EXHIBIT #2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made and entered into effective as of this 3rd
day of November, 2003, by and among Navarre Corporation, a Minnesota corporation
("Navarre"), BCI Eclipse Company, LLC, a Minnesota limited liability company
("Buyer"), BCI Eclipse LLC, a New York limited liability company ("Seller"), and
Xxxxx X. Xxxxxx ("Xxxxxx") and Xxxxxx X. Xxxxx ("Xxxxx") (Xxxxxx and Xxxxx are
hereinafter collectively referred to as the "Members").
W I T N E S S E T H:
WHEREAS, Seller is wholly-owned by the Members and Brentwood Communications,
Inc., and is engaged in the business of manufacturing, marketing and packaging
of music and video content for sale to distributors and retailers (the
"Business");
WHEREAS, Buyer is a wholly-owned subsidiary of Navarre;
WHEREAS, Seller and the Members desire to sell to Buyer, and Buyer desires to
buy from Seller, substantially all operating assets of Seller, other than those
specifically excluded, on the terms and subject to the conditions indicated
below.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants
and agreements herein contained and other good and valuable consideration, the
receipt, sufficiency and mutuality of which are hereby acknowledged, the parties
agree as follows:
ARTICLE 1.
PURCHASE OF ASSETS
1.1 PURCHASED ASSETS. On the terms and subject to the conditions contained in
this Agreement, on the "Closing Date" (as such term is defined in Section 1.3),
Seller shall sell and assign to Buyer, and Buyer shall purchase from Seller, all
tangible and intangible assets of Seller, other than the "Excluded Assets" (as
such term is defined under Section 1.2), including, without limitation, the
following (all assets of Seller to be purchased by Buyer are collectively
referred to as the "Purchased Assets"):
1.1.1 ACCOUNTS RECEIVABLE. All accounts receivable of Seller (the
"Accounts Receivable"), together with the associated allowance for
doubtful accounts (the "Receivables Reserve") and the associated
allowance for returns (the "Returns Reserve"). Attached Exhibit 1.1.1
lists the Accounts Receivable, the Receivables Reserve and the Returns
Reserve as of the Closing Date.
1.1.2 INVENTORY. All inventory of Seller (the "Inventory"). Attached
Exhibit 1.1.2 lists all of the inventory of Seller as of the Closing
Date.
1.1.3 MASTERS. The original material object in which sounds and/or
images are fixed by any method and from which sounds and/or images can
be perceived, reproduced or otherwise communicated, either directly or
with the aid of a machine, device, or process, associated with Seller
Products (as defined in Section 3.22.1 below).
1.1.4 FURNITURE AND EQUIPMENT. All furniture, fixtures, equipment and
machinery (including fully depreciated items), including those items
described on attached Exhibit 1.1.4, and all warranties relating
thereto (collectively, the "Furniture and Equipment").
1.1.5 PREPAYMENTS. All prepayments and deposits made by Seller
(collectively, the "Prepayments"), including all employee advances,
prepaid expenses and lease deposits as described on attached Exhibit
1.1.5.
1.1.6 LICENSES, PERMITS AND AUTHORIZATIONS. All of Seller's rights in
and to the licenses, permits and other authorizations issued to Seller
by any governmental authority and used or necessary in the conduct of
its business (collectively, the "Authorizations").
1.1.7 REAL AND PERSONAL PROPERTY LEASES. All right, title and interest
under those certain real and personal property leases described on
attached Exhibit 1.1.7 (the "Assigned Leases"), including leasehold
improvements and deposits relating to the Assigned Leases.
1.1.8 LICENSE AGREEMENTS. All right, title and interest under Seller's
license agreements with third parties (whether existing, modified, new
or to be negotiated), as described in Exhibit 1.1.8 attached hereto as
of the Closing Date (collectively, the "Assigned Agreements").
1.1.9 BUSINESS CONTRACTS. All other contract rights related to or
useful in connection with the operation of the Business, including, but
not limited to, the sales representation agreements and employment
agreements described on attached Exhibit 1.1.9 (the "Assumed
Contracts").
1.1.10 INTELLECTUAL PROPERTY RIGHTS. All (i) United States and foreign
patents and patent applications, (ii) copyrights and registrations or
applications for registration of any such copyright; (iii) trademarks,
service marks, trade names and associated goodwill, and registrations
or applications for registration of any such marks or names; (iv)
licenses and contract rights; (v) rights of publicity, if any, relating
to the Seller Products; (vi) rights to use likeness and name; and (vii)
other proprietary rights associated with the Business (the
"Intellectual Property Rights").
1.1.11 GENERAL INTANGIBLES. All trade secrets, know-how, goodwill,
customer lists and other proprietary rights and general intangibles
relating to the Business (including, but not limited to, the names
Brentwood Home Video, BCI Music, BCI Latino, BCI Kids, BCI Eclipse
Music, Eclipse Music Group, BCI Classics and Dollar DVD) (collectively,
the "General Intangibles"), including those described on attached
Exhibit 1.1.11.
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1.1.12 SOFTWARE. Designated software of Seller (the "Included
Software"), including the software listed and itemized on Exhibit
1.1.12.
1.1.13 RECORDS. Other than Seller's minute books (which are listed as
"Excluded Assets" below), all reports, studies, files, records,
advertising and customer lists and other reports and records relating
to the operations or business of Seller (collectively, the "Records").
Seller, upon reasonable notice to Buyer, will continue to have
reasonable access to the Records.
1.2 EXCLUDED ASSETS. Notwithstanding anything in this Agreement to the contrary,
the following assets shall not be purchased by Buyer and shall be retained by
Seller (collectively, the "Excluded Assets"):
1.2.1 CASH AND MARKETABLE SECURITIES. All cash and marketable
securities of Seller as of the Closing Date.
1.2.2 PERSONAL PROPERTY. Personal assets as more specifically described
on attached Exhibit 1.2.2 (the "Personal Assets"), it being understood
that these are personal assets not owned by Seller.
1.2.3 MINUTE BOOKS. The minute books of Seller, provided Buyer shall be
entitled to access to and copies of such books upon request.
1.2.4 EXCLUDED SOFTWARE. Designated software of Seller (the "Excluded
Software"), including the Software listed and itemized on Exhibit
1.2.4.
All tangible Excluded Assets retained by Seller shall be removed by Seller from
the property locations to be leased and occupied by Buyer within such time
frames as are mutually agreed to between Buyer and Seller.
1.3 CLOSING. Closing on the purchase and sale of the Purchased Assets shall take
place at the offices of Seller on the date first written above, or at such other
date and place as may be mutually agreed upon by the parties to this Agreement
(such date is referred to in this Agreement as the "Closing Date"). The
effective time of the closing shall be as of 8:00 a.m. on the Closing Date (the
"Closing").
1.4 TITLE AND RISK OF LOSS. Seller shall bear all cost and expense, and shall
assume and bear all risk of loss, damage and destruction, due to theft,
expropriation, seizure, destruction, damage, fire or other casualty of or
related to the Purchased Assets until title thereto is passed to Buyer at
Closing.
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ARTICLE 2.
CONSIDERATION FOR THE PURCHASED ASSETS
AND PAYMENT TERMS
2.1 PURCHASE PRICE AMOUNT. The aggregate purchase price to be paid for the
Purchased Assets shall be equal to the sum of: (i) Seven Million Two Hundred
Fifty Thousand and 00/100 Dollars ($7,250,000.00) in cash; plus (ii) 1,000,000
shares of Navarre Stock (as defined in Section 2.7 below) (the "Closing Stock
Consideration"); plus (iii) the amount of the Assumed Liabilities (as such term
is defined in Section 2.4.1 below); plus (iv) the "Earn-Out Amount" (as such
term is defined in Section 2.4.2 below) (the "Purchase Price").
2.2 CLOSING DATE ADJUSTMENT.
2.2.1 If the Net Book Value of Seller on the Closing Date (the "Closing
Date Net Book Value"), is below the Minimum Net Book Value (as defined
in Section 2.4.1 hereof), then Buyer shall have the option to either
(a) terminate this Agreement, or (b) reduce the Purchase Price by the
amount that the Closing Date Net Book Value is less than the Minimum
Net Book Value (the "Closing Date Adjustment"); it being the intention
of Buyer and Seller that Seller deliver to Buyer at the Closing no less
than the Minimum Net Book Value. For purposes hereof, "Net Book Value"
shall mean the book value of the Purchased Assets less the Assumed
Liabilities. The Closing Date Adjustment, if any, shall be determined
on the basis of the balance sheet of Seller as of the Closing Date (the
"Closing Balance Sheet"), and shall include a calculation of the
Closing Date Net Book Value. The Closing Balance Sheet shall be
prepared by Seller in accordance with generally accepted accounting
principles ("GAAP"), except where the use of GAAP would render the
Closing Balance Sheet inconsistent with the past practices of Seller,
and shall be certified as true and correct in all material respects by
Seller's Chief Financial Officer.
2.2.2 Buyer's independent accounting firm shall have the opportunity to
examine, promptly as and when prepared, the work papers, schedules and
other documents prepared by Seller in connection with its preparation
of the Closing Balance Sheet and the calculation of the Closing Date
Net Book Value.
2.2.3 Within thirty (30) days following the delivery of the Closing
Balance Sheet, Buyer may deliver to Seller a notice of objection (an
"Objection Notice") with respect to the Closing Balance Sheet and the
calculation of the Closing Date Net Book Value. If no Objection Notice
is delivered to Seller within such thirty (30) day period, the Closing
Balance Sheet and the calculation of the Closing Date Net Book Value
and the Closing Date Adjustment, if any, shall be final and binding on
the parties. Any Objection Notice shall specify in reasonable detail
the items on the Closing Balance Sheet disputed and shall describe in
reasonable detail the basis for the objection and all information in
the possession of the objecting party which forms the basis thereof, as
well as the amount in dispute. If an Objection Notice is given, Seller
and Buyer shall consult with each other with respect to the objection.
If the parties are unable to reach agreement within fifteen (15) days
after an Objection Notice has been given, any unresolved disputed items
shall be promptly referred to a mutually acceptable independent public
accounting firm (the
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"Unrelated Accounting Firm"). The Unrelated Accounting Firm shall be
directed to render a written report on the unresolved disputed issues
with respect to the Closing Balance Sheet as promptly as practicable
and to resolve only those issues of dispute set forth in the Objection
Notice. If unresolved disputed issues are submitted to the Unrelated
Accounting Firm, Seller and Buyer will each furnish to the Unrelated
Accounting Firm such work papers, schedules and other documents
relating to the unresolved disputed issues as the Unrelated Accounting
Firm may reasonably request. The resolution of the dispute by the
Unrelated Accounting Firm shall be final and binding on the parties. If
the parties or the Unrelated Accounting firm determine that a
Post-Closing Adjustment with respect to the Closing Date Adjustment is
appropriate, payment of the amount of the Post-Closing Adjustment shall
be made by wire transfer of immediately available funds no more than
five business days after such determination is made, by the party owing
such amount to the party entitled to receive the Post-Closing
Adjustment.
2.2.4 The Unrelated Accounting Firm shall determine the party (i.e.,
Buyer or Seller) whose asserted position as to the Closing Date Net
Book Value under examination before the Unrelated Accounting Firm is
furthest from the determination thereof by the Unrelated Accounting
Firm (i.e., the non-prevailing party), and such non-prevailing party
shall pay the fees and expenses of the Unrelated Accounting Firm
2.3 PAYMENT TERMS. The Purchase Price shall be paid as follows:
2.3.1 CLOSING PAYMENT. The portion of the Purchase Price to be paid at
Closing (the "Closing Payment") shall be paid as follows:
A. CASH PAYMENT. $7,250,000 shall be paid by Buyer to Seller
in cash or certified funds or by wire transfer on the Closing
Date.
X. XXXXXXX STOCK. On the Closing Date, Navarre shall issue the
Closing Stock Consideration.
2.3.2 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. In addition to the
payments indicated above, on the Closing Date Buyer shall assume the
Assumed Liabilities and shall additionally assume those obligations
accruing after the Closing Date under the Assigned Leases, the Assigned
Agreements and the Assumed Contracts, excluding any liabilities for
pre-closing breaches, penalties or similar expenses or payments
(collectively, with the Assumed Liabilities, the "Assumed
Obligations"). It is expressly understood that Buyer is assuming only
the Assumed Obligations, Buyer shall have no responsibility or
liability for any liabilities or other obligations of Seller other than
the Assumed Obligations, and all liabilities and other obligations of
Seller other than the Assumed Obligations shall remain obligations of
Seller. Without limiting the generality of the above:
A. Seller shall retain, and be responsible for paying,
performing and discharging when due, all liabilities
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of Seller other than the Assumed Liabilities, regardless of
when incurred, whether or not Buyer is alleged to have
liability as a successor to Seller.
B. Except for the Assumed Obligations, Buyer is not, directly
or indirectly, assuming any debt, obligation or liability of
or claim against Seller of any kind whatsoever, whether known
or unknown, actual or contingent, matured or unmatured,
currently existing or arising in the future.
