Exhibit 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 22nd day of February, 1999, by and among MUSIC TRADER, INC., a
California corporation with its principal office located at 0000 Xxxxx Xxxx, Xxx
Xxxxx, Xxxxxxxxxx 00000 ("Seller"); XXXXXXX X. XXXXX, an individual and 50%
stockholder of Seller with his principal address at 0000 Xxxxx Xxxx, Xxx Xxxxx,
Xxxxxxxxxx 00000; XXXXX XXXXXX-XXXXX, an individual and 50% stockholder of
Seller with her principal address at 0000 Xxxxx Xxxx, Xxx Xxxxx, Xxxxxxxxxx
00000 (XXXXXXX X. XXXXX and XXXXX XXXXXX-XXXXX herein collectively referred to
as "Xxxxx"); and COMPACT DISC MANAGEMENT, INC., a Delaware corporation with its
principal office located at 0000 Xxxxxxxxx Xxx, Xxxxxxxx Xxxx, Xxxxxxxx 00000
("Buyer").
WHEREAS, Seller is engaged in the business ("Business") of buying, selling
and trading new and used audio compact discs through the 17 retail outlets
identified on SCHEDULE 1 hereto (collectively, the "Music Trader Stores"); 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 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") Such assets are to
be accepted by Buyer "as-is," "where-is" without warranty by Seller as to
condition, intended use or value:
(a) Inventory. all of the Seller's inventory of new and used audio
compact discs (the "Inventory");
1
(b) Intellectual Property Rights. All of Seller's right, title and
interest in and to the name "Music Trader," 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 and relating to the Business (the "Intellectual Property
Rights"), with respect to which Seller agrees to execute, if required,
separate assignments of the forgoing suitable for recording at the U.S.
Patent and Trademark Office, the various Secretaries of State and any other
applicable Agency;
(c) Business Records. All information of Seller, except Seller's
bookkeeping and accounting records, with respect to ( copies of which will
be provided to Buyer), and all of Seller's records relating to, the
Business and the Music Trader Stores, including, without limitation,
customer lists, vendor lists, and sales literature and promotional
materials, together with all manuals, documents, records, files, computer
tapes or discs, or other media on or in which the same may be evidenced or
documented;
(d) Software. 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;
(e) Furniture and Equipment. The furniture, equipment, files and
other assets currently located at the Music Trader Stores; and
(f) Other Assets. All equipment and tangible personal property of
the Music Trader Stores, including, without limitation,
furniture and leasehold improvements, rights under leases
listed on SCHEDULE 3.7 underlying the Music Trader Stores
("Leases"), and rights under any other contracts listed on
SCHEDULE 3.7 underlying the Music Trader Stores ("Contracts").
1.2 Excluded Assets. It is understood that the Assets shall not include
the following assets specified in Section 1.2(a) through (f), below
(collectively, the "Excluded Assets")
(a) Cash. Cash of Seller;
(b) Vehicles. The following vehicles, title to which is in the
name of Seller:
Year/Make VIN California Plate No.
1997 Plymouth 0X0XX00X0XX000000 3VWT449
1995 Dodge 0X0XX00X0XX000000 3LFB716
1987 GMC 0XXXX00X0X0000000 4E34779
1987 GMC 0XXXX00X0X0000000 4E34728
2
1994 Plymouth 0X0XX0000XX000000 3JWZ085
(c) Home Office Equipment. The office equipment maintained in
Xxxxx'x home, for which he will provide Buyer a complete inventory.
(d) Assets Relating to Movie Trader Store. All of the Seller's
assets relating to the retail business conducted at the "Movie Trader"
store located at 0000 Xxxxxx Xxxxxx, Xxx Xxxxx, Xxxxxxxxxx (the "Movie
Trader Store"), including (i) inventories of movies, laser discs, DVDs,
video games and cassettes; (ii) all equipment and tangible personal
property of the Movie Trader Store, including, without limitation,
furniture and leasehold improvements, rights under the lease underlying the
Movie Trader Store, and rights under any other contracts related to the
Movie Trader Store; and (iii) all of Seller's right, title and interest in
and to the name "Movie Trader," 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 such name; provided, however, Seller agrees that the
business conducted by the Movie Trader Store after the Closing of this
Agreement shall not include the retail purchase or sale of audio compact
discs or be, in any way, except as specifically permitted by this
Agreement, competitive with the business conducted by Buyer as of the date
of this Agreement.
