EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
By and Among
Trans World Entertainment Corporation,
Wax Works, Inc.
and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
TABLE OF CONTENTS
PAGE
1. Sale and Delivery of the Assets......................................1
1.1. Delivery of the Assets.........................................1
1.2. Further Assurances.............................................3
1.3. Purchase Price.................................................3
1.4. Assumption of Liabilities; Etc.................................3
1.5. Allocation of Purchase Price...................................4
1.6. The Closing....................................................4
1.7. Apportionment and Adjustments..................................4
2. Representations of the Seller and the Principal......................7
2.1. Organization...................................................7
2.2. Capitalization of the Seller...................................7
2.3. Authorization..................................................7
2.4. Ownership of the Assets........................................8
2.5. Financial Statements...........................................9
2.6. Absence of Undisclosed Liabilities.............................9
2.7. Litigation.....................................................9
2.8. Stores.........................................................9
2.9. Fixed Assets...................................................9
2.10.Leases........................................................10
2.11.Change in Financial Condition and Assets......................10
▇.▇▇.▇▇▇ Matters...................................................11
2.13.Assets Complete...............................................12
2.14.Books and Records.............................................12
2.15.Contracts and Commitments.....................................12
2.16.Compliance with Agreements and Laws...........................13
2.17.Employee Relations............................................14
2.18.Absence of Certain Changes or Events..........................14
2.19.Suppliers.....................................................15
2.20.Prepayments and Deposits......................................15
▇.▇▇.▇▇▇▇▇ Names and Other Intangible Property.....................15
2.22.Employee Benefit Plans........................................16
2.23.Indebtedness to and from Officers, Directors and
Shareholders...............................................17
2.24.Powers of Attorney and Suretyships............................17
2.25.Disclosure....................................................17
2.26.Inventory.....................................................17
2.27.Environmental Matters.........................................17
3. Representations of the Buyer........................................18
3.1. Organization and Authority....................................18
3.2. Authorization.................................................18
3.3. Regulatory Approvals..........................................19
3.4. Disclosure....................................................19
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3.5. Litigation....................................................19
3.6. Financing.....................................................19
4. Access to Information; Public Announcements.........................19
4.1. Access to Management, Properties and Records..................19
4.2. Confidentiality...............................................20
4.3. Public Announcements..........................................20
5. Covenants of the Seller.............................................20
5.1. Conduct of Business...........................................20
5.2. Absence of Material Changes...................................20
5.3. Taxes.........................................................21
5.4. Delivery of Interim Financial Statements and 2000
Audited Financial Statements...............................21
5.5. Compliance with Laws..........................................22
5.6. Satisfaction of Conditions....................................22
5.7. Continued Truth of Representations and Warranties of
the Seller.................................................22
5.8. Continuing Obligation to Inform...............................22
5.9. Exclusive Dealing.............................................22
5.10 Estoppel Certificates.........................................22
6. Covenants of the Buyer..............................................22
6.1. Satisfaction of Conditions....................................22
6.2. Continued Truth of Representations and Warranties of
the Buyer..................................................22
6.3. Employees.....................................................23
6.4. Supply Contract...............................................23
6.5. Consulting Agreement..........................................23
7. Conditions to Obligations of the Buyer..............................23
7.1. Continued Truth of Representations and Warranties of
the Seller; Compliance with Covenants and
Obligations................................................24
7.2. Corporate Proceedings.........................................24
7.3. Governmental Approvals........................................24
7.4. Consents of Lenders, Lessors and Other Third Parties..........24
7.5. Adverse Proceedings...........................................24
7.6. The Assets....................................................24
7.7. Cash Available for Working Capital Purposes...................24
7.8. Closing Deliveries............................................24
7.9. Section 1445 Certificate......................................25
8. Conditions to Obligations of the Seller.............................25
8.1. Continued Truth of Representations and Warranties of
the Buyer; Compliance with Covenants and
Obligations................................................25
8.2. Corporate Proceedings.........................................25
8.3. Governmental Approvals........................................25
8.4. Consents of Third Parties.....................................25
8.5. Adverse Proceedings...........................................25
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9. Indemnification.....................................................26
9.1. By the Buyer and the Seller and the Principal.................26
9.2A By the Seller and the Principal...............................26
9.2B By the Buyer..................................................26
9.3. Procedures for Indemnification................................27
9.4. Payment of Indemnification Obligation.........................28
9.5. Survival of Representations; Claims for
Indemnification............................................28
9.6. Damages and Related Matters...................................28
10. Post-Closing Agreements.............................................29
10.1.Proprietary Information.......................................29
▇▇.▇.▇▇ Solicitation or Hiring of Former Employees.................29
10.3.Non-Competition Agreement.....................................29
10.4.Sharing of Data...............................................30
10.5.Use of Name...................................................30
10.6.Cooperation in Litigation.....................................30
11. Termination of Agreement............................................30
11.1.Termination by Lapse of Time..................................30
11.2.Termination by Agreement of the Parties.......................31
11.3.Termination by Reason of Breach...............................31
12. Certain Tax Matters.................................................31
13. Brokers.............................................................31
14. Notices.............................................................32
15. Consent to Jurisdiction.............................................32
16. Successors and Assigns..............................................33
17. Entire Agreement; Amendments; Attachments; Waivers..................33
18. Expenses............................................................33
19. No Third Party Beneficiaries........................................33
20. Governing Law.......................................................34
21. Section Headings....................................................34
22. Severability........................................................34
23. Counterparts........................................................34
24. Terms Defined in This Agreement.....................................34
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EXHIBITS
A - Lease Assignment
B - Video Supply Contract
C - Consulting Agreement
SCHEDULES
1.1(a)(iii) - Opening Cash
1.1(a)(ix) - Excluded Intangibles
1.1(b) - Excluded Assets
1.5 - Allocation of Purchase Price
1.7(a) - Rent and Tax Adjustment
1.7(b) - Inventory Valuation
1.7(d) - Cooperative Advertising Adjustment
1.7(e) - Provisioning Expenditures
2.3 - Seller Consents
2.4 - Encumbrances
2.6 - Undisclosed Liabilities
2.7 - Litigation
2.8 - Stores
2.9 - Fixed Assets
2.10 - Leases
2.11 - Material Changes
2.12 - Taxes
2.13 - Missing Assets
2.15 - Contracts
2.16 - Permits
2.17 - Employees
2.18 - Absence of Changes
2.19 - Suppliers
2.20 - Prepayments and Deposits
2.21 - Intangible Property
2.22 - Employee Benefit Plans
2.23 - Indebtedness to and from Affiliates
2.24 - Powers of Attorney
2.27 - Environmental
3.2 - Buyer Consents
5.2 - Absence of Material Changes
6.3 - Excluded Employees
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ASSET PURCHASE AGREEMENT
Agreement made as of September 9, 2000 among Trans World Entertainment
Corporation, a New York corporation with its principal office at ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "BUYER"), Wax Works, Inc., a Kentucky corporation
with its principal office at ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"SELLER"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, a natural person and the sole stockholder of the
Seller (the "PRINCIPAL").
PRELIMINARY STATEMENT
The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets of the Seller which relate to its retail audio
business including the retail stores identified on Schedule 2.8 (the "AUDIO
BUSINESS"), for the consideration set forth below and the assumption of certain
of the Seller's liabilities set forth below, subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. SALE AND DELIVERY OF THE ASSETS
1.1. DELIVERY OF THE ASSETS.
(a) Subject to and upon the terms and conditions of this Agreement, at
the closing of the transactions contemplated by this Agreement (the "CLOSING"),
the Seller shall sell, transfer, convey, assign and deliver to the Buyer, and
the Buyer shall purchase from the Seller, the following properties, assets and
other claims, rights and interests (but not including the Excluded Assets, as
defined below):
(i) all Store inventories and warehouse facility inventories held
for future sale in the Stores (collectively, the "INVENTORY") on the date
of the Inventory Count (as defined below) as adjusted pursuant to Section
1.7(b);
(ii) all office supplies, maintenance supplies, packaging materials,
spare parts and similar items of the Seller designated for use in the
Stores (collectively, the "SUPPLIES");
(iii) opening cash for each Store in the amounts set forth on
Schedule 1.1(a)(iii) and deposits relating to the Stores (including the
deposits described on Schedule 2.20), existing on the Closing Date;
(iv) all rights of the Seller under the contracts, agreements,
leases, licenses and other instruments set forth on Schedule 2.15 attached
hereto other than such rights under contracts, agreements, leases,
licenses and other instruments included on Schedule 1.1(b) (collectively,
the "CONTRACT RIGHTS");
(v) all funds, discounts or other incentives provided to the Seller
in respect of cooperative advertising arrangements relating to any portion
of the Inventory (the "COOPERATIVE ADVERTISING INCENTIVES");
(vi) copies of all books, records and accounts, manuals, customer
lists, customer records, employment records, studies, reports or summaries
relating in whole or in part to or arising in whole or in part out of the
operation of the Stores;
(vii) all rights of the Seller under express or implied warranties
from the suppliers or other third party service or product providers to
the Audio Business to the extent relating or applicable to the items
described in this Section 1.1(a);
(viii) all of the machinery, equipment, furniture, fixtures,
software, interior and exterior signs and signage, leasehold improvements,
construction in progress and all other store assets, real and personal,
located at or related to the Stores and owned by the Seller on the Closing
Date whether or not reflected as capital assets in the accounting records
of the Seller (collectively, the "FIXED Assets");
(ix) except as disclosed on Schedule 1.1(a)(ix), all general
intangibles of the Seller used in the Audio Business or in the operation
of the Stores including, without limitation, trademarks, trademark
licenses, patents, trade names, URLs and trade systems (collectively, the
"INTANGIBLE PROPERTY"); and
(x) except as specifically provided in Section 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Seller which
exist on the Closing Date, of every kind and nature and description,
whether tangible or intangible, real, personal or mixed, which relate to
the Stores.
(b) Notwithstanding the provisions of Section 1.1(a), the properties,
assets and business to be transferred to the Buyer under this Agreement shall
not include:
(i) the Seller's warehouse facility located at ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ or any of the goods therein located that are not a
part of the Inventory and the Supplies;
(ii) any assets comprising a part of the Seller's video wholesale
business (the "VIDEO WHOLESALE BUSINESS") as conducted on the Closing
Date; PROVIDED that all of the assets described in Section 1.1(a) shall be
deemed not to comprise a part of the Video Wholesale Business;
(iii) amounts owed to the Seller or any claims or causes of action
by the Seller against third parties relating to the Audio Business or any
of the Leases or other Contract Rights, in any such case arising prior to
the Closing;
(iv) any capital stock of the Seller or the Seller's corporate
minute books;
(v) any bank accounts of the Seller;
(vi) the name "Wax Works", "Video Works" or derivations thereof;
(vii) any of the Seller's insurance policies;
(viii) any assets used principally by the Seller to provide
Corporate Services to the Stores in the ordinary course of business; and
(ix) any other assets of the Seller listed on Schedule 1.1(b)
attached hereto (together with the assets described in clauses 1.1(b)(i)
through 1.1(b)(viii), the "EXCLUDED ASSETS").
(c) The Inventory, Supplies, Contract Rights, Cooperative Advertising
Incentives, Fixed Assets, Intangible Property and other properties, assets and
business of the Seller described in Section 1.1(a), other than the Excluded
Assets, shall be referred to collectively as the "ASSETS."
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1.2. FURTHER ASSURANCES. At any time and from time to time before and
after the Closing, at the request of any party and without further
consideration, each party promptly shall execute and deliver such instruments of
sale, transfer, conveyance, assignment, assumption and confirmation, and take
such other action, as may be reasonably requested to more effectively carry out
the purpose and intent of this Agreement.
1.3. PURCHASE PRICE.
(a) The purchase price for all of the Assets of the Seller shall be
$52,400,000 (the "BASE PURCHASE PRICE"), plus the amount of the Rent and Tax
Adjustment to which Seller is entitled under Section 1.7(a), plus or minus, as
the case may be, the amount of any Inventory adjustment pursuant to Section
1.7(b), plus or minus, as the case may be, the amount of any Fixed Assets
adjustment pursuant to Section 1.7(c), minus the amount of the Cooperative
Advertising Adjustment, plus the aggregate amount of the Provisioning
Expenditures, plus the Assumed Liabilities. The Base Purchase Price, plus the
amount of the Rent and Tax Adjustment to which the Seller is entitled under
Section 1.7(a), plus or minus, as the case may be, the amount of any Inventory
adjustment pursuant to Section 1.7(b), plus or minus, as the case may be, the
amount of any Fixed Assets adjustment pursuant to Section 1.7(c), minus the
amount of the Cooperative Advertising Adjustment, plus the aggregate amount of
the Provisioning Expenditures is collectively referred to herein as the "CASH
CONSIDERATION."