C. Buyer shall not, as a result of the transactions
contemplated by this Agreement or otherwise, acquire or be
responsible for any debts, obligations or liabilities of or
claims against Seller other than the Assumed Obligations. All
debts, obligations, liabilities and claims of any nature
whatsoever which relate to a period or periods prior to the
Closing Date, other than the Assumed Liabilities, shall be the
responsibility of Seller and shall be paid by Seller.
D. Subject to Section 9.6, Seller shall be solely and
absolutely responsible for all liabilities, costs and expenses
(other than Assumed Liabilities) relating to any and all
threatened or pending litigation, together with any litigation
commenced after the Closing Date, which relates to facts,
circumstances or other occurrences arising on or before the
Closing Date and which affects or otherwise relates to Seller
and/or the Business.
E. Seller shall be solely and absolutely responsible for any
and all income, sales, use or other similar taxes relating to
or resulting from (i) the operation of the Business prior to
the Closing Date, and (ii) the purchase and sale of the
Purchased Assets as described in this Agreement.
2.3.3 PAYMENT OF EARN-OUT AMOUNT. Subject to Sections 8.8 and 9.6 hereof,
receipt of payment of the Earn-Out Amount is contingent on the BCI Division (as
such term is defined in Section 2.4.2 below) achieving certain targets for
Operating Income (as such term is defined in Section 2.4.2 below) (each, an
"Operating Income Target").
A. The calculations for determining any Earn-Out Amount (the
"Initial Determination") which may be due shall be completed
only after Buyer's accountants have reported to Buyer's Board
of Directors for the prior 12-month period (or stub period, in
the case of the first and last Earn-Out Amounts), commencing
with the first day of the month after the Closing Date (each,
an "Earn-Out Period") provided, however, that each Earn-Out
Amount shall be paid no later than ninety (90) days following
the Earn-Out Period being measured unless there is a dispute
as provided for below. In connection therewith, Buyer shall
provide Seller with such back-up information and calculations
as Seller may reasonably request.
B. If Seller does not agree that any Initial Determination
correctly states the Operating Income of the BCI Division
through the Earn-Out Period under examination, Seller shall
promptly (but not later than thirty (30) days after delivery
of such Initial Determination) give written notice to Buyer of
any
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exceptions thereto (in reasonable detail describing the nature
of the disagreement asserted). If Seller and Buyer reconcile
their differences, the Initial Determination shall be adjusted
accordingly (as so adjusted, the "Adjusted Determination") and
shall thereupon become final and conclusive upon all of the
parties hereto. If Seller and Buyer are unable to reconcile
their differences in writing within twenty (20) days after
written notice of exceptions is delivered by the Seller, the
items in dispute shall be submitted to the Minneapolis office
of an Unrelated Accounting Firm. The determination of the
accounting firm so selected shall be set forth in writing and
shall be conclusive and binding upon the parties. The Initial
Determination shall be deemed adjusted (as so adjusted, the
"Adjusted Determination") in accordance with the determination
of the Unrelated Accounting Firm and shall become binding,
final and conclusive upon all of the parties hereto. The
Unrelated Accounting Firm shall consider only the items in
dispute and shall be instructed to act within thirty (30) days
(or such longer period as the Seller and Buyer may agree) to
resolve all items in dispute. If Seller does not give notice
of any exception within thirty (30) days after the delivery of
an Initial Determination or if Seller in its discretion gives
written notification of its acceptance of an Initial
Determination prior to the end of such 30-day period, such
Initial Determination shall thereupon become binding, final
and conclusive upon all the parties hereto.
C. The Unrelated Accounting Firm shall determine the party
(i.e., Buyer or Seller) whose asserted position as to the
amount of Operating Income under examination before the
Unrelated Accounting Firm is furthest from the determination
thereof by the Unrelated Accounting Firm (i.e., the
non-prevailing party), and such non-prevailing party shall pay
the fees and expenses of the Unrelated Accounting Firm.
2.4 DEFINITIONS.
2.4.1 ASSUMED LIABILITIES. For purposes of this Agreement, the term
"Assumed Liabilities," shall mean only those amounts properly recorded
on Seller's books as of the Closing Date in accordance with GAAP,
relating to:
A. Seller's debt to Xxxxxxx Xxxxx Business Financial Services,
Inc. (the "ML Loan") in an amount not to exceed $2,400,000;
B. Seller's trade payables associated with the Purchased
Assets;
C. Seller's other liabilities as set forth on Exhibit 2.4.1,
in an amount not to exceed $10,000; and
D. The amount of accrued royalties on Seller's books as of the
Closing Date (the "Closing Date Accrued Royalties").
Notwithstanding the foregoing, the amount of the Assumed Liabilities
shall be limited so that the book value of the Purchased Assets exceeds
the amount of the Assumed
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Liabilities by not less than $2,300,000 (the "Minimum Net Book Value")
on the Closing Date. The Assumed Liabilities as of the Closing Date is
set forth in Exhibit 2.4.1 attached hereto.
2.4.2 EARN-OUT AMOUNT.
A. DEFINITIONS. For purposes of calculating the Earn-Out
Amount, the following definitions shall apply:
I. OPERATING INCOME. "Operating Income" shall mean
all revenues of the BCI Division, less (a) all
adjustments to such revenues, and (b) all expenses of
Buyer directly attributable to the generation of such
revenues, all in accordance with GAAP.
Notwithstanding the foregoing, Operating Income shall
be determined in substantially the same manner as
determined by Seller prior to Closing.
II. BCI DIVISION. "BCI Division" shall mean Buyer's
operation of the business acquired by Buyer from
Seller pursuant to this Agreement as a separate
division of Buyer, provided that the following costs
and expenses shall not be attributed to those
operations: (i) costs and expenses associated with
consummation of the transactions contemplated by this
Agreement or other future acquisition costs and
expenses, (ii) charges to the BCI Division for
general overhead or other general administrative
costs and expenses of Buyer, other than as mutually
agreed upon by Buyer and Seller, (iii) any
depreciation deductions in excess of what Seller
would have deducted pursuant to GAAP had it not sold
its assets to Buyer pursuant to this Agreement; (iv)
any amounts paid pursuant to Section 2.3.3 hereof;
(v) any amounts paid to Xxxxx as a bonus; (vi) any
amount which must be recorded as an expense as a
result of the granting of stock options to Xxxxx; and
(vii) any Losses (as defined in Section 9.1 hereof)
attributable to IP Claims (as defined in Section 9.5
hereof).
B. EARN-OUT AMOUNT. The "Earn-Out Amount" shall mean an amount
equal to the sum of the following:
I. INITIAL 5-MONTH AMOUNT. An amount equal to $87,500
if the Operating Income of the BCI Division during
the 5-month period beginning November 1, 2003 and
ending March 31, 2004 equals or exceeds $1,000,000.
II. YEAR ONE AMOUNT. An amount equal to $350,000 if
the Operating Income of the BCI Division during the
12-month period beginning April 1, 2004 and ending
March 31, 2005 equals or exceeds $4,600,000.
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III. YEAR TWO AMOUNT. An amount equal to $350,000 if
the Operating Income of the BCI Division during the
12-month period beginning April 1, 2005 and ending
March 31, 2006 equals or exceeds $5,100,000.
IV. YEAR THREE AMOUNT. An amount equal to $300,000 if
the Operating Income of the BCI Division during the
12-month period beginning April 1, 2006 and ending
March 31, 2007 equals or exceeds $5,100,000.
V. YEAR FOUR AMOUNT. An amount equal to $250,000 if
the Operating Income of the BCI Division during the
12-month period beginning April 1, 2007 and ending
March 31, 2008 equals or exceeds $5,100,000.
VI. YEAR FIVE AMOUNT. An amount equal to $187,500 if
the Operating Income of the BCI Division during the
7-month period beginning April 1, 2008 and ending
October 31, 2008 equals or exceeds $3,900,000.
C. ADJUSTMENT. The Earn-Out Amount paid for a particular
Earn-Out Period will be reduced as set forth below in the
event that actual Operating Income is below the Operating
Income Target for that Earn-Out Period as follows: if the
Operating Income is less than 75% of that Earn-Out Period's
Operating Income Target, there will be no Earn-Out Amount for
that Earn-Out Period, and that Earn-Out Period's Earn-Out
Amount will be forfeited. If the Operating Income falls
between 75% and 100% of that Earn-Out Period's Operating
Income Target, the Earn-Out Amount for that Earn-Out Period
will be reduced by 4% for each percentage point that actual
Operating Income is below the Operating Income Target. For
example, if the Operating Income were at 98% of the Operating
Income Target, the Earn-Out Amount for that Earn-Out Period
would be reduced by 8%.
2.5 TAXES. Seller shall be responsible for payment of any and all income, sales,
use or other similar taxes relating to or resulting from the purchase and sale
of the Purchased Assets as described in this Agreement.
2.6 ALLOCATION OF PURCHASE PRICE. Buyer and Seller have agreed upon allocation
of the Closing Payment among the Purchased Assets pursuant to the requirements
of Internal Revenue Code Section 1060. Such allocation is attached as Exhibit
2.6 to this Agreement. If the Purchase Price is determined to differ from the
Closing Payment pursuant to Section 2.2 above, Buyer and Seller shall agree upon
allocation of the Purchase Price among the Purchased Assets pursuant to
requirements of Internal Revenue Code 1060. Such allocation shall be reduced to
writing and attached as Exhibit 2.6 to this Agreement, replacing the original
Exhibit 2.6. Buyer and Seller agree that the Purchase Price reflects the fair
market value of the Purchased Assets and further
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agree to allocate the Purchase Price for business and tax purposes in the manner
provided on Exhibit 2.6.
2.7 NAVARRE STOCK.
2.7.1 During the period beginning on the date of receipt of the Navarre
Stock and ending January 1, 2004, Seller or its assignee shall not
sell, assign, exchange, transfer, distribute or otherwise dispose of
(in each case, "transfer") any shares of Navarre Stock received by it
hereunder except as otherwise permitted by Buyer or pursuant to Section
8.10 hereof. During the period beginning on January 1, 2004 and ending
January 1, 2005, Seller or its assignee may transfer, in the aggregate,
up to 500,000 shares of Navarre Stock, but only 125,000 shares of
Navarre Stock during each calendar quarter. During the period beginning
on January 1, 2005 and ending January 1, 2006, Seller or its assignee
may transfer, in the aggregate, up to 500,000 shares of Navarre Stock,
but only 200,000 shares of Navarre Stock during each calendar quarter.
Notwithstanding the foregoing, Buyer shall be deemed to have consented
to any transfer of Navarre Stock by Buyer to the Members, and by the
Members to any trust where a beneficiary of the trust is such Member's
spouse, child(ren) or grandchild(ren), and the trustee of the trust is
such Member or a successor trustee upon the death of such Member.
The recipient of the Navarre Stock will execute an investment letter in
such form reasonably required by Navarre upon its, his or her receipt
of such stock. Following the restriction periods described in this
Section 2.7.1, Seller or its assignee may transfer its, his or her
shares of Navarre Stock so long as such transfer is in accordance with
any applicable federal or state securities or "blue sky" laws, rules or
regulations (collectively, "Securities Laws") and/or Section 8.10
hereof. The certificates evidencing the Navarre Stock delivered to
Seller pursuant to this Agreement shall bear a legend substantially in
the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED (OTHER THAN IN CONNECTION WITH A PLEDGE), EXCHANGED,
TRANSFERRED, DISTRIBUTED, CHANGED OR OTHERWISE DISPOSED OF,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT (OTHER THAN IN CONNECTION WITH A
PLEDGE), EXCHANGE, TRANSFER, DISTRIBUTION, OR OTHER
DISPOSITION OTHER THAN IN ACCORDANCE WITH SECTION 2.7 OF THAT
CERTAIN ASSET PURCHASE AGREEMENT DATED AS OF NOVEMBER 1, 2003,
BY AND AMONG NAVARRE CORPORATION, BCI ECLIPSE COMPANY, LLC,
BCI ECLIPSE, LLC AND XXXXX X. XXXXXX AND XXXXXX X. XXXXX.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION (COLLECTIVELY, THE "SECURITIES
LAWS") AND MAY NOT BE
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SOLD, DISPOSED OF OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION, EXCEPT IN ACCORDANCE WITH AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF ANY APPLICABLE
SECURITIES LAWS PROVIDED THAT NAVARRE CORPORATION SHALL HAVE
RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THEM CONFIRMING
THAT THE REQUIREMENTS OF SUCH EXEMPTION HAVE BEEN SATISFIED.
2.7.2 Seller shall not transfer any shares of the Navarre Stock at any
time if such transfer would constitute a violation of any Securities
Laws, or a breach of the conditions to any exemption from registration
of the Navarre Stock under any such Securities Law on which Seller is
relying at the time of his sale, or a breach of any undertaking or
agreement of Seller entered into with Navarre Stock pursuant to such
Securities Laws or in connection with obtaining an exemption
thereunder.
