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EXHIBIT 10.21
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ACQUISITION AGREEMENT
FULCRUM
---------
DIRECT
between
CHILDCRAFT INC.
and
FULCRUM DIRECT, INC.
Dated as of June 28, 1996
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..................................... 1
1. Definitions.............................................. 1
ARTICLE II PURCHASE AND SALE OF ASSETS.............................. 4
2. Purchase and Sale of Assets.............................. 4
2.1 Purchase and Sale of Assets..................... 4
2.1.1 Acquired Assets........................ 4
2.2 Liabilities Not Assumed......................... 5
2.3 Instruments of Conveyance....................... 5
2.4 Consideration................................... 5
2.4.1 Signing Payment........................ 5
2.4.2 Closing Date Payment................... 5
2.5 Return of Signing Payment....................... 6
2.6 Closing......................................... 6
2.7 Purchase Price Allocation....................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............ 6
3. Representations and Warranties of the Company............ 6
3.1 Corporate Organization.......................... 6
3.2 Authorization; Due Execution; Enforceability.... 6
3.3 No Violation.................................... 7
3.4 Consents and Approvals of Governmental
Authorities..................................... 7
3.5 Brokers and Finders............................. 7
3.6 Litigation and Other Proceedings................ 7
3.7 Title to Acquired Assets........................ 7
3.8 Labor Matters................................... 8
3.9 Intellectual Property........................... 8
3.10 Customers....................................... 8
3.11 Suppliers....................................... 8
3.12 Gross Margin Analysis........................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR............... 9
4. Representations and Warranties of Acquiror............... 9
4.1 Corporate Organization.......................... 9
4.2 Authorization; Due Execution; Enforceability.... 9
4.3 No Violation.................................... 9
4.4 Consents and Approvals of Governmental
Authorities..................................... 9
4.5 Brokers and Finders............................. 9
ARTICLE V COVENANTS................................................ 10
5. Covenants................................................ 10
5.1 Inspection and Access........................... 10
5.2 Consents........................................ 10
5.3 Bulk Sales Laws................................. 10
(i)
3
5.4 Customer List......................................... 10
5.5 Product Warranty Liabilities and Customer
Liabilities........................................... 10
5.5.1 Post-Closing Order Fulfillment............... 10
5.5.2 Product Warranty Liabilities................. 11
5.5.3 Customer Liabilities......................... 11
5.5.4 No Other Liabilities......................... 11
5.5.5 Reimbursement Procedure...................... 12
5.6 Press Releases........................................ 12
5.7 Further Assurances.................................... 12
5.8 Maintenance of List Exchange Balance.................. 12
5.9 Delivery of Acquired Assets........................... 12
5.10 Escrow Agreement...................................... 13
5.11 Conduct of Business................................... 13
5.12 Mid State Mall Lease.................................. 14
5.13 Agreement to Discontinue Use of Playclothes
Name/Information...................................... 14
5.14 Regal Agreement....................................... 14
5.15 Right of First Refusal................................ 14
ARTICLE VI INDEMNIFICATION................................................ 15
6. Indemnification................................................ 15
6.1 Indemnification by the Company........................ 15
6.2 Indemnity Limits; Caps................................ 15
6.3 Acquiror's Indemnification............................ 15
6.4 Acquiror's Indemnity Limits........................... 15
6.5 Cure.................................................. 15
6.6 Procedure............................................. 16
6.7 Treatment............................................. 16
ARTICLE VII CONDITIONS PRECEDENT.................................. 16
7. Conditions Precedent........................................... 16
7.1 Conditions Precedent to Obligations of the
Company............................................... 16
7.1.1 Representations and Warranties True.......... 16
7.1.2 Performance.................................. 16
7.1.3 No Injunctions or Restraints................. 16
7.1.4 Transaction Documents........................ 17
7.1.5 Certificates................................. 17
7.1.6 Supporting Documents......................... 17
7.2 Conditions Precedent to Obligations of the Acquiror... 17
7.2.1 Representations and Warranties True.......... 17
7.2.2 Performance.................................. 18
7.2.3 No Injunctions or Restraints................. 18
7.2.4 Transaction Documents........................ 18
7.2.5 Certificates................................. 18
7.2.6 WDCI Agreement............................... 18
7.2.7 Other Agreements............................. 18
(ii)
4
7.2.8 Supporting Documents....................... 18
ARTICLE VIII TERMINATION AND AMENDMENT.................................. 19
8. Termination................................................ 19
8.1 Events of Termination............................. 19
8.2 Effect of Termination............................. 19
8.3 Amendment......................................... 19
ARTICLE IX MISCELLANEOUS.............................................. 20
9. Miscellaneous Provisions................................... 20
9.1 Survival of Representations and Warranties........ 20
9.2 Notices........................................... 20
9.3 Table of Contents; Headings....................... 20
9.4 Severability...................................... 20
9.5 Counterparts...................................... 21
9.6 Entire Agreement.................................. 21
9.7 Governing Law..................................... 21
9.8 Assignment........................................ 21
9.9 Third Party Beneficiaries......................... 21
9.10 Expenses.......................................... 21
EXHIBITS:
Exhibit A - Form of Xxxx of Sale
Exhibit B - Form of Letter Agreement between The Xxxx Disney
Catalog, Inc. and Fulcrum Direct, Inc.
Exhibit C - Form of Escrow Agreement among Childcraft Inc.,
Fulcrum Direct, Inc., and Bankers Trust Company
Exhibit D - Form of Comfort Letter from The Xxxx Disney Company
Exhibit E - Childcraft File Field Layout
Exhibit F - Playclothes Calendar Gross Margin Detail 1994, 1995
and 1996
Exhibit G - Form of Assignment of the Agreement, dated July
1, 1994, between Regal Greetings & Gifts, Inc., and
Childcraft Inc.
