-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNVfeT0cSQ2faxo1r9NR9devIajZ+dCHDsxgABQQaxGMPsm1dohNoi8jlyM7xu1k jYFDO/RMQcWvb226Y6s40Q== 0000897101-97-000263.txt : 19970313 0000897101-97-000263.hdr.sgml : 19970313 ACCESSION NUMBER: 0000897101-97-000263 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19970303 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970312 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: K TEL INTERNATIONAL INC CENTRAL INDEX KEY: 0000054193 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 410946588 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07115 FILM NUMBER: 97554966 BUSINESS ADDRESS: STREET 1: 2605 FERNBROOK LANE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55447-4736 BUSINESS PHONE: 6125596800 MAIL ADDRESS: STREET 1: 15525 MEDINA ROAD STREET 2: 15525 MEDINA ROAD CITY: PLYMOUTH STATE: MN ZIP: 55447 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 3, 1997 K-tel International, Inc. (Exact name of registrant as specified in its charter) Commission File No. 0-6664 MINNESOTA 41-0946588 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2605 Fernbrook Lane North Plymouth, Minnesota 55447 (Address of principal executive offices) (612) 559-6800 (Registrant's telephone number, including area code) Item 5. Other Events On March 3, 1997, K-tel International, Inc. (the "Company") and Platinum Entertainment, Inc. ("Platinum") signed a purchase and sale agreement (the "Purchase Agreement") pursuant to which Platinum will acquire K-tel's worldwide music business assets, except for K-tel's European music business, through the purchase of the stock of K-tel International (USA), Inc. ("K-tel (USA)") and Dominion Entertainment, Inc. ("Dominion"), both wholly-owned subsidiaries of the Company. The purchase price is $35 million subject to certain adjustments. Subject to satisfaction of the closing conditions specified in the Agreement, including Platinum obtaining financing for the acquisition and shareholder approvals, the transaction is expected to close within 120 to 180 days after the signing of the Purchase Agreement. The Company will retain its music business in Western and Eastern Europe and the former Soviet Republic, and will receive an exclusive license to use the Dominion and K-tel (USA) music catalog in these territories and a non-exclusive license of the catalog in Africa and the Middle East. The licenses will be royalty free except for third party amounts payable for the use of the masters. In addition, the Company will retain its consumer products, music infomercial, direct response and video business. Pursuant to the Purchase Agreement, Platinum deposited $1,750,000 in escrow which will be paid to the Company in the event the transaction is not consummated under certain circumstances, including the failure of Platinum to obtain financing for the transaction. Also, Philip Kives, the Company's Chairman and Chief Executive Officer, agreed in his capacity as a shareholder of the Company to vote in favor of the transactions contemplated by the Purchase Agreement at the special meeting of the Company's shareholders which will be called to consider the transactions. Mr. Kives and entities which he controls own over 70% of the outstanding voting stock of the Company. Item 7. Financial Statements and Exhibits (c) Exhibits 2.1 Purchase and Sale Agreement dated March 3, 1997 between Platinum Entertainment, Inc. and K-tel International, Inc. 10.1 Voting Agreement dated March 3, 1997 between Platinum Entertainment, Inc. and Philip Kives 10.2 Earnest Money Escrow Agreement dated March 3, 1997 among Platinum Entertainment, Inc., K-tel Entertainment, Inc. and Midwest Trust Services, Inc. 99.1 Press Release dated March 3, 1997. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. Dated: March 10, 1997 K-TEL INTERNATIONAL, INC. By: Mark J. Dixon Vice President and Chief Financial Officer EX-2.1 2 PURCHASE AND SALE AGREEMENT Exhibit 2.1 Purchase and Sale Agreement dated March 3, 1997 between Platinum Entertainment, Inc. and K-tel International, Inc. PURCHASE AND SALE AGREEMENT by and between PLATINUM ENTERTAINMENT, INC. and K-TEL INTERNATIONAL, INC. as of March 3, 1997 PURCHASE AND SALE AGREEMENT This Purchase and Sale Agreement (this "Agreement") is made as of March 3, 1997 by and between PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer") and K-TEL INTERNATIONAL, INC., a Delaware corporation ("Seller"). Capitalized terms that are not otherwise defined in this Agreement are defined in Article 14. The parties, intending to be legally bound, agree as follows: WHEREAS, Seller is engaged in the business of recording, releasing, licensing, publishing, distributing and otherwise exploiting recorded music products on a worldwide basis ("Seller's Music Business"); WHEREAS, Buyer desires to buy, and Seller desires to sell, all of Seller's Music Business, except for the Retained Music Business (the "Business"); WHEREAS, Seller engages in the Business solely through two wholly owned subsidiaries, K-tel International (USA), Inc., a Minnesota corporation ("KTI") and Dominion Entertainment, Inc., a Minnesota corporation ("Dominion", together with KTI, the "Subsidiaries"); WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Business by acquiring all of the issued and outstanding capital stock of the Subsidiaries, all upon the terms and subject to the conditions set forth below; and WHEREAS, the parties have agreed that the transactions contemplated hereby be treated as an asset sale pursuant to Sec. 338(h) of the Code. NOW THEREFORE, in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF STOCK 1.1 STOCK. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell to Buyer, free and clear of all Encumbrances (except for Encumbrances on the subsequent sale or transfer by Buyer of the Stock under federal and state securities laws or created by Buyer), and Buyer is purchasing from Seller, all of the issued and outstanding capital stock of KTI (the "KTI Stock") and Dominion (the "Dominion Stock", together with the KTI Stock, the "Stock"). 1.2 EXCLUDED BUSINESSES AND EXCLUDED ASSETS. (a) Buyer and Seller each acknowledge and agree that Buyer is not acquiring (i) Seller's consumer products business which is not related to the Business (the "Consumer Products Business"), (ii) Seller's video business (the "Video Business"), and (iii) Seller's infomercial business, including infomercials for music and entertainment products (the "Infomercial Business", together with the Consumer Products Business and the Video Business, collectively referred to herein as the "Excluded Businesses"). It is further agreed that Seller or a subsidiary of Seller other than the Subsidiaries will retain (i) the Old Town Catalog and the Maureen Catalog, and (ii) the claims arising prior to the Closing Date and related judgments and settlement proceeds in connection with the pending or settled actions against Tring, San Juan Music, Marshall Sehorn and related entities (collectively the "Excluded Assets"). In connection therewith, Seller agrees that it will, prior to the Closing, (A) transfer and assign to the Subsidiaries all of the right, title and interest in and to the assets (including, without limitation, all licenses and other related contracts) related to the Business which are not owned by the Subsidiaries as of the date hereof and (B) transfer and assign to Seller or one of its other subsidiaries, as may be determined by Seller, all right, title and interest in and to the Excluded Businesses or any assets specifically related thereto and the Excluded Assets to the extent owned by the Subsidiaries. In connection with the transfers and assignments by the Subsidiaries contemplated in the immediately preceding sentence, Seller shall provide Buyer with all documentation used to effect such transfers and assignments immediately upon such documentation becoming available. Notwithstanding the above, the parties specifically agree that the "Country 101" property/music rights will be acquired by Buyer hereunder and be deemed to be part of the Business. In connection with the Excluded Assets referred to in clause (ii) above of the sentence defining Excluded Assets and after Closing, Buyer shall, and shall cause the Subsidiaries to, take such reasonable action, at Seller's expense, as Seller may reasonably request to effect recovery of such claims, judgments and settlements and to deliver to Seller promptly upon receipt any funds received by Buyer or the Subsidiaries with respect to such claims, judgments and settlements. (b) The parties acknowledge and agree that the Business being acquired by Buyer includes, but is not limited to, the worldwide rights to all trademarks, service marks, and trade names, and all registrations therefore, used in connection with the Business worldwide, with the exception of the Retained Territory and the exclusive use of the name "K-tel" solely in the corporate name of Seller or its Affiliates. Notwithstanding the foregoing, Buyer agrees that promptly after the Closing, it will take those steps required to change the corporate name of KTI to delete the words "K-tel". Seller further agrees that, except as otherwise specifically provided for herein, at no time after the Closing will it or any of its subsidiaries, Affiliates, or Related Persons use, in any manner, the words "K-tel", or any other name or mark similar thereto, in connection with the manufacture, distribution, advertising, promotion, or sale of consumer entertainment products (other than non-musical videos) (i) except to truthfully disclose the correct corporate name of Seller or its Affiliates solely on the packaging of such products where Seller's or its Affiliate's direct connection with such product is described (i.e., "manufactured by ..." or "distributed by ....") and (ii) except for the Retained Music Business or in the Retained Territory. The display of Seller's corporate name shall be in a manner customary to the trade and without differentiation or emphasis (such as, but not limited to, different color, typeface, size, or boxing). Seller and its subsidiaries (other than the Subsidiaries) shall also be entitled to export phonorecords bearing the "K-tel" name solely from the Retained Territories to the Non-Exclusive Territory; provided, however, that (i) such phonorecords shall have been originally commercially released in the Retained Territories, (ii) such phonorecords are solely in finished manufactured form, and (iii) the use of the "K-tel" name on such phonorecords shall be limited to the identical form and manner of display of the "K-tel" name as used on the original release by Seller of such phonorecords in the Retained Territories. After Closing, Buyer agrees that Buyer and its subsidiaries (including the Subsidiaries), Affiliates or Related Persons will not use the word "K-tel" in their respective corporate names or the assumed business name under which it conducts business. Seller and its Affiliates agree, at the Closing, to assign to Buyer the intellectual property rights provided under this SECTION 1.2(b). ARTICLE II CONSIDERATION AND MANNER OF PAYMENT 2.1 PURCHASE PRICE. The aggregate purchase price for the Stock (the "Purchase Price") to be paid by Buyer to Seller shall be (i) $35,000,000 to be paid at Closing, and (ii) plus the amount of the aggregate positive Net Tangible Book Value (as defined below) or minus the amount of the aggregate negative Net Tangible Book Value, as the case may be, of the Subsidiaries on the Closing Date to be paid pursuant to SECTION 2.3 below (the "Final Net Tangible Book Value"). The portion of the Purchase Price to be paid at Closing shall be paid by wire transfer of immediately available funds to an account designated, in writing, to the Buyer. 2.2 ESCROWS. (a) The parties hereto agree that upon execution of this Agreement, Buyer will deposit into an interest bearing escrow account with a lending institution an earnest money deposit equal to $1,750,000 (the "Earnest Money Escrow") pursuant to the terms of an Earnest Money Escrow Agreement, attached hereto as Exhibit 2.2(a) (the "Earnest Money Escrow Agreement"). (b) The parties hereto acknowledge that the Harry Fox Agency is currently auditing the Business for the period of October 6, 1984 through June 30, 1994 (the "Harry Fox Audit") and that Seller has established a reserve for such audits (as set forth in Part 2.3(a) of the Disclosure Letter) which will be used in connection with the calculation of the Final Net Tangible Book Value (the "Harry Fox Reserve"). In connection therewith, the parties hereto agree that $1,000,000 of the Purchase Price due at Closing to Seller shall be placed in an interest bearing escrow account (the "Harry Fox Escrow") pursuant to the terms of a Harry Fox Escrow Agreement, attached hereto as Exhibit 2.2(b) (the "Harry Fox Escrow Agreement). (c) The parties hereto agree that $2,000,000 of the Purchase Price due at Closing to Seller shall be placed in an interest bearing escrow account (the "Indemnity Escrow"), pursuant to the terms of an Indemnity Escrow Agreement, attached hereto as Exhibit 2.2(c) which escrowed funds shall secure Seller's indemnification obligations to Buyer and its Affiliates under this Agreement. 2.3 NET TANGIBLE BOOK VALUE. (a) For purposes of this Agreement, the term "Net Tangible Book Value" shall mean all of the tangible net assets of the Subsidiaries less all of the liabilities of the Subsidiaries set forth on the unaudited balance sheets of the Subsidiaries as of the Closing Date (the "Closing Balance Sheets"), determined using GAAP, consistently applied by Seller. The parties agree that the Final Net Tangible Book Value calculation shall specifically (i) exclude all Excluded Assets and all assets and liabilities associated with the Excluded Businesses and the Retained Music Business, (ii) exclude all intercompany payables and receivables to or from Seller and Affiliates of the Seller which shall be written-off, distributed to or purchased by Seller (as Seller may determine) or assumed by Seller, as the case may be, prior to the Closing and (iii) include the reserves referred to in Part 2.3(a) of the Disclosure Letter. (b) Part 2.3(b) of the Disclosure Letter sets forth the balance sheets for each of the Subsidiaries as of January 31, 1997 (the "Preliminary Balance Sheets") and a calculation of the Net Tangible Book Value as of such date (the "Preliminary Net Tangible Book Value") in accordance with SECTION 2.3(a) indicating a negative Preliminary Net Tangible Book Value of $4,874,000. The parties agree that the Purchase Price due at Closing shall be equal to $30,126,000 ($35 million less the negative Preliminary Net Tangible Book Value); provided that the parties shall use all reasonable efforts, in good faith, to reach agreement on the Net Tangible Book Value as of a date closer to the Closing Date which utilizes the same assumptions and methodology as used in Part 2.3(b) of the Disclosure Letter. If such an agreement can be reached, the amount agreed to shall become the "Preliminary Net Tangible Book Value" as set forth herein. If the parties are unable to reach such an agreement, the Preliminary Net Tangible Book Value (as used herein) shall be the amount set forth above in this SECTION 2.3(b). (c) As soon as practicable following the Closing, but in no event later than 60 days following the Closing, Buyer and Seller each agree to cause the Minneapolis office of Arthur Andersen, LLP ("AA") to prepare and deliver to Buyer and Seller the Closing Balance Sheets and the calculation of Final Net Tangible Book Value which utilizes the same assumptions and methodology as used in Part 2.3(b) of the Disclosure Letter (the "NTBV Schedule") promptly upon their completion. The Final Net Tangible Book Value shall be determined as follows: (i) For a period of 10 business days (the "Review Period") after delivery of Closing Balance Sheet and the NTBV Schedule, Seller and Buyer shall each have an opportunity to review and substantiate the Closing Balance Sheets and NTBV Schedule. During the Review Period, each party agrees to provide to the other all necessary accounting records and supporting documentation, as may be requested, so that each of the Buyer and Seller may complete its review of the Closing Balance Sheets and NTBV Schedule. Upon expiration of the Review Period, Seller and Buyer shall each have 5 business days to deliver written notice (the "Protest Notice") to the other of any objections, and the basis therefor, that it may have to the Closing Balance Sheets and the NTBV Schedule. (ii) If Buyer and Seller are unable to resolve any disagreement between them within 15 days following receipt of any Protest Notice, then the items in dispute will be referred to the Minneapolis office of Ernst & Young, L.L.P. (the "Accountants") for final determination. The determination made by the Accountants shall be final and binding on the parties. (iii) If the Final Net Book Value is greater (i.e., a higher positive amount on the positive side or less negative on the negative side) than the Preliminary Net Tangible Book Value, Buyer shall pay to Seller the amount of such excess by wire transfer of immediately available funds to an account designated, in writing, by Seller. If the Final Net Book Value is less than the Preliminary Net Book Value (i.e, lower positive amount on the positive side or a larger negative amount on the negative side), Seller shall pay to Buyer the amount of such deficiency by wire transfer of immediately available funds to an account designated, in writing, by Buyer. All such payments due under this SECTION 2.3(c) shall be paid within 5 business days after final determination of the Final Net Tangible Book Value. The fees and expenses of the AA and the Accountants incurred pursuant to this SECTION 2.3(c) will be borne one-half by Buyer and one-half by Seller. ARTICLE III CLOSING 3.1 CLOSING. The closing (the "Closing") of the transactions contemplated by this Agreement will take place at the offices of Katten Muchin & Zavis, counsel to Buyer, at 525 West Monroe, Suite 1600, Chicago, Illinois 60661, at 10:00 a.m. (local time) on a date to be specified by the parties, which shall be no earlier than five (5) business days and no later than ten (10) business days after the satisfaction or waiver of the conditions set forth in Articles 9, 10 and 11 or at such other time, date and location as the parties may agree (the "Closing Date"). Subject to the provisions of Article 12, failure to consummate the Contemplated Transactions on the Closing Date will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 3.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to Buyer (the "Seller's Closing Documents"): (a) certificates representing the Stock, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer; (b) A certificate executed by Seller to the effect that (i) the Seller's representations and warranties in this Agreement were accurate as stated herein as of the date of this Agreement and are accurate as stated herein as of the Closing Date as if made on the Closing Date (giving full effect to any supplements delivered by the Seller to Buyer prior to the Closing Date in accordance with SECTION 6.5), except to the extent to which such representations and warranties are specifically stated to be as of a different date, and (ii) the Seller has performed and complied in all material respects with all covenants and conditions required to be performed, or complied with, by it hereunder prior to or at the Closing; (c) Resignations of all officers and directors of each of KTI and Dominion; (d) A Good Standing Certificate (dated within five business days prior to the Closing Date) for KTI and Dominion from all states in which they are authorized to do business; (e) A copy of the KTI's and Dominion's Articles of Incorporation and all amendments thereto, certified by the Secretary of State of Minnesota, and a copy of KTI's and Dominion's By-laws, and all amendments thereto, certified by the Secretary of each of KTI and Dominion; and (f) An opinion of Kaplan, Strangis and Kaplan, P.A., legal counsel to Seller and the Subsidiaries, dated the Closing Date, covering the matters set forth in Exhibit 3.2(f) attached hereto; (g) The License Agreements, duly executed by Seller; (h) The Harry Fox Escrow Agreement, duly executed by Seller; (i) The Indemnity Escrow Agreement, duly executed by Seller; (j) A release in the form attached hereto as Exhibit 3.2(d), whereby Seller and its subsidiaries (other than the Subsidiaries) shall release the Subsidiaries from any and all liabilities or obligations of the Subsidiaries except for the License Agreements; (k) The noncompetition agreements in the form attached hereto as Exhibit 8.7 from Seller and Philip Kives, duly executed by each of them; (l) A pay-off letter from TCF Bank Minnesota fsb, the secured lender of the Subsidiaries; and (m) Such other documents as Buyer may reasonably request for the purpose of consummating the Contemplated Transactions, each in form and substance reasonably acceptable to Buyer's and Seller's counsel. 3.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to Seller (the "Buyer's Closing Deliveries"): (a) The Purchase Price, as provided in SECTION 2.1 (provided, in part, by the release of the Earnest Money Escrow to Seller), less (i) the amount of the Harry Fox Escrow which shall be funded by Buyer at Closing out of the Purchase Price due to Seller, and (ii) the amount of the Indemnity Escrow which shall be funded by Buyer at Closing out of the Purchase Price due to Seller; (b) A certificate executed by Buyer to the effect that (A) each of Buyer's representations and warranties in this Agreement was accurate as stated herein as of the date of this Agreement and is accurate as stated herein as of the Closing Date as if made on the Closing Date and (B) Buyer has performed and complied in all material respects with all covenants and conditions required to be performed or complied with by it prior to or at the Closing; (c) An opinion of Katten Muchin & Zavis, legal counsel to Buyer, dated the Closing Date, covering the matters set forth in Exhibit 3.3(c) attached hereto; (d) The License Agreements, duly executed by Dominion and KTI; (e) The Harry Fox Escrow Agreement, duly executed by Seller and the escrow agent named therein; (f) The Indemnity Escrow Agreement, duly executed by Seller and the escrow agent named therein; and (g) Such other documents as Seller may reasonably request for the purpose of consummating the Contemplated Transactions, each in form and substance reasonably acceptable to Buyer's and Seller's counsel. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer, as of the date of this Agreement and as of the Closing Date (except to the extent such representations or warranties are specifically stated to be as of a different date), as follows: 4.1 ORGANIZATION, GOOD STANDING AND CAPITALIZATION. (a) Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota with full corporate power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise possess or use the properties and assets that it purports to own, hold under lease, or otherwise possess or use, and to perform all its obligations under the contracts to which it is a party or by which it is bound. Each of KTI and Dominion is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota, with full corporate power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise possess or use the properties and assets that it purports to own, hold under lease, or otherwise possess or use, and to perform all its obligations under the contracts to which it is a party or by which it is bound. Part 4.1(a) of the Disclosure Letter sets forth each other jurisdiction in which each of KTI and Dominion is qualified to do business in accordance with the laws of such jurisdiction. The Subsidiaries are duly qualified to do business as foreign corporations and are in good standing under the laws of each state or other jurisdiction in which such qualification is required by virtue of the nature of the activities conducted by them, except where the failure to be so qualified, individually or in the aggregate, would not have a material adverse effect on the Business as a whole. (b) Part 4.1(b) of the Disclosure Letter includes copies of the Organizational Documents of each of KTI and Dominion, as currently in effect. (c) The authorized equity securities of KTI consists of 5,000,000 shares of common stock, $.01 par value, of which 1,000 shares are issued and outstanding and constitute the KTI Stock. The authorized equity securities of Dominion consists of 5,000,000 shares of common stock, $.01 par value, of which 1,000 shares are issued and outstanding and constitute the Dominion Stock. Seller is, and on the Closing Date will be, the sole record and beneficial owner and holder of the Stock, free and clear of all Encumbrances, except as set forth in Part 4.1(c) of the Disclosure Letter. Upon consummation of the Contemplated Transactions, Buyer will be vested with good and valid title to the Stock, free and clear of all Encumbrances, except for Encumbrances on the subsequent sale or transfer by Buyer of the Stock under federal and state securities laws or created by Buyer. Except as set forth in Part 4.1(c) of the Disclosure Letter, no legend or other reference to any purported Encumbrance appears upon any certificate representing the Stock. All of the Stock have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in Part 4.1(c) of the Disclosure Letter, there are not as of the date hereof, and there will not be on the Closing Date, any outstanding or authorized options, warrants, calls, rights (including preemptive rights), commitments or any other agreements of any character which Seller or any of the Subsidiaries is a party to, or may be bound by, requiring it to issue, transfer, grant, sell, purchase, redeem or acquire any shares of capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of capital stock of the Subsidiaries. Except as set forth in Part 4.1(c) of the Disclosure Letter, there are not as of the date hereof, and there will not be at the Closing Date, any stockholder agreements, voting trusts or other agreements or understandings to which Seller or either of the Subsidiaries is a party or to which it is bound relating to the voting of any shares of the capital stock of the Subsidiaries. None of the outstanding equity securities or other securities of the Subsidiaries was issued, redeemed or repurchased in violation of the Securities Act or any securities or "blue sky" Legal Requirements. Neither of the Subsidiaries own, and has no contract or agreement, written or oral, to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business. (d) Part 4.1(d) of the Disclosure Letter contains a complete and accurate list of the current directors and officers of each of KTI and Dominion. 4.2 AUTHORITY; NO CONFLICT; APPROVALS. (a) This Agreement constitutes and, when executed and delivered by Seller at Closing, the Seller's Closing Documents (collectively, the "Seller Transaction Documents"), to which Seller is a party, will constitute the legal, valid, and binding obligations of the Seller, enforceable against Seller in accordance with their respective terms except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, or similar laws affecting creditor's rights generally and by general equitable principles. Seller has the corporate power and authority to execute and deliver this Agreement and each of the Seller Transaction Documents to which it is a party and to perform its obligations under this Agreement and each of the Seller Transaction Documents. This Agreement has been, and the Seller Transaction Documents to which it is a party at Closing will be, duly executed and delivered by Seller. (b) The Board of Directors of Seller has approved the Contemplated Transaction. Except for the approval of the holders of the stockholders of Seller required by the Minnesota Business Corporation Act (the "MBCA"), no other approval of the stockholders of Seller or other corporate approval of Seller (or the Subsidiaries) is required in order for Seller to consummate the transactions contemplated by this Agreement. (c) Neither the execution and delivery of this Agreement nor the consummation by Seller of the Contemplated Transaction will (i) conflict with or result in any breach of any provision of the respective Organizational Documents of Seller or any of the Subsidiaries; (ii) require any consent, approval, authorization or permit of, or registration or filing with or notification to, any Governmental Body, except (A) in connection with the applicable requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") or (B) pursuant to the applicable requirements of the Securities Act, and the rules and regulations promulgated thereunder, and the Exchange Act, and the rules and regulations promulgated thereunder, including, without, limitation, a proxy statement and a Form 8-K; (iii) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or lien or other charge or Encumbrance) under any of the terms, conditions or provisions of any indenture, note, license, lease, agreement or other instrument or obligation to which Seller or either of the Subsidiaries or any of their assets may be bound, except for such violations, breaches and defaults (or rights of termination, cancellation or acceleration or lien or other charge or encumbrance) as to which requisite waivers or consents will have been obtained prior to Closing or which, in the aggregate, would not have a material adverse effect on the Business as a whole or adversely affect the ability of Seller to consummate the transactions contemplated hereby, except as set forth in Part 4.2(c) of the Disclosure Letter; (iv) except as set forth in Part 4.2(c) of the Disclosure Letter, cause the suspension or revocation of any authorizations, consents, approvals or licenses currently in effect which would have a material adverse effect on the Business as a whole; or (v) assuming the consents, approvals, authorizations or permits and filings or notifications referred to in this SECTION 4.2(d) are duly and timely obtained or made and the approval of the Contemplated Transaction by Seller's stockholders has been obtained, violate any (A) Legal Requirement except where such violation would not have a material adverse effect on the Business as a whole or (B) Order, applicable to Seller or either of the Subsidiaries or to any of their respective assets. (d) Except for (i) the approval by the Seller's stockholders of the Contemplated Transaction, and (ii) except as set forth in Part 4.2(d) of the Disclosure Letter, the Seller is not, and will not be, required to give any notice to or obtain any consent or approval from any Person which is not a Governmental Body in connection with the execution and delivery of this Agreement or any of the Seller Transaction Documents or the consummation or performance of any of the Contemplated Transactions. 4.3 FINANCIAL STATEMENTS. Seller has delivered to Buyer (a) audited balance sheets of each of KTI and Dominion as of June 30 for each of the fiscal years 1994 through 1996, and the related statements of operations and cash flows for each of the fiscal years ending June 30, 1994 through 1996, including in each case the notes thereto and (b) the unaudited balance sheet of each of KTI and Dominion at December 31, 1996 (the "Interim Balance Sheets") and the related unaudited/reviewed statements of operations and cash flows for the six-month period then ended (each of the financial statements delivered to Buyer pursuant to this SECTION 4.3 shall be referred to herein as the "Financial Statements"). The Financial Statements and notes fairly present the financial condition and results of operations of each of the Subsidiaries as at the respective dates thereof and for the periods therein referred to, all in accordance with GAAP, except that the unaudited financial statements do not include footnote disclosure of the type associated with audited financial statements and were or are subject to normal and recurring year-end adjustments which were not or are not expected to be materially adverse in amount. The Financial Statements reflect the consistent application of GAAP throughout the periods involved, except as may otherwise be specifically described therein. 4.4 BOOKS AND RECORDS. The books of account and other records of each of the Subsidiaries, all of which have been made available to Buyer, are complete and correct in all material respects and have been maintained in all material respects in accordance with sound business practices. Without limiting the generality of the foregoing, the minute books of each of the Subsidiaries contain complete and accurate records of all official meetings held of, and corporate action taken by, the shareholders, the boards of directors, and committees of the boards of directors of such Subsidiary, and no meeting of any such shareholders, board of directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of each Subsidiary or otherwise delivered by Seller to Buyer. 4.5 TITLE TO ASSETS; ENCUMBRANCES; SUFFICIENCY. Except as set forth in Part 4.5 of the Disclosure Letter, neither Seller, nor any of its subsidiaries or Affiliates (other than KTI and Dominion) own any of the tangible assets used in connection with the Business. Each Subsidiary has good and valid title to all the tangible properties and assets reflected as owned in the books and records of each Subsidiary, including all of the tangible properties and assets reflected in the Interim Balance Sheets (except for personal property sold or disposed of since the date of the Interim Balance Sheets in the Ordinary Course of Business), free and clear of any Encumbrances, except for any encumbrances, any mechanics or other statutory liens, any lien of taxes not yet due and payable, liens or security interests which will be released at or prior to Closing, and imperfections or irregularities of title, as do not materially detract from the value of or materially interfere with the use of the properties or assets subject thereto, or affected thereby). All of the tangible properties and assets purchased or otherwise acquired by each Subsidiary since the date of the Interim Balance Sheets (except for supplies, inventory, and personal property acquired since the date of the Interim Balance Sheets in the Ordinary Course of Business) are listed in Part 4.5 of the Disclosure Letter. At Closing, the Subsidiaries will own, lease or license all of the tangible assets which are necessary for the conduct and operation of the Business as it is presently conducted, except as set forth in Part 4.5 of the Disclosure Letter. 4.6 TANGIBLE ASSETS AND REAL PROPERTY. (a) Except as set forth in Part 4.6(a) of the Disclosure Letter, all of the material tangible assets used by the Subsidiaries are located at the Facilities, are in operating condition and repair and free of material defects and are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or costs. Except as set forth on Part 4.6(a) of the Disclosure Letter, all of the material tangible assets are either owned by either Subsidiary or held under a lease. All such material leases are valid and in full force and effect and neither the Subsidiaries, nor to the knowledge of Seller, any other party thereto, is in default under any of such leases and no event has occurred which with the giving of notice or the passage of time or both could constitute a default under any of such leases. All leases for material tangible assets used by the Subsidiaries with Affiliates and related parties, if any, are identified as such on Part 4.6(a) of the Disclosure Letter, and carry terms and conditions no less favorable nor more favorable in all material respects to the Subsidiaries than those which could have obtained in arm's-length transactions with unrelated third parties. (b) Neither of the Subsidiaries owns any real property. Part 4.6(b) of the Disclosure Letter sets forth all of the leasehold and other interests in real property used in connection with the Business (the "Facilities") and the leases or other agreements under which the Facilities are used (the "Facilities Leases"). The Facilities Leases are in full force and effect and no default by the Subsidiaries or, to the knowledge of Seller, by any other party thereto has occurred and is continuing under any of the Facilities Leases. Either of the Subsidiaries (and not the Seller or its Affiliates) are the lessees under the Facilities Leases. To the knowledge of Seller except as set forth in Part 4.6(b) of the Disclosure Letter: (i) Each of the Subsidiaries has all easements and rights necessary to conduct the Business on or at the Facilities as presently conducted; (ii) No portion of the Facilities is subject to any pending condemnation proceeding or proceeding by any public or quasi-public authority materially adverse to the Facilities and there is no threatened condemnation or proceeding with respect to the Facilities; (iii) The buildings and fixtures located on the Facilities including, without limitation, heating, ventilation, mechanical, electrical, sewer, sprinkler and air conditioning systems, roof, foundation and floors (the "Building and Fixtures"), have been properly maintained and are in operating condition in each case in all material respects. The Building and Fixtures are in operating condition in each case in all material respects, are substantially fit for the purposes for which they are being utilized and are not in need of any material repair or replacement; (iv) The Facilities (or the use, occupancy and ownership thereof) do not violate in any material respect any zoning, subdivision, health, safety, handicapped persons, landmark preservation, wetlands preservation, building, land use or other ordinances, laws, codes or regulations or any covenants, restrictions or other documents of record (including the Americans with Disabilities Act), nor, has any such violation been claimed by, nor has any notice of any violation been issued to Seller or either of the Subsidiaries by any governmental, public or quasi-public authority; (v) There are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of the Facilities used exclusively by either Subsidiary; and (vi) The Facilities are supplied with utilities and other services necessary for the operation of the Business as presently conducted, and all such services are adequate to conduct that portion of the Business presently conducted at the Facilities and are in accordance with all laws, ordinances, rules and regulations applicable to each of the Subsidiaries or the Facilities, except where failure to comply with such laws, ordinances, rules and regulations would not have individually or in the aggregate a material adverse effect on either of the Subsidiaries or in the operations of the Business as presently conducted. 4.7 ACCOUNTS RECEIVABLE. To the knowledge of Seller, except as set forth in Part 4.7 of the Disclosure Letter, all accounts receivable of each Subsidiary (without regard to any reserve for bad debts) that are reflected on the Interim Balance Sheets or on the accounting records of each Subsidiary as of the Closing Date, which accounts receivable will be part of the calculation of the Final Net Book Value Calculation (collectively, the "Accounts Receivable") represent or will represent in all material respects valid obligations arising from sales actually made, services actually performed or rights granted, in the Ordinary Course of Business. Except as set forth in Part 4.7 of the Disclosure Letter, there is no contest, claim, or asserted right of set-off other than returns in the Ordinary Course of Business in any agreement with any maker of an Accounts Receivable in a material amount. 4.8 INVENTORY. To the knowledge of Seller, except as set forth in Part 4.8 of the Disclosure Letter, all raw materials, components, work-in-process, finished products and supplies and merchandise inventory ("Inventory") owned by each Subsidiary are in good condition in all material respects and consists of items of a quality and quantity historically useable and saleable in the Ordinary Course of Business, except for items which are obsolete or below standard quality, all of which have been determined and written down to net realizable value in accordance with GAAP. 4.9 NO UNDISCLOSED LIABILITIES. To the knowledge of Seller, except as set forth in Part 4.9 of the Disclosure Letter, or disclosed in any other Part of the Disclosure Letter, neither of the Subsidiaries will have liabilities or obligations (nor does the Seller have any liabilities or obligations for which either of the Subsidiaries or Buyer could be liable) of any nature (whether absolute, accrued, contingent, or otherwise) other than (i) liabilities or obligations which will be reflected or reserved against in the calculation of the Final Net Tangible Book Value and (ii) obligations under executory Contracts which are not required to be accrued for under GAAP. 4.10 TAXES. Each of the Seller and the Subsidiaries has filed all federal, state, local and foreign tax returns, estimates, information statements and reports ("Tax Returns") that it is required to have filed prior to the Closing. Seller and each of the Subsidiaries have paid all Taxes, interest and penalties, if any, shown as due on such Tax Returns or otherwise due and payable by it as of the Closing. Except for the amounts, if any, specifically included in the calculation of the Final Net Tangible Book Value, neither Seller nor the Subsidiaries will have any liability whatsoever for Taxes that, directly or indirectly, relate to any period prior to the Closing, whether relating to the Business, the Seller, the Subsidiaries or their respective Affiliates. Any deficiencies proposed as a result of any governmental audits of such Tax Returns have been paid or settled, and except as set forth in Part 4.10 of the Disclosure Letter, there are no present disputes as to Taxes payable by Seller, the Subsidiaries or their respective Affiliates. 4.11 NO MATERIAL ADVERSE CHANGE. To the knowledge of Seller, except as set forth in Part 4.11 of the Disclosure Letter, since the date of the June 30, 1996 audited financial statements of the Subsidiaries, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of either of the Subsidiaries or any event, condition, or contingency that is likely to result in such a material adverse change. 