2.7.3 For purposes of this Agreement (and the restrictions set forth in
this Section 2.7), the term "Navarre Stock" shall mean and include (i)
the shares of common stock of Buyer issued, granted, conveyed and
delivered to Seller pursuant to Section 2.3 hereof, and (ii) any and
all other additional shares of capital stock of Buyer issued or
delivered by Buyer with respect to the shares of Navarre Stock
described in clause (i) hereof, including without limitation any shares
of capital stock of Buyer issued or delivered with respect to such
shares as a result of any stock split, stock dividend, stock
distribution, recapitalization or similar transaction.
ARTICLE 3.
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF SELLER AND THE MEMBERS
In connection with and as an inducement to Buyer to enter into and be bound by
the terms of this Agreement, Seller and the Members each hereby, jointly and
severally, represents, warrants and covenants to Buyer as follows:
3.1 ORGANIZATION, STANDING AND POWER. Seller is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite power and authority to own, lease and operate its
properties and assets and to carry on its business as is now being conducted.
Seller is not required to be qualified or licensed as a foreign entity in any
jurisdiction other than New York and California, and the property owned, leased
or operated by Seller and the nature of business conducted by Seller are such
that qualification or licensing in any other jurisdiction is not necessary.
Seller has delivered to Buyer complete and correct certified copies of the
Articles of Organization and the Operating Agreement of Seller as currently in
effect.
3.2 STRUCTURE. Seller has no outstanding subscriptions, warrants, options, calls
or commitments relating to its equity, no obligations or securities convertible
into or exchangeable for its equity, and no plans or other agreements of any
character providing for the purchase, issuance or sale of its equity. All
outstanding units of membership interest of Seller are validly
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issued, fully paid and nonassessable and are owned by the Members. Exhibit 3.2
sets forth a list of all members of Seller, Brentwood Communications, Inc., BCII
and Advantage Media Services, Inc. ("AMS"). Except as set forth in Exhibit 3.2,
neither Seller nor any Member owns any stock, partnership interest, joint
venture interest or other security or interest in any other corporation,
organization or entity related to the Business.
3.3 AUTHORITY. Seller has the full power and authority to enter into, execute
and deliver this Agreement and to consummate the transactions contemplated
hereby and any instruments or agreements required herein. The Members have the
full power and authority to enter into, execute and deliver this Agreement and
to approve the sale of assets contemplated hereby on behalf of all of the
members of Seller. This Agreement has been duly and validly executed and
delivered by Seller and the Members and constitutes a valid and binding
obligation of Seller and the Members according to its terms, enforceable against
Seller and the Members. The execution of this Agreement by Seller has been duly
authorized by the managers and the members of Seller.
3.4 NO VIOLATION. Neither the execution and delivery by Seller and the Members
of this Agreement, the consummation of the transactions contemplated hereby, nor
compliance by Seller and the Members with any of the provisions hereof will:
3.4.1 Violate or conflict with any provision of the Articles of
Organization or Operating Agreement of Seller.
3.4.2 Except as disclosed in Exhibit 3.4.2, violate or constitute a
default under or give rise to any right of termination, cancellation or
acceleration under the terms, conditions or provisions of any agreement
or instrument to which Seller or any of the Members is a party or by
which any of them or any of their properties or assets is bound except
as has been duly and validly waived, consented to or approved of by the
other parties to such agreement or instrument;
3.4.3 Result in the creation or imposition of any security interest,
lien or other encumbrance upon any of the Purchased Assets under any
agreement or commitment; or
3.4.4 Violate any statute or law or any judgment, order, decree,
regulation or rule of any court or governmental authority applicable to
Seller or any of the Members or any of the Purchased Assets.
3.5 FINANCIAL STATEMENTS, ETC. All financial information made available by
Seller to Buyer and its agents as part of Buyer's due diligence efforts,
including the items described on attached Exhibit 3.5, are collectively referred
to as the "Financial Documents." The Financial Documents are true and correct
and fairly and accurately represent the financial matters stated therein. All
financial statements included as part of the Financial Documents have been
prepared in accordance with GAAP, consistently applied throughout the period
specified therein, and such financial statements fairly present the financial
condition of Seller as of the dates specified therein and the results of its
operations for the periods specified therein. The Financial Documents do not
include any material misstatements or omit to state any material asset or
12
liability, absolute or contingent, or other facts, the inclusion or omission of
which render the Financial Documents, in light of the circumstances in which
they are made, misleading.
3.6 PURCHASED ASSETS. Seller has good and marketable title to all of the
Purchased Assets and shall transfer title of the Purchased Assets to Buyer free
and clear of all mortgages, pledges, liens, conditional sales agreements or
other encumbrances of any kind or nature whatsoever, other than the Assumed
Liabilities. All of the tangible Purchased Assets are in reasonably good
operating condition, normal wear and tear excepted, and each is adequate for
use, after the Closing Date, in the ordinary course of business consistent with
past practice. The Purchased Assets, together with the services and arrangements
described on Exhibit 3.17 and services provided by AMS (and other than employees
(leased or otherwise) of Seller), comprise all assets and services required for
the continued conduct of the Business by Buyer as now being conducted. None of
the Purchased Assets are owned by BCII.
3.7 BOOKS, RECORDS AND ACCOUNTS. All accounts, books, ledgers and official and
other records of whatsoever kind material to Seller's business have been fully,
properly and accurately kept and completed in all material respects, there are
no material inaccuracies or discrepancies of any kind contained or reflected
therein, and collectively they fairly present the financial position of Seller.
Seller does not have any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not), which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of Seller. Seller keeps its records and books of account in conformity with
GAAP.
3.8 JUDGMENTS. Except as provided in attached Exhibit 3.8, there are no
unsatisfied judgments of record against Seller.
3.9 LIABILITIES. Except for those liabilities disclosed on attached Exhibit 3.9,
and other than liabilities incurred by Seller in the ordinary course of business
since October 1, 2003, there are no liabilities of any kind or character
outstanding for which Seller is or may be liable which are not reflected on
Seller's September 30, 2003 interim financial statements, copies of which have
been delivered to Buyer under Section 3.5. Other than the Assumed Obligations,
no liability of Seller of any kind whatsoever is being assumed, directly or
indirectly, by Buyer. Except as otherwise provided herein, Buyer shall not, as a
result of this transaction, acquire or be responsible for any liabilities of or
claims against Seller other than the Assumed Obligations, and all liabilities,
claims or expenses of any nature whatsoever which relate to a period or periods
prior to the Closing Date, other than the Assumed Obligations, shall be the
responsibility of Seller and shall be paid by Seller in the ordinary course of
business as due. The amount of the Closing Date Accrued Royalties is sufficient
to cover all royalties due under the Assigned Agreements as of the Closing Date.
3.10 ACCOUNTS RECEIVABLE. Attached Exhibit 1.1.1 is a complete and accurate list
of all Accounts Receivable of Seller as of the Closing Date, indicating the
amount owed and the aging of each such receivable, the name and last known
address of the party from whom such receivable is owing, and any security
interest in favor of Seller for the repayment of such receivable which Seller
purports to have. The Accounts Receivable represent bona fide claims
13
for sales or services by Seller in the ordinary course of business, consistent
with past practice. Except to the extent of the Receivables Reserve, and except
as set forth in Section 8.3 hereof, each Account Receivable will be good and
collectible in full in the ordinary course of business and in any event not
later than two hundred seventy (270) days after the Closing Date. Except as set
forth in Section 8.3 hereof, none of the Accounts Receivable or other debts
arising therefrom are or will be subject to any counterclaim or set-off. The
Closing Date Receivables Reserve is consistent with Seller's prior practices.
3.11 NO ADVERSE CHANGE. Except as set forth on Exhibit 3.11, since December 31,
2002, there has not been any material adverse change in the condition (financial
or otherwise), assets, liabilities, revenues, income or business of Seller or in
its relationships with suppliers, dealers, customers or employees, including,
but not limited to:
3.11.1 Any increase (other than those in the ordinary course) in the
wages, salaries, compensation, pension or other benefits payable or to
become payable by Seller to any of its respective officers, employees
or agents;
3.11.2 Any incurrence by Seller of any obligations or liabilities,
whether absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities incurred
in the ordinary course of business and none of which are materially
adverse;
3.11.3 Any discharge or satisfaction of any lien or encumbrance or
payment of any obligation or liability by Seller other than current
liabilities shown or reflected on Seller's December 31, 2002 financial
statements or current liabilities incurred since December 31, 2002 in
the ordinary course of business and shown on Seller's September 30,
2003 interim financial statements included as part of the Financial
Documents;
3.11.4 The mortgage, pledge or subjection to lien, security interest or
any other encumbrance of any of Seller's assets, real or personal,
tangible or intangible, other than in the ordinary course of business;
3.11.5 The sale or transfer of any of Seller's tangible assets, or the
cancellation or release of any debts or claims, except, in each case,
in the ordinary course of business;
3.11.6 The sale, assignment, transfer or encumbrance by Seller of any
trademarks, trade names or other intangible assets;
3.11.7 Any extraordinary losses incurred by Seller;
3.11.8 The failure by the Seller to take or make any charges,
write-offs, increases in bad debt reserves or other adjustments in
Seller's accounts receivable by reason of failure or inability to
collect or diminished prospects for collection of Seller's accounts
receivable;
3.11.9 The occurrence of any event or condition of any character
materially and adversely affecting Seller's business or tax liabilities
or any material change in the condition of Seller's assets, liabilities
or business;
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3.11.10 Licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any right to the use of any
Intellectual Property Right other than in the ordinary course of
business; or
3.11.11 Any entry by Seller into any other transaction other than in
the ordinary course of business.
3.12 LEASES. The schedule of leases attached hereto as Exhibit 3.12 sets forth a
complete and correct description of all leases of real and personal property to
which Seller is a party. Seller has delivered to Buyer complete and correct
copies of all lease agreements described in said Exhibit 3.12 and each such
lease agreement is valid and subsisting and no event or condition exists which
constitutes, or after notice or lapse of time or both would constitute, a
default thereunder. All of Seller's right, title and interests under the
Assigned Leases (as listed on Exhibit 1.1.7) are assignable except as disclosed
therein, no consents to any such assignment are required or, to the extent
required, such consents have been or will be (on or prior to the Closing Date)
obtained and, following the closing of the transactions contemplated by this
Agreement, all such right, title and interest will be effectively and completely
conveyed and assigned to Buyer.
3.13 INSURANCE. Seller has maintained and continues to maintain, with
financially sound and reputable insurers, insurance with respect to its
properties and businesses against loss or damage of the kinds customarily
insured against by corporations of established reputations engaged in the same
or similar businesses and similarly situated, of such types and in such amounts
as are set forth in Exhibit 3.13. The complete list and summary description of
all insurance policies maintained by Seller are set forth on Exhibit 3.13. The
policies listed on Exhibit 3.13 are in full force and effect, all premiums due
thereon have been paid, Seller has complied in all material respects with the
provisions of such policies, and Seller has not received any notice of
cancellation, termination or non-renewal of such policies. At Buyer's option,
Seller agrees to take all action reasonably necessary to enable Buyer to
continue all such policies of insurance and transfer all such policies of
insurance into Buyer's name.
3.14 LITIGATION. Other than disclosed on Exhibit 3.14 hereto, Seller, its
assets, properties and business, are subject to no pending or threatened
litigation, action, suit or proceeding by or before any court, arbitrator or
federal, state or other governmental commission, board or other agency, or by
any private party. As provided in Section 2.3.2 above, and except for the
Assumed Liabilities, Seller shall be solely and absolutely responsible for all
liabilities, costs and expenses relating to any and all threatened or pending
litigation, together with any litigation commenced after the Closing Date, which
relates to facts and circumstances or other occurrences arising on or before the
Closing Date.
3.15 ORDERS, COMMITMENTS, WARRANTY CLAIMS AND RETURNS.
3.15.1 All accepted and unfulfilled orders for the sale of Seller
Products entered into by Seller and all outstanding Contracts for the
purchase of supplies and materials were made in the ordinary course of
business.
3.15.2 The schedule of allowances attached hereto as Exhibit 3.15 sets
forth a complete and correct description of all allowances made by
Seller to its customers for products or
15
services including, without limitation, rebates, cash refunds,
merchandise credits or other rights of return, as of the Closing Date.
3.15.3 To Seller's knowledge, and except as disclosed on Exhibit 3.15
or as set forth in the Financial Documents, there are no claims against
Seller to return Seller Products, or claims for refunds with respect to
Seller Products, in excess of an aggregate of Five Thousand Dollars
($5,000).
3.16 DEFECTS IN PRODUCTS; WARRANTIES. There are no defects in Seller Products
heretofore or currently being distributed or sold by Seller which would
materially adversely affect the performance and quality of such products. Except
as disclosed on Exhibit 3.16, there are no express or implied warranties
outstanding with respect to Seller Products, except as imposed by law.
