As filed with the Securities and Exchange Commission on September 18, 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13E-3 OF THE
THE SECURITIES ACT OF 1934)
K-TEL INTERNATIONAL, INC.
(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE 482724200
(Title of Class of Securities) (CUSIP Number of Class of Securities)
Mickey Elfenbein, President
K-Tel International, Inc.
2605 Fernbrook Lane North
Minneapolis, Minnesota 55447
(612) 559-8080
(Name, address and telephone number of person
authorized to receive notices on behalf of
person(s) filing statement)
WITH COPIES TO:
Bruce J. Parker, Esq.
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center, 90 South Seventh Street
Minneapolis, Minnesota 55402
(612) 375-1138
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13-e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1993.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [x]
CALCULATION OF FILING FEE
Transaction Valuation(*) Amount of filing fee
------------------------ --------------------
$23,200,000 $4,640
(*) Estimated solely for the purpose of calculating the filing fee. This amount
assumes adjustments to the purchase price based on June 30, 1995 financial
statements.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $
Filing Party: K-Tel International, Inc.
Form or Registration No.: Preliminary Proxy Statement
Date Filed: September 18, 1995
This Rule 13E-3 Transaction Statement (the "Statement") relates to the
solicitation of proxies to approve an Agreement for Purchase and Sales, dated
June 28, 1995 (the "Purchase Agreement"), between K-tel International, Inc. (the
"Company") and Simitar, Inc. (the "Purchaser"), and the transactions
contemplated thereby (the "Transactions"). The Transactions include the sale by
the Company to the Purchaser of the consumer entertainment business of the
Company through the sale of the stock of certain subsidiaries of the Company. A
copy of the Purchase Agreement is filed by the Company as Annex A to the Proxy
Statement which was filed by the Company with the Securities and Exchange
Commission (the "Commission") contemporaneously with this Statement.
Pursuant to General Instruction F to Schedule 13E-3, the Proxy Statement is
incorporated by reference herein in answer to the items of this Statement, and
this Statement includes a Cross Reference Sheet showing the location in the
Proxy Statement of the information required to be included in response to the
items in this Statement.
CROSS REFERENCE SHEET
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in the Schedule 14A Information sheet is
incorporated herein by reference.
(b) The information set forth in "Introduction" and "Price Range of Common
Stock; Dividends" is incorporated herein by reference.
(c) The information set forth in "Price Range of Common Stock; Dividends"
is incorporated herein by reference.
(d) The information set forth in "Price Range of Common Stock; Dividends"
is incorporated herein by reference.
(e) Inapplicable.
(f) Inapplicable.
ITEM 2. IDENTITY AND BACKGROUND.
The person filing this Statement is the issuer of the class of equity
securities which is the subject of the Rule 13e-3 transaction.
ITEM 3. PAST CONTACTS, TRANSACTION OR NEGOTIATIONS.
(a) Inapplicable.
(b) The information set forth in "Certain Information Regarding the
Purchaser" is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Introduction," "Summary--The
Transactions," "The Proposal," "The Transactions--Background," "The
Transactions--Terms of the Transactions," "The Transactions--Other Agreements
between the Company and the Purchaser" and "The Transactions--Related Entity
Transactions" is incorporated herein by reference.
(b) Inapplicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) Inapplicable
(b) The information set forth in "Special Factors--Change in Business of
the Company" and "The Transactions--Effects of the Transactions" is incorporated
herein by reference.
(c) The information set forth in "Special Factors--Change in Management,"
"The Transactions--Effects of the Transactions," "The Transactions--Position of
Company's Management; Potential Conflicts of Interest" and "The
Transactions--Plans for the Company After the Transactions" is incorporated
herein by reference.
(d) The information set forth in "The Transactions--Effects of the
Transactions" and "The Transactions--Plans for the Company After the
Transactions" is incorporated herein by reference.
(e) The information set forth in "Special Factors--Classification as an
Investment Company" and "The Transactions--Plans for the Company After the
Transactions" is incorporated herein by reference.
(f) The information set forth in "Special Factors--Privatization of the
Company," "The Transactions--Plans for the Company After the Transactions" and
"Possible Effect on the Market for the Common Stock" is incorporated herein by
reference.
(g) The information set forth in "Special Factors--Privatization of the
Company," "The Transactions--Plans for the Company After the Transactions" and
"Possible Effect on the Market for the Common Stock" is incorporated herein by
reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
Inapplicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in "The Transactions--Reasons for the
Transactions" is incorporated herein by reference.
(b) Inapplicable.
(c) The information set forth in "The Transactions--Reasons for the
Transactions" is incorporated herein by reference.
(d) The information set forth in "Special Factors," "The
Transactions--Effects of the Transactions," "The Transactions--Position of
Company's Management; Potential Conflicts of Interest," "The Transactions--Plans
for the Company after the Transactions," "The Transactions--Federal Income Tax
Consequences, and "Possible Effect on the Market for the Common Stock" is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTIONS.
(a) The information set forth in "The Transactions--Reasons for the
Transactions," "The Transactions--Position of Company's Management; Potential
Conflicts of Interest" is incorporated herein by reference.
(b) The information set forth in "Summary--The Transactions--Opinion of
Financial Advisor", "The Transactions--Reasons for the Transactions," and "The
Transactions--Opinion of the Financial Advisor" is incorporated herein by
reference.
(c) The information set forth in "Introduction," "Summary--The
Transactions--Shareholder Approval of the Transactions" and "The Proposal" is
incorporated herein by reference.
(d) The information set forth in "The Transactions--Position of Company's
Management; Potential Conflicts of Interest" is incorporated herein by
reference.
(e) The information set forth in "The Transactions--Position of Company's
Management; Potential Conflicts of Interest" is incorporated herein by
reference.
(f) Inapplicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth in "The Transactions--Opinion of the
Financial Advisor" is incorporated herein by reference.
(b) The information set forth in "The Transactions--Opinion of the
Financial Advisor" is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "Security Ownership" is incorporated herein by
reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
Inapplicable.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "Introduction," "Summary--The
Transactions," "The Proposal" and "The Transactions--Terms of the Transactions"
is incorporated herein by reference.
(b) The information set forth in "Introduction," "Summary--The
Transactions," "The Proposal" and "The Transactions--Terms of the Transactions"
is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Introduction," "Summary--The
Transactions" and "Dissenters' Rights" is incorporated herein by reference.
(b) Inapplicable.
(c) Inapplicable
ITEM 14. FINANCIAL INFORMATION.
The information set forth in "Summary--The Transactions" and "Selected
Historical and Pro Forma Financial Data of the Company" is incorporated herein
by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Inapplicable.
(b) Inapplicable.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Transactions is set forth in the
Agreement for Purchase and Sale and the Stock Transfer and Loan Repayment
Agreement, which are attached as Annex A and B, respectively, to the Proxy
Statement.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Inapplicable.
(b) Opinion of Van Kasper & Company, dated August 31, 1995, which is
attached as Annex D to the Proxy Statement.
(c) Inapplicable.
(d) Proxy Statement attached as Exhibit A to this Transaction Statement.
(e) Sections 302A.471 and 302A.473, Minnesota Business Corporations Act,
which is attached as Annex C to the Proxy Statement.
(f) Inapplicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: 9-11-95 K-tel International, Inc.
By /s/ Mark J. Dixon
Mark J. Dixon
Name
Chief Financial Officer
Title
EXHIBIT A
TO
SCHEDULE 13E-3 TRANSACTION STATEMENT
(Logo of K-tel International, Inc.)
PROXY STATEMENT
OF
K-TEL INTERNATIONAL, INC.
2605 FERNBROOK LANE NORTH
MINNEAPOLIS, MINNESOTA 55447-4736
-------------
SPECIAL MEETING OF SHAREHOLDERS
_______________, 1995
INTRODUCTION
This Proxy Statement and the accompanying form of proxy are furnished
in connection with the solicitation of proxies by the Board of Directors of
K-tel International, Inc. (the "Company") to be used at the Special Meeting of
the Shareholders of the Company to be held at 10:00 a.m., local time, on
November 29, 1995, in the Company's executive offices located at 2605 Fernbrook
Lane North, Minneapolis, Minnesota.
Only shareholders of record as of the close of business on October 25,
1995, will be entitled to vote, as a single class with one vote per share, at
the Special Meeting of Shareholders. At the close of business on October 25,
1995, the Company had outstanding ___________ shares of Common Stock, $.01 par
value (the "Common Stock").
At the Special Meeting of Shareholders ("Special Meeting"),
shareholders will vote on the following proposals: (1) to approve an Agreement
for Purchase and Sale, dated June 28, 1995 (the "Purchase Agreement") between
the Company and Simitar, Inc. (the "Purchaser") and the transactions
contemplated thereby (the "Transactions"), and (2) to transact any other
business as may properly come before the meeting. The Transactions include the
sale by the Company to the Purchaser of the consumer entertainment business of
the Company through the sale of the stock of certain subsidiaries of the
Company. The Purchaser is currently controlled by Mickey Elfenbein who is
President, Chief Executive Officer and a director of the Company. After the
consummation of the Transactions, the Purchaser will employ many of the
Company's employees, including other officers. The sale of the consumer
entertainment business of the Company is a sale of substantially all of the
assets of the Company.
THE TRANSACTIONS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTIONS NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The quorum required to hold the meeting is a majority of the shares of
Common Stock entitled to vote at the meeting, present in person or by proxy. If
a quorum is present, the affirmative vote, in person or by proxy, of a majority
of the outstanding shares of Common Stock of the Company, voting together as a
single class and with one vote per share, is required to approve the
Transactions. Approval of the Transactions is assured because Philip Kives,
Chairman of the Board, is the beneficial owner of more than a majority of the
outstanding shares of Common Stock of the Company and intends to vote all of
such shares in favor of approval of the Transactions.
Each shareholder who signs and returns a proxy in the form enclosed
with this Proxy Statement may revoke the same at any time prior to its use by
giving notice of such revocation to the Company in writing or in open meeting.
Presence at the Special Meeting of a shareholder who has signed a proxy does not
alone revoke that proxy. Unless so revoked, the shares represented by each proxy
will be voted as specified in the instructions indicated in such proxies at the
Special Meeting and at any adjournments thereof. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE
TRANSACTIONS AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING. Abstentions and
broker nonvotes will have the effect of a vote against the proposal to approve
the Transactions. With respect to abstentions, the shares of Common Stock are
considered present at the Special Meeting. They are not, however, affirmative
votes for the matter and, therefore, they will have the same effect as votes
against the matter. With respect to broker non-votes, the shares of Common Stock
are not considered present at the meeting as to which the broker withheld
authority. Consequently, broker non-votes are not counted.
All expenses involved in preparing, assembling and mailing this Proxy
Statement and the accompanying materials will be paid by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies by telephone, telegram or by personal
interviews. Such persons will receive no additional compensation for such
services. The Company will reimburse brokers and certain other persons for their
charges and expenses in forwarding proxy material to the beneficial owners of
Common Stock held of record by such persons.
Pursuant to Minnesota law, each shareholder has the right to exercise
dissenters' rights. An explanation of dissenters' rights is included in this
Proxy Statement, and a copy of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporations Act, is included as Annex C.
This Proxy Statement and the preceding Notice of Special Meeting of
Shareholders are first being mailed to shareholders on or about October ___,
1995.
The date of this Proxy Statement is October ___, 1995.
EXPLANATORY NOTE
The Transactions include the sale by the Company to the Purchaser of
the consumer entertainment business of the Company through the sale of certain
subsidiaries of the Company. The Purchaser is currently controlled by Mickey
Elfenbein who is President, Chief Executive Officer and a director of the
Company. After consummation of the Transactions, the Purchaser will employ many
of the Company's employees who will resign their positions with the Company and
its remaining subsidiaries, including Mr. Elfenbein, Mark Dixon who is Vice
President-Finance, Chief Financial Officer, Treasurer and a director of the
Company, and David Weiner who is Senior Vice President of the Company. In
addition, the Transactions contemplate the prior or contemporaneous occurrence
of certain other transactions (the "Related Entity Transactions") among the
Purchaser, Mickey Elfenbein and K-5 Leisure Products, Inc. ("K-5"), a
corporation controlled by Philip Kives, the Company's Chairman and principal
shareholder. Upon consummation of the Transactions and the Related Entity
Transactions, Philip Kives, Chairman of the Board of the Company, will
beneficially own approximately 75.8% of the outstanding Common Stock of the
Company. At some time after consummation of the Transactions, the Company may
determine to approve a reverse stock split or a merger in which the shares owned
by all shareholders other than Mr. Kives' company are cancelled, which would
have the effect of causing the Company to cease to be a registered company under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
nonregistered company, the Company's Common Stock would not be designated on The
Nasdaq Stock Market. In the event of such reverse stock split or merger, the
holders of the Company's Common Stock whose shares are cancelled would be
entitled to receive the fair value of their shares under the Minnesota Business
Corporation Act. See "Special Factors--Privatization of the Company."
In accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on , 1995, concurrent with the initial
filing of this Proxy Statement, the Company filed with the Commission a Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with
respect to the Transactions.
<TABLE>
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TABLE OF CONTENTS
PAGE NO.
<S> <C>
Summary...........................................................................................................5
Special Factors..................................................................................................10
The Proposal.....................................................................................................13
The Transactions.................................................................................................14
Background..............................................................................................14
Terms of the Transactions...............................................................................15
Other Agreements between the Company and
the Purchaser..........................................................................................18
Related Entity Transactions.............................................................................20
Reasons For the Transactions............................................................................20
Effects of the Transactions.............................................................................21
Position of Company's Management; Potential
Conflicts of Interest..................................................................................22
Opinion of the Financial Advisor........................................................................22
Plans for the Company after the Transactions............................................................24
Accounting Treatment....................................................................................25
Interests of Certain Persons............................................................................25
Federal Income Tax Consequences.........................................................................26
Fees and Expenses................................................................................................26
Dissenters' Rights...............................................................................................27
Price Ranges of Common Stock; Dividends..........................................................................30
Possible Effect on the Market for the Common Stock...............................................................30
Selected Historical and Pro Forma Financial Data of
the Company.....................................................................................................31
Certain Information Regarding the Purchaser......................................................................35
Security Ownership...............................................................................................35
Compliance with Section 16(a)....................................................................................37
Regulatory Approvals.............................................................................................37
Transaction of Other Business....................................................................................37
Independent Public Accountants...................................................................................38
Available Information............................................................................................38
Annex A - Agreement for Purchase and Sale
Annex B - Stock Transfer and Loan Repayment Agreement
Annex C - Sections 302A.471 and 302A.473, Minnesota Business Corporation Act
Annex D - Opinion of Van Kasper & Company
</TABLE>
SUMMARY
The following summary is a brief summary of information contained
elsewhere in this Proxy Statement. This summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
set forth elsewhere in this Proxy Statement and the documents in the Annexes
attached to this Proxy Statement. Certain capitalized terms used in this summary
are defined elsewhere in this Proxy Statement. You are urged to read this Proxy
Statement and the Annexes attached hereto in their entirety.
SPECIAL MEETING OF SHAREHOLDERS
Meeting Date; Purposes. The Special Meeting of Shareholders of the
Company will be held on Wednesday, November 29, 1995, at 10:00 a.m., local time,
at the Company's executive offices located at 2605 Fernbrook Lane North in
Minneapolis, Minnesota. At the Special Meeting, the shareholders will vote on
the following proposals (1) to approve an Agreement for Purchase and Sale, dated
June 28, 1995 (the "Purchase Agreement"), between the Company and Simitar, Inc.
(the "Purchaser") and the transactions contemplated thereby (the
"Transactions"), and (2) to transact such other business as may properly come
before the meeting.
Record Date; Shares Entitled to Vote. The Board of Directors of the
Company has fixed the close of business on October 25, 1995, as the record date
for the determination of shareholders entitled to notice of and to vote, either
in person or by proxy, at the Special Meeting and any adjournments or
postponements thereof.
THE TRANSACTIONS
The Sale of the Entertainment Subsidiaries. The Company proposes to
sell its consumer entertainment business to the Purchaser by selling to the
Purchaser three domestic subsidiaries and ten foreign subsidiaries (the
"Entertainment Subsidiaries") which own the master recording catalog rights to
music recordings and through which the Company operates its consumer
entertainment products business at a purchase price of $25,000,000 plus certain
adjustments estimated at June 30, 1995 to increase the total purchase price to
$31,400,000. In addition, the Purchaser has agreed to pay interest on the
purchase price for the Entertainment Subsidiaries from November 30, 1995 to the
date of closing if closing is delayed past November 30, 1995 due to the failure
of Purchaser to close on its financing on November 30, 1995. Also, as part of
the Transactions, the Company and the Remaining Subsidiaries will repay the net
intercompany debt owed by them to the Entertainment Subsidiaries estimated to be
approximately $8,200,000 at June 30, 1995 and will repay bank indebtedness
estimated at June 30, 1995 to be approximately $1,500,000. The Company has a net
operating loss carryover which the Company believes will be sufficient to
eliminate any federal income tax consequences from the sale of the Entertainment
Subsidiaries, except for alternative minimum tax of approximately $200,000 and
state tax of approximately $400,000. If the Transactions had closed on June 30,
1995, the Company's net after-tax cash position would have been increased by an
estimated $21,100,000. The Company will retain and continue to operate its
consumer convenience products business through two U.S. subsidiaries (the
"Remaining Subsidiaries"). As a result of the sale of the Entertainment
Subsidiaries, the Company will also lose the ability to utilize the distribution
capabilities of the Entertainment Subsidiaries to market consumer convenience
products in Europe and will assign to the Purchaser the exclusive rights to the
K-tel tradenames and trademarks in Europe, the former Soviet block countries,
the Middle East and Africa, except that the Company will retain a non-exclusive
license for products other than consumer entertainment products for two years in
Europe and for four years in the other territories. The Purchase Agreement is
attached to this Proxy Statement as Annex A. See "The Transactions--Terms of the
Transactions."
Other Agreements. Contemporaneously with the consummation of the
Purchase Agreement, other agreements will be entered into by the Company in
accordance with the Purchase Agreement. The Purchaser will acquire the rights to
the K-tel tradenames and trademarks in Europe, the former Soviet block
countries, the Middle East and Africa and will have the right to use the K-tel
tradenames and trademarks to market and distribute consumer entertainment
products throughout the world and other products in certain territories pursuant
to a trademark agreement between the Company and the Purchaser. The Company will
also enter into subleases with one of the Entertainment Subsidiaries acquired by
the Purchaser for the use and occupancy of office and warehouse space leased by
such subsidiary in Minneapolis, Minnesota. In addition, the Company and the
Purchaser will enter into a record license agreement pursuant to which the
Company will have the non-exclusive right to utilize the master recordings
catalog acquired by the Purchaser to produce one album for sale by the Company
through infomercials for certain royalty fees. See "The Transactions--Other
Agreements between the Company and the Purchaser."
Related Entity Transactions. Pursuant to the stock transfer and
repayment agreement dated June 28, 1995 (the "Related Entity Agreement") among
the Purchaser, Mickey Elfenbein and K-5 Leisure Products, Inc. ("K-5"), a
company controlled by Philip Kives, the Chairman of the Board and principal
shareholder of the Company, certain other transactions (the "Related Entity
Transactions") will occur prior to or contemporaneously with the consummation of
the Transactions. As a result of the Related Entity Transactions, K-5 will
acquire 350,000 shares of the Company's Common Stock currently owned by Mr.
Elfenbein and will receive a note for approximately $1.1 million from the
Purchaser. As a result of the Related Entity Transactions, the percentage of the
Company's outstanding Common Stock beneficially owned by Mr. Kives will increase
to 75.8% from 66.4%. Also, the Purchaser will acquire K-5's 52% common stock
interest in Simitar Entertainment, Inc. ("SEI"), a video entertainment
production and distribution corporation, and Mr. Elfenbein will have repaid
indebtedness owed to K-5 and its affiliates of approximately $928,000 at June
30, 1995. The Related Entity Agreement is attached to this Proxy Statement as
Annex B. See "The Transactions--Related Entity Transactions."
Shareholder Approval of the Transactions. The affirmative vote of at
least a majority of the outstanding shares of the Company's Common Stock is
required to approve the Transactions. Approval of the Transactions is assured
because Philip Kives, Chairman of the Board of the Company, is the beneficial
owner of more than a majority of the outstanding shares of Common Stock of the
Company and intends to vote all of such shares in favor of approval of the
Transactions. See "The Proposal."
Dissenting Shareholders' Rights. Holders of the Common Stock of the
Company who vote against approval of the Transactions may exercise dissenters'
rights and receive cash for the fair value of their shares of Common Stock under
certain circumstances and by following procedures prescribed by the Minnesota
Business Corporations Act. The failure of a dissenting shareholder to follow the
prescribed procedures will result in the termination or waiver of such rights. A
copy of the provisions of the Minnesota Business Corporations Act relating to
dissenters' rights is attached to this Proxy Statement as Annex C. See
"Dissenters' Rights."
Interests of the Company's Management. Philip Kives, Chairman of the
Board of Directors, beneficially owns approximately 66.4% of the Company's
outstanding Common Stock as of September 1, 1995. Mickey Elfenbein, President,
Chief Executive Officer, and a director of the Company, beneficially owns
approximately 10.7% of the Company's outstanding Common Stock as of September 1,
1995 and currently controls the Purchaser. Upon consummation of the Related
Entity Transactions, Mr. Kives will beneficially own approximately 75.8% of the
Company's outstanding Common Stock. The Purchaser is currently controlled by Mr.
Elfenbein and, after consummation of the Transactions, will employ many of the
Company's employees who will then resign their positions with the Company and
the Remaining Subsidiaries, including Mr. Elfenbein, Mark Dixon who is Vice
President-Finance, Chief Financial Officer, Treasurer and a director of the
Company and David Weiner who is Senior Vice President of the Company. Mr.
Elfenbein has also agreed to resign as an officer and director of the Remaining
Subsidiaries and as Chief Executive Officer of the Company effective October 16,
1995, and, if the Purchaser has obtained the financing commitment to complete
the Transactions by October 16, 1995, to resign as President of the Company
effective October 16, 1995. In addition, Mr. Kives is Mr. Elfenbein's uncle.
Effective Time. The Transactions will become effective at closing.
There can be no assurance that all of the conditions to closing will be
satisfied.
Opinion of Financial Advisor. Van Kasper & Company ("Van Kasper") has
been retained by the Company to act as financial advisor in connection with the
merger and related matters. Van Kasper has delivered to the Company's board of
directors its written opinion, dated August 31, 1995, which is attached hereto
as Annex D, to the effect that, as of such date and based upon the matters
described therein, the consideration to be received in the Transactions by the
Company is fair to the Company's shareholders from a financial point of view.
Reference is made to the full text of such opinion in Annex D to this Proxy
Statement. The Company's shareholders are urged to read the opinion in its
entirety. See "The Transactions--Opinion of Financial Advisor."
INCORPORATION OF CERTAIN FINANCIAL STATEMENTS BY REFERENCE
The financial statements of the Company included in the following
documents filed with the Commission are hereby incorporated by reference in this
Proxy Statement: the Company's Annual Report on Form 10-K for the fiscal years
ended June 30, 1994 and 1993, and the Company's Quarterly Report on Form 10-Q
for the fiscal quarters ended March 31, 1995, December 30, 1994 and September
30, 1994.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Proxy Statement is delivered, upon written or
oral request of any such person, a copy of any and all documents which are
incorporated herein by reference. Requests should be directed to the Company at
2605 Fernbrook Lane North, Minneapolis, Minnesota 55447, Attention: Mark Dixon,
Vice President-Finance.
SELECTED COMPARATIVE FINANCIAL DATA
The selected historical financial data for the two years ended June 30,
1994 are derived from the consolidated financial statements of the Company,
which have been audited by Arthur Andersen LLP, independent public accountants,
for the periods and as of the dates indicated in its reports which are
incorporated by reference in this Proxy Statement. The interim financial data
has not been audited but, in the opinion of management, includes all
adjustments, consisting of normal, recurring adjustments and accruals, which the
Company considers necessary for fair presentation of the Company's financial
position and the results of operations for the periods indicated. The pro forma
financial data has not been audited but, in the opinion of management, includes
all adjustments necessary to present fairly the information set forth therein
with respect to the divestiture of the Entertainment Subsidiaries. The following
selected historical data should be read in conjunction with the Company's
consolidated financial statements incorporated by reference in this Proxy
Statement. The pro forma financial data is provided for comparative purposes
only and may not be indicative of (i) the actual results that would have
occurred had the divestiture of the Entertainment Subsidiaries been consummated
at the beginning of the period for which pro forma information is presented or
(ii) the results to be expected in the future.
<TABLE>
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
==================================================================================================================================
Nine Months Ended Nine Months Ended Year Ended Year Ended
March 31, 1995 March 31, 1994 June 30, 1994 June 30, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma(1) Historical Historical Pro Forma(1) Historical
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
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<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 49,905 $ 9,485 $39,173 $54,270 $ 8,789 $ 55,714
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (171) (1,320) 1,375 223 (1,546) 3,623
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) (187) (1,514) 1,292 376 (1,591) 2,701
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) per Common
and Common Equivalent Share $ (.05) $ (.40) $ .34 $ .10 $ (.42) $ .72
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
(at end of Period):
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 31,423 26,340 25,750 26,874 22,479 21,922
- ----------------------------------------------------------------------------------------------------------------------------------
Bank Debt 2,312 86 60 -- -- 60
- ----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Investment 4,578 28,575 5,484 4,546 31,241 4,150
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
______________________
(1) Includes an increase in the Company's net after-tax cash position of an
estimated $21,100,000, assuming $600,000 of federal alternative minimum tax
and state tax because the Company's net operating loss carryover is
expected to be sufficient to cover the gain on the sale for federal income
tax purposes, and includes the repayment by the Company of $1.5 million of
bank debt and $8.2 million representing the net consolidated amount owing
to the Entertainment Subsidiaries which will be paid at closing. Excludes
income and expenses of the Entertainment Subsidiaries sold in the
Transactions.
SPECIAL FACTORS
The following special factors regarding the Transactions and the
business of the Company to be conducted after the Transactions are consummated
should be considered carefully by shareholders before voting on the proposal to
approve the Transactions.
POTENTIAL CONFLICTS OF INTEREST
The Transactions involve inherent conflicts of interest between the
interests of the Company, Philip Kives and Mickey Elfenbein. Mr. Kives and Mr.
Elfenbein are directors of the Company, Mr. Kives is the Chairman of the Board
and principal shareholder of the Company, and Mr. Elfenbein is the Chief
Executive Officer and President of the Company. The Purchaser is currently
controlled by Mr. Elfenbein and, after consummation of the Transactions, will
employ many of the Company's employees who will then resign their positions with
the Company and the Remaining Subsidiaries, including Mr. Elfenbein, Mark Dixon
who is Vice President-Finance, Chief Financial Officer, Treasurer and a director
of the Company and David Weiner who is Senior Vice President of the Company. Mr.
Elfenbein has also agreed to resign as an officer and director of the Remaining
Subsidiaries and as Chief Executive Officer of the Company effective October 16,
1995, and, if the Purchaser has obtained the financing commitment to complete
the Transactions by October 16, 1995, to resign as President of the Company
effective October 16, 1995. In addition, Mr. Kives is Mr. Elfenbein's uncle. The
terms of the Transactions were negotiated between Mr. Kives and Mr. Elfenbein.
Mr. Elfenbein and Mr. Dixon abstained from voting when the Board of Directors of
the Company approved the Transactions, and the other members of the Board of
Directors approved the Transactions after consideration of the analysis received
from Van Kasper & Company, the Company's financial advisor, with respect to its
ability to render a fairness opinion. Also, the Transactions will not be
consummated unless the Related Entity Transactions are also completed. As a
result of the Related Entity Transactions, the percentage of the Company's
outstanding Common Stock beneficially owned by Mr. Kives will increase to 75.8%
from 66.4%, and the indebtedness of Mr. Elfenbein, estimated to be approximately
$928,000 at June 30, 1995, to companies controlled by Mr. Kives would be repaid.
The relationship of Mr. Kives and Mr. Elfenbein to the Company and the Purchaser
and the Related Entity Transactions, however, necessarily mean that the nature
of the negotiations could not be as arms' length as would be negotiations with a
third party.
CONTROL BY PRINCIPAL SHAREHOLDER
Mr. Kives and Mr. Elfenbein beneficially own approximately 66.4% and
10.7%, respectively, of the outstanding Common Stock of the Company as of
September 1, 1995. After giving effect to the Transactions and the Related
Entity Transactions, Mr. Kives and Mr. Elfenbein will beneficially own
approximately 75.8% and 0.3%, respectively, of the outstanding Common Stock.
Accordingly, Mr. Kives will be able to exercise significant control over the
Company's affairs, including but not limited to the election of directors.
CHANGE IN MANAGEMENT
Upon consummation of the Transactions, Mr. Elfenbein and other
employees of the Company will be employed by the Purchaser, including Messrs.
Dixon and Weiner who are executive officers of the Company and will resign their
positions with the Company. Mr. Elfenbein has also agreed to resign as an
officer and director of the Remaining Subsidiaries and as Chief Executive
Officer of the Company effective October 16, 1995, and, if the Purchaser has
obtained the financing commitment to complete the Transactions by October 16,
1995, to resign as President of the Company effective October 16, 1995. The
Company expects that Mr. Kives will serve as chief executive officer, and the
Company's current controller for the North American operations will be the chief
financial officer of the Company following consummation of the Transactions. Of
the Company's 186 employees at June 30, 1995, 19 employees are designated to
remain with the Company and 166 employees are expected to be employed by the
Purchaser or the Entertainment Subsidiaries. Jeffrey M. Koblick, Senior Vice
President-Purchasing and Operations of the Company, has not been designated to
either the Company or the Purchaser. Mr. Koblick has not yet decided whether to
continue his employment with the Company or to accept a position with the
Purchaser. The Company and the Purchaser each agree for a period of two years
following closing not to solicit or otherwise divert certain designated
employees of the other, or hire any person who was an employee of the other
within six months of the proposed date of hire.
Although the Company and the Purchaser have each agreed to provide the
other with transition administrative services reasonably required to effect the
orderly transfer of the consumer entertainment product business and the division
of the operations of the Company resulting from such transfer, the division of
officers and employees between the Company and the Purchaser may present
administrative and organizational complications which may be more than
short-term in nature, depending on the ability of the Company to attract and
hire additional personnel with expertise in the consumer convenience products
business and to institute an organizational structure most conducive to the
Company's business.
CHANGE IN DIRECTOR COMPOSITION
Upon consummation of the Transactions, Mickey Elfenbein and Mark Dixon
will resign as directors of the Company since they will be employed by the
Purchaser. Mr. Elfenbein has also agreed to resign as President of the Company
effective October 16, 1995 if the Purchaser has obtained a financing commitment
to complete the Transactions by October 15, 1995. In addition, Sanford Sigoloff,
a director of the Company, has indicated that he intends to resign after
consummation of the Transactions because the Company's business will be more
narrowly focused and because of the time requirements of his other business
commitments. Seymour Leslie, a director of the Company, has indicated that his
decision to remain a director of the Company after consummation of the
Transactions will depend on the business plan to be formulated for the Company
and his assessment of whether his advice and participation as a director will be
meaningful to the enterprise. Both Messrs. Leslie and Sigoloff hAve indicated
that they intend to resign as directors in the event the Transactions are not
consummated. In the event the Company does not maintain at least two outside
directors, the Company's Common Stock may no longer qualify for inclusion on The
Nasdaq Stock Market.
CHANGE IN BUSINESS OF THE COMPANY
The sale of the Company's consumer entertainment products business
pursuant to the Transactions will result in a major change in the Company's
business. For the fiscal year ended June 30, 1995, the net sales from the
Entertainment Subsidiaries to be sold to the Purchaser were approximately 80% of
consolidated net sales, and the balance of consolidated net sales were from the
Company's Remaining Subsidiaries. The Company believes that the sale of the
Entertainment Subsidiaries and its consumer entertainment products business will
permit the Company to focus its resources on the sourcing, development,
marketing and distribution of consumer convenience products, primarily in North
America. However, the Company will lose the ability to utilize the distribution
capabilities of the Entertainment Subsidiaries to market consumer convenience
products in Europe, and the Company will only have a non-exclusive right to use
the K-tel tradenames and trademarks for the sale of consumer convenience
products for two years after closing in Europe and for four years after closing
in the former Soviet block countries, the Middle East and Africa. There can be
no assurance that concentration of the Company's business in the consumer
convenience products business will be beneficial to the Company and its
shareholders. Although the Company presently intends to expand its consumer
convenience product business, the Company could also determine to expand into
unrelated businesses which may not prove to be profitable to the Company.
PRIVATIZATION OF THE COMPANY
The Company's Common Stock is currently registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is a designated stock
on The Nasdaq Stock Market. Such registration of the Common Stock may be
terminated upon application of the Company to the Commission if there are fewer
than 300 holders of record of the Common Stock. There are currently
approximately 1800 holders of record of the Company's Common Stock. If the
Company were to determine to approve a 250 to 1 reverse stock split, there would
be fewer than 300 holders of record. In such event, the Company could make
application on Form 15 to the Commission to deregister the Company's Common
Stock under the Exchange Act and to suspend the Company's reporting obligations
under Section 15(d) of the Exchange Act. Such deregistration would automatically
take place 90 days after the filing of the Form 15. The Company's obligation to
continue to file reports under Section 12 of the Exchange Act would cease as of
Dhe date of filing the Form 15. Deregistration of the Common Stock under the
Exchange Act reduces substantially the information required to be furnished by
the Company to holders of the Common Stock and renders inapplicable certain of
the provisions of the Exchange Act, such as short-swing profit recovery
provisions of Section 16(b), the requirement of Section 14(a) that the Company
furnish shareholders with proxy materials in connection with shareholders'
meetings and the requirements of Rule 13e-3 promulgated under the Exchange Act
with respect to "going private" transactions. If registration of the Common
Stock under the Exchange Act is terminated, the Common Stock would no longer be
eligible for continued inclusion on The Nasdaq Stock Market. In addition, Mr.
Kives will beneficially own approximately 75.8% of the Company's outstanding
Common Stock after giving effect to the Transactions and the Related Entity
Transactions and could effect a merger in which the shares of all other
shareholders are cancelled. In the event of such reverse stock split or merger,
the holders of shares of Common Stock which are cancelled thereby will be
entitled to the then fair value of their shares.
CLASSIFICATION AS AN INVESTMENT COMPANY
If, as a result of the cash available to it from the sale of the
Entertainment Subsidiaries, the Company were to acquire investment securities
having a value exceeding 40% of the value of its total assets (exclusive of
"Government securities" and cash items) on an unconsolidated basis, the Company
could be deemed to be an investment company subject to regulation under the
Investment Company Act of 1940, as amended. "Government securities" means any
securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States, or any certificate of deposit for
any of the foregoing. Because of the limited risk of Government securities, the
yields of Government securities are lower than yields obtainable from
investments with only somewhat more risk, such as investment grade corporate
securities.
FAILURE OF TRANSACTIONS TO CLOSE
There can be no assurance that all of the conditions to the
transactions will be satisfied or that the transactions will be consummated.
Failure to consummate the transactions will result in material expenses to the
Company which will not be reimbursed. In such event, there may be other
operational or management changes to address recent adverse results in certain
of the Company's subsidiaries.
THE PROPOSAL
Except for where authority has been withheld by a shareholder, the
enclosed proxy will be voted for the approval of the Agreement for Purchase and
Sale, dated as of June 28, 1995, and the transactions contemplated thereby as
approved by the Board of Directors of the Company on July 24, 1995. The
Transactions include the sale by the Company to the Purchaser of the Company's
consumer entertainment business through the sale of the stock of certain
subsidiaries of the Company. The Purchaser is currently controlled by Mickey
Elfenbein who is President, Chief Executive Officer and a director of the
Company. For a description of the Transactions, see "The Transactions--Terms of
the Transactions".
The affirmative vote of at least a majority of the outstanding Common
Stock of the Company is required for approval of the Transactions. Shareholders
are urged to evaluate carefully all information contained in this Proxy
Statement and to consult with their own advisors in order to make any decision
to vote to approve the Transactions. Mr. Kives, Chairman of the Board and
principal shareholder of the Company, beneficially holds approximately 66.4% of
the Company's outstanding Common Stock and intends to vote such shares to
approve the Transactions. Approval of a majority of the unaffiliated
shareholders of the Company is not required under the Minnesota Business
Corporation Act.
The Board of Directors recommends a vote FOR approval of the
Transactions.
THE TRANSACTIONS
BACKGROUND
The Company is an international marketing and distribution company for
packaged consumer entertainment products (music and video) and consumer
convenience products (lower priced housewares, automotive accessories, exercise
devices, and other goods). The Company was incorporated in 1968, and its
corporate offices are located at 2605 Fernbrook Lane North, Minneapolis,
Minnesota 55447.
The Company's core business has been the marketing and selling of
pre-recorded music, mainly in compilation format including various artists under
a similar theme. Videos with a special theme concept have provided the Company
with a product line compatible with its pre-recorded music and have been
marketed and distributed throughout the Company's foreign subsidiaries, mainly
the United Kingdom. The Company sells its products through both retail sales and
direct response marketing. Retail sales have traditionally accounted for the
majority of the Company's overall revenues. Television direct response marketing
has been focused primarily in Europe, beginning in earnest in the late 1980's,
using both terrestrial (local within a country) and Pan European satellite
television. In the early 1990's, the Company expanded its level of consumer
convenience product marketing in the United States and Europe. In the fiscal
year ended June 30, 1995, consumer convenience product revenues accounted for
approximately 38% of the Company's consolidated revenues.
One of the Company's major assets is its music master catalog
consisting of original recordings and re-recordings of music from the 1950s
through the 1980s ("Master Recordings"). The Master Recordings are used for the
Company's pre-recorded music products and are licensed to third parties. The
Company markets and sells pre-recorded music both from its Master Recordings and
from songs licensed from third party record companies. Sales of albums,
cassettes and compact discs are made to rackjobbers, wholesalers and retailers
in the United States and through subsidiaries and licensees in Europe and the
Pacific region.
The Company's products are manufactured by third-party suppliers with
components supplied by independent vendors. At June 30, 1995, the Company
employed 186 full time people worldwide. The Company's corporate offices and
United States operations are located in leased facilities in a suburb of
Minneapolis, Minnesota. The Company leases approximately 110,000 square feet of
office and warehouse facilities. The Company's foreign subsidiaries lease a
total of approximately 38,000 square feet of office and warehouse facilities.
TERMS OF THE TRANSACTIONS
The following summary of the Transactions does not purport to be
complete and is qualified in its entirety by reference to the Agreement of
Purchase and Sale, dated June 28, 1995, between the Company and the Purchaser,
and the Stock Transfer and Loan Repayment Agreement, dated June 28, 1995,
between the Purchaser, Mickey Elfenbein and K-5 Leisure Products, Inc., an
affiliate of Mr. Kives, which documents are attached hereto as Annexes A and B,
respectively.
On July 24, 1995, the Board of Directors of the Company, with Mickey
Elfenbein and Mark Dixon abstaining from voting due to their conflict of
interest, approved the sale to Simitar, Inc. (the "Purchaser") of the Company's
consumer entertainment business through the sale of the stock of three domestic
and ten foreign subsidiaries (the "Entertainment Subsidiaries") which own the
master recording catalog rights to music recordings and through which the
Company operates its consumer entertainment business, and certain related
transactions between the Company and the Purchaser. The Purchaser is currently
controlled by Mickey Elfenbein who is President, Chief Executive Officer and a
director of the Company and, after consummation of the Transactions, will employ
many of the Company's employees who will resign their positions with the Company
and its remaining subsidiaries, including Mr. Elfenbein, Mark Dixon who is Vice
President-Finance, Chief Financial Officer, Treasurer and a director of the
Company, and David Weiner who is Senior Vice President of the Company. The
Company will retain and continue to operate its consumer convenience products
business, including the two domestic subsidiaries, primarily in North America.
