prer14a
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. 1)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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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):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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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): |
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Proposed maximum aggregate value of transaction: $113,250,000 |
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Total fee paid: $8,075 |
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Fee paid previously with preliminary materials. |
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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. |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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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. |
Information in this proxy statement is not complete and may be changed.
This proxy statement does not constitute an offer to sell or a solicitation of an offer to buy any securities.
Subject to completion, dated [___________], 2010
[insert appropriate logo]
ASCENT MEDIA CORPORATION
12300 Liberty Boulevard
Englewood, Colorado 80112
(720) 875-5622
Dear Stockholder:
[_______], 2010
We cordially invite you to attend a special meeting of the stockholders of Ascent Media
Corporation (the Company), which will be held at [____] a.m., local time, on [______], 2011 at the
[______________], telephone [(___) __-____].
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
November 24, 2010, we separately announced the 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
$70,000,000 in cash, subject to
adjustments for indebtedness, net working capital and certain transaction expenses. The
Creative/Media transaction is expected to close by the end of December 2010.
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
is 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, 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 and Chief Executive Officer
This proxy statement is dated [_______], 2010 and is first being mailed to stockholders on or
about [_______], 2010 to the stockholders of record as of 5:00 p.m., New York City time, on
[______], 2010.
ASCENT MEDIA CORPORATION
12300 Liberty Boulevard
Englewood, Colorado 80112
(720) 875-5622
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be Held on [_________], 2011
NOTICE IS HEREBY GIVEN of the special meeting of stockholders of Ascent Media Corporation (the
Company) to be held at [____] a.m., local time, on [______], 2011 at the [______________],
telephone [(___) __-____], to consider and vote on the following proposal:
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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 [_______], 2010, 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, 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
[_____], 2010
Please execute and return the enclosed proxy promptly, whether or not you intend to be present at
the special meeting.
i
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 [________], 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.
iii
Table of Contents
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ANNEXES
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v
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 ProposalRisk Factors and
Acquisition of Monitronics.
Prior to the acquisition of Monitronics and the proposed 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 Networks 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,
which is currently owned and operated by AMG and its direct and indirect subsidiaries. Prior to
the Content Distribution transaction, we will restructure our subsidiaries and assets so that at
closing our Content Distribution business is owned and operated entirely by three indirect
wholly-owned subsidiaries of the Company:
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Ascent Media Network Services, LLC (the US Company), which will own the assets and
operations of Content Distribution in the United States; |
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Ascent Media Networks Services Europe Limited (the UK Company), which will own the
assets and operations of Content Distribution in the United Kingdom; and |
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Ascent Media Pte. Ltd. (the Singapore Company), which will own the assets and operations
of Content Distribution in the Republic of Singapore. |
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:
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Four Media Company LLC (4MC), is an intermediate holding company and a direct wholly
owned subsidiary of our company. At the closing of the Content Distribution transaction,
4MC will own 100% of the US Company. |
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Ascent Media Limited (AML), is an intermediate holding company and an indirect wholly
owned subsidiary of our company. At the closing of the Content Distribution transaction,
AML will own 100% of the UK Company. |
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Ascent Media Holdings Ltd. (AMHL), is an intermediate holding company and an indirect
wholly-owned subsidiary of our company. At the closing of the Content Distribution
transaction, AMHL will own 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 42)
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:
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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 |
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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. |
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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
shortly after the special meeting.
Reasons
for the Content Distribution Transaction (Page 22)
In reaching its decision to approve and recommend the Content Distribution transaction, your
board considered various factors, including, but not limited to:
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the trading history of the Companys Series A common stock on The NASDAQ Global
Select Market; |
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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; |
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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; |
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the receipt of the opinion of Moelis & Company LLC (Moelis), which is described
under the heading Opinion of our Financial Advisor; and |
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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 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 25)
After careful consideration, your board of directors unanimously:
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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; |
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approved the Content Distribution transaction; and |
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recommends that you vote FOR the transaction proposal. |
Opinion
of Our Financial Advisor (Page 26)
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
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the Company upon Moelis with respect to the investigations made or procedures followed by it
in rendering its opinion. See The Transaction ProposalOpinion of Financial Advisor.
Proceeds
from the Content Distribution Transaction (Page 32)
We expect to use the entire net proceeds from the Content Distribution transaction
for general corporate purposes which may include potential acquisitions.
See The CompanyAcquisition 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.
Upon consummation of the Content Distribution transaction and assuming the prior closing of
the Creative/Media 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:
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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;
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we will be highly dependent on the management of Monitronics to operate the Monitronics business; |
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the Monitronics business is highly leveraged, and we may not be successful in refinancing Monitronicss debt when it comes due; |
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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; |
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the Content Distribution transaction may not be completed if the conditions to
closing are not satisfied or waived; and |
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the Creative/Media transaction may not be completed if the conditions to closing are
not satisfied or waived. |
Please see The Transaction ProposalRisk 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
4
The Purchase Agreement
Purchase
Price (Page 43)
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 44)
In addition to the Purchase Price, at the closing, Encompass will assume certain liabilities
and obligations of AMG and its subsidiaries 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.
No
Solicitation, Superior Proposal; Termination Fee (Page 48)
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:
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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; |
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the requisite regulatory approvals shall have been obtained; and |
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specified third-party consents shall have been obtained. |
Termination
of the Purchase Agreement (Page 51)
The Purchase Agreement may be terminated, either before or after approval of the Content
Distribution transaction by our stockholders, under certain circumstances including:
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by mutual written consent of us and Encompass US; and |
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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; |
5
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by us, if our board of directors has determined, in good faith, that a competing
proposal is a superior proposal, subject to certain conditions; |
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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 52)
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.
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.
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.
The timing or outcome of the FCC approval process cannot be predicted. The Company and Encompass
submitted a joint application 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 closing of the Content
Distribution transaction. The Company and Encompass will submit a joint application with the IDA.
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.
We are to receive a purchase price of $70,000,000, in cash, subject to adjustments for
indebtedness, net working capital and any transaction expenses relating to the sale transaction
required to be paid after closing by the entities being sold.
6
The Creative/Media transaction does not require stockholder approval and will not be voted on
at the special meeting. We currently expect the Creative/Media transaction to close on or about
December 31, 2010. Any net proceeds from the Creative/Media transaction will be used for general corporate purposes, which may include potential acquisitions. The principal terms and conditions of the Creative/Media transaction are
described 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 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 effect our acquisition of Monitronics, together
with the effect 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.
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Q:
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Why am I receiving this proxy statement and proxy card? |
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A:
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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. |
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Q:
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Who is soliciting my proxy? |
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A:
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Our board of directors is soliciting your proxy for use at the special meeting. |
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Q:
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What proposals will be voted on at the special meeting? |
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A:
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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. |
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Q:
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Why are we asking for stockholder approval for the sale of the content distribution business unit? |
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A:
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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. |
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Q:
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Will there be a stockholder vote regarding the sale of the creative services and media
management services business units? |
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A:
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No. 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 Deluxe UK Holdings Limited is a separate and independent transaction, and we do
not currently intend to submit the Creative/Media transaction to a stockholder vote. The
Content Distribution transaction is not conditioned on the closing of the Creative/Media
transaction. |
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Q:
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Will there be a stockholder vote regarding the acquisition of Monitronics? |
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A:
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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.
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Q:
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Will any of the proceeds from the Content Distribution transaction be distributed to me as
a stockholder? |
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A:
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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. |
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Q:
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Does the Company intend to effect any other acquisition transactions? |
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A:
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Although the Company does not have any current plan or intention with respect to any other acquisition
transation, 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 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 ProposalRisk Factors, below.
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8
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Q:
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Will the Companys common stock still be publicly traded if the Content Distribution transaction is completed? |
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A:
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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. |
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Q:
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How does the board of directors recommend that I vote? |
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A:
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Your board of directors unanimously recommends that you vote FOR the transaction proposal. |
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Q:
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What stockholder vote is required to approve the proposal? |
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A:
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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. |
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Q:
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How many votes do stockholders have? |
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A:
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At the special meeting: |
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holders of Series A common stock have one vote per share; and |
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holders of Series B common stock have ten votes per share. |
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A stockholder is only entitled to vote any shares owned as of the record date at the special meeting. |
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Q:
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What do I need to do to vote on the transaction proposal? |
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A:
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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. |
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Q:
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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? |
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A:
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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. |
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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. |
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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. |
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Q:
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What if I do not vote on the transaction proposal? |
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A:
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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. |
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Q:
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What if I respond and indicate that I am abstaining from voting? |
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A:
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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. |
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Q:
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May I change my vote after returning a proxy card or voting by telephone or over the Internet? |
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A:
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Yes. Before the start of the special meeting, you may change your vote on the transaction proposal
by telephone or over the Internet (if you originally voted by telephone or over the Internet), by
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 _________________________]. |
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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. |
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Q:
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What if a quorum is not present at the special meeting? |
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A:
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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 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. |
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Q:
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Who will bear the cost of this solicitation? |
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A:
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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. |
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Q:
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Will I be entitled to appraisal rights if I oppose the Content Distribution transaction? |
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A:
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No. You will not be entitled to appraisal or dissenters rights in connection with the Content
Distribution transaction. |
10
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Q:
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What do I do if I have additional questions? |
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A:
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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 Investor Relations at
(720) 875-5622. |
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.
