AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement")
is made and entered into as of the 19th day of November, 1993, by
and between WHEREHOUSE ENTERTAINMENT, INC., a Delaware corpora-
tion ("Purchaser"), PEGASUS MUSIC AND VIDEO, INC., a Utah
corporation ("Seller") and KEVIN S. GARN ("Shareholder"), with
reference to the following facts:
A. Seller owns and operates music retail stores in the
States of Utah and Montana.
B. Shareholder is the sole shareholder of Seller.
C. Purchaser, Shareholder and Seller desire to enter into
this Agreement pursuant to which, upon the terms and subject to
the conditions set forth below, Purchaser will buy and acquire,
and Seller will sell, assign, transfer and deliver, the assets
hereinafter described.
NOW, THEREFORE, in consideration of the mutual
covenants, agreements, representations and warranties herein
contained, the parties hereto hereby agree as follows:
1. PURCHASE OF TRANSFERRED ASSETS.
1.1 Purchase of Transferred Assets. Upon the terms and
subject to the conditions hereinafter set forth, at the "Closing"
(as hereafter defined) or at any of the "Delayed Closings" (as
hereafter defined), Seller shall sell, assign, transfer and
deliver to Purchaser, and Purchaser shall purchase and acquire
from Seller, the applicable "Transferred Assets" (as hereafter
defined).
1.2 Definition of Transferred Assets. The "Transferred
Assets" shall mean and include:
1.2.1 The leasehold interests (collectively, the
"Store Leasehold Interests") of Seller in the real property
leases (the "Store Leases") for the fifteen music retail stores
of Seller (collectively, the "Stores") described on Schedule
1.2.1 attached hereto of which six of the Stores are leased from
K.S.G. Properties, a Utah corporation of which Shareholder is the
sole shareholder ("KSG"), (collectively, the "Affiliated
Stores");
1.2.2 All of the furniture, fixtures, equipment and
supplies located in the Stores, the Store Leasehold Interests of
which are sold to Purchaser at the Closing or a Delayed Closing,
as applicable, and more particularly described on Schedule 1.2.2
attached hereto (collectively, the "F, F & E");
1.2.3 The leasehold interests of Seller in the
personal property leases (the "Computer Leases") for the computer
systems located in Stores, the Store Leasehold Interests of which
are sold to Purchaser at the Closing or a Delayed Closing, as
applicable, and more particularly described on Schedule 1.2.3
attached hereto (the "Computer Equipment");
1.2.4 All of the inventory (collectively, the
"Inventory"), including, without limitation, the inventory of
music, records, pre-recorded and unrecorded tapes and cassettes,
compact discs and accessories, videos and laser discs, of Seller
(x) located as of the "Closing Date" (as hereafter defined) in
the Stores (a) which are subject to Store Leases with respect to
which Seller transfers all of its interest to Purchaser pursuant
to the terms of this Agreement at the Closing (collectively, the
"Transferred Leases"), (b) which may become subject to "Post-
Closing Transferred Leases" and for which a "Management Agree-
ment" is executed at the Closing (as those terms are hereafter
defined) or (c) which are subject to a Management Agreement at
the Closing, but Purchaser and Seller do not believe will become
subject to a Post-Closing Transferred Lease and (y) located as of
any applicable "Delayed Closing Date" (as hereafter defined) in
Stores, the possession of which are delivered to Purchaser on the
applicable Delayed Closing Date. Notwithstanding anything herein
to the contrary, in no event shall Purchaser be obligated to
purchase Inventory located at any Store possession of which is
not transferred to Purchaser at the Closing or any applicable
Delayed Closing pursuant to a "Store Leasehold Assignment" (as
hereafter defined) or a Management Agreement.
1.2.5 All tradenames, service names, trademarks,
service marks and logos of Seller and the associated good will,
including, without limitation, the tradenames, service names,
trademarks, service marks and logos listed on Schedule 1.2.5
attached hereto (the "Store Service Marks");
1.2.6 The contracts and leases for goods and
services (including, without limitation, contracts for signage)
provided to Seller for Stores, the Store Leasehold Interests of
which are sold to Purchaser at the Closing or a Delayed Closing,
as applicable, and the "St. George Sublease" (as hereafter
defined) if the Store Leasehold Interest for the Store located in
St. George, Utah is sold to Purchaser at the Closing or a Delayed
Closing, all listed on Schedule 1.2.6 attached hereto (collec-
tively, the "Store Contracts"); and
1.2.7 All drawings, blueprints, schematics, models,
"as builts," or plans for Stores, the Leasehold Interests of
which are sold to Purchaser at the Closing or a Delayed Closing,
as applicable (collectively, the "Plans") relating in any way to
said Stores or the F, F & E located therein.
1.3 Obligations of Seller not Assumed by Purchaser. Not-
withstanding anything to the contrary set forth or implied herein
or otherwise, except for the "Assumed Obligations" (as hereafter
defined), the Transferred Assets shall not include, and Purchaser
is not assuming and shall not be or be deemed to be, responsible
or liable for, any of Seller's contracts, leases, agreements,
undertakings, commitments, claims, liabilities, debts or obliga-
tions, whether or not known to Purchaser, Seller, Shareholder or
any third party on the Closing Date or on any of the Delayed
Closing Dates and, whether or not now existing or arising at any
time hereafter, including, without limitation, all liabilities,
claims and obligations of any nature whatsoever related to,
arising out of or for (i) past, present and future employment of
any and all persons who were, are or may be employed by Seller at
any time and arising out of Seller's employment of such person
including, without limitation, any liabilities, claims and
obligations for unfair labor and discriminatory employment
practices, employee salaries, vacation pay, severance pay, sick
pay, back pay, health insurance, workers' compensation, employee
contracts and other employee payments and benefits, (ii) any
defective condition in the design, material, workmanship or
performance of any products and services designed, assembled,
manufactured, distributed, sold or furnished by or on behalf of
Seller either before or after the Closing and the Delayed
Closings, (iii) subject to Sections 3.5 through 3.7 with respect
to "Current Property Taxes," "Sales Taxes" and "Payroll Taxes"
(each term as hereafter defined), any federal, state or local
taxes, payroll withholding obligations, governmental charges,
penalties, interest and fines of Seller (whether due and payable
before, on or after the Closing Date or the applicable Delayed
Closing Date, as the case may be), (iv) any acts or omissions of
Seller related to the conduct of its business or otherwise at any
time either before or after the Closing and the Delayed Closings,
(v) any acts or omissions of any assignee of Seller (other than
Purchaser) related to the conduct of its business or otherwise at
any time either before or after the Closing and the Delayed
Closings, (vi) notwithstanding anything to the contrary in any of
the Store Leases, the "New Leases" (as hereafter defined), the
"Store Leasehold Consents" (as hereafter defined), the Computer
Leases or the Store Contracts, the presence or migration prior to
the Closing or the applicable Delayed Closing of any pollutants,
contaminants, chemicals, or industrial, toxic or hazardous
substances or waste, including, without limitation, asbestos
(collectively, "Polluting Substances") in, on, into, under or
from the Stores, the real property on which the Stores are
located (the "Store Real Property") or the common areas or other
portions of the shopping centers in which any of the Stores are
located (the "Shopping Centers") or any real property adjacent
thereto, (vii) any defaults by Seller under or breaches of the
Store Leases, the Computer Leases or the Store Contracts
occurring prior to Closing or the applicable Delayed Closing,
(viii) any defaults by Seller under or breaches of any of the
Store Leases, Computer Leases or Store Contracts subject to
Management Agreements resulting from Seller's failure to obtain
all applicable consents to Purchaser and Seller entering into
said Management Agreements and (ix) past, present and future
litigation, suits, causes of action, arbitration or other
proceedings related to or arising out of the conduct of Seller's
business or any business of Seller's assignees (other than
Purchaser) either before or after the Closing and the Delayed
Closings.
2. PURCHASE PRICE FOR TRANSFERRED ASSETS.
2.1 Transferred Assets Purchase Price. The consideration,
which is subject to adjustment as provided herein, for the sale,
assignment, transfer and delivery of the Transferred Assets (the
"Transferred Assets Purchase Price") shall consist of:
2.1.1 $5,250,000 (the "Base Purchase Price"),
payable as follows:
2.1.1.1 up to an aggregate of $5,025,000 in cash
payable to Seller at Closing and/or the Delayed Closings in
accordance with Section 3 hereof; and
2.1.1.2 up to an aggregate of $225,000 in cash
(the "Escrow Funds") deposited by Purchaser at Closing and/
or the Delayed Closings into an interest bearing account
under the exclusive control of Hill, Harrison & Hill
("Escrow Agent") in accordance with Section 3.8 hereof.
2.1.2 An amount (the "Transferred Inventory
Purchase Price") equal to the Transferred Assets Purchase Price
for the Inventory, which shall be determined on the basis of
audits conducted by R.G.I.S. or such other independent auditor
selected by Purchaser with Seller's approval (such approval not
to be unreasonably withheld) (the "Inventory Auditor"). All fees
and costs of conducting the audits of the Inventory shall be
borne fifty percent by Purchaser and fifty percent by Seller.
The Transferred Inventory Purchase Price shall be paid to Seller
in accordance with Section 3.11 hereof. The Transferred Inven-
tory Purchase Price shall be valued as of the close of business
on the day before the Closing Date and all applicable Delayed
Closing Dates. The Transferred Inventory Purchase Price shall be
valued as follows:
2.1.2.1 Items of Inventory (other than videos
and games used in Seller's rental business (the "Rental
Items") which are returnable to the vendor thereof, accord-
ing to Purchaser's current records and information as
reflected solely on Purchaser's "master inventory list"
(collectively, the "Current Catalog Inventory") shall equal
the aggregate dollar amount of the Current Catalog Inventory
valued at Purchaser's wholesale costs calculated on the "box
lot cost" basis at the time of the Closing or applicable
Delayed Closing (the "Current Catalog Inventory Value") less
5.61% of the Current Catalog Inventory Value.
2.1.2.2 Items of Inventory (other than Rental
Items) which are not returnable to the vendor thereof
according to Purchaser's current records and information
(collectively, the "Non-Returnable Inventory") shall be
valued as follows: (i) in the event that the total number of
pieces of Non-Returnable Inventory does not exceed 5% of the
total number of pieces of Current Catalog Inventory then
being purchased at the Closing or applicable Delayed
Closing, the Non-Returnable Inventory shall be valued at 85%
of Seller's original cost for each such item as indicated on
Seller's schedule of original costs provided by Seller to
Purchaser after the Closing or applicable Delayed Closing as
contemplated by Section 7.14 hereof (the "Schedule of
Original Costs"); and (ii) in the event that the total
number of pieces of Non-Returnable Inventory is greater than
5% but does not exceed 15% of the total number of pieces of
the Current Catalog Inventory then being purchased at the
Closing or applicable Delayed Closing, the Non-Returnable
Inventory shall be valued at 75% of Seller's original cost
for each such item as indicated on the applicable Schedule
of Original Costs. In the event that the total number of
pieces of Non-Returnable Inventory exceeds 15% of the total
number of pieces of the Current Catalog Inventory then being
purchased at the Closing or applicable Delayed Closing,
Purchaser shall not be obligated to purchase any of such
Non-Returnable Inventory.
2.1.2.3 Notwithstanding the immediately
preceding Section, items of Non-Returnable Inventory of
which, according to the books and records of Seller, no
identical item of such Non-Returnable Inventory has been
sold during the 180 days immediately prior to the Closing
Date or applicable Delayed Closing Date (collectively, the
"Other Inventory"), shall be valued as follows: (i) in the
event that the total number of pieces of Other Inventory
does not exceed 5% of the total number of pieces of Current
Catalog Inventory then being purchased at the Closing or
applicable Delayed Closing, the Other Inventory shall be
valued at 75% of Seller's original cost for each such item
as indicated on the applicable Schedule of Original Costs;
and (ii) in the event that the total number of pieces of
Other Inventory is greater than 5% but does not exceed 15%
of the total number of pieces of the Current Catalog
Inventory then being purchased at the Closing or applicable
Delayed Closing, the Other Inventory shall be valued at 65%
of Seller's original cost for each such item as indicated on
the applicable Schedule of Original Costs. In the event
that the total number of pieces of Other Inventory exceeds
15% of the total number of pieces of the Current Catalog
Inventory then being purchased at the Closing or applicable
Delayed Closing, Purchaser shall not be obligated to
purchase any of such Other Inventory.
2.1.2.4 In addition to the discounts to the
Transferred Inventory Purchase Price contemplated by
Sections 2.1.2.1 through 2.1.2.3 hereof, the Transferred
Inventory Purchase Price to be paid at the Closing or
applicable Delayed Closing shall be further reduced by an
amount equal to $0.20 multiplied by 61% of the number of
music compact discs included within the Inventory purchased
at the Closing or such Delayed Closing.
2.1.2.5 Items of Inventory which are Rental
Items shall equal $17.21 per Rental Item.
2.1.3 The assumption by Purchaser from Seller at
the Closing or the applicable Delayed Closing, as the case may
be, of the following items (collectively, the "Assumed Obliga-
tions"): (i) all liabilities and obligations of Seller arising
and accruing under the Store Leases (other than the Store Leases
for the Affiliated Stores, which Store Leases will be terminated
at the Closing), the Computer Leases and the Store Contracts then
being assigned by Seller to Purchaser after the Closing or the
applicable Delayed Closing, as the case may be; and (ii) the
obligation to honor up to an aggregate amount of $15,000 of
Seller's unredeemed Store gift certificates and merchandise
credits and deposits accepted for special orders (collectively,
the "Gift Certificates and Merchandise Credits") issued prior to
the Closing which are issued in a manner consistent with Seller's
past practices and in the ordinary course of its business. For
the avoidance of doubt, the Assumed Obligations do not include
any obligations, debts or liabilities of Seller arising or
accruing under or in connection with any of the Store Leases, the
Computer Leases or Store Contracts or otherwise before the
Closing or the applicable Delayed Closing, as the case may be,
whether or not known by Purchaser, Seller, Shareholder or any
third party on the Closing Date or the applicable Delayed Closing
Date, as the case may be, including, without limitation, any
obligations, debts or liabilities (whether matured, unmatured,
contingent or otherwise) resulting from or arising before the
Closing or applicable Delayed Closing in connection with (a)
Seller entering into the Store Leases, the Computer Leases or
Store Contracts including, without limitation, any default
under or breach of any of the Store Leases, the Computer Leases
or Store Contracts by Seller, (b) the presence or migration of
any Polluting Substances in, on, into, under or from the Stores
or in, on, into, under or from the Store Real Property or
Shopping Centers or any of the real property adjacent thereto
before the Closing or the applicable Delayed Closing, as the
case may be, and irrespective of whether or not the existence of
such Polluting Substance is known to Purchaser, Seller or Share-
holder on the Closing Date or the applicable Delayed Closing
Date, as the case may be, (c) any act or omission of Seller,
including, without limitation, all acts or omissions which
constitute a default under or breach of any of the Store Leases,
the Computer Leases or Store Contracts, (d) any of Seller's
unredeemed Gift Certificates and Merchandise Credits, which are
issued prior to the Closing, in excess of an aggregate of
$15,000, (e) any of Seller's unredeemed Gift Certificates and
Merchandise Credits which either (i) in the reasonable discretion
of Purchaser, have not been issued in a manner consistent with
Seller's past practices and in the ordinary course of its
business prior to the Closing or (ii) are issued after the
Closing, (f) subject to Sections 3.5 through 3.7 with respect to
Current Property Taxes, Sales Taxes and Payroll Taxes, any
obligations, claims or liabilities arising out of or related to
the operation of Seller's business by Seller before the Closing
or applicable Delayed Closing, or (g) any obligations, claims or
liabilities arising out of or related to the operation of any
business of Seller or any assignee of Seller (other than
Purchaser) after the Closing or applicable Delayed Closing.
Notwithstanding anything in this Section 2.1.3 to the contrary,
Purchaser agrees to honor after the Closing at all Stores,
possession of which are delivered to Purchaser at the Closing,
Gift Certificates and Merchandise Credits issued prior to the
Closing, which are issued in a manner consistent with Seller's
past practices and in the ordinary course of Seller's business
whether or not such Gift Certificates and Merchandise Credits
exceed in the aggregate $15,000, provided, however, that Escrow
Agent shall reimburse Purchaser out of the Escrow Funds (to the
extent Escrow Funds are available for distribution to Purchaser
pursuant to Section 3.8 hereof) upon presentation by Purchaser of
canceled gift certificates and/or merchandise credits and/or
deposits issued by Seller which when added to the Gift Certifi-
cates and Merchandise Credits already honored by Purchaser exceed
$15,000 in the aggregate (the "Reimbursement Evidence"). In the
event Purchaser is entitled to be reimbursed in accordance with
the immediately preceding sentence and, pursuant to Section 3.8
hereof or otherwise, there exists no Escrow Funds available to
make such reimbursement, Seller shall reimburse Purchaser within
ten (10) days of Purchaser or the Escrow Agent presenting the
Reimbursement Evidence to Seller. Also, notwithstanding anything
in this Agreement to the contrary, Purchaser agrees that after
the Closing it will give merchandise credits or exchanges at all
Stores, possession of which are delivered to Purchaser at the
Closing or any Delayed Closing, for any merchandise sold at
retail to the public by Seller in accordance with Seller's past
practices and in the ordinary course of Seller's business prior
to the Closing or such Delayed Closing which is defective, such
merchandise credits and exchanges to be given in accordance with
Purchaser's usual policies in connection therewith, which
Purchaser may from time to time, in its sole and absolute
discretion, change, amend or modify.