As a result of the Transactions, the Company will lose the ability to utilize
the distribution capabilities of the Entertainment Subsidiaries to market
consumer convenience products in Europe and will assign to the Purchaser the
exclusive rights to the K-tel tradenames and trademarks in Europe, the former
Soviet block countries, the Middle East and Africa, except that the Company will
retain a non-exclusive license for products other than consumer entertainment
products for two years in Europe and four years in the other territories. For
the fiscal year ended June 30, 1995, the net sales of consumer convenience
products by the Entertainment Subsidiaries was approximately 18% of consolidated
net sales. For the fiscal year ended June 30, 1995, the net sales from the
Entertainment Subsidiaries (including sale of consumer entertainment products
and consumer convenience products) were approximately 80% of consolidated net
sales, and the balance of consolidated net sales were from the consumer
convenience product sales of the Remaining Subsidiaries.
Upon consummation of the Transactions, Mr. Elfenbein and certain of the
officers and other employees of the Company who will be employed by the
Purchaser will resign their positions with the Company. Philip Kives, the
Company's principal shareholder, will continue as Chairman of the Company. The
Company and the Purchaser each agree for a period of two years following closing
not to solicit or otherwise divert certain designated employees of the other, or
hire any person who was an employee of the other within six months of the
proposed date of hire.
At the closing of the Transactions, the Company will sell to the
Purchaser three domestic subsidiaries and ten foreign subsidiaries through which
the Company operates its consumer entertainment business and which own the
master recording rights to over 2,500 music recordings. The purchase price for
the Entertainment Subsidiaries is $25,000,000 payable in immediately available
funds at closing, subject to the following adjustments: (i) increased by the net
profit in excess of $200,000 from the production and distribution of consumer
convenience products by the Company and its Remaining Subsidiaries in the United
States during the period from July 1, 1994 to September 30, 1995 (the "Consumer
Products Profit Adjustment"), and (ii) increased by the amount by which the
agreed value of the net assets of the Company and the Remaining Subsidiaries on
a consolidated basis, after giving effect to the sale of the Entertainment
Subsidiaries, but excluding receipt of the purchase price and expenses of the
Transactions (the "Remaining Asset Value"), is less than $1,000,000 as of
September 30, 1995. The Company will also retain the net profit or net loss from
the consumer convenience products business operated by the Company and the
Remaining Subsidiaries after September 30, 1995 and will not be impacted by the
net profit or net loss of the Entertainment Subsidiaries after September 30,
1995. In addition, the Purchaser has agreed to pay interest on the purchase
price for the Entertainment Subsidiaries from November 30, 1995 to the date of
closing if closing is delayed past November 30, 1995 due to the failure of
Purchaser to close on its financing on November 30, 1995. On the first
anniversary of the closing, the purchase price will be increased by up to
$400,000 or decreased, depending on the disposition of certain consumer
convenience product inventory of the Remaining Subsidiaries classified as "slow
moving" based on a formula under the Purchase Agreement. In addition, at closing
all intercompany payables will be repaid in immediately available funds and
certain bank indebtedness will be repaid by the primary obligors for the debt.
As of June 30, 1995, the purchase price for the Entertainment
Subsidiaries would have been $25,000,000 plus the following estimated amounts:
(i) zero for the Consumer Products Profit Adjustment, and (ii) $6,400,000 to
bring the Remaining Asset Value to $1,000,000, or a total estimated purchase
price of $31,400,000 before any additional adjustment for slow moving inventory
on the first anniversary of the closing. In addition, as of June 30, 1995, the
Company and the Remaining Subsidiaries owed approximately $8,200,000 to the
Entertainment Subsidiaries and were responsible for approximately $1,500,000 of
bank indebtedness. The Company has a net operating loss carryover which the
Company believes will be sufficient to eliminate any federal income tax
consequences from the sale of the Entertainment Subsidiaries, except for any
alternative minimum tax. The alternative minimum tax and state tax payable by
the Company as a result of the Transactions are estimated to be approximately
$600,000. If the Transactions had closed on June 30, 1995, the Company's net
after-tax cash position would have been increased by an estimated $21,100,000.
The Purchase Agreement contains certain conditions to closing,
including the following: (i) the Purchaser shall have obtained satisfactory
financing for the acquisition of the Entertainment Subsidiaries and for its
working capital needs, (ii) no material adverse litigation shall be pending or
threatened with respect to the transactions contemplated by the Purchase
Agreement, (iii) no material adverse change shall have occurred with respect to
the Transactions (other than the discontinuance of certain operations in
Europe), (iv) the approval of the Company's shareholders and all other necessary
consents or approvals to the Transactions shall have been received, and (v) the
Company's Board of Directors shall have received an opinion from a recognized
investment banking firm to the effect that the Transactions are fair to the
Company's shareholders from a financial point of view.
As of the date hereof, the Purchaser has not yet obtained commitments
for financing the purchase price for the Entertainment Subsidiaries and its
working capital needs. The Purchaser has retained an investment banking firm to
assist in placement of the financing and the placement is currently in process,
but there can be no assurance that the Purchaser will be able to obtain
satisfactory financing. The Company may terminate the Purchase Agreement if the
Purchaser has not obtained a satisfactory financing commitment by September 8,
1995.
The Company has retained Van Kasper & Company ("Van Kasper") as its
investment banker. At the July 24, 1995 meeting of the Company's Board of
Directors, Van Kasper indicated to the Board of Directors that it was in a
position to render a fairness opinion on the Transactions to the Company's
shareholders. Subsequently, Van Kasper has delivered its opinion, a copy of
which is attached hereto as Exhibit D. See "The Transactions - Opinion of
Financial Advisor."
Mr. Kives beneficially owns approximately 63% of the Company's
outstanding Common Stock, and he intends to vote such shares to approve the
Transactions at the Special Meeting. There can be no assurance, however, that
all of the conditions to the Transactions contemplated by the Purchase Agreement
will be satisfied or that the Transactions will be consummated. Failure to
consummate the Transactions will result in material expenses to the Company
which will not be reimbursed. In such event, there may be other operational or
management changes to address recent adverse results in certain of the Company's
subsidiaries.
The Purchase Agreement may be terminated by either the Company or the
Purchaser if the Transactions do not close on or before November 30, 1995. The
Company may terminate the Purchase Agreement in the event any person shall have
commenced a tender offer for all outstanding shares of the Company's Common
Stock or made an offer involving a merger or consolidation of the Company or the
acquisition of all or substantially all of its assets and the Company's Board of
Directors determines upon the advice of its legal counsel that if they failed to
recommend such offer or accept such proposal then such failure would be likely
to result in a breach of the directors' fiduciary or legal duties. The Purchaser
may terminate the Purchase Agreement if any person has commenced a tender offer
for the Company's Common Stock and the Company's Board of Directors has
withdrawn or materially adversely modified or changed its recommendation of the
Purchase Agreement to the Company's shareholders. Also, the Company or the
Purchaser may terminate the Agreement upon ten days prior written notice if any
condition to such party's obligations under the Purchase Agreement is not
satisfied when it is required to be satisfied under the terms of the Purchase
Agreement.
In the event the Purchase Agreement is terminated without any default
by a party of its obligations under the Purchase Agreement, neither the Company
nor the Purchaser will have any further liability, except that the Purchaser is
obligated to pay one-half of certain legal and accounting costs. In the event
the Purchase Agreement is terminated by reason of a willful breach by a party,
then the breaching party will be liable to the nonbreaching party for all
actual, consequential and incidental damages suffered by the nonbreaching party
arising from the willful breach.
OTHER AGREEMENTS BETWEEN THE COMPANY AND THE PURCHASER
Contemporaneously with closing under the Purchase Agreement, the
Company and the Purchaser will enter into certain additional agreements. The
provisions of the Purchase Agreement also provide for certain post-closing
obligations of the parties.
Trademark Agreement. Pursuant to a Trademark Agreement, the Purchaser
will acquire (a) the exclusive right to use the K-tel tradenames and K-tel
trademarks (the "K-tel Marks") in the United States for consumer entertainment
products during the four years after closing, except that the Company retains
the right to sell consumer entertainment products through direct response
advertising in the United States, and (b) the non-exclusive right to use the
K-tel Marks for consumer convenience products in Mexico for four years and for
two years in Asia and Canada. The Purchaser also has the right to sell off
inventory bearing the K-tel Marks after the licenses expire for four years in
the Untied States and Mexico and for two years in Canada and Asia. In addition,
pursuant to the Trademark Agreement, the Company will assign the K-tel Marks to
the Purchaser in Europe, the former Soviet block countries, the Middle East and
Africa, except that the Company will retain a non-exclusive license to use the
K-tel Marks with respect to products which are not consumer entertainment
products for two years in Europe and for four years in the former Soviet block
countries, the Middle Eat and Africa. The Company also has the right to sell off
inventory bearing the K-tel Marks after its non-exclusive license expires for
two years in Europe and for four years in the former Soviet block countries, the
Middle East and Africa. In addition, the Company has a right of first refusal to
acquire any K-tel Marks assigned to the Purchaser during the first four years
after closing of the Transactions.
Subleases. Pursuant to Sublease Agreements, the Company will sublease
approximately 4,600 square feet of office space and 30,500 square feet of
warehouse space for its consumer convenience products business in Minneapolis,
Minnesota, from one of the Entertainment Subsidiaries through March 13, 1996, at
a pass-through of the rent obligations, with an option to extend the sublease
for six months.
Record License Agreement. Pursuant to a Record License Agreement, the
Company will have the nonexclusive right to utilize the master recordings
catalog of the Entertainment Subsidiaries to produce one album for sale by the
Company through infomercials for certain royalty fees.
Transition Services. Under the Purchase Agreement, the Company and the
Purchaser will provide each other with such administrative services as may be
reasonably required to effect the orderly transition of the division of the
operations of the Company resulting from the sale of the Entertainment
Subsidiaries to the Purchaser.
Employee Protection. During the two years after closing of the sale of
the Entertainment Subsidiaries to the Purchaser, the Company and the Purchaser
each agree that it will not employ, solicit, hire away or in any other manner
attempt to divert any person who is a designated employee of the other under the
Purchase Agreement. Pursuant to the Purchase Agreement, all of the current
employees of the Company and its subsidiaries will be designated to be employed
by either the Company or the Purchaser upon consummation of the Transactions,
except for Jeffrey M. Koblick, Senior Vice PresidentPurchasing and Operations of
the Company, who has not yet decided whether to continue his employment with the
Company or to accept an employment offer with the Purchaser. Currently it is
expected that 19 of the Company's 186 employees will continue with the Company.
In addition, during the two years after closing, the Company and the Purchaser
each agree that it will not employ, solicit, hire away or in any other manner
attempt to divert any person who was an employee of the other within six months
prior to the employment of such person, other than Mr. Koblick, who is not yet a
designated employee of either the Company or the Purchaser.
Indemnification. Under the Purchase Agreement, the Company will
indemnify the Purchaser and the Entertainment Subsidiaries from any claims,
liabilities or expenses relating to consumer products sold prior to the closing,
including consumer convenience products sold by the Entertainment Subsidiaries
and the contracts and litigation to be assigned to the Company pursuant to the
Purchase Agreement. The Purchaser will indemnify the Company and the Remaining
Subsidiaries from any claims, liabilities or expenses relating to entertainment
products sold prior to the closing, including any consumer entertainment
products sold by the Company or the Remaining Subsidiaries.
RELATED ENTITY TRANSACTIONS
In addition to the Transactions between the Company and the Purchaser,
contemporaneously with the closing under the Purchase Agreement, Mr. Elfenbein
and the Purchaser will consummate certain transactions with K-5 Leisure
Products, Inc., a corporation controlled by Mr. Kives, pursuant to the Stock
Transfer and Loan Repayment Agreement dated June 28, 1995 (the "Related Entity
Agreement"), a copy of which is attached hereto as Annex B. As a result of the
Related Entity Transactions, K-5 will receive 350,000 shares of the Company's
Common Stock currently owned by Mr. Elfenbein and a note for approximately
$1,100,000 from the Purchaser in repayment of indebtedness (approximately
$928,000 as of June 30, 1995) owed by Mr. Elfenbein to K-5 and affiliated
entities and in exchange for the Purchaser receiving K-5's 52% interest in
Simitar Entertainment, Inc., a video entertainment production and distribution
company ("SEI"). Mr. Elfenbein currently owns 43% of SEI common stock and will
contribute his interest in SEI to the Purchaser in connection with the Related
Entity Transactions. The sale of the Entertainment Subsidiaries and the
transactions contemplated by the Related Entity Agreement are conditioned on the
simultaneous closings of each other.
REASONS FOR THE TRANSACTIONS
Mr. Elfenbein determined that there would be operating and other
synergies by combining the Company's consumer entertainment products business
with the video marketing and distribution business of SEI. The common stock of
SEI is owned 52% by K-5, a company controlled by Mr. Kives, and 43% by Mr.
Elfenbein. As a result, Mr. Elfenbein proposed that he acquire K-5's interest in
SEI and that the resulting company purchase the Company's consumer entertainment
products business.
After extensive negotiations, Mr. Kives and Mr. Elfenbein arrived at
the terms for the Transactions and Related Entity Transactions as described
above. Mr. Kives believes that the purchase price offered to the Company for the
Entertainment Subsidiaries is sufficiently attractive in relation to the
potential profitability of the business to proceed with the proposed
Transactions. In addition, the profitability of certain Entertainment
Subsidiaries has in recent periods been adversely affected by the unfavorable
economic conditions in Europe, principally Germany, so that the sale of the
Entertainment Subsidiaries also deals with these profitability issues which the
Company would need to address if the Transactions did not occur.
The Company determined to sell the Entertainment Subsidiaries to the
Purchaser in a private transaction rather than making the business available
through a broker because Mr. Elfenbein, currently the controlling shareholder of
the Purchaser, has unique and direct knowledge of the Company's consumer
entertainment business and the Entertainment Subsidiaries gained through various
positions with the Company since 1969. Mr. Elfenbein's knowledge and experience
increase the likelihood of the success of the Purchaser's business and,
therefore, permit the Purchaser to pay an acceptable price for the Entertainment
Subsidiaries.
EFFECTS OF THE TRANSACTIONS
Increased Net Cash and Ability to Expand Business. As a result of the
sale by the Company of its Entertainment Subsidiaries, the Company will have (i)
streamlined its business to a core consumer convenience products business which
the Company believes can be operated profitably, (ii) increased the Company's
net after-tax cash position by an estimated $21,100,000, with the resultant
ability of the Company to expand the consumer convenience products business,
take advantage of other opportunities that may be available (although the
Company has not identified any such opportunities), and invest the proceeds
prior to use in such expansion, and (iii) utilized its net operating loss
carryover to reduce the federal income tax consequences from the sale of the
Entertainment Subsidiaries.
Division of Personnel; Reorganization. Upon consummation of the
transactions, the Purchaser intends to employ many of the Company's employees
who will resign their positions with the Company and the Remaining Subsidiaries,
including Mr. Elfenbein who is President, Chief Executive Officer and a director
of the Company, Mark Dixon who is Vice President-Finance, Chief Financial
Officer, Treasurer and a director of the Company, and David Weiner who is Senior
Vice President of the Company. In addition, it is expected that other personnel
of the Company will become employees of the Purchaser. Of the Company's 186
employees at June 30, 1995, 19 employees are designated to remain with the
Company and 166 employees are expected to be employed by the Purchaser or the
Entertainment Subsidiaries. Jeffrey M. Koblick, Senior Vice President-Purchasing
and Operations, has not been designated to either the Company or the Purchaser.
Mr. Koblick has not yet decided whether to continue his employment with the
Company or to accept a position with the Purchaser. Although the Company and the
Purchaser have each agreed to provide the other with transition administrative
services reasonably required to effect the orderly transfer of the Entertainment
Subsidiaries and the division of the operations of the Company resulting from
such transfer, the division of officers and employees between the Company and
the Purchaser may present administrative and organizational complications which
may be more than short-term in nature, depending on the ability of the Company
to attract and hire additional personnel with expertise in the consumer
convenience products business and to institute an organizational structure most
conducive to the Company's business. The Company expects that Mr. Kives will
serve as chief executive officer, and the Company's current controller for the
North American operations will be the chief financial officers of the Company
following the consummation of the Transactions.
POSITION OF COMPANY'S MANAGEMENT; POTENTIAL CONFLICTS OF INTEREST
The Transactions involve inherent conflicts of interest between the
interests of the Company, Philip Kives and Mickey Elfenbein. Mr. Kives and Mr.
Elfenbein are officers and directors of the Company. Mr. Kives is the principal
shareholder of the Company and, after giving effect to the Related Entity
Transactions which will be consummated contemporaneous with completion of the
Transactions, will increase the percentage of his beneficial ownership of the
Company's outstanding Common Stock to 75.8% from 66.4%. The Purchaser is
currently controlled by Mickey Elfenbein who is the President, Chief Executive
Officer and a director of the Company and, after consummation of the
Transactions, will employ many of the Company's employees who will then resign
their positions with the Company and the Remaining Subsidiaries, including Mr.
Elfenbein, Mark Dixon who is Vice President-Finance, Chief Financial Officer,
Treasurer and a director of the Company and David Weiner, who is Senior Vice
President. Mr. Elfenbein has also agreed to resign as an officer and director of
the Remaining Subsidiaries and as Chief Executive Officer of the Company
effective October 16, 1995, and, if the Purchaser has obtained the financing
commitment to complete the Transactions by October 16, 1995, to resign as
President of the Company effective October 16, 1995. In addition, Mr. Kives is
Mr. Elfenbein's uncle. The terms of the Transactions were negotiated between Mr.
Kives and Mr. Elfenbein. Mr. Elfenbein and Mr. Dixon abstained from voting when
the Board of Directors of the Company approved the Transactions on July 24,
1995, and the other directors approved the Transactions after consideration of
terms of the Transactions and the analysis received from Van Kasper & Company
with respect to its ability to render a fairness opinion. The relationship of
Mr. Kives and Mr. Elfenbein to the Company and the Purchaser and the Related
Entity Transactions, however, necessarily means that the nature of the
negotiations could not be as arms' length as would be negotiations with a third
party. Neither the Company nor its directors retained an unaffiliated
representative to act solely on behalf of unaffiliated shareholders for the
purpose of preparing an opinion concerning the fairness of the Transactions.
OPINION OF THE FINANCIAL ADVISOR
The Company retained Van Kasper to act as its financial advisor in
connection with the Transactions. Van Kasper was selected by the Company's Board
of Directors as the Company's financial advisor based on Van Kasper's
qualifications, experience, expertise and reputation, as well as Van Kasper's
investment banking relationship and familiarity with the Company. Van Kasper is
a well-recognized investment banking and advisory firm. As part of its
investment banking business, Van Kasper is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwriting, competitive bidding, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes.
Van Kasper has rendered to the Company's Board of Directors its written
opinion dated August 31, 1995 that, as of such date, the Transactions were fair
from a financial point of view to the shareholders of the Company. Van Kasper
did not determine or make any recommendation with respect to the amount of
consideration to be paid in connection with the Transactions.
The full text of the opinion of Van Kasper, which sets forth
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex D to this Proxy Statement. The Company's shareholders are
urged to read the opinion carefully and in its entirety. Van Kasper's opinion is
directed only to the fairness of the Transactions from a financial point of view
to the shareholders of the Company and does not constitute a recommendation to
any shareholder of the Company as to how such shareholder should vote at the
Special Meeting to consider the proposal to approve the Transactions. The
opinion of Van Kasper is subject to certain conditions and limitations set forth
therein, and the summary of that opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
In connection with Van Kasper's opinions, Van Kasper reviewed a copy of
the Purchase Agreement and the Related Entity Agreement, including the exhibits
thereto. In Van Kasper's review it assumed, with the Company's permission, that
the documentation to be prepared, used and signed by the parties to formally
effect the Transactions, including the agreements effecting the Transactions
between the Purchaser and the Company and the proxy or other disclosure material
to be delivered to the shareholders of the Company to elicit any necessary
consents to the Transactions, would effect the Transactions on the terms set
forth in the Purchase Agreement and the Related Entity Agreement, including
exhibits thereto, without material alteration.
Van Kasper reviewed such relevant financial and other information that
was publicly available or furnished to it by the Company and the Purchaser,
including information provided during discussions with each company. In
addition, Van Kasper compared certain financial and securities data of the
Company and the Entertainment Subsidiaries with that of various other companies
whose securities are publicly traded, reviewed recent merger and acquisition
transactions of companies Van Kasper determined to be similar and conducted such
other financial analysis as it determined, based upon its judgment as investment
bankers, to be appropriate for purposes of its opinion. Van Kasper also took
into account the views of the management and certain shareholders of the Company
as to the prospects of the Company if the Transactions are not effected. Van
Kasper did not negotiate the Transactions, provide any legal advice or advise
the Company with respect to alternatives to the Transactions. Although Van
Kasper performed a valuation of the Company and the Entertainment Subsidiaries
using a number of commonly accepted methodologies, Van Kasper did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company.
In rendering its opinion, Van Kasper relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information with respect to the Company that was publicly available or furnished
or otherwise communicated to Van Kasper by the Company. The Company provided to
Van Kasper certain financial projections of the Company. Van Kasper reviewed
those projections in light of discussions it had conducted with analysts and
other industry sources and made certain adjustments where it determined it was
appropriate based upon assumptions reflecting the best currently available
estimates and good faith judgments of management as to the future performance of
the Company, based on the assumption that the management of the Company did not
have any information or belief that would make the projections misleading.
The consolidating data provided to Van Kasper was derived from
financial statements of the Company (which were prepared on a consolidated basis
as to all of the subsidiaries of the Company primarily by management of the
Company, including Mickey Elfenbein, the President and Chief Executive Officer,
and Mark Dixon, the Chief Financial Officer of the Company, each of whom will be
leaving the Company and will become employed by the Purchaser following the
closing of the Transactions). In rendering its opinion, Van Kasper assumed the
accuracy and completeness of all of the financial and other information that was
provided to it by management, including, without limitation, the accuracy and
completeness of the consolidating data derived from the financial statements of
the Company.
Pursuant to a letter dated July 14, 1995 between the Company and Van
Kasper, the Company will pay Van Kasper a fee of $85,000 for acting as the
Company's financial advisor in connection with the Transactions and rendering
its opinion as to the fairness of the Transactions from a financial point of
view. A portion of Van Kasper's fee will not be paid to Van Kasper unless and
until the Proxy Statement is mailed to shareholders. The Company also agreed to
reimburse Van Kasper for its out-of-pocket expenses and to indemnify Van Kasper
and its directors, officers, agents, employees and controlling persons against
certain liabilities and expenses related to Van Kasper's engagement.
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS
Expansion of Consumer Convenience Products Business. The Company may
utilize the increase in its net after-tax cash position of an estimated
$21,100,000 to expand its consumer convenience products business.
Expansion into Unrelated Businesses. Although the Company presently
intends to expand its consumer convenience product business, the Company could
also determine to expand into unrelated businesses.
Possible Privatization. After giving effect to the Transactions and the
Related Entity Transactions, Mr. Kives will own approximately 75.8% of the
Company's outstanding Common Stock. Although there are currently no plans to
take the Company private, the Company could be taken private through a reverse
stock split or merger with an entity controlled by Mr. Kives in which Mr. Kives
or his company would be the sole remaining shareholder. In such event, the
public holders of the Company's Common Stock whose shares are cancelled would be
entitled to receive the fair value of their shares.
ACCOUNTING TREATMENT
The disposition of the Entertainment Subsidiaries will be accounted for
as a divestiture of assets.
INTERESTS OF CERTAIN PERSONS
In considering the approval of the Transactions, shareholders should be
aware that certain officers and directors of the Company have certain interests
in the transactions contemplated thereby that are in addition to, and may
conflict with, the interests of the shareholders generally.
Mr. Kives, the Chairman of the Board of the Company, currently
beneficially owns approximately 66.4% of the Company's outstanding Common Stock.
Following the transactions contemplated by the transactions between related
entities described above (see "The Transactions--Related Entity Transactions"),
Mr. Kives will beneficially own approximately 75.8% of the Company's outstanding
Common Stock. Mr. Elfenbein is President, Chief Executive Officer and a director
of the Company and also controls the Purchaser. After consummation of the
Transactions, the Purchaser will employ employees of the Company who will then
resign from the Company, including Mark Dixon, Vice President-Finance, Chief
Financial Officer, Treasurer and a director of the Company, and David Weiner,
Senior Vice President of the Company. Mr. Elfenbein has also agreed to resign as
an officer and director of the Remaining Subsidiaries and as Chief Executive
Officer of the Company effective October 16, 1995, and, if the Purchaser has
obtained the financing commitment to complete the Transactions by October 16,
1995, to resign as President of the Company effective October 16, 1995.
The Company sold approximately $228,000 in fiscal 1995, $693,000 in
fiscal 1994, $895,000 in fiscal 1993 and $1,941,000 is fiscal 1992 of consumer
convenience products to an affiliate controlled by the Mr. Kives. This affiliate
owed the Company net amounts of approximately $33,000 at June 30, 1995, $4,000
at June 30, 1994 and $26,000 at June 30, 1993.
The Company purchased $354,000 in fiscal 1995, $425,000 in fiscal 1994,
$586,000 in fiscal 1993 and $1,778,000 in fiscal 1992 of consumer convenience
products from another affiliate controlled by Mr. Kives. The purchase prices for
these products were at prices comparable to transactions with a third party, but
the payment terms have been open-ended as a method of financing the Company's
consumer convenience product expansion in Europe and the United States. The
Company reimbursed such other company for warehousing and shipping services
provided in Canada and travel, telephone and legal fees incurred on behalf of
the Company.
During 1994, a Company controlled by Mr. Kives provided $1,000,000 in
short-term financing to the Company to fund consumer convenience product
purchases. In October 1994, the Company repaid the principal of the loan plus
interest at the rate of prime plus one and one-half percent from the proceeds of
bank borrowings.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the material federal income tax
consequences of the sale of a significant portion of the Company's assets. The
discussion is based upon the provisions of the Internal Revenue Code and the
applicable Treasury Regulations promulgated and proposed thereunder and is not
based upon an opinion of counsel.
The Transactions will be treated as a sale for tax purposes. For
federal income tax purposes, the gain will be offset against the net operating
loss carryover of the Company. Therefore, the Company will be subject only to
federal alternative minimum tax equal to an equivalent of 2% of the taxable gain
before net operating loss. The estimated federal alternative tax resulting from
the Transactions is approximately $200,000. In addition, the gain will be
subject to state income tax of approximately $400,000. The federal net operating
loss carryover for the federal income tax purposes after the sale will be
approximately $13,000,000 and will expire in fiscal years ending June 30, 2000
and 2001.
There should be no tax impact upon the individual shareholders
continuing to own shares of the Company's Common Stock.
FEES AND EXPENSES
All expenses incurred in connection with the Transactions will be paid
by the Company, except that the Purchaser will reimburse the Company certain
legal and accounting expenses. The estimated fees and expenses to be incurred in
connection with the Transactions are as follows:
<TABLE>
<S> <C>
Financial advisor's fee and expenses..............................................................$ 97,500
Accounting fees and expenses(1)................................................................... 60,000
Legal fees and expenses(1)........................................................................ 75,000
Additional directors' fees (2)................................................................... 50,000
SEC filing fee.......................................................................................9,080
Printing and mailing expenses..................................................................... 5,000
Miscellaneous expenses............................................................................ 10,000
Total................................................................................... $306,580
</TABLE>
____________________
(1) Excludes estimated accounting cost of $16,000 and legal cost
of $28,000 to be reimbursed to the Company by the Purchaser
pursuant to the Purchase Agreement.
(2) Seymour Leslie and Sanford Sigoloff, the two non-management
directors of the Company, will each receive additional
directors fees of $25,000 in connection with the Transactions.
No fees or commissions will be paid by or on behalf of the Company to
any broker or other persons for soliciting votes. Brokers, dealers, commercial
banks, trust companies and other nominees will be reimbursed by the Company for
reasonable expenses incurred by them in forwarding materials to their customers.
DISSENTERS' RIGHTS
SET FORTH BELOW IS A SUMMARY OF THE PROCEDURES FOR EXERCISING
DISSENTERS' RIGHTS UNDER SECTIONS 302A.471 and 302A.473, OF THE MINNESOTA
BUSINESS CORPORATIONS ACT ("MBCA"). THIS SUMMARY DOES NOT PURPORT TO BE A
COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX C HERETO, WHICH IS A COPY OF SUCH PROVISIONS, AND TO ANY
AMENDMENT TO SUCH PROVISIONS AS MAY BE ADOPTED AFTER THE DATE OF THIS PROXY
STATEMENT. THE PROVISIONS FOR EXERCISING DISSENTERS' RIGHTS MUST BE COMPLIED
WITH PRECISELY. ANY SHAREHOLDER INTENDING TO DISSENT FROM THE PROPOSED
TRANSACTIONS SHOULD READ CAREFULLY THE TEXT OF ANNEX C AND ALSO SHOULD CONSULT
WITH LEGAL COUNSEL.
DEMAND FOR PURCHASE
Shareholders of the Company have the right to dissent from the sale of
substantially all of the assets of the Company contemplated by the Purchase
Agreement and demand payment of the fair value of their shares. Such dissenters'
rights are governed by Sections 302A.471 and 302A.473 of the MBCA, the full text
of which is annexed hereto as Annex C. Under the MBCA, a shareholder possessing
dissenters' rights has no right to have the Transactions set aside or rescinded
unless they are fraudulent with regard to the shareholder or the corporation.
PERSONS ENTITLED TO EXERCISE DISSENTERS' RIGHTS UNDER THE MBCA
Dissenters' rights can only be exercised by a shareholder of record or
a beneficial owner of shares held of record by another person who obtains a
written consent of the shareholder of record and submits it to the Company at
the time of or before the assertion of the rights. Dissenting shareholders must
asset their dissenters' rights with respect to all the shares registered in
their names, except that a dissenting shareholder may dissent with respect to
all the shares beneficially owned by another but registered in the shareholder's
name if the shareholder discloses to the Company the name and address of each
such beneficial owner on whose behalf the shareholder dissents.
NOTICE OF INTENT TO DEMAND FAIR VALUE OF SHARES
Shareholders who wish to exercise their dissenters' rights must submit
to the Company at 2605 Fernbrook Lane North, Minneapolis, Minnesota 55447-4736,
Attention: Mark Dixon, Vice President-Finance, a written notice of their intent
to demand the fair value of their shares from the Company (the "Notice of
Intent"). The Notice of Intent should state the number of shares held of record
by such shareholder and, in order to be effective, must be received by the
Company before the vote to approve the Transactions at the Special Meeting.
VOTE AGAINST THE TRANSACTIONS OR ABSTENTION FROM VOTE
Shareholders desiring to exercise dissenters' rights must not vote
their shares in favor of approval of the Transactions at the Special Meeting.
Merely voting against the approval of the Transactions or abstaining from the
vote will not, of itself and absent compliance with the provisions summarized
herein, satisfy the requirements of the MBCA for the exercise of dissenters'
rights.
NOTICE OF PROCEDURE
If the proposed Transactions is approved at the Special Meeting, the
Company will mail a notice of the procedure for demanding payment of the fair
value of shares (the "Notice of Procedure") to each shareholder who is entitled
to exercise the dissenters' rights provisions of the MBCA and who has properly
filed a Notice of Intent. The Notice of Procedure will include, among other
things, a form for demanding payment of the fair value of shares (the "Demand
Form").
SUBMISSION OF STOCK CERTIFICATES
Within 30 days after the date of the Notice of Procedure, dissenting
shareholders must submit to the Company or its transfer agent the Demand Form
and certificates representing the shares the dissenting shareholders demand to
be purchased (such certificates to be stamped or endorsed with a statement that
the shares are dissenting shares or are to be exchanged for certificates of
appropriate denomination so stamped or endorsed). The Notice of Procedure will
specify the date by which the submission of the Demand Form and certificates has
to be made. Submissions made after that date will not be effective for any
purpose. The dissenting shareholders will retain all other rights of a
shareholder until the proposed action takes effect.
PURCHASE OF DISSENTING SHARES
After the Transactions are approved, or after the Company receives a
valid demand for payment, whichever is later, the Company will pay to dissenting
shareholders who have surrendered their certificates after having given proper
notice and demand, an amount the Company estimates is the "fair value of the
shares," plus interest, if any. Under the MBCA, the "fair value of the shares"
is determined as the value of the shares immediately before the closing of the
Transactions. Interest commences five days after the date of closing of the
Transactions, up to and including the date of payment, and is calculated at the
rate provided by Minnesota law.
Dissenting shareholders who disagree with the Company's estimate of the
fair value of the shares may submit, within thirty days after the Company mails
the payment, their own written estimate to the Company and demand a supplemental
payment of the difference between their estimate and the amount received from
the Company. Dissenting shareholders who do not submit their own estimate within
the proper time required are entitled only to the payment received from the
Company.
The Company may withhold payment of the fair value of shares from
dissenting shareholders who were not shareholders on the date the Transactions
were publicly announced or who are dissenting on behalf of persons who were not
beneficial owners on that date. The Company may provide instead to such
dissenters who properly gave notice and demand its estimate of the fair value of
the shares, a statement of the reason for withholding payments of its estimate
and an offer to pay the amount of its estimate if, among other things, the
dissenter agrees to accept that amount in full satisfaction. Dissenters may
decline this offer and seek supplemental payment. If the dissenters do not seek
supplemental payment, then they are entitled only to the amount offered by the
Company.
If a demand for supplemental payment is made, the Company will have
sixty days within which either to pay the dissenter that amount (or an amount
agreed to after discussion) or to file a petition in the District Court of
Hennepin County, Minnesota, requesting that the court determine the "fair value
of the shares," plus interest. The court's determination of the fair value of
the shares is binding on all shareholders. A dissenter is entitled to judgment
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount already paid. If the court determines that the
fair value of the shares is less than that determined and paid by the Company,
the dissenter will not be liable to the Company for that amount. The costs of
the court proceeding will be borne by the Company, except for costs and expenses
the court assesses against dissenters whose actions in demanding supplemental
payment are found by the court to be arbitrary, vexatious or not in good faith.
Experts' and attorneys' fees may be assessed against the Company if it does not
comply substantially with the above procedure or against shareholders acting
arbitrarily, vexatiously or not in good faith in demanding supplemental payment.
PRICE RANGE OF COMMON STOCK; DIVIDENDS
The Company's Common Stock is a designated stock on The Nasdaq Stock
Market under the symbol "KTEL." Over-the-counter market quotations reflect
inter-dealer prices without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions. The following table shows the range
of high and low closing sales prices per share of the Company's Common Stock as
reported by The Nasdaq Stock Market for the periods indicated.
<TABLE>
<CAPTION>
===================================================================================================================================
1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
High Low High Low High Low
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 2 3/8 2 1/4 9 3/8 7 1/2 5 1/8 3
- -----------------------------------------------------------------------------------------------------------------------------------
Second Quarter 3 3/8 2 1/4 10 3/4 6 1/2 5 3/4 3
- -----------------------------------------------------------------------------------------------------------------------------------
Third Quarter 5 1/8 3 3/8 7 1/4 6 1/4 6 1/8 3 3/4
- -----------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 8 1/2 5 1/8 7 4 3/4 4 3
===================================================================================================================================
</TABLE>
As of June 30, 1995, there were approximately 1800 record holders of
the Company's Common Stock.
The Company is subject to loan agreement covenants prohibiting the
payment of dividends without the consent of the lender. The Company has not paid
any dividends on its Common Stock since fiscal 1983.
POSSIBLE EFFECT ON THE MARKET FOR THE COMMON STOCK
The Company's Common Stock is currently registered under the Exchange
Act and is a designated stock on The Nasdaq Stock Market. The Company could be
"taken private" if the Board of Directors were to approve a reverse stock split
of 250 to 1 and file an application to deregister the Company's Common Stock
under the Exchange Act or if the Board of Directors were to approve a merger
involving the Company in which all shares of the Company are cancelled other
than the shares beneficially owned by Mr. Kives who will beneficially own
approximately 75.8% of the outstanding Common Stock after the Transactions and
the Related Entity Transactions are consummated. In such event, the public
shareholders would be entitled to receive the then fair value of their shares in
cash. Upon the effectiveness of such reverse stock split or merger, the Company
would no longer be a designated stock on The Nasdaq Stock Market. See "Special
Factors--Plans for the Company after the Sale of Assets--Privatization."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
DATA OF THE COMPANY
The following unaudited pro forma financial data for the Company has
been prepared on a pro forma basis to give effect to the divestiture of the
Entertainment Subsidiaries. The unaudited pro forma income statement data gives
effect to the divestiture as if it had occurred on July 1, 1993 for the year
ended June 30, 1994 and July 1, 1994 for the nine months ended March 31, 1995.
The unaudited pro forma balance sheet data as of March 31, 1995 and June 30,
1994 has been prepared as if such divestiture had occurred on those dates.
The unaudited pro forma financial data and accompanying notes should be
read in conjunction with the audited financial statements and notes incorporated
by reference in this Proxy Statement. The unaudited pro forma financial data is
provided for comparative purposes only and may not be indicative of (i) the
actual results that would have occurred had the divestiture of the Entertainment
Subsidiaries been consummated at the beginning of the period for which pro forma
information is presented or (ii) the results to be expected in the future.
On June 28, 1995, K-tel International, Inc. entered into an agreement
to sell its consumer entertainment subsidiaries (the "Entertainment
Subsidiaries"), to Simitar, Inc., a company currently controlled by Mickey
Elfenbein who is President, Chief Executive Officer and a director of the
Company. The sale of the Entertainment Subsidiaries involves the sale to the
Purchaser of three domestic subsidiaries and two foreign subsidiaries which own
the master recording catalog rights to music recordings. At June 30, 1995, the
purchase price for the Entertainment Subsidiaries would have been $25,000,000,
plus certain estimated adjustments increasing the total purchase price to
$31,400,000.