4.12 EMPLOYEE BENEFITS. Except as set forth in Part 4.12 of the Disclosure Letter, neither Seller nor any Plan Affiliate has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to any "Employee Pension Benefit Plan" (as defined in SECTION 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined in SECTION 3(1) of ERISA), "Multi-employer Plan" (as defined in SECTION 3(37) of ERISA), plan of deferred compensation, medical plan, life insurance plan, long-term disability plan, dental plan or other plan providing for the welfare of any of Seller's or any Plan Affiliate's employees or former employees or beneficiaries thereof, personnel policy (including but not limited to vacation time, holiday pay, bonus programs, moving expense reimbursement programs and sick leave), excess benefit plan, bonus or incentive plan (including but not limited to stock options, restricted stock, stock bonus and deferred bonus plans), salary reduction agreement, change-of-control agreement, employment agreement, consulting agreement, or any other benefit, program or contract (all such plans listed on Part 4.12 of the Disclosure Letter collectively, "Employee Benefit Plans"), whether written, voluntary or pursuant to a collective bargaining agreement or law, which could give rise to or result in Seller or such Plan Affiliate having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due. Correct and complete copies of all Employee Benefit Plans previously have been furnished to Buyer. For purposes of this Agreement, "Plan Affiliate" means any person or entity with which Seller constitutes all or part of a controlled group of corporations, a group of trades or businesses under common control or an affiliated service group, as each of those terms are defined in SECTION 414 of the Code. Since June 30, 1996, there has not been any adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other Employee Benefit Plan except as set forth in Part 4.12 of the Disclosure Letter. 4.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. (a) Except as set forth in Part 4.13(a) of the Disclosure Letter to the knowledge of Seller: (i) each of the Subsidiaries and the operations of the Business are in full compliance with each Legal Requirement that is or was applicable to it except where failure to comply would not individually or in the aggregate have a material adverse effect on the Business as a whole; (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation by Seller or its affiliates (with respect to the Business) or by either of the Subsidiaries of, or a failure to comply with, any Legal Requirement except where failure to comply would not individually or in the aggregate have a material adverse effect on the Business as a whole; and (iii) neither Seller nor the Subsidiaries have received any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding, and Seller has no knowledge of any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement applicable to the Business, or any obligation on the part of Seller (with respect to the Business) or either of the Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any nature except where failure to comply would not individually or in the aggregate have a material adverse effect on the Business as a whole. (b) To the knowledge of Seller, the Governmental Authorizations listed in Part 4.13(b) of the Disclosure Letter (the "Seller Governmental Authorizations") collectively constitute all of the Governmental Authorizations necessary to permit each of the Subsidiaries to lawfully conduct and operate the Business in the manner currently conducted and operated except where failure to have Governmental Authorizations would not individually or in the aggregate have a material adverse effect on the Business as a whole. To the knowledge of Seller, each Seller Governmental Authorization is valid and in full force and effect. Except as set forth in Part 4.13(b) of the Disclosure Letter to the knowledge of Seller: (i) Seller and each Subsidiary is in full compliance with all of the terms and requirements of each Seller Governmental Authorization except where failure to comply would not individually or in the aggregate have a material adverse effect on the Business as a whole; (ii) no event has occurred or circumstance exists that may reasonably (with or without notice or lapse of time) (A) constitute or result in a violation of or a failure to comply with any term or requirement of any Seller Governmental Authorization, or (B) result in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Seller Governmental Authorization except where such violation, failure or revocation, withdrawal, suspension, cancellation or termination would not individually or in the aggregate have a material adverse effect on the Business as a whole; (iii) neither Seller nor the Subsidiaries have received any notice or other written communication from any Governmental Body or any other Person regarding (A) any actual, alleged, or potential violation of or failure to comply with any term or requirement of any Seller Governmental Authorization, or (B) any actual, proposed, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Seller Governmental Authorization except where such violation, failure or revocation, withdrawal, suspension, cancellation or termination would not individually or in the aggregate have a material adverse effect on the Business as a whole; and (iv) all applications required to have been filed for the renewal of Seller Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Seller Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies except where failure to so file would not individually or in the aggregate have a material adverse effect on the Business as a whole. 4.14 LEGAL PROCEEDINGS; ORDERS. (a) Except as set forth in Part 4.14(a) of the Disclosure Letter, to the knowledge of Seller, there is no pending Proceeding: (i) that has been commenced by or against Seller (relating to the Business) or either of the Subsidiaries; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. Except as set forth in Part 4.14(a) of the Disclosure Letter, to the knowledge of Seller (A) no such Proceeding has been Threatened, and (B) no event has occurred or circumstance exists that could reasonably be expected to give rise to or serve as a basis for the commencement of any such Proceeding. Seller has delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Part 4.14(a) of the Disclosure Letter. Also listed in Part 4.14(a) of the Disclosure Letter are all Proceedings commenced or, to the knowledge of Seller, Threatened by or against (i) Seller pertaining to the Business or (ii) the Subsidiaries, within the last two (2) years, and a description of the outcome thereof. (b) Except as set forth in Part 4.14(b) of the Disclosure Letter to the Seller's knowledge: (i) there is no Order to which Seller, with respect to the operations of the Business, or either of the Subsidiaries, is subject; and (ii) no officer, director, agent or employee of either of the Subsidiaries is subject to any Order that prohibits such person from engaging in or continuing any conduct, activity, or practice relating to the Business. (c) Except as set forth in Part 4.14(c) of the Disclosure Letter to the Seller's knowledge: (i) Seller, with respect to the operations of the Business, and each of the Subsidiaries, are in full compliance with all of the terms and requirements of each Order to which it is or has been subject; (ii) no event has occurred or circumstance exists that will constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Seller, with respect to the operations of the Business, or either of the Subsidiaries, is subject; and (iii) neither Seller nor either Subsidiary has received any notice or other written communication from any Governmental Body or any other Person regarding any actual, alleged, or potential violation of, or failure to comply with, any term or requirement of any Order to which Seller, with respect to the operations of the Business, or either of the Subsidiaries, is or has been subject. 4.15 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part 4.15 of the Disclosure Letter, since June 30, 1996, the businesses of each Subsidiary has been conducted only in the Ordinary Course of Business and there has not been any: (i) change in either of the Subsidiary's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of either Subsidiary; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by either Subsidiary of any shares of any such capital stock; or declaration or payment of any non-cash dividend or other non-cash distribution or payment in respect of shares of capital stock; (ii) damage to or destruction or loss of any asset or property of the Subsidiaries, whether or not covered by insurance, materially and adversely affecting the properties, assets, business or financial condition of either of the Subsidiaries; (iii) entry into, termination of, or receipt of notice of termination of (A) any license, maintenance, distributorship, dealer, sales representative, consulting, joint venture, credit, or similar agreement, or (B) any Contract or transaction involving a total remaining commitment by either Subsidiary of at least $50,000 which is not in the Ordinary Course of Business; (iv) loan or advance by either Subsidiary to any Person other than sales to customers on credit in the Ordinary Course of Business and loans or advances of $10,000 or less to any Person in the Ordinary Course of Business; (v) discharge or satisfy any liability of either Subsidiary in excess of $50,000, except in the Ordinary Course of Business; (vi) other than the sale of inventory and licensing of Intellectual Property in the Ordinary Course of Business, sale, lease, or other disposition of any asset or property of either Subsidiary or mortgage, pledge, or imposition of any Encumbrance on any material asset or property of either Subsidiary, including the sale, lease, or other disposition of any of either Subsidiary's intellectual property; (vii) cancellation or waiver of any claims or rights with a value to either Subsidiary in excess of $50,000; (vii) change in the accounting methods used by Seller with respect to the Subsidiaries' operations; or (viii) agreement, whether oral or written, to do any of the foregoing. 4.16 CONTRACTS; NO DEFAULTS; KEY CUSTOMERS. (a) Part 4.16(a) of the Disclosure Letter contains a complete and accurate list, and Seller has delivered to Buyer true and complete copies (or forms thereof, where form agreements are used; provided that any and all deviations or changes to the forms in any individual case are described in Part 4.16(a) of the Disclosure Letter), of all Contracts relating to the operation of the Business which are described in (i) through (xiv) below (the "Material Contracts"): (i) each Contract that involves executory performance of services or delivery of goods or materials by either of the Subsidiaries which has a specified amount or specified value in excess of $50,000 and not terminable by such Subsidiary on thirty (30) days prior notice without liability (without giving effect to renewal provisions thereof) except for orders of finished goods from either Subsidiary in the Ordinary Course of Business; (ii) each Contract that involves executory performance of services or delivery of goods or materials to either of the Subsidiaries of a specified amount or specified value in excess of $50,000 and not terminable by such Subsidiary on thirty (30) days prior notice without liability except for licenses of music rights by either Subsidiary for its use and Contracts for finished goods entered into in the Ordinary Course of Business; (iii) each Contract relating to the borrowing of money, the guaranty of another Person's borrowing of money, or the creation of an Encumbrance on any of the assets of either Subsidiary; (iv) each Contract not in the Ordinary Course of Business involving expenditures or receipts of either of the Subsidiaries in excess of $50,000; (v) each lease, rental or occupancy agreement, installment and conditional sale agreement, and other Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, (A) any real property or (B) any tangible personal property with a fair market value in excess of $50,000 or which is otherwise material to the Business; (vi) each Contract with employees, officers, and directors of either Subsidiary, and Contracts with any labor union or other employee representative of a group of employees relating to wages, hours, and other conditions of employment; (vii) each joint venture, partnership, and other Contract (however named) involving a sharing of profits (other than licenses of music rights), losses, costs, or liabilities by either Subsidiary with any other Person; (viii) each Contract containing covenants that in any way purport to restrict either Subsidiaries' business activity or limit the freedom of either Subsidiary to engage in any line of business or to compete with any Person except for licenses of rights included in the Subsidiaries' music catalog entered into in the Ordinary Course of Business; (ix) each Contract providing for payments to or by any Person based on sales, purchases, or profits, including distribution, reseller and sales representative agreements other than licenses of music rights; (x) each power of attorney from either Subsidiary that is currently effective and outstanding; (xi) each Contract entered into by Seller pertaining to the businesses of a Subsidiary or a Subsidiary, individually, for capital expenditures having a remaining amount in excess of $50,000; (xii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance or discharge of indebtedness of a Person other than the Subsidiaries; (xiii) each agreement or plan of a Subsidiary, including, without limitation, any stock option plan, stock appreciation rights plan, or stock purchase plan, whereby any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the Contemplated Transactions; and (xiv) any other Contract relating to the Business, the loss of which would have a material adverse affect on the Business as a whole. (b) Except as set forth in Part 4.16(b)(i) of the Disclosure Letter, all of the Contracts listed or required to be listed in Part 4.16(a) of the Disclosure Letter are in full force and effect and are valid and enforceable against the Subsidiaries and, to the knowledge of Seller, the other party(ies), in accordance with their respective terms (except as enforceability may be affected by bankruptcy, insolvency, receivership and other similar laws affecting the rights and remedies of creditors generally and the effect of general principles of equity), and, to the knowledge of Seller, no event has occurred or circumstance exists, including, without limitation, the failure of either Subsidiary or any distributor to meet any quota or minimum sales or revenue level, that would give any Person (including either Subsidiary) the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any such Contract which individually or in the aggregate would have a material adverse effect on the Business as a whole. Except as set forth on Part 4.16(b)(ii) of the Disclosure Letter, none of the Material Contracts require any approval or consent as a result of the consummation of the Contemplated Transactions where the failure to obtain such approval or consent individually or in the aggregate would have a material adverse effect on the Business as a whole. One of the Subsidiaries and not the Seller, are party to all of the Contracts pertaining to the operation of the Business. (c) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any amounts paid or payable to either Subsidiary under current or completed Material Contracts with any Person which is material to the Business, and to the knowledge of Seller, no such Person has made demands on either Subsidiary for such renegotiation. (d) Part 4.16(d) of the Disclosure Letter contains a list of the top twenty-five (25) customers and licensees of both KTI and Dominion (determined by revenues generated by KTI and Dominion in each of the fiscal years 1995 and 1996) (the "Customers"). Except as set forth in Part 4.16(d) of the Disclosure Letter, to the knowledge of Seller, none of the Customers intend to reduce the level of business with such Subsidiary or in any other manner materially alter their relationship with such Subsidiary as a result of the Contemplated Transaction or otherwise. 4.17 INSURANCE. Part 4.17 of the Disclosure Letter contains a complete and accurate list of all insurance policies (including "self-insurance" programs) now maintained by Seller, with respect to the Business, and the Subsidiaries, individually, (the "Insurance Policies") and all general liability policies maintained by Seller, with respect to the Business, and the Subsidiaries, individually, during the past five years and all claims (except for health insurance claims) made under any such current or prior insurance policies for the past five years. The Insurance Policies are in full force and effect, neither Seller nor either of the Subsidiaries are in default under any Insurance Policy, and no claim for coverage under any Insurance Policy (except for health insurance claims) has been denied. All of the Insurance Policies will be maintained in full force and effect until the Closing Date. 4.18 ENVIRONMENTAL MATTERS. (a) To the knowledge of Seller, neither Seller nor either of the Subsidiaries have ever generated, transported, treated, stored, disposed of or otherwise handled any Hazardous Materials (as defined below) at any site, location or facility used in connection with the Business (including, without limitation, the Facilities) (the "Premises") and, to the knowledge of Seller, no such Hazardous Materials are present on, in or under the Premises, and the Premises do not contain (including without limitation, containment by means of any underground storage tank) any Hazardous Materials, in each case in violation of any applicable Environmental and Safety Requirement (as defined below). There are no underground storage tanks on any of the Premises. (b) To the knowledge of Seller, Seller with respect to the operations of the Business, and the Subsidiaries, individually, are (i) in material compliance with all applicable Environmental and Safety Requirements, the violation of which would reasonably be expected to result in a liability to either of the Subsidiaries or their respective properties or assets and (ii) possesses all required permits, licenses, certifications and approvals and has filed all notices or applications required thereby or pertaining thereto. (c) Neither Seller nor the Subsidiaries have ever been subject to, or received any notice (written or oral) of, any private, administrative or judicial inquiry, investigation, order or action, or any notice (written or oral) of any intended or, to the knowledge of Seller, Threatened private, administrative, or judicial inquiry, investigation, order or action relating to the presence or alleged presence of Hazardous Materials in, under or upon the Premises, and to the knowledge of Seller, there is no reasonable basis for any such inquiry, investigation, order, action or notice; and to the knowledge of Seller, there are no pending or Threatened investigations, actions, orders or proceedings (or notices of potential investigations, actions, orders or proceedings) from any governmental agency or any other entity regarding any matter relating to Environmental and Safety Requirements. (d) To the knowledge of Seller, no facts, events or conditions with respect to the Premises exist which could reasonably be expected to interfere with or prevent continued compliance with, or could give rise to any common law or statutory liability or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation against or involving either of the Subsidiaries, its assets or properties or the Premises under any Environmental and Safety Requirement or related common law theories based on any such fact, event or circumstance, including, without limitation, liability for investigation costs, cleanup costs, personal injury or property damage. 4.19 EMPLOYEES. Part 4.19 of the Disclosure Letter contains a complete and accurate list as of February 28, 1997 of the following information for each employee of each Subsidiary, including each employee on leave of absence or layoff status: name; job title; base salary, bonus and any change in compensation since June 30, 1996; vacation accrued; and service credited for purposes of vesting and eligibility to participate under each Employee Benefit Plan. To the knowledge of Seller, no current or former employee of either Subsidiary is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee and any other Person ("Proprietary Rights Agreement") that in any way adversely affected, affects, or will affect (i) the performance of his duties as an employee of such Subsidiary, or (ii) the ability of such Subsidiary to conduct its business, or otherwise produce, manufacture and distribute its products, including any Proprietary Rights Agreement with such Subsidiary by any such employee or director. Since June 30, 1996, other than in the Ordinary Course of Business or as set forth in Part 4.19 of the Disclosure Letter, there has not been (i) payment by either of the Subsidiaries of any bonuses or compensation other than regular salary payments, (ii) a nonstandard increase in the salaries of the Subsidiaries' employees, (iii) payment on any debt of the Subsidiaries to any stockholder, director, officer, or employee, or (iv) entry into any employment, severance, or similar Contract with any director, officer, or employee. 4.20 LABOR DISPUTES; COMPLIANCE. Except as set forth in Part 4.20 of the Disclosure Letter, neither of the Subsidiaries have ever been a party to any collective bargaining or other labor Contract. There has never been, there is not presently existing, to the knowledge of Seller, Threatened, any strike, slowdown, picketing, lockout, work stoppage, labor arbitration, or Proceeding in respect of the grievance of any employee, application or complaint filed by an employee or union with the National Labor Relations Board or any comparable Governmental Body, organizational activity, or other labor dispute against or affecting either Subsidiary or the Facilities, and no application for certification of a collective bargaining agent exists or, to the knowledge of Seller, is Threatened. 4.21 INTELLECTUAL PROPERTY. (a) Subsidiaries Music Catalog. Part 4.21(a) of the Disclosure Letter sets forth a true, correct and complete in all material respects list of the owned and licensed sound recordings used in the Business (the "Subsidiaries Music Catalog") indicating, with respect to each such sound recording whether it is (i) owned by the Subsidiaries or (ii) licensed by the Subsidiaries pursuant to any oral or written contract, license or other agreement (all of which written contracts, licenses or other agreements have been made available to Buyer for review) (the "Music Catalog Agreements"). The Subsidiaries have good and valid title to the recordings in the Subsidiaries Music Catalog which are owned by the Subsidiaries. Subject to Part 4.21(a) of the Disclosure Letter, the Music Catalog Agreements are in full force and effect (subject to each being enforceable against the other parties thereto) and represent the valid and legal obligations, in accordance with their terms, of the respective Subsidiary which is a party thereto and, to the knowledge of Seller, the other parties thereto. Except as set forth in Part 4.21(a) of the Disclosure Letter, no default by either of the Subsidiaries, or to the knowledge of Seller, by any other party thereto, exists under the Music Catalog Agreements and no event has occurred which the giving of notice or passage of time or both could constitute a default under the Music Catalog Agreements, except where such default would have a material adverse effect on the Business as a whole. Except as set forth in Part 4.21(a) of the Disclosure Letter and the Harry Fox Audit, to the knowledge of Seller (i) since January 1, 1995, there have been no claims that the use of or the rights under the Subsidiaries Music Catalog infringes, misappropriates or otherwise violates the rights of any Person and no such claim is pending, and (ii) no Person is currently infringing, misappropriating or otherwise violating the rights of the Subsidiaries in the Subsidiaries Music Catalog. To the knowledge of Seller, neither of the Subsidiaries or the Seller have taken any action that has materially and adversely impaired or would reasonably be expected to have materially and adversely impaired the Subsidiaries' right, title or interest in and to the Subsidiaries Music Catalog. To the knowledge of Seller, the Subsidiaries ownership or use of the Subsidiaries Music Catalog do not infringe, misappropriate or conflict with the proprietary rights or other rights or interests of any Person. Upon consummation of the Contemplated Transactions, the Subsidiaries will be vested with the same ownership or use rights in the Subsidiaries Music Catalog which are held by the Subsidiaries prior to the consummation of the Contemplated Transaction. (b) Licenses of Subsidiaries Music Catalog. Seller has provided Buyer with a true, correct and complete list in all material respects of the contracts, licenses and other agreements pursuant to which rights to use any part of the Subsidiaries Music Catalog have been granted and are currently in effect (the "Outbound Licenses") and no other rights of any kind have been transferred or assigned by Seller or the Subsidiaries in the recordings comprising the Subsidiaries Music Catalog other than pursuant to the Outbound Licenses. Subject to Part 4.21(b) of the Disclosure Letter, the Outbound Licenses are in full force and effect (subject to such licenses being enforceable against the other parties thereto) and represent the valid and legal obligations of the respective Subsidiary which is a party thereto and, to the knowledge of Seller, the other parties thereto. Except as set forth in Part 4.21(b) of the Disclosure Letter, no default by either of the Subsidiaries, or to the knowledge of Seller, by any other party thereto, exists under the Outbound Licenses and no event has occurred which the giving of notice or passage of time or both could constitute a default under the Outbound Licenses except where such default would have a material adverse effect on the Business as a whole. Except as set forth in Part 4.21(b) of the Disclosure Letter, to the knowledge of Seller, since January 1, 1995, there have been no claims that either of the Subsidiaries or any of the other parties to the Outbound Licenses breached or otherwise failed to perform their respective obligations in any material respect. (c) Trademarks, Trade Names and Service Marks. Part 4.21(c) of the Disclosure Letter includes a true, correct and complete list in all material respects of the trademarks, trade names and service marks owned by Seller or the Subsidiaries which are currently used in the Business (the "Subsidiaries Marks"). Except as set forth in Part 4.21(c) of the Disclosure Letter, (i) Seller or the Subsidiaries have good and valid title to the Subsidiaries Marks in the jurisdictions listed in Part 4.21(c) of the Disclosure Letter, free and clear of all Encumbrances, (ii) to the knowledge of Seller, no Person is currently infringing, misappropriating or otherwise violating the Subsidiaries Marks, and (iii) to the knowledge of Seller, there is currently no claim outstanding or Threatened against Seller or either of the Subsidiaries that the Subsidiaries Marks infringe, misappropriate or otherwise violate any rights of any other Person. To the knowledge of Seller, neither of the Subsidiaries or the Seller have taken any action that has materially and adversely impaired or would reasonably be expected to have materially and adversely impaired the Subsidiaries' or Seller's right, title or interest in and to the Subsidiaries Marks. To the knowledge of Seller, the Subsidiaries' or Seller's ownership or use of the Subsidiaries Marks do not infringe, misappropriate or conflict with the proprietary rights or other rights or interests of any Person. Upon consummation of the Contemplated Transaction, the Buyer or the Subsidiaries, as the case may be, shall be vested with the same ownership rights in the Subsidiaries Marks which are held by the Seller or the Subsidiaries, as the case may be, prior to the consummation of the Contemplated Transaction. (d) Other Intellectual Property. To the knowledge of Seller, all Intellectual Property other than the Intellectual Property referred to in SECTION 4.21(A), (B) or (C) above (the "Other Intellectual Property") which is used in the Business is owned or duly licensed to Seller or either of the Subsidiaries except where the failure to own or license such Other Intellectual Property would not have a material adverse effect on the Business as a whole. Except as set forth in Part 4.21(d) of the Disclosure Letter, the Subsidiaries, or the Seller, as the case may be, have good and valid title to, or the right to use, the Other Intellectual Property that is material to the Business which is owned, free and clear of all Encumbrances. To the extent any of the Other Intellectual Property which is material to the business are licensed to the Seller or the Subsidiaries, no default by Seller or either of the Subsidiaries, or to the knowledge of Seller, by any other party thereto, exists under such licenses and no event has occurred which the giving of notice or passage of time or both could constitute a default under such licenses. Except as set forth on Part 4.21(d) of the Disclosure Letter, to the knowledge of Seller, (i) no Person is currently infringing, misappropriating or otherwise violating the Other Intellectual Property, and (ii) there is currently no claim outstanding or Threatened against Seller or either of the Subsidiaries that the use of the Other Intellectual Property by the Subsidiaries infringes, misappropriates or otherwise violates any rights of any other Person. To the knowledge of Seller, neither of the Subsidiaries or the Seller have taken any action that has adversely impaired or would reasonably be expected to have adversely impaired the Subsidiaries' right, title or interest in and to the Other Intellectual Property, except where such impairment would not have a material adverse effect on the Business as a whole. To the knowledge of Seller, the Subsidiaries ownership or use of the Other Intellectual Property do not infringe, misappropriate or conflict with the proprietary rights or other rights or interests of any Person where such infringement, misappropriation or conflict would have a material adverse effect on the Business as a whole. Upon consummation of the Contemplated Transaction, the Buyer or the Subsidiaries, as the case may be, shall be vested with the same ownership or use rights in the Other Intellectual Property held by the Seller or the Subsidiaries, as the case may be, prior to the consummation of the Contemplated Transaction. 4.22 BANK ACCOUNTS. Part 4.22 of the Disclosure Letter contains a complete and accurate list of each bank at which each Subsidiary has an account or safe deposit box, the number of each such account or box, and the names of all persons authorized to draw on such accounts or to have access to such boxes. 4.23 DISCLOSURE. (a) To the knowledge of Seller, no representation or warranty (including the disclosures set forth in the Disclosure Letter) of Seller in this Agreement or in any of the Seller Transaction Documents omits to state a material fact necessary to make the statements herein or therein not misleading. (b) No notice given pursuant to SECTION 6.5 when taken together with the disclosure described in the Disclosure Letter will contain any untrue statement of a material fact or, to the knowledge of Seller, omit to state a material fact necessary to make the statements therein, in this Agreement or in any of the Seller Transaction Documents, not misleading as of the date such notice is given. 4.24 RELATIONSHIPS WITH RELATED PERSONS. (a) Except as set forth in Part 4.24 of the Disclosure Letter, neither the Seller nor the directors, officers or employees of the Subsidiaries, or their Related Persons have any ownership interest in any of the assets used in connection with the Business and to the knowledge of Seller, do not own, of record or as a beneficial owner, an equity interest or any other financial or profit interest in any Person that has (i) had business dealings or a material financial interest in any transaction with either of the Subsidiaries, except for less than two percent (2%) of the outstanding capital stock of such person that is publicly traded on any recognized exchange or in the over-the-counter market, or (ii) engaged in competition with the Business (a "Competing Business"), except for less than two percent (2%) of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Except as set forth in Part 4.24 of the Disclosure Letter, no shareholder, officer or director of Seller or either of the Subsidiaries, and to the knowledge of Seller, none of their Related Persons, is a party to any Contract with, or has any claim or rights against, either of the Subsidiaries. Neither of the Subsidiaries is indebted, in any manner, to Seller or any of its Related Persons. (b) Except as set forth in Part 4.24 of the Disclosure Letter, neither Seller or any of Seller's Affiliates provide any services to either of the Subsidiaries or in connection with the Business. 4.25 BROKERS OR FINDERS. Except as set forth in Part 4.25 of the Disclosure Letter, Seller and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 4.26 CERTAIN PAYMENTS. To the knowledge of Seller, no director, officer, agent, or employee of either Subsidiary (on behalf of a Subsidiary or otherwise in connection with the Business) or any other Person associated with or acting for or on behalf of either Subsidiary, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to pay for favorable treatment for business secured, (ii) to obtain special concessions or for special concessions already obtained, for or in respect of either Subsidiary or any Affiliate of either Subsidiary, or (iii) in violation of any Legal Requirements, or (b) established or maintained any fund or asset that has not been recorded in the books and records of either Subsidiary. 4.27 CHANGE OF CONTROL PAYMENTS. Except as set forth in Part 4.27 of the Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation of the Contemplated Transactions will (i) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any director or employee of either of the Subsidiaries from either of the Subsidiaries, (ii) materially increase any benefits otherwise payable under any Employee Benefit Plan, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as of the date of this Agreement and as of the Closing Date (except to the extent to which such representations and warranties are specifically stated to be as of a different date), as follows: 5.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly incorporated, validly existing, and in good standing under the laws of Delaware, with full corporate power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise possess or use the properties and assets that it purports to own, hold under lease, or otherwise possess or use, and to perform all its obligations under the contracts to which it is a party or by which it is bound. Buyer is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which such qualification is required by virtue of the nature of the activities conducted by it. Buyer has delivered to Seller copies of the Organizational Documents of Buyer, as currently in effect. 5.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes, and when executed and delivered by Buyer at the Closing and the Buyer's Closing Documents, (collectively, the "Buyer Transaction Documents"), to the extent applicable, will constitute the legal, valid, and binding obligations of the Buyer, enforceable against Buyer in accordance with their respective terms except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization, or similar laws affecting creditor's rights generally and by general equitable principles. Buyer has the corporate power and authority to execute and deliver this Agreement and each of the Buyer Transaction Documents and to perform its obligations under this Agreement and each of the Seller Transaction Documents. This Agreement has been, and the Buyer Transaction Documents at Closing will be, duly executed and delivered by Buyer. (b) The Board of Directors of Buyer has unanimously approved the Contemplated Transaction. Except for the approval of the holders of the stockholders of Buyer which may be required by the rules of the Nasdaq National Market (depending on the structure of the Financing), no other approval of the stockholders of Buyer or other corporate approval is required in order for Buyer to consummate the transactions contemplated by this Agreement. (c) Neither the execution and delivery of this Agreement and Buyer's Closing Documents by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will give any Person the right to prevent, delay, or otherwise interfere with any of the Contemplated Transactions pursuant to: (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; (iii) any Legal Requirement or Order to which Buyer or any of its respective assets may be subject; or (iv) any Contract to which Buyer is a party or by which Buyer may be bound. Buyer is not required to give any notice to or obtain any consent or approval from any Person in connection with the execution and delivery of this Agreement by Buyer or the consummation or performance of any of the Contemplated Transactions by Buyer except for (i) the potential requirement to file with the SEC a proxy statement and the potential requirement to obtain approval by Buyer's stockholders of the Contemplated Transactions and the Financing; (ii) the filing of a Form 8-K with the SEC, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country or as may otherwise be required to consummate the Financing and (iv) the filings necessary, and termination of any waiting periods, pursuant to the HSR Act. 5.3 CERTAIN PROCEEDINGS. There is no pending proceeding that has been commenced against Buyer and that challenges or may have the affect of preventing, delaying making illegal or otherwise interfering with any of the Contemplated Transactions. To Buyer's knowledge, no such proceeding has been Threatened. 5.4 BROKERS OR FINDERS. Buyer and its respective officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 5.5 INVESTMENT REPRESENTATIONS. Buyer has not seen, received, been presented with, or been solicited by any leaflet, public promotional meeting, newspaper or magazine article or advertisement, radio or television advertisement, or any other form of advertising or general solicitation with respect to the sale of the Stock. Buyer is acquiring the Stock for its own account only and not with a view to or for sale in connection with any distribution of all or any part of the Stock. Buyer acknowledges that the sale of the Stock hereunder has not been registered under the Securities Act in reliance, in part, on its representations, warranties and agreement herein. Buyer understands that the Stock is a "restricted security" under the Securities Act in that the Stock will be acquired in a transaction not involving a public offering, and that the Stock may be resold without registration under the Securities Act only in certain limited circumstances. Buyer represents, warrants, and agrees that Seller is under no obligation to register or qualify the Stock under the Securities Act or under any state securities law, or to assist Buyer in complying with any exemption from registration and qualification. Buyer acknowledges that there are substantial restrictions on the transferability of the Stock due to its being a "restricted security", that there is no public market for the Stock and none is expected to develop. ARTICLE VI COVENANTS OF SELLER 6.1 ACCESS AND INVESTIGATION. (a) During the period from the date of this Agreement to the Closing Date, Seller and its officers, employees, counsel, accountants and other authorized representatives ("Representatives") will, (i) afford Buyer and its Representatives reasonable access to Seller's (with respect to the Business) and each Subsidiary's senior management personnel, properties, contracts, books, and records, and other documents and data, (ii) permit access to or furnish copies to Buyer and its Representative (as requested by Buyer, provided that if copies are to be furnished it will be furnished at Buyer's expense) of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (iii) furnish Buyer and its Representatives with such additional financial, operating, and other data and information as Buyer may reasonably request, including, without limitation periodically reporting to Buyer the status of the business, operations and finances of the Business. Seller shall also inform Buyer (upon its request) of any facts or circumstances of which Seller has knowledge which calls into question the collectibility of any Accounts Receivable, adequacy of the bad debt reserves that exist as of the Closing Date and the adequacy of the Harry Fox Reserve. No information or knowledge obtained in any investigation pursuant to this SECTION 6.1 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Consummated Transactions. Buyer agrees that from the date hereof until the Closing, Buyer will not discuss or negotiate any terms of employment with any employees of the Subsidiaries (other than disclosing to any such employee the obligations of Buyer pursuant to SECTION 8.10(b) hereof), without prior approval by Seller's President or Chairman. (b) From the date hereof through the Closing Date, Buyer agrees that if it becomes aware, in the course of its due diligence examination or otherwise, of a material Breach of Seller's representations, warranties, covenants or agreements contained herein, Buyer will promptly notify Seller thereof; provided, however, this SECTION 6.1(b) shall in no manner (i) obligate Buyer to affirmatively inquire or research whether a Breach by Seller has occurred or (ii) limit or waive the conditions set forth in SECTIONS 10.1 and 10.2 herein or any of Buyer's rights hereunder. 