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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of the 8th day of October,
1999, by and among Potpourri Holdings, Inc., a Delaware corporation ("the
Purchaser"), ValueVision Direct Marketing Company, Inc., a Minnesota corporation
("Direct Marketing") and ValueVision International, Inc., a Minnesota
corporation ("International") (Direct Marketing and International are, jointly
and severally, the "Seller"), the sole shareholder of Catalog Ventures, Inc., a
Minnesota corporation (the "Corporation"). Terms used herein and not otherwise
defined shall have the meanings set forth in Section 12.3 hereof.
ARTICLE I
PURCHASE OF STOCK
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, the Seller agrees to sell, and the Purchaser agrees to purchase from
the Seller, all of the issued and outstanding shares of capital stock of the
Corporation (collectively, the "Shares").
1.2 Purchase Price. In consideration for the conveyance of the Shares
and in reliance on the representations and warranties, covenants and agreements
of the Seller contained herein and the documents specifically contemplated
hereby, the Purchaser shall pay to the Seller an aggregate amount equal to
$4,942,450.66 in cash, (i) less the sum of the outstanding balance of any
Indebtedness owed by the Corporation and not forgiven, repaid, otherwise
extinguished or reclassified as paid in capital to the Corporation as of the
Closing Date, net of any cash on hand on the Closing Date (the "Cash Amount"),
(ii) plus the earn-out amounts set forth in Schedule 1.2 hereto (the "Earn-Out
Amounts"), and (iii) plus or minus the purchase price adjustments in Section
1.3. On the Closing Date, the Purchaser shall also issue as consideration
therefor a note in favor of International in the principal amount of $57,549.34
in the form of Exhibit 1.2 hereto (the "Note"). The Cash Amount shall be paid to
the Seller by means of a certified check or by wire transfer of immediately
available funds on the Closing Date.
1.3 Purchase Price Adjustments.
(a) Post Closing Adjustments. No later than thirty (30) days
after the Closing Date, the Purchaser shall cause its accountants to
prepare and deliver to the Seller an unaudited balance sheet for the
Corporation (the "Closing Date Balance Sheet") and a calculation of the
Closing Date Net Working Capital as of the close of business on the
Closing Date, each of which shall be prepared by the Purchaser in
accordance with GAAP and the Corporation's consistent application
thereof, together with such supporting documentation as the Seller may
reasonably request. The Seller and the Purchaser shall have the right
to dispute the Closing Date Balance Sheet (and any items therein) and
the Closing Date Net Working Capital calculation and make any proposed
adjustments thereto as provided in Section 1.3(b) hereto.
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(i) If it is determined there is a Working Capital
Shortfall, the Working Capital Shortfall shall be paid to the
Purchaser on the Settlement Date; or
(ii) If it is determined that there is a Working
Capital Surplus, the Working Capital Surplus shall be paid to
the Seller on the Settlement Date;
(iii) In the event a Working Capital Shortfall is not
paid to the Purchaser on the Settlement Date (unless due to
the fault of the Purchaser), the Seller shall also pay to the
Purchaser interest on the amount of the Working Capital
Shortfall at a rate of fifteen percent (15%) per annum, which
shall accrue from the Settlement Date to the date of actual
payment. In the event a Working Capital Surplus is not paid to
the Seller on the Settlement Date (unless due to the fault of
the Seller), the Purchaser shall also pay to the Seller
interest on the amount of the Working Capital Surplus at a
rate of fifteen percent (15%) per annum, which shall accrue
from the Settlement Date to the date of actual payment.
(b) Dispute Resolution Procedures. The Seller shall have until
thirty (30) days after the delivery of the Closing Date Net Working
Capital calculation to review such calculation and propose any
adjustments thereto. The Purchaser shall provide such other
documentation as is reasonably requested by the Seller. All adjustments
proposed by the Seller shall be set out in detail in a written
statement delivered to the Purchaser (the "Adjustment Statement") and
shall be incorporated into the Closing Date Balance Sheet, unless the
Purchaser shall object in writing to such proposed adjustments (the
proposed adjustment or adjustments to which Purchaser objects are
referred to herein as the "Contested Adjustments" and the Purchaser's
objection notice is referred to herein as the "Contested Adjustment
Notice") within ten (10) days of delivery by the Seller to the
Purchaser of the Adjustment Statement. If the Purchaser delivers a
Contested Adjustment Notice to the Seller, the Purchaser and the Seller
shall use reasonable efforts to resolve their dispute regarding the
Contested Adjustments, but if a final resolution thereof is not
obtained within ten (10) days after the Purchaser delivers to the
Seller said Contested Adjustment Notice, the Purchaser and the Seller
shall promptly retain a nationally recognized independent accounting
firm acceptable to both the Seller and the Purchaser (the "Independent
Accountant") to resolve any remaining disputes concerning the Contested
Adjustments. Either the Seller or the Purchaser may retain the
Independent Accountant upon the expiration of such 10-day period. If
the Independent Accountant is retained, then (i) the Seller and the
Purchaser shall each submit to the Independent Accountant in writing
not later than fifteen (15) days after the Independent Accountant is
retained their respective positions with respect to the Contested
Adjustments, together with such supporting documentation as they deem
necessary or as the Independent Accountant requests, and (ii) the
Independent Accountant shall, within thirty (30) days after receiving
the positions of both the Seller and the Purchaser and all
supplementary supporting documentation requested by the Independent
Accountant, render its decision as to the Contested Adjustments, which
decision shall be final and binding on, and
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nonappealable by, the Seller and the Purchaser. If both parties'
estimate of the Closing Date Net Working Capital differ from the
Independent Accountant's estimate of the Closing Date Net Working
Capital by twenty-five percent (25%) or less, then the fees and
expenses of the Independent Accountant shall be shared equally by the
parties. Otherwise the fees and expenses of the Independent Accountant
shall be paid by the party whose estimate of the Closing Date Net
Working Capital is furthest from the Independent Accountant's
calculation of the Closing Date Net Working Capital. The decision of
the Independent Accountant shall also include a certificate of the
Independent Accountant setting forth the final Closing Date Balance
Sheet (the "Settlement Amount Certificate"). The Closing Date Balance
Sheet shall be deemed to include all proposed adjustments not disputed
by the Purchaser and those adjustments accepted or made by the decision
of the Independent Accountant in resolving the Contested Adjustments.
(c) There shall be a "Settlement Date" after the calculation
of the Closing Date Balance Sheet which shall mean the following, as
applicable:
(i) If the Seller has not timely delivered an
Adjustment Statement to the Purchaser, thirty-five (35) days
after the date the Seller receives the Closing Date Net
Working Capital calculation;
(ii) If the Seller has timely delivered an Adjustment
Statement and the Purchaser has not timely delivered a
Contested Adjustment Notice, fifteen (15) days after the date
the Purchaser receives the Adjustment Statement;
(iii) If the Seller and the Purchaser have any
disputes regarding Contested Adjustments and they resolve
those disputes, five (5) business days after such resolution;
(iv) Five (5) business days after the Independent
Accountant delivers the Settlement Amount Certificate, if
applicable; or
(v) Such other date as shall be agreed between the
Seller and the Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as of the date
hereof and as of the Closing Date, except to the extent a representation or
warranty speaks as of an earlier date:
2.1 Corporate Organization, Etc. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. The Corporation is duly qualified or licensed to do
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business and is in corporate and Tax good standing in every jurisdiction in
which the conduct of its business, the ownership or lease of its properties,
require it to be so qualified or licensed, except to the extent any such failure
would not have a Material Adverse Effect. Such jurisdictions are set forth in
Schedule 2.1(a) hereto. True, complete and correct copies of the Corporation's
charter and bylaws as presently in effect are set forth in Schedule 2.1(b)
hereto.
2.2 Stock Record Books. Copies of the stock record books of the
Corporation that have been delivered to the Purchaser for inspection prior to
the date hereof are complete and correct in all material respects. The
authorized, issued and outstanding capital stock of the Corporation is as set
forth in Schedule 2.2 hereto. There are no shares of capital stock of the
Corporation held in the treasury of the Corporation and no shares of capital
stock of the Corporation are currently reserved for issuance for any purpose or
upon the occurrence of any event or condition.
2.3 Books and Records. The corporate minute books of the Corporation
that have been made available to the Purchaser for inspection are complete and
correct in all material respects and contain all of the proceedings of the
shareholders and directors of the Corporation. A true and complete list of the
incumbent directors and officers of the Corporation is set forth in Schedule 2.3
hereto.
2.4 Title to Stock. All of the outstanding shares of the capital stock
of the Corporation are owned by Direct Marketing, are duly authorized, validly
issued, fully paid and nonassessable, are free of all Liens and Contracts, and
have been issued in compliance with all applicable securities laws. All of the
Shares were acquired from third parties or the Corporation in compliance with
all applicable securities laws, free and clear of any rescission rights. There
is no outstanding Contract with the Corporation or any other Person to purchase,
redeem or otherwise acquire any outstanding shares of the capital stock of the
Corporation, or securities or obligations of any kind convertible into any
shares of the capital stock of the Corporation. The Corporation has not redeemed
any securities in violation of any Contract or Regulation. Upon payment of the
Purchase Price to the Seller at the Closing, Direct Marketing will convey good
and marketable title to the Shares, free and clear of all Liens, Contracts or
other limitations whatsoever. The assignments, endorsements, stock powers and
other instruments of transfer delivered by Direct Marketing to the Purchaser at
the Closing will be sufficient to transfer Direct Marketing's entire interest,
legal and beneficial, in the Shares to the Purchaser.
2.5 Authorization, Etc. The Seller has full power and authority to
enter into this Agreement and the agreements contemplated hereby and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and all other agreements and
transactions contemplated hereby have been duly authorized by the Board of
Directors and sole shareholder of Direct Marketing and the Board of Directors of
International and no other corporate proceedings on the part of the Seller are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement and all other agreements contemplated hereby to be entered into
by the Seller each constitutes a legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms.
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2.6 Options and Rights. On the Closing Date there shall be no
outstanding Options with respect to the Corporation's outstanding capital stock.
Other than pursuant to existing employment contracts with its employees, on the
Closing Date there shall be no outstanding profit participation rights or
arrangements with respect to the Corporation's outstanding capital stock. There
are no existing Contracts or Options between Seller on the one hand, and any
other Person, on the other hand, regarding the Shares.
2.7 No Violation. Except as set forth in Schedule 2.7 hereto, the
execution, delivery and performance by the Seller of this Agreement, and all
other agreements contemplated hereby, and the fulfillment of and compliance with
the respective terms hereof and thereof by the Seller, do not and will not (a)
conflict with or result in a breach of the terms, conditions or provisions of,
(b) constitute a default or event of default under (with due notice, lapse of
time or both), (c) result in the creation of any Lien upon the Corporation's
capital stock or assets pursuant to, (d) give any third party the right to
accelerate any obligation under, (e) result in a violation of, or (f) require
any authorization, consent, approval, exemption or other action by, notice to,
or filing with any Authority pursuant to, the charter or bylaws of the Seller,
the Corporation or any applicable Regulation, Order or any material Contract to
which the Corporation, the Seller or their respective properties or the Shares
are subject. The Seller has complied with all applicable Regulations and Orders
in connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
2.8 Financial Statements.
(a) Attached as Schedule 2.8(a)(i) hereto are unaudited
year-end balance sheets and statements of operations, shareholders'
equity and cash flow of the Corporation as of January 31 for each of
the fiscal years 1999 and 1998 and an unaudited balance sheet for the
five-month period ending June 30, 1999 and unaudited statements of
operations, shareholders' equity and cash flow of the Corporation for
the five-month period then ended. Such balance sheets fairly present
the financial position of the Corporation at the respective dates
thereof, and such statements of operations, changes in shareholders'
equity and cash flow (i) fairly present the results of operations for
the periods therein referred to, all in accordance with GAAP (except as
stated therein), (ii) fairly present the financial condition of the
Corporation at the respective date of, and for the period covered by
such statements in accordance with GAAP and (iii) were prepared from
the books and records of the Corporation, except that the unaudited
financial statements have no notes attached thereto and do not have
year-end adjustments (none of which would be recurring). All properties
that are used in the Corporation's business as of the Financial
Statement Date are reflected in the Financial Statements in accordance
with and to the extent required by GAAP; provided, however, that all
assets that are currently used in the Corporation's business that are
not owned by or reflected on the Corporation's Financial Statements
shall be transferred to Corporation prior to the Closing Date,
including without limitation, all furniture and equipment presently on
the Corporation's premises owned by Value Vision Direct Marketing,
Inc./Home Visions Direct and the Xxxxxxxxxx Xxxx Direct Mailing list,
except for those assets identified in Schedule 2.8(a)(ii) hereto. The
foregoing balance sheet and statements of operations,
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shareholders' equity and cash flow are herein collectively referred to
as the "Financial Statements" and January 31, 1999 is herein referred
to as the "Financial Statement Date."
