<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TWEETER HOME ENTERTAINMENT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 5731 04-3417513
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
40 HUDSON ROAD
CANTON, MASSACHUSETTS 02021
(781) 830-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOSEPH MCGUIRE, CHIEF FINANCIAL OFFICER
TWEETER HOME ENTERTAINMENT GROUP, INC.
40 HUDSON ROAD
CANTON, MASSACHUSETTS 02021
(781) 830-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
KITT SAWITSKY, ESQ. EDWIN L. MILLER, JR., ESQ.
DANIEL R. AVERY, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
GOULSTON & STORRS, P.C. 125 HIGH STREET
400 ATLANTIC AVENUE BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02110
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 3,116,500 Shares $17.00 $52,980,500 $16,055
==============================================================================================================================
</TABLE>
(1) Includes 406,500 shares that the Underwriters have the right to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
APRIL 24, 1998
2,710,000 SHARES
TWEETER HOME ENTERTAINMENT GROUP, INC.
[TWEETER LOGO] [BRYN MAWR LOGO] [HI FI BUYS LOGO]
COMMON STOCK
------------------
Of the 2,710,000 shares of Common Stock of Tweeter Home Entertainment
Group, Inc. (the "Company") offered hereby, 2,200,000 shares are being offered
by the Company and 510,000 shares are being offered by certain stockholders of
the Company (the "Selling Stockholders"). The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. See "Principal and
Selling Stockholders." Prior to the Offering, there has been no public market
for the Common Stock of the Company. See "Underwriting" for the factors to be
considered in determining the initial public offering price. It is currently
estimated that the initial public offering price will be between $15.00 and
$17.00 per share. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "TWTR."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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====================================================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total (3)................. $ $ $ $
====================================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1993, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
406,500 additional shares of Common Stock, solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
DESCRIPTION OF INSIDE FRONT COVER PAGE GRAPHICS:
The graphics on the inside front cover page consist of one photograph
headed by a solid field with inset text heading and three different logos, which
solid field heading and photograph are located in the top of two thirds of the
page.
The photograph (without solid field heading) measures approximately 7.675
inch (width) by 5.25 inch (length). The solid field heading measures
approximately 7.675 inch (width) by 1.875 inch (length) (based on an 8.5 inch by
11 inch page). The entire graphic is centered from side-to-side. The text in the
solid field heading reads "Tweeter Home Entertainment Group." Below the text
heading are the three logos from left to right as follows:
1. "Tweeter, etc.";
2. "Bryn Mawr Stereo & Video"; and
3. "HiFi Buys".
The photograph is a store-deep perspective showing general store layout and
product displays with a checkout counter in the foreground where three employees
are assisting customers.
DESCRIPTION OF INSIDE FRONT COVER FOLDOUT INSERT GRAPHICS
The graphics on the inside front cover foldout insert consist of eight
photographs of various sizes which approximately measure from 1.75 inch (width)
by 1.75 inch (length) up to 4 inch (width) by 2.75 inch (length) (based on an 11
inch by 17 inch page), overlapping three black, 0.25 inch-high horizontal lines
with inset white text, equally vertically spaced, the first of which is
approximately 2.25 inch from the top of the page.
Beginning at the top third of the page, there are two photographs
overlapping the first horizontal line, one showing the exterior of a Tweeter
etc. store and one showing the showroom of the same. The text on the first
horizontal line to which these two photographs relate reads "23 Tweeter
Locations in New England".
In the second third of the page there are two photographs overlapping the
second horizontal line, one showing the exterior of a Bryn Mawr Stereo & Video
store and one showing the showroom of the same. The text on the second
horizontal line to which these two photographs relate reads "17 Bryn Mawr Stereo
& Video Locations in the Mid-Atlantic".
In the bottom third of the page there are two photographs overlapping the
third horizontal line, one showing the exterior of a HiFi Buys store and one
showing a car stereo showroom. The text on the third horizontal line to which
these two photographs relate reads "10 HiFi Buys Locations in Greater Atlanta".
Below the third horizontal line are two photographs, side-by-side, with
0.375 inch black borders, the left of which shows a large screen television, the
right of which shows a home theater room in a Company store. Above these two
photographs is the caption "Products on the Cutting Edge".
The insert has text centered at the bottom of the left half of the insert
reading "Automatic Price Protection(SM)".
DESCRIPTION OF INSIDE BACK COVER PAGE GRAPHICS:
The back cover page graphics consist of three geographic maps which measure
approximately 3.125 inch (width) by 2.75 inch (length) (based on an 8.5 inch by
11 inch page) vertically aligned to the left side of the page, three logos with
captions vertically aligned in the top-right quadrant of the page, and a fourth
geographic map, unbordered, measures approximately 2.5 inch (width) by
<PAGE> 4
3.875 inch (length) (based on an 8.5 inch by 11 inch page) in the bottom-right
quadrant of the page.
The three vertically aligned geographic maps on the left side of the page
depict the regions of the U.S.A. in which the Company has stores. Gray dots mark
store locations and states in which the Company stores are located are offset by
white fill in each of the maps the following order from top to bottom:
1. Connecticut, Massachusetts, New Hampshire and Rhode Island;
2. Delaware, Maryland, New Jersey and Pennsylvania; and
3. Georgia.
The three logos vertically aligned in the top-right quadrant of the page
read from top to bottom with captions centered below each (shown in parentheses
below) as follows:
1. "Tweeter, etc." (23 Locations);
2. "Bryn Mawr Stereo & Video" (17 Locations); and
3. "HiFi Buys" (10 Locations).
The unbordered geographic map in the bottom-right quadrant of the page is a
composite of the other three geographic maps described above, depicting coastal
states (plus West Virginia and Vermont) from Georgia to New Hampshire, Gray dots
mark store locations and states in which Company stores are located are offset
by white fill.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
"TWEETER ETC.," "TWEETER," "BRYN MAWR STEREO," "BRYN MAWR," "HIFI BUYS,"
"AUTOMATIC PRICE PROTECTION" AND "WISE BUYS" ARE SERVICE MARKS OF THE COMPANY.
SEE "BUSINESS -- INTELLECTUAL PROPERTY."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes or gives effect to: (i) no exercise of the
over-allotment option granted by the Company to the Underwriters; (ii) the
exercise of warrants to purchase 259,856 shares of Common Stock which will be
exercised and sold in the Offering; and (iii) the automatic conversion of all
outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock (the "Preferred Stock") into an aggregate of 2,566,561 shares of
Common Stock upon the consummation of the Offering. Unless the context requires
otherwise, the term "Company" refers collectively to Tweeter Home Entertainment
Group, Inc., a Delaware corporation, its predecessors and its subsidiaries.
THE COMPANY
The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's stores feature an
extensive selection of home and car audio systems and components, portable audio
equipment, and home video products, including large screen televisions, DVD
players, digital satellite systems, video cassette recorders and camcorders. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does not
offer personal computers or home office equipment. The Company seeks to build
name recognition and customer loyalty by combining quality products and
knowledgeable sales associates with a high level of service and competitive
prices. The Company has been recognized as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997 by Audio Video International Magazine and the
fastest growing consumer electronics retailer in the United States in 1997 by
the TWICE Consumer Electronics Retail Registry.
The Company's goal is to become the nation's leading specialty retailer of
high quality audio and video products to its targeted customer base. To achieve
this objective, the Company has implemented an operating model that includes (i)
a deep merchandise selection focused on mid to high-end audio and video
products, including limited distribution products which accounted for
approximately 40% of 1997 sales, (ii) exceptional customer service based upon
relationship and knowledge-based selling that is critical to higher-end
products, (iii) every day competitive pricing featuring the Company's patented
Automatic Price Protection program and (iv) a dynamic and inviting retail
environment.
The Company believes that the quality and knowledge of its sales associates
is critical to its success and represents a significant competitive advantage.
Sales consultants initially receive five weeks of intensive classroom training
and five to fifteen days of additional training per year, both in the store and
at the Company's regional training centers. The Company's relationship selling
model encourages sales associates to promote a comfortable, trusting, low
pressure sales environment that engenders long term customer loyalty. An
integral part of the Company's relationship selling model is its Automatic Price
Protection program. This program is designed to remove pricing concerns from the
purchase decision and allows customers and the sales staff to focus on product
functionality, performance and quality. Under the Automatic Price Protection
program, if a customer purchases a consumer electronics product from one of the
Company's stores and a competitor within 25 miles of the store advertises a
lower price within 30 days, the Company automatically sends a check to the
customer for the difference without requiring the customer to request the
payment. The Company believes that the success of its operating model is
evidenced by the fact that approximately 40% of the customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company during the prior two fiscal years.
3
<PAGE> 6
The Company's store prototype is 10,000 square feet with brightly painted
interiors, often in pastel colors, and many stores exhibit hand painted murals
and other decorative artwork. Unlike many competitors whose stores contain
large, open spaces, the Company's stores feature individual sound rooms with
practical displays which allow customers to sample and compare the features and
functions of products in various combinations. The sound rooms are intended to
architecturally and acoustically resemble a home or car environment so the
customer can hear and see how products will perform. Each store contains a
traditional television wall, and many stores contain a movie theater room
complete with theater-style seats to showcase home theater products. Some stores
display a car on the selling floor which features a state-of-the-art car stereo
system.
The Company believes that the consumer electronics industry is large,
growing and fragmented with significant consolidation opportunities. Industry
sources estimate that factory sales of consumer electronics in 1997 reached $74
billion, with $22 billion comprised of audio and video products. Between 1990
and 1997, the audio and video segments expanded at a compound annual growth rate
of 2.3% and the Company believes that new technologies such as digital
television present the possibility for accelerated growth. The expansion of
large format national chains has created competitive pressures for smaller
specialty stores that may be successfully differentiated but lack an adequate
scale of operations or purchasing power to operate on a stand-alone basis. The
Company believes that these regional specialty operators provide acquisition
opportunities for the Company. Industry sources indicate that approximately $7
billion of sales were attributable to specialty electronic chains with five or
more locations.
The Company has developed an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to selectively pursue acquisitions in new regional markets and
achieve operating improvements by converting the acquired company to its core
operating model and leverage distribution, marketing and corporate
infrastructure. The Company currently intends to open five stores in fiscal
1998, three of which have been opened as of March 31, 1998, and to relocate two
other stores. In fiscal 1999, the Company intends to open 15 stores. The Company
has demonstrated its acquisition and integration capability through its purchase
of Bryn Mawr Radio & Television Centre, Inc. in May 1996 (the "Bryn Mawr
Acquisition") and HiFi Buys Incorporated in May 1997 (the "HiFi Buys
Acquisition"). To support its acquisition strategy, the Company obtained equity
investments in fiscal 1996 of $10.6 million from a group of investors led by
Weston Presidio and Advent International (the "1996 Investors"). In May 1997,
the Company raised an additional $22.0 million, comprised of preferred stock and
subordinated debt, from the 1996 Investors and several additional investors,
including PNC Capital Corp.
THE BRYN MAWR ACQUISITION
In May 1996, the Company acquired the 13 store Bryn Mawr chain located in
the Mid-Atlantic market for $8.7 million. The Company implemented strategic
initiatives within the acquired stores focused on increasing sales and store
contribution. Specifically, the Company (i) increased advertising expenditures
during the quarter following the acquisition and refocused advertising to
emphasize radio, television and direct marketing rather than print, (ii)
implemented the Company's every day competitive pricing and Automatic Price
Protection programs, (iii) initiated a substantial sales associate training
program to improve product knowledge and enhance relationship selling skills and
(iv) focused the sales staff on higher margin products, particularly audio
products. These initiatives enabled the Company to generate comparable store
sales increases at Bryn Mawr of 37.6% during the period from the acquisition
through September 30, 1996, 4.7% during fiscal 1997 and 15.0% during the six
months ended March 31, 1998. On a pro forma basis assuming completion of the
Bryn Mawr Acquisition as of October 1, 1995, store contribution for Bryn Mawr
improved to 6.8% in fiscal 1997 from -1.1% in fiscal 1996.
4
<PAGE> 7
THE HIFI BUYS ACQUISITION
In May 1997, the Company acquired the 10 store HiFi Buys chain located in
the greater Atlanta, Georgia market for $19.6 million. Following the
acquisition, the Company implemented strategic objectives designed to increase
store contribution by combining a planned decrease in revenues with an increase
in gross margin and a substantial decrease in operating expenses. Specifically,
the Company (i) adjusted the merchandise mix to increase the proportion of mid
and high-end products and reduce the number of lower margin introductory
products, (ii) altered store employee compensation to reduce the emphasis on
promotional sales and focus incentives on gross margin and store contribution,
(iii) reduced marketing expenditures and shifted marketing emphasis from
promotional advertising toward the Company's traditional relationship-selling
and every day competitive price message, (iv) converted the advertising program
to emphasize electronic advertising and direct mail marketing as opposed to
print media (v) implemented the Automatic Price Protection program and (vi)
eliminated $2.4 million in overhead costs. As a result, comparable store sales
decreased 29.7% during the period from the acquisition through September 30,
1997 and decreased 13.2% during the six months ended March 31, 1998. At the same
time, on a pro forma basis assuming completion of the HiFi Buys Acquisition as
of October 1, 1996, store contribution improved to 10.6% in the six months ended
March 31, 1998 from 7.8% in the same period for the prior year.
The Company was organized as a Massachusetts corporation in 1972 and was
reorganized as a Delaware holding company in , 1998. The
Company's principal executive offices are located at 40 Hudson Road, Canton,
Massachusetts 02021. The Company's telephone number is (781) 830-3000.
THE OFFERING
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<S> <C>
Common Stock offered by the Company................. 2,200,000 shares
Common Stock offered by the Selling Stockholders.... 510,000 shares
-------------------
Total.......................................... 2,710,000 shares
Common Stock to be outstanding after the Offering... 6,082,690 shares(1)
Use of proceeds..................................... To repay indebtedness and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.............. TWTR
</TABLE>
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(1) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
outstanding after the date of the Offering, with a weighted average exercise
price of $2.13 per share. Also excludes 845,059 shares of Common Stock
issuable upon exercise of options outstanding at the date of this
Prospectus, with a weighted average exercise price of $3.97 per share. See
Notes 6 and 11 of Notes to Consolidated Financial Statements of the Company,
"Capitalization," "Description of Capital Stock" and "Management -- Stock
Plans."
5
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------ ------------------
1993 1994 1995 1996(1) 1997(2) 1997 1998
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STATEMENT OF OPERATIONS DATA:
Total revenue................................ $38,200 $47,401 $60,121 $80,607 $132,525 $60,583 $129,129
Gross profit................................. 13,007 16,489 20,954 28,791 46,210 21,402 44,849
Store contribution(3)........................ 2,738 3,985 5,550 6,798 10,642 6,605 14,641
Income from operations....................... 10 1,344 2,238 1,953 2,053 2,692 8,798
Interest expense............................. 631 426 629 617 1,808 513 1,610
------- ------- ------- ------- -------- ------- --------
Income before taxes.......................... (621) 918 1,609 1,336 245 2,179 7,188
Income tax expense (benefit)................. -- -- (174) (453) 99 876 2,875
------- ------- ------- ------- -------- ------- --------
Net income (loss)............................ $ (621) $ 918 $ 1,783 $ 1,789 $ 146 $ 1,303 $ 4,313
======= ======= ======= ======= ======== ======= ========
Pro forma income tax expense (benefit)(4).... (248) 371 661 550 99 876 2,875
Pro forma net income (loss).................. $ (373) $ 547 $ 948 $ 786 $ 146 $ 1,303 $ 4,313
======= ======= ======= ======= ======== ======= ========
Pro forma net income per common share........ $ 0.03 $ 0.87
======== ========
Weighted average shares outstanding(5)....... 4,966 4,966
======== ========
Supplemental pro forma net income per common
share(6)................................... $ .37 $ 1.05
======== ========
OPERATING DATA:
Stores open at beginning of period........... 13 14 16 18 33 33 47
New stores................................... 1 2 2 2 4 2 3
Relocated stores............................. 0 1 1 1 1 1 2
Closed stores................................ 0 0 0 0 0 0 0
Acquired stores.............................. 0 0 0 13 10 0 0
Stores open at end of period................. 14 16 18 33 47 35 50
COMPARABLE STORE SALES GROWTH:(7)
Tweeter...................................... 2.8% 11.2% 12.5% 1.6% -4.5% -7.7% 29.9%
Bryn Mawr.................................... 37.6% 4.7% 8.9% 15.0%
HiFi Buys.................................... -29.7% -13.2%
Consolidated................................. 2.8% 11.2% 12.5% 5.7% -7.0% -2.3% 8.8%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
ACTUAL PRO FORMA(8) AS ADJUSTED(9)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $16,250 $16,250 $ 16,250
Total assets.............................................. 84,528 84,528 84,221
Long term debt, excluding current portion................. 31,275 31,275 1,935
Redeemable convertible preferred stock.................... 22,174 -- --
Stockholder's equity (deficit)............................ (2,939) 19,235 49,624
</TABLE>
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(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
accounted for using the purchase method. See Note 10 of Notes to the
Consolidated Financial Statements of the Company.
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
accounted for using the purchase method. See Note 10 of Notes to the
Consolidated Financial Statements of the Company.
(3) Refers to gross profit after deducting selling expenses including labor,
advertising, store level operations and pre-opening expenses. Store
contribution is presented to provide additional information about the
Company and is commonly used as a performance measurement by retail
companies. Store contribution should not be considered in isolation or as a
substitute for operating income, cash flow from operating activities and
other income or cash flow data prepared in accordance with generally
accepted accounting principles, or as a measure of the Company's
profitability or liquidity. There can be no assurance that the Company's
calculation of store contribution is comparable to similarly titled items
reported by other companies.
6
<PAGE> 9
(4) The Company operated as an S corporation through November 1995 and was not
subject to federal and certain state corporate income taxes. In connection
with the recapitalization that occurred on November 26, 1995, the Company
revoked its S election, and became subject to taxation as a C corporation,
effective October 1, 1995. The pro forma information has been computed as if
the Company were subject to Federal and all applicable state income taxes
for each of the periods presented, assuming the Company had been taxed as a
C corporation. The Company actually recorded an income tax benefit of
$174,000 and $453,000 for the fiscal years ended September 30, 1995 and
1996, respectively.
(5) Weighted average shares outstanding gives effect to the automatic conversion
of all outstanding shares of the Company's Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock (the "Preferred Stock") into
2,566,561 shares of Common Stock. Weighted average shares outstanding also
include an aggregate of 845,059 shares issuable upon exercise of stock
options and 771,664 shares issuable upon exercise of warrants, after
applying the treasury stock method assuming an initial public offering price
of $16.00 per share.
(6) Supplemental pro forma net income per share is based on pro forma net income
per share, increased to give effect to the reduction in interest costs of
$1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
months ended March 31, 1998 (net of the applicable income taxes), which
would have resulted assuming the application of a portion of the net
proceeds from the Offering were used to repay certain indebtedness of the
Company. See "Use of Proceeds."
(7) Stores are included in the comparable store base after they are in operation
for 12 full months. Acquired stores are included if the store was open for
12 full months as of the date of acquisition and the related figures are
based on the acquired company's financial statements. Relocated stores are
excluded from the comparable store base until they have completed 12 full
months of operation from the date the store was reopened after relocation.
(8) Represents actual data pro forma to give effect to the conversion of all the
outstanding shares of Preferred Stock into 2,566,561 shares of common stock.
(9) Represents pro forma data as adjusted to give effect to the sale of
2,200,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $16.00 per share (after deducting
underwriting discounts and commission and estimated offering expenses), the
application of the estimated net proceeds therefrom and the writeoff of
approximately $307,000 of deferred financing costs in connection with the
repayment of the 1997 Notes issued in connection with the HiFi Buys
Acquisition and the accretion of debt of approximately $325,000. See
"Capitalization" and "Use of Proceeds."
7
<PAGE> 10
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the shares of Common Stock offered hereby. This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. When used in
this Prospectus, the terms "anticipates," "expects," "estimates," "believes,"
"intends" and similar terms as they relate to the Company or management are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those set forth below and elsewhere
in this Prospectus.
Risks Associated With Growth. The Company's success will depend in large
part on its ability to open, or acquire through strategic acquisitions, new
stores in both existing and new geographic markets and to operate those stores
on a profitable basis. The opening of additional stores in existing markets
could result in lower net sales at the Company's existing stores in that market,
and the opening of additional stores in new geographic markets could present
competitive and merchandising challenges different from those currently or
previously faced by the Company within its existing geographic markets. In
addition, the Company may incur higher costs related to advertising,
administration and distribution as it enters new markets.
The Company's growth strategy is dependent upon a number of factors,
including the identification and acquisition of suitable sites and the
negotiation of acceptable leases for such sites, the identification of existing
audio and video consumer electronics retailers appropriate for strategic
acquisition by the Company and the successful consummation of such acquisitions,
the obtaining of consents, including government consents, permits and licenses,
needed to complete such acquisitions and operate such additional sites, the
hiring, training and retention of skilled personnel, the availability of
adequate management and financial resources, the adaptation of the Company's
distribution and other operational and management systems to an expanded network
of stores, the ability and willingness of the Company's vendors to supply the
Company on a timely basis at competitive prices, continued consumer demand for
the Company's products at levels that can support acceptable profit margins, and
other factors, many of which are beyond the control of the Company. There can be
no assurance that the Company will be successful with respect to any of these
factors in particular or that the Company will be successful in opening or
acquiring new stores on a schedule consistent with the Company's business plan,
if at all, or that such newly opened or acquired stores will achieve sales and
profitability levels comparable to existing stores, if they are profitable at
all, or that the Company will improve its overall market position and
profitability as a result.
In addition, the Company's rapid expansion through the opening or
acquisition of new stores will place significant demands on the Company's
management, resources, operations and information systems, and the Company will
be required to expend significant effort and additional resources to ensure the
continuing adequacy of its financial controls, operating procedures, information
systems, product purchasing and distribution systems and employee training
programs. In addition, the Company will need to attract and retain additional
qualified personnel, including new store managers. Further, the Company's
continued growth will depend on its ability to increase sales in its existing
stores. There can be no assurance that the Company will be successful in any of
these efforts, and, as a result, there can be no assurance that the Company will
achieve its planned expansion or that any new stores will be effectively
integrated into the Company's existing operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Growth Strategy."
Risks Associated with Acquisitions. The Company has completed two
acquisitions and is continuing to integrate the acquired stores and to convert
those stores to its operating model. There can be no assurance that the Company
will be able to integrate such stores without significant delay or expense. For
example, comparable store sales within the stores acquired by the Company as
part
8
<PAGE> 11
of the HiFi Buys Acquisition have decreased since the consummation of the HiFi
Buys Acquisition. Although the Company will consider strategic acquisitions of
other retail chains in the audio and video consumer electronics industry, there
can be no assurance that suitable acquisition candidates will be identified,
that acquisitions can be consummated or that new stores acquired through such
acquisitions can be operated profitably or integrated successfully into the
Company's operations. Previously acquired stores have had, and newly acquired
stores may have, different merchandising, advertising, store format and
operating approaches from those of the Company, and the Company's success in
integrating such stores will depend on its ability to effect significant changes
in the operations of such stores to conform to the Company's approach in these
areas. There can be no assurance that the Company will be successful in
effecting such changes without an adverse effect on the revenues or
profitability of such stores. In addition, future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, all of which could materially adversely
affect the Company.
Potential Need for Additional Financing. The Company intends to finance
the opening and acquisition of new stores during the next two years with a
portion of the proceeds from the Offering, cash flow from operations and
borrowings. The average cash investment, including pre-opening expenses for
tenant fit-out, demonstration and inventory (net of payables), required to open
a store is estimated by the Company to be approximately $855,000. However, there
can be no assurance that the actual cost of opening a store will not be
significantly greater than such current estimates, and the Company may be
required to seek additional debt and/or equity financing in order to fund its
continued expansion through 1999 and beyond. There can be no assurance that such
additional financing will be available on terms acceptable to the Company, if at
all. In addition, the Company's ability to incur additional indebtedness or
issue equity or debt securities could be limited by covenants in present and
future loan agreements and debt instruments. Additional issuances of equity by
the Company may result in dilution to the Company's stockholders.
Dependence on Key Personnel. The success of the Company will be dependent
upon the active involvement of senior management personnel, particularly Samuel
J. Bloomberg, the Company's Chief Executive Officer and Chairman of the Board,
and Jeffrey Stone, the Company's President and Chief Operating Officer. The loss
of the full-time services of Messrs. Stone or Bloomberg or other members of
senior management could have a material adverse effect on the Company's results
of operations and financial condition. Except for employment contracts with
Messrs. Stone and Bloomberg, and with Joseph McGuire, the Chief Financial
Officer and Chief Information Officer of the Company, and David Ginsburg, a
regional Vice President of the Company, the Company does not have employment
agreements with any members of its senior management team. The Company currently
maintains key-man life insurance on the lives of Messrs. Bloomberg and Stone in
the amounts of $1,000,000 and $5,000,000, respectively. See
"Business -- Business Strategy" and "Management."
Risks Associated with Competition. The retail consumer electronics
industry is highly competitive. The Company currently competes against a diverse
group of retailers, including several national and regional large format
merchandisers and superstores, such as Circuit City and Best Buy, which sell,
among other products, audio and video consumer electronic products similar and
often identical to those sold by the Company. The Company also competes in
particular markets with a substantial number of retailers that specialize in one
or more types of consumer electronic products sold by the Company. Certain of
these competitors have substantially greater financial resources than the
Company that may increase their ability to purchase inventory at lower costs or
to initiate and sustain predatory price competition. In addition, the large
format stores are continuing to expand their geographic markets, and such
expansion may increase price competition within those markets. In this regard,
the Company understands that Best Buy has announced its intention to enter the
New England market in 1998. A number of different competitive factors could have
a material adverse effect on the Company's results of operations and financial
condition, including increased opera-
9
<PAGE> 12
tional efficiencies of competitors, competitive pricing strategies, expansion by
existing competitors, entry by new competitors into markets in which the Company
is currently operating or the adoption by existing competitors of innovative
store formats or retail sales methods. See "Business -- Industry."
Seasonal and Quarterly Fluctuations in Sales. Like many retailers, the
Company's business is materially impacted by seasonal shopping patterns. The
fourth calendar quarter, which is the Company's first fiscal quarter and which
includes the December holiday shopping period, has historically contributed, and
is expected to continue to represent, a substantial portion of the Company's
operating income for its entire fiscal year. As a result, any factors negatively
affecting the Company during such calendar quarter of any year, including
adverse weather or unfavorable economic conditions, would have a material
adverse effect on the Company's results of operations for the entire year. More
generally, the Company's quarterly results of operations also may fluctuate
based upon such factors as the timing of new store openings and new store
acquisitions, the amount of store pre-opening expenses, the amount of net sales
contributed by new and existing stores, the mix of consumer electronic products
sold in its stores and profitability of sales of particular products and other
competitive factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Results."
Fluctuations in Comparable Store Sales. A number of factors have
historically affected, and will continue to affect, the Company's comparable
store sales results including, among other factors, competition, general
regional and national economic conditions, consumer trends, changes in the
Company's product mix, timing of promotional events, new product introductions
and the Company's ability to execute its business strategy effectively. The
Company does not expect comparable store sales to increase at historical rates,
and there can be no assurance that comparable store sales will not decrease in
the future. Changes in the Company's comparable store sales results could cause
the price of the Common Stock to fluctuate substantially. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Lack of Geographical Dispersion. The Company currently operates 50 stores,
of which 23 are operated under the Tweeter name in the New England market, 17
are operated under the Bryn Mawr name in the Mid-Atlantic market, and 10 are
operated under the HiFi Buys name in the Atlanta, Georgia market. The lack of
wider geographical dispersion of the Company's current stores makes the Company
vulnerable to adverse events in these markets, including weather, regional
competition or unfavorable regional economic conditions. See "Business -- Store
Format and Operations."
Changes in Consumer Demand and Preferences. The Company's success depends
on its ability to anticipate and respond in a timely manner to consumer demand
and preferences regarding audio and video consumer electronics products and
changes in such demand and preferences. Consumer spending patterns, particularly
discretionary spending for products such as those marketed by the Company, are
affected by, among other things, prevailing economic conditions. In addition,
demand for audio and video consumer electronics products is often stimulated by
or dependent upon the periodic introduction and availability of new products and
technologies at price levels which generate wide consumer interest. Also, many
products which incorporate the newest technologies, such as DVD and
high-definition television, are subject to significant technological and pricing
limitations and to the actions and cooperation of third parties such as
television broadcasters or movie distributors. There can be no assurance that
these products or other new products will ever achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may have a depressing effect on sales of existing
products and technologies. Significant deviations from the projected demand for
products sold by the Company would have a materially adverse effect on the
Company's results of operations and financial condition, either from lost sales
or lower margins due to the need to mark down excess inventory. Any sustained
failure by the Company to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on the Company's results of
10
<PAGE> 13
operations and financial condition. See "Business -- Industry," "-- Business
Strategy" and "-- Merchandise."
Dependence on Suppliers. The Company's business and its growth strategy
are dependent to a significant degree upon its suppliers, particularly its
brand-name suppliers of stereo and video equipment such as Sony, Mitsubishi,
Yamaha, Boston Acoustics and Panasonic. The Company does not have any supply
agreements or exclusive arrangements with any vendors, and ordering of Company
inventory typically occurs through the issuance of individual purchase orders to
vendors. In addition, the Company relies heavily on a relatively small number of
suppliers. The Company's two largest suppliers accounted for approximately 31%
of the Company's purchases during its fiscal year ended September 30, 1997. The
loss of any of these key vendors or the failure by the Company to establish and
maintain relationships with these or other vendors could have a material adverse
effect on the Company's results of operations and financial condition and
expansion. The Company believes it currently has adequate supply sources but
there can be no assurance, especially given the Company's growth strategy, that
the Company will be able to acquire sufficient quantities or an appropriate mix
of consumer electronic products at acceptable prices or at all. Specifically,
the establishment of additional stores in existing markets and the penetration
of new markets is dependent to a significant extent on the willingness and
ability of vendors to supply those additional stores, of which there can be no
assurance. As the Company continues to open or acquire new stores, the inability
or unwillingness of suppliers to supply some or all of their products to the
Company at acceptable prices in one or more markets could have a material
adverse effect on the Company's results of operations and financial condition.
Furthermore, the Company purchases a significant portion of its inventory from
overseas vendors, particularly vendors headquartered in Japan. Changes in trade
regulations, currency fluctuations or other factors may increase the cost of
items purchased by the Company from foreign vendors or create shortages of such
items, which could in turn have a material adverse effect on the Company's
results of operations and financial condition. Conversely, significant
reductions in the cost of such items in U.S. dollars may cause a significant
reduction in retail price levels of those products and may limit or eliminate
the Company's ability to successfully differentiate itself from other
competitors, thereby resulting in an adverse effect on the Company's sales,
margin or competitive position. See "Business -- Purchasing and Inventory."
Membership in Buying Group. The Company is a member of the Progressive
Retailers Organization ("PRO"), a volume buying group currently comprised of 14
consumer electronics retailers located throughout the country, which provides
its members with market information and negotiates purchase terms with vendors
on behalf of its members. There can be no assurance that any future termination
of the Company's membership in this group would not have a material adverse
effect on the Company's results of operations and financial condition. In
addition, rebates paid to the Company by product manufacturers through this
group depend on the sales volumes achieved by the group's other members, as well
as the Company, and therefore decreased sales performance by these other members
could reduce the amounts of such rebates payable to the Company, which could in
turn have a material adverse effect on the Company's results of operations and
financial condition. See "Business -- Purchasing and Inventory."
Intellectual Property. The Company's "Tweeter etc." and "Bryn Mawr Stereo"
service marks have been registered with the United States Patent and Trademark
Office. The Company has not registered the "HiFi Buys" service mark and is aware
that other consumer electronics retailers use the name "HiFi Buys" outside the
Company's current geographical markets. The Company has submitted applications
for registration of certain other of its service marks, which applications are
currently pending. There can be no assurance that the Company will be able to
successfully register such service marks. In addition, there can be no assurance
that any service mark, whether registered or unregistered, or any patent will be
effective to protect the Company's intellectual property rights, or that
infringement or invalidity claims by third parties will not be asserted in the
future or that such assertions, if proven to be true, would not have a material
adverse effect on the Company's results of operations and financial condition.
See "Business -- Intellectual Property."
11
<PAGE> 14
Planned Relocation of Company Headquarters. The Company plans to relocate
to a new facility that will serve as its corporate headquarters and New England
regional distribution and service center in the summer of 1998. The Company's
corporate, financial, administrative and marketing staff will be based at that
relocated facility. The Company's principal data processing and computer
facility is located elsewhere. There can be no assurance that such relocation
will not result in a disruption to the Company's operations. See
"Business -- Properties" "Business -- Purchasing and Inventory."
Control by Existing Stockholders. Upon completion of the Offering, the
Company's current stockholders will own approximately 55.4% of the Company's
outstanding Common Stock. As a result, those parties will continue to be able to
influence significantly the affairs of the Company if they were to act together.
See "Principal and Selling Stockholders."
Effect of Certain Charter And By-law Provisions; Anti-Takeover
Provisions. The Company's Amended and Restated Certificate of Incorporation, as
in effect immediately following the consummation of the Offering (the "Charter")
and the Company's Amended and Restated Bylaws, as in effect immediately
following the consummation of the Offering (the "By-laws"), as well as certain
provisions of Delaware General Corporation Law, contain provisions which may
deter, discourage or make more difficult a change in control of the Company,
even if such a change in control would be in the interest of a significant
number of Company stockholders or if such change in control would provide such
stockholders with a substantial premium for their shares over then current
market prices. For example, under the Charter, the Board of Directors of the
Company is authorized to issue one or more classes of Preferred Stock, having
such designations, rights and preferences as may be determined by the Board, and
such issuances may, among other things, have an adverse effect on the rights of
holders of Common Stock.
Stockholders of the Company have no right to take action by written consent
and are not permitted to call special meetings of stockholders. Any amendment of
the By-laws by the stockholders or certain provisions of the Charter requires
the affirmative vote of at least 75% of the shares of voting stock then
outstanding. The Charter also provides for the staggered election of directors
to serve for one, two and three-year terms, and for successive three-year terms
thereafter, subject to removal only for cause upon the vote of not less than 75%
of the shares of Common Stock represented at a stockholders' meeting. See
"Description of Capital Stock -- Delaware Law and Certain Charter and By-Law
Provisions; Anti-Takeover Effects."
In addition, the Company will adopt, effective upon the consummation of the
Offering, a Stockholder Rights Plan. Under the terms of the Stockholder Rights
Plan, in general, if a person or group acquires more than 15% of the outstanding
shares of Common Stock (an "Acquiring Person"), all other stockholders of the
Company would have the right to purchase securities from the Company at a
discount to such securities' fair market value, thus causing substantial
dilution to the holdings of the Acquiring Person. The Stockholder Rights Plan
may inhibit a change in control and, therefore, could adversely affect the
stockholders' ability to realize a premium over the then-prevailing market price
for the Common Stock in connection with such a transaction. See "Description of
Capital Stock -- Stockholder Rights Plan."
Shares Eligible For Future Sale. The Company and its existing stockholders
holding all of the Company's outstanding capital stock prior to the Offering
have agreed pursuant to lock-up agreements (the "Lock-up Agreements") with the
Underwriters, with certain exceptions, not to sell, offer or contract to sell,
sell short, engage in certain hedging transactions with respect to, or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus (the "Lock-up Period"), without the prior written consent of BT
Alex. Brown Incorporated. Following the Offering, the Company will have
outstanding 6,082,690 shares of Common Stock. Of such shares, the 2,710,000
shares offered hereby will be freely tradable by those persons who are not
affiliates of the Company and all of the remaining outstanding shares will be
subject to Lock-up Agreements for the duration of the Lock-up Period. Upon
expiration of the Lock-up Period,
12
<PAGE> 15
approximately 3,372,690 additional shares will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act of
1933, as amended. As of the date of the Offering, approximately 845,059 shares
of Common Stock were issuable pursuant to options under the Company's stock
plans and 511,808 shares of Common Stock were issuable upon the exercise of
warrants. All shares issuable upon exercise of options are subject either to
Lock-up Agreements or to a lock-up period of 120 days pursuant to the Company's
stock option agreements. All shares issuable upon the exercise of warrants are
subject to Lock-up Agreements. In addition, the holders of approximately
3,884,498 shares of Common Stock will have certain rights to registration of
their shares under the Securities Act. Sales of substantial amounts of Common
Stock in the public market following the Offering, or the perception that such
sales could occur, could have a material adverse effect on the market price of
the Common Stock after the Offering. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
No Prior Public Trading Market; Volatility. Prior to the Offering, there
has been no public market for the Common Stock, and there can be no assurance
that an active public market for the Common Stock will develop or be sustained
after the Offering. The initial public offering price of the Common Stock will
be determined by negotiations between the Company and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The initial public
offering price may not necessarily be indicative of the market price of the
Common Stock after the Offering, which may be highly volatile. Factors such as
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for retail industry stocks in general could have a
material adverse effect on the market price of the Common Stock after the
Offering.
Year 2000 Compliance. The Company currently utilizes several computer
software systems which will require modification or upgrading to accommodate the
"Year 2000" changes needed for correct recording of dates in the year 2000 and
beyond. The Company believes that all such systems can be changed by the end of
1999 and does not expect the cost of the changes to be material to the Company's
financial condition or results of operations. The Company does not currently
have any information concerning the compliance status of its suppliers. Any
failure by the Company's significant suppliers to successfully achieve Year 2000
compliance could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Information Systems."
Dividend Policy. The Company does not anticipate paying any cash dividends
on the Common Stock for the foreseeable future. In addition, it is likely that
any future lending arrangements, including the lending arrangements currently
under discussion between the Company and its existing lender, will prohibit or
limit the payment of cash dividends. See "Use of Proceeds" and "Dividend
Policy."
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution in the amount of $10.93 per share (assuming an initial
public offering price of $16.00 per share). To the extent that currently
outstanding options or warrants to purchase Common Stock are exercised, there
will be further dilution. See "Dilution."
13
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby are estimated to be $31,836,000 ($37,884,720 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $16.00 per share and after deducting the estimated
underwriting discounts and commissions and expenses payable by the Company. The
Company will use all or substantially all of such proceeds to repay existing
indebtedness. Specifically, the Company intends to repay (i) approximately $14.1
million in outstanding indebtedness under its existing Credit Agreement with
BankBoston, N.A. (the "Credit Facility"); (ii) approximately $15.0 million in
outstanding indebtedness under the Senior Subordinated Promissory Notes dated
May 30, 1997 issued in connection with the HiFi Buys Acquisition (the "1997
Notes"); (iii) approximately $1.0 million in outstanding indebtedness under the
Senior Subordinated Note dated November 28, 1995 issued in connection with a
recapitalization pursuant to which the Company repurchased Common Stock from
certain of its stockholders (the "Redemption Note") plus approximately $800,000
due to these stockholders in connection with the Offering; and (iv)
approximately $900,000 to repay outstanding indebtedness under the Subordinated
Note dated June 1, 1997 issued in connection with the HiFi Buys Acquisition (the
"HiFi Buys Note"). Any remaining net proceeds will be used to finance new store
openings and for general working capital purposes.
The Credit Facility matures on May 30, 2000 and bears interest at a
floating rate of interest based on the lender's base rate or LIBOR. The 1997
Notes mature on May 30, 2004 and bear interest at a rate of 12.0%. The
Redemption Note matures on December 31, 1998 and bears interest at an effective
rate of 10.8%. The HiFi Buys Note matures on June 1, 2000 and bears interest at
a rate of 9.5%. The Company intends to obtain a new credit facility in the
amount of $30.0 million effective upon consummation of the Offering (the "New
Credit Facility") which will be used first to refinance any remaining
indebtedness under the Credit Facility after application of proceeds of the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Pending use as described above, any remaining net proceeds of the Offering
will be invested in investment-grade, interest-bearing instruments. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
DIVIDEND POLICY
Following the Offering, the Company does not anticipate paying any cash
dividends and intends to retain any earnings to finance expansion. Payment of
future dividends, if any, will depend upon the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
Company's Board of Directors. The Company's current Credit Facility contains,
and any future credit agreements, including the new Credit Facility, may
contain, restrictions on the payment of dividends by the Company.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of March 31, 1998, (i) on an actual basis; (ii) on a pro forma basis to
reflect the automatic conversion of all outstanding Preferred Stock into
2,566,561 shares of Common Stock and the exercise of warrants to purchase
259,856 shares of Common Stock, each upon the consummation of the Offering, and
(iii) as adjusted to reflect the application of the estimated net proceeds from
the sale of 2,200,000 shares of Common Stock offered by the Company hereby
assuming an initial public offering price of $16.00 per share. This table should
be read in conjunction with the Company's Consolidated Financial Statements and
the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt..................... $ 400 $ 400 $ --
======= ======= =======
Long-term debt:
Note payable to bank.................................. 15,100 15,100 979
Subordinated debt..................................... 16,175 16,175 --
------- ------- -------
Total long-term debt.......................... $31,275 $31,275 $ 979
------- ------- -------
Redeemable convertible preferred stock:
Series A Convertible Preferred Stock, no par value;
authorized, 4,000,000 shares; 1,700,136 shares
issued and outstanding in 1998, 1997 and 1996,
actual; no shares outstanding pro forma and as
adjusted (liquidation preference, $14,432,999 as of
March 31, 1998, actual)............................ 14,433 -- --
Series B Convertible Preferred Stock, no par value;
authorized, 4,000,000 shares; 866,425 shares issued
and outstanding in 1998 and 1997, actual; no shares
outstanding pro forma and as adjusted (liquidation
preference $7,741,248 as of March 31, 1998,
actual)............................................ 7,741 -- --
------- ------- -------
22,174 -- --
------- ------- -------
Stockholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized(1), no shares issued and outstanding
actual, pro forma and as adjusted.................. -- -- --
Common stock, no par value, 20,000,000 shares
authorized; 1,056,273 shares issued and outstanding
actual and 3,882,690 shares issued and outstanding
pro forma and 6,082,690 shares issued and
outstanding as adjusted(2)......................... -- -- --
Additional paid-in capital............................ 326 22,500 54,336
Retained earnings(3)(4)............................... (1,684) (1,684) (2,677)
Note receivable from officer.......................... (32) (32) (32)
Treasury stock, 1,698,929 shares at cost actual and
pro forma and 1,439,073 shares as adjusted(3)(5)... (1,550) (1,550) (2,003)
------- ------- -------
Total stockholders' equity (deficit)............... (2,940) 19,234 49,624
------- ------- -------
Total capitalization.......................... $50,509 $50,509 $50,603
======= ======= =======
</TABLE>
- ---------------
(1) Reflects an increase in authorized shares to be effected prior to the
consummation of the Offering.
(2) Excludes 511,808 shares of Common Stock issuable upon exercise of warrants
outstanding at the date of this Prospectus, with a weighted average exercise
price of $2.13 per share. Also excludes 845,059 shares of Common Stock
issuable upon exercise of options outstanding at the date of this
Prospectus, with a weighted average exercise price of $3.97 per share.
15
<PAGE> 18
See Notes 6 and 11 of Notes to Consolidated Financial Statements of the
Company, "Description of Capital Stock" and "Management -- Stock Plans."
(3) Assumes the exercise of warrants to purchase 259,856 shares of Common Stock
which the Company intends to issue from Treasury Stock.
(4) As adjusted reflects the writeoff of approximately $307,000 of deferred
financing costs in connection with the 1997 Notes and the accretion of debt
of approximately $325,000. See -- "Use of Proceeds."
(5) As adjusted reflects the impact of the $813,517 contingency payment due to
the holder of the Redemption Note upon consummation of the Offering.
16
<PAGE> 19
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1998
was a deficit of ($1,014,844), or approximately ($.28) per share of Common
Stock. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total assets less goodwill and total
liabilities) by the number of outstanding shares of Common Stock. After giving
effect to the sale of the shares of Common Stock by the Company in the Offering,
assuming an initial public offering price of $16.00 per share and after
deducting the estimated underwriting discounts and commissions and expenses
payable by the Company, the pro forma net tangible book value of the Company as
of March 31, 1998 would have been $30,821,156 or $5.07 per share. This
represents an immediate increase in pro forma net tangible book value of $5.35
per share to existing stockholders and an immediate dilution to new investors of
$10.93 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Net tangible book value per share as of March 31, 1998.... (.28)
Increase per share attributable to new investors.......... 5.35
-------
Pro forma net tangible book value per share after the
Offering.................................................. 5.07
------
Dilution per share to new investors(1)...................... $10.93
======
</TABLE>
- ---------------
(1) If all outstanding options and warrants at March 31, 1998 to acquire 859,049
and 511,808 shares of Common Stock, respectively, were exercised, in
addition to the Underwriters' exercise of their over-allotment option, the
pro forma net tangible book value per share after the Offering would be
$4.21, resulting in an immediate dilution of $11.79 per share to new
investors.
The following table summarizes on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share before deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company, assuming (i) the automatic conversion of the outstanding shares
of Preferred Stock into 2,566,561 shares of Common Stock and (ii) the exercise
of warrants to purchase 259,856 shares of Common Stock, each upon the
consummation of the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)....... 3,882,690 63.8% $15,848,295 31.0% $ 4.08
New investors........... 2,200,000 36.2% $35,200,000 69.0% $16.00
--------- ----- ----------- -----
Total......... 6,082,690 100% $51,048,295 100%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Of this amount, 510,000 shares will be sold in the Offering by Selling
Stockholders. Sales by Selling Stockholders in this Offering will reduce the
number of shares of Common Stock held by existing stockholders to 3,372,690,
or approximately 55.4% and will increase the number of shares held by new
investors to 2,710,000, or approximately 44.6% of the total number of shares
of Common Stock outstanding after the Offering. See "Principal and Selling
Stockholders."
The computations in the tables set forth above exclude 511,808 shares of
Common Stock issuable upon exercise of warrants outstanding at the date of this
Prospectus with a weighted average exercise price of $2.13 per share, and
exclude 845,059 shares of Common Stock issuable upon exercise of options
outstanding at the date of this Prospectus with a weighted average exercise
price of $3.97 per share. To the extent any of these warrants and options are
exercised, there will be further dilution to new investors and the percentage
ownership of new investors will decrease. See Notes 6 and 11 of Notes to
Consolidated Financial Statements of the Company, "Capitalization," "Description
of Capital Stock," and "Management -- Stock Plans."
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
Set forth below is selected financial and operating data for, and as of the
end of, each of the five years ended September 30, 1997, and for the six months
ended March 31, 1997 and March 31, 1998, respectively. The selected statement of
operations and balance sheet data for each of the five years ended September 30,
1997 have been derived from financial statements of the Company, which have been
audited by its independent auditors. The balance sheets as of September 30, 1996
and September 30, 1997, and the related statements of income, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1997, and the audit report thereon, are included elsewhere in this
Prospectus. The financial data for the six months ended March 31, 1997 and March
31, 1998 are derived from unaudited financial statements of the Company and
reflect all adjustments, consisting only of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for those periods. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------ -------------------------
1993 1994 1995 1996(1) 1997(2) 1997 1998
------- ------- ------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenue....................... $38,200 $47,401 $60,121 $80,607 $132,525 $60,583 $129,129
Cost of sales....................... 25,193 30,912 39,167 51,816 86,315 39,181 84,280
------- ------- ------- ------- -------- ------- --------
Gross profit...................... 13,007 16,489 20,954 28,791 46,210 21,402 44,849
Selling expenses.................... 10,269 12,504 15,404 21,993 35,568 14,797 30,208
------- ------- ------- ------- -------- ------- --------
Store contribution(3)............. 2,738 3,985 5,550 6,798 10,642 6,605 14,641
Corporate, general and
administrative expenses........... 2,663 2,576 3,247 4,716 8,102 3,793 5,420
Amortization of goodwill............ 65 65 65 129 487 120 423
------- ------- ------- ------- -------- ------- --------
Income from operations............ 10 1,344 2,238 1,953 2,053 2,692 8,798
Interest expense.................... 631 426 629 617 1,808 513 1,610
------- ------- ------- ------- -------- ------- --------
Income before taxes................. (621) 918 1,609 1,336 245 2,179 7,188
Income tax expense (benefit)........ -- -- (174) (453) 99 876 2,875
------- ------- ------- ------- -------- ------- --------
Net income (loss)................... $ (621) $ 918 $ 1,783 $ 1,789 $ 146 $ 1,303 $ 4,313
======= ======= ======= ======= ======== ======= ========
Pro forma income tax expense
(benefit)(4)...................... (248) 371 661 550 99 876 2,875
Pro forma net income (loss)......... $ (373) $ 547 $ 948 $ 786 $ 147 $ 1,303 $ 4,313
======= ======= ======= ======= ======== ======= ========
Pro forma diluted earnings(5)....... $ 0.03 $ 0.87
======== ========
Weighted average shares
outstanding(5).................... 4,966 4,966
======== ========
Supplemental pro forma diluted
earnings income per share(6)...... $ .37 $ 1.05
======== ========
OPERATING DATA:
Stores open at beginning of
period............................ 13 14 16 18 33 33 47
New stores.......................... 1 2 2 2 4 2 3
Relocated stores.................... 0 1 1 1 1 1 2
Closed stores....................... 0 0 0 0 0 0 0
Acquired stores..................... 0 0 0 13 10 0 0
Stores open at end of period........ 14 16 18 33 47 35 50
BALANCE SHEET DATA:
Working capital..................... $ 1,617 $ 835 $ 1,590 $ 1,897 $ 11,857 $ 2,281 $ 16,250
Total assets........................ 9,367 12,562 15,162 38,619 78,688 42,107 84,528
Long term debt, excluding current
portion........................... 9,057 7,955 8,705 10,700 30,875 9,975 31,275
Redeemable convertible preferred.... -- -- -- 11,597 20,591 12,496 22,174
Stockholder's equity (deficit)...... (5,039) (4,122) (2,457) (3,984) (5,669) (3,580) (2,939)
</TABLE>
(footnotes following Other Store Data)
18
<PAGE> 21
OTHER STORE DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
TWEETER
Total revenue..................... $38,200 $47,401 $60,121 $68,577 $74,049 $40,801 $ 54,690
Store contribution(3)............. 2,738 3,985 5,550 7,089 6,338 4,558 7,178
Store contribution margin......... 7.2% 8.4% 9.2% 10.3% 8.6% 11.2% 13.1%
Stores open at beginning of
period.......................... 13 14 16 18 20 20 22
New stores........................ 1 2 2 2 2 2 1
Relocated stores.................. 0 1 1 1 1 1 2
Closed stores..................... 0 0 0 0 0 0 0
Stores open at end of period...... 14 16 18 20 22 22 23
BRYN MAWR
Total revenue..................... $12,030 $35,432 $19,782 $ 28,359
Store contribution(3)............. (291) 2,414 2,047 2,589
Store contribution margin......... -2.4% 6.8% 10.4% 9.1%
Stores open at beginning of
period.......................... 0 13 13 15
New stores........................ 0 2 0 2
Relocated stores.................. 0 0 0 0
Closed stores..................... 0 0 0 0
Acquired stores................... 13 0 0 0
Stores open at end of period...... 13 15 13 17
HIFI BUYS
Total revenue..................... $23,044 $ 46,080
Store contribution(3)............. 1,890 4,874
Store contribution margin......... 8.2% 10.6%
Stores open at beginning of
period.......................... 0 10
New stores........................ 0 0
Relocated stores.................. 0 0
Closed stores..................... 0 0
Acquired stores................... 10 0
Stores open at end of period...... 10 10
CONSOLIDATED
Corporate, general and
administrative expenses......... $ 2,663 $ 2,576 $ 3,247 $ 4,716 $ 8,102 $ 3,793 $ 5,420
Amortization of goodwill.......... 65 65 65 129 487 120 423
------- ------- ------- ------- ------- ------- --------
Income from operations............ $ 10 $ 1,344 $ 2,238 $ 1,953 $ 2,053 $ 2,692 $ 8,798
======= ======= ======= ======= ======= ======= ========
COMPARABLE STORE SALES GROWTH(7):
Tweeter........................... 2.8% 11.2% 12.5% 1.6% -4.5% -7.7% 29.9%
Bryn Mawr......................... 37.6% 4.7% 8.9% 15.0%
HiFi Buys......................... -29.7% -13.2%
Consolidated...................... 2.8% 11.2% 12.5% 5.7% -7.0% -2.3% 8.8%
</TABLE>
- ---------------
(1) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
accounted for using the purchase method. See Note 10 of Notes to the
Consolidated Financial Statements of the Company.
(2) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
accounted for using the purchase method. See Note 10 of Notes to the
Consolidated Financial Statements of the Company.
(3) Refers to gross profit after deducting selling expenses including labor,
advertising, store level operations and pre-opening expenses. Store
contribution is presented to provide additional information about the
Company and is commonly used as a performance measurement by retail
companies. Store contribution should not be considered in isolation or as a
substitute for operating income, cash flow from operating activities and
other income or cash flow data prepared in accordance with generally
accepted accounting principles, or as a measure of the Company's
profitability or
19
<PAGE> 22
liquidity. There can be no assurance that the Company's calculation of store
contribution is comparable to similarly titled items reported by other
companies.
(4) The Company operated as an S corporation through November 1995 and was not
subject to federal and certain state corporate income taxes. In connection
with the recapitalization that occurred on November 26, 1995, the Company
revoked its S election, and became subject to taxation as a C corporation.
The pro forma information has been computed as if the Company were subject
to Federal and all applicable state income taxes for each of the periods
presented, assuming the Company had been taxed as a C corporation. The
Company recorded an income tax benefit of $173,000 and $453,000 for the
fiscal years ended September 30, 1995 and 1996, respectively.
(5) Weighted average shares outstanding gives effect to the automatic conversion
of all outstanding shares of the Company's Preferred Stock into 2,566,561
shares of Common Stock. Weighted average shares outstanding also include an
aggregate of 845,059 shares issuable upon exercise of stock options and
771,664 shares issuable upon exercise of warrants, after applying the
treasury stock method assuming an initial public offering price of $16.00
per share.
(6) Supplemental pro forma net income per share is based on pro forma net income
per share, increased to give effect to the reduction in interest costs of
$1,701 for the fiscal year ended September 30, 1997 and $1,531 for the six
months ended March 31, 1998 (net of the applicable income taxes), which
would have resulted assuming the application of a portion of the net
proceeds from the Offering were used to repay certain indebtedness of the
Company. See "Use of Proceeds."
(7) Stores are included in the comparable store base after they are in operation
for 12 full months. Acquired stores are included if the store was open for
12 full months as of the date of acquisition and the related figures are
based on the acquired company's financial statements. Remodeled or relocated
stores are excluded from the comparable store base until they have completed
12 full months of operation from the date the remodeling was completed, or
re-opened after relocation.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading specialty retailer of audio and video consumer
electronics under the Tweeter, Bryn Mawr and HiFi Buys names. The Company opened
its first Tweeter store in New England in 1972. Over 26 years, the Company has
refined its retail concept to meet the needs of consumers seeking mid to
high-end brand name products with advanced features, functionality and
performance which the Company sells through its highly trained,
relationship-driven sales force. The Company believes that its effective
merchandising and superior customer service has enabled it to generate
substantial customer loyalty. Approximately 40% of customers who purchased from
Tweeter stores in the six months ended March 31, 1998 had previously purchased
products from the Company within the prior two fiscal years.
In 1995, the Company adopted an aggressive growth strategy (i) to open new
stores in current regional markets and relocate certain stores to more favorable
sites and (ii) to selectively pursue acquisitions in new regional markets and
achieve operating improvements by converting the acquired company to the
Company's core operating model and leveraging distribution, marketing and
corporate infrastructure. To support this growth strategy, the Company obtained
equity investments in fiscal 1996 of approximately $10.6 million from a group of
investors led by Weston Presidio and Advent International (the "1996
Investors"). In May 1996, the Company completed the Bryn Mawr Acquisition. In
May 1997, the Company raised an additional $22.0 million, comprised of $7.0
million of equity and $15.0 million of subordinated debt from the 1996 Investors
and a new group of investors, including PNC Capital Corp. The proceeds were used
primarily to finance the HiFi Buys Acquisition. Both acquisitions were accounted
for by the purchase method of accounting. By December 31, 1997, the Company had
grown to 50 stores.
The Company seeks to increase sales, profitability and asset productivity
at acquired companies by converting them to the Company's standard operating
model with enhanced training for sales personnel, superior customer service,
improved merchandising focused on higher-end audio and video equipment and more
stringent operating controls. The Company has aggressively expanded its
corporate infrastructure over the past two years to support anticipated higher
levels of growth, including expanding its management team with the addition of
senior financial, information systems and buying personnel. Enhancements were
also made to its management information systems with the addition of a new
mainframe and operating platform, and to its distribution and administrative
infrastructure to enable the Company to support all three regions on an
integrated basis.
Prior to their acquisition by the Company, both Bryn Mawr and HiFi Buys
operated at substantially lower store contribution margins than the Company's
existing operations. Consequently, the Company's results were adversely impacted
in fiscal 1996 and 1997 following each of these acquisitions as the Company
converted acquired stores to its operating model. The impact was exacerbated by
the timing of the acquisitions that resulted in the peak, holiday sales period
being excluded from the operations of the acquired stores during the year of the
acquisition.
BRYN MAWR
Subsequent to the Bryn Mawr Acquisition, the Company implemented a variety
of strategic initiatives to convert Bryn Mawr to its core operating model. These
initiatives were primarily focused on increasing sales and gross margin, rather
than reducing operating expenses, in order to improve store contribution. These
initiatives included: (i) increasing advertising expenditures during the quarter
following the acquisition and refocusing advertising to emphasize radio,
television and direct marketing rather than print, (ii) implementing the
Company's every day competitive pricing and Automatic Price Protection programs,
(iii) initiating a substantial sales associate training
21
<PAGE> 24
program to improve product knowledge and enhance relationship selling skills and
(iv) focusing the sales staff on higher margin products, particularly audio
products.
Primarily as a result of these initiatives, comparable store sales
increased 37.6% at Bryn Mawr during the period from the acquisition, May 13,
1996, through September 30, 1996 versus the same period for the prior year.
Comparable store sales at Bryn Mawr increased 4.7% during fiscal 1997 and 15.0%
during the six months ended March 31, 1998. On a pro forma basis, assuming the
completion of the Bryn Mawr Acquisition as of October 1, 1995, store
contribution increased to 6.8% in fiscal 1997 from -1.1% in fiscal 1996. Bryn
Mawr store contribution margin fell to 9.1% in the six months ended March 31,
1998 from 10.4% in the prior year period primarily due to preopening expenses
incurred to open two new stores in the six months ended March 31, 1998 as well
as start up sales levels at those two stores and two additional stores opened in
May and June of 1997. The Company incurred preopening expenses of approximately
$135,000 in connection with the two stores opened in the six months ended March
31, 1998. Excluding preopening expenses, store contribution margin was 9.6% in
the six months ended March 31, 1998.
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for Bryn Mawr on a stand-alone
basis:
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS ENDED
12 MONTHS ENDED 12 MONTHS ENDED -------------------------------
SEPTEMBER 30, 1996(1) SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1998
--------------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Total revenue............ $33,525 $35,432 $19,782 $28,359
Store contribution....... -1.1% 6.8% 10.4% 9.1%
</TABLE>
- ---------------
(1) The pro forma results are presented as if the Bryn Mawr Acquisition had
occurred on October 1, 1995 and reflect the results of Bryn Mawr for a
period under prior ownership. The pro forma results are based upon available
information from the prior owner's financial statements and certain
assumptions that the Company believes are reasonable under the
circumstances. The pro forma results are not necessarily indicative of what
the Company's results would have been for the period had the Company
completed the Bryn Mawr Acquisition as of the date indicated.
HIFI BUYS
As with the Bryn Mawr Acquisition, the Company initiated a series of
strategic initiatives subsequent to the HiFi Buys Acquisition. In contrast to
Bryn Mawr, these initiatives combined a planned decrease of revenue with a
planned increase in gross margin and a substantial decrease in operating
expenses to generate increased store contribution. Specifically, the Company (i)
adjusted the merchandise mix to increase the proportion of mid and high-end
products and reduce the number of lower margin introductory products, (ii)
altered store employee compensation to reduce the emphasis on promotional sales
and focus incentives on gross margin and store contribution, (iii) reduced
marketing expenditures and shifted marketing emphasis from promotional
advertising toward the Company's traditional relationship-selling and every day
competitive price message, (iv) converted the advertising program to emphasize
electronic advertising and direct mail marketing as opposed to print media, (v)
implemented the Automatic Price Protection program and (vi) eliminated $2.4
million of overhead by centralizing accounting, purchasing and other support
infrastructure.
Primarily as a result of these initiatives, the Company experienced a
planned decline in comparable store sales of 29.7% during the period from the
acquisition, May 30, 1997, through September 30, 1997 versus the same period for
the prior year. In addition to the elimination of lower-end items from the
product mix and reduced advertising, the comparable store sales decline was
exacerbated by a relatively high sales level during June to September 1996 due
to the Olympic Games in Atlanta. Comparable store sales declined 13.2% in the
six months ended March 31, 1998 at HiFi Buys, and the Company expects such
declines to continue through at least the quarter ended December 31, 1998 as it
implements its operating strategy. Pro forma for the HiFi Buys Acquisition
22
<PAGE> 25
as of October 1, 1996, store contribution improved to 10.6% in the six months
ended March 31, 1998 from 7.8% in the prior year period.
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for HiFi Buys on a stand-alone
basis:
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1997(1) MARCH 31, 1998(1)
----------------- -----------------
<S> <C> <C>
Total revenue................................... $52,450 $46,080
Store contribution.............................. 7.8% 10.6%
</TABLE>
- ---------------
(1) The pro forma results are presented as if the HiFi Buys Acquisition had
occurred on October 1, 1996 and reflect the results of HiFi Buys for a
period under prior ownership. The pro forma results are based upon available
information from the prior owner's financial statements and certain
assumptions that the Company believes are reasonable under the
circumstances. The pro forma results are not necessarily indicative of what
the Company's results would have been for the period had the Company
completed the HiFi Buys Acquisition as of the date indicated.
RESULTS OF OPERATIONS
The following table is derived from Selected Financial Data and sets forth,
for the periods indicated, the actual amounts, in thousands, of certain income
and expense items and their percentages relative to total revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------- -------------------------
1995 1996 1997 1997 1998
----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 65.1% 64.3% 65.1% 64.7% 65.3%
Gross profit............................................ 34.9% 35.7% 34.9% 35.3% 34.7%
Selling expenses.......................................... 25.6% 27.3% 26.8% 24.4% 23.4%
----- ----- ----- ----- -----
Store contribution...................................... 9.2% 8.4% 8.0% 10.9% 11.3%
Corporate, general and administrative expenses............ 5.4% 5.9% 6.1% 6.3% 4.2%
Amortization of goodwill.................................. 0.1% 0.2% 0.4% 0.2% 0.3%
----- ----- ----- ----- -----
Income from operations.................................. 3.7% 2.4% 1.5% 4.4% 6.8%
Interest expense.......................................... 1.0% 0.8% 1.4% 0.8% 1.2%
----- ----- ----- ----- -----
Income before income taxes................................ 2.7% 1.7% 0.2% 3.6% 5.6%
Income tax expense (benefit).............................. -0.3% -0.6% 0.1% 1.4% 2.2%
----- ----- ----- ----- -----
Net income................................................ 3.0% 2.2% 0.1% 2.2% 3.3%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Total Revenue. Total revenue includes delivered sales, completed service
center work orders, insurance replacement and corporate sales. Total revenue
increased $68.5 million, or 113.1%, to $129.1 million in the six months ended
March 31, 1998 from $60.6 million for the six months ended March 31, 1997. The
increase was comprised of $46.1 million from the HiFi Buys Acquisition, $7.9
million from other new stores, and $14.5 million comparable store sales growth.
Comparable store sales increased by 8.8%, made up of a 29.9% increase at
Tweeter, a 15.0% increase at Bryn Mawr and a planned 13.2% decrease at HiFi
Buys. The exit from the New England market of certain competing retail chains
has had a favorable impact on comparable store sales at Tweeter, while the
increase at Bryn Mawr primarily resulted from the conversion to the Company's
operating model. The decrease in HiFi Buys comparable store sales was primarily
due to the planned elimination of entry level products and a decrease in
associated promotional advertising.
Gross Profit. Cost of sales includes merchandise, net delivery costs,
distribution costs, purchase discounts and vendor volume rebates. Cost of sales
increased $45.1 million, or 115.1%, to $84.3 million in the six months ended
March 31, 1998 from $39.2 million in the six months ended March 31, 1997. Gross
profit increased $23.4 million, or 109.6%, to $44.8 million in the six months
ended March 31, 1998 from $21.4 million for the six months ended March 31, 1997.
The gross
23
<PAGE> 26
margin decreased to 34.7% of total revenues in the six months ended March 31,
1998 from 35.3% for the prior year period. The decrease was primarily due to the
inclusion of HiFi Buys insurance replacement and corporate sales business, which
operates at a lower margin than the Company's core retail product sales. This
was offset by an increase in volume-related vendor rebates. Excluding the HiFi
Buys insurance replacement and corporate sales business, gross margin for the
Company would have been 35.6%. Gross margin increased at Tweeter and Bryn Mawr
in the six months ended March 31, 1998 over the prior year period.
Selling Expenses. Selling expenses include the compensation of store
personnel, occupancy, store level depreciation, advertising, preopening expenses
and bank fees and exclude corporate overhead. Selling expenses increased $15.4
million, or 104.2%, to $30.2 million in the six months ended March 31, 1998 from
$14.8 million for the six months ended March 31, 1997. The increase was
principally associated with advertising, commissions related to increased sales,
fees related to private label credit card promotions, rent and personnel costs
associated with the stores acquired in the HiFi Buys Acquisition. As a
percentage of total revenue, selling expenses declined to 23.4% for the six
months ended March 31, 1998 from 24.4% in the prior year period. This decline
was primarily the result of increased revenue at Tweeter and the inclusion of
the HiFi Buys stores which have lower advertising expenses as a percentage of
revenue than the Company's other stores due to their concentration in the
Atlanta, Georgia market. Also, the HiFi Buys insurance replacement business
generates significant revenues with reduced store level expenses.
Corporate, General and Administrative Expenses. Corporate, general and
administrative expenses include the costs of purchasing, accounting, information
systems, human resources, training, executive officers and related support
functions. Corporate, general and administrative expenses for the six months
ended March 31, 1998 increased 42.9% to $5.4 million from $3.8 million for the
six months ended March 31, 1997. As a percentage of total revenue, corporate,
general and administrative expenses decreased to 4.2% for the six months ended
March 31, 1998 from 6.3% for the prior year period as the Company benefited from
a larger sales base.
Amortization of Goodwill. Amortization of goodwill increased to $423,279
for the six months ended March 31, 1998 from $119,562 for the six months ended
March 31, 1997. This increase is attributable to the additional goodwill
recorded in connection with the HiFi Buys Acquisition.
Interest Expense. Interest expense increased to $1.6 million for the six
months ended March 31, 1998 from $513,520 for the six months ended March 31,
1996 due primarily to the increased debt incurred to fund the HiFi Buys
Acquisition.
Income Taxes. For a discussion of changes in the Company's effective tax
rate, see Note 9 to Consolidated Financial Statements of the Company.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
Total Revenue. Total revenue increased $51.9 million, or 64.4%, to $132.5
million in fiscal 1997 from $80.6 million in fiscal 1996. The increase was due
to $23.0 million in revenues associated with the HiFi Buys Acquisition as well
as a full year of revenue from stores acquired in May 1996 in the Bryn Mawr
Acquisition. Additionally comparable store sales increased 4.7% at the Company's
Bryn Mawr stores. Total revenue increased 8.0% at the Tweeter stores, all of
which came from new stores as comparable store sales decreased 4.5% during
fiscal 1997 versus the prior year. The Company believes that the decline in
comparable store sales was due to general weakness in the consumer electronics
industry and a less effective marketing campaign for the first half of the
fiscal year.
Gross Profit. Cost of sales increased $34.5 million, or 66.6%, to $86.3
million in fiscal 1997 from $51.8 million in fiscal 1996. Gross profit increased
$17.4 million, or 60.5%, to $46.2 million in fiscal 1997 from $28.8 million in
fiscal 1996. Gross margin declined to 34.9% in fiscal 1997 from 35.7% in fiscal
1996. The decline was due to the impact of the gross margin at HiFi Buys, which
was lower than the gross margin at the Tweeter and Bryn Mawr stores. The Company
also incurred lower
24
<PAGE> 27
gross margin at Tweeter due to a reduction in vendor rebates resulting from
lower than expected sales volume and an increase in the percentage of lower
margin video products sold. Gross margin increased at Bryn Mawr as the Company
converted the stores to its operating model.
Selling Expenses. Selling expenses increased $13.6 million, or 61.7%, to
$35.6 million in fiscal 1997 from $22.0 million in fiscal 1996. As a percentage
of total revenue, selling expenses decreased to 26.8% in fiscal 1997 from 27.3%
in fiscal 1996. The improvement in selling expenses as a percentage of revenue
is a result of having the Bryn Mawr stores for the full year including the peak
holiday selling season.
Corporate, General and Administrative Expenses. Corporate, general and
administrative expenses increased $3.4 million, or 71.8%, to $8.1 million in
fiscal 1997 from $4.7 million in fiscal 1996. The increase was the result of
investment in corporate infrastructure including the addition of purchasing,
accounting and information systems staff in conjunction with the Bryn Mawr and
HiFi Buys acquisitions and the Company's accelerated growth strategy. As a
percentage of total revenue, corporate general and administrative expenses
increased to 6.1% in fiscal 1997 from 5.9% in fiscal 1996 due to lower than
anticipated sales and the timing of the HiFi Buys Acquisition.
Amortization of Goodwill. Amortization of goodwill increased to $487,084
for fiscal 1997 from $129,273 for fiscal 1996. This increase is attributable to
the additional goodwill recorded in connection with the HiFi Buys Acquisition,
as well as a full year of goodwill amortization from the Bryn Mawr Acquisition.
Interest Expense. Interest expense for fiscal 1997 increased $1.2 million
to $1.8 million in fiscal 1997 from $616,879 in fiscal 1996. This increase was
due to the issuance of the $15.0 million senior subordinated notes, the proceeds
of which were used for the HiFi Buys Acquisition, as well as increased
borrowings on the Company's revolving line of credit. As a percentage of total
revenue, interest expense increased to 1.4% in fiscal 1997 from 0.8% in fiscal
1996.
Income Taxes. For a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1995
Total Revenue. Total revenue increased $20.5 million, or 34.1%, to $80.6
million in fiscal 1996 from $60.1 million in fiscal 1995. Approximately $12.0
million of the increase was due to the inclusion of a partial year of revenues
associated with the Bryn Mawr Acquisition. Revenue increased $8.5 million, or
14.1%, at the Tweeter stores, principally due to revenue from new stores.
Comparable store sales increased 1.6% at the Tweeter stores due primarily to the
general weakness of the consumer electronics industry. Comparable store sales
increased 37.6% at the Bryn Mawr stores following the Bryn Mawr Acquisition.
Gross Profit. Cost of sales increased $12.6 million, or 32.3%, to $51.8
million in fiscal 1996 from $39.2 million in fiscal 1995. Gross profit increased
$7.8 million, or 37.4%, to $28.8 million in fiscal 1996 from $21.0 million in
fiscal 1996. Gross margin increased to 35.7% in fiscal 1996 from 34.9% in fiscal
1995 principally due to the vendor rebates earned from the increased volume and
the leveraging of distribution costs.
Selling Expenses. Selling expenses increased $6.6 million, or 42.8%, to
$22.0 million in fiscal 1996 from $15.4 million in fiscal 1995. As a percentage
of sales, selling expenses increased to 27.3% in fiscal 1996 from 25.6% in
fiscal 1995. The increase was due to the continued growth in the number of
Tweeter stores, as well as the timing of the Bryn Mawr Acquisition.
Corporate, General and Administrative Expenses. Corporate, general and
administrative expenses increased $1.5 million, or 45.2% to $4.7 million in
fiscal 1996 from $3.2 million in fiscal 1995. The increase was due to investment
in infrastructure to support the Company's growth strategy including additions
to its purchasing, training and accounting staff. The Company also entered into
25
<PAGE> 28
an operating lease for new information systems equipment. As a percentage of
total revenue, corporate, general and administrative expense increased to 5.9%
in fiscal 1996 from 5.4% in fiscal 1995. In addition to investment in
infrastructure, the Company incurred expenses in anticipation of and following
the Bryn Mawr Acquisition, while not benefiting from inclusion of revenue from
the acquired stores during the peak holiday selling season.
Amortization of Goodwill. Amortization of goodwill increased to $129,273
for fiscal 1996 from $65,268 for fiscal 1995. This increase is attributable to
the additional goodwill recorded in connection with the Bryn Mawr Acquisition.
Interest Expense. Interest expense remained constant at approximately
$616,879 in fiscal 1996 and fiscal 1995. Interest expense as a percentage of
total revenues decreased to 0.8% in fiscal 1996 from 1.0% in fiscal 1995 as the
Company leveraged expenses over a larger revenue base.
Income Taxes. For a discussion of changes in the Company's effective tax
rate see Note 9 to Consolidated Financial Statements of the Company.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal variations. Historically, the
Company has realized a significant portion of its total revenue and net income
for the year during the first and fourth fiscal quarters, with a majority of net
income for such quarters realized in the first fiscal quarter. Due to the
importance of the holiday shopping season, any factors negatively impacting the
holiday selling season could have a material adverse effect on the Company's
financial condition and results of operations. The Company's quarterly results
of operations may also fluctuate significantly due to a number of factors,
including the timing of new store openings and acquisitions and unexpected
changes in volume-related rebates from manufacturers. In addition, operating
results may be negatively affected by increases in merchandise costs, price
changes in response to competitive factors and unfavorable local, regional or
national economic developments that result in reduced consumer spending.
The following tables set forth certain quarterly financial data in
thousands and percentages of total revenue for the ten quarters ended March 31,
1998. The quarterly information is unaudited but has been prepared on the same
basis as the audited financial statements included elsewhere in this Prospectus.
In the opinion of management, all necessary adjustments (consisting only of
normal recurring adjustments) have been included to present fairly the unaudited
quarterly results when read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus. The results of operations for any quarter are not necessarily
indicative of the results for any future period. See "Risk
Factors -- Seasonality and Quarterly Fluctuations."
26
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
DECEMBER 31, MARCH 31,
1997 1998
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................. $74,617 100.0% $54,512 100.0%
Cost of sales.................. 49,236 66.0% 35,044 64.3%
------- ----- ------- -----
Gross profit................. 25,381 34.0% 19,468 35.7%
Selling expenses............... 16,188 21.7% 14,020 25.7%
------- ----- ------- -----
Store contribution........... 9,193 12.3% 5,448 10.0%
Corporate, general and
administrative expenses...... 2,838 3.8% 2,582 4.7%
Amortization of goodwill....... 205 0.3% 218 0.4%
------- ----- ------- -----
Income from operations....... 6,150 8.2% 2,648 4.9%
Interest expense............... 865 1.2% 745 1.4%
------- ----- ------- -----
Income before income taxes..... 5,285 7.0% 1,903 3.5%
Income tax expense............. 2,115 2.8% 760 1.4%
------- ----- ------- -----
Net income..................... $ 3,170 4.2% $ 1,143 2.1%
======= ===== ======= =====
Stores open at beginning of
period....................... 47 50
New stores..................... 3 0
Relocated stores............... 2 0
Closed stores.................. 0 0
Acquired stores................ 0 0
Stores open at end of period... 50 50
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997(1) 1997(1)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................. $34,988 100.0% $25,595 100.0% $28,211 100.0% $43,731 100.0%
Cost of sales.................. 22,688 64.8% 16,493 64.4% 18,552 65.8% 28,582 65.4%
------- ----- ------- ----- ------- ----- ------- -----
Gross profit................. 12,300 35.2% 9,102 35.6% 9,659 34.2% 15,149 34.6%
Selling expenses............... 7,927 22.7% 6,870 26.8% 8,160 28.9% 12,611 28.8%
------- ----- ------- ----- ------- ----- ------- -----
Store contribution........... 4,373 12.5% 2,232 8.8% 1,499 5.3% 2,538 5.8%
Corporate, general and
administrative expenses...... 1,775 5.0% 2,018 8.0% 2,069 7.4% 2,240 5.1%
Amortization of goodwill....... 60 0.2% 60 0.2% 122 0.4% 245 0.6%
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
operations................. 2,538 7.3% 154 0.6% (692) -2.5% 53 0.1%
Interest expense............... 274 0.8% 239 0.9% 473 1.7% 822 1.9%
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before income
taxes........................ 2,264 6.5% (85) -0.3% (1,165) -4.2% (769) -1.8%
Income tax expense (benefit)... 914 2.6% (38) -0.1% (467) -1.7% (310) -0.7%
------- ----- ------- ----- ------- ----- ------- -----
Net income (loss).............. 1,350 3.9% (47) -0.2% (698) -2.5% (459) -1.1%
======= ===== ======= ===== ======= ===== ======= =====
Stores open at beginning of
period....................... 33 35 35 47
New stores..................... 2 0 2 0
Relocated stores............... 0 1 0 0
Closed stores.................. 0 0 0 0
Acquired stores................ 0 0 10 0
Stores open at end of period... 35 35 47 47
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996(2) 1996(2)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue..................... $22,991 100.0% $15,640 100.0% $18,004 100.0% $23,972 100.0%
Costs of sales.................... 14,718 64.0% 9,905 63.3% 11,446 63.6% 15,747 65.7%
------- ------- ------- -------
Gross profit.................... 8,273 36.0% 5,735 36.7% 6,558 36.4% 8,225 34.3%
Selling expenses.................. 4,917 21.4% 4,367 27.9% 5,698 31.6% 7,011 29.2%
------- ----- ------- ----- ------- ----- ------- -----
Store contribution.............. 3,356 14.6% 1,368 8.7% 860 4.8% 1,214 5.1%
Corporate, general and
administrative expenses......... 793 3.4% 854 5.5% 1,418 7.9% 1,651 6.9%
Amortization of goodwill.......... 16 0.1% 16 0.1% 32 0.2% 65 0.3%
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from operations... 2,547 11.1% 498 3.2% (590) -3.3% (502) -2.1%
Interest expense.................. 155 0.7% 108 0.7% 125 0.7% 229 1.0%
------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before income
taxes........................... 2,392 10.4% 390 2.5% (715) -4.0% (731) -3.1%
Income tax expense (benefit)(3)... (26) -0.1% 160 1.0% (292) 1.6% (295) -1.2%
------- ----- ------- ----- ------- ----- ------- -----
Net income (loss)................. $ 2,418 10.5% $ 230 1.5% $ (423) -2.4% $ (436) -1.9%
======= ===== ======= ===== ======= ===== ======= =====
Stores open at beginning of
period.......................... 18 19 19 32
New stores........................ 1 0 0 1
Relocated stores.................. 0 1 0 0
Closed stores..................... 0 0 0 0
Acquired stores................... 0 0 13 0
Stores open at end of period...... 19 19 32 33
</TABLE>
- ---------------
(1) Includes results of the HiFi Buys Acquisition from May 30, 1997, which was
accounted for using the purchase method.
(2) Includes results of the Bryn Mawr Acquisition from May 13, 1996, which was
accounted for using the purchase method.
(3) The Company operated as an S Corporation through November 1995 and was not
subject to federal and certain state corporate income taxes. In connection
with the recapitalization that occurred on November 26, 1995, the Company
revoked its S election and became subject to taxation as a C Corporation,
effective October 1, 1995. This resulted in a deferred tax benefit of $1.0
million, which was recorded in the three months ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily for working capital to support its
inventory requirements, selling and administrative expenses and capital
expenditures, pre-opening expenses and beginning inventory for new or relocated
stores. Additionally, the Company pursues an active acquisition strategy, and
capital needs arise as acquisition opportunities are pursued.
Historically, the Company's primary sources of financing have been net cash
from operations and borrowings under the Credit Facility. The Company's
acquisitions have also been funded through the sale of equity or subordinated
notes. At March 31, 1998 and March 31, 1997, the Company's working capital was
$16.3 million and $2.3 million, respectively. Cash provided by operations was
$1.8 million for the six months ended March 31, 1998, as compared to a use of
$.4 million in cash from operations in the six months ended March 31, 1997. This
increase is a result of $4.3 million in net income and an increase in accounts
payable and accrued expenses of $2.2 million, offset by increases in inventory
of $4.3 million and accounts receivable of $1.9 million.
At September 30, 1997 and September 30, 1996, working capital was $11.9
million and $1.9 million, respectively. During fiscal 1997, cash used in
operations was $6.2 million, principally due to a $6.5 million increase in
inventory and a $1.3 million increase in accounts receivable. These increases
were primarily due to the opening of new stores and relocation of existing
stores. Cash generated by operations in fiscal 1996 and 1995 was $.5 million and
$2.1 million, respectively. In these years, $2.4 million and $.3 million,
respectively, was used to increase inventory levels.
28
<PAGE> 31
Net cash used in investing activities during the six months ended March 31,
1998 and March 31, 1997 was approximately $1.3 million and $1.4 million,
respectively. During fiscal 1997, net cash used in investing activities was
$23.5 million, including $19.5 million for the HiFi Buys Acquisition. In
addition, the Company used $4.0 million of cash to open four new stores and
relocate one store. During fiscal 1996, net cash used in investing activities
was $11.2 million. Of that amount, $8.4 million was used in the Bryn Mawr
Acquisition and $2.8 million was used to open two new stores and relocate one
store. On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as its new corporate
headquarters, service center and distribution center in Massachusetts. The
Company expects the purchase price and related building improvements to be
approximately $5.3 million, and expects to finance the purchase with a mortgage
of $4.0 million. There are no other material commitments for capital
expenditures other than new store openings and remodeling or relocating existing
stores in the next 12 months.
In connection with a redemption of Common Stock from certain stockholders
of the Company and the Bryn Mawr Acquisition in fiscal 1996, the Company sold
shares of preferred stock for net proceeds of approximately $10.6 million and
issued the $1.0 million Redemption Note to certain of its redeeming
stockholders. In connection with the HiFi Buys Acquisition in fiscal 1997, the
Company sold shares of preferred stock for net proceeds of approximately $6.8
million, issued $15.0 million of 1997 Notes and issued the $1.2 million HiFi
Buys Note, in addition to increasing the borrowing limit under its Credit
Facility. See Notes 6 and 11 to the Consolidated Financial Statements of the
Company and "Certain Transactions." At March 31, 1998, the Company had
outstanding approximately $15.1 million under its Credit Facility, approximately
$1.0 million under the Redemption Note, approximately $15.0 million under the
1997 Notes and approximately $900,000 under the HiFi Buys Note. Substantially
all of such indebtedness will be paid in full upon the consummation of the
Offering.
The Credit Facility currently has a maximum availability of $20.0 million
and a maturity date of June 1, 2000, and is secured by the inventory of the
Company and certain other assets. The Company intends to obtain the New Credit
Facility in the amount of $30.0 million, effective upon the consummation of the
Offering.
The Company believes that the net proceeds that it will receive from the
Offering, together with the cash expected to be generated from operations and
available borrowings under the New Credit Facility, will be sufficient to
finance its working capital and capital expenditure requirements, exclusive of
acquisitions, for at least the next 12 months.
IMPACT OF INFLATION
Management does not believe that inflation has had a material adverse
effect on the Company's results of operations. However, the Company cannot
predict accurately the effect of inflation on future operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," SFAS No.
130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," and SFAS No. 132, "Employer's
Disclosures About Pensions and Other Post Retirement Benefits".
SFAS No. 128 changes the method of calculating earnings per share and is
effective for interim and annual periods ending after December, 1997. It
requires a dual presentation of basic and diluted earnings per share. The
Company adopted SFAS No. 128 during fiscal year 1998. The Company had not
previously reported earnings per share as it was not a public company.
SFAS Nos. 130, 131 and 132 will be implemented during fiscal year 1999.
Management does not expect that the adoption of these statements will have a
material impact on the consolidated financial statements.
29
<PAGE> 32
BUSINESS
OVERVIEW
The Company is a leading specialty retailer of mid to high-end audio and
video consumer electronics products. The Company operates 50 stores under the
Tweeter, Bryn Mawr and HiFi Buys names in the New England, Mid-Atlantic and
Atlanta, Georgia markets, respectively. The Company's stores feature an
extensive selection of home and car audio systems and components, portable audio
equipment, and home video products including large-screen televisions, DVD
players, digital satellite systems, video cassette recorders and camcorders. The
Company differentiates itself by focusing on consumers who seek audio and video
products with advanced features, functionality and performance, and does not
offer personal computers or home office equipment. The stores display products
in an inviting retail environment averaging 10,000 square feet and are staffed
with attentive, knowledgeable sales personnel. The Company seeks to build
customer loyalty by combining a high level of service with competitive prices
backed by its patented Automatic Price Protection program. The Company has been
recognized as the "Consumer Electronics Retailer of the Year" in 1996 and 1997
by Audio Video International Magazine and the fastest growing consumer
electronics retailer in the United States in 1997 by the TWICE Consumer
Electronics Retail Registry.
The Company opened its first store in 1972 in Boston under the Tweeter name
and over the next two decades grew exclusively through new store openings in New
England, expanding to 18 stores by 1995. In 1995, the Company adopted an
aggressive growth strategy (i) to open new stores in its existing regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting acquired stores to the Company's core operating model
and leveraging distribution, marketing and corporate infrastructure. The Company
completed the Bryn Mawr Acquisition in May 1996 and the HiFi Buys Acquisition in
May 1997.
INDUSTRY
According to the Consumer Electronics Manufacturers Association ("CEMA"),
factory sales of consumer electronics in 1997 reached $74 billion, with $22
billion attributable to audio and video products. Between 1980 and 1997, the
audio and video segment expanded at a compound annual growth rate of 4.3%, with
faster growth of 5.6% from 1980 to 1990 due to new product introductions,
including compact disc players and video cassette recorders, and more modest
growth of 2.3% between 1990 and 1997 as product categories matured.
The Company believes that the following trends in the consumer electronics
industry create significant opportunities for a specialty retailer of audio and
video products such as the Company:
Positioning of Large Format, High Volume Retailers. In the 1990s, consumer
electronics retailing has become increasingly dominated by large format stores,
including superstores and mass merchandisers. These stores typically rely on
high sales volumes by marketing a wide variety of products to a broad segment of
consumers, with an emphasis on introductory level products. Many of these
retailers have sought to capitalize on the growth of certain product categories
within the overall consumer electronics industry, including personal computers,
software, home office equipment and telecommunications equipment, which the
Company believes has contributed to a decrease in emphasis by those stores on
audio and video products. According to CEMA statistics, audio and video products
accounted for 33% of total sales of consumer electronic products in 1997 versus
51% in 1990. The Company believes that because of their emphasis on high volume
across broad product categories, these large format stores are unable to match
the product knowledge, service and shopping environment of a specialty audio and
video retailer such as the Company.
Consolidation of Consumer Electronics Retailers. The retail consumer
electronics industry is highly fragmented, with the two largest superstore
chains accounting for less than 25% of the total sales attributable to the 100
largest retailers in 1996. The expansion of large format chains has
30
<PAGE> 33
precipitated consolidation of the industry during the 1990s by placing
competitive pressure on (i) regional broadline consumer electronics retailers
with strategies undifferentiated from consumer electronics superstores and mass
merchandisers, and (ii) smaller specialty retailers that may be successfully
differentiated but which operate at a disadvantage due to limited scale, media
inefficiencies, reduced purchasing power and lack of management depth. The
Company believes that regional specialty retailers with strong consumer name
recognition represent attractive acquisition candidates and that the smaller or
weaker specialty retailers will continue to face significant competitive
pressures, thereby providing opportunities for retailers with scale advantages
to increase market share.
Advent of New Technologies. Growth in the audio and video consumer
electronics market has historically been accelerated by the introduction of new
products based on technological innovations. For example, the proliferation of
video cassette recorders and compact disc players helped to accelerate growth in
the 1980s. The Company believes that a new generation of technology offers the
prospect of increased industry sales with the introduction of digital video
products such as DVD players and high definition televisions, as well as direct
broadcast satellite systems and internet-ready televisions. For example,
according to statistics of the Digital Video Group, Inc., an industry group,
350,000 DVD players were sold in 1997, the year the product was introduced, and
sales of DVD players are projected to reach 1,000,000 units for 1998. The
Company believes that specialty retailers with sales personnel capable of
understanding and communicating the benefits of technologically advanced
products to consumers are well positioned to capture the increased sales that
may result should such products achieve market acceptance.
BUSINESS STRATEGY
The Company's goal is to become the leading specialty retailer of high
quality audio and video products. The key elements of the Company's business
strategy are as follows:
Extensive Selection of Mid to High-End Audio and Video Products. The
Company concentrates on mid to high-end audio and video consumer electronics
products. This focus differentiates it from larger format superstores and mass
merchandisers, which offer a broad array of consumer electronics and
non-electronics products with a higher emphasis on products priced at
introductory price levels. The Company's emphasis on higher-end products
positions it attractively to manufacturers seeking to sell more advanced or
limited distribution products as part of their distribution strategy. Limited
distribution products accounted for 40% of product sales for the Company in
fiscal 1997. As a result of its higher-end focus, a historical early adopter
customer base and its extensively trained sales force, the Company is often
among the earliest retailers to offer new product innovations on behalf of
manufacturers. In addition, the Company believes that its focused product
offering allows for higher gross margin opportunities, appeals to a more
service-conscious consumer and results in enhanced brand awareness of its
regional names.
Exceptional Customer Service. The Company believes that the quality and
knowledge of its sales associates is critical to its success and represents a
significant competitive advantage. The Company's relationship selling model
encourages sales associates to promote a comfortable, trusting, low pressure
environment. The Company provides its new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
regional training centers. The sales force receives technical product and sales
training prior to the Company's introduction of significant new products. The
Company believes that the success of its operating model has enabled it to
engender long term customer loyalty. Approximately 40% of customers who
purchased from Tweeter stores in the six months ended March 31, 1998 had
previously purchased products from the Company during the prior two fiscal
years.
Dynamic, Inviting Stores. The Company's stores display products in a
dynamic and inviting setting intended to encourage the customer to view and hear
products in sound rooms architectur-
31
<PAGE> 34
ally and acoustically designed to simulate the customer's home or car
environment. The store prototype is brightly painted, often in pastel colors,
with many stores exhibiting hand-painted murals and other decorative artwork.
Innovative and interactive product displays enable customers to sample and
compare a variety of products. Each store contains a television wall displaying
an extensive selection of televisions and related products, and many stores
contain a movie theater room, complete with theater-style seats, which showcases
the Company's home theater products.
Every Day Competitive Pricing. The Company utilizes an "every day
competitive pricing" strategy with fixed prices clearly marked on its products.
Store managers regularly visit local competitors to ensure that the Company's
pricing remains competitive within the store's local market. In addition, all
product sales are backed by the Company's patented Automatic Price Protection
program. Under this program, if a customer purchases a consumer electronics
product from one of the Company's stores and a competitor within 25 miles of the
store advertises a lower price within 30 days of purchase, the Company
automatically sends a check to the customer for the difference without requiring
the customer to request the payment. The Automatic Price Protection program is
designed to remove pricing concerns from the purchase decision and, as a result,
allows customers and the sales staff to focus on product functionality,
performance and quality.
GROWTH STRATEGY
The Company's growth strategy is (i) to open new stores in current regional
markets and relocate certain stores to more favorable sites and (ii) to
selectively pursue acquisitions in new regional markets and achieve operating
improvements by converting the acquired company to its core operating model and
leveraging distribution, marketing and corporate infrastructure.
New Stores. The Company intends to open new stores and relocate a limited
number of stores within existing markets in order to increase penetration and
leverage regional advertising, distribution, and operating efficiencies. During
fiscal 1997, the Company opened two Tweeter stores and two Bryn Mawr stores, and
relocated one Tweeter store. The Company currently intends to open five stores
in fiscal 1998, comprised of two at Tweeter and three at Bryn Mawr, and to
relocate two additional stores. Three of the five new stores planned for fiscal
1998 have been opened as of March 31, 1998. The Company intends to open 15
stores, and to relocate three stores, in fiscal 1999. The Company believes that
its Bryn Mawr Acquisition and HiFi Buys Acquisition have provided it with
platforms from which to open new stores within and around their respective
markets.
Strategic Acquisitions. The Company believes that it has obtained, and can
continue to obtain, significant benefits from the consummation of strategic
acquisitions of existing specialty retailers with a similar product mix and
strong consumer reputation in geographic markets in which the Company does not
currently operate. The Company believes that it can leverage the performance of
an acquisition candidate by (i) applying its sales management and sales
incentive strategies, (ii) adjusting the product mix to be compatible with its
emphasis on higher margin audio and video products, (iii) applying its
advertising and marketing strategies and programs, including Automatic Price
Protection and every day competitive pricing, (iv) implementing its relationship
selling and customer service philosophies and (v) utilizing its purchasing and
distribution capabilities and administrative infrastructure.
The Company believes that acquisition opportunities are created by the
fragmented nature of the consumer electronics industry, the limited exit
strategies available to owners of local and regional specialty retailers, the
competitive pressures presented by larger format superstores and mass
merchandisers on those retailers, and the difficulties faced by local and
regional specialty retailers in raising capital necessary to support inventory,
advertising or expansion. According to the TWICE Consumer Electronics Retail
Registry, which reports annually on the state of the industry, approximately $7
billion of 1996 sales were attributable to specialty electronics chains with
five or more stores, many of which the Company believes would be attractive
acquisition candidates. The Company believes that it is a well-positioned
consolidator because the Company (i) is known within the
32
<PAGE> 35
industry as a leading specialty retailer, (ii) utilizes a store size and concept
which can be readily adapted to acquired stores, (iii) has successfully
consummated two strategic acquisitions, (iv) has developed an operational,
administrative and marketing infrastructure with the proven capability to
successfully integrate acquisitions, (v) enjoys experienced and proven senior
management, having an average of 13 years of tenure with the Company and (vi)
would seek to offer employment and managerial opportunities within the
consolidated enterprise to qualified employees of the acquired retailer.
RECENT ACQUISITIONS
Acquisition of Bryn Mawr. In May 1996, the Company completed the Bryn Mawr
Acquisition. Like the Tweeter stores, the Bryn Mawr stores enjoyed considerable
name recognition and targeted similar service-oriented customers. Since the Bryn
Mawr stores offered a product mix similar to the Tweeter stores, the Company
consummated the Bryn Mawr Acquisition with the goal of realizing increased
revenues and store contribution through the application of the Company's
established operational strategies to the acquired stores. Towards that goal,
the Company adopted a series of strategic initiatives including (i) increasing
advertising expenditures during the quarter following the acquisition and
refocusing advertising to emphasize radio, television and direct marketing
rather than print, (ii) implementing the Company's every day competitive pricing
and Automatic Price Protection programs, (iii) initiating a substantial sales
associate training program to improve product knowledge and enhance relationship
selling skills and (iv) focusing the sales staff on higher margin products,
particularly audio products.
Acquisition of HiFi Buys. In May 1997, the Company completed the HiFi Buys
Acquisition. Like Tweeter and Bryn Mawr, HiFi Buys had created a strong
reputation among consumers as a specialty retailer of high quality audio and
video products. The HiFi Buys stores, at an average size of 15,000 square feet,
are larger than the average Tweeter or Bryn Mawr stores. However, the HiFi Buys
stores carried a broader product mix, including more entry level product
offerings and marketed heavily through promotional newspaper advertising. The
Company's integration strategy in the HiFi Buys Acquisition has been to increase
store contribution by converting the HiFi Buys product mix to one compatible
with the Company's and managing a planned decrease in sales while increasing
gross margin and reducing operating expenses. Specifically, following the HiFi
Buys Acquisition, the Company (i) adjusted the merchandise mix to increase the
proportion of mid and high-end products and reduce the number of lower margin
introductory products, (ii) altered store employee compensation to reduce the
emphasis on promotional sales and focus incentives on gross margin and store
contribution, (iii) reduced marketing expenditures and shifted marketing
emphasis from promotional advertising toward the Company's traditional
relationship-selling and every day competitive pricing strategy, (iv) converted
the advertising program to emphasize electronic advertising and direct mail
marketing as opposed to print media, (v) implemented the Automatic Price
Protection program and (vi) eliminated $2.4 million of overhead by centralizing
accounting, purchasing and other support infrastructure.
STORE FORMAT AND OPERATIONS
Store Format. As of March 31, 1998, the Company operated 50 stores,
comprised of 23 Tweeter stores in New England, 17 Bryn Mawr stores in the
Mid-Atlantic market, and 10 HiFi Buys stores in the greater Atlanta, Georgia
market. While the Company's stores vary in size, the current prototype is 10,000
square feet, with approximately 70% of square footage devoted to selling space.
Many stores utilize mezzanine level storage space to reduce occupancy expense.
The Company's store concept is intended to combine the comfort of the home
environment with practical displays enabling consumers to sample and compare the
features and functions of products in various combinations. The store prototype
is brightly painted, often in pastel colors, with many stores exhibiting hand
painted murals and other decorative artwork. Unlike many of the stores of the
Company's competitors, which contain large, open spaces in which many different
33
<PAGE> 36
audio and video products are tested and sampled, the Company's stores feature
individual sound rooms. The sound rooms are intended to architecturally and
acoustically resemble a home or car environment to enable the customer to see
and hear how products will perform, and allow the customer to listen to and
compare various combinations of receivers, CD players, tape decks and speakers.
In addition, each store contains a traditional television wall displaying an
extensive selection of televisions and related products, and many stores contain
a movie theater room, complete with theater-style seats, which showcases the
Company's home theater products. Other displays, such as the "big red button",
allow the customer to change, by pushing a button, mono television sound into a
five speaker or surround sound experience. Each store also features a camcorder
gallery which allows customers to sample different camcorders and shoot videos
of their children within the adjacent children's play area. Some stores display
a car on the selling floor which features a state-of-the-art car stereo system
and serves to exhibit the Company's installation capabilities. Most stores
provide car stereo installation through on-premises installation bays.
Store Operations Stores are typically staffed with a store manager, an
assistant manager, twelve sales associates and two mobile electronics
installers. The Company provides new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of additional training per year, both at the store and at the Company's
regional training centers. The sales force receives technical product and sales
training prior to the introduction of significant new products. Most stores are
open seven days a week.
Store Economics The Company believes that it benefits from attractive
store level economics. The average investment by the Company for the eight new
stores opened in the 24 months ended March 31, 1998, including leasehold
improvements, equipment, the cost of inventory (net of payables), and preopening
expenses was $855,000. The average net sales and store level cash flow, which
excludes any preopening expenses, allocated corporate overhead, depreciation and
interest, but includes occupancy expense and advertising, for the 12 months
ended March 31, 1998 was $3,389,000 and $317,000, respectively, for stores owned
by the Company throughout the period.
SITE SELECTION
The Company's stores average approximately 10,000 square feet and are
typically located in free-standing buildings or strip shopping centers within
high traffic shopping areas. New store sites are selected on the basis of
several factors, including physical location, demographic characteristics of the
local market, proximity to competitors, access to highways or other major
roadways and available lease terms. The Company looks for co-tenants, such as
bookstores, that are likely to draw customers who would otherwise be targeted by
the Company within the site's relevant market and believes that close proximity
to large format competitors is a positive factor due to increased customer
traffic. All of the Company's stores are leased.
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<PAGE> 37
Set forth below is a table summarizing the locations, opening years, and
years of relocation where specified, of the Company's stores as of March 31,
1998:
<TABLE>
<CAPTION>
TWEETER BRYN MAWR HIFI BUYS
- ---------------------------- --------------------------------- ----------------------------
YEAR OPENED/ YEAR OPENED/ YEAR OPENED/
LOCATION RELOCATED LOCATION RELOCATED LOCATION RELOCATED
-------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Boston, MA 1972 Bryn Mawr, PA 1946 Norcross, GA 1990
Cambridge, MA 1974 / Maple Shade, NJ 1978 Alpharetta, GA 1991
1998 Abington, PA 1981 Athens, GA 1991
Newton, MA 1976 / Allentown, PA 1982 Buckhead, GA 1993
1995 Montgomeryville, PA 1984 Southlake, GA 1993
Burlington, MA 1978 / Wilmington, DE 1985 / Tucker, GA 1993
1996 1992 Kennesaw, GA 1995
Dedham, MA 1980 Harrisburg, PA 1986 / Smyrna, GA 1995
Framingham, MA 1983 1994 Gwinnett, GA 1996
Hyannis, MA 1983 / Wilmington, DE 1987
1994 Allentown, PA 1987
New London, CT 1985 / Baltimore, MD 1990
1998 Timonium, MD 1990
Hanover, MA 1986 King of Prussia, PA 1995
Danbury, CT 1986 / Glen Burnie, MD 1995
1997 Princeton, NJ 1997
Seekonk, MA 1988 Lancaster, PA 1997
Warwick, RI 1989 Reading, PA 1997
Newington, CT 1990 York, PA 1997
Avon, CT 1993
Peabody, MA 1993
Manchester, NH 1994
Salem, NH 1994
Boston, MA 1995
Milford, CT 1995
Holyoke, MA 1996
Portsmouth, NH 1996
Nashua, NH 1996
Attleboro, MA 1997
</TABLE>
MERCHANDISE
The Company's stores feature home and car audio systems and components,
video products such as large screen televisions, digital satellite systems,
video cassette recorders, camcorders, DVD players and other consumer electronics
products such as cellular phones and portable audio equipment. The Company
offers custom home and car stereo installation services and provides warranty
and non-warranty repair services through all of its stores. The Company also
offers insurance replacement services to insurance companies, providing
replacement products to policyholders of such companies. Additionally, the
Company has a corporate sales division which markets and sells Company products
to businesses, institutions and other organizations. The Company's emphasis on
mid to high-end products enables it to offer limited distribution products and
to be among the earliest retailers to offer new product innovations on behalf of
manufacturers. Limited distribution products accounted for 40% of the Company's
sales in fiscal 1997.
The Company stocks products from over 75 vendors, including Adcom, Aiwa,
Alpine, Bose, Boston Acoustics, Denon, Eclipse, Kenwood, Klipsch, Mirage,
Mitsubishi, Monster Cable, Panasonic, Pioneer, ProScan, Rockford Fosgate, Sony
and Yamaha. The Company seeks to manage its product mix to maximize gross
margin. Historically, the Company's video products have yielded lower gross
margin than audio products. Total sales of video products have increased at
rates faster than the
35
<PAGE> 38
increases in audio product sales during the last several years as a result of
the increased consumer interest in big screen televisions. Accordingly, the
Company has adopted a "Sell Audio with Video" strategy in order to enhance
overall gross margin through increases in sales of higher margin audio products.
The table below sets forth the approximate percentages of revenues for each
of the Company's primary product categories for its fiscal years ended September
30, 1996 and September 30, 1997 and for the six months ended March 31, 1997 and
March 31, 1998. The percentage of revenues represented by each product category
may be affected by, among other factors, competition, economic conditions,
consumer trends, the introduction into the market of new products, changes in
the Company's product mix, and the timing of marketing events. The percentages
are also impacted by acquisitions of stores offering a different product mix. In
particular, the increase in the percentage of revenue represented by video
products in the year ended September 30, 1997 and six months ended March 31,
1998 versus the prior year periods was primarily driven by the inclusion of
stores acquired in the HiFi Buys Acquisition. Video products represent a greater
percentage of revenues at HiFi Buys than at the other Company stores. The
historical percentages set forth below may not be indicative of revenue
percentages for future periods:
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
PRODUCT CATEGORY SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1998
- ----------------------- ------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Audio Equipment(1)..... 38% 31% 39% 34%
Video Equipment(2)..... 39% 43% 40% 44%
Mobile Equipment and
Other(3)............. 23% 26% 21% 22%
</TABLE>
- ---------------
(1) Includes speakers, cassette decks, receivers, turntables, compact disc
players, mini disc players, amplifiers, preamplifiers, and portable audio
equipment.
(2) Includes video cassette players, camcorders, televisions, projection
televisions, DVD players, and satellite dishes.
(3) Includes car decks, amplifiers and speakers, car security products,
navigation equipment, cellular phones, audio and video accessories, and
extended performance guaranties.
PURCHASING AND INVENTORY
The Company's purchasing and inventory control functions are based at its
executive offices in Canton, Massachusetts. Purchasing decisions are made by the
Company's buying team, which has primary responsibility for product selection,
stocking levels and pricing. This process is facilitated by the Company's
information systems which analyze stocking levels and product sell-through. The
purchasing group continuously reviews new and existing products with a view
towards maintaining a wide range of high quality, brand-name consumer
electronics products within the Company's product mix. In order to remain
current with new and developing products, the Company regularly hosts
presentations by its major suppliers.
In addition to making direct purchases, the Company is a member of PRO, a
volume-buying group of 14 specialty electronics retailers across the country.
This affiliation often provides the Company with opportunities to obtain
additional vendor rebates, product discounts and promotional products. The
Company is not obligated to make purchases through the PRO. The Company's
President serves on the Board of Directors of PRO.
The Company sources products from more than 75 vendors, the largest of whom
accounted for 24% of fiscal 1997 purchases. The Company does not maintain long
term commitments or exclusive contracts with any particular vendor, but instead
considers numerous factors, including price, credit terms, distribution, quality
and compatibility with the Company's existing product mix, when making
purchasing decisions. The Company utilizes a sophisticated automatic
replenishment system for store inventory, maintaining stock levels and
minimizing total dollars invested in
36
<PAGE> 39
inventory. The Company believes that its relationship with its large vendors is
excellent and that its focused merchandising and high degree of customer service
makes it an important distribution channel for its suppliers, particularly for
the introduction of new products.
The Company distributes products to stores through three regional
distribution and service centers. The Canton, Massachusetts facility is 32,000
square feet and currently serves as the Company's headquarters and distribution
and service center for the Tweeter stores. The Company will be relocating this
facility to a new 80,000 square foot facility two miles from its existing
facility in August 1998. The King of Prussia, Pennsylvania distribution center
is 50,000 square feet and services the Bryn Mawr stores. The Atlanta, Georgia
facility is 80,000 square feet and services the HiFi Buys stores. The Company
believes that these facilities are sufficient to handle the Company's planned
expansion through at least the year 2000.
ADVERTISING AND MARKETING
The Company targets consumers seeking informed advice concerning product
selection and system integration of audio and video consumer electronics
products. The Company's marketing strategy differs from its major competitors in
that it relies substantially on electronic media, primarily radio, and an
extensive direct marketing effort. The Company believes advertising on specific
radio stations and at specific times allows it the flexibility to tailor its
marketing message. The Company's radio advertising campaigns seek to generate
name recognition and to reinforce identification of the Company as a source of
high quality products at competitive prices, staffed with a knowledgeable,
attentive sales force. This radio strategy is complemented with television
advertisements and, less frequently, with print advertisements. The specific
allocation of the Company's committed advertising dollars among the various
types of advertising media is reviewed from time to time by Company management
and, if necessary, adjusted to reflect the Company's assessment of advertising
results and market conditions.
The Company also relies on a sophisticated direct marketing campaign to its
customers. The Company has developed a comprehensive database marketing program
to attempt to match past customer purchasing history to the next logical
purchase option for that customer. For example, the Company has distributed
direct mail regarding surround sound products to customers who recently
purchased large screen televisions. The Company also distributes an
award-winning 100 page Buyer's Guide three times a year and a smaller 24 page
catalog nine times per year. Management believes that its relatively inexpensive
direct mail activities leverage and complement its general media advertising
campaigns.
The Company believes that its commitment to providing competitive pricing
on its products is a critical component of its marketing and advertising
strategy. In 1993, the Company abandoned its promotional marketing approach and
adopted an every day competitive pricing strategy, with fixed prices clearly
marked on its products. Store managers regularly visit the local competition to
ensure the store's pricing remains competitive. At the same time, the Company's
competitive prices are backed by its Automatic Price Protection program. Under
the Automatic Price Protection program, if a customer purchases a consumer
electronics product from one of the Company's stores and a competitor within 25
miles of that store advertises a lower price within 30 days of the customer's
purchase, the Company automatically sends a check to the customer for the
difference. Unlike other price guarantee programs in place within the industry,
the refund process does not require the customer to call or return to the store
to request a price match refund. The Automatic Price Protection program is
intended to be hassle-free, customer friendly and viewed as a reflection of the
Company's commitment to customer service. Most recently, in fiscal 1997, the
Company began its "Wise Buys" program. Under this program, the Company's buyers
identify special, reduced-priced items, often closeouts or last year's
top-of-the-line models, which are purchased from the manufacturer and offered to
the consumer at a substantial discount from the original retail price. The
Company believes that the pricing of the Wise Buys items represents substantial
value to the
37
<PAGE> 40
consumer with little or no negative impact to gross margin. The Company's
advertisements frequently describe or refer to the Automatic Price Protection
and Wise Buys programs.
INFORMATION SYSTEMS
The Company utilizes a sophisticated, fully integrated mainframe-based
management information system which updates after every transaction, and is
accessible on a real-time basis to Company management, sales associates and
product buyers. Extensive sales reporting and sales tracking is provided
real-time on screen to store managers and individual sales associates which
tracks category sales and benchmarks key sales data for the Company. This system
enables management and store managers to review sales volume, gross margin and
product mix on a per store or per sales associate basis, allows for the viewing
of open orders, inventory value and mix, and tracks sales by product category,
by sales associate and by store. The Company provides ongoing training and
support in the use of this system and compensates and benchmarks the store
managers based upon this information.