Exhibit H - Catalog House File Count Sheet
Exhibit I - Merchandising and Marketing Plans and Catalog
Roughs
SCHEDULES:
Schedule 3.6 Litigation Matters
Schedule 5.8 List Exchange Balance
(iii)
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ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated June 28, 1996, between CHILDCRAFT INC., a
Delaware corporation (the "Company"), and FULCRUM DIRECT, INC. a Delaware
corporation (the "Acquiror").
This Agreement sets forth the terms and conditions upon which the
Company will sell to the Acquiror, and the Acquiror will purchase from the
Company, those certain assets as hereinafter set forth.
In consideration of the mutual agreements contained herein, and upon
and subject to the terms and conditions hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1. Definitions
1.1 "Acquired Assets" shall have the meaning ascribed thereto in
Section 2.1.1 hereof.
1.2 "Acquiror" shall have the meaning ascribed thereto in the
introductory paragraphs hereof.
1.3 "Actual Liability" shall have the meaning ascribed thereto in
Section 5.5.5 hereof.
1.4 "Affiliate" of any person or entity shall mean a person or entity
controlling, controlled by or under common control with such person.
1.5 "Allowance" shall have the meaning ascribed thereto in Section
5.5.5 hereof.
1.6 "Artwork" shall mean all artwork, photographs and film in the
Company's possession and used or held for use exclusively in connection with the
Catalog. Notwithstanding the previous sentence, Artwork shall not include any
artwork or photographs of Disney characters, Disney film titles or merchandise
bearing any such characters or film titles.
1.7 "Xxxx of Sale" means the xxxx of sale delivered by the Company
pursuant to Section 2.3 of this Agreement.
1.8 "Catalog" means the Playclothes Catalog.
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1.9 "Claim" shall have the meaning ascribed thereto in Section 6.1
hereof.
1.10 "Closing" means the closing referred to in Section 2.6 of this
Agreement.
1.11 "Closing Date" shall have the meaning ascribed thereto in Section
2.6 hereof.
1.12 "Closing Date Payment" shall have the meaning ascribed thereto in
Section 2.4.2 hereof.
1.13 "Code" means the Internal Revenue Code of 1986, as amended.
1.14 "Company" shall have the meaning ascribed thereto in the
introductory paragraphs hereof.
1.15 "Customer Liabilities" shall have the meaning ascribed thereto in
Section 5.5.3 hereof.
1.16 "Disney" means The Xxxx Disney Company, a Delaware corporation.
1.17 "Escrow Interest Amount" means the interest earned on the Signing
Payment held in escrow minus costs for the Playclothes trademark search and fees
of Bankers Trust relating to the Escrow Account.
1.18 "Estimated Returns Remaining" shall have the meaning ascribed
thereto in Section 5.5.4 hereof.
1.19 "Excluded Liabilities" shall have the meaning ascribed thereto in
Section 2.2 hereof.
1.20 "Final Sales Date" shall have the meaning ascribed thereto in
Section 5.5.1 hereof.
1.21 "FDC" means FDC Donnelley Marketing.
1.22 "Gross Margin Analysis" shall have the meaning ascribed thereto in
Section 3.12 hereof.
1.23 "Indemnitee" shall have the meaning ascribed thereto in Section
6.5 hereof.
1.24 "Indemnitor" shall have the meaning ascribed thereto in Section
6.5 hereof.
1.25 "Lease" means that certain Agreement of Lease dated February 15,
1992, between MidState Hye, L.P. ("Landlord") and the
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Company ("Tenant") with respect to the premises at Mid State Mall, East
Brunswick, New Jersey.
1.26 "List Exchange Balance" shall have the meaning ascribed thereto in
Section 2.1.1.7 hereof.
1.27 "Xxxx" shall have the meaning ascribed thereto in Section 3.9
hereof.
1.28 "Material Adverse Change" shall have the meaning ascribed thereto
in Section 3.1 hereof.
1.29 "Notice" shall have the meaning ascribed thereto in Section 6.5
hereof.
1.30 "Playclothes Customer History File" means the file maintained at
FDC which includes substantially the following information relating to the
Playclothes Customer List: Title Code, Name (primary and secondary), Primary
Address, Secondary Address, City, State, Zip Code, Date of Birth (when
available), Promotability Status, Date & Source of last Change of Address,
Lifetime Order Count, Lifetime Purchase Amount, Date of Last Order, Purchase
Amount of Last Order, Payment Method of Last Order, Source Code of Last Order,
Date of First Order, Purchase Amount of First Order, Payment Method of First
Order, and Source Code of First Order, additional names and addresses of
Playclothes catalog requesters and request dates, past promotions received by
offer code and date (or mail tapes for the four-year period prior to the Closing
Date).
1.31 "Playclothes Customer List" means the buyer file for the Catalog
as it exists on December 31, 1996 or such other date as the context in which
this term is used suggests.
1.32 "Playclothes Order History File" means the file maintained at FCC
which includes substantially the following information relating to the
Playclothes Customer List: information Regarding specific orders placed by
Playclothes customers of the Catalog including Customer Account Number, Date of
Order, Dollar Amount of Order, Dollars Shipping/Handling, Dollars Sales Tax,
Source Code, Payment Method and line item detail, including all fields specified
in the Childcraft File Field Layout attached hereto as Exhibit E.
1.33 "Product Warranty Liabilities" shall have the meaning ascribed
thereto in Section 5.5.2 hereof.
1.34 "Purchase Price" shall have the meaning ascribed thereto in
Section 2.4 hereof.
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1.35 "Signing Payment" shall have the meaning ascribed thereto in
Section 2.4.1 hereof.
1.36 "Xxxxxx Capital" shall have the meaning ascribed thereto in
Section 3.5 hereof.