(b) Except as set forth in Schedule 2.8(b) hereto, the
Corporation does not have any Indebtedness, obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise,
known or unknown to the Corporation, whether due or to become due)
arising out of transactions entered into at or prior to the Closing
Date, or any state of facts existing at or prior to the Closing Date,
other than: (i) liabilities set forth in the Financial Statements,
(ii) liabilities and obligations that have arisen after the Financial
Statement Date in the ordinary course of business (none of which is a
liability resulting from breach of Contract, breach of warranty, tort,
infringement or Claim); or (iii) liabilities or obligations not set
forth in Schedule 2.8(b) hereto because said liabilities or
obligations do not exceed $50,000 in the aggregate and are not
otherwise required to be disclosed pursuant to this Agreement.
2.9 Employees. Schedule 2.9 sets forth a list of all officers,
directors and key employees (meaning those earning more than $50,000 annually)
of the Corporation, together with a description of the rate and basis for their
total compensation. The Corporation is in compliance with all Federal, state and
local Regulations or Orders affecting employment and employment practices
applicable to the Corporation, including terms and conditions of employment and
wages and hours, except to the extent any such failure to comply would not have
a Material Adverse Effect. The Corporation has no collective bargaining
agreements and there have been no strikes, work stoppages nor any demands for
collective bargaining by any union or labor organization. There is no dispute or
controversy with any union or other organization of the Corporation's employees
and no arbitration proceedings pending or to the knowledge of the Corporation
threatened involving a dispute or controversy affecting the Corporation. To the
knowledge of the Corporation, at Closing the Corporation will not have any
liability or obligation to any of its employees, officers or directors other
than for (i) the payment of compensation (including bonuses) to be paid in the
ordinary course of business and (ii) obligations in accordance with existing
employment Contracts listed on Schedule 2.11 hereto.
2.10 Absence of Certain Changes. Except as set forth in Schedule 2.10
hereto, since the Financial Statement Date, there has not been any (a) Material
Adverse Change in the business, operations, properties, assets, condition
(financial or otherwise), results, plans, strategies or prospects of the
Corporation; (b) damage, destruction or loss, whether covered by insurance or
not, having a Material Adverse Effect, with regard to the Corporation's property
and business; (c) declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) in respect of the
Corporation's capital stock, or any redemption or other acquisition of such
stock by the Corporation; (d) increase in the compensation payable to or to
become payable by the Corporation to its officers or employees or any adoption
of or increase in any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such officers or employees or
any Affiliate of the Corporation other than in the ordinary course of business;
(e) entry into any material Contract not in the ordinary course of business,
including without limitation, any borrowing or capital expenditure; (f) change
by the Corporation in accounting methods or principles; (g) failure to promptly
pay and discharge
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current liabilities; or (h) Lien placed on any property of the Corporation other
than Permitted Liens.
2.11 Contracts.
(a) Except as set forth in Schedule 2.11 hereto, as of the
Closing Date, the Corporation is not a party to any written or oral:
(i) pension, profit sharing, stock option, employee stock purchase or
other plan providing for deferred or other compensation to employees
or any other employee benefit plan, or any Contract with any labor
union; (ii) Contract relating to loans to officers, directors, or
Affiliates; (iii) Contract relating to the borrowing of money or the
mortgaging, pledging or otherwise placing a Lien on any asset of the
Corporation; (iv) Guarantee of any obligation; (v) Contract under
which the Corporation has advanced or loaned any Person amounts in the
aggregate exceeding $10,000; (vi) Contract pursuant to which the
Corporation is lessor of or permits any third party to hold or operate
any property, real or personal, owned or controlled by the
Corporation; (vii) warranty Contract with respect to its services
rendered or its products sold or leased; (viii) Contract or
non-competition provision in any Contract prohibiting it from freely
engaging in any business or competing anywhere in the world; (ix)
Contract for the purchase, acquisition or supply of inventory and
other property and assets, whether for resale or otherwise in excess
of $50,000; (x) Contracts with independent agents, brokers, dealers or
distributors requiring payment of consideration in excess of $50,000
per Contract on an annual basis; (xi) employment, consulting,
commissions, advertising or marketing Contracts; (xii) Contracts,
other than Contracts on such terms as would be commercially reasonable
if negotiated on a third party, arms-length basis, with Persons with
which, directly or indirectly, the Seller also has a Contract; (xiii)
any other Contract which involves a consideration in excess of
$100,000 annually, excluding any purchase orders in the ordinary
course of business; or (xiv) Contract that requires the consent of any
party in connection with the execution, delivery or performance of
this Agreement.
(b) The Corporation has performed in all material respects all
obligations required to be performed by it and is not in material
default in any respect under or in material breach of nor in receipt of
any Claim of default or breach under any material Contract to which the
Corporation is subject (including without limitation all performance
bonds, warranty obligations or otherwise); no event has occurred, other
than events unknown to the Company which were caused by third parties,
which with the passage of time or the giving of notice or both would
result in a default, breach or event of non-compliance under any
material Contract to which the Corporation is subject (including
without limitation all performance bonds, warranty obligations or
otherwise); the Corporation does not have any present expectation or
intention of not fully performing all such material obligations; the
Corporation does not have any knowledge of any breach or anticipated
breach by the other parties to any such material Contract to which it
is a party.
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(c) The Corporation has delivered to the Purchaser true and
complete copies of all the Contracts and documents listed in the
schedules to this Agreement, except for all employee confidentiality
agreements and all list rental agreements.
2.12 Year 2000 Compliance. To the knowledge of the Corporation and
except as set forth in Schedule 2.12 hereto, as of the Closing Date,
all Date-Sensitive Systems which are owned by the Corporation and are
material to the Corporation's current business are Year 2000 Compliant.
"Date Data" means any data of any type that includes date information
or which is otherwise derived from, dependent on or related to date
information. "Date-Sensitive System" means any material software,
microcode or hardware system or component, including any electronic or
electronically controlled system or component, that processes any Date
Data and that is currently installed by the Corporation for its
internal use, or that the Corporation currently sells, leases,
licenses, assigns or otherwise provides to third parties, or the
provision or operation of which the Corporation provides the benefit,
to its customers, vendors, suppliers, affiliates or any other third
party. "Year 2000 Compliant" means (i) with respect to Date Data, that
such data is in proper format and accurate for all dates in the
twentieth and twenty-first centuries, and (ii) with respect to
Date-Sensitive Systems, that each such system will operate from and
after January 1, 2000 without error relating to Date Data, including
but not limited to any error relating to a product of, Date Data which
represents references to different centuries or more than one century
or utilizes a four digit year code or format. Except as set forth in
Schedule 2.12 hereto, the Corporation has used commercially reasonable
efforts to obtain (but has not obtained in all cases) written
representations or assurances from each entity that (x) provides
material Date Data to the Corporation, (y) processes in any way
material Date Data for the Corporation or otherwise provides any
material product or service to the Corporation that is dependent on
Year 2000 Compliant Date Data or a Year 2000 Compliant Date-Sensitive
System, that all of such entity's material Date Data and Date-Sensitive
Systems that are used for, or on behalf of, the Corporation are Year
2000 Compliant.
2.13 Title and Related Matters.
(a) Except as set forth in Schedule 2.13(a) hereto, the
Corporation has good and marketable title to all personal property and
other assets reflected in the Financial Statements or acquired after
the Financial Statement Date, free and clear of all Liens, except
Permitted Liens. The Corporation does not own any real property.
Schedule 2.13(b) hereto sets forth a complete and accurate list of all
leased assets that have annual rental payments in excess of $25,000
(including the expiration date of such lease, the name of the lessor,
the annual rental payment and whether a consent is required from the
lessor to consummate the transactions contemplated hereby).
(i) To the Corporation's knowledge, all the
Corporation's leases are in full force and effect, and valid
and enforceable in accordance with their respective terms. The
Corporation has not received any notice of any, and to the
Corporation's knowledge, there exists no event of default or
event which
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constitutes or would constitute (with notice or lapse of time
or both) a default by the Corporation or any other Person
under any lease.
(ii) All rent and other amounts due and payable with
respect to the Corporation's leases have been paid in
substantial compliance with the terms of such leases through
the date of this Agreement and all rent and other amounts due
and payable with respect to the Corporation's leases that are
due and payable on or prior to the Closing Date will have been
paid in substantial compliance with the terms of such leases
prior to the Closing Date.
(iii) The Corporation has received no written notice
that the landlord with respect to any real property lease
would refuse to renew such lease upon expiration of the period
thereof upon substantially the same terms, except for rent
increases consistent with past experience or market rentals.
(b) None of the assets belonging to the Corporation is or will
be on the Closing Date subject to any (i) Contracts of sale or lease
(except as disclosed in Schedule 2.13(b)), except Contracts for the
sale of inventory in the ordinary and regular course of business or
(ii) Liens, except for Permitted Liens and the Liens set forth in
Schedule 2.13(a) hereto.
(c) There has not been since the Financial Statement Date and
will not be prior to the Closing Date, any sale, lease, or any other
disposition or distribution by the Corporation of any of its assets or
properties, now or hereafter owned by it, except transactions in the
ordinary and regular course of business or as otherwise consented to by
the Purchaser. After the Closing, the Purchaser will own, or have the
right to use all properties and assets that are currently used in
connection with the Corporation's business.
2.14 Litigation. Except as set forth in Schedule 2.14 hereto, there is
no Claim pending or, to the best knowledge of the Corporation, threatened
against the Corporation, nor is there any Order outstanding against the
Corporation.
2.15 Tax Matters.
(a) The Corporation has filed all Tax Returns required to be
filed and has duly paid all relevant Taxes due or claimed to be due by
all Taxing Authorities. Except as set forth in Schedule 2.15 hereto,
the Corporation has not requested any extension of time within which to
file or send any Tax Return. All Taxes applicable for all periods prior
to the date hereof have been paid or fully reserved against on the
Financial Statements in accordance with GAAP. From the date hereof
until the Closing Date the Corporation shall fully reserve on its
financial statements all amounts necessary for the payment of all Taxes
that have accrued up to and including the Closing Date. All Taxes which
are required to be withheld or collected by the Corporation have been
duly withheld or collected and, to the extent required, have been paid
to the proper Taxing Authority or properly segregated or deposited as
required by applicable law. The Corporation has
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disclosed on its Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of section 6662 of the Code. There are no Liens for Taxes
upon any property or assets of the Corporation, except for Liens for
Taxes not yet due and payable. The Corporation has not executed any
waiver of the statute of limitations on the right of the Internal
Revenue Service or any other Taxing Authority to assess additional
Taxes or to contest the income or loss with respect to any Tax Return.
No Claim has ever been made by a Taxing Authority in writing to the
Seller or the Corporation in a jurisdiction where the Corporation does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. Except for the Seller, the Corporation has not been a
member of an affiliated group filing consolidated or combined federal,
state, local or foreign income Tax Returns or has any liability for the
Taxes of any other Person under Treasury regulation ss. 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee
or successor, by contract, or otherwise. The basis of any depreciable
assets, and the methods used in determining allowable depreciation
(including cost recovery), of the Corporation set forth in the
Corporation's books and records and are, to the best knowledge of the
Corporation, correct and in compliance with the Code in all material
respects.
(b) No issues have been raised that are currently pending by
any Taxing Authority in connection with any Tax Returns. No material
issues have been raised in any examination by any Taxing Authority with
respect to the Corporation which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. To the knowledge of the Corporation,
there are no unresolved issues or unpaid deficiencies relating to such
examinations. The items relating to the business, properties or
operations of the Corporation on the Tax Returns filed by the
Corporation for all taxable years (including the supporting schedules
filed therewith), available copies of which have been supplied (or will
be promptly supplied upon request) to the Purchaser, state accurately,
in all material respects the information requested with respect to the
Corporation and such information was derived from the Corporation's
books and records.
(c) The Corporation is not subject to any joint venture,
partnership, or other arrangement or Contract which is treated as a
partnership for federal income tax purposes. The Corporation is not
party to any Tax sharing Contract except for informal tax sharing
arrangements which shall be terminated at Closing.
(d) The Corporation has not filed a consent under Section
341(f) of the Code or comparable provisions of any state statutes.
(e) All Tax Returns of the Seller (which include the
operations of the Corporation) for the Tax years ending January 31,
1997 and 1998, respectively, have been made available to Purchaser and
none of which have been audited or are currently being audited.