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December 31, |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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amounts in thousands |
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Summary Balance Sheet Data: |
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Current assets |
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$ |
416,891 |
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|
490,042 |
|
|
|
362,725 |
|
|
|
316,381 |
|
|
|
385,868 |
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Property and Equipment, net |
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$ |
185,891 |
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|
|
211,846 |
|
|
|
241,834 |
|
|
|
251,670 |
|
|
|
230,742 |
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Total assets |
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$ |
682,483 |
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|
|
745,304 |
|
|
|
830,986 |
|
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|
952,919 |
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|
996,627 |
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Current liabilities |
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$ |
70,872 |
|
|
|
91,202 |
|
|
|
119,600 |
|
|
|
114,229 |
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|
|
84,783 |
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Stockholders equity |
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$ |
582,596 |
|
|
|
625,310 |
|
|
|
686,896 |
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|
|
814,696 |
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|
|
890,029 |
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Years ended December 31, |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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amounts in thousands, |
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except per share amounts |
Summary Statement of Operations Data: |
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Net revenue |
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$ |
453,681 |
|
|
|
581,625 |
|
|
|
570,731 |
|
|
|
553,326 |
|
|
|
585,049 |
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Operating income (loss) (a) (c) |
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$ |
(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 |
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Basic and diluted earnings (loss) per common
share (b) |
|
$ |
(3.76 |
) |
|
|
(4.60 |
) |
|
|
(9.41 |
) |
|
|
(5.90 |
) |
|
|
0.64 |
|
|
|
|
(a) |
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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. |
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(b) |
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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. |
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(c) |
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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.
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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, market potential, our business and acquisition strategy of divesting of our current
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 Creative/Media
transaction and the expected closing dates therefor, and other matters. In particular,
statements under Summary, The Transaction Proposal, 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:
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the occurrence of any event, change or other circumstance that could give rise to
the termination of the Purchase Agreement; |
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the outcome of any legal proceedings that may be instituted against the Company,
Encompass and others relating to the Purchase Agreement; |
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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; |
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the failure of the Content Distribution transaction to close for any other reason; |
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any inability to complete the Creative/Media transaction due to the failure to satisfy
conditions set forth in the Deluxe Purchase Agreement, or any other reason, by the expected closing date or at all; |
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business risks and uncertainties inherent in the development of new business lines
and business strategies; |
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business risks and uncertainties inherent in the integration of
Monitronics and any other
acquired businesses; |
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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; |
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the significant degree of financial leverage contemplated by the Monitronics business Model; |
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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; |
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general economic and business conditions and industry trends; |
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the regulatory environment of the industries in which we, and the
entities in which we have interests, operate; |
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retention of our largest customer
and dealer
accounts; |
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uncertainties associated with product and service development and market acceptance; |
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rapid technological changes; |
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present and future financial performance, including availability and terms of
capital; |
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fluctuations in foreign currency exchange rates; |
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political unrest in international markets; |
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the ability of suppliers and vendors to deliver products, equipment, software and
services; |
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the outcome of any pending or threatened litigation; |
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availability of qualified personnel; |
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changes in, or failure or inability to comply with, government regulations,
including, without limitation, regulations of the FCC, and adverse outcomes from
regulatory proceedings; |
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changes in the nature of key strategic relationships with partners and joint
venturers; |
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competitor and overall market response to our products and services including
acceptance of the pricing of such products and services; |
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threatened terrorists attacks and ongoing military action in the Middle East and
other parts of the world; and |
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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 ProposalRisk 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 [_____], local time, on [_____],
2011, at [_____________], telephone [(___) ___-____].
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
announced 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 NameEffect 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 our shares outstanding and entitled to vote,
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.
As of the record date for the special meeting, our directors and executive officers
beneficially owned approximately [___] % of the total voting power of the outstanding shares of
Series A common stock and approximately [____] % of the total voting power of the outstanding
shares of Series B common stock, for a total
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aggregate voting power of [____]%. 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 [_____], 2010, the record date for the
special meeting, may vote on the transaction proposal at the special
meeting or at any adjournment or postponement 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:
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holders of shares of Series A common stock will have one vote per share; and |
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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 [______], 2010, the record date for the special meeting, an aggregate of
[______________] shares of Series A common stock and [__________] 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 [________] record
holders of Series A common stock and approximately [________] 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.
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.
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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 _________________________]. 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
[____], New York City time, on [_______], 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 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.
Business and Acquisition 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 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:
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financial characteristics, including recurring revenue streams and free cash
flow; |
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growth potential; and |
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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 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 ProposalRisk Factors, below.
AMG Content and Creative Services
Our wholly-owned subsidiary AMG is currently engaged primarily in the business of providing
content and creative services to the media and entertainment industries. AMG provides 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.
AMG provides 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. AMG also provides solutions for the management and distribution of content to
multichannel video programming distributors such as cable operators and IPTV providers. Services
are marketed to target industry segments through AMGs internal sales force and may be sold on a
bundled or individual basis.
The businesses of AMG are currently organized into two operating segments: businesses that
provide content management and delivery services, which we refer to as Content Services, and
businesses that provide creative services, which we refer to as Creative Services. The Content
Services segment is 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.
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Recent Developments The Creative/Media transaction
In furtherance of our business and acquisition 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 for $70,000,000, in cash, subject to adjustments for indebtedness,
net working capital and any transaction expenses relating to the Creative/Media transaction
required to be paid after closing by the entities being sold. We refer to this transaction as the
Creative/Media transaction. In connection with the Creative/Media transaction, we have agreed to
effect an internal reorganization, so that prior to the closing of that transaction: (i) AMG will own 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) will own the assets and
operations of Creative Services and Media Services in the United Kingdom, and (iii) AMG and AMGL
will 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. Upon the consummation of the Creative/Media transaction, the Creative/Media Group
Entities will become wholly-owned subsidiaries of Deluxe. As a result of the internal
reorganization described above, the Content Distribution and Systems Integration units previously
held by AMG and its subsidiaries will be held by us through subsidiaries other than AMG.
The Creative/Media transaction does not require stockholder approval and will not be voted on
at the special meeting. We currently expect the Creative/Media transaction to close on or about
December 31, 2010. The sale of Content Distribution pursuant to the Purchase Agreement is not
conditioned on the closing of the Creative/Media transaction. Any 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.
The principal terms and conditions of the Creative/Media transaction are described 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:
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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 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. |
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Transport and connectivity. Content Distribution operates satellite earth station
facilities in Singapore, California, New York, New Jersey, Minnesota and Connecticut.
Content Distribution facilities are |
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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 provides 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 include the following:
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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; |
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Assembly, formatting and master creation and duplication; |
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Transferring film to video or digital media masters; |
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Professional duplication and standards conversion; |
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Advertising distribution; |
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Syndicated television distribution; |
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Restoration, preservation and asset protection of existing and damaged content; |
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DVD compression and authoring and menu design; and |
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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. |
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 is to be sold to Deluxe as part of the Creative/Media
transaction. See The Creative/Media Transaction below.
Creative Services
AMGs Creative Services group provides various technical and creative services necessary to
complete principal photography into final products, such as television commercials, internet and
new media advertising,
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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 markets 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
comprises 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 are 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 include the following:
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Creative editorial services, tools and talent required through all stages of the
finishing process necessary for creation and distribution of completed advertising
content; |
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Color correction for the development of a creative look and feel for media content
utilizing creative colorizing techniques, equipment and processes; |
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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; |
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Visual effects to create images that cannot be created physically through a more
cost-effective means; and |
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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 is to be 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 provides for the sale of 100% of our
Creative Services and Media 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 intend to pay a cash dividend or make any other distribution with respect to its cash and
marketable securities to its stockholders at this time.
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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:
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the trading history of the Companys Series A common stock on The NASDAQ Global
Select Market; |
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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; |
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the substantial ongoing capital commitments that would be required to maintain and
grow the operations of the Content Distribution business; |
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the dependence of the Content Distribution business on the media, entertainment and
advertising industries, and the relative volatility of such industries; |
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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; |
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the receipt of the opinion of Moelis & Company LLC described below, under the
heading Opinion of our Financial Advisor; |
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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 |
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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.
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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 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.
23
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 such
revised offer, which the Company considered superior to available alternatives for the Content
Distribution business, 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 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
24
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, 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.
The Content Distribution transaction and the Creative/Media transaction are separate
transactions, independently approved by our board of directors, and neither transaction is
conditioned upon the other.
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.
25
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:
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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; |
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(b) |
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identifying and evaluating transaction candidates for a potential strategic
transaction involving AMG; |
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(c) |
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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; |
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(d) |
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assisting the Companys preparation of a marketing plan and a confidential
information memorandum, or CIM, to be distributed to potential acquirors; |
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assisting the Company in developing a strategy to effect potential
transactions; |
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(f) |
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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 |
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(g) |
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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.
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
26
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 do 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:
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the accuracy of the representations and warranties of all parties to the Purchase
Agreement; |
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that each party to the Purchase Agreement will perform all of the covenants and
agreements required to be performed by such party; |
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that the parties will comply with all of the material terms of the Purchase Agreement; |
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that all conditions to the consummation of the Content Distribution transaction will be
satisfied without waiver thereof; and |
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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:
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reviewed certain publicly available business and financial information relating to the
Company that it deemed relevant; |
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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; |
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conducted discussions with members of senior management and representatives of the
Company concerning the matters described above; |
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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; |
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reviewed a draft of the purchase and sale agreement, dated November 17, 2010; |
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participated in certain discussions and negotiations among representatives of the
Company and Encompass and their financial and legal advisors; and |
27
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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 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 have 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 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.