3.17 CONTRACTS.
3.17.1 Exhibit 3.17 contains a complete list of all Current Customers
of the Business. For purposes of this Agreement, "Current Customer"
means any Person from whom Seller has recognized revenue in the past
twelve months or for whom Seller has any obligation to complete work or
honor any contractual warranty. For purposes hereof, "Person" means any
natural person, corporation, firm, joint venture, partnership, limited
liability company, association, enterprise, trust, or other entity or
organization or any government or political subdivision or agency,
department or instrumentality thereof. Exhibit 3.17 contains a list of
all currently outstanding but unaccepted written proposals relating to
proposed contracts with customers and a description of all oral
proposals relating to proposed contracts with customers which would be
materially burdensome to Seller or involve a material deviation from
past practice, to the extent such proposals are enforceable upon
acceptance by the offeree without further action by Seller. Attached to
Exhibit 3.17 are true and correct copies of all standard form customer
contracts used by Seller. No contract for any Current Customer, whether
written or oral, differs in any material respect from the attached
standard form customer contracts. True and correct copies of all
written Contracts with Current Customers of the Business have been
provided or made available to Buyer. Except as disclosed on Exhibit
3.17, since December 31, 2002, no Current Customers of the Business
have canceled or terminated their Contracts, or notified Seller of
their intent to cancel or terminate their Contract.
3.17.2 Exhibit 3.17 contain a complete list of all suppliers of Seller
who since December 31, 2002, have invoiced Seller for Five Thousand
Dollars ($5,000) or more, including the types of products and/or
services provided by each such supplier.
3.17.3 Exhibit 3.17 sets forth a true and complete list of all of the
currently effective written contracts or written or binding oral
agreements (the "Contracts") to which Seller is a party other than
Contracts disclosed in Sections 3.17.1 and 3.17.2, and other than
Contracts relating to the manufacture, use, reproduction and marketing
of Seller Products, of the following types:
A. Employment agreements and any offers of employment
outstanding.
16
B. Consulting agreements.
C. Agreements or commitments for capital expenditures or the
acquisition by purchase or lease of fixed assets providing for
payments in excess of Five Thousand Dollars ($5,000)
individually or in the aggregate.
D. Agreements for the purchase, sale, lease or other transfer
of any services, products, materials or supplies in excess of
Five Thousand Dollars ($5,000) individually or in the
aggregate from a single Person.
E. Joint venture or partnership agreements with any other
Person.
F. Non-competition or similar agreements which prevent Seller
or any of its employees from competing with any Person (other
than Seller).
G. Confidentiality or employee non-solicitation agreements
with any other Person (other than as are contained in the
Customer Contracts).
H. Agreements relating to the research or development by
Seller for others or by others for Seller.
I. Agreements for the long-term borrowing or long-term lending
of money (including capitalized leases).
J. Agreements for the short-term borrowing or short-term
lending of money.
K. Any Contract, not listed in other Exhibits to this
Agreement, requiring the performance by Seller of any
obligation for a period of time extending more than one year
from the date of this Agreement or calling for Seller to pay a
consideration or incur costs of more than Five Thousand
Dollars ($5,000).
3.17.4 Seller has in all material respects performed, and is now
performing, the obligations of, and Seller is not in default (nor would
by the lapse of time or the giving of notice or both be in default) in
respect of any Contract referred to in the Exhibits to this Agreement.
Each of the Contracts or other instruments shown on the Exhibits
referred to in this Agreement is in full force and effect and is a
valid and enforceable obligation against Seller and, to Seller's
knowledge, against the other party or parties thereto in accordance
with its terms (subject, as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting creditors' rights, and, with respect to the
remedy of specific performance, equitable doctrines applicable
thereto). To Seller's knowledge, no other parties to such Contracts or
other instruments is in default in any material respect (or would by
the lapse of time or the giving of notice or both be in default in any
material respect) thereunder or has breached in any material respect
any terms or provisions thereof.
3.17.5 Other than royalty advances which may not be recouped, there are
no Contracts to which Seller is a party to or bound by which either
separately or in the aggregate has or is likely to result in a loss to
Seller.
17
3.17.6 No third party has raised any claim with respect to any of the
Contracts, nor has Seller received notice of alleged default by Seller
with respect to its obligations under any such Contracts.
3.17.7 Other than as provided in Section 3.17.1, true and complete
copies of all of the Contracts and instruments referred to in the
Exhibits delivered under this Agreement have been delivered to Buyer.
3.18 TAXES. Seller has duly filed all federal, foreign, state and local tax
information and tax returns of any and every nature and description (the
"Returns") required to be filed by it (all such returns being accurate and
complete in all respects) and has duly paid or made provision for the payment of
all taxes and other governmental charges (including without limitation any
interest, penalty or additions to tax thereto) which have been incurred or are
shown to be due on said Returns or are claimed in writing to be due from Seller
or imposed on Seller or its properties, assets, income, franchises, leases,
licenses, sales or use, by any federal, state, local or foreign taxing
authorities (collectively, the "Taxes") on or prior to the date hereof, other
than Taxes which are being contested in good faith and by appropriate
proceedings and as to which Seller has set aside on its books adequate reserves
or which may be attributable to the transactions contemplated hereby. Neither
the IRS nor any state, local or foreign taxing authority has ever examined any
income tax return of the Seller, whether singly or as a member of an affiliated
group. Seller has provided to Buyer complete and correct copies of its federal,
state and local income tax returns filed on or prior to the date hereof and all
examination reports, if any, relating to the audit of such returns by the IRS or
other tax authority for each taxable year beginning on or after January 1, 2001.
All monies required to be withheld from employees, independent contractors,
partners, or creditors of Seller for Taxes, including, but not limited to,
income taxes, back-up withholding taxes, social security and unemployment
insurance taxes or collected from customers or others as Taxes, including, but
not limited to, sales, use or other taxes, have been withheld or collected and
paid, when due, to the appropriate governmental authority, or if such payment is
not yet due, an adequate reserve has been established for such Taxes.
3.19 EMPLOYMENT CONTRACTS AND FRINGE BENEFITS. Seller is not a party to or bound
by any written employment, collective bargaining or other labor contracts or any
pension, profit sharing, retirement, bonus or deferred compensation plans,
employee benefit plans or similar obligations evidenced by writings (or oral
employment contracts other than those terminable at will), except as set forth
on the Schedule of Employment Contracts and Fringe Benefits attached hereto as
Exhibit 3.19 and for which complete and correct copies of each have been
furnished by Seller to Buyer (collectively, the "Employee Benefit Plans and
Agreements"). All employee welfare benefit plans and all employee pension
benefit plans are in compliance with all applicable provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code
of 1986, as amended (the "Code"), and no funding deficiency exists with respect
to such plans. Buyer will incur no liability or obligation under the Employee
Benefit Plans and Agreements other than to the extent listed and identified as
an Assumed Liability pursuant to Section 2.2.2.
3.20 REAL PROPERTY. The Purchased Assets do not include any real property other
than real property leased, and not owned, by Seller pursuant to an Assigned
Lease. With respect to the real property subject to the Assigned Leases, Seller
shall be responsible for all liability which
18
relates to a period or results from a transaction occurring prior to the Closing
Date under any federal, state or local statute, regulation or ordinance related
to human health or the environment, including, without limitation, any law,
regulation or ordinance concerning the protection or preservation of natural
resources, air, water, noise or soil pollution or contamination, or the use,
generation, storage or disposal of hazardous materials.
3.21 COMPLIANCE WITH LAWS. Seller is in compliance in all material respects with
all applicable laws, regulations, orders, judgments and decrees (including,
without limitation, all applicable provisions of any anti-pollution and
environmental protection laws, laws relating to waste disposal, laws relating to
occupational safety and health standards and equal employment opportunity, and
rules and regulations under such laws as currently administered). Seller has all
permits and licenses from governmental authorities required to conduct its
business as it is now being conducted.
3.22 INTELLECTUAL PROPERTY.
3.22.1 COMPANY PRODUCTS. Exhibit 3.22 contains a list of all products
which are or could be offered for sale by the Business (the "Seller
Products"). Seller has a valid written agreement allowing Seller to
manufacture, reproduce, market and sell all such Seller Products.
3.22.2 LICENSE AGREEMENTS. Seller has the right to, among other things,
use, manufacture, market, sublicense or distribute third party music or
video content embodied in the Seller Products.
3.22.3 CERTAIN INTELLECTUAL PROPERTY RIGHTS. Exhibit 3.22 contains a
complete list of the following items included in the Intellectual
Property Rights: (i) United States and foreign patents and patent
applications, and, in the case of patent applications, a description of
the current status of each of the applications; (ii) copyrights and
other works of authorship which are registered with any Governmental
Entity; or for which registration applications have been filed; (iii)
United States and foreign trademarks, service marks and trade names,
for which registrations have been received or applications for
registration have been filed; (iv) rights of publicity; (v) rights to
use likeness and name; and (vi) a list of unregistered trade names used
by Seller.
3.22.4 MISCELLANEOUS.
A. Seller owns good and marketable title to, or has the right
to possess (whether by license, sublicense or otherwise), use,
manufacture, reproduce, license, and distribute, all Seller
Products and Intellectual Property Rights in the United States
and Canada in the Business as currently conducted and Seller
has done nothing to cause such rights to be owned or possessed
by any third party, except pursuant to the grant of a
sublicense by Seller. Company has received no claim that any
Seller Product or any Intellectual Property Right is in whole
or in part invalid, unenforceable, ineffective or in violation
of the rights of others. All Seller Products and all
Intellectual Property Rights developed by Seller employees
and/or independent contractors are owned or licensed
exclusively by
19
Seller, except where Seller has knowingly sublicensed any such
Intellectual Property Rights to others.
B. There is no pending or threatened claim or litigation
contesting the right to use, sell, license or dispose of any
Seller Product or Intellectual Property Right, nor, to
Seller's knowledge, is there any fact or alleged fact which
would reasonably serve as a basis for any such claim that
could materially limit the protection afforded by the
Intellectual Property Rights to the use, sale, license, or
disposition of Seller Products.
C. Except as disclosed on Exhibit 3.22, Seller is in material
compliance with the terms and conditions of all license
agreements governing the use of third party music or video
content.
D. To the extent that the same may exist, and except as
disclosed on Exhibit 3.22, Seller has taken reasonable steps
to safeguard and maintain the secrecy and confidentiality of
all trade secrets and proprietary or confidential business and
technical information included in the Intellectual Property
Rights, including, without limitation, entering to appropriate
confidentiality or disclosure agreements with employees,
officers, consultants, independent contractors and licensees
that serve Seller, the forms of which have been delivered to
Buyer.
E. To the extent that the same may exist, all documents and
materials containing trade secrets or proprietary or
confidential business or technical information of Seller are
presently located at one of the premises identified as leased
real property in Exhibit 3.12 (and physical possession of such
material will be delivered to Buyer at or prior to Closing),
and, to Seller's knowledge, have not been used, divulged, or
appropriated for the benefit of any Person other than Seller,
or to the detriment of Seller.
F. To Seller's knowledge, no third party is infringing on any
Intellectual Property Right in a manner that could materially
limit the protection afforded by the Intellectual Property
Rights to the use, sale, license or disposition of Seller
Products in the Business as currently conducted.
G. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby
will not breach, violate or conflict with any material
instrument or material agreement to which Seller is a party,
governing any Intellectual Property Right, will not cause the
forfeiture or termination or give rise to a right of
forfeiture or termination of any Intellectual Property Right
or in any way materially impair the right of Seller to use,
sell, license or dispose of or bring any action for the
infringement of, any Intellectual Property Right or any Seller
Product.
3.23 SOFTWARE LICENSES. Seller has a sufficient number of valid licenses to
cover all software used by Seller. Any fees, increased maintenance costs or
other transfer fees (whether direct or
20
indirect) which are required to be paid in connection with the transfer of the
software licenses by Seller to Buyer shall be paid by Seller.
3.24 INVESTMENT REPRESENTATIONS. Each Member represents and warrants that he or
she is an "accredited investor," as that term is defined and construed pursuant
to Rule 501 of Regulation D under the Securities Act of 1933. Further, with
respect to his or her investment in the Navarre Stock, each Member who receives
the Navarre Stock represents and warrants as follows:
3.24.1 that he or she has such knowledge and experience in financial
and business matters generally, and with respect to the business and
other activities of Buyer in particular, that he or she is capable of
evaluating the merits and risks of the proposed investment in the
Navarre Stock;
3.24.2 that he or she has had access to or received as much information
with respect to Buyer and the Navarre Stock as he or she deems
advisable in making a decision to invest in the Navarre Stock;
3.24.3 that the Navarre Stock is being and will be acquired for his or
her own account and not on behalf of any person or persons and not with
a view to, or for sale in connection with, any public distributions
thereof;
3.24.4 that all documents, records and books pertaining to his or her
investment in the Navarre Stock and requested by him or her have been
made available or delivered to him or her;
3.24.5 that he or she has had an opportunity to ask questions of and
receive answers from Buyer, or persons acting on its behalf, concerning
the terms and conditions of his or her investment in the Navarre Stock;
3.24.6 that it has never been represented, guaranteed or warranted to
the undersigned by any broker, Buyer, its stockholders, directors,
officers, agents or employees, expressly or by implication, the
approximate or exact length of time that he or she will be required to
remain as owner of the Navarre Stock; or the percentage of profit
and/or amount of time of consideration, profit or loss (including tax
write-offs and/or tax benefits) to be realized, if any, as a result of
such investment;
3.24.7 that he or she is aware that there are substantial restrictions
on the transferability of the Navarre Stock;
3.24.8 that he or she has no need for liquidity in his or her
investment in the Navarre Stock; and
3.24.9 that he or she is aware that the tax treatment of Seller and the
Members is not susceptible to absolute prediction, and new developments
such as Internal Revenue Service rulings, court decision or legislative
changes may have an adverse effect on one or more of the tax
consequences resulting from an investment in the Navarre Stock.
