of the UK Income and Corporation
Taxes Act 1988 or Part 5 of the UK Corporation Tax Act 2010
or (B) a tax refund relating to an accounting period as
defined by section 102(3) UK Finance Act 1989 or
section 963((4) UK Corporation Tax Act 2010 (surrender of
company tax refund etc within group) in respect of which a
notice has been given pursuant to section 102(2) UK Finance
Act 1989 or section 963(2) UK Corporation Tax Act 2010.
Hazardous Material means hazardous or toxic
wastes, chemicals, compounds, substances, constituents,
pollutants, contaminants, special wastes, infectious wastes or
related material, or any derivative, byproduct or mixture
thereof, whether solids, liquids, or gases, defined or regulated
under § 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act; the Resource
Conservation and Recovery Act, 42 U.S.C.
§§ 6901 et seq.; the Toxic Substances Control
Act, 15 U.S.C. §§ 2601 et seq.; the Safe
Drinking Water Act, 42 U.S.C. §§ 300(f) et
seq.; the Clean Air Act, as amended, 42 U.S.C.
§§ 7401 et seq.; the Federal Water Pollution
Control Act, 33 U.S.C. §§ 1251 et seq.; the
Emergency Planning and Community Right-to-Know Act of 1986,
42 U.S.C. §§ 11001 et seq.; the Occupational
Safety and Health Act of 1970, 29 U.S.C.
§§ 651 et seq. or any other applicable federal,
state or local Environmental Laws, including asbestos and
asbestos-containing material, solvents, petroleum (including
crude oil and any fraction thereof, natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for
fuel, or any mixture thereof), lead, foam insulation, toxic
mold, pesticides, polychlorinated biphenyls, polychlorinated
biphenyl wastes, perchloroethylene, tetrachloroethylene, urea
formaldehyde, radon gas and radioactive materials.
HSR Act means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
IDA means the Infocommunications Development
Authority of Singapore.
Indebtedness means, with respect to any
Person, (a) all indebtedness of such Person for borrowed
money, (b) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments,
(c) all indebtedness created or arising under any
conditional sale, title retention or similar agreement or
creating an obligation of such Person with respect to the
deferred purchase price of property or services, (d) all
obligations of such Person as lessee under leases that have been
or should be, in accordance with GAAP,
B-14
recorded as capital leases (measured by the aggregate amount
that would be shown as a liability with respect to such capital
leases on a balance sheet of the Company Group as of the
relevant date, prepared in accordance with GAAP), but excluding
for purposes of this Agreement the Intelsat Capital Lease,
(e) all obligations in respect of interest rate and
currency obligation swaps, collars, caps, hedges or similar
arrangements or foreign exchange contracts to which such Person
is a party, (f) all Liabilities of such Person for any bank
overdrafts, (g) all Liabilities of such Person for any
outstanding drawings or reimbursement, payment or similar
obligations, contingent or otherwise, under performance bonds,
letters of credit, letters of guaranty or similar facilities,
(h) all accrued interest, premiums, penalties, fees,
expenses and other obligations relating to the foregoing to the
extent payable on or before the Closing Date, (i) all
Liabilities of such Person to guarantee, directly or indirectly,
whether through Contract or otherwise, any of the foregoing
types of obligations on behalf of any other Person (excluding
endorsement of negotiable instruments in the ordinary course of
business), and (j) all indebtedness of a type described
above secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, secured by) any
Lien upon or in property (including accounts and Contract
rights) owned by such Person, even though such Person may not
have assumed or become liable for payment of such indebtedness.
Indemnified Person means, with respect to any
Loss, the Person seeking indemnification for such Loss hereunder.
Indemnifying Person means, with respect to
any Loss, the Person from whom indemnification for such Loss is
being sought hereunder.
Intellectual Property Rights means
intellectual property rights, and related priority rights,
arising from or associated with any of the following, whether
created, protected or arising under the laws of the United
States or any other jurisdiction or under any international
convention, whether registered or unregistered, as they exist
anywhere in the world: patents, inventions, trademarks, service
marks, logos, trade dress, trade names, corporate names
(including the goodwill associated therewith), taglines,
copyrights, copyrightable works and moral rights, designs,
registered Internet domain names, proprietary trade secrets,
know-how, confidential business information (including ideas,
research and development information, formulas, designs,
drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marking plans and
proposals), computer software programs and related
documentation, and any registrations, applications or renewals
of, or rights to use or exploit, any of the foregoing.
Intelsat Capital Lease means the Full-Time
Transponder Capacity Agreement dated November 17, 2006, by
and between Intelsat Corporation (formerly known as PanAmSat
Corporation) and the US Company.
Intercompany Accounts means all amounts,
regardless of their nature, (i) owed by any Company Group
Member to any member of the Retained Group, or (ii) owed by
any member of the Retained Group to any Company Group Member,
but expressly excluding any and all accounts and obligations
arising under or provided for in (A) this Agreement,
(B) the Services Agreements and (C) the 2813 West
Alameda Lease (if executed pursuant to Section 6.19(b)).
Knowledge means, with respect to AMC, Sellers
or the Companies, the actual knowledge of any of the individuals
set forth in Schedule A after reasonable inquiry,
and with respect to Purchasers, the actual knowledge of any
senior executive officer of US Purchaser after reasonable
inquiry.
Law means any law (including common law),
statute, code, rule, regulation or ordinance enacted,
promulgated or issued by, or any Order of, any Governmental
Authority.
Leased Real Property means the parcels of
real property or portions thereof (together with those
improvements (and all components thereof) and fixtures thereon)
which any Company Group Member uses or occupies or has the right
to use or occupy in connection with the Business, or is
otherwise used or occupied in connection with the Business, in
each case, in any material respect, pursuant to a lease,
sublease, or other occupancy agreement.
Liabilities means any and all debts,
liabilities, obligations, guarantees, and commitments of any
kind or nature (whether known or unknown, whether asserted or
unasserted, whether accrued or unaccrued, whether
B-15
liquidated or unliquidated, whether due or to become due,
whether matured or unmatured, whether fixed, absolute or
contingent, and whether or not recorded or reflected, or
required to be recorded or reflected, on books and records or
financial statements), including those arising, reported or
claimed under any Law, Order or Contract and including all fees,
costs, expenses, damages, losses, fines, penalties and
assessments relating thereto.
Lien means any mortgage, pledge,
hypothecation, charge, assignment, encumbrance, lien (statutory
or other), deed of trust, claim, lease, option, warrant,
purchase right, right of first refusal, easement, servitude,
conditional sales contract, contractual transfer restriction,
security interest or security agreement of any kind or nature
whatsoever.
Los Angeles Official Records means the
official records of the County Recorder in the County of Los
Angeles, State of California.
Losses means the amount of any Liability,
loss, cost, damage, award (including interest award), judgment,
settlement, assessment, interest, fine, penalty, deficiency, or
expense, whether or not involving a Third-Party Claim, including
the reasonable cost of investigation, defense or settlement,
including reasonable fees and expenses of attorneys,
accountants, experts and appraisers; provided, that
Losses shall not include any indirect,
incidental, consequential, special, punitive or exemplary
damages, except that Losses shall
include any amounts awarded in a Third-Party Claim as indirect,
incidental, consequential, special, punitive or exemplary
damages to any Person who is neither a Purchaser Indemnified
Party or AMC Indemnified Party (as the case may be) nor an
Affiliate thereof.
Major Customers means the customers of the
Business set forth on Schedule 1.1(d).
Map Act means the California Subdivision Map
Act, Cal. Govt. Code Sections 66410 et seq.
Material Adverse Effect means, as to any
Person, any event, occurrence, effect or change that has a
material adverse effect on the business, condition (financial or
otherwise), results of operations, assets or liabilities of such
Person and its Subsidiaries (or in the case of any Company, the
Company Group), taken as a whole; provided,
however, that none of the following shall be deemed to
constitute, and none of the following shall be taken into
account in determining whether there has been or would be, a
Material Adverse Effect with respect to any Person, except to
the extent, in the case of clauses (i), (ii) and
(iii) only, that such Person and its Subsidiaries (or in
the case of any Company, the Company Group), taken as a whole,
are disproportionately (relative to other similarly situated
companies in the industries in which such Person or its
Subsidiaries operate) affected thereby: (i) general
business or economic conditions in the United States or within
the industries in which the relevant Person and its Subsidiaries
(or in the case of any Company, the Company Group) operates,
(ii) national or international political or social
conditions, including the engagement by the United States in
hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or
terrorist attack anywhere in the world, (iii) the state of
or changes in financial, banking, or securities markets
(including any disruption thereof), (iv) changes in GAAP
after the date hereof, and (v) changes in Law after the
date hereof.
MDA means the Media Development Authority of
Singapore.
Net Working Capital means as of the Closings,
without giving effect to the Transactions, the amount (which may
be a positive or a negative number) determined by subtracting
Working Capital Liabilities as of the Closings from Working
Capital Assets as of the Closings.
Non-Disclosure Agreement means the
Confidentiality Agreement dated April 21, 2010 between
Encompass Digital Media, Inc. (formerly known as Broadcast
Facilities, Inc.) and AMC, as amended by the letter dated
July 15, 2010 between Encompass Digital Media, Inc. and AMC
and the letter dated September 14, 2010 between Encompass
Digital Media, Inc. and AMC, and as subsequently supplemented in
accordance with its terms.
Official Records means the official records
of the county recorders office for each jurisdiction in
which any Real Property is located.
B-16
Order means any order, writ, judgment,
injunction, decision, ruling, decree, stipulation,
determination, award, assessment or other binding directive
entered by or with any Governmental Authority.
Organizational Documents means with respect
to any Person that is not a natural person, such Persons
charter, certificate or articles of incorporation or formation,
bylaws, memorandum and articles of association, operating
agreement, limited liability company agreement, partnership
agreement, limited partnership agreement, limited liability
partnership agreement or other constituent or organizational
documents of such Person.
Owners Title Policy means, with
respect to each parcel of Owned Real Property transferred to the
US Company, an ALTA owners policy or policies
(Form 2006) of title insurance issued by the
Title Company, subject only to Permitted Liens, effective
as of the Closings, ensuring the US Companys ownership
interest or easement interest in such parcel of Owned Real
Property, in an amount, in such form and with such endorsements
(which shall include a non-imputation endorsement) as provided
for in Section 6.18(b).
Permitted Liens means such of the following
as to which no enforcement, collection, execution or foreclosure
proceeding shall have been commenced: (a) Liens for Taxes,
assessments, and governmental charges or levies not yet due and
payable (or which are being contested in good faith and for
which adequate reserves have been established in accordance with
GAAP); (b) inchoate Liens of landlords (and landlords
mortgages), carriers, warehousemen, mechanics and materialmen,
and other similar inchoate Liens, imposed by operation of Law
and arising in the ordinary course of business, securing
obligations that are not yet due and payable (or which are being
contested in good faith and for which adequate reserves have
been established in accordance with GAAP); (c) pledges or
deposits to secure obligations under workers compensation
laws or similar legislation or to secure public or statutory
obligations; (d) Liens arising under conditional sales
contracts and equipment leases with third parties entered into
in the ordinary course of business; (e) Liens securing
deposits posted in the ordinary course of business under
Contracts and real property leases; and (f) minor survey
exceptions, reciprocal easement agreements and other matters of
public record and customary encumbrances on title to real
property that were not incurred in connection with any
Indebtedness of any Company Group Member; provided that,
with respect to each of the foregoing, such matter individually
or in the aggregate does not, and would not reasonably be
expected to, materially and adversely affect the current value
or use of the affected real property or the business conducted
thereon by the Company Group.
Person means an individual, partnership,
corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity or organization of
whatever nature.
Post-Closing Period means any Tax year or
other Tax period beginning after the Closing Date and, in the
case of any Tax year or other Tax period that begins on or
before and ends after the Closing Date, that part of the Tax
year or other Tax period that begins at the beginning of the day
after the Closing Date.
Post-Closing Tax means any Tax owed by, or
attributable to the income or operations of, any Company Group
Member which is allocable to a Post-Closing Period. Such
allocation shall be made consistently in accordance with
Section 7.1(c), Section 7.1(d) and Section 7.1(e).
Pre-Closing Period means any Tax year or
other Tax period that ends on or before the Closing Date and, in
the case of any Tax year or other Tax period that begins on or
before and ends after the Closing Date, that part of the Tax
year or other Tax period through the end of the day on the
Closing Date.
Pre-Closing Tax means any Tax owed by, or
attributable to the income or operations of, any Company Group
Member which is allocable to a Pre-Closing Period. Such
allocation shall be made consistently in accordance with
Section 7.1(c), Section 7.1(d) and Section 7.1(e).
Purchase Price means: (i) the Base
Purchase Price, minus (ii) Cash Deferred Revenue as
set forth in the Final Closing Statement, minus
(iii) Capex Shortfall as set forth in the Final Closing
Statement, plus (iv) Added Investments as set forth
in the Final Closing Statement, plus (v) the amount,
if any, by which the Net Working Capital as set forth in the
Final Closing Statement exceeds Target Working Capital,
minus (vi) the amount, if any, by which Target
Working Capital exceeds the Net Working Capital as set forth in
the
B-17
Final Closing Statement, and minus (vii) the Burbank
Credit Amount in the event that fee simple title to the
2813 West Alameda Parcel is not transferred to the US
Company in connection with the Closings.
Purchaser Fundamental Representations means
the representations and warranties set forth in
Sections 5.1 (Organization and Qualification), 5.2
(Authority), 5.3 (No Conflicts) and 5.7 (Brokers).
Purchaser Material Adverse Effect means
(i) a Material Adverse Effect with respect to Purchasers
and its Subsidiaries, taken as a whole, or (ii) any event,
occurrence, effect or change that would prevent or delay beyond
the Termination Date the consummation of the Transactions or
otherwise prevent either Purchaser from performing its
obligations under this Agreement in all material respects.
Release means any release, spill, emission,
emptying, leaking, injection, deposit, disposal, discharge,
dispersal, leaching, pumping, pouring, dumping or migration into
or through the environment (including atmosphere, ambient air,
soil, surface water, groundwater, drinking water supply, surface
land or subsurface strata), or into or out of any property.
Remediation means any action required or
undertaken to investigate or clean up the environment, including
air, soil, surface land, subsurface strata, groundwater,
drinking water supply, surface water, buildings, structures and
improvements, in response to a Release of Hazardous Materials,
including the following activities: (A) inspection,
monitoring, investigation, assessment, treatment, cleanup,
containment, removal, mitigation, response or restoration work;
(B) obtaining any permit, consent, approval or
authorization of any Governmental Authority necessary to conduct
any such activity; (C) preparing and implementing any plan
or study for any such activity; (D) the use,
implementation, application, installation, operation or
maintenance of remedial technologies applied to the surface or
subsurface soils, excavation and treatment or disposal of soils,
systems for long-term treatment of surface water, groundwater or
drinking water supply, engineering controls or institutional
controls; and (E) any other activity reasonably determined
to be required under Environmental Law to address a Release of
Hazardous Materials. The term Remediation includes
any action that constitutes a removal,
remedial action or response as defined
by Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. §9601(23),
(24) and (25), as amended.
Representative means, as to any Person, any
officer, director, manager, employee, accountant, consultant,
legal counsel, financial advisor, agent or other representative
of such Person.
Retained Group means AMC, Sellers and all
Subsidiaries of AMC and Sellers other than the Company Group
Members, it being understood that Ascent Media Systems
Integration, LLC and TGS, LLC are part of the Retained Group and
not the Company Group.
SEC means the United States Securities and
Exchange Commission.
Services Agreements means those agreements
set forth on Schedule 1.1(l).
SIC Contract means the Rights Agreement dated
December 31, 2003 between Ascent Media Group, Inc., A.F.
Associates, Inc. and Sony Electronics Inc., as amended by the
First Amendment to Transaction Documents dated July 30,
2008 between Ascent Media Group, LLC (f/k/a Ascent Media Group,
Inc.), Ascent Media Systems & Technology Group, LLC
(f/k/a A.F. Associates, Inc.) and Sony Electronics Inc.
Straddle Period means any Tax period
commencing on or prior to, and ending after, the Closing Date.
Straddle Return means a Tax Return that is
required to be filed with respect to any Company Group Member
for a Straddle Period.
Subsidiary means, with respect to any Person,
any corporation, limited liability company, partnership,
association, or other Person of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers, or trustees (or similar
Person) thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or
(ii) if a limited liability company, partnership,
association, or other Person (other than a corporation), a
majority of the partnership interests, limited liability
interests, or other comparable ownership interests thereof is at
the time owned or
B-18
controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person or a combination
thereof; and the term Subsidiary shall include all
entities which would be considered a subsidiary of a Subsidiary
under this definition.
Target Working Capital means $3,934,000.
Tax or Taxes means any
federal, state, local or foreign income, gross receipts, net
wealth, net worth, equity, sales, use, Universal Service Fund
fee, turnover, ad valorem, value-added, environmental, capital,
unitary, intangible, franchise, profits, license, withholding,
payroll, employment, social security contribution, excise,
severance, stamp, transfer, real estate transfer, occupation,
premium or property tax, customs duty or other tax, governmental
fee or other like assessment, duty or charge of any kind
whatsoever, together with any interest or penalty, addition to
tax or additional amount imposed with respect thereto.
Tax Return means any return, statement,
report or form required to be filed or submitted to any
Governmental Authority in connection with the determination,
assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or
compliance with any Law relating to any Tax.
Tax Sharing Agreement means any
indemnification, allocation or sharing agreement with respect to
Taxes entered into by any Company Group Member prior to the
Closings, other than (i) any Transaction Document,
(ii) any agreement solely among one or more Company Group
Members, and (iii) any credit or other commercial lending
agreement that includes customary Tax indemnification provisions.
Telecommunications Act means the
Telecommunications Act 1999 of Singapore (Cap. 323), as amended,
and the rules, regulations, codes of practice, guidelines and
policies promulgated thereunder.
Tenant Leases means all leases and subleases
of Real Property as to which any Company Group Member is, or at
the time of the Closings will be, the lessor or sublessor.
Title Company means Old Republic
National Title Company, or such other title insurance
company as AMC and US Purchaser shall mutually agree upon.
Transaction Documents means each of
(i) this Agreement, (ii) the AMC-Encompass Sublease
and Leases, (iii) any Contract related to the Company Group
Reorganization, and (iv) the Services Agreements.
Transactions means the purchases and sales of
the Company Interests, the Company Group Reorganization and the
other transactions contemplated by this Agreement.
Transfer Regulations means the Transfer of
Undertakings (Protection of Employment) Regulations 2006 and any
legislation amending, modifying, extending, varying,
superseding, replacing, substituting or consolidating it from
time to time.
Working Capital Assets means the aggregate
amount of those assets of the Company Group as of the Closings
as set forth and calculated in accordance with
Schedule 1.1(e), in each case as determined in
accordance with GAAP and using the Accounting Methodology,
except that all intercompany amounts shall be excluded.
Working Capital Liabilities means the
aggregate amount of those Liabilities of the Company Group as of
the Closings as set forth and calculated in accordance with
Schedule 1.1(e), in each case as determined in
accordance with GAAP and using the Accounting Methodology,
except that all intercompany accounts shall be excluded.
1.2 Additional
Definitions. The following additional terms
have the meaning ascribed thereto in the Section indicated below
next to such term:
|
|
|
Term
|
|
Section
|
|
2813 West Alameda Lease
|
|
6.19(b)
|
2813 West Alameda Title Commitment
|
|
6.19(a)
|
2901 West Alameda Sublease
|
|
6.18(c)
|
B-19
|
|
|
Term
|
|
Section
|
|
Accounting Arbitrator
|
|
2.3(c)
|
Added Investment
|
|
6.21(b)
|
Agreement
|
|
Preamble
|
Allocation Arbitrator
|
|
2.4
|
AMC
|
|
Preamble
|
AMC 401(k) Plan
|
|
8.7
|
AMC Acquisition Agreement
|
|
6.4(d)
|
AMC Business Employee
|
|
8.1(a)
|
AMC Consolidated Financial Statements
|
|
4.7(a)(i)
|
AMC-Encompass Sublease and Leases
|
|
6.18(c)
|
AMC Indemnified Parties
|
|
10.3
|
AMC Termination Fee
|
|
11.3(a)
|
Antitrust Laws
|
|
6.5(a)
|
Approved Capital Projects
|
|
6.21(a)
|
Appurtenant Earth Station Easement Agreement
|
|
6.19(b)
|
Assumed Guarantees
|
|
6.20(a)
|
Audited Financial Statements
|
|
6.23
|
Authorizing Resolution
|
|
3.2(a)
|
Business Assets
|
|
4.22
|
Cap
|
|
10.4(a)
|
Capex Cash Payment Amount
|
|
6.21(a)
|
Capex Shortfall
|
|
6.21(a)
|
Carve Out Financial Statements
|
|
4.7(a)(ii)
|
Certificate of Compliance
|
|
6.19(a)
|
Change of Recommendation
|
|
6.4(d)
|
Closing Date
|
|
2.2(a)
|
Closings
|
|
2.2(a)
|
Closing Notice
|
|
2.2(e)
|
Closing Statement
|
|
2.3(a)
|
Companies
|
|
Preamble
|
Company Benefit Plans
|
|
4.13(a)
|
Company Filed Tax Returns
|
|
4.14(a)(i)
|
Company Financial Statements
|
|
4.7(a)(ii)
|
Company Group Reorganization
|
|
6.17(a)
|
Company Group Reorganization Documents
|
|
6.17(a)
|
Company Intellectual Property Rights
|
|
4.15(a)
|
Company Interests
|
|
Recital B
|
Company Material Contract
|
|
4.17(a)
|
Company Permits
|
|
4.5
|
Competing Proposal
|
|
6.4(h)
|
Current Employees
|
|
4.12(c)
|
Declarations
|
|
6.19(c)
|
Deed
|
|
6.18(b)
|
Discovery TSA
|
|
4.14(b)
|
B-20
|
|
|
Term
|
|
Section
|
|
Disney Contracts
|
|
6.10(a)
|
DOJ
|
|
6.5(a)
|
Effective Date
|
|
Preamble
|
ERISA Plans
|
|
4.13(b)
|
Estimated Added Investments
|
|
2.2(c)
|
Estimated Capex Shortfall
|
|
2.2(c)
|
Estimated Cash Deferred Revenue
|
|
2.2(c)
|
Estimated Net Working Capital
|
|
2.2(c)
|
Excluded Assets
|
|
6.12
|
Expiration Date
|
|
10.1
|
Final Closing Statement
|
|
2.3(d)
|
Financing
|
|
6.10(c)
|
Financing Sources
|
|
6.10(c)(i)
|
FCC Licenses
|
|
6.5(b)
|
FTC
|
|
6.5(a)
|
Improvements
|
|
4.16(d)(i)
|
In-Gross
Earth Station Easement Agreement
|
|
6.19(c)
|
Insurance Policies
|
|
4.18
|
Interim AMC Consolidated Financial Statements
|
|
4.7(a)(i)(B)
|
Interim Balance Sheet
|
|
4.7(a)(ii)(B)
|
Interim Balance Sheet Date
|
|
4.7(a)(i)(B)
|
IRS
|
|
4.13(b)
|
Land Use Permits
|
|
4.16(d)(ii)
|
Maintenance Capex
|
|
6.21(a)
|
Major Customers
|
|
4.20(a)
|
Major Suppliers
|
|
4.20(a)
|
Map Act Endorsement
|
|
6.19(a)
|
Material Non-Public Information
|
|
6.10(c)(iii)
|
Microsoft Licenses
|
|
6.24(a)
|
Multiemployer Plan
|
|
4.13(d)
|
Negotiated Amount
|
|
6.24(a)
|
New Capex
|
|
6.21(b)
|
Non-Imputation Endorsement
|
|
6.18(b)
|
Non-US Company Benefit Plans
|
|
4.13(a)
|
Northvale Lease
|
|
6.18(c)
|
Notice of Superior Proposal
|
|
6.4(f)
|
Owned Real Property
|
|
4.16(b)
|
Outstanding Letters of Guarantee
|
|
6.10(b)
|
Parent Recommendation
|
|
6.3
|
Pension Plan
|
|
4.13(b)
|
Pension Scheme
|
|
4.13(k)
|
Post-Closing Payees
|
|
6.10(d)
|
Pre-Closing Statement
|
|
2.2(c)
|
Proxy Statement
|
|
6.2(a)
|
B-21
|
|
|
Term
|
|
Section
|
|
Purchaser 401(k) Plan
|
|
8.7
|
Purchaser Indemnified Parties
|
|
10.2
|
Purchasers
|
|
Preamble
|
Purchaser Termination Fee
|
|
11.3(b)
|
Qualifying Offer
|
|
8.1(a)
|
Real Property
|
|
4.16(b)
|
Real Property Lease
|
|
4.16(a)
|
Registered Intellectual Property
|
|
4.15(c)
|
Related Party
|
|
4.11
|
Related Party Arrangement
|
|
4.11
|
Release Date
|
|
10.1
|
Remaining Cap
|
|
10.9
|
Rent Roll
|
|
4.16(c)
|
Requisite Regulatory Approvals
|
|
6.5(b)
|
Requisite Stockholder Vote
|
|
3.2(a)
|
Retained Names and Marks
|
|
6.8
|
Sample Calculation
|
|
2.2(b)
|
Sellers
|
|
Preamble
|
Services Employees
|
|
8.1(c)
|
Singapore Company
|
|
Preamble
|
Singapore Company Interest
|
|
Recital B
|
Singapore Seller
|
|
Preamble
|
Sony Contracts
|
|
6.10(a)
|
Specified Date
|
|
2.2(e)
|
Stockholders Meeting
|
|
6.3
|
Straddle Return Arbitrator
|
|
7.1(c)
|
Superior Proposal
|
|
6.4(i)
|
Tangible Property
|
|
4.21
|
Tappan Lease
|
|
6.18(c)
|
Tax Claim
|
|
7.1(m)
|
Tax Indemnitee
|
|
7.1(m)
|
Tax Indemnitor
|
|
7.1(m)
|
Tax Records
|
|
7.1(h)
|
Termination Date
|
|
11.1(b)
|
Termination of Easement in Gross
|
|
6.19(c)
|
Termination of Declarations
|
|
6.19(c)
|
Third-Party Claim
|
|
10.5(b)
|
Threshold Amount
|
|
10.4(a)
|
Transfer Amount
|
|
6.24(a)
|
Transfer Taxes
|
|
2.6
|
Transferred Date
|
|
8.1(c)
|
Transferred Employee
|
|
8.1(a)
|
Transferred Employment Agreement
|
|
8.2
|
UK Closing
|
|
2.2(a)
|
B-22
|
|
|
Term
|
|
Section
|
|
UK Company
|
|
Preamble
|
UK Company Interest
|
|
Recital B
|
UK Purchaser
|
|
Preamble
|
UK Seller
|
|
Preamble
|
US Closing
|
|
2.2(a)
|
US Company
|
|
Preamble
|
US Company Benefit Plans
|
|
4.13(b)
|
US Company Interest
|
|
Recital B
|
US Purchaser
|
|
Preamble
|
US Seller
|
|
Preamble
|
WARN Obligations
|
|
8.4
|
Welfare Benefits
|
|
8.5
|
1.3 Terms Generally. The
definitions set forth or referenced in Sections 1.1 and 1.2
shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words include, includes and
including shall be construed as if followed by the
phrase without limitation. The words
herein, hereof, hereto,
hereby and hereunder and words of
similar import refer to this Agreement (including the Exhibits,
Schedules and Annex hereto) in its entirety and not to any part
hereof unless the context shall otherwise require. All
references herein to Articles, Sections, Exhibits, Schedules and
Annex refer to Articles and Sections of, and Exhibits, Schedules
and Annex to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any
references to any agreement or other instrument or to any
statute or regulation are to it as amended and supplemented from
time to time (and, in the case of a statute or regulation, to
any successor provisions). The phrase made available
in this Agreement means that the information referred to has
been made available to US Purchaser during its due diligence
investigation of the Company Group, whether by posting in an
electronic data room or otherwise, or has been publicly filed
with the SEC. Any reference in this Agreement to a
day or number of days (without the
explicit qualification of Business Day) shall be construed as a
reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then
such action or notice shall be deferred until, or may be taken
or given on, the next Business Day. All references to
$ or Dollars shall mean United States
Dollars.
ARTICLE II
CLOSINGS; PURCHASE PRICE AND ADJUSTMENT
2.1 Purchases and
Sales. Subject to the terms and conditions of
this Agreement, on the Closing Date:
(i) US Seller shall sell, convey, transfer, assign and
deliver to US Purchaser, and US Purchaser shall purchase and pay
for (for the portion of the Purchase Price allocated to the US
Company Interest as provided in Section 2.4), all right,
title and interests in and to the US Company Interest, which
shall constitute one hundred percent (100%) of the issued and
outstanding Equity Securities of the US Company, free and clear
of any Lien;
(ii) UK Seller shall sell, convey, transfer, assign and
deliver to UK Purchaser, and UK Purchaser shall purchase and pay
for (for the portion of the Purchase Price allocated to the UK
Company Interest as provided for in Section 2.4), all
right, title and interests in and to the UK Company Interest,
which shall constitute one hundred percent (100%) of the issued
and outstanding Equity Securities of the UK Company, free and
clear of any Lien; and
(iii) Singapore Seller shall sell, convey, transfer, assign
and deliver to UK Purchaser, and UK Purchaser shall purchase and
pay for (for the portion of the Purchase Price allocated to the
Singapore Company Interest as provided for in Section 2.4),
all right, title and interests in and to the Singapore Company
Interest, which shall
B-23
constitute one hundred percent (100%) of the issued and
outstanding Equity Securities of the Singapore Company, free and
clear of any Lien.
2.2 Closings; Purchase Price; Pre-Closing
Estimates.
(a) Subject to the terms and conditions of this Agreement,
the closing (the US Closing) of the purchase
and sale of the US Company Interest and the other transactions
contemplated by this Agreement (other than the purchase and sale
of the UK Company Interest and the Singapore Company Interest,
which shall occur concurrently at the UK Closing) shall be held
at the offices of Baker Botts L.L.P., 30 Rockefeller Plaza, New
York, New York, at 10:00 a.m., local time, on the date set
forth in Section 2.2(e); provided, that, as
of such date, all the conditions to the Closings set forth in
Article IX hereof (other than those conditions which, by
their terms, are to be satisfied or waived at the Closings,
subject to the satisfaction or waiver by the party entitled to
waive the same of such conditions) shall have been satisfied or
waived by the party entitled to waive the same, or at such other
time, place and date that AMC and US Purchaser may mutually
agree in writing. The date on which the US Closing shall occur
is hereinafter referred to as the Closing
Date. Subject to the terms and conditions of this
Agreement, the closing (the UK Closing and,
together with the US Closing, the Closings)
of the purchase and sale of the UK Company Interest and the
Singapore Company Interest shall be held at the offices of Baker
Botts L.L.P., 99 Gresham Street, London, England, concurrently
with the US Closing.
(b) The aggregate purchase price for the Company Interests
shall be the Purchase Price. Attached as Exhibit A
hereto is a sample calculation of Purchase Price and Net Working
Capital, using the most recently available data as of the
Effective Date (the Sample Calculation). For
purposes of paying the Estimated Purchase Price at the Closings,
70% of the Estimated Purchase Price will be paid for the US
Company Interest and 30% of the Estimated Purchase Price will be
paid collectively for the UK Company Interest and the Singapore
Company Interest.
(c) Not less than five Business Days prior to the
anticipated Closing Date, AMC shall deliver to US Purchaser a
statement (the Pre-Closing Statement) in
substantially the form attached hereto as Exhibit A,
setting forth AMCs good faith written estimate of Net
Working Capital (the Estimated Net Working
Capital), Cash Deferred Revenue (Estimated
Cash Deferred Revenue), Capex Shortfall
(Estimated Capex Shortfall), and Added
Investments (Estimated Added Investments),
determined on a basis consistent with the Accounting Methodology
and Section 6.21, together with reasonable detail regarding
the calculation of such estimates (including the supporting
information footnoted in Exhibit A(i) of the Sample
Calculation). The Pre-Closing Statement shall be accompanied by
a certificate executed by the chief financial officer of AMC,
certifying to the Purchasers that the Pre-Closing Statement has
been prepared in good faith and in accordance with this
Section 2.2(c).
(d) At the Closings, Purchasers shall pay, or cause to be
paid, to AMC, in the aggregate, the Estimated Purchase Price in
U.S. dollars, by wire transfer of immediately available
funds to the bank account designated by AMC.
(e) Subject to the terms and conditions of this Agreement,
the Closings shall occur on the earlier of (x) the
Termination Date and (y) the date specified
(Specified Date) in a notice delivered to US
Purchaser (Closing Notice) in the form of a
certificate addressed to the US Purchaser and signed by a senior
executive officer of AMC on behalf of AMC, certifying that
(i) the Specified Date is no earlier than 20 Business Days
after the date the Closing Notice is deemed to have been
delivered pursuant to Section 12.6, (ii) the Specified
Date is no earlier than January 31, 2011, and
(iii) the conditions to the Closings set forth in
Sections 9.1(b), 9.1(c), 9.1(e) and 9.1(f) have been
satisfied.
2.3 Post-Closing Adjustment.
(a) Within 90 days after the Closing Date, Purchasers
shall deliver to AMC a statement (the Closing
Statement) in substantially the form attached hereto
as Exhibit A (except as otherwise provided below),
setting forth Purchasers determination of Net Working
Capital, Cash Deferred Revenue, Capex Shortfall and Added
Investments, determined on a basis consistent with the
Accounting Methodology and Section 6.21, together with
reasonable detail regarding the calculation of such amounts
(including the supporting information footnoted in
B-24
Exhibit A(i) of the Sample Calculation). The Closing
Statement shall be accompanied by a certificate executed by the
chief financial officer of US Purchaser, certifying to AMC that
the Closing Statement has been prepared in good faith and in
accordance with this Section 2.3(a). If the Business Day
immediately preceding the Closing Date does not occur at a
financial week or month end for accounting purposes, AMC and US
Purchaser shall agree on mutually acceptable roll forward or
roll back procedures. AMC and its Subsidiaries shall cooperate
with Purchasers and provide to Purchasers such information as
Purchasers may reasonably request in connection with
Purchasers preparation of the Closing Statement. Each
party shall provide the other party and its representatives with
reasonable access to books and records and relevant personnel
during the preparation of the Closing Statement and the
resolution of any disputes that may arise under this
Section 2.3.
(b) If AMC disagrees with the determination of Net Working
Capital, Cash Deferred Revenue, Capex Shortfall or Added
Investments set forth by Purchasers on the Closing Statement,
AMC shall notify Purchasers in writing of such disagreement
within 20 days after delivery of the Closing Statement. Any
such notice shall describe the nature of such disagreement in
reasonable detail, identify the specific items involved and the
dollar amount of each such disagreement and provide reasonable
supporting documentation for each such disagreement. Any such
disagreement must be made on the basis (i) that the Closing
Statement does not set forth Net Working Capital, Cash Deferred
Revenue, Capex Shortfall or Added Investments in accordance with
this Agreement and on a basis consistent with the Accounting
Methodology or Section 6.21, as applicable, or does not
provide reasonable detail regarding the calculation of Net
Working Capital, Cash Deferred Revenue, Capex Shortfall or Added
Investments, or (ii) that there has been an error in
mathematical calculation relating to the Closing Statement.
After the end of such
20-day
period, AMC may not introduce any additional disagreements with
respect to any item in the Closing Statement or increase the
amount of any disagreement, and any item not so identified shall
be deemed agreed to by AMC and shall be final and binding upon
the parties. During the
20-day
period of its review, AMC shall have reasonable access to any
documents, schedules or workpapers used in the preparation of
the Closing Statement.
(c) Purchasers and AMC agree to negotiate in good faith to
resolve any disagreement properly identified by AMC pursuant to
Section 2.3(b). If Purchasers and AMC are unable to resolve
all such disagreements within 20 days after delivery by AMC
to Purchasers of written notice of such disagreement, then such
disagreements shall be submitted for final and binding
resolution to Deloitte & Touche LLP or another
internationally recognized independent public accounting firm
reasonably satisfactory to AMC and US Purchaser (the
Accounting Arbitrator). The Accounting
Arbitrator shall be instructed that it may only consider those
items and amounts set forth in the Closing Statement as to which
Purchasers and AMC have disagreed within the time periods and on
the terms specified above and must resolve the matter in
accordance with the terms and provisions of this Agreement. The
Accounting Arbitrator shall be instructed to deliver to
Purchasers and AMC, as promptly as practicable (and in no event
more than 45 days) after its appointment, a written report
setting forth the resolution of any such disagreement determined
in accordance with the terms of this Agreement and the reasons
for such determination. The parties agree that AMC shall supply
Purchasers, and Purchasers shall supply AMC, with any written
representations that are made to the Accounting Arbitrator and
that each party and its representatives, accountants and other
advisors may be present while oral presentations are made to the
Accounting Arbitrator. The determination of the Accounting
Arbitrator (i) shall be set forth in writing,
(ii) shall be within the range of dispute between
Purchasers and AMC, (iii) shall constitute an arbitral
award, and (iv) shall be final and binding upon all the
parties upon which a judgment may be rendered by a court having
proper jurisdiction thereover. The fees, expenses and costs of
the Accounting Arbitrator shall be borne one-half by Purchasers
and one-half by AMC.
(d) The Closing Statement shall be final and binding upon
Purchasers and AMC upon the earliest of (A) the failure of
AMC to notify Purchasers of any disagreement with respect to the
Closing Statement in compliance with Section 2.3(b),
(B) the resolution of all disagreements with respect to the
Closing Statement pursuant to Section 2.3(c) by agreement
of AMC and Purchasers, and (C) the resolution of all
disagreements with respect to the Closing Statement pursuant to
Section 2.3(c) by the Accounting Arbitrator. The term
Final Closing Statement means (i) if AMC
fails to notify Purchasers of any disagreement with respect to
the Closing Statement in compliance with Section 2.3(b),
the Closing Statement delivered by Purchasers, (ii) if the
Closing Statement is fully resolved by agreement of Purchasers
and AMC pursuant to Section 2.3(c), the Closing Statement
as so resolved by such agreement, or (iii) if the Closing
Statement is resolved by the Accounting Arbitrator pursuant to
Section 2.3(c), the Closing Statement as so resolved by the
Accounting Arbitrator. Within three Business Days after the
B-25
determination of the Final Closing Statement, an adjustment to
the purchase price paid hereunder shall be made as follows:
(i) if the Estimated Purchase Price exceeds the
Purchase Price, then AMC shall pay or cause to be paid to
Purchasers, in the aggregate, the amount of such excess, in
U.S. dollars, by wire transfer of immediately available
funds to one or more accounts designated by Purchasers in
writing and, subject to Section 2.4, as allocated between
the Purchasers as designated by the Purchasers in writing;
(ii) if the Purchase Price exceeds the Estimated
Purchase Price, then Purchasers shall pay or cause to be paid to
AMC the amount of such excess, in U.S. dollars, by wire
transfer of immediately available funds to one or more accounts
designated by AMC in writing and, subject to Section 2.4,
as allocated between the Purchasers as designated by the
Purchasers in writing; and
(iii) if the Estimated Purchase Price equals the
Purchase Price, then there shall be no adjustment to the
purchase price paid hereunder.
