ASSET PURCHASE AGREEMENT
AMONG
GENESIS DIRECT THIRTY-FOUR, LLC
AND
BIOBOTTOMS, INC.
AND
DIPLOMAT CORPORATION
April 17, 1998
TABLE OF CONTENTS
(OMITTED)
ASSET PURCHASE AGREEMENT
This Agreement is entered into April 17, 1998, among GENESIS
DIRECT THIRTY-FOUR, LLC, a Delaware limited liability company ("Buyer"),
BIOBOTTOMS, INC., a California corporation ("Company"), and DIPLOMAT
CORPORATION, a Delaware corporation ("Stockholder"). Buyer, Company and
Stockholder are referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which Buyer
will, on the terms and conditions set forth herein, purchase substantially all
of the assets and assume certain of the liabilities of Company for the
consideration specified herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein made and in consideration of the representations,
warranties and covenants herein contained, the Parties agree as follows.
Section 1. Definitions.
Capitalized terms used herein and not otherwise defined
herein are defined in Appendix I to this Agreement.
Section 2. Basic Transaction.
(a) Purchase and Sale of Assets.
Upon the Closing (as defined below) pursuant to
this Agreement and subject to the terms hereof, Buyer will purchase from
Company and Company will sell, transfer, convey and deliver to Buyer, all of
its right, title and interest in and to the Acquired Assets.
(b) Assumption of Liabilities.
Upon the Closing pursuant to this Agreement and
subject to the terms hereof and in consideration of the purchase by Buyer of
the Acquired Assets, Buyer shall assume and become responsible for the Assumed
Liabilities. Buyer will not assume or have any responsibility. however, with
respect to any obligation or liability of Company not included within the
definition of Assumed Liabilities.
(c) Purchase Price.
In consideration of the purchase by Buyer of the
Acquired Assets, Buyer agrees to pay to Company an aggregate purchase price
(subject to adjustment as provided below) (the "Purchase Price") consisting
of:
(i) Cash. Cash in an amount equal to One
Million Dollars ($1,000,000),
(ii) Note. A promissory note of Buyer payable
to Company in the original principal
amount of One Million One Hundred Seventy
Thousand Dollars ($1,170,000),
substantially in the form of Exhibit A
hereto (the "Note"), (subject to
adjustment as set forth in Section 2(f)
hereof), which shall be secured by a
pledge of all membership interests in
Buyer pursuant to the pledge agreements
substantially in the form of Exhibit I
hereto (the "Pledge Agreements");
(iii) Payments in Respect of Non-Compete and
Confidentiality Covenants. In
consideration of the undertakings set
forth in Section 5(k) hereof and the
performance thereof, One Hundred Thousand
Dollars ($100.000) aggregate compensation
payable in $25,000 installments to each of
Company and Stockholder on each of the
first and second anniversaries of the
Closing Date; and
(iv) Assumption of Assumed Liabilities.
Assumption of the Assumed Liabilities as
provided in Section 2(b).
(d) The Closing.
The closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Xxxxxxxx & Xxxxxxxx LLP,
1290 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00
a.m. on the date hereof (the date of the Closing is referred to as the
"Closing Date").
(e) Deliveries at the Closing.
At the Closing, the following documents shall be
executed, acknowledged, (if appropriate) and delivered and the following
actions shall occur: (i) Company shall execute, acknowledge (if appropriate)
and deliver to Buyer the various certificates, instruments and documents
referred to in Section 7(a) below and such other instruments of sale,
transfer, conveyance and assignment as Buyer and its counsel have reasonably
requested for the sale, transfer, conveyance and assignment of the Acquired
Assets free and clear of all Security Interests, and Buyer shall (A) deliver
to Company $1,000,000 by wire transfer or other immediately available funds
and (B) execute, acknowledge (if appropriate) and deliver the various
certificates, instruments and documents referred to in Section 7(b) below and
such other instruments of assumption as Company and its counsel have
reasonably requested for the assumption of the Assumed Liabilities.
(f) Post-Closing Adjustment and Payment.
(i) Preparation of the Closing Date Balance
Sheet. Promptly (no later
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than 45 days after the Closing Date)
following the Closing Date, Company shall
prepare and deliver to the Parties a
statement of the Net Value of the Acquired
Assets, derived from an audited balance
sheet of Company as of the Closing Date
(the "Closing Date Balance Sheet"), which
balance sheet shall be prepared by Ernst &
Young LLP or other certified public
accountant of nationally recognized
standing mutually agreeable to the Parties
("Closing Date Accountant"), in accordance
with (IAAP consistently applied and in
conformity with the requirements of'
Regulation S-X under the Securities Act.
Solely for the purposes of' calculating
the Net Value of the Acquired Assets,
inventory shall be determined on
historical cost basis without regard to
the $1,000,000 inventory reserve
negotiated by the parties for purposes of
calculating the Purchase Price. Company
shall bear up to $15,000 of the costs of'
preparing the statement of Net Value of
the Acquired Assets, and Buyer shall bear
the balance, if any, of such costs.
(ii) Objections to Net Value of the Acquired
Assets. If either Party has and objections
to the Net Value of the Acquired Assets,
such Party shall deliver to the other
Party, within 30 days after receipt
thereof, a detailed statement (the
"Objections Statement") describing its
specific objections. Thereafter, Company
shall appoint a certified public
accountant of' nationally recognized
standing ("Company's Accountant") oil
behalf of Company to resolve Company's
objections by mutual agreement with
Buyer's independent accountant ("Buyer's
Accountant") on behalf of Buyer, in order
to determine the Net Value of the Acquired
Assets. It Company's Accountant and
Buyer's Accountant are unable to resolve
such objections within 15 days after
delivery of the Objections Statement. they
shall promptly jointly appoint a third
independent certified public accountant
(the "Third Party Firm") for the purpose
of resolving such objections in order to
determine the Net Value of the Acquired
Assets. The written determination by the
Third Party Firm of the Net Value of the
Acquired Assets pursuant to the Closing
Date Balance Sheet, after ordering all
written objections thereto in accordance
with the foregoing procedure, shall be
conclusive and binding upon the Parties.
(iii)) Post-Closing Adjustment of Principal
Amount of Note. lf (A) the amount of the
Net Value of the Acquired Assets is less
than negative Seven Hundred Seventy Eight
Thousand Dollars ($778,000) or (B) the
amount of the accrued expenses and
customer liabilities included in the
Assumed Liabilities exceeds Eight Hundred
Twenty Eight
5
Thousand Eight Hundred Seventy Seven
Dollars ($828,877) (the greater of such
amounts shall be referred to as the "Net
Value Shortfall"), the principal amount of
the Note shall be reduced by an amount
equal to the Net Value Shortfall,
effective as of the Closing Date. On the
date the final determination of the Net
Value of the Acquired Assets, as provided
in Section 2(t)(11) hereof, Company shall
immediately deliver to Buyer the Note
delivered by Buyer on the Closing Date,
and Buyer shall simultaneously reissue to
Company the Note with the principal amount
thereof reduced as provided in the
immediately preceding sentence. Such
adjustment amount shall not be considered
an indemnification claim.
(g) Allocation of Purchase Price.
The consideration paid by Buyer to Company pursuant
to this Agreement shall be allocated among the Acquired As sets, including any
intangible assets, as Company and Buyer have mutually agreed on or prior to
the date hereof The allocation of the Purchase Price was bargained and
negotiated for and each party agrees to report the transactions contemplated
hereby for financial reporting, federal income Tax and all other Tax purposes
(including, without limitation, for purposes of ss. 1060 of the Code) in a
manner consistent with the allocation set forth on Exhibit D determined
pursuant to this Section 2(g) and in accordance with all applicable rules and
regulations and to take no position inconsistent with such allocation in any
administrative or judicial examination or other proceeding. Each of Buyer and
Company shall timely file the appropriate forms in accordance with the
requirements of ss. 1060 of the Code and this Section 2(g). Without limiting
the generality of the foregoing, in order to arrive at the net realizable
value of the Company's inventory, the parties have bargained and negotiated
for a $1,000,000 reduction in the book value of the Company's inventory.
(h) Transfer Taxes.
Company shall pay all sales, use and transfer taxes,
if any, incurred in connection with the transactions contemplated by this
Agreement.
Section 3. Representations and Warranties of Stockholder
and Company.
Each of Stockholder and Company jointly and
severally represents and warrants to Buyer that each of the statements set
forth below is true and correct in all respects. Such representations and
warranties and the covenants and agreements contained herein constitute a
material inducement to Buyer to enter into this Agreement, to enter into the
other 'Transaction Documents, to purchase the Acquired Assets, to assume the
Assumed Liabilities and to consummate the other transactions contemplated
hereby and thereby.
(a) Organization and Corporate Power of Company.
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Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and
has all requisite power and authority to own, lease and operate the Acquired
Assets and to carry on the Business. Company neither owns or leases any real
property nor has any employees, sales representatives, agents or inventory in
any state of the United States other than the State of California (except
pre-paid inventory in transit) and there are no other jurisdictions in which
the nature of the business of Company or the locations of the Acquired Assets
requires Company to obtain qualification or licensing to do business as a
foreign corporation, except where the failure to so qualify or become licensed
would not have a Material Adverse Effect. Company has no Subsidiaries and does
not, directly or indirectly, conduct any of the Business through, or have any
investment or other interest in., any Person. Schedule 3(a) identifies each
d.b.a., assumed or fictitious name in all jurisdictions where such d.b.a..
assumed or fictitious names are registered with the Secretaries of State or
where Company does business using such d.b.a., assumed or fictitious name.
(b) Authorization of Transaction.
Each of Company and Stockholder has full corporate
power and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party and to perform its obligations
hereunder and thereunder. Without limiting the generality of the foregoing,
the Board of Directors of Company and Stockholder have duly authorized the
execution, delivery and performance of this Agreement by Company in accordance
with applicable law including the Corporation Code of the State of California
and the provisions of the Articles of Incorporation and Bylaws of Company and
the Board of Directors of Stockholder has duly authorized the execution.
delivery and performance of this Agreement by Stockholder in accordance with
applicable law, including the Delaware General Business Corporation Law and
the provisions of the Certificate of Incorporation and the By-laws of
Stockholder. This Agreement and the other Transaction Documents to which it is
a party constitute the valid and legally binding obligations of Company and
Stockholder, enforceable in accordance with their respective terms and
conditions, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies of
creditors and to general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
(c) Noncontravention.
Neither the execution and the delivery of this
Agreement, the other Transaction Documents or the other documents contemplated
hereby and thereby, nor the consummation of the transactions contemplated
hereby and thereby will (i) violate any Law or Order of any Governmental Body
or court to which Company, Stockholder or any of the Acquired Assets or
Assumed Liabilities are subject or any provision of the Articles of
Incorporation and Bylaws of Company or the Certificate of Incorporation and
By-laws of Stockholder or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of. create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any Contract to which Stockholder is a party or any Contract to which
Company is a party or by which it is bound or to
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which any of its assets are subject (or result in the imposition of any
Security Interest upon any of their assets), except where the violation,
conflict, breach, default, acceleration. termination, modification,
cancellation, failure to give notice or other specified occurrence would not
have a Material Adverse Effect. Except as set forth in Schedule 3(c), Company
is not required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Body or other Person in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the execution, delivery and performance of the
assignments and assumptions referred to in Section 2 of this Agreement),
except where the failure to give notice, to file, or to obtain any
authorization, consent or approval would not have a Material Adverse Effect.
(d) Brokers' Fees.
Except as set forth on Schedule 3(d), neither
Company nor Stockholder has any Liability or obligation to pay any fees or
commissions or other compensation to any broker, finder or agent with respect
to the transactions contemplated by this Agreement.
(e) Title to Assets.
