PURCHASE AND SALE AGREEMENT
by and between
PLATINUM ENTERTAINMENT, INC.
and
K-TEL INTERNATIONAL, INC.
as of March 3, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I
PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 EXCLUDED BUSINESSES AND EXCLUDED ASSETS. . . . . . . . . . . . . . 2
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . . . 3
2.1 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 ESCROWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 NET TANGIBLE BOOK VALUE. . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 DELIVERIES BY SELLER . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 DELIVERIES BY BUYER. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . 7
4.1 ORGANIZATION, GOOD STANDING AND CAPITALIZATION . . . . . . . . . . 7
4.2 AUTHORITY; NO CONFLICT; APPROVALS. . . . . . . . . . . . . . . . . 9
4.3 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 TITLE TO ASSETS; ENCUMBRANCES; SUFFICIENCY . . . . . . . . . . . . 10
4.6 TANGIBLE ASSETS AND REAL PROPERTY. . . . . . . . . . . . . . . . . 11
4.7 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . 13
4.10 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . 13
4.12 EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. . 14
4.14 LEGAL PROCEEDINGS; ORDERS. . . . . . . . . . . . . . . . . . . . . 15
4.15 ABSENCE OF CERTAIN CHANGES AND EVENTS. . . . . . . . . . . . . . . 16
4.16 CONTRACTS; NO DEFAULTS; KEY CUSTOMERS. . . . . . . . . . . . . . . 17
4.17 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.18 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 20
4.19 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
4.20 LABOR DISPUTES; COMPLIANCE . . . . . . . . . . . . . . . . . . . . 21
4.21 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 22
4.22 BANK ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.23 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.24 RELATIONSHIPS WITH RELATED PERSONS . . . . . . . . . . . . . . . . 24
4.25 BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . 25
4.26 CERTAIN PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.27 CHANGE OF CONTROL PAYMENTS . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . . . 25
5.1 ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . . . . . . 25
5.2 AUTHORITY; NO CONFLICT . . . . . . . . . . . . . . . . . . . . . . 26
5.3 CERTAIN PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 ACCESS AND INVESTIGATION . . . . . . . . . . . . . . . . . . . . . 27
6.2 OPERATION OF THE BUSINESSES OF SELLER. . . . . . . . . . . . . . . 28
6.3 NEGATIVE COVENANT. . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 APPROVALS OF GOVERNMENTAL BODIES . . . . . . . . . . . . . . . . . 29
6.5 NOTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 KIVES VOTING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII
COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1 APPROVALS OF GOVERNMENTAL BODIES . . . . . . . . . . . . . . . . . 30
7.2 BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 NOTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII
ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 PUBLIC DISCLOSURE AND CONFIDENTIALITY. . . . . . . . . . . . . . . 31
8.2 AUDITORS' LETTERS. . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 FILINGS; OTHER ACTION. . . . . . . . . . . . . . . . . . . . . . . 32
8.4 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . 34
ii
8.7 RESTRICTIVE COVENANTS/NONCOMPETE . . . . . . . . . . . . . . . . . 35
8.8 DELIVERY OF DISCLOSURE LETTER. . . . . . . . . . . . . . . . . . . 35
8.9 TRANSITION ARRANGEMENT . . . . . . . . . . . . . . . . . . . . . . 35
8.10 SELLER'S EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE IX
MUTUAL CONDITIONS PRECEDENT TO
PARTIES' OBLIGATION TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 MUTUAL CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE . . . . . . . . . . . . 37
10.1 ACCURACY OF REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . 37
10.2 THE SELLER'S PERFORMANCE . . . . . . . . . . . . . . . . . . . . . 37
10.3 NO PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.4 NO PROHIBITION . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . 38
10.6 FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE . . . . . . . . . . . . 38
11.1 ACCURACY OF REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . 38
11.2 BUYER'S PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . 38
11.3 NO PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4 NO PROHIBITION . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1 TERMINATION BY MUTUAL CONSENT. . . . . . . . . . . . . . . . . . . 39
12.2 TERMINATION BY EITHER SELLER OR BUYER. . . . . . . . . . . . . . . 39
12.3 TERMINATION BY SELLER. . . . . . . . . . . . . . . . . . . . . . . 39
12.4 TERMINATION BY BUYER . . . . . . . . . . . . . . . . . . . . . . . 40
12.5 EFFECT OF TERMINATION; ▇▇▇▇▇▇▇ MONEY ESCROW. . . . . . . . . . . . 40
12.6 BREAK-UP FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XIII
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.1 SURVIVAL AND LIMITATIONS . . . . . . . . . . . . . . . . . . . . . 42
13.2 INDEMNIFICATION OF BUYER . . . . . . . . . . . . . . . . . . . . . 43
13.3 INDEMNIFICATION OF SELLER. . . . . . . . . . . . . . . . . . . . . 44
iii
13.4 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS . . . . . . . . . 44
13.5 ▇▇▇▇▇ ▇▇▇ MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XIV
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"AFFILIATES" . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"ACCOUNTANTS". . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"ACCOUNTS RECEIVABLE". . . . . . . . . . . . . . . . . . . . . . . 47
"BEST EFFORTS" . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BREACH" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BUSINESS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BUYER'S CLOSING DOCUMENTS". . . . . . . . . . . . . . . . . . . . 47
"CLOSING". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"CLOSING BALANCE SHEETS" . . . . . . . . . . . . . . . . . . . . . 47
"CLOSING DATE" . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CODE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CONFIDENTIALITY AGREEMENT". . . . . . . . . . . . . . . . . . . . 48
"CONSENTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CONTEMPLATED TRANSACTIONS". . . . . . . . . . . . . . . . . . . . 48
"CONTRACT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"DISCLOSURE LETTER". . . . . . . . . . . . . . . . . . . . . . . . 48
"DOMINION" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"DOMINION STOCK" . . . . . . . . . . . . . . . . . . . . . . . . . 48
"ENCUMBRANCE". . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"ENVIRONMENTAL AND SAFETY REQUIREMENTS". . . . . . . . . . . . . . 48
"ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"EXCHANGE ACT" . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"EXCLUDED BUSINESSES". . . . . . . . . . . . . . . . . . . . . . . 48
"FACILITIES" . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"FINANCIAL STATEMENTS" . . . . . . . . . . . . . . . . . . . . . . 49
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"GOVERNMENTAL AUTHORIZATION" . . . . . . . . . . . . . . . . . . . 49
"GOVERNMENTAL BODY". . . . . . . . . . . . . . . . . . . . . . . . 49
"HAZARDOUS MATERIALS". . . . . . . . . . . . . . . . . . . . . . . ▇▇
"▇▇▇ ▇▇▇". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"INSURANCE POLICIES" . . . . . . . . . . . . . . . . . . . . . . . 49
"INTELLECTUAL PROPERTY". . . . . . . . . . . . . . . . . . . . . . 49
"INTERIM BALANCE SHEET". . . . . . . . . . . . . . . . . . . . . . 50
"INVENTORY". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"IRS". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KTI". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KTI STOCK". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KNOWLEDGE". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
iv
"LEGAL REQUIREMENT". . . . . . . . . . . . . . . . . . . . . . . . 50
"LICENSE AGREEMENTS" . . . . . . . . . . . . . . . . . . . . . . . 50
"MATERIAL CONTRACT". . . . . . . . . . . . . . . . . . . . . . . . 50
"▇▇▇▇▇▇▇ CATALOG". . . . . . . . . . . . . . . . . . . . . . . . . 50
"MBCA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"NET TANGIBLE BOOK VALUE". . . . . . . . . . . . . . . . . . . . . 50
"NON-EXCLUSIVE TERRITORY". . . . . . . . . . . . . . . . . . . . . 51
"NTBV SCHEDULE". . . . . . . . . . . . . . . . . . . . . . . . . . 51
"OLD TOWN CATALOG" . . . . . . . . . . . . . . . . . . . . . . . . 51
"ORDER". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"ORDINARY COURSE OF BUSINESS". . . . . . . . . . . . . . . . . . . 51
"ORGANIZATIONAL DOCUMENTS" . . . . . . . . . . . . . . . . . . . . 51
"PERSON" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"PRELIMINARY BOOK VALUE" . . . . . . . . . . . . . . . . . . . . . 51
"PROCEEDING" . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"PROPRIETARY RIGHTS AGREEMENT" . . . . . . . . . . . . . . . . . . 52
"PROTEST NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 52
"PURCHASE PRICE" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"RELATED PERSON" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"REPRESENTATIVE" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"RETAINED MUSIC BUSINESS". . . . . . . . . . . . . . . . . . . . . 52
"REVIEW PERIOD". . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SECURITIES ACT" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SEC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"STOCK". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SUBSIDIARIES" . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SELLERS CLOSING DOCUMENTS". . . . . . . . . . . . . . . . . . . . 53
"SELLER TRANSACTION DOCUMENTS" . . . . . . . . . . . . . . . . . . 53
"SELLER GOVERNMENTAL AUTHORIZATIONS" . . . . . . . . . . . . . . . 53
"TAX OR TAXES" . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"THREATENED" . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE XV
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.1 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . 54
15.4 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.5 ENTIRE AGREEMENT AND MODIFICATION. . . . . . . . . . . . . . . . . 54
15.6 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS . . . . . . . . 55
15.7 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.8 SECTION HEADINGS, CONSTRUCTION . . . . . . . . . . . . . . . . . . 55
15.9 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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15.10 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 55
15.11 NO STRICT CONSTRUCTION. . . . . . . . . . . . . . . . . . . . 55
ARTICLE I PURCHASE AND SALE OF STOCK. . . . . . . . . . . . . . . . . . 1
1.1 Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Businesses and Excluded Assets. . . . . . . . . . . . . . 2
ARTICLE II CONSIDERATION AND MANNER OF PAYMENT. . . . . . . . . . . 3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Escrows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Net Tangible Book Value. . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Deliveries by Buyer. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . 7
4.1 Organization, Good Standing and Capitalization . . . . . . . . . . 7
4.2 Authority; No Conflict; Approvals. . . . . . . . . . . . . . . . . 9
4.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Title to Assets; Encumbrances; Sufficiency . . . . . . . . . . . . 10
4.6 Tangible Assets and Real Property. . . . . . . . . . . . . . . . . 11
4.7 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 13
4.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 13
4.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Compliance with Legal Requirements; Governmental Authorizations. . 14
4.14 Legal Proceedings; Orders. . . . . . . . . . . . . . . . . . . . . 15
4.15 Absence of Certain Changes and Events. . . . . . . . . . . . . . . 16
4.16 Contracts; No Defaults; Key Customers. . . . . . . . . . . . . . . 17
4.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.18 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 20
4.19 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.20 Labor Disputes; Compliance . . . . . . . . . . . . . . . . . . . . 21
4.21 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 22
4.22 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.24 Relationships with Related Persons . . . . . . . . . . . . . . . . 24
4.25 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . 25
4.26 Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.27 Change of Control Payments . . . . . . . . . . . . . . . . . . . . 25
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . 25
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . 25
5.2 Authority; No Conflict . . . . . . . . . . . . . . . . . . . . . . 26
5.3 Certain Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Investment Representations . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . 27
6.1 Access and Investigation . . . . . . . . . . . . . . . . . . . . . 27
6.2 Operation of the Businesses of Seller. . . . . . . . . . . . . . . 28
6.3 Negative Covenant. . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Approvals of Governmental Bodies . . . . . . . . . . . . . . . . . 29
6.5 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 Kives Voting Agreement . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII COVENANTS OF BUYER. . . . . . . . . . . . . . . . . . . . . . 30
7.1 Approvals of Governmental Bodies . . . . . . . . . . . . . . . . . 30
7.2 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . 31
8.1 Public Disclosure and Confidentiality. . . . . . . . . . . . . . . 31
8.2 Auditors' Letters. . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Filings; Other Action. . . . . . . . . . . . . . . . . . . . . . . 32
8.4 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.6 Meeting of Stockholders. . . . . . . . . . . . . . . . . . . . . . 34
8.7 Restrictive Covenants/Noncompete . . . . . . . . . . . . . . . . . 35
8.8 Delivery of Disclosure Letter. . . . . . . . . . . . . . . . . . . 35
8.9 Transition Arrangement . . . . . . . . . . . . . . . . . . . . . . 35
8.10 Seller's Employees . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE IX MUTUAL CONDITIONS PRECEDENT TO PARTIES'
OBLIGATION TO CLOSE . . . . . . . . . . . . . . . . . . . . . 36
9.1 Mutual Conditions. . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO
CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1 Accuracy of Representations. . . . . . . . . . . . . . . . . . . . 37
10.2 The Seller's Performance . . . . . . . . . . . . . . . . . . . . . 37
10.3 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.4 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 38
10.6 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
vii
ARTICLE XI CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO
CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Accuracy of Representations. . . . . . . . . . . . . . . . . . . . 38
11.2 Buyer's Performance. . . . . . . . . . . . . . . . . . . . . . . . 38
11.3 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1 Termination by Mutual Consent. . . . . . . . . . . . . . . . . . . 39
12.2 Termination by either Seller or Buyer. . . . . . . . . . . . . . . 39
12.3 Termination by Seller. . . . . . . . . . . . . . . . . . . . . . . 39
12.4 Termination by Buyer . . . . . . . . . . . . . . . . . . . . . . . 40
12.5 Effect of Termination; ▇▇▇▇▇▇▇ Money Escrow. . . . . . . . . . . . 40
12.6 Break-Up Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 42
13.1 Survival and Limitations . . . . . . . . . . . . . . . . . . . . . 42
13.2 Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . 43
13.3 Indemnification of Seller. . . . . . . . . . . . . . . . . . . . . 44
13.4 Indemnification Procedure for Third Party Claims . . . . . . . . . 44
13.5 ▇▇▇▇▇ ▇▇▇ Matters. . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XIV DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 47
"AFFILIATES" . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"ACCOUNTANTS". . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"ACCOUNTS RECEIVABLE". . . . . . . . . . . . . . . . . . . . . . . 47
"BEST EFFORTS" . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BREACH" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BUSINESS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"BUYER'S CLOSING DOCUMENTS". . . . . . . . . . . . . . . . . . . . 47
"CLOSING". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"CLOSING BALANCE SHEETS" . . . . . . . . . . . . . . . . . . . . . 47
"CLOSING DATE" . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CODE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CONFIDENTIALITY AGREEMENT". . . . . . . . . . . . . . . . . . . . 48
"CONSENTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"CONTEMPLATED TRANSACTIONS". . . . . . . . . . . . . . . . . . . . 48
"CONTRACT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"DISCLOSURE LETTER". . . . . . . . . . . . . . . . . . . . . . . . 48
"DOMINION" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"DOMINION STOCK" . . . . . . . . . . . . . . . . . . . . . . . . . 48
"ENCUMBRANCE". . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"ENVIRONMENTAL AND SAFETY REQUIREMENTS". . . . . . . . . . . . . . 48
"ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"EXCHANGE ACT" . . . . . . . . . . . . . . . . . . . . . . . . . . 48
viii
"EXCLUDED BUSINESSES". . . . . . . . . . . . . . . . . . . . . . . 48
"FACILITIES" . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"FINANCIAL STATEMENTS" . . . . . . . . . . . . . . . . . . . . . . 49
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"GOVERNMENTAL AUTHORIZATION" . . . . . . . . . . . . . . . . . . . 49
"GOVERNMENTAL BODY". . . . . . . . . . . . . . . . . . . . . . . . 49
"HAZARDOUS MATERIALS". . . . . . . . . . . . . . . . . . . . . . . ▇▇
"▇▇▇ ▇▇▇". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"INSURANCE POLICIES" . . . . . . . . . . . . . . . . . . . . . . . 49
"INTELLECTUAL PROPERTY". . . . . . . . . . . . . . . . . . . . . . 49
"INTERIM BALANCE SHEET". . . . . . . . . . . . . . . . . . . . . . 50
"INVENTORY". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"IRS". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KTI". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KTI STOCK". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"KNOWLEDGE". . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"LEGAL REQUIREMENT". . . . . . . . . . . . . . . . . . . . . . . . 50
"LICENSE AGREEMENTS" . . . . . . . . . . . . . . . . . . . . . . . 50
"MATERIAL CONTRACT". . . . . . . . . . . . . . . . . . . . . . . . 50
"▇▇▇▇▇▇▇ CATALOG". . . . . . . . . . . . . . . . . . . . . . . . . 50
"MBCA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"NET TANGIBLE BOOK VALUE". . . . . . . . . . . . . . . . . . . . . 50
"NON-EXCLUSIVE TERRITORY". . . . . . . . . . . . . . . . . . . . . 51
"NTBV SCHEDULE". . . . . . . . . . . . . . . . . . . . . . . . . . 51
"OLD TOWN CATALOG" . . . . . . . . . . . . . . . . . . . . . . . . 51
"ORDER". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"ORDINARY COURSE OF BUSINESS". . . . . . . . . . . . . . . . . . . 51
"ORGANIZATIONAL DOCUMENTS" . . . . . . . . . . . . . . . . . . . . 51
"PERSON" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"PRELIMINARY BOOK VALUE" . . . . . . . . . . . . . . . . . . . . . 51
"PROCEEDING" . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"PROPRIETARY RIGHTS AGREEMENT" . . . . . . . . . . . . . . . . . . 52
"PROTEST NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 52
"PURCHASE PRICE" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"RELATED PERSON" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"REPRESENTATIVE" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"RETAINED MUSIC BUSINESS". . . . . . . . . . . . . . . . . . . . . 52
"REVIEW PERIOD". . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SECURITIES ACT" . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SEC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"STOCK". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SUBSIDIARIES" . . . . . . . . . . . . . . . . . . . . . . . . . . 52
"SELLERS CLOSING DOCUMENTS". . . . . . . . . . . . . . . . . . . . 53
"SELLER TRANSACTION DOCUMENTS" . . . . . . . . . . . . . . . . . . 53
ix
"SELLER GOVERNMENTAL AUTHORIZATIONS" . . . . . . . . . . . . . . . 53
"TAX OR TAXES" . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"THREATENED" . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE XV GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 53
15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 54
15.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.5 Entire Agreement and Modification. . . . . . . . . . . . . . . . . 54
15.6 Assignments, Successors, and No Third-Party Rights . . . . . . . . 55
15.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.8 Section Headings, Construction . . . . . . . . . . . . . . . . . . 55
15.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.11 No Strict Construction. . . . . . . . . . . . . . . . . . . . . . 55
x
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made as of March
3, 1997 by and between PLATINUM ENTERTAINMENT, INC., a Delaware corporation
("Buyer") and K-TEL INTERNATIONAL, INC., a Delaware corporation ("Seller").