2.4 Tax
Allocation. Purchasers shall prepare an
allocation of the Purchase Price (and all other capitalized
costs) among the assets of the Companies in accordance with
Section 1060 of the Code and the Treasury regulations
thereunder (and any similar provision of state, local, or
non-U.S. law,
as applicable), and shall consult in good faith with AMC with
respect to such allocation. Purchasers shall deliver such
allocation to AMC within 120 days after the Closing Date
for AMCs approval, which shall not be unreasonably
withheld, conditioned or delayed. AMC shall timely and properly
prepare, execute, file and deliver all such documents, forms and
other information as Purchasers may reasonably request to
prepare such allocation. If AMC reasonably disagrees with the
proposed allocation, AMC shall notify Purchasers in writing of
such disagreement within 30 days after receipt of the
proposed allocation. For a period of 30 days following US
Purchasers receipt of any such notification,
Representatives of AMC and Purchasers shall use their respective
reasonable best efforts to resolve all disagreements with
respect to the proposed allocation through the joint
consultation in good faith of AMC and Purchasers. If Purchasers
and AMC are unable to agree upon a purchase price allocation
before the end of such
30-day
period, Purchasers and AMC shall submit such disagreement for
final and binding resolution to Deloitte & Touche LLP
or another internationally recognized independent public
accounting firm reasonably satisfactory to AMC and US Purchaser
(the Allocation Arbitrator). The Allocation
Arbitrator shall be instructed that it may only consider those
items and amounts as to which Purchasers and AMC have disagreed
within the time periods and on the terms specified above. The
Allocation Arbitrator shall be instructed to deliver to
Purchasers and AMC, as promptly as practicable (and in no event
more than 45 days) after its appointment, a written report
setting forth the resolution of any such disagreement and the
reasons for such determination. The parties agree that AMC shall
supply Purchasers, and Purchasers shall supply AMC, with any
written representations that are made to the Allocation
Arbitrator and that each party and its representatives,
accountants and other advisors may be present while oral
presentations are made to the Allocation Arbitrator. The
determination of the Allocation Arbitrator (i) shall be set
forth in writing, (ii) shall be within the range of dispute
between Purchasers and AMC (if applicable), and (iii) shall
be final and binding upon all the parties upon which a judgment
may be rendered by a court having proper jurisdiction thereover.
The fees, expenses and costs of the Allocation Arbitrator shall
be borne one-half by Purchasers and one-half by AMC. The
purchase price allocation prepared by Purchasers and approved by
AMC (or as determined by the Allocation Arbitrator) in
accordance with this Section 2.4 shall be binding upon
Purchasers, each Company Group Member and the AMC Entities, and
their respective Affiliates, and Purchasers, the Company Group
Members, and the AMC Entities shall, and shall cause their
respective Affiliates to, report, act and file Tax Returns
(including IRS Form 8594) in all respects and for all
purposes consistent with any allocation so prepared and approved
(or determined). None of Purchasers, the AMC Entities or the
Company Group Members, or their respective Affiliates, shall
take any position (whether in audits, Tax Returns or otherwise)
that is inconsistent with any allocation so prepared and
approved unless required to do so by applicable Law.
2.5 Intercompany
Accounts. As of the Closing Date, all
Intercompany Accounts shall be eliminated, without any payments,
crediting or offsetting being made with respect thereto.
2.6 Transfer Taxes. The
Purchase Price is exclusive of any federal, state, local or
foreign sales, stamp, value added, filing, recordation,
registration, real estate or other transfer Taxes (collectively,
Transfer Taxes) relating to this Agreement or
the Transactions, including the purchases and sales of the
Company Interests and any transfers of
B-26
Owned Real Property in connection with the Company Group
Reorganization. Purchasers and AMC shall cooperate in
(i) preparing, executing and filing Tax Returns for
Transfer Taxes, and (ii) procuring or assisting each other
in the procurement of any certificates or documentation
reasonably required to prevent imposition of any such Transfer
Taxes. Purchasers and AMC shall each be allocated, and shall pay
or cause to be paid, fifty percent (50%) of all Transfer Taxes
incurred as a result of the Transactions other than the Company
Group Reorganization and excluding any Transfer Taxes incurred
pursuant to any Services Agreement; provided, that,
except as specifically provided in Section 7.1(k) or
Section 7.1(l), neither Purchasers nor AMC shall be
responsible for the other partys
out-of-pocket
expenses relating to such Transfer Taxes. AMC shall pay or cause
to be paid all Transfer Taxes incurred as a result of the
Company Group Reorganization.
2.7 Purchaser Closing
Deliverables. At the Closings, Purchasers
shall deliver or cause to be delivered to AMC the following:
(a) the payment of the Estimated Purchase Price
contemplated by Section 2.2(d);
(b) a certificate executed by a senior executive officer of
the US Purchaser dated the Closing Date, certifying to the AMC
that the conditions set forth in Section 9.3(a) and
Section 9.3(b) have been satisfied;
(c) an acknowledgment to AMC from US Purchaser of receipt
by US Purchaser of the certificate or certificates representing
the US Company Interest;
(d) an acknowledgment to AMC from UK Purchaser of receipt
by UK Purchaser of the documents referred to in
Sections 2.8(b) and 2.8(c);
(e) counterpart signature pages to the 2901 West
Alameda Sublease, the Tappan Lease and the Northvale Lease, duly
executed by US Purchaser;
(f) certificates duly executed by each of (i) the
secretary of US Purchaser and (ii) the secretary or a
comparable officer of UK Purchaser, in each case certifying as
to (A) resolutions having been duly and properly adopted by
the board of directors or the comparable governing body of such
Purchaser, authorizing the execution, delivery and performance
of this Agreement and the other Transaction Documents by such
Purchaser and being in full force and effect as of the Closings,
with a certified copy of such resolutions attached thereto, and
(B) the receipt of all required approvals by the
stockholders of the US Purchaser and the holder of 100% of the
Equity Securities of the UK Purchaser;
(g) a certificate of good standing for US Purchaser, issued
by the Secretary of State of the State of Delaware, dated no
earlier than five Business Days prior to the Closing Date;
(h) a certificate of good standing for UK Purchaser, issued
by Companies House, dated no earlier than five Business Days
prior to the Closing Date; and
(i) such other documents and certificates as are reasonably
required by the AMC Entities to be delivered to effectuate the
Transactions or evidence the authority, existence or good
standing of Purchasers.
2.8 AMC Entities Closing
Deliverables. At the Closings, the AMC
Entities shall deliver or cause to be delivered to Purchasers
the following:
(a) to US Purchaser at the US Closing, one or more
certificates evidencing the US Company Interest, duly endorsed
in blank or accompanied by stock powers duly endorsed in blank,
in proper form for transfer;
(b) to UK Purchaser at the UK Closing: (i) one or more
certificates evidencing the UK Company Interest or an indemnity
in a form satisfactory to the UK Purchaser for any missing
certificate or certificates, (ii) a transfer of the UK
Company Interest in favor of the UK Purchaser, duly executed by
the UK Seller, (iii) a power of attorney in favor of the UK
Purchaser in respect of the UK Company Interest in a form
satisfactory to the UK Purchaser, (iv) a certified copy of
a letter of resignation in a form satisfactory to the UK
Purchaser from the auditors of the UK Company, together with a
letter from the UK Seller confirming that such letter of
resignation has been deposited at the registered office of the
UK Company together with the statement required by
sections 516 and 519 of the Companies Act 2006, (v) a
certified copy of the notification to the appropriate audit
authority under section 523 of the Companies Act 2006 and
confirmation from the UK Seller that the
B-27
notification has been made, and (vi) the seal, statutory
registers, certificate of incorporation (and all certificates of
incorporation on change of name), minute books and share
certificate of the UK Company, complete and
up-to-date
up to, but not including, the Closings;
(c) to UK Purchaser at the UK Closing: (i) duly
executed transfer forms in respect of the Singapore Company
Interest in favor of the UK Purchaser, accompanied by the
relevant share certificates for the Singapore Company Interest
(or an express indemnity in a form satisfactory to the UK
Purchaser in the case of any certificates found to be missing),
(ii) the written resignations of the auditors of the
Singapore Company to take effect from and on the Closings, with
acknowledgements signed by them to the effect that no fees are
due to them as of the Closing Date, (iii) the certificates
of incorporation, common seals (if any), cheque books and
statutory books of the Singapore Company (respectively duly
up-to-date),
and (iv) all of the financial and accounting books and
records of the Singapore Company and all documents of title
relating to its properties to the extent not in the possession
of the Singapore Company;
(d) agreements (which may be in the form of letters)
executed and delivered by each lender, holder, payee or
beneficiary of any Indebtedness of AMC or any of its
Subsidiaries (including any Company Group Member), including DBS
Bank Ltd and Wells Fargo Capital Finance, LLC, which agreements
shall (i) confirm that effective as of the Closings, all
obligations of the US Company, the UK Company or the Singapore
Company, as the case may be, to such lender, holder, payee or
beneficiary arising from or relating to such Indebtedness (or
any documents executed in connection therewith), or otherwise in
favor of the Retained Group, are released, (ii) if such
Indebtedness was secured by any Lien, provide that all such
Liens (other than to the extent required by DBS Bank LTD to
support any Outstanding Letters of Guarantee, but solely to such
extent) are released and terminated in full as of the Closings
and (iii) otherwise be in form and substance reasonably
satisfactory to the Purchasers; provided, that,
any Outstanding Letters of Guarantee shall remain outstanding
notwithstanding such termination;
(e) evidence, in the form of UCC-3 termination statements,
a Statement of Satisfaction of Registered Charge duly executed
by the Singapore Company and DBS Bank Ltd or other termination
instruments, in each case in form and substance reasonably
satisfactory to the Purchasers, that (x) all Liens (other
than to the extent required by DBS Bank Ltd to support any
Outstanding Letters of Guarantee, but solely to such extent) on
(i) any asset of any of the US Company, the UK Company or
the Singapore Company in favor of any lender, holder, payee or
beneficiary of any outstanding Indebtedness or other obligation
of any such Person, or otherwise in favor of the Retained Group,
and (ii) the US Company Interest, the UK Company Interest
and the Singapore Company Interest and (y) arrangements
respecting Liens on any assets of any of the Companies,
including landlord or third-party agreements, consents, waivers
and estoppel certificates, in each case have been terminated and
are of no further force or effect;
(f) a certificate executed by a senior executive officer of
AMC dated the Closing Date, certifying to the Purchasers that
the conditions set forth in Section 9.2(a) and
Section 9.2(b) have been satisfied;
(g) an acknowledgement to Purchasers from AMC of AMCs
receipt of the Estimated Purchase Price contemplated by
Section 2.2(d);
(h) evidence, reasonably satisfactory to the Purchasers,
that all grant, bargain and sale deeds required by
Sections 6.18 and 6.19 to be granted prior to the Closings
have been so granted;
(i) all ALTA owners policies of title insurance
required by Sections 6.18 and 6.19 to be issued as of the
Closings;
(j) evidence, reasonably satisfactory to the Purchasers,
that all easement agreements and memoranda of covenants required
by Section 6.19 to be executed, entered into and recorded
prior to the Closings have been so executed, entered into and
recorded;
(k) counterpart signature pages to the 2901 West
Alameda Sublease, duly executed by AMC;
(l) counterpart signature pages to the Tappan Lease and the
Northvale Lease, duly executed by Ascent Media Property
Holdings, LLC;
B-28
(m) counterpart signature pages to the 2813 West
Alameda Lease (if executed pursuant to Section 6.19(b)),
duly executed by Ascent Media Property Holdings, LLC;
(n) counterpart signature pages to the 2813 West
Alameda Lease (if executed pursuant to Section 6.19(b)),
duly executed by US Company;
(o) executed copies of the resignations described in
Section 6.16;
(p) a certificate duly executed by the secretary of AMC,
certifying as to (A) the Organizational Documents of each
Company Group Member being in full force and effect, with a
certified copy of each such Organizational Document attached
thereto, (B) resolutions having been duly and properly
adopted by the Board of Directors or managers, as the case may
be, of each of the AMC Entities and the Companies, authorizing
the execution, delivery and performance of this Agreement and
the other Transaction Documents by the AMC Entities and the
Companies and being in full force and effect as of the Closings,
with a certified copy of such resolutions attached thereto, and
(C) the receipt of all required approvals by the
stockholders or member, as the case may be, of each of the AMC
Entities and the Companies, including, if applicable, the
adoption and approval of the Authorizing Resolution by the
Requisite Stockholder Vote;
(q) a certificate of good standing for AMC, US Seller and
US Company, issued by the Secretary of State of the State of its
organization, dated no earlier than five Business Days prior to
the Closing Date;
(r) a certificate of good standing for UK Seller and UK
Company, issued by the Companies House, dated no earlier than
five Business Days prior to the Closing Date;
(s) a certificate of good standing for Singapore Seller and
Singapore Company, issued by the Accounting and Corporate
Regulatory Authority, dated no earlier than five Business Days
prior to the Closing Date;
(t) the books and records set forth on
Schedule 6.7(c);
(u) executed copies of each of the consents listed on
Schedule 9.1(f) and the consent referred to in
Section 9.1(e);
(v) evidence reasonably satisfactory to US Purchaser
regarding the completion of the Company Group Reorganization;
(w) executed copies of the releases described in
Section 6.14;
(x) evidence reasonably satisfactory to US Purchaser that
the Title Company is irrevocably committed to issue the
Owners Title Policy;
(y) a certificate of non-foreign status from AMC satisfying
the requirements of Treasury Regulations
Section 1.1445-2(b)(2); and
(z) such other documents and certificates as are reasonably
required by Purchasers to be delivered to effectuate the
Transactions or evidence the authority, existence and good
standing, as applicable and available, of the AMC Entities or
the Company Group Members.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES WITH RESPECT TO THE AMC ENTITIES
The AMC Entities, jointly and severally, hereby represent and
warrant to the Purchasers as of the Effective Date and, if the
Closings shall occur, as of the Closing Date, as follows:
3.1 Organization and
Qualification. AMC is a corporation and US
Seller is a limited liability company, each duly formed, validly
existing and in good standing under the Laws of the State of
Delaware. UK Seller is a company duly formed, validly existing
and in good standing under the Laws of England. Singapore Seller
is a company duly incorporated and validly existing under the
Laws of Singapore. Each of the AMC Entities is duly qualified to
conduct its business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased
or operated by it or the nature of its activities makes such
qualification necessary, except where the
B-29
failure of the AMC Entities to be so qualified has not had, and
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect or an AMC Material
Adverse Effect. Each of the AMC Entities has, in all material
respects, the requisite power and authority to own, lease and
otherwise to hold and operate its assets and properties and to
carry on the businesses as now being conducted by it, except
where the failure of the AMC Entities to have any such power and
authority has not had, and would not reasonably be expected to
have, a Company Material Adverse Effect or an AMC Material
Adverse Effect.
3.2 Authority; Subsidiaries.
(a) Each of the AMC Entities has all requisite power and
authority to execute and deliver this Agreement and the other
Transaction Documents to which it is or will be a named party,
to perform its obligations hereunder and thereunder, including
to sell and assign the Company Interests and to effect and
consummate the Company Group Reorganization in accordance with
this Agreement, and to consummate the Transactions. The
execution and delivery by each of the AMC Entities of this
Agreement and each of the other Transaction Documents to which
it is or will be a named party, the performance by the AMC
Entities of their obligations hereunder and thereunder,
including the Company Group Reorganization, and the sale and
assignment of the Company Interests hereunder, and the
consummation of the Transactions, have been duly and validly
authorized by resolutions duly adopted by the board of directors
of AMC, the sole member of US Seller, and the sole shareholder
of UK Seller, the sole shareholder of the Singapore Seller, and
no other corporate or limited liability company actions or
proceedings on the part of any of the AMC Entities are necessary
to authorize the execution, delivery and performance by the AMC
Entities of this Agreement and each of the other Transaction
Documents to which it is or will be a named party or to
consummate the Transactions, other than the approval and
adoption by the holders of a majority of the voting power of the
then outstanding shares of AMC Common Stock entitled to vote
thereon (the Requisite Stockholder Vote) of a
resolution authorizing the sale and assignment of the Company
Interests hereunder (the Authorizing
Resolution).
(b) The board of directors of AMC, at a meeting duly called
and held, has unanimously approved this Agreement and the
Transactions contemplated hereby, including the sale and
assignment of the Company Interests, declared this Agreement and
such sale and assignment to be advisable and in the best
interests of AMC and its stockholders, and resolved to submit
the Authorizing Resolution for approval and adoption by the
stockholders at the Stockholders Meeting and to recommend
to the stockholders of AMC that they vote in favor of the
Authorizing Resolution. Each of this Agreement and each other
Transaction Document to which any AMC Entity is or will be a
named party has been duly executed and delivered by such AMC
Entity (except for those Transaction Documents to be delivered
at the Closings, which will be duly executed and delivered by
such AMC Entity at the Closings if the Closings occur) and,
assuming the due authorization, execution and delivery thereof
by Purchasers, constitutes a legal, valid and binding obligation
of such AMC Entity, enforceable against such AMC Entity in
accordance with its terms (except for those Transaction
Documents to be delivered at the Closings, which shall, assuming
the due authorization, execution and delivery by Purchasers,
constitute a legal, valid and binding obligation of such AMC
Entity at the Closings if the Closings occur, enforceable
against such AMC Entity in accordance with its terms).
(c) Each of the Subsidiaries of AMC has all requisite power
and authority to execute and deliver this Agreement and the
other Transaction Documents to which it is or will be a named
party, to perform its obligations hereunder and thereunder,
including as applicable to sell and assign the Company Interests
and to effect and consummate the Company Group Reorganization in
accordance with this Agreement, and to consummate the
Transactions. The execution and delivery by each of the
Subsidiaries of AMC of this Agreement and each of the other
Transaction Documents to which it is or will be a named party,
the performance by the Subsidiaries of AMC of their obligations
hereunder and thereunder, including as applicable the Company
Group Reorganization, and the sale and assignment of the Company
Interests hereunder, and the consummation of the Transactions,
have been duly and validly authorized, and no other company
actions or proceedings on the part of any of the Subsidiaries of
AMC are necessary to authorize the executive, delivery and
performance by the Subsidiaries of AMC of this Agreement and
each of the other Transaction Documents to which it is or will
be a named party or to consummate the Transactions. Each of this
Agreement and each other Transaction Document to which any of
the Subsidiaries of AMC is or will be a named party has been
duly executed and delivered by such Subsidiary (except for those
Transaction Documents to be delivered at the Closings, which
will be duly executed and delivered by such Subsidiary at the
Closings if the Closings occur) and, assuming the due
authorization, execution and delivery
B-30
thereof by Purchasers, constitutes a legal, valid and binding
obligation of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms (except for those
Transaction Documents to be delivered at the Closings, which
shall, assuming the due authorization, execution and delivery by
Purchasers, constitute a legal, valid and binding obligation of
such Subsidiary at the Closings if the Closings occur,
enforceable against such Subsidiary in accordance with its
terms).
(d) Each Seller is an indirect, wholly owned subsidiary of
AMC.
3.3 No Conflicts. The
execution and delivery by each of the AMC Entities and its
Subsidiaries of this Agreement and each other Transaction
Document to which it is or will be named a party do not, and,
subject to the approval and adoption of the Authorizing
Resolution by the Requisite Stockholder Vote, the performance by
each of the AMC Entities and its Subsidiaries of its obligations
hereunder and thereunder, including the consummation of the
Transactions, will not (with or without notice or lapse of time,
or both): (i) conflict with or violate, result in a breach
of, or constitute a default under the Organizational Documents
of the AMC Entities and their Subsidiaries, (ii) assuming
compliance with the HSR Act, any other applicable Antitrust
Laws, the Communications Act and the Telecommunications Act,
conflict with or violate any Law or Order applicable to any of
the AMC Entities or their Subsidiaries or by which any of their
properties, assets or business activities is bound or affected,
(iii) violate, conflict with or result in any breach of, or
constitute a default by any of the AMC Entities or their
Subsidiaries under, or give rise to any right of termination,
amendment, modification, acceleration of, or result in the
creation of any Lien upon any of the Equity Securities of the
AMC Entities or their Subsidiaries or upon any of the properties
or assets of the AMC Entities or their Subsidiaries pursuant to,
any Contract to which any of the AMC Entities or their
Subsidiaries is a party or by which any of their properties,
assets or business activities may be bound (or create an event
that with notice or lapse of time or both, would result in such
a violation, conflict, breach, default, termination, amendment,
modification, acceleration, or Lien), other than, for purposes
of this clause (iii), any such violation, conflict, breach or
default as has not had, and would not reasonably be expected to
have, individually or in the aggregate, an AMC Material Adverse
Effect or Company Material Adverse Effect, (iv) assuming
compliance with the HSR Act, any other applicable Antitrust
Laws, the Communications Act and the Telecommunications Act,
result in the cancellation, modification, revocation or
suspension of any Governmental Approval granted to any of the
AMC Entities or their Subsidiaries, or (v) assuming
compliance with the HSR Act, any other applicable Antitrust
Laws, the Communications Act and the Telecommunications Act,
require the AMC Entities or their Subsidiaries to obtain the
consent or approval of, or to make any filing with, any
Governmental Authority.
3.4 Legal Proceedings. There
are (a) no Claims, at law or in equity, pending against or,
to the Knowledge of the AMC Entities or the Companies,
threatened against or affecting the AMC Entities or the
Companies or any of their Affiliates or Subsidiaries, or any of
their respective properties or assets, that challenge or seek to
restrain, enjoin, prohibit, alter, materially delay or otherwise
restrict the Transactions, and (b) no Orders are
outstanding against the AMC Entities or the Companies or any of
their Affiliates or Subsidiaries that restrain, enjoin,
prohibit, alter, materially delay or otherwise restrict the
ability of the AMC Entities or their Subsidiaries to enter into
and perform their obligations under any Transaction Document or
that would reasonably be expected to prevent the consummation of
the Transactions, delay the same in any material respect or
otherwise prevent the AMC Entities and their Subsidiaries from
performing their obligations under this Agreement and each other
Transaction Document to which they are a party.
3.5 Title to Equity
Interests. US Seller holds of record, owns
beneficially and has good title to the US Company Interest, free
and clear of any Liens. As of the Effective Date, Ascent Media
Group Limited holds of record, owns beneficially and has good
title to the UK Company Interest, free and clear of any Liens.
As of the Closings (and prior to giving effect to the
Transactions contemplated hereby), UK Seller shall hold of
record, own legally and beneficially and have good title to the
UK Company Interest, free and clear of any Liens. Singapore
Seller holds of record, owns beneficially and has good title to
the Singapore Company Interest, free and clear of any Liens.
Upon consummation of the Transactions contemplated by this
Agreement, (i) US Purchaser will directly acquire good and
valid title to one hundred percent (100%) of the limited
liability company interests of the US Company, free and clear of
any Liens imposed by or on behalf of, or as a result of any
Claim against, Liability of, or action taken or permitted by,
the AMC Entities or any of their Affiliates or Subsidiaries,
(ii) UK Purchaser will directly acquire good and valid
title to one hundred percent (100%) of the Equity Securities of
the UK Company, free and clear of any Liens imposed by or on
behalf of, or as a result of any Claim against, Liability of, or
action
B-31
taken or permitted by, the AMC Entities or any of their
Affiliates or Subsidiaries, and (iii) UK Purchaser will
directly acquire good and valid title to one hundred percent
(100%) of the Equity Securities of the Singapore Company, free
and clear of any Liens imposed by or on behalf of, or as a
result of any Claim against, Liability of, or action taken or
permitted by, the AMC Entities or any of their Affiliates or
Subsidiaries. Except for the Company Group Reorganization and
the transfer of the Company Interests to Purchasers as
contemplated by this Agreement, none of the AMC Entities, nor
any Affiliate or Subsidiary of any AMC Entity, has granted or
agreed to grant to any Person any Equity Securities in, or
entered into any other Contract or commitment that would,
directly or indirectly, require any AMC Entity or any of its
Affiliates or Subsidiaries, to sell or otherwise dispose of any
Equity Securities in, any Company Group Member.
3.6 Brokers. Except for
Moelis & Company, Inc., the fees of which AMC shall be
solely responsible for, no broker, finder, investment banker,
agent or other intermediary has acted on behalf of the AMC
Entities or any Company Group Member in connection with the
negotiation or consummation of this Agreement or is entitled to
any brokerage, finders or other fee or commission in
connection with the Transactions based upon arrangements made by
or on behalf of the AMC Entities, any Company Group Member or
any of their respective Affiliates.
3.7 Solvency. No AMC Entity
or Company is entering into this Agreement or the Transactions
with the actual intent to hinder, delay or defraud either
present or future creditors of AMC or any of its Subsidiaries.
On the Closing Date, after giving effect to the Transactions,
AMC and its Subsidiaries will be solvent, will be able to pay
their debts as such debts become due, will have and continue to
have funds and capital sufficient to carry out their business as
now contemplated, and will own property having a value both at
fair market valuation and at fair saleable value in the ordinary
course of business greater than the amount required to pay their
indebtedness and other obligations as the same mature and become
due.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES WITH RESPECT TO THE COMPANY GROUP
Each representation and warranty contained in this
Article IV is qualified by the corresponding section or
subsection, as the case may be, of the Company Disclosure Letter
or such other section or subsection, as the case may be, of the
Company Disclosure Letter the applicability of which to such
representation or warranty is readily apparent from the reading
of such other section or subsection. The AMC Entities, jointly
and severally, hereby represent and warrant to Purchasers as of
the Effective Date and, if the Closings shall occur, as of the
Closing Date, as follows:
4.1 Organization and Qualification;
Subsidiaries.
(a) The US Company is a limited liability company duly
formed, validly existing and in good standing under the laws of
the State of California. The US Company is duly qualified to
conduct its business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased
or operated by it or the nature of its activities makes such
qualification necessary, except where the failure of the US
Company to be so qualified has not had, and would not reasonably
be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Each other Company Group Member is a
corporation, limited liability company or other legal entity
duly formed, validly existing and in good standing under the
laws of its jurisdiction of incorporation or formation. Each
other Company Group Member is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except where such
failures to be so qualified or licensed and in good standing in
any foreign jurisdiction have not had, and would not reasonably
be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Each Company Group Member has the
requisite power and authority to own, lease and otherwise to
hold and operate its assets and properties and to carry on the
businesses as now being conducted by it.
(b) Section 4.1(b) of the Company Disclosure Letter
sets forth for each Company Group Member a true, complete and
correct list of: (i) its name and jurisdiction of
formation, (ii) the authorized classes of stock, shares,
limited liability company or membership interests, partnership
interests or other Equity Securities, (iii) the names of
the holders thereof, and the percentage interests held by each
such holder, both before the Company Group
B-32
Reorganization and after giving effect to the Company Group
Reorganization, and (iv) its directors, secretary and
managers.
(c) Except as set forth in Section 4.1(b) of the
Company Disclosure Letter, no Company Group Member (i) has
any direct or indirect Subsidiaries or (ii) owns the Equity
Securities of any other Person. No Company Group Member is
obligated to make any investment or capital contribution to any
Person.
4.2 Organizational or Governing
Documents. The AMC Entities have made
available to US Purchaser a true, complete and correct copy of
the Organizational Documents, each as amended to date, of each
Company Group Member. The Organizational Documents of each
Company Group Member are in full force and effect in all
material respects. None of the Company Group Members are in
violation in any material respect of any provision of their
respective Organizational Documents.
4.3 Authority. Each of the
Companies has all requisite power and authority to execute and
deliver this Agreement and the other Transaction Documents to
which it is or will be a named party, to perform its obligations
hereunder and thereunder, including to effect and consummate the
Company Group Reorganization in accordance with this Agreement,
and to consummate the Transactions. The execution and delivery
by each of the Companies of this Agreement and each of the other
Transaction Documents to which it is or will be a named party,
the performance by such Company of its obligations hereunder and
thereunder, including the Company Group Reorganization, and the
consummation of the Transactions, have been duly and validly
authorized by all necessary limited liability company or
corporate action, including the approval of the sole member of
the US Company, the sole shareholder of the UK Company, and the
sole shareholder and board of directors of the Singapore
Company, which have been obtained and are in full force and
effect, and no other limited liability company or corporate
actions or proceedings on the part of such Company or the
holders of its Equity Securities are necessary to authorize the
execution, delivery and performance by such Company of this
Agreement and each of the other Transaction Documents to which
it is or will be a named party or to consummate the
Transactions. Each of this Agreement and each other Transaction
Document to which each of the Companies is or will be a named
party has been duly and validly executed and delivered by such
Company (except for those Transaction Documents to be delivered
at the Closings, which will be duly executed and delivered by
such Company at the Closings if the Closings occur) and,
assuming the due authorization, execution and delivery thereof
by the Purchasers, constitutes a legal, valid and binding
obligation of such Company, enforceable against such Company in
accordance with its terms (except for those Transaction
Documents to be delivered at the Closings, which shall, assuming
the due authorization, execution and delivery by Purchasers,
constitute a legal, valid and binding obligation of such Company
at the Closings if the Closings occur, enforceable against such
Company in accordance with its terms).
4.4 No Conflict; Required Filings and
Consents.
(a) The execution and delivery by each of the Companies of
this Agreement and each of the other Transaction Documents to
which it is or will be a named party do not, and the performance
by such Company of its obligations hereunder and thereunder,
including the consummation of the Transactions, will not (with
or without notice or lapse of time, or both): (i) conflict
with or violate, result in a breach of, or constitute a default
under the Organizational Documents of any Company Group Member,
(ii) assuming the consents, approvals and authorizations
specified in Section 4.4(b) have been received and the
waiting periods referred to therein have expired, conflict with
or violate, or give rise to the creation of any Lien (other than
any Permitted Lien) under, any Law or Order applicable to any
Company Group Member or by which any properties, assets or
business activities of any Company Group Member is bound or
affected, (iii) except as set forth in
Section 4.4(a)(iii) of the Company Disclosure Letter,
violate, conflict with or result in any breach of, or constitute
a default by any Company Group Member under, or give rise to any
right of termination, amendment, modification, acceleration of,
or result in the creation of any Lien upon any of the Equity
Securities of any Company Group Member or upon any of the
properties or assets of any Company Group Member pursuant to,
any Contract to which such Company Group Member is a party or by
which any of its properties, assets or business activities may
be bound (or create an event that with notice or lapse of time
or both, would result in such a violation, conflict, breach,
default, termination, amendment, modification, acceleration, or
Lien), other than, for purposes of this clause (iii), any such
violation, conflict, breach or default as has not been, and
would not reasonably be expected to be, individually or in the
aggregate, material to the Company Group or the Business, or
(iv) assuming compliance with the HSR Act, any other
applicable Antitrust Laws, the Communications
B-33
Act and the Telecommunications Act, result in the cancellation,
modification, revocation or suspension of any Governmental
Approval granted to any Company Member.
(b) Neither the execution and delivery by the AMC Entities
or the Companies of this Agreement or any of the other
Transaction Documents to which it is or will be a named party
nor the performance by the AMC Entities or the Companies of
their obligations hereunder and thereunder, including the
consummation of Transactions, will require (with or without
notice or lapse of time, or both) any Governmental Approval or
Consent, except (i) under the HSR Act and any other
applicable Antitrust Laws, (ii) the approval and adoption
by the Requisite Stockholder Vote of the Authorizing Resolution,
(iii) the Communications Act, (iv) the
Telecommunications Act and (v) the Consents set forth in
Section 4.17(c) of the Company Disclosure Letter and except
for such other Governmental Approvals and Consents the failure
of which to be obtained or made has not been and would not
reasonably be expected to be, individually or in the aggregate,
material to the Company Group or the Business.
4.5 Company Permits; Compliance with
Laws. The Company Group holds all permits,
licenses, franchises, authorizations, certificates, approvals,
consents, waivers, concessions, exemptions, registrations and
orders issued or required to be issued by any Governmental
Authority that are necessary for the Company Group to own, lease
and operate the Real Property or to carry on the Business as it
is now being conducted (the Company Permits),
the Company Permits are in full force and effect, no notice of
any violations have been received respecting the Company
Permits, and no proceedings have been instituted by any
Governmental Authority seeking the suspension, cancellation,
modification or revocation of any Company Permit; except in any
such case as has not had, and would not reasonably be expected
to have, individually or in the aggregate, a Company Material
Adverse Effect. The Company Group Members and the Business are,
and for the last three years have been, in compliance with
(i) all Laws or Orders applicable to the Company Group or
the Business or by which any property or asset of the Company
Group or the Business is bound or affected and (ii) the
Company Permits, except for any such conflicts, defaults or
violations that have not been and would not reasonably be
expected to be, individually or in the aggregate, material to
the Company Group or the Business. No Claim has been filed,
commenced or, to the Knowledge of the AMC Entities or the
Companies, threatened against AMC or any of its Subsidiaries by
any Governmental Authority, alleging any failure of the Company
Group Members or the Business to be in so compliance.
4.6 Capitalization.
(a) US Seller is the sole member of the US Company and
owns, beneficially and of record, the US Company Interest. The
US Company Interest constitutes 100% of the limited liability
company interest in the US Company and there are no other Equity
Securities or voting interests in the US Company that are issued
or outstanding. The US Company Interest has been duly
authorized, validly issued, fully paid and non-assessable (to
the extent such concept is applicable), has not been issued in
violation of applicable securities Laws and is not subject to
preemptive or similar rights.
(b) As of the Effective Date, Ascent Media Group Limited is
the sole shareholder of the UK Company and owns, beneficially
and of record, the UK Company Interest. From the consummation of
the Company Group Reorganization to the Closings (and prior to
giving effect to the Transactions contemplated hereby), UK
Seller shall be the sole shareholder of the UK Company and own,
beneficially and of record, the UK Company Interest. The UK
Company Interest constitutes 100% of the Equity Securities in
the UK Company and there are no other Equity Securities or
voting interests in the UK Company that are issued or
outstanding. The UK Company Interest has been duly authorized,
validly issued, fully paid and non-assessable (to the extent
such concept is applicable), has not been issued in violation of
applicable securities Laws and is not subject to preemptive or
similar rights.
(c) Singapore Seller is the sole shareholder, beneficially
and of record, of the Singapore Company Interest. The Singapore
Company Interest constitutes 100% of the Equity Securities in
the Singapore Company and there are no other Equity Securities
or voting interests in the Singapore Company that are issued or
outstanding. The Singapore Company Interest has been duly
authorized, validly issued, fully paid and non-assessable (to
the extent such concept is applicable), has not been issued in
violation of applicable securities Laws and is not subject to
preemptive or similar rights.
(d) There are no outstanding, and there are no obligations
of any Company Group Member to issue, grant, extend or enter
into any, subscriptions, options, warrants, calls, restricted
stock, stock appreciation or profit
B-34
participation rights, restricted stock units, phantom equity,
commitments, preemptive rights, deferred compensation rights, or
convertible or exchangeable securities, with respect to any
Equity Securities of any Company Group Member, or any other
rights to purchase or acquire any Equity Securities or voting
interests in any Company Group Member, or any other similar
rights or Contracts of any kind to which AMC or any Affiliate or
Subsidiary of AMC (including any Company Group Member) is a
party, or by which AMC or any Affiliate or Subsidiary of AMC
(including any Company Group Member), or any of their respective
properties, is bound. There are no outstanding bonds, note,
debentures or other indebtedness the holders of which have the
right to vote (or that are convertible into, or exchangeable or
exercisable for, securities having the right to vote) any Equity
Securities or voting interests in any Company Group Member.
Except as set forth in Section 4.6(d) of the Company
Disclosure Letter, there are no Contracts to which any Company
Group Member or any of its Affiliates is a party with respect to
the voting, disposition or registration of any Equity Securities
or voting interests in any Company Group Member, or which
restrict the transfer of any such Equity Securities or voting
interests. There is not any outstanding contractual obligation
of any Company Group Member to repurchase, redeem or otherwise
acquire any Equity Securities or voting interests of itself or
any other Company Group Member, or any obligation of any Company
Group Member to grant, extend or enter into any such contractual
obligation.
4.7 Financial Statements.
(a) Attached to the Company Disclosure Letter as
Annex A are true, correct and complete copies of the
following financial statements:
(i) AMC Financial Statements:
(A) the audited consolidated balance sheets of AMC and its
consolidated subsidiaries as at December 31, 2009 and
December 31, 2008, and the related audited consolidated
statements of operations and comprehensive earnings (loss) and
of cash flows for the fiscal years ended December 31, 2009
and December 31, 2008, including the notes thereto,
together with the report thereon of AMCs independent
public accountants, and
(B) the unaudited consolidated balance sheets of AMC and
its consolidated subsidiaries as at September 30, 2010 (the
Interim Balance Sheet Date), and the related
unaudited consolidated statements of operations and
comprehensive earnings (loss) and of cash flow for the
three-month and nine-month periods then ended (collectively, the
Interim AMC Consolidated Financial
Statements);
(the foregoing financial statements of AMC, including any notes
thereto, the AMC Consolidated Financial
Statements).
(ii) Carve Out Financial Statements:
(A) unaudited carve out balance sheets of the Business on a
combined basis as at December 31, 2009 and
December 31, 2008, and the related unaudited statements of
operations of the Business on a combined basis for the fiscal
years ended December 31, 2009 and December 31, 2008;
(B) unaudited carve out balance sheet of the Business on a
combined basis as at the Interim Balance Sheet Date (the
Interim Balance Sheet), and the related
unaudited statement of operations of the Business on a combined
basis for the nine-month period then ended; and
(C) unaudited carve out balance sheet of the Business on a
combined basis as at June 30, 2010, and the related
unaudited statement of operations of the Business on a combined
basis for the six-month period then ended;
(the foregoing financial statements of the Business, the
Carve Out Financial Statements and, together
with the AMC Consolidated Financial Statements, the
Company Financial Statements).
(b) The AMC Consolidated Financial Statements (i) have
been prepared from books and records (which are accurate and
complete in all material respects) of AMC and its consolidated
subsidiaries, consistent with past practice, (ii) fairly
present, in all material respects, the consolidated financial
position of AMC and its consolidated subsidiaries as at the
respective dates thereof and their consolidated results of
operations and consolidated cash flows for the respective
periods then ended (subject, with respect to the Interim AMC
Consolidated Financial
B-35
Statements, to normal year-end audit adjustments in amounts that
are not material to AMC and its consolidated subsidiaries,
individually or in the aggregate, to the absence of notes and to
any other adjustments described therein or in
Section 4.7(b) of the Company Disclosure Letter), and
(iii) have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto, or in
Section 4.7(b) of the Company Disclosure Letter). The Carve
Out Financial Statements (x) have been derived from the AMC
Consolidated Financial Statements, (y) fairly present, in
all material respects, the combined financial position of the
Business as at the respective dates thereof and the combined
results of operations of the Business for the respective periods
then ended, and (z) have been prepared in accordance with
GAAP (subject to a materiality threshold determined in relation
to the Company Group) applied on a consistent basis during the
periods involved (except as enumerated in Section 4.7(b) of
the Company Disclosure Letter).
