Document:

EXHIBIT 10.12

 

SUPPLEMENTAL
INDENTURE (this “Supplemental Indenture”), dated
as of September 6, 2005, among  Foundation Mining, LP, a Delaware limited
partnership (the “New Guarantor”), a subsidiary of
Foundation Coal Corporation, a Delaware corporation (“Holdings”),
Foundation PA Coal Company, LLC, a Delaware limited liability company (fka
Foundation PA Coal Company, a Delaware corporation) (the “Company”)
and The Bank of New York, a New York banking corporation, as trustee under the
Indenture referred to below (the “Trustee”).

 

W
I T N E S S E T H

 

WHEREAS,
the Company and the existing Guarantors have heretofore executed and delivered
to the Trustee an indenture (as amended, supplemented or otherwise modified,
the “Indenture”), dated as of July 30,
2004 providing for the issuance of 7 1⁄4% Senior Notes due 2014 (the “Notes”);

 

WHEREAS,
Section 4.17 of the Indenture provides that under certain circumstances
the New Guarantor shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the New Guarantor shall unconditionally guarantee
all of the Company’s  Obligations under
the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

 

WHEREAS,
pursuant to Section 9.01 of the Indenture, the Trustee, the Company and
the existing Guarantors are authorized to execute and deliver this Supplemental
Indenture.

 

NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the New Guarantor,
the

 

 

Company and the Trustee
mutually covenant and agree for the equal and ratable benefit of the Holders of
the Notes as follows:

 

1.             DEFINED TERMS.  Defined terms used herein without definition
shall have the meanings assigned to them in the Indenture.

 

2.             AGREEMENT TO GUARANTEE.  The New Guarantor hereby agrees, jointly and
severally with all existing Guarantors (if any), to provide an unconditional
Guarantee on the terms and subject to the conditions set forth in Article 10
of the Indenture and to be bound by all other applicable provisions of the
Indenture and the Notes and to perform all of the obligations and agreements of
a Guarantor under the Indenture.

 

3.             NO RECOURSE AGAINST OTHERS.  No past, present or future director, manager,
officer, employee, incorporator, stockholder or member of Holdings, any parent
entity of Holdings or any Subsidiary, as such, will have any liability for any
obligations of the Company or the Guarantors under the Notes, this Indenture,
the Note Guarantees or for any claim based on, in respect of, or by reason of,
such obligations or their creation.  Each
Holder of Notes by accepting a Note waives and releases all such
liability.  The waiver and release are
part of the consideration for issuance of the Notes.  The waiver may not be effective to waive
liabilities under the federal securities laws.

 

4.             NOTICES.  All notices or other communications to the
New Guarantor shall be given as provided in Section 12.02 of the
Indenture.

 

5.             RATIFICATION OF INDENTURE; SUPPLEMENTAL
INDENTURES PART OF INDENTURE. 
Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. 
This Supplemental Indenture shall form a part of the Indenture for all
purposes,

 

2

 

and every holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.

 

6.             GOVERNING LAW.  THIS INDENTURE, THE NOTES AND THE NOTE
GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.

 

7.             COUNTERPARTS.  The parties may sign any number of copies of
this Supplemental Indenture.  Each signed
copy shall be an original, but all of them together represent the same
agreement.

 

8.             EFFECT OF HEADINGS.  The Section headings herein are for
convenience only and shall not affect the construction hereof.

 

9.             TRUSTEE MAKES NO REPRESENTATION.  The Trustee makes no representation as to the
validity or sufficiency of this Supplemental Indenture.  The statements and recitals herein are deemed
to be those of the New Guarantor and the Company and not of the Trustee.

 

[Signature Page Follows]

 

3

 

IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to
be duly executed, all as of the date first above written.

 

Dated:  September 6, 2005

 

	
   

  	
  FOUNDATION MINING, LP

  
	
   

  	
  By:

  	
  Pennsylvania Services
  Corporation,

  
	
   

  	
   

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frank J. Wood

  	
   

  
	
   

  	
  Name:

  	
  Frank J. Wood

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FOUNDATION PA COAL COMPANY, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James L.
  Anderson, Jr.

  	
   

  
	
   

  	
  Name:

  	
  James L. Anderson, Jr.

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK

  
	
   

  	
  as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dorothy Miller

  	
   

  
	
   

  	
  Name:

  	
  Dorothy Miller

  
	
   

  	
  Title:

  	
  Authorized Signatory

  
							

 

 

4Exhibit 10.1

 

AGREEMENT AND PLAN OF MERGER

 

 

Dated as of July 22, 2005

 

 

by and among

 

 

CKX, Inc.,

MBST Acquisition Corp. and Focus
Acquisition Corp.

 

and

 

Lawrence Brezner, David Steinberg and Stephen Tenenbaum,

 

The Lawrence Brezner Living Trust,

The Steinberg/Thayer Living Trust,

and The Tenenbaum Living Trust

 

and

 

Morra, Brezner,
Steinberg & Tenenbaum Entertainment, Inc.,

Focus Enterprises,
Inc. and StepTeco, Inc.

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  Mergers

  	
   

  
	
   

  	
  1.1.

  	
  The Mergers

  	
   

  
	
   

  	
  1.2.

  	
  Consummation of the
  Mergers

  	
   

  
	
   

  	
  1.3.

  	
  Effects of the Mergers

  	
   

  
	
   

  	
  1.4.

  	
  Conversion of the
  Shares of the Merger Subs and the Companies

  	
   

  
	
   

  	
  1.5.

  	
  Merger Consideration

  	
   

  
	
   

  	
  1.6.

  	
  Adjustment of
  Parent Common Stock Through the Closing Date

  	
   

  
	
   

  	
  1.7.

  	
  Escrow

  	
   

  
	
   

  	
  1.8.

  	
  Certain
  Post-Closing Accounting Matters

  	
   

  
	
   

  	
  1.9.

  	
  Allocation of Payments

  	
   

  
	
   

  	
  1.10.

  	
  Closing

  	
   

  
	
  2.

  	
  Working Capital
  Merger Consideration Adjustment

  	
   

  
	
   

  	
  2.1.

  	
  Adjustment of
  Merger Consideration

  	
   

  
	
   

  	
  2.2.

  	
  Preliminary Working Capital
  Estimate

  	
   

  
	
   

  	
  2.3.

  	
  Determination of
  Closing Working Capital

  	
   

  
	
   

  	
  2.4.

  	
  Payment of Merger Consideration Adjustment

  	
   

  
	
  3.

  	
  Representations
  and Warranties of the Seller Group

  	
   

  
	
   

  	
  3.1.

  	
  Authority and
  Enforceability

  	
   

  
	
   

  	
  3.2.

  	
  Organization of the
  Companies

  	
   

  
	
   

  	
  3.3.

  	
  Equity Interests;
  Title

  	
   

  
	
   

  	
  3.4.

  	
  Ownership of Other
  Equities

  	
   

  
	
   

  	
  3.5.

  	
  No Conflicts

  	
   

  
	
   

  	
  3.6.

  	
  Governmental
  Approvals and Filings

  	
   

  
	
   

  	
  3.7.

  	
  Assets of the
  Companies; Entities; Licenses

  	
   

  
	
   

  	
  3.8.

  	
  Financial Statements

  	
   

  
	
   

  	
  3.9.

  	
  Absence of Changes

  	
   

  
	
   

  	
  3.10.

  	
  No Undisclosed
  Liabilities; No Indebtedness

  	
   

  
	
   

  	
  3.11.

  	
  Tax Matters

  	
   

  
	
   

  	
  3.12.

  	
  Legal Proceedings

  	
   

  
	
   

  	
  3.13.

  	
  Compliance With
  Laws and Orders

  	
   

  
	
   

  	
  3.14.

  	
  Benefit Plans; ERISA

  	
   

  
	
   

  	
  3.15.

  	
  Real Property

  	
   

  
	
   

  	
  3.16.

  	
  Environmental Matters

  	
   

  
	
   

  	
  3.17.

  	
  Intellectual Property

  	
   

  
	
   

  	
  3.18.

  	
  Contracts; Client
  and Customer Relations

  	
   

  
	
   

  	
  3.19.

  	
  Insurance

  	
   

  
	
   

  	
  3.20.

  	
  Transactions with
  Certain Persons

  	
   

  
	
   

  	
  3.21.

  	
  Employees and Labor
  Matters

  	
   

  
	
   

  	
  3.22.

  	
  Bank and Brokerage
  Accounts

  	
   

  
	
   

  	
  3.23.

  	
  Insurability of
  the Principals

  	
   

  
	
   

  	
  3.24.

  	
  Brokers

  	
   

  

 

i

 

	
   

  	
  3.25.

  	
  Investment
  Representations

  	
   

  
	
   

  	
  3.26.

  	
  Major Clients or
  Customers

  	
   

  
	
   

  	
  3.27.

  	
  Disclosure

  	
   

  
	
  4.

  	
  Representations
  and Warranties of the Parent and the Merger Subs

  	
   

  
	
   

  	
  4.1.

  	
  Organization

  	
   

  
	
   

  	
  4.2.

  	
  SEC Reports and
  Financial Statements of the Parent

  	
   

  
	
   

  	
  4.3.

  	
  Authority and
  Enforceability

  	
   

  
	
   

  	
  4.4.

  	
  No Conflicts

  	
   

  
	
   

  	
  4.5.

  	
  Governmental
  Approvals and Filings

  	
   

  
	
  5.

  	
  Additional
  Covenants of the Parties

  	
   

  
	
   

  	
  5.1.

  	
  Further
  Assurances and Cooperation

  	
   

  
	
   

  	
  5.2.

  	
  Investigation by the
  Parent

  	
   

  
	
   

  	
  5.3.

  	
  No Shop

  	
   

  
	
   

  	
  5.4.

  	
  Conduct of Business

  	
   

  
	
   

  	
  5.5.

  	
  Certain
  Reorganization Transactions

  	
   

  
	
   

  	
  5.6.

  	
  Affiliate
  Transactions

  	
   

  
	
   

  	
  5.7.

  	
  Books and
  Records

  	
   

  
	
   

  	
  5.8.

  	
  Employment
  Agreements

  	
   

  
	
   

  	
  5.9.

  	
  Preparation
  of Tax Returns

  	
   

  
	
   

  	
  5.10.

  	
  Non-Disclosure
  of Confidential Information

  	
   

  
	
   

  	
  5.11.

  	
  No
  Solicitation; No Hire

  	
   

  
	
   

  	
  5.12.

  	
  Non-Competition

  	
   

  
	
   

  	
  5.13.

  	
  Seller
  Group Representative

  	
   

  
	
   

  	
  5.14.

  	
  Payment
  of Certain Post Closing Collections to the Sellers

  	
   

  
	
   

  	
  5.15.

  	
  Grant of
  Proxies

  	
   

  
	
   

  	
  5.16.

  	
  Votes
  with Respect to the Mergers; Waiver of Dissenters Rights, Etc

  	
   

  
	
   

  	
  5.17.

  	
  Purchase
  for Investment; Legend on Certificate

  	
   

  
	
   

  	
  5.18.

  	
  No
  Disqualifying Actions

  	
   

  
	
   

  	
  5.19.

  	
  Notice
  of Client Adverse Effects

  	
   

  
	
   

  	
  5.20.

  	
  Sale
  of Marketable Securities

  	
   

  
	
  6.

  	
  Conditions
  to the Mergers

  	
   

  
	
   

  	
  6.1.

  	
  Conditions
  to Closing Obligation of the Parent and the Merger Subs

  	
   

  
	
   

  	
  6.2.

  	
  Conditions
  to Closing Obligation of the Seller Group

  	
   

  
	
  7.

  	
  Closing
  Deliveries

  	
   

  
	
   

  	
  7.1.

  	
  Closing
  Deliveries of the Seller Group

  	
   

  
	
   

  	
  7.2.

  	
  Closing
  Deliveries of the Parent

  	
   

  
	
  8.

  	
  Indemnification

  	
   

  
	
   

  	
  8.1.

  	
  Survival
  of Representations and Warranties

  	
   

  
	
   

  	
  8.2.

  	
  Indemnification
  by the Seller Group

  	
   

  
	
   

  	
  8.3.

  	
  Indemnification
  by the Parent

  	
   

  
	
   

  	
  8.4.

  	
  Limitations
  on Indemnification

  	
   

  
	
   

  	
  8.5.

  	
  Payment
  by the Sellers of Indemnification Amounts

  	
   

  

 

ii

 

	
   

  	
  8.6.

  	
  Method
  of Asserting Claims

  	
   

  
	
   

  	
  8.7.

  	
  Other Remedies

  	
   

  
	
   

  	
  8.8.

  	
  Limitation
  on Indemnification After Disclosure of Client Adverse Effect

  	
   

  
	
  9.

  	
  Termination

  	
   

  
	
   

  	
  9.1.

  	
  Termination

  	
   

  
	
   

  	
  9.2.

  	
  Effect of
  Termination

  	
   

  
	
   

  	
  9.3.

  	
  Break-Up Fee

  	
   

  
	
  10.

  	
  Miscellaneous

  	
   

  
	
   

  	
  10.1.

  	
  Notices

  	
   

  
	
   

  	
  10.2.

  	
  Specific
  Performance

  	
   

  
	
   

  	
  10.3.

  	
  Entire
  Agreement

  	
   

  
	
   

  	
  10.4.

  	
  Expenses

  	
   

  
	
   

  	
  10.5.

  	
  Public
  Announcements

  	
   

  
	
   

  	
  10.6.

  	
  Waiver

  	
   

  
	
   

  	
  10.7.

  	
  Amendment

  	
   

  
	
   

  	
  10.8.

  	
  No
  Third Party Beneficiary

  	
   

  
	
   

  	
  10.9.

  	
  No
  Assignment; Binding Effect

  	
   

  
	
   

  	
  10.10.

  	
  Headings;
  Definitional Provisions; etc

  	
   

  
	
   

  	
  10.11.

  	
  Invalid
  Provisions

  	
   

  
	
   

  	
  10.12.

  	
  Drafting
  History

  	
   

  
	
   

  	
  10.13.

  	
  Governing Law

  	
   

  
	
   

  	
  10.14.

  	
  Jurisdiction

  	
   

  
	
   

  	
  10.15.

  	
  Counterparts

  	
   

  
	
   

  	
  10.16.

  	
  GAAP

  	
   

  

 

iii

 

EXHIBITS

 

	
  Exhibit
  1.7(a)

  	
   

  	
  Form of Escrow
  Agreement

  
	
  Exhibit
  5.8(i)

  	
   

  	
  Form of
  Employment Agreement with Lawrence Brezner

  
	
  Exhibit
  5.8(ii)

  	
   

  	
  Form of
  Employment Agreement with David Steinberg

  
	
  Exhibit
  5.8(iii)

  	
   

  	
  Form of
  Employment Agreement with Stephen Tenenbaum

  
	
  Exhibit 5.15

  	
   

  	
  Form of
  Proxy

  
	
  Exhibit
  7.1(iv)

  	
   

  	
  Form of
  Seller Group Bringdown Certificate

  
	
  Exhibit
  7.2(v)

  	
   

  	
  Form of
  Parent Bringdown Certificate

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  
	
   

  	
   

  	
   

  
	
  Schedule l.4

  	
   

  	
  Allocation
  of Merger Consideration to the Shares of the Companies

  
	
  Schedule 3.3

  	
   

  	
  Equity
  Interests; Title

  
	
  Schedule 3.4

  	
   

  	
  Ownership of
  Other Equities

  
	
  Schedule 3.5

  	
   

  	
  Certain
  Required Consents, Etc.

  
	
  Schedule 3.6

  	
   

  	
  Governmental
  Approvals and Filings

  
	
  Schedule
  3.8(a)

  	
   

  	
  Financial
  Statements

  
	
  Schedule
  3.9(a)

  	
   

  	
  Absence of
  Changes

  
	
  Schedule
  3.9(b)

  	
   

  	
  Artists
  Relationships

  
	
  Schedule
  3.11(a)

  	
   

  	
  Tax Matters

  
	
  Schedule
  3.12

  	
   

  	
  Legal
  Proceedings

  
	
  Schedule
  3.14

  	
   

  	
  Benefit
  Plans; ERISA

  
	
  Schedule
  3.15

  	
   

  	
  Leased Real
  Property

  
	
  Schedule
  3.18(a)

  	
   

  	
  Contracts

  
	
  Schedule
  3.18(c)

  	
   

  	
  Income
  Forecast and Audit Contracts

  
	
  Schedule
  3.19

  	
   

  	
  Insurance

  
	
  Schedule
  3.20

  	
   

  	
  Transactions
  with Certain Persons

  
	
  Schedule
  3.21(a)

  	
   

  	
  Companies
  Employees

  
	
  Schedule
  3.21(b)

  	
   

  	
  Companies
  Employees Employment Agreements

  
	
  Schedule
  3.22

  	
   

  	
  Bank and
  Brokerage Accounts

  
	
  Schedule
  3.26

  	
   

  	
  Major
  Clients or Customers

  

 

iv

 

This AGREEMENT AND PLAN
OF MERGER, dated as of July 22, 2005 (this “Agreement”), by and among CKX,
Inc., a Delaware corporation (the “Parent”), MBST
Acquisition Corp., a California corporation (“M-Sub”), and Focus
Acquisition Corp., a California corporation (“F-Sub” and, collectively
with M-Sub, the “Merger Subs”), Lawrence Brezner, David Steinberg
and Stephen Tenenbaum (collectively, the “Principals”), The Lawrence
Brezner Living Trust (the “L Trust”), The Steinberg/Thayer Living Trust
(the “S Trust”) and the Tenenbaum Living Trust (the “T Trust”
and, collectively with the L Trust and the S Trust, the “Sellers”), and
Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc., a California
corporation (“MBST”), Focus Enterprises, Inc., a California corporation
(“Focus”), and StepTeco, Inc., a California corporation (“StepTeco”
and, collectively with MBST, Focus, Uncle Dave’s (as defined in Section 5.5
hereof) and Productions (as defined in Section 5.5 hereof), the “Companies”).  The Parent and the Merger Subs are sometimes
collectively referred to hereinafter as the “Parent Group.”  The Principals, the Sellers and the Companies
are sometimes collectively referred to hereinafter as the “Seller Group.”

 

The Sellers own,
collectively, all of the outstanding capital stock of MBST and Focus.  The Companies are engaged in the business of
artist management, television and feature film production and related
businesses and other activities that are integral to the foregoing
(collectively, the “Business”).

 

The Parent and the
Sellers desire that StepTeco, Uncle Dave’s and Productions be acquired by Focus
or MBST (as contemplated in Section 5.5 hereof), and that M-Sub and F-Sub
thereafter merge with and into MBST and Focus, respectively, in order to effectuate
the acquisition of the Companies by the Parent. 
For that purpose the Parent has organized each of the Merger Subs as a
wholly-owned subsidiary of the Parent, and the parties have agreed, subject to
the terms and conditions set forth in this Agreement, (i) to merge M-Sub with
and into MBST and to merge F-Sub with and into Focus, with MBST and Focus being
the surviving corporations of their respective mergers and wholly-owned
subsidiaries of the Parent (such mergers, collectively, the “Mergers”),
and (ii) in exchange for the shares of capital stock of MBST and Focus which
are to be cancelled as a result of the Mergers, to cause the Sellers to be paid
certain consideration by the Parent, all as set forth in this Agreement.

 

The Boards of Directors
of the Parent, the Merger Subs and the Companies have determined that it is in
the best interests of their respective companies and their respective
stockholders for the Parent to acquire the Companies by means of the Mergers
contemplated in this Agreement and, accordingly, the Boards of Directors of the
Parent, the Merger Subs and the Companies have approved the Mergers and this
Agreement.

 

For federal income tax
purposes it is intended that the Mergers contemplated by this Agreement shall
qualify as a reorganization within the meaning of Section 368(a)(1) of the Code
and that this Agreement constitutes a plan of reorganization for such purposes.

 

 

Capitalized terms used
but not otherwise defined in this Agreement have the meanings given them in the
Appendix hereto (the “Appendix”), which is incorporated into, and made part of,
this Agreement.

 

THEREFORE, in
consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.         Mergers.

 

1.1.      The
Mergers.  Upon the terms and subject to the conditions
set forth in this Agreement, and in
accordance with Sections 1103 and 1107 of the California Corporation Code (the “California
Corporations Code”), at the respective Effective Time (as defined below):

 

(i)  M-Sub shall be merged with and into MBST,
with MBST being the surviving corporation and a wholly-owned subsidiary of the
Parent, and the separate corporate existence of M-Sub shall cease; and

 

(ii)  F-Sub shall be merged with and into Focus,
with Focus being the surviving corporation and a wholly-owned subsidiary of the
Parent, and the separate corporate existence of F-Sub shall cease.

 

1.2.     Consummation
of the Mergers.  At the
Closing, the parties shall cause each of the Mergers to be consummated by
filing duly executed articles of merger with the Secretary of State of the
State of California in accordance with the relevant provisions of the
California Corporations Code.  The time
of the filing of such articles of merger with respect to each of the Mergers is
referred to herein as the “Effective Time” of such Merger.

 

1.3.     Effects
of the Mergers.

 

(a)       At the
respective Effective Time of each of the Mergers, the effect of the Mergers
shall be as provided under the California Corporations Code, and as further
provided in this Section 1.3 and in Section 1.4 hereof.  Without limiting the generality of the
foregoing, upon consummation of the Mergers, as applicable:

 

(i)  all properties, assets, rights, privileges,
policies and franchises of M-Sub and MBST shall vest in MBST as the
surviving corporation of their respective Merger, and all debts, liabilities
and obligations of M-Sub and MBST shall become the debts, liabilities and
obligations of MBST as the surviving corporation of such Merger; and

 

(ii)  all properties, assets, rights, privileges,
policies and franchises of F-Sub and Focus shall vest in Focus as the surviving
corporation of their respective Merger, and all debts, liabilities and

 

2

 

obligations of
F-Sub and Focus shall become the debts, liabilities and obligations of Focus as
the surviving corporation of such Merger.

 

(b)       The
Articles of Incorporation and By-laws of MBST and Focus, as in effect
immediately prior to the respective Effective Time of its Merger with the
respective Merger Sub, shall remain the Articles of Incorporation and By-laws
of MBST and Focus, respectively, as the surviving corporations of their
respective Mergers, unless and until amended in accordance with their terms and
as provided by Law.