1.37 "WDCI" shall have the meaning ascribed thereto in Section 7.2.6
hereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2. Purchase and Sale of Assets
2.1 Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, at the Closing, the Company shall sell, transfer, convey, assign
and deliver to Acquiror, and Acquiror shall purchase, acquire and accept from
the Company all of the Company's right, title and interest to the Acquired
Assets (as defined in Section 2.1.1).
2.1.1 Acquired Assets. The term "Acquired Assets" shall mean
the following:
2.1.1.1 the "Playclothes" name, xxxx, design, logo and
any stylization thereof used in connection with the Catalog;
2.1.1.2 all right, title and interest of the Company in
all Artwork;
2.1.1.3 all information relating to the Catalog and its
customers, including customer lists, supplier lists, detailed sales records,
sample books, marketing and merchandising information, inventory information and
back-up Copies of all such information, returns information, quality reports,
customer correspondence and other customer information relating to service
history, used or held for use exclusively in connection with the Catalog,
including the Playclothes Customer History File and Playclothes Order History
File and all other data, software (to the extent transferable), and other models
and rights therein in whatever form available;
2.1.1.4 the existing toll free phone numbers used by the
Catalog;
2.1.1.5 all rights and interests of the Company under the
photography services agreements and model releases relating to services provided
for the Catalog to which the Company is a party and has the right to transfer
without consent;
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2.1.1.6 all accounts receivable relating to the ordinary
course rental of the Playclothes Customer List for third-party mailings which
occur after the Closing Date;
2.1.1.7 subject to Section 5.9, all balances, whether
positive or negative, maintained by the Catalog in connection with exchanges of
the Playclothes Customer List as of the Closing Date (the "List Exchange
Balance"); provided that the ratio of positive to negative List Exchange Balance
is consistent with past practice of the Catalog and;
2.1.1.8 assignment of all rights and obligations of the
Company pursuant to that certain agreement dated July 1, 1994, between the
Company and Regal Greetings and Gifts, Inc. relating to the Catalog (the "Regal
Agreement"), pursuant to the form of Assignment attached hereto as Exhibit G.
2.2 Liabilities Not Assumed. Except for the List Exchange Balance, if
negative, the Product Warranty Liabilities, the Customer Liabilities, the
liabilities and obligations arising after the Closing Date under the Lease if
the Lease is assigned to Acquiror in connection herewith and the liabilities and
obligations arising under the Regal Agreement (as they relate to the Catalog),
after the Closing Date, Acquiror will not assume and will not be liable for any
liabilities or obligations of any kind or nature of the Company or Disney or any
associate or affiliate thereof, whether disclosed, undisclosed, contingent or
otherwise ("Excluded Liabilities").
2.3 Instruments of Conveyance. In order to effectuate the sale,
transfer, conveyance, assignment and delivery to Acquiror contemplated by this
Agreement, the parties hereto shall execute and deliver at the Closing, (a) a
xxxx of sale, substantially in the form of Exhibit A attached hereto, and (b)
other documents or instruments of assignment, transfer or conveyance, as shall
be necessary or appropriate to vest in or confirm to Acquiror title to all of
the Acquired Assets.
2.4 Consideration. The total purchase price to be paid to the Company
by Acquiror for the Acquired Assets shall be $1,500,000 (the "Purchase Price")
payable as follows:
2.4.1 Signing Payment. Acquiror shall pay $500,000 to the
Escrow Agent by wire transfer on or before June 30, 1996 (the "Signing
Payment").
2.4.2 Closing Date Payment. Acquiror shall pay the remaining
$1,000,000 balance of the Purchase Price less one-half of the Escrow Interest
Amount as of the Closing Date and subject to adjustments pursuant to Section
5.5.5, on the Closing Date by wire transfer to the Company (the "Closing Date
Payment").
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2.5 Return of Signing Payment. The Company shall be entitled to retain
the Signing Payment (plus the Escrow Interest Amount) if the Closing does not
occur on or before the Closing Date as a result of Acquiror's breach of its
obligations or failure to meet the conditions set forth in this Agreement;
provided, that, the Company shall not be entitled to retain the Signing Payment
(plus the Escrow Interest Amount) if the Closing does not occur on or before the
Closing Date as a result of the Company's breach of its obligations or failure
to meet the conditions set forth in this Agreement.
2.6 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Company, 000
Xxxxx Xxxxx Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx on December 31, 1996, or such
other place and date as the parties shall mutually agree in writing, which date,
as the same may be so changed, is referred to herein as the "Closing Date".
2.7 Purchase Price Allocation. Prior to the Closing, the parties shall
establish the allocation of the Purchase Price among the Acquired Assets. The
parties agree that for all purposes they shall report the transaction
consummated under this Agreement consistent with such allocations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3. Representations and Warranties of the Company
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to carry on its business as
it is now being conducted and to own the assets it now owns. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary and where the failure to so qualify would cause a
material adverse change in the business, assets, liabilities, customer or
supplier relations, operations, results of operations or condition (financial or
otherwise) of the Catalog (such an event being a "Material Adverse Change").
3.2 Authorization; Due Execution; Enforceability. The Company has full
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement: has been duly executed and
delivered by the Company, and assuming the due execution and delivery hereof by
the
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Acquiror, this Agreement is a valid and binding agreement of the Company
enforceable in accordance with its terms.
3.3 No Violation. The execution, delivery and performance of this
Agreement by the Company does not and will not (i) violate or conflict with the
Certificate of Incorporation or Bylaws of the Company, (ii) conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Company, the violation of which would
cause a Material Adverse change, or (iii) result in any breach of, or constitute
a default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
encumbrance on any of the Acquired Assets, pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument to which the Company, or any associate or affiliate of the
Company is a party.