2.2 Allocation of Transferred Assets Purchase Price. In
the event that Purchaser and Seller are unable to agree on the
allocation of the Transferred Assets Purchase Price prior to the
Closing Date, they shall continue to attempt to agree upon such
allocation during the ninety day period (the "Post-Closing
Negotiation Period") commencing immediately following the Closing
Date. In the event that Purchaser and Seller are able to mutu-
ally agree upon the allocation of the Transferred Assets Purchase
Price (the "Purchase Price Allocations"), Purchaser and Seller
shall evidence such agreement by entering into an amendment to
this Agreement to which shall be attached a schedule ("Schedule
2.2") on which the Purchase Price Allocation shall be set forth.
In the event that Seller and Purchaser agree on the Purchase
Price Allocations as provided above, Seller and Purchaser each
agrees (i) to report the sale of the Transferred Assets for
federal, state and local income tax purposes in accordance with
the allocation set forth on Schedule 2.2, (ii) not to take any
position inconsistent with such allocations on any of its tax
returns and (iii) to timely file federal tax Form 8594 (and the
state equivalent forms) with the applicable tax return for the
year of this transaction and any other year in which a Delayed
Closing occurs reflecting such Purchase Price Allocations. In
the event that Seller and Purchaser are unable to agree upon the
Purchase Price Allocations prior to the termination of the
Post-Closing Negotiation Period, each of Seller and Purchaser
shall be free to report the sale of the Transferred Assets for
federal, state and local income tax purposes in accordance with
any allocation schedule which each of Seller and Purchaser may
establish, which allocations may be inconsistent with those made
by the other. In any event, Purchaser and Seller shall provide
the other with draft copies of its relevant federal tax Form 8594
(and the state equivalent forms) at least fifteen (15) days prior
to filing such forms.
2.3 Payment of Sales and Use Taxes. Seller shall be
responsible for all sales and use taxes, if any, arising out of
the sale of the Transferred Assets to Purchaser pursuant to this
Agreement. Purchaser shall provide Seller with an officer's
certificate or certificates executed by an officer of Purchaser
(or any other form required by applicable law), certifying that
Purchaser is purchasing the Inventory for resale.
2.4 Prorations and Adjustments. The Transferred Assets
Purchase Price shall be adjusted at the Closing or the applicable
Delayed Closing (i) for Seller's preliminary prorated share of
Current Property Taxes calculated in accordance with Section 3.5
hereof; (ii) for Seller's preliminary unpaid Sales Taxes calcu-
lated in accordance with Section 3.6 hereof; and (iii) for
Seller's preliminary unpaid Payroll Taxes calculated in accord-
ance with Section 3.7 hereof. The Transferred Assets Purchase
Price shall be adjusted to prorate all rents, real property taxes
and common area maintenance ("CAM") and other charges paid by
Seller under the Store Leases and utilities paid by Seller and
all lease and other payments due under the Computer Leases and
Store Contracts paid by Seller for the period from the due dates
of the last such payments to be made by Seller immediately prior
to the Closing Date or the applicable Delayed Closing Date, as
the case may be, to the Closing Date or the applicable Delayed
Closing Date. The Transferred Assets Purchase Price shall also
be adjusted to prorate payments and other amounts due Seller by
the "St. George Sublessee" (as hereafter defined) due under the
St. George Sublease from the due dates of the last such payments
to be made by the St. George Sublessee to the Closing Date or
applicable Delayed Closing Date. In the event that the actual
amount of any such taxes, rents, CAM and other charges and
payments for the year of the Closing or applicable Delayed
Closing is more or less than that estimated by the parties hereto
at the Closing or applicable Delayed Closing, Purchaser or
Seller, as the case may be, shall make all appropriate payments
to the other party so that all payments and prorations made
pursuant to this Section 2.4 are accurate, based upon the actual
assessment for the year of the Closing or applicable Delayed
Closing. The Transferred Assets Purchase Price shall be
increased by all utilities deposits of Seller which Seller causes
the applicable utilities to transfer to the account of Purchaser
at the Closing or any Delayed Closing, as applicable.
2.5 Reduction of Base Purchase Price; Assignment of Store
Leasehold Interests.
2.5.1 The Base Purchase Price shall be reduced as
provided in Section 2.5.2 hereof upon the occurrence of either of
the following events:
2.5.1.1 Seller and Purchaser fail to obtain with
respect to all Store Leases other than Store Leases for
Affiliated Stores by the Closing Date (i) an unconditional
consent from the applicable lessor to the assignment by
Seller toPurchaser of the applicable Store Leasehold
Interest and (ii) an amendment to the applicable Store Lease
which contains all of the essential provisions the "Essen-
tial Provisions") set forth on Schedule 2.5.1.1 attached
hereto (which unconditional consent and amendment to lease
shall be in a form reasonably acceptable to Purchaser)
(collectively, the "Store Leasehold Consents") duly executed
by each of the lessors of the Store Leases other than Store
Leases for Affiliated Stores (collectively, the
"Non-Transferred Leases").
2.5.1.2 With respect to each of the Store Leases
other than Store Leases for Affiliated Stores, the current
term of which is to expire on or before December 31, 1995
(including renewal options, if previously exercised by
Seller or if Purchaser will have the right to exercise such
options under the applicable Store Leases) which are listed
on Schedule 2.5.1.2 (collectively, the "Short Term Store
Leases"), and irrespective of whether or not Purchaser
obtains Store Leasehold Consents with respect to such Store
Leases and/or an assignment of Seller's interests in such
Store Leases at the Closing, Purchaser fails to enter into
by the Closing Date a definitive agreement with the lessor
for each such Short Term Store Lease for an extension (an
"Extension") of the term of each such Short Term Store Lease
at the applicable Store's current location or current, but
expanded or reduced location or another location within the
same Shopping Center (which expanded or reduced location or
new location is acceptable to Purchaser, in its sole and
absolute discretion), and otherwise on terms and conditions
(including, without limitation, the length of the Extension)
reasonably acceptable to Purchaser (collectively, the "Non-
Extended Short Term Leases").
2.5.1.3 For the avoidance of doubt, a Store
Lease may be both a Non-Transferred Lease and a Non-Extended
Short Term Lease.
2.5.2 Upon the occurrence of the events described
in Section 2.5.1.1 or 2.5.1.2 hereof, the Base Purchase Price
shall be reduced by an amount equal to the Base Purchase Price
multiplied by a fraction, the numerator of which shall be the sum
of the actual revenues for the Stores for the immediately preced-
ing 12 complete calendar months prior to the Closing Date as
indicated on a schedule, which Seller shall deliver to Purchaser
at the Closing (the "Revenue Schedule"), for each of the Stores
which are leased to Seller pursuant to a Non-Transferred Lease
and/or a Non-Extended Short Term Lease, and the denominator of
which shall be the sum of the revenues listed on the Revenue
Schedule for all Stores (the "Non-Transferred Lease Reduced
Amount").
2.5.3 Notwithstanding the provisions of this
Section 2.5 to the contrary, in the event that (i) after the
Closing and prior to the date one year from the Closing Date (if
the Store Lease in question is not also a Short Term Lease),
Seller and Purchaser obtain a Store Leasehold Consent with
respect to a Store subject to a Non-Transferred Lease (a "Post-
Closing Transferred Lease"), or (ii) after the Closing Purchaser
enters into an Extension with respect to a Non-Extended Short
Term Lease (and receives the applicable Store Leasehold Consent)
(a) during the existing term of such Non-Extended Short Term
Lease, (b) within 45 days of the expiration of the existing term
of such Non-Extended Short Term Lease or (c) within one year of
the expiration of the existing term of such Non-Extended Short
Term Lease, if the Store, subject to such Non-Extended Short Term
Lease, continues to be operated during such one-year period (a
Non-Extended Short Term Lease referred to in clause (ii)(a),
(ii)(b) or (ii)(c) hereof, a "Post-Closing Extended Short Term
Lease"), then, (x) Purchaser shall pay to Seller an amount equal
to the Base Purchase Price multiplied by a fraction, the numera-
tor of which shall be the revenues listed on the Revenue Schedule
for the Store subject to such Post-Closing Transferred Lease or
such Post-Closing Extended Short Term Lease, as the case may be,
and the denominator of which shall be the sum of the revenues
listed on the Revenue Schedule for all Stores (the "Post-Closing
Transferred Lease Payment Amount") plus interest on the Post-
Closing Transferred Lease Payment Amount for the Store Leasehold
Interest if said Store is subject to a Management Agreement (and
the F, F & E, Computer Leases, Store Contracts and Plans related
to, or located in said Store), which interest shall be calculated
at the rate of six percent (6%) per annum from the Closing Date
to the applicable Delayed Closing Date and, in accordance with
Sections 3.9 and 3.10, Purchaser shall pay to Seller the Trans-
ferred Inventory Purchase Price applicable to the Inventory
located at such Store then transferred to Purchaser pursuant to
this Section 2.5.3 and which had not been previously transferred
to Purchaser, and (y) Seller shall sell and transfer (the "Post-
Closing Asset Transfer") all of its right, title and interest in
and to said Store Lease and all Inventory, F, F & E, Computer
Leases, Store Contracts and Plans related to, or located in, the
Store subject to the Post-Closing Transferred Lease or Post-
Closing Extended Short Term Lease which have not been previously
sold and transferred to Purchaser. Purchaser shall pay to Seller
the appropriate Post-Closing Transferred Lease Payment Amount
(plus applicable interest) and Purchaser shall pay the Trans-
ferred Inventory Purchase Price applicable to the Inventory
located at such Store which Inventory is then being transferred
to Purchaser pursuant to this Section 2.5.3, and Seller shall
make the appropriate Post-Closing Asset Transfer to Purchaser at
the offices of Purchaser and "MSK" (as hereafter defined) in
accordance with Section 3 hereof on the fifth business day (the
"Delayed Closing Date") after a Non-Transferred Lease shall
become a Post-Closing Transferred Lease, and/or a Non-Extended
Short Term Lease shall become a Post-Closing Extended Short Term
Lease, as the case may be (the consummation of each such
transaction a "Delayed Closing"), provided, that each of the
conditions to such Delayed Closing set forth in Sections 4 and 5
hereof have been satisfied or waived by the appropriate party.
Purchaser hereby agrees to use its best efforts to obtain
Extensions with respect to all Non-Extended Short Term Leases
prior to the Closing or within the time periods set forth in
subclause (ii) of this Section 2.5.3 on terms and conditions
reasonably acceptable to Purchaser and on a timely basis,
provided that in no event shall Purchaser be required to accept
an Extension of any Non-Extended Short Term Lease if such
Extension does not contain all applicable Essential Provisions
and if the Extension requires Purchaser to relocate the Store,
which relocation is not acceptable to Purchaser in its sole and
absolute discretion, or requires Purchaser to expand or reduce
the size of the current location of the Store, which expansion or
reduction is not acceptable to Purchaser in its sole and absolute
discretion.
2.6 Increase of Base Purchase Price. In the event Seller
sells to Purchaser the Store Leasehold Interest for the Store
located in St. George, Utah (the "St. George Store") free and
clear of that certain sublease by and between Seller and South-
west International, Inc., a Nevada corporation (the "St. George
Sublessee"), and related guarantees (collectively, the "St.
George Sublease") and the St. George Sublease is terminated as of
the Closing (or the applicable Delayed Closing if the Store
Leasehold Interest for the St. George Store is transferred at
such Delayed Closing), the Transferred Assets Purchase Price
shall be increased by $200,000 (the "St. George Additional
Consideration").
2.7 Obligation to Purchase Transferred Assets. Except as
expressly provided to the contrary in this Agreement, Purchaser
shall not purchase any of Seller's rights in the F, F & E,
Computer Leases, Store Contracts or Plans related to, or located
in, any Stores subject to a Non-Transferred Lease or a Non-
Extended Short Term Lease; provided, however, Purchaser shall
take possession of said assets if they are located in or relate
to a Store, the Store Leasehold Interest of which is sold to
Purchaser as provided herein or which will be the subject of a
Management Agreement as provided herein. With respect to the
Inventory located in any of the "Retained Stores" (as hereafter
defined), Purchaser shall not be obligated to purchase any of
such Inventory at the Closing.
3. THE CLOSING.
3.1 Closing Date and Location. The "Closing" shall mean
the time at which Seller consummates the sale of the Transferred
Assets to Purchaser by delivery to it of the Transferred Assets
in the manner contemplated by this Section 3. The Closing shall
take place at the offices of Mitchell, Silberberg & Knupp
("MSK"), 11377 West Olympic Boulevard, Los Angeles, California
90064 on January 11, 1994, or on such other date mutually accept-
able to Purchaser and Seller after all conditions set forth in
this Agreement have been satisfied or waived in writing by the
appropriate party, but in no event later than February 28, 1994.
The "Closing Date" shall mean the date on which the Closing
occurs.
3.2 Delivery of Transfer and Sale Documents. At the
Closing or the applicable Delayed Closing, Seller shall sell,
transfer and deliver the appropriate Transferred Assets to
Purchaser by the Leasehold Assignments, by the "New Leases" (as
that term is defined herein), and by bills of sale, assignments
of trademarks, service marks, tradenames and service names,
assignments of contracts, and assignment of leasehold interests
in substantially the forms attached hereto as Exhibit B.
3.3 Delivery of Transferred Assets. Subject to the Store
Leases, Computer Leases and Store Contracts, possession of the
Transferred Assets shall be delivered to Purchaser at the Closing
or the applicable Delayed Closing, as the case may be, (i) at the
offices of MSK, referred to above with respect to all intangible
Transferred Assets and (ii) at the Stores with respect to all
tangible Transferred Assets. In addition, at the Closing or the
applicable Delayed Closing, as the case may be, Seller shall also
deliver to Purchaser appropriate authorizations to provide for
the transfer of the Stores' telephone numbers and other utilities
to Purchaser and for the closing of billing as of the Closing
Date or the applicable Delayed Closing Date, as the case may be.
3.4 Delivery of Other Documents. At the Closing, Seller
shall also deliver to Purchaser (i) all blank gift certificates
and merchandise credits and deposits for the Stores, each of
which will be marked "void," (ii) a schedule of all outstanding
Gift Certificates and Merchandise Credits issued by Seller before
the Closing, such information provided on a Store by Store and
week by week basis (the "Schedule of Gift Certificates and
Merchandise Credits"), (iii) copies of all "Occupancy Certifi-
cates and Permits" (as hereafter defined) and (iv) the Revenue
Schedule. On the later of (a) March 15, 1994, or (b) the earlier
of (x) the date on which Seller ceases operations at all Retained
Stores or (y) the date which is six months after the Closing
Date, Seller shall deliver to Purchaser all documents required to
change the corporate name of Seller from "Pegasus Music and
Video, Inc." to a name not confusingly similar to such name,
which documents Purchaser is hereby authorized to record with the
Office of the Secretary of State of the State of Utah as Purchas-
er may deem appropriate. Notwithstanding anything in this
Section to the contrary, if Seller continues to operate Retained
Stores after the Closing utilizing any of the Store Service
Marks, Seller may retain all of its blank gift certificates and
merchandise credits and deposits until such time as it ceases to
use any of the Store Service Marks or was obligated to cease
using the Store Service Marks as contemplated by this Agreement,
at which time it will promptly deliver said blank gift certifi-
cates and merchandise credits and deposits marked "void."
3.5 Proration of Personal Property Taxes. With respect to
all unpaid current year's personal property taxes owed by Seller
(collectively, the "Current Property Taxes") for which Seller
does not deliver to Purchaser at the Closing or the applicable
Delayed Closing a "Tax Liability Release" (as hereafter defined),
at the Closing or the applicable Delayed Closing, Purchaser and
Seller shall preliminarily prorate all Current Property Taxes for
the Stores based upon the personal property taxes for the Stores.