6.2 OPERATION OF THE BUSINESSES OF SELLER. During the period from the date of this Agreement to the Closing Date, Seller will cause each Subsidiary to: (a) conduct the Business only in the Ordinary Course of Business, including but not limited to taking reasonable steps to maintain the tangible assets of each Subsidiary in reasonable repair, order, and condition; (b) use its Best Efforts to preserve intact the current business organization of each Subsidiary and all rights in connection with the Business (including, without limitation, all intellectual property and license rights), keep available the services of the current officers, employees, and agents of each Subsidiary, and maintain the relations and goodwill with its suppliers, customers, artists, landlords, creditors, employees, agents, and others having business relationships with each Subsidiary; and (c) confer with Buyer concerning operational matters relating to the Business which are of a material nature. 6.3 NEGATIVE COVENANT. During the period from the date of this Agreement to the Closing Date: (a) Except as set forth in SECTION 6.3(b), neither the Seller or either Subsidiary will take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in SECTION 4.15 is reasonably likely to occur or cause a breach of any representation or warranty or Seller hereunder. In addition, from and after the date of this Agreement until the Closing or the earlier termination of this Agreement in accordance with its terms, the Seller will not and the Subsidiaries will not, and will not permit its directors, officers, employees, representatives, investment bankers, agents and affiliates to, directly or indirectly, (i) solicit or encourage submission or any inquiries, proposals or offers by, (ii) participate in any negotiations with, (iii) afford any access to the properties, books or records of either of the Subsidiaries to, or (iv) otherwise assist, facilitate or encourage, or enter into any agreement or understanding with, any person, entity or group (other than Buyer and its Affiliates, representatives and agents), in connection with any Acquisition Proposal. For purposes of this Agreement, an "Acquisition Proposal" shall mean any proposal relating to the possible acquisition of the Business or the Subsidiaries, whether by way of merger, purchase of any Stock, purchase of a substantial portion of the assets of either of the Subsidiaries, or otherwise. In addition, subject to the terms set forth in SECTION 6.3(b) below, from and after the date of this Agreement until the Closing or the earlier termination of this Agreement in accordance with its terms, the Seller will not and the Subsidiaries will not, and will not permit their respective directors, officers, employees, representatives, investment bankers, agents and Affiliates to, directly or indirectly, make or authorize any statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Buyer). The Seller and each Subsidiary will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (b) Anything herein to the contrary notwithstanding, in the event Seller receives an unsolicited written proposal for, or an unsolicited written indication of a serious interest in entering into, a transaction pursuant to an Acquisition Proposal (an "Acquisition Transaction") from a bona fide, financially capable third party that contains no financing contingency, (i) Seller in its discretion may furnish to and communicate with such third party public information requested by such party, (ii) Seller may enter into discussions and negotiations with such third party, provided (in the case of this clause (ii)) that (A) Seller gives the Buyer prompt written notice of the details thereof prior to entering into such discussions and negotiations (subject to the last sentence of this SECTION 6.3(b)), (B) Seller's Board of Directors, after consultation with and based upon the advice of an independent financial advisor, determines in good faith that such third party is financially capable, without any financing contingency, of consummating an Acquisition Transaction, (C) Seller's Board of Directors, after weighing such advice, determines that taking such action is more likely than not to lead to the consummation of an Acquisition Transaction with such third party that would yield a higher value to the Seller's stockholders than will the Contemplated Transaction, and (D) Seller's Board of Directors shall have been advised in writing by independent legal counsel, that any failure to enter into such discussion and negotiations with, and provide such non-public information to, such third party would more likely than not constitute a breach of the fiduciary responsibilities of the Board of Directors to the Seller's stockholders and (iii) Seller may, at the request of such third party, furnish such third party with non-public information concerning the Business and the Subsidiaries only if the conditions set forth in (A) and (B) above are met and Seller obtains from such third party a written and executed confidentiality agreement in reasonably customary form. The Buyer and Seller further agree that after receipt of an Acquisition Proposal, Seller's request for information or clarification from such third party solely in order to determine whether the conditions in clauses (B), (C), and (D) above can be met will not be deemed to be a violation of this SECTION 6.3(b). 6.4 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after the date of this Agreement, Seller will (i) make any filings required by Legal Requirements to be made by it and (ii) use its Best Efforts to obtain all necessary consents or approvals required under the Material Contracts or otherwise referred to in the Disclosure Letter (the "Consents") in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Seller will cooperate with Buyer in connection with any filings required by Legal Requirements to be made by Buyer in order to consummate the Contemplated Transactions. 6.5 NOTIFICATION. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller becomes aware of any fact or condition that causes or constitutes a Breach of any of Seller's representations and warranties as of the date of this Agreement, or if or Seller becomes aware of the occurrence after the date of this Agreement of any fact or condition that would cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the disclosure set forth in the Disclosure Letter, Seller will promptly deliver to Buyer a supplement to the Disclosure Letter specifying such change and such supplement shall qualify such representations and warranties; provided, however, that such supplements may only be made with respect to claims made, events occurring or arising after the date hereof and not arising out of any Breach by Seller of its covenants or agreements set forth in this Agreement. During the same period, Seller will promptly after obtaining knowledge thereof notify Buyer of the occurrence of any Breach of any agreement, covenant representation or warranty of Seller hereunder or of the occurrence of any event that may make the satisfaction of the conditions in ARTICLES 9, 10, or 11 impossible or unlikely upon becoming aware of such occurrence. 6.6 BEST EFFORTS. Subject to the terms of SECTION 6.3(b) hereof, between the date of this Agreement and the Closing Date, Seller will use its Best Efforts to cause the conditions in Article 9, 10 and 11 to be satisfied to the extent Seller can affect the satisfaction of such conditions or involve Seller (including, without initiation, providing Buyer with the information and documentation necessary to consummate the Financing). 6.7 KIVES VOTING AGREEMENT. Simultaneous with the signing hereof, the Seller shall cause Philip Kives, and those entities controlled by Philip Kives which own the voting stock of Seller, to deliver a voting agreement (attached hereto as Exhibit 6.7) memorializing the agreement to vote in favor of the Contemplated Transaction at the meeting of the Seller's stockholders to consider approval of the Contemplated Transactions (the "Kives Voting Agreement"). ARTICLE VII COVENANTS OF BUYER 7.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after the date of this Agreement, Buyer will make any filings required by Legal Requirements to be made by it in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Buyer will cooperate with Seller in connection with (i) any filings required by Legal Requirements to be made by Seller and (ii) obtaining the necessary Consents in order to consummate the Contemplated Transactions. 7.2 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Buyer will use its Best Efforts to cause the conditions in Articles 9, 10, and 11 to be satisfied; provided, however, in no event shall Buyer be deemed to have Breached this SECTION 7.2 if it is unable to consummate the Financing upon terms satisfactory to it, in its sole discretion. Buyer shall, upon the prior reasonable request of Seller, provide Seller and Seller's Representatives with information concerning the status of the Financing and any other financing which Buyer proposes to secure to pay the Purchase Price in whole or in part and, in each instance, upon the prior consent of Buyer (which consent, in each instance, shall not be unreasonably withheld, delayed or conditioned) permit Seller and Seller's Representatives to discuss the Financing or such other financing with Buyer's Representatives, including its investment bankers and lenders. 7.3 NOTIFICATION. Between the date of this Agreement and the Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a Breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of the occurrence after the date of this Agreement of any fact or condition that would cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the disclosures set forth in this Agreement, Buyer will promptly deliver to Seller a supplement to the Buyer Disclosure Letter specifying such change, and such supplement shall qualify such representations and warranties. During the same period, Buyer will promptly notify Seller of the occurrence of any Breach of any covenant representation or warranty of Buyer hereunder or of the occurrence of any event that may make the satisfaction of the conditions in Articles 9, 10 or 11 impossible or unlikely upon becoming aware of such occurrence. ARTICLE VIII ADDITIONAL AGREEMENTS 8.1 PUBLIC DISCLOSURE AND CONFIDENTIALITY. Buyer and Seller shall consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby or this Agreement and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange or the Nasdaq National Market. The parties further agree that the terms of that certain Confidentiality Agreement, dated November 12, 1996, delivered by Buyer to Seller shall be incorporated herein by reference and made a part hereof. 8.2 AUDITORS' LETTERS. The Seller shall, at Buyer's expense, use its Best Efforts to cause Arthur Andersen & Co., L.L.P., independent auditors to Seller, to (i) deliver letters and consents with respect to the financial statements of the Subsidiaries, to Buyer, (as may be reasonably requested by Buyer) from time to time, from and after the Closing Date, in form and substance reasonably satisfactory to Buyer and customary in scope and substance for letters and consents delivered by independent auditors in connection with filings with the SEC, (ii) generally cooperate with Buyer (as may be reasonably requested by Buyer), for Buyer to comply with its SEC reporting obligations and (iii) provide Buyer, as promptly as reasonably possible upon Buyer's request, with all necessary financial information (including, without limitation, audited financial statements of the Subsidiaries and the Business) in order for Buyer to consummate the Financing and obtain Buyer's Requisite Stockholder Approval. 8.3 FILINGS; OTHER ACTION. Each of Seller and Buyer shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act, the Securities Act and the Exchange Act with respect to the Contemplated Transactions; and (b) use their respective Best Efforts promptly to take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper or appropriate under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable. 8.4 LICENSES. The parties have agreed that Buyer will acquire all right, title and interest in and to the assets (including the name "K-tel", trademark and service mark as provided in SECTION 1.2(b) hereof and all other Intellectual Property) used in connection with the Business; provided however, Seller will be allowed to (i) continue to use the K-tel name, trademarks and service marks in connection with the Consumer Products Business in all respects, (ii) continue to use the name K-tel solely as a corporate name in connection with the other Excluded Businesses, in the Retained Music Business and otherwise as provided in SECTION 1.2(b) hereof. The parties hereto also acknowledge and agree that Buyer is not purchasing, and Seller is retaining, the Business conducted in the Retained Territories (as defined below) (the "Retained Music Business"). In connection with the foregoing, the following license agreements will be entered into at Closing pursuant to terms mutually acceptable to each of Buyer and Seller but which terms will generally include the following (collectively, the "License Agreements"): (a) Seller shall cause K-tel International, Ltd., a Manitoba corporation, to enter into a license agreement with Buyer for purposes of licensing to Buyer the mark "K-tel" in connection with music products and music-related products in Canada for a period of three years from the Closing Date on an exclusive, royalty free basis. (b) Buyer and the Subsidiaries will license the exclusive rights to masters owned or licensed by the Subsidiaries as of the Closing (the "Masters") to Seller, and Seller may sublicense such rights to K-tel Entertainment (UK) Limited ("K-tel UK") for exploitation in the territories attached hereto as Exhibit 8.4(b)(i) (the "Retained Territories") and the non-exclusive rights to the Masters for exportation in the Non-Exclusive Territory, pursuant to the License Agreement attached hereto as Exhibit 8.4(b)(ii). (c) K-tel UK will license its catalog of Masters at Closing to Buyer on a non-exclusive worldwide basis (except for the Retained Territories) under the same terms as the existing Agreement #9648, dated July 1, 1990, by and between K-tel UK and Seller. The term of such license will be the same term as the license set forth in subparagraph (b) above. (d) All rights associated with the "Old Town" music catalog (the "Old Town Catalog") and "Maureen Music" music catalog (the "Maureen Catalog") (in each case, including, without limitation, all masters and musical compositions) except for synchronization rights, which if acquired by Seller or a subsidiary of Seller will be licensed to Buyer for retail sale or distribution on a worldwide (except for the Retained Territories), non-exclusive and non-sublicensable basis, with no advance. The royalty rates for the Old Town Catalog for United States sales will be the greater of (i) four cents and seven cents per track of cassette tapes and compact discs, respectively or (ii) 10% of the suggested retail price, prorated and reduced by container charges. The rates for territories outside of the United States will be determined on a comparable basis. Seller also agrees to provide Buyer with a blanket agreement for all rights in the Maureen Catalog (except synchronization rights) in the United States at 80% of the then prevailing statutory rate and at comparable rates outside of the United States. The term of each such license will be for three years from the Closing Date with a one-year renewal option. (e) Buyer will license to Seller the right to use the Masters included in the collections presently entitled "101 Greatest R & B Love Songs" (previously known as "Heartbreaker") and "Ultimate History of Rock and Roll" for sale worldwide through half-hour infomercials (the "TV Packages") and as permitted under clause (f) below at retail, whereby Buyer will produce the finished goods on the same terms as set forth in paragraph 3 of the existing contract between KTI and Kent and Speigal; provided, however, all infomercials will be presented under a name other than "K-tel", except that the "Ultimate History of Rock and Roll" infomercial will bear a "K-tel" mark for a period equal to the shorter of (i) three months after the Closing Date and (ii) the existing inventory of product held by Kent and Speigal is exhausted. Any new infomercial products will bear a new trademark with no similarity to "K-tel" or risk of confusion to the public. (f) Prior to Closing, KTI will assign its existing contract with Kent and Speigal to Seller (or a subsidiary designated by Seller) and the "101 Greatest Love Songs" and "Ultimate History of Rock and Roll" will be distributed at retail in accordance with the Kent and Speigal contract; provided, however, KTI (or Buyer, as determined by Buyer) will continue to perform the distribution services which KTI is currently responsible under such contract pursuant to the terms thereof (including, without limitation, the 12.5% fee specified therein). Seller and KTI (or Buyer, as the case may be) will share equally in the profit participation of K-tel under such contract for all retail sales by KTI (or Buyer, as the case may be). Seller will pay all marketing expenses related to such retail sales, provided that Seller is reimbursed for such reasonable marketing expenses before the sharing of any profit participation. KTI (or Buyer, as the case may be) will be compensated for producing the finished goods for these products in accordance with the terms of the Kent and Speigal Contract. (g) Buyer shall license to K-tel International, Ltd. the right to sell and market the Masters contained in the "101 Country Hits" in Canada solely through television direct response at a royalty fee equal to three (U.S.) cents per track. Buyer and Seller agree to use their Best Efforts prior to the Closing to agree on the form and substance of the License Agreements. The descriptions set forth above represent general terms to be set forth with more particularity in the License Agreements. In the event of a conflict between the above terms and the terms set forth in the License Agreements, the License Agreements shall govern. 8.5 TAXES. (a) Seller and Buyer agree that for tax reporting purposes, Seller and Buyer will elect to treat the consummation of the Contemplated Transaction as an asset sale pursuant to SECTION 338(H) of the Code. Seller and Buyer agree to take all reasonable steps and actions necessary to insure that such tax treatment is received and Seller shall pay any Tax liability from the taxable income of the Seller and the Subsidiaries which are incurred as a direct result of such election. (b) The parties have agreed as follows: (i) Subject to the terms set forth in (ii) below, Buyer will not assume or be liable in any manner for any liability or obligation relating to Taxes of Seller, its Affiliates or its subsidiaries (including, without limitation, the Subsidiaries). In connection therewith, subject to the terms set forth in (ii) below, Seller shall be liable for, and shall indemnify and hold Buyer harmless from, any Taxes of Seller, its subsidiaries or its Affiliates (including the Subsidiaries), including, without limitation, Taxes (A) relating to any period prior to the Closing Date with respect to the Business or (B) relating to the Excluded Businesses, Excluded Assets, Retained Music Business or otherwise, regardless of whether such Taxes related to a period prior to or subsequent to the Closing Date. (ii) Buyer shall be liable for, and shall indemnify and hold Seller harmless from any Taxes imposed on the Subsidiaries solely with respect to the operations of the Business which specifically relate to periods after the Closing Date. 8.6 MEETING OF STOCKHOLDERS. Seller, on the one hand, and Buyer (if necessary) on the other, shall each take all action necessary in accordance with applicable law and its Organizational Documents to convene a meeting of its stockholders (the "Stockholder Meetings") as promptly as practicable to consider and vote upon the approval of the Contemplated Transaction. Subject to the fiduciary duties of the each of Buyer's and Seller's Board of Directors under applicable law after consultation with and based upon the advice of independent legal counsel, the Board of Directors of each of Seller, on the one hand, and Buyer on the other, shall each recommend and declare advisable such approval and Seller, on the one hand, and Buyer on the other, shall, subject to the fiduciary duties of their respective Board of Directors, take all lawful action to solicit, and use its Best Efforts to obtain, such approval (the requisite approval by the stockholders of each of the Seller and Buyer, hereinafter referred to as the "Requisite Stockholder Approval"). In connection with such Stockholder Meetings, each of Buyer and Seller will (i) promptly prepare and file with the SEC, will use all reasonable efforts to have cleared by the SEC and will thereafter mail to its stockholders as promptly as possible a proxy statement and all other proxy materials for such meeting, (ii) will use its Best Efforts to obtain the necessary approvals by its stockholders of the Contemplated Transaction and (iii) will otherwise comply with all Legal Requirements applicable to such meeting. 8.7 RESTRICTIVE COVENANTS/NONCOMPETE. At Closing, each of Philip Kives and Seller shall enter into a noncompetition agreement with Buyer in the forms of Exhibit 8.7 attached hereto. 8.8 DELIVERY OF DISCLOSURE LETTER. The parties acknowledge that each has executed and delivered this Agreement prior to the delivery by Seller to Buyer of the Disclosure Letter except for Parts 2.3(b) and 8.10(a) and (b) of the Disclosure Letter. Seller acknowledges that Buyer is relying on the disclosures set forth in the Disclosure Letter in executing this Agreement and consummating the Contemplated Transactions. In connection therewith, Seller hereby agrees to deliver a complete and accurate Disclosure Letter within seven (7) business days of the date hereof. If Buyer is not satisfied with the disclosures set forth on the Disclosure Letter, and, as a result, terminates this Agreement pursuant to SECTION 12.4(iii) below, the Earnest Money Escrow shall be released to Seller. 8.9 TRANSITION ARRANGEMENT. As of the date hereof, Seller is using the Facilities in connection with the operations of the Excluded Businesses and warehousing inventory relating to the Consumer Products Business. The parties agree that for a period of 60 days after the Closing (the "Transition Period"), Seller may continue to use the Facilities to the extent (and for the purposes) utilized as of the date hereof. During the Transition Period, Seller agrees to use its Best Efforts to move all operations and inventory relating to the Excluded Businesses out of the Facilities. In consideration of allowing Seller to use the Facilities during the Transition Period, the Seller agrees to (i) pay to Buyer (on a monthly basis) a portion of the amounts due to the lessor of the Facilities under the Facilities Leases, which amount shall be based on the pro rata square footage of the Facilities used by Seller and (ii) reimburse Buyer (on a monthly basis) for all costs and expenses incurred by Buyer in connection with the use of the Facilities by Seller, including, without limitation, telephone and other utility expenses. 8.10 SELLER'S EMPLOYEES. (a) The parties acknowledge that some current employees of KTI have duties and responsibilities relating to the Excluded Businesses and the Retained Music Business and some employees of Seller have duties and responsibilities relating to the Business. Part 8.10(a) of the Disclosure Letter sets forth (i) all of the employees of KTI and Seller (the "Employees"), (ii) those Employees who will be employed by Buyer after Closing and (iii) those Employees who will be employed by Seller (or one of its subsidiaries, other than the Subsidiaries) after Closing. The parties further agree that the calculation of the Final Net Tangible Book Value will (A) include any and all liabilities (including, without limitation, accrued vacation and salaries) relating to all of such Employees to be hired by Buyer upon consummation of the Contemplated Transactions and (B) exclude any and all liabilities relating to such Employees not hired by Buyer upon consummation of the Contemplated Transactions, pursuant to Part 8.10(a) of the Disclosure Letter. (b) Buyer agrees that so long as the employees set forth on Part 8.10(b) of the Disclosure Letter remain employed with the Seller or the Subsidiaries, as the case may be, through the Closing, Buyer shall keep such employees in its employ in positions with comparable responsibilities and duties (or the employ of the Subsidiaries, as determined by Buyer in its sole discretion) in the metropolitan Minneapolis, Minnesota area upon terms at least as favorable as their current compensation for at least one year after the Closing; provided, however, this SECTION 8.10(b) shall not, in any manner, limit Buyer's right (or the Subsidiaries' right, as the case may be) to terminate such employees prior to the end of such one-year period for cause, in accordance with the customary employment policies and procedures established by Buyer. In the event Buyer Breaches the terms of this SECTION 8.10(B), including without limitation, terminating any such employee without cause prior to the first anniversary of the Closing, Buyer shall be liable for paying such employee's salary from the date of termination until the first anniversary of the Closing. ARTICLE IX MUTUAL CONDITIONS PRECEDENT TO PARTIES' OBLIGATION TO CLOSE 9.1 MUTUAL CONDITIONS. Each of the parties' obligations to consummate the Contemplated Transactions and to take other actions required to be taken by the parties at the Closing is subject to the satisfaction at or prior to the Closing, of each of the following conditions: (a) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. (b) The Requisite Stockholder Approval of the Contemplated Transactions shall have been received by each of Buyer (if necessary) and Seller. (c) Counsel for each of Buyer and Seller shall be satisfied with the steps taken for compliance with all applicable requirements of the securities, antitrust and regulatory laws and with all other legal matter, including obtaining all necessary consents from any Governmental Authorities, including, without limitation, the expiration or early termination of the waiting period(s), if any, under the HSR Act. ARTICLE X CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE Buyer's obligations to consummate the Contemplated Transactions and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer in whole or in part): 10.1 ACCURACY OF REPRESENTATIONS. Each of Seller's representations and warranties in this Agreement and must have been accurate in all material respects as of the date of this Agreement except to the extent to which such representations and warranties are specifically stated to be as of a different date, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplements pursuant to SECTION 6.5. 10.2 THE SELLER'S PERFORMANCE. (a) Each of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been duly performed and complied with in all material respects. (b) Seller must have delivered or caused to be delivered, each of the documents required to be delivered or caused to be delivered, by it pursuant to SECTION 3.2. (c) Seller shall have obtained all of the Consents. 10.3 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that would reasonably be expected to have the effect of preventing, delaying, making illegal, or in any material respect, otherwise interfering with any of the Contemplated Transactions. 10.4 NO PROHIBITION. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any adverse consequence under, (i) any applicable Legal Requirement or Order, or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise formally proposed by or before any Governmental Body. 10.5 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the assets, liabilities of any kind, operations, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or prospects of the Subsidiaries taken as a whole since June 30, 1996. 10.6 FINANCING. Buyer shall have consummated and obtained net proceeds of at least $70 million from a financing which may be in the form of a public or private placement of convertible debentures to one or more investors, on terms satisfactory to Buyer in its sole discretion (the "Financing"). ARTICLE XI CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE Seller's obligation to consummate the Contemplated Transactions and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 11.1 ACCURACY OF REPRESENTATIONS. Each of Buyer's representations and warranties in this Agreement must have been accurate in all material respects as of the date of this Agreement (except to the extent to which such representations and warranties are specifically stated to be as of a different date) and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 11.2 BUYER'S PERFORMANCE. (a) Each of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects; and (b) Buyer must have delivered each of the documents and payments required to be delivered by them pursuant to SECTION 3.3. 11.3 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced or Threatened against Seller, or against any Person affiliated with Seller, any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that would reasonably be expected to have the effect of preventing, delaying, making illegal, or, in any material respect, otherwise interfering with any of the Contemplated Transactions. 11.4 NO PROHIBITION. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), contravene, or conflict with, or result in a material violation of, or cause Seller or any Person affiliated with Seller to suffer any adverse consequence under, (i) any applicable Legal Requirement or Order, or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise formally proposed by or before any Governmental Body. ARTICLE XII TERMINATION 12.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and the Contemplated Transactions may be abandoned at any time prior to the Closing, before or after gaining Requisite Stockholder Approval, by the mutual written consent of Seller and Buyer. 12.2 TERMINATION BY EITHER SELLER OR BUYER. This Agreement may be terminated and the Contemplated Transactions may be abandoned by action of the Board of Directors of either Seller or Buyer if (i) the Contemplated Transactions shall not have been consummated within the earlier of (A) 75 days following Requisite Stockholder Approval of Seller of the Contemplated Transactions and (B) 180 days from the date hereof (provided that the right to terminate this Agreement under this SECTION 12.2 shall not be available to any party whose failure to fulfill a covenant, in any material respect, or intentional delay, has caused, or resulted in, the failure of the Closing to occur on or before such date) (the "Termination Date"); (ii) any court of competent jurisdiction in the United States or some other governmental body or regulatory authority shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Contemplated Transaction and such order, decree, ruling or other action shall have become final and nonappealable; or (iii) if necessary, the Contemplated Transaction shall have been voted on by stockholders of Buyer at the stockholders meeting of Buyer duly convened therefor and the vote shall not have been sufficient to obtain the Requisite Stockholder Approval of Buyer. 12.3 TERMINATION BY SELLER. This Agreement may be terminated upon written notice to Buyer and the Contemplated Transactions may be abandoned at any time prior to the Closing, before or after the approval by stockholders of Seller, by action of the Board of Directors of Seller, if (i) Buyer shall have failed to comply in any material respect with any of the covenants or agreements contained in this Agreement to be complied with or performed by Buyer at or prior to such date of termination, which failure to comply has not been cured (provided such non-compliance or non-performance is capable of being cured) by the Termination Date, (ii) any representation or warranty of Buyer contained in this Agreement shall not be true in all material respects when made or, if a representation or warranty relates to a particular date, shall not be true in all material respects as of such date (provided such breach is capable of being cured) and has not been cured by the Termination Date or on and as of the Closing as if made on and as of the Closing, or (iii) Seller receives an Acquisition Proposal pursuant to SECTION 6.3(b) above and/or enters into (or desires to enter into) an agreement relating to an Acquisition Transaction, provided it has complied with all of the provisions thereof and has made payment of the Termination Fee required by SECTION 12.5(a) OR 12.6 below. 12.4 TERMINATION BY BUYER. This Agreement may be terminated upon written notice to Seller and the Contemplated Transactions may be abandoned at any time prior to the Closing, before or after the approval by stockholders of Buyer, by action of the Board of Directors of Buyer, if (i) Seller shall have failed to comply in any material respect with any of the covenants or agreements contained in this Agreement to be complied with or performed by Seller at or prior to such date of termination, which failure to comply has not been cured (provided such non-compliance or non-performance is capable of being cured) by the Termination Date,(ii) any representation or warranty of Seller contained in this Agreement shall not be true in all material respects when made or, if a representation or warranty relates to a particular date, shall not be true in all material respects as of such date (provided such Breach is capable of being cured, including without limitation, a cure by providing supplemental disclosure pursuant to SECTION 6.5, and has not been cured by the Termination Date) or on and as of the Closing as if made on and as of the Closing or (iii) Buyer desires to terminate this Agreement for any reason, at its sole discretion, other than as set forth above or due to the failure of any conditions hereof to be satisfied. 12.5 EFFECT OF TERMINATION; EARNEST MONEY ESCROW. In the event of termination of this Agreement by either Seller or Buyer as provided in this Article XII, the Earnest Money Escrow shall be disposed of as set forth below and, except as set forth in SECTION 12.5 OR 12.6 below, (i) this Agreement shall become null and void and (ii) there shall be no liability or obligation on the part of either Buyer or Seller. In the event this Agreement is terminated or fails to close by the Termination Date, the Earnest Money Escrow shall be disposed of as follows: (a) The Earnest Money Escrow (plus all interest accrued thereon) shall be distributed to Buyer if the Contemplated Transactions fails to close (i) due to a termination of this Agreement (A) pursuant to SECTION 12.1 hereof whereby such mutual termination provides for a return to Buyer of the Earnest Money Escrow, (B) by Buyer or Seller pursuant to SECTION 12.2(II) so long as such order, decree or ruling did not arise as a direct result of Buyer's conduct (other than solely by being a party to the Contemplated Transaction), (C) by Seller pursuant to SECTION 12.3(iii) or (D) by Buyer pursuant to SECTION 12.4(i) OR 12.4(ii), (ii) by the Termination Date due to the failure of the Seller obtaining the Seller's Requisite Stockholder Approval for any reason or (iii) due to Seller not closing due to the conditions set forth in ARTICLE IX OR SECTIONS 11.3 OR 11.4 not being satisfied or waived by Seller. (b) The Earnest Money Escrow (plus all interest accrued thereon) shall be distributed to Seller if the Contemplated Transactions fails to close in all other events except as specifically provided under SECTION 12.5(a), 12.5(c) OR 12.5(d) hereof. (c) In the event Seller is prepared and willing to close the Contemplated Transaction, but the Closing fails to occur due to the conditions set forth in SECTIONS 9.1(a), 10.3 OR 10.4 not being satisfied or waived by Buyer prior to the Termination Date, each of Buyer and Seller agree to discuss, in good faith, and mutually agree to an extension of the Termination Date (for a period no shorter than 60 days) until (i) such condition can be satisfied or waived by Buyer or (ii) a permanent, non-appealable injunction or Order is issued by a court of competent jurisdiction with respect to such condition making the condition unable to be satisfied. (d) Notwithstanding any termination of this Agreement by Seller for any reason, Seller shall not be entitled to the Earnest Money Escrow if Seller (or an Affiliate of Seller) has Breached, in any material respect, any (i) representation or warranty (provided such Breach is capable of being cured, including without limitation, a cure by providing supplemental disclosures pursuant to SECTION 6.5 and has not been cured by the Termination Date) or (ii) covenant or agreement, set forth herein or in any document executed in connection herewith (including, without limitation, a Breach of the voting agreement contemplated pursuant to SECTION 6.7 hereof). (e) The distribution of the funds held in the Earnest Money Escrow pursuant to this SECTION 12.5 shall be made immediately upon the termination of this Agreement or the failure to close by the Termination Date, as the case may be, by wire transfer to an account designated, in writing, by the recipient of such funds. (f) In the event this Agreement is terminated by Buyer due to a material Breach by Seller hereunder, which Breach is not cured prior to the Termination Date, in addition to the Buyer receiving the Earnest Money Escrow pursuant to SECTIONS 12.4 AND 12.5 hereof, the Seller shall promptly pay to Buyer an amount equal to $1,750,000 as reimbursement for all of the costs, expenses, time and effort incurred and expended by Buyer in connection with the Contemplated Transaction (the "Buyer's Reimbursement"). Payment of the Buyer's Reimbursement shall be Buyer's sole and exclusive remedy in connection with such Breach by Seller; provided, however, Buyer may, in its sole discretion, waive the payment of the Buyer's Reimbursement and seek any equitable remedies that may be available to it in connection with such Breach. 12.6 BREAK-UP FEE. The parties agree that Seller shall immediately pay Buyer a break-up fee in the amount of $1,750,000 (the "Break-Up Fee") if (i) this Agreement is terminated by Seller pursuant to SECTION 12.3(iii), or (ii) prior to any termination of this Agreement, if (A) the Seller shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle, with respect to any Acquisition Proposal or (B) the Board of Directors of the Seller (or any special committee thereof) shall have withdrawn or materially modified its approval or recommendation of the Contemplated Transaction in connection with the vote of the Seller's shareholders approving the Contemplated Transaction. In addition to the above, the parties further agree that if (1) the Closing does not occur by the Termination Date due to the stockholders of Seller (including Philip Kives), for any reason, not approving (or voting on) the Contemplated Transaction by the Termination Date and (2) the Seller enters into a definitive agreement to sell the Business, in any form, within 12 months after the Termination Date, Seller shall immediately pay Buyer the Break-Up Fee upon the execution of such definitive agreement. ARTICLE XIII INDEMNIFICATION 13.1 SURVIVAL AND LIMITATIONS. (a) All representations and warranties in this Agreement and any other certificate or document delivered pursuant to this Agreement will survive the Closing until the later of the (A) first anniversary of the Closing Date and (B) August 31, 1998 (the "Sunset Period"); provided, however, that the representations and warranties set forth in (i) SECTIONS 4.1(c) shall survive indefinitely and (ii) SECTIONS 4.10 AND 4.12 shall survive until expiration of all applicable statutes of limitations (including amendments extending said statutes). Notwithstanding the foregoing, a representation and warranty shall continue in effect in the event a claim for breach thereof has been made prior to the expiration of the applicable survival period and shall survive until such claim is resolved. The right to indemnification, reimbursement, or other remedy based on such representations and warranties will not be affected by any investigation conducted by Buyer (unless Buyer breaches, in any material respect, the terms set forth in SECTION 6.1(b)). Unless a specified period is set forth in this Agreement (in which event such specified period will control), all agreements and covenants contained in this Agreement will survive the Closing and remain in effect indefinitely. (b) Notwithstanding anything to the contrary set forth in this Agreement (but subject to the terms of this SECTION 13.1), Seller shall not be liable hereunder to Buyer as a result any Breach of any representation, warranty, covenant or agreement contained in this Agreement, unless and until the Losses incurred by all Buyer Indemnified Parties as a result of such misrepresentations under this Agreement shall exceed, in the aggregate, $250,000 (the "Basket Threshold") and once the Basket Threshold is reached, Seller shall fully indemnify all Buyer Indemnified Parties for all Losses in excess of the Basket Threshold. The parties agree that the maximum liability of Seller for any Losses of Buyer shall not exceed, in the aggregate, $2,000,000 (the "Cap"). (c) Notwithstanding the above, the Cap and Basket Threshold shall in no event apply to any Losses incurred by a Buyer Indemnified Party which relate, directly or indirectly, to (i) an indemnification obligation under SECTIONS 13.2(b), 13.2(d), 13.2(e) OR 13.2(f), (ii) any Losses relating to the Seller's obligations set forth in SECTION 15.1 below to pay for its own expenses in connection with the Contemplated Transactions, (iii) any fraudulent acts committed by Seller, (iv) any amounts due to Buyer which are held in the Harry Fox Escrow, (v) any amounts due to Buyer pursuant to ARTICLE XII hereof and (vi) a Breach by Seller of the representations and warranties contained in SECTIONS 4.1(c), 4.10 OR 4.12. The parties further agree that the Basket Threshold shall not apply to any Losses incurred by Buyer or a Buyer Indemnified Party as a result of any Breach of any of Seller's representations and warranties that are qualified by "material", "any material respect", "material adverse affect" or similar term; provided, however, in no event will such agreement be deemed an agreement or understanding that amounts less than the "Basket Threshold" are immaterial to the Business. 