UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 26, 1998
GROW BIZ INTERNATIONAL, INC.
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(Exact Name of Issuer as Specified in Charter)
Minnesota 0-22012 41-1622691
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(State or Other Jurisdiction or (Commission File (I.R.S. Employer
Incorporation or Organization) Number) Identification Number)
4200 Dahlberg Drive, Golden Valley, MN 55422-4837
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(Address of Principal Executive Offices)
(612) 520-8500
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(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On June 26, 1998, Grow Biz International, Inc. (the Company) completed the sale
of the assets, primarily intangibles, and franchising rights of its Disc Go
Round concept to CD Warehouse, Inc. (CD Warehouse) for $7.0 million cash plus
the assumption of approximately $400,000 in liabilities.
The consideration received by the Company was determined by negotiations between
and among the representatives of the Company and CD Warehouse. Prior to the
sale, no material relationship existed between CD Warehouse and the Company or
any of its affiliates, any director or officer of the Company or any associate
of any such director or officer.
ITEM 7. Financial Statements and Exhibits
Financial statements
None
Exhibits
10.1 Asset Purchase Agreement, dated June 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROW BIZ INTERNATIONAL, INC.
Date: July 9, 1998 By: /s/ Ronald G. Olson
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Ronald G. Olson
President and Chief Executive Officer
Date: July 9, 1998 By: /s/ David J. Osdoba, Jr.
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David J. Osdoba, Jr.
Vice President of Finance and
Chief Financial Officer
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
CD WAREHOUSE, INC.
AND
GROW BIZ INTERNATIONAL, INC.
DATED AS OF JUNE 16, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I - TERMS OF PURCHASE AND SALE.........................................1
1.1 PURCHASE AND SALE OF ASSETS...........................................1
(a) Inventory..........................................................1
(b) Receivables........................................................1
(c) Contracts..........................................................1
(d) Trademarks; Copyrights.............................................2
(e) Records............................................................2
(f) Software...........................................................2
(g) Other Intangible Property..........................................2
(h) Registrations......................................................3
(i) Other Assets.......................................................3
1.2 TREATMENT OF CERTAIN OBLIGATIONS......................................3
1.3 TRANSFER AND CONVEYANCE...............................................3
ARTICLE II - PURCHASE PRICE....................................................4
2.1 PURCHASE PRICE........................................................4
2.2 ALLOCATION OF PURCHASE PRICE..........................................4
2.3 CASH PAYABLE AT CLOSING...............................................4
2.4 PRORATION/COSTS.......................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER.........................4
3.1 DUE ORGANIZATION AND QUALIFICATION....................................4
3.2 TITLE.................................................................5
3.3 INVENTORY.............................................................5
3.4 PHYSICAL PROPERTIES...................................................5
3.5 INTELLECTUAL PROPERTY RIGHTS..........................................5
3.6 COMPLIANCE WITH LAWS..................................................5
3.7 CONTRACTS.............................................................6
3.8 CONTRACT DEFAULTS.....................................................6
3.9 LITIGATION............................................................6
3.10 CORPORATE POWER AND AUTHORITY.........................................7
3.11 COLLECTIVE BARGAINING.................................................7
3.12 EMPLOYEE BENEFITS.....................................................7
3.13 TRUE, CORRECT AND COMPLETE INFORMATION................................7
3.14 AVAILABILITY OF DOCUMENTS.............................................8
3.15 CONSENTS..............................................................8
3.16 FINANCIAL CONDITION AND RESULT OF OPERATIONS..........................8
3.17 INSURANCE.............................................................8
3.18 TAXES.................................................................8
3.19 ABSENCE OF CERTAIN CHANGES OR EVENTS..................................8
3.20 BROKER'S AND FINDER'S FEES............................................9
3.21 RECEIVABLES...........................................................9
3.22 ORDERS................................................................9
3.23 LEASES AND CORPORATE STORE CONTRACTS..................................9
<PAGE>
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER...........................9
4.1 DUE ORGANIZATION AND QUALIFICATION....................................9
4.2 CORPORATE POWER AND AUTHORITY.........................................9
4.3 CONSENTS.............................................................10
4.4 LITIGATION...........................................................10
4.5 COMPLIANCE WITH LAWS.................................................10
4.5 COMPLIANCE WITH LAWS.................................................10
4.6 FINANCIAL CAPABILITY.................................................10
ARTICLE V - COVENANTS OF SELLER...............................................11
5.1 AFFIRMATIVE COVENANTS................................................11
5.2 NEGATIVE COVENANTS...................................................11
5.3 ACCESS TO PROPERTIES AND RECORDS.....................................11
5.4 APPROVALS OF THIRD PARTIES...........................................12
5.5 NOTICES..............................................................12
5.6 ACCESS TO BOOKS AND RECORDS AFTER THE CLOSING DATE...................12
5.7 COVENANT NOT TO COMPETE..............................................13
ARTICLE VI - COVENANTS OF BUYER...............................................14
6.1 FURNISHING OF INFORMATION............................................14
6.2 APPROVALS OF THIRD PARTIES...........................................14
6.3 BUYER'S BEST EFFORTS.................................................14
6.4 RETENTION OF RECORDS.................................................14
6.5 COVENANT NOT TO COMPETE..............................................14
ARTICLE VII - COVENANTS OF BUYER..............................................15
7.1 REPRESENTATIONS AND WARRANTIES OF SELLER.............................15
7.2 COVENANTS OF SELLER..................................................15
7.3 AUDITED AND UNAUDITED FINANCIAL STATEMENTS FOR DISC GO ROUND BUSINESS15
7.4 CERTIFICATE OF SELLER................................................15
7.5 NO CASUALTY LOSSES...................................................15
7.6 CERTIFICATE OF AUTHORITIES...........................................15
7.7 LITIGATION...........................................................15
7.8 LEGAL MATTERS........................................................16
7.9 OPINION OF SELLER'S COUNSEL..........................................16
7.10 NO MATERIAL ADVERSE CHANGES..........................................16
7.11 CONSENTS.............................................................16
7.12 FURTHER ASSURANCES...................................................16
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF SELLER............................17
8.1 REPRESENTATIONS AND WARRANTIES OF BUYER..............................17
8.2 COVENANTS OF BUYER...................................................17
8.3 BUYER'S CERTIFICATE..................................................17
8.4 CERTIFICATES OF AUTHORITIES..........................................17
8.5 OPINION OF COUNSEL TO BUYER..........................................17
ARTICLE IX - DATE AND PLACE OF CLOSING........................................18
9.1 DATE AND PLACE OF CLOSING............................................18
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ARTICLE X - CLOSING...........................................................18
10.1 SELLER'S AND BUYER'S PERFORMANCE.....................................18
(a) Conveyances.......................................................18
(b) Records...........................................................18
(c) Certificates......................................................18
(d) Revised Inventory, Payables and Receivables.......................18
(e) Other Actions.....................................................18
(f) Certificates of Authorities.......................................18
(g) Opinion of Seller's Counsel.......................................18
(h) Consents..........................................................19
(i) Subsidiary Documents..............................................19
(j) Mutual Release....................................................19
10.2 BUYER'S PERFORMANCE..................................................19
(a) Purchase Price....................................................19
(b) Assignment and Assumption Agreement...............................19
(c) Opinion of Buyer's Counsel........................................19
(d) Certificates......................................................19
(e) Mutual Release....................................................19
10.3 EXPENSES; OTHER INSTRUMENTS..........................................19
(a) Further Action by Seller..........................................19
(b) Further Action by Buyer...........................................19
ARTICLE XI - SURVIVAL AND INDEMNIFICATION.....................................20
11.1 SURVIVAL.............................................................20
11.2 BUYER'S LOSSES.......................................................20
11.3 EMPLOYEE COMPENSATION AND BENEFITS...................................20
11.4 FRANCHISE CLAIMS AGAINST BUYER.......................................20
11.5 LIMITATIONS..........................................................20
11.6 SELLER'S LOSSES......................................................21
11.7 FRANCHISE CLAIMS AGAINST SELLER......................................21
11.8 NOTICE OF LOSS.......................................................22
11.9 RIGHT TO DEFEND......................................................22
11.10 REQUEST TO ALLOCATE RESPONSIBILITY...................................22
11.11 FRANCHISE CLAIMS AGAINST BOTH SELLER AND BUYER.......................23
ARTICLE XII - POST-CLOSING COVENANTS..........................................23
12.1 TRANSITION PERIOD....................................................23
12.2 INSURANCE POLICIES...................................................23
12.3 AUDITED AND UNAUDITED FINANCIAL STATEMENTS FOR DISC GO ROUND BUSINESS23
12.4 NON-SOLICITATION.....................................................23
ARTICLE XIII - TERMINATION....................................................24
13.1 TERMINATION..........................................................24
13.2 NO FURTHER FORCE OR EFFECT...........................................24
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ARTICLE XIV - MISCELLANEOUS...................................................24
14.1 EXPENSES.............................................................24
14.2 ENTIRE AGREEMENT.....................................................24
14.3 SUCCESSORS AND ASSIGNS...............................................24
14.4 IDENTICAL COUNTERPARTS...............................................25
14.5 HEADINGS.............................................................25
14.6 USE OF CERTAIN TERMS.................................................25
14.7 MODIFICATION AND WAIVER..............................................25
14.8 OTHER REMEDIES.......................................................25
14.9 NOTICES..............................................................25
14.10 GOVERNING LAW........................................................26
14.11 NO AGENT'S FEES......................................................26
14.12 BINDING ARBITRATION..................................................27
LIST OF SCHEDULES AND EXHIBITS................................................28
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 16th day of June, 1998, by and between CD WAREHOUSE, INC., a
Delaware corporation with its principal office located at 1204 Sovereign Row,
Oklahoma City, Oklahoma 73108 ("Buyer"), and GROW BIZ INTERNATIONAL, INC., a
Minnesota corporation with its principal office located at 4200 Dahlberg Drive,
Minneapolis, Minnesota 55422-4837 ("Seller").
WHEREAS, Seller is engaged, among other activities, in the business of:
(a) franchising retail stores (the "Disc Go Round Franchises") which buy, sell
and trade new and used audio compact discs, (b) buying, selling and trading new
and used audio compact discs on a retail basis through three (3) corporate or
subsidiary-owned stores (the "Corporate Stores"), and (c) selling new and used
audio compact discs to its Disc Go Round Franchises (collectively, the "Disc Go
Round Business"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy from
Seller, substantially all of the assets of the Disc Go Round Business.
