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ASSET PURCHASE AGREEMENT
BY AND AMONG
RDF ACQUISITION CORP.
AND
XXXXXXX XXXXXX CORPORATION
AND
RUE DE FRANCE, INC.
AND
XXXXXX X. XXXXXX and XXXXXXX X. XXXXXX
Executed on April 6, 2000 as of March 31, 2000
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TABLE OF CONTENTS
PAGE
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ARTICLE I PURCHASE AND SALE OF ASSETS..............................1
Section 1.1 Purchase and Sale of Assets..............................1
Section 1.2 Purchase Price; Assumption of Certain Liabilities;
and Non-Assumption of all other Liabilities..............2
Section 1.3 Net Worth Adjustment of the Fixed Portion of the
Purchase Price...........................................5
Section 1.4 Manner of Payment........................................8
Section 1.5 The Calculation and Payment of the Contingent
Portion of the Purchase Price............................8
ARTICLE II CLOSING.................................................10
Section 2.1 Time and Place..........................................10
Section 2.2 Deliveries by the Company and the Shareholders..........11
Section 2.3 Deliveries by the Purchaser.............................12
ARTICLE III CERTAIN COVENANTS OF THE COMPANY,THE SHAREHOLDERS
AND THE PURCHASER.......................................13
Section 3.1 Confidentiality; Non-Competition........................13
Section 3.2 Allocation of Purchase Price............................17
Section 3.3 Accounts Receivable Indemnity...........................18
Section 3.4 Employment Agreement....................................19
Section 3.5 Assignment of Proprietary Rights........................19
Section 3.6 Lease Agreement.........................................19
Section 3.7 Bulk Sales Law Compliance...............................19
Section 3.8 Successor Employer......................................19
Section 3.9 Right of First Refusal Agreement........................20
Section 3.10 Stock Options...........................................20
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Section 3.11 Determination Letter....................................21
Section 3.12 Retail Credit Card Sales................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY THE COMPANYAND
THE SHAREHOLDERS WITH RESPECT TO THE COMPANY............21
Section 4.1 Organization, Authorization and Valid and
Binding Agreement.......................................21
Section 4.2 Capitalization..........................................22
Section 4.3 No Equity Investments or Subsidiaries...................23
Section 4.4 Consents; No Violation..................................23
Section 4.5 Financial Statements....................................23
Section 4.6 No Undisclosed Liabilities..............................24
Section 4.7 Absence of Certain Changes..............................25
Section 4.8 Certain Tax Matters.....................................26
Section 4.9 Title to Properties; Encumbrances.......................27
Section 4.10 Fixed and Other Tangible Assets.........................28
Section 4.11 Leases..................................................28
Section 4.12 Databases and Software..................................29
Section 4.13 Patents, Trademarks, Copyrights.........................30
Section 4.14 Litigation..............................................30
Section 4.15 Insurance...............................................31
Section 4.16 Catalogs and Customer Profiles..........................31
Section 4.17 Cancellations...........................................32
Section 4.18 Employee Benefit Plans..................................32
Section 4.19 Customer Lists and Disclosure of Confidential
Information.............................................38
Section 4.20 Contracts and Commitments...............................39
Section 4.21 Personnel; Sales Representatives........................40
Section 4.22 Labor Relations.........................................41
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Section 4.23 Compliance with Applicable Law..........................42
Section 4.24 Environmental Matters...................................42
Section 4.25 Accounts Receivable.....................................44
Section 4.26 Inventory and Supplies..................................45
Section 4.27 Full Disclosure.........................................45
Section 4.28 (intentionally omitted).................................45
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS......45
Section 5.1 Authorization and Valid and Binding Agreement...........45
Section 5.2 Consents; No Violation..................................46
Section 5.3 Ownership of Shares.....................................46
Section 5.4 No Business Arrangements with Affiliates................47
Section 5.5 (intentionally omitted).................................47
ARTICLE VI REPRESENTATIONS AND WARRANTIES BY THE PURCHASER.........47
Section 6.1 Organization............................................47
Section 6.2 Authorization...........................................47
Section 6.3 Valid and Binding Agreement.............................48
Section 6.4 Consents; No Violation..................................48
ARTICLE VII CONDUCT OF BUSINESS OF THECOMPANY SUBSEQUENT
TO CLOSING DATE.........................................49
Section 7.1 (intentionally omitted) ................................50
Section 7.2 (intentionally omitted).................................50
Section 7.3 (intentionally omitted).................................50
Section 7.4 (intentionally omitted).................................50
ARTICLE VIII CERTAIN COVENANTS OF THE PARTIES........................50
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Section 8.1 Consents; Third Parties.................................50
Section 8.2 Supplemental Disclosure.................................50
Section 8.3 Further Assurances......................................51
Section 8.4 Transfer Taxes..........................................51
ARTICLE IX CLOSING CONDITIONS......................................51
Section 9.1 Conditions to the Obligations of the Purchaser..........51
Section 9.2 Conditions to the Obligations of the Shareholders.......52
ARTICLE X SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATIONS........54
Section 10.1 Survival of Representations of the Company and
the Shareholders........................................54
Section 10.2 Statements as Representations...........................54
Section 10.3 Indemnification of Purchaser Group for Breach of
Representation or Warranty..............................54
Section 10.4 Indemnification of Purchaser Group with respect
to Third Party Claims...................................55
Section 10.5 Indemnification of the Shareholder Group................55
Section 10.6 Indemnification of Shareholder Group with respect
to Third Party Claims...................................56
Section 10.7 Procedure...............................................56
Section 10.8 Remedies Cumulative.....................................58
Section 10.9 Limits on Indemnification Obligations...................58
ARTICLE XI MISCELLANEOUS...........................................59
Section 11.1 Finder's Fees...........................................59
Section 11.2 Expenses................................................59
Section 11.3 Parties in Interest.....................................59
Section 11.4 Entire Agreement........................................59
Section 11.5 Modification............................................60
Section 11.6 Notices.................................................60
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Section 11.7 Law Governing...........................................61
Section 11.8 Interpretation and Construction.........................61
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SCHEDULE OF EXHIBITS
Exhibit A Xxxxxx X. Xxxxxx Employment Agreement
Exhibit B Proprietary Rights Assignments
Exhibit C Lease Agreement
Exhibit D Right of First Refusal Agreement
Exhibit E Xxxxxx & Xxxxxxx, LLP Opinion
Exhibit F Salon, Marrow, Xxxxxxx & Xxxxxx , LLP
Opinion
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LIST OF SCHEDULES
Schedule 1 Index of Defined Terms
Schedule 1.1 Excluded Assets
Schedule 1.2 Assumed Contracts
Schedule 1.3(a) Form of Audit Report for Closing Net Worth Statement
Schedule 1.5(a) Projected EBT
Schedule 1.5(b) EBT Cost Calculation
Schedule 4.1(f) Licenses and Permits
Schedule 4.4 Required Consents
Schedule 4.6 Undisclosed Liabilities
Schedule 4.7 Absence of Certain Changes
Schedule 4.9 Liens
Schedule 4.10 List of Owned Tangible Assets
Schedule 4.11 Leases
Schedule 4.12 List of Software
Schedule 4.13 List of Patents, Trademarks, Copyrights and Disclosure
of Defects
Schedule 4.14(a) Pending or Threatened Litigation
Schedule 4.14(b) Notice of Claims or Investigations regarding Product
Defects
Schedule 4.15 Insurance
Schedule 4.16(a) Catalog Mailing Information
Schedule 4.16(b) Catalog Customer Information
Schedule 4.18(b) List of Employee Plans
Schedule 4.18(c) Exceptions to ERISA Representations
Schedule 4.18(c)(5) Accelerated Vesting Exceptions
Schedule 4.19 Unfulfilled List Rental Obligations
Schedule 4.20(a) List of Material Contracts
Schedule 4.20(b) List of Adverse Material Contracts
Schedule 4.21(a) Employee and Consultant Compensation
Schedule 4.21(b) Sales Representative Commission Rates
Schedule 4.22 Labor Relations Disclosures
Schedule 4.23(a) Violations of Law
Schedule 4.23(b) Notification of Violations of Law
Schedule 4.24 Hazardous Substances and Underground Tanks
Schedule 5.3 Ownership of Shares
Schedule 5.4 Business Arrangements with Affiliates
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ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT (the "Agreement") executed on April 6, 2000
as of March 31,, 2000 by and among RDF ACQUISITION CORP., a Delaware corporation
(the "Purchaser"), XXXXXXX XXXXXX CORPORATION ("LVC"), a Delaware corporation,
RUE DE FRANCE, INC., a Rhode Island corporation (the "Company") and XXXXXX X.
XXXXXX and XXXXXXX X. XXXXXX (collectively, the "Shareholders").
WHEREAS, upon the terms and subject to the conditions contained in
this Agreement, the Purchaser desires to purchase from the Company, and the
Company desires to sell to the Purchaser all of its assets of every kind and
description real, personal and mixed, tangible and intangible, and wheresoever
located other than the Excluded Assets;
WHEREAS, the Shareholders own all of the issued and outstanding
capital stock of the Company and have agreed to be jointly and severally liable
with respect to the obligations of the Company hereunder to the Purchaser;
WHEREAS, LVC, the parent of the Purchaser, has agreed to be jointly
and severally liable with respect to the obligations of the Purchaser hereunder
to the Company and the Shareholders; and
WHEREAS, an index of the meaning of capitalized terms is set forth in
Schedule 1 hereof.
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual covenants and agreements set forth herein, the parties hereto,
intending to be legally bound, do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
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SECTION 1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to
the conditions contained in this Agreement and effective as of the close of
business on March 31, 2000 (the
1
"Closing Date"), the Company shall sell, transfer, convey, assign and deliver to
the Purchaser free and clear of all security interests, liens, encumbrances and
liabilities other than Assumed Liabilities and Assumed Contractual Liabilities,
and the Purchaser shall purchase, all of the assets of the Company of every kind
and description real, personal and mixed, tangible and intangible, and
wheresoever located, excepting only those assets (the "Excluded Assets")
identified on Schedule 1.1 annexed hereto as the same shall exist on the Closing
Date (the "Purchased Assets") including, without limitation, the following:
(i) cash, cash equivalents, prepaid expenses, deposits, rebates,
refunds and marketable securities;
(ii) accounts receivable;
(iii) inventory including work-in-process;
(iv) catalogs, fliers, brochures, artwork and work in process on
catalogs;
(v) supplies;
(vi) machinery, equipment, fixtures, leasehold improvements,
furniture and other fixed assets;
(vii) trademark "Rue de France" and all variations thereof, other
trademarks, servicemarks, logos, tradenames, copyrights, patents, customer
lists, telephone numbers, domain names, customer and supplier records,
manufacturing records and manuals, computer software and all other records and
intangibles of the Company and the goodwill associated therewith; and
(viii) contract rights including, without limitation, open customer
purchase orders and warranty rights.
SECTION 1.2 PURCHASE PRICE; ASSUMPTION OF CERTAIN LIABILITIES; AND
NON-ASSUMPTION OF ALL OTHER LIABILITIES.
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(a) Upon the terms and subject to the conditions contained in this
Agreement, in reliance upon the representations, warranties and agreements of
the Shareholders and the Company contained in this Agreement, and in
consideration of the aforesaid sale, transfer,
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conveyance, assignment and delivery of the Purchased Assets as of the Closing
Date, the Purchaser and LVC jointly and severally agree to: (i) pay to the
Company an aggregate amount equal to Three Million ($3,000,000) Dollars (the
"Fixed Portion of the Purchase Price"), to be adjusted as set forth in Section
1.3, and to be paid in accordance with the provisions of Section 1.4; (ii) pay
to the Company a contingent purchase price of up to Two Million ($2,000,000)
Dollars based upon earnings of the Purchaser during the five (5) year period
following the Closing Date in accordance with the provisions of Section 1.5 (the
"Contingent Portion of the Purchase Price"); (iii) assume the Assumed
Liabilities; and (iv) assume the liabilities (the "Gap Liabilities") created by
the Company during the period between the Closing Date and the Closing and which
remain unpaid at the Closing, provided, however, that such liabilities were
incurred in the ordinary course of the business of the Company and consistent
with past practice and are not Unassumed Liabilities or Default Liabilities and
are not shown on the Final Closing Net Worth Statement. For purposes hereof (i)
"Assumed Liabilities" shall mean the liabilities accrued on the Final Closing
Net Worth Statement and (ii) "Assumed Contractual Liabilities" shall mean
liabilities accruing after the Closing Date with respect to the contracts which
are listed on Schedule 1.2 hereof (the "Assumed Contracts") and are assigned to
Purchaser as of the Closing Date (excluding, however, liabilities accruing on or
after the Closing Date with respect to defaults or events occurring prior to the
Closing Date, which with the giving of notice or the passage of time, or both,
would constitute defaults under any such contract ("Default Liabilities")).
(b) Except as expressly provided in Subsection 1.2(a) above, neither
the Purchaser nor LVC shall be obligated to assume or become liable for, and
shall not assume or be liable for, any of the Company's liabilities,
obligations, debts, contracts or other commitments of any kind whatsoever, known
or unknown, fixed or contingent (collectively, the "Unassumed Liabilities"). The
Company shall, and the Shareholders shall cause the Company to, discharge the
Funded Debt at Closing and all other Unassumed Liabilities in a timely manner as
such become due and
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payable, except as and to the extent same are contested by the Company in good
faith. It is expressly agreed, without limiting the generality or the effect of
the preceding provisions, that neither the Purchaser nor LVC shall be obligated
to assume or become liable for, and shall not assume or be liable for, any of
the Company's liabilities or obligations, known or unknown, fixed or contingent,
now existing or hereafter arising, which shall relate to (aa) liabilities for
borrowed monies including, without limitation, sums owing to the Shareholders
and sums owing by the Company to PNC Bank, National Association ("Funded Debt"),
(bb) any Taxes payable with respect to operations of the Company on, prior or
subsequent to the Closing Date, including but not limited to Taxes of the
Company or the Shareholders which may become due as a result of the transaction
herein described; (cc) any product liability claim, product recalls or other
product-related claims or expenses with respect to products of the Company
shipped on or prior to the Closing Date; (dd) any employee-related liabilities
(including, without limitation, employee benefit liabilities and liabilities
under Employee Plans) accruing on or prior to the Closing Date, except only that
the Company's liability for accrued vacation pay and sick pay as of the Closing
Date shall be used in computing Net Worth pursuant to Section 1.3(a)(x) and
shall be assumed by Purchaser pursuant to Section 1.2(a); (ee) liabilities
arising under Environmental Laws and resulting from actions taken or omitted to
be taken by the Company or others on or prior to the Closing Date; (ff)
liabilities which arise as a result of, or the existence of which constitutes, a
breach of any representation or warranty hereunder; (gg) any Default
Liabilities; (hh) any sums owing to the Shareholders or any Affiliates of the
Shareholders; (ii) liabilities incurred in violation of any of the terms or
provisions of this Agreement; (jj) the expenses referred to in Section 11.2
hereof and (kk) escheat liabilities.