(b) At the Closing, the Buyer shall deliver to the Seller immediately
available funds in the amount of the Base Purchase Price, plus the Rent and Tax
Adjustment, plus or minus, as the case may be, the amount of any Fixed Assets
adjustment pursuant to Section 1.7(c), minus the amount of the Cooperative
Advertising Adjustment, plus the aggregate amount of the Provisioning
Expenditures.
1.4. ASSUMPTION OF LIABILITIES; ETC.
(a) At the Closing, the Buyer shall assume and execute and deliver an
Instrument of Assumption of Liabilities (the "INSTRUMENT OF ASSUMPTION") in a
form reasonably satisfactory to the Buyer, pursuant to which it shall assume and
agree to timely perform, pay and discharge the following liabilities,
obligations and commitments of the Seller, to the extent such liabilities,
obligations and commitments relate exclusively to the Assets, and not to the
Excluded Assets (the "ASSUMED LIABILITIES"):
(i) All liabilities, obligations and commitments, fixed or
contingent, of the Seller accruing or arising after the Closing under the
Contracts pursuant to which the Buyer is acquiring Contract Rights, which
obligations become due and payable or are otherwise required to be
performed after the Closing Date;
(ii) All liabilities, obligations and commitments, fixed or
contingent, of the Seller relating to the Cooperative Advertising
Incentives;
(iii) All customer liabilities, obligations and commitments, fixed
or contingent, of the Seller arising out of the operation of the Stores in
the ordinary course of business, including returns, accommodations and
gift certificates;
(iv) All liabilities and obligations of the Seller in respect of
inventory ordered by the Seller prior to the Closing Date and received by
the Buyer after the date of the Inventory Count; and
(v) All liabilities and obligations of the Seller specifically and
expressly assumed by the Buyer elsewhere in this Agreement.
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(b) In addition, as to each of the Leases, subject to obtaining the
required consents, waivers and approvals set forth on Schedule 2.3 with respect
to each such Lease, the Seller and the Buyer shall execute and deliver to each
other a Lease Assignment (each a "LEASE ASSIGNMENT") in the form of Exhibit A,
as modified to include such terms, provisions and conditions which are required
pursuant to the applicable Lease, and the Buyer shall cause an executed copy of
each Lease Assignment to be sent to the respective landlord under the subject
Lease as soon as practicable after the Closing.
(c) Except as otherwise expressly and specifically set forth in this
Agreement, the Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
(including, without limitation, all liabilities relating to Taxes) other than
the Assumed Liabilities, whether or not arising out of the Audio Business, and
including, without limitation, all obligations, liabilities and commitments,
fixed and contingent, accruing or arising before the Closing, relating to any
operations or activities conducted at any Store Property prior to the Closing,
or otherwise relating to the Excluded Assets.
1.5. ALLOCATION OF PURCHASE PRICE. The aggregate amount of the Base
Purchase Price and the Assumed Liabilities shall be allocated among the Assets
as set forth on Schedule 1.5 attached hereto. Such allocation shall be subject
to adjustment to the extent of the Rent and Tax Adjustment, Inventory
adjustment, Fixed Asset adjustment, Cooperative Advertising Adjustment or
Provisioning Expenditures adjustment provided for in Section 1.7.
1.6. THE CLOSING. The Closing shall take place on or before November 30,
2000, at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, at such time or date as may be mutually agreed upon by the parties
hereto. The transfer of the Assets by the Seller to the Buyer and the assumption
of the Assumed Liabilities by the Buyer shall be deemed to occur at 12:00 a.m.,
New York time, on the date of the Closing (the "CLOSING DATE").
1.7. APPORTIONMENT AND ADJUSTMENTS.
(a) (i) The purchase price of the Assets shall not be subject to any
adjustment for any prepaid expenses of the Seller, including without
limitation: (A) prepaid premiums on insurance, (B) water and sewer use
charges or (C) transfer taxes and recording fees, if any, incurred in
connection with the transfer of the Assets contemplated hereby, and such
prepaid amounts, if any, shall not be added to or deducted from the
purchase price. Notwithstanding the foregoing, the Seller shall be
entitled to a proportionate adjustment in respect of prepaid rent
(including any customary charges to the extent provided for in any given
Lease such as, but without limitation, percentage rent, utilities,
operating expenses and common area maintenance charges, however
denominated) and prepaid real and personal property taxes (the "RENT AND
TAX ADJUSTMENT"), each as determined in accordance with generally accepted
accounting principles, as of the Closing Date, which amount shall be added
to the cash portion of the purchase price deliverable at the Closing. The
Seller shall deliver at or prior to the Closing the estimated calculation
of the Rent and Tax Adjustment, which shall be attached hereto as Schedule
1.7(a) and shall constitute the Seller's and the Principal's reasonable
good faith estimate of such calculation.
(ii) Eighteen months after the Closing Date, the Buyer shall
determine the actual calculation of the proportionate amount of prepaid
rent (including any customary charges to the extent provided for in any
given Lease such as, but without limitation, percentage rent, utilities,
operating expenses and common area maintenance charges, however
denominated) and prepaid real and personal property taxes (the "REVISED
RENT AND TAX ADJUSTMENT"), each as determined in accordance with generally
accepted accounting principles, as of the Closing Date, based on the
actual invoices received by the Buyer through the date of calculation and,
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where such invoices have not been provided to the Buyer, the Buyer's
reasonable good faith estimates. The Buyer shall deliver such calculation
to the Seller, along with copies of such invoices and estimates as are
reasonably necessary for the Seller to confirm the Buyer's calculation of
the Revised Rent and Tax Adjustment.
(A) If the Seller shall not object in writing to the Buyer's
calculation of the Revised Rent and Tax Adjustment within thirty
(30) days of receiving the Buyer's calculation of the revised Rent
and Tax Adjustment, (I) if the Rent and Tax Adjustment exceeds the
Revised Rent and Tax Adjustment by more than $25,000, then the
Seller shall remit to the Buyer, no later than fourteen (14) days
after receiving the Buyer's calculation of the Revised Rent and Tax
Adjustment, in immediately available funds, the amount by which the
Rent and Tax Adjustment exceeds the Revised Rent and Tax Adjustment
less $25,000 or (II) if the Revised Rent and Tax Adjustment exceeds
the Rent and Tax Adjustment by more than $25,000, then the Buyer
shall remit to the Seller, no later than seven (7) days after the
later of (x) the Seller advising the Buyer in writing of its
agreement with the Buyer's calculation or (y) the thirtieth (30th)
day after delivering its calculation to the Seller if the Seller
shall not have objected prior to such time, the amount by which the
Revised Rent and Tax Adjustment exceeds the Rent and Tax Adjustment
less $25,000.
(B) If the Seller disputes the amount calculated by the Buyer,
the Seller shall serve a written notice of objection on the Buyer
within thirty (30) days after receiving the Buyer's calculation. The
notice shall specify in reasonable detail the items disputed and
shall describe in reasonable detail the basis for the objection and
all information in the possession of the Seller which forms the
basis thereof, as well as the amount in dispute. The parties shall
consult with each other with respect to the objection. If the
parties are unable to reach agreement within fourteen (14) days
after the notice has been given, any unresolved disputed items shall
be promptly referred to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (the "UNRELATED
ACCOUNTING FIRM"). The Unrelated Accounting Firm shall be directed
to render a written report on the unresolved disputed issues as
promptly as practicable and to resolve only those issues of dispute
set forth in the notice. The resolution of the dispute by the
Unrelated Accounting Firm shall be final and binding on the parties.
Any required payment shall be made within seven (7) days of the
resolution of the dispute by the Unrelated Accounting Firm. The fees
and expenses of the Unrelated Accounting Firm shall be borne equally
by the parties.
(iii) At all times after the Closing Date, the Buyer shall perform
all obligations contained in the Leases with respect to the payment of
rent or other charges, regardless of whether such rent or other charges
are ultimately allocable to the Seller pursuant to this Section 1.7(a).
(b) (i) The Buyer shall, within 2 days after the Closing Date, cause
RGIS (or, to the extent that RGIS is unavailable, WIS) to perform a
physical count of the Inventory (the "INVENTORY COUNT"). The Seller shall
be permitted to have its representatives present during the Inventory
Count; PROVIDED that the Seller's representatives shall not interfere with
the activities of RGIS or WIS, as the case may be. Such Inventory Count
shall be adjusted by the Buyer to be as of the Closing Date. The fees,
costs and expenses of the inventory service shall be shared equally by the
Buyer and the Seller. The Inventory Count will classify the Inventory into
three subcategories: "AUDIO INVENTORY," which shall consist of
pre-recorded full length compact discs and cassette tapes other than
Deleted Inventory; "VIDEO INVENTORY," which shall consist of pre-recorded
digital video discs and VHS video cassettes; and "OTHER INVENTORY," which
shall consist of all Inventory other than Audio Inventory and Video
Inventory generally carried for sale in the Stores including, but not
limited to, Deleted Inventory, pre-recorded compact disc and cassette
singles, blank audio and video tapes, cleaning accessories, video game
hardware and software, consumer electronics, media storage, posters,
boutique items and t-shirts. Each item within each classification of
Inventory will then be valued according to the methodol-
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ogy of Inventory Valuation set forth on Schedule 1.7(b) and an aggregate
Inventory value will then be calculated on such basis (the "INVENTORY
VALUATION"). If the Inventory Valuation exceeds $32,400,000 (the "BASE
INVENTORY AMOUNT"), the Buyer shall remit to the Seller, no later than 14
days after the Closing Date, in immediately available funds, an amount
equal to the amount by which the Inventory Valuation exceeds the Base
Inventory Amount. If the Base Inventory Amount exceeds the Inventory
Valuation, the Seller shall remit to the Buyer, no later than 14 days
after the Closing Date, in immediately available funds, an amount equal to
the amount by which the Base Inventory Amount exceeds the Inventory
Valuation. "DELETED INVENTORY" shall mean those pre-recorded compact discs
and cassettes designated as such on Schedule 1.7(b).
(ii) If the Seller disputes the Inventory Valuation, the Seller
shall serve a written notice of objection on the Buyer within fourteen
(14) days after the date of delivery of the Inventory Count to the Seller.
The notice shall specify in reasonable detail the items disputed and shall
describe in reasonable detail the basis for the objection and all
information in the possession of the Seller which forms the basis thereof,
as well as the amount in dispute. The parties shall consult with each
other with respect to the objection. If the parties are unable to reach
agreement within fourteen (14) days after the notice has been given, any
unresolved disputed items shall be promptly referred to the Unrelated
Accounting Firm. The Unrelated Accounting Firm shall be directed to render
a written report on the unresolved disputed issues as promptly as
practicable and to resolve only those issues of dispute set forth in the
notice. The resolution of the dispute by the Unrelated Accounting Firm
shall be final and binding on the parties. Any required payment shall be
made within seven (7) days of the resolution of the dispute by the
Unrelated Accounting Firm. The fees and expenses of the Unrelated
Accounting Firm shall be borne equally by the parties.
(c) At the Closing, the Seller shall deliver an update to Schedule
2.9 to reflect changes to the Fixed Assets between the date of this Agreement
and the Closing Date. If the book value of the Fixed Assets as of the Closing
Date (the "FIXED ASSETS BOOK VALUE") exceeds $13,000,000 (the "BASE FIXED ASSETS
AMOUNT"), the Buyer shall remit to the Seller an amount equal to the amount by
which the Fixed Asset Book Value exceeds the Base Fixed Assets Amount, which
shall be added to the cash portion of the purchase price deliverable at the
Closing. If the Base Fixed Assets Amount exceeds the Fixed Assets Book Value,
the Buyer may subtract from the cash portion of the purchase price deliverable
at the Closing an amount equal to the amount by which the Base Fixed Assets
Amount exceeds the Fixed Assets Book Value.
(d) At the Closing, the Seller shall deliver Schedule 1.7(d) to this
Agreement, which shall detail the amount of and related Inventory for all
Cooperative Advertising Incentives received by the Seller with respect to which
the Seller has not completed or caused to be completed the promotional
activities contemplated thereby. The Buyer may subtract from the cash portion of
the purchase price deliverable at the Closing an amount equal to the aggregate
amount of all Cooperative Advertising Incentives detailed on Schedule 1.7(d)
(the "COOPERATIVE ADVERTISING ADJUSTMENT").
