EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
COMPACT DISCS INTERNATIONAL, LTD.,
XXXX X. XXXX
AND
CD WAREHOUSE, INC.
DATED AS OF OCTOBER 1, 1996
TABLE OF CONTENTS
ARTICLE I - TERMS OF PURCHASE AND SALE...................................... 1
1.1 Purchase and Sale of Assets..................................... 1
1.2 Treatment of Certain Obligations................................ 3
1.3 Transfer and Conveyance......................................... 4
1.4 Grant of Worldwide Area Development Agreement to Xxxx/
Buyer's Option to Acquire....................................... 4
1.5 Grant of Ten Domestic Franchise Agreements to Xxxx.............. 5
1.6 Grant of Ft. Worth and Plano Franchise(s)....................... 5
1.7 Common Stock Being Acquired by Xxxx............................. 5
ARTICLE II - PURCHASE PRICE................................................. 6
2.1 Purchase Price.................................................. 6
2.2 Allocation of Purchase Price.................................... 6
2.3 Cash Payable at Closing......................................... 6
2.4 Purchase Price Adjustments...................................... 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER...................... 6
3.1 Due Organization and Qualification.............................. 6
3.2 Title........................................................... 7
3.3 Inventory....................................................... 7
3.4 Physical Properties............................................. 7
3.5 Intellectual Property Rights.................................... 7
3.6 Compliance with Laws............................................ 7
3.7 Contracts....................................................... 8
3.8 Contract Defaults............................................... 8
3.9 Litigation...................................................... 8
3.10 Partnership Power and Authority................................. 9
3.11 Collective Bargaining........................................... 9
3.12 Employee Benefits............................................... 9
3.13 True, Correct and Complete Information.......................... 9
3.14 Availability of Documents....................................... 10
3.15 Consents........................................................ 10
3.16 Financial Condition and Result of Operations.................... 10
3.17 Insurance....................................................... 10
i
3.18 Taxes........................................................... 10
3.19 Absence of Certain Changes or Events............................ 11
3.20 Broker's and Finder's Fees...................................... 11
3.21 Receivables..................................................... 11
3.22 Payables........................................................ 11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER........................ 12
4.1 Due Organization and Qualification.............................. 12
4.2 Corporate Power and Authority................................... 12
4.3 Consents........................................................ 12
4.4 Litigation...................................................... 13
4.5 Compliance with Laws............................................ 13
ARTICLE V - COVENANTS OF SELLER AND XXXX.................................... 13
5.1 Affirmative Covenants........................................... 13
5.2 Negative Covenants.............................................. 13
5.3 Access to Properties and Records................................ 14
5.4 Approvals of Third Parties...................................... 15
5.5 Notices......................................................... 15
5.6 Access to Books and Records..................................... 15
5.7 Covenant Not to Compete......................................... 15
ARTICLE VI - COVENANTS OF BUYER............................................. 16
6.1 Furnishing of Information....................................... 16
6.2 Approvals of Third Parties...................................... 17
6.3 Buyer's Best Efforts............................................ 17
6.4 Retention of Records............................................ 17
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF BUYER............................ 17
7.1 Representations and Warranties of Seller and Xxxx............... 17
7.2 Covenants of Seller and Xxxx.................................... 17
7.3 Certificate of Seller and Xxxx.................................. 17
7.4 Initial Public Offering......................................... 18
7.5 No Casualty Losses.............................................. 18
7.6 Certificate of Authorities...................................... 18
7.7 Litigation...................................................... 18
7.8 Due Diligence................................................... 18
ii
7.9 Opinion of Seller's Counsel..................................... 19
7.10 Franchise Law Survey............................................ 19
7.11 No Material Adverse Changes..................................... 19
7.12 Consents........................................................ 20
7.13 Non-competition Agreements of Seller, Xxxx and Xxx X. Xxxx...... 20
7.14 Further Assurances.............................................. 20
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF SELLER.......................... 20
8.1 Representations and Warranties of Buyer......................... 20
8.2 Covenants of Buyer.............................................. 20
8.3 Buyer's Certificate............................................. 20
8.4 Certificates of Authorities..................................... 21
8.5 Opinion of Counsel to Buyer..................................... 21
ARTICLE IX - DATE AND PLACE OF CLOSING...................................... 21
9.1 Date and Place of Closing....................................... 21
ARTICLE X - CLOSING......................................................... 22
10.1 Seller's, Xxxx'x and Xxxxxxx'x Performance...................... 22
10.2 Buyer's Performance............................................. 23
10.3 Xxx X. Xxxx Non-competition Agreement........................... 23
10.4 Expenses: Other Instruments.................................... 23
ARTICLE XI - SURVIVAL AND INDEMNIFICATION................................... 24
11.1 Survival........................................................ 24
11.2 Buyer's Losses.................................................. 24
11.3 Employee Compensation and Benefits.............................. 25
11.4 Franchise Claims Against Buyer.................................. 25
11.5 Seller's Losses................................................. 25
11.6 Franchise Claims Against Seller................................. 25
11.7 Notice of Loss.................................................. 26
11.8 Right to Defend................................................. 26
11.9 Indemnification Pledge Agreement................................ 27
11.10 Request to Allocate Responsibility.............................. 27
11.11 Franchise Claims Against Both Seller and Buyer.................. 27
iii
ARTICLE XII - POST-CLOSING COVENANTS........................................ 28
12.1 Transition Period............................................... 28
12.2 Payment of Unpaid Receivables................................... 28
12.3 Insurance Policies.............................................. 28
ARTICLE XIII - TERMINATION................................................. 28
13.1 Termination..................................................... 28
13.2 No Further Force or Effect...................................... 29
ARTICLE XIV - MISCELLANEOUS................................................. 29
14.1 Expenses........................................................ 29
14.2 Entire Agreement................................................ 29
14.3 Successors and Assigns.......................................... 29
14.4 Identical Counterparts.......................................... 29
14.5 Headings........................................................ 29
14.6 Use of Certain Terms............................................ 29
14.7 Modification and Waiver......................................... 30
14.8 Other Remedies.................................................. 30
14.9 Notices......................................................... 30
14.10 Governing Law................................................... 31
14.11 No Agent's Fees................................................. 31
14.12 Binding Arbitration............................................. 31
iv
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of October, 1996, by and among COMPACT DISCS INTERNATIONAL,
LTD., a Texas limited partnership with its principal office located at 0000
Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxx 00000 ("Seller"); XXXX X. XXXX, an
individual and a limited partner of Seller ("Xxxx") and CD WAREHOUSE, INC., a
Delaware corporation with its principal office located at 0000 Xxxxxxxx Xxxx
Xxxxx, Xxxxxx, Xxxxxxxx 00000 ("Buyer").
WHEREAS, Seller is engaged in the business of buying, selling and trading
new and used audio compact discs, acting as franchisor of stores ("CD Warehouse
Stores") which buy, sell and trade new and used audio compact discs and selling
new and used audio compact discs to its franchisees (the "Business"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy from
Seller, substantially all of the assets of the Business.
NOW THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements and upon the terms and subject to the conditions
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 PURCHASE AND SALE OF ASSETS. Subject to and upon the terms and
conditions contained herein, at the Closing (as defined in Section 9.1), Seller
will sell, transfer, assign, convey and deliver to Buyer, and Buyer will
purchase, accept and acquire from Seller, free and clear of all liens, claims,
security interests and encumbrances of any nature, except for the security
interests on the new compact discs inventory set forth on SCHEDULE 3.2
("Encumbrances"), all of the following properties and assets (whether real or
personal, tangible or intangible) of Seller related to the Business
(collectively, the "Assets"):
(a) all of the Seller's inventory of new and used audio compact discs (the
"Inventory");
(b) All of Seller's right, title and interest in and to all receivables as
of the Closing Date arising out of the operation of the Business,
including, without limitation, accounts receivable, notes receivable,
and warranty receivables (collectively, the "Receivables"); the term
"Receivables" does not, however, include any amount receivable from
any of Seller's franchisees for franchise fees or royalties arising
from the Contracts (as defined below) prior to or on the Closing Date;
1
(c) All of Seller's right, title and interest in and to all franchise
agreements and franchise and area development agreements to which
Seller is a party, as listed on Schedule 3.7 (collectively, the
"Contracts");
(d) All of Seller's right, title and interest in and to the name "CD
Warehouse," trademarks, patents, trade names, service marks,
copyrights, processes, trade secrets, proprietary and technical
information, know-how, other trade rights and other intangible assets,
together with all right to, and applications and licenses for, any of
the foregoing, relating to Seller's business (the "Intellectual
Property Rights");
(e) All information of Seller with respect to the franchisees of Seller
and all of Seller's records relating to the Business, including,
without limitation, customer lists, vendor lists, prospective
franchisee lists, franchise files, accounting and tax records
concerning the same and sales literature and promotional materials;
(f) All software programs, source and object codes, computer printouts,
data bases and related items created, originated or modified by Seller
and relating to the Assets or to the Business;
(g) The furniture, equipment, files and other assets currently located at
Seller's business headquarters; and
(h) The equity interests of Seller in the two CD Warehouse Stores in
Tulsa, Oklahoma and Memphis, Tennessee.
Buyer will be entitled to all franchise fees and royalties accrued after the
Closing Date. If the Closing Date occurs during any month other than
December, 1996, the amount of franchise fees and royalties to be transferred
to Buyer (pursuant to Section 1.1(b) above) during the month of Closing will
be determined by multiplying the total franchise fees and royalties arising
from the Contracts during the month of the Closing by a fraction, the
numerator of which is the number of days elapsing between the Closing Date
and the first day of the month immediately following the month during which
the Closing Date occurs, and the denominator of which is the number of days
of the month during which the Closing Date occurs. If the Closing Date
occurs during December, 1996, the amount of franchise fees and royalties to
be transferred to Buyer for the month of December, 1996 will be determined by
multiplying the total franchise fees and royalties arising from the Contracts
during December, 1996 by a fraction, the numerator of which is the amount of
franchise fees and royalties arising from the Contracts during the period
beginning at 12:01 a.m. on the day following the Closing Date and ending at
12:01 a.m. on January 1, 1997, and the denominator of which is the total
franchise fees and royalties arising from the Contracts during December,
1996. If and to the extent that any number of franchisees do not provide
adequate docu-
2
mentation to permit Buyer and Seller to determine the amount of franchise
fees and royalties arising from their particular franchise agreements during
the period beginning at 12:01 a.m. on the day following the Closing Date and
ending at 12:01 a.m. on January 1, 1997, the method of allocation based on
the number of days in the month, as described above, will be used to
determine the amount of franchise fees and royalties to be transferred to
Buyer for the month of December, 1996 for those particular franchisees.