<TABLE>
<CAPTION>
===================================================================================================================================
March 31, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Unaudited Pro Forma Unaudited
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Current Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,699 $ (2,771)(a) $21,028 $ 6,319 $ (4,995)(a) $22,424
- -----------------------------------------------------------------------------------------------------------------------------------
21,100 (b) 21,100 (b)
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted cash 1,174 (1,174)(a) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts receivable 12,254 (10,796)(a) 1,458 11,600 (11,532)(a) 68
- -----------------------------------------------------------------------------------------------------------------------------------
Inventories 8,541 (5,543)(a) 2,998 5,143 (5,092)(a) 51
- -----------------------------------------------------------------------------------------------------------------------------------
Royalty advances 1,961 (1,830)(a) 131 887 (887)(a) --
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses 2,623 (1,940)(a) 683 1,162 (1,241)(a) (79)
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax refund receivable 563 (546)(a) 17 458 (453)(a) 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 29,815 (3,500) 26,315 25,569 (3,100) 22,469
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment, net 884 (860)(a) 24 751 (741)(a) 10
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets 724 (723)(a) 1 554 (554)(a) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $31,423 $ (5,083) $26,340 $26,874 $ (4,395) $22,479
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Note payable to bank 2,312 (726)(a) 86 -- (1,500)(c) (1,500)
- -----------------------------------------------------------------------------------------------------------------------------------
(1,500)(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Note payable to affiliate -- -- -- 1,000 -- 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts payable 5,895 (5,000)(a) 895 4,973 (5,580)(a) (607)
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued royalties 8,725 (8,687)(a) 38 7,864 (7,663)(a) 201
- -----------------------------------------------------------------------------------------------------------------------------------
Reserves for returns 7,265 (7,118)(a) 147 6,412 (6,412)(a) --
- -----------------------------------------------------------------------------------------------------------------------------------
Other current liabilities 2,444 (2,152)(a) 292 1,929 (726)(a) 1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax payable 204 (150)(a) 54 150 (6)(a) 144
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 26,845 (25,333) 1,512 22,328 (21,887) 441
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Debt -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Amounts due to Entertainment
Subsidiaries -- 4,453 (a) (3,747) -- (1,003)(a) (9,203)
- -----------------------------------------------------------------------------------------------------------------------------------
(8,200)(d) (8,200)(d)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 26,845 (29,080) (2,235) 22,328 (31,090) (8,762)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Investment
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock 38 -- 38 37 -- 37
- -----------------------------------------------------------------------------------------------------------------------------------
Contributed capital 7,814 -- 7,814 7,801 -- 7,801
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated (deficit) earnings (2,625) 23,372 (e) 20,747 (2,438) 25,832 (e) 23,394
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment (649) 625 (a) (24) (854) 863 (a) 9
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Investment 4,578 23,997 28,575 4,546 26,695 31,241
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Investment $31,423 $ (5,083) $26,340 $26,874 $(4,395) $22,479
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Year Ended
March 31, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Unaudited Pro Forma Unaudited
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $49,905 $(40,420)(a) $ 9,485 $54,270 $(45,481)(a) $ 8,789
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 26,236 (19,693)(a) 6,543 26,842 (21,568)(a) 5,274
- -----------------------------------------------------------------------------------------------------------------------------------
Advertising 8,888 (7,943)(a) 945 10,495 (8,357)(a) 2,138
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative 14,952 (11,635)(a) 3,317 16,086 (13,301)(a) 2,785
- -----------------------------------------------------------------------------------------------------------------------------------
Closedown charges -- -- -- 624 (486)(a) 138
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 50,076 (39,271) 10,805 54,047 (43,712) 10,335
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (171) (1,149) (1,320) 223 (1,769) (1,546)
- -----------------------------------------------------------------------------------------------------------------------------------
Non-Operating Income (Expense):
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income 166 (141)(a) 25 117 (86)(a) 31
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense (179) 62 (a) (117) (27) 9 (a) (18)
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency transaction
gain (loss) 303 (388)(a) (85) 28 26 (a) 54
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-Operating
Income (Expense) 290 (467) (177) 118 (51) 67
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before (Benefit)
Provision for Income Taxes 119 (1,616) (1,497) 341 (1,820) (1,479)
- -----------------------------------------------------------------------------------------------------------------------------------
(Benefit) Provision for Income Taxes 306 (289)(a) 17 (35) 147 (a) 112
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (187) $ (1,327) $(1,514) $ 376 $ (1,967) $(1,591)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Common
and Common Equivalent Shares $ (.05) $ (.40) $ .10 $ (.42)
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding 3,804 3,804 3,804 3,822 3,822 3,822
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND FOR THE YEAR ENDED JUNE 30, 1994
1. Basis of Accounting:
On June 28, 1995, K-tel International, Inc. entered into an agreement
to sell its consumer entertainment subsidiaries (the "Entertainment
Subsidiaries"), to Simitar, Inc., a company currently controlled by Mickey
Elfenbein who is President, Chief Executive Officer and a director of the
Company. The sale of the Entertainment Subsidiaries involves the sale to the
Purchaser of three domestic subsidiaries and ten foreign subsidiaries which own
the master recording catalog rights to music recordings. As of June 30, 1995,
the purchase price for the Entertainment Subsidiaries would have been
$25,000,000, plus certain estimated adjustments increasing the total purchase
price to $31,400,000.
2. Pro Forma Balance Sheet Adjustments:
The accompanying pro forma balance sheets reflect the following
adjustments:
(a) To reflect the removal of the assets sold to and liabilities
assumed by the Purchaser;
(b) To reflect net cash proceeds from the sale of the
Entertainment Subsidiaries;
(c) To reflect payment of note payable to bank; this reflects the
payment made of the balance outstanding at June 30, 1995;
(d) To reflect payment of balances owed by the Company to the
Entertainment Subsidiaries; this reflects the payment made of
the balance outstanding at June 30, 1995; and
(e) To reflect the after-tax gain on sale of Entertainment
Subsidiaries.
3. Pro Forma Income Statement Adjustments:
The accompanying pro forma income statements reflect the following
adjustment:
(a) To reflect the removal of revenues and expenses related to the
Entertainment Subsidiaries
The after-tax gain on the sale of the Entertainment Subsidiaries is
estimated to be $22,500,000 at June 30, 1995. This gain is not reflected in the
accompanying pro forma income statement data.
CERTAIN INFORMATION REGARDING THE PURCHASER
The Purchaser is a Minnesota corporation with its executive offices
located at 3955 Annapolis Lane, Plymouth, Minnesota 55441. The Purchaser is
currently controlled by Mr. Elfenbein who is currently President, Chief
Executive Officer and a director of the Company. Subsequent to the transactions
described above under the caption "The Transactions--Related Entity
Transactions," the Purchaser will own all or substantially all of the issued and
outstanding shares of SEI. SEI is a Minnesota corporation formed in 1984 and
engaged in the business of video entertainment production and distribution.
Currently, Mr. Elfenbein owns 43% of the outstanding common stock of SEI and
Philip Kives, the Chairman of the Board and principal shareholder of the
Company, beneficially owns 52% of the outstanding common stock of SEI.
Except as described in this Proxy Statement, the Purchaser (i) does not
have any contract, arrangement, understanding or relationship with any other
person with respect to the Common Stock, (ii) has not had any transactions with
the Company or any of its executive officers, directors or affiliates that would
require disclosure under the rules of the Commission, or (iii) has had not
negotiations or transactions with the Company or its affiliates concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
SECURITY OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the record date by (i)
all persons known to the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each executive officer and director of the Company,
and (iii) all executive officers and directors as a group. As of October 25,
1995, the record date for the Special Meeting of Shareholders to consider
approval of the Transactions, there were outstanding shares of Common Stock.
<TABLE>
<CAPTION>
===================================================================================================================================
Percentage of
Name and Address Number of Outstanding
of Beneficial Owner Position Shares Owned Shares
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philip Kives Chairman 2,465,470 66.4%
220 Saulteaux Crescent
Winnipeg, Manitoba R3J 3W3
Canada
- -----------------------------------------------------------------------------------------------------------------------------------
Mickey Elfenbein President, Chief 400,111(1) 10.7%
2605 Fernbrook Lane North Executive Officer and
Minneapolis, MN 55447 Director
- -----------------------------------------------------------------------------------------------------------------------------------
Seymour Leslie Director 18,750(2) 0.5%
1370 Avenue of the Americas
26th Floor
New York, NY 10019
- -----------------------------------------------------------------------------------------------------------------------------------
Sanford Sigoloff Director 18,750(2) 0.5%
3340 Ocean Park Blvd., Suite 3050
Santa Monica, CA 90405
- -----------------------------------------------------------------------------------------------------------------------------------
Mark J. Dixon Vice President- 22,126(3) 0.6%
2605 Fernbrook Lane North Finance, Chief
Minneapolis, MN 55447 Financial Officer,
Treasurer and
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Jeffrey M. Koblick Senior Vice 63,300(4) 1.7%
2605 Fernbrook Lane North President-Purchasing
Minneapolis, MN 55447 and Operations
- -----------------------------------------------------------------------------------------------------------------------------------
David Weiner Senior 9,000(5) 0.2%
2605 Fernbrook Lane North Vice President
Minneapolis, MN 55447
- -----------------------------------------------------------------------------------------------------------------------------------
All Officers and directors
as a group (7 persons) 2,997,507(6) 77.5%
===================================================================================================================================
</TABLE>
(1) Includes 37,500 shares issuable upon exercise of vested stock options
or stock options which vest within 60 days. On the date of closing Mr.
Elfenbein will surrender for cancellation all options to purchase the
Company's Common Stock.
(2) Includes 18,750 shares issuable upon exercise of vested stock options
or stock options which vest within 60 days.
(3) Includes 22,125 shares issuable upon exercise of vested stock options
or stock options which vest within 60 days.
(4) Includes 50,000 shares issuable upon exercise of vested stock options
or stock options which vest within 60 days.
(5) Includes 5,000 shares issuable upon exercise of vested stock options or
stock options which vest within 60 days.
(6) Includes 152,125 shares issuable upon exercise of vested stock options
or stock options which vest within 60 days. See note (1) with respect
to Mr. Elfenbein.
COMPLIANCE WITH SECTION 16(A)
The Company's directors, executive officers and any persons holding
more than 10% of the outstanding Common Stock are required to file reports
concerning their initial ownership of the securities of the Company and any
subsequent changes in that ownership. The Company believes that all filing
requirements were met during fiscal 1995.
REGULATORY APPROVALS
Based on information provided by the Company, neither the Purchaser nor
the Company is aware of any license or any regulatory permit that appears to be
material to the business of the Company and its Entertainment Subsidiaries,
taken as a whole, that might be adversely affected by the Purchaser's
acquisition of the Entertainment Subsidiaries as contemplated by the
Transactions, or of any approval or other action by any governmental entity that
would be required for the acquisition or ownership of the Entertainment
Subsidiaries by the Purchaser as contemplated by the Transactions. Should any
such approval or other action be required, the Purchaser presently contemplates
that such approvals or other actions will be sought. There can be no assurance
that any approval or other action, if needed, can be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other such action might not result in consequences adverse to the
Company.
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company is not aware of any matters that
may be presented at the Special Meeting other than those mentioned in the
Company's Notice of Special Meeting preceding this Proxy Statement and a part
hereof. If, however, other matters do properly come before the Special Meeting,
it is intended that the persons named in the proxy will vote, pursuant to their
discretionary authority and according to their best judgment in the best
interests of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Arthur Andersen LLP will be present at the Special
Meeting, afforded the opportunity to make a statement and available to respond
to questions.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by addressing written requests for such copies to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
This Proxy Statement includes information required by the Commission to
be disclosed pursuant to Rule 13e-3 under the Exchange Act in connection with a
sale of substantially all of the assets of an issuer. In accordance therewith,
the Company has filed with the Commission a Schedule 13E-3 under the Exchange
Act. This Proxy Statement does not contain all of the information set forth in
the Schedule 13E-3, parts of which are omitted in accordance with the rules and
regulations of the Commission. The Schedule 13E-3 and any amendments thereto,
including exhibits filed as a part thereof, will be available for inspection and
copying at the offices of the Commission as set forth above.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded. All information appearing in this Proxy Statement
is qualified in its entirety by the information and financial statements
(including the notes thereto) appearing in the documents incorporated or deemed
to be incorporated by reference herein.
This Proxy Statement summarizes or otherwise refers to documents which
are not delivered herewith. Such documents are available on request, without
charge, directed to K-tel International, Inc., 2605 Fernbrook Lane North,
Minneapolis, Minnesota 55447-4736, Attention: Mark Dixon, Vice
President-Finance. In order to ensure timely delivery of the documents, any
requests should be made by November 15, 1995.
BY ORDER OF THE BOARD OF DIRECTORS
Philip Kives, Chairman
Annex A
Agreement For Purchase And Sale
THIS AGREEMENT FOR PURCHASE AND SALE, dated as of June 28,
1995, between SIMITAR, INC., a Minnesota corporation ("Purchaser"), and K-TEL
INTERNATIONAL, INC., a Minnesota corporation ("Seller"),
RECITALS:
WHEREAS, Seller is engaged in the business of developing,
marketing and distributing packaged consumer entertainment (music and video) and
consumer convenience products worldwide; and
WHEREAS, Seller desires to sell to Purchaser all of the
outstanding capital stock of certain of its wholly-owned subsidiaries and
related assets, upon the terms and conditions set forth herein, and Purchaser
desires to purchase such capital stock and assets;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. SHARES TO BE TRANSFERRED TO PURCHASER. Subject to the terms
and conditions set forth in this Agreement:
(1) Shares and Assets. Seller agrees to sell to Purchaser, and Purchaser
agrees to buy from Seller, on the Closing Date specified in Section 8
and for the consideration set forth in Section 2, all of the issued and
outstanding stock of the subsidiaries of Seller listed on Exhibit A
hereto (the "Subsidiaries") owned by the Seller (the "Shares"). The
shares of K-tel, Inc., K-tel Direct, Inc. and K-tel (Australia) Pty.
Ltd. (the "Remaining Subsidiaries") and all other assets of the Seller
are specifically excluded from the transaction and shall remain the
property of the Seller subject to Section 7(3) hereof; and
(2) Qualifying Shares. Seller shall use all commercially reasonable efforts
to cause any qualifying shares of the Subsidiaries held by directors of
the Subsidiaries to be transferred on Closing to the Purchaser or its
nominees.
SECTION 2. PURCHASE PRICE.
(1) Amount. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date, Purchaser shall pay to Seller, the
purchase price (the "Purchase Price") equal to the sum of:
(a) $25,000,000; and
(b) the amount by which the net profit (as determined in
accordance with Section 2(3)) from the production and
distribution of consumer products (other than consumer
entertainment products) by Seller and its subsidiaries in the
United States (the "Consumer Products Business") for the
period from July 1, 1994 to the Closing Date exceeds $200,000,
provided that the amount payable to Seller under this Section
2(1)(b) shall be estimated at Closing by the Chief Financial
Officer of the Seller on the basis of the Seller's internal
financial statements prepared in the ordinary course of
business and the final adjustment shall be made by the mutual
agreement of Seller and Buyer within sixty (60) days after
Closing or, if such mutual agreement is not reached, by Arthur
Andersen & Co. as provided in Section 2(3) (whose
determination shall be binding on the parties).
(2) Adjustments. The Purchase Price shall be:
(a) adjusted by that amount by which the agreed value of the net
assets of Seller (excluding income earned under the agreement
between the Seller and Beyond Auto Pty. Ltd. dated November
30, 1993 relating to the sale of consumer products in
Australia) on a consolidated basis (after giving effect to the
sale of the Shares by Seller but excluding receipt of the
Purchase Price) (the "Remaining Assets Value") as determined
in accordance with the calculations set forth in Exhibit B as
of the Closing Date is less than or greater than $1,000,000.
If the Remaining Assets Value is greater than $1,000,000, then
the Purchase Price shall be reduced by the difference. If the
Remaining Assets Value is less than $1,000,000, then the
Purchase Price shall be increased by the difference. The
amount of the adjustment to be made to the Purchase Price
under this Section 2(2)(a) shall be estimated at Closing by
the Chief Financial Officer of the Seller on the basis of the
Seller's internal financial statements prepared in the
ordinary course of business in accordance with Exhibit B
hereto and the final adjustment shall be made by mutual
agreement of the Seller and Buyer in accordance with Exhibit
B, within sixty (60) days after Closing. If such mutual
agreement is not reached then the determination of such final
adjustments shall be determined by Arthur Andersen & Co. in
accordance with Exhibit B, and such determination shall be
binding upon the parties; and
(b) reduced by the expenses of the Seller referred to in Section
12(1).
(3) Determination of Net Profit of Consumer Products Business. For the
purposes of Section 2(1)(b), the net profit from the Consumer Products
Business shall be the consolidated net income (loss) of (in each case
excluding consumer entertainment products):
(i) the consumer products division of K-tel International
(USA), Inc. for the period July 1, 1994, through
January 31, 1995, when it was incorporated as a
separate entity;
(ii) K-tel Inc. (which is the legal entity for the Consumer
Products Business in the United States which was
incorporated on October 1, 1994), for the period from
February 1, 1995, through the Closing Date; and
(iii) K-tel Direct, Inc., the legal entity which handles all
direct response activities in the United States which
are primarily consumer products, from July 1, 1994,
through the Closing Date,
determined in accordance with generally accepted accounting principles
consistently applied by Seller. If the parties cannot agree, the net
profit from the Consumer Product Business shall be determined by Arthur
Andersen & Co. and shall be binding upon the parties.
SECTION 3. REPRESENTATIONS AND ACKNOWLEDGMENTS OF PURCHASER AND SELLER.
(1) Acknowledgement. Each of Purchaser and Seller acknowledge, for itself
and for its successors and assigns, its shareholders and any other
parties claiming through it, that officers and employees of each of
Purchaser and Seller have had full opportunity to make investigation of
the properties, books, records, financial accounts and files of the
other party with respect to the transactions contemplated herein, and
that each is satisfied with the form and content of the transactions
contemplated by this Agreement. As a result of such opportunity and the
knowledge and experience of the officers of Purchaser and Seller with
respect to the business of Seller, there are no warranties and
representations of Purchaser and Seller except as set forth in Section
3(2) and 3(3).
(2) Seller's Representations. Seller represents and warrants to Purchaser
that at Closing:
(a) Seller will transfer the Shares to Purchaser free and clear of
all liens, encumbrances or restrictions of any nature
whatsoever except restrictions on transferability imposed by
any applicable securities laws;
(b) to the best knowledge of the Seller, the Shares will represent
all of the issued and outstanding shares of capital stock of
the Subsidiaries except directors' qualifying shares of the
Subsidiaries;
(c) there will be outstanding no options, warrants or other rights
to acquire any shares of capital stock of the Subsidiaries
(other than pursuant to this Agreement); and
(d) Since January 1, 1994, no Subsidiary has or will have, (i) on
the sole authority or with the sole signature of Philip Kives,
entered into any agreement, contract or commitment of any
nature whatsoever other than in the ordinary course of
business, or (ii) to the knowledge of Philip Kives,
transferred any assets, property or rights other than in the
ordinary course of business and for fair value, subjected any
assets, property or rights to any lien claim or encumbrance
(other than license agreements entered into in the ordinary
course of business), or taken any other action not in the
ordinary course of business, except for the sale or
discontinuance of its operations in France, New Zealand,
Germany and/or Spain.
(3) Purchaser's Representations. Purchaser represents and warrants to
Seller that since January 1, 1994, no Subsidiary or Remaining
Subsidiary has or will have, (i) on the sole authority or with the sole
signature of Mickey Elfenbein, entered into any agreement, contract or
commitment of any nature whatsoever other than in the ordinary course
of business, or (ii) to the knowledge of Mickey Elfenbein, transferred
any assets, property or rights other than in the ordinary course of
business and for fair value, subjected any assets, property or rights
to any lien claim or encumbrance (other than license agreements entered
into in the ordinary course of business), or taken any other action not
in the ordinary course of business, except for the sale or
discontinuance of its operations in France, New Zealand, Germany and/or
Spain.
SECTION 4. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(1) Regulatory Approval. Regulatory approval for the consummation of the
transactions contemplated hereby shall have been obtained from any
governmental authority from which approval is required and all
applicable statutory or other waiting periods shall have lapsed. The
parties agree to use their best efforts to make any required filings
and to obtain any regulatory approvals that are required by applicable
law.
(2) No Injunction. No injunction or other order entered by a court of
competent jurisdiction shall have been issued and remain in effect
which would prohibit or make illegal the consummation of the
transactions contemplated hereby.
(3) No Prohibitive Change of Law. There shall have been no law, statute,
rule or regulation, domestic or foreign, enacted or promulgated which
would prohibit or make illegal the consummation of the transactions
contemplated hereby.
(4) Tax Matters. Seller shall retain all consolidated net operating loss
carryforwards after recognition of gain on the transaction contemplated
hereby; provided that Seller and Purchaser make the tax election
specified in Section 7(8) below to tax the transaction as if it was an
asset sale.
(5) Contemporaneous Closing. The closing of the transactions contemplated
by the Stock Transfer and Loan Repayment Agreement bearing an even date
with this Agreement among K-5 Leisure Products, Inc., the Purchaser and
Mickey Elfenbein shall have occurred or be occurring contemporaneously
with the Closing of the transactions contemplated by this Agreement.
The conditions contained in Section 4 are inserted for the benefit of each of
the Purchaser and the Seller and may be waived in whole or in part by the
Purchaser or the Seller at any time, but a waiver by the Purchaser or the
Seller, as the case may be, shall not constitute a waiver by the other. The
Purchaser and the Seller each acknowledge that the waiver by the Purchaser or
the Seller on the Closing Date of any condition or any part of any condition
shall constitute a waiver only of such condition or such part of such condition,
as the case may be, and shall not constitute a waiver of any covenant,
agreement, representation or warranty made by the Purchaser or the Seller herein
that corresponds or is related to such condition or such part of such condition,
as the case may be. If any of the conditions contained in Section 4 are not
fulfilled or complied with on the Closing Date, the Purchaser or Seller may, on
or prior to the Closing Date, at its option, terminate this Agreement by notice
in writing to the other party and in such event the Purchaser and Seller shall
be released from all obligations under this Agreement, except for the
obligations referred to in Section 12(1) and the rights arising under Section 11
with respect to breaches under this Agreement which occurred prior to
termination. If such notice is not delivered on or prior to the Closing Date,
then the condition, if not fulfilled or complied with, shall be deemed to have
been waived by either of the Purchaser and the Seller.
SECTION 5. CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing (unless otherwise
specified), of each of the following conditions:
(1) Covenant of Philip Kives. The Seller shall have delivered to the
Purchaser a covenant of Philip Kives regarding employees substantially
in the form of Section 9(3) and (4).
(2) Board of Directors' Consent. Seller's board of directors shall have
approved this Agreement and the transactions contemplated herein, and
such approval shall have occurred on or prior to July 14, 1995.
(3) Trademark Agreement. Seller shall have executed and delivered to
Purchaser a tradename agreement (the "Trademark Agreement") for the use
of Seller's tradenames and trademarks by Purchaser, in the form
attached hereto as Exhibit C.
(4) Opinion of Counsel to Seller. Purchaser shall have received an opinion
dated the Closing Date from Kaplan, Strangis and Kaplan, P.A., counsel
to Seller, based on customary reliance and subject to customary
qualifications to the effect that:
(a) Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Minnesota;
(b) Seller has the corporate power to consummate the transactions on
its part contemplated by this Agreement and the Trademark
Agreement. Seller has taken all requisite corporate action to
authorize this Agreement and the Trademark Agreement and this
Agreement and the Trademark Agreement have been duly executed and
delivered by Seller. Assuming it is the valid and binding
obligation of Purchaser, this Agreement and the Trademark
Agreement constitute the valid and binding obligation of Seller
enforceable in accordance with its terms, subject as to the
enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors
generally and to judicial limitations on the enforcement of the
remedy of specific performance;
(c) The execution and delivery of this Agreement and the Trademark
Agreement by Seller and the consummation of the transactions
contemplated hereby will not constitute a breach, default or
violation under the articles of incorporation or bylaws of Seller
or, to their knowledge:
(i) any agreement, arrangement or understanding to which Seller
is a party;
(ii) any license, franchise or permit affecting Seller; or
(iii) any law, regulation, order, judgment or decree applicable
to Seller.
(d) No authorization, consent or approval of, or filing with, any
public body, court or authority is necessary for the consummation
by Seller of the transactions contemplated hereby which has not
been obtained or made;
(e) To their knowledge, there are no actions, proceedings or
investigations pending or threatened against Seller which
question the validity of the Agreement and the Trademark
Agreement or the transactions contemplated thereby.
(5) Receipt of Necessary Consents. On or before the Closing Date Purchaser
shall have been furnished with written evidence satisfactory to it that
Seller has obtained all necessary consents or approvals of third
parties to any of the transactions contemplated hereby, the absence of
which would either:
(a) materially adversely affect Purchaser's rights hereunder,
including without limitation consents to assignments of licenses
to use intellectual property ; or
(b) subject Purchaser to material potential liability.
(6) No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body
which shall seek to restrain, prohibit or invalidate the sale of the
Shares to Purchaser or any other transaction contemplated hereby.
(7) Adverse Changes. Since the date of execution of this Agreement, there
shall not have occurred any development or event which would have a
material adverse effect on the transactions contemplated hereby taken
as a whole, except for the sale or discontinuance of operations in
France, Germany, Spain and Portugal.
(8) Financing. Purchaser shall have obtained a commitment for financing for
payment of the Purchase Price and its working capital needs on terms
satisfactory to Purchaser, on or before August 29, 1995.
(9) Releases of Guaranties. The guaranty of K-tel International (USA), Inc.
and Dominion Entertainment, Inc. to TCF Bank Minnesota fsb ("TCF Bank")
of the obligations of K-tel, Inc. and the liens associated therewith
shall have been released.
(10) Performance of Obligations to be Performed At or Prior to Closing.
Seller shall have performed all obligations required by this Agreement
to be performed by it at or prior to the Closing Date.
(11) Representations and Warranties. The representations and warranties of
the Seller set forth in this Agreement and in any documents and
agreements executed and delivered by the Seller to complete this will
be true and accurate as of the Closing Date with the same force and
effect as though such representations and warranties had been made on
the Closing Date and such representations and warranties shall be
deemed to have been made on and as of the Closing Date.
(12) Number of Shares. The Shares will represent all of the issued and
outstanding shares of capital stock of the Subsidiaries except
director's qualifying shares of the Subsidiaries.
The conditions contained in this Section 5 are inserted for the exclusive
benefit of the Purchaser and may be waived in whole or in part by the Purchaser
at any time. The Seller acknowledges that the waiver by the Purchaser of any
condition or any part of any condition shall constitute a waiver only of such
condition or such part of such condition, as the case may be, and shall not
constitute a waiver of any covenant, agreement, representation or warranty made
by the Seller herein that corresponds or is related to such condition or such
part of such condition, as the case may be. If any of the conditions contained
in Section 5 are not fulfilled or complied with as herein provided, the
Purchaser may, on or before the Closing Date, at its option, terminate this
Agreement by giving notice in writing to the Seller within ten days after the
date on which such condition was required to be fulfilled or complied with as
herein provided and in such event the Purchaser and the Seller shall be released
from all obligations under this Agreement except for the obligations referred to
in Section 12(1) and the rights arising under Section 11 with respect to
breaches under this Agreement which occurred prior to termination. If, on or
before the Closing Date, such notice is not delivered by the Purchaser to the
Seller within 10 days after the date on which such condition was required to be
fulfilled or complied with, then the condition, if not fulfilled or complied
with, shall be deemed to have been waived by the Purchaser.
SECTION 6. CONDITIONS TO THE OBLIGATIONS OF SELLER The obligations of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(1) Covenant of Mickey Elfenbein. The Purchaser shall have delivered to the
Seller a covenant of Mickey Elfenbein regarding employees substantially
in the form of Section 9(3) and (4).
(2) Certified Resolutions. Purchaser shall have delivered to Seller a copy
of resolutions adopted by the Board of Directors of Purchaser
authorizing the transactions contemplated by this Agreement, certified
as of the Closing Date by a secretary or assistant secretary of
Purchaser, on or before July 28, 1995.
(3) Board of Directors' Consent. Seller's board of directors shall have
approved this Agreement and the transactions contemplated herein, and
such approval shall have occurred on or prior to July 14, 1995.
(4) Shareholder Approval. This Agreement and the transactions contemplated
hereby shall have been approved by the affirmative vote of the holders
of the percentage of Seller's capital stock required for such approval
under the provisions of the articles of incorporation and bylaws of
Seller, at a meeting duly called for the purpose of considering such
resolution, on or before the Closing Date.
(5) Opinion of Counsel to Purchaser. Seller shall have received an opinion
dated the Closing Date from Leonard Street & Deinard, based on
customary reliance and subject to customary qualifications to the
effect that:
(a) Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota;
(b) Purchaser has the corporate power to consummate the transactions
on its part contemplated by this Agreement and the Trademark
Agreement. Purchaser has taken all requisite corporate action to
authorize this Agreement and the Trademark Agreement, and each of
this Agreement and the Trademark Agreement has been duly executed
and delivered by Purchaser. Assuming it is the valid and binding
obligation of Seller, each of this Agreement and the Trademark
Agreement constitutes the valid and binding obligation of
Purchaser enforceable in accordance with its terms, subject as to
the enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors
generally and to judicial limitations on the enforcement of the
remedy of specific performance;
(c) The execution and delivery of this Agreement and the Trademark
Agreement by Purchaser and the consummation of the transactions
contemplated hereby and thereby will not constitute a breach,
default or violation under the articles of incorporation or
bylaws of Purchaser or, to their knowledge:
(i) any agreement, arrangement or understanding to which
Purchaser is a party;
(ii) any license, franchise or permit affecting Purchaser; or
(iii) any law, regulation, order, judgment or decree applicable
to Purchaser.
(d) No authorization, consent or approval of, or filing with, any
public body, court or authority is necessary for the consummation
by Purchaser of the transactions contemplated hereby which has
not been obtained or made;
(e) To their knowledge, there are no actions, proceedings or
investigations pending or threatened against Purchaser which
question the validity of the Agreement, the Trademark Agreement
or the transactions contemplated thereby.
(5) Receipt of Necessary Consents. On or before the Closing Date, Seller
shall have been furnished with written evidence satisfactory to it that
Purchaser has obtained all necessary consents or approvals of third
parties to any of the transactions contemplated hereby, the absence of
which would either:
(a) materially adversely affect Seller's rights hereunder including,
without limitation, the consents of the landlords to the
subleases attached as Exhibits F and G; or
(b) subject Seller to material potential liability.
(6) No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body
which shall seek to restrain, prohibit or invalidate the sale of the
Shares by Seller or any other transaction contemplated hereby.
(7) Fairness Opinion. On or before July 14, 1995 Seller shall have received
an opinion from a recognized investment banking firm to the effect that
the transactions contemplated by this Agreement are fair to Seller's
stockholders from a financial point of view, and such opinion shall
have been reaffirmed within five days prior to the Closing Date and
shall not have been withdrawn as of the Closing.
(8) Cancellation of Options. Seller shall have been furnished with evidence
satisfactory to it that all options to purchase shares of the common
stock of Seller held by Mickey Elfenbein have been surrendered and
cancelled.
(9) Release of Guaranties. The guaranty of Seller and K-tel, Inc. to TCF
Bank of the obligations of Dominion Entertainment, Inc. and K-tel
International (USA), Inc. shall have been released and any security
agreements and pledge of the shares of K-tel, Inc. K-tel International
(USA), Inc., and/or Dominion Entertainment, Inc. to securing its
guaranty shall have been released.
(10) Financing. The Purchaser shall have delivered to the Seller:
(a) a written progress report from the party retained by the
Purchaser to obtain financing for the Purchaser relating to the
financing for the payment of the Purchase Price on or before July
28, 1995;
(b) a second written progress report from the party retained by the
Purchaser to obtain financing for the Purchaser relating to the
financing for the payment of the Purchase Price on or before
August 11, 1995;
(c) written confirmation that the Purchaser has obtained a commitment
for financing for payment of the Purchase Price and its working
capital needs on terms satisfactory to the Purchaser on or before
August 29, 1995.
(11) Performance of Obligations to be Performed At or Prior to Closing.
Purchaser shall have performed all obligations required by this
Agreement to be performed by it at or prior to the Closing Date.
(12) Representations and Warranties. The representations and warranties of
the Purchaser set forth in this Agreement and in any documents and
agreements executed and delivered by the Purchaser to complete this
transaction are true and accurate as of the Closing Date with the same
force and effect as though such representations and warranties had been
made on the Closing Date, and such representations and warranties shall
be deemed to have been made on and as of the Closing Date.
The conditions contained in this Section 6 are inserted for the exclusive
benefit of the Seller and may be waived in whole or in part by the Seller at any
time. The Purchaser acknowledges that the waiver by the Seller of any condition
or any part of any condition shall constitute a waiver only of such condition or
such part of such condition, as the case may be, and shall not constitute a
waiver of any covenant, agreement, representation or warranty made by the
Purchaser herein that corresponds or is related to such condition or such part
of such condition, as the case may be. If any of the conditions contained in
Section 6 are not fulfilled or complied with as herein provided, the Seller may,
on or before the Closing Date, at its option, terminate this Agreement by giving
notice in writing to the Purchaser within ten days after the date on which such
condition was required to be fulfilled or complied with, as herein provided, and
in such event the Seller and the Purchaser shall be released from all
obligations under this Agreement except for the obligations referred to in
Section 12(1) and the rights under Section 11 with respect to breaches under
this Agreement which occurred prior to termination. If, on or before the Closing
Date, such notice is not delivered by the Seller to the Purchaser within 10 days
after the date on which such condition was required to be fulfilled or complied
with then, the condition, if not fulfilled or complied with, shall be deemed to
have been waived by the Seller.
SECTION 7. ADDITIONAL UNDERTAKINGS
(1) Conduct of Business. Between the date hereof and the Closing Date,
unless otherwise approved in writing by Purchaser, Seller shall use all
commercially reasonable efforts to, and shall cause each of the
Subsidiaries to use all commercially reasonable efforts to:
(i) carry on its business in substantially the same manner as
heretofore carried on;
(ii) make normal accounting entries;
(iii) preserve its business organization, keep available the
services of present employees and preserve the good will of
customers and others having business relationships with it;
(iv) maintain and keep its properties and facilities in as good
condition and working order as at present;
(v) keep in full force and effect all insurance presently in
effect, in the amounts now in effect, other than changes
required in connection with renewals in the ordinary course
of business;
(vi) consult with Purchaser regarding all significant
developments, transactions and proposals relating to the
transactions contemplated hereby or the business or affairs
of the Subsidiaries;
(vii) not make any material change in compensation, benefits or
other terms of employment of employees or retain any new
employees other than replacement employees, unless such new
employees have an annual salary of $50,000 or less;
(viii) operate its businesses in the ordinary course, except for
the sale or discontinuance of its operations in France,
Germany, Spain and Portugal;
(ix) not subject any assets, property or rights to any lien,
claim or encumbrance of any nature whatsoever (other than
licenses and similar agreements in the ordinary course of
business);
(x) not acquire or transfer any assets, property or rights other
than in the ordinary course of business and for fair value;
and
(xi) not enter into any material agreement, contract or
commitment of any nature whatsoever, or take any other
action, other than in the ordinary course of business.
If Seller seeks in writing the approval of Purchaser to a particular
activity which may be inconsistent with the provisions of this Section
7, Purchaser must give its approval in writing or notify Seller of its
disapproval within ten business days of receipt of the written request
by Seller. If Seller does not receive approval or disapproval within
such time period, Purchaser shall be deemed to have given approval.
(2) Undertaking of President. The Purchaser shall cause Mickey Elfenbein to
execute the letter agreement attached as Exhibit H, as of the date of
this Agreement.
(3) Assignments.
(a) Between the date hereof and the Closing Date, the Purchaser and
the Seller shall each assign or cause to be assigned the
agreements, litigation and intellectual property listed in
Exhibit D to the respective assignees referred to in Exhibit D.
The agreement assigning the litigation shall contain the
following terms:
(i) the assignee shall have full control over all aspects of the
litigation;
(ii) all costs relating to the litigation shall be born by the
assignee and the assignee shall be entitled to all awards
and judgments from the litigation;
(iii) the assignee shall indemnify the assignor from any
liability and costs relating to the litigation; and
(iv) the assignor shall cooperate in the defense or prosecution
of the litigation if and when required by the assignee, at
the expense of the assignee.
(b) On Closing the Seller shall undertake to assign and to cause the
Remaining Subsidiaries to assign to the Purchaser or its nominee,
any assets of the Seller or the Remaining Subsidiaries used
principally in connection with the business of the Subsidiaries;
(c) On Closing the Purchaser shall undertake to assign and to cause
the Subsidiaries to assign to the Seller or its nominee, any
assets of the Purchaser or the Subsidiaries used principally in
connection with the non-entertainment consumer product business
of the Seller or the Remaining Subsidiaries in the United States
except for the contract relating to the product known as the
"pasta cooker" with Applied Development Corporation, including
all rights to refund development costs.
(4) Transition Services. The Purchaser and the Seller shall and shall cause
the Subsidiaries and the Remaining Subsidiaries to provide each other
with such transition administrative services as may be reasonably
required to effect the orderly transfer of the Shares and the division
of the operations of the Seller resulting from such transfer.
(5) Subleases. At the Closing, the Purchaser and the Seller shall enter
into Office and Warehouse Subleases in the form attached hereto as
Exhibits F and G, subject to the consent of the landlords with respect
to the premises being subleased. The Purchaser shall use commercially
reasonable efforts to obtain the landlord's consent to such subleases.
(6) TCF Loan. TCF Bank has made available a $2,000,000 revolving credit
facility to K-tel International (USA), Inc. ("K-tel USA") and Dominion
Entertainment, Inc. ("Dominion"), and a $3,000,000 revolving credit
facility to K-tel, Inc. ("K-tel, Inc."). In connection with the
facilities:
(i) Seller has guaranteed the obligations of K-tel USA and
Dominion to TCF Bank;
(ii) K-tel USA and Dominion have guaranteed the obligations of
K-tel, Inc. to TCF Bank; and
(iii) Seller had pledged all of the outstanding stock of K-tel
USA, Dominion and K-tel, Inc. to secure performance of its
obligations under its guaranty.
Seller and Purchaser shall make such arrangements mutually satisfactory to
Seller and Purchaser to cause TCF Bank at or prior to Closing to:
(a) release the pledge by Seller of the outstanding stock of K-tel,
Inc., K-tel USA and Dominion and any other security agreements
granted by the Seller or the Remaining Subsidiaries to TCF Bank;
(b) release of guaranties by Seller and K-tel Inc. of the obligations
of Dominion and K-tel USA to TCF Bank; and
(c) release the guaranties of Dominion and K-tel USA of the
obligations of K-tel, Inc. to TCF Bank.
(7) Name Changes. Effective on or immediately after the Closing Date:
(a) Purchaser shall change the names of K-tel International (USA),
Inc. and K-tel Entertainment (Can) Inc. to such names as
Purchaser may designate which do not include the name K-tel.
Purchaser acknowledges that it shall have a right to use such
names only to the extent provided in the Trademark Agreement;
(b) Seller shall cause Simitar Entertainment Inc.:
(i) to transfer the right to use the name "Simitar" in Canada to
Purchaser or a wholly-owned subsidiary of Purchaser
designated by Purchaser pursuant to the agreement attached
hereto as Exhibit E (the "Simitar Name Agreement"); and
(ii) change its corporate name to a name which does not include
the word "Simitar".
(8) Tax Election. Seller and Purchaser shall make an election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended, to have
the sale of the Shares sold pursuant to this Agreement taxed as if it
was an asset sale.
(9) Best Efforts. The Seller and the Purchaser shall each use their best
efforts to cause the conditions set forth in Sections 4, 5 and 6 to be
satisfied on a timely basis.
(10) Record License Agreement. At the Closing the Purchaser shall cause
Dominion Entertainment Inc. to enter into the Record License Agreement
attached hereto as Exhibit I.
SECTION 8. CLOSING DATE AND CLOSING PROCEDURES.
(1) Closing Date. Subject to the terms and conditions set forth in this
Agreement, the closing shall take place at the offices of Kaplan,
Strangis and Kaplan, P.A., 5500 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, at 10:00 a.m. on October 16,
1995, or at such other time, date or place as to which the parties
hereto may mutually agree (for the purposes of this Agreement, such
event is referred to as the "Closing" and such date and time are
referred to as the "Closing Date").
