EXHIBIT 99.3
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ASSET PURCHASE AGREEMENT
BY AND BETWEEN
STROUDS, INC., DEBTOR AND
DEBTOR-IN-POSSESSION
AS THE SELLER
AND
STROUDS ACQUISITION CORPORATION
AS THE PURCHASER
DATED AS OF MARCH 27, 2001
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TABLE OF CONTENTS
PAGE(S)
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ARTICLE I PURCHASE AND SALE OF ASSETS........................................................1
SECTION 1.01. ACQUIRED ASSETS........................................................1
SECTION 1.02. CURE COSTS.............................................................3
SECTION 1.03. ASSUMED LIABILITIES....................................................3
SECTION 1.04. EXCLUDED LIABILITIES...................................................4
SECTION 1.05. PURCHASE PRICE.........................................................5
SECTION 1.06. GOOD FAITH DEPOSIT.....................................................5
SECTION 1.07 INVENTORY COUNT........................................................6
SECTION 1.08 RELEASE................................................................6
ARTICLE II THE CLOSING ......................................................................7
SECTION 2.01. CLOSING................................................................7
SECTION 2.02. DELIVERIES AT CLOSING..................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................................8
SECTION 3.01. ORGANIZATION...........................................................9
SECTION 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT...................................9
SECTION 3.03. FINANCIAL STATEMENTS...................................................9
SECTION 3.04. CERTAIN ASSETS.........................................................9
SECTION 3.05. BROKERS...............................................................10
SECTION 3.06. INTELLECTUAL PROPERTY.................................................10
SECTION 3.07. ABSENCE OF CERTAIN CHANGES............................................10
SECTION 3.08. LITIGATION AND PROCEEDINGS............................................10
SECTION 3.09. COMPLIANCE WITH LAWS AND COURT ORDERS.................................10
SECTION 3.10. ENVIRONMENTAL COMPLIANCE..............................................11
SECTION 3.11. CONDUCT OF ACTIVITIES.................................................11
SECTION 3.12. AS-IS/WHERE-IS SALE...................................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................................11
SECTION 4.01. ORGANIZATION..........................................................11
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT..................................11
SECTION 4.03. CONSENTS AND APPROVALS................................................12
SECTION 4.04. NO VIOLATIONS.........................................................12
SECTION 4.05. BROKERS...............................................................12
SECTION 4.06. FINANCING.............................................................12
SECTION 4.07. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................13
ARTICLE V COVENANTS.........................................................................13
SECTION 5.01. ACCESS AND INFORMATION................................................13
SECTION 5.02. BOOKS AND RECORDS.....................................................13
SECTION 5.03. ADDITIONAL MATTERS....................................................14
SECTION 5.04. FURTHER ASSURANCES....................................................14
SECTION 5.05. EMPLOYEES AND BENEFIT PROGRAMS........................................14
SECTION 5.06. PUBLIC ANNOUNCEMENTS..................................................19
SECTION 5.07. CONDUCT OF THE BUSINESS...............................................19
SECTION 5.08. NOTICES OF CERTAIN EVENTS.............................................20
SECTION 5.09. COMPETING TRANSACTION.................................................20
SECTION 5.10. BANKRUPTCY COURT APPROVAL OF BIDDING PROCEDURES ORDER.................20
SECTION 5.11. NAME CHANGES..........................................................21
SECTION 5.12. PERMITS...............................................................21
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SECTION 5.13. STATE ENVIRONMENTAL TRANSFER STATUTES.................................21
SECTION 5.14. BIDDING PROCEDURES....................................................21
ARTICLE VI CONDITIONS PRECEDENT.............................................................21
SECTION 6.01. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE PURCHASER...21
SECTION 6.02. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER.....................22
SECTION 6.03. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER..................22
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...............................................22
SECTION 7.01. TERMINATION...........................................................23
SECTION 7.02. EFFECT OF TERMINATION.................................................24
ARTICLE VIII GENERAL PROVISIONS.............................................................24
SECTION 8.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS...............24
SECTION 8.02. TRANSFER TAXES........................................................24
SECTION 8.03. NOTICES...............................................................24
SECTION 8.04. DESCRIPTIVE HEADINGS; CERTAIN TERMS...................................26
SECTION 8.05. ENTIRE AGREEMENT, ASSIGNMENT..........................................26
SECTION 8.06. GOVERNING LAW.........................................................26
SECTION 8.07. EXPENSES..............................................................26
SECTION 8.08. AMENDMENT.............................................................26
SECTION 8.09. WAIVER................................................................26
SECTION 8.10. COUNTERPARTS; EFFECTIVENESS; AUTHORITY................................27
SECTION 8.13. BULK SALES............................................................27
ARTICLE IX DEFINITIONS......................................................................27
SECTION 9.01. DEFINED TERMS.........................................................27
ARTICLE X TAX MATTERS.......................................................................31
SECTION 10.01. TAX DEFINITIONS.......................................................31
SECTION 10.02. TAX MATTERS...........................................................32
SECTION 10.03. TAX COOPERATION.......................................................32
SCHEDULES
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Schedule 1.01(a)(vii) Assigned Agreements
Schedule 2.02 Prepaid Advertising
Schedule 3.04(a) Acquired Locations
Schedule 3.06(a) Intellectual Property
Schedule 3.06(b) Intellectual Property Related Claims or Lawsuits
Schedule 3.08 Legal Actions, Suits and Proceedings Pending Against Seller
Schedule 4.06 Financing Commitments
Schedule 5.05(a) Non-Retained Employees
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Schedule 5.05(b)(i) Employee Plans and Benefit Arrangements
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of March 27, 2001 (this
"Agreement"), is made by and between Strouds, Inc., Debtor and
Debtor-In-Possession, a Delaware corporation (the "Seller"), and Strouds
Acquisition Corporation, a Delaware corporation (the "Purchaser").
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Article IX, Article X or Section 5.05, as applicable.
WHEREAS, the Seller is engaged in the business of developing,
marketing and selling fashion bedding and other high quality home textiles
(collectively, the "Business");
WHEREAS, the Seller sought relief under Chapter 11 of Title 11 of
the United States Code (the "Bankruptcy Code") by filing Case No. 00-3552
(the "Chapter 11 Case") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court");
WHEREAS, the Purchaser desires to purchase substantially all of the
assets of the Seller related to the Business and assume certain liabilities
from the Seller, and the Seller desires to sell, convey, assign and transfer
to the Purchaser, substantially all of the assets and properties related to
the Business, together with certain obligations and liabilities relating
thereto, all in the manner and subject to the terms and conditions set forth
herein and in accordance with Sections 363 and 365 and other applicable
provisions of the Bankruptcy Code; and
WHEREAS, the Acquired Assets will be sold pursuant to an order of
the Bankruptcy Court approving such sale under Section 363 of the Bankruptcy
Code, and such sale will include the assumption and assignment of certain
executory contracts and unexpired leases and liabilities thereunder under
Section 365 of the Bankruptcy Code and the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.01. ACQUIRED ASSETS.
(a) Pursuant to Sections 363 and 365 of the Bankruptcy Code and
on the terms and subject to the conditions precedent set forth in Article VI
of this Agreement, at the Closing the Seller shall sell, assign, transfer,
convey, and deliver to the Purchaser, and the Purchaser shall purchase for
the aggregate Purchase Price and accept from the Seller, all of the Seller's
rights, title, and interests in, to and under all of the following assets,
property, rights and claims of the Seller related to the Business, wherever
located, real, personal or mixed, whether tangible or intangible, owned, held
or used in the conduct of the Business by the Seller as the same shall
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exist on the Closing Date, free and clear of all liens, claims, encumbrances
and other interests in property (collectively, the "Acquired Assets"):
(i) the Inventory located at the corporate
headquarters, fifty (50) stores and two (2) distribution centers, as
identified on Schedule 3.04(a) (the "Acquired Locations");
(ii) all furniture, fixtures, machinery, equipment and
supplies of Seller as of the Closing Date, as identified on a Schedule to be
provided to Purchaser by Seller on or before Closing;
(iii) all computers, software, and related property
associated with the operation of the Acquired Locations and the Business;
(iv) all of the Seller's leasehold and/or subleasehold
interests in the Acquired Locations;
(v) all customer and supplier lists and all other
information as to sources of supply and relationships with suppliers and
customers, including all databases containing such information, that pertain
to or are necessary to operate the Business (including the Business prior to
the commencing of the Bankruptcy Case);
(vi) copies of books and records, correspondence,
employment records, files and computer programs and data and databases
relating to the Business (including the Business prior to the commencing of
the Bankruptcy Case) reasonably required by the Purchaser;
(vii) the executory contracts identified in Schedule
1.01(a)(vii) (the "Assigned Agreements");
(viii) all rights, title and interest in, to and under
all Intellectual Property, in each case owned or licensed by the Seller and
used or held or held for use in the Business, including the items identified
in Schedule 3.06(a); and
(ix) all Prepaid Advertising.
(b) All assets that are not Acquired Assets are excluded from
the sale and shall be retained by the Seller (the "Excluded Assets"). Such
Excluded Assets include the following:
(i) trade and other accounts receivable, notes
receivable and other rights to payment of money, including collections on
employee advances and security deposits;
(ii) that certain Split-Dollar Insurance Agreement
dated June 3, 1993 between the Seller and Xxxx Xxxxxx, as trustee of the
Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxx Irrevocable Insurance Trust Agreement
dated October 24, 1991, as amended, and any and all other documents relating
thereto and rights and interests arising thereunder;
(iii) any of the rights of the Seller under this
Agreement;
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(iv) any rights of the Seller's bankruptcy estate under
the Bankruptcy Code, but excluding any rights in, to, or relating to any of
the Acquired Assets;
(v) any and all claims for damages against
third-parties arising on or before the Closing Date, except for claims in,
to, or relating to the Assigned Agreements;
(vii) any contracts, agreements, instruments or licenses
that are not Assigned Agreements or Acquired Locations, except that if the
Purchaser becomes aware of a contract, agreement, instrument or license of
the Seller after March 27, 2001, but before the Closing Date, that was not
previously disclosed to it and as to which the Seller was party, the
Purchaser shall in its discretion have the right to request to the Seller to
assume and have such contract assigned to it and any cure costs associated
therewith shall be paid equally by the Seller and the Purchaser up to a
maximum of $25,000, and any cure costs in excess of such amount shall be
borne solely by the Purchaser;
(viii) the corporate charter, taxpayer and other
identification numbers, seals, minute books, stock transfer books and other
documents relating to the organization and existence of the Seller;
(ix) the Seller's director and officer liability
insurance, including any and all rights relating to and arising thereunder;
and
(x) cash and cash equivalents.
