Exhibit 4.1
MTS, INCORPORATED
$110,000,000
9 3/8% Senior Subordinated Notes due 2005
PURCHASE AGREEMENT
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April 20, 1998
CHASE SECURITIES INC.
▇▇▇▇▇▇▇ LYNCH, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇
INCORPORATED
c/o CHASE SECURITIES INC.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
MTS, INCORPORATED (the "COMPANY"), a California corporation, proposes
to issue and sell $110,000,000 aggregate principal amount of its 9 3/8% Senior
Subordinated Notes due 2005 (the "SECURITIES"). The Securities will be issued
pursuant to an Indenture to be dated as of April 23, 1998 (the "INDENTURE")
between the Company and State Street Bank and Trust of California, N.A., as
trustee (the "TRUSTEE"). The Company hereby confirms its agreement with Chase
Securities Inc. ("CSI") and ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇ Incorporated
(collectively, the "INITIAL PURCHASERS") concerning the purchase of the
Securities by the Initial Purchasers.
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), in reliance upon exemptions therefrom. The Company has
prepared a preliminary offering memorandum dated April 3, 1998 (the "PRELIMINARY
OFFERING MEMORANDUM") and an offering memorandum dated the date hereof (the
"FINAL OFFERING MEMORANDUM") setting forth information concerning the Company
and the Securities. Copies of the Preliminary Offering Memorandum have been,
and copies of the Final Offering Memorandum will be, delivered by the Company to
the Initial Purchasers pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Final Offering Memorandum
shall be deemed to in-
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clude all amendments and supplements thereto, unless otherwise noted. The
Company hereby confirms that it has authorized the use of the Preliminary
Offering Memorandum and the Final Offering Memorandum in connection with the
offering and resale of the Securities by the Initial Purchasers in accordance
with Section 2.
Holders of the Securities (including the Initial Purchasers and their
direct and indirect transferees) will be entitled to the benefits of a
Registration Rights Agreement, substantially in the form attached hereto as
ANNEX A (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company
will agree to file with the Securities and Exchange Commission (the
"COMMISSION") (i) a registration statement under the Securities Act (the
"EXCHANGE OFFER REGISTRATION STATEMENT") registering an issue of senior
subordinated notes of the Company (the "EXCHANGE SECURITIES") which are
identical in all material respects to the Securities (except that the Exchange
Securities will not contain terms with respect to transfer restrictions or
liquidated damages) and (ii) under certain limited circumstances, a shelf
registration statement with respect to the resale of the Securities pursuant to
Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT").
As described in the Offering Memorandum, the Securities are being
offered in connection with Recapitalization (as defined below) of the Company.
As part of the Recapitalization, the Company will refinance indebtedness under
its existing credit facility and certain other existing indebtedness through the
establishment by the Company of a new credit facility under a Credit Agreement
with certain financial institutions (the "NEW CREDIT FACILITY"). In addition,
as part of the Recapitalization, the Company will consummate the Reorganization
(the "REORGANIZATION, together with the New Credit Facility, the
"RECAPITALIZATION"). Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Final Offering Memorandum.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, the Initial Purchasers on
and as of the date hereof and the Closing Date (as defined in Section 3) that:
(a) Each of the Preliminary Offering Memorandum and the Final
Offering Memorandum, as of its date, did not, and on the Closing Date the
Final Offering Memorandum will not, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representation or warranty as to information contained in or omitted from
the Preliminary Offering Memorandum or the Final Offering Memorandum in
reliance upon and in conformity with written information relating to the
Initial Purchasers furnished to the Company by or on behalf of the Initial
Purchasers expressly for use therein (the "INITIAL PURCHASERS'
INFORMATION").
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(b) Each of the Preliminary Offering Memorandum and the Final
Offering Memorandum, as of its respective date, contains all of the
information that, if requested by a prospective purchaser of the
Securities, would be required to be provided to such prospective purchaser
pursuant to Rule 144A(d)(4) under the Securities Act; and the Securities
satisfy the eligibility requirements of Rule 144A(d)(3) under the
Securities Act.
(c) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchasers and the
offer, resale and delivery of the Securities by the Initial Purchasers in
the manner contemplated by this Agreement and the Final Offering
Memorandum, to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "TRUST INDENTURE ACT").
(d) The Company and each of the Subsidiaries (as defined in paragraph
(e) below) have been duly incorporated or organized, as the case may be,
and are validly existing as corporations or limited liability companies, as
the case may be, in good standing (to the extent applicable to foreign
subsidiaries) under the laws of their respective jurisdictions of
incorporation or organization, are duly qualified to do business as foreign
corporations or limited liability companies, as the case may be, in each
jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses require such qualification and
have all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged, except
where the failure to so qualify or have such power or authority would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or
prospects of the Company and the Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(e) As of the dates set forth therein, the Company had the
authorized, issued and outstanding capitalization as set forth in the
Offering Memorandum under the heading "Capitalization"; all of the
outstanding shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable. The
entities listed on SCHEDULE 2 hereto are the only subsidiaries, direct and
indirect of the Company, other than inactive and immaterial subsidiaries
(collectively, the "SUBSIDIARIES"). All of the outstanding shares of
capital stock of each Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of any lien, charge,
encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party. There were no material (i) options, war-
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rants or other rights to purchase, (ii) agreements or other obligations of
the Company to issue or (iii) other rights to convert any obligation into,
or exchange any securities for, shares of capital stock of or ownership
interests in the Company or any of the Subsidiaries outstanding.
(f) The Company has all requisite power and authority to execute and
deliver this Agreement, the Indenture, the Registration Rights Agreement,
the Securities, and the New Credit Facility (collectively, the "TRANSACTION
DOCUMENTS") and to perform its obligations hereunder and thereunder; and
all corporate action required to be taken by the Company for the due
authorization, execution and delivery of each of the Transaction Documents
to which it is a party and the consummation of the transactions
contemplated thereby have been duly and validly taken.
(g) This Agreement has been duly authorized, executed and delivered
by the Company.
(h) The Registration Rights Agreement has been duly authorized by the
Company and, when duly executed and delivered in accordance with its terms
by each of the parties thereto, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that (i) such enforceability may be
subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in
a proceeding in equity or at law) and (ii) the enforceability of rights to
indemnification and contribution thereunder may be limited by federal or
state securities laws or regulations or the public policy underlying such
laws or regulations.
(i) The Indenture has been duly authorized by the Company and, when
duly executed and delivered in accordance with its terms by each of the
parties thereto, will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(j) The Securities have been duly authorized by the Company and, when
duly executed, authenticated, issued and delivered as provided in the
Indenture and paid for as provided herein, will be duly and validly issued
and outstanding and will constitute valid and binding obligations of the
Company entitled to the benefits of the
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Indenture, enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(k) The Exchange Securities have been duly authorized by the Company
and, when executed, authenticated, issued and delivered as provided in the
Indenture and the Registration Rights Agreement in exchange for the Notes,
will be duly and validly issued and outstanding and will constitute valid
and binding obligations of the Company entitled to the benefits of the
Indenture, enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(l) As of the Closing Date, the New Credit Facility will be duly
authorized, executed and delivered by the Company and TRKK and constitutes
a valid and legally binding agreement of the Company and TRKK, enforceable
against the Company and TRKK in accordance with its terms.
(m) All corporate and other actions necessary to effect the
Reorganization have been taken by the Company and each of the other Persons
that are parties to the agreements, documents, instruments and certificates
that are required to consummate the Reorganization (collectively, the
"REORGANIZATION DOCUMENTS"); and each of the Reorganization Documents has
been duly executed and delivered by each of the parties thereto and
constitute the valid and binding obligations of the parties thereto,
enforceable in accordance with their terms, except to the extent that such
enforceability may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally
and (B) general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(n) The Recapitalization conforms in all material respects to the
description thereof contained in the Final Offering Memorandum.
(o) Each Transaction Document conforms in all material respects to
the description thereof contained in the Final Offering Memorandum.