Except as set forth in Schedule 3(e), Company has
good and marketable title to. or a valid leasehold interest in, or the right
to use, as the case may be, all of the properties and assets used by it,
located on its premises, or shown on the Most Recent Balance Sheet or acquired
after the date thereof. free and clear of all Security Interests, except for
properties and assets disposed ol' in the Ordinary Course of Business since
the date of the Most Recent Balance Sheet, which are set forth in Schedule
3(e). Without limiting the generality of the foregoing, Company has good and
marketable title to, or the right to use, the Catalog Names and associated
logos, if any, free and clear of any Security Interest or restriction on
transfer. On the Closing Date, Buyer will receive good and marketable title
to, or a valid leasehold interest in, or the right to use, as the case may be,
the Acquired Assets, free and clear of any Security Interest or restriction on
transfer.
(f) Financial Statements.
(i) Company has delivered to Buyer true
and complete copies of the following
financial statements (collectively the
"Historical Financial Statements") of
Company: the balance sheet of Company as
at January 29, 1995, January 28, 1996 and
September 28, 1997, and the related
statements of income, retained earnings
and cash flows of Company for the fiscal
years then ended, certified by Xxxxxxx
Radin & Co., P.C. for the fiscal years
ended January 28, 1996 and September 28,
1997 and by KPMG Peat Marwick LLP for the
fiscal year ended January 29. 1995. For
purposes of this Agreement, September 28,
1997 is referred to herein as the "Most
Recent Fiscal Year End," and the balance
sheet referred to in the previous sentence
8
as at September 28, 1997 is referred to
herein as the "Most Recent Balance
Sheet"). The Historical Financial
Statements (including the notes thereto)
have been prepared from the books and
records of Company in accordance with GAAP
applied on a consistent basis throughout
the periods covered thereby and the
Historical Financial Statements present
fairly the financial condition of Company
as of such dates and the results of
operations of Company for such periods.
(ii) Company has delivered to Buyer true and
complete copies of the balance sheet of
Company as at December 31, 1997, and the
related statements of income, retained
earnings and cash flows of Company for the
three-month period then ended
(collectively, the "December 1997
Financial Statements"). The December 1997
Financial Statements have been prepared by
Company from the books and records of
Company consistent with Company's past
practice in the preparation of its interim
financial statements, and the December
1997 Financial Statements present fairly
the financial condition of Company as of
the date, and the results of operations of
Company for the three-month period then
ended, subject to normal (not
extraordinary) year-end adjustments.
(g) Events Subsequent to September 28, 1997.
Except as set forth on Schedule 3(g), since
September 28, 1997 there has not been an Material Adverse Effect and neither
Company nor Stockholder has Knowledge of any such event, circumstance,
condition, event or change which is threatened. Without limiting the
generality of the foregoing, since that date and except as set forth on
Schedule 3(g):
(i) Company has not sold, leased, transferred
or assigned any assets (individually or in
the aggregate), tangible or intangible, in
excess of $5,000, other than inventory in
the Ordinary Course of Business;
(ii) Company has not entered into any Contract,
which involves obligations in excess of
$25.000 in the aggregate;
(iii) No Person, including Company, has
accelerated, terminated. made material
modifications to, or canceled any Contract
to which Company is a party or by which it
is bound, except where the acceleration,
modification or cancellation would not
have a Material Adverse Effect;
(iv) No Person, including Company, has imposed
any Security Interest upon any of
Company's assets, tangible or intangible;
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(v) Company has not made any capital
expenditures or commitments in excess of
$25,000 in the aggregate;
(vi) Company has not made any investment in, or
any loan to, any other Person, in each
case in excess of $10,000;
(vii) Company has not created, incurred, assumed
or guaranteed more than $5,000 in
aggregate indebtedness for borrowed money
and capitalized lease obligations;
(viii) Company has not granted any license or
sublicense of any rights (individually or
in the aggregate) under or with respect to
any Intellectual Property, except where
the grant would not have a Material
Adverse Effect:
(ix) There has been no change made or
authorized in the Articles of
Incorporation or in the Bylaws or other
organizational documents of' Company;
(x) Neither Company nor Stockholder, has
issued, sold or otherwise disposed of any
of' Company's capital stock, or granted
any options. warrants or other rights to
purchase or obtain (including upon
conversion, exchange, or exercise) any of
Company's capital stock;
(xi) Company has not, directly or indirectly,
distributed or advanced or otherwise paid
any cash to Stockholder or any of its
Affiliates or any of their respective
officers or directors or any members of
any of their families nor declared, set
aside or paid any dividend or made any
distribution with respect to its capital
stock (whether in cash or in kind) or
redeemed, purchased or otherwise acquired
any of its capital stock, except (A) for
salary paid to such Persons who are
employees of Company in the Ordinary
Course of Business at an annualized rate
not exceeding $5,000 and (B) payments to
reimburse Stockholder for cash invested by
Stockholder in Company since January 1,
1998, which payments have not exceeded
$500,000;
(xii) Company has not experienced any damage,
destruction or loss (whether or not
covered by insurance) to any of its
properties or assets in excess of $10,000;
(xiii) Company has not made any loan to, or
entered into any other transaction with
any of its directors, officers or
employees or Stockholder
10
(xiv) Company has not entered into any
employment Contract or collective
bargaining agreement, written or oral, or
modified the terms of any existing such
Contract or agreement;
(xv) Company has not granted any increase in
the base compensation of any of its
directors or officers or, other than in
the Ordinary Course of Business, of any of
its non-officer employees;
(xvi) Except as contemplated by the provisions
of this Agreement, Company has not
adopted, amended, modified, or terminated
any bonus, profitsharing, incentive,
severance or other plan, Contract or
commitment for the benefit of any of its
directors, officers or employees (or taken
any such action with respect to any other
employee benefit plan, Contract or
arrangement)-,
(xvii) Company has not made any other material
change in employment terms for any of its
directors, officers or employees;
(xviii) Company has not paid any Transaction
Expenses;
(xix) Company has kept in full force and effect
insurance comparable in amount and scope
to coverage maintained by it as of the
Most Percent Fiscal Year End and required
pursuant to any material agreement,
instrument or document to which it is a
party;
(xx) Company has not made any change in any
method of accounting , or accounting
principle, method or practice which an
independent certified public accountant of
nationally recognized standing would
consider material;
(xxi) Company has not settled, released or
forgiven any claim or litigation or waived
any right., except where such settlement,
release. forgiveness or waiver would not
have a Material Adverse Effect;
(xxii) Company has not committed to do any of the
foregoing; and
(xxiii) Company has conducted the Business in the
Ordinary Course of Business.
(h) Stock Ownership.
Stockholder is the beneficial and record owner of
100 shares of Common Stock of Company, which in the aggregate represents 100%
of the total number of outstanding shares
11
of voting capital stock of Company.
(i) Excluded Liabilities; Undisclosed Liabilities.
Set forth on Schedule 3(i) is a complete and
correct list of all Excluded Liabilities. Company has no Liabilities, except
for (i) the Excluded Liabilities and (ii) the Assumed Liabilities.
(j) Legal Compliance.
Company has complied with all applicable Laws and
Orders of all Governmental Bodies (including without limitation all Laws and
Orders of the Federal Trade Commission) and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice has been
filed or commenced against Company alleging any failure so to comply, except
where the failure to comply with any of the above would not have a Material
Adverse Effect.
(k) Tax Matters.
(i) Company has filed all Tax Returns that it
was or is required to file, and all such
Tax Returns were correct and complete in
all material respects. All Taxes owed by
Company (whether or not shown on any Tax
Return) have been paid. Company currently
is not the beneficiary of, or subject, to,
any extension of time within which to file
any Tax Return.
(ii) Except as set forth on Schedule 3(k)(ii),
there is no material dispute or claim
concerning any Tax liability of Company
either claimed or raised, or, to the
Knowledge of Stockholder or Company,
threatened by any Governmental Body.
(iii) Company has reported and duly paid state
and local sales and use taxes in all
states in which it believes it is required
to report and pay such taxes, including
sales and/or use taxes on sales of
merchandise and on catalogs and other
promotional materials. A list of all such
states is set forth in Schedule 3(k)(iii).
(iv) There is no material dispute or claim of
Liability against Company for sales or use
taxes either formally asserted or raised
or, to the Knowledge of Company or
Stockholder, threatened by any
Governmental Body, nor, to the Knowledge
of Company or Stockholder, is there any
Basis for such a claim of Liability.
(l) Real Property.
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Company owns no real property. Schedule 3(l) lists
and describes briefly all real property leased or subleased to Company.
Company is not a party to any sublease or other Contract pursuant to which any
other Person occupies any real property leased or subleased to Company.
Company has delivered to Buyer correct and complete copies of the leases and
subleases listed in Schedule 3(l) (as amended to date). With respect to each
lease and sublease listed in Schedule 3(l) and as otherwise qualified therein:
(i) Company will submit at the Closing (A) an
assignment of each lease or sublease of
real property in the form attached as
Exhibit E hereto and (B) a consent by each
lessor or sublessor of real property to
the assignment of the lease or sublease to
Buyer on the same terms and at the same
lease rate as in effect immediately prior
to the Closing Date (the "Lease Assignment
Documents");
(ii) (A) the lease or sublease is legal, valid,
binding, enforceable and in full force and
effect; (B) all rent and other amounts
payable to date have been paid and no
party to the lease or sublease is in
material breach or default and no event
has occurred which, with notice or lapse
of time or both. would constitute a
material breach or default or permit
termination, modification, or acceleration
thereunder; and (C) no party to the lease
or sublease has repudiated any material
provision thereof;
(iii) there are no material disputes, oral
agreements, or forbearance programs in
effect as to the lease or sublease;
(iv) Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold
or subleasehold;
(v) all facilities leased or subleased
thereunder have received all material
approvals of governmental authorities
(including material licenses and permits)
required in connection with the operation
thereof and have been operated and
maintained in accordance with applicable
laws, rules and regulations in all
material respects;
(vi) neither Stockholder nor Company has
received notice of and neither Company nor
Stockholder has Knowledge of, any pending,
threatened or contemplated condemnation
proceeding affecting any such leased
property or any part thereof or of any
sale or other disposition of such leased
property or any part thereof in lieu of
condemnation; and
(vii) no portion of any such leased property has
suffered any material damage by fire or
other casualty which has not heretofore
been
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completely repaired and restored to its
original condition.
(m) Intellectual Property.
(i) Except as set forth on Schedule 3(m)(i),
Company has not interferedwith. infringed
upon, misappropriated, or violated any
material Intellectual Property rights of
any Person and neither Company nor
Stockholder has ever received any notice
of, and neither Company nor Stockholder
has Knowledge of, any such interference,
infringement, misappropriation or
violation (including any claim that
Company must license or refrain from using
any Intellectual Property rights of any
Person). To the Knowledge of Company or
Stockholder, no third party has interfered
with, infringed upon, misappropriated or
violated any Intellectual Property rights
of Company.
(ii) Except as set forth on Schedule 1.1 (b),
Company is not registered as or has not
applied to be registered as the owner of,
or is not the unregistered owner of (as
opposed to licensee of), any Intellectual
Property other than Mailing Lists,
Schedule 3(m)(ii) identifies each trade
name, domain name, fictitious or d/b/a
name, 800- or 888- prefix phone number, or
other identifier used by Company in
connection with any aspect of the Business
(and, with respect to such 800- or 888-
prefix phone numbers, Company has received
a letter from MCI Telecommunications, Inc.
consenting to the assignment and transfer
of all such phone numbers and related
rights to Buyer as of the Closing Date, a
copy of which letter is included in
Schedule 3(m)(ii)). With respect to each
item of Intellectual Property required to
be identified in Schedule 3(m) and except
as set forth in such Schedule:
(A) Company possesses all right, title
and interest in and to, or has the
right to use, without payment to
any Person, the item, free and
clear of any Security Interest,
license, or other restriction,
including, without limitation, all
rights to the Catalog Names and
associated logos;
(B) the item is not subject to any
outstanding Order;
(C) the item has not lapsed, expired
or been abandoned;
(D) no Claim is pending or, to the
Knowledge of Company or
Stockholder, is threatened, which
challenges the legality,
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validity, enforceability, use or
ownership of the item or
application, registration or grant
therefor; and
(E) Company has not agreed to
indemnify any Person for or
against any interference,
infringement, misappropriation or
other conflict with respect to the
item.