Section 1.02. CURE COSTS. The Seller shall pay or otherwise
discharge necessary costs of cure to achieve assumption and assignment of the
Assigned Agreements and the Acquired Locations (the "Cure Costs"), which Cure
Costs are set forth in Schedules 3.04(a) and 1.01(a)(vii). All Cure Costs
will be agreed upon by the Seller and each party entitled to receipt of a
cure payment, or will be determined by the Bankruptcy Court, in accordance
with the Sale Order or such other order approving the assumption and
assignment of an executory contract or unexpired lease pursuant to Section
1.01(a)(vii). All Cure Costs allowed by the Bankruptcy Court shall be paid by
the Seller, except as otherwise provided herein; PROVIDED, HOWEVER, that the
Seller shall not be liable for any cure amounts arising after April 30, 2001
with respect to the Acquired Locations.
Section 1.03. ASSUMED LIABILITIES. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Purchaser shall
assume from the Seller and thereafter pay, perform or discharge in accordance
with their terms the following liabilities (the "Assumed Liabilities"):
(a) all of the Seller's ordinary course obligations for goods
and/or services relating to or arising from the Acquired Assets, the Assigned
Agreements and/or the Business on or after the Closing Date;
(b) all of the obligations and liabilities arising under and
related to the Assigned Agreements on or after the Closing Date;
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(c) all of the obligations and liabilities, including, without
limitation, all rent, common area maintenance, taxes and other expenses,
arising under and related to the Acquired Locations after the earlier of: (i)
the Closing Date or (ii) April 30, 2001;
(d) all liabilities and obligations arising under Environmental
Laws in connection with any Acquired Locations (provided that the Purchaser
shall not assume any liabilities and obligations arising out of or relating
to (i) transportation of, arrangement for transportation of, disposal or
arrangement for disposal of, Hazardous Substances or other materials prior to
the Closing Date at any location included in the Acquired Assets; or (ii) any
property or facility owned, leased or operated prior to the Closing Date by
the Seller or otherwise relating to the operation of the Business that is not
included in the Acquired Assets);
(e) any obligation or liability for sales, use and other Taxes
attributable to the period beginning on or after the Closing Date,
(f) all obligations and liabilities relating to advertising
that arise after the earlier of: (i) the Closing Date or (ii) April 30, 2001;
PROVIDED, HOWEVER, that the Purchaser also shall be responsible for
reimbursing the Seller, in an amount not to exceed $500,000, for Prepaid
Advertising that arises from book dates on or after May 15, 2001;
(g) the liabilities and obligations that the Purchaser agrees
to perform or assume in Section 5.05;
(h) the Seller's actual post-petition accounts payable to trade
vendors or other post-petition obligations, in an amount equal to three
million dollars ($3,000,000); provided that the Purchaser shall provide the
Seller an accounting of all amounts paid on account of such assumed
obligations by no later than thirty (30) days after the Closing, which
accounting shall be updated and provided to the Seller every fourteen (14)
days thereafter until the assumed obligations are paid in full;
(i) all Employment Related Obligations in an amount not to
exceed one million one hundred thousand dollars ($1,100,000), in accordance
with a Schedule to be provided at or prior to the Closing; and
(j) the Seller's liabilities for Gift Certificates and
Merchandise Credits outstanding prior to the Closing Date, not to exceed one
million four hundred thousand dollars ($1,400,000) in the aggregate, in
accordance with a Schedule to be provided at or prior to the Closing.
Section 1.04. EXCLUDED LIABILITIES. The Purchaser shall not assume
or otherwise become responsible for, and the Seller shall remain liable for
any and all liabilities or obligations of the Seller that are not Assumed
Liabilities (collectively, the "Excluded Liabilities"). It is expressly
understood and agreed that the Parties intend that the Purchaser shall not be
considered a successor to the Seller by reason of any theory of law or equity
and that the Purchaser shall have no liability except as expressly provided
in this Agreement for any liability of the Seller. The Excluded Liabilities
shall include, without limitation, the following:
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(a) any liability or obligation under any Environmental Laws that
is not expressly designated as an Assumed Liability;
(b) any pre-Closing Date liability or obligation related to a
Retained Employee that is not expressly designated as an Assumed Liability;
(c) any liability or obligation for indebtedness for borrowed
money or evidenced by bonds or notes (including accrued interest and fees with
respect thereto) except as set forth herein;
(d) except as otherwise set forth in this Agreement, any
liability or obligation for (i) any Tax imposed by the Code, (ii) any
foreign, state or local income or franchise Tax, and (iii) any Tax as a
result of having been a member of an affiliated, consolidated, combined or
unitary group; and
(e) any liability or obligation relating to an Excluded Asset.
Section 1.05. PURCHASE PRICE.
(a) In consideration for the Acquired Assets, the Purchaser
shall pay to the Seller at the Closing an aggregate purchase price in cash,
promissory notes and assumption of liabilities as set forth herein (the
"Purchase Price") less the Good Faith Deposit and any interest credited
thereon, by wire transfer of immediately available funds or by delivery of
promissory notes and instruments of assumption. The Purchase Price shall be
paid as provided in Section 2.02(b) and shall be subject to post-closing
adjustment as provided in Section 1.07.
(b) The Purchase Price (plus Assumed Liabilities to the extent
properly taken into account under Section 1060 of the Code) shall be
allocated among the Acquired Assets acquired by the Purchaser as agreed upon
by the Purchaser and the Seller within 30 days after the Closing. The
Purchaser and the Seller agree to be bound by such allocation, to prepare all
financial statements and to file, according to Section 1060 of the Code, all
returns and reports with respect to the transactions contemplated by this
Agreement, including, but not limited to, all federal, state and local Tax
Returns on the basis of such allocation. If an adjustment is made with
respect to the Purchase Price pursuant to Section 1.07, the allocation shall
be adjusted in accordance with Section 1060 of the Code and as agreed by the
Purchaser and the Seller. The Purchaser and the Seller agree to file any
additional information return required to be filed pursuant to Section 1060
of the Code and to treat the adjusted allocation in the manner described
above.
Section 1.06. GOOD FAITH DEPOSIT. Within 24 hours of the execution
and delivery of this Agreement, the Purchaser shall deliver to the account or
accounts designated by the Seller a wire transfer in the amount of $250,000
(the "Good Faith Deposit"). The Good Faith Deposit will be held in escrow by
Chicago Title and Trust Co. (the "Escrow Agent") subject to the terms and
conditions of a customary escrow agreement mutually acceptable to the Seller
and the Purchaser. The cost of such Escrow Agent shall be borne equally by
Purchaser and Seller. The Good Faith Deposit shall be fully refundable to the
Purchaser unless the failure to close is a result of a breach of this
Agreement by the Purchaser.
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Section 1.07 INVENTORY COUNT.
(a) As promptly as practicable but no later than May 15, 2001,
Washington Inventory Service, RGIS Inventory Specialists or another
independent third party inventory firm acceptable to both parties hereto
shall perform a physical count of Inventory (the "Inventory Count"). The cost
of such Inventory Count shall be borne equally by the Seller and the
Purchaser. The Inventory Count shall be conclusive and binding upon the
Seller and the Purchaser.
(b) The Purchaser and the Seller agree that they will, and
agree to cause their respective employees to use reasonable efforts to
cooperate and assist in the Inventory Count, including without limitation,
making available their books, records, work papers and personnel. The Seller
shall be entitled to use the Retained Employees, and the Purchaser and the
Seller shall be entitled to review and have access to the books, records,
work papers and personnel relating to the Business, in connection with the
performance of the Inventory Count. The Inventory shall be reconciled to the
Closing Date by the Purchaser and reviewed and reasonably approved by the
Seller. The Purchaser shall provide the Seller with full reasonable access,
at no cost to the Seller, to any and all documents, personnel or other
information necessary to permit the Seller to review and approve such
reconciliation. In the event that the Purchaser or the Seller disputes the
inventory reconciliation, then KPMG or any other independent third-party
mutually acceptable to both parties, will be retained to verify the
reconciliation (the "Inventory Verification"). The cost of such Inventory
Verification shall be borne equally by the Purchaser and the Seller. The
Bankruptcy Court shall retain jurisdiction to hear any disputes arising from
or related to the Inventory Count or Inventory Verification.
(c) At or prior to the Closing Date, the Purchaser and the
Seller agree that they will use their best efforts to identify all prepaid
and other expenses of the Business that are paid or come due from time to
time, such as real property Taxes, insurance and other obligations
(collectively, the "Pro Rated Obligations") related to the Acquired Assets.
As to all such Pro Rated Obligations, the parties agree that any amounts
prepaid prior to the Closing that relate to post-Closing periods shall be
credited to the Seller and any amounts due or payable post-Closing that
relate to periods prior to the Closing shall be credited to the Purchaser.
All Pro Rated Obligations shall be accounted for at the Closing, and any
amounts due and owing by either party to the other relating to Pro Rated
Obligations shall be offset against or added to the cash Purchase Price at
the Closing.