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
28
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, 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:
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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; |
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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; |
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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 |
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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.
29
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 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:
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Loral Space and Communications, Inc.; |
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Hughes Communications, Inc.; and |
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RRS at Global Communications Network Ltd. |
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For each of the companies identified above, Moelis calculated various valuation multiples, including: |
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the ratio of enterprise value to projected revenue for calendar year 2010; |
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the ratio of enterprise value to projected revenue for calendar year 2011; |
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the ratio of enterprise value to projected EBITDA for calendar year 2010; and |
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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
30
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
the selected company, and the implied multiples for the Content Distribution business unit in
the Content Distribution transaction:
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Content |
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Range of All |
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Mean of All |
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Median of All |
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Selected |
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Distribution |
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Companies |
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Companies |
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Companies |
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Company |
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business unit |
Enterprise
Value/CY10E Revenue |
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0.9x 2.6x |
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1.6x |
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1.4x |
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0.9x |
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1.1x |
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Enterprise
Value/CY10E Revenue |
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0.8x 2.5x |
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1.5x |
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1.3x |
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0.8x |
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1.1x |
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Enterprise
Value/CY10E EBITDA |
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4.1x 7.4x |
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5.9x |
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6.2x |
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4.1x |
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6.2x |
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Enterprise
Value/CY10 EBITDA |
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3.6x 7.0x |
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5.2x |
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5.1x |
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3.6x |
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5.0x |
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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.
31
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 if such transaction is completed. In addition, the Company has agreed to reimburse Moelis
for certain expenses and to indemnify Moelis for certain liabilities arising out of its engagement.
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 $650,000, representing the retainer fee, an opinion fee with respect to the opinion
regarding the Content Distribution transaction (which is described above), and an opinion fee with
respect to the opinion regarding the Creative/Media transaction (which was separately delivered by
Moelis to the board of directors of the Company on or about November 19, 2010). If the
Creative/Media transaction is consummated, the aggregate transaction fee payable to Moelis in
connection with the Creative/Media transaction is expected to be $1,000,000, less the $400,000
previously paid to Moelis pursuant to the retainer fee and the opinion fee for the Creative/Media
transaction. If the Content Distribution transaction is consummated, the aggregate transaction fee
payable to Moelis in connection with the Content Distribution transaction is expected to be
$1,375,000, less the $250,000 previously paid to Moelis pursuant to the opinion fee for the Content
Distribution transaction. 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 AgreementConditions to the Transaction. We currently plan to complete
the Content Distribution transaction as soon as possible following the special meeting, 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. See The CompanyAcquisition Strategy, above.
32
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.
The Company does not intend to distribute to its stockholders any of the net proceeds from the
Content Distribution transaction at this time.
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 will effect 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 will own the assets and operations of Content
Distribution in the United States; Ascent Media Networks Services Europe Limited (the UK Company),
which will own the assets and operations of Content Distribution in the United Kingdom; and 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.
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 and assuming the prior closing of
the Creative/Media 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.
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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 complimentary services including:
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Occasional satellite and fiber transmission and mobile satellite services; |
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Disaster recovery services; |
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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 |
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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.
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, 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
34
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, and
Encompass US and certain of their wholly-owned subsidiaries have agreed to enter into nine separate
services agreements, pursuant to which the parties agree to exchange specified services and
benefits, including:
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technical and information technology assistance (including
with respect to content preparation and management information
systems, computer, data storage network and telecommunications
services); |
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e-mail and data extraction services for the transition to new independent
technological systems; |
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routine information technology support services; |
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hierarchical storage management, content preparation, encoding, transcoding and
electronic delivery services; |
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continuation of global interconnect and metro fiber, syndication and video on demand services; |
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permission to contact a certain customer to assist the transition to new facilities; |
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financial services to close the books of the Company; |
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storage services and access to certain elements stored in the Content Distribution
business facilities; |
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the lease of certain office equipment; and |
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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, while others would take effect in connection with
the closings under the Purchase Agreement and/or the divestiture of
our Creative/Media business.
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
35
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 current operations of AMG, 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
36
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 a
definitive agreement with respect to such transaction on mutually
acceptable terms acceptable purchase agreement with one or more
target companies 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 losses, 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 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 AgreementPurchase 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.
37
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.
Failure
to complete the Creative/Media transaction could cause our stock
price to decline.
The
failure to complete the Creative/Media transaction may create doubt
as to the value of our Creative/Media 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 transaction are the same as
that of the other holders of our common stock. See Security Ownership of Certain Beneficial
Owners and ManagementSecurity 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
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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; |
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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; |
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pro forma compliance with certain leverage ratios; |
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solvency of Encompass US and each of the guarantors under each such facility; |
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execution of documentation, including an intercreditor agreement, reasonably
satisfactory to the lenders under the New Credit Facility and the Existing Lenders; and |
38
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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, 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.
39
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.
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
40
Encompass filed a Notification and Report Form for Certain Mergers and Acquisitions in
connection with the Content Distribution transaction with the DOJ and FTC. The Creative/Media
transaction is not subject to the notification and waiting period requirements of the HSR Act,
because the aggregate consideration to be 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. The timing or outcome of the FCC approval process cannot be
predicted. The Company and Encompass submitted a joint application with the FCC on December 3,
2010.
The Creative/Media transaction is 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 closing of the Content Distribution transaction. The
Company and Encompass will submit
a joint application with the IDA.
The Creative/Media transaction is not subject to IDA approval.
41
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 InformationWhere 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:
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Ascent Media Network Services, LLC (the US Company), which will own the assets and
operations of Content Distribution in the United States; |
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Ascent Media Networks Services Europe Limited (the UK Company), which will own the
assets and operations of Content Distribution in the United Kingdom; and
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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:
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Encompass US will purchase 100% of the outstanding ownership interests in the US
Company; |
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Encompass UK will purchase 100% of the outstanding shares of the UK Company; and |
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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 any deferred revenue (both current
and long-term) associated with cash received from customers, including deposits and upfront
payments. 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. If at the Closing Date, the amount paid in cash by us for such capital projects is less than
such projected amount, 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 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.
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.
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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. Promptly 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 closing, Encompass will assume certain
liabilities and obligations of AMG and its subsidiaries 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.
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:
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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; |
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the waiting period under the HSR Act and any extension thereof shall have expired or
been terminated; |
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required approvals from the FCC and IDA shall have been obtained;
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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; |
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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 |
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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:
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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; |
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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; |
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our Company and its subsidiaries shall have performed in all material respects their
agreements and covenants under the Purchase Agreement; |
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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;
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the Company Group Reorganization shall have been consummated and written proof
thereof shall have been delivered to Encompass; |
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the FCC approvals shall have become final, or no third-party shall have made any
filing associated with the applications; and |
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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:
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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; |
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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; |
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Encompass shall have performed in all material respects their
agreements and covenants under the Purchase Agreement; and |
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delivery of requisite items by Encompass to us pursuant to the Purchase Agreement,
including executed copies of certain real property leases and a
sublease.
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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:
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due organization, valid existence, good standing and other corporate matters; |
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authorization, execution, delivery and enforceability of the Purchase Agreement and
ancillary agreements; |
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conflicts or violations under organizational documents, contracts or law; |
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pending material litigation or outstanding material orders against our Company or
certain subsidiaries; |
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sufficiency of our title to the interests of the Content Distribution Group
Entities; |
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solvency of our Company and certain subsidiaries; |
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governmental permits and licenses; |
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material compliance with applicable laws; |
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capitalization and corporate structure of the Content Distribution business; |
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financial statements; |
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absence of undisclosed liabilities; |
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absence of certain material changes or events; |
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material pending or threatened claims or orders related to the Content Distribution
Group Entities or initiated by any of the Content Distribution Group Entities; |
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related party transactions between the Company and our affiliates or their
respective representatives; |
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employees and employment matters relating to the Content Distribution business; |
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matters relating to employee benefits applicable to us; |
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taxes; |
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intellectual property matters; |
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leased and owned real property; |
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material contracts and leases; |
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material insurance policies; |
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environmental matters; |
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status of the Companys business relationships with certain customers and suppliers,
including the status of certain material contracts;
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condition of tangible property used to conduct the Content Distribution business; |
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sufficiency of properties and assets used to conduct the Content Distribution
business; |
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validity of accounts receivable relating to the Content Distribution business,
subject to reserves and the adequacy of these reserves in
accordance with GAAP; |
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the preparation of any proxy statement related to the Content Distribution
transaction; |
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brokerage or finders fees with respect to the Content Distribution transaction; |
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absence of certain indebtedness, and absence of certain expenses relating to the
Content Distribution transaction; |
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completion of the Company Group Reorganization; and |
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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:
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due organization, valid existence and good standing and other corporate matters; |
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authorization, execution, delivery an enforceability of the Purchase Agreement and
ancillary agreements; |
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conflicts or violations under organizational documents, contracts or law; |
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pending or threatened material litigation or outstanding material orders; |
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no financing contingency; |
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solvency; and |
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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:
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amend its organizational documents; |
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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; |
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declare, set aside, or pay dividends or other distributions; |
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sell, assign, transfer, lease or otherwise dispose of material assets or properties
of the Content Distribution Group Entities or the Content Distribution business;
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acquire or agree to acquire any business of any other person; |
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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); |
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subject any material asset of the Content Distribution Group Entities to a
non-permitted lien; |
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make any material change to any accounting method or practice; |
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enter into or modify any related party agreement; |
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enter into, modify or terminate any material contract or leases (other than as
permitted in accordance with the Purchase Agreement); |
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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); |
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enter into, modify or terminate any employee benefit plan; |
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enter into, modify or terminate any collective bargaining agreement or otherwise make any
commitment or incur any liability to any labor organization; |
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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; |
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discount any receivables outside the ordinary course of business; |
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settle any claim that would impose continuing obligations on any Content
Distribution Group Entity; |
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hire new employees above a certain pay grade; or |
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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:
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solicit, initiate or encourage any competing proposal (as defined below);
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participate in any negotiations or discussions regarding any competing proposal; |
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furnish any nonpublic information with respect to any competing proposal; |
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approve or recommend any competing proposal; or |
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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:
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participate in any negotiations or discussions regarding such competing proposal; or |
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furnish any nonpublic information with respect to such competing proposal. |
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:
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obtaining necessary consents and approval from governmental authorities or other
persons; |
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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
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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.