The Company currently utilizes several software systems which will require
modification or upgrading to accommodate the "Year 2000" changes needed for
correct recording of dates in the year 2000 and beyond. The Company believes
that all such systems can be changed by the end of 1999 and does not expect the
cost of such changes to be material to the Company's financial condition or
results of operations. The Company does not, however, currently have any
information concerning Year 2000 compliance status of its suppliers. See "Risk
Factors -- Year 2000 Compliance."
EMPLOYEES
As of March 15, 1998, the Company had 979 employees, comprised of 910
full-time and 69 part-time employees. None of the Company's employees are
covered by collective bargaining agreements, and the Company believes its
relations with its employees are good. See "Risk Factors -- Dependence on Key
Personnel."
INTELLECTUAL PROPERTY
The Company's "Tweeter etc." and "Bryn Mawr Stereo" service marks have been
registered with the United States Patent and Trademark Office. The Company has
not registered the "HiFi Buys" service mark. The Company has submitted
applications for registration of certain other of its service marks, which
applications are currently pending. See "Risk Factors -- Intellectual Property."
PROPERTIES
In addition to the Company's stores, all of which are leased, the Company
also leases three distribution and office facilities in Canton, Massachusetts,
King of Prussia, Pennsylvania, and Atlanta, Georgia, with lease terms expiring
in 2001, 2011 and 2008, respectively. On March 25, 1998 the Company entered into
a purchase and sale agreement for a facility in Massachusetts that will serve as
its new corporate headquarters, service and distribution center in
Massachusetts. The Company expects the purchase price and related building
improvements to be approximately $5.3 million, and expects to finance the
purchase with a mortgage of $4.0 million.
LITIGATION
From time to time, the Company is involved in litigation in the ordinary
course of the Company's business. In the opinion of management, no such
litigation is likely to have a material adverse effect on the Company's results
of operations or financial condition.
38
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to
executive officers, directors and certain other key employees of the Company
immediately following the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Samuel Bloomberg................. 46 Chairman, Chief Executive Officer and Director
Jeffrey Stone(1)................. 41 President, Chief Operating Officer, Treasurer and
Director
Joseph McGuire................... 37 Vice President, Chief Financial Officer and Chief
Information Officer
Jeffrey Bloomberg(1)............. 51 Director
Matthew Bronfman(2).............. 38 Director
Michael Cronin(1)(2)............. 44 Director
KEY EMPLOYEES
Roy Bertalotto................... 45 Vice President, New Store Development
Linda Christman.................. 43 Vice President, Human Resources
David Ginsburg................... 47 Vice President, Southeastern Region
Dori Ginsburg.................... 40 Vice President, Insurance Replacement
Albert Gordon.................... 38 Vice President, Operations and Corporate Finance
Noah Herschman................... 35 Vice President, Marketing
Bernard Sapienza................. 35 Vice President, Purchasing
Paul Shindler.................... 42 Vice President, Training
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Samuel Bloomberg is a co-founder of the Company and has served as a
director and/or officer since its inception. Mr. Bloomberg has been Chief
Executive Officer of the Company since September 1983 and Chairman of the Board
since 1986. Mr. Bloomberg is the brother of Jeffrey Bloomberg.
Jeffrey Stone has served as President and Chief Operating Officer,
Treasurer and director of the Company since October 1990. From 1987 to 1990 Mr.
Stone served as the Executive Vice President of Bread & Circus, a specialty
natural foods supermarket chain and from 1983 to 1987 served as Vice President
of Human Resources and Training for Scandinavian Design, a specialty furniture
retailer. Mr. Stone is a Director of PRO, the buying group of specialty consumer
electronics retailers of which the Company is a member.
Joseph McGuire has been a Vice President, Chief Financial Officer and Chief
Information Officer of the Company since May 1996. Prior to joining the Company,
Mr. McGuire was the Chief Financial Officer of Bryn Mawr Radio & Television
Centre, Inc. from 1987 to 1996.
Jeffrey Bloomberg has served as a director in 1972 and from 1992 to the
present. From 1994 to the present, Mr. Bloomberg has also served as President of
Bloomberg Associates, Inc., an investment banking company. Prior to that, from
1985 to 1993, Mr. Bloomberg served as Senior Managing Director at Bear Stearns &
Co., Inc., specializing in corporate finance and mergers and acquisitions. Mr.
Bloomberg is the brother of Samuel Bloomberg.
Matthew Bronfman has served as a director since 1989. In 1990 Mr. Bronfman
served as director, and from 1991 to 1994 Mr. Bronfman served as Chairman and
Chief Executive Officer of Sterling Cellular Holdings, L.P., a private cellular
telephone company. From 1994 to the present,
39
<PAGE> 42
Mr. Bronfman founded and has served as Chairman and Chief Executive Officer of
Perfumes Isabell, a fragrance and gift company.
Michael Cronin has served as a Director since November, 1995. From 1991 to
the present Mr. Cronin has served as Managing Partner of Weston Presidio
Capital. Mr. Cronin also serves as a director of Tekni-plex, Inc. and Casella
Waste Systems, Inc.
Roy Bertalotto has served as Vice President, New Store Development of the
Company since 1992. Prior to that, Mr. Bertalotto served as a District Sales
Manager from 1986 to 1988 and as Regional Vice President, Sales for eight
southern New England stores from 1988 to 1992.
Linda Christman has served as Vice President, Human Resources of the
Company since 1997. Prior to that time, she served as the Director of Human
Resources since 1987.
David Ginsburg has served as Vice President, Southeastern Region of the
Company since May 1997. Prior to joining the Company, Mr. Ginsburg served as a
Vice President of HiFi Buys Incorporated.
Dori Ginsburg has served as Vice President, Insurance Replacement of the
Company since May 1997. Prior to joining the Company, Ms. Ginsburg served as
Vice President, Insurance Replacement of HiFi Buys Incorporated.
Albert Gordon has served as Vice President, Operations and Corporate
Finance of the Company since 1995. From 1990 to 1994, Mr. Gordon served as Chief
Financial Officer of Boston Publishing Co., Inc. From 1987 to 1991, Mr. Gordon
held several management positions at The Westwood Group, a restaurant holding
company, most recently as Vice President of Marketing and as Chief Financial
Officer of its catalog business. From 1981 to 1983 Mr. Gordon served on the
audit staff at KPMG Peat Marwick and from 1985 to 1987 Mr. Gordon was a member
of brand management at Procter & Gamble.
Noah Herschman has served as Vice President, Marketing of the Company since
1994. Prior to that, Mr. Herschman served as a Senior Product Buyer and
Marketing Director from 1990 to 1994 and served as a sales consultant for the
Company from 1988 to 1990.
Bernard Sapienza has served as Vice President, Purchasing of the Company
since 1994. Prior to that, from 1989 to 1994, Mr. Sapienza served as a Senior
Product Buyer of the Company.
Paul Shindler has served as Vice President, Training of the Company since
1994. Prior to that, Mr. Shindler served as Regional Vice President of Sales for
the northern region and Training Director of the Company from 1991 to 1994 and
served in various sales and training capacities for the Company from 1977 to
1987.
BOARD COMPOSITION
Reorganization of Board. The Company currently has five directors,
comprised of Samuel Bloomberg, Jeffrey Stone, Jeffrey Bloomberg, Mathew Bronfman
and Michael Cronin. Mr. Cronin has been appointed to the Board pursuant to the
terms of the Company's outstanding Preferred Stock, which will be converted into
Common Stock effective upon consummation of the Offering. Effective upon the
consummation of the Offering, the Board of Directors will be reorganized by
dividing the Board into three staggered classes consisting of Class I directors
(Messrs. and ), Class II directors (Messrs. and
) and Class III directors (Mr. ). The initial terms of the
three classes will expire in 1999, 2000 and 2001, respectively. Beginning in
1999, directors of each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will be
elected by Company stockholders. The Company believes that classification of the
Board of Directors will help facilitate continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors. Holders of Common Stock will have no right to cumulative voting in
the election of directors. Consequently, at
40
<PAGE> 43
each annual meeting of stockholders, the holders of a majority of the Common
Stock will be able to elect all of the successors of the class of directors
whose terms expire at that meeting.
Audit Committee. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews the plans for and results
of the audit engagement with the independent public accountants, approves
professional services provided by the independent public accountants and review
the adequacy of the Company's internal accounting controls. The Audit Committee
consists of Jeffrey Stone, Samuel Bloomberg and Michael Cronin.
Compensation Committee. The Compensation Committee will establish
compensation policies and programs for the Company's executive officers and
exercise all powers of the Board of Directors in connection with establishing
and implementing compensation matters, including incentive compensation and
benefit plans. The Compensation Committee of the Board consists of Mathew
Bronfman and Michael Cronin. In January 1996, the members of the Board of
Directors who were not members of the Compensation Committee approved the grant
to Mathew Bronfman of non-qualified stock options to purchase 107,584 shares of
the Company's Common Stock at an exercise price of $1.524 per share. Such
Options, by their terms, were fully vested on the date of grant.
DIRECTORS' COMPENSATION
The Company pays its Directors $1,500 per quarter. All directors are
reimbursed for expenses incurred in attending meetings. Following the Offering,
each director who is not also an employee or affiliate of the Company will be
granted options or other plan awards worth $ pursuant to the 1998 Outside
Director Plan. See "Management -- Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other executive officers of the Company
(the "Named Executives") for services rendered in all capacities to the Company
during the fiscal year ended September 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) SECURITIES
--------------------------- UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION(2) (#) COMPENSATION(3)
- --------------------------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Samuel Bloomberg............. $203,269 $1,960 66,240 $65,818
Chairman and Chief
Executive Officer
Jeffrey Stone................ $204,005 $1,448 48,610 $13,888
President and Chief
Operating Officer
Joseph McGuire............... $149,420 $ 466 2,624 --
Vice President, Chief
Financial Officer and Chief
Information Officer
</TABLE>
- ---------------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executives which are
available generally to all salaried employees of the Company.
(2) Represents amounts contributed by the Company under the Company's 401(k)
Plan to the accounts of the Named Executives.
(3) Represents amount distributed to cover personal tax liability from the
Company's prior status as a Subchapter 'S' corporation for federal income
tax purposes. On November 25, 1995, as part of a recapitalization, the
Company elected to be treated as a 'C' corporation for federal income tax
purposes.
41
<PAGE> 44
The following table sets forth information relating to grants of stock
options made during the fiscal year ended September 30, 1997 to each of the
Named Executives under the Company's existing stock option plan:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS GRANT
SECURITIES GRANTED TO EXERCISE DATE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE VALUE(1)
---- --------------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Samuel Bloomberg.......... 13,350 5.7% $7.10 2007 $ 2,646
52,890 22.7% $8.08 2007 $10,481
------ ---- -------
66,240 28.4% $13,127
Jeffrey Stone............. 13,350 5.7% $6.46 2007 $ 2,646
35,260 15.2% $7.24 2007 $ 6,988
------ ---- -------
48,610 20.9% $ 9,634
Joseph McGuire............ 2,624 1.1% $7.24 2007 $ 520
</TABLE>
- ---------------
(1) The fair value of each stock option granted in fiscal 1997 under the
Company's existing stock option plan was estimated on the date of grant
using the Black-Scholes option pricing model assuming an expected volatility
of 25%, a risk-free interest rate of 6%, an expected life of 4 years and no
dividend payments. See Note 11 of Notes to Consolidated Financial Statements
of the Company.
The following table sets forth certain information regarding stock option
exercises during the fiscal year ended September 30, 1997 and stock options held
at such year end by the Named Executives. No options were exercised during such
fiscal year by the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- -------------------------- --------------------
<S> <C> <C>
Samuel Bloomberg.............................. 208,916/0 $2,526,691/0
Jeffrey Stone................................. 114,978/0 $1,343,651/0
Joseph McGuire................................ 8,397/15,220 $110,187/188,265
</TABLE>
EMPLOYMENT AGREEMENTS
The summaries of the various employment agreements set forth below are
qualified in their entirety by reference to such agreements, which are exhibits
to the Registration Statement of which this Prospectus is a part.
Bloomberg and Stone Agreements
Effective upon the consummation of the Offering, the Company will enter
into five-year employment agreements with Samuel Bloomberg, to serve as Chairman
of the Board and Chief Executive Officer of the Company, and with Jeffrey Stone,
to serve as President and Chief Operating Officer of the Company (the
"Employment Agreements"). The Employment Agreements provide that in addition to
their base annual salaries, each of Messrs. Bloomberg and Stone will have the
opportunity to earn incentive bonuses based upon certain performance criteria,
to be determined by
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<PAGE> 45
the Compensation Committee, and the opportunity to receive stock options and
other incentive awards under the Company's 1998 Stock Option and Incentive Plan.
The Employment Agreements provide for continued employment until
termination by either party. The Company, however, may terminate either
Employment Agreement with or without cause at any time. If either executive's
employment is terminated by the Company without cause, the Company is obligated
to pay the respective executive an amount equal to such executive's unvested
accrued benefits under any stock option plan, incentive plan or retirement plan
plus severance pay calculated as follows: (i) if the executive is terminated in
during the first three years of the agreement, he will receive an amount equal
to three times his annual base salary in the year of termination; (ii) if the
executive is terminated in the fourth year, he will receive an amount equal to
two times his annual base salary in the year of termination; and (iii) if the
executive is terminated in the fifth or any subsequent year of the agreement, he
will receive an amount equal to his annual base salary in the year of
termination.
Other Employment Agreements
Effective upon the consummation of the Offering the Company will enter into
an employment agreement with Joseph McGuire to serve as Chief Financial Officer
of the Company. Under the terms of this three-year agreement, Mr. McGuire will
earn a base annual salary and will have the opportunity to earn yearly incentive
bonuses based on performance criteria (determined by the Compensation
Committee). Mr. McGuire is also entitled to receive stock options and other
incentive awards under the Company's stock option plans.
INSURANCE
The Company intends to obtain a directors' and officers' liability
insurance policy in the aggregate amount of $5.0 million. The directors' and
officers' insurance will insure the (i) directors and officers of the Company
from any claim arising out of an alleged wrongful act by the directors and
officers in their respective capacities as directors and officers and (ii)
Company to the extent that it has indemnified a director or officer for such
loss.
STOCK PLANS
1995 Stock Option Plan. On November 28, 1995, the Company adopted its 1995
Stock Option Plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan
allowed the Company to issue (i) options to purchase Common Stock which qualify
as incentive stock options ("ISOs") under Section 422A(b) of the Internal
Revenue Code of 1986 to Company employees and (ii) options to purchase Common
Stock which do not qualify as ISOs ("Non-Qualified Options") to directors,
officers, employees and consultants of the Company. Payment of the exercise
price may be made in cash, shares of Common Stock, a combination of cash or
stock or by any other method approved by the Board or the Compensation
Committee. Options are not assignable or transferable except by will or the laws
of descent and distribution. On , 1998, the Board of Directors of the
Company voted to terminate the 1995 Stock Option Plan effective on, and subject
to, the consummation of the Offering. As of the date of this Prospectus, the
Company had outstanding under the 1995 Stock Option Plan ISOs exercisable into
737,475 shares of Common Stock and Non-Qualified Options exercisable into
107,584 shares of Common Stock.
1998 Stock Plan and 1998 Outside Director Plan. On ,
1998, the Company adopted its 1998 Stock Option and Incentive Plan (the "1998
Stock Plan") and its 1998 Outside Director Stock Plan (the "1998 Outside
Director Plan", together with the 1998 Stock Plan, the "1998 Plans") to provide
incentives to attract and retain executive officers, directors, and key
employees and consultants. The summary of the 1998 Plans set forth below is
qualified in its entirety by reference to the 1998 Plans, which are included as
exhibits to the Registration Statement of which this Prospectus is a part.
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<PAGE> 46
The aggregate number of shares of Common Stock issuable under the 1998 Plan
is equal to % of the total shares of Common Stock that will be issued and
outstanding, on a fully diluted basis, upon completion of the Offering. In
addition, the number of shares of Common Stock issuable under the 1998 Plans
will increase, on each anniversary date of the adoption of the 1998 Plans, to
that number of shares equal to % of the total number of shares of Common
Stock that are issued and outstanding on a fully diluted basis, on each such
anniversary date. As options under the 1998 Stock Plans are exercised, the
number of shares represented by such previously outstanding options will again
become available for issuance under the 1998 Plans.
The 1998 Plans will expire five years following their adoption. Awards made
thereunder and outstanding at the expiration of the 1998 Plans will survive in
accordance with their terms. As of the date of this Prospectus, no awards or
grants have been made under either of the 1998 Stock Plans.
The 1998 Stock Plan will be administered by the Compensation Committee of
the Board of Directors, and will allow the Company to issue one or more of the
following: stock options (ISOs and non-qualified options), restricted stock
awards, stock appreciation rights, common stock in lieu of certain cash
compensation, dividend equivalent rights, performance shares and performance
units (collectively, "Plan Awards").
In any plan year, no more than 25% of the shares reserved for issuance
under the 1998 Stock Plans, may be used for Plan Awards consisting of restricted
stock. All grants of restricted stock under the 1998 Stock Plan will be subject
to vesting over seven years, subject, however, at the Administrator's
discretion, to acceleration of vesting upon the achievement of specified
performance goals.
The 1998 Outside Director Plan will provide for the grant or issuance of
Plan Awards to directors of the Company who are not employees of the Company.
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<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale by the Company and the Selling Stockholders of the
shares of Common Stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option), by (i) each person (or group of affiliated persons)
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock (assuming conversion of all outstanding Preferred Stock
and the exercise of warrants to purchase 259,856 shares of Common Stock), (ii)
each of the Company's Named Executives and directors, (iii) all of the Company's
executive officers and directors as a group and (iv) the Selling Stockholders.
Except as otherwise indicated in the footnotes to this table, the Company
believes that the persons named in this table have sole voting and investment
power with respect to all the shares of Common Stock indicated.
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE BEING AFTER THE
OFFERING(1) OFFERED OFFERING(1)
------------------- --------- -------------------
NAME OF BENEFICIAL OWNER(2): NUMBER PERCENT NUMBER NUMBER PERCENT
---------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Advent International Group(3).............. 883,871 22.7% -- 883,871 14.6%
Weston Presidio Offshore Capital C.V.(4)... 646,558 16.7% -- 646,558 10.6%
PNC Capital Corp(5)........................ 457,403 11.2% -- 457,403 7.3%
Exeter Venture Management Corp.(6)......... 333,632 8.6% 333,632 -- *
BNP Venture Holding Corp.(7)............... 286,401 7.4% -- 286,401 4.7%
Seacoast Capital Partners, L.P.(8)......... 209,855 5.2% 50,000 159,855 2.6%
Samuel Bloomberg(9)........................ 912,362 22.3% 85,119 827,243 13.1%
Jeffrey Stone(10).......................... 321,618 8.0% 16,473 305,145 4.9%
Joseph McGuire(11)......................... 12,595 * -- 12,595 *
Jeffrey Bloomberg(12)...................... 291,059 7.5% 17,478 273,581 4.5%
Matthew Bronfman(13)....................... 112,143 2.8% -- 112,143 1.8%
Michael Cronin(14)......................... 646,558 16.7% -- 646,558 10.6%
Armin Biller(15)........................... 14,529 * 7,298 7,231 *
All executive officers and directors as a
group (6 persons)(16).................... 2,296,335 52.9% 119,070 2,177,265 33.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission. The number of shares
beneficially owned by a person includes shares of Common Stock that are
subject to (a) options held by that person that are currently exercisable
or exercisable within 60 days of the date of this Prospectus or (b)
warrants that are currently exercisable or that will be exercisable upon
consummation of the Offering. Such exercisable options and warrants are
described in the footnotes to this table for each such person. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person.
(2) Unless otherwise specified, the address of all persons who are executive
officers or directors of the Company is in care of the Company, 40 Hudson
Road, Canton, Massachusetts 02021.
(3) Includes 642,040 shares held by Global Private Equity II Limited
Partnership (including 12,281 shares issuable upon exercise of outstanding
warrants) and 241,831 shares held by Advent Direct Investment Program
Limited Partnership (including 4,627 shares issuable upon exercise of
outstanding warrants). Its address is 101 Federal Street, Boston,
Massachusetts 02110.
(4) Includes 11,832 shares issuable upon exercise of outstanding warrants. Its
address is One Federal Street, Boston, Massachusetts 02110.
(5) Includes 209,855 shares issuable upon exercise of outstanding warrants. Its
address is One PNC Plaza, Pittsburgh, Pennsylvania 15222.
(6) Includes 166,816 shares held by Exeter Venture Lenders, L.P. (including
104,928 shares issuable upon exercise of outstanding warrants) and 166,816
shares held by Exeter Equity Partners, L.P. (including 104,928 shares
issuable upon
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<PAGE> 48
exercise of outstanding warrants). The 333,632 shares sold by Exeter
Venture Management Corp. include 166,816 shares sold by Exeter Venture
Lenders, L.P. and 166,816 shares sold by Exeter Equity Partners, L.P. Its
address is 10 East 53rd Street, New York, New York 10022.
(7) Includes 3,383 shares issuable upon exercise of outstanding warrants. Its
address is Banexi/12 Rue Chauchat, 75009 Paris, France.
(8) Consists of 209,855 shares issuable upon exercise of outstanding warrants.
Its address is 55 Ferncroft Road, Danvers, Massachusetts 01923.
(9) Includes 48,912 shares held in the aggregate by the Samuel Bloomberg Family
Trusts for the benefit of Mr. Bloomberg's children and 24,774 shares held
by Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's
24,774 shares include 313 shares issuable upon exercise of outstanding
warrants. Mr. Bloomberg expressly disclaims beneficial ownership of the
shares held by the Samuel Bloomberg Family Trusts and Carolina Bloomberg.
Also includes 208,916 shares subject to options granted by the Company to
Mr. Bloomberg exercisable within 60 days of the date of this Prospectus.
The 85,119 shares sold by Mr. Bloomberg include 17,234 shares sold by
Carolina Bloomberg and 16,182 shares sold, in the aggregate, by the Samuel
Bloomberg Family Trusts. After the Offering, Carolina Bloomberg will hold
7,540 shares (including 313 shares issuable upon the exercise of warrants)
and the Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730
shares.
(10) Includes 26,240 shares held by trusts for the benefit of Mr. Stone's
children. Mr. Stone expressly disclaims beneficial ownership of these
shares. Also includes 114,978 shares subject to options granted by the
Company to Mr. Stone exercisable within 60 days of the date of this
Prospectus.
(11) Includes 12,595 shares subject to options granted by the Company
exercisable within 60 days of the date of this Prospectus.
(12) Includes 8,083 shares held in the aggregate, by trusts for the benefit of
Mr. Bloomberg's children. Mr. Bloomberg expressly disclaims beneficial
ownership of these shares. Also includes 48,912 shares held, in the
aggregate, by the Samuel Bloomberg Family Trusts, of which Mr. Bloomberg is
a trustee. Mr. Bloomberg expressly disclaims beneficial ownership of these
shares. Also includes 6,560 shares subject to options granted by the
Company to Mr. Bloomberg exercisable within 60 days of the date of this
Prospectus and 609 shares issuable upon exercise of outstanding warrants.
The 17,478 shares sold by Mr. Bloomberg include 16,182 shares sold, in the
aggregate, by the Samuel Bloomberg Family Trusts. After the Offering, the
Samuel Bloomberg Family Trusts will hold, in the aggregate, 32,730 shares.
(13) Includes 107,584 shares subject to options granted by the Company
exercisable within 60 days of the date of this Prospectus and 84 shares
issuable upon exercise of outstanding warrants.
(14) Includes shares held by Weston Presidio Offshore Capital C.V. ("Weston
Presidio"). See Note 4 above. Mr. Cronin is a general partner of WP Capital
Management, L.P., the general partner of Weston Presidio, and as such, may
be deemed to share voting and investment power with respect to all shares
held by Weston Presidio. Mr. Cronin expressly disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
therein.
(15) Includes 313 shares issuable upon exercise of outstanding warrants.
(16) See Notes 9 through 14 above.
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<PAGE> 49
CERTAIN TRANSACTIONS
CERTAIN FINANCING TRANSACTIONS
On November 28, 1995, the Company sold an aggregate of 911,787 shares of
its Series A Preferred Stock in a private venture capital financing at a price
of $6.46 per share. Among the purchasers in the initial closing of this
financing were Weston Presidio Offshore Capital, C.V. and BNP Venture Holding
Corp., each 5% stockholders of the Company, and Matthew Bronfman and Jeffrey
Bloomberg, directors of the Company, and Armin Biller and Harriet Bloomberg,
family members of directors and executive officers of the Company. In connection
with such transaction, Bloomberg Associates, Inc., of which Jeffrey Bloomberg, a
director of the Company, is President, received $150,000 in consulting fees in
connection with a capital restructuring of the Company. At the same time, the
Company repurchased its outstanding Common Stock of the Company then held by
Matthew Bronfman (a director of the Company) and certain of his family members,
for approximately $550,000 in cash and a $1.0 million subordinated promissory
note accruing interest at the initial rate of 10% per annum, increased in
connection with the HiFi Buys Acquisition to 12.0% (the "Redemption Note"). The
Redemption Note must be repaid in full upon the closing of the Offering,
together with an additional payment of approximately $800,000 due to such
redeeming stockholders in connection with the Offering equal to 9.0% interest
per annum accruing from the issue date to the date of the closing of the
Offering. All such payments required under the Redemption Note will be paid upon
the closing of the Offering.
On May 13, 1996, in connection with the Bryn Mawr Acquisition, the Company
sold an additional 788,349 shares of Series A Preferred Stock for net proceeds
of $5.1 million to Advent Direct Investment Program Limited Partnership and
Global Private Equity II Limited Partnership, each a 5% stockholder of the
Company, and to Carolina Bloomberg, the spouse of Samuel Bloomberg.
On March 7, 1997, and in connection with a $2.0 million bridge loan from
the Company's existing lender, the Company entered into a Warrant and Debenture
Commitment with certain of its stockholders including Global Private Equity II
Limited Partnership, Weston Presidio Offshore Capital, C.V., Advent Direct
Investment Program Limited Partnership, BNP Venture Holding Corp., Jeffrey
Bloomberg, Matthew Bronfman, Carolina Bloomberg, Harriet Bloomberg and Armin
Biller. Pursuant to the terms of the Warrant and Debenture Commitment, the
participating stockholders agreed, upon a put by BankBoston or at the request of
the Company, to purchase 10% Convertible Debentures in an aggregate amount of
$2.0 million (the "Debentures"). In consideration for this obligation, the
Company issued to the participating stockholders, warrants to purchase 37,138
shares of Common Stock at an exercise price of $6.46 per share. The Debentures
were never issued because the bridge loan was paid in full on May 30, 1997.
On May 30, 1997, in connection with the HiFi Buys Acquisition, the Company
sold an aggregate of 866,425 shares of its Series B Preferred Stock to
additional and existing investors at $8.08 per share. Among such investors were
Weston Presidio Offshore Capital, C.V., Advent Direct Investment Program Limited
Partnership, BNP Venture Holding Corp., PNC Capital Corp, Jeffrey Bloomberg,
Matthew Bronfman, Carolina Bloomberg and Harriet Bloomberg. At the same time,
the Company issued $15 million in Senior Subordinated Notes (the "Senior Notes")
and detachable warrants to purchase an aggregate of up to 629,566 shares of
Common Stock with an exercise price of $.002 per share to PNC Capital Corp,
Seacoast Capital Partners, L.P., Exeter Venture Lenders, L.P., and Exeter Equity
Partners, L.P., (the "Exeter Entities"), each a 5% stockholder of the Company.
Each of PNC Capital Corp and Seacoast Capital Partners, L.P. holds $5.0 million
of the Senior Notes and warrants to purchase 209,856 shares of Common Stock, and
each of the Exeter Entities holds $2.5 million of the Senior Notes and Warrants
to purchase 104,928 shares of Common Stock. Each Exeter Entity is selling all
104,928 shares of Common Stock issuable upon exercise of such warrants as a
Selling Stockholder in the Offering. Seacoast Capital Partners, L.P. is selling
50,000 shares of Common Stock issuable upon partial exercise of its warrants as
a Selling Stockholder in the Offering.
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<PAGE> 50
OTHER TRANSACTIONS AND RELATIONSHIPS
In May 1996, in connection with the Bryn Mawr Acquisition, the Company
entered into a consulting agreement with Fred Lokoff, the former owner of Bryn
Mawr and a former director of the Company. This consulting agreement was amended
as of April 23, 1997 and currently has a term of four years (the "Consulting
Period") expiring May 2000. Pursuant to the amended agreement, the Company is
obligated to pay Mr. Lokoff out-of-pocket expenses plus a monthly payment of
$20,833 for each month during the first year of the Consulting Period, and
$4,167 for each month during years three and four of the Consulting Period. The
Company also entered into a 15 year lease of its King of Prussia, Pennsylvania
distribution facility with an affiliate of Mr. Lokoff and agreed to sublease a
portion in this distribution facility back to another affiliate of Mr. Lokoff at
no rental charge. During fiscal 1997, the Company paid $266,267 in total rent
under such lease.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Effective upon the consummation of the Offering, the authorized capital
stock of the Company will consist of 20,000,000 shares of Common Stock, no par
value, and 10,000,000 shares of Preferred Stock, no par value. Prior to the
Offering, there were outstanding an aggregate of 1,700,136 shares of Series A
Preferred Stock and 866,425 shares of Series B Preferred Stock which will
automatically convert into an aggregate of 2,566,561 shares of Common Stock upon
the consummation of the Offering. In addition, prior to the Offering, there were
outstanding warrants to purchase an aggregate of 721,664 shares of Common Stock
at a weighted average exercise price of $2.13. Of these, warrants to purchase
259,856 shares of Common Stock will be exercised immediately prior to the
closing of the Offering and these shares will be sold by Selling Stockholders in
the Offering.
The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Amended and Restated
Certificate of Incorporation (the "Charter") and Amended and Restated By-laws
(the "By-laws"), filed as exhibits to the Registration Statement of which this
Prospectus is a part. The Charter and By-laws will be effective upon the
consummation of the Offering.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock which the Company may designate and issue in the
future. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding Preferred Stock. Holders of
Common Stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of Common Stock are, and the shares offered by the
Company in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future.
PREFERRED STOCK
Under the terms of the Charter, the Board of Directors is authorized,
subject to any limitations prescribed by law, without stockholder approval, to
issue shares of Preferred Stock in one or more series. Each such series of
Preferred Stock shall have such rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors. The purpose of authorizing the Board of Directors to issue
Preferred Stock and determine its rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock, but the Company will, effective upon the consummation of the Offering,
authorize and reserve shares of Series A Junior Preferred Stock for issuance in
connection with the Rights Plan discussed below. See "Risk Factors -- Effect of
Certain Charter and By-Law Provisions; Antitakeover Provisions."
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<PAGE> 52
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or the business combination is approved in a
prescribed manner, or certain other conditions are satisfied. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The By-laws provide that (i) the number of directors shall be determined
from time to time by resolution adopted by a majority of the Board of Directors,
(ii) vacancies on the Board of Directors may be filled by the Board unless and
until filled by the stockholders, and (iii) directors may be removed only for
cause by the vote of the holders of at least 75% of the shares then entitled to
vote at an election of directors.
The By-laws provide for a classified Board of Directors consisting of three
classes of directors having staggered terms of three years each, with each of
the classes being as nearly equal as possible. A single class of directors will
be elected each year at the Company's annual meeting of stockholders. Subject to
transition provisions, each director elected at each such meeting will serve for
a term ending on the date of the third annual meeting of stockholders after his
election and until his successor has been elected and duly qualified. See
"Management -- Board Composition."
The Charter empowers the Board of Directors, when considering a tender
offer or merger or acquisition proposal, to take into account any factors that
the Board of Directors determines to be relevant, including, without limitation,
(i) the interests of the Company's stockholders, including the possibility that
these interests might be best served by the continued independence of the
Company, (ii) whether the proposed transaction might violate federal or state
laws, (iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Company, but also the market price for the capital stock of
the Company over a period of years, the estimated price that might be achieved
in a negotiated sale of the Company as a whole or in part or through orderly
liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and the Company's financial condition and
future prospects, and (iv) the social, legal and economic effects upon
employees, suppliers, customers, creditors and others having similar
relationships with the Company, upon the communities in which the Company
conducts its business and upon the economy of the state, region and nation.
Under the By-Laws, special meetings of the stockholders may be called only
by 51% of the Board of Directors then in office, or by the Chairman of the Board
or the Chief Executive Officer, and only matters set forth in the notice calling
any such meeting may be considered at the meeting. The By-Laws also provide that
stockholder actions must be taken at a meeting at which a quorum of stockholders
is present in person or by proxy and that stockholders will not be entitled to
take action by written consent in lieu of a meeting. The Board of Directors may
postpone a scheduled stockholders' meeting, and the Chairman of the Board may
adjourn a stockholders' meeting even if a quorum is present. Nominations for
election to the Board of Directors may be made either by the Board or by holders
of at least 1% of the issued and outstanding voting shares of the Company.
Stockholder nominations of Director nominees who are not nominated by the Board
of Directors must be submitted to the Secretary of the Company not less than 90
days or more than 120 days prior to the anniversary of the previous year's
annual meeting.
The foregoing provisions could have the effect of delaying until the next
annual stockholders meeting stockholder actions which are favored by the holders
of a majority of the then outstanding
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<PAGE> 53
voting securities of the Company. These provisions may also discourage another
person or entity from making a tender offer for the Company's Common Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, would be able to take action as a stockholder
(such as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions. A 75% vote of stockholders is required for the stockholders
to adopt, amend or repeal any By-law provisions. The By-laws may also be amended
or repealed by a majority vote of the Board of Directors subject to any
limitations set forth in the By-laws.
STOCKHOLDER RIGHTS PLAN
The Company's Board of Directors will adopt, effective upon the
consummation of the Offering, a Stockholder Rights Plan (the "Rights Plan"). The
adoption of the Rights Plan by the Board is likely to make it more difficult for
a third party to acquire the Company or large portions of its Common Stock. Set
forth below is a general summary of the Rights Plan. Such summary is qualified
in its entirety by reference to the Rights Plan, a copy of which is included as
an exhibit to the Registration Statement of which this Prospectus is a part.
One preferred stock purchase right (a "Right") will be distributed, by way
of dividend for each outstanding share of Common Stock, to stockholders of
record as of a day prior to the effectiveness of the Registration Statement of
which this Prospectus is a part (the "Record Date"). In addition, one Right will
automatically attach to each share of Common Stock issued between the Record
Date and the Distribution Date (as hereinafter defined). Each Right entitles the
holder thereof to purchase one one-thousandth of one share (each, a "Unit") of
the Company's Junior Participating Cumulative Preferred Stock, no par value (the
"Junior Preferred Stock") at a cash purchase price per Unit to be established by
the Board when it approves the Rights Plan, subject to adjustment. The Rights
and their exercise price will be adjusted to take into account dilutive events.
The Junior Preferred Stock shall rank prior and senior to the Common Stock
with respect to dividends and distributions but junior to any series or class of
Preferred Stock that is designated as senior to the Junior Preferred Stock. The
holders of the Junior Preferred Stock shall be entitled to receive quarterly
dividends when, as and if declared by the Board of Directors, commencing on the
first day of March, June, September or December occurring after the first
issuance of a share or fraction of a share of the Junior Preferred Stock, in an
amount per share equal to the greater of (i) $1.00, or (ii) 1,000 times the
aggregate per share amount of all dividends declared on the Common Stock.
Dividends shall accrue and be cumulative but shall not accrue interest. Except
as otherwise provided by law or set forth below, the holders of shares of Junior
Preferred Stock shall vote together with the Common Stock, and any other capital
stock of the Company having general voting rights, as one class. Each share of
Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote.
Whenever dividends payable on any shares of Junior Preferred Stock shall be
in arrears in an amount equal to two full quarterly dividends (whether or not
declared and whether or not consecutive), the holders of the Junior Preferred
Stock, voting separately as a single class, shall have the right to elect two
directors of the Company at a special meeting of the stockholders or at the
Company's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders. In such event, the size of the Board shall be increased
accordingly and the vacancies created thereby shall be filled by the vote of the
holders of the Junior Preferred Stock. Such election
51
<PAGE> 54
right shall terminate at such time as all arrears in dividends shall have been
paid or declared and set apart for payment, whereupon the terms of office of all
Junior Preferred Directors shall terminate.
Upon the earlier to occur of (i) the tenth calendar day after an "Acquiring
Person" has acquired beneficial ownership of more than 15% of the outstanding
shares of Common Stock (such date being the "Stock Acquisition Date"), or (ii)
the tenth business day following the announcement of a tender offer or exchange
offer that, upon consummation, would result in a person or group becoming the
beneficial owner of more than 15% of the outstanding shares of Common Stock
(such date being the "Tender Offer Date"); the Board may, in its discretion,
cause the rights to separate from the Common Stock and become exercisable (such
earlier date of the Stock Acquisition Date and the Tender Offer Date being the
"Distribution Date"). An "Acquiring Person" shall be defined as a person or
group of affiliated or associated persons that has acquired more than 15% of the
outstanding shares of Common Stock, but shall not be deemed to include any
underwriters in their capacities as such. No person who is a stockholder of the
Company immediately prior to the consummation of the Offering will be an
Acquiring Person unless that person acquires beneficial ownership of both (i)
more than % of the outstanding Common Stock, and (ii) a greater percentage of
the then outstanding Common Stock than the percentage held by such person as of
the consummation of the Offering.
At any time after a Distribution Date, the Board may, in its discretion,
exchange all or any part of the then outstanding and exercisable Rights for
shares of Common Stock or Units of Junior Preferred Stock. The exchange ratio
shall be one share of Common Stock or one Unit of Junior Preferred Stock for
each Right. However, the Board will not have the authority to effect such an
exchange after any person becomes the beneficial owner of 50% or more of the
Common Stock of the Company. The Rights may be redeemed in whole but not in
part, at a price of $0.001 per Right by the Board of Directors only until the
earlier of (i) the tenth calendar year after a Distribution Date, or (ii) the
expiration date of the Rights Plan. The Board in its sole discretion may amend
the Rights Plan until a Distribution Date. After a Distribution Date, the Board
may make certain amendments to the Rights Agreement but none that will adversely
affect the interests of Rights holders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter contains certain provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derives an improper personal
benefit. These provisions do not limit or eliminate the rights of the Company or
any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Charter also contains provisions indemnifying the directors and officers of
the Company to the fullest extent permitted by the DGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
BankBoston, N.A.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurances with respect to the effect, if any, that public
sales of shares or the availability of shares will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market following the Offering, or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock and could impair the Company's future ability to obtain capital through an
offering of equity securities. See "Risk Factors -- Shares Eligible for Future
Sale."
As of the date of this March 31, 1998, the Company had outstanding
3,882,690 shares of Common Stock (assuming conversion of all outstanding
Preferred Stock into an aggregate of 2,566,561 shares of Common Stock and the
exercise of warrants to purchase 259,856 shares of Common Stock) held of record
by 23 stockholders. Upon completion of the Offering, the Company will have
6,082,690 shares of Common Stock outstanding a (assuming no exercise of
outstanding options or warrants other than warrants exercisable into 259,856
shares of Common Stock being sold by a Selling Stockholder in the Offering, but
assuming conversion of all outstanding Preferred Stock into 2,566,561 shares of
Common Stock, each of which will occur upon consummation of the Offering). Of
these outstanding shares, the 2,710,000 shares of Common Stock being sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except for shares acquired by an "affiliate" or
"affiliates" of the Company (as that term is used in Rule 144 promulgated under
the Securities Act, "Affiliate" or "Affiliates"), which may generally only be
sold in compliance with the limitations of Rule 144 as described below.
SALES OF RESTRICTED SHARES
The remaining 3,372,690 shares of Common Stock were issued and sold by the
Company prior to the Offering in private transactions and therefore constitute
"restricted securities" under Rule 144. As a result, such shares may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, such as Rule 144. The Company and
its existing stockholders holding all of the Preferred Stock and Common Stock
outstanding immediately prior to the Offering have agreed pursuant to lock-up
agreements ("Lock-Up Agreements") not to sell, offer or contract to sell, sell
short, engage in certain hedging transactions or otherwise dispose of, with
certain exceptions, any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. See "Underwriting."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned
"restricted" shares (as defined under Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
reported through the Nasdaq Stock Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. In addition, a stockholder who is not deemed an
Affiliate at any time during the 90 days preceding a sale and who has
beneficially owned his shares for at least two years, is entitled to sell such
shares under Rule 144(k) without regard to volume limitations, manner of sale
provisions, notice requirements or the availability of current public
information concerning the Company.
OPTIONS
The Company has granted options to purchase an aggregate of 845,059 shares
of Common Stock to certain directors, officers and employees pursuant to the
1995 Plan. All shares issuable upon
53
<PAGE> 56
exercise of options are subject to Lock-up Agreements or to a lock-up period of
120 days pursuant to the Company's stock option agreements.
WARRANTS
As of the date of this Prospectus, warrants to purchase an aggregate of
511,808 shares of Common Stock were outstanding, at an average weighted exercise
price of $2.13 per share, excluding warrants to purchase 259,856 shares which
will be exercised and sold in the Offering. All of these Warrants were issued by
the Company between March 7, 1997 and May 30, 1997. All of the shares issuable
pursuant to such Warrants are subject to Lock-up Agreements.
REGISTRATION RIGHTS
The Company has entered into registration rights agreements with certain of
its stockholders owning an aggregate of 3,884,498 shares of Common Stock, which
provide those stockholders with prescribed rights, subject to certain conditions
and limitations, to require the Company to register the sale of shares of Common
Stock held by such stockholders under the Securities Act or to include such
shares in a registered offering being effected by the Company for its own
account. Copies of such registration rights agreements are included as exhibits
to the Registration Statement of which this Prospectus is a part. All of the
shares entitled to the benefits of such registration rights agreements are
subject to Lock-up Agreements.
54
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, PaineWebber Incorporated and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated ("Dain Rauscher Wessels") have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
BT Alex. Brown Incorporated................................
PaineWebber Incorporated...................................
Dain Rauscher Wessels......................................
---------
Total............................................ 2,710,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 406,500
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,710,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,710,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, each of its officers and directors, all of its stockholders
and warrant holders, and certain of its option holders have agreed, subject to
certain exceptions, not to sell, offer or contract to sell, transfer, engage in
hedging transactions with respect to or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of BT Alex. Brown Incorporated. BT Alex. Brown
Incorporated, on behalf of the Representatives of the Underwriters, may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to such lock-up agreements. See "Shares Eligible for
Future Sale."
55
<PAGE> 58
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. The Underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing Common Stock in the Offering if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of the Common Stock above market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalization and stages of development
of other companies which the Company and the Representatives of the Underwriters
believed to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
An opinion will be delivered by Goulston & Storrs, P.C., Boston,
Massachusetts, to the effect that the shares of Common Stock being offered
hereby will, when issued as contemplated by this Prospectus, be validly issued,
fully paid and non-assessable. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1996 and 1997, and for each of the years in the three-year period ended
September 30, 1997, included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report of Deloitte &
Touche LLP given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of HiFi Buys Incorporated for the years ended
December 31, 1996, 1995 and 1994, included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report of Deloitte & Touche LLP given upon the authority of said firm as experts
in accounting and auditing.
The combined financial statements of Bryn Mawr Radio and Television Centre,
Inc. and affiliate for the year ended August 31, 1995, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report of Deloitte & Touche LLP given upon the authority
of said firm as experts in accounting and auditing.
56
<PAGE> 59
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Securities Act relating to
the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission") in Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the contents of
any contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, the exhibits thereto and the financial statements,
notes and schedules filed as a part thereof. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and at the
Commission's regional offices located at Seven World Trade Center, New York, NY
10048 and at 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials, including the Registration Statement, can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, DC
20549 at prescribed rates. The Commission also maintains a World Wide Web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The site and
this Registration Statement may be accessed at http://www.sec.gov. Copies of the
Registration Statement may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent accountants and
make available quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
57
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TWEETER HOME ENTERTAINMENT GROUP, INC.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of September 30, 1996 and
1997, and March 31, 1998 (unaudited)................... F-3
Consolidated Statements of Income for the Years Ended
September 30, 1995, 1996 and 1997, and the Six Months
Ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited)............................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended September 30, 1995, 1996 and 1997,
and the Six Months Ended March 31, 1998 (unaudited).... F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997, and the Six Months
Ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(unaudited)............................................ F-23
HIFI BUYS INCORPORATED
Independent Auditors' Report.............................. F-26
Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994 and the Three Months Ended March
31, 1997 (unaudited) and March 31, 1996 (unaudited).... F-27
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 and the Three Months Ended March
31, 1997 (unaudited) and March 31, 1996 (unaudited).... F-28
Notes to Financial Statements............................. F-29
BRYN MAWR RADIO AND TELEVISION CENTRE, INC.
Independent Auditors' Report.............................. F-32
Combined Statement of Operations for the Year Ended August
31, 1995 and the Six Months Ended February 29, 1996
(unaudited) and the Six Months Ended February 28, 1995
(unaudited)............................................ F-33
Combined Statement of Cash Flows for the Year Ended August
31, 1995 and the Six Months Ended February 29, 1996
(unaudited) and the Six Months Ended February 28, 1995
(unaudited)............................................ F-34
Notes to Financial Statements............................. F-35
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The accompanying consolidated financial statements reflect the
reorganization and the 1 for 1.524 reverse split of common stock which is to be
effected prior to the effective date of the Offering. The following report is in
the form which will be furnished by Deloitte & Touche LLP upon completion of the
above events, which are described in Note 1 of Notes to Consolidated Financial
Statements, and assuming that, from April 24, 1998 to the date of such
completion no other events have occurred which would affect the accompanying
consolidated financial statements and notes thereto.
"To the Board of Directors and Stockholders of
Tweeter Home Entertainment Group, Inc.
We have audited the accompanying consolidated balance sheets of Tweeter
Home Entertainment Group, Inc. as of September 30, 1996 and 1997, and the
related statements of income, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1996 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 20, 1998 (May , 1998 as to Note 1)"
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
F-2
<PAGE> 62
TWEETER HOME ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, PRO FORMA
------------------------- ----------- MARCH 31,
1996 1997 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 438,607 $ 1,156,837 $ 1,138,808
Accounts receivable, net of allowance for doubtful
accounts of $440,000 at September 30, 1996, $631,000 at
September 30, 1997 and $600,000 at March 31, 1998
(unaudited)............................................. 2,791,993 5,472,779 7,396,312
Inventory................................................. 15,352,307 31,160,043 35,471,117
Deferred tax assets....................................... 596,454 1,220,481 1,276,020
Prepaid expenses and other current assets................. 308,867 822,904 501,110
----------- ----------- -----------
Total current assets................................ 19,488,228 39,833,044 45,783,367
PROPERTY AND EQUIPMENT -- Net............................. 13,490,304 17,967,504 17,889,050
DEFERRED TAX ASSET........................................ 754,464 59,397 108,605
OTHER ASSETS -- Net....................................... -- 331,870 496,970
GOODWILL -- Net........................................... 4,886,287 20,496,115 20,249,636
----------- ----------- -----------
TOTAL............................................... $38,619,283 $78,687,930 $84,527,628
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ -- $ 400,000 $ 400,000
Amount due to bank........................................ 1,880,743 4,948,702 4,044,346
Accounts payable.......................................... 11,252,458 11,456,967 7,378,773
Accrued expenses.......................................... 3,138,991 8,405,704 14,751,337
Customer deposits......................................... 851,089 1,255,024 1,629,154
Deferred warranty revenue................................. 468,418 1,509,481 1,329,757
----------- ----------- -----------
Total current liabilities........................... 17,591,699 27,975,878 29,533,367
----------- ----------- -----------
LONG-TERM DEBT:
Note payable to bank...................................... 9,700,000 14,500,000 15,100,000
Subordinated debt......................................... 1,000,000 16,374,617 16,174,617
----------- ----------- -----------
Total long-term debt................................ 10,700,000 30,874,617 31,274,617
----------- ----------- -----------
OTHER LONG-TERM LIABILITIES:
Rent related accruals..................................... 2,063,887 2,421,082 2,670,423
Deferred warranty......................................... 650,750 2,175,577 1,555,710
Other long-term liabilities............................... -- 318,780 258,720
----------- ----------- -----------
Total other long-term liabilities................... 2,714,637 4,915,439 4,484,853
Total liabilities................................... 31,006,336 63,765,934 65,292,837
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A Convertible Preferred Stock, no par value;
authorized, 4,000,000 shares; 1,700,136 shares issued
and outstanding in 1998, 1997 and 1996 (liquidation
preference, $14,432,999 as of March 31, 1998)........... 11,596,868 13,399,386 14,432,999 $ --
Series B Convertible Preferred Stock, no par value;
authorized, 4,000,000 shares; 866,425 shares issued and
outstanding in 1998 and 1997 (liquidation preference
$7,741,248 as of March 31, 1998)........................ -- 7,191,221 7,741,248 --
----------- ----------- ----------- -----------
11,596,868 20,590,607 22,174,247 --
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, authorized: 20,000,000 shares;
2,755,200 shares issued in 1996, 1997 and 1998
(7,521,761 shares issued pro forma in 1998)............. -- -- -- --
Additional paid-in capital................................ 600 325,983 325,983 22,500,230
Retained earnings (deficit)............................... (2,403,004) (4,413,077) (1,683,922) (1,683,922)
Note receivable from officer.............................. (31,500) (31,500) (31,500) (31,500)
----------- ----------- ----------- -----------
Total............................................... (2,433,904) (4,118,594) (1,389,439) 20,784,808
Less treasury stock: 1,698,929 shares at cost............. (1,550,017) (1,550,017) (1,550,017) (1,550,017)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit)................ (3,983,921) (5,668,611) (2,939,456) $19,234,791
----------- ----------- ----------- -----------
TOTAL............................................... $38,619,283 $78,687,930 $84,527,628
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 63
TWEETER HOME ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue.................. $ 60,121,370 $ 80,606,727 $132,525,037 $ 60,582,539 $129,129,712
Cost of sales.................. 39,167,031 51,816,041 86,314,918 39,180,469 84,280,356
------------ ------------ ------------ ------------ ------------
Gross profit................... 20,954,339 28,790,686 46,210,119 21,402,070 44,849,356
Selling expenses............... 15,404,513 21,993,070 35,567,940 14,797,225 30,207,653
------------ ------------ ------------ ------------ ------------
Store contribution............. 5,549,826 6,797,616 10,642,179 6,604,845 14,641,703
Corporate, general and
administrative expenses...... 3,246,443 4,715,697 8,102,190 3,792,702 5,419,985
Amortization of goodwill....... 65,268 129,273 487,084 119,562 423,279
------------ ------------ ------------ ------------ ------------
Income from operations......... 2,238,115 1,952,646 2,052,905 2,692,581 8,798,439
Interest expense............... 628,700 616,879 1,807,660 513,520 1,610,446
------------ ------------ ------------ ------------ ------------
Income before income taxes..... 1,609,415 1,335,767 245,245 2,179,061 7,187,993
Income tax expense (benefit)... (173,498) (453,448) 98,962 876,337 2,875,198
------------ ------------ ------------ ------------ ------------
NET INCOME..................... $ 1,782,913 $ 1,789,215 $ 146,283 $ 1,302,724 $ 4,312,795
============ ============ ============ ============ ============
Pro forma information
Basic earnings per share..... 0.04 1.19
Weighted average shares
outstanding................ 3,622,832 3,622,832
Diluted earnings per share... 0.03 0.87
Weighted average shares and
dilutive shares
outstanding................ 4,966,353 4,966,353
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
TWEETER HOME ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED NOTE TREASURY STOCK
------------------ PAID-IN EARNINGS RECEIVABLE -----------------------
SHARES AMOUNT CAPITAL (DEFICIT) FROM OFFICER SHARES AMOUNT
--------- ------ ----------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994...... 2,755,200 $-- $ 600 $(4,090,825) $(31,500) $ --
Net income.................. -- 1,782,913
Subchapter S
distributions............. -- (118,615)
--------- --- ----------- ----------- -------- --------- -----------
BALANCE, SEPTEMBER 30, 1995... 2,755,200 -- 600 (2,426,527) (31,500) -- --
Treasury stock acquired..... -- 1,698,929 (1,550,017)
Accretion of Series A
Convertible Preferred
Stock..................... -- (1,035,942)
Net income.................. -- 1,789,215
Subchapter S
distributions............. -- (729,750)
--------- --- ----------- ----------- -------- --------- -----------
BALANCE, SEPTEMBER 30, 1996... 2,755,200 -- 600 (2,403,004) (31,500) 1,698,929 (1,550,017)
Issuance of warrants in
connection with
subordinated debt
offering.................. -- 325,383
Accretion of Series A
Convertible Preferred
Stock..................... -- (1,802,520)
Accretion of Series B
Convertible Preferred
Stock..................... -- (353,836)
Net income.................. -- 146,283
--------- --- ----------- ----------- -------- --------- -----------
BALANCE, SEPTEMBER 30, 1997... 2,755,200 -- 325,983 (4,413,077) (31,500) 1,698,929 (1,550,017)
Accretion of Series A
Convertible Preferred
Stock (unaudited)......... -- (1,033,613)
Accretion of Series B
Convertible Preferred
Stock (unaudited)......... -- (550,027)
Net income (unaudited)...... -- 4,312,795
--------- --- ----------- ----------- -------- --------- -----------
BALANCE, MARCH 31, 1998
(UNAUDITED)................. 2,755,200 $-- $ 325,983 $(1,683,922) $(31,500) 1,698,929 $(1,550,017)
========= === =========== =========== ======== ========= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
BALANCE, OCTOBER 1, 1994...... $(4,121,725)
Net income.................. 1,782,913
Subchapter S
distributions............. (118,615)
-----------
BALANCE, SEPTEMBER 30, 1995... (2,457,427)
Treasury stock acquired..... (1,550,017)
Accretion of Series A
Convertible Preferred
Stock..................... (1,035,942)
Net income.................. 1,789,215
Subchapter S
distributions............. (729,750)
-----------
BALANCE, SEPTEMBER 30, 1996... (3,983,921)
Issuance of warrants in
connection with
subordinated debt
offering.................. 325,383
Accretion of Series A
Convertible Preferred
Stock..................... (1,802,520)
Accretion of Series B
Convertible Preferred
Stock..................... (353,836)
Net income.................. 146,283
-----------
BALANCE, SEPTEMBER 30, 1997... (5,668,611)
Accretion of Series A
Convertible Preferred
Stock (unaudited)......... (1,033,613)
Accretion of Series B
Convertible Preferred
Stock (unaudited)......... (550,027)
Net income (unaudited)...... 4,312,795
-----------
BALANCE, MARCH 31, 1998
(UNAUDITED)................. $(2,939,456)
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 65
TWEETER HOME ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 1,782,913 $ 1,789,215 $ 146,283 $ 1,302,724 $ 4,312,795
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 950,132 1,383,235 2,785,205 1,099,537 1,908,858
Loss on disposal of equipment...................... 63,467 -- 18,845 --
Deferred income tax provision (benefit)............ (173,498) (1,177,420) 71,040 58,683 (104,747)
Changes in operating assets and liabilities, net of
effects from acquisition of businesses:
Increase in accounts receivable.................. (286,912) (631,945) (1,251,986) (1,071,793) (1,923,533)
Increase in inventory............................ (306,172) (2,411,139) (6,534,336) (2,226,461) (4,311,074)
(Increase) decrease in prepaid expenses and other
current assets................................. (2,512) (250,391) (277,537) 29,738 (83,777)
Increase (decrease) in accounts payable and
accrued expenses............................... (399,485) 848,630 (923,291) 521,238 2,267,439
Increase (decrease) in customer deposits......... 422,184 (329,713) (242,565) 5,038 374,130
Increase in deferred rent........................ 29,867 1,441,315 357,195 139,597 249,341
Decrease in deferred warranty revenue............ -- (157,113) (710,610) (254,465) (799,591)
Increase (decrease) in other liabilities......... -- -- 318,780 -- (60,060)
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) operating
activities................................... 2,079,984 504,674 (6,242,977) (396,164) 1,829,781
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (2,620,885) (2,865,784) (3,972,465) (1,404,026) (1,343,454)
Proceeds from sale of property and equipment......... 19,614 -- -- -- --
Acquisition of business; net of cash deferred........ -- (8,368,208) (19,539,800) -- --
----------- ------------ ------------ ----------- -----------
Net cash used in investing activities.......... (2,601,271) (11,233,992) (23,512,265) (1,404,026) (1,343,454)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount due to bank................................... 333,270 390,000 3,067,959 498,544 (904,356)
Proceeds from bridge loan............................ -- -- -- 2,000,000 --
Proceeds from long-term borrowings, net of debt issue
costs.............................................. 1,400,000 1,994,594 20,668,128 5,950,000 600,000
Payments of debt..................................... (850,000) (100,000) (6,675,000) (200,000)
Subchapter S distributions........................... (118,615) (729,750) -- -- --
Issuance of preferred stock.......................... -- 10,560,926 6,837,385 -- --
Treasury stock acquired.............................. -- (1,550,017) -- -- --
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) financing
activities................................... 764,655 10,665,753 30,473,472 1,773,544 (504,356)
----------- ------------ ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 243,368 (63,565) 718,230 (26,646) (18,029)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........... 258,804 502,172 438,607 438,607 1,156,837
----------- ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 502,172 $ 438,607 $ 1,156,837 $ 411,961 $ 1,138,808
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................... $ 602,643 $ 538,718 $ 1,538,077 $ 552,647 $ 1,874,530
Taxes.............................................. -- 860,541 358,000 355,000 1,080,496
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 66
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
1. BUSINESS OF THE COMPANY
New England Audio Co., Inc. ("NEA") was organized as a Massachusetts
corporation in 1972. In May 1998 NEA will effect a 1 for 1.524 reverse stock
split. Also in May 1998, NEA will be reorganized as a Delaware holding company,
whereby all of the holders of capital stock, options, and warrants of NEA will
exchange their NEA securities for identical securities of Tweeter Home
Entertainment Group, Inc. ("TWEETER"), a Delaware corporation, on a 1 for 1
basis. All share data in these consolidated financial statements reflect the
impact of the reverse stock split and the reorganization. The consolidated
financial statements include the accounts of NEA, the wholly owned subsidiary of
TWEETER, and the wholly owned subsidiary of NEA, NEA Delaware Inc., a Delaware
corporation (collectively referred to as the "Company"). As discussed in Note
11, the redeemable convertible preferred stock will automatically convert into
2,566,561 shares of common stock upon the completion of an initial public
offering. The accompanying pro forma balance sheet gives effect to this
conversion as if it had occurred on March 31, 1998.
The Company sells home audio, video, entertainment and electronic products
through a chain of 50 retail stores in New England, Mid-Atlantic and Atlanta,
Georgia markets. The Company operates under the names "Tweeter, Etc.," "Bryn
Mawr Stereo & Video" and "HiFi Buys." The Company operates in a single business
segment of retailing audio and video consumer electronic products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying consolidated balance sheet as of
March 31 1998 and the related consolidated statements of income, stockholders'
equity (deficit) and cash flows for the six months ended March 31, 1997 and 1998
are unaudited. In the opinion of management, these financial statements have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments consisting only of normal recurring adjustments
necessary for the fair presentation, in accordance with generally accepted
accounting principles, of financial data for such periods. The results of
operations and cash flows for the six months ended March 31, 1997 and 1998 are
not necessarily indicative of results that would be expected for a full year.
The data disclosed in these notes to the consolidated financial statements for
those interim periods are also unaudited.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
instruments purchased with maturities of three months or less to be cash
equivalents for balance sheet and cash flow statement purposes.
INVENTORIES -- Inventories, which consist primarily of goods for resale,
are stated at the lower of cost (average cost basis) or market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the respective assets. Amortization of improvements to
leased properties is based upon the remaining terms of the leases or the
estimated useful lives of such improvements, whichever is shorter. Furniture and
fixtures are depreciated between three and seven years. Automobiles and trucks
are depreciated over three years. Leasehold interests are amortized over the
remaining life of the leases.
GOODWILL -- Goodwill and other acquisition costs are being amortized on a
straight-line basis over periods from 15 to 25 years.
F-7
<PAGE> 67
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS -- Other assets include deferred financing costs that are
being amortized over the term of the financing, using the straight-line method,
which approximates the interest method.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the
Company's assets and liabilities which constitute financial instruments as
defined in Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure about Fair Value of Financial Instruments," approximates their
recorded value.
LONG-LIVED ASSETS -- On an ongoing basis, the Company evaluates the
carrying value of its long-lived assets based upon estimated future undiscounted
cash flows relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships.
ACCOUNTING FOR ESTIMATES -- In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities that are not readily apparent from other sources.
The primary estimates underlying the Company's consolidated financial statements
include allowances for potential bad debts, obsolete inventory, goodwill, the
useful lives of its long-lived assets, the recoverability of deferred tax assets
and other matters. Management bases its estimates on certain assumptions, which
they believe are reasonable in the circumstances, and do not believe that any
change in those assumptions in the near term would have a significant effect on
the consolidated financial position or results of operations. Actual results
could differ from these estimates.
REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
EXTENDED WARRANTY SERVICE CONTRACTS -- Except as noted in the following
paragraphs, the Company offers extended warranty service contracts on behalf of
an unrelated third party on most of its products. These contracts are on a
nonrecourse basis to the Company. The Company includes revenue from the sale of
extended warranty contracts in net sales and records as cost of goods sold the
amounts due to the third party for the cost for such contracts at the time of
sale as the earnings process has been completed.
AUTOMATIC PRICE PROTECTION -- Under this program, if a customer purchases a
consumer electronics product from one of the Company's stores and a competitor
within 25 miles of the store advertises a lower price within 30 days, the
Company automatically sends a check to the customer for the difference. The
Company records the cost of its Automatic Price Protection policy to costs of
goods sold, and carries a reserve based on management's estimate of future
liability under the program.
DEFERRED WARRANTY REVENUE -- On May 13, 1996 the Company acquired
substantially all of the assets, and assumed some of the liabilities, of Bryn
Mawr Radio and Television, Inc. and affiliate ("Bryn Mawr"). Bryn Mawr sold
extended warranty contracts beyond the normal manufacturer's warranty period,
usually with terms of coverage (including the manufacturer's warranty period)
between 12 and 60 months. All revenue from the sale of extended warranty
contracts sold through July 31, 1996 was deferred and the revenue is being
amortized on a straight-line basis over the contract period. All costs related
to the contracts are charged to expense when incurred. On
F-8
<PAGE> 68
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
August 1, 1996, the Company changed Bryn Mawr's warranty sales to a third-party
provider, in conformance with the Company's practice of selling extended
warranties. As part of the purchase, the Company assumed the liability for the
deferred warranty on Bryn Mawr's books as of the transaction date, and the sales
that continued through July 31, 1996.
On May 30, 1997 the Company acquired certain assets and assumed certain
liabilities of HiFi Buys, Inc. ("HiFi Buys"). HiFi Buys sold extended warranty
contracts beyond the normal manufacturer's warranty period, usually with terms
of coverage (including the manufacturer's warranty period) between 12 and 60
months. All revenue from the sale of extended warranty contracts sold through
August 7, 1997 was deferred and the revenue is being amortized on a
straight-line basis over the contract period. Sales commission costs related to
the contracts were also deferred and the cost is being amortized on a
straight-line basis over the contract period. On August 8, 1997, the Company
changed HiFi Buys' warranty sales to a third-party provider, in conformance with
the Company's practice of selling extended warranties. As part of the purchase,
the Company assumed the liability for the deferred warranty on HiFi Buys' books
as of the transaction date, and the sales that continued through August 7, 1997.
INCOME TAXES -- Effective September 1, 1987, the stockholders elected to
have the Company taxed as an S Corporation for federal and certain state
corporate income tax purposes.
As part of a recapitalization that occurred on November 28, 1995, the
Company revoked the election made by it under Section 1362(a) of the Internal
Revenue Code. Upon revocation, the Corporation was changed from tax treatment as
an S Corporation to tax treatment as a C Corporation. As such, the Company
became responsible for federal and certain state income taxes which were
formerly the responsibilities of its stockholders.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax liabilities or assets are recognized for the
estimated tax effects of temporary differences between the financial reporting
and tax bases of assets and liabilities and for loss carryforwards based on
enacted tax laws and rates.
STORE OPENING COSTS -- Costs of noncapital nature incurred prior to store
openings are expensed as incurred.
STOCK-BASED COMPENSATION -- The Company, for the purposes of presentation
in its financial statements, follows the precepts set forth in Accounting
Principles Board Opinion No. 25 for computing compensatory aspects of
stock-based compensation. In compliance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has disclosed the required Pro Forma
effect on net income in Note 11.
DEFERRED RENT AND RENTAL EXPENSE -- Minimum rent expense is recorded using
the straight-line method over the related lease term. The difference between
current payments required and rent expense is reflected as deferred rent.
ADVERTISING -- Net costs for advertising, which are expensed as incurred,
amounted to $1,402,310, $2,574,340 and $3,742,433 for the years ended September
30, 1995, 1996 and 1997, respectively, and $1,437,306 and $2,645,535 for the
six-month periods ended March 31, 1997 and 1998, respectively.
F-9
<PAGE> 69
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA EARNINGS PER SHARE -- The Company computed pro forma earnings per
share in accordance with SFAS No. 128, "Earnings Per Share". Pro forma basic
earnings per share is based on the weighted average number of common shares
outstanding. Diluted earnings per share is based on the weighted average number
of common shares and dilutive potential common shares (common stock options and
warrants) outstanding. The pro forma weighted average number of common shares
assumes the automatic conversion of all shares of Series A Redeemable
Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock
(the "preferred stock") to 2,566,561 shares of common stock which will occur
upon the consummation of the initial public offering. Potential common shares
are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with the requirements of
Securities and Exchange Commission Staff Accounting Bulletin No. 98 (the
"Bulletin"). The Bulletin requires nominal issuances of common stock be treated
in a manner similar to a stock split or stock dividend, for which retroactive
treatment is required under SFAS No. 128. For purposes of computing the impact
of potential shares as described in the Bulletin, the Company has assumed an
initial public offering price of $16 per share.
The following is a reconciliation of the numerators and denominators of the
pro forma basic earnings per share and pro forma diluted earnings per share:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
<S> <C> <C>
Pro Forma Basic Earnings Per Share ("EPS"):
Numerator..................................... $ 146,283 $4,312,795
Denominator -- Weighted Average Shares
Outstanding................................ 3,622,832 3,622,832
---------- ----------
Basic EPS..................................... $ 0.04 $ 1.19
========== ==========
Pro Forma Diluted Earnings Per Share:
Numerator..................................... $ 146,283 $4,312,795
---------- ----------
Denominator:
Weighted Average shares outstanding........ 3,622,832 3,622,832
Potential common shares outstanding........ 1,343,521 1,343,521
---------- ----------
Total......................................... 4,966,353 4,966,353
---------- ----------
Diluted EPS................................... $ 0.03 $ 0.87
========== ==========
</TABLE>
Historical earnings per share is not presented on the face of the
consolidated statements of income as such information is not meaningful.
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board recently issued SFAS No. 130, "Reporting Comprehensive Income," SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" and
SFAS No. 132, "Employees' Disclosures About Pensions and Other Post Retirement
Benefits." The effect of adopting these Statements is not expected to be
material to the Company's consolidated financial position or results of
operations.
F-10
<PAGE> 70
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION -- Various financial statement amounts for 1995, 1996 and
1997 have been reclassified to conform to the classifications used in the March
31, 1998 financial statements.
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------- -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements..................... $13,927,021 $17,050,196 $18,717,376
Furniture and equipment.................... 5,804,643 8,380,734 8,864,998
Automobiles and trucks..................... 208,266 247,950 305,463
Construction in progress................... 1,161,038 865,503 --
Leasehold interests........................ -- 165,000 165,000
----------- ----------- -----------
21,100,968 26,709,383 28,052,837
Less accumulated depreciation and
amortization............................. 7,610,664 8,741,879 10,163,787
----------- ----------- -----------
$13,490,304 $17,967,504 $17,889,050
=========== =========== ===========
</TABLE>
Depreciation and amortization (excluding amortization of goodwill) for the
fiscal years ended September 30, 1995, 1996 and 1997 aggregated $884,864,
$1,226,109 and $2,258,121, respectively. Depreciation and amortization
(excluding amortization of goodwill) for the six-month period ended March 31,
1998 aggregated $1,421,908.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------ -----------
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Merchandise received not invoiced......... $ 472,799 $1,576,413 $ 2,579,884
Fringe benefits........................... 376,557 660,790 1,377,520
Sales taxes payable....................... 513,543 616,764 1,027,987
Advertising............................... 342,308 900,952 1,540,767
Group insurance........................... 246,500 220,826 220,826
Compensation.............................. 845,577 1,422,106 2,118,208
Other..................................... 341,707 3,007,853 5,886,145
---------- ---------- -----------
$3,138,991 $8,405,704 $14,751,337
========== ========== ===========
</TABLE>
5. DEFERRED WARRANTY REVENUE
As part of the acquisition of Bryn Mawr in May of 1996, the Company assumed
deferred warranty revenue on Bryn Mawr's books at that time. Amortization of
deferred warranty revenue for the six months ended March 31, 1998 was $179,724.
Amortization of deferred warranty revenue for the
F-11
<PAGE> 71
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
5. DEFERRED WARRANTY REVENUE (CONTINUED)
years ended September 30, 1996 and 1997 was $253,529 and $468,418, respectively
(See Note 2). Self-funded extended warranty contract sales were $96,416 in the
year ended September 30, 1996.
As part of the acquisition of HiFi Buys on May 30, 1997, the Company
assumed the deferred warranty revenue and expense related to the sale of
self-funded extended warranty contracts on HiFi Buys' books at the date of the
acquisition. Amortization of deferred warranty revenue was $709,425 for the six
months ended March 31, 1998, and $478,145 for the year ended September 30, 1997
(See Note 2). Self-funded extended warranty contract sales were $276,720 in the
year ended September 30, 1997.
6. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------- -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Subordinated debt.......................... $ 1,000,000 $16,774,617 $16,574,617
Revolving term bank loan................... 9,700,000 14,500,000 15,100,000
----------- ----------- -----------
Subtotal................................... 10,700,000 31,274,617 31,674,617
Less current portion....................... -- 400,000 400,000
----------- ----------- -----------
$10,700,000 $30,874,617 $31,274,617
=========== =========== ===========
</TABLE>
On November 28, 1995, the Company entered into a loan agreement with a
bank. The agreement established a line of credit with a maximum balance of
$6,000,000 dependent upon the Company's inventory levels. Amounts outstanding
under the agreement bear interest at either the lender's base rate plus 1/4% or
the Eurodollar rate plus 2 1/4%, dependent upon the amount of advance
notification the Company gives to the bank.
On November 28, 1995, as part of a recapitalization, the Company
repurchased approximately 1,698,929 shares equalling 60% of its common stock
from the Company's then principal stockholder for cash and subordinated debt of
$550,017 and $1,000,000, respectively. The subordinated debt (the "Redemption
Note") carries interest at 10% and is due on December 31, 1998. Interest is
payable on a quarterly basis. The terms of the Redemption Note also require that
upon the closing of an initial public offering by the Company an additional
payment of $650,000 plus an amount equal to 9% interest per annum accruing from
November 28, 1995 to the date of such offering be made (approximately $814,000
at the estimated time of the effective date of this offering). Also on November
28, 1995, $363,590 of long-term debt due to officers and related parties was
converted to Series A Redeemable Convertible Preferred Stock ("Series A
Preferred Stock") as part of the recapitalization. On May 13, 1996, the
remaining balance of the long-term debt due to officers and related parties was
converted to Series A Preferred Stock as part of the recapitalization.
On May 13, 1996, in order to partially finance the acquisition of Bryn
Mawr, the Company amended its loan agreement with the bank. Among other things,
this amendment changed (a) the maximum balance from $6,000,000 to $12,000,000,
(b) the maturity date from September 30, 1997 to April 30, 1998, and (c) certain
financial covenants, the most restrictive of which continued to be the
maintenance of certain debt coverage and leverage ratios.
F-12
<PAGE> 72
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
6. DEBT (CONTINUED)
On March 7, 1997, the Company amended its loan agreement with the bank, and
entered into a Warrant and Debenture Commitment with certain of its
stockholders. This financing enabled the Company to borrow from the bank an
additional "Bridge Loan" of up to $2,000,000 due July 7, 1997. The proceeds of
these borrowings were used to fund store expansions. As a condition of providing
the Bridge Loan, the bank required a commitment from a third party to purchase
the Bridge Loan prior to maturity. Certain participating stockholders of the
Company entered into a Bridge Note Purchase Agreement with the bank, agreeing to
purchase upon a put by the bank or upon the Company's request 10% Convertible
Subordinated Debentures due 2000 (the "Debentures"), in an aggregate amount of
$2,000,000. The Debentures were never issued because the related Bridge Loan was
paid in full on May 30, 1997.
To induce the participating stockholders to enter into the Warrant and
Debenture Commitment, the Company issued warrants to the participating
stockholders for each month that they remained obligated under the Warrant and
Debenture Commitment. During the time that this commitment was in effect, the
Company issued warrants to purchase an aggregate of 37,138 shares of the
Company's common stock, with an exercise price of $6.46 per share and a term of
five years. The Company repaid the Bridge Loan on May 30, 1997, and the
obligations of the participating stockholders terminated under the Warrant and
Debenture Commitment.
On May 30, 1997, in order to partially finance the acquisition of HiFi
Buys, the Company replaced its loan agreement with the bank with a new senior
acquisition and working capital financing agreement. Among other things, this
new agreement changed (a) the maximum balance from $14,000,000 to $20,000,000,
(b) the maturity date from April 30, 1998 to June 1, 2000, and (c) certain
financial covenants, the most restrictive of which continued to be the
maintenance of certain debt coverage and leverage ratios. Amounts outstanding
under the agreement totaled $14,500,000 and $15,100,000 at September 30, 1997
and March 31, 1998, respectively, are collateralized by the Company's inventory
and certain other assets. The unpaid balances under this agreement bear interest
at the lender's base rate, or LIBOR plus 2% if the Company commits the balances
for a period of 30 days or more (8.16% at September 30, 1997 and 7.68% at March
31, 1998).
On May 30, 1997, as part of the acquisition of HiFi Buys, the Company
entered into a subordinated debt financing with the Seller, and issued a
$1,200,000 subordinated term note to the Seller, with principal payments made in
36 equal installments monthly. The unpaid principal balance bears an annual
interest rate of 9.5%. At September 30, 1997 and March 31, 1998, the unpaid
balance on this note was $1,100,000 and $900,000, respectively. In addition, the
Company issued warrants to the seller to purchase 104,960 shares of common stock
with a ten-year term and an exercise price of $8.08 per share.
On May 30, 1997, in order to partially finance the acquisition of HiFi
Buys, the Company entered into a senior subordinated debt financing with a group
of institutional investors, and issued $15,000,000 of senior subordinated
promissory notes (the "1997 Notes"), with warrants (see Note 11). The notes bear
an annual interest rate of 12% on the unpaid principal balance. Principal
payments under the notes are $5,000,000 due on May 30 of 2002, 2003, and 2004.
The notes may be prepaid in whole or in part at any time. The detachable
warrants issued with the notes are exercisable for up to 629,566 shares of the
Company's common stock, with an exercise price of $.01 per share. Because these
warrants had a fair value of $325,383, such discount was recorded on the debt.
The discount will accrete over the term of the debt.
F-13
<PAGE> 73
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
6. DEBT (CONTINUED)
Scheduled maturities under long-term debt, excluding the revolving term
bank loan, at March 31, 1998 were as follows:
<TABLE>
<S> <C>
Six months ended September 30, 1998......................... $ 200,000
Year ended September 30, 1999............................... 1,400,000
Year ended September 30, 2000............................... 300,000
Year ended September 30, 2001............................... --
Year ended September 30, 2002............................... 5,000,000
Thereafter.................................................. 10,000,000
-----------
Total............................................. $16,900,000
===========
</TABLE>
7. EMPLOYEE SAVINGS PLAN
In October 1985, the Company established an employee savings plan covering
all employees. Under the terms of the plan, which was adopted under Section
401(k) of the Internal Revenue Code, the Company can match employee
contributions. Such matching contributions cannot exceed the employer's
established annual percentage of compensation, which was a maximum of 6% for the
years ended September 30, 1995, 1996 and 1997. The Company's contribution
expense was $75,000, $75,000 and $100,000 for the years ended September 30,
1995, 1996 and 1997, respectively. The Company's contribution expense for the
six months ended March 31, 1998 was $75,000.
8. COMMITMENTS AND CONTINGENCIES
The Company leases all of its stores, installation centers, warehouses and
administrative facilities under operating leases. The lives of these leases
range from 5 to 20 years with varying renewal options. The leases provide for
base rentals, real estate taxes, common area maintenance charges and, in some
instances, for the payment of percentage rents based on sales volume. Rent
expense for the six months ended March 31, 1998 was $4,332,171. Rent expense for
the years ended September 30, 1995, 1996 and 1997 was $2,054,250, $3,163,095 and
$5,978,819, respectively. Percentage rent expense was $53,657 for the six months
ended March 31, 1998. Percentage rent expense was $82,379, $64,964 and $47,243
for the years ended September 30, 1995, 1996 and 1997, respectively.
Future minimum rental commitments on operating leases as of March 31, 1998
are as follows:
<TABLE>
<S> <C>
Six months ended September 30, 1998......................... $ 4,177,508
Year ended September 30, 1999............................... 8,118,044
Year ended September 30, 2000............................... 7,931,735
Year ended September 30, 2001............................... 7,601,751
Year ended September 30, 2002............................... 7,188,791
Thereafter.................................................. 41,903,750
-----------
Total............................................. $76,921,579
===========
</TABLE>
F-14
<PAGE> 74
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On March 25, 1998 the Company entered into a purchase and sale agreement
for a facility in Massachusetts that will serve as the corporate headquarters,
service center and distribution center in Massachusetts. The Company expects the
purchase price and related building improvements to be approximately $5.3
million, and expects to finance the purchase with a mortgage of $4 million.
Effective upon the consummation of the offering contemplated in this
Prospectus, the Company will enter into employment agreements with certain key
employees. These agreements provide for continued employment with termination by
either party. Under certain circumstances, the key employees could receive up to
an amount equal three times annual base salary.
9. INCOME TAXES
The provision (benefit) for income taxes under SFAS No. 109 consisted of
the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- ----------- ------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ -- $ 563,777 $21,821 $654,881 $2,322,446
State.............................. -- 160,195 6,101 162,773 657,499
--------- ----------- ------- -------- ----------
-- 723,972 27,922 817,654 2,979,945
Deferred:
Current deferral................... (173,498) (176,615) 71,040 58,683 (104,747)
Tax rate increase on temporary
differences resulting from the
revocation of the S Corporation
election......................... -- (1,000,805) -- -- --
--------- ----------- ------- -------- ----------
$(173,498) $ (453,448) $98,962 $876,337 $2,875,198
========= =========== ======= ======== ==========
</TABLE>
F-15
<PAGE> 75
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
9. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences comprising the
Company's current and long-term net deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------- -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accruals and reserves....................... $ 395,971 $ 574,272 $ 706,751
Deferred revenue............................ 200,483 646,209 569,269
----------- ----------- -----------
Net deferred tax assets -- current.......... 596,454 1,220,481 1,276,020
----------- ----------- -----------
Deferred rent............................... 883,344 1,036,466 1,143,208
Depreciation................................ 824,699 854,091 1,075,091
Deferred revenue............................ 278,521 931,364 665,999
Amortization and other...................... (1,232,100) (2,762,524) (2,775,693)
----------- ----------- -----------
Net deferred tax assets -- long-term........ 754,464 59,397 108,605
----------- ----------- -----------
Total net deferred tax assets............... $ 1,350,918 $ 1,279,878 $ 1,384,625
=========== =========== ===========
</TABLE>
The Company has determined that it is more likely than not that it will
fully realize the deferred tax assets. Consequently, no valuation allowance was
established as of September 30, 1996, September 30, 1997 and March 31, 1998. A
reconciliation between the statutory and effective income tax rates is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------- --------------------------
1996 1997 1997 1998
----- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statutory income tax rate...... 34.0% 34.0% 34.0% 34.0%
State income taxes net of
federal benefit.............. 5.8% 5.8% 5.8% 5.8%
Change in tax status........... (74.9)% 0.0% 0.0% 0.0%
Other.......................... 1.2% 0.5% 0.5% 0.2%
----- ---- ---- ----
Effective income tax rate...... (33.9)% 40.3% 40.3% 40.0%
===== ==== ==== ====
</TABLE>
The Company was taxed under Subchapter S of the Internal Revenue Code for
1995. The significant items included in the reconciliation between the statutory
and effective state income tax rate for that year were primarily attributable to
changes in the valuation allowance.
10. ACQUISITIONS
BRYN MAWR -- On May 13, 1996, the Company acquired the principal operating
assets and assumed certain liabilities of Bryn Mawr. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to Bryn Mawr have been included in the statements of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $5,600,900, which is being amortized over
twenty-five years
F-16
<PAGE> 76
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
10. ACQUISITIONS (CONTINUED)
using the straight-line method. The net assets acquired at fair market value on
May 13, 1996 were allocated as follows:
<TABLE>
<S> <C>
Inventory............................................... $5,043,100
Property and equipment.................................. 6,860,400
Other assets............................................ 837,800
Accounts payable and accrued expenses................... (9,689,300)
----------
Net assets acquired................................ 3,052,000
Total purchase price and related costs.................. 8,652,900
----------
Goodwill........................................... $5,600,900
==========
</TABLE>
HIFI BUYS -- On May 31, 1997, the Company acquired the principal operating
assets and assumed certain liabilities of HiFi Buys. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to HiFi Buys have been included in the statement of
income since the acquisition date. The allocation of the purchase price is final
and resulted in goodwill of $15,312,500, which is being amortized over
twenty-five years using the straight-line method. The net assets acquired at
fair market value on May 30, 1997 were allocated as follows:
<TABLE>
<S> <C>
Inventory............................................. $ 9,273,400
Property and equipment................................ 2,771,700
Accounts receivable................................... 1,428,800
Other assets.......................................... 236,500
Accounts payable and accrued expenses................. (9,483,100)
-----------
Net assets acquired................................. 4,227,300
Total purchase price and related costs (see Note
11)................................................. 19,539,800
-----------
Goodwill............................................ $15,312,500
===========
</TABLE>
The following unaudited pro forma financial information reflects the
consolidated results of operations for the Company for the years ended September
30, 1996 and 1997 as though the acquisitions had occurred on the first day of
each fiscal year. The pro forma operating results are presented for comparative
purposes only and do not purport to present the Company's actual operating
results had the acquisitions been consummated on October 1, 1995 or results
which may occur in the future.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net Sales............................ $207,359,183 $196,462,686
Net Income........................... 1,441,943 636,698
Diluted Earnings per share........... 0.28 0.13
</TABLE>
Accumulated amortization of goodwill was $899,000 for the six months ended
March 31, 1998. Accumulated amortization of goodwill was approximately $64,000
and $476,000 for the years ended September 30, 1996 and 1997, respectively.
F-17
<PAGE> 77
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
11. STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
COMMON STOCK -- Holders of common stock are entitled to dividends if
declared by the Board of Directors, and each share carries one vote. The common
stock has no cumulative voting, redemption or preemptive rights.
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK -- The holders of
preferred stock are entitled to significant additional rights beyond those
granted to the common stock. Some of these rights are as follows:
Voting Rights -- Each share of preferred stock is entitled to one vote
for each share of common stock into which it is then convertible.
Representative Directors -- Holders of a majority of the shares of
preferred stock and Investor Common Stock (as defined in the Company's
Certificate of Incorporation (the "Charter"), voting separately as a class,
are entitled to elect two members of the Board of Directors. Holders of
preferred stock are also entitled to elect additional members of the Board
of Directors under certain circumstances.
Conversion Provisions -- All shares of preferred stock are
automatically convertible into common stock upon the completion of a public
offering resulting in net proceeds to the Company of not less than
$15,000,000. As of September 30, 1997 and March 31, 1998, the conversion
price under most circumstances of a share of Series A Preferred Stock is
$6.46. The conversion price of a share of Series B Redeemable Convertible
Preferred Stock (the "Series B Preferred Stock") at September 30, 1997 and
March 31, 1998 is $8.08.
Dividends -- No dividends shall be paid on the common stock unless the
shares of preferred stock receive the same dividends that such shares would
have received had they been converted into common stock prior to the record
date for such dividend.
Liquidation Preference -- In the event of involuntary liquidation,
dissolution or winding up of the Company, each holder of Series A Preferred
Stock and Series B Preferred Stock is entitled to receive, prior and in
preference to any distribution of any assets to holders of any other
capital stock of the Company, the sum of (a) $6.46 and/or $8.08 for each
share of Series A Preferred Stock and Series B Preferred Stock,
respectively, plus (b) an amount in the form of a dividend equal to a 15%
rate of return on each holder's investment compounded annually from the
date of original issuance.
Redemption Provisions -- Preferred Stock is redeemable if (a) such
redemption would not violate any of the existing subordination agreements
between the Company and its Senior Lender, (as such term is defined in the
Charter), and (b) the Company has the consent of the holders of the 1997
Notes. Mandatory redemption of 6.5% of the total outstanding shares of
Preferred Stock, is required to occur on the last day of March, June,
September and December commencing in 2001. The redemption price is equal to
$6.46 for each share of Series A Preferred Stock and $8.08 for each share
of Series B Preferred Stock, plus an amount in the form of a dividend equal
to a 15% rate of return on such holder's investment compounded annually and
calculated from the original issue date.
Reserved Shares -- As of September 30, 1997, and March 31, 1998 there
were 2,566,561 shares of common stock reserved for issuance upon conversion
of the preferred stock, 855,400 shares of common stock reserved for
issuance upon the exercise of options granted under the
F-18
<PAGE> 78
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
11. STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
Company's 1995 Stock Option Plan, and 771,664 shares of common stock
issuable upon the exercise of outstanding warrants.
On November 28, 1995 the Company purchased 1,698,929 shares of common stock
from the former stockholders for net proceeds of $5,469,108 from private venture
capital sources and related parties, for $1,550,017 in cash and the Redemption
Note. The terms of the subordinated debt also require that upon the closing of
an initial public offering by the Company an additional payment of $650,000 plus
an amount equal to 9% interest per annum accruing on such amount from November
28, 1995 to the date of such offering be made (approximately $814,000 at the
estimated time of the effective date of this offering). Also on November 28,
1995, the Company authorized and issued 4,000,000 and 911,781 shares,
respectively, of Series A Preferred Stock.
On January 16, 1996, the Board of Directors authorized a 10-for-1 stock
split. All share data in these financial statements reflect the impact of the
split.
On May 13, 1996, the Company issued an additional 788,349 shares of Series
A Preferred Stock for net proceeds to the Company of $5,091,818 in order to
partially finance the acquisition of Bryn Mawr.
During the period from March 7, 1997 through May 30, 1997, the Company
issued warrants to purchase 37,132 shares of common stock to certain
stockholders who participated in a Warrant and Debenture Commitment relating to
a Bridge Loan financing (see Note 6). The warrants have a five-year term and an
exercise price of $6.46 per share. The Company hired an independent appraiser to
determine the fair value of the warrants as of the issue date. The warrants were
issued at or above the fair value of the underlying stock; consequently, the
Company has not assigned value to nor recorded an expense for this warrant
issuance. All of the warrants issued as part of this transaction were
outstanding and exercisable at September 30, 1997 and March 31, 1998.
On May 30, 1997, the Company issued 866,425 shares of Series B Preferred
Stock for net proceeds to the Company of $6,837,385 in order to partially
finance the acquisition of HiFi Buys. Series B Preferred Stock is subject to
essentially the same terms and conditions as the Series A Preferred Stock,
except that the conversion price of Series B Preferred Stock is $8.08 per share.
On May 30, 1997, the Company issued warrants to purchase 629,566 shares of
common stock in connection with a subordinated debt offering in order to
partially finance the acquisition of HiFi Buys. The warrants have a ten-year
term, an exercise price of $.01, and are subject to certain transfer
restrictions. The Company hired an independent appraiser to determine the fair
value of the warrants as of the issue date. That value was appraised to be
$0.517 per share. Accordingly, the Company placed an aggregate value on the
warrants of $325,383. All of the warrants issued as part of this transaction are
outstanding as of September 30, 1997 and March 31, 1998. These warrants are
exercisable five years from the date of issue, or earlier if the Company
completes an initial public offering with net cash proceeds in excess of $15
million.
On May 30, 1997, the Company issued warrants to purchase 104,960 shares of
common stock in connection with the subordinated debt issued to the Seller of
HiFi Buys. The warrants have a term of (a) ten years from the date of issuance,
or (b) five years from the date of a qualified initial public offering. The
Company hired an independent appraiser to determine the fair value of the
warrants as
F-19
<PAGE> 79
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
11. STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
of the issue date. The warrants were issued at or above the fair value of the
underlying stock; consequently, the Company has not assigned value to nor
recorded an expense for these warrants. The warrants have an exercise price of
$8.08 per share and are outstanding and exercisable at September 30, 1997 and
March 31, 1998.
The weighted average exercise price for all warrants outstanding at
September 30, 1997 and March 31, 1998 is $1.42. The following table summarizes
information regarding stock warrants outstanding at March 31, 1998:
<TABLE>
<CAPTION>
NUMBER
OUTSTANDING WEIGHTED
AVERAGE AND EXERCISABLE AVERAGE
EXERCISE AT MARCH 31, REMAINING
PRICES 1998 LIFE (YEARS)
-------- --------------- ------------
<S> <C> <C>
$0.01......................................... 629,566 9.20
6.46......................................... 37,138 8.90
8.08......................................... 104,960 9.20
------- ----
771,664 9.20
=======
</TABLE>
COMMON STOCK INCENTIVE PLAN -- In November of 1995, the Company implemented
the 1995 Stock Option Plan, under which incentive and nonqualified stock options
may be granted to management, key employees and outside directors to purchase
shares of the Company's common stock. The exercise price for incentive stock
options for employees and nonqualified options for outside directors range from
$.61 to $6.46 per share. Options are generally exercisable over a period from
one to ten years from the date of the grant and are dependent on the vesting
schedule associated with the grant.
Options for 388,779, 568,274 and 617,479 shares were exercisable under the
1995 Stock Option Plan at September 30, 1996 and 1997 and March 31, 1998,
respectively. There were 26,745, 30,438 and 10,431 shares available for future
grants at September 30, 1996 and 1997 and March 31, 1998, respectively.
F-20
<PAGE> 80
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
11. STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
The following summarizes transactions under the 1995 Stock Option Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER PER SHARE EXERCISE
OF SHARES OPTION PRICE PRICE
--------- -------------- --------
<S> <C> <C> <C>
October 1, 1995..................... -- -- --
Granted........................... 604,424 $0.61 to $7.10 $2.31
Exercised......................... -- -- --
Canceled.......................... -- -- --
---------
September 30, 1996.................. 604,424 $0.61 to $7.10 $2.31
Granted........................... 232,602 $6.46 to $8.08 $7.59
Exercised......................... --
Canceled.......................... 11,289 $0.61 to $6.46 $1.77
---------
September 30, 1997.................. 825,737 $0.61 to $8.08 $3.72
Granted........................... 29,604 $7.24 $7.24
Exercised.........................
Canceled.......................... 10,282 $0.61 to $7.24 $3.24
---------
March 31, 1998 (unaudited).......... 845,059 $0.61 to $8.08 $3.97
=========
</TABLE>
The following summarizes information about all stock options outstanding at
March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF
NUMBER AVERAGE OPTIONS
OUTSTANDING REMAINING EXERCISABLE
EXERCISE AT MARCH 31, CONTRACTUAL AT MARCH 31,
PRICES 1998 LIFE (YEARS) 1998
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
$0.61............................... 215,676 7.9 172,157
0.67............................... 111,878 8.0 111,878
1.52............................... 107,584 7.8 107,584
6.46............................... 133,023 8.2 93,562
7.10............................... 44,148 8.3 44,148
7.24............................... 179,860 9.4 35,260
8.08............................... 52,890 9.4 52,890
--------- -------
Total............................... 845,059 8.38 617,479
========= =======
</TABLE>
The weighted average exercise price of all options outstanding as of
September 30, 1997 and March 31, 1998 is $3.72 and $3.97, respectively.
For purposes of determining the disclosure required by SFAS No. 123, the
fair value of each stock option granted in 1996, 1997 and 1998 under the
Company's 1995 Stock Option Plan was
F-21
<PAGE> 81
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
11. STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
estimated on the date of grant using the Black-Scholes option-pricing model. Key
assumptions used to apply this pricing model were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
SEPTEMBER 30, ENDED
-------------- MARCH 31,
1996 1997 1998
----- ----- ----------
<S> <C> <C> <C>
Risk free interest rate.................................. 6.21% 5.69% 5.67%
Expected life of option grants (years)................... 5.0 4.0 3.0
Expected volatility of underlying stock.................. 54.5% 54.5% 54.5%
</TABLE>
Had compensation cost for stock option grants during fiscal 1996, fiscal
1997 and the six months ended March 31, 1998 been determined under the
provisions of SFAS No. 123, the Company's net income would have been
approximately $1,763,000, $106,700 and $4,252,000, respectively. Pro forma
diluted earnings per share would have been $0.02 and $0.86 for the year ended
September 30, 1997 and the six months ended March 31, 1998, respectively.
12. RELATED PARTY TRANSACTIONS
In May 1996, in connection with the acquisition of Bryn Mawr, the company
entered into a consulting agreement with Bryn Mawr's former owner and a former
director of the Company ("BMFO") for a term of four years (the "Consulting
Period"). This consulting agreement was amended as of April 23, 1997 and
currently the Company is obligated to pay BMFO approximately $21,000 a month
during the first year after the commencement date of the agreement, and
approximately $4,200 a month during years three and four of the Consulting
Period plus out-of-pocket expenses. Aggregate payments under the agreement are
expensed on a straight-line basis over the Consulting Period.
The Company also entered into certain lease agreements for three facilities
in Pennsylvania with an affiliate of BMFO. Aggregate yearly payments under these
agreements total approximately $670,000.
F-22
<PAGE> 82
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with the historical consolidated financial statements and
the notes thereto included elsewhere in this Prospectus.
The Pro Forma Condensed Consolidated Statement of Operations for the year
ended September 30, 1997 reflects financial information with respect to the
Company's acquisition of HiFi Buys on May 30, 1997, which has been accounted for
under the purchase method of accounting. The Pro Forma Condensed Consolidated
Statement of Operations for the year ended September 30, 1997 was prepared as if
the acquisition of HiFi Buys occurred on October 1, 1996, the first day of
fiscal 1997.
The Pro Forma Condensed Consolidated Statements of Operations for fiscal
1997 do not include any potential operational costs savings, with the exception
of the reduction of the workforce of HiFi Buys that took place at the time of
the acquisition. The Company believes that it may be able to further reduce
operational costs as it consolidates the HiFi Buys operations into the Company.
There can be no assurance that the Company will be successful in effecting any
such costs savings.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated financial position and results
which actually would have occurred if the acquisition of HiFi Buys had been
consummated as of the date presented, nor does it purport to present the
financial position or results of operations of the Company for future periods.
F-23
<PAGE> 83
TWEETER HOME ENTERTAINMENT GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HIFI BUYS
COMPANY EIGHT MONTHS ENDED PRO FORMA
HISTORICAL 5/30/97 SUBTOTAL ADJUSTMENTS PRO FORMA
------------ ------------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Total Revenue.......... $132,525,037 $ 63,937,649 $ 196,462,686 $ -- $ 196,462,686
Cost Of Sales.......... (86,314,918) (45,168,763) (131,483,681) (131,483,681)
------------ ------------ ------------- -------------
Gross Profit........... 46,210,119 18,768,886 64,979,005 64,979,005
(1,574,323)(1)
Operating Expenses..... 44,157,214 17,842,958 62,000,172 408,333(2) 60,834,183
------------ ------------ ------------- -------------
Income (Loss) From
Operations........... 2,052,905 925,928 2,978,833 4,144,822
1,276,000(3)
Interest Expense....... 1,807,660 437,773 2,245,433 (437,773)(4) 3,083,660
------------ ------------ ------------- -------------
Income (loss) before
income taxes......... 245,245 488,155 733,400 1,061,162
Income tax expense
(benefit)............ 98,962 0 98,962 325,503(5) 424,465
------------ ------------ ------------- ----------- -------------
Net income............. $ 146,283 $ 488,155 $ 634,438 $ (2,260) $ 636,697
============ ============ ============= =========== =============
Pro Forma
Information..........
Basic Earnings per
Share................ 0.04 0.18
Weighted Average
Shares,
Outstanding.......... 3,622,832 3,622,832
Diluted Earnings per
Share................ 0.03 0.13
Weighted Average Shares
and Common
Equivalents
Outstanding.......... 4,966,353 4,966,353
</TABLE>
F-24
<PAGE> 84
TWEETER HOME ENTERTAINMENT GROUP, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(1) To record the prorated eight-month savings associated with the closing down
of the corporate offices of HiFi Buys. This resulted in the immediate
termination of 43 positions, and as part of the purchase and sale agreement
severance costs for these positions were borne by the seller.
(2) To record the amortization of goodwill associated with the acquisition of
HiFi Buys for a full fiscal year. See Note 10 to the Consolidated Financial
Statements.
(3) To record interest expense for the $15,000,000 senior subordinated
promissory notes and the $1,200,000 subordinated term note for the full
fiscal year. Both notes were issued in connection with the acquisition of
HiFi Buys. See Note 6 to the Consolidated Financial Statements.
(4) To eliminate interest expense recorded by HiFi Buys associated with (i) a
HiFi Buys mortgage not assumed as part of the HiFi Buys acquisition and (ii)
a line of credit that was replaced with the financing mentioned in (2).
(5) To reflect an effective tax rate of 40%, representing management's estimate
of the effective tax rate had HiFi Buys been a C corporation for the period
presented.
F-25
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
HiFi Buys Incorporated
We have audited the accompanying statements of operations and cash flows of
HiFi Buys Incorporated (the "Company") for the years ended December 31, 1996,
1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of the Company for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
/s/DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 7, 1997
F-26
<PAGE> 86
HIFI BUYS INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................. $93,227,100 $89,452,900 $78,305,300 $20,853,581 $21,491,067
COST OF GOODS SOLD........ 67,368,800 64,608,800 56,547,400 14,619,834 15,239,827
----------- ----------- ----------- ----------- -----------
25,858,300 24,844,100 21,757,900 6,233,747 6,251,240
OPERATING EXPENSES:
Selling, general, and
administrative....... 23,367,600 22,007,600 19,374,500 5,896,816 5,735,997
Depreciation and
amortization......... 991,900 972,100 870,900 269,894 215,771
----------- ----------- ----------- ----------- -----------
24,359,500 22,979,700 20,245,400 6,166,710 5,951,768
----------- ----------- ----------- ----------- -----------
OPERATING INCOME.......... 1,498,800 1,864,400 1,512,500 67,037 299,472
INTEREST EXPENSE.......... 519,600 491,500 352,100 145,265 115,671
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)......... $ 979,200 $ 1,372,900 $ 1,160,400 $ (78,228) $ 183,801
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 87
HIFI BUYS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................ $ 979,200 $ 1,372,900 $ 1,160,400 $ (78,228) $ 183,801
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 991,900 972,100 870,900 269,894 215,771
Deferred product warranty revenues and
related costs, net................... 356,700 304,600 78,400 86,989 75,798
Gain on the sale of property and
equipment............................ (80,300) (19,500) -- --
Change in operating assets and
liabilities:
Accounts receivable, net............. 201,200 (276,100) (19,400) (260,081) (511,245)
Inventories.......................... (1,568,100) 638,500 (2,086,600) 2,412,644 1,374,132
Prepaid expenses and other assets.... (103,900) (84,800) (73,400) 127,159 (157,674)
Accounts payable and accrued
expenses........................... 2,714,100 (2,544,700) 2,238,100 (5,879,764) (2,439,064)
Customer deposits.................... (215,900) 318,800 107,000 (13,200) (353,673)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities....................... 3,355,200 621,000 2,255,900 (3,334,587) (1,612,154)
INVESTING ACTIVITIES:
Purchase of property and equipment....... (3,632,100) (1,969,000) (549,000) (80,118) (795,584)
Proceeds from sale of property and
equipment.............................. -- 141,900 60,100 -- --
Sale (purchase) of short-term
investment............................. -- 600,000 (600,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities....................... (3,632,100) (1,227,100) (1,088,900) (80,118) (795,584)
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of
credit................................. (770,400) 957,600 (1,689,000) -- --
Proceeds from long-term borrowings....... 2,945,000 566,300 600,000 4,539,122 3,346,614
Payments on long-term borrowings......... (1,089,000) (67,500) (67,200) -- --
Payment for repurchase of common stock... -- (105,000) -- -- --
Proceeds from the issuance of common
stock.................................. -- -- 500,000 -- --
Dividends paid........................... (854,800) (721,100) (516,500) (701,947) (626,027)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............. 230,800 630,300 (1,172,700) 3,837,175 2,720,587
NET (DECREASE) INCREASE IN CASH............ (46,100) 24,200 (5,700) 422,470 312,849
CASH:
Beginning of year........................ 62,900 38,700 44,400 16,800 62,900
----------- ----------- ----------- ----------- -----------
End of year.............................. $ 16,800 $ 62,900 $ 38,700 $ 439,270 $ 375,749
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the year (net of
amounts capitalized)................... $ 456,200 $ 465,500 $ 353,200 $ 145,265 $ 115,670
=========== =========== =========== =========== ===========
Equipment purchased through note
payable................................ $ -- $ 354,600 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Common stock repurchased through note
payable................................ $ -- $ 102,800 $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 88
HIFI BUYS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
ENDED MARCH 31, 1997 AND 1996
(UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
1996)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HiFi Buys Incorporated (the "Company") sells consumer electronics through
its ten retail stores in Georgia. Its significant accounting policies are:
INVENTORIES -- Inventories are stated at the lower of average cost or
market. Cost includes certain warehousing and distribution costs which have been
capitalized in inventories.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation is computed using accelerated methods based on the estimated useful
lives of the related assets. Amortization of leasehold improvements is computed
on the straight-line method over the shorter of the estimated useful lives or
the lease terms.
REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
COST OF GOODS SOLD -- Cost of goods sold represents the cost of the
inventory as well as substantially all warehousing and distribution costs.
INCOME TAXES -- The Company elected to be treated as an S Corporation for
federal and state income tax purposes.
STORE OPENING COSTS -- Costs associated with opening new stores are
expensed as incurred.
INTEREST -- In 1996, approximately $61,600 of interest incurred during the
construction of a new store was capitalized into the cost basis of the
constructed property. No interest costs were capitalized in 1995 or 1994.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS -- On an ongoing basis, the Company evaluates the
carrying value of its long-lived assets based upon estimated future undiscounted
cash flows relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships.
2. ACCOUNTING FOR PRODUCT WARRANTY REVENUES AND RELATED COSTS
Since 1988, the Company has offered and sold extended warranty contracts
(the "Contracts") under a Company-administered and self-insured program. The
terms of these Contracts generally extend from one to five years from their
purchase dates. Revenues from Contract sales are deferred and amortized into
income on a straight-line basis over the lives of the related Contracts (the
average life of Contracts sold by the Company is approximately four years).
Certain costs of such sales, principally sales commissions, are deferred and
amortized similarly; costs for product repairs are expensed as incurred.
F-29
<PAGE> 89
HIFI BUYS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
ENDED MARCH 31, 1997 AND 1996
(UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
1996)
An analysis of product warranty sales and the associated product repair
expense is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
1996 1995 1994 1997 1996
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product warranty:
Contracts sold............... $1,908,800 $1,625,100 $1,456,400 $474,000 $436,000
========== ========== ========== ======== ========
Revenue recognized........... $1,535,600 $1,372,200 $1,410,300 $410,200 $351,000
========== ========== ========== ======== ========
Related costs of product
warranty sales:
Deferred..................... $ 233,300 $ 150,700 $ 166,400 $ 52,300 $ 53,300
========== ========== ========== ======== ========
Expensed..................... $ 216,800 $ 202,500 $ 198,800 $ 58,700 $ 49,600
========== ========== ========== ======== ========
Product repair expense......... $ 377,600 $ 230,200 $ 224,000 $130,600 $116,800
========== ========== ========== ======== ========
</TABLE>
3. INCOME TAXES
The Company has elected to be treated as an S Corporation under Section
1362(a) of the Internal Revenue Code and to have its income taxed directly to
its stockholders. As a result of this election, the statements of operations for
the years ended December 31, 1996, 1995 and 1994 do not include a provision for
income taxes. Had this election not been made, the Company's net income in 1996,
1995 and 1994 would have been reduced by approximately $391,700, $549,200 and
$464,200, respectively, for federal and state income taxes. Similarly, had this
selection not been made, net income (loss) in the three months ended March 31,
1997 and 1996 would have been (increased)/reduced by approximately ($31,291) and
73,520, respectively (unaudited).
4. COMMITMENTS
The Company leases office, warehouse, and retail space under various
noncancelable operating leases. Total annual minimum rental payments at December
31, 1996 for all noncancelable operating leases with terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1997.................................................. $ 2,483,300
1998.................................................. 2,252,200
1999.................................................. 2,235,000
2000.................................................. 2,258,400
2001.................................................. 2,067,900
Thereafter............................................ 11,022,200
-----------
$22,319,000
===========
</TABLE>
Under a sublease agreement for certain retail space, the Company will
receive approximately $82,800 in annual minimum rental payments through 2003.
F-30
<PAGE> 90
HIFI BUYS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE THREE-MONTH PERIODS
ENDED MARCH 31, 1997 AND 1996
(UNAUDITED WITH RESPECT TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND
1996)
Rent expense consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
1996 1995 1994 1997 1996
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Minimum rent................... $2,633,300 $2,567,400 $2,096,400 $649,800 $658,300
Contingent rent................ -- 21,700 39,400 -- --
Sublease income................ (82,800) (82,800) (82,800) (20,700) (20,700)
---------- ---------- ---------- -------- --------
Total rent expense... $2,550,500 $2,506,300 $2,053,000 $629,100 $637,600
========== ========== ========== ======== ========
</TABLE>
Most leases provide for additional payments of real estate taxes and other
operating expenses applicable to the property. Such expenses are recorded as a
component of minimum rent.
5. EMPLOYEE BENEFIT PLAN
The Company maintains a retirement plan (the "Plan") covering substantially
all of its employees. Employees who are over the age of 21 and who have
completed their first year of service with the Company are eligible to be
admitted to the Plan during the open enrollment period. The Plan provides for a
discretionary profit sharing contribution as well as discretionary matching of
participant contributions by the Company. Participants are fully vested in their
contributions to the Plan and become 40% and 100% vested in the Company's profit
sharing and matching contributions after four and five years, respectively. The
Company's profit sharing and matching contributions were $117,900, $92,200 and
$68,700 for the years ended December 31, 1996, 1995 and 1994, respectively and
approximately $30,000 and $29,500 for the three months ended March 31, 1997 and
1996, respectively.
6. SUBSEQUENT EVENT
In February 1997, the Company entered into a nonbinding letter of intent
for the sale of substantially all of its assets.
F-31
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bryn Mawr Radio and Television Centre, Inc.
We have audited the combined statements of operations and cash flows of
Bryn Mawr Radio and Television Centre, Inc. and affiliate (the "Company") for
the year ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined results of operations and combined cash flows of the
Company for the year ended August 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the combined financial statements, on May 9,
1996, the Company sold substantially all of its assets to an unrelated party.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
October 20, 1995 (May 9, 1996 as to Note 2)
F-32
<PAGE> 92
BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, FEBRUARY 29, FEBRUARY 28,
1995 1996 1995
----------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET SALES....................................... $29,020,487 $19,098,609 $17,712,637
COST OF SALES................................... 18,631,960 12,370,459 11,410,268
----------- ----------- -----------
GROSS PROFIT.................................... 10,388,527 6,728,150 6,302,369
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 10,945,401 5,912,217 5,818,914
OTHER REVENUE................................... 255,882 81,683 125,456
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS................... (300,992) 897,616 608,911
INTEREST EXPENSE ON DEBT AND CAPITAL LEASES..... 300,989 310,640 146,474
INCOME TAXES (STATE)............................ 4,000 -- --
----------- ----------- -----------
NET (LOSS) INCOME............................... $ (605,981) $ 586,976 462,437
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 93
BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, 1995 FEBRUARY 29, 1996 FEBRUARY 28, 1995
--------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income..................... $ (605,981) $ 586,976 $ 462,437
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization...... 610,481 485,891 255,082
Changes in assets and liabilities
which (used) provided cash:
Accounts receivable................ (180,712) (182,870) (167,453)
Inventories........................ 101,914 (1,221,898) (778,459)
Prepaid expenses and other
assets........................... 25,747 (114,473) (283,681)
Accounts payable and accrued
expenses......................... (557,335) 2,952,726 1,124,126
Deferred revenue................... (156,329) 46,156 (7,391)
Customer deposits.................. 90,128 70,171 121,553
----------- ----------- -----------
Net cash (used in) provided by
operating activities........ (672,087) 2,622,679 726,214
----------- ----------- -----------
INVESTING ACTIVITIES -- Acquisition of
net property, plant and equipment..... (6,776,579) (3,273,258) (3,742,066)
----------- ----------- -----------
FINANCING ACTIVITIES:
Capital contributions................. 100,000 -- --
Distribution to shareholders.......... (265,860) (1,950,817) (1,902,191)
Principal payments on capital leases
and term loans..................... (245,451) (122,726) (110,453)
Net prepayments of proceeds from bank
line of credit..................... (1,600,000) -- --
Net borrowings under revolving credit
facility........................... 2,950,000 -- --
Borrowings under term loan facility... 1,900,000 3,005,496 4,697,829
Proceeds from construction loan
agreements......................... 4,089,262 -- --
----------- ----------- -----------
Net cash provided by financial
activities.................. 6,927,951 931,953 2,685,185
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... (520,715) 281,374 (330,667)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................. 711,163 190,448 711,163
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR.................................. $ 190,448 471,822 380,496
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
ITEMS:
Cash paid during the year for:
Interest........................... $ 300,989 $ 373,057 $ 70,125
=========== =========== ===========
Income taxes....................... $ 23,873 $ -- $ --
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-34
<PAGE> 94
BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The financial statements are combined and include
the accounts of Bryn Mawr Radio and Television Centre, Inc. and BMS of Delaware,
Inc. (collectively, the "Company") which are under common ownership. All
significant balances and transactions between the companies have been
eliminated.