3.4 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.5 Brokers and Finders. Except for Xxxxxx Capital Corporation and Xxx
Xxxxxxxxx (together, "Xxxxxx Capital"), the Company has not employed, and is not
subject to any valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission in connection with such
transactions. The Company is solely responsible for any payment, fee or
commission that may be due to Xxxxxx Capital in connection with the transactions
contemplated hereby.
3.6 Litigation and Other Proceedings. Other than as set forth on
Schedule 3.6, there are no claims, actions, suits, proceedings, injunctions or
investigations before any court or Federal, state, municipal or other
governmental agency or instrumentality pending or, to the best knowledge of the
Company, threatened against the Company with respect to the Acquired Assets.
3.7 Title to Acquired Assets. The Company has, and will transfer to the
Acquiror upon Closing, good and marketable title to the Acquired Assets, free
and clear of any lien or other encumbrance, except for liens or other
encumbrances securing taxes, assessments, governmental charges or levies, all of
which are not yet due and payable.
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3.8 Labor Matters. There are no pending, or, to the knowledge of the
Company, threatened, contractual arrangements, labor disputes, arbitrations, or
lawsuits or administrative proceedings relating to labor matters or employees
that would adversely affect the Acquired Assets or the Acquiror.
3.9 Intellectual Property. The "Playclothes" trademark (the "Xxxx") is
the only trademark or service xxxx used by the Company in connection with the
Catalog. The Xxxx has been in continuous use since January 15, 1991. There are
no copyright registrations or letters patent filed, rejected, owned or used by
the Company in connection with the Catalog. The Company owns unregistered
copyrights in and to the Catalogs distributed prior to the date hereof. The
Company owns all right, title and interest to the Xxxx, free and clear of any
liens, licenses or rights to use, except as provided in the Regal Agreement.
There are no threatened or pending claims or suits against the Company or its
Affiliates challenging the ownership of or right to use the Xxxx, nor, to the
best knowledge of the Company does there exist any basis therefore. There are no
claims or suits pending or threatened against the Company or any of its
Affiliates alleging that the Xxxx infringes any rights of any third parties, and
to the best knowledge of the Company or any of its Affiliates, there does not
exist any basis therefore. To the best knowledge of the Company and its
Affiliates there are no other coexisting users of the Xxxx, other than Regal
Greetings & Gifts, Inc. pursuant to the Regal Agreement.
3.10 Customers. As of the date hereof, the Playclothes Customer List
contains the number of customers that have purchased merchandise from the
Catalog ("Buyers") as specified on the Catalog House File Count Sheet attached
hereto as Exhibit H. As of the Closing Date, all information relating to Buyers
and prospective Buyers, maintained by the Company and/or by any agent of the
Company (including, the Playclothes Customer History File, the Playclothes Order
History File, all list and other test results, all house file models, zip
models, regression models, and any other models developed by or for the benefit
of the Company), have been provided to the Acquiror.
3.11 Suppliers. The Company has provided the Acquiror with a list of
all suppliers (and each material purchase order or contract in its possession
relating thereto) from which the Catalog ordered raw materials, contract labor,
merchandise and other goods or services for its business with a dollar value in
excess of $10,000 since July 1, 1995, and the approximate amount for which each
such supplier invoiced the Catalog during such period. To its best knowledge,
the Catalog has not received any notice (written or oral) that any of such
suppliers will not sell raw materials, contract labor, merchandise and other
goods or services to the Catalog at any time after the Closing Date on terms and
conditions
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similar to those imposed on current sales to the Catalog, subject to general and
customary price increases.
3.12 Gross Margin Analysis. The Company has delivered to the Acquiror
the "Unaudited Playclothes Calendar Gross Margin Detail Analysis for the
Calendar Years 1994, 1995 and 1996," attached hereto as Exhibit F (the "Gross
Margin Analysis"). To the best knowledge of the Company, the historical
information presented in the Gross Margin Analysis (x) is complete and correct
in all material respects, (y) was prepared from the books and records of the
Company and (z) fairly presents, in all material respects, the accounts listed
therein as of the dates specified thereon in conformity with generally accepted
accounting principles.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
4. Representations and Warranties of Acquiror
4.1 Corporate Organization. Acquiror is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation.
4.2 Authorization; Due Execution; Enforceability. Acquiror has full
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Acquiror, and assuming the due execution and delivery hereof by the
Company, this Agreement is a valid and binding agreement of Acquiror,
enforceable in accordance with its terms.
4.3 No Violation. The execution, delivery and performance of this
Agreement by the Acquiror does not and will not (i) violate or conflict with the
Certificate of Incorporation or By laws of the Acquiror or (ii) conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Acquiror, the violation of which would
cause a Material Adverse Change.
4.4 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.5 Brokers and Finders. Acquiror has not employed, and is not subject
to any valid claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission in connection with such transactions.
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ARTICLE V
COVENANTS
5. Covenants
5.1 Inspection and Access. The Company will permit access before the
Closing Date to Acquiror during reasonable business hours upon reasonable notice
(i) to inspect the Acquired Assets and (ii) to all employees and agents of the
Company (and any other person reasonably requested by the Acquiror) to assist in
the orderly transition of the Acquired Assets; provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the Company.
5.2 Consents. Subject to the terms and conditions hereof, the Company
and Acquiror shall agree to use their best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement. The Acquiror shall cooperate with
the Company in good faith in obtaining any consents necessary to consummate the
transactions contemplated by this Agreement.
5.3 Bulk Sales Laws. The Company hereby represents to the Acquiror that
it is solvent and will pay all valid obligations of the Company as they come due
other than the liabilities being transferred pursuant hereto. Based on this
representation, the Acquiror hereby waives compliance by the Company with the
requirements of any applicable bulk sales or transfer law and the company agrees
to indemnify and hold Acquiror harmless from and against any liability arising
out of the failure to comply with any such law.