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 possible after the closing of the Content Distribution transaction,
Encompass and the Company will arrange for the transfer of accounts for participating
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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 AgreementTax Matters above.
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 AgreementTax 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:
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by mutual written consent of us and Encompass; |
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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
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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);
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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; |
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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, or (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. |
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Termination Fees
The Company must pay to Purchasers a termination fee of $4,530,000 in cash if any of the
following occurs:
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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; |
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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 |
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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, 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
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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.
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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.
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State of incorporation:
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Delaware |
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Principal Offices:
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1377 North Serrano Avenue |
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Hollywood, CA 90027 |
Creative/Media Transaction
We have agreed to sell Creative Services and Media Services to Deluxe. The terms and
conditions of this transaction are 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 will restructure certain of our
subsidiaries and assets so that the Creative/Media business is owned and operated entirely by the
entities to be purchased by Deluxe. Giving effect to such internal reorganization: (i) AMG will
own the assets and operations of the Creative/Media business in the United States, (ii) AMGL will
own the assets and operations of the Creative/Media business in the United Kingdom, and (iii) AMG
and AMGL will not hold any assets or operations other than those included in the Creative/Media
business.
At the closing of the Creative/Media transaction:
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Deluxe US will purchase 100% of the outstanding ownership interests in AMG; and |
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Deluxe UK will purchase 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. Pursuant to the Deluxe purchase
agreement, 79% of the aggregate purchase price in the Creative/Media transaction is allocable to
the ownership interests of AMG, and 21% of such aggregate purchase price is allocable to the shares
of AMGL.
Purchase Price
The aggregate purchase price to be paid by Deluxe and its subsidiary in the Creative/Media
transaction, which we refer to as the Creative/Media purchase
price, is $70,000,000, subject to the
following adjustments:
Net Closing Indebtedness
The Deluxe purchase agreement defines net closing indebtedness as consolidated indebtedness
less cash. Indebtedness for this purpose excludes obligations under an existing earnout agreement
relating to AMGs 2009 acquisition of Beast (an editing facility now part of Creative Services).
Pursuant to the Deluxe purchase agreement, the Creative/Media purchase price will be reduced by the
net closing indebtedness of AMG and AMGL at the closing date. The Company expects that, at
December 31, 2010, AMG and AMGL will have no indebtedness other than an existing capital lease
obligation of $1,885,000.
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Net Working Capital
The
Deluxe purchase agreement defines target working capital as $38,165,000. If at the
closing date, the net working capital of the Creative/Media business (as defined and calculated
pursuant to the Deluxe purchase agreement) exceeds target working capital, the Creative/Media
purchase price will be increased by such excess, up to a maximum positive adjustment of $3,000,000.
If such net working capital is less than target working capital, the Creative/Media purchase price
will be reduced by such deficit. There is no limit to the potential downward adjustment of the
Creative/Media purchase price resulting from the net working capital adjustment.
Company Transaction Expenses
The Deluxe purchase agreement defines company transaction expenses as all expenses incurred by
or for AMG or AMGL in connection with the Creative/Media transaction, to the extent not paid prior to the closing of the Creative/Media transaction. The Creative/Media purchase price
will be reduced by the amount of company transaction expenses outstanding at the closing date. The
Company intends to bear all expenses of the Company and its subsidiaries in connection with the
Creative/Media transaction, and accordingly does not expect the Creative/Media purchase price to be
reduced by any significant amount as a result of the purchase price adjustment for company
transaction expenses.
Estimated Purchase Price and Post-Closing Adjustment
At least two business days prior to the anticipated closing date, we will provide Deluxe with
a statement setting forth our good faith estimate of the Creative/Media purchase price, taking into
account the adjustments described above. The Deluxe purchase agreement provides that, on the
closing date for the Creative/Media transaction, Deluxe and its subsidiary shall pay 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 such estimated purchase price exceeds such final purchase price.
Closing
The closings of the Creative/Media transaction under the Deluxe Purchase Agreement will occur
on the second business day (or such other date mutually agreed in writing) following the
satisfaction or waiver of all conditions to the obligations of the parties to consummate the
Creative/Media Transaction, and is currently expected to occur on or about December 31, 2010.
Conditions to the Transaction
Conditions to Each Partys Obligations
Each partys obligation to consummate the Creative/Media transaction is subject to the
satisfaction or waiver of the following conditions:
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the assignment, transfer or bifurcation of certain real property leases; and |
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no governmental law or order shall be in force that makes the Creative/Media
transaction illegal or otherwise prohibits the Creative/Media transaction. |
Conditions to Deluxes Obligations
The obligation of Deluxe to consummate the Creative/Media transaction is subject to the
satisfaction or waiver of the following additional conditions:
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certain fundamental representations by our Company shall be true and correct as
of the date of the Deluxe purchase agreement and the date of the closing of the
Creative/Media transaction;
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the other representations and warranties of our Company shall be true and
correct as of the date of the closing, except where failure of such representations
and warranties to be true and correct would not have a material adverse effect; |
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our Company and its subsidiaries shall have performed in all material respects
their agreements and covenants under the Deluxe purchase agreement; |
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delivery of requisite items by us to Deluxe pursuant to the Deluxe purchase
agreement, including executed copies of the ancillary agreements in connection with
the Creative/Media transaction; |
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the reorganization of the Company shall have been consummated in accordance with the terms and conditions previously described to Deluxe and written proof
thereof shall have been delivered to Deluxe; |
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completion of certain real property leases in the form agreed by the parties; |
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the Company shall have taken all necessary steps for certain benefit plans and
related liabilities of the Company relating to the Creative/Media business to be
terminated upon closing; and |
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Deluxe shall have taken all necessary steps to establish payroll, welfare and
benefit plans for the continuing employees of the Creative/Media business. |
Conditions to our Companys Obligations
Our obligation to consummate the Creative/Media transaction is subject to the satisfaction or
waiver of the following further conditions:
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certain fundamental representations by Deluxe shall be true and correct as of
the date of the Deluxe purchase agreement and the date of the closing of the
Creative/Media transaction; |
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the other representations and warranties of Deluxe shall be true and correct as
of the date of the closing, except where failure of such representations and
warranties to be true and correct would not have a material adverse effect; |
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Deluxe shall have performed in all material respects their
agreements and covenants under the Deluxe purchase agreement; and |
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delivery of requisite items by Deluxe to us pursuant to the Deluxe purchase
agreement, including executed copies of the ancillary agreements in connection with
the Creative/Media transaction. |
The Creative/Media transaction is also subject to the expiration or termination of any waiting
period (and any extension thereof) under the HSR Act relating to the purchase and sale of the
Creative/Media business. However, the parties do not expect the pre-filing notification and
waiting period requirements of the HSR Act to apply to the Creative/Media transaction, because the
aggregate consideration to be received by the Company from the sale of the outstanding ownership
interests of AMG (which at the closing will hold all the U.S. assets and operations of the
Creative/Media business) is less than the transaction value threshold of $64.3 million under the
HSR Act.
The Purchase Agreement contains customary representations and warranties by each party.
Certain Covenants and Agreements
Pursuant to the Deluxe purchase agreement, we have also agreed to certain covenants, including
the following:
Conduct of the Business by our Company Prior to Closing
Pursuant to the Deluxe purchase agreement, we have agreed that, subject to certain exceptions,
between November 24, 2010, and the closing of the Creative/Media transaction, we will operate the
Creative/Media 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 Creative/Media Group Entities not to:
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amend its organizational documents;
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transfer, issue, sell, dispose of pledge, encumber or grant any equity interests or
securities of any of the Creative/Media Group Entities or grant any option, warrant,
call or other right to purchase any such interests; |
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declare, authorize, set aside, or pay dividends or other distributions; |
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sell, assign, transfer, lease or otherwise dispose of, or mortgage or subject to any
lien, any material assets or properties of the Creative/Media business; |
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acquire or agree to acquire, through merger, stock acquisition or otherwise, any
other business or entity; |
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enter into a new line of business; |
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acquire any real property; |
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incur any indebtedness, make loans or advances, or assume, guarantee or endorse the
obligations of any other person; |
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make any material change to any accounting method or practice; |
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enter into any related party agreement; |
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amend any existing, or enter into any new material contract or leases (other than as
permitted in accordance with the Deluxe purchase agreement); |
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increase the compensation payable to, or grant any severance or termination pay to,
any employee of the Creative/Media business, except in either case pursuant to existing
contracts, or in the ordinary course of business up to specified limits; |
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enter into or modify any employee benefit plan, except as provided in the Deluxe
purchase agreement; |
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enter into, modify or terminate any collective bargaining agreement, or otherwise
make any commitment or incur any liability to any labor organization; |
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make or commit to any capital expenditure, except in the ordinary course of business
consistent with past practice; |
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settle or commence any claim, in either case in an amount greater than $250,000 or
that would by its terms restrict the ability of any Creative/Media group entity to
operate the Creative/Media business; |
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permit any permits to lapse; and |
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allow any insurance policies to lapse or fail to maintain insurance. |
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 has 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.