Capitalized terms that are not otherwise defined in this Agreement are
defined in Article 14.
The parties, intending to be legally bound, agree as follows:
WHEREAS, Seller is engaged in the business of recording, releasing,
licensing, publishing, distributing and otherwise exploiting recorded music
products on a worldwide basis ("Seller's Music Business");
WHEREAS, Buyer desires to buy, and Seller desires to sell, all of
Seller's Music Business, except for the Retained Music Business (the
"Business");
WHEREAS, Seller engages in the Business solely through two wholly owned
subsidiaries, K-tel International (USA), Inc., a Minnesota corporation
("KTI") and Dominion Entertainment, Inc., a Minnesota corporation
("Dominion", together with KTI, the "Subsidiaries");
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Business by acquiring all of the issued and outstanding
capital stock of the Subsidiaries, all upon the terms and subject to the
conditions set forth below; and
WHEREAS, the parties have agreed that the transactions contemplated
hereby be treated as an asset sale pursuant to Sec. 338(h) of the Code.
NOW THEREFORE, in consideration of the mutual covenants of the parties
set forth in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 STOCK. On the terms and subject to the conditions set forth in
this Agreement, at the Closing, Seller shall sell to Buyer, free and clear of
all Encumbrances (except for Encumbrances on the subsequent sale or transfer
by Buyer of the Stock under federal and state securities laws or created by
Buyer), and Buyer is purchasing from Seller, all of the issued and
outstanding capital stock of KTI (the "KTI Stock") and Dominion (the
"Dominion Stock", together with the KTI Stock, the "Stock").
1.2 EXCLUDED BUSINESSES AND EXCLUDED ASSETS.
(a) Buyer and Seller each acknowledge and agree that Buyer is not
acquiring (i) Seller's consumer products business which is not related to
the Business (the "Consumer Products Business"), (ii) Seller's video
business (the "Video Business"), and (iii) Seller's infomercial business,
including infomercials for music and entertainment products (the
"Infomercial Business", together with the Consumer Products Business and
the Video Business, collectively referred to herein as the "Excluded
Businesses"). It is further agreed that Seller or a subsidiary of Seller
other than the Subsidiaries will retain (i) the Old Town Catalog and the
▇▇▇▇▇▇▇ Catalog, and (ii) the claims arising prior to the Closing Date and
related judgments and settlement proceeds in connection with the pending or
settled actions against Tring, San ▇▇▇▇ Music, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and related
entities (collectively the "Excluded Assets"). In connection therewith,
Seller agrees that it will, prior to the Closing, (A) transfer and assign
to the Subsidiaries all of the right, title and interest in and to the
assets (including, without limitation, all licenses and other related
contracts) related to the Business which are not owned by the Subsidiaries
as of the date hereof and (B) transfer and assign to Seller or one of its
other subsidiaries, as may be determined by Seller, all right, title and
interest in and to the Excluded Businesses or any assets specifically
related thereto and the Excluded Assets to the extent owned by the
Subsidiaries. In connection with the transfers and assignments by the
Subsidiaries contemplated in the immediately preceding sentence, Seller
shall provide Buyer with all documentation used to effect such transfers
and assignments immediately upon such documentation becoming available.
Notwithstanding the above, the parties specifically agree that the "Country
101" property/music rights will be acquired by Buyer hereunder and be
deemed to be part of the Business. In connection with the Excluded Assets
referred to in clause (ii) above of the sentence defining Excluded Assets
and after Closing, Buyer shall, and shall cause the Subsidiaries to, take
such reasonable action, at Seller's expense, as Seller may reasonably
request to effect recovery of such claims, judgments and settlements and to
deliver to Seller promptly upon receipt any funds received by Buyer or the
Subsidiaries with respect to such claims, judgments and settlements.
(b) The parties acknowledge and agree that the Business being
acquired by Buyer includes, but is not limited to, the worldwide rights to
all trademarks, service marks, and trade names, and all registrations
therefore, used in connection with the Business worldwide, with the
exception of the Retained Territory and the exclusive use of the name "K-
tel" solely in the corporate name of Seller or its Affiliates.
Notwithstanding the foregoing, Buyer agrees that promptly after the
Closing, it will take those steps required to change the corporate name of
KTI to delete the words "K-tel". Seller further agrees that, except as
otherwise specifically provided for herein, at no time after the Closing
will it or any of its subsidiaries, Affiliates, or Related Persons use, in
any manner, the words "K-tel", or any other name or ▇▇▇▇ similar thereto,
in connection with the manufacture, distribution, advertising, promotion,
or sale of consumer entertainment products (other than non-musical videos)
(i) except to truthfully disclose the correct corporate name of Seller or
its Affiliates solely on the packaging of such products where Seller's or
its Affiliate's direct connection with such product is described (i.e.,
"manufactured by ..." or "distributed by ....") and (ii) except for the
2
Retained Music Business or in the Retained Territory. The display of
Seller's corporate name shall be in a manner customary to the trade and
without differentiation or emphasis (such as, but not limited to, different
color, typeface, size, or boxing). Seller and its subsidiaries (other than
the Subsidiaries) shall also be entitled to export phonorecords bearing the
"K-tel" name solely from the Retained Territories to the Non-Exclusive
Territory; provided, however, that (i) such phonorecords shall have been
originally commercially released in the Retained Territories, (ii) such
phonorecords are solely in finished manufactured form, and (iii) the use of
the "K-tel" name on such phonorecords shall be limited to the identical
form and manner of display of the "K-tel" name as used on the original
release by Seller of such phonorecords in the Retained Territories. After
Closing, Buyer agrees that Buyer and its subsidiaries (including the
Subsidiaries), Affiliates or Related Persons will not use the word "K-tel"
in their respective corporate names or the assumed business name under
which it conducts business. Seller and its Affiliates agree, at the
Closing, to assign to Buyer the intellectual property rights provided under
this SECTION 1.2(b).
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 PURCHASE PRICE. The aggregate purchase price for the Stock (the
"Purchase Price") to be paid by Buyer to Seller shall be (i) $35,000,000 to be
paid at Closing, and (ii) plus the amount of the aggregate positive Net Tangible
Book Value (as defined below) or minus the amount of the aggregate negative Net
Tangible Book Value, as the case may be, of the Subsidiaries on the Closing Date
to be paid pursuant to SECTION 2.3 below (the "Final Net Tangible Book Value").
The portion of the Purchase Price to be paid at Closing shall be paid by wire
transfer of immediately available funds to an account designated, in writing, to
the Buyer.
2.2 ESCROWS.
(a) The parties hereto agree that upon execution of this Agreement,
Buyer will deposit into an interest bearing escrow account with a lending
institution an ▇▇▇▇▇▇▇ money deposit equal to $1,750,000 (the "▇▇▇▇▇▇▇
Money Escrow") pursuant to the terms of an ▇▇▇▇▇▇▇ Money Escrow Agreement,
attached hereto as EXHIBIT 2.2(a) (the "▇▇▇▇▇▇▇ Money Escrow Agreement").
(b) The parties hereto acknowledge that the ▇▇▇▇▇ ▇▇▇ Agency is
currently auditing the Business for the period of October 6, 1984 through
June 30, 1994 (the "▇▇▇▇▇ ▇▇▇ Audit") and that Seller has established a
reserve for such audits (as set forth in PART 2.3(a) OF THE DISCLOSURE
LETTER) which will be used in connection with the calculation of the Final
Net Tangible Book Value (the "▇▇▇▇▇ ▇▇▇ Reserve"). In connection
therewith, the parties hereto agree that $1,000,000 of the Purchase Price
due at Closing to Seller shall be placed in an interest bearing escrow
account (the "▇▇▇▇▇ ▇▇▇ Escrow") pursuant to the terms of a ▇▇▇▇▇ ▇▇▇
Escrow Agreement, attached hereto as EXHIBIT 2.2(b) (the "▇▇▇▇▇ ▇▇▇ Escrow
Agreement).
3
(c) The parties hereto agree that $2,000,000 of the Purchase Price
due at Closing to Seller shall be placed in an interest bearing escrow
account (the "Indemnity Escrow"), pursuant to the terms of an Indemnity
Escrow Agreement, attached hereto as EXHIBIT 2.2(c) which escrowed funds
shall secure Seller's indemnification obligations to Buyer and its
Affiliates under this Agreement.
2.3 NET TANGIBLE BOOK VALUE.
(a) For purposes of this Agreement, the term "Net Tangible Book
Value" shall mean all of the tangible net assets of the Subsidiaries less
all of the liabilities of the Subsidiaries set forth on the unaudited
balance sheets of the Subsidiaries as of the Closing Date (the "Closing
Balance Sheets"), determined using GAAP, consistently applied by Seller.
The parties agree that the Final Net Tangible Book Value calculation shall
specifically (i) exclude all Excluded Assets and all assets and liabilities
associated with the Excluded Businesses and the Retained Music Business,
(ii) exclude all intercompany payables and receivables to or from Seller
and Affiliates of the Seller which shall be written-off, distributed to or
purchased by Seller (as Seller may determine) or assumed by Seller, as the
case may be, prior to the Closing and (iii) include the reserves referred
to in PART 2.3(a) OF THE DISCLOSURE LETTER.
(b) PART 2.3(b) OF THE DISCLOSURE LETTER sets forth the balance
sheets for each of the Subsidiaries as of January 31, 1997 (the
"Preliminary Balance Sheets") and a calculation of the Net Tangible Book
Value as of such date (the "Preliminary Net Tangible Book Value") in
accordance with SECTION 2.3(a) indicating a negative Preliminary Net
Tangible Book Value of $4,874,000. The parties agree that the Purchase
Price due at Closing shall be equal to $30,126,000 ($35 million less the
negative Preliminary Net Tangible Book Value); provided that the parties
shall use all reasonable efforts, in good faith, to reach agreement on the
Net Tangible Book Value as of a date closer to the Closing Date which
utilizes the same assumptions and methodology as used in PART 2.3(b) OF THE
DISCLOSURE LETTER. If such an agreement can be reached, the amount agreed
to shall become the "Preliminary Net Tangible Book Value" as set forth
herein. If the parties are unable to reach such an agreement, the
Preliminary Net Tangible Book Value (as used herein) shall be the amount
set forth above in this SECTION 2.3(b).
(c) As soon as practicable following the Closing, but in no event
later than 60 days following the Closing, Buyer and Seller each agree to
cause the Minneapolis office of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP ("AA") to prepare and
deliver to Buyer and Seller the Closing Balance Sheets and the calculation
of Final Net Tangible Book Value which utilizes the same assumptions and
methodology as used in PART 2.3(b) OF THE DISCLOSURE LETTER (the "NTBV
Schedule") promptly upon their completion. The Final Net Tangible Book
Value shall be determined as follows:
(i) For a period of 10 business days (the "Review Period") after
delivery of Closing Balance Sheet and the NTBV Schedule, Seller and
Buyer shall each have an opportunity to review and substantiate the
Closing Balance Sheets and NTBV Schedule. During the Review Period,
each party agrees to provide to the other all necessary accounting
4
records and supporting documentation, as may be requested, so that
each of the Buyer and Seller may complete its review of the Closing
Balance Sheets and NTBV Schedule. Upon expiration of the Review
Period, Seller and Buyer shall each have 5 business days to deliver
written notice (the "Protest Notice") to the other of any objections,
and the basis therefor, that it may have to the Closing Balance Sheets
and the NTBV Schedule.
(ii) If Buyer and Seller are unable to resolve any disagreement
between them within 15 days following receipt of any Protest Notice,
then the items in dispute will be referred to the Minneapolis office
of Ernst & Young, L.L.P. (the "Accountants") for final determination.
The determination made by the Accountants shall be final and binding
on the parties.
(iii) If the Final Net Book Value is greater (i.e., a higher
positive amount on the positive side or less negative on the negative
side) than the Preliminary Net Tangible Book Value, Buyer shall pay to
Seller the amount of such excess by wire transfer of immediately
available funds to an account designated, in writing, by Seller. If
the Final Net Book Value is less than the Preliminary Net Book Value
(i.e, lower positive amount on the positive side or a larger negative
amount on the negative side), Seller shall pay to Buyer the amount of
such deficiency by wire transfer of immediately available funds to an
account designated, in writing, by Buyer. All such payments due under
this SECTION 2.3(c) shall be paid within 5 business days after final
determination of the Final Net Tangible Book Value.
The fees and expenses of the AA and the Accountants incurred pursuant to
this SECTION 2.3(c) will be borne one-half by Buyer and one-half by Seller.
ARTICLE III
CLOSING
3.1 CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement will take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇,
counsel to Buyer, at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at
10:00 a.m. (local time) on a date to be specified by the parties, which shall be
no earlier than five (5) business days and no later than ten (10) business days
after the satisfaction or waiver of the conditions set forth in Articles 9, 10
and 11 or at such other time, date and location as the parties may agree (the
"Closing Date"). Subject to the provisions of Article 12, failure to consummate
the Contemplated Transactions on the Closing Date will not result in the
termination of this Agreement and will not relieve any party of any obligation
under this Agreement.
3.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to Buyer
(the "Seller's Closing Documents"):
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(a) certificates representing the Stock, duly endorsed (or
accompanied by duly executed stock powers) for transfer to Buyer;
(b) A certificate executed by Seller to the effect that (i) the
Seller's representations and warranties in this Agreement were accurate as
stated herein as of the date of this Agreement and are accurate as stated
herein as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements delivered by the Seller to Buyer prior to the
Closing Date in accordance with SECTION 6.5), except to the extent to which
such representations and warranties are specifically stated to be as of a
different date, and (ii) the Seller has performed and complied in all
material respects with all covenants and conditions required to be
performed, or complied with, by it hereunder prior to or at the Closing;
(c) Resignations of all officers and directors of each of KTI and
Dominion;
(d) A Good Standing Certificate (dated within five business days
prior to the Closing Date) for KTI and Dominion from all states in which
they are authorized to do business;
(e) A copy of the KTI's and Dominion's Articles of Incorporation and
all amendments thereto, certified by the Secretary of State of Minnesota,
and a copy of KTI's and Dominion's By-laws, and all amendments thereto,
certified by the Secretary of each of KTI and Dominion; and
(f) An opinion of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, P.A., legal counsel
to Seller and the Subsidiaries, dated the Closing Date, covering the
matters set forth in EXHIBIT 3.2(f) attached hereto;
(g) The License Agreements, duly executed by Seller;
(h) The ▇▇▇▇▇ ▇▇▇ Escrow Agreement, duly executed by Seller;
(i) The Indemnity Escrow Agreement, duly executed by Seller;
(j) A release in the form attached hereto as EXHIBIT 3.2(d), whereby
Seller and its subsidiaries (other than the Subsidiaries) shall release the
Subsidiaries from any and all liabilities or obligations of the
Subsidiaries except for the License Agreements;
(k) The noncompetition agreements in the form attached hereto as
EXHIBIT 8.7 from Seller and ▇▇▇▇▇▇ ▇▇▇▇▇, duly executed by each of them;
(l) A pay-off letter from TCF Bank Minnesota fsb, the secured lender
of the Subsidiaries; and
(m) Such other documents as Buyer may reasonably request for the
purpose of consummating the Contemplated Transactions, each in form and
substance reasonably acceptable to Buyer's and Seller's counsel.
6
3.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to Seller
(the "Buyer's Closing Deliveries"):
(a) The Purchase Price, as provided in SECTION 2.1 (provided, in
part, by the release of the ▇▇▇▇▇▇▇ Money Escrow to Seller), less (i) the
amount of the ▇▇▇▇▇ ▇▇▇ Escrow which shall be funded by Buyer at Closing
out of the Purchase Price due to Seller, and (ii) the amount of the
Indemnity Escrow which shall be funded by Buyer at Closing out of the
Purchase Price due to Seller;
(b) A certificate executed by Buyer to the effect that (A) each of
Buyer's representations and warranties in this Agreement was accurate as
stated herein as of the date of this Agreement and is accurate as stated
herein as of the Closing Date as if made on the Closing Date and (B) Buyer
has performed and complied in all material respects with all covenants and
conditions required to be performed or complied with by it prior to or at
the Closing;
(c) An opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis, legal counsel to Buyer,
dated the Closing Date, covering the matters set forth in EXHIBIT 3.3(c)
attached hereto;
(d) The License Agreements, duly executed by Dominion and KTI;
(e) The ▇▇▇▇▇ ▇▇▇ Escrow Agreement, duly executed by Seller and the
escrow agent named therein;
(f) The Indemnity Escrow Agreement, duly executed by Seller and the
escrow agent named therein; and
(g) Such other documents as Seller may reasonably request for the
purpose of consummating the Contemplated Transactions, each in form and
substance reasonably acceptable to Buyer's and Seller's counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, as of the date of this Agreement
and as of the Closing Date (except to the extent such representations or
warranties are specifically stated to be as of a different date), as follows:
4.1 ORGANIZATION, GOOD STANDING AND CAPITALIZATION.
(a) Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota with full corporate
power and authority to conduct its business as it is now being conducted,
to own, hold under lease, or otherwise possess or use the properties and
assets that it purports to own, hold under lease, or otherwise possess or
use, and to perform all its obligations under the contracts to which it is
a party or by which it is bound. Each of KTI and Dominion is a corporation
7
duly organized, validly existing, and in good standing under the laws of
the State of Minnesota, with full corporate power and authority to conduct
its business as it is now being conducted, to own, hold under lease, or
otherwise possess or use the properties and assets that it purports to own,
hold under lease, or otherwise possess or use, and to perform all its
obligations under the contracts to which it is a party or by which it is
bound. PART 4.1(a) OF THE DISCLOSURE LETTER sets forth each other
jurisdiction in which each of KTI and Dominion is qualified to do business
in accordance with the laws of such jurisdiction. The Subsidiaries are
duly qualified to do business as foreign corporations and are in good
standing under the laws of each state or other jurisdiction in which such
qualification is required by virtue of the nature of the activities
conducted by them, except where the failure to be so qualified,
individually or in the aggregate, would not have a material adverse effect
on the Business as a whole.
(b) PART 4.1(b) OF THE DISCLOSURE LETTER includes copies of the
Organizational Documents of each of KTI and Dominion, as currently in
effect.