21
3.25 DISCLOSURE. No representation or warranty by Seller or the Members in this
Agreement and no statement contained in this Agreement or in any document
delivered or to be delivered pursuant hereto contains or will contain an untrue
statement of material fact or omits or will omit to state any material fact
necessary to make the statements herein or therein contained, in light of the
circumstances under which made, not misleading; it being understood that as used
in this subparagraph "material" means material to any individual statement or
omission and in the aggregate as to all statements and omissions.
3.26 RELIANCE. The foregoing representations, warranties and covenants are made
by Seller and the Members with the knowledge and expectation that Buyer is
relying thereon.
Subject to Section 9.4 hereof, the foregoing representations, warranties and
covenants, together with any and all other representations, warranties and
covenants contained in this Agreement, shall survive consummation of the
purchase and sale contemplated by this Agreement.
ARTICLE 4.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
In connection with and as an inducement to Seller and the Members to enter into
and be bound by the terms of this Agreement, Buyer hereby represents, warrants
and covenants to Seller and the Members as follows:
4.1 ORGANIZATION. Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Minnesota.
4.2 AUTHORITY. Buyer has full power and authority to enter into, execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and any instruments or agreements required herein. This Agreement has been duly
and validly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer according to its terms. The execution of this Agreement by
Buyer has been duly authorized by the Board of Governors of Buyer.
4.3 NO VIOLATION. Neither the execution and delivery by Buyer of this Agreement,
the consummation of the transactions contemplated hereby, nor compliance by
Buyer with any of the provisions hereof will:
4.3.1 Violate or conflict with any provision of the Articles of
Organization or Operating Agreement of Buyer;
4.3.2 Violate or constitute a default under or give rise to any right
of termination, cancellation or acceleration under the terms,
conditions or provisions of any agreement or instrument to which Buyer
is a party or by which Buyer or any of its properties or assets is
bound except as has been duly and validly waived, consented to, or
approved of by the other parties to such agreement or instrument; or
4.3.3 Violate any statute or law or any judgment, order, decree,
regulation or rule of any court or governmental authority applicable to
Buyer.
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4.4 DISCLOSURE. No representation or warranty by Buyer in this Agreement and no
statement contained in this Agreement or in any other document delivered or to
be delivered pursuant hereto contains or will contain an untrue statement of
material fact or omits or will omit to state any material fact necessary to make
the statements herein or therein contained, in light of the circumstances under
which made, not misleading; it being understand that as used in this
subparagraph "material" means material to any individual statement or omission
and in the aggregate as to all statements and omissions.
4.5 RELIANCE. The foregoing representations, warranties and covenants are made
by Buyer with the knowledge and expectation that Seller and the Members are
relying thereon.
Subject to Section 9.4 hereof, the foregoing representations, warranties and
covenants, together with any and all other representations, warranties and
covenants contained in this Agreement, shall survive consummation of the
purchase and sale contemplated by this Agreement.
ARTICLE 5.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF NAVARRE
In connection with and as an inducement to Seller and the Members to enter into
and be bound by the terms of this Agreement, Navarre hereby represents, warrants
and covenants to Seller and the Members as follows:
5.1 ORGANIZATION. Navarre is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota.
5.2 AUTHORITY. Navarre has full power and authority to enter into, execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and any instruments or agreements required herein. This Agreement has been duly
and validly executed and delivered by Navarre and constitutes a valid and
binding obligation of Navarre according to its terms. The execution of this
Agreement by Navarre has been duly authorized by the Board of Directors of
Navarre.
5.3 NO VIOLATION. Neither the execution and delivery by Navarre of this
Agreement, the consummation of the transactions contemplated hereby, nor
compliance by Navarre with any of the provisions hereof will:
5.3.1 Violate or conflict with any provision of the Articles of
Incorporation or Bylaws of Navarre;
5.3.2 Violate or constitute a default under or give rise to any right
of termination, cancellation or acceleration under the terms,
conditions or provisions of any agreement or instrument to which
Navarre is a party or by which Navarre or any of its properties or
assets is bound except as has been duly and validly waived, consented
to, or approved of by the other parties to such agreement or
instrument; or
5.3.3 Violate any statute or law or any judgment, order, decree,
regulation or rule of any court or governmental authority applicable to
Navarre.
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5.4 NAVARRE STOCK. The shares of Navarre Stock to be issued to Seller pursuant
to this Agreement are duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and free and clear of all encumbrances, except for any encumbrances created by
Seller and encumbrances resulting from restrictions on transferability imposed
by Securities Laws. Upon delivery to Seller of the certificates evidencing the
Navarre Stock, Seller shall acquire valid title to the Navarre Stock.
ARTICLE 6.
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE MEMBERS. All of the
agreements and obligations of Seller and the Members under this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions precedent, any or all of which may be waived, in whole or in part, in
writing by Seller and the Members:
6.1.1 PERFORMANCE AND COMPLIANCE. Buyer shall have performed and
complied with all of the agreements, covenants and conditions required
by this Agreement to be performed or complied with by Buyer on or prior
to the Closing Date, and all of the representations and warranties of
Buyer under this Agreement shall be true and correct in all material
respects as of the Closing Date.
6.1.2 OPINION OF BUYER'S COUNSEL. Seller and its counsel shall have
been furnished with an opinion of legal counsel substantially in the
form provided on attached Exhibit 6.1.2 ("Opinion of Buyer's Counsel").
6.1.3 EMPLOYMENT AGREEMENT. Buyer shall have executed and delivered to
Xxxxx an Employment Agreement to be entered into by and between Buyer
and Xxxxx, substantially in the form attached hereto as Exhibit 6.1.3
(the "Employment Agreement").
6.1.4 CONSULTING AGREEMENT. Buyer shall have executed and delivered to
Xxxxxx a Consulting Agreement to be entered into by and between Buyer
and Xxxxxx, substantially in the form attached hereto as Exhibit 6.1.4
(the "Consulting Agreement").
6.1.5 SERVICES AGREEMENT. Buyer shall have executed and delivered to
AMS a Services Agreement to be entered into by and between Buyer and
AMS, substantially in the form attached hereto as Exhibit 6.1.5 (the
"Services Agreement").
6.1.6 RELEASE OF GUARANTY AND LEASE. Xxxxxx shall have been released
from any personal guaranty of the ML Loan and/or Seller's real estate
lease.
6.1.7 NO TERMINATION. No party to this Agreement shall have terminated
this Agreement as permitted herein.
Satisfaction or waiver of any or all of the above conditions precedent shall not
in any manner reduce the scope of the representations, warranties and covenants
made by Buyer elsewhere in this Agreement or the right and ability of Seller and
the Members to be indemnified for any misrepresentation, inaccurate warranty or
unfulfilled covenant.
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6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND NAVARRE. All of the
agreements and obligations of Buyer and Navarre under this Agreement are subject
to the fulfillment, on or prior to the Closing Date, of the following conditions
precedent, any or all of which may be waived, in whole or in part, in writing by
Buyer:
6.2.1 PERFORMANCE AND COMPLIANCE. Seller and the Members shall have
performed and complied with all of the agreements, covenants and
conditions required by this Agreement to be performed or complied with
by them on or prior to the Closing Date, and all of the representations
and warranties of Seller and the Members under this Agreement shall be
true and correct in all material respects as of the Closing Date.
6.2.2 OPINION OF SELLER'S COUNSEL. Buyer and its counsel shall have
been furnished with an opinion of legal counsel substantially in the
form provided on attached Exhibit 6.2.2 ("Opinion of Seller's
Counsel").
6.2.3 DUE DILIGENCE REVIEW. Buyer shall have completed a due diligence
review of all aspects of the business and operations of Seller, the
results of which are determined to be satisfactory to Buyer in its sole
and absolute discretion.
6.2.4 EMPLOYMENT AGREEMENT. Xxxxx shall have executed and delivered to
Buyer the Employment Agreement.
6.2.5 PRODUCTION AGREEMENT. Buyer shall have entered into an agreement
satisfactory to Buyer, in its sole discretion, with BCII.
6.2.6 SERVICES AGREEMENT. Buyer shall have entered into the Services
Agreement.
6.2.7 GOOD TITLE. Seller shall show and deliver to Buyer good and
marketable title to all of the Purchased Assets free and clear of all
mortgages, pledges, liens, conditional sales agreements or other
encumbrances of any kind or nature, other than the Assumed Liabilities.
6.2.8 CONSENTS TO ASSIGNMENTS. Buyer shall have received consents in
form and content satisfactory to Buyer to the extent reasonably deemed
necessary by Buyer to enable a complete and effective transfer to Buyer
of all rights and interests of Seller to be assigned and conveyed under
this Agreement.
6.2.9 FINANCING. Buyer shall have secured financing to consummate the
transactions contemplated by this Agreement, upon terms and conditions
satisfactory to Buyer in its sole discretion.
6.2.10 BOARD APPROVAL. Navarre's Board of Directors shall have approved
the transactions contemplated by this Agreement.
6.2.11 SUBORDINATION AND INTERCREDITOR AGREEMENT. Seller shall have
executed and delivered to Navarre and General Electric Capital
Corporation ("GE") a Subordination and Intercreditor Agreement to be
entered into by and among Seller, Navarre and GE,
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substantially in the form attached hereto as Exhibit 6.2.11 (the "GE
Subordination Agreement").
6.2.12 SUBORDINATION AGREEMENT. Seller shall have executed and
delivered to Navarre and Hilco Capital LP ("Hilco") a Subordination
Agreement to be entered into by and among Seller, Navarre and Hilco,
substantially in the form attached hereto as Exhibit 6.2.12 (the "Hilco
Subordination Agreement").
6.2.13 STOCK PLEDGE AGREEMENT. Seller or its designee(s) shall have
delivered to Navarre a Stock Pledge Agreement substantially in the form
attached hereto as Exhibit 6.2.13 (the "Stock Pledge Agreement").
6.2.14 ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES. Seller and the
Members shall have consented to Navarre's and Buyer's assignment of
Seller's and the Members' representations, warranties, covenants and
indemnities set forth in the Agreement to each of Hilco and GE pursuant
to such agreements as Hilco and GE shall require on the Closing Date.
6.2.15 NO TERMINATION. No party to this Agreement shall have terminated
this Agreement as permitted herein.
Satisfaction or waiver of any or all of the above conditions precedent shall not
in any manner reduce the scope of the representations, warranties and covenants
made by Seller or the Members elsewhere in this Agreement or the right and
ability of Buyer to be indemnified for any misrepresentation, inaccurate
warranty or unfulfilled covenant.
ARTICLE 7.
DELIVERY OF DOCUMENTS
On the Closing Date, Buyer and Navarre, as one party, and Seller and the
Members, as another party, shall execute and deliver to the other party the
following documents, instruments and agreements, together with such other
documents, instruments and agreements as the other party may reasonably request
to consummate the purchase and sale contemplated hereby:
7.1 BY BUYER TO SELLER AND THE MEMBERS. Buyer and/or Navarre shall deliver the
following to Seller and the Members:
7.1.1 CASH PAYMENT. A cashier's or certified check payable to the order
of Seller in the amount required in Section 2.2..1.a, or an appropriate
wire transfer of such funds.
7.1.2 NAVARRE STOCK. The Closing Stock Consideration as required in
Section 2.3.1.b..
7.1.3 OPINION OF BUYER'S COUNSEL. Seller and its counsel shall be
furnished with the Opinion of Buyer's Counsel.
7.1.4 EMPLOYMENT AGREEMENT. The Employment Agreement, duly executed by
an authorized officer of Buyer.
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7.1.5 CONSULTING AGREEMENT. The Consulting Agreement, duly executed by
an authorized officer of Buyer.
7.1.6 SERVICES AGREEMENT. The Services Agreement, duly executed by an
authorized officer of Buyer.
7.1.7 AUTHORIZING RESOLUTIONS OF BUYER. A copy, certified by an officer
of Buyer, of the duly adopted resolutions of the board of governors of
Buyer approving this Agreement and authorizing the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
7.1.8 AUTHORIZING RESOLUTIONS OF NAVARRE. A copy, certified by an
officer of Navarre, of the duly adopted resolutions of the board of
directors of Navarre approving this Agreement and authorizing the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
7.1.9 CERTIFICATE OF GOOD STANDING. A copy of Buyer's Certificate of
Good Standing from the State of Minnesota.