(c) The Company's payroll for the period through April 2, 2000 (the
"Final Payroll") is payable on April 7, 2000. The parties agree that (i) no part
of the Final Payroll shall be used in computing Net Worth; (ii) the Company
shall pay the Final Payroll in full on April 7, 2000; and (iii) subsequent to
Closing, Purchaser shall reimburse the Company but only for that portion of
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the Final Payroll attributable to services rendered by employees to the Company
on April 1, 2000 and April 2, 2000.
SECTION 1.3 NET WORTH ADJUSTMENT OF THE FIXED PORTION OF THE
PURCHASE PRICE.
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(a) Within forty-five (45) days after the Closing, the Company shall
prepare and deliver to Purchaser a statement (the "Closing Net Worth Statement")
of the Net Worth of the Company determined as of the close of business on the
Closing Date (the "Closing Net Worth Statement Date" and the "Closing Net
Worth"), together with the audit report thereon of Xxxxxx, Xxxxxx & Company LLP,
the Company's and Shareholders' independent auditors (the "Company's
Accountants"), which report shall be in the form set forth in Schedule 1.3(a)
attached. Thereafter, the Purchaser shall cause PricewaterhouseCoopers LLP
("PWC"), the Purchaser's independent auditors, to review such Closing Net Worth
Statement and report and, in furtherance thereof, PWC shall be granted access to
the workpapers prepared by the Company's Accountants in connection with its
audit of the Closing Net Worth Statement. If PWC or Purchaser object to any
aspect of the Closing Net Worth Statement (each item objected to being referred
to as a "Disputed Item"), then PWC, Purchaser or LVC shall issue a letter to the
Company's Accountants summarizing the Disputed Item, such letter to be issued
within forty-five (45) days after Purchaser's receipt of the Closing Net Worth
Statement and report thereon of the Company's Accountants. Purchaser shall cause
a copy of such letter to promptly be sent to the Shareholders and to their
counsel at the addresses set forth in Section 11.6. The fees and expenses of PWC
shall be borne by the Purchaser and the fees of the Company's Accountants shall
be borne by the Company. For purposes of this Agreement and except as otherwise
set forth in this Section, the term "Net Worth" shall mean total assets of the
Company minus total liabilities of the Company, calculated in accordance with
generally accepted accounting principles applied in a manner consistent with
that reflected in the Company's audited financial statements for the years ended
December 31, 1999 and December 31, 1998. In computing Net Worth: (v) Excluded
Assets, Unassumed Liabilities and Default Liabilities shall be omitted,
5
(w) there shall be no reserve for bad debts as the Company and the Shareholders
have in this Agreement guaranteed payment of the same, (x) appropriate
liabilities and/or reserves shall be established for sales returns and refunds,
accrued vacation pay and sick pay, excess and obsolete inventory and outstanding
gift certificates, if any, (y) footnotes to the financial statement shall be
omitted, and (z) the provisions of Section 1.2(c) shall be complied with.
(b) If the Company and the Purchaser cannot agree as to the appropriate
treatment of any Disputed Item within twenty (20) business days after issuance
of the said letter summarizing the Disputed Items, then the Company and the
Purchaser shall select within twenty (20) business days thereafter a mutually
acceptable nationally recognized accounting firm. For each Disputed Item then
remaining, said third accounting firm shall, within ten (10) business days after
being selected and in consultation with the Company's Accountants and PWC,
determine on an item by item basis whether the Company's Accountants' or PWC's
calculation of the Disputed Item(s) shall be used to determine the Closing Net
Worth, which determination shall be final and binding (such determination, or
earlier calculation agreed to by the Company and the Purchaser, being referred
to as the "Final Closing Net Worth", and such statement computing the Final
Closing Net Worth being referred to as the "Final Closing Net Worth Statement").
Such third accounting firm shall be permitted complete access to the Company's
personnel and financial records, and to workpapers prepared by the Company's
Accountants and by PWC to the extent that the Company's Accountants or PWC, as
the case may be, considers reasonably necessary. If the parties cannot agree
upon a third accounting firm within the time period provided therefor, then
either party may apply to the American Arbitration Association for appointment
of the same. The fees and expenses of such third nationally recognized
accounting firm and of the American Arbitration Association shall be borne
equally by the Purchaser and the Company.
(c) If the Final Closing Net Worth exceeds Five Hundred Thousand
($500,000) Dollars, Purchaser and LVC shall be jointly and severally obligated
to pay to the Company the amount of such excess plus the Purchase Price
Holdback. If the Final Closing Net Worth is less
6
than Four Hundred Thousand ($400,000) Dollars, the Company and the Shareholders
shall be jointly and severally obligated to pay to the Purchaser the amount of
such shortfall to the extent the same exceeds the Purchase Price Holdback and
the Purchaser shall in such case retain the full Purchase Price Holdback,
otherwise the amount of such shortfall shall be deducted from the Purchase Price
Holdback and retained by Purchaser and the balance of the Purchase Price
Holdback shall then be paid to the Company. If the Final Closing Net Worth is
between Four Hundred Thousand ($400,000) Dollars and Five Hundred Thousand
($500,000) Dollars, then Purchaser and LVC shall be jointly and severally
obligated to pay the amount of the Purchase Price Holdback to the Company. Any
payment required to be made pursuant to this Section 1.3 shall be made in full
by wire transfer of immediately available funds within five (5) business days
after delivery of the Final Closing Net Worth Statement; provided, however, that
notwithstanding anything set forth to the contrary herein, no portion of the
Purchase Price Holdback shall be paid to the Company unless and until the
Company delivers to Purchaser a Letter of Good Standing, issued by the Rhode
Island Division of Taxation, indicating that no Taxes or Tax Returns are owed by
the Company to the State of Rhode Island as of the Closing Date. The following
hypothetical examples are intended to illustrate the parties' intent as to the
calculations described above in this Section 1.3(c):
FINAL CLOSING NET WORTH PAYMENTS
-0- Full Purchase Price Holdback of $375,000 to Purchaser plus
additional $25,000 to Purchaser.
$250,000 $150,000 to Purchaser from Purchase Price Holdback; balance
of $225,000 to Company.
$375,000 $25,000 to Purchaser from Purchase Price Holdback; balance
of $350,000 to Company.
$400,000 Full Purchase Price Holdback of $375,000 to Company.
$550,000 Full Purchase Price Holdback of $375,000 to the Company plus
additional $50,000 to Company.
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SECTION 1.4 MANNER OF PAYMENT. (a) At the Closing, the Purchaser shall
pay to the Company the Fixed Portion of the Purchase Price less the sum of Three
Hundred Seventy-Five Thousand ($375,000) Dollars (the "Purchase Price
Holdback").
(b) The Contingent Portion of the Purchase Price shall be paid as, if
and when earned in accordance with the provisions of Section 1.5 hereof.
SECTION 1.5 THE CALCULATION AND PAYMENT OF THE CONTINGENT PORTION OF
THE PURCHASE PRICE.
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(a) In addition to the Fixed Portion of the Purchase Price the
Purchaser and LVC jointly and severally agree to pay to the Company the
Contingent Portion of the Purchase Price contingent upon the Purchaser achieving
the earnings before taxes projected by the Company ("EBT") as set forth in
Schedule 1.5(a) annexed hereto ("Projected EBT") during the five (5) fiscal year
period of LVC commencing February 27, 2000 (each an "EBT Year" and collectively,
the "Earn Out Period") as follows:
(x) One Million ($1,000,000) Dollars if the Purchaser achieves
the Projected EBT for the first three (3) EBT Years on a
cumulative basis;
(y) Five Hundred Thousand ($500,000) Dollars if the Purchaser
achieves the Projected EBT for the fourth EBT Year; and
(z) Five Hundred Thousand ($500,000) Dollars if the Purchaser
achieves the Projected EBT for the fifth EBT Year.
(b) EBT shall be determined in accordance with generally accepted
accounting principles consistently applied except that the EBT of the Company
for the period March 1, 2000 through the Closing Date shall be added to
Purchaser's EBT for the First EBT Year and except that the amortization of any
goodwill or any other intangible assets created as a result of the purchase of
the Purchased Assets shall not be deducted and if any functions are performed
for the Purchaser by LVC or any of its Affiliates such as, but not limited to,
accounting, warehousing, purchasing or distribution, then the cost for such
functions shall be charged to Purchaser as set
8
forth in Schedule 1.5(b). In computing EBT, the Purchaser shall be charged
interest, fees and costs on all borrowings both short term and long term,
outstanding intercompany balances, capital invested in Purchaser by LVC
(excepting the Fixed Portion of the Purchase Price and the Contingent Portion of
the Purchase Price) and letters of credit at LVC's cost to borrow money or to
establish letter of credits, as the case may be.
(c) The sales of all products using the Rue de France service xxxx as
well as the sales of any other collection of products under any other name
whether similar or dissimilar to the Company's current line of products or price
points and whether through a catalog, website or other direct marketing medium
or through retail stores (each, a "New Business Initiative") which New Business
Initiative was developed by Xxxxxx X. Xxxxxx with the approval of LVC shall be
conducted by the Purchaser or if conducted by LVC, the Purchaser shall be given
credit for the EBT generated by the sales of such products. The foregoing shall
not prevent LVC from including in its catalogs products offered for sale by
Purchaser and VICE VERSA. Any such New Business Initiative proposed by Xxxxxx X.
Xxxxxx shall be subject to the same review and capital budget process as is
required by the policies or practices of LVC in effect from time to time with
respect to such matters for LVC.
(d) Payments, if any, due with respect to the Contingent Portion of
the Purchase Price ("Contingent Purchase Price Payments") shall be made within
ninety (90) days following the end of the third, fourth and fifth EBT Year, as
the case may be, and shall be accompanied by a calculation of the Purchaser's
EBT in reasonable detail. Purchaser shall also provide the Company with a
calculation of Purchaser's EBT within ninety (90) days after the close of the
first and second EBT Year. The payment of any earned Contingent Purchase Price
Payments shall be conditioned upon Xxxxxx X. Xxxxxx being employed by Purchaser
through the end of the applicable EBT Year; provided, however, the foregoing
condition shall not apply if she has terminated her employment for cause, the
Purchaser has terminated her employment without cause or her employment is
terminated by reason of her death or disability. The calculation of
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the Purchaser's EBT shall be final and binding upon the Company unless the
Company objects to the same within thirty (30) days after it receives
Purchaser's calculation of the same. Such objection shall be in writing and
shall set forth in reasonable detail the basis of such objections. If the
calculation of the Purchaser's EBT is timely disputed by the Company and the
Company and the Purchaser cannot resolve such dispute within thirty (30) days
after the Purchaser receives the Company's written objections, then such dispute
shall be submitted to the American Arbitration Association in the City of New
York for determination in accordance with its rules, and the fees and expenses
of the arbitrators and the American Arbitration Association shall be borne
equally by the parties.
(e) Payment of up to one-third (1/3) of the Contingent Portion of the
Purchase Price may, at the option of Purchaser, be made by delivering Xxxxxxx
Xxxxxx Corporation stock (or the stock of any successor corporation) to the
Company which shall be valued at the average of the high and low value quoted
for such stock on the American Stock Exchange, NASDAQ, or any other recognized
exchange or market upon which LVC stock (or the stock of any successor
corporation) is traded on the business day immediately preceding the date on
which the stock is issued to the Company. Such stock shall bear the customary
securities legend recommended by the issuer's counsel at the time of issuance.
If LVC stock or the stock of its successor are not listed for trading on a
recognized exchange or market, then LVC shall not have the option to pay any
part of the Contingent Portion of the Purchase Price by the delivery of Xxxxxxx
Xxxxxx Corporation stock.
ARTICLE II
CLOSING
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SECTION 2.1 TIME AND PLACE. Upon the terms and subject to the
conditions contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Salon, Marrow, Xxxxxxx & Xxxxxx, LLP, 000 Xxxxx Xxxxxx,
00
Xxx Xxxx, Xxx Xxxx 00000, at 10:00 a.m. local time, on April 6, 2000, or at such
other place, time and date as may be agreed upon by the parties.
SECTION 2.2 DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS. At the
Closing, the Company and the Shareholders shall deliver or cause to be delivered
to the Purchaser the following:
(a) Duly executed bills of sale, trademark, copyright and domain name
assignments, assignments of leases, assignments of contracts or other
instruments of transfer as shall be appropriate to transfer ownership of the
Purchased Assets to the Purchaser all in form and substance reasonably
satisfactory to Purchaser and its counsel.
(b) Certificate of Good Standing, certified as of the most recent
practicable date by the Secretary of State of the State of Rhode Island.
(c) (INTENTIONALLY OMITTED)
(d) A certificate of the Secretary of the Company stating that (i) the
resolutions referred to in Section 4.1(b) were duly and validly adopted, have
not been modified, revoked or rescinded in any respect and are in full force and
effect at the Closing and (ii) the Certificate of Incorporation and by-laws of
the Company previously delivered to the Purchaser have not been amended or
modified since the date of such delivery.
(e) The officer's and Shareholders' certificates referred to in
Section 9.1(b).
(f) The opinions of Company's and the Shareholders' counsel referred
to in Section 9.1(d).
(g) Any consents from third parties required in connection with the
execution, delivery and performance of this Agreement (including, without
limitation, required consents to the assignment to Purchaser of each of the
Assumed Contracts), the Proprietary Rights Assignments, the Employment
Agreement, the Lease Agreement and the consummation of the transactions
contemplated hereby and thereby.