13.2 INDEMNIFICATION OF BUYER. Seller, on behalf of itself and its successors and assigns, hereby agrees to indemnify Buyer and its Affiliates, shareholders, directors, partners, officers, employees, agents, representatives and successors, permitted assigns of Buyer and their respective Affiliates (the "Buyer Indemnified Parties") and save and hold them harmless from and against and, subject to the terms of SECTION 13.4 below, pay on behalf of or reimburse the Buyer Indemnified Parties as and when incurred for any and all liabilities, demands, claims, actions, causes of action, assessments, losses, costs, damages, deficiencies, taxes, fines or expenses (whether or not arising out of third party claims), including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing (collectively, "Losses"), which any Buyer Indemnified Party may suffer, sustain or become subject to, in connection with, incident to, resulting from or arising out of or in any way relating to or by virtue of: (a) Any misrepresentation or breach of warranty on the part of Seller under Article 4 of this Agreement or any misrepresentation in or omission from any of the representations, warranties, statements, schedules and exhibits, certificates, Disclosure Letter (as update prior to Closing pursuant to SECTION 6.5) or other instruments or documents furnished to Buyer by Seller made in or pursuant to this Agreement; (b) Any nonfulfillment or breach of any covenant or agreement on the part of Seller or its subsidiaries under this Agreement; provided that Buyer promptly notify Seller of any such nonfulfillment or breach upon Buyer obtaining actual knowledge of such breach or nonfulfillment; (c) Any action, demand, proceeding, investigation or claim by any third party (including any Governmental Body) against or affecting any Buyer Indemnified Party which, if successful, would give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations, warranties, agreements or covenants of Seller; (d) Any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between the claimant and Seller or any of Seller's Affiliates; (e) Any claims or Losses relating, directly or indirectly, to (i) any audit or investigation of the Subsidiaries or the Business by the Harry Fox Agency (or its Affiliates) for any period prior to the Closing Date, (ii) Seller's agreement and obligations under SECTION 8.5(b) hereof or (iii) other than liabilities specifically accrued for, reflected in the Closing Balance Sheets and reflected in the calculation of the Final Net Tangible Book Value, any Employee Benefit Plans of the Business, Seller, the Subsidiaries or their respective Affiliates which claims or Losses relate, in any manner, to periods prior to the Closing; or (f) The Excluded Businesses, the Excluded Assets or the Retained Music Business, regardless of (A) when such Loss arises or (B) whether such Loss relates to periods before or after the Closing. The rights of the Buyer Indemnified Parties to indemnification under parts (b), (d), (e) or (f) of this SECTION 13.2 shall apply notwithstanding that the matter in question may be disclosed in the Disclosure Letter, in this Agreement or in any document entered into in connection with the Contemplated Transaction, or may be the subject of, excluded from or beyond the scope of any representation or warranty of Seller in this Agreement. In addition to Buyer's right to indemnification hereunder, Buyer shall also have the right to pursue any remedies at equity that may be available to it in the event of a Breach of this Agreement. 13.3 INDEMNIFICATION OF SELLER. Buyer, on behalf of itself and its respective successors and assigns, hereby agrees to indemnify Seller and its Affiliates, agents, representatives, successors and permitted assigns (the "Seller Indemnified Parties") and save and hold each of them harmless from and against and pay on behalf of or reimburse the Seller Indemnified Party as and when incurred for any and all Losses which they may suffer, sustain or became subject to, in connection with, incident to resulting from or arising out of or in any way relating to or by virtue of: (a) Any misrepresentation or breach of warranty on the part of Buyer under Article 5 of this Agreement or any misrepresentation in or omission from any of the representations, warranties, statements, schedules and exhibits, certificates or other instruments or documents furnished to Seller by the Buyer made in or pursuant to this Agreement or any other Contemplated Agreement; (b) Any nonfulfillment or breach of any covenant or agreement on the part of Buyer under this Agreement; (c) Any action, demand, proceeding, investigation or claim by any third party (including governmental agencies) against or affecting a Seller Indemnified Party which, if successful, would give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations, warranties, agreements or covenants of Buyer; (d) Any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between claimant and Buyer or any of Buyer's Affiliates; or (e) Any claim arising which results from Buyer's conduct of the Business after Closing or the failure of Buyer to discharge solely the liabilities included in the calculation of the Final Net Tangible Book Value (except for matters relating to Harry Fox). 13.4 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS. In the event that subsequent to the Closing any person or entity entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any entity who is not a party to this Agreement or an Affiliate of a party to this Agreement (including, but not limited to any domestic or foreign court or Governmental Body, federal, state or local) (a "Third Party Claim") against such Indemnified Party, against which a party to this Agreement is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice together with a statement of any available information (other than privileged information) regarding such claim to the Indemnifying Party within twenty (20) business days after learning of such claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim). The Indemnifying Party shall have the right, upon written notice to the Indemnified Party (the "Defense Notice") within fifteen days (15) after receipt from the Indemnified Party of notice of such claim, which notice by the Indemnifying Party shall specify the counsel it will appoint to defend such claim ("Defense Counsel"), to conduct at its expense the defense against such claim in its own name, or if necessary in the name of the Indemnified Party; provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld, and in the event the Indemnifying Party and the Indemnified Party cannot agree upon such counsel within ten (10) days after the Defense Notice is provided, then the Indemnifying Party shall propose an alternate Defense Counsel, which shall be subject again to the Indemnified Party's approval which approval shall not be unreasonably withheld. If the parties still fail to agree on the Defense Counsel, then, at such time, they shall mutually agree in good faith on a procedure to determine the Defense Counsel. The provisions set forth in this SECTION 13.4 shall not apply to matters in connection with any Pre-Closing Harry Fox Matters, which matters are subject to the provisions set forth in SECTION 13.5 below. (a) In the event that the Indemnifying Party shall fail to give the Defense Notice within said 15 day period, it shall be deemed to have elected not to conduct the defense of the subject claim, and in such event the Indemnified Party shall have the right to conduct the defense in good faith and to compromise and settle the claim in good faith without prior consent of the Indemnifying Party and the Indemnifying Party will be liable for all reasonable costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith. (b) In the event that the Indemnifying Party does deliver a Defense Notice and thereby elects to conduct the defense of the subject claim, the Indemnifying Party shall be entitled to have the exclusive control over said defense settlement of the subject claim and the Indemnified Party will cooperate with and make available to the Indemnifying Party such reasonable assistance and reasonable materials (including providing books, records and reasonable time of personnel) as it may reasonably request, and the Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing. If the Indemnified Party elects to so participate in the defense of the subject claim, the Indemnifying Party will not settle the subject claim without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld. (c) Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim or cease to defend against such claim, if pursuant to or as a result of such settlement or cessation, (i) injunctive relief or specific performance would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder. (d) Notwithstanding paragraph (b) above, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any claim (i) that seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) to the extent such claim involves criminal allegations against the Indemnified Party, (iii) that if unsuccessful, would set a precedent that would materially interfere with, or have a material adverse effect on, the business or financial condition of the Indemnified Party, or (iv) to the extent such claim imposes liability on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder due to the limitations set forth herein or otherwise. In such an event, the Indemnifying Party will still have all of its obligations hereunder provided that the Indemnified Party will not settle the subject claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld delayed or conditioned. (e) Any final judgment entered or settlement agreed upon in the manner provided herein shall be binding upon the Indemnifying Party, and shall conclusively be deemed to be an obligation with respect to which the Indemnified Party is entitled to prompt indemnification hereunder. (f) A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this SECTION 13.4 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise damaged in any material respect, as a result of such failure to give timely notice. 13.5 HARRY FOX MATTERS. The parties agree that Seller shall have sole liability for any and all matters, claims, investigations or audits relating to the Harry Fox Agency for all periods prior to the Closing ("Pre-Closing Harry Fox Matters"). The parties agree that each of Buyer and Seller may actively participate (at its own expense) in the negotiation and settlement of such Pre-Closing Harry Fox Matters (including the Harry Fox Audit) and each of Buyer and Seller shall, in good faith, cooperate with each other in settling or resolving such matters. The parties further agree that each of Buyer and Seller must jointly approve any settlement or resolution of all Pre-Closing Harry Fox Matters (including the Harry Fox Audit) (such approval shall not be unreasonably withheld, delayed or conditioned). The parties hereto agree that upon final determination of all liabilities in connection with the Harry Fox Audit, such liabilities shall be paid (i) first by Buyer up to the amount of the Harry Fox Reserve and (ii) second through the amounts held in the Harry Fox Escrow. To the extent the amount of the Harry Fox Reserve exceeds all amounts due to the Harry Fox Agency in connection with the Harry Fox Audit, such excess shall, immediately upon the settlement or resolution of the Harry Fox Audit, be paid by Buyer to Seller. In addition, immediately upon the settlement or resolution of the Harry Fox Audit, any amount in the Harry Fox Escrow which is not required to be used to pay liabilities in connection with the Harry Fox Audit shall be paid to Seller. In connection with any Pre-Closing Harry Fox Matters, Buyer, the Subsidiaries and Seller will cooperate, in good faith, with each other and provide such reasonable assistance and reasonable materials (including providing books and records and reasonable time of personnel) as may reasonably be requested in connection with any such Pre-Closing Harry Fox Matters. Until the Pre-Closing Harry Fox Matters have been completely settled or resolved, Buyer shall use all reasonable efforts retain all books and records of the Subsidiaries that may be reasonably required to settle or resolve such matters. If the amounts due to the Harry Fox Agency in connection with the Harry Fox Audit are more than the Harry Fox Reserve and Harry Fox Escrow, taken together, Seller shall be solely liable for any such deficiency and shall immediately indemnify Buyer, in full, for any Losses incurred by Buyer in connection therewith, including, without limitation, the amount of any such deficiency. ARTICLE XIV DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified: "AFFILIATES" -- means an affiliate as defined in Rule 405 under the Securities Act, and includes any past and present Affiliate of a Person. "ACCOUNTANTS" -- as defined in SECTION 2.3(b)(iii). "ACCOUNTS RECEIVABLE" -- as defined in SECTION 4.7. "BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as reasonably possible but without incurring any extraordinary material expense or any significant obligations not otherwise contemplated by this Agreement or the Contemplated Transactions. "BREACH" -- a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement will be deemed to have occurred if there is or has been (a) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (b) any valid claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or circumstance. "BUSINESS" -- as defined in the Recitals to this Agreement. "BUYER'S CLOSING DOCUMENTS" -- as defined in SECTION 3.3. "CLOSING" -- as defined in SECTION 3.1. "CLOSING BALANCE SHEETS" -- as defined in SECTION 2.3(a). "CLOSING DATE" -- the date and time as of which the Closing actually takes place. "CODE" -- the Internal Revenue Code of 1986, as amended, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "CONFIDENTIALITY AGREEMENT" -- that certain letter agreement, dated November 12, 1996, as amended, by and between Buyer and Seller. "CONSENTS" -- as defined in SECTION 6.4. "CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this Agreement, (i) the execution, delivery, and performance of Seller's Closing Documents and Buyer's Closing Documents; and (ii) the performance by Buyer and Seller of their respective covenants and obligations under this Agreement and each of the Seller Transaction Documents and Buyer Transaction Documents. "CONTRACT" -- any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "DISCLOSURE LETTER" -- the disclosure letter delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. "DOMINION" -- as defined in the Recitals to this Agreement. "DOMINION STOCK" -- as defined in Article I. "ENCUMBRANCE" -- any claim, lien, pledge, charge, security interest, equitable interest, option, right of first refusal or preemptive right, or other restriction of any kind, including any restriction on use, voting (in the case of any security), transfer, receipt of income, or exercise of any other attribute of ownership. "ENVIRONMENTAL AND SAFETY REQUIREMENTS" -- means all federal, state and local statutes, laws, rules, regulations, codes, ordinances, orders, standards, permits, licenses, actions, policies and requirements (including consent decrees, judicial decisions and administrative orders) relating to protection, preservation or conservation of the environment and public or worker health and safety, all as amended, hereafter amended or reauthorized. "ERISA" -- the Employee Retirement Income Security Act of 1974, as amended, or any successor law. "EXCHANGE ACT" -- the Securities Exchange Act of 1934, as amended. "EXCLUDED BUSINESSES" -- as defined in Article I. "FACILITIES" -- as defined in SECTION 4.6(b). "FINANCIAL STATEMENTS" -- as defined in SECTION 4.3. "GAAP" -- generally accepted United States accounting principles, applied on a basis consistent with the basis on which the audited financial statements referred to in SECTION 5.4 were prepared. "GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY" -- any: (i) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign, or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or other entity and any court or other tribunal); (iv) multi-national organization or body; or (v) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "HAZARDOUS MATERIALS" -- means (i) hazardous substances, as defined by the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.9601 et seq.; (ii) hazardous wastes as defined by the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq.; (iii) petroleum, including without limitation, crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (iv) any radioactive material, including, without limitation, any source, special nuclear, or by-product material as defined in 42 U.S.C. ss.2011 et seq.; (v) asbestos in any form or condition; (vi) polychlorinated biphenyls; and (vii) any other material, substance or waste to which liability or standards of conduct may be imposed under any Environmental and Safety Requirements. "HSR ACT" -- as defined in SECTION 4.2(d). "INSURANCE POLICIES" -- as defined in SECTION 4.17. "INTELLECTUAL PROPERTY" -- all intellectual property and proprietary information used in connection with the Business, including, without limitation, Seller's and the Subsidiaries' names and assumed names, the music catalogue, all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and customer and supplier lists and related information and all other proprietary rights). "INTERIM BALANCE SHEET" -- as defined in SECTION 4.3. "INVENTORY" -- as defined in SECTION 4.8. "IRS" -- the United States Internal Revenue Service. "KTI" -- as defined in the Recitals to this Agreement. "KTI STOCK" -- as defined in Article I. "KNOWLEDGE" -- where any representation or warranty of the Seller in this Agreement is expressly qualified by "to the knowledge of Seller", "to Seller's knowledge" or similar reference, it refers the knowledge of the responsible officers of Seller and the Subsidiaries (after due and adequate inquiry, in good faith, by such officers of all employees and agents of Seller and the Subsidiaries who would have knowledge of such matters) to the existence of facts that are the subject of such representations and warranties. "LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign, or other constitution, ordinance, regulation, statute, treaty, or other law adopted, enacted, implemented, or promulgated by or under the authority of any Governmental Body or by the eligible voters of any jurisdiction, and any agreement, approval, consent, injunction, judgment, license, order, or permit by or with any Governmental Body or to which Seller, with respect to the operations of the Subsidiaries, or either of the Subsidiaries is a party or by which Seller, with respect to the operations of the Subsidiaries, or either of the Subsidiaries, is bound. "LICENSE AGREEMENTS" -- as defined in SECTION 8.4. "MATERIAL CONTRACT" -- as defined in SECTION 4.16(a). "MAUREEN CATALOG" -- as defined in SECTION 8.4. "MBCA" -- as defined in SECTION 4.2(b). "NET TANGIBLE BOOK VALUE" -- as defined in SECTION 2.3(a). "NON-EXCLUSIVE TERRITORY" -- shall mean (i) the countries of Algeria, Bahrain, Quatar, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Yemen, Saudi Arabia, Sudan, Syria, Tunisia and the United Arab Emirates (or any future territory or country comprising the foregoing geographic areas), and (ii) the remaining countries comprising the continent of Africa. "NTBV SCHEDULE" -- as defined in SECTION 2.3(b)(i). "OLD TOWN CATALOG" -- as defined in SECTION 8.4. "ORDER" -- any award, injunction, judgment, order, ruling, subpoena, or verdict or other decision entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (i) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (ii) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature; and (iii) such action is similar in nature and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the normal day to day operations of other Persons that are in the same line of business as such Person. "ORGANIZATIONAL DOCUMENTS" -- (i) the articles or certificate of incorporation and the bylaws of a corporation; (ii) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (iii) any amendment to any of the foregoing. "PERSON" -- any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or Governmental Body. "PRELIMINARY BOOK VALUE" -- as defined in SECTION 2.3. "PROCEEDING" -- any suit, litigation, arbitration, hearing, audit, investigation, or other action (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PROPRIETARY RIGHTS AGREEMENT" -- as defined in SECTION 4.19. "PROTEST NOTICE -- as defined in SECTION 2.3(b)(iii). "PURCHASE PRICE" -- as defined in SECTION 2.1. "RELATED PERSON" -- with respect to a particular individual: (i) each other member of such individual's Family; and (ii) any Person that is directly or indirectly controlled by any one or more members of such individual's Family. With respect to a specified Person other than an individual: (i) any Person that, directly or indirectly, controls, is controlled by, or is under common control with such specified Person; and (ii) each Person that serves as a director, executive officer, general partner, executor, or trustee of such specified Person (or in a similar capacity); For purposes of this definition, the "Family" of an individual includes (i) such individual, (ii) the individual's spouse and former spouses, (iii) any lineal ancestor or lineal descendant of the individual, or (iv) a trust for the benefit of the foregoing. A Person will be deemed to control another Person, for purposes of this definition, if the first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management policies of the second Person, (x) through the ownership of voting securities, (y) through common directors, trustees or officers, or (z) by contract or otherwise). "REPRESENTATIVE" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "RETAINED MUSIC BUSINESS" -- as defined in SECTION 8.4. "REVIEW PERIOD" -- as defined in SECTION 2.3(b)(ii). "SECURITIES ACT" -- the Securities Act of 1933, 15 U.S.C.ss.77a et seq., as amended, or any successor law. "SEC" -- the Securities and Exchange Commission. "STOCK" -- as defined in Article I. "SUBSIDIARIES" -- as defined in the Recitals to this Agreement. "SELLERS CLOSING DOCUMENTS" -- as defined in SECTION 3.2. "SELLER TRANSACTION DOCUMENTS" -- as defined in SECTION 4.2. "SELLER GOVERNMENTAL AUTHORIZATIONS" -- as defined in SECTION 4.13(b). "TAX OR TAXES" -- means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities relating to taxes, including taxes based upon or measured by gross receipts income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. "THREATENED" -- a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing). ARTICLE XV GENERAL PROVISIONS 15.1 EXPENSES. Each of Buyer, on one hand, and Seller on the other hand, shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and carrying out the Contemplated Transactions. In the event a filing under the HSR Act is required, the Buyer and Seller shall each pay one-half of the filing fees. 15.2 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given (a) when delivered by hand; (b) when sent by telecopier, provided that a copy is mailed by U.S. certified mail, return receipt requested; (c) three days after sent by Certified U.S. Mail, return receipt requested; or (d) one day after deposit with a nationally recognized overnight delivery service, in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Seller: with copies to: K-tel International, Inc. Kaplan, Strangis and Kaplan, P.A. 2605 Fernbrook Lane North 5500 Norwest Center Minneapolis, Minnesota 55447 90 South Seventh Street Attention: President Minneapolis, Minnesota 55402 Telecopy No.: (612) 509-9409 Attention: Bruce J. Parker, Esq. Telecopy No.: (612) 375-1143 Philip Kives K-5 Leisure Products, Inc. 220 Saulteaux Crescent Winnipeg, Manitoba, Canada R3J 3W2 Telecopy No.: (204) 832-7782 Buyer: with a copy to: Platinum Entertainment, Inc. Katten Muchin & Zavis 2001 Butterfield Road 525 West Monroe Street Downers Grove, Illinois 60515 Suite 1600 Attention: Steven Devick Chicago, Illinois 60661-3693 Telecopy No.: (630) 769-0049 Attention: Matthew S. Brown, Esq. Adam H. Schecter, Esq. Telecopy No.: (312) 902-1061 15.3 FURTHER ASSURANCES. To the extent consistent with the terms of this Agreement, the parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of the Contemplated Transactions. 15.4 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. 15.5 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior oral or written agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) as a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter, except that until the Closing, the Confidentiality Agreement shall remain in full force and effect in accordance with its terms. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 15.6 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. None of the parties may assign any of its rights under this Agreement without the prior consent of the other parties except that Buyer may assign any of its rights under this Agreement to any subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement except as provided in SECTION 8.10(b). 15.7 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 15.8 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Sections" refer to the corresponding Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 15.9 GOVERNING LAW. This Agreement will be governed by and construed under the laws of the State of Delaware without regard to conflict of laws principles. 15.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 15.11 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BUYER: SELLER: PLATINUM ENTERTAINMENT, INC. K-TEL INTERNATIONAL, INC. By:/s/ By:/s/ Its: Its:
TABLE OF CONTENTS PAGE ARTICLE I PURCHASE AND SALE OF STOCK........................................................................... 1 1.1 Stock.......................................................................................................... 1 1.2 Excluded Businesses and Excluded Assets........................................................................ 2 ARTICLE II CONSIDERATION AND MANNER OF PAYMENT.................................................................. 3 2.1 Purchase Price................................................................................................. 3 2.2 Escrows........................................................................................................ 3 2.3 Net Tangible Book Value........................................................................................ 4 ARTICLE III CLOSING.............................................................................................. 5 3.1 Closing........................................................................................................ 5 3.2 Deliveries by Seller........................................................................................... 5 3.3 Deliveries by Buyer............................................................................................ 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER............................................................. 7 4.1 Organization, Good Standing and Capitalization................................................................. 7 4.2 Authority; No Conflict; Approvals.............................................................................. 9 4.3 Financial Statements........................................................................................... 10 4.4 Books and Records.............................................................................................. 10 4.5 Title to Assets; Encumbrances; Sufficiency..................................................................... 10 4.6 Tangible Assets and Real Property.............................................................................. 11 4.7 Accounts Receivable............................................................................................ 12 4.8 Inventory...................................................................................................... 13 4.9 No Undisclosed Liabilities..................................................................................... 13 4.10 Taxes.......................................................................................................... 13 4.11 No Material Adverse Change..................................................................................... 13 4.12 Employee Benefits.............................................................................................. 13 4.13 Compliance with Legal Requirements; Governmental Authorizations................................................ 14 4.14 Legal Proceedings; Orders...................................................................................... 15 4.15 Absence of Certain Changes and Events.......................................................................... 16 4.16 Contracts; No Defaults; Key Customers.......................................................................... 17 4.17 Insurance...................................................................................................... 20 4.18 Environmental Matters.......................................................................................... 20 4.19 Employees...................................................................................................... 21 4.20 Labor Disputes; Compliance..................................................................................... 21 4.21 Intellectual Property.......................................................................................... 22 4.22 Bank Accounts.................................................................................................. 24 4.23 Disclosure..................................................................................................... 24 4.24 Relationships with Related Persons............................................................................. 24 4.25 Brokers or Finders............................................................................................. 25 4.26 Certain Payments............................................................................................... 25 4.27 Change of Control Payments..................................................................................... 25 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER.............................................................. 25 5.1 Organization and Good Standing................................................................................. 25 5.2 Authority; No Conflict......................................................................................... 26 5.3 Certain Proceedings............................................................................................ 26 5.4 Brokers or Finders............................................................................................. 27 5.5 Investment Representations..................................................................................... 27 ARTICLE VI COVENANTS OF SELLER.................................................................................. 27 6.1 Access and Investigation....................................................................................... 27 6.2 Operation of the Businesses of Seller.......................................................................... 28 6.3 Negative Covenant.............................................................................................. 28 6.4 Approvals of Governmental Bodies............................................................................... 29 6.5 Notification................................................................................................... 30 6.6 Best Efforts................................................................................................... 30 6.7 Kives Voting Agreement......................................................................................... 30 ARTICLE VII COVENANTS OF BUYER................................................................................... 30 7.1 Approvals of Governmental Bodies............................................................................... 30 7.2 Best Efforts................................................................................................... 31 7.3 Notification................................................................................................... 31 ARTICLE VIII ADDITIONAL AGREEMENTS................................................................................ 31 8.1 Public Disclosure and Confidentiality.......................................................................... 31 8.2 Auditors' Letters.............................................................................................. 31 8.3 Filings; Other Action.......................................................................................... 32 8.4 Licenses....................................................................................................... 32 8.5 Taxes.......................................................................................................... 34 8.6 Meeting of Stockholders........................................................................................ 34 8.7 Restrictive Covenants/Noncompete............................................................................... 35 8.8 Delivery of Disclosure Letter.................................................................................. 35 8.9 Transition Arrangement......................................................................................... 35 8.10 Seller's Employees............................................................................................. 36 ARTICLE IX MUTUAL CONDITIONS PRECEDENT TO PARTIES' OBLIGATION TO CLOSE.................................................................................. 36 9.1 Mutual Conditions.............................................................................................. 36 ARTICLE X CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE................................................................................................ 37 10.1 Accuracy of Representations.................................................................................... 37 10.2 The Seller's Performance....................................................................................... 37 10.3 No Proceedings................................................................................................. 37 10.4 No Prohibition................................................................................................. 37 10.5 Material Adverse Change........................................................................................ 38 10.6 Financing...................................................................................................... 38 ARTICLE XI CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE................................................................................................ 38 11.1 Accuracy of Representations.................................................................................... 38 11.2 Buyer's Performance............................................................................................ 38 11.3 No Proceedings................................................................................................. 38 11.4 No Prohibition................................................................................................. 39 ARTICLE XII TERMINATION.................................................................................................... 39 12.1 Termination by Mutual Consent.................................................................................. 39 12.2 Termination by either Seller or Buyer.......................................................................... 39 12.3 Termination by Seller.......................................................................................... 39 12.4 Termination by Buyer........................................................................................... 40 12.5 Effect of Termination; Earnest Money Escrow.................................................................... 40 12.6 Break-Up Fee................................................................................................... 41 ARTICLE XIII INDEMNIFICATION...................................................................................... 42 13.1 Survival and Limitations....................................................................................... 42 13.2 Indemnification of Buyer....................................................................................... 43 13.3 Indemnification of Seller...................................................................................... 44 13.4 Indemnification Procedure for Third Party Claims............................................................... 44 13.5 Harry Fox Matters.............................................................................................. 46 ARTICLE XIV DEFINITIONS.......................................................................................... 47 "AFFILIATES"................................................................................................... 47 "ACCOUNTANTS".................................................................................................. 47 "ACCOUNTS RECEIVABLE".......................................................................................... 47 "BEST EFFORTS"................................................................................................. 47 "BREACH"....................................................................................................... 47 "BUSINESS"..................................................................................................... 47 "BUYER'S CLOSING DOCUMENTS".................................................................................... 47 "CLOSING"...................................................................................................... 47 "CLOSING BALANCE SHEETS"....................................................................................... 47 "CLOSING DATE"................................................................................................. 48 "CODE"......................................................................................................... 48 "CONFIDENTIALITY AGREEMENT".................................................................................... 48 "CONSENTS"..................................................................................................... 48 "CONTEMPLATED TRANSACTIONS".................................................................................... 48 "CONTRACT"..................................................................................................... 48 "DISCLOSURE LETTER"............................................................................................ 48 "DOMINION"..................................................................................................... 48 "DOMINION STOCK"............................................................................................... 48 "ENCUMBRANCE".................................................................................................. 48 "ENVIRONMENTAL AND SAFETY REQUIREMENTS"........................................................................ 48 "ERISA"........................................................................................................ 48 "EXCHANGE ACT"................................................................................................. 48 "EXCLUDED BUSINESSES".......................................................................................... 48 "FACILITIES"................................................................................................... 49 "FINANCIAL STATEMENTS"......................................................................................... 49 "GAAP"......................................................................................................... 49 "GOVERNMENTAL AUTHORIZATION"................................................................................... 49 "GOVERNMENTAL BODY"............................................................................................ 49 "HAZARDOUS MATERIALS".......................................................................................... 49 "HSR ACT"...................................................................................................... 49 "INSURANCE POLICIES"........................................................................................... 49 "INTELLECTUAL PROPERTY"........................................................................................ 49 "INTERIM BALANCE SHEET"........................................................................................ 50 "INVENTORY".................................................................................................... 50 "IRS".......................................................................................................... 50 "KTI".......................................................................................................... 50 "KTI STOCK".................................................................................................... 50 "KNOWLEDGE".................................................................................................... 50 "LEGAL REQUIREMENT"............................................................................................ 50 "LICENSE AGREEMENTS"........................................................................................... 50 "MATERIAL CONTRACT"............................................................................................ 50 "MAUREEN CATALOG".............................................................................................. 50 "MBCA"......................................................................................................... 50 "NET TANGIBLE BOOK VALUE"...................................................................................... 50 "NON-EXCLUSIVE TERRITORY"...................................................................................... 51 "NTBV SCHEDULE"................................................................................................ 51 "OLD TOWN CATALOG"............................................................................................. 51 "ORDER"........................................................................................................ 51 "ORDINARY COURSE OF BUSINESS".................................................................................. 51 "ORGANIZATIONAL DOCUMENTS"..................................................................................... 51 "PERSON"....................................................................................................... 51 "PRELIMINARY BOOK VALUE"....................................................................................... 51 "PROCEEDING"................................................................................................... 51 "PROPRIETARY RIGHTS AGREEMENT"................................................................................. 52 "PROTEST NOTICE"............................................................................................... 52 "PURCHASE PRICE"............................................................................................... 52 "RELATED PERSON"............................................................................................... 52 "REPRESENTATIVE"............................................................................................... 52 "RETAINED MUSIC BUSINESS"...................................................................................... 52 "REVIEW PERIOD"................................................................................................ 52 "SECURITIES ACT"............................................................................................... 52 "SEC".......................................................................................................... 52 "STOCK"........................................................................................................ 52 "SUBSIDIARIES"................................................................................................. 52 "SELLERS CLOSING DOCUMENTS".................................................................................... 53 "SELLER TRANSACTION DOCUMENTS"................................................................................. 53 "SELLER GOVERNMENTAL AUTHORIZATIONS"........................................................................... 53 "TAX OR TAXES"................................................................................................. 53 "THREATENED"................................................................................................... 53 ARTICLE XV GENERAL PROVISIONS................................................................................... 53 15.1 Expenses....................................................................................................... 53 15.2 Notices........................................................................................................ 53 15.3 Further Assurances............................................................................................. 54 15.4 Waiver......................................................................................................... 54 15.5 Entire Agreement and Modification.............................................................................. 54 15.6 Assignments, Successors, and No Third-Party Rights............................................................. 55 15.7 Severability................................................................................................... 55 15.8 Section Headings, Construction................................................................................. 55 15.9 Governing Law.................................................................................................. 55 15.10 Counterparts................................................................................................... 55 15.11 No Strict Construction......................................................................................... 55