7.1.10 ASSUMPTION OF LIABILITIES. An assumption agreement in form and
substance attached hereto as Exhibit 7.1.11 pursuant to which Buyer
will assume the Assumed Liabilities.
7.2 BY SELLER AND THE MEMBERS TO BUYER. Seller and the Members shall deliver the
following to Buyer:
7.2.1 OPINION OF SELLER'S COUNSEL. Buyer and its counsel shall be
furnished with the Opinion of Seller's Counsel.
7.2.2 EMPLOYMENT AGREEMENT. The Employment Agreement, duly executed by
Xxxxx.
7.2.3 XXXX OF SALE. A xxxx of sale, substantially in the form attached
as Exhibit 7.2.3 (the "Xxxx of Sale"), duly executed by an authorized
officer of Seller, with full covenants of warranty, endorsements and
assignment and other good and sufficient instruments of transfer and
conveyance as shall be reasonably required to vest in Buyer good and
marketable title to all of these tangible Purchased Assets to be sold
as provided in this Agreement.
7.2.4 ASSIGNMENTS AND CONSENTS. Assignment and consent documents, in
form and content acceptable to Buyer and duly executed by an authorized
officer of Seller, pursuant to which all rights and interests of Seller
to be assigned and conveyed under this Agreement, including the
Accounts Receivables, each of the Assigned Leases and the Assumed
Contracts, the General Intangibles and the Records are completely and
effectively transferred and conveyed to Buyer.
7.2.5 RELEASES AND TERMINATION STATEMENTS. Releases or terminations of
all financing statements and satisfactions of all other encumbrances
filed with the office of
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the Secretary of State or any county recorder or similar office
evidencing a lien on any of the Purchased Assets.
7.2.6 AUTHORIZING RESOLUTIONS. A copy, certified by an officer of
Seller, of the duly adopted resolutions of the members and managers of
Seller approving this Agreement and authorizing the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
7.2.7 CERTIFICATE OF GOOD STANDING. A copy of Seller's Certificate of
Good Standing from the State of New York, and a certificate evidencing
Seller's certificate of authority to do business as a foreign company
in the State of California.
7.2.8 SUBORDINATION AGREEMENTS. The GE Subordination Agreement and the
Hilco Subordination Agreement, duly executed by Seller.
7.2.9 ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES. Such consents as
Hilco and GE shall require pursuant to Section 6.2.14 hereof.
ARTICLE 8.
ADDITIONAL COVENANTS AND COMMITMENTS
8.1 PRORATION OF OBLIGATIONS. In addition to the Assumed Obligations, there
shall be other obligations and payments relating to the Purchased Assets and the
underlying business where amounts paid or to be paid cover time periods
straddling the Closing Date (for example, utility bills, phone bills,
prepayments on contracts, license fees, etc.), and these obligations shall also
be prorated between Buyer, as one party, and Seller, as the other party, as of
the Closing Date. Proration payments between the parties shall be made
approximately every thirty (30) days following the Closing Date, with
appropriate documentation to be made available to substantiate claims for
reimbursement or payment of prorated amounts.
8.2 SELLER EMPLOYEES. Buyer may desire to hire certain employees of Seller as
designated by Buyer (the "Seller Employees") effective as of the Closing Date,
and Seller shall use its best efforts to facilitate Buyer's efforts to hire the
Seller Employees.
8.3 ACCOUNTS RECEIVABLE. On the Closing Date, Buyer shall reduce the Accounts
Receivable first by the amount of the Closing Date Receivables Reserve, and then
reduce the net number by 20%, to arrive at the amount of Accounts Receivable
that must be good and collectible in full by Buyer in the ordinary course of
business and in any event not later than two hundred seventy (270) days after
the Closing Date (the "Guaranteed Receivables Balance"). Notwithstanding the
foregoing, Buyer shall have one (1) year after the Closing Date to collect that
certain receivable from Red Hill in the approximate amount of $618,000 as of
November 1, 2003 (the "Red Hill Receivable"). None of the Accounts Receivable of
Seller are or will be subject to any counterclaim or set-off, except as set
forth in Section 8.3.3 below. Prior to the Second True-Up Date (as defined in
Section 8.8.2 below), any payments received by Seller relating to the Accounts
Receivable shall be immediately transferred by Seller to Buyer. The following
procedures will apply for collection of the Accounts Receivable after the
Closing Date:
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8.3.1 IDENTIFICATION OF ACCOUNTS. Exhibit 1.1.1 shall include each
Accounts Receivable account debtor by name and address and the amount
owed Seller by such account debtor as of the Closing Date. From the
Closing Date until two hundred seventy (270) days thereafter (or one
(1) year in the case of the Red Hill Receivable), Buyer shall use
commercially reasonable efforts to collect the Accounts Receivable.
"Commercially reasonable efforts" as used herein shall not be
interpreted to require Buyer to initiate any legal proceedings for the
collection of amounts owed by, or defense of any claims made by, an
account debtor.
8.3.2 APPLICATION OF RECEIPTS. Any and all sums received by Buyer
subsequent to the Closing Date from an Accounts Receivable account
debtor shall be applied by Buyer to the oldest balance first for each
such account debtor up to the amount that is due according to Exhibit
1.1.1, and then to any indebtedness to Buyer arising after the Closing
Date; provided, however, that (i) if the payment specifically
references an invoice, the payment shall be applied to that invoice,
(ii) if the account debtor contests an invoice, the payment shall not
be applied to that invoice, and (iii) if the amount of the payment
matches up with the amount of a given invoice, the payment shall be
applied to that invoice. Buyer shall attempt to give Seller reasonable
notice of any contested invoice. Seller shall have the right, at any
time subsequent to the Closing Date and fifteen (15) months thereafter,
upon reasonable notice to Buyer, to audit Buyer's books and records
with respect to receipt of Accounts Receivable payments, and if Seller
uncovers any error in Buyer's records, the parties hereto agree to
promptly make all appropriate monetary adjustments.
8.3.3 APPLICATION OF CHARGEBACKS, PRICE PROTECTION, PROMOTIONS, ETC.
The amount of the Accounts Receivable existing as of the Closing Date
may be reduced to the extent of any rebates, allowances for promotion
and advertising, and price protection (collectively, "Accounts
Receivable Allowances") which are approved by Buyer after the Closing
Date in its sole discretion, which approval shall not be unreasonably
withheld. Such Accounts Receivable Allowances shall be applied to
reduce the outstanding amount of Accounts Receivable that must be
repurchased by Seller under Section 8.3.5 hereof.
8.3.4 DISTRIBUTION OF RECEIPTS; REPORTS. Buyer shall, on a monthly
basis, furnish Seller with a statement of the Accounts Receivable
collected, which shall include an aging of each account listed on
Exhibit 1.1.1, and the amount of Accounts Receivable Allowances applied
to the Accounts Receivable.
8.3.5 REPURCHASE OF ACCOUNTS RECEIVABLE. Any Guaranteed Accounts
Receivable which are not collected in full two hundred seventy (270)
days (or one (1) year in the case of the Red Hill Receivable) from the
Closing Date shall immediately be repurchased from Buyer by Seller for
an amount equal to the aggregate outstanding balance of such
receivables (i.e., discounted for any Accounts Receivable Allowances).
The outstanding aggregate balance of any such Accounts Receivable on
such date shall hereinafter be referred to as the "Remaining Balance"
of such Accounts Receivable. The procedure for such repurchase is set
forth in Section 8.8 below. Any payments received by Buyer thereafter
from a customer relating to a transferred account shall be transferred
to Seller.
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8.4 ASSIGNED AGREEMENTS. Seller shall attempt to receive the consents necessary
to enable a complete and effective transfer to Buyer of all rights and interests
of Seller under all of the Assigned Agreements. Exhibit 8.4 attached hereto
lists the top 20 license agreements of Seller (in terms of gross profit) which
are included in the Assigned Agreements (the "Principal Licenses"). To the
extent that Seller is unable to receive consent from the other party to a
Principal License within thirty (30) days after Closing, Buyer shall be entitled
to set off the Purchase Price by an amount equal to the twelve (12) months
trailing gross profit generated by any such Principal License in accordance with
the procedures set forth in Section 8.8 below.
8.5 BUSINESS OPERATIONS. Seller shall bear all responsibility for ownership and
operation of the Purchased Assets and the underlying business prior to the
Closing Date, including the responsibility for any claims by third parties which
relate to such business and matters occurring prior to the Closing Date. Buyer
shall bear all responsibility for ownership and operation of the Purchased
Assets and the underlying business after the Closing Date, including
responsibility for any claims by third parties which relate to such business and
matters occurring on or after the Closing Date.
8.6 PUBLIC ANNOUNCEMENTS. Neither Buyer nor Seller shall issue any press release
or make any other public announcement (including any announcement to employees)
relating to the subject matter of this Agreement without first having received
the prior written approval of the other party hereto.
8.7 MUTUAL COOPERATION. Buyer and Seller agree to work together and cooperate to
the extent reasonably necessary so as to facilitate closing on the transactions
contemplated by this Agreement. Further, subsequent to closing, Buyer and
Seller, at the request of the other, shall each execute, deliver and acknowledge
all such further instruments and documents and do and perform all such other
acts and deeds as may be reasonably required to consummate the transactions
contemplated by this Agreement and to carry out the purpose and intent of this
Agreement.
8.8 TRUE-UP AND SET-OFF.
8.8.1 Within ten (10) days after the thirty (30) day anniversary of the
Closing Date (the "License True-Up Date"), Buyer shall deliver to
Seller a statement listing the Principal Licenses for which consent to
assignment has not been received as of the License True-Up Date. Such
statement shall also contain a calculation of the twelve (12) months
trailing gross profit generated by any such Principal License
(collectively, the "License Profits Adjustment"). Buyer shall be
entitled to offset the License Profits Adjustment first against the
outstanding principal of the Promissory Note, and second against the
remaining Earn-Out Amount, if any.
8.8.2 Within ten (10) days after the two hundred seventy (270) day
anniversary of the Closing Date (the "Second True-Up Date"), Buyer
shall deliver to Seller a statement of the Remaining Balance of the
Guaranteed Accounts Receivable (other than the Red Hill Receivable) as
of the Second True-Up Date. With respect to the Remaining Balance of
the Guaranteed Accounts Receivable, Buyer shall be entitled to offset
the Remaining Balance of the Guaranteed Accounts Receivable, if any,
against the shares of Navarre
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Stock being held by Buyer pursuant to the Stock Pledge Agreement, as
described therein. Notwithstanding the foregoing, Buyer shall give
Seller the opportunity to pay cash for the amount of the Remaining
Balance of the Guaranteed Accounts Receivable before exercising its
rights under the Stock Pledge Agreement.
8.8.3 Within ten (10) days after the one (1) year anniversary of the
Closing Date (the "Red Hill True-Up Date"), Buyer shall deliver to
Seller a statement of the Remaining Balance of the Red Hill Receivable
as of the Red Hill True-Up Date. To the extent that the Remaining
Balance of the Red Hill Receivable exceeds the sum of (i) 20% of the
Remaining Balance of the Red Hill Receivable, and (ii) the amount of
the Closing Date Receivables Reserve allocated to the Red Hill
Receivable, Buyer shall be entitled to offset the excess (the "Final
Uncollected Balance of the Red Hill Receivable"), if any, against the
shares of Navarre Stock being held by Buyer pursuant to the Stock
Pledge Agreement, as described therein. Notwithstanding the foregoing,
Buyer shall give Seller the opportunity to pay cash for the amount of
the Final Uncollected Balance of the Red Hill Receivable before
exercising its rights under the Stock Pledge Agreement
8.9 NON-COMPETE; NON-SOLICITATION.
8.9.1 As an additional inducement to Buyer to enter into and to perform
its obligations under this Agreement, each of Seller and the Members
agree that, for a period of three (3) years after the Closing Date (the
"Non-Competition Period"), Seller and the Members shall not:
A. accept employment with or render services for compensation
(including, without limitation, consultation or research) to,
or acquire any kind of ownership in, any person or entity
which is engaged in the design, development, marketing, sale
or support of any competitive product or service sold by the
Business within the past three (3) years in the United States;
B. promote, market, solicit or sell any product or service,
similar to or competitive with any product or service sold by
the Business within the past three (3) years; or
C. induce or attempt to induce (A) any purchaser of any
product or service of Buyer or its subsidiaries or affiliates
to cancel, allow to lapse, fail to renew or replace any
product or service of Buyer or its subsidiaries or affiliates,
(B) any representative of Buyer or its subsidiaries or
affiliates to terminate or alter his, her, or its relationship
with Buyer or its subsidiaries or affiliates, (C) any customer
to terminate or alter its relationship with Buyer or its
subsidiaries or affiliates, or (D) any employee of either
Buyer or its subsidiaries or affiliates to terminate his or
her employment with Buyer or its subsidiaries or affiliates.