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(p) The execution, delivery and performance by the Company of each of
the Transaction Documents to which it is a party and each of the
Reorganization Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by the
Company with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents and the Reorganization Documents
do not and will not (i) conflict with or result in a breach or violation of
any of the terms or the provisions of, or constitute a default under, or,
with notice or lapse of time or both, constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of any of the Company pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company is a party or by which the Company is bound
or to which any of the property or assets of the Company is subject or (ii)
result in any violation of the provisions of (a) the charter or by-laws or
similar organizational documents of the Company or (b) any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets, except, in the case of clauses (i) and (ii)(b)
above, for any such event, conflict, breach, violation or default which
would not, individually or in the aggregate, have a Material Adverse Effect
or affect the ability of the Company to enter into each of the Transaction
Documents and the Reorganization Documents and consummate each of the
transactions contemplated thereby; and no consent, approval, authorization
or order of, or filing or registration with, any such court or arbitrator
or governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by the Company of each of the Transaction Documents and the
Reorganization Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by the
Company with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents and the Reorganization Documents,
except for such consents, approvals, authorizations, filings, registrations
or qualifications (a) which shall have been obtained or made prior to the
Closing Date, (b) as may be required to be obtained or made under the
Securities Act and applicable state securities laws as provided in the
Registration Rights Agreement or (c) which would not, individually or in
the aggregate, have a Material Adverse Effect.
(q) ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P. is an independent certified public
accountant with respect to the Company and its consolidated subsidiaries
within the meaning of the Securities Act and the rules and regulations
thereunder. The historical financial statements (including the related
notes) contained in the Final Offering Memorandum comply in all material
respects with the requirements applicable to a registration statement on
Form S-1 under the Securities Act (except that certain supporting sched-
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ules are omitted); such historical financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States, consistently applied throughout the periods covered thereby and
present, in all material respects, the financial position of the entities
purported to be covered thereby at the respective dates indicated and the
results of their operations and their cash flows for the respective periods
indicated; and the historical financial information contained in the Final
Offering Memorandum under the headings "Summary -- Summary Historical and
Pro Forma Consolidated Financial Information", "Selected Historical and Pro
Forma Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is derived from
the accounting records of the entities purported to be covered thereby and
fairly presents in all material respects the information purported to be
shown thereby. The pro forma financial statements contained in the Final
Offering Memorandum have been prepared on a basis consistent with the
historical financial statements contained in the Final Offering Memorandum
(except for the pro forma adjustments specified therein), include all
material adjustments to the historical financial statements required by
Rule 11-02 of Regulation S-X under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to reflect the
transactions described in the Final Offering Memorandum, and are based on
good faith estimates and assumptions believed by the Company to be
reasonable and the adjustments used therein are appropriate to give effect
to the transactions described in the Final Offering Memorandum (including
the transactions contemplated by the Transaction Documents and the
Reorganization Documents). The other historical financial and operating
and other financial data included in the Final Offering Memorandum fairly
present, in all material respects, the information purported to be shown
thereby.
(r) There are no legal or governmental proceedings pending to which
the Company or any of the Subsidiaries is a party or of which any property
or assets of the Company or any of the Subsidiaries is the subject which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to prevent or
adversely affect the issuance of the Securities or challenge the validity
or enforceability of any of the Transaction Documents or the Reorganization
Documents or any action taken or to be taken pursuant to the Transaction
and the Transaction Documents or the Reorganization Documents; and, to the
best knowledge of the Company, no such proceedings are overtly threatened
or contemplated by governmental authorities or threatened by others.
(s) Neither the Company nor any of the Subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default, and no event has
occurred which, with notice or lapse of time or both, would constitute such
a default, in the due performance or ob-
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▇▇▇▇▇▇▇▇ of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which it is a party or by which it is bound or to which any
of its property or assets is subject except for any such default which
would not, individually or in the aggregate with all other such defaults,
have a Material Adverse Effect or (iii) in violation of any law, ordinance,
governmental rule or regulation or any order, judgment or decree to which
it or its property or assets may be subject, except for such violation
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(t) To the best knowledge of the Company, no action has been taken
and no statute, rule, regulation, injunction or order has been enacted,
adopted or issued by any governmental agency or body which prevents the
issuance of the Securities or suspends the sale of the Securities in any
jurisdiction; to the best knowledge of the Company, no injunction,
restraining order or order of any nature by any federal or state court of
competent jurisdiction has been issued with respect to the Company which
would prevent or suspend the issuance or sale of the Securities or the use
of the Preliminary Offering Memorandum or the Final Offering Memorandum in
any jurisdiction; no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting the
Company before any court or arbitrator or any governmental agency, body or
official, domestic or foreign, which could reasonably be expected to
interfere with or adversely affect the issuance of the Securities or in any
manner draw into question the validity or enforceability of any of the
Transaction Documents or the Reorganization Documents or any action taken
or to be taken pursuant to the Transaction and the Transaction Documents or
the Reorganization Documents; and the Company has complied with any and all
requests by any securities authority in any jurisdiction for additional
information to be included in the Preliminary Offering Memorandum or the
Final Offering Memorandum.
(u) The Company and the Subsidiaries possess all material licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate federal, state, local or
foreign regulatory agencies or bodies which are necessary for the ownership
of their respective properties or the conduct of their respective
businesses as described in the Final Offering Memorandum, except where the
failure to possess or make the same would not, individually or in the
aggregate, have a Material Adverse Effect, and neither the Company nor any
of the Subsidiaries has received notification of any revocation or
modification of any such license, certificate, authorization or permit or
has any reason to believe that any such license, certificate, authorization
or permit will not be renewed in the ordinary course.
(v) The Company and each of the Subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed through the date
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hereof and have paid all taxes due thereon (except such as are being
contested in good faith), and no tax deficiency has been determined
adversely to the Company or any of the Subsidiaries which has had (nor does
the Company or any of the Subsidiaries have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of the
Subsidiaries, could reasonably be expected to have) a Material Adverse
Effect.
(w) Neither the Company nor any of the Subsidiaries is an "investment
company" or a company "controlled by" an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT
COMPANY ACT"), and the rules and regulations of the Commission thereunder.
(x) The Company and the Subsidiaries maintain reasonably adequate
insurance covering their respective properties, operations, personnel and
businesses.
(y) The Company and the Subsidiaries own or possess or can acquire on
reasonable terms, adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and know-
how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) materially
necessary for the conduct of their respective businesses; and the Company
and the Subsidiaries have not received any notice of any infringement of or
claim or conflict with, any such rights of others except for any such
infringement, claim or conflict which, individually or in the aggregate
with all other such defaults could not reasonably be expected to have a
Material Adverse Effect.
(z) The Company and the Subsidiaries have good and marketable title
in fee simple to, or have valid rights to lease or otherwise use, all items
of real property described as being owned by them in the Final Offering
Memorandum, in each case free and clear of all liens, encumbrances, claims
and defects and imperfections of title other than (i) liens, encumbrances
and claims securing the New Credit Facility or which are otherwise
permitted under the Indenture or (ii) liens, encumbrances, claims and
defects and imperfections of title that (a) are described in the Final
Offering Memorandum or (b) do not materially interfere with the use made of
such property or could not reasonably be expected to have a Material
Adverse Effect.
(aa) No labor disturbance by or dispute with the employees of the
Company or any of the Subsidiaries exists or, to the best knowledge of the
Company, is contemplated or threatened; there is no significant unfair
labor practice complaint pending against the Company or any of the
Subsidiaries nor, to the best knowledge of the Company, threatened against
any of them, before the National Labor Relations Board,
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any state or local labor relations board or any foreign labor relations
boards, and no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is pending
against the Company or any or the Subsidiaries or, to the best knowledge of
the Company, threatened against any of them except those which could not
reasonably be expected to have a Material Adverse Effect.
(bb) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time
(the "CODE")) or "accumulated funding deficiency" (as defined in Section
302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) has occurred with respect to
any employee benefit plan of the Company or any of the Subsidiaries, or any
entity that together with the Company or any Subsidiary is treated as a
single employer under Section 414 (b), (c), (m) or (e) of the Code, which
could reasonably be expected to have a Material Adverse Effect; each such
employee benefit plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Company and each of the
Subsidiaries have not incurred and do not expect to incur material
liability under Title IV of ERISA with respect to the termination of, or
withdrawal from, any pension plan for which the Company or any of the
Subsidiaries would have any liability; and each such pension plan that is
intended to be qualified under Section 401(a) of the Code is so qualified
in all material respects and nothing has occurred, whether by action or by
failure to act, which could reasonably be expected to have a Material
Adverse Effect.