BMS of Delaware, a Delaware Holding Company, was incorporated in 1991, and
its shareholders are the same as Bryn Mawr Radio and Television Centre, Inc.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be temporary
investments and cash equivalents for balance sheet and cash flow statement
purposes.
INVENTORIES -- Inventories are stated at the lower of cost (average-cost
basis) or market.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization are computed
by the straight-line method over the estimated useful lives of the respective
assets. Amortization of improvements to leased properties is based upon the
remaining terms of the leases or the estimated useful lives of such
improvements, whichever is shorter.
OTHER ASSETS -- Goodwill and other acquisition costs are being amortized on
a straight-line basis over periods from six to ten years.
DEFERRED REVENUE -- The Company sells extended warranty contracts beyond
the normal manufacturer's warranty period, usually with terms of coverage
(including the manufacturer's warranty period) between twelve and sixty months.
All revenue from the sale of extended warranty contracts is deferred, and the
revenue is amortized on a straight-line basis over the contract period. All
costs related to the contracts are charged to expense when incurred.
REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair is
completed.
INCOME TAXES -- Effective September 1, 1987, the shareholders elected to
have the Company taxed as an S Corporation for federal and certain state
corporate income tax purposes.
STORE OPENING COSTS -- The costs of opening new stores are expensed as
incurred.
CAPITAL LEASES -- The amount of amortization of assets recorded under
capital leases is included with depreciation expense.
LONG-LIVED ASSETS -- On an ongoing basis, the Company evaluates the
carrying value of its long-lived assets based upon estimated future undiscounted
cash flows relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships.
2. SUBSEQUENT EVENT
On March 15, 1996, the Company entered into an agreement to sell
substantially all of the assets of the Company to an unrelated party. The
consummation of this transaction is expected to occur on or about May 9, 1996.
F-35
<PAGE> 95
BRYN MAWR RADIO AND TELEVISION CENTRE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
YEAR ENDED AUGUST 31, 1995 AND SIX-MONTH PERIODS ENDED
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(UNAUDITED WITH RESPECT TO THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995)
3. DEFERRED REVENUE
Extended warranty contract sales were approximately $531,000 in the year
ended August 31, 1995 and $375,000 and $337,000 in the six-month periods ended
February 29, 1996 and February 28, 1995, respectively. Amortization of the
deferred revenue was approximately $688,000 in the year ended August 31, 1995
and $324,000 and $292,000 in the six-month periods ended February 29, 1996 and
February 28, 1995, respectively. (See Note 1.)
4. EMPLOYEE BENEFIT PLANS
The Company has a qualified profit sharing plan covering eligible employees
which provides for contributions at the discretion of the Board of Directors and
also contains a 401(k) feature which provides for salary reduction and certain
employer-matching contributions. Profit sharing plan contributions were $20,000
for the year ended August 31, 1995 and $10,000 for each of the six-month periods
ended February 29, 1996 and February 28, 1995.
5. COMMITMENTS AND RELATED-PARTY TRANSACTIONS
The Company has entered into various lease agreements with respect to its
stores and certain warehouse and administrative facilities. Certain of these
leases contain several options and escalation clauses.
A portion of the Company's store space is leased from an individual who is
both the principal shareholder and president. Rent expense for the years ended
August 31, 1995 was $1,271,811, of which $186,000 was paid to related parties.
Future minimum rental commitments on operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31
---------------------
<S> <C>
1996.................................................... $1,026,119
1997.................................................... 960,270
1998.................................................... 868,651
1999.................................................... 860,709
2000.................................................... 788,464
Thereafter 2,748,670
----------
Total................................................... $7,252,883
==========
</TABLE>
The Company has commitments at August 31, 1995 to expend approximately
$1,800,000 to complete construction of its new distribution center,
administrative offices, and a retail facility.
F-36
<PAGE> 96
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 17
Selected Financial and Operating
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 30
Management............................ 39
Principal and Selling Stockholders.... 45
Certain Transactions.................. 47
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 53
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 57
Index to Financial Statements......... F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,710,000 SHARES
TWEETER HOME
ENTERTAINMENT
GROUP, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
======================================================
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered,
all of which will be paid solely by the Company.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 16,055
NASD Filing Fee............................................. 5,800
NASDAQ Listing Fee.......................................... 59,960
Printing, Engraving and Mailing Expenses.................... 125,000
Legal Fees and Expenses..................................... 400,000
Accounting Fees and Expenses................................ 275,000
Transfer Agent Fees and Expenses............................ 12,000
Miscellaneous............................................... 6,185
TOTAL............................................. $900,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation generally limits the liability
of the Company's Directors to the Company to the fullest extent permitted from
time to time by Delaware law. The DGCL permits, but does not require, a
corporation to indemnify its directors, officers, employees or agents, and
expressly provides that the indemnification provided for under the DGCL shall
not be deemed exclusive of any indemnification right under any By-law, vote of
stockholders or disinterested directors, or otherwise. The DGCL permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of a corporation; provided, however, that each such person acted in good
faith and in a manner that he reasonably believed was in or not opposed to such
corporation's best interests and, in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The DGCL does not
allow indemnification of directors in the case of an action by or in the right
of a corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court.
The Certificate of Incorporation provides that directors and executive
officers of the Company shall be and, in the discretion of the Board of
Directors, other officers and non-officer employees may be indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company.
The By-laws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any By-law, agreement,
vote of stockholders, or otherwise. The Certificate of Incorporation contains a
provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the DGCL or obtained an improper personal benefit. The provision does not alter
a director's liability under the Federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
Reference is also made to the Underwriting Agreement, which is filed as
Exhibit 1.1 to this Registration Statement.
II-1
<PAGE> 98
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding the number of
shares of capital stock sold, the number of options granted by the Company, and
the amount of debt securities issued by the Company since March 31, 1995, the
consideration received by the Company for such shares, options and debt
instruments and information relating to the section of the Securities Act of
1933 (the "Securities Act"), or rule of the Securities and Exchange Commission
under which exemption from registration is claimed. None of these securities
were registered under the Securities Act. No sale of securities involved the use
of an underwriter and no commissions were paid in connection with the sales of
securities, except that the Company paid a placement fee of $500,000 to
BankBoston, N.A., in connection with the subordinated loan referred to in
paragraph 4 below.
1. On November 28, 1995, the Company issued an aggregate of 911,787
shares of Series A Redeemable Convertible Preferred Stock to Weston
Presidio Offshore Capital C.V., Natio Vie Developpement II, FCPR, BNP
Venture Holding Corp., Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller
and Matthew Bronfman at a purchase price of $6.46 per share. These shares
will be converted into 911,787 shares of Common Stock upon consummation of
the Offering. At the same time, the Company redeemed shares of Common Stock
from certain stockholders and issued the Redemption Note to such
stockholders. The above securities were sold pursuant to Section 4(2) and
Regulation D under the Securities Act.
2. On May 13, 1996, the Company issued an aggregate of 788,349 shares
of Series A Redeemable Convertible Preferred Stock to Advent Direct
Investment Program Limited Partnership, Global Private Equity II Limited
Partnership and Carolina Bloomberg at a purchase price of $6.46 per share.
These shares will be converted into 788,349 shares of Common Stock upon
consummation of the Offering. The securities were sold pursuant to Section
4(2) and Regulation D under the Securities Act.
3. On March 7, 1997, in connection with a $2.0 million bridge loan
from the Company's existing lender, the Company sold to Weston Presidio
Offshore Capital, C.V., Natio Vie Developpement II, FCPR, BNP Venture
Holding Corp., Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller, Matthew
Bronfman, Advent Direct Investment Program Limited Partnership, Global
Private Equity II Limited Partnership and Carolina Bloomberg, pursuant to
the terms of a Warrant and Debenture Commitment dated as of March 7, 1997,
Warrants initially exercisable for an aggregate of 37,138 shares of Common
Stock. The purchase price for each Warrant was $0.15 multiplied by the
number of shares of Common Stock which could initially be purchased upon
exercise in full of each Warrant. The exercise price for each such Warrant
is $6.46 per share. The securities were sold pursuant to Section 4(2) and
Regulation D under the Securities Act.
4. On June 2, 1997, as part of the consideration for a subordinated
loan in the aggregate amount of $15,000,000 from PNC Capital Corp, Exeter
Venture Lenders, L.P. and Seacoast Capital Partners, L.P. to the Company,
each such lender was issued a Warrant exercisable for an aggregate of
629,646 shares of Common Stock issuable upon exercise of all three such
Warrants. The exercise price under each such Warrant is $.002 per share.
The securities were sold pursuant to Section 4(2) and Regulation D under
the Securities Act.
5. On May 30, 1997, as part of the total purchase price for the HiFi
Buys Acquisition, the Company issued a Warrant to HiFi Buys Incorporated,
now known as HFB Associates LLC, exercisable for 104,960 shares of Common
Stock. The exercise price for such HFB Associates Warrant is $8.08 per
share. The Company also issued the HiFi Buys Note to HiFi Buys Incorporated
at such time. The securities were sold pursuant to Section 4(2) and
Regulation D under the Securities Act.
6. On June 2, 1997, the Company issued an aggregate of 866,425 shares
of Series B Redeemable Convertible Preferred Stock to Weston Presidio
Offshore Capital C.V., Natio Vie
II-2
<PAGE> 99
Developpement II, FCPR, BNP Venture Holding Corp., Jeffrey Bloomberg,
Harriet Bloomberg, Matthew Bronfman, Advent Direct Investment Program
Limited Partnership, Carolina Bloomberg, PNC Capital Corp, Exeter Venture
Lenders, L.P. and BancBoston Investments Inc., at a purchase price of $8.08
per share. These shares will be converted into 866,425 shares of Common
Stock upon consummation of the Offering. The securities were sold pursuant
to Section 4(2) and Regulation D under the Securities Act.
7. During the past three years, the Company has granted options to
purchase an aggregate number of 866,630 shares to purchase Common Stock to
263 individuals, (some of which have terminated) all of whom were at the
time of grant employees or directors of the Company, pursuant to the
Company's 1995 Stock Option Plan. These options have been granted under
Section 4(2) of the Securities Act and/or Rule 701 under the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) Schedule II is included to this Registration Statement. All other
schedules are not required under the instructions relating to the applicable
accounting regulations of the Securities and Exchange Commission or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to under Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and that offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts on April 23, 1998.
TWEETER HOME ENTERTAINMENT GROUP, INC.
By: /s/ JEFFREY STONE
------------------------------------
Jeffrey Stone
President, Treasurer and Director
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Samuel J. Bloomberg, Jeffrey Stone, and Joseph
McGuire, and each of them singly, as his true and lawful attorneys-in-fact and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act any registration statement
relating to the Offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act (a "462(b) Registration Statement"), any and all
amendments and exhibits to this Registration Statement or any 462(b)
Registration Statement, and any and all applications and other documents to be
filed with the Securities and Exchange Commission pertaining to the registration
of the securities covered hereby or thereby, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been duly signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SAMUEL BLOOMBERG Director, Chairman of the Board April 23, 1998
- --------------------------------------------------- and Chief Executive Officer
Samuel Bloomberg
/s/ JEFFREY STONE Director and President (Principal April 23, 1998
- --------------------------------------------------- Executive Officer)
Jeffrey Stone
/s/ JOSEPH MCGUIRE Vice President and Chief Financial April 23, 1998
- --------------------------------------------------- Officer (Principal Financial
Joseph McGuire Officer and Principal Accounting
Officer)
/s/ JEFFREY BLOOMBERG Director April 23, 1998
- ---------------------------------------------------
Jeffrey Bloomberg
/s/ MATTHEW BRONFMAN Director April 23, 1998
- ---------------------------------------------------
Matthew Bronfman
/s/ MICHAEL CRONIN Director April 23, 1998
- ---------------------------------------------------
Michael Cronin
</TABLE>
II-4
<PAGE> 101
SCHEDULE II
TWEETER HOME ENTERTAINMENT GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------------- DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO NET OF END OF
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS WRITE-OFFS PERIOD
----------- ---------- ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Six months ended March 31,
1998........................ $631 $ -- $ -- $31 $600
Years ended
September 30, 1997.......... 440 191 -- -- 631
September 30, 1996.......... 15 427 -- 2 440
September 30, 1995.......... 15 4 -- 4 15
</TABLE>
S-1
<PAGE> 102
EXHIBIT INDEX
(a)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S> <C>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of the Company.
**3.2 -- Form of Amended and Restated Certificate of Incorporation of
the Company.
*3.3 -- Articles of Organization of New England Audio Co., Inc., as
amended.
*3.4 -- By-Laws of the Company.
**3.5 -- Form of Amended and Restated By-Laws of the Company.
*3.6 -- By-Laws of New England Audio Co., Inc.
**4.1 -- Specimen Certificate representing the Common Stock.
**4.2 -- Form of Shareholder Rights Agreement to be effective
immediately prior to the closing of the Offering.
**5.1 -- Opinion of Goulston & Storrs, P.C. with respect to the
legality of the shares being offered.
*10.1 -- Amended and Restated Registration Rights Agreement, dated as
of May 30, 1997, as amended, among the Company and the
shareholders and warrantholders listed therein, as amended.
*10.2 -- Warrant Purchase Agreement among the Company, PNC Capital
Corp, Seacoast Capital Partners, L.P. and Exeter Venture
Lenders, L.P., dated as of May 30, 1997, as amended.
*10.3 -- Stock Purchase Warrant issued to PNC Capital Corp dated May
30, 1997 for 209,855 shares of Common Stock of the Company.
*10.4 -- Stock Purchase Warrant issued to Seacoast Capital Partners,
L.P. dated May 30, 1997 for 209,855 shares of Common Stock
of the Company.
*10.5 -- Stock Purchase Warrant issued to Exeter Venture Lenders,
L.P. dated as of May 30, 1997 for 104,928 shares of Common
Stock of the Company.
*10.6 -- Stock Purchase Warrant issued to Exeter Equity Partners,
L.P. dated as of May 30, 1997 for 104,928 shares of Common
Stock of the Company.
*10.7 -- Common Stock Warrant issued to HiFi Buys Incorporated dated
May 30, 1997 for 104,960 shares of Common Stock of the
Company.
*10.8 -- Form of Common Stock Purchase Warrant dated March 7, 1997
issued by the Company pursuant to the Warrant and Debenture
Commitment.
**10.9 -- Credit Agreement among the Company, NEA Delaware, Inc. and
BankBoston, N.A. as agent for itself and other.
**10.10 -- Promissory Note by the Company in favor of BankBoston, N.A.
and other lenders.
*10.11 -- Lease from James M. Salah of Boca Raton, Florida, as Trustee
of JMS Realty Trust, to the Company for premises at 40
Hudson Road, Canton, Massachusetts, dated June 11, 1991.
*10.12 -- 1995 Stock Option Plan.
**10.13 -- 1998 Stock Plan.
**10.14 -- 1998 Outside Director Stock Plan.
**10.15 -- Employment Agreement between the Company and Samuel
Bloomberg to be effective upon the Offering.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S> <C>
**10.16 -- Employment Agreement between the Company and Jeffrey Stone
to be effective upon the Offering.
**10.17 -- Employment Agreement between the Company and Joseph McGuire
to be effective upon the Offering.
*10.18 -- Employment Agreement between the Company and Fred Lokoff,
dated as of May 13, 1996 and amended as of April 23, 1997.
*10.19 -- Employment Agreement between the Company and David Ginsburg,
dated as of June 1, 1997.
*10.20 -- Asset Purchase Agreement, dated as of May 30, 1997, between
the Company and HiFi Buys Incorporated.
*10.21 -- Purchase and Sale Agreement between Chadwick-Miller Inc. and
New England Audio Co., Inc. for premises at 10 Pequot Way,
Canton, MA, dated March 31, 1998.
*10.22 -- Progressive Retailers Organization, Inc. Policy and
Procedures Manual.
**21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP (Boston).
*23.2 -- Consent of Deloitte & Touche LLP (Atlanta).
*23.3 -- Consent of Deloitte & Touche LLP (Philadelphia).
**23.4 -- Consent of Goulston & Storr, P.C., counsel to the Company
(included in Exhibit 5.1).
*24.1 -- Power of Attorney (included on Signature Page).
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or in the Notes thereto.
<PAGE> 1
Exhibit 1.1
2,710,000 SHARES
TWEETER HOME ENTERTAINMENT GROUP, INC.
COMMON STOCK
(No Par Value)
UNDERWRITING AGREEMENT
_______________, 1998
BT Alex. Brown Incorporated
PaineWebber Incorporated
Dain Rauscher Incorporated
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Tweeter Home Entertainment Group, Inc., a Delaware corporation (the
"Company"), and certain shareholders of the Company (the "Selling Shareholders")
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 2,710,000 shares of the Company's Common
Stock, no par value (the "Firm Shares"), of which 2,200,000 shares will be sold
by the Company and 510,000 shares will be sold by the Selling Shareholders. The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto, and the
respective amounts to be sold by the Selling Shareholders are set forth opposite
their names in Schedule II hereto. The Company and the Selling Shareholders are
sometimes referred to herein collectively as the "Sellers." The Company also
proposes to sell at the Underwriters' option an aggregate of up to 406,500
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the
<PAGE> 2
- 2 -
aforementioned option is exercised) are herein collectively called the "Shares."
The Company has advised the Underwriters that the reorganization
referred to in the Prospectus (as hereinafter defined) has taken place, and the
Company's wholly owned subsidiary, a Massachusetts corporation (the "Operating
Subsidiary"), has become a party to this Agreement.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
(a) The Company and the Operating Subsidiary jointly and
severally represent and warrant to each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-______)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you and to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
the Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"), except to the extent permitted by Regulation S-T. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means the form of prospectus first filed with the Commission
pursuant to Rule 424(b). Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus." Any reference herein to the Registration
Statement, any Preliminary Prospectus or to the Prospectus shall be deemed to
refer to and include any supplements or amendments thereto filed with the
Commission after the date of filing of the Prospectus under Rules 424(b) or 430A
and prior to the termination of the offering of the Shares by the Underwriters.
For purposes of this Agreement, all references to the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement to
any of the foregoing, shall be deemed to include the respective copies thereof
filed with the Commission pursuant to EDGAR.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. Each of the
subsidiaries of the Company, as listed in Exhibit 21.1 to the Registration
Statement and including the Operating Subsidiary (collectively, the
"Subsidiaries"), has been duly organized and
<PAGE> 3
- 3 -
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to own or
lease its properties and conduct its business as described in the Registration
Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of
the Company. The Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their business
requires such qualification. The outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company or another Subsidiary free and
clear of all liens, encumbrances, equities and claims; and no options, warrants
or other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all outstanding shares to be sold by the Selling Shareholders, have
been duly authorized and validly issued and are fully paid and non-assessable;
the portion of the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; the portion of the Shares to be sold by
the Selling Shareholders after exercise of warrants to purchase such Common
Stock have been duly authorized and when issued and paid for in accordance with
the terms of such warrants, will be validly issued, fully paid and
non-assessable; the portion of the Shares to be sold by the Selling Shareholders
after conversion of Preferred Stock into such Common Stock have been duly
authorized and when issued in accordance with the terms of such Preferred Stock,
will be validly issued, fully paid and non-assessable; and no preemptive rights
of stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform, in all material respects, to the description thereof contained in the
Registration Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company and the Operating Subsidiary
make no representations or warranties as to information contained in or omitted
from the Registration
<PAGE> 4
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Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(vi) The financial statements, including the related notes and
schedules as set forth in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the entities
purported to be shown thereby, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted principles of accounting, consistently
applied throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement presents fairly the information shown therein and such
data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
(vii) Deloitte & Touche LLP, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company or the Operating Subsidiary, threatened
against the Company or any of the Subsidiaries before any court or
administrative agency or otherwise which if determined adversely to the Company
or any of its Subsidiaries might result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of the
Subsidiaries taken as a whole or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due and are not
being contested in good faith and for which an adequate reserve for accrual has
been established in accordance with generally accepted accounting principles.
All tax liabilities have been adequately provided for in the financial
statements of the Company, and the Company and the Operating Subsidiary do not
know of any actual or proposed additional material tax assessments.
(xi) Since the respective dates as of which information is
given in the Registration
<PAGE> 5
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Statement, as it may be amended or supplemented, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of the
Company and its Subsidiaries taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in violation of or
in default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of the Company
and its Subsidiaries taken as a whole or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company and the Operating Subsidiary of this Agreement and the
consummation of the transactions herein contemplated (except such additional
steps as may be required by the Commission, the National Association of
Securities Dealers, Inc. (the "NASD") or such additional steps as may be
necessary to qualify the Shares for public offering by the Underwriters under
state securities or Blue Sky laws) has been obtained or made and is in full
force and effect.
(xii) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses; and neither the Company nor
any of the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Subsidiaries taken as a whole. The Company and the Operating
Subsidiary know of no material infringement by others of patents, patent rights,
trade names, trademarks or copyrights owned by or licensed to the Company or any
of the Subsidiaries.
(xiii) Neither the Company, nor to the Company's or the
Operating Subsidiary's knowledge, any of its affiliates, has taken or may take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
<PAGE> 6
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stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(xiv) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, (as amended, the "1940 Act") and the rules and regulations of the
Commission thereunder.
(xv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xvi) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xvii) The Company and each of its Subsidiaries is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any of the Subsidiaries would have
any liability; the Company and each of the Subsidiaries has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any Subsidiary would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(xviii) To the Company's and the Operating Subsidiary's
knowledge, there are no affiliations or associations between any member of the
NASD and any of the Company's officers, directors or securityholders, except as
set forth in the Registration Statement.
(b) Each of the Selling Shareholders severally represents and
warrants as follows:
(i) Such Selling Shareholder now has and at the Closing Date
(as such date is hereinafter defined) will have good and marketable title to the
Firm Shares to be sold by such Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares; and upon the delivery of, against
payment for, such Firm Shares pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
<PAGE> 7
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(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney, and the
Custodian Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Shareholder of the transactions herein contemplated and the
fulfillment by such Selling Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under, the
organizational documents of such Selling Shareholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Shareholder is a party, or of any order, rule or regulation
applicable to such Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company and the Operating Subsidiary contained herein or the information
contained in the Registration Statement, such Selling Shareholder has no reason
to believe that the representations and warranties of the Company and the
Operating Subsidiary contained in this Section 1 are not true and correct, is
familiar with the Registration Statement and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement which
has adversely affected or may adversely affect the business of the Company or
any of the Subsidiaries; and the sale of the Firm Shares by such Selling
Shareholder pursuant hereto is not prompted by any information concerning the
Company or any of the Subsidiaries which is not set forth in the Registration
Statement. The information pertaining to such Selling Shareholder under the
caption "Principal and Selling Stockholders" in the Prospectus is complete and
accurate in all material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Sellers agree to sell to the Underwriters and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof. The number of Firm
Shares to be purchased by each Underwriter from each Seller shall be as nearly
as practicable in the same proportion to the total number of Firm Shares being
sold by each Seller as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder. The
obligations of the Company and of each of the Selling Shareholders shall be
several and not joint.
<PAGE> 8
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(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Shareholders have been placed in
custody with ____________________, as custodian (the "Custodian") pursuant to
the Custodian Agreement executed by each Selling Shareholder for delivery of all
Firm Shares to be sold hereunder by the Selling Shareholders. Each of the
Selling Shareholders specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Shareholders under the Custodian
Agreement are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Shareholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Shareholders
hereunder shall not be terminable by any act or deed of the Selling Shareholders
(or by any other person, firm or corporation including the Company, the
Custodian or the Underwriters) or by operation of law (including the death of an
individual Selling Shareholder or the dissolution of a corporate Selling
Shareholder) or by the occurrence of any other event or events, except as set
forth in the Custodian Agreement. If any such event should occur prior to the
delivery to the Underwriters of the Firm Shares hereunder, certificates for the
Firm Shares shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian is
authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made in Federal (same day) funds to an account designated by the Company for the
shares to be sold by it and to an account designated by the Custodian for the
shares to be sold by the Selling Shareholders, in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company at 10:00 a.m., New York time, on the third business
day after the date of this Agreement or at such other time and date not later
than five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.)
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of the
option is three or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
<PAGE> 9
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the total number of Option Shares being purchased as the number of Firm Shares
being purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in Federal (same day)
funds drawn to the order of the Company against delivery of certificates
therefor through the facilities of the Depository Trust Company, New York, New
York.
(e) If on the Closing Date, any Selling Shareholder fails to
sell the Firm Shares which such Selling Shareholder has agreed to sell on such
date as set forth in Schedule II, the Company agrees that it will sell or
arrange for the sale of that number of shares of Common Stock to the
Underwriters which represents Firm Shares which such Selling Shareholder has
failed to so sell, as set forth in Schedule II hereto, or such lesser number as
may be requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations. To the extent applicable, the copies
of the Registration Statement and each amendment thereto (including all exhibits
filed therewith), any Preliminary Prospectus or Prospectus (in each case, as
amended or supplemented) furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the
<PAGE> 10
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Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided that the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
<PAGE> 11
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(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(vii) Prior to the Closing Date, the Company will furnish to
the Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(viii) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities convertible into
or exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days after
the date of this Agreement, directly or indirectly, by the Company otherwise
than hereunder or with the prior written consent of BT Alex. Brown Incorporated,
except that the Company may, without such consent, (A) issue shares upon
exercise of (1) options outstanding on the date of this Agreement issued
pursuant to the Company's currently existing stock-based compensation plans and
(2) warrants outstanding on the date of this Agreement, and (B) grant options,
offer to sell and sell shares of its Common Stock to its employees, directors
and consultants pursuant to its currently existing stock-based compensation
plans.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the The NASDAQ National Market.
(x) The Company has caused each officer and director and
specific shareholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to sell,
offer or contract to sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Shares or
derivative of Common Shares owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
BT Alex. Brown Incorporated ("Lockup Agreements"). The Company further agrees
not to file with the Commission any registration statements on Form S-8 or
equivalent on any date which is earlier than 90 days after the date of this
Agreement.
(xi) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall include such information
with respect thereto in such reports filed with the Commission as may be
required in accordance with Rule 463 under the Act.
<PAGE> 12
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(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with
the several Underwriters that:
(i) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other capital stock
of the Company or other securities convertible, exchangeable or exercisable for
Common Stock or derivative of Common Stock owned by the Selling Shareholder or
request the registration for the offer or sale of any of the foregoing (or as to
which the Selling Shareholder has the right to direct the disposition of) will
be made for a period of 180 days after the date of this Agreement, directly or
indirectly, by such Selling Shareholder otherwise than hereunder or with the
prior written consent of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, each of the
Selling Shareholders agrees to deliver to you prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-8 or
W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(iii) Such Selling Shareholder will not take,
directly or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company .
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company and the Selling Shareholders; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, if any, the Underwriters' Invitation Letter, the Blue Sky
Survey and any supplements or amendments thereto; the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD of the terms
of the sale of the Shares; the Listing Fee of the the NASDAQ National Market;
and the expenses, including the fees and disbursements of
<PAGE> 13
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counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. To the extent, if at all,
that any of the Selling Shareholders engage special legal counsel to represent
them in connection with this offering, the fees and expenses of such counsel
shall be borne by such Selling Shareholder. Any transfer taxes imposed on the
sale of the Shares to the several Underwriters will be paid by the Sellers pro
rata. The Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, incident
to the offer and sale of directed shares of the Common Stock by the Underwriters
to employees and persons having business relationships with the Company and its
Subsidiaries. The Sellers shall not, however, be required to pay for any of the
Underwriters' expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company or the Selling Shareholders to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on their part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company and the Selling Shareholders shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS TO OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and the Selling Shareholders contained herein, and to the performance by
the Company and the Selling Shareholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, the Operating
Subsidiary or the Selling Shareholders, shall be contemplated by the Commission
and no injunction, restraining order, or order of any nature by a Federal or
state court of competent jurisdiction shall have been issued as of the Closing
Date, or Option Closing Date, as the case may be, which would prevent the
issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Goulston &
Storrs, P.C., counsel for Company and
<PAGE> 14
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the Selling Shareholders, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; and the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company or a
Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares
of capital stock of each of the Subsidiaries is owned free and clear of all
liens, encumbrances and equities and claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus;
the authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock, including the Shares to be
sold by the Selling Shareholders, have been duly authorized and validly issued
and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the Shares
are in due and proper form; the shares of Common Stock, including the Option
Shares, if any, to be sold by the Company pursuant to this Agreement have been
duly authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as contemplated by this Agreement; and no preemptive rights
of stockholders exist with respect to any of the Shares or the issue or sale
thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
<PAGE> 15
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(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the financial
statements and related schedules therein).
(vi) The statements under the captions "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of documents referred to therein
or matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or By-Laws of the Company, or any
agreement or instrument known to such counsel to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound.
(x) This Agreement has been duly authorized,
executed and delivered by the Company and the Operating Subsidiary.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by State
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized,
executed and delivered on
<PAGE> 16
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behalf of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right,
power and authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the Shares to be
sold by such Selling Shareholder.
(xv) The Custodian Agreement and the Power of
Attorney executed and delivered by each Selling Shareholder is valid and
binding.
(xvi) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial Code) have acquired
good and marketable title to the Shares being sold by each Selling Shareholder
on the Closing Date, free and clear of all liens, encumbrances, equities and
claims.
In rendering such opinion, Goulston & Storrs, P.C. may rely as
to matters governed by the laws of states other than Massachusetts or Delaware
or Federal laws on local counsel in such jurisdictions and as to the matters set
forth in subparagraphs (xiii), (xiv) and (xv) on opinions of other counsel
representing the respective Selling Shareholders, provided that in each case
Goulston & Storrs, P.C. shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Goulston &
Storrs, P.C. may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(c) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph
(b) of this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In rendering such
opinion Testa, Hurwitz & Thibeault, LLP may rely as to all matters governed
other than by the laws of the Commonwealth of Massachusetts or the State of
Delaware or Federal laws on the opinion of counsel referred to in Paragraph (b)
of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
<PAGE> 17
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pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Testa, Hurwitz
& Thibeault, LLP may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(d) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Deloitte & Touche LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her opinion, as of the
effective date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration Statement
and Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, and
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to
<PAGE> 18
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or an amendment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(f) The Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(g) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the NASDAQ National Market.
(h) The Lockup Agreements described in Section 4(a)(x) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company, the
Operating Subsidiary and the Underwriters shall not be under any obligation to
each other (except to the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Operating Subsidiary jointly and
severally agree as
<PAGE> 19
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follows:
(1) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any act or failure to act,
or any alleged act or failure to act, by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (provided that the
Company and the Operating Subsidiary shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment by
a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct); provided, however, that the
Company and the Operating Subsidiary will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity obligation will be in addition to any liability which the
Company or the Operating Subsidiary may otherwise have.
(2) to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or
not such Underwriter or controlling person is a party to any action or
proceeding. In the event that it is finally judicially determined that
the Underwriters were not entitled to receive payments for legal and
other expenses pursuant to this subparagraph, the Underwriters will
promptly return all sums that had been advanced pursuant hereto.
(b) The Selling Shareholders agree to indemnify the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or controlling person may become subject under the Act or
otherwise to the same extent as indemnity is provided by the Company and the
Operating Subsidiary pursuant to Section 8(a) above. The liability under this
Agreement (excluding any liability based on any statutory or common law claim,
including without limitation, fraud) of each Selling Shareholder shall not
exceed, at any time, the lesser of (a) the proceeds received by such Selling
Shareholder from the Underwriters in the offering and (b) the
<PAGE> 20
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proportion of the aggregate amount of losses, liabilities, claims, damages or
expenses which, up to and including such time, have been or are being claimed by
the Underwriters and each person, if any, who controls any Underwriter within
the meaning of the Act, or any of them, against the Selling Shareholders and the
Company and the Operating Subsidiary, or any of them, equal to the proportion
that the number of Shares sold hereunder by such Selling Shareholder bears to
the aggregate number of Shares sold hereunder. This indemnity obligation will be
in addition to any liability which the Selling Shareholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Shareholders, and each
person, if any, who controls the Company or the Selling Shareholders within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of
<PAGE> 21
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presentation) the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) or (b) and by the Company and
the Selling Shareholders in the case of parties indemnified pursuant to Section
8(c). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. In addition, the indemnifying party will
not, without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding of which indemnification may be sought hereunder
(whether or not any indemnified party is an actual or potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company, the
Operating Subsidiary and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company, the Operating Subsidiary and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, the Operating
Subsidiary and the Selling Shareholders on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company, the
Operating Subsidiary and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other and the parties'
relative
<PAGE> 22
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intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Operating Subsidiary, the Selling
Shareholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) no Selling Shareholder shall be required to
contribute any amount in excess of the proceeds received by such Selling
Shareholder from the Underwriters in the offering. The Underwriters' obligations
in this Section 8(e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Operating Subsidiary set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has
<PAGE> 23
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agreed to purchase and pay for on such date (otherwise than by reason of any
default on the part of the Company or a Selling Shareholder), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company and the Selling Shareholders such amounts
as may be agreed upon and upon the terms set forth herein, the Firm Shares or
Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company and the Selling Shareholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company or of the Selling Shareholders except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Mark
Goodman and Jay Eastman; with a copy to BT Alex. Brown Incorporated, One Bankers
Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: General
Counsel; if to the Company or the Selling Shareholders, to Tweeter Home
Entertainment Group, Inc., 40 Hudson Road, Canton, Massachusetts 02021,
Attention: Joseph McGuire; with a copy to Goulston & Storrs, P.C., 400 Atlantic
Avenue, Boston, Massachusetts 02110, Attention: Kitt Sawitsky and Daniel Avery.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material
<PAGE> 24
- 24 -
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, escalation, declaration, emergency, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make it impracticable or inadvisable to market the Shares
or to enforce contracts for the sale of the Shares, or (iii) suspension of
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the NASDAQ National Market, the Commission, or
any other governmental authority or (vii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company, the Operating Subsidiary and the Selling
Shareholders and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Operating Subsidiary, the Selling
Shareholders and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information set forth in the third,
seventh and eighth paragraphs under the caption "Underwriting" in the
Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full
<PAGE> 25
- 25 -
force and effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors or officers and (c)
delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company, the Operating Subsidiary and the several Underwriters in accordance
with its terms.
<PAGE> 26
- 26 -
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
TWEETER HOME ENTERTAINMENT GROUP, INC.
By:________________________________________
Title:
NEW ENGLAND AUDIO CO., INC.
By:________________________________________
Title:
SELLING SHAREHOLDERS LISTED ON SCHEDULE II
By:________________________________________
Attorney in Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
PAINEWEBBER, INCORPORATED
DAIN RAUSCHER INCORPORATED
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:__________________________________________________
Authorized Officer
<PAGE> 27
- 1 -
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
BT Alex. Brown Incorporated
PaineWebber Incorporated
Dain Rauscher Incorporated
---------
Total 2,710,000
=========
<PAGE> 28
- 1 -
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
Number of Firm Shares
Selling Shareholder to be Purchased
Samuel Bloomberg ............................. 51,703
Carolina Bloomberg ........................... 17,234
Samuel Bloomberg Trust f/b/o Mikaela Bloomberg 8,091
Samuel Bloomberg Trust f/b/o Joshua Bloomberg 8,091
Jeffrey Bloomberg ............................ 17,478
Jeffrey Stone ................................ 16,473
Exeter Venture Lenders, L.P. ................. 166,816
Exeter Equity Partners, L.P. ................. 166,816
Seacoast Capital Partners, L.P. .............. 50,000
Armin Biller ................................. 7,298
-------
Total ........... 510,000
=======
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TWEETER HOME ENTERTAINMENT GROUP, INC.
FIRST. The name of the corporation is Tweeter Home Entertainment Group,
Inc.
SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD. The nature of the business or purpose to be conducted is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "Delaware Code"). The
corporation shall possess and may exercise all the powers and privileges granted
or available to it under any and all applicable statutory and common laws in
effect from time to time.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is 3,000 shares of Common Stock, no par value.
FIFTH. The corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
A. The Board of Directors of the corporation is expressly authorized
to adopt, amend or repeal the By-Laws of the corporation.
B. Elections of directors need not be by written ballot unless the
By-Laws of the corporation shall so provide.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor
<PAGE> 2
or stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of trustee in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
Section 279 or Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders, of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders, of this corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this corporation as consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Code, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware Code hereafter is
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the Delaware Code. Any repeal or modification of
this paragraph by the stockholders of the corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such repeal or modification.
NINTH. The corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by law, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
-2-
<PAGE> 3
TENTH. The name and mailing address of the sole incorporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Lisa Perusse Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110-3333
</TABLE>
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for the
purpose of forming a corporation pursuant to the Delaware Code, do make this
Certificate, hereby declaring and certifying that this is my free act and deed
and the facts herein stated are true, and accordingly have hereunto set my hand
this 13th day of April, 1998.
/s/ Lisa Perusse
---------------------------------
Lisa Perusse
Sole Incorporator
<PAGE> 1
EXHIBIT 3.3
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE
BOSTON, MASS.
ARTICLES OF ORGANIZATION
(Under G.L. Ch. 156B)
Incorporators
NAME POST OFFICE ADDRESS
---- -------------------
Include given name in full in case of natural persons; in case of a
corporation, give state of incorporation.
HOWARD W. GLASER 24 Ames Court, Sharon, Massachusetts 02067
The above-named incorporator(s) do hereby associate (themselves) with the
intention of forming a corporation under the provisions of General Laws, Chapter
156B and hereby state(s):
1. The name by which the corporation shall be known is:
NEW ENGLAND AUDIO CO., INC.
2. The purposes for which the corporation is formed are as follows:
To engage in the business or businesses of wholesale and retail buying,
selling, renting, installing manufacturing and integrating of Hi-fi,
Stereo and Audio Devices of any kind and nature; and related items, minor
appliances and supplies of any kind and nature; and all other legally
saleable items for profit; and to establish retail sales outlets
throughout the United States, while at the same time maintaining Audio
consultation services, wholesale distribution outlets, and commercial and
industrial services for the installation of background music systems,
inter-com systems, P.A. systems, and all other industrial Audio equipment
and sound systems; and, lastly, to carry on any business permitted by the
laws of the Commonwealth of Massachusetts in accordance with Chapter 156B.
NOTE: If provisions for which the space provided under Articles 2, 4, 5 and 6
is not sufficient additions should be set out on continuation sheets to be
numbered 2A, 2B, etc. Indicate under each Article where the provision is set
out. Continuation sheets shall be on 8 1/2" x 11" paper and must have a
left-hand margin 1 inch wide for binding. Only one side should be used.
<PAGE> 2
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
------------------------------------------------------------
PAR
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred None None $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common 2,000 None
- --------------------------------------------------------------------------------
</TABLE>
4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
Class A (1000 shares) shall have full and complete voting rights and
other rights.
Class B (1000 shares) shall have no voting rights whatsoever but in all
other respects have the same rights as Class A stock.
5. The restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are as follows:
Any stockholder, including the heirs, assigns, executors or administrators
of a deceased stockholder, desiring to sell or transfer such stock owned
by him or them, shall first offer it to the corporation through the Board
of Directors, in the manner following: He shall notify the directors of
his desire to sell or transfer by notice in writing, which notice shall
contain the price at which he is willing to sell or transfer and the name
of one arbitrator. The directors shall in writing name a second arbitrator
and these two shall name a third. It shall then be the duty of the
arbitrators to ascertain the value of the stock, and if any arbitrator
shall neglect or refuse to appear at any meeting appointed by the
arbitrators, a majority may act in the absence of such arbitrator.
After the acceptance of the offer, or the report of the arbitrators as to
the value of the stock, the directors shall have thirty days within which
to purchase the same at such valuation, but if at the expiration of the
thirty days, the corporation shall not have exercised the right so to
purchase, the owner of the stock shall be at liberty to dispose of the
same in any manner as he may see fit.
No shares of stock shall be sold or transferred on the books of the
corporation until these provisions have been complied with but the Board
of Directors may in any particular instance waive the requirement.
6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
a. The directors may make, amend or repeal the by-laws in whole or in
part, except with respect to any provision thereof which by-law or the
By-Laws requires action by the stockholders.
b. Meetings of the stockholders of the Corporation may be held anywhere
in the United States.
c. Stock may be issued under the provisions of Section 1244 of the
Internal Revenue Code.
* If there are no provisions state "None".
<PAGE> 3
* By-laws of the corporation have been duly adopted and the initial directors,
president, treasurer and clerk whose names are set out below, have been duly
elected.
* The effective date of organization of the corporation shall be the date of
filing with the Secretary of the Commonwealth or if later date is desired,
specify date, (not more than 30 days after date of filing.)
* The following information shall not for any purpose be treated as a permanent
part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the corporation
----------------------- ------------------------
in Massachusetts is:
163 Armory Street, Brookline, Massachusetts
b. The name, residence, and post office address of each of the initial
directors and following officers of the corporation are as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE POST OFFICE ADDRESS
<S> <C> <C>
President: Michael G. Bloomberg Chiswick Arms, Chiswick Rd., Brookline, Mass.
- --------------------------------------------------------------------------------------
Treasurer: Samuel J. Bloomberg Chiswick Arms, Chiswick Rd., Brookline, Mass.
- --------------------------------------------------------------------------------------
Clerk: Howard W. Glaser 24 Ames Court Sharon, Mass. 02067
- --------------------------------------------------------------------------------------
Directors: Michael G. Bloomberg Chiswick Arms, Chiswick Rd., Brookline, Mass.
Samuel J. Bloomberg Chiswick Arms, Chiswick Rd., Brookline, Mass.
Jeffrey Bloomberg 331 Beacon Street Boston, Mass.
</TABLE>
c. The date initially adopted on which the corporation's fiscal year ends is:
the last day of February in any year.
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
the first Monday of March in any year.
e. Name and business address of the resident agent, if any, of the
corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the above-named
INCORPORATOR(s) sign(s) these Articles of Organization this 25th day of March
1972.
/s/ Howard W. Glaser
------------------------------
------------------------------
------------------------------
The signature of each incorporator which is not a natural person must be by an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on its
behalf to sign these Articles of Organization.
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
===========================================================
I hereby certify that, upon an examination of the
within-written articles of organization, duly submitted
to me, it appears that the provisions of the General
Laws relative to the organization of corporations have
been complied with, and I hereby approve said articles:
and the filing fee in the amount of $75.00 having been
paid, said articles are deemed to have been filed with
me this 28th day of March, 1972.
Effective date /s/ John F. X. Davoren
-----------------------------
John F. X. Davoren
Secretary of the Commonwealth
- -----------------------------
A TRUE COPY ATTEST
William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE _______ CLERK___________
- ------------------------------
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO: The Glaser Brothers
Attorneys-At-Law
------------------------------------------------------
12 Post Office Square
------------------------------------------------------
Sharon, Massachusetts 02067
------------------------------------------------------
Tel: 784-7771
FILING FEE: 1/20 of 1% of the total amount of the
authorized capital stock with par value, and one cent
a share for all authorized shares without par value,
but not less than $75. General Laws, Chapter 156B.
Shares of stock with a par value of less than one
dollar shall be deemed to have par value of one dollar
per share.
COPY MAILED APR 4 1972
<PAGE> 5
FEDERAL IDENTIFICATION
NO. 04-0499342
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter
156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
--------------
We, Michael G. Bloomberg, President and
Donald R. Paulson, Clerk of
NEW ENGLAND AUDIO CO., INC.
- --------------------------------------------------------------------------------
(Name of Corporation)
Located at: 874 Commonwealth Avenue, Boston, Massachusetts
---------------------------------------------------------------------
Name do hereby certify that the following amendment to the articles of
Approved organization of the corporation was duly adopted by unanimous consent
dated March 18, 1982, by vote of
100 shares of Class A Common out of 100 shares outstanding,
- --------- --------------- -------
(Class of Stock)
100 shares of Class B Common out of 100 shares outstanding, and
- --------- -------------- -------
(Class of Stock)
shares of out of shares outstanding,
- --------- -------------- --------
(Class of Stock)
being at least two-thirds of each class outstanding and entitled
to vote thereon and of each class or series of stock whose
rights are adversely affected thereby:
CROSS OUT
INAPPLICABLE
CLAUSE
Articles 4 and 5 of the Articles of Organization
are hereby amended as follows:
(See attached continuation sheet)
For amendments adopted pursuant to Chapter 156B, Section 70.
For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE> 6
[DELETED]
<PAGE> 7
NOTED: That the Articles of Organization of the corporation
be and the same hereby are amended as follows:
1. That the restrictions contained in Article 5 of the Articles of
Organization on the transfer of shares of common stock without
par value are hereby stricken out.
2. Of the one hundred (100) shares of Class A common stock without
par value and the one hundred (100) shares of Class B common
stock without par value presently issued and outstanding, all
are hereby designated as shares of Class A common stock having
no par value, and are to be exchanged for new stock certificates
bearing such designation, and are to be subject to the terms and
provisions hereinafter set forth.
3. That the description of the different classes of stock contained
in Article 4 of the Articles of Organization is hereby stricken
out and the following description substituted therefor:
The designations, preferences, voting powers, restrictions and
qualifications of the shares of each class of common stock
without par value shall be in all respects the same, except
that:
(1) The holders of the Class A common stock shall be entitled
to elect two (2) directors to be known as Class A directors
and to fill any vacancy in the offices of Class A directors
at a special meeting of Class A stockholders called for the
purpose; and
(2) The holders of the Class B common stock shall be entitled
to elect three (3) directors to be known as Class B directors
and to fill any vacancy in the offices of Class B directors
at a special meeting of Class B stockholders called for the
purpose.
<PAGE> 8
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 19th day of March, in the year 1982.
/s/ Michael C. Bloomberg
Michael C. Bloomberg President/
/s/ Donald E. Paulson
Donald E. Paulson Clerk/
<PAGE> 9
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles
of amendment and, the filing fee in the
amounts of $150.00 having been paid, said
articles are deemed to have been filed
with me this 22nd day of March 1982.
/s/ Michael Joseph Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of the State
_________________________________
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE: 5-28-97 CLERK
_________________________________
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF OF AMENDMENT TO BE SENT
TO: DONALD E. PAULSON
---------------------------------------------
Brown, Rudnick, Freed & Gesmer
One Federal Street
---------------------------------------------
Boston, Massachusetts 02110
---------------------------------------------
Telephone:
----------------------------------
Copy mailed Mar 25 1982
<PAGE> 10
<TABLE>
<S> <C> <C>
THE COMMONWEALTH OF MASSACHUSETTS
/s/ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
- --------- MICHAEL JOSEPH CONNOLLY, Secretary
Examiner FEDERAL IDENTIFICATION
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 NO. 04-2499342
----------------------
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after
the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
----------------
We, MICHAEL G. BLOOMBERG , President/ and
DONALD E. PAULSON , Clerk of
NEW ENGLAND AUDIO CO., INC.
---------------------------------------------------------------------------------------------
(Name of Corporation)
located at: 304 Western Avenue, Brighton, Massachusetts MA 02134
---------------------------------------------------------------------------------
- --------- do hereby certify that the following amendment to the articles of organization of the corporation
Name was duly adopted by unanimous Consent dated September, 1984, by vote of
Approved
100 shares of Class A Common out of 100 shares outstanding,
---------- ------------------------------- -------------
(Class of Stock)
100 shares of Class B Common out of 100 shares outstanding, and
---------- ------------------------------- ---------
(Class of Stock)
shares of out of shares outstanding,
---------- ------------------------------- -------------
(Class of Stock)
CROSS OUT
INAPPLICABLE being at least XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
CLAUSE two-thirds of each class outstanding and entitled to vote thereon and of
each class or series of stock whose rights are adversely affected thereby:
Article 4 of the Articles of Organization is hereby stricken out and the
following description substituted therefor:
C [ ] "Article 4. The designations, preferences, voting powers, restrictions and
P [ ] qualifications of the shares of each class of common stock without par
M [ ] value shall be in all respects the same".
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient,
3 additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand
- --------- margin of at least 1 inch for binding. Additions to more than one Amendment may be continued
P.C. on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
</TABLE>
<PAGE> 11
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 14th day of September, in the year 1984
/s/ Michael G. Bloomberg President/
- ---------------------------------------------------------------------
MICHAEL G. BLOOMBERG
/s/ Donald E. Paulson Clerk/
- -------------------------------------------------------------------------
DONALD E. PAULSON
<PAGE> 12
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles
of amendment and, the filing fee in the
amounts of $75.00 having been paid, said
articles are deemed to have been filed
with me this 17th day of September 1984.
/s/ Michael Joseph Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of the State
_________________________________
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE: 5-28-97 CLERK
_________________________________
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF OF AMENDMENT TO BE SENT
TO: JEFFREY M. FREEDMAN
---------------------------------------------
Brown, Rudrick, Freed & Gesmer
One Federal Street
---------------------------------------------
Boston, Massachusetts 02110
---------------------------------------------
Telephone: 542-3000
----------------------------------
Copy Mailed - OCT-2 1984
<PAGE> 13
<TABLE>
<S> <C> <C>
THE COMMONWEALTH OF MASSACHUSETTS
/s/ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
- --------- MICHAEL JOSEPH CONNOLLY, Secretary
Examiner FEDERAL IDENTIFICATION
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 NO. 04-2499342
----------------------
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
We Jeffrey Stone , President and
Jeffrey Stone Clerk of
New England Audio Co., Inc.
---------------------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 40 Hudson Road, Shawmut Park, Canton, MA 02021
---------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3, 4, 6
-------------
---------------------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
BS
- --------- of the Articles of Organization were duly adopted by unanimous written consent dated
Name July 28, 1992, by vote of:
Approved
184 shares of Class A Common out of 184 shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
164 shares of Class B Common out of 200 shares outstanding, and
---------- ------------------------------- ---------
type, class & series, (if any)
shares of out of shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
CROSS OUT XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
INAPPLI- XXXXXXX
CABLE being at least two-thirds of each type, class or series outstanding and entitled
CLAUSE to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby:
C [ ]
P [ ] 1 For amendments adopted pursuant to Chapter 156B, Section 70.
M [ ]
R.A. [ ] 2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient,
4 additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left-hand
- --------- margin of at least 1 inch for binding. Additions to more than one Amendment may be continued
P.C. on a single sheet so long as each Adment requiring each such addition is clearly indicated.
</TABLE>
<PAGE> 14
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<S> <C> <C> <C> <C>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
____________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
____________________________________________________________________________________
COMMON: COMMON:
Class A 1,000
Class B 1,000
____________________________________________________________________________________
PREFERRED: PREFERRED:
____________________________________________________________________________________
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
____________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
____________________________________________________________________________________
COMMON: 2,000,000 COMMON:
____________________________________________________________________________________
PREFERRED: PREFERRED:
____________________________________________________________________________________
</TABLE>
The description of the different classes of stock contained in Article 4 is
hereby deleted. The newly designated common stock shall be the only class of
capital stock of the corporation.
<PAGE> 15
Article 6 of the Articles of Organization, be, and hereby is, amended to add
the following paragraph:
"No director shall be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law
imposing such liability; provided, however, that this
provision shall not eliminate the liability of a director, to
the extent that such liability is imposed by applicable law,
(i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 61 or 62 or
successor provisions of the Massachusetts Business
Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. This provision
shall not eliminate the liability of a director for any act
or omission occuring prior to the date upon which this
provision becomes effective. No amendment to or repeal of
this provision shall apply to or have any effect on the
liability or alleged liability of any director for or with
respect to any acts or omissions of such director occuring
prior to such amendment or repeal."
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date. EFFECTIVE
DATE: _______________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 28th day of July, in the year 1992.
/s/ Jeffrey Stone ,President/
- -------------------------------------------------------------------
Jeffrey Stone
/s/ Jeffrey Stone , Clerk/
- ------------------------------------------------------------
Jeffrey Stone
<PAGE> 16
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
============================================
I hereby approve the within articles
of amendment and, the filing fee in the
amounts of $2,198 having been paid, said
articles are deemed to have been filed
with me this 29th day of July 1992.
/s/ Michael J. Connolly
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO:
Daniel R. Avery, Esq.
---------------------------------------------
Goulston & Storrs, P.C.
400 Atlantic Avenue
---------------------------------------------
Boston, MA 02110-3333
---------------------------------------------
Telephone: (617) 482-1776
----------------------------------
<PAGE> 17
<TABLE>
<S> <C> <C>
THE COMMONWEALTH OF MASSACHUSETTS
/s/
- --------- WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
-----------------------------
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
GENERAL LAWS, CHAPTER 156B, SECTION 72 NO. 04-2499342
----------------------
I Jeffrey Stone , President/ and
/Assistant Clerk of
New England Audio Co., Inc.
---------------------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 40 Hudson Road, Shawmut Park, Canton, MA 02021
---------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
-------------
3, 4, 5, 6
---------------------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
- --------- of the Articles of Organization were duly adopted by unanimous written consent dated as of
Name November 27, 1995, of
Approved
420,000 shares of Common out of 420,000 shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
shares of out of shares outstanding, and
---------- ------------------------------- -------------
type, class & series, (if any)
shares of out of shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
CROSS OUT being at least a majority of each type, class or series outstanding and entitled
INAPPLI- to vote thereon: (1)
CABLE being at least two-thirds of each type, class or series outstanding and entitled
CLAUSE to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby: (2)
C [ ]
P [ ] (1) For amendments adopted pursuant to Chapter 156B, Section 70.
M [ ]
R.A. [ ] (2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient,
6 additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left-hand
- --------- margin of at least 1 inch for binding. Additions to more than one Amendment may be continued
P.C. on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
</TABLE>
<PAGE> 18
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<S> <C> <C> <C> <C>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
__________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
__________________________________________________________________________________________
COMMON: 2,000,000 COMMON:
__________________________________________________________________________________________
PREFERRED: PREFERRED:
__________________________________________________________________________________________
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
___________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
___________________________________________________________________________________________
COMMON: 2,000,000 COMMON:
___________________________________________________________________________________________
PREFERRED: 2,000,000 PREFERRED:
___________________________________________________________________________________________
</TABLE>
The description of the different classes of stock contained in Article 4 shall
hereby read as is set forth on Exhibit A.
The description of the restrictions upon the transfer of shares of stock is
hereby deleted.
<PAGE> 19
EXHIBIT A
Each share of the Common Stock shall have one vote with respect to all
matters to be voted upon by stockholders and shall have all other rights as
provided under these Articles, the By-Laws of the Corporation and by law.
Each share of the Preferred Stock shall have such rights as may be
determined from time to time by the Directors pursuant to Section 26 of
M.G.L. c.156B.
<PAGE> 20
EXHIBIT B
The Directors of the Corporation may determine in whole or in part, the
preferences, voting powers, qualifications, and special or relative rights or
(1) any class of stock before the issuance of any shares of that class and (2)
one or more series within a class before the issuance of any shares of that
series.
<PAGE> 21
Article 6 of the Articles of Corporation shall hereby be amended by adding the
following new, additional paragraph:
(See Exhibit B)
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date. LATER EFFECTIVE
DATE: _______________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 27th day of November, in the year 1995.
/s/ Jeffrey Stone President
- ---------------------------------------------------------------------
/s/ Jeffrey Stone Assistant Clerk
- ---------------------------------------------------------------
<PAGE> 22
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
============================================
I hereby approve the within articles
of amendment and, the filing fee in the
amounts of $2,300.00 having been paid,
said articles are deemed to have been filed
with me this 28th day of November 1995.
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
_________________________________
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE: 5-28-97 CLERK
________________________________
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Daniel R. Avery, Esq.
---------------------------------------------
Goulston & Storrs, P.C.
400 Atlantic Avenue
---------------------------------------------
Boston, MA 02110-3333
---------------------------------------------
Telephone: (617) 482-1776
----------------------------------
<PAGE> 23
FORM CS-28-5M-8:03
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN TE
SECRETARY OF THE COMMONWEALTH FEDERAL IDENTIFICATION
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
NO. 04-2499342
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
--------------
I, Jeffrey Stone , President and
, Assistant Clerk of
New England Audio Co., Inc.
- -----------------------------------------------------------------------------
(Name of Corporation)
located at 40 Hudson Road, Canton, Massachusetts 02021
-------------------------------------------------------------------
do hereby certify that by actions taken by unanimous written consent dated
November 27, 1995, the following vote establishing and designating a series of
a class of stock and determining the relative rights and preferences thereof
was duly adopted.
See continuation sheets 2A through 2X.
NOTE: Notes for which the space provided above is not sufficient should be set
out on continuation sheets to be numbered 2A, 2B, etc. Continuation
sheets must have a lefthand margin 1 inch wide for binding and shall be
8-1/2" x 11". Only one side should be used.
<PAGE> 24
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
OF
NEW ENGLAND AUDIO CO., INC.
CALLED
"SERIES A PREFERRED STOCK"
<PAGE> 25
TABLE OF CONTENTS
1. Designation and Amount................................................ 1
2. Definitions........................................................... 1
3. Dividends............................................................. 3
4. Liquidation Preference................................................ 3
5. Voting Rights; Representative Directors; etc. ........................ 4
5.1. Votes Per Share: Notices.................................. 4
5.2. Preferred Directors....................................... 4
5.2.1. Number of Directors....................... 4
5.2.2. Preferred Directors....................... 4
5.2.3. Non-Investor Directors.................... 4
5.2.4. Combined Director......................... 4
5.2.5. Majority Preferred Directors.............. 4
5.3. Tenure.................................................... 5
5.4. Termination of Certain Rights............................. 5
6. Redemption............................................................ 5
6.1. Redemption Price.......................................... 5
6.2. Mandatory Redemption...................................... 6
6.3. Mandatory Contingent Redemption........................... 6
6.4. Voluntary Redemption...................................... 7
6.5. Notice of Redemption; Pro Rata Treatment.................. 7
6.6. Specific Performance...................................... 7
6.7. Subordination............................................. 7
7. Remedy Event.......................................................... 7
8. Conversion............................................................ 9
8.1. Right of Conversion....................................... 9
8.2. Automatic Conversion...................................... 9
8.3. Mechanics of Conversion...................................11
8.4. Adjustment of Conversion Price due to Issuance of
Additional Shares........................................11
8.4.1. Special Definitions.......................11
8.4.2. No Adjustment of Conversion Price.........12
8.4.3. Adjustment of Conversion Price Upon
Issuance of Additional Shares of
Common Stock.............................12
8.4.4. Adjustments for Subdivisions, Stock
Dividends, Combinations or Consolidation
of Common Stock..........................13
8.4.5. Deemed Issue of Additional Shares of
Common Stock--Options and Convertible
Securities...............................13
8.4.6. Determination of Consideration............14
<PAGE> 26
8.4.7 Other Dilutive Events.......................15
8.5. Other Distributions........................................15
8.6. Subsequent Events..........................................15
9. Covenants.............................................................15
9.1. Special Restrictions.......................................15
9.2. No Impairment..............................................16
9.3. Reservation of Shares......................................17
9.4. Validity of Shares.........................................17
9.5. Notice of Certain Events...................................17
9.6. No Reissuance of Preferred Stock...........................17
10. Preemptive Rights.....................................................18
10.1. Right of First Offer.......................................18
10.2. Notice.....................................................18
10.3. Full Acceptance............................................18
10.4. Partial Acceptance.........................................18
10.5. No Fractional Shares.......................................19
10.6. Sales of Shares............................................19
10.7. Exclusion of Certain Shares................................19
11. Amendments............................................................19
-ii-
<PAGE> 27
A. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
1. Designation and Amount. The designation of the first series of the
authorized preferred stock, no par value, of the Company (the "Preferred
Stock") shall be Series A Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock"). The number of authorized shares of Series A Preferred Stock
shall initially be 400,000 subject to increase (but only as to shares of
Preferred Stock authorized by the Articles of Organization with respect to
which the powers, designations, preferences and rights shall not then have been
previously designated) or decrease (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of Directors.
The Series A Preferred Stock has been issued pursuant to a Preferred Stock
Purchase Agreement dated as of November 28, 1995 among the Company, Weston
Presidio Offshore Capital C.V. and certain other investors (as from time to
time in effect, the "Purchase Agreement"). A copy of the Purchase Agreement
will be provided to any registered holder of shares of capital stock of the
Company following written request directed to the Clerk of the Company at its
registered address.
The relative powers, preferences and rights, and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to or imposed on the Series A Preferred Stock
(and where applicable, the Common Stock) are set forth below:
2. Definitions. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Certificate of Vote of
Directors, (b) the capitalized term "Exhibit" refers to exhibits to this
Certificate of Vote of Directors, (c) references to a particular Section
include all subsections thereof and (d) the word "including" shall be construed
as "including without limitation". Accounting terms used in this Certificate of
Vote of Directors and not otherwise defined herein shall have the meanings
provided in GAAP. Certain capitalized terms are used in this Certificate of
Vote of Directors as specifically defined in this Section 1 as follows:
2.1. "Accepted Shares" is defined in Section 10.2.
2.2. "Additional Shares of Common Stock" is defined in Section 8.4.1(d).
2.3. "By-laws" means all written rules, regulations, procedures and by-laws
and all other similar documents, relating to the management, governance or
internal regulation of a Person other than an individual, or interpretive of
the Charter of such Person, each as from time to time amended or modified.
2.4. "Calculation Date" is defined in Section 4.
2.5. "Common Stock" means the common stock no par value, of the Company.
2.6. "Company" is defined in the Preamble.
2.7. "Conversion Price" is defined in Section 8.1.
<PAGE> 28
2.8. "Convertible Securities" is defined in Section 8.4.1(c).
2.9. "Future Shares" is defined in Section 10.1.
2.10. "Future Shares Exercise Period" is defined in Section 10.1.
2.11. "Initial Closing Date" is defined in the Purchase Agreement.
2.12. "Investor Common Stock" is defined in the Purchase Agreement.
2.13. "Non-Investor Common Stock" is defined in the Purchase Agreement.
2.14. "Non-Investor Director" is defined in Section 5.2.3.
2.15. "Notice of Purchase" is defined in Section 10.2.
2.16. "Offeree" is defined in Section 10.1.
2.17. "Options" is defined in Section 8.4.1(a).
2.18. "Organic Change" is defined in Section 6.3.
2.19. "Original Issue Date" is defined in Section 8.4.1(b).
2.20. "Permitted Liquidation" is defined in section 5.5 of the Purchase
Agreement.
2.21. "Person" means an individual, partnership, corporation, company,
association, trust, joint venture, unincorporated organization
and any governmental department or agency or political
subdivision.
2.22. "Preemptive Group" is defined in Section 10.1.
2.23. "Preferential Amount" is defined in Section 4.
2.24. "Preferred Director" is defined in Section 5.2.1.
2.25. "Preferred Stock" is defined in Section 1.
2.26. "Proportionate Percentage" is defined in Section 10.1.
2.27. "Proposal" is defined in Section 10.1.
2.28. "Purchase Agreement" is defined in Section 1.
2.29. "Qualified Amount" is defined in Section 8.2.
-2-
<PAGE> 29
2.30. "Qualified Proceeds" is defined in Section 8.2.
2.31. "Qualified Public Offering" is defined in Section 8.2.
2.32. "Qualified Sale" is defined in Section 8.2.
2.33. "Related Agreements" is defined in the Purchase Agreement.
2.34. "Remedy Event" is defined in Section 7.
2.35. "Remedy Notice" is defined in Section 5.2.5.
2.36. "Second Closing Date" is defined in the Purchase Agreement.
2.37. "Series A Preferred Stock" is defined in Section 1.
2.38. "Warrants" is defined in Section 6.4.
2.39. "WPC" is defined in the Purchase Agreement.
3. Dividends. Except for dividends that shall be paid prior to April 15, 1996,
and permitted by Section 5.10.6 of the Purchase Agreement, no dividends of cash
or other property (other than additional shares of Common Stock) shall be paid
on the Common Stock unless the shares of Series A Preferred Stock receive the
same dividends that such shares would have received had they been converted
into Common Stock immediately prior to the record date for such dividend.
4. Liquidation Preference. In the event of (a) any liquidation, dissolution or
winding up of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions, either voluntary or
involuntary; or (b) unless agreed otherwise in writing by the holders of a
majority of the Series A Preferred Stock, a merger or consolidation of the
Company except where (i) the Company is the surviving entity and (ii) the
stockholders of the Company immediately prior to such merger or reconsolidation
are the owners of stock having more than 50% of the outstanding voting power of
the surviving corporation immediately following the merger, distributions to
the stockholders of the Company shall be made in the following manner: the
holders of Series A Preferred Stock shall first be entitled to receive, prior
and in preference to any distribution of any of the assets of the Company to
the holders of any other series of Preferred Stock, Common Stock or other
capital stock of the Company by reason of their ownership of such stock, an
amount per share equal to the sum of (A) $42.37 plus (B) an amount in the form
of a dividend which would equal a 15% rate of return compounded annually on the
amount in clause (A) above from the date of original issuance or the Series A
Preferred Stock to the date of distribution (the "Calculation Date") plus (C)
accrued and unpaid dividends, if any, on the Series A Preferred Stock due under
Section 3 (such sum being referred to as the "Preferential Amount"). Any
dividends paid to holders of the Series A Preferred Stock from the date of
original issuance shall serve as a credit against the Preferential Amount. If
the assets and funds of the Company shall be insufficient to permit the payment
of the full Preferential Amount to the holders of Series A Preferred Stock,
then the entire assets of the Company legally available for
3
<PAGE> 30
distribution shall be distributed ratably among the holders of Series A
Preferred Stock in accordance with the aggregate liquidation preference of the
shares of Series A Preferred Stock held by each of them.
After payment has been made to the holders of Series A Preferred Stock of
the full amounts to which they are entitled under this Section 4, the holders
of Common Stock shall be entitled to share ratably in the remaining assets
without participation by the holders of Series A Preferred Stock. If any such
distributions described in this Section 4 are made in the form of assets and
not cash, then such distributions shall be deemed to have been made at the fair
market value of such assets.
5. Voting Rights: Representative Directors; etc.
5.1. Votes Per Share; Notices. Except as otherwise provided herein or
required by law, the holders of Series A Preferred Stock shall vote as a single
class with the holders of Common Stock and shall have such votes in respect of
each share of Series A Preferred Stock on any matter submitted to the holders
of Common Stock as the number of shares of Common Stock into which shares of
Series A Preferred Stock may then be converted. Record holders of Series A
Preferred Stock shall be entitled to notice of any stockholders' meeting or
solicitation of stockholders' consents in the manner provided in the Bylaws of
the Company for general notices.
5.2. Preferred Directors.
5.2.1. Number of Directors. Except as provided in Section 5.2.5, the
Company shall have seven directors.
5.2.2. Preferred Directors. In addition to the rights set forth in Sections
5.2.4 and 5.2.5, the holders of a majority of the shares of Series A Preferred
Stock and Investor Common Stock, voting together as a single class, separate
from all other classes, shall be entitled to elect two directors (the "Preferred
Directors"). The election of any Investor Director who is not a partner of WPC's
partner must be consented to by a majority of the holders of Non-Investor Common
Stock, which consent shall not be unreasonably withheld.
5.2.3. Non-Investor Directors. The holders of a majority of the shares of
Non-Investor Common Stock, voting together as a single class, separate from all
other classes, shall be entitled to elect four directors ("Non-Investor
Directors").
5.2.4. Combined Director. The holders of a majority of the shares of Series
A Preferred Stock and Investor Common Stock, voting on a combined basis as a
single class, and the holders of a majority of Non-Investor Common Stock voting
separately as a single class, shall be together entitled to elect one director.
5.2.5. Majority Preferred Directors.
In the event that any Remedy Event shall occur, then, upon notice
to the Company given by the holders of not less than two-thirds of the Series A
Preferred Stock then outstanding (a "Remedy Notice"), the number of directors
shall be increased to eleven and the
-4-
<PAGE> 31
holders of Series A Preferred Stock and Investor Common Stock, voting
together as a single class, shall become entitled to elect a total of six
members of the Board of Directors of the Company until any such Remedy
Event shall have been rectified or cured to the written satisfaction of the
holders of at least a majority of the outstanding shares of Series A
Preferred Stock and Investor Common Stock, whereupon such right of the
holders of the Series A Preferred Stock and Investor Common Stock to elect
six members of the Board of Directors of the Company shall cease and they
shall immediately remove all members of the Board of Directors then in
office who were elected pursuant to this Section 5.2.5 such that the Board
of Directors shall again be comprised of two directors elected by a
majority of the shares of Series A Preferred Stock and Investor Common
Stock, voting together as a single class, separately from all other classes
(subject to the second sentence of Section 5.2.2.), four directors elected
by a majority of the shares of Non-Investor Common Stock, voting together
as a single class, separately from all other classes, and one director
elected by a majority of the shares of Series A Preferred Stock and
Investor Common Stock, voting together as a single class and the holders of
a majority of Non-Investor Common Stock voting separately as a single
class, and the number of directors shall be reduced to seven, subject to
the above rights being again revived from time to time upon the
reoccurrence of the conditions above described.
5.3. Tenure. Subject to Section 5.4 below, each Preferred Director elected
by the holders of Series A Preferred Stock pursuant to Section 5.2 shall serve
for a term of the lesser of (a) one year and until such Preferred Director's
successor is elected and qualified, or (b) in the case of a Preferred Director
elected pursuant to Section 5.2.5, until the right of such Preferred Director
to remain in office under Section 5.2.5 ceases (at which time such Preferred
Director will be deemed to be removed). So long as the holders of Series A
Preferred Stock and Investor Common Stock are entitled to elect Preferred
Directors, any vacancy in the position of a Preferred Director may be filled
only by vote of the holders of a majority of the shares of Series A Preferred
Stock and Investor Common Stock entitled to vote thereon. A Preferred Director
may, during such Preferred Director's term of office, be removed at any time,
with or without cause, only by the affirmative vote of the holders of record of
a majority of the outstanding shares of Series A Preferred Stock and Investor
Common Stock. Similarly, any vacancy in the position of a Non-Investor Director
may be filled only by vote of the holders of a majority of the shares of the
Non-Investor Common Stock entitled to vote thereon. A Non-Investor Director
may, during such Non-Investor Director's term of office, be removed at any
time, with or without cause, only by the affirmative vote of the holders of
record of a majority of the outstanding shares of Non-Investor Common Stock.
5.4 Termination of Certain Rights. All rights of the holders of Series A
Preferred Stock and Investor Common Stock under Sections 5.2 and 5.3 shall
terminate, automatically and without necessity of any further actions by any
person, upon the earlier to occur of (a) the closing of a Qualified Public
Offering or Qualified Sale or (b) such time as the sum of (i) all Common Stock
previously issued upon conversion of Series A Preferred Stock and which is
still outstanding plus (ii) all Common Stock that would then be issuable upon
the conversion of outstanding Series A Preferred Stock plus (iii) all Common
Stock previously issued upon exercise or exchange of any Warrants and which is
still outstanding is less than 25% of such sum as calculated on the Second
Closing Date (or if there has been no Second Closing Date, then the
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Initial Closing Date) (adjusting for stock splits, stock dividends and similar
recapitalization matters from and after the Second Closing Date or the Initial
Closing Date, as the case may be). From and after the occurrence of any such
event described in the foregoing clauses (a) or (b), Section 5.1 shall, along
with the Company's Article of Organization, and by-laws, govern as to the
voting for directors.
6. Redemption
6.1. Redemption Price. Shares of Series A Preferred Stock are redeemable in
accordance with this Section 6 at a redemption price per share equal to the
Preferential Amount as of the date of redemption, provided that notwithstanding
anything else herein to the contrary, such shares of Series A Preferred Stock
shall not be redeemable (a) if such redemption would violate the Subordination
Agreement referred to in Section 6.7, or (b) without the consent of the
Noteholders (as defined in the Senior Subordinated Note Agreement referred to
below) if a Default or Event of Default (each term as defined in such Senior
Subordinated Note Agreement) has occurred and is continuing under that Senior
Subordinated Note Agreement between the Company and members of the Bronfman
family dated November 28, 1995.
6.2. Mandatory Redemption. Except as set forth in Section 6.4, irrespective
of any other redemptions or acquisitions of shares of the Series A Preferred
Stock, the Company will redeem at a price equal to the Preferential Amount that
number of shares of Series A Preferred Stock equal to 6.25% of the total number
of issued and outstanding shares of Series A Preferred Stock as of December 31,
1999 (or such lesser number as is then outstanding) on the last day of each
March, June, September and December commencing in March 2000.
6.3. Mandatory Contingent Redemption. Upon the earliest to occur of
(a) the sale by the Company of all or a substantial portion of its
assets, other than a Permitted Liquidation or a Qualified Sale;
(b) the merger, of the Company with, or the consolidation of the
Company into, any other corporation (other than a Qualified Sale) except
where (i) the Company is the surviving entity and (ii) the stockholders of
the Company immediately prior to such merger or consolidation own
collectively stock having more than 50% of the outstanding voting power
(assuming conversion of all convertible securities and exercise of all
outstanding options and warrants) of the surviving corporation;
(c) the dissolution or liquidation of the Company;
(d) Jeffrey Stone shall cease for any reason to be the President or
Chief Operating Officer of the Company and a replacement reasonably
satisfactory to the holders of at least a majority of the outstanding
shares of Series A Preferred Stock shall not be in place within 180 days;
(e) except as a result of a Qualified Public Offering, more than 50%
of the outstanding
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voting stock of the Company becomes owned by Persons other than
collectively (i) holders of Series A Preferred Stock and their transferees
and (ii) other stockholders of record on the Second Closing Date (or, if
there is no Second Closing Date, then the Initial Closing Date) (the
foregoing events described in clauses (a) through (e) shall constitute an
"Organic Change"); or
(f) a Remedy Event,
to the extent permitted by the Company's principle senior bank working capital
facility, each holder of Series A Preferred Stock and its permitted transferees
may, in lieu of and not in addition to any rights it may have under Section 7,
require the Company to redeem all or any portion of the then outstanding shares
of the Series A Preferred Stock of such holder, at the holder's option, either
(A) at a price equal to the Preferential Amount or (B) at a price equal to the
sum of (1) the Conversion Price plus (2) accrued and unpaid dividends, if any,
on the Series A Preferred Stock due under Section 3, together with Warrants on
the same terms as described in Section 6.4.
6.4. Voluntary Redemption. The Company may redeem at the Preferential
Amount pro rata from all holders of Series A Preferred Stock an aggregate number
of shares of Series A Preferred Stock specified in the notice delivered pursuant
to Section 6.5. Such redemption shall take place at the time and on the date set
forth in such notice. At the closing of such redemption, the Company shall
deliver to each holder of Series A Preferred Stock whose shares are being
redeemed warrants (the "Warrants") to purchase the number of shares of Common
Stock into which the shares of Series A Preferred Stock so redeemed could at the
time have been converted at a purchase price per share equal to the aggregate
cash consideration received by the holder in connection with the redemption
divided by such number of shares of Common Stock. The number of shares for which
each Warrant shall be exercisable shall be reduced in proportion to the
mandatory redemption of Preferred Stock under Section 6.2 as provided in the
Warrant. At the option of the Company, any redemption under this Section 6.4 may
be applied against, and shall relieve the Company of, the next succeeding
redemption obligation under Section 6.2 to the extent of the shares redeemed
under this Section 6.4.
6.5. Notice of Redemption; Pro Rata Treatment. Written notice of redemption
of Preferred Stock pursuant to Sections 6.2 and 6.4 shall be given not fewer
than 30 days prior to the redemption date by first class mail, postage prepaid,
to each holder of record of shares of the Preferred Stock, at such holder's
address on the books of the Company. Each such notice shall state: (a) the
redemption date; (b) the number of shares of the Series A Preferred Stock to be
redeemed; (c) the Preferential Amount; (d) the place or places where
certificates for such shares are to be surrendered for payment of the
Preferential Amount; and (e) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. Redemptions under Section 6.2 and 6.4
shall be made pro rata among all holders of Series A Preferred Stock.
6.6. Specific Performance. If any holder becomes obligated so to deliver
any shares of Series A Preferred Stock to the Company upon any redemption under
this Section 6 and fails to deliver the certificate therefor in accordance with
this Certificate of Vote of Directors, the Company may, at its option, in
addition to all other remedies it may have, cancel on its books such certificate
representing such shares to be redeemed.
6.7. Subordination. The rights of the holders of the Series A Preferred
Stock shall be subject
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to the provisions of the Subordination Agreement dated November 28, 1995 among
the Company, The First National Bank of Boston and the initial holders of the
Series A Preferred Stock, which provisions are incorporated herein by
reference. The holders of the Series A Preferred Stock should refer to the
Subordination Agreement for a description of the terms under which redemption
and other payments on the Series A Preferred Stock are prohibited to be made by
the Company or to be received by the holders of the Series A Preferred Stock,
notwithstanding the other provisions of this Section 6.
7. Remedy Event. The term "Remedy Event" shall mean the occurrence and
continuance of any of the following events for a period exceeding 45 days after
written notice of the occurrence of such event has been furnished to the
Company by one or more holders of Series A Preferred Stock at its registered
address:
7.1. The Company shall fail to make any payment in respect of dividends on
or redemptions of any shares of Series A Preferred Stock as the same shall
become due.
7.2. The Company shall fail to perform or observe any of the covenants,
agreements or other provisions set forth in this Certificate of Vote of
Directors.
7.3. Any material written representation or warranty of or with respect to
the Company made in, or pursuant to the express requirements of, the Purchase
Agreement shall prove to have been false on the date as of which it was made.
7.4. The Company or any of its Subsidiaries shall fail to make any
required payment on any senior bank indebtedness exceeding $250,000 in
principal amount of (or guaranteed by) the Company or any of its Subsidiaries,
or the Company or any of its Subsidiaries shall fail to perform or observe any
of the covenants or provisions required to be performed or observed by it
pursuant to the credit agreement evidencing such senior bank indebtedness (as
from time to time in effect), and (a) any security interest in or other lien on
any property securing any such indebtedness shall be enforced, unless contested
in good faith by the Company by appropriate proceedings or (b) if such payment
is a partial payment, all related indebtedness shall become due and payable
prior to stated maturity.
7.5. The Company or any of its Subsidiaries shall fail to make any
required payments, which payments exceed $375,000 in the aggregate, with
respect to indebtedness of (or guaranteed by) the Company or any of its
Subsidiaries or with respect to any share of capital stock (whether because
funds are not legally available therefor or otherwise), whether such payments
are due upon final maturity, accelerated maturity, mandatory prepayment or
otherwise.
7.6. The Company shall fail to keep reserved a sufficient number of shares
of Common Stock for issuance upon conversion of the Series A Preferred Stock or
shall fail to issue an amount of shares of Common Stock upon the conversion by
the holders thereof of the Series A Preferred Stock.
7.7. An Organic Change shall occur.
7.8. The sum of consolidated stockholders' equity of the Company and its
subsidiaries plus (to the extent not included in stockholders' equity) the
Preferred Stock, all determined in accordance with
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generally accepted accounting principles consistently applied, shall at any
time be less than the sum of (a) $250,000 plus (b) two thirds of the Preferred
Stock (or other equity) issued by the Company on the Second Closing Date,
determined in accordance with generally accepted accounting principles.
7.9 A final judgement which, in the aggregate with other outstanding final
judgments against the Company or any of its Subsidiaries, exceeds $500,000
above insurance coverage shall be rendered against the Company or any of its
Subsidiaries and, within 30 days after entry thereof, such judgement shall not
have been discharged or stayed pending appeal, or within 30 days after
expiration of such stay such judgment shall not have been discharged.
7.10 The Company or any of its Subsidiaries or their Affiliates shall fail
to perform or observe any covenant, agreement or provision to be performed or
observed by it under section 5 of the Purchase Agreement or sections 2 through
9 of the Registration Rights Agreement and such failure shall not have been
rectified or cured within 75 days after actual knowledge of Samuel Bloomberg or
Jeffrey Stone or their replacement executive officers.
7.11 The Company or any of its subsidiaries owning at least 10% of the
assets, or contributing over the past fiscal year at least 10% of the cash
flow, of the Company and its subsidiaries on a consolidated basis, shall:
(a) commence a voluntary case under Title 11 of the United States as
from time to time in effect, or authorize, by appropriate proceedings of its
board of directors or other governing body, the commencement of such a
voluntary case;
(b) have filed against it a petition commencing an involuntary case
under such Title 11 and such petition is not dismissed within 90 days;
(c) seek relief as a debtor under any applicable law, other than
such Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief:
(d) have entered against it any order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors generally, or (iii)
assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or
(e) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the appointment
of a receiver or the other custodian for all or a substantial part of
its property.
8. CONVERSION.
8.1 RIGHT OF CONVERSION. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time at the office of
the Company or any transfer agent for the
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Series A Preferred Stock into the number of shares of the Common Stock of the
Company obtained by dividing $42.37 by the then effective conversion price of
the Series A Preferred Stock (as from time to time adjusted by this Section 8,
the "Conversion Price"). The initial Conversion Price shall be $42.37 per
share. All calculations under this Section 8 shall be made to the nearest one
hundredth of a cent.
8.2. Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price at any time upon the occurrence of any of the following events
that result in Qualified Proceeds:
(a) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, with managing underwriters reasonably satisfactory to the holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock, covering the offer and sale of Common Stock for the account of the
Company to the public generally providing net proceeds to the Company or
selling stockholders (after underwriter commissions and discounts, but
before other offering expenses) of not less than $10,000,000 in the
aggregate (a "Qualified Public Offering"); or
(b)(i) the sale or other disposition of all or a substantial portion
of the assets of the Company or (ii) the merger or consolidation of the
Company with or into any third party as a result of which the stockholders
of the Company immediately prior to such merger or consolidation do not own
stock having more than 50% of the outstanding voting power (assuming
conversion of all convertible securities and exercise of all outstanding
options and warrants) of the surviving corporation (collectively, a
"Qualified Sale").
As used in this Section 8.2. an event shall be deemed to result in
"Qualified Proceeds" if:
(A) in the case of a Qualified Public Offering, the public offering
price per share of Common Stock (after underwriting commissions and
discounts, but before other offering expenses), set forth within the final
prospectus which is part of the effective registration statement relating
to such Qualified Public Offering, shall be not less than the Qualified
Amount (as defined below); or
(B) in the case of a Qualified Sale as described in clause (b)(i),
the net proceeds received by the Company as a result of such sale, which
are attributable to one share of Common stock, and which are available for
distribution to the holder of such share of Common Stock, shall be not less
than the Qualified Amount; or
(C) in the case of a Qualified Sale as described in clause (b)(ii),
either (1) in the case of such Qualified Sale where the Company is the
surviving entity, the fair market value of all securities, cash or other
property (including without limitation any Common Stock), which is received
or retained in connection with such Qualified Sale (as determined in good
faith by the Board of Directors) on account of one share of Common Stock
shall be not less than the Qualified Amount; or (2) in the case of such a
Qualified Sale where the Company is not the surviving entity, the fair
market value of the total consideration received in connection with such
Qualified Sale (as determined in good faith by the Board of Directors) on
account of one share of Common Stock shall be not less than the Qualified
Amount.
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As used above, "Qualified Amount" shall mean the following amount (minus, in
each case, all prior cash distributions and cash dividends paid per share of
Investor Common Stock or Series A Preferred Stock pursuant to Section 3):
(x) $84.74, if the Qualified Public Offering or Qualified Sale, as
the case may be, occurs prior to October 31, 1997; and
(y) $95.33, if the Qualified Public Offering or Qualified Sale, as
the case may be, occurs on or after October 31, 1997;
provided that such amount shall be adjusted, in each case, for increases in
the number of issued and outstanding Common Stock occurring after the date
hereof as a result of stock splits, subdivisions, dividends or similar
recapitalizations.
8.3. Mechanics of Conversion. Before any holder of Series A Preferred Stock
shall be entitled to convert the same into shares of Common Stock and to receive
certificates therefor, such holder shall surrender the Series A Preferred Stock
certificates, duly endorsed, at the office of the Company or of any transfer
agent for the Series A Preferred Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to Section 8.2,
the outstanding shares of Series A Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; and provided, further that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless the certificates evidencing such
shares of Series A Preferred Stock are either delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. The
Company shall, as soon as practicable after such delivery, or execution of such
agreement in the case of a lost certificate, issue and deliver at such office to
such holder of Series A Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock
plus all accrued and unpaid dividends on such holder's Series A Preferred Stock
so converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred Stock to be converted, or in the case of automatic conversion
immediately upon closing of the Qualified Public Offering or Qualified Sale, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
8.4. Adjustment of Conversion Price due to Issuance of Additional Shares.
The Conversion Price shall be subject to adjustment as follows:
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8.4.1. Special Definitions.
(a) "Options" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
(b) "Original Issue Date" shall mean the date on which the Series A
Preferred Stock is first issued by the Company.
(c) "Convertible Securities" shall mean any indebtedness, shares or other
securities convertible into or exchangeable for Common Stock, other than the
Series A Preferred Stock.
(d) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued (or, pursuant to Section 8.4.5, deemed to be issued) by the
Company after the Original Issue Date, other than shares of Common Stock issued
or issuable at any time:
(i) upon conversion of the Series A Preferred Stock authorized herein
or upon exercise of the other options and warrants set forth in Exhibit
4.3.2 to the Purchase Agreement;
(ii) as a dividend or distribution on the Series A Preferred Stock or
any event for which adjustment is made pursuant to Section 8.4.3;
(iii) pursuant to the Stock Option Plan or other stock option, stock
bonus or other employee stock plan referred to in Section 4.1.1 of the
Purchase Agreement or otherwise permitted by section 5.17 of the Purchase
Agreement or approved by the holders of at least a majority of the
outstanding shares of Series A Preferred Stock, which approval shall
specify the number of shares of Common Stock available for distribution
under any such plan;
(iv) by way of dividend or other distribution on shares of Common
Stock excluded from the definition of Additional Shares of Common Stock by
the foregoing clauses (i), (ii), (iii) or this clause (iv); or
(v) in connection with sales of Common Stock or other Future Shares
to the Preemptive Group.
8.4.2. No Adjustment of Conversion Price. No adjustment in the Conversion
Price shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Company is less than the applicable
Conversion Price in effect on the date of, and immediately prior to, such issue.
8.4.3. Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 8.4.5)
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for a consideration per share less than the applicable Conversion Price of the
Series A Preferred Stock in effect on the date of and immediately prior to such
issue, then and in such event, the applicable Conversion Price shall be
recomputed, concurrently with such issue (calculated to the nearest one
hundredth of a cent) by dividing (a) an amount equal to the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such issue
multiplied by the then effective Conversion Price and (ii) the consideration, if
any, deemed received by the Company upon such issue by (b) the total number of
shares of Common Stock deemed to be outstanding immediately after such issue;
and provided that, for purposes of this Section 8.4.3, all shares of Common
Stock outstanding and issuable upon conversion of outstanding Options,
Convertible Securities and the Series A Preferred Stock shall be deemed to be
outstanding. In no event will the Conversion Price be adjusted as the result of
any issuance of any Additional Shares of Common Stock to any amount higher than
the Conversion Price in effect immediately prior to such issuance.
8.4.4. Adjustments for Subdivisions, Stock Dividends, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater
number of shares of Common Stock, the respective Conversion Prices then in
effect shall, concurrently with the effectiveness of such increase or
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the respective
Conversion Prices then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
8.4.5. Deemed Issue of Additional Shares of Common Stock - Options and
Convertible Securities. In the event the Company at any time after the Original
Issue Date shall have any Options or Convertible Securities other than such
Options or Convertible Securities which are exchangeable, issuable, exercisable
or convertible into Common Stock which are excluded from the definition of
Additional Common Stock or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 8.4.6) of such Additional Shares of Common
Stock would be less than the applicable Conversion Price in effect on the date
of, and immediately prior to, such issue, or such record date, as the case may
be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(a) no further adjustment in the applicable Conversion Price shall be
made upon the subsequent issue of shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible Securities or upon
the subsequent issue of such
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Convertible Securities or Options;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or any increase or decrease in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the applicable Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon shall, upon such expiration, be
recomputed as if such unexercised portion of such Options or rights of
conversion or exchange under such Convertible Securities had not been issued.
8.4.6. Determination of Consideration. For purposes of this Section 8.4,
the consideration received by the Company for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the
aggregate amount of net cash proceeds received by the Company,
excluding unpaid amounts payable for accrued interest or accrued
dividends;
(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the Company;
and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (i)
and (ii) above, which is allocated to the Additional Shares of
Common Stock as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 8.4.5, relating to Options and Convertible
Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or
Convertible Securities, plus, the
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minimum aggregate amount of additional consideration (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration
but subject to later readjustment pursuant to Section 8.4.5) payable
to the Company upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number but
subject to later readjustment pursuant to Section 8.4.5) issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
8.4.7. Other Dilutive Events. In case any event shall occur as to which
the other provisions of this Section 8.4 are not strictly applicable, but
the failure to make any adjustment in the Conversion Price would not fairly
protect the conversion rights represented by the Series A Preferred Stock
in accordance with the intention of this Section 8, then, upon request of
the holders of a majority of the shares of the Series A Preferred Stock,
the Board of Directors of the Company shall appoint a firm of independent
public accountants of recognized national standing (which may be the
regular auditors of the Company) to give their opinion as to the
adjustment, if any, on a basis consistent with the intention of this
Section 8, necessary to preserve without dilution the conversion rights
represented by the Series A Preferred Stock. Upon receipt of such opinion,
the Company will promptly furnish a copy thereof to the holders of the
Series A Preferred Stock and the Conversion Price shall be adjusted in
accordance therewith. The fees and expenses of such accountants shall be
paid by the Company; provided, however, that if such accountants opine that
no adjustment is necessary, such fees and expenses will be paid by the
holders of the Series A Preferred Stock.
8.5. Other Distributions. In the event the Company shall declare a
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities, assets (including cash dividends) or options
or rights, then, in each such case for the purpose of this Section 8, the
holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of such Series A
Preferred Stock were convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution.
8.6. Subsequent Events. In the event of any recapitalization, consolidation
or merger of the Company or its successor which does not require redemption of
the Series A Preferred Stock pursuant to Section 6.3, the shares of Series A
Preferred Stock shall be convertible into such shares or other interests as the
Series A Preferred Stock would have been entitled if the Series A Preferred
Stock had been converted into Common Stock immediately prior to such event.
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9. Covenants.
9.1 Special Restrictions. At any time when shares of Series A Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Company is required by law or by the
Articles of Organization, and in addition to any other vote required by law or
the Articles of Organization, without the consent of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class, the Company will not:
(a) create or authorize the creation of any additional class or series
of shares of stock, or issue any shares thereof, unless the same ranks pari
passu with or junior to the Series A Preferred Stock as to the distribution
of assets on the liquidation, dissolution or winding up of the Company or
increase the authorized amount of the Series A Preferred Stock or increase
the authorized amount of any additional class or series of shares of stock
unless the same ranks pari passu with or junior to the Series A Preferred
Stock as to the distribution of assets on the liquidation, dissolution or
winding up of the Company, or create or authorize any instrument or
security convertible into shares of Series A Preferred Stock or into shares
of any other class or series of stock unless the same ranks pari passu with
or junior to the Series A Preferred Stock as to distribution of assets on
the liquidation, dissolution or winding up of the Company, whether any such
creation, authorization or increase shall be by means of amendment to the
Articles of Organization or by merger, consolidation or otherwise;
(b) amend, alter or repeal its Articles of Organization or By-laws in
a manner that is adverse to the holders of Series A Preferred Stock in any
respect or for which the holders of Series A Preferred Stock did not
receive prior written notice;
(c) purchase or set aside any sums for the purchase of any shares of
stock other than (i) the Series A Preferred Stock, (ii) Future Shares or
(iii) Common Stock from former employees of the Company who acquired such
shares directly from the Company or pursuant to the Stock Option Plan (as
defined in the Purchase Agreement), if each such purchase is made pursuant
to contractual rights held by the Company relating to the termination of
employment of any such former employee and the total purchase price does
not exceed $100,000 for all such purchases from each such former employee
or is expressly permitted by the Stock Option Plan or stock option
agreements entered into in connection therewith;
(d) redeem or otherwise acquire any shares of Series A Preferred Stock
except as expressly authorized in Section 6 or pursuant to a purchase offer
made pro rata to all holders of the shares of Series A Preferred Stock on
the basis of the aggregate number of outstanding shares of Series A
Preferred Stock then held by each such holder;
(e) consent to any liquidation, dissolution or winding up of the
Company as a whole or substantially as a whole in a single transaction or a
series of related transactions; or
(f) consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets, except that the
Company may, without the consent of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, effectuate a
-16-
<PAGE> 43
merger in which (i) the Company is the surviving corporation and (ii) the
stockholders of the Company immediately prior to the merger hold more than
50% of the outstanding voting power of the surviving corporation (assuming
conversion of all convertible securities and exercise of all outstanding
options and warrants), and the Company may effect a Qualified Sale.
9.2 No Impairment. The Company will not seek to avoid the observance or
performance of any of the terms to be observed or performed under this
Certificate of Vote of Directors by the Company, but will at all times in good
faith assist in carrying out all the provisions of this Certificate of Vote of
Directors.
9.3 Reservation of Shares. So long as any share of Series A Preferred
Stock shall remain outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock,
for the purpose of issuance upon conversion of the Series A Preferred Stock,
the full number of shares of Common Stock then issuable upon exercise of all
outstanding shares of Series A Preferred Stock. If the Company's Common Stock
shall be listed on any national stock exchange, the Company at its expense
shall include in its listing application all of the shares of Common Stock
reserved for issuance upon conversion of the Series A Preferred Stock (subject
to issuance or notice of issuance to the exchange) and will similarly procure
the listing of any further Common Stock reserved or issuance upon conversion of
the Series A Preferred Stock at any subsequent time as a result of adjustments
in the outstanding Common Stock or otherwise.
9.4 Validity of Shares. The Company will from time to time take all such
action as may be required to assure that all shares of Common Stock which may
be issued upon conversion of any share of the Series A Preferred Stock will,
upon issuance, be legally and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
Without limiting the generality of the foregoing, the Company will from time to
time take all such action as may be required to assure that the par value per
share, if any, of the Common Stock is at all times equal to or less than the
lowest quotient obtained by dividing the then current par value of the Series
A Preferred Stock by the number of shares of Common Stock into which each share
of Series A Preferred Stock can, from time to time, be converted.
9.5 Notice of Certain Events. If at any time:
(a) the Company shall declare any dividend or distribution payable
to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders
of Common Stock any additional shares of stock of any class or any other rights;
(c) any recapitalization of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization shall occur; or
(d) a voluntary or involuntary dissolution, liquidation or winding
up of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions
-17-
<PAGE> 44
shall occur;
then, in any one or more of such cases, the Company shall give the
registered holders of the Preferred Stock written notice, by registered mail, of
the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining stockholders entitled to vote upon such
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up and of the date when any such transaction shall take place, as the
case may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given 20 days prior to the record date with
respect thereto.
9.6 No Reissuance of Preferred Stock. No shares of Series A Preferred
Stock acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as deemed
necessary to reduce the authorized number of shares of Preferred Stock
accordingly.
10. Preemptive Rights.
10.1. Right of First Offer. Until the closing, including the closing
under any over-allotment option, under a Qualified Public Offering, the Company
shall not issue or sell any Common Stock (including securities convertible
into, or options, warrants or other rights to purchase Common Stock, but
excluding the shares described in Section 10.7)(collectively, the "Future
Shares") to any person or other entity (an "Offeree") without first providing
each holder of Series A Preferred Stock and Common Stock (all holders
collectively referred to as the "Preemptive Group") the right to subscribe for
its Proportionate Percentage of the Future Shares at a price and on such other
terms which are at least as favorable as shall have been offered or are
proposed to be offered by the Company to such Offeree and which shall have been
specified by the Company in a notice delivered to each member of the Preemptive
Group (the "Proposal"); provided, however, that the Preemptive Group shall have
the option to purchase Future Shares with cash, regardless of the method of
purchase offered to such Offeree. The Proposal by its terms shall remain open
and irrevocable for a period of 30 days from the date it is delivered by the
Company to the Preemptive Group (the "Future Shares Exercise Period"). The
Proposal shall also certify that the Company has either (a) received a bona
fide offer from a prospective purchaser, who shall be identified in such
certification, and that the Company in good faith believes a binding agreement
of sale is obtainable for consideration have a fair market, cash equivalent or
present value set forth in such certification; or (b) intends in good faith to
make an offering of its securities to prospective purchasers, who shall be
identified to the extent possible in such certification at the price and on the
terms set forth in such certification.
"Proportionate Percentage" means, for any member of the Preemptive Group,
the percentage of Future Shares covered by the Proposal equal to (i) the number
of shares of Common Stock either held by the member of the Preemptive Group or
into which the shares of Series A Preferred Stock held by such member would
then be convertible divided by (ii) the total number of shares of Common Stock
outstanding at the time of delivery of the Proposal plus the aggregate number
of shares of
-18-
<PAGE> 45
Common Stock into which all shares of Series A Preferred Stock would then be
convertible.
10.2. Notice. Notice of each member of the Preemptive Group's intention
to accept the Proposal made pursuant to Section 10.1 shall be evidenced by a
writing signed by such holder and delivered to the Company prior to the end of
the Future Shares Exercise Period (the "Notice of Purchase") setting forth that
portion of the Future Shares such holder elects to purchase (the "Accepted
Shares").
10.3. Full Acceptance. In the event that each member of the Preemptive
Group elects to purchase all of the shares offered to such holder in the
Proposal, the Company shall sell to each such holder, pursuant to Section 10.6,
the number of Accepted Shares set forth in such holder's Notice of Purchase.
10.4. Partial Acceptance. In the event that one or more members of the
Preemptive Group do not elect to purchase all of the shares offered to such
holders in the Proposal, the Company shall sell to shareholder, pursuant to
Section 10.6, the number of Accepted Shares, if any, set forth in such holder's
Notice of Purchase. Members of the Preemptive Group may purchase pursuant to
Section 10.6 any remaining shares offered in the Proposal not purchased by the
other members of the Preemptive Group pro rata based on the respective
Proportionate Percentages of such holders wishing to purchase additional shares,
or as they may otherwise agree.
10.5. No Fractional Shares. For the purpose of avoiding fractions as to
Future Shares, the Company may adjust upward or downward by not more than one
full share the number of Future Shares which any member of the Preemptive Group
would otherwise be entitled to purchase.
10.6. Sale of Shares. No later than 30 days after the expiration of the
Future Shares Exercise Period, the Company shall deliver to each member of the
Preemptive Group who has submitted a Notice of Purchase to the Company a notice
indicating the number of Future Shares which the Company shall sell to such
holder pursuant to this Section 10 and the terms and conditions of such sale,
which shall be in all respects (including, without limitation, unit price and
interest rates) the same as specified in this proposal. The sale to such
holders of such Future Shares shall take place not later than 10 days after
receipt of such notice.
Any sale to an Offeree of Future Shares that were not selected for
purchase by the members of the Preemptive Group as provided above shall take
place not later than 90 days after the expiration of the Future Shares Exercise
Period. Such sale shall be upon terms and conditions in all respects (including,
without limitation, unit price and interest rates) which are no more favorable
to such Offeree or less favorable to the Company than those set forth in the
Proposal. Any refused Future Shares not purchased by the Offeree as contemplated
by the Proposal within the 90-day period specified shall remain subject to this
Section 10.
10.7. Exclusion of Certain Shares. Notwithstanding any contrary
provision of this Section 10, Future Shares shall not include shares of Common
Stock issuable in transactions described in clauses (i), (ii), (iii) and (iv) of
Section 8.4.1(d).
11. Amendments. The provisions of these terms of the Series A Preferred Stock
may not be amended
-19-
<PAGE> 46
modified or waived without the written consent or affirmative vote of each of
the following groups: (a) the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock and (b) the holders of at least
a majority of the then outstanding shares of Series A Preferred Stock and
Common Stock voting together as a single class and (c) the holders of at least
25% of the then outstanding shares of Non-Investor Common Stock voting
separately as a single class; provided, however, that any amendment changing
the amount of the Conversion Price or Preferential Amount shall require the
written consent or affirmative vote of holders of 100% of the then outstanding
shares of Series A Preferred Stock. Except to the extent required by law, the
vote of the holders of any other class of capital stock of the Company is not
required for the amendment, modification or waiver of the terms of this
Certificate of Vote of Directors.
-20-
<PAGE> 47
NEW ENGLAND AUDIO CO., INC. has caused this certificate to be signed by
Jeffrey Stone, its President, and attested by Samuel Bloomberg, its Clerk, this
27th day of November, 1995.
/s/ Jeffrey Stone
-----------------
President
ATTEST:
/s/ Samuel Bloomberg
- --------------------
Clerk
-21-
<PAGE> 48
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 28th day of November in the year 1995.
/s/ Jeffrey Stone, President
/s/ Jeffrey Stone, Assistant Clerk
<PAGE> 49
THE COMMONWEALTH OF MASSACHUSETTS
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the filing fee in the amount
of $100. having been paid, said certificate is hereby filed this 28th day of
November, 1995.
/s/ William Francis Galvin
William Francis Galvin
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO:
Daniel R. Avery, Esq.
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110-3333
Telephone: (617) 482-1776
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE 4/22/98 CLERK
<PAGE> 50
<TABLE>
<S> <C> <C>
THE COMMONWEALTH OF MASSACHUSETTS
/s/ ?
- --------- WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
GENERAL LAWS, CHAPTER 156B, SECTION 72 NO. 04-2499342
------------------
We Jeffrey Stone , President and
Samuel J. Bloomberg Clerk of
New England Audio Co., Inc.
---------------------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 40 Hudson Road, Shawmut Park, Canton, MA 02021
---------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3
-------------
---------------------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
PD
- --------- of the Articles of Organization were duly adopted by unanimous written consent dated
Name January 15, 1996, by vote of:
Approved
161,017 shares of Common out of 161,017 shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
Series A Redeemable Convertible
138,991 shares of Preferred Stock out of 138,991 shares outstanding, and
---------- ------------------------------- ---------
type, class & series, (if any)
shares of out of shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
CROSS OUT XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
INAPPLI- XXXXXXX
CABLE being at least two-thirds of each type, class or series outstanding and entitled
CLAUSE to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby: 2
C [ ]
P [ ] 1 For amendments adopted pursuant to Chapter 156B, Section 70.
M [ ]
R.A. [ ] 2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient,
4 additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left-hand
- --------- margin of at least 1 inch for binding. Additions to more than one Amendment may be continued
P.C. on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
</TABLE>
<PAGE> 51
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<S> <C> <C> <C> <C>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
_________________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
_________________________________________________________________________________________________
COMMON: 2,000,000 COMMON:
_________________________________________________________________________________________________
PREFERRED: 2,000,000 PREFERRED:
_________________________________________________________________________________________________
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
________________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
________________________________________________________________________________________________
COMMON: 10,000,000 COMMON:
________________________________________________________________________________________________
PREFERRED: 4,000,000 PREFERRED:
________________________________________________________________________________________________
</TABLE>
<PAGE> 52
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date. LATER EFFECTIVE
DATE: _______________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 22nd day of January, in the year 1996.
/s/ Jeffrey Stone Jeffrey Stone , President/
- --------------------------------------------------------------------
/s/ Samuel J. Bloomberg Samuel J. Bloomberg , Clerk/
- --------------------------------------------------------------------
<PAGE> 53
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
============================================
I hereby approve the within articles
of amendment and, the filing fee in the
amounts of $10,000 having been paid, said
articles are deemed to have been filed with
me this 23rd day of January 1996.
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
_________________________________
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE: 5-28-97 CLERK
_________________________________
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Daniel R. Avery, Esq.
---------------------------------------------
Goulston & Storrs
400 Atlantic Avenue
---------------------------------------------
Boston, MA 02110-3333
---------------------------------------------
Telephone: (617) 482-1776
----------------------------------
<PAGE> 54
<TABLE>
<S> <C> <C>
THE COMMONWEALTH OF MASSACHUSETTS
/s/ ?
- --------- WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
GENERAL LAWS, CHAPTER 156B, SECTION 72 NO. 04-2499342
----------------------
I Jeffrey Stone , President and
Assistant Clerk of
New England Audio Co., Inc.
---------------------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 40 Hudson Road, Shawmut Park, Canton, MA 02021
---------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3, 4
-------------
---------------------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
PD
- --------- of the Articles of Organization were duly adopted by unanimous written consent dated May 9
Name 1996, by vote of:
Approved
1,610,170 shares of Common out of 1,610,170 shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
Series A Redeemable Convertible
1,389,910 shares of Preferred Stock out of 1,389,910 shares outstanding, and
---------- ------------------------------- ---------
type, class & series, (if any)
shares of out of shares outstanding,
---------- ------------------------------- -------------
type, class & series, (if any)
CROSS OUT XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
INAPPLI- XXXXXXX
CABLE being at least two-thirds of each type, class or series outstanding and entitled
CLAUSE to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby: 2
C [ ]
P [ ] 1 For amendments adopted pursuant to Chapter 156B, Section 70.
M [ ]
R.A. [ ] 2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient,
5 additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left-hand
- --------- margin of at least 1 inch for binding. Additions to more than one Amendment may be continued
P.C. on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
</TABLE>
<PAGE> 55
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<S> <C> <C> <C> <C>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
__________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
__________________________________________________________________________________________
COMMON: 10,000,000 COMMON:
__________________________________________________________________________________________
PREFERRED: 4,000,000 PREFERRED:
(Series A Redeemable 400,000
Convertible)
__________________________________________________________________________________________
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
___________________________________________________________________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
___________________________________________________________________________________________
COMMON: 10,000,000 COMMON:
___________________________________________________________________________________________
PREFERRED: PREFERRED:
(Series A Redeemable 4,000,000
Convertible)
___________________________________________________________________________________________
</TABLE>
The Certificate of Vote of Directors Establishing a Series of A Class of
Stock (The "Certificate") is hereby amended as is set forth on the attached
Exhibit A.
<PAGE> 56
EXHIBIT A
(a) Section 1 of the Certificate is hereby amended by replacing the figure
"400,000," where appearing in the fourth line of the first paragraph
thereof, with the figure "4,000,000" and
(b) Section 5.2.2 of the Certificate is hereby amended to read in its entirety
as follows:
"5.2.2. PREFERRED DIRECTORS. In addition to the rights set
forth in Sections 5.2.4 and 5.2.5, the holders of a majority of
the shares of Series A Preferred Stock and Investor Common Stock,
voting together as a single class, separate from all other
classes, shall be entitled to elect two directors (the "PREFERRED
DIRECTORS"). The election of any Preferred Director who is not a
partner of WPC's partner or an officer of Advent International
Corporation must be consented to by a majority of the holders of
Non-Investor Common Stock, which consent shall not be unreasonably
withheld."
(c) Section 8.4.3 of the Certificate is hereby amended by inserting,
immediately after the phrase "(calculated to the nearest one hundredth of
a cent)", the following phrase:
"to be the price determined".
<PAGE> 57
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which
event the amendment will become effective on such later date. LATER EFFECTIVE
DATE: _______________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 13th day of May, in the year 1996.
/s/ Jeffrey Stone President
- ---------------------------------------------------------------------
Jeffrey Stone
/s/ Jeffrey Stone Assistant Clerk
- ---------------------------------------------------------------
Jeffrey Stone
<PAGE> 58
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
==========================================
I hereby approve the within articles of amendment and, the filing fee in
the amount of $200 having been paid, said articles are deemed to have been
filed with me this 13th day of May, 1996.
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
-----------------------------
A TRUE COPY ATTEST
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
DATE 4/28/98 CLERK /s/ [Illegible]
---------------
-----------------------------
TO BE FILED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Daniel R. Avery, Esq.
----------------------------------------------
GOULSTON & STORRS, P.C.
----------------------------------------------
400 Atlantic Avenue
Boston, MA 02110
----------------------------------------------
Telephone: (617) 482-1776
-----------------------------------
<PAGE> 59
FEDERAL IDENTIFICATION
NO. 04-2499343
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Jeffrey Stone , *President
--------------------------------------------------------------
and Samuel J. Bloomberg *Clerk
--------------------------------------------------------------
New England Audio Co., Inc.
of --------------------------------------------------------------------------
(Exact name of corporation)
located at: 40 Hudson Road, Shawmut Park, Canton, Massachusetts 02021
-------------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3 & 4
- -----------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted by unanimous written consent
dated May 30, 1997, by vote of:
Series A Redeemable
2,591,660 shares of Convertible Preferred Stock of 2,591,660 shares outstanding,
- --------- --------------------------- ---------
(type, class & series, if any)
1,610,170 shares of Common Stock of 1,610,170 shares outstanding,
- --------- --------------------------- ---------
(type, class & series, if any)
and
shares of of shares outstanding,
- --------- --------------------------- ---------
(type, class & series, if any)
(1)**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/or (2)**being at least two-thirds of each type, class
or series outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby:
*Delete the inapplicable words, **Delete the inapplicable clause.
