AMENDMENT TO ASSET PURCHASE AGREEMENT
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This AMENDMENT TO ASSET PURCHASE AGREEMENT is entered into this 27th
day of November 1998 by and between Music Technologies, Inc., a Michigan
corporation ("Seller") and Muzak Limited Partnership, a Delaware limited
partnership ("Buyer").
R E C I T A L S
A. The parties entered into an Asset Purchase Agreement dated October 28, 1998,
with associated Schedules and Exhibits (collectively the "Asset Purchase
Agreement").
B. The parties wish to amend the Asset Purchase Agreement to reflect, among
other things, the exclusion of the contract between Kmart Corporation and Seller
(the "Kmart Contract") from the definition of "Customer Contracts," to reflect
the fact that Seller is retaining the right to engage in the Music Business to
provide business music to Kmart, and to reflect the fact that Seller is
retaining the right to engage in the Music Business to provide business music to
Kmart, and to reflect the fact that certain conditions set forth in the Asset
Purchase Agreement have been satisfied.
NOW, THEREFORE, the parties agree as follows:
The following sections of the Asset Purchase Agreement are amended as
follows:
1. Section 1.1.2 and Schedule 1.1.2. The Kmart Contract is expressly
excluded from the definition of "Customer Contract" and "Assets." The reference
herein to $46,000 shall be changed to $43,000.
2. Section 1.1.4. The "Satellite Contracts" shall exclude the software
licenses (if any), which are required by the Seller in order to service the
Kmart contract. To the extent that the software licenses are required to operate
systems both related to the Kmart contract and the other contracts Buyer and
Seller agree to the extent legally permissible to share such licenses.
3. Section 1.2. The definition of "Excluded Assets" shall include the
Kmart Contract and the software licenses identified in paragraphs 1 and 2 above,
as well as Usable Inventory and Distribution System Assets which are used by MTI
to service the Kmart account. To the extent that the same equipment is required
to operate systems both related to the Kmart contract and the other contracts
Buyer and Seller agree to the extent legally permissible and physically possible
to jointly use such equipment.
4. Section 3.1. Section 3.1 is deleted in its entirety and is substituted
with the following:
Consideration for Assets. The full consideration for the
Assets shall be Ten Million Eight Hundred and Sixty Thousand
Dollars ($10,860,000), plus the dollar value of the Usable
Inventory (the "Purchase Price"), subject to adjustments to
the Escrowed Funds (as hereinafter defined) pursuant to
Section 3.2. Buyer shall pay the lower of Seller's cost or the
fair market value for the Usable Inventory. For purposes of
this paragraph, "fair market value" shall be net of any costs
of reconditioning, and the cost of making the equipment
compatible with Buyer's system. If the parties cannot agree on
the dollar value of one or more items of useable Inventory,
such item(s) shall remain the property of Seller. At the
Closing, subject to the terms and conditions of this
Agreement, Buyer shall (a) pay to Seller Nine Million One
Hundred Twenty Thousand Dollars ($9,120,000) (subject to the
adjustment, if any, set forth in Section 3.1.1), plus the
dollar value of the Usable Inventory, all by wire transfer of
immediately available funds (the "Closing Payment"), (b
deposit Four Hundred Fifty Thousand Dollars ($450,000) in
escrow (the "Escrowed Funds") with Pacific Northwest Title
Company (or other mutually agreeable third party) as escrow
agent (the "Escrow Agent") pursuant to an escrow agreement to
be entered into among Buyer, Seller and the Escrow Agent
substantially in the form of Exhibit 3.1 for disbursement in
accordance with Section 3.3 and (c) assume the Assumed
Obligations.
5. Section 3.1.1. The reference to $600,000 in Section 3.1.1 is hereby
changed to $450,000.
6. Section 3.1.2. The first paragraph of Section 3.1.2 is deleted and the
following is hereby substituted in its place:
Deferred Payment. On the Adjustment Date, Buyer shall pay to
Seller One Million Two Hundred Ninety Thousand Dollars
($1,290,000) (the "Deferred Payment") by wire transfer of
immediately available funds. If any Deferred Payment Contract
has not been executed by the Adjustment Date, the Deferred
Payment shall be reduced by an amount equal to 30 times the
expected Recurring Monthly Billings for such Deferred Payment
Contract.
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7. Section 3.2.1. The phrase "and/or equipment" is deleted from the
definition of "Recurring Monthly Billings."
The reference to $600,000 in Section 3.2.1 is hereby changed
to $450,000.
8. Section 4.2.8. The reference to $219,750 is hereby changed to $160,000.
9. Section 5.9. Notwithstanding the first sentence of Section 5.9, the
parties acknowledge that the Kmart Contract is an agreement of the Seller, used
by the Seller in connection with the Music Business. However, the parties
acknowledge and agree that the Kmart Contract is excluded from the definition of
"Customer Contracts."