(cc) Except as would not individually or in the aggregate have a
Material Adverse Effect, (A) each of the Company and each Subsidiary is in
material compliance with all applicable Environmental Laws, (B) each of the
Company and each Subsidiary has all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the knowledge of
the Company, threatened Environmental Claims against the Company or any
Subsidiary, and (D) there are no conditions with respect to any property or
operations of the Company or any Subsidiary that could reasonably be
anticipated to form the basis of an Environmental Claim against the Company
or any Subsidiary.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdictions) federal, state, provincial, local or municipal
statute, law, rule, regulation, ordinance, code, policy or rule of common
law and any judicial or administrative inter-
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pretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or any
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority. "Environmental Claims" means
any and all administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(dd) Neither the Company, any of the Subsidiaries nor, to the best
knowledge of the Company, any director, officer, agent, employee or other
person associated with or acting on behalf of the Company or any of the
Subsidiaries has (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(ee) Prior to and immediately after the closing of the transactions
contemplated herein, the Company will be Solvent. As used in this
paragraph, the term "Solvent" means, with respect to the Company, at a
particular time, that at such time (i) the present fair market value (or
present fair saleable value) of the assets of the Company is not less than
the total amount required to pay the probable liabilities of the Company on
its total existing debts and liabilities (including contingent liabilities)
as they become absolute and matured, (ii) the Company is able to realize
upon its assets and pay its debts and other liabilities, contingent
obligations and commitments as they mature and become due in the normal
course of business, (iii) the Company has not incurred and is not incurring
debts or liabilities beyond its ability to pay as such debts and
liabilities mature and (iv) the Company is not engaged in any business or
transaction, and does not intend to engage in any business or transaction,
for which its property would constitute unreasonably small capital. In
computing the amount of such contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in the
light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
(ff) Neither the Company nor any of the Subsidiaries owns any "margin
securities" as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "FEDERAL RESERVE BOARD"), and
none of the proceeds of the sale of the Securities will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any in-
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debtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Securities
to be considered a "purpose credit" within the meanings of Regulation G, T,
U or X of the Federal Reserve Board.
(gg) Neither the Company nor any of its respective affiliates (as
defined in Rule 501(b) of Regulation D under the Securities Act
("REGULATION D")) ("AFFILIATES") has, directly or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as such term is defined in the Securities Act),
which is or will be integrated with the sale of the Securities in a manner
that would require registration of the Securities under the Securities Act
or (ii) engaged, in connection with the offering of the Securities, in any
form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act or has solicited offers for, or has
offered and sold, the Securities in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act.
(hh) There are no holders of securities of the Company who, by reason
of the execution by the Company of any of the Transaction Documents or the
Reorganization Documents, or the consummation of the transactions
contemplated therein (except as contemplated by the Registration Rights
Agreement), have the right to request or demand that the Company register
under the Securities Act any securities held by them.
(ii) The statistical and market-related data included in the Final
Offering Memorandum are based on or derived from sources which the Company
believes to be reliable.
(jj) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, the Company nor any of its respective
affiliates (as defined in Rule 501(b) of Regulation D under the Securities
Act ("REGULATION D")) ("AFFILIATES") has, directly or through any
authorized agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as such term is defined
in the Securities Act), which is or will be integrated with the sale of the
Securities in a manner that would require registration of the Securities
under the Securities Act or (ii) engaged, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act or
has solicited offers for, or has offered and sold, the Securities in any
manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.
-13-
(kk) There are no securities of the Company registered under the
Exchange Act, listed on a national securities exchange or quoted in a U.S.
automated inter-dealer quotation system.
(ll) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act in
connection with the offering of the Securities.
(mm) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Final Offering Memorandum has been made or reaffirmed without a reasonable
basis or has been disclosed other than in good faith.
(nn) Since the date as of which information is given in the Final
Offering Memorandum, except as otherwise expressly stated therein, (i)
there has been no material adverse change or any development involving a
prospective material adverse change in the condition (financial or
otherwise), or in the results of operations, affairs, management or
prospects of the Company and the Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, (ii) neither the Company
nor any Subsidiary has incurred any material liability or obligation,
direct or contingent, other than in the ordinary course of business, (iii)
neither the Company nor any Subsidiary has entered into any material
transaction other than in the ordinary course of business and (iv) there
has not been any change in the capital stock or long-term debt of the
Company and the Subsidiaries, or any distribution of any kind declared,
paid or made by the Company or any of the Subsidiaries on any class of its
capital stock.
2. PURCHASE AND RESALE OF THE SECURITIES. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
the Initial Purchasers and the Initial Purchasers agree, severally and not
jointly, to purchase from the Company, the principal amount of Securities set
forth opposite the names of such Initial Purchasers on Schedule II hereto at a
purchase price equal to 97% of the principal amount thereof. The Company shall
not be obligated to deliver any of the Securities except upon payment for all of
the Securities to be purchased as provided herein.
(b) The Initial Purchasers have advised the Company that they propose
to offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. Each Initial Purchaser,
severally and not jointly, represents, warrants and agrees with the Company that
(i) it is purchasing the Securities pursuant to a private sale exempt from
registration under the Securities Act, (ii) it has not solicited offers for, or
offered or sold, and will not solicit offers for, or offer or sell, the
Securities by means of any form of
-14-
general solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D under the Securities Act or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (iii) it
has solicited and will solicit offers for the Securities only from, and has
offered or sold and will offer, sell or deliver the Securities, as part of their
initial offering, only (A) within the United States to persons whom it
reasonably believes to be qualified institutional buyers ("QUALIFIED
INSTITUTIONAL BUYERS"), as defined in Rule 144A under the Securities Act ("RULE
144A"), or if any such person is buying for one or more institutional accounts
for which such person is acting as fiduciary or agent, only when such person has
represented to it that each such account is a Qualified Institutional Buyer to
whom notice has been given that such sale or delivery is being made in reliance
on Rule 144A and in each case, in transactions in accordance with Rule 144A and
(B) outside the United States to persons other than U.S. persons in reliance on
Regulation S under the Securities Act ("REGULATION S").
(c) The Company acknowledges and agrees that the Initial Purchasers
may sell Securities to any affiliate of the Initial Purchasers and that any such
affiliate may sell Securities purchased by it to the Initial Purchasers.
(d) In connection with the offer and sale of Securities in reliance
on Regulation S, each Initial Purchaser, severally and not jointly, represents,
warrants and agrees that:
(i) The Securities have not been registered under the Securities Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, "U.S. persons" (as defined in Regulation S under the
Securities Act) except pursuant to an exemption from, or in transactions not
subject to, the registration requirements of the Securities Act.
(ii) Such Initial Purchaser has offered and sold the Securities, and
will offer and sell the Securities, (A) as part of their distribution at any
time and (B) otherwise until 40 days after the later of the commencement of the
offering of the Notes and the Closing Date, only in accordance with Regulation S
or Rule 144A or any other available exemption from registration under the
Securities Act.
(iii) None of such Initial Purchaser or any of its affiliates or any
other person acting on its or their behalf has engaged or will engage in any
"directed selling efforts" (as defined in Rule 144A) with respect to the
Securities, and all such persons have complied and will comply with the offering
restrictions requirement of Regulation S.
