-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OydusqiOpoUl2f3ClSVdGipON4LoSjn8Bo986z8g6gK2T7z9jmT4wRjqADFj+SnD e/HxSxC8dnfBafvP2BJkvA== 0000950148-00-000582.txt : 20000331 0000950148-00-000582.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950148-00-000582 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TBA ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000913201 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 621535897 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22582 FILM NUMBER: 588462 BUSINESS ADDRESS: STREET 1: 402 HERITAGE PLANTATION WY CITY: HICKORY VALLEY STATE: TN ZIP: 38042 BUSINESS PHONE: 9017642300 MAIL ADDRESS: STREET 1: 402 HERITAGE PLANTATION WAY CITY: HICKORY VALLEY STATE: TN ZIP: 38042 FORMER COMPANY: FORMER CONFORMED NAME: NASHVILLE COUNTRY CLUB INC DATE OF NAME CHANGE: 19931007 10-K405 1 FORM 10-K YEAR ENDED DECEMBER 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER 0-22582 TBA ENTERTAINMENT CORPORATION (Name of Small Business Issuer in its Charter) DELAWARE 62-1535897 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 16501 VENTURA BOULEVARD ENCINO, CALIFORNIA 91436 (Address of principal executive offices) (Zip Code) (818) 728-2600 (Issuer's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing sale price of such stock as reported on March 17, 2000 on the Nasdaq National Market of the National Association of Securities Dealers, Inc.) was approximately $27,452,000. As of March 17, 2000, 8,101,800 shares of the registrant's Common Stock were outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive Proxy Statement, to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 in connection with the registrant's 2000 annual meeting of stockholders, have been incorporated by reference in Part III of this report. PART I ITEM 1. BUSINESS. GENERAL TBA Entertainment Corporation ("TBA" or the "Company") is a diversified communications and entertainment services company providing a broad range of integrated communications and entertainment services through its four core business segments. TBA believes it has a strong presence in each of these very fragmented industries and is building an industry-leading integrated services company. - Corporate Communications & Entertainment - Provides a broad range of business communications, meeting production, entertainment and event production services to corporate clients worldwide. - Entertainment Marketing & Special Events - Creates and executes innovative entertainment marketing and special event initiatives including music tours, fairs and festivals, television broadcasts and special events. - Artist Management - Develops and implements career strategies for some of the most successful artists in the entertainment industry. - Event Merchandising - Creates and executes high-impact merchandising programs for entertainment and sporting events, institutional organizations and celebrity clients. The integration of TBA's four business divisions creates competitive advantages for the Company. TBA believes that while a variety of competitors exist with each of the Company's divisions, none offer the complete scope of entertainment services provided by TBA. This intra-company synergy provides TBA's clients with an expanded range of comprehensive services while creating additional sources of revenues and profits for the Company. For example, in producing corporate meetings and entertainment marketing programs, the Company creates opportunities to showcase artist management clients and to provide unique merchandising programs. Providing entertainment marketing programs and incentive merchandising programs for corporate clients conversely provides opportunities to cross-sell client decision makers on other corporate communication and entertainment events. The Company's current operating structure is the result of strategic acquisitions within each of the four business divisions. A brief description of each of the acquisitions completed since January 1, 1998 is included below in the detailed description of each of the four business divisions. The Company was incorporated in Tennessee in June 1993 and reincorporated in Delaware in September 1997. CORPORATE COMMUNICATIONS & ENTERTAINMENT The Corporate Communications & Entertainment division is an industry leader in the production of innovative corporate meetings and events. This division helps businesses effectively communicate their message via a broad range of business communications, meeting production, entertainment and event productions services. TBA utilizes award-winning creative capabilities and state-of-the-art technology to help corporate clients worldwide deliver targeted messages that educate, inspire and motivate. The Corporate Communications & Entertainment division targets clients with recurring needs for business communications and entertainment services. The Company's client list encompasses a number of industry sectors including 2 3 telecommunications, information technology, food service, insurance and financial services. Representative clients include Bell South, Nortel, Motorola, McDonald's Corporation, Pizza Hut, State Farm Insurance and Forstmann Little. The Corporate Communications & Entertainment division specializes in the creative development, design, production and staging of a wide range of events including: sales conferences, corporate meetings and events, conventions and trade shows, product launches, awards shows, shareholder meetings, live network broadcasts, television commercials, videoconferencing and corporate anniversaries. TBA believes that it has benefited from the decision by an increasing number of major corporations to outsource their business communications and entertainment needs. TBA produced approximately 600 communication and entertainment events in 1999. The recurring nature of this large number of events serves as a source of more predictable revenues as they occur on a more regular basis. The large number of events also provides opportunities for the Company's other divisions, including corporate event opportunities for TBA's artist management clients and merchandising activities. The Corporate Communications & Entertainment division serves its clients from a growing roster of offices nationwide, including Atlanta, Chicago, Dallas, Nashville, New York, Phoenix, Salt Lake City and San Diego. These offices were assembled via strategic acquisitions and internal growth over the past three years. The Company acquired its first corporate communications and entertainment company in April 1997 with the acquisition of all of the outstanding capital stock of TBA Entertainment Group Nashville, Inc., formerly Avalon Entertainment Group, Inc. ("AEG"), with offices in Nashville and San Diego. In 1998, the Company acquired all of the outstanding capital stock of TBA Entertainment Group Chicago, Inc., formerly Corporate Productions, Inc. ("CPI"), a Chicago-based company, TBA Entertainment Group Phoenix, Inc., formerly Image Entertainment Productions, Inc. ("Image"), a Phoenix-based company and TBA Entertainment Group Dallas, Inc., formerly Magnum Communications, Inc. ("Magnum"), with offices in Dallas and Salt Lake City. In 1999, the Company also opened offices in Atlanta and New York to service its growing client list. With the completion of the acquisitions and internal growth described above, TBA delivers a full range of corporate communications and entertainment services to its clients. The Corporate Communications & Entertainment division emphasizes the coordination and allocation of resources and services between the division's offices. TBA has long-standing relationships with freelance contractors in various production, technical and creative disciplines, and supplements its full-time staff with independent contractors where needed. The Company believes, based on its experience, that the corporate communications and entertainment industry is highly fragmented. Further, the Company believes that many of its competitors consist of a number of small, primarily regional companies that provide only a limited range of services. However, the Company believes that there are other competitors who have been in business longer and have larger staffs and whose business, like the Company's, is full service in scope. The most important competitive factors include creative and production capabilities, quality and price. The Company believes that it can compete successfully in this market by utilizing the Company's production capabilities and existing talent relationships to produce an exceptional event. TBA's commitment to providing exceptional events has developed a loyal client base. The Company also competes with in-house corporate communications staffs of existing and potential clients and with staffs of hotel and convention centers. Because of the highly-fragmented nature of the corporate communications and entertainment industry, the Company believes that there are a number of acquisition opportunities available to the Company. The Company believes, based on its experience with past acquisitions, that some portion of the small, regional, limited-services companies would welcome the opportunity to provide a full range of corporate communications and entertainment services that would result from an association with the Company. ENTERTAINMENT MARKETING & SPECIAL EVENTS The Entertainment Marketing & Special Events division is an industry leader in the creation, development and execution of highly integrated and innovative entertainment marketing and special event programs. This division continually forges new ways for clients to reach their audiences and realize their business objectives. The Entertainment Marketing & Special Events division specializes in the creative development, design, production and execution of a broad range of marketing initiatives that may include: national music tours, fairs and festivals, lifestyle events, nationally syndicated radio programs, satellite media tours, network television broadcast specials, point of purchase campaigns, premium/incentive programs, brand imaging campaigns, sponsorship fulfillment, web casts, experiential branding initiatives and consumer/trade promotions. 3 4 TBA provides companies with the power to reach and engage their customers in a fresh, contemporary manner utilizing relevant programming and experiential branding techniques to integrate their company or brand into the lifestyle of their consumers. The Entertainment Marketing & Special Events division seeks to develop music-marketing programs that appeal to highly-focused demographic segments. In addition, corporations are increasingly utilizing entertainment personalities as advertising tools, having recognized the effectiveness of concert/tour sponsorship as a cost-effective means to reach a target audience. The Company has produced sponsored music-marketing tours for clients that include Red Lobster, General Motors, Best Buy and Fruit of the Loom. Under the banner TBA TV, the Company has produced major television broadcast events and specials including Turner Sports 1998 Goodwill Games Opening Celebration on CBS, NASCAR Rocks on TNN, Blockbuster RockFest on MTV, as well as pay-per-view broadcasts for Viewer's Choice, DirecTV and Primestar. TBA produced entertainment marketing special events including "The Show" at the NBA All-Star Weekend, produced for TNT and the NBA, NFL on TNT Tailgate Party and the Montreux Jazz Festival in New York City. In 1999, the Company produced the proprietary event Rockfest in conjunction with Hard Rock Cafe. Rockfest counted the Oldsmobile "Alero", Circuit City and the Discover Card, among others, as corporate sponsors. The Entertainment Marketing & Special Events division also provides unique opportunities for the Company to showcase artist management clients and to develop high-impact merchandising programs to complement the overall marketing program. In addition, relationships with corporate sponsors also create opportunities to sell corporate communications and entertainment services to an expanded client base. The Company works with its clients to customize an entertainment marketing and special event to the exact specifications of that particular client. Over time, TBA believes existing clients will expand their programs, both by increasing the scope of existing components of programs and by adding new components to programs. The Company's Entertainment Marketing & Special Events division is currently characterized by a relatively small number of accounts with high revenues per account. As a result, the loss or addition of any one account could have a material affect on the Company's revenues. Because contracts for the Company's marketing programs are typically signed six months to one year before the program takes place, management believes that, to a reasonable degree, it can forecast and take appropriate action for changes in its client portfolio. When possible, the Company also seeks to enter into multi-year contracts with its clients. For example, in 1999, TBA entered into a three-year agreement to produce Rockfest with Hard Rock Cafe as the corporate sponsor. In addition, the Company believes that certain of its programs have applications beyond one single client. For example, in 1998, the Company developed the "For the Record" concept and marketing program for the country music group Alabama. This program was developed to highlight the outstanding career of Alabama and included a guest appearance on a nationally televised CBS special, a double-CD release of all 41 of their number one hits, a worldwide pay-per-view television special, a 13-city Christmas tour and a video of the pay-per-view event. In 1999, the "For the Record" program showcased Merle Haggard. TBA believes that there are other industry artists from all genres of music, that would benefit from the "For the Record" marketing program. Prior to the year 2000, the Company operated the Entertainment Marketing & Special Events division both for its own account and through joint venture arrangements, including Warner/TBA, a strategic joint venture between Time Warner's Warner Custom Music Group ("Warner") and TBA. The Company's 50% interest in Warner/TBA was acquired as part of the acquisition of AEG in April 1997. Although the formal joint venture arrangement reached the end of its term in December 1999, TBA continues to execute programs developed by Warner/TBA. TBA has made two strategic acquisitions in the past two years, increasing the Company's competitive position in the entertainment marketing industry. In December 1998, the Company acquired all of the outstanding capital stock of TKS Marketing, Inc., which specializes in sponsorship fulfillment. In January 2000, the Company acquired all of the outstanding common stock of Romeo Entertainment Group, Inc. ("Romeo"), one of the largest producers of outdoor fairs and festivals in the United States. The Company believes that the fairs and festivals industry is in the midst of rapid change. Together with Romeo, the Company believes that it will have a tremendous opportunity to help shape the future of the fairs and festivals industry. The Company believes that there are a number of other acquisition opportunities available to the Company to add additional entertainment marketing and special events business. ARTIST MANAGEMENT The Artist Management division develops and implements career strategies for music industry artists, including high-profile artists such as Brooks & Dunn, Kathy Mattea, Chely Wright, Gary Chapman and Jaci Velasquez. The Company, as a leader in the production of corporate communications and entertainment programs, entertainment marketing initiatives, special events sponsorship procurement and merchandising of entertainment and sporting events, is uniquely positioned to create 4 5 opportunities for artists. Management believes that the Company's familiarity with all facets of the entertainment industry enables it to help artists create and capitalize on opportunities. With its expertise in concert production and corporate entertainment events and its relationships with venue managers, outside concert promoters, broadcasting executives and other industry professionals, management believes that the Company is uniquely positioned to offer services which can significantly enhance the careers of its clients. The Company develops long term career strategies and represents music industry artists in the negotiation of recording, touring, merchandising and performance contracts. Using these integrated resources, the Artist Management team is unified around the strategy of creating long-term, sustained success for the Company's artist management clients. The Company has made two strategic acquisitions over the past two years in assembling the Artist Management Division. In June 1998, the Company acquired all of the equity interests in Titley Spalding & Associates LLC, which currently manages Brooks & Dunn, Kathy Mattea and Chely Wright, among others. In December 1999, the Company acquired Mike Atkins Management, Inc. ("Atkins"), one of the largest artist management companies serving contemporary Christian music. Atkins manages Christian music artists including Point of Grace and Jaci Velasquez, among others. The Company believes that the artist management industry is highly-fragmented and its competitors consist primarily of small independent artist managers with a limited roster of clients, although there are several participants in the industry that have capabilities and resources comparable to and, in certain respects, greater than those of the Company. Because of the highly-fragmented nature of the artist management industry, the Company believes that there are a number of acquisition opportunities available to the Company, both within the country music genre as well as in other music genres including pop and rock. However, there can be no assurances that the Company will be successful in acquiring any additional companies in the artist management industry. EVENT MERCHANDISING The Event Merchandising division develops and executes merchandising programs for entertainment and sporting events, institutional organizations and celebrity clients. This division creates, designs, and executes merchandising programs as well as promotional and for-sale items. As a leader and innovator in the industry, TBA has created and executed exclusive merchandising programs for a broad range of events. These events include the Olympic games, the world's premier sporting event, the Association of Volleyball Professionals, the world's premier men's beach volleyball tour, U.S. Women's Figure Skating Championship, and the Ericsson Open Tennis Tournament, a world-class tennis championship. In addition, through the Event Merchandising division, TBA can deliver the added benefit of a merchandising program to any artist management client, integrated entertainment marketing initiative, special event, corporate communications program or business imaging campaign. This integrated strategy serves TBA's clients by building positive public awareness while generating additional profitability for the Company. The Company has made three strategic acquisitions over the past three years in assembling its Event Merchandising division. In July 1997, the Company acquired 51% of Eric Chandler Merchandising, Inc. ("ECM"). ECM, a Los Angeles-based company, specializes in executing merchandising for large-scale entertainment and sporting events, such as the 1996 Summer Olympic Games in Atlanta, Georgia. The remaining 49% of ECM was acquired by TBA in May 1998. In August 1998, the Company acquired all of the outstanding stock of Corporate Incentives, Inc. ("CII"), in connection with its acquisition of CPI. CII implements corporate merchandising programs. In March 1999, the Company acquired all of the outstanding stock of Karin Glass & Associates, Inc. and affiliated companies ("KGA"). KGA, an Indianapolis-based company, is a full-service merchandising company specializing in merchandise design, production and fulfillment. DISCONTINUED OPERATIONS In 1998, the Company began to focus its growth in certain segments of the entertainment sector and, in accordance with this strategy, divested itself of businesses that were not a part of the future growth plans of the Company. In May 1998, the Company sold its 51% interest in Avalon West Coast ("AWC"), a group of affiliated entities engaged primarily in concert promotion and amphitheater operations on the West coast, to New York-based SFX Entertainment, Inc. In August 1998, the Company sold all of its interest in The Village at Breckenridge Acquisition Corp., Inc. and Property Management Acquisition Corp., Inc., the wholly-owned subsidiaries of the Company that owned the Village at Breckenridge Resort located in Breckenridge, Colorado, and the associated 5 6 property management business operating in Breckenridge (the "Breckenridge Resort"), to Vail Summit Resorts, Inc., an affiliate of Vail Resorts, Inc. ("Vail"). In December 1998, the Company completed the sale of its Nashville Country Club Restaurant. The Company utilized a portion of the $24 million of proceeds (before applicable transaction costs) from the sale of these assets to fund its growth strategy in 1998, 1999 and in January 2000. The remaining proceeds will be utilized for operations and to fund the continued expansion of the Company's core entertainment operations pursuant to its business strategy. BUSINESS SEGMENT INFORMATION The Company classifies its operations into the four major business segments discussed above. See Note 11 to the consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for summarized financial information concerning the Company's reportable segments. COMPETITION In addition to the competitive factors outlined above for each of the Company's four business divisions, the success of the Company's entertainment operations are dependent upon numerous factors beyond the Company's control, including economic conditions, amounts of available leisure time, transportation costs, lifestyle trends and weather conditions. SEASONALITY The Company experiences quarterly fluctuations in revenue, operating income and net income as a result of many factors, including the timing of clients' meetings and events, timing of artists' tours and recording releases, weather related issues, delays in or cancellation of clients' entertainment marketing programs, as well as changes in the Company's mix among the various services offered. TRADEMARKS The Company has filed Intent-To-Use Trademark Applications for the TBA Entertainment Corporation mark for the various classes of goods and services in which the Company's mark will be utilized. In addition, the Company has filed or intends to file Intent-To-Use Trademark Applications for other proprietary programs developed by the Company. There can be no assurance, however, that these trademarks will proceed to registration, and if so registered, that the trademarks, in any one or more classes, will not violate the proprietary rights of others, that any registration of the trademarks or the Company's use thereof will be upheld if challenged, or that the Company will not be prevented from using the trademarks. REGULATION AND LICENSES The Company is subject to federal, state and local laws affecting its business, including various health, sanitation and safety standards. The Company's entertainment operations are subject to state and local government regulation, including regulations relating to live music performances. Each live concert performance must comply with regulations adopted by federal agencies and with licensing and other regulations enforced by state and local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining the required licenses or approvals can delay and sometimes prevent the promotion of live concerts. The failure to receive or retain, or delay in obtaining, a license to serve alcohol and beer in a particular location could adversely affect the Company's operations in that location and impair the Company's ability to obtain licenses elsewhere. The failure or inability of the Company to maintain insurance coverage could materially and adversely affect the Company. EMPLOYEES As of December 31, 1999, the Company had approximately 168 full-time and part-time employees. It is the Company's intention to manage its growth consistent with its ability to attract and retain qualified employees to manage its operations. Over the course of any given event or program, the Company evaluates the production personnel requirements and determines the extent to which it must supplement its available employee base with the use of freelance contractors or part-time employees. The Company believes that its relationship with its employees and freelance contractors is good. 6 7 The Company has no full-time employees whose employment is covered by collective bargaining or similar agreements with unions; however, the Company does from time to time independently contract with or hire part-time union personnel, especially during the production of a particular entertainment marketing program and, accordingly, the Company is a party to certain agreements with unions governing the hiring and terms of employment of such personnel. ITEM 2. PROPERTIES. The Company has offices located in Hickory Valley, Tennessee in a building owned by a limited partnership, the general partner of which is a corporation owned by Thomas J. Weaver III and Frank A. McKinnie Weaver, Sr., each an officer and director of the Company, and of which they also are limited partners. The limited partnership does not charge the Company rent for its Hickory Valley, Tennessee offices. The fair market rental value for this office space is not material to the Company's consolidated results of operations. The Company and/or its subsidiaries have entered into lease agreements with respect to leased office space in numerous cities in which the Company operates. These leases expire at various dates through September 2006. The Company's wholly-owned subsidiary, TBA Entertainment Group Dallas, Inc., owns the building in which its offices and production facilities are located, as well as certain vacant land adjacent to such building. The building is encumbered with an approximately $300,000 first lien mortgage indebtedness. TBA believes that the properties and facilities it owns or leases are suitable and adequate for the Company's current business and operations. The Company anticipates that as it expands, it will require additional office space to support such growth and believes that suitable space will be available as needed on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS. On July 31, 1997, the Company acquired a 51% partnership interest in the Irvine Meadows Amphitheater Partnership, a California general partnership which owned and managed the Irvine Meadows Amphitheater in Irvine, California. The Company acquired such 51% partnership interest from a corporate affiliate of a member of the Board of Directors of the Company (the "Seller"). In order to effectuate such sale, the Seller affiliate acquired an aggregate 49% partnership interest in the Irvine Meadows Amphitheater Partnership from two of its existing partners. On October 23, 1998, the two partners that sold their partnership interests to the Seller, along with their controlling shareholders (collectively, the "Plaintiffs"), filed a complaint in the Los Angeles Superior Court against the Company and the Seller. Certain other defendants were also named in the complaint. In such complaint, the Plaintiffs allege that, in connection with their sale, the Seller breached certain contractual obligations, breached his fiduciary duty to them as partners, and fraudulently induced them to sell their respective partnership interests. The Plaintiffs further allege that the Company aided and abetted the alleged breach of fiduciary duty and the fraud in the inducement. The Company denies all of the allegations and is vigorously defending this action. A state court in California has ruled that this litigation is to be settled by binding arbitration. An arbitrator has been assigned to the case, but no discovery has taken place. Management does not believe that the outcome of this litigation will have a material adverse effect on the consolidated financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of the Company's shareholders during the fourth quarter of the fiscal year ended December 31, 1999. 7 8 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The Common Stock is quoted on the Nasdaq National Market under the symbol TBAE. On March 17, 2000, the last reported sale price of the Common Stock was $4 1/4 per share. The following table sets forth the range of high and low bid prices of the Common Stock during each quarterly period within the two most recent fiscal years, as reported on the Nasdaq National Market.
HIGH LOW -------- -------- 1999 First Quarter $5 5/16 $3 7/8 Second Quarter 4 15/16 3 7/8 Third Quarter 4 1/2 3 7/8 Fourth Quarter 5 1/2 3 15/16 1998 First Quarter 4 1/16 3 1/4 Second Quarter 5 3 5/8 Third Quarter 5 9/32 3 5/8 Fourth Quarter 4 7/8 3 7/16
(b) The approximate number of holders of record of Common Stock on March 17, 2000 was 187. (c) The Company has not paid or declared cash distributions or dividends and does not intend to pay cash dividends on the Common Stock in the foreseeable future. The Company currently intends to retain all earnings to finance the development and expansion of its operations. The declaration of cash dividends in the future will be determined by the Board of Directors based upon the Company's earnings, financial condition, capital requirements and other relevant factors. 8 9 ITEM 6. SELECTED FINANCIAL DATA
STATEMENTS OF OPERATIONS DATA (1): 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ---------- Revenues $48,163,900 $27,272,700 $ 6,437,100 $-- $-- Costs related to revenues 31,863,400 18,468,700 4,705,600 -- -- ----------- ----------- ----------- ----------- ---------- Gross profit margin 16,300,500 8,804,000 1,731,500 -- -- Selling, general and administrative expenses 12,962,600 6,969,000 1,888,600 302,000 334,900 Depreciation and amortization 1,790,300 679,400 148,900 1,400 1,400 Minority interest -- (36,000) -- -- -- Equity in income of Joint Venture (173,000) (343,700) (78,900) -- -- Net interest (income) expense (266,200) (144,500) 153,000 700 2,800 ----------- ----------- ----------- ----------- ---------- Income (loss) from continuing operations before income taxes 1,986,800 1,679,800 (380,100) (304,100) (339,100) Provision for income taxes (790,000) (189,700) -- -- -- ----------- ----------- ----------- ----------- ---------- Income (loss) from continuing operations 1,196,800 1,490,100 (380,100) (304,100) (339,100) Income (loss) from discontinued operations 329,200 1,180,900 782,400 (2,823,200) (454,800) ----------- ----------- ----------- ----------- ---------- Net income (loss) $ 1,526,000 $ 2,671,000 $ 402,300 $(3,127,300) $ (793,900) =========== =========== =========== =========== ========== EBITDA (2) $ 3,510,900 $ 2,214,700 $ (78,200) $ (302,000) $ (334,900) =========== =========== =========== =========== ========== Income (loss) from continuing operations - basic $ 0.14 $ 0.19 $ (0.07) $ (0.09) $ (0.23) Income (loss) from continuing operations - diluted $ 0.14 $ 0.18 $ (0.06) $ (0.09) $ (0.23) Weighted average common stock outstanding - basic 8,495,200 7,851,600 5,680,300 3,575,900 1,470,000 Weighted average common stock outstanding - diluted 8,540,000 8,243,500 6,324,600 3,575,900 1,470,000 BALANCE SHEET DATA (1): Working capital (3) 7,838,600 12,381,900 1,122,000 -- -- Goodwill, net 19,383,700 16,008,600 3,494,100 -- -- Net assets of discontinued operations 54,100 2,552,000 20,273,000 11,797,662 1,795,000 Total assets 43,149,500 40,445,200 27,401,600 13,428,200 1,795,000 Long-term debt (4) 3,719,600 4,755,700 2,036,700 -- -- Treasury stock (2,062,100) (724,500) -- -- -- Stockholders' equity 27,858,800 28,515,700 20,720,400 12,213,300 1,795,000
(1) Prior to 1998, the Company acquired and operated certain businesses that were sold in 1998. The sale of these businesses has resulted in the reclassification of the operating results and net assets and liabilities of these businesses to discontinued operations for all periods presented. (2) EBITDA is earnings from continuing operations before interest income and expense, income taxes and depreciation and amortization. EBITDA is presented supplementally because management believes it allows for a more complete analysis of results of operations. This information should not be considered as an alternative to any measure of performance or liquidity as promulgated under generally accepted accounting principles (such as net income or cash provided by or used in operating, investing or financing activities), nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. (3) Working capital represents total current assets (excluding net short-term assets of discontinued operations) less total current liabilities (excluding net short-term liabilities of discontinued operations). (4) Long-term debt excludes notes payable and current portion of long-term debt totaling $3,328,000, $759,600 and $1,063,300 as of December 31, 1999, 1998 and 1997, respectively. 9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of the following discussion and analysis is to explain the major factors and variances between periods of the Company's results of operations. The following discussion of the Company's financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and notes thereto included in Item 8, beginning on page 15. Introduction The Company is a diversified communications and entertainment services company that produces a broad range of business communications, meeting production and entertainment services for corporate meetings, develops and produces integrated music marketing programs and special events, manages music artists and develops and executes merchandising programs for large-scale entertainment and sporting events. In April 1997, the Company acquired its first corporate communications and entertainment company, TBA Entertainment Group Nashville, Inc., formerly Avalon Entertainment Group, Inc. ("AEG"), including a 50% interest in the Warner/TBA (formerly Warner/Avalon) joint venture. In 1998, the Company grew its operations through the acquisition of several additional corporate communications and entertainment services businesses, including Titley Spalding & Associates, LLC ("TSA"), TBA Entertainment Group Chicago, Inc., formerly Corporate Productions, Inc. ("CPI"), Corporate Incentives, Inc. ("CII"), TBA Entertainment Group Phoenix, Inc., formerly Image Entertainment Productions, Inc. ("Image"), TBA Entertainment Group Dallas, Inc., formerly Magnum Communications, Inc. ("Magnum"), and TKS Marketing, Inc. ("TKS"), (collectively, the "1998 Acquisitions"). In 1999, the Company also completed the acquisition of Karin Glass & Associates, Inc. and affiliated companies (collectively, "KGA") and Mike Atkins Management, Inc. ("Atkins") (collectively, the "1999 Acquisitions"). In January 2000, the Company also completed the acquisition of Romeo Entertainment Group, Inc. ("Romeo"). General The Company classifies its operations into four major business segments. See Note 11 to the consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for summarized financial information concerning the Company's reportable segments. The Company currently derives a majority of its revenues (71%, 86% and 98% for the years ended December 31, 1999, 1998 and 1997, respectively) from the production of business communications and entertainment events for corporate clients. The Company works with its clients to develop creative programming to deliver messages to the client's targeted audiences. The Company receives a fee for providing these services, which may include developing creative content, designing audio/visual presentations and arranging for live entertainment and related production services, including lights and sound. Revenue is recognized when the services are completed for each event. Costs of producing the events are also deferred until the event occurs. The remainder of the Company's revenues are generated from event merchandising (20%, 5% and 0% of total revenues for the years ended December 31, 1999, 1998 and 1997, respectively), artist management (6%, 6% and 2% of total revenues for the years ended December 31, 1999, 1998 and 1997, respectively) and entertainment marketing (3%, 3% and 0% of total revenues for the years ended December 31, 1999, 1998 and 1997, respectively). Event merchandising revenue increased dramatically in 1999 as a result of the acquisition of KGA in March 1999. Event merchandising revenue is recognized when the merchandise is shipped or sold to the customer. Cost of sales includes the direct cost of acquiring or producing the merchandise. Artist management revenue, which generally consists of commissions received from artists' earnings, is recognized in the period in which the artist earns the revenue. There are generally only minimal direct costs associated with generating artist management revenue. Entertainment marketing revenues and cost of revenues are recognized when the services are completed for each program or, for those programs with multiple events, apportioned to each event and recognized as each event occurs. Through December 31, 1999, the Company also developed and produced entertainment marketing programs and special events through a 50% interest in Warner/TBA, a joint venture with an affiliate of Time Warner. The Company accounted for these activities using the equity method of accounting. The formal Warner/TBA joint venture agreement reached the end of its term on December 31, 1999. Accordingly, beginning in the year 2000, the Company will begin to recognize all revenue and expenses associated with entertainment marketing programs that were previously executed by the Warner/TBA joint venture. As a result, along with the acquisition of Romeo in January 2000, the Company expects that entertainment marketing revenue, as a percent of total Company revenue, will increase significantly beginning in the year 2000. 