(e) At the Closing, the Seller shall deliver Schedule 1.7(e) to this
Agreement, which shall set forth in reasonable detail, segregated by reference
to each Store Under Construction, the actual expenditures (the "PROVISIONING
EXPENDITURES") of the Seller in connection with provisioning each of the Stores
Under Construction, excluding any Fixed Assets and Inventory attributable to
such Stores Under Construction. The Seller shall also make available to the
Buyer such invoices as are reasonably necessary to confirm the calculations set
forth on Schedule 1.7(e). The aggregate Provisioning Expenditures shall be added
to the cash portion of the purchase price deliverable at the Closing.
(f) If the Buyer disputes any amounts calculated or presented by the
Seller under Section 1.7(c), (d) or (e) above, the Buyer shall serve a written
notice on the Seller within sixty (60) days after the Closing Date. Any notice
shall specify in reasonable detail the items disputed and shall describe in
reasonable detail the basis for the objection
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and all information in the possession of the Buyer which forms the basis
thereof, as well as the amount in dispute. The parties shall consult with each
other with respect to the objection. If the parties are unable to reach
agreement within fourteen (14) days after the notice has been given, any
unresolved disputed items shall be promptly referred to the Unrelated Accounting
Firm. The Unrelated Accounting Firm shall be directed to render a written report
on the unresolved disputed issues as promptly as practicable and to resolve only
those issues of dispute set forth in the notice. The resolution of the dispute
by the Unrelated Accounting Firm shall be final and binding on the parties. Any
required payment shall be made within seven (7) days of the resolution of the
dispute by the Unrelated Accounting Firm. The fees and expenses of the Unrelated
Accounting Firm shall be borne equally by the parties.
2. REPRESENTATIONS OF THE SELLER AND THE PRINCIPAL
The Seller and the Principal, jointly and severally, represent and warrant
to the Buyer as follows:
2.1. ORGANIZATION. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kentucky, and has
all requisite power and authority (corporate and other) to own its properties,
to carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. The Seller is duly qualified to do business
and in good standing in all jurisdictions in which its ownership of property or
the character of its business requires such qualification and failure to be so
qualified would have a Material Adverse Effect on the Audio Business. Certified
copies of the Articles of Incorporation and By-laws of the Seller, each as
amended to date, have been previously made available to the Buyer, are complete
and correct, and no amendments have been made thereto or have been authorized
since the date thereof. The Seller does not own any capital stock of or other
equity interest in any corporation, partnership or other entity.
2.2. OWNERSHIP OF THE SELLER. All of the Seller's outstanding capital
stock is owned by the Principal.
2.3. AUTHORIZATION. The execution and delivery of this Agreement by the
Seller, and the agreements provided for herein, and the consummation by the
Seller of all transactions contemplated hereby, have been duly authorized by all
requisite corporate and shareholder action. This Agreement and all such other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which the Seller is a party constitute the
valid and legally binding obligations of the Seller, enforceable against the
Seller in accordance with their respective terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or the availability of
equitable remedies. The execution, delivery and performance by the Seller of
this Agreement and the agreements provided for herein, and the consummation by
the Seller of the transactions contemplated hereby and thereby in the manner
provided for in this Agreement, will not, with or without the giving of notice
or the passage of time or both, (a) violate in any material respect the
provisions of any law, rule or regulation applicable to the Seller; (b) violate
the provisions of the Articles of Incorporation or By-laws of the Seller; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator binding on the Seller; or (d) subject to obtaining the consents,
waivers and approvals described in Schedule 2.3, conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the Assets pursuant to, any indenture, mortgage, deed
of trust or other instrument or agreement to which the Seller is a party or by
which the Seller or any of its properties are bound. Schedule 2.3 attached
hereto sets forth a true, correct and complete list of all consents, waivers and
approvals of third parties that are required in connection with the consummation
by the Seller of the transactions contemplated by this Agreement.
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2.4. OWNERSHIP OF THE ASSETS.
(a) Schedule 2.4 attached hereto sets forth a true, correct and complete
list of all claims, liabilities, liens, pledges, charges, encumbrances and
equities of any kind (collectively, the "ENCUMBRANCES") affecting the Assets
(other than the Leases) other than Permitted Encumbrances. The Seller, at the
Closing, will, subject to obtaining the consents and approvals described in
Schedule 2.3, have the right to (and will, upon delivery of the ▇▇▇▇ of Sale,
Instrument of Assignment and instruments of transfer of ownership contemplated
hereby) sell and transfer to the Buyer good, clear, record and marketable title
to the Assets (other than the Leases) free and clear of all Encumbrances of any
kind, other than Permitted Encumbrances.
(b) Except as set forth on Schedule 2.4, the Seller has a valid
leasehold interest in each of the premises identified in the Leases, free and
clear of any Encumbrances other than Permitted Encumbrances and Fee
Encumbrances. The Seller, at the Closing, subject to obtaining the consents,
waivers and approvals described in Schedule 2.3, the execution and delivery of
the Lease Assignments, and the assumption of the Assumed Liabilities, will
transfer to the Buyer a valid leasehold interest in each of the premises
identified in the Leases, subject to the respective terms of the Leases and
entitled to the benefits of the Lease relating to such premises enjoyed by the
Seller and contained in such Lease as of August 24, 2000 together with any
amendments, modifications or supplements made on or prior to such date, and
otherwise free and clear of all Encumbrances other than Permitted Encumbrances
and Fee Encumbrances.
"FEE ENCUMBRANCES" shall mean, with respect to the premises identified in
any Lease, Encumbrances on the title of the landlord to such premises.
"PERMITTED ENCUMBRANCES" shall mean (i) any lien for current taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings, (ii) any lien arising in the ordinary course of business for sums
not now due or sums being contested in good faith and by appropriate proceedings
and liens securing appeal bonds, workmen's compensation bonds and similar bonds,
(iii) covenants, conditions and restrictions of record arising in the ordinary
course of conduct of the Audio Business, which covenants, conditions and
restrictions are not violated in any material respect by existing uses or
improvements and do not materially interfere with the use of the property and do
not affect the merchantability of the Seller's title or contain any provision
for reversion or forfeiture of the Seller's title, and (iv) as it relates to the
Leases, limitations on use of a subject premises to the extent that such
limitation does not materially adversely affect or limit the conduct of retail
sales as presently conducted in the Stores (or, in the case of the Stores Under
Construction, limitations on use of a subject premises provided for in the
underlying Lease).
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2.5. FINANCIAL STATEMENTS. The Seller has previously made available to
the Buyer its audited balance sheets as of June 30, 1999, 1998 and 1997 (the
"AUDITED BALANCE SHEETS") and the related statements of income, shareholders'
equity, retained earnings and statements of cash flow of the Seller for the
fiscal years then ended (collectively, including the Audited Balance Sheet, the
"AUDITED FINANCIAL STATEMENTS"). The Seller has also previously made available
to the Buyer its unaudited balance sheet as of June 30, 2000 (the "2000
UNAUDITED BALANCE SHEET") and the related statements of income, shareholders'
equity, retained earnings and statements of cash flow of the Seller for the
fiscal year then ended (collectively, including the 2000 Unaudited Balance
Sheet, the "2000 UNAUDITED FINANCIAL Statements"). To the Seller's and the
Principal's knowledge, the 2000 Unaudited Financial Statements and the Interim
Financial Statements to be made available pursuant to Section 5.4 (collectively,
together with the Audited Financial Statements and the 2000 Audited Financial
Statements, the "FINANCIAL STATEMENTS") have been (or will be) prepared in
accordance with generally accepted accounting principles applied consistently
with past practice. The Audited Financial Statements and the 2000 Audited
Financial Statements have been (or will be) prepared in accordance with
generally accepted accounting principles applied consistently with past practice
and certified without qualification by the Seller's independent public
accountants. The Financial Statements fairly present, as of their respective
dates, the financial condition, retained earnings, assets and liabilities of the
Seller and the results of operations of the Seller's business for the periods
indicated.
2.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent (a)
reflected and reserved against in the 2000 Unaudited Balance Sheet, (b) set
forth on Schedule 2.6 attached hereto or (c) incurred in the ordinary course of
business after the date of the 2000 Unaudited Balance Sheet and not material in
amount, either individually or in the aggregate, to the knowledge of the Seller
and the Principal, the Seller does not have any liability or obligation, secured
or unsecured, whether accrued, absolute, contingent, unasserted or otherwise,
affecting the Assets. For purposes of this Section 2.6, "MATERIAL" means any
amount in excess of $25,000.
2.7. LITIGATION. Except as set forth on Schedule 2.7 attached hereto, the
Seller is not a party to, or to the Seller's or the Principal's knowledge,
threatened with, and none of the Assets are subject to, any pending or, to the
Seller's or the Principal's knowledge, threatened litigation, suit, action,
investigation, proceeding or controversy before any court, administrative agency
or other governmental authority relating to or affecting the Assets or the
business or condition (financial or otherwise) of the Audio Business. The Seller
is not in violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority applicable or potentially applicable to the Audio Business.
2.8. STORES. Schedule 2.8 lists the name, location and approximate square
footage of each of the retail stores used in the conduct of the Seller's retail
audio business or under construction in contemplation of being used in the
conduct of the Seller's retail audio business (each a "Store" and collectively,
the "STORES"). Schedule 2.8 separately identifies each Store which is under
construction (each a "STORE UNDER CONSTRUCTION").
2.9. FIXED ASSETS. To the Seller's and the Principal's knowledge,
Schedule 2.9 attached hereto on the date of this Agreement sets forth a true,
correct and complete list of all Fixed Assets, identified in a manner consistent
with the Seller's past practices, as of the date of this Agreement (regardless
of whether such Fixed Assets are reflected in the Seller's books and records,
and including those Fixed Assets as to which the book value is zero), including
the book value thereof (determined in accordance with generally
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accepted accounting principles applied consistently with past practice) and a
complete list of all maintenance contracts (other than those listed in Schedule
2.15) with respect to such Fixed Assets to which the Seller is a party. To the
Seller's and the Principal's knowledge, Schedule 2.9, as updated pursuant to
Section 1.7(c), sets forth a true, correct and complete list of all Fixed Assets
as of the Closing Date (regardless of whether such Fixed Assets are reflected in
the Seller's books and records, and including those Fixed Assets as to which the
book value is zero), including the book value thereof (determined in accordance
with generally accepted accounting principles applied consistently with past
practice) and a complete list of all maintenance contracts with respect to such
Fixed Assets to which the Seller is a party. Except as disclosed on Schedule
2.9, as updated by Section 1.7(c), to the Seller's and the Principal's
knowledge, no material Fixed Asset is unusable for its intended use in the
ordinary course of business of the Stores as presently conducted and, to the
extent provided in the maintenance contracts listed on Schedule 2.9, as updated
pursuant to Section 1.7(c), to the Seller's and the Principal's knowledge,
normal maintenance has been consistently performed with respect to such Fixed
Assets. Except as set forth in the preceding sentence, neither the Seller nor
the Principal makes any representation or warranty as to the condition or
fitness for a particular purpose of any of the Fixed Assets.
2.10. LEASES. Schedule 2.10 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property pursuant to
which any Store occupies its premises (the "LEASES"). True, correct and complete
copies of the Leases, and all amendments, modifications and supplemental
agreements thereto, have been made available by the Seller to the Buyer. The
Leases are binding and enforceable against the Seller and, to the Seller's and
the Principal's knowledge, each of the other parties thereto in accordance with
their respective terms and, except as set forth on Schedule 2.10, have not been
modified or amended since August 24, 2000. The Seller has not received any
written notice from the landlord under any Lease that it is in breach or default
of such Lease, and to the Seller's and the Principal's knowledge, neither the
Seller nor any other party is in default (other than, in the case of the Seller,
a default which the Seller has the right to cure and, in any such case, that
will be cured prior to and as of the Closing Date) with respect to any material
covenant, agreement or condition contained in any Lease, and to the Seller's and
the Principal's knowledge, there has not occurred any event which would
constitute a breach of or default by the Seller in the performance of any
material covenant, agreement or condition contained in any Lease, nor, to the
Seller's or the Principal's knowledge, has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default by the Seller. The Seller is not obligated to pay any
leasing or brokerage commission relating to any Lease and, except as set forth
on Schedule 2.10 attached hereto, will not have any enforceable obligation to
pay any leasing or brokerage commission upon the renewal of any Lease. Except as
set forth on Schedule 2.10 and except for the Stores Under Construction, no
material construction, alteration or other leasehold improvement work with
respect to any of the Leases remains to be paid for or to be performed by the
Seller. Except as set forth on Schedule 2.3 or rights to recapture in connection
with assignments, the continuation, validity and effectiveness of each Lease
will not be affected by the transfer thereof to the Buyer under this Agreement
nor will the transfer thereof give any person a right of termination or right to
make a material modification with respect to such Lease, and all such Leases are
assignable to the Buyer without a consent.