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(f) None of the assets of the Corporation constitutes
tax-exempt bond financed property or tax exempt use property within the
meaning of Section 168 of the Code, and none of the assets of the
Corporation are subject to a lease, safe harbor lease, or other
arrangement as a result of which the Corporation is not treated as the
owner for federal income tax purposes.
(g) The Corporation has not made any payments, is not
obligated to make any payments nor is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Section 280G of the Code.
(h) No power of attorney has been granted by the Corporation
with respect to any matter relating to Taxes which is currently in
force.
2.16 Compliance with Law and Applicable Government Regulations. The
Corporation has been operated in compliance with regard to its operations,
practices, real property, plants, structures, machinery, equipment and other
property, and all other aspects of its business, with all applicable Regulations
and Orders, including, but not limited to, all Regulations relating to the safe
conduct of business, environmental protection, quality and labeling, antitrust,
Taxes, consumer protection, equal opportunity, discrimination, health,
sanitation, fire, zoning, building and occupational safety except to the extent
the failure to so operate or comply has not had a Material Adverse Effect. There
are no Claims pending, or to the Corporation's knowledge threatened, nor has the
Corporation received any written notice, regarding any violations of any
Regulations and Orders enforced by any Authority claiming jurisdiction over the
Corporation including any requirement of OSHA or any pollution and environmental
control agency (including air and water).
2.17 ERISA and Related Matters. Except as disclosed on Schedule 2.17
hereto, neither the Seller, nor any ERISA Affiliate of the Seller, is a party to
or participates in or has any liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or "employee pension benefit plan" or
"multiemployer plan" (as those terms are respectively defined in Sections 3(1),
3(2) and 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")); or (ii) any retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements for any
employee, director, consultant or agent, whether pursuant to Contract,
arrangement, custom or informal understanding, which does not constitute an
"employee benefit plan" (as defined in Section 3(3) of ERISA).
2.18 Intellectual Property.
(a) The current operation of the business of the Corporation
requires no material Proprietary Rights other than the rights listed on
Schedule 2.18(a) hereto. Except as otherwise set forth on Schedule
2.18(a), the Corporation owns all right, title and interest in the
Proprietary Rights listed on Schedule 2.18(a) including, without
limitation, exclusive rights to use and license the same. Except as set
forth on Schedule
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2.18(a), to the Company's knowledge no Claim adverse to the interests
of the Corporation in the Proprietary Rights or Contracts listed in
Schedule 2.18(a) has been made in litigation or otherwise. The
Corporation has taken all commercially reasonable measures to protect
the proprietary nature of each Proprietary Right, and to maintain in
confidence all trade secrets and confidential information that it owns
or uses.
(b) To the knowledge of the Corporation, (i) no other Person
has any rights to any of the Proprietary Rights owned by the
Corporation except pursuant to agreements or licenses specified in
Schedule 2.18(b) hereto, (ii) no other Person is infringing, violating
or misappropriating any such Proprietary Right that the Corporation
owns or uses, and (iii) no Proprietary Right owned by the Corporation
is subject to any Outstanding Order or Claim.
(c) The current material software applications used by the
Corporation in the operation of its business, as set forth and
described on Schedule 2.18(c) hereto (the "Software"), are sufficient
to conduct the current operation of the Corporation's business. The
Corporation owns or leases sufficient rights in and to such software.
2.19 Customer Warranties. There are no pending, nor to the knowledge of
the Corporation, threatened, Claims under or pursuant to any warranty, whether
expressed or implied, on products or services sold prior to the Closing Date by
the Corporation that are not disclosed or referred to in the Financial
Statements and that are not adequately reserved against in accordance with GAAP.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20, to
the Seller's knowledge: (a) neither the Corporation's business nor the operation
thereof violates any applicable Environmental Law in effect as of the date
hereof and no condition or Occurrence which, with notice or the passage of time
or both, would constitute a violation of any Environmental Law; (b) the
Corporation is in possession of all Environmental Permits required under any
applicable Environmental Law for the conduct or operation of the Corporation's
business (or any part thereof), and the Corporation is in full compliance with
all of the requirements and limitations included in such Environmental Permits;
(c) the Corporation has not stored or used any pollutants, contaminants or
hazardous or toxic wastes, substances or materials on or at any of its property
or facilities except for inventories of chemicals which are used or to be used
in the ordinary course of the Corporation's business (which inventories have
been sorted or used in accordance with all applicable Environmental Permits and
all Environmental Laws, including all so-called "Right to Know" laws); (d) the
Corporation has not received any written notice from any Authority or any
private Person that the Corporation's business or the operation of any of its
facilities is in violation of any Environmental Law or any Environmental Permit
or that it is responsible (or potentially responsible) for the cleanup of any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on or beneath any of the Corporation's property, or at, on or beneath any
land adjacent thereto or in connection with any waste or contamination site; (e)
the Corporation is not the subject of any Federal, state, local, or private
Claim involving a demand for damages or other potential liability with respect
to a violation of Environmental Laws or under any common law theories relating
to operations or
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the condition of any facilities or property (including underlying groundwater)
owned, leased, or operated by the Corporation; (f) the Corporation has not
buried, dumped, disposed, spilled or released any pollutants, contaminants or
hazardous or wastes, substances or materials on, beneath or adjacent to any of
its property or any property adjacent thereto; (g) no by-products of any
manufacturing or mining process employed in the operation of the Corporation's
business which may constitute pollutants, contaminants or hazardous or toxic
wastes, substances or materials under any Environmental Law are currently stored
or otherwise located on any of the Corporation's property; (h) no property now
or previously owned, leased or operated by the Corporation, is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any other federal or state list of sites requiring investigation
or clean-up; (i) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned, leased or operated by the Corporation; (j) the Corporation has not
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for listing on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to material Claims
against the Corporation for any remedial work, damage to natural resources or
personal injury, including claims under CERCLA; and (k) there are no
polychlorinated biphenyls, radioactive materials or friable asbestos present at
any property now or previously owned or leased by the Corporation. The
Corporation has timely filed all reports required to be filed with respect to
all of its property and facilities and has generated and maintained all required
data, documentation and records under all applicable Environmental Laws.
2.21 Capital Expenditures and Investments. The Corporation has no
outstanding Contracts for capital expenditures and investments requiring
expenditures in excess of $50,000 except as set forth in Schedule 2.21 hereto.
2.22 Dealings with Affiliates. Schedule 2.22 hereto sets forth a
complete and accurate list, including the parties, of all oral or written
Contracts exceeding $10,000 to which the Corporation is, will be or has been a
party, at any time from January 31, 1997 to the Closing Date, to which any one
or more Affiliates or Seller is also a party, and that are not on such terms as
would be commercially reasonable if negotiated on a third party, arms-length
basis. Except as set forth on Schedule 2.22 hereto, since January 31, 1997, the
Corporation has not made any payments, loaned any funds or property or made any
credit arrangement with the Seller, any Affiliate or employee of the Corporation
in excess of $10,000 except for the payment of employee salaries and director
compensation in the ordinary course of business.
2.23 Insurance. The Corporation currently has, and through the Closing
Date will have, Policies in full force and effect that provide for coverages
that are usual and customary as to amount and scope in the business of the
Corporation. All of the Policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Closing Date have
been paid or accrued therefor, and no notice of cancellation or termination has
been received with respect to any Policy. Schedule 2.23 hereto sets forth a
complete and accurate summary of all Policies, including name of insurer, the
types, dates and amounts of coverage, and any material coverage exclusion. The
Corporation has not breached or otherwise failed to
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perform in any material respects its obligations under any of the Policies nor
has the Corporation received any adverse notice or communication from any of the
insurers party to the Policies with respect to any such alleged breach or
failure in connection with any of the Policies. To the knowledge of the
Corporation, all Policies are sufficient for compliance with all Regulations and
all Contracts to which the Corporation is subject, are to the Corporation's
knowledge valid, outstanding, collectible and enforceable policies. The
Corporation has not since it has been owned by the Seller been refused any
insurance with respect to its assets or operations.
2.24 Accounts Receivable; Inventories. The accounts receivable of the
Corporation reflected in the Financial Statements, the Closing Date Balance
Sheet and such additional accounts receivable as are reflected on the books of
the Corporation on the date hereof (except to the extent so reserved against)
are valid, genuine and subsisting, arise out of bona fide sales and deliveries
of goods, performance of services or other business transactions and are not
subject to defenses, set-offs or counterclaims. The inventories reflected on the
Financial Statements, the Closing Date Balance Sheet and held by the Corporation
on the date hereof do not include any items which are not usable or saleable in
the ordinary course of business of the Corporation at normal margins (without
discount therefrom) except to the extent reserved against on the Financial
Statements and the Closing Date Balance Sheet. Such inventories have been
reflected on such balance sheets at the lower of cost or market value (taking
into account the usability or salability thereof), in accordance with GAAP.
Since the Financial Statement Date, inventories of raw materials and supplies
have been purchased by the Corporation only in the ordinary course of business,
consistent with anticipated seasonal requirements, and the volumes of purchases
thereof and orders therefor have not been reduced or otherwise changed in
anticipation of the transactions contemplated by this Agreement. Except as set
forth in Schedule 2.24 hereto, the Corporation is not aware of any material
adverse conditions affecting the supply of materials available to the
Corporation, and, to the knowledge of the Corporation, the consummation of the
transactions contemplated hereby will not materially adversely affect any such
supply or replacement supply of a similar product.
2.25 Brokerage. Except for the fees and expenses of Gruppo Levy & Co.,
which are being paid by the Seller, there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Corporation.
2.26 Suppliers. No material supplier of the Corporation has advised the
Corporation in writing within the past year that it will stop, or decrease the
rate of, supplying materials, products, or services to the Corporation and no
material customer of the Corporation has advised the Corporation in writing
within the past year that it will stop, or decrease the rate of, buying
materials, products or services from the Corporation. Schedule 2.26 hereto sets
forth a complete and accurate list of each supplier that is the sole supplier of
any significant product or component to the Corporation which product or
component comprises more than five percent of the Corporation's cost of goods
sold for the prior year.
2.27 Permits. The Permits listed on Schedule 2.27 hereto are the only
Permits that are required for the Corporation to conduct its business as
presently conducted, except for those the
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absence of which would not have any Material Adverse Effect. Each such Permit is
in full force and effect and, to the best of the knowledge of the Corporation,
no suspension or cancellation of any such Permit is threatened and such Permit
will be renewable upon expiration.
2.28 Improper and Other Payments. Except as set forth on Schedule 2.28
hereto, (a) neither the Corporation, nor, to the Corporation's knowledge, any
director, officer, employee, agent or representative of the Corporation nor any
Person acting on behalf of any of them, has made, paid or received any unlawful
bribes, kickbacks or other similar payments to or from any Person, (b) to its
knowledge, no contributions by or on behalf of the Corporation have been made to
a domestic or foreign political party, candidate or Authority, (c) no improper
foreign payment (as defined in the Foreign Corrupt Practices Act) has been made
by the Corporation, and (d) the internal accounting controls of the Corporation
are believed by the Corporation's management to be adequate to detect any of the
foregoing under current circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows as of
the date hereof and as of the Closing Date:
3.1 Corporate Organization, Etc. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. The Purchaser is duly qualified or licensed to do
business and is in corporate and tax good standing in every jurisdiction in
which the conduct of its business, the ownership or lease of its properties, or
the execution of, and performance of the transactions contemplated by, this
Agreement, require it to be so qualified or licensed.
3.2 Authorization, Etc. The Purchaser has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby and thereby. The Board of Directors of the Purchaser has
duly authorized the execution, delivery and performance of this Agreement and to
consummate the transactions contemplated hereby, and no other corporate
proceedings on their part are necessary to authorize this Agreement and the
transactions contemplated hereby and thereby. This Agreement constitutes the
legal, valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms.
3.3 No Violation. Except as set forth in Schedule 3.3 hereto, the
execution, delivery and performance by the Purchaser of this Agreement, and all
other agreements contemplated hereby, and the fulfillment of and compliance with
the respective terms hereof and thereof by the Purchaser, do not and will not
(a) conflict with or result in a breach of the terms, conditions or provisions
of, (b) result in a violation of, or (c) require any authorization, consent,
approval, exemption or other action by, or notice to, or filing with any court
or Authority pursuant to, the charter or bylaws of the Purchaser or, to the
knowledge of the Purchaser, any applicable
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Regulation (including, without limitation, approvals pursuant to the
Xxxx-Xxxxx-Xxxxxx Act), Order or any Contract to which the Purchaser, or its
properties are subject. The Purchaser will comply in all material respects with
all applicable Regulations and Orders in connection with its execution, delivery
and performance of this Agreement and the transactions contemplated hereby.