5.4 Customer List. The Company shall have the right to market the
Playclothes Customer List for sale to one or more buyers on a non-exclusive
basis prior to the Closing Date. The information the company shall provide
pursuant to any such non exclusive sale of the Playclothes Customer List, is the
information that would be provided by the Company as a result of the rental of
the Playclothes Customer List in the ordinary course.
5.5 Product Warranty Liabilities and Customer Liabilities.
5.5.1 Post-Closing Order Fulfillment. Acquiror agrees that the
Company may, at its option, continue to take and fulfill orders, from Catalogs
distributed prior to the Closing Date until March 1, 1997 (the "Final Sales
Date"). The Company shall establish a new toll-free phone number or use an
alternative Disney toll-free phone number exclusively for taking catalog orders
prior
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to the Final Sales Date. The Company shall transfer this toll-free number to
Acquiror promptly after the Final Sales Date. The Company agrees to use its best
efforts to maintain the satisfaction of the customers ordering through the Final
Sales Date.
5.5.2 Product Warranty Liabilities. As of the Closing Date,
Acquiror shall assume the Product Warranty Liabilities (as defined below), and
shall credit Catalog customers the retail price paid by the customer for
merchandise returned to the Company or Acquiror after the Closing Date (plus
inbound shipping and handling if the merchandise is returned as defective or
shipped in error), purchased from the Catalog and fulfilled by the Company on or
prior to the Final Sales Date (all such credits being in the aggregate, the
"Product Warranty Liabilities"). All merchandise returned for exchange shall be
treated as if the merchandise requested for exchange is sold-out, resulting in
a refund. As of the Closing Date, the Company shall arrange with the United
States Postal Service and the United Parcel Service; (and any other carrier that
delivers returns/exchanges to the Company), to forward all return/exchange
packages relating to the Catalog, to the Acquiror, at the Company's expense, and
shall reimburse the Acquiror for the actual cost of such returns pursuant to
Section 5.5.5 of this Agreement. The Acquiror shall retain all returned
merchandise processed as compensation for processing such returns; provided
that, the Acquiror shall not charge the Company any other fee for the processing
of such returns.
5.5.3 Customer Liabilities. The Company certifies that at
Closing, it will deliver to Acquiror a complete list, to the best of its best
knowledge, of all gift certificate, discount coupons, credit slips and other
customer liabilities of the Catalog as of the Closing Date (all such liabilities
being in the aggregate, the "Customer Liabilities"). At Closing, the Acquiror
shall assume the Customer Liabilities and the Company shall reimburse the
Acquiror for such liabilities pursuant to Section 5.5.5.
5.5.4 No Other Liabilities. Except as provided in Section
5.5.2 and 5.5.3, Acquiror assumes no other liabilities relating to (i) gift
certificates, promotional discounts or customer liabilities issued or sold by
the Catalog prior to the Closing Date, or (ii) merchandise sold by the Company
on or prior to the Final Sales Date, including any claim (threatened or
otherwise) that may arise out of product liability laws, defects in material or
workmanship, or any other express or implied warranties, including warranties of
merchantability or specific purpose. The Company agrees that any such claims
shall be considered Excluded Liabilities pursuant to this Agreement, and are
expressly indemnified pursuant to Section 6.1 of this Agreement.
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5.5.5 Reimbursement Procedure. The Company estimates that
Playclothes will have total Returns for the period beginning on the Closing Date
and ending on December 31, 1997, of $475,000.00 (the "Estimated Returns
Remaining"). At Closing, the Company shall (i) add the Estimated Returns
Remaining (which amount shall be revised at the Closing if there is greater than
a ten percent variance between the forecasted gross revenues as set forth in
Exhibit F and the actual gross revenues for the period between the date hereof
and the Closing Date; provided that the revised Estimated Returns Remaining will
be calculated on the same basis as originally calculated and set forth in
Exhibit F) and the Customer Liabilities, (ii) multiply the sum thereof by .85,
and (iii) subtract this amount from the Purchase Price (the amount subtracted
being referred to as the "Allowance"). No later than January 31, 1998, the
Acquiror shall submit a statement to the Company of actual returns and customer
liabilities processed by the Acquiror as of December 31, 1997, relating to the
period prior to the Closing Date (such amount being referred to as the "Actual
Liability"). If the Actual Liability is greater than the Allowance, the Company
shall forward the difference thereof to the Acquiror by February 15, 1998. If
the Allowance is greater than the amount of the Actual Liability, then the
Acquiror shall forward the difference to the Company by no later than February
15, 1998. The Company shall have no further liability to the Acquiror for
Product Warranty Liabilities processed after December 31, 1997.
5.6 Press Releases. The Company and Acquiror will coordinate all
publicity relating to the transactions contemplated by this Agreement and no
party shall issue any press release, publicity statement or other public notice
relating to this Agreement or the transactions contemplated by this Agreement
without the prior consent of both the Company and Acquiror, except as required
by law or securities exchange regulations.
5.7 Further Assurances. After the Closing, the Company shall from time
to time, at the request of Acquiror, execute and deliver such other instruments
of conveyance and transfer and take such other actions as Acquiror may
reasonably request, in order to more effectively consummate the transaction
contemplated hereby and to test in Acquiror good and marketable title to the
assets being transferred hereunder.
5.8 Maintenance of List Exchange Balance. The Company agrees to
maintain the List Exchange Balance in a manner consistent with the past
practices of the Catalog. Further, the Company agrees that the List Exchange
Balance at the Closing Date shall not consist of a negative balance greater than
the negative balance on the date hereof as set forth in Schedule 5.8.
5.9 Delivery of Acquired Assets. The Company shall cause FDC to deliver
the Playclothes Customer History File and the
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Playclothes Order History File to the Acquiror or an agent of the Acquiror.