 

1.4.     Conversion of the Shares
of the Merger Subs and the Companies. 
At the Effective Time of each of the Mergers, by virtue of each Merger
and without any action on the part of the Parent, the Merger Subs, any of the
Companies, any of the Sellers, any of the Principals or any other Person, (i) each outstanding share of the
common stock of M-Sub and F-Sub, as applicable, shall be converted into one
share of the common stock of MBST and Focus, respectively, and shall continue
to be held by the Parent; and (ii) all of the outstanding shares of the capital
stock of MBST and Focus (collectively, the “Converted Companies Shares”),
as applicable, shall cease to be outstanding and shall be converted into the
right to receive the portions specified on Schedule 1.4 of the
consideration described in Section 1.5 (the “Merger Consideration,” as
the Merger Consideration may be adjusted pursuant to Section 2.4, Section
5.9(b) and Section 5.14 hereof).

 

1.5.     Merger
Consideration.  The Merger
Consideration to be paid at the Closing shall, in the aggregate, consist of the
following:

 

(i)  $1,000,000 cash plus such
amount, if any, as may be required to be added thereto based on the preliminary
estimate of Working Capital in accordance with Section 2.2(b), which the
Parent shall pay to the Sellers at the Closing by wire transfer of immediately
available funds to bank accounts designated in writing by the Sellers to the
Parent not less than three (3) days prior to the Closing;

 

(ii)  700,000 newly issued shares of Parent Common
Stock (subject to adjustment as provided in Section 1.6 hereof), which the
Parent shall deliver to the Sellers at the Closing; and

 

(iii)  150,000 newly issued shares of Parent Common
Stock (subject to adjustment as provided in Sections 1.6 and 1.7(b) hereof),
which the Parent shall deliver to the Escrow Agent pursuant to the Escrow
Agreement, and which shall be released only in accordance with the terms and
provisions of Section 1.7 hereof and the Escrow Agreement.

 

1.6.     Adjustment
of Parent Common Stock Through the Closing Date. 
The number of shares of Parent Common Stock that shall be issued at the
Closing, as provided in Section 1.5(ii) and Section 1.5(iii) hereof, shall be
proportionately adjusted for and in respect of all Parent Equity Recap
Transactions that are consummated, or that

 

3

 

have a record date, after the date of this
Agreement and on or prior to the Closing Date, with the result that the number
and kind of securities so issued at the Closing as provided in Section 1.5(ii)
and Section 1.5(iii) hereof shall be equal to the
number and kind (including Parent Common Stock) of securities that the holder
of 700,000 shares and 150,000 shares, respectively, of Parent Common Stock
immediately before the first of such Parent Equity Recap Transactions would
have held immediately after the last of such Parent Equity Recap Transactions.

 

1.7.     Escrow.

 

(a)       At the
Closing, the Parent and the Sellers shall enter into an Escrow Agreement in the form of Exhibit
1.7(a) attached hereto (the “Escrow Agreement”) with an escrow agent
reasonably acceptable to the parties hereto (the “Escrow Agent”).  As provided in Section 1.5(iii) hereof, the
shares of Parent Common Stock or other securities to be issued at the Closing
pursuant to Section 1.5(iii) hereof (such securities, as adjusted (if
applicable) pursuant to Section 1.7(b) hereof, the “Escrowed Shares”)
shall be delivered by the Parent to the Escrow Agent at the Closing to be held
in escrow and released in accordance with the terms of the Escrow Agreement.

 

(b)       In
the event of a Parent Equity Recap Transaction that occurs, or that has a
record date, after the Closing Date and during the period any of the Escrowed
Shares are to be held in escrow pursuant to the Escrow Agreement, the Parent,
and (as applicable) the Sellers, shall cause the number of Escrowed Shares to
be proportionately adjusted for and in respect of such Parent Equity Recap
Transaction (without duplication for any adjustment that would occur
automatically as a result of such Parent Equity Recap Transaction), with the
result that the number and kind of securities then held in escrow pursuant to the
Escrow Agreement shall be equal to the number and kind (including Parent Common
Stock) of securities that the securities held in escrow immediately before such
Parent Equity Recap Transaction would have become immediately after such Parent
Equity Recap Transaction.

 

(c)        The
Parent and the Sellers shall jointly direct the Escrow Agent to release the
Escrowed Shares held in escrow as follows:

 

(i)  50,000 of such Escrowed Shares (as such
number may have been adjusted prior to the closing pursuant to Section 1.6
hereof and as such number may be adjusted after the Closing pursuant to Section
1.7(b) hereof) to the Sellers if, and at such time, during the five (5) year
period ending June 30, 2010, the Business of the Companies, based on the
regularly prepared financial statements of the Companies
and the Parent, achieves cumulative Section 1.7(c)(i) Revenues of at
least $40 million;

 

(ii)  50,000 of such Escrowed Shares (as such
number may have been adjusted prior to the closing pursuant to Section 1.6
hereof and as such number may be adjusted after the Closing pursuant to Section
1.7(b) hereof) to the Sellers if and at such time, on or prior to the fifth
(5th) anniversary of

 

4

 

the Closing Date,
the price of one share of Parent Common Stock closes at $50.00 or more (which
price shall be determined based on the closing price on the principal U.S.
securities exchange or securities market on which the Parent Common Stock
trades and proportionately adjusted to reflect any adjustments pursuant to
Section 1.7(b) hereof) on ten (10) consecutive trading days on the principal
U.S. securities exchange or securities market on which the Parent Common Stock
trades; and

 

(iii)  50,000 of such Escrowed Shares (as such
number may have been adjusted prior to the closing pursuant to Section 1.6
hereof and as such number may be adjusted after the Closing pursuant to Section
1.7(b) hereof)  to the Sellers if and at
such time the conditions in both of Section 1.7(c)(i) and Section 1.7(c)(ii)
hereof have been satisfied or deemed satisfied hereunder;

 

provided,
however, the Parent may require that, in any directions to the Escrow
Agent pursuant to this Section 1.7(c), the Parent and the Sellers shall reduce
the number of Escrowed Shares to be released, with such reduction equal to a
number of Escrowed Shares having a value (determined in the manner specified in
Section 1.7(d) hereof as of the date such Escrowed Shares would otherwise have
been released to the Sellers pursuant to this Section 1.7(c)) equal to the sum
of all indemnification claims by the Parent or a Parent Indemnitee that are
pending and unresolved (pursuant to the resolution procedures applicable with
respect to the indemnification provisions of Section 8 of this Agreement), which
number of Escrowed Shares shall continue to be held by the Escrow Agent pending
final resolution of such claims, or that have been resolved (pursuant to such
resolution procedures) in favor of the Parent or a Parent Indemnitee but remain
unpaid.

 

(d)       The
Parent and the Sellers shall jointly direct the Escrow Agent to release the
Escrowed Shares not released to the Sellers in accordance with Section 1.7(c)
hereof to the Parent for cancellation; provided, however, that:

 

(i)  as to any Escrowed Shares that were not
released to the Sellers because of an unresolved indemnification claim as
contemplated in the proviso at the end of Section 1.7(c), such joint
notice shall be given to the Escrow Agent from time to time upon resolution of
the indemnification claim, and shall direct the Escrow Agent to release (A) to
the Parent or Parent Indemnitee a number of Escrowed Shares having a value
equal to the amount of the claim (in accordance with the resolution thereof),
or (if applicable) such lesser amount, if any, remaining after payment (after
the date the respective Escrowed Shares were not released pursuant to the
proviso at the end of Section 1.7(c)) by the Sellers of any amount of such
claim in cash; and (B) to the Sellers such number of Escrowed Shares, if any,
as may be remaining from the number withheld in respect of such resolved
indemnification claim that were not released to the Parent or Parent

 

5

 

Indemnitee (less
such number of Escrowed Shares that may be necessary for the Escrow Agent to
continue to hold so that sufficient Escrowed Shares are held in respect of all
pending and unresolved or resolved and unpaid, indemnification claims); and

 

(ii)  as to any Escrowed Shares that were not
released to the Sellers because of an unpaid indemnification claim as
contemplated in the proviso at the end of Section 1.7(c), such joint
notice shall be given if such payment is not made within thirty (30) days after
the date such Escrowed Shares would otherwise have been released from escrow,
and shall direct the Escrow Agent to release (A) to the Parent or Parent
Indemnitee a number of Escrowed Shares having a value equal to the amount of
the claim or (if applicable) such lesser amount, if any, remaining after
payment (after the date the respective Escrowed Shares were not released
pursuant to the proviso at the end of Section 1.7(c)) by the Sellers of any
amount of such claim in cash; and (B) to the Sellers such number of Escrowed
Shares, if any, as may be remaining from the number withheld in respect of such
unpaid indemnification claim that were not released to the Parent or Parent
Indemnitee (less such number of Escrowed Shares that may be necessary for the
Escrow Agent to continue to hold so that sufficient Escrowed Shares are held in
respect of all pending and unresolved or resolved and unpaid, indemnification
claims).

 

In connection with
any release of Escrowed Shares pursuant to items (i) or (ii) of this Section
1.7(d) or any reduction of the amount of Escrowed Shares as contemplated by the
proviso at the end of Section 1.7(c), any Escrowed Shares so released or
withheld from release shall be valued at the average of the closing prices on
the principal U.S. securities exchange or securities market on which the Parent
Common Stock trades on the ten (10) consecutive trading days ending on the
third (3rd) trading day prior to the date such Escrowed Shares would otherwise
have been released to the Sellers pursuant to Section 1.7(c).

 

(e)        If
a Change in Control Transaction is consummated at any time any Escrowed Shares
remain in escrow pursuant to the Escrow Agreement, the conditions set forth in
Sections 1.7(c)(i), (ii) and (iii) hereof for the release of such Escrowed
Shares to the Sellers shall be deemed to have been satisfied regardless of
whether such conditions have actually been satisfied as of the time of the
consummation of the Change in Control Transaction.  Accordingly, the Parent and the Sellers shall
jointly direct the Escrow Agent to release all of the Escrowed Shares then held
in escrow upon the consummation of a Change in Control Transaction.

 

(f)        In
the event the Parent makes any material changes (or directs that any material
changes be made) to the day-to-day historic operation and activities of the
Business (unless such material changes are made solely with respect to the back
office or administrative matters of the Business), and such material changes materially
impair the

 

6

 

ability of the Sellers to cause the
conditions for release of the Escrowed Shares to the Sellers set forth in
Section 1.7(c)(i) to be satisfied, or if the employment of any Principal with
the Companies is terminated by the applicable Company or other employer without
Cause (as such term is defined in the applicable Employment Agreement) or by
the Principal for Constructive Termination Without Cause (as such term is
defined in the Employment Agreement) and if the Parent and the
Seller have not prior thereto jointly directed the Escrow Agent to release
Escrowed Shares as a result of the satisfaction of the condition set forth in
Section 1.7(c)(i) hereof, then such condition set forth in Section 1.7(c)(i)
hereof shall be deemed to have been satisfied and the Parent and the Sellers
shall jointly direct the Escrow Agent to release Escrowed Shares then held in
escrow to the Sellers as though such condition had been satisfied.

 

(g)        Notwithstanding
anything to the contrary in this Agreement, including, without limitation,
Section 1.7(c), no Escrowed Shares shall be released until after the Closing
Working Capital has become final and binding on the parties hereto in
accordance with the terms and provisions of Section 2 hereof.

 

(h)       In
all matters pertaining to the escrow described in this Section 1.7, in the
event of any conflict between the terms and provisions of this Agreement and
the terms and provisions of the Escrow Agreement, the terms and provision of
this Agreement shall prevail as between the Parent and the Sellers.

 

1.8.     Certain
Post-Closing Accounting Matters.  The Sellers
acknowledge that, after the Closing, the Companies and the Business will be
operated as a division of the Parent or through one or more Subsidiaries of the
Parent, in all respects under the control and subject to the authority of the
Board of Directors of the Parent; provided, however, that the
Parent shall not take any action that will prevent the recognition of the
Section 1.7(c)(i) Revenues.

 

1.9.     Allocation
of Payments.  All payments of Merger
Consideration, whether directly to the Sellers at the Closing, from the escrow
held pursuant to the Escrow Agreement, or otherwise, shall be allocated among
and paid and delivered to the Sellers in the relative percentages set forth on Schedule
1.4.

 

1.10.   Closing.  The closing
of the Mergers and the other transactions contemplated hereby (the “Closing”)
shall take place at the offices of Troutman Sanders LLP, legal counsel to the
Parent and the Merger Subs, in New York, New York, at 10:00 a.m., local time,
on a date that is not later than the tenth (10th) Business Day after the date
of this Agreement (provided that all of the conditions to closing set
forth in Section 6.1 and Section 6.2 hereof have been satisfied or waived), or
at such other date, time or place as may be agreed to in writing by the parties
hereto (the “Closing Date”).  The
Closing shall be deemed to take place at 11:59 p.m. on the Closing Date.

 

7

 

2.         Working
Capital Merger Consideration Adjustment.

 

2.1.     Adjustment
of Merger Consideration.  The Merger
Consideration shall be (i) increased by the amount, if any, by which the
Closing Working Capital (as it becomes final and binding on the parties in
accordance with Section 2.3 hereof) is greater than zero (such amount, if any,
the “Positive Working Capital”), or (as applicable) or (ii) decreased by
the amount, if any, by which the Closing Working Capital (as it becomes final
and binding on the parties in accordance with Section 2.3 hereof) is less than
zero (such amount, if any, the “Negative Working Capital”).

 

2.2.     Preliminary Working Capital Estimate.

 

(a)       Not less than two (2) Business
Days and not more than five (5) Business Days before the Closing Date, the
Sellers shall deliver to the Parent (i) a written calculation in reasonable
detail of the amount of the Working Capital (whether positive, negative or
zero) that the Seller Group expects the Companies (on a combined basis) to have
as of the Closing and (ii) a certificate signed by the Sellers stating the
amount of the Working Capital (whether positive, negative or zero) of
the Companies as of the Closing as so estimated and certifying that such amount
is the Sellers’ best estimate and forecast of the Working Capital of the
Companies as of the Closing.

 

(b)       If the Sellers’
certificate as delivered pursuant to Section 2.2(a) shows that Working Capital
is expected to be positive as of the Closing, then seventy-five percent (75%)
of the amount by which Working Capital is expected to be positive, as set forth
in the Sellers’ certificate, shall be added by the Parent to the cash component
of the Merger Consideration and shall be paid at the Closing pursuant to
Section 1.5(i), subject to adjustment pending the final determination of
Closing Working Capital in accordance with Section 2.3 hereof and the payment
thereof in accordance with Section 2.4 hereof.

 

2.3.     Determination
of Closing Working Capital.

 

(a)       As promptly
as practicable after the Closing Date (but in any event not more than ninety
(90) days thereafter), the Parent shall deliver to the Sellers: (i) a combined
balance sheet of the Companies as of the time of the Closing which shall be
prepared in a manner consistent with the definition of Working Capital herein
and otherwise in accordance with GAAP consistently applied with respect to the
Audited Financial Statements of the Companies referred to in Section 3.08
hereof, but without giving effect to the Mergers, any matters occurring
simultaneously with the Closing pursuant to this Agreement (other than any
amount that may be paid at or prior to the Closing, as contemplated by Section
5.5 hereof) or any matters occurring after the Closing; and (ii) a calculation
(which shall be based on and consistent with the combined balance sheet
delivered pursuant to item (i) of this Section 2.3(a)) in reasonable detail
setting forth the Parent’s calculation of the Working Capital of the Companies
as of the Closing (the “Closing Working Capital”).

 

8

 

(b)       The
Sellers shall have thirty (30) days after delivery to them of the Parent’s
deliveries pursuant to Section 2.2(a) (the “Review Period”) to review
such Parent deliveries.  If the Sellers
do not agree with the amount of the Closing Working Capital as calculated by
the Parent pursuant to Section 2.2(a), the Seller Group Representative shall,
within the Review Period, give the Parent a written notice (a “Dispute
Notice”) setting forth (i) the amount the Sellers believe to be the Closing
Working Capital and showing the differences, category-by-category, and (ii) a
reasonably detailed explanation of the basis of the Sellers’ calculation of
such amount.  If the Seller Group
Representative indicates in writing that the Sellers do not object to the
Closing Working Capital as calculated by the Parent, or if the Seller Group
Representative fails to deliver a Dispute Notice to the Parent within the
Review Period, the Closing Working Capital as calculated by the Parent shall be
deemed to have been accepted by the Sellers in the form in which it was delivered
by the Parent and shall be final, conclusive and binding upon the parties for
all purposes and not subject to appeal on any ground, absent mathematical error
or fraud, and judgment on such amount of Closing Working Capital, and any
resulting obligation of either the Parent or the Sellers to pay the other party
any amount pursuant to Section 2.4 may be enforced in any court having
jurisdiction over the subject matter of the controversy.

 

(c)        If
a Dispute Notice shall be timely delivered by the Seller Group Representative
to the Parent, the Seller Group Representative and the Parent shall, within
thirty (30) days after such delivery, promptly and in good faith attempt to
resolve the matters set forth therein and agree in writing upon the final amount
of the Closing Working Capital.  If the
Seller Group Representative and the Parent are unable to resolve the matters in
dispute within that 30-day resolution period, then the Panel of Accountants (as
defined in Section 2.3(e) hereof) shall be employed to arbitrate and resolve
such matters as soon as reasonably practicable. 
Any arbitration pursuant to this Section 2.3(c) and Section 2.3(d)
hereof shall be conducted in New York City, or by telephonic conference call if
acceptable to the Panel of Accountants. 
The Sellers and the Parent shall each execute and deliver such retention
agreements as the Panel of Accountants may reasonably require in connection
with its services pursuant to this Section 2.3(c).

 

(d)       The
Panel of Accountants shall be instructed to promptly review the applicable
provisions of this Agreement and shall only consider those items in the Parent’s
calculation of Closing Working Capital that are expressly identified as items
of dispute in the Dispute Notice.  The
Panel of Accountants shall, as promptly as practicable, deliver to the Parent
and the Seller Group Representative a report setting forth any adjustments to
such disputed items in the Parent delivery necessary to make such items conform
to the requirements of this Section 2, and setting forth the amount of the
Closing Working Capital.  The
determination of the Panel of Accountants with respect to such matters shall be
final, conclusive and binding upon the parties and not subject to appeal on any
ground, absent mathematical error or fraud, and judgment on the determination,
and any resulting obligation of either the Parent or the Sellers to pay the
other party any amount under Section 2.4, may be enforced in any court having
jurisdiction over the subject matter of the controversy.

 

9

 

(e)        The
“Panel of Accountants” shall consist of three individual Certified
Public Accountants each of whom shall be engaged in accounting practice in New
York City and shall not, in the immediately preceding thirty-six (36) months,
have provided services to or been employed by the Parent, the Companies, the
Sellers, the Principals, or any of their respective Affiliates or any of their
respective executive officers, and shall not be a member of, or employed by, a
firm which has provided services to any of such Persons, or otherwise have a
conflict of interest with any such Person or taken an adversarial position with
respect to any such Persons.  Individuals
who meet such qualifications shall be appointed as follows:  (i) one member shall be appointed by the
Parent by written notice to the Seller Group Representative; (ii) one member
shall be appointed by the Seller Group Representative by written notice to the
Parent; and (iii) one member, who shall be the chairman of the Panel of
Accountants, shall be appointed by the mutual agreement of the two members
appointed pursuant to the foregoing items (i) and (ii) of this Section
2.3(e).  If the two members appointed
pursuant to items (i) and (ii) of this Section 2.3(e) fail to agree within
thirty (30) days after the second member has been appointed upon the
appointment of the third member, the third member shall be appointed by the
American Arbitration Association (the “AAA”) in accordance with its
rules then in effect.  In the event that
either party shall fail to appoint a member within fifteen (15) days after the
other party appoints its member, such member and the third member shall be
appointed by AAA in accordance with its rules then in effect.  The Panel of Accountants shall be instructed
to determine which of the parties has substantially prevailed in the dispute
and the party who has not substantially prevailed shall pay all of the fees and
expenses of the Panel of Accountants in connection with the dispute.

 

(f)        With
respect to any dispute and/or arbitration pursuant to this Section 2, the
Sellers and the Parent shall each pay and be responsible for their own
respective costs and expenses, including, without limitation, the fees and
expenses of their respective legal, accounting and other advisors.

 

2.4.     Payment of Merger
Consideration Adjustment.

 

(a)       Except as
provided in Section 2.4(b), within
five (5) Business Days after the amount of Closing Working Capital becomes
final and binding upon the parties in accordance with Section 2.3, (i) the
Parent shall pay to the Sellers, in cash, the amount, if any, by which the
Positive Working Capital exceeds the amount, if any, of cash that, pursuant to
Section 2.2(b), was added to the $1,000,000 cash portion of Merger Consideration
paid at the Closing pursuant to Section 1.5(i) or, if applicable, (ii) the
Sellers shall pay to the Parent, in cash, either (A) the amount, if any, by
which the Positive Working Capital is less than the amount of cash that, pursuant to Section 2.2(b), was added to the cash
portion of Merger Consideration paid at the Closing pursuant to Section 1.5(i)
or (B) the sum of Negative Working Capital, if any, plus the amount of cash
that, pursuant to Section
2.2(b), was added to the cash portion of Merger Consideration paid at
the Closing pursuant to Section 1.5(i).  If the Sellers fail to pay any amount
required to be paid pursuant to the immediately preceding sentence, the Parent

 

10

 

may recover
such amount not paid by canceling any of the shares of Parent Common Stock
delivered to the Sellers pursuant to this Agreement.

 

(b)       In the event that, as
a result of either (i) the adjustments, pursuant to Section 2.2(b) and Section
2.4(a), to the $1,000,000 cash portion of Merger Consideration paid at the
Closing pursuant to Section 1.5(i), or (ii) any other adjustment to the Merger
Consideration hereunder pursuant to any of Section 5.9 or Section 5.14 hereof,
the portion of the total amount of cash paid by Parent to Sellers as Merger
Consideration allocable to a Company undergoing one of the Mergers would exceed
an amount equal to 25% of the fair market value on the date of Closing of the
portion of the 700,000 shares of Parent Company Stock allocable to such Company,
then any such excess amount shall not be paid in cash but rather shall be paid
in newly issued shares of Parent Common Stock of equal value as determined in
the manner specified in Section 1.7(d); and if fractional shares would result
from such computation, such fractional shares shall not be issued.