At the Closing or applicable Delayed Closing, Purchaser shall
receive a credit against the cash price payable pursuant to
Section 2.1.1.1 hereof in an amount equal to the Seller's
preliminary prorated share of Current Property Taxes for the
Stores (the "Personal Property Tax Reserve"), it being understood
that Purchaser will use the Personal Property Tax Reserve to pay
Seller's final prorated share of the Current Property Taxes for
the Stores on behalf of Seller and as it has requested. In the
event that Seller's final prorated share of the Current Property
Taxes for the Stores (based upon the actual Current Property Tax
bills for the Stores) (i) is greater than the Personal Property
Tax Reserve, then (subject to Section 3.8.2 hereof) at Purchas-
er's election either (a) Seller shall promptly pay such short
fall amount directly to Purchaser or (b) the Escrow Funds shall
be used to pay such short-fall amount; or (ii) is less than the
Personal Property Tax Reserve, then Purchaser shall promptly
remit the excess Personal Property Tax Reserve to Seller. Not-
withstanding the foregoing, nothing herein shall be construed to
mean that Purchaser has assumed or shall be held liable for any
personal property taxes which Seller is obligated to pay other
than the Personal Property Tax Reserve.
3.6 Proration of Sales Taxes. With respect to all unpaid
sales, use, income and other business taxes for which Purchaser
has potential "successor liability" or for which a "Lien" (as
hereafter defined) may attach to any of the Transferred Assets
(collectively, the "Sales Taxes") for which Seller does not
deliver to Purchaser a Tax Liability Release at the Closing or
the applicable Delayed Closing, at the Closing or the applicable
Delayed Closing, Seller and Purchaser shall project the aggregate
amount of unpaid Sales Taxes of Seller arising from Seller's
operation of the Stores through the Closing Date or the appli-
cable Delayed Closing Date and the amount of Sales Tax due as a
result of the sale of the Transferred Assets to Purchaser (the
"Projected Unpaid Sales Taxes"), and Seller shall deliver to
Purchaser either (i) copies of all canceled checks evidencing the
payment of any Sales Taxes accrued since January 1, 1993 through
the date indicated on the latest Sales Tax returns required to be
filed by Seller with all applicable taxing authorities prior to
the Closing or the applicable Delayed Closing (the "Sales Tax
Filing Period") or (ii) certificates from the appropriate taxing
authorities indicating that all of the Sales Tax for the Sales
Tax Filing Period has been paid. At the Closing or the appli-
cable Delayed Closing, Purchaser shall receive a credit against
the cash price payable pursuant to Section 2.1.1.1 hereof in an
amount equal to Projected Unpaid Sales Taxes (the "Sales Tax
Reserve"), it being understood that Purchaser will use the Sales
Tax Reserve to pay (on behalf of Seller and as it has requested)
Seller's actual unpaid Sales Taxes arising from Seller's opera-
tion of the Stores through the Closing Date or the applicable
Delayed Closing Date and the Sales Taxes arising in connection
with the sale of the Transferred Assets to Purchaser. Promptly
following the Closing or the applicable Delayed Closing, Seller
shall calculate the final aggregate amount of unpaid Sales Taxes
arising from Seller's operation of the Stores through the Closing
Date or the applicable Delayed Closing Date and the Sales Tax due
as a result of the sale of the Transferred Assets to Purchaser.
In the event that such final aggregate unpaid Sales Taxes (i) are
greater than the Sales Tax Reserve, then (subject to Section
3.8.2 hereof) at Purchaser's election either (a) Seller shall
promptly forward to Purchaser a cashier's check for such short-
fall amount made payable to the appropriate taxing authority
(which Purchaser will promptly thereafter forward to the appro-
priate taxing authority) or (b) the Escrow Funds shall be used to
pay such shortfall amount; or (ii) are less than the Sales Tax
Reserve, Purchaser shall promptly remit the excess Sales Tax
Reserve to Seller. Notwithstanding the foregoing, nothing herein
shall be construed to mean that Purchaser has assumed or shall be
held liable for any Sales Taxes other than the Sales Tax Reserve.
3.7 Payment of Employee Payroll Taxes. With respect to all
unpaid federal and state social security, disability, unemploy-
ment and other payroll taxes (including the portion to be paid by
the employer and the portion of said taxes and income taxes to be
withheld by the employer from its employees and paid over to the
appropriate tax authority) (collectively, the "Payroll Taxes")
for which Seller does not deliver to Purchaser a Tax Liability
Release at the Closing or applicable Delayed Closing, at the
Closing or applicable Delayed Closing, Seller and Purchaser shall
project the aggregate amount of unpaid Payroll Taxes of Seller
arising from Seller's operation of the Stores through the Closing
Date or the applicable Delayed Closing Date, and Seller shall
deliver to Purchaser either (i) copies of all canceled checks
evidencing the payment of any Payroll Taxes accrued since January
1, 1993 through the date indicated on the latest Payroll Tax
returns required to be filed by Seller with all applicable
taxing authorities prior to the Closing or the Delayed Closing
(the "Payroll Tax Filing Period"), or (ii) certificates from the
appropriate taxing authorities indicating that all of the Payroll
Taxes for the Payroll Tax Filing Period has been paid. At the
Closing or the applicable Delayed Closing, Purchaser shall
receive a credit against the cash price payable pursuant to
Section 2.1.1.1 hereof in an amount equal to such projected
unpaid Payroll Taxes (the "Payroll Tax Reserve"), it being
understood that Purchaser will use the Payroll Tax Reserve to pay
(on behalf of Seller and as it has requested) Seller's actual
unpaid Payroll Tax arising from Seller's operation of the Stores
through the Closing Date or the applicable Delayed Closing Date.
Promptly following the Closing or the applicable Delayed Closing,
Seller shall calculate the final aggregate amount of unpaid
Payroll Taxes arising from Seller's operation of the Stores
through the Closing Date or the applicable Delayed Closing Date
and the Payroll Taxes due thereby. In the event that such final
aggregate unpaid Payroll Taxes (i) are greater than the Payroll
Tax Reserve, then (subject to Section 3.8.2 hereof) at Purchas-
er's election either (a) Seller shall promptly forward to
Purchaser a cashier's check for such short-fall amount made
payable to the appropriate taxing authority (which Purchaser will
promptly thereafter forward to the appropriate taxing authority)
or (b) the Escrow Funds shall be used to pay such shortfall
amount; or (ii) are less than the Payroll Tax Reserve, Purchaser
shall promptly remit the excess Payroll Tax Reserve to Seller.
Notwithstanding the foregoing, nothing herein shall be construed
to mean that Purchaser has assumed or shall be held liable for
any Payroll Taxes other than the Payroll Tax Reserve.
3.8 Escrow Funds. Pursuant to Section 2.1.1.2 hereof, at
Closing and each Delayed Closing, Purchaser shall deposit an
amount equal to $15,000 multiplied by the number of Stores
possession of which are being transferred to Purchaser pursuant
to a Store Leasehold Assignment at such Closing or Delayed
Closing (and together with any interest earned on each such
deposit, an "Escrow Deposit"; the Escrow Deposits are referred to
herein collectively as the "Escrow Funds") into an interest
bearing account under the exclusive control of the Escrow Agent
in accordance with the following terms and conditions:
3.8.1 Purchaser and Seller shall each pay one-half
of the fees and expenses incurred in connection with the manage-
ment of the Escrow Funds, including, without limitation, the fees
and expenses of the Escrow Agent. Subject to Section 3.8.3, no
portion of any particular Escrow Deposit shall be disbursed to
Seller during the period commencing as of the Closing Date or the
applicable Delayed Closing Date, as the case may be, and ending
five (5) months thereafter (the "Escrow Period").
3.8.2
3.8.2.1 During any Escrow Period, Purchaser may,
by submitting a "Claim Notice" (as hereafter defined),
request the Escrow Agent to disburse the Escrow Funds (a) to
reimburse Purchaser for any actual damages it has incurred
as a result of any breach of any representations and
warranties of Seller or Shareholder under this Agreement or
any other covenants or agreements of Seller or Shareholder
to Purchaser contained in this Agreement, any Management
Agreement, the "Service Mark License" (as hereafter defined)
or any other document or agreement contemplated hereby or
thereby (it being understood that any such application of
the Escrow Funds shall not release Seller or Shareholder
from their liability to Purchaser for any breach of the
representations and warranties of Seller or Shareholder or
any other covenants or agreements of Seller or Shareholder
to Purchaser to the extent such breaches cause Purchaser to
incur damages in excess of the amount of the Escrow Funds
applied against any such damages), (b) to pay Seller's
actual prorated Current Property Taxes, Sales Taxes and
Payroll Taxes as contemplated in Sections 3.5, 3.6 and 3.7
hereof, respectively that exceed the amount for which
Purchaser previously received credit against the Transferred
Assets Purchase Price and/or (c) to reimburse Purchaser for
all Gift Certificates and Merchandise Credits, which were
issued by Seller prior to the Closing, redeemed or honored
during the Escrow Period in excess of the aggregate amount
of $15,000. Notwithstanding anything in this Section 3.8.2
or Sections 2.1.3, 3.5, 3.6 or 3.7 hereof to the contrary,
Purchaser shall use the Escrow Funds to reimburse Purchaser
for Gift Certificates and Merchandise Credits for which
Purchaser is entitled to reimbursement as provided in
Section 2.1.3 hereof and to pay Seller's actual prorated
Property Taxes, Sales Taxes and Payroll Taxes in excess of
the reserves established therefor unless and until the
balance of the Escrow Funds after making such reimbursement
and paying such taxes therefrom is less than $60,000.
3.8.2.2 In the event that, and from time to time
as, Purchaser determines that there exists a claim for reim-
bursement from the Escrow Funds pursuant to this Section
3.8, Purchaser shall submit written notice (such notice a
"Claim Notice") of such claim (a "Claim") to the Escrow
Agent and Seller, including a description of the Claim and
stating the dollar amount thereof (the "Claim Amount").
Unless the Escrow Agent and Purchaser receive written notice
that Seller disputes a Claim within ten (10) business days
following receipt by the Escrow Agent and Seller of the
applicable Claim Notice (such notice, a "Dispute Notice"),
which notice shall include in reasonable detail the basis
for Seller's dispute, the Escrow Agent shall disburse funds
from the Escrow Funds to Purchaser in the amount of the
Claim Amount. All disputes as to Claims hereunder shall be
arbitrated in accordance with Section 12 hereof and the
Claim Amount of any Disputed Claim shall be held in escrow
pending resolution of such dispute.
3.8.3 Subject to Sections 3.8.4, 3.8.5 and 3.8.6
hereof, the then remaining balance of each particular Escrow
Deposit shall be paid to Seller on the first business day after
the later of (i) the expiration of the Escrow Period with respect
to such Escrow Deposit, and (ii) the date on which Seller,
Shareholder and Purchaser jointly provide the Escrow Agent with
written notice (the "Escrow Release Notice") that, to the best of
their respective knowledge there have been no breaches, nor does
Seller, Shareholder or Purchaser anticipate any breaches, of any
of Seller's or Shareholder's representations, warranties, cove-
nants or agreements contained in this Agreement, any Management
Agreement, the Service Mark License or in any other document or
agreement contemplated hereby or thereby. The distribution of
the then remaining balance of the most recently deposited Escrow
Deposit (the "Final Escrow Deposit") prior to the date on which
Purchaser and Seller provide the Escrow Agent with written notice
that the parties have agreed, such agreement not to be unreason-
ably withheld, that they will not be able to obtain Store Lease-
hold Consents for any remaining Non-Transferred Leases and
Extensions and Store Leasehold Consents for any remaining Non-
Extended Short Term Leases, shall be accompanied by a true and
correct accounting of all Escrow Funds expended by the Escrow
Agent. In the event Seller, Shareholder and Purchaser cannot
agree on whether or not an Escrow Release Notice should be given
to the Escrow Agent, such dispute shall be arbitrated in accord-
ance with Section 12 hereof.
3.8.4 Notwithstanding anything herein to the
contrary but subject to Section 3.8.6 hereof, at no time between
the Closing and the distribution of the Final Escrow Deposit in
accordance with Section 3.8.3 hereof shall the balance of the
Escrow Funds be less than $60,000. Notwithstanding anything
herein to the contrary, in no event shall the aggregate amount of
Escrow Deposits (excluding therefrom all interest earned on any
such deposits)exceed $225,000.
3.8.5 Notwithstanding anything herein to the
contrary, an amount of the Escrow Funds equal to the aggregate
amount of all claims against the Escrow Funds made by Purchaser
shall either be paid to Purchaser or retained by the Escrow Agent
until a final determination of the validity of Purchaser's claims
is made in accordance with the "Section 3.8 Escrow Agreement" (as
hereinafter defined).
3.8.6 In the event Purchaser and Seller obtain a
Store Leasehold Consent with respect to any Store Lease which
does not contain all "Essential Estoppel Terms" (as hereafter
defined), (i) at the Closing or the applicable Delayed Closing,
Seller and Shareholder shall represent and warrant to Purchaser
in writing as to each of the Essential Estoppel Terms which are
not contained in the Store Leasehold Consent for such Store Lease
(which representation and warranty shall survive the Closing or
the applicable Delayed Closing and shall expire on the later of
the date one year from the Closing Date or the date one year from
the last Delayed Closing Date) (the "Estoppel Representations"),
and (ii) notwithstanding anything herein to the contrary, at no
time between the Closing and the expiration of the Estoppel
Representations shall the balance of the Escrow Funds be less
than $100,000. For purposes of this Agreement, each of the
following shall be deemed an "Essential Estoppel Term": (a) a
certification by the applicable lessor that attached to such
certification is a true and complete copy of the applicable Store
Lease and all amendments, modifications, supplements and assign-
ments thereof and thereto, (b) a certification by the applicable
lessor that as of the date of the applicable Store Leasehold
Consent, all rental payments, real property taxes and CAM and
other charges to be paid by the lessee under such Store Lease
have been paid in full, and (c) a certification by the applicable
lessor that, to the best knowledge of such lessor, such Store
Lease is not in default and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute
a default under such Store Lease.
3.8.7 For the avoidance of doubt, all interest
earned on the Escrow Funds shall inure to the benefit of Seller,
provided that all such interest may be disbursed by the Escrow
Agent to satisfy claims in accordance with Section 3.8.2.
3.9 Payment of the Balance of the Transferred Assets
Purchase Price (Other Than the Transferred Inventory Purchase
Price).
3.9.1 Subject to the provisions of Section 3.11
hereof, the balance of the Transferred Assets Purchase Price
which is adjusted as provided herein (other than the Transferred
Inventory Purchase Price), not paid to Seller or otherwise
disbursed in accordance with Sections 2.1.1.2 and 3.5 through 3.8
hereof shall be paid by Purchaser to Seller at the Closing or
applicable Delayed Closing by cashier's check or wire transfer.
3.9.2 Subject to the provisions of Section 3.11
hereof Purchaser shall pay, unless otherwise disbursed in
accordance with Sections 2.1.1.2 and 3.5 through 3.8 hereof, an
amount equal to 75% of the "Estimated Transferred Inventory
Purchase Price" (as that term is defined herein) (the "Estimated
Inventory Payment") to Seller at the Closing or applicable
Delayed Closing by cashier's check or wire transfer. The full
amount of the Estimated Inventory Payment whether paid directly
to Seller or disbursed in accordance with Sections 2.1.1.2 and
3.5 through 3.8 hereof shall be credited against the Transferred
Assets Inventory Purchase Price.
3.10 Payment of Transferred Inventory Purchase Price
Balance.
3.10.1 In the event that the amount of the Trans-
ferred Inventory Purchase Price exceeds the Estimated Inventory
Payment, the balance of the Transferred Inventory Purchase Price
(the "Transferred Inventory Purchase Price Balance") shall be
paid upon the later of (a) 90 days from the Closing or applicable
Delayed Closing or (b) the earlier of (x) the date on which
Purchaser and Seller agree in writing as to the characterization
of such Inventory as Current Catalog Inventory, Non-Returnable
Inventory or Other Inventory or (y) the date on which the
"Arbitrator" (as hereafter defined) issues his or her decision in
connection therewith.
3.10.2 In the event that the Transferred Inventory
Purchase Price is less than the Estimated Inventory Payment,
Seller shall reimburse to Purchaser the difference between the
Transferred Inventory Purchase Price and the Estimated Inventory
Payment (the "Overpayment") within 15 days of Seller's receipt of
notice from Purchaser of the existence of and the amount of the
Overpayment.
