ASSET CONTRIBUTION AGREEMENT
----------------------------
This ASSET CONTRIBUTION AGREEMENT (this "Agreement") is made effective as
of the 1st day of January, 1995 (the "EFFECTIVE DATE"), by and between MADACY
MUSIC GROUP, INC., a Canadian corporation incorporated under the Canada Business
Corporations Act (the "CORPORATION"), and 3100448 CANADA INC., a Canadian
corporation incorporated under the Canada Business Corporations Act ("CANCO").
RECITALS:
--------
1. The Corporation's business operations consist of licensing, duplicating,
marketing, packaging and supplying music and video products and related
activities in Canada, in the United States and in other countries.
2. Canco wishes to acquire from the Corporation, and the Corporation desires
to contribute to Canco, the assets and business of the Corporation related
to the Corporation's sales of products in Canada (the "CANADIAN BUSINESS").
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the sufficiency and receipt of
which is hereby acknowledged, the parties do hereby bind themselves and their
successors and assigns, and agree as follows:
Section 1. CONTRIBUTION OF ASSETS. The Corporation hereby conveys,
transfers, contributes, assigns and delivers to Canco the following assets (the
"ASSETS"):
(a) All machinery, equipment, parts, furniture, tools, supplies, and other
miscellaneous personal property owned by the Corporation and used in
the Canadian Business;
(b) All inventories of raw materials, work in process, finished goods,
product packaging and other items held for sale in the ordinary course
of the Canadian Business, as designated on EXHIBIT 1.B attached
hereto;
(c) All accounts receivable, notes receivable and other rights to receive
monies from customers, vendors or others in the ordinary course of the
Canadian Business, as designated on EXHIBIT 1.C attached hereto;
(d) All licenses, sublicenses, distribution contracts or other agreements
or arrangements to manufacture, use, distribute or sell products in
any jurisdiction outside of Canada, except for those which the
Corporation is not permitted to assign and except to the extent that
any does not relate to the Canadian Business, and those leases
designated on EXHIBIT 1.D attached hereto;
Page 38 of 53 Pages
(e) The Corporation's interest in all customer purchases orders, customer
commitments and customer arrangements related to the Canadian Business;
(f) All of the goodwill and going concern relating to the Canadian
Business, all of the Corporation's rights in and to its patents,
trademarks, tradenames, copyrights and propriety rights except the
Corporation's rights to use such patents, trademarks, tradenames,
copyrights and proprietary rights outside of Canada, and all records
and books of account which relate to the Canadian Business;
(g) All of the issued and outstanding capital shares of Madacy Publishing,
Inc. and Maryart Marketing, Inc., and all of the Corporation's rights
to acquire any additional capital shares of either;
(h) The sum of $2,000 (Canadian).
Section 2. CONSIDERATION FOR ASSETS. In return for the Assets, the
Corporation shall receive 20 shares (100%) of Canco's issued and outstanding
Class "A" Common Shares and 799 shares (100%) of Canco's issued and outstanding
Class "B" preferred shares. The parties intend that the Assets referred to in
section 1(c), that are "eligible property" as defined in the Income Tax Act, be
transferred on a tax-free basis to Canco under Section 85 of the Income Tax Act.
The Corporation and Canco agree to file jointly elections pursuant to subsection
85(1) of the Income Tax Act in the prescribed form and within the prescribed
time whereby the proceeds of disposition of each of such Assets to the
Corporation and the cost thereof to Canco shall be the cost amount of that
Asset, subject to paragraphs 85(1)(c), (c.1) and (e) of the Act. In no event
shall the elected amount in respect of an Asset be less than $1.00. The
Corporation and Canco agree to file corresponding elections under the
corresponding provisions of any applicable provincial income tax legislation.
Section 3. ASSUMPTION OF LIABILITIES. Canco hereby assumes the liabilities
of the Corporation entered into in the ordinary course of its business, related
to the Canadian Business and exhaustively described on EXHIBIT 3 attached
hereto. Canco shall assume no other liabilities of the Corporation except as
expressly provided herein.
Section 4. THE CORPORATION'S REPRESENTATIONS. The Corporation hereby
represents and warrants to Canco as follows:
(a) The Corporation is a corporation incorporated as a close company (as
defined under Securities Act [Quebec]), validly existing and in
standing under the laws of Canada. The Corporation has the corporate
power and authority to own and hold its properties, to carry on its
business as currently conducted and to execute, deliver and perform
this Agreement. The execution, delivery and performance of this
Agreement have been duly approved by the Corporation's Board of
Directors and this Agreement constitutes the valid and legally binding
obligation of the Corporation.