No Solicitation of Competing Proposals; Restrictions on Competition
The Company has also agreed (i) not to solicit any competing proposals for the sale of the
Creative/Media business, and (ii) for a period of three years after the closing of the
Creative/Media transaction, subject to certain exceptions,
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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
We have agreed that, prior to the closing date of the Creative/Media transaction, we will terminate
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 will enter into
services agreements with Deluxe pursuant to which the Company or its subsidiaries will, following
the closing of the sale of the Creative/Media business, 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.
Employee Matters
Pursuant
to the Deluxe purchase agreement, Deluxe has agreed that each employee employed by
the Creative/Media business immediately prior to the closing of the Creative/Media
Transaction (whom we refer to as the Deluxe Continuing Employees) will be entitled to participate
in the employee benefits plans maintained by Deluxe on a substantially comparable basis to other
similarly situated employees of Deluxe. Each Deluxe Continuing Employee will receive credit for
his or her past service for purposes of eligibility and vesting (except as would result in a duplication of benefits or for defined benefit accrual purposes) and will not be subject to any
additional waiting periods or limitations on benefits for pre-existing conditions. In addition,
Deluxe and its affiliates will permit the Deluxe Continuing Employees to schedule and take, with
pay, all vacation days accrued prior to the closing of the Creative/Media transaction and will give
service credit for purposes of determining vacation, sick leave and other paid time off
entitlements.
As of the closing of the Creative/Media transaction, Deluxe will provide all U.S.-based Deluxe
Continuing Employees with workers compensation coverage and will be liable for workers compensation
claims with respect to events occurring after the closing of the Creative/Media transaction. We
will be responsible for all workers compensation claims with respect to events occurring prior to the closing of the
Creative/Media transaction.
The Company will be responsible for (i) fully vesting employees who will be Deluxe Continuing
Employees in their benefits under the Ascent Media Group 401(k) Savings Plan and (ii) making all
contributions with respect to compensation earned by Deluxe Continuing Employees through the
closing date. As soon as possible after the closing of the Creative/Media transaction, Deluxe and
the Company will effect a trust-to-trust transfer to facilitate the transfer of employee accounts
under such 401(k) plan to the comparable plan at Deluxe.
Deluxe has no obligation to guarantee employment for any employees for any period of time
following the Creative/Media transaction. If, however, any Deluxe Continuing Employee is fired
without cause after the closing of the Creative/Media transaction, Deluxe must pay severance
costs in accordance with the existing practice of the Creative/Media business as in effect on the date of the Deluxe Purchase Agreement, and such employee shall receive credit for past service for purposes of calculating severance
costs.
Indemnification; Survival of Indemnification Obligations
Indemnification by AMC
Subject to certain limitations set forth in the Deluxe purchase agreement, following the
consummation of the Creative/Media transaction, 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 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.
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Indemnification by Deluxe
Subject to certain limitations set forth in the Deluxe purchase agreement, following the
consummation of the Creative/Media transaction, 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, the Company has agreed that, at the closing of the Creative/Media transaction, the
Company will deposit $7,000,000 of the purchase price into escrow, pursuant to an escrow agreement
to be entered into by the Company, Deluxe and an escrow agent to be
mutually agreed on the closing date of the Creative/Media transaction. The escrow
agreement will provide 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.
Termination
The Deluxe purchase agreement may be terminated and the Creative/Media transaction abandoned
at any time prior to the consummation of such transactions:
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by mutual written consent of us and Deluxe US; |
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by us or Deluxe US, if (1) the closing has not occurred by February 28, 2011, subject
to certain conditions or (2) any governmental authority of competent jurisdiction has
issued an order or taken any other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by the Deluxe
purchase agreement, and such order or other action has become final and non-appealable; |
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by us, if Deluxe US or Deluxe UK 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
20 days of our notice of intent to terminate; |
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by Deluxe US, if 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 20 days of Deluxes
notice of intent to terminate. |
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If the Deluxe Purchase Agreement is terminated based on a failure of a party to the agreement
to perform a material covenant contained in the agreement, the breaching party will be fully liable
for any and all liabilities and damages incurred or suffered by the
other party as a result of such failure.
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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 text of the merger agreement has been filed as an exhibit to this current report on Form
8-K to provide you with information regarding its terms. 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.
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:
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an adjusted enterprise value of $1,191,000,000, |
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minus net indebtedness, |
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minus unpaid company transaction expenses, and |
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plus the difference between target working capital and closing working capital. |
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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.
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:
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$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 |
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$25,000,000 from the aggregate estimated merger consideration, which was deposited
with Citibank, N.A., as escrow agent pursuant to the escrow agreement, as an indemnity
escrow to be available to satisfy any obligation of Monitronics as set forth below
under IndemnificationIndemnification by Monitronics. |
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The following table shows the calculation of the merger consideration and total cash consideration
paid by the Company at the closing, in connection with its acquisition of Monitronics:
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Description |
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Amount |
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Adjusted Enterprise Value |
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$ |
1,191,000,000 |
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- Net Indebtedness |
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$ |
777,986,000 |
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- Unpaid Company Transaction Expenses |
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$ |
14,072,000 |
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+ Closing Working Capital minus Target Working Capital |
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$ |
127,000 |
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Estimated Merger Consideration |
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$ |
399,069,000 |
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+Unpaid Company Transaction Expenses |
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$ |
14,072,000 |
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Total cash consideration paid by the Company |
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$ |
413,141,000 |
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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:
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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 |
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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; |
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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:
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due organization, valid existence, good standing and other corporate matters; |
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capitalization and corporate structure of Monitronics; |
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authorization, execution, delivery and enforceability of the merger agreement and
the transactions contemplated thereby; |
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conflicts or violations under organizational documents, contracts or law; |
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financial statements and indebtedness, including the absence of certain undisclosed
liabilities; |
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the absence of certain changes or events; |
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pending litigations or proceedings against Monitronics; |
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permits and other approvals from governmental entities and compliance with
applicable law; |
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taxes; |
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certain intellectual property matters; |
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material contracts, leases, financial instruments and other agreements; |
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matters relating to employee benefit plans; |
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leased and owned real property; |
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employees and certain employee matters; |
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certain environmental matters; |
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material insurance policies; |
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transactions with affiliates of Monitronics; |
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certain matters relating to alarm monitoring contract dealers and customers; |
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brokerage or finders fees with respect to the transaction; |
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certain matters relating to security systems and monitoring centers; |
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the absence of violations under certain laws relating to foreign corrupt practices
and international trade sanctions; and |
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the conduct of Monitronics on the closing date of the merger. |
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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:
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due organization, valid existence, good standing and other corporate matters; |
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authorization, execution, delivery and enforceability of the merger agreement and
the transactions contemplated thereby; |
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conflicts or violations under organizational documents, contracts or law; |
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the absence of litigation and other proceedings; |
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the absence of brokerage of finders fees with respect to the transaction; |
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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 |
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matters relating to the funding of the transactions contemplated by the merger
agreement. |
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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
63
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 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:
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Dealer sells an alarm system to a homeowner or small business. |
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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. |
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Dealer presents the account to Monitronics for purchase. |
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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. |
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Monitronics acquires the customer contract at a formula-based price. |
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Customer becomes a Monitronics account. |
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All future billing and customer service is conducted through Monitronics. |
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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.
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.
65
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. 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:
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LIBOR plus 3.50% per annum through June 30, 2011, |
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LIBOR plus 4.00% per annum from July 1, 2011 through December 31, 2011, and |
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LIBOR plus 4.50% per annum thereafter. |
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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.
66
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.
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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. |
67
|
|
|
(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. |
|
(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.
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
69
(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.
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). Banks and brokerage firms, please call collect [ ]. All other shareholders,
please call toll-free [ ].]
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.
63
Shareholder Proposals
This proxy statement relates to a Special Meeting of stockholders which will take place on
[ ], 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 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.