3.11 Compliance With Bulk Transfer Laws. Notwithstanding
anything herein to the contrary, all or any portion of the
Transferred Assets Purchase Price may be paid by Purchaser
to any creditor of Seller, rather than to Seller, in compliance
with the applicable "bulk transfer" laws of the States of Montana
and Utah; provided that (i) Purchaser shall only pay creditors to
the extent required by applicable law, and (ii) prior to the
making of any such payment, Purchaser shall notify Seller in
writing of Purchaser's intention to make said payment and (a)
Seller shall have a reasonable opportunity to make alternative
arrangements consistent with applicable law with such creditor
which arrangements are acceptable to Purchaser in its reasonable
discretion, or (b) if Seller disputes the validity or amount of
the claim out of which such payment is to be made, Purchaser and
Seller shall make arrangements for determination of the validity
and/or amount of such claim consistent with applicable law.
3.12 Recovery of Security Deposits and Releases of Personal
Guarantees. Seller shall be permitted to recover (but only from
the lessors under the Store Leases) all security deposits, and to
cause to be released any and all personal guarantees, previously
furnished to the lessors under the Store Leases, provided that
such reimbursements and/or releases do not jeopardize or inter-
fere in any way with Purchaser's rights under the Store Leases
and in no event shall Purchaser be obligated to reimburse Seller
or lessor for the amount of any such security deposit or to
deposit with or pay to the lessor any sums as a result of
lessor's refunding to Seller any of said security deposits or
releasing any of said personal guarantees. After the Closing and
upon expiration of the term (including all renewal options) of
the applicable Store Lease, upon the written request of Seller,
Purchaser shall pay to Seller any security deposit paid by Seller
with respect to such Store Lease which has been refunded by the
applicable lessor to Purchaser and which has not been previously
refunded to Seller.
3.13 Transfer of the Store Service Marks. Notwithstanding
anything herein to the contrary, in the event that Seller retains
possession of and continues to operate any of the Stores after
the Closing (the "Retained Stores") as contemplated by Section
7.17 hereof, the Store Service Marks shall not be transferred to
Purchaser until the earlier of (i) such time as Seller ceases to
operate all of the Retained Stores or (ii) six months after the
Closing Date at which time, without the payment of any further
consideration to Seller, Seller shall execute and deliver to
Purchaser any and all bills of sale and assignments requested by
Purchaser to evidence the sale and transfer of the Store Service
Marks to Purchaser. With respect to all of the Retained Stores,
Seller shall not permit any assignee thereof to use any of the
Store Service Marks without the prior written consent of Purchas-
er. During the six-month period immediately following the
Closing Date (the "Transition Period"), Seller shall be permitted
to continue to use the Store Service Marks in connection with the
operation of Seller's current business at the Retained Stores.
At the end of the Transition Period, Seller shall cease doing
business utilizing any of the Store Service Marks and at its
expense will change the name under which it does business to a
name which is not identical or confusingly similar to any of
the Store Service Marks. From and after the date hereof Seller
agrees not to do or fail to do anything which would damage or
lessen the value of any of the Store Service Marks.
4. CONDITIONS TO OBLIGATIONS OF PURCHASER.
Purchaser shall have no obligation to purchase the Trans-
ferred Assets or to effect the transactions contemplated by this
Agreement unless at or prior to the Closing or the Delayed
Closing, as applicable, each of the following conditions is
complied with (to the extent applicable to the Transferred Assets
which are the subject of the Closing or the applicable Delayed
Closing) to the satisfaction of, or waived in writing by,
Purchaser:
4.1 Completion of Due Diligence Investigation. Purchaser
shall have completed the "Due Diligence Investigation" (as here-
after defined) to its complete satisfaction prior to the Closing
or the applicable Delayed Closing.
4.2 Liens on Transferred Assets. On or before the Closing
and each Delayed Closing, Purchaser shall have received evidence,
reasonably satisfactory to Purchaser, that all security inter-
ests, liens, pledges, encumbrances, claims, charges, agreements,
subleases (other than the St. George Sublease), rights, options,
warranties, equities or restrictions ("Liens") on the Transferred
Assets so sold and transferred have been released. Notwithstand-
ing anything in this Section 4.2 to the contrary, "evidence,
reasonably satisfactory to Purchaser" shall include without
limitation, copies of duly executed and recorded UCC termination
statements or releases for each secured creditor, who, as
indicated on any official or unofficial Lien searches obtained by
Purchaser, has a Lien on any of the Transferred Assets so sold
and transferred, which termination statements or releases
indicate that said Liens have been removed or terminated.
4.3 Damage to Transferred Assets. As of the Closing and
each Delayed Closing, there shall have been no material damage to
or destruction of the Transferred Assets so sold and transferred,
or any portion thereof, and Seller shall not have received any
notice of any intended or proposed claim by any person or entity
affecting the Transferred Assets so sold and transferred, or any
portion thereof.
4.4 Proceedings. As of the Closing and each Delayed
Closing, no claim, investigation, proceeding or litigation,
administrative or judicial, shall be threatened or pending
for the purpose of enjoining or preventing the consummation of
the transactions contemplated by this Agreement or otherwise
claiming that this Agreement or the consummation of such trans-
actions is unlawful or would result in a fraudulent conveyance,
or which adversely affect the right of Purchaser to retain the
Transferred Assets.
4.5 Transfer Documents. At the Closing and each Delayed
Closing, Seller shall have delivered to Purchaser (i) each of the
instruments or other items set forth in Sections 3.2 and 3.4
hereof, and (ii) possession of the Transferred Assets so sold and
transferred.
4.6 Service Mark License. In the event the Store Service
Marks are not transferred to Purchaser at the Closing in accord-
ance with Section 3.13 hereof, at the Closing, Seller shall have
executed and delivered to Purchaser a service mark license (the
"Service Mark License") substantially in the form of Exhibit C
attached hereto.
4.7 Management Agreement. At the Closing, Seller shall
have executed and delivered to Purchaser a management agreement
(a "Management Agreement") substantially in the form of Exhibit D
with respect to each of the Stores listed on Schedule 4.7, which
Schedule will be created in accordance with Section 7.17.
4.8 Certificate of Seller. Seller shall have delivered to
Purchaser at the Closing and each Delayed Closing a Certificate
of the Corporate Secretary of Seller, dated the Closing Date or
the applicable Delayed Closing Date, as the case may be, reason-
ably acceptable to Purchaser certifying (i) that attached thereto
is a true and complete copy of resolutions of the Board of
Directors and shareholders of Seller authorizing the sale of the
Transferred Assets to Purchaser and the consummation of the
transactions contemplated herein, (ii) as to the incumbency and
specimen signature of each officer of Seller executing the
certificate, this Agreement and the other documents and instru-
ments to be delivered pursuant to this Agreement, (iii) that
attached thereto are true and complete copies of the Articles of
Incorporation and Bylaws of Seller, (iv) that attached thereto is
a true and complete copy of a "Good Standing" Certificate of
Seller issued by the Secretary of State of the State of Utah
indicating that Seller is in good standing in the State of Utah
and said "Good Standing" Certificate shall be dated as of a date
no earlier than five business days prior to the Closing Date or
the applicable Delayed Closing Date, as the case may be, and (v)
that attached thereto is a true and complete copy of "Good
Standing" Certificate of Seller issued by the Secretary of State
of the State of Montana indicating that Seller is qualified to do
business in such State as a foreign corporation and is in good
standing therein and said "Good Standing" Certificate shall be
dated as of a date no earlier than five business days prior to
the Closing Date or the applicable Delayed Closing Date, as the
case may be.
4.9 Opinion of Seller's Counsel. At the Closing, Seller
shall have delivered to Purchaser the opinion of Durbano &
Associates, substantially in the form attached hereto as Exhibit
E.
4.10 Store Leasehold Consents and Store Leasehold Assign-
ments. With respect to Stores other than Affiliated Stores at or
before the Closing, Seller shall have delivered to Purchaser the
Store Leasehold Consents, duly executed by Seller and the lessor
under each such Store Lease and assignments of said Store Lease-
hold Interests in substantially the forms attached hereto as
Exhibit F (the "Store Leasehold Assignments") for at least two of
the Stores,which are not Affiliated Stores. At or before the
Closing and each Delayed Closing, Seller shall use its best
efforts to deliver to Purchaser all other applicable consents of
third parties which Purchaser may reasonably request in connec-
tion with the assignments of the Store Leasehold Interests.
4.11 Store Lease Terminations and New Leases. At or before
the Closing, Seller shall have delivered to Purchaser lease
termination agreements, in substantially the form attached hereto
as Exhibit G (the "Lease Termination Agreement") for each of the
leases pertaining to the six Affiliated Stores, duly executed by
Seller and KSG, and Seller shall have delivered to Purchaser
lease agreements, substantially in the forms attached hereto as
Exhibits H-1, H-2, H-3, H-4, H-5 and H-6 (the "New Leases") for
the six Affiliated Stores, duly executed by KSG.
4.12 Assignment of Computer Leases. At or before the
Closing and each Delayed Closing, Seller shall have delivered to
Purchaser consents to the assignment to Purchaser of all Computer
Leases for Computer Equipment located at the Stores, the Store
Leasehold Interests of which are being transferred to Purchaser
at the Closing or applicable Delayed Closing, and estoppel
certificates, in substantially the forms attached hereto as
Exhibit J, duly executed by the parties to such Computer Leases
(collectively, the "Computer Lease Consents"). At or before
Closing and each Delayed Closing, Seller shall use its best
efforts to deliver to Purchaser all other consents of third
parties which Purchaser may reasonably request in connection with
the assignments of Seller's interests under the Computer Leases.
4.13 Assignment of Store Contracts. At or before the
Closing and each Delayed Closing, Seller shall have delivered to
Purchaser consents to the assignment to Purchaser of all Store
Contracts for goods and services affecting the Stores, the Store
Leasehold Interests of which are being transferred to Purchaser
at the Closing or applicable Delayed Closing and estoppel
certificates in substantially the forms attached hereto as
Exhibit K-1, duly executed by the parties to such Store Contracts
(collectively, the "Store Contract Consents"). At or before the
Closing or the applicable Delayed Closing at which the Store
Leasehold Interest for the St. George Store is being transferred
to Purchaser, Seller shall deliver to Purchaser consents to the
assignment to Purchaser of the St. George Sublease and estoppel
certificates substantially in the forms attached hereto as
Exhibit K-2, duly executed by the parties to the St. George
Sublease. At or before the Closing and each Delayed Closing,
Seller shall use its best efforts to deliver to Purchaser all
other consents of third parties which Purchaser may reasonably
request in connection with the assignments of Seller's interests
under the Store Contracts.
4.14 Third Party Consents. At or before the Closing and
each Delayed Closing, Seller shall have delivered to Purchaser
all consents and approvals of any third party (including, without
limitation, the Shareholder), administrative agency or govern-
mental body required by law applicable to Seller in connection
with the transactions contemplated by this Agreement, such
consents and approvals to be in forms and content reasonably
acceptable to Purchaser. Without limiting the generality of the
foregoing, at or before the Closing, Seller shall have obtained
all governmental consents and approvals required to be obtained
by Seller in order to comply with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR").
4.15 Escrow Agreement. At the Closing, Seller shall deliver
to Purchaser an escrow agreement, duly executed by Seller and
Escrow Agent substantially in the form attached hereto as Exhibit
K (the "Section Escrow Agreement").
4.16 Entry Devices. At the Closing, Seller shall have
delivered to Purchaser all keys, combinations to locks and
security codes for all security systems (collectively, the "Entry
Devices") relating to those Stores, possession of which are being
delivered to Purchaser at the Closing. At each Delayed Closing,
Seller shall have delivered to Purchaser all Entry Devices
relating to the Store which is the subject of such Delayed
Closing and of which possession was not already delivered to
Purchaser at the Closing.
4.17 Compliance with Bulk Transfer Laws. Seller, to the
extent applicable to a seller of assets, shall have complied with
all applicable bulk transfer laws of the States of Montana and
Utah.
4.18 Auditors' Confirmation. At or before the Closing,
Purchaser shall have received written confirmation from its
auditors (the "Auditors"), which confirmation shall be in form
and substance acceptable to Purchaser in its sole and absolute
discretion (i) that in the opinion of the Auditors assuming
Purchaser does not engage in or contemplate engaging in another
transaction (the "Additional Acquisition Transaction") in which
it acquires a "business" as that term is defined in Rule 11-01(d)
of Regulation S-X promulgated by the Securities and Exchange
Commission ("SEC") during the two years ending January 31, 1995,
Purchaser will not be required to disclose or include in any
filing with the SEC and/or disseminate to the public separate
financial statements or financial information of, related to or
with respect to any of the Transferred Assets or Purchaser's
financial statements or financial information containing such
financial statements or financial information of, related to or
with respect to any of the Transferred Assets and (ii) Seller's
books and records are in such condition that, in the opinion of
the Auditors, it would be possible to prepare all audited and
unaudited financial statements and financial information of,
related to or with respect to any of the Transferred Assets which
would be required to be prepared, filed with the SEC and/or
disseminated to the public by any federal securities law or any
rule or regulation promulgated by the SEC in the event that
Purchaser engages in or contemplates engaging in an Additional
Acquisition Transition during the two-year period ending January
31, 1995.
4.19 St. George Sublease. With respect to the purchase of
the Store Leasehold Interest and the other Transferred Assets
located in or directly pertaining to the St. George Store,
Purchaser's obligation to pay the St. George Additional Consi-
deration shall be conditioned upon, in addition to the other
conditions set forth in this Agreement, that Seller deliver to
Purchaser written evidence reasonably satisfactory to Purchaser
that the Store Leasehold Interest for the St. George Store is
being transferred to Purchaser free and clear of the St. George
Sublease and the St. George Sublease has been terminated.
4.20 Estimated Transferred Inventory Purchase Price. Not
later than five business days prior to the Closing and each
applicable Delayed Closing, Seller shall deliver to Purchaser a
certificate, substantially in the form attached hereto as Exhibit
L (the "Inventory Certificate") duly executed by Seller and
Shareholder, on which Seller and Shareholder state their estimate
of the dollar amount of the Transferred Inventory Purchase Price
for the Inventory which will be sold and transferred to Purchaser
at the Closing and each applicable Delayed Closing (the "Estimat-
ed Transferred Inventory Purchase Price"). On the Inventory
Certificate, Seller and Shareholder shall certify that their
estimate of the Estimated Transferred Inventory Purchase Price
represents their best judgment based on the information they then
had available as of the date of such Certificate.
4.21 Approval of Purchaser's Board of Directors. The Board
of Directors of Purchaser shall have duly adopted resolutions
authorizing Purchaser to enter into this Agreement, to purchase
the Transferred Assets and to perform its other obligations
hereunder.
4.22 Accuracy of Representations and Warranties. The
representations and warranties of Seller and Shareholder made
herein shall be true in all respects as of the date hereof and as
of the Closing and each Delayed Closing as if each were made
again at such time, and Seller and Shareholder shall have
complied with and performed each and every of the covenants and
agreements set forth in this Agreement to be performed by Seller
and/or Shareholder at or before the Closing and each Delayed
Closing.
4.23 Failure of Delayed Closing. Notwithstanding anything
herein to the contrary, in no event shall the failure to consum-
mate the transactions contemplated at any Delayed Closing due to
the failure of any of the conditions precedent to such Delayed
Closing set forth in this Section 4 affect in any way the trans-
actions consummated at the Closing, or any prior or subsequent
Delayed Closing.
5. CONDITIONS TO OBLIGATIONS OF SELLER.
Seller shall have no obligation to sell the Transferred
Assets to Purchaser or to effect the transactions contemplated by
this Agreement unless at or prior to the Closing and each Delayed
Closing, as applicable, each of the following conditions is
complied with (to the extent applicable to the Transferred Assets
which are the subject of the Closing or the applicable Delayed
Closing) to the satisfaction of, or waived in writing by, Seller:
5.1 Payment of Transferred Asset Purchase Price. At or
before the Closing, Purchaser shall have paid the Transferred
Assets Purchase Price (as adjusted) (other than the Transferred
Inventory Purchase Price) in accordance with the provisions of
Sections 2 and 3 hereof. At or before each Delayed Closing,
Purchaser shall have paid the Post-Closing Transferred Lease
Payment Amount in accordance with the provisions of Sections 2
and 3 hereof.
5.2 Proceedings. As of the Closing and each Delayed
Closing, no claim, investigation, proceeding or litigation,
administrative or judicial, shall be threatened or pending
for the purposes of enjoining or preventing the consummation of
the transactions contemplated in this Agreement or otherwise
claiming that this Agreement or the consummation of such trans-
actions is unlawful or would result in a fraudulent conveyance.
5.3 Management Agreement. At the Closing, Purchaser shall
have executed and delivered to Seller a Management Agreement
substantially in the form of Exhibit D attached hereto with
respect to each of the Stores listed on Schedule 4.7.