(2) Purchaser's Closing Documents. At the Closing, Purchaser shall deliver
to Seller:
(a) The Purchase Price required by Section 2 hereof in immediately
available funds;
(b) A certified copy of the resolutions of the Board of Directors of
Purchaser required by Section 6(2);
(c) The opinion of counsel to the Purchaser required by Section 6(4);
(d) Evidence of the surrender and cancellation of certain stock
options required by Section 6(8);
(e) The release of guaranty contemplated by Section 6(9);
(f) An incumbency certificate signed by a duly authorized officer of
Purchaser containing specimen signatures in respect of
Purchaser's incumbent officers;
(g) Copies of the Articles of Incorporation and Bylaws of Purchaser,
certified by the Secretary or Assistant Secretary of Purchaser as
being true, correct and complete copies thereof;
(h) A current certificate of good standing for Purchaser from the
Minnesota Secretary of State;
(i) The Trademark Agreement executed by Purchaser;
(j) The documents necessary to effect the name changes referred to in
Section 7(7)(a);
(k) The resignation of Mickey Elfenbein as an officer, director and
employee of the Seller and the Remaining Subsidiaries;
(l) Agreement terminating the consulting agreement dated January 1,
1986 between the Seller and Elex Resources, Inc.;
(m) A certificate confirming that the Purchaser has fulfilled or
complied with all of the covenants required to be performed by it
under this Agreement;
(n) The undertaking referred to in Section 7(3)(c);
(o) The subleases attached as Exhibit G and H;
(p) The releases referred to in subsection 5(11);and
(q) The record license agreement attached as Exhibit I executed by
Dominion Entertainment Inc.
(3) Seller's Closing Documents. At the Closing, Seller shall deliver to
Purchaser:
(a) Certificates representing all of the Shares, duly endorsed for
transfer or accompanied by duly executed assignments separate
from certificate, and such other instruments of transfer as may
be necessary to assign, transfer and convey to Purchaser the
assets to be transferred to it pursuant to this Agreement;
(b) The approvals of the Board of Directors of Seller required by
Section 5(2) hereof;
(c) Evidence of the approval of the shareholders of Seller required
by Section 6(3) hereof;
(d) The opinion of counsel to the Seller required by Section 5(4)
hereof;
(e) The documents necessary to complete the name change described in
Section 7(7)(b);
(f) An incumbency certificate signed by a duly authorized officer of
Seller containing specimen signatures in respect of Seller's
incumbent officers;
(g) Copies of the Articles of Incorporation and Bylaws of Seller,
certified by the Secretary or Assistant Secretary of Seller as
being true, correct and complete copies thereof;
(h) A current certificate of good standing for Seller from the
Minnesota Secretary of State;
(i) The Trademark Agreement executed by Seller;
(j) The Simitar Name Agreement executed by Simitar Entertainment
Inc.;
(k) The resignation of Philip Kives as an officer and director of
each of the Subsidiaries;
(l) A certificate confirming that the Seller has fulfilled or
complied with all of the covenants required to be performed by it
under this Agreement;
(m) The undertaking referred to in Section 7(3)(b);
(n) The subleases attached as Exhibit G and H; and
(o) The releases referred to in Subsection 6(9).
(4) Intercompany Accounts. The parties shall cause the net amount of
intercompany accounts owing from or due to the Subsidiaries to or by
K-tel and the Remaining Subsidiaries to be paid to Seller or Purchaser,
as the case may be, at Closing.
(5) Letters of Credit. If any of the Subsidiaries have outstanding on the
Closing Date any letters of credit for products or goods ordered by or
for Seller or the Remaining Subsidiaries, Seller shall provide cash
collateral to secure the reimbursement obligations upon a draw of such
letters of credit.
SECTION 9. EMPLOYEES OF PURCHASER AND SELLER.
(1) Designated Employees. On or before the Closing Date, the Seller shall
deliver to the Purchaser a list of employees who will be employed by
the Seller (the "Seller's Designated Employees"). The Seller's
Designated Employees shall not include the employees referred to in the
list of protected personnel dated May 22, 1995, provided by the
Purchaser to the Seller or Jeffrey Koblick and shall include the list
of employees dated June 15, 1995 provided by the Seller to the
Purchaser. The employees of the Seller, the Subsidiaries and the
Remaining Subsidiaries, other than the Seller's Designated Employees
and Jeffrey Koblick, will become the employees of the Purchaser on the
Closing Date (the "Purchaser's Designated Employees"). Notwithstanding
the foregoing, the Seller shall give written notice to the Purchaser on
or before August 14, 1995 if the Seller intends to include Bruce
Feinstein as one of the Seller's Designated Employees.
(2) Assumption of Benefits. After Closing, each of Seller and Purchaser
shall assume all accrued vacation and other compensation or fringe
benefits incurred in the ordinary course of business and outstanding at
Closing and owing from and after the Closing Date (other than employee
stock options on Seller's stock which shall be governed by their terms)
for their respective Designated Employees .
(3) No Solicitation of Employees. For a period of two years following the
Closing Date, each of Purchaser and Seller agree that it will not, for
whatever reason, directly or indirectly, on its own behalf or on behalf
of or through itself or any entity controlling it, controlled by it or
under common control with it or related to its principal shareholder or
by or on behalf of any entity providing services to it or to any entity
or related to its principal shareholder controlled by it or under
common control with it or related to its principal shareholder, employ
(directly or indirectly as a consultant or otherwise) solicit, divert
or hire away, or in any manner attempt to employ (directly or
indirectly as a consultant or otherwise) solicit, divert or hire away
to itself or to such related entity any person who is a Designated
Employee of the other party.
(4) No Employment of Former Employees. For a period of two years following
the Closing Date, each of Purchaser and Seller agree that it will not,
for whatever reason, directly or indirectly, on its own behalf or on
behalf of or through itself or any entity controlling it, controlled by
it or under common control with it or related to its principal
shareholder or by or on behalf of any entity providing services to it
or to any entity or related to its principal shareholder controlled by
it or under common control with it or related to its principal
shareholder, employ or otherwise retain the services (directly or
indirectly as a consultant or otherwise) of any person who was an
employee of the other party or any of its subsidiaries at any time
within six months prior to such employment or retention of such person,
other than Jeffrey Koblick.
SECTION 10. TERMINATION
(1) Events of Termination. This Agreement may be terminated:
(a) by either Purchaser or Seller, if any of the conditions set forth
in Section 4 have not been satisfied or waived in writing on or
before the Closing Date, provided that, in accordance with
Section 4, the Purchaser or the Seller gives written notice to
terminate this Agreement to the other parties prior to the
Closing Date;
(b) by the Seller, if any of the conditions set forth in Section 6
have not been satisfied or waived in writing on or before the
date on which such condition is required to be satisfied,
provided that in accordance with Section 6, on or before the
Closing Date, the Seller gives written notice to terminate this
Agreement to the Purchaser within ten days after the date on
which such condition was required to be fulfilled or complied
with as set forth in Section 6;
(c) by the Purchaser if any of the conditions set forth in Section 5
have not been satisfied or waived in writing on or before the
date on which such condition is required to be satisfied,
provided that in accordance with Section 5, on or before the
Closing Date, the Purchaser gives written notice to terminate
this Agreement to the Seller within ten days of the date on which
such condition was required to be fulfilled or complied with as
set forth in Section 5;
(d) by either Purchaser or Seller, if the Closing Date is not on or
before November 30, 1995 (unless the failure shall be due to the
action or failure to act of the party seeking to terminate this
Agreement in breach of such party's obligations under this
Agreement);
(e) by Seller, if:
(i) any corporation, partnership, person, other entity or group,
as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act") (other than Purchaser or any
affiliate of Purchaser) (a "Person"), shall have commenced
(as such term is used in Rule 14d-2(b) under the 1934 Act) a
bona fide tender offer for all outstanding shares of
Seller's common stock or any Person shall have made a bona
fide written offer involving a merger or consolidation of
Seller or the acquisition of all or substantially all of its
assets;
(ii) Seller's Board of Directors shall determine, after
consultation with Seller's independent financial advisors,
that such offer is a material economic improvement to the
Seller's shareholders when compared to the transactions
contemplated by this Agreement; and
(iii) Seller's Board of Directors determines upon the advice of
its legal counsel that if they failed to recommend such
offer or accept such proposal then such failure would be
likely to result in a breach of the directors' fiduciary or
legal duties, provided that Seller may not terminate the
Agreement pursuant to this paragraph until the expiration of
five (5) business days after written notice of any such
offer or proposal referenced in this paragraph has been
delivered to Purchaser, together with a summary of the terms
of any such offer or proposal.
(f) by Purchaser if, after the date hereof, any Person shall have
commenced (as such term is used in Rule 14d-2(b) under the Act) a
bona fide tender offer or exchange offer to acquire at least 25%
of the then outstanding shares of Seller's common stock and
thereafter Seller's Board of Directors shall have withdrawn or
materially adversely modified or changed its recommendation of
this Agreement to Seller's shareholders.
(2) Effect of Termination. In the event this Agreement is properly
terminated as provided in Subsection 10(1), then, subject to Subsection
10(3), this Agreement shall be void and have no further force or effect
and each of the parties shall be released from all obligations set
forth in this Agreement, subject to Subsection 12(1) and the rights
arising under Section 11 with respect to breaches under this Agreement
which occurred prior to termination.
(3) Willful Breach. If this Agreement is terminated by reason of a willful
breach by a party, then the breaching party shall be liable to the
non-breaching party for all actual, consequential and incidental
damages suffered by the non-breaching party arising from such willful
breach.
(4) Equitable Relief. Notwithstanding anything in this Agreement to the
contrary and except as provided below, the parties hereto agree that
irreparable damage would occur in the event that the provisions of this
Agreement were not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are entitled
at law or in equity.
SECTION 11. INDEMNIFICATION.
(1) Indemnification by Seller. Seller agrees to indemnify and hold harmless
Purchaser, the Subsidiaries and their respectively officers, directors,
employees and agents from, against and in respect of:
(a) Any and all losses, liabilities, expenses or damages incurred or
suffered by Purchaser or any of the Subsidiaries as a result of
any and all untrue representations, breaches of any warranty or
nonfulfillment of any covenant by Seller made or contained in
this Agreement;
(b) Any and all losses, liabilities, expenses or damages incurred or
suffered from or after the Closing Date by Purchaser or any of
the Subsidiaries by reason of consumer products sold by Seller,
the Subsidiaries or the Remaining Subsidiaries prior to the
Closing Date;
(c) Any and all losses, liabilities, expenses or damages arising with
respect to any litigation, agreements, intellectual property or
assets assigned to the Seller pursuant to Section 7(3) of this
Agreement; and
(d) The reasonable costs and expenses incident to any and all
actions, suits, proceedings, claims, demands, assessments or
judgments in respect of any matter for which Purchaser or any of
the Subsidiaries is indemnified under Section 11(1)(a), (b) or
(c) above, including legal and accounting fees and expenses.
(2) Indemnification by Purchaser. Purchaser agrees to indemnify and hold
harmless Seller, the Remaining Subsidiaries and their respective
officers, directors, employees or agents from, against and in respect
of:
(a) Any and all losses, liabilities, expenses or damages incurred or
suffered by Seller or any of the Remaining Subsidiaries as a
result of any breaches of any covenant by Purchaser made or
contained in this Agreement;
(b) Any and all losses, liabilities, expenses or damages incurred or
suffered from or after the Closing Date by Seller or any of the
Remaining Subsidiaries by reason of entertainment products sold
by Seller, the Subsidiaries or the Remaining Subsidiaries prior
to the Closing Date;
(c) Any and all losses, liabilities, expenses or damages arising with
respect to any litigation, agreements, intellectual property or
assets assigned to the Purchaser pursuant to Section 7(3) of this
Agreement; and
(d) The reasonable costs and expenses incident to any and all
actions, suits, proceedings, claims, demands, assessments or
judgments in respect of the matter for which Seller is
indemnified under Section 11(2)(a), (b) or (c) above, including
legal and accounting fees and expenses.
(3) Procedures Concerning Claims for Indemnification. If any third party
shall assert a claim, action or proceeding (a "Claim") against a party
entitled to indemnification under this Section 11 (the "Indemnified
Party"), the Indemnified Party shall give prompt written notice thereof
to the party obligated to provide indemnification (the "Indemnifying
Party") and the Indemnifying Party:
(a) may assume the defense of such Claim;
(b) shall have the right to retain counsel reasonably acceptable to
the Indemnified Party to represent to the Indemnified Party; and
(c) shall pay all costs and expenses relating to the defense of the
Claim, including attorneys fees. The failure to give such written
notice of a Claim shall not affect the Indemnified Party's
ability to seek reimbursement unless such failure has materially
and adversely affected the Indemnifying Party's ability to defend
successfully the Claim. In any proceeding for such Claim, the
Indemnified Party shall have the right to participate in the
defense thereof and be represented, at its own expense, by
counsel to be selected by the Indemnified Party, unless both the
Indemnified Party and the Indemnifying Party are named parties in
any such proceeding and counsel to the Indemnified Party shall
advise the Indemnified Party that representation of both the
Indemnified Party and the Indemnifying Party would be
inappropriate under the rules of professional conduct, in which
case the Indemnifying Party shall reimburse the Indemnified Party
for the reasonable fees and expenses of the Indemnified Party's
separate counsel; provided, however, that, in any event, the
Indemnified Party agrees not to settle a claim without the
Indemnifying Party's prior written consent which consent shall
not be unreasonably delayed, withheld or conditioned. The
Indemnifying Party agrees not to settle any Claim without the
prior written consent of the Indemnified Party if such settlement
would have an effect on the Indemnified Party and the Indemnified
Party shall not unreasonably condition, delay or withhold its
consent. If the Indemnified Party unreasonably conditions, delays
or withholds its consent, then the Indemnifying Party:
(i) shall be excused from any obligation to continue such
defense;
(ii) shall be excused from any further costs and expenses for
such defense; and
(iii) shall be obligated to indemnify the Indemnified Party for
the lesser of:
(A) the amount of such proposed settlement; or
(B) the Indemnified Party's liability with respect to such
Claim (including reasonable costs and expenses incurred
by the Indemnified Party in pursuing the defense of
such Claim) as determined by a court of competent
jurisdiction or pursuant to a negotiated settlement.
The Indemnified Party may settle any claim without the
Indemnifying Party's prior written consent if such
settlement does not affect the Indemnifying Party. If
the Indemnifying Party shall, within twenty (20) days
after notice of Claim by the Indemnified Party as
provided above, fail to notify the Indemnified Party
that it will assume the defense of such Claim, then the
Indemnified Party shall have the right, but not the
obligation, to undertake the defense of, and compromise
or settle (exercising reasonable business judgment),
the Claim or other matter on behalf of, for the account
of and at the risk of the Indemnifying Party.
SECTION 12. MISCELLANEOUS
(1) Expenses. The expenses of the transactions contemplated hereunder,
including income taxes, legal, accounting, investment banking and
appraisal fees, if any, shall be borne by the party incurring the
expense, whether or not the transactions contemplated under this
Agreement shall be consummated, except that:
(a) one-half of the legal fees and disbursements of Kaplan, Strangis
and Kaplan and the accounting fees and disbursements of Arthur,
Andersen & Co. expenses incurred by the Seller in connection with
the transactions referred to in this Agreement up to April 17,
1995, shall be paid by the Purchaser; and
(b) each of the Seller and the Purchaser shall pay one-half of the
costs incurred to retain Arthur Andersen & Co. to determine the
amounts referred to in Section 2(1)(b) and Section 2(2)(a).
(2) Brokers' Commissions. Each party will indemnify and hold the other
harmless from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or retained
by such party to bring about or to represent it in the transactions
contemplated hereby.
(3) Waiver. No term or provision hereof will be considered waived by either
party, and no breach excused by either party, unless such waiver or
consent is in writing signed on behalf of the party against whom the
waiver is asserted. No consent by either party to, or waiver of, a
breach by either party, whether express or implied, will constitute a
consent to, waiver of, or excuse of any other, different or subsequent
breach by either party.
(4) Severability. If any part of this Agreement is found to be invalid or
unenforceable, that part will be amended to achieve as nearly as
possible the same economic effect as the original provision and the
remainder of this Agreement will remain in full force and effect.
(5) Choice of Law. This Agreement will be governed by and construed in
accordance with the laws of the United States and the State of
Minnesota as applied to agreements entered into and to be performed
entirely within Minnesota between Minnesota residents.
(6) Choice of Forum. Subject to Section 12(10) below, the parties hereby
submit to the jurisdiction of and waive any venue objections against,
the United States District Court for the District of Minnesota and the
trial courts of the State of Minnesota, in any litigation arising out
of the Agreement or the Trademark Agreement and each party hereby
consents to the personal jurisdiction of such courts for purposes of
this Agreement, including entry or enforcement of any arbitration award
or judgment.
(7) Notices. Any notice provided for or permitted under this Agreement will
be treated as having been given when:
(i) delivered personally;
(ii) sent by confirmed telex or telecopy;
(iii) sent by commercial overnight courier with written
verification or receipt; or
(iv) received postage prepaid by certified or registered mail,
return receipt requested, to the party to be notified, at
the address set forth below, or at such other place of which
the other party has been notified in accordance with the
provisions of this Section 12.
If to Purchaser:
Simitar, Inc.
2605 Fernbrook Lane North
Minneapolis, Minnesota 55447-4736
Attn.: Mickey Elfenbein
Fax: (612) 559-6885
with a copy to:
Leonard Street & Deinard
150 South Fifth Street
Minneapolis, Minnesota 55402
Attn.: Stephen DeRuyter
Fax: (612) 335-1657
If to a Seller:
K-tel International, Inc.
Suite O, 2605 Fernbrook Lane North
Minneapolis, Minnesota 55447-4736
Attn.: Philip Kives, Chairman
Fax: (612) 559-6815
with a copy to:
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Ralph Strangis
Fax: (612) 375-1143
(8) Entire Agreement. This Agreement, including all Exhibits to this
Agreement, constitutes the entire agreement between the parties
relating to this subject matter and supersedes all prior or
simultaneous representations, discussions, negotiations and agreements,
whether written or oral.
(9) Amendment. This Agreement may be amended or supplemented only by a
writing that refers explicitly to this Agreement, and that is signed on
behalf of both parties.
(10) Arbitration. Any claim, dispute or controversy arising out of or in
connection with or relating to this Agreement or the Trademark
Agreement or the breach or alleged breach thereof shall be submitted by
the parties to arbitration by the American Arbitration Association
("AAA") in the City of Minneapolis, Minnesota, under the commercial
rules then in effect for the Association except as provided herein. A
transcribed record shall be prepared. The AAA shall recommend three (3)
arbitrators who are knowledgeable in the field in dispute. The parties
shall agree upon one (1) of the three within twenty (20) days. If no
arbitrator is mutually agreed upon, the AAA shall make such appointment
within thirty (30) days of such failure. Each party shall have the
right to request the arbitrator to order reasonable and limited
discovery. The award rendered by the arbitrator shall include costs of
arbitration, reasonable attorneys' fees and reasonable costs for expert
and other witnesses, but shall not include punitive damages against
either party. Judgment on such award may be entered as provided in
paragraph (6) of this Section 12, provided that nothing in this
paragraph (10) shall be deemed as preventing either party from seeking
relief from the courts as necessary to protect either party's name,
proprietary information, trade secrets, know-how or any other
appropriate provisional remedy.
(11) Currency. All dollar amounts referred to in this Agreement are
expressed in United States funds.
(12) Survival. Sections 7(3), 7(4), 7(6), 7(7), 9, 11, 12(1), 12(2) and
12(10) will survive the Closing of this Agreement.
(13) Assignment. This Agreement may not be assigned except with the prior
written approval of the other party, which approval shall not be
unreasonably withheld. Except as so provided, this Agreement shall be
binding upon and inure to the benefit of Purchaser and Seller and their
respective successors.
(14) Counterparts. This Agreement may be executed simultaneously 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.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date set forth above.
PURCHASER:
SIMITAR, INC.
By: /s/ Mickey Elgenbein
SELLER:
K-TEL INTERNATIONAL, INC.
By: /s/ Raymond Kives
Chairman
EXHIBIT A
DESCRIPTION OF ACQUIRED SUBSIDIARIES
K-tel International (USA), Inc.
Dominion Entertainment, Inc.
U.S. Distribution Services,
K-tel Entertainment (CAN) Inc.
K-tel International Finland OY
K-tel International (FRANCE) SARL
Dominion Vertriebs, GmbH
K-tel Ireland Ltd.
K-tel International (SPAIN) SL
K-tel Entertainment (UK), Ltd.
K-tel International (Sweden) AB
K-tel Ireland (Exports) Ltd.
K-tel International GmbH
EXHIBIT B
METHOD OF CALCULATION OF THE REMAINING ASSETS VALUE
Assets
All assets shall be valued at actual book value calculated in
accordance with generally accepted accounting principals, consistently applied
as at the Closing Date, except as follows:
Inventory
1. The Inventory referred to in Schedule 1 (the "Slow Inventory") shall be
valued at the amounts referred to in Schedule 1 (the "Schedule Value"). The
value of the Slow Inventory shall be adjusted as follows:
(a) If, on the first anniversary of the Closing Date (the "First
Anniversary Date"), the aggregate proceeds of sale from the Slow
Inventory from and after May 17, 1995, is less than the aggregate
Schedule Value of all Slow Inventory, then the Purchaser shall
pay to the Seller an amount equal to the lesser of:
(i) the difference between the aggregate Schedule Value of all
Slow Inventory, and the aggregate proceeds of sale of the
Slow Inventory as at the First Anniversary Date; and
(ii) $400,000.
(b) If, on the First Anniversary Date, the aggregate proceeds of sale
of the Slow Inventory from and after May 17, 1995 is greater than
the aggregate Schedule Value of all Slow Inventory, then the
Seller shall pay to the Purchaser an amount equal to all profits
earned on the sale of the Slow Inventory as of the First
Anniversary Date.
2. For the purposes of subsection 1(b) of this Exhibit B, the term "profit"
means the proceeds of sale of the Slow Inventory minus the aggregate of:
(a) the Schedule Value of all of the Slow Inventory;
(b) 8% of the proceeds of sale of the Slow Inventory sold; and
(c) all commissions paid to third parties on the sale of Slow
Inventory sold.
3. The Seller shall not sell:
(a) any products known as the "pasta cooker" at a price lower than
90% of its Schedule Value prior to September 1, 1996; and
(b) any other Slow Inventory at a price lower than the Schedule Value
prior to the First Anniversary Date'
unless the prior consent of the Purchaser has been obtained.
4. Prior to the First Anniversary Date, the Purchaser shall be entitled to
purchase all or any part of the unsold Slow Inventory from time to time at a
price equal to the value of such inventory referred to in Schedule 1.
5. The Purchaser shall have a right of first refusal on the sale of all Slow
Inventory , at a price and on terms such Slow Inventory would otherwise be sold
to a third party, prior to the First Anniversary which right of first refusal
shall be exercised within 24 hours of receipt of written notice of a proposed
sale of Slow Inventory.
6. The Purchaser shall be entitled to inspect the records of the Seller relating
to the sale of Slow Inventory at the premises of the Seller during normal
business hours. The Purchaser shall be entitled to conduct such inspections once
each quarter prior to the first anniversary of the First Anniversary Date. The
Purchaser shall give the Seller ten days prior written notice of the inspection.
The Purchaser shall treat such information disclosed during such inspection as
confidential and shall not use it for any purpose other than to verify the
payments required to be made by the Seller under this Agreement, or disclose it
to any third party.
7. There shall be no obsolescence reserve with respect to inventory.
Property and Equipment
8. Property and equipment shall be valued at $68,900 as shown on Schedule 2.
Goodwill, Etc.
9. Goodwill and other intangibles shall be valued at zero.
Net Operating Losses
10. Net operating losses shall be valued at zero.
Liabilities
11. All liabilities shall be paid or assumed by the Purchaser prior to the
Closing Date, except for accrued royalties payable to the Seller, K-tel
International Ltd. or any of their related corporations, which shall be paid
prior to Closing, and the following, which shall be valued at actual book value
calculated in accordance with generally accepted accounting principals
consistently applied as at the Closing Date:
(a) Return Reserves;
(b) Intercompany Debt owed to the Seller, the Remaining Subsidiaries
or any corporation related to Philip Kives.
12. All intercompany debt between the Subsidiaries on the one hand, and the
Seller and the Remaining Subsidiaries, on the other hand, shall be paid at the
Closing.
EXHIBIT "B"
SCHEDULE 1
----------
K-TEL CONSUMER PRODUCTS
LIST OF SLOW INVENTORY
<TABLE>
<CAPTION>
ITEM CODE PRODUCT DESCRIPTION UNITS VALUE
FINISHED GOODS
<S> <C> <C> <C>
485680314 1-TOUCH COMBO 8" & 10" 2,545 $ 39,931
485680330 TWIST 'N SKI 5 102
485680331 FIRM FLEX 85 5,525
1111100070 SLICE-O-MATIC - SPANISH 6,600 0
1111180082 AEROBI-SLIDE - SPANISH 1,490 8,419
2277500048 MIRACLE KLEEN 42 0
2277500060 FORMULA 7 168 0
2277500082 POWER CUTTER 787 938
2277501013 MINI M BRUSH/SKIN PK 222 0
2277501160 MIRACLE ROLLER 7,496 0
2277504270 GOLF KING MS 168 0
2277508960 DRY COOKER 13,226 33,950
2277508970 MINI FISHERMAN MS 846 0
2277580011 2 PIECE FOOD STORAGE 3,423 0
2277580014 SCRAPPY SCRUBBER BRI 2,822 0
2277580015 SCRAPPY SCRUBBER PUF 3,863 0
2277580016 4 PIECE FOOD STORAGE 32 0
2277580017 3 PIECE FOOD STORAGE 485 0
2277580023 SERVE-N-STORE BOWLS 158 0
2277580025 CELESTIAL NAVIGATION 20 0
2277580027 CONWAY TWITTY-EARLY 3,194 0
2277580030 SCRAPPY SCRUBBER 7,777 0
2277580032 RAIN GUARD 79 0
2277580036 WOOD BROTHERS VHS VIDEO 7 0
2277580037 MICRO STEAM COOKER 5,606 17,943
2277580044 FASHION DAZZLER 736 0
2277580048 ROTOFLEX IN INDIVIDUAL 2,951 23,724
2277500049 THE CLAW 7 0
2277580057 ROTOFLEX SYSTEM 2,582 21,954
2277580058 ROTOFLEX BUFFING PAD SET 5,729 11,377
2277580059 ROTOFLEX COARSE DISC SET 3,138 3,664
2277580061 ROTOFLEX MEDIUM DISC SET 3,116 3,449
2277580062 ROTOFLEX FINE DISC SET 3,148 3,485
2277580063 ROTOFLEX VERY FINE D SET 4,310 4,791
2277580064 ROTOFLEX VERY FINE W SET 4,299 4,197
2277580069 THIGH TONER BULK 15 0
2277580076 FLEX BOARD 2,130 1,387
2277580077 KLEENSILVER 304 615
2277580079 FOREVER SHARP KNIFE 4,716 20,515
2277580080 THIGH TONER PACKAGED 11,993 67,671
2277580081 POWER STEPPER 123 0
2277580082 AEROBI-SLIDE 1,363 7,693
2277580083 AEROBI-SLIDE BOOTIES 88 0
2277580085 25 IN 1 WONDER TOOL 3,832 21,804
2277580087 ROTO STRIP 3,280 12,005
2277580089 KLEENSILVER REFILL 2,789 3,930
2277580100 FAMILY SIZE MICRO STEAM 2,783 14,110
2277580101 BUTTONMATE 2,088 2,694
2277580107 25 IN 1 WONDER TOOL 4,069 24,170
2277580109 LOBSTER LAB 2,293 48,595
2277580111 MULTI KLEENER MOP 60 390
2277580115 MULTI KLEENER REPLACEMENT 27 81
2277580118 VAC-U-SAVE 2,658 16,975
2277580119 LOBSTER LAB CAVE 4 88
2277580125 AMBERGUARD SUNGLASSES 2,484 2,409
2277580195 SRX-11 29,574 92,501
2277580198 PASTA MAKER 24,701 796,768
2277580206 PUMP 'N SEAL 8 0
2277580251 BUTTONMATE ACCESSORIES 3 0
2277580601 MOTOBRELLA MS 7 0
8255100096 AEROBI-SLIDE FRENCH/ENG 2,310 0
$1,317,850
PARTS
2277501200 POWER CUTTER DISPLAY 497 $ 0
485680303001 BULK 1-TOUCH 8" ADJUST 2,455 17,406
485680303002 1-TOUCH 8" ADJUST WR 1,000 40
485680304001 BULK 1-TOUCH 10" ADJUST 2,455 20,303
485680304002 1-TOUCH 10" ADJUST WR 1,000 40
485680314001 COMBO 8" & 10" ADJ WR 205 61
2277500070005 SLICE-O-MATIC CORRUG 825 0
2277500070006 SLICE-O-MATIC 12 PAC 745 0
2277500070007 SLICE-O-MATIC 24 PAC 135 0
2277500070009 SLICE-O-MATIC D/O PROD 6,490 0
2277500070011 SLICE-O-MATIC GRATE 3,190 0
2277500070012 SLICE-O-MATIC BASE M 1,141 0
2277500070013 SLICE-O-MATIC TEND 2,960 0
2277500070016 SLICE-O-MATIC PIZZA 5,640 0
2277500070017 SLICE-O-MATIC SPANISH 3,400 0
2277500070018 SLICE-O-MATIC ENG/SP 416 0
2277501007112 12 MASTER MIR BRUSH BOXED 2,260 0
2277501010006 FLAT HEAD OVAL MIR BRUSH 14,106 0
2277501010007 FOAM PAD / MIRACLE BRUSH 210,000 0
2277501010008 MIRACLE BRUSH CLOTH 34,560 0
2277501010112 12 MASTER/MIR BRUSH (OBS) 273 0
2277501012002 MIRACLE BRUSH SKIN C 2,080 0
2277501012106 6 MASTER/MIRACLE BRUSH 5,175 0
2277501012112 12 MASTER/SKIN MIR BRUSH 2,598 0
ITEM CODE PRODUCT DESCRIPTION UNITS VALUE
2277501013003 MINI MIRACLE BRUSH 3,716 0
2277501013112 12 MASTER/M MIR BR SKIN M 1,474 0
2277501130001 MIRACLE SWEEPER INDI 4,070 0
2277511130002 MIRACLE SWEEPER INSERT 750 0
2277501130006 MIRACLE SWEEPER POLY 283 0
2277501130007 MIRACLE SWEEPER TOP 211 0
2277501130008 MIRACLE SWEEPER BOTTOM 950 0
2277501150004 MIRACLE ROLLER SKIN 3,120 0
2277508960001 DRY COOKER CARTONS 420 0
2277508960001 DRY COOKER PART 150 0
2277580057001 ROTOFLEX METAL CLAMP 4,500 10,301
2277580057002 ROTOFLEX FLEXIBLE DI 50 102
2277580057003 ROTOFLEX VELCRO PADS 3,924 2,819
2277580057004 ROTOFLEX INSTRUCTION 21,464 0
2277580057005 ROTOFLEX WARRANTY CARDS 19,564 0
2277580057006 ROTOFLEX TRAY MS 10,100 1,256
2277580057007 ROTOFLEX INDIVIDUAL 10,760 4,775
2277580057008 ROTOFLEX 4 PACK MAST 3,741 1,283
2277580057009 ROTOFLEX SINGLE MAI 1,280 211
2277580057010 ROTOFLEX RE-ORDER FORM 43,364 0
2277580057011 ROTOFLEX ALLEN WRENCH 14,739 0
2277580057012 ROTOFLEX BLISTER CARDS 2,869 648
2277580057013 ROTOFLEX BLISTER CARDS 1,250 282
2277580057014 ROTOFLEX BLISTER CARDS 1,749 395
2277580057015 ROTOFLEX BLISTER CARDS 2,867 647
2277580057016 ROTOFLEX BLISTER CARDS 2,763 624
2277580057017 ROTOFLEX BLISTER CARDS 1,250 282
2277580057018 ROTOFLEX PLASTIC FOR SANDING 44 5
2277580057019 ROTOFLEX PLASTIC FOR BUFFING 2,119 246
2277580076001 FLEXBOARD MASTER CARTON 410 0
2277580056002 HOOK TABS FOR FLEXBOARD 6,000 0
2277580076003 FLEXBOARD 4 COLOR SH 17,025 0
2277580077004 KLEENSILVER RE-ORDER 3,515 0
2277580077012 KLEENSILVER MEASURING 3,415 171
2277580077013 KLEENSILVER 32 OZ BOX 1,996 812
2277580077014 KLEENSILVER MASTER 100 0
2277580077015 KLEENSILVER REFILL MASTER 399 150
2277580077016 KLEENSILVER 32 OZ IN 2,289 168
2277580077017 KLEENSILVER ALUMINUM 1,600 0
2277580077018 KLEENSILVER INDIVIDUAL 3,450 0
2277580077019 KLEENSILVER REFILL 6,750 1,701
2277580080001 THIGH TONER PURPLE T 27,472 9,718
2277580080003 THIGH TONER SPRINGS 13,897 1,499
2277580080004 THIGH TONER INSERTS 5,972 961
2277580080005 THIGH TONER 10 X 5/8 35,816 408
2277580080006 THIGH TONER 10-24 1 4,186 32
2277580080007 THIGH TONER 10-24 HE 5,553 30
2277580080008 THIGH TONER #10 WASHER 3,350 6
2277580080009 THIGH TONER 5/16 WASHER 39,937 281
2277580080010 THIGH TONER PIVOT SL 5,206 798
2277580080011 THIGH TONER CAPS MS 2,022 284
2277580080012 THIGH TONER SLEEVES 14,132 3,180
2277580080015 THIGH TONER BASES MS 13,932 1,428
2277580080016 THIGH TONER COVERS M 10,962 1,124
2277580080022 THIGH TONER LABELS 1,872 108
2277580080023 THIGH TONER INSTRUCTIONS 8,500 0
2277580080024 THIGH TONER 6 PACK MASTER 1,156 1,138
2277580080025 THIGH TONER RETAIL BOX 5,472 3,241
2277580080100 THIGH TONER MAILER M 5,000 0
2277580082001 AEROBI-SLIDE / DIE CUT 250 0
2277580082002 AEROBI-SLIDE / RUBBER 8 2,260 0
2277580082003 AEROBI-SLIDE / END SETS 4,536 0
2277580082005 AEROBI-SLIDE / BOOTIES 33,772 0
2277580082011 AEROBI-SLIDE / INSTRUCTIONS 1,875 0
2277580082012 AEORBI-SLIDE INST FRENCH/ENG 4,510 0
2277580082013 AEROBI-SLIDE INST SPAN/ENG 3,000 0
2277580082014 AEROBI-SLIDE INST SPANISH 2,340 0
2277580082015 AEROBI-SLIDE BOOTIE I 7,125 0
2277580091001 ROTOFLEX SANDING DISC-COARSE 27,395 6,148
2277580091002 ROTOFLEX SANDING DISC-MEDIUM 26,959 6,050
2277580091003 ROTOFLEX SANDING DISC-FINE 44,089 9,954
2277580091004 ROTOFLEX SANDING DISC-X-FINE 13,142 2,949
2277580091005 ROTOFLEX SANDING DISC-ULTRA 11,883 30
2277580091006 ROTOFLEX BUFFING PADS 11,180 11,377
2277580101001 BUTTONMATE 12 PACK MASTERS 174 0
2277580195003 BRX-11 SPONGES 800 600
2277580601001 MOTOBRELLA HOOK MS 3,040 0
2277580601002 MOTOBRELLA VELCRO 700 0
2277580601005 MOTOBRELLA #10 X 5/8 10,752 0
$126,072
TOTAL SLOW INVENTORY $1,443,922
</TABLE>
EXHIBIT "B"
SCHEDULE 2
K-TEL
CONSUMER PRODUCTS COMPANIES
FIXED ASSETS
Quantity Value
All old video tapes/including vault items $ -
related to the Consumer Products Division
Supplies: Assorted office supplies-existing $ -
inventory related to the Consumer Products Division
Supply cabinets (black, 6' high x 3.5' wide) 3 $ 250
Filing cabinets-general and personal 24 $ 1,500
Credenzas 8 $ 750
Executive desks 8 $ 1,250
Desks-other 10 $ 1,250
Executive and secretarial chairs 18 $ 900
Side chairs (2) and small table for 8 offices 8 $ 500
Simitar computers- Personal computer tower 486/33 1
Simitar computers- TM tower 386/40 1
Simitar computers- Printers-Okidata 2
Simitar computers- Workstations 15 --$ 6,250
Simitar computers- Unix operating system 1
software 486/33
Simitar computers- Novell Software 386/40 1
Simitar phone system 1 $ 2,500
Fax machine 1 $ 100
Copier (on lease) 1 $ -
Light box 1 $ -
Drafting table 1 $ -
Creative computer (quadra 650) 1 $ 750
Gold records 6 $ -
Company pictures 3 $ -
TV/VCR with PAL, NTSC capability 1 $ 750
Forklifts 2 $ 1,500
Hand Jacks 3 $ 250
Office partitions--all current partitions at 20 $ 500
Medina Road building
Conference table 1 $ 250
Conference room chairs 8 $ 250
Show booth-old 1 $ 0
Glass coffee table-lobby 1 $ -
Freiden parcel post scale/system 1 $ -
Letterhead/stationery and all K-tel forms $ -
Molds for existing/old products $ -
CPD contracts/right/legal papers $ -
CPD HR files $ -
K-tel building sign $ -
Postage meter $ -
Warehouse Racking (470 linear feet, single row, $ 0
three high racking)
Subtotal $19,500
Apple computer peripherals:
Upgrade to 40 MB Ram $ 625
Monitor $ 250
Keyboard $ 50
512 VRam $ 25
Syquest 88 MB Drive $ 200
Optical Drive $ 250
Laserwriter (Printer) $ 1,000
Colorpoint Printer (Selko) $ 2,500
Color Scanner $ 1,500
Weldotron L Bar Sealer with Conveyor $ -
Simitar Open System accounting software $ -
Simitar creative software $ -
All packaging, sales material, operating negative and $ -
artwork relating to the Consumer Product Division
and its Products Subtotal $ 6,400
Total $ 25,900
Show booth-new $ 43,000
GRAND TOTAL $ 68,900
EXHIBIT C
TRADEMARK AGREEMENT
THIS AGREEMENT, made effective as of the closing date, which
is the _______ day of _______________, 1995 between K-TEL INTERNATIONAL, INC., a
Minnesota Corporation ("K-TEL"), K-TEL INTERNATIONAL LTD., a Manitoba
Corporation ("K-tel Ltd.") SIMITAR, INC., a Minnesota Corporation (" SIMITAR"),
K-TEL INTERNATIONAL (USA), INC. ("K-tel (USA)"), a Minnesota Corporation and
K-TEL ENTERTAINMENT (CAN) INC., a Manitoba Corporation ("K-tel (Can)").
WHEREAS, SIMITAR has acquired the packaged consumer
entertainment business (music and video) of K-TEL; and
WHEREAS, SIMITAR desires to market and distribute Consumer
Entertainment Product(s) (as defined below) using certain of the tradenames and
trademarks of K-TEL;
NOW, THEREFORE, in consideration of SIMITAR'S purchase of the
entertainment business of K-TEL, and in consideration of the mutual agreements
contained herein, and for One Dollar ($1.00) and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Definitions.
(a) Consumer Entertainment Product(s) means films, videos and recorded
music products, sheet music, tape and book packages, CD-ROM disks,
computer software, video CD's, 3DO disks, CDI disks, or any other
format, whether known or unknown at this time, and whether sold as
albums, cassettes, books, floppy disks, hard disks, compact disks,
optical disks, or any other media, on-line computer distribution or
any other electronic or digital distribution system whether such media
or distribution system is known or unknown at this time.
(b) K-TEL Marks means the name and mark "K-TEL" and the combination mark,
which consists of the "K-TEL" mark and the "K-logo" mark used together
(the "K-logo" mark and the combination mark both being shown on
Schedule 1 attached hereto) which marks are registered in the
jurisdictions listed in Schedule 1.