(iv) at or prior to the confirmation of sale of any Securities sold
in reliance on Regulation S, it will have sent to each distributor, dealer or
other person receiving a selling concession, fee or other remuneration that
purchase Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
-15-
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the date of
original issuance of the Securities, except in accordance with
Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Securities, except
with its affiliates or with the prior written consent of the Company.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. (a) Delivery of and
payment for the Securities shall be made at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, New York, New York, or at such other place as shall be agreed upon by
the Initial Purchasers and the Company, at 10:00 A.M., New York City time, on
April [ ], 1998, or at such other time or date, not later than seven full
business days thereafter, as shall be agreed upon by the Initial Purchasers and
the Company (such date and time of payment and delivery being referred to herein
as the "CLOSING DATE").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of same-
day funds to such account or accounts as the Company shall specify prior to the
Closing Date or by such other means as the parties hereto shall agree prior to
the Closing Date against delivery to the Initial Purchasers of the certificates
evidencing the Securities. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligations of the Initial Purchasers hereunder. Upon delivery, the
Securities shall be in global form, registered in such names and in such
denominations as CSI on behalf of the Initial Purchasers shall have requested in
writing not less than two full business days prior to the Closing Date. The
Company agrees to make one or more global certificates evidencing the Securities
available for inspection by the Initial Purchasers in New York, New York at
least 24 hours prior to the Closing Date.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
Initial Purchasers:
-16-
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Final Offering Memorandum
untrue and which requires the making of any additions to or changes in the
Final Offering Memorandum (as amended or supplemented from time to time) in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; to advise the Initial
Purchasers promptly of any order preventing or suspending the use of the
Preliminary Offering Memorandum or the Final Offering Memorandum, of any
suspension of the qualification of the Securities for offering or sale in
any jurisdiction and of the initiation or threatening of any proceeding for
any such purpose; and to use its best efforts to prevent the issuance of
any such order preventing or suspending the use of the Preliminary Offering
Memorandum or the Final Offering Memorandum or suspending any such
qualification and, if any such suspension is issued, to obtain the lifting
thereof at the earliest possible time;
(b) to furnish promptly to each of the Initial Purchasers and counsel
for the Initial Purchasers, without charge, as many copies of the
Preliminary Offering Memorandum and the Final Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Final Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers and
counsel for the Initial Purchasers and not to effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by
notice to the Company after a reasonable period to review unless the
Company is advised by counsel that such amendment or supplement is legally
required;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur, information
shall become known or a condition shall exist as a result of which it is
necessary, in the reasonable opinion of counsel for the Initial Purchasers
or counsel for the Company, to amend or supplement the Final Offering
Memorandum in order that the Final Offering Memorandum will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Final Offering
Memorandum to comply with applicable law, to promptly prepare (subject to
Section 4(c) above) such amendment or supplement as may be necessary to
correct such untrue statement or omission or so that the Final Offering
Memorandum, as so amended or supplemented, will comply with applicable law;
-17-
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities, upon request of such holders, the
information, if any, required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, unless the Company is then subject to and in
compliance with Section 13 or 15(d) of the Exchange Act (the foregoing
agreement being for the benefit of the holders from time to time of the
Securities and prospective purchasers of the Securities designated by such
holders);
(f) for so long as the Securities are outstanding and, to furnish to
the Initial Purchasers copies of any annual reports, quarterly reports and
current reports filed by the Company with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall be
furnished by the Company to the Trustee or to the holders of the Securities
pursuant to the Indenture or the Exchange Act or any rule or regulation of
the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the state securities or Blue Sky laws of such jurisdictions
as the Initial Purchasers may designate and to continue such qualifications
in effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchasers
may reasonably request; PROVIDED, HOWEVER, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which
it is not currently so qualified or to file a general consent to service of
process in any jurisdiction;
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated Portal Market securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
("NASD") relating to trading in the Portal Market and for the Securities to
be eligible for clearance and settlement through The Depository Trust
Company ("DTC");
(i) not to, and to cause its Affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its Affiliates not to, and not to authorize or
knowingly permit any person acting on
-18-
their behalf to, solicit any offer to buy or offer to sell the Securities
by means of any form of general solicitation or general advertising within
the meaning of Regulation D or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act; and not to offer,
sell, contract to sell or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act to cease to be applicable to the offering and sale of the
Securities as contemplated by this Agreement and the Final Offering
Memorandum;
(k) for a period of 180 days from the date of the Final Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company (other than the
Securities) without the prior written consent of the Initial Purchasers
other than the Exchange Securities and the Private Exchange Securities (as
defined in the Registration Rights Agreement), if any;
(l) until consummation of the Exchange Offer, without the prior
written consent of the Initial Purchasers, not to, and not permit any of
its Affiliates to, resell any of the Securities that have been reacquired
by them, except for Securities purchased by the Company or any of its
respective Affiliates and resold in a transaction registered under the
Securities Act;
(m) in connection with the offering of the Securities, until CSI on
behalf of the Initial Purchasers shall have notified the Company of the
completion of the resale of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers
has a beneficial interest, any Securities, or attempt to induce any person
to purchase any Securities; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the
Securities;
(n) to do and perform all things required to be done and performed by
it under this Agreement and the Registration Rights Agreement that are
within its control prior to or after the Closing Date, and to use its best
efforts to satisfy all conditions precedent on its part to the delivery of
the Securities;
(o) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition (financial or otherwise) or
earnings, business affairs or busi-
-19-
ness prospects (except for routine communications in the ordinary course of
business and consistent with the past practices of the Company), without
the prior written consent of the Initial Purchasers, unless in the judgment
of the Company and its counsel, and after notification to the Initial
Purchasers, such press release or communication is reasonably necessary or
advisable;
(p) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(q) to furnish to the Initial Purchasers on the date hereof a copy of
the independent accountants' report included in the Final Offering
Memorandum signed by the accountants rendering such report;
(r) not to take any action prior to the execution and delivery of the
Indenture which, if taken after such execution and delivery, would have
resulted in a default or an event of default as defined under the
Indenture;
(s) not to take any action prior to the Closing Date which would
require the Final Offering Memorandum to be amended or supplemented
pursuant to Section 4(d);
(t) to apply the net proceeds from the sale of the Securities as set
forth in the Final Offering Memorandum under the heading "Use of Proceeds;"
and
(u) to effect the merger of T. R. Services, Incorporated, a
California Corporation, with and into the Company on or before July 21,
1998.
5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The respective
obligations of the several Initial Purchasers hereunder are subject to the
accuracy, on and as of the date hereof and the Closing Date, of the
representations and warranties of the Company contained herein, to the accuracy
of the statements of the Company and its respective officers made in any
certificates delivered pursuant hereto, to the performance by the Company of its
respective obligations hereunder and to each of the following additional terms
and conditions:
(a) The Final Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchasers as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchasers
may agree; and no stop order suspending the sale of the Securities shall
have been issued by the Commission and no proceeding for that purpose shall
have been commenced or shall be pending or threatened.
-20-
(b) None of the Initial Purchasers shall have discovered and
disclosed to the Company on or prior to the Closing Date that the Final
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement (other than with respect to information supplied by the
Initial Purchasers) of a fact which, in the opinion of counsel for the
Initial Purchasers, is material or omits to state any fact which, in the
opinion of such counsel, is material or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Final Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby (including
any agreements or documents executed and delivered in connection
therewith), shall be reasonably satisfactory in all material respects to
the Initial Purchasers, and the Company shall have furnished to the Initial
Purchasers all documents and information that they or their counsel may
reasonably request to enable them to pass upon such matters.
(d) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation shall
have furnished to the Initial Purchasers their written opinion, as counsel
to the Company, addressed to the Initial Purchasers and dated the Closing
Date, in form and substance reasonably satisfactory to the Initial
Purchasers, substantially to the effect set forth in ANNEX B hereto and
Japanese counsel to TRKK shall have furnished to the Initial Purchasers
their written opinion, as counsel to TRKK, addressed to the Initial
Purchasers and dated the Closing Date, substantially to the effect set
forth in Annex C hereto.
(e) The Initial Purchasers shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, counsel for the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished to
such counsel such documents and information as they may reasonably request
for the purpose of enabling them to pass upon such matters.
(f) The Report of Independent Accountants which appears with a
qualifying footnote regarding the Reorganization on page F-2 of the
Preliminary Offering Memorandum shall be delivered without such footnote
and shall appear without such footnote in the Final Offering Memorandum.
(g) The Company shall have furnished to the Initial Purchasers an
initial comfort letter (the "INITIAL COMFORT LETTER") of Coopers & ▇▇▇▇▇▇▇
L.L.P., addressed to the Initial Purchasers and dated the date hereof, in
form and substance previously approved by the Initial Purchasers.
-21-
(h) The Company shall have furnished to the Initial Purchasers a
letter (the "BRING-DOWN COMFORT LETTER") of Coopers & ▇▇▇▇▇▇▇ L.L.P.,
addressed to the Initial Purchasers and dated the Closing Date, (i)
confirming that they are independent public accountants with respect to the
Company and its subsidiaries within the meaning of Rule 101 of the Code of
Professional Conduct of the AICPA and its interpretations and rulings
thereunder, (ii) stating, as of the date of the Bring-Down Comfort Letter
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Final Offering Memorandum, as of a date not more than three business
days prior to the date of the Bring-Down Comfort Letter), that the
conclusions and findings of such accountants with respect to the financial
information and other matters covered by the Initial Comfort Letter are
accurate and (iii) confirming in all material respects the conclusions and
findings set forth in the Initial Comfort Letter.