(c) Section 4.7(c) of the Company Disclosure Letter
sets forth the aggregate amount of additions to capital assets
with respect to the Business, as determined in accordance with
GAAP, for the fiscal year ended December 31, 2008, the
fiscal year ended December 31, 2009 and the nine-month
period ended September 30, 2010.
4.8 No Undisclosed
Liabilities. Except (a) for liabilities
reflected or reserved against on the Interim Balance Sheet,
(b) for liabilities or obligations incurred in the ordinary
course of business consistent with past practice since the
Interim Balance Sheet Date that, individually or in the
aggregate, have not been, and would not reasonably be expected
to be, material to the Company Group or the Business, and
(c) for contractual Liabilities that are not required to be
reflected on a balance sheet (including the notes thereto)
prepared in accordance with GAAP to the extent arising under
(A) any contract existing on the date hereof (other than
any contract required to be disclosed pursuant to
Section 4.17, if not so disclosed), or (B) any
contract entered into by a Company Group Member after the
Effective Date, to the extent permitted by Section 6.1(b),
no Company Group Member has any material Liabilities of any
nature, whether or not required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP
(subject to a materiality threshold determined in relation to
the Company Group).
4.9 Absence of Certain Changes or
Events. Since January 1, 2010, except as
otherwise expressly provided for or permitted by this Agreement
and except as set forth in Section 4.9 of the Company
Disclosure Letter: (i) there has not been any event,
occurrence, effect or change that has had, or would reasonably
be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, (ii) AMC and its Subsidiaries have
conducted the Business in all material respects in the ordinary
course, (iii) the Company Group has not taken any action
that, if taken by it during the period from the date of this
Agreement through the Closings, would constitute a breach of
Section 6.1(b) or Section 6.1(c), and (iv) no
material damage, destruction or loss (whether or not covered by
insurance) has occurred to any material asset of the Business.
This Section 4.9 shall not apply to any transaction set
forth in Section 6.17(a) of the Company Disclosure Letter.
4.10 Absence of
Litigation. There are no Claims or Orders, at
law or in equity, initiated by any Company Group Member, and
there are no Claims or Orders, at law or in equity, pending
against or, to the Knowledge of the AMC Entities or the
Companies, threatened against any Company Group Member, any of
their respective properties or assets, or otherwise affecting
the Business, by or before any arbitrator or Governmental
Authority, that are, or would reasonably be expected to be,
material to the Company Group or the Business, individually or
in the aggregate. To the Knowledge of the AMC Entities or the
Companies, there have not occurred any circumstances with
respect to the Company Group or the Business forming the basis
for a claim that if asserted, would reasonably be expected to
result in a judgment, enforcement or ruling against the Company
Group or the Business that, individually or in the aggregate,
would have or be reasonably expected to have a Company Material
Adverse Effect or AMC Material Adverse Effect. There are no
Claims or Orders, at law or in equity, by or against AMC or its
Subsidiaries relating to the Company Interests or any Equity
Securities or voting interests in any Company Group Member.
4.11 Related Party
Transactions. Except as set forth in
Section 4.11 of the Company Disclosure Letter, neither AMC
nor any of its Affiliates or Subsidiaries (other than Company
Group Members), nor any of the directors, officers, managers or
employees of AMC or any of its Affiliates or Subsidiaries, nor
any immediate family member of any such directors, officers,
managers or employees (each, a Related Party)
(a) has borrowed money from or loaned money to any Company
Group Member that is currently outstanding, (b) has any
ownership
B-36
interest in, or right to use, any property or asset owned by any
Company Group Member or used in the conduct of the Business,
(c) is a party to any Contract (other than any Company
Benefit Plan or employment agreement) with any Company Group
Member, or (d) provides, or causes to be provided, any
products or services to any Company Group Member (each, a
Related Party Arrangement).
4.12 Labor Matters.
(a) No Company Group Member is a party to any collective
bargaining agreements or other Contract with any labor unions or
organizations relating to Company Employees or with any other
representative of the Company Employees. Except as set forth in
Section 4.12(a) of the Company Disclosure Letter, as of the
date hereof and for the last three years, there is not, and
there has not been, any pending or, to the Knowledge of the AMC
Entities or the Companies, threatened (i) labor dispute
(including any grievance, complaint, arbitration or unfair labor
practice charge), strike, slowdown, picketing, lockout or work
stoppage, or (ii) union organizational activity against or
involving any Company Group Member or the Business, in each case
which, individually or in the aggregate, has been or would
reasonably be expected to be, material to the Company Group or
the Business. For the last three years, no charge against any
Company Group Member or the Business has been filed and is
pending with the National Labor Relations Board or any
comparable Governmental Authority and no complaint by the
National Labor Relations Board or any comparable Governmental
Authority is pending with regard to any Company Group Member or
the Business, except as has not been, and would not reasonably
be expected to be, individually or in the aggregate, material to
the Company Group or the Business.
(b) There is no pending or, to the Knowledge of the AMC
Entities or the Companies, threatened controversies, charges,
complaints or allegations of unlawful harassment or
discrimination with respect to any current, former or retired
employee of any Company Group Member or the Business, except as
has not been, and would not reasonably be expected to be,
individually or in the aggregate, material to the Company Group
or the Business. For the last three years, each Company Group
Member and the Business has complied with all applicable Laws
relating to the employment of labor, including the Transfer
Regulations, except as has not been, and would not reasonably be
expected to be, individually or in the aggregate, material to
the Company Group or the Business. As of the Closings, the
Company Employees shall consist solely of (x) the Current
Employees (other than those Current Employee whose employment
with the Company Group terminated between October 15, 2010
and the Closing Date), (y) the Transferred Employees, and
(x) employees hired by the Company Group Members between
October 15, 2010 and the Closing Date in compliance with
Section 6.1(b)(xx).
(c) Section 4.12(c)(i) of the Company Disclosure
Letter contains a list setting forth (x) all employees of
the Company Group Members (the Current
Employees) and (y) all employees of AMC or any of
its Subsidiaries (other than the Company Group Members)
providing services exclusively or primarily to the Business (the
Corporate Employees), in each case as of
October 30, 2010, as well as the following information for
each such employee: (i) name, (ii) job title,
(iii) date of hire, (iv) annual salary as of
October 30, 2010, (v) sick leave policy,
(vi) seniority date for purposes of vesting and eligibility
under applicable Company Benefit Plans as of October 30,
2010, (vii) whether or not such employee is actively at
work as of October 30, 2010 and if not, whether on an
approved leave, and for those employees on an approved leave,
the reason for, and the expected duration of, the approved
leave, (viii) available vacation hours as of
October 30, 2010 for US employees and vacation hours
liability as of October 30, 2010 for non-US employees, and
(ix) the legal entity that employs such employee. As of the
date of this Agreement, (1) except as set forth therein, no
employee listed on Section 4.12(c)(i) of the Company
Disclosure Letter has provided AMC or any of its Subsidiaries
with written notice of any plans to terminate employment with
the Company Group or any of its Affiliates (other than, in the
case of any such employee of AMC, for the purpose of accepting
employment with the Company Group as of the Closings), and
(2) except as scheduled on Section 4.12(c)(ii) of the
Company Disclosure Letter, neither AMC nor any of its
Subsidiaries has entered into any agreement, arrangement or
understanding with any Company Employee restricting its ability
to terminate the employment of any Company Employee, for any
lawful reason or no reason, without penalty or liability, and
(3) there are no outstanding offers of employment made by
any Company Group Member. Section 4.12(c)(iii) of the
Company Disclosure Letter contains a list setting forth all
employment agreements for the individuals listed on
Section 4.12(c)(i) of the Company Disclosure Letter.
Independent contractors do not make up a material portion of the
workforce of any Company Group Member.
B-37
4.13 Employee Benefit Plans.
(a) All Employee Benefit Plans that any Company Group
Member sponsors, maintains or contributes to, other than any
Company Benefit Plans maintained outside of the United States
primarily for the benefit of Company Employees working outside
of the United States (any such plans hereinafter being referred
to as Non-US Company Benefit Plans), are
listed on Section 4.13(a)(i) of the Company Disclosure
Letter, and any other Employee Benefit Plans with respect to
which any Company Group Member has any direct or indirect
Liability, whether contingent or actual, other than any Non-US
Company Benefit Plans, are listed on Section 4.13(a)(ii) of
the Company Disclosure Letter (all Employee Benefits Plans that
are required to be listed on Sections 4.13(a)(i) and
4.13(a)(ii) of the Company Disclosure Letter collectively, the
Company Benefit Plans). For each Company
Benefit Plan set forth on Sections 4.13(a)(i) and
4.13(a)(ii) of the Company Disclosure Letter, the AMC Entities
have made available to US Purchaser true, correct and complete
copies of the following (as applicable): (i) the written
document evidencing such Company Benefit Plan, including all
material amendments, modifications or supplements thereto (or,
with respect to any such plan that does not have a written plan
document, a summary of the material terms thereof),
(ii) the annual report (Form 5500), if any, filed with
the IRS for the last two plan years, (iii) the most
recently received IRS determination letter, if any,
(iv) the most recently prepared actuarial report or
financial statement, if any, (v) the most recent summary
plan description, if any, and all material modifications
thereto, (vi) copies of any material written correspondence
with the Department of Labor or the IRS dated within the last
three years regarding audits or noncompliance with the Code or
ERISA, and (vii) any related trust agreements, insurance or
group annuity contracts or documents of any other funding
arrangements.
(b) The Company Benefit Plans other than any Non-US Company
Benefit Plans (such Company Benefit Plans, collectively,
US Company Benefit Plans) have been
administered in compliance with their terms and in compliance
with ERISA, the Code and other applicable Laws, in all material
respects. Each US Company Benefit Plan that is subject to ERISA
(the ERISA Plans), that is an employee
pension benefit plan within the meaning of
Section 3(2) of ERISA (a Pension Plan)
and that is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from
the Internal Revenue Service (the IRS)
stating that such plan is qualified and its related trust is
exempt from taxation under Section 501 of the Code and, to
the Knowledge of the AMC Entities or the Companies, no facts or
circumstances exist, and no event has occurred since the date of
the most recent determination letter, which would reasonably be
expected to cause the loss of such qualification. Neither AMC
nor any of its Subsidiaries has engaged in a transaction with
respect to any ERISA Plan that would reasonably be expected to
subject any Company Group Member to any material tax or penalty
imposed by either Section 4975 of the Code or
Section 502(i) of ERISA.
(c) Except as otherwise set forth in Section 4.13(c)
of the Company Disclosure Letter, no Company Benefit Plan is a
pension plan and no Company Group Member currently maintains or
contributes to, or within the past six years has ever maintained
or contributed to, any pension plan. Neither AMC, the Company
Group, nor any ERISA Affiliate of the Company Group maintains or
contributes to or has within the past six years maintained or
contributed to a pension plan that is subject to any unsatisfied
liability pursuant to Title IV of ERISA. All contributions
required to be made under each Company Benefit Plan, as of the
date hereof, have been timely made and all obligations in
respect of each Company Benefit Plan have been properly accrued
and reflected to the extent required by GAAP in the applicable
Company Financial Statements. No Pension Plan is subject to
Title IV of ERISA.
(d) Other than a plan for which the Company Group will have
no Liability following the Closing, no Company Benefit Plan is a
multiemployer plan within the meaning of
Section 3(37) of ERISA (a Multiemployer
Plan) and no Company Group Member currently
contributes to, or has ever contributed to, any Multiemployer
Plan. Neither AMC, the Company Group, nor any ERISA Affiliate of
the Company Group have incurred, and AMC does not expect AMC,
the Company Group, or any ERISA Affiliate of the Company Group
to incur, any withdrawal liability (whether partial or complete)
with respect to any Multiemployer Plan under Title IV of
ERISA. AMC has provided US Purchaser with a copy of the most
recent annual funding notice in its possession for each such
Multiemployer Plan and with information regarding contributions
to each such Multiemployer Plan by AMC and its Subsidiaries
since its formation.
B-38
(e) There is no pending or, to the Knowledge of the AMC
Entities or the Companies, threatened, Claims relating to the
Company Benefit Plans or otherwise in connection with the
employment or engagement of any individual referred to in
Section 4.12(c)(i) of the Company Disclosure Letter, other
than routine claims for benefits. Other than as required by
COBRA, or other applicable Law, neither AMC nor any of its
Subsidiaries has any Liability for post-employment or retiree
health, medical, life insurance or other welfare benefits for
current, former or retired employees of any Company Group Member
or the Business.
(f) Except as set forth in Section 4.13(f) of the
Company Disclosure Letter, since January 1, 2010, there has
been no amendment to, announcement distributed to the Company
Employees in writing or by email by AMC or any of its
Subsidiaries relating to, or, to the Knowledge of the AMC
Entities or the Companies, change in employee participation or
coverage under, any Company Benefit Plan that would increase
materially the expense of maintaining such plan above the level
of the expense incurred therefor for the fiscal year ending
December 31, 2010. Except as set forth in
Section 4.13(f) of the Company Disclosure Letter, no
Employee Benefit Plan exists and there are no other Contracts
covering any current or former director, officer, manager or
equityholder of any Company Group Member that, individually or
collectively, as a result of the execution of this Agreement or
the consummation of the Transactions (alone or in combination
with another event) will (w) entitle any Company Employee
to severance pay or any increase in severance pay upon any
termination of employment after the date hereof,
(x) accelerate the time of payment or vesting or result in
any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable,
require the security of benefits under or result in any other
material obligation pursuant to, any of the Company Benefit
Plans, (y) limit or restrict the right of the Company Group
to merge, amend or terminate any of the Company Benefit Plans or
terminate any Company Employee with or without notice, or
(z) result in payments under any of the Company Benefit
Plans that would not be deductible under Section 280G or
162(m) of the Code or which would be subject to an excise tax
under Section 4999 of the Code.
(g) All Non-US Company Benefit Plans have been administered
in compliance with their terms and comply in all material
respects with all applicable local Law. All Non-US Company
Benefit Plans are listed on Section 4.13(g) of the Company
Disclosure Letter. Except as properly reflected on the Carve Out
Financial Statements in accordance with GAAP, the Company Group
(i) has no material unfunded Liabilities with respect to
any Non-US Company Benefit Plan; (ii) all employer and
employee contributions to each Non-US Company Benefit Plans
required by law or by the terms of such Non-US Company Benefit
Plans have been made, or, if applicable, accrued in accordance
with normal accounting practices; (iii) the fair market
value of the assets of each funded Non-US Company Benefit Plans,
the liability of each insurer for any Non-US Company Benefit
Plans funded through insurance or the book reserve established
for any Non-US Company Benefit Plans, together with any accrued
contributions, is sufficient to procure or provide for the
accrued benefit obligations, as of the Closings, with respect to
all current and former participants in such plan according to
the actuarial assumptions and valuations most recently used to
determine employer contributions to such Non-US Company Benefit
Plans, and no transaction contemplated by this Agreement shall
cause such assets, insurance and accrued contributions, in the
aggregate, to be less than such benefit obligations; and
(iv) each Non-US Company Benefit Plan required to be
registered with any Governmental Authority in the jurisdiction
in which Company Employees covered by such plan are located has
been registered with such Governmental Authority and has been
maintained in good standing with such Governmental Authority (to
the extent such concept is applicable) in accordance with
applicable Law. For each Non-US Company Benefit Plan listed on
Section 4.13(g) of the Company Disclosure Letter, the AMC
Entities have made available to US Purchaser true, correct and
complete copies of the written document evidencing such Non-US
Company Benefit Plan, including all material amendments,
modifications or supplements thereto (or, with respect to any
such plan that does not have a written plan document, a summary
of the material terms thereof). All documentation made available
to US Purchaser by the Company Group in relation to any Non-U.S
Company Benefit Plans is true, correct and complete in all
material respects.
(h) Each Company Benefit Plan that is a non-qualified
deferred compensation plan (as defined in
Section 409A(d)(l) of the Code) and any award thereunder,
in each case that is subject to Section 409A of the Code,
has (i) since January 1, 2009, been, in all material
respects, in documentary compliance with Section 409A of
the Code, and (ii) at all times been, in all material
respects, in operational compliance with Section 409A of
the
B-39
Code to the extent required by guidance promulgated thereunder
by the IRS or Department of Treasury, and there is no obligation
to indemnify any Company Employee for any Taxes imposed under
Section 409A of the Code.
(i) Neither AMC nor any of its Subsidiaries has any
commitment, or has communicated to any Company Employee the
intent, to establish any new Employee Benefit Plan or to modify
any Employee Benefit Plan, in either case, for the benefit of
any Company Employee.
(j) The Transfer Regulations do not apply in connection
with the Transactions or any steps taken prior to the
Transactions to effect the Transactions. The UK Company is not
under any obligation to make any payment on redundancy in excess
of the statutory redundancy payment.
(k) No director or employee, or former director or
employee, of the Company Group is entitled to any enhanced terms
as to the payment of pension or retirement benefits (whether
under the group personal pension scheme operated by AXA Sun Life
known as the Ascent Media Group Personal Pension Plan (the
Pension Scheme) or otherwise) if such
individual takes early retirement or is made redundant (or as a
result of having taken early retirement or being made redundant)
or otherwise in circumstances where the obligation to satisfy
such terms has passed to the Company Group by operation of the
Transfer of Undertakings (Protection of Employment) Regulations
1981 and/or
the Transfer Regulations.
(l) Contributions to the Pension Scheme are not paid in
arrears and all contributions, insurance premiums, tax and
expenses which are payable by the Company Group due under the
Pension Scheme have been fully paid when due.
(m) All death and disability benefits which may be payable
under the Pension Scheme or otherwise by the Company Group are
fully insured under a policy of insurance, a complete and
accurate copy of which is annexed to the Company Disclosure
Letter and there are no circumstances which might make any such
policy void or voidable or result in an increase in premium with
respect thereto.
4.14 Taxes.
(a) Except as set forth in Section 4.14(a) of the
Company Disclosure Letter:
(i) AMC has filed or caused to be filed with the
appropriate Tax authority all income Tax Returns and all other
material Tax Returns of or with respect to the Business or any
Company Group Member that have become due on or prior to the
date hereof and has given all material notices, supplied all
material information and maintained all such material records as
are required to be made, given, supplied or maintained by it in
connection therewith, and has paid or caused to be paid all
Taxes due and owing on such filed Tax Returns, taking into
account all amendments thereto (such filed Tax Returns, as
amended to date, the Company Filed Tax
Returns), and such other material Taxes (whether or
not shown on any Tax Return) due and payable by any Company
Group Member, except, in each case, with respect to matters
contested in good faith by appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP
in the Carve Out Financial Statements. None of the AMC Entities
or any Company Group Member currently is the beneficiary of any
extension of time within which to file any Tax Return of or with
respect to the Business or any Company Group Member. The Company
Filed Tax Returns are complete and accurate in all material
respects;
(ii) None of the AMC Entities or any Company Group Member
has received written notice from any Tax authority of any claim
for the assessment of Taxes of or with respect to the Business
or any Company Group Member; no audit or other proceeding by any
Governmental Authority is pending with respect to any Taxes due
from or with respect to any Company Group Members or the
Business; and all deficiencies for Taxes assessed against or
with respect to the Company Group Members or the Business have
been fully and timely paid, settled or properly reflected in the
Carve Out Financial Statements;
(iii) None of the AMC Entities or any Company Group Member
has agreed to waive or extend the statute of limitations with
respect to any Taxes, or agreed to any extension of time with
respect to a Tax assessment or deficiency, of or with respect to
the Business or any Company Group Member;
B-40
(iv) Each of the Company Group Members (or another Person
on its behalf) has withheld and paid all material Taxes required
to have been withheld and paid by or with respect to any Company
Group Member or the Business in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder, or other third party, and all forms required with
respect thereto have been properly completed and timely filed;
(v) There are no Liens for Taxes upon the assets or
properties of the Company Group, except for Liens for Taxes
which are not yet due and payable;
(vi) No Company Group Member is a party to any agreement,
contract, arrangement, or plan that has resulted or would
result, separately or in the aggregate, in the payment of any
excess parachute payment within the meaning of
Section 280G of the Code or any similar provision of state,
local, or foreign Tax law.
(vii) None of the AMC Entities or any Company Group Member
has participated in a listed transaction within the
meaning of Section 6707A(c)(2) of the Code or Treasury
Regulations
Section 1.6011-4(b)(2).
Adequate disclosure has been made on all U.S. federal Tax
Returns that are required to be filed, which relate to the
Business or any Company Group Member, of (x) all positions
taken therein relating to any Company Group Member that are
likely to give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662 of the Code
and (y) all reportable transactions, entered
into by any Company Group Member, within the meaning of Treasury
Regulations
Section 1.6011-4(b)
in accordance with the Treasury Regulations prescribed under
Section 6011 of the Code; and
(viii) No Company Group Member will be required to include
any item of income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (A) change
in method of accounting for a taxable period ending on or prior
to the Closing Date; (B) closing agreement
pursuant to Section 7121 of the Code or any similar
provision of state, local or foreign Tax law;
(C) intercompany transactions or any excess loss account
described in Treasury Regulations under Section 1502 of the
Code or any similar provision of state, local, or foreign Tax
law; (D) installment sale or open transaction disposition
made on or prior to the Closing Date; (E) prepaid amount
received on or prior to the Closing Date; or (F) election
under Section 108(i) of the Code. No Company Group Member
is subject to any private letter ruling of the IRS or comparable
ruling of any other Governmental Authority, including any ruling
issued to an AMC Entity that is binding on or otherwise
applicable to any Company Group Member.
(b) Except for that certain Tax Sharing Agreement between
Discovery Holding Company, Discovery Communications, Inc.,
Ascent Media Corporation, Ascent Media Group, LLC and CSS
Studios, LLC, dated as of September 17, 2008 (the
Discovery TSA), no Company Group Member is a
party to any Tax Sharing Agreement. None of the Company Group
Members will be subject to, or have any liability with respect
to, the Discovery TSA following the Closings.
(c) At the Closings, provided that no action is taken, or
election is made, by either Purchaser or any of its Affiliates
(including, after the Closings, the Company Group) to change the
classification of any Company Group Members for
U.S. federal income tax purposes, each Company Group Member
will be classified, and except as disclosed in
Section 4.14(c) of the Company Disclosure Letter will have
been classified since such members formation, as a
disregarded entity (within the meaning of Treasury
Regulations
Section 301.7701-3)
for U.S. federal income tax purposes. At the Closings, each
of Ascent Media Group, LLC and US Seller will be classified as a
disregarded entity (within the meaning of Treasury
Regulations
Section 301.7701-3)
for U.S. federal income tax purposes.
(d) To the extent any Company Group Member is required to,
or has concluded in its reasonable judgment that it is required
to, contribute to the Universal Service Fund, any and all such
costs and fees are currently being, and have always been, passed
on to and paid by the customers of such Company Group Member at
no cost to such Company Group Member.
4.15 Intellectual Property.
(a) Except as set forth in Section 4.15(a) of the
Company Disclosure Letter, the Company Group owns, or has the
right to use pursuant to license, sublicense, agreement or
permission, all Intellectual Property Rights used in, or
B-41
necessary for, the conduct of the Business as currently
conducted (the Company Intellectual Property
Rights), and (ii) the Company Group has not
received, at any time during the last two years, any written
Claim challenging the validity, enforceability, registration,
ownership or use of any of the Company Intellectual Property
Rights. No loss, impairment or expiration (other than any
expiration in accordance with the terms of any applicable
license, sublicense, agreement or permission) of any Company
Intellectual Property is threatened or pending, including any
such loss that would occur by reason of the consummation of the
Transactions. None of the Company Group Members is obligated to
pay any royalty or other consideration to any Person in
connection with the use of any of the Company Intellectual
Property Rights, other than pursuant to any shrink-wrap,
click-wrap and
off-the-shelf
software agreements that are commercially available on
reasonable terms to the public generally with license,
maintenance, support and other fees less than $50,000 per year
in the aggregate.
(b) Section 4.15(b) of the Company Disclosure Letter
sets forth a list as of September 30, 2010, of all
licenses, sublicenses and other agreements to which any Company
Group Member is a party pursuant to which any Company Group
Member is authorized to use any third party Intellectual
Property Rights, other than shrink-wrap, click-wrap and
off-the-shelf
software agreements that are commercially available on
reasonable terms to the public generally with license,
maintenance, support and other fees less than $50,000 per year
in the aggregate.
(c) Section 4.15(c) of the Company Disclosure Letter
sets forth a list as of September 30, 2010, of all
registered patents, registered trademarks and service marks,
registered copyrights, applications for registration of patents,
trademarks and service marks, and copyrights, and registered
Internet domain names (collectively, the Registered
Intellectual Property) owned by or exclusively
licensed to the Company Group, other than any such Intellectual
Property Right that is an Excluded Asset. All Registered
Intellectual Property is subsisting, valid and enforceable, and
no Registered Intellectual Property is involved in any
opposition, cancellation or similar proceeding.
(d) No Company Group Member is, and the conduct of the
Business does not, infringe upon, misappropriate or otherwise
violate, and has not infringed upon, misappropriated or
otherwise violated during the last two years, in any material
respect, any Intellectual Property Rights of any other Person.
Except as set forth in 4.15(d) of the Company Disclosure Letter,
the Company Group has not received, during the last two years,
any written Claim alleging any material infringement,
misappropriation or other violation of any Intellectual Property
Right that has not been settled or otherwise fully resolved. To
the Knowledge of the AMC Entities or the Companies, no other
Person has infringed, misappropriated or otherwise violated any
Company Intellectual Property Rights at any time during the last
two years in any material respect.
(e) AMC and its Subsidiaries have not granted any exclusive
licenses to any Company Intellectual Property.
(f) No Company Intellectual Property Right is subject to
any Order restricting the use or disposition thereof.
4.16 Real Property.
(a) Section 4.16(a) of the Company Disclosure Letter
sets forth a true, correct and complete list, including the
address or other description of each parcel of Leased Real
Property, and a list of each lease, sublease, license or
occupancy agreement, relating to any Leased Real Property, to
which AMC or any of its Subsidiaries is (or as of the Closings
will be) a party (each such lease, sublease, license or
occupancy agreement, as amended to date, a Real
Property Lease), which list sets forth (for each Real
Property Lease that exists as of the Effective Date) the date of
and parties to each Real Property Lease, the date of and parties
to each amendment, modification and supplement thereto, all
renewal rights and options to purchase and a reference to the
description of the demised premises thereunder (including all
leasehold, subleasehold, ground leasehold, or other rights to
use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property used in connection
with the Business), the current term, and any current or future
obligations to restore the premises covered by such Real
Property Lease at the expiration of such lease. A true, correct
and complete copy of each Real Property Lease (including all
modifications, amendments and supplements thereto) has
heretofore been furnished or made available to US Purchaser,
none of which Real Property Leases have been amended, modified,
restated or otherwise supplemented in any respect, except to the
extent disclosed by the copies furnished or made available to US
Purchaser. Each Real Property Lease constitutes a valid
leasehold interest of the applicable Company Group Member, free
and clear of all Liens, except Permitted Liens. With respect to
each Real Property Lease, except as
B-42
expressly set forth in Section 4.16(a) of the Company
Disclosure Letter: (i) neither AMC nor any of its
Subsidiaries is in breach or default thereunder in any material
respect, and to the Knowledge of the AMC Entities or the
Companies, each other party named therein is not in breach or
default thereunder in any material respect; (ii) no
breaches or defaults are currently alleged thereunder, by or
against any party, and to the Knowledge of the AMC Entities or
the Companies, no event has occurred or failed to occur or
circumstance exists which, with the delivery of notice, the
passage of time or both, would constitute such a breach or
default, or permit the termination, modification or acceleration
of rent under such Real Property Lease; (iii) such Real
Property Lease is (or as of the Closings will be) a valid and
binding obligation upon AMC or one of its Subsidiaries and
shall, as of the Closings, be a valid and binding obligation of
a Company Group Member, and is a valid and binding obligation of
each other party thereto, and is in full force and effect and
enforceable by AMC or one of its Subsidiaries and shall, as of
the Closings, be enforceable by a Company Group Member, in
accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, moratorium and other laws of
general application for the protection of debtors or tenants, by
general principals of equity, and by applicable limitations on
the availability of specific performance and injunctive relief;
(iv) neither AMC nor any of its Subsidiaries owes brokerage
commissions or finders fees with respect to any Real Property
Lease; (v) no security deposit or portion thereof deposited
with respect to any Real Property Lease has been applied in
respect of a breach or default under such Real Property Lease
that has not been redeposited in full; (vi) the interest of
any tenant thereunder has not been subleased, licensed, or
assigned, and no Person has otherwise been granted the right to
use or occupy the Leased Real Property or any portion thereof;
(vii) other than the Permitted Liens, the interest of AMC
and its Subsidiaries thereunder has not been collaterally
assigned nor has any other security interest in such Real
Property Lease or any interest therein been granted; and
(viii) other than the Permitted Liens, there are no Liens,
Contracts, defects, claims or exceptions on or affecting the
estate or interest created thereby or pursuant thereto
(including any material encroachments on adjacent land). AMC and
its Subsidiaries are in lawful possession of the Leased Real
Property, subject only to Permitted Liens.
(b) Section 4.16(b) of the Company Disclosure Letter
sets forth a list (including the address and record owner) of
(x) each parcel of real property or portion thereof owned
in fee by any Company Group Member and (y) each parcel of
real property or portion thereof owned in fee by AMC or a
Subsidiary of AMC (other than a Company Group Member) and used
in the Business (such real property described in
clauses (x) and (y) collectively, together with the
Improvements thereon, the Owned Real
Property, and together with the Leased Real Property,
the Real Property). Except as set forth in
Section 4.16(b) of the Company Disclosure Letter, with
respect to each parcel of the Owned Real Property: (i) a
Company Group Member has or will have at the Closings good and
marketable, indefeasible fee simple title to the Owned Real
Property, except for Permitted Liens; (ii) except for
Permitted Liens, neither AMC nor any of its Subsidiaries has
leased or otherwise granted to any Person the right to use or
occupy the Owned Real Property or any portion thereof (except as
provided in Section 6.19(b) and (c) below);
(iii) there are no outstanding options, rights of first
offer, rights of reversion, or rights of first refusal to
purchase the Owned Real Property or any portion thereof or
interest therein (except as contemplated under the
2813 West Alameda Lease, if such lease is entered into as
provided in Section 6.19(b) below), and (iv) neither
AMC nor any of its Subsidiaries is a party to any Contract for
the purchase or sale of any interest in the Owned Real Property.
Except as expressly set forth in Section 4.16(b) of the
Company Disclosure Letter, the Company Group Members are or will
be at the Closings in lawful possession of the Owned Real
Property (except the 2813 West Alameda Parcel if that
parcel is not transferred at the Closings as provided in
Section 6.19(c)), subject only to Permitted Liens and, with
respect to the 2813 West Alameda Parcel, (A) the
Appurtenant Earth Station Easement Agreement (if and when the
Appurtenant Earth Station Easement Agreement is entered into and
recorded in the Official Records as and to the extent
contemplated under Section 6.19(b) and (c) below),
(B) the
In-Gross
Earth Station Easement Agreement (if and when the
In-Gross
Earth Station Easement Agreement is entered into and recorded in
the Official Records as and to the extent contemplated under
Section 6.19(c) below), (C) the 2813 West Alameda
Lease (if and when the 2813 West Alameda Lease is entered
into and recorded in the Official Records as and to the extent
contemplated under Section 6.19(b) below) and (D) the
Declarations (if and when the Declarations are entered into and
recorded in the Official Records as contemplated under
Section 6.19(c) below).
(c) A true, correct and complete rent roll for the Tenant
Leases (the Rent Roll) is set forth in
Section 4.16(c) of the Company Disclosure Letter. There are
no Tenant Leases with respect to the Real Property other than
the Tenant Leases which are set forth on the Rent Roll. Except
as set forth in the Rent Roll, as of the date of this Agreement:
(i) each Tenant Lease is in full force and effect;
(ii) the tenants under the Tenant Leases have accepted
B-43
possession of, and are in occupancy of, all of their respective
demised premises and have commenced the payment of rent under
the Tenant Leases to the extent set forth on the Rent Roll, and,
to the Knowledge of the AMC Entities or the Companies, there are
no offsets, claims or defenses to the enforcement thereof
presently outstanding; (iii) all rents due and payable
under the Tenant Leases have been paid and no portion of any
rent has been paid for any period more than 30 days in
advance; (iv) the rent payable under each Tenant Lease is
the amount of rent set forth in the Rent Roll, subject to future
adjustments as provided in the applicable Tenant Lease, and, to
the Knowledge of the AMC Entities or the Companies, there is no
claim or basis for a claim by the tenant thereunder for an
adjustment to such rent; (v) no tenant or other party in
possession of any of the Real Property subject to the Tenant
Leases has any right to purchase, or holds any right of first
refusal to purchase, such properties, or is a holdover tenant;
(vi) no Tenant Lease letter of credit has been delivered as
a security deposit, or in lieu of cash security deposit, under
any Tenant Lease; (vii) there is no tenant improvement work
remaining to be done under any Tenant Lease, and
(viii) there are no remaining rent concessions, tenant
allowances or abatements with respect to any Tenant Lease,
except as provided for under the express written terms of such
Tenant Lease. All security deposits under the Tenant Leases are
as set forth on the Rent Roll and AMC and its Subsidiaries are
in material compliance with all Laws with respect to all such
security deposits. Each Tenant Lease is enforceable in
accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, moratorium and other laws of
general application for the protection of debtors or tenants, by
general principals of equity, and by applicable limitations on
the availability of specific performance and injunctive relief.
The AMC Entities have made available to US Purchaser true,
correct and complete copies of each Tenant Lease. Neither AMC
nor any of its Subsidiaries owes or will, as of the Closings,
owe any brokerage commissions in respect of the Tenant Leases.
(d) Except where the failures of the following has not had,
and would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect:
(i) All buildings, structures, fixtures, fences, walls,
paving, parking areas, driveways, walkways, plazas, landscaping,
permanently affixed utility systems and other improvements
existing, located on or attached to the Owned Real Property (and
any Ground Leased Real Property) (collectively, the
Improvements), are in good condition and
repair, subject to reasonable wear and tear, and there are no
facts or conditions affecting any of the Improvements that would
adversely interfere with the use or occupancy of the
Improvements or any portion thereof in the operation of the
business presently conducted thereon. To the Knowledge of the
AMC Entities or the Companies, there are no hidden or latent
defects that would not be found or disclosed on a commercially
reasonable inspection of the Owned Real Property (or Ground
Leased Real Property) and the Improvements. Notwithstanding the
foregoing, it is understood and agreed that none of the
representations and warranties contained in this
Section 4.16(d)(i) shall apply to the 2813 West
Alameda Parcel.
(ii) The present use of the Improvements is, and the
Improvements themselves are, in substantial conformity with or
excused from conformity with all applicable zoning Laws, and
neither AMC nor any of its Subsidiaries has received written
notice of, nor has Knowledge of, a violation thereof. To the
Knowledge of the AMC Entities or the Companies, the Owned Real
Property (and Ground Leased Real Property) and the Improvements
are currently used in conformity with all current valid use
permits, zoning variances, consents, approvals and
authorizations held by AMC or its Subsidiaries and necessary for
the current use of the Owned Real Property (and Ground Leased
Real Property) and the Improvements in compliance with
applicable Laws (collectively the Land Use
Permits), and such use will continue following the
Closings. No proceeding is pending or, to the Knowledge of the
AMC Entities or the Companies, threatened regarding the
revocation or limitation of any such Land Use Permits.
Notwithstanding the foregoing, it is understood and agreed that
none of the representations and warranties contained in this
Section 4.16(d)(ii) shall apply to the 2813 West
Alameda Parcel.
(iii) AMC has made available to US Purchaser true, correct
and complete copies of all surveys, environmental site
assessments, and any title insurance policies, each prepared on
behalf of or held by AMC and its Subsidiaries, relating to the
Real Property. The premiums for any such title insurance
policies have been paid in full and no claims have been made
under such policies.
B-44
(iv) AMC has made available to US Purchaser true, correct
and complete copies of all deeds, mortgages, certificates of
occupancy, or equivalent documentation, with respect to the
Owned Real Property and other documents relating to or affecting
the title to the Owned Real Property.
(v) The parcels constituting the Owned Real Property are
assessed separately from all other adjacent property not
constituting the Owned Real Property for purposes of real
property Taxes and complies with all applicable subdivision,
land parcelization and local governmental taxation or separate
assessment requirements, without reliance on property not
constituting Owned Real Property.
(vi) To the Knowledge of the AMC Entities or the Companies,
(A) there is direct access to and from each parcel of the
Real Property and to publicly dedicated streets and (B) no
fact or condition exists that would result in the termination of
access to and from such properties.
(vii) Except as set forth in Section 4.16(d)(vii) in
the Company Disclosure Letter, none of the Owned Real Property
is in a designated wetland, flood plain or flood insurance area,
including any area determined by the Department of Housing and
Urban Development to be in a flood zone under the Federal Flood
Protection Act of 1973.
(viii) All utilities, including water, waste removal
systems, electricity, gas and telephone, are available to each
parcel of the Owned Real Property (and each parcel of Ground
Leased Real Property) and to the Improvements in sufficient
quantity to adequately service such properties and Improvements
for their current uses.
(ix) All labor and materials used in the construction or
preparation of the Owned Real Property (and Ground Leased Real
Property) and Improvements have been paid for and there are no
disputes with regard thereto.
(x) Except as disclosed in Section 4.16(d)(x) of the
Company Disclosure Letter, no Company Group Member has any
Liability to perform or observe any obligation in respect of any
real property formerly owned or occupied by it.
(xi) There is no pending or, to the Knowledge of the AMC
Entities or the Companies, threatened appropriation,
condemnation, expropriation, eminent domain or similar action
affecting and impairing the current use, occupancy or value of
any Owned Real Property (and Ground Leased Real Property).
(e) The Singapore Company owns and has title to all
buildings, structures, improvements, fixtures and fittings
located on or situated within that certain parcel of real
property leased to the Singapore Company by the Jurong Town
Corporation, a body incorporated under the Jurong Town
Corporation Act (Chapter 150) of Singapore, as lessor,
pursuant to that certain Lease, dated as of June 15, 1998,
as amended, modified, varied, novated, supplemented or replaced
from time to time, which parcel of real property is described as
Lot 2081N of Mukim 31 and commonly known as 20 Loyang Crescent,
Singapore, 508984.
(f) AMC or one of its Subsidiaries has or will have at the
Closings (i) good and marketable, indefeasible fee simple
title to the 2820 West Olive Parcel, except for Permitted
Liens, and (ii) has or will have the right, power and
authority to grant to the US Purchaser all of the rights with
respect to the 2820 West Olive Parcel that are to be
granted as of the Closings under Section 6.19 below (i.e.,
under Section 6.19(b) or Section 6.19(c), as
applicable).