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements and upon the terms and subject to the
conditions hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 Purchase and Sale of Assets. Subject to and upon the terms and
conditions contained herein, at the Closing (as defined in Section 9.1), Seller
will sell, transfer, assign, convey and deliver to Buyer, and Buyer will
purchase, accept and acquire from Seller, free and clear of all liens, claims
against assets, security interests and encumbrances of any nature
("Encumbrances"), except for the security interests on the new compact discs
inventory set forth on SCHEDULE 3.2, all of the following properties and assets
(whether real or personal, tangible or intangible) of Seller primarily used in
the Disc Go Round Business (collectively, the "Assets"):
(a) Inventory. All of the Seller's inventory of new and used
audio compact discs (the "Inventory");
(b) Receivables. All of Seller's right, title and interest in and
to all receivables as of the Closing Date (as defined in
Section 9.1) due from the Disc Go Round Franchises, including,
without limitation, accounts receivable, notes receivable, and
warranty receivables (collectively, the "Receivables");
(c) Contracts. All of Seller's right, title and interest in and to
all (i) franchise agreements, (ii) franchise and area
development agreements, (iii) mutual termination agreements
<PAGE>
relating to certain franchise agreements and (iv) computer
software license agreements with franchisees for the software
defined in subsection (f) below, insofar as such agreements
relate to the Disc Go Round Franchises or the Disc Go Round
Business, as listed on SCHEDULE 3.7 (collectively, the
"Contracts");
(d) Trademarks / Copyrights. All of Seller's right, title and
interest in and to trademarks, patents, trade names, service
marks, copyrights, processes, trade secrets, proprietary and
technical information, know-how, other trade rights and other
intangible assets, including without limitation those
identified on SCHEDULE 3.5, together with all right to, and
applications and licenses for, any of the foregoing, primarily
utilized in Seller's Disc Go Round Business (the "Intellectual
Property Rights"), with respect to which Seller agrees to
execute separate assignments of the forgoing suitable for
recording at the U.S. Patent and Trademark Office, the various
Secretaries of State and the Canadian Trade-marks Office;
provided, however, that Seller's right, title and interest in
and to the "circling arrows" logo (the "Grow Biz Logo")
utilized by Seller in the Disc Go Round Business and in
Seller's other businesses is not being conveyed hereunder.
Rather, Seller will at Closing grant to Buyer a limited
license to utilize said logo (the "Limited License"). The
license to utilize the Grow Biz Logo will extend for a period
equal to the current and one renewal term for existing
franchise agreements whose underlying stores are currently
open and operating and one term for franchise agreements whose
underlying stores have not yet opened, but in any event such
Limited License shall not exceed ten (10) years, except as set
forth in SCHEDULE 3.5.1. Regardless of the foregoing Limited
License right being granted by Seller, the Buyer agrees to use
its best efforts on a regularly recurring (semi-annual) basis
to encourage the Disc Go Round Franchises to modify their
signage and letterhead to replace the Grow Biz Logo with that
of Buyer. If any Disc Go Round franchisees agree to use the CD
Warehouse name or any other tradename or service mark of
Buyer, Buyer shall make as a condition of any such agreement
that such franchisee cease use of the Grow Biz Logo. The
Limited License shall be in the form attached hereto as
EXHIBIT A.
(e) Records. All information of Seller with respect to the Disc Go
Round Franchises and all of Seller's records (but excluding
accounting, tax and corporate records) for the Disc Go Round
Business, including, without limitation, customer lists,
vendor lists, prospective franchisee lists, franchise files,
and records concerning the same and sales literature and
promotional materials together with all manuals, documents,
records, files, computer tapes or discs, or other media on or
in which the same may be evidenced or documented;
(f) Software. All software programs, operating systems, source and
object codes, computer printouts, data bases and related items
created, originated or modified by Seller and primarily used
in the Disc Go Round Business, including, but not limited to,
the Disc Go Round point-of-sale software currently used by
Seller in the operation of the Disc Go Round Business. It is
understood that the Wintegrity software currently under
development by Seller for use by franchisees of all of
Seller's businesses is not included in the assets conveyed
hereunder.
<PAGE>
(g) Other Intangible Property. All Disc Go Round Business goodwill
and all of Seller's right title and interest in and to the
Internet World Wide Web site and address known as
http://www.dgr1.com/ (the "DGR Web Site"). The DGR Web Site
shall be modified by Seller prior to Closing to remove any
hyperlinks, metatags or textual reference to Seller or
Seller's other franchise concepts.
(h) Registrations. All registrations, approvals, licenses and
permits of governmental authorities primarily obtained by
Seller in connection with its operation of the Disc Go Round
Business, including those set forth on SCHEDULE 3.6 hereto
(the "Registrations"), to the extent assignable under
applicable laws and regulations; and
(i) Other Assets. All equipment and tangible personal property of
the Corporate Stores, including, without limitation, furniture
and leasehold improvements, rights under leases listed on
SCHEDULE 3.23 underlying the Corporate Stores ("Leases"), and
rights under any other contracts listed on SCHEDULE 3.23
underlying the Corporate Stores ("Corporate Store Contracts").
It is understood that the Assets shall not include (i) any
assets related to Seller's general corporate operations and
(ii) corporate-owned retail or franchised concepts of Seller
other than the Disc Go Round Business, including the Play It
Again Sports(R), Computer Renaissance(R), Once Upon A
Child(R), Music Go Round(R), It's About Games(R) and
Retool(TM) corporate-owned retail or franchised concepts; or
(iii) any of the rights of the Seller under this Agreement.
1.2 Treatment of Certain Obligations. At Closing, Buyer will assume the
Assumed Obligations (defined below) pursuant to an Assignment and Assumption
Agreement acceptable to Buyer and Seller effective as of the Closing Date, the
form of which is attached hereto as EXHIBIT C (the "Assignment and Assumption
Agreement"). Buyer will not assume or have any responsibility, however, with
respect to any other obligation or liability of the Seller not included within
the Assumed Obligations. The term "Assumed Obligations" means all of Seller's
obligations arising after the Closing Date under: the (i) Contracts listed on
SCHEDULE 3.7; (ii) Orders listed on SCHEDULE 3.22 and (iii) Leases and Corporate
Store Contracts, provided, however, the Assumed Obligations shall not include
any obligation for performance or obligation or liability of Seller for default
or nonperformance under the Contracts, Leases, Corporate Store Contracts or
Orders arising prior to the Closing Date. The term "Orders" means, with respect
to the Disc Go Round Business, all of Seller's outstanding orders for inventory
(i.e., inventory on order but not received or paid for) as of 12:01 a.m. on the
day preceding the Closing Date.
1.3 Transfer and Conveyance. Seller shall execute and deliver to Buyer
at the Closing (i) a Bill of Sale (the "Bill of Sale"), (ii) an Assignment and
Assumption Agreement, (iii) an Assignment of Intellectual Property Rights (the
"Assignment of Intellectual Property Rights"), including, without limitation an
assignment in a form complete and adequate for filing and assigning all of
Seller's right, title and interest in the Intellectual Property Rights, in each
case in substantially the forms attached hereto as EXHIBITS B, C AND D,
respectively, and (iv) all such other assignments, endorsements and instruments
of transfer as shall be necessary or appropriate to carry out the intent of this
Agreement and
<PAGE>
as shall be sufficient to vest in Buyer title to all of the Assets
and all right, title and interest of Seller thereto, including consents and
releases of any security interests in the Assets.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Assets shall be Seven Million Dollars ($7,000,000) cash, plus assumption of the
"Assumed Obligations," subject to adjustments pursuant to Section 2.4 of this
Agreement.
2.2 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets as set forth on SCHEDULE 2.2, which Schedule shall consist of
IRS Form 8594 only.
2.3 Cash Payable at Closing. At the Closing, Buyer shall deliver a
cashier's check to Seller or make payment by wire transfer, as designated by
Seller, in an amount equal to the Purchase Price.
2.4 Proration/Costs Buyer and Seller agree to the following prorations
and allocation of costs in connection with this Agreement and the transactions
contemplated hereby:
(a) Seller's rights in and to security deposits by Seller
with lessors pursuant to Leases assumed by Buyer shall be
transferred to Buyer at the closing.
(b) All other operating costs of the Assets, such as, but
not limited to, utilities and payments pursuant to Leases and
Contracts, shall be allocated between Seller and Buyer based
upon the Closing Date, as of the close of business on said
Date, such that Seller shall pay that portion of the operating
costs pertaining to that period of time up to and including
the Closing Date, and Buyer shall pay that portion of the
operating costs from and after the Closing Date. In the event
certain costs cannot be determined until after Closing, such
as additional charges for taxes and rent under percentage rent
clauses in Leases, final adjustments shall be made when and as
said amounts are finally determined.
(c) Transfer taxes imposed, if any, shall be split equally
between Buyer and Seller. Recording fees, if any, shall be
paid by Buyer.
(d) Buyer shall pay any lease transfer charges imposed by
landlords pursuant to the Leases and any DGR Web Site transfer
charges.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrant as follows:
3.1 Due Organization and Qualification. Seller is a Minnesota
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota, and has all requisite corporate power and corporate
authority to own or lease its properties and to carry on its business as it is
presently being operated and in the places where such properties are owned or
leased and such business is conducted.
3.2 Title. Seller or its wholly owned subsidiary has, and upon
conveyance of the Assets to Buyer by Seller at the Closing, Buyer will acquire
and hold, good and marketable title in fee simple to all Assets, free and clear
of any and all Encumbrances, except as set forth on SCHEDULE 3.2.
3.3 Inventory. Set forth on SCHEDULE 3.3 is a description of all the
Inventory, which consists of items held in the ordinary course of the business
of Seller, which items are being acquired where is, as is, without warranty from
Seller.
3.4 Physical Properties. Set forth on SCHEDULE 3.4 is a description of
all physical properties, real, personal or mixed, owned and to be conveyed by
Seller and included among the Assets. Seller enjoys peaceable possession of all
properties included in the Assets owned or leased by it. No real property owned
by Seller is included in the Assets.