(i) The Company shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of its chief executive officer and its
chief financial officer stating that (A) such officers have carefully
examined the Final Offering Memorandum, (B) in their opinion, the Final
Offering Memorandum, as of its date, did not include any untrue statement
of a material fact and did not omit to state a material fact required or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and since the
date of the Final Offering Memorandum, no event has occurred which should
have been set forth in a supplement or amendment to the Final Offering
Memorandum so that the Final Offering Memorandum (as so amended or
supplemented) would not include any untrue statement of a material fact and
would not omit to state a material fact or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (C) as of the Closing Date, the representations
and warranties of the Company in this Agreement are true and correct in all
material respects, the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
on or prior to the Closing Date, and subsequent to the date of the most
recent financial statements contained in the Final Offering Memorandum,
there has been no material adverse change in the financial position or
results of operations of the Company or any of the Subsidiaries, or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company and
the Subsidiaries taken as a whole, except as expressly set forth in the
Final Offering Memorandum.
-22-
(j) The Initial Purchasers shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(k) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(l) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Final Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchasers reasonably in advance of the Closing Date.
(m) The Securities shall have been approved by the NASD for trading
in The Portal Market.
(n) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Final Offering
Memorandum (exclusive of any amendment or supplement thereto), other than
as contemplated by the Final Offering Memorandum, there shall not have been
any material decrease in the capital stock or material increase in the
long-term debt (other than borrowings under the New Credit Facility in the
ordinary course of business) or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the financial condition, results of operations or business
prospects of the Company and the Subsidiaries taken as a whole, the effect
of which, in any such case described above, is, in the reasonable judgment
of CSI, so material and adverse as to make it impracticable or inadvisable
to proceed with the sale or delivery of the Securities on the terms and in
the manner contemplated in this Agreement and the Final Offering Memorandum
(exclusive of any amendment or supplement thereto).
(o) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchasers would materially impair the
ability of the Initial Purchasers to purchase, hold or effect resales of
the Securities as contemplated hereby.
(p) No action shall have been taken by and no statute, rule,
regulation or order shall have been enacted, adopted or issued by, any
governmental agency or body
-23-
which would, as of the Closing Date, prevent the issuance, sale or resale
of the Securities in the manner contemplated by the Final Offering
Memorandum; and no injunction, restraining order or order of any other
nature by any federal or state court of competent jurisdiction shall have
been issued as of the Closing Date which would prevent the issuance, sale
or resale of the Securities in the manner contemplated by the Final
Offering Memorandum.
(q) Subsequent to the execution and delivery of this Agreement,
(i) no downgrading shall have occurred in the rating accorded the
Securities or any of the Company's other debt securities or preferred stock
by any "nationally recognized statistical rating organization", as such
term is defined by the Commission for purposes of Rule 436(g)(2) of the
rules and regulations of the Commission under the Securities Act and
(ii) no such organization shall have publicly announced that it has under
surveillance or review (other than an announcement with positive
implications of a possible upgrading), its rating of the Securities or any
of the Company's other debt securities or preferred stock.
(r) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or
(iii) an outbreak or escalation of hostilities or a declaration by the
United States of a national emergency or war or (iv) a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) the effect of which, in the case of clauses (iii) and
(iv), is, in the reasonable judgment of the Initial Purchasers, so material
and adverse as to make it impracticable or inadvisable to proceed with the
sale or the delivery of the Securities on the terms and in the manner
contemplated in this Agreement and in the Final Offering Memorandum
(exclusive of any amendment or supplement thereto).
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
6. TERMINATION. The obligations of the Initial Purchasers hereunder
may be terminated by the Initial Purchasers, in their absolute discretion, by
notice given to and re-
-24-
ceived by the Company prior to delivery of and payment for the Securities if,
prior to that time, any of the events described in Section 5(n), (o), (p), (q)
or (r) shall have occurred and be continuing.
7. DEFAULTING INITIAL PURCHASERS. (a) If, on the Closing Date, any
Initial Purchaser defaults in the performance of its obligations under this
Agreement, the non-defaulting Initial Purchaser may make arrangements for the
purchase of the Securities which such defaulting Purchaser agreed but failed to
purchase by other persons satisfactory to the Company and the non-defaulting
Initial Purchaser, but if no such arrangements are made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
the non-defaulting Initial Purchaser or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Sections 8 and 12 and except that the provisions of Sections 9, 10, 14 and 17
shall not terminate and shall remain in effect. As used in this Agreement, the
term "Initial Purchasers" includes, for all purposes of this Agreement unless
the context otherwise requires, any party not listed in Schedule 1 hereto that,
pursuant to this Section 7, purchases Securities which a defaulting Initial
Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial
Purchaser of any liability it may have to the Company or any non-defaulting
Initial Purchaser for damages caused by its default. If other persons agree to
purchase the Securities of a defaulting Initial Purchaser, either the non-
defaulting Initial Purchaser or the Company may postpone the Closing Date for up
to seven full business days in order to effect any changes that in the
reasonable opinion of counsel for the Company or counsel for the Initial
Purchasers may be necessary in the Offering Memorandum or in any other document
or arrangement, and the Company agrees to reasonably promptly prepare any
amendment or supplement to the Final Offering Memorandum that effects any such
changes.
8. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES. If (a) this
Agreement shall have been terminated pursuant to Section 6 (except in the case
of a failure of the condition specified in Section 5(o), 5(p) or 5(r)), (b) the
Company shall fail to tender the Securities for delivery to the Initial
Purchasers for any reason or (c) the Initial Purchasers shall decline to
purchase the Securities for any reason permitted under this Agreement, the
Company shall reimburse the Initial Purchasers for such out-of-pocket expenses
(including reasonable fees and disbursements of counsel) as shall have been
reasonably incurred by the Initial Purchasers in connection with this Agreement
and the proposed purchase and resale of the Securities.
9. INDEMNIFICATION. (a) The Company shall indemnify and hold
harmless each Initial Purchaser, their affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively
-25-
referred to for purposes of this Section 9(a) and Section 10 as an "INITIAL
PURCHASERS"), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, without limitation, any
loss, claim, damage, liability or action relating to purchases and sales of the
Securities), to which such Initial Purchasers may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Final Offering
Memorandum or in any amendment or supplement thereto or in any information
provided by the Company pursuant to Section 4(d) or (ii) the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse the Initial Purchasers promptly upon
demand for any legal or other expenses reasonably incurred by the Initial
Purchasers in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Initial Purchasers' Information; PROVIDED, FURTHER, HOWEVER, that with
respect to any such untrue statement in or omission from the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 9(a)
shall not inure to the benefit of the Initial Purchasers to the extent that the
sale to the person asserting any such loss, claim, damage, liability or action
was an initial resale by the Initial Purchasers and any such loss, claim,
damage, liability or action of or with respect to the Initial Purchasers results
from the fact that both (A) to the extent required by applicable law, a copy of
the Final Offering Memorandum was not sent or given to such person at or prior
to the written confirmation of the sale of such Securities to such person and
(B) the untrue statement in or omission from the Preliminary Offering Memorandum
was corrected in the Final Offering Memorandum, unless, in either case, such
failure to deliver the Final Offering Memorandum was a result of non-compliance
by the Company with Section 4(b).
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company, its respective affiliates, its
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively, referred to for
purposes of this Section 9(b) and Section 10 as the "COMPANY"), from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common
-26-
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Final Offering Memorandum or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Initial Purchasers'
Information, and shall reimburse the Company promptly upon demand for any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying
party in writing of such claim or the commencement of such action; PROVIDED,
HOWEVER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 9 except to the extent
that the indemnifying party was otherwise unaware of such claim or the
commencement of such action and it has been materially prejudiced (through the
forfeiture of substantive rights or defenses) by such failure; PROVIDED FURTHER,
HOWEVER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under this Section 9. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; PROVIDED, HOWEVER, that an indemnified party shall have
the right to employ its own counsel in any such action, but the fees, expenses
and other charges of such counsel for the indemnified party will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the in-
-27-
demnifying party will not have the right to direct the defense of such action on
behalf of the indemnified party) or (4) the indemnifying party has not in fact
employed counsel reasonably satisfactory to the indemnified party to assume the
defense of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim.