10 11 Discontinued Operations Prior to 1998, the Company acquired and operated certain businesses that were sold in 1998. These businesses included the Nashville Country Club, the Village at Breckenridge Resort and a 51% controlling interest in AWC. In accordance with accounting principles generally accepted in the United States, the sale of these businesses has resulted in the reclassification of the operating results of these businesses to discontinued operations for all periods presented. Operating results of these businesses and other information for discontinued operations appear in the notes to consolidated financial statements captioned "Dispositions" (Note 7). Results of Operations ended December 31, 1999 and 1998 For the 1999 period, results of operations of KGA and Atkins are included from their respective acquisition dates. For the 1998 period, results of operations of each of the 1998 Acquisitions are included from the corresponding acquisition dates in 1998. Revenues increased $20,891,200, or 77%, to $48,163,900 for 1999 from $27,272,700 for 1998. $10,712,800 of the increase resulted from the production of 177 additional corporate entertainment and meeting production events, to 583 events in 1999 compared to 406 events produced in 1998. The increase in the number of shows is primarily attributable to an increase in the Company's sales force and the inclusion of a full year of operations of CPI, Image and Magnum, which were acquired in the third and fourth quarters of 1998. The average revenue per event increased from $57,800 in 1998 to $58,600 in 1999. In 1999, the Company produced 28 events with revenues in excess of $250,000, versus 20 such events in 1998. However, the impact of the increase in the number of larger events was offset by the impact of a higher number of lower revenue events produced by one of the 1998 Acquisitions. In general, the Company is aggressively pursuing larger corporate meeting and entertainment events with Fortune 1000 companies. Event merchandising revenues increased $8,292,800 for the 1999 period from the 1998 period, due to the addition of merchandising activities through the acquisition of KGA in March 1999. KGA produces and sells merchandise for a number of large sporting events and corporate fulfillment programs. Revenue from the artist management division increased $1,155,000 in 1999. The increase results primarily from a full year of revenues from TSA, which was acquired in June 1998. The remaining revenue increase of $730,600 results from a full year of revenues from TKS, which was acquired in December 1998 and from revenues generated by the For the Record program. Cost of revenues increased $13,394,700, or 73%, to $31,863,400 for 1999 from $18,468,700 for 1998. The increase resulted primarily from the production of additional corporate entertainment and meeting planning events and the addition of merchandising activities discussed above. Cost of revenues as a percentage of revenues decreased to 66% for 1999 from 68% for 1998. The decrease was due to improved profit margins related to corporate communications and entertainment events for 1999 as compared to 1998, increased revenues from artist management, which typically have minimal direct costs as a percentage of revenue, and improved profit margins in event merchandising resulting from the acquisition of KGA in March 1999. Selling, general and administrative expenses increased $5,993,600, or 86%, to $12,962,600 for 1999 from $6,969,000 for 1998. The increase results primarily from increased personnel and related operating expenses associated with the increased number of corporate entertainment and meeting planning events, as well as general and administrative expenses associated with the 1999 acquisitions and a full year of operations for the 1998 Acquisitions. Selling, general and administrative expenses, as a percent of total revenues, increased to 27% for 1999 from 26% for 1998. The increase is primarily due to added sales personnel and the opening of the Atlanta office in the fourth quarter of 1999. Depreciation and amortization expense increased $1,110,900, or 164%, to $1,790,300 for 1999 from $679,400 for 1998. The increase results primarily from the amortization of goodwill associated with the 1999 and 1998 Acquisitions. The Company expects that depreciation and amortization expense will continue to increase in the year 2000 as a result of amortization expense associated with the Atkins acquisition in December 1999 and the Romeo acquisition in January 2000. Equity income from AEG's 50% joint venture interest in Warner/TBA decreased to income of $173,000 for 1999 from of $343,700 for 1998. Revenues for Warner/TBA decreased $673,900, or 8%, to $8,178,600 for 1999 from $8,852,500 for 1998. Operating costs of Warner/TBA, including general and administrative expenses, increased $167,600, or 2%, to $8,332,600 for 1999 from $8,165,000 for 1998. Net income for Warner/TBA decreased to a loss of $154,000 in 1999 from a profit of $687,500 in 1998, due to higher talent costs associated with a major client tour, the cancellation of the NBA All-Star Game in 1999 and lower than expected sales for the June 1999 Rockfest. Effective December 31, 1999, the formal joint venture agreement with Warner reached the end of its term. Beginning in the year 11 12 2000, the Company will recognize 100% of the revenues and expenses associated with programs previously recorded by Warner/TBA. In addition, in 1999, the Company recognized a gain of $250,000 related to the distribution of the net assets of Warner/TBA. Net interest income was $266,200 for 1999 versus $144,500 for 1998. The change is attributable primarily to interest earned on increased cash balances resulting from proceeds from the sale of certain businesses in 1998, offset by increased outstanding debt associated with the 1998 Acquisitions. As a result of acquisitions made by the Company in 1999 and in January 2000, the Company's long-term debt has increased. Accordingly, the Company expects that net interest income will decrease in the fiscal year 2000. The provision for income taxes, as a percentage of income from continuing operations before income taxes, is 40% for the 1999 period compared to 11% for 1998, and reflects statutory tax rates adjusted for estimated permanent book/tax differences. The 1998 tax provision was positively impacted by the utilization of net operating loss carrryforwards available to offset taxable income. The Company has utilized substantially all its federal net operating loss carryforwards as of December 31, 1999. Discontinued Operations In 1999, the Company received the final payment related to the sale of the Village at Breckenridge Resort. Accordingly, the Company recognized a gain on the sale of discontinued operations of $329,200 for 1999, net of additional expenses related to the sale of discontinued operations and net of income taxes of $399,600. Income from discontinued operations in 1998 included a gain on the sale of AWC in May 1998 and the discontinued operations of the Village at Breckenridge Resort through the August 1998 sale date. No gain was recorded on the sale of the Village at Breckenridge Resort in 1998 due to certain contingent payments that were not received until 1999. Results of Operations ended December 31, 1998 and 1997 The 1997 period includes the results of operations for AEG from the April 21, 1997 acquisition date, to December 31, 1997, whereas the 1998 period includes the results of operations for AEG from January 1, 1998 to December 31, 1998. Results of operations of each of the 1998 Acquisitions are included from the corresponding acquisition dates in 1998. Revenues increased $20,835,600, or 324%, to $27,272,700 for 1998 from $6,437,100 for 1997. $17,198,700 of the increase resulted from the production of 298 additional corporate entertainment and meeting production events, to 406 events in 1998 compared to 108 events produced in 1997. The increase in the number of shows is primarily attributable to an increase in the Company's sales force, the addition of corporate meeting event services in 1998 and the acquisitions of CPI, Image and Magnum, in the third and fourth quarters of 1998. In 1997, the Company produced primarily corporate entertainment events through the operations of AEG. The average revenue per event remained relatively constant at approximately $58,000 between years. In general, the Company is aggressively pursuing larger corporate entertainment and meeting events with Fortune 1000 companies. In 1998, the Company produced 20 events with revenues in excess of $250,000, versus two such events in 1997. However, the impact of the substantial increase in the number of larger events was offset by a higher number of lower revenue events produced by one of the 1998 Acquisitions. Revenue from the artist management division increased $1,565,900 for the 1998 period from the 1997 period. The Company contracted with one well-known new artist in 1997, which began producing significant revenue in 1998. Additionally, in June 1998, the Company acquired TSA, an artist management company with three artists currently under management. Revenue from the event merchandising division increased $1,233,500 for the 1998 period from the 1997 period, due to the addition of merchandising activities through the acquisition of Eric Chandler Merchandising, Inc. and CII. The remaining revenue increase of $837,500 results from revenue associated with the For the Record program. In the 1997 period, all entertainment marketing programs were executed through the Warner/TBA joint venture, which is accounted for using the equity method of accounting. Cost of revenues increased $13,763,100, or 292%, to $18,468,700 for 1998 from $4,705,600 for 1997. The increase resulted primarily from the production of additional corporate entertainment and meeting planning events and the addition of merchandising activities discussed above. Cost of revenues as a percentage of revenues decreased to 68% for 1998 from 73% for 1997. A portion of the decrease was due to improved profit margins related to corporate entertainment and meeting planning events for 1998 as compared to 1997. The remaining decrease results from increased revenues for artist management, which typically have minimal 12 13 direct costs as a percentage of revenue. The decrease in cost of revenues is offset by the increase in revenues in the event merchandising division, which had a cost of revenues of 81% of event merchandising revenues for 1998. Selling, general and administrative expenses increased $5,080,400, or 269%, to $6,969,000 for 1998 from $1,888,600 for 1997. The increase results primarily from increased personnel and related operating expenses associated with the increased number of corporate entertainment and meeting planning events, as well as general and administrative expenses associated with the 1998 Acquisitions. The increase is further explained by increased personnel and related expenses incurred to develop an administrative and accounting infrastructure to manage the Company's growth during the past year. Selling, general and administrative expenses, as a percent of revenue, decreased to 26% in 1998 from 29% in 1997. Depreciation and amortization expense increased $530,500, or 356%, to $679,400 for 1998 from $148,900 for 1997. The increase results primarily from the amortization of goodwill associated with the 1998 Acquisitions. Equity income from AEG's 50% joint venture interest in Warner/TBA increased $264,800, or 336%, to $343,700 for 1998 from $78,900 for 1997. Revenues for Warner/Avalon decreased $1,979,200, or 18%, to $8,852,500 for 1998 from $10,831,700 for 1997. Operating costs of Warner/TBA decreased $2,445,900, or 23%, to $8,165,000 for 1998 from $10,610,900 for 1997. The overall decrease in revenues and operating expenses results primarily from a reduction in the size of entertainment marketing programs produced in 1998 as compared to 1997. Operating costs as a percentage of revenues decreased to 92% of revenues in 1998 as compared to 98% in 1997. The decrease results primarily from the elimination of a music tour program that occurred in 1998 in which the Company incurred operating losses of $666,000. For 1998, net interest income was $144,500 versus net interest expense of $153,000 for 1997. The change is attributable primarily to interest earned on increased cash balances resulting from proceeds from the sale of discontinued operations, offset by increased outstanding debt associated with the 1998 Acquisitions. The provision for income taxes, as a percentage of income taxes from continuing operations before income taxes, was 11% for 1998, which reflects statutory tax rates adjusted for utilization of net operating loss carryforwards and book/tax differences. There was no provision for income taxes for 1997 as the Company had net operating loss carryforwards available to offset taxable income. Discontinued Operations The Company recognized a net gain on the disposition of AWC and the Nashville Country Club restaurant in 1998 of $1,196,500. No gain was recognized on the sale of the Breckenridge Resort in 1998, as a portion of the proceeds from the sale of the Breckenridge Resort was held in escrow pending the consummation of certain other transactions. Upon receipt of the funds held in escrow, which occurred in 1999, the Company recognized a one-time gain from the sale of the Village at Breckenridge Resort. LIQUIDITY AND CAPITAL RESOURCES The Company continues to maintain a strong financial position, funding acquisitions and working capital needs from net cash proceeds received from the sale of discontinued operations and out of operating cash flow. Cash and cash equivalents were $12,847,600 at December 31, 1999 as compared to $15,583,800 at December 31, 1998. Working capital was $7,892,700 at December 31, 1999, versus $14,933,900 at December 31, 1998. The decrease is primarily attributable to the use of cash reserves to acquire KGA in March 1999 and to fund the Company's stock repurchase program, as well as the increase in current portion of long-term debt due to the maturation of certain acquisition financing in the year 2000. Cash provided by continuing operations was $1,041,400 and $1,476,900 for 1999 and 1998, respectively, compared to cash used in continuing operations of $620,400 for 1997. The increase from 1997 to 1998 is primarily the result of improved operations. The fluctuation in cash provided by continuing operations between 1998 and 1999 primarily reflects the timing of deferred revenue and prepaid expenses associated with programs occurring in the following year. Cash used in investing activities was $952,400 in 1999, versus cash provided by investing activities of $15,283,100 and $76,400 in 1998 and 1997. In 1999, cash was used to acquire KGA and property and equipment, offset by the remaining payment of $3,000,000 of proceeds from the sale of the Village at Breckenridge Resort. In 1998, the Company received proceeds from the sale of AWC, the Village at Breckenridge Resort and the Nashville Country Club restaurant, offset by cash used for the 1998 Acquisitions 13 14 and expenditures for property and equipment. Cash provided by investing activities for 1997 was primarily from cash acquired in the acquisition of AEG. Cash used in financing activities was $2,825,200 and $2,154,800 for 1999 and 1998, respectively, resulting primarily from the repayment of borrowings and the purchase of treasury shares pursuant to the Company's stock repurchase program. Cash provided by financing activities for 1997 was $8,874,800, resulting from an offering of 2,600,000 shares of common stock of the Company for $9,100,000, less offering costs of $971,000. The Company has pursued an aggressive growth strategy since its formation in 1993. From the Company's inception through December 31, 1997, the Company acquired and operated certain businesses that were sold in 1998. The Company relied on external sources of funds, including public offerings of its common stock and bank borrowings to finance the acquisition of these businesses and to fund the general operations of the Company. In 1998, the Company realized net proceeds of $19,393,800 from the sale of discontinued operations, after repayment of borrowings associated with these operations and applicable transaction costs. In 1999, the Company received the final $3,000,000 of net proceeds from the sale of the Village at Breckenridge Resort. The Company used a portion of the proceeds from the sale of these operations to fund part of the purchase price of AEG in 1997, the 1998 Acquisitions and the 1999 Acquisitions. In addition, the Company used cash reserves to acquire Romeo in January 2000. The remainder of the purchase price for these acquisitions was funded through the issuance of common stock of the Company and the issuance of acquisition notes payable. The acquisition notes are payable in various installments of principal plus accrued interest at 8% through August 2004. During 1998 and continuing through a portion of 2003 (the "Earn-out Period"), the sellers of TSA and TKS will be paid additional sales price consideration based on the earnings of TSA and TKS during each of the years in the Earn-out Period, up to a maximum of $6,380,000 additional purchase price. Generally, the additional purchase price for TSA and TKS will be paid 60% in cash and 40% in notes payable which are payable in semi-annual installments with 8% interest over a five-year period. The Company's board of directors authorized the repurchase of up to 1,000,000 shares of the Company's common stock until December 31, 1999. As of December 31, 1999, the Company had repurchased 705,300 shares of common stock pursuant to the stock repurchase program for total consideration of $3,023,600. The Company utilized cash reserves to fund the repurchases of common stock. The Company expects to continue its aggressive growth strategy in the entertainment industry. The Company anticipates that future business acquisitions made by the Company will be completed through a combination of cash, notes payable issued to the sellers and the issuance of common stock of the Company to the sellers. The Company believes that cash flow from operations and current cash reserves are more than adequate to meet its current working capital requirements. In addition, to provide any additional funds necessary for the continued pursuit of the Company's growth strategies, the Company may issue additional equity and debt securities and may incur, from time to time, additional short- and long-term bank indebtedness. The availability and attractiveness of any outside sources of financing will depend on a number of factors, some of which relate to the financial condition and performance of the Company, and some of which will be beyond the Company's control, such as prevailing interest rates and general economic conditions. There can be no assurance that such additional financing will be available or, if available, will be on terms acceptable to the Company. To the extent that the Company is able to finance its growth through internal and external sources of capital, the Company intends to continue to grow its operations through additional acquisitions. There can be no assurance that the Company will be able to acquire any additional businesses, that any businesses that are acquired will be or will become profitable or that the Company will be able to integrate effectively any such businesses into its existing operations. Forward Looking Statements The foregoing discussion may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are intended to be covered by the safe harbors created by such provisions. These statements include the plans and objectives of management for future growth of the Company, including plans and objectives related to the acquisition of certain businesses and the consummation of future private and public issuances of the Company's equity and debt securities. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgements with respect 14 15 to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives of the Company will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following financial statements required by this item are filed herewith:
PAGE ---- Report of Independent Public Accountants 15 Consolidated Balance Sheets as of December 31, 1999 and 1998 16 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 17 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 18 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 19 Notes to Consolidated Financial Statements 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To TBA Entertainment Corporation: We have audited the accompanying consolidated balance sheets of TBA Entertainment Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TBA Entertainment Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Los Angeles, California March 24, 2000 15 16 TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998 ----------- ----------- Current assets: Cash and cash equivalents $12,847,600 $15,583,800 Accounts receivable, net of allowance for doubtful accounts of $50,000 and $55,800, 3,593,400 2,355,100 respectively Inventories 563,300 -- Deferred charges and other current assets 2,425,400 1,616,800 Net short-term assets from sale of discontinued operations 54,100 2,552,000 ----------- ----------- Total current assets 19,483,800 22,107,700 Property and equipment, net 2,937,500 1,853,600 Other assets, net: Goodwill 19,383,700 16,008,600 Investment in Joint Venture 588,700 410,600 Other 755,800 64,700 ----------- ----------- Total assets $43,149,500 $40,445,200 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 3,765,500 $ 4,299,400 Deferred revenue 4,497,600 2,114,800 Notes payable and current portion of long term-debt 3,328,000 759,600 ----------- ----------- Total current liabilities 11,591,100 7,173,800 Long-term debt, net of current portion 3,719,600 4,755,700 ----------- ----------- Total liabilities 15,310,700 11,929,500 ----------- ----------- Stockholders' equity: Preferred stock, $.001 par value; authorized 1,000,000 shares, 2,600 and 68,800, respectively, of Series A convertible preferred stock issued and outstanding, total liquidation preference $100 and $2,100, respectively 100 2,100 Common stock, $.001 par value; authorized 20,000,000 shares, 8,714,300 and 8,831,500 shares issued, respectively 8,700 8,800 Additional paid-in capital 29,859,900 30,723,100 Retained earnings (deficit) 32,200 (1,493,800) Less treasury stock, at cost, 495,500 and 196,700 shares, respectively (2,062,100) (724,500) ----------- ----------- Total stockholders' equity 27,838,800 28,515,700 ----------- ----------- Total liabilities and stockholders' equity $43,149,500 $40,445,200 =========== ===========
The accompanying notes are an integral part of these balance sheets. 16 17 TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ------------------------------------------------- 1999 1998 1997 ------------ ------------ ----------- Revenues $ 48,163,900 $ 27,272,700 $ 6,437,100 Costs related to revenues 31,863,400 18,468,700 4,705,600 ------------ ------------ ----------- Gross profit margin 16,300,500 8,804,000 1,731,500 Selling, general and administrative expenses 12,962,600 6,969,000 1,888,600 Depreciation and amortization expense 1,790,300 679,400 148,900 Equity in income of Joint Venture (173,000) (343,700) (78,900) Minority interest -- (36,000) -- Interest (income) expense, net (266,200) (144,500) 153,000 ------------ ------------ ----------- Income (loss) from continuing operations before income taxes 1,986,800 1,679,800 (380,100) Provision for income taxes (790,000) (189,700) -- ------------ ------------ ----------- Income (loss) from continuing operations 1,196,800 1,490,100 (380,100) ------------ ------------ ----------- Discontinued operations (Notes 2 and 7): (Loss) income from operations, including income tax benefit of ($189,900) and income tax expense of $351,800 for 1998 and 1997, respectively -- (15,600) 782,400 Gain on disposition of discontinued operations net of income tax expense of $399,600 for 1999 329,200 1,196,500 -- ------------ ------------ ----------- Income from discontinued operations 329,200 1,180,900 782,400 ------------ ------------ ----------- Net income $ 1,526,000 $ 2,671,000 $ 402,300 ============ ============ =========== Earnings per common share - basic: Income (loss) from continuing operations $ 0.14 $ 0.19 $ (0.07) Income from discontinued operations 0.04 0.15 0.14 ------------ ------------ ----------- Net income per common share - basic $ 0.18 $ 0.34 $ 0.07 ------------ ------------ ----------- Earnings per common share - diluted: Income (loss) from continuing operations $ 0.14 $ 0.18 $ (0.06) Income from discontinued operations 0.04 0.14 0.12 ------------ ------------ ----------- Net income per common share - diluted $ 0.18 $ 0.32 $ 0.06 ============ ============ ===========
The accompanying notes are an integral part of these statements. 17 18 TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------- -------------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------- ------- --------- ------------ ----------- BALANCES, December 31, 1996 334,300 $10,000 4,590,400 $ 16,770,400 $ -- Issuance of shares of common stock and warrants, net of offering costs -- -- 2,600,000 8,129,000 -- Conversion to $.001 par value stock upon Reincorporation -- -- -- (24,892,200) 24,892,200 Repurchase of common stock -- -- -- -- -- Net income -- -- -- -- -- ------- ------- --------- ------------ ----------- BALANCES, December 31, 1997 334,300 10,000 7,190,400 7,200 24,892,200 Issuance of common stock warrants -- -- -- -- 112,800 Issuance of common stock upon Acquisitions -- -- 1,423,300 1,400 5,948,900 Repurchase of common stock -- -- -- -- -- Common stock cancelled -- -- (47,700) (100) (238,400) Conversion of preferred stock into common stock (265,500) (7,900) 265,500 300 7,600 Net income -- -- -- -- -- ------- ------- --------- ------------ ----------- BALANCES, December 31, 1998 68,800 2,100 8,831,500 8,800 30,723,100 Issuance of common stock -- -- 7,200 -- 30,000 Issuance of common stock for employee stock purchase plan -- -- -- -- (13,700) Repurchase of common stock -- -- -- -- -- Common stock cancelled -- -- (190,600) (200) (881,500) Conversion of preferred stock into common stock (66,200) (2,000) 66,200 100 2,000 Net income -- -- -- -- -- ------- ------- --------- ------------ ----------- BALANCES, December 31, 1999 2,600 $ 100 8,714,300 $ 8,700 $29,859,900 ======= ======= ========= ============ ===========
RETAINED TREASURY STOCK TOTAL EARNINGS ----------------------- STOCKHOLDERS' (DEFICIT) SHARES AMOUNT EQUITY ----------- ------- ----------- ------------- BALANCES, December 31, 1996 $(4,567,100) -- $ -- $12,213,300 Issuance of shares of common stock and warrants, net of offering costs -- -- -- 8,129,000 Conversion to $.001 par value stock upon Reincorporation -- -- -- Repurchase of common stock -- 4,800 (24,200) (24,200) Net income 402,300 -- -- 402,300 ----------- ------- ----------- ----------- BALANCES, December 31, 1997 (4,164,800) 4,800 (24,200) 20,720,400 Issuance of common stock warrants -- -- -- 112,800 Issuance of common stock upon Acquisitions -- -- -- 5,950,300 Repurchase of common stock -- 239,600 (938,800) (938,800) Common stock cancelled -- (47,700) 238,500 -- Conversion of preferred stock into common stock -- -- -- -- Net income 2,671,000 -- -- 2,671,000 ----------- ------- ----------- ----------- BALANCES, December 31, 1998 (1,493,800) 196,700 (724,500) 28,515,700 Issuance of common stock -- -- -- 30,000 Issuance of common stock for employee stock purchase plan -- (19,200) 79,800 66,100 Repurchase of common stock -- 508,600 (2,299,100) (2,299,100) Common stock cancelled -- (190,600) 881,700 -- Conversion of preferred stock into common stock -- -- -- 100 Net income 1,526,000 -- -- 1,526,000 ----------- ------- ----------- ----------- BALANCES, December 31, 1999 $ 32,200 495,500 $(2,062,100) $27,838,800 =========== ======= =========== ===========
The accompanying notes are an integral part of these statements. 18 19 TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, --------------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 1,526,000 $ 2,671,000 $ 402,300 Adjustments to reconcile net income to net cash provided by (used in) continuing operations: Depreciation and amortization 1,790,300 679,400 148,900 Income from discontinued operations (329,200) (1,180,900) (782,400) Undistributed earnings of Joint Venture (173,000) (343,700) (78,900) Deferred tax provision (179,900) (547,300) -- Changes in operating assets and liabilities, net of acquisitions: Increase in accounts receivable (537,300) (853,600) (165,100) Decrease in inventories 108,600 -- -- (Increase) decrease in deferred charges and (1,099,800) 348,300 186,800 other current assets (Increase) decrease in other assets (58,200) 9,900 (33,800) (Decrease) increase in accounts payable (2,397,900) 1,376,900 3,000 and accrued liabilities Increase (decrease) in deferred revenue 2,382,800 (683,100) (301,200) ----------- ----------- ----------- Net cash provided by (used in) continuing operations 1,041,400 1,476,900 (620,400) ----------- ----------- ----------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired (3,237,700) (3,242,900) 124,800 Net proceeds from dispositions of businesses 3,337,100 19,393,800 -- Expenditures for property and equipment (1,051,800) (599,800) (48,400) Increase in other current assets -- (268,000) -- ----------- ----------- ----------- Net cash provided by (used in) investing activities (952,400) 15,283,100 76,400 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from sale of common stock, net of offering costs -- -- 8,129,000 Net borrowings on credit lines 152,700 -- -- Proceeds from long-term debt 73,000 -- 2,750,000 Repayments of long-term debt (817,900) (1,216,000) (1,980,000) Repurchase of common stock (2,299,100) (938,800) (24,200) Issuance of common stock for employee stock purchase plan 66,100 -- -- ----------- ----------- ----------- Net cash (used in) provided by financing activities (2,825,200) (2,154,800) 8,874,800 ----------- ----------- ----------- Net cash used in discontinued operations -- -- (7,534,400) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (2,736,200) 14,605,200 796,400 Cash and cash equivalents - beginning of year 15,583,800 978,600 182,200 ----------- ----------- ----------- Cash and cash equivalents - end of year $12,847,600 $15,583,800 $ 978,600 =========== =========== =========== Supplemental Cash Flow Information: Cash paid during the year for interest $ 282,400 $ 347,300 $ 24,900 =========== =========== =========== Cash paid during the year for income taxes $ 1,435,700 $ -- $ -- =========== =========== ===========
The accompanying notes are an integral part of these statements. 19 20 TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. The Company TBA Entertainment Corporation and subsidiaries (the "Company") is a diversified communications and entertainment company that produces a broad range of business communications, meeting productions and entertainment services for corporate meetings, develops and produces integrated music marketing programs, manages music industry artists and develops and executes merchandising programs for entertainment and sporting events. The Company was incorporated in Tennessee in June 1993 and reincorporated in Delaware in September 1997. 2. Basis of Financial Presentation Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Discontinued Operations Prior to 1998, the Company acquired and operated certain businesses that were sold in 1998 (Note 7). These businesses included the Nashville Country Club Restaurant (opened in November 1994 and sold in December 1998), the Village at Breckenridge Resort ("Breckenridge Resort") (acquired in April 1996 and sold in August 1998) and a 51% controlling interest in a group of entities (collectively referred to as "AWC") (acquired in July 1997 and sold in May 1998). The sale of these businesses has resulted in the reclassification of the operating results of these businesses to discontinued operations for all periods presented, in accordance with generally accepted accounting principles. 3. Summary of Significant Accounting Policies Revenue Recognition The Company recognizes revenue when services are completed for an event. For those projects that provide for multiple events, the contract revenue and costs are apportioned and revenue and profit are recognized as each event occurs. Deferred income represents customer deposits on future events. Deferred charges represent Company expenditures related to future events. For merchandise operations, revenue is recognized when the merchandise is shipped or sold to a customer. Costs Related to Revenue Costs related to revenue is comprised of all direct costs associated with the production of an event, including talent fees, contracted services, equipment rentals and costs associated with the production of audio-visual effects. Such costs are deferred until the event occurs. Cost of merchandise revenue is comprised of the direct costs of the merchandise sold. Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash in banks and highly liquid investments purchased with an original maturity of three months or less. Cash and cash equivalents' carrying amounts approximate fair value. The Company holds its investments in highly qualified financial institutions. Inventories Inventories consist primarily of finished merchandise product, and are stated at the lower of cost or market, determined using the first-in, first-out (FIFO) basis. 20 21 Property and Equipment Property and equipment consists of the following as of December 31, 1999 and 1998:
1999 1998 ---------- ---------- Land ................................................. $ 388,000 $ 388,000 Buildings and leasehold improvements ................. 577,900 236,800 Furniture, fixtures and equipment .................... 2,806,100 1,424,300 ---------- ---------- 3,772,000 2,049,100 Less - accumulated depreciation and amortization ..... (834,500) (195,500) ---------- ---------- Property and equipment, net .......................... $2,937,500 $1,853,600 ========== ==========
Property and equipment are recorded at cost and are depreciated or amortized using the straight-line method, over the following estimated useful lives: Building and leasehold improvements ...... 3-25 years Furniture, fixtures and equipment ........ 3-5 years
The Company follows the policy of capitalizing expenditures that materially increase asset lives and charges ordinary maintenance and repairs to operations as incurred. Goodwill Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. Goodwill is being amortized on a straight-line basis over periods ranging from 5 to 20 years. Periodically, the Company reviews the recoverability of goodwill. The measurement of possible impairment is based primarily on the ability to recover the balance of goodwill from expected future operating cash flows on an undiscounted basis. In management's opinion, no impairment exists at December 31, 1999. Accumulated amortization expense was, $1,822,400, $629,200 and $124,800 as of December 31, 1999, 1998 and 1997, respectively. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consists of the following at December 31, 1999 and 1998:
1999 1998 ----------- ---------- Accounts payable ........................ $ 1,511,500 $1,131,200 Accrued payroll and related taxes ....... 455,300 1,128,000 Due to sellers of acquired businesses ... 522,900 546,500 Income taxes payable .................... -- 590,500 Other accrued expenses .................. 1,275,800 903,200 ----------- ---------- $ 3,765,500 $4,299,400 =========== ==========
Income Taxes Deferred income tax assets and liabilities are recognized based on enacted tax laws for any temporary differences between financial reporting and tax bases of assets, liabilities and carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will be realized. 21 22 Earnings (Loss) per Common Share The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ---------- ---------- ---------- Basic Earnings Per Common Share: Net income (loss) from continuing operations ..... $1,196,800 $1,490,100 $ (380,100) Weighted average common stock outstanding ........ 8,495,200 7,851,600 5,680,300 ---------- ---------- ---------- Basic earnings (loss) per common share ........... $ 0.14 $ 0.19 $ (0.07) ---------- ---------- ---------- Diluted Earnings Per Common Share: Net income (loss) from continuing operations ..... $1,196,800 $1,490,100 $ (380,100) ---------- ---------- ---------- Weighted average common stock outstanding ........ 8,495,200 7,851,600 5,680,300 Additional common stock resulting from dilutive securities: Preferred Stock ................................ 2,600 224,200 334,300 Weighted average contingent common stock issued in acquisition. .............................. -- 163,500 310,000 Stock options and warrants ..................... 42,200 4,200 -- ---------- ---------- ---------- Weighted average common stock and dilutive securities outstanding ......................... 8,540,000 8,243,500 6,324,600 ---------- ---------- ---------- Diluted earnings (loss) per common share ......... $ 0.14 $ 0.18 $ (0.06) ========== ========== ==========
Options and warrants to purchase 1,886,500, 2,519,000 and 2,264,000 shares of common stock in 1999, 1998 and 1997, respectively, were not considered in calculating diluted earnings per share as their inclusion would have been anti-dilutive. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 22 23 4. Debt Long-term debt of the Company consists of the following as of December 31, 1999 and 1998:
1999 1998 ----------- ----------- Acquisition notes payable, interest at 8%, unsecured ............................... $ 4,580,600 $ 2,908,000 Note payable to a bank, interest at the bank's prime rate plus 0.25% (8.5% at December 31, 1999), due in monthly installments with a balloon payment in December 2000, secured by a pledge of the common stock of a subsidiary .. 1,516,700 2,080,000 Mortgage note payable to a bank, interest at 8.25%, due in monthly installments through December 2011, secured by land and building ................... 311,500 324,900 Equipment notes payable, interest ranging from 7.57% to 11.58%, due in monthly installments with various maturity dates through July 2003, secured by equipment .......................................................................... 315,500 202,400 ----------- ----------- 6,724,300 5,515,300 Less-current portion ............................................................... (3,004,700) (759,600) ----------- ----------- $ 3,719,600 $ 4,755,700 =========== ===========
Future annual maturities of long-term debt consists of the following as of December 31, 1999:
Year Ending December 31, ------------ 2000.......................... $3,004,700 2001.......................... 1,335,100 2002.......................... 1,047,500 2003.......................... 783,400 2004.......................... 266,800 Thereafter.................... 286,800 ---------- $6,724,300 ==========
In October 1999, a subsidiary of the Company entered into a revolving credit facility with a bank. The facility provides for maximum borrowings of $500,000 to be used for working capital purposes of the subsidiary. Borrowings on the facility accrue interest at the bank's prime rate (8.5% at December 31, 1999) and are secured by all business assets of the subsidiary. The line of credit terminates in May 2001. As of December 31, 1999, $323,300 was outstanding under of the line of credit, which amount is included in notes payable and current portion of long-term debt in the accompanying consolidated balance sheets. The Company recognized interest expense of $443,100, $307,700 and $166,400 related to long-term debt for the years ended December 31, 1999, 1998 and 1997, respectively. 5. Investment in Warner/TBA Joint Venture Through December 31, 1999, the Company owned a 50% interest in a joint venture with Warner Custom Music Corp. ("Warner"). The joint venture, Warner/TBA (formerly Warner/Avalon), developed and coordinated live, sponsored music entertainment marketing tours and programs and related projects and generated revenues primarily from third party corporate sponsorships. Warner/TBA recognized revenue by amortizing the contract sponsorship funds over the life of the related programs, which ranged from single day events to tours lasting several months. Effective December 31, 1999, the formal joint venture agreement with Warner reached the end of its term. Pursuant to an agreement with Warner, the net assets of Warner/TBA will be distributed to TBA. TBA will continue to execute entertainment marketing programs previously developed by Warner/TBA and will pay Warner a net profits interest for certain of the 2000 programs. In 1999, the Company recognized a gain of $250,000 related to the distribution of the net assets of Warner/TBA, which amount is included in Equity in income of Joint Venture in the accompanying consolidated statements of operations. 23 24 Through December 31, 1999, the Company accounted for the investment in Warner/TBA using the equity method of accounting. Summary unaudited statements of operations data of Warner/TBA are as follows:
For the Years Ended December 31, -------------------------------------------- 1999 1998 1997 ---------- ----------- ----------- Revenues ................ $8,178,600 $ 8,852,500 $10,831,700 Net (loss) income ....... $ (154,000) $ 687,500 $ 220,800
Summary unaudited balance sheet data of Warner/TBA consists of the following as of December 31, 1999 and 1998:
1999 1998 ---------- ----------- Current assets .......... $ 619,900 $ 981,800 Non-current assets ...... 155,900 304,500 Current liabilities ..... 211,500 568,000 Partners' capital ....... 564,300 718,300
As of December 31, 1999, the Company had a receivable from Warner/TBA of $56,900. During 1999, the two largest customers accounted for 51% and 30% of gross revenues of Warner/TBA. In 1998, affiliates of Warner accounted for 60% of the gross revenues of Warner/TBA. The next two largest customers accounted for 21% and 16% of gross revenues of Warner/TBA. In 1997, the two largest customers accounted for 68% and 29% of gross revenues of Warner/TBA. 6. Acquisitions During 1997, 1998 and 1999, the Company completed the following acquisitions:
Value of Number Cash Acquisition Common Stock of Shares Company Date Acquired Consideration Notes Payable Issued Issued ------- ------------- ------------- ------------- ------------ --------- 1997 Acquisition: TBA Entertainment Group Nashville, Inc. April 1997 $ 400,000 $2,480,000 $1,781,600 445,400 (formerly Avalon Entertainment Group, Inc.) 1998 Acquisitions: Titley Spalding & Associates, LLC ("TSA") June 1998 1,000,000 -- 754,700 175,000 TBA Entertainment Group Chicago, Inc. August 1998 1,450,000 1,550,000 2,000,000 414,000 (formerly Corporate Productions, Inc.) TBA Entertainment Group Phoenix, Inc. September 1998 687,000 458,000 230,000 60,000 (formerly Image Entertainment Productions, Inc.) TBA Entertainment Group Dallas, Inc. October 1998 1,273,000 900,000 1,087,000 307,000 (formerly Magnum Communications, Inc.) TKS Marketing, Inc. ("TKS") December 1998 625,000 -- -- -- 1999 Acquisitions: Karin Glass & Associates, Inc. and affiliated March 1999 2,300,000 -- -- -- Companies Mike Atkins Management, Inc. December 1999 700,000 700,000 -- --
During the remainder of 1998 and continuing through a portion of 2003 (the "Earnout Period"), the sellers of TSA and TKS will be paid additional sales price consideration based on the earnings of TSA and TKS during each of the years in the Earnout Period. The maximum additional purchase price is $5,755,000 for TSA and $625,000 for TKS. Subsequent to 1998, the additional purchase price will be paid 60% in cash and 40% in notes payable which are payable in semi-annual installments with 8% interest over a 5-year period. Additional consideration paid during the Earnout Period will be recorded as goodwill and amortized over the remaining period of the original 10-year amortization period, which commenced on the respective acquisition date. For 1998, additional purchase price payable to the sellers of TSA totaled $546,500 and was paid entirely in cash in 1999. For 1999, additional purchase price payable to the sellers of TSA and TKS totaled $756,800 and $114,700, respectively, and are included in accrued liabilities and long-term debt in the accompanying consolidated balance sheets. On March 17, 1999, the Company acquired 100% of the common stock of Karin Glass & Associates, Inc. and affiliated companies (collectively, "KGA"), for a maximum purchase price of approximately $3,200,000. The purchase price paid at closing included a cash payment of $2,300,000 and the issuance of 221,500 shares of common stock of the Company valued at $900,000. The purchase price paid at closing was subject to reduction based on the earnings of KGA during each of the years 1999 and 2000. The sellers pledged their shares of common stock of the Company as collateral during the earn-out period. 24 25 Based on the earnings of KGA in 1999 and other factors, in December 1999, the sellers of KGA agreed to return the 221,500 shares of common stock originally issued to them in March 1999. Accordingly, the final purchase price for KGA totaled $2,300,000. On December 6, 1999, the Company acquired 100% of the common stock of Mike Atkins Management, Inc. ("Atkins") for a maximum purchase price of $1,400,000. The purchase price paid at closing included a cash payment of $1,000 and the issuance of $1,399,000 in aggregate amount of promissory notes. One promissory note, totaling $699,000 was repaid in January 2000. The remaining $700,000 promissory note is subject to reduction based on the earnings of Atkins during each of the years 2000 through 2004. This promissory note accrues interest at 8% and is payable in four equal annual installments of principal plus accrued interest, commencing April 2001. The accounting for the above-mentioned acquisitions is in accordance with the purchase method of accounting. The operations of the acquired businesses are included in the accompanying consolidated statements of operations from their respective acquisition dates. The purchase price for each acquisition has been allocated to the assets acquired and liabilities assumed based on their estimated fair values on the respective acquisition date. Operating results of each of the KGA and Atkins acquisitions and the 1998 Acquisitions are included in the accompanying consolidated statements of operations from their respective acquisition dates. The following unaudited pro forma financial information represents the consolidated results for the years ended December 31, 1999 and 1998, as if the acquisitions had occurred as of the beginning of such year. The pro forma results reflect certain adjustments, including amortization of the excess purchase price over fair value of net assets acquired, interest expense on the acquisition debt and adjustments to salaries and ownership distributions to former owners. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.