3.5 Intellectual Property Rights. Set forth on SCHEDULE 3.5 is a list
of all Intellectual Property Rights, which Intellectual Property Rights comprise
all such rights primarily utilized by Seller in connection with the operation of
the Disc Go Round Business (other than the Grow Biz Logo). The service mark
"Disc Go Round" (the "DGR Service Mark") does not infringe, involve or has
resulted in (i) infringement of, or (ii) any claim of infringement of, any
patent or patent application, trade name, trademark or service mark registration
or application, common law trademark, copyright or copyright registration or
application of any other person, firm or corporation and no proceedings have
been instituted, are pending, or threatened, which challenge the rights of
Seller in respect thereof. Except as disclosed on SCHEDULE 3.5, none of the
products, activities or operations of the Disc Go Round Business (other than the
DGR Service Mark addressed above) infringe, involve or have resulted in (i)
infringement of, or (ii) any claim of infringement of, any patent or patent
application, trade name, trademark or service mark registration or application,
common law trademark or trade dress right, copyright or copyright registration
or application of any other person, firm or corporation where such infringement
or claim of infringement would have a material adverse affect on the Disc Go
Round Business. Except as disclosed on SCHEDULE 3.5, to Seller's knowledge, none
of the Intellectual Property Rights are being infringed by the products,
activities, operations, trade names, trademarks, service marks, trade dress
rights or copyrights of any other person or persons and none are subject to any
outstanding order, judgment decree, stipulation or agreement restricting the use
thereof. Seller has not given and is not bound by an agreement of
indemnification for patent, trade name, service mark, trademark or copyright
infringement as to any property produced, used or sold by it.
<PAGE>
3.6 Compliance with Laws. Except as disclosed on SCHEDULE 3.6, Seller
(i) has complied with all laws, regulations, licensing requirements and orders
applicable to its Disc Go Round Business or personnel, the breach or violation
of which could have a material adverse effect on the Disc Go Round Business,
(ii) has filed with the proper authorities all statements and reports required
for the Disc Go Round Business by the laws, regulations, licensing requirements
and orders to which it or any of its employees (because of their activities in
the Disc Go Round Business on behalf of their employer) is subject, and (iii)
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its Disc Go Round Business in the manner in which and
in the jurisdictions and places where such Disc Go Round Business is now
conducted. Set forth on SCHEDULE 3.6 is a list of all material licenses,
franchises, permits and governmental authorizations for the Disc Go Round
Business and all applications pending before any agency or authority for the
issuance of any such licenses, franchises, permits or governmental
authorizations or the renewal thereof.
3.7 Contracts. Set forth on SCHEDULE 3.7 is a list of all material
contracts, leases, arrangements, and commitments (whether oral or written) by
which any of the Assets are directly affected or are bound, including, without
limitation, all franchise and area development agreements for the Disc Go Round
Business which have been executed by Seller. Except as set forth in SCHEDULE
3.7, neither Seller nor any of the Assets is a party to or is bound or affected
by, with respect to the Disc Go Round Business, any material contract, lease,
arrangement or commitment (whether oral or written) relating to: (i) the
employment of any person other than personnel employed at will by Seller in the
ordinary course of its business at rates of compensation and on terms consistent
with past business practice; (ii) collective bargaining with, or any
representation of any employees by, any labor union or association; (iii) the
acquisition of services, supplies, equipment or other personal property
involving more than $5,000 or which is not terminable by Seller upon not more
than 30 days' notice without obligation on the part of Seller; (iv) the purchase
or sale of real property; (v) distribution, agency or construction; (vi) lease
of real or personal property as lessor or lessee or sublessor or sublessee;
(vii) lending or advancing of funds (other than the Receivables); (viii)
borrowing of funds or receipt of credit (other than with respect to Orders);
(ix) incurring of any material obligation or liability (except with respect to
Orders); (x) the sale of personal property other than sales of inventory in the
ordinary course of business); and (xi) any matter or transaction not in the
ordinary course of the business of Seller or inconsistent with the past business
practice of Seller. Material contract, lease, arrangement and commitments
(whether oral or written) shall, for purposes of the foregoing, be defined as
contracts, leases, arrangements and commitments (whether oral or written) which
involve obligations in excess of $10,000 and which could not be terminated with
sixty (60) days or less notice by Seller without liability to Seller. Similarly,
material obligations or liabilities shall, for purposes of the foregoing, be
defined as obligations or liabilities in excess of $10,000.
3.8 Contract Defaults. Except as disclosed on SCHEDULE 3.7, Seller is
not in default in any material respect under any of the Contracts, the Contracts
are legal, valid and binding obligations of the respective parties thereto in
accordance with their terms and have not been amended, no defenses, offsets or
counterclaims thereto have been asserted by any party thereto other than Seller,
and Seller has waived no substantial rights thereunder. To the knowledge of
Seller there are no unasserted defenses, offsets or
<PAGE>
counterclaims of substantial merit that can be brought against Seller by the
other parties to the Contracts, based on matters arising prior to the date of
this Agreement.
3.9 Litigation. Set forth on SCHEDULE 3.9 is a list of all actions,
suits, proceedings, investigations or grievances pending against Seller or to
the knowledge of Seller threatened against Seller with respect to the Disc Go
Round Franchises, Seller's Disc Go Round Business or any Assets, at law or in
equity or admiralty or before or by and court or federal, state municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (each an "Agency"). Except as set forth on
SCHEDULE 3.9, none of the actions, suits, proceedings or investigations listed
on SCHEDULE 3.9 either (i) results or would, if adversely determined, result in
any material adverse change in the business, operations or assets or the
condition, financial or otherwise, or results of operations of Seller's Disc Go
Round Business, or (ii) adversely affects or would, if adversely determined,
adversely affect the right or ability of Seller to carry on its Disc Go Round
Business substantially as now conducted. Seller is not subject to any continuing
court or Agency order, writ, injunction or decree applicable specifically to the
Assets, the Disc Go Round Business or the operations or employees of Seller with
respect to the Disc Go Round Business., or in default with respect to any order,
writ, injunction or decree of any court or Agency with respect to the Assets,
the Disc Go Round Business or the operations or employees of Seller with respect
to the Disc Go Round Business.
3.10 Corporate Power and Authority. The execution, delivery and
performance of this Agreement by Seller, and all other agreements executed in
connection herewith, and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate action
and no further action or approval is required in order to permit Seller to
consummate the transactions contemplated hereby and thereby. This Agreement
constitutes, and all other agreements by and between the parties, when executed
and delivered in accordance with the terms thereof, will constitute the legal,
valid and binding obligations of Seller, enforceable in accordance with their
terms (subject, as to the enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights from time to time in effect). Seller has full power, authority and legal
right to enter into this Agreement, and all other agreements by and among the
parties, and to consummate the transactions contemplated hereby and thereby.
Except as set forth in SCHEDULE 3.10, the making and performance of this
Agreement, and all other agreements by and among the parties, and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof will not (i) conflict with the Certificate of
Incorporation or Bylaws of Seller, (ii) result in any breach or termination of,
or constitute a default under, or constitute an event which with notice or lapse
of time, or both, would become a default under, or result in the creation of any
Encumbrance upon any of the Assets under, or create any rights of termination,
cancellation or acceleration in any person under any contract, lease,
arrangement or commitment (except as may arise from territorial conflicts or
objections to Buyer as franchisor), or violate any order, writ, injunction or
decree, to which Seller is a party, by which any of the Assets, business or
operations of Seller may be bound or affected or under which any of the Assets,
business or operations of Seller receive benefits, (iii) result in the loss or
adverse modification of any material license, franchise, permit or other
authorization granted to or otherwise held by Seller for the Disc Go Round
Business or otherwise used in connection with the operation of the Disc Go Round
Business, or (iv) result in the violation of any provision of law
<PAGE>
applicable to Seller, the violation of which could have a material adverse
effect upon the Assets or the Disc Go Round Business.
3.11 Collective Bargaining. Seller is not a party to any collective
bargaining agreements with respect to any employees of Seller who work in the
Disc Go Round Business. There are no labor disturbances, or to the knowledge of
the Seller any threats thereof, with respect to its Disc Go Round Business
operations.
3.12 Employee Benefits. Seller's Disc Go Round Business operations are
not subject to any Employee Benefits and/or plans which would be required by law
or contract to be assumed by Buyer pursuant to the terms hereof.
3.13 True, Correct and Complete Information. The information furnished
to Buyer by Seller prior to or on the date of this Agreement in any Schedule
referred to herein is true, correct and complete in all material respects. Such
information states all material facts required to be stated therein or with
respect thereto or necessary to make the statements therein or with respect
thereto, in light of the circumstances under which such statements are made,
true correct and complete.
3.14 Availability of Documents. Seller has made available for
inspection by Buyer, at the offices of Seller, true, correct and complete copies
of its Certificate of Incorporation and Bylaws and all contracts, leases,
arrangements, commitments and documents referred to herein or in any Schedule
referred to herein, in each case together with all amendments and supplements
thereto.
3.15 Consents. Except as set forth in SCHEDULE 3.15, no consent,
approval, authorization or order of any court, Agency or any other person is
required in order to permit Seller to consummate the transactions contemplated
by this Agreement.
3.16 Financial Condition and Result of Operations. Seller has
previously delivered to Buyer true, correct and complete copies of the balance
sheet of Seller as of December 27, 1997 and the related statement of cash flows
for the year then ended and the related statement of shareholders' equity for
the year then ended. The foregoing financial statements at and as of December
27, 1997 have been examined and reported upon to the extent noted in the report
thereon dated February 3, 1998, by Arthur Andersen, LLP, independent public
accountants (the "1997 Audited Financial Statements"). Seller has previously
delivered to Buyer true, correct and complete copies of the audited balance
sheet of Seller as of December 28, 1996 and the related statement of cash flows
for the year then ended and the audited related statement of shareholders'
equity for the year then ended (the "1996 Audited Financial Statements" and,
collectively along with the 1997 Audited Financial Statements, the "Financial
Statements"). The 1996 Audited Financial Statements have been examined and
reported upon by Arthur Andersen, LLP. The Financial Statements, together with
the notes thereto, (i) are in accordance with the books and records and
accounting methods of Seller, (ii) present fairly the financial position and
results of operations of Seller as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as noted
therein.