(e) Other Leased Space. Seller's rights under the leases
underlying the rental space at Xxxxx'x Swap Meet, the Sports Arena, San
Diego, California, and at Kobey's Market Place, Chula Vista, California
(collectively, the "Xxxxx Leases"); provided, however, no business
conducted by Seller at the Xxxxx Leases shall include the retail purchase
or sale of audio compact discs. XXXXXXX X. XXXXX shall be permitted to
perform in-store promotions with artist presentations at the Xxxxx Leases,
provided, however, any such conduct or activity shall not be permitted if
it relates in any way to the retail sale of audio compact discs. Seller and
Xxxxx agree that, with respect to any business conducted by them at the
Xxxxx Leases pursuant to this Section 1.2(e), each of them shall be bound
by the provisions of Section 5.7 for the later of (i) two years subsequent
to the termination or cessation of Seller's or Xxxxx'x business thereat, or
(ii) the period specified in Section 5.7.
(f) Assets Relating to the "Huge Secret" Record Label. All of the
Seller's assets relating to the business conducted by Xxxxx under the "Huge
Secret" record label (the "Record Label"), including (i) all musical and
recording equipment and other tangible personal property relating to
recordings of XXXXXXX X. XXXXX under such label; (ii) all of Xxxxx'x and/or
the Record Label's right, title and interest in and to the name "Huge
Secret," 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 such
name; including Xxxxx'x and/or the Record Label's right, title and interest
in audio recordings made or to be made by XXXXXXX X. XXXXX; provided,
however, Seller and Xxxxx agree that except for sale of compact discs and
memorabilia at
3
live band performances in which Xxxxxxx X. Xxxxx performs, the business
conducted by the Record Label after the Closing of this Agreement shall not
include the retail purchase or sale of audio compact discs or be, in any
way, except as specifically permitted by this Agreement, competitive with
the business conducted by Buyer as of the date of this Agreement. Seller
and Xxxxx agree that, with respect to any business conducted by them under
the Record Label pursuant to this Section 1.2(f), each of them shall be
bound by the provisions of Section 5.7 for the later of (i) two years
subsequent to the termination or cessation of Seller's or Xxxxx'x business
under the Record Label, or (ii) the period specified in Section 5.7.
(g) Accounts Receivable/Payable. Seller and Xxxxx shall retain all
receivables/payables notwithstanding the lease obligations and utilities.
The receivables include amounts due as credits or accounts receivable from
Pacific Coast One-Stop and Xxxx Xxxxxxx and others in the aggregate which
do not exceed $12,000.00.
1.3 Treatment of Certain Obligations. The term "Existing 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). The term "Assumed
Obligations" means all of Seller's obligations with respect to the Assets
arising or accruing after the Closing Date and, specifically, shall not include
(a) the Existing Payables, or (b) any obligation for performance or obligation
or liability of Seller for default or nonperformance under any contracts
underlying the Assets and 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 specifically included within the Assumed Obligations.
1.4 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.
1.5 Other Agreements. At the Closing, Buyer and Seller shall execute
and deliver the following additional agreements (collectively, the "Other
Agreements"):
(a) Supply Contract. The parties agree to execute and deliver at
Closing a Supply Contract, substantially in the form of Exhibit D hereto,
pursuant to which Buyer shall agree to purchase, at the store locations of
the Music Trader Stores, VHS movies and
4
laser discs ("Movie Inventory"), which Movie Inventory Seller agrees to
purchase from Buyer at Buyer's cost plus 10%.
(b) Software License Agreement. The parties agree to execute and
deliver at Closing a Software License Agreement, substantially in the form
of Exhibit E hereto, pursuant to which Buyer shall agree to grant to Seller
a limited, nonexclusive license to use certain retail software developed by
Buyer (the "Retail Software") at Seller's Movie Trader Store, in
consideration of (i) the payment by Seller of a licensing fee to be equal
to 5% of gross sales of Seller attributable to Seller's Movie Trader Store
and a (ii) right of first refusal granted to Buyer with respect to any
proposed sale or transfer of the business conducted by the Movie Trader
Store; provided, however, the parties expressly agree that (i)the limited
license granted under the Software License Agreement shall not be deemed
the grant by Buyer of any right to operate as a franchisee of Buyer under
either the "CD Warehouse" franchise system or the "Disc Go Round" franchise
system; and (ii) the software thus licensed shall not, in any way, be used
to compete with the business of Buyer or its franchisees.