All remaining Acquired Assets shall be delivered as of the Closing Date
in a manner mutually agreeable to the Company and the Acquiror.
5.10 Escrow Agreement. The Company and the Acquiror shall escrow the
Signing Payment with Bankers Trust Company (the "Escrow Agent"). The Signing
Payment (plus the Escrow Interest Amount) shall be released pursuant to the
terms of this Agreement and the Escrow Agreement attached hereto as Exhibit C at
the Closing or on such earlier date as a written release shall be signed by both
parties hereto and delivered to the Escrow Agent.
5.11 Conduct of Business. Pending the Closing, the Company agrees that
the Catalog will be operated in the ordinary and usual course in substantially
the same manner as currently conducted. Notwithstanding the foregoing, Acquiror
agrees that the Company may liquidate Playclothes inventory prior to the Closing
Date using reasonable methods including discounts in Catalogs (including any
clearance catalogs) to be mailed prior to the Closing, package inserts and other
appropriate retail channels. Following the Closing Date, the Company may
continue to liquidate the remaining Playclothes inventory through The Disney
Catalog outlet stores and by using any method mutually agreed upon by the
Company and Acquiror. Acquiror agrees to assist the Company in its liquidation
efforts before and after the Closing (but not later then July 1, 1997), to the
extent such efforts are not in the reasonable judgment of Acquiror going to have
a negative impact on Acquiror, by (i) allowing the Company to feature
Playclothes inventory in Acquiror's Discount Direct catalog, (ii) allowing the
Company to mail sale offers to the After the Stork mailing list, and (iii)
including sale materials in After the Stork outbound packages. In addition,
Acquiror understands that the Company will not be preparing in any way for the
production or mailing of any Catalogs covering any season beyond 1996
Fall/Winter as currently contemplated and described to Acquiror.
The Company has provided Acquiror with merchandising and marketing
plans and Catalog roughs of Catalogs currently in progress planned to be dropped
between the date hereof and the Closing Date all attached hereto as Exhibit I.
Acquiror agrees that the operation of the business substantially in accordance
with the information referred to in the prior sentence, is an acceptable conduct
of business prior to the Closing. In the event that the Company wants to deviate
in any material way from such conduct, it agrees to work in concert with
Acquiror to develop an alternate plan. In the event that the Company and
Acquiror cannot agree on an alternate plan, the Company must conduct its
business according to the plans described in the first sentence of this
paragraph.
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5.12 Mid State Mall Lease. The Company agrees to assign all of its
right, title and interest in, to and under the Lease to Acquiror in the event
that the parties obtain a consent to transfer from the Landlord under the Lease
pursuant to the form of Lease Assignment and Landlord Consent attached hereto as
Exhibit K. The parties hereby agree to work together in good faith to secure the
assignment of the Lease or to obtain a new lease for Acquiror covering the same
premises as that which is covered by the Lease prior to the Closing. The Company
and Acquiror agree that in the event the Lease is assigned or a new Lease is
entered into as of the Closing Date and the Company is released from the Lease
as of the same date as contemplated hereby, all fixtures in the leased premises
shall be transferred to Acquiror at Closing. In the event that Acquiror does not
obtain a lease covering such premises, the fixtures shall be transferred upon
expiration of the Lease at the transfer expense of Acquiror.
The Company agrees to take a physical count of the inventory at the
leased premises immediately prior to the Closing Date. Acquiror agrees to
purchase all of such inventory at 25% of actual cost; provided that the Company
maintains inventory quality and quantity at the leased premises at levels
consistent with past practices.
5.13 Agreement to Discontinue Use of Playclothes Name/Information. The
Company agrees that following the Closing Date it will cease to use the name
"Playclothes" and the Acquired Assets, except as otherwise provided in Section
5.11 above, and that as of July 1, 1997, the Company will destroy (or return to
the Acquiror) all copies of the Playclothes Customer List and all related
customer information and other information, if any, still in its possession,
relating to the Catalog.
5.14 Regal Agreement. Acquiror agrees that all royalties, service fees,
and other amounts owing to the Company under the Regal Agreement for the
contract year January 1, 1996 through December 31, 1996, and for any time period
prior thereto, remain property of the Company and are not transferred hereby.
5.15 Right of First Refusal. The Company agrees to provide Acquiror
with a right of first refusal on sales of Catalog obsolete inventory to third
parties. The Company shall provide Acquiror with prior written notice of its
intention to sell Catalog obsolete inventory to a third party, which notice
shall include the name of the purchaser of the inventory, the inventory proposed
to be sold, the purchase price thereof and the proposed date of purchase.
Acquiror shall have two business days to notify the Company in writing that it
is exercising its right of first refusal by matching the proposed offer on all
terms including timing of the purchase.
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ARTICLE VI
INDEMNIFICATION
6. Indemnification
6.1 Indemnification by the Company. Subject to Section 6.2 below, the
Company hereby agrees to defend and indemnify and hold Acquiror, its affiliates,
officers, agents, employees and directors harmless from, against and in respect
of any and all liabilities, losses, costs, payments, damages, claims,
obligations, expenses (including judgments and settlements, subject to Section
6.6, and reasonable attorney's fees and out of pocket costs) (collectively, the
"Claims") resulting from or arising out of or in connection with (i) any breach
by the Company of any representation, warranty, covenants, or agreement of the
Company set forth in this Agreement, (ii) the failure to comply with any
applicable bulk sales or transfer law pursuant to Section 5.3 hereunder, or
(iii) all Excluded Liabilities.
6.2 Indemnity Limits; Caps. Notwithstanding Section 6.1 hereof,
Acquiror shall be entitled to indemnification hereunder (i) only when any Claim,
individually or the aggregate of all Claims exceeds $10,000, (ii) only as to the
amount by which the aggregate of all Claims exceeds $10,000 and (iii) only to
the extent that the aggregate of all Claims paid pursuant hereto does not exceed
$1,500,000; provided, however, subsections (i), (ii) and (iii) shall not be
applicable to Claims directly related to Excluded Liabilities.