70
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, and December
23, 2010. |
|
|
|
|
Quarterly Reports on Form 10-Q
|
|
Filed on May 7, 2010, August 6, 2010 and November 5, 2010. |
71
Annex A
Ascent Media Corporation Financial Statements
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page Number |
|
|
|
|
|
Combined Financial Statements for the Content Distribution business (unaudited) |
|
|
A-1-1 |
|
|
|
|
|
|
Selected Pro
Forma Condensed Combined Financial Information (unaudited) |
|
|
A-2-1 |
|
|
|
|
|
|
Audited
consolidated financial statements of Monitronics International, Inc. for the years ended June 30, 2010, 2009 and 2008 |
|
|
A-3-1 |
|
|
|
|
|
|
Interim financial statements of Monitronics International, Inc. for the three
months ended September 30, 2010 and 2009 (unaudited)
|
|
|
A-4-1 |
|
A-1
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
(Unaudited)
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
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
(Unaudited)
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
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
(Unaudited)
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
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
A-1-6
addition, for the year ended December 31, 2008, an additional customer generated $13,345,000,
or 11%, of total Business revenue.
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
A-1-7
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.
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.
A-1-8
(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 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.
A-1-9
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. |
|
(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. |
(6) Dispositions
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. |
(7) Income Taxes
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
A-1-10
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.
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 |
) |
|
|
|
|
|
|
|
A-1-11
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 |
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
A-1-12
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.
(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.
A-1-13
(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.
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-1-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-1-15
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.
A-2-1
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.
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
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial statements.
A-2-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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.
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.
A-2-8
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 |
|
|
|
|
|
A-2-10
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): |
|
|
|
|
|
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 |
|
Historical |
|
Fair |
|
|
Fair value |
|
|
useful |
|
|
September |
|
|
December |
|
|
December |
|
amounts |
|
value |
|
|
adjustment |
|
|
lives |
|
|
30, 2010 |
|
|
31, 2009 |
|
|
31, 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 value |
|
|
Remaining |
|
|
September |
|
|
December |
|
|
December |
|
|
|
amounts |
|
|
Fair value |
|
|
adjustment |
|
|
useful lives |
|
|
30, 2010 |
|
|
31, 2009 |
|
|
31, 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): |
A-2-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine |
|
|
For the twelve |
|
|
|
|
|
|
months ended |
|
|
months ended |
|
|
For the twelve |
|
|
|
September 30, |
|
|
December 31, |
|
|
months ended |
|
|
|
2010 |
|
|
2009 |
|
|
December 31, 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): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
For the nine |
|
|
For the twelve |
|
|
|
|
|
|
months ended |
|
|
months ended |
|
|
For the twelve |
|
|
|
September 30, |
|
|
December 31, |
|
|
months ended |
|
|
|
2010 |
|
|
2009 |
|
|
December 31, 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 nine months |
|
|
For the twelve |
|
|
months ended |
|
|
|
Face |
|
|
Interest |
|
|
ended September |
|
|
months ended |
|
|
December 31, |
|
|
|
Amount |
|
|
Rate |
|
|
30, 2010 |
|
|
December 31, 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.
/s/
Ernst & Young LLP
October 13, 2010
A-3-3
(This page intentionally left blank.)
A-3-4
Monitronics International, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
|
2010 |
|
2009 |
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
|
2010 |
|
2009 |
|
|
|
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)
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
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.
A-3-10
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies (continued)
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 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.
A-3-11
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies (continued)
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.
A-3-12
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies (continued)
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.
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.
A-3-13
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies (continued)
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
A-3-14
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies (continued)
required criteria for a cash flow hedge. The Company reclassifies these amounts into earnings as
the 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.
A-3-15
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 |
|
|
|
|
A-3-16
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Noncurrent Liabilities (continued)
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 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.
A-3-17
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Noncurrent Liabilities (continued)
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.
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.
A-3-18
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Noncurrent Liabilities (continued)
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.
A-3-19
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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.
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.
A-3-20
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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-3-21
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Restricted Stock and Stock Option Plans (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 |
|
A-3-22
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Restricted Stock and Stock Option Plans (continued)
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.
7. Income Taxes
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 |
|
|
|
|
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 |
|
|
|
|
A-3-23
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
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.
A-3-24
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
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 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.
A-3-25
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Employee Benefit Plan
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.
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 |
|
|
|
|
|
A-3-26
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued)
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
A-3-27
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued)
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.
10. Derivatives
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.
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.
A-3-28
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Derivatives (continued)
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 |
A-3-29
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Derivatives (continued)
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
A-3-30
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Derivatives (continued)
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.
A-3-31
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Fair Value Accounting (continued)
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. 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 |
|
A-3-32
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Fair Value Accounting (continued)
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
A-3-33
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Fair Value Accounting (continued)
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.
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 |
|
|
|
|
|
12. Subsequent Events
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-3-34
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
Monitronics International, Inc. and Subsidiaries
Consolidated Financial Statements
(Unaudited)
For the Three Months Ended September 30, 2010 and September 30, 2009
Contents
|
|
|
|
|
Consolidated Financial Statements (Unaudited) |
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet (Unaudited)
|
|
|
2 |
|
Consolidated Statements of Operations (Unaudited)
|
|
|
4 |
|
Consolidated Statements of Shareholders Net Capital (Deficiency) (Unaudited)
|
|
|
5 |
|
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
6 |
|
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
7 |
|
A-4-2
Monitronics International, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
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
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
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
Monitronics International, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30 |
|
|
2010 |
|
2009 |
|
|
(In Thousands) |
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
Monitronics International, Inc. and Subsidiaries
Consolidated Statement of Shareholders Net Capital (Deficiency)
(Unaudited)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
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
Monitronics International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30 |
|
|
2010 |
|
2009 |
|
|
(In Thousands) |
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
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
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.
A-4-8
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
1. Description of Business and Summary of Significant Accounting Policies, continued
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.
3. Income Taxes
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.
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.
A-4-9
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
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.
A-4-10
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
4. Commitments and contingencies, continued
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.
5. Derivatives
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.
A-4-11
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
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-4-12
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-4-13
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
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 |
|
|
|
|
|
|
Unrealized loss on |
|
|
|
|
|
|
derivative |
|
|
|
|
Interest rate products |
|
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 |
|
|
|
|
|
|
Unrealized loss on |
|
|
|
|
|
|
derivative |
|
|
|
|
Interest rate products |
|
instruments |
|
$ |
3,745 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
3,745 |
|
|
|
|
|
|
|
|
|
A-4-14
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
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.
6. Fair Value Accounting
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.
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.
A-4-15
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
6. Fair Value Accounting, continued
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 |
|
A-4-16
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
6. Fair Value Accounting, continued
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.
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 |
|
|
|
|
|
A-4-17
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
7. Subsequent Events
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-4-18
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-9 |
|
1.1 Certain Defined Terms |
|
|
B-9 |
|
1.2 Additional Definitions |
|
|
B-25 |
|
1.3 Terms Generally |
|
|
B-29 |
|
|
|
|
|
|
ARTICLE II CLOSINGS; PURCHASE PRICE AND ADJUSTMENT |
|
|
B-29 |
|
2.1 Purchases and Sales |
|
|
B-29 |
|
2.2 Closings; Purchase Price; Pre-Closing Estimates |
|
|
B-30 |
|
2.3 Post-Closing Adjustment |
|
|
B-31 |
|
2.4 Tax Allocation |
|
|
B-33 |
|
2.5 Intercompany Accounts |
|
|
B-34 |
|
2.6 Transfer Taxes |
|
|
B-34 |
|
2.7 Purchaser Closing Deliverables |
|
|
B-34 |
|
2.8 AMC Entities Closing Deliverables |
|
|
B-35 |
|
|
|
|
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE AMC ENTITIES |
|
|
B-38 |
|
3.1 Organization and Qualification |
|
|
B-38 |
|
3.2 Authority; Subsidiaries |
|
|
B-38 |
|
3.3 No Conflicts |
|
|
B-39 |
|
3.4 Legal Proceedings |
|
|
B-40 |
|
3.5 Title to Equity Interests |
|
|
B-40 |
|
3.6 Brokers |
|
|
B-41 |
|
3.7 Solvency |
|
|
B-41 |
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COMPANY GROUP |
|
|
B-41 |
|
4.1 Organization and Qualification; Subsidiaries |
|
|
B-42 |
|
4.2 Organizational or Governing Documents |
|
|
B-42 |
|
4.3 Authority |
|
|
B-42 |
|
4.4 No Conflict; Required Filings and Consents |
|
|
B-43 |
|
4.5 Company Permits; Compliance with Laws |
|
|
B-44 |
|
4.6 Capitalization |
|
|
B-44 |
|
4.7 Financial Statements |
|
|
B-45 |
|
4.8 No Undisclosed Liabilities |
|
|
B-47 |
|
4.9 Absence of Certain Changes or Events |
|
|
B-47 |
|
4.10 Absence of Litigation |
|
|
B-47 |
|
4.11 Related Party Transactions |
|
|
B-47 |
|
4.12 Labor Matters |
|
|
B-48 |
|
4.13 Employee Benefit Plans |
|
|
B-49 |
|
4.14 Taxes |
|
|
B-52 |
|
4.15 Intellectual Property |
|
|
B-54 |
|
4.16 Real Property |
|
|
B-55 |
|
B-2
|
|
|
|
|
|
|
Page |
|
4.17 Material Contracts and Leases |
|
|
B-60 |
|
4.18 Insurance |
|
|
B-63 |
|
4.19 Environmental Matters |
|
|
B-63 |
|
4.20 Customers and Suppliers |
|
|
B-65 |
|
4.21 Tangible Property |
|
|
B-65 |
|
4.22 Sufficiency of Assets |
|
|
B-65 |
|
4.23 Accounts Receivable |
|
|
B-66 |
|
4.24 Information Supplied |
|
|
B-66 |
|
4.25 Brokers |
|
|
B-66 |
|
4.26 Indebtedness; Transaction Expenses |
|
|
B-66 |
|
4.27 Company Group Reorganization |
|
|
B-67 |
|
4.28 Cash Deposits |
|
|
B-67 |
|
4.29 No Other Representations or Warranties |
|
|
B-67 |
|
|
|
|
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASERS |
|
|
B-67 |
|
5.1 Organization and Qualification |
|
|
B-67 |
|
5.2 Authority |
|
|
B-67 |
|
5.3 No Conflicts |
|
|
B-68 |
|
5.4 Legal Proceedings |
|
|
B-68 |
|
5.5 No Financing Contingency |
|
|
B-69 |
|
5.6 Solvency |
|
|
B-69 |
|
5.7 Brokers |
|
|
B-69 |
|
5.8 No Other Representations or Warranties |
|
|
B-69 |
|
|
|
|
|
|
ARTICLE VI CERTAIN COVENANTS |
|
|
B-69 |
|
6.1 Conduct of the Business Prior to the Closings |
|
|
B-69 |
|
6.2 Proxy Statement |
|
|
B-72 |
|
6.3 Stockholders Meeting |
|
|
B-74 |
|
6.4 No Solicitation of Competing Proposal |
|
|
B-74 |
|
6.5 HSR and Other Required Filings |
|
|
B-77 |
|
6.6 Third-Party Consents |
|
|
B-78 |
|
6.7 Access to Information; Certain Projections; Business Records; Post-Closing; Confidentiality |
|
|
B-79 |
|
6.8 Use of AMC Name |
|
|
B-81 |
|
6.9 Insurance |
|
|
B-81 |
|
6.10 Reasonable Best Efforts; Cooperation |
|
|
B-81 |
|
6.11 Publicity |
|
|
B-84 |
|
6.12 Excluded Assets |
|
|
B-84 |
|
6.13 [Intentionally Omitted] |
|
|
B-84 |
|
6.14 Termination of Affiliate Transactions |
|
|
B-85 |
|
6.15 Releases |
|
|
B-85 |
|
6.16 Resignations |
|
|
B-85 |
|
6.17 Company Group Reorganization |
|
|
B-85 |
|
6.18 Real Estate |
|
|
B-87 |
|
6.19 Burbank Parcels |
|
|
B-88 |
|
6.20 Assumed Guarantees |
|
|
B-89 |
|
6.21 Certain Capital Expenses |
|
|
B-90 |
|
B-3
|
|
|
|
|
|
|
Page |
|
6.22 Financial Updates |
|
|
B-91 |
|
6.23 Audited Financial Statements |
|
|
B-91 |
|
6.24 Microsoft Licenses |
|
|
B-91 |
|
|
|
|
|
|
ARTICLE VII TAX MATTERS |
|
|
B-92 |
|
7.1 Tax Matters |
|
|
B-92 |
|
|
|
|
|
|
ARTICLE VIII EMPLOYEE MATTERS |
|
|
B-99 |
|
8.1 Company Employees |
|
|
B-99 |
|
8.2 Participation in AMC Plans |
|
|
B-101 |
|
8.3 Workers Compensation |
|
|
B-101 |
|
8.4 WARN Obligations |
|
|
B-101 |
|
8.5 Welfare Plan Obligations |
|
|
B-102 |
|
8.6 Vacation |
|
|
B-102 |
|
8.7 401(k) Plan |
|
|
B-102 |
|
8.8 No Additional Rights |
|
|
B-103 |
|
8.9 Additional Matters |
|
|
B-103 |
|
|
|
|
|
|
ARTICLE IX CONDITIONS TO THE CLOSINGS |
|
|
B-103 |
|
9.1 Conditions to the Obligations of Each Party |
|
|
B-103 |
|
9.2 Conditions to the Obligations of Purchasers |
|
|
B-104 |
|
9.3 Conditions to the Obligations of AMC Entities |
|
|
B-105 |
|
|
|
|
|
|
ARTICLE X INDEMNIFICATION |
|
|
B-106 |
|
10.1 Survival of Representations, Warranties and Agreements |
|
|
B-106 |
|
10.2 Indemnification by AMC Entities |
|
|
B-106 |
|
10.3 Indemnification by Purchasers and the Company Group Members |
|
|
B-107 |
|
10.4 Limits on Indemnification |
|
|
B-107 |
|
10.5 Procedures Relating to Indemnification |
|
|
B-108 |
|
10.6 Additional Matters |
|
|
B-110 |
|
10.7 Limitation on Remedies |
|
|
B-110 |
|
10.8 Tax Matters |
|
|
B-110 |
|
10.9 Escrow |
|
|
B-111 |
|
|
|
|
|
|
ARTICLE XI TERMINATION |
|
|
B-111 |
|
11.1 Termination |
|
|
B-111 |
|
11.2 Effect of Termination |
|
|
B-113 |
|
11.3 Termination Fees |
|
|
B-113 |
|
|
|
|
|
|
ARTICLE XII GENERAL PROVISIONS |
|
|
B-115 |
|
12.1 Assignment |
|
|
B-115 |
|
12.2 No Third-Party Beneficiaries |
|
|
B-116 |
|
12.3 Expenses |
|
|
B-116 |
|
12.4 Equitable Relief |