1.2 TREATMENT OF CERTAIN OBLIGATIONS.
(a) The term "Payables" means all of Seller's accounts payable
outstanding as of 12:01 a.m. on the day preceding the Closing Date (as defined
hereinafter), for inventory purchased by Seller in the ordinary course of
business and listed on SCHEDULE 3.22 hereto. The term "Assumed Obligations"
means the Payables and all of Seller's obligations arising after the Closing
Date under the Contracts listed on Schedule 3.7; provided, however, the Assumed
Obligations shall not include any obligation for performance or obligation or
liability of Seller for default or nonperformance under the Contracts or
Payables arising prior to the Closing Date. At Closing, Buyer will assume the
Assumed Obligations pursuant to an assignment and assumption agreement
acceptable to Buyer and Seller (the "Assignment and Assumption Agreement")
effective as of the Closing Date. Buyer will not assume or have any
responsibility, however, with respect to any other obligation or liability of
the Seller not included within the Assumed Obligations.
(b) Until such time as: (i) the Payables have been paid OR (ii)
Seller and Xxx X. Xxxx have been released from liability relating to the
Payables and all collateral currently securing the Payables has been released to
Xxx X. Xxxx, all revenue collected by Buyer after the Closing Date, from the
sale of the Inventory and collection of the Receivables being acquired hereby,
will be deposited into a separate account (the "Temporary Account") established
by Buyer at a financial institution in Dallas, Texas. Until condition (i) or
(ii) as described above have been satisfied, no funds will be distributed from
the Temporary Account unless such distribution is authorized by the signatures
of (1) an officer or other authorized agent of Buyer and (2) either Xxxx or Xxx
X. Xxxx. Proceeds received from the sale of the Inventory and collection of the
Receivables will be applied to the Payables in the order of the due dates of
such Payables. After condition (i) or (ii) has been satisfied, the joint
signatory authority of Xxxx or Xxx X. Xxxx with respect to the Temporary
Account will cease, and Xxxx and Xxx X. Xxxx will take appropriate actions to
confirm the cessation of such authority to the financial institution at which
the Temporary Account is established.
(c) Until the Event, Xxxx and Xxx X. Xxxx will, during regular
business hours, have full and complete access to and the right to inspect
Buyer's books, records, premises, and Inventory. The right of inspection
granted hereby is intended to permit Xxxx and Xxx X. Xxxx subject to a
confidentiality undertaking to monitor Buyer's compliance with the terms of
Section 1.2(b) hereof, and Buyer is under no obligation pursuant to this
Section 1.2(c) to
3
disclose information relating to salaries or other amounts payable to
officers, directors, employees, agents, or shareholders.
1.3 TRANSFER AND CONVEYANCE. Seller shall execute and deliver to Buyer at
the Closing a (i) xxxx of sale (the "Xxxx of Sale"), (ii) the Assignment and
Assumption Agreement, (iii) assignment of Intellectual Property Rights (the
"Assignment of Intellectual Property Rights"), in each case in substantially the
forms attached hereto as Exhibits A, B and C, respectively, and (iv) all such
other assignments, endorsements and instruments of transfer as shall be
necessary or appropriate to carry out the intent of this Agreement and as shall
be sufficient to vest in Buyer title to all of the Assets and all right, title
and interest of Seller thereto. Buyer shall execute and deliver to Seller at
the Closing the Assignment and Assumption Agreement.
1.4 GRANT OF WORLDWIDE AREA DEVELOPMENT AGREEMENT TO XXXX; BUYER'S
OPTION TO ACQUIRE. At the Closing Buyer will issue to Xxxx an exclusive
worldwide area development agreement (the "Worldwide Area Development
Agreement"), substantially in the form of the attached Exhibit D, pursuant to
the terms of which Xxxx will be granted the right to develop, as Buyer's
franchisee, on a worldwide basis (but specifically excluding the United
States, Canada and Mexico), Buyer's franchise operations ("CD Warehouse
Franchise Operations") relating to the franchising of Buyer's compact disc
marketing concept and the Intellectual Property Rights (each such franchise,
a "CD Warehouse Franchise"). Beginning three years from the date of grant and
on an annual basis for seven years thereafter, Buyer will have the right to
cancel and rescind the Worldwide Area Development Agreement and acquire all
of Xxxx'x interest in the CD Warehouse Franchise Operations and CD Warehouse
Franchise owned or controlled by Xxxx pursuant to the Worldwide Area
Development Agreement (the exercise of which right is referred to as the
"Election"). The purchase price payable upon the Election will be paid in
cash at closing and will be determined by multiplying the quotient derived
from dividing (a)$3,200,000 by (b) a number equal to (i) Buyer's and Seller's
cumulative after tax net profit derived from the Contracts being conveyed
hereby for the twelve month period ending December 31, 1996 less (ii)
$250,000 in salary expense, times the consolidated, annualized after-tax net
profit of the CD Warehouse Franchise Operations developed pursuant to the
Worldwide Area Development Agreement, wherever located and whatever state of
development. The consolidated, annualized after-tax net profit of the CD
Warehouse Franchise Operations is to be computed in accordance with generally
accepted accounting principles, consistently applied. Any countries taxes
that have been incurred but not paid will be reserved for and deducted from
the net profit computation. Additionally, if the net income computation does
not contain an allowance for Xxxx'x salary an expense deduction of $150,000
will be made. For purposes of the Election, any net profit calculation
which is for a period shorter than 365 days will be annualized by dividing
such net profit by the number of days in such period and multiplying the
average per-day profit by 365. Xxxx will provide Buyer with consolidated
financial statements for the CD Warehouse Operations developed pursuant to
the Worldwide Area Development Agreement during each of the seven years
during which the Election may be made, within ninety (90) days after the end
of each calender year (December 31). Buyer may make the Election, during each
4
of the seven years during which the Election may be made, by giving written
notice to Seller during the period beginning 90 days after the end of the
fiscal year of the CD Warehouse Franchise Operations (such fiscal year end is
referred to as the "Election Year End") and ending 180 days after the
Election Year End. The closing of the transaction made pursuant to the
Election will occur at a time and place mutually agreed upon by Buyer and
Seller within 180 days after written notice of the Election is delivered to
Seller (unless extended by agreement between Buyer and Seller); if such
closing does not occur, however, Buyer's right to make an Election thereafter
will terminate and become null and void.
1.5 GRANT OF TEN DOMESTIC FRANCHISE AGREEMENTS TO XXXX. At Closing, Buyer
will grant to Xxxx, with no initial franchise fee payable by Xxxx, ten domestic
CD Warehouse Franchise license agreements (the "Domestic Franchise Agreements"),
pursuant to which Xxxx: (a) may develop and install, as franchisee, up to ten
separate CD Warehouse Franchise stores, subject to Buyer's approval as to the
locations of such stores; (b) will pay, with respect to each such store, a
royalty of 2% of net sales and (c) agrees that such stores shall be the "test"
stores for any new marketing or other CD Warehouse Franchise concept of Buyer
mutually agreed to by the parties, with the costs for development of any such
concept being borne by Buyer and costs of implementation of any such concept to
be borne by Xxxx.
1.6 GRANT OF FT. WORTH AND PLANO FRANCHISE(S). At Closing, Buyer shall
enter into new franchise agreements with Seller (or such other entity which
Seller may designate), with no franchise or other fee payable by Seller or its
nominee entity, for the Ft. Worth, Texas and Plano, Texas CD Warehouse Stores
currently owned and operated by Seller, which new franchise agreements shall be
on substantially the same terms and conditions as Seller's current franchise
agreements except that Seller shall not be required to pay any royalty payments
whatsoever to Buyer in respect thereof during the term of such agreements or any
extension of any term thereof.
1.7 COMMON STOCK BEING ACQUIRED BY XXXX. Concurrently with the execution
hereof, Xxxx will enter into a Subscription Agreement (the "Subscription
Agreement") with Buyer to acquire 350,000 shares of the Buyer's common stock for
a purchase price of $1.00 per share in the form of Exhibit E hereto. The
Subscription Agreement will provide that: (i) Xxxx'x obligation to acquire the
Buyer's common stock is conditioned upon the closing of the Buyer's initial
public offering; (ii) for a period beginning two years and ending four years
following the Closing Date, Xxxx will be entitled to register all of such shares
for sale or distribution in the event that Buyer files (or causes to be filed) a
registration statement with the United States Securities and Exchange Commission
relating to any of Buyer's common stock; and (iii) if Xxxx elects to participate
as a selling shareholder, all registration costs and expenses will be borne by
the issuer and any participating selling shareholders (including Xxxx) on a pro
rata basis in accordance with the number of shares being registered for sale.
5
ARTICLE II
PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price for the Assets shall be Three
million two Hundred Thousand Dollars $3,200,000; the "Purchase Price"), subject
to downward adjustments (if any) pursuant to Section 2.4 of this Agreement.
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets as set forth on SCHEDULE 2.2, which Schedule may consist of IRS
Form 8594 only.
2.3 CASH PAYABLE AT CLOSING. At the Closing, Buyer shall wire transfer
immediately available funds to Seller in an amount equal to the Purchase Price,
less (i) the $100,000 xxxxxxx money deposited pursuant to the terms of that
certain Escrow Agreement by and between the Seller and Buyer, a copy of which
is attached hereto as Exhibit __ and (ii) any downward adjustments made pursuant
to Section 2.4 below; and
2.4 PURCHASE PRICE ADJUSTMENTS.
(a) As of the close of business on the business day immediately
preceding the Closing Date, the parties shall jointly conduct a physical count
of the Inventory and shall value such Inventory at the lower of cost or market,
as of the close of business on such day. All sales of items of Inventory after
the physical count of such items shall be attributable to Buyer and Buyer shall
be entitled to payment therefor; similarly, all inventory items received by
Seller after the physical count of Seller's Inventory will be attributable to
Buyer and Buyer will be responsible for all liabilities relating thereto. If
the aggregate value of the Inventory plus the amount of the Receivables as of
the Closing Date is equal to or greater than the amount of Payables as of the
Closing Date no adjustment in the Purchase Price shall occur. If the aggregate
value of Inventory and the amount of the Receivables as of the Closing Date is
less than the amount of Payables as of the Closing Date, the Purchase Price
shall be reduced by an amount equal to such difference.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Xxxx, jointly and severally, hereby represent and warrant to
Buyer, as follows:
3.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Texas which has all requisite partnership power and authority to own or
lease its properties and to carry on its business as it is presently being
operated and in the place where such properties are owned or leased and such
business is conducted.