 

3.         Representations and
Warranties of the Seller Group.  Each member
of the Seller Group, jointly and severally, hereby represents and warrants to
the Parent and the Merger Subs as set forth below:

 

3.1.     Authority
and Enforceability.

 

(a)       Each
of the Sellers has the full capacity, power and authority to execute and
deliver this Agreement and the Escrow Agreement and perform such Seller’s
obligations hereunder and thereunder. 
The respective trustees of each of the Sellers have the full capacity,
power and authority to execute and deliver this Agreement and the Escrow
Agreement on behalf of the respective Seller and to cause such respective
seller to perform such Seller’s obligations hereunder and thereunder.  This Agreement and the Escrow Agreement have
been duly and validly executed and delivered by the respective trustees of each
of the Sellers and constitute the legal, valid and binding obligations of such
Seller, enforceable against such Seller in accordance with the terms hereof and
thereof.

 

(b)       Each
of the Companies that is a signatory to this Agreement has the power and
authority to execute this Agreement and each of the Operative Agreements to
which it is a party and perform its respective obligations hereunder and
thereunder.  The execution and delivery
by each of such Companies of this Agreement and each of the Operative
Agreements to which it is a party and the performance by each of such Companies
of its obligations hereunder and thereunder have been duly and validly
authorized by the board of directors and the stockholders of each of such
Companies, and no other action on the part of any of the Companies or the board
of directors or stockholders thereof is necessary.  This Agreement and each of the Operative
Agreements to which it is a party have been duly and validly executed and
delivered by each of the Companies that is a signatory to this Agreement and
constitute the legal, valid and binding obligations of each of such Companies,
enforceable against it in accordance with the terms hereof and thereof.

 

11

 

(c)        Each
of the Principals has the full capacity, power and authority to execute and
deliver this Agreement and each of the Operative Agreements to which such
Principal is a party and perform his obligations hereunder and thereunder.  This Agreement and each of the Operative
Agreements to which a Principal is a party have been duly and validly executed
and delivered by such Principal and constitute the legal, valid and binding
obligations of such Principal, enforceable against him in accordance with the
terms hereof and thereof.

 

3.2.     Organization
of the Companies.  Each of the
Companies is a corporation (other than Productions which is a general partnership),
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation and has full corporate power and authority to
conduct the Business as and to the extent now conducted and as presently
contemplated to be conducted and to own, use and lease its Assets.  Each of the Companies is duly qualified,
licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use or leasing of its Assets, or the
conduct or nature of the Business, makes such qualification, licensing or
admission necessary except where the failure to be so qualified, licensed or
admitted would not result in a Material Adverse Effect on the Companies.  The Sellers have, prior to the execution of
this Agreement, given the Parent access to true, correct and complete copies of
the Organizational Documents of each of the Companies.

 

3.3.     Equity
Interests; Title.  Schedule
3.3 sets forth a complete and correct list of the authorized and issued
capital stock of each of the Companies that is a corporation and the ownership
of Productions.  The issued shares of
capital stock as shown on Schedule 3.3 constitute all of the issued and
outstanding shares of capital stock of each of the Companies that is a
corporation and the ownership of Productions, and such issued shares of capital
stock have been duly authorized and validly issued, are fully paid and
non-assessable and were not issued in violation of, and are not subject to, any
preemptive rights or other similar rights of any Person, any Laws or the
Articles of Incorporation of the respective Company.  There is no Option or other Contract
outstanding that directly or indirectly: (a) calls for, requires or
contemplates the issuance, sale, grant or other disposition of any shares of
capital stock of any of the Companies or securities that are convertible into,
or have other rights to acquire, any shares of capital stock of any of the
Companies; or (b) relates to the voting or control of any of the shares of
capital stock of any of the Companies. 
No Person has any right to require any of the Companies (or any
Affiliate thereof) to register any securities of such Company (or any Affiliate
thereof) under the Securities Act.  The
Sellers own, beneficially and of record, all of the Converted Companies Shares,
free and clear of any and all Liens.

 

3.4.     Ownership
of Other Equities.  Except as set
forth on Schedule 3.4, none of the Companies owns, directly or
indirectly or, since December 31, 2001, has owned, directly or indirectly, any
shares of capital stock or other equity interests (including any Option) in or
with respect to any business, corporation, general partnership, limited
partnership, limited liability company, association, joint venture, trust, or
other entity.  All of such outstanding
shares of capital stock or other equity

 

12

 

interests have been duly authorized and
validly issued, and are fully paid and non-assessable.  There are no Options requiring any of the entities
listed on Schedule 3.4 to issue or sell, or giving any Person a right to
subscribe for or acquire, or any way dispose of, any shares of capital stock or
other equity interests of such entities. 
None of such outstanding shares of capital stock or other equity
interests is subject to any voting trust agreement, proxy or other agreement or
arrangement.  There are no outstanding
obligations or other commitments of any of the Companies or any of the issuers
listed on Schedule 3.4 to make any investment (in the form of a loan,
capital contribution or other obligation to provide funds) in any other
Person.  None of the Principals, none of
the Sellers and none of the Companies owns any shares of the capital stock of
the Parent.

 

3.5.     No
Conflicts.  Except as set forth on Schedule 3.5,
the execution and delivery by the Sellers, the Principals and the Companies, as
applicable, of this Agreement and the Operative Agreements to which such Person
is a party, the consummation by the Sellers, the Principals and the Companies,
as applicable, of the Mergers and of the other transactions contemplated hereby
or thereby, and the performance of their respective obligations hereunder and
thereunder, do not and will not (as applicable):

 

(i)  conflict with or result in a violation or
breach of any of the terms, conditions or provisions of any of the
Organizational Documents of any of the Companies;

 

(ii)  conflict with or result in a violation or
breach of any term or provision of any Law or Order applicable to any of the
Sellers, any of the Principals or any of the Companies or any of their
respective Assets or to which any of the Sellers, the Principals or the
Companies is a party; or

 

(iii)  result in a breach of or default under,
require notice or consent under (or give rise to any right of payment,
termination, cancellation or acceleration under) any of the terms, conditions
or provisions of any Contract of any of the Companies or any of their
Subsidiaries or to which any of the Assets of any of the Sellers (or any of the
trustees thereof), any of the Companies or any of their Subsidiaries is bound,
except for such breaches or defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained.

 

3.6.     Governmental
Approvals and Filings.  Except as set
forth on Schedule 3.6, no term or provision of any Law or Order
applicable to any of the Sellers, any of the Principals or any of the Companies
or any of their respective Assets or to which any of the Sellers, the Principals
or the Companies is a party requires any consent, approval or action of, filing
with or notice to any Governmental Authority in connection with the execution
or delivery of this Agreement or the Operative Agreements or the consummation
by any of the Sellers, any of the Principals or any of the Companies of the
Mergers or any of the other transactions contemplated hereby or thereby or the

 

13

 

performance by any of the Sellers, any of the
Principals or any of the Companies of their respective obligations hereunder
and thereunder.

 

3.7.     Assets
of the Companies; Entities; Licenses.

 

(a)       The Assets
that are owned by the Companies as of the date hereof, and that will be owned by the Companies immediately
prior to the Closing and immediately after the Closing will include all Assets
necessary to conduct the Business, in all respects, immediately following the
Closing as such Business was conducted during the period reflected in the
Audited Financial Statements, and all of the Assets that were owned by the
Companies and used, directly or indirectly, in the Business during such period,
in each case, subject to immaterial changes in the ordinary course of business
consistent with past practice.  The
Sellers, the Principals and the Companies do not conduct and have not conducted
the Business through any entity other than the Companies or a wholly owned
Subsidiary or Affiliate thereof, each of which (i) is listed on Schedule 3.3
attached hereto, (ii) has been continuously wholly owned by the Companies since
1999 (except as may be otherwise expressly disclosed on Schedule 3.3
hereto to the extent such entity was organized after that date) and (iii) will
be acquired by the Parent as a result of the Mergers.  There is not, and at the Closing there will
not be, any Lien (other than Permitted Liens) on or with respect to any of such
Assets of the Companies (including, without limitation, any shares of capital
stock or other equity interest of any Subsidiary of any of the Companies) that
is not fully disclosed in the Audited Financial Statements and described in
detail in the notes thereto.

 

(b)       Each
of the Companies possesses every License reasonably necessary to conduct its
business in the manner conducted during calendar year 2004 and each such
License is current and in force and effect and will not be terminated as a
result of the Mergers or any of the other transactions contemplated hereby.

 

3.8.     Financial Statements.

 

(a)       Attached hereto as Schedule 3.8(a)
are true, correct and complete copies of the audited combined balance sheets of
the Companies (subject to the last sentence of this Section 3.8(a)) as of
December 31, 2004 (the “December 2004 Balance Sheet”) and December 31,
2003 and the related audited combined statements of operations, stockholders’
equity and cash flows of the Companies for each of the two fiscal years then
ended (all of the foregoing financial statements, the “Financial Statements”).  The Financial Statements were prepared in
accordance with GAAP consistently applied (except as may be required by Section
3.10(b) hereof) and fairly and accurately present in all material respects the
combined financial condition, results of operations, stockholders’ equity and
cash flows of the Companies as of the dates and for the periods thereof.  The revenues and expenses set forth in the
Financial Statements constitute all revenues generated and expenses incurred by
the Companies or by any Subsidiary or Affiliate thereof or by any other Person
in connection with the operation of the Business during the periods presented,
subject to the last sentence of this Section 3.8(a).  The Financial Statements were audited by an
independent auditing firm that is

 

14

 

registered to practice before the U.S. Securities and Exchange
Commission.  The right of the Parent and
the Merger Subs to rely fully on the representations and warranties set forth
in this Section 3.8 shall not be impaired or affected in any way by virtue of
any assistance or involvement of the Parent or any of its internal or external
accountants or other representatives in the preparation of the Financial
Statements.  The financial
condition, results of operations and cash flows for each of the entities the
equity or assets of which are to be purchased or otherwise acquired prior to
the Closing pursuant to Section 5.5, other than Uncle Dave’s, are fully
reflected in the Financial Statements (subject to the last sentence of this
Section 3.8).  Anything to the contrary
notwithstanding, the Parent Group hereby acknowledges that the Financial
Statements do not include any results from operations, or footnotes relating to
Uncle Dave’s or Productions.

 

(b)       Uncle Dave’s
is not a party to any Contract other than the Contract described at item 3 on
Schedule 3.18(a).  The only revenues of
Uncle Dave’s are attributable to such Contract. 
Pursuant to such Contract, Uncle Dave’s receives revenues of $18,750 per
calendar quarter.  Other than such
Contract, Uncle Dave’s has no Assets, and Uncle Dave’s has no liabilities or
obligations other than its performance obligations under such Contract.  The expenses of Uncle Dave’s do not exceed
its revenues.

 

3.9.     Absence
of Changes.

 

(a)       Except for
the execution and delivery of this Agreement, since the date of the December
2004 Balance Sheet there has not been any Material Adverse Effect with respect
to the Business or any of the Companies or any event or development that,
individually or together with any or all other such events and/or developments,
could reasonably be expected to result in a Material Adverse Effect with
respect to the Business or the Companies except as set forth on Schedule 3.9(a)
attached hereto.  Without limiting the
foregoing, except as set forth on Schedule 3.9(a) attached hereto, there
has not occurred since December 31, 2004 any event, fact or circumstance that,
if such event, fact or circumstance were to occur after the date hereof and
prior to the Closing, would be a violation of any of Sections 5.4(i) through
(xviii).

 

(b)       Except as set forth on
Schedule 3.9(b) attached hereto, since December 31, 2004, (i) there has
been no termination, or substantial reduction or alteration, of any
relationship between any Artist, on the one hand, and the Companies or the
Business, on the other hand; and (ii) no member of the Seller Group has
received any notice, indication, expression of intent or other communication
(whether written, oral or otherwise), by or on behalf of any Artist,  that the Artist will terminate or
substantially reduce or alter his or her relationship with the Companies or the
Business, whether as a result of the consummation of the transactions
contemplated hereby or otherwise.

(c)        Since
December 31, 2004, (i) there has been no termination, or substantial reduction
or alteration, of any relationship between any client or customer (other than
an Artist, as to which Section 3.9(b) shall apply), on the one hand, and the
Companies or the Business, on the other hand; and (ii) no member of the Seller
Group

 

15

 

has
received any notice, indication, expression of intent or other communication
(whether written, oral or otherwise), by or on behalf of any client or customer
(other than an Artist, as to which Section 3.9(b) shall apply), that the client
or customer will terminate or substantially reduce or alter its relationship
with the Companies or the Business, whether as a result of the consummation of
the transactions contemplated hereby or otherwise.

 

(d)       Notwithstanding
anything in this Agreement (including, without limitation, Section 3.9(b)
hereof and Section 3.9(c) hereof) to the contrary, the Seller Group makes no
representation or warranty that any client of the Business or any of the
Companies (including, without limitation, any Artist) will not cease being a
client of the Business or reduce its patronage of the Business following the
signing of this Agreement or following the Closing;  provided,
that nothing in this Section 3.9(d)
shall in any way limit or restrict the right of the Parent and the Merger Subs
to rely upon, or recover any and all Losses pursuant to the indemnification
provisions hereof in respect of any breach of, any of the representations and
warranties of the Seller Group herein, including, without limitation, the
representations and warranties of the Seller Group set forth in Section 3.9(b)
hereof and Section 3.9(c) hereof or the failure of the Seller Group to notify
the Parent of a Client Adverse Effect of which any member of the Seller Group
has knowledge prior to the Closing.

 

3.10.   No
Undisclosed Liabilities; No Indebtedness.

 

(a)       Except for
(i) liabilities expressly and specifically reflected or reserved against in the
respective December 2004 Balance Sheet or in the notes thereto and (ii)
accounts payable, accrued expenses and salaries and wages payable incurred
since December 31, 2004 in the ordinary course of the Business consistent in
amount and nature with past practice of the Companies, there are no liabilities
of, relating to or affecting any of the Companies or their respective Assets or
the Business.

 

(b)       Without
limiting the generality of Section 3.10(a), each and every liability to any
former stockholder, employee or consultant of any of the Companies, or to any
Person with whom any of the Companies at any time had or engaged in any
partnership, participation, joint venture or other collective undertaking, or
any client (including, without limitation, any Artist) or customer of the
Business, is fully recorded and disclosed as a current liability on the Audited
Financial Statements, or if not yet fixed due to any pending or prospective
audit or review, is of a third party described in the express terms of the
certain of the applicable Contracts that are listed on Schedule 3.18,
true, correct and complete copies of which have been provided to the Parent.

 

(c)        None
of the Companies has any outstanding Indebtedness of any kind whatsoever.

 

3.11.   Tax
Matters.

 

(a)       Since
December 31, 2001

 

16

 

(i)  each of the Companies has (A) duly and timely
filed with each relevant Tax Authority each Tax Return that is required to be
filed by such Company or that includes or relates to such Company, its income,
sales, Assets or business, which Tax Return is correct and complete and
reflects accurately and fully all revenues and expenses of such Company for the
respective periods covered by such Tax Return, (B) duly and timely paid in full
all Taxes due and payable on or prior to the date hereof that appear on all Tax
Returns (recognizing that any of the Companies that is an “S Corporation” or
partnership does not pay federal income Taxes), and (C) has properly accrued on
its Books and Records in accordance with GAAP a provision for the payment of
all Taxes due or claimed to be due or for which such Company otherwise is or
may be liable;

 

(ii)  except as described on Schedule 3.11(a),
none of the Companies has requested an extension of time within which to file
any Tax Return in respect of any Tax period which has not since been filed;

 

(iii)  none of the Companies is a “consenting
corporation” within the meaning of Code Section 341(f) or any similar provision
of applicable law and has not agreed to have Code Section 341(f)(2) apply to
any disposition of a subsection (f) asset (as such term is defined in Code
Section 341(f)(4)) owned by such Company;

 

(iv)  no election under Code Section 338 or any
similar provision of applicable law has been made or is required to be made by
or with respect to any of the Companies;

 

(v)  none of the Companies (A) has adjusted or
changed or received any request, demand, or proposal from a Tax Authority to
adjust or change any accounting method, (B) is required to include in income
any adjustment pursuant to Code Section 481 (a) (or any similar provision of
applicable law) by reason of a change in accounting method, and (C) has either
deferred any income to a period after the Closing that has economically accrued
or is otherwise attributable to a period prior to the Closing nor accelerated
any deductions into a period ending on or before the Closing that will or may
economically accrue after the Closing; and

 

(vi)  none of the Companies is, nor has it ever
been, a “United States real property holding corporation” within the meaning of
Code Section 897(c)(2) at any time during the applicable period referred to in
Code Section 897(c)(1)(A)(ii).

 

(b)       The
Seller Group has furnished to the Parent, or provided the Parent with access
to, copies of all of the income Tax Returns filed or Tax elections made by each
and all of the Companies since December 31, 2000.

 

17

 

(c)        Focus
and StepTeco are classified and taxed as a “C corporations” for federal and
state income Tax purposes, and MBST is classified and taxed as an “S”
corporation for federal and state income Tax purposes.

 

3.12.   Legal
Proceedings.  Except as set forth on Schedule
3.12 attached hereto, there are no Actions (including, but not limited to,
any Actions pertaining to Taxes, to Environmental matters or to hiring, unfair
labor practices, wages, hours, discrimination, wrongful termination, workers
compensation, immigration or employee benefits plans) pending or, to the
Knowledge of each member of the Seller Group, threatened, against, relating to
or affecting any of the Companies, their Assets or the Business.  To the Knowledge of each member of the Seller
Group, there are no facts or circumstances that could reasonably be expected to
give rise to any other Action that (if in existence on the date hereof) would
be required to be disclosed pursuant to the preceding sentence.

 

3.13.   Compliance
With Laws and Orders.  There are no
Orders outstanding against any of the Companies.  None of the Companies has since January 1,
2001 been in violation of or in default under any Law applicable to it, its
Assets or the Business.  Since January 1,
2001, neither any of the Sellers nor any of the Companies has received any
notice of any violation of any Law or Order relating to the Business or to any
of the personnel of any of the Companies.

 

3.14.   Benefit
Plans; ERISA.  Schedule
3.14 sets forth a complete and correct list of each Benefit Plan pursuant
to which the Companies incurred an aggregate liability or expense in excess of
$25,000 during any of the past three calendar years.  Each Benefit Plan, other than the medical
plan of the Companies, will be terminated by the applicable Company prior to
the Closing without any liability to the Parent or any of the Companies.  None of the Companies nor any of the
Companies’ respective ERISA Affiliates have contributed to, nor do they have
any liability, contingent or otherwise, to or arising out of, any Multiemployer
Plan.  The following documents have been
made available to the Parent prior to the date hereof: (i) true, correct and
complete copies of all Benefit Plans, including all amendments thereto, which
are employee welfare benefit plans (within the meaning of Section 3(1) of
ERISA), or, in the case of any unwritten Benefit Plans, descriptions thereof;
and (ii) all trust agreements or other funding agreements including insurance
contracts, and (iii) the most recently filed form 5500 and actuarial valuation
or financial information relative thereto. 
Neither any of the Companies nor any ERISA Affiliates thereof has
maintained, terminated or partially terminated any defined benefit plan within
the meaning of ERISA.

 

3.15.   Real
Property.

 

(a)       None of the
Companies owns any real property.  All
real property leased for a period greater than one (1) month by any of the
Companies is listed on Schedule 3.15 (collectively, the “Leased
Real Property”).  Each of the
Companies (i) has a valid and enforceable leasehold interest with respect to
each item of Leased Real Property leased by it, subject to no Liens (other than
Permitted Liens), and (ii) is in

 

18

 

possession of and has quiet enjoyment of each
item of Leased Real Property leased by it. 
None of the Leased Real Property is subject to any sublease of all or
any portion thereof and no Person other than the Companies has any right to
occupy any of the Leased Real Property. 
The Leased Real Property is adequate in all material respects for the
current needs of the Companies and the anticipated needs of the Companies for
the year ended December 31, 2005.

 

(b)       Each
lease with respect to any of the Leased Real Property is listed on Schedule
3.18 hereto.  Each such lease was entered
into on the basis of arms’-length negotiations, is in full force and
effect and constitutes a legal, valid and binding agreement of, enforceable in
accordance with its terms against, the particular Company a party thereto and,
to the Knowledge of each member of the Seller Group, the other party
thereto.  None of the Companies nor, to
the Knowledge of each member of the Seller Group, any other party to any such
lease, is in material violation or breach of or material default under any such
lease (or, with notice or lapse of time or both, would be in material violation
or material breach of or default under any such lease).

 

3.16.   Environmental
Matters.  Without limiting the generality of Section
3.13 hereof, each of the Companies is in compliance with all Environmental
Laws, has all required Environmental Permits and is in compliance with the
terms thereof.  There has been no
Environmental Release of a Hazardous Substance at, from, in, to, on or under
any Site and, to the Knowledge of each member of the Seller Group, no Hazardous
Substances are present in, on, about or migrating to or from any Site for which
any of the Companies will be liable. 
There are no past, pending, or, to the Knowledge of each member of the
Seller Group, threatened Environmental Claims against any of the
Companies.  Neither any of the Companies
nor any predecessor thereof has transported or arranged for the treatment of
any Hazardous Substance to any off-Site location.

 

3.17.   Intellectual
Property.  The Companies own or have valid and
enforceable rights to use all Intellectual Property used in the operation of
the Business in the manner the Business was conducted during the fiscal year
ended December 31, 2004, and none of such rights will terminate nor will any
party have the power to terminate any such right as a result or by reason of
the transaction contemplated by this Agreement.

 

3.18.   Contracts; Client and
Customer Relations.

 

(a)       Schedule
3.18(a) contains a true, correct and complete list of each
written or oral Contract or other arrangement (true, correct and complete
copies, or, if none, reasonably complete and accurate written descriptions, of
which, together with all amendments and supplements thereto and all material
waivers thereof, have been delivered to the Parent prior to the execution of
this Agreement) to which any of the Companies is a party or by which any Asset
of any of the Companies is bound, under which the Company may be obligated to
pay, or have the right to receive, at least $50,000, and that relate to or
otherwise affect any of the Companies or the Business, including, but not
limited to, all Contracts with any client (including, but not limited to, any
Artist) or any customer of any of the Companies.