|
|
B-116 |
|
12.5 Amendments |
|
|
B-116 |
|
12.6 Notices |
|
|
B-117 |
|
B-4
|
|
|
|
|
|
|
Page |
|
12.7 Interpretation; Schedules |
|
|
B-118 |
|
12.8 Counterparts |
|
|
B-118 |
|
12.9 Severability |
|
|
B-118 |
|
12.10 Waiver of Compliance; Consents |
|
|
B-118 |
|
12.11 Entire Agreement |
|
|
B-118 |
|
12.12 Governing law; Submission to Jurisdiction |
|
|
B-119 |
|
12.13 Time of Essence |
|
|
B-119 |
|
B-5
|
|
|
|
|
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 |
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 |
B-6
|
|
|
COMPANY DISCLOSURE LETTER |
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-7
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
B-8
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
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
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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 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
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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
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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.
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
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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 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
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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.
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,
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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
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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;
(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
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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).
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.
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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, 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
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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
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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 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
B-20
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.
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).
B-21
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,
B-22
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 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.
B-23
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 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
B-24
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) |
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) |
B-25
|
|
|
Term |
|
Section |
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) |
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) |
B-26
|
|
|
Term |
|
Section |
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) |
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 |
B-27
|
|
|
Term |
|
Section |
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) |
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 |
B-28
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-29
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
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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 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.
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(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 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,
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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.
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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 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;
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(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 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,
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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;
(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;
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(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.
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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
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
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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 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
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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
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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, 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:
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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 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
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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 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
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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
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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 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
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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 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
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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,
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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 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
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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.
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
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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.
(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
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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.
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(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 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
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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;
(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
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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 necessary for, the conduct of the Business as currently
conducted (the Company Intellectual Property Rights), and (ii) the Company
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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
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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 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.
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(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
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
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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
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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.
(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).
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(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.
(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;
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(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
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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;
(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,
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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, 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
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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.
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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
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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 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
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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 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
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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
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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.
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);
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(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 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;
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(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 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
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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
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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) 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
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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, 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
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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
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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 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
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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 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
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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 (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
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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
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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 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.
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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 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
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(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 financing of the Purchase Price and refinancing of existing
Indebtedness in connection with the Transactions (collectively, the Financing). Such
cooperation shall include:
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(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
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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 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].
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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 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
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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.
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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 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
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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 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).
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(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.
(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
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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
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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 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
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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-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.
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(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
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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 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
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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 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
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(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 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
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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.
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(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 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
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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).
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
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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
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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.
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
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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 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
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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.
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;
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(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;
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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 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
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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.
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
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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 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
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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
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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.
(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
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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, 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
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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).
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;
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(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
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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 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
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(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 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
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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
Purchaser and UK Purchaser of their obligations hereunder. Subject to the preceding sentence,
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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.
B-116
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
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
B-117
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.
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
B-118
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-119
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
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AMC:
ASCENT MEDIA CORPORATION
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Executive Vice President and General Counsel |
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US SELLER:
FOUR MEDIA COMPANY LLC
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Executive Vice President and General Counsel |
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UK SELLER:
ASCENT MEDIA LIMITED
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Director |
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SINGAPORE SELLER:
ASCENT MEDIA HOLDINGS LTD.
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Director |
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B-120
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US COMPANY:
ASCENT MEDIA NETWORK SERVICES, LLC,
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Executive Vice President and General Counsel |
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UK COMPANY:
ASCENT MEDIA NETWORK SERVICES EUROPE LIMITED
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Director |
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SINGAPORE COMPANY:
ASCENT MEDIA PTE LTD.
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By: |
/s/ William E. Niles
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Name: |
William E. Niles |
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Title: |
Director |
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US PURCHASER:
ENCOMPASS DIGITAL MEDIA, INC.