6
3.2 TITLE. Seller has, and upon conveyance of the Assets to Buyer by
Seller at the Closing, Buyer will acquire and hold, good and marketable title in
fee simple to all Assets, free and clear of any and all Encumbrances, except as
set forth on SCHEDULE 3.2.
3.3 INVENTORY. Set forth on SCHEDULE 3.3 is a description of all the
Inventory, which consists of current items of a quality and quantity that are
usable or marketable in the ordinary course of the business of Seller, and items
not usable in the business of Seller have been written down in value in
accordance with the normal business practice of Seller to estimated net
realizable market values.
3.4 PHYSICAL PROPERTIES. Set forth on SCHEDULE 3.4 is a description of
(i) all office furniture, equipment and supplies owned and to be conveyed by
Seller and (ii) all physical properties (other than the types of properties
referred to in (i) above), real, personal or mixed, owned and to be conveyed by
Seller and included among the Assets. Seller enjoys peaceable possession of all
properties owned or leased by it.
3.5 INTELLECTUAL PROPERTY RIGHTS. Set forth on SCHEDULE 3.5 is a list of
all Intellectual Property Rights, which Intellectual Property Rights comprise
all such rights used by Seller and Xxxx in connection with the operation of the
Business. Except as disclosed on SCHEDULE 3.5, and to the best of Seller's and
Xxxx'x knowledge, none of the products, activities or operations of Seller
infringe, involve or have resulted in (i) infringement of, or (ii) any claim of
infringement of, any patent or patent application, trade name, trademark or
service xxxx registration or application, common law trademark or trade dress
rights, copyright or copyright registration or application of any other person,
firm or corporation; and no proceedings have been instituted, are pending, or,
to the knowledge of Seller or Xxxx threatened, which challenge the rights of
Seller in respect thereof. Except as disclosed on SCHEDULE 3.5, and to the best
of Seller's and Xxxx'x knowledge, none of the Intellectual Property Rights are
being infringed by the products, activities, operations, trade names,
trademarks, service marks, trade dress rights or copyrights of any other person
or persons and none are subject to any outstanding order, judgment decree,
stipulation or agreement restricting the use thereof. Seller has not given and
is not bound by an agreement of indemnification for patent, trade name, service
xxxx, trademark or copyright infringement as to any property produced, used or
sold by it.
3.6 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 3.6,, Seller
(i) has complied with all laws, regulations, licensing requirements and orders
applicable to its business or personnel the breach or violation of which could
have a material adverse effect on said business, (ii) has filed with the proper
authorities all statements and reports required by the laws, regulations,
licensing requirements and orders to which it or any of its employees (because
of their activities on behalf of their employer) is subject, and (iii) possesses
all necessary licenses, franchises, permits and governmental authorizations to
conduct its business in the manner in which and in the jurisdictions and places
where such business is now conducted. Set forth on SCHEDULE 3.6 is a list of
all material licenses, franchises, permits and governmental
7
authorizations and all applications pending before any agency or authority
for the issuance of any licenses, franchises, permits or governmental
authorizations or the renewal thereof.
3.7 CONTRACTS. Set forth on SCHEDULE 3.7 is a list of all material
contracts, leases, arrangements, and commitments (whether oral or written) by
which any of the Assets are directly affected or are bound, including, without
limitation, all franchise and area development agreements which have been
executed by Seller. Except as set forth in SCHEDULE 3.7, neither Seller nor any
of the Assets is a party to or is bound or affected by any contract, lease,
arrangement or commitment (whether oral or written) relating to: (i) the
employment of any person other than personnel employed at will by Seller in the
ordinary course of its business at rates of compensation and on terms consistent
with past business practice; (ii) collective bargaining with, or any
representation of any employees by, any labor union or association; (iii) the
acquisition of services, supplies, equipment or other personal property
involving more than $5,000 or which is not terminable by Seller upon not more
than 30 days' notice without obligation on the part of Seller; (iv) the purchase
or sale of real property; (v) distribution, agency or construction; (vi) lease
of real or personal property as lessor or lessee or sublessor or sublessee;
(vii) lending or advancing of funds (other than the Receivables); (viii)
borrowing of funds or receipt of credit (other than the Payables); (ix)
incurring of any obligation or liability (except for the Payables); (x) the sale
of personal property; and (xi) any matter or transaction not in the ordinary
course of the business of Seller or inconsistent with past business practice of
Seller.
3.8 CONTRACT DEFAULTS. Except as disclosed on SCHEDULE 3.7 or in other
written communications between Seller or Xxxx and Buyer, Seller is not in
default in any material respect under any of the Contracts, the Contracts are
legal, valid and binding obligations of the respective parties thereto in
accordance with their terms and have not been amended, no defenses, offsets or
counterclaims thereto have been asserted or may be made by any party thereto
other than Seller, and Seller has waived no substantial rights thereunder.
3.9 LITIGATION. Set forth on SCHEDULE 3.9 is a list of all actions,
suits, proceedings, investigations or grievances pending against Seller or, to
the best of Seller's and Xxxx'x knowledge, threatened against Seller, Seller's
business or any property or rights of Seller, at law or in equity or admiralty
or before or by and court or federal, state municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign (each an "Agency"). To the best of Seller's and Xxxx'x knowledge, none
of the actions, suits, proceedings or investigations listed on SCHEDULE 3.9
either (i) results or would, if adversely determined, result in any material
adverse change in the business, operations or assets or the condition, financial
or otherwise, or results of operations of Seller or (ii) affects or would, if
adversely determined, affect the right or ability of Seller to carry on its
business substantially as now conducted. Seller is not subject to any
continuing court or Agency order, writ, injunction or decree applicable
specifically to the Assets, the business operations of Seller or
8
employees of Seller, or in default with respect to any order, writ,
injunction or decree of any court or Agency with respect to the Assets, its
business, operations or employees.
3.10 PARTNERSHIP POWER AND AUTHORITY. The execution, delivery and
performance of this Agreement by Seller and Xxxx, and all other agreements
executed in connection herewith, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all requisite
partnership action and no further action or approval is required in order to
permit Seller and Xxxx to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and all other agreements by and among the
parties, when executed and delivered in accordance with the terms thereof, will
constitute the legal, valid and binding obligations of Seller and Xxxx,
enforceable in accordance with their terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights from time to time in effect). Seller
has full power, authority and legal right to enter into this Agreement, and all
other agreements by and among the parties, and to consummate the transactions
contemplated hereby, the making and performance of this Agreement, and all other
agreements by and among the parties, and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof
will not (i) conflict with the Limited Partnership Agreement of Seller, (ii)
result in any breach or termination of, or constitute a default under, or
constitute an event which with notice or lapse of time, or both, would become a
default under, or result in the creation of any Encumbrance upon any of the
Assets under, or create any rights of termination, cancellation or acceleration
in any person under, any contract, lease, arrangement or commitment, or violate
any order, writ, injunction or decree, to which Seller or Xxxx is a party, by
which any of the Assets, business or operations of Seller may be bound or
affected or under which any of the Assets, business or operations of Seller
receive benefits, (iii) result in the loss or adverse modification of any
material license, franchise, permit or other authorization granted to or
otherwise held by Seller or otherwise used in connection with the operation of
the Business or (iv) result in the violation of any provision of law applicable
to Seller, the violation of which could have a material adverse effect upon the
Assets, business or operations of Seller.
3.11 COLLECTIVE BARGAINING. Seller is not a party to any collective
bargaining agreements with respect to any employees or Seller. There are no
labor disturbances, or any threats thereof, with respect to its business
operations.
3.12 EMPLOYEE BENEFITS. Seller has no "employee welfare benefit plan" or
"employee pension benefit plan" as those terms are defined by the Employee
Retirement Income Security Act of 1974, as amended. There are no multi-employer
employee benefit plans in effect with respect to employees of Seller.
3.13 TRUE, CORRECT AND COMPLETE INFORMATION. The information furnished to
Buyer by Seller or Xxxx prior to or on the date of this Agreement and in any
Schedule referred to herein is true, correct and complete in all material
respects. Such information states all material
9
facts required to be stated therein or with respect thereto or necessary to
make the statements therein or with respect thereto, in light of the
circumstances under which such statements are made, true correct and complete.
3.14 AVAILABILITY OF DOCUMENTS. Seller has made available for inspection
by Buyer, at the offices of Seller, true, correct and complete copies of its
certificate of Limited Partnership and Limited Partnership Agreement and all
contracts, leases, arrangements, commitments and documents referred to herein or
in any Schedule referred to herein, in each case together with all amendments
and supplements thereto.
3.15 CONSENT. To the best of Seller's and Xxxx'x knowledge no consent,
approval, authorization or order of any court, Agency or any other person is
required in order to permit Seller to consummate the transactions contemplated
by this Agreement.
3.16 FINANCIAL CONDITION AND RESULT OF OPERATIONS. Seller has previously
delivered to Buyer true, correct and complete copies of the balance sheet of
Seller as of December 31, 1994 and the related statement of cash flows for the
year then ended and the related statement of partners' equity for the year then
ended. The foregoing financial statements at and as of December 31, 1994 have
been examined and reported upon to the extent noted in the report thereon dated
March 15, 1995, by Xxxxx Xxxxxx, a Professional Corporation, independent public
accountants (the "1994 Audited Financial Statements"). Seller has previously
delivered to Buyer true, correct and complete copies of the audited balance
sheet of Seller as of December 31, 1995 and the related statement of cash flows
for the year then ended and the audited related statement of partnership equity
for the year then ended (the "1995 Audited Financial Statements" and,
collectively along with the 1994 Audited Financial Statements, the "Financial
Statements"). The 1995 Audited Financial Statements have been examined and
reported upon by Husleton & Xxxxxx. The Financial Statements, together with the
notes thereto, (i) are in accordance with the books and records and accounting
methods of Seller, (ii) present fairly the financial position and results of
operations of Seller as of the dates and for the periods indicated and (iii)
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as noted therein.