(1)For amendments adopted pursuant to Chapter 156B, Section 70.
(2)For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate
8-1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to
more than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
/s/ illegible
- ----------
Examiner
/s/ illegible
- ----------
Name
Approved
C / /
P / /
M / /
R.A. / /
28
- ----------
P.C.
<PAGE> 60
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following.
The total presently authorized is:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -----------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: 10,000,000 Common:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Preferred: Series A Redeemable Preferred:
Convertible
4,000,000
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -----------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common: 10,000,000 Common:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Preferred: 8,000,000 Preferred:
(4,000,000
Series A Redeemable
Convertible and
4,000,000 Series B
Redeemable Convertible)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 61
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
Recitals; Amendment and Restatement.
(a) Pursuant to the unanimous written consent of the Board of Directors
of the Company dated November 20, 1995, the Company adopted a Certificate of
Vote of Directors with respect to the establishment of the Series A Preferred
Stock (as amended on May 13, 1996, the "Series A Certificate of Vote");
(b) Pursuant to the unanimous written consent of the Board of Directors
and the shareholders of the Company dated May 30, 1997, the Series A
Certificate of Vote is amended and restated in its entirety by the terms set
forth in this Certificate of Vote.
1. Designation and Amount. The designation of the first series of the
authorized preferred stock, no par value, of the Company (the "Preferred
Stock") shall be Series A Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock"). The number of authorized shares of Series A Preferred Stock
shall initially be 4,000,000 subject to increase (but only as to shares of
Preferred Stock authorized by the Articles of Organization with respect to
which the powers, designations, preferences and rights shall not then have been
previously designated) or decrease (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of Directors.
The designation of the second series of the Preferred Stock shall be
Series B Redeemable Convertible Preferred Stock (the "Series B Preferred
Stock"). The number of authorized shares of Series B Preferred Stock shall
initially be 4,000,000 subject to increase (but only as to shares of Preferred
Stock authorized by the Articles of Organization with respect to which the
powers, designations, preferences and rights shall not then have been
previously designated) or decrease (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of Directors.
The Series A Preferred Stock has been issued pursuant to the Series A
Preferred Stock Purchase Agreement dated as of November 28, 1995 among the
Company, Weston Presidio Offshore Capital C.V. and certain other investors and
pursuant to an amendment thereto dated May 13, 1996 (as so amended the "Original
Series A Purchase Agreement"). A copy of the Original Series A Purchase
Agreement will be provided to any registered holder of shares of capital stock
of the Company following written request directed to the Clerk of the Company at
its registered address.
The Series B Preferred Stock has been issued pursuant to the Amended and
Restated Series A and Series B Preferred Stock Purchase Agreement dated as of
May 30, 1997 among the Company, Weston Presidio Offshore Capital C.V. and
certain other investors (as from time to time in effect, the "Purchase
Agreement"). The Purchase Agreement amends and restates the Original Series A
Purchase Agreement and a coy of the Purchase Agreement will be provided to any
registered holder of shares of capital stock of the Company following written
request directed to the Clerk of the Company at its registered address.
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The relative powers, preferences and rights, and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to or imposed on the Series A Preferred Stock and
the Series B Preferred Stock and, where applicable, the Common Stock are set
forth below:
2. Definitions. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Certificate of Vote, (b)
the capitalized term "Exhibit" refers to exhibits to this Certificate of Vote,
(c) references to a particular Section include all subsections thereof and (d)
the word "including" shall be construed as "including without limitation".
Accounting terms used in this Certificate of Vote and not otherwise defined
herein shall have the meanings provided in GAAP. Certain capitalized terms are
used in this Certificate of Vote as specifically defined in this Section 1 as
follows:
2.1. "Accepted Shares" is defined in Section 10.2
2.2. "Additional Shares of Common Stock" is defined in Section 8.4.1(d).
2.3. "Affiliate" is defined in the Purchase Agreement.
2.4. "Applicable Conversion Price" is defined in Section 8.1.
2.5. "Applicable Preferential Amount" is defined in Section 4.
2.6. "Bridge Commitment" is defined in the Purchase Agreement.
2.7. "Bridge Warrants" is defined in the Purchase Agreement.
2.8. "By-laws" means all written rules, regulations, procedures and
by-laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive of
the Charter of such Person, each as from time to time amended or modified.
2.9."Calculation Date" is defined in Section 4.
2.10. "Combined Preferred Stock" means, collectively, the Series
A Preferred Stock and the Series B Preferred Stock, or either of such series.
2.11. "Common Stock" means the common stock no par value, of the Company.
2.12. "Company" is defined in the Preamble.
2.13. "Convertible Securities" is defined in Section 8.4.1.(c).
2.14. "Future Shares" is defined in Section 10.1.
2.15. "Future Shares Exercise Period" is defined in Section 10.1.
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2.16. "Majority of Combined Preferred Stock" means a majority of the
outstanding shares of Combined Preferred Stock (on an as converted basis),
voting together as a single class.
2.17. "Majority of Preferred Equity" means a majority of the outstanding
shares of Combined Preferred Stock (on an as converted basis) and Preferred
Common Stock, voting together as a single class.
2.18. "Majority of Sub-Debt Interests" means the holders of a majority of
Sub-Debt Warrants (on an as converted basis) and Common Stock issued upon the
exercise of such Sub-Debt Warrants, voting together as a single class.
2.19. "MGL 70" means Section 70 of Chapter 156B of the Massachusetts
General Laws, as in effect on the Series B Original Issue Date.
2.20. "Non-Investor Common Stock" is defined in the Purchase Agreement.
2.21. "Non-Investor Director" is defined in Section 5.2.3.
2.22. "Notice of Purchase" is defined in Section 10.2.
2.23. "Offeree" is defined in Section 10.1.
2.24. "Options" is defined in Section 8.4.1.(a).
2.25. "Organic Change" is defined in Section 6.3.
2.26. "Permitted Liquidation" is defined in section 5.5 of the Purchase
Agreement.
2.27. "Person" means an individual, partnership, corporation, limited
liability company, association, trust, joint venture, unincorporated
organization and any governmental department or agency or political subdivision.
2.28. "PNC" is defined in Section 5.2.4.
2.29. "Preemptive Group" is defined in Section 10.1.
2.30. "Preferred Common Stock" means any Common Stock issued upon
conversion of any Combined Preferred Stock or upon conversion or exercise of
the Warrants.
2.31. "Preferred Director" is defined in Section 5.2.1.
2.32. "Preferred Stock" is defined in Section 1.
2.33. "Proportionate Percentage" is defined in Section 10.1
2.34. "Proposal" is defined in Section 10.1
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2.35. "Purchase Agreement" is defined in Section 1.
2.36. "Qualified Amount" is defined in Section 8.2
2.37. "Qualified Proceeds" is defined in Section 8.2.
2.38. "Qualified Public Offering" is defined in Section 8.2.
2.39. "Qualified Sale" is defined in Section 8.2.
2.40. "Related Agreements" is defined in the Purchase Agreement.
2.41. "Remedy Event" is defined in Section 7.
2.42. "Remedy Notice" is defined in Section 5.2.6.
2.43. "Series A Preferred Stock" is defined in Section 1.
2.44. "Series A Preferred Stock Original Issue Date" means: (i) November
28, 1995, with respect to those shares of Series A Preferred Stock issued on
November 28, 1995, as described above in Section 1 and (ii) May 13, 1996, with
respect to those shares of Series A Preferred Stock issued on May 13, 1996, as
described above in Section 1.
2.45. "Series B Original Issue Date" is defined in Section 8.4.1.(b).
2.46. "Series B Preferred Stock" is defined in Section 1.
2.47. "Sub-Debt Note Agreement" is defined in the Purchase Agreement.
2.48. "Sub-Debt Warrants" is defined in the Purchase Agreement.
2.49. "Sub-Debt Warrant Agreement" is defined in the Purchase Agreement.
2.50. "Subordinated Notes" is defined in the Purchase Agreement.
2.51. "Warrants" is defined in Section 6.4.
2.52. "WPC" is defined in the Purchase Agreement.
3. Dividends. No dividends of cash or other property (other than additional
shares of Common Stock) shall be paid on the Common Stock unless the shares of
Combined Preferred Stock receive the same dividends that such shares would have
received had they been converted into Common Stock immediately prior to the
record date for such dividend.
4. Liquidation Preference. In the event of (a) any liquidation, dissolution
or winding up of the Company as a whole or substantially as a whole in a single
transaction or a series of related
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transactions, either voluntary or involuntary; or (b) unless agreed otherwise
in writing by the holders of a Majority of Combined Preferred Stock, a merger
or consolidation of the Company except where (i) the Company is the surviving
entity and (ii) the stockholders of the Company immediately prior to such
merger or reconsolidation are the owners of stock having more than 50% of the
outstanding voting power of the surviving corporation immediately following the
merger, distributions to the stockholders of the Company shall be made in the
following manner: the holders of Combined Preferred Stock shall be entitled to
receive, on a pro rata basis based on the respective amounts of their Applicable
Preferential Amounts (as defined below), prior and in preference to any
distribution of any of the assets of the Company to the holders of any other
series of Preferred Stock. Common Stock or other capital stock of the Company
by reason for their ownership of such stock, an amount per share equal to the
sum of (A) $4,237 (in the case of the Series A Preferred Stock) and $5.30 (in
the case of the Series B Preferred Stock) plus (B) an amount in the form of a
dividend which would equal a 15% rate of return compounded annually on the
applicable amount in clause (A) above from the Series A Original Issue Date, in
the case of the Series A Preferred Stock, or the Series B Original Issue Date,
in the case of the Series B Preferred Stock, to the date of distribution plus
(C) accrued and unpaid dividends, if any, on such Combined Preferred Stock due
under Section 3 (such sum being referred to as the "Applicable Preferential
Amount"). Any dividends paid to holders of Combined Preferred Stock from the
Series A Original Issue Date or Series B Original Issue Date, as applicable,
shall serve as a credit against the Applicable Preferential Amount due to such
holders. If the assets and funds of the Company shall be insufficient to permit
the payment in full of the Applicable Preferential Amounts to the holders of
Combined Preferred Stock, then the entire assets of the Company legally
available for distribution shall be distributed ratably among the holders of
Combined Preferred Stock on a pro rata basis based on the respective amounts of
their Applicable Preferential Amounts.
After payment has been made to the holders of Combined Preferred Stock of
the full amounts to which they are entitled under this Section 4, the holders
of Common Stock shall be entitled to share ratably in the remaining assets
without participation by the holders of Combined Preferred Stock. If any such
distributions described in this Section 4 are made in the form of assets and
not cash, then such distributions shall be deemed to have been made at the fair
market value of such assets.
5. Voting Rights; Representative Directors; etc.
5.1. Votes Per Share; Notices. Except as otherwise provided herein or
required by law, the holders of Combined Preferred Stock shall vote as a single
class with the holders of Common Stock and shall have such votes in respect of
each share of Combined Preferred Stock on any matter submitted to the holders
of Common Stock as the number of shares of Common Stock into which share of
Combined Preferred Stock may then be converted. Record holders of Combined
Preferred Stock shall be entitled to notice of any stockholders' meeting or
solicitation of stockholders' consents in the manner provided in the Bylaws of
the Company for general notices.
5.2. Preferred Directors.
5.2.1. Number of Directors. Except as provided in Section 5.2.6, the
Company shall have nine directors.
5.2.2. Preferred Directors. In addition to the rights set forth in
Section 5.2.5 and
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5.2.6, the holders of a Majority of Preferred Equity shall be entitled to elect
two directors (together with any directors elected pursuant to Section 5.2.6 by
a Majority of the Preferred ?????????????????????????????????????????????????
of WPC or its Affiliates or an officer of Advent International Corporation or
its Affiliates must be consented to by the holders of a majority of the
outstanding shares of Non-Investor Common Stock, which consent shall not be
unreasonably withheld.
5.2.3. Non-Investor Directors. The holders of a majority of the outstanding
shares of Non-Investor Common Stock, voting together as a single class,
separate from all other classes, shall be entitled to elect five directors (the
"Non-Investor Directors")
5.2.4. Sub-Debt Director. In addition to the rights set forth in Section
5.2.5 and 5.2.6, the holders of a Majority of Sub-Debt Interests shall be
entitled to elect one director (together with any directors elected pursuant to
Section 5.2.6 by a Majority of the Sub-Debt Interests, the "Sub-Debt
Directors"). The election of any Sub-Debt Director who is not a partner or
officer, as the case may be, of Exeter Venture Lenders, L.P., Exeter Equity
Partners, L.P., PNC Capital Corp, Seacoast Capital Partners, L.P. or their
Affiliates must be consented to by the holders of a majority of the outstanding
shares of Non-Investor Common Stock, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, in the event that the original holders
of the Sub-Debt Warrants on the Series B Original Issuance Date or any
Affiliate of such a holder fail to own 60% of the aggregate amount of all
Sub-Debt Warrants, the Majority of Preferred Equity shall be entitled to elect
all Sub-Debt Directors (subject to the second sentence of Section 5.2.2) and
the provisions of the second sentence of this Section 5.2.4 shall no longer
apply. For purposes of the preceding sentence only, the term "Affiliate", as
applied to PNC Capital Corp ("PNC"), shall include (a) any principal, officer
or employee of PNC, PNC Equity Management Corp or PNC Venture Corp and (b) any
partnership or limited liability company of which any person described in
clause (a) above is a partner or member, and as applied to each of Seacoast
Capital Partners, L.P., Exeter Venture Lenders, L.P. and Exeter Equity Partners
L.P., shall include (i) any partnership or limited liability company of which
such person is a partner or member and (ii) any partner or limited partner of
such Person or an Affiliate thereof.
5.2.5. Combined Director. The holders of a Majority of the Preferred
Equity, voting as a single class, and the holders of a Majority of Non-Investor
Common Stock voting separately as a single class, shall be together entitled to
elect one director; provided, however, that if the Majority of Preferred Equity
and the Majority of Non-Investor Common Stock do not together so elect such
director, the directorship shall remain vacant.
5.2.6. Majority Preferred Directors. In the event that any Remedy Event
shall occur, then, upon notice to the Company given by the holders of not less
than two-thirds of the outstanding shares of Combined Preferred Stock (on an as
converted basis) (a "Remedy Notice"), the number of directors shall be
increased to thirteen and (a) the holders of a Majority of Preferred Equity
shall become entitled to elect a total of five members of the Board of
Directors of the Company, (b) the holders of a Majority of Sub-Debt Interests
shall become entitled to elect a total of two members of the Board of Directors
of the Company (subject to the last sentence of Section 5.2.4), (c) the holders
of a majority of the outstanding shares of
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Non-Investor Common Stock shall continue to be entitled to elect the five
Non-Investor Directors pursuant to Section 5.2.3 and (d) the holders of a
Majority of the Preferred Equity and a Majority of the Non-Investor Common
Stock shall together continue to be entitled to elect one director pursuant
to Section 5.2.5, all until any such Remedy Event shall have been rectified
or cured to the written satisfaction of the holders of a Majority of
Preferred Equity, whereupon the right of the Majority of Preferred Equity
to elect five members and the right of the Majority of the Sub-Debt
Interests to elect two members of the Board of Directors of the Company
shall cease and all Preferred Directors and Sub-Debt Directors then in
office who were elected pursuant to this Section 5.2.6 shall be removed
such that the Board of Directors shall again be comprised of (i) two
directors elected by a Majority of Preferred Equity (subject to the second
sentence of Section 5.2.2), (ii) five directors elected by a majority of
the outstanding shares of Non-Investor Common Stock, voting together as a
single class, separately from all other classes, (iii) one director elected
by the holders of a Majority of Sub-Debt Interests (subject to the second
sentence and the last sentence of Section 5.2.4), and (iv) one director
elected by the holders of a Majority of the Preferred Equity, voting as a
single class, and the holders of a Majority of Non-Investor Common Stock,
voting separately as a single class (subject to the proviso in Section
5.2.5), and the number of directors shall be reduced to nine, subject to
the above rights being again revived from time to time upon the
reoccurrence of the conditions above described.
5.3. Tenure. Subject to Section 5.4 below, each preferred Director or
Sub-Debt Director elected pursuant to Section 5.2 shall serve for a term of the
lesser of (a) one year and until such director's successor is elected and
qualified, or (b) in the case of a Preferred Director or Sub-Debt Director
elected pursuant to Section 5.2.6, until the right of such Preferred Director or
Sub-Debt Director to remain in office under Section 5.2.6 ceases (at which time
such Preferred Director or Sub-Debt Director will be deemed to be removed). So
long as the holders of a Majority of Preferred Equity or a Majority of Sub-Debt
Interests are entitled to elect Preferred Directors or Sub-Debt Directors,
respectively, any vacancy in the position of a Preferred Director or a Sub-Debt
Director may be filled only by vote of the holders of a Majority of Preferred
Equity or a Majority of Sub-Debt Interests, as the case may be, entitled to vote
thereon. A Preferred Director or a Sub-Debt Director, respectively, may, during
such director's term of office, be removed at any time, with or without cause,
only by the affirmative vote of the holders of record of a Majority of Preferred
Equity or a Majority of Sub-Debt Interests, as the case may be. Similarly, any
vacancy in the position of a Non-Investor Director may filled only by vote of
the holders of a majority of the outstanding shares of the Non-Investor Common
Stock entitled to vote thereon. A Non-Investor Director may, during such
Non-Investor Director's term of office be removed at any time, with or without
cause, only by the affirmative vote of the holders of record of a majority of
the outstanding shares of Non-Investor Common Stock.
5.4 Termination of Certain Rights.
5.4.1. Majority of Preferred Equity. All rights of the Majority of
Preferred Equity under Sections 5.2 and 5.3 shall terminate, automatically and
without necessity of any further actions by any person, upon the earlier to
occur of (a) the closing of a Qualified Public Offering or Qualified Sale or
(b) such time as the sum of (i) all Common Stock previously issued upon
conversion of Combined Preferred Stock and which is still outstanding plus (ii)
all Common Stock that would then be issuable upon the conversion of outstanding
Combined
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Preferred Stock plus (iii) all Common Stock previously issued or then
issuable upon exercise or conversion of any Warrants which is still
outstanding is less than 25% of such sum as calculated on the Series B
Original Issue Date (adjusting for stock splits, stock dividends and
similar recapitalization matters from and after the Series B Original Issue
Date). From and after the occurrence of any such event described in the
foregoing clauses (a) or (b), Section 5.1 shall, along with the other
provisions of the Company's Articles of Organization and By-laws, govern as
to the voting for directors which the Majority of the Preferred Interests
had previously been entitled to elect.
5.4.2. Majority of Sub-Debt Interests. All rights of the Majority of
Sub-Debt Interests under Sections 5.2 and 5.3 shall terminate,
automatically and without necessity of any further actions by any person,
upon the closing of a Qualified Public Offering or Qualified Sale. From and
after the occurrence of any event described in the foregoing sentence,
Section 5.1 shall, along with the other provisions of the Company's
Articles of Organization and By-laws, govern as to the voting for directors
which the Majority of the Sub-Debt Interests has previously been entitled
to elect.
6. Redemption.
6.1. Redemption Price. Shares of Combined Preferred Stock are redeemable
in accordance with this Section 6 at a redemption price per share equal to the
Applicable Preferential Amount as of the date of redemption, provided that
notwithstanding anything else herein to the contrary, such shares of Combined
Preferred Stock shall not be redeemable (a) if such redemption would violate
any Subordination Agreement referred to in Section 6.7, or (b) without the
consent of the Noteholders (as defined in the Senior Subordinated Note
Agreement referred to below) if a Default or Event of Default (each term as
defined in such Senior Subordinated Note Agreement) has occurred and is
continuing under that Senior Subordinated Note Agreement between the Company
and members of the Bronfman family dated November 28, 1995.
6.2. Mandatory Redemption. Except as set forth in Section 6.4,
irrespective of any other redemptions or acquisitions of shares of Combined
Preferred Stock, the Company will redeem at a price equal to the Applicable
Preferential Amount that number of shares of each series of Combined Preferred
Stock equal to 6.25% of the total number of issued and outstanding shares of
such series as of March 31, 2001 (or such lesser number as is then outstanding)
on the last day of each March, June, September and December commencing in June
2001.
6.3. Mandatory Contingent Redemption. Upon the earliest to occur of:
(a) the sale by the Company of all or a substantial portion of
its assets, other than a Permitted Liquidation or a Qualified Sale;
(b) the merger of the Company with, or the consolidation of the
Company into, any other corporation (other than a Qualified Sale)
except where (i) the Company is the surviving entity and (ii) the
stockholders of the Company immediately prior to such merger or
consolidation own collectively stock having more than 50% of the
outstanding voting power (assuming conversion of all convertible
securities and exercise of all outstanding options and
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warrants) of the surviving corporation;
(c) the dissolution or liquidation of the Company;
(d) Jeffrey Stone shall cease for any reason to be the President or
Chief Operating Officer of the Company and a replacement reasonably
satisfactory to the holders of at least a Majority of Combined Preferred
Stock shall not be in place within 180 days;
(e) except as a result of a Qualified Public Offering, more than 50%
of the outstanding voting stock of the Company becomes owned by Persons
other than collectively (i) holders of Combined Preferred Stock and their
transferees and (ii) other stockholders of record on the Series B Original
Issue Date (the foregoing events described in clauses (a) through (e) shall
constitute an "Organic Change"); or
(f) a Remedy Event,
to the extent permitted by the Company's principal senior bank working capital
facility and the Sub-Debt Note Agreement, each holder of Combined Preferred
Stock and its permitted transferees may, in lieu of and not in addition to any
rights it may have under Section 7, require the Company to redeem all or any
portion of the then outstanding shares of the Combined Preferred Stock of such
holder, at the holder's option, either (A) at a price equal to the Applicable
Preferential Amount or (B) at a price equal to the sum of (1) the Applicable
Conversion Price plus (2) accrued and unpaid dividends, if any, on such
Combined Preferred Stock due under Section 3, together with Warrants on the
same terms as described in Section 6.4.
6.4 Voluntary Redemption. The Company may redeem at the Applicable
Preferential Amount pro rata from all holders of Combined Preferred Stock an
aggregate number of shares of Combined Preferred Stock specified in the notice
delivered pursuant to Section 6.5. Such redemption shall take place at the time
and on the date set forth in such notice. At the closing of such redemption,
the Company shall deliver to each holder of Combined Preferred Stock whose
shares are being redeemed warrants in substantially the form of Exhibit 2.1A to
the Purchase Agreement (the "Warrants") to purchase the number of shares of
Common Stock into which the shares of Combined Preferred Stock so redeemed
could at the time have been converted at a purchase price per share equal to the
aggregate cash consideration received by the holder in connection with the
redemption divided by such number of shares of Common Stock. The number of
shares for which each Warrant shall be exercisable shall be reduced in
proportion to the mandatory redemption of Combined Preferred Stock under
Section 6.2 as provided in the Warrant. At the option of the Company, any
redemption under this Section 6.4 may be applied against, and shall relieve the
Company of, the next succeeding redemption obligation under Section 6.2 to the
extent of the shares redeemed under this Section 6.4.
6.5 Notice of Redemption; Pro Rata Treatment. Written notice of redemption
of Combined Preferred Stock pursuant to Sections 6.2 and 6.4 shall be given not
fewer than 30 days prior to the redemption date by first class mail, postage
prepaid, to each holder of record of shares of Combined Preferred Stock, at
such holder's address on the books of the Company. Each such notice shall
state: (a) the redemption date; (b) the number of shares of the Combined
Preferred Stock to be redeemed; (c) the Applicable Preferential Amount; (d) the
place or places where certificates for such
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shares are to be surrendered for payment of the Applicable Preferential Amount;
and (c) that dividends on the shares to be redeemed will cense to accrue on
such redemption date. Redemptions under Sections 6.2 and 6.4 shall be made pro
rata among all holders of Combined Preferred Stock.
6.6 Specific Performance. If any holder becomes obligated so to deliver
any shares of Combined Preferred Stock to the Company upon any redemption under
this Section 6 and fails to deliver the certificate therefor in accordance with
this Certificate of Vote, the Company may, at its option, in addition to all
other remedies it may have, cancel on its books such certificate representing
such shares to be redeemed.
6.7 Subordination. The rights of the holders of the Combined Preferred
Stock shall be subject to the provisions of (i) the Amended and Restated
Subordination Agreement dated May 30, 1997 among the Company, BankBoston, N.A.
and the initial holders of the Combined Preferred Stock and (ii) the
Subordination Agreement dated May 30, 1997 among the Company, the holders of
the Combined Preferred Stock on such date and the initial holders of the
Subordinated Notes, which provisions are incorporated herein by reference. The
holders of the Combined Preferred Stock should refer to such subordination
agreements for a description of the terms under which redemption and other
payments on the Combined Preferred Stock, notwithstanding the other provisions
of this Section 6.
7. Remedy Event. The term "Remedy Event" shall mean the occurrence and
continuance of any of the following events for a period exceeding 45 days after
written notice of the occurrence of such event has been furnished to the
Company by one or more holders of Combined Preferred Stock at its registered
address:
7.1 The Company shall fail to make any payment in respect of dividends on
or redemptions of any shares of Combined Preferred Stock as the same shall
become due and, to the extent prohibited by any subordination agreement in
effect from time to time and to which the Company and all of the holders of the
Combined Preferred Stock are parties, such failure shall continue for a period
of 135 days.
7.2 The Company shall fail to perform or observe any of the covenants,
agreements or other provisions set forth in this Certificate of Vote.
7.3 Any material written representation or warranty of or with respect to
the Company made in, or pursuant to the express requirements of, the Purchase
Agreement shall prove to have been false on the date as of which it was made.
7.4 The Company or any of its Subsidiaries shall fail to make any required
payment on any senior bank indebtedness exceeding $250,000 in principal amount
of (or guaranteed by) the Company or any of its Subsidiaries, or the Company or
any of its Subsidiaries shall fail to perform or observe any of the covenants or
provisions required to be performed or observed by it pursuant to the credit
agreement evidencing such senior bank indebtedness (as from time to time in
effect), and (a) any security interest in or other lien on any property securing
any such indebtedness shall be enforced, unless contested in good faith by the
Company by appropriate proceedings or (b) if such payment is a
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partial payment, all related indebtedness shall become due and payable prior to
stated maturity.
7.5. The Company or any of its Subsidiaries shall fail to make any required
payments, which payments exceed $375,000 in the aggregate, with respect to
indebtedness of (or guaranteed by) the Company or any of its Subsidiaries or
with respect to any share of capital stock (whether because funds are not
legally available therefor or otherwise), whether such payments are due upon
final maturity, accelerated maturity, mandatory prepayment or otherwise.
7.6. The Company shall fail to keep reserved a sufficient number of shares
of Common Stock for issuance upon conversion of the Combined Preferred Stock or
shall fail to issue an amount of shares of Common Stock upon the conversion by
the holders thereof of the Combined Preferred Stock.
7.7. An Organic Change shall occur.
7.8. The sum of consolidated stockholders' equity of the Company and its
subsidiaries plus (to the extent not included in stockholder's equity) the
Combined Preferred Stock, all determined in accordance with generally accepted
accounting principles consistently applied, shall at any time be less than the
sum of (a) $250,000 plus (b) two thirds of the Combined Preferred Stock issued
by the Company on or prior to the Series B Original Issue Date, determined in
accordance with generally accepted accounting principles.
7.9. A final judgment which, in the aggregate with other outstanding final
judgments against the Company or any of its Subsidiaries, exceeds $500,000
above insurance coverage shall be rendered against the Company or any of its
Subsidiaries and, within 30 days after entry thereof, such judgment shall not
have been discharged or stayed pending appeal, or within 30 days after
expiration of such stay such judgment shall not have been discharged.
7.10. The Company or any of its Subsidiaries or their Affiliates shall
fail to perform or observe any covenant agreement or provision to be performed
or observed by it under section 5 of the Purchase Agreement or sections 2
through 9 of the Registration Rights Agreement (as defined in the Purchase
Agreement) and such failure shall not have been rectified or cured within 75
days after actual knowledge of Samuel Bloomberg or Jeffrey Stone or their
replacement officers.
7.11. The Company or any of its subsidiaries owning at least 10% of the
assets, or contributing over the past fiscal year at least 10% of the cash
flow, of the Company and its subsidiaries on a consolidated basis, shall:
(a) commence a voluntary case under Title 11 of the United States as
from time to time in effect, or authorize, by appropriate proceedings of
its board of directors or other governing body, the commencement of such a
voluntary case;
(b) have filed against it a petition commencing an involuntary case
under such Title 11 and such petition is not dismissed within 90 days;
(c) seek relief as a debtor under any applicable law, other than such
Title 11, of any jurisdiction relating to the liquidation or reorganization
of debtors or to the
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modification or alteration of the rights of creditors, or consent to or
acquiesce in such relief:
(d) have entered against it any order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors generally, or (iii) assuming custody of, or
appointing a receiver or other custodian for, all or a substantial part of
its property; or
(e) make an assignment for the benefit of, or enter into a composition
with, its creditors, or appoint or consent to the appointment of a receiver
or other custodian for all or a substantial part of its property.
8. Conversion.
8.1 Right of Conversion. Each share of Combined Preferred Stock shall be
convertible, at the option of the holder thereof at any time at the office of
the Company or any transfer agent for the Combined Preferred Stock into the
number of shares of the Common Stock of the Company obtained by dividing $5.30
(in the case of the Series B Preferred Stock) and $4.237 (in the case of the
Series A Preferred Stock) by the Applicable Conversion Price.
"Applicable Conversion Price" means (i) with respect to each share of
Series A Preferred Stock, $4.237 and (ii) with respect to each share of Series B
Preferred Stock, $5.30, in each case as from time to time adjusted by this
Section 8. All calculations under this Section 8 shall be made to the nearest
one-hundredth of a cent.
8.2 Automatic Conversion. Each share of Combined Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Applicable Conversion Price for such share at any time upon the occurrence of
any of the following events that result in Qualified Proceeds:
(a) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, with managing underwriters reasonably satisfactory to the holders
of at least a Majority of Combined Preferred Stock, covering the offer and
sale of Common Stock for the account of the Company to the public generally
providing net proceeds to the Company or selling stockholders (after
underwriter commissions and discounts, but before other offering expenses)
of not less than $15,000,000 in the aggregate (a "Qualified Public
Offering"); or
(b)(i) the sale or other disposition of all or a substantial portion of
the assets of the Company or (ii) the merger or consolidation of the
Company with or into any third party as a result of which the stockholders
of the Company immediately prior to such merger or consolidation do not own
stock having more than 50% of the outstanding voting power (assuming
conversion of all convertible securities and exercise of all outstanding
options and warrants) of the surviving corporation (collectively, a
"Qualified Sale").
As used in this Section 8.2, an event shall be deemed to result in
"Qualified Proceeds" if:
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(A) in the case of a Qualified Public Offering, the public offering
price per share of Common Stock (after underwriting commissions and
discounts, but before other offering expenses), set forth within the final
prospectus which is part of the effective registration statement relating
to such Qualified Public Offering, shall be not less than the Qualified
Amount (as defined below); or
(B) in the case of a Qualified Sale as described in clause (b)(i),
the net proceeds received by the Company as a result of such sale, which
are attributable to one share of Common Stock, and which are available for
distribution to the holder of such share of Common Stock, shall be not
less than the Qualified Amount; or
(C) in the case of a Qualified Sale as described in clause (b)(ii),
either (1) in the case of such Qualified Sale where the Company is the
surviving entity, the fair market value of all securities, cash or other
property (including without limitation any Common Stock), which is
received or retained in connection with such Qualified Sale (as determined
in good faith by the Board of Directors) on account of one share of Common
Stock shall not be less than the Qualified Amount; or (2) in the case of
such a Qualified Sale where the Company is not the surviving entity, the
fair market value of the total consideration received in connection with
such Qualified Sale (as determined in good faith by the Board of
Directors) on account of one share of Common Stock shall not be less than
the Qualified Amount.
As used above, "Qualified Amount" shall mean the following amount (minus,
in each case, all prior cash distributions and cash dividends paid per share of
Preferred Common Stock or Combined Preferred Stock pursuant to Section 3):
(x) $8.47, if the Qualified Public Offering or Qualified Sale, as the
case may be, occurs prior to October 31, 1997; and
(y) $9.53, if the Qualified Public Offering or Qualified Sale, as the
case may be, occurs on or after October 31, 1997;
provided that such amount shall be adjusted, in each case, for increases in the
number of issued and outstanding Common Stock occurring after the date hereof
as a result of stock splits, subdivisions, dividends or similar
recapitalizations.
8.3 Mechanics of Conversion. Before any holder of Combined Preferred Stock
shall be entitled to cover the same into shares of Common Stock and to receive
certificates therefor, such holder shall surrender the Combined Preferred Stock
certificates, duly endorsed, at the office of the Company or of any transfer
agent for the Combined Preferred Stock, and shall give written notice to the
Company at such office that such holder elects to cover the same, provided,
however, that in the event of an automatic conversion pursuant to Section 8.2,
the outstanding shares of Combined Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; and provided, further that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless the certificates evidencing such
shares of Combined Preferred Stock are either delivered to the Company
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or its transfer agent as provided above, or the holder notifies the Company or
its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement reasonably satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.
The Company shall, as soon as practicable after such delivery, or execution of
such agreement in the case of a lost certificate, issue and deliver at such
office to such holder of Combined Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
as aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock
plus all accrued and unpaid dividends on such holder's Combined Preferred Stock
so converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Combined Preferred Stock to be converted, or in the case of automatic conversion
immediately upon closing of the Qualified Public Offering or Qualified Sale, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
8.4 Adjustment of Applicable Conversion Price due to Issuance of
Additional Shares. The Applicable Conversion Price shall be subject to
adjustment as follows:
8.4.1. Special Definitions.
(a) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(b) "Series B Original Issue Date" shall mean the date on which
the Series B Preferred Stock is first issued by the Company.
(c) "Convertible Securities" shall mean any indebtedness,
shares or other securities convertible into or exchangeable for Common
Stock, other than Combined Preferred Stock.
(d) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 8.4.5, deemed to be
issued) by the Company after the Series B Original Issue Date, other
than shares of Common Stock issued or issuable at any time:
(i) upon conversion of Combined Preferred Stock or upon
exercise or conversion of the other options and warrants,
including the Bridge Warrants and the Sub-Debt Warrants, set
forth in Exhibit 4.3.4 or Exhibit 4.3.2 to the Purchase
Agreement.
(ii) as a dividend or distribution on the Combined
Preferred Stock or any event for which adjustment is made
pursuant to Section 8.4.3;
(iii) pursuant to the Stock Option Plan or other stock
option, stock bonus or other employee stock plan referred to in
Section 4.1.1 of the Purchase Agreement or otherwise permitted
by section 5.17 of the Purchase Agreement
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or approved by the holders of at least a Majority of Combined
Preferred Stock, which approval shall specify the number of
shares of Common Stock available for distribution under any
such plan; or
(iv) by way of dividend (or other distribution) of shares
of Common Stock on shares of any of the foregoing securities
which are excluded from the definition of Additional Shares
of Common Stock by this clause(d).
8.4.2. No Adjustment of Applicable Conversion Price. No adjustment in
the Applicable Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the Company
is less than the Applicable Conversion Price in effect on the date of, and
immediately prior to, such issue.
8.4.3. Adjustment of Applicable Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 8.4.5) for a consideration per share
less than the Applicable Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, the Applicable
Conversion Price shall be recomputed, concurrently with such issue (calculated
to the nearest one hundredth of a cent) to be the price determined by dividing
(a) an amount equal to the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issue multiplied by the then effective
Applicable Conversion Price and (ii) the consideration, if any, deemed received
by the Company upon such issue by (b) the total number of shares of Common
Stock deemed to be outstanding immediately after such issue; and provided that,
for purposes of this Section 8.4.3, all shares of Common Stock outstanding or
issuable upon conversion of outstanding Options, Convertible Securities and the
Combined Preferred Stock shall be deemed to be outstanding. In no event will
the Applicable Conversion Price be adjusted as the result of any issuance of
any Additional Shares of Common Stock to any amount higher than the Applicable
Conversion Price in effect immediately prior to such issuance.
8.4.4. Adjustments for Subdivisions, Stock Dividends, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater number
of shares of Common Stock, the Applicable Conversion Prices then in effect
shall, concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Applicable Conversion Prices then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
8.4.5. Deemed Issue of Additional Shares of Common Stock - Options and
Convertible Securities. In the event the Company at any time after the Series B
Original Issue Date shall issue any Options or Convertible Securities other
than such Options or Convertible Securities which are exchangeable, issuable,
exercisable or convertible into Common Stock which are excluded from the
definition of Additional Common Stock or shall fix a record date
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for the determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that, for
purposes of this Section 8.4.5, Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 8.4.6) of such Additional Shares of Common Stock would be
less than the Applicable Conversion Price in effect on the date of, and
immediately prior to, such issue, or such record date, as the case may be
(except as provided below in this Section 8.4.5) and provided further that in
any such case in which Additional Shares of Common Stock are deemed to be
issued;
(a) no further adjustment in the Applicable Conversion Price shall be made
upon the subsequent issue of shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities or upon the
subsequent issue of such Convertible Securities or Options;
(b) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or any increase or decrease in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(c) upon the expiration of any such Options or any rights of conversion or
exchange under such Convertible Securities which shall not have been exercised,
the Applicable Conversion price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon shall, upon such expiration, be recomputed as if such
unexercised portion of such Options or rights of conversion or exchange under
such Convertible Securities had not been issued.
8.4.6. Determination of Consideration. For purposes of this Section 8.4,
the consideration received by the Company for the issue of any Additional Shares
of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate
amount of net cash proceeds received by the Company excluding unpaid amounts
payable for accrued interest or accrued dividends;
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(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the Company; and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (i) and
(ii) above, which is allocated to the Additional Shares of Common
Stock as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 8.4.5, relating to Options and Convertible
Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or Convertible
Securities, plus, the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration but subject to later readjustment
pursuant to Section 8.4.5) payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number but
subject to later readjustment pursuant to Section 8.4.5) issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
8.4.7 Other Dilutive Events. In case any event shall occur as to which
the other provisions of this Section 8.4 are not strictly applicable, but the
failure to make any adjustment in the Applicable Conversion Price would not
fairly protect the conversion rights represented by the Combined Preferred Stock
in accordance with the intention of this Section 8, then, upon request of the
holders of a Majority of Combined Preferred Stock, the Board of Directors of
the Company shall appoint a firm of independent public accountants of recognized
national standing (which may be the regular auditors of the Company) to give
their opinion as to the adjustment, if any, on a basis consistent with the
intention of this Section 8, necessary to preserve without dilution the
conversion rights represented by the Combined Preferred Stock. Upon receipt of
such opinion, the Company will promptly furnish a copy thereof to the holders of
the Combined Preferred Stock and the Applicable Conversion Price shall be
adjusted in accordance therewith. The fees and expenses of such accountants
shall be paid by the Company; provided, however, that if such accountants
opinion that no adjustment is necessary.
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such fees and expenses will be paid by the holders of the Combined Preferred
Stock.
8.4.8. General. The parties acknowledge that in the event of any
circumstances requiring an adjustment of the Applicable Conversion Price
under this Section 8.4, such adjustment shall be implemented and effected,
if applicable, with respect to the Applicable Conversion Price for the
Series A Preferred Stock and the Series B Preferred Stock, respectively and
separately.
8.5. Other Distributions. In the event the Company shall declare a
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities, assets (including cash dividends) or options
or rights, then, in each such case for the purpose of this Section 8, the
holders of the Combined Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of such Combined
Preferred Stock were convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution.
8.6 Subsequent Events. In the event of any recapitalization, consolidation
or merger of the Company or its successor which does not require redemption of
the Combined Preferred Stock pursuant to Section 6.3, the shares of Combined
Preferred Stock shall be convertible into such shares or other interests as the
Combined Preferred Stock would have been entitled if the Combined Preferred
Stock had been converted into Common Stock immediately prior to such event.
9. Covenants.
9.1. Special Restrictions. At any time when shares of Combined Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Company is required by law, the Articles of
Organization or MGL 70, and in addition to any other vote required by law, the
Articles of Organization or MGL 70 (in which case such requirements shall apply
to the extent inconsistent with this Section 9.1), without the consent of the
holders of at least a majority of the outstanding shares of Combined Preferred
Stock (on an as converted basis) given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, the Company
will not:
(a) Create or authorize the creation of any additional class or
series of shares of stock, or issue any shares thereof, unless the same
ranks junior to the Combined Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Company or
increase the authorized amount of the Combined Preferred Stock or increase
the authorized amount of any additional class or series of shares of stock
unless the same ranks junior to the Combined Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Company, or create or authorize any instrument or security convertible into
shares of Combined Preferred Stock or into shares of any other class or
series of stock unless the same ranks junior to the Combined Preferred
Stock as to the distribution of assets on the liquidation, dissolution or
winding up of the Company, whether any such creation, authorization or
increase shall be by means of amendment to the Articles of Organization or
by merger, consolidation or otherwise;
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(b) amend, alter or repeal its Articles of Organization or By-laws in
a manner that is adverse to the holders Combined Preferred Stock in any
respect or for which the holders of Combined Preferred Stock did not
receive prior written notice;
(c) purchase or set aside any sums for the purchase of any shares of
stock or warrants other than (i) Combined Preferred Stock, (ii) Future
Shares, (iii) pursuant to the Sub-Debt Warrant Agreement or (iv) Common
Stock for former employees of the Company who acquired such shares directly
from the Company or pursuant to the Stock Option Plan (as defined in the
Purchase Agreement), if each such purchase is made pursuant to contractual
rights held by the Company relating to the termination of employment of any
such former employee and the total purchase price does not exceed $100,000
for all such purchases from each such former employee or is expressly
permitted by the Stock Option Plan or stock option agreements entered into
in connection therewith;
(d) redeem or otherwise acquired any shares of Combined Preferred
Stock except as expressly authorized in Section 6 or pursuant to a purchase
offer made pro rata to all holders of the shares of Combined Preferred
Stock on the basis of the aggregate number of outstanding shares of
Combined Preferred Stock then held by each such holder;
(e) consent to any liquidation, dissolution or winding up of the
Company as a whole or substantially as a whole in a single transaction or a
series of related transactions; or
(f) consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets except that the
Company may, without the consent of the holders of at least a majority of
the then outstanding Combined Preferred Stock (on an as converted basis),
effectuate a merger in which (i) the Company is the surviving corporation
and (ii) the stockholders of the Company immediately prior to the merger
hold more than 50% of the outstanding voting power of the surviving
corporation (assuming conversion of all convertible securities and exercise
of all outstanding options and warrants), and the Company may effect a
Qualified Sale.
9.2 No Impairment. The Company will not seek to avoid the observance or
performance of any of the terms to be observed or performed under this
Certificate of Vote by the Company, but will at all times in good faith assist
in carrying out all the provisions of this Certificate of Vote.
9.3 Reservation of Shares. So long as any share of Combined Preferred Stock
shall remain outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock, for
the purpose of issuance upon conversion of the Combined Preferred Stock, the
full number of shares of Common Stock then issuable upon exercise of all
outstanding shares of Combined Preferred Stock. If the Company's Common Stock
shall be listed on any national stock exchange, the Company at its expense shall
include in its listing application all of the shares of Common Stock reserved
for issuance upon conversion of the Combined Preferred Stock (subject to
issuance or notice of issuance to the exchange) and will similarly procure the
listing of any further Common Stock reserved for issuance upon conversion of the
Combined Preferred Stock at any subsequent time as a result of adjustments in
the outstanding Common Stock or otherwise.
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9.4. Validity of Shares. The Company will from time to time take all such
action as may be required to assure that all shares of Common Stock which may be
issued upon conversion of any share of the Combined Preferred Stock will, upon
issuance, be legally and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof. Without
limiting the generality of the foregoing, the Company will from time to time
take all such action as may be required to assure that the par value per share,
if any, of the Common Stock is at all times equal to or less than the lowest
quotient obtained by dividing the then current par value of the Combined
Preferred Stock by the number of shares of Common Stock into which each such
share of Combined Preferred Stock can, from time to time, be converted.
9.5. Notice of Certain Events. If at any time:
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders
of Common Stock any additional shares of stock of any class or any other
rights;
(c) any recapitalization of the Company, or consolidation or merger of
the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization shall occur; or
(d) a voluntary or involuntary dissolution, liquidation or winding up
of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions shall occur;
then, in any one or more of such cases, the Company shall give the registered
holders of the Combined Preferred Stock written notice, by registered mail, of
the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining stockholders entitled to vote upon such
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up and of the date when any such transactions shall take place, as the
case may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given 20 days prior to the record date with
respect thereto.
9.6. No Reissuance of Combined Preferred Stock. No shares of Combined
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Combined Preferred Stock accordingly.
10. Preemptive Rights.
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10.1. Right of First Offer. Until the initial closing under a Qualified
Public Offering, the Company shall not issue or sell any Common Stock (including
securities convertible into, or options, warrants or other rights to purchase
Common Stock, but excluding the shares described in Section 10.7) (collectively,
the "Future Shares") to any person or other entity (an "Offeree") without first
providing each holder of (a) Combined Preferred Stock, (b) Common Stock and (c)
Sub-Debt Warrants, Bridge Warrants and Warrants (all such holders collectively
referred to as the "Preemptive Group") the right to subscribe for its
Proportionate Percentage of the Future Shares at a price and on such other terms
which are at least as favorable as shall have been offered or are proposed to be
offered by the Company to such Offeree and which shall have been specified by
the Company in a notice delivered to each member of the Preemptive Group (the
"Proposal"); provided, however, that the Preemptive Group shall have the option
to purchase Future Shares with cash, regardless of the method of purchase
offered to such Offeree. The Proposal by its terms shall remain open and
irrevocable for a period of 30 days from the date it is delivered by the Company
to the Preemptive Group (the "Future Shares Exercise Period"). The Proposal
shall also certify that the Company has either (a) received a bona fide offer
from a prospective purchaser, who shall be identified in such certification, and
that the Company in good faith believes a binding agreement of sale is
obtainable for consideration having a fair market, cash equivalent or present
value set forth in such certification; or (b) intends in good faith to make an
offering of its securities to prospective purchasers, who shall be identified to
the extent possible in such certification at the price and on the terms set
forth in such certification.
"Proportionate Percentage" means, for any member of the Preemptive Group,
the percentage of Future Shares covered by the Proposal equal to (i) the number
of shares of Common Stock either held by the member of the Preemptive Group or
into which the shares of Combined Preferred Stock held by such member would
then be convertible or into which the Sub-Debt Warrants. Bridge Warrants and
Warrants held by such member are exercisable divided by (ii) the total number
of shares of Common Stock outstanding at the time of delivery of the Proposal
plus the aggregate number of shares of Common Stock into which all shares of
Combined Preferred Stock would then be convertible plus the aggregate number of
shares of Common Stock into which the Sub-Debt Warrants, Bridge Warrants and
Warrants are exercisable.
10.2. Notice. Notice of each member of the Preemptive Group's intention to
accept the Proposal made pursuant to Section 10.1 shall be evidenced by a
writing signed by such holder and delivered to the Company prior to the end of
the Future Shares Exercise period (the "Notice of Purchase") setting forth that
portion of the Future Shares such holder elects to purchase (the "Accepted
Shares").
10.3. ??? Acceptance. In the event that each member of the Preemptive Group
elects to purchase all of the shares offered to such holder in the Proposal, the
Company shall sell to each such holder, pursuant to Section 10.6, the number of
Accepted Shares set forth in such holder's Notice of Purchase.
10.4. Partial Acceptance. In the event that one or more members of the
Preemptive Group do not elect to purchase all of the shares offered to such
holders in the Proposal, the Company shall sell to each holder, pursuant to
Section 10.6, the number of Accepted Shares, if any, set forth in such holder's
Notice of Purchase. Members of the Preemptive Group may purchase to Section
10.6 any
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remaining shares offered in the Proposal not purchased by the other members of
the Preemptive Group pro rata based on the respective Proportionate Percentages
of such holders wishing to purchase additional shares, or as they may otherwise
agree.
10.5. No Fractional Shares. For the purpose of avoiding fractions as to
Future Shares, the Company may adjust upward or downward by not more than one
full share the number of Future Shares which any member of the Preemptive Group
would otherwise be entitled to purchase.
10.6. Sale of Shares. No later than 30 days after the expiration of the
Future Shares Exercise Period, the Company shall deliver to each member of the
Preemptive Group who has submitted a Notice of Purchase to the Company a notice
indicating the number of Future Shares which the Company shall sell to such
holder pursuant to this Section 10 and the terms and conditions of such sale,
which shall be in all respects (including unit price and interest rates) the
same as specified in the proposal. The sale to such holders of such Future
Shares shall take place not later than 10 days after receipt of such notice.
Any sale to an Offeree of Future Shares that were not selected for
purchase by the members of the Preemptive Group as provided above shall take
place not later than 90 days after the expiration of the Future Shares Exercise
Period. Such sale shall be upon terms and conditions in all respects (including
unit price and interest rates) which are no more favorable to such Offeree or
less favorable to the Company than those set forth in the Proposal. Any refused
Future Shares not purchased by the Offeree as contemplated by the Proposal
within the 90-day period specified above shall remain subject to this Section
10.
10.7. Exclusion of Certain Shares. Notwithstanding any contrary provision
of this Section 10, Future Shares shall not include shares of Common Stock
issuable in transactions described in clauses (i), (ii), (iii), and (iv) of
Section 8.4.1(d) or issuable upon exercise or conversion of any other
securities, options or warrants issued in compliance with Section 10.
11. Amendments. The provisions of these terms of the Combined Preferred
Stock may not be amended, modified or waived without the written consent or
affirmative vote of each of the following groups, except where (i) the vote or
written consent of the holders of a greater number of shares of the Company is
required by law, the Articles of Organization or MGL 70 or (ii) any other vote
is required by law, the Articles of Organization or MGL 70 (in which case such
requirements shall apply to the extent inconsistent with this Section 11): (a)
the holders of at least a majority of the outstanding shares of Combined
Preferred Stock (on an as converted basis), voting as a single class, (b) the
holders of at least a majority of the outstanding shares of Combined Preferred
(on an as converted basis) and Common Stock, voting together as a single class
and (c) the holders of at least 25% of the then outstanding shares of
Non-Investor Common Stock voting as a single class; provided, however, that, in
addition to the foregoing requirements, any amendment to this Certificate of
Vote changing the amount of the Applicable Conversion Price, Applicable
Preferential Amount (including any dividend rate) or applicable time of
redemption shall require the written consent or affirmative vote of holders of
100% of the then outstanding shares of each series of Combined Preferred Stock
directly affected by such change. If there are any amendments, modifications or
waivers to Sections 5.2, 8 or 10 that adversely affect the rights of the holders
of the Sub-Debt Warrants, then the consent of a Majority of Sub-Debt Interests
will be required and provided that any amendment to this Certificate of Vote
changing the
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amount of the Applicable Conversion Price that adversely affects the rights of
the holders of the Sub-Debt Warrants shall require the consent of the holders
of 90% of the Sub-Debt Warrants. Except to the extent required by law, the vote
of the holders of any other class of capital stock of the Company is not
required for the amendment, modification or waiver of the terms of this
Certificate of Vote.
<PAGE> 84
NEW ENGLAND AUDIO CO., INC. has caused this certificate to be signed by Jeffrey
Stone, its President, and attested by Samuel Bloomberg, its Clerk, this 30th
day of May, 1997.
/s/ Jeffrey Stone
------------------------
President
By: Daniel R. Avery
Attorney-In-Fact
ATTEST:
/s/ Samuel J. Bloomberg
- ------------------------
Clerk
By: Daniel R. Avery
Attorney-In-Fact
<PAGE> 85
Article 4 is hereby amended by:
1) Adding Exhibit A, and
2) Deleting in their entirety all of the provisions set forth in the
Certificate of Directors filed 11/28/95 and any amendments thereto.
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:________________________
SIGNED UNDER THE PENALTIES OF PERJURY, this 2nd day of June, 1997,
Jeffrey Stone, *President
Samuel J. Bloomberg, *Clerk
*Delete the inapplicable words.
<PAGE> 86
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
============================================================================
I hereby approve the within Articles of Amendment, and the filing fee in the
amount of $4,100 having been paid, said article is deemed to have been filed
with me this 2nd day of June, 1997.
Effective date: ___________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Daniel R. Avery, Esq.
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
TWEETER HOME ENTERTAINMENT GROUP, INC.
ARTICLE I
PROVISIONS OF LAW
These By-Laws shall be subject to such provisions of the statutory and common
laws of the State of Delaware as may be applicable to corporations organized
under the laws of the State of Delaware. Subsequent references herein to
provisions of law shall be deemed to be references to the aforesaid provisions
of law. All references in these By-Laws to such provisions of law shall be
construed to refer to such provisions as from time to time amended.
ARTICLE II
CERTIFICATE OF INCORPORATION
These By-Laws shall be subject to the Certificate of Incorporation of the
corporation. All references in these By-Laws to the Certificate of Incorporation
shall be construed to mean the Certificate of Incorporation of the corporation
as from time to time amended.
ARTICLE III
STOCKHOLDERS
1. ANNUAL MEETING: The annual meeting of stockholders shall be held on the first
Monday in March in each year if not a legal holiday, and if a legal holiday, the
next succeeding full business day, or at such other date and time as shall be
designated from time to time by the Board of Directors or the President. Each
annual meeting shall be held for the purpose of electing Directors of the
corporation and for such other purposes and for the transaction of such other
business as may properly be brought before the meeting.
If the election of Directors of the corporation shall not be held on the
day designated in accordance with the foregoing, the Board of Directors shall
cause such election to be held as soon thereafter as convenient. A special
meeting of the stockholders of the corporation shall be held for such election
and for such other purposes and for the transaction of such other business as
might have been held or transacted at such annual meeting. Any election held, or
any business transacted at such special
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meeting, shall have the same force and effect as if held or transacted at the
annual meeting.
2. SPECIAL MEETINGS: Unless otherwise required by law or the Certificate of
Incorporation, a special meeting of the stockholders may be called for any
purpose or purposes by the Directors or by the President. Upon written request
of one or more stockholders who own at least ten percent (10%) of the capital
stock issued and outstanding and entitled to vote at the meeting, a special
meeting shall be called by the Secretary, or in the case of the death, absence,
incapacity or refusal to act of the Secretary, by any other officer. Such
request shall state the purpose or purposes of the proposed meeting.
3. PLACE OF MEETING: All meetings of the stockholders, annual or special, shall
be held at such place within or without the State of Delaware as may be
designated from time to time by the Board of Directors or the officer calling
the meeting or if not so designated, at the registered office of the
corporation.
4. NOTICE OF MEETINGS: Except as otherwise provided by law, a written notice of
every meeting of stockholders, annual or special, stating the place, date and
hour thereof, and, in the case of special meetings, the purpose or purposes for
which the meeting is to be held, shall be given by the person or persons calling
the meeting or by any officer of the corporation acting at his or their
direction not less than ten (10) nor more than sixty (60) days before the
meeting to each stockholder, who by law, by the Certificate of Incorporation or
by these By-Laws, is entitled to vote at or notice of such meeting. Such notice
shall be given either personally, by leaving it with him or at his residence or
place of business, or by mail, telex, telecopy, telegraph, cable or overnight
courier. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, with postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation. No notice of any
adjourned meeting shall be required if (a) the time and place thereof are
announced at the meeting at which the adjournment is taken, (b) the adjournment
is for less than thirty (30) days, and (c) no new record date is fixed for the
adjourned meeting.
5. WAIVERS OF NOTICE: Whenever notice is required to be given to any stockholder
by law, the Certificate of Incorporation or these By-Laws, a written waiver
thereof, signed by the stockholder entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
6. VOTING LIST: The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list
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of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or town where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
7. QUORUM: Except as may be otherwise provided by law, by the Certificate of
Incorporation, or by these By-Laws, the holders of a majority of all stock
issued and outstanding and entitled to vote at a meeting (or if there shall be
more than one (1) class or series of stock issued and outstanding and entitled
to vote separately at such meeting, and a separate vote by class or series shall
be required by law, by the Certificate of Incorporation or by these By-Laws,
then a majority of each such class or series) present in person or represented
by proxy, shall constitute a quorum. The holders of a majority in interest of
all stock issued and outstanding, entitled to vote and present in person or
represented by proxy at any meeting of stockholders, including any adjourned
meeting, whether or not a quorum is present, may adjourn such meeting to another
time and place. At any adjourned meeting, any business may be transacted which
might have been transacted at the meeting as originally called, provided a
quorum shall be in attendance at such adjourned meeting.
8. VOTING AND PROXIES: Unless otherwise provided by the Certificate of
Incorporation, each stockholder shall have one (1) vote for each share of stock
and a proportionate vote for each fractional share of stock entitled to vote,
held by him of record according to the records of the corporation. Stockholders
may vote either in person or by written proxy dated not more than three (3)
years before such vote, unless the proxy provides for a longer period. A proxy
with respect to stock held in the name of two (2) or more persons shall be valid
if executed by one (1) of them unless at or prior to the exercise of the proxy,
the corporation receives a specific written notice to the contrary from any one
(1) of them. A proxy purporting to have been executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise.
All elections of Directors shall be by written ballot unless otherwise provided
in the Certificate of Incorporation.
9. REQUIRED VOTE: If a quorum is present, then, except as otherwise required by
law, the Certificate of Incorporation or these By-Laws, the holders of a
majority of the stock present in person or represented by proxy at the meeting
and entitled to vote shall decide any such election or other matter to be voted
upon by the stockholders.
10. ACTION WITHOUT MEETING: Unless otherwise required in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if
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<PAGE> 4
a consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
11. RECORD DATE: For the purpose of determining the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or for
the purpose of determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Directors may fix, in
advance, a date as the record date for any such determination of stockholders.
Such date shall not be more than sixty or less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no such
record date is fixed:
11.1 The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held;
11.2 The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Directors is necessary, shall be the day on which the first written
consent is expressed;
11.3 The record date for determining stockholders for any purpose other
than those specified in Sections 11.1 and 11.2 shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
When a determination of stockholders entitled to notice of or to vote at
any meeting of stockholders has been made as provided in this Section 11 such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
ARTICLE IV
DIRECTORS
1. POWERS: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all the powers
of the corporation and do all such lawful acts and things as are not by law or
by the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
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<PAGE> 5
2. NUMBER; QUALIFICATION; TERM OF OFFICE: The Board of Directors shall consist
of one or more members. The total number of Directors shall be fixed initially
by the incorporators and may thereafter be changed from time to time by action
of the stockholders or the Directors. Directors need not be stockholders. Each
Director shall hold office until his successor is elected and qualified, or
until his earlier death, resignation or removal.
3. ELECTION OF DIRECTORS: The Board of Directors shall be elected at the annual
meeting, or in lieu thereof at any special meeting, of stockholders in the
manner prescribed by law, by the Certificate of Incorporation and by these
By-Laws.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES: Unless otherwise provided in the
Certificate of Incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class may be filled by
vote of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director, or by the stockholders by a majority of the
stock present or represented by proxy at a special meeting of stockholders
called for that purpose. A Director elected to fill a vacancy shall be elected
to hold office until his successor is elected and qualified, or until his
earlier death, resignation or removal. If there are no Directors in office, then
an election of Directors may be held in the manner provided by law. In the event
of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise required by law or these By-Laws, may exercise the power of the full
Board of Directors until the vacancy is filled.
5. RESIGNATIONS AND REMOVAL OF DIRECTORS: Any Director may resign at any time by
written notice to the Corporation. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event. Any Director may be removed from office with or
without cause by the stockholders upon the vote of the holders of a majority of
stock then issued and outstanding and entitled to vote thereon or in such manner
as may be provided in the Certificate of Incorporation.
6. REGULAR MEETINGS: Regular meetings of the Board of Directors may be held
without notice at such times and places as the Directors may determine from time
to time; provided that any Director who is absent when such a determination is
made shall be given prompt notice of such determination. The first meeting of
the Board of Directors following the annual meeting of the stockholders may be
held without notice immediately after and at the same place as the annual
meeting of the stockholders or the special meeting held in lieu thereof.
7. SPECIAL MEETINGS AND NOTICE: Special meetings of the Board of Directors may
be called at any time by the President, Treasurer or by any Director. Notice of
a special meeting shall be given by the Secretary, an Assistant Secretary or the
person calling the meeting to each Director in person or by telephone, telex,
telecopy, telegram or cable sent to his last known business or home address, at
least twenty-four (24) hours in advance of the meeting, or by written notice
mailed to his business or home address, at least forty-
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eight (48) hours in advance of the meeting. Notice of a meeting need not be
given to any Director, if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Any notice given hereunder shall state the place,
date and hour of the meeting, but need not specify the purposes of the meeting
except that if an amendment to these By-Laws or any matter referred to in
Article VII or Paragraphs 5 and 6 of Article VIII of these By-Laws shall be a
purpose of the meeting, the same shall be so stated in the notice.
8. QUORUM; VOTING AND ADJOURNMENTS: Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, a majority of the total number
of Directors then in office shall constitute a quorum at any meeting of the
Directors, and the act of a majority of the Directors present at a meeting at
which a quorum shall be present shall be the act of the Board of Directors. Any
meeting of Directors may be adjourned to any other time and place as a majority
of those Directors present at such meeting and voting shall determine whether or
not a quorum of Directors shall be present.
9. ACTION WITHOUT MEETING: Any action required or permitted to be taken at any
meeting of the Directors may be taken without a meeting, if a written consent
thereto is signed by all the Directors then in office and such written consent
is filed with the records of the meetings of the Directors. Such consent shall
be treated as a vote for all purposes.
10. TELEPHONIC MEETINGS: Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors or of any
committee thereof may participate in a meeting of the Board of Directors or of
any committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
11. COMMITTEES: The Board of Directors may, in its discretion, by resolution
passed by a majority of the whole Board, designate one (1) or more committees,
each committee to consist of one (1) or more of the Directors of the corporation
and which shall have and may exercise, except as may be otherwise limited by
law, such powers and authority, including those possessed by the Board of
Directors itself, as shall be conferred or authorized by the resolutions
appointing it. The Board of Directors shall have the power at any time to
discharge, change the membership of, fill vacancies in, or designate one or more
directors as alternate members of any such committee. Written minutes of all
proceedings of any such committee shall be kept and made available to each
Director, at his request. Except as the Board of Directors may otherwise
determine, a majority of the Directors then constituting the membership of any
such committee shall constitute a quorum for the transaction of business, except
that when a committee shall have only one (1) Director, then one (1) Director
shall constitute a quorum. When a quorum is present at any meeting of any such
committee, a majority of those present and voting shall be requisite and
sufficient to effect any action, or to decide any question or measure
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presented to the meeting, unless a larger vote shall be required by law or by
other provisions of these By-Laws or by the Board of Directors.
Notice shall be provided to each committee member in accordance with
Section 7 of this Article, as if such committee meeting were a special meeting
of the Directors.
In the event of the absence or disqualification of any member of any
committee designated by the Board of Directors, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE V
OFFICERS
1. OFFICERS: The executive officers of the corporation shall be elected by the
Board of Directors and shall consist of a President, a Treasurer, a Secretary
and such other executive officers as the stockholders may from time to time
determine. Such other executive officers shall have such duties and powers as
shall be designated from time to time by the Board of Directors or the chief
executive officer, and they shall be responsible to and shall report to the
chief executive officer or to such other officer as the chief executive officer
or the Board of Directors shall designate. If authorized by resolution of the
Board of Directors, the chief executive officer may be empowered to appoint from
time to time Assistant Secretaries and Assistant Treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these By-Laws otherwise provide.
2. TENURE: Each officer of the Corporation shall hold office until his successor
is elected and qualified, unless a different term is specified in the vote
electing or appointing him, or until his earlier death, resignation or removal.
3. REMOVAL: The Directors may remove any officer elected or appointed by them
with or without cause upon the vote of the Directors then in office.
4. RESIGNATION: Any officer may resign at any time by delivering his written
resignation to the Corporation at its principal office or to the chief executive
officer or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
5. VACANCIES: Vacancies in any office may be filled by the Directors.
6. CERTAIN DUTIES AND POWERS: The officers designated below, subject at all
times to modification by and to the direction and control of the Directors,
shall have and may exercise the respective duties and powers set forth below:
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A. THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the Board of
Directors, if there be one, shall, when present, preside at all meetings of the
Directors.
B. PRESIDENT: The President shall be the chief executive officer of the
corporation and shall have general supervision and control of its business.
Unless otherwise provided by the Directors, he shall preside, when present, at
all meetings of stockholders, and, if a director, at all meetings of Directors
unless there be a Chairman of the Board of Directors who is present at the
meeting.
C. TREASURER: The Treasurer shall be the chief financial officer of the
corporation and shall have general charge of the financial affairs of the
corporation and shall keep or cause to be kept accurate books of account. He
shall have custody of all funds, securities and valuable documents of the
corporation.
D. SECRETARY: The Secretary shall keep a true record of the proceedings
of all meetings of the stockholders and Directors of the corporation. In the
absence of the Secretary from any such meeting, an Assistant Secretary, if there
be one, otherwise a temporary Secretary shall be chosen by the person presiding
at the meeting, and he shall so record the proceedings thereof. Unless a
transfer agent is appointed, the Secretary shall also keep or cause to be kept
the stock transfer books of the corporation.
In addition, except as otherwise required by law, these By-Laws or the
Certificate of Incorporation, and subject to modification by and to the
direction and control of the Board of Directors, each officer shall have in
addition to the above duties and powers, such duties and powers as are
customarily incident to his office.
ARTICLE VI
CAPITAL STOCK
1. CERTIFICATES OF STOCK: Unless the Directors provide by resolution or
resolutions that some or all of any or all classes or series of the
corporation's stock shall be uncertificated shares, the shares of the
corporation shall be represented by certificates. Any such resolution shall not
apply to shares represented by a certificate unless such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Directors, every holder of stock represented by certificates
and upon request every holder of uncertificated shares shall be entitled to one
or more certificates signed by the Chairman or Vice-Chairman of the Board of
Directors or by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary representing the
number of shares registered in certificate form. Any or all the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is
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issued, it may be issued by the corporation with the same effect, as if he were
such officer, transfer agent or registrar at the date of issue.
2. LEGENDS: Every certificate issued for shares of stock at a time when such
shares are subject to any restriction on transfer pursuant to the Certificate of
Incorporation, these By-Laws or any agreement among any stockholders or among
any such stockholders and the corporation shall have the restriction noted
conspicuously on the certificate and shall also set forth on the face or back of
the certificate either (i) the full text of the restriction or (ii) a statement
of the existence of such restriction and a statement that the corporation will
furnish a copy thereof to the holder of such certificate upon written request
and without charge.
Every certificate issued for shares of stock at a time when the corporation
is authorized to issue more than one class or series of stock shall set forth on
the face or back of the certificate either (i) the full text or a summary of the
powers, designations, preferences, and relative, participating, optional or
other special rights of the shares of each class and series, if any, authorized
to be issued, or (ii) a statement of the existence of such powers, designations,
preferences and relative, participating, optional or other special rights and a
statement that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
In the event the Directors have authorized uncertificated stock, within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owners thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to law and these By-Laws, or with respect to uncertificated stock
issued at a time when the corporation is authorized to issue more than one class
or series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
3. TRANSFERS: The Directors may appoint a transfer agent and a registrar of
transfers or either and require all stock certificates to bear their signatures.
Transfers of shares of capital stock of the corporation shall be made only on
the books of the corporation by the registered holder thereof or by his duly
authorized attorney appointed by a power of attorney duly executed and filed
with the Secretary of the corporation or a transfer agent, and on surrender of
the certificate or certificates for such shares properly endorsed. The Directors
may make such additional rules and regulations not inconsistent with law, with
the Certificate of Incorporation or with these By-Laws as it deems expedient
relative to the issue, transfer and registration of stock certificates.
4. PLEDGES: Transferees of stock of the corporation transferred as collateral
security shall be entitled to a new certificate therefor if the instrument of
transfer substantially describes the debt or duty which is intended to be
secured thereby. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, it shall be so expressed in the
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entry of transfer and on the face of any new certificate issued therefor if,
when the certificates are presented to the corporation for transfer or
uncertificated shares are requested to be transferred, both the transferor and
the transferee request the corporation to do so.
5. REPLACEMENT OF CERTIFICATES: In case of the alleged loss, destruction or
mutilation of a certificate of stock issued by the corporation, a duplicate
certificate may be issued in place thereof, upon such terms as the Directors may
prescribe.
ARTICLE VII
INDEMNIFICATION
1. INDEMNIFICATION OF OFFICERS AND DIRECTORS: The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or an officer of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding to the fullest extent and in the manner set forth in and permitted by
the General Corporation Law, and any other applicable law, as from time to time
in effect. Such rights of indemnification shall not be deemed exclusive of any
other rights to which such director or officer may be entitled apart from the
foregoing provisions. The foregoing provisions of this Article VII, Paragraph 1,
shall be deemed to be a contract between the Corporation and each director and
officer who serves in such capacity at any time while this Article VII and the
relevant provisions of the General Corporation Law and other applicable law, if
any, are in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding thereto or thereafter
brought or threatened based in whole or in part upon any such state of facts.
2. INDEMNIFICATION OF OTHER PERSONS: The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the General Corporation Law, and any other applicable law, as from
time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled apart
from the foregoing provisions.
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3. MISCELLANEOUS: Notwithstanding anything contained in and without
limiting the generality of the foregoing provisions:
A. The extent of the rights of indemnification, as hereinabove set forth,
shall include, without limitation, all liabilities, costs and expenses of
defending, compromising or settling any action, suit or other proceeding, and
the satisfaction of any judgment or decree entered or rendered therein,
including the payment of fines or penalties imposed in criminal actions or
proceedings.
B. The termination of any action, suit or proceeding, civil or criminal,
by judgment, order, settlement (whether with or without court approval),
conviction, or upon a plea of guilty or nolo contendere, or its equivalent,
shall not create a presumption that the person did not meet the standard of
conduct required under the General Corporation Law, or any other applicable law,
in order to be entitled to indemnification as hereinabove provided.
C. Expenses incurred by any person who may have a right of
indemnification under this By-Law in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding to the extent permitted by the General
Corporation Law, and any other applicable law, as from time to time in effect,
when approved by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
1. FISCAL YEAR: The fiscal year of the Corporation shall be determined, and may
be changed, by the Board of Directors.
2. SEAL: The seal of the corporation shall, subject to alteration by the
Directors, bear its name, the word "Delaware," and the year of its
incorporation.
3. EXECUTION OF INSTRUMENTS: Except as otherwise authorized by the Board of
Directors, all deeds, mortgages, leases, transfers, contracts, bonds, notes,
checks, drafts and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the Chairman of the Board, the
President, any Vice President or the Treasurer except as the Directors may
generally or in particular cases otherwise determine.
4. VOTING OF SECURITIES: Except as the Directors may otherwise designate, the
Chairman or the President may waive notice of, and act, or appoint any other
person or persons to waive notice of or act, as proxy or attorney in fact for
this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation; and
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may as such proxy or attorney for this corporation (with or without power of
substitution), consent to, and sign in writing, any action in lieu of any such
meeting.
5. AMENDMENTS: These By-Laws may be altered, amended or repealed by the
stockholders or, if so authorized by the Certificate of Incorporation, by the
Directors, at any meeting of the stockholders or of the Directors; provided,
however, that notice of the substance of any such alteration, amendment or
repeal be contained in the notice of such meeting.
6. RATIFICATION: Any transaction may be ratified by the Board of Directors or by
the stockholders; and if so ratified, shall have the same force and effect as if
the questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the corporation and its stockholders and
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
7. RELIANCE ON RECORDS: Each officer, Director or member of any committee
designated by the Board of Directors in the manner hereinbefore provided shall
in the performance of his duties be fully protected in relying in good faith
upon the books of account or reports made to the corporation by any of its
officials, or by an independent certified public accountant, or by an appraiser
selected with reasonable care by the Board of Directors or by any committee, or
in relying in good faith upon other records of the corporation.
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EXHIBIT 3.6
BY-LAWS
of
NEW ENGLAND AUDIO, CO. INC.
A Massachusetts Corporation
Adopted: March 19, 1982
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Date
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Clerk
<PAGE> 2
<TABLE>
<CAPTION>
BY-LAWS
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE I. STOCKHOLDERS ....................................... 1
section 1.1. Annual Meeting .............................. 1
Section 1.2. Special Meetings ............................ 1
Section 1.3. Notice of Meeting............................ 1
Section 1.4. Quorum ...................................... 2
Section 1.5. Proxies and Voting .......................... 2
Section 1.6. Action at Meeting ........................... 2
Section 1.7. Action Without Meeting ...................... 2
Section 1.8. Voting of Shares of Certain Holders.......... 2
ARTICLE II. BOARD OF DIRECTORS ................................. 3
Section 2.1. Powers ...................................... 3
Section 2.2. Number of Directors; Qualifications.......... 3
Section 2.3. Nomination of Directors ..................... 4
Section 2.4. Election of Directors ....................... 4
Section 2.5. Vacancies; Reduction of the Board ........... 4
Section 2.6. Enlargement of the Board .................... 4
Section 2.7. Tenure and Resignation ...................... 5
Section 2.8. Removal ..................................... 5
Section 2.9. Meetings .................................... 5
Section 2.10. Notice of Meeting ........................... 5
Section 2.11. Agenda ...................................... 6
Section 2.12. Quorum ...................................... 6
Section 2.13. Action at Meeting ........................... 6
Section 2.14. Action Without Meeting ...................... 6
Section 2.15. Committees .................................. 6
ARTICLE III. OFFICERS ........................................... 6
Section 3.1. Enumeration ................................. 6
Section 3.2. Election .................................... 7
Section 3.3. Qualification ............................... 7
Section 3.4. Tenure ...................................... 7
Section 3.5. Removal ..................................... 7
Section 3.6. Resignation .... ............................ 7
Section 3.7. Vacancies ................................... 7
Section 3.8. President ................................... 7
Section 3.9. Vice-Presidents ............................. 8
Section 3.10. Treasurer and Assistant Treasurers .......... 8
Section 3.11. Clerk and Assistant Clerks .................. 8
Section 3.12. Other Powers and Duties ..................... 8
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE IV. CAPITAL STOCK ...................................... 9
Section 4.1. Stock Certificates .......................... 9
Section 4.2. Transfer of Shares........................... 9
Section 4.3. Record Holders .............................. 9
Section 4.4. Record Date ................................. 10
Section 4.5. Transfer Agent and Registrar for
Shares of Corporation........................ 10
Section 4.6. Loss of Certificates ........................ 11
Section 4.7. Restrictions on Transfer .................... 11
Section 4.8. Multiple Classes of Stock ................... 11
ARTICLE V. DIVIDENDS .......................................... 11
Section 5.1. Declaration of Dividends .................... 11
Section 5.2. Reserves .................................... 12
ARTICLE VI. POWERS OF OFFICERS TO CONTRACT WITH THE
CORPORATION ........................................ 12
ARTICLE VII. INDEMNIFICATION .................................... 13
Section 7.1. Definitions ................................. 13
Section 7.2. Actions in Name of the Corporation or
Stockholder ................................. 13
Section 7.3. Other Actions ............................... 14
Section 7.4. Advances of Expenses ........................ 14
Section 7.5. Presumptions upon Termination of
Proceeding .................................. 14
Section 7.6. Indemnification Not Exclusive ............... 14
Section 7.7. Insurance ................................... 14
Section 7.8. Employee Benefit Plans....................... 14
ARTICLE VIII. MISCELLANEOUS PROVISIONS ......................... 15
Section 8.1. Articles of Organization..................... 15
Section 8.2. Fiscal Year.................................. 15
Section 8.3. Corporate Seal............................... 15
Section 8.4. Execution of Instruments .................... 15
Section 8.5. Voting of Securities ........................ 15
Section 8.6. Evidence of Authority ....................... 15
Section 8.7. Corporate Records ........................... 15
Section 8.8. Charitable Contributions..................... 16
ARTICLE IX. AMENDMENTS ......................................... 16
Section 9.1. Amendment by Stockholders ................... 16
Section 9.2. Amendment by Directors ...................... 16
</TABLE>
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<PAGE> 4
BY-LAWS
OF
NEW ENGLAND AUDIO, CO. INC.
(A Massachusetts Corporation)
ARTICLE I.
STOCKHOLDERS
SECTION 1.1. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation shall be held on the first Monday in March in each year, at such
time and place within the United States as may be designated in the notice of
meeting. If the day fixed for the annual meeting shall fall on a legal holiday,
the meeting shall be held on the next succeeding day not holiday. If the annual
meeting is omitted on the day provided, a special meeting may be held in place
thereof, business transacted at such special meeting in lieu of meeting shall
have the same effect as if transacted or the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the president or by the board of directors and shall be
called by the clerk upon written application of one or more stockholders who
hold shares representing at least ten percent (10%) of the capital stock
entitled to vote at such meeting. Special meetings of the stockholders shall be
held at such time, date and place within or without the United States as may be
designated in the notice of such meeting.
SECTION 1.3. NOTICE OF MEETING. A written notice stating the place, date,
and hour of each meeting of the stockholders, and, in the case of a special
meeting, the purposes for which the meeting is called, shall be given to each
stockholder entitled to vote at such meeting, and to each stockholder who, under
the Articles of Organization or these By-laws, is entitled to such notice, by
delivering such notice to such person or leaving it at their residence or usual
place of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears upon the books of the corporation, at
least seven (7) days and not more than sixty (60) before the meeting. Such
notice shall be given by the clerk, an assistant clerk, or any other officer or
person designated either by the clerk or by the person or persons calling the
meeting.
The requirement of notice to any stockholder may be waived by a written
waiver of notice, executed before or after the meeting by the stockholder or his
attorney thereunto duly authorized, and filed with the records of the meeting,
or if communication with such stockholder is unlawful, or by attendance at the
meeting without protesting prior thereto or at its commencement the lack of
notice. Except as otherwise provided herein, the notice to the stockholders need
not specify the purposes of the meeting.
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If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 1.4. QUORUM. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote at a meeting shall constitute a quorum.
Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present.
SECTION 1.5. VOTING AND PROXIES. Each stockholder shall have one vote for
each share of stock entitled to vote owned by such stockholder of record
according to the books of the corporation, unless otherwise provided by law or
by the Articles of Organization. Stockholders may vote either in person or by
written proxy. No proxy dated more than six months prior to the date of the
meeting shall be valid although, unless otherwise limited therein, proxies shall
entitle the persons authorized thereby to vote at any adjournment of such
meeting. Proxies shall be filed with the clerk of the meeting, or of any
adjournment thereof. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them.
SECTION 1.6. ACTION AT MEETING. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than election to an office shall decide such question, except where a larger
vote is required by law, the Articles of Organization or these by-laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
SECTION 1.7. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the consent shall be treated for all purposes as a vote at a meeting.
SECTION 1.8. VOTING OF SHARES OF CERTAIN HOLDERS. Shares of stock of the
corporation standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as the by-laws of such corporation
may prescribe, or, in
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the absence of such provision, as the board of directors of such corporation may
determine.
Shares of stock of the corporation standing in the name of a deceased
person, a minor ward or an incompetent person, may be voted by his
administrator, executor, court-appointed guardian or conservator without a
transfer of such shares into the name of such administrator, executor, court
appointed guardian or conservator. Shares of capital stock of the corporation
standing in the name of a trustee may be voted by him.
Shares of stock of the corporation standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. POWERS. Except as reserved to the stockholders by law, by the
Articles of Organization or by these By-laws, the business of the corporation
shall be managed under the direction of the board of directors, who shall have
and may exercise all of the powers of the corporation. In particular, and
without limiting the foregoing, the board of directors shall have the power to
issue or reserve for issuance from time to time the whole or any part of the
capital stock of the corporation which may be authorized from time to time to
such person, for such consideration and upon such terms and conditions as they
shall determine, including the granting of options, warrants or conversion or
other rights to stock.
SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS. The board of directors
shall consist of such number of directors (which shall not be less than three or
less than the number of stockholders, if less than three) as shall be fixed
initially by the incorporator(s) and thereafter by the stockholders. No director
need be a stockholder.
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SECTION 2.3. NOMINATION OF DIRECTORS.
(a) Nominations for the election of directors may be made by the board of
directors or by any stockholder entitled to vote for the election of directors.
Nominations by stockholders shall be made by notice in writing, delivered or
mailed by first class United States mail, postage prepaid, to the clerk of the
corporation not less than 14 days nor more than 50 days prior to any meeting of
the stockholders called for the election of directors; provided, however, that
if less than 21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the clerk of the
corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders.
(b) Each notice under subsection (a) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominee,
and (iii) the number of shares of stock of the corporation which are
beneficially owned by each such nominee.
(c) The chairman of the meeting of stockholders may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
SECTION 2.4. ELECTION OF DIRECTORS. The initial board of directors shall be
elected by the incorporator(s) at the first meeting thereof and thereafter by
the stockholders at their annual meeting or at any special meeting the notice of
which specifies the election of directors as an item of business for such
meeting.
SECTION 2.5. VACANCIES; REDUCTION OF THE BOARD. Any vacancy in the board of
directors, however occurring, including a vacancy resulting from the enlargement
of the board of directors, may be filled by the stockholders or by the directors
then in office or by a sole remaining director. In lieu of filling any such
vacancy the stockholders or board of directors may reduce the number of
directors, but not to a number less than the minimum number required by Section
2.2. When one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective.
SECTION 2.6. ENLARGEMENT OF THE BOARD. The board of directors may be
enlarged by the stockholders at any meeting or by vote of a majority of the
directors then in office.
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SECTION 2.7. TENURE AND RESIGNATION. Except as otherwise provided by law,
by the Articles of Organization or by these By-laws, directors shall hold office
until the next annual meeting of stockholders and thereafter until their
successors are chosen and qualified. Any director may resign by delivering or
mailing postage prepaid a written resignation to the corporation at its
principal office or to the president, clerk or assistant clerk, if any. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
SECTION 2.8. REMOVAL. A director, whether elected by the stockholders or
directors, may be removed from office with or without cause at any annual or
special meeting of stockholders by vote of a majority of the stockholders
entitled to vote in the election of such director, or for cause by a vote of a
majority of the directors then in office; provided, however, that a director may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
SECTION 2.9. MEETINGS. Regular meetings of the board of directors may be
held without call or notice at such times and such places within or without the
Commonwealth of Massachusetts as the board may, from time to time, determine,
provided that notice of the first regular meeting following any such
determination shall be given to directors absent from such determination. A
regular meeting of the board of directors shall be held without notice
immediately after, and at the same place as, the annual meeting of the
stockholders or the special meeting of the stockholders held in place of such
annual meeting, unless a quorum of the directors is not then present. Special
meetings of the board of directors may be held at any time and at any place
designated in the call of the meeting when called by the president, treasurer,
or one or more directors. Members of the board of directors or any committee
elected thereby may participate in a meeting of such board or committee by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time,
and participation by such means shall constitute presence in person at the
meeting.
SECTION 2.10. NOTICE OF MEETING. It shall be sufficient notice to a
director to send notice by mail at least seventy-two (72) hours before the
meeting addressed to such person at his usual or last known business or
residence address or to give notice to such person in person or by telephone at
least twenty-four (24) hours before the meeting. Notice shall be given by the
clerk, assistant clerk, if any, or by the officer or directors calling the
meeting. The requirement of notice to any director may be waived by a written
waiver of notice, executed by such person before or after the meeting or
meetings, and filed with the records of the meeting, or by attendance at the
meeting without protesting prior thereto or at its commencement the lack of
notice. A notice or waiver of notice of a directors' meeting need not specify
the purposes of the meeting.
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SECTION 2.11. AGENDA. Any lawful business may be transacted at a meeting of
the board of directors, notwithstanding the fact that the nature of the business
may not have been specified in the notice or waiver of notice of the meeting.
SECTION 2.12. QUORUM. At any meeting of the board of directors, a majority
of the directors then in office shall constitute a quorum for the transaction of
business. Any meeting may be adjourned by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice.
SECTION 2.13. ACTION AT MEETING. Any motion adopted by vote of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the board of directors, except where a different vote is required by law,
by the Articles of Organization or by these By-laws. The assent in writing of
any director to any vote or action of the directors taken at any meeting,
whether or not a quorum was present and whether or not the director had or
waived notice of the meeting, shall have the same effect as if the director so
assenting was present at such meeting and voted in favor of such vote or action.
SECTION 2.14. ACTION WITHOUT MEETING. Any action by the directors may be
taken without a meeting if all of the directors consent to the action in writing
and the consents are filed with the records of the directors' meetings. Such
consent shall be treated for all purposes as a vote of the directors at a
meeting.
SECTION 2.15. COMMITTEES. The board of directors may, by the affirmative
vote of a majority of the directors then in office, appoint an executive
committee or other committees consisting of one or more directors and may by
vote delegate to any such committee some or all of their powers except those
which by law, the Articles of Organization or these By-laws they may not
delegate. Unless the board of directors shall otherwise provide, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the board of directors or such rules, its meetings shall be called,
notice given or waived, its business conducted or its action taken as nearly as
may be in the same manner as is provided in these By-laws with respect to
meetings or for the conduct of business or the taking of actions by the board of
directors. The board of directors shall have power at any time to fill vacancies
in, change the membership of, or discharge any such committee at any time. The
board of directors shall have power to rescind any action of any committee, but
no such rescission shall have retroactive effect.
ARTICLE III.
OFFICERS
SECTION 3.1. ENUMERATION. The officers shall consist of a president, a
treasurer, a clerk and such other officers and
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agents (including one or more vice-presidents, assistant treasurers assistant
clerks, secretaries and assistant secretaries), with such duties and powers, as
the board of directors may, in their discretion, determine.
SECTION 3.2. ELECTION. The president, treasurer and clerk shall be elected
annually by the directors at their first meeting following the annual meeting of
the stockholders. Other officers may be chosen by the directors at such meeting
or at any other meeting.
SECTION 3.3. QUALIFICATION. An officer may, but need not, be a director or
stockholder and no officer shall of being an officer. Any two or more offices
may be held by the same person. The clerk shall be a resident of Massachusetts
unless the corporation has a resident agent appointed for the purpose of service
of process. Any officer may be required by the directors to give bond for the
faithful performance of his duties to the corporation in such amount and with
such sureties as the directors may determine. The premiums for such bonds may be
paid by the corporation.
SECTION 3.4. TENURE. Except as otherwise provided by the Articles of
Organization or these By-laws, the term of office of each officer shall be for
one year or until his successor is elected and qualified or until his earlier
resignation or removal.
SECTION 3.5. REMOVAL. Any officer may be removed from office, with or
without cause, by the affirmative vote of a majority of the directors then in
office; provided, however, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the board of directors prior to
action thereon.
SECTION 3.6. RESIGNATION. Any officer may resign by delivering or mailing
postage prepaid a written resignation to the corporation at its principal office
or to the president, clerk, or assistant clerk, if any, and such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some event.
SECTION 3.7. VACANCIES. A vacancy in any office arising from any cause may
be filled for the unexpired portion of the term by the board of directors.
SECTION 3.8. PRESIDENT. The president shall be the chief executive officer
of the corporation. Except as otherwise voted by the board or directors, the
president shall preside at all meetings of the stockholders and of the board of
directors at which present. The president shall have such duties and powers as
are commonly incident to the office and such duties and powers as the board of
directors shall from time to time designate.
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SECTION 3.9. VICE-PRESIDENTS. Vice-presidents, if any, shall have such
powers and perform such duties as the board of directors may from time to time
determine.
SECTION 3.10. TREASURER AND ASSISTANT TREASURERS. The treasurer, subject to
the direction and under the supervision and control of the board of directors,
shall have general charge of the financial affairs of the corporation. The
treasurer shall have custody of all funds, securities and valuable papers of the
corporation, except as the board of directors may otherwise provide. The
treasurer shall keep or cause to be kept full and accurate records of account
which shall be the property of the corporation, and which shall be always open
to the inspection of each elected officer and director of the corporation. The
treasurer shall deposit or cause to be deposited all funds of the corporation in
such depository or depositories as may be authorized by the board of directors.
The treasurer shall have the power to endorse for deposit or collection all
notes, checks, drafts, and other negotiable instruments payable to the
corporation. The treasurer shall have the power to borrow money and enter into
and execute arrangements as to advances, loans and credits to the corporation.
The treasurer shall perform such other duties as are incidental to the office,
and such other duties as may be assigned by the board of directors.
Assistant treasurers, if any, shall have such powers and perform such
duties as the board of directors may from time to time determine.
SECTION 3.11. CLERK AND ASSISTANT CLERKS. The clerk shall record, or cause
to be recorded, all proceedings of the meetings of the stockholders and
directors (including committees thereof) in the book of records of this
corporation. The record books shall be open at reasonable times to the
inspection of any stockholder, director, or officer. The clerk shall notify the
stockholders and directors, when required by law or by these By-laws, of their
respective meetings, and shall perform such other duties as the directors and
stockholders may from time to time prescribe. The clerk shall have the custody
and charge of the corporate seal, and shall affix the seal of the corporation to
all instruments requiring such seal, and shall certify under the corporate seal
the proceedings of the directors and of the stockholders, when required. In the
absence of the clerk at any such meeting, a temporary clerk shall be chosen who
shall record the proceedings of the meeting in the aforesaid books.
Assistant clerk, if any, shall have such powers and perform such duties as
the board of directors may from time to time designate.
SECTION 3.12. OTHER POWERS AND DUTIES. Subject to these By-laws and to such
limitations as the board of directors may from time to time prescribe, the
officers of the corporation shall each have such powers and duties as generally
pertain to
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their respective offices, as well as such powers and duties as from time to time
may be conferred by the board of directors.
ARTICLE IV.
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate representing the number of shares of the capital stock of the
corporation owned by such person in such form as shall, in conformity to law, be
prescribed from time to time by the board of directors. Each certificate shall
be signed by the president or vice-president and treasurer or assistant
treasurer or such other officers designated by the board of directors from time
to time as permitted by law, shall bear the seal of the corporation, and shall
express on its face its number, date of issue, class, the number of shares for
which, and the name of the person to whom, it is issued. The corporate seal and
any or all of the signatures of corporation officers may be facsimile if the
stock certificate is manually counter-signed by an authorized person on behalf
of a transfer agent or registrar other than the corporation or its employee.
If an officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed on, a certificate shall have ceased to be
such before the certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at the
time of its issue.
SECTION 4.2. TRANSFER OF SHARES. Title to a certificate of stock and to the
shares represented thereby shall be transferred only on the books of the
corporation by delivery to the corporation or its transfer agent of the
certificate properly endorsed, or by delivery of the certificate accompanied by
a written assignment of the same, or a properly executed written power of
attorney to sell, assign or transfer the same or the shares represented thereby.
Upon surrender of a certificate for the shares being transferred, a new
certificate or certificates shall be issued according to the interests of the
parties.
SECTION 4.3. RECORD HOLDERS. Except as otherwise may be required by law, by
the Articles of Organization or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
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SECTION 4.4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any other action. In such case only stockholders of record on such record date
shall be so entitled, notwithstanding any transfer of stock on the books of the
corporation after the record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is necessary, shall be the day on which the first written consent is
expressed; and (iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION. The
board of directors may appoint a transfer agent and a registrar of the
certificates of stock of the corporation. Any transfer agent so appointed shall
maintain, among other records, a stockholders' ledger, setting forth the names
and addresses of the holders of all issued shares of stock of the corporation,
the number of shares held by each, the certificate numbers representing such
shares, and the date of issue of the certificates representing such shares. Any
registrar so appointed shall maintain, among other records, a share register,
setting forth the total number of shares of each class of shares which the
corporation is authorized to issue and the total number of shares actually
issued. The stockholders' ledger and the share register are hereby identified as
the stock transfer books of the corporation; but as between the stockholders'
ledger and the share register, the names and addresses of stockholders, as they
appear on the stockholders' ledger maintained by the transfer agent shall be the
official list of stockholders of record of the corporation. The name and address
of each stockholder of record, as they appear upon the stockholders' ledger,
shall be conclusive evidence of who are the stockholders entitled to receive
notice of the meetings of stockholders, to vote at such meetings, to examine a
complete list of the stockholders entitled to vote at meetings, and to own,
enjoy and exercise any other property or rights deriving from such shares
against the corporation. Stockholders, but not the corporation, its directors,
officers, agents
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or attorneys, shall be responsible for notifying the transfer agent, in writing,
of any changes in their names or addresses from time to time, and failure to do
so will relieve the corporation, its other stockholders, directors, officers,
agents and attorneys, and its transfer agent and registrar, of liability for
failure to direct notices or other documents, or pay over or transfer dividends
or other property or rights, to a name or address other than the name and
address appearing in the stockholders' ledger maintained by the transfer agent.
SECTION 4.6. LOSS OF CERTIFICATES. In case of the loss, destruction or
mutilation of a certificate of stock, a replacement certificate may be issued
in place thereof upon such terms as the board of directors may prescribe,
including, in the discretion of the board of directors, a requirement of bond
and indemnity to the corporation.
SECTION 4.7. RESTRICTIONS ON TRANSFER. Every certificate for shares of
stock which are subject to any restriction on transfer, whether pursuant to the
Articles of Organization the By-laws or any agreement to which the corporation
is a party, shall have the fact of the restriction noted conspicuously on the
certificate and shall also set forth on the face or back either the full text of
the restriction or a statement that the corporation will furnish a copy to the
holder of such certificate upon written request and without charge.
SECTION 4.8. MULTIPLE CLASSES OF STOCK. The amount and classes of the
capital stock and the par value, if any, of shares, shall be as fixed in the
Articles of Organization. At all times when there are two or more classes of
stock, the several classes of stock shall conform to the description and the
terms and have the respective preferences, voting powers, restrictions and
qualifications set forth in the Articles of Organization and these By-laws.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued,
or (ii) a statement of the existence of such preferences, powers, qualifications
and rights, and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
ARTICLE V.
DIVIDENDS
SECTION 5.1. DECLARATION OF DIVIDENDS. Except as otherwise required by law
or by the Articles of Organization the board of directors may, in its
discretion, declare what, if any, dividends shall be paid from the surplus or
from the net profits of the corporation upon the stock of the corporation;
provided, however, that no dividend shall be declared or paid the payment of
which
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would diminish the amount of the paid-in capital of the corporation. Dividends
may be paid in cash, in property, in shares of the corporation's stock, or in
any combination thereof. Dividends shall be payable upon such dates as the board
of directors may designate.
SECTION 5.2. RESERVES. Before the payment of any dividend and before making
any distribution of profits, the board of directors, from time to time and in
its absolute discretion, shall have power to set aside out of the surplus or net
profits of the corporation such sum or sums as the board of directors deems
proper and sufficient as a reserve fund to meet contingencies or for such other
purpose as the board of directors shall deem to be in the best interests of the
corporation, and the board of directors may modify or abolish any such reserve.
ARTICLE VI.
POWERS OF OFFICERS TO CONTRACT
WITH THE CORPORATION
Any and all of the directors and officers of the corporation,
notwithstanding their official relations to it, may enter into and perform any
contract or agreement of any nature between the corporation and themselves, or
any and all of the individuals from time to time constituting the board of
directors of the corporation, or any firm or corporation in which any such
director may be interested, directly or indirectly, whether such individual,
firm or corporation thus contracting with the corporation shall thereby derive
personal or corporate profits or benefits or otherwise; provided, that (i) the
material facts of such interest are disclosed or are known to the board of
directors or committee thereof which authorizes such contract or agreement; (ii)
if the material facts as to such person's relationship or interest are disclosed
or are known to the stockholders entitled to vote thereon, and the contract is
specifically approved in good faith by a vote of the stockholders; or (iii) the
contract or agreement is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof,
or the stockholders. Any director of the corporation who is interested in any
transaction as aforesaid may nevertheless be counted in determining the
existence of a quorum at any meeting of the board of directors which shall
authorize or ratify any such transaction. This Article shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.
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ARTICLE VII.
INDEMNIFICATION
SECTION 7.1. DEFINITIONS. For purposes of this Article VII:
(a) "Covered Person" means an individual: (i) who is a present or former
director, officer, agent or employee of the corporation or who serves or served
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in one of those capacities or as trustee, partner or fiduciary
at the request of the corporation; and (ii) who by reason of his position was,
is, or is threatened to be made a party to a Proceeding. It shall also include
such person's heirs, executors and administrators.
(b) "Proceeding" includes any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and any claim which could be the subject of such a proceeding.
(c) "Disinterested Director" means a director who is not a party to the
Proceeding(s) in question.
(d) "Expenses" means liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromises or as fines or penalties, and
expenses, including reasonable legal and accounting fees.
SECTION 7.2. ACTIONS IN NAME OF THE CORPORATION OR STOCKHOLDER. The
corporation may indemnify any Covered Person to the extent legally permissible
against all Expenses incurred in connection with the defense or disposition of
any Proceeding by or in the name of the corporation or any stockholder in his
capacity as such if a reasonable determination is made, based on a review of the
readily available facts but without special investigation, that the Covered
Person acted in good faith, and in the reasonable belief that his action was in,
or not opposed to, the best interest of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. Such determination shall be made by:
(a) the vote of a majority of a quorum of Disinterested Directors;
(b) a special litigation/indemnification committee of the board of
directors appointed by the board;
(c) independent legal counsel in a written opinion; or
(d) the vote of the holders of a majority of the outstanding stock at the
time entitled to vote for directors, voting as a single class,
exclusive of any stock owned by any interested director or officer.
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No indemnification shall be made with respect to any matter as to which
such Covered Person has been adjudicated liable for negligence or misconduct in
the performance of his duty to the corporation, unless, and only to the extent
that, the court deciding the action determines that such Covered Person is
entitled to indemnification.
Such indemnification may be provided in connection with a Proceeding in
which it is claimed that an officer or director received an improper personal
benefit by reason of his position, regardless of whether the claim involves his
service in such capacity, subject to the foregoing limitations and to the
additional limitation that it shall not have been finally determined that an
improper personal benefit was received by the director or officer.
SECTION 7.3. OTHER ACTIONS. The corporation may indemnify any Covered
Person against any Expenses incurred in connection with the defense or
disposition of any Proceeding other than a Proceeding of the type described in
Section 7.2, except with respect to any matter as to which the Covered Person
shall have been finally adjudicated in the Proceeding (i) not to have acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation or, (ii) with respect to any criminal
Proceeding, to have had reasonable cause to believe his conduct was unlawful.
SECTION 7.4. ADVANCES OF EXPENSES. The corporation may advance attorneys'
fees or other Expenses incurred by a Covered Person in defending a Proceeding,
upon receipt of an undertaking by or on behalf of the Covered Person to repay
the amount advanced, which undertaking may be accepted by the board of directors
without reference to the financial ability of such Covered Person to make
repayment.
SECTION 7.5. PRESUMPTIONS UPON TERMINATION OF PROCEEDING. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that a person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed, to the best interests of the corporation, or,
with respect to any criminal Proceeding, had reasonable cause to believe that
his conduct was unlawful.
SECTION 7.6. INDEMNIFICATION NOT EXCLUSIVE. The right of indemnification
provided by this Article VII shall not be exclusive of or affect any other
rights to which any such Covered Person may be entitled.
SECTION 7.7. INSURANCE. The corporation may purchase and maintain insurance
on its behalf and on behalf of any Covered Person against any liability asserted
against such Covered Person and incurred by him in any such capacity, or arising
out of his
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status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Article VII.
SECTION 7.8. EMPLOYEE BENEFIT PLANS. If the corporation or any of its
subsidiaries or affiliates sponsors any employee benefit plan, and any Covered
Person undertakes or incurs any responsibility as a fiduciary with respect
thereto then, for purposes of indemnification of such Covered Person under this
Article VII, (i) such Covered Person shall be deemed not to have failed to have
acted in good faith and in the reasonable belief that his action was in or not
opposed to the best interests of the corporation if he acted in good faith and
in the reasonable belief that his action was in or not opposed to the best
interests of the participants or beneficiaries of said plan, and (ii) "Expenses"
shall be deemed to include any taxes or penal ties assessed on such Covered
Person with respect to said plan under applicable law.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. ARTICLES OF ORGANIZATION. All references in these By-laws to
the Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
SECTION 8.2. FISCAL YEAR. Except as from time to time otherwise provided by
the board of directors, the fiscal year of the corporation shall end on the last
day of February of each year.
SECTION 8.3. CORPORATE SEAL. The board of directors shall have the power to
adopt and alter the seal of the corporation.
SECTION 8.4. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes, and other obligations authorized to be executed by an
officer of the corporation on its behalf shall be signed by the president or the
treasurer except as the board of directors may generally or in particular cases
otherwise determine.
SECTION 8.5. VOTING OF SECURITIES. Unless the board of directors otherwise
provides, the president or the treasurer may waive notice of and act on behalf
of this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
SECTION 8.6. EVIDENCE OF AUTHORITY. A certificate by the clerk or any
assistant clerk as to any action taken by the stockholders, directors or any
officer or representative of the
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corporation shall, as to all persons who rely thereon in good faith, be
conclusive evidence of such action. The exercise of any power which by law, by
the Articles of Organization or by these By-laws, or under any vote of the
stockholders or the board of directors, may be exercised by an officer of the
corporation only in the event of absence of another officer or any other
contingency shall bind the corporation in favor of anyone relying thereon in
good faith, whether or not such absence or contingency existed.
SECTION 8.7. CORPORATE RECORDS. The original, or attested copies, of the
Articles of Organization, By-laws, records of all meetings of the incorporators
and stockholders, and the stock transfer books (which shall contain the names of
all stockholders and the record address and the amount of stock held by each)
shall be kept in Massachusetts at the principal office of the corporation, or at
an office of its resident agent, transfer agent or of the clerk or of the
assistant clerk, if any. Said copies and records need not all be kept in the
same office. They shall be available at all reasonable times to inspection of
any stockholder for any purpose but not to secure a list of stockholders for the
purpose of selling said list or copies thereof or of using the same for a
purpose other than in the interest of the applicant, as a stockholder, relative
to the affairs of the corporation.
SECTION 8.8. CHARITABLE CONTRIBUTIONS. The board of directors from time to
time may authorize contributions to be made by the corporation in such amounts
as it may determine to be reasonable to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the net earning of which inures to the private
benefit of any stockholder or individual.
ARTICLE IX.
AMENDMENTS
SECTION 9.1. AMENDMENT BY STOCKHOLDERS. Prior to the issuance of stock,
these By-laws may be amended, altered or repealed by the incorporator(s) by
majority vote. After stock has been issued, these By-laws may be amended,
altered or repealed by the stockholders at any annual or special meeting by vote
of a majority of all shares outstanding and entitled to vote, except that where
the effect of the amendment would be to reduce any voting requirement otherwise
required by law, the Articles of Organization or these By-laws, such amendment
shall require the vote that would have been required by such other provision.
Notice and a copy of any proposal to amend these By-laws must be included in the
notice of meeting of stockholders at which action is taken upon such amendment.
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SECTION 9.2. AMENDMENT BY BOARD OF DIRECTORS.
(a) These By-laws may be amended, altered or repealed by the board of
directors at a meeting duly called for the purpose by majority vote of the
directors then in office, except that directors shall not amend the By-laws in a
manner which:
(i) changes the stockholder voting requirements for any action;
(ii) alters or abolishes any preferential right or right of redemption
applicable to a class or series of stock with shares already outstanding;
(iii) alters the provisions of Articles VII or IX hereof; or
(iv) permits the board of directors to take any action which under law, the
Articles of Organization or these By-laws is required to be taken by the
stockholders.
(b) If the By-laws are amended or altered by the board of directors, notice
of the amendment, alteration or repeal shall be given to all stockholders
entitled to vote not later than the time of giving notice of the next meeting of
stockholders following such amendment, alteration or repeal.
(c) Any amendment of these By-laws by the board of directors may be altered
or repealed by the stockholders at any annual or special meeting of
stockholders.
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Exhibit 10.1
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Agreement, dated as of May 30, 1997, is among New England Audio Co.,
Inc., a Massachusetts corporation (the "COMPANY"), Weston Presidio Offshore
Capital C.V. and the other Investors listed in SCHEDULE A (collectively, and
together with their permitted successors and assigns, the "INVESTORS") and the
other stockholders and stock optionholders of the Company listed in SCHEDULE B.
The parties agree as follows:
I. DEFINITIONS.
1.1. "BRIDGE WARRANTS" means the Warrants issued on or prior to the date
hereof pursuant to Section 2 of the Warrant and Debenture Commitment as listed
on Schedule A hereto.
1.2. "COMMON STOCK" means the common stock, no par value, of the Company.
1.3. "COMPANY" is defined in the preamble.
1.4. "EXCHANGE ACT" means the Securities and Exchange Act of 1934, or any
successor federal statute, and the rules and regulations thereunder, all as from
time to time amended and in effect.
1.5. "FORM S-2", "FORM S-3, "FORM S-4" and "FORM S-8 " mean such respective
forms under the Securities Act as in effect on the date hereof or any successor
registration forms under the Securities Act subsequently adopted by the SEC.
1.6. "HOLDER" means any person owning or having the right to acquire
Registrable Securities.
1.7. "INVESTORS" is defined in the preamble.
1.8. "NON-INVESTOR STOCKHOLDERS" means the stockholders of the Company
listed as Non-Investor Stockholders on Schedule B, together with their permitted
transferees, successors, heirs and assigns.
1.9. "ORIGINAL VENTURE INVESTORS" means the Investors listed on Schedule A,
with respect to their ownership of Preferred Stock, Warrants, Bridge Warrants,
and Common Stock issuable upon the exercise or conversion of the foregoing, but
not with respect to Subordinated Debt Warrants or Common Stock issuable upon the
exercise or conversion of Subordinated Debt Warrants.
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1.10. "PREFERRED STOCK" means, collectively, the Series A Redeemable
Convertible Preferred Stock, no par value, of the Company and the Series B
Redeemable Convertible Preferred Stock, no par value, of the Company, or either
of such series.
1.11. "PURCHASE AGREEMENT" means the Amended and Restated Series A and
Series B Purchase Agreement dated May __, 1997 among the Company and the
Investors.
1.12. "REGISTER", "REGISTERED" and "REGISTRATION" refers to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act.
1.13. "REGISTRABLE SECURITIES" means (a) the Common Stock issued or
issuable upon conversion, exchange or exercise of the Preferred Stock, Warrants,
Bridge Warrants and Subordinated Debt Warrants, (b) any Common Stock issued (or
issuable upon the conversion, exchange or exercise of any warrant, right or
other security which is issued) as a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Preferred Stock, Warrants,
Bridge Warrants and Subordinated Debt Warrants, and (c) any Common Stock
previously issued or issued in the future to the Non-Investor Stockholders,
either directly or pursuant to options, warrants and other rights under employee
plans permitted by section 5.17 of the Purchase Agreement or hereafter issued or
issuable as a dividend or other distribution with respect thereto or in
conversion or exchange therefor or replacement thereof; PROVIDED, HOWEVER, that
any shares previously sold to the public pursuant to a registered public
offering or pursuant to Rule 144 under the Securities Act shall cease to be
Registrable Securities.
1.14. "REGISTRABLE SECURITIES THEN OUTSTANDING" means the sum of (a) the
number of shares of Common Stock outstanding which are Registrable Securities
plus (b) the number of shares of Common Stock issuable pursuant to then
exercisable, exchangeable or convertible securities, options or warrants which
upon issuance would be Registrable Securities.
1.15. "REGISTRATION PERIOD" is defined in Section 4.1.
1.16. "REQUIRED INVESTORS" means, with respect to any registration
requested under Section 2, Investors who own at least two thirds of the
Registrable Securities then outstanding owned by all Investors within the
Investor Group (as defined in Section 2.1) which has made such request.
1.17. "SEC" means the Securities and Exchange Commission or any successor
agency.
1.18. "SECURITIES ACT" means the Securities Act of 1933, as from time to
time in effect, or any successor statute and the rules and regulations
thereunder, all as from time to time amended and in effect.
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1.19 "SUBORDINATED DEBT WARRANTS" means, collectively, the Warrants issued
pursuant to the Warrant Purchase Agreement dated as of May 30, 1997 among the
Company and the Subordinated Debt Warrant Holders, as described on Schedule A
hereto.
1.20 "SUBORDINATED DEBT WARRANT HOLDERS" means PNC Capital Corp, Seacoast
Capital Partners, L.P. and Exeter Venture Lenders, L.P., with respect to their
ownership of Subordinated Debt Warrants or Common Stock issuable upon the
exercise or conversion of Subordinated Debt Warrants, as set forth on Schedule
A.
1.21. "VIOLATION" is defined in Section 8.1.
1.22. "WARRANT AND DEBENTURE COMMITMENT" means that certain Warrant and
Debenture Commitment dated as of March 7, 1997 among the Company, WPC, Advent,
Global and the other holders of Series A Preferred Stock and Common Stock of the
Company party thereto.
1.23. "WARRANTS" means the Warrants to purchase Common Stock issued
pursuant to the Purchase Agreement.