(c) "Former Soviet Block Countries" means all countries formerly forming
part of the Union of Soviet Socialist Republics and the former "Warsaw
Pact" including, without limitation, Poland, Hungary, Czech Republic,
Slovakia and the former Yugoslavia, Romania and Cuba but excluding
East Germany.
(d) Term. The "Term" of this Agreement shall be for a period of eight (8)
years from the date hereof.
(e) Other Product(s) means all products and services other than Consumer
Entertainment Product(s) as defined in paragraph l(a) above.
2. K-TEL Marks, Territory, Exclusivity and Term. Subject to the existing third
party licenses of the K-TEL Marks in effect at the execution of this
Agreement, as set out in Schedule 2 to this Agreement, which licenses shall
remain in force until the end of their respective terms (including any
renewals thereof), the parties agree as follows:
(a) United States:
(i) SIMITAR and its sublicensees shall, subject to Paragraph 2(a)(ii)
below, have the following rights and licenses to use the K-TEL
Marks, as a brand or product mark only but not for use as part of
a corporate or trade name, for Consumer Entertainment Product(s)
in the United States:
(A) the exclusive right to release, manufacture distribute,
market, promote, sell and license any new and existing
Consumer Entertainment Product(s) under the K-tel Marks for
the first four (4) years of the Term; and
(B) the non-exclusive right to sell off under the K-TEL Marks,
any inventory manufactured under paragraph 2(a)(i)(A) and
not sold under paragraph 2(a)(i)(A) together with customer
returns beginning with the fourth anniversary of the date
hereof and through the eighth anniversary of the date
hereof.
(ii) K-TEL shall, however, retain the right to use the K-TEL Marks to
distribute, market, promote and sell Consumer Entertainment
Product(s) in the United States via direct response advertising.
K-TEL will be prohibited from selling Consumer Entertainment
Product(s) under the K-TEL Marks through any distribution means
other than direct response advertising and from granting any
rights to use the K-tel Marks for Consumer Entertainment Products
to any third party during the first four (4) years of the Term.
(iii) K-TEL shall retain the right to use the K-TEL Marks for all
other purposes and for Other Product(s) in the United States.
(iv) K-tel (USA), shall have the non-exclusive right to continue to:
(A) manufacture Consumer Entertainment Products currently
manufactured by it as of the date of this Agreement, bearing
the legend "distributed by K-tel International, (USA) Inc.",
for the first two years of the Term; and
(B) sell its current inventory of Consumer Entertainment
Products as of the date of this Agreement and any Consumer
Entertainment Products manufactured under subparagraph
2(a)(iv)(A) bearing the legend "distributed by K-tel
International, (USA) Inc.", for the first four years of the
Term.
(b) Mexico, Canada and Asia
(i) SIMITAR and its sublicensees shall have the following
non-exclusive right and license to use the K-TEL Marks, as a
brand or product mark only and not for use as part of a corporate
or trade name for Consumer Entertainment Product(s), in Mexico:
(A) the non-exclusive right to release under the K-tel Marks any
new Consumer Entertainment Products for the first three (3)
years of the Term;
(B) the non-exclusive right to manufacture new Consumer
Entertainment Products, but only during the first four (4)
years of the Term;
(C) the non-exclusive right to distribute, market, promote, sell
and license under the K-TEL Marks, any new Consumer
Entertainment Product(s) for the first four (4) years of the
Term; and
(D) the non-exclusive right to sell off under the K-TEL Marks,
any inventory manufactured under paragraph 2(b)(i)(B) and
not sold under paragraph 2(b)(i)(C) together with customer
returns beginning on the fourth anniversary of the date
hereof and through the eighth anniversary of the date
hereof.
(ii) Simitar and its sublicensees shall have a non-exclusive right and
a license to use the K-tel Mark for Consumer Entertainment
Products in Asia and Canada, as a brand or product mark only and
not for use as part of a corporate or trade name as follows:
(A) the non-exclusive right to release, manufacture, distribute,
market, promote, sell and license new Consumer Entertainment
Products for the first two years of the Term;
(B) the non-exclusive right to sell off under the K-tel Marks
any inventory manufactured under paragraph 2(b)(ii)(A) and
not sold under such paragraph together with customer returns
beginning on the second anniversary of the date hereof and
through to the fourth anniversary of the date hereof.
(iii) K-TEL shall retain the right to use the K-TEL Marks for Consumer
Entertainment Products and all other purposes and for all Other
Products in Mexico, Asia and Canada.
(iv) K-tel Entertainment (Can) Inc. shall have the non-exclusive right
to continue to:
(A) manufacture Consumer Entertainment Products currently
manufactured by it as of the date of this Agreement, bearing
the legend "distributed by K-tel Entertainment (Can) Inc."
for the first two years of the Term; and
(B) sell its current inventory of Consumer Entertainment
Products as of the date of this Agreement and any Consumer
Entertainment Products manufactured under sub paragraph
2(b)(iv)(A) bearing the legend "distributed by K-tel
Entertainment (Can) Inc.", for the first four years of the
Term.
(c) Europe, Former Soviet Block Countries, Middle East and Africa.
(i) K-TEL shall assign, sell, transfer and convey and does hereby
assign, sell, transfer and convey to SIMITAR, K-TEL's entire
right, title and interest, and SIMITAR shall own and have the
exclusive right in perpetuity to the K-TEL Marks, the goodwill
and the business associated therewith, and all uses thereof in
Europe, all Former Soviet Block Countries, Middle East and Africa
(including, without limitation, rights to the word "K-tel" as
part of a corporate or business name). K-TEL further agrees, at
SIMITAR's expense, to execute such documents as SIMITAR may
request to memorialize this assignment, sale, transfer and
conveyance.
(ii) K-TEL shall have a non-exclusive right and license to use the
K-TEL Marks for Other Products and the word "K-tel" as part of a
corporate or business name in the Soviet Block Countries, Middle
East and Africa as follows:
(A) the non-exclusive right to manufacture, distribute, market,
promote, sell and license Other Products for the first four
(4) years of the Term;
(B) the non-exclusive right to sell off under the K-tel Marks,
any remaining inventory of Other Products during the last
four years of the Term. Remaining inventory shall mean all
inventory of Other Product(s) owned by K-TEL, K-5 Leisure
Products, Inc. ("K-5 "), K-TEL Ltd., or related parties at
the end of the first four (4) year period of the Term. World
wide sales of K-TEL, K-5, K-TEL Ltd. or related parties
shall be counted against remaining inventory during the four
(4) year inventory sell-off period.;
(iii) Subject to Subsection 2(k), K-tel shall have a non-exclusive
right and license to use the K-tel Marks for Other Products in
Europe and, subject to Subsection 2(e)(iii) the word "K-tel" as
part of a corporate or business name in Europe as follows:
(A) the non-exclusive right to manufacture, distribute, market,
promote and sell Other Products for the first two (2) years
of the Term;
(B) the non-exclusive right to sell off under the K-tel Marks,
any remaining inventory of Other Products during the two
years of the Term beginning on the second anniversary of the
date of this Agreement and terminating on the fourth
anniversary of the date of this Agreement. Remaining
inventory shall mean all inventory of Other Product(s) owned
by K-TEL, K-5 Leisure Products, Inc. ("K-5"), K-TEL Ltd., or
related parties at the end of the first two (2) year period
of the Term. World wide sales of K-TEL, K-5, K-TEL Ltd. or
related parties shall be counted against remaining inventory
during the two (2) year inventory sell-off period.
(iv) During the first four years of the Term, Simitar shall not sell,
transfer, assign or otherwise dispose of any interest in the
K-Tel Marks in Europe, all Former Soviet Block Countries, the
Middle East or Africa, or any part thereof, except:
(A) licenses granted in the ordinary course of business to use
the K-tel Marks to advertise, market or Sell products; and
(B) grants of security interests in the K-tel Marks as security
for, or sales, transfers and other assignments of the K-tel
Marks in connection with the financing required by Simitar
to complete the agreement of purchase and sale between
Simitar and K-tel dated as of June 28, 1995 (the "Agreement
of Purchase and Sale")
unless SIMITAR has first offered to sell the interest to K-tel as
follows:
(C) If SIMITAR receives a bona fide offer from an arm's length
third party to acquire an interest in the K-tel Marks, in
the territories referred to in this Paragraph, 2(c)(iv),
which it intends to accept, then, SIMITAR shall notify K-TEL
in writing and provide K-TEL with a copy of the offer;
(D) K-TEL shall have thirty (30) days after receipt of such
notice and offer to exercise its right of first refusal to
acquire the interest in the K-TEL Mark on terms the same as
the proposed offer by giving SIMITAR written notice thereof;
(E) In the event K-TEL does not exercise its right of first
refusal, then SIMITAR may proceed to accept the original
offer within ninety (90) days after the expiration of
K-TEL's right of first refusal as to such original offer on
such terms;
(F) In the event the original offer received by SIMITAR is not
accepted within said 90-day period, then K-TEL's right of
first refusal shall continue to apply;
(G) The right of first refusal under this paragraph shall not
apply to any sale of Dominion Vertriebs and GmbH or K-tel
International (SPAIN) SL and any assignment of rights to use
the K-tel Marks in connection with such sales.
(d) Rest of the World.
K-TEL shall retain all rights to use of the K-TEL Marks for all
purposes and for both Consumer Entertainment Product(s) and Other
Product(s) in all other countries and territories not identified or
listed above.
(e) Use of Corporate Name.
(i) Except as otherwise provided in Section 2(c), K-tel shall retain
all rights throughout the world, to use the word "K-tel" as part
of a corporate name (except with respect to the territories
subject to Section 2(c)) and to produce and sell products marked
with the legend "distributed by" or "manufactured by" entities
using the word "K-tel" as part of their name, provided that the
words "K-tel shall not be printed on any Consumer Entertainment
Products distributed by K-tel in the United States in larger than
14 point type;
(ii) Except to the extent K-tel retained rights in Section 2(c),
neither K-tel nor any of its affiliates shall produce or sell
products in the territories subject to Section 2(c) marked with
any reference to the word "K-tel";
(iii) The right to use the word "K-tel" as part of a corporate or
business name in Europe the Former Soviet Block, the Middle East
and Africa is restricted to the distribution, marketing,
promotion and sale of Other Products by K-tel to customers in
those territories. K-tel shall not be entitled to use the word
"K-tel" as part of a corporate or business name of a corporation
or business having a place of business in Europe, the Former
Soviet Block, the Middle East and Africa.
(f) Protection of K-TEL Marks.
SIMITAR agrees that it will notify K-TEL promptly upon determining
that any person or entity has engaged in an unauthorized use of or has
infringed upon the K-TEL Marks in any territory for which K-TEL
retains rights to the K-TEL Marks. At the request and expense of
K-TEL, SIMITAR will cooperate with K-TEL in the filing, prosecution,
maintenance and enforcement of any applications for registration of
the K-TEL Marks filed by K-TEL. SIMITAR shall notify K-TEL of any
adverse use of the K-TEL Marks or other designation similar to any
trademarks or "logos" owned and/or controlled by K-TEL, of which
SIMITAR is or becomes aware.
(g) Trademark Quality Assurance
(i) A party to this Agreement, who is exercising or who seeks to
exercise a right and license to use the K-tel Marks, under
paragraphs 2(a), 2(b), 2(c) and 2(d) of this Agreement, agrees
that each product which is sold under the K-tel Marks shall
always be of a high quality and shall be sold, advertised,
marketed and promoted in a manner to maintain the current image
of quality and the fine reputation enjoyed by the K-tel marks.
More specifically, the party shall only sell, advertise, market
and promote products under the K-tel Marks that are of a quality
that is equal to or exceeds the quality of comparable products,
or types of products currently being marketed and sold under the
K-tel Marks.
(ii) If the party wishes to sell, market, advertise and promote a
product under the K-tel Marks that will have a lower quality
(herein referred to as the "Different Products") than that of
comparable products, or types of products, currently being
marketed under K-tel Marks, then the party agrees to submit
representative samples of the Different Products (herein referred
to as the "INITIAL SAMPLES" to the other party for approval
before manufacture of the Different Products commences.
Recognizing that time is very critical in successfully
introducing all products into the marketplace, the other party
agrees to inspect expeditiously the INITIAL SAMPLES and to notify
the party whether the quality of the INITIAL SAMPLES is approved
within ten (10) days of the receipt of the INITIAL SAMPLES and if
not approved, to advise the party, in writing, of any and all
corrections reasonably required to be made in order for the
INITIAL SAMPLES to be approved. Failure of the other party to so
notify and advise the party within this ten (10) day period shall
be deemed to constitute approval by the other party of the
INITIAL SAMPLES. The other party further agrees to consult and
cooperatively work with the party in making INITIAL SAMPLES that
can be approved by the other party.
(iii) After the other party has approved the quality of the INITIAL
SAMPLES, the party shall have the right to sell, advertise,
market and promote the Different Products, under the K-tel Marks,
that meet or exceed the quality of the corresponding INITIAL
SAMPLES. The party agrees that it will not knowingly use the
K-tel Marks for or in connection with the sale, advertisement,
marketing and promotion of a Different Product whose quality does
not meet or exceed the quality of the corresponding approved
INITIAL SAMPLES.
(iv) The party agrees that any advertisement and promotional materials
for products sold under K-tel Marks shall be done with the same
good taste and quality as current advertisements and promotional
materials for products currently sold under the K-tel Marks.
(h) Ownership of K-TEL Marks
(i) Except for the territories identified and listed in paragraph
2(c) above, K-TEL expressly reserves the sole and exclusive
ownership of the K-TEL Marks. Any rights in and to the K-TEL
Marks which are not specifically granted to SIMITAR hereunder are
expressly reserved by K-TEL.
(ii) In the Territories and countries identified and listed in
paragraph 2(c) above, SIMITAR shall be the sole and exclusive
owner of the K-TEL Marks. Any rights in and to the K-TEL Marks in
such Territories and countries are expressly reserved by SIMITAR.
(i) Actions Upon Expiration of the Term of this Agreement.
Upon the expiration of the term of any license hereunder, with respect
to the K-TEL Marks, SIMITAR agrees to execute and deliver to K-TEL,
without additional consideration, a document assigning to K-TEL all of
SIMITAR'S rights, if any, in and to the K-TEL Marks. In the event
SIMITAR fails to execute and deliver such document, K-TEL shall have
the right to execute the same as SIMITAR'S attorney-in-fact, and
SIMITAR does hereby irrevocably appoint K-TEL its true and lawful
attorney-in-fact only for the purpose of executing such document.
K-TEL makes the same agreements and appointment with respect to any
license or right which K-TEL may exercise under paragraph 2(c)(ii).
(j) Slow Inventory
Notwithstanding the provisions of this paragraph 2, K-tel shall be
entitled to sell the Slow Inventory (as defined in the Agreement of
Purchase and Sale throughout the world without restriction).
(k) The rights referred to in Section 2(k) shall cease 60 days after the
day that Philip Kives, his spouse and/or children or a trust
established for the principal benefit of Philip Kives, his spouse
and/or his children cease to directly or indirectly control K-tel.
3. Representations and Warranties
(a) K-TEL Representations and Warranties. K-TEL represents and warrants
that in all territories and countries where K-TEL has a
registration(s) for the K-TEL Marks, or some of them, as indicated on
attached Schedule 1, it owns or has a license to all rights granted
and/or assigned to SIMITAR in this Agreement to the extent covered by
these Registrations, including without limitation the trademark rights
in the K-TEL Marks, free of all claims of any kind except as disclosed
to SIMITAR on Schedule 3 hereto, and that it has not granted to any
other person any right granted to SIMITAR under this Agreement or
executed any agreement in conflict with this Agreement, except as
disclosed in Schedule 2.
(b) SIMITAR Representation and Warranties. Except as otherwise provided
herein, SIMITAR represents and warrants that it will not, directly or
indirectly, at any time do or cause to be done any act or thing
disputing, attacking or in any way impairing or tending to impair
K-TEL'S right, title or interest in and to the K-TEL Marks and/or in
and to any rights licensed to SIMITAR under this Agreement.
4. Indemnification
(a) Indemnification by K-TEL. K-TEL shall defend and hold SIMITAR and its
officers, directors, customers and agents harmless from and against
any suit, claim or proceeding brought against SIMITAR, its officers,
directors, customers or agents and any and all costs and awarded
damages (including court costs, attorneys' fees and litigation
expenses for any trial and related appeal) which (i) result from,
arise in connection with or relate in any way to any breach by it of
its representations and warranties contained in this Agreement, or
(ii) are based on any misappropriation or infringement claim of any
third party with respect to the use of the K-TEL Mark(s), other than
and except for those claims arising out of any activities of SIMITAR
which are in breach of its obligations under this Agreement.
(b) Indemnification by SIMITAR. SIMITAR shall defend and hold K-TEL and
its officers, directors, customers and agents harmless from and
against any suit, claim or proceeding brought against K-TEL, its
officers, directors, customers or agents and any and all costs and
awarded damages (including court costs, attorneys' fees and litigation
expenses for any trial and related appeal) which (i) result from,
arise in connection with or relate in any way to any breach by it of
its representations and warranties contained in this Agreement, or
(ii) are based on any misappropriation or infringement claim of any
third party with respect to the K-TEL Marks arising out of any
activities of SIMITAR which are in breach of its obligations under
this Agreement.
5. Termination.
This Agreement shall not be subject to termination for any reason
whatsoever with respect to the rights assigned, transferred, sold and
conveyed in paragraph 2(c)(i) hereof, without the written and signed
agreement of K-TEL and SIMITAR.
(a) Causes of Termination. With respect only to the rights and licenses
other than those conveyed pursuant to paragraph 2(c)(i) above, this
Agreement may be terminated with respect to a specific right or
license granted for a specific country or territory herein identified
or listed, by the non-defaulting party as follows:
(i) Effective immediately upon delivery of written notice of such
termination, if a material breach of this Agreement with respect
to a specific right or license in a specific country or territory
has occurred and reasonably prudent and effective measures have
not been taken to cure the breach by the breaching party within
thirty (30) days after receiving written notice of the breach;
(ii) Effective immediately upon delivery of written notice of such
termination, if in a specific country or territory and for any
reason a party ceases to conduct its business in such country or
territory in the normal course, becomes insolvent or bankrupt,
makes a general assignment for the benefit of its creditors,
admits in writing its inability to pay its debts as they mature,
suffers or permits the appointment of a receiver for its business
or assets, or avails itself of or becomes subject to any
proceeding under any statute of any governing authority relating
to insolvency or the protection of rights of creditors and such
proceeding is not dismissed within 60 days of its filing;
(iii) Effective 10 days after delivery of written notice, if a claim
of misappropriation or infringement of a third party right cannot
be reasonably avoided or cured; or
(iv) Effective immediately upon delivery of a written notice of
termination, if any right granted by a party under this Agreement
is attached or levied upon by a creditor or claimant of the
party, and such attachment or levy is not released within 10 days
after receipt of written notice thereof.
(b) Effect of Termination.
(i) Upon termination of a specific license for a specific country or
territory under this Agreement, all of a party's prospective
rights with respect thereto shall cease immediately. Termination
shall not affect the rights of any customers or sublicensees of
SIMITAR, including end-users, who have ordered the licensed
products prior to the effective date of such termination, nor
shall it affect SIMITAR'S specific rights or licenses in those
countries and territories for which the termination does not
apply.
(ii) Upon termination, if the license for the K-TEL Marks in a
specific country or territory has been terminated, SIMITAR shall
not have the right to sell off existing inventory bearing the
K-TEL Marks in such specific country or territory.
6. Right of First Refusal.
SIMITAR shall have a right of first refusal regarding any assignment
of the K-TEL Mark for (a) Consumer Entertainment Products in the
United States, Mexico and Canada for the first four years of the Term
and (b) Other Products in any country in which Simitar does not have
the exclusive right to use the K-tel Marks for Other Products for the
first four years of the Term as follows:
(i) In the event K-TEL receives a bona fide offer from an arm's
length third party to acquire an interest in the K-TEL Marks in
the territories and for the products referred to in paragraphs
6(a) or (b); K-TEL shall notify SIMITAR in writing and provide
SIMITAR with a copy of the offer; and
(ii) SIMITAR shall have thirty (30) days after receipt of such notice,
and offer to exercise its right of first refusal to acquire the
interest in the K-TEL Mark on terms the same as the proposed
offer by giving K-TEL written notice thereof;
(iii) In the event SIMITAR does not exercise its right of first
refusal, then K-TEL may proceed to accept the original offer
within ninety (90) days after the expiration of SIMITAR's right
of first refusal as to such original offer on such terms;
(iv) In the event the original offer received by K-TEL is not accepted
within said 90-day period, then SIMITAR's right of first refusal
shall continue to apply.
7. General
(a) Waiver. No term or provision of this Agreement will be considered
waived by any party, and no breach excused by any party, unless such
waiver or excuse is in writing and signed on behalf of the party
against whom the waiver is asserted.
(b) Severability. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as
possible the same economic effect as the original provision and the
remainder of this Agreement will remain in full force.
(c) Arbitration. Any claim, dispute or controversy arising out of or in
connection with or relating to this Agreement or the breach or alleged
breach thereof shall be submitted by the parties to arbitration by the
American Arbitration Association ("AAA") in the City of Minneapolis,
Minnesota under the commercial rules then in effect and modified as
provided herein. A transcribed record of any proceeding shall be
prepared. The AAA shall recommend three arbitrators who are
knowledgeable in the field in dispute. The parties shall agree upon
one of the three arbitrators within 20 days. If no arbitrator is
mutually agreed upon, the AAA shall appoint one of the three
arbitrators within 30 days. Each party shall have the right to request
the arbitrator to include costs of arbitration, reasonable attorneys'
fees and reasonable costs for expert and other witnesses, but shall
not include punitive damages. Judgement on such award may be entered
as provided in paragraph (e) of this Section. Any party may seek
relief from the courts as necessary to protect its name, proprietary
information, trade secrets, know-how or any other appropriate
provisional remedy.
(d) Choice of Law. This Agreement and any arbitration conducted under
paragraph 7(c) herein will be governed by and construed in accordance
with the substantive, procedural and evidentiary laws and rules of the
State of Minnesota.
(e) Choice of Forum. Subject to paragraph 7(c), the parties hereby submit
to the jurisdiction of, and waive any venue objections against, the
United States District Court for the District of Minnesota and the
trial courts of the State of Minnesota, in any litigation and/or
arising out of this Agreement, and each party hereby consents to the
personal jurisdiction of such courts for purposes of this Agreement,
including entry of enforcement of any arbitration award or judgment.
(f) Notices. Any notice provided for or permitted under this Agreement
will be treated as having been given when (i) delivered personally,
(ii) sent by mail, confirmed telex or telecopy, (iii) sent by
commercial overnight courier with written verification or receipt, or
(iv) received postage prepaid by certified or registered mail, return
receipt requested, to the party to be notified, at the address set
forth below, or at such other place of which the other party has been
notified in accordance with the provisions of this paragraph.
If to K-TEL:
K-TEL INTERNATIONAL, INC.
2605 Fernbrook Lane North,
Suite O
Minneapolis, Minnesota. 55447-4736
Attn: Philip Kives, Chairman
Fax: (612) 559-6815
If to SIMITAR:
SIMITAR, INC.
2605 Fernbrook Lane North
Minneapolis, Minnesota 55447-4736
Attn: Mickey Elfenbein, President
Fax: (612) 559-6815
(g) Entire Agreement. This Agreement, including all exhibits, constitutes
the entire agreement between the parties relating to this subject
matter and supersedes all prior or simultaneous representations,
discussions, negotiations and agreements, whether written or oral.
(h) Amendment. This Agreement may be amended or supplemented only by a
writing that refers explicitly to this Agreement and that is signed on
behalf of all parties.
(i) Survival. Paragraph 2(c)(i), 3 and 4 will survive the termination of
this Agreement.
(j) Assignment. Any party may assign this Agreement in the course of any
merger or acquisition or in connection with any sale of all or
substantially all of its assets, provided that prior to such
transaction, the acquiring party agrees in writing to be bound by all
of the terms and conditions of this Agreement and prompt notification
is given to the other parties.
(k) Counterparts. This Agreement may be executed simultaneously 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.
(l) No Joint Venture. Each of the parties hereto acknowledges that no
joint venture or partnership exists between or among K-TEL and
SIMITAR, and that K-TEL and SIMITAR are each acting as independent
contractors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
K-TEL INTERNATIONAL, INC.
By: _________________________________
_________________________________
Witness Its ____________________________
K-TEL INTERNATIONAL, LTD.
By: _________________________________
_________________________________
Witness Its ____________________________
SIMITAR, INC.
By: _________________________________
_________________________________
Witness Its ____________________________
K-TEL INTERNATIONAL (USA), INC.
By: _________________________________
_________________________________
Witness Its ____________________________
K-TEL ENTERTAINMENT (CAN) INC.
By: _________________________________
_________________________________
Witness Its ____________________________
THE K-LOGO MARK INCLUDED IN THE "K-TEL MARKS" IS:
AN EXAMPLE OF THE LICENSED COMBINATION "K-TEL" AND "K-LOGO" MARKS INCLUDED IN
THE "K-TEL MARKS" IS:
Int. Cl.: 21
Prior U.S. Cl.: 29 Reg. No. 1,075,934
United States Patent Office Registered Oct. 25, 1977
TRADEMARK
Principal Register
(Specimen of Logo -- Stylized letter "K" in a circle)
K-Tel International, Inc. For: BRUSH FOR CLEANING
(Minnesota corporation) FABRICS, in CLASS 21
1311 K-Tel Drive (U.S. CL. 29).
Minnetonka, Minn. 55343 First Use Nov. 9. 1976;
in commerce Nov. 9, 1976.
The mark consists of a
stylized letter "K" in a
circle. Owner of Reg.
No. 944,141.
Set. No. 111,076, filed
December 29, 1976.
G. E. Pence, Examiner
Int. Cl.: 21
Prior U.S. Cl.: 29 Reg. No. 991,970
United States Patent Office Registered Aug. 27, 1974
TRADEMARK
Principal Register
(Specimen of Logo -- Stylized letter "K" in a circle)
K-Tel International, Inc. For: BRUSH FOR REMOVING
(Minnesota corporation FOREIGN MATERIALS FROM
421 Wilson St. N.E. FABRICS IN CLASS 29 (INT.
Minneapolis, Minn. 55413 CL. 21).
First use no later than
January 1972; in commerce
no later than January 1972.
Set. NO. 438,070, filed
Oct. 11, 1972.
SCHEDULE 1
LIST OF JURISDICTIONS WHERE K-TEL MARKS ARE REGISTERED
K-TEL TRADEMARK INVENTORY REPORT
<TABLE>
<CAPTION>
COUNTRY MARK CLASSES
<S> <C> <C>
Argentina K-tel 9
Australia K-tel 9,8,20,11,34
21,28,3,14
K-logo 21,9
Austria K-tel 3,9,21
K-logo 3,9,21
Austria K-tel 3,8,9,14,16
(GMBH) 18,20,21,28
K-logo 3,8,9,14,16
20,21,28
Benelux K-logo 9
K-tel 9
______ K-logo 3,8,9,14,16
(GMBH) 18,20,21,28
K-tel 3,8,9,14,16
18,20,21,28
Brazil K-tel/K-logo 9,40
K-logo 9,40
K-tel 9,40
Denmark K-tel/K-logo 9,21
K-tel/K-logo 16
Finland K-tel/K-logo 9,21
K-tel International 9,21
K-tel/K-logo 9
France K-logo 6,9,16,20,21
K-tel 6,9,16,21,21
France K-logo 3,8,9,14,16
(GMBH) 18,20,21,28
K-tel 3,8,9,14,16
18,20,21,28
Germany K-tel/K-logo 21,3
K-tel 9 Video cassette
K-tel 9 Electrical and
Scientific Apparatus
K-logo 9
Germany K-logo 3,8,9,14,16,18
(GMBH) 20,21,28
K-tel 3,8,9,14,16,18
20,21,28
K-logo 9,3,8,14,16,18
21,28
K-tel 9,3,8,14,16,18
21,28
Great Britian K-logo 9
K-tel/Katel 9
Greece K-logo 8,9,21,28
K-tel 8,9,21,28
Hong Kong K-tel 9
Ireland K-tel 9
K-tel 16
Italy K-tel International 7,8,9,21
K-logo 7,8,9,21
K-tel 7,8,9,21
K-logo 7,8,9,21
K-tel 7,8,9,21
K-logo 7,8,9,21
Italy K-logo 3,8,9,14,16,18
(GMBH) 20,21,28
K-tel 3,8,9,14,16,18
20,21,28
Japan K-logo 9
K-tel 9
Japan K-logo 24
K-tel (Japanese Letters) 24
K-tel 24
Mexico K-logo 9,15,20
K-tel 9,15,20
Monaco K-logo 3,8,9,14,16,18
(GMBH) 20,21,28
K-tel 3,8,9,14,16,18
20,21,28
New Zealand K-tel 23
K-logo 9
K-tel 9
K-tel 21
K-logo 21
K-logo 8
K-tel 8
K-tel 28
K-logo 28
Norway K-tel International 9
K-logo 9
Portugal K-tel 9
K-tel 3
K-tel 21
K-tel 28
Singapore K-tel 9
South Korea K-tel 39
Spain K-logo 21
K-logo 9
K-tel 9
K-tel 21
Spain K-tel/K-logo 8
(K-tel Spain) K-tel/K-logo 35
K-tel/K-logo 39
K-tel/K-logo 41
RELATED ENTITIES
COUNTRY MARK CLASSES
Spain K-tel* 3,18,20,28
*Owner: K-tel GmbH (owned by receiver estate closed)
K-logo* 3,8,9,14,16,18
20,21,28
*Owner: K-tel GmbH (owned by receiver estate closed)
Switzerland K-tel/K-logo 8,9,21
Switzerland K-logo 3,8,9,14,16,18
20,21,28
K-tel 3,8,9,14,16,18
20,21,28
K-tel/K-logo 9,16
Venezuela K-tel 36
K-logo 36
</TABLE>
SCHEDULE 2
<TABLE>
<CAPTION>
SCHEDULE OF EXISTING THIRD PARTY LICENSES OF K-TEL MARKS
<S> <C> <C>
LICENSEE COUNTRY TERM
CASTLE AUSTRALIA 4 YEARS, COMMENCING 3/1/90
NEW ZEALAND (EXTENSION UNSIGNED)
P.T. INDO SEMAR SAKTI INDONESIA 3 YEARS, COMMENCING 6/17/93
SWISS TEO HONG KONG 3 YEARS, COMMENCING 2/1/94
MALAYSIA PLUS OPTION TO EXTEND FOR
PHILIPPINES ADDITIONAL 1 YEAR PERIOD
SINGAPORE
SOUTH KOREA
TAIWAN
THAILAND
MICROFON ARGENTINA 2 YEARS, COMMENCING 8/3/94
TELSTAR BRAZIL 7 YEARS, COMMENCING 1/31/95
(UNSIGNED)
K-TEL SWITZERLAND
</TABLE>
SCHEDULE 3
CLAIMS AGAINST K-TEL MARKS
SPAIN
K-tel (C1.9) Registration rejected. The mark is
confusingly similar to trademark "CATEC" for
the same classification of goods. Power of
Attorney submitted in order to file
contentious administrative appeal.
BRAZIL
K-tel (C1.9) Associate awaiting "K-tel's" instruction
regarding the opposition against the mark
LK TEL owned Comercio e Represenracoes Ltda.
EXHIBIT D
LIST OF AGREEMENTS TO BE ASSIGNED
Contracts to be Assigned to Seller
1. Aquatic Farms (Lobster Farm)
2. Auto Evolution (Glareblocker)
3. Haus (Shovel Buddy)
4. Agreement between K-tel International (USA), Inc. and Beyond Auto Pty.
Ltd. dated November 30, 1993
5. Employment agreement between K-tel International (USA), Inc. and
Ottario DeBoni, Michael Getzkin, Marshall Masko, Rich Mier, Michael
Moran and Anthony Pecoraro
Contracts to be Assigned to K-tel International (USA), Inc.
1. Creative Ventures (101 Country)
2. Tri-Crown (101 Country)
3. License agreement between K-tel International, Inc. and K-tel
International (Switzerland) Ltd. relating to the K-tel Mark
LIST OF LITIGATION TO BE ASSIGNED
1. Litigation to be assigned to the Purchaser:
Cooperfield Music v. K-tel International (USA), Inc.
Davidson County Chancery Court, Tennessee, 94-1539111.
Cooperfield Music v. K-tel International (USA), Inc.
Davidson County Chancery Court, Tennessee, 95-1423 1.
Moore v. AFTRA [K-tel International (USA), Inc.]
United States District Court, N.D. Georgia, 1:93-CV-2358-CC
Moore v. AFTR [K-tel International (USA), Inc.]
United States District Court, S.D. New York - 95 CIV 1221
Osborne v. K-tel International, Inc.
Hennepin County District Court, Minnesota 95-3698
White v. Capital Records [Dominion Entertainment, Inc.]
USDC ND CA 94-3664-SBA
K-tel International, Inc., Commonwealth Music d/b/a K-tel
International, Inc., Ernest Evans Corporation v. San Juan Music Group
Ltd., et al. 94-1840(DRD)
M.T. Industries v. Dominion Entertainment, Inc.
89 CIV 8028(WK)
Donald Storball and Florence Jackson v. Twentieth Centruy Fox Film
Corporation [Dominion Entertainment, Inc.] 94-55167 U.S. Court of
Appeals
K-tel International, Inc., K-tel International (UK), Ltd. v. Tring
et al. CH 1993-K-No. 7395
San Juan Music v. Bellaphon-Germany [Dominion Entertainment, Inc.]
K-tel International, Inc., K-tel International, Inc., d/b/a
Commonwealth Music Inc., Ernest Evans Corporation v. William Chester
Carr d/b/a Billy Carr Productions 6:92cv480; Judgement awarded
January, 1994
2. Litigation to be assigned to the Seller:
Project Strategies v. K-tel, Inc.
United States District Court, A.D. Wisconsin 95-C-0048
Skew Products v. K-tel International, Inc.
United States District Court, S.D. new York 94-CIV 5508
K-tel International Ltd., K-tel Entertainment (UK) Ltd. v. Pierre
Benoit, David Gareau, 133064 Canada Inc., d/b/a Multirox Productions,
Les Distributions Muralex Inc., 175869 Canada Inc., and US Nordic
Importing and Exporting Company
Federal Court of Canada Trial Division, Court No. 7-2685-94
EXHIBIT E
This Assignment is made and delivered as of the _____ day of
___________, 1995 by Simitar Entertainment Inc., a corporation organized under
the laws of ___________ ("Assignor"), in favor of Simitar Entertainment, Inc., a
corporation organized under the laws of the State of Minnesota ("Assignee").
WITNESSETH, THAT FOR $1.00 AND OTHER GOOD AND VALUABLE
CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged,
Assignor hereby bargains, sells, grants, assigns, transfers and conveys unto
Assignee, its successors and assigns all of Assignor's right, title and interest
in and to the name "Simitar" in Canada, and all good will associated therewith
(the "Assets").
TO HAVE AND TO HOLD the same unto Assignee, its successors and
assigns forever.
IN ADDITION, from time to time after the date hereof, without
further consideration Assignor shall execute and deliver such other instruments
of assignment, transfer and conveyance and shall take such other actions as
Assignee may reasonably request in order more effectively to assign, transfer
and convey to Assignee, and to place Assignee in possession and control of, the
Assets, and to enable it to exercise and enjoy all rights and benefits of
Assignor with respect thereto.
Assignor hereby represents and warrants to, and covenants
with, Assignee, its successors and assigns that immediately prior to the
delivery of this Assignment, Assignor was the sole owner of the Assets, and that
the Assets are conveyed to Assignee free and clear of all mortgages, pledges,
liens, claims, security interests, leases, conditional sale agreements, charges,
restrictions and any other encumbrance of any nature whatsoever; and that
Assignor will warrant the title hereby conveyed to Assignee against the claims
of all persons whomsoever.
This Assignment shall inure to the benefit of and be binding
upon Assignor and Assignee and their respective successors and assigns.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be
executed and delivered by its duly authorized representative as of the day and
year first above written.
SIMITAR ENTERTAINMENT INC.
By:
Its
ACCEPTED:
SIMITAR ENTERTAINMENT, INC.
By
Its
EXHIBIT F
OFFICE
SUBLEASE
THIS SUBLEASE is made and entered as of ___________, 1995, by
and between K-TEL INTERNATIONAL (USA), INC. (the "Sublessor") and K-TEL
INTERNATIONAL, INC. (the "Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor is the owner of the tenant's interest of
that certain lease agreement dated March 3, 1995 by and between First
Industrial, L.P., as landlord (the "Landlord") and Sublessor as tenant, a copy
of which is attached as Attachment "1" hereto (the "Prime Lease"), which demises
certain "leased premises" in the building commonly known as Plymouth Corporate
Center, Minnesota; and
WHEREAS, the parties hereto desire that Sublessee sublease and
take possession of a portion of the leased premises described in the Prime Lease
pursuant to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto do hereby agree as follows:
1. Sublessor does hereby demise and sublease to Sublessee and Sublessee does
hereby accept and lease from Sublessor that portion of the leased premises
described in the Prime Lease outlined on Attachment "2" attached hereto being
approximately 4,600 square feet in size (the "Demised Premises"), to have and to
hold the same for a term commencing on October 14, 1995 and ending on March 13,
1996. For the Demised Premises, Sublessee shall pay Sublessor, in lawful money
of the United States, the following amounts payable in advance on the first day
of each month during the term of this Sublease and, in the event of any partial
month, pro rated based on the number of days during the month within such term
and the total number of days during such month:
(a) Base Monthly Rental. Base monthly rent (referred to as Base
Rent in Prime Lease) of $2,591.10 (.177 x $14,639.00);
(b) Additional Rent. Additional rent equal to 17.7% of the
additional rent payable by Sublessor under Prime Lease (see
Article 2 of Prime Lease). Any utility charges payable by
Sublessor that are not reflected in additional rent, shall be
billed monthly to Sublessee and payable within ten (10) days.
The amount charged shall equal 17.7% of the payable utility
charges of Sublessor.
In the event that Sublessee fails to pay any installment of rent or utility
charges within five (5) days of when due, Sublessee shall pay to Sublessor on
demand a late charge in an amount equal to five percent (5%) each month
thereafter until paid in full.
2. Provided Sublessee is not in default and has performed all of its covenants
and obligations, Sublessee shall have the option to renew this Sublease for an
additional six (6) months under the same terms and conditions in this Sublease.
Sublessee shall give sixty (60) days prior written notice of its option to
renew.
3. Sublessor does hereby covenant and agree with Sublessee that it shall keep,
observe and perform in a timely manner each of its obligations to be kept and
performed as set forth in the Prime Lease with respect to the leased premises
under the Prime Lease other than the Demised Premises which are subject to this
Sublease, and Sublessor shall indemnify Sublessee and hold it harmless of, from
and against any and all costs or expenses, including reasonable attorneys' fees,
demands or liabilities arising out of or relating to Sublessor's failure to
perform as aforesaid.
4. Sublessee agrees to assume and perform Sublessor's obligations under the
Prime Lease as they apply to the Demised Premises with regard to the terms,
covenants and conditions set forth in the Prime Lease, which are incorporated
herein by this reference thereto, and which the parties agree shall be kept and
performed by the parties hereto as if Sublessor was the Landlord thereof and
Sublessee was the Tenant.
5. Sublessee shall be obligated to comply with all provisions of the Prime Lease
regarding alterations to the Demised Premises if satisfactory arrangements and
agreements can be reached with Landlord and Tenant.