5.4 Certificate of Purchaser. Purchaser shall have
delivered to Seller at the Closing and each Delayed Closing a
Certificate of the Corporate Secretary of Purchaser, dated the
Closing Date or the applicable Delayed Closing Date, as the case
may be, reasonably acceptable to Seller certifying (i) that
attached thereto is a true and complete copy of resolutions of
the Board of Directors of Purchaser authorizing the purchase of
the Transferred Assets by Purchaser and the consummation of the
transactions contemplated herein, (ii) as to the incumbency and
specimen signature of each officer of Purchaser executing the
certificate, this Agreement and the other documents and instru-
ments to be delivered by Purchaser pursuant to this Agreement,
(iii) that attached thereto are true and complete copies of the
Certificate of Incorporation and Bylaws of Purchaser, (iv) that
attached thereto is a true and complete copy of a "Good Standing"
Certificate of Purchaser issued by the Secretary of State of the
State of Delaware indicating that Purchaser is in good standing
in the State of Delaware and said "Good Standing" Certificate
shall be dated as of a date no earlier than five business days
prior to the Closing Date or the applicable Delayed Closing Date,
as the case may be, and (v) that attached thereto is a true and
complete copy of a "Good Standing" Certificate of Purchaser
issued by the Secretary of State of the State of California
indicating that Purchaser is qualified to do business in the
State of California and is in good standing, and said "Good
Standing" Certificate shall be dated as of a date no earlier than
five (5) business days prior to the Closing Date or the appli-
cable Delayed Closing Date, as the case may be.
5.5 Opinion of Purchaser's Counsel. At the Closing, Pur-
chaser shall have delivered to Seller the opinions of Mitchell,
Silberberg & Knupp and Hill, Harrison & Hill, substantially in
the forms attached hereto as Exhibits M-1 and M-2.
5.6 Store Leasehold Assignments and Store Leasehold
Consents. At or before the Closing, Purchaser shall have
delivered to Seller the Store Leasehold Assignments and Store
Leasehold Consents duly executed by Purchaser for those Store
Leases for which Seller delivers Store Leasehold Assignments duly
executed by Seller and Store Leasehold Consents duly executed by
Seller and the applicable lessor pursuant to Section 4.10 hereof.
5.7 New Leases. At or before the Closing, Purchaser shall
have delivered to Seller the New Leases duly executed by
Purchaser, which New Leases have been duly executed by KSG
pursuant to Section 4.11.
5.8 Assignment of Computer Leases. At or before the
Closing and each Delayed Closing, Purchaser shall have delivered
to Seller acceptances of the assignments of all Computer Leases
for which Seller delivers to Purchaser assignments thereof
pursuant to Section 4.12 hereof, duly executed by Purchaser.
5.9 Assignment of Store Contracts. At or before the
Closing and each Delayed Closing, Purchaser shall have delivered
to Seller acceptances of the assignment of all Store Contracts
for which Seller delivers to Purchaser assignments thereof
pursuant to Section 4.13 hereof, duly executed by Purchaser.
5.10 Escrow Agreements. At or before the Closing, Purchaser
shall deliver to Seller a counterpart copy of the Section 3.8
Escrow Agreement, duly executed by Purchaser.
5.11 Compliance with Bulk Transfer Laws. Purchaser, to the
extent applicable to a purchaser of assets, shall have complied
with all applicable bulk transfer laws of the States of Montana
and Utah.
5.12 Third Party Consents. At or before the Closing and
each Delayed Closing, Purchaser shall have delivered to Seller
all consents and approvals of any third party, administrative
agency or governmental body required by law applicable to
Purchaser which are to be obtained by Purchaser, and all consents
and approvals of any third party pursuant to any contract or
agreement to which Purchaser is a party or is bound immediately
prior to the Closing or the applicable Delayed Closing, in
connection with the transactions contemplated by this Agreement,
such consents and approvals to be in forms and content reasonably
acceptable to Seller. Without limiting the generality of the
foregoing, at or before the Closing, Purchaser shall have
obtained all governmental consents and approvals required to be
obtained by Purchaser in order to comply with HSR. For avoidance
of doubt, Purchaser shall be responsible, at its expense, for
obtaining all state, county and local business licenses and tax
resale permits and licenses in connection with Purchaser's
operating any of the Stores after the Closing.
5.13 Accuracy of Representations and Warranties. The
representations and warranties of Purchaser made herein shall be
true in all respects as of the date hereof and as of the Closing
and each Delayed Closing as if each were made again at such time
and Purchaser shall have complied with and performed each and
every of the covenants and agreements set forth in this Agreement
to be performed by Purchaser at or before the Closing and each
Delayed Closing.
5.14 Failure of Delayed Closing. Notwithstanding anything
herein to the contrary, in no event shall the failure to consum-
mate the transactions contemplated at any Delayed Closing due to
the failure of any of the conditions precedent to such Delayed
Closing set forth in this Section 5 affect in any way the trans-
actions consummated at the Closing, or any prior or subsequent
Delayed Closing.
6. REPRESENTATIONS AND WARRANTIES.
6.1 Seller and Shareholder, jointly and severally, repre-
sent, warrant and covenant to Purchaser that:
6.1.1 Absence of Conflict. Except as disclosed on
Schedule 6.1.1 attached hereto, the execution and delivery of
this Agreement, the Service Mark License, the Lease Termination
Agreements, and any Management Agreement and the consummation of
the transactions contemplated hereby and thereby (i) do not and
will not result in the breach of any of the terms or conditions
of, or constitute a default under, any contract, agreement,
lease, commitment, indenture, mortgage, note, security interest,
bond, license, pledge, encumbrance, Lien, claim, charge, right,
option or other instrument or obligation to which Seller, Share-
holder or KSG is now a party or by which any item of the
Transferred Assets may be bound or affected; (ii) to the best
knowledge of Seller and Shareholder (after due investigation)
do not and will not violate any law, statute, ordinance, rule or
regulation of any administrative agency or governmental body, or
any order, writ, injunction, judgment or decree of any court,
administrative agency or governmental body binding on Seller,
Shareholder or KSG, or any decision or finding of any arbitration
panel binding upon Seller, Shareholder or KSG, or any of the
Transferred Assets; (iii) do not require the consent, authoriza-
tion or approval of any third person or administrative agency or
governmental body to which Seller, Shareholder or KSG is subject.
6.1.2 Corporate Existence and Authority. Each of
Seller and KSG is a corporation duly organized, validly existing
and in good standing under the laws of the State of Utah, is
authorized to transact business in the State of Montana and has
full corporate power and authority to own its assets and to carry
on its business as it is now being conducted. This Agreement has
been duly executed and delivered by Seller and Shareholder and
constitutes their respective valid and legally binding agreements
and obligations, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally, and
subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a court of law or
equity). This Agreement, the Service Mark License, the Lease
Termination Agreements, and any Management Agreement and their
performance by Seller have been duly authorized by all requisite
corporate action of Seller. As of the Closing, the Service Mark
License, the Lease Termination Agreements and any Management
Agreement will constitute the valid and legally binding agree-
ments and obligations of Seller, except to the extent that
enforceability may be limited by applicable bankruptcy, insol-
vency or similar laws affecting the enforcement of creditors'
rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought
in a court of law or equity). Seller has the full power, right,
legal capacity and authority to make, execute and deliver this
Agreement, the Service Mark License, the Lease Termination
Agreements, and any Management Agreement and to perform its
obligations hereunder and thereunder. Shareholder has the full
power, right and legal capacity to make, execute and deliver this
Agreement and the Lease Termination Agreement, and to perform his
obligations hereunder and thereunder. KSG has full power, right
and legal capacity to make, execute and deliver the Lease
Termination Agreements and the New Leases and said agreements and
their performance have been duly authorized by all requisite
corporate action of KSG. As of the Closing, the Lease Termina-
tion Agreements and the New Leases will constitute the valid and
legally binding agreements and obligations of KSG, except to the
extent that enforceability may be limited by applicable bankrupt-
cy, insolvency or similar laws affecting the enforcement of
creditors' rights generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforce-
ment is sought in a court of law or equity). The sole share-
holder, beneficially and of record, of Seller is Kevin S. Garn.
6.1.3 Material Agreements. Except as disclosed on
Schedule 6.1.3 and except for the Store Leases, the Computer
Leases and the Store Contracts, Seller is not a party to or
bound by any material contract, lease, agreement, covenant,
license or instrument or commitment, written or oral, affecting
or purporting to affect any of the Transferred Assets which will
continue to so affect such Transferred Assets after the Closing
or the applicable Delayed Closing, as the case may be.
6.1.4 Litigation. Except as disclosed on Schedule
6.1.4 attached hereto (the "Existing Litigation"), there are no
actions, suits, proceedings (administrative or otherwise),
arbitrations, investigations pending, or to the best knowledge of
Seller and Shareholder (after due investigation), threatened
against or adversely affecting any of the Transferred Assets, or
Seller, at law or in equity, in any court or before any federal,
state, municipal or other governmental department, commission,
bureau, board, agency or instrumentality (including, but not
limited to, the National Labor Relations Board), or before any
arbitration panel, and to the best knowledge of Seller and
Shareholder (after due investigation), there are no facts or
circumstances which could form the basis for any such actions,
suits, proceedings, arbitrations or investigations.
6.1.5 Taxes. Seller has duly and timely filed (i)
all federal and state income, profits, franchise, sales, use,
occupation, employment, and other tax returns and reports, (ii)
all federal, state, county and local property tax returns and
reports, and (iii) all county and local income, profits,
franchise, sales, use, occupation, employment, and other tax
returns and reports, required to have been filed by it, up to and
including the date hereof; and Seller has paid all taxes due and
payable, all assessments and all other taxes, governmental
charges, penalties, interests, fines and other sums due and
payable by it, on or before the date hereof. There are no
agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any charges or
deficiencies by, or the assessment of any tax or deficiency
against Seller. Seller is presently current in its employee
payroll taxes withholdings and other sums. Seller has duly
withheld from each payment made to each person from whom such
withholding is required by law the amount of all taxes or other
sums (including, but not limited to, United States federal income
taxes, any applicable state or municipal income tax, disability
tax and Federal Insurance Contribution Act taxes) required to be
withheld therefrom and has paid the same (and the employer's
portion of all payroll taxes) to the proper tax receiving
officers prior to the due date thereof.
6.1.6 Title to Transferred Assets. When the
Transferred Assets are sold, assigned and delivered to Purchaser
in accordance with this Agreement at the Closing and each Delayed
Closing, as applicable Purchaser will receive, good and market-
able title to the Transferred Assets, free and clear of all
Liens.
6.1.7 Store Lease Defaults. Except as disclosed
on Schedule 6.1.7 attached hereto, as to each of the Store
Leases, Seller is not, and no other party to such lease is, in
default with respect to any material term or condition thereof,
nor has any event occurred which through the passage of time or
the giving of notice, or both, could constitute a default there-
under, or could give a party thereto the right to accelerate the
performance of any obligation thereunder, or excuse any party
from the performance of any obligation thereunder, or could cause
the creation of a Lien on any of the Transferred Assets. Except
as disclosed on Schedule 6.1.7 attached hereto and in the Store
Lease and pursuant to any local laws granting to Lessor a land-
lord's lien, the lessor under each Store Lease has no charge,
Lien, claim, defense or offset of any kind under such lease or
otherwise against Seller or the Transferred Assets.
6.1.8 Computer Lease and Store Contracts Defaults.
Except as described on Schedule 6.1.8 attached hereto, as to each
Computer Lease and each Store Contract, Seller is not, and no
other party to such contract is, in default with respect to any
material term or condition thereof, nor has any event occurred
which through the passage of time, or the giving of notice, or
both, could constitute a default thereunder, or could give any
party thereto the right to accelerate the performance of any
obligation thereunder or excuse any party from the performance of
any obligation thereunder, or could cause the creation of a Lien
on any of the Transferred Assets. Except as provided in the
Computer Leases and the Store Contracts, the parties to the
Computer Leases and the Store Contracts (other than Seller) have
no charge, Lien, claim, defense or offset of any kind under any
of the Computer Leases or the Store Contracts, as the case may
be, or otherwise against Seller or, the Transferred Assets.
6.1.9 Physical Condition of Stores and F, F & E.
Except as described on Schedule 6.1.9 attached hereto, all of the
Stores, the Rental Items and the F, F & E, including, without
limitation, the roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, and other systems or
facilities included therein, are in good operating condition and
repair and structurally sound with no known defects other than
those readily observable during the Due Diligence Investigation.
Seller has provided Purchaser with copies of all written evidence
which Seller has in its possession regarding any such defects
(irrespective of whether such defects are readily observable
during the Due Diligence Investigation). All of the Stores, the
Store Real Property, the Shopping Centers and all of the F, F & E
are free from any and all Polluting Substances.
6.1.10 Store Compliance with Laws.
6.1.10.1 None of the Stores or the Shopping
Centers, nor the use or occupancy of the Stores or of the
Shopping Centers is in violation of any building, zoning,
land use or other law, ordinance, code, rule or regulation,
and neither Seller nor Shareholder has received any notice
from any governmental or regulatory body or other person or
entity asserting any violation of any such law, ordinance,
code, rule or regulation or requiring any work, repairs,
construction, alterations or installations on or in connec-
tion with said property which has not been complied with.
The continued use, occupancy and operation of the Stores and
the Shopping Centers as currently used, occupied and
operated, do not constitute a non-conforming use under any
law. Neither Seller nor Shareholder has any knowledge of
any pending or anticipated change in any real property law
which could have a material adverse effect upon ownership,
alteration, use,occupancy or operation of the Stores or the
Shopping Centers or any portion thereof. Neither Seller nor
Shareholder is a party to any dispute with any governmental
authority having jurisdiction over any of the Stores
regarding the application of any real property law to such
property.
6.1.10.2 All certificates of occupancy, permits,
licenses, franchises, approvals and other authorizations of
all governmental authorities having jurisdiction over the
Stores, and from all insurance companies and fire rating or
other similar boards and organizations, required to have
been issued to Seller or the lessors under the Store Leases
to enable the Stores to be lawfully occupied and used for
all of the purposes for which they are occupied and used
(collectively, the "Occupancy Certificates and Permits")
have been lawfully issued and are in full force and effect
as of the date hereof. Neither Seller nor Shareholder has
received or been informed by any third party of the receipt
by it of any notice from any governmental authority having
jurisdiction over the Stores or any applicable insurance
companies and/or fire rating or similar boards or organiza-
tions threatening a suspension, revocation, modification or
cancellation of any Occupancy Certificates and Permits and
to the best of the knowledge of Seller and Shareholder
(after due investigation) there is no basis for the issuance
of any such notice or the taking of any such action.
6.1.10.3 The Stores are not in violation of any
federal, state or local law, ordinance or regulation in
regard to industrial hygiene or occupational safety or to
the environmental conditions on, under, above or about the
Stores, the Store Real Property or the Shopping Centers,
including, without limitation, soil and ground water
conditions. Except as described on Schedule 6.1.10.3
attached hereto, Seller and Shareholder have not and no
third party has, used, generated, manufactured, stored or
disposed of on, under, above, or about the Stores, the Store
Real Property, or the Shopping Centers, or transported to or
from the Stores and said real property, any Polluting
Substances, other than in compliance with all applicable
federal, state and local laws, ordinances and regulations
and there are no Polluting Substances located in, on or
under the Stores, the Store Real Property or the Shopping
Centers except as otherwise permitted in compliance with
applicable federal, state and local laws, ordinances and
regulations.
6.1.10.4 To the best knowledge of Seller and
Shareholder (after due investigation) none of the Stores
suffers from "sick building" syndrome and to the best
knowledge of Seller and Shareholder (after due investiga-
tion), no employee or other third party has claimed to have
suffered from "sick building" syndrome as a result of having
been in any of the Stores.
6.1.11 Inventory. Each item of Inventory is unused
(except for non-promotional play copies and the Rental Items).
6.1.12 Offices and Places of Business. Since its
incorporation Seller has not established any offices or places of
business outside of the States of Utah and Montana and has not
done business under any name other than "Pegasus Music and
Video", "Pegasus Records and Tapes" or "Pegasus"; and Schedule
1.2.5 attached hereto, sets forth all Store Service Marks. For
purposes of applicable bulk transfer law, Seller's chief execu-
tive office is in the State of Utah.
6.1.13 Employee Obligations. As of the Closing Date
and each Delayed Closing Date, Seller will not be in breach of or
default under any undertakings or obligations, including, without
limitation, the salaries and other payments (including, without
limitation, severance pay, vacation pay, sick pay, back pay,
health insurance, worker's compensation and other benefits) due
to or for the account of Seller's employees and agents pursuant
to any oral, written or implied contracts or otherwise.