(iii) Schedule 3(m)(iii) sets forth a complete
and accurate list of each license,
sublicense. agreement or other Contract or
other permission. whether written or oral,
pursuant to which Company has granted to
any other party any rights with respect to
any of its Intellectual Property. Company
has delivered to Buyer correct and
complete copies of all such licenses.
sublicenses, agreements and other
Contracts or permissions (as amended to
date).
(iv) Schedule 3(m)(iv) identifies each item of
Intellectual Property that any other party
owns and that Company uses pursuant to
license, sublicense, agreement or other
Contract, or permission. Company has
delivered to Buyer correct and complete
copies of all such licenses, sublicenses.
agreements, Contracts and permissions (as
amended to date). With respect to each
such item of used Intellectual Property
required to be identified in Schedule
3(m):
(A) the license, sublicense,
agreement, Contract or permission
covering the item is, with respect
to Company, legal, valid, binding,
enforceable and in full force and
effect in all material respects
and, with respect to the other
party or parties thereto, is, to
the Knowledge of Company and
Stockholder, legal, valid,
binding, enforceable and in full
force and effect in all material
respects;
(B) no party to the license,
sublicense, agreement, Contract or
permission is in material breach
or default and, to the Knowledge
of Company or Stockholder, no
event has occurred which, with
notice or lapse of time or both,
would constitute a material breach
or default or permit termination,
modification, or acceleration
thereunder;
(C) neither Stockholder nor Company
has received notice of, and
neither Company nor Stockholder
has Knowledge of, any repudiation
by any party thereto of any
material provision of any license,
sublicense, agreement, Contract or
permission, or of any intent to
cancel, or not renew on comparable
terms,
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such license, sublicense,
agreement, contract or permission,
nor does any director or officer
of Company or Stockholder have any
reason to believe such other party
may take any such action after the
Closing; and
(D) Company has not granted any
sublicense or similar right with
respect to the license,
sublicense, agreement., Contract
or permission.
(v) The Intellectual Property identified on
Schedule 1.1(b) constitutes all of the
registrable Intellectual Property used in
or necessary for the conduct of the
Business.
(vi) Company possesses all rights and interest
necessary to (A) sell all merchandise
currently sold through Company's catalogs
and (B) to use the likeness of persons
used in such catalogs for the specific
purpose and in the specific catalogs in
which such likenesses appeared, in the
case of both(A) and (B), without
infringing the Intellectual Property
rights of any other Person. To the
Knowledge of the Company or Stockholder.
each Person from which Company acquires
products and goods (1) obtained or made
and sold such products and goods without
violation of the Intellectual Property or
other rights of any Person, (2) has all
rights and permissions necessary to
distribute such products and goods to
Company and (3) has all rights and
permissions necessary to grant to Company
the right to redistribute such products
and goods.
(vii) All mailing lists used in the conduct of
the Business (the "Mailing Lists") are
owned by Company and are (A) in a magnetic
tape form in readable format, (B) contain
all names and addresses of customers
outside of Japan who have in the past
purchased a product from Company, sorted
to indicate which of such customers have
purchased products (1) within 12 months
prior to the Closing Date, (2) 12-24
months prior to the Closing Date, (3)
24-36 months prior to the Closing Date and
(4) more than 36 months prior to the
Closing Date and (C) include a detailed
transaction listing, with original source
data including the names and addresses of
Persons outside of Japan who have inquired
about Company's catalogs, although they
have not yet purchased, sorted to indicate
which such Persons have made such
inquiries during each of the four time
periods set forth in clause (B)
immediately above. The use of the mailing
lists by Company does not violate, without
limitation, Intellectual Property rights
and rights of publicity or privacy of any
Person, and is not in violation of any
16
applicable Law or Order. There is no
limitation on the right of Company to
transfer to Buyer any of the Mailing
Lists. As of the date of this Agreement,
the Mailing Lists contain the following
approximate numbers of customers and
prospective customers outside of Japan:
Customers outside of Japan
who purchased Company
Number products during the calendar year:
37,575 1998 (to March 31, 1998)
127,507 1997
94,350 1996
63,226 1995
59,391 1994
251,542 1993 and prior to such year
Persons outside of Japan who
have inquired about but have
not purchased Company products
Number during the calendar year:
27,697 1998 (to March 31, 1998)
54,944 1997
35,258 1996
500,000 1995 and prior to such year
As of the date of this Agreement, the number of customers in Japan who in the
past purchased a product from Company is approximately 34,000 and the number
of Persons in Japan who have inquired about Company's catalogs is
approximately 27,500.
(n) Tangible Assets.
Except as set forth on Schedule 3(n), the buildings,
machinery, equipment (including the computer software technology, telephone
and telecommunication systems) and other tangible assets that Company owns,
leases or uses in the Business are free from material defects. have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear), are suitable for their
present intended use and are capable of meeting all fulfillment service and
call service needs and performance standards required of Company during
periods of peak order activity relating to the Business as heretofore
conducted.
(o) Inventory.
17
Set forth on Schedule 3(o) is a complete and
correct costed-out inventory detail listing of all inventory owned by Company
as of a date within five days of the Closing Date. Except as set forth on
Schedule 3(o), the inventory of Company to be purchased by Buyer as Acquired
Assets consists of raw materials. work-in-process, supplies and finished
goods, all of which is in merchantable condition and fit for the purpose for
which it was procured or manufactured and none of which is damaged or
defective.
(p) Contracts.
Schedule 3(p) lists all Contracts involving rights
or obligations in excess of $20,000 in any year. to which Company is a party
or by which Company or any of the Acquired Assets are bound or subject.
Company, has delivered to Buyer a correct and complete copy of each written
Contract. With respect to each such Contract: (i) the Contract is legal,
valid, binding, enforceable and in full force and effect in all material
respects, (ii) no party is in material breach or default and no event has
occurred which, with notice or lapse of time or both, would constitute a
material breach or default or permit termination, modification or acceleration
under the Contract; (iii) neither Stockholder nor Company has received notice
of, and neither Company nor Stockholder has Knowledge of, any repudiation of
any material provision of the Contract or any intent to cancel or not renew
the Contract; and (iv) no consent is required of any party thereto to transfer
the benefits of each such Contract to Buyer in connection with the
transactions contemplated in this Agreement.
(q) Predominant Customers.
No single customer of Company accounts or accounted
for over five percent (5%) of the total revenues of Company during any of the
three (3) complete fiscal years immediately preceding the date of this
Agreement.
(r) Change in Customers or Vendors.
Except as set forth on Schedule 3(r), neither
Stockholder nor Company has received notice of, and neither Company nor
Stockholder has Knowledge of, any intent by any customer or vendor whose
annual volume of purchases or sales during Company's fiscal year ended
September 28, 1997 or during the period between the Most Recent Fiscal Year
End and the Closing Date exceeded $25.000, to cease doing business with
Company or materially alter the amount or pricing of the business done with
Company.
(s) Notes and Accounts Receivable.
All notes and accounts receivable of Company are
reflected properly on its books and records, are valid receivables subject to
no setoffs or counterclaims, and are current and collectible in accordance
with their terms at their recorded amounts, subject only to the reserve for
bad debts set forth on the face of the Most Recent Balance Sheet as adjusted
in a manner consistent with past practice for operations and transactions in
the Ordinary Course of Business through the
18
Closing Date.
(t) Insurance.
Company has supplied Buyer with a copy of each
insurance policy (including policies providing property, casualty. liability
and workers' compensation coverage and bond and surety arrangements) with
respect to which Company is or is required to be (pursuant to the provisions
of any agreement or license or other Contract to which it is party) a party, a
named insured, or otherwise the beneficiary of coverage. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable
and in full force and effect in all material respects and insures against
risks and liabilities to an extent and in a manner customary in the mail order
business and sufficiently covers all material risks subject to policy limits
and provides for sufficient indemnification as customary in such business and
in accordance with the requirements of the Contracts; (ii) neither Company,
nor any other party to the policy is in material breach or default (including
with respect to the payment of premiums or the giving of notices), and no
event has occurred which, with notice or the lapse of time or both, would
constitute a material breach or default. or permit termination, modification
or acceleration under the policy; and (iii) no party to the policy has
repudiated any material provision thereof. Schedule 3(t) describes any and all
self-insurance arrangements affecting Company or the Business.
(u) Product Warranty.
Schedule 3(u)(i) includes copies of the standard
terms and conditions of sale or lease for Company (containing applicable
guaranty, warranty and indemnity provisions). Substantially all of the
products manufactured. sold, leased or delivered by Company are subject to
standard terms and conditions of sale or lease. All of the products
manufactured, sold, leased or delivered by Company have conformed in all
material respects with all applicable contractual commitments, with all
express and implied guaranties, and with all applicable Laws, subject only to
Company s standard return policy. Except as provided in Schedule 3(u)(ii),
Company has no Liability for replacement or repair thereof or other damages in
connection therewith, subject only to Company's standard return policy.
Returns of damaged or defective products manufactured, sold, leased or
delivered by Company shall not in the aggregate exceed $5,000.
(v) Litigation.
Schedule 3(v) sets forth each instance in which
Company (i) is subject to any outstanding Order or (ii) is a party or, to the
Knowledge of Company or Stockholder, is threatened to be made a party to any
Claim of. in, or before any Governmental Body or before any arbitrator. which
could reasonably be expected to have a Material Adverse Effect. The Most
Recent Balance Sheet reflects an adequate reserve for any Adverse Consequences
that Company may reasonably be expected to suffer from any such Order or event
specified in the preceding sentence and Company's insurance policies as
currently in effect will pay for the full amount of any Adverse Consequences
that may be suffered by Company or Buyer with respect to any event specified
in the preceding
19
sentence (including all matters set forth on Schedule 3(v). Without limiting
the generality of the foregoing, Company has no material Liability arising out
of any injury (or alleged injury) to individuals or property as a result of
the ownership, possession, or use of any product manufactured.
sold, leased or delivered by Company.
(w) Employees.
Schedule 3(w) sets forth a complete list of
full-time, salaried employees of Company, including the position or title and
the current annual compensation of each employee of Company. Schedule 3(w)
shall not act to modify the definition of "Assumed Employees" under Section
5(l) below. Except as set forth on Schedule 3(w), to the Knowledge of Company
or Stockholder, no executive, key employee or significant group of employees
plans to terminate employment with Company as a result of the transactions
contemplated by this Agreement or otherwise during the next 12 months. Company
is not a party to or bound by any collective bargaining agreement or other
Contract with a labor union or association representing an-Y employee, nor has
it experienced any strike, work slowdown or stoppage, or grievance, claim of
unfair labor practices (as defined by the National Labor Relations Act), or
other collective bargaining dispute within the past three years. Company has
not committed any unfair labor practice. Neither Company nor Stockholder has
any Knowledge of any organizational effort presently being made or threatened
by or on behalf of any labor organization (as defined by the National Labor
Relations Act) with respect to employees of Company.
(x) Employee Benefits.
Except as set forth on Schedule 3(x)(i), there are
no employee benefit plans or arrangements of any type (whether or not
described in section 3(3) of the Employee Retirement Income Security Act of
1974, as amended and the regulations thereunder, including, without
limitation, plans or arrangements providing for deferred compensation, profit
sharing, pension, severance, bonuses, incentive, stock options, fringe
benefits, vacation, paid holidays, personal leave, employee discount,
educational benefit cafeteria plan deferrals, flexible arrangements or other
similar plans, programs, agreements, policies, understandings or arrangements,
written or unwritten), under which Company or any Commonly Controlled Entity
(within the meaning of section 414(b), (c), (in), (n) or (o) of the Code) has
or Buyer in the future could have, directly or indirectly, any liability with
respect to any current or former employee of Company (collectively, the
"Company Employee Benefit Plans"). Schedule 3(x)(ii) sets forth a correct and
complete summary, to the Knowledge of Company and Stockholder, of all claims
submitted under Company's Health Benefit Program. Company has paid all
premiums required under the NonParticipating Excess Risk Insurance Policy
(Policy Number GA-120673AL). underwritten by United Health Care Insurance
Company, including the "Individual Excess Risk Premium" "Aggregate Excess Risk
Premium", including the separate premium for "Monthly Accumulated Cap Benefit"
and, for a period of at least 12 months immediately preceding the Closing
Date, the "Terminal Liability Extension Premium" for both "Aggregate Excess
Risk Benefit" and "Individual Excess Risk Benefit", in each case as such terms
are defined in such insurance policy.