6. Sublessor and Sublessee agree that in the event the Demised Premises, the
building of which it is a part or the Demised Equipment is damaged or destroyed
by fire or other casualty included under so called extended coverage, the right,
if any, of each party against the other with respect to such damage or
destruction whether caused by negligent act or omission or otherwise to the
extent that such damage or destruction is recovered from the insurer of policies
or insurance, are waived.
7. Sublessee will, during the Sublease term, continuously maintain public
liability insurance with respect to death or injury to persons and damage to or
destruction of property occurring at or about the Demised Premises. Such
insurance shall be in amount(s) and in form(s) required by the Prime Lease, and
shall name Sublessor and the Landlord as additional insureds. Sublessee agrees
to indemnify and hold harmless Sublessor from, and shall reimburse Sublessor
for, all costs and expenses, including reasonable attorneys' fees, incurred by
Sublessor in connection with the defense of all claims and demands of third
persons, including but not limited to those for death, personal injuries, or
property damage, arising out of any default of Sublessee in performing or
observing any term, covenant, condition or provision of this Sublease, or out of
any of the acts or omissions of Sublessee, its agents, representatives,
employees, customers, guests, invitees or other persons who are doing business
with Sublessee or who are at the Demised Premises with Sublessee's consent.
8. This Sublease shall terminate at the end of the term hereof, without the
necessity of any notice. The Subtenant shall be entitled to terminate this
Sublease at any time during the term of this Sublease or any renewal thereof
upon 90 days prior written notice to the Sublandlord. Sublessee will peacefully
and quietly vacate and surrender the Demised Premises to Sublessor at the
expiration of the Sublease term, in the condition called for under the Prime
Lease.
9. If Sublessee defaults in its obligations under this Sublease, Sublessor shall
have all of the same rights and remedies against Sublessee consistent with these
Sublease obligations as would be available to the Prime Landlord against
Sublessor if Sublessor were in default under the Prime Lease, as fully as if
such rights and remedies were set forth in this Sublease.
10. Sublessee shall be entitled to fourteen (14) parking spaces in the southeast
corner of Sublessor's parking area.
11. Sublessee shall not assign this Sublease Agreement or sublet the Demised
Premises without the prior written consent of Sublessor.
12. Sublessee shall deposit with Sublessor $2,591.10 to secure the faithful
performance of Sublessee's promises and duties contained in this Sublease.
Sublessor shall not be required to pay any interest on the deposit to Sublessee.
On termination, Sublessor may deduct from the security deposit amounts
sufficient to pay for: (i) damages sustained by Sublessor as a result of
Sublessee's non-payment of rent; (ii) damages to the Demised Premises for which
Sublessee is responsible; (iii) unpaid bills that become a lien against the
Demised Premises due to Sublessee's occupancy; (iv) costs of re-renting the
Demised Premises after a breach of this Sublease Agreement by Sublessee; (v)
court costs incurred by Sublessor in connection with terminating the tenancy;
and (vi) other damages of Sublessor that may then be a permitted use of the
security deposit under the laws of the State of Minnesota.
13. Any notice or demand to be given to or served upon either Sublessor or
Sublessee in connection with this Sublease, shall be deemed to have been
sufficiently given or served for all purposes if it is personally served or if
it is sent certified mail, return receipt requested, postage prepaid, as
follows:
To Sublessor: K-tel International (USA), Inc.
2605 Fernbrook Lane North
Minneapolis, MN 55447-4736
To Sublessee: K-tel International, Inc.
2605 Fernbrook Lane North, Suite O
Minneapolis, MN 55447-4736
Either party may change the place to which notice is to be sent by sending a
written notice thereof to the other in the same manner herein above provided.
IN WITNESS WHEREOF, the parties hereto have caused this
Sublease to be executed as of the day and year first above written.
K-TEL INTERNATIONAL (USA), INC.
By_______________________________
Its____________________________
K-TEL INTERNATIONAL, INC.
By_______________________________
Its____________________________
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___
day of ______________, 1995 by ____________________, the __________________ of
K-tel International (USA), Inc., a corporation under the laws of the State of
Minnesota, on behalf of the corporation.
____________________________
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___
day of ______________, 1995 by ____________________, the __________________ of
K-tel International, Inc., a corporation under the laws of the State of
Minnesota, on behalf of the corporation.
____________________________
Notary Public
EXHIBIT G
WAREHOUSE
SUBLEASE
THIS SUBLEASE is made and entered as of ___________, 1995, by
and between K-TEL INTERNATIONAL (USA), INC. (the "Sublessor") and K-TEL
INTERNATIONAL, INC. (the "Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor is the owner of the tenant's interest of
that certain Assignment and Assumption of Lease Agreement dated February 10,
1995 by and between Thomas Edmund Ltd. Partnership as landlord (the "Landlord"),
Damark International, Inc. as Assignor, and Sublessor as tenant, a copy of which
is attached as Attachment "1" hereto (the "Prime Lease"), which demises certain
"leased premises" in the building commonly known as the K-tel Drive Warehouse,
Minnesota; and
WHEREAS, the parties hereto desire that Sublessee sublease and
take possession of a portion of the leased premises described in the Prime Lease
pursuant to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto do hereby agree as follows:
1. Sublessor does hereby demise and sublease to Sublessee and Sublessee does
hereby accept and lease from Sublessor that portion of the leased premises
described in the Prime Lease outlined on Attachment "2" attached hereto being
approximately 30,500 square feet in size (the "Demised Premises"), to have and
to hold the same for a term commencing on October 14, 1995 and ending on March
13, 1996. For the Demised Premises, Sublessee shall pay Sublessor, in lawful
money of the United States, the following amounts payable in advance on the
first day of each month during the term of this Sublease and, in the event of
any partial month, pro rated based on the number of days during the month within
such term and the total number of days during such month:
(a) Base Monthly Rental. Base monthly rent (referred to as Net
Rent in Assignment and Prime Lease) of $6,859.97 (.363 x
$18,897.98);
(b) Additional Rent. Additional rent equal to 36.3% of the
additional rent payable by Sublessor under the Prime Lease
(see Exhibit B of Prime Lease). Any utility charges payable by
Sublessor that are not reflected in additional rent, shall be
billed monthly to Sublessee and payable within ten (10) days.
The amount charged shall equal 36.3% of the payable utility
charges of Sublessor.
In the event that Sublessee fails to pay any installment of rent or utility
charges within five (5) days of when due, Sublessee shall pay to Sublessor on
demand a late charge in an amount equal to five percent (5%) each month
thereafter until paid in full.
2. Provided Sublessee is not in default and has performed all of its covenants
and obligations, Sublessee shall have the option to renew this Sublease for an
additional six (6) months under the same terms and conditions in this Sublease.
Sublessee shall give sixty (60) days prior written notice of its option to
renew.
3. Sublessor does hereby covenant and agree with Sublessee that it shall keep,
observe and perform in a timely manner each of its obligations to be kept and
performed as set forth in the Prime Lease with respect to the leased premises
under the Prime Lease other than the Demised Premises which are subject to this
Sublease, and Sublessor shall indemnify Sublessee and hold it harmless of, from
and against any and all costs or expenses, including reasonable attorneys' fees,
demands or liabilities arising out of or relating to Sublessor's failure to
perform as aforesaid.
4. Sublessee agrees to assume and perform Sublessor's obligations under the
Prime Lease as they apply to the Demised Premises with regard to the terms,
covenants and conditions set forth in the Prime Lease, which are incorporated
herein by this reference thereto, and which the parties agree shall be kept and
performed by the parties hereto as if Sublessor was the Landlord thereof and
Sublessee was the Tenant.
5. Sublessee shall be obligated to comply with all provisions of the Prime Lease
regarding alterations to the Demised Premises if satisfactory arrangements and
agreements can be reached with Landlord and Tenant.
6. Sublessor and Sublessee agree that in the event the Demised Premises, the
building of which it is a part or the Demised Equipment is damaged or destroyed
by fire or other casualty included under so called extended coverage, the right,
if any, of each party against the other with respect to such damage or
destruction whether caused by negligent act or omission or otherwise to the
extent that such damage or destruction is recovered from the insurer of policies
or insurance, are waived.
7. Sublessee will, during the Sublease term, continuously maintain public
liability insurance with respect to death or injury to persons and damage to or
destruction of property occurring at or about the Demised Premises. Such
insurance shall be in amount(s) and in form(s) required by the Prime Lease, and
shall name Sublessor and the Landlord as additional insureds. Sublessee agrees
to indemnify and hold harmless Sublessor from, and shall reimburse Sublessor
for, all costs and expenses, including reasonable attorneys' fees, incurred by
Sublessor in connection with the defense of all claims and demands of third
persons, including but not limited to those for death, personal injuries, or
property damage, arising out of any default of Sublessee in performing or
observing any term, covenant, condition or provision of this Sublease, or out of
any of the acts or omissions of Sublessee, its agents, representatives,
employees, customers, guests, invitees or other persons who are doing business
with Sublessee or who are at the Demised Premises with Sublessee's consent.
8. This Sublease shall terminate at the end of the term hereof, without the
necessity of any notice. The Subtenant shall be entitled to terminate this
Sublease at any time during the term of this Sublease or any renewal thereof
upon 90 days prior written notice to the Sublandlord. Sublessee will peacefully
and quietly vacate and surrender the Demised Premises to Sublessor at the
expiration of the Sublease term, in the condition called for under the Prime
Lease.
10. If Sublessee defaults in its obligations under this Sublease, Sublessor
shall have all of the same rights and remedies against Sublessee consistent with
these Sublease obligations as would be available to the Prime Landlord against
Sublessor if Sublessor were in default under the Prime Lease, as fully as if
such rights and remedies were set forth in this Sublease.
11. Sublessee shall be responsible to construct a partition segregating
Sublessee's space from Sublessor's space that, to Sublessor's satisfaction,
adequately protects Sublessor's security concerns.
12. Sublessee shall not assign this Sublease Agreement or sublet the Demised
Premises without the prior written consent of Sublessor.
13. Sublessee shall deposit with Sublessor $6,859.97 to secure the faithful
performance of Sublessee's promises and duties contained in this Sublease.
Sublessor shall not be required to pay any interest on the deposit to Sublessee.
On termination, Sublessor may deduct from the security deposit amounts
sufficient to pay for: (i) damages sustained by Sublessor as a result of
Sublessee's non-payment of rent; (ii) damages to the Demised Premises for which
Sublessee is responsible; (iii) unpaid bills that become a lien against the
Demised Premises due to Sublessee's occupancy; (iv) costs of re-renting the
Demised Premises after a breach of this Sublease Agreement by Sublessee; (v)
court costs incurred by Sublessor in connection with terminating the tenancy;
and (vi) other damages of Sublessor that may then be a permitted use of the
security deposit under the laws of the State of Minnesota.
14. Any notice or demand to be given to or served upon either Sublessor or
Sublessee in connection with this Sublease, shall be deemed to have been
sufficiently given or served for all purposes if it is personally served or if
it is sent certified mail, return receipt requested, postage prepaid, as
follows:
To Sublessor: K-tel International (USA), Inc.
2605 Fernbrook Lane North
Minneapolis, MN 55447-4736
To Sublessee: K-tel International, Inc.
2605 Fernbrook Lane North, Suite O
Minneapolis, MN 55447-4736
Either party may change the place to which notice is to be sent by sending a
written notice thereof to the other in the same manner herein above provided.
IN WITNESS WHEREOF, the parties hereto have caused this
Sublease to be executed as of the day and year first above written.
K-TEL INTERNATIONAL (USA), INC.
By_______________________________
Its____________________________
K-TEL INTERNATIONAL, INC.
By_______________________________
Its____________________________
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___
day of ______________, 1995 by ____________________, the __________________ of
K-tel International (USA), Inc., a corporation under the laws of the State of
Minnesota, on behalf of the corporation.
____________________________
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___
day of ______________, 1995 by ____________________, the __________________ of
K-tel International, Inc., a corporation under the laws of the State of
Minnesota, on behalf of the corporation.
____________________________
Notary Public
EXHIBIT H
(Letterhead of K-tel International, Inc.)
[date]
Mickey Elfenbein
[address]
Dear Mr. Elfenbein:
Re: Agreement for the Purchase and Sale of
Shares and Assets between
K-tel International, Inc. ("K-tel") and Simitar, Inc.
dated as of [date] (the "Agreement")
This letter will acknowledge that the Agreement has been
executed and that Simitar, Inc. will now be arranging the financing required to
complete the purchase of shares and assets referred to in the Agreement.
Between the date hereof and the Closing Date, you will have
the authority to operate, and you shall operate the businesses of K-tel and the
Subsidiaries (as defined in the Agreement), as President and Chief Executive
Officer, in the ordinary course and unless otherwise approved in writing by me,
you shall use all commercially reasonable efforts to cause each of K-tel and the
Subsidiaries to:
(i) carry on its business in substantially the same manner as
heretofore carried on;
(ii) make normal accounting entries;
(iii) preserve its business organization, keep available the
services of present employees and preserve the good will of
customers and others having business relationships with it;
(iv) maintain and keep its properties and facilities in as good
condition and working order as at present;
(v) keep in full force and effect all insurance presently in
effect, in the amounts now in effect, other than changes
required in connection with renewals in the ordinary course of
business, and provide me with prior written notice of all
amendments;
(vi) consult with me regarding all significant developments,
transactions and proposals relating to the transactions
contemplated hereby or the business or affairs of the
Subsidiaries;
(vii) not make any material change in compensation, benefits or
other terms of employment of employees or retain any new
employees, other than replacement employees unless, such new
employees have an annual salary of $50,000 or less and you
have provided me with prior written notice;
(viii) operate its businesses in the ordinary course, except for the
sale or discontinuance of its operations in France, Germany,
Spain and Portugal;
(ix) not subject any assets, property or rights to any lien, claim
or encumbrance of any nature whatsoever (other than licenses
and similar agreements in the ordinary course of business);
(x) not acquire or transfer any assets, property or rights other
than in the ordinary course of business and for fair value;
and
(xi) not enter into any material agreement, contract or commitment
of any nature whatsoever, or take any other action, other than
in the ordinary course of business.
This letter will also confirm that you will provide me with
all information requested by me relating to the operations of K-tel and its
subsidiaries, within a reasonable time.
This letter will also confirm that if you do not comply with
the terms of this letter, I will be entitled to tender the resignation as Chief
Executive Officer which you have submitted to me, to the directors of K-tel.
Yours very truly,
Chairman
K-tel International, Inc.
A C C E P T A N C E
I, Mickey Elfenbein, hereby agree to the foregoing.
DATED: June , 1995.
______________________________________________
Mickey Elfenbein
EXHIBIT I
RECORD LICENSE AGREEMENT
Dated as of the ___ day of ___________, 1995
Between And
DOMINION ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC.
2605 Fernbrook Lane North 2605 Fernbrook Lane North
Minneapolis, MN 55447 Suite O
(the "Licensor") Minneapolis, MN 55447
(the "Licensee")
W I T N E S S E T H
In consideration of the mutual promises and covenants herein
contained, the parties hereby agree as follows:
GRANT AND SCOPE OF RIGHTS
(a) Subject to all limitations contained herein, Licensor hereby grants to
Licensee for the Term (as defined in Clause 4) and in the Territory (as defined
in Clause 22) the non-exclusive right to use master recordings contained in the
Dominion re-record catalog which have been approved in writing by Licensor
(hereinafter called the "Licensed Masters") in connection with the exploitation
of one Album for sale by Licensee via infomercials.
(b) The rights hereby granted by Licensor to Licensee include the following:
(i) The right to exploit the Album through television infomercial sales
only.
(ii) The right to use the approved name likeness and biography of each
artist whose performance is embodied in the said Licensed Masters in connection
with the advertising, publicizing or sale of the Albums.
(iii) The right, subject to Clause 9(c) hereof and to the extent permitted
by the applicable laws of the Territory, to perform publicly or to permit the
public performance by means of radio or television broadcast or otherwise of
records manufactured from the said Licensed Masters for the purposes only of
advertising the sale of the Albums.
(iv) The right to use and control the use of the said Licensed Masters the
matrices, mothers, stampers or other copies or derivatives and records
manufactured from the master recordings and the performance(s) embodied therein
for the purposes hereof only.
2. LIMITATIONS OF RIGHTS
(a) Notwithstanding anything to the contrary contained herein:
(i) Licensee shall only embody the Licensed Masters on the said Albums and
shall not make any second or other use thereof.
(ii) It is acknowledged that all Licensed Masters hereunder are not the
original recordings but rather a re-recorded version of the original recording
and Licensee shall clearly designate such Licensed Masters as re-recordings on
all Album jackets, sleeves, inlay cards, and any packaging related thereto. The
obligation to so designate such Licensed Masters is of the essence of this
Agreement.
(iii) The rights herein granted to Licensee shall be limited to the extent
that Licensor owns or controls such rights, and Licensor specifically states
that it does not own or control the exclusive rights in the Territory to each
and every Licensed Master comprising the Albums.
(b) Except as described in paragraph (c) of this Clause 2, Licensor reserves
exclusively to itself and its successors, licensees and assigns all rights and
uses in and to the Licensed Masters whether now or hereafter known or in
existence, except the limited use expressly licensed hereunder. By way of
illustration and not of limitation, Licensee shall not:
(i) Exploit the Album hereunder at any price other than in the so-called
"full-priced" category.
(ii) Use the Licensed Masters or dispose of or use in any way records or
tapes manufactured therefrom except for commercial manufacture and sale of the
records as herein provided.
(iii) [Intentionally Deleted]
(iv) Edit or alter the Licensed Masters. Licensee shall only employ the
Licensed Masters in the manner and for the purpose originally recorded by or for
Licensor.
(v) Sub-license or otherwise convey any rights under this Agreement.
(vi) Exploit the Album in any retail channels of trade either directly or
indirectly.
(vii) Undertake or knowingly permit the manufacture, advertising,
distribution or sale of any Licensed Master or the Album outside the Territory.
3. RESERVATION OF RIGHTS
(a) The following shall be and remain the property of Licensor:
(i) The Licensed Masters supplied by Licensor under this Agreement as well
as all mothers and stampers produced therefrom by or for Licensee;
(ii) Licensor's copyright and other property rights under statutory and/or
common law in the Licensed Masters, tapes, matrices, and mothers and stampers;
(iii) Any and all copyrights, trademarks or other similar rights or other
property rights which may otherwise accrue to Licensee or to any of its
distributors, agents or representatives by reason of the exercise of the rights
granted by this Agreement;
(iv) The exclusive right to use or license the Licensed Masters or the
performance embodied thereon for use in connection with the synchronization of
said performance with television productions and/or motion pictures, including
any soundtrack albums derived therefrom, whether produced in the Territory or
otherwise.
(b) Licensee will, upon request, execute or cause to be executed, and will
deliver to Licensor, all documents necessary to establish and effectuate
Licensor's unencumbered ownership of all such rights.
(c) Licensee shall take all precautions necessary, including but not limited
to placing the appropriate "P" line credit on all Album jackets, sleeves, labels
or inlay cards, to preserve and protect the copyright in the Licensed Masters in
Licensor's name and to prevent same from falling into the public domain.
(d) All records manufactured under the authority of this Agreement shall be
distributed in packaging materials bearing a Universal Product Code (UPC) that
will enable retail stores equipped with devices that identify bar codes at the
point of sale to report the number of records sold to SoundScan, Inc. for
tabulation if applicable.
4. TERM
The Term of this Agreement shall be for a period of five (5) years commencing
with the Closing Date of the agreement or when otherwise terminated under
Section 18 below. Each year of the Term may hereinafter be referred to as a
"Contract Year".
5. ADVANCES
[Intentionally deleted]
6. ROYALTIES
In consideration of the license and rights herein granted to Licensee, Licensee
hereby agrees to pay all of the following to Licensor:
(a) A royalty of eight (8%) percent based on the actual selling price to the
consumer, such royalty being accruable on one hundred percent (100%) of all
copies of the Albums which are exploited hereunder which amount shall in no
event be less than US $.04 per master recording on cassettes and US $.06 per
master recording on compact disc. Royalties on "bonus" or "free" records shall
be US $.04 per master recording on cassettes and US $.06 per master recording on
compact disc.
(b) In computing the number of Albums manufactured and sold hereunder Licensee
shall have the right to deduct returns and credits on account of defective
merchandise, errors in billing and errors in shipment.
7. ACCOUNTING STATEMENTS
(a) During the Term of this Agreement and thereafter as long as Licensee
continues to sell the Album hereunder, Licensee agrees to keep all usual and
proper records and books of account and make all usual and proper entries
therein relating to the exploitation of the Album.
(b) Licensee shall deliver to Licensor within thirty (30) days following the
last day of March, June, September and December of each year detailed written
statements, showing sales of records hereunder during such period. Licensee
shall in said statements advise Licensor in writing of the identity of each
Album manufactured hereunder and identify each Licensed Master embodied thereon.
Such statements shall include the following information:
(i) The number of copies of the Album sold within the Territory during the
accounting period; and
(ii) The amount of royalties and other payments due to Licensor pursuant to
this Agreement.
(c) Simultaneously with the delivery of the accounting statements referred to
above, Licensee shall pay to Licensor, at the above written address, all sums
shown to be due to Licensor by such statements. All payments shall be made in
United States Dollars (where applicable computed at the rate of exchange
existing on the date the payments are required to be made pursuant to the terms
of this Agreement).
(d) In the event Licensee does not pay to Licensor the amount shown to be due
by any accounting statement on the date the payment is required to be made
pursuant to the terms of this Agreement then:
(i) Licensor may at its election terminate this Agreement hereunder
pursuant to Clause 18(b) or (c) below; and/or
(ii) Licensor may charge interest at the rate of three percent (3%) above
the then current Prime Lending Rate to and payable by Licensee for the period
commencing upon the date such payment was due until the date such payment is
made.
(e) In the event that Licensee is unable because of governmental restrictions
to make payment in the manner described in this Clause and if Licensor agrees to
accept payment in a currency other than United States Dollars, Licensee shall
deposit (at Licensee's expense) to Licensor's credit or account or to such other
account as Licensor may from time to time designate, in a depository selected by
Licensor, all sums payable to Licensor hereunder. Notwithstanding, in the event
that Licensee in unable because of governmental restrictions to make payment to
Licensor in the United States or in United States Dollars, Licensor shall have
the right to terminate this Agreement upon thirty (30) days written notice,
without prejudice to Licensor's rights.
8. INSPECTION
(a) Licensee shall permit Licensor or its duly authorized representative to
inspect, audit, abstract and copy such of Licensee's books and records as
reasonably relate to the subject matter of this Agreement. Such inspection shall
be allowed twice during each calendar year for as long as Licensee continues to
distribute or sell the Album, and twice in each of the two (2) years thereafter,
upon thirty (30) days written notice, and may be conducted at Licensee's regular
place of business in the United States or where books and records are
maintained.
In the event calculation of royalty payments is determined by a computer based
system, Licensor shall be permitted to examine the machine sensible data
utilized by such system and the related documentation describing such system and
Licensee agrees to retain such data for at least two (2) years after the
expiration of this Agreement.
(b) Any inspection undertaken by Licensor shall be at Licensor's expense
provided, however, that if an underpayment equal to or in excess of five (5%)
percent of the royalties properly due and payable to Licensor is discovered,
Licensee shall reimburse Licensor for the expense of such inspection in addition
to remitting the amount determined to be properly due plus accrued interest at
the rate of three percent (3%) above the then current Prime Lending Rate.
(c) This Clause shall survive the termination of this Agreement or any
subsequent agreement between the parties hereto covering generally the subject
matters covered herein.
9. THIRD PARTY PAYMENTS
(a) With respect to royalties payable to copyright proprietors by reason of
Licensee's exercise of its rights hereunder, Licensee agrees to secure licenses
from such copyright proprietors or their agents in the Territory and to make
payments directly to such proprietors or agents. No rights to manufacture and
exploit the Licensed Masters are granted hereunder until Licensee secures such
copyright licenses.
(b) Licensee shall be responsible for the payment of any sums that may be
payable to the Special Payments Fund and the Music Performance Trust Fund of the
American Federation of Musicians (the "AFofM") or any other union or guild
(including AFTRA) based upon the manufacture and sale of the Licensed Masters as
contained on the Albums. Licensee shall pay to Licensor an additional royalty of
one (1%) percent of the actual selling price to the consumer for the "AFofM"
royalty, said royalty being payable by Licensee to Licensor in accordance with
paragraph 7 herein.
(c) Licensee shall be responsible for any amounts properly becoming due to any
union or guild having jurisdiction in the nature of so-called "re-use" fees
arising as a result of Licensee's use of the performances embodied on the
Masters hereunder, including but not limited to commercial advertisements for
the sale of the Licensed Masters as contained on the Albums.
(d) Subject to subsections (a), (b), and (c) above, Licensor shall pay all
other royalties and payments, if any, which may become due to artists, producers
and other contributors to the performances embodied on the Licensed Masters.
(e) Within thirty (30) days of receipt of Licensor's invoice Licensee shall
pay to Licensor costs incurred by Licensor relating to copying, packaging and
shipping of the Licensed Masters, negatives, advertising, promotional, display
and any other materials supplied or caused to be supplied by Licensor.
10. DELIVERY AND QUALITY OF LICENSED MASTERS
(a) Licensor shall use its best efforts to deliver or cause to be delivered
within twenty (20) days after acceptance of Licensee's request therefor and
receipt of copies of Licensee's mechanical copyright licenses, copy master tapes
of those Licensed Masters then agreed to be licensed hereunder. Such copy master
tapes shall be of suitable quality for use in the commercial production of
records for general sale. Any Licensed Masters delivered to Licensee hereunder,
shall be deemed to be technically satisfactory for the purposes hereunder,
unless Licensor has been notified to the contrary within ten days (10) after
receipt of the said Licensed Masters. Any such notification must contain a
written technical report from the laboratory of Licensee which specifically
details and describes any technical defects in the material. Upon receipt of
such notification, Licensor shall attempt to have the defects corrected, at its
expense, and reship the corrected Licensed Masters promptly thereafter.
(b) Licensor shall supply to Licensee in writing the correct title of the
recorded work(s), the names of the author and composer thereof, the names of the
recording artists as Licensor desires to have them displayed on the label of the
Album, and any other relevant copyright information available to Licensor.
11. SUBSTITUTIONS
(a) In the event Licensor is not reasonably able to correct the noticed
defects pursuant to Clause 10 above, or in the event the Licensor's ownership of
or otherwise control of the rights of any Licensed Master has become encumbered,
restricted or terminated, the Licensor, in its sole discretion, reserves the
right to substitute a Licensed Master.
(b) Licensee's sole remedy, in the event of Licensor's failure to provide a
substitute Licensed Masters referred to above, shall be the refund of monies
paid as advances for such Licensed Master and no other.
12. LABEL CREDIT
The labels, sleeves and inlay cards of all Records shall bear a credit to
Licensor in such form as indicated on the Schedules.
13. SAMPLES
Licensee shall provide Licensor, prior to the distribution thereof, with three
(3) sample copies of the Albums.
14. LICENSEE'S WARRANTIES
Licensee warrants and represents that:
(a) Licensee possesses the full right, power and authority to enter into this
Agreement.
(b) Prior to the delivery of the master tapes and prior to the manufacture of
records, Licensee shall have obtained all mechanical copyright licenses relating
to the musical compositions embodied on the Licensed Masters contained on such
Album and shall remit copies of such mechanical licenses to Licensor. This
warranty is of the essence of this Agreement.
(c) All Albums manufactured by Licensee hereunder shall be of the highest
quality and shall be consistent with the standards of the record industry.
(d) All Albums manufactured by Licensee hereunder shall be exploited by
Licensee in strict compliance with all the terms and conditions of this
Agreement. In particular, but without limitation, Licensee hereby expressly
warrants that no Album may be exported for sale outside the Territory nor shall
Licensee knowingly sell any Album manufactured hereunder to any third party
intending to resell same outside the Territory.
(e) Neither Licensee nor anyone claiming rights through Licensee shall sell,
assign, transfer, mortgage, hypothecate or subject to any lien or encumbrance
the Licensed Masters or any of the above rights, and any attempt thereto shall
cause the immediate termination of this Agreement and/or be deemed null and void
and of no force and effect whatsoever.
15. LICENSOR'S WARRANTIES
Licensor warrants and represents that:
(a) Licensor possesses the full right, power and authority to enter into and
to perform this Agreement.
(b) At the time of delivery of the Licensed Masters Licensor will be the
exclusive owner of or otherwise control the rights herein granted to Licensee in
such Licensed Masters.
(c) The Licensed Masters were recorded and otherwise prepared in all respects
in accordance with the rules and regulations of all unions and similar
associations having jurisdiction.
16. INDEMNIFICATION
(a) Each of the parties hereto shall indemnify, save and hold the other
harmless from loss or damage arising out of or connected with any claim by a
third party which is inconsistent with any of the recitals, agreements,
representations or warranties herein. Either party shall reimburse the other on
demand for any payment made by the demanding party at any time after the date
hereof in respect of any liability or claim to which this indemnity relates and
which has resulted in an adverse final judgment against the demanding party, or
a settlement approved by both parties, in which it is determined that the
ultimate liability is that of the indemnifying party. Prompt notice shall be
given to the indemnifying party of any claim to which this indemnity relates and
the indemnifying party shall have the right, at its own expense to control the
defense thereof, provided that:
(i) The demanding party shall have the right to cooperate in such defense
at its own expense.
(ii) If the indemnifying party shall not exercise its right to control the
defense, then the demanding party shall, in addition to any other indemnity
hereunder, be reimbursed for its reasonable expenses (including reasonable
attorney's fees), if any, incurred in the defense if it shall be determined that
the ultimate liability is that of the indemnifying party; and
(b) Nothing herein is to be construed so as to permit Licensee the right to
withhold royalties payable hereunder.
17. ASSIGNMENT
Neither this Agreement nor the rights granted to Licensee hereunder may be
assigned by Licensee without the written consent of Licensor. Licensor shall be
entitled to assign this Agreement including its rights hereunder to any parent,
affiliated or subsidiary company or corporation, or to anyone owning or
acquiring substantially all of the capital stock or assets of Licensor.
18. TERMINATION OR EXPIRATION
(a) Bankruptcy and Insolvency.
In the event Licensee shall be adjudged a bankrupt or in the event that any
insolvency proceedings are instituted by or against Licensee and are not
dismissed within thirty (30) days after the institution thereof, or in the event
a trustee or receiver is appointed to take over all or a substantial part of
Licensee's assets, Licensee's rights under this Agreement shall automatically
terminate, and such termination shall be deemed effective as of the commencement
of the event which gave rise to such termination. In the event of such
termination, all monies due and unpaid by Licensee pursuant to this Agreement
shall there upon become due and payable. Further, all Licensed Masters and all
copies thereof, all color separations and other artwork and all other property
of Licensor shall be returned to Licensor at Licensee's expense, and in no event
shall the title thereto or any rights therein be acquired by or vest in any
trustee, receiver or in any other party by reason of any such insolvency,
bankruptcy or other such occurrence affecting Licensee.
(b) Breaches.
Without prejudice to any other rights or claims which Licensor may have,
Licensor may, at its option, terminate this Agreement upon giving not less than
fifteen (15) days written notice and period to cure to Licensee, in the event of
any of the following, which shall constitute a material breach of this
Agreement:
(i) Licensee shall fail to account and make payments hereunder or shall
fail to perform any other of its material obligations required of it hereunder.
(ii) Licensee, through act or omission, shall violate or knowingly permit
the violation of any of its warranties and representations hereunder.
(iii) Licensee utilizes or duplicates Licensor's mark in violation of the
applicable terms of this Agreement.
(iv) Licensee denies Licensor the right granted hereunder to audit
Licensee's books.
(c) Immediate Termination.
Notwithstanding Section 18(b) above, and without prejudice to any other rights
or claims which Licensor may have, Licensor shall have the right to immediately
terminate this license without any written notice to Licensee in the event of
any of the following:
(i) Licensee has failed to timely account and make payments hereunder a
total of four (4) times, whether or not prior delinquent accountings and
payments have been made.
(ii) Licensee has willfully reported inaccurate accountings of payments due
hereunder.
(iii) Licensee knowingly exports, distributes or licenses any Licensed
Master or Album outside the Territory.
(d) Death or change in ownership.
In the event of: (i) the death of Philip Kives; or (ii) discontinuance of Philip
Kives as an active senior officer or manager of Licensee; or (iii) a change in
the ownership of fifty percent (50%) or more of the Licensee, Licensor may
terminate this Agreement by giving the Licensee fifteen (15) days' written
notice. In such event Licensee shall have a six (6) month period in which to
sell off existing inventory of the Albums.
(e) Termination/Expiration Procedure.
(i) In the event of the termination of this Agreement, all rights herein
granted by Licensor to Licensee shall immediately terminate and shall thereupon
revert to Licensor, free and clear of any claims by Licensee. Licensee shall
continue, nevertheless, to be responsible for accounting and payments as set
forth in this Agreement, and upon notification from Licensor will return to
Licensor or to Licensor's designee at Licensee's expense, all tapes, matrices,
duplicate tapes, masters, mothers and stampers supplied by Licensor hereunder
that are in Licensee's possession or control.
(ii) If this Agreement expires by expiration of the Term then, at the end
of the Term, all Licensed Masters, tapes or matrices supplied to Licensee and
all derivatives of said tapes and matrices, including duplicate tapes, masters,
mothers and stampers provided to Licensee pursuant to the License Agreement,
shall at Licensor's election either be destroyed in the presence of one of
Licensor's duly authorized representatives, or delivered to Licensor free of
cost to Licensor.
(f) Sell-off.
(i) Licensee shall advise Licensor in writing, upon the expiration of the
term, the quantity of Albums that are in Licensee's stock at the time of said
expiration.
(ii) Provided Licensee supplies Licensor with the aforesaid information
Licensee shall be entitled to sell-off, for a period of six (6) months
thereafter, all existing stocks of the applicable Album subject to the
continuing obligation to account for and pay royalties on such sales in
accordance with the terms hereof.
(iii) Upon the expiration of the sell-off period Licensee shall, at its
sole cost and expense, destroy all of its existing inventory of Albums and shall
furnish Licensor with an affidavit of destruction executed by an officer of
Licensee.
19. NOTICES
All accounting or payment which Licensee is hereto required to give to Licensor
shall be addressed to the addresses first above written. All other notices and
other items from one party to the other hereunder will, unless herein indicated
to the contrary, be addressed as follows;
To Licensee: At Licensee's address as set forth on the first
page hereof;
To Licensor: At Licensor's address as set forth on the first
page hereof, directed to the attention of:
Vice President, Business Affairs
or to such other address as either party shall designate in writing to the other
party from time to time. Unless otherwise set forth in this Agreement, all
notices shall be deemed duly given on the date of mailing.
20. MANUFACTURING
Licensor shall be afforded the right of first refusal to manufacture all of the
product which include master recordings hereunder. The right of first refusal
shall be exercised within five (5) business days of receipt of a written notice
of third party offer to manufacture.
21. MISCELLANEOUS
(a) This Agreement set forth the entire understanding between Licensor and
Licensee with respect to the subject matter hereof, all prior negotiations or
alleged understandings are merged herein, and no amendment to or modification of
this Agreement or any provision hereof shall be binding upon Licensor and
Licensee unless confirmed by a written instrument signed by an Officer of
Licensee and Licensor's authorized signatory. Any process in any action, suit or
proceeding arising out of or relating to this agreement may, among other
methods, be served upon Licensee by delivering it or mailing it in accordance
with Clause 19 above. No waiver of any provision of or default under this
Agreement shall affect Licensee's or Licensor's rights, as the case may be,
thereafter to enforce such provision or to exercise any right or remedy in the
event of any other default, whether or not similar.
(b) Any act or failure to act by either party shall not be construed as a
waiver of any of such party's rights hereunder unless a memorandum thereof,
expressing the intention to waive, signed by the party to be charged, is made
and delivered to the other party. Any such waiver shall not be deemed to be a
waiver of any past or future breach of the same or any other provision of this
Agreement.
(c) If any part of this Agreement shall be determined to be invalid or
unenforceable by a court of competent jurisdiction or by any other legally
constituted body having jurisdiction to make such determination, the remainder
of this Agreement shall remain in full force and effect.
(d) The captions herein are for convenience only, do not constitute a part of
this Agreement, and are not to be used in the construction thereof.
(e) This agreement and any arbitration conducted under paragraph (g) of this
Clause 21 will be governed by and construed in accordance with the substantive,
procedural and evidentiary laws and rules of the State of Minnesota.
(f) Subject to paragraph (g) of this Clause 21, the parties hereby submit to
the jurisdiction of, and waive any venue objections against, the United States
District Court for the District of Minnesota and the trail courts of the State
of Minnesota, in any litigation and/or arbitration arising out of this
Agreement, and each party hereby consents to the personal jurisdiction of such
courts for purposes of this Agreement, including entry of enforcement of any
arbitration award or judgment.
(g) Any claim, dispute, or controversy arising out of or in connection with or
relating to this Agreement or the breach or alleged breach thereof shall be
submitted by the parties to arbitration by the American Arbitration Association
("AAA") in the City of Minneapolis, Minnesota, under the commercial rules then
in effect for the Association except as provided herein. A transcribed record
shall be prepared. The AAA shall recommend three (3) arbitrators who are
knowledgeable in the field in dispute. The parties shall agree upon one (1) of
the three within twenty (20) days. If no arbitrator is mutually agreed upon, the
AAA shall make such appointment within thirty (30) days of such failure.
Each party shall have the right to request the arbitrator to order reasonable
and limited discovery. The award rendered by the arbitrator shall include costs
of arbitration, reasonable attorneys' fees and reasonable costs for expert and
other witnesses, but shall not include punitive damages against either party.
Judgment on such award may be entered as provided in paragraph (f) of this
Clause 21, provided that nothing in this paragraphs (g) shall be deemed as
preventing either party from seeking relief from the courts as necessary to
protect either party`s name, proprietary information, trade secrets, know-how,
or any other appropriate provisional remedy.
(h) Clause 6, 7, 8, 9, 12, 14, 16, 18(f) and 21 will survive the termination
of this Agreement.
22. DEFINITIONS
As used in this Agreement, the following terms shall have the indicated
meanings:
(a) "master recordings" - recordings which embody sound alone and are intended
for reproduction in the form of records or otherwise.
(b) "Record" or "record" means any reproduction of a master recording in the
form of analog cassette tapes and compact discs.
(c) "exploit" - shall mean the manufacture, distribution, advertising,
promotion and sale of the Album pursuant to the terms hereof.
(d) "Album" - that record (which shall contain all of the Licensed Masters)
manufactured, distributed and sold by Licensee hereunder which shall contain up
to one hundred and fifty (150) master recordings on one or more Records.
(e) "Records sold", "record sales" and "sales" mean one hundred (100%) percent
of those records shipped by Licensee hereunder and not returned.
(f) "Infomercial" - shall mean a minimum of a twenty (28) eight minute
television broadcast show as customary in the industry.
(g) "Territory" - United States
(h) "this Agreement" - shall mean this agreement and the Schedule "A" annexed
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
DOMINION ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC.