No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld or delayed), but if settled with its written consent or if
there be a final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party (which consent shall not be unreasonably withheld or delayed), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party in form and substance
satisfactory to such indemnified party from all liability on claims that are the
subject matter of such proceeding and does not contain an admission of fault or
culpability.
The obligations of the Company and the Initial Purchasers in this
Section 9 and in Section 10 are in addition to any other liability that the
Company or the Initial Purchasers, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
10. CONTRIBUTION. If the indemnification provided for in Section 9
is unavailable or insufficient to hold harmless an indemnified party under
Section 9(a) or 9(b) (to the extent contemplated by such Sections), then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law or if the indemnified party failed
to give notice as required in Section 9(c) above, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the
-28-
relative fault of the Company on the one hand and the Initial Purchasers on the
other with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Initial Purchasers on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by or on behalf of the Company, on the one hand, and the total discounts and
commissions received by the Initial Purchasers with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, in each case, as set forth
in the table on the cover page of the Final Offering Memorandum. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to the Company or information supplied
by the Company on the one hand or to any Initial Purchasers' Information on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission, and any other equitable considerations appropriate in the
circumstances.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contributions pursuant to this Section 10 were to be determined
by PRO RATA allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 10
shall be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 10, no Initial Purchaser shall be
required to contribute any amount in excess of the amount by which the price at
which the aggregate amount of the Securities sold by the Initial Purchasers
exceeds the amount of any damages which such Initial Purchasers has otherwise
paid or become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers and the
Company and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 9 and 10 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of the Company and
the Initial Purchasers and in Section 4(e) with respect to holders and
prospective purchasers of the
-29-
Securities. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section 11, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
12. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company agrees
with the Initial Purchasers to pay (a) the costs incident to the authorization,
issuance, sale, preparation and delivery of the Securities and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
distribution of the Preliminary Offering Memorandum, the Final Offering
Memorandum and any amendments or supplements thereto; (c) the costs of
reproducing and distributing each of the Transaction Documents; (d) the costs
incident to the preparation, printing and delivery of the certificates
evidencing the Securities, including stamp duties and transfer taxes, if any,
payable upon issuance of the Securities; (e) the fees and expenses of the
Company's counsel and independent accountants; (f) the fees and expenses of
qualifying the Securities under the securities laws of the several jurisdictions
as provided in Section 4(g) and of preparing, printing and distributing the Blue
Sky memoranda; (g) any fees charged by rating agencies for rating the
Securities; (h) the fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties); (i) all
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on The Portal Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement which are not otherwise specifically provided for in this Section 12;
PROVIDED, HOWEVER, that except as expressly provided in this Section 12 and
Section 8, the Initial Purchasers shall pay their own costs and expenses
(including, without limitation, fees and expenses of counsel for the Initial
Purchasers).
13. SURVIVAL. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company and the Initial
Purchasers contained in this Agreement or made by or on behalf of the Company or
the Initial Purchasers pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any of their respective affiliates, officers,
directors, employees, representatives, agents or controlling persons.
14. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇ (telecopier no.:
(▇▇▇) ▇▇▇-▇▇▇▇); or
-30-
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum, Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (telecopier no.: (▇▇▇) ▇▇▇-▇▇▇▇);
PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to
Section 9(c) shall also be delivered or sent by mail to such Initial Purchaser
at its address set forth on the signature page hereof. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof.
15. DEFINITION OF TERMS. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading and (b) except where otherwise expressly provided, the term
"affiliate" has the meaning set forth in Rule 405 under the Securities Act.
16. INITIAL PURCHASERS' INFORMATION. The parties hereto acknowledge
and agree that for all purposes of this Agreement (including, but not limited
to, Section 1(a), Section 9 and Section 10) the Initial Purchasers' information
(but only as to such Initial Purchaser) consists solely of the following
information in the Preliminary Offering Memorandum and the Final Offering
Memorandum: (i) the last paragraph on the front cover page concerning the terms
of the offering by the Initial Purchasers; (ii) the first paragraph on page "i"
concerning stabilization activities by the Initial Purchasers; and (iii) the
statements concerning the Initial Purchasers contained in the first and second
sentence of the third paragraph, the fifth paragraph, the second sentence of the
ninth paragraph, the twelfth paragraph and the last paragraph under the heading
"Plan of Distribution."
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
19. AMENDMENTS. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
20. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
-31-
[Signature Pages Follow]
S-1
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the Initial
Purchasers in accordance with its terms.
Very truly yours,
MTS, INCORPORATED
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: CFO
CHASE SECURITIES INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Authorized Signatory
▇▇▇▇▇▇▇ LYNCH, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇
INCORPORATED
By: /s/ ▇▇▇▇ ▇▇▇▇
--------------------------------
Authorized Signatory
S-2
Address for notices pursuant to Section 9(c):
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Legal Department
SCHEDULE I
SUBSIDIARIES
▇▇▇▇▇▇▇▇ RECORD SALES, INCORPORATED, a California corporation
FRESNO RECORD SALES, INCORPORATED, a California corporation
▇▇▇▇▇ ▇▇▇▇ RECORD SALES, INC., a Washington corporation
SAN DIEGO RECORD SALES, INCORPORATED, a California corporation
STOCKTON RECORD SALES, INCORPORATED, a California corporation
T.R. SERVICES, INCORPORATED, a California corporation
TOWER RECORDS INC. (KABUSHIKI KAISHA), a Japanese corporation
TOWER RECORDS HONG KONG LIMITED, a Hong Kong corporation
TOWER RECORDS CANADA, INC., a Canadian corporation
TOWER RECORDS (SINGAPORE) PTE LTD, a Singapore corporation
TOWER RECORDS (TAIWAN) LTD., a Taiwanese corporation
TOWER RECORDS, LTD, an Irish corporation
SCHEDULE II
Principal
Amount of
Initial Purchasers Securities
------------------ ----------
Chase Securities Inc...................................... $ 88,000,000
▇▇▇▇▇▇▇ Lynch, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇
Incorporated.................................. $ 22,000,000
------------
Total.............................................. $110,000,000
------------
------------
ANNEX A
[Form of Registration Rights Agreement]
A-1
ANNEX B
[Form of Opinion of Counsel for the Company]
We have acted as counsel to MTS, INCORPORATED, a California
corporation (the "Company") and Three A's Holdings, L.L.C., a Delaware limited
liability company ("Three A's"), in connection with that certain Purchase
Agreement, dated April 20, 1998 (the "Purchase Agreement"), among the Company
and you pursuant to which you are purchasing from the Company on the date hereof
$100,000,000 aggregate principal amount of the Company's % Senior
Subordinated Notes due 2005 (the "Securities"). The Securities are being issued
pursuant to an indenture, dated as of April __, 1998 (the "Indenture"), between
the Company and State Street Bank and Trust Company of California, N.A., as
trustee (the "Trustee"). This opinion is being furnished to you pursuant to
Section 5(d) of the Purchase Agreement. Capitalized terms used herein shall
have the meanings given to them in the Purchase Agreement unless otherwise
defined herein.
In this regard, we have examined executed originals or copies of the
following:
(a) The Purchase Agreement;
(b) The Indenture;
(c) The Registration Rights Agreement;
(d) The Offering Memorandum of the Company, dated April 20,
1998, relating to the offering of the Securities (the "Final
Memorandum");
(e) Resolutions of the Board of Directors of the Company adopted on
April __, 1998;
(f) Resolutions of the Pricing Committee of the Company adopted on
April 20, 1998;
(g) The Articles of Incorporation, as amended (the "Articles"),
and Bylaws of the Company (the "Bylaws"), each as in effect on
the date hereof;
(h) The Operating Agreement of Three A's, as in effect
on the date hereof;
(i) Specimen certificates representing the Securities;
(j) The certificates of various officers of the Company, Three
A's and others delivered to you pursuant to the Purchase
Agreement;
B-1
(k) The certificates of certain state authorities and filing
officers, copies of which are being delivered to you on the date
hereof;
(l) The other documents delivered by the Company, the Trustee and
you on the date hereof;
(m) The agreements listed on Exhibit A hereto (the "Reviewed
Agreements"); and
(n) Such other records of the Company and such other certificates
of public officials, certificates of officers or other
representatives of the Company and others as we have deemed
necessary or appropriate as a basis for the opinions set forth
herein.