3.17 INSURANCE. Set forth on SCHEDULE 3.17 is a brief description of all
policies of fire, casualty, liability and other forms of insurance and all
fidelity bonds held by Seller.
3.18 TAXES. Except as disclosed on SCHEDULE 3.18, Seller has duly filed
all federal, state, county, local and other excise, franchise, property,
payroll, income, capital stock, sales and use and other tax returns which are
required to be filed by it and such returns are true, correct and complete in
all respects. Seller has paid all taxes which have become due or have been
assessed against it and all taxes, penalties and interest which any taxing
authority has proposed or asserted to be owing. All tax liabilities to which
the properties of Seller may have been subjected have been discharged except for
taxes assessed but not yet payable. There are
10
no tax claims presently being asserted against Seller and Seller knows of no
basis for any such claim. Seller has not granted any extension to any taxing
authority of the limitation period during which any tax liability may be
asserted thereby.
3.19 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as provided on SCHEDULE
3.19, since December 31, 1995, Seller has not (i) suffered any extraordinary
losses or waived any rights of substantial value; (ii) amended its Limited
Partnership Agreement; (iii) made any change in its mode of management or any
change in its method of operation or method of accounting; (iv) made or become
obligated to make any capital expenditures other than such expenditures or
commitments not exceeding $5,000 in the aggregate; (v) experienced or suffered
any adverse change in its business, operations or assets (whether or not covered
by insurance) condition, financial or otherwise, or results of operations; (vi)
entered into any transaction, except in the ordinary course of its business
consistent with past business practice; (vii) received any notice of any claim
asserted against it by any Agency which could have a material adverse effect on
the business or financial condition of Seller; or (viii) incurred or agreed to
incur any material obligation outside the ordinary course of business which has
not heretofore been disclosed in writing to Buyer.
3.20 BROKER'S AND FINDER'S FEES. Seller has not made any agreement with
any person, or taken any action which would cause any person, to become entitled
to an agent's, broker's or finder's fee or commission in connection with the
transactions contemplated by this Agreement.
3.21 RECEIVABLES; EVIDENCES OF INDEBTEDNESS. Set forth on SCHEDULE 3.21 is
a list of all Receivables showing the name of the account debtor, maker or
obligor, the unpaid balance, the age of the Receivable and, if applicable, the
maturity date, the interest rate and the collateral securing the obligation.
All Receivables are legal, valid and binding obligations of the obligors and
Seller has no knowledge of any fact impairing the collectibility of such
Receivables in accordance with their terms. The reserves for doubtful
receivables and uncollectible accounts reflected in the Financial Statements
were established in accordance with generally accepted accounting principles and
are sufficient to provide for any losses which may arise in connection with the
collection of such Receivables. Since December 31, 1995, Seller has not
committed or become obligated to cancel or write off any Receivables or acquired
or permitted to be created any Receivables except in the ordinary course of its
business consistent with past practice.
3.22 PAYABLES. Set forth on SCHEDULE 3.22 is a list of all Payables,
showing the name of the creditor, the unpaid balance, the age of the Payable
and, if applicable, the maturity date, the interest rate and collateral securing
the Payable. Seller received the Inventory to which such Payables relate, and
the Payables were all incurred in the operation of the Business.
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and warranties to Seller
and Xxxx.
4.1 DUE ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own or lease
its properties and to carry on its business as it is presently being operated
and in the place where such properties are owned or leased and such business is
conducted.
4.2 CORPORATE POWER AND AUTHORITY. The execution, delivery and
performance of this Agreement by Buyer, and all other agreements referred to
herein or executed in connection herewith, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action and no further action or approval is required in
order to permit Buyer to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and all other agreements by and among the
parties, when executed and delivered in accordance with the terms thereof, will
constitute, the legal, valid and binding obligations of Buyer, enforceable in
accordance with their terms (subject, as to the enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights from time to time in effect). Buyer has full power,
authority and legal right to enter into this Agreement and all other agreements
by and among the parties and to consummate the transactions contemplated hereby
and thereby. The making and performance of this Agreement, and all other
agreements by and among the parties and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof
will not (i) conflict with the Certificate of Incorporation or by the Bylaws of
Buyer, (ii) result in any breach or termination of, or constitute a default
under, or constitute an event which with notice or lapse of time, or both, would
become a default under, or result in the creation of any Encumbrance upon any
asset of Buyer under, or create any rights of termination, cancellation or
acceleration in any person under, any contract, lease, arrangement or
commitment, or violate any order, writ, injunction or decree, to which Buyer is
a party or by which Buyer or its assets, business or operations may be bound or
affected or under which Buyer or its assets, business or operations receive
benefits, (ii) result in the loss or adverse modification of any material
license, franchise, permit or other authorization granted to or otherwise held
by Buyer which is material to the business or financial condition of Buyer or
(iv) result in the violation of any provisions of law applicable to Buyer, the
violation of which could have a material adverse effect upon the business,
operations or assets of Buyer.
4.3 CONSENTS. No consent, approval, authorization or order of any court,
Agency or any other person is required in order to permit Buyer to consummate
the transactions contemplated by this Agreement.
12
4.4 LITIGATION. There is no pending or threatened litigation in any court
or any proceeding before any Agency (i) in which it is sought to restrain,
prohibit, invalidate or obtain damages in respect of the consummation of the
purchase and sale of the Assets or the other transactions contemplated hereby,
(ii) which could, if adversely determined, result in any material adverse change
in the business, operations or assets or the condition, financial or otherwise,
or results of operations of Buyer or (iii) which could, if adversely determined,
have a material adverse effect on the right or ability of Buyer to carry on its
business substantially as now conducted.
4.5 COMPLIANCE WITH LAWS. Buyer (i) has complied with all laws,
regulations, licensing requirements and orders applicable to its business the
breach or violation of which could have a material adverse effect on said
business, (ii) has filed with the proper authorities all statements and reports
required by the laws, regulations, licensing requirements and order to which it
is subject and (iii) possesses all necessary licenses, franchises, permits and
governmental authorizations to conduct its business in the manner in which and
in the jurisdictions and places where such business is now conducted.
ARTICLE V
COVENANTS OF SELLER AND XXXX
Each of Seller and Xxxx jointly and severally, hereby covenants and agrees
with Buyer as follows:
5.1 AFFIRMATIVE COVENANTS. Prior to the Closing Date (as hereinafter
defined), Seller will operate its Business in the usual, regular and ordinary
course of business consistent with past business practices, and will use its
best efforts to (i) preserve intact its business organization and the Assets;
(ii) maintain its properties, machinery and equipment in good operating
condition and repair; (iii) continue all existing policies of insurance (or
comparable insurance) in full force and effect up to and including the Closing
Date (and will not cancel any such issuance or take (or fail to take) any action
that would enable the insurers under such policies to avoid liability for claims
arising out of any occurrence on or prior to the Closing Date without the prior
written consent of Buyer); (iv) use its best efforts to preserve its present
relationships with lending and other financial institutions, suppliers,
customers, and franchisees; and (v) maintain its books, accounts and records in
the usual, regular and ordinary manner on a basis consistently applied.
5.2 NEGATIVE COVENANTS. Prior to the Closing Date Seller will operate
its Business in the usual, regular and ordinary course of business consistent
with the past business practices, and will not, without the prior written
consent of Buyer: (i) make any increase in the compensation payable or to
become payable by it to any employee or contribute or make any commitment to
contribute or represent that it will contribute any amounts to any bonus or
other employee benefit plan for employees of Seller except as required by law or
by the terms of any such plan in the ordinary course of business; (ii) make any
amendment to its Limited Partnership Agree-
13
ment or other organizational documents; (iii) make any material change in the
character of its Business; (iv) incur any obligation or liability (fixed or
contingent) except in the ordinary course of business; (v) discharge or
satisfy any Encumbrance or pay any obligation or liability (fixed or
contingent) other than in the ordinary course of business; (vi) mortgage,
pledge, transfer or otherwise dispose of or subject to any Encumbrance any of
the Assets, except in the ordinary course of business; (vii) acquire any
assets or properties, except in the ordinary course of business; (viii)
cancel or compromise any material debt or claim that comprises a part of the
assets to be transferred to Buyer; (ix) waive or release any rights of
material value that comprise a part of the assets to be transferred to Buyer;
(x) transfer, grant or terminate contract, lease, arrangement or commitment
rights under any concessions, leases, licenses, agreements, patents, patent
licenses, inventions, trademarks, trade names, service marks, trade dress or
copyrights or registrations or licenses thereof or applications therefore or
with respect to any know-how or other proprietary or trade rights; (xi)
modify or change in any material respect or terminate any Contract; (xii)
undertake any material borrowing of any nature whatsoever other than in the
ordinary course of business; (xiii) make any loans or extensions of credit,
except in the ordinary course of business, (xiv) make or become obligated to
make any capital expenditures or enter into commitments therefor exceeding
$5,000, and (xv) sell, discount or otherwise dispose of any Receivables.
5.3 ACCESS TO PROPERTIES AND RECORDS. Each of Seller and Xxxx will
keep Buyer advised of all material developments relevant to the consummation
of the transactions contemplated hereby and will cooperate fully in
permitting Buyer to make a full investigation of the Business, properties,
financial condition and investments of Seller during regular business hours
and upon reasonable notice and in bringing about the consummation of the
transactions contemplated hereby. Seller will, during regular business hours
and upon reasonable notice, afford to Buyer and its representatives full
access to the offices, buildings, real properties, machinery and equipment,
inventory and supplies, records, files, books of account, tax returns,
agreements and commitments, partnership record books and personnel of Seller.