 

19

 

(b)       Each Contract
disclosed or required to be disclosed in Schedule 3.18(a) (a “Section
3.18 Contract”) is in full force and effect and constitutes a legal, valid
and binding agreement of, enforceable in accordance with its terms against, the
particular Company a party thereto and, to the Knowledge of each member of the
Seller Group, the other party thereto. 
None of the Companies nor, to the Knowledge of each member of the Seller
Group, any other party to any Section 3.18 Contract, is in material violation
or material breach of, or default under, any such Contract (or, with notice or
lapse of time or both, would be in material violation or material breach of, or
default under, any such Contract).  To
the Knowledge of each member of the Seller Group, no event or circumstance
exists that could reasonably cause a Material Adverse Effect to occur in
connection with any Contract disclosed on Schedule 3.18(a), whether now
or in the future, nor does any such Contract contain any term or provision that
is unreasonably burdensome to any of the Companies.

 

(c)        Schedule
3.18(c) sets forth: in part (i) thereof, a true, correct and complete list
of all Contracts or other arrangements with respect to which, in accordance
with the agreement of the parties hereto, an amount will be included in the
Closing Working Capital based upon the Income Forecast Method; and, in part (ii)
thereof, a true, correct and complete list of all audits, reviews, analyses or
other inspections by an auditor of the books and records of any Person
(including, without limitation, studios, distributors and production companies)
as to which the auditor or other representative has or shall have commenced
field work prior to the Closing Date, and which are attributable to the
Business.  No amounts anticipated to be
received from the items listed in part (ii) of Schedule 3.18(c) will be
included in Closing Working Capital.

 

(d)       No
receivable amount to be included in Closing Working Capital will have or
involve any liability, participation, sharing obligation or other obligation of
any kind except to the extent such obligation is included as a liability on the
calculation of Working Capital prepared by the Sellers pursuant to Section
2.2(a) hereof.

 

3.19.   Insurance.  Schedule 3.19 contains a true, correct
and complete list of all liability, property, workers’ compensation, inland
marine, automobile and other insurance policies currently in effect that insure
the Business or the Assets, operations or employees of any of the Companies, a list and description of all
claims made since December 31, 1999 against any insurance policy with respect
to the Business or the Assets, operations or employees of any of the Companies
and a description of the disposition of each such claim.  The insurance coverage provided by the
policies described in the preceding sentence will not terminate or lapse by
reason of the consummation of the Mergers or any of the other transactions
contemplated by this Agreement or by any Operative Agreement.  Each policy listed on Schedule 3.19 is
valid and binding and in full force and effect, no premiums due thereunder have
not been paid and none of the Companies nor any other Person to whom such
policy has been issued has received any notice of cancellation or termination
in respect of any such policy or is in default thereunder.

 

20

 

3.20.   Transactions
with Certain Persons.

 

(a)       Schedule
3.20 sets forth a true, complete and correct description
of each and every relationship between any of the Companies, on the one hand,
and any of the Principals, any of the Sellers or any trustee thereof or any
Affiliates or family member of any of the foregoing Persons since December 31,
2001, including, without limitation, any employment or consulting
relationship, and the amounts paid by such Company in respect of such
relationship (other than reimbursement for reasonable business expenses or
payment of dividends in the ordinary course consistent with past practice) for
each of the three calendar years ending December 31, 2004.

 

(b)       Except
as disclosed on Schedule 3.20, since December 31, 2001, none of the
Principals, none of the Sellers, no trustee of any of the Sellers, and no
Affiliate or family member thereof:  (i)
has had any direct or indirect financial interest in any Person with whom any
of the Companies has consummated or entered into any Contract; (ii) has
owned, directly or indirectly, in whole or in part, or has had any other
interest in, any tangible or intangible property (including, without
limitation, any Contract) that is used in the conduct of the Business; or (iii)
has had any contractual or financial relationship or arrangement with, or
otherwise received or has had the right to receive any payments from, any
Person with whom any of the Companies has consummated or entered into any
Contract.

 

3.21.   Employees
and Labor Matters.

 

(a)       Set forth on Schedule
3.21(a) hereto is a copy of the December 31, 2004 payroll summary of the
Companies which lists all employees (other than the Principals) who as of the
date thereof were employed either full or part time by any of the Companies
(the “Companies Employees”) and their respective wage information and a detail listing of any
changes in any of the employees or their wage information since December 31,
2004.

 

(b)       Set
forth on Schedule 3.21(b) hereto is a list of (i) each employment
Contract (other than any unwritten Contract that is an employment-at-will
relationship) or severance protection Contract in effect with respect to any of
the Companies Employees (collectively, the “Companies Employees Employment
Agreements”), and (ii) the name of any of the Companies Employees with whom
any of the Sellers or any of the Companies has entered into a Contract as of
the date hereof providing for retention payments (collectively, the “Retention
Agreements”).  The Sellers have
furnished to the Parent true, correct and complete copies of all Companies
Employees Employment Agreements and Retention Agreements.

 

(c)        Since
November 1, 2002, (i) none of the Companies has effectuated a “plant closing”
as defined in the Worker Adjustment and Retraining Notification Act of 1988
(the “WARN Act”) affecting any site of employment or one or more
operating units within any site of employment or facility of the Seller, (ii)
none of the Companies has effectuated a “mass layoff” as defined in the
WARN  Act affecting any site of

 

21

 

employment or one or more
operating units within any site of employment or facility of the Seller, and
(iii) to the Knowledge of each member of the Seller Group, none of the
Companies has been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger any similar state or
local laws.

 

(d)       To
the Knowledge of each member of the Seller Group, no union organizational
campaign presently exists with respect to any Companies Employee and no request
or petition for union representation has been filed or made.  There are no collective bargaining Contracts
covering Companies Employees.

 

3.22.   Bank
and Brokerage Accounts.  Schedule
3.22 sets forth a true, correct and complete list of the names and locations
of all banks, trust companies, securities brokers and other financial
institutions at which each Company has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship.  Except as expressly described on Schedule
3.22, no Person has any authority to sign check or drafts or otherwise
bind, or enter into any transaction on behalf of, any of the Companies with
respect to any bank, brokerage or other account with any financial institution.

 

3.23.   Insurability
of the Principals.  No member of
the Seller Group knows of any reason (including, without limitation, any reason
relating to any medical condition) that would prevent the Companies or the
Parent from obtaining insurance on the lives of each of the Principals, with
the Company or the Parent as the beneficiary thereof, at the best rates for
individuals of the same ages, respectively, as each of the Principals.

 

3.24.   Brokers.  All negotiations relative to this Agreement,
the Mergers and the other transactions contemplated hereby have been carried
out by the Principals, the Sellers and the Companies directly with the Parent
without the intervention of any Person on behalf of the Principals, the Sellers
and the Companies in such manner as to give rise to any valid claim by any
Person against the Parent for a finder’s fee, brokerage commission or similar
payment.

 

3.25.   Investment Representations.  Each of the Sellers:

 

(i)  is an “accredited investor” as such term is
defined in Rule 501 (a) of Regulation D of the Securities Act;

 

(ii)  has substantial experience in evaluating and
investing in private placement transactions of securities so that such Seller
is capable of evaluating the merits and risks of its, his or her investment in
the Parent Common Stock and has the capacity to protect its, his or her own
interests;

 

(iii)  understands that the acquisition of the
Parent Common Stock is a speculative investment that involves a high degree of
risk of loss of the Seller’s investment therein, is able to bear the economic
risk of its, his or 

 

22

 

her investment in
the Parent Common Stock for an indefinite period of time, including the risk of
a complete loss of its, his or her investment in the Parent Common Stock, and acknowledges
that the Parent Common Stock has not been registered under the Securities Act,
and therefore cannot be sold, transferred, pledged, hypothecated or otherwise
transferred of disposed of unless subsequently registered under the Securities
Act or an exemption from such registration is available;

 

(iv)  is acquiring the Parent Common Stock for
investment for its, his or her own account, not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution thereof in
violation of, or that could cause the Parent to be in violation of, applicable
Laws, understands that the Parent Common Stock has not been registered under
the Securities Act and is being offered hereby by reason of an exemption from
the registration requirement of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Seller’s representations as expressed herein, and
acknowledges that the certificates evidencing such shares of Parent Common
Stock will bear a legend with respect to certain of the matters set forth in
this Section 3.24;

 

(v)  acknowledges that it, he or she has had a
full opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Parent Common Stock and has had full access
to the Parent’s officers and such other information concerning the Parent as
it, he or she has requested; and

 

(vi)  acknowledges that: no securities authority
has approved or otherwise passed upon the issuance of Parent Common pursuant to
this Agreement; it, he or she has relied solely upon its, his or her own tax
advisors and other advisors and not on any statements or representations of the
Parent or any of their representatives; and it, he or she (and not the Parent)
shall be solely responsible for any of its, his or her Tax liability that may
arise as a result of the consummation of the Mergers and the other transactions
contemplated hereby or an investment in the Parent Common Stock.

 

3.26.   Major
Clients or Customers.  Schedule
3.26 sets forth a true, correct and complete list of the ten (10) clients
or customers from whom the Companies derived the greatest amount of
revenues in cash in connection with the operation of the Business during each
of the twelve months ended December 31, 2004 and December 31, 2003, and (to the
extent not otherwise included in such list) the five (5) Artists from whom the
Companies derived the greatest amount of revenues in cash in connection with
the operation of the Business during such periods.

 

3.27.   Disclosure.  No representation or warranty of or by any
member of the Seller Group contained in this Agreement, in any of the Schedules
hereto, in any

 

23

 

Operative Agreement or in any certificate,
list or other writing furnished to the Parent
pursuant to any provision of this Agreement (including, without limitation, the
Audited Financial Statements), contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
herein or therein, in the light of the circumstances under which they were
made, not misleading.

 

4.         Representations and
Warranties of the Parent and the Merger Subs. 
Each member of the Parent Group hereby jointly and severally represents
and warrants to the Sellers as follows:

 

4.1.     Organization.

 

(a)       The Parent is
a corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its Assets.  The Parent is duly
qualified, licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use or leasing of its Assets, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary.

 

(b)       Each
of the Merger Subs is a corporation, duly organized, validly existing and in
good standing under the laws of the State of California and has full corporate
power and authority to conduct its business as and to the extent now conducted
and to own, use and lease its Assets. 
Each of the Merger Subs is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its Assets, or the conduct or nature of its business, makes
such qualification, licensing or admission necessary.

 

4.2.     SEC
Reports and Financial Statements of the Parent.

 

(a)       The Parent
has delivered or made available to the Sellers a copy of the most recent Form
10-K filed by the Parent with the Securities and Exchange Commission (the “SEC”)
(as such item has been amended since the time of their filing, and including
any documents filed as exhibits thereto, collectively, the “SEC Reports”).  As of their respective dates, each SEC Report
(including, without limitation, any financial statements or schedules included
or incorporated by reference therein) complied in all material respects with
the requirements of the Exchange Act applicable to such SEC Report, and none of
the SEC Reports contained when filed any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.

 

(b)       Included
in the SEC Reports are the audited balance sheet of the Parent as of December
31, 2004 and the related audited statements of income, changes in stockholders’
equity and cash flows for the Parent for the fiscal year then ended (the “Parent
Financial Statements”). The Parent Financial Statements have been prepared
by

 

24

 

the Parent in accordance with
GAAP, consistently applied, and fairly present in all material respects the
financial condition and results of operations of the Parent as of December 31,
2004 and for the fiscal year then ended.

 

4.3.     Authority
and Enforceability.  Each of the
Parent and the Merger Subs has the power and authority to execute this
Agreement and perform its respective obligations hereunder.  The execution and delivery by each of the
Parent and the Merger Subs of this Agreement and the Operative Agreements and
the performance by each of the Parent and the Merger Subs of its obligations
hereunder and thereunder have been duly and validly authorized by the Board of
Directors and the stockholders, and under the Operative Agreements, as
applicable, of each of the Parent and the Merger Subs and no other corporate
action on the part of the Parent or the Merger Subs of the board of directors
or stockholders thereof is necessary. 
This Agreement has been duly and validly executed and delivered by each
of the Parent and the Merger Subs and constitutes the legal, valid and binding
obligation of each of the Parent and the Merger Subs, enforceable against it in
accordance with its terms.

 

4.4.     No
Conflicts.  The execution and delivery by the Parent and
the Merger Subs, as applicable, of this Agreement and the Operative Agreements,
as applicable, the consummation by the Parent and the Merger Subs, as
applicable, of the Mergers and the other transactions contemplated hereby and
thereby, and the performance of their respective obligations hereunder and
thereunder, do not and will not (as applicable):

 

(i)  conflict with or result in a violation or
breach of any of the terms, conditions or provisions of any of the
Organizational Documents of the Parent and the Merger Subs, as applicable;

 

(ii)  conflict with or result in a violation or
breach of any term or provision of any Law or Order applicable to the Parent or
the Merger Subs or any of their respective Assets or to which either the Parent
or the Merger Subs is a party; or

 

(iii)  result in a breach of or default under,
require notice or consent under (or give rise to any right of payment,
termination, cancellation or acceleration under) any of the terms, conditions
or provisions of any material Contract of the Parent or the Merger Subs or to
which any of the material Assets of the Parent or the Merger Subs is bound,
except for such breaches or defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained.

 

4.5.     Governmental
Approvals and Filings.  No consent,
approval or action of, filing with or notice to, any Governmental Authority on
the part of any of the Parent or the Merger Subs is required in connection with
the execution, delivery and performance of this Agreement or the Operative
Agreements or the consummation of the Mergers or any of the other transactions
contemplated hereby or thereby.

 

25

 

5.         Additional Covenants
of the Parties.

 

5.1.     Further
Assurances and Cooperation.  Subject to
the terms and conditions hereof, the parties hereto shall, and shall cause
their Affiliates to, use their reasonable best efforts to take as promptly as
practicable all action and to do all things necessary, proper or advisable to
consummate and make effective the Mergers and any of the other transactions
contemplated hereby, including, without limitation, fulfilling the conditions
precedent to the other party’s obligations hereunder, securing as promptly as
practicable all consents, approvals, waivers and authorizations, and making any
filings, required under any Contract or applicable Law in connection with the
Mergers and any of the other transactions contemplated hereby; provided,
however, that (a) the consent of the landlord of the Leased Real
Property to the consummation of the Mergers and the other transactions
contemplated herein shall not be required as a condition to the Closing; provided,
however, that, following the execution and delivery of this Agreement,
the parties shall use their best efforts to obtain such consent, and (b) none
of the parties or any of their respective Affiliates shall be required to make
any payment therefor, other than filing, recordation or similar fees payable to
any Governmental Authority.

 

5.2.     Investigation
by the Parent.  From the date
hereof until the Closing Date, the members of the Seller Group shall, and shall
each of them shall cause all of the officers, directors, employees, agents,
accountants and counsel of each of the Companies to, (i) promptly afford the
officers, employees and authorized agents, accountants, counsel and
representatives of the Parent, during normal business hours, access to (A) the
offices, books, Contracts and records of each of the Companies and any records
concerning each of the Companies maintained and accumulated by its
representatives, and (B) those officers, directors, employees, agents,
accountants and counsel of each of the Companies who have any knowledge
relating to the Business, and (ii) promptly furnish to the officers, employees
and authorized agents, accountants, counsel and representatives of the Parent
such additional financial and operating data and other information regarding
each of the Companies or the Business (including, without limitation, any
Contracts in effect as of the date hereof and any Contracts being negotiated or
entered into between the date hereof and the Closing Date), properties and
goodwill as the Parent may from time to time reasonably request.  All such investigations by the Parent shall
be performed at such times and locations as are reasonably mutually agreed to
by the parties and shall be performed upon reasonable prior written notice to
the Sellers and in a manner that shall not be disruptive to the operations of
the Business.

 

5.3.     No
Shop.
 From the date hereof until consummation
of the Closing or termination of this Agreement in accordance with Section 9,
no member of the Seller Group shall, and each member of the Seller Group shall
not authorize or permit the Companies or any of its respective family members
(as applicable) or Affiliates to, nor will it authorize any investment banker
or other representative or agent to (and shall direct such bankers or similar
representatives or agents not to): (a) directly or indirectly, solicit, encourage,
initiate, or participate in any way (including, without limitation, by way of
furnishing information) in any discussions or negotiations with any Person or

 

26

 

group (other than the Parent) concerning any
merger, consolidation, sale of the Business by asset sale, sale of shares of
capital stock or similar transactions in respect of any of the Companies or the
Business (each, an “Acquisition Proposal”), (b) knowingly disclose, directly or
indirectly, to any Person preparing to make an Acquisition Proposal, any
confidential information concerning the Companies or the Business, or (c) enter
into any understanding, agreement or commitment with any third party providing
for a business combination involving, equity investment in, or sale of any of
the Companies or the Business (or any portion thereof) by asset sale or
otherwise other than with the Parent and the transactions contemplated
hereby.  The Seller Group shall promptly
advise the Parent of any Acquisition Proposal and deliver a copy thereof to the
Parent.

 

5.4.     Conduct
of Business.  During the period from the
date hereof through the Closing Date, the Sellers shall cause each of the
Companies (i) to conduct the Business in the ordinary course thereof consistent
with past practice and (ii) not to engage in any material or extraordinary
transaction without the Parent’s prior written consent.  Without limiting the generality of and in
addition to, the foregoing, and without limiting anything set forth in Section
5.6, prior to the Closing Date, except as the Parent may otherwise consent in
writing, the Sellers shall not permit any of the Companies to do or take any of
the following actions (provided that in the case of Section 5.4(i)
hereof, the Sellers’ obligation shall be to use their reasonable good faith
efforts (without causing any impairment of economic terms) not to permit any of
the Companies to allow any of the events contemplated by Section 5.4(i) to
occur):

 

(i)  fail to take all commercially reasonable
actions to preserve the relationships between the Business and all clients
(including, but not limited to, Artists) and customers; provided, however,
that, without limiting the right of the Parent and/or the Merger Subs to
terminate this Agreement in accordance with Section 9.1 hereof or to
indemnification for Losses under any other provision of this Agreement, the
Seller Group shall not have any liability to the Parent for any Losses arising
solely from a Client Adverse Effect (provided that such Client Adverse
Effect shall have been disclosed as required in Section 5.19 hereof);

 

(ii) 
enter into any new Contract, other than (A) new Contracts with
Artists or new Contracts for production, (B) new Contracts that bind the
Companies for less than 24 months or (C) new Contracts that obligate the
Companies for less than $200,000, in each case only to the extent that such new
Contracts are in the ordinary course of Business consistent with past
practices;

 

(iii)  amend any of its Organizational Documents;

 

(iv)  authorize for issuance, issue, sell, deliver
or agree or commit to issue, sell or deliver (whether through the issuance or
granting of Options or otherwise) any shares of any class of capital stock or
any other ownership interests of any of the Companies;

 

27

 

(v)  split,
combine or reclassify any shares of capital stock or other ownership interests,
or redeem or otherwise acquire any of its securities or other ownership
interests;

 

(vi)  incur or
assume any Indebtedness, other than trade payables or accrued expenses incurred
in the ordinary course of the Business consistent with past practice, or any
liability or other obligation of the kind described in Section 3.10(b), or make
any loans, advances or capital contributions to, or investments in, any other
Person (other than loans or advances to employees in the ordinary course of the
Business consistent with past practices);

 

(vii)  enter
into, adopt, terminate (in whole or part) or amend any Benefit Plan, or
increase in any manner the compensation or fringe benefits of any officer or
employee from the levels in effect as of December 31, 2004, other than (A) bonuses
to the Principals and key employees (all of which bonuses shall be paid prior
to the Closing and (without duplication for any reduction of the cash component
of Working Capital as a result of such payment) the effect of such payment
shall be included in the calculation of Closing Working Capital, including,
without limitation, the calculation thereof as reflected in the calculation and
certificate delivered by the Sellers to the Parent pursuant to Section 2.2(a)
hereof), (B) increases effective January 1, 2005 in compensation levels for
employees in the aggregate amount of $38,500, (C) increases in
compensation as of the Closing to employees other than the Principals in an
amount which shall be approximately equal to the profit sharing benefits each
such employee received in 2004, and (D) in addition to the foregoing, increases
after January 1, 2005 in the annual compensation of certain key employees in amounts
not to exceed $50,000 in the aggregate;

 

(viii)  change
any accounting principle or method or make any election for purposes of
foreign, federal, state or local income Taxes;

 

(ix)  take or
suffer any action that would result in (A) the creation, or consent to the
imposition, of any Lien on any of the Assets of such Company or the
cancellation, termination, lapse or non-renewal of any insurance policy (unless
such policy is replaced with comparable insurance);

 

(x)  enter into
or engage in any transaction not fully described on Schedule 3.20 with
any of the Principals, any of the Sellers, any trustee of any of the Sellers or
any family member or Affiliate of any of the foregoing, or any transaction not
fully described on Schedule 3.20 with any of the other Companies;

 

(xi)  commit any
violation, breach or default under, or fail to take any action that (with or
without notice or lapse of time or both) would

 

28

 

constitute a violation, breach or default under, any
Contract to which any of the Companies is a party or by which any of its Assets
is bound;

 

(xii)  write off
or write down any Assets of any of the Companies not in the ordinary course of
the Business and/or inconsistent with past practice;

 

(xiii)  dispose
of or permit to lapse any rights in, to or for the use of any Intellectual
Property Rights of the Business;

 

(xiv)  settle
any Action in a manner that would result in any of the Companies being enjoined
in any respect;

 

(xv)  unless
required by GAAP or applicable Law: (A) make or rescind any material election
relating to Taxes, (B) file any amended income Tax Returns that will result in
a material increase in taxable income for any Company, or (C) make any material
change in any method of accounting, keeping its books of account or accounting
practices or in any material method of Tax accounting of any of the Companies.

 

(xvi)  dispose of any Assets other
than obsolete Assets in the ordinary course of Business;

 

(xvii)  cancel
or compromise any material debt or claim or waive or dispose of any rights or
assets of material value to the Business without the Business receiving a
realizable benefit of similar or greater value, or voluntarily suffer any
extraordinary loss;

 

(xviii)  authorize
or enter into any Contract to do any of the foregoing.