(c) The authorized equity securities of KTI consists of 5,000,000
shares of common stock, $.01 par value, of which 1,000 shares are issued
and outstanding and constitute the KTI Stock. The authorized equity
securities of Dominion consists of 5,000,000 shares of common stock, $.01
par value, of which 1,000 shares are issued and outstanding and constitute
the Dominion Stock. Seller is, and on the Closing Date will be, the sole
record and beneficial owner and holder of the Stock, free and clear of all
Encumbrances, except as set forth in PART 4.1(c) OF THE DISCLOSURE LETTER.
Upon consummation of the Contemplated Transactions, Buyer will be vested
with good and valid title to the Stock, free and clear of all Encumbrances,
except for Encumbrances on the subsequent sale or transfer by Buyer of the
Stock under federal and state securities laws or created by Buyer. Except
as set forth in PART 4.1(c) OF THE DISCLOSURE LETTER, no legend or other
reference to any purported Encumbrance appears upon any certificate
representing the Stock. All of the Stock have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth
in PART 4.1(c) OF THE DISCLOSURE LETTER, there are not as of the date
hereof, and there will not be on the Closing Date, any outstanding or
authorized options, warrants, calls, rights (including preemptive rights),
commitments or any other agreements of any character which Seller or any of
the Subsidiaries is a party to, or may be bound by, requiring it to issue,
transfer, grant, sell, purchase, redeem or acquire any shares of capital
stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of capital stock of the
Subsidiaries. Except as set forth in PART 4.1(c) OF THE DISCLOSURE LETTER,
there are not as of the date hereof, and there will not be at the Closing
Date, any stockholder agreements, voting trusts or other agreements or
understandings to which Seller or either of the Subsidiaries is a party or
to which it is bound relating to the voting of any shares of the capital
stock of the Subsidiaries. None of the outstanding equity securities or
other securities of the Subsidiaries was issued, redeemed or repurchased in
violation of the Securities Act or any securities or "blue sky" Legal
Requirements. Neither of the Subsidiaries own, and has no contract or
agreement, written or oral, to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership
interest in any other business.
8
(d) PART 4.1(d) OF THE DISCLOSURE LETTER contains a complete and
accurate list of the current directors and officers of each of KTI and
Dominion.
4.2 AUTHORITY; NO CONFLICT; APPROVALS.
(a) This Agreement constitutes and, when executed and delivered by
Seller at Closing, the Seller's Closing Documents (collectively, the
"Seller Transaction Documents"), to which Seller is a party, will
constitute the legal, valid, and binding obligations of the Seller,
enforceable against Seller in accordance with their respective terms except
as such enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization, or similar laws affecting creditor's rights generally and
by general equitable principles. Seller has the corporate power and
authority to execute and deliver this Agreement and each of the Seller
Transaction Documents to which it is a party and to perform its obligations
under this Agreement and each of the Seller Transaction Documents. This
Agreement has been, and the Seller Transaction Documents to which it is a
party at Closing will be, duly executed and delivered by Seller.
(b) The Board of Directors of Seller has approved the Contemplated
Transaction. Except for the approval of the holders of the stockholders of
Seller required by the Minnesota Business Corporation Act (the "MBCA"), no
other approval of the stockholders of Seller or other corporate approval of
Seller (or the Subsidiaries) is required in order for Seller to consummate
the transactions contemplated by this Agreement.
(c) Neither the execution and delivery of this Agreement nor the
consummation by Seller of the Contemplated Transaction will (i) conflict
with or result in any breach of any provision of the respective
Organizational Documents of Seller or any of the Subsidiaries; (ii) require
any consent, approval, authorization or permit of, or registration or
filing with or notification to, any Governmental Body, except (A) in
connection with the applicable requirements, if any, of the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR Act") or
(B) pursuant to the applicable requirements of the Securities Act, and the
rules and regulations promulgated thereunder, and the Exchange Act, and the
rules and regulations promulgated thereunder, including, without,
limitation, a proxy statement and a Form 8-K; (iii) result in a violation
or breach of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration or lien or other charge or Encumbrance) under any of the
terms, conditions or provisions of any indenture, note, license, lease,
agreement or other instrument or obligation to which Seller or either of
the Subsidiaries or any of their assets may be bound, except for such
violations, breaches and defaults (or rights of termination, cancellation
or acceleration or lien or other charge or encumbrance) as to which
requisite waivers or consents will have been obtained prior to Closing or
which, in the aggregate, would not have a material adverse effect on the
Business as a whole or adversely affect the ability of Seller to consummate
the transactions contemplated hereby, except as set forth in PART 4.2(c) OF
THE DISCLOSURE LETTER; (iv) except as set forth in PART 4.2(c) OF THE
DISCLOSURE LETTER, cause the suspension or revocation of any
9
authorizations, consents, approvals or licenses currently in effect which
would have a material adverse effect on the Business as a whole; or
(v) assuming the consents, approvals, authorizations or permits and filings
or notifications referred to in this SECTION 4.2(d) are duly and timely
obtained or made and the approval of the Contemplated Transaction by
Seller's stockholders has been obtained, violate any (A) Legal Requirement
except where such violation would not have a material adverse effect on the
Business as a whole or (B) Order, applicable to Seller or either of the
Subsidiaries or to any of their respective assets.
(d) Except for (i) the approval by the Seller's stockholders of the
Contemplated Transaction, and (ii) except as set forth in PART 4.2(d) OF
THE DISCLOSURE LETTER, the Seller is not, and will not be, required to give
any notice to or obtain any consent or approval from any Person which is
not a Governmental Body in connection with the execution and delivery of
this Agreement or any of the Seller Transaction Documents or the
consummation or performance of any of the Contemplated Transactions.
4.3 FINANCIAL STATEMENTS. Seller has delivered to Buyer (a) audited
balance sheets of each of KTI and Dominion as of June 30 for each of the fiscal
years 1994 through 1996, and the related statements of operations and cash flows
for each of the fiscal years ending June 30, 1994 through 1996, including in
each case the notes thereto and (B) the unaudited balance sheet of each of KTI
and Dominion at December 31, 1996 (the "Interim Balance Sheets") and the related
unaudited/reviewed statements of operations and cash flows for the six-month
period then ended (each of the financial statements delivered to Buyer pursuant
to this SECTION 4.3 shall be referred to herein as the "Financial Statements").
The Financial Statements and notes fairly present the financial condition and
results of operations of each of the Subsidiaries as at the respective dates
thereof and for the periods therein referred to, all in accordance with GAAP,
except that the unaudited financial statements do not include footnote
disclosure of the type associated with audited financial statements and were or
are subject to normal and recurring year-end adjustments which were not or are
not expected to be materially adverse in amount. The Financial Statements
reflect the consistent application of GAAP throughout the periods involved,
except as may otherwise be specifically described therein.
4.4 BOOKS AND RECORDS. The books of account and other records of each of
the Subsidiaries, all of which have been made available to Buyer, are complete
and correct in all material respects and have been maintained in all material
respects in accordance with sound business practices. Without limiting the
generality of the foregoing, the minute books of each of the Subsidiaries
contain complete and accurate records of all official meetings held of, and
corporate action taken by, the shareholders, the boards of directors, and
committees of the boards of directors of such Subsidiary, and no meeting of any
such shareholders, board of directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of each
Subsidiary or otherwise delivered by Seller to Buyer.
4.5 TITLE TO ASSETS; ENCUMBRANCES; SUFFICIENCY. Except as set forth in
PART 4.5 OF THE DISCLOSURE LETTER, neither Seller, nor any of its subsidiaries
or Affiliates (other than KTI and Dominion) own any of the tangible assets used
10
in connection with the Business. Each Subsidiary has good and valid title to
all the tangible properties and assets reflected as owned in the books and
records of each Subsidiary, including all of the tangible properties and assets
reflected in the Interim Balance Sheets (except for personal property sold or
disposed of since the date of the Interim Balance Sheets in the Ordinary Course
of Business), free and clear of any Encumbrances, except for any encumbrances,
any mechanics or other statutory liens, any lien of taxes not yet due and
payable, liens or security interests which will be released at or prior to
Closing, and imperfections or irregularities of title, as do not materially
detract from the value of or materially interfere with the use of the properties
or assets subject thereto, or affected thereby). All of the tangible properties
and assets purchased or otherwise acquired by each Subsidiary since the date of
the Interim Balance Sheets (except for supplies, inventory, and personal
property acquired since the date of the Interim Balance Sheets in the Ordinary
Course of Business) are listed in PART 4.5 OF THE DISCLOSURE LETTER. At
Closing, the Subsidiaries will own, lease or license all of the tangible assets
which are necessary for the conduct and operation of the Business as it is
presently conducted, except as set forth in PART 4.5 OF THE DISCLOSURE LETTER.
4.6 TANGIBLE ASSETS AND REAL PROPERTY.
(a) Except as set forth in PART 4.6(a) OF THE DISCLOSURE LETTER, all
of the material tangible assets used by the Subsidiaries are located at the
Facilities, are in operating condition and repair and free of material
defects and are not in need of maintenance or repairs except for ordinary,
routine maintenance and repairs that are not material in nature or costs.
Except as set forth on PART 4.6(a) OF THE DISCLOSURE LETTER, all of the
material tangible assets are either owned by either Subsidiary or held
under a lease. All such material leases are valid and in full force and
effect and neither the Subsidiaries, nor to the knowledge of Seller, any
other party thereto, is in default under any of such leases and no event
has occurred which with the giving of notice or the passage of time or both
could constitute a default under any of such leases. All leases for
material tangible assets used by the Subsidiaries with Affiliates and
related parties, if any, are identified as such on PART 4.6(a) OF THE
DISCLOSURE LETTER, and carry terms and conditions no less favorable nor
more favorable in all material respects to the Subsidiaries than those
which could have obtained in arm's-length transactions with unrelated third
parties.
(b) Neither of the Subsidiaries owns any real property. PART 4.6(b)
OF THE DISCLOSURE LETTER sets forth all of the leasehold and other
interests in real property used in connection with the Business (the
"Facilities") and the leases or other agreements under which the Facilities
are used (the "Facilities Leases"). The Facilities Leases are in full
force and effect and no default by the Subsidiaries or, to the knowledge of
Seller, by any other party thereto has occurred and is continuing under any
of the Facilities Leases. Either of the Subsidiaries (and not the Seller
or its Affiliates) are the lessees under the Facilities Leases. To the
knowledge of Seller except as set forth in PART 4.6(b) OF THE DISCLOSURE
LETTER:
(i) Each of the Subsidiaries has all easements and rights
necessary to conduct the Business on or at the Facilities as presently
conducted;
11
(ii) No portion of the Facilities is subject to any pending
condemnation proceeding or proceeding by any public or quasi-public
authority materially adverse to the Facilities and there is no
threatened condemnation or proceeding with respect to the Facilities;
(iii) The buildings and fixtures located on the Facilities
including, without limitation, heating, ventilation, mechanical,
electrical, sewer, sprinkler and air conditioning systems, roof,
foundation and floors (the "Building and Fixtures"), have been
properly maintained and are in operating condition in each case in all
material respects. The Building and Fixtures are in operating
condition in each case in all material respects, are substantially fit
for the purposes for which they are being utilized and are not in need
of any material repair or replacement;
(iv) The Facilities (or the use, occupancy and ownership thereof)
do not violate in any material respect any zoning, subdivision,
health, safety, handicapped persons, landmark preservation, wetlands
preservation, building, land use or other ordinances, laws, codes or
regulations or any covenants, restrictions or other documents of
record (including the Americans with Disabilities Act), nor, has any
such violation been claimed by, nor has any notice of any violation
been issued to Seller or either of the Subsidiaries by any
governmental, public or quasi-public authority;
(v) There are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties
the right of use or occupancy of any portion of the Facilities used
exclusively by either Subsidiary; and
(vi) The Facilities are supplied with utilities and other
services necessary for the operation of the Business as presently
conducted, and all such services are adequate to conduct that portion
of the Business presently conducted at the Facilities and are in
accordance with all laws, ordinances, rules and regulations applicable
to each of the Subsidiaries or the Facilities, except where failure to
comply with such laws, ordinances, rules and regulations would not
have individually or in the aggregate a material adverse effect on
either of the Subsidiaries or in the operations of the Business as
presently conducted.
4.7 ACCOUNTS RECEIVABLE. To the knowledge of Seller, except as set forth
in PART 4.7 OF THE DISCLOSURE LETTER, all accounts receivable of each Subsidiary
(without regard to any reserve for bad debts) that are reflected on the Interim
Balance Sheets or on the accounting records of each Subsidiary as of the Closing
Date, which accounts receivable will be part of the calculation of the Final Net
Book Value Calculation (collectively, the "Accounts Receivable") represent or
will represent in all material respects valid obligations arising from sales
actually made, services actually performed or rights granted, in the Ordinary
Course of Business. Except as set forth in PART 4.7 OF THE DISCLOSURE LETTER,
there is no contest, claim, or asserted right of set-off other than returns in
the Ordinary Course of Business in any agreement with any maker of an Accounts
Receivable in a material amount.
12
4.8 INVENTORY. To the knowledge of Seller, except as set forth in PART
4.8 OF THE DISCLOSURE LETTER, all raw materials, components, work-in-process,
finished products and supplies and merchandise inventory ("Inventory") owned by
each Subsidiary are in good condition in all material respects and consists of
items of a quality and quantity historically useable and saleable in the
Ordinary Course of Business, except for items which are obsolete or below
standard quality, all of which have been determined and written down to net
realizable value in accordance with GAAP.
4.9 NO UNDISCLOSED LIABILITIES. To the knowledge of Seller, except as set
forth in PART 4.9 OF THE DISCLOSURE LETTER, or disclosed in any other Part of
the Disclosure Letter, neither of the Subsidiaries will have liabilities or
obligations (nor does the Seller have any liabilities or obligations for which
either of the Subsidiaries or Buyer could be liable) of any nature (whether
absolute, accrued, contingent, or otherwise) other than (i) liabilities or
obligations which will be reflected or reserved against in the calculation of
the Final Net Tangible Book Value and (ii) obligations under executory Contracts
which are not required to be accrued for under GAAP.
4.10 TAXES. Each of the Seller and the Subsidiaries has filed all federal,
state, local and foreign tax returns, estimates, information statements and
reports ("Tax Returns") that it is required to have filed prior to the Closing.
Seller and each of the Subsidiaries have paid all Taxes, interest and penalties,
if any, shown as due on such Tax Returns or otherwise due and payable by it as
of the Closing. Except for the amounts, if any, specifically included in the
calculation of the Final Net Tangible Book Value, neither Seller nor the
Subsidiaries will have any liability whatsoever for Taxes that, directly or
indirectly, relate to any period prior to the Closing, whether relating to the
Business, the Seller, the Subsidiaries or their respective Affiliates. Any
deficiencies proposed as a result of any governmental audits of such Tax Returns
have been paid or settled, and except as set forth in PART 4.10 OF THE
DISCLOSURE LETTER, there are no present disputes as to Taxes payable by Seller,
the Subsidiaries or their respective Affiliates.
4.11 NO MATERIAL ADVERSE CHANGE. To the knowledge of Seller, except as set
forth in PART 4.11 OF THE DISCLOSURE LETTER, since the date of the June 30, 1996
audited financial statements of the Subsidiaries, there has not been any
material adverse change in the business, operations, properties, prospects,
assets, or condition of either of the Subsidiaries or any event, condition, or
contingency that is likely to result in such a material adverse change.
4.12 EMPLOYEE BENEFITS. Except as set forth in PART 4.12 OF THE DISCLOSURE
LETTER, neither Seller nor any Plan Affiliate has maintained, sponsored,
adopted, made contributions to or obligated itself to make contributions to or
to pay any benefits or grant rights under or with respect to any "Employee
Pension Benefit Plan" (as defined in SECTION 3(2) of ERISA), "Employee Welfare
Benefit Plan" (as defined in SECTION 3(1) of ERISA), "Multi-employer Plan" (as
defined in SECTION 3(37) of ERISA), plan of deferred compensation, medical plan,
life insurance plan, long-term disability plan, dental plan or other plan
providing for the welfare of any of Seller's or any Plan Affiliate's employees
or former employees or beneficiaries thereof, personnel policy (including but
not limited to vacation time, holiday pay, bonus programs, moving expense
reimbursement programs and sick leave), excess benefit plan, bonus or incentive
plan (including but not limited to stock options, restricted stock, stock bonus
13
and deferred bonus plans), salary reduction agreement, change-of-control
agreement, employment agreement, consulting agreement, or any other benefit,
program or contract (all such plans listed on PART 4.12 OF THE DISCLOSURE LETTER
collectively, "Employee Benefit Plans"), whether written, voluntary or pursuant
to a collective bargaining agreement or law, which could give rise to or result
in Seller or such Plan Affiliate having any debt, liability, claim or obligation
of any kind or nature, whether accrued, absolute, contingent, direct, indirect,
known or unknown, perfected or inchoate or otherwise and whether or not due or
to become due. Correct and complete copies of all Employee Benefit Plans
previously have been furnished to Buyer. For purposes of this Agreement, "Plan
Affiliate" means any person or entity with which Seller constitutes all or part
of a controlled group of corporations, a group of trades or businesses under
common control or an affiliated service group, as each of those terms are
defined in SECTION 414 of the Code. Since June 30, 1996, there has not been any
adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other Employee Benefit Plan except as set forth in PART 4.12 OF THE
DISCLOSURE LETTER.
4.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in PART 4.13(a) OF THE DISCLOSURE LETTER to
the knowledge of Seller:
(i) each of the Subsidiaries and the operations of the Business
are in full compliance with each Legal Requirement that is or was
applicable to it except where failure to comply would not individually
or in the aggregate have a material adverse effect on the Business as
a whole;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation by Seller or its affiliates (with respect to the Business)
or by either of the Subsidiaries of, or a failure to comply with, any
Legal Requirement except where failure to comply would not
individually or in the aggregate have a material adverse effect on the
Business as a whole; and
(iii) neither Seller nor the Subsidiaries have received any notice
or other communication (whether oral or written) from any Governmental
Body or any other Person regarding, and Seller has no knowledge of any
actual, alleged, possible, or potential violation of, or failure to
comply with, any Legal Requirement applicable to the Business, or any
obligation on the part of Seller (with respect to the Business) or
either of the Subsidiaries to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature except where failure
to comply would not individually or in the aggregate have a material
adverse effect on the Business as a whole.