Seller will, upon request by Buyer, request its independent auditors to
afford to Buyer and its representatives access to the working papers for all
audits of the Financial Statements. Seller will furnish to Buyer all such
further information concerning the business and affairs of Seller as Buyer
may reasonably request. Seller will update by amendment or supplement each
of the Schedules referred to herein and any other disclosure in writing from
Seller required by this Agreement to be disclosed in writing by Seller to
Buyer promptly upon any change in the information set forth in such Schedules
or other disclosures, and Seller hereby represents and warrants that such
Schedules and such written disclosures, as so amended or supplemented, shall
be true, correct and complete as of the date or dates thereof; provided,
however, that the inclusion of any information in any such amendment or
supplement, not included in the original Schedule or other disclosure at or
prior to the date of this Agreement, shall not limit or impair any right
which Buyer might otherwise have respecting the representations or warranties
of Seller continued in this Agreement. No investigation pursuant to this
Section 5.3 shall affect any representations or warranties or the conditions
to the obligations of Buyer to consummate the
14
transactions contemplated hereby. In the event of the termination of this
Agreement, Buyer will deliver to Seller all documents, work papers and other
material (including copies thereof) obtained by Buyer or on its behalf from
Seller as a result of this Agreement or in connection herewith, whether so
obtained before or after the execution hereof and, if the transactions
contemplated hereby are not consummated, Buyer will hold such information in
strict confidence and will not use or disclose, or permit any other person or
entity to use or disclose, such information until such time as such
information is otherwise publicly available. Regardless of whether the
transactions contemplated by this Agreement are consummated, Buyer will hold
all information acquired from Seller in strict confidence except to the
extent that Buyer is required by applicable law to disclose information in
connection with the anticipated public offering of Buyer's common stock;
further, Buyer will act in good faith with respect to all information
acquired from Seller and will not use, and will not permit any other person
or entity, to use any information acquired from Seller in any manner that is
detrimental to Seller's operation of the Business or is otherwise
inconsistent with Seller's best interests or Buyer's obligations pursuant
this Agreement.
5.4 APPROVALS OF THIRD PARTIES. As soon as practicable after the date
hereof, Seller will use its best efforts to secure all necessary consents,
approvals and clearances of third parties that shall be required to consummate
the transactions contemplated hereby.
5.5 NOTICES. Seller will timely give all notices required to be given
relating to the transactions contemplated hereby, including without limitation,
(i) notices to employees, and (ii) any notices required or requested to be given
to all creditors and claimants against Seller.
5.6 ACCESS TO BOOKS AND RECORDS. Seller agrees to provide Buyer, its
accountants, counsel and other representatives, during normal business hours and
upon reasonable notice, for a period of six years after the Closing Date, access
to the books, records, income tax returns, contracts and other underlying data
and the documentation of Seller relating to the period prior to the Closing Date
and to make available to Buyer personnel of Seller in Buyer's review thereof for
the purpose of enabling them to determine and calculate any tax liabilities in
connection with the Assets. Seller agrees that, for such six year period, it
will preserve and keep intact all such books and records.
5.7 COVENANT NOT TO COMPETE . (a) Except as contemplated and provided
pursuant to the Worldwide Area Development Agreement and the Domestic Franchise
Agreements granted by Buyer to Xxxx at Closing, each of Xxxx and Seller
covenants and agrees that (i) neither he nor it will not, at any time during the
period of ten (10) years from the Closing Date, directly or indirectly, in or
pertaining to any location in the United States or worldwide, own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, any business which, or any businesses organization any part of
which, engages in the business of buying, selling or trading of new and/or
used audio compact discs, including without limitation the selling of
franchises which engage in the business of buying, selling or trading of new
and/or
15
used audio compact discs of the type and kind and sold by Seller in
the United States, except as a franchisee of Buyer or an affiliate of Buyer
or owner of up to 5% of the outstanding common stock of a corporation so
engaged, and (ii) neither he nor it will, at any time during the period of
ten (10) years from the Closing Date, directly or indirectly own, manage,
operate join, control of participate in the ownership, management, operation
or control of any business which, or any business organization any part of
which engages in the businesses of buying, selling or trading audio compact
discs via the "Internet," "America on Line," "CompuServe" or any other
"on-line" computer communication networks, except as a franchisee of the
Buyer. The remedy at law for any breach or attempted breach by Seller of the
provisions of this Section 5.7 will be inadequate and Buyer shall be entitled
to temporary or permanent injunctive relief against any breach or attempted
breach of such provision without the necessity of posting bond or proving
actual damages. It is the express intention of the parties hereto to comply
with all laws which may be applicable to this Section 5.7. Should any
restriction contained in this Section 5.7 be found to exceed in duration or
scope the restriction permitted by law, it is expressly agreed that the
covenant not to compete contained in this Section 5.7 may be reformed or
modified by the final judgment of a court of competent jurisdiction to
reflect a lawful and enforceable duration or scope. If any one or more of
the provisions contained in this Section 5.7 shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenfoceability shall not affect any other provision of this
Agreement, but any inconsistency in the provisions of this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein. The terms and conditions of this Section 5.7(a) will
be governed by and construed in accordance with the laws of the State of
Delaware; the foregoing clause will not, however, affect the forum or venue
of any dispute resolution proceeding arising in connection with this
Agreement or any other term or condition of this Agreement whatsoever.
(b) Seller and Xxxx shall use their best efforts to cause Xxx X. Xxxx to
enter into a non-competition agreement with Buyer, the terms of which shall be
substantially similar to those described in Section 5.7 (a).
ARTICLE VI
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller and Xxxx as follows:
6.1 FURNISHING OF INFORMATION. Buyer will keep Seller advised of all
material developments relevant to the consummation of the transactions
contemplated hereby and will cooperate fully with Seller in bringing about the
consummation of the transactions contemplated hereby. In the event of the
termination of this Agreement, Seller will deliver to the Buyer all documents,
work papers and other material (including copies thereof) obtained by Seller or
on its behalf from Buyer as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof and, if the
transactions contemplated hereby are not consummated,
16
Seller will hold such information in confidence until such time as such
information is otherwise publicly available.
6.2 APPROVALS OF THIRD PARTIES. As soon as practicable after the date
hereof, Buyer will use its best efforts to secure all necessary consents,
approvals and clearances of third parties that shall be required to enable it to
consummate the transactions contemplated hereby and will otherwise use its best
efforts to cause the consummation of such transactions in accordance with the
terms and conditions of this Agreement.
6.3 BUYER'S BEST EFFORTS. Buyer will use its best efforts, acting in good
faith, to (i) cause the consummation of the transactions contemplated by this
Agreement in accordance with their terms and conditions, and (ii) complete a
public offering of its common stock or other financing arrangement on or before
February 28, 1997 that results in net proceeds to Buyer of at least $3,500,000.
6.4 RETENTION OF RECORDS. For a period of six years after the Closing,
Buyer will retain all books and records that Buyer receives from Seller. During
such period, Seller and its representatives will have access to all such books
and records during normal business hours. Buyer will, upon request of Seller or
Xxxx, furnish to Seller or Xxxx, without charge, copies of any such books or
records.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder shall be subject to the satisfaction of
each of the following conditions precedent on or prior to the Closing Date,
except such conditions as Buyer may waive in writing.
7.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND XXXX. All of the
representations and warranties of Seller and Xxxx contained in this Agreement
and in any Schedule from Seller and Xxxx were true and correct when made, and
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
7.2 COVENANTS OF SELLER AND XXXX. All of the covenants and agreements
herein on the part of Seller and Xxxx to be complied with or performed on or
before the Closing Date shall have been fully complied with and performed.
7.3 CERTIFICATE OF SELLER AND XXXX. There shall be delivered to Buyer
certificates dated as of the Closing Date and signed by each of Xxxx and Seller
to the effect set forth in
17
Sections 7.1 and 7.2, which certificate shall have the effect of a
representation and warranty made by Seller and Xxxx on and as of the Closing
Date.
7.4 INITIAL PUBLIC OFFERING. Buyer shall have completed an initial
public offering of its common stock by February 28, 1997 for at least
$3,500,000, or shall have otherwise arranged financing of at least such amount
by such date.
7.5 NO CASUALTY LOSSES. The Assets shall not have suffered any
destruction or damage by fire, explosion or other casualty or any taking by
eminent domain which has materially impaired the operation of the Assets or
otherwise had a material adverse effect upon the Business conducted by Seller.
7.6 CERTIFICATE OF AUTHORITIES. Seller shall have furnished to Buyer (i)
a certificate of the Secretary of State of the State of Texas, dated as of a
date not more than five (5) days prior to the Closing Date, attesting to the
organization and good standing of Seller, (ii) a true, correct, and complete
copy of Seller's Limited Partnership Agreement and all amendments thereto, and
(iii) a copy, certified by an authorized officer of Seller, of resolutions duly
adopted by the General Partner of Seller duly authorizing the transactions
contemplated in this Agreement.
7.7 LITIGATION. At the Closing Date, there shall not be pending or
threatened any litigation in any court or any proceeding before any Agency, (i)
in which it is sought to restrain, invalidate, set aside or obtain damages in
respect of the consummation of the purchase and sale of the Assets or the other
transactions contemplated hereby, (ii) which could, if adversely determined,
result in any material adverse change in the Business, operations or Assets or
the condition, financial, or otherwise, or results of operations of Seller,
(iii) which could, if adversely determined, have a material adverse effect on
the right or ability of Seller to carry on its Business as now conducted or (iv)
as a result of which, in the reasonable judgment of Buyer, Buyer would be
deprived of the material benefits of its ownership of the Assets.
7.8 DUE DILIGENCE.
(a) (i) Buyer shall have completed its "due diligence" review of
the Assets, books, records, files, contracts, leases, arrangements, commitments,
documents, tax returns, business operations, financial statements, offices,
buildings, and any other items or matter that Buyer deems relevant which pertain
to the Business or the transactions contemplated hereby, and (ii) the results of
such due diligence review shall be acceptable, in all respects, to Buyer, in its
sole discretion.
(b) All actions, proceedings, instruments and documents required to
carry out this Agreement or incidental thereto and all other related matters
shall have been satisfactory to Day, Edwards, Federman, Propester & Xxxxxxxxxxx,
P.C., counsel for Buyer.
18
7.9 OPINION OF SELLER'S COUNSEL. Buyer shall have received an opinion of
counsel for Seller, dated the Closing Date to the effect that: (i) the Seller
is a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Texas and is duly qualified as a foreign limited
partnership and in good standing in each jurisdiction in which the ownership of
its properties, the employment of its personnel or the conduct of its business
requires it to be so qualified; (ii) each of Seller and Xxxx has full power,
authority and legal right to enter into this Agreement and all other agreements
by and among the parties and to consummate the transactions contemplated hereby
and thereby; (iii) all partnership action required to be taken by Seller to
approve this Agreement and all other agreements by and among the parties and the
transactions contemplated hereby and thereby and to authorize execution and
delivery of this Agreement and all other agreements by and among the parties and
the performance by Seller and Xxxx of their respective obligations hereunder and
thereunder, have been duly and properly taken, and no further action or approval
is required in order to permit Seller or Xxxx to consummate the transactions
contemplated by this Agreement and all other agreements by and among the
parties; (iv) this Agreement and all other agreements contemplated hereby or
executed in connection herewith by and among the parties have been duly executed
and delivered by Seller and Xxxx and are legal, valid and binding obligations of
Seller and Xxxx enforceable in accordance with their terms and (v) subject to
the conditions, exceptions and other terms set forth in the opinion letter
prepared by Seller's counsel, the Contracts being sold and assigned by Seller to
Buyer hereby are legal, valid and binding.