3.4 Investment Intent. The Purchaser represents and warrants to the
Seller that it is purchasing the Shares for investment purposes and not with a
view to distribution thereof and agrees that it shall not make any sale,
transfer or other disposition of the Shares in violation of any applicable
securities law.
ARTICLE IV
COVENANTS OF THE SELLER
Until the Closing Date, except as otherwise consented to or approved by
the Purchaser in writing, the Seller agrees that it shall act, or refrain from
acting where required hereinafter, to comply (and to cause the Corporation to
comply) with the following:
4.1 Regular Course of Business. The Corporation shall operate its
business diligently and in good faith, consistent with past management
practices; shall maintain all of its properties in customary repair, order and
condition, reasonable wear and tear excepted; shall maintain (except for
expiration due to lapse of time) all material leases and material Contracts in
effect without material change except as expressly provided herein; shall comply
in all material respects with the provisions of all Regulations and Orders
applicable to the Corporation and the conduct of its business; shall not cancel,
release, waive or compromise any debt, Claim or right in its favor having a
value in excess of $25,000 other than in connection with returns for credit or
replacement in the ordinary course of business; shall not alter the rate or
basis of compensation of any of its officers, directors or employees other than
in the ordinary course of business; and shall maintain insurance coverage up to
the Closing Date with the coverage and in the amounts set forth in Schedule 2.23
hereto.
4.2 Amendments. Except as required for the transactions contemplated in
this Agreement, no change or amendment shall be made in the charter or bylaws of
the Corporation. The Corporation shall not merge into or consolidate with any
other Person or change the character of its business.
4.3 Capital Changes; Pledges. The Corporation shall not issue or sell
any shares of its capital stock of any class or issue or sell any securities
convertible into, or Options to subscribe for any shares of its capital stock
and the Corporation shall not pledge or otherwise encumber any shares of its
capital stock. In addition, the Corporation shall not allow the transfer of any
Shares of its Capital Stock on the stock transfer ledger or other books and
records.
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4.4 Dividends. The Corporation shall not declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock, nor
shall the Corporation, directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock.
4.5 Capital and Other Expenditures. The Corporation shall not make any
material capital expenditures, or commitments with respect thereto, except as
provided in Section 2.21. On or before the Closing Date, the Corporation shall
take such action so as not to be a creditor of the Seller or of any Seller
Affiliate.
4.6 Borrowing. The Corporation shall not incur, assume or Guarantee any
Indebtedness not reflected on the Financial Statements except (a) in the
ordinary course of business under existing credit facilities (b) up to $1.5
million of Indebtedness to the Seller or (c) for purposes of consummating the
transactions contemplated by this Agreement.
4.7 Other Commitments. Except as set forth in this Agreement, incurred
or transacted in the ordinary course of business, or permitted in writing by the
Purchaser, the Corporation shall not enter into any material transaction or make
any material commitment or incur any material obligation (including entering
into any real property leases).
4.8 Interim Financial Information and Audit. The Corporation shall
supply the Purchaser with its internally prepared unaudited monthly operating
statements within twenty (20) days after the end of each month ending between
the date hereof and the Closing Date, certified by the Corporation's chief
financial officer as having been prepared in accordance with procedures employed
by the Corporation in preparing prior monthly operating statements and
certifying that such financial statements were prepared in accordance with GAAP.
4.9 Full Access and Disclosure.
(a) The Seller and the Corporation shall afford to the
Purchaser and its counsel, accountants, agents and other authorized
representatives and to financial institutions specified by the
Purchaser reasonable access during business hours to the Corporation's
plants, properties, books and records in order that the Purchaser may
have full opportunity to make such reasonable investigations as it
shall desire to make of the affairs of the Corporation; and the
Corporation shall cause its officers, employees and auditors to furnish
such additional financial and operating data and other information as
the Purchaser shall from time to time reasonably request including,
without limitation, any internal control recommendations made by its
independent auditors in connection with any audit of the Corporation.
(b) From time to time prior to the Closing Date, the Seller
shall promptly supplement or amend information previously delivered to
the Purchaser with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been
required to be set forth or disclosed; provided, however, that such
supplemental information shall not be deemed to be an amendment to any
schedule or exhibit hereto.
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4.10 Breach of Agreement. The Seller shall not take any action which if
taken prior to the Closing Date would constitute a breach of this Agreement. The
Seller shall not allow any of its Subsidiaries to take any action prohibited by
this Article IV or refrain from taking any action required by this Article IV.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with the Seller that:
5.1 Confidentiality. The Purchaser agrees that unless and until the
transactions contemplated hereby have been consummated, the Purchaser and its
representatives and its Affiliates and their representatives and advisors will
hold in strict confidence all data and information obtained from the Seller, the
Corporation or any of their Affiliates in connection with the transactions
contemplated hereby, except any of the same which (i) was, is now, or becomes
generally available to the public (but not as a result of a breach of any duty
of confidentiality by which the Purchaser and its representatives and its
Affiliates and their representatives and advisors is bound); (ii) was known to
the Purchaser prior to its disclosure to the Purchaser as demonstrated by
Purchaser's written records; or (iii) is disclosed to the Purchaser by a third
party not subject to any duty of confidentiality to the Seller, the Corporation
or any of their Affiliates prior to its disclosure to the Purchaser by the
Seller, the Corporation or any of their Affiliates. The Purchaser will use such
data and information solely for the specific purpose of evaluating the
transactions contemplated hereby. If this Agreement is terminated, the Purchaser
and its Affiliates and their representatives and advisors will promptly return
to the Seller all such data, information and other written material (including
all copies thereof) which has been obtained by the Purchaser, and the Purchaser
will make no further use whatsoever of, or disclose to any other person, any of
such or the information and knowledge contained therein or derived therefrom.
ARTICLE VI
OTHER AGREEMENTS
The parties further agree as follows:
6.1 Agreement to Defend. In the event any action, suit, proceeding or
investigation of the nature specified in Section 7.5 or Section 8.3 hereof is
commenced, whether before or after the Closing Date, all the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto.
6.2 Further Assurances. Subject to the terms and conditions of this
Agreement, the parties hereto shall use 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 under applicable
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Regulations and Orders to consummate and make effective as promptly as possible
the transactions contemplated by this Agreement, and to cooperate with each
other in connection with the foregoing, including without limitation using all
commercially reasonable efforts (a) to obtain all necessary waivers, consents,
and approvals from other parties to loan agreements, leases, mortgages and other
Contracts, (b) to obtain all necessary Permits, consents, approvals and
authorizations as are required to be obtained under any Regulation, (c) to lift
or rescind any injunction or restraining order or other Order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby, (d) to effect all necessary registrations and filings including, but not
limited to, filings under the Xxxx-Xxxxx-Xxxxxx Act and submissions of
information requested by Authorities, and (e) to fulfill all conditions to the
obligations of the parties under this Agreement. Each of the Purchaser and the
Corporation further covenants and agrees that it shall use its respective
commercially reasonable efforts to prevent, with respect to a threatened or
pending preliminary or permanent injunction or other Regulation or Order the
entry, enactment or promulgation thereof, as the case may be.
6.3 No Solicitation or Negotiation. Unless and until this Agreement is
terminated, neither the Seller, the Corporation nor any Subsidiary shall, and
shall use its best efforts to cause its directors, officers, employees,
representatives, agents, advisors, accountants and attorneys not to, initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to, or engage in negotiations concerning, or provide any
confidential information or data to any Person with respect to, or have any
discussions with any Person relating to, any acquisition, business combination
or purchase of all or any significant asset of, or any equity interest in,
directly or indirectly, the Corporation or any Subsidiary, or otherwise
facilitate any effort or attempt to do or seek any of the foregoing, and shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
6.4 No Termination of Seller's Obligations by Subsequent Incapacity,
Dissolution, Etc. The Seller specifically agrees that the obligations of Seller
hereunder, including, without limitation, obligations pursuant to Article XI
shall not be terminated by the dissolution of the Seller or by operation of law.
6.5 Deliveries After Closing. From time to time after the Closing, at
the Purchaser's request and without expense to the Corporation or any Subsidiary
and without further consideration from the Purchaser, the Corporation or any
Subsidiary, the Seller shall execute and deliver such other instruments of
conveyance and transfer and take such other action as the Purchaser reasonably
may require (but at no cost to the Seller exceeding $10,000) to convey, transfer
to and vest in the Purchaser and to put the Purchaser in possession of any
rights or property to be sold, conveyed, transferred and delivered hereunder.
6.6 Non-Competition. The Seller agrees that, during the Restricted
Period, the Seller shall not in any capacity, either separately or in
association with others, directly or indirectly own, manage, control,
participate, lend its name to, or render services to any other person or entity
engaged in mail order and/or catalog business (a) selling merchandise primarily
of the type offered in and using a similar theme as any of the Corporation's
catalogs during the Restricted
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Period and/or (b) utilizing any rental list that was used by the Corporation
during the twelve months prior to the date of the signed purchase agreement. The
"Restricted Period" shall mean two (2) years after the date of this Agreement.
The "Restricted Area" shall mean the United States of America.
6.7 Public Announcements. Except as otherwise required by Regulation or
the rules of any applicable stock exchange or NASDAQ, neither the Seller, the
Corporation nor the Purchaser nor any Affiliate, representative or shareholder
of either of such persons, shall disclose any of the terms of this Agreement to
any third party without the other party's prior written consent, which consent
shall not be unreasonably withheld. The form, content and timing of all press
releases, public announcements or publicity statements with respect to this
Agreement and transactions contemplated hereby shall be subject to the prior
approval of both the Seller and the Purchaser, which approval shall not be
unreasonably withheld. No press releases, public announcements or publicity
statements shall be released by either party without such prior mutual
agreement, which shall not be unreasonably withheld.
6.8 Section 338(h)(10) Election. The Seller and the Purchaser agree to
make elections under Section 338(h)(10) of the Code and Treasury Regulations
Section 1.338(h)(10)-1(d) (and any corresponding elections under any applicable
state and local Laws) (collectively, the "338(h)(10) Elections") with respect to
the purchase and sale of the Shares from the Seller hereunder. Within ninety
(90) days after the Closing Date, the Seller and the Purchaser shall exchange
completed and executed copies of IRS Form 8023 and/or Form 8023-A (or other
applicable form), required schedules thereto, and any similar forms required by
any state or local Taxing Authority. The Seller and the Purchaser shall in good
faith use commercially reasonable efforts to promptly agree on such forms and
the allocation of the "Modified Adjusted Deemed Sales Price," as defined in
Treasury Regulations ss.1.338(h)(10)-(f), among the assets of the Corporation
(the "Allocation Schedule"). The Seller and the Purchaser each agree to file all
Tax Returns in accordance with the Allocation Schedule. The Purchaser may, in
its sole discretion, retain a nationally recognized independent appraiser
acceptable to both the Seller and the Purchaser to determine the fair market
value of the assets of the Corporation. The fees and expenses of such appraiser
shall be paid by the Purchaser.
6.9 Affiliated Indebtedness. The parties hereby agree that all net
Affiliate intercompany balances of the Corporation will be reclassified as paid
in capital prior to the Closing Date.
6.10 Repairs. On the Closing Date, Purchaser shall reimburse
International for the Model 20 Disk Array, associated hardware and software and
related costs ordered and paid for by the Corporation from Xxxxx-Xxxxxxx
pursuant to the August 3, 1999 Quotation executed by the Corporation.
6.11 Lease. Purchaser shall not amend or agree to an amendment to the
form of or executed lease amendment attached hereto as Exhibit 8.8 without the
consent of International to the extent any such amendment will affect the
provisions in such lease amendment requiring the
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landlord to pay certain amounts of the security deposit to International as set
forth in such lease amendment.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Except for Purchaser's obligations set forth in Section 5.1, each and
every obligation of the Purchaser under this Agreement shall be subject to the
satisfaction, on or before the Closing Date, of each of the following conditions
unless waived in writing by the Purchaser:
7.1 Representations and Warranties; Performance. The representations
and warranties of the Seller contained in Article II shall be true and correct
in all material respects when made and on the Closing Date as though then made,
except as expressly provided herein. The Corporation and the Seller shall have
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by them prior to the Closing
Date. Executive Officers of Direct Marketing and International, respectively,
shall have delivered to the Purchaser certificates (which shall be addressed to
the Purchaser and its lenders), dated the Closing Date, in the form of Exhibit
7.1(a) hereto (in the case of International) and of Exhibit 7.1(b) hereto (in
the case of Direct Marketing), certifying to the foregoing.