11
(h) The Employment Agreement shall be duly executed and delivered by
Xxxxxx X. Xxxxxx.
(i) The Proprietary Rights Assignments shall be duly executed and
delivered by each of the Shareholders.
(j) The Lease Agreement shall be duly executed and delivered by
Captain Xxxx Associates.
(k) The Right of First Refusal Agreement shall be duly executed and
delivered by Xxxxxx X. Xxxxxx.
(l) A certificate of amendment to the Certificate of Incorporation of
the Company duly executed and in form to be filed changing its name to Ford &
Xxxxxx, Inc. or any other name which does not contain any of the words "Rue",
"de" or "France".
(m) All other documents, instruments and writings required to be
delivered by the Company or the Shareholders to the Purchaser at the Closing
pursuant to this Agreement or otherwise required or reasonably requested in
connection herewith.
(n) A certificate of an officer of the Company stating that the
resolutions referred to in Section 4.18(c)(13) were duly and validly adopted,
have not been modified, revoked or rescinded in any respect and are in full
force and effect at the Closing.
SECTION 2.3 DELIVERIES BY THE PURCHASER. At the Closing, the Purchaser
and LVC shall deliver or cause to be delivered to the Company the following:
(a) Payment of the Fixed Portion of the Purchase Price less the
Purchase Price Holdback to the Company by wire transfer of immediately available
funds.
(b) A certificate of an officer of the Purchaser with respect to the
resolutions referred to in Section 6.2.
(c) The officers' certificate referred to in Section 9.2(b).
(d) The opinion of the Purchaser's counsel referred to in Section
9.2(c).
12
(e) The Employment Agreement shall be duly executed and delivered by
the Purchaser and LVC.
(f) The Lease Agreement shall be duly executed and delivered by the
Purchaser.
(g) The Right of First Refusal Agreement shall be duly executed and
delivered by LVC.
(h) All other documents, instruments and writings required to be
delivered by the Purchaser or LVC to the Company at the Closing pursuant to this
Agreement or otherwise required or reasonably requested in connection herewith.
ARTICLE III
CERTAIN COVENANTS OF THE COMPANY,
THE SHAREHOLDERS AND THE PURCHASER
----------------------------------
SECTION 3.1 CONFIDENTIALITY; NON-COMPETITION.
---------------------------------
(a) Each of the Shareholders and the Company does hereby acknowledge that
the Purchaser would be irreparably damaged if Confidential Information of the
business and affairs of the Company as conducted and existing on or prior to the
Closing were disclosed or utilized on behalf of any person, firm, corporation or
other business organization. The Shareholders and the Company, jointly and
severally, covenant and agree not to, and to use diligent efforts to cause their
agents, employees, affiliates or associates (as the terms "affiliate" and
"associate" are defined by the Rules and Regulations promulgated under the
Securities Act of 1933, as amended, (collectively "Affiliates")) not to, except
as required in the ordinary course of employment with the Company, disclose or
use any such Confidential Information. "Confidential Information" as used herein
shall mean information relating to or concerning any of the products or
processes of the Company, its customers or their respective Affiliates and the
research, development, sale, manufacture, distribution, marketing, maintenance,
support and licensing of the same and the development and exploitation of
proprietary rights relating thereto, whether or not any of the foregoing are
patentable or copyrightable, including, without limitation, all know-how,
technical
13
information, inventions, ideas, concepts, processes, procedures, operations,
computer programs and software, research and development plans and results, data
bases, specifications, documentation, algorithms, source codes, object codes,
program listings, product platforms and architectures, concepts, screens,
formats, "look and feel" of proprietary software, trade secrets, technology,
product information, customer and supplier lists, financial information,
business and marketing plans, the practices and methods of the Company, its
customers or their respective Affiliates, and marketing and other relationships
between the Company, its customers or their respective Affiliates, employees,
agents, consultants and independent contractors, in each case as such
information exists on the Closing Date. Confidential Information shall not
include information which (i) is disclosed in a printed publication available to
the public, is otherwise in the public domain at the time of disclosure, or
becomes publicly known through no wrongful act on the part of the recipient, the
Company or either of the Shareholders, (ii) is obtained by the recipient
lawfully from a third party who is not under an obligation of secrecy to the
Company or the Purchaser and is not under any similar restrictions as to use or
(iii) is generally disclosed to third parties by the Company or Purchaser
without similar restrictions on such third parties.
(b) Each of the Shareholders and the Company agrees that neither such
Shareholder nor the Company nor any other person or entity under the control of
such Shareholder or the Company shall for a period of five (5) years following
the Closing Date (the "Restricted Period"), for their account or on behalf of
any other person or entity, directly or indirectly, individually (including,
without limitation, acting as an employer, employee, consultant, manager, agent,
broker, contractor, director, officer) or as a member of any business
organization (including, without limitation, as a stockholder, investor, owner,
lender, partner, joint venturer, licensor, licensee, distributor but excluding
the holding of up to three (3%) percent of the equity securities of any publicly
traded company and except as required in the ordinary course of their
employment, if any, with the Purchaser) or otherwise:
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(i) engage in the retail or wholesale sale or distribution in the
United States of products of the type currently sold by the Company or products
of the type sold by the Purchaser during the Restricted Period (collectively,
"Restricted Products") whether by direct marketing, through retail stores, over
the internet or otherwise;
(ii) solicit or entice any person who is employed or engaged by the
Purchaser or LVC (either as an employee or as an independent contractor) on the
Closing Date or thereafter during the Restricted Period to leave the employ of
the Purchaser or LVC or to cease rendering services to Purchaser or LVC;
(iii) employ or engage any person (either as an employee or
independent contractor) who is employed or engaged by the Purchaser or LVC on
the Closing Date or thereafter during the Restricted Period except with the
consent of the Purchaser; provided, however that nothing shall preclude the
Shareholders or any person or entity under their control from so employing or
engaging any such person who has ceased performing services for the Purchaser or
LVC for a period of six (6) months or more provided such person was not
solicited or enticed to cease performing services for Purchaser or LVC by the
Shareholders or such person or entity.
(iv) molest or interfere with the goodwill and relationship of the
Purchaser with any of the former customers or suppliers of the Company or any
customers or suppliers hereafter obtained by Purchaser during the Restricted
Period;
(v) persuade, induce or solicit any of the former customers of the
Company or any customers thereafter obtained by the Purchaser during the
Restricted Period, to purchase Restricted Products from anyone other than the
Purchaser.
(c) The Shareholders and the Company each acknowledge that the violation by
such Shareholder or the Company of any of the foregoing covenants could not
reasonably or adequately be compensated by damages in an action at law.
Therefore, in addition to any other remedies or sanctions provided by law,
whether criminal or civil, and without limiting the right
15
of the Purchaser, its Affiliates or any of their successors or assigns to pursue
all other or legal and equitable rights available to them, the Purchaser and its
respective Affiliates shall have the right during the Restricted Period to
compel specific performance hereof by the Shareholders and the Company or to
obtain temporary and permanent injunctive relief against violations hereof by
her, him or it, without the necessity of posting a bond or other security, and
to require the Company and the Shareholders to account for and pay over to the
Purchaser all compensation, profits, monies, accruals, increments or other
benefits derived or received as a result of any act constituting a breach of the
covenants contained in this Section 3.1, and, in furtherance thereof, to apply
to any court with jurisdiction over the parties hereto to enforce the provisions
hereof.
(d) The Purchaser may assign the covenants set forth in this Section 3.1
and all rights and obligations hereunder to any third party who succeeds to all
or substantially all of the business and assets of the Purchaser which are
acquired from the Company at the Closing. Upon any such assignment by the
Purchaser, the term "Purchaser" as used in this Section 3.1 shall be deemed to
include any such assignee of the Purchaser, and the assignee shall have the
right to enforce all of the Purchaser's rights and remedies hereunder in its own
name as if a party hereto in the place and stead of the Purchaser.
(e) If any provision of this Section or any part hereof or the application
hereof to any person or circumstances shall be finally determined by a court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of the provisions of this Section, or the remainder of such provision
or the application of such provision to persons or circumstances other than
those as to which it has been held invalid or unenforceable, shall not be
affected thereby and each provision of this Section shall remain in full force
and effect to the fullest extent permitted by law. The parties also agree that
if any portion of this Section, or any part hereof or application hereof, to any
person or circumstance shall be finally determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, then such
objectionable
16
provision shall be deemed modified or shall be modified by such court to the
extent necessary so as to make it valid, reasonable and enforceable.
SECTION 3.2 ALLOCATION OF PURCHASE PRICE.
(a) The Fixed Portion of the Purchase Price as adjusted pursuant to Section
1.3 hereof shall be allocated among the Purchased Assets as follows:
(i) all assets shall be valued at the same value established therefor
on the Final Closing Net Worth Statement as finally adjusted with respect to
accounts receivable as provided in Section 3.3 hereof;
(ii) One Hundred Thousand ($100,000) Dollars in the aggregate shall be
allocated to the covenants set forth in Section 3.1 hereof (the "Restrictive
Covenant Allocation"); and
(iii) the balance of the Fixed Portion of the Purchase Price, as
adjusted, shall be allocated to goodwill.
(b) The Contingent Portion of the Purchase Price shall be allocated first
to imputed interest pursuant to the provisions of Internal Revenue Code
Regulation Section 1.1275-4 and related provisions, and the balance shall be
allocated to goodwill.
(c) Each of the Shareholders, the Company, the Purchaser and LVC covenants
and warrants:
(i) that in no tax return hereafter filed by it, or any of its
successors or assigns, or by such Shareholder, will it or any of its successors
or assigns, or such Shareholder, treat the allocation of the aggregate
consideration paid hereunder for the Purchased Assets or the Restrictive
Covenant Allocation inconsistently with that set forth in this Section; and
(ii) that in no tax audit, tax examination, tax review or tax
litigation will it or any of its successors or assigns, or such Shareholder,
claim or assert that the allocation of the aggregate consideration paid
hereunder for the Purchased Assets or the Restrictive Covenant Allocation should
be inconsistent with that set forth in this Section; provided, however, that the
17
foregoing shall not be construed to prevent any of the parties from settling
with the Internal Revenue Service if it challenges the allocation on such terms
as a party may negotiate in its complete discretion.
SECTION 3.3 ACCOUNTS RECEIVABLE INDEMNITY.
(a) Within thirty (30) days after the expiration of four (4) months
following the Closing the Purchaser shall account to the Company and the
Shareholders, in such detail and with such documentation as the Company and the
Shareholders may reasonably request, for the payments received by the Purchaser
during such four (4) month period (the "Actual Payments") on account of the
total amount of accounts receivable reflected on the Final Closing Net Worth
Statement ("Statement Accounts").
(b) If the amount of Actual Payments is less than the Statement Accounts,
the Company and the Shareholders shall be jointly and severally obligated to pay
to the Purchaser the amount of such difference and upon receipt of such payment
the Purchaser shall assign to the Company all of its right, title and interest
in and to the Statement Accounts then remaining unpaid.
(c) Payment pursuant to this Section 3.3 shall be made promptly after
acceptance by the Company and the Shareholders of the Purchaser's accounting for
the Actual Payments. The Company and the Shareholders shall be deemed to have
accepted such accounting if it is not objected to in writing by them within
twenty (20) days following receipt of the same. If any objection is timely
asserted in writing by the Company or the Shareholders concerning the amount of
Actual Payments, and such objection is not resolved within ten (10) days
following the Purchaser's receipt of such objection, then either party may refer
the matter for arbitration in New York, New York under the rules of the American
Arbitration Association, and the fees and expenses of the arbitrator(s) and of
the American Arbitration Association shall be borne equally by the parties.
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SECTION 3.4 EMPLOYMENT AGREEMENT. Effective as of the Closing Date Xxxxxx
X. Xxxxxx and the Purchaser and LVC shall execute and deliver an employment
agreement and intellectual property protection agreement in the form annexed
hereto as Exhibit A (collectively, the "Employment Agreement").
SECTION 3.5 ASSIGNMENT OF PROPRIETARY RIGHTS. Effective as of the Closing
Date each of the Shareholders shall execute and deliver to the Purchaser the
Proprietary Rights Assignment in the form annexed hereto as Exhibit B
(collectively, the "Proprietary Rights Assignments").
SECTION 3.6 LEASE AGREEMENT. Effective as of the Closing Date Xxxxxx X.
Xxxxxx as general partner of Captain Xxxx Associates and the Purchaser shall
execute and deliver a lease to the premises known as 78 Thames Street, Newport,
Rhode Island consisting of approximately 2,250 square feet on the first floor
and mezzanine and 1,500 square feet on the third floor in the form annexed
hereto as Exhibit C (the "Lease Agreement").
SECTION 3.7 BULK SALES LAW COMPLIANCE. Effective as of the Closing Date the
Company agrees to provide to the Purchaser all information as may be necessary
to enable Purchaser to timely comply with "bulk sales" laws of the State of
Rhode Island with respect to sales tax or other taxes.
SECTION 3.8 SUCCESSOR EMPLOYER.
(a) The Company and the Purchaser each will (i) treat Purchaser as a
"successor employer" and the Company as a "predecessor employer", within the
meaning of section 3121(a)(1) and 3306(b)(1) of the Internal Revenue Code, with
respect to the employees of the Company who become employees of the Purchaser
("Transferred Employees") for purposes of taxes imposed under the United States
Federal Insurance Contributions Act ("FICA") and the United States Federal
Unemployment Tax Act ("FUTA") and (ii) cooperate with each other to avoid, to
the extent possible, the filing of more than one IRS Form W-2 with respect to
each such Transferred Employee for the calendar year within which the Closing
Date occurs.
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(b) At the request of the Purchaser with respect to any particular
applicable tax law relating to employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care or other
similar tax other than taxes imposed under FICA and FUTA, the Company and the
Purchaser each will (i) treat the Purchaser as a successor employer and the
Company as a predecessor employer, within the meaning of the relevant provisions
of such tax law, with respect to Transferred Employees and (ii) cooperate with
each other to avoid, to the extent possible, the filing of more than one
individual information reporting form pursuant to each such tax law with respect
to each Transferred Employee for the calendar year within which the Closing Date
occurs.