2.11. CHANGE IN FINANCIAL CONDITION AND ASSETS. Except as set forth on
Schedule 2.11 attached hereto, since June 30, 2000, there has been no change
which materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Audio Business (a
"Material Adverse Change"). Except as set forth on Schedule 2.11 and except for
occurrences, events and developments generally known in the retail music
industry as of the date hereof, neither the Seller nor the Principal has any
knowledge of any existing occurrence, event or development which, as far as can
be reasonably foreseen, will have a material adverse effect on the Audio
Business or its business, properties, assets, condition (financial or otherwise)
or prospects (a "MATERIAL ADVERSE EFFECT"). For the purposes of this Agreement
(a) changes in market or economic conditions generally affecting global,
national or regional economic conditions, (b) changes in the rate of inflation
in the United States, (c) changes in the valuation levels in the global or
national equity capital markets, (d) the creation or legalization of new
technologies competing with the Audio Business shall not be deemed to be or to
cause a Material Adverse Change or have had a Material Adverse Effect and (e) no
historical item listed in Schedule 2.11 shall be deemed to have been a Material
Adverse Change or have had a Material Adverse Effect.
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2.12. TAX MATTERS.
(a) Except as set forth on Schedule 2.12:
(i) Within the times and in the manner prescribed by law, the Seller
has filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon
the Seller for which it could be liable, whether to Taxing Authorities
(as, for example, under law) or to other persons or entities (as, for
example, under Tax allocation agreements), with respect to all taxable
periods or portions of taxable periods ending on or before the Closing
Date, all applicable tax laws and agreements have been fully complied
with, and all such amounts required to be paid by the Seller to Taxing
Authorities or others on or before the date hereof have been timely paid;
(iii) All Returns filed by the Seller constitute complete and
accurate representations of the respective Tax liabilities of, or
attributable to, the Seller for such years;
(iv) No examination of the Returns of the Seller is currently in
progress nor, to the knowledge of the Seller and the Principal, threatened
and no unresolved deficiencies have been asserted or assessed against the
Seller as a result of any audit by any Taxing Authority and no such
deficiency has been proposed or threatened; and
(v) There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the Assets of the Seller.
(b) None of the Assets of the Seller is property which:
(i) the Buyer or the Seller is or will be required to treat as owned
by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior
to the enactment of the Tax Reform Act of 1986;
(ii) is "tax-exempt use property" within the meaning of Section
168(h) of the Code; or
(iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g)(5) of the Code.
(c) For purposes of this Agreement: "RETURN" means any return,
declaration, report, statement or other document required to be filed in respect
of any Tax. "TAX" or "TAXES" means (i) any federal, state, local, foreign and
other governmental net income, gross income, gross receipts, estimated sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty, addition
to tax or additional amount with respect thereto, and (ii) any Taxes (defined in
(i) above) for which a person is liable (A) as a transferee or successor, (B) as
an indemnitor, guarantor, surety or in a similar capacity under any contract,
arrangement, understanding or commitment, whether oral or written, or (C) under
Treas. Reg. ss. 1.1502-6 or any comparable provision of state or local tax law.
"TAXING AUTHORITY" means any governmental authority responsible for the
imposition of Taxes.
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2.13. ASSETS COMPLETE. Except as disclosed on Schedule 2.13, the Assets
(together with the license granted by the Seller to the Buyer, as described in
Section 1.1(a) above) constitute all of the material rights, interests, assets
or property (tangible or intangible) owned or licensed by the Seller (or in
which the Seller otherwise has rights or any interest) which are currently used
in the Stores as currently operated by the Seller, but excluding assets used to
provide general corporate level support, corporate level management and
corporate level supervision to the Stores (collectively, "CORPORATE SERVICES").
2.14. BOOKS AND RECORDS. The general ledgers and books of account of the
Seller, all federal, state and local income, franchise, property and other tax
returns filed by the Seller, with respect to the Assets or the Audio Business,
and all other books and records of the Seller are in all material respects
complete and correct and have been maintained in accordance with good business
practice and in accordance with all applicable procedures required by laws and
regulations.
2.15. CONTRACTS AND COMMITMENTS.
(a) Schedule 2.15 attached hereto contains a true, complete and correct
list (if written) and description (if oral) of all material contracts,
agreements, leases, licenses and other instruments, whether written or oral, to
which the Seller is a party, necessary or useful to the conduct of the Audio
Business, as conducted by the Seller, but excluding insurance policies, employee
benefit plans, and any loan agreements, indentures, mortgages and guaranties
relating to the Audio Business that will cease to exist after the Closing Date
and general support, management and supervision provided by the Seller's
headquarters office (collectively, the "CONTRACTS"), including, without
limitation, the following types of Contracts:
(i) all loan agreements, indentures, mortgages and guaranties that
relate to the Audio Business or by which any of the Assets are bound;
(ii) all pledges, conditional sale or title retention agreements,
security agreements, equipment obligations, personal property leases and
lease purchase agreements relating to the Audio Business or by which any
of the Assets are bound;
(iii) all contracts, agreements, commitments, purchase orders or
other understandings or arrangements relating to the Audio Business or by
which any of the Assets are bound which (A) involve payments or receipts
by the Seller of more than $25,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties
thereto or (B) which, if terminated or discontinued, could reasonably be
expected to have a Material Adverse Effect;
(iv) all collective bargaining agreements, employment and consulting
agreements relating to the Audio Business or by which any of the Assets
are bound;
(v) all agency, distributor, sales representative and similar
agreements relating to the Audio Business;
(vi) all leases (including the Leases), whether operating, capital
or otherwise, relating to the Audio Business; and
(vii) any other material agreement or contract entered into by the
Seller relating to the Audio Business.
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For the purposes of this Section 2.15 and Schedule 2.15, (A) Schedule 2.15 shall
be deemed to include each of the Leases identified in Schedule 2.10, and (B) any
contracts, agreements, commitments, purchase orders or other understandings or
arrangements relating to the Audio Business but which are not required to be
listed on Schedule 2.15 because of the disclosure threshold set forth in Section
2.15(a)(iii) above shall nevertheless be deemed to be Contracts, PROVIDED that
the aggregate of all payments and receipts by the Seller under all such
contracts, agreements, commitments, purchase orders or other understandings or
arrangements does not exceed $75,000.
(b) Except as set forth on Schedule 2.15 attached hereto, as to each
Contract other than the Leases (which shall be governed by the representations
and warranties contained in Section 2.10):
(i) each Contract which is to be assumed by the Buyer as an Assumed
Liability (an "ASSUMED CONTRACT") is a valid and binding agreement of the
Seller, enforceable against the Seller in accordance with its terms, and
neither the Seller nor the Principal has any knowledge that any Assumed
Contract is not a valid and binding agreement of the other parties
thereto;
(ii) the Seller has fulfilled all material obligations required
pursuant to the Assumed Contracts to have been performed by the Seller on
its part prior to the date hereof;
(iii) the Seller is not in breach of or default under any Assumed
Contract in any material respect, and there has occurred no violation by
the Seller of any provision of any Assumed Contract which with the passage
of time (such as a grace period) or giving of notice or both would
constitute such a default by the Seller, result in a loss of rights or
result in the creation of any lien, charge or encumbrance on the Seller's
assets, thereunder or pursuant thereto;
(iv) to the knowledge of the Seller and the Principal, there is no
existing breach or default by any other party to any Assumed Contract, and
there has occurred no violation of any provision of any Assumed Contract
which with the passage of time (such as a grace period) or giving of
notice or both would constitute such a default by such other party, result
in a loss of rights by the Seller or result in the creation of any lien,
charge or encumbrance on the Seller's assets thereunder or pursuant
thereto; and
(v) the Seller is not restricted by any Assumed Contract from
carrying on the Audio Business or activities reasonably related thereto
anywhere in the world.
(c) Except as set forth on Schedule 2.3, the continuation, validity and
effectiveness of each Assumed Contract will not be affected by the transfer
thereof to the Buyer under this Agreement nor will the transfer thereof give any
person a right of termination or right to make a material modification with
respect to such Assumed Contract and all such Assumed Contracts are assignable
to the Buyer without a consent.
(d) True, correct and complete copies of all written Contracts and
descriptions of all oral Contracts have previously been made available by the
Seller to the Buyer.
2.16. COMPLIANCE WITH AGREEMENTS AND LAWS. Schedule 2.16 is a correct and
complete list of all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and local
authorities issued to the Seller which are necessary to conduct, own and operate
the Audio Business (collectively, the "PERMITS"). Except as set forth on
Schedule 2.16, to the Seller's and the Principal's knowledge, the operation of
the Audio Business is not in violation in any material respect of any law,
regulation or ordinance (including, without limitation, laws, regulations or
ordinances relating to building, zoning, land use or similar matters) relating
to the use, occupancy and operation of Stores by the Seller, the violation of
which could have a Material Adverse Effect. Except as
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set forth on Schedule 2.16, to the Seller's and the Principal's knowledge, the
Audio Business does not violate, in any material respect, any federal, state,
local or foreign laws, regulations or orders (including, but not limited to, any
of the foregoing relating to employment discrimination, occupational safety or
corrupt practices) the enforcement of which would have a Material Adverse
Effect. Except as set forth on Schedule 2.16 attached hereto, the Seller has not
since June 30, 1998 received any notice or communication from any federal, state
or local governmental or regulatory authority or otherwise of any such violation
or noncompliance.
2.17. EMPLOYEE RELATIONS.
(a) The Seller is in compliance in all material respects with all
federal, state and municipal laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and is not
engaged in any unfair labor practice, and there are no arrears in the payment of
wages or social security taxes.
(b) Except as set forth on Schedule 2.17 attached hereto:
(i) none of the employees of the Audio Business is represented by
any labor union;
(ii) there is no unfair labor practice complaint against the Seller
arising out of the Audio Business pending before the National Labor
Relations Board or any state or local agency;
(iii) to the Seller's and the Principal's knowledge, there is no
pending labor strike or other labor trouble affecting the Audio Business
(including, without limitation, any organizational drive);
(iv) there is no labor grievance pending against the Seller arising
out of the Audio Business;
(v) there is no pending representation question respecting the
employees of the Seller arising out of the Audio Business; and
(vi) there are no pending arbitration proceedings arising out of or
under any collective bargaining agreement to which the Seller is a party
arising out of the Audio Business, or to the knowledge of the Seller and
the Principal, any basis for which a claim may be made under any
collective bargaining agreement relating to the Audio Business to which
the Seller is a party.
(c) Schedule 2.17 attached hereto sets forth a true, correct and
complete list (a) as of the date hereof, of the employee benefits provided by
the Seller to its Audio Business employees, and all contracts or agreements
between the Seller and such employees, and (b) as of June 30, 2000, of the
Seller's current payroll for the Audio Business, specifying for each employee
whether such employee is compensated on a salary or hourly basis, and including
the job descriptions and salary or hourly wage rates of each of such employees,
showing separately for each such person who received an annual salary the
amounts paid or payable as salary and bonus payments for the year ending June
30, 2000.
(d) For purposes of this Section 2.17, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the Audio Business, but shall exclude the
Principal.
2.18. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 2.18 attached hereto, since June 30, 2000, the Seller has not entered
into any transaction relating to or affecting the Audio Business which is not in
the usual and ordinary course of business, and, without limiting the generality
of the foregoing, the Seller has not, except in the usual and ordinary course of
its business or as set forth on Schedule 2.18:
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(a) Incurred any material obligation or liability for borrowed money
relating to the Audio Business;
(b) Mortgaged, pledged or voluntarily subjected to lien, charge or
other encumbrance any of the Assets;
(c) Sold or purchased, assigned or transferred any of its tangible
assets used in the Audio Business or canceled any debts or claims of the
Audio Business;
(d) Made any material amendment to or termination of any Contract or
done any act or omitted to do any act which would cause the breach of any
Contract;
(e) Suffered any losses arising out of the Audio Business, whether
insured or uninsured, and whether or not in the control of the Seller, in
excess of $50,000 in the aggregate, or waived any rights of any value;
(f) Made any changes in compensation of its officers or employees of
the Audio Business;
(g) Received notice of any litigation, warranty claim or products
liability claims relating to the Audio Business; or
(h) Made any material change in the terms, status or funding
condition of any Employee Benefit Plan, as defined in Section 2.22 hereof.
2.19. SUPPLIERS. Schedule 2.19 attached hereto sets forth a true, correct
and complete list of the names and addresses of the twenty suppliers of the
Audio Business which accounted for the largest dollar volume of Audio Business
purchases for the fiscal year ending June 30, 2000. None of such suppliers has
notified the Seller that it intends to discontinue its relationship with the
Seller.