EX-2.2(A) 3 EARNEST MONEY ESCROW AGREEMENT EXHIBIT 2.2(a) EARNEST MONEY ESCROW AGREEMENT EARNEST MONEY ESCROW AGREEMENT (this "Agreement") is made and entered into as of March 3, 1997, by and among PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"), K-TEL INTERNATIONAL, INC., a Minnesota corporation ("Seller") and MIDWEST TRUST SERVICES, INC., as Escrow Agent ("Escrow Agent"). The parties hereto are entering into this Agreement pursuant to the terms of that Asset Purchase and Sale Agreement dated as of March 3, 1997 (the "Purchase Agreement"), by and among Buyer and Seller. Accordingly, the parties hereto agree as follows: 1. Definition of Terms. Terms not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase Agreement. The Escrow Agent shall not be responsible for any other provisions of the Purchase Agreement. 2. Appointment and Acceptance. Buyer and Seller hereby appoint Escrow Agent as escrow agent for the purposes and upon the terms and conditions hereinafter set forth. Escrow Agent hereby accepts such appointment and agrees to act as escrow agent hereunder and to hold, invest and dispose of any funds received by it hereunder in accordance with the terms and conditions hereinafter set forth. 3. Deposit of Escrowed Funds. On the date hereof, Buyer shall, as partial payment of the Purchase Price, deliver to Escrow Agent for deposit in escrow pursuant to the provisions hereof, a wire transfer of immediately available funds in the amount of $1,750,000 (the "Escrowed Funds") into an interest bearing account. 4. Purpose of Agreement. Seller and Buyer represent that this Agreement has been executed pursuant to SECTION 2.2(a) of the Purchase Agreement. Buyer represents that it will make the deposit of the Escrowed Funds pursuant to SECTION 2.2(a) of the Purchase Agreement on Tuesday, March 4, 1997. 5. Delivery of Escrowed Funds. Subject to the terms set forth in ARTICLE XII of the Purchase Agreement, if at any time Seller or Buyer shall claim that it is entitled to payment of all or a portion of the Escrowed Funds pursuant to the terms set forth in the Purchase Agreement (a "Right of Payment"), such party shall give notice of such Right of Payment (the "Notice of Payment") to the other party and the Escrow Agent. The Notice of Payment shall be an affidavit describing the event or circumstances giving rise to the Right of Payment, specifying the amount of the Escrowed Funds requested and certifying that the Notice of Payment is being submitted in good faith. If Escrow Agent shall have received a Notice of Payment, Escrow Agent shall promptly deliver a copy thereof to the other party hereto. Within fifteen (15) business days ("Dispute Period") after delivery by Escrow Agent of a copy of such Notice of Payment to such other party, such other party may deliver to Escrow Agent a written notice (the "Notice of Dispute") disputing the request for payment of Escrowed Funds stated in the Notice of Payment. The Notice of Dispute shall be an affidavit specifying the amount being disputed (the "Disputed Amount"), describing in reasonable detail the reasons for such dispute and certifying that the Notice of Dispute is being submitted in good faith. If Escrow Agent has not received a Notice of Dispute prior to the expiration of Dispute Period referred to above, then Escrow Agent shall immediately pay to such requesting party, by check or wire transfer of immediately available funds, the full amount of the Escrowed Funds requested in the Notice of Payment. If Escrow Agent has received a Notice of Payment during the Dispute Period which disputes in part the request for payment of Escrowed Funds stated in the Notice of Payment, then Escrow Agent shall, following receipt of such notice of claim, immediately pay to such requesting party, by check or wire transfer of immediately available funds, the amount, if any, of Escrowed Funds requested in the Notice of Payment which is in excess of the Disputed Amount. If Escrow Agent receives a Notice of Dispute, Escrow Agent shall promptly deliver a copy of the Notice of Dispute to the other party hereto, and shall not deliver all or the portion of the requested amount of Escrowed Funds set forth in the Notice of Payment constituting the Disputed Amount until Escrow Agent shall have received one of the following: (a) A certified copy of an order, decree or judgment issued or rendered by a court of competent jurisdiction, which order, decree or judgment has been finally affirmed on appeal or which by lapse of time or otherwise is no longer subject to appeal (a "Final Decision") directing the distribution of the Escrow Funds; or (b) A joint written direction executed by Buyer and Seller directing the distribution of the Escrowed Funds. Upon receipt of either (a) or (b) above, Escrow Agent shall immediately deliver the Escrowed Funds to the proper party(ies) in accordance therewith. 6. Investment of Escrowed Funds. Escrow Agent shall invest the Escrowed Funds, from time to time, in 30-day United States Treasury obligations or certificates of deposit having a maturity not to exceed 30 days, any governmental mutual funds, or such other investments jointly designated in writing by Buyer and Seller. The proceeds of all investments made hereunder shall be distributed in accordance with this Agreement. Escrow Agent shall deliver monthly statements to Buyer and Seller in accordance with Escrow Agent's regular practice; the parties hereby agree that, except for the foregoing, Escrow Agent shall have no obligations to monitor, or advise the parties with respect to, such investments. All interest or other income earned on the Escrow Funds shall be paid to Buyer on a monthly basis. 7. Release Date and Termination of Escrow. (a) On the Closing Date or the effective date of an earlier termination of the Purchase Agreement in accordance with the terms thereof (the "Release Date"), Escrow Agent shall ascertain the amount of the escrow balance (the "Escrow Balance"), which amount shall equal the amount of Escrowed Funds (including all interest or other income attributable thereto and not previously distributed) then held hereunder less the amount of Escrowed Funds, if any, then (i) covered by a pending Notice of Payment which is subject to a Notice of Dispute as provided in SECTION 5 hereof, (ii) covered by a pending Notice of Payment which was delivered by Escrow Agent to a party hereto at any time prior to the Release Date and which either has not been paid or is subject to the ability of a party hereto to provide a Notice of Dispute with respect thereto in accordance with the terms hereof, or (iii) covered by a Notice of Payment to the extent determined to be valid and no longer subject to a Notice of Dispute, but not yet paid. On the Release Date (i), if such date is the Closing Date, Escrow Agent shall deliver to Seller (or its designee) the Escrow Balance or (ii) if such date is the effective date of an earlier termination of the Purchase Agreement in accordance with the terms thereof, the provisions of SECTION 5 above shall apply to any release of the Escrow Balance. (b) Notwithstanding the foregoing, this Agreement may be terminated at any time by and upon the receipt by Escrow Agent of written notice of termination executed by both Buyer and Seller directing the distribution of all property then held by Escrow Agent under and pursuant to this Agreement, and this Agreement shall automatically terminate if and when all the Escrowed Funds (and all the securities in which any of the Escrowed Funds shall have been invested) shall have been distributed by Escrow Agent in accordance with the terms of this Agreement. (c) Escrow Agent is authorized to liquidate the securities held hereunder (unless directed in writing by Seller to distribute such securities in some other specified manner) to the extent necessary to distribute to Seller (or its designee) the Escrowed Funds as provided in SECTION 7(a) above and shall have no liability for any loss arising out of any such liquidation. 8. Liens on Escrowed Funds. During the term of this Escrow Agreement, each of Buyer and Seller agree to keep the Escrowed Funds free and clear of all liens, claims, encumbrances, levies, garnishments or other attachments arising with respect to it. 9. Notices. Any notices or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by a recognized overnight courier service, or (d) sent by facsimile transmission to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing. (a) If to Seller: K-tel International, Inc. 2605 Fernbrook Lane North Minneapolis, Minnesota 55447 Attention: David Weiner Telecopy No.: (612) 509-9409 with copies to: Kaplan Strangis & Kaplan, P.A. 5500 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: Bruce J. Parker, Esq. Telecopy No.: (612) 375-1143 and Philip Kives K-5 Leisure Products, Inc. 220 Saulteaux Crescent Winnipeg, Manitoba, Canada R3J 3W2 Telecopy No.: (204) 832-7782 (b) If to Buyer: Platinum Entertainment, Inc. 2001 Butterfield Road Downers Grove, Illinois 60515 Attention: Steven Devick Telecopy No.: (630) 769-0049 with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661-3693 Attention: Matthew S. Brown, Esq. Adam H. Schecter, Esq. Telecopy No.: (312) 902-1061 (c) If to Escrow Agent: Midwest Trust Services, Inc. 500 West Chestnut Street Hinsdale, Illinois 60521 Attention: Mary Henthorn Telecopy No.: (630) 323-0531 Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) the next succeeding business day after date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding business day after transmission by facsimile. 10. Escrow Agent's Liability. Escrow Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Escrow Agent. In the absence of bad faith, gross negligence or wilful misconduct on its part, Escrow Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon any instrument, certificate, opinion or other writing believed by it in good faith and without gross negligence to be genuine, and shall not be liable in connection with the performance by it of its duties pursuant to the provisions of the Agreement, except for its own bad faith, gross negligence or wilful misconduct. Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. Escrow Agent may execute powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. 11. Indemnification of Escrow Agent. Buyer and Seller hereby agree severally and not jointly (one-half to be borne by Buyer and one-half to be borne by Seller) to indemnify Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, wilful misconduct or bad faith on the part of Escrow Agent, arising out of or in connection with its entering into the Agreement, carrying out its duties hereunder and accepting the Escrowed Funds, including the costs and expenses of defending itself against any claim of liability in connection with the exercise or performance of any of its powers or duties hereunder (including reasonable fees, expenses and disbursements of its counsel). 12. Escrow Agent to Follow Instructions of Buyer and Seller. Notwithstanding any provision contained herein to the contrary, Escrow Agent shall at any time and from time to time take such action hereunder with respect to the Escrowed Funds (and the securities in which any of the Escrowed Funds shall have been invested) as shall be directed in writing by both Buyer and Seller, provided that Escrow Agent shall first be indemnified to its satisfaction with respect to any of its costs or expenses which might be involved. 13. Resignation of Escrow Agent. Escrow Agent, or any successor, may resign at any time upon giving written notice, thirty (30) days before such resignation shall take effect, to Buyer and Seller. In the event Escrow Agent shall resign or be unable to serve, it shall be succeeded by such bank or trust company as Buyer and Seller shall appoint, or if no appointment is made, by a bank or trust company appointed by a court of competent jurisdiction. In the absence of a successor so appointed by Buyer and Seller, Escrow Agent may petition such a court to appoint a successor escrow agent. The resigning escrow agent shall transfer to its successor all monies, securities and investments then held subject to this escrow and all pending notices, instructions and directions then in its possession, and shall thereupon be discharged, and the successor shall thereupon succeed to all the rights, powers and duties and shall assume all of the obligations of the resigning escrow agent. 14. Escrow Agent's Fee and Expenses, Etc. (a) Escrow Agent shall be entitled to (i) a $50 annual fee, which annual fee shall be prorated to the date of termination of this Agreement, for services rendered and for reimbursement of extraordinary expenses incurred in performance of its duties which expenses are not included in said fee, plus (ii) out of pocket expenses which expenses shall be charged as incurred. Such annual fees shall be paid by Buyer and such out-of-pocket expenses shall be divided equally between the Buyer, on one hand and Seller, on the other hand. (b) In case said property shall be attached, garnished, or levied upon any court order, or the delivery thereof shall be stayed or enjoined by an order of court, or any order, judgement or decree shall be made or entered by any court order affecting the property deposited under this Agreement, or any part thereof, Escrow Agent is hereby expressly authorized in its sole direction, to obey and comply with all writs, orders or decrees so entered or issued, which it is advised by legal counsel of its own choosing is binding upon it, whether with or without jurisdiction, and in case Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the parties hereto or to any other person, firm or corporation, by reason of such compliance notwithstanding such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated. (c) In case said Escrow Agent becomes involved in litigation on account of this deposit or of this Agreement, it shall have the right to retain counsel and shall have a lien on the property deposited hereunder for any and all costs, attorneys' fees, charges, disbursements, and expenses in connection with such litigation; and shall be entitled to reimburse itself therefor out of the property deposited hereunder, and if it shall be unable to reimburse itself from the property deposited hereunder, the parties hereto jointly and severally agree to pay to said Escrow Agent on demand, its reasonable charges, counsel and attorneys' fees, disbursements, and expenses in connection with such litigation. (d) In case conflicting demands are made upon it for any situation not addressed in this Agreement, Escrow Agent may withhold performance of this escrow until such time as said conflicting demands shall have been withdrawn or the rights of the respective parties shall have been settled by court adjudication, arbitration, joint order or otherwise. (e) The parties acknowledge that Escrow Agent will have no obligations or responsibilities with respect to tax reporting of the parties. 15. Successors. The obligations imposed and the rights conferred by this Escrow Agreement shall be binding upon and inure to the benefit of the respective heirs (including estates), successors and permitted assigns of the parties hereto, but will not be assignable or delegable by any party without the prior written consent of the other parties. 16. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to principles of conflicts of law. 17. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein. 18. Amendment. This Agreement cannot be terminated, altered or amended except pursuant to an instrument in writing signed by Buyer, Seller and Escrow Agent. 19. Enforceability. If any provision of the Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Escrow Agreement, and the Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed on original and all of which together shall constitute one and the same instrument. 21. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 22. Attorneys' Fees. In the event of a dispute between Buyer and Seller regarding the distribution of the Escrowed Funds, upon the issuance of a final, non-appealable order or judgment by a court of competent jurisdiction, the prevailing party's legal fees and related expenses shall be paid by the non-prevailing party. The determination of which party is the "prevailing" party shall be made by the court issuing such final, non-appealable order or judgment. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first above written. K-TEL INTERNATIONAL, INC., a Minnesota corporation By: Its: PLATINUM ENTERTAINMENT, INC., a Delaware corporation By: Its: MIDWEST TRUST SERVICES, INC., AS ESCROW AGENT By: Its: EX-2.2(B) 4 HARRY FOX INDEMNITY ESCROW AGREEMENT EXHIBIT 2.2(b) HARRY FOX INDEMNITY ESCROW AGREEMENT INDEMNITY ESCROW AGREEMENT (this "Agreement") is made and entered into as of ___________, 1997, by and among PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"), K-TEL INTERNATIONAL, INC., a Minnesota corporation ("Seller") and MIDWEST TRUST SERVICES, INC., as Escrow Agent ("Escrow Agent"). The parties hereto are entering into this Agreement pursuant to the terms of that Asset Purchase and Sale Agreement dated as of March 3, 1997 (the "Purchase Agreement"), by and among Buyer and Seller. Accordingly, the parties hereto agree as follows: 1. Definition of Terms. Terms not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase Agreement. The Escrow Agent shall not be responsible for any other provisions of the Purchase Agreement. 2. Appointment and Acceptance. Buyer and Seller hereby appoint Escrow Agent as escrow agent for the purposes and upon the terms and conditions hereinafter set forth. Escrow Agent hereby accepts such appointment and agrees to act as escrow agent hereunder and to hold, invest and dispose of any funds received by it hereunder in accordance with the terms and conditions hereinafter set forth. 3. Deposit of Escrowed Funds. On the date hereof, Buyer shall, as partial payment of the Purchase Price, deliver to Escrow Agent for deposit in escrow pursuant to the provisions hereof, a wire transfer of immediately available funds in the amount of $1,000,000 (the "Escrowed Funds") into an interest bearing account. 4. Purpose of Agreement. Seller and Buyer represent that this Agreement has been executed pursuant to SECTION 2.2(b) of the Purchase Agreement for the purpose of paying any amounts due to Buyer by Seller for any claims made by the Harry Fox Agency relating to or arising out of periods prior to the Closing Date that are in excess of the dollar amount(s) reserved for such audit which will be used in connection with the calculation of the Final Net Tangible Book Value ("Covered Claims"). Buyer represents that it has made the deposit of the Escrowed Funds pursuant to SECTION 2.2(b) of the Purchase Agreement 5. Delivery of Escrowed Funds. Subject to the terms set forth in ARTICLE XIII of the Purchase Agreement, if at any time Buyer shall claim that it is entitled to payment of all or a portion of the Escrowed Funds as a result of any Covered Claim, Buyer shall give notice of such Covered Claim (the "Notice of Claim") to Seller and the Escrow Agent. The Notice of Claim shall be an affidavit describing the event or circumstances giving rise to the Covered Claim, specifying the amount of the Escrowed Funds requested and certifying that the Notice of Claim is being submitted in good faith. If Escrow Agent shall have received a Notice of Claim from Buyer, Escrow Agent shall promptly deliver a copy thereof to Seller. Within fifteen (15) business days ("Dispute Period") after delivery by Escrow Agent of a copy of such Notice of Claim to Seller, Seller may deliver to Escrow Agent a written notice (the "Notice of Dispute") disputing the request for payment of Escrowed Funds stated in the Notice of Claim. The Notice of Dispute shall be an affidavit specifying the amount being disputed (the "Disputed Amount"), describing in reasonable detail the reasons for such dispute and certifying that the Notice of Dispute is being submitted in good faith. If Escrow Agent has not received a Notice of Dispute prior to the expiration of Dispute Period referred to above, then Escrow Agent shall immediately pay to Buyer, by check or wire transfer of immediately available funds, the full amount of the Escrowed Funds requested in the Notice of Claim. If Escrow Agent has received a Notice of Dispute during the Dispute Period which disputes in part the request for payment of Escrowed Funds stated in the Notice of Claim, then Escrow Agent shall, following receipt of such notice of claim, immediately pay to Buyer, by check or wire transfer of immediately available funds, the amount, if any, of Escrowed Funds requested in the Notice of Claim which is in excess of the Disputed Amount. If Escrow Agent receives a Notice of Dispute from Seller, Escrow Agent shall promptly deliver a copy of the Notice of Dispute to Buyer, and shall not deliver the portion of the requested amount of Escrowed Funds set forth in the Notice of Claim constituting the Disputed Amount until Escrow Agent shall have received one of the following: (a) A certified copy of an order, decree or judgment issued or rendered by a court of competent jurisdiction, which order, decree or judgment has been finally affirmed on appeal or which by lapse of time or otherwise is no longer subject to appeal (a "Final Decision") directing the distribution of the Escrow Funds; or (b) A joint written direction executed by Buyer and Seller directing the distribution of the Escrowed Funds. Upon receipt of either (a) or (b) above, Escrow Agent shall immediately deliver the Escrowed Funds to the proper party(ies) in accordance therewith. 6. Investment of Escrowed Funds. Escrow Agent shall invest the Escrowed Funds, from time to time, in 30-day United States Treasury obligations or certificates of deposit having a maturity not to exceed 30 days, any governmental mutual funds, or such other investments jointly designated in writing by Buyer and Seller. The proceeds of all investments made hereunder shall be distributed in accordance with this Agreement. Escrow Agent shall deliver monthly statements to Buyer and Seller in accordance with Escrow Agent's regular practice; the parties hereby agree that, except for the foregoing, Escrow Agent shall have no obligations to monitor, or advise the parties with respect to, such investments. All interest or other income earned on the Escrow Funds shall be paid to Seller on a monthly basis. 7. Release Date and Termination of Escrow. (a) Upon the final resolution and settlement of the Harry Fox Audit (the "Release Date"), Escrow Agent shall ascertain the amount of the escrow balance (the "Escrow Balance"), which amount shall equal the amount of Escrowed Funds (including all interest or other income attributable thereto and not previously distributed) then held hereunder less the amount of Escrowed Funds, if any, then (i) covered by a pending Notice of Claim which is subject to a Notice of Dispute as provided in SECTION 5 hereof, (ii) covered by a pending Notice of Claim which was delivered by Escrow Agent to Seller at any time prior to the Release Date and which has not been paid or is subject to the ability of Seller to provide a Notice of Dispute with respect thereto in accordance with the terms hereof, or (iii) covered by a Notice of Claim to the extent determined to be valid and no longer subject to a Notice of Dispute, but not yet paid. On the Release Date, Escrow Agent shall deliver to Seller (or its designee) the Escrow Balance. If, on the Release Date, a pending Notice of Claim is subject to a Notice of Dispute as described in clause (i) above or if, after the Release Date, a pending Notice of Claim described in clause (ii) above is disputed by a Notice of Dispute in accordance with SECTION 5 hereof, then this Escrow Agreement shall continue in full force and effect with respect to the aggregate amount in dispute until Escrow Agent shall have been instructed as to the disposition thereof in accordance with the terms of SECTION 5. To the extent that a Notice of Claim described in clause (ii) above is not disputed by a Notice of Dispute in accordance with the provisions of SECTION 5 hereof, the undisputed amount shall be paid to Buyer immediately after the expiration of the Dispute Period referred to in SECTION 5. Once all requests for payment of Covered Claims have been settled and all of the Escrowed Funds have been paid out in accordance with the foregoing provisions, this Agreement and all of the obligations of the Escrow Agent hereunder shall terminate (such date being referred to herein as the "Termination Date"). (b) Notwithstanding the foregoing, this Agreement may be terminated at any time by and upon the receipt by Escrow Agent of written notice of termination executed by both Buyer and Seller directing the distribution of all property then held by Escrow Agent under and pursuant to this Agreement, and this Agreement shall automatically terminate if and when all the Escrowed Funds (and all the securities in which any of the Escrowed Funds shall have been invested) shall have been distributed by Escrow Agent in accordance with the terms of this Agreement. (c) Escrow Agent is authorized to liquidate the securities held hereunder (unless directed in writing by Seller to distribute such securities in some other specified manner) to the extent necessary to distribute to Seller (or its designee) the Escrowed Funds as provided in SECTION 7(a) above and shall have no liability for any loss arising out of any such liquidation. 8. Notices. Any notices or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by a recognized overnight courier service, or (d) sent by facsimile transmission to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing. (a) If to Seller: K-tel International, Inc. 2605 Fernbrook Lane North Minneapolis, Minnesota 55447 Attention: David Weiner Telecopy No.: (612) 509-9409 with copies to: Kaplan Strangis & Kaplan, P.A. 5500 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: Bruce J. Parker, Esq. Telecopy No.: (612) 375-1143 Philip Kives K-5 Leisure Products, Inc. 220 Saulteaux Crescent Winnipeg, Manitoba, Canada R3J 3W2 Telecopy No.: (204) 832-7782 (b) If to Buyer: Platinum Entertainment, Inc. 2001 Butterfield Road Downers Grove, Illinois 60515 Attention: Steven Devick Telecopy No.: (630) 769-0049 with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661-3693 Attention: Matthew S. Brown, Esq. Adam H. Schecter, Esq. Telecopy No.: (312) 902-1061 (c) If to Escrow Agent: Midwest Trust Services, Inc. 500 West Chestnut Street Hinsdale, Illinois 60521 Attention: Mary Henthorn Telecopy No.: (630) 323-0531 Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) the next succeeding business day after date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding business day after transmission by facsimile. 9. Escrow Agent's Liability. Escrow Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Escrow Agent. In the absence of bad faith, gross negligence or wilful misconduct on its part, Escrow Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon any instrument, certificate, opinion or other writing believed by it in good faith and without gross negligence to be genuine, and shall not be liable in connection with the performance by it of its duties pursuant to the provisions of the Agreement, except for its own bad faith, gross negligence or wilful misconduct. Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. Escrow Agent may execute powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. 10. Indemnification of Escrow Agent. Buyer and Seller hereby agree severally and not jointly (one-half to be borne by Buyer and one-half to be borne by Seller) to indemnify Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, wilful misconduct or bad faith on the part of Escrow Agent, arising out of or in connection with its entering into the Agreement, carrying out its duties hereunder and accepting the Escrowed Funds, including the costs and expenses of defending itself against any claim of liability in connection with the exercise or performance of any of its powers or duties hereunder (including reasonable fees, expenses and disbursements of its counsel). 11. Escrow Agent to Follow Instructions of Buyer and Seller. Notwithstanding any provision contained herein to the contrary, Escrow Agent shall at any time and from time to time take such action hereunder with respect to the Escrowed Funds (and the securities in which any of the Escrowed Funds shall have been invested) as shall be directed in writing by both Buyer and Seller, provided that Escrow Agent shall first be indemnified to its satisfaction with respect to any of its costs or expenses which might be involved. 12. Resignation of Escrow Agent. Escrow Agent, or any successor, may resign at any time upon giving written notice, thirty (30) days before such resignation shall take effect, to Buyer and Seller. In the event Escrow Agent shall resign or be unable to serve, it shall be succeeded by such bank or trust company as Buyer and Seller shall appoint, or if no appointment is made, by a bank or trust company appointed by a court of competent jurisdiction. In the absence of a successor so appointed by Buyer and Seller, Escrow Agent may petition such a court to appoint a successor escrow agent. The resigning escrow agent shall transfer to its successor all monies, securities and investments then held subject to this escrow and all pending notices, instructions and directions then in its possession, and shall thereupon be discharged, and the successor shall thereupon succeed to all the rights, powers and duties and shall assume all of the obligations of the resigning escrow agent. 13. Escrow Agent's Fee and Expenses, Etc. (a) Escrow Agent shall be entitled to (i) a [$150] annual fee, which annual fee shall be prorated to the date of termination of this Agreement, for services rendered and for reimbursement of extraordinary expenses incurred in performance of its duties which expenses are not included in said fee, plus (ii) out of pocket expenses which expenses shall be charged as incurred. Such annual fees shall be paid by Buyer and such out-of-pocket expenses shall be divided equally between the Buyer, on one hand and Seller, on the other hand. (b) In case said property shall be attached, garnished, or levied upon any court order, or the delivery thereof shall be stayed or enjoined by an order of court, or any order, judgment or decree shall be made or entered by any court order affecting the property deposited under this Agreement, or any part thereof, Escrow Agent is hereby expressly authorized in its sole direction, to obey and comply with all writs, orders or decrees so entered or issued, which it is advised by legal counsel of its own choosing is binding upon it, whether with or without jurisdiction, and in case Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the parties hereto or to any other person, firm or corporation, by reason of such compliance notwithstanding such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated. (c) In case said Escrow Agent becomes involved in litigation on account of this deposit or of this Agreement, it shall have the right to retain counsel and shall have a lien on the property deposited hereunder for any and all costs, attorneys' fees, charges, disbursements, and expenses in connection with such litigation; and shall be entitled to reimburse itself therefor out of the property deposited hereunder, and if it shall be unable to reimburse itself from the property deposited hereunder, the parties hereto jointly and severally agree to pay to said Escrow Agent on demand, its reasonable charges, counsel and attorneys' fees, disbursements, and expenses in connection with such litigation. (d) In case conflicting demands are made upon it for any situation not addressed in this Agreement, Escrow Agent may withhold performance of this escrow until such time as said conflicting demands shall have been withdrawn or the rights of the respective parties shall have been settled by court adjudication, arbitration, joint order or otherwise. (e) The parties acknowledge that Escrow Agent will have no obligations or responsibilities with respect to tax reporting of the parties. 14. Successors. The obligations imposed and the rights conferred by this Escrow Agreement shall be binding upon and inure to the benefit of the respective heirs (including estates), successors and permitted assigns of the parties hereto, but will not be assignable or delegable by any party without the prior written consent of the other parties. 15. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to principles of conflicts of law. 16. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein. 17. Amendment. This Agreement cannot be terminated, altered or amended except pursuant to an instrument in writing signed by Buyer, Seller and Escrow Agent. 18. Enforceability. If any provision of the Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Escrow Agreement, and the Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed on original and all of which together shall constitute one and the same instrument. 20. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 21. Attorneys' Fees. In the event of a dispute between Buyer and Seller regarding the distribution of the Escrowed Funds, upon the issuance of a final, non-appealable order or judgment by a court of competent jurisdiction, the prevailing party's legal fees and related expenses shall be paid by the non-prevailing party. The determination of which party is the "prevailing" party shall be made by the court issuing such final, non-appealable order or judgment. IN WITNESS WHEREOF, the parties hereto have caused the this Agreement to be signed as of the date first above written. K-TEL INTERNATIONAL, INC., a Minnesota corporation By: Its: PLATINUM ENTERTAINMENT, INC., a Delaware corporation By: Its: MIDWEST TRUST SERVICES, INC. AS ESCROW AGENT By: Its: EX-2.2(C) 5 INDEMNITY ESCROW AGREEMENT EXHIBIT 2.2(c) INDEMNITY ESCROW AGREEMENT INDEMNITY ESCROW AGREEMENT (this "Agreement") is made and entered into as of ___________, 1997, by and among PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"), K-TEL INTERNATIONAL, INC., a Minnesota corporation, ("Seller") and MIDWEST TRUST SERVICES, INC., as Escrow Agent ("Escrow Agent"). The parties hereto are entering into this Agreement pursuant to the terms of that Asset Purchase and Sale Agreement dated as of March 3, 1997 (the "Purchase Agreement"), by and among Buyer and Seller. Accordingly, the parties hereto agree as follows: 1. Definition of Terms. Terms not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase Agreement. The Escrow Agent shall not be responsible for any other provisions of the Purchase Agreement. 2. Appointment and Acceptance. Buyer and Seller hereby appoint Escrow Agent as escrow agent for the purposes and upon the terms and conditions hereinafter set forth. Escrow Agent hereby accepts such appointment and agrees to act as escrow agent hereunder and to hold, invest and dispose of any funds received by it hereunder in accordance with the terms and conditions hereinafter set forth. 3. Deposit of Escrowed Funds. On the date hereof, Buyer shall, as partial payment of the Purchase Price, deliver to Escrow Agent for deposit in escrow pursuant to the provisions hereof, a wire transfer of immediately available funds in the amount of $2,000,000 (the "Escrowed Funds") into an interest bearing account. 4. Purpose of Agreement. Seller and Buyer represent that this Agreement has been executed pursuant to SECTION 2.2(c) of the Purchase Agreement for the purpose of paying any amounts due to Buyer (or a Buyer Indemnified Party) pursuant to Seller's indemnification obligations under ARTICLE XIII of the Purchase Agreement ("Covered Claims"). Buyer represents that it has made the deposit of the Escrowed Funds pursuant to SECTION 2.2(c) of the Purchase Agreement. 5. Delivery of Escrowed Funds. Subject to the terms set forth in ARTICLE XIII of the Purchase Agreement, if at any time Buyer (or a Buyer Indemnified Party) shall claim that it is entitled to payment of all or a portion of the Escrowed Funds as a result of any Covered Claim, Buyer shall give notice of such Covered Claim (the "Notice of Claim") to Seller and the Escrow Agent. The Notice of Claim shall be an affidavit describing the event or circumstances giving rise to the Covered Claim, specifying the amount of the Escrowed Funds requested and certifying that the Notice of Claim is being submitted in good faith. If Escrow Agent shall have received a Notice of Claim from Buyer, Escrow Agent shall promptly deliver a copy thereof to Seller. Within fifteen (15) business days ("Dispute Period") after delivery by Escrow Agent of a copy of such Notice of Claim to Seller, Seller may deliver to Escrow Agent a written notice (the "Notice of Dispute") disputing the request for payment of Escrowed Funds stated in the Notice of Claim. The Notice of Dispute shall be an affidavit specifying the amount being disputed (the "Disputed Amount"), describing in reasonable detail the reasons for such dispute and certifying that the Notice of Dispute is being submitted in good faith. If Escrow Agent has not received a Notice of Dispute prior to the expiration of Dispute Period referred to above, then Escrow Agent shall immediately pay to Buyer, by check or wire transfer of immediately available funds, the full amount of the Escrowed Funds requested in the Notice of Claim. If Escrow Agent has received a Notice of Dispute during the Dispute Period which disputes in part the request for payment of Escrowed Funds stated in the Notice of Claim, then Escrow Agent shall, following receipt of such notice of claim, immediately pay to Buyer, by check or wire transfer of immediately available funds, the amount, if any, of Escrowed Funds requested in the Notice of Claim which is in excess of the Disputed Amount. If Escrow Agent receives a Notice of Dispute from Seller, Escrow Agent shall promptly deliver a copy of the Notice of Dispute to Buyer, and shall not deliver all or the portion of the requested amount of Escrowed Funds set forth in the Notice of Claim constituting the Disputed Amount until Escrow Agent shall have received one of the following: (a) A certified copy of an order, decree or judgment issued or rendered by a court of competent jurisdiction, which order, decree or judgment has been finally affirmed on appeal or which by lapse of time or otherwise is no longer subject to appeal (a "Final Decision") directing the distribution of the Escrow Funds; or (b) A joint written direction executed by Buyer and Seller directing the distribution of the Escrowed Funds. Upon receipt of either (a) or (b) above, Escrow Agent shall immediately deliver the Escrowed Funds to the proper party(ies) in accordance therewith. 