Section 1.08 RELEASE. On the Closing Date, the Purchaser shall
release the Seller's current officers, directors and shareholders and
Retained Employees, excluding Xxx Xxxxxx and Xxxx Xxx Xxxxxx, from any and
all claims, actions, causes of action and liabilities of any type related to
actions taken or omitted by such persons in such capacities (whether known or
unknown, whether disputed or undisputed, whether fixed or contingent, whether
liquidated or unliquidated) (collectively, "Claims") other than Claims for
intentional misstatements or intentional omissions of material fact related
solely to this Agreement or the transactions contemplated hereby; PROVIDED,
HOWEVER, that such Claims for intentional misstatements or intentional
omissions of material fact shall be brought by the Purchaser solely against
the Seller and not any of its officers or directors. Notwithstanding anything
to the contrary contained in this Section 1.08, the Purchaser shall release
the Seller from liability for any and all Claims, including Claims relating
to intentional misstatements and/or intentional omissions of material
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fact, arising from or relating to the conduct of Xxxx Xxx Xxxxxx and Xxx
Xxxxxx. Nothing herein shall release the Seller from any claims that the
Purchaser may have against the Seller for a breach of this Agreement or the
transactions contemplated hereby. The Purchaser shall not file a claim in the
Chapter 11 Case prior to the bar date order, except for such claims arising
from the Seller's breach of this Agreement or the transactions contemplated
thereby.
ARTICLE II
THE CLOSING
Section 2.01. CLOSING. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of the Purchaser at 0000 Xxxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx
00000 at 10:00 a.m. within twelve (12) business days after an order approving
the consummation of this Agreement is approved by the Bankruptcy Court, but
in any event no later than April 30, 2001 (the date of the Closing being
herein referred to as the "Closing Date").
Section 2.02. DELIVERIES AT CLOSING.
(a) At the Closing, the Seller shall deliver to the Purchaser
(1) such deeds, bills of sale, assignments of leases and contracts, and any
other instruments of conveyance (collectively, the "Conveyance Documents")
that are necessary or appropriate to effectuate the transfer of the Acquired
Assets to the Purchaser, and (2) such other documents, instruments or
certificates as the Purchaser or its counsel may reasonably request.
(b) At the Closing, the Purchaser shall deliver to the Seller
(1) such duly executed instruments as are deemed necessary or appropriate to
effectuate the assumption of the Assumed Liabilities by the Purchaser; (2)
such other documents, instruments or certificates required to be delivered as
a condition precedent to the Seller's obligations under this Agreement, or as
the Seller or their counsel may reasonably request; and (3) the Purchase
Price in the form of:
(i) Cash in the amount equal to the sum of (x) 37% of
the retail value of the Inventory based on the Inventory stock ledger, less a
holdback for inventory adjustments that may be required by the Inventory
Count of $1,000,000, and less the retail value of Inventory described in
clause (y) that follows, and (y) 27% of the retail value of the Inventory
that appears on the Inventory stock ledger in excess of six million dollars
($6,000,000) that was purchased more than 12 months prior to the Closing
Date. The $1,000,000 holdback for inventory adjustments will be placed in an
escrow account with the Escrow Agent by the Purchaser at the Closing, which
escrow account shall be subject to the terms and conditions of a customary
escrow agreement mutually acceptable to the Seller and the Purchaser ;
(ii) $3,000,000 through assumption by the Purchaser of
the Seller's post -petition accounts payable to trade vendors or other
post-petition obligations;
(iii) assumption by the Purchaser of Employment Related
Obligations in an amount not exceeding $1,100,000;
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(iv) assumption by the Purchaser of the Seller's
liabilities for Gift Certificates and Merchandise Credits in an amount not
exceeding $1,400,000;
(v) payment in cash from the Purchaser to the Seller
in an amount not to exceed $500,000 reimbursing the Seller for Prepaid
Advertising arising from or relating to book dates on or after May 15, 2001,
as identified in Schedule 2.02;
(vi) $ 2,000,000 paid in cash, as adjusted for
Pro-Rated Obligations arising under the Assigned Agreement and Acquired
Locations (as provided in Section 1.07 herein), and reduced by (i) the Good
Faith Deposit and any interest earned thereon; and (ii) the Advanced Payment
as defined in Section 2.02(c); and
(vii) $2,000,000 to be paid in the form of a Note
payable in four equal installments of $500,000 each on the 90th day, 180th
day, 270th day and 360th day, respectively, from the Closing Date.
(c) On request of the Seller, One Million Dollars ($1,000,000)
(the "Advanced Payment") will be advanced by the Purchaser to CIT Group/
Business Credit, Inc. ("CIT") on behalf of the Seller to be credited by CIT
as a payment of the Seller's pre-petition working capital credit facility on
or after the date the Sale Order is approved by the Bankruptcy Court. The
Advanced Payment shall, upon such application by CIT, be credited to the
Purchase Price at Closing; PROVIDED, HOWEVER, THAT in the event the Closing
does not occur, the Advanced Payment will be treated as a priority loan and
shall promptly be repaid by the Seller on demand of the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Purchaser specifically acknowledges and agrees to the
following with respect to the representations and warranties of the Seller:
A. The Purchaser will not have any recourse to the
Seller or to any of the officers or directors of the Seller in the event any
of the representations and warranties made herein or deemed made are untrue
as at any time of expression thereof. The only remedy for breach of such
representations and warranties shall be the Purchaser's option, under certain
circumstances, not to close in accordance with and subject to the limitations
in Section 7.01(iii) hereof and, without limiting the foregoing, the
Purchaser shall have no remedy whatsoever for any such breach after the
Closing.
B. The Purchaser has conducted its own due diligence
investigations of the Business and has waived its right to conduct such due
diligence.
C. If information provided in any Section of the
schedule annexed hereto and made a part hereof (which schedule contains
appropriate references to identify the representations and warranties herein
to which the information in such schedule relates) (the "SELLER DISCLOSURE
SCHEDULE") is applicable to any other Sections, then such information shall
be deemed to have been provided with respect to all such Sections.
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The Seller represents and warrants to the Purchaser as follows:
Section 3.01. ORGANIZATION. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority
to own, lease and operate its properties and to carry on its business, and is
in good standing, in each jurisdiction where the operations of the Business
require such qualification, except where the failure to have such authority
or approvals or to be so qualified would not individually or in the aggregate
have a Material Adverse Effect.
Section 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has
the corporate power and authority to enter into this Agreement and to carry
out its obligations hereunder. The execution, delivery and performance of
this Agreement by the Seller and the consummation by the Seller of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action. This Agreement has been duly and validly executed and
delivered by the Seller and (assuming this Agreement constitutes a valid and
binding obligation of the Purchaser), will constitute a valid and binding
obligation of the Seller upon the entry of the Sale Order, except for the
provisions of Section 7.02 hereof which shall become the binding obligation
of the Seller upon the entry of the Bidding Procedures Order.
Section 3.03. FINANCIAL STATEMENTS. The Seller will deliver on or
before the Closing Date to the Purchaser unaudited financial statements (the
"Financial Statements") for the fiscal year ended March 3, 2001. To the best
of the Seller's knowledge, the Financial Statements fairly present in all
material respects the financial condition, cash flows, changes in
stockholders equity and results of operation of the Business as at the dates
thereof and for the period then ending applied on a basis consistent with the
Audited Financial Statements and in accordance with GAAP (excluding any
required footnote disclosure). The Seller has not adopted any new accounting
policies or procedures since the date of the Audited Financial Statements
except as required by GAAP.
Section 3.04. CERTAIN ASSETS.
(a) The Seller has a valid leasehold or subleasehold interest
in the Acquired Locations designated on Schedule 3.04(a) as being leased or
subleased by the Seller. The Seller has good and valid title to, or a valid
leasehold or subleasehold interest in, all material tangible personal
property included in the Acquired Assets.
(b) Except as described in Schedule 3.04(a), as of Closing, to
the knowledge of the Seller, there does not exist under any lease or sublease
governing the Acquired Locations any default in payment of rent or occupancy
charges other than monetary defaults that will be cured pursuant to Section
1.02 of this Agreement. The Seller will use reasonable efforts to exercise
options to renew or extend the leases that govern the Acquired Locations,
which options otherwise by their own terms would have expired prior to the
Closing Date, on terms acceptable to the Seller, including waiver by the
parties to such leases of claims that may arise from the exercise of such
option to renew or extend.
9
(c) At the Closing, the Purchaser will have acquired title in
and to, or a valid leasehold or subleasehold interest in, as applicable, each
of the Acquired Assets, free and clear of all Liens other than Liens related
to the Assumed Liabilities and Permitted Exceptions.
Section 3.05. BROKERS. No person is entitled to any brokerage,
financial advisory or finder's fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Seller that would be payable by the Seller.
Section 3.06. INTELLECTUAL PROPERTY.
(a) Schedule 3.06(a) of this Agreement contains a complete and
accurate list of all U.S. and foreign registered trademarks, patents,
registered Internet domain names, and copyrights owned or licensed by the
Seller as of the date hereof and used in the Business (the "Business
Intellectual Property").
(b) Except as set forth on Schedule 3.06(b), as of the date
hereof, the Seller has not been a defendant in any action, suit or proceeding
relating to, and has not received any written claim alleging that the Seller
is infringing upon, the Intellectual Property of others. Except as set forth
on Schedule 3.06(b), to the Seller's knowledge, no other Person is infringing
upon any Business Intellectual Property and the Seller is not infringing upon
the Intellectual Property of any other Person except in each case as would
not have a Material Adverse Effect. Except as otherwise set forth herein, no
Business Intellectual Property is subject to any outstanding judgment,
injunction, order, decree or agreement restricting the use thereof by the
Seller with respect to the Business or restricting the licensing thereof by
the Seller to any Person.
Section 3.07. ABSENCE OF CERTAIN CHANGES(a) . Pending the hearing on
the approval of the sale to the Purchaser, there shall be no Material Adverse
Effect.