7.2 Consents and Approvals. The Purchaser, the Seller and the
Corporation shall have obtained any and all consents, approvals or other
authorizations required by all applicable Regulations, Orders and Contracts of
the Corporation or binding on its properties and assets, with respect to the
execution, delivery and performance of the Agreement, the financing and
consummation of the transactions contemplated herein and the conduct of the
business of the Corporation in the same manner after the Closing Date as before
the Closing Date.
7.3 Opinion of the Seller's Counsel. The Purchaser shall have received
an opinion of the Seller's counsel (which will be addressed to the Purchaser and
its lenders), dated the Closing Date, in the form of Exhibit 7.3 hereto.
7.4 No Material Adverse Change. There shall have been no Material
Adverse Change since the date of this Agreement. The Purchaser shall have
received certificates (which shall be addressed to the Purchaser and its
lenders), dated the Closing Date, of the president and chief financial officer
of the Corporation, in the form of Exhibit 7.4 hereto, certifying to the
foregoing.
7.5 No Proceeding or Litigation. No preliminary or permanent injunction
or other Order issued by any Authority, or any Regulation or Order promulgated
or enacted by any Authority shall be in effect, which would prevent the
consummation of the transactions contemplated hereby.
7.6 Accounting Matters. The Purchaser shall have received a
certificate, dated the Closing Date, of the Corporation's chief financial
officer in the form of Exhibit 7.6 hereto, as to
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the accuracy of all of the Corporation's financial statements for the fiscal
years ending January 31, 1999, and 1998, and for the five-month period ending on
June 30, 1999.
7.7 Condition of Assets. The Corporation's assets and properties shall
not have been damaged or destroyed, prior to the Closing Date, by fire or other
casualty, whether or not fully covered by insurance, in an aggregate amount
exceeding $100,000.
7.8 Proceedings and Documents. All documents and instruments incident
to the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Purchaser and the Purchaser's counsel, and the Corporation
shall have made available to the Purchaser for examination the originals or
true, complete and correct copies of all records and documents relating to the
business and affairs of the Corporation that the Purchaser may reasonably
request in connection with said transaction.
7.9 Secretary's Certificate. The Purchaser shall have received a
certificate, by the secretary of International and Direct Marketing,
respectively, as to the charter and bylaws of International and Direct
Marketing, respectively, the resolutions adopted by the directors of
International and Direct Marketing, respectively, in connection with this
Agreement, and the incumbency of certain officers of International and Direct
Marketing, respectively, in the form of Exhibit 7.9(a) hereto (in the case of
International) and of Exhibit 7.9(b) (in the case of Direct Marketing).
7.10 Certificates of Good Standing. At the Closing, the Corporation
shall have delivered to the Purchaser certificates issued by the appropriate
governmental authorities evidencing the good standing of the Corporation as of a
date not more than fifteen (15) days prior to the Closing Date as a corporation
organized under the laws of the state and as a foreign corporation authorized to
do business under the laws of the jurisdictions listed in the exhibits hereto.
7.11 Leases. Each of the Corporation's lessors of real property shall
have executed a landlord estoppel letter in the form of Exhibit 7.11(a) or
Exhibit 7.11(b) hereto.
7.12 Termination of Affiliate Contracts. The Seller shall have caused
all Contracts between the Corporation and the Seller and its Affiliates to
terminate at Closing without any further liability to the Corporation or the
Seller or its Affiliates.
7.13 Resignations. The Seller shall have caused the directors
previously identified by the Purchaser to have resigned from the Board of
Directors of the Corporation.
7.14 Creditor Consents. The Corporation's secured creditors, other than
those creditors party to capital leases with the Corporation, shall have agreed
in writing with the Corporation as to the amounts owed in order for such
creditors to have been paid in full and to release all Liens in favor of such
creditors. The Corporation's secured creditors, other than those creditors party
to capital leases with the Corporation, shall provide at Closing (as directed by
the Seller's counsel) such UCC termination statements, releases of mortgages and
other releases of Liens as shall be required by the Purchaser and its lenders.
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7.15 Other Documents. The Corporation shall have furnished the
Purchaser with such other and further documents and certificates, including
certificates of the Corporation's officers and others, as the Purchaser shall
reasonably request to evidence compliance with the conditions set forth in this
Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
Each and every obligation of the Seller under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Seller:
8.1 Representations and Warranties; Performance. The representations
and warranties of the Purchaser contained in Article III shall be true and
correct in all material respects when made and on the Closing Date as though
then made, except as expressly provided herein. The Purchaser shall have
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date. The president of the Purchaser shall have delivered to the Seller a
certificate, dated the Closing Date, in the form designated Exhibit 8.1 hereto,
certifying to the foregoing.
8.2 Consents and Approvals. The Purchaser shall have obtained any and
all material consents, approvals, Permits or other authorizations, including
compliance with the Xxxx-Xxxxx-Xxxxxx Act, required by all applicable
Regulations or Orders, with respect to the execution, delivery and performance
of the Agreement, and the consummation of the transactions contemplated herein.
8.3 No Proceeding or Litigation. No preliminary or permanent injunction
or other Order issued by any Authority, or any Regulation or executive order
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
8.4 Secretary's Certificate. The Seller shall have received a
certificate, by the secretary of the Purchaser, dated the Closing Date, as to
the charter and bylaws of the Purchaser, the resolutions adopted by the
directors of the Purchaser in connection with this Agreement, the incumbency of
certain officers of the Purchaser and the jurisdictions in which the Purchaser
is qualified to conduct business in the form of Exhibit 8.4 hereto.
8.5 Opinion of Purchaser's Counsel. The Seller shall have received an
opinion of Purchaser's counsel (which shall be addressed to Seller), dated the
Closing Date, in the form of Exhibit 8.5 hereto.
8.6 Release of Guaranty. International shall have been released from
its guarantee of the Corporation's performance under that certain lease
pertaining to the property commonly known as 00 Xxxxxxxxx Xxxxx, Xxxxxxxxxx, XX,
dated November 19, 1996.
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8.7 Seller Note. The Seller shall have received the Note, dated the
Closing Date, in the form of Exhibit 1.2 hereto.
8.8 Lease Amendment. The Corporation's landlord shall have executed a
form of lease amendment, dated the Closing Date, substantially in the form of
Exhibit 8.8 hereto.
ARTICLE IX
CLOSING
9.1 Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on
October 29, 1999, or on such other date as the parties agree (the "Closing
Date"), in the offices of the Purchaser's lender's counsel, provided that the
Closing shall not occur, in any event, prior to receipt of the consent of the
Federal Trade Commission and the Department of Justice with respect to the
transactions contemplated by the Agreement, or after December 31, 1999.
9.2 Intervening Litigation. If prior to the Closing Date any Order
issued by any Authority shall restrain or prohibit this Agreement or the
consummation of the transactions contemplated herein for a period of fifteen
(15) days or longer, the Closing shall be adjourned at the option of either
party for a period of not more than thirty (30) days. If at the end of such
thirty (30) day period such Order shall not have been favorably resolved, either
party may, by written notice thereof to the other, terminate this Agreement,
without liability or further obligation hereunder.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time:
(a) by mutual consent of the Purchaser and the Seller;
(b) by the Purchaser or the Seller if this Agreement is not
consummated on or before December 31, 1999; provided that if any party
has breached or defaulted with respect to its respective obligations
under this Agreement on or before such date, such party may not
terminate this Agreement pursuant to this Section 10.1(b), and each
other party to this Agreement shall at its option enforce its rights
against such breaching or defaulting party and seek any remedies
against such party, in either case as provided hereunder and by
applicable law;
(c) by the Purchaser if as of the Closing Date any of the
conditions specified in Article VII hereof have not been satisfied or
if the Seller or the Corporation or any
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Subsidiary are otherwise in default under this Agreement or if at any
time prior to the Closing Date it becomes apparent to the Purchaser
that the Seller, the Corporation or any Subsidiary will be unable to so
satisfy one or more of the representations and warranties in Article II
or one or more of the covenants or agreements in Articles IV or VI; or
(d) by the Seller if as of the Closing Date any of the
conditions specified in Article VIII hereof have not been satisfied or
if the Purchaser is otherwise in default under this Agreement or if at
any time prior to the Closing Date it becomes apparent to the Seller or
the Corporation that the Purchaser will be unable to satisfy one or
more of the representations and warranties in Article III or one or
more of the covenants and agreements in Articles V or VI.
10.2 Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, and subject to the proviso
contained in Section 10.1(b) this Agreement shall terminate and shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party shall redeliver all documents and other
material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same;
(b) all information received by any party hereto with respect
to the business of any other party or the Corporation or any Subsidiary
(other than information which is a matter of public knowledge or which
has heretofore been or is hereafter published in any publication for
public distribution or filed as public information with any
governmental authority) shall not at any time be used for the advantage
of, or disclosed to third parties by, such party to the detriment of
the party furnishing such information; and
(c) no non breaching party hereto shall have any liability or
further obligation to any other party to this Agreement.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival. All of the terms and conditions of this Agreement,
together with the representations, warranties and covenants contained herein
shall survive the execution of this Agreement and the Closing Date until all
obligations set forth therein shall have been performed and satisfied
notwithstanding any investigation heretofore or hereafter made by or on behalf
of any party hereto; provided, however, that all representations and warranties
contained in this Agreement, and the agreements and obligations of the Seller
and the Purchaser to indemnify each other set forth in this Article XI, shall
survive and continue for, and all claims with respect thereto shall be made
prior to the end of, eighteen (18) months from the Closing Date at which time
any and all claims for indemnification or otherwise related to, arising out of
or connected with this Agreement and the transactions contemplated herein or
hereby shall be deemed null and
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void, except for (i) the representations and warranties set forth in Sections
2.1, 2.4, 2.5, 2.6 and 2.15, or a claim of fraud (which may be brought in
conjunction with other claims hereunder), and the covenants contained herein
which shall survive until, and all claims with respect thereto shall be made
within, fifteen days after the expiration of the applicable statute of
limitations, and (ii) representations, warranties and indemnities for which an
indemnification claim shall be pending as of the end of the applicable period
referred to above, in which event such indemnities shall survive with respect to
such claim until the final disposition thereof.
11.2 Limitations.
(a) Neither party shall be required to indemnify the other party
under Sections 11.3(a) and 11.4(a) until the indemnifiable damages,
individually or in the aggregate, exceed $150,000 (the "Hurdle Rate"),
at which point such indemnifying party shall be responsible for all
indemnifiable damages that may arise, irrespective of the Hurdle Rate;
and provided that indemnifiable damages shall accumulate until such
time as they exceed the Hurdle Rate, whereupon the party to be
indemnified shall be entitled to seek indemnification for the full
amount of such damages.
(b) In the absence of fraud, after the Closing the aggregate
amount of indemnifiable damages for which the Seller shall be liable
under this Article XI shall not exceed the Cash Amount plus the
Earn-Out Amounts, if any, as adjusted in accordance with the provisions
of Section 1.3; provided however, any claim for fraud shall not be
subject to the foregoing limitation.
(c) In the absence of fraud, no party hereto may pursue any remedy
with respect to claims arising out of this Agreement, the sale of the
Shares, the Corporation, its Subsidiaries or their respective assets,
liabilities and businesses in each case arising under or based upon any
Federal, state, local or foreign statute, law, ordinance, rule or
Regulation or otherwise, other than for monetary damages brought under
this Article XI, as limited by Sections 11.2 and 11.3 hereto. Without
limiting the foregoing, no legal action in tort or strict liability may
be maintained by the Purchaser.
(d) Indemnification claims shall be reduced, by and to the extent,
that an indemnitee shall receive or be deemed to be entitled to receive
proceeds under insurance policies, risk sharing pools, or similar
arrangements specifically as a result of, and in compensation for, the
subject matter of an indemnification claim by such indemnitee.
11.3 Indemnification by Seller. Subject to Sections 11.1 and 11.2, the
Seller agrees to, and shall, indemnify the Purchaser and its officers,
directors, employees, shareholders, representatives and agents and hold each of
them harmless at all times after the date of this Agreement, against and in
respect of any and all damage, loss, deficiency, liability, obligation,
commitment, cost or expense (including the reasonable fees and expenses of
counsel) resulting from, or in respect of, any of the following:
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(a) Any breach of the representations or warranties contained in
Article II of this Agreement on the part of the Seller or
non-fulfillment of any obligation of the Seller under this Agreement.
(b) All liability of the Corporation for Taxes, but excluding any
taxes for which there is an adequate accrual and reserve on the
Financial Statements of the Corporation and any tax liability of the
Corporation arising in connection with the transactions contemplated
hereby. Any Taxes, penalties or interest attributable to the operations
of the Corporation payable as a result of an audit of any Tax Return
shall be deemed to have accrued in the period to which such Taxes,
penalties or interest are attributable.