The Purchase Agreement, the Registration Rights Agreement, the
Indenture and the Securities are sometimes referred to collectively herein as
the "Agreements."
With your permission we have assumed the following: (a) the
authenticity of original documents and the genuineness of all signatures (other
than those of the Company on the Agreements); (b) the conformity to the
originals of all documents submitted to us as copies; (c) the truth, accuracy
and completeness of the information, factual matters, representations and
warranties contained in the records, documents, instruments and certificates we
have reviewed as of their stated dates and as of the date hereof; (d) the legal
capacity of natural persons; (e) except as specifically covered in the opinions
set forth below, the due authorization, execution and delivery on behalf of the
respective parties thereto of documents referred to herein and that such
agreements constitute legal, valid and binding obligations of the parties
thereto; and (f) the absence of any evidence extrinsic to the provisions of the
written agreements between the parties that the parties intended a meaning
contrary to that expressed by those provisions. In addition, we have, with your
permission, assumed that the representations and warranties as to factual
matters made by the Company in the Purchase Agreement and pursuant thereto are
true, correct and complete.
Whenever a statement herein is qualified by the phrase "known to us"
or "to our knowledge" or a similar expression, it is intended to indicate that
no information that would give us current actual knowledge of the inaccuracy of
such statement has come to the attention of the attorneys of this firm who have
rendered legal services to the Company in connection with the representation
described in the first paragraph of this opinion letter. However, we have not
undertaken any independent investigation or review to determine the accuracy of
any such statement, and any limited inquiry undertaken by us during the
preparation of this opinion letter should not be regarded as such an
investigation or review; no inference as to our knowledge of any matters bearing
on the accuracy of any such statement should be drawn from the fact of our
representation of the Company or its affiliates in this or other matters.
B-2
The opinions set forth below are subject to the following exceptions,
qualifications, limitations, comments and additional assumptions:
A. We express no opinion as to any matter relating to laws of any
jurisdiction other than the laws of the State of California, the General
Corporation Law of the State of Delaware and the federal laws of the United
States, as such are in effect on the date hereof, and we have made no
inquiry into, and we express no opinion as to, any statutes, regulations,
treaties, common laws or other laws of any other nation, state or
jurisdiction. In this regard, we note that the Agreements purport to be
governed by the laws of the State of New York. The opinions expressed
herein concerning the validity, binding effect and enforceability of the
Agreements are, subject to the limitation set forth in paragraph G below,
intended to express our views on those matters as if the substantive law of
California were applicable.
B. We express no opinion as to (i) the effect of any bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, including, without limitation, laws relating to fraudulent
transfers or conveyances and preferences; (ii) rights to indemnification
and contribution which may be limited by applicable law or equitable
principles; or (iii) the effect of general principles of equity, including
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing, and the possible unavailability of specific performance,
injunctive relief or other equitable relief, whether considered in a
proceeding in equity or at law.
C. We express no opinion with respect to the validity, binding
nature or enforceability of (i) any vaguely or broadly stated waiver,
including without limitation, the waivers of diligence, presentment,
demand, protest or notice contained in any Agreement; (ii) any provisions
of any Agreements imposing penalties or forfeitures, late payment charges
or any increase in interest rate, upon delinquency in payment or the
occurrence of a default to the extent they constitute a penalty or
forfeiture or are otherwise contrary to public policy; (iii) any provision
of the Agreements to the effect that a statement, certificate,
determination or record shall be deemed conclusive absent manifest error
(or similar effect), including, without limitation, that any such
statement, certificate, determination or record shall be prima facie
evidence of a fact; or (iv) any provision of the Agreements which provides
that notice not actually received may be binding on any party.
D. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the Agreements to the
effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to any other right or
remedy, that the election of some particular remedy or remedies does not
preclude recourse to one or more other remedies or that fail-
B-3
ure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy.
E. We express no opinion as to any provision of the Agreements
requiring written amendments or waivers of such documents insofar as it
suggests that oral or other modifications, amendments or waivers could not
be effectively agreed upon by the parties or that the doctrine of
promissory estoppel might not apply.
F. We express no opinion regarding compliance or non-compliance (or
the effect thereof) with state securities laws, or the "Blue Sky" laws of
any state or other jurisdiction.
G. Our opinions expressed herein concerning the validity, binding
effect and enforceability of the Securities and the Indenture could be
limited by the application of the provisions of Article XV of the
California Constitution and California statutes related to usury; however,
in our view, a California court or a federal court applying California law,
to which the issue is properly presented and which follows the cases set
forth below, should give effect to the choice of New York law set forth in
the Securities and the Indenture and apply New York law and not California
law to the issue of usury. California courts have held that the choice of
law of the parties to a contract will be respected where the relationship
of a party to the contract to another jurisdiction is substantial, except
to the extent that any provision of the contract or any applicable
provision of the law of the other jurisdiction violates a fundamental
policy of the State of California. We note that California courts have
held (i) that if one of the parties to the contract is domiciled in the
other jurisdiction the relationship to that jurisdiction is sufficiently
substantial so as to permit the application of the law of the other
jurisdiction to the contract and (ii) that California does not have such a
strong public policy against contracts having rates of interest that would
be usurious if California law were to apply so as to preclude the
application of non-California law to contracts on the issue of usury. URY
v. JEWELERS ACCEPTANCE CORP., 227 Cal. App.2d 11,20 (1964); See also GAMER
▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, INC., 65 Cal. App.3d 280 (1976). See, also, MENCOR
ENTERPRISES, INC. v. HETA EQUITIES CORP., 190 Cal. App.3d 432 (1987).
H. In rendering the opinions set forth in paragraph 1 below, (i) in
order to determine in which states qualification is appropriate, we have
relied solely upon a certificate from an officer of the Company that
describes the states in which the Company owns or leases property or
maintains offices or has employees and (ii) as to the qualification and
good standing of the Company, we have relied exclusively on certificates of
public officials.
I. With respect to our opinions set forth in paragraph 13 below, we
have assumed, with your permission, that no offers or sales have been made
by you within
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the United States to entities or persons who are not "qualified
institutional buyers" within the meaning of Rule 144A of the Securities
Act, and that all actions are taken by the Company and by you subsequent to
the date hereof (including, without limitation, compliance by the Company
with any applicable post-sale Regulation S reporting requirements) as are
required to perfect (and no actions are taken by the Company or you
subsequent to the date hereof that would disqualify such offers and sales
by the Company and you from) the exemptions for the offer and sale of the
Securities relied upon under Regulation S and Rule 144A promulgated
pursuant to the Securities Act as contemplated by the Purchase Agreement
and the Final Memorandum.
J. Our opinion in paragraph 9 below that the execution, delivery and
performance of the Agreements, will not contravene any applicable law,
judgment, order or decree or that charters or bylaws of the Company is
intended to express our opinion that the execution, delivery and
performance by the Company, respectively, of the Agreements are neither
prohibited by, nor subject the Company to a fine, penalty or similar
sanction that would be materially adverse to the Company and its
subsidiaries taken as a whole, under, any law of the State of California or
United States federal law or any judgment, law or decree of any California
or United States federal governmental entity, body or court that a lawyer
in the State of California exercising customary professional diligence
would reasonably recognize to be directly applicable to the Company, the
sale of the Securities, or both.
K. In rendering the opinion set forth in paragraph 10 below with
respect to the existence of any proceedings pending or threatened against
the Company, we have relied solely upon a certificate from an officer of
the Company.
L. We express no opinion as to whether the performance by the
Company of its obligation under the Registration Rights Agreement to
consummate, under certain circumstances, the Registered Exchange Offer (as
defined in the Registration Rights Agreement) while simultaneously
undertaking a Private Exchange (as defined in the Registration Rights
Agreement) would not constitute a violation of the Securities Act, the
rules and regulations promulgated thereunder and the interpretations of the
Securities and Exchange Commission thereof.
M. This opinion speaks only at and as of its date and is based
solely on the facts and circumstances known to us at and as of such date.