Page 39 of 53 Pages
(b) The Corporation has the corporate power and authority to contribute
and deliver the Assets, and neither the execution and delivery of
this Agreement, the consummation by the Corporation of the transactions
contemplated hereby, nor the contribution or delivery of the Assets
requires any authorization, consent or approval of any governmental or
regulatory authority (except for those which have been obtained, and
except to the extent that any license, sublicense or distribution
contract is not assignable without consent) or of any other person or
entity or conflicts with, accelerates any obligation under, violates
or breaches any provision of, constitutes a default under, results in
creation of any lien or security interest under or results in the
termination of, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, registration, or other authorization,
lease, contract, agreement, or other instrument, commitment or
obligation to which it is a party or by which any of its property may
be bound, or violates any order, writ, injunction, decree, judgment,
arbitration award, statute, regulation, or ruling applicable to it or
to its properties. The execution, delivery and performance of this
Agreement have been duly approved by the Corporation's shareholders.
(c) The Corporation owns the Assets free and clear of any lien, security
interest, pledge, charge, encumbrance, or restriction of any kind or
nature.
(d) Upon consummation of the transactions contemplated hereby, Canco shall
own the Assets free and clear of any lien, security interest, pledge,
charge, encumbrance, or restriction of any kind or nature or any
ownership interest of any other person or entity, other than those
arising out of the activities of Canco.
(e) EXHIBIT 4.e, attached hereto contains a true and complete listing of
all products of the Corporation ("Products") owned by, used by or
subject to license agreements of the Corporation in connection with
the Canadian Business. Copies of all license and other agreements
relating to the Products have heretofore been delivered to Canco. Such
license and other agreements are valid and binding on the Corporation,
and there are no breaches or facts or events that with the giving of
or the passage of time or both could result in a breach of such license
and other agreements. EXHIBIT 4.e and such licenses and other
agreements accurately describe the Corporation's rights with respect to
the Products. There are no claims pending or, to the best of the
Corporation's knowledge, threatened against the Corporation which
involve the Products or the materials embodied therein. Neither the
Products nor the materials embodied therein nor any use thereof by the
Corporation will violate or infringe upon the rights of any third
parties, and, to the best of the Corporation's knowledge, no third
party is infringing on the Corporation's rights in and to the Products.
(f) Except as set forth on EXHIBIT 4.f attached hereto, the Corporation
does not own or control, directly or indirectly, any corporation,
association, joint venture, partnership, or other business entity.
Page 40 of 53 Pages
(g) Except for that certain Common Stock Option Agreement dated as of
November 1, 1993 by and among Amos Entertainment, Inc., the
Corporation and Handleman Company, the Corporation is not a party to
any agreement, arrangement or understanding relating to the sale of
its stock or relating to the sale of any of its assets outside of the
ordinary course of the Corporation's business.
Section 5. CANCO'S REPRESENTATIONS. Canco hereby represents and warrants to
the Corporation as follows:
(a) Canco is a corporation duly incorporated as a close company (as defined
under Securities Act [Quebec]), validly existing and in standing under
the laws of Canada. Canco has the corporate power and authority: (i) to
own and hold its properties and to carry on its business as currently
conducted; (ii) to execute, deliver and perform this Agreement; and
(iii) to acquire the Assets in accordance with the terms hereof. This
Agreement constitutes the valid and legally binding obligation of
Canco.
(b) Canco has the corporate power and authority to acquire, own and operate
the Assets, and neither the execution and delivery of this Agreement,
the consummation by Canco of the transactions contemplated hereby, nor
the acquisition or ownership of the Assets requires any authorization,
consent or approval of any governmental or regulatory authority or of
any other person or entity or conflicts with, accelerates any
obligation under, violates or breaches any provision of, constitutes a
default under, results in certain or any lien or security interest
under or results in the termination of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, registration, or
other authorization, lease, contract, agreement, or other instrument,
commitment or obligation to which it is a party or by which any of its
property may be bound, or violates any order, writ, injunction, decree,
judgment, arbitration award, statute, regulation, or ruling applicable
to it or to its properties. The execution, delivery and performance of
this Agreement have been duly approved by Canco's shareholders.