(c) Any failure of Seller to have good, valid and marketable title
to all the issued and outstanding Shares, free and clear of all Liens.
(d) Any Claim by a shareholder or former shareholder of the
Corporation or any other Person seeking to assert: (i) ownership or
rights to ownership of any shares of capital stock of the Corporation;
(ii) any rights of a shareholder (other than the right to receive the
purchase price in accordance with the terms of this Agreement)
including any Option, preemptive rights or rights to receive notice or
to vote; (iii) any rights under the Corporation's charter, bylaws or
other constituent documents; or (iv) any Claim that his shares of
capital stock were improperly repurchased by the Corporation.
(e) All demands, assessments, judgments, costs and reasonable
legal and other expenses arising from, or in connection with, any
action, suit, proceeding or Claim incident to any of the foregoing.
11.4 Indemnification by the Purchaser. Subject to Sections 11.1 and
11.2, the Purchaser agrees to, and shall, indemnify the Seller, and its
officers, directors, employees, shareholders, representatives and agents and
hold each of them harmless at all times after the date of this Agreement,
against and in respect of any and all damage, loss, deficiency, liability,
obligation, commitment, cost or expense (including the fees and expenses of
counsel) resulting from, or in respect of, any of the following:
(a) Any breach of the representations or warranties contained in
Article III of this Agreement on the part of the Purchaser or
non-fulfillment of any obligation of the Purchaser under this
Agreement.
(b) All demands, assessments, judgments, costs and reasonable
legal and other expenses arising from, or in connection with, any
action, suit, proceeding or Claim incident to any of the foregoing.
11.5 Third-Party Claims.
(a) The following procedures shall be applicable with respect to
indemnification for third-party Claims. Promptly after receipt by the
party seeking
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indemnification hereunder (hereinafter referred to as the "Indemnitee")
of notice of the commencement of any (a) Tax audit or proceeding for
the assessment of Tax by any Taxing Authority or any other proceeding
likely to result in the imposition of a Tax liability or obligation or
(b) action or the assertion of any Claim, liability or obligation by a
third party (whether by legal process or otherwise), against which
Claim, liability or obligation the other party to this Agreement
(hereinafter the "Indemnitor") is, or may be, required under this
Agreement to indemnify such Indemnitee, the Indemnitee will, if a Claim
thereon is to be, or may be, made against the Indemnitor, notify the
Indemnitor in writing of the commencement or assertion thereof and give
the Indemnitor a copy of such Claim, process and all legal pleadings.
The Indemnitor shall have the right to participate in the defense of
such action with counsel of reputable standing. The Indemnitor shall
have the right to assume the defense of such action unless such action
(i) is likely to result in injunctions or other equitable remedies in
respect of the Indemnitee or its business; (ii) has a substantial
likelihood of resulting in liabilities which, taken with other then
existing Claims under this Article XI, would not be fully indemnified
hereunder; or (iii) has a substantial likelihood of having an adverse
effect on the business or financial condition of the Indemnitee after
the Closing Date (including an effect on the Tax liabilities, earnings
or ongoing business relationships of the Indemnitee) or (vi) is for an
alleged amount of less than $25,000. The Indemnitor and the Indemnitee
shall cooperate in the defense of such Claims. In the case that the
Indemnitor shall assume or participate in the defense of such audit,
assessment or other proceeding as provided herein, the Indemnitee shall
make available to the Indemnitor all relevant records and take such
other action and sign such documents as are reasonable necessary to
defend such audit, assessment or other proceeding in a timely manner.
If the Indemnitee shall be required by judgment or a settlement
agreement to pay any amount in respect of any obligation or liability
against which the Indemnitor has agreed to indemnify the Indemnitee
under this Agreement, the Indemnitor shall promptly reimburse the
Indemnitee in an amount equal to the amount of such payment plus all
reasonable expenses (including legal fees and expenses if required
hereunder) incurred by such Indemnitee in connection with such
obligation or liability subject to this Article XI, unless Indemnitor
disputes in good faith its obligation to indemnify Indemnitee under
Article XI. No Indemnitor, in the defense of any such Claim, shall,
except with the consent of the Indemnitee, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnitee of a release from all liability with respect to such
Claim. In the event that the Indemnitor does not accept the defense of
any matter for which it is entitled to assume such defense as provided
above, the Indemnitee shall have the full right to defend against any
such Claim, and, after giving the Seller five (5) days notice, shall be
entitled to settle or agree to pay in full such claim or demand, in its
sole discretion. With respect to any matter as to which the Indemnitor
is not entitled to assume the defense pursuant to the terms of this
paragraph, the Indemnitee shall not enter into any settlement for which
an indemnification claim will be made hereunder without the approval of
the Indemnitor, which will not be unreasonably withheld, and the
Indemnitor shall be entitled to participate in any such claim with
counsel of its choosing at its own expense.
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(b) Prior to paying or settling any Claim against which an
Indemnitor is, or may be, obligated under this Agreement to indemnify
an Indemnitee, the Indemnitee must first supply the Indemnitor with a
copy of a final court judgment or decree holding the Indemnitee liable
on such Claim or failing such judgment or decree, must first receive
the written approval of the terms and conditions of such settlement
from the Indemnitor, which approval shall not be unreasonably withheld.
An Indemnitor or Indemnitee shall have the right to settle any Claim
against it, subject to the prior written approval of the other, which
approval shall not be unreasonably withheld.
(c) An Indemnitee shall have the right to employ its own counsel
in any case, but the fees and expenses of such counsel shall be at the
expense of the Indemnitee unless (i) the employment of such counsel
shall have been authorized in writing by the Indemnitor in connection
with the defense of such action or claim, (ii) the Indemnitor shall not
have employed counsel in the defense of such action or claim, or (iii)
such Indemnitee shall have reasonably concluded that there may be
defenses available to it which are in direct conflict with those
available to the Indemnitor, in any of which events such fees and
expenses of not more than one additional counsel for the Indemnitee
shall be borne by the Indemnitor.
11.6 Manner of Indemnification. Any and all indemnification payments
shall be deemed an adjustment to the purchase price.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by written agreement of
the parties hereto.
12.2 Waiver of Compliance; Consents. Any failure of any party hereto to
comply with any obligation, covenant, agreement or condition herein may be
waived in writing by the other parties hereto, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing.
12.3 Certain Definitions.
"Adjustment Statement" shall have the meaning set forth in Section
1.3(c).
"Affiliate" means, with regard to any Person, (a) any Person,
directly or indirectly, controlled by, under common control of, or
controlling such Person, (b) any Person, directly or indirectly, in
which such Person holds, of record or beneficially, five percent or
more of the equity or voting securities, or (c) any Person that holds,
of record or beneficially, five percent or more of the equity or voting
securities of such Person.
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"Allocation Schedule" shall have the meaning set forth in
Section 6.8.
"Authority" means any governmental, regulatory or
administrative body, agency, commission, board, arbitrator or
authority, any court or judicial authority, any public, private or
industry regulatory authority, whether international, national,
federal, state or local.
"Cash Amount" shall have the meaning set forth in Section 1.2.
"CERCLA: means Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, and the Regulations
thereunder.
"CERCLIS" means Comprehensive Environmental Response,
Compensation, and Liability Information System.
"Claim" means any action, claim, lawsuit, demand, suit,
inquiry, hearing, investigation, notice of a violation, litigation,
proceeding, arbitration, appeals or other dispute, whether civil,
criminal, administrative or otherwise.
"Closing" shall have the meaning set forth in Section 9.1.
"Closing Date" shall have the meaning set forth in Section
9.1.
"Closing Date Balance Sheet" shall have the meaning set forth
in Section 1.3(b).
"Closing Date Net Working Capital" of the Corporation shall
mean the following from the Closing Date Balance Sheet: (i) the sum of
(A) accounts receivable, (B) inventory, (C) prepaid expenses, and (D)
capitalized catalog costs, less (ii) the sum of the Corporation's (W)
accounts payable, (X) accrued expenses and (Z) other current
liabilities, contingencies or reserves set forth on the Closing Date
Balance Sheet computed in accordance with GAAP in a manner consistent
with the accounting methods and procedures used by the Corporation in
its historic financial statements, in each case, excluding
Indebtedness, income tax assets and liabilities and the indemnity
reserve.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the Regulations thereunder.
"Contested Adjustments" shall have the meaning set forth in
Section 1.3(c).
"Contested Adjustment Notice" shall have the meaning set forth
in Section 1.3(c).
"Contract" means any agreement, contract, commitment,
instrument or other binding arrangement or understanding, whether
written or oral.
"Corporation" shall mean the Corporation and its Subsidiaries
taken as a whole.
"Date Data" shall have the meaning set forth in Section 2.12.
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"Date Sensitive System" shall have the meaning set forth in
Section 2.12.
"Earn-Out Amounts" shall have the meaning set forth in Section
1.2.
"Environmental Law" shall mean any Regulation, Order,
settlement agreement with or requirement of an Authority, which relates
to or otherwise imposes liability or standards of conduct concerning
mining or reclamation of mined land, discharges, emissions, releases or
threatened releases of noises, odors or any pollutants, contaminants or
hazardous or toxic wastes, substances or materials, whether as matter
or energy, into ambient air, water, or land, or otherwise relating to
the manufacture, processing, generation, distribution, use, treatment,
storage, disposal, cleanup, transport or handling of pollutants,
contaminants, or hazardous wastes, substances or materials, including
(but not limited to) the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Material
Transportation Act, the Resource Conservation and Recovery Act of 1976,
as amended, the Toxic Substances Control Act, as amended, the Federal
Water Pollution Control Act, the Clean Water Act, the Clean Air Act,
the Occupational Safety and Health Act, any so-called "Superlien" law,
on the date of this Agreement, and any other similar Federal, state or
local statutes.
"Environmental Permit" shall mean Permits and other
authorizations relating to or required by Environmental Law and
necessary for the Corporation's business.
"ERISA" shall have the meaning set forth in Section 2.17.
"ERISA Affiliate" shall mean any trade or business, whether or
not incorporated, that together with the Corporation would be deemed a
"single employer" within the meaning of Section 4001(b)(i) of ERISA.
"Financial Statements" shall have the meaning as set forth in
Section 2.8(a).
"Financial Statements Date" shall have the meaning as set
forth in Section 2.8(a).
"GAAP" means generally accepted accounting principles,
consistently applied, as in existence at the date hereof.
"Group" means two or more Persons or entities (or a
combination thereof) acting as a partnership, limited partnership,
syndicate or other form for any of the purposes contemplated in such
section.
"Guarantee" means any guarantee or other contingent liability
(other than any endorsement for collection or deposit in the ordinary
course of business), direct or indirect with respect to any obligations
of another Person, through an agreement or otherwise, including,
without limitation, (a) any endorsement or discount with recourse or
undertaking substantially equivalent to or having economic effect
similar to a guarantee in respect of any such obligations and (b) any
Contract (i) to purchase, or to advance or
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supply funds for the payment or purchase of, any such obligations, (ii)
to purchase, sell or lease property, products, materials or supplies,
or transportation or services, in respect of enabling such other Person
to pay any such obligation or to assure the owner thereof against loss
regardless of the delivery or nondelivery of the property, products,
materials or supplies or transportation or services or (iii) to make
any loan, advance or capital contribution to or other investment in, or
to otherwise provide funds to or for, such other Person in respect of
enabling such Person to satisfy an obligation (including any liability
for a dividend, stock liquidation payment or expense) or to assure a
minimum equity, working capital or other balance sheet condition in
respect of any such obligation.
"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, and the Regulations promulgated thereunder,
as amended from time to time.
"Hurdle Rate" shall have the meaning set forth in Section
11.2(a).
"Indebtedness" with respect to any Person means any obligation
of such Person for borrowed money, but in any event shall include (a)
any obligation or liabilities incurred for all or any part of the
purchase price of property or other assets or for the cost of property
or other assets constructed or of improvements thereto, other than
accounts payable and accrued liabilities included in current
liabilities and incurred in respect of property purchased in the
ordinary course of business, (b) the face amount of all letters of
credit issued for the account of such Person and all drafts drawn
thereunder, (c) obligations incurred for all or any part of the
purchase price of property or other assets or for the cost of property
or other assets constructed or of improvements thereto, other than
accounts payable included in current liabilities and incurred in
respect of property purchased in the ordinary course of business
secured by Liens, (d) capitalized lease obligations, and (e) all
Guarantees of such Person.
"Indemnitee" shall have the meaning set forth in Section 11.5.
"Indemnitor" shall have the meaning set forth in Section 11.5.
"Independent Accountant" shall have the meaning set forth in
Section 1.3(c).