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By: |
/s/ Simon Bax
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Name: |
Simon Bax |
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Title: |
Chief Executive Officer |
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B-121
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UK PURCHASER:
ENCOMPASS DIGITAL MEDIA LIMITED
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By: |
/s/ Simon Bax
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Name: |
Simon Bax |
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Title: |
Chief Executive Officer |
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B-122
Schedule 1.1(b)
Networks Brands and Divisions
Included Entities and Business Locations:
1. |
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Ascent Media Network Services, LLC, a California limited liability company,
operating out of the facilities at the following locations: |
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Ø |
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232 and 250 Harbor Drive, Stamford, CT |
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Ø |
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652 Glenbrook Road, Stamford, CT |
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Ø |
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500 square-foot storage area at 652 Glenbrook Road, Stamford, CT |
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Ø |
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60 Hudson Street, New York, NY |
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Ø |
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90 South 11th Street, Minneapolis, MN |
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Ø |
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545 5th Ave., New York, NY (12th Floor and a portion of the roof) |
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Ø |
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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) |
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Ø |
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240 Pegasus Avenue, Northvale, NJ |
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Ø |
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183 Oak Tree Road, Tappan, NY |
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Ø |
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6221 Holly Drive, Lino Lakes, MN |
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Ø |
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23 Research Drive, Stamford, CT |
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Ø |
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2813 West Alameda Avenue, Burbank, CA |
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Ø |
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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. |
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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: |
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Ø |
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1 Stephen Street, portion of ground floor, floors 1, 2 and 3, London, UK |
B-123
|
Ø |
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Unit 2, Maryland Road, Tongwell, Milton Keynes, UK |
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Ø |
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184-192 Drummond Street, London, UK |
3. |
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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: |
|
Ø |
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20 Loyang Crescent, Singapore |
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Ø |
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3 Changi Business Park Vista, Singapore |
B-124
Schedule 1.1(h)
Excluded Entities, Brands and Divisions
Excluded Entities:
1. |
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Ascent Media Creative Services, Inc. |
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2. |
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Syndistro, LLC |
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3. |
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Javelin Distribution, LLC |
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4. |
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Company 3, LLC |
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5. |
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Bobco Productions, LLC |
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6. |
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Ascent Media Services, LLC |
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7. |
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Ascent Media Group Limited (UK) |
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8. |
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Rushes PostProduction Limited (UK) |
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9. |
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One Post Limited (UK) |
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10. |
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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) |
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11. |
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Method London Limited (fka TVP Multimedia Limited), a company organized under the laws of
England) |
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12. |
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GMX-The Global Media Exchange, LLC, a Delaware limited liability company |
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13. |
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Four Media Company, LLC, a Delaware limited liability company |
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14. |
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Liberty Livewire LLC, a Delaware limited liability company |
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15. |
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CDP, LLC, a California limited liability company |
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16. |
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Hyper TV Productions, LLC, a California limited liability company |
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17. |
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HyperTV with Livewire, LLC, a Delaware limited liability company |
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18. |
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Ascent Media Holdings Limited (fka Liberty Livewire Limited; fka Four Media Company (UK)
Limited), a company organized under the laws of England |
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19. |
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Todd-AO, Espana, a California corporation |
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20. |
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VSC MAL CORP., a Delaware corporation |
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21. |
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Ascent Media Systems Integration, LLC, a Delaware limited liability company |
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22. |
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TGS, LLC, a Virginia limited liability company |
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23. |
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103 Todd-AO Estudio S.L., a company organized under the laws of Spain |
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24. |
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Rushes Televisión, S.A de C.V., a company organized under the laws of Mexico |
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25. |
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Servicios Administrativos de Post Produccion S.A. de C.V., a company organized under the laws
of Mexico |
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26. |
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Ascent Media (Singapore) Pte. Ltd., a private company limited by shares organized under the
laws of Singapore |
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27. |
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Ascent Media Holdings Ltd., a company incorporated under the laws of the Republic of
Singapore |
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28. |
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Ascent Media Limited (fka Todd-AO Europe Holding Company Limited), a company organized under
the laws of England |
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29. |
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Ascent Media GP Ltd. (fka Sanderson Vere Crane (Video Tape Editors) Limited), a company
organized under the laws of England |
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30. |
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Ascent Media UK Limited Partnership |
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31. |
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4MC Limited (fka TVP Group Plc), a company organized under the laws of England |
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32. |
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Soho Group Limited, a company organized under the laws of England |
B-125
33. |
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Ascent Media 142 Limited (fka Visiontext Limited), a company organized under the laws of
England |
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34. |
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Todd-AO Filmatic Limited, a company organized under the laws of England |
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35. |
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Liberty Livewire Limited (fka Ascent Media Holdings Limited; fka Tele-Cine Cell Group
Limited), a company organized under the laws of England |
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36. |
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SVC Television Limited, a company organized under the laws of England |
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37. |
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Tele-Cine Limited, a company organized under the laws of England |
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38. |
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XTV Limited, a company organized under the laws of England |
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39. |
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Todd-AO UK Limited (fka Ascent Media Group Limited; fka XTV Cell Limited), a company
organized under the laws of England |
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40. |
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Todd-AO Europe Holding Company Limited (fka Ascent Media Limited; fka TVI Limited), a company
organized under the laws of England |
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41. |
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TVP Videodubbing Limited, a company organized under the laws of England |
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42. |
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R!OT London Limited (fka Television Presentations Limited), a company organized under the
laws of England |
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43. |
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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 |
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44. |
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Soundelux London Limited (fka Ketchup Limited; fka TVP Doublevision Limited), a company
organized under the laws of England |
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45. |
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Stream Digital Media Limited, a company organized under the laws of England |
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46. |
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The London Switch Limited (fka POP London Limited; fka TVP Digital Media Limited), a company
organized under the laws of England |
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47. |
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TVI Limited (fka Ascent Media Limited; fka Audio and Video Limited), a company organized
under the laws of England |
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48. |
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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 |
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49. |
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St. Annes Post Limited (fka Sanderson Vere Crane (Film Editors) Limited), a company
organized under the laws of England |
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50. |
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Studio Film and Video Holdings Limited, a company organized under the laws of England |
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51. |
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Soho Images Limited, a company organized under the laws of England |
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52. |
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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. |
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Beast |
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2. |
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Beast Chicago |
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3. |
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Beast Detroit |
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4. |
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Company 3 / CO3 |
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5. |
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CO3 NY |
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6. |
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Encore Hollywood |
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7. |
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GMX |
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8. |
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Level 3 Post |
B-126
9. |
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Method |
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10. |
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Method NY |
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11. |
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Riot Atlanta |
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12. |
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Ruby Pictures |
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13. |
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Method Labs |
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14. |
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The Foundation |
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15. |
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Soho Film Lab |
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16. |
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Ascent 142 |
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17. |
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Digital Media Distribution Center on Hollywood Way, Burbank, CA and in Northvale, NJ |
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18. |
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Cinetech |
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19. |
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Blink Digital |
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20. |
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DMDC |
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21. |
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Ascent Syndication |
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22. |
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FilmCore Distribution Hollywood |
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23. |
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FilmCore Distribution San Francisco |
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24. |
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FilmCore Distribution New York |
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25. |
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Todd-AO |
B-127
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
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Sample Purchase Price Calculation and Closing Statement
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Exhibit A |
Form of 2901 West Alameda Sublease
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Exhibit B |
Form of Northvale Lease
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Exhibit C |
Form of Tappan Lease
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Exhibit D |
Form of Appurtenant Earth Station Easement Agreement
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Exhibit E |
Form of 2813 West Alameda Lease
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Exhibit F |
Form of Declaration for 2813 West Alameda Parcel
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Exhibit G |
Form of Declaration for 2820 West Olive Parcel
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Exhibit H |
Form of In-Gross Earth Station Easement Agreement
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Exhibit I |
SCHEDULES
|
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Schedule A
|
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AMC Entities and Companies Knowledge |
Schedule 1.1(a)
|
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Assumed Employee Benefit Plans |
Schedule 1.1(c)
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Excluded Liabilities |
Schedule 1.1(d)
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Major Customers |
Schedule 1.1(e)
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Working Capital Assets and Working Capital Liabilities |
Schedule 1.1(f)
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2813 West Alameda Parcel |
Schedule 1.1(g)
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2820 West Olive Parcel |
Schedule 1.1(i)
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Continuing Commercial Arrangements |
Schedule 1.1(j)
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23 Research Drive Parcel |
Schedule 1.1(k)
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UK Company Employees |
Schedule 1.1(l)
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Services Agreements |
Schedule 4.19
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Environmental Documents |
Schedule 6.5(b)
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FCC Licenses |
Schedule 6.7(c)
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Delivered Books and Records |
Schedule 6.10(a)(i)
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Disney Contracts |
Schedule 6.10(a)(ii)
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Sony Contracts |
Schedule 6.17
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Acquired Assets |
Schedule 6.18(b)
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Transferred Owned Real Property |
Schedule 6.18(c)(i)
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2901 West Alameda Premises |
Schedule 6.18(c)(ii)
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Northvale Premises |
Schedule 6.18(c)(iii)
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Tappan Premises |
Schedule 6.20(a)
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Assumed Guarantees |
Schedule 6.21(a)
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Approved Capital Projects |
Schedule 6.24(a)
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Microsoft Licenses |
Schedule 8.1(c)
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Services Employees |
Schedule 8.1(d)
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Non-Solicit Employees |
Schedule 9.1(f)
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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-128
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.
los angeles | new york | boston | chicago
C-1
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.
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
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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 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.
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Very truly yours,
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/s/ MOELIS & COMPANY LLC
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MOELIS & COMPANY LLC |
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