BY_______________________ BY__________________________
An authorized signatory An authorized signatory
NAME__________________________ NAME________________________
Please print or type Please print or type
TITLE_________________________ TITLE_______________________
SCHEDULE A
Annexed to and forming part of Agreement dated _________________ , 1995
ALBUM TITLE: HEARTBREAKER
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
RAINDROPS KEEP FALLING ON MY HEAD B.J. THOMAS
JEAN OLIVER
CRYSTAL CHANDELIERS VIC DANNA
I BELIEVE FRANKIE LAINE
JUST WALKING IN THE RAIN JOHNNY RAY
LOVE LETTERS IN THE SAND PAT BOONE
RED ROSES FOR A BLUE LADY VIC DANNA
CARA MIA JAY BLACK
BESAME MUCHO TRINI LOPEZ
LOVE IS A MANY SPLENDORED THING FOUR ACES
VENUS* FRANKIE AVALON
MR. BLUE FLEETWOODS
YOUNG GIRL GARY PUCKET AND
THE UNION GAP
JESAMINE CASUALS
HAPPY TOGETHER* TURTLES
LOVE IS ALL AROUND TROGGS
WISHING AND HOPING MERSEYBEATS
YOU WERE ON MY MIND CRISPIAN ST. PETERS
SILENCE IS GOLDEN TREMELOES
A GROOVY KIND OF LOVE WAYNE FONTANA
FERRY 'CROSS THE MERSEY GERRY & THE
PACEMAKERS
YOU'VE GOT YOUR TROUBLES I'VE GOT MINE FORTUNES
IF YOU GOTTA MAKE A FOOL OF SOMEBODY FREDDY & THE
DREAMERS
TRAINS & BOATS & PLANES BILLY J. KRAMER
REFLECTIONS OF MY LIFE MARMALADE
THE END OF THE WORLD SKEETER DAVIS
WILL YOU STILL LOVE ME TOMORROW SHIRELLES
I WILL FOLLOW HIM SANDY POSEY
DOWN IN THE BOONDOCKS BILLY JOE ROYAL
LEADER OF THE PACK SHANGRI-LAS
RUNAWAY DEL SHANNON
CORINNA CORINNA RAY PETERSEN
VENUS IN BLUE JEANS JIMMY CLANTON
IT'S MY PARTY LESLEY GORE
DEDICATED TO THE ONE I LOVE SHIRELLES
HEY PAULA* PAUL & PAULA
TELL LAURA I LOVE HER RAY PETERSEN
TEEN ANGEL MARK DINING
CHAPEL OF LOVE DIXIE CUPS
ROSEGARDEN LYNN ANDERSON
HEARTACHES BY THE NUMBER GUY MITCHELL
THE HAPPIEST GIRL IN THE WHOLE USA DONNA FARGO
WHAT IN THE WORLD'S COME OVER YOU JACK SCOTT
LUCKENBACH TEXAS JOHNNY RUSSELL
HELP ME MAKE IT THROUGH THE NIGHT SAMMI SMITH
TENNESSEE WALTZ PATTI PAGE
HIGH NOON FRANKIE LAINE
SLIDE OFF YOUR SATIN SHEETS JOHNNY PAYCHECK
WILL THE CIRCLE BE UNBROKEN NED MILLER
I CAN'T STOP LOVING YOU KITTY WELLS
NO CHARGE MELBA MONTGOMERY
YOU LIGHT UP MY LIFE MARGO SMITH
GREEN GREEN GRASS OF HOME PORTER WAGONER
**MY SPECIAL PRAYER PERCY SLEDGE
GREAT PRETENDER PLATTERS
MAKE THE WORLD GO AWAY TIMI YURO
ALL I COULD DO WAS CRY ETTA JAMES
**SMOKE GETS IN YOUR EYES PLATTERS
SPANISH HARLEM BEN E. KING
WHEN A MAN LOVES A WOMAN PERCY SLEDGE
WARM AND TENDER LOVE PERCY SLEDGE
STAND BY ME BEN E. KING
ONLY YOU PLATTERS
HURT TIMI YURO
**HEY THERE LONELY GIRL EDDIE HOLMAN
**BRING IT ON HOME TO ME EDDIE FLOYD
IF YOU DON'T KNOW ME BY NOW HAROLD MELVIN &
THE BLUENOTES
***SINGING THE BLUES GUY MITCHELL
***I'LL BE HOME PAT BOONE
***ROCKY DICKEY LEE
***OH LONESOME ME DON GIBSON
(**) -- CASSETTE/LP ONLY
(***) -- COMPACT DISC ONLY
(**) -- CASSETTE/LP ONLY
(***) -- COMPACT DISC ONLY
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
SCHEDULE B
Annexed to and forming part of Agreement dated _________________ , 1995
ALBUM TITLE: ROCK BOX
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
YAKETY YAK THE COASTERS
ALLEY OOP* HOLLYWOOD ARGYLES
MR. CUSTER* LARRY VERN
PAPA-OOM MOW MOW RIVINGTONS
SEVEN LITTLE GIRLS PAUL EVANS
(SITTING IN THE BACK SEAT)
DOES YOUR CHEWING GUM LOSE ITS FLAVOR LONNIE DONEGAN
ON THE BEDPOST OVERNIGHT?
THE BIRDS & THE BEES* JEWEL AKENS
SURFIN' BIRD TRASHMEN
MONSTER MASH SHA NA NA
WILD THING THE TROGGS
HE'S SO FINE CHIFFONS
KEEP A KNOCKIN' LITTLE RICHARD
SHEILA TOMMY ROE
SPLISH SPLASH SHA NA NA
PERSONALITY LLOYD PRICE
THE GREAT PRETENDER THE PLATTERS
WILD ONE BOBBY RYDELL
HEY LITTLE GIRL (IN THE HIGH DEE CLARK
SCHOOL SWEATER)
LITTLE DARLIN' THE DIAMONDS
HE'S A REBEL CRYSTALS
THE LETTER THE BOX TOPS
LET'S HAVE A PARTY WANDA JACKSON
DA DOO RON RON CRYSTALS
LONG TALL SALLY LITTLE RICHARD
STAGGER LEE LLOYD PRICE
JAMBALAYA JOHNNY RUSSELL
SLOW TWISTIN' CHUBBY CHECKER
RED RIVER ROCK JOHNNY & THE
HURRICANES
THE STROLL THE DIAMONDS
DO YOU WANNA DANCE? BOBBY FREEMAN
MASHED POTATO TIME DEE DEE SHARP
PEPPERMINT TWIST JOEY DEE & THE
STARLITERS
SHAKIN' ALL OVER CHAD ALLEN (FORMERLY
OF THE GUESS WHO)
BRISTOL STOMP DOVELLS
LUCILLE LITTLE RICHARD
LEADER OF THE PACK SHANGRI-LAS
BLUE MOON THE MARCELS
AIN'T THAT A SHAME PAT BOONE
CHAPEL OF LOVE DIXIE CUPS
PARTY DOLL BUDDY KNOX
HIPPY HIPPY SHAKE SWINGIN' BLUE JEANS
REBEL ROUSER DUANE EDDY
TELL HIM THE EXCITERS
UNDER THE BOARDWALK THE DRIFTERS
MY BOYFRIEND'S BACK THE ANGELS
STAND BY ME BEN E. KING
GOOD GOLLY MISS MOLLY LITTLE RICHARD
RUNAWAY DEL SHANNON
HEY PAULA* PAUL & PAULA
WHEN A MAN LOVES A WOMAN PERCY SLEDGE
HURT TIMI YURO
THEN HE KISSED ME THE CRYSTALS
SAVE THE LAST DANCE FOR ME THE DRIFTERS
MY GUY MARY WELLS
ONE FINE DAY THE CHIFFONS
PATCHES CLARENCE CARTER
MY TRUE LOVE JACK SCOTT
GOIN OUT OF MY MIND LITTLE ANTHONY
DEDICATED TO THE ONE I LOVE THE SHIRELLES
MY HEART IS AN OPEN BOOK CARL DOBKINS
WHISPERING GRASS INK SPOTS
VENUS* FRANKIE AVALON
RAINDROPS KEEP FALLING ON MY HEAD B.J. THOMAS
CHARLIE BROWN THE COASTERS
OH BOY WANDA JACKSON
THE HUCKLEBUCK CHUBBY CHECKER
PEPINO THE ITALIAN MOUSE JOEY CHEDDAR
STUPID CUPID WANDA JACKSON
HATS OFF TO LARRY DEL SHANNON
SUSIE DARLING ROBIN LUKE
LET'S TWIST AGAIN CHUBBY CHECKER
SPEEDY GONZALES PAT BOONE
IF I HAD A HAMMER TRINI LOPEZ
TEQUILA ACE CANNON
COME SOFTLY TO ME FLEETWOODS
JUST WALKING IN THE RAIN JOHNNY RAY
RHYTHM OF THE RAIN CASCADES
WHAT'S A MATTER BABY TIMI YURO
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
SCHEDULE C
Annexed to and forming part of Agreement dated ________________________ , 1995
ALBUM TITLE: POP HISTORY
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
SUGAR BABY LOVE RUBETTES
BEAUTIFUL SUNDAY DANIEL BOONE
LOVE GROWS WHERE MY ROSEMARIE GOES EDISON LIGHTHOUSE
COME AND GET IT BADFINGER
UNDERCOVER ANGEL ALAN O'DAY
EVERLASTING LOVE ROBERT KNIGHT
HOOKED ON A FEELING B.J. THOMAS
*DANCING ON A SATURDAY NIGHT BARRY BLUE
THE NIGHT CHICAGO DIED PAPER LACE
INDIAN RESERVATION DON FARDON
ARIZONA MARK LINDSAY
BILLY DON'T BE A HERO PAPER LACE
ME AND YOU AND A DOG NAMED BOO LOBO
SAN BERNADINO CHRISTIE
YELLOW RIVER CHRISTIE
I'D LOVE YOU TO WANT ME LOBO
DON'T EXPECT ME TO BE YOUR FRIEND LOBO
IF YOU DON'T KNOW ME BY NOW HAROLD MELVIN & THE BLUENOTES
DON'T LET THE SUN CATCH YOU CRYING GERRY & THE PACEMAKERS
GOODBYE MARY HOPKINS
MR. BOJANGLES GLENN YARBOROUGH
ONE TIN SOLDIER ORIGINAL CASTE
DO YOU WANNA MAKE LOVE? PETER MCCANN
DRIFT AWAY DOBIE GRAY
RIDE CAPTAIN RIDE BLUES IMAGE
SOONER OR LATER GRASSROOTS
PIED PIPER CHRISTIAN ST. PETERS
BEG STEAL OR BORROW NEW SEEKERS
*IT AIN'T ME BABE TURTLES
*ELENORE TURTLES
LAY DOWN MELANIE
OB LA DI OB LA DA MARMALADE
THE LETTER THE BOX TOPS
HERE COMES MY BABY TREMELOES
BUILD ME UP BUTTERCUP FOUNDATIONS
LADY WILLPOWER GARY PUCKET & THE
UNION GAP
GOOD MORNING STARSHINE OLIVER
IN THE SUMMERTIME MUNGO JERRY
JUDY IN DISGUISE JOHN FRED & HIS
PLAYBOY BAND
BABY COME BACK EQUALS
BEND ME SHAPE ME AMERICAN BREED
DIZZY TOMMY ROE
**LIGHTNING STRIKES LOU CHRISTIE
**SATISFACTION GUARANTEED HAROLD MELVIN & THE BLUENOTES
***SURF CITY JAN & DEAN
***HITCHIN' A RIDE VANITY FAIR
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
ANNEX B
STOCK TRANSFER AND LOAN REPAYMENT AGREEMENT
STOCK TRANSFER
AND
LOAN REPAYMENT AGREEMENT
This Stock Transfer and Loan Repayment Agreement dated as of June 28, 1995
is made and entered into by and among K-5 Leisure Products, Inc., a Minnesota
corporation ("K-5"), Simitar, Inc., a Minnesota corporation ("Simitar"), and
Mickey Elfenbein ("Elfenbein"), a resident of Medina, Minnesota,
RECITALS
WHEREAS, Elfenbein is indebted to K-5 in an amount that, as of the Closing
Date (as hereinafter defined) will be approximately $927,263 pursuant to a loan
in the principal amount of $448,000 made by K-5 to Elfenbein and a loan in the
principal amount of $120,575 made by National Developments Ltd. ("National
Developments") to Elfenbein (National Developments' rights with respect to which
were previously assigned to K-5) (collectively, the "K-5 Indebtedness"); and
WHEREAS, the K-5 Indebtedness is in part the subject of that certain
agreement (the "Debt Agreement") dated April 27, 1988 by and among Elfenbein,
K-5, Qwil Resources, Inc. ("Qwil"), Bradley Investments, Inc. ("Bradley"),
National Celebrity Video, Inc. ("NCV"), and Simitar Entertainment, Inc.
("Simitar Entertainment") and a related pledge agreement (the "Pledge
Agreement"), of even date therewith, between Elfenbein and K-5; and
WHEREAS, Elfenbein is the sole shareholder of Simitar, and the record and
beneficial owner of 362,611 shares of the common stock of K-tel International,
Inc. ("K-tel") and 430 common shares and 50 preferred shares of the capital
stock of Simitar Entertainment; and
WHEREAS, K-5 is the record and beneficial owner of 520 common shares and 50
preferred shares of the capital stock of Simitar Entertainment (collectively,
the "Simitar Entertainment Shares"); and
WHEREAS, the parties hereto desire to provide for the payment of the K-5
Indebtedness and for the exchange of the Simitar Entertainment Shares for
certain common shares in K-tel and a promissory note, on the terms and subject
to the conditions contained in this Agreement,
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. REPAYMENT OF K-5 INDEBTEDNESS. At the Closing (as hereinafter defined)
and on the Closing Date (as hereinafter defined), Elfenbein shall assign,
transfer and convey to K-5 231,816 shares of the common stock of K-tel (the
"K-tel Repayment Shares") free and clear of any lien, claim or encumbrance of
any nature whatsoever, and K-5 shall accept such shares as payment in full of
all amounts owing by Elfenbein to K-5.
2. EXCHANGE OF SIMITAR ENTERTAINMENT SHARES FOR NOTE AND K-TEL SHARES. On
or prior to the Closing, Elfenbein shall assign, transfer and convey to Simitar,
as a capital contribution, 118,184 common shares of K-tel (the "K-tel Exchange
Shares") and all of the common and preferred shares in Simitar Entertainment
held of record or beneficially by Elfenbein. At the Closing and on the Closing
Date, K-5 shall assign, transfer and convey to Simitar, free and clear of any
lien, claim or encumbrance of any nature whatsoever, all of the common and
preferred shares in Simitar Entertainment held of record or beneficially by K-5
and, in exchange therefor, Simitar shall assign, transfer and convey to K-5,
free and clear of any lien, claim or encumbrance of any nature whatsoever, the
K-tel Exchange Shares and Simitar's promissory note in the form attached hereto
as Exhibit A (the "Note").
3. CLOSING DATE AND CLOSING PROCEDURES.
(1) The Closing of the transactions contemplated herein shall take
place at the offices of Kaplan, Strangis and Kaplan, P.A., 5500 Norwest
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, at 10:00
a.m. on October 16, 1995, or at such other time, date or place as to which
the parties hereto may mutually agree (for purposes of this Agreement, such
event is referred to as the "Closing" and such date and time are referred
to as the "Closing Date").
(2) At the Closing, the parties shall take the following actions:
(a) Elfenbein shall deliver to K-5 the certificate or
certificates representing the K-tel Repayment Shares, duly endorsed
for transfer;
(b) K-5 shall execute and deliver to Elfenbein a receipt
acknowledging receipt of the K-tel Repayment Shares as payment in full
of all amounts owing by Elfenbein to K-5;
(c) Elfenbein, K-5, Qwil, Bradley, NCV, Simitar Entertainment and
National Developments shall execute a termination and release
acknowledging termination of the Debt Agreement and the Pledge
Agreement and the repayment in full of all amounts owing by Simitar
Entertainment, Elfenbein, NCV and/or Bradley to National Developments,
K-5 and/or Qwil and all amounts owing by NCV to Elfenbein;
(d) K-5 shall deliver to Simitar the certificates representing
the Simitar Entertainment Shares, duly endorsed for transfer;
(e) Simitar shall deliver to K-5 the certificate or certificates
representing the K-tel Exchange Shares, duly endorsed for transfer,
and the Note;
(f) Each of Elfenbein and Simitar, on the one hand, and K-5, on
the other hand, shall deliver to the other a certificate stating that
the representations and warranties made herein were true and correct
on the date hereof and are true and correct on the Closing Date and
evidencing the due authorization of their execution, delivery and
performance of this Agreement by their respective boards of directors;
(g) Philip Kives, the principal shareholder of K-5, shall submit
his resignation as a director and officer of Simitar Entertainment;
(h) K-5, Simitar and Elfenbein shall, and K-5 shall cause Philip
Kives to, execute and deliver a release in the form attached hereto as
Exhibit B; and
(i) K-5 shall enter into a record license agreement with Dominion
Entertainment, Inc. in the form attached hereto as Exhibit C.
4. REPRESENTATIONS AND WARRANTIES.
(1) Representations and Warranties of Simitar and Elfenbein. In order
to induce K-5 to enter into this Agreement and to consummate the
transactions contemplated herein, Simitar and Elfenbein, jointly and
severally, make the following representations and warranties to K-5:
(a) Elfenbein is the sole record and beneficial owner of the
K-tel Repayment Shares and the K-tel Exchange Shares, with full right,
power and authority to transfer the same as contemplated in this
Agreement, free and clear of any lien, claim or encumbrance of any
nature whatsoever (other than compliance with applicable securities
laws). As of the Closing Date, Simitar shall be the sole record and
beneficial owner of the K-tel Exchange Shares, with the full right,
power and authority to transfer the same as contemplated in this
Agreement, free and clear of any lien, claim or encumbrance of any
nature whatsoever (other than compliance with applicable securities
laws). Between the date hereof and the Closing Date, Elfenbein shall
not assign, transfer, convey, pledge, mortgage, hypothecate or
otherwise transfer the K-tel Repayment Shares or the K-tel Exchange
Shares, or any interest in either of the foregoing, except pursuant to
this Agreement.
(b) Simitar and Elfenbein have each received or had access to all
information with respect to K-tel and Simitar Entertainment that they
believe is necessary or appropriate to evaluate the merits and risks
of the transactions contemplated herein. Elfenbein and Simitar are
each sufficiently sophisticated and experienced in financial and
business matters to evaluate such merits and risks.
(c) Simitar is acquiring the Simitar Entertainment Shares without
a view to the distribution thereof, solely for Simitar's own account
and not for the account of any other person or persons, and Simitar
shall not sell or otherwise dispose of such shares except in
compliance with all applicable securities laws.
(d) Elfenbein does not hold or have any direct or indirect
interest in any securities, options or rights to acquire debt of
K-tel, except 362,611 shares of common stock of K-tel (231,816 of
which constitute the K-tel Repayment Shares and 118,184 of which
constitute the K-tel Exchange Shares), and except for rights arising
as a result of his employment as an officer and director of K-tel.
(2) REPRESENTATIONS AND WARRANTIES OF K-5. In order to induce
Elfenbein and Simitar to enter into this Agreement and to consummate the
transactions contemplated herein, K-5 represents and warrants to Elfenbein
and Simitar as follows:
(a) K-5 is the sole record and beneficial owner of the Simitar
Entertainment Shares, with full right, power and authority to transfer
the same as contemplated in this Agreement, free and clear of any
lien, claim or encumbrance of any nature whatsoever. Between the date
hereof and the Closing Date, K-5 shall not assign, transfer, convey,
pledge, mortgage, hypothecate or otherwise transfer the Simitar
Entertainment Shares, K-5's rights with respect to any amounts owing
by Elfenbein to K-5, or any interest in either of the foregoing,
except pursuant to this Agreement.
(b) K-5 has received or had access to all information with
respect to K-tel and Simitar Entertainment that it believes is
necessary or appropriate to evaluate the merits and risks of the
transactions contemplated herein. K-5 is sufficiently sophisticated
and experienced in financial and business matters to evaluate such
merits and risks.
(c) K-5 is acquiring the K-tel Repayment Shares and the K-tel
Exchange Shares without a view to the distribution thereof, solely for
K-5's own account and not for the account of any other person or
persons, and K-5 shall not sell or otherwise dispose of such shares
except in compliance with all applicable securities laws.
(d) Neither K-5 nor its principal shareholder, Philip Kives,
holds or has any direct or indirect interest in any securities,
options or rights to acquire debt of Simitar Entertainment, except the
Simitar Entertainment Shares.
5. CONDITIONS PRECEDENT. The obligation of each of the parties to close on
the transactions contemplated herein is subject to the fulfillment at or prior
to the Closing Date of each of the following conditions:
(1) ACCURACY OF REPRESENTATIONS AND WARRANTIES IN COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the other parties hereto
contained in this Agreement shall have been true and correct at and as of
the date hereof, and they shall be true and correct at and as of the
Closing Date with the same force and effect as though made at and as of
that time. Each of the other parties shall have performed and complied with
all of their obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date.
(2) PURCHASE AND SALE TRANSACTION. The closing of the transactions
contemplated by that certain Agreement for Purchase and Sale of even date
herewith by and among Simitar and K-tel International, Inc. shall have
occurred or be occurring contemporaneously with the Closing of the
transactions contemplated herein.
6. EXPENSES. The expenses of the transactions contemplated hereunder,
including legal and accounting fees, if any, shall be borne by the party
incurring the expense, whether or not the transactions contemplated under this
Agreement shall be consummated.
7. FURTHER ASSURANCES. From and after the Closing, each of the parties
hereto shall execute, acknowledge and deliver all such further assignments,
assurances and other instruments as may be reasonably necessary to perfect the
conveyances contemplated in this Agreement.
8. ENTIRE AGREEMENT. This Agreement contains the entire Agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings among them with respect thereto. This
Agreement may be amended, modified or supplemented only pursuant to a written
instrument signed by each of the parties hereto.
9. TERMINATION. This Agreement may be terminated and the transactions
contemplated herein abandoned by either party hereto in the event that the
Closing shall not have taken place by November 30, 1995, but any such
termination shall be without prejudice to any other rights or remedies of any
party hereto with respect to any breach of this Agreement occurring prior to
such termination.
10. BROKER'S COMMISSION. Each of the parties hereto shall indemnify and
hold harmless the other from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or retained by such
party to bring about, or to represent it in, the transactions contemplated
hereby.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and legal representatives.
12. NOTICES. Any notice, request, information or other document to be given
hereunder to any of the parties by any other party shall be in writing and
delivered personally, or sent by registered or certified mail or nationally
recognized overnight carrier, postage prepaid, or by facsimile transmission, as
follows:
If to Simitar or 2605 Fernbrook Lane North
Elfenbein: Minneapolis, MN 55447-4736
Attention: Mickey Elfenbein
Facsimile No. 612-559-6885
with a copy to: Leonard, Street and Deinard
150 South Fifth Street, Suite 2300
Minneapolis, Minnesota 55402
Attention: Steven D. DeRuyter
Facsimile No. 612-335-1657
If to K-5: 2605 Fernbrook Lane North
Suite O
Minneapolis, Minnesota 55447-4736
with a copy to: Taylor McCaffrey
9th Floor, 400 St. Mary Avenue
Winnipeg, Manitoba
Canada R3C 4K5
Attention: Jacqueline A. Lowe
Facsimile No. 204-957-0945
A notice, request, information or other document shall be deemed to have been
given (i) when personally delivered, (ii) five days after having been placed in
the mail, if delivered by registered or certified mail, (iii) the day after
having been placed with a nationally recognized overnight carrier, if delivered
by a nationally recognized overnight carrier, and (iv) when transmitted with
electronic confirmation of receipt, if transmitted by facsimile. Any party may
change the address to which communications hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota applicable to contracts made
and to be performed therein.
IN WITNESS WHEREOF, the undersigned have executed this Stock Transfer
Agreement on the date first written above.
K-5 LEISURE PRODUCTS, INC.
By ________________________________________
Its _____________________________________
/s/ Mickey Elfenbein
Mickey Elfenbein
SIMITAR, INC.
By /s/ Mickey Elfenbein
Mickey Elfenbein
Its President
Exhibit A
PROMISSORY NOTE
[See Attachment] Dated: __________, 1995
Minneapolis, Minnesota
FOR VALUE RECEIVED, Simitar, Inc., a Minnesota corporation (the
"Borrower"), K-tel International (USA), Inc., Dominion Entertainment, Inc., US
Distribution Services, Inc., and Simitar Entertainment, Inc., jointly and
severally, promise to pay to the order of K-5 Leisure Products, Inc., a
Minnesota corporation (the "Holder"), at the Holder's principal office located
at 2605 Fernbrook Lane North, Suite O, Minneapolis, Minnesota 55447-4736, or at
such other place as the Holder of this Note may from time to time designate, the
principal sum of [see attachment], plus interest on the principal balance
remaining unpaid from time to time at the Prime Rate (as hereinafter defined) as
of the date of this Note, and as adjusted on _______________ and _______________
[semi-annual adjustment dates] of each year thereafter (the "Adjustment Dates").
As used in this Note, "Prime Rate" means the rate designated as the "Prime Rate"
in the "Money Rates" section (or any successor thereto) of the Wall Street
Journal as of the applicable Adjustment Date (or, if the applicable Adjustment
Date is not a business day, as of the business day immediately preceding the
applicable Adjustment Date).
The entire outstanding principal balance of this Note and all accrued but
unpaid interest thereon shall be due and payable in full upon the first to occur
of the following events (the occurrence of any such event, or other payment in
full of all amounts owing under this Note, being hereinafter referred to as the
"Maturity" of this Note):
1. The completion by the Borrower, any of its subsidiaries, or any other
corporation that controls all or substantially all of the issued and outstanding
capital stock of the Borrower, of a registered public offering of its equity
securities;
2. The Borrower, K-tel International (USA) Inc., Dominion Entertainment,
Inc. or Simitar Entertainment, Inc. becoming insolvent or any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law being commenced in respect of any of the foregoing
corporations and remaining for 60 days undismissed;
3. The Borrower or any of its subsidiaries transferring to a third party
assets having a fair market value greater than $1,000,000, other than sales in
the ordinary course of business, sales of the stock or any assets of Dominion
Vertriebs, GmbH, K-tel International (FRANCE) SARL, and K-tel International
(SPAIN) SL, and sales and other transfers of assets in connection with the
Borrower's financing of its acquisition as of the date hereof of the other
makers of this Note;
4. The cumulative retained earnings of the Borrower (determined in
accordance with generally accepted accounting principles consistently applied)
increasing from and after the date hereof by $5,000,000 (provided that any
payment of principal or interest by reason of the occurrence of the event set
forth in this subparagraph 4 shall be subject to any restrictions or limitations
binding upon the Borrower in favor of the Borrower's lenders or equity security
holders); or
5. Mickey Elfenbein selling or otherwise disposing of any of his shares of
the capital stock of the Borrower or any interest in such shares other than:
(a) a transfer of such shares or any interest therein to a spouse or
child of Mickey Elfenbein or a trust established for the principal benefit
of Mickey Elfenbein or a spouse or child of Mickey Elfenbein;
(b) a transfer of such shares or interest to an employee of the
Borrower or any of its affiliates; and
(c) a grant of a security interest in such shares or any interest
therein to any party providing financing to the Borrower or any of its
affiliates;
provided that such transfer or grant of a security interest does not
result in Mickey Elfenbein being the registered and beneficial owner of
less than 50 percent of the issued and outstanding shares of the capital
stock of the Borrower of which he is the record and beneficial owner as of
the date of this Note.
Prior to the Maturity of this Note or the Amortization Commencement Date
(as hereinafter defined), the Borrower shall pay to the Holder, as prepayments
of amounts owing hereunder:
1. an amount equal to the Profits (as hereinafter defined) of K-tel
International, Inc. ("K-tel") or its affiliates up to the date hereof with
respect to the product known as the "101 Country Hits", payable within 60 days
of the date hereof;
2. an amount equal to the Profits earned by the Borrower, or the Borrower's
affiliates with respect to the product known as the "101 Country Hits" from and
after the date hereof and prior to the Maturity of this Note, payable in
installments within 60 days following the end of each calendar quarter; and
3. an amount equal to all royalties due and owing by the Holder (excluding
American Federation of Musicians' payments and other expense reimbursements and
non-royalty payments, if any) prior to the maturity of this Note to Dominion
Entertainment, Inc. ("Dominion") pursuant to that certain record license
agreement of even date herewith between Dominion and the Holder (the "Record
License Agreement"), less one cent per track and less all income and similar
taxes owing by Dominion with respect thereto, payable as an offset against
amounts owing by the Holder to Dominion pursuant to the Record License
Agreement.
As used in this Note, "Profits" means gross receipts from the sale of the
"101 Country Hits" box set, any individual compact discs or cassette tapes with
respect thereto and all "upsales" made in connection with direct response sales
thereof (collectively, the "Products"), less (i) reserves for returns and bad
debts with respect to the Products, determined in accordance with the methods
used by Borrower to determine such reserves generally (the reserve for returns
being 10 percent of shipped orders), (ii) the costs set forth on Exhibit A
attached hereto and incorporated herein by reference and corresponding costs
with respect to "upsales", (iii) other amounts paid to third parties in
connection with the production, manufacturing, promotion, marketing, sale or
distribution of the Products (excluding commissions on sales to retail outlets),
and (iv) in the case of sales to retail outlets, 10 percent of the selling
price.
The Holder shall have the right to audit the books and records of the
Borrower with respect to the Products, during normal business hours and on
reasonable prior written notice, at anytime prior to the Amortization
Commencement Date (but not more often than once per calendar quarter), for the
purpose of identifying the calculation of "Profits" pursuant to the proceeding
paragraph (including, without limitation, the product costs set forth on Exhibit
A attached hereto); provided, however, that (i) the royalties paid by Borrower
to third parties shall be assumed to have been based on a $90.00 selling price,
whether or not the amounts actually paid were so based, (ii) the royalties paid
to the Borrower and its subsidiaries shall be assumed to have been $.03 per
track, regardless of the amount actually paid, and (iii) the freight and
handling costs shall be assumed to have been $2.02 or $2.03, as shown on Exhibit
A, regardless of the amount actually paid. The Holder shall maintain all
information received in such audit in strict confidence, and not disclose such
information to any third party or use such information for any purpose other
than enforcing its rights under this Note.
The Borrower may otherwise prepay amounts owing hereunder, in whole or in
part, at any time and from time to time, without premium or penalty. All
prepayments shall be applied first in reduction of the accrued but unpaid
interest owing hereunder and thereafter in reduction of the principal balance
hereof.
Interest accruing hereunder from the date of this Note through the fifth
anniversary hereof (the "Amortization Commencement Date"), to the extent not
prepaid pursuant to the preceding paragraphs, shall be paid in annual
installments on each anniversary of the date of this Note.
The entire principal balance of this Note outstanding as of the
Amortization Commencement Date, together with all interest accrued but unpaid as
of such date or thereafter accruing, shall be paid in five equal annual
installments, one on each of the five anniversaries of the Amortization
Commencement Date.
The Borrower hereby waives: (a) presentment, protest and demand, and (b)
notice of protest, demand, dishonor and nonpayment of this Note.
The obligation evidenced by this Note was negotiated, delivered and
accepted in the State of Minnesota, the laws of which state shall in all
respects be controlling in the interpretation and validity of this Note and all
obligations evidenced hereby.
SIMITAR, INC.
By ________________________________________
Mickey Elfenbein
Its President
K-TEL INTERNATIONAL (USA), INC.
By ________________________________________
Its _____________________________________
DOMINION ENTERTAINMENT, INC.
By ________________________________________
Its _____________________________________
US DISTRIBUTION SERVICES, INC.
By ________________________________________
Its _____________________________________
SIMITAR ENTERTAINMENT, INC.
By ________________________________________
Its _____________________________________
Exhibit A
101 COUNTRY SONGS - SET 6/9/95
101 COUNTRY SONGS
PRODUCT #80184/80182
INITIAL SRLP:
DIRECT RESPONSE: $69.95 $89.95
SHIPPING & HANDLING: $8.95 $8.95
DIRECT RESPONSE
CASS CD
1) FOREVER COUNTRY $1.67 $2.31
2) COUNTRY SUNSHINE $1.66 $2.30
3) EASY COUNTRY $1.27 $1.71
4) MELLOW COUNTRY $1.59 $2.19
5) COUNTRY MEMORIES $1.26 $1.70
6) TIMELESS COUNTRY $1.50 $2.06
7) COUNTRY NIGHTS $1.41 $1.91
8) COUNTRY ROMANCE $1.51 $2.07
9) COUNTRY CLASSICS $1.30 $1.76
10) COUNTRY ROADS $1.55 $2.13
$14.72 $20.14
BOX $0.15 $0.15
ASSEMBLY (HANDS) $0.17 $0.17
TOTAL 10 CD SET COST $15.04 $20.46
PATSY CLINE $1.32 $1.84
GREATEST WESTERN THEMES $1.75 $2.11
ACM ROYALTY $0.70 $0.90
EDDIE RABBITT ROYALTY $1.05 $1.35
FREIGHT & HANDLING $2.02 $2.03
MAILER $0.15 $0.15
TOTAL: $22.03 $28.84
ATTACHMENT
CALCULATION OF PROMISSORY NOTE
PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Principal Start Date Per Diem Interest
<S> <C> <C> <C>
K-5 Loan to Elfenbein 448,000 October 25, 1995 $98.19 (8%/annum)
National Development, Ltd. 118,376 December 12, 1994 $14.28 (8%/annum on $65,169)
Loan to Elfenbein
K-5 Letter of 140,000 December 31, 1994 $30.68 (8%/annum)
Credit Expenses
</TABLE>
Original principal amount of loan will be sum of principal balances plus per
diems from the respective start dates to the closing date.
Exhibit B
MUTUAL RELEASE
EXHIBIT B
MUTUAL RELEASE
This instrument is made and entered into as of the ____ day of __________,
1995 by and among K-5 Leisure Products, Inc. ("K-5"), a Minnesota corporation,
Simitar, Inc. ("Simitar"), a Minnesota corporation, Mickey Elfenbein
("Elfenbein"), a resident of Medina, Minnesota, and Philip Kives ("Kives"), a
resident of Winnepeg, Manitoba pursuant to that certain stock transfer and loan
payment agreement dated _______________, 1995 by and among K-5, Simitar and
Elfenbein (the "Stock Transfer Agreement"). Capitalized terms used but not
otherwise defined in this instrument are used in this instrument as defined in
the Stock Transfer Agreement.
A. KNOW ALL MEN BY THESE PRESENTS that Simitar and Elfenbein
(collectively, the "Elfenbein Parties"), for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, for themselves and
for their heirs, predecessors, successors and assigns, do hereby remise, release
and forever discharge K-5 and Kives (collective, the "Kives Parties") and their
heirs, predecessors, successors and assigns of and from any and all manner of
actions, suits, claims, demands, advances, indemnifications, damages, judgments,
levies, and executions, whether known or unknown, suspected or unsuspected,
liquidated or unliquidated, fixed or contingent, direct or indirect, at law or
in equity, that any one or more of the Elfenbein Parties, or their heirs,
predecessors, successors or assigns, ever had, has or ever can, shall or may
have or claim to have against any one or more of the Kives Parties for, upon, or
by reason of any matter, fact or thing prior to the date of these presents
relating to or arising out of the debt agreement, the pledge agreement, or the
business of K-5, Simitar, Qwil, Bradley, NCV, or Simitar Entertainment, other
than claims arising out of the Stock Transfer Agreement, that certain agreement
for purchase and sale dated ___________, 1995 between Simitar and K-tel
International, Inc., and any promissory note, certificate, agreement or other
instrument issued pursuant to or in connection with either of the foregoing.
B. KNOW ALL MEN BY THESE PRESENTS that the Kives Parties, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, for themselves and for their heirs, predecessors, successors and
assigns, do hereby remise, release and forever discharge the Elfenbein Parties
and their heirs, predecessors, successors and assigns of and from any and all
manner of actions, suits, claims, demands, advances, indemnifications, damages,
judgments, levies, and executions, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, fixed or contingent, direct or
indirect, at law or in equity, that any one or more of the Kives Parties, or
their heirs, predecessors, successors or assigns, ever had, has or ever can,
shall or may have or claim to have against any one or more of the Elfenbein
Parties for, upon, or by reason of any matter, fact or thing prior to the date
of these presents relating to or arising out of the debt agreement, the pledge
agreement, or the business of K-5, Simitar, Qwil, Bradley, NCV, or Simitar
Entertainment, other than claims arising out of the Stock Transfer Agreement,
that certain agreement for purchase and sale dated ___________, 1995 between
Simitar and K-tel International, Inc., and any promissory note, certificate,
agreement or other instrument issued pursuant to or in connection with either of
the foregoing.
C. The undersigned, by execution hereof, state that they have been duly
represented by counsel of their own selection in the premises, and that this
Mutual Release has been read by the undersigned and their counsel, and that the
undersigned understand and fully agree to each, all and every provision hereof,
hereby acknowledging receipt of a copy hereof.
K-5 LEISURE PRODUCTS, INC.
Dated: ___________, 1995 By _____________________________
Its _________________________
SIMITAR, INC.
Dated: ___________, 1995 By _____________________________
Its _________________________
Dated: ___________, 1995 ________________________________
Mickey Elfenbein
Dated: ___________, 1995 ________________________________
Philip Kives
EXHIBIT C
RECORD LICENSE AGREEMENT
Dated as of the ___ day of ___________, 1995
Between And
DOMINION ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC.
2605 Fernbrook Lane North 2605 Fernbrook Lane North
Minneapolis, MN 55447 Suite O
(the "Licensor") Minneapolis, MN 55447
(the "Licensee")
W I T N E S S E T H
In consideration of the mutual promises and covenants herein
contained, the parties hereby agree as follows:
GRANT AND SCOPE OF RIGHTS
(a) Subject to all limitations contained herein, Licensor hereby grants to
Licensee for the Term (as defined in Clause 4) and in the Territory (as defined
in Clause 22) the non-exclusive right to use master recordings contained in the
Dominion re-record catalog which have been approved in writing by Licensor
(hereinafter called the "Licensed Masters") in connection with the exploitation
of one Album for sale by Licensee via infomercials.
(b) The rights hereby granted by Licensor to Licensee include the following:
(i) The right to exploit the Album through television infomercial sales
only.
(ii) The right to use the approved name likeness and biography of each
artist whose performance is embodied in the said Licensed Masters in connection
with the advertising, publicizing or sale of the Albums.
(iii) The right, subject to Clause 9(c) hereof and to the extent permitted
by the applicable laws of the Territory, to perform publicly or to permit the
public performance by means of radio or television broadcast or otherwise of
records manufactured from the said Licensed Masters for the purposes only of
advertising the sale of the Albums.
(iv) The right to use and control the use of the said Licensed Masters the
matrices, mothers, stampers or other copies or derivatives and records
manufactured from the master recordings and the performance(s) embodied therein
for the purposes hereof only.
2. LIMITATIONS OF RIGHTS
(a) Notwithstanding anything to the contrary contained herein:
(i) Licensee shall only embody the Licensed Masters on the said Albums and
shall not make any second or other use thereof.
(ii) It is acknowledged that all Licensed Masters hereunder are not the
original recordings but rather a re-recorded version of the original recording
and Licensee shall clearly designate such Licensed Masters as re-recordings on
all Album jackets, sleeves, inlay cards, and any packaging related thereto. The
obligation to so designate such Licensed Masters is of the essence of this
Agreement.
(iii) The rights herein granted to Licensee shall be limited to the extent
that Licensor owns or controls such rights, and Licensor specifically states
that it does not own or control the exclusive rights in the Territory to each
and every Licensed Master comprising the Albums.
(b) Except as described in paragraph (c) of this Clause 2, Licensor reserves
exclusively to itself and its successors, licensees and assigns all rights and
uses in and to the Licensed Masters whether now or hereafter known or in
existence, except the limited use expressly licensed hereunder. By way of
illustration and not of limitation, Licensee shall not:
(i) Exploit the Album hereunder at any price other than in the so-called
"full-priced" category.
(ii) Use the Licensed Masters or dispose of or use in any way records or
tapes manufactured therefrom except for commercial manufacture and sale of the
records as herein provided.
(iii) [Intentionally Deleted]
(iv) Edit or alter the Licensed Masters. Licensee shall only employ the
Licensed Masters in the manner and for the purpose originally recorded by or for
Licensor.