"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, judgment, easement, charge, restriction on
transfer or otherwise, or interest of another Person of any kind or
nature.
"Material Adverse Change" means any developments or changes
which would have a Material Adverse Effect.
"Material Adverse Effect" means any circumstances, state of
facts or matters which might reasonably be expected to have a material
adverse effect in respect of the Corporation's business, operations,
properties, assets, condition (financial or otherwise), results, plans,
strategies or prospects.
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"Note" shall have the meaning set forth in Section 1.2.
"Occurrence" means any accident, happening or event which
occurs or has occurred at any time prior to the Closing Date that is
caused by any hazard or defect in manufacture, design, materials or
workmanship including, without limitation, any failure to warn or any
breach of express or implied warranties or representations with respect
to a product manufactured, shipped, sold or delivered by or on behalf
of the Corporation which results in injury or death to any person or
damage to or destruction of property (including damage to or
destruction of the product itself) or other consequential damages.
"Option" means any subscription, option, warrant, right,
security, Contract, commitment, understanding, stock appreciation or
phantom stock option by which (i) with respect the Corporation, the
Corporation is bound to issue any additional shares of its capital
stock or rights pursuant to which any Person has a right to purchase
shares of the Corporation's capital stock or (ii) with respect to
Seller, the Seller is bound to sell or allow another Person to vote,
encumber or control the disposition of any shares of the Corporation's
capital stock or rights pursuant to which any Person has a right to
purchase, vote, encumber or control the disposition of shares of the
Corporation's capital stock from the Seller.
"Order" means any decree, order, judgment, injunction, rule,
ruling, consent of or by an Authority.
"Permits" means all permits, licenses, registrations,
certificates or approvals from any Authority (including without
limitation those relating to the occupancy or use of owned or leased
real property) issued to or held by the Corporation.
"Permitted Liens" means (i) statutory Liens not yet
delinquent, (ii) such imperfections or irregularities of title or Liens
as do not materially detract from or interfere with the present use of
the properties or assets subject thereto or affected thereby, otherwise
impair present business operations at such properties, or do not
detract from the value of such properties and assets, (iii) Liens
reflected in the Financial Statements or the notes thereto, (iv) the
rights of customers of the Corporation with respect to inventory or
work in progress under orders or Contracts entered into by the
Corporation in the ordinary course of business, (v) mechanics',
carriers', workers', repairmen's, warehousemen's, or other similar
Liens arising in the ordinary course of business in respect of
obligations not overdue or which are being contested in good faith and
covered by an amount reserved on the Corporation's balance sheet at
least equal to the amount of the Lien, and (vi) deposits or pledges to
secure workmen's compensation, unemployment insurance, old age benefits
or other social security obligations in connection with, or to secure
the performance of, bids, tenders, trade contracts not for the payment
of money or leases, or to secure statutory obligations or surety or
appeal bonds or other pledges or deposits for purposes of like nature,
and (vii) liens for Taxes due and payable but not yet delinquent, in
the ordinary course of business.
33
34
"Person" means any corporation, partnership, joint venture,
organization, entity, Authority or natural person.
"Policies" means all Contracts that insure (i) the
Corporation's or any of its Subsidiaries properties, plant and
equipment for loss or damage, and (ii) the Corporation or any of its
Subsidiaries or their officers, directors, employees or agents against
any liabilities, losses or damages (or lost profits) for any reason or
purpose.
"Proprietary Rights" means all (i) patents, patent
applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility,
model, certificate of invention and design patents, patent
applications, registrations and applications for registrations, (ii)
trademarks, service marks, trade dress, logos, trade names and
corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for
registration thereof, or (iv) mask works and registrations and
applications for registration thereof.
"Regulation" means any rule, law, code, statute, regulation,
ordinance requirement or other binding action of or by an Authority.
"Restricted Area" shall have the meaning set forth in Section
6.6.
"Restricted Period" shall have the meaning set forth in
Section 6.6.
"Settlement Amount Certificate" shall have the meaning set
forth in Section 1.3(c).
"Settlement Date" shall have the meaning set forth in Section
1.3(d).
"Shares" shall have the meaning set forth in Section 1.1.
"Software" shall have the meaning set forth in Section
2.18(c).
"Subsidiary" means any Person in which the Corporation has an
ownership interest.
"Tax Returns" means federal, state, foreign and local tax
reports, returns, information returns and other documents.
"Taxes" means including without limitation income, gross
receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added, turnover, sales, use, property, personal property
(tangible and intangible), stamp, leasing, lease, user, excise, duty,
franchise, transfer, license, withholding, payroll, employment,
foreign, fuel, excess profits, occupational and interest equalization,
windfall profits, severance, and other charges (including interest and
penalties).
34
35
"Taxing Authorities" means Internal Revenue Service and any
other Federal, state, or local authority which has the right to impose
Taxes on the Corporation or the Seller.
"Working Capital Shortfall" shall mean the amount by which the
Corporation's Closing Date Net Working Capital is less than $2,792,000.
"Working Capital Surplus" shall mean the amount by which the
Corporation's Closing Date Net Working Capital exceeds $2,792,000.
"Year 2000 Compliant" shall have the meaning set forth in
Section 2.12.
12.4 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed, first class certified mail
with postage paid or deposited with overnight receipted courier service:
(a) If to the Corporation or the Seller, to:
ValueVision International, Inc.
0000 Xxxxx Xxx Xxxx
Xxxx Xxxxxx, XX 00000
Attn: Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxx Xxxxxx & Brand LLP 3300
Norwest Center 00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000 Attn: Xxxxx X.
XxXxxxx, Esq.
or to such other Person or address as the Corporation shall furnish by notice to
the Purchaser in writing.
(b) If to the Purchaser, to:
Potpourri Holdings, Inc.
000 Xxxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxx Xxxxxxxxx
35
36
with a copy to:
HIG Capital Management, Inc.
0000 Xxxxxxxx Xxx Xxxxx
Xxxxx 0000
Xxxxx, XX 00000
Attn: Xxxx Xxxxx
with a copy to:
White & Case LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxx, XX 00000
Xxxxx X. Xxxxxxxx, Esq.
or to such other Person or address as the Purchaser shall furnish by notice to
the Seller in writing.
12.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that the Purchaser may, without the prior approval of the Seller, assign
its rights and interests hereunder to its lenders (and any agent for lenders)
and may grant Liens in respect of its rights and interests hereunder to its
lenders (and such agent), and the parties hereto consent to any exercise by such
lenders (and such agent) of their rights and remedies with respect to such
collateral, provided that the Purchaser remains liable for its obligations under
this Agreement.
12.6 Governing Law. The Agreement shall be governed by the internal
laws of the State of Florida as to all matters, including but not limited to
matters of validity, construction, effect and performance.
12.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.8 Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.9 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents, certificates and instruments referred to
herein, embodies the entire agreement and understanding of the parties hereto in
respect of the transactions contemplated by this Agreement and supersedes all
prior agreements, representations, warranties, promises, covenants,
arrangements, communications and understandings, oral or written, express or
implied, between the parties with respect to such transactions. There are no
agreements, representations,
36
37
warranties, promises, covenants, arrangements or understandings between the
parties with respect to such transactions, other than those expressly set forth
or referred to herein.
12.10 Binding Effect. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the signatories to this
Agreement and each of their respective successors and permitted assigns.
12.11 Injunctive Relief. The parties hereto agree that in the event of
a breach of any provision of this Agreement, the aggrieved party or parties may
be without an adequate remedy at law. The parties therefore agree that in the
event of a breach of any provision of this Agreement, the aggrieved party or
parties may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of such provision, as well as to obtain damages for breach of
this Agreement, as permitted under Article XI and Section 6.6. By seeking or
obtaining any such relief, the aggrieved party shall not be precluded from
seeking or obtaining any other relief to which it may be entitled.
12.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto, upon any breach or default of any
other party under this Agreement, shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party hereto of any breach or default under this Agreement, or
any waiver on the part of any party of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing.
12.13 Severability. Unless otherwise provided herein, if any provision
of this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
12.14 Expenses. The Purchaser shall bear its own expenses, including
without limitation, legal fees and expenses, with respect to this Agreement and
the transactions contemplated hereby. The Seller shall bear its and the
Corporation's expenses, including without limitation, legal fees and expenses,
with respect to this Agreement and the transactions contemplated hereby through
the Closing Date.
12.15 Waiver of Jury Trial. EACH OF THE PARTIES HERETO KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY EXHIBIT HERETO, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING OR STATEMENTS (WHETHER VERBAL OR WRITTEN) RELATING TO THE
FOREGOING. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO
ENTER INTO THIS AGREEMENT.
37
38
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Stock Purchase Agreement the date first hereinabove set forth.
POTPOURRI HOLDINGS, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
VALUEVISION DIRECT MARKETING COMPANY,
INC.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxxx
---------------------------------
Title: Executive Vice President
--------------------------------
VALUEVISION INTERNATIONAL, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxxx
---------------------------------
Title: Executive Vice President
--------------------------------
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39
SCHEDULE 1.2
CALCULATION OF EARN-OUT AMOUNTS
The Seller can earn up to a $5.5 million as an Earn-Out Amount if the
Corporation's Post Closing EBITDA for the 365 days following the Closing Date
(the "Earn-Out Period") exceeds the thresholds below as follows:
Tier Post Closing EBITDA Earn-Out Amount
---- ------------------- ---------------
1 $0 million up to $1,499,999 $0
2 $1.5 million up to $1,999,999 $1.25 million
3 $2.0 million up to $2,499,999 $1.75 million
4 $2.5 million up to $2,749,999 $2 million
5 $2.75 million or greater $.5 million
In the event that the Corporation's Post Closing EBITDA falls
between $1.5 million and $1,999,999 in Tier 2, or $2.0 million
and $2,499,999 in Tier 3, then the Earn-Out Amount shall be
prorated and calculated according to the following formula:
Actual Post Closing EBITDA - Tier's Minimum EBITDA Threshold
------------------------------------------------------------ x Next Tier's Earn Out Amount
$500,000
The Earn-Out Amount will be not be prorated in the event that
the EBITDA falls between $2.5 million and $2,749,999 in Tier 4
or in Tier 5.
Examples:
1. If the Post Closing EBITDA is $1.75 million, the total
Earn-Out Amount shall equal $2,125,000 calculated as follows:
$1.25 million + [($1.75 million - $1.5 million)/$500,000 x $1.75
million]
2. If the Post Closing EBITDA is $2.2 million, the total Earn-Out
Amount shall equal $3,800,000 calculated as follows:
$1.25 million + $1.75 million + [($2.2 million - $2.0
million)./$500,000 x $2.0 million]
(a) During the Earn-Out Period, the Corporation will (i) operate
its business in the ordinary course, diligently and in good
faith and (ii) use its best efforts to maximize the profits of
the Corporation during the Earn-Out Period.
(b) As used herein, "Post Closing EBITDA" shall mean the net
operating income of the Corporation, before interest and all
state and federal income and franchise taxes, depreciation and
amortization, computed in accordance with GAAP in a manner
consistent with the accounting methods and procedures used by
the
40
Corporation in the Corporation's historic Financial
Statements, except that the following provisions shall govern
the computation of Post Closing EBITDA for the purposes of
this Agreement:
(i) The costs of the transactions contemplated by this
Agreement, which include, without limitation, any
costs, charge or expense for payments made pursuant
to this Agreement, shall be excluded from the
computation.
(ii) Allocated Purchaser expenses, including but not
limited to general and administrative expenses,
corporate overhead and management fees shall be
excluded from the computation; provided, however,
direct expenses allocated to the Corporation from the
Purchaser which are traceable to a specific support
or service specifically requested by the Corporation
in the ordinary course of business shall be included
in the computation.
(iii) Increases in compensation or benefits to officers
and/or former principals of the Corporation over
compensation levels for these individuals as per
their respective employment agreements after the
Closing Date are to be excluded from the computation.
(iv) Costs and expenses and related revenue associated
with the expansion of the Corporation and incurred
primarily for the future benefit of periods following
the Earn-Out Period that are not in the ordinary
course of operating the Corporation's historic
catalog business, shall be excluded from the
computation, including without limitation third party
costs of acquisition such as broker, legal and other
professional fees.
(v) Services performed by the Corporation's employees for
the Purchaser, its Affiliates or other third parties
are to be billed out at the pro-rata cost allocation
for the employee time spent. In addition, expenses
incurred by the Corporation on behalf of or for the
sole benefit of the Purchaser or its Affiliates are
to be excluded from the computation.