10. Section 5.11. The existing Section 5.11 of the agreement is hereby
deleted and the following is substituted in its place:
"Distribution System Assets. The Satellite Contracts and
Distribution System Assets constitute all of the assets
necessary to operate Seller's music and messaging system
(except with regard to the Kmart contract) as currently
operated when used in conjunction with the assets described in
Section 1.1.1 of this Agreement."
11. Section 7. Buyer acknowledges and agrees that it has completed the
first and second stage of due diligence, and such due diligence has been
completed to Buyer's satisfaction. It is however acknowledged that the
completion of the due diligence remains subject only to paragraphs 1 and 2 of
the letter dated November 13, 1998 from Buyer's counsel to Seller's counsel
related to the completion of the first stage of due diligence.
12. Section 8.6. Buyer acknowledges and agrees that the acquisition
financing condition set forth in Section 8.6 has been satisfied.
13. Section 8.7. Buyer acknowledges and agrees that the due diligence
condition in Section 8.7 has been satisfied.
14. Section 8.10. Section 8.10 is deleted in its entirety and the
following is substituted in its place:
Cancellation of Customer Contracts. There shall have been no
cancellation, notice of cancellation, or any other event that
would reasonably result in the cancellation of any Customer
Contract which would result in a reduction of the Closing
Payment under Section 3.1.1 by more than Four Hundred Fifty
Thousand Dollars ($450,000).
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15. Section 9.5. Seller acknowledges that the acquisition financing
condition set forth in Section 9.5 has been satisfied.
16. Section 9.6. Section 9.6 is deleted in its entirety and the following
is substituted in its place:
Cancellation of Customer Contracts. There shall have been no
cancellation, notice of cancellation, or any other event that
would reasonably result in the cancellation, of any Customer
Contract which would result in a reduction of the Closing
Payment under Section 3.1.1 by more than Four Hundred Fifty
Thousand Dollars ($450,000).
17. Section 11.2. The parties acknowledge that the covenant of Buyer set
forth in Section 11.2 (Financing Commitment) has been satisfied.
18. Section 12.3. Section 12.3 is hereby deleted and the following is
substituted in its place.
Limitation on Indemnity. Each party's indemnification
obligations hereunder shall be limited to Eight Hundred
Thousand Dollars ($800,000), except with respect to breaches
by Seller of the representations and warranties contained in
Sections 5.3, 5.4 and/or 5.6 (as to which breaches Seller's
liability shall be unlimited). Escrowed Funds shall not be
used by either party to satisfy its respective indemnification
obligations. Each party's right to seek indemnification from
the other party with respect to Customer Contracts shall
terminate one year after the Closing Date, and each party's
right to seek indemnification from the other party with
respect to Designated Customer Contracts shall terminate one
year after the Adjustment Date.
19. Section 14. Notwithstanding the language of Section 14, Buyer
acknowledges and agrees that it shall not interview or hire any of Seller's
employees who are engaged in the business of assisting Seller provide services
to Kmart, except as agreed upon, in writing, by the parties.
20. Exhibit 3.2.3 -- Non-Compete Agreement.
A. The following paragraphs shall be added to the end of Section 1 of the
Non-Competition Agreement.
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"Nothing herein shall restrict MTI or Owner from engaging in
activities in the Business, to the extent reasonably necessary
or desirable to enable MTI or Owner to continue selling
Business Music services and other recurring music-related
in-store business services within the United States to Kmart.
In addition, in consideration of the mutual covenants
contained in the Asset Purchase Agreement, for the period of
the Muzak Non-Compete Period as hereinafter defined, Muzak and
its affiliates, jointly and severally, covenant and agree that
they, either directly or indirectly, whether or not through
others acting as such party's employee or agent, shall not
compete with MTI in the business of selling business music
services or other recurring music-related in-store business
services, in the United States and Puerto Rico, covered by the
then existing contract between MTI and Kmart, provided that
should Kmart extend its services provided under the contract
to any of its affiliates then the provisions of this
non-compete agreement would apply. For purposes of this
Agreement, the term "Compete" and will mean "starting,
acquiring, or obtaining any equity interest (except for
non-controlling investments in mutual funds or publicly-traded
companies without any participation in the management thereof)
in or otherwise engaging in business music services and other
recurring music-related in-store business services within the
United States to Kmart. The "Muzak Non-Compete Period" shall
mean the shorter of: (a) ten (10) years; or, (b) twelve (12)
months after MTI or its successors or assigns ceases providing
business music services to Kmart.