We express no opinion as to the effect on rights under the Agreements of
any statute, rule, regulation or other law which is enacted or becomes
effective after, or of any court decision which changes the law relevant to
such rights which is rendered after, the date of this opinion or the
conduct of the parties following the closing of the contemplated
transactions. In addition, in rendering this opinion, we assume no
obligation to revise or supplement this opinion should the present laws of
the jurisdictions mentioned herein be changed by legislative action,
judicial decision or otherwise.
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On the basis of the foregoing and in reliance thereon and having
regard for legal considerations which we deem relevant, and subject to the
limitations and qualifications set forth herein, we advise you that in our
opinion:
1. The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of California and
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification (except to
the extent that the failure to be so qualified or be in good standing could
not reasonably be expected to have a Material Adverse Effect), and has the
corporate power and authority to own or lease its property and to conduct
the business in which it is engaged as described in the Final Memorandum.
Three A's is duly organized and validly existing as a limited liability
company in good standing under the laws of the State of Delaware and is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification (except to
the extent that the failure to be so qualified or be in good standing could
not reasonably be expected to have a Material Adverse Effect), and has the
corporate power and authority to own or lease its property and to conduct
the business in which it is engaged as described in the Final Memorandum.
2. The Company has the requisite corporate power to enter into and
perform its obligations under the Agreements, including, without
limitation, the corporate power to issue, sell and deliver the Securities
as contemplated by the Purchase Agreement.
3. All corporate and other actions of the Company and Parent
necessary to effect the Reorganization have been taken by the Company and
Parent and each of the agreements, documents, instruments and certificates
of the Company and Parent (collectively, the "Reorganization Documents")
that is required to consummate the Reorganization has been duly executed
and delivered by the Company or Parent, as applicable, and constitute the
valid and binding obligations of the Company or Parent, as applicable,
enforceable in accordance with their terms.
4. The Purchase Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms. The statements in the
Final Memorandum under the caption "Plan of Distribution," insofar as such
statements purport to summarize the terms of the Purchase Agreement, fairly
summarize, in all material respects, the terms of the Purchase Agreement.
5. The Indenture has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company,
enforceable in accor-
B-6
dance with its terms. The statements in the Final Memorandum under the
caption "Description of Notes," insofar as such statements purport to
summarize the terms of the Indenture, fairly summarize, in all material
respects, the terms of the Indenture.
6. The Securities have been duly authorized for issuance and sale to
the Initial Purchasers by the Company and, when duly issued, executed and
authenticated in accordance with the terms of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of
the Indenture and the Purchase Agreement, will be valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, and will be entitled to the benefits of the Indenture.
The statements in the Final Memorandum under the caption "Description of
Notes," insofar as such statements purport to summarize the terms of the
Securities, fairly summarize, in all material respects, the terms of the
Securities.
7. The Exchange Securities have been duly authorized for issuance
and sale to the Initial Purchasers by the Company and, when duly issued,
executed and authenticated in accordance with the terms of the Exchange
Offer and the Indenture, the Exchange Securities will be valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, and will be entitled to the benefits of the Indenture.
8. The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement
of the Company enforceable in accordance with its terms. The statements in
the Final Memorandum under the caption "Exchange and Registration Rights
Agreement," insofar as such statements purport to summarize the terms of
the Registration Rights Agreement, fairly summarize, in all material
respects, the terms of the Registration Rights Agreement.
9. The Execution and delivery by the Company of, and the performance
by the Company of its respective obligations under, the Agreements, the
issuance and sale of the Securities by the Company and the consummation by
the Company of the transactions contemplated by the Agreements will not
(i) conflict with the Articles of Incorporation or Bylaws of the Company or
(ii) except as set forth in the Final Memorandum, result in a material
breach or violation of any of the terms or provisions of, or constitute a
material default under any Reviewed Agreement, or (iii) except in the
limited circumstances described in paragraph L above as to which we express
no opinion, result in any material violation of any provision of applicable
United States federal or California state law, or any judgment, order or
decree known to us of any United States federal or California state court
or governmental agency or body having jurisdiction over the Company or by
which the Company or its properties or assets is bound, and, except for
such consents, approvals, authorizations, other orders, filings, or
qualifications or registrations as may be required under applicable state
securities
B-7
laws in connection with the purchase and distribution of the Securities by
the Initial Purchasers or as set forth in the Registration Rights
Agreement, as to which we express no opinion, no consent, approval,
authorization, order, filing, qualification or registration with any United
States federal or California state court or governmental body or agency is
required for the performance by the Company of its obligations under the
Agreements and the issuance and sale of the Securities by the Company.
10. To our knowledge, there are no legal or governmental proceedings
pending to which the Company is a party or to which any of the property or
assets of the Company are subject which (i) would be required under the
Securities Act to be described in a registration statement or a prospectus
delivered at the time of the confirmation of the sale of an offering of
securities registered under the Securities Act that are not described in
the Final Memorandum, or (ii) question the validity or enforceability of
any of the Transaction Documents or any action taken or to be taken
pursuant thereto; and to our knowledge, no such proceedings are overtly
threatened in writing.
11. The Company is not subject to registration and regulation as an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
12. Neither the issuance and sale of the Securities nor the
application of the net proceeds thereof as set forth in the Final
Memorandum will violate the provisions of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
13. Assuming, without independent investigation, (a) that the
Securities are sold to the Initial Purchasers, and initially resold by the
Initial Purchasers, in accordance with the terms of, and in the manner
contemplated by, the Purchase Agreement and the Final Memorandum, (b) the
accuracy of the representations and warranties of the Company set forth in
the Purchase Agreement and in certain certificates, (c) the accuracy of the
Initial Purchasers' representations and warranties set forth in the
Purchase Agreement, (d) the due performance by the Company and the Initial
Purchasers of their respective covenants and agreements set forth in the
Purchase Agreement, (e) the Initial Purchasers' compliance with the
Offering and the transfer procedures and restrictions described in the
Final Memorandum, (f) the accuracy of any representations and warranties
made in accordance with the Purchase Agreement and the Final Memorandum by
each purchaser (each, a "Subsequent Purchaser") to whom the Initial
Purchasers initially resell Securities and (g) that each Subsequent
Purchaser to whom the Initial Purchasers initially resell Securities
receives a copy of the Final Memorandum if requested by such Subsequent
Purchaser prior to such sale, THEN the offer, issuance, sale and delivery
of the Securities to the Initial Purchasers, and the initial reoffer,
resale and delivery of the Securities by the Initial Purchasers to the
Subsequent Purchasers, in accordance with the terms of, and in the manner
contemplated by, the Pur-
B-8
chaser Agreement and the Final Memorandum, do not require registration
under the Securities Act, or qualification of the Indenture under the Trust
Indenture Act, it being understood that no opinion is expressed as to any
subsequent resale of Securities or any resale of Securities by any person
other than the Initial Purchasers.
14. All of the outstanding member interests of Three A's have been
duly and validly authorized and issued and are owned by the Company, free
of any adverse claim.
--------------------------
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants of the Company, and representatives of the Initial Purchasers and
their counsel at which the contents of the Final Memorandum were discussed; but
we cannot, of course, make any representation to you as to the accuracy or
completeness of statements contained in the Final Memorandum. Nothing, however,
has come to our attention that leads us to believe that the Final Memorandum, as
of its date or as of the date hereof, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (it being understood that we have not been requested
to and do not make any comment in this paragraph with respect to the financial
statements, notes thereto and schedules or other financial or statistical data
included in the Final Memorandum).
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EXHIBIT A
Reviewed Agreements
ANNEX C
We are attorneys in Japan of Tower Records Kabushiki Kaisha ("TRKK").
This opinion is rendered in connection with certain Purchase Agreement dated
April , 1998 among MTS Incorporated (the "Company") and you pursuant to which
you are purchasing from the Company on the date hereof the Company's % Senior
Subordinated Notes due 2005. This opinion is furnished to you pursuant to
Section 5(d) of the Purchase Agreement. Capitalized terms used herein shall
have the meaning given to them in the Purchase Agreement unless otherwise
defined herein.
1. TRKK is a corporation duly organized and existing under the laws
of Japan and has the corporate power and authority to own its property and
to conduct the business in which it is engaged.
2. All of the outstanding shares of capital stock of TRKK have been
duly and validly authorized and issued and are owned by the Company, free
of any other claim of any third party other than the lien securing the New
Credit Facility.
C-1