 

5.5.      Certain Reorganization
Transactions.

 

(a)          Prior to the
Closing, the Seller Group shall cause Focus to acquire all of the equity of
StepTeco, either by purchase or through a merger of StepTeco into Focus, with
Focus being the surviving entity.  The
consideration to be paid by Focus for StepTeco shall be cash which shall be
fully paid to the sellers of StepTeco no later than immediately prior to the
Closing, and the reduction in the Companies’ cash as a result of such payment
shall be reflected in the calculation of Closing Working Capital pursuant to
Section 2 hereof and shall be included in the Sellers’ certificate delivered
pursuant to Section 2.2(a) hereof.

 

(b)         Prior
to the Closing, the Seller Group shall cause MBST to acquire all of the equity
of Uncle Dave’s Boondoggle, Inc., a California corporation (“Uncle Dave’s”),
either by purchase or through a merger of Uncle Dave’s into MBST, with MBST
being the surviving entity.  Uncle Dave’s
is an affiliate of the Companies through

 

29

 

which certain aspects of
the Business have been conducted.  The
consideration to be paid by MBST for Uncle Dave’s shall be cash which shall be
fully paid to the sellers of Uncle Dave’s no later than immediately prior to
the Closing, and the reduction in the Companies’ cash as a result of such
payment shall be reflected in the calculation of Closing Working Capital
pursuant to Section 2 hereof and shall be included in the Sellers’ certificate
delivered pursuant to Section 2.2(a) hereof.

 

(c)          Prior
to the Closing, the Seller Group shall cause MBST to purchase all of the assets
of MBST Productions, a California general partnership (“Productions”)
that is an affiliate of the Companies through which certain aspects of the
Business have been conducted.  The Seller
Group shall also cause MBST to assume none of the liabilities of Productions,
except only for contingent liabilities pursuant to which Productions would be
required to share a certain portion of revenues received by Productions with
respect to rights in certain prior television productions (and none of which
contingent liabilities is associated with an item that will be included in
Closing Working Capital).  The
consideration to be paid by MBST for the assets and liabilities of Productions
shall be cash which shall be fully paid to Productions no later than immediately
prior to the Closing, and the reduction in the Companies’ cash as a result of such
payment shall be reflected in the calculation of Closing Working Capital
pursuant to Section 2 hereof and shall be included in the Sellers’ certificate
delivered pursuant to Section 2.2(a) hereof.

 

(d)         All
agreements and other documentation that effectuates or evidences any of the
transactions contemplated in Section 5.16(a), (b) or (c) shall be furnished to
the Parent at least five (5) days prior to the execution and delivery thereof,
shall be satisfactory to the Parent as to form, substance and scope in all
respects.

 

5.6.        Affiliate
Transactions.  Except for
compensation, rights or obligations under any Benefit Plans or reimbursement of
expenses in the ordinary course of the Business consistent with the past
practices of the Companies or as set forth on Schedule 5.6,
simultaneously with the Closing, (i) the Seller Group shall cause to be
cancelled all amounts due from any of the Companies to any of the Principals,
any of the Sellers (or any trustee thereof) or any of the family members or
Affiliates thereof (other than the Companies) and (ii) the
Seller Group shall cause all amounts then due to any of the Companies from any
of the Principals, any of the Sellers (or any trustee thereof) or any of the
family members or Affiliates thereof (other than the Companies) to be paid.

 

5.7.        Books
and Records.  On the Closing Date, the
Sellers shall deliver to the Parent the originals of all corporate Books and
Records of the Companies, including any minute books, and shall deliver to the
Parent copies of all other Books and Records pertaining to the Companies, and
if at any time after the Closing any of the Sellers discovers in his or her
possession or under his or her control any other Books and Records, it shall
forthwith deliver or make available such Books and Records to the Parent.

 

30

 

5.8.        Employment
Agreements.  At the Closing, the Seller Group shall cause
Lawrence Brezner, David Steinberg and Stephen
Tenenbaum to enter into employment agreements with certain of the Companies in
the respective form attached hereto as Exhibit 5.8(a)(i), in the case of
Mr. Brezner, Exhibit 5.8(a)(ii), in the case of Mr. Steinberg, and Exhibit
5.8(iii), in the case of Mr. Tenenbaum (collectively, the “Employment
Agreements”).

 

5.9.        Preparation
of Tax Returns.

 

(a)          To the extent
permitted under applicable Law, each of the Sellers, each of the Companies (other than
Productions) and the Parent shall close or terminate (or cause to close or
terminate), as of the Closing, each Tax period relating to such Company or such
Company’s income, sales or Assets or the Business or other activities.

 

(b)         To
the extent not filed prior to Closing, the Sellers shall prepare (or cause to
be prepared) each Tax Return required for each of the Companies (other than
Productions) for each Pre-Closing Tax Period. 
At least twenty (20) days prior to the date on which such Tax Return is
due to be filed (including any extensions) with the appropriate Tax Authority
pursuant to applicable law, the Sellers shall deliver such Tax Return to the
Parent for the Parent’s review and approval (which approval shall not be
unreasonably withheld or delayed).  Upon
the Parent’s review and approval of such Tax Return, the Sellers shall pay to
the Parent any Tax due thereon, and the Parent shall file (or cause each of the
Companies, other than Productions, to file) such Tax Return and pay (or cause
each of the Companies, other than Productions, to pay) to the appropriate Tax
Authority any Taxes due with respect to such Tax Return; provided, however,
that the obligation of Sellers to pay to the Parent any Tax due shall be
reduced to the extent such Tax was taken into account in the calculation of
Closing Working Capital.  Any Taxes so
paid shall be deemed a decrease in the Purchase Price.

 

(c)          After
the Closing, each of the Companies, each of the Sellers, each of the Principals
and the Parent shall each:

 

(i)  assist the
other parties in preparing any Tax Returns which such other parties are
responsible for preparing and filing in accordance with this Agreement;

 

(ii)  cooperate
fully in preparing for any audit of, or disputes with any Tax Authority
regarding, any Tax Return with respect to such Company, the Parent, the Merger
Subs or any of the Parent’s other subsidiaries;

 

(iii)  make
available to the other and to any Tax Authority as reasonably requested all
information, records, and documents relating to any Tax of any of the Companies
or such Company’s subsidiaries;

 

(iv)  provide
timely notice to the other in writing of any pending or threatened (in writing)
Tax audits or assessments with respect to any Tax

 

31

 

periods of any of the Companies or any of their
respective subsidiaries for which the other may have a liability under this
Agreement; and

 

(v)  furnish the
other with copies of all correspondence received from any Tax Authority in
connection with any Tax audit or any other information request from any Tax
Authority with respect to any taxable period for which the other may have a
liability under this Agreement.

 

(d)         The
Sellers shall cause any and all existing Tax sharing agreements or similar
arrangements, written or unwritten, binding on any of the Companies or any of
their respective subsidiaries to be terminated on or before the Closing Date
and no payments pursuant to any such Tax sharing agreement or similar
arrangement shall be made on or after such termination.

 

(e)          After the Closing, for federal income
tax purposes, the Parent, the Companies and the Sellers shall, pursuant to
Treasury Regulations Section 1.368-3, (i) report consistently with the position
that each of the Mergers is a reorganization under Section 368(a)(2)(E) of the
Code, and (ii) shall not take any position inconsistent therewith.

 

5.10.      Non-Disclosure
of Confidential Information.

 

(a)          Following the
Closing, each of the Principals and each of the Sellers shall not, and each of
the Principals and each of the Sellers shall cause its respective officers,
directors, employees, agents, accountants, counsel and other representatives
not to, directly or indirectly, disclose or communicate to any Person, or use
to the detriment of any of the Beneficiaries or for the benefit of any other
Person, any Confidential Information; other than, (i) in the case of the
Principals during any period of their employment by the Companies after the
Closing, to any of the Beneficiaries or their authorized employees and
otherwise to the extent necessary in the course of such Principal’s service to
the Companies; or (ii) as may be required by applicable law or pursuant to a
subpoena or other judicial or regulatory process and, if during any such
Principal’s employment term, then only after consultation with the Parent’s
General Counsel or Chief Legal Officer or the Board of Directors of the Parent,
to the fullest extent possible.

 

(b)         For
purposes of this Agreement, “Confidential Information” shall include the
following:

 

(i)  any
information pertaining to any of the Beneficiaries or their respective
businesses, operations or Assets, whether such information is in written,
digital, electronic or other form or communicated orally, visually or
otherwise, that is proprietary, non-public or relates to any trade secret of
any of them, including, without limitation, information that consists of or
concerns any of their Assets, clients (including, without limitation, Artists)
or customers, suppliers, vendors, competitors, businesses and affairs, graphs,

 

32

 

samples, inventions and ideas, past, current and
planned marketing methods, processes, business and marketing strategies and
materials, price lists, pricing policies, market studies, business plans,
computer software and databases, contracts with any person, names or other
information, strategies for business plans, plans, ideas, concepts, designs,
drawings, specifications, techniques, models, data, documentation, diagrams,
graphs, flow charts, research, discoveries, development, processes, procedures
and “know-how,” whether or not such information would be deemed a trade secret
under applicable state or federal law;

 

(ii)  to the
extent not included in item (i) above, information concerning the business,
operations, affairs, condition (financial or otherwise), prospects, business
plans and strategies (whether or not pursued) of any of the Beneficiaries
(which includes, without limitation, financial statements, financial
projections and budgets, historical and projected sales, promotion and
marketing budgets and plans, the names and backgrounds of key personnel,
proposed personnel and personnel training techniques and materials), howsoever
documented; and

 

(iii)  all
notes, analyses, compilations, studies, summaries and all other material
prepared by any party hereto or its representatives containing or based, in
whole or in part, on any information included in any of the foregoing items (i)
and (ii); and

 

(iv)  the
existence of this Agreement and the fact that the parties have considered or
discussed, or engaged in any communications whatsoever, regarding the
transactions contemplated hereby.

 

In addition to the restrictions set forth in Section
5.10(a) hereof, each of the Principals and each of the Sellers acknowledges and
agrees that all Confidential Information is also entitled to all of the
protections and benefits available to the Beneficiaries under applicable Law.

 

(c)          Notwithstanding
anything to the contrary contained in this Section 5.10, Confidential
Information shall not include any information that:

 

(i)  is or was
in the public domain at the time of its receipt, or subsequently came into the
public domain through no fault of the seller Group; or

 

(ii)  is
independently acquired or developed by the Seller Group without violating any
obligation of the Seller Group under this Agreement.

 

(d)       Notwithstanding
anything to the contrary contained herein, promptly following the execution and
delivery of this Agreement, the members of the Seller Group shall disclose to a
limited number of major clients (including, without limitation, the

 

33

 

Artists)
the existence of this Agreement (but not the terms of this Agreement) and that
the transactions contemplated hereby will result in the Companies (other than
Productions) becoming subsidiaries of the Parent; provided that if any
of the information to be so disclosed has not, at the time of such proposed
disclosure, been publicly announced by the Parent, the Seller Group shall
obtain the oral agreement of each of such clients (i) to hold such information
in strict confidence and not further disclose such information to any Person or
entity, and (ii) not to trade in any of the securities of the Parent at any
time while such client may be in possession of material non-public information
with respect to the Parent.

 

5.11.      No
Solicitation; No Hire.

 

(a)          Each of the
Principals and each of the Sellers shall not, during the Restriction Period,
directly or indirectly, solicit, entice, persuade, induce or cause any
employee, officer, manager, director, consultant, agent or independent
contractor of any of the Beneficiaries (in each case, other than Andrew
Tenenbaum) to terminate his, her or its employment, consultancy or other
engagement with such entity and become employed by or engaged with any other
Person, or work with such Person or represent such Person, or approach any such
employee, officer, manager, director, consultant, agent or independent
contractor for any of the foregoing purposes, or authorize or assist in the
taking of any of such actions by any Person or by himself or itself.

 

(b)         Except
on behalf of any Beneficiary, each of the Principals and each of the Sellers
shall not, during the Restriction Period, directly or indirectly, solicit,
entice, persuade, induce or cause:

 

(i)  any Person
(including, without limitation, any Artist) with whom any of the Beneficiaries
had a business relationship at any time during the 12-month period prior to the
date of this Agreement or at any time during the respective Restriction Period;

 

(ii)  any Person
who is a client (including, without limitation, any Artist) or customer or was
a client or customer of any Beneficiary at any time during the 12-month period
prior to the date of this Agreement or at any time during the respective
Restriction Period; or

 

(the Persons referred to in items (i) and (ii) above,
collectively, the “Section 5.11(b) Prohibited Persons”) to enter into a
business relationship with any other Person for the same or similar services,
activities or goods that any such Section 5.11(b) Prohibited Person purchased
from, was engaged in with or provided to, such Beneficiary, as applicable, or
to reduce or terminate such Section 5.11(b) Prohibited Person’s business
relationship with any Beneficiary; and each of the Principals and each of the
Sellers shall not, directly or indirectly, approach any such Section 5.11(b)
Prohibited Person for any such purpose, or authorize or assist in the taking of
any of such

 

34

 

actions for any such purpose or authorize or assist in
the taking of any such actions by any Person.

 

(c)          As
used in this Section 5.11 or in Section 5.12, the terms “employee,” “consultant,”
“agent” and “independent contractor” shall include any Persons with such status
at any time during the six (6) months preceding any solicitation in question.

 

5.12.    Non-Competition.

 

(a)          Except with
respect to any Beneficiary, each of the Principals and each of the Sellers
shall not, during the Non-Competition Restriction Period, alone or in
association with any other Person, directly or indirectly, (i) engage, directly
or indirectly, in any Restricted Activity, (ii) acquire, or own in any manner,
any interest in any Person that engages in any Restricted Activity, or that
engages in any business, activity or enterprise that competes with any aspect
of any of Restricted Activity, or (iii) be interested in (whether as an owner,
director, officer, partner, member, lender, shareholder, vendor, consultant,
employee, advisor, agent, independent contractor or otherwise), or otherwise
participate in the management or operation of, any Person that engages in any
Restricted Activity or in any business, activity or enterprise that competes
with any Restricted Activity.

 

(b)         The
Seller Group and the Parent Group believe that the goodwill of the Companies
and of the Business is a valuable asset and an essential inducement to the
Parent and the Merger Subs to enter into this Agreement and to consummate the
Mergers and the other transactions to be consummated pursuant to the this
Agreement.  Each of the Principals and
each of the Sellers acknowledges that any of the Principals and any of the
Sellers could substantially dilute the value of such goodwill by violating any
of the provision of Section 5.12(a) hereof, or any of the provisions of Section
5.10 or 5.11 hereof.  In order to induce
the Parent and the Merger Subs to enter into this Agreement and a condition
precedent to the consummation of the Mergers and the other transactions
contemplated by this Agreement, each of the Principals and each of the Sellers
has agreed, in his or its capacity as a selling equity holder (or a Person with
a beneficial interest in such selling equity holder) and not as an employee or
a consultant, to accept the restrictions as set forth in Sections 5.10, 5.11
and 5.12 hereof.  In addition, each of
the Principals and each of the Sellers acknowledges and agrees that the
provisions of Section 5.10, Section 5.11 and this Section 5.12 and the period
of time, geographic area and scope and type of restrictions on the Restricted
Individuals’ activities set forth in such Sections, are reasonable and
necessary for the protection of the Parent, which is paying substantial
consideration (in the form of, among other things, the Merger Consideration)
and other benefits to the Sellers and the Principals.  If any provision contained in any of Section
5.10, Section 5.11 and this Section 5.12 shall be determined by any court or
other tribunal of competent jurisdiction to be invalid or unenforceable by
reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
(x) such provision shall be interpreted to extend over the maximum period of
time for which it may be enforceable and/or over the

 

35

 

maximum geographical area
as to which it may be enforceable and/or to the maximum extent in all other
respects as to which it may be enforceable, all as determined by such court or
other tribunal making such determination, and (y) in its reduced form, such
provision shall then be enforceable, but such reduced form of provision shall
only apply with respect to the operation of such provision in the particular
jurisdiction in or for which such adjudication is made.  It is the intention of the parties that the
provisions of Section 5.10, Section 5.11 and this Section 5.12 shall be
enforceable to the maximum extent permitted by applicable law.

 

(c)          Each
of the Principals and each of the Sellers acknowledges and agrees that any
breach or threatened breach of the covenants or other provisions contained in
Section 5.10, Section 5.11 and this Section 5.12 may cause the Parent material
and irreparable damage, the exact amount of which will be difficult to
ascertain, and that the remedies at law for any such breach will be
inadequate.  Accordingly, the Parent
shall, in addition to all other available rights and remedies (including, but
not limited to, seeking such damages as it can show it has sustained by reason
of such breach and recovery of costs and expenses including, but not limited
to, attorneys’ fees and expenses), be entitled to specific performance and
injunctive relief (including, without limitation, a temporary and/or permanent
restraining order and/or a permanent injunction) in respect of any breach or
threatened breach of any of such covenants or provisions, without being
required to post bond or other security and without having to prove the
inadequacy of the available remedies at law.

 

(d)         In
any action to enforce any of the covenants contained in Sections 5.10, Section
5.11 or this Section 5.12, no member of the Seller Group shall interpose or
assert any defense or liability that is not directly related to the covenant
for which enforcement is sought.

 

(e)          Each
of the Principals and each of the Sellers acknowledges that the covenants of
such Person set forth in Section 5.10, Section 5.11 and this Section 5.12 are
in addition to, and independent of, any non-solicitation, non-competition or
non-disclosure covenant to which any such Person may be bound as an employee on
and after the date of this Agreement under any employment agreement with any of
the Companies or any other subsidiary of the Parent.

 

5.13.      Seller
Group Representative.

 

(a)          Each of the
Sellers hereby irrevocably designates and appoints Stephen Tenenbaum (the “Seller
Group Representative”) as its, his or her agent and attorney-in-fact, for
and on behalf of each such member of the Seller Group, with full power and
authority to represent such member of the Seller Group and his or her
successors and assigns with respect to all matters arising under this
Agreement.

 

(b)         Each
and every notice, delivery, statement, agreement or other action taken by the
Seller Group Representative hereunder shall be binding upon each member of the
Seller Group and its, his or her successors and assigns as if expressly
ratified and

 

36

 

confirmed in writing by
such member of the Seller Group.  The
Parent shall be entitled to rely on, and each member of the Seller Group shall
be bound by, each and every notice, delivery, statement, agreement or other
action made by the Seller Group Representative on behalf of the members of the
Seller Group in accordance with this Agreement. 
Where any notice, delivery, statement, agreement or other action is
required, permitted or contemplated in this Agreement to be made by the Seller
Group Representative, no such notice, delivery, statement, agreement or other
action shall be effective unless made in writing and signed by the Seller Group
Representative.

 

(c)          Without
limiting the generality of the foregoing, the Seller Group Representative shall
have full power and authority, in the name of and on behalf of each member of
the Seller Group and its, his or her successors and assigns, to (i) interpret
all the terms and provisions of this Agreement, (ii) waive any condition on
behalf of any or all members of the Seller Group under Section 6.2 hereof,
(iii) dispute or fail to dispute or expressly agree to any claims of Losses or
damages made by any Parent Indemnitee, (iv) assert claims of Losses or damages
against any indemnifying party, (v) negotiate, compromise and settle any
dispute (including, but not limited to, any dispute relating to Losses or
damages) that may arise under this Agreement, (vi) sign any releases or other
documents with respect to any such dispute, and (vii) authorize payment or
delivery of any part of the Escrowed Shares pursuant to the Escrow Agreement or
any other payments to be made with respect thereto.

 

(d)         Each
notice required to be given to the Sellers or the Seller Group pursuant to this
Agreement shall be given to all of the Sellers or Seller Group, as applicable,
and such notice shall not be valid if delivered or given only to the Seller
Group Representative.

 

(e)          The
Seller Group Representative, or any successors hereafter appointed, may resign
and shall be discharged of his duties hereunder upon the appointment of any
successor Seller Group Representative(s) jointly as hereinafter provided.  In case of such resignation, or in the event
of the death or inability to act as a Seller Group Representative(s), a
successor shall be named by all of the Sellers acting unanimously.  Each such successor Seller Group
Representative(s) shall have all the power, authority, rights and privileges
hereby conferred upon the initial Seller Group Representative(s), and the term “Seller
Group Representative” as used herein shall be deemed to include such
successor Seller Group Representative(s).

 

(f)          The
foregoing notwithstanding, the Seller Group Representative shall not, and shall
not have any power to, incur any liability or obligation on the part of any of
the Companies to the extent such liability or obligation would exist on or
after the Closing.

 

5.14.      Payment
of Certain Post Closing Collections to the Sellers.

 

(a)          After the
Closing, the Parent shall cause the Companies to remit to the Sellers, within
thirty (30) days after each Post-Closing Reporting Period, all amounts

 

37

 

collected by the Companies during the
applicable Post-Closing Reporting Period, in respect of any account receivable
pursuant to any Contract or other arrangement disclosed pursuant to Section
3.18(c)(i) that is included in the Closing Working Capital on the Income
Forecast Method, to the extent (and only to the extent) such amount collected
was in excess of the amount included in such Closing Working Capital in respect
of such account receivable.

 

(b)         Within thirty
(30) days after the Fifteen-Month Date, the Parent shall deliver to the Sellers
a statement showing the amounts, if any, by which collections on any receivable
that was included in the Closing Working Capital on the Income Forecast Method
was less than the amount included in respect of that receivable.  The Sellers shall promptly pay to the Parent
the amount of such deficiency.  The
Parent shall attempt to give the Sellers timely notice if both the Parent and
the Sellers are to make payments pursuant to Section 5.14(a) and this Section
5.14(b) hereof after the Fifteen-Month Date, and in the event of such notice
the parties shall coordinate such payments so the one party shall pay the other
party the net balance of such amounts after offset of one against the other.

 

(c)          Within thirty
(30) days after each Post-Closing Reporting Period, the Parent
shall cause the Companies to remit to the Sellers all amounts collected after
the Closing Date by the Companies during such Post-Closing
Reporting Period in respect of receivables with respect to Contracts or other
arrangements disclosed pursuant to Section 3.18(c)(ii), net of any and all
costs, fees and expenses to determine and collect such amounts paid or incurred
by the Companies, including, without limitation, audit and legal fees and
expenses, with a statement as to the amounts received.  Such receivables shall not be included in the
Closing Working Capital.

 

(d)         After
the Closing, the Parent shall cause the Companies to remit to the Sellers, within thirty
(30) days after each Post-Closing Reporting Period,
all amounts collected by the Companies during the applicable Post-Closing
Reporting Period in respect of the Apple Receivable.