2.20. PREPAYMENTS AND DEPOSITS. Schedule 2.20 attached hereto sets forth
all prepayments or deposits from customers of the Audio Business in excess of
$100 for any such deposit for products to be shipped, or services to be
performed, after the Closing Date which have been received by the Seller as of
the date hereof.
2.21. TRADE NAMES AND OTHER INTANGIBLE PROPERTY.
(a) Schedule 2.21 attached hereto sets forth a true, correct and
complete list and, where appropriate, a description of, all Intangible Property.
True, correct and complete copies of all licenses and other agreements relating
to the Intangible Property have been previously made available by the Seller to
the Buyer.
(b) Except as otherwise disclosed in Schedule 2.21 attached hereto, the
Seller has, to the Seller's and the Principal's knowledge, the sole and
exclusive right to use all Intangible Property used in connection with the
operation of the Stores excluding Corporate Services. The Intangible Property
rights of the Seller are sufficient to conduct the Seller's business as
currently conducted, excluding Corporate Services, and, when transferred to the
Buyer pursuant to this Agreement, will be sufficient to permit the Buyer to
conduct the business of the Stores as currently conducted by the Seller
excluding Corporate Services. The Seller has received no notice of, and neither
the Seller nor the Principal has any knowledge of any basis for, a claim against
it that any of its operations, activities, products or publications infringes on
any patent, trademark, trade name, copyright or other intellectual property
right of a third party, or that it is illegally or otherwise using the trade
secrets, formulae or any intellectual property rights of others. The Seller has
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no disputes with or claims against any third party for infringement by such
third party of any trade name or other Intangible Property of the Seller.
2.22. EMPLOYEE BENEFIT PLANS.
(a) Set forth in Schedule 2.22 is an accurate and complete list of all
domestic and foreign (i) "employee benefit plans," within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (ii) bonus, stock option, stock purchase, restricted stock,
equity-based, incentive, profit-sharing, savings, pension or retirement,
deferred compensation, medical, life, disability, accident, salary continuation,
severance, accrued leave, vacation, sick pay, sick leave, welfare, fringe,
multiemployer, multiple employer, supplemental or excess retirement and
unemployment benefit plans, programs, arrangements, commitments, policies and/or
practices (whether or not insured); and (iii) employment, consulting,
termination, and severance contracts or agreements; in each case for active,
inactive, retired or former employees, officers, directors, and independent
contractors of the Audio Business, whether or not any such plans, programs,
arrangements, commitments, policies, contracts, agreements and/or practices
(referred to in (i), (ii) or (iii) above) are in writing or are otherwise exempt
from the provisions of ERISA, that have been established, maintained or
contributed to (or with respect to which an obligation to contribute has been
undertaken) or with respect to which any potential liability is borne by the
Seller (including, for this purpose and for the purpose of all of the
representations in this Section 2.22, any predecessors to the Seller and all
employers (whether or not incorporated) that are by reason of common control
treated together with the Seller as a single employer within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended (the "CODE")) since
September 2, 1974 (collectively, the "EMPLOYEE BENEFIT PLANS").
(b) The Seller has not incurred, and, to the knowledge of the Seller and
the Principal, no event has occurred and no condition or circumstance exists
that could result directly or indirectly in, any unsatisfied liability under
Title IV of ERISA arising in connection with the termination of, or complete or
partial withdrawal from, any employee pension benefit plan covered or previously
covered by Title IV of ERISA, and the Seller has paid and discharged when due or
accrued in the Financial Statements all obligations and liabilities arising
under ERISA and the Code with respect to all Employee Benefit Plans. The Seller
has complied in all respects with the continuation coverage requirements of Part
6 of Subtitle B of Title I of ERISA and Section 4980B(f) of the Code and the
Seller is not subject to any material liability, including, without limitation,
additional contributions, fines, taxes, penalties or loss of tax deduction as a
result of such administration and operation. Full payment has been made of all
amounts which the Seller is required, and full compliance has been achieved,
under applicable law or under any Employee Benefit Plan or any agreement
relating to any Employee Benefit Plan to which the Seller is a party, to have
paid as contributions or premiums thereunder as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof.
Each Employee Benefit Plan intended to be "qualified" under Section 401(a) of
the Code, and each related trust intended to be exempt from federal income
taxation under Section 501(a) of the Code, is so qualified (and/or exempt), and
has received a favorable determination letter from the Internal Revenue Service
with respect to its qualified or exempt status, and since the date of each such
determination, no event has occurred and no condition or circumstance has
existed that resulted or is likely to result in the revocation of any such
determination or that could adversely affect the qualified status of any such
Employee Benefit Plan or the exempt status of any such trust. There are no
actions, suits, audits, investigations or claims pending or asserted or, to the
knowledge of the Seller and the Principal, threatened, anticipated or expected
to be asserted with respect to any Employee Benefit Plan or the assets of any
such plan (other than routine claims for benefits and appeals of denied claims
arising in the ordinary course).
(c) The Seller is not party to any agreement that would require it to
make any payment that would constitute an "excess parachute payment" for
purposes of Sections 280G and 4999 of the Code.
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2.23. INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND SHAREHOLDERS.
Except as set forth on Schedule 2.23 attached hereto, the Seller is not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of the Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, and no such officer, director, shareholder or affiliate is
indebted to the Seller, except for advances made to employees of the Seller in
the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor.
2.24. POWERS OF ATTORNEY AND SURETYSHIPS. Except as set forth on Schedule
2.24 attached hereto, the Seller has no general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-▇▇▇▇▇▇, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.25. DISCLOSURE. No representation or warranty by the Seller in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading in light of the
circumstances under which they were made.
2.26. INVENTORY. All Inventory is in the physical possession of the Seller
and is located either in the Stores or in a warehouse owned and operated by the
Seller or in transit as among the Stores and the Seller's warehouse. Except for
products which are returned or determined to be defective in the ordinary course
of business, the Inventory consists of items which are in good and merchantable
condition and are of a quality presently usable and salable in the ordinary
course of business.
2.27. ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.27 and
except as would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect:
(a) Hazardous Materials have not been generated, used, treated, stored,
released or disposed of by the Seller or, to the actual knowledge of the Seller
and the Principal (without specific investigation) by any other Person, on, at,
under or from any real property covered by the Leases ("STORE PROPERTY").
(b) The Seller is in compliance with Environmental Laws and the
requirements of any permits issued to the Seller under such Environmental Laws
with respect to operations conducted at the Store Properties by the Seller.
(c) There are no pending or, to the knowledge of the Seller and the
Principal, threatened, Environmental Claims against the Seller.
(d) To the Seller's and the Principal's actual knowledge (without
specific investigation), there are no facts, circumstances, conditions or
occurrences involving the Seller's operations at any Store Property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
the Seller or the Assets or (ii) to cause such Store Property or Assets to be
subject to any restrictions on its ownership (as to the Assets), occupancy or
use under any Environmental Law.
(e) The Seller is not using and has not used any underground storage
tanks at any Store Property, and to the actual knowledge of the Seller and the
Principal (without specific investigation) there is no friable asbestos located
on or at any Store Property or Assets.
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(f) To the knowledge of the Seller and the Principal, no lien has been
recorded or threatened, under any Environmental Law with respect to the Assets.
(g) The Seller is not a party to any judgment, decree or agreement which
obligates it to perform any investigation or other action under any
Environmental Law with respect to any Store Property.
(h) The execution and delivery of this Agreement and consummation of
transactions contemplated hereby does not require any notice, disclosure or
other action by the Seller under any Environmental Law, except for any notice
disclosure or other action that will be made or taken by the Seller prior to the
Closing Date.
For the purposes of this Agreement:
"ENVIRONMENTAL CLAIMS" shall mean administrative, regulatory or judicial
actions, suits, demand letters, written claims, written notices of noncompliance
or violation or potential responsibility or requests for information, or
proceedings relating to any Environmental Law (for purposes of this definition
only, referred to as "CLAIMS"), including (a) Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
Claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to health, safety or the
environment, including, without limitation, natural resources.
"ENVIRONMENTAL LAWS" shall mean any applicable federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law in
effect and in each case as amended as of the Closing Date, relating to the
environment including, without limitation, those relating to the generation,
use, storage, treatment and disposal of Hazardous Materials such as the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 ▇.▇.▇.▇▇. 9601 et seq.; the Resource Conservation and Recovery
Act of 1976, as amended, 42 ▇.▇.▇.▇▇. 6901 et seq.; the Federal Water
Pollution Control Act, as amended, 33 ▇.▇.▇.▇▇. 1251 et seq.; the Toxic
Substances Control Act, 15 ▇.▇.▇.▇▇. 2601 et seq.; the Clean Air Act, 42
▇.▇.▇.▇▇. 7401 et seq.; the Safe Drinking Water Act, 42 ▇.▇.▇.▇▇. 300f et seq.;
the Oil Pollution Act of 1990, 33 ▇.▇.▇.▇▇. 2701 et seq.; and their state and
local counterparts and equivalents.
"HAZARDOUS MATERIALS" shall mean any petroleum or petroleum products,
asbestos in any form that is or could be friable, and any wastes, pollutants,
contaminants, constituents, chemicals, materials or substances subject to
regulation under any Environmental Law.
3. REPRESENTATIONS OF THE BUYER
The Buyer represents and warrants to the Seller and to the Principal as
follows:
3.1. ORGANIZATION AND AUTHORITY. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, and has all requisite power and authority (corporate and other) to own
its properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby.
3.2. AUTHORIZATION. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the Buyer
of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
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obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer of the
transactions contemplated hereby and thereby in the manner provided for in this
Agreement, will not, with or without the giving of notice or the passage of time
or both, (a) violate the provisions of any law, rule or regulation applicable to
the Buyer; (b) violate the provisions of the Buyer's Articles of Incorporation
or By-laws; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator binding on the Buyer; or (d) subject to
obtaining the consents and approvals described in Schedule 3.2, conflict with or
result in the breach or termination of any term or provision of, or constitute a
default under, or cause any acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or assets of the Buyer pursuant
to, any indenture, mortgage, deed of trust or other agreement or instrument to
which it or its properties is a party or by which the Buyer is or may be bound.
Schedule 3.2 attached hereto sets forth a true, correct and complete list of all
consents and approvals of third parties that are required in connection with the
consummation by Buyer of the transactions contemplated by this Agreement.
3.3. REGULATORY APPROVALS. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.4. DISCLOSURE. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading in light of the
circumstances under which they were made.
3.5. LITIGATION. There are no judicial or administrative actions
proceedings pending or, to the knowledge of the Buyer, threatened, that question
the validity of this Agreement or any action taken or to be taken by the Buyer
in connection with this Agreement. There is no litigation, proceeding or
governmental investigation pending or, to the knowledge of the Buyer,
threatened, or any order, injunction or decree outstanding against the Buyer
that, if adversely determined, would have a material adverse effect upon the
Buyer's ability to perform its obligations under this Agreement.
3.6. FINANCING. The Buyer has sufficient funds necessary to pay the Cash
Consideration payable on the Closing Date (as reasonably contemplated by
Sections 1.3 and 1.7) and related fees and expenses associated with the
transactions contemplated by this Agreement and, as of the Closing Date, the
Buyer expects that it will have the financial capacity to perform all of its
other obligations under this Agreement and the Exhibits hereto. The Buyer,
immediately after the Closing, will be solvent, will be able to meet its
obligations and debts as they come due and will have adequate capital for the
conduct of its business (including the operation of the Stores) and immediately
after the Closing the Buyer's assets will exceed its liabilities.
4. ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS
4.1. ACCESS TO MANAGEMENT, PROPERTIES AND RECORDS. From the date of this
Agreement until the Closing Date, the Seller shall afford the officers,
attorneys, accountants and other authorized representatives of the Buyer
reasonable access upon reasonable notice and during normal business hours to all
management personnel, offices, properties, books and records of the Audio
Business, so that the Buyer may have full opportunity to make such investigation
as it shall desire to make of the management, business, properties and affairs
of the Audio Business, and the Buyer shall be permitted to make abstracts from,
or copies of, all such books and records. The Seller shall furnish to the
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Buyer such financial and operating data and other information as to the Assets
and the Audio Business as the Buyer shall reasonably request.