(g) All existing telecommunications antennas, microwave
dishes, satellite dishes and other communications equipment
located on the Roof (as defined in the
2901 West Alameda Sublease) are used in connection with the
Business, other than (i) that certain existing dish that is
currently used by CSS Studios, LLC and Level 3 and shown in
pink on Exhibit D to the Form of 2901 West Alameda
Sublease attached hereto as Exhibit B and
(ii) those certain dishes owned and used by Direct TV and
Dish Network and shown in green on Exhibit D to the Form of
2901 West Alameda Sublease attached hereto as
Exhibit B, which dishes are not used in connection
with the Business.
4.17 Material Contracts and Leases.
B-45
(a) Section 4.17(a) of the Company Disclosure Letter
sets forth a list of each Contract, as of the Effective Date, to
which any Company Group Member is a party or pertaining to the
Business, and which falls within any of the following categories
(each, a Company Material Contract):
(i) any Contract relating to Indebtedness or relating to
mortgaging, pledging or otherwise placing a Lien on any assets
of any Company Group Member or the Business, and any Contract
relating to the Intelsat Capital Lease;
(ii) any Contract that requires payments by the Company
Group Members or the Business, taken as a whole, of more than
$500,000 in any calendar year that cannot be terminated on less
than 90 days notice without material payment or
penalty;
(iii) any Contract that by its terms prohibits or
materially restricts the declaration or payment of dividends or
other distributions or loans by any Company Group Member,
prohibits the pledging of any Equity Securities of any Company
Group Member, or prohibits the issuance of guarantees by any
Company Group Member;
(iv) any Contract that by its terms prohibits or materially
restricts any Company Group Member or the Business from
undertaking any line of business or competing in any geographic
area;
(v) any Contract that grants to any third party an option
to purchase, a right of first refusal or right of first offer or
similar right with respect to any material property or assets of
the Company Group or the Business or that by its terms prohibits
or materially restricts the sale, transfer, pledge or otherwise
disposition by the Company Group or the Business of any material
property or assets thereof;
(vi) any Contract that provides for most favored
nations terms or establishes an exclusive sale or purchase
obligation with respect to any product or any geographic
location;
(vii) any Contract for the acquisition or sale of any
assets, Equity Securities or businesses (including by equity or
asset purchase, merger, combination or otherwise) other than in
the ordinary course of business consistent with past practice,
pursuant to which any Company Group Member has any material
outstanding rights or obligations (including any such Contract
containing material representations, warranties, covenants,
indemnities or other obligations, including any
earnout or other deferred or contingent
consideration, that is still in effect), or any Contract
granting to any Person any preferential rights to purchase any
assets, Equity Securities or businesses, in each case under
which there are material outstanding obligations;
(viii) any Contract under which any Company Group Member
has made advances or loans of money to any other Person (which
shall not include advances made to an employee of the Company
Group in the ordinary course of business consistent with past
practice);
(ix) any Contract with any customer involving payments of
more than $350,000 in any calendar year;
(x) any Contract with any supplier that requires payments
by the Company Group Members or the Business, taken as a whole,
of more than $200,000 in any calendar year;
(xi) any Real Property Lease;
(xii) any lease, installment and conditional sale
agreement, or other Contract or agreement affecting or relating
to the ownership of, leasing of, title to, use of, sale,
exchange, transfer or any leasehold or other interest in any
personal property, in each case requiring payments by or to the
Company Group or the Business in excess of $50,000 in the
aggregate in any calendar year;
(xiii) any profit sharing, stock option, stock purchase or
stock appreciation plan;
(xiv) any joint venture agreement, partnership agreement,
or limited liability company agreement;
(xv) any Contract entered into in the past three years
involving any resolution or settlement of any actual or
threatened Claim or other dispute with a value of greater than
$100,000 or which, regardless of the dollar amount in
controversy, imposes material continuing obligations on any
Company Group Member;
(xvi) any Contract involving any standstill or similar
arrangement;
B-46
(xvii) any Contract involving any guarantee or assumption
of other obligations of any other Person or reimbursement of any
maker of a letter of credit, or involving a Lien on any material
assets, tangible or intangible, of the Company Group Members or
the Business;
(xviii) any Contract involving a Related Party Arrangement;
(xix) any Contracts that relate to hedging, derivatives or
similar contracts or arrangements;
(xx) any Contract containing any power of attorney that is
currently effective and outstanding; or
(xxi) any other material contract as such term
is defined in Item 601(b)(10) of
Regulation S-K
of the SEC (it being understood that the term
registrant as used in such regulation refers to AMC).
A true, correct and complete copy of each Company Material
Contract has been made available to US Purchaser.
(b) Each Company Material Contract is valid and binding on
the Company Group Member party thereto (except for Company
Material Contracts that are, as of the Effective Date, not
within the Company Group, which Company Material Contracts shall
be valid and binding at the Closings on the Company Group Member
party thereto) and, to the Knowledge of the AMC Entities or the
Companies, each other party thereto, and is in full force and
effect and enforceable in accordance with its terms. AMC and its
Subsidiaries and, to the Knowledge of the AMC Entities or the
Companies, each other party thereto, has performed, in all
material respects, all obligations required to be performed
under each Company Material Contract. Neither AMC nor any of its
Subsidiaries is in material breach of or material default under
(or with only notice or lapse of time or both would be in
material breach of or material default under) the terms of any
Company Material Contract (without regard to any right to cure
any such breach or default under any such Contract). To the
Knowledge of the AMC Entities or the Companies, no other party
to any Company Material Contract is in material breach of or
material default under (or with only notice or lapse of time or
both would be in material breach of or material default under)
the terms of any Company Material Contract (without regard to
any right to cure any such breach or default under any such
Contract). Neither AMC nor any of its Subsidiaries has received
written notice of, or, to the Knowledge of the AMC Entities or
the Companies, non-written notice of, the existence of any event
or condition which constitutes a material breach of or material
default under (or with only notice or lapse of time or both
would be in material breach of or material default under) the
terms of any Company Material Contract (without regard to any
right to cure any such breach or default under any such
Contract). Neither AMC nor any of its Subsidiaries has received
any written notice of, or, to the Knowledge of the AMC Entities
or the Companies, non-written notice of, any actual or
threatened modification, acceleration, termination, cancellation
or non-renewal of any Company Material Contract.
(c) Except as set forth in Section 4.17(c) of the
Company Disclosure Letter, neither the execution and delivery of
this Agreement by the AMC Entities or the Companies nor the
consummation of the Transactions, including the Company Group
Reorganization, will require (with or without notice or lapse of
time, or both) any Consent or notice under any Company Material
Contract.
(d) Assuming that any Consent specified in
Section 4.17(c) of the Company Disclosure Letter have been
received and that any notices referred to therein have been
given, neither the execution and delivery of this Agreement by
the AMC Entities or the Companies nor the consummation of the
Transactions, including the Company Group Reorganization, will
(with or without notice or lapse of time, or both) result in any
breach of, or constitute a default under, or give rise in others
any right of termination, modification, acceleration or
cancellation, or result in the creation of a Lien, other than
any Permitted Lien, upon any of the properties or assets of the
Company Group, under, any Company Material Contract, other than
any such violation, conflict, default, termination,
modification, acceleration, cancellation or Lien that has not
had, and would not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
4.18 Insurance. The AMC
Entities have made available to US Purchaser true, correct and
complete copies of all material insurance policies or binders
(including policies or binders providing property, casualty,
liability, and workers compensation coverage and bond and
surety arrangements) relating to the Business or the assets or
operations of the Company Group (the Insurance
Policies). Section 4.18 of the Company Disclosure
Letter contains a list of the Insurance Policies. Each of the
Insurance Policies is in full force and effect and is legal,
valid,
B-47
binding and enforceable in accordance with its terms, all
premiums due thereon have been paid in full, AMC and its
Subsidiaries are in compliance in all material respects with the
terms and conditions of such Insurance Policies, and neither AMC
nor any of its Subsidiaries is in material breach thereof or
material default thereunder (including with respect to the
payment of premiums or the giving of notices). To the Knowledge
of the AMC Entities or the Companies, no event has occurred
which, with or without notice or lapse of time, or both, would
constitute a material breach of or material default under any
Insurance Policy, or permit modification, acceleration,
termination, cancellation or non-renewal under any such
Insurance Policy. Neither AMC nor any of its Subsidiaries has
received written notice of any actual or threatened
modification, acceleration, termination, cancellation or
non-renewal of any Insurance Policy. To the Knowledge of the AMC
Entities or the Companies, no bankruptcy, insolvency or similar
proceedings have been commenced by or against any insurer of any
Insurance Policy. No claim currently is pending under any
Insurance Policy, other than claims made in the ordinary course
of business and for which the insurer has not denied coverage.
4.19 Environmental
Matters. Except as set forth in
Section 4.19 of the Company Disclosure Letter:
(a) The Business and each Company Group Member is and has
been in compliance in all material respects with all applicable
Environmental Laws and Environmental Permits, and possess all
material Environmental Permits required to own, lease and
operate the Real Property and to carry on the Business as it is
now being conducted. All such Environmental Permits are in full
force and effect. There is no actual or, to the Knowledge of the
AMC Entities or the Companies, threatened proceeding to revoke
any such Environmental Permit, nor has AMC or any of its
Subsidiaries received any notice of violation, notice of
non-compliance, or similar notification alleging that the
Business or any Company Group Member has not complied with any
term, condition, or other provision of any Environmental Permit.
(b) There are no material Claims pursuant to Environmental
Laws pending or, to the Knowledge of the AMC Entities or the
Companies, threatened against the Business or any Company Group
Member or with respect to the Real Property. Neither AMC nor any
of its Subsidiaries has received any written request for
information or written request to perform, or participate in
performing, any onsite or offsite investigation or, to the
Knowledge of the AMC Entities or the Companies, been subject to
any investigation, in either case, relating to the
Business compliance with or liability pursuant to
Environmental Laws or Environmental Permits. Neither AMC nor any
of its Subsidiaries has received any written notice regarding
any actual or alleged material violation of any Environmental
Laws by the Business or any Company Group Member, or has
received written notice of or entered into any Order involving
any material uncompleted, outstanding or unresolved requirements
with respect to any Real Property relating to or arising under
any Environmental Laws. To the Knowledge of the AMC Entities or
the Companies, there are no Environmental Liabilities arising
from or related to the Business, any Company Group Member or the
Real Property.
(c) No Hazardous Materials have been Released on, into or
beneath any Real Property, or, to the Knowledge of the AMC
Entities or the Companies, on, into or beneath any property
adjacent to the Real Property, in a manner, condition or
concentration that could reasonably be expected to require
Remediation by the Business or any Company Group Member pursuant
to any applicable Environmental Law.
(d) No Company Group Member or, to the Knowledge of the AMC
Entities or the Companies, any predecessor to any Company Group
Member, has treated, stored, disposed or recycled, or arranged
for the treatment, storage, disposal or recycling, or arranged
for the transport for treatment, storage, disposal or recycling,
of Hazardous Materials, at any location (including at any Real
Property) that has given rise to any Liability by the Business
or any Company Group Member for Remediation, personal injury,
property damage or natural resource damage, or where it is
reasonably likely that such Remediation will be required or
personal injury, property damage or natural resource damage will
occur.
(e) True, correct and complete copies of all material
environmental assessments (including Phase I and Phase II
assessments), audit reports, similar studies or analyses,
Environmental Permits and correspondence related to
Environmental Laws or Hazardous Materials that are in the
possession, custody or control of the AMC or any of its
Subsidiaries and related to the Business or the Company Group
have been made available to US Purchaser. A list of all such
environmental assessments, audit reports and similar studies or
analyses that were made available to US Purchaser is set forth
on Schedule 4.19.
B-48
4.20 Customers and Suppliers.
(a) Section 4.20(a) of the Company Disclosure Letter
sets forth a true, correct and complete list, for the
12 months ended August 31, 2010, of the names and
addresses of (i) the ten largest customers of goods and
services of the Business and (ii) the ten largest suppliers
of goods and services to the Business (the Major
Suppliers).
(b) Except as set forth in Section 4.20(b) of the
Company Disclosure Letter, during the 12 months immediately
preceding the Closing Date, neither AMC nor any of its
Subsidiaries (including the Company Group Members) has received
written notice or, to the Knowledge of AMC or the Companies,
non-written notice from a Major Customer of any actual or
threatened (i) termination, cancellation or non-renewal of
any Company Material Contract, (ii) material reduction in
the volume of services to be purchased from the Business by such
Major Customer, except in such Major Customers ordinary
course of business and as permitted by a Company Material
Contract, or (iii) other modification to its business
relationship with the Business to the material detriment of the
Business, including in any such case by reason of the execution,
delivery or performance of this Agreement or the consummation of
the Transactions contemplated hereby.
(c) Except as set forth in Section 4.20(c) of the
Company Disclosure Letter, during the 12 months immediately
preceding the Closing Date, neither AMC nor any of its
Subsidiaries (including the Company Group Members) has received
written notice or, to the Knowledge of AMC or the Companies,
non-written notice from a Major Supplier of any actual or
threatened (i) termination, cancellation or non-renewal of
a Company Material Contract, (ii) material reduction in the
volume of goods or services to be provided to the Business by
such Major Supplier, except in such Major Suppliers
ordinary course of business and as permitted by a Company
Material Contract, or (iii) other modification to its
business relationship with the Business to the material
detriment of the Business, including in any such case by reason
of the execution, delivery or performance of this Agreement or
the consummation of the Transactions contemplated hereby.
4.21 Tangible
Property. Except as set forth in
Section 4.21 of the Company Disclosure Letter, the
facilities, equipment and other tangible property that are
(i) currently owned by any Company Group Member or
(ii) currently owned by AMC and its Subsidiaries (other
than the Company Group Members) and located at the physical
locations set forth on Schedule 1.1(b), that are,
individually or in the aggregate, material to the operation of
the Business as currently conducted (the Tangible
Property), are in good operating condition and repair,
ordinary wear and tear excepted. At the Closings, the Company
Group will own or hold pursuant to valid leases the Tangible
Property, free and clear of any Liens (other than Permitted
Liens). Without limitation of the foregoing, it is understood
and agreed that the representations and warranties contained in
this Section 4.21 shall apply to all of the Earth
Station Improvements as defined in the Form of Appurtenant
Earth Station Easement Agreement attached hereto as
Exhibit E.
4.22 Sufficiency of
Assets. Except as set forth in
Section 4.22 of the Company Disclosure Letter, on the
Closing Date, the Real Property, buildings, machinery, equipment
and other tangible assets owned or leased by the Company Group
shall in the aggregate be sufficient to carry on the Business in
the ordinary course in all material respects as carried on by
AMC and its Subsidiaries as of the Effective Date and as of
immediately prior to the Closings, subject to continued repair,
replacement and updating as required from time to time,
consistent with the past practice of the Business (the
Business Assets). As of the Closings, the
Company Group shall have good and valid title to, or a valid
leasehold interest in, all of the Business Assets and none of
the Business Assets are subject to any Liens, other than
Permitted Liens.
4.23 Accounts
Receivable. All accounts receivable of each
Company Group Member reflected on the Interim Balance Sheet
represent bona fide and valid obligations arising from sales
actually made or services actually performed in the ordinary
course of business. The reserve against accounts receivable
shown on the Interim Balance Sheet is adequate in accordance
with GAAP and was calculated in good faith consistent with past
practice in preparing of the Company Financial Statements. AMC
and its Subsidiaries have not received any written notice or, to
the Knowledge of AMC or the Companies, non-written notice of
(i) of any contest, claim, defense or right of setoff
raised in respect of any account receivable held by the Company
Group or (ii) any bankruptcy, insolvency or similar
proceedings commenced by or against the account debtor in
respect of any account receivable held by the Company Group of
any amount. Section 4.23 of the Company Disclosure Letter
sets forth a summary by age of the accounts receivable of the
Business as of September 26, 2010. Except as disclosed in
Section 4.23 of the Company
B-49
Disclosure Letter, since January 1, 2010, the Business has
not experienced a material adverse change in the average age of
its receivables.
4.24 Information
Supplied. The Proxy Statement (including any
amendments or supplements thereto) will not, on the date it is
first mailed to the stockholders of AMC and at the time of the
Stockholders Meeting, contain any statement which at such
time, in the light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact,
or omits to state any material fact necessary in order to make
the statements therein not false or misleading, or omits to
state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting which has become
false or misleading. If at any time prior to the
Stockholders Meeting any fact or event relating to AMC or
its Subsidiaries which should be set forth in a supplement to
the Proxy Statement should be discovered by AMC or should occur,
AMC shall, promptly after becoming aware thereof, inform US
Purchaser of such fact or event. The Proxy Statement shall
comply as to form in all material respects with the applicable
requirements of the Exchange Act. Notwithstanding the foregoing,
the AMC Entities make no representation or warranty with respect
to information supplied by or on behalf of either Purchaser or
any of their respective Affiliates for inclusion or
incorporation by reference in the Proxy Statement.
4.25 Brokers. No broker,
finder, investment banker, agent or other intermediary has acted
on behalf of any Company Group Member in connection with the
negotiation or consummation of this Agreement or is entitled to
any brokerage, finders or other fee or commission from any
Company Group Member in connection with the Transactions based
upon arrangements made by or on behalf of any Company Group
Member.
4.26 Indebtedness; Transaction
Expenses. None of the Company Group Members
has any Indebtedness, other than Working Capital Liabilities,
the Intelsat Capital Lease and, as of the Effective Date (but
not the Closing Date), the AMC Credit Facility. None of the
Company Group Members has any Liability for Company Transaction
Expenses, other than any Company Transaction Expenses to be paid
by AMC. No Company Group Member guarantees any Liabilities of
the Retained Group and there is no Lien on any assets of any
Company Group Member arising from or related to any Liabilities
of the Retained Group.
4.27 Company Group
Reorganization. As of the Closings, AMC shall
have completed the Company Group Reorganization in accordance
with Section 6.17.
4.28 Cash Deposits. None of
the Company Group Members holds any cash sublease deposits or
other cash deposits that will be required to be returned after
the Closing Date pursuant to any Contract or applicable Law.
4.29 No Other Representations or
Warranties. Except for the representations
and warranties contained in Article III and this
Article IV, neither the Companies nor the AMC Entities nor
any other Person on behalf of the Companies or the AMC Entities
makes any express or implied representation or warranty with
respect to the Companies, the AMC Entities, this Agreement or
the Transactions, or with respect to any other information
provided to US Purchaser in connection with the Transactions,
including the accuracy, completeness or currency thereof.
Neither the Companies nor the AMC Entities nor any other Person
will have or be subject to any liability or indemnification
obligation to either Purchaser or any other Person resulting
from the distribution or failure to distribute to either
Purchaser, or either Purchasers use of, any such
information, including any information, documents, projections,
forecasts of other material made available to Purchasers in
certain data rooms or management presentations in
expectation of the transactions contemplated by this Agreement,
unless any such information is expressly included in a
representation or warranty in Article III or this
Article IV.
ARTICLE V
REPRESENTATIONS
AND WARRANTIES OF PURCHASERS
The Purchasers, jointly and severally, hereby represent and
warrant to AMC as of the Effective Date and, if the Closings
shall occur, as of the Closing Date, as follows:
5.1 Organization and
Qualification. US Purchaser is a corporation
duly formed, validly existing and in good standing under the
Laws of the State of Delaware. UK Purchaser is a private company
duly formed, validly existing and in good standing under the
Laws of England and Wales. Each Purchaser is duly qualified to
conduct its
B-50
business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it
or the nature of its activities makes such qualification
necessary, except where the failure of such Purchaser to be so
qualified has not had, and would not reasonably be expected to
have, individually or in the aggregate, a Purchaser Material
Adverse Effect. Each Purchaser has the requisite power and
authority to own, lease and otherwise to hold and operate its
assets and properties and to carry on the businesses as now
being conducted by it.
5.2 Authority.
(a) UK Purchaser is a direct, wholly-owned Subsidiary of US
Purchaser and US Purchaser is the sole holder of any and all
Equity Securities of the UK Purchaser.
(b) Each Purchaser has all requisite power and authority to
execute, deliver and perform its obligations under this
Agreement and to consummate the Transactions. The execution and
delivery by each Purchaser of this Agreement and each other
Transaction Documents to which it is a named party, the
performance by each Purchaser of its obligations hereunder and
thereunder, including purchasing the Company Interests and
paying and delivering the Purchase Price therefor, and the
consummation of the Transactions, have been duly and validly
authorized by all requisite action on the part of each Purchaser
(and, if applicable, its members
and/or
security holders). Each of this Agreement and each other
Transaction Document to which either Purchaser is a named party
has been duly executed and delivered by such Purchaser (except
for those Transaction Documents to be delivered at the Closings,
which will be duly executed and delivered by Purchasers at the
Closings if the Closings occur) and, assuming the due
authorization, execution and delivery thereof by the other
parties thereto, constitutes a legal, valid and binding
obligation of each Purchaser, enforceable against such Purchaser
in accordance with its terms (except for those Transaction
Documents to be delivered at the Closings, which shall, assuming
the due authorization, execution and delivery by the other
parties thereto, constitute a legal, valid and binding
obligation of each Purchaser at the Closings if the Closings
occur, enforceable against such Purchaser in accordance with its
terms).
5.3 No Conflicts. The
execution and delivery by each Purchaser of this Agreement and
each other Transaction Document to which it is named a party do
not, and the performance by each Purchaser of its obligations
hereunder and thereunder, including the consummation of the
Transactions, will not (with or without notice or lapse of time,
or both): (i) conflict with or violate, result in a breach
of, or constitute a default under the Organizational Documents
of either Purchaser, (ii) assuming compliance with the HSR
Act, any other applicable Antitrust Laws, the Communications Act
and the Telecommunications Act, conflict with or violate any Law
or Order applicable to either Purchaser or by which any of their
respective properties, assets or business activities is bound or
affected, (iii) violate, conflict with or result in any
breach of, or constitute a default by either Purchaser under, or
give rise to any right of termination, amendment, modification,
acceleration of, or result in the creation of any Lien upon any
of the Equity Securities of either Purchaser or upon any of the
properties or assets of either Purchaser pursuant to, any
Contract to either Purchaser is a party or by which any of its
properties, assets or business activities may be bound (or
create an event that with notice or lapse of time or both, would
result in such a violation, conflict, breach, default,
termination, amendment, modification, acceleration, or Lien),
other than, for purposes of this clause (iii), (x) any such
violation, conflict, breach or default as has not had, and would
not reasonably be expected to have, individually or in the
aggregate, a Purchaser Material Adverse Effect or (y) with
respect to the credit facility of the US Purchaser prior to the
Closings, or (iv) assuming compliance with the HSR Act, any
other applicable Antitrust Laws, the Communications Act and the
Telecommunications Act, require either Purchaser to obtain the
consent or approval of, or to make any filing with, any
Governmental Authority.
5.4 Legal Proceedings. There
are (a) no Claims, at law or in equity, pending against or,
to the Knowledge of Purchasers, threatened against or affecting
either Purchaser or any of its Affiliates, or any of their
respective properties or assets, that challenge or seek to
restrain, enjoin, prohibit, alter, materially delay or otherwise
restrict the Transactions, and (b) no Orders are
outstanding against either Purchaser or any of its Affiliates
that would restrain, enjoin, prohibit, alter, materially delay
or otherwise restrict the ability of either Purchaser to enter
into and perform its obligations under any Transaction Document
or that would reasonably be expected to prevent the consummation
of the Transactions, delay the same in any material respect or
otherwise prevent either Purchaser from performing its
obligations under this Agreement and each other Transaction
Document to which it is a party.
5.5 No Financing
Contingency. Each Purchaser acknowledges that
its obligations under this Agreement are not subject to any
financing contingency.
B-51
5.6 Solvency. Neither the US
Purchaser nor the UK Purchaser is entering into this Agreement
or the Transactions with the actual intent to hinder, delay or
defraud either present or future creditors of either Purchaser
or any of its Subsidiaries. On the Closing Date, after giving
effect to the Transactions (and assuming for this purpose only
the accuracy of the representations and warranties set forth in
Article III and Article IV hereof), each Purchaser and
its Subsidiaries will be solvent, will be able to pay their
debts as such debts become due, will have and continue to have
funds and capital sufficient to carry out their business as now
contemplated, and will own property having a value both at fair
market valuation and at fair saleable value in the ordinary
course of business greater than the amount required to pay their
indebtedness and other obligations as the same mature and become
due.
5.7 Brokers. No broker,
finder, investment banker, agent or other intermediary has acted
on behalf of either Purchaser in connection with the negotiation
or consummation of this Agreement or is entitled to any
brokerage, finders or other fee or commission from either
Purchaser in connection with the Transactions based upon
arrangements made by or on behalf of either Purchaser or any of
its Affiliates.
5.8 No Other Representations or
Warranties. Except for the representations
and warranties of Purchasers contained in this Article V,
neither Purchaser nor any other Person on behalf of either
Purchaser makes any express or implied representation or
warranty with respect to either Purchaser, this Agreement or the
Transactions, or with respect to any other information provided
to AMC and its Subsidiaries in connection with the Transactions,
including the accuracy, completeness or currency thereof.
ARTICLE VI
CERTAIN
COVENANTS
6.1 Conduct of the Business Prior to the
Closings. Except as contemplated by this
Agreement or as set forth in Section 6.1 of the Company
Disclosure Letter, from the Effective Date to the Closings, the
AMC Entities and the Companies covenant and agree (and the AMC
Entities shall cause the Companies), unless US Purchaser shall
otherwise agree in writing (such consent not to be unreasonably
withheld, conditioned or delayed):
(a) to operate the Business and cause the Business to be
operated in all material respects in the ordinary course of
business, consistent with past practice; provided,
however, that no action by the AMC Entities or any
Company Group Member with respect to matters specifically
addressed by any provision of Section 6.1(b) or
Section 6.1(c) shall constitute a breach of this
Section 6.1(a) unless such action would constitute a breach
of such provision of Section 6.1(b) or Section 6.1(c);
(b) to not take any of the following actions with respect
to any Company or the Business (except as required to carry out
the Company Group Reorganization pursuant to the terms and
conditions set forth in Section 6.17):
(i) amend or modify the Organizational Documents of any
Company Group Member, in any manner that would be adverse to
Purchasers, or take any action with respect to the liquidation
or dissolution of any Company Group Member;
(ii) transfer, issue, sell, grant, redeem or dispose of any
Equity Securities or other securities (including securities or
rights convertible into, exchangeable or exercisable for, or
evidencing the right to subscribe for, any Equity Securities) of
any Company Group Member or grant any option, warrant, call or
other right to purchase or otherwise acquire any such Equity
Securities or other securities of any Company Group Member;
(iii) declare, set aside, or pay any dividend or other
distribution to the holders of any Equity Securities of any
Company Group Member, other than (A) the elimination of any
Intercompany Accounts pursuant to Section 2.5, (B) any
dividend or distribution payable exclusively from one Company
Group Member to another,
and/or
(C) any dividend or distribution that is declared and paid
prior to the Closings and that consists solely of cash or cash
equivalents; provided, however, that no dividend
or distribution of cash or cash equivalents shall be made
pursuant to this Section 6.1(b)(iii) unless after giving
effect thereto (1) the Company Group holds sufficient cash
and cash equivalents to satisfy all outstanding, uncleared
checks and wires of the Company Group as of the Closings and
(2) the Singapore Company holds cash
B-52
and cash equivalents in an amount not less than 600,000
Singapore dollars (in addition to the amount in clause (1)
above);
(iv) except in the ordinary course of business consistent
with past practice, sell, assign, transfer, lease, license or
otherwise dispose of, or agree to sell, assign, transfer, lease,
license or otherwise dispose of, any of the material assets
(tangible or intangible), rights or properties of the Company
Group or the Business;
(v) acquire or agree to acquire, by merging or
consolidating with, by purchasing Equity Securities in or a
material portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division of any other Person or any
Equity Securities therein or a substantial portion of the assets
thereof;
(vi) incur, issue, assume, guarantee or otherwise become
liable for any Indebtedness or any debt securities, or assume,
guarantee, endorse or otherwise become responsible for the
obligations of any Person (other than another Company Group
Member), or make any loans, advances or capital contributions
to, or investments in, any Person (other than another Company
Group Member), in each case other than the posting of surety or
performance bonds or similar arrangements entered into in the
ordinary course of business; provided, that, no
new letters of guarantee shall be issued under the Letter of
Guarantee Facility provided by DBS Bank Ltd. to the Singapore
Company;
(vii) subject to any Lien any of the material assets
(whether tangible or intangible) of any Company Group Member or
the Business or any Equity Securities of any Company Group
Member, other than any Permitted Liens;
(viii) make any new capital expenditure commitments that
will extend past the Closings, except as permitted by
Section 6.21;
(ix) make any material change in any method of accounting
or accounting practice or policy used by the Company Group with
respect to the Business, other than any such changes required by
GAAP;
(x) enter into or modify any Related Party Arrangement;
(xi) except in the ordinary course of business consistent
with past practice, amend, modify, terminate, supplement or
waive any rights under any Company Material Contract, or enter
into any Contract of the types described in clauses (i)
through (xxi) of Section 4.17(a);
(xii) increase the compensation or benefits payable to or
to become payable to, or modify the employment or engagement
terms for, any director, officer, manager, employee or
consultant, except for (A) increases in salary, wages,
bonuses or commissions payable or to become payable pursuant to
existing contracts, (B) increases in the ordinary course of
business consistent with past practice and (C) any
additional bonuses to the extent funded by AMC;
(xiii) offer or grant any severance or termination pay, or
any Company Transaction Compensation, to any present or former
director, officer, manager, employee or consultant, other than
(x) pursuant to existing agreements and arrangements or
policies, (y) in the ordinary course of business consistent
with past practice to new or existing employees or (z) to
the extent funded solely by AMC;
(xiv) enter into, modify or terminate any Employee Benefit
Plans, except as may be required by applicable Law;
(xv) enter into, modify or terminate any Collective
Bargaining Agreement or labor or collective bargaining Contract
or otherwise make any commitment or incur any Liability to any
labor organization relating to Company Employees;
(xvi) (A) make, change or revoke any material Tax
election relating primarily to, or that would otherwise
materially impact, any Company Group Member, (B) consent to
any extension or waiver of the limitations period applicable to
any material Tax claim or assessment relating primarily to, or
that would otherwise materially impact, any Company Group
Member, (C) surrender any right to claim a refund of
B-53
Taxes, (D) settle or compromise any material Tax liability
relating primarily to, or that would otherwise materially
impact, any Company Group Member, or (E) take any other
similar action relating to the filing of any Tax Return or the
payment of any Tax, or make any material change in any Tax
practice or policy, relating primarily to, or that would
otherwise materially impact, any Company Group Member; except,
in each case, (i) as otherwise may be required by
applicable Law or (ii) if such actions would not affect
Post-Closing Taxes;
(xvii) change, in any material respect, any accounting
practices, policies and procedures (including the Accounting
Methodology), including (x) policies relating to reserves,
accruals and write-offs, and (y) methods or practices of
paying accounts payable or other Liabilities of the Business or
collecting accounts receivable, trade receivables or other
receivables of the Business;
(xviii) discount any accounts receivable, trade receivables
or other receivables of the Business, other than in the ordinary
course of business;
(xix) enter into any resolution or settlement of any actual
or threatened Claim or other dispute which imposes material
continuing obligations on the Business or any Company Group
Member or requires the making of any payment on or after the
Closings;
(xx) hire any individual as an employee of any Company
Group Member, other than (x) as contemplated by
Section 8.1 or (y) in the ordinary course of business;
provided, that, no such employee hired in the
ordinary course of business is entitled to total annual cash
compensation in excess of $150,000;
(xxi) terminate the services of any employees who are
involved in the operation of the Business, except in the
ordinary course of business consistent with past practices, and
except for any termination for cause; or
(xxii) agree in writing or otherwise to take any of the
foregoing actions.
(c) will use its commercially reasonable efforts to
preserve intact the business organization and assets of the
Business (including the present operations, physical facilities,
and working conditions), any beneficial business relationships
with and goodwill of customers, suppliers, lessors, licensors
and others having business dealings with the Business, and the
availability of the services of the current directors, officers,
manager, employees and consultants of the Business.
6.2 Proxy Statement.
(a) Covenants of AMC with Respect to the Proxy
Statement. Subject to Section 6.3
hereof, AMC shall, at its sole cost and expense, use its
reasonable best efforts to prepare and cause to be filed with
the SEC as soon as reasonably practicable following the
Effective Date a proxy statement (together with any amendments
thereof or supplements thereto, the Proxy
Statement) relating to the Stockholders Meeting,
and shall as soon as reasonably practicable thereafter, at its
sole cost and expense, obtain clearance of such Proxy Statement
by the SEC and prepare and cause to be filed all amendments and
supplements required to be filed with respect to the Proxy
Statement. In the Proxy Statement, AMC shall include the text of
this Agreement and, except to the extent provided in
Section 6.4, the affirmative recommendation of the board of
directors of AMC that AMCs stockholders approve and adopt
the Authorizing Resolution, and shall use all reasonable best
efforts to respond as promptly as practicable to any comments by
the SEC staff in respect of the Proxy Statement. AMC shall
promptly notify US Purchaser upon the receipt of any comments
from the SEC or any request from the SEC for amendments or
supplements to the Proxy Statement, and shall provide US
Purchaser with copies of all correspondence between the AMC and
its Representatives, on the one hand, and the SEC, on the other
hand, with respect to the Proxy Statement. AMC shall procure
that none of the information with respect to AMC or its
Subsidiaries (including the Company Group) to be included in the
Proxy Statement will, at the time of the mailing of the Proxy
Statement or any amendments or supplements thereto and at the
time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. AMC shall cause the Proxy
Statement to comply in all material respects with the provisions
of the Exchange Act.
B-54
(b) Covenants of Purchasers with Respect to the
Proxy Statement. The Purchasers will furnish
to AMC the information relating to them and their respective
Affiliates required by the Exchange Act to be set forth in the
Proxy Statement. Each Purchaser shall procure that none of such
information with respect to the Purchasers and their Affiliates
that is so furnished by the Purchasers to AMC will, at the time
of the mailing of the Proxy Statement or any amendments or
supplements thereto and at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Purchaser Right to
Review. Notwithstanding anything to the
contrary contained in this Section 6.2, prior to filing or
mailing the Proxy Statement, or amending or supplementing the
Proxy Statement, or responding to any comments of the SEC with
respect thereto, AMC will provide US Purchaser with a reasonable
opportunity to review and comment on such documents or responses
and shall in good faith consider for inclusion in such documents
or responses comments reasonably proposed by US Purchaser.
(d) Cooperation. Purchasers,
AMC and the Companies shall cooperate and consult with each
other in preparation of the Proxy Statement.
(e) Mailing of Proxy Statement;
Amendments. As promptly as reasonably
practicable after the Proxy Statement has been cleared by the
SEC, AMC shall, at its sole cost and expense, mail the Proxy
Statement to the holders of the AMC Common Stock as of the
record date established for the Stockholders Meeting. If
at any time prior to the Closings any event or circumstance
relating to AMC or either Purchaser or any of their respective
Subsidiaries or Affiliates, or their respective officers or
directors, should be discovered by AMC or US Purchaser,
respectively, which, pursuant to the Exchange Act, should be set
forth in an amendment or a supplement to the Proxy Statement,
such party shall promptly inform the other. Following the
mailing of the proxy statement, the AMC Entities shall not, and
shall cause their respective Subsidiaries not to, effect,
announce or enter into any binding agreement with respect to any
merger, acquisition, business combination, joint venture or
other material transaction outside the ordinary course of
business, or any public offering or other material issuance of
debt or equity securities, or any other action that would
require a stockholder vote under applicable law, in each case if
such action could reasonably be expected to result in any delay
in the holding of the Stockholders Meeting. Each of
Purchasers, AMC and the Companies agree to correct any
information provided by it for use in the Proxy Statement which
shall have become false or misleading. AMC shall cause all
documents that AMC is responsible for filing with the SEC in
connection with the Transactions will comply as to form in all
material respects with the applicable requirements of the
Exchange Act.
6.3 Stockholders
Meeting. As promptly as reasonably
practicable following the date of this Agreement, subject to
Section 6.4, AMC shall establish a record date for, duly
call, give notice of, convene and hold a meeting of its
stockholders on the earliest date reasonably practicable, for
the purpose of voting upon the adoption and approval of the
Authorizing Resolution (the Stockholders
Meeting). At the Stockholders Meeting, AMC shall
recommend to its stockholders the adoption and approval of the
Authorizing Resolution (the Parent
Recommendation); provided, however, that
AMC shall not be obligated to recommend to its stockholders the
adoption and approval of the Authorizing Resolution at any
Stockholders Meeting to the extent that the board of
directors of AMC makes a Change of Recommendation pursuant to
Section 6.4. Subject to Section 6.4, AMC shall use all
reasonable best efforts to solicit from its stockholders proxies
in favor of the approval of the Authorizing Resolution. The
obligation of AMC to establish a record date for, duly call,
give notice of, convene and hold the Stockholders Meeting
shall not be affected by a Change in Recommendation unless this
Agreement has been terminated pursuant to Section 11.1.
6.4 No Solicitation of Competing
Proposal.
(a) The AMC Entities and the Companies shall, and shall
cause their Subsidiaries and their and their Subsidiaries
Representatives to, immediately cease and cause to be terminated
any activities, discussions or negotiations existing as of the
Effective Date with any Person conducted heretofore with respect
to any Competing Proposal, and request the return or destruction
of all non-public information furnished in connection therewith.
From and after the Effective Date until the earlier of the
Closings or the date, if any, on which this Agreement is
terminated pursuant to Section 11.1, and except as
otherwise provided for in this Section 6.4, the AMC
Entities and the Companies shall not, and shall cause their
Subsidiaries and their and their Subsidiaries
Representatives not to,
B-55
directly or indirectly: (i) solicit, initiate or knowingly
facilitate or encourage any inquiries regarding, or the making
of any proposal or offer that constitutes, or could reasonably
be expected to result in, a Competing Proposal, (ii) engage
in, continue or otherwise participate in any negotiations, or
furnish or disclose to any Person any nonpublic information with
respect to or in furtherance of, any Competing Proposal,
(iii) engage in, continue or otherwise participate in any
discussions with any Person with respect to any Competing
Proposal, (iv) approve or recommend any Competing Proposal
or (v) enter into any letter of intent or similar document
or any agreement, arrangement, understanding or commitment
providing for any Competing Proposal or requiring any AMC Entity
or Company to abandon, terminate or fail to consummate any of
the Transactions.