(b) To the knowledge of Seller, the Governmental Authorizations
listed in PART 4.13(b) OF THE DISCLOSURE LETTER (the "Seller Governmental
Authorizations") collectively constitute all of the Governmental
Authorizations necessary to permit each of the Subsidiaries to lawfully
14
conduct and operate the Business in the manner currently conducted and
operated except where failure to have Governmental Authorizations would not
individually or in the aggregate have a material adverse effect on the
Business as a whole. To the knowledge of Seller, each Seller Governmental
Authorization is valid and in full force and effect. Except as set forth
in PART 4.13(b) OF THE DISCLOSURE LETTER to the knowledge of Seller:
(i) Seller and each Subsidiary is in full compliance with all of
the terms and requirements of each Seller Governmental Authorization
except where failure to comply would not individually or in the
aggregate have a material adverse effect on the Business as a whole;
(ii) no event has occurred or circumstance exists that may
reasonably (with or without notice or lapse of time) (A) constitute or
result in a violation of or a failure to comply with any term or
requirement of any Seller Governmental Authorization, or (B) result in
the revocation, withdrawal, suspension, cancellation, or termination
of, or any modification to, any Seller Governmental Authorization
except where such violation, failure or revocation, withdrawal,
suspension, cancellation or termination would not individually or in
the aggregate have a material adverse effect on the Business as a
whole;
(iii) neither Seller nor the Subsidiaries have received any notice
or other written communication from any Governmental Body or any other
Person regarding (A) any actual, alleged, or potential violation of or
failure to comply with any term or requirement of any Seller
Governmental Authorization, or (B) any actual, proposed, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Seller Governmental Authorization except where
such violation, failure or revocation, withdrawal, suspension,
cancellation or termination would not individually or in the aggregate
have a material adverse effect on the Business as a whole; and
(iv) all applications required to have been filed for the renewal
of Seller Governmental Authorizations have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Seller Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies except where failure to so file would
not individually or in the aggregate have a material adverse effect on
the Business as a whole.
4.14 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in PART 4.14(a) OF THE DISCLOSURE LETTER, to
the knowledge of Seller, there is no pending Proceeding:
(i) that has been commenced by or against Seller (relating to
the Business) or either of the Subsidiaries; or
15
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
Except as set forth in PART 4.14(a) OF THE DISCLOSURE LETTER, to the
knowledge of Seller (A) no such Proceeding has been Threatened, and (B) no
event has occurred or circumstance exists that could reasonably be expected
to give rise to or serve as a basis for the commencement of any such
Proceeding. Seller has delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in
PART 4.14(a) OF THE DISCLOSURE LETTER. Also listed in PART 4.14(a) OF THE
DISCLOSURE LETTER are all Proceedings commenced or, to the knowledge of
Seller, Threatened by or against (i) Seller pertaining to the Business or
(ii) the Subsidiaries, within the last two (2) years, and a description of
the outcome thereof.
(b) Except as set forth in PART 4.14(b) OF THE DISCLOSURE LETTER to
the Seller's knowledge:
(i) there is no Order to which Seller, with respect to the
operations of the Business, or either of the Subsidiaries, is subject;
and
(ii) no officer, director, agent or employee of either of the
Subsidiaries is subject to any Order that prohibits such person from
engaging in or continuing any conduct, activity, or practice relating
to the Business.
(c) Except as set forth in PART 4.14(c) OF THE DISCLOSURE LETTER to
the Seller's knowledge:
(i) Seller, with respect to the operations of the Business, and
each of the Subsidiaries, are in full compliance with all of the terms
and requirements of each Order to which it is or has been subject;
(ii) no event has occurred or circumstance exists that will
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which Seller, with respect to the operations of the Business,
or either of the Subsidiaries, is subject; and
(iii) neither Seller nor either Subsidiary has received any notice
or other written communication from any Governmental Body or any other
Person regarding any actual, alleged, or potential violation of, or
failure to comply with, any term or requirement of any Order to which
Seller, with respect to the operations of the Business, or either of
the Subsidiaries, is or has been subject.
4.15 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
PART 4.15 OF THE DISCLOSURE LETTER, since June 30, 1996, the businesses of each
Subsidiary has been conducted only in the Ordinary Course of Business and there
has not been any:
16
(i) change in either of the Subsidiary's authorized or issued
capital stock; grant of any stock option or right to purchase shares
of capital stock of either Subsidiary; issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by either
Subsidiary of any shares of any such capital stock; or declaration or
payment of any non-cash dividend or other non-cash distribution or
payment in respect of shares of capital stock;
(ii) damage to or destruction or loss of any asset or property of
the Subsidiaries, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business or financial
condition of either of the Subsidiaries;
(iii) entry into, termination of, or receipt of notice of
termination of (A) any license, maintenance, distributorship, dealer,
sales representative, consulting, joint venture, credit, or similar
agreement, or (B) any Contract or transaction involving a total
remaining commitment by either Subsidiary of at least $50,000 which is
not in the Ordinary Course of Business;
(iv) loan or advance by either Subsidiary to any Person other
than sales to customers on credit in the Ordinary Course of Business
and loans or advances of $10,000 or less to any Person in the Ordinary
Course of Business;
(v) discharge or satisfy any liability of either Subsidiary in
excess of $50,000, except in the Ordinary Course of Business;
(vi) other than the sale of inventory and licensing of
Intellectual Property in the Ordinary Course of Business, sale, lease,
or other disposition of any asset or property of either Subsidiary or
mortgage, pledge, or imposition of any Encumbrance on any material
asset or property of either Subsidiary, including the sale, lease, or
other disposition of any of either Subsidiary's intellectual property;
(vii) cancellation or waiver of any claims or rights with a value
to either Subsidiary in excess of $50,000;
(vii) change in the accounting methods used by Seller with respect
to the Subsidiaries' operations; or
(viii) agreement, whether oral or written, to do any of the
foregoing.
4.16 CONTRACTS; NO DEFAULTS; KEY CUSTOMERS.
(a) PART 4.16(a) OF THE DISCLOSURE LETTER contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies
(or forms thereof, where form agreements are used; provided that any and
all deviations or changes to the forms in any individual case are described
17
in PART 4.16(a) OF THE DISCLOSURE LETTER), of all Contracts relating to the
operation of the Business which are described in (i) through (xiv) below
(the "Material Contracts"):
(i) each Contract that involves executory performance of
services or delivery of goods or materials BY either of the
Subsidiaries which has a specified amount or specified value in excess
of $50,000 and not terminable by such Subsidiary on thirty (30) days
prior notice without liability (without giving effect to renewal
provisions thereof) except for orders of finished goods from either
Subsidiary in the Ordinary Course of Business;
(ii) each Contract that involves executory performance of
services or delivery of goods or materials TO either of the
Subsidiaries of a specified amount or specified value in excess of
$50,000 and not terminable by such Subsidiary on thirty (30) days
prior notice without liability except for licenses of music rights by
either Subsidiary for its use and Contracts for finished goods entered
into in the Ordinary Course of Business;
(iii) each Contract relating to the borrowing of money, the
guaranty of another Person's borrowing of money, or the creation of an
Encumbrance on any of the assets of either Subsidiary;
(iv) each Contract not in the Ordinary Course of Business
involving expenditures or receipts of either of the Subsidiaries in
excess of $50,000;
(v) each lease, rental or occupancy agreement, installment and
conditional sale agreement, and other Contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other interest
in, (A) any real property or (B) any tangible personal property with a
fair market value in excess of $50,000 or which is otherwise material
to the Business;
(vi) each Contract with employees, officers, and directors of
either Subsidiary, and Contracts with any labor union or other
employee representative of a group of employees relating to wages,
hours, and other conditions of employment;
(vii) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits (other than licenses of music
rights), losses, costs, or liabilities by either Subsidiary with any
other Person;
(viii) each Contract containing covenants that in any way purport
to restrict either Subsidiaries' business activity or limit the
freedom of either Subsidiary to engage in any line of business or to
compete with any Person except for licenses of rights included in the
Subsidiaries' music catalog entered into in the Ordinary Course of
Business;
18
(ix) each Contract providing for payments to or by any Person
based on sales, purchases, or profits, including distribution,
reseller and sales representative agreements other than licenses of
music rights;
(x) each power of attorney from either Subsidiary that is
currently effective and outstanding;
(xi) each Contract entered into by Seller pertaining to the
businesses of a Subsidiary or a Subsidiary, individually, for capital
expenditures having a remaining amount in excess of $50,000;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance or discharge of
indebtedness of a Person other than the Subsidiaries;
(xiii) each agreement or plan of a Subsidiary, including, without
limitation, any stock option plan, stock appreciation rights plan, or
stock purchase plan, whereby any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the Contemplated Transactions; and
(xiv) any other Contract relating to the Business, the loss of
which would have a material adverse affect on the Business as a whole.
(b) Except as set forth in PART 4.16(b)(i) OF THE DISCLOSURE LETTER,
all of the Contracts listed or required to be listed in PART 4.16(a) OF THE
DISCLOSURE LETTER are in full force and effect and are valid and
enforceable against the Subsidiaries and, to the knowledge of Seller, the
other party(ies), in accordance with their respective terms (except as
enforceability may be affected by bankruptcy, insolvency, receivership and
other similar laws affecting the rights and remedies of creditors generally
and the effect of general principles of equity), and, to the knowledge of
Seller, no event has occurred or circumstance exists, including, without
limitation, the failure of either Subsidiary or any distributor to meet any
quota or minimum sales or revenue level, that would give any Person
(including either Subsidiary) the right (with or without notice or lapse of
time) to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
such Contract which individually or in the aggregate would have a material
adverse effect on the Business as a whole. Except as set forth on PART
4.16(b)(ii) OF THE DISCLOSURE LETTER, none of the Material Contracts
require any approval or consent as a result of the consummation of the
Contemplated Transactions where the failure to obtain such approval or
consent individually or in the aggregate would have a material adverse
effect on the Business as a whole. One of the Subsidiaries and not the
Seller, are party to all of the Contracts pertaining to the operation of
the Business.
(c) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any amounts paid or payable to either
19
Subsidiary under current or completed Material Contracts with any Person
which is material to the Business, and to the knowledge of Seller, no such
Person has made demands on either Subsidiary for such renegotiation.
(d) PART 4.16(d) OF THE DISCLOSURE LETTER contains a list of the top
twenty-five (25) customers and licensees of both KTI and Dominion
(determined by revenues generated by KTI and Dominion in each of the fiscal
years 1995 and 1996) (the "Customers"). Except as set forth in PART
4.16(d) OF THE DISCLOSURE LETTER, to the knowledge of Seller, none of the
Customers intend to reduce the level of business with such Subsidiary or in
any other manner materially alter their relationship with such Subsidiary
as a result of the Contemplated Transaction or otherwise.
4.17 INSURANCE. PART 4.17 OF THE DISCLOSURE LETTER contains a complete and
accurate list of all insurance policies (including "self-insurance" programs)
now maintained by Seller, with respect to the Business, and the Subsidiaries,
individually, (the "Insurance Policies") and all general liability policies
maintained by Seller, with respect to the Business, and the Subsidiaries,
individually, during the past five years and all claims (except for health
insurance claims) made under any such current or prior insurance policies for
the past five years. The Insurance Policies are in full force and effect,
neither Seller nor either of the Subsidiaries are in default under any Insurance
Policy, and no claim for coverage under any Insurance Policy (except for health
insurance claims) has been denied. All of the Insurance Policies will be
maintained in full force and effect until the Closing Date.
4.18 ENVIRONMENTAL MATTERS.
(a) To the knowledge of Seller, neither Seller nor either of the
Subsidiaries have ever generated, transported, treated, stored, disposed of
or otherwise handled any Hazardous Materials (as defined below) at any
site, location or facility used in connection with the Business (including,
without limitation, the Facilities) (the "Premises") and, to the knowledge
of Seller, no such Hazardous Materials are present on, in or under the
Premises, and the Premises do not contain (including without limitation,
containment by means of any underground storage tank) any Hazardous
Materials, in each case in violation of any applicable Environmental and
Safety Requirement (as defined below). There are no underground storage
tanks on any of the Premises.
(b) To the knowledge of Seller, Seller with respect to the
operations of the Business, and the Subsidiaries, individually, are (i) in
material compliance with all applicable Environmental and Safety
Requirements, the violation of which would reasonably be expected to result
in a liability to either of the Subsidiaries or their respective properties
or assets and (ii) possesses all required permits, licenses, certifications
and approvals and has filed all notices or applications required thereby or
pertaining thereto.
(c) Neither Seller nor the Subsidiaries have ever been subject to,
or received any notice (written or oral) of, any private, administrative or
judicial inquiry, investigation, order or action, or any notice (written or
oral) of any intended or, to the knowledge of Seller, Threatened private,
administrative, or judicial inquiry, investigation, order or action
relating to the presence or alleged presence of Hazardous Materials in,
20
under or upon the Premises, and to the knowledge of Seller, there is no
reasonable basis for any such inquiry, investigation, order, action or
notice; and to the knowledge of Seller, there are no pending or Threatened
investigations, actions, orders or proceedings (or notices of potential
investigations, actions, orders or proceedings) from any governmental
agency or any other entity regarding any matter relating to Environmental
and Safety Requirements.
(d) To the knowledge of Seller, no facts, events or conditions with
respect to the Premises exist which could reasonably be expected to
interfere with or prevent continued compliance with, or could give rise to
any common law or statutory liability or otherwise form the basis of any
claim, action, suit, proceeding, hearing or investigation against or
involving either of the Subsidiaries, its assets or properties or
the Premises under any Environmental and Safety Requirement or related
common law theories based on any such fact, event or circumstance,
including, without limitation, liability for investigation costs, cleanup
costs, personal injury or property damage.
4.19 EMPLOYEES. PART 4.19 OF THE DISCLOSURE LETTER contains a complete and
accurate list as of February 28, 1997 of the following information for each
employee of each Subsidiary, including each employee on leave of absence or
layoff status: name; job title; base salary, bonus and any change in
compensation since June 30, 1996; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under each Employee Benefit
Plan. To the knowledge of Seller, no current or former employee of either
Subsidiary is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, non-competition, or proprietary
rights agreement, between such employee and any other Person ("Proprietary
Rights Agreement") that in any way adversely affected, affects, or will affect
(i) the performance of his duties as an employee of such Subsidiary, or (ii) the
ability of such Subsidiary to conduct its business, or otherwise produce,
manufacture and distribute its products, including any Proprietary Rights
Agreement with such Subsidiary by any such employee or director. Since June 30,
1996, other than in the Ordinary Course of Business or as set forth in PART 4.19
OF THE DISCLOSURE LETTER, there has not been (i) payment by either of the
Subsidiaries of any bonuses or compensation other than regular salary payments,
(ii) a nonstandard increase in the salaries of the Subsidiaries' employees,
(iii) payment on any debt of the Subsidiaries to any stockholder, director,
officer, or employee, or (iv) entry into any employment, severance, or similar
Contract with any director, officer, or employee.
4.20 LABOR DISPUTES; COMPLIANCE. Except as set forth in PART 4.20 OF THE
DISCLOSURE LETTER, neither of the Subsidiaries have ever been a party to any
collective bargaining or other labor Contract. There has never been, there is
not presently existing, to the knowledge of Seller, Threatened, any strike,
slowdown, picketing, lockout, work stoppage, labor arbitration, or Proceeding in
respect of the grievance of any employee, application or complaint filed by an
employee or union with the National Labor Relations Board or any comparable
Governmental Body, organizational activity, or other labor dispute against or
affecting either Subsidiary or the Facilities, and no application for
certification of a collective bargaining agent exists or, to the knowledge of
Seller, is Threatened.
21
4.21 INTELLECTUAL PROPERTY.
(a) SUBSIDIARIES MUSIC CATALOG. PART 4.21(a) OF THE DISCLOSURE
LETTER sets forth a true, correct and complete in all material respects
list of the owned and licensed sound recordings used in the Business (the
"Subsidiaries Music Catalog") indicating, with respect to each such sound
recording whether it is (i) owned by the Subsidiaries or (ii) licensed by
the Subsidiaries pursuant to any oral or written contract, license or other
agreement (all of which written contracts, licenses or other agreements
have been made available to Buyer for review) (the "Music Catalog
Agreements"). The Subsidiaries have good and valid title to the recordings
in the Subsidiaries Music Catalog which are owned by the Subsidiaries.
Subject to PART 4.21(a) OF THE DISCLOSURE LETTER, the Music Catalog
Agreements are in full force and effect (subject to each being enforceable
against the other parties thereto) and represent the valid and legal
obligations, in accordance with their terms, of the respective Subsidiary
which is a party thereto and, to the knowledge of Seller, the other parties
thereto. Except as set forth in PART 4.21(a) OF THE DISCLOSURE LETTER, no
default by either of the Subsidiaries, or to the knowledge of Seller, by
any other party thereto, exists under the Music Catalog Agreements and no
event has occurred which the giving of notice or passage of time or both
could constitute a default under the Music Catalog Agreements, except where
such default would have a material adverse effect on the Business as a
whole. Except as set forth in PART 4.21(a) OF THE DISCLOSURE LETTER and
the ▇▇▇▇▇ ▇▇▇ Audit, to the knowledge of Seller (i) since January 1, 1995,
there have been no claims that the use of or the rights under the
Subsidiaries Music Catalog infringes, misappropriates or otherwise violates
the rights of any Person and no such claim is pending, and (ii) no Person
is currently infringing, misappropriating or otherwise violating the rights
of the Subsidiaries in the Subsidiaries Music Catalog. To the knowledge of
Seller, neither of the Subsidiaries or the Seller have taken any action
that has materially and adversely impaired or would reasonably be expected
to have materially and adversely impaired the Subsidiaries' right, title or
interest in and to the Subsidiaries Music Catalog. To the knowledge of
Seller, the Subsidiaries ownership or use of the Subsidiaries Music Catalog
do not infringe, misappropriate or conflict with the proprietary rights or
other rights or interests of any Person. Upon consummation of the
Contemplated Transactions, the Subsidiaries will be vested with the same
ownership or use rights in the Subsidiaries Music Catalog which are held by
the Subsidiaries prior to the consummation of the Contemplated Transaction.
(b) LICENSES OF SUBSIDIARIES MUSIC CATALOG. Seller has provided
Buyer with a true, correct and complete list in all material respects of
the contracts, licenses and other agreements pursuant to which rights to
use any part of the Subsidiaries Music Catalog have been granted and are
currently in effect (the "Outbound Licenses") and no other rights of any
kind have been transferred or assigned by Seller or the Subsidiaries in the
recordings comprising the Subsidiaries Music Catalog other than pursuant to
the Outbound Licenses. Subject to PART 4.21(b) OF THE DISCLOSURE LETTER,
the Outbound Licenses are in full force and effect (subject to such
licenses being enforceable against the other parties thereto) and represent
the valid and legal obligations of the respective Subsidiary which is a
party thereto and, to the knowledge of Seller, the other parties thereto.