6.3 Acquiror's Indemnification. Subject to Section 6.4 below, Acquiror
hereby agrees to defend and indemnify and hold the Company, its affiliates,
officers, agents, employees and directors harmless from, against and in respect
of any and all Claims resulting from or arising out of or in connection with any
breach by Acquiror of any representation, warranty, covenant or agreement set
forth in this Agreement.
6.4 Acquiror's Indemnity Limits. Notwithstanding Section 6.3 hereof,
the Company shall be entitled to indemnification hereunder (i) only when any
Claim or the aggregate of all Claims exceeds $10,000, (ii) only as to the amount
by which the aggregate of all Claims exceeds $10,000 and (iii) only to the
extent that the aggregate of all Claims paid pursuant hereto does not exceed
$1,500,000.
6.5 Cure. The party seeking indemnification (the "Indemnitee") will
give the alleged breaching party (the "Indemnitor") written notice with respect
to any Claim for which the Indemnitee is seeking indemnification hereunder
("Notice"). The Indemnitor will have 30 days to cure any alleged breach or
non-performance to the extent such alleged breach or non-performance is
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susceptible to cure; provided, however, Indemnitor will have only ten business
days to cure a payment default.
6.6 Procedure. Upon receipt of the Notice, the Indemnitor shall assume
the defense of the matter giving rise to the indemnification claim through
counsel of its choice reasonably acceptable to the Indemnitee. The Indemnitee
will have the right, at its own expense, to employ counsel to represent it. If
the Indemnitor fails or refuses to undertake the defense within 60 days (or such
shorter period if circumstances so dictate) after receiving the Notice, the
Indemnitee will have the right to assume the defense of such matter on behalf of
and for the account of the Indemnitor; provided, however, that unless the
Indemnitor has refused to undertake the defense, the Indemnitee will not settle
any claim without the prior written consent of the Indemnitor, which consent may
not be unreasonably withheld or delayed.
6.7 Treatment. The parties hereto agree that any payment under this
Article VI shall be treated as a reduction of the Purchase Price for all
purposes, including Federal, state and local tax as well as financial accounting
purposes.
ARTICLE VII
CONDITIONS PRECEDENT
7. Conditions Precedent
7.1 Conditions Precedent to Obligations of the Company. Each and every
obligation of the Company under this Agreement to be performed on or before the
Closing shall be subject to the satisfaction, on or before the Closing, of each
of the following conditions, unless waived in writing by the Company:
7.1.1 Representations and Warranties True. The representations
and warranties of Acquiror contained herein shall be in all material respects
true and accurate as of the date when made and at and as of the Closing as
though such representations and warranties were made at and as of such date,
except to the extent that any such representations and warranties shall be
incorrect as a result of actions which are permitted hereby and which do not
adversely affect Acquiror's ability to perform its obligations hereunder.
7.1.2 Performance. Acquiror shall have performed and complied
with all covenants, agreements, obligations and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
7.1.3 No Injunctions or Restraints. No action or proceeding
shall be threatened, or pending, and no temporary
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restraining order or preliminary or permanent injunction of any court or
administrative agency of competent jurisdiction prohibiting, restraining or
invalidating the purchase and sale of the Acquired Assets shall be in effect.
7.1.4 Transaction Documents. All instruments of conveyance
described in Section 2.3 hereof to be executed and delivered by the Acquiror
shall have been so executed and delivered.
7.1.5 Certificates. Acquiror shall have furnished to the
Company a certificate of an officer certifying compliance with the conditions
set forth in this Article VII.
7.1.6 Supporting Documents. On or prior to the Closing Date,
the Company and its counsel shall have received copies of the following
supporting documents: (i) a true and complete copy, certified by the Secretary
of the Acquiror, of the resolutions duly and validly adopted by the Board of
Directors of the Acquiror, evidencing its authorization of the execution of this
Agreement and the consummation of the transactions contemplated hereby; (ii) a
certificate from the Secretary of the Acquiror, certifying the names and
signatures of the officers of the Acquiror authorized to sign this Agreement and
the other documents to be delivered pursuant hereto; (iii) a copy of (x) the
Certificate of Incorporation of the Acquiror and all amendments thereto, as of a
date not earlier than ten business days prior to the Closing Date, and
accompanied by a certificate of the Secretary of the Acquiror dated as of the
Closing Date, stating that no amendments have been made to the Certificate of
Incorporation since the date so certified, and (y) the By-laws of the Acquiror,
certified by the Secretary of the Acquiror as of the Closing Date; (iv) a Due
Incorporation and Good Standing Certificate for the Acquiror from the Secretary
of State of Delaware dated as of a date not earlier than ten business days prior
to the Closing Date.
7.2 Conditions Precedent to Obligations of the Acquiror. Each and every
obligation of the Acquiror under this Agreement to be performed on or before the
Closing shall be subject to the satisfaction, on or before the Closing, of each
of the following conditions, unless waived in writing by Acquiror:
7.2.1 Representations and Warranties True. The representations
and warranties of the Company contained herein shall be in all material respects
true and accurate as of the date when made and at and as of the Closing as
though such representations and warranties were made at and as of such date,
except to the extent that any such representations and warranties shall be
incorrect as a result of actions which are permitted hereby and which do not
adversely affect the Company's ability to perform its obligations hereunder.
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7.2.2 Performance. The Company shall have performed and
complied with all covenants, agreements, obligations and conditions required by
this Agreement to be performed on or complied with by them on or prior to the
Closing.