(b) Notwithstanding the limitations set forth in
Section 6.4(a), but subject to compliance by the AMC
Entities and the Companies with the other provisions of this
Section 6.4, if AMC receives a Competing Proposal after the
Effective Date and prior to the adoption and approval of the
Authorizing Resolution by the Requisite Stockholder Vote which
(i) constitutes a Superior Proposal or (ii) which the
board of directors of AMC determines in good faith by
resolution, duly adopted after consultation with AMCs
legal and financial advisors, could reasonably be expected to
result, after the taking of any of the actions referred to in
either of clause (x) or (y) below, in a Superior
Proposal, AMC may take the following actions: (x) furnish
nonpublic information to the third party making such Competing
Proposal, if prior to so furnishing such information AMC
receives from the third party an executed confidentiality
agreement which is no less restrictive than the Non-Disclosure
Agreement, provided that any such information must be
provided to US Purchaser as promptly as reasonably practicable
after its provision to such third party to the extent not
previously made available to US Purchaser, and (y) engage
in discussions or negotiations with the third party with respect
to the Competing Proposal, if, but only if, in the case of
either clause (x) or (y) the board of directors of AMC
determined in good faith by resolution, duly adopted after
consultation with AMCs legal and financial advisors, that
the failure to take such action would be reasonably likely to
constitute a breach of its fiduciary duties under applicable Law;
(c) AMC shall promptly (and in any event within twenty-four
hours after receipt by, or notification to, AMC or its financial
advisor), notify US Purchaser of the receipt (or notification)
of any Competing Proposal or any inquiries relating to a Company
Proposal or any request for information from, or any
negotiations sought to be initiated or continued with, the AMC
or any of its Subsidiaries, or any of their Representatives,
concerning a Competing Proposal. AMCs notice shall include
(i) a copy of any written Competing Proposal and any other
documents provided to AMC or any of its Subsidiaries with
respect to such Competing Proposal or (ii) in respect of
any Competing Proposal, any inquiry relating to a Competing
Proposal or any request for information relating to a Competing
Proposal not made in writing, a written summary of the material
terms of such Competing Proposal, inquiry or request, including
the identity of the Person or group of Persons making the
Competing Proposal, inquiry or request. AMC shall keep US
Purchaser reasonably informed on a prompt basis of the status or
developments regarding any Competing Proposal, inquiry or
request, including the taking of any action described in
clause (x) or (y) of Section 6.4(b) or any
determinations of the board of directors of AMC described in
Section 6.4(b). None of AMC or any of its Subsidiaries
shall, on or after the Effective Date, enter into any agreement
that would prohibit them from providing such information to US
Purchaser.
(d) Except as expressly permitted in Section 6.4(e)
and subject to Section 6.4(f), the board of directors of
AMC (or a committee thereof) shall not (i)(A) change, qualify,
withdraw, or modify, or publicly propose to change, qualify,
withdraw or modify, in a manner adverse to Purchasers, the
Parent Recommendation or (B) approve or recommend, or
publicly propose to approve or recommend, to the stockholders of
AMC a Competing Proposal (any action described in this
clause (i) being referred to as a Change of
Recommendation), or (ii) authorize the AMC or any
of its Subsidiaries to enter into any letter of intent, merger,
acquisition or similar agreement with respect to any Competing
Proposal (other than a confidentiality agreement permitted under
Section 6.4(b)) (a AMC Acquisition
Agreement).
(e) Notwithstanding the limitations set forth in
Sections 6.4(a) and 6.4(d), but subject to the provisions
of Section 6.4(f), after the Effective Date and prior to
the adoption and approval of the Authorizing Resolution by the
Requisite Stockholder Vote, the board of directors of AMC may
make a Change of Recommendation if the board of directors of AMC
receives a Competing Proposal that has not been withdrawn and
that the board of directors of AMC has determined in good faith
by resolution, duly adopted after consultation with AMCs
legal and financial advisors, constitutes a Superior Proposal
and if the board of directors of AMC has determined in good
faith by
B-56
resolution, duly adopted after consultation with AMCs
legal and financial advisors, that the failure to take such
action would be reasonably likely to be constitute a breach of
its fiduciary duties under applicable Law; provided,
however, that AMC shall not enter into a definitive
agreement providing for the implementation of a transaction that
is a Superior Proposal without first terminating this Agreement
in accordance with Section 11.1(g), including the payment
of the AMC Termination Fee.
(f) AMC shall not be entitled to effect a Change of
Recommendation with respect to a Superior Proposal and neither
AMC nor any of its Subsidiaries shall enter into a AMC
Acquisition Agreement unless (i) AMC has complied in all
material respects with this Section 6.4, (ii) AMC has
provided written notice (a Notice of Superior
Proposal) to US Purchaser that AMC intends to take
such action and describing the material terms and conditions of
the Superior Proposal that is the basis of such action,
including with such Notice of Superior Proposal a copy (which
may be redacted to the extent reasonably required by the party
submitting such Superior Proposal; provided that the
material terms and conditions shall not be redacted) of the
relevant proposed transaction agreements with the party making
such Superior Proposal and any other material documents relating
thereto and (iii) following the end of the three Business
Day period following US Purchasers receipt of the Notice
of Superior Proposal and such agreements and documents, the
board of directors of AMC shall have determined in good faith by
resolution, taking into account any changes to the terms of this
Agreement proposed by Purchasers to AMC in response to the
Notice of Superior Proposal or otherwise, that the Superior
Proposal giving rise to the Notice of Superior Proposal
continues to constitute a Superior Proposal. Any amendment to
the financial terms or any other material amendment of such
Superior Proposal shall require a new Notice of Superior
Proposal and AMC shall be required to comply again with the
requirements of this Section 6.4(f).
(g) Nothing contained in this Agreement shall prohibit AMC
or the board of directors of the AMC from (i) disclosing to
AMCs stockholders a position contemplated by
Rules 14d-9
and 14e-2(a)
promulgated under the Exchange Act or (ii) making any
disclosure to its stockholders if the board of directors of AMC
has reasonably determined in good faith by resolution, duly
adopted after consultation with legal counsel, that the failure
to do so would constitute a breach of fiduciary duty by
AMCs board of directors or any applicable Law;
provided, however, that the board of directors of
AMC shall not recommend that the stockholders of the AMC tender
their shares in connection with any tender or exchange offer (or
otherwise approve or recommend any Competing Proposal) or effect
a Change of Recommendation, unless in each case the applicable
requirements of Section 6.4(e) and 6.4(f) shall have been
satisfied; provided, further, that disclosures
under this Section 6.4(g) shall not be a basis, in
themselves, for US Purchaser to terminate this Agreement
pursuant to Section 11.1(h).
(h) As used in this Agreement, Competing
Proposal shall mean any bona fide proposal or offer,
whether or not in writing, from any Person or group (as defined
in Section 13(d) of the Exchange Act) (other than a
proposal or offer by either Purchaser or any of its
Subsidiaries) relating to, in a single transaction or a series
of related transactions, any (i) merger, reorganization,
share exchange, consolidation, business combination,
recapitalization, dissolution, liquidation or similar
transaction involving (A) AMC or (B) any Company Group
Member, (ii) the acquisition, directly or indirectly, of
assets of AMC or its Subsidiaries equal to 25% or more of
AMCs consolidated assets or to 25% or more of the
AMCs revenues or earnings on a consolidated basis are
attributable (other than an acquisition of assets not involving
any assets of the Business or the Company Group), (iii) the
acquisition, directly or indirectly, of 25% or more of any class
of common stock or other Equity Securities of AMC, (iv) a
tender offer or exchange offer that, if consummated, would
result in any Person or group beneficially owning 25% or more of
any class of common stock or other Equity Securities of AMC,
(v) the acquisition, directly or indirectly, of one or more
Company Group Members, (vi) the acquisition, directly or
indirectly, of any assets of the Business or the Company Group,
other than in the ordinary course of business, or (vii) the
acquisition, directly or indirectly, of all or any part of the
Company Interests.
(i) As used in this Agreement, Superior
Proposal shall mean any written Competing Proposal
that was not initiated, solicited, encouraged or facilitated by
AMC or any of its Subsidiaries or Representatives in violation
of this Agreement for a transaction that would result in any
Person or group (as defined in Section 13(d) of the
Exchange Act) beneficially owning more than 50% of the voting
power of the AMC Common Stock or acquiring all or substantially
all (as defined for purposes of Section 271 of the Delaware
General Corporation Law) of the consolidated assets of AMC and
its Subsidiaries, taken as a whole, (x) on terms that the
board of directors of AMC determines in good faith by
resolution, duly adopted after consultation with AMCs
financial and legal advisors, are
B-57
more favorable from a financial point of view to AMC and its
stockholders than the transactions contemplated by this
Agreement (taking into account any other agreement involving the
sale of assets of AMC or its Subsidiaries (other than the assets
of the Business or the Company Group)
and/or the
sale of Subsidiaries of AMC (other than the Company Group
Members) to which AMC or any of its Subsidiaries is a party),
and (y) which the board of directors of AMC has determined
in good faith by resolution, duly adopted after consultation
with AMCs financial and legal advisors, is reasonably
likely to be completed on the terms proposed, taking into
account all financial (including the financing terms of such
proposal), regulatory, legal and other aspects of such proposal.
6.5 HSR and Other Required Filings.
(a) AMC and Purchasers will: (i) as promptly as
practicable, but in any event no later than the fifth Business
Day following the Effective Date, file with the United States
Federal Trade Commission (the FTC) and the
United States Department of Justice (the DOJ)
the notification and report form, if any, required for the
Transactions and, as promptly as practicable after request,
comply with any request for supplemental information in
connection therewith pursuant to the HSR Act; (ii) as
promptly as practicable make any required filing pursuant to the
antitrust laws of any other Governmental Authority, if any,
which may be applicable (the HSR Act and any applicable
antitrust laws of any other Governmental Authority being
referred to herein as the Antitrust Laws);
(iii) use their respective reasonable best efforts to
prosecute such filings and respond to inquiries related thereto
to a favorable conclusion; (iv) not extend any waiting
period under the HSR Act or enter into any agreement not to
consummate the Transactions without the prior written consent of
the other party (which consent shall not be unreasonably
withheld); and (v) use their respective reasonable best
efforts to avoid entry of (or to have vacated or terminated) any
Order that would restrain, enjoin, prohibit or impose materially
burdensome conditions on the consummation of the Transactions.
Purchasers, on the one hand, and AMC, on the other, shall each
bear one-half of the cost and pay one-half of the filing fees
associated with the filings and submissions under the HSR Act
and other Antitrust Laws. Any such notification and report form
or filings and supplemental information shall be in substantial
compliance with the requirements of the applicable Antitrust
Laws. AMC and Purchasers shall each furnish to the other such
necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of any
filing or submission under the Antitrust Laws. AMC and
Purchasers shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional
information from, the FTC and the DOJ, or under the other
Antitrust Laws, and shall comply promptly with any such inquiry
or request. AMC and Purchasers will use their reasonable best
efforts to obtain any clearance required under the HSR Act or
other Antitrust Laws for the Transactions as soon as reasonably
practicable. Immediately upon receipt of any such clearance
(whether the notification of such clearance was received orally
or in writing), AMC or Purchasers, as applicable, shall notify
the other party of such receipt.
(b) As promptly as practicable after the date hereof, AMC,
the Companies and Purchasers shall (i) in no event later
than the second Business Day following the Effective Date, make
the proper filings with the FCC for approval of the Transactions
under the Communications Act (specifically, the assignment to a
Subsidiary of US Purchaser of the authorizations set forth in
Schedule 6.5(b) hereto (the FCC
Licenses)), and (ii) in no event later than the
fifth Business Day following the Effective Date, make the proper
filings with the IDA for approval of the Transactions under the
Telecommunications Act (collectively, the Requisite
Regulatory Approvals), and AMC, the Companies and
Purchasers shall use their respective reasonable best efforts to
obtain the Requisite Regulatory Approvals. Purchasers, on the
one hand, and AMC, on the other, shall each bear one-half of the
cost and pay one-half of the filing fees associated with such
filings.
(c) As promptly as practicable after the date hereof,
Purchasers and AMC shall make all other filings with any
Governmental Authority and other regulatory authorities, and use
their respective reasonable best efforts to obtain all permits,
approvals, authorizations and consents from Governmental
Authorities, required to consummate the Transactions as soon as
reasonably practicable. Purchasers and AMC shall furnish
promptly to each other all information that is not otherwise
available to the other party and that such party may reasonably
request in connection with any such filing.
(d) Except as otherwise prohibited by Law, each of AMC and
Purchasers shall (x) promptly notify the other party of,
and promptly furnish the other party with copies of, any notice
or written communication received by such party or their
respective Affiliates from any Governmental Authority in
connection with the Transactions, and
B-58
(y) not participate in any meetings or substantive
discussions with any Governmental Authority with respect to the
Transactions without offering the other party a meaningful
opportunity to participate in such meetings or discussions.
6.6 Third-Party
Consents. The AMC Entities and the Companies
shall give (and shall cause their respective Affiliates to give)
any notices to third parties, including the IDA, MDA and Board
of Film Censors Singapore, and the AMC Entities and the
Companies shall use, and cause their respective Affiliates to
use, their respective reasonable best efforts (and Purchasers
shall use, and cause their respective Affiliates to use, their
respective reasonable best efforts to cooperate with the AMC
Entities and the Companies in their respective reasonable best
efforts) to obtain any Consents, including such Consents from
the IDA, MDA and Board of Film Censors Singapore, in each case
that are necessary, proper or advisable to consummate the
Transactions (including the Consents set forth in
Section 4.17(c) of the Company Disclosure Letter). AMC
shall bear all costs and expenses required to obtain such
Consents, but shall not be required to reimburse Purchasers for
any costs and expenses incurred by Purchasers in cooperating
with the efforts of the AMC Entities and the Companies to obtain
such Consents. The AMC Entities and the Companies shall keep the
Purchasers reasonably informed regarding the status of each
notice required to be given pursuant to this Section 6.6
and each Consent required to be obtained pursuant to this
Section 6.6, including promptly providing Purchasers with
copies of all material written communications in connection
therewith, of all such notices given and of all such Consents
obtained.
6.7 Access to Information; Certain Projections;
Business Records; Post-Closing; Confidentiality.
(a) From the Effective Date through the Closing Date, upon
reasonable notice, the AMC Entities and the Companies shall
afford the US Purchaser and its Representatives reasonable
access, during normal business hours and upon reasonable notice,
to the offices, properties, other facilities, books and records
of the Business and the Company Group; provided,
however, that (i) such access shall not unreasonably
disrupt the normal operations of the Business, (ii) the
Companies shall not be required by any provision of this
Agreement to disclose to Purchasers any information, the
disclosure of which is restricted by Contract or Law, except in
compliance with the applicable Contract or applicable Law, and
(iii) disclosure of any communication that would otherwise
be subject to the attorney-client privilege or work product
doctrine in favor of the Companies, AMC or any of their
respective Subsidiaries may be conditioned as AMC deems
necessary or appropriate to preserve the benefits thereof to the
Companies, AMC and their Subsidiaries; and provided
further, that AMC shall not be required to furnish any
information that requires AMC to incur any
out-of-pocket
cost or expense unless or until US Purchaser enters into
arrangements reasonably satisfactory to AMC pursuant to which US
Purchaser will bear or reimburse AMC for such cost or expense.
(b) In connection with their investigation of the Company
Group, US Purchaser and its Representatives have received and
either Purchaser or its Representatives may from time to time
receive from AMC certain estimates, projections and other
forecasts for the Business, and certain plan and budget
information. Each Purchaser acknowledges that there are
uncertainties inherent in attempting to make such estimates,
projections, forecasts, plans and budgets, that it is familiar
with such uncertainties, that it is taking full responsibility
for making its own evaluation of the adequacy and accuracy of
all estimates, projections, forecasts, plans and budgets so
furnished to it, and that it will not assert any claim against
AMC or any of its Affiliates or any of their respective
directors, officers, employees, agents, stockholders,
consultants, investment bankers, accountants or representatives,
or hold AMC or any such Persons liable with respect to any
estimates, projections, forecasts, plans or budgets referred to
in this Section 6.7(b), unless any such information is
expressly included in a representation or warranty in
Article III or Article IV. Except as expressly
provided in this Agreement, AMC makes no representation or
warranty with respect to any estimates, projections, forecasts,
plans or budgets for the Business provided to either Purchaser
or its Representatives in connection with their investigation of
the Company Group.
(c) AMC shall deliver or cause to be delivered to US
Purchaser the books and records set forth on
Schedule 6.7(c) by the dates set forth in
Schedule 6.7(c). Within 30 days
following the Closing Date, AMC shall deliver or cause to be
delivered to US Purchaser any other books and records maintained
by AMC that are material to, and to the extent used in, the
Business (to the extent not then physically located at any Real
Property or otherwise in the possession of the Company Group).
After the Closings, upon reasonable written notice and at US
Purchasers sole expense with respect to AMCs
out-of-pocket
costs and expenses, AMC agrees to furnish or cause
B-59
to be furnished to US Purchaser and its Representatives
(including its auditors), access at reasonable times and during
normal business hours to such other information and records
relating to the Business in AMCs possession as is
reasonably necessary for financial reporting and accounting
matters and will permit US Purchaser or such Representatives to
make abstracts from, or copies of, any of such information as
may be reasonably requested by US Purchaser; provided,
however, that such access does not unreasonably disrupt
the normal operations of AMC. For a period of three years
following the Closings, AMC will not destroy any material
information or records relating to the Business without giving
US Purchaser at least 30 days prior written notice
thereof.
(d) In the event and for so long as any party hereto
actively contests or defends against any Claim in connection
with the Company Group, the Business or the Transactions, the
other parties hereto will reasonably cooperate with the
contesting or defending party and its counsel in the contest or
defense, make available its personnel, and provide such
testimony and access to its books and records as shall be
reasonably necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to
indemnification therefor under Article VII or
Article X) ; provided, however, that
(i) such cooperation shall not unreasonably disrupt the
normal operations of the cooperating party, (ii) no party
shall be required by any provision of this Agreement to disclose
to any other party any information, the disclosure of which is
restricted by Contract or Law, except in compliance with the
applicable Contract or applicable Law, and (iii) disclosure
of any communication that would otherwise be subject to the
attorney-client privilege or work product doctrine in favor of
any party or any of their respective Affiliates or Subsidiaries
may be conditioned as such party deems necessary or appropriate
to preserve the benefits thereof to such party or any of their
Affiliates or Subsidiaries; and provided further,
that no party hereto shall be required to incur any
out-of-pocket
cost or expense unless or until the requesting party enters into
arrangements reasonably satisfactory to the cooperating party
pursuant to which the requesting party will bear or reimburse
the cooperating party for such cost or expense.
(e) AMC shall, and shall cause its Subsidiaries to, hold in
confidence, unless compelled to disclose by applicable Law or
Order, all confidential documents and information concerning the
Company Group and the Business, except to the extent that such
information is (a) in the public domain through no fault of
AMC or (b) lawfully acquired by AMC on a non-confidential
basis following the Closing Date. The obligation of AMC to hold
any such information in confidence shall be satisfied if AMC
exercises the same care with respect to such information as AMC
would take to preserve the confidentiality of its own comparable
information.
6.8 Use of AMC
Name. Notwithstanding any other provision of
this Agreement to the contrary, no interest in or right to use
the names Ascent, Ascent Media,
Ascent Media Group or any other corporate name of
AMC or any other member of the Retained Group, or any domain
name, logo, trademark, service mark or trade name owned or used
by the members of the Retained Group or associated with any such
entities or their respective businesses, or any other name, mark
or logo obviously derived from or confusingly similar to any of
the foregoing (collectively, the Retained Names and
Marks) is being transferred to Purchasers pursuant to
the Transactions, and the use of any Retained Names and Marks in
connection with the Business shall cease as soon as reasonably
practicable following the Closing Date. Purchasers, on or
promptly following the Closing Date, will, and will cause their
respective Affiliates (including each Company Group Member) to,
use commercially reasonable efforts to change the names of any
Company Group Members that contain the word Ascent
to another corporate name that does not include any Retained
Name or Mark, to remove or obliterate all the Retained Names and
Marks from their corporate name (including the organizational
documents of each Company Group Member), signs, purchase orders,
invoices, sales orders, labels, letterheads, shipping documents,
and other items and materials of the Company Group and
otherwise, and not to put into use after the Closing Date any
such items and materials not in existence on the Closing Date
that bear any Retained Name or Mark; provided,
however, that during the term of the Services Agreements
any use of the Retained Names by Purchasers and their Affiliates
that is permitted by the Services Agreements will not constitute
a breach of this Section 6.8.
6.9 Insurance. AMC shall
keep, or cause to be kept, all insurance policies presently
maintained relating to the assets and operations of the Business
or the Company Group, or replacements therefor, in full force
and effect through the Closings. Immediately following the
Closings, coverage for all Company Group Members under all such
insurance policies shall cease, and AMC shall have no obligation
to insure any Company Group Member
B-60
against any Loss in or under any insurance policy of AMC or its
Affiliates, and Purchasers shall have no rights or obligations
with respect to any such policy, other than as set forth in
Section 8.2.
6.10 Reasonable Best Efforts;
Cooperation.
(a) Subject to the terms and conditions of this Agreement,
each party hereto will use its reasonable best efforts to take,
or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable
under applicable Laws, and execute and deliver such documents,
as may be required to carry out the provisions of this Agreement
and to consummate and make effective the Transactions as soon as
reasonably practicable following the Effective Date. Each of AMC
and US Purchaser will notify the other promptly after learning
of the occurrence of any event or circumstance that would
reasonably be expected to cause any condition to the Closings to
be delayed or not to be satisfied. AMC will promptly notify US
Purchaser if, at any time between the Effective Date and the
Closing Date: (x) (i) AMC or any of its Subsidiaries
(including the Company Group Members) shall be in material
breach of its obligations under the Contracts set forth on
Schedule 6.10(a)(i) (the Disney
Contracts), taken as a whole (determined without
regard to any right of AMC or such Subsidiary to cure any such
breach), or (ii) any of the Disney Contracts shall have
been terminated prior to the expiration of its current term; or
(y) (i) AMC or any of its Subsidiaries (including the
Company Group Members) shall be in breach of its material
obligations under the Contracts set forth on
Schedule 6.10(a)(ii) (the Sony
Contracts), taken as a whole (determined without
regard to any right of AMC or such Subsidiary to cure any such
breach), or (ii) any of the Sony Contracts shall have been
terminated prior to the expiration of its current term. No such
notice shall be deemed to have cured any breach of any
representation, warranty, covenant or agreement or affect any
right or remedy of any party hereto under this Agreement,
including the right to indemnification under Article VII or
Article X. In addition, AMC shall notify US Purchaser
promptly if AMC or any of its Subsidiaries receives any written
notice, or, to the Knowledge of the AMC Entities or the
Companies, any non-written notice, of any actual or threatened
modification, acceleration, termination, cancellation or
non-renewal of any Company Material Contract. Prior to the
Closings, AMC shall not, directly or indirectly, sell, assign or
otherwise transfer to any Persons, other than a wholly-owned
Subsidiary of AMC who becomes a party to and bound by this
Agreement, any Equity Securities in any Seller, any Company or
Ascent Media Property Holdings, LLC; provided, however
that no such transfer by AMC shall relieve AMC of any of its
obligations hereunder. For the avoidance of doubt, nothing in
this Agreement shall in any respect prohibit or restrict AMC and
its Subsidiaries from entering into
and/or
consummating any transactions with one or more third parties
with respect to the sale, merger or other divestiture of any
business or assets of AMC and its Subsidiaries other than the
Business, the Company Interests, the assets and properties of
the Company Group Members, and the Equity Securities in any
Seller, any Company or Ascent Media Property Holdings, LLC;
provided, that, any such transaction does not and
would not reasonably be expected to adversely affect the
consummation of the Transactions or impose any restrictions or
Liabilities on the Business or any Company Group Member.
(b) AMC shall, on or prior to the Closings, cause
(i) all obligations of the US Company, the UK Company or
the Singapore Company, as the case may be, to each lender,
holder, payee or beneficiary of any Indebtedness of AMC or any
of its Subsidiaries (including any Company Group Member),
including DBS Bank Ltd and Wells Fargo Capital Finance, LLC,
arising from or relating to such Indebtedness (or any documents
executed in connection therewith), or otherwise in favor of the
Retained Group, to be released, and (ii) all (x) Liens
(other than to the extent required by DBS Bank Ltd to support
any Outstanding Letters of Guarantee, but solely to such extent)
on any asset of any of the US Company, the UK Company or the
Singapore Company in favor of any such lender, holder, payee or
beneficiary with respect to any such outstanding Indebtedness or
other obligation of any such Person, or otherwise in favor of
the Retained Group, or the US Company Interest, the UK Company
Interest and the Singapore Company Interest and
(y) arrangements respecting Liens on any assets of any of
the Companies, including landlord or third-party agreements,
consents, waivers and estoppel certificates, to be terminated in
full and be of no further force or effect; provided,
that, any letters of guarantee or bankers
guarantees issued pursuant to the DBS Facility prior to the date
hereof or, with the prior written consent of US Purchaser, after
the date hereof (collectively, Outstanding Letters of
Guarantee) shall remain outstanding notwithstanding
such termination.
(c) The AMC Entities and the Companies shall, and shall
cause their Representatives to, provide US Purchaser with all
cooperation reasonably requested by US Purchaser in connection
with Purchasers and their Affiliates
B-61
financing of the Purchase Price and refinancing of existing
Indebtedness in connection with the Transactions (collectively,
the Financing). Such cooperation shall
include:
(i) using commercially reasonable efforts to furnish, as
promptly as practicable, financial and other information
relating to the Business or the Company Group to the lenders and
other financial institutions and investors that are or may
become parties to the Financing (the Financing
Sources) as may be requested by Purchasers
and/or the
Financing Sources;
(ii) using commercially reasonable efforts to assist in the
preparation of such documents and materials as may be required
in connection with the Financing, including (A) any
customary offering documents, private placement memoranda, bank
information memoranda, and similar documents (including
historical and pro forma financial statements and information)
for the Financing as US Purchaser
and/or the
Financing Sources may request, (B) materials for rating
agency presentations, and (C) credit agreements and other
loan documents (including disclosure schedules thereto);
(iii) identifying any information in any such offering
documents, private placement memoranda, bank information
memoranda and similar documents that constitutes material
non-public information concerning the Company Group or their
securities for purposes of United States federal and state
securities laws (Material Non-Public
Information);
(iv) providing customary authorization letters to the
Financing Sources authorizing the distribution of information to
prospective lenders or investors and containing a representation
to the Financing Sources that the public side versions of any
such offering documents, private placement memoranda, bank
information memoranda and similar documents, if any, do not
include Material Non-Public Information;
(v) using commercially reasonable efforts to facilitate the
pledging of collateral for the Financing, including using
commercially reasonable efforts: (A) to obtain appraisals,
engineering or other reports, surveys, and title insurance
reports and policies, (B) to take other actions necessary
to permit the Financing Sources to evaluate the real property
and other assets, cash management and accounting systems of the
Company Group, and (C) to obtain landlord consents to the
pledging of leasehold interests in real property held or to be
held by any Company Group Member and such other landlord or
third-party consents, waivers, estoppel certificates and
agreements as may be requested by the Financing Sources in
connection with the pledge of such collateral;
(vi) using commercially reasonable efforts to arrange for
direct contact between the Representatives, senior management
and other appropriate employees of the Company Group Members and
the Financing Sources;
(vii) using commercially reasonable efforts to obtain such
other consents, waivers, approvals, authorizations and
instruments as may be requested by US Purchaser
and/or the
Financing Sources in connection with the Financing;
(viii) providing to the Financing Sources all documentation
and information as they may request in connection with
requirements of bank regulatory authorities under applicable
know-your-customer and anti-money laundering rules
and regulations, including the Patriot Act; and
(ix) otherwise using commercially reasonable efforts to
facilitate the consummation of the Financing, including taking
all corporate actions, subject to the occurrence of the
Closings, reasonably requested by US Purchaser to permit the
consummation of the Financing and to permit the proceeds thereof
to be made available to the Purchasers immediately upon the
Closings.
The Purchasers shall reimburse the AMC Entities and the
Companies for all reasonable out-of-pocket costs and expenses
actually incurred by them in complying with this
Section 6.10(c); provided that no such reimbursement shall
be provided in connection with actions that are otherwise
required to be taken under this Agreement.
(d) From and after the Closings, the Purchasers or their
respective Affiliates, successors and assigns shall have the
sole right and authority to collect for the account and sole
benefit of the Companies and their respective Affiliates,
successors and assigns (the Post-Closing
Payees) all payments from any customers of the
Business that
B-62
relate to the Business. If AMC or any of its Subsidiaries shall
receive any such payments, AMC shall, and shall cause its
Subsidiaries to, hold all such monies in trust for the sole
benefit of the applicable Post-Closing Payee, shall promptly
notify such Post-Closing Payee of the receipt of such monies,
and promptly after such notice shall transfer such monies to
such Post-Closing Payee by wire transfer of immediately
available funds or in such other manner reasonably requested by
such Post-Closing Payee, in each case to the extent that
Purchasers or the Companies shall notify AMC, or AMC or any of
its Subsidiaries otherwise has knowledge, that such payment
belongs to the Company Group.
6.11 Publicity. AMC and US
Purchaser agree that, from the date hereof through the Closing
Date, no public release or announcement concerning the
Transactions shall be issued by any party hereto without the
prior consent of the other party (which consent shall not be
unreasonably withheld, conditioned or delayed), except as such
release or announcement may be required by Law, in which case
the party required to make the release or announcement shall
allow the other party reasonable time to comment on such release
or announcement in advance of such issuance.
6.12 Excluded Assets. Each
of the parties acknowledges that the assets described on
Section 6.12 of the Company Disclosure Letter
(collectively, the Excluded Assets), are not
part of the Business and shall not be transferred to Purchasers
in connection with the Transactions. AMC shall use all
reasonable best efforts, and at its sole cost and expense, to
transfer such Excluded Assets from the Company Group to the
Retained Group prior to the Closings, and neither Purchasers nor
any Company Group Member shall be entitled to any consideration
therefor. For the avoidance of doubt, the parties acknowledge
that the business and assets of AMC or its Subsidiaries, other
than those business and assets that are part of the Business,
shall not be transferred to Purchasers in connection with the
Transactions.
6.13 [Intentionally Omitted].
6.14 Termination of Affiliate
Transactions. On or before the Closing Date,
except as set forth on Section 6.14 of the Company
Disclosure Letter, all Liabilities and obligations between any
Company Group Member, on the one hand, and AMC or any of its
Subsidiaries (other than a Company Group Member) on the other
hand, including (i) any and all Indebtedness between any
Company Group Member on the one hand, and AMC or any of its
Subsidiaries (other than a Company Group Member), on the other
hand, and (ii) any and all Related Party Arrangements
disclosed in Section 4.11 of the Company Disclosure Letter
(including the Intercompany Accounts) shall be terminated in
full in a manner satisfactory to US Purchaser, without any
Liability to either Purchaser, the Business or any Company Group
Member following the Closings and AMC shall deliver releases (in
form and substance reasonably satisfactory to Purchaser)
evidencing the release of the applicable Purchaser and the
Company Group Members from any such Liabilities or obligations.
6.15 Releases. Effective as
of the Closings, AMC, on behalf of itself, its Subsidiaries and
their respective successors and assigns, hereby unconditionally
and irrevocably (a) waives any Claims which AMC or any
Subsidiary of AMC has or may have in the future against the
Business or Company Group with respect to any act or omission by
Company Group Member or any of its Affiliates or Representatives
prior to the Closings and (b) releases the Company Group
and its Affiliates and Representatives from, and agrees to hold
the Company Group and its Affiliates and Representatives
harmless against, any and all Liabilities with respect thereto;
provided that nothing herein shall release any Claims, or
extinguish, restrict or otherwise limit any representations,
warranties, covenants or rights to indemnification, arising
under this Agreement or any of the other Transaction Documents.
Effective as of the Closings, each of the Company Group Members,
on behalf of itself and its respective successors and assigns,
hereby unconditionally and irrevocably (x) waives any
Claims which such Company Group Member has or may have in the
future against the Retained Group with respect to any act or
omission by any member of the Retained Group prior to the
Closings and (y) releases the Retained Group from, and
agrees to hold the Retained Group harmless against, any and all
Liabilities with respect thereto; provided that nothing
herein shall release any Claims, or extinguish, restrict or
otherwise limit any representations, warranties, covenants or
rights to indemnification, arising under this Agreement or any
of the other Transaction Documents.
6.16 Resignations. On the
Closing Date, AMC shall deliver to US Purchaser the resignations
of the managers, directors and officers of the Company Group
Members as designated by US Purchaser no later than three
B-63
Business Days prior to the Closing Date, such resignations to be
effective concurrently with the Closings. Such resignations will
not affect such manager, director or officers status as
Company Employees.
6.17 Company Group Reorganization.
(a) Prior to the Closing Date, AMC shall restructure the
corporate organization of the Company Group in accordance with
terms and conditions of the plan of reorganization set forth in
Section 6.17(a)(i) of the Company Disclosure Letter such
that as of the Closings: (a) the Company Group shall be
structured as set forth in the chart in Section 6.17(a)(ii)
of the Company Disclosure Letter, (b) all assets of the
Business that are not currently held by the Company Group
(including (i) all Real Property held in the name of AMC or
any Subsidiary of AMC other than a Company Group Member (but
excluding any fee title held by AMC or any of its Subsidiaries
in any Leased Real Property, or any rights of AMC or any of its
Subsidiaries as landlord under the related Real Property Lease),
(ii) all assets set forth on Schedule 6.17, and
(iii) all Tangible Property owned by AMC or any Subsidiary
of AMC other than a Company Group Member, in each case other
than any Excluded Assets) shall have been transferred, at
AMCs sole cost and expense, to the Company Group,
(c) all Contracts (including each Real Property Lease) of
the Business to which any member of the Retained Group is
currently a party shall have been assigned, at AMCs sole
cost and expense, to the Company Group, and (d) the
Singapore Company shall hold at least 600,000 Singapore dollars
in cash and cash equivalents (which shall be credited as Working
Capital Assets) (the Company Group
Reorganization). The Company Group Reorganization
shall be memorialized in writing through a Company Group
Reorganization Agreement and all necessary bills of sale,
instruments of assignment and other documents reasonably
necessary to effectuate the Company Group Reorganization
(collectively, the Company Group Reorganization
Documents). Each Company Group Reorganization
Document, and any modification to the plan of reorganization set
forth in Section 6.17(a)(i) of the Company Disclosure
Letter or any Company Group Reorganization Document, shall
require the review and approval of the US Purchaser and such
approval shall not be unreasonably withheld, conditioned or
delayed if such Company Group Reorganization Document or such
modification conforms to the requirements of this Agreement with
respect to the Company Group Reorganization and does not, and
would not reasonably be expected to, adversely affect either
Purchaser or any Company Group Member.
(b) If, following the Closings, AMC or any of its
Subsidiaries is or becomes aware of any asset of the Business
(including any tangible personal property, Real Property,
material license, Contract or asset set forth on
Schedule 6.17) that was held by the Retained Group
as of the Closings and that should have been transferred to the
Company Group in connection with the Company Group
Reorganization, AMC shall notify the Purchasers of the identity
of such asset and shall cause such asset to be promptly
transferred, at AMCs sole cost and expense, to the Company
Group Member designated by the US Purchaser. Any dispute, claim
or controversy arising out of this Section 6.17(b) shall be
determined, at the request of any party hereto, by arbitration
conducted in Los Angeles, California, or such other location as
the parties hereto may mutually agree, before a sole arbitrator;
provided, that, the parties hereto shall make
every reasonable effort to resolve any such dispute, claim or
controversy without resort to arbitration. The arbitration shall
be administered by JAMS (or any successor organization) pursuant
to its Comprehensive Arbitration Rules & Procedures,
and the parties hereto agree that the arbitrator may impose
sanctions in the arbitrators discretion to enforce
compliance with discovery and other obligations. Judgment upon
any award rendered by the arbitrator shall be final and binding
upon the parties hereto and may be entered and enforced by any
state or federal court having jurisdiction thereof. The
arbitrator shall have the power to grant temporary, preliminary
and permanent relief, including injunctive relief and specific
performance. Unless otherwise ordered by the arbitrator, the
fees, expenses and costs of such arbitrator shall be borne
one-half by Purchasers and one-half by AMC.
(c) Anything contained herein to the contrary
notwithstanding, no Company Group Member shall declare or pay
any dividend, or make any distribution, in cash or in property,
if following such dividend or distribution such Company Group
Member would not have good funds available in cash sufficient to
satisfy and honor in full any and all outstanding checks
and/or wire
transfers drawn on any account of such Company Group Member.
6.18 Real Estate.
(a) Before the Closing Date, AMC shall make available to US
Purchaser any and all real property transfer Tax returns and
other similar filings required by Law in connection with the
Transactions contemplated hereby and
B-64
relating to the Owned Real Property, any part thereof or
ownership interest therein, all duly and properly executed and
acknowledged by AMC. AMC shall also execute such affidavits in
connection with such filings as required by Law or reasonably
requested by US Purchaser.
(b) Subject to Section 6.19 below, prior to the
Closings, AMC shall, or shall cause its Subsidiaries to,
transfer all right, title and interest in each parcel of Owned
Real Property set forth on Schedule 6.18(b) to the
US Company, at AMCs sole cost and expense, in each case
pursuant to a customary grant, bargain and sale deed (the
Deed), the form of which shall be approved by
US Purchaser in its reasonable discretion. In connection with
each such conveyance, AMC shall arrange for the issuance of the
Owners Title Policy with respect to each such parcel
of Owned Real Property and all appurtenances thereto, effective
as of the date on which each Deed is recorded in the Official
Records, ensuring US Companys ownership interest in each
such parcel of Owned Real Property and all appurtenances thereto
in an amount to be reasonably determined by US Purchaser prior
to the date that is ten (10) Business Days before the
Closing Date. The form of each such Owners
Title Policy shall be approved by US Purchaser in its
reasonable discretion prior to the date that is five
(5) Business Days before the Closing Date, and each such
Owners Title Policy shall include such endorsements
as US Purchaser determines in its reasonable discretion to be
appropriate. The costs of each such Owners
Title Policy shall be allocated between AMC and US
Purchaser as follows: AMC shall be responsible for the cost of
the CLTA (or equivalent basic coverage) portion of the
premium(s) for each Owners Title Policy, for the cost
of the non-imputation endorsement(s) (the
Non-Imputation Endorsement) to be issued
effective as of the Closings, and for the cost of the Map Act
Endorsement, and US Purchaser shall be responsible for the
incremental cost attributable to providing an ALTA owners
policy of title insurance and the cost of any endorsements US
Purchaser requests other than the Non-Imputation Endorsement and
the Map Act Endorsement; provided, however, that
AMC shall cause the delivery of such customary affidavits as the
Title Company may require for issuance of each such
Owners Title Policy and the endorsements thereto. It
is understood and agreed that, notwithstanding anything to the
contrary set forth in this Section 6.18(b), the
2813 West Alameda Parcel will be transferred to the US
Company only if and when required by Section 6.19 below.