4.2. CONFIDENTIALITY. All information not previously disclosed to the
public or generally known to persons engaged in the business of the Seller which
shall have been furnished by the Seller to the Buyer in connection with the
transactions contemplated hereby or as provided pursuant to this Section 4 shall
be considered Evaluation Material and treated in accordance with the
Confidentiality Agreement (the "CONFIDENTIALITY AGREEMENT") dated as of August
30, 2000 between the Buyer and the Seller. Notwithstanding the above, the Buyer
(i) may include in any Registration Statement, prospectus, prospectus
supplement, or periodic report filed by it with the Securities and Exchange
Commission or any state securities commission or with the Nasdaq National
Market, and (ii) may disclose in order to comply with applicable law or upon
advice of the Buyer's counsel, any required information regarding the Seller,
the business of the Seller, the financial condition of the Seller and the terms
of this Agreement; PROVIDED that prior to any such disclosure, the Buyer shall
provide the Seller with three (3) day's notice if reasonably practicable, but in
no event less than one (1) day's notice, of such proposed disclosure and shall
endeavor to mutually agree as to the contents of such disclosure; PROVIDED
FURTHER that the Buyer shall have the absolute right to disclose any and all
such information that the Buyer, on the advice of its counsel, believes is
required pursuant to applicable law.
4.3. PUBLIC ANNOUNCEMENTS. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the prior written approval of the Buyer
and the Seller. The Buyer and the Seller shall provide each other with three (3)
day's notice if reasonably practicable, but in no event less than one (1) day's
notice, of any proposed public announcement or other proposed public
communication and shall endeavor to mutually agree as to the contents of such
announcement or communication; PROVIDED that the Buyer shall have the absolute
right to make any public announcement or other public communication that the
Buyer, on the advice of its counsel, believes is required pursuant to applicable
law.
5. COVENANTS OF THE SELLER
5.1. CONDUCT OF BUSINESS. From the date hereof and until the Closing
Date, the Seller shall conduct the Audio Business substantially in the same
manner as heretofore and shall not make or institute any unusual or new methods
of purchase, sale, shipment or delivery, lease, management, accounting or
operation, except as agreed to in writing by the Buyer. All of the property of
the Seller comprising the Assets shall be used, operated, repaired and
maintained in a normal business manner consistent with past practice.
5.2. ABSENCE OF MATERIAL CHANGES. Except as set forth on Schedule 5.2
attached hereto, from the date hereof and until the Closing Date or the earlier
termination of the Agreement, without the prior written consent of the Buyer,
the Seller shall not:
(a) Incur any obligation or liability (absolute or contingent) that
will become the obligation or liability of the Buyer after the Closing,
except current liabilities incurred and obligations under contracts
entered into in the ordinary course of business;
(b) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(c) Sell, assign, or transfer any of the Assets, except for
inventory sold in the ordinary course of business;
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(d) Cancel any debts or claims, except in the ordinary course of
business;
(e) Merge or consolidate with or into any corporation or other
entity;
(f) Make, accrue or become liable for any bonus, profit sharing or
incentive payment payable to or for the benefit of any employees employed
at or rendering services to the Stores, except for accruals under existing
plans, if any, or increase the rate of compensation payable or to become
payable by it to any of its employees, other than increases in the
ordinary course of business consistent with past practice;
(g) Modify, amend, alter or terminate any of its executory contracts
of a material value or which are material in amount, and which are listed
on Schedule 2.15;
(h) Take or permit any act or omission constituting a breach or
default under any Contract listed on Schedule 2.15;
(i) Fail to (i) preserve the possession and control of its assets
and business, (ii) use reasonable efforts (not requiring expenditure of
money) to keep in service its present officers and key employees who
render services at or with respect to the Stores, (iii) use reasonable
efforts to preserve the goodwill of its customers, suppliers, agents,
brokers and others having business relations with it, and (iv) use
reasonable efforts to keep and preserve its business existing on the date
hereof until the Closing Date;
(j) Fail to operate its business and maintain its books, accounts
and records in the customary manner and in the ordinary or regular course
of business and maintain in a manner consistent with past practices its
business premises, fixtures, furniture and equipment;
(k) Enter into any leases, contracts, agreements or understandings
relating to the Assets or the Stores other than those entered into in the
ordinary course of business calling for payments which in the aggregate do
not exceed $10,000 for each such lease, contract, agreement or
understanding;
(l) Engage any employee to be employed at or render services with
respect to the Stores, for a salary in excess of $30,000 per annum;
(m) Change the retail price of any inventory other than in the
ordinary course of business in a manner consistent with past practices;
(n) Materially alter the terms, status or funding condition of any
Employee Benefit Plan; or
(o) Commit or agree to do any of the foregoing in the future.
5.3. TAXES. The Seller will, on a timely basis, file all of its tax
returns for and pay any and all of its taxes which shall become due or shall
have accrued on or prior to the Closing Date.
5.4. DELIVERY OF INTERIM FINANCIAL STATEMENTS AND 2000 AUDITED FINANCIAL
STATEMENTS. From the date hereof and until the Closing Date, as promptly as
reasonably possible following the last day of each month after the date hereof,
the Seller shall deliver to the Buyer its balance sheet and related statements
of income, shareholders' equity, retained earnings and statement of cash flows
for the one-month period then ended (collectively, the "INTERIM FINANCIAL
STATEMENTS"), and, as soon as practicable after such statements become
available, but in any event prior to the Closing Date, the Seller shall deliver
to the Buyer its audited balance sheet as of June 30, 2000 and the related
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statements of income, shareholders' equity, retained earnings and statements of
cash flows of the Seller for the fiscal year then ended (the "2000 AUDITED
FINANCIAL STATEMENTS"), all certified by the Seller's independent public
accountants.
5.5. COMPLIANCE WITH LAWS. Except to the extent reflected on Schedule
2.16, the Seller will comply with all laws and regulations which are applicable
to its ownership of the Assets or to the conduct of the Audio Business, and will
perform and comply with all contracts, commitments and obligations by which it
is bound to the extent relating to the Stores.
5.6. SATISFACTION OF CONDITIONS. The Seller covenants and agrees to use
its commercially reasonable efforts to obtain the satisfaction of the conditions
specified in this Agreement. The Seller also agrees to cooperate in good faith
with the Buyer in connection with the satisfaction of the conditions specified
in this Agreement, including, but not limited to, sharing reasonably requested
information and providing reasonable access to its officers and employees.
5.7. CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof becoming untrue in
any material respect.
5.8. CONTINUING OBLIGATION TO INFORM. From the date hereof and until the
Closing Date, the Seller will promptly deliver or cause to be delivered to the
Buyer supplemental information concerning events subsequent to the date hereof
which would render any statement, representation or warranty in this Agreement
or any information contained in any Schedule inaccurate or incomplete in any
material respect.
5.9. EXCLUSIVE DEALING. The Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets and business
of the Stores, or any equity interest in, the Seller or any equity investment,
merger, consolidation or business combination with the Seller, or (b)
participate in any discussions or negotiations regarding, or furnish to any
other person, any non-public information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing.
5.10. ESTOPPEL CERTIFICATES. The Seller will use commercially reasonable
efforts (not requiring the payment of money) to obtain estoppel certificates
from each lessor from whom the Seller leases real property consenting (if
necessary) to the assumption of such lease by the Buyer and stating that, to
such lessor's knowledge, there are no outstanding claims against the Seller
under any such lease.
6. COVENANTS OF THE BUYER
6.1. SATISFACTION OF CONDITIONS. The Buyer covenants and agrees to use
its commercially reasonable efforts to obtain the satisfaction of the conditions
specified in this Agreement. The Buyer also agrees to cooperate in good faith
with the Seller in connection with the satisfaction of the conditions specified
in this Agreement, including, but not limited to, sharing reasonably requested
information and providing reasonable access to its officers and employees.
6.2. CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE BUYER. The
Buyer will not take any actions which would result in any of the representations
or warranties set forth in Section 3 hereof becoming untrue in any material
respect.
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6.3. EMPLOYEES.
(a) On the Closing Date, the Seller shall terminate the employment of,
and the Buyer shall offer immediate employment to, each individual listed on the
Seller's Audio Business payroll (including Store and field employees) set forth
in Schedule 2.17 and each employee of the Audio Business hired in the ordinary
course of business between the date hereof and the Closing Date who as of the
Closing Date is an active employee of the Audio Business, which shall not
include any employee set forth on Schedule 6.3. All of the employees to which
the Buyer is obligated to offer employment and which accept such employment are
referred to herein as "EMPLOYEES." The foregoing to the contrary
notwithstanding, nothing contained herein shall be construed or interpreted as a
contract of employment with any Employee or to give any Employee the right to be
retained as an employee of the Buyer after the Closing Date, or to restrict or
otherwise inhibit the Buyer's rights to terminate, or change the conditions of,
the employment of any Employee.
(b) As of the Closing Date, each of the Employees shall cease to be
covered by the Seller's Employee Benefit Plans. On and after their respective
dates of hire by the Buyer, each Employee shall be covered by the employee
benefit plans of the Buyer that are applicable to similarly situated employees
of the Seller. For purposes of the Buyer's employee benefit plans, the Buyer
shall credit each Employee with full credit for service with the Seller prior to
the Closing Date to the extent such service was recognized for such purposes
under similar employee benefit plans of the Seller. Nothing contained in this
Section 6.3 shall obligate or commit the Buyer to continue any of its benefit
plans after the Closing Date or to maintain in effect any such plan or any level
or type of benefits.
(c) The Seller shall cause (whether by plan amendment or otherwise),
effective no later than the later of the Closing Date or their respective dates
of hire by the Buyer, all of the Employees hired by the Buyer who are
participants in any of the Seller's tax-qualified pension, profit-sharing,
savings, or retirement plans to be fully vested in their benefits and accounts
thereunder, irrespective of whether or not such employees have satisfied the
vesting requirements otherwise applicable under any such plan. The Buyer shall
take all reasonable and necessary action (whether by plan amendment or
otherwise) to permit its defined contribution plan that is applicable to the
Employees to accept an "eligible rollover contribution" (within the meaning of
Section 401(a)(31) of the Code) in cash of all or a portion of the balance of
any Employee's account under the Seller's 401(k) plan.
(d) As promptly as practicable after the Closing Date, the Seller shall
furnish the Buyer with a schedule setting forth the name of each Employee and
any vacation time and/or sick leave time accrued in respect of each such
Employee. The Seller represents and warrants that the amounts of such vacation
and/or sick leave time will be calculated in accordance with the Seller's
standard policies with respect thereto as of the date hereof. The Buyer will
permit each Employee to retain any such accrued vacation time and/or sick leave
time in accordance with the past practices of the Seller.
6.4. SUPPLY CONTRACT. Concurrent with the Closing, the Buyer and the
Seller will enter into a video supply contract substantially in the form of
Exhibit B hereto.
6.5. CONSULTING AGREEMENT. Concurrent with the Closing, the Buyer and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ will enter into a consulting agreement substantially in the form
of Exhibit C hereto.
7. CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
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7.1. CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE SELLER;
COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The representations and warranties of
the Seller (in the case of the representations and warranties contained in
Section 2.9, after giving effect to the update to Schedule 2.9 required pursuant
to Section 1.7(c)) shall be true in all material respects (other than
representations and warranties which are qualified as to materiality, which
shall be true in all respects) on and as of the Closing Date as though such
representations and warranties were made on and as of such date (except for
representations and warranties made as of a specific date, which shall be true
in all respects as of the date made), except for any changes permitted by the
terms hereof or consented to in writing by the Buyer. The Seller shall have
performed and complied in all material respects with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
7.2. CORPORATE PROCEEDINGS. All corporate and other proceedings
required to be taken on the part of the Seller to authorize or carry out this
Agreement and to convey, assign, transfer and deliver the Assets shall have
been taken.
7.3. GOVERNMENTAL APPROVALS. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions. Any waiting
period (and any extension thereof) under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), applicable to the
transactions contemplated by this Agreement shall have expired or been
terminated without any adverse action by the Federal Trade Commission or the
U.S. Department of Justice.
7.4. CONSENTS OF LENDERS, LESSORS AND OTHER THIRD PARTIES. The Seller
shall have received all requisite consents, waivers and approvals of all
lenders, lessors and other third parties whose consent, waiver or approval is
required in order for the Seller to consummate the transactions contemplated by
this Agreement, including, without limitation, those set forth on Schedule 2.3
attached hereto.
7.5. ADVERSE PROCEEDINGS. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might
materially adversely affect the right of the Buyer to own or use the Assets
after the Closing.
7.6. THE ASSETS. Except for the Assumed Liabilities, at the Closing (a)
the Buyer shall receive good, clear, record and marketable title to the Assets
other than the Leases, free and clear of all Encumbrances other than Permitted
Encumbrances, and (b) the Buyer shall receive a valid leasehold interest in each
of the premises identified in the Leases subject to the respective terms of the
Leases and entitled to the benefits of the Lease relating to such premises
enjoyed by the Seller and contained in such Lease as of August 24, 2000,
together with any amendments, modifications or supplements made on or prior to
such date, and otherwise free and clear of all Encumbrances other than Permitted
Encumbrances and Fee Encumbrances.