As used in this Agreement, "Kmart" shall mean Kmart
Corporation, and its present and future affiliates, its
successor or assigns notwithstanding anything contained in
this Section 20A to the contrary, all geographic references in
this Section 20A shall apply to Kmart's existing music-related
in-store business services in the United States and Puerto
Rico, but shall include any such services worldwide in the
event Kmart so expands its music-related in-store business
services.
B. Section 2 of the Non-Compete Agreement is modified by adding the
following at the end of Section 2:
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"During the Muzak Non-Compete Period, Muzak and its Affiliates
shall not, unless the parties agree otherwise in writing, (1)
solicit or attempt to solicit any persons employed by MTI who
are engaged by MTI in whole or in part to service Kmart, to
become employed in any business, including persons becoming
employed by MTI upon this closing of MTI's sales of assets to
Muzak; or (2) induce or attempt to induce any customer,
supplier, licensee or other business relation of MTI, which
relation is used by MTI for purposes of servicing the Kmart
account, to cease doing business with MTI, or in any way to
interfere with the relationship between MTI and Kmart or any
business relation which assists MTI in servicing Kmart."
C. The provisions of Section 3 of the Non-Compete Agreement shall be
deemed applicable to Muzak and its affiliates, mutatis mutandis, with respect to
Muzak's promise of non-competition and non-interference contained herein.
21. Advertising Agreement. The Advertising Agreement, Exhibit 4.2.5 to the
Asset Purchase Agreement, is amended to confirm that Kmart Corporation (and its
present and future Affiliates), to the extent it continues to be serviced by MTI
or its successors or assigns, are excluded from the definition of "Exclusive
Customers" and "Non-Exclusive Customers," and no advertising payment under
Section 2 of the Advertising Agreement shall be due from MTI to Muzak in respect
of services rendered to Kmart. With respect to Sections 1 and 2 of the
Advertising Agreement, Buyer acknowledges and agrees that Kmart (and its present
and future Affiliates) are excluded from the definition of "Exclusive Customers"
and "Non-Exclusive Customers" and that no advertising payments shall be due from
MTI to Muzak in respect of any revenues received by MTI with respect to Kmart.
The third to last sentence of Section 4.a. of the Advertising agreement
shall be deleted in its entirety and the following substituted in its place:
"Without limiting the generality of the foregoing, the parties agree that if a
Sale of Muzak's Business (as defined above) shall be consummated while this
Agreement is in effect such purchaser: i) shall assume Muzak's obligations under
this Agreement; and ii) if Muzak has ceased all of its operations as a separate
entity following such sale (or, in lieu of such cessation, the "Sale of Muzak's
Business" is structured as an equity unit sale or merger in which the Muzak
entity is the survivor entity and Muzak's current owners have less than a
controlling interest in such survivor entity), then the purchaser of Muzak can
elect, by delivering written notice of such election to MTI at anytime during
the 90 day period immediately following the consummation of the Sale of Muzak's
Business, to have the non-competition prohibitions described in this paragraph
4.a only apply to the Exclusive Customers, Kmart, and to those Non-Exclusive
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Customers with whom MTI has established an advertising arrangement prior to the
date of MTI's receipt of such notice of election (which election shall be
effective sixty (60) days following MTI's receipt of the notice of election).
22. Capitalized Terms. Capitalized terms not otherwise defined in this
Agreement have the same meaning as ascribed to them in the Asset Purchase
Agreement. As used in this Amendment, Kmart" shall mean Kmart Corporation, its
successors and assigns."
23. No Other Modification. Except as expressly modified herein, the Asset
Purchase Agreement shall remain in full force and effect. The provisions of
Section 15 (Miscellaneous) of the Asset Purchase Agreement are hereby
incorporated by reference.
24. Counterparts/Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument. The parties
agree that a signature of this Agreement obtained by facsimile machine will be
binding as an original.
25. Schedule 3.4. The attached Schedule 3.4 replaces Schedule 3.4 attached
to the Asset Purchase Agreement.
IN WITNESS WHEREOF, the parties have signed this Amendment to Asset
Purchase Agreement as of the date written above.
MUSIC TECHNOLOGIES, INC.
By: /s/ Lorraine Golden
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Lorraine Golden, President
MUZAK LIMITED PARTNERSHIP
By: /s/ Brad D. Bodenman
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Brad D. Bodenman,
Chief Financial Officer
SCHEDULE 3.4
The purchase price shall be allocated to the cost of inventory at the agreed
upon amount, the deposits associated with the satellite contracts listed in
Schedule 1.1.4 for $50,000, equipment listed in Schedule 1.1.5 and the cost of
software listed in 1.1.4 for approximately $1,800,000 and customer contracts and
goodwill for $9,010,000.
This schedule will be updated to a date near the time of closing.
76763.01 .SE (1N8B01!.DOC)
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