(c) At the Closings, (i) the US Purchaser and AMC
shall enter into the sublease in the form of
Exhibit B (with AMC as the sublessor and US
Purchaser as the sublessee) with respect to the premises
identified on Schedule 6.18(c)(i) (the
2901 West Alameda Sublease),
(ii) the US Purchaser and Ascent Media Property Holdings,
LLC shall, and AMC shall cause Ascent Media Property Holdings,
LLC to, enter into the lease in the form of
Exhibit C (with Ascent Media Property Holdings, LLC
as the lessor and US Purchaser as the lessee) with respect to
the premises identified on Schedule 6.18(c)(ii) (the
Northvale Lease), and (iii) the US
Purchaser and Ascent Media Property Holdings, LLC shall, and AMC
shall cause Ascent Media Property Holdings, LLC to, enter into
the lease in the form of Exhibit D (with Ascent
Media Property Holdings, LLC as the lessor and US Purchaser as
the lessee) with respect to the premises identified on
Schedule 6.18(c)(iii) (the Tappan
Lease and, collectively with the 2901 West
Alameda Sublease, the Northvale Lease and the 2813 West
Alameda Lease (if executed pursuant to Section 6.19(b)),
the AMC-Encompass Sublease and Leases).
(d) Prior to the Closings, to the extent practicable, AMC
shall satisfy (i) all Liabilities arising from or related
to the Changi Lease, including the Singapore Companys
obligation to restore the Changi Premises upon the expiration or
termination of the Changi Lease, and (ii) all Liabilities
under the Changi Lease arising from or related to the failure to
obtain any necessary consent(s) to the change in control of the
Singapore Company in connection with the Transactions. In
addition, prior to the Closings, (x) AMC shall terminate
all employees of AMC and its Subsidiaries (including the Company
Group Members) providing services primarily at the Changi
Premises, and (y) AMC shall satisfy all Liabilities arising
from or related to such terminations, including ex-gratia
payments, leave encashments, and payments provided in lieu of
notice.
6.19 Burbank Parcels.
(a) Prior to the Closings, AMC shall, and shall cause its
Subsidiaries (including Ascent Media Property Holdings,
LLC) to, use commercially reasonable efforts to obtain from
the Title Company not later than five Business Days prior
to the Closing Date a commitment (the 2813 West
Alameda Title Commitment) to issue an
Owners Policy of Title Insurance with respect to the
2813 West Alameda Parcel and the easement rights created
pursuant to the Appurtenant Earth Station Easement Agreement
that includes a CLTA Form 116.7 endorsement (or the
equivalent thereof that is reasonably acceptable to the US
Purchaser) insuring against loss or damage sustained
B-65
by the insured by reason of the failure of the 2813 West
Alameda Parcel to constitute a lawfully created parcel according
to the Map Act and local ordinances adopted pursuant thereto,
including the Burbank Municipal Code (the Map Act
Endorsement), which Map Act Endorsement shall be at
AMCs sole cost and expense. AMC and its Subsidiaries
(including Ascent Media Property Holdings, LLC) understand
that the Title Company may require the City of Burbank to
issue a certificate of compliance pursuant to the Map Act (Cal.
Govt. Code §66499.35) and the applicable provisions of the
Burbank Municipal Code (the Certificate of
Compliance) as a condition precedent to its issuance
of a Map Act Endorsement, and in such event AMC and its
Subsidiaries (including Ascent Media Property Holdings,
LLC) shall use commercially reasonable efforts to obtain
the Certificate of Compliance.
(b) In the event that, not less than five Business Days
prior to the Closing Date, the Title Company has issued the
2813 West Alameda Title Commitment, then
(i) prior to the Closings, AMC shall cause Ascent Media
Property Holdings, LLC to transfer all of its right, title and
interest in the 2813 West Alameda Parcel to the US Company;
(ii) prior to the Closings, the US Company shall, and AMC
shall cause Ascent Media Property Holdings, LLC to, enter into
and record in the Los Angeles Official Records the reciprocal
easement agreement in the form of Exhibit E (the
Appurtenant Earth Station Easement
Agreement); and (iii) the US Company shall, and
AMC shall cause Ascent Media Property Holdings, LLC to, enter
into the lease in the form of Exhibit F (with US
Company as the lessor and Ascent Media Property Holdings, LLC as
the lessee) with respect to the premises identified therein and
to record a memorandum thereof (in the form attached thereto) in
the Los Angeles Official Records (such lease and recorded
memorandum thereof, the 2813 West Alameda
Lease).
(c) In the event that, not less than five Business Days
prior to the Closing Date, the Title Company has not
issued the 2813 West Alameda Title Commitment,
then (i) prior to the Closings, AMC shall cause Ascent
Media Property Holdings, LLC to, enter into and record in the
Los Angeles Official Records as against each of the
2813 West Alameda Parcel and the 2820 West Olive
Parcel respectively, the declarations of covenants in the form
of Exhibits G and H (collectively, the
Declarations) to acknowledge and provide
notice of the fact that each owner of the 2813 West Alameda
Parcel and the 2820 West Olive Parcel shall, among other
things, be bound by the covenants set forth in subparagraph
(iii) of this Section 6.19(c); (ii) prior to the
Closings and after the Declarations have been recorded, the US
Company shall, and AMC shall cause Ascent Media Property
Holdings, LLC to, enter into and record in the Los Angeles
Official Records as against each of the 2813 West Alameda
Parcel and the 2820 West Olive Parcel the easement
agreement in the form of Exhibit I (the
In-Gross Earth Station Easement Agreement),
which grant shall occur concurrently with the issuance of an
Owners Title Policy with respect to the easement
interest created by the
In-Gross
Earth Station Easement Agreement; and (iii) from the
Closings until December 31, 2015, AMC shall, and AMC shall
cause its Subsidiaries (including Ascent Media Property
Holdings, LLC) to, use their reasonable best efforts to
obtain the 2813 West Alameda Title Commitment. If, on
or before December 15, 2015, the 2813 West Alameda
Title Commitment is obtained, then within five Business
Days of the date the 2813 West Alameda
Title Commitment is obtained, (1) AMC shall cause
Ascent Media Property Holdings, LLC to transfer, for the sum of
one million dollars ($1,000,000), all of its right, title and
interest in the 2813 West Alameda Parcel to the US
Purchaser or its designee as provided in Section 6.18(b);
(2) concurrently with (and as a condition of) such
transfer, the US Purchaser or its designee shall, and AMC shall
cause Ascent Media Property Holdings, LLC (or its successor(s)
as owner(s) of the 2813 West Alameda Parcel
and/or
2820 West Olive Parcel) to, (A) execute and enter into
the Appurtenant Earth Station Easement Agreement,
(B) execute and enter into an acknowledgement of the
cancellation and termination of the
In-Gross
Earth Station Easement Agreement (the Termination of
Easement in Gross) and (C) execute and enter into
an acknowledgement of the cancellation and termination of the
Declarations (the Termination of
Declarations); (3) the US Purchaser or its
designee and the then-parties to the
In-Gross
Earth Station Easement Agreement shall, and AMC shall cause
Ascent Media Property Holdings, LLC (or its successor(s) as
owner(s) of the 2813 West Alameda Parcel
and/or
2820 West Olive Parcel) to, record in the Los Angeles
Official Records at the same time and in the following order the
Termination of Declarations, the Termination of Easement In
Gross and the Appurtenant Earth Station Easement Agreement; and
(4) the US Company or such designee thereof as takes title
to the 2813 West Alameda Parcel shall, and AMC shall cause
Ascent Media Property Holdings, LLC to, enter into the
2813 West Alameda Lease. All of covenants contained in this
Section 16.9(c) that are to be performed after the Closings
shall survive through June 30, 2016.
6.20 Assumed Guarantees.
B-66
(a) Reference is made to Schedule 6.20(a),
which sets forth a list of certain guarantees or obligations as
a co-signer (collectively, the Assumed
Guarantees) in which AMC or another member of the
Retained Group is (or, at the Closings, may be) obligated
(whether as a primary obligor or a surety) for an obligation for
which a Company Group Member is (or, at the Closings, will be)
the primary obligor. AMC acknowledges and agrees that the
Assumed Guarantees shall remain in place following the Closings,
if necessary to enable AMC to comply with its obligations under
Section 6.6.
(b) From time to time following the Closings, US Purchaser
shall use commercially reasonable efforts to procure the release
of AMC and any other member of the Retained Group from all
liability under the Assumed Guarantees, including, if
commercially reasonable, by agreeing to become directly liable
to the obligee (whether as a primary obligor or a guarantor) for
the obligation guaranteed by AMC or another member of the
Retained Group thereunder; provided, however,
that: (i) this Section 6.20(b) shall not in any way be
deemed to limit AMCs obligations under Section 6.6
and (ii) US Purchaser shall not be required under this
Section 6.20(b) to make any payments (other than payments
on the underlying obligation, to the extent otherwise due and
payable), to post any deposits, or to provide any performance
bond, letter of credit, bank letter of guaranty or similar form
of credit support, in exchange for the release of AMC or any
other member of the Retained Group.
(c) In the event that AMC or any other member of the
Retained Group, as applicable, is not released from all
Liabilities under the Assumed Guarantees before the Closing
Date, Purchasers and its Subsidiaries covenant and agree
(i) not to renew or extend the term of the lease or
agreement underlying any Assumed Guarantee beyond the current
term thereof (including by way of exercising an option to renew
or extend the term of such underlying lease or agreement) and
(ii) not to amend, modify, change or waive any of the
provisions of the lease or agreement underlying any Assumed
Guarantee so as to increase, in any material respect, the
Liability of AMC or any other member of the Retained Group under
such Assumed Guarantee, in each case without the prior written
approval of AMC (which approval may be withheld at AMCs
sole discretion).
6.21 Certain Capital Expenses.
(a) From October 6, 2010 through the Closings, the
Company Group shall, and AMC shall cause the Company Group to,
(i) undertake the capital projects identified on
Schedule 6.21(a) (Approved Capital
Projects) in the ordinary course of business
consistent with past practice, (ii) pay in cash for
Approved Capital Projects in the ordinary course of business
consistent with past practice, (iii) maintain its
facilities in proper working order, ordinary wear and tear
excepted, including using commercially reasonable efforts to
undertake any capital projects (other than Approved Capital
Projects) relating to the general maintenance of Company Group
facilities and maintain any existing customer Contracts (any
capital projects described in this clause (iii), other than any
capital project contemplated by Section 6.21(b)(ii)(y)(2),
Maintenance Capex), and (iv) pay in cash
for any Maintenance Capex undertaken pursuant to this sentence.
If the aggregate amount paid in cash by the Company Group for
Approved Capital Projects from October 6, 2010 through the
Closings is less than $17,256,000 (such aggregate amount, the
Capex Cash Payment Amount), the amount of
such deficiency shall constitute a Capex
Shortfall. In addition to any other obligations set
forth in this Section 6.21(a), if the Closings occur after
December 31, 2010, the Company Group shall, and AMC shall
cause the Company Group to continue its obligations with respect
to the first sentence of this Section 6.21(a) with respect
to any Approved Capital Projects that has not then been
completed (such as the Discovery Singapore renewal project),
whether or not the Company Group has paid in full the Capex Cash
Payment Amount; provided that the Company Group and AMC
shall in no event be obligated to pay more in the aggregate for
any Approved Capital Project, for all periods through the
Closing Date, including amounts paid prior to October 6,
2010, than the amount set forth for such Approved Capital
Project on Schedule 6.21(a) under the heading
Approved 2010 AFC Amount.
(b) The Company Group shall not be required to pay for any
capital expenditures other than as set forth in
Section 6.21(a). If, at any time from October 6, 2010
through the Closings: (i) the Company Group pays in cash
for capital expenditures for a capital project that is not an
Approved Capital Project and that is not Maintenance Capex (any
such cash payment, New Capex), and
(ii) either (x) US Purchaser consents in writing to
such New Capex or (y) such New Capex is reasonably incurred
by the Company Group, after good faith consultation with US
Purchaser, in connection with: (1) any new customers of the
Company Group (that were not customers of the Company Group as
of October 6, 2010), (2) the renewal of the Channel
Five contract, or (3) any expansion or enhancement, so long
as
B-67
incremental revenue and contribution will be earned with respect
to the capital expenditures that are needed to be spent, of
services to existing customers of the Company Group, then the
amount of such New Capex shall constitute Added
Investment. For the avoidance of doubt,
notwithstanding anything herein to the contrary, any cash
payments for 2009 AFC carryover projects shall in no event be
considered Added Investment.
6.22 Financial Updates. AMC
shall provide US Purchaser, on a quarterly basis, with the
unaudited carve out balance sheet of the Business as of the most
recent quarter end, and related unaudited carve out statements
of operations of the Business for the year-to-date period then
ended, as soon as such quarterly financial statements become
available. AMC shall provide US Purchaser, on a monthly basis,
with unaudited management financial reports for the most recent
month, within 5 Business Days after such monthly reports are
provided to management. AMC shall provide US Purchaser an
unaudited carve out balance sheet of the Business as at
December 31, 2010, and related unaudited carve out
statements of operations and cash flow for the fiscal year then
ended (including the notes thereto), as soon as such financial
statements become available.
6.23 Audited Financial
Statements. AMC shall use its reasonable best
efforts to assist US Purchaser in its preparation of audited
financial statements for the Business for the fiscal year ended
December 31, 2010 (the Audited Financial
Statements), including providing US Purchaser
reasonable access to books, records and Representatives relevant
to prepare the Audited Financial Statements, it being understood
that Encompass shall bear all out-of-pocket costs and expenses
incurred by AMC in complying with this Section 6.23.
6.24 Microsoft Licenses.
(a) Notwithstanding anything to the contrary herein, prior
to the Closing Date, AMC and its Subsidiaries shall validly
transfer to US Company those certain Microsoft licenses set
forth on schedule 6.24(a) (the Microsoft
Licenses) with all rights necessary for such licenses
to be used by the Business in the ordinary course as such
licenses were used by AMC and its Subsidiaries as of the
Effective Date (it being understood that the Microsoft Licenses
do not include any maintenance or other rights under AMCs
Enterprise Agreement with Microsoft). If AMC and its
Subsidiaries have fully complied with their obligations under
the first sentence of this Section 6.24(a), Purchasers
shall reimburse AMC and its Subsidiaries, on the Closing Date,
$292,000 in cash (the Transfer Amount). In
the event that Purchasers, on or prior to the Closing Date, have
a documented quote from Microsoft or an agent of Microsoft
offering the same number of licenses with substantially similar
terms and conditions as the Microsoft Licenses, and for an
aggregate fee (the Negotiated Amount) that is
lower than the Transfer Amount, then the amount payable by
Purchasers pursuant to this Section 6.24(a) shall be
reduced by the difference between the Negotiated Amount and the
Transfer Amount.
(b) In the event that AMC and its Subsidiaries have not
fully complied with their obligations under the first sentence
of Section 6.24(a) by January 15, 2011, then the
Purchasers shall have the option to terminate the transfer
provided under Section 6.24(a) and to not pay the Transfer
Amount; provided, that the US Company shall transfer back
to AMC all Microsoft Licenses already transferred.
ARTICLE VII
TAX
MATTERS
7.1 Tax Matters.
(a) Pre-Closing Tax Returns.
(i) Where required or permitted by applicable Law, AMC
shall include the Company Group Members in, or cause the Company
Group Members to be included in, and shall prepare or cause to
be prepared, and timely and properly file or cause to be timely
and properly filed, all consolidated, combined or unitary Tax
Returns for the taxable periods (or portions thereof) of the
Company Group Members ending on or prior to the Closing Date.
AMC shall pay any and all Taxes due with respect to the Tax
Returns referred to in this Section 7.1(a)(i).
(ii) In addition, AMC shall prepare or cause to be prepared
(A) all Tax Returns of or with respect to any Company Group
Member required to be filed on or prior to the Closing Date
(taking into account valid extensions of time to file), and
(B) all other Tax Returns of any Company Group Member
covering a Pre-
B-68
Closing Period (other than a Pre-Closing Period that is part of
a Straddle Period). With respect to Tax Returns described in
clause (A) of this Section 7.1(a)(ii), AMC shall cause
the applicable Company Group Member to file such Tax Returns and
pay any and all Taxes shown due thereon. With respect to Tax
Returns described in clause (B) of this
Section 7.1(a)(ii), provided that the US Purchaser has
received such Tax Returns from AMC not less than five Business
Days prior to the due date for filing such Tax Returns (taking
into account any applicable extensions) along with the amount of
any and all Taxes shown as due thereon, US Purchaser shall cause
the applicable Company Group Member to execute and timely file
such Tax Returns and timely remit such Taxes.
(b) Other Tax Returns. Purchasers
shall prepare or cause to be prepared and timely and properly
file or cause to be timely and properly filed all Tax Returns
(other than those described in Section 7.1(a)) of or with
respect to any Company Group Member, and shall timely and
properly pay or cause to be timely and properly paid the Taxes
due with respect to such Tax Returns.
(c) Straddle Returns. Not later
than 15 Business Days prior to the filing of any Straddle
Return, US Purchaser shall deliver a draft of such Straddle
Return to AMC, for AMCs review and comment, together with
a statement setting forth the amount of the Pre-Closing Tax.
Taxes with respect to any Straddle Return shall be allocated
between the Pre-Closing Period and the Post-Closing Period in
accordance with Section 7.1(d) hereof. If AMC disagrees
with US Purchasers determination of the amount of the
Pre-Closing Tax, AMC shall notify US Purchaser of such
disagreement in writing and US Purchaser and AMC shall meet and
work together in good faith to agree upon such amount. If AMC
and US Purchaser resolve any such disagreement, AMC shall pay to
US Purchaser the amount of the Pre-Closing Tax as agreed by AMC
and US Purchaser as being owed by AMC no later than five
Business Days prior to the date on which such Straddle Return is
due. If AMC and US Purchaser cannot agree on the amount of the
Pre-Closing Tax owed by AMC with respect to such Straddle
Return, then such disagreement shall be submitted for dispute
resolution (as provided below) and AMC shall pay to US Purchaser
the amount of Taxes that represents the mid-point of AMCs
and US Purchasers respective reasonable determinations of
the amount of Pre-Closing Taxes owed by AMC no later than five
Business Days prior to the date on which such Straddle Return is
due. Not later than five Business Days after filing any such
Straddle Return of or with respect to such Company Group Member,
US Purchaser shall deliver a copy of such Tax Return to AMC.
With respect to any disagreement that is to be submitted for
dispute resolution, the item in question shall be submitted for
final and binding resolution to Deloitte & Touche LLP
or another internationally recognized independent public
accounting firm reasonably satisfactory to AMC and US Purchaser
(the Straddle Return Arbitrator). The
Straddle Return Arbitrator shall be instructed that it may only
consider those items and amounts as to which Purchasers and AMC
have disagreed on the terms specified above. The Straddle Return
Arbitrator shall be instructed to deliver to Purchasers and AMC,
as promptly as practicable (and in no event more than
45 days) after its appointment, a written report setting
forth the resolution of any such disagreement and the reasons
for such determination. The parties agree that AMC shall supply
Purchasers, and Purchasers shall supply AMC, with any written
representations that are made to the Straddle Return Arbitrator
and that each party and its representatives, accountants and
other advisors may be present while oral presentations are made
to the Straddle Return Arbitrator. The determination of the
Straddle Return Arbitrator (i) shall be set forth in
writing, (ii) shall be within the range of dispute between
Purchasers and AMC (if applicable), and (iii) shall be
final and binding upon all the parties upon which a judgment may
be rendered by a court having proper jurisdiction thereover. The
fees, expenses and costs of the Straddle Return Arbitrator shall
be borne one-half by Purchasers and one-half by AMC. Within five
days after the determination of the Straddle Return Arbitrator,
AMC or US Purchaser shall pay to such other party any amount
which is determined by the Straddle Return Arbitrator to be owed
by them.
(d) Allocation of Taxes. With
respect to any Straddle Period, to the extent permitted by Law,
AMC and US Purchaser shall use their reasonable best efforts to
elect to treat the Closing Date as the last day of the taxable
period. If no election is made, the Taxes of the Company Group
Members shall be allocated between the Pre-Closing Period and
the Post-Closing Period: (i) in the case of Taxes that are
either (x) based upon or related to income or receipts, or
(y) imposed in connection with any sale, transfer or
assignment or any deemed sale, transfer or assignment of
property (real or personal, tangible or intangible), on a
closing of the books basis as of the close of business on the
Closing Date (and for such purpose, the taxable period of any
partnership or other pass-through entity in which any Company
Group Member holds a beneficial interest shall be deemed to
terminate at such time); and (ii) in the case
B-69
of Taxes (other than those described in clause (i) above)
that are imposed on a periodic basis with respect to the
business or assets of the Company Group or otherwise measured by
the level of any item, on the basis of the amount of such Taxes
for the entire Straddle Period multiplied by a fraction the
numerator of which is the number of calendar days in such
partial period and the denominator of which is the number of
calendar days in the entire Straddle Period. In the case of any
Tax based upon or measured by capital (including net worth or
long-term debt) or intangibles, any amount thereof required to
be allocated under this Section 7.1(d) shall be computed by
reference to the level of such items on the Closing Date. All
determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with past
practice of the Company Group Members. Notwithstanding the
foregoing, Taxes attributable to any transaction or action taken
by any of the AMC Entities or their Affiliates with respect to
any Company Group Member out of the ordinary course of business
before the Closings on the Closing Date shall be allocated to
the Pre-Closing Period, and Taxes attributable to any
transaction or action taken by any of the Purchasers or their
Affiliates with respect to any Company Group Member out of the
ordinary course of business after the Closings on the Closing
Date shall be allocated to the Post-Closing Period; provided,
however, that AMC, US Purchaser and the Companies shall treat,
and shall cause their respective Affiliates to treat, any
U.S. federal, state and foreign income Tax deductions
arising from payments in respect of options, restricted stock,
phantom equity appreciation rights or other equity-based
compensation, any severance payments to non-Company Employees,
or any other Company Transaction Compensation as occurring prior
to the Closings on the Closing Date and during the Pre-Closing
Period for all Tax purposes. The AMC Entities, US Purchaser and
the Companies agree not to take, and shall cause their
respective Affiliates not to take, any Tax reporting position
that is inconsistent with the foregoing provisions of this
Section 7.1(d), unless otherwise required by applicable Law.
(e) UK VAT. Notwithstanding
anything to the contrary in this Article VII, UK VAT shall
be allocated as follows:
(i) All UK VAT due on goods or services supplied or deemed
to be supplied by the UK Company on or prior to the Closing Date
shall be allocated to the Pre-Closing Period, and AMC and the UK
Seller shall be entitled to the benefit of any reimbursement or
credit from the applicable taxing authority for any UK VAT
payable on goods or services supplied to the UK Company on or
prior to the Closing Date (including any overpayments); and
(ii) All UK VAT due on goods or services supplied or deemed
to be supplied by the UK Company after the Closing Date shall be
allocated to the Post-Closing Period, and UK Purchaser shall be
entitled to the benefit of any reimbursement or credit from the
applicable taxing authority for any UK VAT payable on goods or
services supplied to the UK Company after the Closing Date
(including any overpayments).
(f) Transfer
Taxes. Notwithstanding anything to the
contrary in this Article VII, the allocation and payment of
any Transfer Taxes relating to this Agreement or the
Transactions shall be made in a manner consistent with
Section 2.6.
(g) Manner of Preparation. All Tax
Returns prepared by AMC and Purchasers (to the extent such Tax
Returns cover periods or portions thereof prior to the Closing
Date) shall, except as otherwise required by Law, be prepared in
a manner consistent with the past practice of or with respect to
any Company Group Member. Purchasers, AMC and their respective
Affiliates shall cooperate with each other and provide to the
others such information and render to the others such assistance
as may reasonably be requested in order to ensure the proper and
timely preparation and filing of Tax Returns of or with respect
to any Company Group Member.
(h) Cooperation. With the view to
minimize all Taxes payable by or with respect to the Business
and the Company Group or payable as a result of the Transactions
to the maximum extent permitted by applicable Law, the AMC
Entities and Purchasers shall cooperate in good faith in
(i) preparing all Tax Return preparer Tax information
requests and preparing and filing all Tax Returns of or with
respect to the Business or any Company Group Member pursuant to
this Article VII, (ii) maintaining and making
available to each other all records necessary in connection with
Taxes relating to such Tax Returns and (iii) resolving all
disputes and audits with respect to such Taxes. Purchasers and
the AMC Entities recognize that each may need access, from time
to time, after the Closing Date, to certain accounting and Tax
records and information held by the other, including
computerized books and records and any such information stored
in any other form or media (Tax Records).
Therefore, Purchasers and the AMC Entities agree (x) to
allow (and Purchasers shall cause the Company Group to allow)
each other and their agents and
B-70
representatives, at times and dates mutually acceptable to the
parties, to inspect, review and make copies of such Tax Records
and to make available the appropriate personnel with knowledge
of such Tax Records to help answer questions, such activities to
be conducted during normal business hours and with the
requesting party paying out-of-pocket expenses only and
(y) to offer the other parties such Tax Records before
destroying such Tax Records.
(i) Amended Returns. AMC shall
have the sole and exclusive authority to file amended Tax
Returns of or with respect to the Business or any Company Group
Member for any Tax periods that end on or before the Closing
Date; provided, that to the extent any such amended Tax
Return could reasonably be expected to materially affect
Post-Closing Taxes, AMC shall permit US Purchaser to review and
comment on any relevant portions of such amended Tax Return
prior to filing, and shall make such revisions to the relevant
portions of such amended Tax Returns as shall be reasonably
requested by US Purchaser. Purchasers shall have the sole and
exclusive authority to file amended Tax Returns of or with
respect to the Business or any Company Group Member for all
other Tax periods; provided, that AMC shall have no
liability to Purchasers for any breach of representation or
warranty or otherwise caused by, and Purchasers shall hold AMC
harmless from and against any and all additional costs, expenses
and liabilities (including Taxes) arising from, any such
amendment by Purchasers.
(j) Purchaser Covenants.
(i) Purchasers shall not and shall not permit their
respective Affiliates (including any Company Group Member) to
make any Tax election that could reasonably be expected to
affect the liability of AMC to indemnify either Purchaser for
Taxes hereunder unless each Purchaser waives any rights it could
otherwise have to indemnification from AMC pursuant to this
Agreement with respect to any Taxes attributable to such Tax
election.
(ii) Except as otherwise required by applicable Law or
pursuant to this Agreement, Purchasers shall not cause, and
shall not permit, any Company Group Member to effect or engage
in any transactions or other actions outside of the ordinary
course of business on the Closing Date after the Closings.
(k) AMC Indemnity. From and after
the Closing Date, AMC shall indemnify Purchasers, each Company
Group Member and their respective Affiliates against and hold
them harmless from any and all (i) Pre-Closing Taxes;
(ii) liabilities of the Company Group Members for Taxes of
any Person (other than any Company Group Member) as a result of
such member being, or having been, on or before the Closing
Date, a member of an affiliated, consolidated, combined or
unitary group pursuant to Treasury Regulation §1.1502-6 or
a comparable provision of foreign, state or local Tax law;
(iii) liabilities of the Company Group Members for Taxes of
any Person (other than any Company Group Member) imposed on such
member as a transferee or successor, by contract or pursuant to
any law, rule or regulation, which imposition relates to an
event or transaction occurring before or in connection with the
Closings; (iv) Transfer Taxes allocable to AMC pursuant to
Section 2.6; (v) liabilities incurred as a result of
any breach of or inaccuracy in any representation or warranty
contained in Section 4.14; (vi) Taxes incurred as a
result of any breach by any AMC Entity of any covenant or
obligation with respect to Taxes set forth in this Agreement,
including under Section 2.4 or this Article VII;
(vii) Taxes incurred as a result of any breach of or
inaccuracy in any representation or warranty contained in
Section 4.13 or Section 4.16(d)(v); (viii) Taxes
attributable to, or otherwise resulting from, any Excluded
Liabilities or any breach by any AMC Entity of the covenant set
forth in Section 2.5; and (ix) reasonable
out-of-pocket legal, accounting and other advisory and court
fees incurred in connection with the items described in
clauses (i) through (viii); provided,
however, that notwithstanding the foregoing, AMC will not
be responsible for (x) any Transfer Taxes allocated to
Purchasers pursuant to Section 2.6, or (y) any Taxes
incurred as a result of any breach by either Purchaser or,
following the Closings, by any Company Group Member of their
respective covenants or obligations under Section 2.4 or
this Article VII.
(l) Purchaser Indemnity. From and
after the Closing Date, Purchasers and the Company Group Members
shall, jointly and severally, indemnify AMC, AMCs
Subsidiaries and their respective Affiliates against and hold
them harmless from any and all (i) Post-Closing Taxes;
(ii) Transfer Taxes allocable to Purchasers pursuant to
Section 2.6; (iii) Taxes incurred as a result of any
breach by either Purchaser or, following the Closings, by any
Company Group Member of their respective covenants or
obligations under Section 2.4 or this Article VII;
(iv) Taxes resulting from any cancellation of indebtedness
income deemed to be incurred by AMC or any of its Subsidiaries
as a result of (A) AMC or such Subsidiary being deemed, at
any time following the Closing, to be the primary obligor for
tax purposes under any Assumed Guarantee, and (B) the
subsequent termination of such
B-71
Assumed Guarantee; and (v) reasonable out-of-pocket legal,
accounting and other advisory fees incurred with respect to the
items described in clauses (i) through (iv);
provided, however, that notwithstanding the
foregoing, Purchasers will not be responsible for (v) any
Transfer Taxes allocated to AMC pursuant to Section 2.6,
(w) any Taxes incurred as a result of any breach or
inaccuracy in any representation or warranty contained in
Section 4.14, (x) any Taxes incurred as a result of
any breach by AMC of any covenant or obligation with respect to
Taxes set forth in this Agreement, including under
Section 2.4 or this Article VII, (y) Taxes
incurred as a result of any breach of or inaccuracy in any
representation or warranty contained in Section 4.13 or
Section 4.16(d)(v), or (z) Taxes attributable to, or
otherwise resulting from, any Excluded Liabilities or any breach
by any AMC Entity of the covenant set forth in Section 2.5.
(m) Indemnification Procedures. If
notice of an audit, enquiry, examination or other proceeding is
received from any Tax authority, which, if successful, could
result in an indemnity payment to any Person hereunder (a
Tax Indemnitee), the Tax Indemnitee shall
promptly (and in no event later than ten Business Days after
receipt of such notice) notify the party against whom
indemnification is or may be sought (the Tax
Indemnitor) in writing of such potential claim (a
Tax Claim). Such notice shall contain factual
information (to the extent known) describing the asserted Tax
Claim and shall include copies of the relevant portion of any
notice or other document received from any Governmental
Authority or any other Person in respect of any such asserted
Tax Claim. If notice of a Tax Claim is not timely provided to
the Tax Indemnitor, the Tax Indemnitor shall not be liable to
the Tax Indemnitee to the extent that the Tax Indemnitors
ability to effectively contest such Tax Claim is actually and
materially prejudiced as a result thereof, or for any legal,
accounting and other advising and court fees incurred by or on
behalf of the Tax Indemnitee prior to receipt of such notice by
the Tax Indemnitor. With respect to any Tax Claim, the Tax
Indemnitor shall control all audits, enquiries, examinations and
other proceedings to the extent they directly relate to such Tax
Claim (including selection of counsel) and, without limiting the
foregoing, may in its sole discretion pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with any Tax authority with respect thereto and may,
in its sole discretion, either pay any Tax claimed and sue for a
refund where applicable law permits such refund suits, or
contest the Tax Claim in any permissible manner;
provided, however, that (A) the US Purchaser
may, and may cause any Company Group Member to, at its own
expense, participate in any such audit, examination, or
proceeding, and (B) that the Tax Indemnitor shall not
settle or compromise a Tax Claim without giving ten Business
Days prior written notice to the Tax Indemnitee, and
without the Tax Indemnitees prior written consent, which
shall not be unreasonably withheld, conditioned or delayed, if
such settlement or compromise could reasonably be expected to
have a material adverse effect on the Tax liabilities of the Tax
Indemnitee for which the Tax Indemnitor would not be required to
indemnify the Tax Indemnitee. The Tax Indemnitee, and each of
its Affiliates, shall cooperate with the Tax Indemnitor in
taking action in respect of (including contesting) any Tax
Claim, which cooperation shall include the retention and (upon
the Tax Indemnitors request) the provision to the Tax
Indemnitor of records and information reasonably relevant to
such Tax Claim, making employees available on a mutually
convenient basis to provide additional information or
explanation of any material provided hereunder or to testify at
proceedings relating to such Tax Claim, providing to the Tax
Indemnitor necessary authorizations, including powers of
attorney, to control any audits, enquiries, examinations and
other proceedings that the Tax Indemnitor is entitled to control
pursuant to this paragraph (l) and, subject to the
preceding sentence, executing any documents necessary for the
Tax Indemnitor to settle any such audit, examination or other
proceeding.
(n) Refunds. US Purchaser shall
pay or cause to be paid to AMC, within 30 days after
receipt, any refund received (including any interest received
thereon), whether by payment, credit, offset or otherwise, by
either Purchaser, any Company Group Member or their Affiliates
in respect of any Pre-Closing Taxes or any other Taxes paid or
indemnified by AMC pursuant to this Agreement, other than any
such refund that is attributable to any post-Closing operations
of a Company Group Member. The parties shall cooperate in order
to take any necessary and reasonable steps to claim any such
refund, provided that the out-of-pocket costs of obtaining any
refund paid to AMC shall be borne by AMC. Notwithstanding the
preceding sentence, none of Purchasers or any Company Group
Member shall be required to pursue or obtain any refund to the
extent such action could reasonably be expected to result in an
increase to Post-Closing Taxes.
(o) Payments. Payment by an
indemnitor of any amount due to an indemnitee under
Article VII of this Agreement shall be made within ten days
following written notice by the indemnitee that payment of such
amounts to the appropriate Governmental Authority or other
applicable third party is due by the indemnitee, provided that
B-72
the indemnitor shall not be required to make any payment earlier
than five Business Days before it is due to the appropriate
Governmental Authority or applicable third party. In the case of
a Tax that is contested in accordance with the provisions of
Section 7.1(m) of this Agreement, payment of such contested
Tax will not be considered due earlier than the date a
final determination to such effect is made by such
Governmental Authority or a court. For this purpose, a
final determination shall mean a settlement,
compromise, or other agreement with the relevant Governmental
Authority, whether contained in an applicable form, or
otherwise, or such procedurally later event, such as a closing
agreement with the relevant Governmental Authority, a deficiency
notice with respect to which the period for filing a petition
with the relevant state, local or foreign tribunal has expired
or a decision of any court of competent jurisdiction that is not
subject to appeal or as to which the time for appeal has expired.
(p) Treatment of Payments. AMC and
Purchasers shall treat any and all indemnity payments pursuant
to this Agreement (including any indemnity payments pursuant to
Sections 10.2 and 10.3) as an adjustment to the Purchase
Price or as a capital contribution (as appropriate) for Tax
purposes, and such treatment shall govern for purposes hereof
unless otherwise determined as a result of a final
non-appealable determination by any Governmental Authority.
(q) Group Relief.
(i) The UK Seller may, so far as legally possible, reduce
or extinguish any Pre-Closing Taxes of the UK Company:
(A) by reallocating for nil consideration a chargeable gain
or any part of such gain accruing to the UK Company to any
member of the UK Sellers group under the provisions of
section 179A UK Taxation of Chargeable Gains Act 1992 or
section 792 UK Corporation Tax Act 2009;
(B) by electing for nil consideration under
section 171A UK Taxation of Chargeable Gains Act 1992 that
a disposal of an asset by the UK Company shall be treated as
having been made by a member of the UK Sellers
group; and
(C) by surrendering or procuring the surrender of Group
Relief, eligible unrelieved foreign tax or advance corporation
tax to the UK Company for nil consideration;
(ii) The UK Purchaser shall and shall procure that the UK
Company shall use all reasonable endeavours to procure that all
relevant claims, elections and surrenders are made by and all
other actions are taken without delay (and in any event within
any applicable statutory time limit) as are required to give
effect to the elections in Section 7.1(q)(i);
provided, always that the UK Purchaser shall have
received clear written instructions no later than 10 Business
Days prior to the date on which any applicable statutory time
limit expires.
(iii) If the UK Seller wishes to reduce or extinguish any
Pre-Closing Taxes of the UK Company by surrendering or procuring
the surrender of Group Relief for nil consideration pursuant to
Section 7.1(q)(i), the UK Seller shall or shall procure
that the relevant company in the UK Sellers group shall
provide its written consent to surrender Group Relief to the UK
Company and at the appropriate time following receipt of such
notice of consent, the UK Purchaser shall procure that the UK
Company shall make a claim for Group Relief (to the extent
permitted by law) and send to HM Revenue & Customs a
copy of the notice of consent and its own tax return (amended if
necessary) in respect of the relevant accounting period as
required by Schedule 18 to the UK Finance Act 1998.
(iv) Each of the UK Seller and UK Purchaser agrees and
agrees to procure that any claim for Group Relief pursuant to
Section 7.1(q)(i) once made shall not be withdrawn (save as
may be required by law) without the other partys written
consent (not to be unreasonably withheld or delayed).
(v) The UK Seller shall indemnify the UK Purchaser
and/or the
UK Company (without duplication) for all reasonable
out-of-pocket expenses directly attributable to the compliance
of the UK Purchaser and the UK Company with the provisions of
(ii) and (iii) of this Section 7.1(q).
B-73
ARTICLE VIII
EMPLOYEE
MATTERS
8.1 Company Employees.
(a) Within 30 days after the Effective Date, US
Purchaser may, or may cause its Affiliates to, at its discretion
after interviews, offer continued employment with a Company
Group Member (which shall be contingent on the occurrence of the
Closings), to any person listed on Section 8.1(a) of the
Company Disclosure Letter currently employed by AMC or a
Subsidiary of AMC other than a Company Group Member (any such
person, an AMC Business Employee). Any such
offer of continued employment shall be consistent with the
provisions of this Article VIII, may contain such other
provisions and terms not inconsistent with this
Article VIII as US Purchaser or its Affiliates may deem
appropriate, and shall remain open for a period of at least five
Business Days (a Qualifying Offer). On or
before the date that is five Business Days prior to the Closing
Date, US Purchaser shall notify AMC as to each AMC Business
Employee who has accepted such Qualifying Offer (each, a
Transferred Employee) and each AMC Business
Employee who has not accepted such Qualifying Offer. Pursuant to
the Qualifying Offers, immediately prior to the Closing Date
(or, if applicable, on the Transferred Date), AMC or the
relevant Subsidiary of AMC shall transfer the employment of the
Transferred Employees to the relevant Company Group Member, and,
at the option of the Purchasers, either (i) any employment
agreement to which such Transferred Employee is a party shall be
assigned to the relevant Company Group Member concurrently with
such transfer of employment or (ii) a new employment
agreement, in form and substance reasonably satisfactory to the
Purchasers, shall be entered into with the Transferred Employee
consistent with the terms of this Article VIII and to be
effective as of the Closing Date (or, if applicable, the
Transferred Date) and such Transferred Employee will release, as
of the Closing Date (or, if applicable, the Transferred Date),
AMC and its Subsidiaries from any Liabilities associated with
their employment with AMC and its Subsidiaries prior to the
Closing Date (or, if applicable, the Transferred Date). The
parties shall use commercially reasonable efforts to cooperate
in the manner in which Qualifying Offers are communicated and
the employment of Transferred Employees is continued in order to
avoid, to the extent reasonably practicable, a termination of
employment under applicable Law.