SECTION 3.9 RIGHT OF FIRST REFUSAL AGREEMENT. Effective as of the Closing
Date Xxxxxx X. Xxxxxx and LVC shall execute and deliver a Right of First Refusal
Agreement in the form annexed hereto as Exhibit D (the "Right of First Refusal
Agreement").
SECTION 3.10 STOCK OPTIONS. (a) If, at any time from and after the date
hereof, options to acquire an ownership interest in XxXxxxxx.xxx, LLC (the
"LLC") are granted to Xxxxxx X. Xxxxxx ("Xxxxxx"), which options relate to or
result from services rendered to the LLC by Xxxxxx at any time on or prior to
the date hereof or any time during the period of five (5) years from and after
the date hereof, then Xxxxxx shall give prompt written notice to Purchaser of
all pertinent details and shall, without further consideration, take all actions
reasonably necessary or appropriate in order to transfer and assign such options
to Purchaser or as directed by it; provided, however, that (i) Purchaser shall
have the right, in its sole and absolute discretion, to reject such transfer and
assignment upon written notice to Xxxxxx, in which event Xxxxxx shall be deemed
to be discharged from her obligations under and pursuant to this Section 3.10
from and after such written rejection by Purchaser and (ii) Xxxxxx makes no
representation that such options will be transferable or assignable, but if they
are not transferable or assignable then Xxxxxx agrees, upon Purchaser's payment
of the option exercise price, to exercise such options
20
and to promptly thereafter transfer and assign the resulting ownership interest
in the LLC to Purchaser or as directed by it.
(b) Except as set forth in Section 3.10(a), neither of the Shareholders at
the date hereof has been informed that he or she will hereafter receive any
ownership interests or options to purchase the same, which interests or options
relate to or result from services heretofore rendered by them.
SECTION 3.11 DETERMINATION LETTER. The Company shall deliver to Purchaser a
true, complete and correct copy of any determination letter that it receives
from the Internal Revenue Service with regard to termination by the Company of
its 401(k) plan, such delivery to Purchaser to be made within ten (10) days
after the Company or its accountant, lawyer or plan consultant first receives
such letter.
SECTION 3.12 RETAIL CREDIT CARD SALES. All revenues arising from or related
to the Purchased Assets and generated by the Company or by Purchaser subsequent
to the Closing Date are for Purchaser's account. In furtherance thereof, if the
proceeds of any retail credit card sales made on or after the date hereof are
credited to the Company's account, then the Company shall remit such collections
weekly to the Purchaser. As soon as reasonably practical after the date hereof,
the Purchaser will arrange for such sale proceeds to instead be credited to its
own account.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
AND THE SHAREHOLDERS WITH RESPECT TO THE COMPANY
------------------------------------------------
The Company and the Shareholders jointly and severally hereby
represent and warrant to the Purchaser as follows:
SECTION 4.1 ORGANIZATION, AUTHORIZATION AND VALID AND BINDING
AGREEMENT.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Rhode Island and has the corporate
power and authority to
21
enter into this Agreement, to carry out the transactions contemplated hereby, to
own and lease the properties and other assets it presently owns or leases and to
carry on its business as presently conducted.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the
Shareholders and the Board of Directors of the Company and the resolutions
adopted by the Shareholders and the Board of Directors of the Company evidencing
such authorization were duly and validly adopted, and have not been modified,
revoked or rescinded in any respect and are in full force and effect. No other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement, or the transactions contemplated hereby.
(c) This Agreement constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as such
enforcement may be affected by bankruptcy, insolvency and similar laws affecting
creditors rights.
(d) The copy of the Certificate of Incorporation, and all amendments
thereto, of the Company, as certified by the Secretary of State of the State of
Rhode Island, and the By-Laws, as amended to date, of the Company, as certified
by its Secretary previously delivered to the Purchaser are true, complete and
correct copies of the Certificate of Incorporation and By-Laws of the Company,
as amended and presently in effect.
(e) The Company is not required to be duly licensed or qualified to do
business as a foreign corporation in any jurisdiction nor is it required to nor
has it collected sales taxes in any jurisdiction other than the State of Rhode
Island.
(f) The Company has obtained and kept in force all governmental licenses
and permits necessary to permit it to carry on the business of the Company as
presently conducted, copies of which are annexed hereto as Schedule 4.1(f).
SECTION 4.2 CAPITALIZATION. The authorized capital stock of the Company
consists solely of four thousand (4,000) shares of common stock, no par value,
of which a total of four thousand
22
(4,000) shares are outstanding. The Shareholders are the only stockholders of
the Company and own all of the outstanding shares of the common stock of the
Company free and clear of all liabilities, obligations, claims, liens, options,
charges, pledges, encumbrances and restrictions of any kind whatsoever. There
are no options, warrants or convertible securities of the Company presently
outstanding.
SECTION 4.3 NO EQUITY INVESTMENTS OR SUBSIDIARIES. The Company does not own
nor does it have the right to acquire any interest in any other corporation,
limited liability company, joint venture, partnership, limited partnership or
any other business organization.
SECTION 4.4 CONSENTS; NO VIOLATION. Except as set forth in Schedule 4.4,
neither the execution nor delivery of this Agreement, the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
assignment of the Assumed Contracts), nor the compliance with any of the
provisions hereof and thereof, (i) violates any statute or law or any rule,
regulation, order, award, judgment or decree of any court or governmental
authority, affecting the Company in any material way, (ii) violates or conflicts
with or constitutes a default under any contract, commitment, agreement,
understanding, arrangement, trust or restriction of any kind to which the
Company is a party, by which it is bound or which otherwise in any way affects
it, (iii) will cause, or give any persons valid grounds to cause (with or
without notice, the passage of time or both), the maturity of any debt, any
liability or obligation of the Company to be accelerated, or will increase any
such liability or obligation, (iv) requires any filing with, the notification
of, or the obtaining of any permit, authorization, consent or approval of any
third party or governmental or regulatory authority, foreign or domestic, or (v)
violates or conflicts with the Certificate of Incorporation or By-Laws, as
amended, of the Company.
SECTION 4.5 FINANCIAL STATEMENTS.
(a) The Company has previously delivered to the Purchaser the audited
balance sheet of the Company as at December 31, 1997, December 31, 1998 and
December 31, 1999 (the latter balance sheet being referred to herein as the
"December 31, 1999 Balance Sheet"), and the
23
related statements of income, stockholders' equity and cash flow of the Company
for the years then ended, together with the unqualified opinion thereon of the
Company's Accountants (the "Financial Statements"). The balance sheets included
in such Financial Statements are correct and complete and fairly present the
financial position and assets and liabilities (whether absolute, accrued or
contingent) of the Company as of the respective dates thereof, in accordance
with generally accepted accounting principles applied on a consistent basis, and
the statements of income, stockholders' equity and cash flow included in such
Financial Statements are correct and complete and fairly present the results of
operations and financial position of the Company for the periods indicated, in
accordance with generally accepted accounting principles applied on a consistent
basis.
(b) (INTENTIONALLY OMITTED)
SECTION 4.6 NO UNDISCLOSED LIABILITIES. Except as and to the extent of the
amount specifically reflected or accrued for or reserved against in the December
31, 1999 Balance Sheet or disclosed in Schedule 4.6, as of the Closing the
Company had no liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become due, other than
liabilities incurred subsequent to December 31, 1999 in the ordinary course of
business and consistent with past practice. The liabilities and reserves
(including allowances and accruals) reflected in the December 31, 1999 Balance
Sheet are adequate, appropriate and reasonable. Except as set forth in Schedule
4.6, to the Best Knowledge of the Shareholders there is no basis for the
assertion against the Company of any such liability or obligation not fully
reflected or accrued for or reserved against in the December 31, 1999 Balance
Sheet. For purposes of this Agreement "Best Knowledge of the Shareholders" or
"Knowledge of the Shareholders" or words of similar import shall mean actual
knowledge of any one or more of the Shareholders after due inquiry is made by
the Shareholders of the accountants, attorneys and executive officers of the
Company.
24
SECTION 4.7 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth in Schedule 4.7 or as reflected in the December 31, 1999 Balance Sheet,
during the period from December 31, 1999 to Closing the Company has not: (i)
suffered any material adverse change in its working capital, financial
condition, assets, liabilities, or to the Best Knowledge of the Shareholders,
its business or prospects, (ii) experienced any labor relations difficulty, or
suffered any material casualty loss (whether or not insured); (iii) made any
material change in its business or operations or in the manner of conducting its
business other than changes in the ordinary course of business; (iv) incurred
any obligations or liabilities (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except items incurred in the
ordinary course of business and consistent with past practice, or experienced
any change in any assumptions underlying or methods of calculating prepaid
catalog expenses, any bad debt, contingency or other reserves; (v) paid,
discharged or satisfied any claim, lien, encumbrance or liability (whether
absolute, accrued, contingent or otherwise and whether due or to become due),
other than claims, liens, encumbrances or liabilities (A) which are reflected or
accrued for or reserved against in the December 31, 1999 Balance Sheet and which
were paid, discharged or satisfied since December 31, 1999, or (B) which were
incurred and paid, discharged or satisfied since December 31, 1999 in the
ordinary course of business and consistent with past practice; (vi) permitted or
allowed any of its properties or assets (whether real, personal or mixed,
tangible or intangible), to be mortgaged, pledged or subjected to any lien or
encumbrance, except liens or encumbrances for taxes not yet delinquent; (vii)
written-down or determined to write-down or written-up or determined to write-up
the value of any inventory, or written-off or determined to write-off as
uncollectible any notes or accounts receivable or any portion thereof, except
for immaterial write-downs and write-offs in the ordinary course of business,
consistent with past practice and at a rate no greater than during the prior
twelve (12) months; (viii) cancelled any debts or claims, or waived any rights,
of substantial value; (ix) sold, transferred or conveyed any of its properties
or assets (whether real, personal or mixed, tangible or intangible), except in
the
25
ordinary course of business and consistent with past practice; (x) granted any
increase in the compensation of any officer or employee or accrued or paid any
bonus (including, without limitation, any increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or instituted or adopted
any new benefit programs, plans or other arrangements for officers or employees,
and no such increases or new programs, plans or arrangements are customary on a
periodic basis or required by agreement or understanding other than wage
increases to hourly employees and annual salary increases to salaried employees
in the ordinary course consistent with past practices; (xi) made any pension,
retirement, profit-sharing, bonus or other employee welfare or benefit payment,
other than payments by persons other than the Company for which the Company has
no liability or obligation to do so; (xii) made any change in any method of
accounting or accounting practice; (xiii) paid, loaned or advanced any amount to
or in respect of, or sold, transferred or leased any properties or assets
(whether real, personal or mixed, tangible or intangible) to, or entered into
any agreement, arrangement or transaction with, any Shareholder, any of the
officers or directors of the Company, or any Affiliate thereof; (xiv) paid or
declared any dividend or made any other distribution to its Shareholders in
respect of their shares or in respect to any loans made by them to the Company
or made to the Company and guaranteed by them or (xv) agreed, whether in writing
or otherwise, to take any action described in this Section 4.7. Except as and to
the extent set forth in Schedule 4.7, since December 31, 1999, the Company has
not made any capital expenditures or commitments in excess of Ten Thousand
($10,000) Dollars in the aggregate for additions to property, plant, equipment
or intangible capital assets.
SECTION 4.8 CERTAIN TAX MATTERS.
(a) The Company has duly filed all Tax Returns required to be filed by it.
All such Tax Returns are true, correct and complete, and the Company has duly
paid or made provision for the payment of all Taxes which are shown to be due
and payable on such Tax Returns. No Federal, state or foreign income tax returns
of the Company have been audited by any appropriate
26
taxing authority. No state of facts exists or has existed which would constitute
grounds for the assessment of any material liability for Taxes with respect to
the periods which have not been audited by the Internal Revenue Service or other
taxing authority.
(b) The Company has withheld from its employees and any other applicable
payees (and timely paid to the appropriate governmental entity) proper and
accurate amounts for all periods through the date hereof in compliance with all
tax withholding provisions of applicable federal, state, local and foreign laws
(including, without limitation, income, social security and employment tax
withholding for all types of compensation, and withholding on payments to
non-United States persons).
(c) For purposes of this Agreement, (i) "Taxes" means all taxes, however
denominated, including any interest, penalties or additions to tax that may
become payable in respect thereof, imposed by any federal, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income taxes (including, but not limited to, United States
federal income taxes and state income taxes), payroll, employee and other
withholding taxes, unemployment insurance, social security, sales and use taxes,
excise taxes, franchise taxes, net worth taxes, gross receipts taxes, occupation
taxes, real and personal property taxes, stamp taxes, transfer taxes, workers'
compensation, and other obligations of the same or of a similar nature whether
arising before, on or after the Closing Date, and (ii) "Tax Returns" means all
reports, elections, estimates, information statements (including 1099
statements) and returns relating to, or required to be filed in connection with,
any Taxes pursuant to the statutes, rules and regulations of any federal, state,
local or foreign government taxing authority.
SECTION 4.9 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) The Company has good, valid and marketable title to all of its
respective properties and assets, tangible and intangible, including, without
limitation, all the properties and assets reflected in the December 31, 1999
Balance Sheet (except for inventory sold since
27
December 31, 1999). None of such properties or assets (or any other properties
or assets used in the business of the Company) are subject to any mortgage,
pledge, lien, security interest, conditional sale agreement, encumbrance or
charge of any kind, except (i) liens described on Schedule 4.9 as securing
specific liabilities (with respect to which no default exists) and which liens,
except as otherwise noted on Schedule 4.9, will be satisfied on or prior to
Closing and (ii) liens for current taxes not yet delinquent and taxes for which
adequate provision is made in the December 31, 1999 Balance Sheet.
(b) The Company does not own any real property.
SECTION 4.10 FIXED AND OTHER TANGIBLE ASSETS. Schedule 4.10 contains an
accurate and complete description of all material fixed and other tangible
material assets (other than Excluded Assets and inventory and goods for which
invoices have not yet been received by the Company) which are owned by the
Company on the date of this Agreement. All such assets are currently in use as
of the date of this Agreement. The Company has not received notification that it
is in violation of any applicable building, zoning, antipollution, health or
other law, ordinance or regulation in respect of any of its assets or their
operation, which violation remains uncured and no such violation exists.