(c) Xxxxxxx X Xxxxx Employment Agreement. XXXXXXX X. XXXXX and
Buyer agree to execute and deliver at Closing an employment agreement (the
"Xxxxxxx X Xxxxx Employment Agreement"), substantially in the form of
Exhibit F hereto, and containing the following terms:
(i) XXXXXXX X. XXXXX'x employment shall be for a primary
term of five (5) years, with a base salary of $100,000 per annum;
(ii) For the first 12 months of the primary term of the
Xxxxxxx X Xxxxx Employment Agreement, XXXXXXX X. XXXXX shall (A)
have such day-to-day duties in the operation, management and growth
of the Music Trader Stores as may be defined by Buyer from time to
time, but specifically including, for such 12-month period, the
training and transitioning of a suitable replacement to assume the
operational and management duties of XXXXXXX X. XXXXX, and (B) have
the authority to employ at the Music Trader Stores, during such 12-
month period, Xxxx XxXxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxx,
and Xxxxxxxxx Xxxxxx (collectively, the "Employees"); provided,
however, the total compensation package for each of the Employees is
approved by Buyer prior to the Closing Date (which compensation
package shall provide benefits commensurate to those provided to
other employees of Buyer of the same or similar position and
responsibilities) and set forth in a schedule to the Xxxxxxx X Xxxxx
Employment Agreement.
(iii) During the remaining 48 months of the primary term of
the Xxxxxxx X Xxxxx Employment Agreement, XXXXXXX X. XXXXX shall be
responsible for
5
the conduct of special projects, as may be requested by Buyer from
time to time, and shall report directly to the President of Buyer;
and
(iv) XXXXXXX X. XXXXX shall be provided (A) health insurance
benefits consistent with those offered to other
employees of Buyer at the level of Vice-President, and
(B) a bonus in the amount of $50,000, payable April 1,
2000, provided that 1999 annual sales relating to the
Music Trader Stores reflect an increase of not less
than 5% from 1998 annual sales relating thereto.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price (the "Purchase Price") for
the Assets shall be FOUR MILLION DOLLARS ($4,000,000), payable at the
Closing as follows:
6
(a) Cash, in immediately available funds, of $3,000,000;
and
(b) $1,000,000 in common stock of CD Warehouse, Inc.,
parent of Buyer. The number of shares of Buyer's common stock, par
value $.01 per share (the "Common Stock") to be issued to Seller
will be determined by dividing $1,000,000 by the lesser of (i) the
average of the closing prices of the Common Stock, as quoted by
Nasdaq, for the five trading days preceding the Closing; or, (ii)
the price at which the Common Stock on the Business Day next
preceding the Closing. Seller will be entitled to register all of
such shares for sale or distribution in the event that CD Warehouse,
Inc. files (or causes to be filed) a registration statement on Form
S-3 with the United States Securities and Exchange Commission
relating to any offering of Buyer's Common Stock, subject to such
conditions and quantitative limitations as any underwriter of the
Common Stock so offered may reasonably require.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of Seller and Xxxxx, jointly and severally, hereby represents and
warrants as follows:
3.1 Due Organization and Qualification. Seller is a California
corporation duly organized, validly existing and in good standing under the laws
of the State of California which 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.
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.
7
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 Xxxxx in connection with the operation of the
Business. Except as disclosed on SCHEDULE 3.5, and to the best of Seller's and
Xxxxx'x knowledge, Seller has a protectable interest in the Intellectual
Property Rights, and 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 Xxxxx threatened, which challenge the rights of
Seller in respect thereof. Except as disclosed on SCHEDULE 3.5, and to the best
of Seller's or Xxxxx'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 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 leases underlying the Music Trader Stores. 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)
8
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 and Xxxxx or 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 or Xxxxx'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 or Xxxxx'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 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 Corporate Power and Authority. The execution, delivery and
performance of this Agreement by Seller, 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 corporate action
and no further action or approval is required in order to permit Seller and
Xxxxx 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 Xxxxx, 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 and thereby. The making and
9
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 bylaws 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 Xxxxx 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, and there are no
labor disturbances, or any threats thereof, with respect to the Business.
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 and Xxxxx 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 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 incorporation and bylaws 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 Consents. 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.
10
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, 1998 and the related statements of operations and cash
flows for the year then ended. (the "Financial Statements"). The Financial
Statements, together with the notes thereto, (i) are in accordance with the
books and records and accounting methods of Seller, (ii) present 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 period involved (1998)
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 and relating to the Assets.
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 that have become due or have been
assessed against it and all taxes, penalties and interest that 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 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, 1998, Seller has not (i) suffered any
extraordinary losses or waived any rights of substantial value; (ii) amended its
certificate of incorporation or bylaws; (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.