20
(y) Environment, Health and Safety.
Except as disclosed on Schedule 3(y), to the
Knowledge of Company or Stockholder. Company and its predecessors and
Affiliates: (i) are and have been in compliance with all applicable
Environmental, Health and Safety Laws; (ii) there is no judgment or Claim
pending or threatened against Company or any of its predecessors or Affiliates
pursuant to Environmental, Health and Safety Laws or principles of common law
relating to pollution, protection of the environment or health and safety; and
(iii) there are no past or present events, conditions. circumstances,
activities, practices, incidents, agreements, actions or plans which may
prevent compliance with Environmental, Health and Safety Laws, or which have
given rise to or could give rise to any Claim in connection therewith.
(z) Certain Business Relationships With Company.
Except as disclosed on Schedule 3(z), none of the
directors or officers of Company or Stockholder nor any of their relatives or
Affiliates (other than Company) owns any asset. tangible or intangible, which
is used by Company in the Business. Since the Most Recent Balance Sheet. all
transactions between Company, on the one hand, and any Affiliate of Company,
on the other hand, have occurred in the Ordinary Course of Business on a basis
no less favorable to Company as would be obtained in a comparable arm's length
transaction with a Person not an Affiliate.
(aa) Disclosure.
The representations and warranties of
Company and Stockholder contained in this Agreement and the other Transaction
Documents (including the schedules, exhibits and other documents referred to
herein and therein) and the documents delivered or provided to Buyer in
response to its due diligence request (1) do not contain any untrue statement
of a material fact or (ii) omit to state any material fact necessary in order
to make the statements and information contained in this Agreement and in such
documents not misleading.
(ab) Processing of Returns.
Company has consistently and timely
processed all customer claims with respect to returns of sold products.
(ac) Investment.
Company (i) understands that the Note has
not been, and will not be, registered under the Securities Act, or under any
state securities laws, and is being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii)
is acquiring the Note solely for its own or Stockholder's account for
investment purposes, and not with a view to the distribution thereof, (iii) is
a sophisticated investor with knowledge and experience in business and
financial matters, (iv) has received certain information concerning Buyer
21
and has had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding the Note, (v)
is able to bear the economic risk and lack of liquidity inherent in holding
the Note, and (vi) is an Accredited Investor within the meaning of this term
as defined in Rule 501 of the rules promulgated under the Securities Act.
Section 4. Representations and Warranties of Buyer.
Buyer represents and warrants to Company and Stockholder
that each of the statements set forth below is true and correct in all
respects. Such representations, warranties, as well as the covenants and
agreements contained herein constitute a material inducement to Company and
Stockholder to enter into this Agreement, to enter into the other Transaction
Documents to which it has become a party, to sell the Acquired Assets sold by
it pursuant hereto and to consummate the other transactions contemplated
hereby and thereby.
(a) Organization of Buyer.
Buyer is a limited liability company duly formed,
validly existing and in good standing under the laws of the Jurisdiction of
its formation. All of Buyer's equity interests are owned, directly or
indirectly, by Parent.
(b) Authorization of Transaction.
Buyer has full power and authority to execute and
deliver this Agreement and the other Transaction Documents to which it is a
party and to perform its obligations hereunder and thereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and to general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law).
(c) Noncontravention.
Neither the execution and the delivery of this
Agreement, the other 'Transaction Documents or the other documents
contemplated hereby and thereby, nor the consummation of the transactions
contemplated hereby and thereby will (i) violate any Law or Order of any
Governmental Body or court to which Buyer is subject or any provision of its
certificate of, formation or operating agreement or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of.
create in any party the right to accelerate, terminate. modify or cancel or
require any notice under, any Contract to which Buyer is a party or by which
it is bound or to which any of its assets is subject. Buyer does not need to
give any notice to, make any filing with or obtain any authorization, consent
or approval of any Governmental Body or other Person in order for the Parties
to consummate the transactions contemplated by this Agreement (including the
assignments and assumptions referred to in Section 2 of this Agreement),
except for such notices,
22
filings, authorizations, consents or approvals as have been duly made or
received, as the case may be.
(d) Brokers' Fees.
Except as set forth on Schedule 4(d), Buyer has no
liability or obligation to pay any fees or commissions or other compensation
to any broker, finder or agent with respect to the transactions contemplated
by this Agreement.
Section 5. Post-Closing Covenant.
(a) Further Assurances.
In the event that at any time after the Closing any
further action is necessary to carry out the purposes of this Agreement or the
other Transaction Documents, each of the Parties will take such further action
(including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under this Section 5). Without limiting the
generality of the foregoing, (i) the Company and Stockholder will cooperate
with Buyer in providing documentation to assist Buyer in ensuring compliance
with applicable Laws and Orders of Governmental Bodies, including without
limitation assisting Buyer in implementing its FTC compliance program, and
(ii) Buyer will cooperate with Stockholder in providing financial information
relating to the Company to assist Stockholder in preparing its financial
statements.
(b) Access.
Company shall provide Buyer, its representatives and
Buyer's Accountant with reasonable access to the books, records and personnel
of Company and the workpapers and personnel of Company's auditors in order to
assist Buyer and Buyer's Accountant with preparation and review of the Closing
Date Balance Sheet and the statement of Net Value of the Acquired Assets.
(c) Indemnification Provisions for the Benefit of Buyer.
(i) Breach of Representations, Warranties or
Covenants. In the event that Company or
Stockholder breaches any of its
representations, warranties (which
representations and warranties shall
survive for a period of twenty-four (24)
months from and after the Closing Date,
and, thereafter, no suit may be commenced
with respect thereto, except for (A) the
representations and warranties in Section
3(b) (captioned "Authorization of
Transaction") and in Section 3(k)
(captioned "Tax Matters"), which shall
remain in full force and effect until the
expiration of all applicable statutes of
limitations, and (B)
23
the representations and warranties in
Section 3(e) (captioned "Title to
Assets"), which shall remain in full force
and effect forever) or covenants contained
in this Agreement and a Buyer Indemnified
Party (as hereinafter defined) makes a
written claim for indemnification against
either Company or Stockholder then, each
of Company and Stockholder agrees jointly
and severally to indemnify Buyer, its
members, Affiliates and agents and their
respective officers, directors and
employees (collectively, the "Buyer
Indemnified Parties"; each a "Buyer
Indemnified Party") from and against the
entirety of Adverse Consequences any Buyer
Indemnified Party may suffer through and
after the date of the claim for
indemnification, resulting from any such
breach.
(ii) Excluded Liabilities; Brokers. Each of
Company and Stockholder agrees jointly and
severally to indemnify Buyer Indemnified
Parties from and against the entirety of
any Adverse Consequences any Buyer
Indemnified Party may suffer through and
after the date of the claim for
indemnification, resulting from:
(A) any Excluded Liability (including
any liability of Company or
Stockholder for Taxes or
otherwise that becomes a
liability of Buyer under any Tax
or bulk transfer law of any
Jurisdictions, under any common
law doctrine of de facto merger
or successor liability or
otherwise by operation of law or
as a result of the consummation
of the transactions contemplated
hereby); provided, however, that.
notwithstanding anything to the
contrary herein, the
indemnification obligations in
this Paragraph (A) for any
Excluded Liability shall survive
the Closing (even if Buyer knew
or had reason to know of such
Liability or obligation or the
underlying facts relating
thereto) and continue in full
force and effect until the
expiration of all applicable
statutes of limitation; or
(B) the claims of any broker or
finder engaged solely by or on
behalf of Company or Stockholder
(except to the extent that any
such broker or finder is engaged
by Buyer).
(iii) Limitations. Neither Company nor
Stockholder shall have any obligation to
indemnify the Buyer Indemnified Parties
from and against any Adverse Consequences
resulting from or arising out of this
Agreement or the transactions contemplated
hereby unless and until such Adverse
Consequences exceed $40,000 individually,
at which time and thereafter the Buyer
Indemnified Parties shall be
24
indemnified from and against the full
amount of such Adverse Consequences.
Except in respect to Adverse Consequences
resulting from fraud on the part of
Company or Stockholder or breaches of the
representations and warranties of the
Company or Stockholder contained in
Section 3(b)(captioned "Authorization of'
Transaction"), 3(e)(captioned "Title to
Assets") or 3(y) (captioned
"Environmental, Health and Safety"), the
obligation of Company and Stockholder to
jointly and severally indemnify the Buyer
Indemnified Parties shall not exceed the
Purchase Price.
(d) Indemnification Provisions for the Benefit of
Stockholder and Company.
(i) Breach of Representations, Warranties and
Covenants. In the event Buyer breaches any
of its representations, warranties (which
representations and warranties shall
survive for a period of twenty- four (24)
months from and after the Closing Date,
and, thereafter, no suit may be commenced
with respect thereto, except for the
representations and warranties In Section
4(b) (captioned "Authorization of
Transaction"), which shall remain in full
force and effect until the expiration of
all applicable statutes of limitations) or
covenants contained in this Agreement and
a Stockholder Indemnified Party (as
hereinafter defined) makes a written claim
for indemnification against Buyer, then
Buyer agrees to indemnify each of Company,
Stockholder and their respective officers,
directors, employees, Affiliates and
agents (collectively, the "Stockholder
Indemnified Parties"; each a "Stockholder
Indemnified Party") from and against the
entirety of the Adverse Consequences any
Stockholder Indemnified Party may suffer
through and after the date of the claim
for indemnification resulting from such
breach.
(ii) Assumed Liabilities; Brokers; Use of
Likenesses. Buyer agrees to indemnify the
Stockholder Indemnified Parties from and
against the entirety of any Adverse
Consequences any Stockholder Indemnified
Party may suffer resulting from: (A) any
Assumed Liability, (B) the claims of any
broker or finder engaged solely by or on
behalf of Buyer (except to the extent that
such broker or finder is engaged by or on
behalf of the Company or Stockholder); or
(C) use by Buyer after the Closing I)ate
of the likeness of persons used in the
Company's catalogs without the approval of
such persons.
(iii) Limitations. Buyer shall have no
obligation to indemnify the Stockholder
Indemnified Parties from and against any
Adverse Consequences resulting from or
arising out of this Agreement or the
25
transactions contemplated hereby unless
such Adverse Consequences exceed $40,000
individually. at which time and thereafter
the Stockholder Indemnified Parties shall
be indemnified from and against the full
amount of such Adverse Consequences.
Except in respect of Adverse Consequences
resulting from fraud on the part of Buyer
or breach of the representation and
warranty of Buyer contained in Section
4(b)(captioned "Authorization of
Transaction"), the obligation of Buyer to
indemnify the Stockholder Indemnified
Parties shall not exceed the Purchase
Price.
(e) Indemnification Matters Involving Third Parties.
(i) If any third party shall notify any Party
(the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which
may give rise to a claim for
indemnification against any other Party
(the "Indemnifying Party") under this
Section 5, then the Indemnified Party
shall promptly notify each Indemnifying
Party thereof in writing; provided,
however, that no delay on the part of the
Indemnified Party in notifying any
Indemnifying Party shall relieve the
Indemnifying Party from any obligation
hereunder unless (and then solely to the
extent) the Indemnifying Party is
prejudiced thereby. In determining the
amount of Adverse Consequences for
purposes of Sections 5(c), (d) and (e)
hereof, the Parties shall make appropriate
adjustments for tax effects and insurance
coverage and take into account the time
cost of money (using the Applicable Rate
as the discount rate).