(v) Sub-license or otherwise convey any rights under this Agreement.
(vi) Exploit the Album in any retail channels of trade either directly or
indirectly.
(vii) Undertake or knowingly permit the manufacture, advertising,
distribution or sale of any Licensed Master or the Album outside the Territory.
3. RESERVATION OF RIGHTS
(a) The following shall be and remain the property of Licensor:
(i) The Licensed Masters supplied by Licensor under this Agreement as well
as all mothers and stampers produced therefrom by or for Licensee;
(ii) Licensor's copyright and other property rights under statutory and/or
common law in the Licensed Masters, tapes, matrices, and mothers and stampers;
(iii) Any and all copyrights, trademarks or other similar rights or other
property rights which may otherwise accrue to Licensee or to any of its
distributors, agents or representatives by reason of the exercise of the rights
granted by this Agreement;
(iv) The exclusive right to use or license the Licensed Masters or the
performance embodied thereon for use in connection with the synchronization of
said performance with television productions and/or motion pictures, including
any soundtrack albums derived therefrom, whether produced in the Territory or
otherwise.
(b) Licensee will, upon request, execute or cause to be executed, and will
deliver to Licensor, all documents necessary to establish and effectuate
Licensor's unencumbered ownership of all such rights.
(c) Licensee shall take all precautions necessary, including but not limited
to placing the appropriate "P" line credit on all Album jackets, sleeves, labels
or inlay cards, to preserve and protect the copyright in the Licensed Masters in
Licensor's name and to prevent same from falling into the public domain.
(d) All records manufactured under the authority of this Agreement shall be
distributed in packaging materials bearing a Universal Product Code (UPC) that
will enable retail stores equipped with devices that identify bar codes at the
point of sale to report the number of records sold to SoundScan, Inc. for
tabulation if applicable.
4. TERM
The Term of this Agreement shall be for a period of five (5) years commencing
with the Closing Date of the agreement or when otherwise terminated under
Section 18 below. Each year of the Term may hereinafter be referred to as a
"Contract Year".
5. ADVANCES
[Intentionally deleted]
6. ROYALTIES
In consideration of the license and rights herein granted to Licensee, Licensee
hereby agrees to pay all of the following to Licensor:
(a) A royalty of eight (8%) percent based on the actual selling price to the
consumer, such royalty being accruable on one hundred percent (100%) of all
copies of the Albums which are exploited hereunder which amount shall in no
event be less than US $.04 per master recording on cassettes and US $.06 per
master recording on compact disc. Royalties on "bonus" or "free" records shall
be US $.04 per master recording on cassettes and US $.06 per master recording on
compact disc.
(b) In computing the number of Albums manufactured and sold hereunder Licensee
shall have the right to deduct returns and credits on account of defective
merchandise, errors in billing and errors in shipment.
7. ACCOUNTING STATEMENTS
(a) During the Term of this Agreement and thereafter as long as Licensee
continues to sell the Album hereunder, Licensee agrees to keep all usual and
proper records and books of account and make all usual and proper entries
therein relating to the exploitation of the Album.
(b) Licensee shall deliver to Licensor within thirty (30) days following the
last day of March, June, September and December of each year detailed written
statements, showing sales of records hereunder during such period. Licensee
shall in said statements advise Licensor in writing of the identity of each
Album manufactured hereunder and identify each Licensed Master embodied thereon.
Such statements shall include the following information:
(i) The number of copies of the Album sold within the Territory during the
accounting period; and
(ii) The amount of royalties and other payments due to Licensor pursuant to
this Agreement.
(c) Simultaneously with the delivery of the accounting statements referred to
above, Licensee shall pay to Licensor, at the above written address, all sums
shown to be due to Licensor by such statements. All payments shall be made in
United States Dollars (where applicable computed at the rate of exchange
existing on the date the payments are required to be made pursuant to the terms
of this Agreement).
(d) In the event Licensee does not pay to Licensor the amount shown to be due
by any accounting statement on the date the payment is required to be made
pursuant to the terms of this Agreement then:
(i) Licensor may at its election terminate this Agreement hereunder
pursuant to Clause 18(b) or (c) below; and/or
(ii) Licensor may charge interest at the rate of three percent (3%) above
the then current Prime Lending Rate to and payable by Licensee for the period
commencing upon the date such payment was due until the date such payment is
made.
(e) In the event that Licensee is unable because of governmental restrictions
to make payment in the manner described in this Clause and if Licensor agrees to
accept payment in a currency other than United States Dollars, Licensee shall
deposit (at Licensee's expense) to Licensor's credit or account or to such other
account as Licensor may from time to time designate, in a depository selected by
Licensor, all sums payable to Licensor hereunder. Notwithstanding, in the event
that Licensee in unable because of governmental restrictions to make payment to
Licensor in the United States or in United States Dollars, Licensor shall have
the right to terminate this Agreement upon thirty (30) days written notice,
without prejudice to Licensor's rights.
8. INSPECTION
(a) Licensee shall permit Licensor or its duly authorized representative to
inspect, audit, abstract and copy such of Licensee's books and records as
reasonably relate to the subject matter of this Agreement. Such inspection shall
be allowed twice during each calendar year for as long as Licensee continues to
distribute or sell the Album, and twice in each of the two (2) years thereafter,
upon thirty (30) days written notice, and may be conducted at Licensee's regular
place of business in the United States or where books and records are
maintained.
In the event calculation of royalty payments is determined by a computer based
system, Licensor shall be permitted to examine the machine sensible data
utilized by such system and the related documentation describing such system and
Licensee agrees to retain such data for at least two (2) years after the
expiration of this Agreement.
(b) Any inspection undertaken by Licensor shall be at Licensor's expense
provided, however, that if an underpayment equal to or in excess of five (5%)
percent of the royalties properly due and payable to Licensor is discovered,
Licensee shall reimburse Licensor for the expense of such inspection in addition
to remitting the amount determined to be properly due plus accrued interest at
the rate of three percent (3%) above the then current Prime Lending Rate.
(c) This Clause shall survive the termination of this Agreement or any
subsequent agreement between the parties hereto covering generally the subject
matters covered herein.
9. THIRD PARTY PAYMENTS
(a) With respect to royalties payable to copyright proprietors by reason of
Licensee's exercise of its rights hereunder, Licensee agrees to secure licenses
from such copyright proprietors or their agents in the Territory and to make
payments directly to such proprietors or agents. No rights to manufacture and
exploit the Licensed Masters are granted hereunder until Licensee secures such
copyright licenses.
(b) Licensee shall be responsible for the payment of any sums that may be
payable to the Special Payments Fund and the Music Performance Trust Fund of the
American Federation of Musicians (the "AFofM") or any other union or guild
(including AFTRA) based upon the manufacture and sale of the Licensed Masters as
contained on the Albums. Licensee shall pay to Licensor an additional royalty of
one (1%) percent of the actual selling price to the consumer for the "AFofM"
royalty, said royalty being payable by Licensee to Licensor in accordance with
paragraph 7 herein.
(c) Licensee shall be responsible for any amounts properly becoming due to any
union or guild having jurisdiction in the nature of so-called "re-use" fees
arising as a result of Licensee's use of the performances embodied on the
Masters hereunder, including but not limited to commercial advertisements for
the sale of the Licensed Masters as contained on the Albums.
(d) Subject to subsections (a), (b), and (c) above, Licensor shall pay all
other royalties and payments, if any, which may become due to artists, producers
and other contributors to the performances embodied on the Licensed Masters.
(e) Within thirty (30) days of receipt of Licensor's invoice Licensee shall
pay to Licensor costs incurred by Licensor relating to copying, packaging and
shipping of the Licensed Masters, negatives, advertising, promotional, display
and any other materials supplied or caused to be supplied by Licensor.
10. DELIVERY AND QUALITY OF LICENSED MASTERS
(a) Licensor shall use its best efforts to deliver or cause to be delivered
within twenty (20) days after acceptance of Licensee's request therefor and
receipt of copies of Licensee's mechanical copyright licenses, copy master tapes
of those Licensed Masters then agreed to be licensed hereunder. Such copy master
tapes shall be of suitable quality for use in the commercial production of
records for general sale. Any Licensed Masters delivered to Licensee hereunder,
shall be deemed to be technically satisfactory for the purposes hereunder,
unless Licensor has been notified to the contrary within ten days (10) after
receipt of the said Licensed Masters. Any such notification must contain a
written technical report from the laboratory of Licensee which specifically
details and describes any technical defects in the material. Upon receipt of
such notification, Licensor shall attempt to have the defects corrected, at its
expense, and reship the corrected Licensed Masters promptly thereafter.
(b) Licensor shall supply to Licensee in writing the correct title of the
recorded work(s), the names of the author and composer thereof, the names of the
recording artists as Licensor desires to have them displayed on the label of the
Album, and any other relevant copyright information available to Licensor.
11. SUBSTITUTIONS
(a) In the event Licensor is not reasonably able to correct the noticed
defects pursuant to Clause 10 above, or in the event the Licensor's ownership of
or otherwise control of the rights of any Licensed Master has become encumbered,
restricted or terminated, the Licensor, in its sole discretion, reserves the
right to substitute a Licensed Master.
(b) Licensee's sole remedy, in the event of Licensor's failure to provide a
substitute Licensed Masters referred to above, shall be the refund of monies
paid as advances for such Licensed Master and no other.
12. LABEL CREDIT
The labels, sleeves and inlay cards of all Records shall bear a credit to
Licensor in such form as indicated on the Schedules.
13. SAMPLES
Licensee shall provide Licensor, prior to the distribution thereof, with three
(3) sample copies of the Albums.
14. LICENSEE'S WARRANTIES
Licensee warrants and represents that:
(a) Licensee possesses the full right, power and authority to enter into this
Agreement.
(b) Prior to the delivery of the master tapes and prior to the manufacture of
records, Licensee shall have obtained all mechanical copyright licenses relating
to the musical compositions embodied on the Licensed Masters contained on such
Album and shall remit copies of such mechanical licenses to Licensor. This
warranty is of the essence of this Agreement.
(c) All Albums manufactured by Licensee hereunder shall be of the highest
quality and shall be consistent with the standards of the record industry.
(d) All Albums manufactured by Licensee hereunder shall be exploited by
Licensee in strict compliance with all the terms and conditions of this
Agreement. In particular, but without limitation, Licensee hereby expressly
warrants that no Album may be exported for sale outside the Territory nor shall
Licensee knowingly sell any Album manufactured hereunder to any third party
intending to resell same outside the Territory.
(e) Neither Licensee nor anyone claiming rights through Licensee shall sell,
assign, transfer, mortgage, hypothecate or subject to any lien or encumbrance
the Licensed Masters or any of the above rights, and any attempt thereto shall
cause the immediate termination of this Agreement and/or be deemed null and void
and of no force and effect whatsoever.
15. LICENSOR'S WARRANTIES
Licensor warrants and represents that:
(a) Licensor possesses the full right, power and authority to enter into and
to perform this Agreement.
(b) At the time of delivery of the Licensed Masters Licensor will be the
exclusive owner of or otherwise control the rights herein granted to Licensee in
such Licensed Masters.
(c) The Licensed Masters were recorded and otherwise prepared in all respects
in accordance with the rules and regulations of all unions and similar
associations having jurisdiction.
16. INDEMNIFICATION
(a) Each of the parties hereto shall indemnify, save and hold the other
harmless from loss or damage arising out of or connected with any claim by a
third party which is inconsistent with any of the recitals, agreements,
representations or warranties herein. Either party shall reimburse the other on
demand for any payment made by the demanding party at any time after the date
hereof in respect of any liability or claim to which this indemnity relates and
which has resulted in an adverse final judgment against the demanding party, or
a settlement approved by both parties, in which it is determined that the
ultimate liability is that of the indemnifying party. Prompt notice shall be
given to the indemnifying party of any claim to which this indemnity relates and
the indemnifying party shall have the right, at its own expense to control the
defense thereof, provided that:
(i) The demanding party shall have the right to cooperate in such defense
at its own expense.
(ii) If the indemnifying party shall not exercise its right to control the
defense, then the demanding party shall, in addition to any other indemnity
hereunder, be reimbursed for its reasonable expenses (including reasonable
attorney's fees), if any, incurred in the defense if it shall be determined that
the ultimate liability is that of the indemnifying party; and
(b) Nothing herein is to be construed so as to permit Licensee the right to
withhold royalties payable hereunder.
17. ASSIGNMENT
Neither this Agreement nor the rights granted to Licensee hereunder may be
assigned by Licensee without the written consent of Licensor. Licensor shall be
entitled to assign this Agreement including its rights hereunder to any parent,
affiliated or subsidiary company or corporation, or to anyone owning or
acquiring substantially all of the capital stock or assets of Licensor.
18. TERMINATION OR EXPIRATION
(a) Bankruptcy and Insolvency.
In the event Licensee shall be adjudged a bankrupt or in the event that any
insolvency proceedings are instituted by or against Licensee and are not
dismissed within thirty (30) days after the institution thereof, or in the event
a trustee or receiver is appointed to take over all or a substantial part of
Licensee's assets, Licensee's rights under this Agreement shall automatically
terminate, and such termination shall be deemed effective as of the commencement
of the event which gave rise to such termination. In the event of such
termination, all monies due and unpaid by Licensee pursuant to this Agreement
shall there upon become due and payable. Further, all Licensed Masters and all
copies thereof, all color separations and other artwork and all other property
of Licensor shall be returned to Licensor at Licensee's expense, and in no event
shall the title thereto or any rights therein be acquired by or vest in any
trustee, receiver or in any other party by reason of any such insolvency,
bankruptcy or other such occurrence affecting Licensee.
(b) Breaches.
Without prejudice to any other rights or claims which Licensor may have,
Licensor may, at its option, terminate this Agreement upon giving not less than
fifteen (15) days written notice and period to cure to Licensee, in the event of
any of the following, which shall constitute a material breach of this
Agreement:
(i) Licensee shall fail to account and make payments hereunder or shall
fail to perform any other of its material obligations required of it hereunder.
(ii) Licensee, through act or omission, shall violate or knowingly permit
the violation of any of its warranties and representations hereunder.
(iii) Licensee utilizes or duplicates Licensor's mark in violation of the
applicable terms of this Agreement.
(iv) Licensee denies Licensor the right granted hereunder to audit
Licensee's books.
(c) Immediate Termination.
Notwithstanding Section 18(b) above, and without prejudice to any other rights
or claims which Licensor may have, Licensor shall have the right to immediately
terminate this license without any written notice to Licensee in the event of
any of the following:
(i) Licensee has failed to timely account and make payments hereunder a
total of four (4) times, whether or not prior delinquent accountings and
payments have been made.
(ii) Licensee has willfully reported inaccurate accountings of payments due
hereunder.
(iii) Licensee knowingly exports, distributes or licenses any Licensed
Master or Album outside the Territory.
(d) Death or change in ownership.
In the event of: (i) the death of Philip Kives; or (ii) discontinuance of Philip
Kives as an active senior officer or manager of Licensee; or (iii) a change in
the ownership of fifty percent (50%) or more of the Licensee, Licensor may
terminate this Agreement by giving the Licensee fifteen (15) days' written
notice. In such event Licensee shall have a six (6) month period in which to
sell off existing inventory of the Albums.
(e) Termination/Expiration Procedure.
(i) In the event of the termination of this Agreement, all rights herein
granted by Licensor to Licensee shall immediately terminate and shall thereupon
revert to Licensor, free and clear of any claims by Licensee. Licensee shall
continue, nevertheless, to be responsible for accounting and payments as set
forth in this Agreement, and upon notification from Licensor will return to
Licensor or to Licensor's designee at Licensee's expense, all tapes, matrices,
duplicate tapes, masters, mothers and stampers supplied by Licensor hereunder
that are in Licensee's possession or control.
(ii) If this Agreement expires by expiration of the Term then, at the end
of the Term, all Licensed Masters, tapes or matrices supplied to Licensee and
all derivatives of said tapes and matrices, including duplicate tapes, masters,
mothers and stampers provided to Licensee pursuant to the License Agreement,
shall at Licensor's election either be destroyed in the presence of one of
Licensor's duly authorized representatives, or delivered to Licensor free of
cost to Licensor.
(f) Sell-off.
(i) Licensee shall advise Licensor in writing, upon the expiration of the
term, the quantity of Albums that are in Licensee's stock at the time of said
expiration.
(ii) Provided Licensee supplies Licensor with the aforesaid information
Licensee shall be entitled to sell-off, for a period of six (6) months
thereafter, all existing stocks of the applicable Album subject to the
continuing obligation to account for and pay royalties on such sales in
accordance with the terms hereof.
(iii) Upon the expiration of the sell-off period Licensee shall, at its
sole cost and expense, destroy all of its existing inventory of Albums and shall
furnish Licensor with an affidavit of destruction executed by an officer of
Licensee.
19. NOTICES
All accounting or payment which Licensee is hereto required to give to Licensor
shall be addressed to the addresses first above written. All other notices and
other items from one party to the other hereunder will, unless herein indicated
to the contrary, be addressed as follows;
To Licensee: At Licensee's address as set forth on the first
page hereof;
To Licensor: At Licensor's address as set forth on the first
page hereof, directed to the attention of:
Vice President, Business Affairs
or to such other address as either party shall designate in writing to the other
party from time to time. Unless otherwise set forth in this Agreement, all
notices shall be deemed duly given on the date of mailing.
20. MANUFACTURING
Licensor shall be afforded the right of first refusal to manufacture all of the
product which include master recordings hereunder. The right of first refusal
shall be exercised within five (5) business days of receipt of a written notice
of third party offer to manufacture.
21. MISCELLANEOUS
(a) This Agreement set forth the entire understanding between Licensor and
Licensee with respect to the subject matter hereof, all prior negotiations or
alleged understandings are merged herein, and no amendment to or modification of
this Agreement or any provision hereof shall be binding upon Licensor and
Licensee unless confirmed by a written instrument signed by an Officer of
Licensee and Licensor's authorized signatory. Any process in any action, suit or
proceeding arising out of or relating to this agreement may, among other
methods, be served upon Licensee by delivering it or mailing it in accordance
with Clause 19 above. No waiver of any provision of or default under this
Agreement shall affect Licensee's or Licensor's rights, as the case may be,
thereafter to enforce such provision or to exercise any right or remedy in the
event of any other default, whether or not similar.
(b) Any act or failure to act by either party shall not be construed as a
waiver of any of such party's rights hereunder unless a memorandum thereof,
expressing the intention to waive, signed by the party to be charged, is made
and delivered to the other party. Any such waiver shall not be deemed to be a
waiver of any past or future breach of the same or any other provision of this
Agreement.
(c) If any part of this Agreement shall be determined to be invalid or
unenforceable by a court of competent jurisdiction or by any other legally
constituted body having jurisdiction to make such determination, the remainder
of this Agreement shall remain in full force and effect.
(d) The captions herein are for convenience only, do not constitute a part of
this Agreement, and are not to be used in the construction thereof.
(e) This agreement and any arbitration conducted under paragraph (g) of this
Clause 21 will be governed by and construed in accordance with the substantive,
procedural and evidentiary laws and rules of the State of Minnesota.
(f) Subject to paragraph (g) of this Clause 21, the parties hereby submit to
the jurisdiction of, and waive any venue objections against, the United States
District Court for the District of Minnesota and the trail courts of the State
of Minnesota, in any litigation and/or arbitration arising out of this
Agreement, and each party hereby consents to the personal jurisdiction of such
courts for purposes of this Agreement, including entry of enforcement of any
arbitration award or judgment.
(g) Any claim, dispute, or controversy arising out of or in connection with or
relating to this Agreement or the breach or alleged breach thereof shall be
submitted by the parties to arbitration by the American Arbitration Association
("AAA") in the City of Minneapolis, Minnesota, under the commercial rules then
in effect for the Association except as provided herein. A transcribed record
shall be prepared. The AAA shall recommend three (3) arbitrators who are
knowledgeable in the field in dispute. The parties shall agree upon one (1) of
the three within twenty (20) days. If no arbitrator is mutually agreed upon, the
AAA shall make such appointment within thirty (30) days of such failure.
Each party shall have the right to request the arbitrator to order reasonable
and limited discovery. The award rendered by the arbitrator shall include costs
of arbitration, reasonable attorneys' fees and reasonable costs for expert and
other witnesses, but shall not include punitive damages against either party.
Judgment on such award may be entered as provided in paragraph (f) of this
Clause 21, provided that nothing in this paragraphs (g) shall be deemed as
preventing either party from seeking relief from the courts as necessary to
protect either party`s name, proprietary information, trade secrets, know-how,
or any other appropriate provisional remedy.
(h) Clause 6, 7, 8, 9, 12, 14, 16, 18(f) and 21 will survive the termination
of this Agreement.
22. DEFINITIONS
As used in this Agreement, the following terms shall have the indicated
meanings:
(a) "master recordings" - recordings which embody sound alone and are intended
for reproduction in the form of records or otherwise.
(b) "Record" or "record" means any reproduction of a master recording in the
form of analog cassette tapes and compact discs.
(c) "exploit" - shall mean the manufacture, distribution, advertising,
promotion and sale of the Album pursuant to the terms hereof.
(d) "Album" - that record (which shall contain all of the Licensed Masters)
manufactured, distributed and sold by Licensee hereunder which shall contain up
to one hundred and fifty (150) master recordings on one or more Records.
(e) "Records sold", "record sales" and "sales" mean one hundred (100%) percent
of those records shipped by Licensee hereunder and not returned.
(f) "Infomercial" - shall mean a minimum of a twenty (28) eight minute
television broadcast show as customary in the industry.
(g) "Territory" - United States
(h) "this Agreement" - shall mean this agreement and the Schedule "A" annexed
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
DOMINION ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC.
BY_______________________ BY__________________________
An authorized signatory An authorized signatory
NAME__________________________ NAME________________________
Please print or type Please print or type
TITLE_________________________ TITLE_______________________
SCHEDULE A
Annexed to and forming part of Agreement dated _________________ , 1995
ALBUM TITLE: HEARTBREAKER
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
RAINDROPS KEEP FALLING ON MY HEAD B.J. THOMAS
JEAN OLIVER
CRYSTAL CHANDELIERS VIC DANNA
I BELIEVE FRANKIE LAINE
JUST WALKING IN THE RAIN JOHNNY RAY
LOVE LETTERS IN THE SAND PAT BOONE
RED ROSES FOR A BLUE LADY VIC DANNA
CARA MIA JAY BLACK
BESAME MUCHO TRINI LOPEZ
LOVE IS A MANY SPLENDORED THING FOUR ACES
VENUS* FRANKIE AVALON
MR. BLUE FLEETWOODS
YOUNG GIRL GARY PUCKET AND
THE UNION GAP
JESAMINE CASUALS
HAPPY TOGETHER* TURTLES
LOVE IS ALL AROUND TROGGS
WISHING AND HOPING MERSEYBEATS
YOU WERE ON MY MIND CRISPIAN ST. PETERS
SILENCE IS GOLDEN TREMELOES
A GROOVY KIND OF LOVE WAYNE FONTANA
FERRY 'CROSS THE MERSEY GERRY & THE
PACEMAKERS
YOU'VE GOT YOUR TROUBLES I'VE GOT MINE FORTUNES
IF YOU GOTTA MAKE A FOOL OF SOMEBODY FREDDY & THE
DREAMERS
TRAINS & BOATS & PLANES BILLY J. KRAMER
REFLECTIONS OF MY LIFE MARMALADE
THE END OF THE WORLD SKEETER DAVIS
WILL YOU STILL LOVE ME TOMORROW SHIRELLES
I WILL FOLLOW HIM SANDY POSEY
DOWN IN THE BOONDOCKS BILLY JOE ROYAL
LEADER OF THE PACK SHANGRI-LAS
RUNAWAY DEL SHANNON
CORINNA CORINNA RAY PETERSEN
VENUS IN BLUE JEANS JIMMY CLANTON
IT'S MY PARTY LESLEY GORE
DEDICATED TO THE ONE I LOVE SHIRELLES
HEY PAULA* PAUL & PAULA
TELL LAURA I LOVE HER RAY PETERSEN
TEEN ANGEL MARK DINING
CHAPEL OF LOVE DIXIE CUPS
ROSEGARDEN LYNN ANDERSON
HEARTACHES BY THE NUMBER GUY MITCHELL
THE HAPPIEST GIRL IN THE WHOLE USA DONNA FARGO
WHAT IN THE WORLD'S COME OVER YOU JACK SCOTT
LUCKENBACH TEXAS JOHNNY RUSSELL
HELP ME MAKE IT THROUGH THE NIGHT SAMMI SMITH
TENNESSEE WALTZ PATTI PAGE
HIGH NOON FRANKIE LAINE
SLIDE OFF YOUR SATIN SHEETS JOHNNY PAYCHECK
WILL THE CIRCLE BE UNBROKEN NED MILLER
I CAN'T STOP LOVING YOU KITTY WELLS
NO CHARGE MELBA MONTGOMERY
YOU LIGHT UP MY LIFE MARGO SMITH
GREEN GREEN GRASS OF HOME PORTER WAGONER
**MY SPECIAL PRAYER PERCY SLEDGE
GREAT PRETENDER PLATTERS
MAKE THE WORLD GO AWAY TIMI YURO
ALL I COULD DO WAS CRY ETTA JAMES
**SMOKE GETS IN YOUR EYES PLATTERS
SPANISH HARLEM BEN E. KING
WHEN A MAN LOVES A WOMAN PERCY SLEDGE
WARM AND TENDER LOVE PERCY SLEDGE
STAND BY ME BEN E. KING
ONLY YOU PLATTERS
HURT TIMI YURO
**HEY THERE LONELY GIRL EDDIE HOLMAN
**BRING IT ON HOME TO ME EDDIE FLOYD
IF YOU DON'T KNOW ME BY NOW HAROLD MELVIN &
THE BLUENOTES
***SINGING THE BLUES GUY MITCHELL
***I'LL BE HOME PAT BOONE
***ROCKY DICKEY LEE
***OH LONESOME ME DON GIBSON
(**) -- CASSETTE/LP ONLY
(***) -- COMPACT DISC ONLY
(**) -- CASSETTE/LP ONLY
(***) -- COMPACT DISC ONLY
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
SCHEDULE B
Annexed to and forming part of Agreement dated _________________ , 1995
ALBUM TITLE: ROCK BOX
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
YAKETY YAK THE COASTERS
ALLEY OOP* HOLLYWOOD ARGYLES
MR. CUSTER* LARRY VERN
PAPA-OOM MOW MOW RIVINGTONS
SEVEN LITTLE GIRLS PAUL EVANS
(SITTING IN THE BACK SEAT)
DOES YOUR CHEWING GUM LOSE ITS FLAVOR LONNIE DONEGAN
ON THE BEDPOST OVERNIGHT?
THE BIRDS & THE BEES* JEWEL AKENS
SURFIN' BIRD TRASHMEN
MONSTER MASH SHA NA NA
WILD THING THE TROGGS
HE'S SO FINE CHIFFONS
KEEP A KNOCKIN' LITTLE RICHARD
SHEILA TOMMY ROE
SPLISH SPLASH SHA NA NA
PERSONALITY LLOYD PRICE
THE GREAT PRETENDER THE PLATTERS
WILD ONE BOBBY RYDELL
HEY LITTLE GIRL (IN THE HIGH DEE CLARK
SCHOOL SWEATER)
LITTLE DARLIN' THE DIAMONDS
HE'S A REBEL CRYSTALS
THE LETTER THE BOX TOPS
LET'S HAVE A PARTY WANDA JACKSON
DA DOO RON RON CRYSTALS
LONG TALL SALLY LITTLE RICHARD
STAGGER LEE LLOYD PRICE
JAMBALAYA JOHNNY RUSSELL
SLOW TWISTIN' CHUBBY CHECKER
RED RIVER ROCK JOHNNY & THE
HURRICANES
THE STROLL THE DIAMONDS
DO YOU WANNA DANCE? BOBBY FREEMAN
MASHED POTATO TIME DEE DEE SHARP
PEPPERMINT TWIST JOEY DEE & THE
STARLITERS
SHAKIN' ALL OVER CHAD ALLEN (FORMERLY
OF THE GUESS WHO)
BRISTOL STOMP DOVELLS
LUCILLE LITTLE RICHARD
LEADER OF THE PACK SHANGRI-LAS
BLUE MOON THE MARCELS
AIN'T THAT A SHAME PAT BOONE
CHAPEL OF LOVE DIXIE CUPS
PARTY DOLL BUDDY KNOX
HIPPY HIPPY SHAKE SWINGIN' BLUE JEANS
REBEL ROUSER DUANE EDDY
TELL HIM THE EXCITERS
UNDER THE BOARDWALK THE DRIFTERS
MY BOYFRIEND'S BACK THE ANGELS
STAND BY ME BEN E. KING
GOOD GOLLY MISS MOLLY LITTLE RICHARD
RUNAWAY DEL SHANNON
HEY PAULA* PAUL & PAULA
WHEN A MAN LOVES A WOMAN PERCY SLEDGE
HURT TIMI YURO
THEN HE KISSED ME THE CRYSTALS
SAVE THE LAST DANCE FOR ME THE DRIFTERS
MY GUY MARY WELLS
ONE FINE DAY THE CHIFFONS
PATCHES CLARENCE CARTER
MY TRUE LOVE JACK SCOTT
GOIN OUT OF MY MIND LITTLE ANTHONY
DEDICATED TO THE ONE I LOVE THE SHIRELLES
MY HEART IS AN OPEN BOOK CARL DOBKINS
WHISPERING GRASS INK SPOTS
VENUS* FRANKIE AVALON
RAINDROPS KEEP FALLING ON MY HEAD B.J. THOMAS
CHARLIE BROWN THE COASTERS
OH BOY WANDA JACKSON
THE HUCKLEBUCK CHUBBY CHECKER
PEPINO THE ITALIAN MOUSE JOEY CHEDDAR
STUPID CUPID WANDA JACKSON
HATS OFF TO LARRY DEL SHANNON
SUSIE DARLING ROBIN LUKE
LET'S TWIST AGAIN CHUBBY CHECKER
SPEEDY GONZALES PAT BOONE
IF I HAD A HAMMER TRINI LOPEZ
TEQUILA ACE CANNON
COME SOFTLY TO ME FLEETWOODS
JUST WALKING IN THE RAIN JOHNNY RAY
RHYTHM OF THE RAIN CASCADES
WHAT'S A MATTER BABY TIMI YURO
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
SCHEDULE C
Annexed to and forming part of Agreement dated ________________________ , 1995
ALBUM TITLE: POP HISTORY
CATALOG NUMBER:
LICENSED MASTERS:
TITLE ARTIST
SUGAR BABY LOVE RUBETTES
BEAUTIFUL SUNDAY DANIEL BOONE
LOVE GROWS WHERE MY ROSEMARIE GOES EDISON LIGHTHOUSE
COME AND GET IT BADFINGER
UNDERCOVER ANGEL ALAN O'DAY
EVERLASTING LOVE ROBERT KNIGHT
HOOKED ON A FEELING B.J. THOMAS
*DANCING ON A SATURDAY NIGHT BARRY BLUE
THE NIGHT CHICAGO DIED PAPER LACE
INDIAN RESERVATION DON FARDON
ARIZONA MARK LINDSAY
BILLY DON'T BE A HERO PAPER LACE
ME AND YOU AND A DOG NAMED BOO LOBO
SAN BERNADINO CHRISTIE
YELLOW RIVER CHRISTIE
I'D LOVE YOU TO WANT ME LOBO
DON'T EXPECT ME TO BE YOUR FRIEND LOBO
IF YOU DON'T KNOW ME BY NOW HAROLD MELVIN & THE BLUENOTES
DON'T LET THE SUN CATCH YOU CRYING GERRY & THE PACEMAKERS
GOODBYE MARY HOPKINS
MR. BOJANGLES GLENN YARBOROUGH
ONE TIN SOLDIER ORIGINAL CASTE
DO YOU WANNA MAKE LOVE? PETER MCCANN
DRIFT AWAY DOBIE GRAY
RIDE CAPTAIN RIDE BLUES IMAGE
SOONER OR LATER GRASSROOTS
PIED PIPER CHRISTIAN ST. PETERS
BEG STEAL OR BORROW NEW SEEKERS
*IT AIN'T ME BABE TURTLES
*ELENORE TURTLES
LAY DOWN MELANIE
OB LA DI OB LA DA MARMALADE
THE LETTER THE BOX TOPS
HERE COMES MY BABY TREMELOES
BUILD ME UP BUTTERCUP FOUNDATIONS
LADY WILLPOWER GARY PUCKET & THE
UNION GAP
GOOD MORNING STARSHINE OLIVER
IN THE SUMMERTIME MUNGO JERRY
JUDY IN DISGUISE JOHN FRED & HIS
PLAYBOY BAND
BABY COME BACK EQUALS
BEND ME SHAPE ME AMERICAN BREED
DIZZY TOMMY ROE
**LIGHTNING STRIKES LOU CHRISTIE
**SATISFACTION GUARANTEED HAROLD MELVIN & THE BLUENOTES
***SURF CITY JAN & DEAN
***HITCHIN' A RIDE VANITY FAIR
TERRITORY: MEXICO
ADVANCE: $.0
ROYALTY: $.04 Per Licensed Master per Album
CONFIGURATION: Audio cassettes and compact discs
RELEASE DATE:
LABEL CREDIT: Courtesy of Dominion Entertainment, Inc.
DOMINION ENTERTAINMENT, INC. K-5 LEISURE PRODUCTS
BY __________________________________ BY _________________________________
Annex C
Sections 302A.471 and 302A.473. Minnesota Business Corporation Act
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) an amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
SUBDIVISION 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
SUBDIVISION 3. RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision
1, up to and including the date of payment, calculated at the rate provided
in section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenters' rights
must file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no shareholder
vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the
date by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand
payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
SUBDIVISION 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest
available interim financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on
behalf of a person who was not a beneficial owner on that date. If the
dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a
statement of the reason for withholding the remittance, and an offer to pay
to the dissenter the amount listed in the materials if the dissenter agrees
to accept that amount in full satisfaction. The dissenter may decline the
offer and demand payment under subdivision 6. Failure to do so entitles the
dissenter only to the amount offered. If the dissenter makes demand,
subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBDIVISION 8. COSTS; FEES; EXPENSES. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraiser as appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
Annex D
Opinion of Van Kasper & Company
[LOGO OF VAN KASPER & COMPANY]
VAN KASPER & COMPANY
Investment Bankers
11661 San Vicente Blvd., Suite 709, Los Angeles, California 90049
August 31, 1995
Board of Directors
K-tel International, Inc.
2605 Fernbrook Lane North
Minneapolis, MN 55447-4736
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of K-tel International, Inc., a
Minnesota corporation ("K-tel" or the "Company"), of a proposed acquisition (the
"Transaction") by Simitar, Inc., a Minnesota corporation ("Simitar") of all of
the issued and outstanding stock of the following subsidiaries of the Company:
K-tel International (USA), Inc.; Dominion Entertainment, Inc.; U.S. Distribution
Services; K-tel Entertainment (CAN) Inc.; K-tel International Finland OY; K-tel
International (FRANCE) SARL; Dominion Vertriebs, GmbH; K-tel Ireland, Ltd.;
K-tel International (SPAIN) SL; K-tel Entertainment (UK), Ltd.; K-tel
International (Sweden) A; K-tel Ireland (Exports), Ltd.; and K-tel International
GmbH (collectively the "Acquired Subsidiaries"). The Transaction will be
effected pursuant to the terms and conditions of that certain Agreement for
Purchase and Sale, dated June 28, 1995, between Simitar and K-tel (the "Purchase
and Sale Agreement").
The Transaction will be structured as a purchase by Simitar of all of the
issued and outstanding stock of the Acquired Subsidiaries (with the possible
exception of certain director's qualifying shares) in consideration of the
payment to the Company of $25 Million (subject to adjustment and offset as
provided in the Purchase and Sale Agreement). The Company is expected to retain
certain consolidated net operating loss carryforwards, and the parties will
elect to have the Transaction taxed as a sale of assets. We also underatand that
the Transaction is subject to Simitar obtaining satisfactory financing by a date
agreed to between the parties, and to the repayment by the parties of certain
outstanding credit obligations of K-tel, all as more fully set forth in the
Purchase and Sale Agreement.
In connection with our opinion, among other things, we have (i) held
extensive discussions with the management of K-tel and certain members of the
management of Simitar, (ii) reviewed an executed copy of the Purchase and Sale
Agreement and the Stock Transfer and Loan Repayment Agreement among K-5 Leisure
Products, Inc., Simitar and Mickey Elfenbein, each in the form provided to us by
K-tel, and each dated June 28, 1995; (iii) reviewed certain publicly available
documents for K-tel; (iv) reviewed internal budgets and projections, marketing
materials and press releases provided to us by K-tel; (v) reviewed publicly
available data and information for companies which we have determined to be
comparable; (vi) reviewed the historical stock prices for K-tel and other
companies which we have determined to be comparable; (vii) reviewed available
research reports for K-tel and other companies which we have determined to be
comparable; (viii) reviewed the financial terms of other recent business
combinations; and (ix) conducted such other financial analysis as we have
determined, based upon our judgement as investment bankers, to be appropriate
for purposes of this opinion.
In our review we have assumed, with your permission, that the documents to
be prepared, used and signed by the parties to formally effect the Transaction,
including the proxy or other disclosure material to be delivered to the
shareholders of K-tel to elicit any necessary consents to the Transaction, will
effect the Transaction on the terms set forth in the Purchase and Sale Agreement
without material alteration.
We have not been requested to, and did not, solicit third party indications
of interest in acquiring all or any part of K-tel or investing in K-tel. We have
also been advised that the management of K-tel has not solicited any additional
bidders for the sale of all or any part of K-tel, including the Acquired
Subsidiaries. Furthermore, we have not negotiated the Transaction, provided any
legal advice or advised you with respect to alternatives to the Transaction.
Although we have performed a valuation of the Acquired Subsidiaries using a
number of commonly accepted methodologies, we have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of these K-tel assets.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise communicated
to us by the Company. With respect to financial projections of the Acquired
Subsidiaries provided to us, we have reviewed those projections in light of
discussions we have conducted with industry sources, and have made certain
adjustments where we have determined it was appropriate to do so. Independent of
the for going, we have assumed that the projections were reasonably prepared,
based upon assumptions reflecting the best currently available estimates and
good faith judgments of management as to the future performance of the Acquired
Subsidiaries and that neither the management of K-tel, nor the management of
Simitar, has any information or beliefs that would make the projections
misleading.
In addition, we call to your attention that (i) Simitar is controlled by
Mickey Elfenbein who is the President, Chief Executive Officer and a director of
K-tel and will, after the closing of the Transaction, employ Mr. Elfenbein and
other management personnel of K-tel, including the current Chief Financial
Officer of K-tel, and (ii) the consolidating financial statements for the eleven
months ended May 31, 1995, and the estimates given to us for the month ending
June 30, 1995 (our having been advised that the auditied financial statements of
K-tel for its 1995 fiscal year were not available) were prepared on a
consolidated basis as to all of the subsidiaries of K-tel, and the consolidating
data provided to us with respect to the Acquired Subsidiaries (which do not
constitute all of the subsidiaries) was derived from the financial statements by
the management of K-tel. In rendering our opinion we have assumed the accuracy
and completeness of all of the financial and other information that was provided
to us by the current Chief Financial Officer, including, without limitation, the
accuracy and completeness of the consolidating data derived from the financial
statements of K-tel.
Our opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and as they can be evaluated by us as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Transaction is fair to the shareholders of K-tel from a
financial point of view.
Very truly yours,
/s/ Van Kasper & Company
VAN KASPER & COMPANY