Schedule 4.10 includes all material fixed and other tangible material assets
(other than Excluded Assets and inventory and goods for which invoices have not
yet been received by the Company) that are at the date hereof physically located
at premises occupied by the Company, except only for assets that are leased
pursuant to leases disclosed in Schedule 4.11.
SECTION 4.11 LEASES. Schedule 4.11 contains a complete list of each lease
pursuant to which the Company leases real property or personal property. The
Company has previously delivered to the Purchaser complete and accurate copies
of all such scheduled leases. All such scheduled leases are valid, binding and
enforceable in accordance with their terms and are in full force and effect;
there are no existing defaults by the Company with respect to the lease of the
premises occupied by it in Middletown, Rhode Island and there are no material
defaults by the
28
Company with respect to any other lease; and, to the Best Knowledge of the
Shareholders, there are no existing material defaults by any other party
thereunder; no event has occurred which (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would constitute a
default by the Company with respect to the lease of the premises occupied by it
and there are no material defaults by the Company with respect to any other
lease; and, to the Best Knowledge of the Shareholders, no event has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a material default by any other
party thereunder. Except for the consents disclosed in Schedule 4.4 which
consents will be obtained on or prior to Closing, all such scheduled leases are
assignable to Purchaser without the consent, approval or act of any other party.
SECTION 4.12 DATABASES AND SOFTWARE. Schedule 4.12 accurately identifies
and adequately describes the functions of all significant databases and software
owned, sold, licensed, leased or otherwise used in connection with the business
of the Company, whether purchased or internally developed ("Software"). The
Company has previously delivered to the Purchaser complete and accurate copies
of all agreements for such Software. All such agreements are valid, binding and
enforceable in accordance with their terms and are in full force and effect;
there are no existing defaults by the Company; and, to the Best Knowledge of the
Shareholders, there are no existing defaults by any other party thereunder; no
event has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default by the
Company thereunder; and, to the Best Knowledge of the Shareholders, no event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default by any other party
thereunder. The Company has documentation in reasonable detail relating to all
such scheduled Software. All such scheduled Software and, with respect to owned
Software, the source codes thereof, have been maintained only at the Company's
office in Middletown, Rhode Island. The Company has not sold, licensed, leased
or otherwise transferred any ownership interest in or
29
granted any ownership rights to any of its Software. Except for the consents
disclosed in Schedule 4.4 which consents will be obtained prior to Closing, all
scheduled Software is assignable to Purchaser without the consent, approval or
act of any other party. All such software is year 2000 compliant.
SECTION 4.13 PATENTS, TRADEMARKS, COPYRIGHTS. The Company has the right to
use the trademark "Rue de France"and the other trademarks, service marks, logos,
trade names and assumed names listed on Schedule 4.13 in the business of the
Company as presently conducted; and none other are necessary for the conduct of
the business of the Company. Other than copyrights to its catalogs, the Company
owns no copyrights. The Company owns no patents. Except as set forth on Schedule
4.13, no party has claimed or asserted that any of the products or copy, nor any
processes, methods, designs, formulae, know-how, trade secrets, proprietary
information, tradenames, trademarks, service marks, trade dress, trade styles,
logos, trade names, assumed names, or designations used by the Company, infringe
any patents, trademarks, copyrights, confidential or proprietary rights or any
other rights, of another. The Company has the right to manufacture, produce,
market, distribute, deliver and sell its products and conduct its business as
heretofore conducted under the above referenced tradenames and marks, and the
Company has not sold, licensed or otherwise disposed of or transferred or
granted any interest in any such rights.
SECTION 4.14 LITIGATION.
(a) Except as set forth in Schedule 4.14(a), there is no claim, action,
suit, proceeding or investigation pending or threatened against or affecting the
Company or the transactions contemplated hereby and to the Best Knowledge of the
Shareholders there exists no valid basis for any such claim, action, suit,
proceeding or investigation. No claim, action, suit, proceeding or investigation
set forth in Schedule 4.14(a) could be reasonably expected to, if adversely
decided, have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, earnings, prospects or business of the Company
("Material Adverse Effect").
30
(b) Except as set forth on Schedule 4.14(b), (i) the Company is not in
receipt of any notice, demand or claim, nor is there any action, suit, inquiry,
hearing, proceeding or investigation of a civil, criminal or administrative
nature by or before any court or governmental or other regulatory or
administrative agency, commission or authority which is pending or threatened,
directly or indirectly concerning, relating to, or resulting from any accident,
happening, condition or event caused or allegedly caused by any alleged hazard
or alleged defect in manufacture, design, material, workmanship or claims made
(including, without limitation, any alleged failure to warn or any breach of
express or implied warranties or representations) with respect to any product
manufactured, produced, distributed, marketed, delivered or sold by the Company,
nor, to the Best Knowledge of the Shareholders, is there any valid basis
therefor; and (ii) since January 1, 1994 there has not been any recall, rework,
retrofit or post-sale warning or labeling change relating to any risks or
warnings, in any such case by the Company concerning any such product or, to the
Best Knowledge of the Shareholders, any investigation or consideration of or
decision made by any governmental or regulatory entity concerning whether to
undertake or not to undertake any such labeling change or recall.
SECTION 4.15 INSURANCE. Schedule 4.15 sets forth a complete and accurate
list of all policies (including their respective expiration dates) of fire,
liability, product liability, workmen's compensation, health, title and other
forms of insurance presently in effect with respect to the Company. All such
policies (i) are valid, outstanding and enforceable policies and (ii) will
remain in full force and effect at least through the Closing, subject to the
payment of additional premiums when due in the ordinary course.
SECTION 4.16 CATALOGS AND CUSTOMER PROFILES.
(a) Schedule 4.16(a) sets forth the catalog mailings made by the Company in
1997, 1998 and 1999, the number of catalogs mailed for each such mailing event,
the average amount of dollars per order received, the response rate and the
sales per thousand catalogs for each such
31
catalog mailing. The Company does not maintain a record of refunds by catalog or
by product nor does it maintain data to enable it to compute its fill rate.
(b) Schedule 4.16(b) sets forth as of December 31, 1999, the number of mail
order customers in the Company's data base (excluding non-United States
customers) segmented by recency of purchase, frequency of purchase and amount of
purchase.
SECTION 4.17 CANCELLATIONS. Except for consents required to be obtained
from third parties on or before the Closing, neither the execution and delivery
of this Agreement, the Lease Agreement, the Proprietary Rights Assignments, the
Employment Agreement and the Right of First Refusal Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will result in
or permit any party (other than parties who have waived such rights prior to the
Closing) to terminate or modify any contract including, without limitation, any
lease, license, distribution agreement or other Material Contract to which the
Company is a party or to cancel or withdraw any unfilled customer orders.
SECTION 4.18 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS.
(1) BENEFIT ARRANGEMENT. "Benefit Arrangement" shall mean any employment,
consulting, severance or other similar contract, arrangement, policy or plan and
each plan, arrangement (written or oral), program, agreement or commitment
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health or accident benefits
(including, without limitation, any "voluntary employees' beneficiary
association" as defined in Section 501(c)(9) of the Internal Revenue Code as
amended (the "Code") providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (A) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (B) is, or within the prior five years was, entered
into,
32
maintained, contributed to or required to be contributed to by the Company, an
ERISA Affiliate, or any predecessor thereof, or under which the Company or any
ERISA Affiliate may incur any liability, and (C) covers or covered any employee
or former employee, independent contractor or former independent contractor,
officer, director or agent of the Company, or any ERISA Affiliate.
(2) EMPLOYEE PLANS. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(3) ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(4) ERISA AFFILIATE. "ERISA Affiliate" shall mean (A) any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with or under "common control" with the Company as defined in
Section 414(b) or (c) of the Code, or (B) any entity which is (or at any
relevant time was) a member of an "affiliated service group" (as such term is
defined in Section 414(m) of the Code) which includes the Company.
(5) MULTIEMPLOYER PLAN. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA (A) which the
Company, or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, after September 25, 1980, maintained,
administered, contributed to or was required to contribute to, or under which
the Company, or any ERISA Affiliate may incur any liability and (B) which covers
any employee or former employee, officer, director or agent of the Company, or
any ERISA Affiliate.
(6) PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(7) PENSION PLAN. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) (A) which is or was maintained, administered, contributed to or required
to be contributed to, by the Company, any ERISA Affiliate or any predecessor
thereof or under which the Company, or any ERISA Affiliate
33
may incur any liability and (B) which covers or covered any employee or former
employee, officer, director or agent of the Company, any ERISA Affiliate or any
predecessor thereof.
(8) WELFARE PLAN. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA (A) which the Company, or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or under which the Company or any ERISA Affiliate may incur any
liability and (B) which covers any employee or former employee, independent
contractor or former independent contractor, officer, director, or agent of the
Company, or any ERISA Affiliate.
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND OTHER
INFORMATION. Schedule 4.18(b) contains a complete list of Employee Plans. True
and complete copies of each of the following documents have been delivered or
made available by the Company to Purchaser (i) each Welfare Plan, Pension Plan
and Multiemployer Plan (and, if applicable, related trust, funding and
investment agreements) and all amendments thereto, all written interpretations
thereof and written descriptions thereof which have been distributed to the
Company's or any ERISA Affiliate's employees and all annuity contracts or other
funding instruments, (ii) each Benefit Arrangement (and, if applicable, related
trust, funding or investment agreement), including written interpretations
thereof and written descriptions thereof which have been distributed to the
Company's or any ERISA Affiliate's employees (including descriptions of the
number and level of employees covered thereby) and a complete description of any
such Benefit Arrangement which is not in writing, (iii) the most recent
determination letter issued by the Internal Revenue Service with respect to each
Pension Plan, (iv) for the three most recent plan years, Annual Reports on Form
5500 Series required to be filed with any governmental agency for each Pension
Plan, (v) all actuarial reports prepared for the last three plan years for each
Pension Plan, (vi) a description of complete age, salary, service and related
data as of the last day of the last fiscal year for employees and former
employees of the Company and each ERISA Affiliate who are entitled to benefits
under such plan, and (vii) a description setting forth the
34
amount of any liability of the Company as of the Closing Date for payments more
than thirty days past due with respect to each Welfare Plan.
(c) REPRESENTATIONS AND WARRANTIES. Except as set forth in Schedule
4.18(c), the Company represents and warrants as follows:
(1) PENSION PLANS.
(A) No Pension Plan is or has ever been subject to (A) the
minimum funding requirements of ERISA or the Code, or (B) Title IV of
ERISA. Neither the Company nor any ERISA Affiliate has, or will as of
the Closing have, any liability for unpaid contributions with respect
to any Pension Plan.
(B) Each Pension Plan which is intended to be a tax-qualified
plan as described in Section 401(a) of the Code, and each related
trust agreement, annuity contract or other funding instrument, has
been established and operated so as to be qualified and tax-exempt
under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a) from its adoption to date. To the Best
Knowledge of the Shareholders, nothing has occurred or, in connection
with the transaction contemplated by this Agreement, will occur, that
could adversely affect the qualified status of any such Pension Plan.
(C) Each Pension Plan and each related trust, funding or
investment agreement, annuity contract or other funding instrument
presently complies and has been maintained in compliance with its
terms and, both as to form and in operation, in all material respects
with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such plans, including
but not limited to ERISA and the Code.
(D) Neither the Company, nor any ERISA Affiliate has engaged in,
or is a successor or parent corporation to an entity that has engaged
in, a transaction described in Section 406 of ERISA.
(2) MULTIEMPLOYER PLANS.
35
None of the Company, any ERISA Affiliate nor any predecessor thereof has,
at any time, been a party to or withdrawn from a Multiemployer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 and
4205 of ERISA, respectively.
(3) WELFARE PLANS.
(A) Each Welfare Plan has been maintained in material compliance with
its terms and, both as to form and operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Welfare Plan, including but not limited to ERISA and the
Code.
(B) The Company and its ERISA Affiliates have no liability for life,
health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof, except for health continuation
coverage as required by Section 4980B of the Code or Part 6 of Title I of
ERISA and at no expense to the Company or any of its ERISA Affiliates.
(C) Each Welfare Plan which is a "group health plan," as defined in
Section 607(1) of ERISA, has been operated in material compliance with the
provisions of Part 6 and Part 7 of Title I of ERISA, and Sections 162(l),
4980B and 9801 through 9812 of the Code at all times.
(4) BENEFIT ARRANGEMENTS. Each Benefit Arrangement has been
maintained, in all material respects, in compliance with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement, including but
not limited to ERISA and the Code.
(5) EFFECT OF TRANSACTION. Except as described in Schedule 4.18(c)(5),
the execution of and performance of the transactions contemplated by this
Agreement will not constitute an event under any Employee Plan or agreement
that will result in any payment (whether severance pay or otherwise),
acceleration, vesting or increase of benefits with respect to
36
any employee, former employee, independent contractor or former independent
contractor, officer, director or agent of the Company or any ERISA
Affiliate.
(6) UNRELATED BUSINESS TAXABLE INCOME. No Employee Plan (or trust or
other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
(7) DEDUCTIBILITY OF PAYMENTS. There is no contract, agreement, plan
or arrangement covering any employee or former employee of the Company, or
any ERISA Affiliate that, individually or collectively, provides for the
payment by the Company, or any ERISA Affiliate of any amount (i) that is
not deductible under Section 162(a)(1) or 404 of the Code or (ii) on
account of a change in ownership or effective control as described in
Section 280G of the Code.
(8) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS. To the Best
Knowledge of the Shareholders, none of the Company, any ERISA Affiliate,
nor any plan fiduciary of any Welfare Plan or Pension Plan has engaged in
or, in connection with the transaction contemplated by this Agreement, will
engage in, any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code.
(9) VALIDITY AND ENFORCEABILITY. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other funding instrument and
Benefit Arrangement is legally valid and binding and in full force and
effect.
(10) LITIGATION. There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits, audits,
investigations or arbitrations which have been threatened, asserted or
instituted against the Company, any ERISA Affiliate, any Employee Plan, any
fiduciaries of Employee Plans with respect to their duties to any Employee
Plan or the assets of any of the trusts under any Employee Plan. To the
Best Knowledge of the Shareholders, there do not exist any facts or events
which could form the basis for any such claim, lawsuit, audit,
investigation or arbitration.