(ii) Any Indemnifying Party will have the right
to assume the defense of the Third Party
Claim with counsel of his or its choice
reasonably satisfactory to the Indemnified
Party at any time within 20 days after the
Indemnified Party has given notice of the
Third Party Claim; provided, however, that
the Indemnifying Party must conduct the
defense of the Third Party Claim actively
and diligently thereafter in order to
preserve its rights in this regard; and
provided further that the Indemnified
Party may retain separate co-counsel at
its sole cost and expense and participate
in the defense of the Third Party Claim;
provided, that, if the named parties to
any such Third Party Claim (including any
impleaded parties) include an Indemnified
Party and the Indemnifying Party or one or
more other Indemnified Parties and such
Indemnified Party shall have been advised
by its counsel in writing that there is a
conflict of interest between such
Indemnified Part-V and the Indemnifying
Party or any such other Indemnified Party
in the conduct of the defense thereof,
then in any such case the
26
reasonable fees and expenses of such
separate counsel shall be home by the
Indemnifying Party. In the event that the
Indemnifying Party fails to assume the
defense of a Third Party Claim in the
manner provided above in this Paragraph
(II) or fails to conduct the defense of a
Third Party Claim actively and diligently
after such assumption, the Indemnified
Party shall have the right to select
counsel of his or its choice (and at his
or its sole discretion) and the reasonable
fees and expenses of such counsel shall be
paid by the Indemnifying Party.
(iii) So long as the Indemnifying Party has
assumed and is conducting the defense of
the Third Party Claim in accordance with
Paragraph (ii) above, (A) the Indemnifying
Party will not consent to the entry of any
judgment or enter into any settlement with
respect to the Third Party Claim without
the prior written consent of the
Indemnified Party (not to be withheld
unreasonably) unless the judgment or
proposed settlement involves only the
payment of money damages by one or more of
the Indemnifying Parties and does not
impose an injunction or other equitable
relief upon the Indemnified Party and (B)
the Indemnified Party will not consent to
the entry of any judgment or enter into
any settlement with respect to the Third
Party Claim without the prior written
consent of the Indemnifying Party (not to
be withheld unreasonably).
(iv) In the event none of the Indemnifying
Parties assumes and conducts the defense
of the Third Party Claim in accordance
with Paragraph (ii) above, (A) the
Indemnified Party may defend against and
consent to the entry of any judgment. or
enter into any settlement with respect to,
the Third Party Claim in any manner he or
it reasonably may deem appropriate
(although the Indemnified Party shall use
reasonable efforts to consult with. and
obtain prior written consent from, any
Indemnifying Party in connection
therewith. which consent shall not be
unreasonably withheld or delayed) and (B)
the Indemnifying Parties will remain
responsible for an Adverse Consequences
the Indemnified Party may suffer resulting
from the Third Party Claim to the fullest
extent provided in this Section 5(e).
(f) Set-Off and Recoupment.
Buyer, Company and Stockholder, by executing this
Agreement, covenant and agree that Buyer shall have the right, but not the
obligation, to set-off against its obligations to pay any amount payable
pursuant to the Note, and recoup the full amount of any Adverse Consequences
required to be paid hereunder by Company or Stockholder. If Buyer elects to
exercise its set-off and recoupment rights hereunder. it will give to Company
and Stockholder written notice of such
27
election, which shall include the amount to be set-off, and the amounts
payable pursuant to the Note shall automatically be reduced by the amount set
forth in such notice as fully as if such amount had been paid by Buyer to
Company.
(g) Other Indemnification Provisions.
The foregoing indemnification provisions are in
addition to and not in derogation of, any statutory, equitable or common law
remedy any Party may have for breach of representation, warranty or covenant,
subject to the time limits provided in Sections 5(b)(1) and 5(c)(1).
(h) Fraud.
In the event of a claim for indemnify which is
related to an Adverse Consequence which resulted from intentional fraud on the
part of any Indemnifying Party, the party responsible for such intentional
fraud will not have the benefit of the twenty-four (24) month survival
limitation period.
(i) Records.
Buyer shall preserve and retain the corporate,
accounting, legal and other records of Company and the Business that shall
come into Buyer's possession as a result of the transactions contemplated
hereby for a period of not less than seven (7) years from the Closing Date and
give reasonable access to Company, Stockholder and their auditors, counsel and
other authorized representatives for the purpose of preparing or defending tax
returns or for other reasonable business purposes.
(j) Third Party Consents; UCC-3 Termination Statements.
If the Parties have not obtained a consent or
approval necessary for the assignment of any Contract., arrangement or right
included in the Acquired Assets or the assumption of any of the Assumed
Liabilities prior to the Closing Date and any condition precedent to the
Closing relating thereto shall have been waived by Buyer, then Buyer shall
attempt, with the reasonable assistance of Company and Stockholder, when
requested by Buyer, to obtain such consents and approvals promptly after the
Closing Date. If any such consent is not obtained. Company and Stockholder
will cooperate with Buyer in any reasonable arrangement (such as
subcontracting, sublicensing or subleasing) designed to provide for Buyer, to
the extent legally possible, all of the benefits of Company under such
Contract, arrangement or other right, as the case may be, (including
enforcement for the benefit of Buyer) and any and all rights of Company
arising out of the breach or cancellation of such Contract, arrangement or
other right and will otherwise assist Buyer in perfecting its right to own the
Acquired Assets and to operate the Acquired Business. In the event that Seller
has not obtained any UCC-3 termination statements required to be delivered
under Section 7(a)(vi) and Buyer waives delivery of such UCC-3 termination
statements as a
28
condition precedent to the Closing, then the Company and Stockholder shall
obtain such UCC-3 termination statements as promptly as possible after the
Closing Date.
(k) Non-Compete and Confidentiality
(i) Each of Company and Stockholder agrees
that for a period of' two (2) years from
and after the Closing Date (the
"Non-Compete Period"), it will not and,
except to the extent prohibited by
California Business and Professions Code
Section 16600 or other applicable Law,
will not permit any of its Affiliates to:
(x) directly or indirectly (whether as
owner, consultant, employee, partner,
venturer, agent through stock ownership,
investment of capital, lending of money or
property, rendering of services or
otherwise) anywhere in the world, engage
in or become associated with the
marketing, sale and distribution by direct
mail or Internet marketing to consumers of
children's apparel and related products or
any other business that is substantially
the same as or competes by direct mail or
Internet marketing to consumers with that
which (I) Buyer or Seller conducts on the
date hereof or (II) Seller conducted at
any time during the 12-month period prior
to the Closing Date, (y) except as
provided in Schedule 5(k), employ or
retain, or have or cause any other Person
or entity to employ or retain or otherwise
cause to terminate his or her employment
with Buyer. any Person who was employed or
retained by Buyer or Company during the
12-month period prior to the Closing Date
or during the Non-Compete Period, or
(z)(1) solicit, interfere with, endeavor
to entice away from Buyer, any principal,
salesperson, supplier or other person with
whom Buyer or Company, during the 12-month
period prior to the Closing Date or during
the Non-Compete Period, has conducted
business or has had an introduction, lead,
relationship, understanding or
arrangement, or (II) solicit (by means of
the marketing, sale and distribution by
direct mail or Internet marketing to
consumers of children's apparel and
related products or any other business
that is substantially the same as or
competes direct mail or Internet marketing
to consumers with that which (A) Buyer or
Seller conducts on the date hereof or (B)
Seller conducted at any time during the
12-month period prior to the Closing Date)
any customer, active lead or prospect, or
other person with whom Buyer or Company,
during the 12-month period prior to the
Closing Date or during the Non-Compete
Period, has conducted business or has had
an introduction, lead. relationship,
understanding or arrangement; provided,
that no owner of less than five percent
(5%) of the outstanding stock of any
publicly traded corporation shall
29
be deemed, solely by reason thereof, to
engage in any of its businesses; provided,
further. that during the Non-Compete
Period Company and Stockholder may acquire
any business or businesses that
individually or in the aggregate generate
less than 25% of its respective revenues
from a line of business that would
otherwise be prohibited hereunder.
(ii) Each of Company and Stockholder will, and
will cause its respective Affiliates,
directors, officers and employees to, keep
secret and retain in the strictest
confidence all of the Confidential
Information, refrain from (x) disclosing
the Confidential Information to anyone
outside Stockholder and Company and their
legal, accounting and financial advisors
who agree in writing to be bound by the
ten-ns hereof, or (y) using any of the
Confidential Information except in
connection with this Agreement (or as
required to be disclosed to taxing
authorities in connection with the payment
of Taxes) and shall deliver promptly to
Buyer or destroy, at the request and
option of Buyer, all tangible embodiments
(and all copies) of the Confidential
Information which are in their possession
or under their control; provided, however,
that the foregoing shall not prevent any
Person who is an employee of Buyer from
after the Closing to utilize any
Confidential Information as necessary in
connection with the exercise of his or her
duties on behalf of Buyer. In the event
that Company or Stockholder or their
respective directors, officers or
employees is requested or required (by
oral question or request for information
or documents in any legal proceeding,
interrogatory, subpoena, civil
investigative demand or similar process)
to disclose any Confidential Information,
then Company or Stockholder or such
director, officer or employee, as the case
may be, will notify Buyer promptly of the
request or requirement so that Buyer may
seek an appropriate protective order or
waive compliance with the provisions of
this paragraph. If, in the absence of a
protective order or the receipt of a
waiver hereunder, Company or Stockholder
or its director, officer or employee is,
on the advice of counsel, compelled to
disclose any Confidential Information to
any tribunal or else stand liable for
contempt, then Company or Stockholder or
such director, officer or employee, as the
case may be, may disclose such
Confidential Information to the tribunal;
provided, however, that the disclosing
Person shall, at the reasonable request of
Buyer, cooperate with Buyer to obtain an
order or other assurance that confidential
treatment will be accorded to such portion
of the Confidential Information required
to be disclosed as Buyer shall designate.
30
(iii) Each of Company and Stockholder
acknowledges and agrees that the covenants
set forth in this Section 5(k) are
reasonable and valid in geographical and
temporal scope and in all other respects.
If any of the covenants contained in this
Section 5(k) are hereinafter construed to
be invalid or unenforceable, the parties
hereto agree that the arbitrator or court
making the determination of invalidity or
unenforceability shall have the power to
reduce the scope, duration, or area of the
term or provision, to delete specific
words or phrases, or to replace any
invalid or unenforceable term or provision
with a term or provision that is valid and
enforceable and that comes closest to
expressing the intention of the invalid or
unenforceable term or provision, and this
Section 5(k) shall be enforceable as so
modified after the expiration of the time
within which the judgment may be appealed.
(iv) Remedies. If Company or Stockholder
breaches any of the covenants contained in
this Section 5(k), Buyer shall no longer
be obligated to pay and both Company and
Stockholder shall have no right to receive
any payments otherwise payable pursuant to
Section 2(c)(Iii) of this Agreement. Each
of Company and Stockholder acknowledges
that the remedy at law of Buyer for breach
of the covenants herein will be inadequate
and will give rise to irreparable injury
to Buyer and that, in addition to any
other remedy Buyer may have, it will be
entitled to an injunction restraining any
breach or threatened breach, without bond
or other security being required. Each of
Stockholder and Company further
acknowledges and agrees that the covenants
contained in this Section 5(k) are
necessary for protection of Buyer's and
its Affiliates' legitimate business
interests and are reasonable in scope and
content.
(l) Employees.
Effective upon the Closing, Buyer shall become the
employer of all employees of the Company set forth on Schedule 5(l) (the
"Assumed Employees"). Buyer shall provide all notice required under any
applicable law, including but not limited to the Worker Adjustment and
Retraining Notification Act, in connection with the termination of the Assumed
Employees. Except as agreed above and as otherwise provided in this Agreement
(including without limitation the definition of Excluded Liabilities in
Appendix I), each party shall be exclusively responsible for its own labor
relations including, but not limited to, the establishment, alteration and/or
maintenance of the terms and conditions of employment and the commencement and
termination of employment. Nothing in this Agreement is intended to, nor shall
it, in any way, modify this strict separation of control and responsibility.
31
(m) Final Schedules.
No later than five (5) business days after the
Closing Date, Company shall deliver to Buyer correct and complete schedules
reasonably satisfactory to Buyer.
Section 6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer.