6. Investment of Escrowed Funds. Escrow Agent shall invest the Escrowed Funds, from time to time, in 30-day United States Treasury obligations or certificates of deposit having a maturity not to exceed 30 days, any governmental mutual funds, or such other investments jointly designated in writing by Buyer and Seller. The proceeds of all investments made hereunder shall be distributed in accordance with this Agreement. Escrow Agent shall deliver monthly statements to Buyer and Seller in accordance with Escrow Agent's regular practice; the parties hereby agree that, except for the foregoing, Escrow Agent shall have no obligations to monitor, or advise the parties with respect to, such investments. All interest or other income earned on the Escrow Funds shall be paid to Seller on a monthly basis. 7. Release Date and Termination of Escrow. (a) On the first anniversary of the Closing Date (the "Release Date"), Escrow Agent shall ascertain the amount of the escrow balance (the "Escrow Balance"), which amount shall equal the amount of Escrowed Funds (including all interest or other income attributable thereto and not previously distributed) then held hereunder less the amount of Escrowed Funds, if any, then (i) covered by a pending Notice of Claim which is subject to a Notice of Dispute as provided in SECTION 5 hereof, (ii) covered by a pending Notice of Claim which was delivered by Escrow Agent to Seller at any time prior to the Release Date and which either has not been paid or is subject to the ability of Seller to provide a Notice of Dispute with respect thereto in accordance with the terms hereof, or (iii) covered by a Notice of Claim to the extent determined to be valid and no longer subject to a Notice of Dispute, but not yet paid. On the Release Date, Escrow Agent shall deliver to Seller (or its designee) the Escrow Balance. If, on the Release Date, a pending Notice of Claim is subject to a Notice of Dispute as described in clause (i) above or if, after the Release Date, a pending Notice of Claim described in clause (ii) above is disputed by a Notice of Dispute in accordance with SECTION 5 hereof, then this Escrow Agreement shall continue in full force and effect with respect to the aggregate amount in dispute until Escrow Agent shall have been instructed as to the disposition thereof in accordance with the terms of SECTION 5. To the extent that a Notice of Claim described in clause (ii) above is not disputed by a Notice of Dispute in accordance with the provisions of SECTION 5 hereof, the undisputed amount shall be paid to Buyer immediately after the expiration of the Dispute Period referred to in SECTION 5. Once all requests for payment of Covered Claims have been settled and all of the Escrowed Funds have been paid out in accordance with the foregoing provisions, this Agreement and all of the obligations of the Escrow Agent hereunder shall terminate (such date being referred to herein as the "Termination Date"). (b) Notwithstanding the foregoing, this Agreement may be terminated at any time by and upon the receipt by Escrow Agent of written notice of termination executed by both Buyer and Seller directing the distribution of all property then held by Escrow Agent under and pursuant to this Agreement, and this Agreement shall automatically terminate if and when all the Escrowed Funds (and all the securities in which any of the Escrowed Funds shall have been invested) shall have been distributed by Escrow Agent in accordance with the terms of this Agreement. (c) Escrow Agent is authorized to liquidate the securities held hereunder (unless directed in writing by Seller to distribute such securities in some other specified manner) to the extent necessary to distribute to Seller (or its designee) the Escrowed Funds as provided in SECTION 7(a) above and shall have no liability for any loss arising out of any such liquidation. 8. Notices. Any notices or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by a recognized overnight courier service, or (d) sent by facsimile transmission to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing. (a) If to Seller: K-tel International, Inc. 2605 Fernbrook Lane North Minneapolis, Minnesota 55447 Attention: David Weiner Telecopy No.: (612) 509-9409 with a copy to: Kaplan Strangis & Kaplan, P.A. 5500 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: Bruce J. Parker, Esq. Telecopy No.: (612) 375-1143 and Philip Kives K-5 Leisure Products, Inc. 220 Saulteaux Crescent Winnipeg, Manitoba, Canada R3J 3W2 Telecopy No.: (204) 832-7782 (b) If to Buyer: Platinum Entertainment, Inc. 2001 Butterfield Road Downers Grove, Illinois 60515 Attention: Steven Devick Telecopy No.: (630) 769-0049 with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attention: Matthew S. Brown, Esq. Adam H. Schecter, Esq. Telecopy No.: (312) 902-1061 (c) If to Escrow Agent: Midwest Trust Services, Inc. 500 West Chestnut Street Hinsdale, Illinois 60521 Attention: Mary Henthorn Telecopy No.: (630) 323-0531 Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) the next succeeding business day after date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding business day after transmission by facsimile. 9. Escrow Agent's Liability. Escrow Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Escrow Agent. In the absence of bad faith, gross negligence or wilful misconduct on its part, Escrow Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon any instrument, certificate, opinion or other writing believed by it in good faith and without gross negligence to be genuine, and shall not be liable in connection with the performance by it of its duties pursuant to the provisions of the Agreement, except for its own bad faith, gross negligence or wilful misconduct. Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. Escrow Agent may execute powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. 10. Indemnification of Escrow Agent. Buyer and Seller hereby agree severally and not jointly (one-half to be borne by Buyer and one-half to be borne by Seller) to indemnify Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, wilful misconduct or bad faith on the part of Escrow Agent, arising out of or in connection with its entering into the Agreement, carrying out its duties hereunder and accepting the Escrowed Funds, including the costs and expenses of defending itself against any claim of liability in connection with the exercise or performance of any of its powers or duties hereunder (including reasonable fees, expenses and disbursements of its counsel). 11. Escrow Agent to Follow Instructions of Buyer and Seller. Notwithstanding any provision contained herein to the contrary, Escrow Agent shall at any time and from time to time take such action hereunder with respect to the Escrowed Funds (and the securities in which any of the Escrowed Funds shall have been invested) as shall be directed in writing by both Buyer and Seller, provided that Escrow Agent shall first be indemnified to its satisfaction with respect to any of its costs or expenses which might be involved. 12. Resignation of Escrow Agent. Escrow Agent, or any successor, may resign at any time upon giving written notice, thirty (30) days before such resignation shall take effect, to Buyer and Seller. In the event Escrow Agent shall resign or be unable to serve, it shall be succeeded by such bank or trust company as Buyer and Seller shall appoint, or if no appointment is made, by a bank or trust company appointed by a court of competent jurisdiction. In the absence of a successor so appointed by Buyer and Seller, Escrow Agent may petition such a court to appoint a successor escrow agent. The resigning escrow agent shall transfer to its successor all monies, securities and investments then held subject to this escrow and all pending notices, instructions and directions then in its possession, and shall thereupon be discharged, and the successor shall thereupon succeed to all the rights, powers and duties and shall assume all of the obligations of the resigning escrow agent. 13. Escrow Agent's Fee and Expenses, Etc. (a) Escrow Agent shall be entitled to (i) a [$150] annual fee, which annual fee shall be prorated to the date of termination of this Agreement, for services rendered and for reimbursement of extraordinary expenses incurred in performance of its duties which expenses are not included in said fee, plus (ii) out of pocket expenses which expenses shall be charged as incurred. Such annual fees shall be paid by Buyer and such out-of-pocket expenses shall be divided equally between the Buyer, on one hand and Seller, on the other hand. (b) In case said property shall be attached, garnished, or levied upon any court order, or the delivery thereof shall be stayed or enjoined by an order of court, or any order, judgement or decree shall be made or entered by any court order affecting the property deposited under this Agreement, or any part thereof, Escrow Agent is hereby expressly authorized in its sole direction, to obey and comply with all writs, orders or decrees so entered or issued, which it is advised by legal counsel of its own choosing is binding upon it, whether with or without jurisdiction, and in case Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the parties hereto or to any other person, firm or corporation, by reason of such compliance notwithstanding such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated. (c) In case said Escrow Agent becomes involved in litigation on account of this deposit or of this Agreement, it shall have the right to retain counsel and shall have a lien on the property deposited hereunder for any and all costs, attorneys' fees, charges, disbursements, and expenses in connection with such litigation; and shall be entitled to reimburse itself therefor out of the property deposited hereunder, and if it shall be unable to reimburse itself from the property deposited hereunder, the parties hereto jointly and severally agree to pay to said Escrow Agent on demand, its reasonable charges, counsel and attorneys' fees, disbursements, and expenses in connection with such litigation. (d) In case conflicting demands are made upon it for any situation not addressed in this Agreement, Escrow Agent may withhold performance of this escrow until such time as said conflicting demands shall have been withdrawn or the rights of the respective parties shall have been settled by court adjudication, arbitration, joint order or otherwise. (e) The parties acknowledge that Escrow Agent will have no obligations or responsibilities with respect to tax reporting of the parties. 14. Successors. The obligations imposed and the rights conferred by this Escrow Agreement shall be binding upon and inure to the benefit of the respective heirs (including estates), successors and permitted assigns of the parties hereto, but will not be assignable or delegable by any party without the prior written consent of the other parties. 15. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to principles of conflicts of law. 16. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein. 17. Amendment. This Agreement cannot be terminated, altered or amended except pursuant to an instrument in writing signed by Buyer, Seller and Escrow Agent. 18. Enforceability. If any provision of the Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Escrow Agreement, and the Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed on original and all of which together shall constitute one and the same instrument. 20. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 21. Attorneys' Fees. In the event of a dispute between Buyer and Seller regarding the distribution of the Escrowed Funds, upon the issuance of a final, non-appealable order or judgment by a court of competent jurisdiction, the prevailing party's legal fees and related expenses shall be paid by the non-prevailing party. The determination of which party is the "prevailing" party shall be made by the court issuing such final, non-appealable order or judgment. IN WITNESS WHEREOF, the parties hereto have caused the this Agreement to be signed as of the date first above written. K-TEL INTERNATIONAL, INC., a Minnesota corporation By: Its: PLATINUM ENTERTAINMENT, INC., a Delaware corporation By: Its: MIDWEST TRUST SERVICES, INC., AS ESCROW AGENT By: Its: EX-3.2(D) 6 MUTUAL GENERAL RELEASE EXHIBIT 3.2(d) MUTUAL GENERAL RELEASE K-Tel International, Inc., a Minnesota corporation ("Seller"), on behalf of itself and its Affiliates (as hereinafter defined, other than the Subsidiaries), and each of their respective successors and assigns, and each of K-Tel International (USA), Inc., a Minnesota corporation ("KTI") and Dominion Entertainment, Inc., a Minnesota corporation ("Dominion", together with KTI, the "Subsidiaries") and each of their respective successors and assigns (Seller and such parties herein referred to as the "Seller Parties"), hereby agree as follows: WHEREAS, pursuant to that certain Purchase and Sale Agreement (the "Purchase Agreement") dated as of March 3, 1997 by and between Platinum Entertainment, Inc., a Delaware corporation (the "Company"), and Seller, the Company is purchasing all of the issued and outstanding capital stock of the Subsidiaries (the "Stock"). WHEREAS, it is the intention of the Seller and the Company that (i) all liabilities owing and obligations due to the Seller Parties from the Subsidiaries and (ii) all liabilities owing and obligations due to the Subsidiaries from the Seller Parties, are terminated immediately prior to the consummation of the transactions contemplated by the Purchase Agreement, except as set forth below. WHEREAS, the Company's obligation to consummate the purchase of the Stock is subject to the condition that the Seller Parties on the one hand, and the Subsidiaries, on the other hand, execute and deliver this Mutual General Release. WHEREAS, the Seller Parties desire that the Company's purchase of the Stock be consummated in accordance with the terms and conditions of the Purchase Agreement, and therefore the Seller Parties have agreed to execute and deliver to the Subsidiaries this General Release. NOW, THEREFORE, in consideration of the Company and the Seller consummating the purchase and sale of the Stock in accordance with the terms and conditions of the Purchase Agreement, the monetary benefit derived thereby, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller Parties, on the one hand, and the Subsidiaries, on the other hand, hereby release and absolutely and forever discharge the other and from any and all claims, demands, debts, liabilities, accounts, obligations, costs, expenses, liens, actions and causes of action of every kind and nature whatsoever, whether now known or unknown, suspected or unsuspected, all of which shall for convenience hereafter be referred to as the "Released Matters", which any of the parties ever had, now has or may hereafter have against the other, by reason of any act, contract, omission, event, services rendered or transaction whenever occurring or existing at any time whatsoever to and including the date hereof. Notwithstanding anything to the contrary in this Mutual General Release, this Mutual General Release is not in any manner releasing any claims or obligations of the Company and the Subsidiaries, on the one hand, and the Seller Parties, on the other hand, may have against the other under the Purchase Agreement or any of the documents delivered in connection therewith (including, without limitation, the License Agreements (as defined in the Purchase Agreement)), and such rights shall not constitute a Released Matter. The Seller Parties, on the one hand, and the Subsidiaries, on the other hand, hereby irrevocably agree to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any suit, action, or proceeding of any kind, in any court or before any tribunal, against the other based upon any Released Matters. This Mutual General Release will be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of law principles. All words uses in this General Release shall be construed to be of such gender and/or number as the circumstances require. The execution, delivery and performance of this Mutual General Release has been duly authorized by all necessary action of the parties hereto and constitutes the valid and binding obligations of the parties hereto, enforceable in accordance with the terms hereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. The execution, delivery and performance of this Mutual General Release will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both, would constitute) a default under, (i) any of the parties' respective organizational documents; (ii) any instrument, contract or other agreement by or to which each is a party or their assets are bound or subject; (iii) any statute or regulation, order, judgment or decree of any court or governmental or regulatory body; or (iv) any license, permit, order or approval of any governmental or regulatory body relating to its business. No approval or consent of any foreign, Federal, state, county, local or other governmental or regulatory body or court and no approval or consent of any other person is required in connection with the execution, delivery or performance of this Mutual General Release by the parties hereto. The term "Affiliates" shall mean all affiliates (including without limitation persons or entities who directly or indirectly through one or more intermediaries controls or is under common control with Seller or any of its subsidiaries (other than the Subsidiaries)), associates, agents, and representatives of Seller or any of its subsidiaries. The undersigned has read and understands this Mutual General Release, has had the opportunity to consult with an attorney prior to signing it, and voluntarily enters into it with full knowledge of its terms and conditions and that such terms and conditions are binding on it. IN WITNESS WHEREOF, the undersigned have executed this General Release as of __________________ ____, 1997. SELLER: THE SUBSIDIARIES: K-TEL INTERNATIONAL, INC. K-TEL INTERNATIONAL (USA), INC. By: By: Its: Its: [ADDITIONAL SIGNATURE DOMINION ENTERTAINMENT, INC. BLOCKS FOR THE OTHER SELLER PARTIES] By: Its: EX-3.2(F) 7 FORM OF OPINION OF COUNSEL EXHIBIT 3.2(f) FORM OF OPINION OF COUNSEL OF K-TEL INTERNATIONAL, INC. 1. Seller and each of the Subsidiaries is a corporation duly organized, existing and in good standing under the laws of the State of Minnesota, and to our knowledge, has the corporate power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise posses or use the properties and assets it purports to own, hold under lease, or otherwise posses or use. 2. Seller and each of Seller's Affiliates have all requisite corporate power and authority to enter into the Purchase Agreement and each of the agreements referred to in Sections 3.2(g) through (k) of the Purchase Agreement (together with the Purchase Agreement, the "Transaction Documents"), and perform their respective obligations under the Transaction Documents. 3. The execution and delivery of the Transaction Documents have been duly authorized by all necessary corporate action on the part of Seller and its Affiliates, to the extent applicable, and each of the Transaction Documents to which Seller or its Affiliates are a party have been duly executed and delivered by Seller and the respective Affiliates. 4. The execution and delivery of the Transaction Documents and the performance by Seller and its Affiliates thereunder does not, and the consummation of the transactions contemplated thereby will not: violate the Articles of Incorporation or By-laws of Seller and its Affiliates, (ii) to our knowledge, result in a breach of any of the terms or conditions of or constitute a default under any material written indenture, contract, lease or license or other agreement or instruments known to us and to which Seller or its Affiliates is a party, except as disclosed in the Transaction Documents (including the Disclosure Letter) or (iii) to our knowledge, constitute an event which would permit any party to modify, alter, amend, cancel or otherwise affect or terminate any such indenture, contract, instrument, agreement or license except as disclosed in the Transaction Documents (including the Disclosure Letter). To our knowledge, neither Seller nor its Affiliates is a party to, or expressly bound by, any judgment, injunction or decree of any court or governmental authority which would restrict or interfere with the performance by Seller and its Affiliates of their respective obligations under the Purchase Agreement. 5. Each of the Transaction Documents to which Seller and its Affiliates is a party is enforceable against each of Seller and its Affiliates in accordance with its terms. 6. To our knowledge, there are no actions or proceedings against Seller or its Affiliates pending or overtly threatened in writing, before any court, governmental agency or arbitrator which seek to affect the enforceability of the Transaction Documents. EX-3.3(C) 8 FORM OF OPINION OF COUNSEL EXHIBIT 3.3(c) FORM OF OPINION OF COUNSEL OF PLATINUM ENTERTAINMENT, INC. 1. Buyer is a corporation duly organized, existing and in good standing under the laws of the State of Illinois and Delaware, and to our knowledge, has the corporate power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise posses or use the properties and assets it purports to own, hold under lease, or otherwise posses or use. 2. Buyer has all requisite corporate power and authority to enter into the Asset Purchase Agreement and each of the agreements referred to in Section 3.3(d) through (f) of the Purchase Agreement (together with the Purchase Agreement, the "Transaction Documents"), and perform its respective obligations under the Transaction Documents. 3. The execution and delivery of the Transaction Documents have been duly authorized by all necessary corporate action on the part of Buyer, and each of the Transaction Documents to which Buyer is a party have been duly executed and delivered by Buyer. 4. The execution and delivery of the Transaction Documents and the performance by Buyer thereunder does not, and the consummation of the transactions contemplated thereby will not: violate the Articles of Incorporation or By-laws of Buyer, (ii) to our knowledge, result in a breach of any of the terms or conditions of or constitute a default under any material written indenture, contract, lease or license or other agreement or instruments known to us and to which Buyer is a party, except as disclosed in the Transaction Documents (including the Disclosure Letter) or (iii) to our knowledge, constitute an event which would permit any party to modify, alter, amend, cancel or otherwise affect or terminate any such indenture, contract, instrument, agreement or license except as disclosed in the Transaction Documents (including the Disclosure Letter). To our knowledge, Buyer is not a party to, or expressly bound by, any judgment, injunction or decree of any court or governmental authority which would restrict or interfere with the performance by Buyer of its obligations under the Purchase Agreement. 5. Each of the Transaction Documents to which Buyer is a party is enforceable against Buyer in accordance with its terms. 6. To our knowledge, there are no actions or proceedings against Buyer pending or overtly threatened in writing, before any court, governmental agency or arbitrator which seek to affect the enforceability of the Transaction Documents. EX-6.7 9 VOTING AGREEMENT EXHIBIT 6.7 VOTING AGREEMENT THIS VOTING AGREEMENT is made and entered into as of this 3rd day of March, 1997, by and among Platinum Entertainment, Inc. ("Buyer"), Mr. Philip Kives, an individual, K-5 Leisure Products, Inc., a Minnesota corporation ("K-5"), and National Development Ltd., a Manitoba corporation ("NDL") (Mr. Kives, K-5 and NDL individually, a "Shareholder" and collectively, the "Shareholders"). RECITALS: WHEREAS, this Voting Agreement is being entered into in connection with that certain Purchase and Sale Agreement, dated of even date herewith, by and between Buyer and K-tel International, Inc. ("Seller") (the "Purchase Agreement"), whereby Buyer is purchasing from Seller all of the issued and outstanding shares of capital stock of two wholly-owned subsidiaries of Seller, K-tel International (USA), Inc. and Dominion Entertainment, Inc. (the "Contemplated Transaction"). WHEREAS, the consummation of the Contemplated Transaction requires that the requisite shareholders of Seller vote upon and approve the Contemplated Transaction; WHEREAS, Mr. Kives is the beneficial owner of certain shares of capital stock of Seller; WHEREAS, K-5 and NDL are controlled by Mr. Kives and each of K-5 and NDL are the beneficial owners of certain shares of capital stock of Seller; WHEREAS, the Shareholders, own in excess of 70% of the of the issued and outstanding voting capital stock of Seller as of the date hereof; and WHEREAS, this Voting Agreement is an inducement to, and requirement of, Buyer entering into the Purchase Agreement, and the Shareholders have agreed to document their agreement in their capacity as the beneficial owners of capital stock of Seller (for Mr. Kives, solely in his capacity as a shareholder of Seller but not in his capacity as an officer or director of Seller) to vote the outstanding shares of Seller beneficially owned by each of them for the Contemplated Transaction. NOW, THEREFORE, in consideration of the foregoing premises and the following agreements, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Voting Agreement hereby agree as follows: I. VOTING FOR THE CONTEMPLATED TRANSACTION To facilitate the execution and delivery of the Purchase Agreement and satisfy the condition thereunder that the requisite shareholders of Seller duly approve the Contemplated Transaction, each of the Shareholders agree on behalf of themselves and any person to whom any of them transfer any shares of Voting Stock (as defined herein), during the term hereof, to vote any and all shares of Voting Stock beneficially owned by them and any and all outstanding shares of Voting Stock over which each of them has voting control in favor of the Purchase Agreement and the Contemplated Transaction at the meeting of Seller's shareholders to consider approval of the Contemplated Transaction. In the event that such action is proposed in the form of a written consent thereto, the Shareholders shall execute any consent form provided for such purpose to approve the Contemplated Transaction. To facilitate the execution and delivery of the Purchase Agreement and satisfy the condition thereunder that the requisite shareholders of Seller duly approve the Contemplated Transaction the Shareholders agree and confirm that, in connection with the Contemplated Transaction, none of them shall demand an appraisal of the shares of Voting Stock beneficially owned by each of them in connection with the Contemplated Transaction in accordance with Section 302A.471 and 302A.473 of the Minnesota Business Corporation Act or any applicable Canadian corporation law. As used in this Agreement, the term "Voting Stock" means the voting stock or other securities of any class, classes or series of the Seller, the holders of which are entitled to vote on the Contemplated Transaction and the Purchase Agreement. II. REPRESENTATIONS, WARRANTIES AND COVENANTS Representations and Warranties. Each Shareholder severally, and not jointly and severally, represents and warrants to Buyer that: the execution, delivery and performance of this Voting Agreement has been duly authorized by all necessary action of the Shareholder and constitutes the valid and binding obligation of such Shareholder, enforceable in accordance with the terms hereof except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies; the Shareholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates the provisions of this Voting Agreement; and the execution, delivery and performance of this Voting Agreement will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both, would constitute) a default under, (i) its organizational documents to the extent applicable (ii) any instrument, contract or other agreement by or to which he is a party or his assets are bound or subject; (iii) any statute or regulation, order, judgment or decree of any court or governmental or regulatory body; or (iv) any license, permit, order or approval of any governmental or regulatory body. No approval or consent of any foreign, Federal, state, county, local or other governmental or regulatory body or court and no approval or consent of any other person is required in connection with the execution, delivery or performance of this Voting Agreement by him or it as the case may be. Covenants. Each Shareholder severally, and not jointly, covenants that he or it as the case may be: shall execute such documents and other papers and perform such further acts as may be reasonably required or desirable to carry out the provisions of this Voting Agreement; shall not grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates the provisions of this Voting Agreement during the term hereof; shall not during the term hereof sell, transfer, assign, pledge or otherwise dispose of any interest in any Voting Stock unless and until the person or entity to whom such security is to be transferred shall have executed a written agreement, substantially in the form of this Voting Agreement, pursuant to which such person becomes a party to this Voting Agreement and agrees to be bound by all the provisions hereof as if such person were an original party to this Voting Agreement; and shall not and shall not authorize or permit any of his or its as the case may be, financial advisors, attorneys, accountants or other representatives retained by him or it as the case may be, (for Mr. Kives, solely in his capacity as a shareholder of Seller but not in his capacity as an officer or director of Seller) to solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Subsidiaries or the Business (as such terms are defined in the Purchase Agreement), or any proposal or offer to acquire in any manner a material equity interest in, or a material portion of the assets of, the Subsidiaries or the Business, other than the transactions contemplated by the Purchase Agreement or agree to or endorse any such proposal, or engage in any negotiations or discussions with any person relating to any such proposal. The Shareholders shall promptly advise Buyer orally and in writing of any inquiries regarding, or offers of, any such proposal. III. MISCELLANEOUS a. Transferees Bound. This Voting Agreement shall bind and inure to the benefit of the successors, heirs, personal representatives, transferees and assigns of the parties hereto. b. Termination of Voting Agreement. This Voting Agreement shall terminate only upon the first to occur of the following events: (i) the closing of the Contemplated Transaction; or (ii) the termination of the Purchase Agreement, in accordance with the terms contained therein. c. Entire Agreement. This Voting Agreement constitutes the entire agreement of, and supersedes any prior agreement among, the undersigned with respect to the subject matter hereof. d. Amendments. This Voting Agreement may be amended, or any provision hereof waived, only if approved by the written consent of all of the parties hereto. e. Remedies for Breach. It is expressly understood that the equitable remedies of specific performance and injunction shall be available for the enforcement of the covenants and agreements herein, and that the availability of these equitable remedies shall not be deemed to limit any other right or remedy to which any party to this Voting Agreement otherwise would be entitled. f. Notices. Any notice permitted or required hereunder shall be in writing and shall be given by personal delivery or by deposit in the U.S. registered or certified mail, return receipt requested, addressed, in the case of the Buyer, to its President, at Buyer's principal place of business in the State of Illinois, and, in the case of the Shareholders, to the last address reflected on the records of Seller, or to such other address as any party may designate by written notice to the others in accordance with this subsection. g. Waivers. No waiver of any provision of this Voting Agreement shall be implied, and no express waiver shall be valid, unless in writing and signed by the party to be charged. No waiver of any breach of any of the terms, provisions or conditions of this Voting Agreement shall be construed as, or held to be a waiver of, any other breach or a waiver of, acquiescence in, or consent to, any further or succeeding breach hereof. h. Severability. If any provision of this Voting Agreement is determined to be invalid or unenforceable, the remaining provisions of this Voting Agreement shall not be affected thereby and shall be binding upon the parties. i. Governing Law. This Voting Agreement shall be construed and enforced, and all questions concerning compliance by any person with its terms shall be determined, under the laws of the State of Delaware, without regard to principles of conflicts of law. j. Counterparts. This Voting Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. k. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Voting Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be signed as of the date first written above. BUYER: PLATINUM ENTERTAINMENT, INC. By: Its: SHAREHOLDERS: Philip Kives, individually K-5 LEISURE PRODUCTS, INC. By: Its: NATIONAL DEVELOPMENT LTD. By: Its: EX-8.7(I) 10 NON-COMPETITION AGREEMENT EXHIBIT 8.7(i) NON-COMPETITION AGREEMENT This NON-COMPETITION AGREEMENT (the "Agreement") is made as of this ____ day of ____________, 1997 by and between PHILIP KIVES ("Shareholder") and PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"). WHEREAS, Concurrently with the execution and delivery of this Agreement, Buyer is purchasing from K-tel International, Inc., a Minnesota corporation (the "Seller") all of the issued and outstanding shares of common stock (the "Shares"), of two of Seller's wholly owned subsidiaries, K-tel International (USA), Inc., a Minnesota corporation (KTI) and Dominion Music, Inc., a Minnesota corporation ("Dominion", together with KTI, the "Subsidiaries") pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated March 3, 1997 (the "Purchase Agreement"); WHEREAS, the execution and delivery of this Agreement is a condition to the purchase of the Shares by Buyer; WHEREAS, Seller is engaged in the business of recording, releasing, licensing, publishing, distributing and otherwise exploiting recorded music products on a worldwide basis (the "Seller's Music Business"); WHEREAS, pursuant to the Purchase Agreement, Buyer is purchasing and Seller is selling, all of Seller's Music Business, except for the Retained Music Business and the Excluded Assets (the "Business"); and WHEREAS, the Shareholder is a principal shareholder and member of the Board of Directors of Seller and has intimate and detailed knowledge of the operations of Seller, the Subsidiaries and the Business. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: 1. DEFINITIONS. Capitalized terms not expressly defined in this Agreement shall have the meanings ascribed to them in the Purchase Agreement. 2. ACKNOWLEDGEMENT. Shareholder acknowledges that, as a result of his long-term relationship with and position as a shareholder and board member of Seller, he has developed knowledge about the Business that is special, unique, confidential and of intellectual character and has had access and familiarity with business information which is considered confidential and proprietary by the Subsidiaries and the Business, including, without limitation, projections, prospects, strategic plans, customer lists, contractual terms and conditions and trade secrets (the "Proprietary Information"); which information will become confidential and proprietary information of Buyer upon consummation of the Contemplated Transactions, the value of which would be destroyed by disclosure to anyone other than Buyer or by its use in competition with Buyer. 3. COVENANTS. In light of the foregoing, as an inducement to, and a requirement of, Buyer to enter into the Purchase Agreement and as additional consideration for the consideration to be paid to Seller under the Purchase Agreement (from which Shareholder is indirectly benefiting), Shareholder is agreeing to the covenants set forth in this Agreement. Shareholder acknowledges that compliance with these covenants will not preclude him from earning a living and supporting his family during the Restricted Period (as defined below). Accordingly, Shareholder hereby agrees as follows: (a) Non-Disclosure Covenants. Shareholder will not, at any time, (whether pursuant to a written agreement or otherwise), and Shareholder will cause his respective Affiliates not to, directly or indirectly, disclose, furnish, make available, or utilize any of the Proprietary Information. Shareholder's obligations under this Section 3(a) with respect to particular Proprietary Information will terminate only at such time (if any) as the Proprietary Information in question becomes generally known to the public other than through a breach of Shareholder's obligations under this Agreement. Notwithstanding the preceding sentence, the term "Proprietary Information" does not include information that is or becomes publicly available through no fault of Shareholder. (b) Non-Competition Covenants. Shareholder will not, and Shareholder will cause his Affiliates not to, during the Restricted Period, anywhere in the world, other than the Retained Territories, Africa and the Middle East (the "Restricted Territory"), directly or indirectly (whether as an owner, partner, shareholder, agent, officer, director, employee, independent contractor, consultant, or otherwise): (i) perform services for, or engage in, the Business in any capacity; or (ii) re-record any compositions contained in any master recordings purchased by Buyer as part of the Business. (c) Non-Solicitation Covenants. For a period of one year after execution hereof, for any reason, Shareholder shall not, and Shareholder shall cause his Affiliates not to, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity, employ or engage, recruit or solicit for employment or engagement, any person who is or becomes employed by Buyer or the Subsidiaries, or otherwise seek to influence or alter any such person's relationship with Buyer or the Subsidiaries, during such one-year period. (d) Negative Comment Covenant. (i) Shareholder will not, and Shareholder will cause his Affiliates not to, at anytime, make any statements, whether orally or in writing, which would bring disrepute to Buyer or the Subsidiaries, their products or services, or otherwise hinder the business prospects thereof. (ii) Buyer will not, and Buyer will cause its Affiliates not to, at anytime, make any statements, whether orally or in writing, which would bring disrepute to Shareholder, his products or services, or otherwise hinder the business prospects thereof. The term "Restricted Period" shall mean the period commencing on the date hereof and continuing thereafter until three (3) years from the date hereof. Nothing contained in Section 3(a) above shall be construed to prevent Shareholder from investing in the stock of any company which operates in the Business, but only if Shareholder is solely a passive investor and is not involved in any manner in any aspect of the business of said corporation and if Shareholder and his associates (as such term is defined in Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in effect on the date hereof), collectively, do not own more than an aggregate of two percent (2%) of the capital stock of such corporation. Notwithstanding the foregoing or anything else contained in this Agreement, this Agreement shall not prohibit, limit or otherwise restrict (i) the operation or exploitation by Shareholder of the Retained Music Business, (ii) the realization of the rights provided under the License Agreements entered into pursuant to the Purchase Agreement, provided no breach of the License Agreements by Shareholder or his Affiliates has occurred (iii) operating any Shareholder's direct response business, including the sale of entertainment and music products, (iv) the retail sale of music products originally sold through direct response, (v) the operation of a business which competes with the Business in Canada, and (vi) the exploitation worldwide of the K-Tel UK music catalog. 4. SCOPE/SEVERABILITY. The parties acknowledge that the businesses of Buyer and the Subsidiaries are and will continue to be worldwide in scope and thus the covenants in Section 3 would be particularly ineffective if the covenants were to be limited to a particular geographic area except that the covenants under Section 3 shall only apply to the Restricted Territory. If any court of competent jurisdiction at any time deems the Restricted Period unreasonably lengthy, or the Restricted Territory unreasonably extensive, or any of the covenants set forth in Section 3 not fully enforceable, the other provisions of Section 3, and this Agreement in general, will nevertheless stand and to the full extent consistent with law continue in full force and effect, and it is the intention and desire of the parties that the court treat any provisions of this Agreement which are not fully enforceable as having been modified to the extent deemed necessary by the court to render them reasonable and enforceable and that the court enforce them to such extent (for example, that the Restricted Period be deemed to be the longest period permissible by law, but not in excess of the length provided for in Section 3, and the Restricted Territory be deemed to comprise the largest territory permissible by law under the circumstances). 