7.7. CASH AVAILABLE FOR WORKING CAPITAL PURPOSES. On the Closing Date,
the Seller will have available at each Store cash in the amounts set forth on
Schedule 1.1(a)(iii) hereof, which cash will be transferred to the Buyer
pursuant to the terms of this Agreement.
7.8. CLOSING DELIVERIES. The Buyer shall have received at or prior to the
Closing each of the following documents:
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(a) the Instrument of Assumption, the Lease Assignments and a ▇▇▇▇
of Sale in a form reasonably satisfactory to the Buyer;
(b) such instruments of conveyance, assignment and transfer, in form
and substance consistent with this Agreement and satisfactory to the
Buyer, as shall be appropriate to convey, transfer and assign to, and to
vest in, the Buyer, good, clear, record and marketable title to the Assets
(subject to the Permitted Encumbrances);
(c) Schedule 1.7(a) and the update to Schedule 2.9 required by
Section 1.7 hereto; and
(d) such certificates of the Seller's officers and such other
documents as the Buyer shall reasonably request.
7.9. SECTION 1445 CERTIFICATE. The Seller shall have furnished the
Buyer with a certificate that the Seller is not a foreign person within the
meaning of Section 1445 of the Code, which certificate shall set forth all
information required by, and otherwise be executed in accordance with, Treas.
▇▇▇.▇▇. 1.1445-2(b).
8. CONDITIONS TO OBLIGATIONS OF THE SELLER
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Seller:
8.1. CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE BUYER;
COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The representations and warranties of
the Buyer in this Agreement shall be true in all material respects (other than
representations and warranties which are qualified as to materiality, which
shall be true in all respects) on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes consented to in writing by the Seller. The Buyer shall have performed
and complied with all terms, conditions, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
8.2. CORPORATE PROCEEDINGS. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3. GOVERNMENTAL APPROVALS. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
Any waiting period (and any extension thereof) under the HSR Act applicable to
the transactions contemplated by this Agreement shall have expired or been
terminated without any adverse action by the Federal Trade Commission or the
U.S. Department of Justice.
8.4. CONSENTS OF THIRD PARTIES. The Buyer shall have received all
requisite consents and approvals of all third parties whose consent or approval
is required in order for the Buyer to consummate the transactions contemplated
by this Agreement, including, without limitation, those set forth on Schedule
3.2 attached hereto.
8.5. ADVERSE PROCEEDINGS. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller to transfer the Assets.
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9. INDEMNIFICATION
9.1. BY THE BUYER AND THE SELLER AND THE PRINCIPAL. The Buyer on the one
hand and the Seller and the Principal, jointly and severally, on the other hand,
each hereby indemnifies and holds harmless the other (and their respective
affiliates, successors and assigns and, if applicable, their respective
officers, directors, employees, agents and heirs) against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) (collectively, "LOSSES")
reasonably incurred by the Indemnified Party in connection with each and all of
the following:
(a) Any breach by the indemnifying party of any representation or
warranty in this Agreement (without giving effect to any qualifications as
to materiality contained therein);
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any certificate furnished by
the indemnifying party pursuant to this Agreement or in connection with
the transactions contemplated by this Agreement.
9.2A BY THE SELLER AND THE PRINCIPAL. The Seller and the Principal, on a
joint and several basis, further agree to indemnify and hold harmless the Buyer
(and its affiliates, successors and assigns and its officers, directors,
employees and agents) from any and all Losses reasonably incurred by the
Indemnified Party, in connection with each and all of the following:
(a) Any claims against, or liabilities, obligations or commitments
of, the Seller or against the Assets not specifically assumed by the Buyer
pursuant to this Agreement including, without limitation, all obligations,
liabilities and commitments referred to in Section 1.4(c);
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales
laws (including, without limitation, bulk sales laws relating to Taxes),
if any, in force in the jurisdictions in which such laws may be applicable
to either the Seller or the transactions contemplated by this Agreement;
(c) Any warranty claim or product liability claim relating to the
Audio Business prior to the Closing Date other than customer returns and
accommodations in the ordinary course of business;
(d) Any Taxes of the Seller (other than Taxes subject to the Rent
and Tax Adjustment); and
(e) Any claims against, or liabilities or obligations of, the Seller
with respect to obligations under any Employee Benefit Plan.
9.2B BY THE BUYER. The Buyer further agrees to indemnify and hold
harmless the Seller and the Principal (and their respective affiliates,
successors and assigns and, if applicable, their respective officers, directors,
employees, agents and heirs) from any and all Losses reasonably incurred by the
Indemnified Party, in connection with each and all of the following:
(a) The Assumed Liabilities;
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(b) Any claim or liability relating to or arising out of the
occupation or operation of the Stores after the Closing Date; and
(c) Any Taxes of the Buyer (other than Taxes subject to the Rent and
Tax Adjustment).
9.3. PROCEDURES FOR INDEMNIFICATION.
(a) A party seeking indemnification pursuant to Section 9.1, 9.2A or
9.2B (an "INDEMNIFIED PARTY") shall give prompt notice to the party from whom
such indemnification is sought (the "INDEMNIFYING PARTY") of the assertion of
any claim or assessment, or the commencement of any action, suit, audit or
proceeding, by a third party in respect of which indemnity may be sought
hereunder (a "THIRD PARTY CLAIM"), and will give the Indemnifying Party such
information with respect thereto as the Indemnifying Party may reasonably
request, but no failure to give such notice shall relieve the Indemnifying Party
of any liability hereunder (except to the extent the Indemnifying Party has
suffered actual prejudice thereby). Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, within seven days after the Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnified Party relating to the Third Party Claim. The
Indemnifying Party shall have the right, exercisable by written notice to the
Indemnified Party within thirty days of receipt of notice from the Indemnified
Party of the commencement of or assertion of any Third Party Claim, to assume
the defense of such Third Party Claim, using counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party. Should
the Indemnifying Party so elect to assume the defense of a Third Party Claim,
the Indemnifying Party will not be liable to the Indemnified Party for legal
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof, so long as the Indemnifying Party is actively defending such
Third Party Claim. Regardless of whether the Indemnifying Party elects to assume
the defense of any such Third Party Claim, so long as the Indemnifying Party
shall have paid all documented costs and expenses of the Indemnified Parties
that are indemnifiable hereunder (and that are not in dispute in good faith)
relating to the applicable Third Party Claim, the Indemnified Party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the Indemnifying Party's prior written consent, such
consent not to be unreasonably withheld.
(b) The Indemnifying Party or the Indemnified Party, as the case may be,
shall in any event have the right to participate, at its own expense, in the
defense of any Third Party Claim which the other is defending. The Indemnifying
Party shall bear the reasonable fees, costs and expenses of separate counsel of
the Indemnified Party if: (i) the use of counsel chosen by the Indemnifying
Party to represent the Indemnified Party would present such counsel with a
conflict of interest, such conflict of interest is not remedied by waiver and
the Indemnifying Party does not or cannot choose another counsel without a
conflict of interest, (ii) the Indemnifying Party shall not have employed
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after notice of the institution of
such claim, or (iii) the Indemnifying party shall authorize the Indemnified
Party to employ separate counsel at the Indemnifying Party's expense.
(c) The Indemnifying Party, if it shall have assumed the defense of any
Third Party Claim in accordance with the terms hereof, shall have the right,
upon thirty (30) days prior written notice to the Indemnified Party, to consent
to the entry of judgment with respect to, or otherwise settle such Third Party
Claim provided the Indemnifying Party satisfies and discharges such judgment or
settlement unless (i) the Third Party Claim involves equitable or other
non-monetary damages or (ii) in the reasonable judgment of the Indemnified Party
such settlement would have a continuing material adverse effect on the
Indemnified Party's or any of its affiliates' businesses (including any material
impairment of its relationships with customers and suppliers), in which case
such settlement only may be made with the written consent of the Indemnified
Party, which consent shall not be unreasonably withheld.
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(d) Whether or not the Indemnifying Party chooses to defend or prosecute
any claim involving a third party, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested in connection therewith. Such
cooperation shall include access during normal business hours afforded to the
Indemnifying Party to, and reasonable retention by the Indemnified Party of,
records and information which are reasonably relevant to such Third Party Claim,
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder, and
the Indemnifying Party shall reimburse the Indemnified Party for all its
reasonable out-of-pocket expenses in connection therewith.
9.4. PAYMENT OF INDEMNIFICATION OBLIGATION. All indemnification by the
Buyer, the Seller or the Principal hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability.
9.5. SURVIVAL; CLAIMS FOR INDEMNIFICATION. All representations,
warranties, covenants, agreements and obligations made by the parties herein or
in any instrument or document furnished in connection herewith shall survive the
Closing and any investigation at any time made by or on behalf of the parties
hereto. All representations and warranties of the parties shall expire on the
second anniversary of the Closing Date, except for claims, if any, asserted in
writing prior to such date, which shall survive until finally resolved and
satisfied in full and except for (i) claims relating to Taxes, which shall
survive until one year after any applicable statute of limitations and (ii)
claims in respect of breaches of the representations and warranties contained in
Sections 2.9 and 2.26, which shall survive until sixty (60) days after the
Closing Date. All claims and actions for indemnity pursuant to this Section 9
for breach of any representation or warranty shall be asserted or maintained in
writing by a party hereto on or prior to the expiration of the applicable
period. All covenants, agreements and obligations of the parties shall survive
as specified herein, or if not so specified, shall survive indefinitely.
9.6. DAMAGES AND RELATED MATTERS.
(a) In calculating any amounts payable to a party seeking
indemnification under Section 9.1, 9.2A or 9.2B, (i) the Indemnifying Party
shall receive credit for (x) any reduction in actual tax liability as a result
of the facts giving rise to the claim for indemnification, and (y) any insurance
recoveries, and (ii) no amount shall be included in respect of special or
consequential damages.
(b) The Seller and the Principal, on the one hand, and the Buyer, on the
other hand, shall have no liability under Section 9.1(a) (except for breaches of
the representations and warranties contained in Section 2.12) unless the
aggregate amount of all Losses to the Seller and the Principal, on the one hand,
and the Buyer, on the other hand (in each case including their respective
affiliates, successors and assigns and, if applicable, their respective
officers, directors, employees and agents) for all claims arising under Section
9.1(a) exceeds $100,000 and, in such event, the Seller and the Principal, on the
one hand, and the Buyer, on the other hand, shall be required to pay only the
amount by which such aggregate amount of Losses exceeds $50,000; PROVIDED,
FURTHER, that in no event shall the Seller and the Principal, on the one hand,
or the Buyer, on the other hand, have an aggregate liability for indemnification
under Section 9.1(a) (except for breaches of the representations and warranties
contained in Section 2.12) in excess of $4,000,000. In computing any aggregate
Losses under this Section 9.6(b), Losses arising from breaches of the
representations and warranties contained in Section 2.12 shall be disregarded.
(c) The parties agree that the provisions of this Section 9 can be
specifically enforced in a court of competent jurisdiction. Apart from such
right to specific enforcement, the indemnification provided for in this Section
9 shall, except as set forth below, from and after the Closing, be the sole
remedy for any of the matters referred to herein. Notwithstanding the foregoing,
the purchase price adjustments contained in Section 1.7 shall be the sole
remedies for
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the covenants, representations and warranties contained in Section 1.7. For
further clarification, to the extent that events, occurrences or facts shall
arise or be discovered which give a party the right to an adjustment pursuant to
Section 1.7, Section 1.7, and not this Section 9, shall control and be the
exclusive remedy for such party arising out of such facts, events or
circumstances.
(d) Any indemnification payments made by the parties pursuant to this
Section 9 shall be treated by the parties for tax purposes as adjustments to the
purchase price unless otherwise required by applicable law.
10. POST-CLOSING AGREEMENTS
The parties agree that from and after the Closing Date:
10.1. PROPRIETARY INFORMATION.
(a) For a period of three years from the Closing Date, the Seller shall
hold in confidence, and use its best efforts to have all of its officers,
directors and personnel hold in confidence, all knowledge and information of a
secret or confidential nature with respect to the business of the Seller and
shall not disclose, publish or make use of the same without the consent of the
Buyer, except to the extent that such information shall have become public
knowledge other than by breach of this Agreement by the Seller or except as may
in the opinion of Seller's legal counsel be required by law, regulation,
governmental or supervisory authority or other applicable judicial or
governmental order.
(b) The Seller agrees that the remedy at law for any breach of this
Section 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of any
provision of this Section 10.1.