The obligation of Buyer to consummate the
transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions;
(i) the representations and warranties set
forth in Section 3 above qualified by
"material" or "Material Adverse Effect"
shall be true and correct at and as of the
Closing Date and the representations and
warranties not so qualified shall be true
and correct in all material respects at
and as of the Closing Date;
(ii) Company shall have procured all of the
Governmental Body and third party consents
specified in Schedule 3(c) at or prior to
the Closing;
(iii) no action, suit or proceeding is pending
before any Governmental Body or arbitrator
wherein an unfavorable Order would (A)
prevent consummation of any of the
transactions contemplated by this
Agreement or the other Transaction
Documents, (B) cause any of the
transactions contemplated by this
Agreement or the other Transaction
Documents to be rescinded following
consummation or (C) affect adversely the
Acquired Assets or their value or the
right of Buyer to own the Acquired Assets
and to operate the Acquired Business (and
no such Order shall be in effect);
(iv) all registrations, filings, applications,
notices, consents, approvals, orders.
qualifications and waivers required in
respect of the transactions contemplated
hereby shall have been filed, made or
obtained;
(v) Company shall have delivered to Buyer a
certificate signed by the Chief Financial
Officer of Company to the effect that each
of the conditions specified above in
Section 6(a)(i)-(iv) is satisfied in all
respects;
(vi) Buyer shall have received from or on
behalf of Company delivery of all the
Closing Documents listed in Section 7(a)
below;
32
(vii) all actions to be taken by Company and
Stockholder in connection with the
consummation of the transactions
contemplated hereby and by the other
Transaction Documents and all
certificates, opinions. instruments and
other documents required to effect the
transactions contemplated hereby and
thereby will be reasonably satisfactory in
form and substance to Buyer;
(viii) Company shall have delivered the audited
balance sheet and related statements of
operations, stockholder's equity and cash
flows of Company as of and for the fiscal
years ended January 25, 1995, January 28,
1996 and September 28, 1997, which shall
be prepared in accordance with GAAP and in
conformity with the provisions of
Regulation S-X of the Securities Act. The
cost of preparing the aforesaid financial
statements shall be borne by Company. In
addition, Company shall have delivered a
letter, in the form set forth in Exhibit
F, from Company's auditors, containing an
undertaking to consent in the future to
the use by Buyer or its Affiliates, in
documents filed pursuant to the Securities
Act or the Securities Exchange Act, of all
required financial statements of Company
audited by such auditors and the auditor's
reports with respect to such financial
statements;
(ix) Company shall have delivered prior to
Closing a complete, accurate and current,
as of a date within one week prior to
Closing, "marketing extract" in electronic
form useable by Buyer, extracted from
Company's database. The marketing extract
shall include, and Company and Stockholder
hereby covenant that it will include:
(A) The names of all customers and
potential customers, with
addresses, ever obtained by
Company, including but not limited
to, the names and addresses of all
customers, inquirers. ship to, the
names and addresses of all
customers, inquirers, ship to's,
"giftees," specifiers, resellers,
etc.;
(B) For non-buyers, all retained
information, including but not
limited to, demographics, source
codes and recency data;
(C) For buyers, associated transaction
details, including but not limited
to, dates and promotional sources
of all transactions. products
purchased in each transaction
since 1992, partial customer
service history associated with
each transaction, pay type and
credit worthiness information,
demographic information, etc.; and
33
(D) Tables, legends and other
explanatory information that will
enable Buyer to interpret all
coded information, such as source
codes. product codes, etc.
In the event Company is unable to deliver the
marketing extract in electronic form required by this Section 6(a)(lx),
Company shall be deemed to have fulfilled its obligation hereunder by
delivering to Buyer at Closing a complete system back-up of all of the data
files containing all of the information requested in this Section 6(a)(ix) and
delivery to Buyer of the marketing extract in electronic form requested by
this Section 6(a)(Ix).
Buyer may waive any condition specified in this
Section 6(a) if it executes a writing so stating at the Closing.
(b) Conditions to Obligation of Company and Stockholder.
The obligation of Company and Stockholder to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set
forth in Section 4 above qualified by
"material" or "Material Adverse Effect"
shall be true and correct at and as of the
Closing Date and the representations and
warranties set forth in Section 4 above
not so qualified shall be true and correct
in all material respects at and as of the
Closing Date;
(ii) no action, suit or proceeding is pending
before any Governmental Body or arbitrator
wherein an unfavorable Order would (A)
prevent consummation of any of the
transactions contemplated by this
Agreement or the other Transaction
Documents or (B) cause any of the
transactions contemplated by this
Agreement or the other Transaction
Documents to be rescinded following
consummation or (C) affect adversely the
ability of Buyer to assume the Assumed
Liabilities (and no such Order shall be in
effect);
(iii) all registrations, filings, applications,
notices, consents, approvals, orders,
qualifications and waivers required in
respect of the transactions contemplated
hereby shall have been filed, made or
obtained;
(iv) Buyer shall have delivered to Company a
certificate to the effect that each of the
conditions specified above in Section
6(b)(i)-(iii) is satisfied in all
respects;
34
(v) Company shall have received from or on
behalf of Buyer all of the Closing
Documents listed in Section 7(b) below;
and
(vi) Buyer shall have delivered to Company a
certificate to the effect that each of the
conditions specified above in Section
6(b)(i)-(iii) is satisfied in all
respects;
(v) Company shall have received from or on
behalf of Buyer all of the Closing
Documents listed in Section 7(b) below;
and
(vi) all actions to be taken by Buyer in
connection with the consummation of the
transactions contemplated hereby and by
the other Transaction Documents and all
certificates, opinions, instruments and
other documents required to effect the
transactions contemplated hereby and
thereby will be reasonably satisfactory in
form and substance to Company.
(vii) Company shall have received from Congress
Financial Corporation a duly executed
release of all intercompany guarantees of
Company, Stockholder and their Affiliates
of any indebtedness of Company to Congress
Financial Corporation.
Company may waive any condition specified in this Section
6(b) if it executes a writing so stating at the Closing.
Section 7. Closing Documents.
(a) Company and Stockholder Deliveries.
Company or Stockholder, as the case may be, shall
execute and deliver (or cause the execution and delivery of the following
documents to Buyer, prior to or simultaneously with the Closing:
(i) the xxxx of sale, assignment and
assumption agreement in the form of
Exhibit B hereto (the "Xxxx of Sale");
(ii) the assignment of Intellectual Property in
the form of Exhibit C hereto (the "IP
Assignment");
(iii) those consents listed on Schedule 3(c) and
all other documents necessary to convey,
good, valid and marketable title to the
Acquired Assets;
35
(iv) a certificate, dated the Closing Date, of
the Secretary of Company: (A) attaching
copies, certified by such officer, as true
and complete, of the Articles of
Incorporation and Bylaws of Company, as
amended to the Closing Date; (B) attaching
resolutions of the Board of Directors of
Company in connection with the
authorization and approval of the
execution, delivery and performance by
Company of this Agreement and the
Transaction Documents; (C) setting forth
the incumbency of the officer or officers
of Company who have executed and delivered
this Agreement and each other Transaction
Document, including therein a signature
specimen of each such officer or officers;
(D) attaching a copy., certified by the
Secretary of State of the State of
California, of Company's Articles of
Incorporation, together with a certificate
of good standing of Company issued by the
Secretary of State of the State of
California, and (E) certifying that no
action, suit or proceeding is pending
before any Governmental Body or arbitrator
wherein an unfavorable Order would (1)
prevent consummation of any of the
transactions contemplated by this
Agreement or the other Transaction
Documents, (2) cause any of the
transactions contemplated by this
Agreement or the other Transaction
Documents to be rescinded following
consummation or (3) affect adversely the
Acquired Assets or their value or the
right of Buyer to own the Acquired Assets
and to operate the Acquired Business (and
no such Order is in effect); and a
certificate, dated the Closing Date, of'
the Secretary of Shareholder: a
certificate, dated the Closing Date. of'
the Secretary of Stockholder: (A)
attaching copies, certified by such
officer. as true and complete, of the
Certificate of Incorporation and Bylaws of
Stockholder. as amended to the Closing
Date; (B) attaching resolutions of the
Board of Directors of Stockholder in
connection with the authorization and
approval of the execution, delivery and
performance by Stockholder of this
Agreement and the Transaction Documents;
(C) setting forth the incumbency of the
officer or officers of Stockholder who
have executed and delivered this Agreement
and each other Transaction Document,
including therein a signature specimen of
each such officer or officers, (D)
attaching a copy, certified by the
Secretary of State of the State of
Delaware, of Stockholder's Certificate of
Incorporation, together with a certificate
of good standing of Stockholder issued by
the Secretary of State of the State of
Delaware; and (E) certifying that no
action, suit or proceeding is pending
before any Governmental Body or arbitrator
wherein an unfavorable Order would (1)
prevent consummation of any of the
transactions contemplated by this
Agreement or the other Transaction
Documents, (2) cause any of the
transactions contemplated by this
Agreement or the other Transaction
36
Documents to be rescinded following
consummation or (3) affect adversely the
Acquired Assets or their value or the
right of Buyer to own the Acquired Assets
and to operate the Acquired Business (and
no such Order is in effect);
(v) an opinion of counsel to Company and
Stockholder in form and substance as set
forth in Exhibit G;
(vi) duly executed UCC-3 financing statements
terminating UCC-1 financing statements
filed wherever and whenever, including
those UCC- I financing statements set
forth on Schedule 7(a)(x) (and a letter of
acknowledgment from Congress Financial
Corporation, that upon payment of the
pay-off amount, such Person will release
all liens and terminate all security
agreements which such Person currently has
placed or has entered into in connection
with any property of Company);
(vii) evidence reasonably acceptable to Buyer
that Company has taken all steps necessary
to change, effective immediately following
the Closing its corporate name to any name
other than "'Biobottoms, Inc." or any
variant or abbreviation thereof;
(viii) an assignment to Buyer of Company's
merchant numbers used for credit card
purchases,
(ix) the Lease Assignment Documents, as
required by Section 3(l)(1); and
(x) a letter from IMCI Telecommunications,
Inc., consenting to the assignment and
transfer to Buyer of all toll-free 800 and
888-prefix phone numbers used by Company
in the Business.
(b) Buyer Deliveries.
Buyer shall execute and deliver to Company or
Company shall receive from third parties) prior to or simultaneously with the
Closing:
(i) the Xxxx of Sale;
(ii) the Note;
(iii) the Pledge Agreements;
(iv) a certificate, dated the Closing Date, of
the Secretary or other
37
authorized representative of Buyer: (A)
attaching resolutions of the members of
Buyer in connection with the authorization
and approval of the execution, delivery
and performance of this Agreement and the
other Transaction Documents; (B) attaching
copies, certified by such officer as true
and complete of the Certificate of
Formation and Limited Liability Company
Agreement of Buyer; (C) setting forth the
incumbency of the officer or officers of
Buyer who have executed and delivered this
Agreement and each other Transaction
Document to which Buyer is a party,
including therein a signature specimen of
each such officer or officers, (D)
attaching copies, certified by the
Secretary of State of the State of
Delaware, of Buyer's Certificate of
Formation; (E) certifying that no action,
suit or proceeding is pending before any
Governmental Body or arbitrator wherein an
unfavorable Order would (1) prevent
consummation of any of the transactions
contemplated by this Agreement or the
other Transaction Documents, (2) cause any
of the transactions contemplated by this
Agreement or the other Transaction
Documents to be rescinded following
consummation or (3) affect adversely the
right of Buyer to assume the Assumed
Liabilities or pay the Purchase Price;
(v) all material authorizations, consents and
approvals, if any, of any Governmental
Body referred to in Section 4(c) hereof;
(vi) an opinion of Xxxxxxxx & Xxxxxxxx LLP,
counsel to Buyer. in form and substance as
set forth in Exhibit H.
Section 8. Arbitration of Disputes.
(a) Mandatory Arbitration.