(vi) If Purchaser increases the percentage of mailings to
prospects (rented lists) during the period December
through August by more than 10% for these same titles
during the same prior year period, then to the extent
that such prospect mailings result in losses (defined
as negative variable contribution), such losses shall
be excluded from the computation as follows: if the
percentage increase in prospecting is less than 30%
over the prior year; 50% of the losses are to be
excluded; if the percentage increase is greater than
30%, 100% of losses are to be excluded.
(vii) Fixed payroll and benefits, excluding the
compensation of Xxxxxxxx Xxxxxxxxxxx, Xxxxxx Xxxx and
Xxxxxx Xxxx, during the Earn-Out Period greater than
$2,314,000 is to be excluded from the computation.
2
41
(c) Purchaser will maintain the books and records of the
Corporation during the Earn-Out Period in accordance with GAAP
consistent with past practices of the Corporation.
(d) During the Earn-Out Period, the Corporation's unaudited
financial statements and monthly reported balance sheet,
statement of operations, statement of cash flows and statement
of shareholder equity are to be prepared in accordance with
GAAP, excluding notes thereto, consistent with the past
practices of the Corporation.
(e) Within thirty-five (35) days after the end of each month, the
Corporation shall prepare and deliver to the Seller all such
unaudited financial statements as it routinely prepares for
the Corporation, prepared in accordance with GAAP, excluding
notes thereto, and consistently applied in accordance with the
Corporation's historical practices.
(f) Purchaser shall deliver to the Seller not later than
forty-five (45) calendar days following the first anniversary
of the Closing Date, a written calculation of the Earn-Out
Amount, along with an unaudited income statement, a list of
intercompany charges during the Earn-Out Period, a list of
accrued expenses and such other relevant documentation or
support as Seller may reasonably request for the Corporation
for the one year period ending on the first anniversary of the
Closing Date. Seller will be allowed reasonable access to the
Corporation's books and records to verify the calculated
Earn-Out Amount. In the event the Seller does not object to
Purchaser's Earn-Out Amount calculation in writing within
forty-five (45) days of Seller's receipt of the Earn-Out
Amount calculation and the financial statements set forth
above (a "Contested Calculation Notice"), the Earn-Out Amount
calculated by the Purchaser shall be conclusive and binding on
the parties. If the Seller delivers a Contested Calculation
Notice to the Purchaser, the Purchaser and the Seller shall
use reasonable efforts to resolve their dispute regarding the
Earn-Out Amount, but if a final resolution thereof is not
obtained within ten (10) days after the Seller delivers to the
Purchaser said Contested Calculation Notice, the Purchaser and
the Seller shall promptly retain a nationally recognized
independent accounting firm acceptable to both the Seller and
the Purchaser (the "Independent Accountant") to resolve
any remaining disputes concerning the Earn-Out Amount. Either
the Seller or the Purchaser may retain the Independent
Accountant upon the expiration of such 10-day period. If the
Independent Accountant is retained, then (i) the Seller and
the Purchaser shall each submit to the Independent Accountant
in writing not later than fifteen (15) days after the
Independent Accountant is retained their respective positions
with respect to the Earn-Out Amount, together with such
supporting documentation as they deem necessary or as the
Independent Accountant requests, and (ii) the Independent
Accountant shall, within thirty (30) days after receiving the
positions of both the Seller and the Purchaser and all
supplementary supporting documentation requested by the
Independent Accountant, render its decision as to the Earn-Out
Amount, which decision shall be final and binding on, and
3
42
nonappealable by, the Seller and the Purchaser. If both
parties' estimate of the Closing Date Net Working Capital
differ from the Independent Accountant's estimate of the
Closing Date Net Working Capital by twenty-five percent (25%)
or less, then the fees and expenses of the Independent
Accountant shall be shared equally by the parties. Otherwise
the fees and expenses of the Independent Accountant shall be
paid by the party whose estimate of the Closing Date Net
Working Capital is furthest from the Independent Accountant's
calculation of the Closing Date Net Working Capital.
4
43
SCHEDULE 3.3
The performance of this Agreement will violate the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act and the Regulations promulgated thereunder if the consent of
both the Federal Trade Commission and the Department of Justice to said
performance is not obtained upon the filing of a preacquisition notification
form with both agencies.
The performance of this Agreement will violate the terms and provisions of that
certain Credit Agreement dated April 16, 1998 by and among Potpourri Collection
Acquisition Corporation, Potpourri Holdings, Inc., the Lenders referred to
therein and NationsCredit Commercial Corporation ("NationsCredit"), as Agent if
the consent of NationsCredit, as Agent and the Lenders to said performance is
not obtained.
44
TABLE OF CONTENTS
Page
----
ARTICLE I
PURCHASE OF STOCK.................................................................................................1
1.1 Purchase and Sale...............................................................................1
1.2 Purchase Price..................................................................................1
1.3 Purchase Price Adjustments......................................................................1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER......................................................................3
2.1 Corporate Organization, Etc.....................................................................3
2.2 Stock Record Books..............................................................................4
2.3 Books and Records...............................................................................4
2.4 Title to Stock..................................................................................4
2.5 Authorization, Etc..............................................................................4
2.6 Options and Rights..............................................................................4
2.7 No Violation....................................................................................5
2.8 Financial Statements............................................................................5
2.9 Employees.......................................................................................6
2.10 Absence of Certain Changes......................................................................6
2.11 Contracts.......................................................................................6
2.12 Year 2000 Compliance............................................................................7
2.13 Title and Related Matters.......................................................................8
2.14 Litigation......................................................................................9
2.15 Tax Matters.....................................................................................9
2.16 Compliance with Law and Applicable Government Regulations......................................11
2.17 ERISA and Related Matters......................................................................11
2.18 Intellectual Property..........................................................................11
2.19 Customer Warranties............................................................................12
2.20 Environmental Matters..........................................................................12
2.21 Capital Expenditures and Investments...........................................................13
2.22 Dealings with Affiliates.......................................................................13
2.23 Insurance......................................................................................13
2.24 Accounts Receivable; Inventories...............................................................13
2.25 Brokerage......................................................................................14
2.26 Suppliers......................................................................................14
2.27 Permits........................................................................................14
2.28 Improper and Other Payments....................................................................14
(i)
45
Page
----
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................................................................15
3.1 Corporate Organization, Etc....................................................................15
3.2 Authorization, Etc.............................................................................15
3.3 No Violation...................................................................................15
3.4 Investment Intent..............................................................................15
ARTICLE IV
COVENANTS OF THE SELLER..........................................................................................16
4.1 Regular Course of Business.....................................................................16
4.2 Amendments.....................................................................................16
4.3 Capital Changes; Pledges.......................................................................16
4.4 Dividends......................................................................................16
4.5 Capital and Other Expenditures.................................................................16
4.6 Borrowing......................................................................................16
4.7 Other Commitments..............................................................................17
4.8 Interim Financial Information and Audit........................................................17
4.9 Full Access and Disclosure.....................................................................17
4.10 Breach of Agreement............................................................................17
ARTICLE V
COVENANTS OF THE PURCHASER.......................................................................................17
5.1 Confidentiality................................................................................17
ARTICLE VI
OTHER AGREEMENTS.................................................................................................18
6.1 Agreement to Defend............................................................................18
6.2 Further Assurances.............................................................................18
6.3 No Solicitation or Negotiation.................................................................19
6.4 No Termination of Seller's Obligations by Subsequent Incapacity, Dissolution, Etc..............19
6.5 Deliveries After Closing.......................................................................19
6.6 Non-Competition................................................................................19
6.7 Public Announcements...........................................................................19
6.8 Section 338(h)(10) Election....................................................................20
6.9 Affiliated Indebtedness........................................................................20
6.10 Repairs........................................................................................20
6.11 Lease..........................................................................................20
(ii)
46
Page
----
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER...................................................................20
7.1 Representations and Warranties; Performance....................................................20
7.2 Consents and Approvals.........................................................................21
7.3 Opinion of the Seller's Counsel................................................................21
7.4 No Material Adverse Change.....................................................................21
7.5 No Proceeding or Litigation....................................................................21
7.6 Accounting Matters.............................................................................21
7.7 Condition of Assets............................................................................21
7.8 Proceedings and Documents......................................................................21
7.9 Secretary's Certificate........................................................................21
7.10 Certificates of Good Standing..................................................................22
7.11 Leases.........................................................................................22
7.12 Termination of Affiliate Contracts.............................................................22
7.13 Resignations...................................................................................22
7.14 Creditor Consents..............................................................................22
7.15 Other Documents................................................................................22
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER......................................................................22
8.1 Representations and Warranties; Performance....................................................22
8.2 Consents and Approvals.........................................................................23
8.3 No Proceeding or Litigation....................................................................23
8.4 Secretary's Certificate........................................................................23
8.5 Opinion of Purchaser's Counsel.................................................................23
8.6 Release of Guaranty............................................................................23
8.7 Seller Note....................................................................................23
8.8 Lease Amendment................................................................................23
ARTICLE IX
CLOSING..........................................................................................................23
9.1 Closing........................................................................................23
9.2 Intervening Litigation.........................................................................24
ARTICLE X
TERMINATION AND ABANDONMENT......................................................................................24
10.1 Methods of Termination.........................................................................24
10.2 Procedure Upon Termination.....................................................................24
(iii)
47
Page
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ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION...............................................................................25
11.1 Survival.......................................................................................25
11.2 Limitations....................................................................................25
11.3 Indemnification by Seller......................................................................26
11.4 Indemnification by the Purchaser...............................................................27
11.5 Third-Party Claims.............................................................................27
11.6 Manner of Indemnification......................................................................28
ARTICLE XII
MISCELLANEOUS PROVISIONS.........................................................................................29
12.1 Amendment and Modification.....................................................................29
12.2 Waiver of Compliance; Consents.................................................................29
12.3 Certain Definitions............................................................................29
12.4 Notices........................................................................................34
12.5 Assignment.....................................................................................35
12.6 Governing Law..................................................................................36
12.7 Counterparts...................................................................................36
12.8 Headings.......................................................................................36
12.9 Entire Agreement...............................................................................36
12.10 Binding Effect.................................................................................36
12.11 Injunctive Relief..............................................................................36
12.12 Delays or Omissions............................................................................36
12.13 Severability...................................................................................37
12.14 Expenses.......................................................................................37
12.15 Waiver of Jury Trial...........................................................................37
(iv)
48
SCHEDULES AND EXHIBITS
SCHEDULE/EXHIBIT RESPONSIBILITY
---------------- --------------
("SELLER" OR "PURCHASER")
-------------------------
1.2 Form of Note..............................................................................S
1.2 Earn-Out Amounts..........................................................................P
2.1(a) Foreign Qualifications of Corporation.....................................................S
2.1(b) Charter and Bylaws of Corporation.........................................................S
2.2 Stock Record Books, Stockholders - Capital Stock..........................................S
2.3 Minute Books, Officers and Directors......................................................S
2.7 Violations, Notices and Consents..........................................................S
2.8(a)(i) Financial Statements......................................................................S
2.8(a)(ii) Assets Not Transferred....................................................................S
2.8(b) Postclosing Indebtedness..................................................................S
2.9 Employee Matters..........................................................................S
2.10 Changes since Financial Statement Date....................................................S
2.11 Contracts.................................................................................S
2.12 Year 2000 Compliance......................................................................S
2.13(a) Title Matters.............................................................................S
2.13(b) Leases....................................................................................S
2.14 Litigation................................................................................S
2.15 Tax Matters...............................................................................S
2.17 ERISA Matters.............................................................................S
2.18(a) Material Proprietary Rights...............................................................S
2.18(b) Proprietary Rights Owned by Others........................................................S
2.18(c) Software Applications.....................................................................S
2.20 Environmental Matters.....................................................................S
2.21 Capital Expenditures......................................................................S
2.22 Affiliated Transactions...................................................................S
2.23 Insurance and Claims......................................................................S
2.24 Accounts Receivable, Inventory and Suppliers..............................................S
2.26 Suppliers.................................................................................S
2.27 Permits...................................................................................S
2.28 Improper and Other Payments...............................................................S
3.3 Violations and Consents...................................................................P
7.1 Form of Officer's Certificate - Seller....................................................P
7.3 Form of Opinion of Seller's Counsel.......................................................P
7.4 Form of Officer's Certificate.............................................................P
7.6 Form of Certificate of Chief Financial Officer of the Corporation.........................P
7.9 Form of Secretary's Certificate...........................................................P
7.11 Form of Landlord Estoppel Letter..........................................................P
7.12 Form of Employment Agreements.............................................................P
8.1 Form of Officer's Certificate - Purchaser.................................................P
8.4 Form of Secretary's Certificate...........................................................P
(v)
49
Page
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8.5 Form of Opinion of Purchaser's Counsel....................................................P
8.8 Form of Lease Amendment...................................................................P
(vi)