7.10 FRANCHISE LAW SURVEY. Buyer shall have received on or before
November 1,1996, from counsel to Seller, a memorandum of law (the "Franchise Law
Survey") relating to the applicable franchise or business opportunity laws of
each state in which the Seller or its franchisees has a CD Warehouse Store. The
Franchise Law Survey will describe: (i) the applicable franchise, business
opportunity or other applicable law in each state in which the Seller or its
franchisees has a CD Warehouse Store; (ii) the compliance procedures undertaken
by Seller to comply with such law(s); (iii) any variance in the state law as
described and the compliance procedures of Seller; and (iv) the contingent
liability, if any is noted, arising from the Seller's non compliance with such
laws. It is agreed by and between Seller and Buyer that in the event that the
Franchise Law Survey reflects a contingent liability of Seller that is so
material to Buyer and/or its underwriter that Buyer is unable to proceed to
consummation of its initial public offering in view of such contingent
liability, Buyer will notify Seller and this Agreement will terminate. Buyer
will thereafter have no obligation to proceed to close the transactions
contemplated by this Agreement.
7.11 NO MATERIAL ADVERSE CHANGES. There shall not have occurred (i) any
material adverse change in the Business or the operations of Seller or the
Assets or (ii) any material loss or damage to any of the Assets (whether or not
covered by insurance) of Seller. Buyer shall receive a certificate from Seller
and Xxxx, dated as of the Closing Date and in form and substance satisfactory to
Buyer, as to fulfillment of the conditions set forth in Section 7.11.
19
7.12 CONSENTS. Seller shall have obtained all orders, approvals or
consents of third parties, including without limitation, any consents or
approvals deemed necessary by counsel to Buyer that shall be required to
consummate the transactions contemplated hereby, including, without limitation,
any landlord's consents.
7.13 NON-COMPETITION AGREEMENTS OF SELLER, XXXX AND XXX X. XXXX. Each of
Seller, Xxxx and Xxx X. Xxxx shall have executed and delivered a Non-competition
Agreement substantially in the form attached hereto as Exhibit G.
7.14 FURTHER ASSURANCES. Seller and Xxxx shall take all such further
action as may be reasonably requested by Buyer in order to effectuate the
consummation of the transactions contemplated by this Agreement. If Buyer shall
reasonably determine that any further conveyance, assignment or other document
or any further action is necessary to vest in it full title to the Assets,
Seller and Xxxx shall cause the appropriate person or entity to execute and
deliver all such instruments and take all such action as Buyer may reasonably
determine to be necessary.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller and Xxxx to cause the sale of the Assets and the
other transactions contemplated hereby to occur at Closing shall be subject to
the satisfaction on or prior to the Closing Date of all of the following
conditions, except such conditions as Seller and Xxxx may waive in writing:
8.1 REPRESENTATIONS AND WARRANTIES OF BUYER. All of the representations
and warranties of Buyer contained in this Agreement and in any Schedule or other
disclosure in writing from Buyer shall have been true and correct when made, and
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
8.2 COVENANTS OF BUYER. All of the covenants and agreements herein on
the part of the Buyer to be complied with or performed on or before the Closing
Date shall have been fully complied with and performed.
8.3 BUYER'S CERTIFICATE. There shall be delivered to Seller and Xxxx a
certificate dated as of the Closing Date and signed by the President or a Vice
President of Buyer to the effect set forth in Sections 8.1 and 8.2, which
certificate shall have the effect of a representation and warranty made by Buyer
on and as of the Closing Date.
20
8.4 CERTIFICATES OF AUTHORITIES. Buyer shall have furnished to Seller
(i) a certificate of the Secretary of State of Delaware, dated as of a date not
more than five (5) days prior to the Closing Date, attesting to the organization
and good standing of Buyer, (ii) a copy, certified by the Secretary of State of
Delaware as of a date not more than five (5) days prior to the Closing Date, of
Buyer's Certificate of Incorporation and all amendments thereto, (iii) a copy,
certified by the Secretary of Buyer of the Bylaws of Buyer, as amended and in
effect at the Closing Date and (iv) a copy, certified by an authorized officer
of Buyer, of resolutions duly adopted by the Board of Directors of Buyer duly
authorizing the transactions contemplated in this Agreement.
8.5 OPINION OF COUNSEL TO BUYER. Seller shall have received an opinion
from, counsel for Buyer, dated the Closing Date to the effect that: (i) Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (ii) Buyer has full power, authority and legal
right to enter into this Agreement and all other agreements by and among the
parties and to consummate the transactions contemplated hereby and thereby;
(iii) the execution and delivery of this Agreement and all other agreements by
and among the parties and the performance by Buyer of its obligations hereunder
and thereunder, have been fully authorized by all requisite corporate action,
and no further action or approval is required in order to permit Buyer to
consummate the transactions contemplated by this Agreement and all other
agreements by and among the parties; (iv) this Agreement and all other
agreements contemplated hereby or executed in connection herewith by and among
the parties have been duly executed and delivered by Buyer and are legal, valid
and binding obligations of Buyer enforceable in accordance with their terms.
ARTICLE IX
DATE AND PLACE OF CLOSING
9.1 DATE AND PLACE OF CLOSING. Subject to satisfaction or waiver of the
conditions to the obligations of the parties, the purchase and sale of the
Assets pursuant to this Agreement shall be consummated at a closing (the
"Closing") to be held in the offices of Day, Edwards, Federman, Propester &
Xxxxxxxxxxx, Inc. at 000 Xxxx Xxxxxx, Xxxxxxxx Tower 29th Floor in Oklahoma
City, Oklahoma or such other place as is mutually agreed to by the parties, at
10:00 A.M. on the earlier to occur of (i) the third business day after Buyer
receives at least $3,500,000 in proceeds from any financing source, or (ii)
February 28, 1997 (the "Closing Date"). Title to the Assets shall pass from
Seller to Buyer as of 12:01 A.M., Dallas, Texas time, on the day following the
Closing Date.
21
ARTICLE X
CLOSING
10.1 SELLER'S, XXXX'X, AND XXXXXXX'X PERFORMANCE. At the Closing,
concurrently with performance by Buyer of its obligations to be performed at the
Closing:
(a) CONVEYANCES. Seller shall execute and deliver to Buyer, in
form and substance acceptable to Buyer (i) the Xxxx of Sale; (ii) the Assignment
and Assumption Agreement; (iii) the Assignment of Intellectual Property Rights;
and (iv) all other assignments, endorsements and instruments of transfer as
shall be necessary or appropriate to carry out the intent of this Agreement and
as shall be sufficient to vest in Buyer title to all of the Assets and all
right, title and interest of Seller thereto. If requested by Buyer, such
documents shall be in form suitable for recording.
(b) RECORDS. Seller shall deliver to Buyer all documents,
agreements, reports, books, records and accounts pertaining specifically to the
Assets which are in Seller's possession, including without limitation any and
all files and documents relating to any litigation described in Schedule 3.9.
(c) CERTIFICATES. Seller and Xxxx shall execute and deliver the
certificates referred to in Sections 7.3.
(d) XXXX NON-COMPETITION AGREEMENT. Each of Xxxx and Xxx X. Xxxx
shall execute and deliver the Non-competition Agreement required by Section
5.7(b).
(e) WORLDWIDE AREA DEVELOPMENT AGREEMENT AND DOMESTIC FRANCHISE
AGREEMENTS. Xxxx shall execute and deliver the Worldwide Area Development
Agreement and the Domestic Franchise Agreements.
(f) INDEMNIFICATION PLEDGE AGREEMENT. Seller shall execute and
deliver the Indemnification Pledge Agreement (the "Pledge Agreement") required
by Sections 11.9.
(g) REVISED INVENTORY, PAYABLES AND RECEIVABLES. Seller shall
deliver revised and updated schedules of SCHEDULES 3.3 (Inventory), 3.21
(Receivables) 3.22 (Payables) and any other Schedules that must be updated or
revised pursuant to Section 5.3.
(h) OTHER ACTIONS. Seller shall take all such other steps as may be
necessary or appropriate to put Buyer in actual and complete ownership and
possession of the Assets.
(i) CERTIFICATES OF AUTHORITIES. Seller shall deliver to Buyer the
certificates of authority referred to in Section 7.6.
22
(j) OPINION OF SELLER'S AND XXXX'X COUNSEL. Seller and Xxxx shall
deliver to Buyer the opinion of its counsel, dated the Closing Date, as to the
matters specified in Section 7.9.
(k) FRANCHISE LAW SURVEY. Seller and Xxxx shall have delivered to
Buyer the Franchise Law Survey as required by Section 7.10.
(l) CONSENTS. Seller shall deliver to Buyer the consents and
approvals required by Section 7.12.
10.2 BUYER'S PERFORMANCE. At the Closing, concurrently with the
performance by Seller of its obligations to be performed at the Closing:
(a) PURCHASE PRICE. Buyer shall wire transfer to Seller the amount
specified in Section 2.3;
(b) ASSIGNMENT ASSUMPTION AGREEMENT. Buyer shall execute and
deliver to Seller the Assignment and Assumption Agreement.
(c) WORLDWIDE AREA DEVELOPMENT AGREEMENT AND DOMESTIC FRANCHISE
AGREEMENTS. Buyer shall execute and deliver the Worldwide Area Development
Agreement and the Domestic Franchise Agreements.
(d) OPINION OF BUYER'S COUNSEL. Buyer shall deliver the opinion of
counsel, dated the Closing Date, as to the matters specified in Section 8.5.
(e) CERTIFICATES. Buyer shall execute and deliver the certificate
referred to in Section 8.3.
10.3 XXX X. XXXX NON-COMPETITION AGREEMENT. At the Closing, concurrently
with the performance by Seller and Buyer of their obligations to be performed at
the Closing, Xxx X. Xxxx shall execute and deliver the Non-competition Agreement
required by Section 5.7 (b).