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and warranties to Seller
and Xxxxx.
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 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.
12
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.
4.4 Litigation. There is no pending or, to the best of Buyer's
knowledge, 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 XXXXX
Each of Seller and Xxxxx, 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
13
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 certificate of
incorporation, bylaws 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 Xxxxx 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 Sellers independent accountant to afford to Buyer
and its representatives access to the working papers for all compilations 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
14
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
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
strictest 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.
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,
any notices required or requested to be given to all creditors and claimants
against Seller. Seller shall terminate its employees prior to the hiring of
such employees by Buyer.
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. Except as contemplated and provided
pursuant to (a) Sections 1.2(d), (e) and (f) of this Agreement, and (b) the
Xxxxxxx X Xxxxx Employment Agreement by and between XXXXXXX X. XXXXX and Buyer
to be entered into at the Closing, each of Xxxxx and Seller covenants and agrees
that he, she or it, as the case may be, will not, at any time during which
buyer operates stores of the general nature of the acquired stores, from the
Closing Date, (i) directly or indirectly, in or pertaining to any location of
the acquired stores or within a reasonable market radius thereof, 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
15
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 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, or (ii)
directly or indirectly own, manage, operate, join, control or 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. Additionally, seller agrees not compete, as defined
above, at any location for a period ending 2 years from the date of termination
of the Xxxxxxx X. Xxxxx Employment Agreement. The remedy at law for any breach
or attempted breach by Seller or Xxxxx 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 that 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 unenforceability 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 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.
5.8 Change of Corporate Name. Seller agrees to execute and deliver to
Buyer, on or before the Closing, such documents suitable for filing in the State
of California as are necessary to change Seller's corporate name to a name other
than "Music Trader, Inc.".
ARTICLE VI
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller and Xxxxx 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
16
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, 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.
17
6.3 Buyer's Best Efforts. Buyer will use its best efforts, acting in
good faith, to cause the consummation of the transactions contemplated by this
Agreement in accordance with their terms and conditions.
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
Xxxxx, furnish to Seller or Xxxxx, 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 Xxxxx. All of the
representations and warranties of Seller and Xxxxx contained in this Agreement
and in any Schedule from Seller and Xxxxx 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 Xxxxx. All of the covenants and agreements
herein on the part of Seller and Xxxxx 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 Xxxxx. There shall be delivered to Buyer
certificates dated as of the Closing Date and signed by each of Xxxxx and Seller
to the effect set forth in Sections 7.1 and 7.2, which certificate shall have
the effect of a representation and warranty made by Seller and Xxxxx on and as
of the Closing Date.
7.4 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.
7.5 Seller's Pre-Tax Income. The Pre-tax income of Seller ($136,433),
as reflected on the Financial Statements, is less than 20% of the 1998
consolidated pre-tax income of Buyer, as reflected on Buyer's audited financial
statements for the 1998 fiscal year.
7.6 Certificate of Authorities. Seller shall have furnished to Buyer
(i) a certificate of the Secretary of State of the State of California, 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 certificate of incorporation and bylaws and all amendments
thereto, and (iii) a copy, certified by an authorized officer of Seller, of
resolutions duly adopted by the board of directors and stockholders 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, including a review of the 1998
year-end inventory at the Music Trader Stores, 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.
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 corporation duly organized, validly existing and in good standing
under the laws of the State of California and is duly qualified as a foreign
corporation 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 Xxxxx 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 necessary corporate 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 Xxxxx 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 Xxxxx 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 Xxxxx and are legal, valid and binding
obligations of Seller and Xxxxx enforceable in accordance with their terms and
(v) subject to the conditions and exceptions of counsel, the Contracts being
sold and assigned by Seller to Buyer hereby are legal, valid and binding
obligations of the parties.
7.10 No Material Adverse Changes. There shall not have occurred (i) any
material adverse change in the Business or the operations of the Music Trader
Stores 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 Xxxxx, dated as of the Closing Date and in form and
substance satisfactory to Buyer, as to fulfillment of the conditions set forth
in this Section 7.9.
7.11 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.
7.12 Deliverables. Each of Seller and Xxxxx shall have duly executed and
delivered to Buyer the Xxxx of Sale, the Assignment and Assumption Agreement,
the Assignment of Intellectual Property Rights, the Other Agreements, the
documents refereed to in Section 5.8 here, and such other agreements, documents
and instruments as Buyer shall have reasonably requested in order to more fully
effectuate the transactions contemplated by this Agreement.