(b) The Transaction shall not in itself have any effect on
the employment status of Company Employees who shall remain
employed by the Company Group immediately following the Closings.
(c) Schedule 8.1(c) of the Company Disclosure
Letter sets forth those employees of the Retained Group (the
Services Employees) who are necessary for the
provision of services under the Services Agreements
and/or the
corporate functions of AMC and the Retained Group after the
Closings. The AMC Entities and the Purchasers acknowledge that
the Services Employees will be required to provide such services
from the Closing Date to no later than April 1, 2011. In
the event that any Services Employee is intended to be a
Transferred Employee, the Purchasers agree that the transfer of
such Transferred Employee will not occur until the date, which
shall be no later than April 1, 2011, that such
employees services are no longer required by AMC or its
Subsidiaries as set forth on Schedule 8.1(c) (the
Transferred Date). The parties shall use
commercially reasonable efforts to cooperate in the manner in
which the employment of Services Employees is transitioned to
the Company Group.
(d) From the Closing Date to April 1, 2011, neither
the Purchasers nor their respective Subsidiaries shall, either
directly or indirectly, solicit for employment any employees
listed on Schedule 8.1(d), or persuade or attempt to
persuade any such employee to terminate his or her employment
with the Retained Group, without obtaining the prior written
consent of AMC in each instance; provided, that,
this Section 8.1(d) shall not apply to any employee,
regardless of whether or not they are listed on
Schedule 8.1(d), who is not, or ceases to provide,
services under any Services Agreement. Notwithstanding the
foregoing, this Section 8.1(d) shall not be deemed to
prohibit (i) general solicitations of employment through
newspapers or other general media advertisement, web site
postings, employment firms or otherwise, that are not directed
to such employees (or the employing of such employees who
respond to such generalized solicitations, absent any other
direct or indirect solicitation otherwise prohibited by this
Section 8.1(d)), or (ii) the hiring of any such
employee who initiates discussions regarding employment
opportunities with the Purchasers or any of their Subsidiaries
on such persons own initiative, without any direct or
indirect solicitations from the Purchasers and their
Subsidiaries.
B-74
8.2 Participation in AMC
Plans. As of the Closing Date, Company
Employees and their beneficiaries and dependents shall cease to
participate and cease to be eligible to participate in any
employee benefit plans or other benefit programs, policies and
arrangements of AMC and its Subsidiaries, other than the Assumed
Employee Benefit Plans. For the avoidance of doubt, as of the
Closing Date, the applicable Company Group Member shall be
assigned and shall assume the rights and obligations of the
employing entity under any employment agreement set forth on
Paragraph 1 of Section 6.1 of the Company Disclosure
Letter and any employment agreements to which a Transferred
Employee is a party and to be assigned to such Company Group
Member pursuant to Section 8.1(a) (any such assigned and
assumed employment agreement, a Transferred Employment
Agreement). The applicable Company Group Member shall
honor such Transferred Employment Agreements in accordance with
their terms, and the Transferred Employment Agreements shall be
considered Assumed Employee Benefit Plans. For the avoidance of
doubt, AMC shall be responsible for, and covenants to pay or
otherwise discharge, (x) all Liabilities arising from or
related to any Employee Benefit Plan of AMC or any of its
Subsidiaries (including any such Liabilities triggered, in whole
or in part, by the execution of this Agreement or the
consummation of the Transactions any Liabilities for deductibles
under any applicable insurance policies), other than Assumed
Employee Benefit Plans, and (y) all Liabilities arising
from or related to any Assumed Employee Benefit Plan (including
any such Liabilities triggered, in whole or in part, by the
execution of this Agreement or the consummation of the
Transactions and any Liabilities for deductibles under any
applicable insurance policies) to the extent such Liabilities
relate to or arise from periods (or portions thereof) ending, or
Claims incurred, on or prior to the Closing Date. Other than
with respect to Assumed Employee Benefit Plans (for which the
Company Group, following the Closings, shall retain all
Liabilities to the extent such Liabilities are not described in
clause (y) above), neither Purchasers nor, on and after the
Closings, any Company Group Member shall assume or retain
sponsorship, maintenance or administration, or any Liabilities
for, any Employee Benefit Plan of AMC or any of its Subsidiaries
(or other benefit programs, policies and arrangements of AMC and
its Subsidiaries) or receive or assume any assets or Liabilities
in connection with any such plan. AMC and its Subsidiaries agree
to use commercially reasonable efforts to cooperate fully with
US Purchaser and its Affiliates in submitting Claims after the
Closings on behalf of the US Purchaser or any of its Affiliates
under insurance policies in effect prior to or at the Closings
that cover events occurring at or prior to the Closings. Any and
all amounts received by AMC and its Subsidiaries under such
policies with respect to any such Claim shall be paid to US
Purchaser promptly after receipt, to the extent that the cost of
such Claim is borne after the Closing Date by the Purchasers and
their Affiliates (including the Company Group), and in all other
cases shall be retained by AMC and its Subsidiaries.
8.3 Workers
Compensation. Effective as of the Closing
Date, the Company Group shall provide
U.S.-based
Company Employees with coverage for all workers
compensation benefits and, from and after the Closing Date,
shall be responsible for all workers compensation claims
with respect to events occurring on or after the Closing Date.
AMC shall be responsible for all workers compensation
claims made by a Company Employee before the Closing Date.
8.4 WARN Obligations. To the
extent that any obligations, liability, expense or notice might
arise under the Worker Adjustment Retraining Notification Act,
29 U.S.C. Section 2011 et seq., or under any similar
provision of any applicable Law (collectively, WARN
Obligations) as a consequence of the Transactions, AMC
shall be responsible for any WARN Obligations arising as a
result of any employment losses announced or occurring on or
prior to the Closing Date, and the Company Group, on and after
the Closings, shall be responsible for any WARN Obligations
arising as a result of any employment losses that were not
announced or did not occur on or prior to the Closing Date.
8.5 Welfare Plan
Obligations. Claims of Company Employees and
each of their eligible beneficiaries and dependents for medical,
dental, prescription drug, life insurance,
and/or other
welfare benefits (Welfare Benefits) that are
incurred on or before the Closing Date shall be the sole
responsibility and liability of the AMC, its Affiliates (other
than Company Group Members) and its employee benefit plans.
Claims of Company Employees and their eligible beneficiaries and
dependents for Welfare Benefits that are incurred after the
Closing Date shall be the sole responsibility and liability of
the Company Group and its employee benefit plans. For purposes
of the preceding provisions of this paragraph, a medical/dental
claim shall be considered incurred on the date when the
medical/dental services are rendered or medical/dental supplies
are provided, and not when the condition arose or when the
course of treatment began. On and prior to the Closing Date, AMC
shall be administratively and financially
B-75
responsible for complying with the continuation coverage
requirements for group health plans under
Title X of COBRA with respect to all
U.S.-based
Company Employees and their eligible dependents and
beneficiaries. After the Closing Date, the Company Group shall
be administratively and financially responsible for complying
with the continuation coverage requirements for group
health plans under Title X of COBRA with respect to
all
U.S.-based
Company Employees and their eligible dependents and
beneficiaries who incur a qualifying event after the Closing
Date.
8.6 Vacation. With respect
to any Company Employees after the Closing Date, Purchasers and
their Affiliates (including after the Closing Date, the Company
Group) will permit such employees to schedule and take, with
pay, all vacation days that have accrued on or before the
Closing Date to the extent accrued as a Working Capital
Liability in the final determination of Net Working Capital for
the maximum length of time as permitted under the Company
Groups vacation policy as in effect on the Closing Date.
8.7 401(k) Plan. Immediately
prior to the Closings, AMC and its Subsidiaries shall fully vest
all employees who will be Company Employees as of the Closings
in their benefits under the Ascent Media Group 401(k) Savings
Plan (the AMC 401(k) Plan). On or prior to
the Closings, or as soon as administratively practicable
thereafter, AMC and its Subsidiaries shall contribute to the AMC
401(k) Plan for the benefit of such Company Employees
(a) all contributions due with respect to the last pay
period ending prior to the Closings and (b) all employer
and employee contributions for the pay period including the
Closings to which such Company Employees are entitled with
respect to compensation earned by such Company Employees as of
the Closing Date. Effective as soon as administratively
practicable after the Closings (but no earlier than the
60th day following the Closing Date), US Purchaser shall
cause a 401(k) plan maintained by US Purchaser or one of its
Affiliates (the Purchaser 401(k) Plan), to
accept a plan-to-plan transfer of the accounts of such Company
Employees in the Old 401(k) Plan. AMC and its Subsidiaries shall
provide US Purchaser with such information in the possession of
AMC and its Subsidiaries as is reasonably requested by US
Purchaser in connection with implementing such transfer, and US
Purchaser and its Affiliates will provide evidence reasonably
satisfactory to AMC that the Purchaser 401(k) plan is qualified
under Section 401(a) of the Code. Such plan-to-plan
transfer shall be conducted pursuant to a wire transfer to the
Purchaser 401(k) Plan, and shall include the transfer on the
books of any participant loans held within the transferred
accounts. US Purchaser and its Affiliates will cause the
Purchaser 401(k) Plan to preserve protected benefits, rights and
features associated with the transferred assets to the extent
required under Section 411(d)(6) of the Code and related
regulations.
8.8 No Additional
Rights. Nothing in this Article VIII
shall (a) grant any rights or benefits to any Person other
than AMC, Purchasers or the Company Group Members, as
applicable, (b) amend, or be construed as amending, any
Company Benefit Plan, (c) guarantee employment for any
period of time or preclude the ability of Purchasers or Company
Group Members, as applicable, to terminate any employee or
independent contractor for any reason, (d) require either
Purchaser or any Company Group Member, as applicable, to
continue any Company Benefit Plans, employee benefits plans or
arrangements or prevent the amendment, modification or
termination thereof after the Closings, or (e) confer upon
any Company Employee any rights or remedies under this Agreement
(including under this Article VIII).
8.9 Additional Matters.
(a) If a Company Employee is discharged by either Purchaser
or any of its Affiliates after the Closing Date without
cause, such Purchaser (and not AMC or its
Subsidiaries) shall be responsible for any severance costs for
such Company Employee.
(b) If, within 90 days following the Closing Date,
either Purchaser or any of their respective Affiliates hires any
person that on the Closing Date was employed by AMC or a
Subsidiary of AMC other than a Company Group Member (for the
avoidance of doubt, not including any Transferred Employee), the
applicable Purchaser shall reimburse AMC for all severance costs
incurred by AMC or such Subsidiary in connection with any
termination of such persons employment with AMC or such
Subsidiary during such
90-day
period.
B-76
ARTICLE IX
CONDITIONS
TO THE CLOSINGS
9.1 Conditions to the Obligations of Each
Party. The obligations of the Companies, AMC,
Sellers and Purchasers to consummate the purchases and sales of
the Company Interests, and the other transactions contemplated
by this Agreement, are subject to the satisfaction or waiver by
both AMC and US Purchaser as of the Closings of each of the
following conditions:
(a) the Authorizing Resolution shall have been adopted and
approved by the Requisite Stockholder Vote;
(b) any waiting period (and any extension thereof) under
the HSR Act relating to the Transactions shall have expired or
been terminated;
(c) the Requisite Regulatory Approvals shall have been
obtained;
(d) no Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any
Law or Order (whether temporary, preliminary or permanent) which
is then in effect and has the effect of making the Transactions
illegal or otherwise restraining, enjoining, prohibiting or
imposing materially burdensome conditions on the consummation of
the Transactions, and no Person shall have instituted any Claim
that would reasonably be expected to restrain, enjoin, prohibit
or impose materially burdensome conditions on the consummation
of the Transactions;
(e) AETN shall have provided to the US Company a written
consent to the Transactions, in form and substance reasonably
acceptable to AMC and US Purchaser, and shall have released the
Guaranty (as defined in the A&E Contract) provided by
Ascent Media Group, LLC; and
(f) each of the consents, estoppel certificates,
non-disturbance agreements and other agreements or documents
listed on Schedule 9.1(f) shall have been obtained
and be in full force and effect; provided, that to
the extent any of the consents listed on
Schedule 9.1(f) shall not have been obtained at such
time as all other conditions (other than those that can only be
satisfied at the Closings) have been satisfied or properly
waived, such consent will be deemed obtained to the extent
consistent with applicable Law, and this condition shall be
deemed satisfied with respect to such consent, if other
arrangements are made that are reasonably satisfactory to the US
Purchaser and that permit the Company Group to continue to
conduct the Business in substantially the same manner as
currently conducted, at substantially the same cost, deriving
substantially the same revenue and on the same or reasonably
acceptable substitute premises that is the subject of such
Contract that required consent, it being understood that no such
arrangements shall impose any material additional burdens,
restrictions or obligations on the Business or the Company Group
and all fees, costs and expenses required to implement such
arrangements shall be borne solely by AMC.
9.2 Conditions to the Obligations of
Purchasers. The obligations of Purchasers to
purchase and pay for the Company Interests hereunder, and to
consummate the other transactions contemplated by this
Agreement, are subject to the satisfaction or waiver by US
Purchaser as of the Closings of the following further conditions:
(a) (i) each of the AMC Fundamental Representations
(other than those contained in clauses (ii), (iv) and
(v) of Section 3.3 and clauses (ii) and
(iv) of Section 4.4(a)) shall be true and correct in
all respects, both as of the Effective Date and as of the
Closing Date, with the same force and effect as if made as of
the Closing Date (except to the extent expressly made as of a
specified date, in which case as of such specified date), and
(ii) each of the other representations and warranties with
respect to the AMC Entities and the Company Group contained in
Article III and Article IV of this Agreement
(including those contained in clauses (ii), (iv) and
(v) of Section 3.3 and clauses (ii) and
(iv) of Section 4.4(a)) shall be true and correct as
of the Effective Date and as of the Closing Date, with the same
force and effect as if made as of the Closing Date (except to
the extent expressly made as of a specified date, in which case
as of such specified date), except, in the case of this
clause (ii), for any failure of such representations and
warranties to be true and correct as of such date (taking into
account the facts and circumstances underlying any such
failures) as have not had, and would not reasonably be expected
to have, individually or in the aggregate, a Company Material
Adverse Effect; provided, however, that, other
than with respect to the representation and warranty with
respect to the Company Group in Section 4.9 (Absence of
Certain Changes or Events), if such representations and
warranties are expressly
B-77
qualified by materiality, Company Material Adverse
Effect, AMC Material Adverse Effect or similar
qualifiers, the entirety of such qualifiers shall be disregarded
for purposes of determining whether this Section 9.2(a) has
been satisfied;
(b) The AMC Entities and the Companies shall have performed
in all material respects with all agreements and covenants
required by this Agreement to be performed by the AMC Entities
and the Companies, as applicable, at or prior to the time of the
Closings;
(c) AMC and its Subsidiaries shall have consummated the
Company Group Reorganization in accordance with the terms and
conditions set forth in Section 6.17 (including
Section 6.17(a)(i) and (ii) of the Company Disclosure
Letter) and shall have delivered written evidence (in form and
substance reasonably acceptable to US Purchaser) thereof;
(d) The AMC Entities shall have delivered to Purchasers the
items to be delivered pursuant to Section 2.8;
(e) The actions or Orders issued by the FCC providing
Requisite Regulatory Approvals with respect to the FCC Licenses
shall each have become a Final FCC Order, provided that
this condition shall not apply if no filing pertaining to or
associated with any of the applications filed pursuant to
Section 6.5(b)(i) has been made by any third party at the
time such FCC authorizations are issued;
(f) Neither AMC nor any of its Subsidiaries (including the
Company Group Members) shall be in material breach of its
obligations under the Disney Contracts, taken as a whole
(determined without regard to any right of AMC or any of its
Subsidiaries to cure any such breach), and Disney shall not have
terminated Disney Contracts representing, in the aggregate, all
or substantially all the revenue received by AMC and its
Subsidiaries from Disney for the provision of network
origination, playout and master control services in the
UK; and
(g) Neither AMC nor any of its Subsidiaries (including the
Company Group Members) shall be in material breach of its
obligations under the Sony Contracts, taken as a whole
(determined without regard to any right of AMC or any of its
Subsidiaries to cure any such breach), and Sony shall not have
terminated Sony Contracts representing, in the aggregate, all or
substantially all the revenue received by AMC and its
Subsidiaries from Sony for the provision of network origination,
playout and master control services in the UK.
9.3 Conditions to the Obligations of AMC
Entities. The obligations of the AMC Entities
to sell and assign the Company Interests to Purchasers
hereunder, and to consummate the other transactions contemplated
by this Agreement, are subject to the satisfaction or waiver by
AMC as of the Closings of the following further conditions:
(a) (i) each of the Purchaser Fundamental
Representations shall be true and correct in all respects, both
as of the Effective Date and as of the Closing Date, with the
same force and effect as if made as of the Closing Date (except
to the extent expressly made as of a specified date, in which
case as of such specified date), and (ii) each of the other
representations and warranties of Purchasers contained in
Article V of this Agreement shall be true and correct as of
the Effective Date and as of the Closing Date, with the same
force and effect as if made as of the Closing Date (except to
the extent expressly made as of a specified date, in which case
as of such specified date), except, in the case of this
clause (ii), for any failure of such representations and
warranties to be true and correct as of such date (taking into
account the facts and circumstances underlying any such
failures) as have not had, and would not reasonably be expected
to have, individually or in the aggregate, a Purchaser Material
Adverse Effect; provided, however, that, to the
extent such representations and warranties are expressly
qualified by materiality, Purchaser Material Adverse
Effect or similar qualifiers, the entirety of such
qualifiers shall be disregarded for purposes of determining
whether this Section 9.3(a) has been satisfied;
(b) Purchasers shall have performed in all material
respects with all agreements and covenants required by this
Agreement to be performed by Purchasers at or prior to the time
of the Closings; and
(c) Purchasers shall have delivered to the AMC Entities the
items to be delivered pursuant to Section 2.7.
B-78
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations, Warranties
and Agreements. Each representation and
warranty contained in this Agreement, and the covenants set
forth in Section 6.1, shall survive the Closings and
continue in full force and effect until the date that is
18 months following the Closing Date (the Release
Date); provided that (i) the Fundamental
Representations, and the AMC Entities indemnification
obligations set forth in Section 10.2(c), shall survive the
Closings indefinitely, (ii) the Extended Representations
shall survive until 60 days following the expiration of the
applicable statute of limitations (including any extensions
thereof, whether automatic or permissive), (iii) the
representations and warranties contained in Section 4.19
(Environmental Matters) shall survive until the third
anniversary of the Closing Date, and (iv) each covenant and
agreement in this Agreement (other than the covenants set forth
in Section 6.1) or in any certificate or document delivered
pursuant thereto shall survive until fully performed in
accordance with their respective terms and provisions (the
Release Date or such other date described above, as applicable,
the Expiration Date). Notwithstanding the
preceding sentence of this Section 10.1, if US Purchaser or
AMC, as applicable, delivers written notice to the other party
of a claim for indemnification for a breach of any
representations, warranties, covenants or agreements set forth
herein or in any document delivered pursuant to this Agreement
within the applicable Expiration Date, such claim shall survive
until finally resolved or judicially determined.
10.2 Indemnification by AMC
Entities. From and after the Closings, on the
terms and subject to the limits set forth in this
Article X, the AMC Entities, jointly and severally, shall
indemnify, save and hold harmless, Purchasers and their
Affiliates (including the Company Group Members), their
respective Representatives and their respective successors and
assigns (collectively, the Purchaser Indemnified
Parties) from, against and in respect of any and all
Losses that such Purchaser Indemnified Parties may incur as a
result of any of the following:
(a) the breach of any representation or warranty, as of the
Effective Date or as of the Closing Date, made by any AMC Entity
in any Transaction Document (other than any AMC Fundamental
Representation) or in any document delivered with respect hereto
or thereto, or any breach or default in performance of the
covenants set forth in Section 6.1(a) or 6.1(c);
(b) any breach or default in performance by AMC or any of
its Subsidiaries (other than Company Group Members) or, prior to
the Closings, by any Company Group Member of any covenant or
obligation contained in any Transaction Document or in any
document delivered with respect hereto or thereto (other than
the covenants set forth in Section 2.4, Section 2.6,
or Article VII hereto, the breaches of which are governed
by Article VII hereto, and other than the covenants set
forth in Section 6.1(a) and 6.1(c)), or any breach of any
AMC Fundamental Representation; or
(c) any Excluded Liabilities or any Third-Party Claim
relating thereto.
10.3 Indemnification by Purchasers and the
Company Group Members. From and after the
Closings, on the terms and subject to the limits set forth in
this Article X, Purchasers and the Company Group Members,
jointly and severally, shall indemnify, save and hold harmless,
AMC and its Affiliates (excluding the Company Group Members),
their respective Representatives and their respective successors
and assigns (collectively, the AMC Indemnified
Parties) from, against and in respect of any and all
Losses that such AMC Indemnified Parties may incur as a result
of any of the following:
(a) the breach of any representation or warranty, as of the
Effective Date or as of the Closing Date, made by Purchasers in
any Transaction Document (other than any Purchaser Fundamental
Representation) or in any document delivered with respect hereto
or thereto;
(b) any breach or default in performance by Purchasers of
any covenant or obligation of Purchasers contained in any
Transaction Document or in any document delivered with respect
hereto or thereto, or any breach of any Purchaser Fundamental
Representation; or
(c) any Third-Party Claim arising under any of the Assumed
Guarantees, but only to the extent such Third-Party Claim does
not arise from or relate to an Excluded Liability or a breach or
default in performance
B-79
by AMC or any of its Subsidiaries of any of their respective
representations, warranties, covenants or obligations contained
in any Transaction Document.
10.4 Limits on Indemnification.
(a) Notwithstanding anything to the contrary contained in
this Agreement, (i) the AMC Entities shall not be required
to indemnify, save or hold harmless the Purchaser Indemnified
Parties against or reimburse the Purchaser Indemnified Parties
for any Loss pursuant to Section 10.2(a), unless
(A) U.S. Purchaser has notified AMC in writing in
accordance with Sections 10.5 and 12.6 of the claim subject
to such indemnification, identifying with reasonable specificity
the grounds for such claim, on or before the Release Date, and
(B) the aggregate of all of the Purchaser Indemnified
Parties Losses under Section 10.2(a) exceeds
$1,550,000 (the Threshold Amount) (in which
event the AMC Entities shall be collectively liable only to the
extent that such Losses exceed such amount) and (ii) the
aggregate liability of the AMC Entities to indemnify the
Purchaser Indemnified Parties for Losses under
Section 10.2(a) shall in no event exceed $19,360,000 (the
Cap).
(b) Notwithstanding anything to the contrary contained in
this Agreement, (i) the Purchasers and Company Group
Members shall not be required to indemnify, save or hold
harmless the AMC Indemnified Parties against or reimburse the
AMC Indemnified Parties for any Loss pursuant to
Section 10.3(a), unless (A) AMC has notified
Purchasers in writing in accordance with Sections 10.5 and
12.6 of the claim subject to such indemnification, identifying
with reasonable specificity the grounds for such claim, on or
before the Release Date, and (B) the aggregate of all of
the AMC Indemnified Parties Losses under
Section 10.3(a) exceeds the Threshold Amount (in which
event the Purchasers and the Company Group Members shall be
collectively liable only to the extent that such Losses exceed
such amount) and (ii) the aggregate liability of the
Purchasers and the Company Group Members to indemnify the AMC
Indemnified Parties for Losses under Section 10.3(a) shall
in no event exceed the Cap.
(c) The amount of any Loss for which indemnification is
provided under this Article X shall be net of any amounts
actually recovered by the Indemnified Person under insurance
policies with respect to such Loss, in each case net of any
costs of, and Taxes applied to, such recovery, including any
retroactive or prospective premium adjustments and any
chargebacks related to such insurance claim.
(d) Notwithstanding anything to the contrary contained in
this Agreement, AMC shall not be required to indemnify, defend
or hold harmless any Purchaser Indemnified Parties against, or
reimburse a Purchaser Indemnified Party for, any Loss to the
extent such Loss was reflected as a reduction in Purchase Price
as a Working Capital Liability or Cash Deferred Revenue pursuant
to the definition of Purchase Price and Section 2.3.
10.5 Procedures Relating to
Indemnification.
(a) In order for an Indemnified Person to be entitled to
any indemnification provided for under this Agreement arising
out of or involving any Claim (other than for Tax Claims, as
defined in Section 7.1(m), which are governed by
Article VII), such Indemnified Person must notify the
Indemnifying Person in writing, and in reasonable detail, of the
Claim as soon as practicable after the Indemnified Person
becomes aware of such Claim; provided, however,
that failure to give such notice shall not affect the
indemnification provided hereunder except to the extent the
Indemnifying Person shall have been actually prejudiced as a
result of such failure.
(b) If a Claim is made by any third party against an
Indemnified Person which is subject to indemnification under
Section 10.2 or Section 10.3 (a Third-Party
Claim), then the following additional provisions shall
apply: if an Indemnified Person shall receive notice of any
Third-Party Claim, such Indemnified Person must notify the
Indemnifying Person in writing, and in reasonable detail, of the
Third-Party Claim within 20 days after receipt by such
Indemnified Person of written notice of the Third-Party Claim;
provided, however, that failure to give such
notice shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Person shall have been
actually prejudiced as a result of such failure (and except that
the Indemnifying Person shall not be liable for any portion of
such Losses incurred during the period commencing after such
20-day
period in which the Indemnified Person failed to give such
notice). Thereafter, the Indemnified Person shall deliver to the
Indemnifying Person, within ten Business Days after the
Indemnified Persons receipt thereof, copies of all notices
and documents (including court papers) received by the
Indemnified Person relating to the Third-Party Claim.
B-80
(c) If a Third-Party Claim is made against an Indemnified
Person, the Indemnifying Person shall be entitled to assume and
control the defense thereof at its sole cost and expense, with
counsel selected by the Indemnifying Person and reasonably
satisfactory to the Indemnified Person, upon written notice to
the Indemnified Person provided within 20 days following
the Indemnifying Persons receipt of notice regarding such
Third-Party Claim; provided that the Indemnifying Person
shall not be entitled to assume or control the defense of any
Third-Party Claim, and the Indemnifying Person shall be liable
for the fees, costs and expenses incurred by any Indemnified
Person in defending a Third-Party Claim, if (i) the
Third-Party Claim relates to or arises in connection with any
criminal Claim, (ii) the Third-Party Claim seeks an
injunction or equitable relief against any Indemnified Person,
(iii) the Third-Party Claim has resulted or would
reasonably be expected to result in Losses in excess of the
amounts available for indemnification pursuant to
Section 10.4, or (iv) the Indemnifying Person has
failed or is failing to defend in good faith the Third-Party
Claim. Should the Indemnifying Person be entitled to and so
elect to assume and control the defense of a Third-Party Claim,
the Indemnifying Person shall not be liable to the Indemnified
Person for legal fees and expenses subsequently incurred by the
Indemnified Person in connection with the defense thereof,
except as otherwise provided in this Section 10.5. If the
Indemnifying Person assumes and controls such defense, the
Indemnified Person shall have the right to participate in the
defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Person,
it being understood that the Indemnifying Person shall control
such defense; provided that the fees, costs and expenses
of such counsel shall be at the expense of the Indemnifying
Person if the Indemnifying Person and the Indemnified Person are
both named parties to the proceedings and the Indemnified Person
shall have reasonably concluded on the advice of counsel
reasonably acceptable to the Indemnifying Person that
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them. Without duplication of any of the foregoing
provisions requiring the Indemnifying Person to pay fees, costs
and expenses of the Indemnified Person, the Indemnifying Person
shall be liable for the reasonable fees, costs and expenses of
one counsel employed by the Indemnified Person for any period
during which the Indemnifying Person has not assumed and
controlled (or does not, or is not entitled to, undertake) the
defense thereof (other than during any period in which the
Indemnified Person shall have failed to give notice of the
Third-Party Claim as provided above). All the parties hereto
shall cooperate with one another in the defense or prosecution
of any Third-Party Claim. Such cooperation shall, in each case
at the expense of the Indemnifying Party, include the retention
and, upon request, the provision of records and information
relevant to such Third-Party Claim, and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
If the Indemnifying Person shall not assume and control the
defense of any Third-Party Claim, the Indemnified Person may
defend such claim or litigation is such manner as it may deem
appropriate. Whether or not the Indemnifying Person shall have
assumed the defense of a Third-Party Claim, the Indemnified
Person shall not admit any liability with respect to, or settle,
compromise or discharge, such Third-Party Claim (if it is
subject to indemnification pursuant to Section 10.2 or
Section 10.3) without the Indemnifying Persons prior
written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. If the Indemnifying Person
chooses to defend a Third-Party Claim that it is entitled to
defend pursuant hereto, the Indemnifying Person shall not settle
or compromise the Third-Party Claim or consent to the entry of
any judgment unless (i) such settlement, compromise or
judgment (A) does not impose equitable remedies or material
obligations on any Indemnified Person other than the payment of
money damages for which any such Indemnified Party is fully
indemnified hereunder, (B) does not entail any admission of
liability on the part of any Indemnified Person and
(C) includes an unconditional release of each Indemnified
Person, reasonably satisfactory to the Indemnified Person, from
all Losses with respect to such Third-Party Claim, unless the
Indemnified Person first consents in writing to such settlement
or compromise and (ii) such Indemnifying Person shall
indemnify and hold the Indemnified Person harmless from and
against any and all Losses caused by or arising out of any such
settlement and may not claim that it does not have an
indemnification obligation with respect thereto.
10.6 Additional Matters. For
purposes of this Article X, including for purposes of
calculating Losses, the representations and warranties contained
in this Agreement (other than Section 4.9) shall be deemed
to have been made without any qualifications as to materiality,
Material Adverse Effect, AMC Material Adverse Effect, Company
Material Adverse Effect, Purchaser Material Adverse Effect,
specified dollar thresholds or similar qualifications. An
Indemnified Person shall have the right to seek indemnity under
Section 10.2 or Section 10.3 arising out of or
relating to any breach of representation, warranty, covenant or
obligation of the Indemnifying Party,
B-81
or for Excluded Liabilities, notwithstanding any investigation
by, knowledge of, or knowledge capable of being acquired by, the
Indemnified Person in respect of any fact or circumstance that
reveals the occurrence of such breach, or the existence of such
Excluded Liabilities, whether before, on or after the execution
and delivery hereof. Notwithstanding any provision to the
contrary in the 2901 West Alameda Sublease, no provision
under the 2901 West Alameda Sublease (including the
indemnification obligations of the Subtenant under
the 2901 West Alameda Sublease and the indemnification
obligations made effective through incorporation of provisions
of the Overlease (as defined in the 2901 West
Alameda Sublease)), shall in any way restrict, reduce or
otherwise limit the indemnification obligations of the parties
to this Agreement, and in the event that there is any conflict
between the terms of the 2901 West Alameda Sublease, on the
one hand, and the terms of this Agreement, on the other hand,
the terms of this Agreement shall control and prevail.
10.7 Limitation on
Remedies. From and after the Closings, and
except with respect to claims arising from fraud, the
enforcement of any covenant requiring performance following the
Closings or claims for equitable relief, the provisions of
Article VII and this Article X shall constitute the
exclusive remedy in respect of breaches of representations,
warranties, covenants or agreements contained in this Agreement.
10.8 Tax Matters. Except as
expressly provided herein, the rights and obligations of the
parties and all Indemnified Persons with respect to
indemnification for Taxes, and any and all other Losses for
which any Person shall be entitled to indemnification pursuant
to Article VII of this Agreement, shall be determined
pursuant to, and governed by, Article VII of this Agreement
and not this Article X.
10.9 Escrow. If, prior to
the Release Date, AMC and its Subsidiaries desire to
(i) take any action to dissolve, liquidate or otherwise
wind up the Retained Group, or (ii) make, declare, pay or
set aside any amount for the payment of any dividend or
distribution that, after giving effect to such dividend or
distribution, would result in AMC not holding cash and cash
equivalents that is in an amount equal to not less than twice
the Remaining Cap and that is available for prompt payment of
any indemnification obligations the AMC Entities may have under
this Article X, then AMC shall promptly notify US Purchaser
and US Purchaser shall be entitled to implement an escrow
arrangement (including the engagement of an escrow agent, the
negotiation of an escrow agreement and the opening of an escrow
account) reasonably satisfactory to AMC. If US Purchaser does
not move expeditiously to implement such escrow arrangement
within 30 days after the receipt of such notice from AMC,
then US Purchaser shall be deemed to have waived its right to an
escrow arrangement pursuant to this Section 10.9. If US
Purchaser moves expeditiously to implement such escrow
arrangement within 30 days after the receipt of such notice
(or, in the absence of such notice, if US Purchaser moves to
implement such escrow arrangement) and such escrow arrangement
is reasonably satisfactory to AMC, then the Purchasers, AMC and
escrow agent shall (prior to the time AMC and its Subsidiaries
have taken any action to dissolve, liquidate or otherwise wind
up the Retained Group or to make, declare, pay or set aside any
amount for the payment of any such dividend or distribution)
execute the escrow agreement and open the escrow account and,
upon the opening of such escrow account, AMC shall deposit an
amount in cash or cash equivalents equal to the Remaining Cap
into such escrow account to support AMCs indemnification
obligations under this Article X. The Purchaser Indemnified
Parties shall be entitled to payment from the escrow account for
any amounts they are due pursuant to this Article X with
respect to any Claim for indemnification made on or prior to the
Release Date. Any amounts remaining in the escrow account
following the Release Date, after satisfaction of all Claims for
indemnification made by any Purchaser Indemnified Parties on or
prior to the Release Date, shall be promptly returned to AMC by
the escrow agent. The closing or depletion of the escrow account
shall in no way be deemed to extinguish, restrict or otherwise
limit the rights to indemnification of the Purchaser Indemnified
Parties pursuant to this Article X. All fees, costs and
expenses incurred in the implementation and maintenance of any
escrow account described in this Section 10.9 shall be
borne solely by AMC. As used herein the term Remaining
Cap means, as of any date, the amount, if any, by
which the Cap exceeds the aggregate amount theretofore paid by
or on behalf of AMC pursuant to the indemnification provisions
set forth in Section 10.2(a).
B-82
ARTICLE XI
TERMINATION
11.1 Termination. Notwithstanding
anything contained in this Agreement to the contrary, this
Agreement may be terminated and abandoned at any time prior to
the Closings, whether before or after the Requisite Stockholder
Vote, as follows:
(a) by mutual written consent of AMC and US Purchaser;
(b) by AMC or US Purchaser, if (i) the Closings shall
not have occurred on or before February 28, 2011 (as such
date may be modified from time to time in writing by mutual
agreement between AMC and US Purchaser, the Termination
Date) and (ii) the party seeking to terminate
this Agreement pursuant to this Section 11.1(b) shall not
have breached its obligations under this Agreement in any manner
that shall have been the proximate cause of the failure to
consummate the Closings on or before such date;
(c) by AMC or US Purchaser, if (i) any Governmental
Authority of competent jurisdiction shall have issued an Order
or taken any other action permanently restraining, enjoining,
prohibiting or imposing materially burdensome conditions on the
consummation of the Transactions, and such Order or other action
shall have become final and non-appealable, and (ii) the
party seeking to terminate this Agreement pursuant to this
Section 11.1(c) shall not have breached its obligations
under this Agreement in any manner that shall have been the
proximate cause for the issuance of such Order or the taking of
such other action;
(d) by AMC or US Purchaser, if the Authorizing Resolution
shall not have been adopted by the Requisite Stockholder Vote at
any duly held Stockholders Meeting (including any
adjournment or postponement thereof) at which such resolution
has been voted upon;
(e) by AMC, if US Purchaser or UK Purchaser shall have
breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements set
forth in this Agreement, which breach or failure to perform
(i) would result in a failure of a condition set forth in
Section 9.3(a) or Section 9.3(b) and (ii) has not
been and cannot be cured on or before the Termination Date or,
if curable, is not cured by the Purchasers within 30 days
after AMCs delivery to the Purchasers of written notice of
its intention to terminate due to such breach or failure;
provided that AMC shall not have the right to terminate
this Agreement pursuant to this Section 11.1(e) if any AMC
Entity or any of the Companies is then in material breach of any
of its representations, warranties, covenants or other
agreements hereunder that would result in a failure of a
condition set forth in Section 9.2(a) or
Section 9.2(b);
(f) by US Purchaser, if any AMC Entity or any of the
Companies shall have breached or failed to perform in any
material respect any of its representations, warranties,
covenants or other agreements set forth in this Agreement, which
breach or failure to perform (i) would result in a failure
of a condition set forth in Section 9.2(a) or
Section 9.2(b) and (ii) has not been and cannot be
cured on or before the Termination Date or, if curable, is not
cured by the AMC Entities and the Companies within 30 days
after US Purchasers delivery to AMC of written notice of
its intention to terminate due to such breach or failure;
provided that US Purchaser shall not have the right to
terminate this Agreement pursuant to this Section 11.1(f)
if either US Purchaser or UK Purchaser is then in material
breach of any of its representations, warranties, covenants or
other agreements hereunder that would result in a failure of a
condition set forth in Section 9.3(a) or
Section 9.3(b);
(g) by AMC, prior to the adoption and approval of the
Authorizing Resolution by the Requisite Stockholder Vote, in
order to enter into a definitive agreement providing for the
implementation of a transaction that is a Superior Proposal, if
(i) AMC has complied in all material respects with
Section 6.4(e) and Section 6.4(f), and (ii) prior
to or concurrently with such termination, the AMC Entities pay
the AMC Termination Fee;
(h) by US Purchaser, if (i) the board of directors of
AMC shall have effected a Change of Recommendation, (ii) a
tender offer or exchange offer for shares of the capital stock
of AMC that constitutes a Competing Proposal is commenced and
the board of directors of AMC fails to recommend against
acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to
the acceptance of such tender offer or exchange offer by its
stockholders, which shall constitute a failure to
B-83
recommend against acceptance of such tender offer or exchange
offer) within ten Business Days after commencement,
(iii) AMC or any of its Subsidiaries enters into a AMC
Acquisition Agreement, or (iv) AMC publicly announces its
intention to do any of the foregoing; or
(i) by US Purchaser, if (i) Disney has terminated
Disney Contracts representing, in the aggregate, all or
substantially all the revenue received by AMC and its
Subsidiaries from Disney for network origination, playout and
master control services in the UK, or (ii) Sony has
terminated Sony Contracts representing, in the aggregate, all or
substantially all the revenue received by AMC and its
Subsidiaries from Sony for network origination, playout and
master control services in the UK.