Section 3.08. LITIGATION AND PROCEEDINGS. To the knowledge of the
Seller, Schedule 3.08 contains an accurate list of all legal actions, suits
and proceedings pending as of the date hereof against the Seller, whether or
not stayed pursuant to Section 362 of the Bankruptcy Code. Except as
described in Schedule 3.08, there is no action, suit, investigation or
proceeding pending against or to the knowledge of the Seller, threatened in
writing against or affecting the Business or any Acquired Asset before any
court or arbitrator or any government body, agency or official which (a)
could reasonably be expected to have individually or in the aggregate, a
Material Adverse Effect or (b) seeks to prevent, enjoin, or materially delay
the transactions contemplated by this Agreement. The Purchaser and the Seller
agree that such Schedule 3.08 may be amended or supplemented prior to the
Closing Date
Section 3.09. COMPLIANCE WITH LAWS AND COURT ORDERS. To the
knowledge of the Seller, the Business has since September 7, 2000 been
conducted in compliance with all laws, statutes, rules, regulations,
judgments, injunctions, orders or decrees applicable to the Acquired Assets
or the conduct of the Business and since September 7, 2000 the Seller has not
received any written communication from a government authority that alleges
that the Business has not been conducted in compliance with any laws,
statutes, rules, regulations, judgements, injunctions,
10
orders or decrees, except in each case for violations that have not had and
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
Section 3.10. ENVIRONMENTAL COMPLIANCE. To the knowledge of the
Seller, the Seller is in material compliance with all applicable
Environmental Laws and there are no liabilities arising in connection with or
relating to the Seller, the Business or the Acquired Assets of any kind
whatsoever, whether accrued, contingent, absolute, determinable or otherwise,
arising under or relating to any Environmental Laws; to the knowledge of the
Seller, the Seller has received no written notices of violations or demand
from any other person arising under such Environmental Laws and to the
knowledge of the Seller, there are no governmental investigations pending or
to the knowledge of the Seller, threatened regarding the Seller's compliance
with or liability under any Environmental Laws except in each case for
violations or demands which have been corrected or liability which has been
resolved; the Seller has all material Environmental Permits required under
Environmental Laws; and to the knowledge of the Seller, there are no
Hazardous Substances on the Acquired Locations which require any remediation
or cleanup under applicable Environmental Laws.
Section 3.11. CONDUCT OF ACTIVITIES. The Seller is a debtor in its
Chapter 11 Case.
Section 3.12. AS-IS/WHERE-IS SALE. The Seller makes no
representation or warranty with respect to the Acquired Assets, the Assumed
Liabilities or the Business express or implied, beyond those expressly made
in Article III, including any implied representation or warranty as to the
condition, merchantability, suitability or fitness for a particular purpose
of any of the Acquired Assets, and it is understood that, except for the
express representations and warranties of the Seller contained in this
Agreement, the Purchaser takes the Acquired Assets on an "as is" and "where
is" basis
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
Section 4.01. ORGANIZATION. The Purchaser is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry
on its business as it is now being conducted. The Purchaser is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease
or the nature of its activities make such qualification appropriate, except
where the failure to be so qualified would not individually or in the
aggregate have a material adverse effect on such Purchaser.
Section 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. The Purchaser
has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution, delivery, and performance
of this Agreement by the Purchaser and the consummation by the Purchaser of
the transactions contemplated hereby have been duly authorized by all
requisite corporate action. This Agreement has been duly and validly executed
and delivered by
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the Purchaser and (assuming this Agreement constitutes a valid and binding
obligation of the Seller) constitutes a valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except as enforceability against the Purchaser may be limited by applicable
bankruptcy, reorganization, fraudulent conveyance, conservatorship,
insolvency, moratorium, and other laws of similar application affecting
creditors' rights generally against the Purchaser from time to time in effect
and to general equitable principles and except for the provisions of Section
7.02 hereof which shall become the binding obligation of the Purchaser upon
the entry of the Bidding Procedures Order.
Section 4.03. CONSENTS AND APPROVALS. To the Purchaser's best
knowledge, no consent, approval, or authorization of, or declaration, filing
or registration with, any United States federal or state governmental or
regulatory authority is required to be made or obtained by the Purchaser in
connection with the execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby.
Section 4.04. NO VIOLATIONS. Assuming that the conditions set forth
in Article VI shall have been satisfied, neither the execution, delivery or
performances of this Agreement by the Purchaser, nor the consummation by the
Purchaser of the transactions contemplated hereby, nor compliance by the
Purchaser with any of the provisions hereof, will (a) conflict with or result
in any breach of any provisions of the certificate of incorporation or bylaws
of the Purchaser, (b) result in a violation or breach of, or constitute (with
or without due notice or lapse of time) a default (or give rise to any right
of termination, cancellation, acceleration, vesting, payment, exercise,
suspension, or revocation) under any of the terms, conditions or provisions
of any note, bond, mortgage, deed of trust, security interest, indenture,
license, contract, agreement, plan or other instrument or obligation to which
the Purchaser is a party or by which the Purchaser or its properties or
assets may be bound or affected, (c) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Purchaser or the
Purchaser's properties or assets, (d) result in the creation or imposition of
any encumbrance on any asset of any Purchaser, or (e) cause the suspension or
revocation of any permit, license, governmental authorization, consent or
approval necessary for the Purchaser to conduct its business as currently
conducted, except in the case of clauses (b), (c), (d), and (e) for
violations, breaches, defaults, terminations, cancellations, accelerations,
creations, impositions, suspensions or revocations that would not
individually or in the aggregate have a Material Adverse Effect on the
Purchaser's ability to complete the transactions contemplated by this
Agreement.
Section 4.05. BROKERS. No person is entitled to any brokerage,
financial advisory, finder's or similar fee or commission payable by the
Purchaser or the Seller in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Purchaser.
Section 4.06. FINANCING. Schedule 4.06 contains true, correct and
complete copies of a commitment letter from Fleet Retail Finance for the
aggregate amount of thirty five million dollars ($35,000,000) in senior bank
financing and a commitment letter from Xxxxxx Xxxxxxxxxx or entities he
controls for financing in the amount of eight million dollars ($8,000,000)
(collectively, the "Financing Commitment"). No Financing Commitment has been
modified,
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withdrawn or terminated as of the date hereof, and the Purchaser has no
reason to believe as of the date hereof that the Financing Commitment will
not lead to the financing as contemplated by the Financing Commitment.
Assuming the satisfaction or waiver of the conditions set forth in the
Financing Commitment, the Financing Commitment is sufficient to deliver the
Purchase Price to the Seller.
Section 4.07. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
representations and warranties of the Purchaser are materially true and
correct as of the date hereof and as of the Closing Date, and none of such
representations or warranties contain a misstatement of material fact, or
omit to state a material fact, necessary to make the statements therein,
taken as a whole in light of the circumstances in which they were made, not
misleading.
ARTICLE V
COVENANTS
Section 5.01. ACCESS AND INFORMATION. Upon the execution of this
Agreement, the Seller shall afford to the Purchaser and to the Purchaser's
financial advisors, legal counsel, accountants, consultants, financing
sources and other authorized representatives reasonable access during normal
business hours throughout the period prior to the Closing Date to the books,
records, properties and personnel that relate to the Business and, during
such period, shall furnish as promptly as practicable to the Purchaser any
and all such information as the Purchaser reasonably may request, including
all pleadings and other documents or schedules filed with the Bankruptcy
Court, provided that (a) such access does not unreasonably interfere with the
normal operations of the Seller or the Business, and (b) all requests for
information and access to the Seller's facilities, and all proposed contracts
with the Seller's personnel shall be approved in advance (which approval
shall not unreasonably be withheld) by its interim Chief Executive Officer or
its Board of Directors.
Section 5.02. BOOKS AND RECORDS.
(a) At the Closing, the Seller shall deliver to the Purchaser
only the corporate books, records and files now on the premises of the
corporate headquarters of the Seller (the "Business Records"). From the
Closing Date up until twelve (12) months following (i) the confirmation of a
Chapter 11 plan or (ii) the conversion of the Chapter 11 Case to a Chapter 7
case, if the Purchaser wishes to dispose of or destroy any of the Business
Records which are transferred to the Purchaser pursuant to this Agreement and
the Seller does not reasonably need such Business Records in order to
complete the orderly liquidation of all assets of the Seller other than the
Acquired Assets, it shall first give sixty (60) days' prior written notice to
the Seller, and the Seller shall have the right, at its expense, upon prior
written notice to the Purchaser within such 60-day period, to take possession
of such records and files within ninety (90) days after the date of the
notice from the Seller.
(b) From the Closing Date up until twelve (12) months following
(i) the confirmation of a Chapter 11 plan or (ii) the conversion of the
Chapter 11 Case to a Chapter 7 case, the Purchaser shall allow the Seller and
any of its directors, officers, employees, counsel, financial advisors,
representatives, accountants and auditors (collectively, the "Seller's
Representatives")
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access to all books and records of the Seller or the Business that are
transferred to the Purchaser in connection herewith, including any of the
Business Records, at no charge to the Seller, which are reasonably required
by such Seller's Representatives in order to complete the orderly liquidation
of all assets of the Seller other than the Acquired Assets, during regular
business hours and upon reasonable notice at the Seller's former offices. The
Seller's Representatives shall have the right, at the Seller's expense, to
make copies of any such records and files, provided that any such access or
copying shall be had or done in such a manner so as not to unreasonably
interfere with the normal conduct of the Purchaser's business or operations.
The provisions of Article X shall control access to records for the matters
covered by Article X.
Section 5.03. ADDITIONAL MATTERS. Subject to the terms and
conditions herein, except as provided by the Bankruptcy Code, the Bankruptcy
Rules or any other orders entered or approvals or authorizations granted by
the Bankruptcy Court in the Chapter 11 Case, including any order contemplated
by Section 7.01(ii) hereof, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable,
including under applicable laws and regulations, to consummate and make
effective the transactions contemplated by this Agreement, including using
all commercially reasonable efforts to obtain all necessary waivers, consents
and approvals required under this Agreement.
Section 5.04. FURTHER ASSURANCES. In addition to the provisions of
this Agreement, from time to time after the Closing Date, the Seller and the
Purchaser will use all commercially reasonable efforts to execute and deliver
such other instruments of conveyance, transfer or assumption, as the case may
be, and take such other action as may be reasonably requested to implement
more effectively the conveyance and transfer of the Acquired Assets to the
Purchaser and the assumption of the Assumed Liabilities by the Purchaser. The
Purchaser and the Seller hereby irrevocably consent to the personal and
subject-matter jurisdiction of the Bankruptcy Court for all purposes
necessary to effectuate this Section 5.04.
Section 5.05. EMPLOYEES AND BENEFIT PROGRAMS.