Unaudited Pro Forma For the Years Ended December 31, -------------------------------- 1999 1998 ---------- ----------- Total revenues .................... $ 50,345,400 $ 49,296,200 Income from continuing operations . $ 1,196,800 $ 1,702,200 Earnings per common share: Basic ........................... $ 0.14 $ 0.20 Diluted ......................... $ 0.14 $ 0.19
The above calculations of pro forma basic and diluted earnings per common share assumes that the following number of weighted average shares were outstanding:
1999 1998 ---------- ----------- (Unaudited) Basic ........................... 8,495,200 8,633,900 Diluted ......................... 8,540,000 8,861,900
7. DISPOSITIONS AWC Effective July 31, 1997, the Company acquired a 51% controlling interest in AWC. The remaining 49% of AWC was owned by a group of individuals who became officers and stockholders of the Company. The purchase price included a $7 million cash payment with proceeds from the Company's 1997 stock offering. Including acquisition costs, the total purchase price for AWC was $7,862,900. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values on the date of acquisition. On May 13, 1998, the Company sold its 51% controlling interest in certain of the AWC businesses to an unaffiliated third party (the "buyer") for $9,915,000 in cash before applicable transaction expenses. The individuals that owned the remaining 49% of AWC also sold their interest in these businesses to the buyer. The Company recognized a one-time pre-tax gain of $1,445,000 as a result of the sale of its interest in these businesses. Net operations attributable to those business of AWC included in the sale to the buyer from the July 31, 1997 acquisition date through the May 13, 1998 sale date, are included in discontinued operations in the accompanying consolidated statements of operations. The following is a summary of the revenue and expenses related to these businesses for the years ended December 31, 1998 and 1997:
1998 1997 ---------- ----------- Revenues .......................... $2,462,800 $13,204,000 Operating expenses ................ 3,579,000 10,830,700 Depreciation and amortization ..... 261,600 300,300 Interest expense, net ............. 36,600 40,200 Income tax (benefit) expense ...... (189,800) 351,800 Minority interest in net (loss) income of AWC .............. (552,100) 1,319,400 ---------- ----------- Net (loss) income from discontinued operations attributable to the Company ......................... $ (672,500) $ 361,600 ========== ===========
Breckenridge Resort In July 1998, Village at Breckenridge Acquisition Corp. ("VABAC"), a wholly owned subsidiary of the Company and owner and operator of the Breckenridge Resort, entered into an agreement with an unaffiliated third party developer (the "Development Agreement"). Pursuant to the Development Agreement, VABAC agreed to sell a portion of the assets comprising the Breckenridge Resort to the Developer for $10,000,000. The sale was contingent upon the developer receiving approval of the development plan. The sale of these assets was completed in April 1999. In a simultaneous transaction, the Company entered into an agreement to sell 100% of the common stock of VABAC to Vail Summit Resorts, Inc. ("Vail") for $34,000,000. Vail, by virtue of its acquisition of VABAC, also acquired the rights and obligations of the Development Agreement. The sale of the common stock of VABAC was consummated on August 12, 1998. The proceeds from the sale were distributed as follows: $19,762,300 to repay indebtedness at the Breckenridge Resort, 25 26 $3,000,000 to an escrow account, $11,013,170 to the Company and the remainder to pay closing costs. The Company was entitled to the $3,000,000 held in escrow upon the sale of the assets pursuant to the Development Agreement, which occurred in April 1999. As of December 31, 1998, the Company recorded a receivable for a portion of the escrow amount, totaling $2,121,200, which amount represented the Company's remaining investment in VABAC after receipt of the August 12, 1998 sale proceeds. This amount was reflected in "net short-term assets from the sale of discontinued operations" in the accompanying consolidated balance sheets. The Company received the entire $3,000,000 in April 1999 and, accordingly, recognized a gain of $329,200 related to the sale of VABAC, net of expenses related to the sale of discontinued operations and net of income taxes. Nashville Restaurant In December 1998, the Company sold substantially all of the assets of the Nashville restaurant to an unaffiliated third party for $3,450,000. The assets included the Company's leasehold interest in land on which the Nashville restaurant was located, the building and equipment and an adjacent parking structure. The Company recognized a loss on the sale of the Nashville Restaurant of $248,500 in 1998. As a result of the sale of the Breckenridge Resort and the Nashville restaurant, together which previously comprised the Company's Resort Division, the operations of the Resort Division have been reclassified to discontinued operations for all periods presented. The following is a summary of the revenues and expenses related to the Resort Division for the years ended December 31, 1998 and 1997:
1998 1997 ----------- ----------- Revenues.............................. $16,350,400 $23,791,800 Operating expenses.................... 13,925,100 20,731,100 Depreciation and amortization......... 710,200 947,100 Interest expense, net................. 1,058,200 1,692,800 ----------- ----------- Net income from discontinued operations $ 656,900 $ 420,800 =========== ===========
8. Stockholders' Equity Preferred Stock The Company is authorized to issue 1,000,000 shares of $.001 par value preferred stock. The Company has designated 557,100 shares of the authorized preferred stock as Series A Convertible Preferred Stock ("Series A Preferred Stock"), of which 334,300 shares were previously issued and are non-voting. The shares are convertible into common stock on a one-for-one basis. In 1999 and 1998, 66,200 and 265,500 shares, respectively, of Series A Preferred Stock were converted into shares of common stock. Common Stock and Common Stock Warrants In April 1996, the Company completed an offering of 1,351,500 units, each consisting of two shares of common stock and one redeemable common stock purchase warrant. The redeemable warrants are detachable and separately transferable. Each redeemable warrant entitles the holder to purchase one share of common stock at a price of $6.25 per share until April 2001, and is redeemable by the Company at $0.50 per warrant under certain conditions. In connection with this offering, the underwriter was also granted a warrant to acquire up to 120,000 units at $15.50 per unit. The warrants issued in 1996 were outstanding at December 31, 1999. In July 1997, the Company issued 2,600,000 shares of its common stock in a public offering. In connection with this offering, the underwriter was granted a warrant to acquire up to 130,000 shares of common stock at $4.20 per share until July 2002. These warrants were outstanding as of December 31, 1999. At December 31, 1999, the Company also had other outstanding warrants to purchase 75,000 shares of common stock at an exercise price of $4.38 per share, expiring in September 2002. In August 1998, the board of directors authorized the repurchase, at management's discretion, of up to 1,000,000 shares of the Company's common stock until August 1999. The board of directors extended the stock repurchase program until December 31, 26 27 1999. The Company's repurchases of shares of common stock are recorded as treasury stock and result in a reduction of stockholders' equity. In 1998, the Company had repurchased 196,700 shares of common stock for total consideration of $724,500, pursuant to the stock repurchase program. In 1999, the Company repurchased an additional 508,600 shares for total consideration of $2,299,100. Stock Options In 1995 and 1996, the Company granted 80,000 non-qualified options to key employees and directors of which 30,000 have been cancelled as of December 31, 1999. In 1997 and 1998, the Company established two stock option plans that provide for the granting of either incentive stock options or non-qualified stock options to key employees, officers and directors of the Company. Under the two plans, the Company may grant a total of 1,000,000 stock options at prices not less than the fair market value on the date of grant, with expiration dates not exceeding ten years. As of December 31, 1999, the Company has granted 785,750 incentive stock options pursuant to these plans. Information relating to stock options is as follows:
Shares Under Weighted-Average Options Exercise Price ------------ ---------------- Options outstanding at December 31, 1996 ..... 80,000 $5.31 Cancelled .................................. (30,000) 5.00 Granted .................................... 300,000 5.28 -------- Options outstanding at December 31, 1997 ..... 350,000 5.31 Cancelled .................................. (298,000) 5.38 Granted .................................... 520,000 4.12 -------- Options outstanding at December 31, 1998 ..... 572,000 4.23 -------- Cancelled ................................. (2,000) 5.50 Granted ................................... 235,750 4.21 Options outstanding at December 31, 1999 ..... 805,750 4.22 ======== Options exercisable at December 31, 1999 ..... 739,000 4.25 ========
As of December 31, 1999, the exercise price of options outstanding ranged from $3.78 to $5.50 and the weighted average remaining contractual life of the options was 6.4 years. The Company applies APB Opinion No. 25 ("Accounting for Stock Issued to Employees") and related interpretations in accounting for stock options; accordingly, no compensation cost has been recognized in the accompanying consolidated statements of operations for options issued. Had compensation cost been determined based on the fair value of the stock options at grant date consistent with the method of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), the Company's net income (loss) from continuing operations and net income (loss) per share would have been the unaudited pro forma amounts indicated below:
For the Years Ended December 31, ------------------------------------------- 1999 1998 1997 ---------- ---------- ----------- Net income (loss) from continuing operations: As reported....................... $1,196,800 $1,490,100 $ (380,100) Pro forma (unaudited)............. 929,000 1,250,600 (813,200) Basic earnings per common share: As reported....................... 0.14 0.19 (0.07) Pro forma (unaudited)............. 0.11 0.16 (0.14) Diluted earnings per common share: As reported....................... 0.14 0.18 (0.06) Pro forma (unaudited)............. 0.11 0.15 (0.13)
As required by SFAS 123, the Company provides the following disclosure of hypothetical values for these awards. The weighted-average grant-date fair value of options granted during 1999, 1998 and 1997 was estimated to be $1.83, $1.70 and $1.51, respectively. The fair value of each option grant was estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for 1999, 1998 and 1997, respectively; risk free interest rates of 6.67, 5.67 and 6.70 percent; expected lives of 3 years; volatility of 55 percent, 64 percent and 40 percent and no assumed dividends. Additional adjustments are made for assumed cancellations and expectations that shares acquired through the exercise of options are held during employment. 27 28 9. Income Taxes The provision for income taxes consists of the following for the years ended December 31, 1999 and 1998:
1999 1998 --------- --------- Current Federal ............... $ 816,800 $ 373,200 State ................. 149,100 363,700 Deferred Federal ............... (145,300) (465,200) State ................. (25,600) (82,000) --------- --------- Total .................... $ 790,000 $ 189,700 --------- ---------
A reconciliation of the difference between the statutory federal tax rate and the Company's effective tax rate is as follows:
For the Years Ended December 31, -------------------------------- 1999 1998 ----------- ----------- Income taxes at statutory federal rate .............. $ 675,500 $ 1,085,400 State income tax, net of federal tax benefit ........ 99,300 191,500 Non-deductible goodwill amortization ................ 250,900 189,400 Change in valuation allowance ....................... (174,900) (1,415,100) Other ............................................... (60,800) 138,500 ----------- ----------- Income tax provision ................................ $ 790,000 $ 189,700 =========== ===========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes. The income tax effect of temporary differences comprising the deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows: 28 29
1999 1998 --------- ---------- Deferred tax assets: Net operating loss carryforwards ........................ $ 249,300 $ 60,000 Deferred gain on sale of discontinued operations ........ -- 406,100 Accrued payroll related costs ........................... 62,100 242,400 Deferred costs .......................................... -- 19,400 Accrued professional fees ............................... 85,000 -- Other ................................................... 111,200 91,800 --------- ---------- 507,600 819,700 Deferred tax liabilities: Accelerated depreciation for tax ........................ (91,200) (57,500) --------- ---------- Net deferred tax asset ........................................... 416,400 762,200 Valuation allowance .............................................. (40,000) (214,900) --------- ---------- $ 376,400 $ 547,300 ========= ==========
During 1999 and 1998, the valuation allowance for net deferred tax assets was reduced by $174,900 and $1,415,100 due to the use of net operating loss carryforwards. 10. Commitments and Contingencies Operating Leases The Company leases office space under non-cancelable operating lease agreements expiring in various years through 2006. Commitments for operating leases: 2000................. $ 819,600 2001................. 786,200 2002................. 717,000 2003................. 649,300 2004................. 567,800 Thereafter........... 1,189,700 ---------- $4,729,600 ==========
The Company incurred rent expense of approximately $680,200, $285,300 and $95,800 for the years ended December 31, 1999, 1998 and 1997, respectively. Contingencies The Company is a party to legal proceedings incidental to its business. Certain claims, suits or complaints arising out of the normal course of business have been filed or were pending against the Company. Although it is not possible to predict the outcome of such litigation, based on the facts known to the Company and after consultation with legal counsel, management believes that such litigation will not have a material adverse effect on its financial position or results of operations. 11. Business Segment Information The Company classifies its operations into four major business segments within the entertainment services industry: corporate communications & entertainment, entertainment marketing & special events, artist management and event merchandising. The corporate communications & entertainment division provides a broad range of business communications, meeting production, entertainment and event production services. The entertainment marketing & special events division creates and executes innovative entertainment marketing and special event initiatives including music tours, fairs and festivals, television broadcasts and syndicated radio specials. The artist management division manages the negotiation of recording, touring, merchandising and performance contracts, and the development of long-term career strategies for music industry artists. The event merchandising division creates and executes high-impact merchandising programs for entertainment and sporting events, institutional organizations and celebrity clients. Each of the business divisions is managed separately and offers different products and services. The Company does not internally report separate identifiable assets by division. The Company evaluates performance of each division based on several factors, of which the primary financial measure is EBITDA, including equity in earnings of joint ventures. EBITDA is defined as earnings before interest, taxes and depreciation and amortization. The accounting policies of the divisions are the same as 29 30 those described in the summary of significant accounting policies. Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):
Corporate Entertainment Communications Marketing & Artist Event & Entertainment Special Events Management Merchandising Corporate Total --------------- -------------- ---------- ------------- --------- -------- 1999: Revenues $ 34,174 $ 1,568 $ 2,876 $ 9,545 $ -- $ 48,164 ======== ======= ======= ======= ======= ======== EBITDA, including equity in earnings of joint ventures $ 3,371 $ (48) $ 1,650 $ 301 $(1,763) $ 3,511 Depreciation and amortization (1,139) (63) (242) (255) (91) (1,790) Net interest income 106 -- -- 4 156 266 -------- ------- ------- ------- ------- -------- Income from continuing operations before income taxes $ 2,338 $ (111) $1,408 $ 50 $(1,698) $ 1,987 ======== ======= ======= ======= ======= ======== 1998: Revenues $ 23,462 $ 838 $ 1,721 $ 1,252 $ -- $ 27,273 ======== ======= ======= ======= ======= ======== EBITDA, including equity in earnings of joint ventures $ 2,596 $ (84) $ 1,069 $ (208) $(1,158) $ 2,215 Depreciation and amortization (429) (123) (94) (6) (27) (679) Net interest income 77 -- -- 9 58 144 -------- ------- ------- ------- ------- -------- Income (loss) from continuing operations before income taxes $ 2,244 $ (207) $ 975 $ (205) $(1,127) $ 1,680 ======== ======= ======= ======= ======= ======== 1997: Revenues $ 6,263 $ -- $ 155 $ 19 $ -- $ 6,437 ======== ======= ======= ======= ======= ======== EBITDA, including equity in earnings of joint ventures $ 594 $ (90) $ 63 $ 9 $ (654) $ (78) Depreciation and amortization (147) -- -- -- (2) (149) Net interest income (expense) 13 -- -- -- (166) (153) -------- ------- ------- ------- ------- -------- Income (loss) from continuing operations before income taxes $ 460 $ (90) $ 63 $ 9 $ (822) $ (380) ======== ======= ======= ======= ======= ========
12. Subsequent Events 2000 Acquisition On January 3, 2000, the Company acquired 100% of the common stock of Romeo Entertainment Group, Inc. ("Romeo"), for a maximum purchase price of $6,750,000. The purchase price paid at closing included a cash payment of $3,475,000, the issuance of 142,300 shares of common stock of the Company valued at $750,000 and the issuance of two promissory notes totaling $2,525,000. The principal amount of the promissory note for $2,025,000 is subject to reduction based on the earnings of Romeo during each of the years 2000 through 2004. The promissory notes accrue interest at 8% and are payable in four equal annual installments of principal plus accrued interest, commencing April 30, 2001. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item regarding the directors and executive officers of the Company will be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 2000 annual meeting of stockholders and is incorporated herein by reference thereto. 30 31 ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item regarding the directors and executive officers of the Company will be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 2000 annual meeting of stockholders and is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item will be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 2000 annual meeting of stockholders and is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item will be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 2000 annual meeting of stockholders and is incorporated herein by reference thereto. 31 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.1(1) -- Merger Agreement between TBA Entertainment Corporation and Avalon Acquisition Corp., Inc. and Avalon Entertainment Group, Inc. 2.2(2) -- Purchase Agreement between TBA Entertainment Corporation, Titley Spalding & Associates, LLC, Clarence Spalding and Robert R. Titley dated June 18, 1998. 2.3(3) -- Purchase Agreement between TBA Entertainment Corporation and SFX Entertainment, Inc. and AWC Acquisition Corp. dated May 13, 1998. 2.4(4) -- Stock Purchase Agreement between TBA Entertainment Corporation, Magnum Communications, Inc, William R. Cox, Gary A. Larr, Charles A. Barry and Lon M. Hudman dated October 15, 1998. 2.5(5) -- Merger Agreement among TBA Entertainment Corporation, CPI Acquisition Corp., Inc., Richard S. Smith, Richard W. Perry, Pamela J. Furmanek and Corporate Productions, Inc. dated August 11, 1998. 2.6(6) -- Stock Purchase Agreement among TBA Entertainment Corporation, Kenneth C. Koziol and Image Entertainment Productions dated September 15, 1998. 2.7(7) Stock Purchase Agreement among TBA Entertainment Corporation, Karin Glass & Associates, Inc., Ink Up, Inc., KGA, Inc., Karin Glass and Kenneth Glass dated March 18, 1999. 3.1(8) -- Certificate of Incorporation of the Company. 3.2(9) -- Bylaws of the Company. 4.1(10) -- Specimen Common Stock Certificate. 4.2(11) -- Article IX of the Certificate of Incorporation of the Company (included in Exhibit 3.1). 4.3(12) -- Certificate of Designation of Series A Convertible Preferred Stock of the Company. 4.4(13) -- Specimen Warrant Certificate. 10.1(14) -- Purchase and Sale Agreement between TBA Entertainment Corporation and Vail Summit Resorts, Inc. dated July 10, 1998. 10.2(15) -- Employment Agreement dated as of January 1, 1994 between the Company and Thomas Jackson Weaver III. 10.3(16) -- Employment Agreement dated as of January 1, 1994 between the Company and Prab Nallamilli. 10.4(17) -- Stock Purchase Warrant dated February 24, 1994 between the Company and Yee, Desmond, Schroeder & Allen, Inc. 10.5(18) -- Form of Indemnification Agreement between the Company and each of the directors and executive officers. 10.6(19) -- TBA Entertainment Corporation 1995 Stock Option Plan. 10.7(20) -- Form of Stock Option Agreement for options granted under the 1995 Stock Option Plan. 10.8(21) -- TBA Entertainment Corporation 1997 Stock Option Plan. 10.9(22) -- Form of Stock Option Agreement for options granted under the 1997 Stock Option Plan. 10.10(23) -- Representative's Warrant Agreement dated April 23, 1996 between the Company and H.J. Meyers & Co., Inc. 10.11(24) -- Warrant Agreement dated April 23, 1996 among the Company, H.J. Meyers & Co., Inc. and American Stock Transfer & Trust Company. 10.12(25) -- Registration Rights Agreement between the Company, Robert E. Geddes, Greg M. Janese, Thomas Miserendino, Brian K. Murphy and Marc W. Oswald.
32 33
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.13(26) -- Consulting Agreement between Avalon Entertainment Group, Inc. and Robert E. Geddes. 10.14(27) -- Consulting Agreement between Avalon Entertainment Group Inc. and Thomas Miserendino. 10.15(28) -- Employment Agreement between Avalon Entertainment Group, Inc. and Marc W. Oswald. 10.16(29) -- Employment Agreement between Avalon Entertainment Group, Inc. and Greg M. Janese. 10.17(30) -- Placement Agent Warrant Agreement between the Company and Rauscher Pierce Refsnes, Inc. 10.18* -- Stock Purchase Agreement among TBA Entertainment Corporation, Robert Romeo and Romeo Entertainment Group, Inc. dated November 26, 1999. 10.19* -- Stock Purchase Agreement among TBA Entertainment Corporation, Mike Atkins and Mike Atkins Management, Inc. dated December 6, 1999. 21* -- Subsidiaries of the Company. 27* Financial Data Schedule.