<PAGE>
3.17 Insurance. Set forth on SCHEDULE 3.17 is a brief description of
all policies of fire, casualty, liability and other forms of insurance and all
fidelity bonds currently held by Seller in connection with the Disc Go Round
Business.
3.18 Taxes. Except as disclosed on SCHEDULE 3.18, Seller has duly filed
all federal, state, county, local and other excise, franchise, property,
payroll, income, capital stock, sales and use and other tax returns which are
required to be filed by it and such returns are true, correct and complete in
all material respects. Seller has paid all taxes, which have become due or have
been assessed against it and all taxes, penalties and interest which any taxing
authority has proposed or asserted to be owing. All tax liabilities to which the
Assets may have been subjected have been discharged except for taxes assessed
but not yet payable. There are no tax claims presently being asserted against
Seller and Seller knows of no basis for any such claim which would have a
material adverse effect on the Assets or the Disc Go Round Business.
3.19 Absence of Certain Changes or Events. Except as provided on
SCHEDULE 3.19, since December 31, 1997, Seller has not with respect to the Disc
Go Round Business (i) suffered any extraordinary losses or waived any rights of
substantial value; (ii) made any change in its mode of management or any change
in its method of operation or method of accounting; (iii) made or become
obligated to make any capital expenditures other than such expenditures or
commitments not exceeding $50,000 in the aggregate; (iv) experienced or suffered
any adverse change in its business, operations or assets (whether or not covered
by insurance) condition, financial or otherwise, or results of operations; (v)
entered into any material transaction, except in the ordinary course of its
business consistent with past business practice; (vi) received any notice of any
claim asserted against it by any Agency which could have a material adverse
effect on the Disc Go Round Business or the Assets; or (vii) incurred or agreed
to incur any material obligation outside the ordinary course of business which
has not heretofore been disclosed in writing to Buyer.
3.20 Broker's and Finder's Fees. Seller has not made any agreement with
any person, or taken any action which would cause any person, to become entitled
to an agent's, broker's or finder's fee or commission in connection with the
transactions contemplated by this Agreement.
3.21 Receivables. Set forth on SCHEDULE 3.21 is a list of all
Receivables showing the name of the account debtor, maker or obligor, the unpaid
balance, the age of the Receivable and, if applicable, the maturity date, the
interest rate and the collateral securing the obligation. Buyer is acquiring the
Receivables on a non-recourse basis and will have no claim against Seller to the
extent that the Receivables are not paid in full. Correspondingly, Seller will
have no claim against Buyer in the event that Buyer's collections on the
Receivables exceed the price paid therefor.
3.22 Orders. Set forth on SCHEDULE 3.22 is a list of all Orders as
of the date shown on such Schedule, showing the name of the vendor, the amount
on order and the invoice amounts, if known.
3.23 Leases and Corporate Store Contracts. Set forth on SCHEDULE 3.23
is a list of the Leases and Corporate Store Contracts, showing the name of the
respective parties thereto, effective date, term and monthly lease payments or
description of the contractual obligation. Seller and/or its wholly owned
<PAGE>
subsidiary are not in arrears with any lease payment due under the Leases or
with any contractual obligation under the Corporate Store Contracts and, to the
best of Seller's and/or its Subsidiary's knowledge, each of the Leases and
Corporate Store Contracts remain in full force and effect and, except as set
forth in SCHEDULE 3.15, are assignable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and warranties to
Seller:
4.1 Due Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own or lease
its properties and to carry on its business as it is presently being operated
and in the place where such properties are owned or leased and such business is
conducted.
4.2 Corporate Power and Authority. The execution, delivery and
performance of this Agreement by Buyer, and all other agreements referred to
herein or executed in connection herewith, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action and no further action or approval is required in
order to permit Buyer to consummate the transactions contemplated hereby and
thereby. This Agreement constitutes, and all other agreements by and among the
parties, when executed and delivered in accordance with the terms thereof, will
constitute, the legal, valid and binding obligations of Buyer, enforceable in
accordance with their terms (subject, as to the enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditor's rights from time to time in effect). Buyer has full power,
authority and legal right to enter into this Agreement and all other agreements
by and among the parties and to consummate the transactions contemplated hereby
and thereby. The making and performance of this Agreement, and all other
agreements by and among the parties and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof
will not (i) conflict with the Certificate of Incorporation or by the Bylaws of
Buyer, (ii) result in any breach or termination of, or constitute a default
under, or constitute an event which with notice or lapse of time, or both, would
become a default under, or result in the creation of any Encumbrance upon any
asset of Buyer under, or create any rights of termination, cancellation or
acceleration in any person under, any contract, lease, arrangement or
commitment, or violate any order, writ, injunction or decree, to which Buyer is
a party or by which Buyer or its assets, business or operations may be bound or
affected or under which Buyer or its assets, business or operations receive
benefits, (ii) result in the loss or adverse modification of any material
license, franchise, permit or other authorization granted to or otherwise held
by Buyer which is material to the business or financial condition of Buyer or
(iv) result in the violation of any provisions of law applicable to Buyer, the
violation of which could have a material adverse effect upon the business,
operations or assets of Buyer.
4.3 Consents. No consent, approval, authorization or order of any
court, Agency or any other person is required in order to permit Buyer to
consummate the transactions contemplated by this Agreement.
<PAGE>
4.4 Litigation. There is no pending or to the knowledge of the Buyer
threatened litigation in any court or any proceeding before any Agency (i) in
which it is sought to restrain, prohibit, invalidate or obtain damages in
respect of the consummation of the purchase and sale of the Assets or the other
transactions contemplated hereby, (ii) which could, if adversely determined,
result in any material adverse change in the business, operations or assets or
the condition, financial or otherwise, or results of operations of Buyer or
(iii) which could, if adversely determined, have a material adverse effect on
the right or ability of Buyer to carry on its business substantially as now
conducted.
4.5 Compliance with Laws. Buyer (i) has complied with all laws,
regulations, licensing requirements and orders applicable to its business the
breach or violation of which could have a material adverse effect on said
business, (ii) has filed with the proper authorities all statements and reports
required by the laws, regulations, licensing requirements and order to which it
is subject, and (iii) possesses all necessary licenses, franchises, permits and
governmental authorizations to conduct its business in the manner in which and
in the jurisdictions and places where such business is now conducted.
4.6 Financial Capability. Buyer has the financial capability to
consummate the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
5.1 Affirmative Covenants. Prior to the Closing Date (as hereinafter
defined), Seller will operate its Disc Go Round Business in the usual, regular
and ordinary course of business consistent with past business practices, and
will use its best efforts to (i) preserve intact the business organization of
the Disc Go Round Business and the Assets; (ii) maintain the properties and
equipment of the Disc Go Round Business in good operating condition and repair;
(iii) continue all existing policies of insurance for the Disc Go Round Business
(or comparable insurance) in full force and effect up to and including the
Closing Date (and will not cancel any such insurance or take (or fail to take)
any action that would enable the insurers under such policies to avoid liability
for claims arising out of any occurrence on or prior to the Closing Date without
the prior written consent of Buyer); (iv) preserve the present relationships of
the Disc Go Round Business with suppliers, customers, and franchisees of the
Disc Go Round Business; and (v) maintain the books, accounts and records related
to the Disc Go Round Business in the usual, regular and ordinary manner on a
basis consistently applied.
5.2 Negative Covenants. Prior to the Closing Date Seller will operate
its Disc Go Round Business in the usual, regular and ordinary course of business
consistent with past business practices, and will not, without the prior written
consent of Buyer: (i) make any increase in the compensation payable or to become
payable by it to any employee primarily employed in the Disc Go Round Business
or contribute or make any commitment to contribute or represent that it will
contribute any amounts to any bonus or other employee benefit plan for employees
of Seller except as required by law or by the terms of any such plan in the
ordinary course of business; (ii) make any material change in the character of
its
<PAGE>
Disc Go Round Business; (iii) incur any obligation or liability of the Disc Go
Round Business (fixed or contingent) except in the ordinary course of business;
(iv) discharge or satisfy any Encumbrance on the Assets or pay any obligation or
liability (fixed or contingent) of the Disc Go Round Business other than in the
ordinary course of business; (v) mortgage, pledge, transfer or otherwise dispose
of or subject to any Encumbrance any of the Assets, except in the ordinary
course of business; (vi) acquire any assets or properties for the Disc Go Round
Business, except in the ordinary course of business; (vii) cancel or compromise
any material debt or claim that comprises a part of the Assets; (viii) waive or
release any rights of material value that comprise a part of the Assets; (ix)
with respect to the Disc Go Round Business transfer, grant or terminate
contract, lease, arrangement or commitment rights under any concessions, leases,
licenses, agreements, patents, patent licenses, inventions, trademarks, trade
names, service marks, trade dress or copyrights or registrations or licenses
thereof or applications therefore or with respect to any know-how or other
proprietary or trade rights; (x) modify or change in any material respect or
terminate any Contract; (xi) make or become obligated to make any capital
expenditures for the Disc Go Round Business or enter into commitments therefor
exceeding $50,000, and (xii) sell, discount or otherwise dispose of any
Receivables.