2. REQUEST FOR REGISTRATION.
2.1. INVESTORS' REQUEST RIGHTS. If the Company shall receive:
(a) at any time after the earlier of (1) October 30, 1998 or (2) the date
six months after the effective date of the first registration
statement for a public offering of securities of the Company, a
written request from the Original Venture Investors owning at least
25% of the Registrable Securities then outstanding and owned by the
Original Venture Investors that the Company effect the registration
under the Securities Act of at least 25% of the Registrable Securities
then outstanding and owned by the Original Venture Investors; or
(b) at any time after the date which is six months after the effective
date of the first registration statement for a public offering of
securities from the Company, a written request from the Subordinated
Debt Warrant Holders owning at least 51% of the Registrable Securities
then outstanding and owned by the Subordinated Debt Warrant Holders
that the Company effect the registration under the Securities Act of
at least 25% of the Registrable Securities then outstanding and owned
by the Subordinated Debt Warrant Holders;
then in each such case the Company shall, within five days after the receipt
thereof, give written notice of such request to all Holders. Subject to the
limitations of this Section 2,
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the Company shall use its best efforts to effect such a registration in an
underwritten public offering as soon as practicable, and in any event file
within 90 days after the receipt of such request a registration statement under
the Securities Act covering all the Registrable Securities which the Holders
shall request in writing within 20 days after receipt of such notice and any
shares that the Company may wish to include, subject to any limitation imposed
by the managing underwriters as set forth in Section 2.2. The Company shall use
its best efforts to cause such registration statement to become effective. The
Company shall not be obligated to effect a registration under this Section 2
unless the registered underwritten offering would constitute a "Qualified Public
Offering" as defined in the Company's Amended and Restated Certificate of Vote
establishing Series A Redeemable Convertible Preferred Stock and Series B
Redeemable Convertible Preferred Stock.
The specific Registration Group (as defined below) requesting a
registration as aforesaid is sometimes referred to in this Section 2 as the
"Requesting Registration Group" and the other Registration Group which is not
the Requesting Registration Group with respect to such registration is sometimes
referred to herein as the "Non-Requesting Registration Group."
As used above, the term "Registration Group" means either of (1) the
Original Venture Investors and the Non-Investor Stockholders, as a group and (2)
the Subordinated Debt Warrant Investors, as a group.
2.2. UNDERWRITTEN OFFERING. The managing underwriter for the proposed
offering to be registered under this Section 2 shall be selected by the Company
with the approval of the Required Investors, which approval shall not be
unreasonably withheld. The right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. All Holders proposing to sell
Registrable Securities in such offering shall (together with the Company as
provided in Section 4.5) enter into an underwriting agreement in customary form
with the managing underwriter for such underwriting, and the Company shall have
the right to require that any proposed offering to be registered under this
Section 2 be an underwritten offering. Notwithstanding any other provision of
this Section 2, if the managing underwriter for the offering advises the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated as follows:
(a) First, to the Requesting Registration Group, up to the number of
shares which is the lesser of (1) 50% of the Registrable Securities
then outstanding and owned on the date hereof by such Requesting
Registration Group in the aggregate, with such allocation to be made
pro rata on the basis of the number of Registrable Securities sought
to be registered by the
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members of the Requesting Registration Group, or (2) 100% of the
Registrable Securities sought to be so registered by the Requesting
Registration Group;
(b) Second, to the Non-Requesting Registration Group, up to the number of
shares which is the lesser of (1) 50% of the Registrable Securities
then outstanding and owned on the date hereof by such Non-Requesting
Registration Group in the aggregate, with such allocation to be made
pro rata on the basis of the number of Registrable Securities sought
to be registered by the members of the Non-Requesting Registration
Group, or (2) 100% of the Registrable Securities sought to be so
registered by the Non-Requesting Registration Group;
(c) Third, to the Requesting Registration Group and the Non-Requesting
Registration Group together, with such allocation to be made pro rata
on the basis of the number of Registrable Securities sought to be
registered by the members of the Non-Requesting Registration Group and
the Non-Requesting Registration Group together; and
(d) Fourth, to the Company for the shares requested to be sold by it in
such offering.
2.3. NUMBER OF REQUESTS. Subject to the further provisions of this Section
2.3, the Company is obligated to effect only two registrations requested by the
Original Venture Investors under Section 2.1(a), and two registrations by the
Subordinated Debt Warrant Holders under Section 2.1(b) (for a total of four such
registrations) pursuant to this Section 2, and only one such registration in any
12-month period.
2.4. DEFERRAL OF REGISTRATION. Notwithstanding the foregoing provisions of
this Section 2, the Company shall not be obligated to effect the filing of a
registration statement pursuant to this Section 2 at the request of a
Registration Group (a) during the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of a registration
statement pertaining to the underwritten public offering of securities for the
account of the Company or upon the request of the other Registration Group
pursuant to this Section 2, and ending on the date which is the later of (i) 180
days following the effective date of such registration statement, provided the
Company is at all times during such period diligently pursuing such
registration, and (ii) 90 days following the expiration of any "lock-up" period
required by the underwriters for such offering, or (b) if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2 a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would not be in the
best interests of the Company and its stockholders generally for such
registration statement to be filed. Under clause (b) the Company shall have the
right to defer such filing for a period of not more than 90 days after receipt
of the request for a registration under this Section 2; PROVIDED, HOWEVER, that
the Company may not utilize the right set forth in
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<PAGE> 6
clause (b) more than once in any 12-month period; and PROVIDED, FURTHER, that,
notwithstanding the previous proviso, if the Company has entered into a binding
agreement with an unaffiliated third party during such 90-day period providing
for the sale of substantially all the Company's assets or capital stock, or the
sale of the Company through a merger or consolidation, such 90-day period shall
be extended to permit the Company to consummate such transaction.
3. INCIDENTAL ("PIGGY-BACK") REGISTRATION. If the Company proposes to register
any of its capital stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration on Form S-8 relating solely to the sale of securities to
participants in a Company stock plan or a registration on Form S-4 relating to
an acquisition), the Company shall not later than 30 days before filing the
registration statement with respect thereto give each Holder written notice of
such registration. Upon the written request of any Holder given within 15 days
after such notice, the Company shall use its best efforts to cause a
registration statement covering all of the Registrable Securities that each such
Holder has requested to be registered to become effective under the Securities
Act. The Company shall be under no obligation to complete any offering of its
securities it proposes to make under this Section 3 and shall incur no liability
to any Holder for its failure to do so. Notwithstanding any other provisions of
this Section 3, if the managing underwriter for the offering advises the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten or holders thereof, then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated as follows:
(a) First to the Company for shares requested to be sold by it in such
offering.
(b) Second to the Holders requesting registration in such offering and the
holder of the HiFi Warrant (as defined in the Purchase Agreement) pro
rata in accordance with (i) the number of Registrable Securities
requested by the Holders to be included in such offering and (ii) the
number of shares subject to such HiFi Warrant requested to be included
in such offering.
4. OBLIGATIONS OF THE COMPANY. Whenever required under Sections 2 or 3 to use
its best efforts to effect the registration of any Registrable Securities, the
Company shall take the following actions, as expeditiously as reasonably
possible:
4.1. EFFECTIVENESS OF REGISTRATION. In cooperation with the selling Holders
as contemplated by Section 5.2, the Company shall prepare and file with the SEC
a registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective. Upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, the Company shall keep
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<PAGE> 7
such registration statement effective (a) in the case of an underwritten
offering, for such period as is required by the underwriter for such offering or
(b) in the case of an offering not underwritten, until the Holders have informed
the Company in writing that the distribution of their securities has been
completed, but in no event longer than nine months (as the case may be, the
"REGISTRATION PERIOD").
4.2. AMENDMENTS. During the Registration Period, the Company shall prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement, and use its best efforts to cause each such amendment to become
effective, as may be necessary to comply with the Securities Act with respect to
the disposition of all securities covered by such registration statement.
4.3. COPIES OF REGISTRATION STATEMENT. During the Registration Period, the
Company shall furnish to each Holder such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as such Holder may reasonably
request in order to facilitate the disposition of its Registrable Securities
covered by such registration statement.
4.4. STATE QUALIFICATIONS. During the Registration Period, the Company
shall use its best efforts to register or qualify such Registrable Securities
under the securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request, and do all other acts which may be reasonably necessary or
advisable in connection with such registration or qualification; PROVIDED,
HOWEVER, that the Company shall not be required to qualify as a foreign
corporation in any state where it is not then required to qualify.
4.5. UNDERWRITING AGREEMENT. The Company shall enter into and perform its
obligations under an underwriting agreement, in customary form not inconsistent
with this Agreement, with the managing underwriter of such offering.
4.6. CHANGES IN PROSPECTUS. The Company shall notify each Holder of
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. The
Company shall promptly file such amendments and supplements which may be
required pursuant to Section 4.2 on account of such event and use its best
efforts to cause each such amendment and supplement to become effective.
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<PAGE> 8
4.7. OPINIONS AND COMFORT LETTERS. The Company shall furnish, at the
reasonable request of any Holder requesting registration of Registrable
Securities pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement (a) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given by issuer's counsel to the underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders requesting registration of Registrable Securities and (b) a letter dated
such date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by the issuer's independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters and to the Holders requesting registration of Registrable
Securities.
4.8. TRANSFER AGENT. The Company shall provide a transfer agent and
registrar for such Registrable Securities not later than the effective date of
such registration statement.
4.9. LISTING SHARES. The Company shall apply for listing and use its best
efforts to list the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity securities has been
previously or is being listed. If the Company does not have a class of equity
securities listed on a national securities exchange, the Company shall apply for
qualification and use its best efforts to qualify the Registrable Securities
being registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. or an exchange.
5. PREPARATION OF REGISTRATION STATEMENT.
5.1. INFORMATION BY SELLING HOLDERS. The selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as shall
be required to effect the registration of their Registrable Securities.
5.2. PARTICIPATION IN PREPARATION OF REGISTRATION STATEMENT. In connection
with the preparation and filing of each registration statement registering
Registrable Securities under the Securities Act, the Company will give the
selling Holders, the managing underwriter and one counsel selected by the
selling Holders and approved in writing by the Required Investors, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the SEC, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such selling
Holders and such underwriter, to conduct a reasonable investigation within the
meaning of the Securities Act to protect themselves from liability thereunder.
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<PAGE> 9
5.3. UNDERWRITING AGREEMENT. Each selling Holder shall enter into and
perform its obligations under an underwriting agreement with the managing
underwriter for such offering in customary form not inconsistent with this
Agreement, including furnishing any opinion of counsel and agreeing to
indemnification obligations reasonably requested by the managing underwriter,
but in no event will any holder be liable for indemnification obligations in
excess of the net offering proceeds received by such Holder (except for matters
described in clauses (i) and (ii) of Section 8. 1).
6. EXPENSES OF REGISTRATION. All expenses other than underwriting discounts
and commissions relating to Registrable Securities incurred in connection with
each of the registrations, filings or qualifications pursuant to Sections 2 or 3
including (without limitation) all registration, filing and qualification fees,
all fees and expenses in connection with compliance with state securities or
blue sky laws, printing and delivery expenses, fees and disbursements of counsel
and independent public accountants for the Company, and the reasonable fees and
disbursements of one law firm acting as counsel for the selling Holders shall be
paid by the Company; PROVIDED, HOWEVER, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
2 if the registration request is subsequently withdrawn at any time at the
request of the Holders (in which case all participating Holders shall bear such
expenses), unless the Required Investors agree to forfeit their right to one
demand registration pursuant to Section 2; PROVIDED FURTHER, HOWEVER, that if at
the time of such withdrawal, the Holders have learned of a material adverse
change in the financial condition, business or prospects of the Company from
that known to the Requesting Registration Group at the time of their request (or
of which they were informed in a written notice from the Company to the
Requesting Registration Group within 10 days after such request) that makes the
proposed offering unreasonable in the good faith judgment of the Requesting
Registration Group, and such registration request is so withdrawn as aforesaid,
then the Holders shall not be required to pay any of such expenses and such
registration request shall not be counted as the exercise of one of the
registration requests by such Requesting Registration Group under Section 2.3.
Underwriting discounts and commissions relating to Registrable Securities will
be paid ratably by the Holders of such Registrable Securities.
7. INDEMNIFICATION.
7.1. COMPANY INDEMNIFICATION. To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the officers, directors, partners,
agents and employees of each Holder, any underwriter (as defined in the
Securities Act) for such Holder, and each person, if any, who controls such
Holder or underwriter, within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities (joint or several) to
which any of them may become subject under the Securities Act. the Exchange Act,
other federal or state law or otherwise, and to reimburse them for any legal or
any other expenses reasonably incurred by them in connection with investigating
any claim, or defending any action or proceeding, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
-9-
<PAGE> 10
arise out of or are based upon any of the following statements, omissions or
violations (a "VIOLATION"): (a) any untrue statement or alleged untrue statement
of a material fact contained or incorporated by reference in any registration
statement under which Registrable Securities were registered, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (b) 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 under which they were made, not
misleading, or (c) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law. The indemnity provisions in this Section 7.1 shall not apply to amounts
paid in settlement of any loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to a Holder in
any case for any such loss, claim, damage, liability or action (i) to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by or on behalf of such Holder, underwriter or
controlling person or (ii) in the case of a sale directly by a Holder of
Registrable Securities (including a sale of such Registrable Securities through
any underwriter in a distribution solely on behalf of such Holder) such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or amended
prospectus, and such Holder failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the Registrable
Securities, as the case may be, to the person asserting any such loss, claim,
damage or liability in any case where such delivery is required by the
Securities Act and such loss, claim, damage, liability or action would not have
occurred but for such failure.
7.2. HOLDER INDEMNIFICATION. To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its officers,
directors, partners, agents, employees, each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act, and any
underwriter for the Company, and any other Holder selling securities in such
registration statement or any of its directors, officers, partners, agents or
employees or any person who controls such Holder or any underwriter, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, partner, agent, employee or controlling person,
or underwriter, or other such Holder or director, partner, agent, employee,
officer or controlling person or underwriter may become subject, under the
Securities Act, the Exchange Act or other federal or state law or otherwise, and
to reimburse them for any legal or any other expenses reasonably incurred by
them in connection with investigating any claim, or defending any action or
proceeding, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by or on behalf of
such Holder expressly for use in connection with such registration; PROVIDED,
HOWEVER, that (a) the liability of any Holder hereunder shall be limited to the
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<PAGE> 11
amount of proceeds received by such Holder in the offering giving rise to the
Violation or if the offering is terminated, the amount such Holder would have
received; and (b) the indemnity provisions in this Section 7.2 shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), nor shall the Holder be liable to
the Company in any such case in which such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Company
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Securities Act and such loss, claim, damage, liability or action would not
have occurred but for such failure.
7.3. NOTICE DEFENSE AND COUNSEL. Promptly after receipt by an indemnified
party under this Section 7 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume and control the defense thereof
with counsel selected by the Company with the approval (not to be unreasonably
withheld), of the other parties; provided, however, that an indemnified party
shall have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate under
customary practice due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 7 only to the extent the indemnifying party is actually prejudiced in
its ability to defend such action, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 7.
7.4. CONTRIBUTION IN LIEU OF INDEMNIFICATION. If the indemnification
provided for in Sections 7.1 or 7.2 is unavailable to a person that would have
been an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
person that would have been an indemnifying party thereunder shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and such
indemnified party on the other in connection with the untrue or alleged untrue
statements of a material fact or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault shall be determined by reference to, among other
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<PAGE> 12
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or such indemnified party and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this Section 7.4 shall include amounts
arising from any such action or claim (which shall be limited as provided in
Section 7.3 if the indemnifying party has assumed the defense of any such action
in accordance with the provisions thereof). No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7.5. SURVIVAL OF RIGHTS AND OBLIGATIONS. The obligations of the Company and
the Holders under this Section 7 shall survive the completion of any offering of
Registrable Securities in a registration statement whether under this Agreement
or otherwise.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Holders
the benefits of Rule 144 under the Securities Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration, and with a view to making it
possible for the Company to register the Registrable Securities pursuant to a
registration on Form S-3, the Company agrees to:
8.1. PUBLIC INFORMATION. Make and keep public information available, as
those terms are understood and defined in Rule 144, at all times after 90 days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public.
8.2. TIMELY FILING. File with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act.
8.3. COMPLIANCE; INFORMATION. Furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (a) a written statement
by the Company that it has complied with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold in a secondary offering
pursuant to Form S-3 (at any time after it so qualifies), (b) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (c) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
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<PAGE> 13
9. LOCK-UP AGREEMENTS. If requested by the managing underwriter in connection
with an offering of Company securities, the Holders shall enter into lock-up
agreements pursuant to which they will not, for a period of seven days prior to,
and 90 days following, the effective date of a registration statement for the
offering of the Company's securities, or any other period reasonably requested
by the managing underwriter, offer or sell any of the Registrable Securities
without the prior consent of the managing underwriter, provided that the
officers and directors of the Company enter into lock-up agreements with terms
at least as restrictive.
10. LIMITATIONS ON OTHER REGISTRATION RIGHTS. The Company shall not, without
the prior written consent of (a) the Original Venture Investors owning at least
a majority of the Registrable Securities then outstanding owned by all Original
Venture Investors and (b) the Subordinated Debt Warrant Holders owning at least
a majority of the Registrable Securities then outstanding owned by all
Subordinated Debt Warrant Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to (a) require the Company to effect a
registration, or (b) include any securities in any registration filed under
Sections 2 or 3, unless in each case such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of such securities will not reduce the amount of Registrable
Securities to be included by the Original Venture Investors or the Subordinated
Debt Warrant Holders.
11. GENERAL.
11.1. NOTICES. All notices or other communications required or permitted to
be delivered hereunder shall be in writing and shall be deemed to be delivered
to each of the parties at their respective addresses as set forth in Schedules A
or B if either (a) actually delivered at said address, (b) in the case of a
letter, seven business days shall have elapsed after the same shall have been
deposited in the United States mails, postage prepaid and registered or
certified, return receipt requested, or two business days shall have elapsed
after the same shall have been deposited with an overnight courier (for
overnight delivers of national recognition, (c) in the case of a telecopy within
the United States, upon confirmation of receipt of such telecopy (which
confirmation may consist of a telecopy machine printout showing successful
transmission), if such telecopy is followed by a copy of the same being
deposited within one business day of such telecopy with an overnight courier
(for overnight delivery) of national recognition or (d) transmitted to any
address outside of the United States, by telecopy and confirmed by overnight or
two-day courier.
11.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous understandings, whether written or oral.
11.3 AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made,
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<PAGE> 14
and compliance with any covenant or provision herein set forth may be omitted or
waived, if the Company (a) shall obtain prior written consent thereof from (1)
the Original Venture Investors owning at least a majority of the Registrable
Securities then outstanding owned by all Original Venture Investors (2) the
Subordinated Debt Warrant Holders owning at least a majority of the Registrable
Securities then outstanding owned by all Subordinated Debt Warrant Holders, and
(3) Holders other than Investors holding an aggregate of at least a majority of
the Registrable Securities then outstanding owned by such Holders and (b) shall,
in each such case, deliver copies of such consent in writing to any Holders who
did not execute the same.
11.4. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the respective heirs, executors, legal representatives,
successors and assigns of the respective parties hereto. The Company shall not
have the right to assign, except as part of a Qualified Sale or other
transaction permitted by the Purchase Agreement, its rights or obligations
hereunder or any interest herein without obtaining the prior written consent of
(a) the Investors holding a majority of the Registrable Securities then
outstanding owned by the Investors and (b) Holders other than Investors holding
an aggregate of at least a majority of the Registrable Securities then
outstanding owned by such Holders. The Holders may assign or transfer their
rights under this Agreement to the extent (i) permitted by the other agreements
between the respective Holders and the Company and (ii) in the case of Holders
who are Investors, to the extent that such assignee or transferee owns or
obtains Registrable Securities having a fair value of at least $100,000.
11.5 SEVERABILITY. If any provision of this Agreement shall be found by any
court of competent jurisdiction to be invalid or unenforceable, the parties
waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable and, as modified, shall be
enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
11.6. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
11.7. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement. This Agreement shall be governed by and construed in accordance
with the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts.
11.8 TERMINATION OF PRIOR AGREEMENT. This Agreement amends and restates in
its entirety that certain Registration Rights Agreement, dated as of November
28, 1995, and as amended from time to time, among the Company and certain of the
Investors and Non-Investor Stockholders.
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<PAGE> 15
The undersigned have executed this Amendment under seal as of the date
first above written.
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
-------------------------------------
WESTON PRESIDIO OFFSHORE CAPITAL C.V.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT, L.P.
By: /s/ Michael F. Cronin
---------------------------------
General Partner
NATIO VIE DEVELOPPEMENT II, FCPR
By: /s/ Dominique Bellanger
-------------------------------------
Title: Fund Manager
BNP VENTURE HOLDING CORP.
By: /s/ Yonn Collignon
-------------------------------------
Title: Directeur de Participations
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<PAGE> 16
ADVENT DIRECT INVESTMENT PROGRAM
LIMITED PARTNERSHIP
By: ADVENT INTERNATIONAL LIMITED
PARTNERSHIP, its General Partner
By: ADVENT INTERNATIONAL CORPORATION,
its General Partner
By: /s/ John F. Brooke
---------------------------------
Vice President/President
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP
By: ADVENT INTERNATIONAL LIMITED
PARTNERSHIP, its General Partner
By: ADVENT INTERNATIONAL CORPORATION,
its General Partner
By: /s/ John F. Brooke
---------------------------------
Vice President/President
EXETER VENTURE LENDERS, L.P.
By: EXETER VENTURE ADVISORS, INC., its
General Partner
By: /s/ Keith R. Fox
---------------------------------
Title
BANCBOSTON INVESTMENTS INC.
By: /s/ Charles Grant
-------------------------------------
Title Vice President
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<PAGE> 17
PNC CAPITAL CORP
By: /s/ Preston Walsh
-------------------------------------
Title Vice President
SEACOAST CAPITAL PARTNERS, L.P.
By: SEACOAST CAPITAL CORPORATION
By: /s/ Paul G. Giovacchini
---------------------------------
Title: Vice President
Carolyn B. Bloomberg, Margaret Biller and Jeffrey
C. Bloomberg, Trustees of the Samuel J. Bloomberg
1995 Irrevocable Trust, dated as of October 26,
1995 f/b/o Joshua Bloomberg:
/s/ Carolyn B. Bloomberg
-------------------------------------
Carolyn B. Bloomberg, as Trustee
/s/ Margaret Biller
-------------------------------------
Margaret Biller, as Trustee
/s/ Jeffrey C. Bloomberg
-------------------------------------
Jeffrey C. Bloomberg, as Trustee
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<PAGE> 18
Carolyn B. Bloomberg, Margaret Biller and Jeffrey
C. Bloomberg, Trustees of the Samuel J. Bloomberg
1995 Irrevocable Trust, dated as of October 26,
1995 f/b/o Mikaela Bloomberg:
/s/ Carolyn B. Bloomberg
-------------------------------------
Carolyn B. Bloomberg, as Trustee
/s/ Margaret Biller
-------------------------------------
Margaret Biller, as Trustee
/s/ Jeffrey C. Bloomberg
-------------------------------------
Jeffrey C. Bloomberg, as Trustee
/s/ Carolyn B. Bloomberg
-------------------------------------
Carolyn B. Bloomberg
/s/ Samuel J. Bloomberg
-------------------------------------
Samuel J. Bloomberg
/s/ Jeffrey C. Bloomberg
-------------------------------------
Jeffrey C. Bloomberg
/s/ Jeffrey Stone
-------------------------------------
Jeffrey Stone
/s/ Armin Biller
-------------------------------------
Armin Biller
/s/ Harriet C. Bloomberg
-------------------------------------
Harriet C. Bloomberg
/s/ Matthew Bronfman
-------------------------------------
Matthew Bronfman
-18-
<PAGE> 19
SCHEDULE A
SCHEDULE A TO
REGISTRATION RIGHTS AGREEMENT
No. of Shares of Preferred
Stock/Warrants
Investors and Address As of December 29, 1997
- --------------------- --------------------------
Weston Presidio + 826,060 Series A
Offshore Capital C.V. + 141,509 Series B
One Federal Street + Bridge Warrants Covering 18,036
Boston, MA 02110 Shares of Common Stock
Telephone: (617) 988-2500
Telecopy: (617) 988-2515
Natio Vie Developpement II, FCR + 236,020 Series A
BNP/1 Bd Haussmann + Bridge Warrants Covering 5,156 Shares
75009 Paris of Common Stock
FRANCE
Telephone: 011-33-1-401-4-5242
Telecopy: 011-33-1-401-4-6960
BNP Venture Holding Corp. + 236,020 Series A
Banexi/12 Rue Chauchat + 195,408 Series B
75009 Paris FRANCE + Bridge Warrants Covering 5,156 Shares
Telephone: 011-33-1-401-4-5242 of Common Stock
Telecopy: 011-33-1-401-4-6960
Natio Nouveaux Marches Europe + 37,736 Series B
BNP/1 Bd Haussmann
75009 Paris
FRANCE
Telephone: 011-33-1-401-4-5242
Telecopy: 011-33-1-401-4-6960
Advent Direct Investment Program + 322,870 Series A
Limited Partnership + 38,720 Series B
101 Federal Street + Bridge Warrants Covering 7,052 Shares
Boston, MA 02110 of Common Stock
Telephone: (617) 951-9400
Telecopy: (617) 951-0566
-8-
<PAGE> 20
Global Private Equity II Limited - 857,210 Series A
Partnership - 102,789 Series B
101 Federal Street - Bridge Warrants Covering 18,720
Boston, MA 02110 Shares of Common Stock
Telephone: (617) 951-9400
Telecopy: (617) 951-0566
Exeter Venture Lenders, L.P. - 94,340 Series B
101 East 53rd Street - Subordinated Debt Warrants Covering
New York, NY 159,950 Shares of Common Stock
Telephone: (212) 872-1170
Telecopy: (212) 872-1198
Exeter Equity Partners, L.P. - 94,340 Series B
10 East 53rd Street - Subordinated Debt Warrants Covering
New York,NY 159,950 Shares of Common Stock
Telephone: (212) 872-1170
Telecopy: (212) 872-1198
BancBoston Investments Inc. - 188,680 Series B
175 Federal Street
Boston, MA 02110
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
PNC Capital Corp - 377,359 Series B
249 Fifth Avenue - 19th Floor - Subordinated Debt Warrants Covering
One PNC Plaza 319,900 Shares of Common Stock
Pittsburg, PA 15222
Telephone: (412) 762-0366
Telecopy: (412) 762-6233
Seacoast Capital Partners, L.P. - Subordinated Debt Warrants Covering
55 Ferncroft Road 319,900 Shares of Common Stock
Danvers, MA 01923
Telephone: (508) 750-1308
Telecopy: (508) 750-1301
Jeffrey Bloomberg - 42,470 Series A
252 Woodland Road - 41,605 Series B
Chestnut Hill, MA 02167 - Bridge Warrants Covering 928 Shares
of Common Stock
-5-
<PAGE> 21
Harriet Bloomberg - Bridge Warrants Covering 476 Shares
One Salem Street of Common Stock
Swampscott, MA 01907
Armin Biller - 21,670 Series A
220A Allendale Road, Unit 1D - Bridge Warrants Covering 476 Shares
Chestnut Hill, MA 02167 of Common Stock
Matthew Bronfman - 6,000 Series A
c/o Perfumes Isabell - 821 Series B
30 West 26th Street - Bridge Warrants Covering 128 Shares
2nd Floor of Common Stock
New York, NY 10010
Carolina Bloomberg - 21,670 Series A
309 Warren Street - 4,485 Series B
Brookline, MA 02146 - Bridge Warrants Covering 476 Shares
of Common Stock
Carolina B. Bloomberg, - 5,417 Series A
Margaret Biller and - 741 Series B
Jeffrey C. Bloomberg, as
Trustees of the Samuel
J. Bloomberg 1995 Irrevocable
Trust, dated as of October 26, 1995
f/b/o Joshua Bloomberg
Carolina B. Bloomberg, - 5,417 Series A
Margaret Biller and - 741 Series B
Jeffrey C. Bloomberg, as
Trustees of the Samuel
J. Bloomberg 1995 Irrevocable
Trust, dated as of October 26, 1995
f/b/o Mikaela Bloomberg
Suzanne Fisher Bloomberg - 5,418 Series A
and William A. Shutzer, - 741 Series B
Trustees of the
Jeffrey C. Bloomberg 1996
Irrevocable Trust, dated as of
August 12, 1996, f/b/o Benjamin
Fisher Luntz
<PAGE> 22
Suzanne Fisher Bloomberg * 5.418 Series A
and William A. Shutzer, Trustees * 740 Series B
of the Jeffrey C. Bloomberg 1996
Irrevocable Trust, dated as of
August 12, 1996, f/b/o Heather
Fisher Luntz
Note: Jeffrey Bloomberg, Matthew Bronfman and Carolina Bloomberg may also be
Non-Investor Stockholders, as described in Schedule B hereto.
-11-
<PAGE> 23
SCHEDULE B
SCHEDULE B TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
NO. OF SHARES OF
NON-INVESTOR STOCKHOLDER COMMON STOCK
<S> <C> <C>
1. Jeffrey C. Bloomberg* 257,600
2. Jeffrey Stone 275,000
3. Carolina Bloomberg** 11,130
4. Samuel J. Bloomberg 960,000
5. Carolina B. Bloomberg, Margaret Biller and 31,120
Jeffrey C. Bloomberg, Trustees of the Samuel
J. Bloomberg 1995 Irrevocable Trust, dated as
of October 26, 1995 f/b/o Joshua Bloomberg
6. Carolina B. Bloomberg, Margaret Biller and 31,120
Jeffrey C. Bloomberg, Trustees of the Samuel
J. Bloomberg 1995 Irrevocable Trust, dated as
of October 26, 1995 f/b/o Mikaela Bloomberg
7. Matthew Bronfman*** Option Holder
8. Candace S. Stone and Peter S. Stone, as 20,000
Trustees of the Stone Family 1998 Irrevocable
Trust f/b/o Nicole L. Stone u/d/t dated
January 2, 1998
9. Candace S. Stone and Peter S. Stone, as 20,000
Trustees of the Stone Family 1998 Irrevocable
Trust f/b/o Matthew S. Stone u/d/t dated
January 2, 1998
10. Suzanne Fisher Bloomberg and William A. 2,100
Shutzer, Trustees of the Jeffrey C. Bloomberg
1996 Irrevocable Trust dated as August 12,
1996 f/b/o Benjamin Fisher Luntz
11. Suzanne Fisher Bloomberg and William A. 2,100
Shutzer, Trustees of the Jeffrey C. Bloomberg
1996 Irrevocable Trust dated as August 12,
1996 f/b/o Heather Fisher Luntz
</TABLE>
Notes on Following Page
<PAGE> 24
* Mr. Bloomberg is a Covered Stockholder with respect to such 257,600 shares.
** Ms. Bloomberg is a Covered Stockholder with respect to such 11,130 shares.
*** Mr. Bronfman will constitute a Covered Stockholder to the extent he
acquires shares of Common Stock pursuant to certain options granted to him
as described in Exhibit 4.1.1 to the Disclosure Schedule affixed to the
Purchase Agreement.
<PAGE> 1
EXHIBIT 10.2
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of May 30,
1997 between NEW ENGLAND AUDIO CO., INC., a Massachusetts corporation (the
"Company"), and PNC CAPITAL CORP, a Delaware corporation, SEACOAST CAPITAL
PARTNERS L.P., a Delaware limited partnership and EXETER VENTURE LENDERS, L.P.,
a Delaware limited partnership (each an "Initial Holder" and, collectively, the
"Initial Holders").
PREAMBLE
The Initial Holders and the Company are parties to a Note Purchase
Agreement dated as of even date herewith (as the same may be amended from time
to time, the "Note Purchase Agreement"). As a condition to the obligations of
the Initial Holders under the Note Purchase Agreement, the Company is required
to enter into this Agreement and issue to the Initial Holders stock purchase
warrants to purchase certain shares of its common stock (said warrants and all
warrants subsequently issued by the Company to the Initial Holders, their
successors and assigns pursuant hereto or pursuant to any of said warrants,
whether upon transfer, exchange or replacement thereof or otherwise being
hereinafter referred to collectively as the "Warrants", and each individually as
a "Warrant"). Therefore, the parties agree as follows with the intent to be
legally bound.
AGREEMENT
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to those terms in the Note Purchase
Agreement. In addition to terms defined elsewhere in this Agreement the
following terms shall have the following meanings:
"Acquired Securities" means the Warrants and the Warrant Shares.
"Commission" means the United States Securities and Exchange Commission and
any successor federal agency administering the Securities Act.
"Common Stock" means all classes and categories of the Company's common
stock, whether now or hereafter issued or issuable, including without limitation
the Company's common stock, no par value.
"EBITDA" means the Company's net income for any period of determination
thereof, prior to provision for interest expenses, income taxes, amortization,
depreciation, management bonuses in excess of those set forth in the Company's
annual budget and projections as approved by its Board of Directors and
delivered to the
<PAGE> 2
Initial Holders pursuant to the Note Purchase Agreement plus 10% annually and
other expenses that in accordance with GAAP would not be considered in
calculating cost of goods sold, revenues or selling, general or administrative
expenses.
"Exercise Price" of a Share issuable upon the exercise of a Warrant means
$.001.
"Fair Market Value" of the Company means the fair market value of the
Company's equity securities. Upon the occurrence of an event requiring a
determination of Fair Market Value, the Company and the Holders seeking such
determination shall endeavor to agree upon the same. If they cannot so agree
within 15 days after such event, then Fair Market Value will be determined by a
nationally-recognized investment banking firm chosen jointly by the Company and
such Holders or, if there is a dispute as to the selection of such investment
banking firm, by the American Arbitration Association in Pittsburgh,
Pennsylvania or Boston, Massachusetts upon application of the Company or such
Holders. The Company and such Holders shall be afforded adequate opportunities
to discuss said valuation with the investment bankers. Said valuation shall be
valid for 90 days following its issuance. In the case of an exercise by the
Company of its call rights under Section 10, the expense of said valuation shall
be borne completely by the Company (unless otherwise required by SBA
regulations). In all other cases (unless otherwise required by SBA regulations),
the expense of said valuation shall be borne as follows: if the valuation is
within 10% of the Fair Market Value determined by the Company's Board of
Directors (the "Company Valuation"), then said expense shall be borne one-half
by the Company and one-half by the Holders seeking such determination; if the
valuation is more than 10% higher than the Company Valuation, then said expense
shall be borne completely by the Company; if the valuation is more than 10%
lower than the Company Valuation, then said expense shall be borne completely by
the Holders seeking such determination.
"Formula Value" of the Company means, as of any date, the value of the
Company as established by the following formula:
7 x EBITDA based on the trailing 12 month income statement of the Company,
prepared in accordance with GAAP, for the 12 month period ended on the last
day of the month immediately prior to the month in which the date of
determination occurs, less funded and other long term debt, plus cash items
as presented in the Company's balance sheet, prepared in accordance with
GAAP, for the month ended prior to such date.
"Holder" and "Holders" means each Initial Holder and their registered
successors and assigns of the Acquired Securities.
"Outstanding Warrants" means (a) the Warrants, (b) the Common Stock Warrant
dated as of May 30, 1997 issued by the Company to HiFi Buys Incorporated and (c)
the
-2-
<PAGE> 3
Warrants issued to the holders of the Company's Series A Redeemable Convertible
Preferred Stock pursuant to that certain Warrant and Debenture Commitment dated
as of March 7, 1997.
"Preferred Stock" means the Company's Series A Redeemable Convertible
Preferred Stock, no par value, and the Company's Series B Redeemable Convertible
Preferred Stock, no par value.
"Preferred Stock Certificate" means the Company's Amended and Restated
Certificate of Vote of Directors Establishing Series A Redeemable Convertible
Preferred Stock and Series B Redeemable Convertible Preferred Stock.
"Put/Call Value" of a Warrant Share means the greater of (a) the Fair
Market Value of the Company divided by the number of Shares Deemed Outstanding
or (b) the Formula Value of the Company divided by the number of Shares Deemed
Outstanding. The Put/Call Value of a Warrant shall be the Put/Call Value of a
Warrant Share, multiplied by the number of Shares issuable upon the exercise of
such Warrant, minus the aggregate Exercise Price for Warrant Shares under such
Warrant. Put/Call Value shall be determined as of the date when a Holder gives
notice exercising its put rights under Section 9, or the Company gives notice
exercising its call rights under Section 10, as applicable
"Qualified Public Offering" means any underwritten public offering of
Common Stock the net proceeds of which to the Company and/or the selling holders
(if any) (after deducting any underwriting fees and commissions) are at least
$25 million; provided, that if such public offering is effected prior to the
date when all obligations of the Company under the Note Purchase Agreement and
the Notes issued pursuant thereto (but not under the other Transaction Document,
including this Agreement and the Warrants) have been satisfied in full, then in
the course of such public offering the underwriter shall issue its firm
commitment to, and thereafter shall, include in the offering a sufficient number
of Shares to ensure that following said offering the proceeds to the Company
shall be adequate to permit the Company to satisfy such obligations in full
after it has paid all fees and expenses incurred in connection with such
offering and made all payments with respect to the Senior Indebtedness which are
required because of such offering.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Securities Act" means the Securities Act of 1933 and all rules,
regulations and orders issued thereunder, as any of the same may be amended.
-3-
<PAGE> 4
"Share" means one share of Common Stock.
"Shares Deemed Outstanding" means the total number of Shares
outstanding on a fully diluted basis, including without limitation all
Shares obtainable upon exercise of the Warrants. For the purposes of this
Agreement (a) all Shares which are issuable upon the exercise of any Stock
Purchase Rights shall be deemed to be outstanding upon the issuance of such
Stock Purchase Rights whether or not such Stock Purchase Rights are immediately
exercisable and (b) the consideration received by the Company in respect of
each Share which is deemed to be outstanding pursuant to clause (a) above shall
be deemed to be (i) the sum of the aggregate amount received or receivable by
the Company as consideration for the issuance or sale of such Stock Purchase
Rights plus the minimum aggregate amount of consideration payable to the
Company upon the exercise thereof divided by (ii) the maximum aggregate number
of Shares issuable by the Company upon the exercise thereof. If and to the
extent that any Stock Purchase Rights shall expire or terminate without being
exercised, the number of Shares which may be acquired upon the exercise of each
Warrant on the date of such expiration or termination shall be readjusted to
the number that would have been in effect at such time had such rights never
existed and the Shares issuable upon conversion of such expired or terminated
rights shall no longer be deemed outstanding.
"Stock Purchase Right" means (a) evidence of indebtedness, warrants, stock
and other securities which are convertible into or exchangeable for Common
Stock, with or without the payment of additional consideration and either
immediately or upon the arrival of a specified date or the happening of a
specified event, and (b) options and other rights to subscribe for or purchase
any Common Stock.
"Warrant Shares" means the Shares issued or issuable upon the exercise of a
Warrant.
2. WARRANT PURCHASE. Contemporaneous with the execution of this Agreement,
the Company shall issue to each Initial Holder a Warrant in the form attached
hereto as EXHIBIT A, which Warrants, evidence the Initial Holders' right to
purchase at the Exercise Price up to 959,700 shares in the aggregate of the
Company's common stock, no par value. Notwithstanding anything to the contrary
set forth in the Note Purchase Agreement, the parties agree to allocate
$14,999,999.00 in the aggregate to the Notes and $1.00 in the aggregate to the
Warrants for all tax and reporting purposes.
3. ANTIDILUTION. Subject to Section 4 whenever after the date hereof and
prior to the closing of a Qualified Public Offering the Company shall propose to
issue or sell any Shares (or shall issue or sell any Stock Purchase Right) upon
terms which are less than Fair Market Value, the number of Warrant Shares shall
be adjusted to the number of Shares determined as follows:
-4-
<PAGE> 5
(a) The Fair Market Value of the Company immediately prior to such issuance
or sale (each event being an "Issuance") shall be divided by the number of
Shares Deemed Outstanding immediately prior to the Issuance (the "Pre-Dilution
Share Value").
(b) The number of Warrant Shares immediately prior to the issuance shall be
multiplied by the Pre-Dilution Share Value (the "Pre-Dilution Warrant Value").
(c) The dollar proceeds from the issuance shall be added to the Fair Market
Value of the Company immediately prior to the issuance to determine the Fair
Market Value of the Company immediately after the issuance.
(d) The Pre-Dilution Warrant Value shall be divided by the Fair Market
Value of the Company immediately after the issuance and the resulting quotient
shall be rounded up or down to the nearest one-thousandth (the "Adjusted Warrant
Percentage").
(e) The result obtained by (i) subtracting the number of Warrant Shares
immediately prior to the issuance from the number of Shares Deemed Outstanding
immediately prior to the Issuance and (ii) adding the number of Shares issued in
the Issuance, each on a fully diluted basis (the "Post-Issuance Non-Warrant
Shares"), shall be divided by the result of one minus the Adjusted Warrant
Percentage, and the resulting quotient shall be rounded up or down to the
nearest one-thousandth (the "Adjusted Shares Deemed Outstanding").
(f) The adjusted number of Warrant Shares shall be equal to (i) the
Adjusted Shares Deemed Outstanding minus (ii) the Post-Issuance Non-Warrant
Shares.
For Example:
If the Company had (i) 1,000 Shares Deemed Outstanding immediately prior to
the Issuance, (ii) 100 Warrant Shares immediately prior to the Issuance,
(iii) Fair Market Value immediately prior to the Issuance of $1,000, (iv)
1,000 Shares issued in the Issuance and (v) proceeds of $500 from the
Issuance then:
(A) $1,000 [divide] 1,000 Shares = $1.00 per Share
(Pre-Dilution Share Value)
(B) 100 Shares x $1.00 = $100
(Pre-Dilution Warrant Value)
-5-
<PAGE> 6
(C) $500 + $1,000 = $1,500
(Fair Market Value of the Company after Issuance)
(D) $100 / $1,500 = .0667
(Adjusted Warrant Percentage
(E) 900 Shares + 1,000 Shares = 1,900 Shares
(Post-Issuance Non-Warrant Shares)
(F) 1,900 Shares / (1-.0667) = 2,035.79 Shares
(Adjusted Shares Deemed Outstanding)
(G) 2,035.79 Shares - 1,900 Shares = 135.79 Shares
(Adjusted Number of Warrant Shares)
4. EXCEPTIONS TO ANTIDILUTION PROVISIONS. The antidilution provisions of
Section 3 shall not apply if an adjustment is otherwise made pursuant to Section
5 below, and shall not apply to sales, issuances or distributions of Shares or
Stock Purchase Rights (a) consisting of stock options which have been, or in the
future may be, issued to employees of the Company's 1995 Stock Option Plan as
currently in effect or Shares issuable upon the exercise of such options, (b)
upon the exercise of the Outstanding Warrants or the conversion of the Preferred
Stock, (c) consisting of warrants issued pursuant to Section 6.4 of the
Preferred Certificate as currently in effect or Shares issuable upon the
exercise of such Warrants or (d) by way of dividend or other distribution on
account of any of the foregoing items (a) through (c); provided, that if any of
the foregoing contain antidilution provisions which are triggered by an
Issuance described in Section 3, then the adjustments made as a result of such
antidilution provisions shall be taken into account in determining the
adjustment to the Warrants pursuant to Section 3.
5. OTHER ADJUSTMENTS TO WARRANTS.
(a) If the Company shall at any time (i) make a dividend or other
distribution to holders of Shares in Shares or in Stock Purchase Rights, (ii)
subdivide its outstanding Shares into a greater number of Shares by means of a
stock split or otherwise (iii) combine its outstanding Shares into a smaller
number of Shares, the number of Shares which may be acquired upon the exercise
under each Warrant shall be adjusted so that the Holder of a Warrant exercised
after the record date fixing shareholders to be affected by such event shall be
entitled to receive upon the exercise of such Warrant the number of Shares
which such Holder would have been entitled to receive after the happening of
such event had such Warrant been exercised immediately prior to such record
date.
-6-
<PAGE> 7
(b) In the case of a capital reorganization or reclassification of the
stock of the Company, a consolidation or merger of the Company with or into
another entity or a sale or other disposition of all or substantially all the
assets of the Company, in each case occurring prior to the exercise of a
Warrant, the Holder of any Warrant which is still outstanding after such event
shall be entitled to obtain the number of Shares or other securities or other
property which such Holder would have been entitled to obtain if such Holder had
exercised its Warrant immediately prior to such reorganization,
reclassification, consolidation, merger or conveyance; and, in each case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth herein (including provisions with respect to
adjustments in the number of Shares covered hereby) shall thereafter be
applicable, as nearly as possible in relation to stock or other securities or
property thereafter deliverable upon exercise of the Warrants.
6. CERTIFICATE SHOWING ADJUSTMENTS. Whenever the number of Shares covered
by a Warrant is adjusted, the Chief Financial Officer or Treasurer of the
Company shall compute the adjusted number of Shares in accordance with the
applicable provisions of this Agreement and prepare and deliver to each Holder a
certificate setting forth the adjustment and showing in detail the facts upon
which such adjustment is based.
7. NOTICE IN CERTAIN CIRCUMSTANCES. In case at any time prior to the date
when a Qualified Public Offering occurs the Company proposes to:
(a) declare any dividends or other distributions (whether in cash or
other property) in respect of the Common Stock;
(b) issue any Shares or any Stock Purchase Rights (except pursuant to
the exercise of Warrants or other Stock Purchase Rights in accordance with their
terms and except for issuances described in Section 4);
(c) effect a capital reorganization or reclassification of the Shares of
the Company, a consolidation or merger of the Company with or into another
entity or a sale or other disposition of all or substantially all of its assets;
or
(d) effect a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall give to each Holder notice of such event at least 30 days
(but not more than 90 days) prior to the earlier to occur of (x) the date when
such Holder must be a holder of Shares in order to participate in such event (if
applicable) or (y) the date when such event is scheduled to occur.
-7-
<PAGE> 8
8. PREEMPTIVE RIGHTS. The Holders shall have such preemptive rights as are
granted to holders of Warrants and Warrant Shares under the Certificate of
Designation.
9. PUT RIGHTS.
(a) From and after the earliest to occur of (i) the fifth anniversary of
the date hereof, (ii) the date when the Company consolidates or merges with any
other entity (but only if such other entity is the survivor of such
consideration or merger) or conveys all or a substantial portion of its assets
to another entity or (iii) the date when a Change of Control occurs, each Holder
shall have the right in its sole discretion to "put" to the Company (force the
purchase by the Company of) all or any part of its Acquired Securities for their
Put/Call Value.
(b) Upon receipt of a notice that a Holder intends to exercise its put
rights hereunder, the Company and such Holder shall promptly determine the
Put/Call Value. The Company shall purchase the Acquired Securities being put for
cash within 30 days after the Put/Call Value is determined; provided, that the
Company may extend such 30-day period by an additional 60 days if it agrees to
pay interest at the rate specified in subsection (c)(i) below from the end of
such 30-day period through the date of payment.
(c) Notwithstanding anything in this Section to the contrary, if the
Company is in default with respect to the Senior Indebtedness, or if the Company
shall determine in good faith that honoring any put right would cause a default
with respect to the Senior Indebtedness, violate any Governmental Rule
applicable to the Company, cause the Company to be insolvent or materially
impair the ability of the Company to operate as a going concern, then the
Company shall promptly notify the Holder exercising such put right of such fact.
In the circumstances described above, a Holder (in lieu of its right to receive
cash as provided above) shall have the right to elect, at its sole option by
giving notice to the Company to such effect, to either:
(i) exercise its put rights in return for the Company's obligation to pay
the purchase price for the Acquired Securities being put (including partial
payments thereof and accrued interest thereon) as soon as the Company ceases to
be in default with respect to the Senior Indebtedness and the Company can do so
without causing a default under the Senior Indebtedness, a violation of
Governmental Rules or the insolvency of the Company or without materially
impairing the ability of the Company to operate as a going concern, but in no
event later than three years from the date when such obligation is given,
together with interest accrued on the unpaid balance thereof from the date when
the purchase price for the Acquired Securities being put is determined until the
date when such Holder receives payment in full at a rate per annum equal to the
greater of (A) the rate announced by PNC Bank in
-8-
<PAGE> 9
Pittsburgh, Pennsylvania from time to time as its prime rate plus 4% or (B) 14%
(and, in each case, a default rate equal to the rate otherwise in effect plus
3%), which obligation shall be evidenced by a promissory note of the Company
satisfactory in form and substance to each Holder receiving the same, shall be
secured by a pledge of the Acquired Securities being put and, if required by
the holders of the Senior Indebtedness, shall be subordinate in right of payment
to the Senior Indebtedness pursuant to a subordination agreement substantially
similar to that which is currently in effect between the Initial Holders and the
Senior Agent with respect to the Notes.
(ii) withdraw such exercise of its put rights,
in which case the Company shall inform such Holder as soon as the Company and
can honor such put rights, in whole or in part, without causing such a default
or violation.
(d) The put rights granted to the Holders under this
Section shall terminate upon the closing of a Qualified Public Offering.
10. CALL RIGHTS.
(a) At any time after the sixth anniversary of the date
hereof, and so long as no Event of Default under and as defined in the Note
Purchase Agreement has occurred and is continuing, the Company shall have the
right in its sole discretion to "call" (force the sale by the Holders of) all,
but not less than all, of the Acquired Securities for their Put/Call Value.
(b) If the Company desires to exercise its call rights
hereunder, it shall give notice to the Holders to such effect, whereupon the
Company and the Holders shall promptly determine the Put/Call Value. The Company
shall purchase the Acquired Securities for cash within 30 days after the
Put/Call Value is determined.
(c) Notwithstanding anything in this Section to the
contrary, if a Recapture Event (defined below) shall (i) occur within 12 months
after the closing described in subsection (b) above or (ii) be approved by the
Company's Board of Directors within 12 months after such closing and occur
within 24 months after such closing then, within 10 days after the occurrence of
such Recapture Event (or, if a redetermination of the Put/Call Value is made
pursuant to subsection (d) below, within 10 days after such redetermination),
the Company shall pay to each Holder an amount equal to the product of (A) the
difference, if any, between the value of one share of common stock immediately
after such Recapture Event and the Put/Call Value assigned to one Warrant Share
as determined in connection with such call multiplied by (B) the number of such
Warrant Holder's Warrant Shares and/or the number of Warrant Shares issuable
upon the exercise of such Warrant Holder's Warrants which were subject to such
call.
-9-
<PAGE> 10
(d) A "Recapture Event" means any of the following events
which results in the Common Stock having a higher value, on a per share basis,
than the Put/Call Value of one Warrant Share as determined in connection with
the exercise by the Company of its call rights: (i) a merger or consolidation
with any other entity (but only if such other entity is the survivor of such
consolidation or merger); (ii) a sale of all or substantially all of the
Company's assets; or (iii) a public offering of the Common Stock. If a value is
assigned to the Company's Common Stock as a result of such Recapture Event, then
such value shall be the value which is used in calculating the amount, if any,
to be paid to the Holders pursuant to subsection (c) above. If no such value is
assigned then, upon the request of the Holders, the Put/Call Value shall be
redetermined as of the date of the occurrence of such Recapture Event.
(e) The call rights granted to the Company under this
Section shall terminate upon the closing of a Qualified Public Offering.
11. COVENANTS OF THE COMPANY.
(a) The Company shall not engage in any public offering
of the Common Stock or any of its other securities unless the first of such
public offerings is a Qualified Public Offering.
(b) At all times prior to the Occurrence of a Qualified
Public Offering, the Company shall promptly notify the Holders of any change of
more than 2% in the holders of the Shares (other than Warrant Shares) or
Preferred Stock.
(c) The Company will not, by amendment to its Articles of
Organization or through any reorganization, reclassification, consolidation,
merger, sale of assets, dissolution, issue or sale of securities or other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement, but will at all times in good faith carry out all such terms
and take all such action as may be necessary or appropriate to protect the
rights of the Holders.
(d) The covenants of the Company set forth in Sections
4.01 through 4.08, 5.07 and 5.12 of the Note Purchase Agreement are hereby
incorporated herein by reference as if the same were set forth in full herein.
Such covenants shall not terminate upon the payment in full of the Notes, or the
termination of the Note Purchase Agreement, but shall remain in full force and
effect for so long as any Holder has put rights under Section 9.
(e) At all times prior to the closing of a Qualified
Public Offering the Holders shall receive at least seven days prior notice of,
and their representatives shall have the right to attend, all meetings of the
Boards of Directors of the Company and its Executive Committee (if applicable),
and shall receive all information which is prepared by or on behalf of the
Company in conjunction with any such meeting. The
-10-
<PAGE> 11
Company shall promptly reimburse the representatives of the Holders for all
reasonable out-of-pocket expenses incurred by them in attending such meetings.
12. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. Each Initial
Holder hereby severally, but not jointly, represents and warrants to the Company
as set forth in this Section and each Holder other than an Initial Holder shall,
upon its acquisition of a Warrant, be deemed to represent and warrant to the
Company (severally and not jointly) as set forth in this Section. The
representations and warranties set forth in this Section shall be deemed to be
remade by a Holder from time to time to the Company when a Warrant is exercised
by such Holder.
(a) Each Holder is acquiring the Acquired Securities for its
own account with no present intention of reselling or otherwise distributing the
same.
(b) Each Holder is an "accredited investor" as defined in
Regulation D under the Securities Act and has (i) substantial knowledge and
experience in financial and business matters (including investing in companies
similar to the Company) such that it can evaluate and invest in securities of
speculative companies and is capable of evaluating the merits and risks of an
investment in such securities (including the Acquired Securities) and (ii) such
financial condition and income that it is under no present need to dispose of
any portion of the Acquired Securities to satisfy any existing or contemplated
undertaking or indebtedness and such that it can bear, the economic risk of an
investment in the Acquired Securities.
(c) Each Holder has independently examined and investigated
the Company in making its decision to purchase the Acquired Securities. Each
Holder acknowledges that the Company has made available to it the opportunity to
obtain such information as it has deemed necessary to evaluate the merits and
risks of an investment in the Acquired Securities, and that it has no knowledge
of any additional information regarding the Company which it wishes to receive
in order to make an informed investment decision with respect to the Acquired
Securities.
(d) Each Holder acknowledges that: (i)it has acquired the
Warrant issued to it after extensive negotiations with the Company concerning
the terms of its investment; (ii) the Company is relying upon an exemption under
the Securities Act predicated upon such Holder's representations and warranties
in this Section in connection with the issuance of the Acquired Securities;
(iii) none of the Acquired Securities have been registered under the Securities
Act and none of them may be sold, pledged, transferred or otherwise disposed of
unless such Acquired Securities are so registered or an exemption from such
registration is available and unless any such proposed sale, pledge, transfer or
disposition is effected in compliance with state securities laws; (iv) the
Acquired Securities may only be registered under the Securities Act by the
Company; (v) there is no trading market in the Acquired Securities; (vi) the
Acquired Securities are being sold in reliance upon an exemption from the
registration
-11-
<PAGE> 12
requirements of the Securities Act afforded to private offerings; and (vii) in
light of the foregoing, each Holder may not be able to liquidate its investment
in any Acquired Securities at any given time, and each Holder is prepared to
bear that economic risk.
13. RESTRICTIONS ON TRANSFERABILITY.
(a) The Holders acknowledge that the Acquired Securities
are subject to certain restrictions on transfer set forth in that certain
Tag-Along, Transfer Restriction and Bring-Along Agreement dated as of November
28, 1995 among the Company and its shareholders, as amended, and that the
Acquired Securities may not be transferred in violation of such restrictions.
(b) Unless and until otherwise permitted by this Section
or unless distributed pursuant to an effective registration statement:
(i) Each Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY APPLICABLE STATE SECURITIES LAWS, AND NO TRANSFER
OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS EXERCISE
MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS
FROM THE REGISTRATION PROVISIONS THEREOF. THIS WARRANT AND THE
SECURITIES FOR WHICH IT IS EXERCISABLE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET
FORTH IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG
AGREEMENT DATED AS OF NOVEMBER 28, 1995, AS AMENDED (WHICH
AGREEMENT IS ON FILE WITH THE COMPANY'S SECRETARY).
(ii) Each certificate for Warrant Shares shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF SUCH SECURITIES MAY BE MADE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS
OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. SUCH SECURITIES ARE SUBJECT TO
-12-
<PAGE> 13
RESTRICTIONS ON TRANSFERABILITY AND CERTAIN OTHER RESTRICTIONS
SET FORTH IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG
AGREEMENT DATED AS OF NOVEMBER 28, 1995, AS AMENDED (WHICH
AGREEMENT IS ON FILE WITH THE COMPANY'S SECRETARY).
14. ACTION BY HOLDERS. Whenever any consent, waiver, agreement or
other action of the Holders as a group is required or permitted hereunder such
action shall be effective if it is taken by Holders who hold Warrants or Warrant
Shares representing at least 66-2/3% of the Warrant Shares issuable upon the
exercise of all Warrants; provided, that if such action affects less than all of
the Holders then it need only be taken by Holders who hold Warrants or Warrant
Shares representing a majority of the Warrant Shares issuable upon the exercise
of all Warrants held by the affected Holders.
15. AMENDMENTS. This Agreement may be amended or terminated only
by a writing signed by the Company and the Holders necessary to take such action
pursuant to Section 14, and any such amendment or termination shall be effective
only to the extent specifically set forth in such writing.
16. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts, and by each of the parties on separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of which shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement, but
the failure to deliver a manually executed counterpart shall not affect the
validity, enforceability or binding effect of this Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior written and oral agreements, and all contemporaneous oral agreements,
relating to such matters.
18. EQUITABLE RELIEF. The parties acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions hereof
and that any party may apply to a court of competent jurisdiction for specific
performance or injunctive relief in order to enforce or prevent a breach of this
Agreement.
19. GOVERNING LAW. This Agreement shall be a contract under the
laws of the Commonwealth of Massachusetts and for all purposes shall be governed
by and construed and enforced in accordance with the laws of said Commonwealth.
20. NOTICES. All notices, consents, requests, demands and other
communications required or permitted hereunder:
-13-
<PAGE> 14
(a) shall be in writing;
(b) shall be sent by messenger, certified or registered U.S.
mail, a reliable express delivery service or telecopier (with a copy sent by one
of the foregoing means), charges prepaid as applicable, to the appropriate
address(es) or number(s) set forth below; and
(c) shall be deemed to have been given on the date of receipt
by the addressee (or, if the date of receipt is not a business day, on the first
business day after the date of receipt), as evidenced by (i) a receipt executed
by the addressee (or a responsible person in his or her office), the records of
the Person delivering such communication or a notice to the effect that such
addressee refused to claim or accept such communication, if sent by messenger,
U.S. mail or express delivery service, or (ii) a receipt generated by the
sender's telecopier showing that such communication was sent to the appropriate
number on a specified date, if sent by telecopier.
All such communications shall be sent to the following addresses or numbers, or
to such other addresses or numbers as any party may inform the others by giving
five business day's prior notice:
If to the Company: With a copy to:
New England Audio Company, Inc. Goulston & Storrs, P.C.
40 Hudson Road 400 Atlantic Avenue
Canton, MA 02021 Boston, MA 02110-3333
Attn: Jeffrey Stone Attn: Kitt Sawitsky
Fax: (617) 821-9956 Fax: (617) 574-4112
If to PNC Capital Corp: With a copy to:
PNC Capital Corp Cohen & Grigsby, P.C.
One PNC Plaza 2900 CNG Tower
19th Floor 625 Liberty Avenue
249 Fifth Avenue Pittsburgh, PA 15222
Pittsburgh, PA 15222 Attn: Jeffery D. Peters
Attn: Preston Walsh Fax: (412) 391-3382
Fax: (412) 762-6233
-14-
<PAGE> 15
If to Seacoast Capital With a copy to:
Seacoast Capital Hughes & Luce, LLP
55 Ferncroft Road 1717 Main Street, Suite 2800
Danvers, MA 01923 Dallas, TX 75201
Attn: Paul Giovacchini Attn: Larry A. Makel
Fax: (508) 750-1301 Fax: (214) 939-6100
If to Exeter Venture Lenders, L.P. With a copy to:
Exeter Venture Lenders, L.P. O'Sullivan, Graev & Karabell, LLP
10 East 53rd Street 30 Rockefeller Plaza, 41st Floor
New York, NY 10022 New York, NY 10112
Attn: Keith R. Fox Attn: Phyllis A. Schwartz
Fax: (212) 872-1198 Fax: (212) 408-2420
If to any other Holder, to the address or number supplied by such Holder to the
Company for the purpose of giving notice.
21. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
22. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of each of the parties and their respective heirs,
successors and permitted assigns.
23. WAIVERS. The due performance or observance by the parties of their
respective obligations hereunder shall not be waived, and the rights and
remedies of the parties hereunder shall not be affected, by any course of
dealing or performance or by any delay or failure of any party in exercising any
such right or remedy. The due performance or observance by a party of any of its
obligations hereunder may be waived only by a writing signed by the party or
parties against whom enforcement of such waiver is sought, and any such waiver
shall be effective only to the extent specifically set forth in such writing.
24. TRANSFER BY EXETER. The parties acknowledge that Exeter Venture
Lenders, L.P. intends to transfer to Exeter Equity Partners, L.P. a 50% interest
in its Warrant promptly after the closing of the transactions contemplated
hereby and hereby consent to such transaction.
-15-
<PAGE> 16
SIGNATURE PAGE TO WARRANT PURCHASE AGREEMENT
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
-------------------------------
Title: President
----------------------------
PNC CAPITAL CORP
By: /s/ Preston Walsh
-------------------------------
Title: Vice President
----------------------------
SEACOAST CAPITAL PARTNERS, L.P.
By: Seacoast Capital Corporation,
its General Partner
By: /s/ P. G. Giovacchini
-------------------------------
Title: Vice President
----------------------------
EXETER VENTURE LENDERS, L.P.
By: Exeter Venture Advisors, Inc.
By: /s/ Keith R. Fox
-------------------------------
Title:
----------------------------
-16-
<PAGE> 17
EXHIBIT A
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS
EXERCISE MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. MOREOVER, THIS WARRANT AND THE SECURITIES FOR WHICH IT IS EXERCISABLE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET FORTH
IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT DATED AS OF
NOVEMBER 28, 1995, AS AMENDED (WHICH AGREEMENT IS ON FILE WITH THE COMPANY'S
SECRETARY).
NEW ENGLAND AUDIO CO., INC.
May __,1997 Certificate No. _______
STOCK PURCHASE WARRANT
____________ Shares of Common Stock
This is to certify that, for value received, __________________________
(the "Initial Holder"), its registered successors and assigns, is entitled upon
the due exercise hereof to purchase (subject to adjustment as provided in the
Purchase Agreement) __________ shares of the Common Stock, no par value (such
stock, together with such other securities or properties as may be issued upon
the exercise hereof, being referred to herein as the "Stock"), of New England
Audio Co., Inc., a Massachusetts corporation (the "Company"), for the price of
$.001 per share (the "Exercise Price") and to exercise the other rights, powers
and privileges provided for herein, all upon the terms and subject to the
conditions specified herein.
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in that certain Warrant
Purchase Agreement dated as of May __, 1997 between the Company, the Initial
Holder and certain other parties (the "Purchase Agreement") unless the context
otherwise requires.
2. EXERCISE. This Warrant may be exercised by the registered Holder
hereof at any time during the period commencing on the date hereof and ending at
5:00 p.m., Boston, Massachusetts time on the Expiration Date specified in
Paragraph 9 by surrender of this Warrant at the Company's principal offices at
40 Hudson Road,
<PAGE> 18
Canton, Massachusetts 02021 (or such other address as the Company may advise the
Holder by notice given in the manner provided in the Purchase Agreement), with
the form of election to subscribe attached hereto as ANNEX A duly executed and
upon tender to the Company of the Exercise Price. Upon the date the Company
receives all of the foregoing from the Holder this Warrant shall be deemed to
have been exercised and the Holder exercising the same to have become a holder
of record of shares of Stock purchased hereunder for all purposes and
certificates for such shares shall be delivered to such Holder or its transferee
within a reasonable time (not exceeding ten business days) after this Warrant
shall have been exercised. If an exercise of this Warrant is for less than all
of the Stock then, concurrently with its delivery of such certificates, the
Company shall deliver to such Holder (or, so long as such Holder has also
complied with Paragraph 6, its transferee) a new warrant or warrants which shall
be of like tenor and date as this Warrant and shall represent in the aggregate
the right to subscribe for and purchase the remaining number of shares which may
be subscribed for and purchased hereunder.
3. PAYMENT OF EXERCISE PRICE. Upon any exercise of this Warrant the
Exercise Price may be paid, in the sole discretion of the Holder, by (a)
tendering the same to the Company in cash, (b) setting-off the same against any
debt owed by the Company to the Holder or (c) tendering to the Company such
number of shares of Stock issuable upon the exercise of this Warrant as have a
value equal to the Exercise Price. If the Holder shall choose option (b) or (c)
above then, in lieu of tendering the Exercise Price upon the exercise this
Warrant, it shall tender to the Company a notice specifying the manner in which
it has elected to pay the Exercise Price.
4. TAXES. If any tax (other than income tax) is payable by the Holder
by reason of the issuance of any certificates representing Stock, such tax shall
be paid by the Company; provided, that the Company shall not be required to pay
any tax which may be payable in respect of the issuance of any such certificate
in a name other than that of the registered Holder of this Warrant, and the
Company shall not be required to issue any such certificate in a name other than
such Holder's unless and until any tax payable by reason of such issuance has
been paid.
5. WARRANT REGISTER. The Company shall at all times while any portion
of this Warrant remains outstanding and exercisable keep and maintain at its
principal office a register (the "Warrant Register") in which the registration,
transfer and exchange of this Warrant shall be recorded. The Company shall not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise, transfer or exchange of this Warrant. If at any time the Company shall
appoint an agent (the "Warrant Agent") to maintain such register, the Company
shall promptly give notice in the manner provided in the Purchase Agreement to
the registered Holder hereof of the name of such Warrant Agent and of the place
or places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any
-2-
<PAGE> 19
Warrant Agent at any time in effect will be in conformity with the terms of this
Warrant and the Purchase Agreement.
6. TRANSFER. Subject to compliance with applicable securities laws and
with the restrictions on transfer set forth in the Tag-Along, Transfer
Restriction and Bring-Along Agreement among the Company and certain of its
shareholders, as amended, this Warrant and all rights hereunder are transferable
on the books of the Company by the registered Holder hereof in person or by duly
authorized attorney upon surrender of this Warrant at the address set forth in
Paragraph 2, together with the form of transfer authorization attached hereto as
ANNEX B duly executed. Absent any such transfer, the Company may deem and treat
the registered Holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notice to the contrary.
7. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the address set forth in Paragraph 2 together with the form of
exchange authorization attached hereto as ANNEX C duly executed, for new
warrants in such denominations as the Holder shall designate at the time of
surrender for exchange (but not for less than 10% of the shares of Stock for
which this Warrant is originally exerciseable), which new warrants shall be of
like tenor and date and shall represent in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant
shall become lost, stolen, mutilated or destroyed the Company shall issue a new
warrant of like denomination, tenor and date as this Warrant upon its receipt
from the Holder of reasonably satisfactory evidence of such event and assurances
that the Holder will indemnify the Company on account of any loss incurred by
the Company which is occasioned by such event. Any such new warrant shall
constitute an original contractual obligation of the Company whether or not the
allegedly lost, stolen, mutilated or destroyed warrant shall be at any time
enforceable by anyone.
9. EXPIRATION. This Warrant shall expire and be of no further force and
effect on the date (the "Expiration Date") which is the earlier to occur of (a)
the date when the Company has fully complied with Paragraph 2 hereof, in the
event of a complete exercise hereof or (b) the earlier to occur of (i) the tenth
anniversary of the date hereof or (ii) the fourth anniversary of the date on
which Senior Subordinate Promissory Notes issued under the Note Purchase
Agreement have been paid in full.
10. MANDATORY EXERCISE. Notwithstanding any other provision hereof,
the Holder shall, upon the request of the Company, fully exercise this Warrant
concurrently with the closing of a Qualified Public Offering.
-3-
<PAGE> 20
11. WARRANT PURCHASE AGREEMENT. The terms of the Purchase Agreement, as
they relate to this Warrant, are incorporated by reference in this Warrant as
fully as if the same were set forth herein.
12. APPLICABLE LAW. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the Commonwealth of
Massachusetts.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Company and the Holder.
14. NOTICES. All notices and other correspondence which is required or
may be given hereunder shall be given in the manner and to the addresses
specified in the Purchase Agreement.
WITNESS the due execution of this Stock Purchase Warrant as of the date
first written above with the intent to be legally bound.
NEW ENGLAND AUDIO CO., INC.
By:
-------------------------------
Title:
----------------------------
-4-
<PAGE> 21
ANNEX A
to Warrant
[SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby (1)
subscribes for _____________ shares which the undersigned is entitled to
purchase under the terms of the within Warrant, (2) makes the full cash payment
therefor called for by the within Warrant, and (3) directs that the shares
issuable upon exercise of said Warrant be issued as follows:
-----------------------------------
(Name)
Signature:
------------------------
Dated:
----------------------------
<PAGE> 22
ANNEX B
to Warrant
[TO BE EXECUTED TO EFFECT A TRANSFER OF THE WARRANT]
FOR VALUE RECEIVED _______________________________ hereby sells,
assigns, and transfers unto ___________________________________________________,
the right to purchase ____________________ shares evidenced by the within
Warrant, and does hereby irrevocably constitute and appoint ___________________
to transfer such right on the books of Company, with full power of substitution.
-----------------------------------
(Name)
Signature:
------------------------
Dated:
----------------------------
<PAGE> 23
ANNEX C
to Warrant
[TO BE EXECUTED TO EFFECT AN EXCHANGE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby directs
the Company to exchange said Warrant for like warrants in the following
denominations: _______________________.
-----------------------------------
(Name)
Signature:
------------------------
Dated:
----------------------------
<PAGE> 24
223397 EXECUTION COPY
JOINDER TO WARRANT PURCHASE AGREEMENT
This Joinder is made as of May 31, 1997 by EXETER EQUITY PARTNERS, L.P.
("Exeter Equity") in favor of the parties to that certain Warrant Purchase
Agreement dated as of May 30, 1997 among New England Audio Co., Inc. (the
"Company") and the Initial Holders under and as defined therein (the "Warrant
Purchase Agreement"). Capitalized terms used herein and not otherwise defined
have the meanings assigned to such terms in the Warrant Purchase Agreement.
PREAMBLE
Exeter Equity, as a transferee pursuant to Section 24 of the Warrant
Purchase Agreement of a portion of the Warrant which was originally issued to
Exeter Venture Lenders, L.P., has become a Holder under and as defined in the
Warrant Purchase Agreement. Exeter Equity, as such transferee, desires to become
a party to the Warrant Purchase Agreement. Therefore, Exeter Equity agrees as
follows with the intent to be legally bound.
AGREEMENT
1. Joinder of New Holder. Exeter Equity acknowledges that it has received a
fully-executed copy of the Warrant Purchase Agreement. Effective as of the date
hereof, Exeter Equity joins in and becomes party to the Warrant Purchase
Agreement as a Holder. By executing this Joinder, Exeter Equity (a) hereby makes
all of the representations and warranties of the Holders set forth therein and
(b) agrees to be bound by all of the provisions thereof applicable to the
Holders. The notice address of Exeter Equity shall be the same address as for
Equity Venture Lenders, L.P.
2. Effect on Warrant Purchase Agreement. Except for the joinder effected
hereby, the Warrant Purchase Agreement remains unmodified and is confirmed as
being in full force and effect.
3. Miscellaneous. This Joinder: (a) may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument; (b) contains the entire agreement of the
parties with respect to the transactions contemplated hereby and supersedes all
prior written and oral agreements, and all contemporaneous oral agreements,
relating to such transactions; (c) shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania; and
(d) shall be binding upon, and inure to the benefit of, the parties and their
respective successors and permitted assigns.
<PAGE> 25
SIGNATURE PAGE TO
JOINDER TO WARRANT PURCHASE AGREEMENT
EXETER EQUITY PARTNERS, L.P.
By: Exeter Equity Advisors, L.P.,
its General Partner
By: Exeter Equity Advisors, Inc.,
its General Partner
By: [Illegible]
------------------------------
Title: Vice President
--------------------------
-2-
<PAGE> 1
EXHIBIT 10.3
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS
EXERCISE MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. MOREOVER, THIS WARRANT AND THE SECURITIES FOR WHICH IT IS EXERCISABLE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET FORTH
IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT DATED AS OF
NOVEMBER 28, 1995, AS AMENDED (WHICH AGREEMENT IS ON FILE WITH THE COMPANY'S
SECRETARY).
NEW ENGLAND AUDIO CO. INC.
May 30, 1997 Certificate No. 1
STOCK PURCHASE WARRANT
319,900 Shares of Common Stock
This is to certify that, for value received, PNC CAPITAL CORP (the "Initial
Holder"), its registered successors and assigns, is entitled upon the due
exercise hereof to purchase (subject to adjustment as provided in the Purchase
Agreement) 319,900 shares of the Common Stock, no par value (such stock,
together with such other securities or properties as may be issued upon the
exercise hereof, being referred to herein as the "Stock"), of New England Audio
Co., Inc., a Massachusetts corporation (the "Company"), for the price of $.001
per share (the "Exercise Price") and to exercise the other rights, powers and
privileges provided for herein, all upon the terms and subject to the conditions
specified herein.
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in that certain Warrant
Purchase Agreement dated as of May 30, 1997 between the Company, the Initial
Holder and certain other parties (the "Purchase Agreement") unless the context
otherwise requires.
2. EXERCISE. This Warrant may be exercised by the registered Holder hereof
at any time during the period commencing on the date hereof and ending at 5:00
p.m., Boston, Massachusetts time on the Expiration Date specified in Paragraph 9
by surrender of this Warrant at the Company's principal offices at 40 Hudson
Road,
<PAGE> 2
Canton, Massachusetts 02021 (or such other address as the Company may advise the
Holder by notice given in the manner provided in the Purchase Agreement), with
the form of election to subscribe attached hereto as ANNEX A duly executed and
upon tender to the Company of the Exercise Price. Upon the date the Company
receives all of the foregoing from the Holder this Warrant shall be deemed to
have been exercised and the Holder exercising the same to have become a holder
of record of shares of Stock purchased hereunder for all purposes and
certificates for such shares shall be delivered to such Holder or its transferee
within a reasonable time (not exceeding ten business days) after this Warrant
shall have been exercised. If an exercise of this Warrant is for less than all
of the Stock then, concurrently with its delivery, of such certificates, the
Company shall deliver to such Holder (or, so long as such Holder has also
complied with Paragraph 6, its transferee) a new warrant or warrants which shall
be of like tenor and date as this Warrant and shall represent in the aggregate
the right to subscribe for and purchase the remaining number of shares which may
be subscribed for and purchased hereunder.
3. PAYMENT OF EXERCISE PRICE. Upon any exercise of this Warrant the
Exercise Price may be paid, in the sole discretion of the Holder, by (a)
tendering the same to the Company in cash, (b) setting-off the same against any
debt owed by the Company to the Holder or (c) tendering to the Company such
number of shares of Stock issuable upon the exercise of this Warrant as have a
value equal to the Exercise Price. If the Holder shall choose option (b) or (c)
above then, in lieu of tendering the Exercise Price upon the exercise this
Warrant, it shall tender to the Company a notice specifying the manner in which
it has elected to pay the Exercise Price.
4. TAXES. If any tax (other than income tax) is payable by the Holder by
reason of the issuance of any certificates representing Stock, such tax shall be
paid by the Company; provided, that the Company shall not be required to pay any
tax which may be payable in respect of the issuance of any such certificate in a
name other than that of the registered Holder of this Warrant, and the Company
shall not be required to issue any such certificate in a name other than such
Holder's unless and until any tax payable by reason of such issuance has been
paid.
5. WARRANT REGISTER. The Company shall at all times while any portion of
this Warrant remains outstanding and exercisable keep and maintain at its
principal office a register (the "Warrant Register") in which the registration,
transfer and exchange of this Warrant shall be recorded. The Company shall not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise, transfer or exchange of this Warrant. If at any time the Company shall
appoint an agent (the "Warrant Agent") to maintain such register, the Company
shall promptly give notice in the manner provided in the Purchase Agreement to
the registered Holder hereof of the name of such Warrant Agent and of the place
or places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any
-2-
<PAGE> 3
Warrant Agent at any time in effect will be in conformity with the terms of this
Warrant and the Purchase Agreement
6. TRANSFER. Subject to compliance with applicable securities laws and
with the restrictions on transfer set forth in the Tag-Along, Transfer
Restriction and Bring-Along Agreement among the Company and certain of its
shareholders, as amended, this Warrant and all rights hereunder are transferable
on the books of the Company by the registered Holder hereof in person or by duly
authorized attorney upon surrender of this Warrant at the address set forth in
Paragraph 2, together with the form of transfer authorization attached hereto as
ANNEX B duly executed. Absent any such transfer, the Company may deem and treat
the registered Holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notice to the contrary.
7. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the address set forth in Paragraph 2 together with the form of
exchange authorization attached hereto as ANNEX C duly executed, for new
warrants in such. denominations as the Holder shall designate at the time of
surrender for exchange (but not for less than 10% of the shares of Stock for
which this Warrant is originally exercisable), which new warrants shall be of
like tenor and date and shall represent in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant shall
become lost, stolen, mutilated or destroyed the Company shall issue a new
warrant of like denomination, tenor and date as this Warrant upon its receipt
from the Holder of reasonably satisfactory evidence of such event and assurances
that the Holder will indemnify the Company on account of any loss incurred by
the Company which is occasioned by such event Any such new warrant shall
constitute an original contractual obligation of the Company whether or not the
allegedly lost, stolen, mutilated or destroyed warrant shall be at any time
enforceable by anyone.
9. EXPIRATION. This Warrant shall expire and be of no further force and
effect on the date (the "Expiration Date") which is the earlier to occur of (a)
the date when the Company has fully complied with Paragraph 2 hereof, in the
event of a complete exercise hereof or (b) the earlier to occur of (i) the tenth
anniversary of the date hereof or (ii) the fourth anniversary of the date on
which Senior Subordinate Promissory Notes issued under the Note Purchase
Agreement have been paid in full.
10. MANDATORY EXERCISE. Notwithstanding any other provision hereof, the
Holder shall, upon the request of the Company, fully exercise this Warrant
concurrently with the closing of a Qualified Public Offering.
-3-
<PAGE> 4
11. WARRANT PURCHASE AGREEMENT. The terms of the Purchase Agreement, as
they relate to this Warrant, are incorporated by reference in this Warrant as
fully as if the same were set forth herein.
12. APPLICABLE LAW. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the Commonwealth of Massachusetts.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company and the Holder.
14. NOTICES. All notices and other correspondence which is required or may
be given hereunder shall be given in the manner and to the addresses specified
in the Purchase Agreement.
WITNESS the due execution of this Stock Purchase Warrant as of the date
first written above with the intent to be legally bound.
NEW ENGLAND AUDIO CO., INC.
By: Jeffrey S. Stone
-------------------------------------
Title: President
-----------------------------------
-4-
<PAGE> 5
ANNEX A
to Warrant
[SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby
(1) subscribes for ___________________ shares which the undersigned is entitled
to purchase under the terms of the within Warrant, (2) makes the full cash
payment therefor called for by the within Warrant, and (3) directs that the
shares issuable upon exercise of said Warrant be issued as follows:
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 6
ANNEX B
to Warrant
[TO BE EXECUTED TO EFFECT A TRANSFER OF THE WARRANT]
FOR VALUE RECEIVED _____________________________________ hereby sells,
assigns, and transfers unto ___________________________________________________
the right to purchase _________________ shares evidenced by the within Warrant,
and does hereby irrevocably constitute and appoint ________________________ to
transfer such right on the books of Company, with full power of substitution.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 7
ANNEX C
to Warrant
[TO BE EXECUTED TO EFFECT AN EXCHANGE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby directs the
Company to exchange said Warrant for like warrants in the following
denominations: ____________________________.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 10.4
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS
EXERCISE MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. MOREOVER, THIS WARRANT AND THE SECURITIES FOR WHICH IT IS EXERCISABLE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET FORTH
IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT DATED AS OF
NOVEMBER 28, 1995, AS AMENDED (WHICH AGREEMENT IS ON FILE WITH THE COMPANY'S
SECRETARY).
NEW ENGLAND AUDIO CO., INC.
May 30, 1997 Certificate No. 2
STOCK PURCHASE WARRANT
319,900 Shares of Common Stock
This is to certify that, for value received, SEACOAST CAPITAL PARTNERS,
L.P. (the "Initial Holder"), its registered successors and assigns, is entitled
upon the due exercise hereof to purchase (subject to adjustment as provided in
the Purchase Agreement) 319,900 shares of the Common Stock, no par value (such
stock, together with such other securities or properties as may be issued upon
the exercise hereof, being referred to herein as the "Stock"), of New England
Audio Co., Inc., a Massachusetts corporation (the "Company"), for the price of
$.001 per share (the "Exercise Price") and to exercise the other rights, powers
and privileges provided for herein, all upon the terms and subject to the
conditions specified herein.
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in that certain Warrant
Purchase Agreement dated as of May 30, 1997 between the Company, the Initial
Holder and certain other parties (the "Purchase Agreement") unless the context
otherwise requires.
2. EXERCISE. This Warrant may be exercised by the registered Holder hereof
at any time during the period commencing on the date hereof and ending at 5:00
p.m., Boston, Massachusetts time on the Expiration Date specified in Paragraph 9
by surrender of this Warrant at the Company's principal offices at 40 Hudson
Road,
<PAGE> 2
Canton, Massachusetts 02021 (or such other address as the Company may advise the
Holder by notice given in the manner provided in the Purchase Agreement), with
the form of election to subscribe attached hereto as ANNEX A duly executed and
upon tender to the Company of the Exercise Price. Upon the date the Company
receives all of the foregoing from the Holder this Warrant shall be deemed to
have been exercised and the Holder exercising the same to have become a holder
of record of shares of Stock purchased hereunder for all purposes and
certificates for such shares shall be delivered to such Holder or its transferee
within a reasonable time (not exceeding ten business days) after this Warrant
shall have been exercised. If an exercise of this Warrant is for less than all
of the Stock then, concurrently with its delivery of such certificates, the
Company shall deliver to such Holder (or, so long as such Holder has also
complied with Paragraph 6, its transferee) a new warrant or warrants which shall
be of like tenor and date as this Warrant and shall represent in the aggregate
the right to subscribe for and purchase the remaining number of shares which may
be subscribed for and purchased hereunder.
3. PAYMENT OF EXERCISE PRICE. Upon any exercise of this Warrant the
Exercise Price may be paid, in the sole discretion of the Holder, by (a)
tendering the same to the Company in cash, (b) setting-off the same against any
debt owed by the Company to the Holder or (c) tendering to the Company such
number of shares of Stock issuable upon the exercise of this Warrant as have a
value equal to the Exercise Price. If the Holder shall choose option (b) or (c)
above then, in lieu of tendering the Exercise Price upon the exercise this
Warrant, it shall tender to the Company a notice specifying the manner in which
it has elected to pay the Exercise Price.
4. TAXES. If any tax (other than income tax) is payable by the Holder by
reason of the issuance of any certificates representing Stock, such tax shall be
paid by the Company; provided, that the Company shall not be required to pay any
tax which may be payable in respect of the issuance of any such certificate in a
name other than that of the registered Holder of this Warrant, and the Company
shall not be required to issue any such certificate in a name other than such
Holder's unless and until any tax payable by reason of such issuance has been
paid.
5. WARRANT REGISTER. The Company shall at all times while any portion of
this Warrant remains outstanding and exercisable keep and maintain at its
principal office a register (the "Warrant Register") in which the registration,
transfer and exchange of this Warrant shall be recorded. The Company shall not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise, transfer or exchange of this Warrant. If at any time the Company shall
appoint an agent (the "Warrant Agent") to maintain such register, the Company
shall promptly give notice in the manner provided in the Purchase Agreement to
the registered Holder hereof of the name of such Warrant Agent and of the place
or places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any
-2-
<PAGE> 3
Warrant Agent at any time in effect will be in conformity with the terms of this
Warrant and the Purchase Agreement.
6. TRANSFER. Subject to compliance with applicable securities laws and
with the restrictions on transfer set forth in the Tag-Along, Transfer
Restriction and Bring-Along Agreement among the Company and certain of its
shareholders, as amended, this Warrant and all rights hereunder are transferable
on the books of the Company by the registered Holder hereof in person or by duly
authorized attorney upon surrender of this Warrant at the address set forth in
Paragraph 2, together with the form of transfer authorization attached hereto as
ANNEX B duly executed. Absent any such transfer, the Company may deem and treat
the registered Holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notice to the contrary.
7. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the address set forth in Paragraph 2 together with the form of
exchange authorization attached hereto as ANNEX C duly executed, for new
warrants in such. denominations as the Holder shall designate at the time of
surrender for exchange (but not for less than 10% of the shares of Stock for
which this Warrant is originally exercisable), which new warrants shall be of
like tenor and date and shall represent in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant shall
become lost, stolen, mutilated or destroyed the Company shall issue a new
warrant of like denomination, tenor and date as this Warrant upon its receipt
from the Holder of reasonably satisfactory evidence of such event and assurances
that the Holder will indemnify, the Company on account of any loss incurred by
the Company which is occasioned by such event. Any such new warrant shall
constitute an original contractual obligation of the Company whether or not the
allegedly lost, stolen, mutilated or destroyed warrant shall. be at any time
enforceable by anyone.
9. EXPIRATION. This Warrant shall expire and be of no further force and
effect on the date (the "Expiration Date") which is the earlier to occur of (a)
the date when the Company has fully complied with Paragraph 2 hereof, in the
event of a complete exercise hereof or (b) the earlier to occur of (i) the tenth
anniversary of the date hereof or (ii) the fourth anniversary of the date on
which Senior Subordinate Promissory Notes issued under the Note Purchase
Agreement have been paid in full.
10. MANDATORY EXERCISE. Notwithstanding any other provision hereof, the
Holder shall, upon the request of the Company, fully exercise this Warrant
concurrently with the closing of a Qualified Public Offering.
-3-
<PAGE> 4
11. WARRANT PURCHASE AGREEMENT. The terms of the Purchase Agreement, as
they relate to this Warrant, are incorporated by reference in this Warrant as
fully as if the same were set forth herein.
12. APPLICABLE LAW. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the Commonwealth of Massachusetts.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company and the Holder.
14. NOTICES. All notices and other correspondence which is required or may
be given hereunder shall be given in the manner and to the addresses specified
in the Purchase Agreement.
WITNESS the due execution of this Stock Purchase Warrant as of the date
first written above with the intent to be legally bound.
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
-------------------------------------
Title: President
-----------------------------------
-4-
<PAGE> 5
ANNEX A
to Warrant
[SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby
(1) subscribes for ________________ shares which the undersigned is entitled to
purchase under the terms of the within Warrant, (2) makes the full cash payment
therefor called for by the within Warrant, and (3) directs that the shares
issuable upon exercise of said Warrant be issued as follows:
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 6
ANNEX B
to Warrant
[TO BE EXECUTED TO EFFECT A TRANSFER OF THE WARRANT]
FOR VALUE RECEIVED ________________________ hereby sells, assigns, and
transfers unto __________________________________, the right to purchase shares
evidenced by the within Warrant, and does hereby irrevocably constitute and
appoint ________________________________________ to transfer such right on the
books of Company, with full power of substitution.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 7
ANNEX C
to Warrant
[TO BE EXECUTED TO EFFECT AN EXCHANGE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby directs the
Company to exchange said Warrant for like warrants in the following
denominations: ________________________.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 10.5
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS
EXERCISE MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. MOREOVER, THIS WARRANT AND THE SECURITIES FOR WHICH IT IS EXERCISABLE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET FORTH
IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT DATED AS OF
NOVEMBER 28, 1995, AS AMENDED (WHICH AGREEMENT IS ON FILE WITH THE COMPANY'S
SECRETARY).
NEW ENGLAND AUDIO CO., INC.
Dated as of May 30, 1997 Certificate No. 4
STOCK PURCHASE WARRANT
159,950 Shares of Common Stock
This is to certify that, for value received, EXETER VENTURE LENDERS, L.P.
(the "Initial Holder"), its registered successors and assigns, is entitled upon
the due exercise hereof to purchase (subject to adjustment as provided in the
Purchase Agreement) 159,950 shares of the Common Stock, no par value (such
stock, together with such other securities or properties as may be issued upon
the exercise hereof, being referred to herein as the "Stock"), of New England
Audio Co., Inc., a Massachusetts corporation (the "Company"), for the price of
$.001 per share (the "Exercise Price") and to exercise the other rights, powers
and privileges provided for herein, all upon the terms and subject to the
conditions specified herein.
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in that certain Warrant
Purchase Agreement dated as of May 30, 1997 between the Company, the Initial
Holder and certain other parties (the "Purchase Agreement") unless the context
otherwise requires.
2. EXERCISE. This Warrant may be exercised by the registered Holder hereof
at any time during the period commencing on the date hereof and ending at 5:00
p.m., Boston, Massachusetts time on the Expiration Date specified in Paragraph 9
by surrender of this Warrant at the Company's principal offices at 40 Hudson
Road,
<PAGE> 2
Canton, Massachusetts 02021 (or such other address as the Company may advise the
Holder by notice given in the manner provided in the Purchase Agreement), with
the form of election to subscribe attached hereto as ANNEX A duly executed and
upon tender to the Company of the Exercise Price. Upon the date the Company
receives all of the foregoing from the Holder this Warrant shall be deemed to
have been exercised and the Holder exercising the same to have become a holder
of record of shares of Stock purchased hereunder for all purposes and
certificates for such shares shall be delivered. to such Holder or its
transferee within a reasonable time (not exceeding ten business days) after this
Warrant shall have been exercised. If an exercise of this Warrant is for less
than all of the Stock then, concurrently with its delivery of such certificates,
the Company shall deliver to such Holder (or, so long as such Holder has also
complied with Paragraph 6, its transferee) a new warrant or warrants which shall
be of like tenor and date as this Warrant and shall represent in the aggregate
the right to subscribe for and purchase the remaining number of shares which may
be subscribed for and purchased hereunder.
3. PAYMENT OF EXERCISE PRICE. Upon any exercise of this Warrant the
Exercise Price may be paid, in the sole discretion of the Holder, by (a)
tendering the same to the Company in cash, (b) setting-off the same against any
debt owed by the Company to the Holder or (c) tendering to the Company such
number of shares of Stock issuable upon the exercise of this Warrant as have a
value equal to the Exercise Price. If the Holder shall choose option (b) or (c)
above then, in lieu of tendering the Exercise Price upon the exercise this
Warrant, it shall tender to the Company a notice specifying the manner in which
it has elected to pay the Exercise Price.
4. TAXES. If any tax (other than income tax) is payable b.y the Holder by
reason of the issuance of any certificates representing Stock, such tax shall be
paid by the Company; provided, that the Company shall not be required to pay any
tax which may be payable in respect of the issuance of any such certificate in a
name other than that of the registered Holder of this Warrant, and the Company
shall not be required to issue any such certificate in a name other than such
Holder's unless and until any tax payable by reason of such issuance has been
paid.
5. WARRANT REGISTER. The Company shall at all times while any portion of
this Warrant remains outstanding and exercisable keep and maintain at its
principal office a register (the "Warrant Register") in which the registration,
transfer and exchange of this Warrant shall be recorded. The Company shall not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise, transfer or exchange of this Warrant. If at any time the Company shall
appoint an agent (the "Warrant Agent") to maintain such register, the Company
shall promptly give notice in the manner provided in the Purchase Agreement to
the registered Holder hereof of the name of such Warrant Agent and of the place
or places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any
-2-
<PAGE> 3
Warrant Agent at any time in effect will be in conformity with the terms of this
Warrant and the Purchase Agreement.
6. TRANSFER. Subject to compliance with applicable securities laws and
with the restrictions on transfer set forth in the Tag-Along, Transfer
Restriction and Bring-Along Agreement among the Company and certain of its
shareholders, as amended, this Warrant and all rights hereunder are transferable
on the books of the Company by the registered Holder hereof in person or by duly
authorized attorney upon surrender of this Warrant at the address set forth in
Paragraph 2, together with the form of transfer authorization attached hereto as
ANNEX B duly executed. Absent any such transfer, the Company may deem and treat
the registered Holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notice to the contrary.
7. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the address set forth in Paragraph 2 together with the form of
exchange authorization attached hereto as ANNEX C duly executed, for new
warrants in such denominations as the Holder shall designate at the time of
surrender for exchange (but not for less than 10% of the shares of Stock for
which this Warrant is originally exercisable), which new warrants shall be of
like tenor and date and shall represent in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant shall
become lost, stolen, mutilated or destroyed the Company shall issue a new
warrant of like denomination, tenor and date as this Warrant upon its receipt
from the Holder of reasonably satisfactory evidence of such event and assurances
that the Holder will indemnify the Company on account of any loss incurred by
the Company which is occasioned by such event. Any such new warrant shall
constitute an original contractual obligation of the Company whether or not the
allegedly lost, stolen, mutilated or destroyed warrant shall be at any time
enforceable by anyone.
9. EXPIRATION. This Warrant shall expire and be of no further force and
effect on the date (the "Expiration Date") which is the earlier to occur of (a)
the date when the Company has fully complied with Paragraph 2 hereof, in the
event of a complete exercise hereof or (b) the earlier to occur of (i) the tenth
anniversary of the date hereof or (ii) the fourth anniversary of the date on
which Senior Subordinate Promissory Notes issued under the Note Purchase
Agreement have been paid in full.
10. MANDATORY EXERCISE. Notwithstanding any other provision hereof, the
Holder shall, upon the request of the Company, fully exercise this Warrant
concurrently with the closing of a Qualified Public Offering.
-3-
<PAGE> 4
11. WARRANT PURCHASE AGREEMENT. The terms of the Purchase Agreement, as
they relate to this Warrant, are incorporated by reference in this Warrant as
fully as if the same were set forth herein.
12. APPLICABLE LAW. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the Commonwealth of Massachusetts.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company and the Holder.
14. NOTICES. All notices and other correspondence which is required or may
be given hereunder shall be given in the manner and to the addresses specified
in the Purchase Agreement.
15. PRIOR WARRANT. This Warrant and a warrant of like date and amount
issued to Exeter Equity Partners, L.P. are being issued in exchange for the
Company's Stock Purchase Warrant No. 3 dated May 30, 1997 issued to Exeter
Venture Lenders, L.P. and giving it the right to acquire 319,900 shares of the
Company's common stock.
WITNESS the due execution of this Stock Purchase Warrant as of the date
first written above with the intent to be legally bound.
NEW ENGLAND AUDIO CO., INC.
By: Jeffrey S. Stone
-------------------------------------
Title: President
-----------------------------------
-4-
<PAGE> 5
ANNEX A
to Warrant
[SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby
(1) subscribes for ___________________ shares which the undersigned is entitled
to purchase under the terms of the within Warrant, (2) makes the full cash
payment therefor called for by the within Warrant, and (3) directs that the
shares issuable upon exercise of said Warrant be issued as follows:
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 6
ANNEX B
to Warrant
[TO BE EXECUTED TO EFFECT A TRANSFER OF THE WARRANT]
FOR VALUE RECEIVED _____________________________________ hereby sells,
assigns, and transfers unto ___________________________________________________
the right to purchase _________________ shares evidenced by the within Warrant,
and does hereby irrevocably constitute and appoint ________________________ to
transfer such right on the books of Company, with full power of substitution.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 7
ANNEX C
to Warrant
[TO BE EXECUTED TO EFFECT AN EXCHANGE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby directs the
Company to exchange said Warrant for like warrants in the following
denominations: ____________________________.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 10.6
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH IT IS EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS, AND NO TRANSFER OF THIS WARRANT OR THE SECURITIES ISSUABLE UPON ITS
EXERCISE MAY BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS OR THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. MOREOVER, THIS WARRANT AND THE SECURITIES FOR WHICH IT IS EXERCISABLE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER RESTRICTIONS SET FORTH
IN A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT DATED AS OF
NOVEMBER 28, 1995, AS AMENDED (WHICH AGREEMENT IS ON FILE WITH THE COMPANY'S
SECRETARY).
NEW ENGLAND AUDIO CO., INC.
Dated as of May 30, 1997 Certificate No. 5
STOCK PURCHASE WARRANT
159,950 Shares of Common Stock
This is to certify that, for value received, EXETER EQUITY PARTNERS, L.P.
(the "Initial Holder"), its registered successors and assigns, is entitled upon
the due exercise hereof to purchase (subject to adjustment as provided in the
Purchase Agreement) 159,950 shares of the Common Stock, no par value (such
stock, together with such other securities or properties as may be issued upon
the exercise hereof, being referred to herein as the "Stock"), of New England
Audio Co., Inc., a Massachusetts corporation (the "Company"), for the price of
$.001 per share (the "Exercise Price") and to exercise the other rights, powers
and privileges provided for herein, all upon the terms and subject to the
conditions specified herein.
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in that certain Warrant
Purchase Agreement dated as of May 30, 1997 between the Company, the Initial
Holder and certain other parties (the "Purchase Agreement") unless the context
otherwise requires.
2. EXERCISE. This Warrant may be exercised by the registered Holder hereof
at any time during the period commencing on the date hereof and ending at 5:00
p.m., Boston, Massachusetts time on the Expiration Date specified in Paragraph 9
by surrender of this Warrant at the Company's principal offices at 40 Hudson
Road,
<PAGE> 2
Canton, Massachusetts 02021 (or such other address as the Company may advise the
Holder by notice given in the manner provided in the Purchase Agreement), with
the form of election to subscribe attached hereto as ANNEX A duly executed and
upon tender to the Company of the Exercise Price. Upon the date the Company
receives all of the foregoing from the Holder this Warrant shall be deemed to
have been exercised and the Holder exercising the same to have become a holder
of record of shares of Stock purchased hereunder for all purposes and
certificates for such shares shall be delivered to such Holder or its transferee
within a reasonable time (not exceeding ten business days) after this Warrant
shall have been exercised. If an exercise of this Warrant is for less than all
of the Stock then, concurrently with its delivery of such certificates, the
Company shall deliver to such Holder (or, so long as such Holder has also
complied with Paragraph 6, its transferee) a new warrant or warrants which shall
be of like tenor and date as this Warrant and shall represent in the aggregate
the fight to subscribe for and purchase the remaining number of shares which may
be subscribed for and purchased hereunder.
3. PAYMENT OF EXERCISE PRICE. Upon any exercise of this Warrant the
Exercise Price may be paid, in the sole discretion of the Holder, by (a)
tendering the same to the Company in cash, (b) setting-off the same against any
debt owed by the Company to the Holder or (c) tendering to the Company such
number of shares of Stock issuable upon the exercise of this Warrant as have a
value equal to the Exercise Price. If the Holder shall choose option (b) or (c)
above then, in lieu of tendering the Exercise Price upon the exercise this
Warrant, it shall tender to the Company a notice specifying the manner in which
it has elected to pay the Exercise Price.
4. TAXES. If any tax (other than income tax) is payable by the Holder by
reason of the issuance of any certificates representing Stock, such tax shall be
paid by the Company; provided, that the Company shall not be required to pay any
tax which may be payable in respect of the issuance of any such certificate in a
name other than that of the registered Holder of this Warrant, and the Company
shall not be required to issue any such certificate in a name other than such
Holder's unless and until any tax payable by reason of such issuance has been
paid.
5. WARRANT REGISTER. The Company shall at all times while any portion of
this Warrant remains outstanding and exercisable keep and maintain at its
principal office a register (the "Warrant Register") in which the registration,
transfer and exchange of this Warrant shall be recorded. The Company shall not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise, transfer or exchange of this Warrant. If at any time the Company shall
appoint an agent (the "Warrant Agent") to maintain such register, the Company
shall promptly give notice in the manner provided in the Purchase Agreement to
the registered Holder hereof of the name of such Warrant Agent and of the place
or places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any
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<PAGE> 3
Warrant Agent at any time in effect will be in conformity with the terms of this
Warrant and the Purchase Agreement.
6. TRANSFER. Subject to compliance with applicable securities laws and
with the restrictions on transfer set forth in the Tag-Along, Transfer
Restriction and Bring-Along Agreement among the Company and certain of its
shareholders, as amended, this Warrant and all rights hereunder are transferable
on the books of the Company by the registered Holder hereof in person or by duly
authorized attorney upon surrender of this Warrant at the address set forth in
Paragraph 2, together with the form of transfer authorization attached hereto as
ANNEX B duly executed. Absent any such transfer, the Company may deem and treat
the registered Holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notice to the contrary.
7. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the address set forth in Paragraph 2 together with the form of
exchange authorization attached hereto as ANNEX C duly executed, for new
warrants in such denominations as the Holder shall designate at the time of
surrender for exchange (but not for less than 10% of the shares of Stock for
which this Warrant is originally exercisable), which new warrants shall be of
like tenor and date and shall represent in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If this Warrant shall
become lost, stolen, mutilated or destroyed the Company shall issue a new
warrant of like denomination, tenor and date as this Warrant upon its receipt
from the Holder of reasonably satisfactory evidence of such event and assurances
that the Holder will indemnify the Company on account of any loss incurred by
the Company which is occasioned by such event. Any such new warrant shall
constitute an original contractual obligation of the Company whether or not the
allegedly lost, stolen, mutilated or destroyed warrant shall be at any time
enforceable by anyone.
9. EXPIRATION. This Warrant shall expire and be of no further force and
effect on the date (the "Expiration Date") which is the earlier to occur of (a)
the date when the Company has fully complied with Paragraph 2 hereof, in the
event of a complete exercise hereof or (b) the earlier to occur of (i) the tenth
anniversary of the date hereof or (ii) the fourth anniversary of the date on
which Senior Subordinate Promissory Notes issued under the Note Purchase
Agreement have been paid in full.
10. MANDATORY EXERCISE. Notwithstanding any other provision hereof, the
Holder shall, upon the request of the Company, fully exercise this Warrant
concurrently with the closing of a Qualified Public Offering.
-3-
<PAGE> 4
11. WARRANT PURCHASE AGREEMENT. The terms of the Purchase Agreement, as
they relate to this Warrant, are incorporated by reference in this Warrant as
fully as if the same were set forth herein.
12. APPLICABLE LAW. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the Commonwealth of Massachusetts.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and permit-ted
assigns of the Company and the Holder.
14. NOTICES. All notices and other correspondence which is required or may
be given hereunder shall be given in the manner and to the addresses specified
in the Purchase Agreement.
15. PRIOR WARRANT. This Warrant and a warrant of like date and amount
issued to Exeter Venture Lenders, L.P. are being issued in exchange for the
Company's Stock Purchase Warrant No. 3 dated May 30, 1997 issued to Exeter
Venture Lenders, L.P. and giving it the right to acquire 319,900 shares of the
Company's common stock.
WITNESS the due execution of this Stock Purchase Warrant as of the date
first written above with the intent to be legally bound.
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
-------------------------------------
Title: President
-----------------------------------
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<PAGE> 5
ANNEX A
to Warrant
[SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby
(1) subscribes for ________________ shares which the undersigned is entitled to
purchase under the terms of the within Warrant, (2) makes the full cash payment
therefor called for by the within Warrant, and (3) directs that the shares
issuable upon exercise of said Warrant be issued as follows:
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 6
ANNEX B
to Warrant
[TO BE EXECUTED TO EFFECT A TRANSFER OF THE WARRANT]
FOR VALUE RECEIVED ________________________ hereby sells, assigns, and
transfers unto __________________________________, the right to purchase shares
evidenced by the within Warrant, and does hereby irrevocably constitute and
appoint ________________________________________ to transfer such right on the
books of Company, with full power of substitution.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 7
ANNEX C
to Warrant
[TO BE EXECUTED TO EFFECT AN EXCHANGE OF THE WARRANT]
The undersigned registered holder of the within Warrant hereby directs the
Company to exchange said Warrant for like warrants in the following
denominations:_________________.
----------------------------------------
(Name)
Signature:
------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 10.7
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "FEDERAL ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE
EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
NEW ENGLAND AUDIO CO., INC.
Common Stock Warrant
NEW ENGLAND AUDIO CO., INC., a Massachusetts corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HiFi Buys Incorporated, a Georgia
corporation ("HiFi Buys"), or its permitted assigns under the terms of this
warrant (HiFi Buys or such permitted assigns at the time being the registered
holder or holders hereof being hereinafter referred to as "Holder") is entitled,
subject to the terms set forth below, to acquire from the Company, at a purchase
price per share of $5.30 (the "Purchase Price"), at any time or from time to
time on or after the date hereof and prior to 5:00 P.M., Boston time, on the
Expiration Date, 160,000 fully paid and non-assessable shares of the Company's
Common Stock, no par value (the "Common Stock," such shares of Common Stock, in
each case as the number of such shares may be adjusted from time to time
pursuant to Section 2.4 and the provisions of the Company's Articles of
Organization, are herein referred to as the "Warrant Shares").
Certain capitalized terms not otherwise defined herein shall have the
meanings set forth in Section 5 hereof.
<PAGE> 2
SECTION l. EXERCISE OF WARRANT.
1.1. EXERCISE. Subject to Section 10, this Warrant may be converted or
exercised by Holder, in whole or in part (but not for less than 10% of the
Warrant Shares issuable under this Warrant, or the remaining Warrant Shares, if
less than such amount), at any time and from time to time by surrender of this
Warrant, together with the form of subscription at the end hereof duly executed
by Holder, to the Company at its principal office and accompanied by payment in
full, in cash or by check payable to the order of the Company, in the amount of
the aggregate Purchase Price for the Warrant Shares covered by such exercise. In
lieu of exercising this Warrant pursuant to the immediately preceding sentence,
the Holder shall have the right to require the Company to convert this Warrant,
in whole or in part and at any time or times (the "Conversion Right"), into
Warrant Shares, by surrendering this Warrant to the Company accompanied by the
form conversion notice (in the form attached hereto as Exhibit B) which has been
duly completed and signed. Upon exercise of the Conversion Right, the Company
shall deliver to the Holder (without payment by the Holder of any Purchase
Price) that number of Warrant Shares which is equal to the quotient obtained by
dividing (x) the value this Warrant (or the portion thereof being converted) at
the time the Conversion Right is exercised determined by subtracting the
aggregate Purchase Price for the Warrant (or such portion thereof being
converted) immediately prior to the exercise of the Conversion Right from the
aggregate current market price (determined on the basis of the Current Market
Price Per Share) of that number of Warrant Shares purchasable upon exercise of
this Warrant (or such portion thereof) immediately prior to the exercise of the
Conversion Right (taking into account all applicable adjustments pursuant to
this Warrant) by (y) the Current Market Price Per Share of one share of Common
Stock immediately prior to the exercise of the Conversion Right. Any references
in this Warrant to the "exercise" of any Warrants, and the use of the term
"exercise" herein, shall be deemed to include (without limitation) any exercise
of the Conversion Right. In the event this Warrant is not exercised in full, the
Warrant Shares shall be reduced by the number of Warrant Shares subject to such
partial exercise, and the Company, at its expense, shall forthwith issue and
deliver to Holder a new Warrant of like tenor in the name of Holder, reflecting
such adjusted Warrant Shares.
1.2. DELIVERY OF STOCK CERTIFICATES. Subject to Section 12, promptly
upon exercise of this Warrant in full or in part, the Company will issue and
deliver to Holder, a certificate or certificates, in such name or names as such
Holder may designate, for the number of fully paid and non-assessable shares of
Common Stock to which Holder shall be entitled on such exercise.
1.3. FRACTIONAL SHARES. This Warrant may not be exercised as to
fractional shares of Common Stock.
SECTION 2. CERTAIN OBLIGATIONS OF THE COMPANY.
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<PAGE> 3
2.1. RESERVATION OF STOCK. The Company covenants that it will at all
times reserve and keep available, free from preemptive rights, solely for the
purpose of effecting the exercise of this Warrant, a number of shares of Common
Stock equal to the total number of Warrant Shares then issuable upon the
exercise of this Warrant. The Company will from time to time, in accordance with
the laws of its state of incorporation take action to increase the authorized
amount of its Common Stock if at any time the number of shares of Common Stock
authorized but remaining unissued and unreserved for other purposes shall be
insufficient to permit the exercise of this Warrant.
2.2. CORPORATE ACTIONS. The Company covenants that all Warrant Shares
will, upon issuance in accordance with the terms of this Warrant Agreement and
the Company's Articles of Organization, be fully paid and nonassessable and free
from all taxes with respect to the issuance thereof (other than income taxes, if
any, related to ordinary income attributable to the Holder) and from all liens,
charges and security interests. The Company will not, by amendment of its
Articles of Organization or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant. Without limiting the generality of the foregoing, the
Company (a) will not permit the par value or the determined or stated value of
any shares of the Company's Common Stock receivable upon the exercise of the
Warrants to exceed the amount payable therefor upon such exercise, (b) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of the Company's
Common Stock upon the exercise of the Warrants from time to time outstanding,
including, without limitation, amending its Articles of Organization, and (c)
will not take any action which results in an adjustment in the number of Warrant
Shares obtainable upon the exercise of any Warrants if the total number of
shares of the Company's Common Stock (or other securities) issuable after such
action upon the exercise of all of the then-outstanding Warrants would exceed
the total number of shares of the Company's Common Stock (or other securities)
then authorized by the Company's Articles of Organization and available for
purpose of issuance upon such exercise.