- ---------- * Filed herewith. (1) Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated on April 21, 1997. (2) Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated on June 18, 1998. (3) Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 13, 1998. (4) Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 18, 1998. (5) Incorporated herein by reference to Exhibit 2.5 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. (6) Incorporated herein by reference to Exhibit 2.6 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. (7) Incorporated herein by reference to Exhibit 2.7 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. (8) Incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated April 21, 1997. (9) Incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K dated April 21, 1997. (10) Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 21, 1997. (11) Incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated April 21, 1997. (12) Incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form SB-2 (Registration No. 33-97890) dated March 15, 1996. (13) Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended (June 30, 1998). (14) Incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form SB-2 (Registration No. 33-69944) dated December 8, 1993. 33 34 (15) Incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (Registration No. 33-69944) dated December 8, 1993. (16) Incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form SB-2 (Registration No. 33-69944) dated December 8, 1993. (17) Incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form SB-2 (Registration No. 33-69944) dated December 8, 1993. (18) Incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (19) Incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (20) Incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (21) Incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (22) Incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (23) Incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. (24) Incorporated herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (25) Incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (26) Incorporated herein by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (27) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (28) Incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 29, 1996. (29) Incorporated herein by reference to Exhibit 10.20 to the Company's Current Report on Form 8-K dated June 20, 1997. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarterly period ended December 31, 1999. 34 35 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Hickory Valley, Tennessee, on the 30th day of March, 2000. TBA ENTERTAINMENT CORPORATION By: /s/ Thomas Jackson Weaver III ------------------------------------------ Thomas Jackson Weaver III Chairman of the Board and Chief Executive Officer In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Thomas Jackson Weaver III Chairman of the Board, March 30, 2000 - --------------------------------------------- Chief Executive Officer and President Thomas Jackson Weaver III (Principal Executive and Financial Officer) /s/ Joseph C. Galante - --------------------------------------------- Joseph C. Galante Director March 30, 2000 /s/ Frank Bumstead - --------------------------------------------- Frank Bumstead Director March 30, 2000 /s/ Charles Flood - --------------------------------------------- Charles Flood Director March 30, 2000 /s/ Prab Nallamilli - --------------------------------------------- Prab Nallamilli Director March 30, 2000 /s/ Louis J. Risi, Jr. - --------------------------------------------- Louis J. Risi, Jr. Director March 30, 2000 /s/ Steven L. Risi - --------------------------------------------- Steven L. Risi Director March 30, 2000 /s/ Frank A. McKinnie Weaver, Sr. - --------------------------------------------- Frank A. McKinnie Weaver, Sr. Director March 30, 2000 /s/ Kyle Young - --------------------------------------------- Kyle Young Director March 30, 2000 /s/ Bryan J. Cusworth - --------------------------------------------- Bryan J. Cusworth Chief Financial Officer March 30, 2000 (Principal Accounting Officer)
35 36 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.18 Stock Purchase Agreement among TBA Entertainment Corporation, Robert Romeo and Romeo Entertainment Group, Inc. dated November 26, 1999 10.19 Stock Purchase Agreement among TBA Entertainment Corporation, Mike Atkins and Mike Atkins Management, Inc. dated December 6, 1999 21 Subsidiaries of the Company 27 Financial Data Schedule
36 EX-10.18 2 MATERIAL CONTRACT 1 EXHIBIT 10.18 STOCK PURCHASE AGREEMENT among TBA ENTERTAINMENT CORPORATION, ROBERT ROMEO and ROMEO ENTERTAINMENT GROUP, INC. November 26, 1999 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 - Purchase And Sale of Shares......................................................1 1.1 Purchase and Sale.............................................................1 1.2 Purchase Price................................................................1 1.3 Registration Rights...........................................................2 1.4 Closing.......................................................................2 1.5 Further Action................................................................3 ARTICLE 2 - Representations And Warranties of TBA............................................3 2.1 Organization and Qualification................................................3 2.2 Authority Relative to this Agreement..........................................3 2.3 TBA Common Stock and TBA SEC Documents........................................4 2.4 Certain Corporate Matters.....................................................4 2.5 Broker's Fees.................................................................5 2.6 Disclosure....................................................................5 2.7 No Actions Pending............................................................5 2.8 Investment Intent.............................................................5 2.9 Information...................................................................5 2.10 Sophistication of TBA.........................................................5 2.11 Accredited Investor...........................................................5 2.12 Absence of Certain Changes....................................................6 2.13 No Reliance...................................................................6 2.14 No Knowledge of Breach........................................................6 ARTICLE 3 - Representations And Warranties of Shareholder and Romeo Entertainment..........................................................6 3.1 Organization, Qualification and Corporate Power...............................6 3.2 Capitalization................................................................7 3.3 Authorization of Transaction..................................................8 3.4 Subsidiaries..................................................................8 3.5 Financial Statements..........................................................8 3.6 Events Subsequent to Financial Statements.....................................9 3.7 Undisclosed Liabilities......................................................10 3.8 Tax Returns and Audits.......................................................11 3.9 Books and Records............................................................12 3.10 Real Property................................................................12 3.11 Tangible Property............................................................12 3.12 Intellectual Property........................................................12 3.13 Contracts....................................................................14 3.14 Suppliers and Customers......................................................15 3.15 Accounts Payable; Accounts Receivable........................................15 3.16 Powers of Attorney...........................................................15 3.17 Condition of Property........................................................16 3.18 Insurance....................................................................16 3.19 Litigation...................................................................16
-i- 3 TABLE OF CONTENTS (Continued)
Page ---- 3.20 Employees....................................................................16 3.21 Employee Benefit Plans.......................................................17 3.22 Guarantees...................................................................17 3.23 Legal Compliance.............................................................18 3.24 Certain Business Relationships...............................................18 3.25 Broker's Fees................................................................18 3.26 Environment, Health and Safety...............................................18 3.27 Disclosure...................................................................18 3.28 Limitations of Representations...............................................19 ARTICLE 4 - Additional Representations and Warranties of Shareholder........................19 4.1 Representations Regarding Shares of Romeo Entertainment......................19 4.2 Investment Representations...................................................20 4.3 Authorization................................................................21 ARTICLE 5 - Conduct of Business Pending The Closing.........................................21 5.1 Conduct of Business by Romeo Entertainment Pending the Closing...............21 5.2 No Other Bids for Romeo Entertainment........................................24 5.3 Lines of Business and Capital Expenditures...................................24 5.4 Accounting Methods...........................................................25 5.5 Other Actions................................................................25 ARTICLE 6 - Additional Agreements...........................................................25 6.1 Expenses.....................................................................25 6.2 Notification of Certain Matters..............................................25 6.3 Access to Information........................................................25 6.4 Taking of Necessary Action...................................................25 6.5 Notice of Changes............................................................26 6.6 Press Releases...............................................................26 6.7 Employee Matters.............................................................26 6.8 Tax Matters..................................................................26 6.9 Real Estate Lease............................................................27 6.10 Adjustment to Purchase Price.................................................27 6.11 Tax Indemnification..........................................................27 6.12 Name.........................................................................27 6.13 No Deficit Working Capital...................................................28 6.14 Referral Commissions.........................................................28 ARTICLE 7 - Conditions to Closing...........................................................28 7.1 Conditions to Obligations of Each Party to Effect the Closing................28 7.2 Additional Conditions to TBA's Obligations...................................28
-ii- 4 TABLE OF CONTENTS (Continued)
Page ---- 7.3 Additional Conditions to the Obligations of Romeo Entertainment and Shareholder................................................30 ARTICLE 8 - Termination, Amendment and Waiver...............................................32 8.1 Termination..................................................................32 8.2 Amendment....................................................................32 8.3 Waiver.......................................................................32 8.4 Effect of Termination........................................................32 ARTICLE 9 - Indemnification.................................................................33 9.1 By TBA, Romeo Entertainment and Shareholder..................................33 9.2 Claims for Indemnification...................................................33 9.3 Defense by Indemnifying Party................................................34 9.4 Payment of Indemnification Obligation........................................34 9.5 Limitations..................................................................34 ARTICLE 10 - General Provisions.............................................................34 10.1 Survival of Representations and Warranties...................................34 10.2 Effect of Due Diligence......................................................35 10.3 Specific Performance.........................................................35 10.4 Notices......................................................................35 10.5 Interpretation...............................................................36 10.6 Severability.................................................................36 10.7 Miscellaneous................................................................37 10.8 Material Adverse Breach......................................................37 10.9 Limitation of Liability......................................................37
SCHEDULE 1 Disclosure Schedule SCHEDULE 2 Mementoes of Shareholder
ANNEX I List of TBA SEC Documents EXHIBIT A Form of Adjustable Promissory Note EXHIBIT B Form of Non-Adjustable Note EXHIBIT C Form of Pledge Agreement EXHIBIT D Form of Registration Rights Agreement EXHIBIT E Form of Lease EXHIBIT F Form of Employment Agreement
-iii- 5 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of November 26, 1999 (this "Agreement"), is by and among TBA Entertainment Corporation, a Delaware corporation ("TBA"), Robert Romeo, an individual and sole shareholder of Romeo Entertainment (as defined below) ("Romeo" or "Shareholder"), and Romeo Entertainment Group, Inc., a Nebraska corporation ("Romeo Entertainment"). RECITALS WHEREAS, Shareholder owns all of the issued and outstanding common stock (the "Shares") of Romeo Entertainment and Romeo Entertainment owns all of the issued and outstanding common stock of Romeo Agency Inc., a Colorado corporation ("Romeo Agency"); WHEREAS, TBA, Romeo Entertainment and Shareholder each desire for TBA to acquire (the "Acquisition") all of the Shares pursuant to the terms and conditions of this Agreement, as a result of which Romeo Entertainment will become a wholly owned subsidiary of TBA; NOW, THEREFORE, in consideration of the foregoing premises, the representations, warranties and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, Shareholder agrees to sell, assign, transfer and deliver to TBA at the Closing (as hereinafter defined), and TBA agrees to purchase from Shareholder at the Closing, the Shares, free and clear of any and all charges, claims, community property interests, equitable interests, mortgages, liens, security interests, pledges, charges, rights of assignment, rights of purchase, rights of first offer or refusal, options, warrants or encumbrances of any nature (collectively, "Liens"). 1.2 Purchase Price. The aggregate purchase price (the "Purchase Price") for the Shares shall be equal to Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000), subject to possible adjustment as provided in the Adjustable Note (hereinafter defined), and shall be paid or delivered to Shareholder at the Closing as follows: (a) TBA shall issue and deliver to Shareholder a certificate registered in Shareholder's name representing the number of fully-paid and nonassessable shares of TBA common stock, $.001 par value per share ("TBA Common Stock"), equal to Seven Hundred Fifty Thousand Dollars ($750,000) divided by the Average Price (as defined below) (the "Common Stock Portion"); -1- 6 (b) TBA shall deliver to Shareholder by wire transfer to one or more accounts designated in writing by Shareholder to TBA prior to the Closing cash in an amount equal to Three Million Four Hundred Seventy-Five Thousand Dollars ($3,475,000) (the "Cash Portion"); and (c) TBA shall deliver to Shareholder (i) an adjustable promissory note (the "Adjustable Note") in the original principal amount of Two Million Twenty-Five Thousand Dollars ($2,025,000) (the "Adjustable Note Portion"), subject to possible adjustment as set forth in the Adjustable Note, substantially in the form of Exhibit A attached hereto (the "Form of Adjustable Note") and (ii) a non-adjustable promissory note (the "Non-Adjustable Note") in the original principal amount of Five Hundred Thousand Dollars ($500,000) (the "Non-Adjustable Note Portion"), substantially in the form of Exhibit B attached hereto (the "Form of Non-Adjustable Note"). Each of the Adjustable Note and the Non-Adjustable Note shall be secured by a pledge of the Shares pursuant to the terms of a Stock Pledge Agreement, substantially in the form of Exhibit C attached hereto (the "Pledge Agreement"). Except as set forth in Section 6.10 hereof, any adjustment to the Purchase Price hereunder shall be accomplished only through adjustment to payments under the Adjustable Note as set forth in the Adjustable Note, and none of the Common Stock Portion, the Cash Portion or the Non-Adjustable Note Portion of the Purchase Price shall be adjusted subsequent to Closing. (d) The term "Average Price" shall mean the average of the closing sale prices of TBA Common Stock reported by The Nasdaq Stock Market for each of the five (5) consecutive trading days ending five (5) trading days preceding the Closing Date. (e) No fraction of a share of TBA Common Stock will be issued to Shareholder but in lieu thereof Shareholder will be paid an amount in cash equal to the product of (A) the number of fractional shares to which Shareholder is otherwise entitled and (B) the Average Price. No interest shall be paid on such amount. 1.3 Registration Rights. Shareholder and TBA shall execute a Registration Rights Agreement (herein so called) in the form attached hereto as Exhibit D with respect to the shares of TBA Common Stock issued to Shareholder pursuant to Section 1.2(a) and Shareholder shall have the registration and other rights provided in such Registration Rights Agreement, which Registration Rights Agreement is hereby incorporated herein by this reference as if set forth in full in this Agreement. The parties hereto stipulate and agree that the execution and delivery of the Registration Rights Agreement is intended to provide Shareholder with flexibility in liquidating his investment in TBA Common Stock and does not evidence any present intention to dispose of such investment. 1.4 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Winstead Sechrest & Minick P.C., 1201 Elm Street, 5400 Renaissance Tower, Dallas, Texas, on January 3, 2000, or as soon as reasonably practicable thereafter as the conditions set forth in Article 7 have been satisfied or waived (the "Closing Date"). At the Closing: -2- 7 (a) TBA will (i) pay to Shareholder the Cash Portion by wire transfer of immediately available funds, (ii) issue and deliver to Shareholder the Common Stock Portion, (iii) execute and deliver to Shareholder the Adjustable Note and the Non-Adjustable Note, and (iv) execute and deliver to Shareholder such other documents and instruments required to be executed and delivered by TBA under the terms of this Agreement; and (b) Shareholder will deliver to TBA (i) certificates representing the Shares, duly endorsed, and (ii) such other documents and instruments required to be delivered by Shareholder under the terms of this Agreement or reasonably requested by TBA. 1.5 Further Action. If, at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest TBA with full right, title and possession and all rights, privileges and immunities with respect to any or all of the Shares, Shareholder shall take all such action. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TBA TBA hereby represents and warrants to Romeo Entertainment and Shareholder as follows: 2.1 Organization and Qualification. TBA has been duly incorporated and is validly existing as a corporation and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now conducted. 2.2 Authority Relative to this Agreement. TBA has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement by TBA and the consummation by TBA of the transactions contemplated hereby have been duly authorized by the Board of Directors of TBA, and no other corporate proceedings on the part of TBA are necessary to authorize the execution and delivery of this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by TBA and constitutes the valid and binding obligation of TBA, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. None of the execution and delivery of this Agreement by TBA, the performance by TBA of its obligations hereunder or the consummation of the transactions contemplated hereby by TBA will require any consent, approval or notice under, or violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of, or result in the creation or imposition of any lien upon any properties, assets or business of TBA under any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which TBA is a party or by which TBA or any of its assets or properties is bound or encumbered, except those that have already been given, obtained or filed. Other than -3- 8 filings under the Securities Act of 1933, as amended (the "Securities Act"), if any, necessary to perfect an exemption from registration under the Securities Act, filings made with the National Association of Securities Dealers, Inc. to list the shares of TBA Common Stock to be issued in connection with the Acquisition in the National Market System of The Nasdaq Stock Market and filings to be made with state securities regulatory agencies, no authorization, consent or approval of, or filing with, any public body, court or governmental or regulatory authority is necessary on the part of TBA for the consummation by TBA of the transactions contemplated by this Agreement. 2.3 TBA Common Stock and TBA SEC Documents. The TBA Common Stock is listed for trading on the National Market System of The Nasdaq Stock Market. The shares of TBA Common Stock to be issued by TBA to Shareholder at the Closing have been duly authorized for such issuance and, when issued and delivered by TBA in accordance with the provisions of this Agreement, shall be validly issued, fully paid and nonassessable. The issuance of such shares under this Agreement is not subject to any preemptive or similar rights. TBA has furnished Romeo Entertainment and Shareholder with a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by TBA with the Securities and Exchange Commission ("SEC") since January 1, 1999 (the "TBA SEC Documents"), which are all the documents (other than preliminary materials) that TBA was required to file with the SEC since such date and all of which documents are listed on Annex I attached hereto. As of its date, each TBA SEC Document was in compliance, in all material respects, with the requirements of its form. None of the TBA SEC documents, including, without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statements of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The financial statements of TBA included in the TBA SEC Documents complied, at the time of filing with the SEC, as to form, in all material respects, with applicable accounting requirements and published rules and regulations of the SEC with respect thereto, were prepared in accordance with generally accepted accounting principles, applied on a consistent basis during the periods involved, and fairly presented, in all material respects (subject, in the case of unaudited statements, to normal, recurring year-end audit adjustments) the financial position of TBA as and at the dates thereof and the results of its operations and cash flows for the periods then ended. 2.4 Certain Corporate Matters. TBA is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, other than in such jurisdictions where the failure to so qualify would not, individually or in the aggregate, have a materially adverse effect on TBA and its subsidiaries, taken as a whole. TBA has full corporate power and authority and all authorizations, licenses and permits necessary to carry on the business in which it engages or in which it proposes presently to engage and to own and use the properties owned and used by it. TBA has delivered to Romeo Entertainment and Shareholder true, accurate and complete copies of its charter documents and bylaws which reflect all amendments made thereto at any time prior to the date of this Agreement. The minute books containing the records of meetings of the shareholders and board of directors of TBA are accurate and complete in all material respects. All material corporate actions taken by TBA since its date of incorporation have been duly -4- 9 authorized and/or subsequently ratified, as necessary. TBA is not in default under or in violation of any material provision of its charter or bylaws. 2.5 Broker's Fees. Neither TBA nor anyone on its behalf has any liability to any broker, finder, investment banker or similar agent, or has agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse any expenses of any broker, finder, investment banker or similar agent in connection with the Acquisition or any similar transaction. 2.6 Disclosure. The representations and warranties and statements of fact made by TBA in this Agreement and in certificates and other written statements or agreements delivered or to be delivered pursuant to this Agreement are accurate, correct and complete on the date of this Agreement and will be accurate, correct and complete at the Closing and do not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such representations and warranties and statements and information contained herein or therein not misleading. 2.7 No Actions Pending. There are no actions, claims, complaints, grievances, suits, governmental inquiries, governmental investigations or proceedings pending or, to the knowledge of TBA, threatened, and to the knowledge of TBA, there are no investigations pending or threatened, which in any manner challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement, by or before any court, arbitrator or administrative or governmental body. 2.8 Investment Intent. TBA is acquiring the Shares for its own account for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). TBA will not sell or otherwise dispose of any Shares in a manner which would require registration under the Securities Act or any applicable blue sky law unless such registrations are effected. 2.9 Information. TBA has had an opportunity to ask questions of, and receive answers from, Shareholder concerning the Shares, and the operations, financial condition and prospects of Romeo Entertainment. 2.10 Sophistication of TBA. TBA has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Shares. 2.11 Accredited Investor. TBA is an "accredited investor" as that term is defined in regulations promulgated by the Securities and Exchange Commission. 2.12 Absence of Certain Changes. Since January 1, 1998, there has not been any material adverse change in the business, assets, results of operations, condition (financial or otherwise) or prospects of TBA and its subsidiaries considered as a whole. -5- 10 2.13 No Reliance. In determining to enter into this Agreement and consummate the transaction contemplated herein, TBA has not relied on any information or materials other than (a) the representations and warranties of Shareholder and Romeo Entertainment set forth in Article 3 of this Agreement, (b) the additional representations and warranties of Shareholder set forth in Article 4 of this Agreement, (c) the information set forth in the Disclosure Schedule (hereinafter defined), and (d) the responses of Shareholder and Romeo Entertainment to the due diligence check list delivered by TBA to counsel for Romeo Entertainment by letter dated September 1, 1999 (the "Due Diligence Checklist"). 2.14 No Knowledge of Breach. Neither TBA nor any of its employees, agents or affiliates are aware of any breach by Shareholder of any of the representations and warranties of Shareholder as set forth in Articles 3 and 4 of this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER AND ROMEO ENTERTAINMENT Except as set forth in the correspondingly numbered section of the disclosure schedule attached hereto as Schedule 1 and incorporated herein by this reference (the "Disclosure Schedule"), Shareholder and Romeo Entertainment, jointly and severally, hereby represent and warrant to TBA as follows: 3.1 Organization, Qualification and Corporate Power. Each of Romeo Entertainment and Romeo Agency is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective incorporation. (Romeo Entertainment and Romeo Agency shall hereinafter be collectively referred to as "Romeo Entertainment" and the representations and warranties contained in this Article 3 shall apply and be read separately as to each of Romeo Entertainment and Romeo Agency unless the context otherwise requires.) Each of Romeo Entertainment and Romeo Agency is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions specified in Section 3.1 of the Disclosure Schedule, which are the jurisdictions in which the ownership of its properties, the employment of its personnel or the conduct of its business requires that it be so qualified or where a failure to be so qualified or licensed would have a material adverse effect on its financial condition, results of operation or business. Romeo Entertainment has full corporate power and authority and all authorizations, licenses and permits necessary to carry on the business in which it is engaged or in which it proposes presently to engage and to own and use the properties owned and used by it. Romeo Entertainment has delivered to TBA true, accurate and complete copies of its charter and bylaws which reflect all amendments made thereto at any time prior to the date of this Agreement. The minute books containing the records of meetings of the shareholders and Board of Directors of Romeo Entertainment, the stock certificate books and the stock record books of Romeo Entertainment are complete and correct and have been delivered to TBA. The stock record books of Romeo Entertainment and the shareholder lists of Romeo Entertainment which Romeo Entertainment has -6- 11 previously furnished to TBA are complete and correct and accurately reflect the record and beneficial ownership of all the outstanding shares of Romeo Entertainment's capital stock and all other outstanding securities issued by Romeo Entertainment. To the knowledge of Shareholder and Romeo Entertainment, all material corporate actions taken by Romeo Entertainment since incorporation have been duly authorized and/or subsequently ratified as necessary. To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment is not in default under or in violation of any provision of its charter or bylaws. Romeo Entertainment is not in default or in violation of any restriction, lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or other obligation or liability by which it is bound or to which any of its assets is subject. 3.2 Capitalization. Romeo Entertainment's entire authorized capital stock consists of 1,000 shares of common stock, $10.00 par value per share ("Romeo Entertainment Common Stock"), of which 35 shares are issued and outstanding and 35 shares will be issued and outstanding immediately prior to the Closing Date. Romeo Agency's entire authorized capital stock consists of 30,000 shares of common stock, no par value per share, of which 20,000 shares are issued and outstanding and 20,000 shares will be issued and outstanding immediately prior to the Closing Date. Romeo Entertainment owns all of the issued and outstanding capital stock of Romeo Agency. All of the issued and outstanding shares of Romeo Entertainment Common Stock have been and, as of the Closing Date, will be duly authorized and are and, as of the Closing Date, will be validly issued, fully paid and nonassessable and have not been and, as of the Closing Date, will not be issued in violation of any pre-emptive rights. There are no outstanding or authorized options, rights, warrants, calls, convertible securities, rights to subscribe, conversion rights or other agreements or commitments to which Romeo Entertainment is a party or which are binding upon Romeo Entertainment providing for the issuance or transfer by Romeo Entertainment of additional shares of its capital stock and Romeo Entertainment has not reserved any shares of its capital stock for issuance, nor are there any outstanding stock option rights, contracts, arrangements or commitments based upon the book value, income or other attribute of Romeo Entertainment. There are no voting trusts or any other agreements or understandings with respect to the voting of Romeo Entertainment's capital stock. Upon consummation of the Acquisition, TBA will own the entire equity interest (subject however to Shareholder's interest in such stock pursuant to the Pledge Agreement) in Romeo Entertainment and Romeo Entertainment will not have outstanding any stock or securities convertible or exchangeable for any shares of its capital stock, nor have outstanding any rights, options, agreements or arrangements to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock. Shareholder is the only holder of capital stock of Romeo Entertainment. To the knowledge of Shareholder and Romeo Entertainment, all capital stock, options, warrants and other securities issued by Romeo Entertainment were issued in compliance, in all respects, with all applicable federal and state securities laws. 3.3 Authorization of Transaction. Romeo Entertainment has the requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement and the transactions contemplated by this Agreement have been duly authorized by the Board of Directors of Romeo Entertainment. No other corporate approval on the part of Romeo Entertainment (other than shareholder approval) will be -7- 12 necessary to authorize the execution, delivery and performance of this Agreement and the trans actions contemplated hereby. This Agreement has been duly executed and delivered by Romeo Entertainment and, upon approval hereof by the shareholders of Romeo Entertainment, will constitute the valid and binding obligation of Romeo Entertainment, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. None of the execution and delivery of this Agreement by Romeo Entertainment, the performance by Romeo Entertainment of its obligations hereunder or the consummation of the transactions contemplated hereby by Romeo Entertainment will require any consent, approval or notice under, or violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of, or result in the creation or imposition of any lien upon any properties, assets or business of Romeo Entertainment under any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which Romeo Entertainment is a party or by which Romeo Entertainment or any of its assets or properties is bound or encumbered, except those that have already been given, obtained or filed, all as set forth in Section 3.3 of the Disclosure Schedule. No notice to, filing with or authorization, consent or approval of any public body or authority is necessary for the consummation by Romeo Entertainment of the transactions contemplated by this Agreement. 3.4 Subsidiaries. Other than the ownership by Romeo Entertainment of all of the outstanding capital stock of Romeo Agency, Romeo Entertainment does not own and is not obligated to purchase any equity interest in or any other interest convertible into or exchangeable for an equity interest in any entity. 3.5 Financial Statements. Romeo Entertainment has delivered to TBA (a) unaudited balance sheets as of December 31, 1998, 1997 and 1996, (b) unaudited statements of operations and statements of cash flows for each of the years in the three-year period ended December 31, 1998, (c) unaudited balance sheets as of September 30, 1999, and (d) unaudited statements of operations and statements of cash flows for the nine (9) months ended September 30, 1999, for Romeo Entertainment (collectively, the "Financial Statements"). The Financial Statements have been prepared on the cash basis of accounting, which basis of accounting has been applied consistently for all periods and present fairly the financial condition of Romeo Entertainment as of such dates and the results of its operations and cash flows for such periods. Since December 31, 1995, there have been no changes in Romeo Entertainment's method of accounting for tax purposes. 3.6 Events Subsequent to Financial Statements. Except as disclosed in the Financial Statements, or as disclosed on Schedule 1 herein or permitted in this Agreement, since September 30, 1999, there has not been: (a) any materially adverse change in the financial condition, results of operations or business of Romeo Entertainment; -8- 13 (b) other than the distribution by Romeo Entertainment to Shareholder of (i) the real property and improvements thereon which constitute the principal office of Romeo Entertainment and (ii) the personal mementoes of Shareholder listed on Schedule 2 hereof, any sale, lease, transfer, license or assignment of any material assets, tangible or intangible, of Romeo Entertainment, other than in the ordinary course of business; (c) any damage, destruction or property loss, whether or not covered by insurance, affecting materially adversely the properties or business of Romeo Entertainment; (d) any declaration or setting aside or payment of any dividend or distribution with respect to the shares of capital stock of Romeo Entertainment or any redemption, purchase or other acquisition of any such shares; (e) any mortgage or pledge of, or subjection to any material lien, charge, security interest or encumbrance of any kind on, any of the assets, tangible or intangible, of Romeo Entertainment (other than liens arising by operation of law which secure obligations which are not yet due and payable); (f) any incurrence of indebtedness or liability or assumption of obligations by Romeo Entertainment other than (i) those incurred in the ordinary course of business, (ii) those which do not exceed $25,000 in the aggregate, and (iii) those incurred in the course of negotiating, documenting and consummating the transactions contemplated by this Agreement; (g) any cancellation or compromise by Romeo Entertainment of any material debt or claim, except for adjustments made in the ordinary course of business which, in the aggregate, are not material; (h) any waiver or release by Romeo Entertainment of any right of any material value; (i) except licenses of software made in the ordinary course of business, consistently with past practice, any sale, assignment, transfer or grant by Romeo Entertainment of any rights under any concessions, leases, licenses, agreements, patents, inventions, trademarks, trade names or copyrights or with respect to any know-how or other intangible assets; (j) any material arrangement, agreement or undertaking entered into by Romeo Entertainment not terminable on 30 days or less notice without cost or liability (including, without limitation, any payment of or promise to pay any bonus or special compensation) with employees or any increase in compensation or benefits to officers or directors of Romeo Entertainment, other than in the ordinary course of business; -9- 14 (k) any change made or authorized in the charter or bylaws of Romeo Entertainment; (l) any issuance, sale or other disposition by Romeo Entertainment of any shares of its capital stock or other equity securities, or any grant of any options, warrants or other rights to purchase or obtain (including upon conversion or exercise) shares of its capital stock or other equity securities; (m) any loan to or other transaction with any officer, director or shareholder of Romeo Entertainment giving rise to any claim or right of Romeo Entertainment against any such person or of such person against Romeo Entertainment; (n) any payment to or other transaction with any officer, director or shareholder of Romeo Entertainment involving an amount in excess of $5,000, individually or in the aggregate, other than the payment of monthly compensation consistent with customary practice; (o) any acceleration, termination, modification or cancellation or threat thereof by any party of any contract, lease or other agreement or instrument to which Romeo Entertainment is a party or by which it is bound so as to affect, materially and adversely, the properties or business of Romeo Entertainment; or (p) any other material transaction or commitment entered into other than in the ordinary course of business by Romeo Entertainment. 3.7 Undisclosed Liabilities. Romeo Entertainment has no material liability or obligation whatsoever, known or unknown, either accrued, absolute, contingent or otherwise, except to the extent shown on the Financial Statements, incurred in the normal and ordinary course of business of Romeo Entertainment since January 1, 1999 (provided that, liabilities or obligations incurred in connection with the termination of employees shall not be considered liabilities incurred in the ordinary course of business), or incurred in the course of negotiating, documenting and consummating the transactions contemplated by this Agreement. Romeo Entertainment is not indebted, directly or indirectly, to any person who is an officer, director or shareholder of Romeo Entertainment or any affiliate of any such person in any amount whatsoever other than for salaries for services rendered or reimbursable business expenses, and no such officer, director, shareholder or affiliate is indebted to Romeo Entertainment. 