Section 6. INDEMNIFICATION; PRORATIONS.
6.1 SURVIVAL OF REPRESENTATIONS. All of the representations and warranties
and the covenants and agreements contained or referred to in this Agreement
shall survive the consummation of the transactions contemplated hereby. The
liability of any of the parties by reason of its covenants, representations and
warranties shall not be affected by any investigation made by or on behalf of
any other party.
6.2 INDEMNIFICATION. Canco hereby indemnifies and holds harmless the
Corporation from and against any and all losses or liabilities (including
without limitation, reasonable counsel fees and disbursements in respect
thereof) arising out of any breach of any covenant, warranty, representation
or agreement made by Canco herein or in any document delivered pursuant
thereto.
Page 41 of 53 Pages
The Corporation hereby indemnifies and holds harmless Canco from and against all
losses or liabilities (including without limitation, reasonable counsel fees and
disbursements in respect thereof) arising out of any breach of any covenant,
warranty, representation or agreement made by the Corporation herein or in any
document delivered pursuant hereto or arising out of ownership or operation of
the Assets or the business herein conveyed if such losses or liabilities arise
in whole or in part out of acts of the Corporation prior to the Effective Date,
or facts existing prior to the Effective Date, if such liabilities are not
assumed by Canco.
6.3 NOTICE OF CLAIMS. Each party hereto shall give to the other party hereto
prompt notice of the assertion of any claim or demand or the institution of any
legal process for which such other party might be liable under the foregoing
indemnity or any other provision of this Agreement. The indemnifying party shall
be entitled, at its own option and expense, to conduct or participate in any
such legal proceedings or the negotiation and settlement of any such claim or
demand. The indemnified party will not make any settlement thereof without the
prior consent of the indemnifying party, which shall not be unreasonably
withheld.
6.4 BULK SALES LAWS. The parties recognize that, if the bulk transfer
provisions of any jurisdiction shall be applicable to this transaction (the
parties, however, do not acknowledge that such provisions are applicable
hereto), it would be impractical to comply with such provisions and,
accordingly, the Corporation agrees to indemnify and to hold Canco harmless from
any claims and demands of the Corporation's creditors, which are not assumed by
Canco, arising out of failure to comply with such bulk transfer provisions, if
such provisions are applicable, including any loss, damages, liability, cost or
expense of any kind whatsoever (including reasonable counsel fees) which Canco
may incur, sustain, suffer, or become subject to as a result of non-compliance
by the Corporation with such bulk transfer provisions.
6.5 PRORATIONS. Following the date hereof, the parties shall prorate, as of
the Effective Date, (i) all ordinary operating costs under any contracts,
agreements or licenses assigned to Canco by the Corporation, (ii) all applicable
utilities, (iii) all applicable real estate taxes, calculated on a fiscal year
basis, and (iv) all other ongoing operating costs of the Canadian Business.
Section 7. MISCELLANEOUS.
7.1 NOTICES. Any and all notices, requests or other communications
hereunder shall be given in writing and delivered by regular mail, overnight
mail, hand delivery or by registered or certified mail, return receipt
requested, with first class postage prepaid. Such notices shall be addressed:
(a) if to the Corporation, to the principal office of the Corporation; and (b)
if to Canco, to 500 Kirts Blvd., Troy, Michigan 48084, attn: President, with a
copy to Honigman Miller Schwartz and Cohn, 2290 First National Building,
Detroit, Michigan 48226, attn: Donald J. Kunz, unless notice of a change of
address is furnished to the other parties in the manner provided in this Section
7.1. Any notice which is required to be made hereunder shall be deemed made on
the date such notice is received by the party to whom it is directed.
Page 42 of 53 Pages
7.2 INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or unenforceability
of any particular provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted.
7.3 BENEFIT AND BURDEN. This Agreement shall inure to the benefit of, and
shall be binding upon, the parties hereto and their successors and permitted
assigns.
7.4 AMENDMENTS AND WAIVER. No amendment, modification, change,
supersession, or cancellation of this Agreement shall be valid unless the same
is in writing and signed by the parties hereto. No waiver of any provision of
this Agreement shall be valid unless in writing and signed by the person against
whom that waiver is sought to be enforced. The failure of any party at any time
to insist upon strict performance of any condition, promise, agreement, or
understanding set forth herein shall not be construed as a waiver or
relinquishment of the right to insist upon strict performance of the same or any
other condition, promise, agreement, or understanding at a future time.