6.1.14 Labor Agreements. There are no union, labor
or collective bargaining agreements or contracts, whether oral,
written or implied, pertaining to or affecting the business of
Seller or any employment agreements, written or (to the best
knowledge of Seller and Shareholder (after due investigation))
oral, with any employee of Seller or of any other persons or
entities performing services in connection with the operation or
maintenance of the Transferred Assets. To the best knowledge of
Seller and Shareholder (after due investigation), there is no
labor organization which has the right to, or claims to have the
right to, represent any employee of Seller or any other person
performing services in connection with the operation or mainte-
nance of the Transferred Assets. Seller has heretofore or
concurrently herewith delivered to Purchaser true and complete
copies of its credit policies and credit data with respect to its
customers and all of its employee manuals, handbooks, policies
and benefits. All such policies are in full force and effect,
have not been amended or modified in any respect whatsoever, and
have been followed in all material respects by Seller. Since the
commencement of operations of Seller there has not been any
strike, work stoppage, interruption, slow-down or other occur-
rence, event or similar labor disturbance in connection with the
operation of Seller's business, and, to the best knowledge of
Seller and Shareholder (after due investigation), no strike, work
stoppage, interruption, slow-down or other such occurrence,
event, condition, or disturbance is threatened.
6.1.15 ERISA. Except as described on Schedule
6.1.15, Seller is not a party to, nor is required to make
employer contributions to, any "employee pension benefit plan"
(within the meaning of Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or any
"employee welfare benefit plan" (within the meaning of Section
3(1) of ERISA) or any other pension, profit sharing, retirement,
deferred compensation, bonus, stock purchase, severance, hospi-
talization, medical insurance, life insurance or other employee
benefit plan, agreement, arrangement or understanding maintained
for the benefit of employees involved in the management or
operation of its business.
6.1.16 Employee Claims. Except as described on
Schedule 6.1.16 attached hereto, neither Seller nor Shareholder
has received written notice of any workers' compensation,
unemployment, discrimination or overtime claim; Seller is not in
violation or alleged violation, and neither Seller nor Share-
holder has received any written notice of any alleged violation,
committed any act or omitted to perform any act which upon the
passage of time will cause Seller to be in violation of, any
applicable federal, state, local or foreign law, ordinance,
regulation, order, judgment, injunction, award, decree, license,
permit, authorization or other requirement of any governmental or
regulatory body, law enforcement agency or organization, court or
arbitrator, including, without limitation, any federal, state or
local laws, ordinances, regulations or requirements relating to
the pollution or protection of the environment.
6.1.17 Accuracy and Completeness of Documents. The
copies of the Store Leases, the Computer Leases, the Store
Contracts, the Occupancy Certificates and Permits, the Schedule
of Original Costs, the Inventory Certificate, the Schedule of
Gift Certificates and Merchandise Credits, the Revenue Schedule
and all financial statements and other financial information of
Seller provided to Purchaser or the Auditors, as the case may
be, are (or when delivered will be) true, correct, complete and
accurate. None of the Store Leases, Computer Leases, Store
Contracts or Occupancy Certificates and Permits have been amended
(except pursuant to amendments, copies of which have been
delivered to Purchaser), or revoked and they represent binding
and enforceable agreements against the parties thereto.
6.1.18 Gift Certificates and Merchandise Credits.
As of the Closing Date or the applicable Delayed Closing Date,
all Gift Certificates and Merchandise Credits will have been
issued by Seller consistent with Seller's past practices and in
the ordinary course of its business.
6.1.19 Fiscal Year of Seller. Seller's fiscal year
ends December 31.
6.1.20 Claims Against Health Insurance Plans. For
the period commencing on January 1, 1993 through the Closing
Date, there have been no "major claims" filed against Seller's
health insurance plans. As used herein the term "major claims"
shall mean a claim or series of related claims exceeding $5,000.
To the best knowledge of Seller and Shareholder (after due
investigation), during the twelve month period immediately
preceding the Closing there has not been any major illnesses for
which claims have been made against Seller's health insurance
plans, such illnesses to include, without limitation, heart
disease, kidney disease, AIDS and cancer.
6.1.21 Hart-Scott-Rodino Compliance. Neither Seller
nor any Affiliate of Seller has sold since February 1, 1993 any
assets to Purchaser, Merrill Lynch Capital Partners, Inc.
("Merrill Partners"), Merrill Lynch & Co., Inc. ("Merrill Lynch")
or any Affiliate of Purchaser, Merrill Partners or Merrill Lynch.
Since February 1, 1993 neither Seller nor any of its Affiliates
has bought and/or sold any securities utilizing the brokerage
services of Merrill Lynch or any Affiliate of Merrill Lynch.
Seller is not an Affiliate of The Record Shop, Inc., a Minnesota
corporation, Mary Ann Levitt and/or Mort Gerber. For purposes of
this Section 6.1.21, the term "Affiliate" means any corporation,
partnership, trust, association, other entity or natural person
who, directly or indirectly, controls, is controlled by or is
under common control with any other corporation, partnership,
trust, association, other entity or natural person.
6.1.22 Absence of Change. As of the Closing Date
and each Delayed Closing Date, no event has occurred or failed to
occur subsequent to Purchaser's inspection of the Transferred
Assets and the Stores which has materially and adversely affected
any of the Transferred Assets or the Stores exclusive of changes
in industry and general economic conditions.
6.1.23 Misstatement or Omission of Material Facts.
No representation or warranty by Seller or Shareholder in this
Agreement or in any document, agreement, instrument, certificate,
exhibit or schedule attached hereto or delivered pursuant hereto
contains any untrue statement of a material fact or omits to
state any facts necessary to make the statements or facts
contained herein or therein not misleading.
6.2 Purchaser Represents, Warrants and Covenants to Seller
that:
6.2.1 Absence of Conflicts. Except as disclosed on
Schedule 6.2 attached hereto, the execution and delivery of this
Agreement, the Service Mark License, the New Leases and any
Management Agreement by Purchaser and the consummation of the
transactions contemplated hereby to be performed by Purchaser (i)
do not and will not result in the breach of any of the terms or
conditions of, or constitute a default under, any contract,
agreement, lease, commitment, indenture, mortgage, note, security
interest, bond, license, pledge, encumbrance, lien, claim,
charge, right, option or other instrument or obligation to which
Purchaser is now a party; (ii) to the best knowledge of Purchaser
(after due investigation), do not and will not violate any law,
statute, ordinance, rule or regulation of any administrative
agency or governmental body to which Purchaser is subject, or any
order, writ, injunction, judgment or decree of any court, admini-
strative agency or governmental body binding upon Purchaser, or
any decision or finding of any arbitration panel binding upon
Purchaser; (iii) do not require the consent, authorization or
approval of any third person or administrative agency or govern-
mental body to which Purchaser is subject.
6.2.2 Corporate Existence and Authority. Purchaser
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is authorized
to transact business in the State of California and has full
corporate power and authority to own its assets and to carry on
its business as it is now being conducted. This Agreement will
have been duly executed and delivered by Purchaser and will
constitute its valid and legally binding agreement and obligation
prior to the Closing, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally,
and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a court of
law or equity). This Agreement, the New Leases, the Service Mark
License and any Management Agreements and their performance by
Purchaser will have been duly authorized by all requisite
corporate action of Purchaser prior to the Closing. Purchaser
has the full power, right, legal capacity and will have prior to
the Closing authority to make, execute and deliver this Agree-
ment, the Service Mark License and any Management Agreements and
to perform their obligations hereunder.
6.2.3 Misstatement or Omission of Material Fact.
No representation or warranty by Purchaser in this Agreement or
in any document, agreement, instrument, certificate, exhibit or
schedule delivered pursuant hereto contains any untrue statement
of a material fact or omits to state any facts necessary to make
the statements or facts contained herein or therein not mis-
leading.
6.3 Accuracy on Closing Date and each Delayed Closing Date.
Each of the representations and warranties by Purchaser, Seller
and Shareholder set forth in this Agreement and in any document,
agreement, instrument, certificate, exhibit or schedule referred
to herein or delivered pursuant hereto shall be deemed renewed
and made again at the Closing and each Delayed Closing (if appli-
cable to the Transferred Assets which are the subject of such
Delayed Closing) as if made at such times, and shall survive the
Closing and each Delayed Closing and any investigation conducted
by or on behalf of the parties hereto whether before or after the
Closing Date or each Delayed Closing Date, including, but not
limited to, the investigations and audits contemplated by Section
7 hereof.
7. ADDITIONAL COVENANTS.
7.1 Purchaser's Due Diligence Investigation.
7.1.1 Seller acknowledges that Purchaser has
conducted, and intends to conduct, at Purchaser's expense,
investigations concerning Seller and its assets, liabilities,
financial condition, business and affairs, the Transferred Assets
and all other matters reasonably related to the transactions
contemplated by this Agreement, including, without limitation,
(i) one or more physical inspections of the Stores, F, F & E,
Computer Equipment and Inventory, (ii) a review of all books,
records, financial statements, agreements, documents and other
materials and information reasonably related to the transactions
contemplated by this Agreement, including, without limitation,
all Store Leases, the Computer Leases, Store Contracts and the
St. George Sublease (collectively, the "Due Diligence Materi-
als"), (iii) an environmental audit of the Stores and the Store
Real Property regarding the presence of unlawful hazardous
materials under or within the Stores, the Store Real Property or
the common areas of the Shopping Centers (to the extent permitted
by the Store Leases), (iv) an environmental audit of the Stores
and the Store Real Property regarding the presence of asbestos
under or within the Stores, the Store Real Property or the common
areas of the Shopping Centers (to the extent permitted by the
Store Leases), (v) a determination that Purchaser will not have
any "successor liability" for any debts, obligations and liabili-
ties of Seller (other than the Assumed Obligations) and (vi) a
review of all of "Seller's Schedules" (as hereafter defined)
(collectively, the "Due Diligence Investigation").
7.1.2 Prior to Closing, and thereafter with respect
to any of the Transferred Assets the sale of which is consummated
at a Delayed Closing, Seller agrees to cooperate fully with all
such investigations conducted by or on behalf of Purchaser
hereunder, and shall provide Purchaser and its authorized
representatives with reasonable access (a) to all Stores, Store
Real Property, Computer Equipment, F, F & E and Inventory, (b) to
all Due Diligence Materials, and (c) to all employees, agents,
attorneys and current and former accountants of Seller. Seller
shall furnish to Purchaser such financial information, operating
data and other information concerning Seller's operations as
Purchaser may reasonably request from time to time. Purchaser
shall complete its Due Diligence Investigation as soon as
reasonably practical, provided, however, Seller acknowledges that
certain aspects of the Due Diligence Investigation, including
(without limitation) all environmental audits conducted pursuant
to this Section 7.1 and review and examination of the books and
records of Seller may not be completed prior to the Closing.
Notwithstanding the foregoing to the contrary, with respect to
any of the Transferred Assets not transferred to Purchaser at the
Closing, Purchaser may conduct further Due Diligence Investiga-
tions prior to the applicable Delayed Closing at which said
Transferred Assets are transferred to Purchaser.
7.1.3 After the Closing and each applicable Delayed
Closing, Purchaser may conduct an audit of the Revenue Schedule,
the Schedule of Original Costs and the Schedule of Gift Certifi-
cates and Merchandise Credits and of Seller's books and records
to determine the amount of Other Inventory. Seller agrees to
fully cooperate with Purchaser and its authorized representatives
in connection with such audits and to give Purchaser and its
representatives reasonable access to all of the books and records
of Seller in order to permit Purchaser to conduct such audits.
7.2 Store Leasehold Consents.
7.2.1 Seller shall take all actions reasonably
necessary to obtain the Store Leasehold Consents from each of the
lessors under the Store Leases other than the Store Leases for
the Affiliated Stores in substantially the form attached hereto
as Exhibit A; provided, however, that (a) obtaining the Store
Leasehold Consents in the attached form shall not be a condition
to the Closing or any Delayed Closing and Purchaser shall be
obligated to purchase any Store Leasehold Interest for a Store
Lease other than a Store Lease for an Affiliated Store, and any
Inventory (to the extent not previously transferred to Purchas-
er), F, F & E, Computer Leases, Store Contracts or Plans related
to, or located in, said Store subject to such Store Leasehold
Interest, in the event that (i) the applicable lessor executes
and delivers a Store Leasehold Consent containing all of the
applicable Essential Provisions in accordance with Section
2.5.1.1 hereof and which Store Leasehold Consent does not require
as a condition of obtaining lessor's consent to the transfer of
said Store Leasehold Interest, Purchaser's agreement either to
relocate the Store or expand or reduce the size of the Store or
both, and (ii) Purchaser would otherwise be required to purchase
the applicable Store Leasehold Consent pursuant to the terms of
this Agreement, and (b) Seller shall not be required to commence
litigation in order to obtain such Store Leasehold Consents.
Purchaser may also attempt to renegotiate the Store Leases with
the various lessors thereunder and Seller agrees to cooperate
with Purchaser in requesting such changes; provided, however,
that this transaction is only contingent on Purchaser renegoti-
ating the terms of the Store Leases other than the Store Leases
for the Affiliated Stores, with respect to the Essential
Provisions and Purchaser shall not condition its request for
consent to assignment of a Store Lease on any terms which are not
Essential Provisions or communicate to any lessor that this
transaction is contingent on lessor's agreement to renegotiate
its Store Lease with respect to any terms which are not Essential
Provisions. Notwithstanding the foregoing, the parties
acknowledge and agree that Purchaser may attempt to obtain the
Store Leasehold Consents as well as non-disturbance agreements
from the lessors' secured lenders on behalf of Seller (provided
that obtaining any or all of said non-disturbance agreements
shall not be a condition of the Closing or any Delayed Closing)
by delivering a letter to the relevant lessor requesting the
Store Leasehold Consents (and any changes or modifications to the
Store Lease which Purchaser may desire) and the non-disturbance
agreements; provided, however, that Seller shall approve all
correspondence and written materials transmitted by Purchaser to
the lessors before the same are transmitted, such approval not to
be unreasonably withheld or delayed. Purchaser agrees to provide
Seller with at least 48 hours notice prior to Purchaser's initial
meeting with any lessor (other than KSG) in connection with the
negotiation of any Store Leasehold Consent in order to provide
Seller with the opportunity to participate in such meeting.
Purchaser shall be under no obligation to give Seller any notice
of any subsequent meetings with said lessors. Purchaser shall
act reasonably and professionally in its written and oral
communications with all lessors and in a manner designed to
secure the lessor's consent to this transaction. Purchaser also
agrees to pay all of the costs of the lessors under the Store
Leases for the Stores other than the Affiliated Stores in
connection with obtaining the Store Leasehold Consents (the
"Lessor Costs") and renegotiate the Store Leases, provided that
the Lessor Costs in connection with obtaining the Store Leasehold
Consents shall not exceed $1,000 for any Store or $7,000 in the
aggregate. In the event that in connection with obtaining any
Store Leasehold Consents, the Lessor Costs exceeds $1,000 (or
exceeds $7,000 in the aggregate) and Purchaser elects not to pay
the additional cost, the related Store Leasehold Interest shall
not be deemed to be included within the Transferred Assets
(resulting in an appropriate reduction in the Transferred Assets
Purchase Price) unless Seller elects to pay, and in fact pays,
all Lessor Costs with respect to such Store Leasehold Consents in
excess of $1,000 per Store Lease (or in excess of $7,000 in the
aggregate). Notwithstanding anything in this Section 7.2.1 to
the contrary and for the avoidance of doubt Purchaser shall have
no obligation to purchase any Store Leasehold Interest for an
Affiliated Store and the related Inventory, F, F & E, Computer
Leases, Store Contracts or Plans unless all of the conditions set
forth in Section 4.11 regarding the New Leases and the Termina-
tion Agreements are satisfied or waived by Purchaser in writing.
7.2.2 In the event that a lessor of any of the
Store Leasehold Interest requires as a condition to its consent
to the transfer of said Store Leasehold Interest or its grant of
an Extension that Purchaser agree to either relocate the Store
which pertains to such Store Leasehold Interest or expand or
reduce such Store or both, Purchaser shall not be obligated to
purchase such Store Leasehold Interest (and the F, F & E,
Inventory, Computer Leases, Store Contracts and Plans located in
or pertaining to the Store which is the subject of such Store
Leasehold Interest) or accept and pay for the Extension at the
original price calculated in accordance with this Agreement. In
such event, Purchaser shall make a written offer to Seller to
purchase such Store Leasehold Interests (and the F, F & E,
Inventory, Computer Leases, Store Contracts and Plans located in
or pertaining to the Store which is the subject of such Store
Leasehold Interest) or accept and pay for the Extension at a
reduced price to be determined by Purchaser in its sole and
absolute discretion. In the event Seller elects not to accept
Purchaser's offer at such reduced price, Purchaser shall have no
obligation to purchase said assets or accept and pay for said
Extension.