3.8 Tax Returns and Audits. The taxable year of Romeo Entertainment ends December 31. Romeo Entertainment has duly and timely filed or caused to be filed all tax returns (the "Tax Returns") required to be filed on behalf of itself and has paid in full or fully reserved against in the Financial Statements all taxes, interest, penalties, assessments and deficiencies due or claimed to be due on behalf of itself to foreign, federal, state or local taxing authorities (including taxes on properties, income, franchises, licenses, sales, use and payrolls). Such Tax Returns are correct in all material respects, and Romeo Entertainment is not required to pay any other taxes for -10- 15 such periods except as shown in such Tax Returns. The income tax returns filed by Romeo Entertainment have not been, and are not being, to the knowledge of Shareholder, examined by the Internal Revenue Service or other applicable taxing authorities for any period. All taxes or estimates thereof that are due, or are claimed or asserted by any taxing authority to be due, have been timely and appropriately paid so as to avoid penalties for underpayment. Except for amounts not yet due and payable, all tax liabilities to which the properties of Romeo Entertainment may be subject have been paid and discharged. The provisions for income and other taxes payable reflected in the Financial Statements make adequate provision for all then accrued and unpaid taxes of Romeo Entertainment. There are no tax liens (other than liens for taxes which are not yet due and payable) on any of the property of Romeo Entertainment, nor are there any pending or threatened examinations or tax claims asserted. Romeo Entertainment has not granted any extensions of limita tion periods applicable to tax claims or filed a consent under Section 341(f) of the Code relating to collapsible corporations. Except in jurisdictions in which Romeo Entertainment voluntarily files tax returns, no claim has ever been made by a taxing authority that Romeo Entertainment is or may be subject to taxation by that jurisdiction. True and correct copies of all federal, foreign, state and local income and other tax returns, notices from foreign, federal, state and local taxing authorities, tax examination reports and statements of deficiencies assessed against or agreed to by Romeo Entertainment since January 1, 1995, have been delivered to TBA, and the same are listed in Section 3.8 of the Disclosure Schedule. Romeo Entertainment is not a party to, or bound by, any tax indemnity, tax sharing or tax allocation agreement. Romeo Entertainment is not a party to any agreement that has resulted or would result in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. Romeo Entertainment has never been a member of an "affiliated group," as defined in Section 1504(a) of the Code. All positions taken on federal Tax Returns that could give rise to a penalty for substantial understatement pursuant to Section 6662(d) of the Code have been disclosed on such Tax Returns. Romeo Entertainment is not a United States real property holding corporation as defined in Section 897 of the Code. No shareholder of Romeo Entertainment is a foreign person within the meaning of Section 1445(b)(2) of the Code. Romeo Entertainment has not made any tax elections under any section of the Code, including, without limitation under any of Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code (or any predecessor thereof). None of the assets and properties of Romeo Entertainment is an asset or property that TBA or any of its affiliates is or will be required to treat as being (i) owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as amended, and in effect immediately before the enactment of the Tax Reform Act of 1986, or (ii) tax-exempt use property within the meaning of Section 168(h)(1) of the Code. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local, or foreign law has been entered into by or with respect to Romeo Entertainment or any assets thereof. Romeo Entertainment has not agreed to or is not required to make any adjustment pursuant to Section 481(a) of the Code (or any predecessor provision) by reason of any change in any accounting method of Romeo Entertainment, Romeo Entertainment has no applications pending with any taxing authority requesting permission for any changes in any accounting method of Romeo Entertainment, and the I.R.S. has not proposed any such adjustment or change in accounting method therefor. Romeo Entertainment has not been or is not in violation (or with notice or lapse of time or both, would be in violation) of any applicable law relating to the payment of withholding of taxes. Romeo Entertainment has duly and timely -11- 16 withheld from salaries, wages and other compensation and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws. 3.9 Books and Records. The general ledgers and books of account of Romeo Entertainment, all federal, state and local income, franchise, property and other tax returns filed by Romeo Entertainment, with respect to its assets, and all other books and records of Romeo Entertainment are in all material respects complete and correct and have been maintained in accordance with good business practice and in accordance with all applicable procedures required by laws and regulations in all material respects. 3.10 Real Property. Set forth in Section 3.10 of the Disclosure Schedule is a complete and accurate list and a brief description of all real property owned or leased by Romeo Entertainment. With respect to each lease so set forth: (a) the lease has been validly executed and delivered by Romeo Entertainment and, to the knowledge of Romeo Entertainment, by the other party or parties thereto and is in full force and effect; (b) neither Romeo Entertainment nor, to the knowledge of Romeo Entertainment, any other party to the lease is in material breach or default, and no event has occurred on the part of Romeo Entertainment or, to the knowledge of Romeo Entertainment, on the part of any other party which, with notice or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under the lease; (c) the lease will continue to be binding in accordance with its terms following the consummation of the Acquisition; (d) Romeo Entertainment has not repudiated and, to the knowledge of Romeo Entertainment, no other party to the lease has repudiated any provision thereof; (e) there are no disputes, oral agreements or delayed payment programs in effect as to the lease; and (f) all facilities leased thereunder have been approved by all necessary governmental authorities, have been maintained in accordance with normal industry practice and are in good condition, working order and repair. 3.11 Tangible Property. Romeo Entertainment has good and marketable title to, or a valid leasehold interest in, each item of tangible property, whether real, personal or mixed, reflected on its books and records as owned or used by it, subject to no material encumbrances, loans, security interests, mortgages or pledges. 3.12 Intellectual Property. (a) Section 3.12(a) of the Disclosure Schedule sets forth a list of intellectual property owned by Romeo Entertainment including all patents, patent applications, trade marks, service marks, trade dress, trade names, trade secrets, corporate names, customer lists, copyrights, mask works, technology or intellectual property that are material to the business of Romeo Entertainment and registrations or applications to register any of the foregoing and a list of all licenses or other contracts related thereto (collectively, the "Intellectual Property"). With respect to each such item of Intellectual Property: (i) Romeo Entertainment is the sole and exclusive owner and has the sole and exclusive right to use the item in the conduct of its business; -12- 17 (ii) no proceedings have been instituted, are pending or are threatened which challenge the validity, enforceability, use or ownership thereof; (iii) to the knowledge of Shareholder and Romeo Entertainment, the item (A) does not infringe upon or otherwise violate the rights of others, (B) is not being infringed upon by others and (C) is not subject to any outstanding order, decree, judgment, stipulation or charge; (iv) no license, sublicense or agreement pertaining to the item has been granted by Romeo Entertainment; (v) Romeo Entertainment has not received any charge of interference or infringement with respect to the item; (vi) except in the ordinary course of business, Romeo Entertainment has not agreed to indemnify any person or entity for or against any infringement with respect to the item; (vii) the transactions contemplated by this Agreement will have no material adverse effect on the right, title and interest of Romeo Entertainment in the item; (viii) Romeo Entertainment has taken all steps which are commercially reasonable to protect the rights set forth in Section 3.12(a) of the Disclosure Schedule and will continue to use commercially reasonable efforts to maintain those rights prior to the Closing Date so as to not materially adversely affect the validity or enforcement of such rights; and (ix) Romeo Entertainment has supplied TBA with true and complete copies of all written documentation evidencing its ownership of the item and of all licenses and other contracts related thereto. (b) Section 3.12(b) of the Disclosure Schedule sets forth a list describing all patents, trademarks, trade names, service marks, copyrights, trade secrets and mask works of others which Romeo Entertainment practices or uses that are material to Romeo Entertainment. With respect to each such item of intellectual property: (i) any license agreement covering the item is a valid and binding agreement, has been validly executed and delivered by Romeo Entertainment and, to the knowledge of Romeo Entertainment, by the other parties thereto and is in full force and effect; (ii) no event has occurred which constitutes a breach of such license agreement, Romeo Entertainment has not repudiated and, to the knowledge of -13- 18 Romeo Entertainment, no other party thereto has repudiated any provision thereof and there are no disputes, oral arrangements or delayed payment programs in effect as to any such license agreement; (iii) Romeo Entertainment has supplied TBA with a true and complete copy of the license agreement; (iv) the transactions contemplated by this Agreement will have no material adverse effect on the ability of Romeo Entertainment to continue using or practicing each such item; and (v) Romeo Entertainment is not aware of any claim that the exercise of the rights granted to Romeo Entertainment with respect to such item infringes upon the intellectual property rights of any third party. (c) To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment has not infringed, misappropriated or otherwise violated any intellectual property rights of any third party. Romeo Entertainment is not aware of any infringement, misappropriation or violation with respect to intellectual property which will occur as a result of the continued operation of the business of Romeo Entertainment as now conducted or as presently proposed to be conducted. (d) Romeo Entertainment has taken commercially reasonable security measures to protect the security, confidentiality and value of all the material intellectual property owned by it. 3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the following contracts and written arrangements, true and complete copies of which have been delivered to TBA, to which Romeo Entertainment is a party: (a) any contract for the lease of personal property from or to third parties providing for lease payments in excess of $10,000.00 per annum; (b) any contract for the purchase or sale of supplies, products manufactured by Romeo Entertainment or other personal property or for the furnishing or receipt of services which contract calls for performance over a period of more than one year or which involves more than the sum of $10,000.00; (c) any joint venture or partnership agreement; (d) any agreement or instrument under which Romeo Entertainment is or may become indebted for borrowed money; (e) any noncompetition agreement; -14- 19 (f) any other contract in which the consequences of a default or termination would have a materially adverse effect on the financial condition of Romeo Entertainment or on the prospects or the conduct of the business of Romeo Entertainment; (g) any standard form of license agreement; and (h) any other contract or arrangement not entered into in the ordinary course of business. To the knowledge of Shareholder and Romeo Entertainment, all contracts and arrangements listed in Section 3.13 of the Disclosure Schedule are valid and binding agreements of Romeo Entertainment. Neither Romeo Entertainment nor, to the knowledge of Shareholder, any other party is in breach or default, and no event has occurred on the part of Romeo Entertainment or, to the knowledge of Shareholder, on the part of any other party to any such contract or arrangement which with notice or lapse of time would constitute a breach or default or permit termination under any such contract or arrangement. None of such contracts or arrangements will be terminated or modified by the consummation of the Acquisition. Romeo Entertainment has previously made available to TBA all of the material service agreements of Romeo Entertainment with its customers. Romeo Entertainment is not a party to any verbal contract or arrangement which, if reduced to written form, would be required to be listed in Section 3.13 of the Disclosure Schedule under the terms of subsections (a)-(h) of this Section 3.13. 3.14 Suppliers and Customers. Section 3.14 of the Disclosure Schedule is a true and correct list of the ten (10) largest events (by dollar value of contracts) under contract with Romeo Entertainment during the past twelve (12) months and the ten (10) largest suppliers of talent (by dollar value of contracts) utilized by Romeo Entertainment during the past twelve (12) months. No representative of any such event or supplier of talent has notified Romeo Entertainment that it will substantially decrease or cease doing business with Romeo Entertainment. 3.15 Accounts Payable; Accounts Receivable. Romeo Entertainment shall provide a schedule of all accounts payable to and accounts receivable of Romeo Entertainment and such accounts receivable shall be subject to no setoffs or counterclaims. 3.16 Powers of Attorney. There are no outstanding material powers of attorney or similar instruments executed by Romeo Entertainment. 3.17 Condition of Property. Each building, fixture, machine and piece of equipment (having a net book value of $10,000.00 or more) owned or used by Romeo Entertainment is in good operating condition and repair, subject to normal wear and tear, and is, to the knowledge of Shareholder and Romeo Entertainment, in compliance with all zoning, building and fire codes in all material respects. Romeo Entertainment owns or leases under valid lease all buildings (prior to Closing, it is the intention of Romeo Entertainment to transfer ownership in the building it currently occupies to Shareholder herein, and the transfer of such building shall not be part of this transaction), -15- 20 machinery, equipment and other tangible assets used in the conduct of its business as presently conducted. 3.18 Insurance. Romeo Entertainment is insured under the policies listed in Section 3.18 of the Disclosure Schedule (the "Insurance Policies"). The Insurance Policies are in full force and effect. All premiums due on the Insurance Policies or renewals thereof have been paid and there is no default by Romeo Entertainment under any of the Insurance Policies. 3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth any instances in which (a) Romeo Entertainment is subject to any judgment or order (other than orders of general applicability) of any court or quasi-judicial or administrative agency of any jurisdiction, domestic or foreign, or where there is any charge, complaint, lawsuit or governmental investigation pending or threatened against Romeo Entertainment; or (b) Romeo Entertainment is a plaintiff in any action, domestic or foreign, judicial or administrative, or any such action exists in which a counterclaim against Romeo Entertainment is pending or might be brought. None of the actions, suits, proceedings or investigations set forth in Section 3.19 of the Disclosure Schedule could result in any adverse change in the condition, financial or otherwise, of Romeo Entertainment, the same being fully reserved against in the Financial Statements. There are no unsatisfied judgments, orders (other than orders of general applicability), decrees or stipulations affecting Romeo Entertainment or to which Romeo Entertainment is a party and there is no reason to believe that any such action, suit, proceeding or investigation may be brought or threatened against Romeo Entertainment. 3.20 Employees. Romeo Entertainment has listed in Section 3.20 of the Disclosure Schedule and has furnished to TBA true and complete copies of: (a) any written employment agreements with officers and directors of Romeo Entertainment; and (b) any written employment agreements with its employees which by their terms may not be terminated by Romeo Entertainment at will or which grant severance payments. Romeo Entertainment has not entered into any similar oral employment agreements. To the knowledge of Shareholder, no key employee or group of employees has any plans to terminate employment with Romeo Entertainment. Romeo Entertainment is not a party to or bound by any collective bargaining agreement. There are no loans or other obligations payable or owing by Romeo Entertainment to any shareholder, officer, director or employee of Romeo Entertainment (except salaries and wages incurred and accrued in the ordinary course of business), nor are there any loans or debts payable or owing by any of such persons to Romeo Entertainment or any guarantees by Romeo Entertainment of any loan or obligation of any nature to which any such person is a party. To the knowledge of Shareholder and of Romeo Entertainment, Romeo Entertainment has complied in all material respects with all laws and regulations which relate to the employment of labor, employee civil rights or equal employment opportunities. 3.21 Employee Benefit Plans. Romeo Entertainment has listed in Section 3.21 of the Disclosure Schedule and has furnished to TBA true and complete copies of (a) any nonqualified deferred or incentive compensation or retirement plans or arrangements, (b) any qualified retirement plans or arrangements, (c) any other employee compensation, severance or termination pay or welfare benefit plans, programs or arrangements and (d) any related trusts, insurance contracts or -16- 21 other funding arrangements maintained, established or contributed to by Romeo Entertainment or to which Romeo Entertainment is a party or otherwise is bound ("Romeo Entertainment Employee Benefit Plans"). Except as required by law, Romeo Entertainment does not maintain or contribute nor has ever maintained or contributed to any funded or unfunded medical, health or life insurance plan or arrangement for retirees or terminated employees. With respect to the employee benefit plans listed in Section 3.21 of the Disclosure Schedule, Romeo Entertainment has furnished to TBA true and complete copies of (i) any summary plan description or other employee communication materials, (ii) the latest financial statements and annual reports, and (iii) all documents filed with the Internal Revenue Service or the Department of Labor since December 31, 1994. To the knowledge of Shareholder and Romeo Entertainment, all employee benefit plans and related trusts listed in Section 3.21 of the Disclosure Schedule and maintained or contributed to by Romeo Entertainment or with respect to which Romeo Entertainment now has or has ever had any liability or potential liability comply in form and in operation with all requirements of ERISA and the Code. To the knowledge of Shareholder and Romeo Entertainment, all required reports with respect to such plans required by applicable law have been filed and all contributions or payments presently anticipated hereunder have been made or properly accrued. To the knowledge of Shareholder and Romeo Entertainment, no applications for rulings, determination letters, advisory opinions or prohibited transaction exemptions are currently pending before the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation with respect to any such employee benefit plans or arrangements or any related trusts. To the knowledge of Shareholder and Romeo Entertainment, none of such employee benefit plans or arrangements, any related trusts, the trustees of any related trusts or the directors, officers and employees of Romeo Entertainment is the subject of any lawsuit, arbitration or other proceeding concerning any benefit claim or other benefit-related matter (other than routine claims in the ordinary course of business), and there have been no prohibited transactions as described in Section 406 of ERISA or as defined in Section 4975 of the Code with respect to any such plan. To the knowledge of Shareholder and Romeo Entertainment, neither Romeo Entertainment, its directors, officers and employees nor any other fiduciary, as such term is defined in Section 3 of ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or any other applicable law which would subject Romeo Entertainment or its directors, officers and employees to liability under ERISA or any applicable law. 3.22 Guarantees. Romeo Entertainment is not a guarantor or otherwise liable for any material indebtedness of any other person, firm or corporation other than endorsements for collection in the ordinary course of business. 3.23 Legal Compliance. To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment and each of its respective directors, officers and employees (the individuals only in their capacities as representatives of Romeo Entertainment) has complied in all material respects with all applicable laws and regulations of foreign, federal, state and local governments and all agencies thereof, and no claim has been filed against Romeo Entertainment alleging a violation of any such laws or regulations. To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment holds all of the material permits, licenses, certificates or other authorizations of foreign, federal, state or local governmental agencies required for the conduct of its business as presently conducted or proposed to be conducted. Neither Romeo Entertainment, nor any director, -17- 22 officer, agent, partner or employee thereof or any other person associated with or acting for or on behalf of Romeo Entertainment has directly or indirectly (a) made or agreed to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment (whether in cash or otherwise) to any person, private or public, regardless of form, whether in money, property, or services, in violation of any applicable law, rule or regulation (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Romeo Entertainment, or (iv) to pay for any lobbying or similar services or (b) established or maintained any fund or asset that has not been recorded in the books and records of Romeo Entertainment. 3.24 Certain Business Relationships. To the knowledge of Shareholder, none of the present or former shareholders, directors, officers or employees of Romeo Entertainment owns, directly or indirectly, any interest in any business, corporation or other entity (other than investments in publicly held companies) which, on the date hereof or within the past 12 months, has been in volved in any manner in any business arrangement or relationship with Romeo Entertainment, and none of the foregoing persons owns any property or rights, tangible or intangible, which are used in the business of Romeo Entertainment. 3.25 Broker's Fees. Neither Romeo Entertainment nor anyone on its behalf has any liability to any broker, finder, investment banker or similar agent, or has agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse any expenses of any broker, finder, investment banker or similar agent in connection with the Acquisition or any similar transaction. 3.26 Environment, Health and Safety. To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment is in compliance with all environmental, health and safety laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been held or commenced against Romeo Entertainment alleging any failure so to comply. To the knowledge of Shareholder and Romeo Entertainment, Romeo Entertainment has obtained and been in compliance with all of the material terms and conditions of all permits, licenses and other authorizations which are required under, and have complied with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, laws, and timetables which are contained in, all applicable environmental, health and safety laws. 3.27 Disclosure. To the knowledge of Shareholder and Romeo Entertainment, the representations and warranties and statements of fact made by Romeo Entertainment in this Agreement, in the Disclosure Schedule, in the responses to the Due Diligence Checklist and in certificates and other written statements or agreements delivered or to be delivered pursuant to this Agreement are accurate, correct and complete in all material respects on the date of this Agreement and will, except as contemplated hereby, be accurate, correct and complete in all material respects on the Closing Date and do not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein or therein not misleading. -18- 23 3.28 Limitations of Representations. Notwithstanding any other provision of this Agreement or otherwise, Shareholder shall not be deemed to have made any representation or warranty other than those expressly made in this Article 3, Sections 3.1 through 3.27 hereof, and Article 4, Sections 4.1 through 4.3 hereof. Without limiting the generality of the foregoing, and notwithstanding any otherwise express representation or warranty made by Shareholder in Articles 3 and 4 hereof, Shareholder makes no representation or warranty to TBA with respect to: (i) any oral or written projections, estimates, budgets or statements heretofore delivered to or made available to TBA of future revenues, expenses or expenditures, results or operations, profitability, cash flows, budgets, prospects, financial condition, market conditions or new developments of Romeo Entertainment; or (ii) any other oral or written information or documents of any kind made available by Romeo Entertainment or its counsel to TBA or its counsel, accountants or advisors with respect to Romeo Entertainment except as expressly covered by representations or warranties contained in (a) Sections 3.1 through 3.27 hereof, (b) Sections 4.1 through 4.3 hereof, (c) the information set forth in the Disclosure Schedule, and (d) the responses of Shareholder and Romeo Entertainment to the Due Diligence Checklist. ARTICLE 4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER Except as set forth in the correspondingly numbered section of the Disclosure Schedule, Shareholder represents and warrants to TBA as follows: 4.1 Representations Regarding Shares of Romeo Entertainment. (a) Shareholder is the record and beneficial owner of and has good title to the Shares, free and clear of any and all Liens. The Shares are all of the shares of capital stock of Romeo Entertainment owned by Shareholder, and the Shares collectively represent all the issued and outstanding capital stock of Romeo Entertainment. (b) Shareholder has the full right, power and authority to enter into this Agreement. (c) Shareholder is not a party to, subject to or bound by any agreement or any judgment, order, writ, prohibition, injunction or decree of any court or other governmental body which would prevent the execution or delivery of this Agreement by Shareholder. (d) No broker or finder has acted for Shareholder in connection with this agreement or the transactions contemplated hereby, and no broker or finder is entitled to any brokerage or finder's fee or other commissions in respect of such transactions based upon agreements, arrangements or understandings made by or on behalf of Shareholder. -19- 24 (e) Shareholder holds the Shares as a capital asset and will have owned the Shares for more than twelve (12) months as of the Closing Date. For federal and state income tax purposes, Shareholder shall report the sale of the Shares pursuant to this Agreement as the sale of a capital asset held for more than twelve (12) months, and shall not take any position on any report, return or filing with any tax jurisdiction that the substance of the transactions contemplated by this Agreement is the sale of the assets of Romeo Entertainment. Shareholder is a resident of the State of Nebraska and will report the gain on the sale of the shares for state income tax purposes with the State of Nebraska. 4.2 Investment Representations. (a) Shareholder will acquire the shares of TBA Common Stock issued pursuant to this Agreement for his own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intent of distributing or selling his shares in violation of applicable federal and state securities laws, and subject to the terms and provisions of the Registration Rights Agreement. (b) Shareholder has reviewed the representations concerning TBA contained in this Agreement and has made or has had the opportunity to make inquiry concerning TBA. Shareholder has sufficient knowledge and experience so as to be able to evaluate the risks and merits of his investment in TBA, and he is able financially to bear the risks thereof. Shareholder is entering into the transactions contemplated herein based on his own assessments of the merits and risks, upon his own experience as an officer and/or shareholder of Romeo Entertainment and is not relying on any business plan, projections, valuations or other financial information provided to Shareholder by TBA (other than the TBA SEC Documents). Shareholder further acknowledges and agrees that TBA has made no assurances of any nature whatsoever regarding the future operations of TBA and has made no guarantees as to the profitability of an investment therein. Shareholder further acknowledges that he is an accredited investor as defined in Rule 501 of Regulation D of the Securities Act. (c) Shareholder understands that the certificates of TBA Common Stock to be issued to him pursuant to this Agreement will bear a restrictive legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such shares are registered under such Act or an opinion of counsel satisfactory to TBA is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates, at the request of the holder thereof, at such time as they become registered for resale or eligible for resale pursuant to Rule 144(k) under the Securities Act. -20- 25 4.3 Authorization. This Agreement and all such other agreements and obligations entered into and undertaken in connection with the transactions contemplated hereby to which Shareholder is a party constitute the valid and legally binding obligations of Shareholder, enforceable against Shareholder in accordance with their respective terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, moratorium, reorganization or other laws of general application relating to or affecting creditors' rights generally. To the knowledge of Shareholder, the execution, delivery and performance by Shareholder of this Agreement and the agreements provided for herein, and the consummation by Shareholder of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both, (a) violate the provisions of any law, rule or regulation applicable to Shareholder; (b) violate any judgment, decree, order or award of any court, governmental body or arbitrator; or (c) conflict with or result in the breach or termination of any term or provision of, or constitute a default under, or cause any acceleration under, or cause the creation of any lien, charge or encumbrance upon the properties or assets of Shareholder pursuant to, any indenture, mortgage, deed of trust or other instrument or agreement to which Shareholder is a party or by which Shareholder or any of his properties is or, to the knowledge of Shareholder, may be bound, except for violations or conflicts which individually or in the aggregate would not have a material adverse effect on Romeo Entertainment's financial condition or results of operation. ARTICLE 5 CONDUCT OF BUSINESS PENDING THE CLOSING 5.1 Conduct of Business by Romeo Entertainment Pending the Closing. Romeo Entertainment covenants and agrees that, prior to the Closing Date, unless TBA shall otherwise approve in writing (which approval will not be unreasonably withheld) or as otherwise expressly contemplated or permitted by this Agreement: (a) Romeo Entertainment shall conduct its business and operations, including its cash management practices, the collection of receivables, maintenance of facilities and payment of payables, only in the usual and ordinary course of business and consistent with past custom and practice in all material respects; (b) Except as disclosed on Schedule 1 herein, and as contemplated by this Agreement, Romeo Entertainment shall not directly or indirectly do any of the following: (i) sell, pledge, dispose of or encumber any material portion of its assets, except in the ordinary course of business; (ii) amend or propose to amend its charter or bylaws; (iii) split, combine or reclassify any outstanding shares of its capital stock, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to shares of its capital stock; (iv) redeem, purchase or acquire or offer to acquire any shares of its capital stock or other securities; (v) create any subsidiaries; or (vi) enter into or modify any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 5.1(b); -21- 26 (c) Romeo Entertainment shall not (i) issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants, conversion privileges or rights of any kind to acquire any shares of, its capital stock; (ii) acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division or material assets thereof; (iii) incur any material indebtedness for borrowed money, issue any debt securities or guarantee any indebtedness to others; or (iv) enter into or modify any contract, agreement, commitment or arrangement with respect to any of the foregoing; (d) Except as disclosed on Schedule 1 herein, Romeo Entertainment shall not (i) enter into or modify any employment, severance or similar agreements or arrangements with, or grant any bonus, salary increase, severance or termination pay to, any officers or directors; or (ii) in the case of employees who are not officers or directors, take any action other than in the ordinary course of business and consistent in all material respects with past practice (none of which shall be unreasonable or unusual) with respect to the grant of any bonuses, salary increases, severance or termination pay or with respect to any increase of benefits payable in effect on January 1, 1999; (e) Except as disclosed on Schedule 1 herein, Romeo Entertainment shall not adopt or amend any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or arrangement for the benefit or welfare of any employee; (f) Except as otherwise required by its charter or bylaws, by this Agreement or by applicable law, Romeo Entertainment shall not call any meeting of its shareholders and, with respect to any meeting of its shareholders called by Romeo Entertainment, shall provide to TBA copies of all written materials and other information given to the shareholders prior to the time such materials and information are given to the shareholders; (g) Romeo Entertainment shall use commercially reasonable efforts to cause its current insurance (or reinsurance) policies not to be canceled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and reinsurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect; (h) Romeo Entertainment shall (i) use commercially reasonable efforts to preserve intact its business organization and goodwill, keep in full force and effect all material rights, licenses, permits and franchises relating to its business, keep available the services of its officers and employees as a group and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with it; (ii) report on a regular and frequent basis, at reasonable times, to representatives of TBA regarding operational matters and the general status of ongoing operations; (iii) use commercially -22- 27 reasonable efforts not to take any action which would render, or which reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue in any material respect at any time prior to the Closing Date if then made; and (iv) notify TBA of any emergency or other change in the normal course of their respective business or in the operation of their properties and of any tax audits, tax claims, governmental or third party complaints, investigations or hearings (or communications indicating that the same may be contemplated) if such emergency, change, audit, claim, complaint, investigation or hearing would be material, individually or in the aggregate, to the financial condition, results of operations or business of Romeo Entertainment, or to the ability of Romeo Entertainment or TBA to consummate the transactions contemplated by this Agreement; (i) Romeo Entertainment shall deliver to TBA promptly (but in any event within two business days) after the discovery or receipt of notice of any default under any material agreement to which it is a party or any other material adverse event or circumstance affecting Romeo Entertainment (including the filing of any material litigation against Romeo Entertainment or the existence of any dispute with any person or entity which involves a reasonable likelihood of such litigation being commenced), a certificate of the President of Romeo Entertainment specifying the nature and period of the existence thereof and what actions Romeo Entertainment has taken and proposes to take with respect thereto; (j) Romeo Entertainment shall use commercially reasonable efforts to maintain its assets in customary repair, order and condition, replace in accordance with past practice its inoperable, worn out or obsolete assets with assets of quality at least comparable to the original quality of the assets being replaced and maintain in all material respects its books, accounts and records in accordance with past custom and practice as used in the preparation of the Financial Statements; (k) Romeo Entertainment shall use commercially reasonable efforts to maintain in full force and effect the existence of all material patents, inventions, trademarks, service marks, trade dress, trade names, corporate names, copyrights, mask works, trade secrets, licenses, computer software, data and documentation and other proprietary rights, which it uses or owns; (l) Romeo Entertainment shall have positive working capital on the Closing Date; (m) Romeo Entertainment shall comply in all material respects with all legal requirements and contractual obligations applicable to its operations and business and pay all applicable taxes; and (n) Romeo Entertainment shall not enter into any contract (except for artist performances for which TBA shall receive a weekly summary by facsimile) requiring payments in excess of $20,000 or for a duration of more than one (1) year. -23- 28 For purposes of this Section 5.1, should TBA fail to approve in writing any action for which its approval is required pursuant to this Section 5.1 within three (3) business days after its receipt of a written request for approval in accordance with the notice requirements contained herein, the matter shall be deemed approved by TBA. Unless agreed to in writing by Romeo Entertainment, TBA and Shareholder, the amendment or modification of the Disclosure Schedule by Romeo Entertainment after the time TBA has signed this Agreement shall have no effect with respect to the agreements, covenants and obligations of Romeo Entertainment and TBA pursuant to this Section 5.1 and Sections 7.2 and 7.3 of this Agreement. 5.2 No Other Bids for Romeo Entertainment. Romeo Entertainment shall not, nor either authorize or knowingly permit any officer, director, shareholder or employee of, or any investment banker, attorney, accountant or other representative retained by, Romeo Entertainment to, make, solicit, initiate, encourage or respond to a submission of a proposal or offer from any person or entity (other than TBA) relating to any liquidation, dissolution, recapitalization, merger, consolidation or acquisition or purchase of all or a material portion of the assets of, or any equity interest in, Romeo Entertainment or other similar transaction or business combination involving Romeo Entertainment (hereinafter collectively referred to as a "Third Party Offer"). Romeo Entertainment will not participate in any negotiations regarding, or furnish to any person or entity (other than TBA) any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person or entity (other than TBA) to do or seek any of the foregoing. Romeo Entertainment will immediately cease and cause to be terminated any contacts or negotiations currently pending with respect to Third Party Offers, if any, and shall use its best efforts to cause all reports, material, data and other written information heretofore disseminated by it or on its behalf by any such officer, director or employee or any investment banker, attorney, accountant or other representative in connection with any such Third Party Offer or any inquiry or proposal related thereto to be promptly returned to it. Romeo Entertainment shall promptly notify TBA of the receipt of any Third Party Offer or any inquiry or communication which might reasonably be expected to lead to any Third Party Offer and will provide TBA with all information that TBA may reasonably request with respect thereto. 5.3 Lines of Business and Capital Expenditures. Unless approved in writing by TBA, Romeo Entertainment covenants that it will not (a) enter into any new material line of business; (b) change its investment, liability management and other material policies in any material respect; or (c) incur or commit to any capital expenditures, obligations or liabilities in connection therewith. 