 

5.15.      Grant of Proxies.  At the Closing, each of the Sellers shall grant, to one or more
individuals designated by the Parent, a proxy, in the form of Exhibit 5.15
attached hereto (the “Proxies”) to vote all of the Escrowed Shares, at
any meeting of the stockholders of the Parent or on any written consent of the
stockholders of the Parent; provided, that such Proxies shall require
that any vote (as opposed to a written consent) cast at a meeting pursuant to
such proxy shall be cast for, against or in abstention with respect to any
matter, proposal, candidate for director or other matter in the same
proportions of the for, against and abstention votes as are cast by all of the
other stockholders of the Parent who are present (in person or by proxy) at the
meeting.

 

5.16.      Votes
with Respect to the Mergers; Waiver of Dissenters Rights, Etc.  Each of the Sellers shall vote or give its
written consent, as applicable, in favor of the Mergers at each meeting or in
each written consent or other document relating to the Mergers.  Each of the Sellers hereby irrevocably waives
any and all dissenters’ rights or

 

38

 

appraisal rights or other similar rights under any applicable
Law in connection with the Mergers.

 

5.17.      Purchase for Investment;
Legend on Certificate.  All of the
Escrowed Shares to be issued to the Sellers pursuant to this Agreement shall
have indorsed in writing, stamped or printed, upon the back thereof, the
following legend (or a legend of similar effect):

 

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS (INCLUDING
PROVISIONS PERMITTING THE CANCELLATION OF THE SHARES UNDER CERTAIN
CIRCUMSTANCES AND RESTRICTIONS ON TRANSFER OF THE SHARES) OF AN AGREEMENT AND
PLAN OF MERGER DATED AS OF JULY 22, 2005 (THE “AGREEMENT”) BY AND AMONG CKX,
INC., A DELAWARE CORPORATION (THE “COMPANY”), AND THE OTHER SIGNATORIES
THERETO.  A COPY OF THE AGREEMENT, AS IT
MAY BE AMENDED FROM TIME TO TIME, IS MAINTAINED WITH THE CORPORATE RECORDS OF
THE COMPANY AND IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY.

 

5.18.    No Disqualifying Actions.  The Parent shall not, after the Closing,
knowingly take any action that results in either of the Mergers failing to
qualify as a reorganization under Section 368(a)(2)(E) of the Code.

 

5.19.      Notice of Client Adverse Effects.  The Sellers and the Principals shall promptly
give the Parent written notice of each and every Client Adverse Effect, if any,
that may occur prior to the Closing, with such notice to be given in writing
within one day of any of the Sellers, the Companies or the Principals learning
of such Client Adverse Effect and in any event not less than one day before the
Closing.

 

5.20.      Sale of Marketable Securities.  Prior to the Closing, the Seller Group shall
cause the Companies to sell all of their marketable securities.  No amount with respect to marketable
securities shall be included in Closing Working Capital.

 

6.           Conditions
to the Mergers.

 

6.1.        Conditions
to Closing Obligation of the Parent and the Merger Subs.  The obligation of the Parent and the Merger Subs to consummate the Mergers
and the other transactions contemplated hereby and to enter into the Operative
Agreements at the Closing are subject to the fulfillment, at or before the
Closing, of each of the following conditions (all or any of which may be waived
in writing in whole or in part by the Parent and the Merger Subs in their sole
discretion):

 

39

 

(a)          Representations
and Warranties. 
The representations and warranties of the Seller Group set forth in this
Agreement and in each of the Operative Agreements shall be true, correct and
complete in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except that
those representations and warranties that are modified as to materiality or
contain a qualification referring to a “Material Adverse Effect” or any
similar modification or qualification shall be true, correct and complete in
all respects as of said dates.

 

(b)         Performance.  The Seller Group shall have performed and complied
in all material respects with each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by the Seller Group (or
any member(s) thereof) at or before the Closing (including, but not limited to,
the obligation to execute and deliver the documents required to be executed and
delivered pursuant to Section 7.1).

 

(c)          Orders,
Laws and Actions.  There shall not be
in effect on the Closing Date any Order or Law restraining, enjoining or
otherwise prohibiting or making illegal the consummation of the Mergers or any
of the other transactions contemplated hereby or any of the Operative
Agreements or that could reasonably be expected to otherwise result in a
material diminution of the benefits of such transactions to the Parent, and
there shall not be pending or threatened on the Closing Date any Action in,
before or by any Governmental Authority that could reasonably be expected to
result in the issuance of any such Order or the enactment, promulgation or
deemed applicability of any such Law to the Parent, any of the Companies or
such transactions.  There shall not be in
existence any Action pending or threatened against the Parent that, in the
judgment of the Parent, could have a Material Adverse Effect with respect to the
Parent.

 

(d)         Regulatory
Consents and Approvals.  All
consents, approvals and actions of, filings with and notices to any
Governmental Authority necessary to permit the Sellers to perform their
obligations under this Agreement and to consummate the Mergers and the other
transactions contemplated hereby (i) shall have been duly obtained, made or
given, (ii) shall be in form and substance reasonably satisfactory to the
Parent, (iii) shall not be subject to the satisfaction of any condition that
has not been satisfied or waived and (iv) shall be in full force and effect,
and all terminations or expirations of waiting periods imposed by any
Governmental Authority necessary for the consummation of the such transactions
shall have occurred.

 

(e)          Third
Party Consents.  All consents (or
waivers in lieu thereof) to the performance by the Sellers of their obligations
under this Agreement and the Operative Agreements and to the consummation of
the Mergers and the other transactions contemplated hereby and thereby without
violating any Law or breaching (or giving rise to a right to terminate) any
Contract listed on Schedule 3.18, (i) shall have been obtained, (ii)
shall be in form and substance reasonably satisfactory to the Parent, (iii)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (iv) shall be in full force and effect; provided,
however, that the Parent and the Merger Subs

 

40

 

acknowledge that no
consent shall be required from any client (including any Artist) or customer of
the Business or the landlord of the Leased Property as a condition to the
obligation of the Parent and the Merger Subs hereunder.

 

(f)          Proceedings.  All proceedings to be taken on the part of the
Sellers in connection with the Mergers and any of the other transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Parent, and the Parent shall have
received copies of all such documents and other evidence as the Parent may
reasonably request in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.

 

(g)         No
Material Adverse Effect.  There shall
not have occurred any Material Adverse Effect (other than one or more Client
Adverse Effects, which are addressed in Section 6.1(h) hereof) with respect to
the Companies since December 31, 2004.

 

(h)         No Client
Adverse Effect.  Without limiting the generality
of Section 6.1(g) hereof, there shall not have occurred any Client Adverse Effect which the Parent
determines, in its sole but reasonable discretion, would be materially
detrimental to the operations, business, condition (financial or otherwise) or
prospects of the Companies.

 

(i)           Restructuring
Transactions.  The restructuring transactions
contemplated in Section 5.5 shall have taken place on terms satisfactory to the
Parent.

 

6.2.        Conditions
to Closing Obligation of the Seller Group. 
The obligation of the Sellers to consummate the of the Mergers and the
other transactions contemplated hereby and the obligation of the Sellers to
enter into the Operative Agreements at the Closing are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in writing in whole or in part by the Sellers in
their sole discretion):

 

(a)          Representations
and Warranties.  The representations
and warranties of the Parent Group set forth in this Agreement and in each of
the Operative Agreements shall be true, correct and complete in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, except that those representations and
warranties that are modified as to materiality or contain a qualification
referring to a “Material Adverse Effect” or any similar modification or
qualification shall be true, correct and complete in all respects as of said
dates.

 

(b)         Performance.  The Parent Group shall have performed and
complied in all material respects with each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Parent
Group at or before the Closing (including, but not limited to, the obligation
to execute and deliver the documents required to be executed and delivered
pursuant to Section 7.2).

 

41

 

(c)          Orders
and Laws.  There shall not be in
effect on the Closing Date any Order or Law restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the Mergers or any of
the other transactions contemplated hereby or by any of the Operative
Agreements or that could reasonably be expected to otherwise result in a
material diminution of the benefits of such transactions to the Sellers, and
there shall not be pending or threatened on the Closing Date any Action in,
before or by any Governmental Authority that could reasonably be expected to
result in the issuance of any such Order or the enactment, promulgation or
deemed applicability of any such Law to the any of the Sellers or such
transactions.

 

(d)         Regulatory
Consents and Approvals.  All
consents, approvals and actions of, filings with and notices to any
Governmental Authority necessary to permit the Parent to perform its
obligations under this Agreement and to consummate the Mergers and the other
transactions contemplated hereby (i) shall have been duly obtained, made or
given, (ii) shall be in form and substance reasonably satisfactory to the
Sellers, (iii) not be subject to the satisfaction of any condition that has not
been satisfied or waived and (iv) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental
Authority necessary for the consummation of such transactions shall have
occurred.

 

(e)          Third
Party Consents.  All consents (or
waivers in lieu thereof) to the performance by the Parent Group of their
obligations under this Agreement and the Operative Agreements and to the
consummation of the Mergers and the other transactions contemplated hereby and
thereby (i) shall have been obtained, (ii) shall be in form and substance
reasonably satisfactory to the Sellers, (iii) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (iv)
shall be in full force and effect.

 

(f)          Proceedings.  All proceedings to be taken on the part of
the Parent and the Merger Subs in connection with the Mergers and the other
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Sellers, and the Sellers
shall have received copies of all such documents and other evidence as the
Sellers may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.

 

7.           Closing
Deliveries.

 

7.1.        Closing
Deliveries of the Seller Group.  At or prior
to the Closing, the Seller Group shall deliver or cause to be delivered to the
Parent each of the following agreements and other documents:

 

(i)  the written
resignations of each of the officers and directors of each of the Companies (other
than Productions) from every position as an officer or director of each of such
Companies;

 

42

 

(ii)  the
opinion of counsel to the Seller Group, addressed to the Parent and dated the
Closing Date, in form and substance reasonably satisfactory to the Parent;

 

(iii)  copies of
the Organizational Documents, including all amendments thereto, of each of the
Companies (other than Productions) certified by the Secretary of State or other
appropriate official of the jurisdiction of organization, and (ii) certificates
from the Secretary of State or other appropriate official of the respective
jurisdictions of organization to the effect that each of such Companies is in
good standing or subsisting in such jurisdiction;

 

(iv)  a
certificate, dated the Closing Date and executed by each of the Sellers,
substantially in the form and to the effect of Exhibit 7.1(iv);

 

(v)  payoff
letters, duly signed by the lender and in customary form reasonably acceptable
to the Parent, with respect to each item of Indebtedness of any of the
Companies;

 

(vi)  copies of
all consents referred to in Section 6.1(e) (or waivers in lieu thereof);

 

(vii)  certificates
or other documents representing all of the Converted Companies Shares, in form
and substance reasonably satisfactory to the Parent;

 

(viii)  evidence
of the cancellation of the Affiliate amounts described in Section 5.6 hereof;

 

(ix)  the
Employment Agreements, duly signed by each of the employees part thereto;

 

(x)  the Escrow
Agreement, duly executed by the Sellers;

 

(xi)  the
resignations of the officers and directors of each of the Companies;

 

(xii)  the
Proxies, duly executed by each of the Sellers; and

 

(xiii)  all of
the Books and Records described in Section 5.7 relating to the Companies in the
Sellers’ possession at the Closing.

 

7.2.        Closing
Deliveries of the Parent.  At or prior
to the Closing, the Parent shall deliver or cause to be delivered to the Seller
Group each of the following agreements and other documents:

 

43

 

(i)  the opinion
of counsel to the Parent and the Merger Subs, addressed to the Sellers and
dated the Closing Date, in form and substance reasonably satisfactory to the
Sellers;

 

(ii)  copies of
Organizational Documents of the Parent and the Merger Subs, including all
amendments thereto, certified by the Secretary of State of California, and a
certificate from the Secretary of State of such State to the effect that the
Parent or the Merger Subs (as applicable) is in good standing therein;

 

(iii)  the cash
payment required by Section 1.5(i);

 

(iv)  the shares
of Parent Common Stock pursuant to Section 1.5(ii) and (iii);

 

(v)  a
certificate, dated the Closing Date and executed by a duly authorized officer
of the Parent substantially in the form and to the effect of Exhibit 7.2(v);

 

(vi)  the
Employment Agreements, duly signed by one of the Companies or another affiliate
of the Parent; and

 

(vii)  the
Escrow Agreement, duly executed by the Parent and the Escrow Agent.

 

8.           Indemnification.

 

8.1.        Survival
of Representations
and Warranties.

 

(a)          Notwithstanding
any right of the Parent and the Merger Subs to fully investigate the affairs of
the Companies and notwithstanding any Knowledge of facts determined or
determinable by the Parent and the Merger Subs pursuant to such investigation
or right of investigation, the Parent and the Merger Subs have
the right to rely fully upon the representations and warranties of the Seller
Group contained in this Agreement, the Schedules hereto and in any of the
Operative Agreements.  Except as provided
in the immediately following sentence, all such representations and warranties
shall survive the execution and delivery of this Agreement and the Closing
hereunder and shall thereafter continue in full force and effect until the
second anniversary of the Closing Date, and (subject to Section 8.2(b)) the
liability of the Seller Group in respect of any inaccuracy in any such
representation or warranty shall terminate on the second anniversary of the
Closing Date, except for liability with respect to which notice shall have been
given on or prior to such date to the party against which such claim is
asserted.  The foregoing notwithstanding,
the obligation of the Seller Group to indemnify pursuant to this Agreement with
respect to representations and warranties contained in Section 3.3 (Equity
Interests; Title), which shall survive indefinitely, and Sections 3.11 (Taxes),
3.16 (Environment), 3.21 and 3.14 (Employment and Benefit Plans; ERISA), and
with respect

 

44

 

to matters arising from fraud, shall survive the Closing, and
(subject to Section 8.2(b)) the Seller Group’s liability in respect of any
inaccuracy therein shall continue until all liability relating thereto is
barred by all applicable statutes of limitation (including any extensions or
waivers thereof).

 

(b)         Notwithstanding
any right of the Sellers to fully investigate the affairs of the Parent and the
Merger Subs and notwithstanding any Knowledge of facts determined or
determinable by the Sellers pursuant to such investigation or right of
investigation, the Sellers have the right to rely fully upon the
representations and warranties of the Parent and the Merger Subs contained in
this Agreement, the Schedules hereto and in any of the Operative
Agreements.  Except as provided in the
next sentence, all such representations and warranties shall survive the
execution and delivery of this Agreement and the Closing hereunder and shall
thereafter continue in full force and effect until the second anniversary of
the Closing Date, and the liability of the Parent and the Merger Subs in
respect of any inaccuracy in any such representation or warranty shall
terminate on the second anniversary of the Closing Date.

 

(c)          Notwithstanding
anything to the contrary in this Agreement, a claim for indemnification with
respect to Section 8.2(a)(ii) and Section 8.3(a)(ii) may be made at any time
after the Closing within the applicable statute of limitations.

 

8.2.        Indemnification
by the Seller Group.

 

(a)          Each member
of the Seller Group, jointly and severally (but in the case of the Companies, subject to
Section 8.2(b)), shall indemnify and defend the Parent and each of its
officers, directors, employees, shareholders, agents, advisors or
representatives (each, a “Parent Indemnitee”) from and against, and hold
each Parent Indemnitee harmless from and against, any and all Losses that any
Parent Indemnitee may suffer or incur based upon, arising out of, relating to
or in connection with any of the following (whether or not in connection with
any third party claim):

 

(i)  any breach
of or inaccuracy in any representation or warranty made by any member of the
Seller Group contained in this Agreement or in any of the Operative Agreements
or in respect of any claim made based upon alleged facts that if true could
constitute any such breach or inaccuracy; and

 

(ii)  the Seller
Group’s breach of or failure to perform or to comply with any covenant,
obligation or other agreement required to be performed or complied with by the
Seller Group contained in this Agreement or in any of the Operative Agreements.

 

(b)         If
the Closing occurs, none of the Companies shall have any obligation whatsoever
to indemnify any of the Parent Indemnitees under this Agreement (including this
Section 8) or any of the Operative Agreements, and shall have no obligation
whatsoever to the Sellers to make any contribution, cross-indemnify or
otherwise participate in any indemnification obligation of the Sellers
hereunder.

 

45

 

8.3.        Indemnification
by the Parent.

 

(a)          The Parent
shall indemnify and defend the Sellers and each of their agents, advisors or
representatives (each, a “Seller Indemnitee”) from and against, and hold
each Seller Indemnitee harmless from and against, any and all Losses that such
Seller Indemnitee may suffer or incur arising from, related to or in connection
with any of the following (whether or not in connection with any third party
claim):

 

(i)  any breach
of or inaccuracy in any representation or warranty made by the Parent contained
in this Agreement or in any Operative Agreement or in respect of any claim made
based upon alleged facts that if true could constitute any such breach or
inaccuracy; and

 

(ii)  the Parent’s
breach of or failure to perform or to comply with any covenant, obligation or
other agreement required to be performed or complied with by the Parent
contained in this Agreement or in any Operative Agreement.

 

8.4.        Limitations
on Indemnification.

 

(a)          The Seller
Group shall not be obligated to indemnify or hold harmless the Parent
Indemnitees in respect of any Losses suffered, incurred or sustained by any or
all the Parent Indemnitees in excess of Merger Consideration.

 

(b)         The
Parent Indemnitees shall not be entitled to seek any indemnification claims or
other relief or remedy hereunder or otherwise with respect to the transactions
contemplated hereby, unless and until the aggregate amount of Losses by the
Parent Indemnitees
exceeds $100,000.  If the Parent
Indemnitees incur losses in excess of $100,000, they shall be entitled to
recover (in accordance with the provisions of this Section 8) all of such
Losses, including the first Dollar thereof. 
The limitations set forth in this Section 8.4(b) shall not apply to any
Losses that may arise or that may be suffered in connection with or as a result
of, or that may be related to, any breach by the Sellers or the Principals of
the provisions of Section 5.19 hereof.

 

(c)          The
Seller Indemnitees shall not be entitled to seek any indemnification claims or
other relief or remedy hereunder or otherwise with respect to the transactions
contemplated hereby, unless and until the aggregate amount of Losses by the
Seller Indemnitees exceeds $100,000.  If
the Seller Indemnitees incur losses in excess of $100,000, they shall be
entitled to recover (in accordance with the provisions of this Section 8) all
of such Losses, including the first Dollar thereof.

 

8.5.        Payment
by the Sellers of Indemnification Amounts. 
Except as provided in Section 1.7(d), the indemnification obligations of
the Seller Group under this Section 8 shall be satisfied by the
Sellers paying the Parent such amounts in cash in the form of a bank or cashier’s
check or in immediately available funds by wire transfer to such bank accounts
or account as may be designated by the Parent. 
Any such payment

 

46

 

by the Sellers under this Section 8 shall be deemed an
adjustment to the Merger Consideration.

 

8.6.        Method
of Asserting Claims.  All claims
for indemnification by any Indemnified Party shall be
asserted and resolved as follows:

 

(a)          In
the event any claim or demand is asserted against or sought to be collected
from such Indemnified Party by a Person other than a party hereto (a “Third
Party Claim”), the Indemnified Party shall deliver a Claim Notice with
reasonable promptness to the Indemnifying Party.  If the Indemnified Party fails to provide the
Claim Notice with reasonable promptness after the Indemnified Party receives
notice of such Third Party Claim, the Indemnifying Party shall not be obligated
to indemnify the Indemnified Party with respect to such Third Party Claim to
the extent that the Indemnifying Party’s ability to defend has been materially
prejudiced by such failure of the Indemnified Party.  The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under
Section 8.2 or Section 8.3, as the case may be, and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.  Anything
to the contrary in this Section 8 notwithstanding (including this Section 8.6),
the Sellers shall retain the right to control in all respects any Action,
matter or other proceeding relating to Taxes for which the Sellers are
obligated to indemnify the Parent with respect to such Action, matter or other
proceeding subject to the Parent’s consent to any settlement, which consent
shall not be unreasonably withheld.

 

(b)         If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Section 8.6, then the
Indemnifying Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted in good faith, and with
reasonable diligence, by the Indemnifying Party to a final conclusion or shall
be settled at the discretion of the Indemnifying Party (but only with the
consent of the Indemnified Party, which shall not be unreasonably withheld, in
the case of any settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of monetary damages as to
which the Indemnified Party shall not be indemnified in full pursuant to
Section 8.2 or Section 8.3, as applicable). 
The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however,
that the Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party’s delivery of the notice
referred to in the first sentence of this clause (b), file any motion, answer
or other pleadings or take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate to protect its interests;
and provided  further, that if requested by the Indemnifying
Party, the Indemnified Party shall, without being required to incur any cost or
expense, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim

 

47

 

that the Indemnifying
Party elects to contest.  The Indemnified
Party may participate in, but not control, any defense or settlement of any
Third Party Claim controlled by the Indemnifying Party pursuant to this Section 8.6(b),
and the Indemnified Party shall bear its own costs and expenses with respect to
such participation.  Notwithstanding the
foregoing, the Indemnified Party may take over the control of the defense or
settlement of a Third Party Claim at any time if it irrevocably waives its
right to indemnity under Section 8.2 or Section 8.3, as applicable,
with respect to such Third Party Claim.

 

(c)        If
the Indemnifying Party fails to notify the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to Section 8.6(b), or if the Indemnifying Party gives such notice
but fails to prosecute the Third Party Claim in good faith, and with reasonable
diligence, or settle the Third Party Claim, or if the Indemnifying Party gives
notice that it elects not to defend the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or shall be settled at the discretion of the Indemnified
Party.  The Indemnified Party shall have
full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party shall, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party Claim that the Indemnified
Party is contesting.  The Indemnifying
Party may participate in, but not control, any defense or settlement controlled
by the Indemnified Party pursuant to this Section 8.6(c), and the
Indemnifying Party shall bear its own costs and expenses with respect to such
participation.

 

(d)       In
the event any Indemnified Party should have a claim under Section 8.2 or Section 8.3,
as applicable, against any Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party.  The failure by any Indemnified Party to give
the Indemnity Notice shall not impair such party’s rights hereunder except to
the extent that an Indemnifying Party demonstrates that it has been irreparably
and materially prejudiced thereby.  If
the Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to attempt to negotiate a resolution of such dispute within 30 days.