5.3 Access to Properties and Records. Seller will keep Buyer advised of
all material developments relevant to the consummation of the transactions
contemplated hereby and will cooperate fully in permitting Buyer to make a full
investigation of the business, properties, financial condition and investments
of Seller related to the Disc Go Round Business during regular business hours
and upon reasonable notice and in bringing about the consummation of the
transactions contemplated hereby. Seller will, during regular business hours and
upon reasonable notice, afford to Buyer and its representatives full access to
the offices, buildings, real properties, machinery and equipment, inventory and
supplies, records, files, books of account, tax returns, agreements and
commitments, corporate record books and personnel of Seller which relate to the
Disc Go Round Business. Seller will, upon request by Buyer, provide reasonable
access to Buyer's auditors with respect to the records of the Disc Go Round
Business and will encourage Seller's auditors to allow Buyer and Buyer's
auditors access to the working papers for all audits of the Financial
Statements. Seller will furnish to Buyer all such further information concerning
the Disc Go Round Business and affairs of Seller as Buyer may reasonably
request. Seller will update by amendment or supplement each of the Schedules
referred to herein and any other disclosure in writing from Seller required by
this Agreement to be disclosed in writing by Seller to Buyer promptly upon any
change in the information set forth in such Schedules or other disclosures, and
Seller hereby represents and warrants that such Schedules and such written
disclosures, as so amended or supplemented, shall be true, correct and complete
as of the date or dates thereof; provided, however, that the inclusion of any
information in any such amendment or supplement, not included in the original
Schedule or other disclosure at or prior to the date of this Agreement, shall
not limit or impair (except as provided in Section 11.5) any right which Buyer
might otherwise have respecting the representations or warranties of Seller
contained in this Agreement. No investigation pursuant to this Section 5.3 shall
affect any representations or warranties or the conditions to the obligations of
Buyer to consummate the transactions contemplated hereby. In the event of the
termination of this Agreement, Buyer will deliver to Seller all documents, work
papers and other material (including copies thereof) obtained by Buyer or on its
behalf from Seller as a result of this Agreement or in connection herewith,
whether so obtained before or after the execution hereof and, if the
transactions contemplated hereby are not consummated, Buyer will hold such
information in strictest
<PAGE>
confidence and will not use or disclose, or permit any other person or entity to
use or disclose, such information until such time as such information is
otherwise publicly available.
5.4 Approvals of Third Parties. As soon as practicable after the date
hereof, Seller will use its reasonable best efforts to secure all necessary
consents, approvals and clearances of third parties that shall be required to
consummate the transactions contemplated hereby.
5.5 Notices. Seller will timely give all notices required to be given
relating to the transactions contemplated hereby, including without limitation,
(i) notices to employees, (ii) any notices required or requested to be given to
all creditors and claimants against Seller and (iii) any notices required or
requested to be provided to the Disc Go Round Franchises.
5.6 Access to Books and Records After the Closing Date. Seller agrees
to provide Buyer, its accountants, counsel and other representatives, during
normal business hours and upon reasonable notice, for a period of six years
after the Closing Date, access to the books, records, income tax returns,
contracts and other underlying data and the documentation of Seller relating to
the period prior to the Closing Date and to make available to Buyer personnel of
Seller in Buyer's review thereof for the purpose of enabling them to determine
and calculate any tax liabilities in connection with the Assets. Seller agrees
that, for such six-year period, it will preserve and keep intact all such books
and records.
5.7 Covenant Not to Compete. Seller covenants and agrees that except
with the prior written consent of Buyer (i) it will not, at any time during the
period of three (3) years from the Closing Date, directly or indirectly, in or
pertaining to any location in the United States or worldwide, own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, any business which, or any business organization any part of which,
engages in the business of buying, selling or trading of new and/or used audio
compact discs, audio (including music video) digital versatile discs ("DVD's")
or other prerecorded music media (collectively, the "Competitive Products"),
including without limitation the selling of franchises which engage in the
business of buying, selling or trading any Competitive Products in the United
States, except as a franchisee of Buyer, and (ii) it will not, at any time
during the period of three (3) years from the Closing Date, directly or
indirectly own, manage, operate join, control or participate in the ownership,
management, operation or control of any business which, or any business
organization any part of which, engages in the business of buying, selling or
trading Competitive Products via the "Internet," "World Wide Web," or any other
"on-line" computer communication networks, except as a franchisee of the Buyer.
The Seller will not be precluded from offering or selling new or used musical
instruments, computer software, amplifiers, video games or music related
equipment or electronics through one or more of Seller's other business concepts
or future business concepts. Further, Seller will not be precluded from offering
or selling, through a store operated by Seller or franchised under Seller's
other business concepts or future business concepts, Competitive Products to the
extent such Competitive Products offered or sold at any store directly owned or
franchised by the Seller: (i) may be utilized and/or sold solely or
coincidentally with and/or as a part of Seller's other business concepts' or
future business concepts' products and not as a separate department or
classification; and (ii) constitute only a portion, representing less than 10%
of the value, on the average, of such store's total inventory. The remedy at law
for any breach or attempted breach by Seller of the provisions of this Section
5.7 will be inadequate and Buyer shall be entitled to temporary or
<PAGE>
permanent injunctive relief against any breach or attempted breach of such
provision without the necessity of posting bond or proving actual damages. It is
the express intention of the parties hereto to comply with all laws, which may
be applicable to this Section 5.7. Should any restriction contained in this
Section 5.7 be found to exceed in duration or scope the restriction permitted by
law, it is expressly agreed that the covenant not to compete contained in this
Section 5.7 may be reformed or modified by the final judgment of a court of
competent jurisdiction to reflect a lawful and enforceable duration or scope. If
any one or more of the provisions contained in this Section 5.7 shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but any inconsistency in the provisions of this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. The terms and conditions of this Section 5.7 will
be governed by and construed in accordance with the laws of the State of
Delaware; the foregoing clause will not, however, affect the forum or venue of
any dispute resolution proceeding arising in connection with this Agreement or
any other term or condition of this Agreement whatsoever. Notwithstanding
anything to the contrary set forth above, if any franchisee of Seller takes
action which results in a breach of the foregoing covenant by Seller, Seller
shall not be deemed to be in breach of the foregoing covenant unless and until
Seller has first been provided written notice of the breach by Buyer and has
been afforded the opportunity to cure said breach during the thirty (30) day
period (or such greater period of time as may be allotted to franchisee under
any applicable federal, state or local law, rule or regulation) following such
notice; if such cure is effectuated in all material respects, no breach shall be
deemed to have occurred.
ARTICLE VI
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller as follows:
6.1 Furnishing of Information. Buyer will keep Seller advised of all
material developments relevant to the consummation of the transactions
contemplated hereby and will cooperate fully with Seller in bringing about the
consummation of the transactions contemplated hereby. In the event of the
termination of this Agreement, Seller will deliver to the Buyer all documents,
work papers and other material (including copies thereof) obtained by Seller or
on its behalf from Buyer as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof and, if the
transactions contemplated hereby are not consummated, Seller will hold such
information in confidence until such time as such information is otherwise
publicly available.
6.2 Approvals of Third Parties. As soon as practicable after the date
hereof, Buyer will use its reasonable best efforts to secure all necessary
consents, approvals and clearances of third parties that shall be required to
enable it to consummate the transactions contemplated hereby and will otherwise
use its reasonable best efforts to cause the consummation of such transactions
in accordance with the terms and conditions of this Agreement.
6.3 Buyer's Best Efforts. Buyer will use its best efforts, acting in
good faith, to cause the consummation of the transactions contemplated by this
Agreement in accordance with their terms and conditions.
<PAGE>
6.4 Retention of Records. For a period of six years after the Closing,
Buyer will retain all books and records that Buyer receives from Seller. During
such period, Seller and its representatives will have access to all such books
and records during normal Disc Go Round Business hours. Buyer will, upon request
of Seller, furnish to Seller, without charge, copies of any such books or
records.
6.5 Covenant Not to Compete. Buyer will agree not to compete with
Seller by engaging, directly or indirectly, in the franchising, licensing or
retail sale of new or used computer software, video games, musical instruments,
amplifiers, or music-related equipment or electronics (except for the sales of
music-related equipment or electronics manufactured for the purpose of playing
or listening to prerecorded music) (collectively, the "Grow Biz Concept
Products"), except with Seller's prior written consent, for a period of three
(3) years following the date of closing. Buyer will not be precluded from
offering or selling the Competitive Products, as defined in Section 5.7, through
one or more of Buyer's franchise concepts or future concepts. Further, Buyer
will not be precluded from offering or selling, through a store under Buyer's
existing or future franchise concepts, the Grow Biz Concept Products to the
extent such Grow Biz Concept Products offered or sold at any store directly
owned or franchised by Buyer: (i) may be utilized and/or sold solely or
coincidentally with and/or as a part of Buyer's existing or future franchise
concepts' products and not as a separate department or classification; and (ii)
constitute only a portion, representing less than ten percent (10%) of the
value, on the average, of such store's total inventory.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder shall be subject to the satisfaction
of each of the following conditions precedent on or prior to the Closing Date,
except such conditions as Buyer may waive in writing.
7.1 Representations and Warranties of Seller. All of the
representations and warranties of Seller contained in this Agreement and in any
Schedule hereof were true and correct when made, and, as so made (and without
consideration of any amendment or supplement thereto required by Section 5.3
hereof), shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
7.2 Covenants of Seller. All of the covenants and agreements herein on
the part of Seller to be complied with or performed on or before the Closing
Date shall have been complied in all material respects with and performed.
7.3 Audited and Unaudited Financial Statements for Disc Go Round
Business. On or before June 23,1998, Seller shall provide Buyer with financial
statements for the Disc Go Round Business, audited in accordance with generally
accepted accounting principles, for the last two fiscal years and unaudited
financial statements for the Disc Go Round Business for the first fiscal quarter
of 1998.
<PAGE>
7.4 Certificate of Seller. There shall be delivered to Buyer a
certificate dated as of the Closing Date and signed by an executive officer of
Seller to the effect set forth in Sections 7.1 and 7.2, which certificate shall
have the effect of a representation and warranty made by Seller on and as of the
Closing Date (subject to Section 11.5(c)).
7.5 No Casualty Losses. The Assets shall not have suffered any
destruction or damage by fire, explosion or other casualty or any taking by
eminent domain which has materially impaired the operation of the Assets or
otherwise had a material adverse effect upon the Disc Go Round Business
conducted by Seller.
7.6 Certificate of Authorities. Seller shall deliver to Buyer at
Closing (i) a certificate of the Secretary of State of Minnesota, dated as of a
date not more than five (5) days prior to the Closing Date, attesting to the
organization and good standing of Seller, (ii) a copy, certified by the
Secretary of State of Minnesota as of a date not more than five (5) days prior
to the Closing Date, of Seller's Certificate of Incorporation and all amendments
thereto, (iii) a copy, certified by the Secretary of Seller of the Bylaws of
Seller, as amended and in effect at the Closing Date and (iv) a copy, certified
by an authorized officer of Seller, of resolutions duly adopted by the Board of
Directors of Seller duly authorizing the transactions contemplated in this
Agreement.