7.3 Consents to Assignment of Computer Leases and Store
Contracts. Seller shall take all actions reasonably necessary to
obtain from each of the other parties to the Computer Leases and
the Store Contracts (i) the consents to the assignment of all
Computer Leases and Store Contracts to Purchaser and (ii)
estoppel certificates, dated the Closing Date, in substantially
the forms attached hereto as Exhibits J and K; provided, however,
that Seller shall not be required to commence litigation in order
to obtain such documents.
7.4 Tax Liability Releases. Seller will cooperate fully
with Purchaser as reasonably requested by Purchaser in connection
with obtaining all relevant releases from appropriate federal,
state, local and/or municipal taxing authorities whereby Purchas-
er is released from any and all liability for unpaid Current
Property Taxes, Sales Taxes and Payroll Taxes (collectively, the
"Tax Liability Releases").
7.5 Operation of Seller's Business. Without prior written
consent of Purchaser, Seller shall not sell, lease, abandon,
assign, transfer, license, use or otherwise dispose of any item
of the Transferred Assets; or enter into any contracts, agree-
ments, understanding or transaction other than in the ordinary
course of Seller's business; or commit any act which would result
in the failure or breach of Seller's or Shareholder's representa-
tions and warranties made herein, or which would render any of
them untrue, or which would or may diminish the value of the
Transferred Assets to Purchaser. Without limiting the generality
of the foregoing, Seller shall not amend, modify, supplement,
terminate or rescind any of the Store Leases, Computer Leases or
Store Contracts, without the prior written consent of Purchaser
except as expressly provided herein to the contrary. Notwith-
standing the foregoing, Purchaser hereby consents to the sale by
Seller prior to the Closing of all or a portion of the Inventory
for Seller's account prior to the Closing in the ordinary course
of business of Seller.
7.6 Maintenance of Transferred Assets. Seller shall keep
and maintain in operating condition, substantially equivalent to
the condition existing on the date of this Agreement, the Stores
and each item of F, F & E, Computer Equipment and Inventory,
reasonable wear and tear excepted.
7.7 Seller's Employees.
7.7.1 Seller shall use reasonable efforts to keep
available to Purchaser the services of Seller's Store and field
operation personnel (although nothing herein shall be deemed to
require or obligate Purchaser to employ or retain any such
employees), and to preserve for Purchaser the goodwill of
customers, clients and all others having business relations with
Seller.
7.7.2 Seller shall make available to Purchaser true
and complete copies of (i) all of Seller's employee books and
records (subject to the prior written consent of the affected
employee) as soon as practical after Purchaser's reasonable
request, and (ii) all of Seller's books and records relevant to
any claim, suit or proceeding against Purchaser threatened,
commenced, made or brought by any third party in connection with
or arising out of the operation of the Stores or the Transferred
Assets as soon as practicable after Purchaser's request therefor.
7.7.3 Seller shall not enter into any union, labor
or collective bargaining agreement or contract or employment
contract pertaining to or affecting any of the Transferred Assets
or the conduct of business of Seller as presently being con-
ducted, whether or not with a union or other bargaining agent
representing employees of Seller or with an employee directly.
Seller shall be solely responsible for and shall pay to its
employees all accrued salaries, severance pay, vacation pay, sick
pay, back pay and other benefits and compensation accrued through
or owing as of the Closing and each Delayed Closing.
7.7.4 Immediately prior to the Closing, Seller
shall terminate all Store employees working in Stores, the
possession of which is delivered to Purchaser on the Closing
Date. Immediately prior to any Delayed Closing, Seller shall
terminate all Store Employees working in Stores, the possession
of which is delivered to Purchaser on the applicable Delayed
Closing Date.
7.7.5 Seller hereby agrees to offer to all of its
employees and former employees, for the maximum period required
by "COBRA" (as defined below), all benefits which an individual
would be entitled to receive if such individual was a qualified
beneficiary under or an employee covered by the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").
7.8 Maintenance of Insurance. Seller shall continue to
maintain in full force and effect all policies of insurance now
in effect or renewals or appropriate replacements thereof, and
shall give all notices and present all claims under all policies
of insurance in due and timely fashion until the Closing. After
the Closing Seller shall maintain all general liability and
products liability policies, which Seller currently has, until
September 1, 1994.
7.9 Maintenance of Books and Records. Both prior to and
for the five years after the Closing, Seller (or Shareholder in
the event that Seller has been dissolved) shall keep and shall
make available to Purchaser for inspection and copying upon
reasonable notice all of its books and records and the materials
referred to in Sections 7.1 and 7.2. For the avoidance of doubt,
after the Closing Seller shall permit Purchaser and Purchaser's
accountants and attorneys reasonable access to all books and
records of Seller for the purpose of preparing any financial
statements and information which may be required under applicable
laws, rules or regulations, including, without limitation, all
federal and state securities laws and all rules and regulations
which may be promulgated from time to time by the SEC or any
state agency or authority having jurisdiction over Purchaser and
its affiliates, which financial statements and information may be
filed with the SEC or any other federal and state agency or
authority or otherwise disseminated to the public. Purchaser may
also file with the SEC or other federal and state agency or
authority or otherwise disseminate to the public any of Seller's
audited financial statements upon Purchaser's obtaining the
consent of the auditors who rendered the opinion in connection
with said financial statements and Seller will cooperate with
Purchaser in seeking to obtain said auditor's consent. Seller
will also cooperate with Purchaser, at Purchaser's expense, in
connection with the preparation of all of said financial state-
ments and information.
7.10 Payment of Taxes. Seller shall duly and timely file
all tax returns required to be filed by it and will promptly pay
all taxes, assessments and governmental charges which shall be
due and payable; Seller shall not enter into any agreement,
waiver or arrangement providing for an extension of time with
respect to the filing of any tax return or the payment or assess-
ment of any tax, governmental charge or deficiency; and Seller
shall withhold from each payment to each of its employees the
amount of all taxes or other sums (including, but not limited
to, United States federal income taxes and any applicable state
or local income taxes or federal Insurance Contribution Act
taxes) required to be withheld therefrom and will pay the same to
the proper tax-receiving officers prior to their respective due
dates.
7.11 Compliance with Bulk Transfer Laws. Purchaser and
Seller agree to cooperate fully with the other party in connec-
tion with the compliance with all applicable bulk transfer laws
of the States of Utah and Montana.
7.12 Removal of Certain Inventory. Within 14 days after the
later of the date on which Purchaser and Seller agree in writing
as to the character of such Inventory as Current Catalog Inven-
tory, Non-Returnable Inventory or Other Inventory or the date on
which the Arbitrator issues his or her decision in connection
therewith, Seller shall remove, at its sole cost and expense, all
Non-Returnable Inventory and Other Inventory not purchased by
Purchaser pursuant to the terms of this Agreement from all Stores
(other than those Stores which Seller will continue to operate
after the Closing or applicable Delayed Closing) and all other
assets located in said Stores that do not constitute Transferred
Assets. All Non-Returnable Inventory or Other Inventory and
other assets not purchased pursuant to the terms of this Agree-
ment and not removed by Seller from the Stores (other than those
Stores which Seller will continue to operate after the Closing or
applicable Delayed Closing) within said 14-day period shall be
deemed sold to Purchaser for no additional consideration.
7.13 Repair of Damaged Transferred Assets. If any item of
the Transferred Assets (other than items of Inventory) shall be
lost, sold or otherwise disposed of, damaged (ordinary wear and
tear excepted) or stolen prior to the Closing, Seller shall
repair or replace the same to the satisfaction of Purchaser (with
repairs or replacements of equal quality to the item in its
condition as of the date of this Agreement) prior to the Closing
or delete the same from the Transferred Assets with an appropri-
ate reduction in the Transferred Assets Purchase Price to be
agreed upon by Purchaser and Seller.
7.14 Inventory Audit. Seller agrees that not later than
5:00 p.m. (local time) on the day before the Closing Date or
applicable Delayed Closing Date, Seller shall close all Stores,
possession of which are being transferred to Purchaser at the
Closing or applicable Delayed Closing, in order to conduct the
audit of the Inventory located therein contemplated by this
Agreement. Within two days after the Inventory Auditor's
completion of said audit, Seller shall deliver to Purchaser the
applicable Schedule of Original Costs.
7.15 Gift Certificates and Merchandise Credits.
7.15.1 From and after the Closing, Purchaser shall
only issue gift certificates and merchandise credits and deposits
accepted for special orders on forms which clearly and unambi-
guously state that they have not been issued by any Store,
possession of which at the time of the issuance of such gift
certificate or merchandise credit or deposit has been previously
delivered to Purchaser. Purchaser shall have the right to
approve, which approval shall not be unreasonably withheld, the
form of all gift certificates and merchandise credits and
deposits issued by Seller after the Closing in order to insure
Seller's performance with the terms of this Section.
7.15.2 In the event that Seller continues after
the Closing to own and operate any of the Retained Stores,
Purchaser shall honor all of the Gift Certificates and Merchan-
dise Credits (the "Seller Gift Certificates and Merchandise
Credits") issued by Seller at the Retained Stores during the
Transition Period if during said period Seller continues to use
any of the Store Service Marks and provided such Seller Gift
Certificates and Merchandise Credits are issued by Seller in the
ordinary course of its business and consistent with Seller's
past practices. Seller shall honor any gift certificates and
merchandise credits and deposits accepted for special orders
issued by Purchaser from any of the Stores or any of Purchaser's
other retail stores at which Purchaser is using any of the Store
Service Marks (the "Purchaser Gift Certificates and Merchandise
Credits") provided such Purchaser Gift Certificates and Merchan-
dise Credits are issued by Purchaser in the ordinary course of
its business and consistent with past practices of Purchaser. No
less frequently than once every thirty days after the Closing and
at each of the Delayed Closings, Purchaser shall reimburse Seller
the amount of any of the Purchaser Gift Certificates and Merchan-
dise Credits honored by Seller against delivery to Purchaser of
the original Purchaser Gift Certificates and Merchandise Credits
so honored and Seller shall reimburse to Purchaser the amount of
the Seller Gift Certificates and Merchandise Credits honored by
Purchaser against delivery to Seller of the original Seller Gift
Certificates and Merchandise Credits so honored. Seller agrees
that during the Transition Period it will give merchandise
credits or exchanges at all Retained Stores at which it is using
any of the Store Service Marks, for any merchandise sold after
the Closing at retail to the public by Purchaser at any of the
Stores or any of Purchaser's other retail stores at which it is
using any of the Store Service Marks, in accordance with Purchas-
er's past practices and in the ordinary course of Purchaser's
business which is defective, such merchandise credits and
exchanges to be given in accordance with Seller's usual policies
in connection therewith which Seller may from time to time, in
its sole and absolute discretion, change, amend or modify.
7.16 Operation of Stores by Seller using the Store Service
Marks. From and after the Closing Seller shall take all steps
reasonably requested by Purchaser to notify all current and
future creditors of Seller and creditors of all assignees of
Seller (collectively, the "Seller's Assignees"), other than
Purchaser, and to notify the general public that Seller and the
Seller's Assignees are not affiliated in any way with Purchaser
notwithstanding the fact that Purchaser, Seller and the Seller's
Assignees are concurrently using some or all of the Store Service
Marks.
7.17 Management Agreements. With respect to up to seven of
the Store Leases (other than Store Leases pertaining to the
Affiliated Stores), in the event Seller is unable to deliver at
the Closing the requisite Store Leasehold Consents, Purchaser and
Seller shall mutually determine which of said Stores, if any,
will be the subject of a Management Agreement, in which event
Purchaser and Seller will jointly prepare Schedule 4.7. In the
event the parties do not mutually agree on the Stores, if any,
which will be the subject of Management Agreements, Seller may at
its election continue to operate said Stores as Retained Stores.
7.18 KSG. Shareholder agrees to cause KSG to enter into the
Lease Termination Agreements and the New Leases.
8. INDEMNIFICATION OF PURCHASER.
8.1 Notwithstanding the Closing, and regardless of any
investigation at any time made by or on behalf of Purchaser or of
any knowledge or information that Purchaser may have, Seller and
Shareholder jointly and severally agree to, and hereby do, fully
indemnify, defend and save and hold Purchaser harmless at all
times in the event that Purchaser shall at any time or from time
to time suffer any damage, liability, loss, cost, expense, claim,
settlement or causes of action (including all reasonable attor-
neys' fees) arising out of, resulting from or in connection with,
or shall pay or become obligated to pay any sum on account of,
any and every "Event of Purchaser Indemnification." As used
herein, an "Event of Purchaser Indemnification" shall mean any
one or more of the following: (i) any untruth or any inaccuracy
in any representation of Seller or Shareholder or the breach of
any warranty of Seller or Shareholder; (ii) the breach of any
other term, provision, covenant or agreement on the part of
Seller or Shareholder to be performed or observed hereunder;
(iii) any other misrepresentation by Seller or Shareholder in, or
omission by Seller or Shareholder from, any statement, certifi-
cate, schedule, exhibit or other document furnished pursuant to
this Agreement by Seller or Shareholder, an officer of Seller or
other authorized agent of Seller or Shareholder; (iv) any and all
debts, liabilities and obligations of Seller (whether matured,
unmatured, contingent or otherwise and whether or not subsequent-
ly discharged in any bankruptcy case or proceeding or otherwise)
which do not constitute an "Assumed Obligation," including,
without limitation, any debts, liabilities or obligations of
Seller arising or accruing as a result of the ownership or
operation of Seller's business, or under or in connection with
any of the Store Leases, Computer Leases or Store Contracts prior
to the Closing or the applicable Delayed Closing, whether or not
known by Purchaser, Seller, Shareholder or any third party on the
Closing Date or the applicable Delayed Closing Date including,
without limitation, any debts, liabilities or obligations
(whether matured, unmatured, contingent or otherwise and whether
or not subsequently discharged in any bankruptcy case or proceed-
ing or otherwise) resulting from or arising in connection with
(a) Seller entering into the Store Leases, Computer Leases and
Store Contracts including, without limitation, any default under
or breach of any of the Store Leases, Computer Leases or Store
Contracts, whether or not known on the Closing Date or the appli-
cable Delayed Closing Date to Purchaser, Seller or Shareholder or
the other parties to such leases or contracts, or (b) any act or
omission of Seller or Shareholder including, but not limited to,
all acts or omissions which constitute a default under or breach
of any of the Store Leases, Computer Leases or Store Contracts;
(v) any liability, loss, cost, expense, claim, settlement,
payment or obligation to pay arising out of, resulting from or in
connection with the Existing Litigation; (vi) any liability,
loss, cost, expense, claim, or obligation arising out of,
resulting from or in connection with the failure by Seller to
comply with any fraudulent conveyance or transfer, bulk transfer
laws or statutes or other laws or statutes intended to protect
the rights of creditors of Seller, including, without limitation,
the bulk transfer laws of the States of Montana and Utah; (vii)
any liability, loss, cost, expense, claim or obligation to pay
arising out of, resulting from or in connection with any claim by
a lessor under any Store Lease subject to a Management Agreement
or other party to a Computer Lease or Store Contract subject to a
Management Agreement resulting from Seller's failure to obtain
all applicable consents to Purchaser and Seller entering into
said Management Agreement; (viii) any liability, loss, cost,
expense, claim or obligation to pay arising out of, resulting
from or in connection with Seller's business which it continues
to conduct after the Closing or the applicable Delayed Closing at
any of the Retained Stores or otherwise; (ix) any liability,
loss, cost, expense or obligation to pay arising out of, result-
ing from or in any way connected with any Seller's Assignee
(other than Purchaser); (x) any liability, loss, cost, expense or
obligation to pay arising out of, resulting from or in any way
connected with Purchaser being deemed to be the "successor" of
Seller with respect to any acts or omissions of Seller arising
prior to or after the Closing or the applicable Delayed Closing
or with respect to any obligations, debts or liabilities of
Seller; (xi) any liability, loss, cost, expense or obligation to
pay arising out of, resulting from or in any way connected with
Seller continuing to the use of any of the Store Service Marks
after the Closing; (xii) any liability, loss, cost, expense or
obligation to pay arising out of, resulting from or in any way
connected with Seller being in default under or breach of any of
the Store Leases or any other agreement or contract of which it
is a party as a result of Seller's ceasing to use any of the
Store Service Marks after the Closing; and/or (xiii) the presence
or migration of any Polluting Substances in, on, into, under or
from the Stores or in, on, into or from the Real Property or the
Shopping Centers or any real property adjacent thereto before the
Closing or applicable Delayed Closing.