2.3. MAINTENANCE OF OFFICE. The Company will maintain an office at 40
Hudson Road, Canton, Massachusetts 02021, where presentations and demands to or
upon the Company in respect of this Warrant may be made. The Company will give
notice in writing to Holder, at the address of Holder appearing on the books of
the Company, of each change in the location of such office.
2.4. ADJUSTMENT OF WARRANT SHARES PURCHASABLE.
(a) The number of Warrant Shares which may be acquired upon the
exercise or conversion of this Warrant and the Purchase Price of such shares are
subject to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 2.4 at any time or from time to time after the date
hereof and prior to the Expiration Date.
-3-
<PAGE> 4
(b) If the Company shall (i) declare a dividend on the Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (ii) split or subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of shares, each
Warrant outstanding at the time of the record date for such dividend or of the
effective date of such split, subdivision or combination shall thereafter
entitle the Holder to receive the aggregate number and kind of shares which, if
such Warrant had been exercised immediately prior to such time, such Holder
would have owned or have become entitled to receive by virtue of such dividend,
subdivision or combination at a Purchase Price adjusted for such change in the
number of shares purchasable. Such adjustment shall be made successively
whenever any event listed above shall occur and, if a dividend which is declared
is not paid, each Warrant outstanding shall again entitle the Holder thereof to
receive the number of shares of Common Stock as would have been the case had
such dividend not been declared. If at any time, as a result of an adjustment
made pursuant to this subsection 2.4(b), the Holder shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Section 2.4, and the provisions of this Warrant
with respect to the Warrant Shares shall apply on like terms to such other
shares.
(c) In case the Company shall make a distribution to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation) of
evidences of its indebtedness, cash or other assets, each Warrant outstanding on
the date of such distribution shall thereafter entitle the Holder to receive a
number of shares of Common Stock, at a Purchase Price adjusted for such change
in the number of shares purchasable, equal to the product of (i) the number of
shares of Common Stock to which the Holder was entitled immediately prior to
such date of distribution and (ii) a fraction of which the numerator shall be
the then Current Market Price Per Share of Common Stock on such date and of
which the denominator shall be the then Current Market Price Per Share of Common
Stock on such date less the fair market value, of the portion of the assets or
evidences of indebtedness, or the portion of the cash, so to be distributed
applicable to one share of then-outstanding Common Stock. Such adjustment shall
be made successively whenever a date for such distribution is fixed (which date
of distribution shall be the record date for such distribution if a record date
therefor is fixed) and, if such distribution is not so made, each Warrant
outstanding shall again entitle the holder thereof to receive the number of
shares of Common Stock as would have been the case had such date of distribution
not been fixed.
(d) In the event of any capital reorganization of the Company, or of
any reclassification of the Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or in case of the
consolidation of the Company with or the merger of the Company with or into any
other corporation or of the sale of the properties and assets of the Company as,
or substantially as, an entirety to any other
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<PAGE> 5
corporation, each Warrant shall after such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale be exercisable
upon the terms and conditions specified in this Warrant, for the number of
shares of stock or other securities or assets to which the Holder (at the time
of such capital reorganization, reclassification of Common Stock, consolidation,
merger or sale) upon exercise of such Warrant would have been entitled upon such
capital reorganization, reclassification of Common Stock, consolidation, merger
or sale; and in any such case, if necessary, the provisions set forth in this
Section 2.4 with respect to the rights thereafter of the Holder shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter deliverable on
the exercise of the Warrants.
(e) If any event occurs, as to which, in the sole good faith opinion
of the Board of Directors of the Company, the other provisions of this Section
2.4 are not strictly applicable or (if strictly applicable) would not fairly
protect the purchase rights of the Holder in accordance with the essential
intent and principles of such provisions, then the Board of Directors may make
an adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
decreasing or increasing the number of shares of Common Stock purchasable upon
the exercise of this Warrant from that which would otherwise be determined
pursuant to this Section 2.4.
(f) Anything in this Section 2.4 to the contrary notwithstanding:
(1) the Company shall be entitled, but not required, to make
such increases in the number of Warrant Shares purchasable upon the
exercise of each Warrant, in addition to those adjustments required by
this Section 2.4, as it in its sole discretion may determine to be
advisable in order that any consolidation or subdivision of the Common
Stock, or any issuance wholly for cash or any shares of Common Stock at
less than the Current Market Price Per Share, or any issuance wholly for
cash or shares of Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Common Stock or any stock
dividend, or any issuance of rights, options or warrants referred to
hereinabove in this Section 2.4, hereinafter made by the Company to the
holders of its Common Stock shall not be taxable to them; and
(2) no adjustment in the number of Warrant Shares purchasable
shall be required in the event the Company pays a cash dividend to
holders of Common Stock; provided that the Company also pays a cash
dividend to the Holders which dividend shall be calculated as if the
Warrant had been exercised.
2.5. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to Holder as follows:
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<PAGE> 6
(a) The Company is a corporation duly organized, validly existing and
in good standing under the Laws of the Commonwealth of Massachusetts and has all
requisite corporate power and authority to execute, deliver and perform this
Warrant and all documents and agreements contemplated hereby and to consummate
the transactions contemplated hereby and thereby. The Company is duly qualified
to conduct business as a foreign corporation in every jurisdiction in which its
ownership or lease of property or conduct of its business makes such
qualification necessary, except for such jurisdictions in which the Company's
failure to be so qualified, individually or together with any other failure to
qualify, would not materially impair the Purchaser's ability to perform its
obligations hereunder. The execution and delivery of this Warrant and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all requisite corporate action and, assuming the
due execution of this Warrant by HiFi Buys, this Warrant constitutes the valid
and binding obligation of the Company enforceable against it in accordance with
its terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws relating to creditor's rights generally and to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity).
(b) Neither the execution and delivery by the Company of this Warrant
or all documents and agreements contemplated hereby nor the consummation of the
transactions contemplated hereby or thereby: (i) violates or will violate any
Law applicable to the Company; (ii) violates or will violate any order, writ,
judgment, injunction or decree applicable to the Company; (iii) results or will
result in a breach of or default under the Articles of Organization or bylaws of
the Company, or (iv) conflicts or will conflict with or results or will result
in any breach of any contract, agreement or other commitment of the Company. No
consent, authorization or approval from, or registration or filing with, any
governmental entity or third party (not obtained or made as of the date hereof)
is required to be obtained or made by or with respect to the Company in
connection with the execution and delivery of this Warrant or all documents and
agreements contemplated hereby or the consummation by the Company of the
transactions contemplated hereby or thereby.
(c) The Company has authorized capital stock as set forth on Schedule
I hereto. Except as set forth on Schedule I hereto, and with the exception of
this Warrant, there are no outstanding options, warrants, subscriptions, rights,
convertible or exchangeable securities or other agreements or plans under which
the Company may be or become obligated to issue, sell or transfer shares of its
capital stock or other securities.
SECTION 3. NOTICE OF CERTAIN EVENTS.
If at any time:
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock;
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<PAGE> 7
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class;
(c) there shall be any recapitalization of the Company, or
consolidation or merger of the Company with, or sale of all or substantially all
of its assets to, another corporation or business organization; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions;
then, in any one or more of such cases, the Company shall give Holder written
notice, by registered mail, of the date on which a record shall be taken for
such dividend, distribution or subscription rights or for determining
stockholders entitled to vote upon such recapitalization, consolidation, merger,
sale, dissolution, liquidation or winding up and of the date when any such
transaction shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such notice shall describe the proposed
transaction in reasonable detail and specify the consideration to be received by
the Holder in respect thereto and/or any adjustment which would be made to the
number of Warrant Shares obtainable upon the exercise of this Warrant as a
result of such transaction. The Company shall also furnish to each Holder all
notices and materials furnished to its stockholders in connection with such
transaction as and when such notices and materials are furnished to its
stockholders. Such written notice shall be given not less than 20 days prior to
the record date with respect thereto. Upon the effectiveness of such
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be, this Warrant shall terminate and cease to be
exercisable.
SECTION 4. REGISTRATION RIGHTS.
4.1. General. For purposes of this Section 4, the terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act of
1933 (the "Federal Act") and the declaration or ordering of effectiveness of
such registration statement.
4.2. Company Registration. If at any time the Company proposes to
register any of its Common Stock under the Federal Act in connection with an
initial public offering of such securities for its own account or for the
accounts of its shareholders, except pursuant to a registration statement filed
on Form S-8 or Form S-4 or any successor forms which may be used for
transactions of the type currently contemplated in the instructions to such
forms, the Company shall, not later than thirty (30) days before
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<PAGE> 8
filing the registration statement with respect thereto, give Holder and each
holder of Warrant Shares (a "Warrant Shareholder") written notice of such
proposal by registered mail. Upon the written request of any such Holder or
Warrant Shareholder (each a "Selling Holder" and collectively, "Selling
Holders") given within fifteen (15) days after mailing of any such notice by the
Company, the Company shall use its best efforts to cause to be registered under
the Federal Act in connection with such initial public offering all of the
Warrant Shares that any Selling Holder has requested be registered; PROVIDED
that if the managing underwriter(s) advises the Selling Holders in writing that
the total amount of securities which they, the Company and all other Persons
holding Other Registration Rights intend to include in such offering is
sufficiently large to materially and adversely affect the success of such
offering, the amount of securities to be offered for the accounts of each
Selling Holder and all other Persons exercising piggy-back registration rights
in such offering shall be reduced pro rata (based upon the amount of securities
each such Person sought to include in the offering) to the extent necessary to
reduce the total amount of securities to be included in the offering to the
amount recommended by such managing underwriter(s).
Notwithstanding the foregoing, the Company may withdraw any registration
statement referred to in this Section 4.2 without incurring liability to any
Selling Holder on account of such withdrawal and shall not be under any
obligation to complete any offering.
4.3. LOCK-UP AGREEMENTS, ETC. If requested by the managing underwriter
in connection with an offering of Common Stock, each Holder and Warrant
Shareholder shall agree that it will not, for a period of seven (7) days prior
to and 90 days following, the effective date of a registration statement for the
offering of the Common Stock, or any other period reasonably requested by the
managing underwriter, offer or sell any of the Warrant Shares without the prior
consent of the managing underwriter.
4.4. OBLIGATIONS OF THE COMPANY. Subsequent to the other provisions of
this Section 4, whenever required hereunder to use its best efforts to effect
the registration of any Warrant Shares, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC a registration statement on
the appropriate form with respect to such Warrant Shares and use its best
efforts to cause such registration statement to become effective as soon
as practicable after such filing and remain effective: (i) in the case of
an underwritten offering, for such period as is required by the
underwriter for such offering or (ii) in the case of an offering not
underwritten, until the Selling Holders have informed the Company in
writing that the distribution of their securities has been completed, but
in no event longer than 180 days plus any period during which the Selling
Holders are obligated to refrain from selling because the Company is
required to amend or supplement the prospectus.
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<PAGE> 9
(b) Prepare and file with the SEC such amendments and
supplements (including post-effective amendments and supplements) to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions
of the Federal Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to each Selling Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Federal Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Warrant
Shares owned by it.
(d) Notify each Selling Holder if, at any time when a
prospectus relating to such Warrant Shares is required to be delivered
under the Federal Act, any event shall have occurred as a result of which
the prospectus then in use with respect to such Warrant Shares would
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or for any other reason it shall be
necessary to amend or supplement such prospectus in order to comply with
the Federal Act and prepare and furnish to all sellers as promptly as
possible, and in any event within ninety (90) days of such notice, a
reasonable number of copies of a supplement to or an amendment of such
prospectus to correct such statement or omission or effect such
compliance.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as the Selling Holders may reasonably
request for the distribution of the securities covered by the
registration statement; provided that the Company shall not be required
to qualify as a foreign corporation in any state where it is not then
otherwise required to qualify.
(f) Use its reasonable best efforts to keep the Selling Holders
informed of the Company's best estimate of the earliest date on which
such registration statement or any post-effective amendment or supplement
thereto will become effective and will promptly notify such Selling
Holders and the managing underwriters, if any, participating in the
distribution pursuant to such registration statement of the following
promptly after learning of the same: (A) when such registration
statement or any post-effective amendment or supplement thereto becomes
effective or is approved; (B) of the issuance by any competent authority
of any stop order suspending the effectiveness or qualification of such
registration statement or the prospectus then in use or the initiation or
threat of any proceeding for that purpose; and (C) of the suspension of
the qualification of any Warrant Shares included in such registration
statement for sale in any jurisdiction.
-9-
<PAGE> 10
(g) Make available to its security holders, as soon as
practicable, an earnings statement covering a period of at least twelve
months which satisfies the provisions of Section 11 (a) of the Federal
Act and Rule 158 thereunder.
(h) Cooperate with the Selling Holders and the underwriters, if
any, of such Warrant Shares; give each Selling Holder, and the
underwriters, if any, of such Warrant Shares and their respective counsel
and accountants, such access to its books and records and such
opportunities to discuss the business of the Company with its officers
and independent public accountants as shall be necessary to enable them
to conduct a reasonable investigation within the meaning of the Federal
Act and, in the event that Warrant Shares are to be sold in an
underwritten offering, enter into an underwriting agreement with the
underwriters and the Selling Holders containing customary representations
and warranties, covenants, conditions and indemnification provisions,
including without limitation the furnishing to the underwriters of a
customary opinion of independent counsel to the Company and a customary
"comfort" letter from the Company's independent public accountants;
provided, however, that nothing contained in this Warrant shall limit the
Company's right to terminate any such offering of its Common Stock at any
time.
(i) Provide a CUSIP number for all Warrant Shares not later
than the effective date of the registration statement.
(j) Take such actions as the underwriters reasonably request in
order to expedite or facilitate the disposition of the Warrant Shares to
be included in any such offering (including, without limitation,
effecting a stock split, stock dividend or a combination of shares of
Common Stock).
(k) Provide a transfer agent for the Warrant Shares no later
than the effective date of the first registration of any Warrant Shares.
4.5. FURNISH INFORMATION. Each Selling Holder shall furnish to the
Company such information regarding it and the Warrant Shares held by it and the
intended method of disposition of such securities as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company.
4.6. EXPENSES. All expenses incurred in connection with registrations
pursuant to this Section 4, excluding (a) underwriters' discounts and
commissions (which shall be paid ratably by all holders of securities subject to
such registrations) and (b) fees and disbursements of counsel to the Selling
Holders (which shall be paid by such Selling Holders which consent to such
counsel's employment) but including all registration and qualification fees,
transfer taxes, printers' and accounting fees (including the entire expense of
any audits required by the Federal Act), fees and disbursements of counsel for
the Company, shall be paid by the Company.
-10-
<PAGE> 11
4.7. INDEMNIFICATION. In the event any Warrant Shares are included in a
registration statement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Selling Holder, any underwriter, and each person, if any, who
controls such Selling Holder or any such underwriter within the meaning of the
Federal Act, against any losses, claims, damages or liabilities and legal and
other expenses, joint or several, to which they may become subject under the
Federal Act or otherwise, insofar as such losses, claims, damages or liabilities
and legal and other expenses (or actions in respect thereof) arise out of or are
based on any untrue or alleged untrue statement of any material fact contained
in a registration statement under which Warrant Shares were registered
including, any preliminary prospectus or final prospectus contained therein or
any amendments or supplements 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 not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the Federal Act or state securities (or so-called "Blue Sky") laws, or
regulations promulgated thereunder, of any jurisdiction applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration or such offering; and will reimburse such
Selling Holder, and each such underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Company shall not be liable in any such case for any loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
that was furnished for use in connection with such registration by such Selling
Holder.
(b) To the extent permitted by law, each Selling Holder will,
severally but not jointly, indemnify and hold harmless the Company, each of its
officers, directors, agents, employees, each person, if any, who controls the
Company within the meaning of the Federal Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company or any of its
officers, directors, agents, employees, each person, if any, who controls the
Company within the meaning of the Federal Act, may become subject under the
Federal Act, state securities (or so-called "Blue Sky") laws or otherwise,
insofar as any such loss, claim, damage, or liability arises solely out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
that was furnished for use in connection with such registration by such Selling
Holder; provided, however, that the liability of any Selling Holder shall be
limited to the amount of proceeds received by such Selling Holder in the
offering or by the amount such Selling Holder would have received if the
offering is terminated.
-11-
<PAGE> 12
(c) Promptly after receipt by a indemnified party under this Section
4.7 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, to assume the defense thereof
with counsel selected by such party, but the failure to notify the indemnifying
party promptly of the commencement of any such action will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
unless and to the extent that the indemnifying party is actually and materially
prejudiced by such failure. If any such action is against both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it that are
different from or additional to those available to the indemnifying party or
that its interests conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party.
4.8. TRANSFER OF REGISTRATION RIGHTS. The registration rights of Holder
may not be transferred to any transferee except in connection with a transfer of
this Warrant or of Warrant Shares permitted under Section 8 below.
SECTION 5. DEFINITIONS
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
5.1 The term "COMMON STOCK" includes the Company's Common Stock,
without par value per share, and any other securities or rights into which or
for which the Common Stock is converted or exchanged, whether pursuant to a plan
of reclassification, reorganization, consolidation, merger, sale of assets,
dissolution, liquidation, or otherwise.
5.2 "COMPOSITE TRANSACTIONS TAPE" shall mean a security price
reporting service that includes all transactions in a security on each of the
exchanges and in the over-the-counter market.
5.3 "CURRENT MARKET PRICE PER SHARE" shall mean, with respect to any
of the Common Stock, as of any particular date of determination:
(i) if the Common Stock is then reported on the Composite
Transactions Tape, the average of the daily closing prices for the 30
consecutive trading days immediately prior to such date as reported on
the Composite
-12-
<PAGE> 13
Transactions Tape (as adjusted for any stock dividend, split, combination
or reclassification that occurred during such 30-day period); or
(ii) if the Common Stock is not then reported on the Composite
Transaction Tape but is then listed or admitted to trading on a national
securities exchange, the average of the daily last sale prices regular
way of such Common Stock, for the 30 consecutive trading days immediately
prior to such date (as adjusted for any stock dividend, split,
combination or reclassification that occurred during such 30-day period),
on the principal national securities exchange on which such Common Stock
is traded or, in case no such sale takes place on any such day, the
average of the closing bid and asked prices regular way, in either case
on such national securities exchange; or
(iii) if the Common Stock is not then reported on the Composite
Transaction Tape but is then traded on the over-the-counter market, the
average of the daily closing sales prices, or, if there is no closing
sales price, the average of the closing bid and asked prices, in the
over-the-counter market, for the 30 consecutive trading days immediately
prior to such date (as adjusted for any stock dividend, split,
combination or reclassification that occurred during such 30-day period),
as reported by the National Association of Securities Dealers' Automated
Quotation System, or, if not so reported, as reported by the National
Quotation Bureau, Incorporated or any successor thereof, or, if no so
reported the average of the closing bid and asked prices as furnished by
any member of the National Association of Securities Dealers, Inc.
selected from time to time by the Board of Directors of the Company for
that purpose; or
(iv) if no such prices are then furnished, the higher of (x) the
Exercise Price and (y) the fair market value of a share of the Common
Stock as determined by agreement between the holders of a majority of the
Warrants and the Company or, in the absence of such an agreement, by an
independent investment banking firm or an independent appraiser engaged
by the Company (in either case the cost of which engagement will be
divided equally between the Company and the holders of a majority of the
Warrants).
5.4 The term "EXPIRATION DATE" shall mean the earlier of (x) the fifth
anniversary of the date of the closing of an initial public offering of the
Common Stock and (y) the date ten years after the date hereof.
5.5 The term "FAIR MARKET VALUE PER SHARE OF THE WARRANT" shall mean
the difference between the Current Market Price Per Share and the Purchase
Price.
5.6 The term "OTHER REGISTRATION RIGHTS" shall mean rights to register
shares of Common Stock granted to any Person (other than rights granted under
this Warrant) by the Company at any time prior to the date hereof or on or
after the date hereof.
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<PAGE> 14
5.7 The term "WARRANT SHARES" shall mean the shares of Common Stock
from time to time issued upon exercise of this Warrant.
5.8 The term "PERSON" shall mean an individual, corporation,
partnership, limited liability company, association, trust, joint venture,
unincorporated organization or any government, governmental department or agency
or political subdivision thereof.
SECTION 6. REPLACEMENT OF WARRANTS.
Upon (a) surrender of this Warrant in mutilated form or receipt of
evidence satisfactory to the Company of the loss, theft or destruction of this
Warrant and (b) in the case of any loss, theft or destruction of this Warrant,
if requested, receipt of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company, then, the Company, at its
expense, shall execute and deliver, in lieu of and in replacement of this
Warrant, a Warrant identical in form to this Warrant.
SECTION 7. REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms hereof
or otherwise. The Company hereby irrevocably waives, to the extent that it may
do so under applicable law, any defense based on the adequacy of a remedy at law
which may be asserted as a bar to the remedy of specific performance in any
action brought against the Company for specific performance of this Warrant by
the Holder. Such remedies and all other remedies provided for in this Warrant
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which may be available under this Warrant.
SECTION 8. TRANSFER.
This Warrant and Warrant Shares issued hereunder shall not be sold,
transferred, pledged or hypothecated unless the proposed disposition is the
subject of a currently effective registration statement under the Federal Act or
such sale is made pursuant to an exemption from registration.
Until transfer hereof on the registration books of the Company, the
Company may treat the existing registered holder hereof as the owner hereof for
all purposes. Any transferee of this Warrant and the rights hereunder, by
acceptance thereof, agrees to assume all of the obligations of Holder and to be
bound by all of the terms and provisions of this Warrant.
-14-
<PAGE> 15
SECTION 9. NOTICES.
Where this Warrant provides for notice of any event, such notice shall be
given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail,
postage prepaid (iii) telexed or sent by facsimile transmission, and shall be
deemed given when so delivered personally, telexed, sent by facsimile
transmission (confirmed in writing) or mailed. Notices shall be addressed, if to
Holder, to the address of Holder appearing in the registration books referred to
in Section 8 or, if to the Company, to its office maintained pursuant to Section
2.2.
SECTION 10. LIMITATIONS ON EXERCISE.
Notwithstanding any other provision of this Warrant, the Holder shall not
have the right to exercise or convert this Warrant into or for Warrant Shares
Except upon one or more of the following events: (a) the consummation of a
public offering of the Company's Common Stock; (b) the sale of all or
substantially all of the issued and outstanding capital stock of the Company by
the Company's stockholders to the same purchaser or group of purchasers in a
single transaction or series of related transactions; (c) a merger or
consolidation of the Company into or with another entity where the surviving or
resulting entity is not the Company and where, as part of such merger or
consolidation, the stockholders of the Company, including the Holder upon any
such exercise and conversion, receive equity securities of, or other
consideration from, the surviving or resulting entity in exchange for their
capital stock of the Company; (d) the liquidation or dissolution of the Company;
or (e) a transaction requiring or allowing such exercise or conversion pursuant
to and in accordance with Section 11.1 or Section 11.2. The right to exercise or
convert this Warrant upon the occurrence of the foregoing transactions or events
shall not be exercisable until immediately after the closing of the foregoing
events, and the Holder shall not be entitled to vote as a stockholder with
respect to, or otherwise object to, any such transaction. In the event that this
Warrant is not exercised or converted upon the closing of the transactions or
events described in (b) through (e) above, this Warrant shall terminate and
shall be null and void in all respects.
SECTION 11. DRAG-ALONG RIGHTS AND TAG-ALONG RIGHTS.
11.1 DRAG-ALONG RIGHTS. If at any time one or more stockholders of the
Company alone or together holding a majority of the then issued and outstanding
capital stock of the Company have agreed to sell, assign or otherwise transfer
such capital stock of the Company (a "Transfer of Control") so held by such
stockholders (the "Majority Stockholders") to the same purchaser or group of
purchasers (collectively, the "Purchaser"), then such Majority Stockholders
shall have the right, but not the obligation, upon written notice to the Holder,
to require the Holder to: (a) sell, assign or transfer this Warrant and all
Warrant Shares held by the Holder to such Purchaser, (b) exercise and convert
this Warrant in full and sell, assign and transfer and all Warrant Shares held
by
-15-
<PAGE> 16
the Holder prior to such exercise or conversion together with all Warrant Shares
issuable to the Holder as a result of such exercise and conversion to such
Purchaser; or (c) exercise and convert this Warrant in part and sell, assign and
transfer this Warrant and all Warrant Shares issuable to the Holder as a result
of such partial exercise or conversion to such Purchaser; provided, however,
that in no event shall the Holder be required to exercise this warrant if the
Current Market Price Per Share is less than the Purchase Price. Any such sale,
assignment or transfer by the Holder of this Warrant or any Warrant Shares to
the Purchaser shall be on the same substantive economic terms and conditions
applicable to the Transfer of Control. In such event, the Holder will take such
necessary and appropriate actions as shall be required to implement such sale,
assignment or transfer in accordance with such reasonable terms as are agreed to
by the Majority Stockholders and the Purchaser. If at the end of 180 days
following the date such Holder was notified of such sale assignment or transfer
the Majority Stockholders have not completed such transaction, the Holder shall
be released from his obligations pursuant to this Section 11.1.
11.2. TAG-ALONG RIGHTS. In the event of a proposed Transfer of Control
where (i) the Majority Stockholders have not exercised their rights to require
the sale, assignment or transfer by the Holder of this Warrant or any Warrant
Shares as part of such Transfer of Control pursuant to Section 11.1,, and (ii)
the Purchaser has not offered to purchase the Warrant and any Warrant Shares at
the same price per share and upon the same terms and conditions as are available
to the Majority Stockholders; the Holder will have the right, upon written
notice to the Majority Stockholders, to require the Purchaser, as a condition
precedent or concurrent to such Transfer of Control, to purchase or otherwise
acquire at the same price per share and upon the same terms and conditions as to
be paid and given to the Majority Stockholders, such number of his Warrant
Shares equal to the product of (a) all shares to be included in the Transfer of
Control multiplied by (b) a fraction, the numerator of which is the total number
of Warrant Shares then owned by the Holder and the denominator of which is the
total number of shares of Common Stock outstanding, taking into account all
shares then issuable upon conversion of all outstanding warrants, options, and
other rights as of such date, including without limitation this warrant; if (1)
the Holder exercises and converts this Warrant in full concurrently with or
immediately prior to such Transfer of Control, and (2) the Holder agrees to take
such actions and execute such documents as shall be reasonably necessary in
order to consummate such proposed Transfer of Control; provided, however, that
in no event shall the Holder be required to assume joint liability with the
Majority Stockholders pursuant to the terms of any agreement related to such
Transfer of Control or be liable for any amounts in excess of the proceeds
received by such Holder pursuant to this Section 11.2 on consummation of any
such Transfer of Control by way of indemnity or otherwise. In the event that the
Holder exercises his, her or its right to require such purchase or acquisition
of Warrant Shares in accordance with this Section 11.2, the Majority
Stockholders shall collectively be entitled to sell, assign and transfer to the
Purchaser the number of shares of capital stock held by them equal to the
difference between (a) the number of shares of capital stock proposed to be
transferred to the
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<PAGE> 17
Purchaser pursuant to such Transfer of Control and (b) the aggregate number of
Warrant Shares to be sold, transferred or assigned to the Purchaser as required
by this Section 11.2.
SECTION 12. SET-OFF
(a) In the event that an indemnification obligation related to
Purchaser Losses (as defined in the Asset Purchase Agreement dated May 30, 1997
by and among the Company and HiFi Buys (the "Purchase Agreement")), shall become
due and payable pursuant to the terms of the Purchase Agreement, the Holder
hereby consents that the Company shall have the right, by written notice to the
Holder, to reduce the number of Warrant Shares issuable upon exercise or
conversion hereof by that number of Warrant Shares equal to the amount of such
indemnification claim payable, divided by the Fair Market Value Per Share of the
Warrant. Such set-off shall be asserted by the Company against the Holders
pro-rata based upon the number of Warrant Shares issued to such Holder.
(b) ESCROW UPON EXERCISE. If any Holder shall exercise or convert this
Warrant after delivery of a notice of an indemnification claim by the Company,
the Holder shall pay to an escrow agent (which escrow agent shall be mutually
agreeable to the Company and such Holder) an amount equal to the lesser of (x)
the number of Warrant Shares for which the Warrant is being exercised or
converted, multiplied by the Fair Market Value Per Share of the Warrant and (y)
the amount of the indemnification claim, as determined in the good faith
judgment of the Board of Directors. On final judgment or settlement related to
the amount payable with respect to such indemnification claim, the escrow agent
shall pay any amounts due with respect to such claim to the Company; or if no
amount is due with respect to such claim, the amount so deposited shall be
promptly paid to such Holder. In addition, in the event that the indemnification
amount, upon final judgment or settlement of such claim, is less than the amount
so deposited, then upon such final judgment or settlement the escrow agent shall
promptly return such excess amount to Holder.
SECTION 13. SURVIVAL.
The provisions of Sections 4 and 8 shall survive the termination or
expiration of this Warrant and shall continue to be effective with respect to
Warrant Shares.
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<PAGE> 18
SECTION 14. MISCELLANEOUS.
This Warrant shall be binding upon the Company and Holder and their legal
representatives, successors and assigns. In case any provision of this Warrant
shall be invalid, illegal or unenforceable, or partially invalid, illegal or
unenforceable, the provision shall be enforced to the extent, if any, that it
may legally be enforced and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by a statement in writing signed by the party against which enforcement of
such change, waiver, discharge or termination is sought. This Warrant shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Massachusetts without regard to its principles of conflicts of
laws. The headings in this Warrant are for purposes of reference only, and shall
not limit or otherwise affect any of the terms hereof. This Warrant shall take
effect as an instrument under seal.
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant
to be executed as an instrument under seal by a duly authorized officer and, in
the case of the Company, attested by its Clerk or Assistant Clerk.
Dated as of May 30, 1997
(Corporate Seal)
Attest: NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
- ------------------------------ --------------------------------
Clerk/Assistant Clerk Name: Jeffrey S. Stone
Title: President
HIFI BUYS INCORPORATED
By: /s/ Jeffrey Snow
--------------------------------
Name: Jeffrey Snow
Title: President
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<PAGE> 19
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Warrant)
TO: NEW ENGLAND AUDIO CO., INC.
The undersigned, the holder of the within Common Stock Warrant, hereby
irrevocably elects to exercise this Common Stock Warrant for, and to receive
thereunder ____*______ shares of Common Stock of NEW ENGLAND AUDIO CO., INC.
(the "Company"), and requests that the certificates for such shares be issued in
the name of the undersigned, and delivered to ______________________________
whose address is_______________________________________________________________
Dated:
_____________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant)
_____________________________________
(Address)
- ----------
* Insert here the number of shares of Common Stock as to which the
Warrant is being exercised.
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<PAGE> 20
EXHIBIT B
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant delivered herewith, to convert Warrants represented
thereby into ________________ Warrant Shares* in accordance with the terms
hereof. The undersigned requests that a certificate for such Warrant Shares be
registered in the name of ______________________whose address is
_________________________and that such certificate be delivered to
_________________________________________ whose address is
______________________. If said number of Warrant Shares is less than all of the
Warrant Shares obtainable hereunder, the undersigned requests that a new Warrant
representing the remaining balance of the Warrant Shares be registered in the
name of _____________________________ whose address is
_______________________________and that such Warrant be delivered to
___________________________ address is __________________________________.
Signature:
_________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant.)
Date:______________________
* Consisting of: ______ shares of Common Stock
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<PAGE> 21
Schedule I
----------
NEW ENGLAND AUDIO CO., INC.
CAPITALIZATION TABLE
(fully diluted as of May 30, 1997)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name Number of Percentage Exercise
Common Shares Ownership Price
Issuable Upon
Upon Exercise or Exercise or
Conversion Conversion
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subordinated Debt Warrants:
- --------------------------------------------------------------------------------------------------
Exeter Venture Lenders, L.P. 319,900 4.0% $ .01
- --------------------------------------------------------------------------------------------------
PNC Capital Corp. 319,900 4.0% $ .01
- --------------------------------------------------------------------------------------------------
Seacoast Capital 319,900 4.0% $ .01
- --------------------------------------------------------------------------------------------------
Series A Preferred Stock 2,591,660 32.4% N/A
- --------------------------------------------------------------------------------------------------
Series B Preferred Stock:
- --------------------------------------------------------------------------------------------------
Weston Presidio Offshore Capital C.V. 141,509 1.8% N/A
- --------------------------------------------------------------------------------------------------
Natio Vie Developpement II, FCPR 116,572 1.5% N/A
- --------------------------------------------------------------------------------------------------
BNP Venture Holding Corp. 116,572 1.5% N/A
- --------------------------------------------------------------------------------------------------
Advent Direct Investment Limited Partnership 141,509 1.8% N/A
- --------------------------------------------------------------------------------------------------
Matthew Bronfman 821 0.0% N/A
- --------------------------------------------------------------------------------------------------
Harriet C. Bloomberg 2,963 0.0% N/A
- --------------------------------------------------------------------------------------------------
Jeffrey Bloomberg 41,605 0.5% N/A
- --------------------------------------------------------------------------------------------------
Carolyn Bloomberg 4,485 0.1% N/A
- --------------------------------------------------------------------------------------------------
Exeter Venture Lenders, L.P. 188,680 2.4% N/A
- --------------------------------------------------------------------------------------------------
BancBoston Investments Inc. 188,680 2.4% N/A
- --------------------------------------------------------------------------------------------------
PNC Capital Corp 377,359 4.7% N/A
- --------------------------------------------------------------------------------------------------
Common Stock 1,610,170 20.1% N/A
- --------------------------------------------------------------------------------------------------
Option A 517,676 6.5% $ .40(1)
- --------------------------------------------------------------------------------------------------
Option B 274,619 3.4% $4.237(2)
- --------------------------------------------------------------------------------------------------
Option C 164,000 2.0% $ 1.00
- --------------------------------------------------------------------------------------------------
New Options 342,000 4.3% $ (3)
- --------------------------------------------------------------------------------------------------
Warrants 56,604 0.7% $ 5.30
- --------------------------------------------------------------------------------------------------
HiFi Buys Warrant 160,000 0.2% $ 5.30
- --------------------------------------------------------------------------------------------------
TOTAL 7,997,184 100%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Except one holder of options exercisable at $.44.
(2) Except one holder of options exercisable at 4.6607.
(3) New option shares for issuance upon exercise of options to be granted by
the Company.
-1-
<PAGE> 1
EXHIBIT 10.8
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OR CONVERSION OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
WHILE SUCH A REGISTRATION IS IN EFFECT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OR CONVERSION OF
THIS WARRANT ARE ENTITLED TO CERTAIN REGISTRATION RIGHTS AND TO CERTAIN
OTHER BENEFITS AND SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A WARRANT
AND DEBENTURE COMMITMENT DATED MARCH 7, 1997 AND IN A REGISTRATION RIGHTS
AGREEMENT AND A TAG-ALONG, TRANSFER RESTRICTION AND BRING-ALONG AGREEMENT,
EACH DATED AS OF NOVEMBER 28, 1995, AND AS FROM TIME TO TIME AMENDED AND IN
EFFECT. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENTS TO THE HOLDER OF
THIS WARRANT WITHOUT CHARGE UPON WRITTEN REQUEST.
NEW ENGLAND AUDIO CO., INC.
COMMON STOCK PURCHASE WARRANT
No. CG-1 March 7, 1997
New England Audio Co., Inc., a Massachusetts corporation (the "COMPANY"),
for value received, hereby certifies that Weston Presidio Offshore Capital C.V.,
or registered assigns, is entitled to purchase from the Company duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, no par
value (the "COMMON STOCK"), of the Company at the purchase price per share of
$4.24 (the "INITIAL WARRANT PRICE"), at any time or from time to time prior to
5:00 p.m., Boston, Massachusetts time, on June 30, 2002 (the
<PAGE> 2
"EXPIRATION DATE"), all subject to the terms, conditions and adjustments set
forth below in this Warrant. This Warrant is one of the Common Stock Purchase
Warrants (the "WARRANTS", such term to include any such warrants issued in
substitution therefor) originally issued pursuant to a Warrant and Debenture
Commitment dated March 7, 1997 (as from time to time in effect, the "WARRANT AND
DEBENTURE COMMITMENT") among the Company, the holder hereof and certain other
original holders of Warrants. This Warrant originally evidences rights to
purchase an aggregate of 4,509 shares of Common Stock, subject to adjustment as
provided herein, on the Original Issue Date (the "ORIGINAL SHARE AMOUNT"). The
number of shares of Common Stock that this Warrant evidences rights to purchase
from time to time shall be increased by the Original Share Amount on March 31,
1997 and on the last day of each month thereafter during which any holder of
Warrants remains obligated to purchase 10% Convertible Subordinated Debentures
due June 30, 2000 issued by the Company (the "DEBENTURES") under the Warrant and
Debenture Commitment; PROVIDED, HOWEVER, that in the event such purchase
obligation is terminated during any month, the increase for such month shall be
prorated based on the number of days during such month that such purchase
obligation remains in effect. Promptly upon the termination of such purchase
obligation the Company shall provide a certificate to the holder hereof stating
the number of shares of Common Stock for which this Warrant is exercisable and
offering to furnish a replacement Warrant bearing such number of shares on its
face.
1. DEFINITIONS.
"ADDITIONAL SHARES OF COMMON STOCK" means all shares of Common Stock issued
(or, pursuant to Section 3.1.3 or 3.1.4, deemed to be issued) by the Company
after the Original Issue Date, other than shares of Common Stock issued or
issuable at any time:
(a) upon the issuance or exercise or conversion of the Warrants in
accordance with their terms;
(b) upon the issuance or conversion of the Debentures in accordance
with their terms;
(c) upon the issuance or exercise or conversion of the warrants
referred to in section 2.2 of the Debentures in accordance with their terms;
(d) and excluded from the definition of "Additional Shares of Common
Stock" in section 8.4.1 (d) of the Certificate of Designation;
(e) upon the issuance or exercise or conversion of Warrants for up to
2% of the Company's outstanding shares of Common Stock on a fully diluted basis
at a nominal exercise price issued by the Company to the sellers in the
Company's acquisition of businesses approved by the Company's Board of Directors
and consummated prior to July 1, 1997; or
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(f) by way of dividend or other distribution on shares of capital
stock excluded from the definition of "Additional Shares of Common Stock" by the
foregoing clauses (a) through (e).
"BOOK VALUE" means the Company's consolidated shareholders' equity per
share of Common Stock on a fully diluted basis (assuming the exercise of all
Warrants, the conversion of all Series A Preferred Stock into Common Stock and
the exercise of all other then exercisable options, warrants and other purchase
rights), determined in accordance with generally accepted accounting principles,
as of the end of its fiscal quarter most recently completed prior to the date of
determination.
"BUSINESS DAY" means any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in Boston, Massachusetts or New York, New
York are authorized by law to be closed.
"CERTIFICATE OF DESIGNATION" means the Certificate of Vote of Directors
Establishing a Series of a Class of Stock of New England Audio Co., Inc. filed
by the Company as of November 28, 1995, as from time to time in effect.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" is defined in the preamble.
"COMPANY" is defined in the preamble, and includes any corporation which
shall succeed to or assume the obligations of the Company hereunder in
compliance with Section 3.
"CONVERTIBLE SECURITIES" means any indebtedness, shares or other securities
convertible into or exchangeable for Common Stock, other than the Series A
Preferred Stock.
"CURRENT MARKET PRICE" means, on any date, the average daily Market Price
during the period of the most recent 20 days, ending on such date, on which the
national securities exchanges were open for trading, except that if no class of
the Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date. ,
"DEBENTURES" is defined in the preamble.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
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"EXPIRATION DATE" is defined in the preamble.
"INITIAL WARRANT PRICE" is defined in the preamble.
"MARKET PRICE" means, on any date, the amount per share of Common Stock
equal to (a) the last sale price of Common Stock, regular way, on such date or,
if no such sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which Common Stock is then listed or
admitted to trading, or Go) if Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of Common Stock on
such date, or (c) if no trading occurred on such date or if Common Stock is not
so designated, the average of the closing bid and asked prices of Common Stock
on such date as shown by the NASD automated quotation system, or (d) if Common
Stock is not then listed or admitted to trading on any national exchange'. or
quoted in the over-the-counter market, the higher of (i) Book Value or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within 15 days of the date as of which the
determination is to be made.
"NASD" means the National Association of Securities Dealers, Inc.
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.
"ORIGINAL ISSUE DATE" means March 7, 1997.
"ORIGINAL SHARE AMOUNT" is defined in the Preamble.
"OTHER SECURITIES" means any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
"PERSON" means a corporation, an association, a partnership, an
organization, a business trust, a limited liability company, a trust, an
individual, a government or political subdivision thereof or a governmental
agency.
"PREEMPTIVE Group" is defined in Section 10.1 of the Certificate of
Designation.
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"PURCHASE AGREEMENT" means the Preferred Stock Purchase Agreement dated as
of November 28, 1995 (as from time to time in effect) among the Company and the
preferred stock purchasers named therein.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of November 28, 1995, among the Company and certain of its
stockholders, as from time to time in effect.
"SECURITIES ACT" means the Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
"SERIES A PREFERRED STOCK" means the Company's Series A Redeemable
Convertible Preferred Stock, no par value, issued pursuant to the Purchase
Agreement.
"WARRANT AND DEBENTURE COMMITMENT" is defined in the preamble.
"WARRANT PRICE" is defined in Section 3.1.
"WARRANT SHARES" means the shares of Common Stock or Other Securities
issuable upon exercise or conversion of this Warrant.
"WARRANTS" is defined in the preamble.
2. EXERCISE OR CONVERSION OF WARRANT.
2.1. MANNER OF EXERCISE OR CONVERSION; PAYMENT.
2.1.1. EXERCISE. This Warrant may be exercised by the holder hereof,
in whole or in part, during normal business hours on any Business Day on or
prior to the Expiration Date, by surrender of this Warrant to the Company
at its office maintained pursuant to Section 6.2(a), accompanied by a
subscription in substantially the form attached to this Warrant duly
executed by such holder and accompanied by payment, in cash or by check
payable to the order of the Company, in the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment thereof) designated in such subscription by (b) the Initial
Warrant Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable
Warrant Shares determined as provided in Section 3.
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2.1.2. CONVERSION. This Warrant may be converted by the holder hereof,
in whole or in part, into Warrant Shares, during normal business hours on
any Business Day on or prior to the Expiration Date by surrender of this
Warrant to the Company at its office maintained pursuant to Section 6.2(a),
accompanied by a conversion notice in substantially the form attached to
this Warrant duly executed by such holder, and such holder shall thereupon
be entitled to receive a number of duly authorized, validly issued, fully
paid and nonassessable Warrant Shares equal to:
(a) an amount equal to:
(i) an amount equal to (A) the number of Warrant Shares
determined as provided in Section 3 which such holder
would be entitled to receive upon exercise of this
Warrant for the number of shares of Common Stock
designated in such conversion notice MULTIPLIED BY (B)
the Current Market Price of each such Warrant Share so
receivable upon such exercise
MINUS
(ii) an amount equal to (A) the number of shares of Common
Stock (without giving effect to any adjustment thereof)
designated in such conversion notice MULTIPLIED BY (B)
the Initial Warrant Price
DIVIDED BY
(b) such Current Market Price of each such Warrant Share.
For all purposes of this Warrant (other than this Section 2.1), any
reference herein to the exercise of this Warrant shall be deemed to include
a reference to the conversion of this Warrant into Warrant Shares in
accordance with the terms of this Section 2.1.2.
2.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 2.1, and at such time the Person in whose name any certificate for
Warrant Shares shall be issuable upon such exercise as provided in Section 2.3
shall be deemed to have become the holder of record thereof.
2.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after each
exercise of
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this Warrant, in whole or in part, and in any event within five Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof or, subject to Section 5, as such holder (upon payment by
such holder of any applicable transfer taxes) may direct:
(a) a certificate for the number of duly authorized, validly
issued, fully paid and nonassessable Warrant Shares to which such
holder shall be entitled upon such exercise PLUS, in lieu of any
fractional share to which such holder would otherwise be entitled, cash
in an amount equal to the same fraction of the Market Price per share
on the Business Day immediately preceding the date of such exercise;
and
(b) in case such exercise is in part only, a new Warrant of like
tenor, dated the date hereof and calling in the aggregate on the face
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the holder upon such exercise as provided in Section 2.1.
2.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of each
exercise of this Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder all rights (including
any rights pursuant to the Registration Rights Agreement with respect to the
Warrant Shares issued upon such exercise) to which such holder shall continue to
be entitled after such exercise in accordance with the terms of this Warrant;
PROVIDED, HOWEVER, that if the holder of this Warrant shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford such rights to such holder.
3. ADJUSTMENT OF WARRANT SHARES AND WARRANT PRICE.
3.1. ADJUSTMENT OF WARRANT SHARES AND WARRANT PRICE DUE TO ADDITIONAL
SHARES. The number of Warrant Shares which the holder of this Warrant shall be
entitled to receive upon the exercise hereof shall be determined by multiplying
the number of shares of Common Stock which would otherwise (but for the
provisions of this Section 3.1) be issuable upon such exercise, as designated by
the holder hereof pursuant to Section 2.1, by the fraction of which (a) the
numerator is the Initial Warrant Price and (b) the denominator is the Warrant
Price in effect on the date of such exercise. The "WARRANT PRICE" shall
initially be the Initial Warrant Price, but shall be adjusted and readjusted
from time to time as provided in this Section 3.1 and, as so adjusted or
readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 3.1.
3.1.1. NO ADJUSTMENT OF WARRANT PRICE. No adjustment in the Warrant
Price shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed
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to be issued by the Company is less than the applicable Warrant Price in
effect on the date of, and immediately prior to, such issue.
3.1.2. ADJUSTMENT OF WARRANT PRICE UPON ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK. In the event the Company shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 3.1.4) for a consideration per share less than
the applicable Warrant Price in effect on the date of and immediately
prior to such issue, then the applicable Warrant Price shall be recomputed,
concurrently with such issue (calculated to the nearest one hundredth of a
cent) by dividing (a) an amount equal to the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue
multiplied by the then effective Warrant Price and (ii) the consideration,
if any, deemed received by the Company upon such issue by (b) the total
number of shares of Common Stock deemed to be outstanding immediately after
such issue; and provided that, for purposes of this Section 3.1.2, all
shares of Common Stock outstanding and issuable upon conversion of
outstanding Options, Convertible Securities and the Series A Preferred
Stock shall be deemed to be outstanding. In no event will the Warrant Price
be adjusted as the result of any issuance of any Additional Shares of
Common Stock for any amount higher than the Warrant Price in effect
immediately prior to such issuance.
3.1.3. ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS, COMBINATIONS OR
CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of
Common Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater
number of shares of Common Stock, the Warrant Price then in effect shall,
concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise,
into a lesser number of shares of Common Stock, the Warrant Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.1.4. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK - OPTIONS AND
CONVERTIBLE SECURITIES. In the event the Company at any time after the
Original Issue Date shall issue any Options or Convertible Securities other
than such Options or Convertible Securities which are exchangeable,
issuable, exercisable or convertible into Common Stock which is excluded
from the definition of Additional Common Stock, or shall fix a record date
for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such
number) of Common Stock issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be
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<PAGE> 9
deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 3.1.5) of such
Additional Shares of Common Stock would be less than the applicable Warrant
Price in effect on the date of, and immediately prior to, such issue, or
such record date, as the case may be, and PROVIDED FURTHER that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(a) no further adjustment in the applicable Warrant Price shall
be made upon the subsequent issue of shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities or upon the subsequent issue of such Convertible Securities
or Options;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or any increase
or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the applicable Warrant Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange
under such Convertible Securities; and
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Warrant Price computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon
shall, upon such expiration, be recomputed as if such unexercised
portion of such Options or rights of conversion or exchange under such
Convertible Securities had not been issued.
3.1.5. DETERMINATION OF CONSIDERATION. For purposes of this Section
3.1, the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) CASH AND PROPERTY: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate
amount of net cash proceeds received by the Company excluding unpaid
amounts payable for accrued interest or accrued dividends;
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(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the Company; and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (i) and
(ii) above, which is allocated to the Additional Shares of Common
Stock as determined in good faith by the Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 3.1.4, relating to Options and
Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration but subject to later readjustment
pursuant to Section 3.1.4) payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number but
subject to later readjustment pursuant to Section 3.1.4) issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
3.1.6. OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the other provisions of this Section 3.1 are not strictly applicable,
but the failure to make any adjustment in the Warrant Price would not
fairly protect the rights represented by this Warrant in accordance with
the intention of this Section 3, then, upon request of the holders of a
majority of the Warrants, the Board of Directors of the Company shall
appoint a firm of independent public accountants of recognized national
standing
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(which may be the regular auditors of the Company) to give their opinion as
to the adjustment, if any, on a basis consistent with the intention of this
Section 3, necessary to preserve without dilution the rights represented by
the Warrants. Upon receipt of such opinion, the Company will promptly
furnish a copy thereof to the holders of the Warrants and the Warrant Price
shall be adjusted in accordance therewith. The fees and expenses of such
accountants shall be paid by the Company; PROVIDED, HOWEVER, that if such
accountants opine that no adjustment is necessary, such fees and expenses
will be paid by the holders of the Warrants.
3.2. SUBSEQUENT EVENTS. In the event of any recapitalization, consolidation
or merger of the Company or its successor, the Warrants shall be exercisable for
such shares or other interests as the Warrants would have been entitled if the
Warrants had been exercised for Common Stock immediately prior to such event.
4. COVENANTS.
4.1. NO IMPAIRMENT. The Company will not seek to avoid the observance or
performance of any of the terms to be observed or performed under this Warrant
by the Company, but will at all times in good faith assist in carrying out all
the provisions of this Warrant.
4.2. RESERVATION OF SHARES. So long as any Warrants shall remain
outstanding, the Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized capital stock, for the purpose of
issuance upon exercise of the Warrants, the full number of shares of Common
Stock then issuable upon exercise of all outstanding Warrants. If the Company's
Common Stock shall be listed on any national stock exchange, the Company at its
expense shall include in its listing application all of the shares of Common
Stock reserved for issuance upon exercise of the Warrants (subject to issuance
or notice of issuance to the exchange) and will similarly procure the listing of
any further Common Stock reserved for issuance upon exercise of the Warrants at
any subsequent time as a result of adjustments in the outstanding Common Stock
or otherwise.
4.3. VALIDITY OF SHARES. The Company will from time to time take all such
action as may be required to assure that all shares of Common Stock which may be
issued upon exercise of this Warrant will, upon issuance, be legally and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issuance thereof. Without limiting the generality of the
foregoing, the Company will from time to time take all such action as may be
required to assure that the par value per share, if any, of the Common Stock is
at all times equal to or less than the lowest quotient obtained by dividing the
then current exercise price of this Warrant by the number of shares of Common
Stock into which this Warrant can, from time to time, be exercised.
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4.4. NOTICE OF CERTAIN EVENTS. If at any time:
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders
of Common Stock any additional shares of stock of any class or any other
rights;
(c) there shall be any recapitalization of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or business
organization; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company as a whole or substantially as a whole in a
single transaction or a series of related transactions;
then, in any one or more of such cases, the Company shall give the registered
holder of this Warrant written notice, by registered mail, of the date on which
a record shall be taken for such dividend, distribution or subscription rights
or for determining stockholders entitled to vote upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up and of the
date when any such transaction shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such recapitalization, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be given 20 days prior to the record date with respect thereto.
5. RESTRICTIONS ON TRANSFER.
Each certificate for Warrant Shares issued upon the exercise of any
Warrant, each certificate issued upon the direct or indirect transfer of any
Warrant Shares and each Warrant issued upon direct or indirect transfer or in
substitution for any Warrant pursuant to Section 6 shall be transferable only
upon satisfaction of the conditions specified in section 7 of the Warrant and
Debenture Commitment and shall be stamped or otherwise imprinted with legends in
substantially the form set forth on the face of this Warrant or otherwise
required by section 7 of the Warrant and Debenture Commitment.
The holder understands and agrees that: (1) there are substantial
restrictions on the transferability of this Warrant; (2) this Warrant has not
been registered under the Securities Act and it may not be sold, pledged,
transferred or otherwise disposed of unless it is so registered or an exemption
from such registration is available and unless any such proposed
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sale, pledge, transfer or disposition is effected in compliance with state
securities laws; (3) this Warrant may only be registered under the Securities
Act by the Company; (4) there is no trading market for this Warrant; (5) the
Warrant has been issued to the holder in reliance upon an exemption from the
registration requirements of the Securities Act afforded to private offerings;
and (6) in light of the foregoing, the holder may not be able to liquidate its
investment in this Warrant at any given time, and the holder must be prepared to
bear that economic risk.
6. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.
6.1. OWNERSHIP OF WARRANTS. The Company may treat the person in whose name
any Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 6.2(a) as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
any Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for all
purposes, notwithstanding any notice to the contrary. Subject to Section 5, a
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
6.2. OFFICE: TRANSFER AND EXCHANGE OF WARRANTS.
(a) The Company will maintain an office (which may be an agency
maintained at a bank) in the United States of America where notices,
presentations and demands in respect of this Warrant may be made upon it.
Such office shall be maintained at 40 Hudson Road, Canton, Massachusetts
02021 or such location as the Company shall otherwise notify the holders of
the Warrants.
(b) The Company shall cause to be kept at its office maintained
pursuant to Section 6.2(a) a register for the registration and transfer of
the Warrants. The names and addresses of holders of Warrants, the transfers
thereof and the names and addresses of transferees of Warrants shall be
registered in such register. Subject to Section 6.2(a), the Person in whose
name any Warrant shall be so registered shall be deemed and treated as the
owner and holder thereof for all purposes of this Warrant, and the Company
shall not be affected by any notice or knowledge to the contrary.
(c) Upon the surrender of any Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company
maintained pursuant to Section 6.2(a), the Company at its expense will
(subject to compliance with Section 5, if applicable) execute and deliver
to or upon the order of the holder thereof a new Warrant of like tenor, in
the name of such holder or as such holder (upon payment by such holder of
any applicable transfer taxes) may direct, calling in the aggregate on the
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face thereof for the number of shares of Common Stock called for on the
face of the Warrant so surrendered.
6.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than a Purchaser or any institutional investor, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine (or, in the case of a security held by the Investors or any
institutional holder or by the Investors or such institutional holder's nominee,
of an unsecured indemnity agreement from the Investors or such other holder
reasonably satisfactory to the Company), or, in the case of any such mutilation,
upon surrender of such Warrant for cancellation at the office of the Company
maintained pursuant to Section 6.2(a), the Company at its expense will execute
and deliver, in lieu thereof, a new Warrant of like tenor and dated the date
hereof.
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
8. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
9. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing addressed as provided below and if
either (a) actually delivered at said address, (b) in the case of a letter,
seven business days shall have elapsed after the same shall have been deposited
in the United States mails, postage prepaid and registered or certified, return
receipt requested, or two business days shall have elapsed after the same shall
have been deposited with an overnight courier (for overnight delivery) of
national recognition, (c) in the case of a telecopy within the United States,
upon confirmation of receipt of such telecopy (which confirmation may consist
of a telecopy machine printout showing successful transmission), if such
telecopy is followed by a copy of the same being deposited within one business
day of such telecopy with an overnight courier (for overnight delivery) or (d)
transmitted to any address outside of the United States, by telecopy and
confirmed by overnight or two-day courier:
If to the Company, to it at 40 Hudson Road, Canton, MA 02021, telecopy:
(617) 821-9956, telephone: (617) 821-2900, with a copy to Goulston & Storrs, 400
Atlantic Ave.,
-14-
<PAGE> 15
Boston, MA 02110, attention: Kitt Sawitsky or at such other address as the
Company shall have specified by notice delivered to the holder hereof.
If to the holder thereof, to the holders' addresses set forth on Exhibit 1
to the Purchase Agreement, or at such other address as the Investors shall have
specified by notice delivered to the Company, in each case with a copy to WPC.
If to any other holder of record of this Warrant, to it at its address set
forth in the registers of the Company.
10. MISCELLANEOUS. The section headings in this Warrant are for convenience of
reference only and shall not constitute a part hereof. This Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and enforced
in accordance with and governed by the laws (other than the conflict of laws
rules) of The Commonwealth of Massachusetts.
-15-
<PAGE> 16
This Warrant is hereby executed on behalf of the Company officer under its
corporate seal as of the date first written above.
NEW ENGLAND AUDIO CO., INC.
By /s/ Jeffrey S. Stone
-------------------------
Title: President
<PAGE> 17
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To NEW ENGLAND AUDIO CO., INC.
The undersigned registered holder of the enclosed Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, __________ (1)
shares of the Common Stock and herewith makes payment of $ _______________,
therefore, and requests that the certificates for such shares be issued in the
name of, and delivered to __________________, whose address is _________________
____________.
Dated:
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ----------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial exercise, a new Warrant
will be issued and delivered, representing the unexercised portion of the
Warrant, to the holder surrendering the Warrant.
-i-
<PAGE> 18
FORM OF CONVERSION NOTICE
[To be executed only upon conversion of Warrant]
To NEW ENGLAND AUDIO CO., INC.
The undersigned registered holder of the enclosed Warrant hereby
irrevocably converts such Warrant with respect to ___________(1) shares of the
Common Stock which such holder would be entitled to receive upon the exercise
hereof, and requests that the certificates for such shares be issued in the name
of, and delivered to ____________________________, whose address
is_____________________________
Dated:
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
- ----------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial conversion, the portion thereof as to which this
Warrant is being converted), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial conversion, a new
Warrant will be issued and delivered, representing the unconverted portion of
the Warrant, to the holder surrendering the Warrant.
-i-
<PAGE> 19
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant that
complies with Section 5 of the Warrant]
For value received, the undersigned registered holder of the attached
Warrant hereby sells, assigns and transfers unto the right
represented by such Warrant to purchase ____________(1) shares of Common Stock
of NEW ENGLAND AUDIO CO., INC. to which such Warrant relates, and appoints
______________________________Attorney to make such transfer on the books of NEW
ENGLAND AUDIO CO., INC. maintained for such purpose, with full power of
substitution in the premises.
Dated:
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- --------------------------
- --------------------------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial transfer, the portion thereof being transferred),
in either case without making any adjustment for Additional Shares of Common
Stock or any other stock or other securities or property or cash which, pursuant
to the adjustment provisions of this Warrant, may be delivered upon exercise. In
the case of a partial transfer, a new Warrant will be issued and delivered,
representing the untransferred portion of the Warrant, to the holder
surrendering the Warrant.
-i-
<PAGE> 20
SCHEDULE TO EXHIBIT 10.8
FORM OF COMMON STOCK PURCHASE WARRANTS DATED MARCH 7, 1997
All Common Stock Purchase Warrants issued by the Company on March 7, 1997
are substantially identical in all material respects except as to the Warrant
Holder thereunder and the number of Common Stock shares of the Company for which
each individual Common Stock Purchase Warrant is exercisable. Such information
is set forth below:
<TABLE>
<CAPTION>
Number Of
---------
Warrant Holder Warrant Shares
- -------------- --------------
<S> <C>
1. Weston Presidio Offshore Capital C.V. 18,036
2. Advent Direct Investment Program Limited Partnership 7,052
3. Global Private Equity II Limited Partnership 18,720
4. Natio Vie Developpement II, FCPR 5,156
5. BNP Venture Holding Corp. 5,156
6. Matthew Bronfman 128
7. Jeffrey Bloomberg 928
8. Harriet Bloomberg 476
9. Carolyn Bloomberg 476
10. Armin Biller 476
======
Total Shares subject to Warrants: 56,604
-------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.11
This INDENTURE OF LEASE made as of this 11th day of June 1991 by and between
JAMES M. SALAH of Boca Raton, Florida as he is Trustee of The JMS REALTY TRUST
under a declaration of trust dated August 8, 1986 and recorded in the Norfolk
District Registry of Deeds (the "Registry") in book 7261 at page 688
(hereinafter called "Lessor") and NEW ENGLAND AUDIO CO., INC., a corporation
organized and existing under the laws of The Commonwealth of Massachusetts and
having a usual place of business in the City of Cambridge, Massachusetts
(hereinafter called "Lessee")
W I T N E S S E T H T H A T
Lessor, for himself and his heirs, legal representatives, successors
and assigns, in consideration of the rents herein reserved and of the
agreements, covenants and conditions herein contained and expressed on the part
of Lessee to be kept, performed and observed, hereby demises and lets unto
Lessee and its legal representatives, successors and assigns, and Lessee hereby
leases from Lessor, that certain parcel of land known and numbered as 40 Hudson
Road in Canton, Norfolk County, Massachusetts which is hereinafter described and
shown on the site plan a copy of which is annexed hereto, made part hereof and
marked "Exhibit A" (hereinafter referred to as the "Parcel") together with the
building being erected on the Parcel as described herein (hereinafter referred
to as the "Building"), the Parcel and the Building being referred to
collectively as the "Premises" or "demised premises".
<PAGE> 2
ARTICLE I
A. The Term of this lease shall commence on November 1, 1991 if the
Building is substantially completed by July 31, 1991 and otherwise on the
earliest first day of a month after November 1, 1991 which is at least three
months after the Building is substantially completed; such November 1 or
subsequent first day is hereinafter sometimes referred to as "the date of
commencement of the Term". In any case the Term of this lease shall be a period
of ten (10) years unless not less than six months before the tenth anniversary
of the date of commencement of the Term Lessee notifies Lessor that Lessee
elects to extend the Term, in which event the Term of this lease shall be a
period of fifteen (15) years, unless not less than six months before the
fifteenth anniversary of the date of commencement of the Term Lessee notifies
Lessor that Lessee elects to extend the Term again and the Premises are then
owned by the Lessor named above (or by an immediate family member of or an
entity owned and controlled by Lessor), in which event the Term of this lease
shall be a period of twenty (20) years, such period beginning, in any event, on
the date of commencement of the Term. Such period of ten, fifteen or twenty
years, as the case may be, is hereinafter referred to as the "Term".
B. The annual rental shall be the applicable amount specified in the
following paragraphs 1 through 7.
-2-
<PAGE> 3
1. From and after the commencement of the Term and until the
second anniversary of the date of commencement of the Term, the rental
shall be $177,907.50 per annum ($14,825.63 per month).
2. The rental for the third and fourth years of the Term shall
be $187,791.25 per annum ($15,649.27 per month).
3. The rental for the fifth and sixth years of the Term shall
be $217,442.50 per annum ($18,120.21 per month).
4. The rental for the seventh and eighth years of the Term
shall be $227,326.25 per annum ($18,943.85 per month).
5. The rental for the ninth and tenth years of the Term shall
be $247,093.75 per annum ($20,591.15 per month).
6. The rental for the eleventh through the fifteenth years of
the Term shall be an amount equal to ninety per cent (90%) of the fair
market rental of the Premises as of the tenth anniversary of the date
of commencement of the Term. Such fair market rental shall be
determined by mutual agreement of the parties or as provided in the
following paragraph I.B.8.
7. The rental for the sixteenth through the twentieth years of
the Term shall be an amount equal to ninety per cent (90%) of the fair
market rental of the Premises as of the fifteenth anniversary of the
date of commencement of the Term. Such fair market rental shall be
determined by mutual agreement of the parties or as provided in the
following paragraph I.B.8.
8. If Lessee desires to extend the Term, Lessee shall so
notify Lessor at least one year prior to the then scheduled end of the
Term (the "Extension Date"). Lessor and Lessee shall promptly confer
and attempt to agree upon the rental for purposes of paragraph I.B.6 or
I.B.7, as the case may be. If Lessor and Lessee fail to agree as to
such rental by eleven months prior to the Extension Date, the rental
value of the Premises shall be appraised by a competent and experienced
disinterested person selected by Lessee and reasonably satisfactory to
Lessor. Lessee shall notify Lessor of the fair market rental according
to that appraisal not less than ten months prior to the Extension Date.
-3-
<PAGE> 4
Said appraised rental value shall be deemed to be the fair market
rental for purposes of the preceding paragraph I.B.6 or I.B.7 (as the
case may be) unless within ten (10) days after his receipt thereof
Lessor notifies Lessee of his disagreement and not less than nine
months before the Extension Date Lessor furnishes to Lessee an
appraisal of rental value of the Premises prepared by a competent and
experienced disinterested person selected by Lessor and reasonably
satisfactory to Lessee. If the difference between the higher appraisal
and the lower appraisal does not exceed ten per cent (10%) of the lower
appraisal, the average of the two appraisals shall be deemed to be the
fair market rental for purposes of the preceding paragraph I.B.6 or
I.B.7 (as the case may be). If the difference between the higher
appraisal and the lower appraisal does exceed ten per cent (10%) of the
lower appraisal, then a competent and experienced disinterested person
shall be appointed as a third appraiser by mutual agreement of Lessor's
appraiser and Lessee's appraiser or, in default of such agreement
within ten business days after Lessee's receipt of the second
appraisal, by the President of the Massachusetts Bar Association. The
third appraiser shall make his or her appraisal of rental value of the
Premises as soon as reasonably possible and in any event not less than
seven months before the Extension Date, and the average of the two
closest appraisals shall then be deemed to be the fair market rental
for purposes of the preceding paragraph I.B.6 or I.B.7 (as the case may
be), except that if the third appraisal be higher than the original
higher appraisal the original higher appraisal shall be deemed to be
the fair market rental for purposes of the preceding paragraph I.B.6 or
I.B.7 (as the case may be). If Lessee elects to extend the Term as
provided in section I.A, Lessee and Lessor shall each pay all costs
associated with the appraiser that party selects plus one half of all
costs associated with the third appraiser (if any). However, if Lessee
fails to elect to extend the Term, Lessee shall bear all appraisal
costs and shall forthwith reimburse Lessor for all appraisal costs
advanced by Lessor.
C. It is hereby further stipulated and agreed as follows:
1. The post-Term rental rate shall be one hundred fifty
per cent of the rate in effect pursuant to the foregoing section I.B
for the last year of the Term, prorated and payable monthly in advance
for the period of post-Term occupancy.
-4-
<PAGE> 5
2. Initially, the minimum amount of fire insurance for
purposes of clause IV.E.1 shall be not less than $2,250,000. The limits
of the liability insurance for purposes of paragraph IV.D shall be not
less than $1,000,000 in the event of injury or death of one person and
$3,000,000 in the event of injury or death of more than one person in
the same accident and $500,000 for damage to property.
D. Except as otherwise specifically provided herein, any notice,
payment, statement, or other communication required or permitted to be given
hereunder by either party to the other shall be sufficiently given if mailed
duly addressed
1. if to Lessor, to 100 Hudson Road, Canton, Massachusetts
02021, with a copy to Loyd M. Starrett, P.C., 260 Franklin Street,
Boston, MA 02110, or
2. if to Lessee, to Mr. Sandy Bloomberg, 350 Brookline Street,
Cambridge, MA 02139 with a copy to Steven S. Fischman, Esquire,
Goulston & Storrs, 400 Atlantic Avenue, Boston, MA 02110.
Either party at any time may change its address for purposes of this paragraph
by notice given as aforesaid. Any such notice, statement or other communication
on behalf of a corporation, trust or other entity which contains the
representation that the signatory is thereunto duly authorized shall be
conclusively deemed to be an act of said corporation, trust or other entity so
authorized.
E. Lessor agrees that the commission due to Frank M. O'Neill of
Whittier Partners and Lynne Cohen of The Triad Group on account of this lease
shall be Lessor's responsibility. Lessee warrants and represents to Lessor, and
Lessor warrants and represents to Lessee, FIRST, that to the best of his or its
knowledge no broker other than those hereinbefore named has any
-5-
<PAGE> 6
basis for a claim for a commission on account of the lease or sale of the
Premises, and, SECOND, that to the best of his or its knowledge no broker other
than those hereinbefore named has asserted or intends to assert any such claim.
Lessee further warrants and represents to Lessor that neither Lessee nor anyone
acting on its behalf had any contact with any broker other than those
hereinbefore named in any way in connection with any proposed lease or sale of
the demised premises to Lessee. Lessor further warrants and represents to
Lessee that Lessor had no contact with any broker other than those hereinbefore
named in any way in connection with any proposed lease or sale of the demised
premises to Lessee.
-6-
<PAGE> 7
ARTICLE II
A. The Building shall contain 32,240 square feet on the first floor and
7,295 square feet on a mezzanine floor and shall be situated on a Parcel of
approximately 115,913 square feet of land situated on the public way known as
Hudson Road in said Canton and shown on the Site Plan - 40 Hudson Road dated
November 22, 1988 revised December 6, 1988 by James W. Haley, P.E. and further
revised November 1, 1989. The Parcel is bounded and described as set forth in
the schedule attached hereto, made part hereof and marked "Exhibit A-l" and is a
portion of the property conveyed to the Lessor by deed of Highland Sand & Gravel
Company, Inc. dated April 4, 1962 and recorded in the Norfolk County Registry of
Deeds in book 3975 at page 609. The Parcel is subject to and has the benefit of
all rights, easements, restrictions and agreements of record and the easements
and restrictions shown on or referred to on the site plan (Exhibit A) and in
the schedule attached hereto, made part hereof and marked "Exhibit B".
B. Lessor covenants and agrees with Lessee to cause the site for the
Building to be prepared and graded, the Building to be constructed, and
landscaping, paving, curbing and all other work on the premises appurtenant to
the Building and/or the intended use thereof to be completed, all in accordance
with the drawings identified on the schedule attached hereto, made part thereof,
and marked "Exhibit C", EXCEPT that, after
-7-
<PAGE> 8
such notice to Lessee as is practicable in the circumstances, Lessor may vary
such work to such extent, if any, as (i) local laws, ordinances or regulations
may require or (ii) may be necessary by reason of unforeseen site conditions if
(a) such variance does not adversely affect the basic function or structural
integrity of the Premises or materially change the design thereof, (b) Lessor
pays all costs thereof and (c) the rent is reduced in proportion to any
resulting reduction of value of Lessee's space. All work shall be done in good
and workmanlike manner and in compliance with all applicable laws and lawful
ordinances, by-laws, regulations and orders of governmental authority and of the
insurers of the Building. All permits necessary for work required of Lessor
pursuant to this paragraph are Lessor's responsibility. Lessee shall be
responsible for all licenses, permits or other approvals required by reason of
tenant improvements or because of the nature of Lessee's business.
C. Lessee shall be responsible for payment of the "extra work" charges
stipulated in the schedule attached hereto, made part hereof, and marked
"Exhibit D" and of the price of all other work requested by Lessee which is not
specified by the drawings attached as Exhibit C, subject to the allowances also
listed in Exhibit D. Such charges and prices shall be invoiced by Lessor to
Lessee as the work progresses, and payment of each invoice shall be due thirty
(30) days after Lessee's receipt thereof.
-8-
<PAGE> 9
D. Lessor shall commence the work required of Lessor by the foregoing
paragraph B with reasonable dispatch after all permits, licenses and approvals
necessary for such work have been obtained from the appropriate governmental
authorities, and, except for delays due to government regulation, inability to
obtain labor or materials, unusual weather conditions, action or failure to act
by Lessee, or other causes beyond Lessor's reasonable control, shall prosecute
the same with diligence.
E. The Building shall be deemed "substantially completed" when (1) a
certificate of occupancy has been issued by the building inspector of the Town
of Canton and (2) all construction required of Lessor (including but not
limited to paving and striping of parking areas) has been finished except for
(a) items of work which are minor in nature and (b) other items of work,
including mechanical adjustment of equipment and fixtures, which because of the
season or weather or the nature of the items are not practicable to do at the
time, PROVIDED that (i) none of the remaining items is necessary to make the
Building tenantable for Lessee's uses, (ii) said items can be completed without
material interference with Lessee's installation of fixtures or doing business
and (iii) Lessor and Lessee have both signed a "punch list" specifying said
items. Lessor shall finish those items referred to in clause (2)(a) of the
preceding sentence within thirty (30) days after substantial completion of the
Building and all other items as soon as conditions practicably permit.
-9-
<PAGE> 10
F. Lessor covenants promptly to remedy (1) any defect in the Building
(including but not limited to the plumbing, electrical, heating, air
conditioning, ventilating and other mechanical systems) or any failure of the
mechanical systems of the Building written notice of which defect or failure is
received by Lessor from Lessee within one year after the date of substantial
completion of the Building and (2) any structural failure of the Building
written notice of which is given at any time during the Term, PROVIDED, in each
case, that no fault or neglect of Lessee or its employees, agents, patrons,
customers or invitees was a cause of such defect or failure. The word
"structural" as used in this paragraph refers to the foundation, exterior walls,
structural columns and beams and roof but does not include the plumbing,
electrical, heating, air conditioning, ventilating and other mechanical systems.
G. Lessor shall use due diligence at any time during the Term to
enforce at Lessee's request all warranties and guarantees to Lessor of work
and/or equipment incorporated in the Building, and Lessor shall permit Lessee to
assert any of Lessor's rights pursuant to such warranties and guarantees.
Otherwise, except as set forth in the foregoing paragraphs E and F, in article
VII and in any "punch list" signed by Lessor as provided in said paragraph E,
after the date of commencement of the Term Lessor shall have no obligation with
respect to the construction of the Building or for the maintenance of any part
of the Building or for any defect therein. Nor shall any
-10-
<PAGE> 11
obligation of Lessor with respect to the construction or repair of the Building
extend to liability for the contents of the Building, which are Lessee's sole
responsibility, or for any consequential damages whatsoever.
H. Prior to substantial completion of the Building, Lessee may
enter the demised premises, inspect and survey the same and make such
improvements thereto as it shall desire and install therein fixtures, supplies,
and other property in each instance by prior permission of Lessor. However, any
such entry, use or occupancy of the demised premises shall be after notice to
Lessor and upon the following covenants and such other conditions as the Lessor
may from time to time reasonably require in advance.
1. The Lessee shall not interfere with installation of
improvements or other work to be done pursuant to the foregoing
paragraph B.
2. While Lessee or any person acting on behalf of or claiming
under Lessee may thus be inspecting or surveying or making improvements
to the Premises or installing in the Premises fixtures, supplies or
other property, Lessee and any such person shall be in the Premises at
their own risk; and Lessee agrees to indemnify Lessor and hold him
harmless with respect to any injury to persons or property (including
property rented or leased by Lessor and property of Lessor and/or his
employees or agents) resulting from or arising out of the presence of
Lessee or any such person on the demised premises pursuant to this
paragraph.
3. Lessor shall in no event have any obligation to anyone on
account of any improvements, fixtures and other property thus installed
by Lessee as shall become part of the real estate.
-11-
<PAGE> 12
I. Between substantial completion of the Building and the date of
commencement of the Term, Lessee may take actual possession of the Premises, in
which event all terms and conditions of this lease shall be applicable during
that period EXCEPT that no annual rental or use and occupancy charge shall be
due.
-12-
<PAGE> 13
ARTICLE III
A. TO HAVE AND TO HOLD the demised premises unto Lessee, together with
all rights, privileges and appurtenances thereto belonging, for the Term, unless
this lease be sooner terminated as hereinafter provided.
B. Each party agrees, in order to make a record thereof, upon demand by
the other party at any time or times (whether before, during or after the Term)
forthwith to execute and acknowledge a written declaration in recordable form
setting forth, among other things, (1) the date of commencement of the Term, (2)
whether or not any option has been exercised or (3) the date of termination of
this lease. In addition, Lessor shall, if Lessee so requests, execute and
acknowledge such a declaration evidencing any approval given by Lessor pursuant
to paragraph V.A.
C. If Lessor permits Lessee to continue in actual possession of the
demised premises after the end of the Term, such actual possession shall be
deemed not to extend or renew the Term of this lease. Such actual possession
shall be deemed a tenancy at sufferance if it does not endure more than seven
(7) calendar days; otherwise such actual possession shall be deemed to have
created a tenancy at will, from month to month, commencing immediately after the
end of the Term. In either event such tenancy shall be upon the terms herein
contained.
D. If Lessee be not then in default or if any default be promptly cured
as provided in section VI.B, Lessee shall have
-13-
<PAGE> 14
the option to purchase the Parcel and the Building (hereinafter sometimes
referred to collectively as the "Property") as of the tenth anniversary of the
date of commencement of the Term. The purchase price shall be two million fifty
thousand dollars ($2,050,000), and the purchase and sale shall be pursuant to
the terms and conditions set forth in the schedule annexed hereto, made part
hereof and marked "Exhibit E".
1. The purchase option pursuant to this paragraph III.D may be
exercised only by written notice received by Lessor not later than
November 1, 1999. After receiving such notice, Lessor shall not sell
the Property to any other person unless Lessee fails to purchase the
same as and when herein provided.
2. Such notice shall be effective only if accompanied by a
deposit of fifty thousand dollars ($50,000) to be held by Lessor and
applied either against the purchase price at the closing or as provided
in paragraph 9 of Exhibit E, as the case may be. Such deposit may, at
Lessee's option, be either (i) made by delivering to Lessor savings
bank books or instruments accompanied by an order to pay or otherwise
in negotiable form or (ii) paid in cash, in which case Lessor shall
credit to Lessee interest on such cash at the then prevailing savings
bank rate.
-14-
<PAGE> 15
ARTICLE IV
A. YIELDING AND PAYING THEREFORE to Lessor, at his then current
address designated pursuant to Article I hereof or at such other place as Lessor
may from time to time designate in writing, rent as follows:
1. an annual rental for the Term, at the rate
specified in Article I, payable in equal monthly installments
in advance, the first such monthly installment being due and
payable on the date of commencement of the Term or the
earliest first day of a month when the conditions, if any,
specified in the certificate of occupancy for the Building
have been satisfied (whichever is later) and subsequent
installments being due and payable on each and every first day
of a month thereafter during the Term;
2. use and occupancy charges, payable monthly in
advance, at the post-Term rental rate specified in Article I
for any period after the Term during which Lessee has actual
possession of the demised premises or any part thereof;
3. any additional rents herein specifically provided;
4. supplemental rent as follows: (a) during the
municipal fiscal years ending June 30, 1992 and June 30, 1993,
$1,818.61 due and payable on the first day of each month and
(b) thereafter, an amount equal to the aggregate of the real
estate taxes assessed to Lessor and/or Lessee on the Premises
on account of the fiscal year begun July 1, 1993 or any other
fiscal year during the Term (such taxes being apportioned for
the fiscal years in which the Term commences and expires) or
after the Term while Lessee is actually in possession of or
occupying the demised premises or any part thereof, such
amount being due and payable ten days after notice to Lessee
of the actual tax
-15-
<PAGE> 16
bill or ten days before the last date on which such taxes are
payable without interest or penalty, whichever is later.
(c) Lessor agrees that amounts paid as supplemental rent
under this paragraph will be applied to the payment of such
taxes, and any overpayment will be promptly refunded to
Lessee. Lessor further agrees to furnish to Lessee evidence
of payment of such taxes.
B. Lessee shall be responsible for all public, special or
betterment assessments to the Premises for improvements installed by the Town of
Canton during the Term. Lessor warrants and represents that as of the date of
this lease there are no special or betterment assessments outstanding against
the Parcel and that to the best of his knowledge no such assessment is pending.
Lessor shall elect to have such assessments paid in installments over the
longest period permitted by law, but in any event Lessee shall pay to the public
authorities charged with the collection thereof, at least fifteen (15) days
before such payment becomes due in each case, each installment, including
interest, coming due during the Term or at any other time when Lessee is
actually in possession of or occupying the demised premises, and Lessee shall
pay to Lessor not later than the end of the Term, for any fraction of an
installment period at the end of the Term, the corresponding fraction of the
installment, including interest, for that period. Lessor shall give to Lessee a
photocopy of any bill for such payment, and Lessee shall furnish promptly to
Lessor appropriate evidence of each assessment payment.
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<PAGE> 17
C. Lessee may without postponement of payment bring appropriate
proceedings, in the name of Lessor or Lessee or both, for contesting the
validity or amount of the taxes or assessments or to recover payments therefor.
Lessee agrees to save Lessor harmless from all expense in connection with any
such proceeding initiated or controlled by Lessee. Lessor shall cooperate with
Lessee with respect to such proceedings insofar as reasonably necessary. Net
proceeds recovered shall belong to the party who advanced the funds used to make
the payment in question, regardless of who brings such proceedings.
D. During the Term and at all other times when Lessee has actual
possession of the demised premises or any part thereof, Lessee shall procure and
maintain, at Lessee's cost and expense, (1) comprehensive general liability
insurance (including bodily injury and property damage insurance) protecting
Lessor and Lessee against any claim for personal injury or death of any person
or persons or damage to property arising out of or occurring in connection with
the use, occupation and maintenance of the demised premises or approaches
thereto or exits therefrom on the Parcel, (2) insurance providing for payment of
replacement costs in event of damage by fire (including debris removal) in an
amount not less than eighty per cent (80%) of the full insurable value of the
Building (including, among other things, the cost of debris removal but not
including partitions and other tenant's improvements installed by Lessee) as
from time to time determined by agreement or by the appraisal of an
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<PAGE> 18
accredited insurance appraiser selected by Lessor and reasonably satisfactory to
Lessee, (3) insurance against sprinkler damage and those hazards customarily
referred to as extended coverage and (4) insurance against abatement or loss of
rent in case of fire or other casualty in an amount at least equal to the annual
rental and supplemental and additional rentals to be paid by Lessee during one
year next ensuing.
E. Each party, notwithstanding any provisions of this lease to
the contrary, waives any rights of recovery against the other for loss or injury
against which the waiving party is protected by insurance containing provisions
denying to the insurer acquisition of rights by subrogation. All insurance,
whether or not required, carried by either Lessor or Lessee with respect to the
demised premises or occurrences thereon shall include either provisions
designating the other party as one of the insured or as a loss payee or
provisions denying to the insurer acquisition by subrogation of rights of
recovery against the other party. If either party is unable, without extra cost,
to obtain insurance coverage which will not be impaired by the foregoing waiver,
such party shall so notify the other party and the notified party shall have the
right to pay such cost or, in the alternative, to place such insurance (for the
notifying party's account and its expense) if by doing so the party placing such
insurance may, without such extra cost, secure insurance coverage which will not
be thus impaired from responsible carriers at rates as favorable as those
otherwise available to the other party.
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<PAGE> 19
F. All required insurance shall be written by responsible
companies reasonably satisfactory to Lessor and in the forms customarily in use
from time to time in the locality.
1. All such insurance policies shall provide that the
same shall not be cancelled without at least ten (10) days'
prior written notice to each insured named therein.
2. Prior to Lessee's taking actual possession of the
Premises and from time to time thereafter (in each case prior
to the expiration dates shown by like documentation previously
furnished), Lessee shall furnish to Lessor insurance policies,
duplicates or certificates of insurance demonstrating
compliance at all times with subparagraph I.C.2 and paragraphs
IV.D, E and F.
3. If Lessee shall fail to procure and maintain
insurance in amounts and containing provisions in accordance
with subparagraph I.C.2 and paragraphs IV.D, E and F, Lessor
may, after written notice to Lessee, do so and charge premiums
therefor to Lessee as additional rent.
G. Lessee shall not acquire as an insured party under any
insurance on the Building other than insurance covering only tenant's
improvements or as a payee of any proceeds of such insurance any right to
participate in the adjustment of any loss or to receive the proceeds. Lessee
agrees upon request promptly to endorse and deliver to Lessor or any Mortgagee
specified by Lessor any checks or other instruments issued on account of such
insurance in payment of loss. Proceeds of insurance covering both the Building
and tenant's improvement shall be fairly apportioned according to the respective
losses.
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<PAGE> 20
ARTICLE V
A. Lessee covenants during the Term hereof and at any other time
when Lessee has actual possession of the Premises or any part thereof
1. to pay when due all charges for water,
electricity, telephone, gas, sewer, heat and other utility
services rendered to the Premises and service inspections made
therefor, whether called charge, tax, assessment, fee or
otherwise;
2. to use the Premises only for purposes set forth in
the schedule attached hereto and marked Exhibit B and for such
other uses as may be specifically approved in writing by
Lessor; and to procure all licenses and permits from time to
time required by law in connection with such uses, except that
Lessor shall obtain the initial building permit and
certificate of occupancy;
3. to keep and maintain the demised premises,
including the Building and every part thereof, in as good
condition and repair as the same are in at the commencement of
the Term or may be put in during the continuance thereof,
subject to the provisions of sections II.E, F and G and
Article VII hereof, the effects of damage by fire and other
casualty insured against and reasonable wear or tear excepted;
and, without limiting the generality of the foregoing, to keep
all glass whole and in good condition and to replace with
glass of the same quality any glass which may be broken
(except for damage insured against), to make all repairs,
including interior repainting, as needed, and to keep exterior
windows and doors and all plumbing, sanitary waste disposal,
lighting, heating, air conditioning, sprinkler and other
utility systems in good operating condition;
4. to maintain control over the Premises; and to keep
in good repair all walks, steps, surfaced roadways and parking
and loading areas on the Parcel;
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<PAGE> 21
5. promptly at the expiration of the Term or earlier
termination of this lease, to remove all goods and effects
which are not the property of the Lessor, including Lessee's
signs, goods and effects and any machinery, fixtures and
equipment used solely in the conduct of Lessee's business,
which Lessee may remove upon repairing any damage caused by
such removal, and peaceably to yield up to the Lessor the
Premises and all improvements, alterations and additions
thereto, and all fixtures and equipment servicing the
Premises, except such as were installed by Lessee and can be
unscrewed or unbolted without damage to the Premises or with
damage completely repaired by Lessee, clean and neat and in
as good order, repair and condition as the same were in at
the commencement of the Term or were put in thereafter, the
effects of damage by fire and other casualty insured against
or reasonable wear and tear excepted; and, in the event Lessee
fails to so yield up the Premises in such order, repair and
condition, to reimburse Lessor for all expenses, including
reasonable attorneys' fees, incurred in obtaining possession
of the Premises and putting the Premises in such order,
repair and condition;
6. to hold Lessor harmless and indemnified from any
liability for injury, loss, accident or damage to any person
or property which arises out of or in connection with Lessee's
use or occupancy of the Premises or tenancy in the Parcel,
unless such liability arises out of or results from the
negligence or willful misconduct of Lessor or his agents or
employees or persons acting under contract with him, and from
any claims, actions, proceedings, or cost (including
reasonable counsel fees) in connection therewith, including
injury to or death of persons and damage to property while in
the Building or on the Premises and injury to or death of, or
damage to property of, persons who are patrons, customers,
invitees, employees or servants of Lessee while in or on
private ways or parking areas within the Shawmut Industrial
Park and which arises out of or results from the negligence of
Lessee, its agents, employees or contractors, but excluding
injury or damage arising out of or resulting from the
negligence or willful misconduct of
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<PAGE> 22
Lessor or his agents, employees or contractors; and to keep
all Lessee's employees working in the Premises covered by
workmen's compensation insurance and require contractors
working in the Premises to keep all employees similarly
insured, furnishing Lessor with certificates thereof;
7. not to take or permit to be taken any action, or
omit to take any action, which will result in the suspension,
forfeiture or cancellation of any license or permit with
respect to the Premises of which Lessee knows;
8. not, without on each occasion first obtaining
Lessor's approval endorsed upon the plans therefor, to erect
any building, fence, wall, exterior lighting or other
structure, nor to make any exterior alteration or addition,
nor to make any interior alteration or addition which affects
any structural part of the Building (as defined in paragraph
II.F) or which irreparably damages the Building in any
material respect;
9. not to permit any condition or use of the Premises
or action thereon which is objectionable by reason of noise,
odor, vibration, smoke, radiation, or the hazardous nature of
the use, nor to permit any auction sale thereon; provided,
however, that the ordinary commercial operations of any
business expressly permitted by the schedule attached hereto
and marked Exhibit B shall in no event be deemed to violate
this clause;
10. not to solicit trade by sound audible outside the
Premises, nor to permit on the Premises any nuisance, nor to
permit any use of the Premises which may be offensive to other
occupants of the Shawmut Industrial Park or contrary to law or
ordinance or by-law, regulation or order of public authority
or which may invalidate any insurance on the Building or its
contents or render necessary any alteration or addition to the
Building;
11. not to injure, overload or deface the Building or
any part thereof, nor to make or suffer any waste of the
Premises;
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12. not to assign this lease or sublet the Premises
or any portion thereof without first obtaining on each
occasion Lessor's written consent, provided, however, (a) that
Lessee may, without such consent, but after notice to Lessor
of the name and address of the assignee, assign this lease or
sublet all or any part of the Premises to any firm or
corporation owned or controlled by Lessee or under common
control with Lessee, (b) that no assignment or subletting
shall relieve Lessee of any obligation or liability hereunder
and (c) that, unless and until Lessor specifically consents
thereto in writing (which further consent shall not be
unreasonably withheld or delayed), (i) no assignee or
sublessee shall further assign this lease or sublet any part
of the Premises and (ii) the ownership or control of a firm or
corporation which receives a sublease pursuant to the
foregoing clause (a) shall not thereafter be changed;
13. to permit Lessor, utility companies and any
person properly identified as having an interest under any
mortgage affecting the Building to have free access to the
Premises (including the right to take upon or through, or to
keep and store within, the Premises all necessary materials,
tools and equipment) in any case of emergency and otherwise
during normal business hours and upon reasonable notice to
Lessee for the purposes of inspection or of making repairs,
alterations or renovations or of maintaining any part of the
demised premises or of complying with laws, orders and
requirements of governmental or other lawful authority or of
fulfilling the obligations of this lease or of exercising any
other right reserved to Lessor by this lease;
14. to permit Lessor, at reasonable times and upon
reasonable notice to Lessee, to enter to view the Premises, or
to show the Premises to any person considering buying the
demised premises (whether before or after the execution of a
contract) or, at any time within six months next preceding the
expiration of the Term, to any person considering leasing the
Premises; and, at any time within six months next preceding
the expiration of the Term, to
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<PAGE> 24
permit notices for letting or selling to be affixed to an
appropriate part of the Premises (other than windows and
doors) and remain thereon without hindrance or molestation;
15. to keep all property of any kind belonging to
the Lessee or any person claiming through it that may be on
the Premises at the sole risk of the Lessee; and if the whole
or any part thereof shall be destroyed or damaged by fire,
water or otherwise, or by use or abuse of water, or by the
leaking or bursting of water pipes or sprinklers, or in any
other way or manner, no part of said loss or damage is to be
charged to or borne by the Lessor in any case whatever except
to the extent that the same is a direct result of negligence
or willful misconduct of Lessor or his agents or employees or
persons acting under contract with him or of failure of Lessor
to perform his obligations hereunder after notice and the
lapse of the period of time applicable pursuant to paragraph C
of Article VI; and
16. to permit Lessor to remove and store in any
public warehouse or elsewhere at Lessee's risk a and expense
and in the name of Lessee any or all property not removed from
the Premises at the termination of this lease; and, if Lessee
shall then be in default under the provisions hereof, Lessor
may immediately or at any time thereafter upon notice to
Lessee sell at public or private sale any or all of such
property (regardless of whether or not so removed by Lessor)
and apply the net proceeds of such sale to the payment of any
sum or sums due hereunder; and Lessor shall not be liable
therefor to Lessee or to any other person in any manner,
except that Lessee shall be entitled to any balance of such
net proceeds after payment of all sums due hereunder.
B. During the Term, Lessee shall cause to be performed, at
Lessee's expense, such maintenance of the Parcel outside the Building, including
but not limited to the landscaping, steps, walks and parking areas, as may be
necessary to keep the same in good condition, reasonably clean and as clear of
snow and ice as is practical in the circumstances.
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<PAGE> 25
C. All repairs, alterations, improvements, additions, and
restoration by Lessee or Lessor hereafter required or permitted shall be done in
good and workmanlike manner and in compliance with all applicable laws and
lawful ordinances, by-laws, rules, regulations and orders of governmental
authorities having jurisdiction, of any Board of Fire Underwriters (or other
body hereafter constituted and exercising similar functions) and governing
insurance ratings bureaus, and of the insurers of the Building. All
improvements, alterations and additions to the Building and fixtures and
equipment appurtenant to it made or installed at any time by either Lessor or
Lessee shall be part of the Building, but not signs, machinery, fixtures or
equipment installed by Lessee which can be unscrewed or unbolted without damage
to the Premises or with damage completely repaired by Lessee, nor any items
which Lessor has agreed prior to installation shall be removable by Lessee. Each
party doing any construction or other work agrees to pay for it and discharge
promptly any liens arising therefrom.
D. Lessor covenants during the Term hereof and at any other time
when Lessee has actual possession of the Premises or any part thereof to hold
Lessee harmless and indemnified from any liability for injury, loss, accident
or damage to any person or property which arises out of or results from the
negligence or willful misconduct of Lessor or his agents or employees or persons
acting under contract with him, and from any claims, actions, proceedings, or
cost (including reasonable
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<PAGE> 26
counsel fees) in connection therewith, including injury to or death of persons
and damage to property while in the Building or on the Parcel and injury to or
death of, or damage to property of, persons who are patrons, customers,
invitees, employees or servants of Lessee while in or on private ways or parking
areas within the Shawmut Industrial Park which arises out of or results from the
negligence or willful misconduct of Lessor or his agents, employees or
contractors; and to keep all Lessor's employees working in the Premises covered
by worker's compensation insurance and require contractors working in the
Premises to keep all employees similarly insured. However, the provisions of
this paragraph, FIRST, do not require Lessor to hold Lessee harmless and
indemnified from any liability, claim, action, proceeding or cost which arises
out of or results from the negligence or willful misconduct of Lessee or its
agents, employees or contractors and, SECOND, do not modify, and are hereby made
subject to, the last sentence of paragraph II.G.
E. This lease shall be subordinate to any Mortgage of the Parcel
and/or the Building securing a note or bond issued by or at the request of
Lessor if either (i) the Mortgagee agrees to recognize this lease in the event
of foreclosure (unless the Term has then expired or Lessor then has the right to
terminate this lease by reason of Lessee's default) and to perform all of
Lessor's obligations hereunder in the event of such foreclosure of the mortgage
and the taking of possession of the Premises by the Mortgagee or (ii) such
Mortgage contains apt provisions
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<PAGE> 27
under the terms of which the existence of this lease shall be recognized and so
long as Lessee and its successors and assigns shall keep and perform the terms,
covenants and conditions in this lease contained on its part to be kept and
performed, neither any Mortgagee nor any holder or owner of the indebtedness
secured thereby, nor any other person, shall, in attempting to force collection
of said indebtedness or to realize upon such security, have any power to impair,
modify, abrogate, or adversely affect the rights of Lessee under this lease, to
the full enjoyment of the entire Term, to the end that Lessee, while not in
default hereunder, shall notwithstanding the creation of or default under any
such mortgage or indebtedness secured thereby, peacefully and quietly have, hold
and enjoy the Premises for the entire Term and all other rights, privileges and
benefits to which it may be entitled under and pursuant to the terms of this
lease. Lessee agrees upon request of Lessor or any Mortgagee to execute and
deliver all such instruments as may be appropriate to evidence such
subordination of this lease. Upon receipt of notice of entry to foreclose any
Mortgage of the demised premises Lessee may recognize such Mortgagee and anyone
claiming under such Mortgage, including the purchaser at foreclosure sale, as
successor to Lessor's interest and rights hereunder and, if requested, shall
attorn to such Mortgagee or purchaser. However, in no event shall any Mortgagee
be responsible for breaches hereunder occurring other than during its period of
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<PAGE> 28
ownership after such foreclosure and taking of possession as aforesaid. Any
Mortgagee may subordinate its Mortgage to this lease, without Lessee's consent,
by notice in writing to Lessee, and thereupon this lease shall be deemed to be
prior in lien to such Mortgage (without regard to their respective dates of
execution and delivery) and to have been assigned by Lessor to such Mortgagee.
F. Lessor covenants and agrees that Lessee, on paying the annual
rent, additional rent and supplemental rent and performing the Lessee
obligations of this lease and subject to the terms hereof, shall peacefully and
quietly have and hold and enjoy the Premises through the Term or until this
lease is terminated as herein provided.
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<PAGE> 29
ARTICLE VI
A. This lease is upon the further condition that, if Lessee shall
neglect or fail to perform or observe any of Lessee's covenants herein or any
other written obligation of Lessee to Lessor relating to this lease and
referring to this paragraph and such neglect or failure shall continue (and, in
the case of nonmonetary obligations, Lessee shall not have commenced and
diligently prosecuted the curing of such neglect or failure) after written
notice to Lessee for a period of ten (10) days in case of nonpayment of money or
otherwise thirty (30) days, or if Lessee shall be dispossessed therefrom by or
under any authority other than Lessor, or if the leasehold hereby created shall
be taken on execution or by other process of law, or if any assignment or trust
mortgage shall be made of Lessee's property for the benefit of creditors, or if
a receiver or similar officer shall be appointed to take charge of all or any
part of Lessee's property by a court of competent jurisdiction and shall not be
discharged within sixty (60) days after his appointment or if Lessee commits any
act of bankruptcy or is adjudged bankrupt, or if a petition is filed by Lessee
under any insolvency of bankruptcy law, or if a petition is filed against Lessee
under any insolvency or bankruptcy law, and the same shall not be dismissed
within sixty (60) days after the date upon which it is filed, then, and in any
of said cases, Lessor lawfully may, immediately or at any time thereafter and
<PAGE> 30
without demand or notice, enter upon the Premises or any part thereof in the
name of the whole and repossess the same as of Lessor's former estate and expel
Lessee and those claiming through or under it and remove its and their effects,
forcibly if necessary, without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rent or preceding breach of covenant, and upon such entry this lease shall
terminate. Lessee covenants that, in case of such termination or in case of
termination under the provisions of statute by reason of the default of Lessee,
Lessee will at the election of Lessor (which election may be made at any time)
either
1. pay to Lessor, on account of the unexpired portion
of the Term, sums equal to the rent and other payments herein
required at the same times and in the same installments as
such payments would be due hereunder, provided that (a) Lessor
shall be using or shall have used reasonable efforts to relet
the Premises and (b), if the demised premises or any portion
thereof shall have been relet, the sums so payable by Lessee
shall be abated in an amount equal to the excess of moneys
actually received from the new tenant over Lessor's
reasonable expenses of such reletting, including, without
limiting the generality of the foregoing, the cost of
remodeling and attorneys' and realtors' fees, or
2. pay to Lessor, as liquidated damages, a sum which
at the time of such termination represents the amount, if any,
by which the then fair market rental value of the Premises is
less than the rent and other payments herein required for the
residue of the Term, or
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<PAGE> 31
Nothing herein contained shall, however, limit or prejudice the right of Lessor
to prove for and obtain in proceedings for bankruptcy or insolvency by reason of
the termination, an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, the
damages are to be proved, whether or not the amount be greater, equal to, or
less than the amount of the loss or damage referred to above.
B. If Lessee shall default in the performance or observance of
any agreement, condition or other provision in this lease contained on its part
to be performed or observed and shall not cure such default within thirty (30)
days after notice in writing from the Lessor specifying the default (or shall
not within said period commence to cure such default and thereafter prosecute
the curing of such default to completion with due diligence), Lessor may, at its
option at any time thereafter cure such default at the expense of Lessee.
However, if it is necessary to protect the real estate or Lessor's interest
therein or to prevent injury or damage to persons or property that certain
action be taken in less than thirty (30) days, the notice shall so specify, and
Lessor shall have the right to cure such default on behalf of Lessee if no
action is initiated by Lessee prior to the time specified in the notice.
Lessor's cure of such default shall not be deemed to waive any claim for breach
of this lease, but thereafter Lessee's cure shall be by the payment required by
the following
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<PAGE> 32
sentence. If by reason of any breach Lessor is compelled or elects to pay any
sum of money or to do any act which will require the payment of any sum of money
or to incur any expense, including reasonable attorneys' fees, in instituting or
prosecuting any proceeding to enforce Lessor's rights hereunder, the sum or sums
so paid or paid on account of such expense shall be deemed to be due from Lessee
to Lessor forthwith following the payment thereof by Lessor except in the case
of a legal proceeding and, in that case, upon the entry of final judgment in
favor of Lessor; interest thereon shall accrue at the rate of two per cent (2%)
per month from the date due.
C. If Lessor shall fail to perform any obligation hereunder and
shall not cure such failure within thirty (30) days after notice in writing from
the Lessee specifying the failure (or shall not within said period commence to
cure such failure and thereafter prosecute the curing of such failure to
completion with due diligence), Lessee may thereafter cure such failure at the
expense of Lessor. If it should be necessary to protect the real estate or
Lessee's interest therein or to prevent injury or damage to persons or property
that certain action be taken in less than thirty (30) days, the notice shall so
specify, and Lessee shall have the right to cure such failure on behalf of
Lessor if no action is initiated by Lessor prior to the time such action must be
taken or the time specified in the notice, whichever is later. If to cure any
such failure Lessee is compelled to pay any sum of money or do any act which
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will require the payment of any sum of money or to incur any expense, including
reasonable attorneys' fees, in instituting or prosecuting any proceeding to
enforce Lessee's rights hereunder, the sum or sums so paid or paid on account of
such expense shall be deemed to be due from Lessor to Lessee forthwith following
the payment thereof by Lessee except in the case of a legal proceeding and, in
that case, upon the entry of final judgment in favor of Lessee; interest thereon
shall accrue at the rate of two per cent (2%) per month from the date due.
However, no such sum nor any other monetary claim shall in any event be deducted
from or set off against any installment otherwise payable by Lessee on account
of annual or supplemental rental.
D. After receiving written notice from an Institutional Mortgagee
that it holds a mortgage upon all or any part of the demised premises no default
notice from Lessee to Lessor shall be effective as against said Mortgagee, so
long as such mortgage is outstanding, unless and until a copy of the same is
mailed to such Mortgagee, and the curing of any failure by such Mortgagee within
a reasonable time shall be deemed to be a performance by Lessor. Accordingly, no
act or failure to act on the part of Lessor which would entitle Lessee under the
Terms of this lease, or by law, to be relieved of Lessee's obligations hereunder
or to terminate this lease shall result in a relief of such obligations or a
termination of this lease unless (1) Lessee shall have first given written
notice of
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<PAGE> 34
Lessor's act or failure to act to the Institutional Mortgagee, if any,
specifying the act or failure to act on the part of Lessor which could or would
give basis to Lessee's rights and (2) such Mortgagee, after receipt of such
notice, has failed or refused to correct or cure the condition complained of
within a reasonable time thereafter. A "reasonable time" for purposes of this
paragraph shall be determined by reference to the time this lease allows for
Lessor to cure in the same circumstances. It is understood, however, that
nothing contained in this paragraph shall be deemed to impose any obligation on
any Mortgagee to correct or cure any failure.
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<PAGE> 35
ARTICLE VII
A. In the event of damage to or destruction of the Building
during the Term by fire or other casualty (or by the action of any public
authority in connection therewith) to a value exceeding the applicable
percentage (according to the following table) of the sound insurable value
thereof for fire insurance purposes (as determined in connection with the actual
insurance adjustment), this lease may be terminated at the election of Lessor
or Lessee.
Years of Term applicable
then remaining percentage
-------------- ----------
less than 2 10%
2 through 5 25%
more than 5 50%
1. If Lessor may not or does not elect to terminate
and Lessee may not or does not elect to terminate, this lease
shall continue in force and the Lessor shall use due diligence
to repair or restore the Premises to their condition prior to
such fire or casualty, to the extent permitted by the net
proceeds of insurance recovered for such destruction or damage
and by zoning and building laws then applicable. If the net
proceeds are insufficient for full restoration, Lessee may, at
its election, advance additional funds sufficient to allow
full restoration, and in that event Lessor shall cause the
Premises to be restored as fully as the applicable laws
permit.
2. Notwithstanding anything to the contrary in this
Article, if Lessor fails to complete such repair or
restoration as is required by the foregoing subparagraph 1 in
one hundred eighty (180) days. Lessee may then elect to
terminate this lease.
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<PAGE> 36
B. In the event that during the Term the whole of the demised
premises shall be taken for public purposes by any public or quasi-public
authority having jurisdiction, this lease shall terminate automatically. This
lease may be terminated at the election of either Lessor or Lessee if (i) such
taking (a) impairs Lessee's access to the Parcel or (b) reduces the number of
parking spaces available to Lessee below the lesser of 116 or the number
required by applicable zoning (considering any variance granted prior to or
within a reasonable time after such taking) or (ii), as a result of such taking
of a portion of the Building, (a) the remainder of the Premises is not
reasonably suitable for Lessee's continued use or (b) the reasonable cost to put
the remainder of the demised premises in reasonable condition for use by Lessee
is in excess of $100,000 and there then remain less than three years of the
Term. Lessee, at its election, may nevertheless continue to use and occupy the
Premises, and enjoy and exercise all of its rights and privileges under this
lease, for the period between the taking and the date on which the authority
which made the taking shall take actual possession of the property taken. During
such period of occupancy, Lessee shall pay use and occupancy charges for the
Premises at the rate of the annual rental which would otherwise be due, and all
other obligations of Lessor and Lessee set forth in this lease shall continue in
effect as if this lease had not been terminated.
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<PAGE> 37
1. Unless so terminated, this lease shall continue in
force, and Lessor shall use due diligence to put the demised
premises, or what may remain thereof, in their condition prior
to such taking to the extent permitted by net proceeds of
damages awarded for such taking and by zoning and building
laws then applicable. If the net proceeds are insufficient to
put the demised premises in such reasonable condition, Lessee
may, at its election, provide additional funds sufficient
therefor, in which event Lessor shall cause the Premises to be
restored as fully as the amount of the Premises remaining and
the applicable laws permit.
2. Irrespective of the form in which recovery may be
had by law, all rights to damages or compensation (other than
for moving expenses) shall belong to Lessor. Lessee hereby
grants and assigns to Lessor all of Lessee's rights to such
damages and covenants to deliver such further assignments
thereof as Lessor may from time to time request.
3. In the event that tenant's fixtures or
improvements installed by Lessee comprise a portion of the
property so taken, there shall be paid over to Lessee a
portion of the net proceeds of damages awarded equal to the
same proportion of the net proceeds of damages awarded as the
aggregate value of the tenant's fixtures and improvements
installed by Lessee taken is of all property (including land)
taken. The final decision of any court of competent
jurisdiction shall be conclusive evidence of any facts found
by such court even if Lessee is not a party to the action in
which the findings of fact are made.
C. Any election to terminate pursuant to this Article VII shall
be made by the giving of written notice by the party electing to terminate to
the other party within thirty (30) days after the party electing to terminate
first receives actual notice of the facts which give rise to its right to
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terminate. However, any termination of the lease pursuant to this Article VII
shall be effective as of the date of the casualty or taking upon which the
termination is based.
D. In case of restoration of the Premises pursuant to either
paragraph A or paragraph B of this Article VII, unless such restoration is
necessitated by damage or destruction of the Building due to the willful
misconduct of Lessee or Lessee's employees or agents, there shall be an
equitable abatement and/or adjustment of the annual rental on account of any
curtailment of Lessee's use of the Premises. However, whenever Lessee has
undertaken to repair or restore the demised premises, no such temporary
abatement of rental shall continue beyond the time when such repairs or
restoration would have been completed if they had been undertaken immediately
and prosecuted diligently.
E. In reckoning the number of years of the Term remaining at any
particular time for purposes of this Article, Lessee's option to extend pursuant
to paragraph I.A shall be disregarded unless due notice of Lessee's irrevocable
election so to extend either (i) shall have been given prior to Lessor's giving
notice of his election to terminate or (ii) shall be received by Lessor within
fifteen (15) calendar days after Lessor's giving such notice.
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<PAGE> 39
ARTICLE VIII
A. The following words and phrases when used in this lease have
the following meanings unless a different meaning is required by the context:
1. The masculine or neuter gender shall include the
masculine, feminine and neuter, and the singular shall include
the plural.
2. Whenever this lease expressly requires "approval"
or "consent" or that something be "approved" by a party, such
approval or consent and the request therefor shall be in
writing, except that when any plans, working drawings or
specifications or revisions or amendments thereof are
submitted by Lessor to Lessee for its approval the same shall
be conclusively deemed to have been approved by Lessee unless
Lessee within fifteen (15) calendar days after such plans,
working drawings or specifications are mailed to Lessee
notifies Lessor that Lessee does not approve them and
thereafter, if requested, promptly states Lessee's reasons
therefor. Nor shall any approval or consent expressly required
by this lease be unreasonably withheld or delayed.
3. Lessee shall not be deemed to be in "actual
possession" of the demised premises before the Term merely
because of Lessee's entry of the Premises or installation
therein of fixtures, supplies, or other property. However,
Lessee's doing business in or from the Premises before the
Term shall be conclusive evidence of "actual possession" and
any use or occupancy of the Premises after the Term shall
constitute "actual possession".
4. The "date of this lease" is the date inserted on
the first page hereof. The "date of commencement of the Term"
and the "Term" are defined in Article I.
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5. The words "herein", "hereof", and "hereunder"
refer to this instrument as a whole and not merely to the
subdivisions thereof in which such words appear.
6. The word "individual" refers only to natural
persons, but the word "person" refers to firms, partnerships,
trusts, other associations and corporations as well as to
natural persons. The "family of an individual includes only
his brothers and sisters (whether by the whole or half blood)
and their lineal descendants and the individual's spouse,
ancestors, and lineal descendants. An "affiliate" of any
individual means a member of his family or a corporation or
other entity controlled, directly or indirectly, by that
individual. For purposes of the foregoing sentence, FIRST,
stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being
owned proportionately by its shareholders, partners, or
beneficiaries and, SECOND, an individual shall be considered
as owning the stock owned, directly or indirectly, by or for
his family or by or for his partner.