7.2.3 No Injunctions or Restraints. No action or proceeding
shall be threatened or pending, and no temporary restraining order or
preliminary or permanent injunction of any court or administrative agency of
competent jurisdiction prohibiting, restraining or invalidating the purchase and
sale of the Acquired Assets shall be in effect.
7.2.4 Transaction Documents. All instruments of conveyance
described in Section 2.3 hereof to be executed and delivered by the Company
shall have been so executed and delivered.
7.2.5 Certificates. The Company shall have furnished to
Acquiror a certificate of an officer certifying compliance with the conditions
set forth in this Article VII.
7.2.6 WDCI Agreement. Simultaneous with the Closing, Acquiror
shall have entered into a letter agreement with The Xxxx Disney Catalog, Inc.
("WDCI"), substantially in the form of Exhibit B hereto, regarding The Disney
Catalog customer list.
7.2.7 Other Agreements. Simultaneous with the Closing, The
Xxxx Disney Company shall execute the Form of Comfort Letter attached hereto as
Exhibit D, the company shall execute the Form of Assignment of the Regal
Agreement attached hereto as Exhibit G and the Company shall deliver the list of
Customer Liabilities pursuant to Section 5.5.3 hereof.
7.2.8 Supporting Documents. On or prior to the Closing Date,
the Acquiror and its counsel shall have received copies of the following
supporting documents: (i) a true and complete copy, certified by the Secretary
of the Company, of the resolutions duly and validly adopted by the Board of
Directors of the Company, evidencing its authorization of the execution of this
Agreement; and the consummation of the transactions contemplated hereby; (ii) a
certificate from the Secretary of the Company, certifying the names and
signatures of the officers of the company authorized to sign this Agreement and
the other documents to be delivered pursuant hereto; (iii) a copy of (x) the
Certificate of Incorporation of the Company and all amendments thereto, as of a
date not earlier than ten business days prior to the Closing Date, and
accompanied by a certificate of the Secretary of the Company dated as of the
Closing Date, stating that no amendments have been made to the Certificate of
Incorporation since the date so certified, and (y) the By-laws of the Company,
certified by the Secretary of the Company as of the Closing Date; (iv) a Due
incorporation and Good Standing Certificate for the Company from
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the Secretary of State of Delaware dated as of a date not earlier than ten
business days prior to the Closing Date.
ARTICLE VIII
TERMINATION AND AMENDMENT
8. Termination
8.1 Events of Termination. This Agreement may be terminated by written
notice given by either the Company or Acquiror to the other as follows:
8.1.1 at the election of the Company or Acquiror if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their best
efforts to lift), which permanently restrains, enjoins or otherwise prohibits
the transactions contemplated hereby; or
8.1.2 at any time on or prior to the Closing, by mutual
written consent of the Company and Acquiror; or
8.1.3 by Acquiror, if the Company materially breaches its
obligations under this Agreement or if any event occurs (except for an event
caused by the Acquiror) which would render impossible the satisfaction of one or
more conditions to the obligations of Acquiror to consummate the transactions
contemplated by this Agreement; or
8.1.4 by the Company, if Acquiror materially breaches its
obligations under this Agreement or if any event occurs (except for an event
caused by the Company) which would render impossible the satisfaction of one or
more conditions to the obligations of the Company to consummate the transactions
contemplated by this Agreement.
8.2 Effect of Termination. In the event of termination of this
Agreement in accordance with Section 8.1 hereof, this Agreement shall forthwith
become void and have no effect, except that Sections 2.5 (Return of Signing
Payment), 5.6 (Press Releases) and this 8.2 hereof shall survive termination of
this Agreement.
8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the Company and Acquiror.
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ARTICLE IX
MISCELLANEOUS
9. Miscellaneous Provisions
9.1 Survival of Representations and Warranties. The representation and
warranties contained in this Agreement or in any other instrument delivered in
connection herewith shall survive the Closing for a period of one year from the
Closing Date. All covenants and agreements in this Agreement will survive the
Closing in accordance with their respective terms and conditions.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (i) when delivered personally or by documented
overnight courier or (ii) upon return of the receipt after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
if to the Company, to:
Childcraft Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxx, President
with a copy to:
The Xxxx Disney Company
000 Xxxxx Xxxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx, Senior Counsel
if to Acquiror, to:
Fulcrum Direct, Inc.
0000 Xxxxxxx Xxx X.X.
Xxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx, President and Chief
Operating Officer
9.3 Table of Contents; Headings. The table of contents and the heading
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
9.4 Severability. If any provision of this Agreement or the application
of any such provision shall be held invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect
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any other provision hereof. In lieu of any such invalid, illegal or
unenforceable provision, the parties hereto intend that there shall be added as
part of this Agreement a provision as similar in terms to such invalid, illegal
or unenforceable provision as may be possible and be valid, legal and
enforceable.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
9.6 Entire Agreement. This Agreement (including agreements incorporated
herein) and the Exhibits hereto constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of law.
9.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Neither this Agreement nor any of the rights, interest or obligations hereunder
shall be assigned or delegated by any of the parties hereto without the prior
written consent of the other parties, except for assignment to an affiliate of
the assigning party.
9.9 No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns.
9.10 Expenses. Except as otherwise specifically provided herein and
regardless of whether the closing occurs, each party to this Agreement shall
bear and pay its own costs and expenses in connection with the preparation,
execution and delivery of this Agreement and the transactions contemplated
hereby, including all legal, accounting, broker and finder fees.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHILDCRAFT, INC.
By: /s/ XXXXXXX XXXX
---------------------------
Name: Xxxxxxx Xxxx
Title: President
FULCRUM DIRECT, INC.
By: /s/ XXXXX X. XXXXXX
---------------------------
Name: Xxxxx X. Xxxxxx
Title: President and Chief
Operating Officer
EXHIBITS FOLLOW THIS PAGE