10.4 EXPENSES: OTHER INSTRUMENTS. In addition to the foregoing, Buyer
and Seller agree as follows:
(a) FURTHER ACTION BY SELLER. At any time and form time to time,
at or after the Closing, upon request of Buyer, Seller shall do, execute,
acknowledge and deliver or shall cause to be done, executed, acknowledged and
delivered all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may reasonably be required in order to vest
in and confirm to Buyer full and complete title to, possession of, and the right
to use and enjoy, the Assets.
23
(b) FURTHER ACTION BY BUYER. At any time and from time to time,
at or after the Closing, upon request of Seller, Buyer shall do, execute,
acknowledge and deliver or shall cause to be done, executed, acknowledged and
delivered all such further acts and assurances as may reasonably be required
in order to better assure and confirm to Seller the assumption by Buyer of
the obligations to render performance which are to be assumed by Buyer
pursuant to this Agreement.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 SURVIVAL. All representations, warranties, covenants and agreements
made in the Agreement shall survive the Closing for a period of 24 months from
the Closing Date, and will not be extinguished by the Closing or any
investigation made by or on behalf of any party hereto prior to the Closing
Date. No party to this Agreement may, directly or indirectly, bring any claim,
action, suit, or other proceeding (an "Action") against any other party to this
Agreement, if such Action is based on a theory of recovery or cause of action
relating to this Agreement, unless such Action is brought or filed within the
24-month period following the Closing Date. Should any Action be brought or
filed after the termination of the 24-month period following the Closing Date,
the party bringing or filing such Action agrees that it will accept no relief or
recovery therefrom. Except as may be prohibited by applicable law, in the event
that any such Action is brought or filed after the termination of the 24-month
period following the Closing Date, it shall be dismissed with prejudice upon
presentation of this Agreement and the party bringing or filing such Action will
reimburse each other party for all legal fees and related costs incurred in
defending such claim, action, suit, or other proceeding.
11.2 BUYER'S LOSSES. Each of Seller and Xxxx hereby agree, jointly and
severally subject to Section 11.7 below, to indemnify Buyer and save and hold
Buyer harmless from, against, for and in respect of any and all damages
(including, without limitation, amounts paid in settlement with Seller's
consent), losses, obligations, liabilities, liens, deficiencies, costs and
expenses, including, without limitation, reasonable attorneys' fees and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding (hereinafter referred to collectively as "Buyer's Losses"), including
without limitation, any and all of Buyer's Losses suffered, sustained, incurred
or required to be paid by Buyer by reason of (i) that certain accident on
January 8, 1996 at the CD Warehouse franchise located at Xxxx Tabo Boulevard,
Albuquerque, New Mexico, in which Xxxxx Xxxxx was killed (the "Albuquerque
Accident"); (ii) the breach by Seller or Xxxx of any provisions of this
Agreement, including any representation or warranty made by Seller in or
pursuant to this Agreement being untrue or incorrect in any material respect;
(iii) any material failure by Seller to observe or perform its covenants and
agreements set forth in this Agreement; (iv) any liability for product
warranties or defective products arising from sales of Inventory sold by Seller
prior to the Closing Date; or (v) any failure by Seller to satisfy and discharge
any other liability or obligation not expressly
24
assumed by Buyer pursuant to this Agreement. Notwithstanding anything in this
Agreement to the contrary, Xxxx'x aggregate maximum personal liability for
any obligations whatsoever, direct or indirect, arising under or in
connection with this Agreement or any related agreements will be limited to
the Purchase Price paid to Seller and Xxxx by the Buyer pursuant to Section 2
of this Agreement, less any federal and state taxes paid by the Seller and
Xxxx thereon.
11.3 EMPLOYEE COMPENSATION AND BENEFITS. Each of Seller and Xxxx hereby
agrees, jointly and severally, to indemnify and hold Buyer harmless from and
against any and all claims made by employees of Seller, regardless of when made,
for workmen's compensation, medical insurance, disability, vacation, severance,
sick benefits or other compensation arrangements to the extent the same are
based on injury sickness occurring prior to the Closing Date or based on
employment service rendered to Seller prior the Closing Date.
11.4 FRANCHISE CLAIMS AGAINST BUYER. Each of Seller and Xxxx hereby
agree, jointly and severally, to indemnify Buyer and save and hold Buyer
harmless from, against, for and in respect of any damages, losses, obligations,
liabilities, deficiencies, costs, or expenses resulting from any and all claims
made by any past or existing franchisee or purported franchisee of Buyer or
Seller to the extent such acts, omissions or occurrences giving rise to the
claim occurs prior to the Closing Date. Any damages, losses, obligations,
liabilities, deficiencies, costs, or expense incurred by Buyer as a result of
any claims made by existing franchisees or purported franchisees of Buyer or
Seller arising from any act, omission or occurrence prior to the Closing Date
are included within the definition of the term "Buyer's Losses."
11.5 SELLER'S LOSSES. Buyer agrees to indemnify Seller and Xxxx and save
and hold Seller and Xxxx harmless from, against, for and in respect of any and
all damages (including, without limitation, amounts paid in settlement with
Buyer's consent), losses, obligations, liabilities, claims, deficiencies, cost
and expenses, including, without limitation, reasonable attorneys' fees and
other costs and expenses incident to any suit, action, investigation, claim or
proceeding (hereinafter referred to collectively as "Seller's Losses") suffered,
sustained, incurred or required to be paid by Seller by reason of (i) any
representation or warranty made by Buyer in or pursuant to this Agreement being
untrue or incorrect in any material respect; (ii) any material failure by Buyer
to observe or perform its covenants and agreements set forth in this Agreement;
(iii) any liability for product warranties or defective products arising from
sales of Inventory sold by Buyer after the Closing Date; (iv) any failure by
Buyer to satisfy and discharge any liability or obligation expressly assumed by
Buyer pursuant to this Agreement; or (v) any and all claims made by employees of
Buyer for workmen's compensation, medical insurance, disability, vacation,
severance, sick benefits or other compensation arrangements to the extent the
same are based on injury or sickness occurring after the Closing Date or based
on employment service rendered to Buyer after the Closing Date.
11.6 FRANCHISE CLAIMS AGAINST SELLER. Buyer agrees to indemnify Seller
and Xxxx and save and hold Seller and Xxxx harmless from, against, for and in
respect of any damages, losses,
25
obligations, liabilities, deficiencies, costs, or expenses resulting from any
and all claims made by any past or existing franchisee or purported
franchisee of Buyer or Seller to the extent such acts, omissions or
occurrences giving rise to the claim occurs after the Closing Date. Any
damages, losses, obligations, liabilities, deficiencies, costs, or expenses
incurred by Seller as a result of any claims made by past or existing
franchisees or purported franchisees of Buyer or Seller arising from any act,
omission or occurrence after the Closing Date are included within the
definition of the term "Seller's Losses."
11.7 NOTICE OF LOSS. Notwithstanding anything herein contained Buyer,
Seller and Xxxx shall not have any liability under the indemnity provisions of
this Agreement with respect to a particular matter unless a notice setting forth
in reasonable detail the breach which is asserted has been given to the
Indemnifying Party (hereafter defined) and, in addition, if such matter arises
out of a suit, action, investigation or proceeding, such notice is given
promptly after the Indemnified Party (hereafter defined) shall have been given
notice of the commencement of a suit, action, investigation or proceeding. With
respect to Buyer's Losses and claims of employees pursuant to Section 11.2,
hereof, Seller shall be the Indemnifying Party and Buyer shall be the
Indemnified Party. With respect to Seller's Losses, Buyer shall be the
Indemnifying Party and Seller shall be the Indemnified Party.
11.8 RIGHT TO DEFEND. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed by
an Indemnified Party, the Indemnifying Party shall be entitled promptly to
defend, contest or otherwise protect against such suit, action, investigation,
claim or proceeding or its own cost and expense, including the right to invoke
any arbitration proceeding available in the dispute. The Indemnified Party
shall have the right, but not the obligation, to participate at its own expense
in a defense thereof by counsel of its own choosing, but the Indemnifying Party
shall be entitled to control the defense unless the Indemnified party has
relieved the Indemnifying Party from liability with respect to the particular
matter or the Indemnifying Party fails to assume defense of the matter. In the
event the Indemnifying Party shall fail to defend, contest or otherwise protect
in a timely manner against any such suit, action, investigation, claim or
proceeding, the Indemnified Party shall have the right, but not the obligation,
to defend, contest or otherwise protect against the same and make any compromise
or settlement thereof and recover the entire cost thereof from the Indemnifying
party including reasonable attorneys' fees, disbursements and all amounts paid
as a result of such suit, action, investigation, claim or proceeding or the
compromise or settlement thereof. However, if the Indemnifying Party undertakes
the defense of such matters, the Indemnified Party shall to be entitled to
recover from the Indemnifying Party any legal or other expenses substantially
incurred by the Indemnifying party in connection with the defense thereof other
than the reasonable costs of investigation undertaken by the Indemnified Party
with the prior written consent of the Indemnifying Party. If Buyer is named as
a defendant or if Buyer and Seller are named jointly as defendants by a past,
existing or purported franchisee in a court or arbitration proceeding and Buyer
based on its evaluation of the Franchisee's claim provides notice to Seller of
an indemnification claim against Seller pursuant to Article 11 as to any
26
liability arising out of the Franchisee's claim, Seller reserves the right in
his sole discretion to fully settle and compromise the franchisee's claim as
to both Seller and Buyer at any time during the proceeding.
11.9 INDEMNIFICATION PLEDGE AGREEMENT. At Closing, Xxxx will grant
Buyer a security interest in 300,000 Subscription Shares acquired pursuant to
the the Subscription Agreement described in Section 1.7. The security
interest will terminate as to any shares not foreclosed or otherwise subject
to a then existing claim 24 months after the Closing Date, upon the terms
and conditions set forth in the Indemnification Pledge Agreement attached
hereto as Exhibit E. If any amount is payable by Xxxx under or in connection
with this Agreement or any related agreements (the "Award Amount"), such
Award Amount will be satisfied (i) first by Buyer's foreclosure on the number
of Subscription Shares equal to the result of dividing the Award Amount by
the Share Value (as defined below), then (ii) by recovery directly from
Xxxx'x other assets. Until such time as the Subscription Shares effective
registration statement or otherwise eligible for sale in the public market
without restriction, the term "Share Value" will mean 75% of the average bid
price of Buyer's common stock for the five trading days preceding the date on
which Buyer seeks to foreclose on any of the Subscription Shares; after such
time, the term "Share Value" means 100% of the average bid price of Buyer's
common stock for the five trading days preceding the date on which Buyer
seeks to foreclose on any of the Subscription Shares. In no event, however,
will the Share Value be less than one dollar..