10.2. NO SOLICITATION OR HIRING OF FORMER EMPLOYEES. Except as provided by
law, for a period of five years after the Closing Date, neither the Seller nor
any Affiliate thereof shall solicit any person who was an employee of the Seller
on the Closing Date and remains an employee of Buyer at the time of such
proposed solicitation to terminate his employment with the Buyer or to become an
employee of the Seller or an Affiliate or hire any such person. The provisions
of this Section 10.2 shall not apply to general solicitations or advertisements
not specifically directed at any such person.
10.3. NON-COMPETITION AGREEMENT.
(a) For a period of five years after the Closing Date, neither the
Seller nor any person controlling, controlled by, or under common control with
the Seller (including the Principal and any persons controlled by the Principal)
(each, an "AFFILIATE") shall (i) engage in any business involving the retail
sale through retail stores of pre-recorded music or videos (including, but not
limited to, the retail sale of pre-recorded compact discs, pre-recorded
cassettes or pre-recorded digital video discs or the digital distribution of
music or video content to end users) or (ii) engage in any business competitive
with the Audio Business as conducted on the date hereof or on the Closing Date,
in the United States or any other country in which the Buyer conducts its
business.
(b) The parties hereto agree that the duration and geographic scope of
the non-competition provision set forth in this Section 10.3 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this non-competition
provision shall be deemed to be a series of sepa-
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rate covenants, one for each and every county of each and every state of the
United States of America and each and every political subdivision of each and
every country outside the United States of America where this provision is
intended to be effective. The Seller agrees that damages are an inadequate
remedy for any breach of this provision and that the Buyer shall, whether or not
it is pursuing any potential remedies at law, be entitled to equitable relief in
the form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of this non-competition provision.
10.4. SHARING OF DATA.
(a) The Seller shall have the right for a period of three years
following the Closing Date to have reasonable access to such books, records and
accounts, including financial and tax information, correspondence, production
records, employment records and other similar information as are transferred to
the Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the Audio Business and for complying with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations. The Buyer shall have the right for a period of three years
following the Closing Date to have reasonable access to those books, records and
accounts, including financial and tax information, correspondence, employment
records and other records which are retained by the Seller pursuant to the terms
of this Agreement to the extent that any of the foregoing relates to the Audio
Business or is otherwise needed by the Buyer in order to comply with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations. If the Seller or the Buyer wishes to dispose of or destroy
any such books and records after the foregoing time periods, such party shall
first give reasonable prior written notice to the other party, and such other
party shall have the right, at its option and expense, to take possession of the
books and records within a reasonable period of time after receiving such
written notice.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
10.5. USE OF NAME. Without the Buyer's prior written consent, the Seller
and the Principal each agrees not to use any Intangible Property, or any
derivation thereof or confusingly similar name, trademark, URL, or similar
identification after the Closing Date.
10.6. COOPERATION IN LITIGATION. Each party hereto will fully cooperate
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the business of the Seller prior to
or after the Closing Date (other than litigation arising out the transactions
contemplated by this Agreement). The party requesting such cooperation shall pay
the out-of-pocket expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, directors, employees and agents
reasonably incurred in connection with providing such cooperation, but shall not
be responsible to reimburse the party providing such cooperation for such
party's time spent in such cooperation or the salaries or costs of fringe
benefits or similar expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
11. TERMINATION OF AGREEMENT
11.1. TERMINATION BY LAPSE OF TIME. This Agreement shall terminate at 5:00
p.m., New York time, on November 30, 2000, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of all of the parties hereto.
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11.2. TERMINATION BY AGREEMENT OF THE PARTIES. This Agreement may be
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement, and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
11.3. TERMINATION BY REASON OF BREACH. This Agreement may be terminated by
the Seller, if at any time prior to the Closing there shall occur a breach of
any of the representations, warranties or covenants of the Buyer or the failure
by the Buyer to perform any condition or obligation hereunder, and may be
terminated by the Buyer, if at any time prior to the Closing there shall occur a
breach of any of the representations, warranties or covenants of the Seller or
the failure of the Seller to perform any condition or obligation hereunder.
Notwithstanding anything to the contrary contained herein, (a) neither the
Seller and the Principal, on the one hand, nor the Buyer, on the other hand,
shall have any liability to the other for any termination of this agreement
arising solely out of the action or inaction of any third party or third
parties, and (b) neither the Seller nor the Principal shall have any liability
to the Buyer as a result of the failure to satisfy the condition set forth in
Section 7.4, and the Buyer's sole and exclusive remedy in such case shall be
limited to the Buyer's right to terminate this Agreement under this Section
11.3.
12. CERTAIN TAX MATTERS.
(a) The Seller shall be responsible for and shall pay (i) all sales,
use, real estate transfer and other similar taxes (and any interest, penalties
and other additions to such taxes and or any related costs or expenses), and
(ii) all governmental charges, if any, upon the sale or transfer of any of the
Assets hereunder (collectively "TRANSFER TAXES"); PROVIDED that the Seller shall
not be responsible for or required to pay any Transfer Taxes to the extent such
Transfer Taxes are specifically made the primary liability of the Buyer by
provision of applicable law; PROVIDED, FURTHER, that the Seller shall not be
responsible for any leasehold recording taxes which may arise out of the Buyer
recording a memorandum and/or assignment of record with respect to its leasehold
interest arising out of any lease. If the Seller shall fail to pay such amounts
on a timely basis, the Buyer may pay such amounts to the appropriate
governmental authority or authorities, and the Seller shall promptly reimburse
the Buyer for any amounts so paid by the Buyer.
(b) At the closing, the Seller and the Buyer shall deliver to each other
such properly completed resale exemption certificates and other similar
certificates or instruments as are reasonably requested by the parties to claim
available exemptions from the payment of sales, transfer, use or other similar
taxes under applicable law.
(c) The Buyer shall, at its sole option, have the right to use the
"Alternative Procedure" provided in Section 5 of Revenue Procedure 96-60, 1996-2
C.B. 399, with respect to filing and furnishing Internal Revenue Service Forms
W-2, W-3, and 941 for the 2000 calendar year. The Buyer shall also, at its sole
option, have the right to use any similar procedures and make any similar
elections under state or local tax laws, and the Seller shall reasonably
cooperate in the making of such elections.
13. BROKERS. The Seller, the Principal and the Buyer each represents and
warrants that it has not engaged any broker or finder or incurred any liability
for brokerage fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement. The Seller, the Principal and the
Buyer each agrees to indemnify and hold harmless the others against any claims
or liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of such person.
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14. NOTICES
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, federal express
or other nationally recognized overnight courier, registered or certified mail,
postage prepaid, addressed as follows or to such other address of which the
parties may have given notice:
To the Seller: Wax Works, Inc.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
To the Principal: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
c/o Wax Works, Inc.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇ Cummis Radin Tischman ▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
To the Buyer: Trans World Entertainment Corporation
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered (or on which delivery is refused), if
delivered personally; (b) the business day following delivery to an overnight
courier, if sent by overnight courier; or (c) the date of actual receipt, if
sent by any other method.
15. CONSENT TO JURISDICTION
The Buyer, the Seller and the Principal each irrevocably submits to the
exclusive jurisdiction of (a) the state courts of the State of New York, county
of New York, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transactions contemplated hereby.
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16. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer, the Seller, the Principal and any guarantor provided for below may not
assign their respective rights or obligations hereunder without the prior
written consent of the Buyer, in the case of an assignment by the Seller or the
Principal, or the Seller and the Principal, in the case of an assignment by the
Buyer or any such guarantor; PROVIDED, HOWEVER, that the Buyer may assign this
Agreement, and its rights and obligations hereunder, to an affiliate of the
Buyer or in connection with any merger of the Buyer with a third party or sale
of all or substantially all of the assets of the Buyer to a third party. If the
Buyer elects to assign any of its obligations under this agreement to an
affiliate, the Buyer agrees to unconditionally guarantee the performance of such
affiliate to the Seller on terms reasonably satisfactory to the Seller. Any
assignment in contravention of this Section shall be void.
17. ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS; WAIVERS
(a) This Agreement, all Schedules and Exhibits hereto, all agreements
and instruments to be delivered by the parties pursuant hereto and the
Confidentiality Agreement represent the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior oral and written and all contemporaneous oral negotiations,
commitments and understandings between such parties. The Buyer, the Seller and
the Principal may amend or modify this Agreement, in such manner as may be
agreed upon, by a written instrument executed by the Buyer, the Seller and the
Principal.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
Any matter disclosed on any Schedule to this Agreement shall be deemed to have
been disclosed on all other Schedules to this Agreement to the extent applicable
thereto.
(c) Waiver of any term or condition of this Agreement by any party shall
be effective if in writing and shall not be construed as a waiver of any
subsequent breach or failure of the same term or condition, or a waiver of any
other term of this Agreement. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
18. EXPENSES
Except as otherwise expressly provided herein, the Buyer, the Seller and
the Principal shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
19. NO THIRD PARTY BENEFICIARIES
This Agreement is for the sole benefit of the parties hereto and their
permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any person or entity, other than the parties hereto and
such assigns, any legal or equitable rights hereunder.
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20. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to agreements made and to be
performed entirely within the State of New York, without regard to the conflicts
of law principles thereof.
21. SECTION HEADINGS
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
24. TERMS DEFINED IN THIS AGREEMENT.
The following capitalized terms used herein are defined in the indicated
sections.
2000 Audited Financial Statements............ 5.4
2000 Unaudited Balance Sheet................. 2.5
2000 Unaudited Financial Statements.......... 2.5
Affiliate.................................... 10.3(a)
Assets....................................... 1.1(c)
Assumed Contract............................. 2.15(b)(i)
Assumed Liabilities.......................... 1.4(a)
Audio Business............................... Preliminary Statement
Audio Inventory.............................. 1.7(b)(i)
Audited Balance Sheets....................... 2.5
Audited Financial Statements................. 2.5
Base Fixed Assets Amount..................... 1.7(c)
Base Inventory Amount........................ 1.7(b)(i)
Base Purchase Price.......................... 1.3(a)
Break-up Fee................................. 11.4
Buyer........................................ First Paragraph
Cash Consideration........................... 1.3(a)
Closing...................................... 1.1(a)
Closing Date................................. 1.6
Code......................................... 2.22(a)
Confidentiality Agreement.................... 4.1
Contract Rights.............................. 1.1(a)(iv)
Contracts.................................... 2.15(a)
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Cooperative Advertising Adjustment........... 1.7(d)
Cooperative Advertising Incentives........... 1.1(a)(v)
Corporate Services........................... 2.14
Deleted Inventory............................ 1.7(b)(i)
Employee Benefit Plans....................... 2.22(a)
Employees.................................... 6.3(a)
Encumbrances................................. 2.4
ERISA........................................ 2.22(a)
Environmental Claims......................... 2.27
Environmental Laws........................... 2.27
Excluded Assets.............................. 1.1(b)(v)
Fee Encumbrances............................. 2.4
Financial Statements......................... 2.5
Fixed Assets................................. 1.1(a)(viii)
Fixed Assets Book Value...................... 1.7(c)
Hazardous Materials.......................... 2.27
HSR Act...................................... 7.3
Indemnified Party............................ 9.3(a)
Indemnifying Party........................... 9.3(a)
Instrument of Assumption..................... 1.4(a)
Intangible Property.......................... 1.1(a)(ix)
Interim Financial Statements................. 5.4
Inventory.................................... 1.1(a)(i)
Inventory Count.............................. 1.7(b)(i)
Lease Assignment............................. 1.4(b)
Leases....................................... 2.10
Losses....................................... 9.1
Material Adverse Change...................... 2.11
Material Adverse Effect...................... 2.11
Other Inventory.............................. 1.7(b)(i)
Permits...................................... 2.16
Permitted Encumbrances....................... 2.4
Principal.................................... First Paragraph
Rent and Tax Adjustment...................... 1.7(a)(i)
Return....................................... 2.12(c)
Revised Rent and Tax Adjustment.............. 1.7(a)(ii)
Seller....................................... First Paragraph
Store........................................ 2.8
Store Under Construction..................... 2.8
Supplies..................................... 1.1(a)(ii)
Tax or Taxes................................. 2.12(c)
Taxing Authority............................. 2.12(c)
Third Party Claim............................ 9.3(a)
Transfer Taxes............................... 12(a)
Unrelated Accounting Form.................... 1.7(a)(ii)(B)
Video Inventory.............................. 1.7(b)(i)
Video Wholesale Business..................... 1.1(b)(ii)
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(end of page)
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
WAX WORKS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
PRINCIPAL:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
TRANS WORLD ENTERTAINMENT CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
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