7.7 Litigation. At the Closing Date, except as set forth in Schedule
3.9, there shall not be pending or threatened any litigation in any court or any
proceeding before any Agency, (i) in which it is sought to restrain, invalidate,
set aside or obtain damages in respect of the consummation of the purchase and
sale of the Assets or the other transactions contemplated hereby, (ii) which
could, if adversely determined, result in any material adverse change in the
business, operations or Assets or the condition, financial, or otherwise, or
results of operations of Seller's Disc Go Round Business, or (iii) which could,
if adversely determined, have a material adverse effect on the right or ability
of Seller to carry on the Disc Go Round Business as now conducted.
7.8 Legal Matters. All legal actions, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other related matters shall be satisfactory to Day, Edwards, Federman, Propester
& Christensen, P.C., counsel for Buyer, who shall act reasonably in making any
such determination.
7.9 Opinion of Seller's Counsel. Buyer shall have received an opinion
of counsel for Seller, dated the Closing Date to the effect that: (i) the Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota; (ii) Seller has full corporate power, and
corporate authority to enter into this Agreement and all other agreements by and
among the parties and to consummate the transactions contemplated hereby and
thereby; (iii) all corporate action required to be taken by Seller to approve
this Agreement and all other agreements by and among the parties and the
transactions contemplated hereby and thereby and to authorize execution and
delivery of this Agreement and all other agreements by and among the parties and
the performance by Seller of its obligations hereunder and thereunder, have been
duly and properly taken, and no further corporate action or approval is required
in order to permit Seller to consummate the transactions contemplated by this
Agreement and all other agreements by and among the parties; and (iv) this
Agreement and all other agreements
<PAGE>
contemplated hereby or executed in connection herewith by and among the parties
have been duly executed and delivered by Seller and are legal, valid and binding
obligations of Seller enforceable in accordance with their terms.
7.10 No Material Adverse Changes. There shall not have occurred (i) any
material adverse change in the business or the operations of Seller's Disc Go
Round Business or the Assets or (ii) any material loss or damage to any of the
Assets (whether or not covered by insurance) of Seller. Buyer shall receive a
certificate from Seller, dated as of the Closing Date and in form and substance
satisfactory to Buyer, as to fulfillment of the conditions set forth in this
Section 7.10.
7.11 Consents. Except for landlord's consents with respect to the
Leases, Seller shall have obtained all orders, approvals or consents of third
parties, including without limitation, any consents or approvals deemed
necessary by counsel to Buyer that shall be required to consummate the
transactions contemplated hereby.
7.12 Further Assurances. Seller shall take all such further action as
may be reasonably requested by Buyer in order to effect the consummation of the
transactions contemplated by this Agreement. If Buyer shall reasonably determine
that any further conveyance, assignment or other document or any further action
is necessary to vest in it full title to the Assets, Seller shall cause the
appropriate person or entity to execute and deliver all such instruments and
take all such action as Buyer may reasonably determine to be necessary.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to cause the sale of the Assets and the other
transactions contemplated hereby to occur at Closing shall be subject to the
satisfaction on or prior to the Closing Date of all of the following conditions,
except such conditions as Seller may waive in writing:
8.1 Representations and Warranties of Buyer. All of the representations
and warranties of Buyer contained in this Agreement and in any Schedule or other
disclosure in writing from Buyer shall have been true and correct when made, and
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
8.2 Covenants of Buyer. All of the covenants and agreements herein on
the part of the Buyer to be complied with or performed on or before the Closing
Date shall have been fully complied with and performed in all material respects.
8.3 Buyer's Certificate. There shall be delivered to Seller a
certificate dated as of the Closing Date and signed by the President or a Vice
President of Buyer to the effect set forth in Sections 8.1 and 8.2, which
certificate shall have the effect of a representation and warranty made by Buyer
on and as of the Closing Date.
<PAGE>
8.4 Certificates of Authorities. Buyer shall have furnished to Seller
(i) a certificate of the Secretary of State of Delaware, dated as of a date not
more than five (5) days prior to the Closing Date, attesting to the organization
and good standing of Buyer, (ii) a copy, certified by the Secretary of State of
Delaware as of a date not more than five (5) days prior to the Closing Date, of
Buyer's Certificate of Incorporation and all amendments thereto, (iii) a copy,
certified by the Secretary of Buyer of the Bylaws of Buyer, as amended and in
effect at the Closing Date and (iv) a copy, certified by an authorized officer
of Buyer, of resolutions duly adopted by the Board of Directors of Buyer duly
authorizing the transactions contemplated in this Agreement.
8.5 Opinion of Counsel to Buyer. Seller shall have received an opinion
from, counsel for Buyer, dated the Closing Date to the effect that: (i) Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (ii) Buyer has full power, authority and legal
right to enter into this Agreement and all other agreements by and among the
parties and to consummate the transactions contemplated hereby and thereby;
(iii) the execution and delivery of this Agreement and all other agreements by
and among the parties and the performance by Buyer of its obligations hereunder
and thereunder, have been fully authorized by all requisite corporate action,
and no further action or approval is required in order to permit Buyer to
consummate the transactions contemplated by this Agreement and all other
agreements by and among the parties; (iv) this Agreement and all other
agreements contemplated hereby or executed in connection herewith by and among
the parties have been duly executed and delivered by Buyer and are legal, valid
and binding obligations of Buyer enforceable in accordance with their terms.
ARTICLE IX
DATE AND PLACE OF CLOSING
9.1 Date and Place of Closing. Subject to satisfaction or waiver of the
conditions to the obligations of the parties, the purchase and sale of the
Assets pursuant to this Agreement shall be consummated at a closing (the
"Closing") to be held in the offices of Gray, Plant, Mooty, Mooty & Bennett,
P.A., at 3400 City Center, 33 South 6th Street, Minneapolis, MN or such other
place as is mutually agreed to by the parties, at 9 A.M., Central Standard Time,
on June 26, 1998 (the "Closing Date"). Title to the Assets shall pass from
Seller to Buyer as of 12:01 A.M., Central Standard Time, on the day following
the Closing Date.
ARTICLE X
CLOSING
10.1 Seller's and Buyer's Performance. At the Closing, concurrently
with performance by Buyer of its obligations to be performed at the Closing:
(a) Conveyances. Seller shall execute and deliver to Buyer, in
form and substance acceptable to Buyer (i) the Bill of Sale;
(ii) the Assignment and Assumption Agreement; (iii) the
Assignment of Intellectual Property Rights; and (iv) all other
assignments, endorsements and instruments of transfer as shall
be necessary or appropriate to carry out the intent of this
Agreement and as shall be sufficient to vest in Buyer title to
all of
<PAGE>
the Assets and all right, title and interest of Seller
thereto. If requested by Buyer, such documents shall be in
form suitable for recording.
(b) Records. Seller shall deliver to Buyer or make available upon
request all documents, agreements, reports, books, records and
accounts pertaining specifically to the Assets which are in
Seller's possession, including without limitation any and all
files and documents or copies thereof, relating to any
litigation described in SCHEDULE 3.9.
(c) Certificates. Seller shall execute and deliver the
certificates referred to in Sections 7.4 and 7.10.
(d) Revised Inventory, Orders and Receivables Seller shall deliver
revised and updated schedules of SCHEDULE 3.3 (Inventory),
SCHEDULE 3.21 (Receivables), SCHEDULE 3.22 (Orders) and any
other Schedules that must be updated or revised.
(e) Other Actions. Seller shall take all such other steps as may
be necessary or reasonably appropriate to put Buyer in actual
and complete ownership and possession of the Assets.
(f) Certificates of Authorities. Seller shall deliver to Buyer the
certificates of authority referred to in Section 7.6.
(g) Opinion of Seller's Counsel. Seller shall deliver to Buyer the
opinion of its counsel, dated the Closing Date, as to the
matters specified in Section 7.9.
(h) Consents. Seller shall deliver to Buyer the consents and
approvals required by Section 7.11.
(i) Subsidiary Documents. Seller shall deliver to Buyer a bill of
sale, assignment of lease and all other documents as may be
reasonably required in order to vest in and confirm to Buyer
full and complete title to, possession of, and the right to
use and enjoy, those Assets related to the Huntsville Disc Go
Round(R) store owned and operated by Seller's wholly-owned
subsidiary, Grow Biz Games, Inc.
(j) Mutual Release. Seller shall execute and deliver to Buyer a
Mutual Release of Claims respecting that certain law suit
between Seller and Buyer in the form attached hereto as
EXHIBIT E (the "Mutual Release").
10.2 Buyer's Performance. At the Closing, concurrently with the
performance by Seller of its obligations to be performed at the Closing:
(a) Purchase Price. Buyer shall deliver to Seller the wire
transfer or cashier's check specified in Section 2.3;
<PAGE>
(b) Assignment and Assumption Agreement. Buyer shall execute and
deliver to Seller the Assignment and Assumption Agreement.
(c) Opinion of Buyer's Counsel. Buyer shall deliver the opinion of
counsel, dated the Closing Date, as to the matters specified
in Section 8.5.
(d) Certificates. Buyer shall execute and deliver the certificate
referred to in Section 8.3.
(e) Mutual Release. Buyer shall execute and deliver to Seller the
Mutual Release.
10.3 Expenses; Other Instruments. In addition to the foregoing,
Buyer and Seller agree as follows:
(a) Further Action by Seller. At any time and from time to time,
at or after the Closing, upon request of Buyer, Seller shall
do, execute, acknowledge and deliver or shall cause to be
done, executed, acknowledged and delivered all such further
acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may reasonably be required in order
to vest in and confirm to Buyer full and complete title to,
possession of, and the right to use and enjoy, the Assets.
(b) Further Action by Buyer. At any time and from time to time, at
or after the Closing, upon request of Seller, Buyer shall do,
execute, acknowledge and deliver or shall cause to be done,
executed, acknowledged and delivered all such further acts and
assurances as may reasonably be required in order to better
assure and confirm to Seller the assumption by Buyer of the
obligations to render performance which are to be assumed by
Buyer pursuant to this Agreement.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 Survival. Subject to any limitations set forth herein, all
representations, warranties, covenants and agreements made in the Agreement
shall survive and shall not be extinguished by the Closing or any investigation
made by or on behalf of any party hereto.