11.2 Effect of
Termination. If this Agreement is terminated
pursuant to Section 11.1, this Agreement shall become void
and of no effect without liability of any party (or any
stockholder or Representative of such party) to the other party
hereto, except that (i) except as otherwise provided in
Section 11.3, if such termination is pursuant to
Section 11.1(e) or Section 11.1(f) due to a party
breaching or failing to perform in any material respect any of
its representations, warranties, covenants or other agreements
hereunder, such party shall be fully liable for any and all
Losses incurred or suffered by any other party as a result of
such breach, (ii) AMC or US Purchaser may have liability as
set forth in Section 11.3, and (iii) subject to the
provisions of Section 12.4, nothing shall relieve any party
from liability for fraud. The Non-Disclosure Agreement and the
provisions of this Section 11.2, Section 11.3 and
Article XII shall survive any termination hereof pursuant
to Section 11.1.
11.3 Termination Fees.
(a) If:
(i) (x) prior to the termination of this Agreement,
any Competing Proposal is publicly proposed, disclosed or
otherwise communicated to the AMC Entities or the Companies,
and (y) following the occurrence of an event
described in the preceding clause (x), this Agreement is
terminated by US Purchaser or AMC pursuant to
Section 11.1(b) or Section 11.1(d) or by US Purchaser
pursuant to Section 11.1(f), and
(z) prior to, concurrently with or within twelve
months after, such termination, AMC or any of its Subsidiaries
enters into a definitive agreement with respect to any Competing
Proposal or any Competing Proposal shall have been consummated
(in each case, whether or not the Competing Proposal was the
same Competing Proposal referred to in clause (x));
provided, however, that for purposes of clause
(z), 50% shall be substituted for the 25% thresholds set forth
in the definition of Competing Proposal; or
(ii) this Agreement is terminated by AMC pursuant to
Section 11.1(g); or
(iii) this Agreement is terminated by US Purchaser pursuant
to Section 11.1(h);
then,
in any such event AMC shall pay to the Purchasers (allocated
between the Purchasers as designated by the Purchasers) a fee of
$4,530,000 in cash (the AMC Termination Fee)
by wire transfer of immediately available funds to the
account(s) designated by the Purchasers, and AMC shall
(notwithstanding the provisions of Section 11.2 or anything
else to the contrary) have no further liability to the
Purchasers with respect to this Agreement or any of the
Transactions, except in the event of fraud by AMC or any of its
Subsidiaries and except as provided in Section 11.3(d). If
the AMC Termination Fee becomes payable pursuant to
Section 11.3(a)(i), then AMC shall pay it upon consummation
of any Competing Proposal (provided that such Competing Proposal
is consummated, or a definitive agreement to consummate such
Competing Proposal is entered into, within the
12-month
period described in Section 11.3(a)(i)(z)). If the AMC
Termination Fee becomes payable pursuant to
Section 11.3(a)(ii), then AMC shall pay it prior to or
contemporaneously with the termination of this Agreement
pursuant to Section 11.1(g) (and any purported termination
pursuant to Section 11.1(g) shall be void and of no force
or effect unless AMC shall have made such payment). If the AMC
Termination Fee becomes payable pursuant to
Section 11.3(a)(iii), then AMC shall pay it no later than
two Business Days after the termination of this Agreement
pursuant to Section 11.1(h). If the AMC Termination Fee
becomes payable pursuant to Section 11.3(a)(i) because this
Agreement is terminated by either AMC or US Purchaser pursuant
to Section 11.1(d), then the AMC Termination Fee that is
payable to the Purchasers
B-84
shall be reduced by the amount of any Reimbursable Expenses paid
to the Purchasers pursuant to Section 11.3(c). It is
expressly understood that in no event shall AMC be required to
pay the AMC Termination Fee on more than one occasion. Any such
payment shall be reduced by any amount as may be required to be
deducted or withheld therefrom under applicable Tax Law.
(b) If this Agreement is terminated by AMC pursuant to
Section 11.1(e) and the conditions set forth in
Section 9.1 and Section 9.2 have been satisfied or
properly waived (other than those conditions that by their
nature cannot be satisfied other than at the Closings and that
the AMC Entities are willing and able to satisfy at the
Closings) and either or both of the Purchasers breaches their
respective obligations to consummate the Transactions, then the
Purchasers shall pay to AMC a fee of $9,680,000 in cash (the
Purchaser Termination Fee) by wire transfer
of immediately available funds to the account designated by AMC.
If the Purchaser Termination Fee becomes payable pursuant to
this Section 11.3(b), then the Purchasers shall pay it no
later than two Business Days after the termination of this
Agreement pursuant to Section 11.1(e). Nothing in this
Section 11.3(b) shall limit the Purchasers rights, in
any proceeding, to contest any assertion that the Purchasers
have so breached this Agreement or to contest that the
conditions to the payment of the Purchaser Termination Fee set
forth in this Section 11.3(b) have been satisfied.
Notwithstanding anything to the contrary in this Agreement,
AMCs right to receive the Purchaser Termination Fee from
the Purchasers pursuant to this Section 11.3(b) shall be
the sole and exclusive remedy of the AMC Entities, the Companies
and their respective Affiliates against the Purchasers, their
respective Affiliates and Representatives, or any potential or
actual Financing Sources for the Purchasers or their respective
Affiliates (or any Affiliates of any such potential or actual
Financing Sources) for any Losses suffered as a result of the
failure of the Transactions contemplated hereby to be
consummated or as a result of the breach or failure to perform
(if the Transactions are not consummated), whether or not
willful, or termination of this Agreement and, after
indefeasible payment in full of the obligations set forth in
this Section 11.3(b), the Purchasers and their respective
Affiliates and Representatives shall have no further liability
or obligation (whether in contract, tort or otherwise) relating
to or arising out of this Agreement or the Transactions, except
in the event of fraud by the Purchasers and except as provided
in Section 11.3(d), and the AMC Entities, the Companies and
their respective Affiliates shall not be entitled to any
injunction, specific performance or other equitable relief. It
is expressly understood that in no event shall the Purchasers be
required to pay the Purchaser Termination Fee on more than one
occasion. Any such payment shall be reduced by any amount as may
be required to be deducted or withheld therefrom under
applicable Tax Law.
(c) If this Agreement is terminated by AMC or US Purchaser
pursuant to Section 11.1(d), AMC shall promptly pay the
Purchasers all out-of-pocket costs and expenses incurred by the
Purchasers and their respective Affiliates in connection with
this Agreement (including due diligence of the Business and the
Company Group, the drafting, negotiation and review of the
Transaction Documents, and performance thereunder) and the
Transactions contemplated hereby (including all fees, costs and
expenses of all Representatives and financing sources), up to a
maximum of $2,000,000 (allocated between the Purchasers as
designated by the Purchasers).
(d) Each of the parties hereto acknowledges that the
agreements contained in this Section 11.3 are an integral
part of the Transactions contemplated hereby, and that without
these agreements, the other parties would not enter into this
Agreement. Accordingly, if either AMC or either Purchaser, as
the case may be, fails to timely pay any amount due pursuant to
this Section 11.3 and, in order to obtain the payment,
either Purchaser or AMC, as the case may be, commences a suit
which results in a judgment against the other party for the
payment set forth in this Section 11.3, such paying party
shall pay the other party its reasonable out-of-pocket fees,
costs and expenses (including reasonable attorneys fees,
costs and expenses) in connection with such suit.
ARTICLE XII
GENERAL
PROVISIONS
12.1 Assignment. This
Agreement and the rights and obligations hereunder shall not be
assignable or transferable, in whole or in part, by operation of
Law or otherwise, by any AMC Entity or the Companies without the
prior written consent of US Purchaser or by US Purchaser or UK
Purchaser without the prior written consent of AMC;
provided, however, that US Purchaser and UK
Purchaser may each assign its rights and obligations under this
Agreement to an Affiliate of a Purchaser without the consent of
AMC, but no such assignment shall relieve US
B-85
Purchaser and UK Purchaser of their obligations hereunder.
Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and permitted
assigns. Any purported assignment not permitted under this
Section 12.1 shall be null and void.
12.2 No Third-Party
Beneficiaries. This Agreement is for the sole
benefit of the parties hereto, the AMC Indemnified Parties, the
Purchaser Indemnified Parties, and their respective successors
and permitted assigns and nothing herein, expressed or implied,
shall give or be construed to give to any other Person any legal
or equitable rights hereunder; provided, that, any
potential or actual Financing Sources shall be express
third-party beneficiaries of, and entitled to enforce the
provisions of, the fourth sentence of Section 11.3(b),
Section 12.1 and Section 12.12. AMC and its
Subsidiaries expressly agree and acknowledge that no potential
or actual Financing Source shall have any Liability (whether in
contract, tort or otherwise) under this Agreement. The Financing
Sources are third party beneficiaries of the immediately
preceding sentence.
12.3 Expenses. Whether or
not the Transactions are consummated, and except as otherwise
expressly provided in this Agreement, all fees, costs and
expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such fees,
costs or expenses.
12.4 Equitable Relief. The
parties agree that irreparable damage for which monetary
damages, even if available, would not be an adequate remedy,
would occur in the event that any of the provisions of this
Agreement were not performed by the AMC Entities and the
Companies in accordance with their specific terms (including
failing to take such actions as are required of it hereunder to
consummate this Agreement) or were otherwise breached by the AMC
Entities and the Companies. The parties acknowledge and agree
that Purchasers shall be entitled to an injunction, specific
performance and other equitable relief to prevent breaches of
this Agreement by the AMC Entities and the Companies and to
enforce specifically the terms and provisions hereof against the
AMC Entities and the Companies, in addition to any other remedy
to which Purchasers are entitled at law or in equity. The AMC
Entities and the Companies agree that they will not oppose the
granting of an injunction, specific performance and other
equitable relief on the basis that Purchasers have an adequate
remedy at law or that any award of specific performance is not
an appropriate remedy for any reason at law or in equity. In
seeking an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
of this Agreement, Purchasers shall not be required to provide
any bond or other security in connection with any such order or
injunction, except to the extent ordered by a court of competent
jurisdiction. Notwithstanding anything herein to the contrary,
the parties further acknowledge and agree that, prior to the
consummation of the Closings, neither AMC Entities nor the
Companies shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Purchasers, to enforce
specifically the terms and provisions of this Agreement against
Purchasers or otherwise to obtain any equitable relief or remedy
against Purchasers, and that the AMC Entities and the
Companies sole and exclusive remedy with respect to any
such breach shall be the remedy available to AMC set forth in
Section 11.3(b).
12.5 Amendments. No
amendment to this Agreement shall be effective unless it shall
be in writing and signed by the parties hereto.
12.6 Notices. All notices or
other communications required or permitted to be given hereunder
shall be in writing and shall be delivered by hand or telecopy
(if the sender receives confirmation that the telecopy
transmission was successful), or sent, postage prepaid, by
registered, certified (return receipt requested) or express
mail, or nationally recognized overnight courier service
(providing proof of delivery) and shall be deemed given when
delivered by hand, or when so telecopied, or if mailed, three
days after mailing (one Business Day in the case of express mail
or overnight courier service), to the parties at the following
addresses (or at such other address for a party specified by
like notice, provided that notice of a change of address shall
be effective only upon receipt thereof) as follows:
(i) if to US Purchaser, UK Purchaser or, following the
Closings, any of the Companies, to:
Encompass Digital Media, Inc.
3030 Andrita Street
Los Angeles, CA 90065
Attention: Chief Executive Officer
Telephone:
(323) 344-4605
Facsimile:
(323) 344-4805
B-86
with a copy (which shall not constitute notice) to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, CA
90071-1560
Attention: Robert B. Knauss, Esq.
Telephone:
(213) 683-9137
Facsimile:
(213) 687-3702
(ii) if to any AMC Entity or, on or prior to the
Closings, any of the Companies, to:
Ascent Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Attention: General Counsel
Telephone:
(310) 434-7000
Facsimile:
(310) 434-7002
with a copy (which shall not constitute notice) to:
Baker Botts L.L.P.
30 Rockefeller Plaza
New York, New York
10112-4498
Attention: Marc A. Leaf, Esq.
Telephone:
(212) 408-2500
Facsimile:
(212) 408-2501
12.7 Interpretation;
Schedules. The headings contained in this
Agreement or in any Schedule, Exhibit or Annex hereto and in the
table of contents to this Agreement, are for reference purposes
only and shall not affect in any way the meaning or
interpretation of this Agreement. All Schedules and Exhibits,
and the Annex, attached hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any
Schedule, Exhibit or Annex, but not otherwise defined therein,
shall have the same meaning as in this Agreement.
12.8 Counterparts. This
Agreement may be executed (including by facsimile transmission
or by e-mail
of a .pdf attachment) in counterparts, all of which when created
and delivered shall be considered one and the same agreement,
and shall become effective when such counterparts have been
signed by each of the parties hereto and delivered to the other
party.
12.9 Severability. If any
term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any Law or public policy, all
other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the Transactions are not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a legally valid manner in
order that the Transactions are consummated as originally
contemplated to the greatest extent possible.
12.10 Waiver of Compliance;
Consents. Except as otherwise provided in
this Agreement, any failure of the parties to comply with any
obligation, covenant, agreement or condition herein may be
waived by the party entitled to the benefits thereof, but no
such waiver shall be effective against such party unless given
by written instrument signed by the party granting such waiver,
and no such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement or condition shall
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of a party, such consent shall
only be effective to the extent given in writing in a manner
consistent with the requirements for a waiver of compliance as
set forth in this Section 12.10.
B-87
12.11 Entire Agreement. This
Agreement, including the other Transaction Documents, Schedules,
Exhibits, Annex, certificates and instruments referred to
herein, including the Company Disclosure Letter and all
schedules, exhibits and annexes thereto, (a) embodies the
entire agreement and understanding of the parties hereto in
respect of the Transactions, and (b) supersedes all prior
agreements, understandings, covenants, undertakings,
obligations, promises, arrangements, communications,
representations and warranties, whether oral or written, by any
party hereto or any Affiliate or Representative of any party
hereto with respect to the Transactions, other than the
Non-Disclosure Agreement, which shall remain in full force and
effect in accordance with its terms; provided,
that, the parties hereto expressly agree and acknowledge
that, on and after the Closings, (x) any Confidential
Information relating to the Business or any Company Group
Member shall not be subject to the Non-Disclosure Agreement, and
(y) the third sentence of the introductory paragraph of the
Non-Disclosure Agreement and the third sentence of
Section 6 of the Non-Disclosure Agreement shall terminate
and be of no force or effect. There are no qualifications,
promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred
to herein or in any other Transaction Document.
12.12 Governing law; Submission to
Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Each of the parties hereto (i) will submit itself to the
non-exclusive jurisdiction of any federal court located in the
State of New York or any New York state court having subject
matter jurisdiction in the event any dispute arises out of this
Agreement, (ii) agrees that venue will be proper as to
proceedings brought in any such court with respect to such a
dispute, (iii) will not attempt to deny or defeat such
personal jurisdiction or venue by motion or other request for
leave from any such court and (iv) agrees to accept service
of process at its address for notices pursuant to this Agreement
in any such action or proceeding brought in any such court. With
respect to any such action, service of process upon any party
hereto in the manner provided in Section 12.6 for the
giving of notices shall be deemed, in every respect, effective
service of process upon such party.
(b) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH
SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY
MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT. EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES
THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH ACTION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 12.12(b).
12.13 Time of Essence. With
regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence. The parties hereto
acknowledge that each will be relying upon the timely
performance by either other party hereto of its obligations
hereunder as a material inducement to such partys
execution of this Agreement.
[Signature
pages follow]
B-88
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
AMC:
ASCENT MEDIA CORPORATION
Name: William E. Niles
|
|
|
|
Title:
|
Executive Vice President and General Counsel
|
US SELLER:
FOUR MEDIA COMPANY LLC
Name: William E. Niles
|
|
|
|
Title:
|
Executive Vice President and General Counsel
|
UK SELLER:
ASCENT MEDIA LIMITED
Name: William E. Niles
SINGAPORE SELLER:
ASCENT MEDIA HOLDINGS LTD.
Name: William E. Niles
B-89
US COMPANY:
ASCENT MEDIA NETWORK SERVICES, LLC,
Name: William E. Niles
|
|
|
|
Title:
|
Executive Vice President and General Counsel
|
UK COMPANY:
ASCENT MEDIA NETWORK SERVICES EUROPE LIMITED
Name: William E. Niles
SINGAPORE COMPANY:
ASCENT MEDIA PTE LTD.
Name: William E. Niles
US PURCHASER:
ENCOMPASS DIGITAL MEDIA, INC.
Name: Simon Bax
|
|
|
|
Title:
|
Chief Executive Officer
|
B-90
UK PURCHASER:
ENCOMPASS DIGITAL MEDIA LIMITED
Name: Simon Bax
|
|
|
|
Title:
|
Chief Executive Officer
|
B-91
Schedule 1.1(b)
Networks
Brands and Divisions
Included Entities and Business Locations:
1. Ascent Media Network Services, LLC, a California limited
liability company, operating out of the facilities at the
following locations:
|
|
|
|
|
232 and 250 Harbor Drive, Stamford, CT
|
|
|
|
652 Glenbrook Road, Stamford, CT
|
|
|
|
500 square-foot storage area at 652 Glenbrook Road,
Stamford, CT
|
|
|
|
60 Hudson Street, New York, NY
|
|
|
|
90 South 11th Street, Minneapolis, MN
|
|
|
|
545 5th Ave., New York, NY (12th Floor and a portion
of the roof)
|
|
|
|
2901 West Alameda Ave., Burbank, CA (Shared common area on
1st floor and basement, 6th floor, the roof areas for
all dishes and antennae currently located thereon (with the
exception of a CSS Studios,
LLC/Level 3
Post dish), and an additional specified area in the basement, as
well as areas in the associated parking structure for parking
and a generator, battery and the uninterruptible power supply
(aka, the UPS)
|
|
|
|
240 Pegasus Avenue, Northvale, NJ
|
|
|
|
183 Oak Tree Road, Tappan, NY
|
|
|
|
6221 Holly Drive, Lino Lakes, MN
|
|
|
|
23 Research Drive, Stamford, CT
|
|
|
|
2813 West Alameda Avenue, Burbank, CA
|
|
|
|
Antennae farm and bunker (aka, the Earth Station)
located on the area of land straddling 2813 W. Alameda
Avenue, Burbank, CA and 2820 W. Olive Avenue, Burbank,
CA
|
2. Ascent Media Networks Services Europe Limited, a company
organized under the laws of England with its registered office
at 1 Stephen Street, London W1T 1AT (registered number 0226317),
operating out of the facilities at the following locations:
|
|
|
|
|
1 Stephen Street, portion of ground floor, floors 1, 2 and 3,
London, UK
|
|
|
|
Unit 2, Maryland Road, Tongwell, Milton Keynes, UK
|
|
|
|
184-192
Drummond Street, London, UK
|
3. Ascent Media Pte. Ltd. (registration number 199501194K),
a company incorporated in Singapore with its registered address
at 20 Loyang Crescent Singapore 508984, operating out of
facilities at the following locations:
|
|
|
|
|
20 Loyang Crescent, Singapore
|
|
|
|
3 Changi Business Park Vista, Singapore
|
B-92
Schedule 1.1(h)
Excluded
Entities, Brands and Divisions
Excluded Entities:
1. Ascent Media Creative Services, Inc.
2. Syndistro, LLC
3. Javelin Distribution, LLC
4. Company 3, LLC
5. Bobco Productions, LLC
6. Ascent Media Services, LLC
7. Ascent Media Group Limited (UK)
8. Rushes PostProduction Limited (UK)
9. One Post Limited (UK)
10. Co 3 London Limited (fka TVP Group Limited; fka 4MC
Limited; fka The Original Video Dubbing Limited), a company
organized under the laws of England)
11. Method London Limited (fka TVP Multimedia Limited), a
company organized under the laws of England)
12. GMX-The Global Media Exchange, LLC, a Delaware limited
liability company
13. Four Media Company, LLC, a Delaware limited liability
company
14. Liberty Livewire LLC, a Delaware limited liability
company
15. CDP, LLC, a California limited liability company
16. Hyper TV Productions, LLC, a California limited
liability company
17. HyperTV with Livewire, LLC, a Delaware limited
liability company
18. Ascent Media Holdings Limited (fka Liberty Livewire
Limited; fka Four Media Company (UK) Limited), a company
organized under the laws of England
19. Todd-AO, Espana, a California corporation
20. VSC MAL CORP., a Delaware corporation
21. Ascent Media Systems Integration, LLC, a Delaware
limited liability company
22. TGS, LLC, a Virginia limited liability company
23. 103 Todd-AO Estudio S.L., a company organized under the
laws of Spain
24. Rushes Televisión, S.A de C.V., a company
organized under the laws of Mexico
25. Servicios Administrativos de Post Produccion S.A. de
C.V., a company organized under the laws of Mexico
26. Ascent Media (Singapore) Pte. Ltd., a private company
limited by shares organized under the laws of Singapore
27. Ascent Media Holdings Ltd., a company incorporated
under the laws of the Republic of Singapore
28. Ascent Media Limited (fka Todd-AO Europe Holding
Company Limited), a company organized under the laws of England
B-93
29. Ascent Media GP Ltd. (fka Sanderson Vere Crane (Video
Tape Editors) Limited), a company organized under the laws of
England
30. Ascent Media UK Limited Partnership
31. 4MC Limited (fka TVP Group Plc), a company organized
under the laws of England
32. Soho Group Limited, a company organized under the laws
of England
33. Ascent Media 142 Limited (fka Visiontext Limited), a
company organized under the laws of England
34. Todd-AO Filmatic Limited, a company organized under the
laws of England
35. Liberty Livewire Limited (fka Ascent Media Holdings
Limited; fka Tele-Cine Cell Group Limited), a company organized
under the laws of England
36. SVC Television Limited, a company organized under the
laws of England
37. Tele-Cine Limited, a company organized under the laws
of England
38. XTV Limited, a company organized under the laws of
England
39. Todd-AO UK Limited (fka Ascent Media Group Limited; fka
XTV Cell Limited), a company organized under the laws of England
40. Todd-AO Europe Holding Company Limited (fka Ascent
Media Limited; fka TVI Limited), a company organized under the
laws of England
41. TVP Videodubbing Limited, a company organized under the
laws of England
42. R!OT London Limited (fka Television Presentations
Limited), a company organized under the laws of England
43. Ascent Media Systems & Technology Services
Limited (fka A.F. Associates London Limited; fka POP Sound
London Limited; fka TVP Broadcast Limited), a company organized
under the laws of England
44. Soundelux London Limited (fka Ketchup Limited; fka TVP
Doublevision Limited), a company organized under the laws of
England
45. Stream Digital Media Limited, a company organized under
the laws of England
46. The London Switch Limited (fka POP London Limited; fka
TVP Digital Media Limited), a company organized under the laws
of England
47. TVI Limited (fka Ascent Media Limited; fka Audio and
Video Limited), a company organized under the laws of England
48. London Playout Centre Limited (fka Ascent Media Network
Services Europe Limited; fka Ascent Media Network Services
Limited; fka Ascent Networks Europe Limited; fka Vergent
Pictures Limited; fka SVC Communications Limited), a company
organized under the laws of England
49. St. Annes Post Limited (fka Sanderson Vere Crane
(Film Editors) Limited), a company organized under the laws of
England
50. Studio Film and Video Holdings Limited, a company
organized under the laws of England
51. Soho Images Limited, a company organized under the laws
of England
52. Soho 601 Digital Productions Limited (fka One Post
Limited; fka Video Time Limited), a company organized under the
laws of England
Excluded Brands, Divisions and Other:
1. Beast
B-94
2. Beast Chicago
3. Beast Detroit
4. Company 3 / CO3
5. CO3 NY
6. Encore Hollywood
7. GMX
8. Level 3 Post
9. Method
10. Method NY
11. Riot Atlanta
12. Ruby Pictures
13. Method Labs
14. The Foundation
15. Soho Film Lab
16. Ascent 142
17. Digital Media Distribution Center on Hollywood Way,
Burbank, CA and in Northvale, NJ
18. Cinetech
19. Blink Digital
20. DMDC
21. Ascent Syndication
22. FilmCore Distribution Hollywood
23. FilmCore Distribution San Francisco
24. FilmCore Distribution New York
25. Todd-AO
B-95
List of
Omitted Exhibits and Schedules
The following exhibits and schedules to the Purchase and Sale
Agreement, dated December 3, 2010, by and among Ascent
Media Corporation, Four Media Company LLC, Ascent Media Limited,
Ascent Media Holdings Ltd., Ascent Media Network Services, LLC,
Ascent Media Network Services Europe Limited, Ascent Media Pte.
Ltd., Encompass Digital Media, Inc., and Encompass Digital Media
Limited have not been provided herein:
EXHIBITS
|
|
|
Sample Purchase Price Calculation and Closing Statement
|
|
Exhibit A
|
Form of 2901 West Alameda Sublease
|
|
Exhibit B
|
Form of Northvale Lease
|
|
Exhibit C
|
Form of Tappan Lease
|
|
Exhibit D
|
Form of Appurtenant Earth Station Easement Agreement
|
|
Exhibit E
|
Form of 2813 West Alameda Lease
|
|
Exhibit F
|
Form of Declaration for 2813 West Alameda Parcel
|
|
Exhibit G
|
Form of Declaration for 2820 West Olive Parcel
|
|
Exhibit H
|
Form of
In-Gross
Earth Station Easement Agreement
|
|
Exhibit I
|
SCHEDULES
|
|
|
Schedule A
|
|
AMC Entities and Companies Knowledge
|
Schedule 1.1(a)
|
|
Assumed Employee Benefit Plans
|
Schedule 1.1(c)
|
|
Excluded Liabilities
|
Schedule 1.1(d)
|
|
Major Customers
|
Schedule 1.1(e)
|
|
Working Capital Assets and Working Capital Liabilities
|
Schedule 1.1(f)
|
|
2813 West Alameda Parcel
|
Schedule 1.1(g)
|
|
2820 West Olive Parcel
|
Schedule 1.1(i)
|
|
Continuing Commercial Arrangements
|
Schedule 1.1(j)
|
|
23 Research Drive Parcel
|
Schedule 1.1(k)
|
|
UK Company Employees
|
Schedule 1.1(l)
|
|
Services Agreements
|
Schedule 4.19
|
|
Environmental Documents
|
Schedule 6.5(b)
|
|
FCC Licenses
|
Schedule 6.7(c)
|
|
Delivered Books and Records
|
Schedule 6.10(a)(i)
|
|
Disney Contracts
|
Schedule 6.10(a)(ii)
|
|
Sony Contracts
|
Schedule 6.17
|
|
Acquired Assets
|
Schedule 6.18(b)
|
|
Transferred Owned Real Property
|
Schedule 6.18(c)(i)
|
|
2901 West Alameda Premises
|
Schedule 6.18(c)(ii)
|
|
Northvale Premises
|
Schedule 6.18(c)(iii)
|
|
Tappan Premises
|
Schedule 6.20(a)
|
|
Assumed Guarantees
|
Schedule 6.21(a)
|
|
Approved Capital Projects
|
Schedule 6.24(a)
|
|
Microsoft Licenses
|
Schedule 8.1(c)
|
|
Services Employees
|
Schedule 8.1(d)
|
|
Non-Solicit Employees
|
Schedule 9.1(f)
|
|
Consents
|
The undersigned registrant hereby undertakes to furnish
supplementally a copy of any omitted exhibit or schedule to the
Securities and Exchange Commission upon request.
B-96
Annex C
Opinion
of Moelis & Company LLC
November 19,
2010
Board of Directors
Ascent Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Members of the Board of Directors:
You have requested our opinion as to the fairness from a
financial point of view to Ascent Media Corporation (the
Company) of the Consideration (as defined
below) to be received by the Company pursuant to the terms and
subject to the conditions set forth in the Purchase and Sale
Agreement (the Agreement) to be entered into
by the Company, Four Media Company LLC, Ascent Media Network
Services, LLC, Ascent Media Network Services Europe Limited,
Ascent Media Limited, Ascent Media Holdings Ltd, Ascent Media
Pte. Ltd., Encompass Digital Media, Inc. and Encompass Digital
Media Limited. Encompass Digital Media, Inc. and Encompass
Digital Media Limited are referred to herein as the
Acquiror.
As more fully described in the Agreement, the consideration for
the acquisition (the Transaction) of the
Companys content distribution business (the
Business) will be $120.0 million,
consisting of approximately $113.25 million in cash payable
at the times and subject to adjustment as set forth in the
Agreement, and the assumption by the Acquiror of approximately
$6.75 million of liabilities of the Business (such cash
consideration and the assumption of such liabilities being
collectively hereafter referred to as the
Consideration).
We have acted as your financial advisor in connection with the
Transaction and will receive a fee for our services, a
significant portion of which is contingent upon the consummation
of the Transaction. We will also receive a fee upon delivery of
this opinion. In addition, the Company has agreed to indemnify
us for certain liabilities arising out of our engagement. In the
future, we may provide investment banking and other services to
the Company and Acquiror and may receive compensation for the
rendering of such services. In the ordinary course of business,
we, our successors and our affiliates may trade securities of
the Company for our own accounts and the accounts of our
customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion does not address the Companys underlying
business decision to effect the Transaction or the relative
merits of the Transaction as compared to any alternative
business strategies or transactions that might be available to
the Company and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should
vote with respect to the Transaction. At your direction, we have
not been asked to, nor do we, offer any opinion as to the
material terms of the Agreement or the form of the Transaction.
In rendering this opinion, we have assumed, with your consent,
that the final executed form of the Agreement does not differ in
any material respect from the draft that we have examined.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and
financial information relating to the Company that we deemed
relevant; (ii) reviewed certain internal information
relating to the Business, including financial forecasts,
earnings, cash flow, assets, liabilities and prospects of the
Business furnished to us by the Company; (iii) conducted
discussions with members of senior management and
representatives of the Company concerning the matters described
in clauses (i) and (ii) of this paragraph;
(iv) reviewed publicly available financial and stock market
data, including valuation multiples, for certain other companies
in lines of business that we deemed relevant and compared them
with the Business; (v) reviewed a draft of the Agreement,
dated November 17, 2010; (vi) participated in certain
discussions and negotiations among representatives of the
Company and Acquiror and their financial and legal advisors; and
(vii) conducted such other financial studies and analyses
and took into account such other information as we deemed
appropriate.
los angeles
ï
new york
ï
boston
ï
chicago
C-1
In connection with our review, we have not assumed any
responsibility for independent verification of any of the
information supplied to, discussed with, or reviewed by us for
the purpose of this opinion and have, with your consent, relied
on such information being complete and accurate in all material
respects. In addition, at your direction we have not made any
independent evaluation or appraisal of any of the assets or
liabilities (contingent, derivative, off-balance-sheet, or
otherwise) of the Company, nor have we been furnished with any
such evaluation or appraisal. With respect to the forecasted
financial information referred to above, we have assumed, with
your consent, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of the management of the Company as to the future performance of
the Business and that such future financial results will be
achieved at the times and in the amounts projected by
management. We assume no responsibility for and express no view
as to such forecasted financial information or any estimate,
judgment or assumptions on which they were based, and we have
relied upon the assurances of the management of the Company that
they are unaware of any facts that that would make the
information provided to or reviewed by us incomplete or
misleading.
We have undertaken no independent analysis or investigation of
any pending or threatened litigation, possible unasserted claims
or other contingent liabilities (whether or not reserved) to
which the Company or any of its affiliates are a party or may be
subject; and our opinion makes no assumption concerning, and,
therefore, does not consider, the possible assertion of claims,
outcomes or damages arising out of or in connection with any
such matters. In addition, we have not evaluated the solvency of
any party to the Agreement under any state or federal laws or
rules, regulations, guidelines or principles relating to
bankruptcy, insolvency or similar matters.
We have assumed the accuracy of the representations and
warranties of all parties to the Agreement are true and correct,
that each party to the Agreement will perform all of the
covenants and agreements required to be performed by such party,
that the parties will comply with all of the material terms of
the Agreement, that all conditions to the consummation of the
Transaction will be satisfied without waiver thereof, and the
Transaction will be consummated in a timely manner in accordance
with the terms described in the Agreement, without any
modifications or amendments thereto or any adjustment to the
Consideration (through indemnification claims, offset, purchase
price adjustments or otherwise). We have also assumed, upon the
advice of the Company, that all governmental, regulatory and
third party approvals and consents necessary for the
consummation of the Transaction will be obtained without the
imposition of any delay, limitation, restriction, divestiture or
condition that would have an adverse effect on the Business or
the Acquiror or on the expected benefits of the Transaction.
Our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. It should be understood
that subsequent developments may affect this opinion, and we do
not have any obligation to update, revise or reaffirm this
opinion. We do, however, reserve the right to modify our opinion
based upon additional information which may become publicly
available, or which may be provided to or obtained by us, which
suggests in our judgment a material change in the assumptions
upon which our opinion is based, or which otherwise could affect
the conclusions expressed on our opinion.
This opinion is for the use and benefit of the Board of
Directors of the Company in its evaluation of the Transaction
and relates solely to the fairness, from a financial point of
view, as of the date hereof, of the Consideration to be received
by the Company in the Transaction. In addition, you have not
asked us to address, and this opinion does not address, the
fairness to, or any other consideration of, the holders of any
class of securities, creditors or other constituencies of the
Company. This opinion does not in any manner address the
application by the Company of the Consideration, including any
intended use or distribution by the Company thereof to the
Companys stockholders, creditors, management, affiliates,
employees, agents, representatives, advisors or any other
constituency of the Company. Furthermore, our opinion does not
in any manner address the allocation of the Consideration among
the Companys affiliates or subsidiaries for
U.S. federal, state or local, or foreign, tax purposes.
In addition, we do not express any opinion as to the fairness of
the amount or nature of any compensation to be received by any
of the Companys officers, directors or employees, or any
class of such persons, relative to the Consideration. We are
also not expressing any view or opinion with respect to, and
have relied, with the consent of the Company, upon the
assessments of the Companys management regarding legal,
regulatory, accounting, tax or
los angeles
ï
new york
ï
boston
ï
chicago
C-2
similar matters relating to the Company or the Transaction as to
which we understand that the Company obtained such advice as the
Company deemed necessary from qualified professionals. This
opinion was approved by a Moelis & Company LLC
fairness opinion committee.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration to be received by the
Company in the Transaction is fair from a financial point of
view to the Company.
Very truly yours,
MOELIS & COMPANY LLC
los angeles
ï
new york
ï
boston
ï
chicago
C-3
|
|
|
Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas.
|
|
X |
Admission Ticket
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting
methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by
12:00 a.m., New York Time, on February 24, 2011.
|
|
|
|
|
Vote by Internet
Log on to the Internet and go to
www.envisionreports.com/ASCMA
Follow the steps outlined on the secured website. |
|
|
|
|
|
Vote by telephone
Call toll free 1-800-652-VOTE (8683) within the USA,
US territories & Canada any time on a touch tone
telephone. There is NO CHARGE to you for the call.
Follow the instructions provided by the recorded message. |
|
|
|
|
Special Meeting Proxy Card |
|
|
|
|
|
|
|
|
|
6 |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
|
6 |
|
|
A
Proposals The Board of Directors recommends a vote FOR the transaction proposal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
|
1.
|
|
Proposal to approve the sale of 100% of our content distribution business unit to Encompass
Digital Media, Inc. and its wholly-owned subsidiary. |
|
o |
|
o |
|
o |
|
|
|
|
|
|
|
|
|
B Non-Voting
Items |
|
|
|
|
|
|
Change of Address
Please print your new address below.
|
|
Comments Please print your comments below. |
|
Meeting Attendance |
|
|
|
|
|
|
|
|
Mark the box to the right
if you plan to attend the Special Meeting.
|
o |
C
Authorized Signatures This section must be completed for
your vote to be counted. Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give
full title.
|
|
|
|
|
Date (mm/dd/yyyy) Please print date below.
|
|
Signature 1 Please keep signature within the box.
|
|
Signature 2 Please keep signature within the box. |
|
|
|
/ / |
|
|
|
|
Special Meeting Admission Ticket
Special Meeting of
Ascent Media Corporation Stockholders
Thursday, February 24, 2011, 10:00 a.m.
The Fairmont Miramar Hotel
101 Wilshire Blvd., Santa Monica, CA
Upon arrival, please present this admission ticket
and photo identification at the registration desk.
DRIVING DIRECTIONS
From Los Angeles International Airport (LAX) via Freeways:
|
|
Head east on Century Blvd. |
|
|
|
Take the 405 San Diego Freeway North. |
|
|
|
Transfer to the 10 Santa Monica Freeway West. |
|
|
|
Exit at Fourth Street, turn right (heading North) on Fourth. |
|
|
|
Make a left turn on Wilshire Boulevard, heading west. |
|
|
|
Pass Second Street, the hotel will be on the right-hand side. |
From Los
Angeles International Airport (LAX) via Surface Streets:
|
|
Head North on Sepulveda Blvd. (#1). |
|
|
|
Bear left, the left 2 lanes will become Lincoln Blvd. (#1) North. |
|
|
|
Proceed North on Lincoln Blvd. through Marina Del Rey for about 7 miles. |
|
|
|
Make a left turn on Wilshire Blvd. heading West for approximately 7 blocks. |
|
|
|
Pass Second Street, the hotel will be on the right-hand side. |
|
|
|
|
|
|
6 |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
|
6 |
|
|
|
|
|
|
Proxy Ascent Media Corporation |
|
|
|
Notice of Special Meeting of Stockholders
Proxy Solicited by Board of Directors for Special Meeting February 24, 2011
The undersigned appoints William E. Niles and George C. Platisa and each of them, with power
to act without the other and with the right of substitution in each, the proxies of the undersigned
to vote all shares of Ascent Media Corporation Series A Common Stock and Ascent Media Corporation
Series B Common Stock held by the undersigned at the Special Meeting of Stockholders to be held on
February 24, 2011, and at any adjournments thereof, with all the powers the undersigned would
possess if present in person. All previous proxies given with respect to the meeting are revoked.
IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR THE TRANSACTION PROPOSAL. IN THE EVENT THAT
ANY OTHER MATTER MAY PROPERLY COME BEFORE THE SPECIAL MEETING, OR ANY ADJOURNMENT THEREOF, THE
PERSONS SET FORTH ABOVE ARE AUTHORIZED, AT THEIR DISCRETION, TO VOTE THE MATTER.
PLEASE SIGN ON THE OTHER SIDE AND RETURN PROMPTLY TO ASCENT MEDIA CORPORATION, C/O COMPUTERSHARE,
P.O. BOX 43101, PROVIDENCE, RI, 02940-0567. IF YOU DO NOT VOTE BY TELEPHONE OR INTERNET, OR SIGN
AND RETURN A PROXY CARD, OR ATTEND THE SPECIAL MEETING AND VOTE BY BALLOT, YOUR SHARES CANNOT BE
VOTED.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)