37
(11) NO AMENDMENTS. Neither the Company, nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any additional
Employee Plans or to amend or modify any existing Employee Plan.
(12) NO OTHER MATERIAL LIABILITY. To the Best Knowledge of the
Shareholders, no event has occurred in connection with which the Company or
any ERISA Affiliate or any Employee Plan, directly or indirectly, could be
subject to any material liability (i) under any statute, regulation or
governmental order relating to any Employee Plans or (ii) pursuant to any
obligation of the Company, any ERISA Affiliate to indemnify any person
against liability incurred under any statute, regulation or order as they
relate to the Employee Plans.
(13) 401(K) TERMINATION. On or before the Closing Date, the Board of
Directors of the Company adopted resolutions terminating the Company's
401(k) plan as of March 31, 2000 and authorizing the officers of the
Company to submit that plan to the Internal Revenue Service for a favorable
determination as to the effect of the termination of that plan, and such
resolutions were not subsequently modified, revoked or rescinded in any
respect and are in full force and effect at Closing.
SECTION 4.19 CUSTOMER LISTS AND DISCLOSURE OF CONFIDENTIAL INFORMATION. (a
Schedule 4.19 sets forth the status as of March 4, 2000 of all list exchange
balances and unfilled rental and exchange orders for the Company's customer
list. Except for changes in the ordinary course of business, the Company will
not have any unfulfilled obligations to exchange list rental names or to rent
its customer list. To the Best Knowledge of the Shareholders, the
confidentiality of the Company's customer lists has not been breached and has
been protected by the customer list brokers and service bureaus employed by the
Company to maintain and rent the Company's customer lists.
(b) The Company has not within the last two years disclosed any
confidential information to any third party other than its directors,
accountants and attorneys whether pursuant to a confidentiality agreement or not
and, to the Best Knowledge of the Shareholders, the
38
confidentiality of the Company's proprietary information has not been breached
during such two year period.
SECTION 4.20 CONTRACTS AND COMMITMENTS.
(a) Schedule 4.20(a) sets forth a true and complete list of all Material
Contracts, by which the Company or any of its assets or any of its employees are
bound. For purposes of the foregoing, a "Material Contract" shall mean (whether
written or oral) (i) any contract, judgment, order, decree or settlement
agreement not made in the ordinary course of business, (ii) any contract which
restricts or limits in any way the manner in which the Company conducts its
business or uses any of its assets or restricts or limits the activities of any
of its employees, (iii) any license to or by the Company of intellectual
property rights (other than standard software licenses associated with standard
software used by the Company), (iv) any sales agency, dealership, distribution,
supply or similar contract, (v) any contract whose remaining term exceeds one
(1) year, (vi) any contract which may require the payment of money or the
delivery of products or services the aggregate value of which contract will or
may exceed Ten Thousand ($10,000) Dollars during the term thereof excluding
purchase and sales orders for inventory, supplies, printing services and list
rental orders entered into in the ordinary course of business consistent with
past practices provided that no such order will require the payment of money or
the delivery of products or services the aggregate value of which will or may
exceed Twenty-five Thousand ($25,000) Dollars during the term thereof, (vii) any
employment or consulting contract, (viii) any contract with a labor union (ix)
any contract with a credit card processor, (x) any contract with a commercial
delivery service, (xi) any telecommunication agreement, (xii) any website,
software, database development or maintenance contract, or (xiii) any contract
with a lender to or other creditor of the Company. The Company has previously
delivered or made available to the Purchaser complete and accurate copies of all
such scheduled Material Contracts. All such scheduled Material Contracts are
valid, binding and enforceable in accordance with their terms and are in full
force and effect; there are no existing defaults by the Company; and, to
39
the Best Knowledge of the Shareholders there are no existing defaults by any
other party thereunder; no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default by the Company thereunder; and, to the Best Knowledge of
the Shareholders, no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default by any other party thereunder. The legal enforceability
after the Closing Date by the Company of any Material Contract will not be
affected in any manner by the execution and delivery of this Agreement, the
Lease Agreement, the Proprietary Rights Assignments, the Employment Agreement,
the Right of First Refusal Agreement, or the consummation of the transactions
contemplated hereby and thereby and except as set forth on Schedule 4.4, which
consents will be obtained on or prior to Closing, all Material Contracts that
are also Assumed Contracts are assignable to Purchaser without the consent,
approval or act of any other party.
(b) Except as set forth in Schedule 4.20(b), no purchase commitment of the
Company nor any other Material Contract by which the Company is bound, requires
the Company to purchase goods or services or lease property in excess of the
normal, ordinary and usual requirements of the Company or at an excessive price
nor does any Material Contract require the Company to sell goods or provide
services at below market prices.
SECTION 4.21 PERSONNEL; SALES REPRESENTATIVES.
(a) Schedule 4.21(a) sets forth (i) the names, ages and titles of all
employees of and consultants to the Company and (ii) the amount of the annual
compensation payable to each employee and consultant to the Company as of
February 29, 2000. As of Closing no such employees are out on leave.
(b) Schedule 4.21(b) sets forth a complete and correct list of the name and
address of each non-employee sales representative or agent currently engaged by
the Company and the applicable commission rates with respect to each such
person. All agreements between the
40
Company and any such person described in Schedule 4.21(b) are in full force and
effect and, except as noted in Schedule 4.21(b), are cancelable by the Company
on not more than ninety (90) days' notice, without penalty.
(c) The employee policy manual heretofore delivered to the Purchaser
contains all current employee policies which have been communicated to the
employees of the Company.
SECTION 4.22 LABOR RELATIONS.
Except as and to the extent set forth in Schedule 4.22: (i) no collective
bargaining agreement presently covers (nor has any, in the past, covered) any
employees of the Company, nor is any currently being negotiated by the Company;
(ii) the Company is in material compliance with all federal, state and local
laws and has made all filings required thereby with federal, state and local
authorities, including, without limitation, the rules and regulations of the
Department of Labor and the Office of Federal Contract Compliance Programs,
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
(iii) there is no unfair labor practice complaint against the Company pending or
threatened before the National Labor Relations Board; (iv) there is no labor
strike, dispute, slowdown or stoppage actually pending or threatened against or
involving the Company; (v) to the Knowledge of the Shareholders, no attempt to
organize any group or all of the employees has been made or proposed in the past
five (5) years; (vi) no charges with respect to or relating to the Company are
pending before the Equal Employment Opportunity Commission or any state, local
or foreign agency responsible for the prevention of unlawful practices; (vii)
the Company has not received notice of the intent of any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to the Company and no such investigation
is in progress; (viii) no private agreement restricts the Company from
relocating, closing or terminating any of its operations or facilities; (ix) the
Company has not in the past five (5) years experienced any work stoppage or
other labor difficulty, and (x) the Company received no notice
41
of any claim or complaint of sexual or other harassment or age or other
discrimination made by any employee.
SECTION 4.23 COMPLIANCE WITH APPLICABLE LAW.
(a) Except as set forth in Schedule 4.23(a), the Company is not in
violation of, except violations which have been waived or cured and which have
not recurred and with respect to which there is no ongoing liability, in respect
of its operations, real property, intellectual property, equipment and all other
aspects of its businesses, any applicable law (whether statutory or otherwise),
rule, regulation, order, ordinance, judgment or decree of any governmental
authority (federal, state, local or otherwise) (collectively, "Laws"), including
but not limited to the Federal Occupational Safety and Health Act, the Federal
Trade Commission mail order regulations, U.S. postal regulations, the Worker
Adjustment Retraining and Notification Act, the Americans With Disabilities Act
and ERISA, which violation or violations, individually or in the aggregate,
could have a Material Adverse Effect.
(b) Except as accurately and completely described in Schedule 4.23(b), the
Company has not received any notification of any asserted present or past
failure of the Company to comply with any of such Laws, except failures of
compliance which have been waived or cured and which have not recurred and with
respect to which there is no ongoing liability and failures of compliance which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
SECTION 4.24 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS.
(1) "ENVIRONMENTAL PROCEEDINGS" means any and all administrative,
regulatory or judicial actions, orders, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating to any Environmental Law or Environmental Permit,
including, without limitation, (A) any and all Environmental Proceedings by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or
42
other actions or damages pursuant to any applicable Environmental Law, and
(B) any and all Environmental Proceedings by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Substances or arising from
alleged injury or threat of injury to the environment.
(2) "ENVIRONMENTAL LAWS" means any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the
environment or Hazardous Substances, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. 9601 et seq.; the Emergency Planning and Community
Xxxxx-xx-Xxxx Xxx, 00 X.X.X. 00000 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq.; the Federal Water Pollution Control
Act, 33 U.S.C. 1251 et seq.; the Clean Air Act, as amended, 42 U.S.C. 7401
et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
136 et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f et seq.; the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq.; the Oil Pollution Act of
1990, 33 U.S.C. 1001 et seq.; the Hazardous Materials Transportation Act,
as amended, 49 U.S.C. 1801 et seq.; the Atomic Energy Act, as amended, 42
U.S.C. 2011 et seq.; The Occupational Safety and Health Act, as amended, 29
U.S.C. 651 et seq.; or the Federal Food, Drug and Cosmetic Act, as amended,
21 U.S.C. 301 et seq., and any laws regulating the use of biological agents
or substances including medical or infectious wastes and the corresponding
State laws, regulations and local ordinances, etc. which may be applicable,
as any such laws, rules, regulations, etc. have been or may be amended.
(3) "ENVIRONMENTAL PERMITS" means all permits, approvals,
identification numbers, licenses and other authorizations required under
any applicable Environmental Law.
43
(4) "HAZARDOUS SUBSTANCES" means (A) any chemicals, materials or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "hazardous air pollutants," "pollutants,"
"contaminants," "toxic chemicals," "petroleum or petroleum products,"
"toxics," "hazardous chemicals," "extremely hazardous substances,"
"pesticides" or related materials, as now, in the past, or hereafter
defined in any applicable Environmental Law; (B) any petroleum or petroleum
products, natural or synthetic gas, radioactive materials,
asbestos-containing materials, urea formaldehyde foam insulation, and
radon; and (C) any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any governmental authority.
(b) Except as set forth on Schedule 4.24, (i) the Company has not violated
nor is it in violation of any applicable Environmental Law; (ii) the Company has
all Environmental Permits necessary to conduct its business and is in compliance
with their requirements; (iii) to the Best Knowledge of the Company and the
Shareholders none of the properties currently or formerly owned, leased or used
by the Company (including, without limitation, soils and surface, ground waters
and buildings) is contaminated with any Hazardous Substances as the result of
any action or omission of the Company; (iv) there are no past, pending or
threatened Environmental Proceedings or circumstances that could reasonably be
anticipated to form the basis thereof against the Company; (v) to the best
knowledge of the Shareholders, there are not now and never have been any
underground storage tanks located on the properties currently or formerly owned,
leased or used by the Company.
SECTION 4.25 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the
December 31, 1999 Balance Sheet and all accounts receivable created thereafter
are bona fide accounts receivable created in the ordinary course of business on
the Company's standard terms and conditions and none of such accounts receivable
represent consignment or guaranteed sale arrangements.
44
SECTION 4.26 INVENTORY AND SUPPLIES. The Company has inventory and supplies
of a quantity and quality sufficient to conduct its business as currently
conducted by it and all such inventory is in merchantable condition and, other
than inventory that has been written off, is either offered for sale in its
current catalog or is planned to be offered for sale in future catalogs or in
its retail store or through its web site, and all such supplies are usable.
SECTION 4.27 FULL DISCLOSURE. (a The Company has fully provided the
Purchaser with all information which the Purchaser has requested for deciding
whether to purchase the Purchased Assets and all information that the Company
believes is reasonably necessary to enable the Purchaser to make an informed
decision.
(b Neither this Agreement nor any other statements or certificates made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading. To the Best Knowledge of the Shareholders, there is no fact that the
Company has not disclosed to the Purchaser that could reasonably be anticipated
to have a Material Adverse Effect.
SECTION 4.28 (INTENTIONALLY OMITTED)
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder jointly and severally represents and warrants to the
Purchaser as follows:
SECTION 5.1 AUTHORIZATION AND VALID AND BINDING AGREEMENT. Such Shareholder
has full power and authority to enter into this Agreement, the Proprietary
Rights Assignment and, in the case of Xxxxxx X. Xxxxxx, the Employment
Agreement, the Right of First Refusal Agreement and Lease Agreement on behalf of
Captain Xxxx Associates and to carry out the transactions contemplated hereby
and thereby and all proceedings, if any, required to be taken by such
Shareholder to authorize the execution, delivery and performance of this
Agreement, the Lease
45
Agreement, the Proprietary Rights Assignment, the Employment Agreement and the
Right of First Refusal Agreement and all agreements, instruments and documents
relating hereto and thereto ("Related Instruments") have been properly taken, or
will be taken prior to the Closing. This Agreement has been duly executed and
delivered by such Shareholder and the Lease Agreement, Proprietary Rights
Assignment, Employment Agreement, the Right of First Refusal Agreement and
Related Instruments will upon execution and delivery at the Closing constitute
the legal, valid and binding obligation of such Shareholder signing the same
enforceable in accordance with its respective terms, except as such enforcement
may be affected by bankruptcy, insolvency and similar laws affecting creditors'
rights.
SECTION 5.2 CONSENTS; NO VIOLATION. Neither the execution or delivery of
this Agreement, the Lease Agreement, the Proprietary Rights Assignment, the
Employment Agreement, the Right of First Refusal Agreement or the Related
Instruments, the consummation of the transactions contemplated hereby or
thereby, nor the compliance with any of the provisions hereof or thereof by such
Shareholder does or will, with or without the giving of notice or the passage of
time, or both, violate, conflict with, result in a default, right to accelerate
or loss of rights under, or result in the creation of any lien, charge or
encumbrance pursuant to any franchise, mortgage, deed of trust, lease, license,
agreement, law, rule or regulation or any order, judgment or decree to which any
of the Shareholders or the Company is a party or by which such Shareholder may
be bound or affected. None of the execution, delivery or performance of this
Agreement, the Lease Agreement, the Proprietary Rights Assignment, the
Employment Agreement, the Right of First Refusal Agreement or the Related
Instruments by such Shareholder requires the consent or approval of any
governmental body or entity.