7.13 Further Assurances. Seller and Xxxxx 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 Xxxxx 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 AND XXXXX
The obligations of Seller and Xxxxx 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 Xxxxx 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 Xxxxx 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.
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.
8.6 Deliverables. Buyer shall have duly executed and delivered to
Seller the Assignment and Assumption Agreement, the Other Agreements and such
other agreements, documents and instruments as Seller shall have reasonably
requested in order to more fully effectuate the transactions contemplated by
this Agreement.
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 Muns, Wagner, Anastopulos & Xxxx at 000
X Xxxxxx, Xxxxx 0000, Xxx Xxxxx, XX 00000-0000 or such other place as is
mutually agreed to by the parties, at 10:00 A.M. on February 22, 1999 (the
"Closing Date"). Title to the Assets shall pass from Seller to Buyer as of
12:01 A.M., Oklahoma City, Oklahoma time, on the day following the Closing Date.
ARTICLE X
CLOSING
10.1 Seller's and Xxxxx'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) Other Agreements. Seller shall execute and deliver to Buyer,
in form and substance acceptable to Buyer, the Supply Contract and the
Software License Agreement, and XXXXXXX X. XXXXX shall execute and deliver
to Buyer, in form and substance acceptable to Buyer, the Xxxxxxx X Xxxxx
Employment Agreement.
(c) 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.
(d) Certificates. Seller and Xxxxx shall execute and deliver the
certificates referred to in Section 7.3.
(e) Indemnification Pledge Agreement. Seller shall execute and
deliver the Indemnification Pledge Agreement (the "Pledge Agreement")
required by Section 11.7.
(f) Revised Inventory. Seller shall deliver revised and updated
schedules of SCHEDULES 3.3 (Inventory), 3.21 (Payables) and any other
Schedules that must be updated or revised pursuant to Section 5.3.
(g) Certificates of Authorities. Seller shall deliver to Buyer the
certificates of authority referred to in Section 7.6 no later than February
25, 1999.
(h) Opinion of Seller's and Xxxxx'x Counsel. Seller and Xxxxx
shall deliver to Buyer the opinion of their counsel, dated the Closing
Date, as to the matters specified in Section 7.9.
(i) Consents. Seller shall deliver to Buyer the consents and
approvals required by Section 7.10.
(j) Other Actions. Seller and Xxxxx 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.
10.2 Buyer's Performance. At the Closing, concurrently with the
performance by Seller of its obligations to be performed at the Closing:
(a) Cash Portion of the Purchase Price. Buyer shall deliver to
Seller the cash amount specified in Section 2.1(a), by certified or bank
cashier's check or wire transfer;
(b) Stock Portion of the Purchase Price. Buyer shall deliver to
Seller a stock certificate or certificates for the shares of Common Stock
specified in Section 2.1(b), which certificate or certificates shall bear a
legend restricting the transferability of the shares represented by such
certificate without registration under the Securities Act of 1933 or an
opinion of counsel acceptable to Buyer that such registration is not
required.
(c) Delivery of Assignment Assumption Agreement and Other
Agreements. Buyer shall execute and deliver to Seller the Assignment and
Assumption Agreement and the Other 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 Further Actions. In addition to the foregoing, Buyer and Seller
agree as follows:
(a) Further Action by Seller. At any time and from time to time,
at or after the Closing, upon request of Buyer, Seller and Xxxxx 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.
(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 and shall not be extinguished by the Closing
or any investigation made by or on behalf of any party hereto.
11.2 Buyer's Losses. Each of Seller and Xxxxx hereby agree, jointly and
severally subject to Section 11.5 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) the breach by Seller or Xxxxx
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; (ii) any material failure by Seller 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
Seller prior to the closing date; or (iv) any failure by Seller to satisfy and
discharge any other liability or obligation not expressly assumed by Buyer
pursuant to this Agreement.
11.3 Employee Compensation and Benefits. Each of Seller and Xxxxx 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 Seller's Losses. Buyer agrees, subject to Section 11.5 below, to
indemnify Seller and Xxxxx and save and hold Seller and Xxxxx 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.
11.5 Notice of Loss. Notwithstanding anything herein contained Buyer,
Seller and Xxxxx 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.
11.6 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.