11.10 REQUEST TO ALLOCATE RESPONSIBILITY. Buyer and Seller agree that
if they are jointly named as parties after Closing in any suit, claim or
proceeding by a past, existing or purported franchisee of Buyer or Seller that
they will jointly request that the arbitrator, panel of arbitrators or court
specify in their judgment or order in the event that any liability is
determined as to the Buyer and Seller whether the liability is attributable to
an act, omission or occurrence before or after the Closing Date or if the
liability is attributable to acts, omissions or occurrences both before and
after the Closing Date the proportionate degree of fault and damages reflected
in the judgment or order, attributable to the Buyer or Seller.
11.11 FRANCHISE CLAIMS AGAINST BOTH SELLER AND BUYER. To the extent
that any damages, losses, obligations, liabilities, deficiencies, costs, or
expenses result from any claims made by any past or existing franchise or
purported franchise of Buyer or Seller for acts, omissions or occurrences
occurring both before and after the Closing Date, such damages, losses,
obligations, liabilities, deficiencies, costs, and expenses will be borne by
Buyer and Seller in proportion to their respective degree of fault.
27
ARTICLE XII
POST-CLOSING COVENANTS
12.1 TRANSITION PERIOD. Seller and Xxxx shall use good-faith efforts for
a period of up to one hundred eighty (180) days after the Closing to cooperate
and assist Buyer in connection with the operations of the Business and the
Assets purchased by Buyer under this Agreement.
12.2 PAYMENT OF UNPAID RECEIVABLES. Each of Seller and Xxxx hereby agree,
jointly and severally, to pay Buyer an amount equal to the outstanding balance
of the Receivables that have not been paid in full within ninety (90) days of
the Closing Date. Buyer shall assign all of its rights, title and interest in
such Receivables to Seller.
12.3 INSURANCE POLICIES. Each of Seller and Xxxx hereby agree, jointly
and severally, to maintain and keep in force all current insurance policies that
may or could provide coverage for the Albuquerque Accident.
ARTICLE XIII
TERMINATION
13.1 TERMINATION. This Agreement may be terminated and abandoned at any
time on or prior to the Closing Date.
(a) By the mutual consent in writing of Buyer and Seller;
(b) By Buyer in writing if any of the material conditions to the
obligations of Buyer contained herein shall not have been satisfied or, if
unsatisfied, waived as of the Closing Date or if the results of Buyer's due
diligence investigation of the Assets and business of Seller are not
satisfactory to Buyer in all respects.
(c) By Seller in writing if any of the material conditions to the
obligations of Seller contained herein shall not have been satisfied or, if
unsatisfied, waived as of the Closing Date.
(d) By Buyer, Seller or Xxxx in writing if the Closing shall not have
occurred by February 28, 1997, except that no party shall have the right to
terminate this Agreement if the failure to close shall be the result of such
party's failure to perform, in any material respect, its obligations hereunder.
28
13.2 NO FURTHER FORCE OR EFFECT. In the event of termination and
abandonment of this Agreement pursuant to the provisions of Section 13.1,
this Agreement shall be of no further force or effect, except for the last
sentences of Sections 5.3 and 6.1 and Section 14.1 which shall not be
affected by termination of this Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1 EXPENSES. Except as otherwise expressly provided herein, Seller and
Buyer shall each pay their own expenses in connection with the preparation of
this Agreement, and the consummation of the transactions contemplated hereby,
including, without limitation, fees of its own counsel, auditors and other
experts, whether or not such transactions be consummated.
14.2 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
other agreements contemplated herein, constitutes the entire contract and shall
supersede all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof and no
party shall be liable or bound to the other in any manner by any representations
or warranties except as specifically set forth herein or in any Schedule hereto
or agreement executed in connection herewith or expressly required to be made or
delivered pursuant thereto.
14.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of such agreements.
14.4 IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument, but only one of
which need be produced.
14.5 HEADINGS. The headings of the paragraphs and subparagraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
14.6 USE OF CERTAIN TERMS. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular paragraph, subparagraph or other
subdivision.
29
14.7 MODIFICATION AND WAIVER. Any of the terms or conditions of this
Agreement may be waived in writing at any time, whether before or after
action thereon by the party which is entitled to the benefits thereof; and
this Agreement may be modified or xxxxxx at any time, whether before or after
action thereon by the parties. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all of the
parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
14.8 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies expressly conferred upon a party will be deemed cumulative with and
not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any
other.
14.9 NOTICES. All notices, consents, requests, instructions, approvals
and/or communications provided for herein, shall be validly given, made or
served if in writing and delivered personally or sent by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to Seller: Xxxx X. Xxxx
0000 Xxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxx
with copy to: Xxxx X. Xxxxxxxx, Esq.
Xxxxxx & Xxxxxx, L.L.P.
Xxx Xxxxxxxx Xxxxx, Xxxxx 0000
00000 Xxxx Xxxx, XX 75
Dallas, TX 75240-6657
(ii) If to Buyer: CD Warehouse, Inc.
Attn: Xxxxx X. Xxxxxxx
0000 Xxxxxxxx Xxxx Xxxxx
Xxxxxx, XX 00000
with copy to: Xxxxx X. Day, Esq.
Day, Edwards, Federman, Xxxxxxxxxxx & Propester, P.C.
000 Xxxx Xxxxxx
00xx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
The designation of the person to be so notified or the address of such person
for the purposes of such notice may be changed from time to time by a similar
notice. Any notice which is
30
delivered personally in the manner provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual receipt by
such party (or its agent for notices hereunder). Any notice which is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the third business day
after the day it is so placed in the mail.
14.10 GOVERNING LAW. This Agreement has been executed and delivered
in the State of Texas and will be construed and enforced in accordance with and
governed by the laws of the State of Texas. This Agreement will not be construed
for or against a party merely because that party prepared it, but will at all
times be construed according to its fair meaning.
14.11 NO AGENT'S FEES. Buyer represents to Seller, and Seller
represents to Buyer, that there is no agent's broker's or finder's fees or
commission payable or that will be payable in connection with the transactions
contemplated hereby by virtue of or resulting from any action or agreement by it
except for the compensation to be paid by Buyer to CDI Acquisition JV, a Texas
joint venture and CD Partners JV, a Texas joint venture (jointly referred to as
the "Joint Venture"), pursuant to the Finders and Release Agreement entered into
by and between the Buyer and the Joint Venture. Buyer hereby agrees to
indemnify and hold harmless Seller, and Seller agrees to indemnify and hold
harmless Buyer, from and against any claim, demand, liability, loss, cost or
expense (including reasonable attorneys' fees and expenses) on account of or in
connection with any agent's, broker's or finder's fees or commissions payable or
alleged to be payable in connection with this Agreement or the transactions
contemplated hereby virtue of or resulting from any action or agreement on the
part of such indemnifying party.
14.12 BINDING ARBITRATION. EACH PARTY TO THIS AGREEMENT AGREES THAT
ANY DISPUTE OR CONTROVERSY ARISING BETWEEN ANY OF THE PARTIES TO THIS AGREEMENT,
OR ANY PERSON OR ENTITY IN PRIVITY THEREWITH, OUT OF THE TRANSACTIONS EFFECTED
AND RELATIONSHIPS CREATED PURSUANT TO THIS AGREEMENT AND EACH OTHER AGREEMENT
CREATED IN CONNECTION HEREWITH, INCLUDING ANY DISPUTE OR CONTROVERSY REGARDING
THE FORMATION, TERMS, OR CONSTRUCTION OF THIS AGREEMENT, REGARDLESS OF KIND OR
CHARACTER, MUST BE RESOLVED THROUGH BINDING ARBITRATION. EACH PARTY TO THIS
AGREEMENT AGREES TO SUBMIT SUCH DISPUTE OR CONTROVERSY TO ARBITRATION BEFORE THE
AMERICAN ARBITRATION ASSOCIATION IN DALLAS, TEXAS, AND FURTHER AGREES TO BE
BOUND BY THE DETERMINATION OF ANY ARBITRATOR OR ARBITRATION PANEL EMPANELED BY
THE AMERICAN ARBITRATION ASSOCIATION TO ADJUDICATE THE DISPUTE. JUDGMENT ON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY SUCH DISPUTE OR CONTROVERSY IN A COURT
OF COMPETENT JURISDICTION AND, FURTHER, MAY SEEK PROVISIONAL OR ANCILLARY
REMEDIES INCLUDING TEMPORARY OR INJUNCTIVE RELIEF IN CONNECTION WITH SUCH
DISPUTE OR CONTROVERSY IN A COURT OF COMPETENT JURISDICTION, PROVIDED THAT THE
DISPUTE OR CONTROVERSY IS ULTIMATELY RESOLVED THROUGH BINDING ARBITRATION
CONDUCTED IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS SECTION.
31
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed in counterparts all as of the date first above written.
SELLER
COMPACT DISCS INTERNATIONAL, LTD.
By: Markshare, L.C.
Its General Partner
BY: /s/ Xxxx X. Xxxx
-----------------------------------
Xxxx X. Xxxx, President
XXXX
/s/ Xxxx X. Xxxx
--------------------------------------
Xxxx X. Xxxx
CD WAREHOUSE, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------
Xxxxx X. Xxxxxxx, President
32
ASSET PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
2.2 Allocation of Purchase Price
3.2 Encumbrances
3.3 Inventory
3.4 Physical Properties
3.5 Intellectual Property Rights
3.6 Compliance with Laws and Licenses, Franchises Permits and
Governmental Authorizations
3.7 Contracts - Assumed and Assigned
3.9 Litigation
3.17 Insurance
3.18 Taxes
3.19 Certain Changes or Events
3.21 Receivables
3.22 Payables
EXHIBITS
A Xxxx of Sale
B Assignment and Assumption Agreement
C Assignment of Intellectual Property Rights
D Worldwide Area Development Agreement.
E Subscription Agreement
F Indemnification Escrow Agreement
G Noncompetition Agreement