SECTION 5.3 OWNERSHIP OF SHARES. Such Shareholder is the lawful record and
beneficial owner of the number of Shares set forth opposite such Shareholder's
name on Schedule 5.3. On the date hereof such Shares are owned by the
Shareholder free and clear of any claims, pledges, security interests, liens or
encumbrances or other restrictions or limitations of any kind.
46
SECTION 5.4 NO BUSINESS ARRANGEMENTS WITH AFFILIATES. Except as set forth
on Schedule 5.4, neither such Shareholder nor any members of his or her family
or Affiliates of any of the foregoing or any business organization in which any
of the foregoing owns a five (5%) percent or greater equity interest has or has
had within the last five (5) years any business dealings either as a supplier of
goods or services or as a customer or as a lessor or lessee or otherwise with
the Company.
SECTION 5.5 (INTENTIONALLY OMITTED).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES BY THE PURCHASER
The Purchaser and LVC hereby jointly and severally represent and warrant to
the Company as follows:
SECTION 6.1 ORGANIZATION. Each of LVC and the Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
respective state of incorporation and has the corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby.
SECTION 6.2 AUTHORIZATION. The execution and delivery of this Agreement,
the Lease Agreement, the Employment Agreement and the Right of First Refusal
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Purchaser and
LVC, as the case may be, and the resolutions adopted by the Board of Directors
of the Purchaser and LVC, as the case may be, evidencing such authorization were
duly and validly adopted, and have not been modified, revoked or rescinded in
any respect and are in full force and effect. No other corporate proceedings on
the part of the Purchaser and LVC are necessary to authorize this Agreement, the
Lease Agreement, the Employment Agreement, the Right of First Refusal Agreement
or the transactions contemplated hereby or thereby.
47
SECTION 6.3 VALID AND BINDING AGREEMENT. This Agreement, the Lease
Agreement, the Employment Agreement and the Right of First Refusal Agreement
each constitutes a valid and binding agreement of the Purchaser and LVC, as the
case may be, enforceable against the Purchaser and LVC, as the case may be, in
accordance with its respective terms, except as said enforcement may be affected
by bankruptcy, insolvency and similar laws affecting creditors rights.
SECTION 6.4 CONSENTS; NO VIOLATION. Neither the execution or delivery
of this Agreement, the Lease Agreement, the Employment Agreement or the Right of
First Refusal Agreement, the consummation of the transactions contemplated
hereby and thereby, nor the compliance with any of the provisions hereof and
thereof, (i) violates any statute or law or any rule, regulation, order, award,
judgment or decree of any court or governmental authority, affecting the
Purchaser or LVC in any way, (ii) violates or conflicts with or constitutes a
default under any contract, commitment, agreement, understanding, arrangement,
trust or restriction of any kind to which the Purchaser or LVC is a party, by
which it is bound or which otherwise in any way affects it, (iii) will cause, or
give any persons valid grounds to cause (with or without notice, the passage of
time or both), the maturity of any debt, liability or obligation of the
Purchaser or LVC to be accelerated, or will increase any such liability or
obligation, (iv) requires any filing with, the notification of, or the obtaining
of any permit, authorization, consent or approval of any third party or
governmental or regulatory authority, foreign or domestic, or (v) violates or
conflicts with or constitutes a default under the Certificate of Incorporation
or By-Laws, as amended, of the Purchaser or LVC.
48
ARTICLE VII
CONDUCT OF BUSINESS OF THE
COMPANY SUBSEQUENT TO CLOSING DATE
[The balance of this page is intentionally left blank.]
49
The Company and the Shareholders represent that, during the period from the
Closing Date to Closing, the Company has conducted its business in the ordinary
course and consistent with past practice and exclusively through the Company.
SECTION 7.1 (INTENTIONALLY OMITTED)
SECTION 7.2 (INTENTIONALLY OMITTED)
SECTION 7.3 (INTENTIONALLY OMITTED)
SECTION 7.4 (INTENTIONALLY OMITTED)
ARTICLE VIII
CERTAIN COVENANTS OF THE PARTIES
SECTION 8.1 CONSENTS; THIRD PARTIES. The Company and the Shareholders
covenant and agree to use their respective diligent efforts to obtain all
requisite consents and to secure all requisite actions of third parties prior to
the Closing and to deliver to the Purchaser, promptly after receipt thereof but
in no event later than the Closing, executed counterparts of all such consents
or other evidence of such actions. At the request of the Purchaser, the Company
will use its best efforts to cause designated insurance policies to be
transferred to the Purchaser as of the Closing Date.
SECTION 8.2 SUPPLEMENTAL DISCLOSURE. The Company and the Shareholders shall
have the continuing obligation until Closing to promptly supplement or amend the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules; provided, however, that
for the purposes of the rights and obligations of the parties hereunder, any
such supplemental or amended Schedules, and any matters discovered by the
Purchaser in the course of its due diligence prior to the Closing Date, shall
not be deemed to cure any breach
50
of any representation or warranty made in this Agreement or to have been
disclosed as of the date of this Agreement.
SECTION 8.3 FURTHER ASSURANCES. From time to time (whether at or after the
Closing Date), at the request of any other party and without further
consideration, and at its own expense, each party will execute and deliver to
such other party such other documents, and take such other action, as the other
party may reasonably request in order to consummate more effectively the
transactions contemplated hereby.
SECTION 8.4 TRANSFER TAXES. Any and all sales and transfer taxes, if any,
incurred in connection with this Agreement and the transactions contemplated
hereby or resulting from the sale, assignment, transfer and delivery hereunder
of the Purchased Assets by the Company, shall be borne by the Company.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. All obligations
of the Purchaser hereunder are subject to the fulfillment or waiver, prior to or
at the Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations and
warranties made by the Company and the Shareholders in this Agreement shall be
true when made and the Company and the Shareholders shall have performed and
complied with all covenants, agreements, obligations and conditions required by
this Agreement to be so performed or complied with by them on or prior to the
Closing.
(b) OFFICER'S AND SHAREHOLDERS' CERTIFICATES. The Company by its chief
financial officer and each of the Shareholders shall have delivered to the
Purchaser a certificate signed by each, dated the Closing Date, certifying as to
the fulfillment of the conditions specified in Section 9.1(a).
51
(c) CONSENTS. At the Closing, all consents and approvals required by the
terms hereof shall continue to be in full force and effect.
(d) OPINION OF COUNSEL TO THE COMPANY AND THE SHAREHOLDERS. The Purchaser
shall have received an opinion of counsel to the Company and the Shareholders,
Xxxxxx & Xxxxxxx, LLP and/or such other counsel satisfactory to the Purchaser,
dated the Closing Date, in form and substance reasonably satisfactory to the
Purchaser, to the effect set forth in Exhibit E.
(e) (intentionally omitted)
(f) NO INJUNCTION. There shall not be in effect at the Closing any
judgment, order, injunction or decree of any court enjoining the consummation of
the transactions contemplated by this Agreement.
(g) NO GOVERNMENT PROCEEDING OR LITIGATION. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any governmental or other regulatory or administrative
agency or commission which in the reasonable judgment of the Purchaser may have
a material adverse effect on the business, prospects, financial condition or
results of operation of the Company or seeks the imposition of limitations on
the ability of the Company to sell or the Purchaser to own the assets of the
Company.
(h) DELIVERIES AT CLOSING. All agreements, instruments, documents, actions
and payments required to be executed and delivered or taken or made pursuant to
the provisions of Section 2.2 hereof and any other section hereof by one or more
of the Company and the Shareholders shall have been duly executed and delivered
or taken or made, as the case may be.
SECTION 9.2 CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS. All
obligations of the Company hereunder are subject to the fulfillment or waiver,
prior to or at the Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations and
warranties made by the Purchaser and LVC in this Agreement shall be true when
made and the Purchaser
52
and LVC shall have performed and complied with all covenants, agreements,
obligations and conditions required by this Agreement to be so performed or
complied with by it on or prior to the Closing.
(b) OFFICER'S CERTIFICATE. The Purchaser and LVC shall each have delivered
to the Company a certificate of its officer, dated the Closing Date, certifying
to the fulfillment of the conditions specified in Section 9.2(a).
(c) OPINION OF COUNSEL TO THE PURCHASER. The Company shall have received an
opinion of counsel to the Purchaser and LVC, Salon, Marrow, Xxxxxxx & Xxxxxx,
LLP, dated the Closing Date, in form and substance reasonably satisfactory to
the Company, to the effect set forth in Exhibit F.
(d) NO INJUNCTION. There shall not be in effect at the Closing any
judgment, order, injunction or decree of any court enjoining the consummation of
the transactions contemplated by this Agreement.
(e) NO GOVERNMENTAL PROCEEDING OR LITIGATION. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any governmental or other regulatory or
administrative agency or commission which seeks the imposition of limitations on
the ability of the Company to sell or Purchaser to own the assets of the
Company.
(f) DELIVERIES AT CLOSING. All agreements, instruments, documents, actions
and payments required to be executed and delivered or taken or made pursuant to
the provisions of Section 2.3 hereof and any other section hereof by the
Purchaser shall have been duly executed and delivered or taken or made, as the
case may be.
53
ARTICLE X
SURVIVAL OF
REPRESENTATIONS AND INDEMNIFICATIONS
SECTION 10.1 SURVIVAL OF REPRESENTATIONS OF THE COMPANY AND THE
SHAREHOLDERS. All representations and warranties made by the Company and the
Shareholders in this Agreement or pursuant hereto shall survive the Closing and
any investigation at any time made by or on behalf of any party hereto;
provided, however, that, except with respect to the representations and
warranties of the Shareholders contained in Article 5 hereof and the
representations and warranties contained in Sections 4.1 ("Organization,
Authorization and Valid and Binding Agreement"), 4.2 ("Capitalization"), 4.8
("Certain Tax Matters"), 4.9 ("Title to Properties; Encumbrances") and 4.24
("Environmental Matters") hereof each of which representations and warranties
shall survive for the applicable statue of limitations, the representations and
warranties contained in this Agreement shall expire on the date which is three
(3) years after the Closing Date unless a claim has been made by a member of the
Purchaser Group on or prior to such date or a member of the Purchaser Group has
given notice of a potential claim setting forth the facts with respect thereto
on or prior to such date.
SECTION 10.2 STATEMENTS AS REPRESENTATIONS. All statements contained in
this Agreement, the Schedules or any certificate delivered pursuant hereto shall
be deemed representations and warranties for all purposes of this Agreement.
SECTION 10.3 INDEMNIFICATION OF PURCHASER GROUP FOR BREACH OF
REPRESENTATION OR WARRANTY. Upon the terms and subject to the conditions of this
Article X, the Company and the Shareholders hereby agree jointly and severally
to indemnify, defend and hold harmless the Purchaser and each Affiliate of the
Purchaser (collectively, the "Purchaser Group") from and against all losses,
damages, liabilities, costs and expenses, including, without limitation,
Environmental Response Costs, interest, penalties, costs of defense, and
reasonable attorneys' and expert fees and expenses asserted against, resulting
to, imposed upon or incurred by any
54
member of the Purchaser Group, directly or indirectly, by reason of or resulting
from (i) a breach of any agreement, covenant, representation or warranty of the
Company or any of the Shareholders contained in or made pursuant to this
Agreement, the Proprietary Rights Assignment or the Employment Agreement or any
facts or circumstances constituting such a breach or (ii) any of the matters
disclosed in Schedule 4.14(a) or Schedule 4.14(b) (collectively "Purchaser
Claims"). Environmental Response Costs shall mean the cost of any required or
necessary investigation, testing, monitoring, repair, clean up, detoxification,
decontamination, preparation of any closure or other required plans, removal,
response or remedial action at or relating to the properties currently or
formerly owned, leased or used by the Company or its predecessors or arising out
of activities undertaken prior to Closing by the Company.
SECTION 10.4 INDEMNIFICATION OF PURCHASER GROUP WITH RESPECT TO THIRD PARTY
CLAIMS. Upon the terms and subject to the conditions of this Article X, the
Company and the Shareholders hereby agree jointly and severally to indemnify,
defend and hold harmless the Purchaser Group from and against all claims,
demands, causes of action, assessments, liabilities, costs and expenses
including, without limitation, Environmental Response Costs, interest,
penalties, costs of defense and reasonable attorney and expert fees and expenses
(collectively, "Third Party Claims") asserted against any member of the
Purchaser Group by any third party with respect to liabilities of the Company or
acts or omissions of the Company accruing or taken or omitted to be taken on or
prior to the Closing including, without limitation, any such Third Party Claim
asserted by any governmental instrumentality or any customer, supplier, employee
or consultant of or to the Company other than Third Party Claims arising out of
the failure of the Purchaser to timely pay or perform the Assumed Liabilities or
Assumed Contractual Liabilities.
SECTION 10.5 INDEMNIFICATION OF THE SHAREHOLDER GROUP. Upon the terms and
subject to the conditions of this Article X, the Purchaser and LVC hereby agree
jointly and severally to indemnify, defend and hold harmless the Company and the
Shareholders (collectively, the "Shareholder Group") from and against all
losses, damages, liabilities, costs and expenses,
55
including, without limitation, interest, penalties, costs of defense, and
reasonable attorneys' and expert fees and expenses asserted against, resulting
to, imposed upon or incurred by any member of the Shareholder Group, directly or
indirectly, by reason of or resulting from (i) a breach of any agreement,
covenant, representation or warranty of the Purchaser contained in or made
pursuant to this Agreement or the Employment Agreement or any facts or
circumstances constituting such a breach and (ii) the conduct of Purchaser's
business and the ownership of the Purchased Assets after the Closing
(collectively, "Shareholder Claims").