5. EQUITABLE REMEDIES. Shareholder acknowledges and agrees that the agreements and covenants set forth in this Agreement are reasonable and necessary for the protection of Buyer's business interests, that irreparable injury will result to Buyer if Shareholder or his Affiliates breaches any of the terms of these agreements and covenants, and that in the event of Shareholder's or his Affiliates' actual or threatened breach of any covenant set forth in Section 3, Buyer will have no adequate remedy at law. Shareholder accordingly agrees that in the event of any actual or threatened breach by him or his Affiliates of such covenant, Buyer will be entitled to immediate injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. Nothing in this Agreement will be construed as prohibiting Buyer from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages that Buyer is able to prove. 6. INDEPENDENT COVENANTS. Each of the covenants in Section 3 will be construed as independent of any other covenant or provision in Section 3 or in any other part of this Agreement. 7. REPRESENTATIONS OF SHAREHOLDER. Shareholder represents and warrants to Buyer that he has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and to perform his respective obligations hereunder. 8. SUCCESSORS AND ASSIGNS. Buyer may assign its rights hereunder without consent of the other party hereto to a purchaser of Buyer whether pursuant to a sale of substantially all of Buyer's assets or stock (by merger or otherwise). 9. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of law principles. 10. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any person. 11. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single agreement. 12. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof, except as otherwise expressly set forth in the Purchase Agreement. 13. TERMINATION. This Agreement may terminate pursuant to the terms of Section III(A)(4) of that certain License Agreement, dated ______________, by and between the Subsidiaries and K-tel Entertainment, Inc. IN WITNESS WHEREOF, Shareholder and Buyer have executed this Agreement as of the date first written above. PLATINUM ENTERTAINMENT, INC. By: Philip Kives Its: EX-8.7(II) 11 NON-COMPETITION AGREEMENT EXHIBIT 8.7(ii) NON-COMPETITION AGREEMENT This NON-COMPETITION AGREEMENT (the "Agreement") is made as of this ____ day of _____________, 1997 by and between K-TEL INTERNATIONAL INC., a Delaware corporation ("Seller") and PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"). WHEREAS, Concurrently with the execution and delivery of this Agreement, Buyer is purchasing from Seller all of the issued and outstanding shares of common stock (the "Shares"), of two of its wholly owned subsidiaries, K-tel International (USA), Inc., a Minnesota corporation (KTI) and Dominion Music, Inc., a Minnesota corporation ("Dominion", together with KTI, the "Subsidiaries") pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated March 3, 1997 (the "Purchase Agreement"); WHEREAS, the execution and delivery of this Agreement is a condition to the purchase of the Shares by Buyer; WHEREAS, Seller is engaged in the business of recording, releasing, licensing, publishing, distributing and otherwise exploiting recorded music products on a worldwide basis (the "Seller's Music Business"); and WHEREAS, pursuant to the Purchase Agreement, Buyer is purchasing and Seller is selling, all of Seller's Music Business, except for the Retained Music Business and the Excluded Assets (the "Business"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: 1. DEFINITIONS. Capitalized terms not expressly defined in this Agreement shall have the meanings ascribed to them in the Purchase Agreement. 2. ACKNOWLEDGEMENT. Seller acknowledges that it has knowledge and possesses information about the Business that is special, unique, confidential and of intellectual character which is considered confidential and proprietary by the Subsidiaries and the Business, including, without limitation, projections, prospects, strategic plans, customer lists, contractual terms and conditions and trade secrets) (the "Proprietary Information"), which information will become confidential and proprietary information of Buyer upon consummation of the Contemplated Transactions, the value of which would be destroyed by disclosure to anyone other than Buyer or by its use in competition with Buyer. 3. COVENANTS. In light of the foregoing, as an inducement to, and a requirement of, Buyer to enter into the Purchase Agreement and as additional consideration for the consideration to be paid to Seller under the Purchase Agreement (from which Seller is directly benefiting), Seller is agreeing to the covenants set forth in this Agreement. Seller acknowledges that compliance with these covenants will not preclude him from earning a living and supporting his family during the Restricted Period (as defined below). Accordingly, Seller hereby agrees as follows: (a) Non-Disclosure Covenants. Seller will not, at any time, (whether pursuant to a written agreement or otherwise), and Seller will cause its Affiliates not to, directly or indirectly, disclose, furnish, make available, or utilize any of the Proprietary Information. Seller's obligations under this Section 3(a) with respect to particular Proprietary Information will terminate only at such time (if any) as the Proprietary Information in question becomes generally known to the public other than through a breach of Seller's obligations under this Agreement. Notwithstanding the preceding sentence, the term "Proprietary Information" does not include information that is or becomes publicly available through no fault of Seller. (b) Non-Competition Covenants. Seller will not, and Seller will cause its Affiliates not to, during the Restricted Period, anywhere in the world, other than the Retained Territories, Africa and the Middle East (the "Restricted Territory"), directly or indirectly (whether as an owner, partner, shareholder, agent, officer, director, employee, independent contractor, consultant, or otherwise): (i) perform services for, or engage in, the Business in any capacity; or (ii) re-record any compositions contained in any master recordings purchased by Buyer from Seller as part of the Business. (c) Non-Solicitation Covenants. For a period of one year after the execution hereof, for any reason, Seller shall not, and will cause his Affiliates not to, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity, employ or engage, recruit or solicit for employment or engagement, any person who is or becomes employed by Buyer or the Subsidiaries, or otherwise seek to influence or alter any such person's relationship with during such one-year period. (d) Negative Comment Covenant. (i) Shareholder will not, and Shareholder will cause his Affiliates not to, at anytime, make any statements, whether orally or in writing, which would bring disrepute to Buyer or the Subsidiaries, their products or services, or otherwise hinder the business prospects thereof. (ii) Buyer will not, and Buyer will cause its Affiliates not to, at anytime, make any statements, whether orally or in writing, which would bring disrepute to Seller or its subsidiaries, their products or services, or otherwise hinder the business prospects thereof. The term "Restricted Period" shall mean the period commencing on the date hereof and continuing thereafter until three (3) years from the date hereof. Notwithstanding the foregoing or anything else contained in this Agreement, this Agreement shall not prohibit, limit or otherwise restrict (i) the operation or exploitation by Seller of the Retained Music Business, (ii) the realization of the rights provided under the License Agreements entered into pursuant to the Purchase Agreement, provided no breach of the License Agreements by Seller or its Affiliates has occurred, (iii) operating any Seller's direct response business, including the sale of entertainment and music products, (iv) the retail sale of music products originally sold through direct response, (v) the operation of a business which competes with the Business in Canada, and (vi) the exploitation worldwide of the K-Tel UK music catalog. 4. SCOPE/SEVERABILITY. The parties acknowledge that the businesses of Buyer and the Subsidiaries are and will continue to be worldwide in scope and thus the covenants in Section 3 would be particularly ineffective if the covenants were to be limited to a particular geographic area except that the covenants under Section 3 shall only apply to the Restricted Territory. If any court of competent jurisdiction at any time deems the Restricted Period unreasonably lengthy, or the Restricted Territory unreasonably extensive, or any of the covenants set forth in Section 3 not fully enforceable, the other provisions of Section 3, and this Agreement in general, will nevertheless stand and to the full extent consistent with law continue in full force and effect, and it is the intention and desire of the parties that the court treat any provisions of this Agreement which are not fully enforceable as having been modified to the extent deemed necessary by the court to render them reasonable and enforceable and that the court enforce them to such extent (for example, that the Restricted Period be deemed to be the longest period permissible by law, but not in excess of the length provided for in Section 3, and the Restricted Territory be deemed to comprise the largest territory permissible by law under the circumstances). 5. EQUITABLE REMEDIES. Seller acknowledges and agrees that the agreements and covenants set forth in this Agreement are reasonable and necessary for the protection of Buyer's business interests, that irreparable injury will result to Buyer if Seller or its Affiliates breaches any of the terms of these agreements and covenants, and that in the event of Seller's or its Affiliates' actual or threatened breach of any covenant set forth in Section 3, Buyer will have no adequate remedy at law. Seller accordingly agrees that in the event of any actual or threatened breach by it or its Affiliates of such covenant, Buyer will be entitled to immediate injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. Nothing in this Agreement will be construed as prohibiting Buyer from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages that Buyer is able to prove. 6. INDEPENDENT COVENANTS. Each of the covenants in Section 3 will be construed as independent of any other covenant or provision in Section 3 or in any other part of this Agreement. 7. SUCCESSORS AND ASSIGNS. Buyer may assign its rights hereunder without consent of the other party hereto to a purchaser of Buyer whether pursuant to a sale of substantially all of Buyer's assets or stock (by merger or otherwise). 8. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of law principles. 9. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any person. 10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute a single agreement. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof, except as otherwise expressly set forth in the Purchase Agreement. 12. TERMINATION. This Agreement may terminate pursuant to the terms of Section III(A)(4) of that certain License Agreement, dated ______________, by and between the Subsidiaries and K-tel Entertainment, Inc. IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the date first written above. K-TEL INTERNATIONAL, INC. PLATINUM ENTERTAINMENT, INC. By: By: Its: Its: EX-8.4(B)(I) 12 RETAINED TERRITORIES Exhibit 8.4(b)(i) Retained Territories Albania Georgia Netherlands Andorra Germany Norway Armenia Greece Poland Austria Greenland Romania Azerbaijan Hungary All of the States previously members of the USSR Belarus Iceland Serbia & Montenegro Belgium Ireland Slovak Bosnia & Hercegorina Italy Slovenia Bulgaria Latvia Spain Croatia Liechtenstein Sweden Cyprus Lithuania Switzerland Czech Republic Luxembourg Turkey Denmark Macedonia Ukraine Estonia Malta United Kingdom Finland Moldova Vatican France Monaco EX-8.4(B)(II) 13 LICENSE AGREEMENT EXHIBIT 8.4(b)(ii) LICENSE AGREEMENT AGREEMENT made as of this _____ day of ________, 1997, by and between DOMINION ENTERTAINMENT, INC. and K-TEL INTERNATIONAL (USA), INC., each of 2605 Fernbrook Lane North, Minneapolis, Minnesota 55447 (individually and collectively referred to as "Lessor") and K-TEL INTERNATIONAL, INC., a Minnesota corporation, c/o Philip Kives, 220 Saulteaux Crescent, Winnipeg, Manitoba, Canada R35 3W2 (hereinafter referred to as "Company"). W I T N E S S E T H: WHEREAS, Lessor is the owner of the master recordings, described in Schedule "A" attached hereto (the "Masters"), and licenses to certain master recordings ("Licensed Masters") under certain License Agreements described in Schedule "B" attached hereto (the "Licenses"); and WHEREAS, Lessor is willing to grant to Company the right to use the Masters and Licenses subject to the terms and conditions set forth below, and Company is willing to use the Masters and Licenses on only the terms and conditions set forth below; NOW THEREFORE, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and in consideration of the mutual promises and covenants hereinafter contained, the parties hereby agree as follows; I. GRANT OF LICENSE AND SUBLICENSE. (A) Lessor hereby licenses to Company the sole and exclusive right to use the Masters for the purpose of manufacturing, distributing, performing and selling phonorecords throughout the territory described in Schedule "C" attached hereto (the "Territory"). Licensor further licenses to Company the non-exclusive right to manufacture, distribute, and sell phonorecords containing the Masters in the countries described in Schedule "D" (the "Nonexclusive Territory"). Lessor further licenses to Company the exclusive right to use the Masters in synchronization and performance in audiovisual works throughout the Territory, subject to the provisions of Section I(C). All other rights in or to the Masters are specifically reserved by Lessor. (B) Lessor sublicenses to Company the sole and exclusive right to exploit within the Territory such rights granted to Lessor by various third parties pursuant to the Licenses that are necessary for the purpose only of manufacturing, distributing, performing and selling phonorecords containing masters subject to the Licenses (the "License Masters") and, subject to the provisions of Section I(C), for use of the License Masters in synchronization and performance in audiovisual works throughout the Territory. Lessor further sublicenses to Company the non-exclusive right to manufacture, distribute, and sell phonorecords containing the License Masters within the Nonexclusive Territory. All other rights that may be granted to Lessor pursuant to the Licenses or to the License Masters are specifically reserved by Lessor. (C) Company hereby sublicenses to Lessor the nonexclusive right to use, and to authorize others to use, the Masters and the License Masters in synchronization and performance in audiovisual works throughout the Territory. The exercise of this right shall be subject to the provisions of Section II. (D) The rights hereby granted by Lessor to Company shall include the following: (1) The exclusive right throughout the Territory to manufacture, advertise, sell, lease, license, and distribute phonorecords derived from the Masters, and to authorize others to do so. (2) The right throughout the Territory to use and permit others to use and publish the name (including professional name), likeness, and biographical materials of the recording artists whose performances are embodied on the Masters for advertising and trade purposes in connection with the manufacture, distribution, sale and exploitation of phonorecords derived from the Masters. (3) The right throughout the Territory to use and to authorize others to use the Masters in synchronization with audiovisual works and to perform and authorize others to perform such audiovisual works within the Territory only. (4) To the extent only as authorized by the Licenses, to manufacture, advertise, sell, lease, license, and distribute phonorecords derived from the License Masters throughout the Territory, and to authorize others to do so. (5) To the extent only after Company is reasonably able to establish to Lessor that such use shall be restricted exclusively to the Territory, and non-exclusively to the Nonexclusive Territory, the right to exploit the Masters by electronic transmission, including exploitation by wire, satellite, microwave, fiber optic cable, by means of the Internet, or any similar technology, whether now known or hereafter developed. Lessor's consent to the exploitation of the Masters by electronic transmission by Company shall not be unreasonably withheld. (E) In accepting this license, Company agrees to use the Masters, the License Masters, and the rights sublicensed under the Licenses only as authorized herein. Company further agrees that all sublicenses issued by Company shall be under terms and conditions that are customary to the trade. Company acknowledges that the Masters and the Licenses are the property of Lessor. Company also agrees it shall not contest the validity or ownership by Lessor of the Masters or the Licenses or, either directly or indirectly, take any action which in any manner might infringe or impair the validity, scope, title, or enforceability of Lessor in the Masters or Licenses. (F) The rights granted in Subparagraphs (A), (B) and (D) shall not be transferred except as specifically provided for below. (G) Lessor agrees that it will exploit the Masters by electronic transmission, including exploitation by wire, satellite, microwave, fiber optic cable, by means of the Internet, or any similar technology, whether now known or hereafter developed, only after Lessor is reasonably able to establish to Company that such use shall be restricted exclusively to territories outside of the Territory. Company's consent to the exploitation of the Masters by electronic transmission by Lessor shall not be unreasonably withheld. II. USE OF MASTER IN AN AUDIOVISUAL WORK. In the event a Master is used in an audiovisual work, and Lessor receives proceeds from the use of such audiovisual work that are derived from exploitation of such audiovisual work in the Territory, Lessor will remit to Company fifty percent (50%) of Lessor's net receipts from such exploitation that accrue during the period such Master is subject to the provisions of this Agreement, determined country by country within the Territory. For purposes of this paragraph, the term "net receipts" shall mean all sums actually received by Lessor or any of its affiliates, or credited to Lessor's or any of its affiliate's account, from such exploitation, less all related royalty payments, agents' fees and costs of collection. Company agrees to refer all inquiries concerning the exploitation of Masters for audiovisual works outside of the Territory to Lessor. In the event a reasonable allocation of proceeds from the use of a Master in an audiovisual work cannot be made between those derived from exploitation in the Territory and those derived from exploitation outside the Territory, the parties agree that Company's portion of such proceeds during the period such Master is subject to the provisions of this Agreement shall be one-sixth (1/6) of Lessor's net receipts that are so unallocated if the unallocated receipts are worldwide and, if not worldwide, shall be pro-rated in a comparable fashion. III. LESSOR'S REPRESENTATIONS, WARRANTIES, AND COVENANTS. (A) Lessor warrants, represents, and covenants: (1) That it has the full right and power to enter and perform the terms of this Agreement on its part to be performed. (2) That no other person, firm or corporation will have any right, title or interest in or to the Masters inconsistent with the rights hereby granted to Company. (3) That the sums to be paid by Company to Lessor pursuant to Section VII hereof are intended to include provision for all recording artists' and producers' royalties, and that Lessor agrees, upon receipt of full payment of royalties by Company, to pay any and all royalties or other sums which may be payable to any artists whose performances are contained in the Masters and to any producers of the Masters in respect of the recording and production thereof, the manufacture and sale of phonorecords embodying the Masters, and any other exploitation of the Masters. (4) That Lessor shall take all commercially reasonable steps to maintain the enforceability of the rights granted pursuant to the Licenses; provided, however, that Lessor shall not be required to exercise any option to extend the term of any License, nor shall Lessor be required to maintain the enforceability of any License for which Company is in default of its obligations as a sublicensee under this agreement. Lessor agrees to promptly provide Company with a copy of any notice alleging a default by Lessor under a License. If Lessor fails to cure any such default, Company may, in its sole discretion, and at its sole cost and expense, initiate such action in its own name to cure such default. In the event Lessor defaults in a payment due under a License, and such payment is validly due and undisputed ("Defaulted Obligation"), and Company elects to fully cure such Defaulted Obligation, Lessor shall reimburse Company for the amount of the Defaulted Obligation paid by Company to the entity entitled to receipt of the Defaulted Obligation. Further, in the event (i) a judgment is entered holding that Lessor defaulted on an obligation of Lessor under a License, which obligation accrued after the date of this Agreement, (ii) such judgment becomes final and non-appealable, and (iii) as a result of such final and non-appealable judgment, Lessor's rights under such License are irrevocably terminated, the provisions of the noncompetition agreements described in Paragraph 8.7 of the Purchase and Sale Agreement between Platinum Entertainment, Inc. and K-Tel International, Inc. dated as of March 3, 1997, shall lapse, automatically and without notice, effective as of the date of termination of such License. Within sixty (60) days after the end of each semi-annual period during the term of this Agreement, Lessor, at the written request of Company, will submit to Company its certification that, as to the applicable prior semi-annual period, and to its knowledge, it has paid all obligations due to royalty participants under the Licenses, subject to disputes occurring in the ordinary course of Lessor's business. IV. COMPANY'S REPRESENTATIONS, WARRANTIES, AND COVENANTS. (A) Company warrants, represents, and covenants: (1) That it has the full right and power to enter and perform the terms of this Agreement on its part to be performed. (2) That it will not, either directly or indirectly, exploit any rights granted under this Agreement other than within the Territory, provided that Company may distribute and sell phonorecords containing the Masters and the License Masters in the Nonexclusive Territory. (3) That no sublicense of any rights in or to the Masters or License Masters shall be granted except subject to the terms and conditions of this Agreement. (4) That it shall submit to Company five (5) copies of each phonorecord it releases that contains a Master or License Master, and one (1) copy of each such phonorecord released by its sublicensees, within thirty (30) days of such release. (5) That, with the exception of customarily marked promotional copies of phonorecords distributed without receipt of consideration to reviewers, broadcasters, and other customary recipients of such phonorecords, it will not give away or disproportionately discount phonorecords featuring the Masters or License Masters. (6) That it will exercise due care that its customers and sublicensees will refrain from exploiting phonorecords featuring the Masters and License Masters other than as authorized hereunder. (7) That it will not create any expenses chargeable to Lessor or obligate Lessor in any way without the prior written approval of Lessor. V. INDEMNIFICATION. (A) Lessor hereby indemnifies and agrees to hold Company harmless from and against all costs, damages, expenses (including reasonable attorneys' fees), and losses arising out of or connected with any claim by a third party which is inconsistent with any of the foregoing warranties and representations or which is a result of any breach by Lessor of any covenant contained herein, and agrees to reimburse Company upon demand for any payment made by it with respect to which the foregoing indemnity applies. Company shall give Lessor notice of each such claim and Lessor shall have the right to participate in the defense thereof with counsel of Lessor's choice and at Lessor's sole cost and expense. Pending the determination of any claim within the scope of the foregoing indemnity, Company may withhold any and all sums due to Lessor hereunder, in an amount reasonably related to such claim, provided that if litigation has not been commenced within one (1) year of such claim first being made, Company shall pay such withheld monies to Lessor. Company shall accrue interest on such withheld monies for the benefit of Lessor at the then-prevailing average interest rate applicable to passbook savings accounts in commercial banks within the State of Illinois. Lessor shall have the right to post a bond in an amount equivalent to the sum being withheld by Company in respect of any such claim with a good and sufficient surety, provided that such surety agrees unconditionally, in writing, to pay all costs, fees, damages, and other expenses incurred by Company by reason of such claim. (B) Company hereby indemnifies and agrees to hold Lessor harmless from and against all costs, damages, expenses (including reasonable attorneys' fees), and losses arising out of or connected with any claim by a third party which is inconsistent with any of the foregoing warranties and representations or which is a result of any breach by Company of any covenant contained herein, and agrees to reimburse Lessor upon demand for any payment made by it with respect to which the foregoing indemnity applies. Lessor shall give Company notice of each such claim and Company shall have the right to participate in the defense thereof with counsel of Company's choice and at Company's sole cost and expense. Pending the determination of any claim within the scope of the foregoing indemnity, Lessor may withhold any and all sums due to Company hereunder, in an amount reasonably related to such claim, provided that if litigation has not been commenced within one (1) year of such claim first being made, Lessor shall pay such withheld monies to Company. Lessor shall accrue interest on such withheld monies for the benefit of Company at the then-prevailing average interest rate applicable to passbook savings accounts in commercial banks within the State of Illinois. Company shall have the right to post a bond in an amount equivalent to the sum being withheld by Lessor in respect of any such claim with a good and sufficient surety, provided that such surety agrees unconditionally, in writing, to pay all costs, fees, damages, and other expenses incurred by Lessor by reason of such claim. VI. TERM OF AGREEMENT. The term of this Agreement shall be for a period commencing on the date hereof and continuing for the duration of the respective periods (1) copyright protection is accorded in the Territory to the Masters (determined by individual Master and country within the Territory)(hereinafter the "Term") or (2) the duration of the respective Licenses, including any renewals or other extensions thereof, unless sooner terminated pursuant to the terms hereof. VII. ROYALTIES. (A) Lessor shall be paid in respect of the sale by Company or its licensees of phonorecords embodying the Masters or the License Masters hereunder and in respect of any other exploitation by Company or its licensees of such Masters or License Masters, the following earned royalties upon the terms hereinafter set forth: (1) For Masters, the amount Lessor is obligated to pay to any royalty participant for exploitation of the Masters in the Territory and the Nonexclusive Territory. (2) For License Masters, the amount Lessor is obligated to pay to the licensor of the License Masters for exploitation of the License Masters in the Territory and the Nonexclusive Territory. (B) In respect of the royalties provided for herein: (1) Based upon the terms of agreements with third-parties setting forth the obligations of Lessor to such third parties with respect to the Masters and the License Masters, Company shall compute royalties payable to Lessor hereunder within sixty (60) days after the end of each calendar quarter of each year during which phonorecords made hereunder are sold or Company receives proceeds derived from the exploitation of the Masters or the License Masters, for the preceding three (3) month period, and will render full and complete accountings therefor certified by Company to be accurate and pay such royalties within such sixty (60) days without diminution for any income, excise, or other taxes, tariffs, or duties. Upon the request of Company, Lessor shall provide Company with a copy of each agreement setting forth the royalty obligation of Lessor with respect to each Master or License Master. Payments shall be made in United States dollars by wire transfer. Each such payment shall be made payable to Lessor at such address or bank in the United States as shall be designated in writing from time to time by Lessor. All expenses of currency conversion and transmission shall be borne by Company, and no deduction shall be made from remittances on account of such expenses. Company and Lessor from time to time shall prepare all applications, reports, and other documents that may be required by the respective governments of the countries in the Territory and the Nonexclusive Territory in order that remittances may be made in accordance with this Agreement. Failure to submit timely reports and/or payments will incur an additional charge of two percent (2%) per month on any balance unpaid as of the 30th day of the applicable month. Earned royalties shall accrue when phonorecords are billed out or shipped, whichever date is earlier. Company agrees to account for the activities of its subsidiaries, affiliates, sublicensees, and controlled companies as if such subsidiaries, affiliates, sublicensees, and controlled companies were unincorporated divisions within the organization of Company, with their acts those of Company. (2) Statements rendered by Company shall contain the number of phonorecords sold identified by title of Master or License Master, the country in which sold or shipped, the applicable royalty rate as provided by Lessor under Section VII(A), the price upon which the royalty has been computed, all returns, and the basis upon which all return credits have been calculated. Company agrees to retain records concerning the production, sale, and sublicensing of phonorecords, the Masters, and the License Masters for a period in no event less than five (5) years following rendition of any report. (3) Lessor and its representatives shall have the right at all reasonable times during regular business hours and upon reasonable notice to inspect and make copies of the books and records of Company, at the place where such records are customarily maintained, insofar as they relate to the production, sale, sublicensing, or other exploitation of the Masters and the License Masters. Company agrees to cooperate fully with Lessor in making the inspection and copying. If as a result of an inspection it is determined that there are unreported royalties payable to Lessor, Company shall promptly pay Lessor the unreported royalties, plus interest on the payments at the rate of two percent (2%) per month from the date such payment should have been made to Lessor. If the unreported royalties exceed either an aggregate of ten thousand dollars ($10,000.00) or more or five percent (5%) of the amount theretofore paid by Company to Lessor, Company shall reimburse Lessor for its out-of-pocket costs and professional fees in conducting such examination as well as any attorney fees incurred by Lessor in connection therewith. VIII. DEFINITIONS. As used herein, the following terms shall have the following meanings: (A) "Master Recording" - Any original recording of sound, equivalent in length to the performance generally contained on one side of a disc-type 45 rpm phonograph record, whether on magnetic recording tape or wire, acetate, lacquer or wax disc, or any other substance or material, whether now known or, unknown, which is used in the manufacture of phonograph records. (B) "Phonorecord" - Any and all material objects manufactured in whole or in part from Masters or License Masters and which are intended to reproduce sound only, including disc and tape, and are sold for home use or juke box use and shall include electronic transmission subject to paragraph 1(D)(5). (C) "Audiovisual Works" - works that consist of a series of related images that are intrinsically intended to be shown by the use of machines or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any. IX. TRANSFER OF AGREEMENT. (A) (i) Notwithstanding the provisions of Section IX(B), each party shall have the right to assign or sublicense this Agreement in whole or in part to any firm or corporation now or hereafter owned or controlled by such party, or that owns or controls such party in whole or in part, or is under common ownership or control with such party (hereinafter collectively "Affiliated Entity"). Subject to the provisions of Section IX(B), each party shall have the right to assign this Agreement in whole or in part to any company acquiring all or substantially all of the assets or stock of such party. Any such assignee (or sub-assignee) under this Section IX(A)(i) shall assume in writing all contractual obligations of the assigning party hereunder as if it were the assigning party. In the event Lessor acquires Company's Music Business pursuant to the provisions of Section IX(B) or otherwise, all assignments of this Agreement from Company to all Affiliated Entities shall be deemed automatically reassigned from such Affiliated Entities to Company as of the effective date of such acquisition. (B) During the period commencing upon the date of this Agreement and ending six (6) years thereafter, no person, firm or corporation other than Lessor or any Affiliated Entity will be entitled to acquire, by assignment, sublicensing, or other form of conveyance, all or substantially all of Company's music business, whether operated by Company or its Affiliated Entities, including but not limited to Company's interests in this Agreement or the music business operated by K-tel International (UK), Ltd., (the "Music Business") unless the following terms of this Section IX(B) are met. (i) In the event Company elects to convey the Music Business to any person, firm, or corporation other than an Affiliated Entity, Company shall first notify Lessor in confidence (the "Sales Notice") of Company's desire to convey its Music Business. Upon receipt by Lessor of the Sales Notice, Lessor shall have a period of ten (10) business days to provide notice to Company of its interest in pursuing the acquisition of the Music Business (the "Interest Notice"). Upon the delivery by Lessor of the Interest Notice to Company, Company and Lessor hereby agree that the confidentiality agreement between Platinum Entertainment, Inc. and K-tel International, Inc. dated as of November 12, 1996, (the "Confidentiality Agreement") shall be applicable to Company and Lessor as if original signatories thereto (except as modified by this Section IX(B)), and all information provided by Company to Lessor shall be subject to the Confidentiality Agreement. Lessor shall be entitled to conduct due diligence with the full cooperation of Company for a period of thirty (30) days to evaluate the Music Business and prepare and submit to Company an offer for its acquisition (the "Initial Offer"). Upon Company's receipt of the Initial Offer, which Lessor shall make within thirty (30) days after delivery of the Interest Notice, if any, Company may accept the Initial Offer, commence negotiations with Lessor concerning the Initial Offer, or not accept the Initial Offer. If Company does not accept the Initial Offer, or negotiations concerning the Initial Offer are unsuccessful, Company shall be entitled to seek other interest in the acquisition of the Music Business by a third party; provided that if (i) the purchase price for the Music Business to be sold by Company to the third party is less than the last written offer by Lessor (without regard to the method of payment) or (ii) the Music Business which Company proposes to sell to the third party is materially different than the Music Business Company proposed to sell in the Sales Notice, Company (a) shall notify Lessor of all of the material terms and conditions of the proposed agreement pursuant to which the Music Business is to be acquired (the "Offer Notice"), including, but not limited to (but only to the extent contained in such proposed agreement), the identity of the entity offering to acquire the Music Business, the price to be paid, the rights to be conveyed, financing conditions, and the overall structure of the transaction (i.e., whether it is a stock or asset sale) and (b) Company shall offer to enter into an agreement with Lessor containing the same terms and conditions described in the Offer Notice. If Lessor does not accept the offer set forth in the Offer Notice within ten (10) business days after Lessor's receipt of same, Company may then enter into that proposed agreement with the same entity mentioned in the Offer Notice, provided that such agreement is consummated with that entity within six (6) months after the end of that ten (10) day period (the "Third Party Period") upon the substantially same terms and conditions set forth in the Offer Notice. If an agreement is not consummated within the Third Party Period upon the same terms and conditions set forth in the Offer Notice, no party shall be entitled to acquire Company's Music Business unless Company first complies with the provisions of this Section IX(B). (ii) In the event Company receives an unsolicited offer from a third party to acquire the Music Business which Company wishes to accept, Company shall (a) first notify Lessor of all of the material terms and conditions of the proposed agreement pursuant to which the Music Business is to be acquired (the "Third Party Offer Notice"), including, but not limited to (but only to the extent contained in such proposed agreement), the identity of the entity offering to acquire the Music Business, the price to be paid, the rights to be conveyed, financing conditions, and the overall structure of the transaction (i.e., whether it is a stock or asset sale), (b) offer to enter into an agreement with Lessor containing the same terms and conditions described in the Third Party Offer Notice, and (c) allow Company to conduct due diligence in confidence with the full cooperation of Company in connection with the evaluation of the transaction proposed in the Third Party Offer Notice for a period of ten (10) business days, commencing upon Lessor's receipt of the Third Party Offer Notice. If Lessor does not accept the offer set forth in the Third Party Offer Notice within ten (10) business days after Lessor's receipt of same, Company may then enter into that proposed agreement with the same entity mentioned in the Third Party Offer Notice, provided that such agreement is consummated with that entity within six (6) months after the end of that ten (10) day period (the "Third Party Period") upon the substantially same terms and conditions set forth in the Third Party Offer Notice. If an agreement is not consummated within the Third Party Period upon substantially the same terms and conditions set forth in the Third Party Offer Notice, Company shall be required to comply with the provisions of this Section IX(B) before conveying any interest in the Music Business. Lessor will not be required, as a condition for accepting an offer set forth in a Third Party Offer Notice, to agree to any non-financial terms that may be met only by the entity offering to acquire the Music Business (e.g., the existing employment of any particular individual by such offering entity or the existing ownership or control of any particular asset by such offering entity). X. UNAUTHORIZED THIRD PARTY USE OF MASTERS OR LICENSE MASTERS. If Company becomes aware of use by a third party of the Masters or License Masters, it shall take no action whatsoever but shall immediately notify Lessor, which shall then take whatever action it deems appropriate in its own name, in Company's name, or in the joint names of Lessor and Company. Lessor shall not be responsible for expenses or loss incurred by Company as a result of such third party use. If Lessor takes action, Company agrees to provide Lessor, without expense to Lessor, with all reasonable assistance requested of it by Lessor in connection with said action. Company agrees that it shall not institute suit against any third party allegedly infringing and of the rights granted herein without the prior written consent of Lessor. Further, Company shall be entitled to undertake enforcement actions other than the institution of suit against unauthorized third-party users of the Masters or the License Masters after prior consultation with Lessor concerning the identity of such third parties and Company's proposed actions. If Company initiates any such action, Lessor agrees to provide Company, without expense to Company, with all reasonable assistance requested of it by Company in connection with said action. Lessor and Company agree that each recovery, whether by settlement or judgment, from unauthorized third-party uses of the Masters or the License Masters in the Territory shall first be applied, pari passu, to the reimbursement of Company's and Lessor's respective costs and attorney's fees incurred in connection with obtaining such recovery, and that the balance shall be distributed equally to Company and Lessor. XI. TERMINATION OF AGREEMENT. (A) If at any time during the term of this Agreement Company shall (a) fail to make any payment of any sum of money herein specified to be made by Company when due, and such failure continues for twenty (20) business days after written notice by Lessor; (b) fail to observe or perform any of Company's agreements or obligations hereunder, including, but not limited to, the obligation to provide statements of sale or access to Company's facilities or records, and such failure is not remedied within twenty (20) business days; or (c) attempt to assign or sublicense this Agreement in a manner that fails to conform with the terms of this Agreement, then in each such event, Licensor shall have the right, at its election, to terminate this Agreement. If proceedings are instituted by Company under any bankruptcy or insolvency law or other law for the benefit of creditors or the relief of debtors or involuntary bankruptcy proceedings are commenced against Company and such proceedings are not dismissed within sixty (60) days of the commencement thereof, or Company shall have a receiver appointed for all or substantially all of its business or assets and such receiver is not removed within sixty (60) days of the employment thereof, or Company shall make an assignment for the benefit of its creditors, or Company shall be adjudicated bankrupt or insolvent, then, in any such event, Lessor shall have the right, at its election, then, or at any time thereafter, to terminate this Agreement. (B) Upon termination of this agreement, all of Company's rights hereunder shall cease absolutely, and Company shall not thereafter manufacture, advertise, promote, distribute or sell any product whatsoever in connection with the Masters or the License Masters; provided, however, that in the event of termination for any reason other than those set forth in Section XI(A), Company shall be entitled to sell-off its inventory of phonorecords in existence as of the date of termination for an additional period of six (6) months. It is further agreed that all accrued payments due prior to termination shall become immediately due and payable by Company to Lessor and that all phonorecords sold during the sell-off period shall be royalty-bearing in accordance with the schedule of third-party obligations provided by Lessor to Company. (C) It is agreed that all accountings and payments required herein, and all warranties made herein, shall survive and continue beyond the expiration or earlier termination of this Agreement. (D) No breach of this Agreement by Lessor shall be deemed material unless within thirty (30) days after Company learns of such breach, Company serves written notice thereof on Lessor, specifying the nature thereof, and Lessor fails to cure such breach, if any, within thirty (30) days after receipt thereof. (E) Company reserves the right, at its election, and upon written notice to Lessor, to suspend the operation of this Agreement for the duration of any of the following contingencies (but in no event longer than six (6) months), if by reason of any such contingency, its performance of its obligations under this Agreement is prevented: Act of God, fire, catastrophe, labor disagreement, acts of government, its agencies or officers, any other, regulation, ruling or action of any labor union or association of artists, musicians, composers or employees affecting Company or the industry in which it is engaged, delays in the delivery of materials and supplies, or any other cause beyond Company's control. XII. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed as creating the relationship of principal and agent, partnership or joint venture between Lessor and Company. XIII. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original. XIV. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding and agreement between the parties with respect of the subject matter hereof. No modification, amendment, waiver, termination or discharge of this Agreement shall be binding upon Lessor unless confirmed by a written instrument signed by an officer of Lessor. XV. SEVERABILITY. No waiver of any provision or any default under this Agreement shall affect the rights of Lessor thereafter. Should any provision on this Agreement be adjudicated by a court of competent jurisdiction as void, invalid or inoperative, such decision shall not affect any other provision hereof, and the remainder of this agreement shall be effective as though such void, invalid or inoperative provisions had not been contained herein. All rights and remedies granted to any party hereunder shall be cumulative and shall not interfere with or prevent the exercise of any other right or remedy which may be available to such party. XVI. LITIGATION OVER AGREEMENT. (A) In the event of any litigation between any of the parties hereto to enforce any provisions or rights hereunder, the unsuccessful party to such litigation covenants and agrees to pay to the successful party therein all costs and expenses including, but not limited to, reasonable attorneys' fees incurred therein by such successful party, which costs, expenses and attorneys' fees shall be included in and as a part of any judgment rendered in such litigation. (B) Company and Lessor acknowledge that the Masters licensed hereunder, and the Licenses sublicensed hereunder, are special, unique, unusual, extraordinary and intellectual properties which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated for by damages in an action at law and that a breach by either party to of this agreement will cause the other party great irreparable injury and damage. Each party expressly agrees that the other party shall be entitled to the remedies of injunction, specific performance, and other equitable relief to prevent or remedy a breach of this agreement or any portion thereof, which relief shall be in addition to any other rights or remedies, for damages or otherwise, which such party may have. (C) This Agreement has been entered in the State of Minnesota, and the validity, interpretation and legal effect of this agreement shall be governed by the laws of the State of Minnesota applicable to contracts entered and performed entirely within the State of Minnesota. The Minnesota courts (state and federal), only, will have jurisdiction of any controversies regarding this agreement; any action or other proceeding which involves such a controversy will be brought in those courts, in Hennepin County, and not elsewhere. Company hereby consents to the personal jurisdiction of the courts (state and federal) located in Hennepin County, Minnesota. Any process in such action may, among other methods, be served upon Company by delivering the process or mailing it by registered or certified mail, directly to the address above written or such other address as Company may designate. Any such delivery or mail service shall be deemed to have the same force and effect as personal service within the State of Minnesota. XVII. NOTICES. (A) All notices to Lessor shall be in writing and shall be sent postage prepaid by registered or certified mail, return receipt requested, to Lessor at the address designated above and to the attention of both the President and the General Counsel of Lessor. (B) All notices to Company shall be in writing and shall be sent postage prepaid by registered or certified mail, return receipt requested, to Company at the address designated above and to the attention of the Managing Director of Company, with a copy to Philip Kives. XVIII. HEADINGS. The headings in this Agreement are inserted for convenience only and are not to be considered in the interpretation or construction of the provisions hereof. XIX. AUTHORITY. The signatories hereof respectively represent and warrant that they have full authority to enter this Agreement on behalf of the entity for which they have signed. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first indicated above. K-TEL INTERNATIONAL, INC. K-TEL INTERNATIONAL (USA), INC. By By DOMINION ENTERTAINMENT, INC. By SCHEDULE A SCHEDULE B SCHEDULE C Albania Georgia Netherlands Andorra Germany Norway Armenia Greece Poland Austria Greenland Romania Azerbaijan Hungary All of the States previously members of the USSR Belarus Iceland Serbia & Montenegro Belgium Ireland Slovak Bosnia & Hercegorina Italy Slovenia Bulgaria Latvia Spain Croatia Liechtenstein Sweden Cyprus Lithuania Switzerland Czech Republic Luxembourg Turkey Denmark Macedonia Ukraine Estonia Malta United Kingdom Finland Moldova Vatican France Monaco SCHEDULE D The countries of Algeria, Bahrain, Quatar, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Yemen, Saudi Arabia, Sudan, Syria, Tunisia and the United Arab Emirates (or any future territory or country comprising the foregoing geographic areas), and the remaining countries comprising the continent of Africa. EX-10.1 14 VOTING AGREEMENT Exhibit 10.1 Voting Agreement dated March 3, 1997 between Platinum Entertainment, Inc. and Philip Kives VOTING AGREEMENT THIS VOTING AGREEMENT is made and entered into as of this 3rd day of March, 1997, by and among Platinum Entertainment, Inc. ("Buyer"), Mr. Philip Kives, an individual, K-5 Leisure Products, Inc., a Minnesota corporation ("K-5"), and National Development Ltd., a Manitoba corporation ("NDL") (Mr. Kives, K-5 and NDL individually, a "Shareholder" and collectively, the "Shareholders"). RECITALS: WHEREAS, this Voting Agreement is being entered into in connection with that certain Purchase and Sale Agreement, dated of even date herewith, by and between Buyer and K-tel International, Inc. ("Seller") (the "Purchase Agreement"), whereby Buyer is purchasing from Seller all of the issued and outstanding shares of capital stock of two wholly-owned subsidiaries of Seller, K-tel International (USA), Inc. and Dominion Entertainment, Inc. (the "Contemplated Transaction"). WHEREAS, the consummation of the Contemplated Transaction requires that the requisite shareholders of Seller vote upon and approve the Contemplated Transaction; WHEREAS, Mr. Kives is the beneficial owner of certain shares of capital stock of Seller; WHEREAS, K-5 and NDL are controlled by Mr. Kives and each of K-5 and NDL are the beneficial owners of certain shares of capital stock of Seller; WHEREAS, the Shareholders, own in excess of 70% of the of the issued and outstanding voting capital stock of Seller as of the date hereof; and WHEREAS, this Voting Agreement is an inducement to, and requirement of, Buyer entering into the Purchase Agreement, and the Shareholders have agreed to document their agreement in their capacity as the beneficial owners of capital stock of Seller (for Mr. Kives, solely in his capacity as a shareholder of Seller but not in his capacity as an officer or director of Seller) to vote the outstanding shares of Seller beneficially owned by each of them for the Contemplated Transaction. NOW, THEREFORE, in consideration of the foregoing premises and the following agreements, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Voting Agreement hereby agree as follows: I. VOTING FOR THE CONTEMPLATED TRANSACTION To facilitate the execution and delivery of the Purchase Agreement and satisfy the condition thereunder that the requisite shareholders of Seller duly approve the Contemplated Transaction, each of the Shareholders agree on behalf of themselves and any person to whom any of them transfer any shares of Voting Stock (as defined herein), during the term hereof, to vote any and all shares of Voting Stock beneficially owned by them and any and all outstanding shares of Voting Stock over which each of them has voting control in favor of the Purchase Agreement and the Contemplated Transaction at the meeting of Seller's shareholders to consider approval of the Contemplated Transaction. In the event that such action is proposed in the form of a written consent thereto, the Shareholders shall execute any consent form provided for such purpose to approve the Contemplated Transaction. To facilitate the execution and delivery of the Purchase Agreement and satisfy the condition thereunder that the requisite shareholders of Seller duly approve the Contemplated Transaction the Shareholders agree and confirm that, in connection with the Contemplated Transaction, none of them shall demand an appraisal of the shares of Voting Stock beneficially owned by each of them in connection with the Contemplated Transaction in accordance with Section 302A.471 and 302A.473 of the Minnesota Business Corporation Act or any applicable Canadian corporation law. As used in this Agreement, the term "Voting Stock" means the voting stock or other securities of any class, classes or series of the Seller, the holders of which are entitled to vote on the Contemplated Transaction and the Purchase Agreement. II. REPRESENTATIONS, WARRANTIES AND COVENANTS (1) Representations and Warranties. Each Shareholder severally, and not jointly and severally, represents and warrants to Buyer that: the execution, delivery and performance of this Voting Agreement has been duly authorized by all necessary action of the Shareholder and constitutes the valid and binding obligation of such Shareholder, enforceable in accordance with the terms hereof except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies; the Shareholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates the provisions of this Voting Agreement; and the execution, delivery and performance of this Voting Agreement will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both, would constitute) a default under, (i) its organizational documents to the extent applicable (ii) any instrument, contract or other agreement by or to which he is a party or his assets are bound or subject; (iii) any statute or regulation, order, judgment or decree of any court or governmental or regulatory body; or (iv) any license, permit, order or approval of any governmental or regulatory body. No approval or consent of any foreign, Federal, state, county, local or other governmental or regulatory body or court and no approval or consent of any other person is required in connection with the execution, delivery or performance of this Voting Agreement by him or it as the case may be. (2) Covenants. Each Shareholder severally, and not jointly, covenants that he or it as the case may be: shall execute such documents and other papers and perform such further acts as may be reasonably required or desirable to carry out the provisions of this Voting Agreement; shall not grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates the provisions of this Voting Agreement during the term hereof; shall not during the term hereof sell, transfer, assign, pledge or otherwise dispose of any interest in any Voting Stock unless and until the person or entity to whom such security is to be transferred shall have executed a written agreement, substantially in the form of this Voting Agreement, pursuant to which such person becomes a party to this Voting Agreement and agrees to be bound by all the provisions hereof as if such person were an original party to this Voting Agreement; and shall not and shall not authorize or permit any of his or its as the case may be, financial advisors, attorneys, accountants or other representatives retained by him or it as the case may be, (for Mr. Kives, solely in his capacity as a shareholder of Seller but not in his capacity as an officer or director of Seller) to solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Subsidiaries or the Business (as such terms are defined in the Purchase Agreement), or any proposal or offer to acquire in any manner a material equity interest in, or a material portion of the assets of, the Subsidiaries or the Business, other than the transactions contemplated by the Purchase Agreement or agree to or endorse any such proposal, or engage in any negotiations or discussions with any person relating to any such proposal. The Shareholders shall promptly advise Buyer orally and in writing of any inquiries regarding, or offers of, any such proposal. III. MISCELLANEOUS a. Transferees Bound. This Voting Agreement shall bind and inure to the benefit of the successors, heirs, personal representatives, transferees and assigns of the parties hereto. b. Termination of Voting Agreement. This Voting Agreement shall terminate only upon the first to occur of the following events: (i) the closing of the Contemplated Transaction; or (ii) the termination of the Purchase Agreement, in accordance with the terms contained therein. c. Entire Agreement. This Voting Agreement constitutes the entire agreement of, and supersedes any prior agreement among, the undersigned with respect to the subject matter hereof. d. Amendments. This Voting Agreement may be amended, or any provision hereof waived, only if approved by the written consent of all of the parties hereto. e. Remedies for Breach. It is expressly understood that the equitable remedies of specific performance and injunction shall be available for the enforcement of the covenants and agreements herein, and that the availability of these equitable remedies shall not be deemed to limit any other right or remedy to which any party to this Voting Agreement otherwise would be entitled. f. Notices. Any notice permitted or required hereunder shall be in writing and shall be given by personal delivery or by deposit in the U.S. registered or certified mail, return receipt requested, addressed, in the case of the Buyer, to its President, at Buyer's principal place of business in the State of Illinois, and, in the case of the Shareholders, to the last address reflected on the records of Seller, or to such other address as any party may designate by written notice to the others in accordance with this subsection. g. Waivers. No waiver of any provision of this Voting Agreement shall be implied, and no express waiver shall be valid, unless in writing and signed by the party to be charged. No waiver of any breach of any of the terms, provisions or conditions of this Voting Agreement shall be construed as, or held to be a waiver of, any other breach or a waiver of, acquiescence in, or consent to, any further or succeeding breach hereof. h. Severability. If any provision of this Voting Agreement is determined to be invalid or unenforceable, the remaining provisions of this Voting Agreement shall not be affected thereby and shall be binding upon the parties. i. Governing Law. This Voting Agreement shall be construed and enforced, and all questions concerning compliance by any person with its terms shall be determined, under the laws of the State of Delaware, without regard to principles of conflicts of law. j. Counterparts. This Voting Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. k. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Voting Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be signed as of the date first written above. BUYER: PLATINUM ENTERTAINMENT, INC. By: /s/ Its: SHAREHOLDERS: /s/ Philip Kives, individually K-5 LEISURE PRODUCTS, INC. By: /s/ Its: NATIONAL DEVELOPMENT LTD. By: /s/ Its: EX-10.2 15 EARNEST MONEY ESCROW AGREEMENT Exhibit 10.2 Earnest Money Escrow Agreement dated March 3, 1997 among Platinum Entertainment, Inc., K-tel Entertainment, Inc. and Midwest Trust Services, Inc. EARNEST MONEY ESCROW AGREEMENT EARNEST MONEY ESCROW AGREEMENT (this "Agreement") is made and entered into as of March 3, 1997, by and among PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer"), K-TEL INTERNATIONAL, INC., a Minnesota corporation ("Seller") and MIDWEST TRUST SERVICES, INC., as Escrow Agent ("Escrow Agent"). The parties hereto are entering into this Agreement pursuant to the terms of that Asset Purchase and Sale Agreement dated as of March 3, 1997 (the "Purchase Agreement"), by and among Buyer and Seller. Accordingly, the parties hereto agree as follows: 1. Definition of Terms. Terms not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase Agreement. The Escrow Agent shall not be responsible for any other provisions of the Purchase Agreement. 2. Appointment and Acceptance. Buyer and Seller hereby appoint Escrow Agent as escrow agent for the purposes and upon the terms and conditions hereinafter set forth. Escrow Agent hereby accepts such appointment and agrees to act as escrow agent hereunder and to hold, invest and dispose of any funds received by it hereunder in accordance with the terms and conditions hereinafter set forth. 3. Deposit of Escrowed Funds. On the date hereof, Buyer shall, as partial payment of the Purchase Price, deliver to Escrow Agent for deposit in escrow pursuant to the provisions hereof, a wire transfer of immediately available funds in the amount of $1,750,000 (the "Escrowed Funds") into an interest bearing account. 4. Purpose of Agreement. Seller and Buyer represent that this Agreement has been executed pursuant to SECTION 2.2(a) of the Purchase Agreement. Buyer represents that it will make the deposit of the Escrowed Funds pursuant to SECTION 2.2(a) of the Purchase Agreement on Tuesday, March 4, 1997. 5. Delivery of Escrowed Funds. Subject to the terms set forth in ARTICLE XII of the Purchase Agreement, if at any time Seller or Buyer shall claim that it is entitled to payment of all or a portion of the Escrowed Funds pursuant to the terms set forth in the Purchase Agreement (a "Right of Payment"), such party shall give notice of such Right of Payment (the "Notice of Payment") to the other party and the Escrow Agent. The Notice of Payment shall be an affidavit describing the event or circumstances giving rise to the Right of Payment, specifying the amount of the Escrowed Funds requested and certifying that the Notice of Payment is being submitted in good faith. If Escrow Agent shall have received a Notice of Payment, Escrow Agent shall promptly deliver a copy thereof to the other party hereto. Within fifteen (15) business days ("Dispute Period") after delivery by Escrow Agent of a copy of such Notice of Payment to such other party, such other party may deliver to Escrow Agent a written notice (the "Notice of Dispute") disputing the request for payment of Escrowed Funds stated in the Notice of Payment. The Notice of Dispute shall be an affidavit specifying the amount being disputed (the "Disputed Amount"), describing in reasonable detail the reasons for such dispute and certifying that the Notice of Dispute is being submitted in good faith. If Escrow Agent has not received a Notice of Dispute prior to the expiration of Dispute Period referred to above, then Escrow Agent shall immediately pay to such requesting party, by check or wire transfer of immediately available funds, the full amount of the Escrowed Funds requested in the Notice of Payment. If Escrow Agent has received a Notice of Payment during the Dispute Period which disputes in part the request for payment of Escrowed Funds stated in the Notice of Payment, then Escrow Agent shall, following receipt of such notice of claim, immediately pay to such requesting party, by check or wire transfer of immediately available funds, the amount, if any, of Escrowed Funds requested in the Notice of Payment which is in excess of the Disputed Amount. If Escrow Agent receives a Notice of Dispute, Escrow Agent shall promptly deliver a copy of the Notice of Dispute to the other party hereto, and shall not deliver all or the portion of the requested amount of Escrowed Funds set forth in the Notice of Payment constituting the Disputed Amount until Escrow Agent shall have received one of the following: (a) A certified copy of an order, decree or judgment issued or rendered by a court of competent jurisdiction, which order, decree or judgment has been finally affirmed on appeal or which by lapse of time or otherwise is no longer subject to appeal (a "Final Decision") directing the distribution of the Escrow Funds; or (b) A joint written direction executed by Buyer and Seller directing the distribution of the Escrowed Funds. Upon receipt of either (a) or (b) above, Escrow Agent shall immediately deliver the Escrowed Funds to the proper party(ies) in accordance therewith. 6. Investment of Escrowed Funds. Escrow Agent shall invest the Escrowed Funds, from time to time, in 30-day United States Treasury obligations or certificates of deposit having a maturity not to exceed 30 days, any governmental mutual funds, or such other investments jointly designated in writing by Buyer and Seller. The proceeds of all investments made hereunder shall be distributed in accordance with this Agreement. Escrow Agent shall deliver monthly statements to Buyer and Seller in accordance with Escrow Agent's regular practice; the parties hereby agree that, except for the foregoing, Escrow Agent shall have no obligations to monitor, or advise the parties with respect to, such investments. All interest or other income earned on the Escrow Funds shall be paid to Buyer on a monthly basis. 7. Release Date and Termination of Escrow. (a) On the Closing Date or the effective date of an earlier termination of the Purchase Agreement in accordance with the terms thereof (the "Release Date"), Escrow Agent shall ascertain the amount of the escrow balance (the "Escrow Balance"), which amount shall equal the amount of Escrowed Funds (including all interest or other income attributable thereto and not previously distributed) then held hereunder less the amount of Escrowed Funds, if any, then (i) covered by a pending Notice of Payment which is subject to a Notice of Dispute as provided in SECTION 5 hereof, (ii) covered by a pending Notice of Payment which was delivered by Escrow Agent to a party hereto at any time prior to the Release Date and which either has not been paid or is subject to the ability of a party hereto to provide a Notice of Dispute with respect thereto in accordance with the terms hereof, or (iii) covered by a Notice of Payment to the extent determined to be valid and no longer subject to a Notice of Dispute, but not yet paid. On the Release Date (i), if such date is the Closing Date, Escrow Agent shall deliver to Seller (or its designee) the Escrow Balance or (ii) if such date is the effective date of an earlier termination of the Purchase Agreement in accordance with the terms thereof, the provisions of SECTION 5 above shall apply to any release of the Escrow Balance. (b) Notwithstanding the foregoing, this Agreement may be terminated at any time by and upon the receipt by Escrow Agent of written notice of termination executed by both Buyer and Seller directing the distribution of all property then held by Escrow Agent under and pursuant to this Agreement, and this Agreement shall automatically terminate if and when all the Escrowed Funds (and all the securities in which any of the Escrowed Funds shall have been invested) shall have been distributed by Escrow Agent in accordance with the terms of this Agreement. (c) Escrow Agent is authorized to liquidate the securities held hereunder (unless directed in writing by Seller to distribute such securities in some other specified manner) to the extent necessary to distribute to Seller (or its designee) the Escrowed Funds as provided in SECTION 7(a) above and shall have no liability for any loss arising out of any such liquidation. 8. Liens on Escrowed Funds. During the term of this Escrow Agreement, each of Buyer and Seller agree to keep the Escrowed Funds free and clear of all liens, claims, encumbrances, levies, garnishments or other attachments arising with respect to it. 9. Notices. Any notices or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by a recognized overnight courier service, or (d) sent by facsimile transmission to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing. (a) If to Seller: K-tel International, Inc. 2605 Fernbrook Lane North Minneapolis, Minnesota 55447 Attention: David Weiner Telecopy No.: (612) 509-9409 with copies to: Kaplan Strangis & Kaplan, P.A. 5500 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: Bruce J. Parker, Esq. Telecopy No.: (612) 375-1143 and Philip Kives K-5 Leisure Products, Inc. 220 Saulteaux Crescent Winnipeg, Manitoba, Canada R3J 3W2 Telecopy No.: (204) 832-7782 (b) If to Buyer: Platinum Entertainment, Inc. 2001 Butterfield Road Downers Grove, Illinois 60515 Attention: Steven Devick Telecopy No.: (630) 769-0049 with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661-3693 Attention: Matthew S. Brown, Esq. Adam H. Schecter, Esq. Telecopy No.: (312) 902-1061 (c) If to Escrow Agent: Midwest Trust Services, Inc. 500 West Chestnut Street Hinsdale, Illinois 60521 Attention: Mary Henthorn Telecopy No.: (630) 323-0531 Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) the next succeeding business day after date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding business day after transmission by facsimile. 10. Escrow Agent's Liability. Escrow Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Escrow Agent. In the absence of bad faith, gross negligence or wilful misconduct on its part, Escrow Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon any instrument, certificate, opinion or other writing believed by it in good faith and without gross negligence to be genuine, and shall not be liable in connection with the performance by it of its duties pursuant to the provisions of the Agreement, except for its own bad faith, gross negligence or wilful misconduct. Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. Escrow Agent may execute powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. 11. Indemnification of Escrow Agent. Buyer and Seller hereby agree severally and not jointly (one-half to be borne by Buyer and one-half to be borne by Seller) to indemnify Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, wilful misconduct or bad faith on the part of Escrow Agent, arising out of or in connection with its entering into the Agreement, carrying out its duties hereunder and accepting the Escrowed Funds, including the costs and expenses of defending itself against any claim of liability in connection with the exercise or performance of any of its powers or duties hereunder (including reasonable fees, expenses and disbursements of its counsel). 12. Escrow Agent to Follow Instructions of Buyer and Seller. Notwithstanding any provision contained herein to the contrary, Escrow Agent shall at any time and from time to time take such action hereunder with respect to the Escrowed Funds (and the securities in which any of the Escrowed Funds shall have been invested) as shall be directed in writing by both Buyer and Seller, provided that Escrow Agent shall first be indemnified to its satisfaction with respect to any of its costs or expenses which might be involved. 13. Resignation of Escrow Agent. Escrow Agent, or any successor, may resign at any time upon giving written notice, thirty (30) days before such resignation shall take effect, to Buyer and Seller. In the event Escrow Agent shall resign or be unable to serve, it shall be succeeded by such bank or trust company as Buyer and Seller shall appoint, or if no appointment is made, by a bank or trust company appointed by a court of competent jurisdiction. In the absence of a successor so appointed by Buyer and Seller, Escrow Agent may petition such a court to appoint a successor escrow agent. The resigning escrow agent shall transfer to its successor all monies, securities and investments then held subject to this escrow and all pending notices, instructions and directions then in its possession, and shall thereupon be discharged, and the successor shall thereupon succeed to all the rights, powers and duties and shall assume all of the obligations of the resigning escrow agent. 14. Escrow Agent's Fee and Expenses, Etc. (a) Escrow Agent shall be entitled to (i) a $50 annual fee, which annual fee shall be prorated to the date of termination of this Agreement, for services rendered and for reimbursement of extraordinary expenses incurred in performance of its duties which expenses are not included in said fee, plus (ii) out of pocket expenses which expenses shall be charged as incurred. Such annual fees shall be paid by Buyer and such out-of-pocket expenses shall be divided equally between the Buyer, on one hand and Seller, on the other hand. (b) In case said property shall be attached, garnished, or levied upon any court order, or the delivery thereof shall be stayed or enjoined by an order of court, or any order, judgement or decree shall be made or entered by any court order affecting the property deposited under this Agreement, or any part thereof, Escrow Agent is hereby expressly authorized in its sole direction, to obey and comply with all writs, orders or decrees so entered or issued, which it is advised by legal counsel of its own choosing is binding upon it, whether with or without jurisdiction, and in case Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the parties hereto or to any other person, firm or corporation, by reason of such compliance notwithstanding such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated. (c) In case said Escrow Agent becomes involved in litigation on account of this deposit or of this Agreement, it shall have the right to retain counsel and shall have a lien on the property deposited hereunder for any and all costs, attorneys' fees, charges, disbursements, and expenses in connection with such litigation; and shall be entitled to reimburse itself therefor out of the property deposited hereunder, and if it shall be unable to reimburse itself from the property deposited hereunder, the parties hereto jointly and severally agree to pay to said Escrow Agent on demand, its reasonable charges, counsel and attorneys' fees, disbursements, and expenses in connection with such litigation. (d) In case conflicting demands are made upon it for any situation not addressed in this Agreement, Escrow Agent may withhold performance of this escrow until such time as said conflicting demands shall have been withdrawn or the rights of the respective parties shall have been settled by court adjudication, arbitration, joint order or otherwise. (e) The parties acknowledge that Escrow Agent will have no obligations or responsibilities with respect to tax reporting of the parties. 15. Successors. The obligations imposed and the rights conferred by this Escrow Agreement shall be binding upon and inure to the benefit of the respective heirs (including estates), successors and permitted assigns of the parties hereto, but will not be assignable or delegable by any party without the prior written consent of the other parties. 16. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to principles of conflicts of law. 17. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein. 18. Amendment. This Agreement cannot be terminated, altered or amended except pursuant to an instrument in writing signed by Buyer, Seller and Escrow Agent. 19. Enforceability. If any provision of the Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Escrow Agreement, and the Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed on original and all of which together shall constitute one and the same instrument. 21. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 22. Attorneys' Fees. In the event of a dispute between Buyer and Seller regarding the distribution of the Escrowed Funds, upon the issuance of a final, non-appealable order or judgment by a court of competent jurisdiction, the prevailing party's legal fees and related expenses shall be paid by the non-prevailing party. The determination of which party is the "prevailing" party shall be made by the court issuing such final, non-appealable order or judgment. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first above written. K-TEL INTERNATIONAL, INC., a Minnesota corporation By: /s/ Its: PLATINUM ENTERTAINMENT, INC., a Delaware corporation By: /s/ Its: MIDWEST TRUST SERVICES, INC., AS ESCROW AGENT By: /s/ Its: EX-99.1 16 PRESS RELEASE Exhibit 99.1 Press Release dated March 3, 1997 PLATINUM ENTERTAINMENT AND K-TEL INTERNATIONAL SIGN DEFINITIVE AGREEMENT FOR SALE BY CERTAIN K-TEL MUSIC BUSINESS ASSETS DOWNERS GROVE, IL/PLYMOUTH, MN, March 3, 1997. -- Platinum Entertainment, Inc. Inc. (NASDAQ: PTET) has entered into a definitive agreement with K-tel International, Inc. (NASDAQ: KTEL) for the sale by K-tel to Platinum of certain music business assets. Under the terms of the agreement, Platinum will acquire K-tel's worldwide music business assets, with the exception of K-tel's European music business, through the purchase of the stock of K-tel International (USA), Inc. and Dominion Entertainment, Inc., both wholly-owned subsidiaries of K-tel International. The acquisition, which has been approved by the boards of K-tel and Platinum, involves a purchase price of $35 million subject to certain adjustments. The purchase price is to be paid in cash at closing. Closing is expected to occur between 90 and 180 days from the date of this announcement. K-tel keeps all profits until closing. After the closing, K-tel will retain its music business in Eastern and Western Europe and the former Soviet Republic and will receive an exclusive license to use the Dominion and K-tel (USA) music catalog in these territories and a non-exclusive license of the catalog in Africa and the Middle East. The licenses will be royalty free except for third party amounts payable from the use of the masters. K-tel will also retain its consumer products, music infomercial, direct response and video businesses. K-tel International, Inc., headquartered in Plymouth, MN, operates one of the largest independent record companies in the U.S. Its catalog of over 3,500 owned or controlled recordings includes performances by classic artists such as Chubby Checker, Bobby Sherman, Leslie Gore, Percy Sledge, Lee Greenwood, and hundreds of others. K-tel is also one of the world's leading compilation packagers and marketers of pre-recorded music. Music products are distributed through K-tel's own proprietary distribution system, enabling K-tel to maintain control over the marketing and promotion of its music products, selling and fulfilling its orders to retail and rack jobbers on a direct basis. For the year ended June 30, 1996, on an audited basis, and for the six month period ending December 31, 1996, on an unaudited basis, the music business being acquired by Platinum from K-tel recorded gross revenues of $42.6 million, and $18.8 million respectively. The closing of the acquisition is subject to the securing of financing by Platinum, K-tel's shareholder approval and other customary conditions. Steve Devick, Platinum Entertainment's president and chief executive officer, said, "We are tremendously excited about this acquisition. In its 35 years of business, K-tel has developed one of the world's most famous libraries of recorded music, and has established an identity that is unique in the industry. The music business of K-tel is well-managed and profitable, and combining the strengths of our recent acquisition of Intersound, Inc. with the strengths of K-tel makes tremendous business sense all around. We look forward to having the K-tel employees in the acquired business join our family and contribute to our growth. This acquisition clearly identifies Platinum as one of the largest independent record companies." David Weiner, president of K-tel International states, "This transaction allows our shareholders to better realize the intrinsic value of K-tel's catalog of master recordings. This valuable asset is carried on our balance sheet at only nominal value and, in our opinion, has not been adequately reflected in our company's public market capitalization. Platinum will be a good home for these assets and will provide our employees of the sold businesses an opportunity to be part of a larger music company. K-tel will continue to focus and grow our North American operations in our music infomercial, video, consumer products and direct response businesses, and will continue to own and operate our music and other businesses in the United Kingdom, Germany and Finland." The total gross revenue of K-tel's retained businesses were $43.6 million for its fiscal year ended June 30, 1996, and were $21.4 million for the six months ended December 31, 1996. On a proforma basis, giving effect to the transaction, the net book value of K-tel as of December 31, 1996, would have been approximately $39.1 million compared to $4.1 million as actually reported. K-tel International, Inc. develops, markets and distributes a variety of packaged consumer entertainment (music and video) and consumer convenience products worldwide. K-tel markets its product lines either to retailers, or through mail order (tv or print), or through licensees throughout the world. K-tel has companies/operations in the United States, United Kingdom, Germany and Finland. Platinum Entertainment, Inc. produces, licenses, acquires markets and distributes high quality recorded music for a variety of music formats. Platinum and its wholly-owned subsidiaries currently produce music for Gospel, Adult Contemporary, Country, Blues, Urban, Dance, Classical and Themed Music formats, primarily under the CGI Records, Light Records, River North Records, Intersound, and House of Blues labels. Platinum's products include new releases, typically by artist established in a particular format, as well as compilation and repackagings of previously recorded music that enable Platinum to exploit its catalog of master recordings. This press release contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that involve substantial risks and uncertainties. When used in this press release, the words "anticipate," "believe," "estimate" and "expect" and similar expressions as they relate to the Companies or its management are intended to identify such forward-looking statements. A number of important factors could cause the Companies' actual results, performance or achievements for fiscal 1997 and beyond to differ materially from those expressed; in such forward-looking statements. These factors include, without limitation, commercial success of the Companies' repertoire, changes and costs related to acquisitions, relationships with artists and producers, attraction and retention of key personnel, general economic and business conditions and enhanced competition and new competitors in the recorded music industry, and other factors described in the Companies' filings with the Securities and Exchange Commission. # # # Contacts: For Platinum Entertainment For K-tel International Douglas C. Laux Mark Dixon Chief Financial Officer Vice President and Chief (630) 769-0033 x 234 Financial Officer (612) 559-6820 -----END PRIVACY-ENHANCED MESSAGE-----