 

8.7.      Other
Remedies.  Anything in this Agreement to the contrary
notwithstanding, the provisions of this Section 8 shall not constitute the
sole remedy available to the parties hereto in the event of a breach of any of
the representations and warranties and covenants under this Agreement.  The limitation set forth in Section 8.5(c) shall
apply regardless of whether any Parent Indemnitee brings an Action under this Section 8
or pursuant to any other right with respect to this Agreement.

 

48

 

8.8.      Limitation
on Indemnification After Disclosure of Client Adverse Effect.  Anything to the contrary
notwithstanding, in the event that, prior to the Closing, the Seller Group has
made written disclosure to the Parent of a Client Adverse Effect as required by
Section 5.19 hereof, and the Parent Group elects to consummate the Closing
notwithstanding such Client Adverse Effect, the Parent Indemnitees shall not be
entitled to recover any Losses which arise solely from, or which are
attributable solely to, such Client Adverse Effect.

 

9.         Termination.

 

9.1.      Termination.  This Agreement may be terminated, and the
Mergers may be abandoned:

 

(i)  By the mutual
written consent of the Parent and the Sellers;

 

(ii)  By either the
Parent or the Sellers, upon ten (10) days prior written notice to the
other party, if the Closing shall not have occurred on or before September 6,
2005 (the “Expiration Date”) other than as a result of the condition described
in Section 6.1(h) not having been satisfied or waived; provided,
however, that this provision shall not be available to either party if
the other party has the right (or, upon lapse of the 30-day period referred to
in either clause (A) or clause (B) of item (iii) below, would
have the right) to terminate this Agreement under item (iii) of this Section 9.1;

 

(iii)  By (x) the
Parent in the event of an inaccuracy in any representation or warranty of the
Seller Group (provided, however, that if the only inaccuracy in
any representation or warranty of the Seller Group is solely attributable to a
Client Adverse Effect (provided that such Client Adverse Effect shall
have been disclosed as required by Section 5.19 hereof) as
to which the Parent has the right to terminate this Agreement pursuant to Section 9.1(v) and
as to which the Seller Group made written disclosure to the Parent and the
Merger Subs prior to the Closing, then the Parent’s right to terminate this
Agreement with respect to such matter shall be pursuant to Section 9.1(v) hereof)
or a non-performance of any covenant or other agreement of the Seller Group
contained in this Agreement, or (y) the Seller Group in the event of an
inaccuracy in any representation or warranty of the Parent or a non-performance
of any covenant or other agreement of the Parent contained in this Agreement,
that (A) in the case of a termination by the Parent, would reasonably be
expected to result in a Material Adverse Effect with respect to the Companies,
and in the case of a termination by the Seller Group, would reasonably be
expected to result in a Material Adverse Effect with respect to the Parent, in
each case where such inaccuracy or non-performance cannot be or has not been
cured within thirty (30) days after the giving of written notice to the
non-terminating party of such inaccuracy or non-performance; or (B) would
give rise to the failure of a condition of the non-terminating party set forth
in Section 6 of this Agreement, where such

 

49

 

failure of
condition cannot be or has not been cured within thirty (30) days after the
giving of written notice to the non-terminating party of such inaccuracy or
non-performance (a “Material Breach”); provided that the
terminating party is not then in Material Breach of any of its, his or her (as
the case may be) representations, warranties, covenants or other agreements
contained in this Agreement;

 

(iv)  By either the
Parent or the Seller Group if any court of competent jurisdiction or other
Governmental Authority shall have issued an Order or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated hereby and such order, decree, ruling or other action shall have
become final and non-appealable;

 

(v)  by the Parent
upon five (5) Business Days prior written notice to the Seller Group
Representative if the condition described in Section 6.1(h) has not
been satisfied or waived by the Parent prior to the Closing Date; or

 

(vi)  by the Seller
Group upon five (5) Business Days prior written notice to the Parent if
the Closing shall not have occurred on or before the Expiration Date as a
result of the condition described in Section 6.1(h) not having been
satisfied or waived and the Parent has not delivered the notice described in Section 9.1(v) on
or before the Expiration Date.

 

9.2.      Effect
of Termination.  Upon
termination of this Agreement pursuant to Section 9.1, all of the
obligations of the parties shall terminate except those under Section 5.10,
Section 9.3 and Section 10.4; provided, however, that (i) no
such termination shall relieve any party of any liability to the other party by
reason of any breach of or default under this
Agreement except as provided in Section 8.8, and (ii) the parties
shall not publicly disclose, and the parties shall cause their Affiliates not
to publicly disclose, the proposed terms and conditions set forth herein or any
non-public information regarding the other party, except as may be required by
Law.

 

9.3.      Break-Up
Fee.

 

(a)        Termination Based on a Client Adverse
Effect.  If this Agreement is terminated by the Parent
in accordance with Section 9.1(v) hereof, or by the Seller Group in accordance
with Section 9.1(vi) hereof, and the Parent or the Seller Group,
as applicable, does not otherwise have the right to terminate this Agreement
pursuant to Section 9.1(iii) hereof, then upon the date of
termination, the Parent shall pay to MBST the sum of the following: (i) $2,000,000;
(ii) the fees, costs and expenses charged by Cornick, Garber &
Sander, LLP, to the Companies; (iii) the fees, costs and expenses charged
by Deloitte and Touche, LLP to the Companies; and (iv) the fees, costs and
expenses (but in any event not more than $125,000) charged by Loeb &
Loeb LLP to the Companies; the foregoing payments shall be the only amount to which the Seller Group
will be entitled in such event.

 

50

 

(b)       Termination by the Parent Based on a
Breach by the Seller Group.  If this Agreement is terminated by
the Parent in accordance with Section 9.1(iii) hereof, then upon the
date of termination, the Parent shall pay to MBST the amount of: (i) $2,000,000;
less (ii) the fees, costs and expenses of the Parent Group and its
attorneys, accountants and other advisors in connection with this Agreement and
the transactions contemplated hereby; the foregoing payments shall be the only
amount to which the Seller Group will be entitled in such event.

 

(c)        Termination by the Sellers Based on a
Failure to Close by the Parent.  If (x) the Seller
Group is ready, willing and able to consummate the Closing, (y) this Agreement
is terminated by the Sellers in accordance with Section 9.1(ii) and
the Parent is not ready, willing and able to consummate the Closing, and (z)
the Parent does not have the right to terminate this Agreement pursuant to Section 9.1(iii) hereof,
then upon the date of termination, the Parent shall pay to MBST the sum of the
following: (i) $2,000,000; (ii) the fees, costs and expenses charged
by Cornick, Garber & Sander, LLP, to the Companies; (iii) the
fees, costs and expenses charged by Deloitte and Touche, LLP to the Companies;
and (iv) the fees, costs and expenses (but in any event not more than $125,000)
charged by Loeb & Loeb LLP to the Companies; the foregoing payment
shall be the only amount to which the Seller Group will be entitled in such
event.

 

(d)       Termination by the Parent Based on a Failure to Close by the Sellers. 
If this Agreement is terminated by the Parent expressly
in writing in accordance with Section 9.1(ii), then upon the date of
termination, the Parent shall pay to MBST the sum of the following: (i) $2,000,000;
(ii) the fees, costs and expenses charged by Cornick, Garber &
Sander, LLP, to the Companies; (iii) the fees, costs and expenses charged
by Deloitte and Touche, LLP to the Companies; and (iv) the fees, costs and
expenses (but in any event not more than $125,000) charged by Loeb &
Loeb LLP to the Companies; the foregoing payment shall be the only amount to
which the Seller Group will be entitled in such event.

 

(e)        Termination by the Sellers Based on a Breach by the Parent. 
If this Agreement is terminated by the Sellers in
accordance with Section 9.1(iii), notwithstanding that the Parent is
ready, willing and able to consummate the Closing (insofar as it is prepared to
deliver the Merger Consideration contemplated hereby), and the Parent does not
otherwise have the right to terminate this Agreement pursuant to Section 9.1(iii) hereof
or Section 9.1(v) hereof, then upon the date of termination, the
Parent shall pay to MBST $2,000,000; the foregoing payment shall be the only
amount to which the Seller Group will be entitled in such event.

 

(f)        Termination
as a Result of Governmental Order. 
If this Agreement is terminated by any party pursuant to Section 9.1(iv),
then upon the date of termination, the Parent shall pay to MBST $2,000,000; the
foregoing payment shall be the only amount to which the Seller Group will be
entitled in such event.

 

51

 

10.       Miscellaneous.

 

10.1.    Notices.  All notices, requests and other
communications hereunder must be in writing and shall be deemed to have been
duly given only if delivered personally or by facsimile transmission
or mailed (first class postage prepaid) to the parties at the following
addresses or facsimile numbers:

 

If to the Parent, to:

 

CKX, Inc.

650 Madison Avenue

16th Floor

New York, New York 10022

Telephone:   (212) 838-3100

Telefax:          (212) 319-6517

Attn.: Howard Tytel, Esq.

 

and with a copy to:

 

Troutman Sanders LLP

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Facsimile No.:  (212) 704-6288

Attn:  Richard G. Cushing, Esq. and

Timothy I. Kahler, Esq.

 

If to any member of the Seller Group, to such member:

 

c/o
MBST Entertainment 

345 N. Maple Drive, Suite 200 

Beverly Hills, California 90210 

Facsimile No.: (310) 385-1836

 

with a copy to:

 

Loeb & Loeb LLP

10100 Santa Monica Boulevard

Suite 2200

Los Angeles, California 90067-4164

Telephone: 310-282-2000 

Facsimile: 310-282-2200 

Attn:  Allan B. Duboff, Esq.

 

All
such notices, requests and other communications shall (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered

 

52

 

by
facsimile transmission to the facsimile number as provided in this Section, be
deemed given upon receipt, and (iii) if delivered by mail in the manner
described above to the address as provided in this Section, be deemed given
upon receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section). 
Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.

 

10.2.    Specific
Performance.  No provision of this
Agreement shall limit or restrict the availability of specific performance or
injunctive or other equitable relief to the extent that specific performance or
such other relief would otherwise be available to a party hereunder.

 

10.3.    Entire
Agreement.  This Agreement and the Operative Agreements
supersede all prior discussions and agreements between the parties with respect
to the subject matter hereof and thereof and contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof.

 

10.4.    Expenses.  Except as provided in Section 9.3,
whether or not the transactions contemplated hereby and by the Operative
Agreements are consummated, the Parent shall pay its costs and expenses
(including, without limitation, the fees and expenses of attorneys and accountants),
and the Sellers shall pay their costs and expenses (including, without
limitation, the fees and expenses of attorneys and accountants), incurred with
respect to the Transactions.  The
foregoing notwithstanding, each of the parties hereto may recover its
reasonable costs and expenses in successfully enforcing the provisions hereof
against any other party.

 

10.5.    Public
Announcements.  Subject to Section 5.10(d) hereof,
at all times at or before the Closing, neither the Parent or the Merger Subs,
on the one hand, nor the Seller Group, on the other hand, shall issue or make
any reports, statements or releases to the public or generally to the
employees, suppliers or other Persons to whom any of the Companies provides
services or with whom any of the Companies otherwise has significant business
relationships with respect to this Agreement or the transactions contemplated
hereby without the consent of the other party hereto, which consent shall not
be unreasonably withheld.  Without
limiting the generality of the foregoing, the Parent Group shall not make any
public announcement concerning the transactions contemplated hereby for a
period of three (3) Business Days after the execution and delivery of this
Agreement; provided, however, that nothing in this Section 10.5
shall limit or prevent the Parent from making any disclosure required by
applicable Law or from discussing or making information relating to this
Agreement available to its lenders, financiers and other advisors or
representatives; and provided  further, however, that
nothing in this Section 10.5 shall prohibit the Sellers from taking the
actions described in Section 5.10(d).

 

53

 

10.6.    Waiver.  Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition.  No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.  All
remedies, either under this Agreement or by Law or otherwise afforded, shall be
cumulative and not alternative.

 

10.7.    Amendment.  This Agreement may be amended, supplemented
or modified only by a written instrument duly executed by or on behalf of each
party hereto.

 

10.8.    No
Third Party Beneficiary.  The terms and
provisions of this Agreement are intended solely for the benefit of each party
hereto and their respective successors or permitted assigns, and it is not the
intention of the parties to confer third-party beneficiary rights upon any
other Person other than a Person entitled to indemnity under Section 8.

 

10.9.    No
Assignment; Binding Effect.  Neither this
Agreement nor any right, interest or obligation hereunder may be assigned by
any party hereto without the prior written consent of the other party hereto,
and any attempt to do so shall be void, except that the Parent may assign any
or all of its rights, interests and obligations hereunder (including without
limitation its rights under Section 8) to (i) a wholly-owned
subsidiary, provided that any such subsidiary agrees in writing to be bound by
all of the terms, conditions and provisions contained herein, (ii) any
post-Closing purchaser of all of the issued and outstanding stock of the Parent
or a substantial part of its Assets or (iii) any financial institution
providing debt or equity financing to the Parent from time to time, but no
assignment pursuant to any of items (i), (ii) or (iii) above shall
relieve the Parent of its obligations hereunder.  Subject to the preceding sentence, this
Agreement is binding upon, shall inure to the benefit of and is enforceable by
the parties hereto and their respective successors and assigns.

 

10.10.  Headings;
Definitional Provisions; etc.  The headings
used in this Agreement have been inserted for convenience of reference only and
do not define or limit the provisions hereof. 
Any reference to the masculine, feminine, or neuter gender shall be a
reference to such other gender as is appropriate. References to the singular
shall include the plural and vice versa. 
The words “herein” and “hereunder” and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. 
Whenever the words “include,” “including” or “includes” appear in this Agreement,
they shall be read to be followed by the words “without limitation” or words
having similar import.  References in
this Agreement to the “Companies” shall, where appropriate in the context, be
deemed to include all Subsidiaries (if any) of the Companies.

 

10.11.  Invalid
Provisions.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future Law, and if
the rights or

 

54

 

obligations of any party hereto under
this Agreement shall not be materially and adversely affected thereby, (a) such
provision shall be fully severable, (b) this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
composed a part hereof, (c) the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance and (d) in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

 

10.12.  Drafting
History.  In resolving any dispute or construing any
provision in the Agreement, there shall be no presumption made or inference
drawn (a) because the attorneys for one of the parties drafted such
provision of the Agreement, (b) because of the drafting history of the
Agreement, or (c) because of the inclusion of a provision not contained in
a prior draft or the deletion of a provision contained in a prior draft.  The parties acknowledge and agree that this
Agreement was negotiated and drafted with each party being represented by
counsel of its choice and with each party having an equal opportunity to
participate in the drafting of the provisions hereof and shall therefore be
construed as if drafted jointly by the parties.

 

10.13.  Governing
Law.  This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York applicable to a
contract executed and performed in such State without giving effect to the
conflicts of laws principles thereof, which would result in the applicability
of the Laws of another jurisdiction.

 

10.14.  Jurisdiction.  Each of the parties hereto hereby irrevocably
consents and submits to the jurisdiction of the United States District Court
for the Southern District of New York and the courts of the State of New York
located in New York County in connection with any Action arising out of or
relating to this Agreement or the transactions contemplated hereby, which
cannot be resolved by arbitration pursuant to Section 10.15 hereof, waives
any objection to venue in the United States District Court for the Southern
District of New York and the courts of the State of New York, New York County
for such Action, and agrees that service of any summons, complaint, notice or
other process relating to such Action may be effected in the manner provided by
Section 10.1.  In any Action arising
out of or relating to this Agreement or the Operative Agreements, the Parent
Group and the Seller Group waive trial by jury.

 

10.15.  Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

10.16.  GAAP.  All accounting and financial information to
be prepared under this Agreement shall be prepared in accordance with GAAP,
unless this Agreement expressly requires otherwise, and for this purpose, if
GAAP would authorize more than one accounting method or principle, then GAAP
shall mean the accounting method or principle used by the Companies in the
ordinary course during 2004.

 

55

 

[The remainder of this page is left blank
intentionally.]

 

56

 

[Agreement and Plan of Merger]

[Signature Page One of
Three]

 

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by or on behalf of each party
hereto as of the date first above written.

 

	
  The “Parent”

  	
   

  	
  CKX, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Thomas P. Benson

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Thomas P. Benson

  
	
   

  	
   

  	
   

  	
  Title: Executive Vice President and

  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The “Merger Subs”

  	
   

  	
  MBST ACQUISITION CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Thomas P. Benson

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Thomas P. Benson

  
	
   

  	
   

  	
   

  	
  Title: Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FOCUS ACQUISITION CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Thomas P. Benson

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Thomas P. Benson

  
	
   

  	
   

  	
   

  	
  Title: Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The “Principals”

  	
   

  	
  /s/  Lawrence Brezner

  	
   

  
	
   

  	
   

  	
  Lawrence Brezner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ David Steinberg

  	
   

  
	
   

  	
   

  	
  David Steinberg

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Stephen Tenenbaum

  	
   

  
	
   

  	
   

  	
  Stephen Tenenbaum

  

 

 

[Agreement and Plan of Merger]

[Signature Page Two of
Three]

 

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by or on behalf of each party
hereto as of the date first above written.

 

 

	
  The “Sellers”

  	
   

  	
  THE LAWRENCE BREZNER LIVING TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/    Lawrence Brezner

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Lawrence Brezner

  
	
   

  	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE STEINBERG/THAYER LIVING TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David Steinberg

  	
   

  
	
   

  	
   

  	
   

  	
  Name: David Steinberg

  
	
   

  	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Brynn Thayer Steinberg

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Brynn Thayer Steinberg

  
	
   

  	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE TENENBAUM LIVING TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Stephen Tenenbaum

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Stephen Tenenbaum

  
	
   

  	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Rosalie Tenenbaum

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Rosalie Tenenbaum

  
	
   

  	
   

  	
   

  	
  Title: Trustee

  
							

 

 

[Agreement and Plan of Merger]

[Signature Page Three of
Three]

 

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by or on behalf of each party
hereto as of the date first above written.

 

 

	
  The “Companies”

  	
   

  	
  MORRA, BREZNER, STEINBERG &

  TENENBAUM ENTERTAINMENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen Tenenbaum

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Stephen Tenenbaum

  
	
   

  	
   

  	
   

  	
  Title: Secretary and Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FOCUS ENTERPRISES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen Tenenbaum

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Stephen Tenenbaum

  
	
   

  	
   

  	
   

  	
  Title: Secretary and Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STEPTECO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen Tenenbaum

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Stephen Tenenbaum

  
	
   

  	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

 

APPENDIX

DEFINITIONS

 

(a)        Capitalized
terms that are used and not otherwise defined in the Agreement and Plan of
Merger to which this Appendix is attached (the “Agreement”) shall have
the meanings set forth in this Appendix. 
Except as otherwise expressly provided, section references in this
Appendix are references to Sections of the Agreement.

 

“Accrual Basis”
shall mean such accrual method or methods as may be provided by GAAP and as
shall be determined to be appropriate in the circumstances in the reasonable
good-faith discretion of the Parent; provided, however, that,
GAAP notwithstanding, for this purpose (a) revenue, and the related
elements of working capital, shall be recognized consistent with the Parent’s
accounting principles which generally record an item of revenue when (i) persuasive
evidence of the arrangement exists; (ii) the Parent or Subsidiary has
delivered the services to the other party; (iii) the price or amount is
fixed or determinable; and (iv) collection of the revenue item is
reasonably assured; and (b) in the case of any commission, fee,
percentage, royalty, override, participation or similar right or obligation
that will be owed to any of the Companies the amount of which is determined
from time to time by audit, review, analysis or any other inspection by an
auditor or other representative of the books or records of any Person
(including, without limitation, studios, distributors and production companies),
such amount shall be recorded as an item of revenue (and as an asset) in the
period during which the auditor or other representative completes its field
work with respect to such audit, review, analysis or other inspection of books
or records and the Parent or Subsidiary submits a claim for such item; provided,
further  however, that, notwithstanding item (b) above, any
commission, fee, percentage, royalty, override, participation or similar right
or obligation that will be owed to any of the Companies pursuant to any
Contract or other arrangement disclosed pursuant to Section 3.18(i), shall
be recorded as an item of revenue (and as an asset) on the Income Forecast
Method of Accounting.

 

“Action” means any
action, cause of action, claim, suit, proceeding, arbitration, mediation, cause
of action or Governmental Authority investigation or audit (in any forum,
including, but not limited to, any federal, state or local court or any
agency), but shall not include audits, reviews, analyses or other inspections
for the purpose of determining contractual rights or obligations of the
Companies with respect to commissions or fees of the Business.

 

“Affiliate” means
any Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.  For purposes of this
definition, control of a Person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such Person whether by
Contract or otherwise and, in any event and without limitation of the previous

 

1

 

sentence,
any Person owning fifty percent (50%) or more of the voting securities of a
second Person shall be deemed to control that second Person.

 

“Agreement” means
the Agreement and Plan of Merger to which this Appendix is attached and the
Exhibits and the Schedules thereto, as the same may be amended or otherwise
modified from time to time.

 

“Apple Receivable”
means that certain receivable of the Companies from Apple Corps, Ltd. in
connection with certain consulting services rendered in 2004 and 2005 in the
amount of $515,850, but shall not include any other receivable of the Companies
from Apple Corps, Ltd.

 

“Artist” means any
director, producer, actor, comedian, singer, musician, musical group,
performing group, author, screenwriter, playwright or other performer or
creative talent, including, without limitation, any corporation, limited
liability company, partnership or other entity that acts as a “loan-out”
company to provide the services of any of the foregoing.

 

“Assets” of any
Person means all assets of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person, including, without limitation, cash, cash equivalents, assets, accounts
and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual
Property, and including, without limitation, any item that would be considered
an asset under GAAP.

 

“Audited Financial
Statements” have the meaning provided in Section 3.8(a).

 

“Beneficiaries”
means, collectively, the Parent, the Companies and any of the Affiliates or
direct and indirect Subsidiaries of the Parent and/or the Companies that, at
any time after the Closing, engage in the same business or a similar business
as the Business conducted by the Companies and their Affiliates immediately
prior to the Closing.

 

“Benefit Plan”
means any bonus, employee pension, executive compensation, deferred
compensation, profit sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance plan,
or vacation, or other employee benefit plan, program, policy, arrangement,
agreement or commitment, including any “employee benefit plan” within the
meaning of Section 3(3) of ERISA.