(a) EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used
herein, having the following meanings:
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under
Section 414(b) or (c) of the Code.
"International Plan" means an employment, severance or similar
contract, arrangement or policy (exclusive of any such contract which is
terminable within 30 days without liability of the Seller or any of its ERISA
Affiliates), or a plan or arrangement providing for severance, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits
14
that (a) is not subject to the Code or ERISA, (b) is maintained or
contributed to by the Seller or any ERISA Affiliate of the Seller, and (c)
covers any foreign employee or former employee of the Seller or any of its
subsidiaries.
"Multiemployer Plan" means each Employee Plan that is a
multiemployer plan, as defined in Section 3 (37) of ERISA.
"Non-Retained Employee" means the employees listed on Schedule
5.05(a) who are not Retained Employees, which Schedule will be provided by
the Purchaser on or prior to the Closing Date.
"Non-Transferred Liabilities" has the meaning set forth in Section
5.05(d)(ii).
"Retained Employees" has the meaning set forth in Section
5.05(c)(ii).
"Seller's Employee Liabilities" means all liabilities, obligations
and commitments arising out of or related to the employment (or termination
of employment) by the Seller of all Active Employees who are not Retained
Employees, including, but not limited to, any obligation or liability for (a)
accrued but unpaid wages, salary, incentive or bonus compensation, vacation
benefits and pay, or other compensation, (b) all claims for severance or
other termination benefits, and (c) all workers compensation claims "Seller's
Retained Employee Liabilities" has the meaning set forth in Section
5.05(d)(i).
(b) ERISA REPRESENTATIONS. The Seller hereby represents and
warrants to the Purchaser that:
(i) Schedule 5.05(b)(i) lists each "employee benefit
plan", as such term is defined in Section 3(3) of ERISA, which (A) is subject
to any provision of ERISA, (B) is maintained, administered or contributed to
by the Seller or any of its ERISA Affiliates, and (C) covers any employee of
the Business (hereinafter referred to collectively as the "Employee Plans"),
and (ii) lists each employment, severance or other similar contract and any
material arrangement, policy, plan or arrangement providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (D) is not an
Employee Plan, and (E) is entered into, maintained or contributed to, as the
case may be, by the Seller or any of its subsidiaries. Such contracts, plans
and arrangements listed in clause (ii) of the preceding sentence are
hereinafter referred to collectively as the "Benefit Arrangements." The
Purchaser and the Seller agree that such Schedule 5.05(b)(i) may be amended
or supplemented prior to the Closing Date.
(ii) With respect to each Employee Plan, the Seller has
provided (or will prior to Closing provide) a true and complete copy of such
plan document and the most recently filed Form 5500. Each Benefit Arrangement
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
15
which are applicable to such Benefit Arrangement except where any such
failure to do so would not, individually or in the aggregate, have a Material
Adverse Effect.
(iii) No Employee Plan is (x) a Multiemployer Plan, (y)
an International Plan or (z) subject to Title IV of ERISA. None of the Seller
nor any of the Seller's Affiliates has incurred any liability under Title IV
of ERISA arising in connection with the termination of any plan covered or
previously covered by Title IV of ERISA that could become, after the Closing
Date, an obligation of the Purchaser or any of its Affiliates.
(iv) Each Employee Plan which is intended to be
qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each trust forming
a part thereof is exempt from tax pursuant to Section 501(a) of the Code. The
Seller has furnished or will furnish prior to the Closing to the Purchaser
copies of the most recent Internal Revenue Service determination or
notification letters with respect to each such Plan. Each Employee Plan has
been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including
but not limited to ERISA and the Code, which are applicable to such Plan,
except where any such failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect.
(v) The Acquired Assets are not now nor will they
after the passage of time be subject to any Lien imposed under Code Section
412(n) by reason of the failure of the Seller or its Affiliates to make
timely installments or other payments required by Code Section 412.
(vi) With respect to the employees of the Business,
there are no employee post-retirement medical or health plans in effect,
except as required by Section 601 of ERISA or applicable state law and the
Purchaser shall have no responsibility for any such retiree benefits.
(vii) The Seller has made available to the Purchaser
copies of all material Employee Plans or Benefit Arrangements. Except as
disclosed in such copies, there has been no amendment to, written
interpretation of or announcement (whether written or not written) by the
Seller relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement which would increase materially the
expense of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the most recent fiscal
year.
(c) EMPLOYEES AND OFFERS OF EMPLOYMENT.
(i) Seller has provided or will provide to Purchaser a
true and complete list of the names, titles, and annual salaries of all
employees of the Business whose annual base salary exceeds $50,000.
(ii) On the Closing Date, the Purchaser shall offer
employment to all Active Employees of the Business; provided, that the
Purchaser may terminate at any time after the Closing Date the employment of
any employee who accepts such offer; provided, however, that the Purchaser is
solely responsible for any WARN Act notification and any liability under the
WARN Act for any failure to notify employees, if any, relating to any
termination of any of the
16
Active Employees on or after the Closing. For purposes of this Section 5.05,
the term "Active Employee" shall mean any Person other than a Non-Retained
Employee who, on the Closing Date, is actively employed by the Seller or who
is on short-term disability leave, authorized leave of absence, military
service or lay-off with recall rights as of the Closing Date (such inactive
employees shall be offered employment by the Purchaser as of the date they
return to active employment), but shall exclude any other inactive or former
employee including any Person who has been on long-term disability leave (to
the extent permitted by law) or unauthorized leave of absence or who has
terminated his or her employment, retired or died on or before the Closing
Date. Any such offers shall be at such salary or wage and benefit levels that
are substantially comparable in the aggregate to either (A) the wages and
benefits made available by the Seller to such Active Employees immediately
prior to the Closing, or (B) the wages and benefits then made available by
the Purchaser to similarly-situated employees and on such other terms and
conditions as the Purchaser shall in its sole discretion deem appropriate;
provided, however, (y) the Seller shall be responsible for all the Seller's
Employee Liabilities related to any employees that do not accept such offer,
and (z) that the Purchaser is solely responsible for any WARN Act
notification and any liability under the WARN Act for any failure to notify
employees, if any, relating to any termination of any of the Active Employees
on or after the Closing. The employees who accept and commence employment
with the Purchaser are hereinafter collectively referred to as the "Retained
Employees." The Seller will not take, and will cause its subsidiaries, if
any, not to take, any action which would impede, hinder, interfere or
otherwise compete with the Purchaser's effort to hire any Retained Employees.
(d) THE SELLER'S EMPLOYEE BENEFIT PLANS.
(i) Except as provided in Section 5.05(e) below, the
Seller shall retain all liabilities under the Employee Plans, Benefit
Arrangements or otherwise in respect of each Non-Retained Employee and each
Person who is not an Active Employee (including any beneficiary thereof
("Seller's Retained Employee Liabilities")). Accrued benefits or account
balances of Retained Employees under the Employee Plans and Benefit
Arrangements shall be fully vested as of the Closing Date.
(ii) Except as provided in Section 5.05(e) below, with
respect to the Retained Employees (including any beneficiary or dependent
thereof), the Seller shall retain (A) all liabilities arising under any group
life, accident, medical, dental or disability plan or similar arrangement
that is insured to the extent that such liability relates to contributions or
premiums accrued (whether or not payable), or to claims incurred (whether or
not reported), prior to the Closing Date, (B) all liabilities arising under
any worker's compensation arrangement to the extent such liability is insured
and relates to the period prior to the Closing Date, and (C) relating to the
Seller's 401(k) Plans to the extent any such liability relates to the period
prior to the Closing Date (the "Non-Transferred Liabilities").
(e) THE PURCHASER BENEFIT PLANS.
(i) The Purchaser or one of its Affiliates shall
recognize all service of the Retained Employees with the Seller (or its
predecessors) or any of its Affiliates, only for
17
purposes of eligibility to participate in and to vest under those employee
benefit plans, within the meaning of Section 3(3) of ERISA, in which the
Retained Employees are enrolled by the Purchaser or one of its Affiliates
after the Closing Date. The Purchaser shall cause all pre-existing condition
exclusions under any medical and dental plans made available by the Purchaser
to Retained Employees to be waived in respect of such Employees. Expenses
incurred by Retained Employees under the Seller's medical and dental plans
during the year that includes the Closing Date shall be taken into account
for purposes of satisfying deductible and coinsurance requirements and
satisfaction of out-of-pocket provisions of the Purchaser's medical and
dental plans in which Retained Employees participate for such year.
(ii) The Purchaser shall assume the Employee Plans and
Benefit Arrangements set forth on Schedule 5.05 (b) (i), as amended or
supplemented prior to the Closing Date, or if the Purchaser is legally
precluded from assuming the Employee Plans and Benefit Arrangements, the
Purchaser shall provide Employee Plans and Benefit Arrangements substantially
similar to existing Employee Plans and Benefit Arrangements and shall assume,
unless precluded by applicable law or contract or agreement provisions, all
contracts and agreements relating to them immediately upon the Closing and
thereafter shall maintain and administer the Employee Plans and Benefit
Arrangements with respect to the Retained Employees and Non-Retained
Employees. The costs of providing benefits under the Employee Plans and
Benefit Arrangements for the Non-Retained Employees and their beneficiaries
until the Non-Retained Employees are no longer employed in the Business shall
be borne by the Seller. The Purchaser will provide, to the extent permissable
by applicable law and contract or agreement provisions, the opportunity for
any Non-Retained Employee of the Seller actively employed by the Seller at or
after the Closing to participate in any Employee Plans and Benefit
Arrangements. The cost of such participation shall be borne by Seller and
shall be provided by Purchaser to Seller at Purchaser's cost without markup,
except any reasonable administrative costs attributable to the administration
of any Employee Plans and Benefit Arrangements for the benefit of such
Non-Retained Employees actively employed by Seller at or after the Closing.
(iii) The Purchaser shall make available to each
Retained Employee who is terminated during the three-month period commencing
on the Closing Date a severance benefit substantially comparable in the
aggregate to the benefit made available to such Employee by the Seller
immediately prior to the Closing Date.