8.9.2 The following activities are expressly excluded from the
restrictions set forth in Section 8.9.1:
A. The development, acquisition, funding, production and
exploitation of programming for worldwide television
broadcast, video on demand, pay-per-
31
view, worldwide retail Internet sales, video/DVD outside of
North American, and within North America subject to the
agreement set forth in Section 6.2.5 hereof (the BCII
Production Agreement);
B. The development, acquisition, funding and production of
audio and home video products for exploitation outside of the
United States and Canada; and
C. The rendering of third party fulfillment services as that
term is commonly understood in the audio and home video
distribution industry, which includes, but is not limited to
duplication, packaging, warehousing, order fulfillment and
shipping. In this regard, Seller and the Members' continuing
ownership and/or operation of AMS in Valencia, California
shall not be deemed to violate the restrictions set forth
above.
8.9.3 If, at the time of enforcement of this Section 8.9, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that
the maximum duration, scope or area reasonable under such circumstances
shall be substituted for the stated duration, scope or area.
8.9.4 Seller and each of the Members recognize and affirm that in the
event of breach by any of them of any of the provisions of this Section
8.9, money damages would be inadequate and Buyer would not have any
adequate remedy at law. Accordingly, Seller and the Members agree that
Buyer shall have the right, in addition to any other rights and
remedies existing in its favor, to seek to enforce its rights and the
obligations under this Section 8.9 by an action or actions for specific
performance, injunction and/or other equitable relief without posting
any bond or security to enforce or prevent any violations, whether
anticipatory, continuing or future, of the provisions of this Section
8.9, including, without limitation, the extension of the
Non-Competition Period by a period equal to (i) the length of the
violation of this Section 8.9, plus (ii) the length of any court
proceedings necessary to stop such violation. In the event of a breach
or violation by Seller or any Member of any of the provisions of this
Section 8.9, the running of the Non-Competition Period, but not of such
parties, obligations under this Section 8.9, shall be tolled during the
period during which the occurrence of any such breach or violation is
investigated and during the continuance of any such breach or
violation.
8.10 REGISTRATION RIGHTS.
8.10.1 REQUIRED REGISTRATION. If the holders of Navarre Stock make a
written request that the Company file a registration statement for 100%
of the Navarre Stock (or a lesser percentage provided that the
anticipated aggregate offering price, net of any underwriting discounts
and commissions, would exceed $2,000,000), then the Company will use
its best efforts to effect a registration statement under the
Securities Act covering all Navarre Stock which the holders requested
to be registered. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders
of Navarre Stock that such registration is to be effected. The Company
shall include in such registration statement such Navarre Stock for
which it has received written requests to register by such other record
holders within 30 days after the Company's written notice to
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such other record holders. The Company shall be obligated to prepare,
file and cause to become effective only one registration statement
pursuant to this Section 8.10.1, and to pay the expenses associated
with such registration statement, and shall not be obligated to effect
a registration during the period starting within 60 days prior to the
filing date of a registration statement of the Company, and ending 180
days after the effective date of a Company registration. Furthermore,
the Company is not obligated to effect a registration under this
Section 8.10.1 if the holders' proposed disposal of Navarre Stock may
be immediately registered on Form S-3 pursuant to a Form S-3
registration (see Section 8.10.2 below).
In the event that (a) the holders of a majority of the Navarre Stock
for which registration has been requested pursuant to this Section
determine for any reason not to proceed with a registration at any time
before the registration statement has been declared effective by the
Commission, and such holders request the Company to withdraw such
registration statement, if theretofore filed with the Commission, with
respect to the Navarre Stock covered thereby, and (b) the holders of
such Navarre Stock agree to bear their own expenses incurred in
connection therewith and to reimburse the Company for the expenses
incurred by it attributable to the registration of such Navarre Stock,
then the holders of such Navarre Stock shall not be deemed to have
exercised their right to require the Company to register Navarre Stock
pursuant to this Section 8.10.1.
The holders of the Navarre Stock seeking registration may select an
underwriter reasonably acceptable to the Company for the distribution
of the Navarre Stock. In the event that in the good faith judgment of
the managing underwriter of such public offering the inclusion of all
of the Navarre Stock originally covered by a request for registration
would reduce the number of shares to be offered or interfere with the
successful marketing of the shares of stock offered, the number of
shares of Navarre Stock otherwise to be included in the underwritten
public offering shall be reduced pro rata among the holders thereof to
such amount as is deemed appropriate in the good faith judgment of the
managing underwriter, provided that any other securities of the Company
to be included in such registration statement shall first be reduced or
removed from such registration statement prior to any such reduction of
Navarre Stock.
Without the written consent of the holders of a majority of the Navarre
Stock for which registration has been requested pursuant to this
section, neither the Company nor any other holder of securities of the
Company may include securities in such registration if in the good
faith judgment of the managing underwriter of such public offering the
inclusion of such securities would interfere with the successful
marketing of the Navarre Stock or require the exclusion of any portion
of the Navarre Stock to be registered.
8.10.2 S-3 REGISTRATION. Provided the Company qualifies for the use of
Form S-3, the record holder or holders of any of the Navarre Stock may
require, pursuant to this Section 8.10.2, the Company to file on one
occasion, and to pay the expenses associated with, a registration
statement on Form S-3, if such form is then available for use by the
Company and such record holder or holders; provided, however, that the
Company shall not be obligated to file such a registration statement
(i) if the aggregate offering price of the Navarre Stock is less than
$500,000, (ii) if the Company has, within the preceding 12
33
month period, effected two registrations on Form S-3, or (iii) during
the period ending 180 days after the effective date of a registration
statement initiated by the Company.
8.10.3 INCIDENTAL REGISTRATION. Each time Navarre shall determine to
proceed with the actual preparation and filing of a registration
statement under the Securities Act of 1933 (the "Securities Act") in
connection with the proposed offer and sale for money of any of its
securities by it or any of its security holders (other than a
registration statement on Form X-0, Xxxx X-0, or any form that does not
permit the inclusion of shares by its security holders), Navarre will
give written notice of its determination to all record holders of
Navarre Stock. Upon the written request of such a record holder of any
shares of Navarre Stock given within 30 days after receipt of any such
notice from Navarre, Navarre will, except as herein provided, use its
best efforts to cause all such Navarre Stock, the record holders of
which have so requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit the sale
or other disposition by the prospective seller or sellers of the
Navarre Stock to be so registered; provided, however, that (a) nothing
herein shall prevent Navarre from, at any time, abandoning or delaying
any such registration initiated by it, and (b) if Navarre determines
not to proceed with a registration after the registration statement has
been filed with Securities and Exchange Commission (the "Commission")
and Navarre's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by
Navarre, Navarre shall promptly complete the registration for the
benefit of those selling security holders who wish to proceed with a
public offering of their securities and who bear all expenses in excess
of $20,000 incurred by Navarre as the result of such registration after
Navarre has decided not to proceed. If any registration pursuant to
this Section 8.10.3 shall be underwritten in whole or in part, Navarre
may require that the Navarre Stock requested for inclusion pursuant to
this section be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the
underwriters. In the event that in the good faith judgment of the
managing underwriter of such public offering the inclusion of the
Navarre Stock originally covered by a request for registration would
reduce the number of shares to be offered by Navarre or interfere with
the successful marketing of the shares of stock offered by Navarre, the
number of shares of Navarre Stock otherwise to be included in the
underwritten public offering shall be reduced pro rata among the
holders thereof to such amount as is deemed appropriate in the good
faith judgment of the managing underwriter.
8.10.4 HOLDBACK AGREEMENTS.
A. Each of the holders of Navarre Stock agrees not to effect
any public sale or distribution of equity securities of
Navarre, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior
to and the 90-day period beginning on the effective date of
any underwritten Incidental Registration (except as part of
such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
X. Xxxxxxx agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for
34
such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any
underwritten Incidental Registration (except as part of such
underwritten registration or pursuant to registrations on Form
S-8 or any successor form), unless the underwriters managing
the registered public offering otherwise agree, and (ii) use
all reasonable efforts to cause each holder of at least 5% (on
a fully-diluted basis) of its equity securities (other than
equity securities acquired in a public trading market), or any
securities convertible into or exchangeable or exercisable for
such securities, purchased from Navarre at any time after the
date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or
distribution of any such securities during such period (except
as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered
public offering otherwise agree.
8.10.5 REGISTRATION PROCEDURES. If and whenever Navarre is required by
the provisions of Sections 8.10.1, 8.10.2 or 8.10.3 to effect the
registration of any Navarre Stock under the Securities Act, Navarre
will:
A. prepare and file with the Commission a registration
statement with respect to such securities, and use its best
efforts to cause such registration statement to become and
remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed
sixty (60) days;
B. prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective for such period as may be
reasonably necessary to effect the sale of such securities,
not to exceed sixty (60) days;
C. furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such security holders
and underwriters may reasonably request in order to facilitate
the public offering of such securities;
D. use its best efforts to register or qualify the securities
covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such
participating holders may reasonably request within twenty
(20) days following the original filing of such registration
statement, except that Navarre shall not for any purpose be
required to execute a general consent to service of process or
to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
E. notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
35
F. notify such holders promptly of any request by the
Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
G. prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the
opinion of counsel for such holders (and concurred in by
counsel for Navarre), is required under the Securities Act or
the rules and regulations thereunder in connection with the
distribution of the Navarre Stock by such holder;
H. prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may
be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such securities is required
to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading;
I. advise such holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
J. not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of
such holders shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act
or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days
prior to the filing thereof, unless in the opinion of counsel
for Navarre the filing of such amendment or supplement is
reasonably necessary to protect Navarre from any liabilities
under any applicable federal or state law and such filing will
not violate applicable law.
8.10.6 EXPENSES. With respect to any registration requested pursuant to
Section 8.10.1 or 8.10.2 (except as otherwise provided in Section
8.10.1 with respect to registrations voluntarily terminated at the
request of the requesting security holders) and with respect to each
inclusion of shares of Navarre Stock in a registration statement
pursuant to Section 8.10.3 (except as otherwise provided in Section
8.10.9 with respect to registrations terminated by Navarre), Navarre
shall bear the following fees, costs and expenses: all registration,
filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for Navarre, fees and disbursements of counsel
for the underwriter or underwriters of such securities (if Navarre
and/or selling security
36
holders are required to bear such fees and disbursements), reasonable
fees and disbursements of one counsel for the selling security holders,
all internal Navarre expenses, the premiums and other costs of policies
of insurance for Navarre against liability arising out of the public
offering, and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions
in which the securities to be offered are to be registered or
qualified.
8.10.7 INDEMNIFICATION. In the event that any Navarre Stock are
included in a registration statement under Sections 8.10.1, 8.10.2 or
8.10.3:
X. Xxxxxxx will indemnify and hold harmless each holder
(together with all officers, directors, agents and affiliates
of the holder) of Navarre Stock which are included in a
registration statement pursuant to the provisions of this
Section 8.10 and any underwriter (as defined in the Securities
Act) for such holder and each person, if any, who controls
such holder (or any affiliates of the holder) or such
underwriter within the meaning of the Securities Act, from and
against any and all loss, damage, liability, cost and expense
to which such holder or any such underwriter or controlling
person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that
Navarre will not be liable in any such case to the extent that
any such loss, damage, liability, cost or expense arises out
of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with written information furnished by such holder,
such underwriter or such controlling person.
B. Each holder of Navarre Stock which are included in a
registration pursuant to the provisions of this Section 8.10
will indemnify and hold harmless Navarre, any controlling
person and any underwriter from and against any and all loss,
damage, liability, cost or expense to which Navarre or any
controlling person and/or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any
untrue or alleged untrue statement of any material fact
contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by
such holder.
37
C. Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this section of
notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified
party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party
of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if
the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of
interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the
indemnified party or parties shall have the right to select
separate counsel to participate in the defense of such action
on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party pursuant to
the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the proviso of the
preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
the notice of the commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying
party.
8.10.8 NONTRANSFERABILITY OF REGISTRATION RIGHTS OF TRANSFEREES. The
registration rights granted to the holders of Navarre Stock pursuant to
this Section 8.10 shall not be transferable, absent express written
consent by Navarre, which consent shall not be unreasonably withheld.
8.10.9 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to this Section 8.10 shall terminate with respect to
any holder of Navarre Stock upon the earlier of (i) three (3) years
from the date of this Agreement or (ii) at the time such holder is able
to sell all Navarre Stock held by it in a single open market
transaction under Rule 144 promulgated under the Securities Act or any
successor provision.
ARTICLE 9.