11.2 Buyer's Losses. Seller hereby agrees, subject to Section 11.7
below, to indemnify Buyer and save and hold Buyer harmless from, against, for
and in respect of any and all damages (including, without limitation, amounts
paid in settlement with Seller's consent), losses, obligations, liabilities,
liens, deficiencies, costs and expenses, including, without limitation,
reasonable attorneys' fees and other costs and expenses incident to any suit,
action, investigation, claim or proceeding (hereinafter referred to collectively
as "Buyer's Losses"), suffered, sustained, incurred or required to be paid by
Buyer by reason of (i) the breach by Seller of any provisions of this Agreement,
including any representation or warranty made by Seller in or pursuant to this
Agreement being untrue or incorrect in any material respect; (ii) any material
failure by Seller to observe or perform its covenants and agreements set forth
in this Agreement; (iii) any liability for product warranties or defective
products arising from sales of Inventory of the Disc
<PAGE>
Go Round Business by Seller prior to the Closing Date. Indemnification by the
Seller of Buyers Losses under this Section shall be limited in the aggregate to
the Purchase Price paid to Seller by the Buyer pursuant to Section 2, less any
federal and state taxes paid by the Seller thereon.
11.3 Employee Compensation and Benefits. Seller hereby agrees to
indemnify and hold Buyer harmless from and against any and all claims made by
employees of Seller, regardless of when made, for workmen's compensation,
medical insurance, disability, vacation, severance, sick benefits or other
compensation arrangements to the extent the same are based on injury or sickness
occurring prior to the Closing Date or based on employment service rendered to
Seller prior the Closing Date.
11.4 Franchise Claims Against Buyer. Seller hereby agrees to indemnify
Buyer and save and hold Buyer harmless from, against, for and in respect of any
damages, losses, obligations, liabilities, deficiencies, costs, or expenses
resulting from any and all claims made by any past or existing franchisee or
purported franchisee of Buyer or Seller to the extent such acts, omissions or
occurrences giving rise to the claim occurs prior to the Closing Date and have
not otherwise been disclosed in this Agreement or in any schedule thereto, but
excluding any claim of a Disc Go Round franchisee involving territorial
conflicts relating to the location of a Disc Go Round store in relation to the
location of any company-owned or franchised store of Buyer, objections to Buyer
as franchisor (including without limitation Buyer's financial or support
capabilities or future direction or policies regarding the Disc Go Round
Franchises, or other claims or matters arising under the Contracts as a result
of the consummation of the transactions contemplated hereby. Any damages,
losses, obligations, liabilities, deficiencies, costs, or expense incurred by
Buyer as a result of any claims made by existing franchisees or purported
franchisees of Buyer or Seller arising from any act, omission or occurrence
prior to the Closing Date are included within the definition of the term
"Buyer's Losses."
11.5 Limitations. Notwithstanding anything to the contrary elsewhere
contained herein, all indemnification obligations of Seller under this Agreement
are subject to the following conditions, limitations and qualifications:
(a) Except for claims for breach of the Covenant not to Compete in
Section 5.7, all claims for indemnification by Buyer must be
made within two years of the Closing Date or shall be forever
barred; provided, however, that claims first made in good
faith and in writing in reasonable detail prior to said date
may be pursued until they are finally resolved. All claims for
breach of the Covenant Not to Compete must be made within
three and one-half years after the Closing Date.
(b) No claim for indemnification by Buyer can be pursued until
the aggregate of all of Buyer's Losses exceed $100,000, and
then such claims may be pursued only to the extent that they
exceed said amount.
(c) No claim for indemnification by Buyer can be pursued with
respect to a breach of a representation or warranty made by
Seller herein and disclosed in an amendment or supplement to a
Schedule supporting such representation or warranty prepared
pursuant to Section 5.3.; PROVIDED, HOWEVER, nothing in this
Section 11.5(c) shall prevent Buyer
<PAGE>
from bringing a claim for indemnification to the extent that
any such amendment or supplement proves to be untrue when
made; and PROVIDED, FURTHER, that nothing in this provision
shall affect Buyer's right not to consummate the Agreement if
a condition to Buyer's obligation to close is not satisfied.
The foregoing conditions, limitations, and qualifications shall apply to all
claims made under or in connection with this Agreement and the transactions
contemplated hereby whether or not such claims are styled as claims for
indemnification hereunder.
11.6 Seller's Losses. Buyer agrees to indemnify Seller and save and
hold Seller harmless from, against, for and in respect of any and all damages
(including, without limitation, amounts paid in settlement with Buyer's
consent), losses, obligations, liabilities, claims, deficiencies, cost and
expenses, including, without limitation, reasonable attorneys' fees and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding (hereinafter referred to collectively as "Seller's Losses") suffered,
sustained, incurred or required to be paid by Seller by reason of (i) any
representation or warranty made by Buyer in or pursuant to this Agreement being
untrue or incorrect in any material respect; (ii) any material failure by Buyer
to observe or perform its covenants and agreements set forth in this Agreement;
(iii) any liability for product warranties or defective products arising from
sales of Inventory sold by Buyer after the Closing Date; (iv) any failure by
Buyer to satisfy and discharge any liability or obligation expressly assumed by
Buyer pursuant to this Agreement; or (v) any and all claims made by employees of
Buyer who are former employees of Seller, for workmen's compensation, medical
insurance, disability, vacation, severance, sick benefits or other compensation
arrangements to the extent the same are based on injury or sickness occurring
after the Closing Date or based on employment service rendered to Buyer after
the Closing Date.
11.7 Franchise Claims Against Seller. Buyer agrees to indemnify Seller
and save and hold Seller harmless from, against, for and in respect of any
damages, losses, obligations, liabilities, deficiencies, costs, or expenses
resulting from any and all claims made by any past or existing franchisee or
purported franchisee of Buyer or Seller to the extent such acts, omissions or
occurrences giving rise to the claim: (i) occurs after the Closing Date; or (ii)
relates to a claim of a Disc Go Round franchisee involving territorial conflicts
relating to the location of a Disc Go Round store in relation to the location of
any company-owned or franchised store of Buyer, objections to Buyer as
franchisor (including without limitation Buyer's financial or support
capabilities or future direction or policies regarding the Disc Go Round
Franchises), or other claims or matters arising under the Contracts as a result
of the consummation of the transactions contemplated hereby. Any damages,
losses, obligations, liabilities, deficiencies, costs, or expenses incurred by
Seller as a result of any claims made by past or existing franchisees or
purported franchisees of Buyer or Seller arising from any act, omission or
occurrence after the Closing Date are included within the definition of the term
"Seller's Losses."
<PAGE>
11.8 Notice of Loss. Notwithstanding anything herein contained, Buyer
and Seller shall not have any liability under the indemnity provisions of this
Agreement with respect to a particular matter unless a notice setting forth in
reasonable detail the breach which is asserted has been given to the
Indemnifying Party (hereafter defined) and, in addition, if such matter arises
out of a suit, action, investigation or proceeding, such notice is given
promptly after the Indemnified Party (hereafter defined) shall have been given
notice of the commencement of a suit, action, investigation or proceeding. With
respect to Buyer's Losses hereof, Seller shall be the Indemnifying Party and
Buyer shall be the Indemnified Party. With respect to Seller's Losses, Buyer
shall be the Indemnifying Party and Seller shall be the Indemnified Party.
11.9 Right to Defend. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed by
an Indemnified Party, the Indemnifying Party shall be entitled promptly to
defend, contest or otherwise protect against such suit, action, investigation,
claim or proceeding or its own cost and expense, including the right to invoke
any arbitration proceeding available in the dispute. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in a
defense thereof by counsel of its own choosing, but the Indemnifying Party shall
be entitled to control the defense unless the Indemnified party has relieved the
Indemnifying Party from liability with respect to the particular matter or the
Indemnifying Party fails to assume defense of the matter. In the event the
Indemnifying Party shall fail to defend, contest or otherwise protect in a
timely manner against any such suit, action, investigation, claim or proceeding,
the Indemnified Party shall have the right, but not the obligation, to defend,
contest or otherwise protect against the same and make any compromise or
settlement thereof and recover the entire cost thereof from the Indemnifying
Party including reasonable attorneys' fees, disbursements and all amounts paid
as a result of such suit, action, investigation, claim or proceeding or the
compromise or settlement thereof. However, if the Indemnifying Party undertakes
the defense of such matters, the Indemnified Party shall not be entitled to
recover from the Indemnifying Party any legal or other expenses substantially
incurred by the Indemnifying Party in connection with the defense thereof other
than the reasonable costs of investigation undertaken by the Indemnified Party
with the prior written consent of the Indemnifying Party. If Buyer and Seller
are named jointly as defendants by a past, existing or purported franchisee in a
court or arbitration proceeding and Buyer based on its evaluation of the
franchisee's claim provides notice to Seller of an indemnification claim against
Seller pursuant to Section 11.8 as to any liability arising out of the
Franchisee's claim, Seller reserves the right in its sole discretion to fully
settle and compromise the franchisee's claim as to both Seller and Buyer at any
time during the proceeding.
11.10 Request to Allocate Responsibility. Buyer and Seller agree that
if they are jointly named as parties after Closing in any suit, claim or
proceeding by a past, existing or purported franchisee of Buyer or Seller that
they will jointly request that the panel of arbitrators or court specify in
their judgment or order in the event that any liability is determined as to the
Buyer and Seller whether the liability is attributable to an act, omission or
occurrence before or after the Closing Date or if the liability is attributable
to acts, omissions or occurrences both before and after the Closing Date the
proportionate degree of fault and damages reflected in the judgment or order,
attributable to the Buyer or Seller in accordance with the provisions of this
Agreement.
<PAGE>
11.11 Franchise Claims Against Both Seller and Buyer. Subject to the
remaining provisions of this Agreement, to the extent that any damages, losses,
obligations, liabilities, deficiencies, costs, or expenses result from any
claims made by any past or existing franchise or purported franchise of Buyer or
Seller for acts, omissions or occurrences occurring both before and after the
Closing Date, such damages, losses, obligations, liabilities, deficiencies,
costs, and expenses will be borne by Buyer and Seller in proportion to their
respective degree of fault.
ARTICLE XII
POST-CLOSING COVENANTS
12.1 Transition Period. Seller shall use good-faith efforts for a
period of up to one hundred eighty (180) days after the Closing to cooperate and
assist Buyer, on a reasonable basis, in connection with the operations of the
Disc Go Round Business and the Assets purchased by Buyer under this Agreement.