Buyer, on the one hand and Company and Stockholder,
on the other, shall promptly submit any dispute. claim or controversy arising
out of or relating to this Agreement or any Transaction Document (including,
without limitation, with respect to the meaning, effect, validity,
termination, interpretation, performance or enforcement of this Agreement or
such Transaction Document) or any alleged breach (including any action in
tort, contract. equity or otherwise) to binding arbitration before one
arbitrator (the "Arbitrator"). The Parties agree that. except as otherwise
provided herein respecting temporary or preliminary injunctive relief, binding
arbitration shall be the sole means of resolving any dispute, claim or
controversy arising out of or relating to this Agreement or any Transaction
Document (including, without limitation. with respect to the meaning, effect,
validity, termination, interpretation, performance or enforcement of this
Agreement or such Transaction Document) or any alleged breach (including any
claim in tort, contract, equity or otherwise).
38
(b) Arbitrator's Qualifications and Selection.
The Arbitrator shall be an active member of the New
York Bar, specializing for at least 15 years in mergers and acquisitions. The
Arbitrator shall be selected by the New York chapter head of the American
Arbitration Association upon the request of any Party. The Arbitrator shall be
selected within 30 days of request.
(c) Governing Law; Written Decision.
Any arbitration hereunder or under any Transaction
Document, shall be governed by the laws of the State of New York applicable to
a contract negotiated, signed and wholly to be performed in New York, which
laws the Arbitrator shall apply in rendering his or her decision. The
Arbitrator shall issue a written decision, setting forth findings of fact and
conclusions of law, within 60 days after he or she shall have been selected.
The Arbitrator shall have no authority to award punitive or other exemplary
damages.
(d) Procedures; Evidence; Experts.
(i) Any arbitration instituted by a Party
shall be held in New York. New York, in
accordance with and under the then-current
provisions of' the rules of the American
Arbitration Association. except as
otherwise provided herein.
(ii) On application to the Arbitrator, any
Party shall have rights to discovery to
the same extent as would be provided under
the Federal Rules of Civil Procedure and
the Federal Rules of Evidence shall apply
to any Arbitration under this Agreement;
provided, however, that the Arbitrator
shall limit any discovery or evidence such
that his or her decision shall be rendered
within the period referred to in Section
8(c).
(iii) The Arbitrator may, at his or her
discretion and at the expense of' the
Party(ies) who will bear the cost of the
Arbitration, employ experts to assist him
or her in his or her determinations.
(e) Costs.
The costs of the Arbitration proceeding and any
proceeding in court to confirm or to vacate any arbitration award or to obtain
temporary or preliminary injunctive relief as provided in Section 8(g), as
applicable (including, without limitation, actual attorneys' fees and costs),
shall be borne solely by the unsuccessful Party and shall be awarded as part
of the Arbitrator's decision, unless the Arbitrator shall otherwise allocate
such costs, for reasons set forth in such decision.
39
(f) Consent to Jurisdiction.
Any judgment upon any award rendered by the
Arbitrator may be entered in and enforced by any court of competent
jurisdiction. The Parties expressly consent to the .Jurisdiction of the courts
(Federal and state) in New York. New York to enforce any award of the
Arbitrator or to render any provisional or injunctive relief in connection
with or in aid of the arbitration. The Parties expressly consent to the
personal and subject matter jurisdiction of the Arbitrator to arbitrate any
and all matters to be submitted to arbitration hereunder. None of the Parties
hereto shall challenge any arbitration hereunder on the grounds that any
Person necessary to such arbitration (including, without limitation, any Party
hereto) shall have been absent from such arbitration for any reason.
including, without limitation, that such Person shall have been the subject of
any bankruptcy. reorganization or insolvency proceeding.
(g) Injunctive Relief.
This Section 8 shall not prevent any Party from
seeking or obtaining temporary or preliminary injunctive relief in a court for
any breach or threatened breach of any provision of this Agreement or any
Transaction Document; provided, that the determination whether such breach or
threatened breach shall have occurred and the remedy therefor (other than with
respect to such preliminary or temporary relief) shall be made by arbitration
pursuant to this Section 8.
(h) Indemnification.
The Parties shall indemnify the Arbitrator and any
experts employed by the Arbitrator and hold them harmless from and against any
Claim arising out of any arbitration under this Agreement or any Transaction
Document, unless resulting from the willful misconduct of the Person
indemnified.
(i) Survival.
The provisions of this Section 8 shall survive the
termination of this Agreement and any Transaction Document.
(j) Waiver of Jury Trial; Exemplary Damages.
ALL PARTIES HEREBY WAIVE THEIR RIGHTS TO TRIAL BY
JURY WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT. No Party shall be awarded punitive or other exemplary
damages respecting any dispute arising under this Agreement or any Transaction
Document.
(k) Attorneys' Fees.
40
The unsuccessful Party to any court or other
proceeding arising out of this Agreement that is not resolved by arbitration
shall pay to the prevailing Party all reasonable attorneys' fees and costs
incurred by the prevailing Party, in addition to any other relief to which it
may be entitled. As used in this Section 8 and elsewhere in this Agreement,
"reasonable attorneys' fees" means the fair value of services performed,
calculated on the basis of the fees customarily charged by the law firms in
the New York metropolitan area, taking into account the type of services
performed, the matter for which such fees are sought, including the size and
scope of such matter, any special level of expertise required, any unusual
time pressures and any other relevant circumstances.
(l) Interest.
Any amount payable by one Party to another under
this Section 8, shall bear interest at the rate of 10% per annum from the date
due until paid.
Section 9. Other Agreements.
(a) Press Releases and Public Announcements.
Neither Company nor Stockholder shall issue any
press release or make any public announcement relating to the purchase and
sale of the assets of Company or disclose to any third party, other than its
legal and financial advisors and others who need to know in order to
consummate this Agreement, the terms of this Agreement or the other
Transaction Documents, without the prior written approval of Buyer; provided,
however, that any Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to
making the disclosure).
(b) Filings.
Each of the Parties agrees to use commercially
reasonable efforts to effect all necessary registrations, filings and
submissions of information requested by Governmental Bodies, necessary to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with the other Parties in
connection with the foregoing.
(c) No Third-Party Beneficiaries.
This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement.
41
This Agreement and the other Transaction Documents
(including the documents referred to herein and therein) constitute the entire
agreement among the Parties and supersede any prior and contemporaneous
understandings, agreements or representations by or among the Parties
(including. without limitation, the Letter Agreement), written or oral, to the
extent they relate in any way to the subject matter hereof.
(e) Succession and Assignment.
This Agreement shall be binding upon and inure to
the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval
of the other Parties; provided, however, that Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its Affiliates and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder); and.
provided, further, that Company may assign to Stockholder Company's right to
receive payment hereunder. including the Note, subject to Buyer's right of
set-off and recoupment, as provided in Section 5(f) hereof.
(f) Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices.
All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail. return
receipt requested, postage prepaid and addressed to the intended recipient as
set forth below:
If to Company:
Biobottoms, Inc.
c/o Diplomat Corporation
00 Xxx Xxxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
42
Attention: Xxxxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
If to Stockholder:
Diplomat Corporation
00 Xxx Xxxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
In each case, with a copy to:
Gersten, Savage, Xxxxxxxxx & Xxxxxxxxxx, LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to Buyer:
Genesis Direct Thirty-Four, LLC
c/o Genesis Direct, Inc.
I 00 Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxxx X. Xxxx
With a copy to:
Xxxxxxx X. Xxxxxxxx Esq. - at the above address
Facsimile: (000) 000-0000
- and -
Xxxx X. Xxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger
service, telecopy, telex. ordinary mail or electronic mail). but no such
43
notice, request, demand, claim or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
(i) Governing Law.
This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application
of the laws of any Jurisdiction other than the State of New York.
(j) Amendments and Waivers.
No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by each Party.
No waiver by any Party of any default, misrepresentation or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend
to any prior or subsequent default, misrepresentation or breach of warranty or
covenant hereunder or affect in any way, any rights arising by virtue of any
prior or subsequent such occurrence.
(k) Severability.
Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining ten-ns and provisions hereof
or the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction.
(l) Expenses.
Each Party will bear its own costs and expenses
(including, without limitation, fees and expenses of accountants, attorneys,
financial advisors and brokers) incurred in connection with the Letter
Agreement, this Agreement, the other Transaction Documents and the preparation
and negotiation thereof and the consummation of the transactions contemplated
hereby and thereby ("Transaction Expenses").
(m) Construction.
The Parties have participated jointly in the
negotiation and drafting of this Agreement and the other Transaction
Documents. In the event an ambiguity or question of intent or interpretation
arises, this Agreement and the other Transaction Documents shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement and the
44
other Transaction Documents. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) Incorporation of Appendices, Exhibits and Schedules.
The Exhibits, Appendices and Schedules identified in
this Agreement are incorporated herein by reference and made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
GENESIS DIRECT THIRTY-FOUR, LLC
By:/s/ XXXXXX XXXXXXX
------------------
Name: Xxxxxx Xxxxxxx
Title: Chief Financial Officer
BIOBOTTOMS, INC.
By:/s/ XXXXXX XXXXXX
-----------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DIPLOMAT CORPORATION
By:/s/ XXXXXX XXXXXX
-----------------
Name: Xxxxxx Xxxxxx
Title: Chief Operating Officer
45
APPENDIX I
DEFINITIONS
"Acquired Assets" means all of the Business, goodwill,
assets. properties and rights of every nature, kind and description, whether
tangible or intangible, real, personal or mixed, wherever located and whether
or not carried or reflected on the books and records of' Company, which are
owned by Company or in which Company has any interest (including the right to
use), or which are located on the premises used by Company and used by Company
in its Business as of the Closing Date, or which are otherwise used in,
related to, or useful to, the Business, except for those items specifically
listed on Schedule 1.2 (the "Excluded Assets") referred to below. The Acquired
Assets shall include. but not be limited to, the following:
(a) all tangible personal property set forth on Schedule 1.1
(a) (such as machinery, equipment, inventories of raw materials and supplies.
manufactured and purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tractors, trailers, tools, jigs, dies and
leasehold improvements);
(b) all Intellectual Property set forth on Schedule 1.1(b),
goodwill associated therewith, licenses and sublicenses granted and obtained
with respect thereto and rights thereunder, remedies against infringements
thereof and rights to protection of interests therein under the laws of all
jurisdictions, including, without limitation, the exclusive right to use the
toll-free telephone numbers used for Company's catalogs and the right to use
in the Business the names (including derivatives and variations thereof) and
associated logos, if any, "Biobottoms" and "Fresh Air Wear" (collectively, the
"Catalog Names");
(c) all agreements, contracts, indentures. mortgages,
instruments, chattel paper, guaranties, other similar arrangements and rights
thereunder, including, without limitation, the leases in respect of (i) the
telephone and computer equipment, (ii) warehouse machinery and (iii) real
property, set forth on Schedule 1.1(c);
(d) all accounts, notes and other receivables set forth in
Schedule 1. I (d);
(e) all claims (including, without limitation, claims under
any insurance policies), deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off and rights of
recoupment (including any such item relating to the payment of taxes);
(f) to the extent assignable, all franchises, approvals,
permits, licenses, orders, registrations, certificates, variances and similar
rights obtained from governments and governmental agencies set forth in
Schedule 1.1 (f);
(g) all books, records, ledgers, files, documents,
correspondence, customer lists. prospect lists and other lists, plats,
architectural plans, drawings and specifications. creative
46
materials, advertising and promotional materials, studies, reports and other
printed or written material;
(h) all accounts, including any cash deposited therein, set
forth ill Schedule 1.1(h);
(i) all prepaid expenses set forth in Schedule 1.1(i)
(including all prepaid catalog expenses and all rights to Company's library or
collection of photographs or images (in whatever form or medium) used in
Company's catalogs);
(j) all data processing programs. computer printouts, data
bases, hardware, merchant numbers used for credit card purchases and related
items used in the conduct of the Business, including accounting, invoices,
crediting and data processing losses and programs; and
(k) all rights. claims and causes of action held by or
inuring to the benefit of Company;
provided, however, that the Acquired Assets shall not include (i) those items
specifically listed on Schedule 1.2, (ii) the corporate charter,
qualifications to conduct business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers (except merchant numbers used for credit card
purchases), seals, minute books, stock transfer books, blank stock
certificates and other documents relating to the organization, maintenance and
existence of Company as a corporation or (iii) any of the rights of' Company
under this Agreement (or under any other agreement between Company on the one
hand and Buyer on the other hand entered into on or after the date of this
Agreement).