INDEMNIFICATION
9.1 INDEMNIFICATION BY SELLER AND MEMBERS. Buyer, its affiliates and their
respective officers, directors, employees, agents, successors and assigns shall
be indemnified and held harmless, jointly and severally, by Seller or the
Members against any and all liabilities, losses,
38
damages, claims, costs, expenses, interest, awards, judgments and penalties,
including, without limitation, related attorney and consultant fees and expenses
(hereinafter collectively a "Loss"), actually suffered or incurred by them,
arising out of, relating to or resulting from (a) the inaccuracy of any
representation or warranty made by Seller and the Members in this Agreement, (b)
the breach by Seller or the Members of any of their covenants or agreements in
this Agreement, (c) any failure to comply with laws relating to bulk transfers
or bulk sales with respect to the transactions contemplated by this Agreement,
(d) any liability of Seller not expressly constituting an Assumed Liability or
an Assumed Obligation, (e) any liability to which Buyer or its affiliates may be
subject as a result of or arising in respect of any employee welfare or benefit
plans of Seller or (f) any aspect of the operation of the Business on or prior
to the Closing Date not expressly constituting an Assumed Liability or Assumed
Obligation (all such Losses being referred to herein collectively as the "Buyer
Losses").
9.2 INDEMNIFICATION BY BUYER. Seller, the Members, their affiliates and their
respective officers, directors, employees, agents, successors and assigns shall
be indemnified and held harmless by Buyer against any and all Losses actually
suffered or incurred by them arising out of or resulting from (a) the inaccuracy
of any representation or warranty made by Buyer in this Agreement, (b) the
breach by Buyer of any of its covenants or agreements in this Agreement or (c)
any aspect of the operation of the Business by Buyer after the Closing Date (all
such Losses being referred to herein collectively as the "Seller Losses").
9.3 NOTICE AND OPPORTUNITY TO DEFEND. Each party shall promptly, and in all
events within thirty (30) days of obtaining actual knowledge thereof, notify the
Indemnifying Party (as defined in Section 9.6 hereof) of the existence of any
claim, demand or other matter requiring a defense to which the Indemnifying
Party's obligations under this Article 9 would apply. The Indemnified Party (as
defined in Section 9.6 hereof) shall give the Indemnifying Party a reasonable
opportunity to defend the claim, demand or matter at the Indemnifying Party's
own expense and with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party; provided that the Indemnified Party shall
at all times also have the right to fully participate in the defense at its own
expense. Any such claim, demand or other matter shall not be settled or
compromised without the consent of the Indemnified Party; provided, however, if
the Indemnified Party does not consent to such written settlement or compromise
offer, such claim, demand or other matter shall not be settled or compromised,
but the Indemnifying Party's obligation to indemnify with respect hereto shall
be limited to the amount for which such claim, demand or other matter could have
been settled or compromised, together with the cost of defense through the date
such matter could have been settled or compromised. If the Indemnifying Party
shall, within a reasonable time after receipt of notice, fail to defend, the
Indemnified Party shall have the right, but not the obligation, to undertake the
defense, and to compromise or settle, exercising reasonable business judgment,
the claim, demand or other matter on behalf, for the account and at the risk of
the Indemnifying Party. If the claim is one that cannot by its nature be
defended solely by the Indemnifying Party (including, without limitation, any
federal or state tax proceeding), the Indemnified Party shall make available, or
cause to be made available, all information and assistance that the Indemnifying
Party may reasonably request.
9.4 SURVIVAL. The representations and warranties set forth in this Agreement or
in any writing delivered to Buyer or Seller in connection with this Agreement
shall survive the Closing
39
Date and the consummation of the transactions contemplated hereby for a period
of three (3) years and shall not be affected by any examination made for or on
behalf of Buyer or Seller, the knowledge of any of Buyer's or Seller's officers,
directors, managers, shareholders, members, partners, employees or agents, or
the acceptance by Buyer or Seller of any certificate or opinion; provided,
however, that the representations and warranties made with respect to Sections
3.6 and 3.9 hereof shall survive the Closing Date and the consummation of the
transactions contemplated hereby for a period of four (4) years, and the
representations and warranties made with respect to Sections 3.18 and 3.19
hereof shall survive until the applicable statute of limitations has expired.
9.5 LIMITATION OF LIABILITY. Any indemnification right related to a Buyer Loss
shall be subject to reaching a minimum aggregate obligation (a "Threshold") of
One Hundred Thousand Dollars ($100,000), whereupon the entire aggregate amount
of all obligations and liabilities in excess of the Threshold shall be
immediately due and payable; provided, however, that the Threshold shall not
apply to (i) any claim related to a breach of representation or warranty where
Seller or any Member had actual knowledge of such breach at Closing and
intentionally and willfully failed to disclose such breach, or (ii) any claim
resulting from Seller's failure to pay any Seller liability which is not an
Assumed Liability. Further, the maximum amount required to be paid by Seller and
the Members for Buyer Losses related to (x) any claim for violations under
Section 3.22, or (y) any other claim related to a breach of representation or
warranty concerning Seller's Intellectual Property Rights (the claims described
in clauses (x) and (y) shall hereinafter be known as "IP Claims"), shall not
exceed $1,000,000, and the sole remedy for IP Claims shall be the offset right
set forth in Section 9.6.2.
9.6 RIGHT OF OFFSET.
9.6.1 For purposes of this Section 9.6 and Section 9.3, a party seeking
indemnification shall be considered the "Indemnified Party" and the
party from whom indemnification is sought shall be considered the
"Indemnifying Party." The Indemnifying Party shall reimburse the
Indemnified Party, on demand, for any payment made by the Indemnified
Party at any time in respect of any liability, obligation or a claim to
which the foregoing indemnity relates. The Indemnified Party shall be
entitled to offset any amount owed to the Indemnifying Party against
the amount of the indemnification obligation of the Indemnifying Party
under this Agreement.
9.6.2 Notwithstanding the foregoing, Buyer shall comply with the
following procedures for any offset right resulting from any claim
under this Agreement: Buyer's Losses shall be set off against any
Earn-Out Amount which becomes due under this Agreement. As an example,
assume that during the first year after the Closing Date, Buyer suffers
a Buyer Loss in the amount of $500,000. Assume further that the
Earn-Out Amount for the first twelve-month period following Closing is
$300,000. Buyer would retain the $300,000 in satisfaction of the Buyer
Loss. Buyer would then need to wait until the end of the second
twelve-month period following Closing to recoup the remaining $200,000
against the Earn-Out Amount, if any. If the amount of the Earn-Out
Amount for the second twelve-month period following Closing was less
than $200,000, Buyer would need to wait until the end of the third
twelve-month period following Closing to recoup the excess, and so on
through the Earn-Out period.
40
ARTICLE 10.
MISCELLANEOUS PROVISIONS
10.1 NOTICES. All notices, offers, requests or other communications from either
of the parties hereto to the other shall be in writing and shall be considered
to have been duly delivered or served if sent by first class certified mail,
return receipt requested, postage prepaid, to the party at its address as set
forth below or to such other address as such party may hereafter designate by
written notice to the other party:
If to Buyer, to:
BCI Eclipse Company, LLC
0000-00xx Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
Attn: Xxxx Xxxxxxx, CEO
With copies to:
Winthrop & Weinstine, P.A.
Suite 3500 000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxxxx
and
Navarre Corporation
0000-00xx Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
Attn: Xxxx Xxxxxx, Corporate Counsel
If to Seller or the Members:
Xxxxx X. Xxxxxx
0000 Xxxxxxxx Xxxxxx
Xxxxxxxx Xxxxxxx, XX 00000
Fax No:
Xxxxxx X. Xxxxx
000 Xxxxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
41
With a copy to:
Xxxxxx X. Xxxxxxx, Esq.
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Fax No.: 000-000-0000
and to:
Xxxx X. Xxxxxxxxxx, Esq.
Xxxxxxxxxx & Xxxxxxx LLP
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Fax No.: 000-000-0000
10.2 BROKERS. Each party hereto warrants, covenants and represents to the other
that they have dealt with no agent or broker in connection with this Agreement.
Each party hereto hereby agrees to indemnify and hold harmless the other party
from and against any claim, loss or cause of action suffered by or brought
against the other party on account of a breach of the foregoing representation,
warranty and covenant.
10.3 ENTIRE AGREEMENT. This Agreement, including the schedules and exhibits
attached hereto, as the same may be amended at closing, and the instruments and
agreements referred to herein to be executed and delivered at Closing, expresses
the whole agreement between the parties with respect to the purchase and sale
contemplated hereby, there being no representations, warranties or other
agreements (oral or written) not expressly set forth or provided for herein.
10.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10.5 CHANGES. Any and all agreements by the parties hereto to amend, change,
extend, revise or discharge this Agreement, in whole or in part, shall be
binding upon the parties to such agreement, even though such agreements may lack
legal consideration, provided such agreements are in writing and executed by the
party against whom enforcement is sought.
10.6 GOVERNING LAW. This Agreement shall be deemed to be a contract made under
the laws of the State of Minnesota. The laws of the State of Minnesota shall
govern the validity, construction and performance of this Agreement, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law. Any legal proceeding related to this agreement shall be brought in an
appropriate Minnesota court, and each of the parties hereto hereby consents to
the exclusive jurisdiction of the courts of the State of Minnesota for this
purpose.
10.7 CONSTRUCTION. Wherever possible, each provision of this Agreement and each
related document shall be interpreted in such manner as to be effective and
valid under applicable law,
42
but if any provision of this Agreement or any related document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Agreement or such related documents.
10.8 WAIVER. No failure on the part of either party to exercise, and no delay in
exercising any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right or
remedy granted hereby or by any related document or by law.
10.9 SEVERABILITY. In the event any part of this Agreement is found to be void,
the remaining provisions of this Agreement shall nevertheless be binding with
the same effect as though the void parts were deleted.
10.10 TITLES AND SUB-TITLES. The titles of the paragraphs and subparagraphs are
placed herein for convenient reference only and shall not to any extent have the
effect of modifying, amending or changing the expressed terms and provisions of
this Agreement.
10.11 NO THIRD PARTY BENEFICIARIES. This Agreement is a contract solely among
Buyer, Seller and the Members. No third party beneficiaries (including, without
limitation, employees and customers of Buyer) are intended and none shall be
inferred, and no party other than Buyer, Seller and the Members may assert any
right, make any claim or otherwise attempt to enforce any provision of or under
this Agreement.
10.12 PREPARATION OF AGREEMENT. Winthrop & Weinstine, P.A. has drafted this
Agreement at the request of Buyer. By signing this Agreement, Seller and the
Members acknowledge that they have been advised that Winthrop & Weinstine, P.A.
is not representing them individually, that they have been encouraged them to
seek separate counsel (other than Winthrop & Weinstine, P.A.), and that they
have in fact received or have had the opportunity to receive separate counsel.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
BUYER:
BCI ECLIPSE COMPANY, LLC
By:
----------------------------------------
Xxxxx Xxxxxxxxxx
Its CEO
SELLER:
BCI ECLIPSE LLC
By:
----------------------------------------
Its:
THE MEMBERS:
----------------------------------------
Xxxxx X. Xxxxxx
----------------------------------------
Xxxxxx X. Xxxxx
The undersigned hereby executes this Agreement solely for purposes of agreeing
to be bound by the terms and provisions of Article 5 and Section 8.10 of this
Agreement:
NAVARRE CORPORATION
By:
----------------------------------------
Its:
44
LIST OF EXHIBITS
Exhibit 1.1.1 - Accounts Receivable and Receivables Reserve
Exhibit 1.1.2 - Inventory
Exhibit 1.1.4 - Furniture and Equipment
Exhibit 1.1.5 - Prepayments
Exhibit 1.1.7 - Assigned Leases
Exhibit 1.1.8 - Assigned Agreements
Exhibit 1.1.9 - Assumed Contracts
Exhibit 1.1.11 - General Intangibles
Exhibit 1.1.12 - Included Software
Exhibit 1.2.2 - Personal Assets
Exhibit 1.2.4 - Excluded Software
Exhibit 2.4.1 - Assumed Liabilities
Exhibit 2.6 - Allocation of Purchase Price
Exhibit 3.2 - Affiliates
Exhibit 3.4.2 - No Violation
Exhibit 3.5 - Financial Documents
Exhibit 3.8 - Judgments
Exhibit 3.9 - Liabilities
Exhibit 3.11 - Adverse Changes
Exhibit 3.12 - Leases of Seller
Exhibit 3.13 - Insurance Policies
Exhibit 3.14 - Litigation
Exhibit 3.15 - Product Allowances and Claims for Return
Exhibit 3.16 - Warranties
Exhibit 3.17 - Material Contracts
Exhibit 3.19 - Employment Contracts and Fringe Benefits
Exhibit 3.22 - Seller Products and Intellectual Property Rights
Exhibit 6.1.2 - Opinion of Buyer's Counsel
Exhibit 6.1.3 - Xxxxx Employment Agreement
Exhibit 6.1.4 - Consulting Agreement
Exhibit 6.1.5 - Services Agreement
Exhibit 6.2.2 - Opinion of Seller's Counsel
Exhibit 6.2.11 - GE Subordination Agreement
Exhibit 6.2.12 - Hilco Subordination Agreement
Exhibit 6.2.13 - Stock Pledge Agreement
Exhibit 7.1.11 - Assumption Agreement
Exhibit 7.2.3 - Xxxx of Sale
Exhibit 8.4 - Principal Licenses
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