5.4 Accounting Methods. Unless approved in writing by TBA, Romeo Entertainment covenants that it will not change its methods of accounting in effect at December 31, 1998. Notwithstanding the provisions of the preceding sentence, Romeo Entertainment will, at Shareholder's expense, have its accounting records in proper order and ready to be audited, at the expense of TBA, in accordance with generally accepted accounting principles. 5.5 Other Actions. Unless approved in writing by TBA, Romeo Entertainment covenants that it shall not take any action that would or might reasonably be expected to result in any of the representations and warranties of Romeo Entertainment set forth in this Agreement becoming untrue -24- 29 in any material respect after the date hereof or any of the conditions to the Closing set forth in Article 7 of this Agreement not being satisfied. ARTICLE 6 ADDITIONAL AGREEMENTS 6.1 Expenses. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement and the other agreements contemplated hereby and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses. 6.2 Notification of Certain Matters. Each party shall give prompt notice to the others of (a) the occurrence or failure to occur of any event, which occurrence or failure would result in any Material Adverse Breach (as defined in Section 10.8 of this Agreement), and (b) any failure of such party, or any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied hereunder. 6.3 Access to Information. From the date hereof to the Closing Date, each of Romeo Entertainment and TBA shall, and shall cause its respective officers, directors, employees and agents to, afford the officers, employees, agents and representatives of the other parties hereto (including Shareholder) complete access at all reasonable times to such officers, employees and agents and its properties, books and records (all such access to be arranged through the respective officers of the parties hereto so as not to be unreasonably disruptive to any of the parties), and shall furnish each of such parties all financial, operating, personnel, compensation, tax and other data and information as such parties, through their respective officers, employees, agents or representatives, may request. 6.4 Taking of Necessary Action. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees, subject to applicable laws, to use all reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Without limiting the foregoing, Romeo Entertainment and TBA shall use their best efforts to maintain and make all filings with and obtain all consents, approvals, and/or assurances from third parties and appropriate governmental agencies and authorities necessary or, in the opinion of Romeo Entertainment or TBA, advisable for the consummation of the transactions contemplated by this Agreement. Each party shall cooperate with the other in good faith to help the other satisfy its obligations in this Section 6.4. 6.5 Notice of Changes. Each of Romeo Entertainment and TBA shall each promptly inform the other in writing if any change shall have occurred or shall have been threatened (or any development shall have occurred or shall have been threatened involving a prospective change) in its financial condition, results of operations or business that is or may reasonably be expected to have a material adverse effect on its financial condition, results of operations or business. -25- 30 6.6 Press Releases. Romeo Entertainment and TBA shall consult with each other as to the form and substance of any press release or other public disclosure of matters related to this Agreement or any of the transactions contemplated hereby; provided, however, that nothing in this Section 6.6 shall be deemed to prohibit any party hereto from making any disclosure that is required to fulfill such party's disclosure obligations imposed by law, including, without limitation, federal securities laws. 6.7 Employee Matters. TBA and Romeo Entertainment agree that all employees of Romeo Entertainment immediately prior to the Closing shall be employed by Romeo Entertainment immediately after the Closing at such level of pay which is mutually agreed upon between each employee and TBA, it being understood that TBA shall not have any obligations to cause Romeo Entertainment to continue employing such employees for any length of time or at any level of pay for any length of time thereafter, except as set forth in binding agreements of employment. Romeo Entertainment employees retained by Romeo Entertainment subsequent to the Closing Date shall be entitled to participate in health insurance plans and other benefits to the same extent that current TBA employees participate in such benefits, subject to applicable period of service requirements, if any. In addition, TBA will not unreasonably impose the termination of the employment relationship between Romeo Entertainment and any of its employees subsequent to the Closing Date. 6.8 Tax Matters. From and after the Closing, TBA, on the one hand, and Shareholder, on the other hand, shall cooperate fully with each other and make available or cause to be made available to each other for consultation, inspection and copying (at such other party's expense) in a timely fashion such personnel, tax data, tax returns and filings, files, books, records, documents, financial, technical and operating data, computer records and other information as may be reasonably required (1) for the preparation by either of them of any Tax Returns, elections, consents or certificates required to be prepared and filed by such parties or (2) in connection with any audit or proceeding relating to taxes relating to the assets of Romeo Entertainment. TBA agrees to retain all books and records with respect to tax matters pertinent to Romeo Entertainment relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority. None of the parties hereto shall cause an election to be made, an accounting for tax purposes to be adopted, or a position to be taken on any tax return, or in any tax proceeding, that is inconsistent with the provisions of this Agreement. In addition, as custodian of the books and records of Romeo Entertainment as of the Closing Date, TBA, or its authorized representatives, shall be responsible for closing such books and records as of the Closing Date for state and federal income tax and financial reporting purposes. TBA and Shareholder shall cooperate fully with each other in connection with such closing and TBA shall make available to Shareholder all financial and income tax data, statements, reports and information relating to such closing of the books and records as of the Closing Date. 6.9 Real Estate Lease. Prior to the Closing, Romeo Entertainment shall distribute to Shareholder the real property and improvements thereon, subject to all liabilities secured by such real estate and improvements, located at 15332 State Highway 988, Crescent, Iowa, and which are generally used as the corporate offices of Romeo Entertainment. As a condition to the Closing, -26- 31 Shareholder and Romeo Entertainment, with the consent and approval of TBA, shall negotiate and enter into a lease agreement granting Romeo Entertainment the use and occupancy by Romeo Entertainment of said real estate and improvements, in the form attached hereto as Exhibit E (the "Lease"). 6.10 Adjustment to Purchase Price. Notwithstanding the provisions of Section 1.2(c) hereof, (i) should Shareholder voluntarily terminate his employment relationship with Romeo Entertainment prior to the end of the term of his Employment Agreement (as defined in Section 7.2(e) hereof), other than for Good Reason (as such term is defined in such Employment Agreement), or (ii) should Romeo Entertainment terminate Shareholder's employment relationship pursuant to Paragraph 5(b)(iii) or (iv) of Shareholder's Employment Agreement, Shareholder shall be obligated to pay to TBA, within fifteen (15) days of the date of such termination of employment, a dollar amount in cash equal to the excess of (a) the aggregate portion of the Purchase Price theretofore paid to Shareholder by TBA for the Shares over (b) the aggregate earnings before interest, taxes, depreciation and amortization of Romeo Entertainment from the Closing Date to the end of the calendar month in which such employment is terminated. 6.11 Tax Indemnification. In reliance upon Shareholder's representation set forth in Section 4.1(e) hereof, and subject to the limitation hereinafter set forth, TBA hereby indemnifies and holds harmless Shareholder against income tax liability in excess of a (i) 20% maximum federal income tax rate, and (ii) 7% maximum state income tax rate, on the taxable gain realized and recognized by Shareholder upon the sale of the Shares to TBA pursuant to the terms of this Agreement; provided, however, such indemnification shall not apply should Shareholder be subject to the alternative minimum tax provisions contained in Sections 55 through 59 of the Code. TBA, as the indemnifying party, shall have all of the rights set forth in Section 9.3 of this Agreement. The provisions of Sections 10.1 and 10.8 of this Agreement shall not limit the liability of TBA pursuant to this Section 6.11. 6.12 Name. Romeo Entertainment shall be entitled to continue to operate and conduct business under the name "Romeo Entertainment Group, Inc." for a reasonable transition period subsequent to the Closing, as reasonably determined by TBA in consultation with Shareholder. 6.13 No Deficit Working Capital. On the Closing Date, the dollar amount of total assets of Romeo Entertainment, net of accumulated depreciation and amortization, shall be equal to or greater than the dollar amount of total liabilities of Romeo Entertainment. In addition, on the Closing Date, such total liabilities shall include the anticipated cost of preparing the state and federal income tax returns for Romeo Entertainment for calendar year 1999. 6.14 Referral Commissions. TBA shall negotiate in good faith the referral commissions to be paid Romeo Entertainment for Romeo Entertainment's business referrals to the other operating divisions of TBA on all material projects, consistent with the referral commissions paid other operating divisions of TBA for referrals made to the other operating divisions of TBA or as otherwise mutually agreed upon by Romeo Entertainment and TBA. -27- 32 ARTICLE 7 CONDITIONS TO CLOSING 7.1 Conditions to Obligations of Each Party to Effect the Closing. The respective obligations of each party to effect the Closing shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) no order shall have been entered and remain in effect in any action or proceeding before any foreign, federal or state court or governmental agency or other foreign, federal or state regulatory or administrative agency or commission that would prevent or make illegal the consummation of the transactions contemplated hereby; and (b) Shareholder shall have provided TBA with a written agreement not to sell, assign, convey, encumber or otherwise transfer shares of TBA Common Stock acquired pursuant to this Agreement for a period of one year following the Closing Date. 7.2 Additional Conditions to TBA's Obligations. The obligations of TBA to effect the Closing are subject to the satisfaction of the following conditions on or before the Closing Date: (a) Except for breaches which do not constitute a Material Adverse Breach (as defined in Section 10.8 of this Agreement) by Romeo Entertainment or Shareholder, the representations and warranties set forth in Articles 3 and 4 of this Agreement (without regard to any amendments or modifications (unless agreed to in writing by the parties hereto) of the Disclosure Schedule by Romeo Entertainment after the time TBA has signed this Agreement) will be true and correct as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties and with appropriate modifications of tense with respect to representations and warranties made as of a specified date; (b) Unless waived in writing by TBA, Romeo Entertainment shall have performed, in all material respects, each obligation and agreement and complied, in all material respects, with each covenant to be performed and complied with by it under this Agreement prior to the Closing Date, including, without limitation, all of its agreements contained in Article 6 of this Agreement; (c) Except as otherwise disclosed on the Disclosure Schedule, all consents by governmental or regulatory agencies or otherwise that are required for the consummation of the transactions contemplated hereby or that are required for TBA to own, operate or control Romeo Entertainment or any portion of the assets of Romeo Entertainment or to prevent a breach of or a default under or a termination of any agreement material to Romeo Entertainment to which Romeo Entertainment is a party or to which any material portion of the assets of Romeo Entertainment is subject, will have been obtained; -28- 33 (d) No action or proceeding before any court or governmental body will be pending or threatened wherein a judgment, decree or order would prevent any of the transactions contemplated hereby or cause such transactions to be declared unlawful or rescinded or which might adversely affect the right of TBA to own, operate or control Romeo Entertainment or any material portion of the assets of Romeo Entertainment or the value of the assets of Romeo Entertainment; (e) On or prior to the Closing Date, Shareholder shall have entered into an employment agreement with Romeo Entertainment substantially in the form of Exhibit F attached hereto dated as of the Closing Date (the "Employment Agreement") and Shareholder shall have terminated any employment, compensation, consulting, fee, services or other similar agreements payable to him, or to his affiliated entities, if any; (f) On or prior to the Closing Date, Shareholder shall have entered into the Lease in his capacity as lessor and Romeo Entertainment shall have entered into the Lease in its capacity as lessee; (g) At the Closing, Romeo Entertainment will have delivered to TBA the following: (i) a certificate executed on behalf of Romeo Entertainment by its President stating that the conditions set forth in Sections 7.2(a) through 7.2(d) of this Agreement have been satisfied or waived by TBA in writing; (ii) certified copies of the resolutions duly adopted by Romeo Entertainment's Board of Directors authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby and thereby; (iii) good standing or comparable certificates for Romeo Entertainment from the jurisdiction of its incorporation and from every jurisdiction where a failure to be qualified or licensed would have a material adverse effect on the consolidated financial condition, results of operations or business of Romeo Entertainment, dated not earlier than ten (10) days prior to the Closing Date; (iv) copies of all third party and governmental consents (or other evidence satisfactory to TBA) that Romeo Entertainment is required to obtain in order to effect the transactions contemplated by this Agreement; (v) a copy of Romeo Entertainment's charter certified by the Secretary of State of the State of Nebraska; (vi) certificates evidencing the Shares, duly endorsed; -29- 34 (vii) the schedule of accounts payable and accounts receivable to be provided pursuant to Section 3.15 hereof; and (viii) such other documents as TBA may reasonably request in connection with the transactions contemplated hereby. (h) All proceedings to be taken by Romeo Entertainment in connection with the consummation of the Acquisition at the Closing and the other transactions contemplated hereby and all documents required to be delivered by Romeo Entertainment in connection with the Acquisition and the other transactions contemplated hereby will be reasonably satisfactory in form and substance to TBA. 7.3 Additional Conditions to the Obligations of Romeo Entertainment and Shareholder. The obligations of Romeo Entertainment and Shareholder to effect the Closing are subject to the satisfaction of the following conditions on or before the Closing Date: (a) Except for breaches which do not constitute a Material Adverse Breach (as defined in Section 10.8 of this Agreement) by TBA, the representations and warranties set forth in Article 2 of this Agreement will be true and correct as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties and with appropriate modifications of tense with respect to representations and warranties made as of a specified date; (b) TBA shall have performed, in all material respects, each obligation and agreement and complied, in all material respects, with each covenant required to be performed and complied with by it under this Agreement prior to the Closing Date; (c) No action or proceeding before any court or government body will be pending or threatened wherein a judgment, decree or order would prevent any of the transactions contemplated hereby or cause such transactions to be declared unlawful or rescinded; (d) At the Closing, TBA will have delivered to Romeo Entertainment and Shareholder the following: (i) a certificate executed on behalf of TBA by its Chief Executive Officer stating that the conditions set forth in Sections 7.3(a) through (c) of this Agreement have been satisfied; (ii) certified copies of the resolutions duly adopted by TBA's board of directors authorizing the execution, delivery and performance of this Agreement; (iii) good standing certificates for TBA from the Secretary of State of the State of Delaware dated not earlier than ten (10) days prior to the Closing Date; -30- 35 (iv) copies of all third party and governmental or regulatory consents (or other evidence satisfactory to Romeo Entertainment) that TBA are required to obtain in order to effect the transactions contemplated by this Agreement; (v) copies of TBA's charter certified by the Secretary of State of the State of Delaware; (vi) the Common Stock Portion, the Cash Portion, the Adjustable Note and the Non-Adjustable Note; and (vii) such other documents as Romeo Entertainment or Shareholder may reasonably request in connection with the transactions contemplated hereby; (e) All proceedings to be taken by TBA in connection with the consummation of the Acquisition at the Closing and all documents required to be delivered by TBA in connection with the transactions contemplated hereby will be reasonably satisfactory in form and substance to Romeo Entertainment and Shareholder; (f) Except as otherwise disclosed in writing to Romeo Entertainment and Shareholder, all consents by governmental or regulatory agencies or otherwise that are required for the consummation of the transactions contemplated hereby or that are required for TBA to own, operate or control Romeo Entertainment or any portion of the assets of Romeo Entertainment or to prevent a breach of or a default under or a termination of any agreement material to Romeo Entertainment to which Romeo Entertainment is a party or to which any material portion of the assets of Romeo Entertainment is subject, will have been obtained; (g) The Employment Agreement will have been executed and delivered as of the Closing Date and there will not have been any changes, amendments or modifications to, or termination of, such agreement; and (h) The Registration Rights Agreement, the Pledge Agreement and the Lease will have been executed and delivered as of the Closing Date. ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by the unanimous written consent of Shareholder and the Boards of Directors of TBA and Romeo Entertainment; -31- 36 (b) by either TBA or Romeo Entertainment if the Acquisition shall not have been consummated by February 28, 2000; (c) by TBA if there has been a misrepresentation or breach of a representation or warranty or a failure to perform a covenant on the part of Romeo Entertainment or Shareholder with respect to their representations, warranties and covenants set forth in this Agreement and any such breach or failure constitutes a Material Adverse Breach; and (d) by Romeo Entertainment if there has been a misrepresentation or a breach of a representation or warranty or a failure to perform a covenant on the part of TBA with respect to their representations, warranties and covenants set forth in this Agreement and any such breach or failure constitutes a Material Adverse Breach. 8.2 Amendment. This Agreement may not be amended except by an instrument signed by each of the parties hereto. 8.3 Waiver. At any time prior to the Closing Date, (a) TBA may in writing (i) extend the time for the performance of any of the obligations or other acts of Romeo Entertainment and/or Shareholder or (ii) waive compliance with any of the agreements of Romeo Entertainment and/or Shareholder or with any conditions to its own obligations, and (b) Romeo Entertainment and/or Shareholder may in writing (i) extend the time for the performance of any of the obligations or other acts of TBA or (ii) waive compliance with any of the agreements of TBA or with any conditions to their own obligations in each case only to the extent such obligations, agreements and conditions are intended for their benefit. 8.4 Effect of Termination. If this Agreement is terminated as provided in Section 8.1, this Agreement shall become void and there shall be no liability or further obligation on the part of any party hereto or any of their respective shareholders, officers or directors, except that nothing herein and no termination pursuant hereto will relieve any party from liability for any breach of this Agreement and the provisions of Section 6.6 and any confidentiality agreements by and between TBA and Romeo Entertainment will survive such termination. ARTICLE 9 INDEMNIFICATION 9.1 By TBA, Romeo Entertainment and Shareholder. TBA on the one hand and Romeo Entertainment and Shareholder on the other hand each hereby agree to indemnify and hold harmless the other against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for defending any actions or threatened actions) (collectively "Damages") reasonably incurred by TBA, Romeo Entertainment and Shareholder in connection with each and all of the matters set forth below to the extent they constitute a Material Adverse Breach. -32- 37 (a) Any breach by the Indemnifying Party (as defined below) of any representation or warranty made by such Indemnifying Party in this Agreement; (b) Any breach of any covenant, agreement or obligation of the Indemnifying Party contained in this Agreement or any other agreement, instrument or document contemplated by this Agreement; and (c) Any misrepresentation contained in any statement, certificate or schedule furnished by the Indemnifying Party pursuant to this Agreement or in connection with the transactions contemplated by this Agreement. 9.2 Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification thereof as provided in Section 9.3 of this Agreement in which case the Indemnified Party may settle or compromise such claim without the prior consent of the Indemnifying Party. If the Indemnified Party fails to give prompt notice of any claim and such failure prejudices the Indemnifying Party's position or its ability to defend the claim, the Indemnifying Party's liability to the Indemnified Party shall be reduced by the amount, if any, demonstrated to be directly attributable to the failure to give such notice in a timely manner. 9.3 Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or litigation resulting therefrom within thirty (30) days after the date such claim is made, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its counsel and at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of -33- 38 the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner. 9.4 Payment of Indemnification Obligation. All indemnification by TBA, Romeo Entertainment or Shareholder hereunder shall be effected by payment by wire transfer or delivery of a cashier's or certified check in the amount of the indemnification liability. 9.5 Limitations. EXCEPT IN CASES OF ACTIONABLE FRAUD, WHERE SPECIFIC PERFORMANCE IS AVAILABLE AS A REMEDY OR AS PROVIDED IN SECTION 6.10 OF THIS AGREEMENT, THE PARTIES AGREE AND ACKNOWLEDGE THAT THE INDEMNIFICATION RIGHTS PROVIDED IN THIS ARTICLE 9 SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SUCH PARTIES TO THIS AGREEMENT. EXCEPT IN CASES OF ACTIONABLE FRAUD, WHERE SPECIFIC PERFORMANCE IS AVAILABLE AS A REMEDY OR AS PROVIDED IN SECTION 6.10 OF THIS AGREEMENT, THE AGGREGATE, MAXIMUM LIABILITY OF EACH OF SHAREHOLDER, ROMEO ENTERTAINMENT AND TBA UNDER THIS ARTICLE 9 SHALL BE AN AMOUNT EQUAL TO THE AGGREGATE PURCHASE PRICE PAID FOR THE SHARES. ARTICLE 10 GENERAL PROVISIONS 10.1 Survival of Representations and Warranties. The representations and warranties set forth in Article 2, Article 3 and Article 4 of this Agreement shall survive the Closing for a period of one (1) year. Notwithstanding the above, claims resulting from any breach of any representation or warranty concerning tax or Romeo Entertainment Employee Benefit Plan matters shall expire one hundred twenty (120) days after the expiration of any applicable statute of limitations. Any litigation arising out of or attributable to a breach of any representation, warranty or covenant contained herein must be commenced within the applicable period described above. If not commenced within the applicable period, any such claim will thereafter conclusively be deemed to be waived regardless of when such claim is or should have been discovered. 10.2 Effect of Due Diligence. No investigation by TBA or Romeo Entertainment into the business, operations and condition of the other shall diminish in any way the effect of any representations or warranties made by either party in this Agreement or shall relieve such party of any of its obligations under this Agreement. 10.3 Specific Performance. TBA, Romeo Entertainment and Shareholder understand and agree that the covenants and undertakings on each of their parts herein contained are uniquely related to the desire of TBA, Romeo Entertainment and Shareholder to consummate the Acquisition, that the Acquisition is a unique business opportunity for Romeo Entertainment, TBA, and Shareholder and that, although monetary damages may be available for the breach of such covenants and undertakings, monetary damages would be an inadequate remedy therefor. Accordingly, Romeo Entertainment, TBA and Shareholder agree that TBA shall be entitled to obtain specific performance -34- 39 by Romeo Entertainment and Shareholder of every such covenant and undertaking contained herein to be performed by Romeo Entertainment and Shareholder and that Romeo Entertainment and Shareholder shall be entitled to obtain specific performance from TBA of each and every covenant and undertaking herein contained to be observed or performed by TBA. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, sent by telex, telecopy, facsimile or overnight courier, or mailed by registered or certified mail (postage prepaid and return receipt requested), to the party to whom the same is so delivered, sent or mailed at the following addresses (or at such other address for a party as shall be specified by like notice): if to TBA: TBA Entertainment Corporation 402 Heritage Plantation Way Hickory Valley, Tennessee 38042 Attention: Thomas J. Weaver III Telecopy: (901) 764-6107 with a copy to: Winstead Sechrest & Minick P.C. 5400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 Attention: Randall E. Roberts, Esq. Telecopy: (214) 745-5390 if to Romeo Entertainment: Romeo Entertainment Group, Inc. 15332 State Highway 988 Crescent, Iowa 51526 Attention: Robert Romeo Telecopy: -35- 40 with a copy to: James P. Waldron Nelson, Morrow & Waldron 675 Commercial Federal Tower 2120 South 72nd Street Omaha, Nebraska 68124 Telecopy: (402) 392-2130 (c) if to Shareholder: Robert Romeo 15332 State Highway 988 Crescent, Iowa 51526 with a copy to: James P. Waldron Nelson, Morrow & Waldron 675 Commercial Federal Tower 2120 South 72nd Street Omaha, Nebraska 68124 Telecopy: (402) 392-2130 Notices delivered personally or by telex, telecopy or facsimile shall be deemed delivered as of actual receipt, mailed notices shall be deemed delivered three days after mailing and overnight courier notices shall be deemed delivered one day after the date of sending. 10.5 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to sections and articles of this Agreement unless otherwise stated. 10.6 Severability. If any term, provision, covenant or Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify the Agreement to preserve each party's anticipated benefits under the Agreement. 10.7 Miscellaneous. This Agreement (together with all other documents and instruments referred to herein): (a) except for any confidentiality agreements executed in connection with the transactions contemplated hereby, constitutes the entire agreement and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof; (b) except as expressly set forth herein, is not intended to confer upon any other person any rights or remedies hereunder; (c) shall not be assigned by operation of law or otherwise, -36- 41 except that TBA may assign all or any portion of their rights under this Agreement to any wholly owned subsidiary but no such assignment shall relieve TBA of its obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation with or into which TBA may be merged; and (d) shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Nebraska, without giving effect to the principles of conflict of laws thereof. Courts within the State of Nebraska will have jurisdiction over any and all disputes between the parties hereto, whether in law or equity, arising out of or relating to this Agreement. The parties consent to and agree to submit to the jurisdiction of such courts. This Agreement may be executed in two or more counterparts which together shall constitute a single agreement. 10.8 Material Adverse Breach. Breaches of representations, warranties and covenants by either party hereto which (a) individually results in damages to the other party in excess of $20,000 or (b) in the aggregate result in damages to the other party in excess of $50,000, shall constitute, for purposes of this Agreement, a "Material Adverse Breach." 10.9 Limitation of Liability. Neither TBA, Romeo Entertainment, nor Shareholder shall have any liability for breach of the representations, warranties and covenants made by them and contained in this Agreement unless such breach is a Material Adverse Breach. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] -37- 42 STOCK PURCHASE AGREEMENT Signature Page IN WITNESS WHEREOF, TBA, Shareholder and Romeo Entertainment have caused this Agreement to be executed on the date first written above by their respective officers duly authorized. TBA ENTERTAINMENT CORPORATION By: /s/ Thomas Jackson Weaver III --------------------------------- Thomas Jackson Weaver III, Chief Executive Officer ROMEO ENTERTAINMENT GROUP, INC. By: /s/ Robert Romeo --------------------------------- Robert Romeo, President /s/ Robert Romeo ------------------------------------ ROBERT ROMEO -38- 43 SCHEDULE 1 DISCLOSURE SCHEDULE 44 SCHEDULE 2 MEMENTOES OF SHAREHOLDER 45 ANNEX I LIST OF TBA SEC DOCUMENTS 1. Current Report on Form 8-K 2. Annual Report on Form 10-KSB 3. Proxy Statement 4. Quarterly Report on Form 10-Q (3/31/99) 5. Quarterly Report on Form 10-Q (6/30/99) 6. Quarterly Report on Form 10-Q (9/30/99) 46 EXHIBIT A FORM OF ADJUSTABLE PROMISSORY NOTE 47 EXHIBIT B FORM OF NON-ADJUSTABLE PROMISSORY NOTE 48 EXHIBIT C FORM OF PLEDGE AGREEMENT 49 EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT 50 EXHIBIT E FORM OF LEASE 51 EXHIBIT F FORM OF EMPLOYMENT AGREEMENT EX-10.19 3 MATERIAL CONTRACT 1 EXHIBIT 10.19 STOCK PURCHASE AGREEMENT among TBA ENTERTAINMENT CORPORATION, MIKE ATKINS and MIKE ATKINS MANAGEMENT, INC. December 6, 1999 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 - PURCHASE AND SALE OF SHARES......................................................1 1.1 Purchase and Sale.............................................................1 1.2 Purchase Price................................................................1 1.3 Closing.......................................................................2 1.4 Further Action................................................................2 ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF TBA............................................2 2.1 Organization and Qualification................................................2 2.2 Authority Relative to this Agreement..........................................3 2.3 Certain Corporate Matters.....................................................3 2.4 Broker's Fees.................................................................3 2.5 Disclosure....................................................................4 2.6 No Actions Pending............................................................4 2.7 Investment Intent.............................................................4 2.8 Information...................................................................4 2.9 Sophistication of TBA.........................................................4 2.10 Accredited Investor...........................................................4 2.11 TBA 10-KSB....................................................................4 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER..............................................................................5 3.1 Organization, Qualification and Corporate Power...............................5 3.2 Capitalization................................................................5 3.3 Authorization of Transaction..................................................6 3.4 Subsidiaries..................................................................6 3.5 Financial Statements..........................................................7 3.6 Events Subsequent to Financial Statements.....................................7 3.7 Undisclosed Liabilities.......................................................9 3.8 Tax Returns and Audits........................................................9 3.9 Books and Records............................................................11 3.10 Real Property................................................................11 3.11 Tangible Property............................................................11 3.12 Intellectual Property........................................................11 3.13 Contracts....................................................................13 3.14 Suppliers and Customers......................................................14 3.15 Notes; Accounts Receivable...................................................14 3.16 Powers of Attorney...........................................................14 3.17 Condition of Property........................................................14 3.18 Insurance....................................................................14 3.19 Litigation...................................................................15 3.20 Employees....................................................................15 3.21 Employee Benefit Plans.......................................................15 3.22 Guarantees...................................................................16
-i- 3 TABLE OF CONTENTS (Continued)
Page ---- 3.23 Legal Compliance.............................................................16 3.24 Certain Business Relationships...............................................17 3.25 Broker's Fees................................................................17 3.26 Environment, Health and Safety...............................................17 3.27 Year 2000....................................................................17 3.28 Jaci Velasquez Management Agreement..........................................18 3.29 Disclosure...................................................................18 ARTICLE 4 - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER...............................................................18 4.1 Representations Regarding Shares of Atkins Management........................18 4.2 Authorization................................................................18 ARTICLE 5 - [INTENTIONALLY OMITTED].........................................................19 ARTICLE 6 - ADDITIONAL AGREEMENTS...........................................................19 6.1 Expenses.....................................................................19 6.2 Taking of Necessary Action...................................................19 6.3 Press Releases...............................................................20 6.4 Employee Matters.............................................................20 6.5 Tax Matters..................................................................20 6.6 Section 338(h)(10) Election..................................................21 6.7 Adjustment to Purchase Price.................................................21 6.8 Separate Subsidiary..........................................................22 6.9 Jaci Velasquez Management Agreement..........................................22 6.10 Investment Partnerships......................................................22 6.11 No Deficit Working Capital...................................................22 ARTICLE 7 - CONDITIONS TO CLOSING...........................................................22 7.1 Conditions to Obligations of Each Party to Effect the Closing................22 7.2 Additional Conditions to TBA's Obligations...................................22 7.3 Additional Conditions to the Obligations of Atkins Management and the Shareholder...............................................24 ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER...............................................26 8.1 Termination..................................................................26 8.2 Amendment....................................................................26 8.3 Waiver.......................................................................26 8.4 Effect of Termination........................................................27
-ii- 4 TABLE OF CONTENTS (Continued)
Page ---- ARTICLE 9 - INDEMNIFICATION.................................................................27 9.1 By TBA, Atkins Management and the Shareholder................................27 9.2 Claims for Indemnification...................................................27 9.3 Defense by Indemnifying Party................................................28 9.4 Payment of Indemnification Obligation........................................28 9.5 Limitations..................................................................28 ARTICLE 10 - GENERAL PROVISIONS.............................................................29 10.1 Survival of Representations and Warranties...................................29 10.2 Effect of Due Diligence......................................................29 10.3 Specific Performance.........................................................29 10.4 Notices......................................................................29 10.5 Interpretation...............................................................31 10.6 Severability.................................................................31 10.7 Miscellaneous................................................................31 10.8 Material Adverse Breach......................................................31 10.9 Limitation of Liability......................................................32 10.10 Waiver of Purchase Right.....................................................32 10.11 Effective Time...............................................................32