7. Anything required by this lease to be "mailed"
shall be transmitted postage prepaid by U.S. Express Mail or
Federal Express. The customary United States Postal Service
return receipt shall be conclusive evidence of delivery and
Post Office records shall be conclusive evidence of refusal of
delivery.
8. "Mortgage" shall mean any instrument or group of
instruments granting a security interest, regardless of what
the security agreement is called, including but not limited to
a deed of trust or industrial development financing.
"Mortgagee" shall mean any person or group of persons who at
the time in question holds a Mortgage of any part of the
demised premises, regardless of whether the person is acting
as a fiduciary. An "Institutional Mortgagee" is a Mortgagee
which is a bonding authority, insurance company or accredited
lending institution. The Massachusetts Industrial Finance
Authority shall be deemed to be an Institutional Mortgagee.
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<PAGE> 41
9. The term "net proceeds" means the gross amount of
value received (whether in money or by credit against
indebtedness or otherwise and including "pro tanto" payments
and other payments on account and amounts attributed to
interest or costs) less expenses reasonably incurred by
Lessor in connection with collection of the same, including,
without limiting the generality of the foregoing, fees and
expenses for legal and appraisal fees.
10. The phrase "real estate taxes" (particularly for
purposes of clause IV.A.5) shall be deemed, so far as
practicable, to include personal property taxes assessed to
Lessor on personal property which is owned, held or used by
Lessee or is part of the demised premises and also to include
any tax or excise on rents which is levied upon or assessed to
Lessor as a substitute in whole or in part for, or in addition
to, real estate taxes assessed on land and buildings, or
either, and not as a part of a general income tax. However,
"real estate taxes" shall not include inheritance, estate,
succession, transfer or other income taxes.
B. Lessor and Lessee shall on ten (10) days' request certify as
to the status of this lease to any Mortgagee or a prospective Mortgagee or
purchaser of the demised premises: namely, whether said lease is in full force
and effect, the date to which rent and other charges have been paid, and
whether, to the best of the knowledge of the party so certifying, the Lessor and
Lessee have fully complied with the terms and provisions thereof and, if there
is a claim of noncompliance, the respect in which such noncompliance is claimed.
If in connection with obtaining financing on the demised premises an
Institutional Mortgagee shall request as a condition to such financing
reasonable modifications in
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<PAGE> 42
the terms and conditions of this lease, or the execution of additional
instruments or documents, Lessee shall not unreasonably withhold, delay or
condition its consent thereto and execution thereof, provided that such
modifications or documents do not increase the monetary obligations of Lessee
hereunder, alter the duration of the leasehold interest hereby created, or
adversely affect the size or use of the demised premises.
C. Except where the context does not permit, each of the terms
and conditions hereof shall also apply to any period of time after the Term
during which Lessee is actually in possession of or occupying the demised
premises or any part thereof.
D. The obligations of this lease shall run with the land, and
this lease shall be binding upon and enure to the benefit of the respective
heirs, devises, legal representatives, successors and assigns of the parties
hereto. However, the named Lessor shall be liable only for obligations accruing
while he is the owner of the demised premises, PROVIDED that such successor
expressly assumes all obligations of Lessor hereunder, including, but not
limited to, those in section III.D hereof. When the Lessor (or any successor or
assign of the Lessor) is acting under a trust, the obligations of Lessor shall
be binding upon the trust estate, but not upon any trustee or beneficiary of the
trust individually.
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<PAGE> 43
E. Failure on the part of either Lessor or Lessee to complain of
any action or omission on the part of the other, no matter how long the same may
continue, shall never be deemed to be a waiver by Lessor or Lessee of any of its
rights hereunder. Nor shall any waiver (express or implied) at any time of any
of the provisions hereof by Lessor or Lessee be construed as a waiver of any of
the other provisions hereunder, and a waiver at any time of any of the
provisions hereof shall not be construed as a waiver at any subsequent time of
the same provisions. The consent or approval by Lessor to or of assignment or
subletting or any other action by Lessee requiring the Lessor's consent or
approval shall not be deemed to waive or render unnecessary Lessor's consent or
approval to or of any other assignment or subletting or to or of any subsequent
similar act by Lessee; nor shall Lessee's consent or approval to or of any
action by Lessor be deemed to waive or render unnecessary any required consent
or approval to or of any subsequent action.
F. If any term or provision of this lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this lease or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each term and
provision of this lease shall be valid and
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<PAGE> 44
be enforced to the fullest extent permitted by law. It is hereby declared as the
intention of the parties hereto that they would have executed such remainder of
this lease and would have provided for such application to other persons and
circumstances without including therein the term or provision or application
thereof hereafter declared invalid or unenforceable.
G. This lease is to be construed as a Massachusetts contract,
sets forth the entire agreement between the parties, and may be cancelled,
modified or amended only by a written instrument executed by both Lessor and
Lessee.
H. Any and all controversies or claims not exceeding fifty
thousand dollars ($50,000) in connection with and/or arising out of this lease
shall be settled by arbitration in the City of Boston in The Commonwealth of
Massachusetts in accordance with the commercial arbitration rules of the
American Arbitration Association. Each party shall bear the portion of the
expenses of such arbitration directed in the award resulting therefrom or,
absent any such provision in the award, such expenses shall be borne by the
party or parties against whom such award is made. This paragraph shall be
specifically enforceable and judgment upon the award rendered may be entered in
any court, state or federal, having jurisdiction of the parties. The decision of
the arbitrators shall be a condition precedent to any legal action if the amount
in controversy is not greater than fifty thousand dollars ($50,000).
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<PAGE> 45
IN WITNESS WHEREOF, Lessor and Lessee have executed and affixed their
respective seals to this indenture and two counterparts hereof, all as of the
day and year first above written.
In the presence of THE JMS REALTY TRUST
/s/ Anne H. Meyer By /s/ James M. Salah (SEAL)
- ----------------------------------- --------------------------------
James M. Salah, Trustee
NEW ENGLAND AUDIO CO., INC.
[Corporate Seal]
witness:
/s/ Anne H. Meyer By /s/ Samuel Bloomberg
- ----------------------------------- --------------------------------
Chairman and CEO
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<PAGE> 46
/s/ James M. Salah
--------------------------------------
STATE OF FLORIDA ) JAMES M. SALAH, as Trustee and
)- ss. not individually
COUNTY OF PALM BEACH )
Before me personally appeared the above-named James M. Salah and
acknowledged the foregoing instrument to be his free act and deed as Trustee of
The JMS Realty Trust, this 18 day of Sept., 1991.
/s/ Lenise Redding
-----------------------------------------
Notary Public
LENISE REDDING
Notary Public, State of Florida
My Commission Expires May 30, 1993
Bonded thru Troy Fain Insurance, Inc.
THE COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. Boston, June 11, 1991
Before me personally appeared Samuel J. Bloomberg, whose signature
appears above, as he is the Chairman and Chief Executive Officer of New England
Audio Co., Inc., and acknowledged the foregoing instrument to be the free act
and deed of the said corporation.
/s/ Loyd M. Starrett
-----------------------------------------
Notary Public
My commission expires ___________________
LOYD M. STARRETT
My Commission Expires
March 23, 1995
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<PAGE> 47
"Exhibit A-1"
METES AND BOUNDS OF THE PARCEL
Beginning at a point on the westerly side of Hudson Road at the northeasterly
corner of land now or formerly of Nynex Corp. thence running along the westerly
side line of said Hudson Road 151.23 feet on a curve radius 275.00 feet;
thence again along said westerly side line of said Hudson Road S
27(degree)-32'-42 E 70.58 feet;
thence again along said westerly side line of said Hudson Road 71.64 on a curve
radius 168.33;
thence turning and running by land of James M. Salah, Trustee, S
86(degree)-50'-18" W 23.71 feet;
thence turning and running again by land of said James M. Salah, Trustee, S
26(degree)-47'-33" W 417.00 feet;
thence again by land of said James M. Salah, Trustee, S 2(degree)-53'-07" E
165.28 feet;
thence turning and running by land of James M. Salah, Trustee, N
77(degree)-36'-17" W 98.48 feet;
thence turning and running again by land of said James M. Salah, Trustee, N
2(degree)-53'-07" W 77.75 feet;
thence turning and running by land now or formerly of Grinnell Corp. N
87(degree)-06'-53" E 25.00 feet;
thence turning and running again by land of said Grinnell Corp. N
2(degree)-53'-07" E 400.00 feet;
thence turning and running by land of said Grinnell Corp. and by land of Nynex
Corp. N 26(degree)-47'-33" E 320.07 feet to the point of beginning.
Containing 2.661 acres more or less.
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<PAGE> 48
"Exhibit B"
EASEMENTS, PERMITTED USES AND RESTRICTIONS
------------------------------------------
1. Lessor reserves to himself and his heirs, successors and assigns,
for the benefit of his adjacent land south and southwest of the demised
premises, the right and easement of way for persons and vehicles to pass and
repass and for installation of underground utilities over the 24 foot right of
way running around the perimeter of the Building and to said adjacent land, all
as shown on the site plan which is Exhibit A.
2. Lessee shall be entitled to conduct on the demised premises a
consumer electronics business, including warehousing and distribution of
consumer electronics products and executive and administrative offices for the
said business and other incidental accessory uses. Anything herein to the
contrary notwithstanding, Lessee shall in all respects conform to the
regulations of the Zoning By-Law of the Town of Canton applicable to a limited
industrial district and to the decision of the Board of Appeals of the Town of
Canton dated February 9, 1989 in its case No. 6-89-SPA/SP, a copy of which has
been furnished to Lessee by Lessor.
3. In addition to or in lieu of the uses specifically authorized by the
foregoing sentence, Lessee may, with Lessor's prior approval, utilize the
demised premises for any other use permitted as of right by the Zoning By-Law of
the Town of Canton.
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<PAGE> 49
4. Lessee shall not have on the Premises any product prohibited
by any statute, ordinance or bylaw or disapproved by any insurer of the
Premises. Nor shall Lessee create any danger to the vicinity through fire,
explosion, wastes or any other cause. Nor shall Lessee create unusual noise,
vibration, dust, heat, smoke, fumes, odor or glare that are observable and
offensive beyond the boundaries of the demised premises.
5. Lessee and its legal representatives, successors, sublessees
and assigns shall be bound by the following restrictions which Lessor imposes on
all tenants of Shawmut Industrial Park:
a. On-street parking shall be prohibited, and all
trucking and vehicular maneuvering shall be contained
within the Parcel.
b. There shall be no open or outside storage on the
Parcel unless it is screened so that it cannot be
viewed from any street or adjacent property.
c. All utilities, except electricity and telephone,
shall be placed under ground within the Parcel. Any
exterior lighting on the Parcel shall be either
indirect or of such controlled focus and intensity as
not to disturb street traffic or the occupant of any
adjacent parcel.
d. Lessee shall use reasonable care to maintain the
exterior appearance of the Premises, including
landscaping thereon.
e. There shall be maintained within the strip between
Hudson Road and a line comprised of the front wall of
the Building and imaginary extensions thereof to each
side-line only green areas of grass, plants, shrubs
and trees, and, to the extent of not more than
one-third of said strip, walks and driveways
necessary for access.
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<PAGE> 50
No portion of the Parcel between the Building and
Hudson Road shall be used for purposes of trucks or
other vehicles' parking, stopping or standing.
f. Lessor may from time to time by written instrument in
recordable form grant variances from any one or more
of these restrictions where, in Lessor's opinion as
certified in the instrument, desirable relief can be
granted without substantial detriment to the
development of the Parcel and adjacent property as a
garden-type industrial center and without substantial
detriment to the portions thereof theretofore built
upon. Lessor's written approval of any sign,
building, structure, alteration, addition or
landscaping shall be conclusive evidence that the
matter so approved is in compliance with these
restrictions. The term Lessor as used herein shall
mean the original named Lessor or such one successor
in title as may from time to time be expressly
granted of record the right to enforce these
restrictions.
6. With the prior written approval of Lessor and all relevant
municipal authorities, Lessee shall have the right to erect signs, up to 100
square feet, on the exterior of the Premises or on the Parcel. However, no sign
larger than four square feet in area shall contain anything other than the names
and trademarks of occupants of the Building and such occupants' principal
products or suppliers. In addition, all signs shall comply with the Sign
Regulations in the Zoning By-Law of the Town of Canton.
7. Lessee's rights and interest shall also be subject to the
following easements and restrictions of record:
a. The rights and easements taken by and released to the
Commissioners of Norfolk County in connection with a
relocation of
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<PAGE> 51
Dedham Street by instruments recorded in said
Registry at book 2132 page 146, book 3027 page 157,
book 3060 page 159, book 3124 page 561 and book 3134
page 449 and plans recorded with said Registry in
plan book 120 as plan 3 of 1937 and in plan book 166
as plans 1023 through 1029.
b. A certain right of way between Dedham Street and land
lying west of the railroad track west of said real
estate, which right was reserved by Boston
Metropolitan Airport, Inc. in a deed by said corpora-
tion dated July 23, 1948 and recorded at book 2770
page 335 in, through and over said real estate in a
convenient and practicable location".
c. Certain rights and easements to operate all kinds of
aircraft at any time and at any height above said
real estate to carry on over said real estate
aeronautical activities of every and any kind or
nature, all as set forth in the deeds of Carl A.
Johnson and others, Trustees (a) to Clair B. Davis
dated August 16, 1930 and recorded with said Registry
at book 1968 page 554 and (b) to Boston Metropolitan
Airport, Inc. dated September 20, 1932 and recorded
with said Registry at book 1972 page 18.
d. Any obligations with respect to the demolition and
removal of a so-called "McDonough Bridge" over said
railroad track which obligations may have existed
pursuant to a certain instrument from Carl A. Johnson
and others, Trustees of the Neponset Hills Realty
Trust, and another to Boston & Providence Railroad
Corporation and others dated April 13, 1932 and
recorded in said Registry at book 1965 page 163.
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"Exhibit C"
AGREED DRAWINGS
---------------
The Building shall be constructed and finished in accordance with the
following drawings:
Cara Corp. drawings 1, 2, 3 and 4, each last revised 6-6-91;
C.A. Crowley Engineering, Inc. drawings M-l, M-2, M-3 and M-4, each
dated 5-31-91; and
Mik-Ron Fire Protection drawings FP-1/3, FP-2/3 and FP-3/3, each dated
April 30, 1991.
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<PAGE> 53
"Exhibit D"
TENANT'S EXTRAS
---------------
1. Lessee shall be responsible to pay the prices indicated for
the following extras included in the work shown on the drawings referred to by
Exhibit C:
a. 61 doors $ 3,500
b. extra set of front doors 2,500
c. skylight (including finishing of ceiling) 5,000
d. sprinkler in rack with 4 hose stations 8,900
e. sound room 500
f. parts and photo rooms (extra floor space) 27,225
g. mezzanine door over parts area 875
h. customer service area (glass) 400
i. showers (2 units) 2,500
j. dock leveler 4,500
k. operable windows for second floor only 5,000
1. electrical work 19,100
2. In lieu of payment as provided in section II.C, Lessee shall
pay Lessor for the extras specified in the preceding paragraph 1 of this
Exhibit D the sum of $80,000 plus interest at the rate of ten and one-half per
cent (10.5%) per annum in thirty-six equal monthly installments of $2,600.20 on
the first day of each month beginning July 1, 1991.
a. From each installment paid, application shall be first made
to the payment of interest accrued to the date of payment, and the balance
remaining shall be applied to the payment of principal.
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<PAGE> 54
b. The balance then outstanding of the principal and all
accrued interest shall immediately become due and payable without notice or
demand (i), at Lessor's option, upon Lessee's failure to pay any installment
when due if two like failures have occurred within the preceding twelve months
or otherwise if such failure has continued for ten (10) days after written
notice thereof to Lessee or (ii) upon occurrence of any of the events which
entitle Lessor to terminate the Lease pursuant to section VI.A.
c. Lessee shall have the right to make payments of principal,
in full or in part, in advance of the due dates of installments.
3. Lessor's work includes only standard HVAC in the computer
room. Air conditioning to meet the needs of the equipment in that room is the
sole responsibility of Lessee.
4. Lessee shall also be responsible for any and all other
construction at the Premises requested by Lessee in addition to work shown in
Exhibits A and C, subject to the following allowances:
a. with respect to the upper level and the portion of the ground
floor directly below the upper level only, $10 per square yard
if carpet is substituted for vinyl flooring; and
b. $1,000 for fixtures for the lunchroom.
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<PAGE> 55
"Exhibit E"
TERMS AND CONDITIONS OF PURCHASE OPTION
---------------------------------------
1. The deed to the Property shall be delivered, and the purchase price
shall be paid, at the Registry or at an office of lender's counsel in the
Greater Boston area designated by Lessee by written notice to Lessor at least
seven (7) days before the deed is to be delivered at 10:00 a.m. on the tenth
anniversary of the date of Commencement of the Term or, if such day is not a
business day, on the first day thereafter when the Registry is open for
business. It is agreed that time is of the essence.
2. If the title to the Property is then registered, said deed shall be
in form sufficient to entitle Lessee to a certificate of title to the Property
and Lessor shall deliver together with said deed all instruments, if any,
necessary to enable Lessee to obtain such a certificate. If said deed refers to
a plan necessary to be recorded or registered therewith Lessor shall deliver,
together with said deed, such plan in form adequate for recording or
registration, as the case may be. In addition, Lessor shall deliver to Lessee an
assignment and original copies of all licenses and permits for the Property then
in Lessor's possession and copies of the final plans and specifications for the
construction pursuant to paragraph II.B hereof which are in Lessor's possession.
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<PAGE> 56
3. The Property is to be conveyed by a good and sufficient
quitclaim deed running to Lessee or to the nominee designed by Lessee by
written notice to Lessor at least seven days before the deed is to be delivered
as herein provided, and said deed shall convey a good and clear record and
marketable title thereto, free from encumbrances, EXCEPT (a) provisions of
building and zoning laws then in force, (b) rights, easements, encumbrances,
restrictions and agreements which are referred to in schedule B hereto, (c)
taxes for the then current year if not due and payable on or before the date for
delivery of the deed, (d) liens for municipal betterments billed after date of
this lease, (e) all other encumbrances resulting from governmental action (other
than tax liens) which do not adversely affect Lessee's use and enjoyment of the
Premises for purposes described in paragraph 2 of Exhibit B, and (f)
encumbrances created by, at the request of or with the approval of Lessee.
4. In the event of Lessee's exercise of its option to purchase
pursuant to paragraph III.D, Lessor shall clear from the title all encumbrances
voluntarily granted by Lessor and shall use reasonable efforts to remove any
attachment or other involuntary encumbrance suffered by Lessor or otherwise
arising after the date of this lease other than those permitted by the foregoing
paragraph 3.
a. If, on the day for delivery of the deed pursuant to the
foregoing paragraph 1, the Property is subject to any
attachment or other involuntary encumbrance other than those
so permitted, Lessee shall cooperate
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<PAGE> 57
with Lessor, by postponing the time for the delivery of the
deed for a period of thirty (30) days and otherwise, as may be
reasonable in the circumstances, to afford Lessor full
opportunity to remove any such encumbrance.
b. For purposes of this paragraph Lessor shall not be deemed to
have failed to use every reasonable effort by reason of his
failure to obtain a discharge of an encumbrance which Lessor
is contesting in good faith and by appropriate legal
proceedings, if Lessor provides reasonable security and
indemnification against any loss caused by such encumbrance
either (i) to Lessee or (ii) to a company issuing an owner's
title insurance policy without exception for such encumbrance,
as Lessee may elect; and "reasonable efforts" shall in no
event require Lessor to expend more than the amount of
Lessee's deposit(s) pursuant to paragraph III.D of this lease.
c. In no event shall deposited funds be used to remove an
encumbrance; but Lessor may, at the time of delivery of the
deed, use the purchase money or any portion thereof to clear
the title of any or all encumbrances or interests, if any
instrument so procured be recorded contemporaneously with
the delivery of said deed or arrangements reasonably
satisfactory to Lessee be made for the later recording
thereof.
d. Lessee shall have the election, at either the original or any
extended time for performance, to accept such title as
Lessor can deliver to the Property and to pay therefor the
purchase price without deduction, in which case Lessor shall
convey such title. If, despite reasonable efforts, including
the use of purchase money as permitted by the preceding sub-
paragraph c, Lessor is unable to remove an involuntary
encumbrance upon the title, then all deposits shall be
forthwith refunded and all other obligations of all parties
with respect to purchase and sale of the Property shall cease
and shall be void and without recourse to the parties.
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<PAGE> 58
5. The Property shall be delivered in whatever condition the same
may then be. If the Property is damaged by fire or other casualty or by the
taking for public purposes of all or such portion thereof as would reduce
available parking below 116 spaces or impair access thereto after Lessee's
election to purchase the same but prior to the time for delivery of the deed,
Lessee may, by notice in writing received by Lessor within fifteen (15) days
after such event, rescind the election to purchase. If Lessee does not rescind
the election, Lessor shall, in addition to delivering a deed as aforesaid,
assign or pay over (as the case may be) to Lessee, without deduction on account
of any mortgage, all right, title, and interest of Lessor in and to any claim or
right of action on account of such casualty or taking or the net proceeds
thereof; and Lessee shall pay the agreed purchase price without deduction. If
such casualty or taking occurs after Lessee has given notice of election to
purchase pursuant to paragraph III.D, either Lessor or Lessee may, by further
notice to the other, accelerate the closing of said purchase; in that event the
deed shall be delivered at the Registry at 10:00 a.m. on the day specified in
such further notice which shall be at least ninety (90) days after such further
notice but not later than the day when the closing would have been held in the
absence of such casualty or taking.
6. The acceptance of a deed by Lessee or Lessee's nominee (as the
case may be) shall be deemed to be an acknowledgment of
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<PAGE> 59
full performance and a discharge of every agreement and obligation herein
contained or expressed, except such as are, by the terms hereof, to be performed
after the delivery of said deed.
7. If as of the day for delivery of the deed the Lessee be in
default in the payment of any money due hereunder, and if the Lessor shall have
specified such default by not less than seven (7) calendar days' written notice
to Lessee given within a reasonable time after such money became due (except in
the case of a default within fourteen days (14) prior to the day of delivery of
the deed, which shall be specified in a similar notice as early as practicable),
the amount of such money and any interest or other charges due in connection
therewith shall be added to the purchase price and paid by Lessee as a condition
precedent to delivery of the deed.
8. Rents, water and sewer use charges, other utilities and taxes
for the then current year shall be apportioned as of the day of delivery of the
deed, and the net amount thereof shall be added to or deducted from, as the case
may be, the purchase price payable by Lessee at the time of delivery of the
deed. If the amount of said taxes is not known at the time of the delivery of
the deed, they shall be apportioned on the basis of the taxes assessed for the
preceding year, with a reapportionment as soon as the new tax rate and valuation
can be ascertained. If the taxes which are thus apportioned shall thereafter be
reduced by abatement, the net proceeds of such abatement shall be apportioned
between the parties. However,
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neither party shall be obligated by this paragraph to institute or prosecute
proceedings for an abatement.
9. If Lessee, after giving notice of such election to purchase,
fails to purchase the Property when and as herein provided, all deposits
applicable thereto shall be retained by Lessor as liquidated damages in lieu of
any other right Lessor might have by reason of such failure to purchase.
Lessee's failure to purchase the Property shall not constitute a default for
purposes of the lease.
10. Lessor shall cooperate with Lessee in any reasonable and
customary manner which does not impose direct or indirect liability on Lessor,
at Lessee's expense, to facilitate acquisition by Lessee of purchase money
financing to purchase the property. Lessor shall not unreasonably withhold,
delay or condition his execution of instruments or documents requested by a
lender, provided that such instruments or documents do not adversely affect the
moneys due to Lessor or the other rights and privileges of Lessor hereunder.
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EXHIBIT 10.12
NEW ENGLAND AUDIO CO., INC.
1995 STOCK OPTION PLAN
----------------------
1. PURPOSE. This 1995 Stock Option Plan (the "Plan") is intended to
provide incentives: (a) to employees, and officers and directors who are also
employees of New England Audio Co., Inc., a Massachusetts Corporation (the
"Company"), and any present or future parent or subsidiaries of the Company
(collectively, "Related Corporations") by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" under Section 422A(b) of the Internal
Revenue Code of 1986 (the "Code") ("ISO" or "ISO's"); and (b) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
425 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board"). The Board may appoint a
Compensation Committee or a Stock Option Plan Committee (as the case may be, the
"Committee") of three or more of its members to administer the Plan and to grant
Options hereunder, provided such Committee is delegated such powers in
accordance with state law. (All references in this Plan to the "Committee" shall
mean the Board if no such Compensation Committee or Stock Option Plan Committee
has been so appointed). In the event the Company registers any class of any
equity security pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Plan shall be administered in accordance
with the disinterested administration rules and other applicable rules set forth
in Rule 16b-3 or any successor provisions of the Exchange Act ("Rule 16b-3").
B. AUTHORITY OF BOARD OR COMMITTEE. Subject to the terms of the Plan, the
Committee shall have the authority to
(i) determine the employees of the Company and Related Corporations
(from among the class of employees eligible under paragraph 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from
among the class of individuals and entities eligible under paragraph 3
to receive Non-Qualified Options) to whom Non-Qualified Options may be
granted; (ii) determine the time or times at which options may be
granted;
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(iii) determine the option price of shares subject to each Option,
which price shall not be less than the minimum price specified in
paragraph 6, and the purchase price of shares subject to each
purchase; (iv) determine whether each Option granted shall be an ISO
or a Non-Qualified Option; (v) determine (subject to paragraph 7) the
time or times when each Option shall become exercisable and the
duration of the exercise period; (vi) determine whether restrictions,
such as repurchase rights, are to be imposed on shares subject to
Options and the nature of such restrictions, if any, and (vii)
interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified
option, it shall take whatever actions it deems necessary, under
Section 422A of the Code and the regulations promulgated thereunder,
to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of
the Plan granted under it shall be final unless otherwise determined
by the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No member
of the Board or the Committee shall be liable for any action,
determination or omission made in good faith with respect to the Plan
or any options granted under it.
C. COMMITTEE ACTIONS. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
D. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Options may be granted to
members of the Board, in compliance with Rule 16b-3 as required by the last
sentence of paragraph 2A. All grants of Options to members of the Board shall in
all other respects be made in accordance with the provisions of this Plan
applicable to other eligible persons.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options may be granted to any employee, officer or director
(whether or not also an employee) or consultant of the Company or any Related
Corporation. The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO or a Non-Qualified Option.
Granting of any Option to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from, participation in any other
grant of Options.
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<PAGE> 3
4. STOCK. The stock subject to Options shall be authorized but unissued
shares of Common Stock of the Company, no par value (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner. The aggregate
number of shares which may be issued pursuant to the Plan is 760,200, subject to
adjustment as provided in paragraph 13. Any such shares may be issued as ISOs or
Non-Qualified Options so long as the aggregate number of shares so issued does
not exceed such number, as adjusted. If any Option granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such Options shall again be available for grants
of Options under the Plan.
5. GRANTING OF STOCK RIGHTS. Options may be granted under the Plan at any
time after November 3, 1995 and prior to November 2, 2005. The date of grant of
an Option under the Plan will be the date specified by the Committee at the time
it grants the Option; provided, however, that such date shall not be prior to
the date on which the Committee acts to approve the grant. The Committee shall
have the right, with the consent of the optionee, to convert an ISO granted
under the Plan to a Non-Qualified Option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the lesser of (i) the book value per
share of Common Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant, or (ii) fifty percent (50%) of the
fair market value per share of Common Stock on the date of such grant.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any
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options granted to an employee in excess of such amount will be granted as
Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market List. However, if the Common
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors in good
faith it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee and set forth in the original instrument granting such Option, but not
more than ten years from the date of grant. Notwithstanding the foregoing, in
the case of ISOs granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Related Corporation, such ISOs shall expire not more than five
years from the date of grant. Non-Qualified Options shall expire on the date
specified in the instrument granting such Non-Qualified Options, subject to
extension as determined by the Committee. ISOs, or any part thereof, that have
been converted into Non-Qualified Options may be extended as provided in
paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
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C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not accelerate the exercise date of any
installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph 16)
if such acceleration would violate the annual vesting limitation contained
in Section 422A(d) of the Code, as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Nothing in the Plan shall be deemed to give
any grantee of any Option the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
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<PAGE> 6
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan. Without limiting the foregoing, such provisions may include
rights of refusal and repurchase with respect to shares of Common Stock issuable
upon exercise of Options, and such other restrictions applicable to shares of
Common Stock issuable upon exercise of Options as the Committee may deem
appropriate. In granting any Non-Qualified Option, the Committee may specify
that such Non-Qualified Option shall be subject to the restrictions set forth
herein with respect to ISOs, or to such other termination, cancellation or other
provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. CONSOLIDATIONS, MERGERS OR SALES OF ASSETS OR STOCK. If the Company is
to be consolidated with or acquired by another person or entity in a merger,
sale of all or substantially all of the Company's assets or stock or otherwise
(an "Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board") shall,
with respect to outstanding Options or shares acquired upon exercise of any
option, take one or more of the following actions: (i) make appropriate
provision for the continuation of such options by substituting on an equitable
basis for the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition; (ii) accelerate the date of exercise of such Options or of any
installment of any such
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options; (iii) upon written notice to the optionees, provide that all Options
must be exercised, to the extent then exercisable, within a specified number of
days of the date of such notice, at the end of which period the Options shall
terminate; (iv) terminate all Options in exchange for a cash payment equal to
the excess of the fair market value of the shares subject to such Options (to
the extent then exercisable) over the exercise price thereof; or (v) in the
event of a stock sale, require that the optionee sell to the purchaser to whom
such stock sale is to be made, all shares previously issued to such optionee
upon exercise of any Option, at a price equal to the portion of the net
consideration from such sale which is attributable to such shares.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an optionee upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have received if
he had exercised his Option prior to such recapitalization or reorganization and
had been the owner of the Common Stock receivable upon such exercise at such
time.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to the foregoing subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 425 of the Code or any
successor thereto) or would cause any adverse tax consequences for the holders
of such ISOs. If the Committee determines that such adjustments made with
respect to ISOs would constitute a modification of such ISOs, it may refrain
from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company (and, in the case of securities
of the Company, such adjustments shall be made pursuant to the foregoing
subparagraph A).
G. FRACTIONAL SHARES. No fractional shares shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
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H. ADJUSTMENTS. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Options which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and its determination shall be conclusive.
If any person or entity owning Common Stock obtained by exercise of an Option
made hereunder receives shares or securities or cash in connection with a
corporate transaction described in subparagraphs A, B or C above as a result of
owning such Common Stock, such shares or securities or cash shall be subject to
all of the conditions and restrictions applicable to the Common Stock with
respect to which such shares or securities or cash were issued, unless otherwise
determined by the Committee.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, or (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, or (c) at
the discretion of the Committee, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(d) at the discretion of the Committee, by any combination of (a), (b) and (c)
above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
or (d) of the preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the ISO in question. The holder of a Option shall
not have the rights of a shareholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to him for such shares.
Except as expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board and
approved by the stockholders of the Company on November 3, 1995. If the approval
of stockholders is not obtained by such one year anniversary, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
on November 2, 2005 (except as to Options outstanding on that date). Subject to
the provisions of paragraph 5 above, Options may be granted under the Plan prior
to the date of stockholder approval of the Plan.
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The Board may terminate or amend the Plan in any respect at any time,
except that, without the approval of the stockholders obtained within 12 months
before or after the Board adopts a resolution authorizing any of the following
actions: (a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to paragraph 13); (b) the
provisions of paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board, the Committee or stockholders alter or impair the
rights of a grantee under any Option previously granted to him, without his
consent.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION-OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, or for the making of a Disqualifying Disposition (as
described in paragraph 20), the Company, in accordance with Section 3402(a) of
the Code, may require the optionee to pay additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income. The Committee in its
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discretion may condition the exercise of an Option on the grantee's payment of
such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or
(b) one year after the date the employee acquired Common Stock by
exercising the ISO. If the employee has died before such stock is sold,
these holding period requirements do not apply and no Disqualifying Disposition
can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Options shall be governed by the laws of the
Commonwealth of Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized. In construing this Plan,
the singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
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EXHIBIT 10.18
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of May 13, 1996 between NEW ENGLAND AUDIO
CO., INC., a Massachusetts corporation with a mailing address at 40 Hudson Road,
Canton, Massachusetts 02021 (the "Company"), and FRED LOKOFF, an individual
residing at 741 North Ithan Avenue, Bryn Mawr, Pennsylvania 19010 (the
"Consultant").
WHEREAS, pursuant to an Asset Purchase Agreement (the "Asset Purchase
Agreement") dated as of the date hereof by and among the Company, Bryn Mawr
Radio & Television Centre, Inc., a Pennsylvania corporation (the "Seller"), and
the Consultant, the Company is acquiring the Assets (as defined in the Asset
Purchase Agreement) of the Seller;
WHEREAS, the Consultant owns all of the outstanding voting securities of
the Seller, and is currently the Chairman of the Seller; and the Consultant has
extensive and valuable knowledge of the Seller, its businesses, markets and
customers; and
WHEREAS, the Asset Purchase Agreement provides that the Consultant and
the Company execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
Company and the Consultant agree as follows:
1. TERM OF CONSULTING. The Company hereby retains the Consultant to
provide consulting services to the Company, and the Consultant hereby agrees to
provide consulting services to the Company, on the terms and conditions set
forth herein, for a period of seven years from and after the date hereof (the
"Consulting Period").
2. DUTIES. During the Consulting Period, the Consultant will be
available, upon reasonable notice and at reasonable times during normal business
hours, to render to the Company, on an as needed basis, such advice pertaining
to the Company's operation of the Seller Business (as defined in the Asset
Purchase Agreement) or otherwise pertaining to the retail sale of consumer
electronic and entertainment products as may be reasonably requested by the
President or Chairman of the Company. Consulting services hereunder may be
rendered by telephone or letter or in any other form as may be mutually agreed
upon by the parties hereto and need not be rendered in person. The Consultant's
obligation to provide services hereunder shall not prevent the Consultant from
engaging in any other services or activities, provided that such services are
not in contravention of this Consulting Agreement or the Consultant's covenants
under the Asset Purchase Agreement, including his covenants under Section 7.5
thereof. Consultant shall not be
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required to render any services hereunder which will require his travel beyond
twenty-five (25) miles from the current location of Seller's principal office as
320 South Henderson Road, King of Prussia, Pennsylvania, and the Company
acknowledges that the Consultant spends extended periods of time outside of the
greater Philadelphia metropolitan area and will continue with such practice
during the Consulting Period.
3. COMPENSATION AND BENEFITS. Subject to the provisions of Section 5
below, during the Consulting Period the Company will pay the Consultant monthly
base compensation of $20,833.33 for each month during the first two years of the
Consulting Period (i.e., months one through twenty-four, inclusive), and
$4,166.66 for each month during years three through seven, inclusive, of the
Consulting Period (i.e., months twenty-five through eighty-four, inclusive)
("Compensation"). The Company will reimburse the Consultant for all reasonable
expenses paid or incurred by the Consultant with the prior approval of the
Company while traveling at the Company's request in connection with, or related
to, the rendering of consulting services under this Consulting Agreement, upon
presentation by the Consultant of such documentation, expense statements,
vouchers and other supporting information as the Company may reasonably request.
The Compensation and reimbursement for expenses as provided for in this Section
3 shall be the sole compensation paid to the Consultant for services rendered
pursuant to this Consulting Agreement. Without limiting the generality of the
foregoing, Consultant shall not be entitled to any fringe benefits or to
participate in any of the Company's plans providing for such fringe benefits.
In the event of the Consultant's death during the Consulting Period, the
Company shall pay to the Consultant's estate an amount equal to $750,000 less
all Compensation paid to the Consultant prior to his death, and this payment
shall be the Company's complete and exclusive liability to the Consultant or his
estate hereunder.
In addition, if the Company consummates, at any time during years four
through seven, inclusive, of the Consulting Period, an underwritten public
offering of its stock pursuant to an effective registration statement under the
Securities Act of 1933, and such public offering is for the account of the
Company to the public generally and provides net proceeds to the Company (after
underwriter commissions and discounts) of not less than $10,000,000, then the
remaining Compensation unpaid hereunder (i.e., $750,000 less all Compensation
previously paid to the Consultant) shall be prepaid within thirty (30) days
following the closing of such public offering. Such prepayment shall not operate
as a termination of this Agreement, and the Consultant shall continue to provide
consulting services hereunder through the remainder of the Consulting Period,
with no further Compensation to be due or owing to the Consultant.
4. NON-COMPETITION AND NON-DISCLOSURE. The Consultant acknowledges
that he has made certain covenants to the Company under the Asset Purchase
Agreement, including without limitation his covenants under Section 7.5 of the
Asset Purchase Agreement (which Section 7.5 includes, among other things, the
Covenant Not to Compete, as defined therein, and certain covenants relating to
non-disclosure of certain
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<PAGE> 3
information). The Consultant hereby reaffirms such covenants, and agrees that
such covenants and this Section 4 shall survive, in accordance with their
respective terms, notwithstanding the expiration, cancellation or termination of
this Agreement.
5. RIGHT OF SETOFF. The Consultant agrees and acknowledges that during
the Consulting Period, the Company may setoff against the Compensation to be
paid hereunder any claims of the Company against the Consultant under the terms
of the Asset Purchase Agreement; PROVIDED THAT (a) before exercising such right
of setoff, the Company shall first send to the Consultant the notice required,
if and only if any notice is so required, by Section 9.14(E) of the Asset
Purchase Agreement with respect to such claim and (b) the Company shall only
exercise such right of setoff to the extent that payments are not being made to
the Company on account of such claim pursuant to Section 9.14(E)(iv) of the
Asset Purchase Agreement.
6. RELIEF IN CASE OF BREACH. The Company and the Consultant
acknowledge and agree that the Consultant's services hereunder are unique and
have a peculiar value to the Company, and that the Company cannot adequately be
compensated in money damages for their loss. Therefore, if the Consultant is in
breach of any provision of his obligations hereunder, the Company shall be
entitled, in addition to all other rights and remedies as may be provided by
law, to specific performance, injunctive and other equitable relief to prevent
or restrain a breach of this Agreement or to enforce this Agreement and its
provisions.
7. RELATIONSHIP. The relationship between the Consultant and the
Company shall be that of independent contractors and nothing in this Agreement
shall be construed to constitute either the Consultant nor the Company as a
partner, employee or agent of the other. Neither the Consultant nor the Company
shall have the authority to bind the other in any manner without the prior
written consent of the other.
8. NOTICES. For purposes of all notices required or permitted
hereunder, the provisions of Section 9.8 of the Asset Purchase Agreement are
hereby incorporated herein and made a part hereof.
9. GENERAL. This Consulting Agreement constitutes the entire agreement
between the Company and the Consultant and supersedes all prior agreements and
understandings, written or oral, relating to the subject matter hereof. This
Consulting Agreement may be amended, modified, changed or discharged, in whole
or in part, only in a written instrument executed by the Company and the
Consultant. The invalidity or unenforceability of any provision of this
Consulting Agreement shall not affect the validity or enforceability of any
other provision of this Consulting Agreement. The waiver of any breach or
default under this Consulting Agreement shall be valid only if in writing. Any
such waiver shall not constitute the waiver of the same breach or default on any
subsequent occasion or of any other breach or default. The Company may assign
its rights under this Consulting Agreement at any time (provided that no such
assignment shall relieve the Company of its obligations to the Consultant
hereunder unless the
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<PAGE> 4
Consultant has previously consented to such assignment), but the Consultant may
not assign this Agreement, by operation of law or otherwise, and may not
delegate his duties hereunder. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and subject to the
preceding sentence, the Consultant, his executors, estate and heirs. This
Agreement shall be governed by and construed, interpreted and enforced as a
sealed instrument under and in accordance with the laws of the Commonwealth of
Massachusetts, without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ Fred Lokoff
-----------------------------
Fred Lokoff
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
------------------------
Title: President
---------------------
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<PAGE> 5
AGREEMENT
AGREEMENT dated as of April 23, 1997 between New England Audio Co., Inc., a
Massachusetts corporation (the "Company"), and Fred Lokoff, an individual (the
"Consultant"), Kay Lokoff, an individual, and Bryn Mawr Radio & Television
Centre, Inc., a Pennsylvania corporation ("Bryn Mawr"). Reference is hereby made
to (a) that certain Consulting Agreement dated as of May 13, 1996 between the
Company and the Consultant (the "Consulting Agreement"), (b) that certain Escrow
Agreement dated as of May 13, 1996 between the Company, the Consultant, Bryn
Mawr, Kay, and Goulston & Storrs, P.C., as escrow agent (the "Escrow Agent"),
and (c) that certain Asset Purchase Agreement dated as of May 13, 1996 between
the Company, the Consultant, Bryn Mawr, and Kay (the "Purchase Agreement") and
the Guaranties referred to therein in favor of the Company by the Consultant and
Kay (the "Guaranties").
WHEREAS, the parties wish to amend the Consulting Agreement, to request the
release of the Deposit (as defined in the Escrow Agreement) pursuant to the
Escrow Agreement and to take such other actions as herein described.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties, hereto, the
Company and the Consultant agree as follows:
1. AMENDMENT OF CONSULTING AGREEMENT. The Consulting Agreement is hereby
amended as follows:
A. AMENDMENT TO SECTION 1. Section 1 (entitled "Term of Consulting")
of the Consulting Agreement is hereby amended by deleting the word "seven" and
inserting in place thereof the word "four."
B. AMENDMENT TO SECTION 3. Section 3 (entitled "Compensation and
Benefits") is hereby deleted and replaced in its entirety with the following:
3. COMPENSATION AND BENEFITS. Subject to the provisions of Section 5
below, during the Consulting Period the Company will pay the Consultant
monthly base compensation of $20,833.33 for each month during the first
year of the Consulting Period (i.e., months one through twelve, inclusive,
representing the year ending May 13, 1997), and $4,166.66 for each month
during years three through four, inclusive, of the Consulting Period (i.e.,
months twenty-five through forty-eight, inclusive, representing the
two-year period ending May 13, 2000) ("Compensation"). No Compensation or
other payments (other than those described in the succeeding sentence) will
be paid to you during the second year of the
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<PAGE> 6
Consulting Period (i.e., months thirteen through twenty-four, inclusive,
representing the year ending May 13, 1998). The Company will reimburse the
Consultant for all reasonable expenses paid or incurred by the Consultant
with the prior approval of the Company while traveling at the Company's
request in connection with, or related to, the rendering of consulting
services under this Consulting Agreement, upon presentation by the
Consultant of such documentation, expense statements, vouchers and other
supporting information as the Company may reasonably request. The
Compensation and reimbursement for expenses as provided for in this Section
3 shall be the sole compensation paid to the Consultant for services
rendered pursuant to this Consulting Agreement. Without limiting the
generality of the foregoing, Consultant shall not be entitled to any fringe
benefits or to participate in any of the Company's plans providing for such
fringe benefits.
In the event of the Consultant's death during the Consulting Period,
the Company shall pay the Consultant's estate an amount equal to $350,000
less all Compensation paid to the Consultant prior to his death, and this
payment shall be the Company's complete and exclusive liability to the
Consultant or his estate hereunder.
C. FULL FORCE AND EFFECT. Except as otherwise specifically amended as
set forth herein, the Consulting Agreement shall remain unchanged and in full
force and effect.
2. ESCROW RELEASE. The Company, Consultant Kay and Bryn Mawr shall and
hereby do request the Escrow Agent to release the Deposit under the Escrow
Agreement and to deliver such Deposit to the Consultant for and on behalf of
the Consultant, Kay and Bryn Mawr pursuant to the Consultant's authority as
attorney-in-fact for Kay and Bryn Mawr under Section 10(f) of the Escrow
Agreement. Each of the Company, Consultant, Kay and Bryn Mawr do hereby agree
and certify that such request constitutes "a joint written direction from the
Purchaser and the Seller" as that phrase is used in Section 5(a) of the Escrow
Agreement, and that a copy of this Section 2 shall be provided to the Escrow
Agent in connection therewith.
3. INSURANCE AMOUNTS. The Company hereby agrees that it shall pay to the
Consultant any amounts in excess of $67,000, if any, which the Company receives
from ITT Hartford Insurance Company on account of the theft of inventory and
other assets as well as business interruption of Bryn Mawr at its Henderson
Road location in November of 1995 pursuant to the specific insurance policy
which the Company acquired from Bryn Mawr and which insured against such loss.
In the event that the amount so received from ITT Hartford Insurance Company on
account of such loss under such policy is less than $67,000, the Consultant
shall not be responsible for paying the amount of any such deficiency to the
Company.
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<PAGE> 7
4. GENERAL.
(a) The parties acknowledge and agree that the execution, delivery
and performance of this Agreement, including without limitation payment of the
amounts described in Section 3, above, are being made in settlement of certain,
specific indemnification claims which have arisen prior to the date hereof in
the aggregate amount of $650,000 by the Company against Bryn Mawr, the
Consultant and Kay in connection with the Purchase Agreement, the Guaranties
and the transactions contemplated thereby. The parties further acknowledge and
agree that said settlement shall in no way affect any of the Company's rights
or remedies with respect to, or otherwise impact or affect, (1) such settled
claims to the extent exceeding, in the aggregate, $650,000, or (2) any other
claims the Company may have at any time and from time to time against Bryn Mawr,
the Consultant or Kay, including without limitation any other such claims for
indemnification under the Purchase Agreement. In connection therewith, the
parties agree that neither the Purchase Agreement nor the Guaranties have been
in any way amended, modified or affected by this Agreement, and that said
Purchase Agreement (including without limitation Section 9.14 thereof), and
said Guaranties all remain in full force and effect for all purposes.
(b) This Agreement shall be governed by and construed, interpreted
and enforced as a sealed instrument under and in accordance with the laws of
the Commonwealth of Massachusetts, without regard to conflicts of laws
principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
/s/ Fred Lokoff
----------------------------
Fred Lokoff
/s/ Kay Lokoff
----------------------------
Kay Lokoff
BRYN MAWR RADIO & TELEVISION
CENTRE, INC.
By: /s/ Fred Lokoff
------------------------
Title: Chairman of Board
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
------------------------
Jeffrey S. Stone
Title: President
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<PAGE> 1
EXHIBIT 10.19
New England Audio Co., Inc.
40 Hudson Road
Canton, Massachusetts 02021
June 1, 1997
Mr. David Ginsburg
c/o New England Audio Co., Inc.
40 Hudson Road
Canton, MA 02021
Dear David:
The purpose of this letter is to confirm the following as the terms of your
employment by New England Audio Co., Inc. (the "Company"):
1. SCOPE AND DUTIES OF EMPLOYMENT: The Company hereby employs you to serve
as a Regional Vice President of the Company for the HiFi Buys Division,
operating out of Atlanta, GA. You shall have such responsibilities, perform
such duties and exercise such power and authority as may be assigned to you
from time to time by the President of the Company. You shall devote your full
time and attention to the performance of your duties as an employee of the
Company and you may be required to undertake reasonable travel at the Company's
expense.
2. TERM: The term of your employment under this agreement shall commence as
of the date hereof (the "Commencement Date") and end on September 30, 1999;
provided, however, that either party may terminate your employment hereunder in
accordance with Paragraph 5(c) hereof.
3. SALARY: From the commencement date through 9/30/98, you shall be paid a
base annual salary of $125,000. Salary for the period October 1, 1998 through
September 30, 1999 will be determined and based upon performance and goal
achievement for the prior period.
Your Base Salary shall be paid bi-weekly, or more frequently, in the same
manner and at the same time as other executive staff members of the Company are
paid.
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<PAGE> 2
4. FRINGE BENEFITS: You shall be entitled to reimbursement for reasonable
business expenses incurred for travel, and you shall be entitled to a monthly
$350 car allowance and a company gas credit card to cover business related
automobile travel. You shall also be entitled to receive such benefits and to
participate in such benefit plans to the extent generally provided or funded
(whether fully or partially), from time to time by the Company to or for its
other employees generally, including, without limitation, health and other
medical benefits and "General Benefits". The company will continue payment of
your life insurance and disability insurance policies as provided on the
attachments (see Attachment I and II).
5. TERMINATION OF EMPLOYMENT:
(a) YOUR DEATH: If your death shall occur at any time during the
term of this agreement, then your employment by the Company shall automatically
terminate on the date of your death. In such event, not more than ninety (90)
days from and after the date of your death, the Company shall pay to your estate
or heirs, as the case may be, an amount in cash equal to such of your Base
Salary as shall have been earned and due to you, but not paid, as of the date of
your death.
(b) PERMANENT DISABILITY: If at any time during the term of this
agreement you shall become permanently disabled (i.e. unable for a period of
three (3) consecutive months to perform your duties hereunder), then the Company
may terminate your employment under this agreement upon thirty (30) days prior
notice to you. In such event, you shall be entitled to the following payments:
(i) any Base Salary as shall have been earned and due to you, but
not paid, at the time of such termination; and
(ii) continuation of your Base Salary for the three months
following such termination less any amounts received by you
pursuant to any disability insurance policy provided to you by
the Company during the period for which such salary payments
are to continue; and
(iii) beyond the period for which such salary is to be continued
pursuant to the preceding clause (ii), you or your legal
representatives, as the case may be, shall also be entitled to
receive any remaining benefits which may be payable under any
such disability insurance policy or disability plan provided
to you by the Company.
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<PAGE> 3
(c) OTHER: Your employment with the Company may be terminated, for
any cause or reason (other than your death or permanent disability, which are
dealt with in preceding provisions), or without cause or reason, by the giving
of notice as described in the last sentence of this paragraph. In the event that
your employment with the Company shall be so terminated by the Company, you
shall nevertheless be entitled to the continuation of your Base Salary for the
duration of this contract following such termination unless your employment
shall be so terminated by the Company for "cause" (hereinafter defined) in which
case you will not be entitled to any such continuation of salary whatsoever. In
addition, in the event that you terminate your employment hereunder, you will
not be entitled to any such continuation of salary. For purposes hereof, "cause"
shall mean any of the following: (i) any action or inaction by you which shall
constitute fraud, embezzlement or misappropriation against or upon the Company,
(ii) your breach of Section 6 or Section 7 of this Agreement or your gross
negligence or willful misconduct in connection with your other duties or
obligations hereunder, or (iii) your conviction for any felony, perjury, or any
other crime involving moral turpitude. Your employment may be terminated
pursuant to this subparagraph (c) by notice given by either party to the other
at least thirty (30) days (or such other period as we may mutually agree upon)
prior to the effective date of such termination specified in such notice;
provided that if the Company shall so terminate for cause, such notice may
provide for an immediate effective date.
6. NON-COMPETE: During the term of your employment hereunder, and for a
period of one year after the expiration of the maximum term hereof as described
in Section 2, you shall not: (1) directly or indirectly, own, manage, operate,
finance, join, or control, or participate in the ownership, management,
operation, financing or control of, or be associated as a director, partner or
representative in connection with, any profit or not-for-profit business or
enterprise that distributes or sells consumer electronic or entertainment
products (other than your passive investment or ownership of up to five percent
(5%) of the outstanding capital stock of any publicly-traded corporation that
distributes or sells consumer electronic or entertainment products); or (2)
directly or indirectly solicit, induce or attempt to induce any person employed
by the Company to enter your employ or the employ of any other person or entity.
During the one year period after termination of employment, this exclusion
clause will relate to retail related employment solely.
7. CONFIDENTIAL INFORMATION: You also agree that you will not at any time,
whether during or after your employment with the Company, divulge, or permit to
be divulged to others, or use in any way any Proprietary Information (as
defined below) except (a) in accordance with the Company's prior written
authorization, or (b) as may be required by applicable law, but only after you
have given the Company not less than twenty (20) business days' notice that you
are legally required to make such disclosure and describing the circumstances
surrounding such required disclosure so as to enable the Company, at its
expense, to attempt to obtain an appropriate order or finding to prevent such
disclosure.
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<PAGE> 4
As used herein, the term "Proprietary Information" shall mean:
(a) All inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulas, designs, products, projects,
improvements and developments which are not lawfully in the public
domain and which were or are conceived or reduced to practice at any
time prior to the termination of your employment with the Company, in
whole or in part, by any of the Company's employees or consultants, at
the expense of the Company, on the premises of the Company, or with the
Company's equipment; and
(b) All client and customer lists and trade secrets owned or used by
the Company; and any other data, information, documents or forms
pertaining to the financial condition, business affairs or prospects of
the Company, including, without limitation, any such information
relative to customers or suppliers, samples, sketches, bulletins,
memoranda, correspondence, forms and records (including financial
statements), information concerning sources of supply, costs of
manufacture and sale and specifications of equipment; whether or not
any of the foregoing is published or unpublished, protected or
susceptible to protection under patent, trademark, copyright or similar
laws and whether or not any party has elected to secure or attempted to
secure such protection;
but such term shall not include documents, data or information lawfully
in the public domain, or which you have acquired lawfully from a third
party with no duty or obligation of confidentiality or non-disclosure
to the Company.
You also knowledge that any breach of the covenants contained in Section 6 or
Section 7, above, would cause an irreparable injury to the Company and that
damages and remedies at law for any breach of any such covenant would be
inadequate, and therefore that, in addition to any other remedies available to
the Company, the Company shall be entitled to injunctive relief and other
equitable relief to prevent an actual, intended or probable breach of any such
covenant.
It is the desire and intent of you and the Company that the provisions of
Section 6 and Section 7, above, be enforced to the fullest extent permissible
under the laws, regulations and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provision or portion of Section 6
or Section 7 shall be adjudicated to be invalid, ineffective or unenforceable,
then such Section 6 or Section 7 shall be deemed automatically amended to delete
therefrom such provision or portion adjudicated to be invalid, ineffective or
unenforceable, such amendment to apply only with respect to the operation of
such provision in the particular jurisdiction with respect to which such
adjudication is made.
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<PAGE> 5
8. MISCELLANEOUS:
(a) GOVERNING LAW: This agreement shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts,
without application of any principles governing conflicts of laws.
(b) ENTIRE AGREEMENT: This Agreement constitutes the entire
agreement between you and the Company, with respect to the subject matter hereof
and supersedes all prior negotiations, agreements, understandings and
arrangements, both oral and written, between you and the Company with respect to
such subject matter. This agreement may not be modified in any way, except by a
written instrument executed by each of you and the Company.
(c) NOTICES: Any and all notices required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered by hand or two (2) days after delivery to a recognized
national overnight courier for overnight delivery or three (3) days after being
deposited in the United States mail, by registered or certified mail, return
receipt requested, postage prepaid, as follows:
If to the Company: New England Audio Co., Inc.
40 Hudson Road
Canton, Massachusetts 02021
If to you: David Ginsburg
95 West Battery Place
Atlanta, GA 30342
or to such other address as a party may from time to time give written notice of
to the other.
(d) BENEFITS: BINDING EFFECT: This agreement shall be for the
benefit of, and shall be binding upon, each of you and the Company and our
respective heirs, personal representatives, legal representatives, successors
and assigns but this agreement may not be assigned by you.
(e) SEVERABILITY: The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this agreement shall not
affect the enforceability of the remaining portions of this agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law. In the event that any one or more of the words, phrases, sentences, clauses
or sections contained in this agreement shall be declared invalid by a court of
competent jurisdiction, then, in any such event, this agreement shall either be
enforced to the extent lawful and valid under applicable law or construed as if
such invalid word or words, phrase or phrases, sentence or sentences, clause or
clauses, or section or sections had not been inserted.
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<PAGE> 6
(f) WAIVERS: The waiver by any party hereto of a breach or
violation of any term or provision of this agreement by another party shall not
operate nor be construed as a waiver of any subsequent breach or violation of
any provision of this agreement nor of any other right or remedy.
(g) SECTION HEADINGS: The section headings contained in this
agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of any or all of the provisions of this agreement.
(h) COUNTERPARTS: This agreement may be executed in any number of
counterparts and by the separate parties hereto in separate counterparts, each
of which shall be deemed to constitute an original and all of which shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed and delivered this
agreement as of the date first above written.
/s/ David S. Ginsburg
-----------------------------------
[NAME]
NEW ENGLAND AUDIO CO., INC.
/s/ Jeffrey S. Stone
-----------------------------------
By: Jeffrey S. Stone
-------------------------------
hereunto duly authorized
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<PAGE> 1
EXHIBIT 10.20
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, dated as of May 30, 1997, by and among NEW
ENGLAND AUDIO CO., INC., a Massachusetts corporation with a mailing address at
40 Hudson Road, Canton, Massachusetts 02021 (the "Purchaser") and HIFI BUYS
INCORPORATED, a Georgia corporation with a mailing address at 1200-A Wilson Way,
Smyrna, Georgia 30082-9848 (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the retail sale of consumer electronic
and entertainment products in Georgia and
WHEREAS, the Seller desires to convey, sell, transfer and assign to the
Purchaser, and the Purchaser desires to purchase from the Seller, all of the
Assets (as hereinafter defined), and the Purchaser is willing to assume all of
the Assumed Liabilities (as hereinafter defined), on the terms and conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Assets.
SECTION 1.1 SALE OF ASSETS. Subject to the terms and conditions set forth
in this Agreement, the Seller does hereby sell, transfer, convey, assign and set
over ("Transfer") to the Purchaser, and the Purchaser does hereby purchase and
acquire from the Seller, all of the Seller's right, title and interest in and to
all of its properties, rights, claims, contracts and assets, tangible or
intangible, real or personal, choate or inchoate, wherever located
(collectively, "Properties"), but excluding, in all events, the Excluded Assets
(as hereinafter defined) (all such Properties so Transferred are hereinafter
collectively referred to as the "Assets").
SECTION 1.2 ASSETS; EXCLUDED ASSETS.
A. ASSETS. Without limiting the generality or effect of Section 1.1, the
following Properties are included in the Assets Transferred hereunder:
1. RECEIVABLES. Except for receivables relating to the Excluded
Assets, all trade, miscellaneous, accounts and notes receivable arising out of
the sale or
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<PAGE> 2
lease of goods or the rendering of services by the Seller, and all security for
any of the foregoing, including without limitation such of the foregoing as are
listed or described on SCHEDULE 1.2(A)(1) hereto (collectively, the
"Receivables").
2. FIXED ASSETS. Except as set forth in Section 1.2(B)(5) and except
for those assets set forth on SCHEDULE 1.2(B)(7), all machinery, equipment,
leasehold improvements, business machines, tooling, vehicles, parts, furniture,
furnishings, plant and office equipment and other fixed assets or personal
property owned, leased or otherwise held by or on behalf of the Seller,
including without limitation such of the foregoing assets as are owned by the
Seller and are located at any of the Current Locations (as hereinafter defined),
and the rights of the Seller as bailee of any of the foregoing assets, and
including without limitation the assets listed on the fixed asset register (the
"Fixed Asset Register") included as SCHEDULE 1.2(A)(2) hereto (collectively, the
"Fixed Assets").
3. INVENTORY. All inventories, including raw materials, parts, work
in process, goods held for sale, returns, repairs, finished goods and
manufacturing, administrative and other supplies owned by the Seller including,
without limitation, any of the foregoing which have been furnished to any
subcontractor or other bailee (collectively, the "Inventory").
4. COMMITMENTS. All rights of Seller under all contracts,
agreements, other rights of a contractual nature and franchises (collectively,
with all Manufacturer's Warranties, as defined below, "Commitments") to the
extent such Commitments relate to the Seller Business or the Assets (such
Commitments so transferred, the "Purchased Commitments"), including without
limitation such of the foregoing as are listed on SCHEDULE 1.2(A)(4) under the
heading "Purchased Commitments" but excluding those listed on SCHEDULE 1.2(A)(4)
under the heading "Non-Purchased Commitments".
5. PREPAID AND OTHER ITEMS. All credits, prepaid and deferred items
and advanced payments, other than prepaid insurance policy premiums, such as :
(i) rentals (but excluding prepaid rental received from third party subtenants
for their lease of space at the Excluded Real Property), (ii) security deposits
(but excluding security deposits received from third party subtenants in
connection with their lease of space at the Excluded Real Property), and (iii)
Taxes (but excluding prepaid Income Taxes and Taxes relating to any Excluded
Assets); and unbilled charges and deposits, and including without limitation
those prepaid items set forth on SCHEDULE 1.2(A)(5) hereto but excluding prepaid
business license fees which are not transferable with respect to the Current
Locations.
6. DATA AND RECORDS. Except for the Corporate Records (as defined in
Section 1.2(B)(2)), all data and records of the Seller, wherever located and
regardless of how stored or embodied and whether in electronic, written or other
form, including books and records (other than minute books and records of
meetings of the directors and
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stockholders of the Seller), customer lists, dealer and distributor lists,
credit information and correspondence, and employee records and information.
7. INTELLECTUAL PROPERTY. Except for those license agreements set
forth on Schedule 1.2(A)(4) as Non Purchased Commitments, if any, all licenses,
patents, copyrights, designs and drawings, engineering and manufacturing
documents, technical manuals, patterns, processes, formulae, know-how, trade
secrets, trademarks, service marks, trade names, inventions and discoveries
(whether patentable or not), computer software, and other similar rights of the
Seller, and all applications therefor and registrations thereof, including
without limitation (i) those listed in SCHEDULE 1.2(A)(7) hereto and (ii) all
other Proprietary Information (as hereinafter defined) of the Seller
(collectively, the "Intellectual Property") and all rights to sue for past,
present and future infringement or other violations of the Intellectual
Property. Without limiting the generality or effect of the foregoing, the
Intellectual Property includes the Seller's rights in the name "HiFi Buys" and
the phrase "Audio Video and a Boatload of Know How" and all trademark and
service mark rights relating to such names, if any, along with the rights
(common law or otherwise), registrations and logos and goodwill relating
thereto, if any, and to the design element and any variations or combinations
thereof and the goodwill relating thereto, if any. Notwithstanding the
foregoing, Purchaser hereby acknowledges and agrees that Seller has not filed
for a federal, state or other trademark registration of the name "HiFi Buys" or
any derivation thereof.
8. CASH AND DEPOSITS, ETC. All cash and deposits of cash and cash
equivalents, certificates of deposit, payroll accounts, securities (whether
certificated or uncertificated, and whether or not commonly dealt in on
securities exchanges or markets) and any similar cash investments of the Seller,
including without limitation all of the foregoing described on SCHEDULE
1.2(A)(8) hereof.
9. LEASES. The leasehold interests of the Seller under the leases
listed on SCHEDULE 1.2(A)(9) (such leases are referred to herein as the "Seller
Leases," and the real estate subject to such leases as the "Leased Real
Properties").
10. CLAIMS. Except as set forth in Section 1.2(B)(6), all claims,
counterclaims, cross claims and other claims and causes of action against third
parties and any rights to contribution (including without limitation rights to
indemnification) of the Seller.
11. PERMITS AND LICENSES. Except as set forth on Schedule 1.2(B)(7),
all permits, licenses, approvals, consents and authorizations issued by any
Governmental Entity (collectively, "Licenses") currently held by Seller,
including without limitation all of the Licenses listed on SCHEDULE 1.2(A)(11).
12. MANUFACTURERS' AND VENDORS' WARRANTIES. Except as set forth on
Schedule 1.2(B)(7), all of the Seller's rights under manufacturers' and vendors'
warranties, guaranties and similar commitments relating to items included in the
Assets
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(collectively, "Manufacturer's Warranties"), including without limitation all of
the Manufacturer's Warranties listed on SCHEDULE 1.2(A)(12).
13. OTHER ASSETS. Except for the Excluded Assets, all such other
Properties of the Seller that are located at, used in or relate to the conduct
of the Business at any of the Current Locations.
B. EXCLUDED ASSETS. Notwithstanding anything contained in this Agreement
to the contrary, the following Properties (the "Excluded Assets") are not
included in the Assets and Purchaser shall have no rights or claims thereto:
1. TAX REFUNDS. All state or federal Income Tax refunds due to the
Seller for periods prior to the Closing Date and all prepaid Income Taxes and
prepaid Taxes to the extent relating to any Excluded Assets.
2. MINUTE BOOKS, ETC. All of (a) the Seller's minute books, stock
record books and corporate seal and Tax records and (b) any other corporate
records of the Seller to the extent not pertaining to the Assets (collectively,
the "Corporate Records").
3. INSURANCE. Any policies of insurance, whether or not relating to
the Seller Business or the Assets and all prepaid insurance premiums and
refunds.
4. PENSION PLANS, ETC. Except for the assets of the CIGNA Healthcare
Plan provided by Connecticut General Life Insurance Company and the CIGNA
Healthcare Cash Management Program dated December 15, 1995, the assets of the
pension and other funded Benefit Plans (as hereinafter defined) or Benefit
Arrangements (as hereinafter defined), including without limitation, those
listed in SCHEDULE 1.2(B)(4) hereto.
5. CERTAIN REAL ESTATE. The fee interest of the Seller in the real
estate premises used by the Seller in the Seller Business at West Lidell Road,
Duluth, Georgia (collectively, the "Excluded Real Property") and the furniture,
fixtures, machinery and equipment located at the Excluded Real Property, used in
the Seller Business as presently conducted at the Excluded Real Property and
which are described on SCHEDULE 1.2(B)(5) (the "Excluded Personalty") (subject,
however, to the Purchaser's rights as tenant under the lease covering the
Excluded Real Property and the Excluded Personalty, referred to in Section
3.2(A)(3), below); and the leasehold interest (and related sublease) of Seller
in the real estate located at Old Cobb Parkway, Atlanta, Georgia 30339.
6. RETAINED CLAIMS. All claims, counterclaims, cross-claims and
other claims and causes of action against third parties and any rights to
contribution (including, without limitation, rights to indemnification) of the
Seller to the extent they relate to the Excluded Assets or the Excluded
Liabilities.
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7. OTHER EXCLUDED ASSETS. The "Non-Purchased Commitments" listed on
Schedule 1.2(A)(4) and the automobile and other assets listed on SCHEDULE
1.2(B)(7).
C. ADDITIONAL DEFINED TERMS.
1. "BUSINESS OR SELLER BUSINESS". As used herein, the terms
"Business" or "Seller Business" shall each mean the business as conducted by the
Seller at any time prior to Closing, pursuant to which the Seller engages or has
engaged in the retail sale of consumer electronic and entertainment products,
and any and all business activities incident or ancillary thereto.
2. "DISCLOSURE SCHEDULE". As used herein, the term "Schedule" or
"Disclosure Schedule" shall mean the Schedules attached hereto, which Schedules
are incorporated herein and made a part hereof, fully as if the same were herein
set forth in their entirety.
3. "CURRENT LOCATIONS". As used herein, the term "Current Locations"
shall mean, collectively, the locations and parcels of real estate which
together comprise the Excluded Real Property (absent the [8,000] square feet of
the Excluded Real Property allocated to a third party sub-tenant) and the Leased
Real Properties.
ARTICLE II
Purchase Price
Section 2.1. PAYMENT AT CLOSING. In consideration of the purchase and sale
of the Assets and the covenants herein contained, the Purchaser shall at the
Closing: (i) pay to the Seller, subject to adjustment as set forth in Section
2.2, the aggregate amount of $11,500,000, of which (a) $11,250,000 is being paid
by the Purchaser to the Seller on the Closing Date; and (b) $250,000 is being
delivered into escrow pursuant to the Escrow Agreement (as hereinafter defined);
(ii) pay to Wachovia Bank of Georgia, N.A. ("Wachovia") for the account of
Seller by wire transfer of immediately available funds, the amount of
$5,783,308.71 (the amounts to be paid under (i) and (ii) above are referred to
hereinafter, collectively, as the "Unadjusted Cash Payment"); (iii) execute and
deliver to the Seller (a) the Promissory Note (as hereinafter defined) and (b)
the Warrant (as hereinafter defined); and (iv) assume the Assumed Liabilities as
provided in Article IV hereof.
Section 2.2. POST-CLOSING ADJUSTMENT.
A. GENERAL. The Purchaser and the Seller acknowledge and agree that
the "November Net Asset Value" as shown on SCHEDULE 2.2(A) hereto is $1.3
million.
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The Unadjusted Cash Payment shall be reduced or increased dollar-for-dollar, as
the case may be, to the extent that the Closing Net Asset Value as determined as
provided in this Section 2.2, is less than or greater than $1,000,000 (as so
adjusted, the "Adjusted Cash Payment"). As used herein, the term "Closing Net
Asset Value" shall mean (i) the aggregate book value of the Assets less the
amount of the Assumed Liabilities as such categories of assets and liabilities
would be deemed to exist assuming the Closing had, in fact, occurred effective
at the close of business on May 31, 1997 plus (ii) the amount of the Wachovia
Debt paid under 2.1(ii) above, and shall be calculated in accordance with
Section 2.2(F).
B. PREPARATION OF CLOSING NET ASSET VALUE STATEMENT. Within 60
calendar days after the Closing Date, the Purchaser will cause its accountants,
Deloitte & Touche, or such other nationally known firm of independent public
accountants selected by the Purchaser and reasonably acceptable to Seller (the
"Purchaser's Accountants"), to prepare and deliver to the Seller an audited
balance sheet which fairly presents the Assets and the Assumed Liabilities,
calculated as provided in the last sentence of Section 2.2(A) above and in
accordance with Section 2.2(F), and which sets forth (1) a determination of the
Closing Net Asset Value and a computation of the Adjusted Cash Payment and (2)
the amount of the post-closing adjustment, if any, payable by the Seller or the
Purchaser, as the case may be, as provided in Section 2.2(A) (the "Closing Net
Asset Value Statement"). During such 60 day period, the Seller, the Purchaser
and their respective authorized representatives (including without limitation
the Seller's Accountants (as hereinafter defined) and the Purchaser's
Accountants) shall be entitled to access, during normal business hours, to the
books, records and work papers of the Seller and to provide input to the
Purchaser's Accountants during the preparation of the Closing Net Asset Value
Statement. As part of the preparation of the Closing Net Asset Value Statement,
the Purchaser's Accountants shall, without limitation, review and make such
adjustment, if any, as it shall deem necessary to any Assets reflecting accrued
manufacturer's COOP receivables and like items to ensure that the amount thereof
reflects accruals through the Closing for advertising funds, "key city" funds,
coop advertising funds, volume rebates and the like, based on amounts which
would be received by the Seller assuming its continued operation of the Business
following the closing in the ordinary course and consistent with past GAAP
accounting practices and reasonable projections. Without limiting the generality
of the foregoing, the Purchaser shall retain those employees of Seller set forth
on SCHEDULE 2.2(B) hereto, at their present salary, to assist in the preparation
of the balance sheet and the Closing Net Asset Value Statement during such
60-day period. Seller hereby agrees to reimburse Purchaser for one-half of the
wages paid to such employees during such 60-day period within 30 days after
receipt of an invoice therefor from Purchaser. In addition, the Purchaser and
the Seller shall otherwise cooperate with each other and with each other's
authorized representatives in connection with the preparation, audit and review
of the Closing Net Asset Value Statement, provided that the foregoing does not
unreasonably interfere with the other parties' conduct of their businesses after
the Closing.
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C. SELLER ACCEPTANCE OF OR DISAGREEMENT WITH CLOSING NET ASSET VALUE
STATEMENT. If, within 30 calendar days after the date of the Seller's receipt of
the Closing Net Asset Value Statement, the Seller determines in good faith that
the computations therein are inaccurate, the Seller will give written notice (a
"Dispute Notice") to the Purchaser within such 30-calendar day period (i)
setting forth the Seller's determination of the Closing Net Asset Value and the
Adjusted Cash Payment to the extent determinable, and (ii) specifying in
reasonable detail the Seller's basis for its disagreement with the Purchaser's
computations. Any amount that is not in dispute after taking into account the
Dispute Notice shall be promptly paid by the party obligated to make such
payment to the party entitled to receive such payment. The failure by the Seller
to give a Dispute Notice within such 30-calendar day period will be deemed to
constitute a final determination of the Closing Net Asset Value and the Adjusted
Cash Payment as set forth on the Closing Net Asset Value Statement which shall
then be binding upon all parties for all purposes hereunder. As used herein, the
term "Seller's Accountants" shall mean Deloitte & Touche, or such other
nationally recognized accounting firm as the Seller shall designate in writing
to the Purchaser and which shall be reasonably acceptable to the Purchaser. The
Seller, Seller's representatives and Seller's Accountants shall be entitled to
reasonable access, during normal business hours, to Purchaser's books, records
and work papers to the extent reasonably necessary for Seller to review the
Closing Net Asset Value Statement. In addition, Purchaser and Seller shall
otherwise cooperate with each other and with each other's authorized
representatives in connection with Seller's review of the Closing Net Asset
Value Statement.
D. DISPUTE RESOLUTION. If the Purchaser and the Seller are unable to
resolve any disagreement between them within 30 calendar days after Purchaser's
receipt of a Dispute Notice from the Seller, the items in dispute shall be
referred for determination to Ernst & Young LLP (the "Dispute Accountants") as
promptly as practicable. The Dispute Accountants will make a determination as to
each item in dispute, which determination will be (a) in writing, (b) furnished
to each of the Purchaser and the Seller as promptly as practicable after the
item in dispute has been referred to the Dispute Accountants, (c) made in
accordance with this Agreement, and (d) conclusive and binding upon each of the
Purchaser and the Seller. Each of the Purchaser and the Seller will use
reasonable efforts to cause the Dispute Accountants to render their decision as
soon as practicable, including without limitation by promptly complying with all
reasonable requests by the Dispute Accountants for information, books, records
and similar items. Neither party will disclose to the Dispute Accountants, and
the Dispute Accountants will not consider for any purpose, any settlement offer
made by either party. As part of the resolution of all outstanding disputes, the
parties will cause the Dispute Accountants to prepare a balance sheet reflecting
the Closing Net Asset Value as finally determined, a computation of the Adjusted
Cash Payment and the amount of the post-closing adjustment payable by the Seller
or the Purchaser, as the case may be, to the other pursuant to this Section 2.2
(the "Final Closing Net Asset Value Statement"). Such Final Closing Net Asset
Value Statement shall supersede all prior versions of the Closing Net Asset
Value Statement or the Dispute Notice for all purposes.
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E. PAYMENT OF ADJUSTED CASH PAYMENT. To the extent that the
Unadjusted Cash Payment is more than the Adjusted Cash Payment as finally
determined under this Section 2.2, the Seller will, within 15 calendar days
after such final determination or deemed final determination of the Closing Net
Asset Value, cause the amount of such difference to be paid to Purchaser first
from the Escrow Account, together with any interest earned thereon while in the
Escrow Account, from the Closing Date to the date of payment, and second, to the
extent not satisfiable from such amounts, directly by the Seller within such 15
calendar days. To the extent that the Unadjusted Cash Payment is less than the
Adjusted Cash Payment as finally determined under this Section 2.2, the
Purchaser, will, within 15 calendar days after such final determination or
deemed final determination of the Closing Net Asset Value, make payment by wire
transfer of New York Clearing House funds of any unpaid amount of such
difference, together with interest thereon, from the Closing Date to the date of
payment at a rate equal to that interest rate earned on the funds in the Escrow
Account, calculated on the basis of the actual number of days elapsed over 365,
to such account as has been designated by the Seller to the Purchaser.
F. ACCOUNTING STANDARDS; EXPENSES. The Closing Net Asset Value
Statement, the Dispute Notice, the Final Closing Net Asset Value Statement and
the Closing Balance Sheet shall each be prepared in accordance with those
accounting standards set forth in SCHEDULE 2.2(F) and, to the extent not
inconsistent therewith, United States generally accepted accounting principles
("GAAP") (such standards, the "Agreed Upon Accounting Standards") applied on a
basis consistent with the preparation of the November Balance Sheet, provided
that, the Closing Net Asset Value Statement, the Dispute Notice and the Final
Closing Net Asset Value Statement shall include the Assets as the only assets
thereon and, subject to subparagraphs (a), (c), (d) and (e) below, the Assumed
Liabilities as the only liabilities thereon (such Assets and Assumed Liabilities
to be calculated in accordance with the last sentence of Section 2.2(A)). The
Closing Net Asset Value Statement, the Dispute Notice and the Final Closing Net
Asset Value Statement shall, in any event, (a) exclude from the Assumed
Liabilities thereon (i) the amount of $1,775,000 attributable to indebtedness
relating to the Excluded Real Property (the "Real Estate Debt") and (ii) any and
all amounts attributable to accrued vacation liability with respect to Seller
Employees or Former Employees ("Employee Vacation Liabilities"), (b) exclude
from the Assets thereon $2,875,000 attributable to the Excluded Real Property
(c) exclude from the Assumed Liabilities thereon claims, if any, incurred or
arising during the period following Closing until 11:59 p.m. eastern daylight
time on May 31, 1997, directly from the Purchaser's operation of the Business
outside the ordinary course as conducted by the Seller, (d) include as
additional Assumed Liabilities thereon (for computational purposes only) the
aggregate amount owed by the Seller to Wachovia (excluding the Real Estate Debt)
(such amount owed to Wachovia less the Real Estate Debt is referred to herein as
the "Wachovia Debt") immediately prior to the payment to Wachovia provided in
Section 2.1(ii) and (e) include other mutually agreed upon accruals. The
Wachovia Debt is to be included as additional liabilities pursuant to the
foregoing clause (d) solely for purposes of calculating Closing Net Asset Value
under this
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Section 2.2 and the Seller and the Purchaser acknowledge and agree that the
Purchaser is not assuming the Wachovia Debt, but rather a portion of the
Unadjusted Cash Payment is simultaneously being sent by wire transfer to
Wachovia for the benefit of the Seller to repay and discharge such Wachovia Debt
in full. Without limiting the foregoing, reserves reflected in any net asset
value statement, balance sheet or other document contemplated by this Section
2.2 will be established, maintained, applied or released consistent in all
respects with the Agreed Upon Accounting Standards consistently applied. The
balance sheet set forth in: (a) the Closing Net Asset Value Statement, if such
balance sheet was accepted or deemed accepted by the Seller pursuant to Section
2.2(C) or as such balance sheet has been adjusted and accepted, with the
Purchaser's express written consent, as requested by Seller in a Dispute Notice
delivered pursuant to Section 2.2(C) hereof, and (b) the Final Closing Net Asset
Value Statement, if the dispute resolution procedures of Section 2.2(D) are
followed; shall constitute the "Closing Balance Sheet" for purposes of this
Agreement. Subject in all respect to Section 9.14 hereof, each of the Purchaser
and the Seller shall be responsible for their respective costs and expenses
incurred in connection with the procedures set forth in this Section 2.2,
including without limitation attorneys' fees and the fees of the Purchaser's
Accountants and the Seller's Accountants for services rendered in connection
with this Section 2.2, provided, however, that the Seller shall promptly upon
the Purchaser's request reimburse the Purchaser for the fees of the Purchaser's
Accountants, incurred in connection with the development of the Closing Net
Asset Value Statement pursuant to Section 2.2(C), provided that such
reimbursement obligation shall not exceed $25,000. The fees to be paid to the
Dispute Accountants pursuant to Section 2.2(D) shall be borne one-half by the
Purchaser and one-half by the Seller.
The Purchaser and the Seller acknowledge and agree that to the extent that
Purchaser and Seller mutually agree to include an accrued item as a liability on
the Closing Balance Sheet that does not constitute an Assumed Liability but
which does affect the calculation of the Closing Net Asset Value, and Purchaser
refuses to pay the amount of such accrued liability on behalf of Seller as shown
on the Closing Balance Sheet to the applicable party, Purchaser will reimburse
Seller for any amount disbursed by Seller to such third party up to the amount
shown on the Closing Balance Sheet for such liability; provided that nothing in
this paragraph shall be interpreted to require Purchaser to assume such accrued
liability or to indemnify Seller or any other party with respect to such accrued
liability (except for reimbursements to Seller as set forth in this sentence).
ARTICLE III
Closing
SECTION 3.1 CLOSING DATE. The closing of the transactions contemplated
hereby (the "Closing") shall be held at the offices of Goulston & Storrs on May
30, 1997, and shall be effective as of 5:00 p.m. Eastern Time on May 30, 1997,
or such other date and
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time as the parties shall mutually agree (the "Closing Date"). All matters at
the Closing shall be considered to take place simultaneously, and no delivery of
any document or instrument shall be deemed complete until all transactions and
deliveries of documents and instruments and payments contemplated by this
Agreement are completed.
SECTION 3.2 DOCUMENTS OF CONVEYANCE, ETC.
A. DELIVERIES OF THE SELLER. Simultaneously herewith, the Seller (and, in
the case of the Guaranty and Non-Competition Agreements from Jeffrey Snow,
Richard Snow, David Ginsburg, Walter Liederman, and Kerri Snow, referred to in
Section 3.2(A)(8), below, each such person) is delivering the following
documents to the Purchaser:
1. an executed original of the Escrow Agreement, dated the Closing
Date, in substantially the form set forth in EXHIBIT A (the "Escrow Agreement").
2. an executed original of the lease covering the Excluded Real
Property and Excluded Personalty dated the Closing Date in substantially the
form set forth in EXHIBIT B (the "Lease"), executed by the Seller as landlord
thereunder;
3. executed originals of the secretary's certificates in
substantially the form set forth on EXHIBIT C-1;
4. an opinion of counsel to the Seller in substantially the form set
forth in EXHIBIT D hereto;
5. a receipt for the Unadjusted Cash Payment executed by the Seller
in a form satisfactory to Seller;
6. a certification of non-foreign status signed by the chief
executive officer of the Seller affirming that the Seller is not a foreign
person within the meaning of Section 1445 (b)(2) of the Internal Revenue Code of
1986, as amended (the "Code"), which certification shall be in substantially the
form set forth in EXHIBIT E hereto;
7. any clearance certificates or similar documents that may be
required by any state taxing authority in order to relieve the Purchaser of any
obligation to withhold any portion of the Unadjusted Cash Payment;
8. executed originals of the Guaranty and Non-Competition Agreements
from Jeffrey Snow, Richard Snow, David Ginsburg, Walter Liederman and Kerri
Snow, in each case substantially in the forms set forth in EXHIBIT F hereto;
9. a letter from Wachovia to the Seller evidencing payment in full
of the Wachovia Debt, and executed UCC-3's or other evidence showing that any
and all liens, charges and encumbrances on the Assets securing the Wachovia
Debt, the Real
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Estate Debt or the SBA Debt, or any other Liabilities have been or will be
promptly released and discharged.
B. DELIVERIES OF THE PURCHASER. Simultaneously herewith, the
Purchaser is delivering the following to the Seller:
1. the Unadjusted Cash Payment as set forth in Section 2.1;
2. an executed original of the Escrow Agreement, dated the
Closing Date;
3. an executed original of the Lease, dated the Closing Date;
4. an executed original of the Promissory Note in the principal
amount of $1,200,000.00, dated the Closing Date, in substantially the form set
forth in EXHIBIT G (the "Promissory Note");
5. an executed original of the Warrant, dated the Closing Date,
in substantially the form set forth in EXHIBIT H (the "Warrant");
6. an executed original of the officers' certificate in
substantially the form set forth on EXHIBIT C-2;
7. an opinion of counsel to the Purchaser in substantially the
form set forth in EXHIBIT I hereto; and
8. an Assignment and Assumption Agreement, dated the Closing
Date, in substantially the form set forth in EXHIBIT J hereto (the "Assignment
and Assumption Agreement").
The Seller and the Purchaser are also delivering to each other,
simultaneously herewith, such additional certificates, consents, approvals,
agreements, and documents relating to the transactions contemplated by this
Agreement as have been requested and agreed to by such parties, (collectively
with this Agreement and all of the documents referred to in Section 3.2(A) and
3.2(B) above, the "Closing Documents"). The Seller further agrees that at or
subsequent to the Closing, upon the written request of the Purchaser, it will
promptly execute and deliver or cause to be promptly executed and delivered any
further assignment, instruments of transfer, bills of sale or conveyances
reasonably necessary or desirable to vest fully in the Purchaser all of the
Seller's right, title and interest in and to the Assets.
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ARTICLE IV
Assumption of Liabilities
SECTION 4.1. ASSUMED LIABILITIES. At the Closing, and as consideration for
the purchase of the Assets pursuant to Section 2.1(iii), the Purchaser shall
assume in full and agree to pay, perform and discharge those liabilities and
obligations of Seller expressly described and itemized on SCHEDULE 4.1
(collectively, the "Assumed Liabilities").
SECTION 4.2 EXCLUDED LIABILITIES. Notwithstanding anything contained in
this Agreement or the Schedules hereto to the contrary, the Purchaser does not
assume or agree to pay, satisfy, discharge or perform, and shall not be deemed
by virtue of the execution and delivery of this Agreement or any document
delivered at the Closing pursuant to this Agreement, or as a result of the
consummation of the transactions contemplated by this Agreement or otherwise to
have assumed, or to have agreed to pay, satisfy, discharge or perform any of the
Excluded Liabilities. The term "Excluded Liabilities," as used herein, shall
mean (1) any and all liabilities, claims, obligations, expenses or damages,
whether known or unknown, contingent or absolute, named or unnamed, disputed or
undisputed, legal or equitable, determined or indeterminable, or liquidated or
unliquidated (any and all of the foregoing, "Liabilities") of the Seller which
are not listed or described on SCHEDULE 4.1, (2) the Wachovia Debt, (3) the SBA
Debt, and (4) any or all of the following whether or not reflected on the
Closing Balance Sheet and whether or not they otherwise constitute Excluded
Liabilities under the foregoing clause (1), (2) or (3):
A. LIABILITIES COVERAGE/INSURANCE. All Liabilities of the Seller or
any of its Affiliates to the extent covered under any workers compensation,
general liability, casualty, property damage, products liability, auto
liability, excess general liability or any other insurance policy or program,
including any self-insurance program, maintained by the Seller or any of its
Affiliates or under which Seller or any of its Affiliates are covered, in each
case as of the date of the Closing (collectively, "Insurance").
B. LIABILITIES RELATING TO EXCLUDED ASSETS. All Liabilities to the
extent they relate to any of the Excluded Assets.
C. BORROWED MONEY. Except as set forth on SCHEDULE 4.2(C), all
Liabilities for borrowed money, other than trade payables, including without
limitation (i) any obligation evidenced by bonds, debentures, notes or other
similar debt instruments, (ii) any obligation to pay the deferred purchase price
of goods or equipment constituting Assets and secured by a Lien on such goods or
equipment, except for trade payables and pursuant to the Purchased Commitments,
(iii) any monetary obligation under any leasing or similar arrangements which
are, or should be, in accordance with GAAP, classified as a capitalized lease,
except pursuant to the Purchased Commitments, (iv) any monetary obligation
(contingent or otherwise) under letters of credit, bankers'
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acceptances and similar instruments, and (v) any guarantee or other Liability in
respect of any of the foregoing.
D. TAXES. All Liabilities of the Seller or any predecessor or
Affiliate of the Seller arising from or relating to Taxes.
E. ADVISOR FEES. All Liabilities of the Seller for any legal,
accounting, investment banking, environmental services, appraisal, consulting,
brokerage or other advisory fees or expenses incurred by the Seller in
connection with, resulting from or attributable to the execution and delivery of
this Agreement and the consummation of the transactions contemplated to be
consummated hereby.
F. OTHER SITES AND BUSINESSES. All Liabilities of the Seller to the
extent arising out of or relating to the conduct of (i) the Seller Business or
any other activity, in each case at any location other than the Current
Locations or (ii) any other businesses other than the Seller Business regardless
of the location(s) at which such other businesses have been or are conducted.
G. CERTAIN ENVIRONMENTAL LIABILITIES. All Liabilities of the Seller
or any predecessors or Affiliates of the Seller arising from any violation of or
failure to comply with (or imposed as a matter of strict liability under) any
and all Laws (including without limitation any and all Liabilities of the Seller
or any predecessors or Affiliates of the Seller under any Environmental Laws (as
hereinafter defined)) whether or not disclosed or required to be disclosed
pursuant to this Agreement.
As used above, the term "Environmental Laws" shall mean any and all
applicable federal, state, county or local laws, ordinances or regulations
(whether now existing or hereafter enacted or promulgated as they may be amended
from time to time) relating to the generation, discharge, release, containment,
storage, transportation or cleanup of Hazardous Materials or other contaminants
or similar materials, including without limitation the following: (1) the
Comprehensive Environmental Response, Compensation Liability Act of 1980, 42
U.S.C. ss.9601 ET SEQ.; (2) the Toxic Substances Control Act, 15 U.S.C. ss.2101
ET SEQ.; (3) the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
ss.136; (4) the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss.1801 to
1812; (5) the Federal Water Pollution Control Act, 32 U.S.C. ss.1251 ET SEQ.;
(6) the Federal Solid Waste Disposal Act; (7) the Federal Clean Air Act, 42
U.S.C. ss.1857 ET SEQ.; and (8) any other federal, state, county, or local
statutes or implementing regulations (or any other statutes or implementing
regulations of any other Governmental Entity) relating to, regulating, or having
jurisdiction over, any environmental contamination, Hazardous Material (as
hereinafter defined), Environmental Condition (as hereinafter defined), Release
(as hereinafter defined), or Threat of Release (as hereinafter defined).
H. EMPLOYEE LIABILITIES. Subject to the provisions of Section
9.14(B), any liabilities of Seller for severance, other employee benefits
(including without
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limitation benefits mandated by Law (as hereinafter defined)) or other
compensation or damages by or on behalf of any Seller Employees or Former
Employees (as hereinafter defined) or by or on behalf of any Governmental Entity
(as hereinafter defined) in respect of Seller Employees or Former Employees
involving any alleged or actual employment loss, violation of any Law or
termination of employment actually or constructively (by operation of Law or
pre-existing Commitment, including without limitation any Liability for
severance), and all Liabilities of the Seller or any predecessor or Affiliate of
the Seller under or with respect to Benefit Plans or Benefit Arrangements
(except with respect to the Cigna Healthcare Plan and Cash Management Program),
or in respect of payments for unemployment compensation or unemployment
insurance, and all coverage obligations under Code Section 4980B and described
in Section 5.1(k)(i)(a) and all other Liabilities of Seller in respect of Seller
Employees, Former Employees and independent sales representatives or other
independent contractors or their respective benefit plans or arrangements.
I. CERTAIN OTHER LIABILITIES. (i) All Liabilities arising out of or
relating to any fact, circumstance or event, the existence or nonexistence of
which constitutes a misrepresentation or breach of any representation or
warranty of the Seller under this Agreement; and (ii) to the extent not already
covered by the foregoing clause (i), and without regard to whether the same are
disclosed hereunder, all Liabilities of Seller arising under or pursuant to, or
otherwise relating to, any Law requiring the filing or giving of notices with or
to any Governmental Entity (including without limitation any state tax
authority) or any creditor of the Seller or any other party regarding the
transactions contemplated hereby under Article 6 of the Uniform Commercial Code
("Bulk Sales Liabilities").
ARTICLE V
Representations and Warranties by the Seller.
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. The Seller hereby represents
and warrants to the Purchaser that:
A. CORPORATE EXISTENCE AND QUALIFICATION OF SELLER; DUE EXECUTION, ETC.
The Seller is a corporation duly organized, validly existing and subsisting
under the Laws of the State of Georgia and has the requisite corporate power and
authority to own, lease or otherwise hold the Assets and to carry on the Seller
Business as conducted through the Closing Date. The Seller is duly qualified to
conduct business as a foreign corporation in every jurisdiction in which its
ownership or lease of property or conduct of the Seller Business makes such
qualification necessary, except for such jurisdictions in which the Seller's
failure to be so qualified, individually or together with any other failure so
to qualify, would not have a Material Adverse Effect. As used in this Agreement
the term "Material Adverse Effect" means a material adverse effect on any of the
Assets or the business, condition (financial or otherwise), results of
operations or prospects of the
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Seller Business or the ability of any party to this Agreement or to any of the
other Closing Documents to pay or perform its, his or her respective obligations
thereunder. The Seller has all requisite corporate power and authority to
execute, deliver and perform this Agreement and the Closing Documents to which
it is a party, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Closing Documents
to be executed by Seller and the consummation by the Seller of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action and, assuming the due execution of this Agreement and the
Closing Documents by the Purchaser, this Agreement and the Closing Documents to
which the Seller is a party constitute valid and binding obligations of the
Seller enforceable against it in accordance with their respective terms, subject
only to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar Laws relating to creditors' rights generally and to general principles
of equity (regardless of whether such enforcement is considered in a proceeding
at law or in equity).
B. NO VIOLATION. Except as set forth on SCHEDULE 5.1(B), neither the
execution and delivery by the Seller of this Agreement or the Closing Documents
to be executed by the Seller, nor the consummation by the Seller of the
transactions contemplated hereby or thereby: (i) violates or will violate any
Law applicable to the Seller; (ii) violates or will violate any order, ruling,
writ, judgment, injunction or decree of any Governmental Entity (an "Order")
applicable to the Seller; (iii) conflicts or will conflict with, or results or
will result in a breach of or default under, the Articles of Incorporation or
bylaws of Seller, or results or will result in any breach of any Commitment
applicable to the Seller (other than a breach which is not material to the
enforcement by the Purchaser of the rights to be transferred to it under the
respective Purchased Commitment or which does not in any case require any
payment of money with respect thereto); or (iv) results or will result in the
imposition of any Lien on any of the Assets. Except as set forth on SCHEDULE
5.1(B), no consent, authorization, or approval from, or registration or filing
with, any Governmental Entity or other third party (not obtained or made as of
the date hereof) is required to be obtained or made by or with respect to the
Seller or the Seller Business in connection with the execution and delivery of
this Agreement or the Closing Documents or the consummation by the Seller of the
transactions contemplated hereby or thereby; provided, however, that Seller is
relying upon the representations of Purchaser set forth in Section 6.1(E) for
purposes of compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
C. FINANCIAL INFORMATION. (i) Attached hereto as SCHEDULE 5.1(C)(I) are
balance sheets of the Seller as of December 31, 1995 and December 31, 1996 (the
December 31, 1996 balance sheet is referred to herein as the "December Balance
Sheet"), respectively, and the related statements of operations, stockholders'
equity and cash flows (including any footnotes thereto), for each of the fiscal
years then respectively ended all of which (a) have been audited by the Sellers'
accountants, whose reports thereon are included within SCHEDULE 5.1(C)(I), (b)
have been prepared in accordance with GAAP, consistently applied throughout the
periods involved, except as otherwise
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noted therein and (c) present fairly, in all material respects, the financial
position of the Seller at the dates indicated in such financial statements and
the results of the Seller's operations for the periods stated therein.
(ii) Attached hereto as SCHEDULE 5.1(C)(II) is the unaudited balance
sheet of the Seller as of March 31, 1997, and the respective related statements
of operations, stockholders' equity and cash flows (including any footnotes
thereto) for the three (3) months then ended all of which (a) have been prepared
in accordance with GAAP (with the exception of accounting for vacation accrual
which has been reflected consistent with the November Balance Sheet),
consistently applied throughout the periods involved subject to normal year-end
adjustments (none of which will be material, except as otherwise noted therein
and on SCHEDULE 5.1(C)(II)) and (b) present fairly, in all material respects,
the financial position of the Seller at the dates indicated in such financial
statements and the results of the Seller's operations for the periods stated
therein.
(iii) Attached hereto as SCHEDULE 5.1(C)(III) is the unaudited
balance sheet of the Seller as of November 30, 1996 (the "November Balance
Sheet"), which (a) has been prepared in accordance with the Agreed Upon
Accounting Standards, except as otherwise noted therein, and (b) presents
fairly, in all material respects, the financial position of the Seller Business
at such date.
(iv) Except as set forth on SCHEDULE 5.1(C)(IV) and except for
returned Inventory (all of which has been made available to Purchaser for
inspection), the Inventory that is shown or reflected on the November Balance
Sheet consisted only of (as of November 30, 1996), and, except for returned
Inventory, the Inventory shown or reflected on the Closing Balance Sheet will
consist only of, items usable or salable in the ordinary course of the Seller
Business valued in accordance with the Agreed Upon Accounting Standards. Except
as set forth on SCHEDULE 5.1(C)(IV), the Seller has no knowledge of any
condition, event or occurrence which could reasonably be anticipated to
materially adversely affect, after the Closing, the supply of Inventory to the
Seller Business by any third party. Seller's trade demo or display, and used or
returned Inventory did not comprise, as of November 30, 1996, and will not
comprise as of Closing, more than 40% of Seller's total Inventory.
(v) The aggregate book value of all of the Seller's Inventory as of
the Closing Date is not less than $9.5 million valued on a cost basis.
(vi) Each of the Receivables that are shown or reflected in the
November Balance Sheet arose out of, and each of the Receivables shown or
reflected in the Closing Balance Sheet will have arisen out of, transactions in
the ordinary course of business of the Seller Business and, subject to the
reserves therefor shown or reflected in the November Balance Sheet and to be
shown or reflected in the Closing Balance Sheet, all such Receivables, in the
aggregate, will constitute (or, in the case of the November Balance Sheet,
constituted as of November 30, 1996) identifiable indebtedness of the
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applicable account debtor, not subject to any offset, defense, counterclaim or
Lien except as set forth on SCHEDULE 5.1(C)(VI). The related reserves with
respect to Receivables shown or reflected in the November Balance Sheet and the
Closing Balance Sheet were, or will be as the case may be, adequate under GAAP.
(vii) The net income of the Seller (as determined in accordance with
GAAP and consistent with prior determinations of the Seller's net income) for
the period from January 1, 1997 through April 30, 1997 reflected a net loss in
the approximate amount of $257,000 (subject to normal year end adjustments).
D. ABSENCE OF CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 5.1(D),
since November 30, 1996, (i) the Seller has caused the Seller Business to be
operated only in the ordinary course, consistent with past practice; (ii) the
Seller has taken no action which would have violated the provisions of paragraph
10 of that certain letter agreement between the Seller and the Purchaser dated
February 3, 1997, which paragraph is reproduced on APPENDIX B hereto, had such
paragraph applied to the Seller since November 30, 1996; (iii) the reserves
maintained by the Seller have not materially changed; and (iv) there has not
been any material adverse change in the Assets or business, financial condition,
or results of operations or prospects of the Seller Business. The ratio of the
Seller's working capital assets to all assets as of the date hereof is not
materially different from that reflected in the April 30, 1997 balance sheet.
E. MATERIAL CONTRACTS AND OBLIGATIONS. The Seller has made available to the
Purchaser true and correct copies of all Purchased Commitments which are in
written form and any amendments thereto. Except as set forth on SCHEDULE
5.1(E)(I), each Purchased Commitment which is material to the operation of the
Business (and in any case, each of the Seller Leases described on SCHEDULE
1.2(A)(4)) is and will be in full force and effect immediately following the
Transfer thereof at the Closing and represents the valid and binding obligation
of each of the parties thereto.
(ii) With respect to:
(A) each Purchased Commitment, including without limitation the
Seller Leases, to which the Seller is a party, each of the Seller and, to the
knowledge of the Seller, the other party or parties thereto, has performed in
all material respects all obligations required to be performed by it thereunder
through the date hereof and the Seller is not (with or without the lapse of time
or the giving of notice, or both) in default under any such Purchased
Commitment, and the Seller has not received any notice of any default (whether
monetary or nonmonetary) or termination of any such Purchased Commitment from
any other party thereto; and
(B) each Non-Purchased Commitment to which the Seller is a party,
each of the Seller and, to the knowledge of the Seller, the other party or
parties thereto, has performed in all material respects all obligations required
to be performed by it thereunder through the date hereof.
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(iii) SCHEDULE 5.1(E)(III) sets forth Licenses currently held by the
Seller and such Licenses constitute all of the Licenses required under
applicable law for the conduct of the Seller's Business as conducted prior to
the Closing Date. The Seller has duly obtained and legally and validly holds all
Licenses identified on SCHEDULE 5.1(E)(III) as held by it. The Seller has not
received notice of any claim, action, suit, proceeding or investigation in or
before any Governmental Entity , whether brought, initiated, asserted or
maintained by a Governmental Entity or any other person or entity (a "Legal
Proceeding") nor, to the knowledge of the Seller, has any such claim, action,
suit, proceeding or investigation been threatened, which would, if successful on
the merits, lead to a revocation, suspension, or limitation of the rights of the
Seller under any of its Licenses, and the Seller is in compliance in all
material respects with each of its Licenses.
(iv) Without limiting the generality of the foregoing, SCHEDULE
1.2(A)(4) accurately lists each Commitment, whether written or oral and
including all amendments thereto, to which the Seller is a party of the type
described below, and identifies each such Commitment as being either (i) a
Commitment which is not a Purchased Commitment (a "Non-Purchased Commitment"),
on the one hand, or (ii) a Commitment which is a Purchased Commitment, on the
other hand:
(a) Any employment, severance or consulting Commitment with any
Former Seller Employee;
(b) Any Commitment or series of related Commitments for capital
expenditures or the acquisition or construction of fixed assets which requires
or require aggregate future payments or expenditures in excess of $12,000 in any
twelve (12) month period;
(c) Any Commitment relating to cleanup, abatement or other
actions in connection with any Environmental Condition (as hereinafter defined);
(d) Any Commitment granting to any person a first-refusal,
first-offer or other right to purchase or acquire any of the Assets;
(e) Any license or royalty Commitment, or other Commitment with
respect to Intellectual Property which pursuant to the terms thereof requires
future payments to or by the Seller;
(f) Any Commitment with any manufacturer's representative or
other sales agent or relating to distribution or commission arrangements which
is not terminable without penalty on 30 days' or less prior notice or which
requires (or could reasonably be expected to require, if dependent on future
events) aggregate future payment or expenditures in excess of $12,000 in any
twelve (12) month period;
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(g) Any Commitment under which the Seller is (1) a lessee of
real property, (2) a lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible personal property owned by a third person or entity,
(3) a lessor of real property, or (4) a lessor of, or makes available for use by
any third person or entity, any tangible personal property owned by the Seller,
in the case of items (2) and (4) above which requires aggregate annual payments
in excess of $12,000;
(h) Any Commitment with respect to a joint venture or
partnership arrangement, under which the Seller is or has agreed to become a
joint venturer or partner;
(i) Any Commitment granting a power of attorney;
(j) Any Commitment with respect to letters of credit, surety or
other bonds or pursuant to which any assets or properties of the Seller are, or
are to be, subjected to a Lien, other than Liens on Inventory securing ordinary
course trade payables owing to the respective vendors of such Inventory and
which are set forth or referred to on SCHEDULE 5.1(G);
(k) Any confidentiality Commitment or Commitment limiting or
restricting the ability of the Seller to enter into or engage in any market or
line of business;
(1) Any Commitment relating to (i) any borrowing or (ii) any
full or partial guarantee or similar Liability in respect of any Liability of
any person or entity other than the Seller; or
(m) Any other Commitment which (1) involves aggregate future
payments by or to the Seller in excess of $12,000 in any twelve (12) month
period other than a purchase or sales order or other Commitment entered into in
the ordinary course of the conduct of the Seller Business, (2) could reasonably
result in a Material Adverse Effect, (3) has been entered into with an Affiliate
of the Seller, or (4) is otherwise material to the conduct of the Seller
Business or the operation or use of the Assets.
F. TITLE TO REAL PROPERTIES: LIENS: CONDITION OF PROPERTIES. (i) The
Current Locations together with the Seller's Cobb Parkway location comprise all
of the real estate owned or leased by the Seller.
(ii) (a) With respect to any Seller Lease, neither the Seller, nor to
the knowledge of the Seller, any other party thereto, is in default thereunder;
(b) to the knowledge of the Seller, the Current Locations, and the Seller's use
of the same, comply with all applicable zoning or similar Laws, except where the
failure to so comply, individually or together with all other such failures to
so comply, would not impair the conduct of the Seller Business by the Seller or
by the Purchaser following the Closing; (c)
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Seller has not received notice of and is not otherwise aware of any condemnation
proceedings and, to the knowledge of the Seller, no condemnation proceedings
have been threatened with respect to any of the Current Locations, nor has any
such property been condemned; and (d) Seller has not received notice of and is
not otherwise aware of any Legal Proceedings and, to the knowledge of the
Seller, no Legal Proceedings have been threatened that will, with the passage of
time or otherwise, result in the imposition of a mechanic's, serviceman's,
materialman's or other Lien against the Real Property and Seller has not
received notice of and is not otherwise aware of any mechanic's Liens otherwise
imposed against the Real Property.
(iii) The Seller has access to public roads or valid easements over
private streets or private property for such ingress to and egress from each of
the Current Locations as is necessary for the conduct of the Seller Business as
conducted as of the date hereof, and to the knowledge of the Seller, no change
therein has been proposed by any Governmental Entity. To the knowledge of the
Seller, the consummation of the transactions contemplated by this Agreement will
not adversely affect any such access or easements.
G. TITLE TO ASSETS AND WACHOVIA DEBT. SCHEDULE 1.2(A)(2) sets forth
substantially all of the Fixed Assets owned, leased or held by the Seller and
sets forth, as to each itemized Fixed Asset, the original purchase price, and
accumulated depreciation. Except as set forth on SCHEDULE 5.1(G), the Seller has
good and marketable title to all Fixed Assets described in such Schedule as
being owned by the Seller, and to all of the other Assets of the Seller, free
and clear of all Liens other than (i) Liens for Taxes which are not due and
payable or which may thereafter be paid without penalty and which will be
reflected in the Closing Balance Sheet and (ii) Liens set forth on SCHEDULE
5.1(G). The Seller represents and warrants that the total indebtedness owing by
Seller to Wachovia as of the Closing, excluding the Real Estate Debt, is
$5,783,308.71 (excluding post-closing presentments which will not be in excess
of $1,000,000), and the payment to Wachovia made pursuant to Section 2.1(ii) has
satisfied in full all obligations of the Seller to Wachovia other than
obligations relating expressly, and having recourse only, to the Excluded Real
Property or other Excluded Assets and not, in any case, to the Purchaser or the
Assets. Except as set forth on SCHEDULE 5.1(G), each Material Fixed Asset, and
all Fixed Assets in the aggregate, are in good condition, normal wear and tear
excepted. The amount of the Real Estate Debt as of the Closing is $1,410,141
plus accrued interest and the amount of the SBA Debt as of the Closing does not
exceed $364,818 plus accrued interest.
H. INTELLECTUAL PROPERTY. Set forth on SCHEDULE 1.2(A)(7) is a list of:
(i) all patents, and registrations and applications therefor which are owned by
or licensed to the Seller; and (ii) all service marks and trademarks, and
registrations and applications therefor, which are owned by or licensed to the
Seller. Except as set forth on Schedule 5.1(H), to the knowledge of the Seller,
the use of the Intellectual Property, including without limitation the use of
the name "HiFi Buys" or any derivation thereof, as currently used by the Seller,
does not conflict with or infringe upon any intellectual property rights
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of others and the Seller has received no written notice of a conflict with the
asserted rights of others in connection with the Seller's use of any of the
Intellectual Property that has not been satisfied or withdrawn. Except as set
forth in the preceding sentence, Seller makes no representation or warranty
whatsoever, whether express or implied, as to its ownership of or right to use
the name "HiFi Buys" or any derivation thereof. Except as set forth in SCHEDULE
5.1(H), the Seller has the right to assign to the Purchaser its ownership and
all of its rights to use the Intellectual Property owned or used by it or
licensed to it.
I. LITIGATION. Except as set forth in SCHEDULE 5.1(I), there are no Legal
Proceedings pending or, to the knowledge of the Seller, threatened against the
Seller or any predecessors or Affiliates of Seller including, without
limitation, any legal proceeding that seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by this Agreement
or any other Closing Document. The Seller is not in default with respect to any
Order. The Seller Business is operated and has been operated in all material
respects in compliance with all applicable Laws.
J. COMPLIANCE WITH LAWS.
(i) To the Seller's knowledge: (a) the Seller has no Liability under
any, (and the Seller is presently in compliance with all) Environmental Laws and
other Laws applicable to (1) the Current Locations, and any facilities and
operations thereon, or (2) any other location which the Seller or any Affiliate
have at any time leased or owned, or at which the Seller or any Affiliate have
at any time conducted any activities or operations, including without limitation
the Seller Business (all such other locations, the "Other Locations"); (b) the
Seller has all Licenses necessary under all applicable Environmental Laws and
other Laws for the conduct of the Seller Business, its activities and operations
at the Current Locations and for any past or ongoing alterations or improvements
at the Current Locations, which Licenses are listed on SCHEDULE 5.1(E)(III); (c)
except as set forth on SCHEDULE 5.1(J), to the Seller's knowledge there exists
no Environmental Condition with respect to any of the Current Locations or any
of the Other Locations or any facilities or operations thereon; (d) except as
set forth on SCHEDULE 5.1(J), the Seller has not generated, transported,
treated, stored, handled, disposed, or transferred, any Hazardous Material,
except in connection with the Seller Business and in compliance with all
applicable Environmental Laws; (e) there has been no Release or Threat of
Release (as such terms are hereinafter defined) of any Hazardous Material at,
on, under or in the immediate vicinity of any of the Current Locations or any of
the Other Locations which would necessitate any investigation or remediation
activity as required under the Environmental Laws; (f) except as set forth on
SCHEDULE 5.1(J), the Seller has received no notice under the citizen suit
provisions of any Environmental Law in connection with any of the Current
Locations or any of the Other Locations or any facilities or operations thereon;
(g) except as set forth on SCHEDULE 5.1(J), the Seller has received no request
for information, notice, demand letter, or notice of a Legal Proceeding with
respect to any Environmental Condition relating to any of the Current Locations
or any of the Other Locations or any facilities or operations thereon; (h) the
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Seller is not in violation of any health standards or applicable Laws relating
to asbestos, lead-based paints or solvents, except for such violations as are
not, individually or in the aggregate, material to the Seller's financial
condition or prospects or to the Assets or the operation of the Business through
the Closing Date; (i) no polychlorinated biphenyls are used or stored at any of
the Current Locations; and (j) the Seller does not use any private water or
sewer system at any of the Current Locations, but rather uses public water and
sewer systems at all of the Current Locations.