SECTION 10.6 INDEMNIFICATION OF SHAREHOLDER GROUP WITH RESPECT TO THIRD
PARTY CLAIMS. Upon the terms and subject to the conditions of this Article X,
the Purchaser and LVC hereby agree jointly and severally to indemnify, defend
and hold harmless the Shareholder Group from and against any Third Party Claims
asserted against any member of the Shareholder Group with respect to liabilities
of the Purchaser or acts or omissions of the Purchaser accruing or taken or
omitted to be taken after the Closing, including, without limitation, any such
Third Party Claim asserted by any governmental instrumentality or any customer,
supplier, employee or consultant of or to the Purchaser arising out of the
failure of the Purchaser to timely pay or perform the Assumed Liabilities or the
60-month Lease Agreement by and between AT&T Capital Corporation and Rue de
France, Inc. dated July, 1998 for telephone equipment or any other Assumed
Contractual Liabilities.
SECTION 10.7 PROCEDURE.
(a) Whenever any Purchaser Claim, Third Party Claim or Shareholder Claim
(collectively, a "Claim") shall arise for indemnification hereunder, the party
seeking indemnification (the "Indemnified Party") shall promptly notify each
party from whom indemnification is due (the "Indemnifying Party") of the Claim
and, when known, the facts which form the basis for such Claim. In the event of
any such Claim for indemnification hereunder resulting from or in connection
with any claim or legal proceedings by a third person, the notice to the
Indemnifying Party shall specify, if known, the amount or an estimate of the
amount of the
56
liability arising therefrom. The failure to promptly give any such notice shall
not relieve the Indemnifying Party of its obligations hereunder except to the
extent such failure adversely prejudices the Indemnifying Party. The Indemnified
Party shall not settle or compromise any claim by a third party for which it is
entitled to indemnification hereunder without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld or delayed, unless
a proceeding shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have acknowledged its obligations to indemnify the
Indemnified Party and have taken control of such proceeding after notification
thereof, as provided in Section 10.7(b) of this Agreement.
(b) In connection with any Claim giving rise to indemnity hereunder
resulting from or arising out of any claim, tax assessment or legal proceeding
by a person who is not a party to this Agreement, the Indemnifying Party at its
sole cost and expense may, upon written notice to the Indemnified Party
acknowledging its obligations to indemnify the Indemnified Party hereunder with
respect to such Claim, assume the defense of any such claim or legal proceeding
with counsel reasonably satisfactory to the Indemnified Party; provided that the
Indemnified Party may participate in any such proceeding and be represented by
attorneys of its or their own choosing, with the fees and expenses of such
counsel to be at the sole expense of the Indemnified Party unless (i) the
Indemnifying Party shall not have notified the Indemnified Party in writing that
it will assume the defense of such claim and pay all liabilities relating
thereto and employed counsel reasonably acceptable to the Indemnified Party as
contemplated by this sentence or (ii) the named parties to any such proceeding
include both (x) any or all of the Indemnified Parties hereunder and (y) any or
all of the Indemnifying Parties hereunder and representation of both groups by
the same counsel would be inappropriate due to the conflict of interest between
them, and in either of such circumstances the fees and expenses of such counsel
shall be the sole expense of Indemnifying Party. The foregoing notwithstanding,
if such proceeding involves both a Claim or Claims subject to indemnification
hereunder and a claim or claims not subject to
57
indemnification hereunder, then the expenses of counsel shall be equitably
shared. The Indemnifying Party shall not settle or compromise such action
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld or delayed (other than settlements that involve
only the payment of money as to which no consent shall be required). If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within twenty-five (25) days after notice of such Claim is
given, (i) the Indemnified Party may defend against such claim or litigation in
such manner as it may deem appropriate, including, but not limited to, settling
such claim or litigation, after giving notice of the same to the Indemnifying
Party, on such terms as the Indemnified Party may in its sole discretion deem
appropriate, and (ii) the Indemnifying Party shall be entitled to participate in
(but not control) the defense of such action, with its counsel and at its own
expense.
SECTION 10.8 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude assertion by any party of any other rights or
the seeking of any other remedies against any other party hereto.
SECTION 10.9 LIMITS ON INDEMNIFICATION OBLIGATIONS. The Company and the
Shareholders shall have no liability or obligation to the Purchaser for breaches
of representations or warranties under Article X of this Agreement (other than
any such liability or obligation arising under Sections 1.3, 3.1 and 3.3 hereof
or pertaining to Unassumed Liabilities and all costs incurred by Purchaser in
defending against any such claim or enforcing its rights hereunder including,
without limitation, legal and accounting fees) until the aggregate amount of
such liabilities and obligations exceed Twenty-five Thousand Dollars ($25,000),
in which event the Company and the Shareholders shall be jointly and severally
liable and obligated for the entire amount of the excess thereof. The aggregate
liability of the Company and the Shareholders for breaches of representations or
warranties under Article X of this Agreement hereby shall be limited to (x) the
sum of (A) the Fixed Portion of the Purchase Price plus (B) the Assumed
58
Liabilities less (y) federal and state taxes actually paid by the Shareholders
with respect to the foregoing purchase price and assumption of liabilities.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 FINDER'S FEES. Each of the Shareholders, the Company, the
Purchaser and LVC represents and warrants that it has not dealt with any third
party as a finder, broker or advisor in connection with the transactions
contemplated by this Agreement except that LVC has dealt with PaineWebber
Incorporated whose fees and expenses it shall be solely responsible for.
SECTION 11.2 EXPENSES. The Company and the Shareholders shall bear all fees
and expenses incurred by any of the Shareholders or the Company in connection
with the negotiation, execution and delivery of this Agreement, the Lease
Agreement, the Proprietary Rights Assignments, the Employment Agreement, Right
of First Refusal Agreement and Related Instruments and the consummation of the
transaction contemplated thereby, and all prior activities related to the sale
of the assets of the Company. The Purchaser shall bear all fees and expenses
incurred by the Purchaser and its affiliates in connection with the negotiation,
execution and delivery of this Agreement, the Lease Agreement, the Proprietary
Rights Assignments, the Employment Agreement, and Related Instruments and the
consummation of the transaction contemplated thereby.
SECTION 11.3 PARTIES IN INTEREST. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective heirs, personal representatives, successors and
assigns of the parties hereto.
SECTION 11.4 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules referred to herein or delivered pursuant hereto, contains the entire
understanding of the parties with respect to its subject matter and supersedes
all prior agreements and understandings between the parties with respect to its
subject matter including, without limitation, the letter of intent among the
parties dated February 15, 2000.
59
SECTION 11.5 MODIFICATION. This Agreement may not be altered, modified or
amended unless such alteration, modification or amendment is in writing and
signed by the parties to this Agreement nor may this Agreement be terminated
except by a writing signed by the parties to this Agreement; and no waiver of
any breach of any condition, provision or term of this Agreement on any one
occasion shall be deemed to be a waiver of any subsequent breach of any
condition, provision or term of this Agreement on any other occasion whether of
like or different nature.
SECTION 11.6 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered in person, or by recognized overnight courier service
such as Federal Express, Airborne or DHL, or sent by registered or certified
mail, postage prepaid, return receipt requested, or sent by fax (if confirmed),
as follows: If to the Company:
Ford & Xxxxxx, Inc.
00 Xxxxxx Xxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Fax No. (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
If to the Shareholders:
Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxx Xxxxxx 00000
Copy in each case to:
Xxxxxx & Xxxxxxx, LLP
000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Fax No. (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxxxxx
60
If to the Purchaser or LVC:
c/o Xxxxxxx Xxxxxx Corporation
Xxx Xxxxxx Xxxx
Xxx, Xxx Xxxx 00000-0000
Fax No. (000) 000-0000
Attention: Chief Executive Officer
Copy in each case to: .....
Salon, Marrow, Xxxxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax No. (000) 000-0000
Attention: Xxxx Salon, Esq.
Any such notice, report, claim, demand or other communication shall be effective
upon delivery if given or delivered in person or by overnight courier service,
or upon receipt if sent by fax which is confirmed by regular mail, or on the
third business day following mailing if mailed as provided above. Failure to
accept a notice shall not invalidate the same. Any party may change its address
for purposes hereof by written notice in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
SECTION 11.7 LAW GOVERNING.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York for agreements entered into
and to be performed entirely within the State of New York, without regard to its
conflict of laws rules.
SECTION 11.8 INTERPRETATION AND CONSTRUCTION.
(a) The captions set forth in this Agreement, and the titles set forth in
the Schedules attached hereto, are for convenience only and shall not be
considered as part of this Agreement or the Schedules, respectively, or as in
any way limiting or amplifying the terms and provisions hereof or thereof.
(b) This Agreement shall be construed according to its fair meaning as if
prepared jointly by the parties hereto.
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(c) Each section, subsection and lesser section of this Agreement
constitutes a separate and distinct undertaking, covenant and/or provision
hereof.
(d) If any provision of this Agreement is held invalid, such invalidity
shall not affect the other provisions hereof which can be given effect without
the invalid provisions, and, to this end, the provisions of this Agreement are
intended and shall be deemed severable. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereby waive any provision of law which renders
any provision of this Agreement prohibited or unenforceable in any way. In the
event any such provision is found to be unlawful or otherwise unenforceable, the
parties hereto agree to negotiate in good faith to modify the void or
unenforceable provision, but only to the extent necessary to make such provision
valid and enforceable having full regard for all applicable laws and the
interests and purposes of the parties in entering into this Agreement.
(e) This Agreement may be executed in counterparts and by fax, each of
which shall be deemed an original, and all of which shall constitute but one and
the same instrument which may be sufficiently evidenced by one counterpart.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the undersigned on the date first above written.
RUE DE FRANCE, INC.
By:_________________________________
Xxxxxx X. Xxxxxx, President
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RDF ACQUISITION CORP.
By:_________________________________
Xxxxx X. Xxxxx, President
XXXXXXX XXXXXX CORPORATION
By:_________________________________
Xxxxxxx Xxxxxx, CEO
____________________________________
Xxxxxx X. Xxxxxx
____________________________________
Xxxxxxx X. Xxxxxx
As to Section 3.6 only:
CAPTAIN XXXX ASSOCIATES
By:_________________________________
Xxxxxx X. Xxxxxx, General Partner
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SCHEDULE 1 -- INDEX OF DEFINED TERMS
DEFINITION LOCATION
---------- --------
"Actual Payments" Section 3.3(a)
"Affiliate" Section 3.1(a)
"affiliated service group" Section 4.18(a)(4)
"Agreement" Preamble
"Assumed Contracts" Section 1.2
"Assumed Contractual Liabilities" Section 1.2(a)
"Assumed Liabilities" Section 1.2(a)
"Benefit Arrangement" Section 4.18(a)(1)
"Best Knowledge of the Shareholders" Section 4.6
"Claim" Section 10.7(a)
"Closing" Section 2.1
"Closing Date" Section 1.1
"Closing Net Worth" Section 1.3(a)
"Closing Net Worth Statement" Section 1.3(a)
"Closing Net Worth Statement Date" Section 1.3(a)
"Code" Section 4.18(a)
"Company" Preamble
"Company's Accountants" Section 1.3(a)
"Confidential Information" Section 3.1(a)
"Contingent Portion of the Purchase Price" Section 1.2(a)
"Contingent Purchase Price Payments" Section 1.5(d)
"December 31, 1999 Balance Sheet" Section 4.5(a)
"Default Liabilities" Section 1.2(a)
"Disputed Item" Section 1.3(b)
"Earn Out Period" Section 1.5(a)
"EBT" Section 1.5(a)
"EBT Year" Section 1.5(a)
"employee pension benefit plan" Section 4.18(a)(7)
"Employee Plans" Section 4.18(a)(2)
"employee welfare benefit plan" Section 4.18(a)(8)
"Employment Agreement" Section 3.4
"Environmental Claims" Section 10.3(c)
"Environmental Laws" Section 4.24(a)(2)
"Environmental Permits" Section 4.24(a)(3)
"Environmental Proceedings" Section 4.24(a)(1)
"Environmental Response Costs" Section 10.3
"ERISA" Section 4.18(a)(3)
"ERISA Affiliate" Section 4.18(a)(4)
"Excluded Assets" Section 1.1
"FICA" Section 3.8
"Final Closing Net Worth" Section 1.3(b)
"Final Closing Net Worth Statement" Section 1.3(b)
"Final Payroll" Section 1.2(c)
"Financial Statements" Section 4.5
"Fixed Portion of the Purchase Price" Section 1.2(a)
"Funded Debt" Section 1.2(b)
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SCHEDULE 1 (CONT'D.)
DEFINITION . LOCATION
---------- --------
"FUTA" Section 3.8
"Gap Liabilities" Section 1.2(a)
"Hazardous Substances" Section 4.24(a)(4)
"Indemnified Party" Section 10.7(a)
"Indemnifying Party" Section 10.7(a)
"Knowledge of the Shareholders" Section 4.6
"LLC Section 3.10
"Laws" Section 4.23(a)
"Lease Agreement" Section 3.6
"Material Adverse Effect" Section 4.14(a)
"Material Contracts" Section 4.20(a)
"multiemployer plan" Section 4.18(a)(5)
"Net Worth" Section 1.3(a)
"New Business Initiatives" Section 1.5(c)
"Xxxxxx" Section 3.10
"PBGC" Section 4.18(a)(6)
"Pension Plan" Section 4.18(a)(7)
"Predecessor Employer" Section 3.8
"Proprietary Rights Assignments" Section 3.5
"Projected EBT" Section 1.5(a)
"Purchase Price Holdback" Section 1.3(c)
"Purchased Assets" Section 1.1
"Purchaser" Preamble
"Purchaser Claims" Section 10.3(a)
"Purchaser Group" Section 10.3(a)
"PWC" Section 1.3(a)
"Related Instruments" Section 5.1
"Restricted Period" Section 3.1(b)
"Restricted Products" Section 3.1(b)
"Restrictive Covenant Allocation" Section 3.2(a)(ii)
"Right of First Refusal Agreement" Section 3.9
"Shareholder Claims" Section 10.5
"Shareholder Group" Section 10.5
"Shareholders" Preamble
"Software" Section 4.12
"Statement Accounts" Section 3.3(a)
"Successor Employer" Section 3.8
"Tax Returns" Section 4.8(c)
"Taxes" Section 4.8(c)
"Third Party Claims" Section 10.4(d)
"Transferred Employees" Section 3.8
"Unassumed Liabilities" Section 1.2(b)
"voluntary employee' beneficiary association" Section 4.18(a)(1)
"Welfare Plan" Section 4.18(a)(8)
65