SCHEDULE 1 Disclosure Schedule EXHIBIT A Form of Adjustable Promissory Note EXHIBIT B Form of Non-Adjustable Promissory Note EXHIBIT C Form of Employment Agreement -iii- 5 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated December 6, 1999 (this "Agreement"), is by and among TBA Entertainment Corporation, a Delaware corporation ("TBA"), Mike Atkins, an individual and sole shareholder of Mike Atkins Management, Inc. (the "Shareholder"), and Mike Atkins Management, Inc., a Tennessee corporation ("Atkins Management"). RECITALS WHEREAS, the Shareholder owns all of the issued and outstanding common stock (the "Shares") of Atkins Management; WHEREAS, TBA, Atkins Management and the Shareholder each desire for TBA to acquire (the "Acquisition") all of the Shares pursuant to the terms and conditions of this Agreement, as a result of which Atkins Management will become a wholly owned subsidiary of TBA; NOW, THEREFORE, in consideration of the foregoing premises, the representations, warranties and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, the Shareholder agrees to sell, assign, transfer and deliver to TBA at the Closing (as hereinafter defined), and TBA agrees to purchase from the Shareholder at the Closing, the Shares, free and clear of any and all charges, claims, community property interests, equitable interests, mortgages, liens, security interests, pledges, charges, rights of assignment, rights of purchase, rights of first offer or refusal, options, warrants or encumbrances of any nature (collectively, "Liens"). 1.2 Purchase Price. The aggregate purchase price (the "Purchase Price") for the Shares shall be equal to One Million Four Hundred Thousand Dollars ($1,400,000), subject to possible adjustment as provided in the Adjustable Note (hereinafter defined), and shall be paid or delivered to the Shareholder at the Closing as follows: (a) TBA shall deliver to the Shareholder by wire transfer to one or more accounts designated in writing by the Shareholder to TBA prior to the Closing cash in an amount equal to One Thousand Dollars ($1,000) (the "Cash Portion"); (b) TBA shall deliver to the Shareholder a promissory note (the "Adjustable Note") in the initial principal amount of Seven Hundred Thousand Dollars ($700,000) (the "Adjustable Note Portion"), subject to possible adjustment as set forth in the Adjustable Note, in the form of Exhibit A attached hereto (the "Form of Adjustable Note"). 6 (c) TBA shall deliver to the Shareholder a promissory note (the "Non-Adjustable Note") in the principal amount of Six Hundred Ninety-Nine Thousand Dollars ($699,000) (the "Non-Adjustable Note Portion") in the form of Exhibit B attached hereto (the "Form of Non-Adjustable Note"). Except as set forth in Section 6.7 hereof, any adjustment to the Purchase Price hereunder shall be accomplished only through adjustment to payments under the Adjustable Note as set forth in the Adjustable Note, and the Cash Portion and the Non-Adjustable Note Portion of the Purchase Price shall not be adjusted subsequent to Closing. 1.3 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Winstead Sechrest & Minick P.C., 1201 Elm Street, 5400 Renaissance Tower, Dallas, Texas, on December 6, 1999, or as soon as reasonably practicable thereafter as the conditions set forth in Article 7 have been satisfied or waived (the "Closing Date"). At the Closing: (a) TBA will (i) pay to the Shareholder the Cash Portion by wire transfer of immediately available funds, (ii) execute and deliver to the Shareholder the Adjustable Note and the Non-Adjustable Note, and (iii) execute and deliver to the Shareholder such other documents and instruments required to be executed and delivered by TBA under the terms of this Agreement; and (b) The Shareholder will deliver to TBA (i) a certificate representing the Shares, duly endorsed, and (ii) such other documents and instruments required to be delivered by the Shareholder under the terms of this Agreement or reasonably requested by TBA. 1.4 Further Action. If, at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest TBA with full right, title and possession and all rights, privileges and immunities with respect to any or all of the Shares, the Shareholder shall take all such action. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TBA TBA hereby represents and warrants to Atkins Management and the Shareholder as follows: 2.1 Organization and Qualification. TBA has been duly organized and is validly existing as a corporation and in good standing under the laws of the State of Delaware and has full corporate power and authority to own and use the properties owned and used by it and to carry on its business as now conducted. -2- 7 2.2 Authority Relative to this Agreement. TBA has the requisite corporate power and authority to execute and deliver this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated on its part hereby. The execution, delivery and performance of this Agreement by TBA and the consummation by TBA of the transactions contemplated on its part hereby have been duly authorized by the Board of Directors of TBA, and no other corporate proceedings on the part of TBA are necessary to authorize the execution and delivery of this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by TBA and constitutes the legal, valid and binding obligation of TBA, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. None of the execution and delivery of this Agreement by TBA, the performance by TBA of its obligations hereunder or the consummation of the transactions contemplated hereby by TBA will require any consent, approval or notice under, or violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of, or result in the creation or imposition of any lien upon any properties, assets or business of TBA under any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which TBA is a party or by which TBA or any of its assets or properties is bound or encumbered, except those that have already been given, obtained or filed. No authorization, consent or approval of, or filing or registration with, any public body, court or governmental or regulatory authority is necessary on the part of TBA for the consummation by TBA of the transactions contemplated by this Agreement. 2.3 Certain Corporate Matters. TBA is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, other than in such jurisdictions where the failure to so qualify would not, individually or in the aggregate, have a materially adverse effect on TBA and its subsidiaries, taken as a whole. TBA has full corporate power and authority and all authorizations, licenses and permits necessary to carry on the business in which it engages or in which it proposes presently to engage and to own and use the properties owned and used by it. TBA has delivered to Atkins Management and the Shareholder true, accurate and complete copies of its charter documents and bylaws which reflect all amendments made thereto at any time prior to the date of this Agreement. The minute books containing the records of meetings of the shareholders and board of directors of TBA are accurate and complete in all material respects. All material corporate actions taken by TBA since its date of incorporation have been duly authorized and/or subsequently ratified, as necessary. TBA is not in default under or in violation of any material provision of its charter or bylaws. 2.4 Broker's Fees. Neither TBA nor anyone on its behalf has any liability to any broker, finder, investment banker or similar agent, or has agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse any expenses of any broker, finder, investment banker or similar agent in connection with the Acquisition or any similar transaction. -3- 8 2.5 Disclosure. The representations and warranties and statements of fact made by TBA in this Agreement and in certificates and other written statements or agreements delivered or to be delivered pursuant to this Agreement are accurate, correct and complete on the date of this Agreement and will, except as contemplated hereby, be accurate, correct and complete at the Closing and do not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such representations and warranties and statements and information contained herein or therein not misleading. 2.6 No Actions Pending. There are no actions, claims, complaints, grievances, suits, governmental inquiries, governmental investigations or proceedings pending or, to the knowledge of TBA, threatened, and to the knowledge of TBA, there are no investigations pending or threatened, which in any manner challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement, by or before any court, arbitrator or administrative or governmental body. 2.7 Investment Intent. TBA is acquiring the Shares for its own account for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). TBA will not sell or otherwise dispose of any Shares in a manner which would require registration under the Securities Act or any applicable blue sky law unless such registrations are effected. 2.8 Information. TBA has had an opportunity to ask questions of, and receive answers from, the Shareholder concerning the Shares, and the operations, financial condition and prospects of Atkins Management. 2.9 Sophistication of TBA. TBA has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Shares. 2.10 Accredited Investor. TBA is an "accredited investor" as that term is defined in regulations promulgated by the Securities and Exchange Commission. 2.11 TBA 10-KSB. TBA has furnished the Shareholder with a true and complete copy of its Form 10-KSB for the year ended December 31, 1998 (the "Form 10-KSB"). As of its date, such Form 10-KSB was in compliance, in all material respects, with the requirements of its form. The financial statements of TBA included in such Form 10-KSB complied, at the time of filing with the SEC, as to form, in all material respects, with applicable accounting requirements and published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP, applied on a consistent basis during the periods involved, and fairly presented, in all material respects the financial position of TBA as and at the dates thereof and the results of its operations and cash flows for the period then ended. -4- 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER Except as set forth in the correspondingly numbered section of the disclosure schedule attached hereto as Schedule 1 and incorporated herein by this reference (the "Disclosure Schedule"), the Shareholder hereby represents and warrants to TBA as follows: 3.1 Organization, Qualification and Corporate Power. Atkins Management is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee. Atkins Management is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions in which the ownership of its properties, the employment of its personnel or the conduct of its business requires that it be so qualified or where a failure to be so qualified or licensed would have a material adverse effect on its financial condition, results of operation or business. Atkins Management has full corporate power and authority and all authorizations, licenses and permits necessary to carry on the business in which it is engaged or in which it proposes presently to engage and to own and use the properties owned and used by it. Atkins Management has delivered to TBA true, accurate and complete copies of its charter and bylaws which reflect all amendments made thereto at any time prior to the date of this Agreement. The minute books containing the records of meetings of the shareholders and Board of Directors of Atkins Management, the stock certificate books and the stock record books of Atkins Management are complete and correct in all material respects. The stock record books of Atkins Management and the shareholder lists of Atkins Management which Atkins Management has previously furnished to TBA are complete and correct in all respects and accurately reflect the record and beneficial ownership of all the outstanding shares of Atkins Management's capital stock and all other outstanding securities issued by Atkins Management. All material corporate actions taken by Atkins Management since incorporation have been duly authorized and/or subsequently ratified as necessary. Atkins Management is not in default under or in violation of any provision of its charter or bylaws. Atkins Management is not in default or in violation of any restriction, lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or other obligation or liability by which it is bound or to which any of its assets is subject. 3.2 Capitalization. Atkins Management's entire authorized capital stock consists of 1,000 shares of common stock ("Atkins Management Common Stock"), of which 100 shares are issued and outstanding and 100 shares will be issued and outstanding immediately prior to the Closing Date. All of the issued and outstanding shares of Atkins Management Common Stock have been and, as of the Closing Date, will be duly authorized and are and, as of the Closing Date, will be validly issued, fully paid and nonassessable and have not been and, as of the Closing Date, will not be issued in violation of any pre-emptive rights. Other than this Agreement, there are no outstanding or authorized options, rights, warrants, calls, convertible securities, rights to subscribe, conversion rights or other agreements or commitments to which Atkins Management is a party or which are binding upon Atkins Management providing for the issuance or transfer by Atkins Management of additional shares of its capital stock and Atkins Management has not reserved any -5- 10 shares of its capital stock for issuance, nor are there any outstanding stock option rights, contracts, arrangements or commitments based upon the book value, income or other attribute of Atkins Management. There are no voting trusts or any other agreements or understandings with respect to the voting of Atkins Management's capital stock. Upon consummation of the Acquisition, TBA will own the entire equity interest in Atkins Management and Atkins Management will not have outstanding any stock or securities convertible or exchangeable for any shares of its capital stock, nor have outstanding any rights, options, agreements or arrangements to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock. The Shareholder is the only holder of capital stock of Atkins Management. All capital stock, options, warrants and other securities issued by Atkins Management were issued in compliance, in all respects, with all applicable federal and state securities laws. 3.3 Authorization of Transaction. Atkins Management has the requisite corporate power and authority to execute and deliver this Agreement, perform its obligations hereunder and to consummate the transactions contemplated on its part hereby. The execution, delivery and performance of this Agreement by Atkins Management and the consummation by Atkins Management of the transactions contemplated on its part hereby have been duly authorized by the Board of Directors of Atkins Management. No other corporate approval on the part of Atkins Management (other than shareholder approval) will be necessary to authorize the execution and delivery of this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by Atkins Management and, upon approval hereof by the sole shareholder of Atkins Management, will constitute the legal, valid and binding obligation of Atkins Management, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. None of the execution and delivery of this Agreement by Atkins Management, the performance by Atkins Management of its obligations hereunder or the consummation of the transactions contemplated hereby by Atkins Management will require any consent, approval or notice under, or violate, breach, be in conflict with or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or permit the termination of, or result in the creation or imposition of any lien upon any properties, assets or business of Atkins Management under any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which Atkins Management is a party or by which Atkins Management or any of its assets or properties is bound or encumbered, except those that have already been given, obtained or filed, all as set forth in Section 3.3 of the Disclosure Schedule. No notice to, filing or registration with or authorization, consent or approval of any public body or governmental or regulatory authority is necessary for the consummation by Atkins Management of the transactions contemplated by this Agreement. 3.4 Subsidiaries. Atkins Management does not own and is not obligated to purchase any equity interest in or any other interest convertible into or exchangeable for an equity interest in any entity. -6- 11 3.5 Financial Statements. Atkins Management has delivered to TBA (a) unaudited balance sheets as of December 31, 1998 and 1997, (b) unaudited statements of operations for each of the years in the two-year period ended December 31, 1998, (c) unaudited balance sheets as of August 31, 1999, and (d) unaudited statements of operations for the eight (8) months ended August 31, 1999, for Atkins Management (collectively, the "Financial Statements"). The Financial Statements have been prepared on the accrual basis of accounting, which basis of accounting has been applied consistently for all periods and present fairly in all material respects the financial condition of Atkins Management as of such dates and the results of its operations and cash flows for such periods. Since December 31, 1997, there have been no changes in Atkins Management's method of accounting for tax purposes. 3.6 Events Subsequent to Financial Statements. Except as disclosed in the Financial Statements, permitted in this Agreement or specified in Section 3.6 of the Disclosure Schedule, since December 31, 1998, there has not been: (a) any materially adverse change in the financial condition, results of operations or business of Atkins Management; (b) other than (i) the distribution by Atkins Management to the Shareholder of an investment asset valued at approximately $100,000, (ii) the payment by Atkins Management to the Shareholder of a cash bonus not in excess of $40,000, and (iii) the distribution by Atkins Management to the Shareholder its interests in the Investment Partnerships (herein so called) established between the Shareholder and artists under the Shareholder's management, any sale, lease, transfer, license or assignment of any material assets, tangible or intangible, of Atkins Management, other than in the ordinary course of business; (c) any damage, destruction or property loss, whether or not covered by insurance, affecting materially adversely the properties or business of Atkins Management; (d) any declaration or setting aside or payment of any dividend or distribution with respect to the shares of capital stock of Atkins Management or any redemption, purchase or other acquisition of any such shares; (e) any mortgage or pledge of, or subjection to any material lien, charge, security interest or encumbrance of any kind on, any of the assets, tangible or intangible, of Atkins Management (other than liens arising by operation of law which secure obligations which are not yet due and payable); (f) any incurrence of indebtedness or liability or assumption of obligations by Atkins Management other than (i) those incurred in the ordinary course of business, (ii) those which do not exceed $10,000 in the aggregate, and (iii) those incurred in the course of negotiating, documenting and consummating the transactions contemplated by this Agreement; -7- 12 (g) any cancellation or compromise by Atkins Management of any material debt or claim, except for adjustments made in the ordinary course of business which, in the aggregate, are not material; (h) any waiver or release by Atkins Management of any right of any material value; (i) except licenses of software made in the ordinary course of business, consistently with past practice, any sale, assignment, transfer or grant by Atkins Management of any rights under any concessions, leases, licenses, agreements, patents, inventions, trademarks, trade names or copyrights or with respect to any know-how or other intangible assets; (j) any material arrangement, agreement or undertaking entered into by Atkins Management not terminable on 30 days or less notice without cost or liability (including, without limitation, any payment of or promise to pay any bonus or special compensation) with employees or any increase in compensation or benefits to officers or directors of Atkins Management, other than in the ordinary course of business; (k) any change made or authorized in the charter or bylaws of Atkins Management; (l) any issuance, sale or other disposition by Atkins Management of any shares of its capital stock or other equity securities, or any grant of any options, warrants or other rights to purchase or obtain (including upon conversion or exercise) shares of its capital stock or other equity securities; (m) any loan to or other transaction with any officer, director or shareholder of Atkins Management giving rise to any claim or right of Atkins Management against any such person or of such person against Atkins Management; (n) any payment to or other transaction with any officer, director or shareholder of Atkins Management involving an amount in excess of $5,000, individually or in the aggregate, other than the payment of monthly compensation consistent with customary practice; (o) any acceleration, termination, modification or cancellation or threat thereof by any party of any contract, lease or other agreement or instrument to which Atkins Management is a party or by which it is bound so as to affect, materially and adversely, the properties or business of Atkins Management; or -8- 13 (p) any other material transaction or commitment entered into other than in the ordinary course of business by Atkins Management. 3.7 Undisclosed Liabilities. Atkins Management has no material liability or obligation whatsoever, known or unknown, either accrued, absolute, contingent or otherwise, except to the extent shown on the Financial Statements, incurred in the normal and ordinary course of business of Atkins Management since January 1, 1999 (provided that, liabilities or obligations incurred in connection with the termination of employees shall not be considered liabilities incurred in the ordinary course of business), or incurred in the course of negotiating, documenting and consummating the transactions contemplated by this Agreement. Except as specified in Section 3.7 of the Disclosure Schedule, Atkins Management is not indebted, directly or indirectly, to any person who is an officer, director or shareholder of Atkins Management or any affiliate of any such person in any amount whatsoever other than for salaries for services rendered or reimbursable business expenses, and no such officer, director, shareholder or affiliate is indebted to Atkins Management, except for advances made to employees of Atkins Management in the ordinary course of business to meet reimbursable business expenses anticipated to be incurred by such obligor. Atkins Management has no liability, known or unknown, either accrued, absolute, contingent or otherwise, arising out of the management of the assets comprising the Investment Partnerships. 3.8 Tax Returns and Audits. (a) The taxable year of Atkins Management ends December 31. Atkins Management has duly and timely filed or caused to be filed all tax returns (the "Tax Returns") required to be filed on behalf of itself and has paid in full or fully reserved against in the Financial Statements all taxes, interest, penalties, assessments and deficiencies due or claimed to be due on behalf of itself to foreign, federal, state or local taxing authorities (including taxes on properties, income, franchises, licenses, sales, use and payrolls). Such Tax Returns are correct in all material respects, and Atkins Management is not required to pay any other taxes for such periods except as shown in such Tax Returns. The income tax returns filed by Atkins Management have not been, and are not being, to the knowledge of Atkins Management, examined by the Internal Revenue Service or other applicable taxing authorities for any period. All taxes or estimates thereof that are due, or are claimed or asserted by any taxing authority to be due, have been timely and appropriately paid so as to avoid penalties for underpayment. Except for amounts not yet due and payable, all tax liabilities to which the properties of Atkins Management may be subject have been paid and discharged. The provisions for income and other taxes payable reflected in the Financial Statements make adequate provision for all then accrued and unpaid taxes of Atkins Management. There are no tax liens (other than liens for taxes which are not yet due and payable) on any of the property of Atkins Management, nor are there any pending or threatened examinations or tax claims asserted. Atkins Management has not granted any extensions of limitation periods applicable to tax claims or filed a consent under Section 341(f) of the Code relating to collapsible corporations. Except in jurisdictions in which Atkins Management voluntarily files tax returns, no claim has ever been made by a taxing authority that Atkins Management is or may be subject to taxation by that jurisdiction. True -9- 14 and correct copies of all federal, foreign, state and local income and other tax returns, notices from foreign, federal, state and local taxing authorities, tax examination reports and statements of deficiencies assessed against or agreed to by Atkins Management since January 1, 1995, have been delivered to TBA, and the same are listed in Section 3.8 of the Disclosure Schedule. Atkins Management is not a party to, or bound by, any tax indemnity, tax sharing or tax allocation agreement. Atkins Management is not a party to any agreement that has resulted or would result in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. Atkins Management has never been a member of an "affiliated group," as defined in Section 1504(a) of the Code. All positions taken on federal Tax Returns that could give rise to a penalty for substantial understatement pursuant to Section 6662(d) of the Code have been disclosed on such Tax Returns. Atkins Management is not is a United States real property holding corporation as defined in Section 897 of the Code. No shareholder of Atkins Management is a foreign person within the meaning of Section 1445(b)(2) of the Code. Atkins Management has not made any tax elections under any section of the Code (other than its election to be taxed as an "S" corporation under Section 1362), including, without limitation under any of Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code (or any predecessor thereof). None of the assets and properties of Atkins Management is an asset or property that TBA or any of its affiliates is or will be required to treat as being (i) owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as amended, and in effect immediately before the enactment of the Tax Reform Act of 1986, or (ii) tax-exempt use property within the meaning of Section 168(h)(1) of the Code. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local, or foreign law has been entered into by or with respect to Atkins Management or any assets thereof. Atkins Management has not agreed to or is not required to make any adjustment pursuant to Section 481(a) of the Code (or any predecessor provision) by reason of any change in any accounting method of Atkins Management, Atkins Management has no applications pending with any taxing authority requesting permission for any changes in any accounting method of Atkins Management, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method therefor. Atkins Management has not been or is not in violation (or with notice or lapse of time or both, would be in violation) of any applicable law relating to the payment or withholding of taxes. Atkins Management has duly and timely withheld from salaries, wages and other compensation and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws. (b) Atkins Management has been a validly electing S corporation within the meaning of Code Sections 1361 and 1362 since June 12, 1996, and Atkins Management will be an S corporation up to and including the day before the Closing Date. Except as set forth in Section 3.8 of the Disclosure Schedule, Atkins Management would not be liable for any tax under Code Section 1374 if its assets were sold for their fair market value as of January 1, 1999. -10- 15 3.9 Books and Records. The general ledgers and books of account of Atkins Management, all federal, state and local income, franchise, property and other tax returns filed by Atkins Management, with respect to its assets, and all other books and records of Atkins Management are in all material respects complete and correct and have been maintained in accordance with good business practice and in accordance with all applicable procedures required by laws and regulations in all material respects. 3.10 Real Property. Set forth in Section 3.10 of the Disclosure Schedule is a complete and accurate list and a brief description of all real property owned or leased by Atkins Management. With respect to each lease so set forth: (a) the lease has been validly executed and delivered by Atkins Management and, to the knowledge of Atkins Management, by the other party or parties thereto and is in full force and effect; (b) neither Atkins Management nor, to the knowledge of Atkins Management, any other party to the lease is in material breach or default, and no event has occurred on the part of Atkins Management or, to the knowledge of Atkins Management, on the part of any other party which, with notice or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under the lease; (c) Atkins Management has not repudiated and, to the knowledge of Atkins Management, no other party to the lease has repudiated any provision thereof; and (d) there are no disputes, oral agreements or delayed payment programs in effect as to the lease. 3.11 Tangible Property. Except as specified in Section 3.11 of the Disclosure Schedule, Atkins Management has good and marketable title to, or a valid leasehold interest in, each item of tangible property, whether real, personal or mixed, reflected on its books and records as owned or used by it, subject to no material encumbrances, loans, security interests, mortgages or pledges. 3.12 Intellectual Property. (a) Section 3.12(a) of the Disclosure Schedule sets forth a list of intellectual property owned by Atkins Management including all patents, patent applications, trademarks, service marks, trade dress, trade names, trade secrets, corporate names, customer lists, copyrights, mask works, technology or intellectual property that are material to the business of Atkins Management and registrations or applications to register any of the foregoing and a list of all licenses or other contracts related thereto (collectively, the "Intellectual Property"). With respect to each such item of Intellectual Property: (i) Atkins Management is the sole and exclusive owner and has the sole and exclusive right to use the item in the conduct of its business; (ii) no proceedings have been instituted, are pending or are threatened which challenge the validity, enforceability, use or ownership thereof; (iii) the item (A) does not infringe upon or otherwise violate the rights of others, (B) to the knowledge of Atkins Management is not being infringed upon by -11- 16 others and (C) is not subject to any outstanding order, decree, judgment, stipulation or charge; (iv) no license, sublicense or agreement pertaining to the item has been granted by Atkins Management; (v) Atkins Management has not received any charge of interference or infringement with respect to the item; (vi) except in the ordinary course of business, Atkins Management has not agreed to indemnify any person or entity for or against any infringement with respect to the item; (vii) the transactions contemplated by this Agreement will have no material adverse effect on the right, title and interest of Atkins Management in the item; (viii) Atkins Management has taken all steps which are commercially reasonable to protect the rights set forth in Section 3.12(a) of the Disclosure Schedule and will continue to use commercially reasonable efforts to maintain those rights prior to the Closing Date so as to not materially adversely affect the validity or enforcement of such rights; and (ix) Atkins Management has supplied TBA with true and complete copies of all written documentation evidencing its ownership of the item and of all licenses and other contracts related thereto. (b) Section 3.12(b) of the Disclosure Schedule sets forth a list describing all patents, trademarks, trade names, service marks, copyrights, trade secrets and mask works of others which Atkins Management practices or uses that are material to Atkins Management. With respect to each such item of intellectual property: (i) any license agreement covering the item is a valid and binding agreement and, to the knowledge of the Shareholder, is in full force and effect; (ii) no event has occurred which constitutes a breach of such license agreement, Atkins Management has not repudiated and, to the knowledge of Atkins the Shareholder, no other party thereto has repudiated any provision thereof and there are no disputes, oral arrangements or delayed payment programs in effect as to any such license agreement; (iii) Atkins Management has supplied TBA with a true and complete copy of the license agreement; -12- 17 (iv) the transactions contemplated by this Agreement will have no material adverse effect on the ability of Atkins Management to continue using or practicing each such item; and (v) Atkins Management is not aware of any claim that the exercise of the rights granted to Atkins Management with respect to such item infringes upon the intellectual property rights of any third party. (c) To the knowledge of the Shareholder, Atkins Management has not infringed, misappropriated or otherwise violated any intellectual property rights of any third party. The Shareholder is not aware of any infringement, misappropriation or violation with respect to intellectual property which will occur as a result of the continued operation of the business of Atkins Management as now conducted or as presently proposed to be conducted. (d) Atkins Management has taken commercially reasonable security measures to protect the security, confidentiality and value of all the material intellectual property owned by it. 3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the following contracts and written arrangements, true and complete copies of which have been delivered to TBA, to which Atkins Management is a party: (a) all artist management contracts to which Atkins Management is a party; (b) any contract for the lease of personal property from or to third parties providing for lease payments in excess of $5,000.00 per annum; (c) any contract for the purchase or sale of supplies or other personal property or for the furnishing or receipt of services which contract calls for performance over a period of more than one year or which involves more than the sum of $5,000.00; (d) any joint venture or partnership agreement; (e) any agreement or instrument under which Atkins Management is or may become indebted for borrowed money; (f) any noncompetition agreement; (g) any other contract in which the consequences of a default or termination would have a materially adverse effect on the financial condition of Atkins Management or on the prospects or the conduct of the business of Atkins Management; (h) any standard form of license agreement; and -13- 18 (i) any other contract or arrangement not entered into in the ordinary course of business. All contracts and arrangements listed in Section 3.13 of the Disclosure Schedule are valid and binding agreements of Atkins Management. Neither Atkins Management nor, to the knowledge of the Shareholder, any other party is in breach or default, and no event has occurred on the part of Atkins Management or, to the knowledge of the Shareholder, on the part of any other party to any such contract or arrangement which with notice or lapse of time would constitute a breach or default or permit termination under any such contract or arrangement. To the knowledge of the Shareholder, none of such contracts or arrangements will be terminated or modified by the consummation of the Acquisition. Atkins Management has previously made available to TBA all of the material service agreements of Atkins Management with its customers. Except as specified in Section 3.13 of the Disclosure Schedule, Atkins Management is not a party to any verbal contract or arrangement which, if reduced to written form, would be required to be listed in Section 3.13 of the Disclosure Schedule under the terms of subsections (a)-(i) of this Section 3.13. 3.14 Suppliers and Customers. Section 3.14 of the Disclosure Schedule is a true and correct list of all suppliers of Atkins Management to whom Atkins Management made payments, during the fiscal year ended December 31, 1998, in excess of one percent of Atkins Management's gross revenues as reflected in the Financial Statements for such year and all customers or clients of Atkins Management that paid Atkins Management, during the fiscal year ended December 31, 1998, more than two percent of the gross revenues of Atkins Management as reflected in the Financial Statements for such year. Since December 31, 1998, no material customer or client of Atkins Management has notified Atkins Management that it will substantially decrease or cease doing business with Atkins Management. 3.15 Notes; Accounts Receivable. As of the Closing Date, all notes payable to and accounts receivable of Atkins Management will be properly reflected on their respective books and records and will be valid receivables subject to no setoffs or counterclaims (other than in the ordinary course of business). 3.16 Powers of Attorney. There are no outstanding material powers of attorney or similar instruments executed by Atkins Management in favor of any third party. 3.17 Condition of Property. Each building, fixture, machine and piece of equipment (having a net book value of $5,000.00 or more) owned or used by Atkins Management is in good operating condition and repair, subject to normal wear and tear, and, to the knowledge of the Shareholder, is in compliance with all zoning, building and fire codes in all material respects. Atkins Management owns or leases under valid lease all buildings, machinery, equipment and other tangible assets used in the conduct of its business as presently conducted. 3.18 Insurance. Atkins Management is insured under the policies listed in Section 3.18 of the Disclosure Schedule (the "Insurance Policies"). The Insurance Policies are in full force and -14- 19 effect. All premiums due on the Insurance Policies or renewals thereof have been paid and there is no default by Atkins Management under any of the Insurance Policies. 3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth any instances in which (a) Atkins Management is subject to any judgment or order (other than orders of general applicability) of any court or quasi-judicial or administrative agency of any jurisdiction, domestic or foreign, or where there is any charge, complaint, lawsuit or governmental investigation pending or, to the knowledge of the Shareholder, threatened against Atkins Management; or (b) Atkins Management is a plaintiff in any action, domestic or foreign, judicial or administrative, or any such action exists in which a counterclaim against Atkins Management is pending or, to the knowledge of the Shareholder, might be brought. None of the actions, suits, proceedings or investigations set forth in Section 3.19 of the Disclosure Schedule could result in any adverse change in the condition, financial or otherwise, of Atkins Management, the same being fully reserved against in the Financial Statements. There are no unsatisfied judgments, orders (other than orders of general applicability), decrees or stipulations affecting Atkins Management or to which Atkins Management is a party and there is no reason to believe that any such action, suit, proceeding or investigation will be brought or threatened against Atkins Management. 3.20 Employees. Atkins Management has listed in Section 3.20 of the Disclosure Schedule and has furnished to TBA true and complete copies of: (a) any written employment agreements with officers and directors of Atkins Management currently in effect; and (b) any written employment agreements with its employees currently in effect which by their terms may not be terminated by Atkins Management at will or which grant severance payments. Atkins Management has not entered into any similar oral employment agreements that are currently in effect. To the Shareholder's knowledge, no key employee or group of employees has any plans to terminate employment with Atkins Management. Atkins Management is not a party to or bound by any collective bargaining agreement. Except as specified in Section 3.20 of the Disclosure Schedule, there are no loans or other obligations payable or owing by Atkins Management to any shareholder, officer, director or employee of Atkins Management (except salaries and wages incurred and accrued in the ordinary course of business), nor are there any loans or debts payable or owing by any of such persons to Atkins Management or any guarantees by Atkins Management of any loan or obligation of any nature to which any such person is a party. Atkins Management has complied in all material respects with all laws and regulations which relate to the employment of labor, employee civil rights or equal employment opportunities. 3.21 Employee Benefit Plans. Atkins Management has listed in Section 3.21 of the Disclosure Schedule and has furnished to TBA true and complete copies of (a) any nonqualified deferred or incentive compensation or retirement plans or arrangements, (b) any qualified retirement plans or arrangements, (c) any other employee compensation, severance or termination pay or welfare benefit plans, programs or arrangements and (d) any related trusts, insurance contracts or other funding arrangements maintained, established or contributed to by Atkins Management or to which Atkins Management is a party or otherwise is bound ("Atkins Management Employee Benefit Plans"). Except as required by law, Atkins Management does not maintain or contribute or has ever maintained or contributed to any funded or unfunded medical, health or life insurance plan or -15- 20 arrangement for retirees or terminated employees. Atkins Management does not contribute or have any obligation to make and has never contributed or had any obligation to make any payment or contribution to a "multiemployer plan," as that term is defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Atkins Management has no actual or potential liability under Section 4201 of ERISA for any complete or partial withdrawal from a multiemployer plan. Except as listed on Section 3.21 of the Disclosure Schedule, Atkins Management neither maintains, contributes to or has any liability with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) which is intended to meet the requirements of a qualified plan under Section 401(a) of the Code. Atkins Management neither maintains, contributes to or has any liability with respect to a plan which is subject to Title IV of ERISA or Section 412 of the Code. With respect to the employee benefit plans listed in Section 3.21 of the Disclosure Schedule, Atkins Management has furnished to TBA true and complete copies of (i) any summary plan description or other employee communication materials, (ii) the latest financial statements and annual reports, and (iii) all documents filed with the Internal Revenue Service or the Department of Labor since December 31, 1995. All employee benefit plans and related trusts listed in Section 3.21 of the Disclosure Schedule and maintained or contributed to by Atkins Management or with respect to which Atkins Management now has or has ever had any liability or potential liability comply in form and in operation with all requirements of ERISA and the Code. All required reports with respect to such plans required by applicable law have been filed and all contributions or payments presently anticipated hereunder have been made or properly accrued. No applications for rulings, determination letters, advisory opinions or prohibited transaction exemptions are currently pending before the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation with respect to any such employee benefit plans or arrangements or any related trusts. None of such employee benefit plans or arrangements, any related trusts, the trustees of any related trusts or the directors, officers and employees of Atkins Management is the subject of any lawsuit, arbitration or to the knowledge of the Shareholder other proceeding concerning any benefit claim or other benefit-related matter (other than routine claims in the ordinary course of business), and there have been no prohibited transactions as described in Section 406 of ERISA or as defined in Section 4975 of the Code with respect to any such plan. Neither Atkins Management, its directors, officers and employees nor any other fiduciary, as such term is defined in Section 3 of ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or any other applicable law which would subject Atkins Management or its directors, officers and employees to liability under ERISA or any applicable law. 3.22 Guarantees. Atkins Management is not a guarantor or otherwise liable for any material indebtedness of any other person, firm or corporation other than endorsements for collection in the ordinary course of business. 