11.7 Indemnification Pledge Agreement. At closing, Seller will grant
Buyer a security interest in the shares of the Common Stock acquired by Seller
pursuant to section 2.1 (b). After
six (6) months from the date of closing, the security interest will terminate as
to 25% of such shares not otherwise foreclosed or subject to a then existing
claim, and will terminate in increments equal to twenty-five percent (25%) of
the stock initially pledged on each succeeding six (6) month anniversary of the
closing, upon the terms and condition set forth in the Indemnification Pledge
Agreement attached hereto as Exhibit G. Additionally, Buyer agrees to include
said shares for "piggy-back" registration on the form S-3 registration next
filed after the closing date which registration shall be completed on or before
September 30, 1999.
11.8 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.
ARTICLE XII
POST-CLOSING COVENANTS
12.1 Transition Period. Seller and Xxxxx 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 Xxxxx 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 Non-Solicitation.
(a) Each of Buyer and Seller agrees that, for a period of two (2)
years from the Closing Date, or two (2) years from the date of termination
of this Agreement, whichever occurs first, it will not knowingly, as a
result of information obtained hereunder or otherwise obtained in
connection with the transactions contemplated hereunder:
(i) other than Buyer's acquisition of the Business
contemplated by the terms of this Agreement, divert or attempt to
divert any business or customer of the other party to this
Agreement, or
(ii) except for Buyer's employment of Xxxxx or the possible
employment by Buyer of other existing employees of the Music Trader
Stores, employ or attempt to employ any employee of the other party
to this Agreement; provided, however, Movie Trader, in its
discretion, may employ former employees of Buyer or Seller who have
terminated their relationship with either Buyer or Seller without
the encouragement of Seller or Music Trader.
(b) The remedy at law for any breach or attempted breach by a party
of the provisions of this Section 12.3 will be inadequate and the non-
breaching party 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 12.3. If any one or more of the provisions
contained in this Section 12.3 shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability 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 12.3 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.
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.
(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 Xxxxx in writing if the Closing shall not
have occurred by [March 30, 1999], 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.
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 the provisions of 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.
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 amended
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: Music Trader, Inc.
Attn: Xxxxxxx X. Xxxxx, President
0000 Xxxxx Xxxx
Xxx Xxxxx, XX 00000
with copy to: Muns, Wagner, Anastopulos & Xxxx
Attn: Xx Xxxx, Attorney
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
(ii) If to Buyer: Compact Discs Management, Inc.
Attn: Xxxx Xxxxxxx, President
0000 Xxxxxxxxx Xxx
Xxxxxxxx Xxxx, XX 00000
with copies to: Xxxxx X. Day, Esq.
Day, Edwards, Federman, Xxxxxxxxxxx &
Propester, P.C.
000 Xxxx Xxxxxx
00xx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
CD Warehouse, Inc.
Attn: Xxxxxxx X. Xxxxxxxxxxxx
Vice President & General Counsel
0000 Xxxxxxxxx Xxx
Xxxxxxxx Xxxx, XX 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 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 will be construed and enforced in
accordance with and governed by the laws of the State of Delaware, without
regard to conflict of law principles. 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. 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. Except as provided in Section 5.7 and Section
12.3 of this Agreement, 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 (the "Association") in Oklahoma City, Oklahoma,
and further agrees to be bound by the determination of an arbitration panel
consisting of three (3) persons. If demand for arbitration is made, each party
will have the right to select one independent arbitrator. If the party upon whom
the demand for arbitration is served fails to select an arbitrator within twenty
days, then the Association may select a second arbitrator upon application by
either party. The two arbitrators shall select a third arbitrator. If the two
arbitrators fail to select a third arbitrator within twenty days, the third
arbitrator may be
selected and appointed by the Association upon application by either party. The
arbitrators' decision concerning the claim, controversy or dispute, including
allocation among the parties of costs and expenses associated with the
arbitration, shall be final and binding on the parties and judgment on the 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.
14.13 Sales Tax. Buyer shall pay 50% and Seller shall pay 50% of any
California sales taxes associated with the transactions described herein, which
total amount is estimated at $12,000.00.
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:
-------
MUSIC TRADER, INC.
BY:/s/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx, President
XXXXX:
------
XXXXXXX X. XXXXX
/s/ Xxxxxxx X. Xxxxx
----------------------------------------
Xxxxxxx X. Xxxxx
XXXXX XXXXXX-XXXXX
/s/ Xxxxx XxXxxx Xxxxx
----------------------------------------
Xxxxx XxXxxx- Xxxxx
BUYER:
------
COMPACT DISCS MANAGEMENT, INC.
By:/s/ Xxxx X. Xxxxxxx
-------------------------------------
Xxxx Xxxxxxx, President