Except as set forth in PART 4.21(b) OF THE DISCLOSURE LETTER, no default by
22
either of the Subsidiaries, or to the knowledge of Seller, by any other
party thereto, exists under the Outbound Licenses and no event has occurred
which the giving of notice or passage of time or both could constitute a
default under the Outbound Licenses except where such default would have a
material adverse effect on the Business as a whole. Except as set forth in
PART 4.21(b) OF THE DISCLOSURE LETTER, to the knowledge of Seller, since
January 1, 1995, there have been no claims that either of the Subsidiaries
or any of the other parties to the Outbound Licenses breached or otherwise
failed to perform their respective obligations in any material respect.
(c) TRADEMARKS, TRADE NAMES AND SERVICE MARKS. PART 4.21(c) OF THE
DISCLOSURE LETTER includes a true, correct and complete list in all
material respects of the trademarks, trade names and service marks owned by
Seller or the Subsidiaries which are currently used in the Business (the
"Subsidiaries Marks"). Except as set forth in PART 4.21(c) OF THE
DISCLOSURE LETTER, (i) Seller or the Subsidiaries have good and valid title
to the Subsidiaries Marks in the jurisdictions listed in PART 4.21(c) OF
THE DISCLOSURE LETTER, free and clear of all Encumbrances, (ii) to the
knowledge of Seller, no Person is currently infringing, misappropriating or
otherwise violating the Subsidiaries Marks, and (iii) to the knowledge of
Seller, there is currently no claim outstanding or Threatened against
Seller or either of the Subsidiaries that the Subsidiaries Marks infringe,
misappropriate or otherwise violate any rights of any other Person. To the
knowledge of Seller, neither of the Subsidiaries or the Seller have taken
any action that has materially and adversely impaired or would reasonably
be expected to have materially and adversely impaired the Subsidiaries' or
Seller's right, title or interest in and to the Subsidiaries Marks. To the
knowledge of Seller, the Subsidiaries' or Seller's ownership or use of the
Subsidiaries Marks do not infringe, misappropriate or conflict with the
proprietary rights or other rights or interests of any Person. Upon
consummation of the Contemplated Transaction, the Buyer or the
Subsidiaries, as the case may be, shall be vested with the same ownership
rights in the Subsidiaries Marks which are held by the Seller or the
Subsidiaries, as the case may be, prior to the consummation of the
Contemplated Transaction.
(d) OTHER INTELLECTUAL PROPERTY. To the knowledge of Seller, all
Intellectual Property other than the Intellectual Property referred to in
SECTION 4.21(a), (b) or (c) above (the "Other Intellectual Property") which
is used in the Business is owned or duly licensed to Seller or either of
the Subsidiaries except where the failure to own or license such Other
Intellectual Property would not have a material adverse effect on the
Business as a whole. Except as set forth in PART 4.21(d) of the Disclosure
Letter, the Subsidiaries, or the Seller, as the case may be, have good and
valid title to, or the right to use, the Other Intellectual Property that
is material to the Business which is owned, free and clear of all
Encumbrances. To the extent any of the Other Intellectual Property which is
material to the business are licensed to the Seller or the Subsidiaries, no
default by Seller or either of the Subsidiaries, or to the knowledge of
Seller, by any other party thereto, exists under such licenses and no event
has occurred which the giving of notice or passage of time or both could
constitute a default under such licenses. Except as set forth on PART
4.21(d) OF THE DISCLOSURE LETTER, to the knowledge of Seller, (i) no Person
is currently infringing, misappropriating or otherwise violating the Other
Intellectual Property, and (ii) there is currently no claim outstanding or
23
Threatened against Seller or either of the Subsidiaries that the use of the
Other Intellectual Property by the Subsidiaries infringes, misappropriates
or otherwise violates any rights of any other Person. To the knowledge of
Seller, neither of the Subsidiaries or the Seller have taken any action
that has adversely impaired or would reasonably be expected to have
adversely impaired the Subsidiaries' right, title or interest in and to the
Other Intellectual Property, except where such impairment would not have a
material adverse effect on the Business as a whole. To the knowledge of
Seller, the Subsidiaries ownership or use of the Other Intellectual
Property do not infringe, misappropriate or conflict with the proprietary
rights or other rights or interests of any Person where such infringement,
misappropriation or conflict would have a material adverse effect on the
Business as a whole. Upon consummation of the Contemplated Transaction,
the Buyer or the Subsidiaries, as the case may be, shall be vested with the
same ownership or use rights in the Other Intellectual Property held by the
Seller or the Subsidiaries, as the case may be, prior to the consummation
of the Contemplated Transaction.
4.22 BANK ACCOUNTS. PART 4.22 OF THE DISCLOSURE LETTER contains a complete
and accurate list of each bank at which each Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
persons authorized to draw on such accounts or to have access to such boxes.
4.23 DISCLOSURE.
(a) To the knowledge of Seller, no representation or warranty
(including the disclosures set forth in the Disclosure Letter) of Seller in
this Agreement or in any of the Seller Transaction Documents omits to state
a material fact necessary to make the statements herein or therein not
misleading.
(b) No notice given pursuant to SECTION 6.5 when taken together with
the disclosure described in the Disclosure Letter will contain any untrue
statement of a material fact or, to the knowledge of Seller, omit to state
a material fact necessary to make the statements therein, in this Agreement
or in any of the Seller Transaction Documents, not misleading as of the
date such notice is given.
4.24 RELATIONSHIPS WITH RELATED PERSONS.
(a) Except as set forth in PART 4.24 OF THE DISCLOSURE LETTER,
neither the Seller nor the directors, officers or employees of the
Subsidiaries, or their Related Persons have any ownership interest in any
of the assets used in connection with the Business and to the knowledge of
Seller, do not own, of record or as a beneficial owner, an equity interest
or any other financial or profit interest in any Person that has (i) had
business dealings or a material financial interest in any transaction with
either of the Subsidiaries, except for less than two percent (2%) of the
outstanding capital stock of such person that is publicly traded on any
recognized exchange or in the over-the-counter market, or (ii) engaged in
competition with the Business (a "Competing Business"), except for less
than two percent (2%) of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the over-
the-counter market. Except as set forth in PART 4.24 OF THE DISCLOSURE
LETTER, no shareholder, officer or director of Seller or either of the
24
Subsidiaries, and to the knowledge of Seller, none of their Related
Persons, is a party to any Contract with, or has any claim or rights
against, either of the Subsidiaries. Neither of the Subsidiaries is
indebted, in any manner, to Seller or any of its Related Persons.
(b) Except as set forth in PART 4.24 OF THE DISCLOSURE LETTER,
neither Seller or any of Seller's Affiliates provide any services to either
of the Subsidiaries or in connection with the Business.
4.25 BROKERS OR FINDERS. Except as set forth in PART 4.25 OF THE
DISCLOSURE LETTER, Seller and its agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
4.26 CERTAIN PAYMENTS. To the knowledge of Seller, no director, officer,
agent, or employee of either Subsidiary (on behalf of a Subsidiary or otherwise
in connection with the Business) or any other Person associated with or acting
for or on behalf of either Subsidiary, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to pay for favorable treatment for business secured,
(ii) to obtain special concessions or for special concessions already obtained,
for or in respect of either Subsidiary or any Affiliate of either Subsidiary, or
(iii) in violation of any Legal Requirements, or (b) established or maintained
any fund or asset that has not been recorded in the books and records of either
Subsidiary.
4.27 CHANGE OF CONTROL PAYMENTS. Except as set forth in PART 4.27 OF THE
DISCLOSURE LETTER, neither the execution and delivery of this Agreement nor the
consummation of the Contemplated Transactions will (i) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of
either of the Subsidiaries from either of the Subsidiaries, (ii) materially
increase any benefits otherwise payable under any Employee Benefit Plan, or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date of this Agreement
and as of the Closing Date (except to the extent to which such representations
and warranties are specifically stated to be as of a different date), as
follows:
5.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of Delaware,
with full corporate power and authority to conduct its business as it is now
being conducted, to own, hold under lease, or otherwise possess or use the
properties and assets that it purports to own, hold under lease, or otherwise
possess or use, and to perform all its obligations under the contracts to which
25
it is a party or by which it is bound. Buyer is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which such qualification is required by virtue of the
nature of the activities conducted by it. Buyer has delivered to Seller copies
of the Organizational Documents of Buyer, as currently in effect.
5.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes, and when executed and delivered by
Buyer at the Closing and the Buyer's Closing Documents, (collectively, the
"Buyer Transaction Documents"), to the extent applicable, will constitute
the legal, valid, and binding obligations of the Buyer, enforceable against
Buyer in accordance with their respective terms except as such enforcement
may be limited by bankruptcy, insolvency, moratorium, reorganization, or
similar laws affecting creditor's rights generally and by general equitable
principles. Buyer has the corporate power and authority to execute and
deliver this Agreement and each of the Buyer Transaction Documents and to
perform its obligations under this Agreement and each of the Seller
Transaction Documents. This Agreement has been, and the Buyer Transaction
Documents at Closing will be, duly executed and delivered by Buyer.
(b) The Board of Directors of Buyer has unanimously approved the
Contemplated Transaction. Except for the approval of the holders of the
stockholders of Buyer which may be required by the rules of the Nasdaq
National Market (depending on the structure of the Financing), no other
approval of the stockholders of Buyer or other corporate approval is
required in order for Buyer to consummate the transactions contemplated by
this Agreement.
(c) Neither the execution and delivery of this Agreement and Buyer's
Closing Documents by Buyer nor the consummation or performance of any of
the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to: (i) any provision of Buyer's Organizational
Documents; (ii) any resolution adopted by the board of directors or the
stockholders of Buyer; (iii) any Legal Requirement or Order to which Buyer
or any of its respective assets may be subject; or (iv) any Contract to
which Buyer is a party or by which Buyer may be bound. Buyer is not
required to give any notice to or obtain any consent or approval from any
Person in connection with the execution and delivery of this Agreement by
Buyer or the consummation or performance of any of the Contemplated
Transactions by Buyer except for (i) the potential requirement to file with
the SEC a proxy statement and the potential requirement to obtain approval
by Buyer's stockholders of the Contemplated Transactions and the Financing;
(ii) the filing of a Form 8-K with the SEC, (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of
any foreign country or as may otherwise be required to consummate the
Financing and (iv) the filings necessary, and termination of any waiting
periods, pursuant to the HSR Act.
5.3 CERTAIN PROCEEDINGS. There is no pending proceeding that has been
commenced against Buyer and that challenges or may have the affect of
26
preventing, delaying making illegal or otherwise interfering with any of the
Contemplated Transactions. To Buyer's knowledge, no such proceeding has been
Threatened.
5.4 BROKERS OR FINDERS. Buyer and its respective officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
5.5 INVESTMENT REPRESENTATIONS. Buyer has not seen, received, been
presented with, or been solicited by any leaflet, public promotional meeting,
newspaper or magazine article or advertisement, radio or television
advertisement, or any other form of advertising or general solicitation with
respect to the sale of the Stock. Buyer is acquiring the Stock for its own
account only and not with a view to or for sale in connection with any
distribution of all or any part of the Stock. Buyer acknowledges that the sale
of the Stock hereunder has not been registered under the Securities Act in
reliance, in part, on its representations, warranties and agreement herein.
Buyer understands that the Stock is a "restricted security" under the Securities
Act in that the Stock will be acquired in a transaction not involving a public
offering, and that the Stock may be resold without registration under the
Securities Act only in certain limited circumstances. Buyer represents,
warrants, and agrees that Seller is under no obligation to register or qualify
the Stock under the Securities Act or under any state securities law, or to
assist Buyer in complying with any exemption from registration and
qualification. Buyer acknowledges that there are substantial restrictions on
the transferability of the Stock due to its being a "restricted security", that
there is no public market for the Stock and none is expected to develop.
ARTICLE VI
COVENANTS OF SELLER
6.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement to the Closing
Date, Seller and its officers, employees, counsel, accountants and other
authorized representatives ("Representatives") will, (i) afford Buyer and
its Representatives reasonable access to Seller's (with respect to the
Business) and each Subsidiary's senior management personnel, properties,
contracts, books, and records, and other documents and data, (ii) permit
access to or furnish copies to Buyer and its Representative (as requested
by Buyer, provided that if copies are to be furnished it will be furnished
at Buyer's expense) of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (iii)
furnish Buyer and its Representatives with such additional financial,
operating, and other data and information as Buyer may reasonably request,
including, without limitation periodically reporting to Buyer the status of
the business, operations and finances of the Business. Seller shall also
inform Buyer (upon its request) of any facts or circumstances of which
Seller has knowledge which calls into question the collectibility of any
Accounts Receivable, adequacy of the bad debt reserves that exist as of the
Closing Date and the adequacy of the ▇▇▇▇▇ ▇▇▇ Reserve. No information or
knowledge obtained in any investigation pursuant to this SECTION 6.1 shall
27
affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate
the Consummated Transactions. Buyer agrees that from the date hereof until
the Closing, Buyer will not discuss or negotiate any terms of employment
with any employees of the Subsidiaries (other than disclosing to any such
employee the obligations of Buyer pursuant to SECTION 8.10(b) hereof),
without prior approval by Seller's President or Chairman.
(b) From the date hereof through the Closing Date, Buyer agrees that
if it becomes aware, in the course of its due diligence examination or
otherwise, of a material Breach of Seller's representations, warranties,
covenants or agreements contained herein, Buyer will promptly notify Seller
thereof; provided, however, this SECTION 6.1(b) shall in no manner (i)
obligate Buyer to affirmatively inquire or research whether a Breach by
Seller has occurred or (ii) limit or waive the conditions set forth in
SECTIONS 10.1 and 10.2 herein or any of Buyer's rights hereunder.
6.2 OPERATION OF THE BUSINESSES OF SELLER. During the period from the
date of this Agreement to the Closing Date, Seller will cause each Subsidiary
to:
(a) conduct the Business only in the Ordinary Course of Business,
including but not limited to taking reasonable steps to maintain the
tangible assets of each Subsidiary in reasonable repair, order, and
condition;
(b) use its Best Efforts to preserve intact the current business
organization of each Subsidiary and all rights in connection with the
Business (including, without limitation, all intellectual property and
license rights), keep available the services of the current officers,
employees, and agents of each Subsidiary, and maintain the relations and
goodwill with its suppliers, customers, artists, landlords, creditors,
employees, agents, and others having business relationships with each
Subsidiary; and
(c) confer with Buyer concerning operational matters relating to the
Business which are of a material nature.
6.3 NEGATIVE COVENANT. During the period from the date of this Agreement
to the Closing Date:
(a) Except as set forth in SECTION 6.3(b), neither the Seller or
either Subsidiary will take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of
the changes or events listed in SECTION 4.15 is reasonably likely to occur
or cause a breach of any representation or warranty or Seller hereunder.
In addition, from and after the date of this Agreement until the Closing or
the earlier termination of this Agreement in accordance with its terms, the
Seller will not and the Subsidiaries will not, and will not permit its
directors, officers, employees, representatives, investment bankers, agents
and affiliates to, directly or indirectly, (i) solicit or encourage
submission or any inquiries, proposals or offers by, (ii) participate in
any negotiations with, (iii) afford any access to the properties, books or
records of either of the Subsidiaries to, or (iv) otherwise assist,
facilitate or encourage, or enter into any agreement or understanding with,
28
any person, entity or group (other than Buyer and its Affiliates,
representatives and agents), in connection with any Acquisition Proposal.
For purposes of this Agreement, an "Acquisition Proposal" shall mean any
proposal relating to the possible acquisition of the Business or the
Subsidiaries, whether by way of merger, purchase of any Stock, purchase of
a substantial portion of the assets of either of the Subsidiaries, or
otherwise. In addition, subject to the terms set forth in SECTION 6.3(b)
below, from and after the date of this Agreement until the Closing or the
earlier termination of this Agreement in accordance with its terms, the
Seller will not and the Subsidiaries will not, and will not permit their
respective directors, officers, employees, representatives, investment
bankers, agents and Affiliates to, directly or indirectly, make or
authorize any statement, recommendation or solicitation in support of any
Acquisition Proposal made by any person, entity or group (other than
Buyer). The Seller and each Subsidiary will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) Anything herein to the contrary notwithstanding, in the event
Seller receives an unsolicited written proposal for, or an unsolicited
written indication of a serious interest in entering into, a transaction
pursuant to an Acquisition Proposal (an "Acquisition Transaction") from a
bona fide, financially capable third party that contains no financing
contingency, (i) Seller in its discretion may furnish to and communicate
with such third party public information requested by such party,
(ii) Seller may enter into discussions and negotiations with such third
party, provided (in the case of this clause (ii)) that (A) Seller gives the
Buyer prompt written notice of the details thereof prior to entering into
such discussions and negotiations (subject to the last sentence of this
SECTION 6.3(b)), (B) Seller's Board of Directors, after consultation with
and based upon the advice of an independent financial advisor, determines
in good faith that such third party is financially capable, without any
financing contingency, of consummating an Acquisition Transaction,
(C) Seller's Board of Directors, after weighing such advice, determines
that taking such action is more likely than not to lead to the consummation
of an Acquisition Transaction with such third party that would yield a
higher value to the Seller's stockholders than will the Contemplated
Transaction, and (D) Seller's Board of Directors shall have been advised in
writing by independent legal counsel, that any failure to enter into such
discussion and negotiations with, and provide such non-public information
to, such third party would more likely than not constitute a breach of the
fiduciary responsibilities of the Board of Directors to the Seller's
stockholders and (iii) Seller may, at the request of such third party,
furnish such third party with non-public information concerning the
Business and the Subsidiaries only if the conditions set forth in (A) and
(B) above are met and Seller obtains from such third party a written and
executed confidentiality agreement in reasonably customary form. The Buyer
and Seller further agree that after receipt of an Acquisition Proposal,
Seller's request for information or clarification from such third party
solely in order to determine whether the conditions in clauses (B), (C),
and (D) above can be met will not be deemed to be a violation of this
SECTION 6.3(b).
6.4 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after
the date of this Agreement, Seller will (i) make any filings required by Legal
Requirements to be made by it and (ii) use its Best Efforts to obtain all
29
necessary consents or approvals required under the Material Contracts or
otherwise referred to in the Disclosure Letter (the "Consents") in order to
consummate the Contemplated Transactions. Between the date of this Agreement
and the Closing Date, Seller will cooperate with Buyer in connection with any
filings required by Legal Requirements to be made by Buyer in order to
consummate the Contemplated Transactions.