(iv) The Purchaser shall make COBRA continuation
coverage available under the Employee Plans or its group health plans to
Non-Retained Employees, Active Employees, former employees of the Seller
whose employment with the Seller was terminated prior to Closing and each of
his or her qualified beneficiaries whose qualifying event occurred prior to
or in connection with the Closing to the extent required by COBRA. For
purposes of this paragraph, the foregoing terms shall have the meanings given
to them under IRS regulations under Code Section 4980B.
(f) NO THIRD PARTY BENEFICIARIES. No provision of this Article
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the
Seller or of any of its subsidiaries in respect of continued
18
employment (or resumed employment) with either the Purchaser or the Business
or any of its Affiliates and no provision of this Section 5.05 shall create
any such rights in any such Persons in respect of any benefits that may be
provided, directly or indirectly, under any Employee Plan or Benefit
Arrangement or any plan or arrangement which may be established by the
Purchaser or any of its Affiliates. No provision of this Agreement shall
constitute a limitation on rights to amend, modify or terminate after the
Closing Date any such plans or arrangements of the Purchaser or any of its
Affiliates.
Section 5.06. PUBLIC ANNOUNCEMENTS. The Purchaser and the Seller
shall consult with each other before issuing any press release or making any
public statement or other public communication with respect to this Agreement
or the transactions contemplated hereby. The Purchaser and the Seller shall
not issue any such press release or make any such public statement or public
communication without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that a party may, without the
prior consent of the other party, issue such press release or make such
public statement as may, upon the advice of counsel, be required by law.
Section 5.07. CONDUCT OF THE BUSINESS. Except as otherwise provided
herein or authorized by the Bankruptcy Court prior to the date hereof, from
the date hereof until the Closing Date, the Seller:
(a) shall conduct the Business in the ordinary course and shall
use commercially reasonable efforts to preserve intact the business
organizations and relationships with third parties and to keep available the
services of the present employees of the Business consistent with its duties
as debtor in possession under the Bankruptcy Code;
(b) except to the extent necessary to comply with the
requirements of applicable laws, regulations or Bankruptcy Court orders,
shall not take or agree to commit to take any action that it knows would make
any representation or warranty of the Seller hereunder inaccurate in any
material respect at, or as of any time prior to, the Closing Date;
(c) shall not offer credit terms or trade promotions except in
the ordinary course consistent with past practices with respect to the
applicable product lines of the Seller or except to the extent reasonably
necessary to be competitive with competitors' comparable product offerings;
and
(d) shall not, without the Purchaser's Consent, enter into any
contract (other than a purchase order or sale order entered into in the
ordinary course) which requires aggregate payments of more than $50,000.
"Purchaser's Consent" means the Purchaser's consent (which shall not
unreasonably be withheld) to the matters described in this clause (d) of this
Section 5.07. The Purchaser shall be deemed to have given such consent if it
shall not have notified Xxxxxx X. Xxxxxxxxxxx by e-mail (xxx@xxxxxxx.xxx) or
facsimile ((000) 000-0000) of its disapproval of such contract or arrangement
not later than the end of the next business day after delivery of an e-mail
communication to each of Xxxxxxx Xxxx (xxxxx@xxxxxxxxxxxxxxxxxx.xxx), Xxxx
Xxxx (xxxxx@xxxxxxxxxxxxxxxxxx.xxx) and Xxx Xxxxxx (xxxxxxx@xxxxxxx.xxx)
which sets forth the material terms and conditions of such contract or
19
arrangement. If the Purchaser disapproves of any such arrangement or contract
pursuant to this clause (d), then any event, condition or matter that arises
in connection with, or as a result of, such disapproval shall not in any
manner (i) be deemed to be a breach of any of the Seller's representations,
warranties, covenants or obligations under this Agreement, or (ii) constitute
a Material Adverse Effect.
Section 5.08. NOTICES OF CERTAIN EVENTS. The Seller shall promptly
notify the Purchaser of damage or destruction by fire or other casualty of
any material Acquired Asset or in the event that any material Acquired Asset
becomes the subject of any proceeding or, to the knowledge of the Seller,
threatened proceeding for the taking thereof or any part thereof or of any
right relating thereto by condemnation, eminent domain or other similar
governmental action.
Section 5.09. COMPETING TRANSACTION. The Seller may solicit "higher
or better" offers for the Business pursuant to the procedures for soliciting
"higher or better" offers approved by the Bankruptcy Court in the Bidding
Procedures Order. If the Bankruptcy Court determines that a Competing
Transaction presents a "higher or better" offer made for the Business and a
Competing Transaction is approved by the Bankruptcy Court, then this
Agreement will be terminated accordingly and the Seller shall immediately
repay the Good Faith Deposit and the Advanced Payment, with interest earned
thereon, if any. Should the Competing Transaction close, the Seller shall
immediately pay to the Purchaser the Break-Up Fee.
Section 5.10. BANKRUPTCY COURT APPROVAL OF BIDDING PROCEDURES ORDER.
(a) The Seller hereby confirms that it is critical to the
process of arranging an orderly sale of the Seller's assets to proceed by
selecting the Purchaser to enter into this Agreement in order to present the
Bankruptcy Court with arrangements for obtaining the highest realizable
prices for such assets and that, without the Purchaser having committed
substantial time and effort to such process, the estate of the Seller would
have to employ a less orderly process of sale or outright liquidation and
thereby both incur higher costs and risk attracting lower prices.
Accordingly, the contributions of the Purchaser to the process have
indisputably provided very substantial benefit to the estate of the Seller.
The Seller acknowledges that the Purchaser would not have invested the effort
in negotiating and documenting the transaction provided for herein and
incurring duties to pay its outside advisors if the Purchaser were not
entitled to the Break-up Fee if the Bankruptcy Court approves a Competing
Transaction that is closed.
(b) The Seller shall use commercially reasonable efforts to
obtain the Bidding Procedures Order no later than March 29, 2001 and the Sale
Order no later than April 12, 2001.
(c) Subject to the Bidding Procedures Order, the Seller shall
promptly make any filings, take all actions, and use commercially reasonable
efforts to obtain any and all other approvals and orders necessary or
appropriate for consummation of the transactions contemplated hereby, subject
to its obligations to comply with any order of the Bankruptcy Court.
(d) In the event an appeal is taken, or a stay pending appeal
is requested or reconsideration is sought, from either the Bidding Procedures
Order or the Sale Order, the Seller
20
shall immediately notify the Purchaser of such appeal or stay request and
shall provide to the Purchaser within one business day a copy of the related
notice of appeal or order of stay or application for reconsideration. The
Seller shall also provide the Purchaser with written notice (and copies of)
any other or further notice of appeal, motion or application filed in
connection with any appeal from or application for reconsideration of, either
of such orders and any related briefs.
Section 5.11. NAME CHANGES. The Seller agrees that at the Closing,
or as soon thereafter as practicable, it will not use any name, logo, trade
name or trademark incorporating "Strouds, Inc." or "Strouds" in any business
activity, provided that the Purchaser hereby grants to the Seller a limited
license to use such name for the administration of the Chapter 11 Case,
including, without limitation, the liquidation of the remaining assets of the
Seller, under either Chapter 11 or Chapter 7 of the Bankruptcy Code. Within a
reasonable time after the Closing, the Seller will file with the Bankruptcy
Court a request to change the captioned name of the Chapter 11 Case from
"Strouds, Inc." to "Str., Inc."
Section 5.12. PERMITS. Prior to the Closing Date, the Seller (1)
shall use its reasonable best efforts to identify and provide a listing of
all material permits (including Environmental Permits) necessary to operate
the Business from and after the Closing Date, and (2) shall use its
reasonable best efforts to obtain consents to the transfer of such material
permits which are transferable to the Purchaser at or prior to Closing. Prior
to the Closing, the Seller shall cooperate with the Purchaser with respect to
the transfer of all material permits. After the Closing, the Seller shall not
be responsible for the obtaining of any permits which may be required in
order for the Purchaser to continue to operate the Business.
Section 5.13. STATE ENVIRONMENTAL TRANSFER STATUTES. The Seller
shall, to the extent necessary to transfer the Acquired Assets to the
Purchaser, comply with the disclosure requirements of any state environmental
transfer statute that is applicable as a result of the transactions
contemplated hereby. The Seller also agrees that, prior to providing any
documents or information to the applicable governmental agency, the Purchaser
shall have the right to reasonably review and approve (such approval not to
be unreasonably withheld) the form and substance of any such documents or
information.
Section 5.14. BIDDING PROCEDURES. The Seller (1) shall conduct the
auction process in accordance with the bidding procedures approved by the
Bankruptcy Court (the "Bidding Procedures"), and (2) shall not amend, waive,
modify or supplement in a material respect the Bidding Procedures except as
set forth therein, or as otherwise ordered by the Bankruptcy Court.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND
THE PURCHASER. The respective obligations of each party to effect the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing Date of the following conditions:
21
(a) the Sale Order shall have been entered by the Bankruptcy
Court and such order shall not have been stayed, modified, reversed or
amended;
(b) there shall be no injunction, order or decree of any nature
of any court or government authority of competent jurisdiction that is in
effect that prohibits or materially restrains the consummation of the
transactions contemplated under this Agreement; and
(c) no statute, rule or regulation shall have been promulgated
by any federal or state governmental authority which prohibits the
consummation of the transactions contemplated by this Agreement.
Section 6.02. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The
obligation of the Seller to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction or waiver at or prior to the
Closing Date of the following additional conditions:
(a) the Purchaser shall have performed in all material respects
its obligations under this Agreement required to be performed by the
Purchaser at or prior to the Closing Date;
(b) the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material
respects as of the Closing Date as if made at and as of such date except as
otherwise contemplated by this Agreement; and
(c) the Purchaser shall have received the proceeds of financing
described in the Financing Commitment referred to in Section 4.06 on
substantially the terms set forth in the Financing Commitment.
Section 6.03. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.