"Acquired Business" means the businesses and operations
acquired by Buyer pursuant to this Agreement.
"Adverse Consequences" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees. rulings, damages, dues, penalties,
fines, costs, reasonable amounts paid in settlement, liabilities, obligations,
taxes, liens. losses. expenses and fees, including court costs and reasonable
attorneys' and paralegals' fees and expenses, whether resulting from the
breach of a representation, warranty, covenant or agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Applicable Rate" means the annualized interest rate as
determined pursuant to section 1274(d) of the Code.
"Arbitrator" has the meaning set forth in ss. 8(a) of this
Agreement.
47
"Assumed Liabilities" means (i) all liabilities and
obligations listed on Schedule 1.3 hereto, but only to the extent that such
Assumed Liabilities have been incurred in the ordinary course of business of
Company for the benefit of the Acquired Business and (ii) all obligations of
Company under the Contracts and other arrangements listed on Schedule 1.1 (c)
to furnish goods. services and other non-cash benefits to another party after
the Closing or to pay for goods, services and other non-cash benefits that
another party will furnish to Company after the Closing. Except as expressly
set forth on Schedule 1.3 and Schedule 1.1(c), Buyer shall not assume or be
liable for any Liabilities of Company (including without limitation the
Excluded Liabilities), whether the same are direct or indirect, fixed,
contingent or otherwise, known or unknown, whether arising under an agreement
or contract or otherwise, other than the Assumed Liabilities, Company shall
satisfy when due all Excluded Liabilities, unless such failure would have no
negative economic effect on Buyer. the Business or the consummation of' the
transactions contemplated by this Agreement.
"Basis" means any past or present fact, situation,
circumstance, status, condition. activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"Xxxx of Sale" has the meaning set forth in ss. 7(a)(i) of
this Agreement.
"Business" means the businesses and operations of Company as
currently conducted by Company anywhere in the world.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, New York are not open for
business.
"Buyer" has the meaning set forth in the preface of this
Agreement.
"Buyer Indemnified Parties" has the meaning set forth in
ss. 5(c)(1) of this Agreement.
"Buyer Indemnified Party" has the meaning set forth in
ss. 5(c)(I ) of this Agreement.
"Buyer's Accountant" has the meaning set forth in
ss. 2(f)(ii) of this Agreement.
"Catalog Names" has the meaning set forth in the definition
of the term "Acquired Assets."
"Claims" mean all actions, suits, notices, claims, demands,
orders, Governmental Body-imposed or court-imposed requirements, proceedings,
hearings and investigations.
"Closing" has the meaning set forth in ss. 2(d) of this
Agreement.
"Closing Date" has the meaning set forth in ss. 2(d) of this
Agreement.
48
"Closing Date Accountant" has the meaning set forth in
ss. 2(f)(i) of this Agreement.
"Closing Date Balance Sheet" has the meaning set forth in
ss. 2(f)(i) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface to this
Agreement.
"Company's Accountant" has the meaning set forth in
ss. 2(t)(11) of this Agreement.
"Confidential Information" means any information concerning
the businesses and affairs of Company, Buyer and their Affiliates that is not
already generally available to the public and all terms of the transactions
contemplated by the Transaction Documents.
"Contract" means any contract, agreement, indenture, note,
bond, loan, guaranty, instrument. lease, conditional sale contract, mortgage,
license, franchise, power of' attorney, commitment or other binding
arrangement, whether written or oral.
"Environmental, Health and Safety Laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976 and the Occupational Safety
and Health Act of' 1970, each as amended together with all other laws
(including rules, regulations, codes, plans, injunctions, judgments. orders,
decrees, rulings and charges thereunder) of federal, state, local and foreign
governments (and all agencies thereof) concerning pollution or protection of
the environment, public health and safety or employee health and safety,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or chemical. industrial, hazardous or
toxic materials or wastes into ambient air, surface water, ground water or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants or chemical, industrial, hazardous or toxic materials or wastes.
"Excluded Liabilities" means all Liabilities of the Company
other than the Assumed Liabilities . Without limiting the generality of the
foregoing, except to the extent expressly identified as an Assumed Liability,
Excluded Liabilities include, without limitation: (a) any product liability,
claims for injuries, property damage or other losses arising with respect to
inventory of products existing at or prior to the Closing Date; (b) any
Liability for any claim relating to any act. omission, event, occurrence or
condition on or before the Closing Date, whether or not such claim is
asserted, pending or threatened, including without limitation those matters
set forth on Schedule 3(v); (c) any Liability for any failure to comply with
or any violation of any Law relating to the Business, which failure or
violation occurred at or prior to the Closing Date; (d) any Liability for
Taxes, including any Liability for Taxes arising as a result of the
transactions contemplated hereby and any Liability for Taxes attributable to
the assets or operations of the Company for any period prior to the Closing
Date, including without limitation those matters set forth on Schedule 3(k);
(e) any Liability related to matters not disclosed by the Company or
Stockholder to Buyer hereunder; (f) any Liability in
49
connection with any infringement of any Intellectual Property rights of any
Person up to and including the Closing Date, including without limitation
those matters set forth on Schedule 3(m); (g) any liability (including in
connection with termination, compensation, benefits or obligations under any
Company Employee Benefit Plan) relating to any employee of Company, including
without qualification to conduct business as a foreign corporation.
arrangements with registered agents relating to foreign qualifications,
taxpayer and other identification numbers. seals, minute books, stock transfer
books, stock certificates and other documents relating to the organization.
maintenance and existence of the Company as a corporation; and (1) any
Liability incurred in connection with the operation of the Business up to and
including the Closing Date.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time, consistently applied.
"Governmental Body" means any government or any agency,
subdivision or instrumentality of any government.
"Historical Financial Statements" has the meaning set forth
in ss. 3(t) of this Agreement.
"Indemnified Party" has the meaning set forth in ss. 5(e) of
this Agreement.
"Indemnifying Party" has the meaning set forth ss. 5(e) of
this Agreement.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto and all patents. patent applications and patent
disclosures, together with all reissuances. continuations.
continuations-in-part, revisions, extensions and reexaminations thereof, (b)
all trademarks. service marks, trade dress, logos, trade names and corporate
names, together with all translations. adaptations, derivations and
combinations thereof and including all goodwill associated therewith and all
applications, registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, housefile
databases, mailing lists, customer and supplier lists, pricing and cost
information and business and marketing plans and proposals). (f) all computer
software (including all data and related documentation), (g) all other
proprietary rights and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"IP Assignment" has the meaning set forth in ss. 7(a)(ii) of
this Agreement.
"Knowledge" means (a), as to an individual, actual knowledge
after reasonable investigation and (b), as to an entity, actual knowledge of
executive officers who have direct
50
responsibility within such entity with respect to such subject matter, after
reasonable investigation, which shall include inquiring of such subordinates
of such entity as the executive officers could reasonably assume have
knowledge of such subject matter.
"Law" means any applicable law, statute, code, ordinance,
regulation or other requirement of any Governmental Body.
"Letter Agreement" means the Letter of Proposal dated
February 3, 1998, including the term sheet dated February 3, 1998 attached
thereto, as the same may be amended, modified or supplemented, among Company.
Stockholder and Parent.
"Liabilities" means any direct or indirect indebtedness,
liability, claim. loss, damage, obligation or responsibility, known or
unknown, fixed or unfixed, xxxxxx or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, whether or
not of a kind required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto. including, without
limitation, any Liabilities for Taxes.
"Mailing Lists" has the meaning set forth in ss. 3(m)(vii) of
this Agreement.
"Material Adverse Effect" means a material adverse effect on
the assets, properties. operations, results of operations, condition
(financial or otherwise) or future prospects of Company or the Business.
"Most Recent Balance Sheet" has the meaning set forth in ss.
3(f) of this Agreement.
"Most Recent Fiscal Year End" has the meaning set forth in
ss. 3(t) of this Agreement.
"Net Value of Acquired Assets" means, as of the Closing
Date, the difference between (A) the sum of (I) accounts receivable included
in the Acquired Assets; (II) inventory included in the Acquired Assets based
on historical cost basis; (III) property, plant and equipment included in the
Acquired Assets based solely on historical cost basis less accumulated
depreciation as previously determined by the Company; (IV) intangible assets,
including prepaid expenses, included in the Acquired Assets; provided that
prepaid catalog expenses shall be equal to $788,617 (subject to verification
by Buyer that such prepaid catalog expenses are consistent with the Company's
past custom and practice, as reflected in the Most Recent Balance Sheet. less
an agreed upon reduction in the amount of $58,500), or if not consistent with
the Company's past custom and practice, as reflected in the Most Recent
Balance Sheet, shall be determined in accordance with such past custom and
practice, less the agreed upon reduction in the amount of $58,500; (V)
deposits included in the Acquired Assets; and (VI) cash included in the
Acquired Assets; less (B) the sum of (I) accounts payable (without
consideration to aging) included in the Assumed Liabilities, which accounts
payable are currently estimated at $3,369,000; (II) accrued expenses and
customer liabilities included in the Assumed Liabilities, which accrued
expenses and customer liabilities are currently estimated at $820,000 (without
taking into account any accrual for post-closing returns for pre-closing sales
51
for accounting purposes); (III) long term debt, including short term portion
of long term debt, and capital leases included in the Assumed Liabilities. and
(IV) loan from Congress Financial Corporation included in the Assumed
Liabilities in an amount not to exceed $1,430,000.
"Net Value Shortfall" has the meaning set forth in Section
2(f)(ii) of this Agreement.
"Note" has the meaning set forth in ss. 2(c)(11) of this
Agreement.
"Objections Statement" has the meaning set forth in
ss. 2(t)(ii) of this Agreement.
"Order" means any order, judgment, ruling, injunction, award,
decree, charge or writ,
"Ordinary Course of Business" means the ordinary course of
business of Company consistent with past custom and practice (including with
respect to quantity and frequency) and for the direct benefit of the acquired
Business or the Acquired Assets.
"Parent" means Genesis Direct Inc., a Delaware corporation,
which owns, directly or indirectly, all of the limited liability company
membership interests in Buyer.
"Party" has the meaning set forth in the Preface of this
Agreement.
"Person" means an individual, a partnership (general or
limited), a member, a corporation, a limited liability company or partnership,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity (or any department,
agency or political subdivision thereof).
"Pledge Agreements" has the meaning set forth in
ss. 2(e)(iii) of this Agreement.
"Post Closing Determination" has the meaning set forth in
ss. 2(t)(11@) of this Agreement.
"Purchase Price" has the meaning set forth in ss. 2(c) of
this Agreement.
"Securities Act" means the Securities Act of 193' ), as
amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge or other security interest, except for minor imperfections
of title and liens which are not substantial in amount, which do not
materially detract from the property subject thereto or materially impair the
use of the property in the Business and which have arisen in the Ordinary
Course of Business.
"Stockholder" has the meaning set forth in the Preface of
this Agreement.
52
"Stockholder Indemnified Parties" has the meaning set forth
in ss. 5(d)(1) of this Agreement.
"Stockholder Indemnified Party" has the meaning set forth in
ss. 5(d)(1) of' this Agreement.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
"Tax" means any federal, state, local and foreign profits,
franchise, gross receipts, payroll, employment, sales, use, property,
withholding, excise and other tax, duty or assessment of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect thereto. The term "taxable" shall have a correlative meaning.
"Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss. 5(e) of
this Agreement.
"Third Party Firm" has the meaning set forth in Section
2(t)(ii) of this Agreement.
"Transaction Documents" means this Agreement, the Xxxx of
Sale, the Note, and every other instrument and document entered into in
connection with this Agreement.
"Transaction Expenses" has the meaning set forth in ss. 9(l)
of this Agreement.
53