3.23 Legal Compliance. Atkins Management and, to the knowledge of the Shareholder, each of its respective directors, officers and employees (the individuals only in their capacities as representatives of Atkins Management) has complied in all material respects with all applicable laws and regulations of foreign, federal, state and local governments and all agencies thereof, and no claim has been filed (with notice to Atkins Management) against Atkins Management alleging a violation of any such laws or regulations. Atkins Management holds all of the material permits, -16- 21 licenses, certificates or other authorizations of foreign, federal, state or local governmental agencies required for the conduct of its business as presently conducted or proposed to be conducted. Neither Atkins Management, nor, to the knowledge of the Shareholder, any director, officer, agent, partner or employee thereof or any other person acting for or on behalf of Atkins Management has directly or indirectly (a) made or agreed to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment (whether in cash or otherwise) to any person, private or public, regardless of form, whether in money, property, or services, in violation of any applicable law, rule or regulation (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Atkins Management, or (iv) to pay for any lobbying or similar services or (b) except as specified in Section 3.23 of the Disclosure Schedule, established or maintained any fund or asset that has not been recorded in the books and records of Atkins Management. 3.24 Certain Business Relationships. Except as specified in Section 3.24 of the Disclosure Schedule, to the knowledge of the Shareholder, none of the present or former shareholders, directors, officers or employees of Atkins Management owns, directly or indirectly, any interest in any business, corporation or other entity (other than investments in publicly held companies) which, on the date hereof or within the past 12 months, has been involved in any manner in any business arrangement or relationship with Atkins Management, and none of the foregoing persons owns any property or rights, tangible or intangible, which are used in the business of Atkins Management. 3.25 Broker's Fees. Neither Atkins Management nor anyone on its behalf has any liability to any broker, finder, investment banker or similar agent, or has agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse any expenses of any broker, finder, investment banker or similar agent in connection with the Acquisition or any similar transaction. 3.26 Environment, Health and Safety. Atkins Management is in compliance with all environmental, health and safety laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been held or commenced against Atkins Management alleging any failure so to comply. Atkins Management has obtained and been in compliance with all of the material terms and conditions of all permits, licenses and other authorizations which are required under, and have complied with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, laws, and timetables which are contained in, all applicable environmental, health and safety laws. 3.27 Year 2000. The computer programs and technical systems of Atkins Management used by Atkins Management are year 2000 compliant, will function and operate prior to, during and after the calendar year 2000 in accordance with their specifications and will provide the required output without experiencing abnormal ending dates and/or invalid or incorrect years and shall incorporate century recognition date data, calculations that use same century and multi-century formulas and date values that reflect the current century in all transactions. In addition, all such computer programs and technical systems will process, manage and manipulate data involving dates, including single century and multi-century formulas, and will not cause an abnormally ending scenario within the application or generate incorrect values or invalid results involving such dates. -17- 22 3.28 Jaci Velasquez Management Agreement. Except as specified in Section 3.28 of the Disclosure Schedule, no portion of the compensation, fees, commissions, income or other consideration received by "Manager" pursuant to the Jaci Velasquez Management Agreement (as such term and such agreement are further defined in Section 6.9 hereof), is payable to any party other than "Manager" including, without limitation, Pamela Muse or any entity controlled by or affiliated with Pamela Muse. 3.29 Disclosure. The representations and warranties and statements of fact made by the Shareholder in this Agreement, in the Disclosure Schedule and in certificates and other written statements or agreements delivered or to be delivered pursuant to this Agreement are accurate, correct and complete in all material respects on the date of this Agreement and will, except as contemplated hereby, be accurate, correct and complete in all material respects on the Closing Date and do not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein or therein not misleading. ARTICLE 4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER Except as set forth in the correspondingly numbered section of the Disclosure Schedule, the Shareholder represents and warrants to TBA as follows: 4.1 Representations Regarding Shares of Atkins Management. (a) The Shareholder is the record and beneficial owner of and has good title to the Shares, free and clear of any and all Liens. The Shares are all of the shares of capital stock of Atkins Management owned by the Shareholder, and the Shares collectively represent all the issued and outstanding capital stock of Atkins Management. (b) The Shareholder has the full right, power and authority to enter into this Agreement. (c) The Shareholder is not a party to, subject to or bound by any agreement or any judgment, order, writ, prohibition, injunction or decree of any court or other governmental body which would prevent the execution or delivery of this Agreement by the Shareholder. (d) No broker or finder has acted for the Shareholder in connection with this agreement or the transactions contemplated hereby, and no broker or finder is entitled to any brokerage or finder's fee or other commissions in respect of such transactions based upon agreements, arrangements or understandings made by or on behalf of the Shareholder. 4.2 Authorization. This Agreement and all such other agreements and obligations entered into and undertaken in connection with the transactions contemplated hereby to which the -18- 23 Shareholder is a party constitute the valid and legally binding obligations of the Shareholder, enforceable against the Shareholder in accordance with their respective terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, moratorium, reorganization or other laws of general application relating to or affecting creditors' rights generally. Except as specified on Section 4.2 of the Disclosure Schedule, the execution, delivery and performance by the Shareholder of this Agreement and the agreements provided for herein, and the consummation by the Shareholder of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both, (a) violate the provisions of any law, rule or regulation applicable to the Shareholder; (b) violate any judgment, decree, order or award of any court, governmental body or arbitrator; or (c) conflict with or result in the breach or termination of any term or provision of, or constitute a default under, or cause any acceleration under, or cause the creation of any lien, charge or encumbrance upon the properties or assets of the Shareholder pursuant to, any indenture, mortgage, deed of trust or other instrument or agreement to which the Shareholder is a party or by which the Shareholder or any of his properties is or, to the knowledge of the Shareholder, may be bound, except for violations or conflicts which individually or in the aggregate would not have a material adverse effect on Atkins Management's financial condition or results of operation. ARTICLE 5 [INTENTIONALLY OMITTED] ARTICLE ARTICLE 6 ADDITIONAL AGREEMENTS 6.1 Expenses. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement and the other agreements contemplated hereby and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses. 6.2 Taking of Necessary Action. Following the Closing Date, subject to the terms and conditions of this Agreement, each of the parties hereto agrees, subject to applicable laws, to use all reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to evidence or make effective the transactions contemplated by this Agreement. Without limiting the foregoing, Atkins Management and TBA shall use commercially reasonable efforts to maintain and make all filings with and obtain all consents, approvals, and/or assurances from third parties and appropriate governmental agencies and authorities necessary or, in the opinion of Atkins Management or TBA, advisable for the consummation of the transactions contemplated by this Agreement. Each party shall cooperate with the other in good faith to help the other satisfy its obligations in this Section 6.2. -19- 24 6.3 Press Releases. Atkins Management and TBA shall consult with each other as to the form and substance of any press release or other public disclosure of matters related to this Agreement or any of the transactions contemplated hereby; provided, however, that nothing in this Section 6.3 shall be deemed to prohibit any party hereto from making any disclosure that is required to fulfill such party's disclosure obligations imposed by law, including, without limitation, federal securities laws; provided further, however, that neither this Agreement nor any other document or agreement delivered in connection with this Agreement may be disclosed or made public unless legal counsel to the disclosing party shall have first reasonably determined that such disclosure is required by applicable law. 6.4 Employee Matters. TBA and Atkins Management agree that all employees of Atkins Management immediately prior to the Closing shall be employed by Atkins Management immediately after the Closing at such level of pay which is mutually agreed upon between each employee and Atkins Management, it being understood that Atkins Management shall not have any obligations to continue employing such employees for any length of time or at any level of pay for any length of time thereafter. Each of the five (5) full-time employees of Atkins Management shall be issued a "cardkey" granting such employee access to the access-controlled surface parking lot immediately adjacent to the TBA office at 300 Tenth Avenue South, Nashville, Tennessee, and each such employee shall be allowed to park their personal automobile in such lot while performing their employment duties to Atkins Management. Atkins Management shall terminate the Mike Atkins Management, Inc. 401(k) Profit Sharing Plan (the "Atkins Plan") effective at 5:00 p.m. on the Closing Date. All employees of Atkins Management covered by the Atkins Plan shall, for purposes of eligibility under the TBA Entertainment Corporation 401(k) Profit Sharing Plan, be credited with their period of service with Atkins Management. Upon Closing and thereafter, TBA shall assume all responsibility with respect to the terminated Atkins Plan. Until complete liquidation of the trust funding the Atkins Plan, TBA shall maintain the Atkins Plan in compliance with the Code, ERISA, other applicable law, and its terms. TBA, at its expense, shall apply to the Internal Revenue Service for a determination that the termination of the Atkins Plan does not adversely affect its qualification under Sections 401(a) and 501(a) of the Code and upon receipt of such favorable determination shall distribute the assets of the trust to the participants of the Atkins Plan in accordance with its terms. TBA shall take all necessary steps to amend the Atkins Plan to conform to the General Agreement on Tariffs and Trade, the Small Business Job Protection Act of 1996, the Tax Reform Act of 1997, and other applicable laws and take other reasonable steps as necessary to obtain such favorable determination from the Internal Revenue Service. 6.5 Tax Matters. From and after the Closing, TBA, on the one hand, and the Shareholder, on the other hand, shall cooperate fully with each other and make available or cause to be made available to each other for consultation, inspection and copying (at such other party's expense) in a timely fashion such personnel, tax data, tax returns and filings, files, books, records, documents, financial, technical and operating data, computer records and other information as may be reasonably required (1) for the preparation by either of them of any Tax Returns, elections, consents or certificates required to be prepared and filed by such parties or (2) in connection with any audit or proceeding relating to taxes relating to the assets of Atkins Management. TBA agrees to retain all books and records with respect to tax matters pertinent to Atkins Management relating to any taxable -20- 25 period beginning before the Closing Date until the expiration of the statute of limitations of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority. None of the parties hereto shall cause an election to be made, an accounting for tax purposes to be adopted, or a position to be taken on any tax return, or in any tax proceeding, that is inconsistent with the provisions of this Agreement. In addition, as custodian of the books and records of Atkins Management as of the Closing Date, TBA, or its authorized representatives, shall be responsible for closing such books and records as of the Closing Date for state and federal income tax and financial reporting purposes. TBA and the Shareholder shall cooperate fully with each other in connection with such closing and TBA shall make available to the Shareholder all financial and income tax data, statements, reports and information relating to such closing of the books and records as of the Closing Date. 6.6 Section 338(h)(10) Election. TBA and the Shareholder shall jointly elect to treat the Acquisition as a "qualified stock purchase" within the meaning of Section 338 of the Code and shall timely prepare and file with the Internal Revenue Service a Section 338(h)(10) election on Form 8023. TBA indemnifies the Shareholder for the amount by which the Shareholder's combined state and federal income and excise tax liability arising as a result of the sale of the Shares in accordance with the Section 338(h)(10) election exceeds the combined state and federal income and excise tax liability the Shareholder would have incurred had TBA and the Shareholder not filed the Section 338(h)(10) election. Any payment due by TBA to the Shareholder hereunder shall be paid, without right of offset, within thirty (30) days following the agreement of the parties hereto as to the amount of indemnification payment payable hereunder. Should the parties disagree with respect to such calculation, an office of Arthur Andersen LLP other than the office normally used by TBA shall calculate promptly the indemnification payment due hereunder, if any, and the parties shall be bound by such determination. Sections 10.8 and 10.9 of this Agreement shall not apply to the indemnification obligation of TBA under this Section 6.6. 6.7 Adjustment to Purchase Price. Notwithstanding the provisions of Section 1.2(a) hereof, (i) should the Shareholder voluntarily terminate his employment relationship with Atkins Management prior to the end of the five-year term of his Employment Agreement (as defined in Section 7.2(e) hereof), other than upon his death, for "Good Reason" or upon the Shareholder's "Disability" (as such terms are defined in such Employment Agreement), or (ii) should Atkins Management terminate the employment relationship of the Shareholder as a result of the fraud, embezzlement or other criminal act by the Shareholder involving TBA or Atkins Management, or upon termination of the Employment Agreement by Atkins Management due to the conviction of, or a plea of nolo contendere to, a felony crime involving moral turpitude by the Shareholder, the Shareholder shall be obligated to pay to TBA, within fifteen (15) days of the date of such termination of employment, a dollar amount in cash equal to the excess of (a) the aggregate purchase price theretofore paid to the Shareholder by TBA for the Shares over (b) the aggregate adjusted net income realized from the "book of business" (as such term is generally understood in the artist management business) of Atkins Management during the period in which the Shareholder was an employee of Atkins Management pursuant to the Employment Agreement, or any amendment thereto. -21- 26 6.8 Separate Subsidiary. TBA shall operate Atkins Management as a separate, incorporated subsidiary of TBA for the period beginning on the Closing Date and ending on the final payment made under the Adjustable Note. TBA shall use reasonable efforts to economically and managerially support and enhance the continued development of the business of Atkins Management. 6.9 Jaci Velasquez Management Agreement. TBA and Shareholder acknowledge that the Management Agreement (herein so called) with Jaci Velasquez, executed in January of 1997, is by and between Jaci Velasquez, as "Artist," and Mike Atkins Management, Inc./Mike Atkins, jointly as "Manager." All compensation, fees, commissions, income or other consideration of any kind earned by Manager pursuant to the Management Agreement shall vest solely in Atkins Management, and should Shareholder receive any compensation, fees, commissions, income or other consideration as Manager pursuant to the Management Agreement, Shareholder shall hold such compensation, fees, commissions, income or other consideration in trust for and as agent of Atkins Management and shall promptly deliver, convey, assign and pay over to Atkins Management any such compensation, fees, commissions, income or other consideration received by Shareholder pursuant to the Management Agreement. 6.10 Investment Partnerships. Atkins Management shall have no liability or obligation to make any contribution, deposit or payment of any kind to any Investment Partnership on or after the Closing Date. 6.11 No Deficit Working Capital. Notwithstanding any other provision of this Agreement, on the Closing Date, the balance sheet of Atkins Management shall reflect total net assets equal to or greater than total liabilities, and it is expressly contemplated by the parties that, on or prior to Closing, Atkins Management will distribute assets so that the net assets of Atkins Management approximate the total liabilities of Atkins Management. ARTICLE 7 CONDITIONS TO CLOSING 7.1 Conditions to Obligations of Each Party to Effect the Closing. The respective obligations of each party to effect the Closing shall be subject to the fulfillment at or prior to the Closing Date of the following condition: (a) no order shall have been entered and remain in effect in any action or proceeding before any foreign, federal or state court or governmental agency or other foreign, federal or state regulatory or administrative agency or commission that would prevent or make illegal the consummation of the transactions contemplated hereby. 7.2 Additional Conditions to TBA's Obligations. The obligations of TBA to effect the Closing are subject to the satisfaction of the following conditions on or before the Closing Date: -22- 27 (a) Except for breaches which do not constitute a Material Adverse Breach (as defined in Section 10.8 of this Agreement) by Atkins Management or the Shareholder, the representations and warranties set forth in Articles 3 and 4 of this Agreement (without regard to any amendments or modifications of the Disclosure Schedule by Atkins Management after the time TBA has signed this Agreement) will be true and correct in all material respects as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties and with appropriate modifications of tense with respect to representations and warranties made as of a specified date; (b) Atkins Management shall have performed, in all material respects, each obligation and agreement and complied, in all material respects, with each covenant to be performed and complied with by it under this Agreement, including, without limitation, all of its agreements contained in Article 6 of this Agreement; (c) Except as otherwise disclosed on the Disclosure Schedule, all consents by governmental or regulatory agencies or otherwise that are required for the consummation of the transactions contemplated hereby or that are required for TBA to own, operate or control Atkins Management or any portion of the assets of Atkins Management or to prevent a breach of or a default under or a termination of any agreement material to Atkins Management to which Atkins Management is a party or to which any material portion of the assets of Atkins Management is subject, will have been obtained; (d) No action or proceeding before any court or governmental body will be pending or threatened wherein a judgment, decree or order would prevent any of the transactions contemplated hereby or cause such transactions to be declared unlawful or rescinded or which would adversely affect the right of TBA to own, operate or control Atkins Management or any material portion of the assets of Atkins Management or the value of the assets of Atkins Management; (e) On or prior to the Closing Date, the Shareholder shall have entered into an employment agreement with Atkins Management in the form of Exhibit C attached hereto dated as of the Closing Date (the "Employment Agreement") and, except as specified on Section 7.2(e) of the Disclosure Schedule, the Shareholder shall have terminated any employment, compensation, consulting, fee, services or other similar agreements payable to him, or to his affiliated entities, if any; (f) At the Closing, Atkins Management will have delivered to TBA the following: (i) a certificate executed on behalf of Atkins Management by its President stating that the conditions set forth in Sections 7.2(a) through 7.2(d) of this Agreement have been satisfied; -23- 28 (ii) certified copies of the resolutions duly adopted by Atkins Management's Board of Directors authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby and thereby; (iii) good standing or comparable certificates for Atkins Management from the jurisdiction of its incorporation and from every jurisdiction where a failure to be qualified or licensed would have a material adverse effect on the consolidated financial condition, results of operations or business of Atkins Management, dated not earlier than ten (10) days prior to the Closing Date; (iv) copies of all third party and governmental consents (or other evidence satisfactory to TBA) that Atkins Management is required to obtain in order to effect the transactions contemplated by this Agreement; (v) a copy of Atkins Management's charter certified by the Secretary of State of the State of Tennessee; (vi) certificates evidencing the Shares, duly endorsed; (vii) a copy of the written correspondence from Atkins Management to Pamela Muse and Muse & Associates, Inc. terminating as of the Closing Date (i) the oral office lease agreement by and between Atkins Management and Muse & Associates, Inc., and (ii) the oral agreement of Atkins Management to pay one-half of the salary and benefits of Cari Norris and Billie Jo Jackson; (viii) a certified copy of the resolution duly adopted by Atkins Management's Board of Directors terminating the Mike Atkins Management, Inc. 401(k) Profit Sharing Plan effective at 5 p.m. on the Closing Date; and (ix) such other documents as TBA may reasonably request in connection with the transactions contemplated hereby; (g) All proceedings to be taken by Atkins Management in connection with the consummation of the Acquisition at the Closing and the other transactions contemplated hereby and all documents required to be delivered by Atkins Management in connection with the Acquisition and the other transactions contemplated hereby will be reasonably satisfactory in form and substance to TBA. 7.3 Additional Conditions to the Obligations of Atkins Management and the Shareholder. The obligations of Atkins Management and the Shareholder to effect the Closing are subject to the satisfaction of the following conditions on or before the Closing Date; -24- 29 (a) Except for breaches which do not constitute a Material Adverse Breach (as defined in Section 10.8 of this Agreement) by TBA, the representations and warranties set forth in Article 2 of this Agreement will be true and correct as of the date hereof and at and as of the Closing Date, as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties and with appropriate modifications of tense with respect to representations and warranties made as of a specified date; (b) TBA shall have performed, in all material respects, each obligation and agreement and complied, in all material respects, with each covenant required to be performed and complied with by it under this Agreement prior to the Closing Date; (c) No action or proceeding before any court or government body will be pending or threatened wherein a judgment, decree or order would prevent any of the transactions contemplated hereby or cause such transactions to be declared unlawful or rescinded; (d) At the Closing, TBA will have delivered to Atkins Management and the Shareholder the following: (i) a certificate executed on behalf of TBA by its Chief Executive Officer stating that the conditions set forth in Sections 7.3(a) through (c) of this Agreement have been satisfied; (ii) certified copies of the resolutions duly adopted by TBA's board of directors authorizing the execution, delivery and performance of this Agreement; (iii) good standing certificates for TBA from the Secretary of State of the State of Delaware dated not earlier than ten (10) days prior to the Closing Date; (iv) copies of all third party and governmental or regulatory consents (or other evidence satisfactory to Atkins Management) that TBA are required to obtain in order to effect the transactions contemplated by this Agreement; (v) copies of TBA's charter certified by the Secretary of State of the State of Delaware; (vi) the Cash Portion, the Adjustable Note and the Non-Adjustable Note; and (vii) such other documents as Atkins Management or the Shareholder may reasonably request in connection with the transactions contemplated hereby; (e) All proceedings to be taken by TBA in connection with the consummation of the Acquisition at the Closing and all documents required to be delivered by TBA in -25- 30 connection with the transactions contemplated hereby will be reasonably satisfactory in form and substance to Atkins Management and the Shareholder; (f) Except as otherwise disclosed to Atkins Management and the Shareholder, all consents by governmental or regulatory agencies or otherwise that are required for the consummation of the transactions contemplated hereby or that are required for TBA to own, operate or control Atkins Management or any portion of the assets of Atkins Management or to prevent a breach of or a default under or a termination of any agreement material to Atkins Management to which Atkins Management is a party or to which any material portion of the assets of Atkins Management is subject, will have been obtained; and (g) The Employment Agreement will have been executed and delivered by the Closing Date and there will not have been any changes, amendments or modifications to, or termination of, such agreement. ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by the mutual written consent of the Shareholder and TBA; (b) by TBA if there has been a misrepresentation or breach of a representation or warranty or a failure to perform a covenant on the part of Atkins Management or the Shareholder with respect to their representations, warranties and covenants set forth in this Agreement and any such breach or failure constitutes a Material Adverse Breach; and (c) by Atkins Management if there has been a misrepresentation or a breach of a representation or warranty or a failure to perform a covenant on the part of TBA with respect to their representations, warranties and covenants set forth in this Agreement and any such breach or failure constitutes a Material Adverse Breach. 8.2 Amendment. This Agreement may not be amended except by an instrument signed by each of the parties hereto. 8.3 Waiver. At any time prior to the Closing Date, (a) TBA may (i) extend the time for the performance of any of the obligations or other acts of Atkins Management and/or the Shareholder or (ii) waive compliance with any of the agreements of Atkins Management and/or the Shareholder or with any conditions to its own obligations, and (b) Atkins Management and/or the Shareholder may (i) extend the time for the performance of any of the obligations or other acts of TBA or (ii) waive compliance with any of the agreements of TBA or with any conditions to their own -26- 31 obligations in each case only to the extent such obligations, agreements and conditions are intended for their benefit. 8.4 Effect of Termination. If this Agreement is terminated as provided in Section 8.1, this Agreement shall become void and there shall be no liability or further obligation on the part of any party hereto or any of their respective shareholders, officers or directors, except (a) that nothing herein and no termination pursuant hereto will relieve any party from liability for any breach of this Agreement and (b) the provisions of Section 6.6 and any confidentiality agreements by and between TBA and Atkins Management will survive such termination. ARTICLE 9 INDEMNIFICATION 9.1 By TBA, Atkins Management and the Shareholder. TBA on the one hand and Atkins Management and the Shareholder on the other hand each hereby agree to indemnify and hold harmless the other against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for defending any actions or threatened actions) (collectively "Damages") reasonably incurred by TBA, Atkins Management and the Shareholder in connection with each and all of the matters set forth below to the extent they constitute a Material Adverse Breach. (a) Any breach by the Indemnifying Party (as defined below) of any representation or warranty made by such Indemnifying Party in this Agreement; (b) Any breach of any covenant, agreement or obligation of the Indemnifying Party contained in this Agreement or any other agreement, instrument or document contemplated by this Agreement; and (c) Any misrepresentation contained in any statement, certificate or schedule furnished by the Indemnifying Party pursuant to this Agreement or in connection with the transactions contemplated by this Agreement. 9.2 Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of -27- 32 such suit after notification thereof as provided in Section 9.3 of this Agreement in which case the Indemnified Party may settle or compromise such claim without the prior consent of the Indemnifying Party. If the Indemnified Party fails to give prompt notice of any claim and such failure prejudices the Indemnifying Party's position or its ability to defend the claim, the Indemnifying Party's liability to the Indemnified Party shall be reduced by the amount, if any, demonstrated to be directly attributable to the failure to give such notice in a timely manner. 9.3 Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or litigation resulting therefrom within thirty (30) days after the date such claim is made, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its counsel and at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner. 9.4 Payment of Indemnification Obligation. All indemnification by TBA, Atkins Management or the Shareholder hereunder shall be effected by payment by wire transfer or delivery of a cashier's or certified check in the amount of the indemnification liability. 9.5 Limitations. EXCEPT IN CASES OF FRAUD, WHERE SPECIFIC PERFORMANCE IS AVAILABLE AS A REMEDY OR AS PROVIDED IN SECTION 6.7 OF THIS AGREEMENT, THE PARTIES AGREE AND ACKNOWLEDGE THAT THE INDEMNIFICATION RIGHTS PROVIDED IN THIS ARTICLE 9 SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SUCH PARTIES TO THIS AGREEMENT FOR CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ALL DISPUTES ARISING OUT OF OR RELATING TO ANY OTHER AGREEMENTS OR DOCUMENTS SIGNED OR EXECUTED IN RELATION TO THE CLOSING (EXCEPT FOR THE EMPLOYMENT AGREEMENT, NON-ADJUSTABLE NOTE AND ADJUSTABLE NOTE, THE TERMS OF WHICH SHALL CONTROL CLAIMS ARISING OUT OF SUCH RESPECTIVE AGREEMENTS). EXCEPT IN CASES OF FRAUD, WHERE SPECIFIC PERFORMANCE IS AVAILABLE AS A REMEDY OR AS PROVIDED IN SECTION 6.7 OF THIS AGREEMENT, THE AGGREGATE, MAXIMUM LIABILITY OF EACH OF THE SHAREHOLDER AND TBA UNDER THIS ARTICLE 9 SHALL BE AN AMOUNT EQUAL TO $700,000. -28- 33 ARTICLE 10 GENERAL PROVISIONS 10.1 Survival of Representations and Warranties. The representations and warranties set forth in this Agreement shall survive the Closing for a period of one (1) year. Notwithstanding the above, claims resulting from any breach of any representation or warranty concerning tax or Atkins Management Employee Benefit Plan matters shall expire one hundred twenty (120) days after the expiration of any applicable statute of limitations. Any litigation between the parties hereto arising out of or attributable to a breach of any representation, warranty or covenant contained herein must be commenced within the applicable period described above. If not commenced within the applicable period, any such claim will thereafter conclusively be deemed to be waived regardless of when such claim is or should have been discovered. 10.2 Effect of Due Diligence. No investigation by TBA or Atkins Management into the business, operations and condition of the other shall diminish in any way the effect of any representations or warranties made by either party in this Agreement or shall relieve such party of any of its obligations under this Agreement. 10.3 Specific Performance. TBA, Atkins Management and the Shareholder understand and agree that the covenants and undertakings on each of their parts herein contained are uniquely related to the desire of TBA, Atkins Management and the Shareholder to consummate the Acquisition, that the Acquisition is a unique business opportunity for Atkins Management, TBA, and the Shareholder and that, although monetary damages may be available for the breach of such covenants and undertakings, monetary damages would be an inadequate remedy therefor. Accordingly, Atkins Management, TBA and the Shareholder agree that TBA shall be entitled to obtain specific performance by Atkins Management and the Shareholder of every such covenant and undertaking contained herein to be performed by Atkins Management and the Shareholder and that Atkins Management and the Shareholder shall be entitled to obtain specific performance from TBA of each and every covenant and undertaking herein contained to be observed or performed by TBA. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, sent by telex, telecopy, facsimile or overnight courier, or mailed by registered or certified mail (postage prepaid and return receipt requested), to the party to whom the same is so delivered, sent or mailed at the following addresses (or at such other address for a party as shall be specified by like notice): -29- 34 (a) if to TBA: TBA Entertainment Corporation 402 Heritage Plantation Way Hickory Valley, Tennessee 38042 Attention: Thomas J. Weaver III Telecopy: (901) 764-6107 with a copy to: Winstead Sechrest & Minick P.C. 5400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 Attention: Randall E. Roberts, Esq. Telecopy: (214) 745-5390 (b) if to Atkins Management: Mike Atkins Management, Inc. 1202 Choctaw Trail Brentwood, Tennessee 37027 Attention: Mike Atkins Telecopy: (615) 377-3960 with a copy to: Waller Lansden Dortch and Davis A Professional Limited Liability Company 511 Union Street, Suite 2100 Nashville, Tennessee 37219 Attention: Paul D. Gilbert, Esq. Telecopy: (615) 244-6804 (c) if to the Shareholder: Mike Atkins 1202 Choctaw Trail Brentwood, Tennessee 37027 -30- 35 with a copy to: Waller Lansden Dortch and Davis A Professional Limited Liability Company 511 Union Street, Suite 2100 Nashville, Tennessee 37219 Attention: Paul D. Gilbert, Esq. Telecopy: (615) 244-6804 Notices delivered personally or by telex, telecopy or facsimile shall be deemed delivered as of actual receipt, mailed notices shall be deemed delivered three days after mailing and overnight courier notices shall be deemed delivered one day after the date of sending. 10.5 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to sections and articles of this Agreement unless otherwise stated. 10.6 Severability. If any term, provision, covenant or Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify the Agreement to preserve each party's anticipated benefits under the Agreement. 10.7 Miscellaneous. This Agreement (together with all other documents and instruments referred to herein): (a) except for any confidentiality agreements executed in connection with the transactions contemplated hereby, constitutes the entire agreement and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof; (b) except as expressly set forth herein, is not intended to confer upon any person not party to this Agreement any rights or remedies hereunder; (c) shall not be assigned by operation of law or otherwise, except that TBA may assign all or any portion of their rights under this Agreement to any wholly owned subsidiary but no such assignment shall relieve TBA of its obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation with or into which TBA may be merged; and (d) shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Tennessee, without giving effect to the principles of conflict of laws thereof. The parties consent to and agree to submit to the jurisdiction of such courts. This Agreement may be executed in two or more counterparts which together shall constitute a single agreement. 10.8 Material Adverse Breach. Breaches of representations, warranties and covenants by either party hereto which (a) individually results in damages to the other party in excess of $20,000 or (b) in the aggregate result in damages to the other party in excess of $75,000, shall constitute, for purposes of this Agreement, a "Material Adverse Breach." -31- 36 10.9 Limitation of Liability. Neither TBA, Atkins Management, nor the Shareholder shall have any liability for breach of the representations, warranties and covenants made by them and contained in this Agreement unless such breach is a Material Adverse Breach. 10.10 Waiver of Purchase Right. Atkins Management hereby waives the right of first refusal in its favor with respect to the transfer of the Shares contemplated in this Agreement. 10.11 Effective Time. The transactions contemplated hereby shall be effective for all purposes at 12:01 a.m. on December 7, 1999. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] -32- 37 STOCK PURCHASE AGREEMENT Signature Page IN WITNESS WHEREOF, TBA, the Shareholder and Atkins Management have caused this Agreement to be executed on the date first written above by their respective officers duly authorized. TBA ENTERTAINMENT CORPORATION By: /s/ Thomas Jackson Weaver III ------------------------------------------ Thomas Jackson Weaver III, Chief Executive Officer MIKE ATKINS MANAGEMENT, INC. By: /s/ Mike Atkins ------------------------------------------ Mike Atkins, President /s/ Mike Atkins --------------------------------------------- MIKE ATKINS -33- 38 SCHEDULE 1 DISCLOSURE SCHEDULE 39 EXHIBIT A FORM OF ADJUSTABLE PROMISSORY NOTE 40 EXHIBIT B FORM OF NON-ADJUSTABLE PROMISSORY NOTE 41 EXHIBIT C FORM OF EMPLOYMENT AGREEMENT EX-21 4 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES
Name Jurisdiction of Organization ---- ---------------------------- TBA Entertainment Group Nashville, Inc. Tennessee (formerly known as Avalon Entertainment Group, Inc.) AWC Acquisition Group Delaware TBA Entertainment Holding Corporation Delaware Eric Chandler Merchandising, Inc. California TBA Entertainment Group Chicago, Inc. Delaware (formerly known as Corporate Productions, Inc.) Corporate Incentives, Inc. Illinois TBA Entertainment Group Dallas, Inc. Texas (formerly known as Magnum Communications, Inc.) TBA Entertainment Group Phoenix, Inc. Arizona (formerly known as Image Entertainment Productions, Inc.) Karin Glass & Associates, Inc. Indiana Ink Up, Inc. Indiana KGA, Inc. Indiana Titley Spalding & Associates, LLC Tennessee TKS Marketing, Inc. Tennessee TBA Resort Holding Corporation Delaware Romeo Entertainment Group, Inc. Nebraska Mike Atkins Management Group, Inc. Tennessee TBA/Frank Joint Venture Not applicable Warner/TBA Joint Venture Not applicable
EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TBA ENTERTAINMENT CORP. FORM 10-K FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 12,847,600 0 3,643,400 50,000 563,300 19,483,800 3,772,000 834,500 43,149,500 11,591,100 3,719,600 0 100 8,700 27,830,000 43,149,500 0 48,163,900 0 31,863,400 14,685,800 67,100 448,800 1,986,800 790,000 1,196,800 329,200 0 0 1,526,000 .18 .18
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