The obligation of the Purchaser to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction or waiver at or prior to
the Closing Date of the following additional conditions:
(a) the Seller shall have performed in all material respects
its obligations under this Agreement required to be performed by the Seller
at or prior to the Closing Date, and the representations and warranties of
the Seller contained in this Agreement shall be true as of the date hereof
and on and as of the Closing Date, except, in each case, for (i)
representations and warranties that relate to a specific date or time (which
need only be true and correct as of such date or time), (ii) breaches of
representations or warranties that will be cured pursuant to Section 1.02 of
this Agreement, and (iii) breaches of such representations, warranties,
covenants and obligations that, in the aggregate, would not have a Material
Adverse Effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
22
Section 7.01. TERMINATION.
This Agreement may be terminated:
(i) by mutual written agreement of the Seller and the
Purchaser prior to the Closing Date;
(ii) automatically if a Competing Transaction is
approved by the Bankruptcy Court, in accordance with the Bidding Procedures;
(iii) at any time before the Closing, by the Purchaser
if any of the conditions set forth in Section 6.01 or Section 6.03 shall have
become incapable of fulfillment or cure and shall not have been waived by the
Purchaser, provided that the Purchaser is not then in breach of this
Agreement;
(iv) at any time before the Closing, by the Seller if
any of the conditions set forth in Section 6.01 or Section 6.02 shall have
become incapable of fulfillment or cure and shall not have been waived by the
Seller, provided that the Seller is not then in breach of this Agreement;
(v) at any time after April 30, 2001, by the Seller if
the Closing fails to occur on or before such date;
(vi) at any time after April 30, 2001, by the Purchaser
if the Closing fails to occur on or before such date;
(vii) by the Purchaser, at any time within 14 days after
the earlier of (a) March 29, 2001 if the Bidding Procedures Order has not
been approved by the Bankruptcy Court, and (b) the date the Bankruptcy Court
denies the Bidding Procedures Order; if the Purchaser fails to terminate this
Agreement within 14 days of such date, the Purchaser shall be deemed to have
waived its rights under this Section 7.01(vii);
(viii) at any time after April 12, 2000, by the Purchaser
or the Seller if by such date the Sale Order has not been approved by the
Bankruptcy Court;
(ix) by the Seller if the Closing has not occurred as
the result of the Purchaser's failure to consummate the transactions
contemplated by this Agreement within five (5) days after the satisfaction of
the conditions set forth in Sections 6.01 and 6.03, provided that the Seller
is ready to close;
(x) by the Purchaser if the Closing has not occurred
as the result of the Seller's failure to consummate the transactions
contemplated by this Agreement within five (5) days after the satisfaction of
the conditions set forth in Sections 6.01 and 6.02, provided that the
Purchaser is ready to close; or
(xi) by the Purchaser in the event of a material breach
of the covenants contained in Section 5.14, prior to the approval by the
Bankruptcy Court.
23
Section 7.02. EFFECT OF TERMINATION. If this Agreement is terminated
under Section 7.01, written notice thereof will forthwith be given to the
other party and this Agreement will thereafter become void and have no
further force and effect and, except for those provisions that expressly
survive the termination of this Agreement, all further obligations of the
Seller and the Purchaser to each other under this Agreement will terminate
without further obligation or liability of the Seller or the Purchaser to the
other, except that:
(a) each party will return all documents, workpapers and other
material of any other party relating to the transactions contemplated by this
Agreement, whether so obtained before or after the execution of this
Agreement, to the party furnishing the same; and
(b) if this Agreement is terminated by the Seller pursuant to
Section 7.01(ix), then the Seller will be entitled to retain the Good Faith
Deposit plus interest credited thereon.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS. No representations or warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive beyond the
Closing Date. The covenants contained in Sections 1.03, 1.07, 1.08, 5.02,
5.04, 5.05(a), 5.05(c), 5.05(d), 5.05(e), 5.11, 5.13, 8.02, 8.03 and 10.03
shall survive the Closing.
Section 8.02. TRANSFER TAXES. In accordance with section 1146(c) of
the Bankruptcy Code, the making or delivery of any instrument of transfer
under a plan confirmed under Section 1129 of the Bankruptcy Code shall not be
taxed under any law imposing a transfer, stamp tax or similar tax. The
instruments transferring the Acquired Assets to the Purchaser shall contain
the following endorsement:
"Because this [instrument] has been authorized pursuant to
Order of the United States Bankruptcy Court for the District
of Delaware relating to a plan of reorganization of the
Grantor, it is exempt from transfer taxes, stamp taxes or
similar taxes pursuant to 11 U.S.C. (S)1146(c)."
In the event any such transfer, stamp or similar Taxes are assessed at any
time thereafter, such Taxes incurred as a result of the transactions
contemplated hereby shall be paid by the Seller. In the event sales, use or
other transfer Taxes are assessed at Closing or at any time thereafter on the
transfer of any other Acquired Assets, such Taxes incurred as a result of the
transactions contemplated hereby shall be paid by the Seller. The Purchaser
and the Seller shall cooperate in providing each other with any appropriate
resale exemption certifications and other similar documentation.
Section 8.03. NOTICES. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given upon
(a) confirmation of receipt of a facsimile transmission with confirming
delivery by U.S. mail, first class postage prepaid, (b)
24
expiration of one day after prepaid delivery by a nationally recognized
overnight carrier when sent for next business day delivery, (c) when
delivered by hand, or (d) the expiration of five (5) business days after the
day when mailed by registered or certified mail (postage prepaid, return
receipt requested), addressed to the respective parties at the following
addresses (or such other address for a party as shall be specified by like
notice):
(a) If to the Purchaser, to:
Strouds Acquisition Corporation
C/O Cruttenden Partners, LLC
0000 Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxxxx, Chief Executive Officer
Xxxxxxx Xxxx, Chief Financial Officer
with a copy (which shall not constitute notice) to:
Berliner Xxxxxx Xxxxxx & Xxxxxxxx, P.C.
One Xxxxx Fargo Center
0000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
(b) If to the Seller, to:
Strouds, DIP
000 Xxxxx Xxxxxxx Xxxxxx
Xxxx xx Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxxxxx, Chief Executive Officer
with a copy (which shall not constitute notice) to:
Xxxxxxxx, Xxxxxxx & Xxxxxx
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
with a copy (which shall not constitute notice) to:
Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxx 0000
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxx X. Xxxxxxxx, Esq.
25
with a copy (which shall not constitute notice) to:
Xxxxxx and Xxxxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxx X. Xxxxxxx, Esq.
with a copy (which shall not constitute notice) to:
Otterbourg, Steindler, Houston & Xxxxx, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Xxxxx Xxxxx, Esq.
Section 8.04. DESCRIPTIVE HEADINGS; CERTAIN TERMS. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All
references to "$" or dollars shall be to United States dollars and all
references to "days" shall be to calendar days unless otherwise specified.
Section 8.05. ENTIRE AGREEMENT, ASSIGNMENT. This Agreement
(including the Schedules, and the other documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties or
any of them, with respect to the subject matter hereof, including any
transaction between or among the parties hereto, and (b) shall not be
assigned by operation of law or otherwise.
Section 8.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to the rules of conflict of laws of the State of Delaware or any other
jurisdiction. The Purchaser and the Seller irrevocably and unconditionally
consent to submit to the jurisdiction of the Bankruptcy Court for any
litigation arising out of or relating to this Agreement and the transactions
contemplated thereby (and agree not to commence any litigation relating
thereto except in the Bankruptcy Court).
Section 8.07. EXPENSES. Whether or not the transactions contemplated
by this Agreement are consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses unless specifically
provided to the contrary herein. The foregoing shall not affect the legal
right, if any, that any party hereto may have to recover expenses from any
other party that breaches its obligations hereunder.
Section 8.08. AMENDMENT. This Agreement and the Schedules hereto may
not be amended except by an instrument in writing signed on behalf of all the
parties hereto.
Section 8.09. WAIVER. At any time prior to the Closing Date, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties
26
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
Section 8.10. COUNTERPARTS; EFFECTIVENESS; AUTHORITY. This Agreement
may be executed in two or more counterparts, each of which shall be deemed to
be an original but all of which shall constitute one and the same agreement.
This Agreement shall become effective when each party hereto shall have
received counterparts thereof signed by the other party hereto. The
authorized officers of each party executing this Agreement on behalf of such
party have all corporate and other authority necessary to execute this
Agreement and to bind each respective party hereunder. The parties hereto
acknowledge that each of them has been represented by counsel and that the
terms and provisions of this Agreement are the result of negotiation between
the parties and their counsel. Accordingly, no rule of construction shall be
applied as against any party based on the fact that such party prepared this
Agreement.
Section 8.11 EXECUTION BY FACSIMILE. This Agreement may be executed
by the Seller and the Purchaser by the exchange via facsimile of signature
pages executed by the Parties, and this Agreement shall be enforceable by the
Parties upon the execution of this Agreement by each of the Parties by the
exchange of signatures pages via facsimile. Any party executing this
Agreement via facsimile as provided herein shall deliver to the other Party
an executed original of this Agreement within three (3) business days of such
fax delivery.
Section 8.12. SEVERABILITY; VALIDITY; PARTIES OF INTEREST. If any
provision of this Agreement or the application thereof to any person or
circumstance is held invalid or unenforceable, the remainder of this
Agreement, and the application of such provision to other persons or
circumstances, shall not be affected thereby, and to such end, the provisions
of this Agreement are agreed to be severable. Nothing in this Agreement,
express or implied, is intended to confer upon any person not a party to this
Agreement any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
Section 8.13. BULK SALES. The Purchaser hereby waives compliance by
the Seller with any bulk sales or other similar laws in any applicable
jurisdiction in respect of the transactions contemplated by this Agreement.
ARTICLE IX
DEFINITIONS
Section 9.01. DEFINED TERMS. As used herein, the terms below shall
have the following meanings.
"Acquired Assets" has the meaning set forth in Section 1.01(a).
"Acquired Locations" has the meaning set forth in Section 1.01(a)(ii).
27
"Advanced Payment" has the meaning set forth in Section 2.02(c)
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such other Person.
"Agreement" has the meaning set forth in the Preamble.
"Assigned Agreements" has the meaning set forth in Section
1.01(a)(vii).
"Assumed Liabilities" has the meaning set forth in Section 1.03.