7.5 ENTIRE AGREEMENT. This Agreement sets forth all of the promises,
agreements, conditions, understandings, warranties, and representations between
the Corporation and Canco with respect to the transactions contemplated hereby,
and supersedes all prior agreements, arrangements and understandings among all
or some of the parties hereto, whether written, oral or otherwise. There are no
promises, agreements, conditions, understandings, warranties, or
representations, oral or written, express or implied, among the parties except
as set forth herein.
7.6 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Quebec, Canada, except that if any
provision of this Agreement would be illegal, void, invalid, or unenforceable
under such laws in connection with a suit or proceeding validly instituted in
another jurisdiction, then the laws of such other jurisdiction shall govern
insofar as is necessary to sustain the validity or enforceability of the terms
of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and together which
shall constitute one instrument.
7.8 ATTORNEYS' FEES. If any party commences an action against any other
party to enforce any of the terms, covenants, conditions, or provisions of this
Agreement or because of a default by a party under this Agreement, any
prevailing party in any such action shall be entitled to recover its reasonable
attorneys' fees, costs and expenses incurred in connection with the prosecution
or defense of such action from the losing party or parties.
7.9 NO THIRD PARTY RIGHTS. Nothing in this Agreement shall be deemed to
create any right in any creditor or other person or entity not a party hereto
and this Agreement shall not be construed in any respect to be a contract in
whole or in part for the benefit of any third party.
Page 43 of 53 Pages
7.10 FURTHER DOCUMENTS. All of the parties agree to execute any and all
bills of sale, assignments, instruments or other documents, and to perform any
and all other acts, reasonably necessary to accomplish the purposes of this
Agreement, including but limited to the execution and delivery of any or all
assignments or licenses of any patents, trademarks, copyrights or other
proprietary rights of the Corporation.
7.11 NUMBER AND GENDER OF WORDS. All pronouns, nouns and other terms used
in this Agreement shall include the masculine, feminine, neuter, singular, and
plural forms thereof, wherever appropriate to the context.
7.12 CAPTIONS. The captions or headings contained in this Agreement are
inserted and included solely for convenience and shall not be considered or
given any effect in construing the provisions hereof if any question of intent
should arise.
7.13 CONSTRUCTION. The parties acknowledge that each of them has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement with its legal counsel and that this Agreement shall be
construed as if jointly drafted by the parties hereto.
7.14 ARBITRATION. Any Disputes (as hereinafter defined) between the parties
under this Agreement shall be resolved by binding arbitration according to the
rules of the American Arbitration Association ("AAA"), at the location of the
AAA in or nearest to Troy, Michigan. Upon the occurrence of any Dispute, the
parties subject to such Dispute shall each promptly appoint one (1) arbitrator,
each of whom shall be experienced in the subject matter of the Dispute. A third
arbitrator, who shall also be experienced in the subject matter of the Dispute,
shall be promptly selected by such appointed arbitrators; provided, however,
that if such appointed arbitrators cannot agree on the selection of a third
arbitrator, then either arbitrator, on behalf of both such arbitrators, may
request that the third arbitrator be appointed by a presiding judge of the
United States District Court for the Eastern District of Michigan. Each of the
parties subject to the Dispute shall bear one-half (1/2) of the expense of the
arbitration. The resolution of the Dispute, as determined by the majority vote
of the three (3) arbitrators: (a) shall be binding upon the parties; and (b)
shall have the effect of an arbitration pursuant to Michigan Compiled Laws
Annotated Section 600.5001. In addition, a judgment of any Quebec or Michigan
circuit court may be rendered upon such resolution of the arbitrators. For
purposes of this Agreement, a "DISPUTE" means any disagreement under this
Agreement between any of the parties hereto which dispute remains unresolved for
a period of thirty (30) days from the date of its inception despite the good
faith efforts of the parties to resolve such dispute.
7.15 LANGUAGE. The parties hereto have expressly required that this
Agreement and all deeds, documents and notices relating hereto be drafted in
the English language. Les parties aux presentes ont expressement exige que la
presente convention et tous les autres contrats, documents ou avis qui y sont
afferents soient rediges en langue anglaise.