6.5 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Seller will promptly notify Buyer in writing if Seller becomes aware of
any fact or condition that causes or constitutes a Breach of any of Seller's
representations and warranties as of the date of this Agreement, or if or Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would cause or constitute a Breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in the disclosure set forth in the Disclosure
Letter, Seller will promptly deliver to Buyer a supplement to the Disclosure
Letter specifying such change and such supplement shall qualify such
representations and warranties; provided, however, that such supplements may
only be made with respect to claims made, events occurring or arising after the
date hereof and not arising out of any Breach by Seller of its covenants or
agreements set forth in this Agreement. During the same period, Seller will
promptly after obtaining knowledge thereof notify Buyer of the occurrence of any
Breach of any agreement, covenant representation or warranty of Seller hereunder
or of the occurrence of any event that may make the satisfaction of the
conditions in ARTICLES 9, 10, or 11 impossible or unlikely upon becoming aware
of such occurrence.
6.6 BEST EFFORTS. Subject to the terms of SECTION 6.3(b) hereof, between
the date of this Agreement and the Closing Date, Seller will use its Best
Efforts to cause the conditions in Article 9, 10 and 11 to be satisfied to the
extent Seller can affect the satisfaction of such conditions or involve Seller
(including, without initiation, providing Buyer with the information and
documentation necessary to consummate the Financing).
6.7 KIVES VOTING AGREEMENT. Simultaneous with the signing hereof, the
Seller shall cause ▇▇▇▇▇▇ ▇▇▇▇▇, and those entities controlled by ▇▇▇▇▇▇ ▇▇▇▇▇
which own the voting stock of Seller, to deliver a voting agreement (attached
hereto as EXHIBIT 6.7) memorializing the agreement to vote in favor of the
Contemplated Transaction at the meeting of the Seller's stockholders to consider
approval of the Contemplated Transactions (the "Kives Voting Agreement").
ARTICLE VII
COVENANTS OF BUYER
7.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after
the date of this Agreement, Buyer will make any filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Buyer
will cooperate with Seller in connection with (i) any filings required by Legal
Requirements to be made by Seller and (ii) obtaining the necessary Consents in
order to consummate the Contemplated Transactions.
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7.2 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Buyer will use its Best Efforts to cause the conditions in Articles 9, 10,
and 11 to be satisfied; provided, however, in no event shall Buyer be deemed to
have Breached this SECTION 7.2 if it is unable to consummate the Financing upon
terms satisfactory to it, in its sole discretion. Buyer shall, upon the prior
reasonable request of Seller, provide Seller and Seller's Representatives with
information concerning the status of the Financing and any other financing which
Buyer proposes to secure to pay the Purchase Price in whole or in part and, in
each instance, upon the prior consent of Buyer (which consent, in each instance,
shall not be unreasonably withheld, delayed or conditioned) permit Seller and
Seller's Representatives to discuss the Financing or such other financing with
Buyer's Representatives, including its investment bankers and lenders.
7.3 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any
fact or condition that causes or constitutes a Breach of any of Buyer's
representations and warranties as of the date of this Agreement, or if Buyer
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would cause or constitute a Breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in the disclosures set forth in this Agreement,
Buyer will promptly deliver to Seller a supplement to the Buyer Disclosure
Letter specifying such change, and such supplement shall qualify such
representations and warranties. During the same period, Buyer will promptly
notify Seller of the occurrence of any Breach of any covenant representation or
warranty of Buyer hereunder or of the occurrence of any event that may make the
satisfaction of the conditions in Articles 9, 10 or 11 impossible or unlikely
upon becoming aware of such occurrence.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 PUBLIC DISCLOSURE AND CONFIDENTIALITY. Buyer and Seller shall consult
with each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated hereby or this Agreement
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange or the Nasdaq National Market.
The parties further agree that the terms of that certain Confidentiality
Agreement, dated November 12, 1996, delivered by Buyer to Seller shall be
incorporated herein by reference and made a part hereof.
8.2 AUDITORS' LETTERS. The Seller shall, at Buyer's expense, use its Best
Efforts to cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., L.L.P., independent auditors to Seller,
to (i) deliver letters and consents with respect to the financial statements of
the Subsidiaries, to Buyer, (as may be reasonably requested by Buyer) from time
to time, from and after the Closing Date, in form and substance reasonably
satisfactory to Buyer and customary in scope and substance for letters and
consents delivered by independent auditors in connection with filings with the
SEC, (ii) generally cooperate with Buyer (as may be reasonably requested by
Buyer), for Buyer to comply with its SEC reporting obligations and (iii) provide
31
Buyer, as promptly as reasonably possible upon Buyer's request, with all
necessary financial information (including, without limitation, audited
financial statements of the Subsidiaries and the Business) in order for Buyer to
consummate the Financing and obtain Buyer's Requisite Stockholder Approval.
8.3 FILINGS; OTHER ACTION. Each of Seller and Buyer shall: (a) promptly
make their respective filings and thereafter make any other required submissions
under the HSR Act, the Securities Act and the Exchange Act with respect to the
Contemplated Transactions; and (b) use their respective Best Efforts promptly to
take, or cause to be taken, all other actions and do, or cause to be done, all
other things necessary, proper or appropriate under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement as soon as practicable.
8.4 LICENSES. The parties have agreed that Buyer will acquire all right,
title and interest in and to the assets (including the name "K-tel", trademark
and service ▇▇▇▇ as provided in SECTION 1.2(b) hereof and all other Intellectual
Property) used in connection with the Business; provided however, Seller will be
allowed to (i) continue to use the K-tel name, trademarks and service marks in
connection with the Consumer Products Business in all respects, (ii) continue to
use the name K-tel solely as a corporate name in connection with the other
Excluded Businesses, in the Retained Music Business and otherwise as provided in
SECTION 1.2(b) hereof. The parties hereto also acknowledge and agree that Buyer
is not purchasing, and Seller is retaining, the Business conducted in the
Retained Territories (as defined below) (the "Retained Music Business"). In
connection with the foregoing, the following license agreements will be entered
into at Closing pursuant to terms mutually acceptable to each of Buyer and
Seller but which terms will generally include the following (collectively, the
"License Agreements"):
(a) Seller shall cause K-tel International, Ltd., a Manitoba
corporation, to enter into a license agreement with Buyer for purposes of
licensing to Buyer the ▇▇▇▇ "K-tel" in connection with music products and
music-related products in Canada for a period of three years from the
Closing Date on an exclusive, royalty free basis.
(b) Buyer and the Subsidiaries will license the exclusive rights to
masters owned or licensed by the Subsidiaries as of the Closing (the
"Masters") to Seller, and Seller may sublicense such rights to K-tel
Entertainment (UK) Limited ("K-tel UK") for exploitation in the territories
attached hereto as EXHIBIT 8.4(b)(i) (the "Retained Territories") and the
non-exclusive rights to the Masters for exportation in the Non-Exclusive
Territory, pursuant to the License Agreement attached hereto as
EXHIBIT 8.4(b)(ii).
(c) K-tel UK will license its catalog of Masters at Closing to Buyer
on a non-exclusive worldwide basis (except for the Retained Territories)
under the same terms as the existing Agreement #9648, dated July 1, 1990,
by and between K-tel UK and Seller. The term of such license will be the
same term as the license set forth in subparagraph (b) above.
32
(d) All rights associated with the "Old Town" music catalog (the
"Old Town Catalog") and "▇▇▇▇▇▇▇ Music" music catalog (the "▇▇▇▇▇▇▇
Catalog") (in each case, including, without limitation, all masters and
musical compositions) except for synchronization rights, which if acquired
by Seller or a subsidiary of Seller will be licensed to Buyer for retail
sale or distribution on a worldwide (except for the Retained Territories),
non-exclusive and non-sublicensable basis, with no advance. The royalty
rates for the Old Town Catalog for United States sales will be the greater
of (i) four cents and seven cents per track of cassette tapes and compact
discs, respectively or (ii) 10% of the suggested retail price, pro-rated
and reduced by container charges. The rates for territories outside of the
United States will be determined on a comparable basis. Seller also agrees
to provide Buyer with a blanket agreement for all rights in the ▇▇▇▇▇▇▇
Catalog (except synchronization rights) in the United States at 80% of the
then prevailing statutory rate and at comparable rates outside of the
United States. The term of each such license will be for three years from
the Closing Date with a one-year renewal option.
(e) Buyer will license to Seller the right to use the Masters
included in the collections presently entitled "101 Greatest R & B Love
Songs" (previously known as "Heartbreaker") and "Ultimate History of Rock
and Roll" for sale worldwide through half-hour infomercials (the "TV
Packages") and as permitted under clause (f) below at retail, whereby Buyer
will produce the finished goods on the same terms as set forth in paragraph
3 of the existing contract between KTI and Kent and Speigal; provided,
however, all infomercials will be presented under a name other than "K-
tel", except that the "Ultimate History of Rock and Roll" infomercial will
bear a "K-tel" ▇▇▇▇ for a period equal to the shorter of (i) three months
after the Closing Date and (ii) the existing inventory of product held by
Kent and Speigal is exhausted. Any new infomercial products will bear a
new trademark with no similarity to "K-tel" or risk of confusion to the
public.
(f) Prior to Closing, KTI will assign its existing contract with
Kent and Speigal to Seller (or a subsidiary designated by Seller) and the
"101 Greatest Love Songs" and "Ultimate History of Rock and Roll" will be
distributed at retail in accordance with the Kent and Speigal contract;
provided, however, KTI (or Buyer, as determined by Buyer) will continue to
perform the distribution services which KTI is currently responsible under
such contract pursuant to the terms thereof (including, without limitation,
the 12.5% fee specified therein). Seller and KTI (or Buyer, as the case
may be) will share equally in the profit participation of K-tel under such
contract for all retail sales by KTI (or Buyer, as the case may be).
Seller will pay all marketing expenses related to such retail sales,
provided that Seller is reimbursed for such reasonable marketing expenses
before the sharing of any profit participation. KTI (or Buyer, as the case
may be) will be compensated for producing the finished goods for these
products in accordance with the terms of the Kent and Speigal Contract.
(g) Buyer shall license to K-tel International, Ltd. the right to
sell and market the Masters contained in the "101 Country Hits" in Canada
solely through television direct response at a royalty fee equal to three
(U.S.) cents per track.
33
Buyer and Seller agree to use their Best Efforts prior to the Closing to
agree on the form and substance of the License Agreements. The descriptions set
forth above represent general terms to be set forth with more particularity in
the License Agreements. In the event of a conflict between the above terms and
the terms set forth in the License Agreements, the License Agreements shall
govern.
8.5 TAXES.
(a) Seller and Buyer agree that for tax reporting purposes, Seller
and Buyer will elect to treat the consummation of the Contemplated
Transaction as an asset sale pursuant to SECTION 338(h) of the Code.
Seller and Buyer agree to take all reasonable steps and actions necessary
to insure that such tax treatment is received and Seller shall pay any Tax
liability from the taxable income of the Seller and the Subsidiaries which
are incurred as a direct result of such election.
(b) The parties have agreed as follows:
(i) Subject to the terms set forth in (ii) below, Buyer will not
assume or be liable in any manner for any liability or obligation
relating to Taxes of Seller, its Affiliates or its subsidiaries
(including, without limitation, the Subsidiaries). In connection
therewith, subject to the terms set forth in (ii) below, Seller shall
be liable for, and shall indemnify and hold Buyer harmless from, any
Taxes of Seller, its subsidiaries or its Affiliates (including the
Subsidiaries), including, without limitation, Taxes (A) relating to
any period prior to the Closing Date with respect to the Business or
(b) relating to the Excluded Businesses, Excluded Assets, Retained
Music Business or otherwise, regardless of whether such Taxes related
to a period prior to or subsequent to the Closing Date.
(ii) Buyer shall be liable for, and shall indemnify and hold
Seller harmless from any Taxes imposed on the Subsidiaries solely with
respect to the operations of the Business which specifically relate to
periods after the Closing Date.
8.6 MEETING OF STOCKHOLDERS. Seller, on the one hand, and Buyer (if
necessary) on the other, shall each take all action necessary in accordance with
applicable law and its Organizational Documents to convene a meeting of its
stockholders (the "Stockholder Meetings") as promptly as practicable to consider
and vote upon the approval of the Contemplated Transaction. Subject to the
fiduciary duties of the each of Buyer's and Seller's Board of Directors under
applicable law after consultation with and based upon the advice of independent
legal counsel, the Board of Directors of each of Seller, on the one hand, and
Buyer on the other, shall each recommend and declare advisable such approval and
Seller, on the one hand, and Buyer on the other, shall, subject to the fiduciary
duties of their respective Board of Directors, take all lawful action to
solicit, and use its Best Efforts to obtain, such approval (the requisite
approval by the stockholders of each of the Seller and Buyer, hereinafter
referred to as the "Requisite Stockholder Approval"). In connection with such
Stockholder Meetings, each of Buyer and Seller will (i) promptly prepare and
34
file with the SEC, will use all reasonable efforts to have cleared by the SEC
and will thereafter mail to its stockholders as promptly as possible a proxy
statement and all other proxy materials for such meeting, (ii) will use its Best
Efforts to obtain the necessary approvals by its stockholders of the
Contemplated Transaction and (iii) will otherwise comply with all Legal
Requirements applicable to such meeting.
8.7 RESTRICTIVE COVENANTS/NONCOMPETE. At Closing, each of ▇▇▇▇▇▇ ▇▇▇▇▇
and Seller shall enter into a noncompetition agreement with Buyer in the forms
of EXHIBIT 8.7 attached hereto.
8.8 DELIVERY OF DISCLOSURE LETTER. The parties acknowledge that each has
executed and delivered this Agreement prior to the delivery by Seller to Buyer
of the Disclosure Letter except for PARTS 2.3(b) AND 8.10(a) AND (b) OF THE
DISCLOSURE LETTER. Seller acknowledges that Buyer is relying on the disclosures
set forth in the Disclosure Letter in executing this Agreement and consummating
the Contemplated Transactions. In connection therewith, Seller hereby agrees to
deliver a complete and accurate Disclosure Letter within seven (7) business days
of the date hereof. If Buyer is not satisfied with the disclosures set forth on
the Disclosure Letter, and, as a result, terminates this Agreement pursuant to
SECTION 12.4(iii) below, the ▇▇▇▇▇▇▇ Money Escrow shall be released to Seller.
8.9 TRANSITION ARRANGEMENT. As of the date hereof, Seller is using the
Facilities in connection with the operations of the Excluded Businesses and
warehousing inventory relating to the Consumer Products Business. The parties
agree that for a period of 60 days after the Closing (the "Transition Period"),
Seller may continue to use the Facilities to the extent (and for the purposes)
utilized as of the date hereof. During the Transition Period, Seller agrees to
use its Best Efforts to move all operations and inventory relating to the
Excluded Businesses out of the Facilities. In consideration of allowing Seller
to use the Facilities during the Transition Period, the Seller agrees to (i) pay
to Buyer (on a monthly basis) a portion of the amounts due to the lessor of the
Facilities under the Facilities Leases, which amount shall be based on the pro
rata square footage of the Facilities used by Seller and (ii) reimburse Buyer
(on a monthly basis) for all costs and expenses incurred by Buyer in connection
with the use of the Facilities by Seller, including, without limitation,
telephone and other utility expenses.
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8.10 SELLER'S EMPLOYEES.
(a) The parties acknowledge that some current employees of KTI have
duties and responsibilities relating to the Excluded Businesses and the
Retained Music Business and some employees of Seller have duties and
responsibilities relating to the Business. PART 8.10(a) OF THE DISCLOSURE
LETTER sets forth (i) all of the employees of KTI and Seller (the
"Employees"), (ii) those Employees who will be employed by Buyer after
Closing and (iii) those Employees who will be employed by Seller (or one of
its subsidiaries, other than the Subsidiaries) after Closing. The parties
further agree that the calculation of the Final Net Tangible Book Value
will (A) include any and all liabilities (including, without limitation,
accrued vacation and salaries) relating to all of such Employees to be
hired by Buyer upon consummation of the Contemplated Transactions and (B)
exclude any and all liabilities relating to such Employees not hired by
Buyer upon consummation of the Contemplated Transactions, pursuant to PART
8.10(a) OF THE DISCLOSURE LETTER.
(b) Buyer agrees that so long as the employees set forth on PART
8.10(b) OF THE DISCLOSURE LETTER remain employed with the Seller or the
Subsidiaries, as the case may be, through the Closing, Buyer shall keep
such employees in its employ in positions with comparable responsibilities
and duties (or the employ of the Subsidiaries, as determined by Buyer in
its sole discretion) in the metropolitan Minneapolis, Minnesota area upon
terms at least as favorable as their current compensation for at least one
year after the Closing; provided, however, this SECTION 8.10(b) shall not,
in any manner, limit Buyer's right (or the Subsidiaries' right, as the case
may be) to terminate such employees prior to the end of such one-year
period for cause, in accordance with the customary employment policies and
procedures established by Buyer. In the event Buyer Breaches the terms of
this SECTION 8.10(b), including without limitation, terminating any such
employee without cause prior to the first anniversary of the Closing, Buyer
shall be liable for paying such employee's salary from the date of
termination until the first anniversary of the Closing.
ARTICLE IX
MUTUAL CONDITIONS PRECEDENT TO
PARTIES' OBLIGATION TO CLOSE
9.1 MUTUAL CONDITIONS. Each of the parties' obligations to consummate the
Contemplated Transactions and to take other actions required to be taken by the
parties at the Closing is subject to the satisfaction at or prior to the
Closing, of each of the following conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect.
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(b) The Requisite Stockholder Approval of the Contemplated
Transactions shall have been received by each of Buyer (if necessary) and
Seller.
(c) Counsel for each of Buyer and Seller shall be satisfied with the
steps taken for compliance with all applicable requirements of the
securities, antitrust and regulatory laws and with all other legal matter,
including obtaining all necessary consents from any Governmental
Authorities, including, without limitation, the expiration or early
termination of the waiting period(s), if any, under the HSR Act.
ARTICLE X
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE
Buyer's obligations to consummate the Contemplated Transactions and to take
the other actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer in whole or in part):
10.1 ACCURACY OF REPRESENTATIONS. Each of Seller's representations and
warranties in this Agreement and must have been accurate in all material
respects as of the date of this Agreement except to the extent to which such
representations and warranties are specifically stated to be as of a different
date, and must be accurate in all material respects as of the Closing Date as if
made on the Closing Date, without giving effect to any supplements pursuant to
SECTION 6.5.