"Audited Financial Statements" means the audited financial
statements of the Business as of, and for the periods ended, February 26,
2000.
"Bankruptcy Code" has the meaning set forth in the Recitals.
"Bankruptcy Court" has the meaning set forth in the Recitals.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedures,
as amended.
"Bidding Procedures" has the meaning set forth in Section 5.14.
"Bidding Procedures Order" means the order approving the relief
requested in the "Motion for Order: Approving: (i) Bidding Procedures,
Including Overbid Procedures and Break-Up Fee Arrangements, for the Sale of
Substantially All of the Assets of the Estate; and (ii) the Form and Manner
of Notice Thereof", a copy of which was filed with the Bankruptcy Court on
March 14, 2001.
"Break-Up Fee" means the fee payable by the Seller to the Purchaser
in the amount of $175,000 upon the approval by the Bankruptcy Court of a
Competing Transaction which closes.
"Business" has the meaning set forth in the Recitals.
"Business Records" has the meaning set forth in Section 5.02.
"Chapter 11 Case" has the meaning set forth in the Recitals.
"CIT" has the meaning set forth in Section 2.02(c).
"Claims" has the meaning set forth in Section 1.08.
"Closing" has the meaning set forth in Section 2.01.
"Closing Date" has the meaning set forth in Section 2.01.
28
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Part 6 of Title I, Subtitle B of ERISA and
Sections 162(k) and 4980B of the Code.
"Competing Transaction" means the sale of all or substantially all
of the Seller's assets to a third-party purchaser other than the Purchaser
pursuant to Section 363 of the Bankruptcy Code or a plan of reorganization;
provided, however, that a Competing Transaction does not include a
liquidation of the Seller's assets under chapter 11 or chapter 7 of the
Bankruptcy Code; and further provided that the Purchaser has not otherwise
terminated this Agreement or the Bankruptcy Court has not otherwise declined
to enter the Sale Order.
"Conveyance Documents" has the meaning set forth in Section 2.02(a).
"Employee Plans" has the meaning set forth in Section 5.05(b)(i).
"Employment Related Obligations" means accrued vacation benefits and
applicable payroll taxes payable with respect to Retained Employees.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or any agreement with any governmental authority or other third
party, relating to the environment, human health and safety or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the Business.
"Environmental Reports" has the meaning set forth in Section 3.12.
"Escrow Agent" has the meaning set forth in Section 1.06.
"Excluded Assets" has the meaning set forth in Section 1.01(b).
"Excluded Liabilities" has the meaning set forth in Section 1.04.
"Financial Statements" has the meaning set forth in Section 3.04.
"Financing Commitment" has the meaning set forth in Section 4.06.
"GAAP" means United States generally accepted accounting principles
and practices.
"Gift Certificate and Merchandise Credits" means the sum of the value
of all outstanding gift certificates issued by the Seller for the consideration
stated therein and all merchandise credits, including, without limitation, any
product returns, issued in the ordinary course of
29
business prior to the Closing Date that are outstanding and unredeemed or
unused as of the Closing Date.
"Good Faith Deposit" has the meaning set forth in Section 1.06.
"Hazardous Substances" means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable corrosive, reactive or
otherwise hazardous substance, waste or material or any substance, waste or
material having any constituent elements displaying any of the foregoing
characteristics including petroleum, its derivatives, by-products and other
hydrocarbons, and any substance, waste or material regulated under any
Environmental Law.
"including" shall always be read as "including without limitation."
"Inventory" means the Inventory present at the locations leased or
subleased by the Seller that are included in the Acquired Assets at the
Closing Date, valued in accordance with the ratio of (i) 37% of the retail
value of such Inventory as reflected on the Inventory stock ledger and after
elimination of the retail value of Inventory specified in clause (ii) that
follows this clause (i), and (ii) 27% of the retail value of the Inventory
that exceeds $6,000,000 in aggregate valuation that was purchased by the
Seller at or before a date that is more than 12 months prior to the Closing
Date, in each instance subject to the conditions that (x) such Inventory is
subject to adjustment as determined by the Inventory Count conducted by the
Inventory Firm, and (y) all such Inventory is salable in the ordinary course
of business and does not include "seconds" or other impaired inventory except
as disclosed on the record of Inventory provided by the Seller to the
Purchaser.
"Inventory Verification" has the meaning set forth in Section
1.07(b).
"Intellectual Property" means all trademarks, service marks, trade
names, logos, computer software, mask work, registered Internet domain names,
invention, patent, trade secret, copyright registrations, technology,
processes, inventions, proprietary data, formulae, research and development
data, computer software programs, know-how (including any registrations or
applications for registration of any of the foregoing) or any other similar
type of proprietary intellectual property right.
"Lien" means any interest in the Acquired Assets by a Person other
than the Seller, including any mortgage, lien, pledge, charge, security
interest, encumbrance or other adverse claim of any kind in respect of any
Acquired Asset.
"Material Adverse Effect" means comparable sales decline by more
than fifteen percent (15%) on a cumulative basis from the prior year for the
months ended January through March 2001 for the Acquired Locations.
"Note" means the non-interest bearing promissory note issued by the
Purchaser to the Seller at the Closing in the amount of $2,000,000.
30
"Permitted Exceptions" means imperfections of title, restrictions or
encumbrances, if any, that (a) cannot be released or cured under the
Bankruptcy Code pursuant to a sale of assets under Sections 363 or 365 of the
Bankruptcy Code and that either (i) would not involve material costs to
correct or remove or (ii) do not materially impair the use and operation of
such asset in the Business as currently conducted or (b) are caused solely by
the Purchaser.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Prepaid Advertising" means advertising that has been paid for by
the Seller prior to April 30, 2001, but that will not appear in the media
contracted for until after that date.
"Property, Plant and Equipment" has the meaning accorded to such
term by GAAP or, alternatively, has the meaning accorded to Furniture,
Fixtures and Equipment by GAAP.
"Pro-Rated Obligations" has the meaning set forth in Section 1.07(c).
"Purchase Price" has the meaning set forth in Section 1.05(a).
The "Purchaser" has the meaning set forth in the Preamble.
"Sale Order" means the order approving the transactions contemplated
by this Agreement, a copy of which was filed with the Bankruptcy Court on
March 22, 2001.
The "Seller" has the meaning set forth in the Preamble.
"Seller's Representative" has the meaning set forth in Section
5.02(b).
"WARN Act" means the Worker Adjustment and Retraining Notification
Act of 1988.
ARTICLE X
TAX MATTERS
Section 10.01. TAX DEFINITIONS. The following terms, as used herein,
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means (1) any Tax Period ending on or
before the Closing Date, and (2) with respect to a Tax Period that commences
before but ends after the Closing Date, the portion of such period up to and
including the Closing Date.
"Tax" and, with correlative meaning, "Taxes" means (1) any net
income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
registration, recording, documentary, conveyancing, gains, withholding on
amounts paid to or by the Seller, payroll, employment, excise, severance,
stamp, occupation,
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premium, property, environmental or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or
additional amount imposed by any governmental authority (a "Taxing
Authority") responsible for the imposition of any such tax (domestic or
foreign).
"Tax Return" shall mean any return (including any information
return), report, statement, schedule, notice, form or other document or
information, including any schedule or attachment thereto, and including any
amendment thereof, filed with or submitted to, or required to be filed with
or submitted to, any Tax Authority or other governmental entity.
"Treasury Regulations" shall mean the Treasury Regulations
promulgated under the Code.
Section 10.02. TAX MATTERS. The Seller hereby represent and warrant
to the Purchaser that:
(a) Except to the extent, if any, constrained by the pendency
of its Chapter 11 Case, or reserved for on the Balance Sheet or the Closing
Balance Sheet, the Seller has timely paid all Taxes due and payable by it for
the Pre-Closing Tax Period which will have been required to be paid on or
prior to the Closing Date, the non-payment of which would result in a Lien on
any Acquired Asset (that would not be released pursuant to the Sale Order) or
would otherwise have a Material Adverse Effect on any Acquired Asset.
(b) The Seller has established, in accordance with GAAP applied
on a basis consistent with that of preceding periods, adequate reserves for
the payment of all Taxes which arise from or with respect to the Acquired
Assets or the operation of the Business and are incurred in or attributable
to the Pre-Closing Tax Period (that would not be released pursuant to the
Sale Order), the non-payment of which would result in a Lien on any Acquired
Asset, or would otherwise have a Material Adverse Effect on any Acquired
Asset.
(c) Except as reserved for on the Balance Sheet or the Closing
Balance Sheet, there is no claim, action, audit or other proceeding now
pending or threatened in writing asserting that the Seller is liable for
sales or use Tax in any jurisdiction other than a jurisdiction in which such
Seller is currently filing sales or use Tax Returns, as the case may be.
Section 10.03. TAX COOPERATION.
(a) The Purchaser and the Seller agrees to furnish or cause to
be furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to the Business and the Acquired Assets
(including access to books and records) as is reasonably necessary for the
filing of all Tax returns, the making of any election relating to Taxes, the
preparation for any audit by any taxing authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax. The Purchaser
shall retain all books and records with respect to Taxes pertaining to the
Acquired Assets and Taxes described in clause (d) of Section 1.04 for a
period of at least six years following the Closing Date. The Seller shall
retain any records related to Taxes until liquidation. Each party shall
provide the other with at least ten
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days prior written notice before destroying or transferring custody of any
such books and records, during which period the party receiving such notice
can elect to take possession, at its own expense, of such books and records.
(b) Any Tax Return relating to Taxes described in clause (i) of
Section 1.04 and required to be filed by the Seller shall be prepared in a
manner consistent with past practice and, unless Seller has received the
prior written consent of the Purchaser, without a change of any election or
any accounting method.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed on their behalf by their officers thereunto duly
authorized, as of the date first above written.
SELLER:
STROUDS, INC. DEBTOR AND
DEBTOR IN POSSESSION:
By: /s/ Xxxxxx X. Xxxxxxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxxxxxx, President
and CEO
PURCHASER:
STROUDS ACQUISITION CORPORATION:
By: /s/ Xxxxxx Xxxxxxxxxx
---------------------------------
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