8.2 Whenever any claim shall arise for indemnification
pursuant to Section 8.1, Purchaser shall promptly notify Seller
and Shareholder of the claim and, when known, the facts consti-
tuting the basis for such claim, provided that failure of
Purchaser to provide Seller and Shareholder with such notice
shall not excuse or affect Seller's and Shareholder's indemnifi-
cation obligations under Section 8.1 unless the failure to
provide such notice shall actually prejudice Seller and/or
Shareholder. In the event Seller and Shareholder shall become
obligated to Purchaser pursuant to Section 8.1, or in the event
that any suit, action, investigation, claim or proceeding is
begun, made or instituted as a result of which Seller and
Shareholder may become obligated to Purchaser thereunder, Seller
and Shareholder shall have the right to defend, contest or
otherwise protect against any such suit, action, investigation,
claim or proceeding by one or more counsel reasonably acceptable
to Purchaser. In the event Seller and Shareholder so elect to
defend or contest, Purchaser shall have the right, at its
expense, to participate in such defense, but such defense shall
at all times be conducted by and under the control of Seller and
Shareholder and their counsel. In the event that Seller and
Shareholder elect not to defend, contest or otherwise protect
against any action, investigation, claim or proceeding, Purchaser
shall have the right, at Seller's and Shareholder's expense, to
pursue any such defense, contest or protection.
9. INDEMNIFICATION OF SELLER.
9.1 Notwithstanding the Closing, and regardless of any
investigation at any time made by or on behalf of Seller or of
any knowledge or information that Seller may have, Purchaser
agrees to, and hereby does, fully indemnify, defend and save and
hold Seller harmless at all times in the event that Seller shall
at any time or from time to time suffer any damage, liability,
loss, cost, expense, claim, settlement or causes of action
(including all reasonable attorneys' fees) arising out of,
resulting from or in connection with, or shall pay or become
obligated to pay any sum on account of any and every "Event of
Seller Indemnification." As used herein "Event of Seller
Indemnification" shall mean any one or more of the following: (i)
any untruth or inaccuracy in any representation of Purchaser or
the breach of any warranty of Purchaser; (ii) the breach of any
other term, provision, covenant or agreement on the part of
Purchaser to be performed or observed hereunder; (iii) any other
misrepresentation by Purchaser in, or omission by Purchaser from,
any statements, certificate, schedule, exhibit or other document
furnished pursuant to this Agreement by Purchaser or an officer
or other authorized agent of Purchaser; (iv) Purchaser's
operation of the Stores on and after the Closing, provided that
any such Event of Seller Indemnification is not and is not
attributable to an Event of Purchaser Indemnification or any
actions taken by the lessor under any Store Lease subject to a
Management Agreement or any other party to a Computer Lease or
Store Contract subject to a Management Agreement which actions
are taken as a result or Seller's failure to obtain all appli-
cable consents to Purchaser and Seller entering into said
Management Agreement.
9.2 Whenever any claim shall arise for indemnification
pursuant to Section 9.1, Seller shall promptly notify Purchaser
of the claim and, when known, the facts constituting the basis
for such claim, provided that failure of Seller to provide
Purchaser with such notice shall not excuse or affect Purchaser's
indemnification obligations under Section 9.1 unless the failure
to provide such notice shall actually prejudice Purchaser. In
the event Purchaser shall become obligated to Seller pursuant to
Section 9.1, or in the event that any suit, action, investiga-
tion, claim or proceeding is begun, made or instituted as a
result of which Purchaser may become obligated to Seller there-
under, Purchaser shall have the right to defend, contest or
otherwise protect against any such suit, action, investigation,
claim or proceeding by one or more counsel of its choice reason-
ably acceptable to Seller. If Purchaser so elects to defend or
contest, Seller shall have the right, at its expense, to partici-
pate in such defense, but such defense shall at all times be
conducted by and under the control of Purchaser and its counsel,
and Seller shall be fully bound by the results thereof. In the
event Purchaser elects not to defend, contest or otherwise
protest against any such suit, investigation, claim or proceed-
ing, Seller shall have the right, at Purchaser's expense, to
pursue any such defense, contest or protection.
10. BROKERS.
10.1 Representation by Purchaser. Purchaser represents and
warrants to Seller that it has not engaged the services of a
broker or finder in connection with this Agreement or the trans-
actions contemplated herein.
10.2 Representation by Seller. Seller represents and
warrants to Purchaser that it has not engaged the services of a
broker or finder in connection with this Agreement or the trans-
actions contemplated herein.
11. NOTICES.
All notices, statements or other documents which any party
shall be required or shall desire to give to the other hereunder
shall be in writing and shall be given by said party only by
telecopier, or by courier or personal delivery or by addressing
it as indicated below, and by depositing it certified first-class
mail, postage prepaid, in the U.S. mail. The addresses of the
parties shall be those of which the other party actually receives
written notice pursuant to this Section 11, and until further
notice:
If to Purchaser: Wherehouse Entertainment, Inc.
19701 Hamilton Avenue
Torrance, CA 90502-1334
Facsimile: (310) 538-2583
Attention: Gregory A. Fisher,
Vice President
With a copy to: Mitchell, Silberberg & Knupp
11377 West Olympic Boulevard
Los Angeles, California 90064
Facsimile: (310) 312-3787
Attention: Roy Shults, Esq.
If to Seller and/or
Shareholder: Pegasus Music and Video, Inc.
901 East Highway 193
Layton, Utah 84040
Facsimile: (801) 771-0890
Attention: Kevin S. Garn,
President
With a copy to: Durbano & Associates
3340 Harrison Blvd., Suite 200
Ogden, Utah 84403
Facsimile: (801) 399-3406
Attention: Douglas M. Durbano, Esq.
Any such communications given by courier or personal
delivery shall be deemed given when delivered if during normal
business hours on a business day (or if not, the next business
day after delivery); any such communications given by telecopier
shall be deemed given when received if during normal business
hours on a business day (or if not, the next business day after
delivery) provided that such telecopy is legible and that at the
time such telecopy is sent the sending party receives written
confirmation of receipt and forwards a copy of the notice by
courier or personal delivery or by mail; and any such communi-
cations sent by certified first-class mail, postage prepaid shall
be deemed given two business days after the date of mailing.
12. ARBITRATION.
12.1 To the extent permitted by applicable law, in the event
any dispute arises between the parties under this Agreement, the
parties hereto agree that arbitration shall constitute the
exclusive remedy for the resolution of any such dispute or
controversy. The arbitration proceedings shall be accomplished
in accordance with the provisions of this Section 12.
12.2 Except as expressly provided herein to the contrary,
the arbitration proceeding shall be conducted under the Commer-
cial Arbitration Rules of the American Arbitration Association in
effect at the time a demand for arbitration is made. To the
extent that there is any conflict between the rules of the
American Arbitration Association and this Section 12, this
Section 12 shall govern and determine the rights of the parties
hereto.
12.3 The arbitration will take place in Salt Lake County,
Utah before a single arbitrator selected as follows: Either party
may request the American Arbitration Association to provide a
list of proposed arbitrators, all of whom must be retired judges,
but who may still be active in the practice of law. The parties
hereto shall then take turns crossing off one name at a time from
such list with the last remaining retired judge being appointed
the arbitrator. The parties hereto shall select by lot which of
them strikes the first name from the list of proposed arbitra-
tors. If the person selected in this method to be the arbitrator
declines or is otherwise unavailable to serve as the arbitrator
of the dispute, the arbitrator shall be selected from the same
list of proposed arbitrators selected in the reverse order to
which those proposed arbitrators' names were struck from the list
until one of such individuals selected to be the arbitrator
accepts the appointment and is able to serve as the arbitrator.
12.4 The arbitrator selected in the manner set forth in
Section 12.3 hereof (the "Arbitrator") shall be requested to
honor the intention of the parties hereto to resolve the disputes
quickly and inexpensively. All decisions shall be made with this
intention in mind. Except as otherwise provided by applicable
law, the decision of the Arbitrator, shall be exclusive, final
and binding on all parties, their successors and assigns as
applicable.
12.5 Except as expressly set forth in this Agreement the
Arbitrator shall determine the manner in which the arbitration
proceeding is conducted, including the time and place of all
hearings, the order or presentation of evidence and all of the
questions that arise with respect to the arbitration proceeding.
12.6 The Arbitrator shall be required to determine all
issues in accordance with Utah law. The rules of evidence
applicable to proceedings at law in the State of Utah will be
applicable to the arbitration proceedings.
12.7 The Arbitrator shall issue a single judgment at the
close of the arbitration proceeding which shall dispose of all of
the disputes of the parties that are the subject of the arbitra-
tion. Either party to the arbitration may seek a judgment from a
court of competent jurisdiction to enforce the award of the
Arbitrator.
12.8 The cost of arbitration, including administrative fees,
fees for a record and a transcript, and the Arbitrator's fees
shall be borne equally by the parties to the arbitration. Each
party shall bear the costs of the fees charged such party by its
own counsel, provided, however, the Arbitrator shall have the
right to award reasonable attorneys' fees to the party determined
by the arbitrator to be the prevailing party.
13. MISCELLANEOUS.
13.1 Best Efforts. Subject to the provisions hereof, each
of the parties hereto shall use its best efforts to bring about
the transactions contemplated by this Agreement as soon as
practicable, including the execution and delivery of all instru-
ments, assignments and assurances, and shall take or cause to be
taken such further or other actions reasonably necessary or
desirable in order to carry out the intents and purposes of this
Agreement. No party will take or knowingly permit to be taken
any action or do or knowingly permit to be done anything in the
conduct of their respective businesses, or otherwise, which would
be contrary to or in breach of any of the terms or provisions of
this Agreement, or which would cause any of the representations
contained herein to be or become untrue or which would prevent
the satisfaction of any condition contained herein.
13.2 Further Assurances. Seller shall promptly, from time
to time after the Closing, execute and deliver to Purchaser such
further bills of sale, conveyances, assignments, assurances or
other instruments of transfer as Purchaser shall reasonably
request in order to vest and confirm the Transferred Assets in
Purchaser.
13.3 Entire Agreement. This Agreement, the Management
Agreements (if any), the Service Mark License, the Store Lease-
hold Consents, the Store Leasehold Assignments, the Computer
Lease Consents, the Lease Termination Agreements, the New Leases
and the Store Contract Consents and other closing documents
contemplated hereunder, contain all of the terms and conditions
agreed upon by the parties hereto with respect to the subject
matter hereof and all prior agreements whether oral or written
between the parties hereto, including (without limitation), that
certain letter of intent, dated October 20, 1993, by and between
Seller and Purchaser and that certain Confidentiality Agreement,
dated September 23, 1993, and that certain Agreement, dated
October 12, 1993, both by and between Purchaser and Seller, are
merged herein and superseded hereby. No other agreements not
specifically referred to herein, oral or otherwise, shall be
deemed to exist or to bind any of the parties hereto. This
Agreement may not be modified or changed except by written
instruments signed by all of the parties hereto. This Agreement
shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. Nothing in
this Agreement, expressed or implied, is intended to confer on
any person other than the parties hereto and their respective
successors and assigns any rights or remedies under or by reason
of this Agreement, the Service Mark License, any Management
Agreement, the Store Leasehold Consents, the Computer Lease
Consents and the Store Contract Consents and all agreements and
documents specifically referred to herein.
13.4 Captions. All captions and headings are inserted for
the convenience of the parties, and shall not be used in any way
to modify, limit, construe or otherwise affect this Agreement.
13.5 Payment of Expenses. Subject to the provisions of
Sections 2.1.2, 3.8, 7.2, 12.8 and 13.8 hereof, each party hereto
shall bear its own expenses incurred with respect to the prepara-
tion, authorization, execution and performance of this Agreement
and all transactions contemplated hereunder (including, without
limitation, all fees and expenses of agents, representatives,
counsel and accountants).
13.6 Counterparts. This Agreement may be executed in
several counterparts each of which shall be deemed to be an
original and which together shall constitute one and the same
instrument.
13.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, with-
out reference to its principles of conflict of laws.
13.8 Attorneys' Fees. Subject to Section 12 hereof, in the
event suit is brought to enforce or interpret any part of this
Agreement or the rights or obligations of any party to this
Agreement, the prevailing party shall be entitled to recover as
an element of such party's costs of suit, and not as damages,
reasonable attorneys' fees to be fixed by the court. The
prevailing party shall be the party who is entitled to recover
its costs of suit whether or not the suit proceeds to final
judgment. A party not entitled to recover its costs shall not
recover attorneys' fees. No sum for attorneys' fees shall be
counted in calculating the amount of judgment for purposes of
determining whether a party is entitled to recover its costs or
attorneys' fees.
13.9 Confidentiality. Prior to the Closing, without the
prior written consent of Purchaser or Seller, as the case may be
(which consent shall not be unreasonably withheld), neither
Purchaser, Seller nor Shareholder will disclose the contents of
this Agreement or any instrument, certificate or other document
executed in connection herewith or the negotiations with the
parties hereto regarding the subject matter of this Agreement
other than to its officers, directors, employees, attorneys,
accountants and agents who have a reasonable need to know such
information and only upon such individuals agreeing to keep such
information confidential; provided, however, this Section shall
not prohibit (i) any disclosure (including, without limitation,
any dissemination of copies of this Agreement) required by any
applicable law, statute, rule or requested by any governmental
agency (including, without limitation, any federal or state
securities law and any rule or regulation promulgated by the SEC
or any state agency or authority having jurisdiction over the
parties or their affiliates) or any subsequent disclosure once
said information becomes public either pursuant to the consent of
all of the parties hereto or as a result of disclosure by a third
party whose disclosure is not a breach of this Section, (ii)
disclosure of such information to lessors of Seller or to
creditors of any party hereto or any lenders of any party hereto
who require such information as a condition to maintaining or
extending any credit, or (iii) any disclosure of such information
in any financial statements of Purchaser, Seller or affiliates
thereof to the extent such disclosures are required by law
(including, without limitation, any federal or state securities
law and any rule or regulation promulgated by the SEC or any
state agency or authority having jurisdiction over the parties or
their affiliates). If this transaction fails to close for any
reason whatsoever, Purchaser shall immediately return to Seller
all books, records, reports, Store Leases and other information
and documents furnished by Purchaser or relating to the opera-
tions of Seller.
13.10 Exhibits and Schedules. Promptly following the
execution of this Agreement, (i) Purchaser and Seller shall
negotiate in good faith all of the documents to be attached
hereto as Exhibits and Schedules 2.2, 2.5.1.1, and 4.7, (ii)
Seller shall provide to Purchaser all of the Schedules other than
Schedules 2.2, 4.7, 2.5.1.1 and 6.2 ("Seller's Schedules"), and
(iii) Purchaser shall provide to Seller Schedule 6.2 ("Purchas-
er's Schedule"). Following negotiation of the Exhibits and
Schedules 2.2, 2.5.1.1, and 4.7 and delivery of Seller's
Schedules and Purchaser's Schedule, Purchaser and Seller shall
execute an amendment to this Agreement incorporating said
Exhibits and Schedules herein. In the event that the said
amendment is not executed and delivered on or prior to December
7, 1993 due to the fact that the Exhibits and Schedule 2.5.1.1
have not been completed or Seller has failed to deliver all of
Seller's Schedules, Purchaser may terminate this Agreement in its
sole discretion. In the event that said amendment is not execut-
ed and delivered on or prior to December 7, 1993 due to the fact
that the Exhibits and Schedule 2.5.1.1 have not been completed or
Purchaser has failed to deliver Purchaser's Schedule, Seller may
terminate this Agreement in its sole discretion.
Notwithstanding anything to the contrary contained in this
Section 13.10, Seller, Shareholder and Purchaser hereby acknow-
ledge and agree that Schedule 4.7 may be completed, if at all, at
any time prior to the Closing and Schedule 2.2 may be completed,
if at all, after the Closing in accordance with Section 2.2
hereof.
13.11 Fair Market Rental. For purposes of compliance
with HSR, the parties hereto acknowledge that the aggregate rent
which Purchaser will be obligated to pay KSG under each of the
New Leases does not exceed the current fair market rental for
comparable space rented on comparable terms and conditions.
13.12 Facsimile Signatures. This Agreement may be
executed by signing and transmitting the signature page of this
Agreement by facsimile transmission to the other party. Any
party transmitting its signature by facsimile transmission shall
thereafter promptly transmit this Agreement bearing an original,
"live" signature to the other party.
13.13 Hart-Scott-Rodino Compliance. Notwithstanding
anything to the contrary contained herein, in no event shall
Purchaser be obligated to purchase any Inventory hereunder which,
in the reasonable discretion of Purchaser and/or Seller, would
cause the parties to violate HSR.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
PURCHASER: SELLER:
WHEREHOUSE ENTERTAINMENT, INC., PEGASUS MUSIC AND VIDEO, INC.
a Delaware corporation a Utah corporation
By: /s/ Scott Young By: /s/ Kevin S. Garn
---------------------- ----------------------
Scott Young Kevin S. Garn
Its: President Its: President
By: /s/ Cathy Wood SHAREHOLDER:
----------------------
Cathy Wood
Its: Secretary KEVIN S. GARN
___________________________________
AAA_D045.RV7