10.2 THE SELLER'S PERFORMANCE.
(a) Each of the covenants and obligations that Seller is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing must have been duly performed and complied with in all material
respects.
(b) Seller must have delivered or caused to be delivered, each of
the documents required to be delivered or caused to be delivered, by it
pursuant to SECTION 3.2.
(c) Seller shall have obtained all of the Consents.
10.3 NO PROCEEDINGS. Since the date of this Agreement, there must not have
been commenced or Threatened against Buyer, or against any Person affiliated
with Buyer, any Proceeding (i) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or
(ii) that would reasonably be expected to have the effect of preventing,
delaying, making illegal, or in any material respect, otherwise interfering with
any of the Contemplated Transactions.
10.4 NO PROHIBITION. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
37
notice or lapse of time), contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
adverse consequence under, (i) any applicable Legal Requirement or Order, or
(ii) any Legal Requirement or Order that has been published, introduced, or
otherwise formally proposed by or before any Governmental Body.
10.5 MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the assets, liabilities of any kind, operations, condition (financial
or otherwise), operating results, employee, customer or supplier relations,
business activities or prospects of the Subsidiaries taken as a whole since June
30, 1996.
10.6 FINANCING. Buyer shall have consummated and obtained net proceeds of
at least $70 million from a financing which may be in the form of a public or
private placement of convertible debentures to one or more investors, on terms
satisfactory to Buyer in its sole discretion (the "Financing").
ARTICLE XI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to consummate the Contemplated Transactions and to take
the other actions required to be taken by Seller at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Seller, in whole or in part):
11.1 ACCURACY OF REPRESENTATIONS. Each of Buyer's representations and
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement (except to the extent to which such
representations and warranties are specifically stated to be as of a different
date) and must be accurate in all material respects as of the Closing Date as if
made on the Closing Date.
11.2 BUYER'S PERFORMANCE.
(a) Each of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing must have been performed and complied with in all material
respects; and
(b) Buyer must have delivered each of the documents and payments
required to be delivered by them pursuant to SECTION 3.3.
11.3 NO PROCEEDINGS. Since the date of this Agreement, there must not have
been commenced or Threatened against Seller, or against any Person affiliated
with Seller, any Proceeding (i) involving any challenge to, or seeking damages
or other relief in connection with, any of the Contemplated Transactions, or
(ii) that would reasonably be expected to have the effect of preventing,
delaying, making illegal, or, in any material respect, otherwise interfering
with any of the Contemplated Transactions.
38
11.4 NO PROHIBITION. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), contravene, or conflict with, or result in a material
violation of, or cause Seller or any Person affiliated with Seller to suffer any
adverse consequence under, (i) any applicable Legal Requirement or Order, or
(ii) any Legal Requirement or Order that has been published, introduced, or
otherwise formally proposed by or before any Governmental Body.
ARTICLE XII
TERMINATION
12.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Contemplated Transactions may be abandoned at any time prior to the Closing,
before or after gaining Requisite Stockholder Approval, by the mutual written
consent of Seller and Buyer.
12.2 TERMINATION BY EITHER SELLER OR BUYER. This Agreement may be
terminated and the Contemplated Transactions may be abandoned by action of the
Board of Directors of either Seller or Buyer if (i) the Contemplated
Transactions shall not have been consummated within the earlier of (A) 75 days
following Requisite Stockholder Approval of Seller of the Contemplated
Transactions and (B) 180 days from the date hereof (provided that the right to
terminate this Agreement under this SECTION 12.2 shall not be available to any
party whose failure to fulfill a covenant, in any material respect, or
intentional delay, has caused, or resulted in, the failure of the Closing to
occur on or before such date) (the "Termination Date"); (ii) any court of
competent jurisdiction in the United States or some other governmental body or
regulatory authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Contemplated Transaction and such order, decree, ruling or other action shall
have become final and nonappealable; or (iii) if necessary, the Contemplated
Transaction shall have been voted on by stockholders of Buyer at the
stockholders meeting of Buyer duly convened therefor and the vote shall not have
been sufficient to obtain the Requisite Stockholder Approval of Buyer.
12.3 TERMINATION BY SELLER. This Agreement may be terminated upon written
notice to Buyer and the Contemplated Transactions may be abandoned at any time
prior to the Closing, before or after the approval by stockholders of Seller, by
action of the Board of Directors of Seller, if (i) Buyer shall have failed to
comply in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by Buyer at or prior to such
date of termination, which failure to comply has not been cured (provided such
non-compliance or non-performance is capable of being cured) by the Termination
Date, (ii) any representation or warranty of Buyer contained in this Agreement
shall not be true in all material respects when made or, if a representation or
warranty relates to a particular date, shall not be true in all material
respects as of such date (provided such breach is capable of being cured) and
has not been cured by the Termination Date or on and as of the Closing as if
made on and as of the Closing, or (iii) Seller receives an Acquisition Proposal
pursuant to SECTION 6.3(b) above and/or enters into (or desires to enter into)
an agreement relating to an Acquisition Transaction, provided it has complied
with all of the provisions thereof and has made payment of the Termination Fee
required by SECTION 12.5(a) OR 12.6 below.
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12.4 TERMINATION BY BUYER. This Agreement may be terminated upon written
notice to Seller and the Contemplated Transactions may be abandoned at any time
prior to the Closing, before or after the approval by stockholders of Buyer, by
action of the Board of Directors of Buyer, if (i) Seller shall have failed to
comply in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by Seller at or prior to such
date of termination, which failure to comply has not been cured (provided such
non-compliance or non-performance is capable of being cured) by the Termination
Date,(ii) any representation or warranty of Seller contained in this Agreement
shall not be true in all material respects when made or, if a representation or
warranty relates to a particular date, shall not be true in all material
respects as of such date (provided such Breach is capable of being cured,
including without limitation, a cure by providing supplemental disclosure
pursuant to SECTION 6.5, and has not been cured by the Termination Date) or on
and as of the Closing as if made on and as of the Closing or (iii) Buyer desires
to terminate this Agreement for any reason, at its sole discretion, other than
as set forth above or due to the failure of any conditions hereof to be
satisfied.
12.5 EFFECT OF TERMINATION; ▇▇▇▇▇▇▇ MONEY ESCROW. In the event of
termination of this Agreement by either Seller or Buyer as provided in this
Article XII, the ▇▇▇▇▇▇▇ Money Escrow shall be disposed of as set forth below
and, except as set forth in SECTION 12.5 OR 12.6 below, (i) this Agreement shall
become null and void and (ii) there shall be no liability or obligation on the
part of either Buyer or Seller. In the event this Agreement is terminated or
fails to close by the Termination Date, the ▇▇▇▇▇▇▇ Money Escrow shall be
disposed of as follows:
(a) The ▇▇▇▇▇▇▇ Money Escrow (plus all interest accrued thereon)
shall be distributed to Buyer if the Contemplated Transactions fails to
close (i) due to a termination of this Agreement (A) pursuant to
SECTION 12.1 hereof whereby such mutual termination provides for a return
to Buyer of the ▇▇▇▇▇▇▇ Money Escrow, (B) by Buyer or Seller pursuant to
SECTION 12.2(ii) so long as such order, decree or ruling did not arise as a
direct result of Buyer's conduct (other than solely by being a party to the
Contemplated Transaction), (C) by Seller pursuant to SECTION 12.3(iii) or
(D) by Buyer pursuant to SECTION 12.4(i) OR 12.4(ii), (ii) by the
Termination Date due to the failure of the Seller obtaining the Seller's
Requisite Stockholder Approval for any reason or (iii) due to Seller not
closing due to the conditions set forth in ARTICLE IX OR SECTIONS 11.3 OR
11.4 not being satisfied or waived by Seller.
(b) The ▇▇▇▇▇▇▇ Money Escrow (plus all interest accrued thereon)
shall be distributed to Seller if the Contemplated Transactions fails to
close in all other events except as specifically provided under
SECTION 12.5(a), 12.5(c) OR 12.5(d) hereof.
(c) In the event Seller is prepared and willing to close the
Contemplated Transaction, but the Closing fails to occur due to the
conditions set forth in SECTIONS 9.1(a), 10.3 OR 10.4 not being satisfied
or waived by Buyer prior to the Termination Date, each of Buyer and Seller
agree to discuss, in good faith, and mutually agree to an extension of the
Termination Date (for a period no shorter than 60 days) until (i) such
40
condition can be satisfied or waived by Buyer or (ii) a permanent, non-
appealable injunction or Order is issued by a court of competent
jurisdiction with respect to such condition making the condition unable to
be satisfied.
(d) Notwithstanding any termination of this Agreement by Seller for
any reason, Seller shall not be entitled to the ▇▇▇▇▇▇▇ Money Escrow if
Seller (or an Affiliate of Seller) has Breached, in any material respect,
any (i) representation or warranty (provided such Breach is capable of
being cured, including without limitation, a cure by providing supplemental
disclosures pursuant to SECTION 6.5 and has not been cured by the
Termination Date) or (ii) covenant or agreement, set forth herein or in any
document executed in connection herewith (including, without limitation, a
Breach of the voting agreement contemplated pursuant to SECTION 6.7
hereof).
(e) The distribution of the funds held in the ▇▇▇▇▇▇▇ Money Escrow
pursuant to this SECTION 12.5 shall be made immediately upon the
termination of this Agreement or the failure to close by the Termination
Date, as the case may be, by wire transfer to an account designated, in
writing, by the recipient of such funds.
(f) In the event this Agreement is terminated by Buyer due to a
material Breach by Seller hereunder, which Breach is not cured prior to the
Termination Date, in addition to the Buyer receiving the ▇▇▇▇▇▇▇ Money
Escrow pursuant to SECTIONS 12.4 AND 12.5 hereof, the Seller shall promptly
pay to Buyer an amount equal to $1,750,000 as reimbursement for all of the
costs, expenses, time and effort incurred and expended by Buyer in
connection with the Contemplated Transaction (the "Buyer's Reimbursement").
Payment of the Buyer's Reimbursement shall be Buyer's sole and exclusive
remedy in connection with such Breach by Seller; provided, however, Buyer
may, in its sole discretion, waive the payment of the Buyer's Reimbursement
and seek any equitable remedies that may be available to it in connection
with such Breach.
12.6 BREAK-UP FEE. The parties agree that Seller shall immediately pay
Buyer a break-up fee in the amount of $1,750,000 (the "Break-Up Fee") if (i)
this Agreement is terminated by Seller pursuant to SECTION 12.3(iii), or (ii)
prior to any termination of this Agreement, if (A) the Seller shall have
entered into, or shall have publicly announced its intention to enter into,
an agreement or an agreement in principle, with respect to any Acquisition
Proposal or (B) the Board of Directors of the Seller (or any special
committee thereof) shall have withdrawn or materially modified its approval
or recommendation of the Contemplated Transaction in connection with the vote
of the Seller's shareholders approving the Contemplated Transaction. In
addition to the above, the parties further agree that if (1) the Closing does
not occur by the Termination Date due to the stockholders of Seller
(including ▇▇▇▇▇▇ ▇▇▇▇▇), for any reason, not approving (or voting on) the
Contemplated Transaction by the Termination Date and (2) the Seller enters
into a definitive agreement to sell the Business, in any form, within 12
months after the Termination Date, Seller shall immediately pay Buyer the
Break-Up Fee upon the execution of such definitive agreement.
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ARTICLE XIII
INDEMNIFICATION
13.1 SURVIVAL AND LIMITATIONS.
(a) All representations and warranties in this Agreement and any
other certificate or document delivered pursuant to this Agreement will
survive the Closing until the later of the (A) first anniversary of the
Closing Date and (B) August 31, 1998 (the "Sunset Period"); provided,
however, that the representations and warranties set forth in (i) SECTIONS
4.1(c) shall survive indefinitely and (ii) SECTIONS 4.10 AND 4.12 shall
survive until expiration of all applicable statutes of limitations
(including amendments extending said statutes). Notwithstanding the
foregoing, a representation and warranty shall continue in effect in the
event a claim for breach thereof has been made prior to the expiration of
the applicable survival period and shall survive until such claim is
resolved. The right to indemnification, reimbursement, or other remedy
based on such representations and warranties will not be affected by any
investigation conducted by Buyer (unless Buyer breaches, in any material
respect, the terms set forth in SECTION 6.1(b)). Unless a specified period
is set forth in this Agreement (in which event such specified period will
control), all agreements and covenants contained in this Agreement will
survive the Closing and remain in effect indefinitely.
(b) Notwithstanding anything to the contrary set forth in this
Agreement (but subject to the terms of this SECTION 13.1), Seller shall not
be liable hereunder to Buyer as a result any Breach of any representation,
warranty, covenant or agreement contained in this Agreement, unless and
until the Losses incurred by all Buyer Indemnified Parties as a result of
such misrepresentations under this Agreement shall exceed, in the
aggregate, $250,000 (the "Basket Threshold") and once the Basket Threshold
is reached, Seller shall fully indemnify all Buyer Indemnified Parties for
all Losses in excess of the Basket Threshold. The parties agree that the
maximum liability of Seller for any Losses of Buyer shall not exceed, in
the aggregate, $2,000,000 (the "Cap").
(c) Notwithstanding the above, the Cap and Basket Threshold shall in
no event apply to any Losses incurred by a Buyer Indemnified Party which
relate, directly or indirectly, to (i) an indemnification obligation under
SECTIONS 13.2(b), 13.2(d), 13.2(e) OR 13.2(f), (ii) any Losses relating to
the Seller's obligations set forth in SECTION 15.1 below to pay for its own
expenses in connection with the Contemplated Transactions, (iii) any
fraudulent acts committed by Seller, (iv) any amounts due to Buyer which
are held in the ▇▇▇▇▇ ▇▇▇ Escrow, (v) any amounts due to Buyer pursuant to
ARTICLE XII hereof and (vi) a Breach by Seller of the representations and
warranties contained in SECTIONS 4.1(c), 4.10 OR 4.12. The parties further
agree that the Basket Threshold shall not apply to any Losses incurred by
Buyer or a Buyer Indemnified Party as a result of any Breach of any of
Seller's representations and warranties that are qualified by "material",
"any material respect", "material adverse affect" or similar term;
provided, however, in no event will such agreement be deemed an agreement
or understanding that amounts less than the "Basket Threshold" are
immaterial to the Business.
42
13.2 INDEMNIFICATION OF BUYER. Seller, on behalf of itself and its
successors and assigns, hereby agrees to indemnify Buyer and its Affiliates,
shareholders, directors, partners, officers, employees, agents, representatives
and successors, permitted assigns of Buyer and their respective Affiliates (the
"Buyer Indemnified Parties") and save and hold them harmless from and against
and, subject to the terms of SECTION 13.4 below, pay on behalf of or reimburse
the Buyer Indemnified Parties as and when incurred for any and all liabilities,
demands, claims, actions, causes of action, assessments, losses, costs, damages,
deficiencies, taxes, fines or expenses (whether or not arising out of third
party claims), including, without limitation, interest, penalties, reasonable
attorneys' fees and all amounts paid in investigation, defense or settlement of
any of the foregoing (collectively, "Losses"), which any Buyer Indemnified Party
may suffer, sustain or become subject to, in connection with, incident to,
resulting from or arising out of or in any way relating to or by virtue of:
(a) Any misrepresentation or breach of warranty on the part of
Seller under Article 4 of this Agreement or any misrepresentation in or
omission from any of the representations, warranties, statements, schedules
and exhibits, certificates, Disclosure Letter (as update prior to Closing
pursuant to SECTION 6.5) or other instruments or documents furnished to
Buyer by Seller made in or pursuant to this Agreement;
(b) Any nonfulfillment or breach of any covenant or agreement on the
part of Seller or its subsidiaries under this Agreement; provided that
Buyer promptly notify Seller of any such nonfulfillment or breach upon
Buyer obtaining actual knowledge of such breach or nonfulfillment;
(c) Any action, demand, proceeding, investigation or claim by any
third party (including any Governmental Body) against or affecting any
Buyer Indemnified Party which, if successful, would give rise to or
evidence the existence of or relate to a misrepresentation or breach of any
of the representations, warranties, agreements or covenants of Seller;
(d) Any claim for payment of fees and/or expenses as a broker or
finder in connection with the origin, negotiation, execution or
consummation of this Agreement based upon any alleged agreement between the
claimant and Seller or any of Seller's Affiliates;
(e) Any claims or Losses relating, directly or indirectly, to (i)
any audit or investigation of the Subsidiaries or the Business by the ▇▇▇▇▇
▇▇▇ Agency (or its Affiliates) for any period prior to the Closing Date,
(ii) Seller's agreement and obligations under SECTION 8.5(b) hereof or
(iii) other than liabilities specifically accrued for, reflected in the
Closing Balance Sheets and reflected in the calculation of the Final Net
Tangible Book Value, any Employee Benefit Plans of the Business, Seller,
the Subsidiaries or their respective Affiliates which claims or Losses
relate, in any manner, to periods prior to the Closing; or
(f) The Excluded Businesses, the Excluded Assets or the Retained
Music Business, regardless of (A) when such Loss arises or (B) whether such
Loss relates to periods before or after the Closing.
43
The rights of the Buyer Indemnified Parties to indemnification under parts (b),
(d), (e) or (f) of this SECTION 13.2 shall apply notwithstanding that the matter
in question may be disclosed in the Disclosure Letter, in this Agreement or in
any document entered into in connection with the Contemplated Transaction, or
may be the subject of, excluded from or beyond the scope of any representation
or warranty of Seller in this Agreement. In addition to Buyer's right to
indemnification hereunder, Buyer shall also have the right to pursue any
remedies at equity that may be available to it in the event of a Breach of this
Agreement.