 

“Books and Records”
means all files, documents, instruments, papers, books and records relating to
the Business, including, without limitation, financial statements, Tax Returns
and related work papers and letters from accountants, budgets, pricing
guidelines, ledgers, journals, deeds, title policies, minute books, stock
certificates and books, stock transfer ledgers, Contracts, Licenses, supplier
lists, computer files and

 

2

 

programs,
retrieval programs, operating data and plans and environmental studies and
plans.

 

“Business” has the
meaning provided in the recitals at the head of the Agreement.

 

“Business Day”  means any day that is not a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to remain closed.

 

“Calendar Quarter End
Date” means each of March 31, June 30, September 30 and December 31.

 

“California
Corporations Code” has the meaning provided in Section 1.1.

 

“Change in Control Transaction”
means the occurrence of a single transaction or a series of related
transactions resulting in (i) the sale of all or substantially all of the
assets of the Parent; (ii) the members of the Board of Directors of the
Parent immediately prior to such transaction(s) ceasing to be a majority of the
members of the Board of Directors of the Parent immediately after such
transaction(s); (iii) both (A) the stockholders of the Parent
immediately prior to such transaction(s) ceasing to own or control, in the
aggregate, a majority of the voting shares of the Parent immediately after such
transaction(s) and (B) the President and Chief Executive Officer of the
Parent ceasing to hold such offices immediately after such transaction(s); (iv) the
sale of all or substantially all of the assets of the Companies by the Parent
and its consolidated group; or (v) the Parent or an Affiliate of the
Parent ceasing to own or control a majority of the voting shares of the
Companies or the right to appoint a majority of the members of the Boards of
Directors of the Companies.

 

“Claim Notice”
means written notification pursuant to Section 8.7(a) of a Third
Party Claim as to which indemnity under Section 8.2 or Section 8.3,
as applicable, is sought by an Indemnified Party, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party’s claim against the Indemnifying
Party under Section 8.2 or Section 8.3, as applicable, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim.

 

“Client Adverse Effect” means the occurrence of either of the
following events or circumstances at any time after the date of this Agreement:
(i) the termination, or substantial reduction or alteration, of any
relationship between any Artist, on the one hand, and the Companies or the
Business, on the other hand; or (ii) the receipt by any member of the
Seller Group of any notice, indication, expression of intent or other
communication (whether written, oral or otherwise), by or on behalf of any
Artist, that the Artist will terminate or substantially reduce or alter his or
her relationship with the Companies or the Business.

 

3

 

“Closing” has the
meaning provided in Section 1.10.

 

“Closing Date” has
the meaning provided in Section 1.10.

 

“Closing Working
Capital” has the meaning provided in Section 2.3(a).

 

“Code” means the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder or any successor statute.

 

“Companies” has
the meaning provided at the head of the Agreement.

 

“Companies Employees”
has the meaning provided in Section 3.24(a).

 

“Companies Employees
Employment Agreement” has the meaning provided in Section 3.22(b).

 

“Confidential
Information” has the meaning provided in Section 5.10(c).

 

“Contract” means
any contract, consultancy, employment agreement, guild agreement, talent
agreement, joint venture, partnership, participation, override, royalty, fee
entitlement, commission right, lease, evidence of Indebtedness, mortgage, loan
agreement, indenture, security agreement, or other understanding, arrangement,
instrument or agreement (whether written or oral) of any kind whatsoever,
including any amendments, modifications, renewals and extensions thereof
(including, without limitation, any of the foregoing with any client or
customer of the Business)

 

“Converted Companies
Shares” has the meaning provided in Section 1.4.

 

“Dispute Notice”
has the meaning provided in Section 2.2(b)

 

“Dispute Period”
means the period ending thirty (30) calendar days following receipt by an
Indemnifying Party of either a Claim Notice or an Indemnity Notice.

 

Employment
Agreements” has the meaning provided in Section 5.8.

 

“Environmental”
means all air, surface water, groundwater, or land, including land surface or
subsurface, including all fish, wildlife, biota and all other natural
resources.

 

“Environmental Claim”
means any and all administrative or judicial Proceedings pursuant to or
relating to any applicable Environmental Law by any Person relating to any
actual or potential (x) violation of or liability under any Environmental Law,
(y) violation of any Environmental Permit, or (z) liability for any costs or
damages related to the presence, Environmental Release, or threatened
Environmental Release into the Environment, of any Hazardous Substances at any
location, including, but not limited to, any off-Site location to which Hazardous
Substances or materials containing Hazardous Substances were sent for handling.

 

4

 

“Environmental Law”
means any and all Laws relating to the Environment.

 

“Environmental Permit”
means any License, under or in connection with any Environmental Law.

 

“Environmental Release”
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing of a Hazardous Substance
into the Environment, except those permitted under Environmental Law.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder, or any successor statute.

 

“ERISA Affiliate”
means any Person who is in the same controlled group of corporations or who is
under common control with any of the Corporations within the meaning of Section 414
of the Code.

 

“Escrow Agent”
shall have the meaning provided in Section 1.4.

 

“Escrow Agreement”
has the meaning provided in Section 1.4.

 

“Escrowed Shares”
has the meaning provided in Section 1.6(a).

 

“Expiration Date”
has the meaning provided in Section 9.1(a)(ii).

 

“Fifteen-Month Date”
means the last day of the fifteenth calendar month after the Closing Date;
provided, that for this purpose the first calendar month after the Closing Date
shall be, as applicable, either (a) the calendar month in which the
Closing Date occurs, if the Closing Date occurs prior to the sixteenth (16th)
day of a calendar month, or (b) the calendar month immediately following
the calendar month in which the Closing Date occurs, if the Closing Date occurs
on or after the sixteenth (16th) day of a calendar month.

 

“GAAP” means
United States generally accepted accounting principles, consistently applied
throughout the specified period and in the immediately prior comparable period,
subject in all cases to Section 10.16 of the Agreement.

 

“Governmental
Authority” means (i) the United States and any state, county, city or
other political subdivision thereof, (ii) any foreign country or any
state, province, county, city or other political subdivision thereof, and (iii) any
executive or other official or individual acting with the power of or derived
from any entity referred to in item (i) or item (ii) above, and any
court, tribunal, governmental arbitrator, authority, agency, commission,
service or other instrumentality of any entity referred to in item (i) or
item (ii) above.

 

5

 

“Income Forecast
Method” means a method of accounting for certain receivables from
participations or similar rights as to which an amount will be receivable by
the Companies as of the Closing hereunder but the amount of the receivable will
not be known until receipt of a statement from the obligor.  For purposes of determining Closing Working
Capital hereunder, the amount will be estimated on the basis of the amount paid
for the prior annual period, pro rated on the basis of the percentage that the
period of time through the Closing represents of the entire period for which
the payment is due.

 

“Indebtedness” of
any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced
by notes, bonds, debentures or similar instruments, (iii) for the deferred
purchase price of goods or services (other than trade payables or accruals
incurred in the ordinary course of business), (iv) under capital leases or
(v) in the nature of guarantees, assumptions or endorsements of the
obligations described in clauses (i) through (iv) above of any other
Person.

 

“Indemnified Party”
means any Person claiming indemnification under any provision of Section 8.

 

“Indemnifying Party”
means any Person against whom a claim for indemnification is being asserted
under any provision of Section 8.

 

“Indemnity Notice”
means written notification pursuant to Section 8.7 of a claim for
indemnity under Section 8.2 or Section 8.3, as applicable, by an
Indemnified Party, specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim.

 

“Intellectual Property”
means (a) all trademarks, service marks, trade names, trade dress, product
names and slogans both registered and unregistered, and any common law rights
and good will appurtenant thereto, and all applications and registrations
thereof; (b) all copyrights in copyrightable works (including, but not
limited to, any jingles, songs, scores or other musical compositions,
screenplays, movies, television shows, cartoons, comics, comic books, blogs,
magazines, newspapers or other periodicals, plays, articles, scripts or
manuscripts and any concepts or ideas for any of the foregoing) and all other
ownership rights in any works of authorship, any derivations thereof and all
moral rights appurtenant thereto and all applications and registrations
thereof; (c) all registered, reserved and unregistered domain names,
uniform resource locators and keywords; (d) all computer and electronic
data, documentation and software, including both source and object code,
computer and database applications and operating programs; (e) all rights
relating to the use of any name, image or likeness of any Person or the
portrayal of a Person, either individually or together with others; (f) all
trade secrets and confidential business, technical and proprietary information,
including ideas, research notes, development notes, know-how, residuals,
formulas, business methods and techniques, supplier lists, and marketing,
financial and pricing data; (g) the right to sue both in equity and for
past, present and future damages of any or all of the foregoing; 

 

6

 

(h) all
existing copies and tangible embodiments of any or all of the foregoing, in whatever
form or medium; (i) all right, title and interest (free and clear) in and
to each of the Corporations’ website(s), including without limitation, the
framework and infrastructure of such web site(s), the layout design and the “look
and feel” thereof, all related software, source code and object code, all CGI,
HTML, XML or other coding, all scripts and applets, all web graphics and data,
all navigational buttons, all server configurations, and any and all attendant
intellectual property rights therein; and (j) all other intellectual property
rights relating to any or all of the foregoing including any renewals,
continuations or extensions thereof.

 

“Knowledge” or
language of similar import means those matters of which the applicable Person
is “aware” and all matters that should be known by such Person in the ordinary
course.  In the case of any Person that
is an entity, the “Knowledge” of any trustee, director, officer, executive or
person holding a similar title or with similar responsibilities shall be
attributed to that Person.  Knowledge of
the Seller Group shall mean the knowledge of each of the Principals and each of
the Sellers (including, but not limited to, each trustee of any of the Sellers)
..

 

“Law” or “Laws”
means all laws, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental Authority.

 

“Leased Real Property”
has the meaning provided in Section 3.14.

 

“Licenses” means
all licenses, permits, certificates of authority, authorizations, approvals,
registrations, franchises and similar consents granted or issued by any
Governmental Authority.

 

“Lien” means any
claim, mortgage, pledge, hypothecation, assessment, security interest, lease,
lien (statutory or other), option, levy, charge, economic interest, right of
use, conditional sale Contract, title retention Contract, or other encumbrance
of any kind whatsoever, or other Contract to give any of the foregoing.

 

“Losses” means any
and all losses, debts, liabilities, Actions, causes of action, damages, fines,
fees, penalties, deficiencies, obligations, claims, demands, payments,
judgments or settlements of any nature or kind whatsoever, known or unknown,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated,
whether arising from a third-party claim or otherwise, including all reasonable
costs and expenses (including, without limitation, court costs, fees of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment or otherwise), in
connection with the investigation, defense, prosecution or enforcement of any
claim.  A “Loss” is any one of the
foregoing.

 

“Material Adverse
Effect” means (a) with respect to the Companies, (i) a change in
(or effect on) the condition (financial or otherwise), properties, assets

 

7

 

(including
intangible assets), liabilities (including contingent liabilities), rights,
obligations, operations, business or prospects, which change (or effect) is
materially adverse to the financial condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects of the Companies and
without limiting the generality of the foregoing, a Material Adverse Effect
shall be deemed to have occurred if there shall have occurred any material
default, dispute, complaint or termination of or in respect of any relationship
with any material client (including, without limitation, any Artist) or
customer of the Business; provided, however, that “Material
Adverse Effect” shall not include any change or effect due solely to general
economic conditions; or (ii) a material adverse effect on the ability of
any of the Sellers or any of the Companies to consummate any of the
transactions contemplated hereby, and (b) with respect to the Parent, a
material adverse effect on its ability to consummate the Mergers and the other
transactions contemplated by the Agreement.

 

“Material Breach”
has the meaning provided in Section 9.1(a)(iii).

 

“Merger Consideration”
shall mean the cash and the shares of Parent Common Stock delivered by the
Parent pursuant to Section 1.5, as adjusted pursuant to Section 2.4, Section 5.9,
Section 5.14 and Article 8, as applicable.  For purposes of this definition, in
determining the Dollar amount of the Merger Consideration the shares of Common
Stock of the Parent delivered as part of the Merger Consideration shall be
valued as of the close of business on the trading day immediately prior to the
Closing Date.

 

“Multiemployer Plan”
means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

“Non-Competition
Restriction Period” shall mean the period beginning on the Closing Date and
ending on the fifth anniversary of the Closing Date.

 

“Operative Agreements”
means the Escrow Agreement and the Employment Agreements.

 

“Option” with
respect to any Person means any security, right (including, without limitation,
any preemptive right, conversion right, stock appreciation right, redemption
right or repurchase right), subscription, warrant, option, “phantom” stock
right or other Contract that gives the right to (i) purchase or otherwise
receive or be issued any shares of capital stock (or other equity securities or
beneficial or other interests) of such Person or any security of any kind
convertible into or exchangeable or exercisable for any shares of capital stock
(or other equity securities or beneficial or other interests) of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or
accruing to the holder of shares of capital stock (or other equity securities
or beneficial or other interests) of such Person, including any rights to
participate in the equity, income or election of directors or officers (or
persons of a similar capacity) of such Person.

 

8

 

“Order” means any
writ, judgment, decree, injunction or similar order or pronouncement of any
Governmental Authority (in each such case whether preliminary or final).

 

“Organizational
Documents” means, with respect to any Person that is not a natural person,
the organizational documents of such Person, as amended to the date in
question.  The term Organizational
Documents includes articles or certificates of incorporation, by-laws,
agreements or certificates of limited liability companies, joint venture or
partnership agreements, and other similar documents pertaining to the governance
and organization of the Person in question (including those pertaining to any
trust).

 

“Panel of Accountants”
has the meaning provided in Section 2.3(e).

 

“Parent” has the
meaning provided at the head of the Agreement.

 

“Parent Common Stock”
shall mean the common stock, par value $0.01 per share, of the Parent, which is
the class of equity of the Parent that is publicly registered as of the date of
this Agreement.

 

“Parent Equity Recap
Transaction” means any stock split, stock dividend, consolidation,
recapitalization and similar transaction that affects the Parent Common Stock
generally; provided, however, that a Parent Equity Recap
Transaction shall not include (a) the issuance of shares of Parent Common
Stock or other securities pursuant to Section 1.5(ii) and Section 1.5(iii) or
(b) any issuance (regardless of the consideration therefor) pursuant to a
transaction that is not expressly described above.

 

“Parent Indemnitee”
has the meaning provided in Section 8.2(a).

 

“Permitted Lien”
means (i) any Lien for Taxes not yet due or delinquent or being contested
in good faith by appropriate proceedings for which adequate reserves on the
books and records of the Person contesting same have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary
course of business by operation of Law with respect to a liability that is not
yet due or delinquent, (iii) any minor imperfection of title or similar
Lien which individually or in the aggregate with other such Liens does not
materially impair the value of the property subject to such Lien or the use of
such property in the conduct of the Business, and (iv) Liens that consist
of the rights of the lessor under any lease for equipment or vehicles leased by
any of the Companies.

 

“Person” means any
natural person, corporation, general partnership, limited partnership, limited
liability company, limited liability partnership, proprietorship, joint
venture, other business organization, trust, union, association or Governmental
Authority of any nature.

 

9

 

“Post-Closing
Reporting Period” means each of the following periods, as applicable: (i) the
period from the Closing Date until the first Calendar Quarter End Date
occurring after the Closing Date; (ii) each of the four successive
calendar quarters immediately following the period described in the foregoing
item (i), and (iii) the period, if any, beginning immediately after the end
of the fourth calendar quarter described in the foregoing item (ii) and
ending on the Fifteen-Month Date.

 

“Post-Closing Tax
Period” means any Tax period that ends after the Closing.

 

“Pre-Closing Tax
Period” means any Tax period that ends on or before the Closing.

 

“Principals” has
the meaning provided in the first paragraph of the Agreement.

 

“Productions” has
the meaning provided in Section 5.5(c).

 

“Restricted Activity”
means any aspect of the Business and any activity that from time to time in the
future is pursued by the Companies or the subsidiaries, divisions or other
business units of the Parent through which the Business is conducted, in each
case, anywhere in North America and any country outside North America where the
Business may be conducted from time to time.

 

“Restricted
Individuals” has the meaning provided in Section 5.11(a).

 

“Restriction Period”
means (i) as to any of the Sellers or the Companies, the period beginning
on the Closing Date and ending on the fifth (5th) anniversary of the Closing
Date; and (ii) as to any of the Principals, the period beginning on the
Closing Date and ending on the later of the fifth (5th) anniversary of the
Closing Date and the first anniversary of the date the employment of such
Principal with any of the Companies is terminated.

 

“Retention Agreements”
has the meaning provided in Section 3.24(b).

 

“Review Period”
has the meaning provided in Section 2.2(b).

 

“Section 1.7(c)(i) Revenues”
means, on a consolidated basis, revenues from commissions and fees, plus other
revenues from operations of the Business, in each case of a character similar
to revenues that are reflected in the Audited Financial Statements, and
(whether or not of such a similar character) revenues from participations in
Broadway plays or from sales of recorded music or video devices or as provided
in any of the Contracts listed on Schedule 3.18; provided, however,
that all such revenues shall be determined on an Accrual Basis net of any third
party commissions and fees due or payable in respect of such commission and fee
revenues, other than amounts (all of which are usual and customary in
accordance with industry standards) payable to talent agents or outside
attorneys who have been entitled to receive a percentage of such revenues or to

 

10

 

former
shareholders of the Companies pursuant to existing deferred compensation and
withdrawal agreements that have been historically reflected in the financial
statements of the Companies.

 

“Section 3.18
Contract” has the meaning provided in Section 3.18(b).

 

“Section 5.11(b) Prohibited
Persons” has the meaning provided in Section 5.11(b).

 

“Securities Act”
means the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder and any successor Laws.

 

“Securities Exchange
Act” means the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder and any successor Laws.

 

“Sellers” has the
meaning provided at the head of this Agreement.

 

“Seller Group” has
the meaning provided at the head of the Agreement.

 

“Seller Indemnitee”
has the meaning provided in Section 8.3(a).

 

“Seller Group
Representative” has the meaning provided in Section 5.13.

 

“Site” means any
of the real properties currently or previously owned, leased, used or operated
by any of the Companies, including all soil, subsoil, surface waters and
groundwater thereat.

 

“Subsidiary” of
any Person means any corporation, general partnership, limited partnership,
limited liability company or other entity of which the Person owns at least 50%
of any class of the equity interests.

 

“Tax” means any
tax, charge, fee, levy, deficiency or other assessment of whatever kind or
nature including, without limitation, any net income, gross income, profits,
gross receipts, real or personal property, sales, ad valorem, withholding,
social security, retirement, excise, employment, unemployment, minimum,
estimated, severance, stamp, occupation, environmental, windfall profits, use,
service, net worth, payroll, franchise, license, gains, customs, transfer,
recording and other tax, duty, fee, assessment or charge of any kind
whatsoever, imposed by any Tax Authority, including any liability therefore as
a transferee (including without limitation under Code Section 6901 or any
similar provision of applicable law), as a result of Treas. Reg. §1.1502-6 or
any similar provision of applicable law, or as a result of any tax sharing or
similar agreement, together with any interest, penalties or additions to tax
relating thereto.

 

“Tax Authority”
means any branch, office, department, agency, instrumentality, court, tribunal,
officer, employee, designee, representative, or other Person that is acting
for, on behalf, or as a part of any foreign or domestic government (or

 

11

 

any
state, local or other political subdivision thereof) that is engaged in or has
any power, duty, responsibility or obligation relating to the legislation,
promulgation, interpretation, enforcement, regulation, monitoring, supervision
or collection of or any other activity relating to any Tax or Tax Return.

 

“Tax Proceeding”
means any audit, examination, review, assessment or reassessment, refund claim,
litigation or other administrative judicial proceeding or other similar action
by a Tax Authority relating to any Tax for which any of the Companies is (or is
asserted to be) or may be liable, the collection, payment, or withholding of
any Tax, or any Tax Return filed by or on behalf of any of the Companies.

 

“Tax Return” means
any return, election, declaration, report, schedule, information return,
document, information, opinion, statement, or any amendment to any of the
foregoing (including without limitation any consolidated, combined or unitary
return) submitted or required to be submitted to any Tax Authority.

 

“Third Party Claim”
has the meaning ascribed to it in Section 8.7(a).

 

“Treas.  Reg.” means any temporary, proposed or
final regulation promulgated under the Code.

 

“Uncle Dave’s” has
the meaning provided in Section 5.5(b).

 

“WARN Act” has the
meaning provided in Section 3.24(c).

 

“Working Capital” shall mean as of any date, on an Accrual
Basis (and otherwise in accordance with GAAP), except as described herein, (x)
the sum of (i) cash, cash equivalents and marketable securities, (ii) accounts
receivable (which shall include receivables with respect to Contracts or other
arrangements disclosed pursuant to Section 3.18(c)(i) hereof on the
Income Forecast Method but shall not include any receivables with respect to
Contracts or other arrangements disclosed pursuant to Section 3.18(c)(ii) hereof
or the Apple Receivable), (iii) loan receivables, (iv) prepaid
expenses, (v) cash surrender value of life insurance policies, and (vi) lease
deposits, minus (y) the sum of (i) accrued expenses, (ii) accounts
payable, (iii) both current (i.e.,
due within one year) and long-term Indebtedness, including, without limitation,
Indebtedness under lines of credit, revolving credit facilities or other
banking arrangements used by the Companies to obtain working capital, and (iv) without
duplication, all other liabilities (both current and long-term, but excluding
contingent liabilities that arise from (and are less than) revenues that may be
received after the Closing hereunder, and future commitments under leases), all
as determined in accordance with GAAP; provided, however, there
shall be excluded from this calculation (I) any amount owed between the
Companies and (II) any amounts due to or from Affiliates that are cancelled or
forgiven pursuant to Section 5.6 of the Agreement.

 

(b)       Terms
Generally.  Unless the context of
this Agreement otherwise requires, (i) words of any gender include each
other gender; (ii) words using the singular

 

12

 

or
plural number also include the plural or singular number, respectively; (iii) the
terms “hereof,” “herein,” “hereby” and derivative or similar words refer to
this entire Agreement; (iv) the terms “Article,” “Section” or “Schedule”
refer to the specified Article, Section or Schedule of this
Agreement; and (v) the words “include,” “includes,” and “including” are
deemed to be followed by the phrase: “without limitation.” All accounting terms
used herein and not expressly defined herein shall have the meanings given to
them under GAAP.

 

13

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