(ii) Without limiting the generality or effect of the foregoing,
SCHEDULE 5.1(J) lists or describes, among other things, (a) any on-site and
off-site locations where the Seller or any Affiliate of the Seller or, to the
knowledge of the Seller, any predecessor of the Seller or of any such Affiliate,
has stored, disposed or arranged for the storage or disposal of any Hazardous
Waste (as defined by the Resource Conservation and Recovery Act of 1976, 42
U.S.C. 6901 et seq.) subject to regulation under any Environmental Laws, and (b)
to the knowledge of the Seller any underground or above ground storage tanks
which are regulated under Environmental Laws, and the capacity and contents of
such tanks, currently or previously located at or on any of the Current
Locations.
(iii) For purposes of this Agreement, the following terms shall have
the following meanings:
(a) "ENVIRONMENT" shall mean soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air and any
environmental medium.
(b) "ENVIRONMENTAL CONDITION" shall mean any Release of Hazardous
Materials to the Environment; whether or not yet discovered, which could
reasonably be expected to result, or has resulted, in any material damage, loss,
cost, expense, claim, demand, Order or Liability to or against the Seller by any
third party (including without limitation any Governmental Entity) under any
Environmental Law.
(c) "HAZARDOUS MATERIAL" shall mean any pollutant, toxic
substance, hazardous waste, hazardous material, hazardous substance, asbestos,
lead-based paints, or oil or other petroleum product, as any of the foregoing
may be defined in any Environmental Law.
(d) "RELEASE" shall mean any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, migrating, disposing or dumping into the Environment.
(e) "THREAT OF RELEASE" shall mean a substantial likelihood of a
Release which requires action to prevent or mitigate damage to the Environment
which may result from such Release.
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(f) "GOVERNMENTAL ENTITY" shall mean any domestic or foreign
court, government, governmental agency, authority, entity or instrumentality.
K. EMPLOYEE BENEFITS. (i) SCHEDULE 5.1(K) accurately lists all of the
senior management and other key employees of Seller as of the date hereof and
all of the other employees of Seller as of April 30, 1997 (the "Seller
Employees") and all Benefit Plans and all Benefit Arrangements which are
material to the Seller's employment relationship with any Seller Employee.
Except as set forth on SCHEDULE 5.1(K), each Benefit Plan complies in all
material respects and has been operated and administered in all material
respects in accordance with the Employment Retirement Income Security Act of
1974, as amended ("ERISA"), to the extent that ERISA is applicable, and all
other applicable Laws; no "reportable event," "prohibited transaction" (as such
terms are defined in ERISA and the Code, as applicable) or termination has
occurred with respect to any Benefit Plan; and each Benefit Plan that is an
"employee pension benefit plan" as defined in Section 3(2) of ERISA has been
determined by the Internal Revenue Service (the "IRS") to be qualified under
Section 401(a) of the Code and remains so qualified. Except as set forth on
SCHEDULE 5.1(K), neither any Seller Employee or Former Employee nor any
beneficiary or dependent of any such Seller Employee or Former Employee is or
may become entitled to postemployment benefits of any kind by reason of their
employment by the Seller or termination of such employment including without
limitation death or medical benefits (whether or not insured) and no Seller
Employee or Former Employee will have rights to any severance payment or any
other benefits by reason of the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby, other than coverage, if
any, mandated by Section 4980B of the Code, with respect to which the Seller
shall provide in a timely manner appropriate COBRA notices relating to
continuation coverage (and which constitutes an Excluded Liability). The Seller
has furnished the Purchaser copies of all material plan documents and other
material documents relating to the Benefit Plans and Benefit Arrangements. The
Seller has terminated any Benefit Plan which is qualified under Section 401(a)
of the Code.
(ii) For purposes of this Agreement:
(a) the term "Former Employees" means all employees formerly employed
by the Seller, including any person on long-term leave of absence or long-term
disability;
(b) the term "Benefit Plan" shall mean each and all "employee benefit
plans" as defined in Section 3(3) of ERISA and which is required to be
maintained or contributed to by the Seller or in which the Seller participates
or under which the Seller has any obligation to make any contributions or other
payments or provides any benefits with respect to Seller Employees and/or their
spouses or beneficiaries, including (1) any such plan that is an "employee
welfare benefit plan" as defined in Section 3(l) of ERISA, including retiree
medical and life insurance plans and (2) any such plan that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA;
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(c) the term "Benefit Arrangements" means all employment policies,
practices or other arrangements to provide employee or executive compensation or
benefits with respect to employees and/or their spouses or beneficiaries,
including without limitation any such policies or practices relating to life and
health insurance, hospitalization, savings, bonus, deferred compensation,
incentive compensation, holiday, vacation, severance pay, sick pay, sick leave,
disability, tuition refunds, service awards, company cars, scholarships,
relocation, patent awards, fringe benefits, contracts, collective bargaining
agreements, individual employment, consultancy or severance contracts that the
Seller is providing or is obligated to provide, or under which the Seller has
any obligation to make any contributions or other payments, with respect to
Seller Employees or Former Employees and/or their respective spouses or
beneficiaries, other than Benefit Plans.
L. LABOR RELATIONS. The Seller is not a party to or subject to any
collective bargaining agreements. Except as set forth on SCHEDULE 5.1(L) or
SCHEDULE 5.1(K): (i) the Seller has no written or oral contracts of employment
with any Seller Employee; (ii) there are, and since January 1, 1994 have been,
no strikes or work slowdowns pending or, to the knowledge of the Seller,
threatened, against or affecting the Seller Business, and (iii) the Seller is
not currently a party to, and, to the knowledge of the Seller, has not been
threatened with, any Legal Proceeding by any Seller Employee or Former Employee
arising out of employment by the Seller, including without limitation any such
Legal Proceeding or other proceeding for unlawful employment practices or
discrimination in employment. To the knowledge of the Seller, no union
organizational campaign is or has been, pending or instituted with respect to
the employees of the Seller Business.
M. INSURANCE POLICIES. SCHEDULE 5.1(M) accurately lists all policies of
Insurance currently maintained by the Seller, which have been purchased with
respect to the periods identified on such Schedule, including without limitation
those purchased with respect to any periods which include the Closing Date.
Except as set forth on SCHEDULE 5.1(M), (i) all such Insurance is in full force
and effect, (ii) all premiums, including any current retrospective premiums or
other like arrangement with respect to such policies of Insurance which are
currently maintained have been paid when due with respect to all periods prior
to the Closing, (iii) no notice of cancellation or termination has been received
by the Seller with respect to any such policy of Insurance, (iv) no claim is
currently reserved or, to the knowledge of the Seller, should be reserved under
any policy of Insurance involving an amount in excess of $15,000, and (v) all
such Insurance is so-called "occurrence-based" Insurance. Except as set forth on
SCHEDULE 5.1(M), the Seller has and in the past has had no Insurance which is or
was maintained as self-insurance.
N. TAXES. (i) All Tax Returns (as hereinafter defined) required to be
filed on or before the Closing Date by the Seller have been filed on a timely
basis under the Laws of each applicable jurisdiction. All such Tax Returns were
complete and accurate as filed in all material respects. All Taxes shown as
owing on each such Tax Return and all other
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Taxes owed by the Seller have been paid when due. Except as set forth on
SCHEDULE 5.1(N), the Seller has not executed or filed with the IRS or any other
taxing authority any agreement extending the period for filing any Tax Return
relating to or otherwise affecting the Seller Business or the Assets.
(ii) No claim for assessment or collection of Taxes relating to or
otherwise affecting the Seller, the Seller Business or the Assets is currently
pending or, to the Seller's knowledge, has been asserted against the Seller. The
Seller is not a party to any pending Legal Proceeding by any Governmental Entity
for the assessment or collection of Taxes relating to or otherwise affecting the
Seller, the Seller Business or the Assets nor does the Seller have any knowledge
of any basis for any such Legal Proceeding.
(iii) Except as set forth on SCHEDULE 5.1(N)(III), no waivers of
statutes of limitation in respect of any Tax Returns relating to or otherwise
affecting the Seller, the Seller Business or the Assets have been given or
requested by the Seller nor has the Seller agreed to any extension of time with
respect to a Tax assessment or deficiency relating to or otherwise affecting the
Seller, the Seller Business or the Assets. The federal income Tax Returns of, or
which include, the Seller for all periods to and including any period ended
prior to January 1, 1994, have either been examined by the IRS or the period of
limitations for the assessment or collection of any deficiency with respect to
such period has expired. Except as noted on SCHEDULE 5.1(N)(III), no claim has
been made within the past five years, or, to the Seller's knowledge, at any
other time, by a Governmental Entity in a jurisdiction where the Seller does not
currently file Tax Returns that it is or may be subject to taxation by that
jurisdiction relating to or otherwise affecting the Seller, the Seller Business
or the Assets nor is the Seller aware that any such assertion of jurisdiction is
threatened. No security interests have been imposed upon or asserted against any
of the Assets or the Excluded Assets as a result of or in connection with any
failure, or alleged failure, to pay any Tax. No ruling with respect to Taxes
(other than a request for determination of the status of a qualified pension
plan) has been requested by or on behalf of the Seller with respect to the
Seller, the Seller Business or any Assets.
(iv) Neither the Seller nor any Affiliate is obligated to make any
payments that may constitute "excess parachute payments," as defined in Section
280G of the Code. Neither the Seller nor any Affiliate is a party to any
agreement that is or may be characterized as a lease under the safe-harbor
leasing provisions of Section 168(f)(8) (now repealed) of the Internal Revenue
Code of 1954 that would result in any Asset being treated as owned by another
person. None of the Assets is tax exempt use property within the meaning of
Section 168(h) of the Code or tax-exempt bond financed property within the
meaning of Section 168(g)(5) of the Code.
(v) There is no claim or dispute concerning any Tax liability of the
Seller either (A) claimed or raised by any Governmental Entity in writing or (B)
as to which the Seller or any Affiliate (or any such employees responsible for
Tax matters) has
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any knowledge based upon personal contact with any agent of any Governmental
Entity. The Seller has made available to the Purchaser true and correct copies
of the federal income Tax Returns filed with respect to the Seller for tax
years, 1992, 1993, 1994, 1995 and 1996. Except for the 1994 Tax Return, no such
Tax Returns have been audited or are currently the subject of audit. As to the
audit of the 1994 Tax Return referred to above, such audit has been fully
settled and all amounts, if any, required to be paid pursuant to the
determination thereof have been paid by Seller except that the federal
adjustments have not been reported to the State of Georgia for state tax
purposes, but any resulting tax will be the responsibility of Seller or its
shareholders and constitute an Excluded Liability. The Seller has made available
to the Purchaser correct and complete copies of all examination reports and
statements of deficiencies accrued against or agreed to by any of the Seller or
such Affiliates since January 1, 1992.
(vi) Neither the Seller nor any such Affiliate has entered into any
agreement, whether or not written, providing for the payment of Taxes or
entitlement to refunds and related matters with any other party.
(vii) The Seller has and all such Affiliates have withheld and paid
all Taxes required to be withheld or paid in connection with any amounts paid or
owing to any employee, creditor, independent contractor, stockholder or other
third party.
(viii) None of the Assets is held in an arrangement for which Tax
Returns as a partnership have been or may be filed.
O. PRODUCTS. Without limiting the generality of Section 5.1(J), with
respect to each of the products currently sold in the Seller Business, there is
no and has not been any failure by the Seller to comply with any applicable and
material Law relating to product specifications or disclosures, including
without limitation any so-called "Consumer Protection" Laws.
P. ASSETS NECESSARY TO CONDUCT BUSINESS. The Assets, together with the
Lease and Excluded Assets, comprise all of the assets necessary to operate the
Seller Business as conducted by the Seller prior to Closing.
Q. SOLVENCY. Both as of the date of this Agreement and taking into
account the transactions contemplated hereby and the intended or otherwise
anticipated disposition of the proceeds thereof, (i) the aggregate fair market
value of the Seller's assets is now and will then be greater than the Seller's
Liabilities; (ii) the Seller is now and will then be able to pay its
then-existing debts as they become due in the ordinary course, and (ii) the fair
salable value of the Seller's assets is now and will then be greater than the
amount that will be required to pay the Seller's probable liability on its
then-existing debts as they become due.
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R. BROKERS' FEES. The Seller has made no agreement or taken any other
action which will cause the Purchaser to become obligated for any broker's or
other fee or commission as a result of any of the transactions contemplated by
this Agreement.
S. DISCLOSURE. No representation or warranty by the Seller contained in
this Agreement, the Disclosure Schedule or any certificate or other instrument
furnished or to be furnished at or after the Closing by or on behalf of the
Seller to the Purchaser pursuant to Section 3.2(A) contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading or
necessary in order fully and fairly to provide the information required to be
provided therein.
T. HART-SCOTT-RODINO. The annual net sales and total assets (as defined
in 16CFR ss.801.11) of the "person" (as defined in 16 CFR ss.801.1) which
includes the Seller for purposes of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, as of December 31, 1996 were each less than
$100,000,000.
U. UNITED STATES REAL PROPERTY INTERESTS. Less than fifty percent (50%)
of the fair market value of the Assets are United States Real Property
Interests, as such term is defined in Section 897(c) of the Internal Revenue
Code of 1986, as amended.
ARTICLE VI
Representations and Warranties and Covenants of the Purchaser
SECTION 6.1 REPRESENTATIONS AND WARRANTIES. The Purchaser represents and
warrants to the Seller that:
A. CORPORATE EXISTENCE AND QUALIFICATION OF THE PURCHASER; DUE EXECUTION,
ETC. The Purchaser is a corporation duly organized, validly existing and in good
standing under the Laws of The Commonwealth of Massachusetts and has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and the Closing Documents to be executed by it and to consummate the
transactions contemplated hereby and thereby. The Purchaser is duly qualified to
conduct business as a foreign corporation in every jurisdiction in which its
ownership or lease of property or conduct of its business makes such
qualification necessary, except for such jurisdictions in which the Purchaser's
failure to be so qualified, individually or together with any other failure to
qualify, would not materially impair the Purchaser's ability to perform its
obligations hereunder. The execution and delivery of this Agreement and the
Closing Documents to be executed by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action and, assuming the due execution of
this Agreement by the Seller, this Agreement and the Closing Documents to be
executed by the Purchaser constitute valid and binding
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obligations of the Purchaser enforceable against it in accordance with their
respective terms, subject only to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws relating to creditors' rights
generally and to general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or in equity).
B. NO VIOLATION. Neither the execution and delivery by the Purchaser of
this Agreement or the Closing Documents to be executed by the Purchaser nor the
consummation of the transactions contemplated hereby or thereby: (i) violates or
will violate any Law applicable to the Purchaser; (ii) violates or will violate
any Order applicable to the Purchaser; (iii) results or will result in a breach
of or default under the Articles of Organization or bylaws of the Purchaser or
conflicts or will conflict with or results or will result in any breach of any
Commitment applicable to the Purchaser. Except as set forth in SCHEDULE 6.1(B),
no consent, authorization or approval from, or registration or filing with, any
Governmental Entity or other third party (not obtained or made as of the date
hereof) is required to be obtained or made by or with respect to the Purchaser
in connection with the execution and delivery of this Agreement or the Closing
Documents to be executed by the Purchaser or the consummation by the Purchaser
of the transactions contemplated hereby or thereby, provided, however, that
Purchaser is relying upon the representations of the Seller set forth in Section
5.1(T) for purposes of compliance with the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended.
C. LITIGATION. Except as set forth in SCHEDULE 6.1(C), there are no Legal
Proceedings pending or, to the knowledge of the Purchaser, threatened against
the Purchaser or any predecessors or Affiliates of Purchaser that seek to enjoin
or obtain damages in respect of the consummation of the transactions
contemplated by this Agreement or any other Closing Documents. The Purchaser is
not in default with respect to any Order.
D. BROKERS' FEES. The Purchaser has not made any agreement or taken any
other action which will cause the Seller to become obligated for any broker's or
other fee or commission as a result of any of the transactions contemplated by
this Agreement.
E. HART-SCOTT-RODINO. The annual net sales and total assets (as defined
in 16CFR ss.801.11) of the "person" (as defined in 16 CFR ss.801.1) which
includes the Purchaser for purposes of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, as of December 31, 1996 were each less
than $100,000,000.
F. SOLVENCY. Both as of the date of this Agreement and taking into
account the transactions contemplated hereby and the intended or otherwise
anticipated disposition of the proceeds thereof, (i) the aggregate fair market
value of the Purchaser's assets is now and will then be greater than the
Purchaser's Liabilities; (ii) the Purchaser is now and will then be able to pay
its then-existing debts as they become due in the ordinary course; and (iii) the
fair salable value of the Purchaser's assets is now and will
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then be greater than the amount that will be required to pay the Purchaser's
probable liability on its then existing debts as they become due.
G. DISCLOSURE. No representation or warranty by the Purchaser contained
in this Agreement, or any certificate or other instrument furnished at the
Closing by or on behalf of the Purchaser to the Seller pursuant to Section
3.2(B) contains any untrue statement of a material fact, or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading or necessary in
order fully and fairly to provide the information required to be provided
therein.
SECTION 6.2 COVENANTS. The Purchaser hereby covenants and agrees with the
Seller as follows:
A. BOOKS AND RECORDS; PERSONNEL. For a period of seven years after the
Closing Date (or such longer period as may be required by any Law or any ongoing
Legal Proceeding), the Purchaser will not dispose of or destroy the business
records of the Purchaser (including without limitation those businesses records
pertaining to the Seller Business delivered to Purchaser by Seller at Closing)
to the extent existing on the date hereof and relating to the Assets or the
Business ("Purchaser Business Records"). If the Purchaser wishes to dispose of
or destroy any of the Purchaser Business Records after that time, it shall first
give 30 days' prior written notice to the Seller, and the Seller shall have the
right, at its option and with the Seller bearing responsibility for all of its
out-of-pocket expenses therefor, upon prior written notice to the Purchaser
within such 30-day period, to take possession of the requested Purchaser
Business Records (leaving copies thereof with the Purchaser if so requested by
the Purchaser, with the Purchaser bearing responsibility for all of its
out-of-pocket expenses for such copies) within 60 days after the date of the
Seller's delivery of its notice to the Purchaser.
B. COOPERATION. From and after the Closing Date, Purchaser will make
available to Seller, upon written request and at no additional charge to Seller,
the assistance of Purchaser's payroll and accounts payable personnel where such
assistance is reasonably required in connection with (i) the termination by
Seller of Seller's Defined Contribution Plan provided by Lincoln National Life
Insurance Co. and the roll-over or payout of restated amounts under such plan
and other general matters or (ii) the disbursement by Seller of any sales or
other taxes; provided the foregoing obligations shall not require the Purchaser
to expend any amount of money to accomplish either of the foregoing (i) or (ii)
and all expenses and other amounts relating thereto shall be the sole
responsibility of and be paid by the Seller. Without limiting Section 4.2(H),
Seller and Purchaser hereby acknowledge that in no event shall Purchaser have
any liability with respect to Seller's Profit Sharing Plan or for severance or
termination payout thereunder, all of which are and shall remain Excluded
Liabilities.
C. OPERATION OF BUSINESS. In light of the Closing Balance Sheet being
computed as of May 31, 1997 and the Closing occurring on May 30, 1997, during
the
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period from Closing until 11:59 p.m. eastern daylight time on May 31, 1997,
Purchaser shall operate the Business in the ordinary course consistent with
Seller's past practices.
ARTICLE VII
Covenants of Seller
The Seller hereby covenants and agrees with the Purchaser as follows:
SECTION 7.1 BOOKS AND RECORDS; PERSONNEL. For a period of seven years after
the Closing Date (or such longer period as may be required by any Law or any
ongoing Legal Proceeding), the Seller will not dispose of or destroy those
business records of the Seller Business or primarily relating to the Seller
Business which are not delivered to the Purchaser at Closing ("Retained
Records"). If the Seller wishes to dispose of or destroy any of the Retained
Records after that time, it shall first give 30 days' prior written notice to
the Purchaser, and the Purchaser shall have the right, at its option and with
the Purchaser bearing responsibility for all of its out-of-pocket expenses
therefor, upon prior written notice to the Seller within such 30-day period, to
take possession of the requested Retained Records (leaving copies thereof with
the Seller if so requested by the Seller, with the Seller bearing responsibility
for all of its out-of-pocket expenses for such copies) within 60 days after the
date of the Purchaser's delivery of its notice to the Seller.
SECTION 7.2. TAXES. From and after the Closing, the Seller will make
available to the Purchaser, upon written request and with the Purchaser bearing
responsibility for all of its out-of-pocket expenses therefor, the Seller
personnel or representatives under Seller's control whose assistance or
participation is reasonably required by the Purchaser in anticipation of, or
preparation for, existing or future Legal Proceedings, Tax Return preparation,
audits or other matters in which the Purchaser or any of its Affiliates is
involved and that is related to the Seller Business. The Seller will reasonably
cooperate with the Purchaser in the conduct of any Tax audit, claim for refund
of Taxes or similar proceedings involving or otherwise relating to any of the
Assets or the Seller Business (or the income therefrom or assets thereof).
SECTION 7.3 CORPORATE NAME. Without in any way limiting the right, title or
interest that the Purchaser is acquiring hereunder in or to the trademarks and
service marks described in Section 1.2(A)(7), the Seller shall after the Closing
change all signage and stationery and otherwise discontinue the use of the name
"HiFi Buys", the phrase "Audio Video and a Boatload of Know How" or any
combination or derivation of the foregoing or any other names, or trademarks or
service marks related to or used in the Seller Business. After the Closing, the
Seller shall not use any of the Intellectual Property.
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SECTION 7.4 NON-COMPETITION.
A. COVENANT NOT TO COMPETE. Absent the prior written consent of the
Purchaser, the Seller shall not at any time after the Closing Date: (1) directly
or indirectly, own, manage, operate, finance, join, or control, or participate
in the ownership, management, operation, financing or control of, or be
associated as a director, partner, lender, investor or representative in
connection with, any profit or not-for-profit business or enterprise that: (a)
distributes or sells consumer electronic or entertainment products; or (b)
otherwise competes with the business of Purchaser as it exists immediately
following the Closing, i.e., including the Seller Business as of the Closing
Date; or (2) directly or indirectly solicit, induce or attempt to induce any
person employed by the Purchaser residing in the Restricted Territory to enter
the employ of Seller or any other person or entity (all of the foregoing
covenants collectively, the "Covenant Not to Compete"). For purposes of this
Agreement, "Restricted Territory" shall mean the United States of America. The
Seller shall not, at any time after the Closing, divulge, or permit to be
divulged to others, or use in any way any Proprietary Information (as defined
below) except (a) in accordance with the Purchaser's prior written
authorization, or (b) as may be required by applicable Laws, but, to the extent
practicable, only after the Seller has given the Purchaser not less than ten
(10) business days' notice that the Seller has been ordered by a Governmental
Entity to make such disclosure and describing the circumstances surrounding such
required disclosure and the Purchaser has had a reasonable opportunity
thereafter to petition such government entity for IN CAMERA treatment, or other
appropriate safeguards against the dissemination beyond or by such Governmental
Entity, of the information so ordered disclosed.
As used herein, the term "Proprietary Information" shall mean:
(a) All inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, products, projects,
improvements and developments owned or used by the Seller (on or prior
to the Closing Date) or the Purchaser, or which otherwise are included
in the Assets or relate to the Seller Business, and which are not
lawfully in the public domain; and
(b) All client and customer lists, pricing information and trade
secrets owned or used by the Seller (on or prior to the Closing Date)
or the Purchaser, or which otherwise comprise Assets or relate to the
Seller Business; and any other data, information, documents or forms
pertaining to the financial condition, business affairs or prospects
of the Seller (as of the Closing Date) or the Purchaser, or which
otherwise comprise Assets or relate to the Seller Business, including,
without limitation, any such information relative to customers or
suppliers, samples, sketches, bulletins, memoranda, correspondence,
forms and records (including financial statements), information
concerning sources of supply, costs of manufacture and sale and
specifications of equipment; whether or not any of the foregoing is
published
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or unpublished, protected or susceptible to protection under patent,
trademark, copyright or similar laws and whether or not any party has
elected to secure or attempted to secure such protection.
Notwithstanding the foregoing, the term "Proprietary Information" shall not
include any of the foregoing information or materials (i) to the extent they
relate to the Excluded Assets; (ii) that have become generally known to the
public through no wrongful act of the Seller or any of its Affiliates; (iii)
that have been lawfully received by the Seller from a third party without
restriction on disclosure and without a breach by the third party of any
obligation of confidentiality; or (iv) that are independently developed by the
Seller without use of any Proprietary Information.
B. EQUITABLE RELIEF. The Seller and the Purchaser each acknowledge that
any breach of the covenants contained in Section 7.5(A) would cause an
irreparable injury to the Purchaser and that damages and remedies at law for any
breach of any such covenant would be inadequate. The Seller and the Purchaser
each acknowledge that, in addition to any other remedies available to the
Purchaser, the Purchaser shall be entitled to injunctive relief and other
equitable relief to prevent a breach of any such covenant.
C. JUDICIAL DETERMINATIONS. It is the desire and intent of the parties to
this Agreement that the provisions of this Section 7.4 be enforced to the
fullest extent permissible under the Laws and public policies applied in each
jurisdiction in which enforcement is sought. If any particular provision or
portion of this Section 7.4 shall be adjudicated to be invalid, ineffective or
unenforceable, this Section 7.4 shall be deemed automatically amended to delete
therefrom such provision or portion adjudicated to be invalid, ineffective or
unenforceable, such amendment to apply only with respect to the operation of
such provision in the particular jurisdiction with respect to which adjudication
is made.
SECTION 7.5 DISCHARGE OF EXCLUDED LIABILITIES AND BULK SALES LIABILITIES.
Without limiting the provisions of Sections 4.2 or 9.14 hereof, the Seller
acknowledges that it is retaining all Excluded Liabilities. The Seller hereby
agrees and covenants that it shall, at all times following Closing, perform, pay
or discharge, to the extent not theretofore performed, paid or discharged, any
and all Excluded Liabilities and (to the extent not constituting Excluded
Liabilities) any Bulk Sales Liabilities in each case in accordance with their
respective terms.
SECTION 7.6 CHANGE OF NAME. Seller agrees and covenants that it shall, as
of the Closing, take all necessary steps, including filing any and all necessary
notices or documents, to change its name to "HFB Associates Corp." and permit
and transfer to Purchaser all of its right title and interest in and to the use
of the names listed in Section 1.2A.
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ARTICLE VIII
Certain Tax Matters
SECTION 8.1 OBLIGATION FOR CERTAIN TAXES. All sales, use, transfer, stamp,
conveyance, value added or other similar taxes (but excluding in any case all
income taxes of Seller or its Affiliates which shall remain their own
Liabilities), duties, excises or governmental charges imposed by any taxing
jurisdiction, domestic or foreign, and all recording or filing fees, notarial
fees and other similar costs of Closing with respect to the Transfer of the
Assets will be borne one half by the Seller and one half by the Purchaser.
Notwithstanding that the Purchaser may be the party who actually delivers
payment to the applicable authority, the parties hereto agree that the
responsibility for 1997 personal property, ad valorem taxes, transferable
business license fees and real estate taxes payable under Seller Leases with
respect to the Assets shall be prorated between Seller and Purchaser as of the
Closing Date based on the best information available to the parties. Should such
proration be inaccurate based on the actual ad valorem tax bill when received,
either Seller or Purchaser, as the case may be, may demand and shall be entitled
to receive on demand a payment from the other correcting such malapportionment.
SECTION 8.2 ALLOCATION OF PURCHASE PRICE. The Seller and the Purchaser
agree that the Purchase Price shall be allocated among the Assets and the
covenants of the Seller set forth in Section 7.4(A) as they shall mutually
agree; provided the parties agree in any case that the Seller will allocate
$1,000 of value to the Warrant. The Purchaser and the Seller will jointly
prepare Form 8594 pursuant to Section 1060 of the Code, on a basis consistent
with such allocation, and none of the parties hereto will take any position with
any Governmental Entity, including without limitation in its federal, state and
local Tax Returns, inconsistent therewith.
SECTION 8.3 SELLER TAX RETURNS. The Seller will prepare and file or cause
to be prepared and filed all Tax Returns for the Seller that are required to be
filed with respect to the Seller through the Closing Date. The Seller will pay
or cause to be paid all Taxes required to be paid with respect to such Tax
Returns. The Seller will pay all Taxes (or, if applicable, reimburse Purchaser
for the payment of such Taxes) attributable to taxable periods ending on or
before the Closing Date or with respect to the allocable portion of any taxable
period that includes but does not end on the Closing Date.
SECTION 8.4 CERTAIN DEFINITIONS. For purposes of this Agreement, (i) "Tax"
or "Taxes" includes all federal, state, local, foreign and other taxes,
assessments, or governmental charges of any kind whatsoever including, without
limitation, income, franchise, capital stock, excise, property, sales, use,
service, service use, leasing, leasing use, gross receipts, value added, single
business, alternative or add-on minimum, occupation, real and personal property,
stamp, workers' compensation, severance, windfall, profits, customs, duties,
disability, registration, estimated, environmental (including Taxes under Code
Section 59A), transfer, payroll, withholding, employment, unemployment and
social security taxes, or other taxes of the same or similar nature,
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together with any interest, penalties or additions thereon and estimated
payments thereof, whether disputed or not, (ii) "Tax Return" or "Tax Returns"
includes all returns, reports, information returns, forms, declarations, claims
for refund, statements and other documents (including any amendments thereto and
including any schedule or attachment thereto) in connection with Taxes that are
required to be filed with a Governmental Entity or other tax authority, or sent
or provided to another party under applicable Law, (iii) "Income Tax" or "Income
Taxes" means all Taxes imposed on, measured by, or that require reference to,
net or taxable income (including any income, capital gains, franchise,
estimated, alternative, minimum, add-on minimum or other tax imposed on,
measured by, or which requires reference to, net or taxable income), together
with interest and penalties thereon and estimated payments thereof, and (iv) all
citations of the Code or to the Treasury Regulations promulgated thereunder in
this Agreement shall include any amendments or successor provisions thereto.
ARTICLE IX
SECTION 9 MISCELLANEOUS.
SECTION 9.1 ENTIRE AGREEMENT: AMENDMENT. Each of the representations,
warranties, covenants and agreements of any party hereto contained in this
Agreement or the Disclosure Schedule or any certificate delivered by or on
behalf of any party hereto pursuant to and which makes reference to this
Agreement will be deemed incorporated and contained in this Agreement and will
constitute representations and warranties of such party. This Agreement
(including the Disclosure Schedule) supersedes any other agreement, whether
written or oral, that may have been made or entered into by any party or any of
their respective Affiliates (or by any director, officer or representative
thereof) with respect to the subject matter hereof. This Agreement (including
the Disclosure Schedule) constitutes the entire agreement of the parties hereto
with respect to the matters provided for herein and there are no agreements or
commitments by or among such parties or their Affiliates with respect to the
subject matter hereof except as expressly set forth in this Agreement. No
investigation or receipt of information by or on behalf of the Purchaser will
diminish or obviate any of the representations, warranties, covenants or
agreements of the Seller under this Agreement or the conditions to obligations
of the Purchaser under this Agreement. No investigation or receipt of
information by or on behalf of the Seller will diminish or obviate any of the
representations, warranties, covenants or agreements of the Purchaser under this
Agreement or the conditions to obligations of the Seller under this Agreement.
SECTION 9.2 AMENDMENTS. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the Purchaser and the Seller.
SECTION 9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their respective
successors and permitted
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assigns. This Agreement is freely assignable by the Purchaser after the Closing
Date but may not be assigned by the Seller without the prior written consent of
the Purchaser; provided, however, that any such assignment by the Purchaser
shall not relieve it of its obligations hereunder.
SECTION 9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original for all purposes
and all of which together shall constitute one and the same instrument.
SECTION 9.5 HEADINGS AND SECTION REFERENCES. The headings of the sections
and paragraphs of this Agreement are included for convenience only and are not
intended to be a part of, or to affect the meaning or interpretation of, this
Agreement. All section references herein, unless otherwise clearly indicated,
are to sections within this Agreement.
SECTION 9.6 WAIVER. No failure or delay by either the Purchaser or the
Seller in exercising any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law.
SECTION 9.7 EXPENSES. Except as otherwise specifically provided for in this
Agreement, including without limitation in Section 2.2(F) hereof, the Seller and
the Purchaser shall each pay all costs and expenses incurred by it or on its
behalf in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, fees and expenses of its, his or their
own financial consultants, accountants and counsel.
SECTION 9.8 NOTICES. Any notice, request, instruction or other document
to be given under this Agreement by any party hereto to any other party shall be
in writing and delivered personally, dispatched by facsimile transmission, or
sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid:
If to the Seller, to:
HFB Associates Corp.
15 South Battery Place, NE
Atlanta, Georgia 30342
Attn.: Mr. Jeffrey Snow
Fax No.: (404) 843-3578
with a copy to:
Troutman Sanders LLP
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600 Peachtree Street, N.E. Suite 5200
Atlanta, GA 30308-2216
Attn.: Robert W. Grout, Esq.
Fax No.: (404) 885-3900
If to the Purchaser, to:
New England Audio Co., Inc.
40 Hudson Road
Canton, MA 02021
Attn.: Mr. Jeffrey Stone
Fax No.: (617) 821-9956
with a copy to:
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110-3333
Attn.: Kitt Sawitsky, Esq.
Daniel R. Avery, Esq.
Fax No.: (617) 574-4112
or at such other address for a party or as shall be specified by like notice.
Any notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the person or entity to which it is directed
upon actual receipt by such party (or its agent for notices hereunder). Any
notice that is dispatched by facsimile transmission shall be deemed to have been
duly given to the person or entity to which it is addressed upon transmission
and confirmation of receipt. Any notice that is addressed as provided herein and
mailed by registered or certified mail shall be conclusively presumed to have
been duly given to the person or entity to which it is addressed at the close of
business, local time of such party, on the fifth calendar day after the day it
is so placed in the mail. Any notice that is addressed as provided herein and
sent by a nationally recognized overnight courier service shall be conclusively
presumed to have been duly given to the person or entity to which it is
addressed at the close of business, local time of such person or entity, on the
next business day following its deposit with such courier service for next day
delivery.
SECTION 9.9 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed and construed in accordance with the
substantive Laws of the Commonwealth of Massachusetts, without giving effect to
the principles of conflict of laws thereof.
SECTION 9.10 SEVERABILITY. If any provisions hereof shall be held by any
court of competent jurisdiction to be illegal, void, or unenforceable, such
provisions shall be of no
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force and effect, but the illegality or unenforceability shall have no effect
upon, and shall not impair the enforceability of, any other provision of this
Agreement.
SECTION 9.11 KNOWLEDGE. Whenever "to its knowledge," "known" or a similar
phrase is used to qualify a representation of the Seller, the "knowledge" so
referred to shall be deemed to be (a) the actual knowledge of the officers,
directors, management employees and shareholders of the Seller set forth on
SCHEDULE 9.11 hereto and (b) the knowledge reasonably imputed to such person by
virtue of his or her relationship or employment responsibilities to the Seller
as an officer, director, management employee or shareholder, or by virtue of his
or her access to information relating to the matter which is the subject of such
representation.
SECTION 9.12 RIGHTS OF THIRD PARTIES. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any person or
entity other than the parties hereto and their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement or
any transaction contemplated hereby.
SECTION 9.13. CONSENT TO SERVICE OF PROCESS. Each party hereby irrevocably
consents to the service of any complaint, summons, notice or other process
relating to any legal action or proceeding against it or him under, arising out
of, or in any manner relating to this Agreement or any other agreement, document
or instrument arising out of or executed in connection with this Agreement by
delivery thereof to it or him by hand, by mail or by overnight express delivery
service in the manner provided for in Section 9.8 or by serving a copy thereof
on any registered agent for such party in the jurisdiction in which such action
or proceeding is brought. Nothing in this Section 9.13 shall affect or impair in
any manner or to any extent the right of any party to serve process in any
manner permitted by Law. The parties further agree that the consent provided for
in this Section 9.13 are personal and solely for the benefit of the parties to
this Agreement and their respective heirs and successors and are not intended
for the benefit of, and may not be invoked by, any other person or third party.
SECTION 9.14 INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
A. INDEMNIFICATION BY SELLER. The Seller hereby agrees to defend and hold
harmless the Purchaser and its Affiliates and their respective employees,
officers, directors, stockholders, partners and representatives from and against
any losses, assessments, Liabilities, claims, damages, costs and expenses
(including without limitation reasonable attorneys' fees and disbursements)
which arise out of or relate to:
(1) any misrepresentation in, breach of or failure to comply with,
any of the representations, warranties, covenants or agreements of the Seller or
any Affiliate of the Seller contained in this Agreement or any other of the
Closing Documents, including without limitation in the Disclosure Schedule; or
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(2) any Environmental Matters (as defined below); or
(3) subject to the provisions of the last paragraph of Section
2.2(F), any Liabilities of the Seller or any Affiliate of the Seller other than
the Assumed Liabilities; or
(4) claims by the employees listed on Schedule 2.2B arising from
their termination by Purchaser (other than claims arising on account of any
commitment made by Purchaser other than to retain such employees for the 60 day
period as described in Section 2.2B).
(5) without limiting the generality of the preceding clauses (1),
(2), (3) and (4), the operation of the Seller Business or ownership of the
Assets prior to the Closing, regardless of whether such losses, assessments,
Liabilities, claims, damages, costs and expenses, or the facts or circumstances
relating thereto, were disclosed hereunder or in the Disclosure Schedule or
otherwise, but excluding, for purposes of this clause (5), such losses,
assessments, Liabilities, claims, damages, costs and expenses that constitute
Assumed Liabilities or that arise from or relate to matters as to which the
Purchaser has agreed to indemnify the Seller under Section 9.14(B) hereof;
and all such losses, assessments, Liabilities, claims, damages, costs and
expenses so arising out of or relating to any of the foregoing clauses (1)
through (5), inclusive of this Section 9.14(A), or the matters described
therein, are referred to hereinafter as the "Purchaser's Losses;" PROVIDED,
however, that the Seller shall not have any obligation so to indemnify the
Purchaser under this Section 9.14(A):
(i) unless and until the Purchaser's Losses paid, incurred,
suffered or accrued by the Purchaser on account of all breaches of
representations and warranties exceed $50,000 in the aggregate, in which event
the Purchaser will be entitled to such indemnification in respect of all such
Purchaser's Losses, including without limitation such initial $50,000 of
Purchaser's Losses; or
(ii) to the extent of the amount, if any, reflected as a
liability on the Closing Balance Sheet with respect to a matter for which
Purchaser seeks indemnification hereunder.
As used above, the term "Environmental Matters" shall mean each and all of
the following:
(i) any acts, practices, or omissions on, at or relating to the Current
Locations or the Other Locations or any facilities or operations thereon, or
otherwise relating in any way to the Seller Business, by the Seller or its
Affiliates prior to Closing, which acts, practices, or omissions are regulated
by or the subject or within the jurisdiction of, or which give rise to any
losses, assessments, Liabilities, claims, damages, costs or expenses under, any
Environmental Laws;
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(ii) any Environmental Condition caused by Seller or of which Seller has
knowledge existing at Closing on, at or relating to the Current Locations or the
Other Locations or any facilities or operations thereon, or otherwise relating
in any way to the Seller Business;
(iii) the generation, manufacture, refinement, transportation, treatment,
storage, handling, disposal, transfer, production or processing of any Hazardous
Material by Seller or by any other person or entity of which Seller has
knowledge on, at or relating to the Current Locations or the Other Locations or
any facilities or operations thereon prior to the Closing, or otherwise relating
in any way to the Seller Business prior to the Closing;
(iv) any Release prior to Closing of any Hazardous Material on, at or
relating to the Current Locations or the Other Locations or any facilities or
operations thereon, or otherwise relating in any way to the Seller Business
caused by Seller or any person or entity of which Seller has knowledge; and
(v) the use or storage prior to Closing by Seller or any person or entity
of which Seller has knowledge of any polychlorinated biphenyls on, at or
relating to the Current Locations or the Other Locations or any facilities or
operations thereon.
THE SELLER ACKNOWLEDGES AND AGREES THAT THE DEFINITION OF "ENVIRONMENTAL
MATTERS" ABOVE SHALL INCLUDE EACH AND ALL OF THE FOREGOING CLAUSES (i) THROUGH
(v), INCLUSIVE, REGARDLESS OF WHETHER ANY OF THE MATTERS DESCRIBED IN SUCH
CLAUSES (i) THROUGH (v), INCLUSIVE, OR ANY FACTS OR CIRCUMSTANCES RELATING
THERETO, HAVE BEEN DISCLOSED TO THE PURCHASER IN THIS AGREEMENT OR IN THE
DISCLOSURE SCHEDULES HERETO OR OTHERWISE, AND THAT THE INDEMNIFICATION
OBLIGATIONS WITH RESPECT TO ENVIRONMENTAL MATTERS PURSUANT TO THIS SECTION 9.14
SHALL EXIST IN FULL FORCE AND EFFECT NOTWITHSTANDING ANY SUCH DISCLOSURE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE SELLER ACKNOWLEDGES AND
AGREES THAT TO THE EXTENT THAT ANY OF THE MATTERS DISCLOSED ON SCHEDULE 5.1(J)
CONSTITUTE ENVIRONMENTAL MATTERS, SUCH INDEMNIFICATION OBLIGATIONS SHALL EXIST
IN FULL FORCE AND EFFECT WITH RESPECT TO SUCH MATTERS NOTWITHSTANDING SUCH
DISCLOSURE.
B. INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify,
defend and hold harmless the Seller and its Affiliates and their respective
employees, officers, directors, stockholders, partners and representatives from
and against any losses, assessments, Liabilities, claims, damages, costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements) which arise out of or relate to (1) any misrepresentation in,
breach of or failure to comply with, any of the representations, warranties,
covenants or agreements of the Purchaser or any Affiliate of Purchaser
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contained in this Agreement (including, without limitation, the Schedules
hereto) or any other of the Closing Documents; (2) the Purchaser's failure to
perform, pay or discharge, in accordance with their respective terms, the
Assumed Liabilities; (3) employment discrimination by the Purchaser in the
hiring or failing to hire by the Purchaser on or following the Closing Date,
those individuals who were, immediately prior to the Closing, Seller Employees;
or (4) without limiting the generality of the preceding clauses (1), (2) and
(3), the operation of the Business or ownership of the Assets following Closing,
but excluding for purposes of this clause (4), such losses, assessments,
Liabilities, claims, damages, costs and expenses arising from or relating to
matters as to which the Seller has agreed to indemnify the Purchaser under
Section 9.14(A) hereof. All such losses, assessments, liabilities, claims,
damages, costs and expenses so arising out of or relating to any of the
foregoing clauses (1) through (4), inclusive of this Section 9.14(B), or the
matters described therein, are referred to hereinafter as the "Seller's Losses."
The Seller expressly agrees hereby that the Purchaser is not indemnifying the
Seller or any other party against any claims made by any employee of the Seller
with respect to termination of such employee's employment prior to or at
Closing, regardless of the basis upon which any such claim is brought, and any
such claim shall be a Liability of the Seller and shall constitute an Excluded
Liability.
C. SURVIVAL. The Seller's representations and warranties under this
Agreement, and its indemnification obligations arising solely from such
representations and warranties, shall survive the Closing and shall expire and
terminate on May 30, 2000, unless written notice by the Purchaser of a breach or
alleged breach thereof has been provided to the Seller, on or prior to such
date, in which case such representations and warranties so breached or alleged
to have been breached, and such indemnification obligations relating thereto,
shall not so expire and terminate as to the breach or alleged breach set forth
in such written notice until resolution of such breach or alleged breach.
Notwithstanding the foregoing or anything else to the contrary herein:
(1) the representations and warranties of the Seller set forth in
Sections 5.1(J), Section 5.1(K), and Section 5.1(N) of this Agreement, and any
covenants or agreements of the Seller under this Agreement (except to the extent
a covenant herein requires Seller to pay amounts resulting from a breach of any
representation or warranty which covenant shall be subject to the same
limitations on survival as applicable to the respective representation and
warranty to which it relates) and any and all indemnification obligations
relating thereto or otherwise provided in Section 9.14(A), (2) through (5)
inclusive, shall not so expire or otherwise terminate on May 30, 2000, but shall
survive indefinitely, unless earlier expiring in accordance with their
respective terms;
(2) the representations and warranties of Seller set forth in
Sections 5.1(C), 5.1(D), 5.1(L), 5.1 (M), 5.1(Q), 5.1(R) of this Agreement shall
expire and terminate on May 30, 1998 unless written notice by the Purchaser of a
breach or alleged breach thereof has been provided to the Seller, on or prior to
such date, in which case such representations and warranties so breached or
alleged to have been breached, and
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such indemnification obligations relating thereto, shall not so expire and
terminate as to the breach or alleged breach set forth in such written notice
until resolution of such breach or alleged breach; and
(3) the representations and warranties of Seller set forth in
Section 5.1(E) of this Agreement shall expire and terminate on June 30, 1999
unless written notice by the Purchaser of a breach or alleged breach thereof has
been provided to the Seller, on or prior to such date, in which case such
representations and warranties so breached or alleged to have been breached, and
such indemnification obligations relating thereto, shall not so expire and
terminate as to the breach or alleged breach set forth in such written notice
until resolution of such breach or alleged breach.
The Purchaser's representations and warranties under this Agreement, and
its indemnification obligations arising solely from such representations and
warranties, shall survive the Closing and shall expire and terminate on May 30,
2000, unless written notice by the Seller of a breach or alleged breach thereof
has been provided to the Purchaser on or prior to such date, in which case such
representations and warranties so breached or alleged to have been breached, and
such indemnification obligations relating thereto, shall not so expire and
terminate. Notwithstanding the foregoing or anything else to the contrary
herein, any covenants or agreements of the Purchaser hereunder (to the extent
not constituting breaches of Purchaser's representations and warranties) and any
and all indemnification obligations relating thereto (including, without
limitation, Purchaser's indemnification obligations under Sections
9.14(B)(2)-(4)) shall not so expire or otherwise terminate on May 30, 2000, but
shall survive indefinitely, unless earlier expiring in accordance with their
respective terms.
D. LIMITATION ON INDEMNIFICATION LIABILITY IN CERTAIN CASES. The maximum
aggregate liability of the Seller under Section 9.14(A)(1) for any one or more
breaches of the Seller's representations or warranties pursuant to this
Agreement shall be $8,000,000, which maximum aggregate liability shall be
reduced by $1,000,000 at the end of each fiscal quarter of Purchaser, beginning
with the fiscal quarter ending September 30, 1997, until such maximum aggregate
liability is reduced to zero; provided, however, that such limitation on the
liability of the Seller shall not apply to, and there shall be no limit to the
liability of the Seller to the Purchaser under Section 9.14(A)(1) or otherwise
on account of any breach of the representations or warranties set forth in
Section 5.1(J), Section 5.1(K), or Section 5.1(N) of this Agreement.
Notwithstanding anything herein to the contrary, and without limiting the
preceding proviso clause, in no event shall there be any cap or limit on the
liability of the Seller to the Purchaser under or in connection with this
Agreement except as expressly limited pursuant to the preceding sentence and as
set forth in Section 9.17, and there shall be no such cap or limit on any such
liability on account of any breach by the Seller of any of its covenants or
agreements hereunder (except to the extent such liability arises from a breach
of Seller's representations and warranties, in which case such cap or limit
shall be the cap or limit applicable to such breach). PROCEEDINGS UNDER THIS
SECTION 9.14 SHALL BE THE SELLER'S AND PURCHASER'S SOLE AND EXCLUSIVE REMEDY
AGAINST THE OTHER WITH
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RESPECT TO ANY CLAIM ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT EXCEPT
TO THE EXTENT THAT THE CLAIM OF THE SELLER OR THE PURCHASER, AS THE CASE MAY BE,
ARISES FROM OR RELATES TO THE FRAUD OR THE INTENTIONAL DECEPTION OF THE OTHER
PARTY. The Purchaser may at any time and from time to time set off and
appropriate any and all amounts owing to it pursuant to indemnification
obligations of Seller arising under or in connection with this Agreement,
pursuant to those setoff rights set forth in the Promissory Note and the Warrant
and the exercise of such rights of setoff shall be in addition to each and every
right granted under this ss.9.14 and such setoff rights may be exercised
independently or in conjunction with every other right granted under this
ss.9.14.
E. PROCEDURES. (i) In the event that any Legal Proceeding shall be
threatened or instituted in respect to which indemnification may be sought by
one party hereto from another party under the provisions of this Section 9.14,
the party seeking indemnification ("Indemnitee") shall, reasonably promptly
after acquiring actual knowledge of such threatened or instituted Legal
Proceeding, cause written notice in reasonable detail of such threatened or
instituted Legal Proceeding and which is covered by this indemnification, to be
forwarded to the other party from which indemnification is being sought
("Indemnitor"), provided, however, that the failure to provide such notice as of
any particular date as aforesaid will not affect any rights to indemnification
hereunder, except to the extent, and only to such extent, that such failure to
provide such notice actually and materially prejudices the Indemnitor's ability
to adequately defend such Legal Proceeding.
(ii) In the event of the initiation of any Legal Proceeding against an
Indemnitee by a third party, the Indemnitor shall have the absolute right after
the receipt of the notice described in Section 9.14(E)(i), at its option and at
its own expense, to be represented by counsel of its choice, and (subject to
Section 9.14(E)(iii)) to defend against, negotiate, settle or otherwise deal
with any Legal Proceeding or demand that relates to any Purchaser's Losses or
Seller's Losses, as the case may be, indemnified against hereunder, and, in such
event, the Indemnitee will reasonably cooperate with the Indemnitor and its
representatives in connection with such defense, negotiation, settlement or
dealings (and the Indemnitee's costs and expenses arising therefrom or relating
thereto shall constitute Purchaser's Losses, if the Indemnitee is the Purchaser,
or Seller's Losses, if the Indemnitee is the Seller); provided, however, that
the Indemnitee may directly participate in any such Legal Proceeding so defended
with counsel of its choice at its own expense, except that, if the Indemnitor
fails to take reasonable steps necessary to defend diligently such third party
claim upon receiving written notice from the Indemnitee that the Indemnitee
reasonably believes the Indemnitor has failed to take such steps or if the
Indemnitor has not undertaken fully to indemnify the Indemnitee in respect of
all such Purchaser's or Seller's Losses, as the case may be, relating to the
matter and as required hereunder, the Indemnitee may assume its own defense,
and, in such event (a) the Indemnitor will be liable for all Purchaser's or
Seller's Losses, as the case may be, reasonably paid or incurred in connection
therewith, and (b) the Indemnitor shall,
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in any case, reasonably cooperate, at its own expense, with the Indemnitee and
its representatives in connection with such defense.
(iii) Without the prior written consent of the Indemnitee, which shall
not be unreasonably withheld, the Indemnitor will not enter into any settlement
of any third party claim which would lead to Liability or create any financial
or other obligation on the part of the Indemnitee which is not immediately paid
or reimbursed in full by the Indemnitor on account of its indemnification
obligation hereunder or which would otherwise adversely affect the Assets or the
Seller Business. If a firm offer is made to settle a third party claim without
leading to Liability or the creation of a financial or other obligation on the
part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder and the Indemnitor desires to accept and agree to such
offer, the Indemnitor will give written notice to the Indemnitee to that effect.
If the Indemnitee notifies the Indemnitor that it does not consent to such firm
offer within 10 calendar days after its receipt of such notice from the
Indemnitor, the Indemnitee may continue to contest or defend such third party
claim and, in such event, the maximum Liability of the Indemnitor as to such
third party claim will not exceed the amount of such settlement offer, plus the
Purchaser's Losses or Seller's Losses, as the case may be, reasonably paid or
incurred by the Indemnitee through the end of such 10-calendar day period.
(iv) After any final judgment or award shall have been rendered by a
Governmental Entity of competent jurisdiction and the time in which to appeal
therefrom has expired, or a settlement shall have been consummated, or the
Indemnitee and the Indemnitor shall have arrived at a mutually binding agreement
with respect to each separate matter alleged to be indemnified against by the
Indemnitor hereunder, the Indemnitee shall forward to the Indemnitor notice of
any sums due and owing by it with respect to such matter, and the Indemnitor
shall pay all of the sums so owing to the Indemnitee by wire transfer or
certified or bank cashier's check within 30 days after the date of such notice.
Any and all Purchaser's Losses or Seller's Losses, other than those described in
the preceding sentence (including Purchaser's Losses or Seller's Losses incurred
in the absence of any threatened or pending Legal Proceeding, or Purchaser's
Losses or Seller's Losses incurred after any such Legal Proceeding has been
threatened or instituted but prior to the rendering of any final judgment or
award in connection therewith), shall be paid by the Indemnitor on a current
basis, and, without limiting the generality of the foregoing, the Indemnitee
shall have the right to invoice the Indemnitor for such Purchaser's Losses or
Seller's Losses, as the case may be, as frequently as it reasonably deems
appropriate, and the proper amount of any such Purchaser's Losses or Seller's
Losses, as the case may be, which are described or listed in any such invoice
shall be paid to the Indemnitee, by wire transfer or certified or bank cashier's
check, within 30 days after the date of such invoice.
SECTION 9.15 CERTAIN EMPLOYMENT MATTERS. The Purchaser acknowledges that it
is, simultaneously with the Closing, offering employment to certain of the
Seller Employees. Any such employment shall be on terms established by the
Purchaser and such Seller Employees, and, without limiting the generality of the
foregoing, the Seller
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acknowledges that such terms are not necessarily comparable to the terms
applicable to the prior employment of such Seller Employees by the Seller
(including, without limitation terms relating to Benefit Plans and Benefit
Arrangements provided by the Seller).
SECTION 9.16 CERTAIN DEFINITIONS AND INTERPRETIVE MATTERS.
A. CERTAIN DEFINITIONS. Unless the context otherwise requires, (i) each
accounting term not otherwise defined in this Agreement has the meaning assigned
to it in accordance with GAAP, (ii) "or" is disjunctive but not necessarily
exclusive, and (iii) the term "Affiliate" has the meaning given to that term in
Rule 12b-2 of Regulation 12B under the Securities Exchange Act of 1934, as
amended, and, when the term is used with reference to the Seller, includes, in
any case and without limitation, each of Jeffrey Snow, Kerri Snow, Richard Snow,
David Ginsburg and Walter Liederman. All references to "$" or dollar amounts
mean lawful currency of the United States of America. The term "Laws" shall mean
any foreign or domestic, federal, state, county or local statute, law,
ordinance, rule, regulation, or court or administrative order, judgment or
ruling.
B. INTERPRETIVE MATTERS. No provision of this Agreement will be
interpreted in favor of, or against, any of the parties hereto by reason of the
extent to which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof.
C. SPECIFIC DEFINED TERMS. The following defined terms are defined in the
respective Sections of this Agreement as set forth below:
Defined Term Section Defined In
------------ ------------------
"Adjusted Cash Payment" 2.2(A)
"Affiliate" 9.16(A)
"Agreed Upon Accounting Standards" 2.2(F)
"Assets" 1.1
"Assumed Liabilities" 4.1
"Benefit Arrangements" 5.1(K)(ii)(c)
"Benefit Plans" 5.1(K)(ii)(b)
"Bulk Sales Liabilities" 4.2(I)
"Business" 1.2(C)(1)
"Closing" 3.1
"Closing Balance Sheet" 2.2(F)
"Closing Date" 3.1
"Closing Net Asset Value" 2.2(A)
"Closing Net Asset Value Statement" 2.2(B)
"Closing Documents" 3.2(B)
"Code" 3.2(A)(9)
"Commitments" 1.2(A)(4)
"Corporate Records" 1.2(B)(2)
-44-
<PAGE> 45
"Covenant Not to Compete" 7.4(A)
"Current Locations" 1.2(C)(3)
"December Balance Sheet" 5.1(C)(i)
"Disclosure Schedule" 1.2(C)(2)
"Dispute Accountants" 2.2(D)
"Dispute Notice" 2.2(C)
"Employee Vacation Liabilities" 2.2(F)
"Environment" 5.1(J)(iii)(a)
"Environmental Conditions" 5.1(J)(iii)(b)
"Environmental Laws" 4.2(G)
"ERISA" 5.1(K)(i)
"Escrow Agreement" 3.2(A)(2)
"Excluded Assets" 1.2(B)
"Excluded Liabilities" 4.2
"Excluded Personality" 1.2(B)(5)
"Excluded Real Property" 1.2(B)(5)
"Final Closing Net Asset Value Statement" 2.2(D)
"Fixed Asset Register" 1.2(A)(2)
"Fixed Assets" 1.2(A)(2)
"Former Employees" 5.1(K)(ii)(a)
"GAAP" 2.2(F)
"Governmental Entity" 5.1(J)(iii)(f)
"Hazardous Material" 5.1(J)(iii)(c)
"Income Tax" or "Income Taxes" 8.4(iii)
"Indemnitee" 9.14(E)(i)
"Indemnitor" 9.14(E)(i)
"Insurance" 4.2(A)
"Intellectual Property" 1.2(A)(7)
"Inventory" 1.2(A)(3)
"IRS" 5.1(K)(i)
"Knowledge" 9.11
"Law" 9.16(A)
"Leased Real Properties" 1.2(A)(9)
"Lease" 3.2(A)(3)
"Legal Proceeding" 5.1(E)(iii)
"Liabilities" 4.2
"Licenses" 5.1(E)(iii)
"Manufacturer's Warranties 1.2(A)(12)
"Material Adverse Effect" 5.1(A)
"Non-Purchased Assets" 1.2(B)(7)
"Non-Purchased Commitments" 5.1(E)(iv)
"November Balance Sheet" 5.1(C)(iii)
"November Net Asset Value" 2.2(A)
"Order" 5.1(B)
"Other Locations" 5.1(J)(i)(a)
-45-
<PAGE> 46
"Promissory Note" 3.2(B)(4)
"Properties" 1.1
"Proprietary Information" 7.4(A)
"Purchased Commitments" 1.2(A)(4)
"Purchaser" intro. Paragraph
"Purchaser Business Records" 6.2(A)
"Purchaser's Accountants" 2.2(B)
"Purchaser's Losses" 9.14(A)
"Receivables" 1.2(A)(1)
"Release" 5.1(J)(iii)(d)
"Restricted Territory" 7.4(A)
"Retained Records" 7.1
"Seller's Accountants" 2.2(C)
"Seller's Losses" 9.14(B)
"Seller" intro. Paragraph
"Seller Business" 1.2(C)(1)
"Seller Employees" 5.1(K)(i)
"Seller Leases" 1.2(A)(9)
"Tax" or "Taxes" 8.4(i)
"Tax Return" or "Tax Returns" 8.4(ii)
"Threat of Release" 5.1(J)(iii)(e)
"Transfer" 1.1
"Unadjusted Cash Payment" 2.1
"Wachovia" 2.1
"Wachovia Debt" 2.2(F)
"Warrant" 3.2(B)(5)
SECTION 9.17. SELLER'S INDEMNIFICATION FOR CERTAIN ENVIRONMENTAL PROBLEMS.
Without limiting the provisions of Section 9.14(A) and in addition thereto but
subject to the limitation set forth in this Section 9.17, the Seller hereby
agrees to indemnify and hold harmless the Purchaser for forty-percent (40%) of
any losses, assessments, liabilities, claims, damages, costs, and expenses
actually suffered by Seller arising out of any of the following:
(a) any Environmental Condition existing at Closing on, at or relating to
the Current Locations or the Other Locations or any facilities or operations
thereon and which are not covered by Seller's indemnification obligations set
forth in Section 9.14(A)(2);
(b) the generation, manufacture, refinement, transportation, treatment,
storage, handling, disposal, transfer, production or processing of any Hazardous
Material prior to Closing on, at or relating to the Current Locations or the
Other Locations or any facilities or operations thereon and which are not
covered by Seller's indemnification obligations set forth in Section 9.14(A)(2);
or
-46-
<PAGE> 47
(c) any Release prior to Closing of any Hazardous Material on, at or
relating to the Current Location or Other Locations or any Facilities or
Operations thereon and which are not covered by Seller's indemnification
obligations set forth in Section 9.14(A)(2);
PROVIDED, HOWEVER, that the maximum liability of Seller under this Section 9.17
shall not exceed One Hundred Thousand Dollars ($100,000); and
PROVIDED FURTHER that Purchaser shall not have the right to assign the benefits
of the provisions of this Section 9.17 to any other person or entity. Seller's
indemnification obligations under this Section 9.17 shall survive indefinitely.
-47-
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
HIFI BUYS INCORPORATED
By: /s/ Jeffrey Snow
------------------------------------
Title: President
---------------------------------
NEW ENGLAND AUDIO CO., INC.
By: /s/ Jeffrey S. Stone
------------------------------------
Title: President
---------------------------------
-48-
<PAGE> 49
APPENDIX A
----------
Exhibit A - Escrow Agreement
Exhibit B - Lease
Exhibit C-1 - Seller's Officer's Certificate
Exhibit C-2 - Purchaser's Officer's Certificate
Exhibit D - Opinion of Counsel for Seller
Exhibit E - Certificate of Non-Foreign Status for Seller
Exhibit F - Guaranty and Non-Competition Agreements
Exhibit G - Promissory Note
Exhibit H - Warrant
Exhibit I - Opinion of Counsel for Purchaser
-49-
<PAGE> 50
APPENDIX B
----------
10. CONDUCT OF BUSINESS. During the Exclusivity Period, HiFi Buys will
conduct its business only in the ordinary course on a basis consistent with past
practice, will stay current with respect to all of its Liabilities, and will use
its best efforts to keep available the services of its officers and employees
and to maintain existing relations with distributors, dealers, licensee,
associates, suppliers, customers and others having business relationships with
HiFi Buys. In furtherance of the foregoing, and in any case, HiFi Buys will
maintain advertising, staffing and employee compensation at current levels (and
without limiting the generality of the foregoing, shall not pay any
extraordinary bonuses or other employee payments), and will not pay any
dividends or otherwise make distributions to its shareholders (other than
reasonable compensation and distributions to shareholders for tax liabilities
consistent with projected amounts previously disclosed to the Purchaser), enter
into any new real estate or operating lease or terminate any such existing
lease, enter into any new contract involving expenditures in excess of $25,000
(unless such contract is terminable at will with no liability to HiFi Buys or
the Purchaser consents thereto in writing or is for purchases of inventory
consistent with past practice), terminate any existing material contract, or
take any action which could reasonably be expected to have a material adverse
effect on or materially change HiFi Buys business, financial condition, or
prospects. In addition, HiFi Buys will obtain or maintain, as the case may be,
insurance on the Assets to be purchased covering such risks and hazards and in
such amounts as are prudent and customary under the circumstances.
-50-
<PAGE> 51
LIST OF SCHEDULES AND EXHIBITS FROM THE HIFI BUYS ASSET PURCHASE AGREEMENT,
- ---------------------------------------------------------------------------
MAY 1997
- --------
The Company agrees to furnish supplementally any schedule or exhibit listed
below to the Commission upon request.
HIFI BUYS ASSET PURCHASE AGREEMENT: SCHEDULES
- ----------------------------------------------
Schedule 1.2(A)(1) Receivables
Schedule 1.2(A)(2) Fixed Asset Register
Schedule 1.2(A)(4) Commitments
Schedule 1.2(A)(5) Prepaid Items
Schedule 1.2(A)(7) Intellectual Property
Schedule 1.2(A)(8) Cash and Deposits
Schedule 1.2(A)(9) Seller Leases
Schedule 1.2(A)(11) Permits and Licenses
Schedule 1.2(A)(12) Manufacturers' and Vendors' Warranties
Schedule 1.2(B)(4) Pension Plans, Etc.
Schedule 1.2(B)(5) Certain Real Estate
Schedule 1.2(B)(7) Other Excluded Assets
Schedule 2.2(A) November Net Asset Value
Schedule 2.2(B) Employees to be retained for Closing Date Net Asset
Value Statement
Schedule 2.2(F) Agreed Upon Accounting Standards
Schedule 4.1 List of Assumed Liabilities
Schedule 4.2(C) Borrowed Money
Schedule 5.1(B) Violations
Schedule 5.1(C)(i) Audited Financials
Schedule 5.1(C)(ii) Unaudited Interim Financials
Schedule 5.1(C)(iii) November Balance Sheet
Schedule 5.1(C)(iv) Inventory not Usable or Salable in the Ordinary
Course
Schedule 5.1(D) Certain Transactions
Schedule 5.1(E)(i) Necessary Consents
Schedule 5.1(E)(iii) Licenses
Schedule 5.1(G) Liens
Schedule 5.1(H) Non-Assignable Intellectual Property Rights
Schedule 5.1(I) Legal Proceedings
Schedule 5.1(J) Compliance with Laws
Schedule 5.1(K) ERISA and Related Matters
Schedule 5.1(L) Labor Matters
Schedule 5.1(M) Insurance
Schedule 5.1(N)(i) Tax Filing Extensions
Schedule 5.1(N)(iii) Certain Tax Claims
Schedule 6.1(B) Necessary Contents
<PAGE> 52
Schedule 6.1(C) Litigation
Schedule 9.11 Persons with "Knowledge"
EXHIBITS
- --------
Exhibit A Escrow Agreement
Exhibit B West Liddell Lease
Exhibit C-1 Seller Officer's Certificate
Exhibit C-2 Purchaser Officer's Certificate
Exhibit D Seller Counsel Legal Opinion
Exhibit E Seller Certificate of Non-Foreign Status
Exhibit F Guaranty and Non-Competition Agreements/Guaranty
Exhibit G Subordinated Promissory Note
Exhibit H Warrant
Exhibit I Purchaser Counsel Legal Opinion
Exhibit J Assignment and Assumption
<PAGE> 1
Exhibit 10.21
From the Office of:
STANDARD FORM
PURCHASE AND SALE AGREEMENT
This Agreement dated as of March 31, 1998
1. PARTIES AND Chadwick-Miller, Inc., a corporation having
MAILING an address at
ADDRESSES hereinafter called the SELLER, agrees to SELL and New
England Audio Co., Inc., d/b/a Tweeter, etc., a
(fill in) Massachusetts cororation having an address at 40 Hudson
Road, Canton, Massachusetts 02021
hereinafter called the BUYER or PURCHASER, agrees to BUY,
upon the terms hereinafter set forth, the following
described premises:
2. DESCRIPTION That certain parcel of land, known as and numbered 10 Pequot
(fill in and Way, Canton, Norfolk County, Massachusetts, consisting of
include title approximately 11.88 acres of land as more particularly
reference) described in Exhibit A attached hereto.
3. BUILDINGS, Included in the sale as a part of said premises are the
STRUCTURES, buildings, structures, and improvements now thereon, and
IMPROVEMENTS, all building equipment and fixtures, together with the
FIXTURES existing warehouse rack system, but excluding any and all
(fill in or other trade fixtures, furnishings, equipment and other
delete) personal property of SELLER.
4. TITLE DEED Said premises are to be conveyed by a good and sufficient
(fill in) quitclaim deed running to the BUYER, or to the nominee
* Include here by designated by the BUYER by written notice to the SELLER
specific refer- at least fifteen (15) days before the deed is to be
ence any restric- delivered as herein provided, and said deed shall convey
tions, easements, a good and clear record and marketable title thereto, free
rights and obli- from encumbrances, except
gations in party (a) Provisions of existing building and zoning laws;
walls not (b) Existing rights and obligations in party walls which
included in (b), are not the subject of written agreement;
leases, municipal (c) Such taxes for the then current year as are not due
and other liens, and payable on the date of the delivery of such
other encumb- deed;
rances, and make (d) Any liens for municipal betterments assessed after
provision to the date of this agreement;
protect SELLER (e) Easements, restrictions and reservations of record,
against BUYER's if any, so long as the same do not prohibit or
breach of materially interfere with the current use of said
SELLER's cove- premises;
nants in leases, *(f) matters affecting title as of the expiration of the
where necessary. due diligence contingency period set forth in
clause 31(b) hereof other than mortgages and
other monetary encumbrances.
6. REGISTERED In addition to the foregoing, if the title to said premises
TITLE is registered, said deed shall be in form sufficient to
entitle the BUYER to a Certificate of Title of said
premises, and the SELLER shall deliver with said deed
all instruments, if any, necessary to enable the BUYER to
obtain such Certificate of Title.
7. PURCHASE PRICE The agreed purchase price for said premises is Four
(fill in); Million One Hundred Thousand ($4,100,000.00) dollars, of
space is which
allowed to $ 200,000.00 have been paid as a deposit this day and
write out the $3,900,000.00 are to be paid at the time of delivery
amounts if of the deed in cash, or by certified,
desired cashier's, treasurer's or bank check(s).
$
-----------------------
$4,100,000.00 TOTAL
COPYRIGHT (C) 1979, 1984, 1986, 1987, 1988, 1991
GREATER BOSTON REAL ESTATE BOARD
[EQUAL HOUSING OPPORTUNITY LOGO]
All rights reserved. This form may not be copied or reproduced in whole or in
part in any manner whatsoever without the prior express written consent of the
Greater Boston Real Estate Board.
<PAGE> 2
8. TIME FOR Such deed is to be delivered at 10:00 o'clock A.M. on
PERFORMANCE; the 15th day of June 1998, at the Norfolk County
DELIVERY OF Registry of Deeds, unless otherwise agreed upon in
DEED (fill in) writing. It is agreed that time is of the essence of
this agreement.
9. POSSESSION AND Full possession of said premises free of all tenants
CONDITION OF and occupants, except as herein provided, is to be
PREMISE delivered at the time of the delivery of the deed,
(attach a list of said premises to be then (a) in the same condition as
exceptions, if any) they now are, reasonable use and wear thereof
excepted, and (b) not in violation of said building
and zoning laws,* and (c) in compliance with
provisions of any instrument referred to in clause 4
hereof.* The BUYER shall be entitled personally to
inspect said premises prior to the delivery of the
deed in order to determine whether the condition
thereof complies with the terms of this clause.
10. EXTENSION TO If the SELLER shall be unable to give title or to
PERFECT TITLE make conveyance, or to deliver possession of the
OR MAKE premises, all as herein stipulated, or if at the time
PREMISES of the delivery of the deed the premises do not
CONFORM conform with the provisions hereof, the SELLER shall
(Change period of use reasonable efforts to remove any defects in
time if desired). title, or to deliver possession as provided herein,
or to make the said premises conform to the
provisions hereof, as the case may be, in which event
the time for performance hereof shall be extended for
a period of thirty (30) days. (See Rider)
11. FAILURE TO If at the expiration of the extended time the SELLER
PERFECT TITLE shall have failed so to remove any defects in title,
OF MAKE deliver possession, or make the premises conform, as
PREMISES the case may be, all as herein agreed, or if at any
CONFORM, etc. time during the period of this agreement or any
extension thereof, the holder of a mortgage on said
premises shall refuse to permit the insurance
proceeds, if any, to be used for such purposes, then
any payments made under this agreement shall be
forthwith refunded and all other obligations of the
parties hereto shall cease and this agreement shall
be void without recourse to the parties hereto.
12. BUYER's The BUYER shall have the election, at either the
ELECTION TO original or any extended time for performance, to
ACCEPT TITLE accept such title as the SELLER can deliver to the
said premises in their then condition and to pay
therefore the purchase price without deduction, in
which case the SELLER shall convey such title, except
that in the event of such conveyance in accord with
the provisions of this clause, if the said premises
shall have been damaged by fire or casualty insured
against, then the SELLER shall, unless the SELLER has
previously restored the premises to their former
condition, either
(a) pay over or assign to the BUYER, on delivery of
the deed, all amounts recovered or recoverable
on account of such insurance, less any amounts
reasonably expended by the SELLER for any
partial restoration, or
(b) if a holder of a mortgage on said premises
shall not permit the insurance proceeds or a
part thereof to be used to restore the said
premises to their former condition or to be so
paid over or assigned, give to the BUYER a
credit against the purchase price, on delivery
of the deed, equal to said amounts so recovered
or recoverable and retained by the holder of
the said mortgage less any amounts reasonably
expended by the SELLER for any partial
restoration.
13. ACCEPTANCE The acceptance of a deed by the BUYER or his nominee
OF DEED as the case may be, shall be deemed to be a full
performance and discharge of every agreement and
obligation herein contained or expressed, except such
as are, by the terms hereof, to be performed after
the delivery of said deed. (See Rider)
14. USE OF To enable the SELLER to make conveyance as herein
MONEY TO provided, the SELLER may, at the time of delivery of
CLEAR TITLE the deed, use the purchase money or any portion
thereof to clear the title of any or all encumbrances
or interests, provided that all instruments so
procured are recorded simultaneously with the
delivery of said deed, except that institutional
mortgages may be discharged subsequent to the
delivery of the deed in accordance with current
custom and practice.
15. INSURANCE Until the delivery of the deed, the SELLER shall
*Insert amount maintain insurance on said premises as follows:
(list additional Type of Insurance Amount of Coverage
types of insurance
and amounts as (a) Fire and Extended Coverage *$ as at present
agreed) (b)
16. ADJUSTMENTS Water and sewer use charges, and taxes for the then
(list operating ex- current fiscal year, shall be apportioned and fuel
penses, if any, or value shall be adjusted, as of the day of performance
attach schedule) of this agreement and the net amount thereof shall be
added to or deducted from, as the case may be, the
purchase price payable by the BUYER at the time of
delivery of the deed.
- ------------
* except for such violations or non-compliances, as the case may be, as exist as
of the expiration of the due diligence contingency period set forth in clause
31(b) hereof.
<PAGE> 3
17. ADJUSTMENT If the amount of said taxes is not known at the time
OF UNASSESSED of the delivery of the deed, they shall be apportioned
AND on the basis of the taxes assessed for the preceding
ABATED TAXES fiscal year, with a reapportionment as soon as the new
tax rate and valuation can be ascertained; and, if the
taxes which are to be apportioned shall thereafter be
reduced by abatement, the amount of such abatement,
less the reasonable cost of obtaining the same, shall
be apportioned between the parties, provided that
neither party shall be obligated to institute or
prosecute proceedings for an abatement unless herein
otherwise agreed.
18. BROKER's FEE A Broker's fee for professional services of
(fill in fee with is due from the SELLER to Hunneman Commercial Company
dollar amount or and another is due from the BUYER to Lynch, Murphy,
percentage; also Walsh & Partners, the brokers herein, pursuant to
name of Brokerage separate agreements with their respective principals,
firm(s)) but such fees are payable as aforesaid only if, as and
when the transaction closes and full purchase price is
paid, and not otherwise. (See Rider)
19. BROKER(S) The Broker(s) named herein
WARRANTY warrant(s) that the Broker(s) is(are) duly licensed as
(fill in name) such by the Commonwealth of Massachusetts.
20. DEPOSIT All deposits made hereunder shall be held in escrow by
(fill in name) Ropes & Gray as escrow agent subject to the terms of
this agreement and shall be duly accounted for at the
time for performance of this agreement. (See Rider)
21. BUYER's If the BUYER shall fail to fulfill the BUYER's
DEFAULT; agreements herein, all deposits made hereunder by the
DAMAGES BUYER shall be retained by the SELLER as liquidated
damages, which shall be SELLER's sole remedy, both at
law and in equity.
23. BROKER AS The Broker(s) named herein join(s) in this agreement
PARTY and become(s) a party hereto, insofar as any provisions
of this agreement expressly apply to the Broker(s), and
to any amendments or modifications of such provisions
to which the Broker(s) agree(s) in writing.
25. WARRANTIES AND The BUYER acknowledges that the BUYER has not been
REPRESENTATIONS influenced to enter into this transaction nor has he
(fill in); if relied upon any warranties or representations not set
none, state forth or incorporated in this agreement or previously
"none"; if any made in writing, except for the following additional
listed, indicate warranties and representations, if any, made by either
by whom each the SELLER or the Broker(s):
warranty or
representation (See Rider)
was made
<PAGE> 4
27. CONSTRUCTION This instrument, executed in multiple counterparts, is to be
OF AGREEMENT construed as a Massachusetts contract, is to take effect as
a sealed instrument, sets forth the entire contract
between the parties, is binding upon and enures to the
benefit of the parties hereto and their respective heirs,
devisees, executors, administrators, successors and
assigns, and may be cancelled, modified or amended only by
a written instrument executed by both the SELLER and the
BUYER. If two or more persons are named herein as BUYER
their obligations hereunder shall be joint and several. The
captions and marginal notes are used only as a matter of
convenience and are not to be considered a part of this
agreement or to be used in determining the intent of the
parties to it.
30. ADDITIONAL The initialed riders, if any, attached hereto, are
PROVISIONS incorporated herein by reference.
FOR RESIDENTIAL PROPERTY CONSTRUCTED PRIOR TO 1978, BUYER MUST ALSO HAVE SIGNED
LEAD PAINT "PROPERTY TRANSFER NOTIFICATION CERTIFICATION"
NOTICE: This is a legal document that creates binding obligations. If not
understood, consult an attorney.
Chadwick-Miller, Inc. New England Audio Co., Inc.
By: /s/ Robert A. [Illegible] By: /s/ Samuel Bloomberg
--------------------------------- -----------------------------
SELLER its: President Chairman
- ------------------------------------- ---------------------------------
Hunneman Commercial Company Lynch, Murphy, Walsh & Partners
By: /s/ Will [Illegible] By: /s/ Steve E. Clancy
--------------------------------- ----------------------------
BROKER BROKER
Ropes & Gray
By: /s/ Stephen P. Lindsay
-----------------------------------------
ESCROW AGENT Stephen P. Lindsay, Partner
- --------------------------------------------------------------------------------
EXTENSION OF TIME FOR PERFORMANCE
Date------------
The time for the performance of the foregoing agreement is extended until
o'clock M. on the day of 19 ,
time still being of the essence of this agreement as extended. In all other
respects, this agreement is hereby ratified and confirmed.
This extension, executed in multiple counterparts, is intended to take
effect as a sealed instrument.
- ------------------------------------ -------------------------------------
SELLER (or spouse) SELLER
- ------------------------------------ -------------------------------------
BUYER BUYER
------------------------------------------------------------------------
Broker(s)
<PAGE> 5
EXHIBIT A
---------
Description of Real Estate
Two parcels of land known as Lot 11A and Parcel B on a plan of land
entitled "Plan of Land in Canton, Mass." dated May 30, 1974, prepared by
Norwood Engineering Co. and recorded with the Norfolk County Registry of Deeds
as Plan No. 140 of 1375 in Plan book 245, being more particularly bounded and
described as follows:
SOUTHEASTERLY by land shown on said plan as owned by J.P. Fitzgerald
Const. Co., now of grantor, three hundred forth-nine
and 29/100 (349.29) feet;
SOUTHWESTERLY by the arc in Pequot Way, having a radius of one
hundred fifteen and 00/100 (115.00) feet, and a
distance of three hundred forth-five and 17/100
(345.17) feet;
SOUTHERLY by the northerly boundary of Parcel A as shown on said
plan, one hundred forty-nine and 05/100 (149.05) feet;
SOUTHWESTERLY by the southerly boundary of Parcel 5 as shown on said
plan, one hundred forth-two and 96/100 (142.96) feet;
WESTERLY by land now or formerly of Bankers Trust Co. in two
courses, twenty-three and 75/100 (23.75) feet and three
hundred sixty-four and 00/100 (364.00) feet
respectively;
SOUTHERLY by land now or formerly of Bankers Trust Co. two
hundred eighty-eight and 62/100 (288.62) feet
being the southerly point of a thirty foot wide
common right of way as shown on said plan;
WESTERLY by Turnpike Street, thirty and 00/100 (30.00) feet;
NORTHERLY by land now or formerly of Alpha of Canton, Inc. and
land now or formerly of D.W. Dunn Storage Co., in
twelve courses, one hundred sixty-one and 54/100
(161.54) feet, sixty-six and 48/100 (68.48) feet,
eighty-six and 06/100 (86.06) feet, eighty-seven and
20/100 (87.20) feet, two hundred two and 21/100
(202.21) feet, forty-four and 01/100 (44.01)
<PAGE> 6
feet, sixty-seven and 04/100 (67.04) feet, sixty-six
and 36/100 (66.36) feet, one hundred seven and 50/100
(107.50) feet, one hundred and 00/100 (100.00) feet,
and again one hundred and 00/100 (100.00) feet and
thirty-four and 29/100 (34.29) feet;
EASTERLY by land now or formerly of Boston Sand and Gravel Co.,
thirty-four and 00/100 (34.00) feet;
NORTHEASTERLY by land now or formerly of Boston Sand and Gravel Co.,
in nine courses, one hundred nine and 80/100 (109.80)
feet, twelve and 90/100 (12.90) feet, eighty-seven and
01/100 (87.01) feet, thirty-two and 82/100 (32.82) feet,
forty-seven and 80/100 (47.80) feet, sixty-three and
52/100 (63.52) feet; eleven and 10/100 (11.10) feet,
three and 20/100 (3.20) feet and nineteen and 44/100
(19.44) feet; and
EASTERLY by land now or formerly of Boston Sand and Gravel Co.,
two hundred thirteen and 80/100 (213.80) feet.
Parcel 4 as shown on a plan of land entitled "Pequot Park Definitive
Plan of Land in Canton Mass. Owned by J.R. Fitzgerald Construction Co."
prepared by R. S. Healy Associates, Inc. and recorded with the Norfolk County
Registry of Deeds as Plan No. 791 of 1969 in Plan Book 226, being more
particularly bounded and described as follows:
NORTHWESTERLY by the arc in Pequot Way, having a radius of one hundred
fifteen and 00/100 (115.00) feet, and a distance of
eighty-seven and 02/100 (87.02) feet;
NORTHEASTERLY by lot 5 as shown on said plan, three hundred
forty-nine and 29/100 (349.29) feet; and
EASTERLY by land now or formerly of Boston Sand and Gravel Co.,
two hundred fifty and 00/100 (250.00) feet;
SOUTHEASTERLY by said land of Boston Sand and Gravel Co., in two
courses, sixty-six and 23/100 (66.23) feet; and 421.00.
SOUTHWESTERLY by lot 3 as shown on said plan, four hundred nine and
31/100 (409.31) feet.
Said premises are conveyed together with the right to use, for all
purposes, including utilities in common with others entitled thereto, the way
shows on both of said Plans as "Pequot Way" and subject to the rights of
adjoining lot owners to use the thirty foot wide right of way shown along the
northerly boundary of the premises on both of said plans.
<PAGE> 7
RIDER
TO
PURCHASE AND SALE AGREEMENT
DATED AS OF MARCH 31, 1998
BETWEEN
CHADWICK-MILLER, INC.
AND
NEW ENGLAND AUDIO CO., INC.
PARAGRAPH 10 (continued)
"Reasonable efforts" for purposes of this Paragraph 10 shall not in any event
require expenditures by Seller of more than $10,000 in the aggregate, including
legal fees and other costs and expenses, and then only if such expenditures are
reasonably likely to enable the Seller to remove any defects in title, deliver
possession and otherwise make the premises conform as herein provided, except
that there shall be no such dollar limit applicable to Seller's obligations to
discharge any mortgages and other voluntary monetary encumbrances, and except
further that in no event shall Seller have any obligation to incur any
expenditure or take any legal action against Lauriat's or otherwise to deliver
possession of the premises free and clear of Lauriat's.
PARAGRAPH 13 (continued)
Upon acceptance of the deed Buyer shall conclusively be deemed to have released
Seller from any and all liability by reason of any supposed defect in title or
in the condition of the property. This release shall survive delivery of the
deed hereunder.
PARAGRAPH 18 (continued)
Buyer represents and warrants to Seller that Buyer has not had any dealings
with any other licensed real estate broker in connection with the premises or
the transaction contemplated by this Agreement, and agrees to indemnify and
hold harmless Seller from and against any and all loss, cost or damage,
including commissions and legal fees, Seller may suffer should the foregoing
representation and warranty be false. The provisions of this Paragraph 18 shall
survive delivery of the deed hereunder.
PARAGRAPH 20 (continued)
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The rights and obligations of the Escrow Agent shall be as follows:
All amounts received by the Escrow Agent under this Agreement shall be
deposited by the Escrow Agent into an account with a banking institution
chosen by the Escrow Agent bearing interest at so-called money market rates
declared by such institution from time to time, such interest to be
accumulated and paid, together with such deposits, to the party entitled to
receive such deposits under and pursuant to the terms and provisions of
this Agreement.
The duties and obligations of the Escrow Agent shall be determined solely
by the express provisions of this Agreement and no implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
Further, the Escrow Agent shall be under no obligation to refer to any
other documents between or among Buyer and Seller related in any way to
this Agreement;
The Escrow Agent shall not be liable to anyone by reason of any error of
judgment, or for any act done or step taken or omitted by the Escrow Agent
in good faith, or for any mistake of fact or law, or for anything which the
Escrow Agent may do or refrain from doing in connection herewith, unless
caused by or arising out of the actual and intentional misconduct of the
Escrow Agent or any act of the Escrow Agent in willful disregard of this
Agreement, or involving gross negligence on the part of the Escrow Agent;
The Escrow Agent shall be entitled to rely, and shall not be subject to any
liability in acting in reliance, upon any writing furnished to the Escrow
Agent by either Buyer or Seller and shall be entitled to treat as genuine,
and as the document it purports to be, any letter, paper or other document
furnished to the Escrow Agent in connection with this Agreement. The Escrow
Agent may rely upon any affidavit of either Buyer or Seller or any other
person as to the existence of any facts stated therein to be known by the
affiant. Notwithstanding the foregoing, the Escrow Agent shall not be
entitled to rely upon any writing furnished by either Buyer or Seller
asserting that it is entitled to be paid the funds held in escrow unless
either (a) the Escrow Agent shall have received the agreement or consent of
the other party in writing or (b) the Escrow Agent shall have given notice
to the other party in accordance with the notice provisions of this
Agreement and five (5) business days shall have expired without the Escrow
Agent receiving notice from the other party that it disputes such claim of
entitlement.
In the event of any disagreement between Buyer and Seller resulting in
adverse claims and demands being made in connection with or against the
funds held in escrow, the Escrow Agent shall be entitled, at the Escrow
Agent's option, to refuse to comply with the claims or demands of either
party until such
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disagreement is finally resolved (i) by a court of competent
jurisdiction (in proceedings which the Escrow Agent or any other
party may initiate, it being understood and agreed by Buyer and
Seller that the Escrow Agent has authority (but no obligation) to
initiate such proceedings; or (ii) by an arbitrator in the event
that Buyer and Seller determine to submit the dispute to arbitration
pursuant to the applicable rules of the American Arbitration
Association and, in so doing the Escrow Agent shall not be or become
liable to any party; and
Buyer and Seller each agree to indemnify the Escrow Agent against
any and all losses, liabilities, costs (including reasonable legal
fees) and other expenses in any way incurred by the Escrow Agent in
connection with or as a result of any disagreement between Buyer and
Seller under this Agreement or otherwise incurred by the Escrow
Agent in any way on account of their role as escrow agent, except
that neither Buyer nor Seller shall have any obligation to pay the
Escrow Agent any fee for escrow services hereunder.
PARAGRAPH 25 (continued)
Seller has not made and does not make any representation or warranty whatsoever
as to the title, physical condition, environmental conditions, useability,
layout, square footage, income, expenses, zoning, operations or any other
matter whatsoever affecting or relating to the premises or this Agreement.
Buyer acknowledges and agrees that, upon the expiration of the due diligence
contingency period set forth in clause 31(b) hereof, Buyer will have fully
inspected the premises and undertaken such title and survey work and other
examinations of law and other due diligence as Buyer thinks appropriate, such
that if it does not terminate this Agreement in timely fashion as set forth in
clause 31(b) hereof, Buyer shall be conclusively deemed to have agreed to
purchase the premises "as is", where is, with all faults and defects as of the
expiration of said due diligence contingency period and without representation
or warranty as to any matter whatsoever, including fitness or suitability of
the premises for any particular use or purpose. The provisions of this
Paragraph 25 shall survive delivery of the deed hereunder. Without limiting the
foregoing, Buyer agrees that Seller has made no representation or warranty as
to the presence or absence of any oil or hazardous or toxic wastes, materials
or substances in, under or otherwise affecting the premises.
PARAGRAPH 31 (additional provisions)
(a) No Assignment: No Recording Buyer agrees that Buyer shall not
assign or otherwise transfer any of Buyer's rights or interests
under this Agreement or record this Agreement without the prior
written consent of Seller, which may be withheld at Seller's sole
discretion. Any assignment or transfer or other such agreement with
such effect without such consent shall be void. And any attempted
assignment, or transfer or recording of this Agreement or any notice
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<PAGE> 10
or memorandum hereof without such consent shall, at Seller's option,
constitute a default of on the part of Buyer hereunder in which event
Seller shall be entitled to terminate this Agreement and retain all amounts
paid to Seller or Escrow Agent by Buyer hereunder as liquidated damages
pursuant to clause 21 hereof.
(b) Due Diligence and Inspection. Buyer and its prospective lenders and
agents shall have a period of forty-five (45) days (the "due
diligence contingency period"), commencing on the date hereof, to
conduct, at Buyer's sole cost and expense, due diligence with
respect to the premises consisting of any or all of the following:
an examination of title, an instrument survey, an engineering
evaluation of the building and building systems, an analysis of
compliance with zoning and other applicable laws and regulations and
hazardous waste and hazardous materials testing.
Seller agrees to provide access to Buyer and its agents at
reasonable times and subject to reasonable prior notice to permit
such evaluations and testing as aforesaid, except that Buyer shall
not undertake any test borings in or other physical alteration of or
affecting the building or other improvements constituting part of
the premises without Seller's prior written consent, which shall not
be unreasonably withheld. Buyer agrees in such notices to identify
the parties by whom any such evaluations and/or testing are to be
conducted and to defend, indemnify and hold Seller harmless from and
against any and all losses, claims, liabilities and damages,
including legal fees, and to repair and restore any damage, arising
out of or resulting from any such inspections. If Buyer is not
satisfied with the results of any of such title examinations or
other evaluations or testing, Buyer may, by notice to Seller at or
prior to the expectation of said due diligence contingency period,
which notice must be given together with copies of any and all
reports, plans, summaries and other work product prepared by third
parties as are in Buyer's possession or control relating to such
evaluations and testing, terminate this Agreement, in which event
any payments made hereunder shall be forthwith refunded and all
other obligations of the parties hereunder shall cease and this
Agreement shall be void without recourse to the parties hereto. Time
shall be of the essence of Buyer's rights to terminate as aforesaid,
it being understood and agreed that if such notice of termination is
not timely and properly given, together with such copies of reports
and other work product, Buyer shall be deemed to have acknowledged
that it is satisfied in all respects with the results of such due
diligence, title examinations, evaluations and testing as aforesaid,
and that Buyer shall have no right to terminate this Agreement based
upon the state of title other than mortgages and other monetary
encumbrances (including any so-called survey matters), the condition
of the premises or their compliance with law or any other condition
existing as of the expiration of said due diligence contingency
period.
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(c) Notices. All notices permitted or required hereunder shall be in
writing addressed to the other party at the address set forth on the
first page of this Agreement with a copy in the case of Buyer to
Martin A. Glazer, Esq., Goulston & Storrs, PC, 400 Atlantic Avenue,
Boston, Massachusetts 02110-3333 and in the case of Seller or the
Escrow Agent to Stephen P. Lindsay, Esq., Ropes & Gray, One
International Place, Boston, Massachusetts 02110-2624, and shall be
deemed to have been given when delivered by recognized commercial
courier service having procedures for guaranteed next day delivery
and signed receipts by addressees. Any notice hereunder shall be
deemed given when accepted for delivery by the courier service,
except that where under this Agreement any time period is specified
to commence from notice, such time period shall not be deemed to
commence until, according to the applicable records of the courier
service, delivery of such notice was first attempted, whether or not
accepted.
(d) Other Seller Documents. At closing, Seller shall execute and deliver
to Buyer (i) a non-foreign-person affidavit under FIRPTA,(ii)
affidavits in the usual form in use by Buyer's title insurance
company as to parties in possession, mechanics' liens, survey matters
and the like,(iii) a settlement statement, a corporate excise tax
lien waiver if, required, and such other corporate and governmental
certificates and other documents as Buyer's title insurance company
may reasonably require.
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<PAGE> 1
Exhibit 10.22
PROGRESSIVE RETAILERS ORGANIZATION, INC.
Policy and Procedures Manual
(As amended through November 15, 1988)
ARTICLE I
ADMISSION OF ASSOCIATES; QUALIFICATIONS AND
CONTINUING OBLIGATIONS; MEETING; DUES AND
ASSESSMENTS; ASSIGNMENT AND TRANSFER
Section 1. Progressive Retailers Organization, Inc. ("PRO") shall have
associates, who shall be firms, corporations or other business entities
involved in the retail sale of consumer electronics products (a "retailer"). A
retailer meeting the requirements of Section 2 of this Article I may be
admitted as an associate by the vote of 80% of the directors then in office,
which vote of the directors shall be taken only after the directors have
received the results of an advisory vote of the then present associates
concerning the admission of the retailer as an associate. The retailer shall be
required, prior to admission, (i) to complete such applications and supply such
information as the Board of Directors may direct, and (ii) to execute the then
current form of Associate Agreement.
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Section 2. Each associates must, at the time of its admission as an
associate and at all times thereafter, meet the following requirement:
(a) an associate must have annual net sales of not less than
$15,000,000, determined in accordance with generally accepted accounting
principles, attributable to the retail sale of home audio, car audio and video
equipment, personal computers, microwave ovens and/or miscellaneous accessories
relating thereto;
(b) an associate may not be a member or stockholder of, or in any
way be affiliated or associated with any other joint purchasing organization
the programs and activities of which in any way conflict or overlap with the
Vendor Purchasing Programs of PRO, as may determined by the Board of Directors
of PRO; and
(c) each associate must be of good business character and
reputation, must be financially capable of carrying out obligations of an
associate hereunder and under all related agreements, and must have a sound
credit rating. An associate shall supply PRO with all evidence that may be
reasonably required by PRO to verify such conditions, and PRO may at any time
take such action as it deems appropriate to verify such conditions
independently, including without limitation the retention of independent credit
analysis firms to report on the creditworthiness of any associate.
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Section 3. Each associate shall, within 30 days of becoming an
associate, acquire, install and maintain such telecopier or facsimile
transmitter as the Board of Directors may designate. The Board of Directors may
from time to time designate substitute or additional communications equipment
to be acquired by all associates, which shall be purchased and installed by
associates within 30 days of notice from PRO.
Section 4. Meetings of associates shall be held at such times as are
fixed by the Board of Directors. Written notice of the time and place of
meetings shall be delivered personally to each associate or communicated to each
associate by telephone, facsimile transmission, telegraph or first-class mail,
charges prepaid, addressed to the associate at the associate's address as it is
shown upon the records of PRO. In case such notice is mailed, it shall be
deposited in the United States mail at least four (4) days prior to the time of
the holding of the meeting. In case such notice is delivered personally, by
telephone, by facsimile transmission or telegraph, it shall be so delivered at
least forty-eight (48) hours prior to the time of the holding of the meeting.
Meetings of the associates may be held at any place within or outside the State
of California that has been designated from time to time by the
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Board of Directors. In the absence of such designation, regular meetings shall
be held at the principal executive office of PRO. Meetings of the associates
shall be held at any place within or outside the State of California that has
been designated in the notice of the meeting. Notwithstanding the foregoing
meetings of the associates may be held at any place consented to in writing by
all the associates, either before or after the meeting. If consents are given,
they shall be filed with the minutes of the meeting. Any meeting may be held by
conference telephone or similar communications equipment, as long as all
associates participating in the meeting can hear one another, and all such
associates shall be deemed to be present in person at such meeting.
Section 5. Each associate shall designate one representative
("Representative") who shall have full authority to make binding purchase
commitments and otherwise to act on behalf of the associate at meetings. Each
associate may designate one alternate who shall have all the rights and
privileges of the Representative at meetings of associates if such
Representative is absent.
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Section 6. Each new associate shall pay a onetime, non-refundable
initiation fee, payable at the time an associate is admitted, in such amount as
may be determined from time to time by resolution of the Board of Directors. If
an associate is terminated pursuant to Article V, Section 2, but is readmitted
pursuant to Section 9 of this Article I, (i) if the readmission occurs one year
or less from the date of termination, the terminated associate shall pay a
readmission fee equal to forty percent (40%) of the initiation fee then in
effect, and (ii) if the readmission occurs more than one year from the date of
termination, the terminated associate shall pay the entire initiation fee then
in effect.
Section 7. Each associate shall pay dues monthly on the 15th day of
each month, in such amount as the Board of Directors may determine from time to
time, commencing in the calendar month following the month an associate is
accepted by PRO. If an associate's payment is not received by the 25th day of
the month, it shall be deemed late, and a late penalty of $100 per week shall be
assessed at that time, and further penalties shall begin to accrue thereafter at
a rate of $100 per week or any portion thereof, that the dues assessment remains
unpaid. The amount of dues may be raised or lowered by the Board of
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Directors, in its discretion, by the vote of a majority of the directors
present at a duly held meeting of the Board of Directors at which a quorum is
present.
Section 8. An associate may not assign or transfer its status as an
associate to any other person or entity without the prior written consent of the
Board of Directors. Any merger, consolidation or liquidation, involving an
associate, or any change in the ownership of fifty percent (50%) of the
capital stock or other ownership interest in an associate shall be deemed a
prohibited assignment or transfer within the meaning of this Section 8.
Section 9. If an associate is terminated automatically pursuant to
Article V, Section 2 because of a transfer prohibited under Section 8 of this
Article I, and applies for continued associate status in PRO under its new
ownership, the Board of Directors may, in its sole discretion, make a
preliminary determination as to whether or not the application is likely to be
approved. If the Board of Directors determines that the application is likely
to be approved, it may preliminarily approve the application, subject to the
completion of PRO's investigation of the applicant and its new owners and
whatever other conditions the Board of Directors may impose that are not
inconsistent with the provisions of this
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Manual. If such preliminary approval is granted, the terminated associate shall
continue to enjoy the rights and privileges of being an associate in PRO on a
temporary basis for a period of 90 days, commencing on the date of termination,
or until such sooner date as the Board of Directors of PRO determines (i) to
disapprove the application or (ii) to approve the application and restore the
terminated associate to its former status as a regular associate of PRO. If the
Board of Directors takes no action with the 90 day period, the applicant's
temporary status as an associate shall cease immediately, but shall be renewed
if the Board of Directors takes action at a later time to approve the
terminated associate's application.
ARTICLE II
PURCHASING PROGRAMS; ACTIVE PARTICIPATION;
DISTRIBUTIONS; RECORDS
Section 1. Only associates of PRO shall be entitled to participate in
purchasing programs ("Vendor Purchasing Programs") and other activities arranged
by PRO.
Section 2. The terms of all of discounts, rebates, credits, terms,
allowances or other concessions offered by any vendor, manufacturer or other
supplier
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(including a Vendor with which PRO already deals) to one or more associates
individually, but not to PRO as a group, must be forwarded to the Executive
Director, in order that PRO may take steps to obtain the discounts, rebates,
terms, allowances or other concessions on the same or better terms in the form
of a Vendor Purchasing Program for the benefit of all associates as a group.
Section 3. The Vendor Purchasing Programs will be segregated into the
following categories ("Product Categories"), which may be increased or reduced
in the discretion of the Board of Directors:
1. Home Audio 5. Microwave
2. Video 6. Computer
3. Tape 7. Furniture
4. Automobile Audio 8. Accessories and
Miscellaneous
Each associate is required to be an "active participant" in not less
than fifty percent (50%) of the Product Categories. An associate is an
"active participant"
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in a Product Category if the associate makes at least fifty percent (50%) of
its total purchases of merchandise of the general type covered by the Product
Category through active participation in not less than fifty percent (50%) of
the Vendor Purchasing Programs within that particular Product Category. To be
deemed an "active participant" in a Vendor Purchasing Program, an associate
must have made a significant purchase from a Vendor through its Vendor
Purchasing Program within the immediately preceding 60 days;
Section 4. (a) It is the intention of PRO to operate on a cooperative
basis with respect to its associates concerning all distributions, discounts,
rebates, credits, income, allowances or other concessions (hereinafter,
"benefits") received by PRO from any Vendor in respect of any purchases made
from said Vendor by the associates or by PRO on behalf of the associates.
Specifically, payments of benefits in the form of cash received by PRO from
any Vendor will not be commingled with any other funds of PRO, but instead will
be deposited into a segregated deposit account at a bank or other financial
institution selected by PRO, and from time to time distributed to associates in
proportion to their purchases from the Vendor. The proportionate share of any
such cash benefit to which each associate shall be entitled shall be
determined conclusively by any schedule of associates'
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proportionate shares which may be provided to PRO by the Vendor. If the Vendor
does not provide such a schedule, then the amount received by PRO shall be
distributed on a proportionate basis based on purchases, as determined by the
Board of Directors after reviewing records kept by PRO or the Vendor. Any
non-cash benefits (such as credits) will be distributed, to the extent possible,
on a proportionate basis based on purchases, determined by a schedule provided
by the Vendor or, in the alternative, by the Board of Directors. Any interest
earned by PRO on cash benefits deposited with a bank or other financial
institution pending distribution to associates shall also be distributed to
associates on a proportionate basis as provided in this paragraph 6(a).
(b) From time to time a Vendor may require that merchandise be
purchased from it by PRO itself, rather then by individual associates. In such
case, PRO shall only purchase such items of merchandise as may be represented by
binding purchase commitments of associates received prior to the time PRO places
an order with a Vendor. Whenever possible, PRO will cause the merchandise
ordered by an associate to be sent directly to a point of delivery designated
by such associate. Each associate shall remit to PRO payment for the merchandise
ordered (payment shall include the cost of the merchandise, together with any
tax,
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duty, assessment or other charge relating to the associate's portion of the
merchandise which is required to be paid to the Vendor or others by PRO, which
aggregate amount shall hereinafter be referred to as "Cost") in such manner and
at such time as specified by the Executive Director of PRO. It is the intention
of PRO to collect from each associate only the actual Cost of the merchandise
purchased by and delivered to the associate, but in certain circumstances PRO
may collect from each associate an additional percentage of the cost of such
merchandise (the "Margin"), which Margin will yield an amount reasonably
estimated by PRO as necessary to cover any expenses and other costs incurred by
PRO in the transaction. If such merchandise is shipped directly to an
associate, the associate shall pay its own shipping costs, if any, and shall
remit such amount to PRO at the request of the Executive Director. If such
merchandise is shipped to PRO and then reshipped to an associate which ordered
the merchandise, such associate shall bear a proportionate share of the
shipping costs incurred in transporting the merchandise from the Vendor to PRO,
and each associate shall bear its own shipping costs from PRO to its designated
point of delivery.
Section 5. PRO shall maintain, and will require all vendors,
manufacturers and other suppliers with which it deals to maintain, records of
all purchases made by members
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from PRO or through one of its purchasing programs, as the case may be. Each
associate shall have the right to inspect these records, subject to the
provisions of Article VI, Section 2, for the purpose of ascertaining its own
purchases or the purchases of all associates as a group, but no associate shall
have access to the records concerning purchases by any other individual
associate.
ARTICLE III
PRESS AND PUBLICITY
Section 1. Any contact or inquiry concerning the activities, organization,
policies and procedures of PRO shall be referred to the Executive Director of
PRO at PRO's principal offices. Any associate receiving such contact or inquiry
should not provide any information to the inquiring party without the prior
approval of the Executive Director.
Section 2. PRO shall circulate to all associates any press releases or
publicity concerning PRO which PRO may release from time to time.
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ARTICLE IV
MODIFICATION
Section 1. This Policy and Procedures Manual may be amended by the
vote of eighty percent (80%) of the directors then in office. Any modification
to the Articles of Incorporation or Bylaws of PRO, or to this Policy and
Procedures Manual, shall be sent to each associate by mail within 10 days of
its adoption, and shall be binding on all associates prospectively from the
date of adoption.
ARTICLE V
TERMINATION, SUSPENSION, ETC.
Section 1. For the purposes hereof, "cause" shall mean any of the
following:
(a) an associate acquires a reputation or standing in the financial
community, among Vendors or among retailers of consumer electronics products
generally which, in the opinion of the Board of Directors, would be likely to
materially prejudice PRO's reputation among the same constituencies or
adversely affect its ability to operate for the benefit of the other associates
as a group;
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(b) PRO shall have received an unfavorable report on the
creditworthiness of an associate, which report shall have been prepared at the
request of PRO by an independent firm experienced in credit analysis;
(c) an associate becomes more than 90 days delinquent in any single
payment of dues, or fails to pay dues on a timely basis for any three (3)
consecutive months;
(d) an associate fails on two (2) occasions in any 12 month period to
consummate a purchase of merchandise which the associate had previously
committed to make from PRO or through a Vendor Purchasing Program;
(e) an associate ceases at any time to meet any of the qualifications
and requirements set forth in Sections 1 and 2 of Article I hereof;
(f) an associate fails to forward opportunities for new Vendor
Purchasing Programs to PRO as required by Section 2 of Article II hereof;
(g) an associate fails to maintain active participation in a
sufficient number of Vendor Purchasing Programs or Product Categories as
required by Section 3 of Article II hereof; or
(h) an associate breaches the terms and conditions of the Associate
Agreement executed by it.
Section 2. Upon the occurrence of any one or more elements of cause
relating to any associate as defined
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in Section 1 of this Article V, and after due consideration of any mitigating
factors, the Board of Directors of PRO may, by a vote of not less than eighty
percent (80%) of the directors then in office, (i) terminate the associate's
status as such, (ii) suspend an associate from participating in PRO's Vendor
Purchasing Programs and other benefits and programs for associates for such
time as the Board of Directors may determine; or (iii) take such other action
as may be deemed appropriate by the Board of Directors in light of all the
circumstances.
Section 3. In the event of an assignment or transfer of control of an
associate made in violation of Section 8 of Article I hereof, said associate's
status as such shall be deemed terminated without the necessity of a vote of
the Board of Directors, effective upon the consummation of such assignment or
transfer.
Section 4. Actions by an employee or agent of an associate shall be
deemed to be the act of said associate for the purposes hereof, including
without limitation for the purpose of determining the existence of cause for
termination. It is the responsibility of each associate to inform all its
employees and agents who deal with PRO of the policies and procedures set forth
herein to the extent necessary, and to take such precautions as are necessary
to
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prevent breaches of said policies and procedures by said employees, including,
but not limited to, causing such employees and agents to execute such
confidential nondisclosure agreements or other agreements or documents as may be
required by directors of officers of PRO.
ARTICLE VI
MISCELLANEOUS
Section 1. Each person who serves as a representative or alternate
representative of an associate at meetings of associates or on committees must
devote such time and efforts as are reasonably necessary to the carrying out of
his or her responsibilities as such in a conscientious manner. Failure so to
carry out said responsibilities in the manner set forth shall be grounds for the
removal of an individual from his or her position as a representative or
alternate by the Board of Directors. Removal of an individual from his or her
position as a representative or alternate shall not terminate the status of the
associate represented by him or her, unless the event that resulted in said
removal is also an event that would constitute cause for termination of an
associate.
Section 2. The books and records of PRO shall be kept and maintained at
the principal offices of PRO or
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such other place as the Board of Directors may direct from time to time.
Each associate and its authorized representatives shall have the right to
review and copy said books and records at their own cost and subject to the
restrictions set forth below. An associate desiring to review the records of
PRO must submit a written request to PRO, and the request must set forth the
associate's purpose in requesting a review of said records, which purpose must
be reasonably related to the associate's interests as an associate of PRO and
may not include a request to review records pertaining to one or more other
individual associates. All examinations of records by associates must take
place at PRO's principal offices, during regular business hours.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The consolidated financial statements of Tweeter Home Entertainment
Group, Inc. included elsewhere in this Registration Statement reflect
the reorganization described in Note 1 of Notes to Consolidated
Financial Statements and a 1 for 1.524 reverse split of common stock
which is to be effected prior to the effective date of the Offering.
Upon completion of the above events and assuming that from April 24,
1998 to the date of such completion no other events have occurred
which would affect the consolidated financial statements and notes
thereto, we expect to be able to issue the following consent:
"We consent to the use in this Registration Statement of Tweeter Home
Entertainment Group, Inc. on Form S-1 of our report dated February 20, 1998 (May
, 1998 as to Note 1), appearing in the Prospectus, which is part of this
Registration Statement and to the reference to us under the headings "Experts"
in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of Tweeter Home Entertainment Group, Inc., listed in Item 16. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Boston, Massachusetts
, 1998"
/s/DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Tweeter Home
Entertainment Group, Inc. on Form S-1 of our report dated March 7, 1997 on the
financial statements of HiFi Buys Incorporated for the years ended December 31,
1996, 1995 and 1994, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the headings "Experts"
in such Prospectus.
/s/DELOITTE & TOUCHE LLP
ATLANTA, GEORGIA
APRIL 24, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' REPORT
We consent to the use in this Registration Statement of Tweeter Home
Entertainment Group, Inc. on Form S-1 of our report dated October 20, 1995 (May
9, 1996 as to Note 2) on the combined financial statements of Bryn Mawr Radio
and Television Center, Inc. and affiliate for the year ended August 31, 1995,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
April 24, 1998
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