13.3 INDEMNIFICATION OF SELLER. Buyer, on behalf of itself and its
respective successors and assigns, hereby agrees to indemnify Seller and its
Affiliates, agents, representatives, successors and permitted assigns (the
"Seller Indemnified Parties") and save and hold each of them harmless from and
against and pay on behalf of or reimburse the Seller Indemnified Party as and
when incurred for any and all Losses which they may suffer, sustain or became
subject to, in connection with, incident to resulting from or arising out of or
in any way relating to or by virtue of:
(a) Any misrepresentation or breach of warranty on the part of Buyer
under Article 5 of this Agreement or any misrepresentation in or omission
from any of the representations, warranties, statements, schedules and
exhibits, certificates or other instruments or documents furnished to
Seller by the Buyer made in or pursuant to this Agreement or any other
Contemplated Agreement;
(b) Any nonfulfillment or breach of any covenant or agreement on the
part of Buyer under this Agreement;
(c) Any action, demand, proceeding, investigation or claim by any
third party (including governmental agencies) against or affecting a Seller
Indemnified Party which, if successful, would give rise to or evidence the
existence of or relate to a misrepresentation or breach of any of the
representations, warranties, agreements or covenants of Buyer;
(d) Any claim for payment of fees and/or expenses as a broker or
finder in connection with the origin, negotiation, execution or
consummation of this Agreement based upon any alleged agreement between
claimant and Buyer or any of Buyer's Affiliates; or
(e) Any claim arising which results from Buyer's conduct of the
Business after Closing or the failure of Buyer to discharge solely the
liabilities included in the calculation of the Final Net Tangible Book
Value (except for matters relating to ▇▇▇▇▇ ▇▇▇).
13.4 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS. In the event that
subsequent to the Closing any person or entity entitled to indemnification under
this Agreement (an "Indemnified Party") asserts a claim for indemnification or
receives notice of the assertion of any claim or of the commencement of any
action or proceeding by any entity who is not a party to this Agreement or an
44
Affiliate of a party to this Agreement (including, but not limited to any
domestic or foreign court or Governmental Body, federal, state or local) (a
"Third Party Claim") against such Indemnified Party, against which a party to
this Agreement is required to provide indemnification under this Agreement (an
"Indemnifying Party"), the Indemnified Party shall give written notice together
with a statement of any available information (other than privileged
information) regarding such claim to the Indemnifying Party within twenty (20)
business days after learning of such claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such claim). The Indemnifying Party shall have the right, upon written
notice to the Indemnified Party (the "Defense Notice") within fifteen days (15)
after receipt from the Indemnified Party of notice of such claim, which notice
by the Indemnifying Party shall specify the counsel it will appoint to defend
such claim ("Defense Counsel"), to conduct at its expense the defense against
such claim in its own name, or if necessary in the name of the Indemnified
Party; provided, however, that the Indemnified Party shall have the right to
approve the Defense Counsel, which approval shall not be unreasonably withheld,
and in the event the Indemnifying Party and the Indemnified Party cannot agree
upon such counsel within ten (10) days after the Defense Notice is provided,
then the Indemnifying Party shall propose an alternate Defense Counsel, which
shall be subject again to the Indemnified Party's approval which approval shall
not be unreasonably withheld. If the parties still fail to agree on the Defense
Counsel, then, at such time, they shall mutually agree in good faith on a
procedure to determine the Defense Counsel. The provisions set forth in this
SECTION 13.4 shall not apply to matters in connection with any Pre-Closing ▇▇▇▇▇
▇▇▇ Matters, which matters are subject to the provisions set forth in
SECTION 13.5 below.
(a) In the event that the Indemnifying Party shall fail to give the
Defense Notice within said 15 day period, it shall be deemed to have
elected not to conduct the defense of the subject claim, and in such event
the Indemnified Party shall have the right to conduct the defense in good
faith and to compromise and settle the claim in good faith without prior
consent of the Indemnifying Party and the Indemnifying Party will be liable
for all reasonable costs, expenses, settlement amounts or other Losses paid
or incurred in connection therewith.
(b) In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of the subject claim, the
Indemnifying Party shall be entitled to have the exclusive control over
said defense settlement of the subject claim and the Indemnified Party will
cooperate with and make available to the Indemnifying Party such
reasonable assistance and reasonable materials (including providing books,
records and reasonable time of personnel) as it may reasonably request, and
the Indemnified Party shall have the right at its expense to participate in
the defense assisted by counsel of its own choosing. If the Indemnified
Party elects to so participate in the defense of the subject claim, the
Indemnifying Party will not settle the subject claim without the prior
written consent of the Indemnified Party, which consent will not be
unreasonably withheld.
(c) Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive relief or specific
45
performance would be imposed against the Indemnified Party, or (ii) such
settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.
(d) Notwithstanding paragraph (b) above, the Indemnifying Party
shall not be entitled to control, but may participate in, and the
Indemnified Party shall be entitled to have sole control over, the defense
or settlement of any claim (i) that seeks a temporary restraining order, a
preliminary or permanent injunction or specific performance against the
Indemnified Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if unsuccessful,
would set a precedent that would materially interfere with, or have a
material adverse effect on, the business or financial condition of the
Indemnified Party, or (iv) to the extent such claim imposes liability on
the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder due to the limitations set forth
herein or otherwise. In such an event, the Indemnifying Party will still
have all of its obligations hereunder provided that the Indemnified Party
will not settle the subject claim without the prior written consent of the
Indemnifying Party, which consent will not be unreasonably withheld delayed
or conditioned.
(e) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder.
(f) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this SECTION 13.4 will not affect the rights
or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party entitled to receive such notice was
deprived of its right to recover any payment under its applicable insurance
coverage or was otherwise damaged in any material respect, as a result of
such failure to give timely notice.
13.5 ▇▇▇▇▇ ▇▇▇ MATTERS. The parties agree that Seller shall have sole
liability for any and all matters, claims, investigations or audits relating to
the ▇▇▇▇▇ ▇▇▇ Agency for all periods prior to the Closing ("Pre-Closing ▇▇▇▇▇
▇▇▇ Matters"). The parties agree that each of Buyer and Seller may actively
participate (at its own expense) in the negotiation and settlement of such Pre-
Closing ▇▇▇▇▇ ▇▇▇ Matters (including the ▇▇▇▇▇ ▇▇▇ Audit) and each of Buyer and
Seller shall, in good faith, cooperate with each other in settling or resolving
such matters. The parties further agree that each of Buyer and Seller must
jointly approve any settlement or resolution of all Pre-Closing ▇▇▇▇▇ ▇▇▇
Matters (including the ▇▇▇▇▇ ▇▇▇ Audit) (such approval shall not be unreasonably
withheld, delayed or conditioned). The parties hereto agree that upon final
determination of all liabilities in connection with the ▇▇▇▇▇ ▇▇▇ Audit, such
liabilities shall be paid (i) first by Buyer up to the amount of the ▇▇▇▇▇ ▇▇▇
Reserve and (ii) second through the amounts held in the ▇▇▇▇▇ ▇▇▇ Escrow. To
the extent the amount of the ▇▇▇▇▇ ▇▇▇ Reserve exceeds all amounts due to the
▇▇▇▇▇ ▇▇▇ Agency in connection with the ▇▇▇▇▇ ▇▇▇ Audit, such excess shall,
immediately upon the settlement or resolution of the ▇▇▇▇▇ ▇▇▇ Audit, be paid by
Buyer to Seller. In addition, immediately upon the settlement or resolution of
the ▇▇▇▇▇ ▇▇▇ Audit, any amount in the ▇▇▇▇▇ ▇▇▇ Escrow which is not required to
46
be used to pay liabilities in connection with the ▇▇▇▇▇ ▇▇▇ Audit shall be paid
to Seller. In connection with any Pre-Closing ▇▇▇▇▇ ▇▇▇ Matters, Buyer, the
Subsidiaries and Seller will cooperate, in good faith, with each other and
provide such reasonable assistance and reasonable materials (including providing
books and records and reasonable time of personnel) as may reasonably be
requested in connection with any such Pre-Closing ▇▇▇▇▇ ▇▇▇ Matters. Until the
Pre-Closing ▇▇▇▇▇ ▇▇▇ Matters have been completely settled or resolved, Buyer
shall use all reasonable efforts retain all books and records of the
Subsidiaries that may be reasonably required to settle or resolve such matters.
If the amounts due to the ▇▇▇▇▇ ▇▇▇ Agency in connection with the ▇▇▇▇▇ ▇▇▇
Audit are more than the ▇▇▇▇▇ ▇▇▇ Reserve and ▇▇▇▇▇ ▇▇▇ Escrow, taken together,
Seller shall be solely liable for any such deficiency and shall immediately
indemnify Buyer, in full, for any Losses incurred by Buyer in connection
therewith, including, without limitation, the amount of any such deficiency.
ARTICLE XIV
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified:
"AFFILIATES" -- means an affiliate as defined in Rule 405 under the
Securities Act, and includes any past and present Affiliate of a Person.
"ACCOUNTANTS" -- as defined in SECTION 2.3(b)(iii).
"ACCOUNTS RECEIVABLE" -- as defined in SECTION 4.7.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as reasonably possible but without incurring any
extraordinary material expense or any significant obligations not otherwise
contemplated by this Agreement or the Contemplated Transactions.
"BREACH" -- a "Breach" of a representation, warranty, covenant, obligation,
or other provision of this Agreement will be deemed to have occurred if there is
or has been (a) any inaccuracy in or breach of, or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any valid claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
"BUSINESS" -- as defined in the Recitals to this Agreement.
"BUYER'S CLOSING DOCUMENTS" -- as defined in SECTION 3.3.
"CLOSING" -- as defined in SECTION 3.1.
"CLOSING BALANCE SHEETS" -- as defined in SECTION 2.3(a).
47
"CLOSING DATE" -- the date and time as of which the Closing actually takes
place.
"CODE" -- the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"CONFIDENTIALITY AGREEMENT" -- that certain letter agreement, dated
November 12, 1996, as amended, by and between Buyer and Seller.
"CONSENTS" -- as defined in SECTION 6.4.
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this
Agreement,
(i) the execution, delivery, and performance of Seller's Closing
Documents and Buyer's Closing Documents; and
(ii) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement and each of the Seller
Transaction Documents and Buyer Transaction Documents.
"CONTRACT" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DISCLOSURE LETTER" -- the disclosure letter delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.
"DOMINION" -- as defined in the Recitals to this Agreement.
"DOMINION STOCK" -- as defined in Article I.
"ENCUMBRANCE" -- any claim, lien, pledge, charge, security interest,
equitable interest, option, right of first refusal or preemptive right, or other
restriction of any kind, including any restriction on use, voting (in the case
of any security), transfer, receipt of income, or exercise of any other
attribute of ownership.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" -- means all federal, state and
local statutes, laws, rules, regulations, codes, ordinances, orders, standards,
permits, licenses, actions, policies and requirements (including consent
decrees, judicial decisions and administrative orders) relating to protection,
preservation or conservation of the environment and public or worker health and
safety, all as amended, hereafter amended or reauthorized.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as amended,
or any successor law.
"EXCHANGE ACT" -- the Securities Exchange Act of 1934, as amended.
"EXCLUDED BUSINESSES" -- as defined in Article I.
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"FACILITIES" -- as defined in SECTION 4.6(b).
"FINANCIAL STATEMENTS" -- as defined in SECTION 4.3.
"GAAP" -- generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the audited financial statements
referred to in SECTION 5.4 were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" -- any:
(i) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
other entity and any court or other tribunal);
(iv) multi-national organization or body; or
(v) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
"HAZARDOUS MATERIALS" -- means (i) hazardous substances, as defined by the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 ET SEQ.; (ii) hazardous wastes as defined by the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ.; (iii) petroleum,
including without limitation, crude oil or any fraction thereof which is liquid
at standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (iv) any radioactive material, including,
without limitation, any source, special nuclear, or by-product material as
defined in 42 U.S.C. Section 2011 ET SEQ.; (v) asbestos in any form or
condition; (vi) polychlorinated biphenyls; and (vii) any other material,
substance or waste to which liability or standards of conduct may be imposed
under any Environmental and Safety Requirements.
"HSR ACT" -- as defined in SECTION 4.2(d).
"INSURANCE POLICIES" -- as defined in SECTION 4.17.
"INTELLECTUAL PROPERTY" -- all intellectual property and proprietary
information used in connection with the Business, including, without limitation,
49
Seller's and the Subsidiaries' names and assumed names, the music catalogue, all
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); all trademarks, service
marks, trade dress, trade names and corporate names; all registered and
unregistered statutory and common law copyrights; all registrations,
applications and renewals for any of the foregoing; all trade secrets,
confidential information, ideas, formulae, compositions, know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, improvements, proposals, technical and
computer data, documentation and software, financial, business and marketing
plans, and customer and supplier lists and related information and all other
proprietary rights).
"INTERIM BALANCE SHEET" -- as defined in SECTION 4.3.
"INVENTORY" -- as defined in SECTION 4.8.
"IRS" -- the United States Internal Revenue Service.
"KTI" -- as defined in the Recitals to this Agreement.
"KTI STOCK" -- as defined in Article I.
"KNOWLEDGE" -- where any representation or warranty of the Seller in this
Agreement is expressly qualified by "to the knowledge of Seller", "to Seller's
knowledge" or similar reference, it refers the knowledge of the responsible
officers of Seller and the Subsidiaries (after due and adequate inquiry, in good
faith, by such officers of all employees and agents of Seller and the
Subsidiaries who would have knowledge of such matters) to the existence of facts
that are the subject of such representations and warranties.
"LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign, or
other constitution, ordinance, regulation, statute, treaty, or other law
adopted, enacted, implemented, or promulgated by or under the authority of any
Governmental Body or by the eligible voters of any jurisdiction, and any
agreement, approval, consent, injunction, judgment, license, order, or permit by
or with any Governmental Body or to which Seller, with respect to the operations
of the Subsidiaries, or either of the Subsidiaries is a party or by which
Seller, with respect to the operations of the Subsidiaries, or either of the
Subsidiaries, is bound.
"LICENSE AGREEMENTS" -- as defined in SECTION 8.4.
"MATERIAL CONTRACT" -- as defined in SECTION 4.16(a).
"▇▇▇▇▇▇▇ CATALOG" -- as defined in SECTION 8.4.
"MBCA" -- as defined in SECTION 4.2(b).
"NET TANGIBLE BOOK VALUE" -- as defined in SECTION 2.3(a).
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"NON-EXCLUSIVE TERRITORY" -- shall mean (i) the countries of Algeria,
Bahrain, Quatar, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya,
Morocco, Oman, Yemen, Saudi Arabia, Sudan, Syria, Tunisia and the United Arab
Emirates (or any future territory or country comprising the foregoing geographic
areas), and (ii) the remaining countries comprising the continent of Africa.
"NTBV SCHEDULE" -- as defined in SECTION 2.3(b)(i).
"OLD TOWN CATALOG" -- as defined in SECTION 8.4.
"ORDER" -- any award, injunction, judgment, order, ruling, subpoena, or
verdict or other decision entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(i) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(ii) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons
exercising similar authority) and does not require any other separate
or special authorization of any nature; and
(iii) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in
the ordinary course of the normal day to day operations of other
Persons that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS" -- (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (iii) any amendment to any of the foregoing.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or other entity or
Governmental Body.
"PRELIMINARY BOOK VALUE" -- as defined in SECTION 2.3.
"PROCEEDING" -- any suit, litigation, arbitration, hearing, audit,
investigation, or other action (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
51
"PROPRIETARY RIGHTS AGREEMENT" -- as defined in SECTION 4.19.
"PROTEST NOTICE -- as defined in SECTION 2.3(b)(iii).
"PURCHASE PRICE" -- as defined in SECTION 2.1.
"RELATED PERSON" -- with respect to a particular individual:
(i) each other member of such individual's Family; and
(ii) any Person that is directly or indirectly controlled by any
one or more members of such individual's Family.
With respect to a specified Person other than an individual:
(i) any Person that, directly or indirectly, controls, is
controlled by, or is under common control with such specified Person;
and
(ii) each Person that serves as a director, executive officer,
general partner, executor, or trustee of such specified Person (or in
a similar capacity);
For purposes of this definition, the "Family" of an individual includes (i) such
individual, (ii) the individual's spouse and former spouses, (iii) any lineal
ancestor or lineal descendant of the individual, or (iv) a trust for the benefit
of the foregoing. A Person will be deemed to control another Person, for
purposes of this definition, if the first Person possesses, directly or
indirectly, the power to direct, or cause the direction of, the management
policies of the second Person, (x) through the ownership of voting securities,
(y) through common directors, trustees or officers, or (z) by contract or
otherwise).
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"RETAINED MUSIC BUSINESS" -- as defined in SECTION 8.4.
"REVIEW PERIOD" -- as defined in SECTION 2.3(b)(ii).
"SECURITIES ACT" -- the Securities Act of 1933, 15 U.S.C. Section 77a et
seq., as amended, or any successor law.
"SEC" -- the Securities and Exchange Commission.
"STOCK" -- as defined in Article I.
"SUBSIDIARIES" -- as defined in the Recitals to this Agreement.
52
"SELLERS CLOSING DOCUMENTS" -- as defined in SECTION 3.2.
"SELLER TRANSACTION DOCUMENTS" -- as defined in SECTION 4.2.
"SELLER GOVERNMENTAL AUTHORIZATIONS" -- as defined in SECTION 4.13(b).
"TAX OR TAXES" -- means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by gross
receipts income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
"THREATENED" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
ARTICLE XV
GENERAL PROVISIONS
15.1 EXPENSES. Each of Buyer, on one hand, and Seller on the other hand,
shall pay all costs and expenses incurred or to be incurred by it in negotiating
and preparing this Agreement and carrying out the Contemplated Transactions. In
the event a filing under the HSR Act is required, the Buyer and Seller shall
each pay one-half of the filing fees.
15.2 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given (a) when delivered by hand; (b) when sent by telecopier, provided that a
copy is mailed by U.S. certified mail, return receipt requested; (c) three days
after sent by Certified U.S. Mail, return receipt requested; or (d) one day
after deposit with a nationally recognized overnight delivery service, in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by notice
to the other parties):
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Seller: with copies to:
K-tel International, Inc. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ North ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: President ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
K-5 Leisure Products, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Buyer: with a copy to:
Platinum Entertainment, Inc. ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Suite 1600
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
15.3 FURTHER ASSURANCES. To the extent consistent with the terms of this
Agreement, the parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of the
Contemplated Transactions.
15.4 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.
15.5 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior oral or written agreements between the parties with respect to its subject
matter and constitutes (along with the documents referred to in this Agreement)
as a complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter, except that until the Closing, the
Confidentiality Agreement shall remain in full force and effect in accordance
with its terms. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
54
15.6 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. None of the
parties may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights
under this Agreement to any subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement except as provided in SECTION 8.10(b).
15.7 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
15.8 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
15.9 GOVERNING LAW. This Agreement will be governed by and construed under
the laws of the State of Delaware without regard to conflict of laws principles.
15.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
15.11 NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BUYER: SELLER:
PLATINUM ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
____________________________ _______________________________________
Its: COO Its: Chairman & Chief Executive Officer
____________________________ _______________________________________
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