12.2 Insurance Policies. Seller hereby agrees to maintain and keep in
force all current insurance policies that may or could provide coverage for the
Disc Go Round Business through the Closing Date.
12.3 Audited and Unaudited Financial Statements for Disc Go Round
Business. Seller shall provide Buyer with the unaudited financial statements for
the Disc Go Round Business for the second fiscal quarter for 1998 on or before
July 30, 1998.
12.4 Non-Solicitation.
(a) Each of Buyer and Seller agrees that, for a period of two (2)
years from the Closing Date, or two (2) years from the date of
termination of this Agreement, whichever occurs first, it will
not knowingly, as a result of information obtained hereunder
or otherwise obtained in connection with the transactions
contemplated hereunder:
(i) other than Buyer's acquisition of the Disc Go Round
Business contemplated by the terms of this Agreement,
divert or attempt to divert any business, franchisee
or customer of the other party to this Agreement, or
(ii) except for Buyer's possible employment of the
employees of the Corporate Stores, employ or attempt
to employ any employee of the other party to this
Agreement.
(b) The remedy at law for any breach or attempted breach by a
party of the provisions of this Section 12.4 will be
inadequate and the non-breaching party shall be entitled to
temporary or permanent injunctive relief against any breach or
attempted breach of such provision without the necessity of
posting bond or proving actual damages. It is the express
intention of the parties hereto to comply with all laws, which
may be applicable to this Section 12.4. If any one or more of
the provisions contained in this Section 12.4
<PAGE>
shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this
Agreement, but any inconsistency in the provisions of this
Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. The
terms and conditions of this Section 12.4 will be governed by
and construed in accordance with the laws of the State of
Delaware; the foregoing clause will not, however, affect the
forum or venue of any dispute resolution proceeding arising in
connection with this Agreement or any other term or condition
of this Agreement whatsoever.
ARTICLE XIII
TERMINATION
13.1 Termination. This Agreement may be terminated and abandoned
at any time on or prior to the Closing Date:
(a) By the mutual consent in writing of Buyer and Seller;
(b) By Buyer in writing if any of the material conditions
to the obligations of Buyer contained herein shall
not have been satisfied or, if unsatisfied, waived as
of the Closing Date;
(c) By Seller in writing if any of the material
conditions to the obligations of Seller contained
herein shall not have been satisfied or, if
unsatisfied, waived as of the Closing Date;
(d) By Buyer or Seller in writing if the Closing shall
not have occurred by July 15, 1998, except that no
party shall have the right to terminate this
Agreement if the failure to close shall be the result
of such party's failure to perform, in any material
respect, its obligations hereunder.
13.2 No Further Force or Effect. In the event of termination and
abandonment of this Agreement pursuant to the provisions of Section 13.1, this
Agreement shall be of no further force or effect, except for Section 12.4 and
the last sentences of Section 5.3, Section 6.1, and Section 14.1, which shall
not be affected by termination of this Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1 Expenses. Except as otherwise expressly provided herein, Seller
and Buyer shall each pay their own expenses in connection with the preparation
of this Agreement, and the consummation of the transactions contemplated hereby,
including, without limitation, fees of its own counsel, auditors and other
experts, whether or not such transactions be consummated.
<PAGE>
14.2 Entire Agreement. This Agreement, together with the Schedules and
other agreements contemplated herein, constitutes the entire contract and shall
supersede all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof and no
party shall be liable or bound to the other in any manner by any representations
or warranties except as specifically set forth herein or in any Schedule hereto
or agreement executed in connection herewith or expressly required to be made or
delivered pursuant thereto.
14.3 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties and their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of such agreements.
14.4 Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument, but only one of
which need be produced.
14.5 Headings. The headings of the paragraphs and subparagraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
14.6 Use of Certain Terms. As used in this Agreement, the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular paragraph, subparagraph or
other subdivision.
14.7 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time, whether before or after action
thereon by the party which is entitled to the benefits thereof; and this
Agreement may be modified or amended at any time, whether before or after action
thereon by the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
14.8 Other Remedies. Except as otherwise provided herein, any and all
remedies expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law on such party, and the
exercise of any one remedy will not preclude the exercise of any other.
14.9 Notices. All notices, consents, requests, instructions, approvals
and/or communications provided for herein, shall be validly given, made or
served if in writing and delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(i) If to Seller: Grow Biz International, Inc.
4200 Dahlberg Drive
<PAGE>
Minneapolis, Minnesota 55422-4837
Attn: Gaylen L. Knack, Vice President
with copy to: John Brower, Esquire
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center
33 South 6th Street
Minneapolis, MN 55402
(ii) If to Buyer: CD Warehouse, Inc.
1204 Sovereign Row
Oklahoma City, Oklahoma 73108
Attn: Jerry W. Grizzle, President and
Chief Executive Officer
with copy to: Bruce W. Day, Esq.
Day, Edwards, Federman, Christensen &
Propester, P.C.
210 Park Avenue
29th Floor Oklahoma Tower
Oklahoma City, Oklahoma 73102
The designation of the person to be so notified or the address of such person
for the purposes of such notice may be changed from time to time by a similar
notice. Any notice which is delivered personally in the manner provided herein
shall be deemed to have been duly given to the party to whom it is directed upon
actual receipt by such party (or its agent for notices hereunder). Any notice
which is addressed and mailed in the manner herein provided shall be
conclusively presumed to have been duly given to the party to which it is
addressed at the close of business, local time of the recipient, on the third
business day after the day it is so placed in the mail.
14.10 Governing Law. This Agreement will be construed and enforced in
accordance with and governed by the laws of the State of Delaware. This
Agreement will not be construed for or against a party merely because that party
prepared it, but will at all times be construed according to its fair meaning.
14.11 No Agent's Fees. Buyer represents to Seller, and Seller
represents to Buyer, that there is no agent's broker's or finder's fees or
commission payable or that will be payable in connection with the transactions
contemplated hereby by virtue of or resulting from any action or agreement by
it. Buyer hereby agrees to indemnify and hold harmless Seller, and Seller agrees
to indemnify and hold harmless Buyer, from and against any claim, demand,
liability, loss, cost or expense (including reasonable attorneys' fees and
expenses) on account of or in connection with any agent's, broker's or finder's
fees or commissions payable or alleged to be payable in connection with this
Agreement or the transactions contemplated hereby virtue of or resulting from
any action or agreement on the part of such indemnifying party.
<PAGE>
14.12 BINDING ARBITRATION. EXCEPT AS PROVIDED IN SECTION 5.7 AND
SECTION 12.4 OF THIS AGREEMENT AND THE LIMITED LICENSE, EACH PARTY TO THIS
AGREEMENT AGREES THAT ANY DISPUTE OR CONTROVERSY ARISING BETWEEN ANY OF THE
PARTIES TO THIS AGREEMENT, OR ANY PERSON OR ENTITY IN PRIVITY THEREWITH, OUT OF
THE TRANSACTIONS EFFECTED AND RELATIONSHIPS CREATED PURSUANT TO THIS AGREEMENT
AND EACH OTHER AGREEMENT CREATED IN CONNECTION HEREWITH, INCLUDING ANY DISPUTE
OR CONTROVERSY REGARDING THE FORMATION, TERMS, OR CONSTRUCTION OF THIS
AGREEMENT, REGARDLESS OF KIND OR CHARACTER, MUST BE RESOLVED THROUGH BINDING
ARBITRATION. EACH PARTY TO THIS AGREEMENT AGREES TO SUBMIT SUCH DISPUTE OR
CONTROVERSY TO ARBITRATION BEFORE THE AMERICAN ARBITRATION ASSOCIATION IN
OKLAHOMA CITY, OKLAHOMA, AND FURTHER AGREES TO BE BOUND BY THE DETERMINATION OF
AN ARBITRATION PANEL CONSISTING OF THREE (3) PERSONS OF WHICH AT LEAST ONE (1)
ARBITRATOR WILL BE AN ATTORNEY WITH NO FEWER THAN THEN (10) YEARS OF EXPERIENCE
IN FRANCHISE LAW. JUDGMENT ON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
OF COMPETENT JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY SUCH
DISPUTE OR CONTROVERSY IN A COURT OF COMPETENT JURISDICTION AND, FURTHER, MAY
SEEK PROVISIONAL OR ANCILLARY REMEDIES INCLUDING TEMPORARY OR INJUNCTIVE RELIEF
IN CONNECTION WITH SUCH DISPUTE OR CONTROVERSY IN A COURT OF COMPETENT
JURISDICTION, PROVIDED THAT THE DISPUTE OR CONTROVERSY IS ULTIMATELY RESOLVED
THROUGH BINDING ARBITRATION CONDUCTED IN ACCORDANCE WITH THE TERMS AND
CONDITIONS OF THIS SECTION.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed in counterparts all as of the date first above written.
SELLER:
GROW BIZ INTERNATIONAL, INC.
BY:-------------------------------------------------------
Gaylen L. Knack, Vice President
BUYER:
CD WAREHOUSE, INC.
BY:------------------------------------------------------
Jerry W. Grizzle, President and Chief Executive Officer
<PAGE>
ASSET PURCHASE AGREEMENT
DATED JUNE 15, 1998
BETWEEN CD WAREHOUSE AND GROW BIZ INTERNATIONAL, INC.
LIST OF SCHEDULES AND EXHIBITS
The Registrant agrees to provide supplementally copies of the following exhibits
to the Asset Purchase Agreement, dated June 26, 1998 to the Commission upon
request.
SCHEDULES
2.2 Allocation of Purchase Price
3.2 Encumbrances
3.3 Inventory
3.4 Physical Properties
3.5 Intellectual Property Rights
3.5.1 Exception to Limited License Term
3.6 Compliance with Laws; Licenses, Franchises Permits and
Governmental Authorizations
3.7 Material Contracts
3.9 Litigation
3.10 Conflicts, Breaches and Defaults
3.15 Consents and Authorizations
3.17 Insurance
3.18 Taxes
3.19 Certain Changes or Events
3.21 Receivables
3.22 Orders
3.23 Leases and Corporate Store Contracts
EXHIBITS
A Form of Limited License Agreement
B Bill of Sale
C Assignment and Assumption Agreement
D Assignment of Intellectual Property Rights
E Mutual Release