* * * *
Page 44 of 53 Pages
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
3100448 CANADA INC., A
CANADIAN CORPORATION
By: /s/ LOUIS A. KIRCOS
---------------------------------------
Printed Name: Louis A. Kircos
Title: Chairman of the Board of Directors
MADACY MUSIC GROUP, INC., A
CANADIAN CORPORATION
By: /s/ AMOS ALTER
---------------------------------------
Printed Name: Amos Alter
Title: President
Page 45 of 53 Pages
INDEX TO EXHIBITS
-----------------
1.b - Inventories of Raw Materials
1.c - Receivables
1.d - Licenses and Distribution Contracts
3 - Assumed Liabilities
4.c - Products
4.f - Subsidiaries
Page 46 of 53 Pages
EXHIBIT 1.b
INCLUDED ON EXHIBIT 1.b TO ASSET PURCHASE
AGREEMENT BY AND BETWEEN MADACY MUSIC
GROUP, INC., A CANADIAN CORPORATION AND MADACY
MUSIC GROUP, INC., A MICHIGAN CORPORATION.
Page 47 of 53 Pages
EXHIBIT 1.C ACCOUNTS RECEIVABLE
Madacy Music Group Inc.
December 31, 1994
ACCOUNTS RECEIVABLE - (CDN) G.L.
- --------------------------- ----
Accounts Receivable - CDN 1100 $2,487,981.56
Accounts Receivable 1116 (27,450.94)
Travel Advances 1130 2,034.17
1135 2,427.00
Allowance For Doubtful Accounts (60,919.00)
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$2,404,072.79
=============
Page 48 of 53 Pages
Madacy Music Group Inc.
December 31, 1994
Reconciliation of A/R - Subsidiary and G/L
A/R - CDN G/L 1100
Balance per Subsidiary Ledger Dec. 31, 1994 $3,205,944.74
Adjustments:
Add: Waterlily NSF payment Nov. 30, 1994 3,100.00
Less: Intertape payment Dec. 29, 1994
For Invoice #50663 Sept. 16, 1994 (38,997.91)
-------------
$3,170,046.83
Unaccorded small difference 137.63
-------------
Balance per G/L Dec. 31, 1994 $3,170,184.46
AJE #21 To set up allowance for doubtful accounts
per schedule 37,254.06
AJE #37 To reverse Sunrise A/R 186,204.84
AJE #31 To accrue C/N & R.P. 458,774.00
-------------
$2,487,981.56
=============
Page 49 of 53 Pages
EXHIBIT 1.D
LOCATION: 2020 ST. REGIS
LANDLORD: BORNEO REALTIES
LOCATION: 1865 TRANS CANADA HWY.
LANDLORD: ETINVEST HOLDINGS
Page 50 of 53 Pages
EXHIBIT 3 ASSUMED LIABILITIES
Madacy Music Group Inc.
December 31, 1994
Accounts Payable - Canco (LIMITED)
LIT001 LITHO MILLES ILES $ 450,541.20
LITSPE LITHO MILLES ILES 303,330.24
----------
Accounts Payable, before D.A.S. $ 753,871.43
D.A.S
=====
D.A.S Federal $ 41,427.84
D.A.S Quebec 47,141.02
Accrued Payroll 58,879.00
Employee RRSP Payable 260.00
----------
Accounts Payable $ 901,579.29
=============
Bank Loan $ 751,873.40
=============
Bank Loan F.B.D.B. $ 112,000.00
=============
Customer Deposit Handleman $1,166,666.75
=============
Lease Obligations $ 31,271.40
=============
Corporate Income Taxes Payable $1,475,337.00
=============
Page 51 of 53 Pages
EXHIBIT 4.E PRODUCTS OF MADACY
ATTACHED AS EXHIBIT 1.A TO THE
INDEMNIFICATION AGREEMENT DATED AS
OF JANUARY 1, 1995 BY AND BETWEEN
AMOS ENTERTAINMENT, INC., AMOS
ALTER, 3100448 CANADA INC. AND
MADACY MAGIC GROUP, INC., A
MICHIGAN CORPORATION.
Page 52 of 53 Pages
EXHIBIT 4.F
MADACY MUSIC GROUP LIMITED
SUBSIDIARIES
1. MARYART MARKETING INC.
2. MADACY EUROPA INC.
3. MADACY MUSIC PUBLISHING INC.
Page 53 of 53 Pages